Whatever your age, income, or family circumstances, having a good estate plan ensures that your future financial independence and health care are protected; that you’re prepared for an event of physical or mental incapacity or death; and that your inheritance is protected against estate taxes and creditors, and is distributed according to your wishes.
But an estate plan that only includes you may not be enough to secure your legacy. To optimally preserve and transfer your wealth and assets to your children and grandchildren, the family should create a multigenerational estate plan together.
Planning vehicles range from simple to complex, but here are 10 ways to make sure all your loved ones are taken care of:
- Take an inventory of all your assets
Some assets are not be distributed according to your Last Will and Testament. IRAs, 401(k)s, 403(b)s and other qualified retirement plans, as well as life insurance and annuities, will pass according to the most recent beneficiary designation that you signed, even if your Will is dated later. Make sure that you review these assets when executing your Will, so that the overall distribution of your assets is consistent with your plan.
- Consider assets that pass automatically at death regardless of your Will
Similarly, if you have a joint bank account, real estate, or securities held jointly with someone else, and they have right of survivorship, those assets will pass to the surviving co-owner. Likewise, some qualified retirement plans must be left to your spouse, unless they consent to your designation of other beneficiaries.
- Review old trust agreements, deeds, and beneficiary designations
Make sure that your plan takes all documents into account. Your life insurance policy, for example, might still have your ex-wife listed as beneficiary.
- Consider spousal inheritance laws
Under New York State law, spouses cannot be disinherited. A surviving spouse must be left a portion of the deceased spouse’s estate, even if they’re separated. A prenuptial agreement might affect those rights, as well as a postnuptial (which can be created at any time during a marriage). Other considerations include legal obligations to a former spouse.
- If assets might be distributed to an underage child or grandchild, include a trust
Create a trust and name an appropriate trustee to ensure funds are preserved and used properly for the benefit of children until they’re responsible enough to make decisions themselves. It also protects them from unwanted influence or misappropriation by others, such as an overbearing former spouse or an in-law.
- Anticipate and plan for special circumstances
You can’t prepare for everything, obviously, but you can and should prepare for scenarios like a beneficiary receiving government benefits, or accruing excessive debt, or developing a gambling or drug problem, or simply being irresponsible with money, or alternatively needing emergency funds from an otherwise locked trust.
- Give special attention to closely held business interests and co-ownership of real estate
Consider whether you have any agreements with your partners that will affect your family’s rights to those assets and whether those agreements need to be modified. If there are no such agreements, consider putting them in place to protect your family’s rights and to quantify what they will be entitled to receive. If you are a sole proprietor, create a business succession plan.
- If you’re in a risky line or work, protect yourself and your family
Likewise, if your profession makes you susceptible to lawsuits. You want your loved ones to receive your asset, not creditors.
- Consider creating a revocable trust to avoid probate
Certain circumstances may call for a revocable trust (meaning it can be altered or canceled by you) to help avoid probate. For instance, if you’re disinheriting someone closely related who may challenge your Will, or if your nearest relative are distant cousins or out of touch, or if you have assets located in several states. With the current delays in the probate courts, more and more people are choosing to create revocable trusts even where there are no special circumstances involved.
- If you have a larger estate, make sure to put a tax plan in place
While the federal estate tax exemption is $12,060,000, the New York State exemption is $6,110,000. Furthermore, if an estate is over the exemption, the NYS estate tax will apply to the whole estate, not just the portion over the exemption (this is known as the “estate tax cliff”). If you’re a New York resident with a larger estate, make sure to include careful tax planning as part of your estate plan (possibly using the “generation skipping transfer tax exemption”) to ensure that your assets pass to your children, grandchildren and later generations with minimal or no taxes.
Morris Sabbagh is a partner in Vishnick McGovern Milizio LLP’s Wills, Trusts, and Estates and Elder Law practices. He focuses on assisting families with the preservation of wealth and administration of estates and trusts, as well as high-net-worth individuals with preventing the dissipation of assets to taxes, creditors, and long-term care expenses. He can be reached at [email protected] and 516.437.4385 x120.
