It has been said that the only two certainties in life are death and taxes. It’s hard to argue with the accuracy of this statement most often credited to the late great
Benjamin Franklin. However, while we can agree that “no one gets out of here alive” as my colleague Harry Miller often says, the impact that taxes may have on us is often directly correlated to the amount of planning we do to minimize it.
For example, it’s not uncommon to read stories about how the rich are able to use loop holes or tax shelters to minimize taxes paid. I don’t mean tax evasion. I mean tax planning. We all, to some degree, actively plan (in advance or last second) to try to minimize taxes, maximize deductions and attempt to keep as much money from the government as possible. Just go through your local bookstore and there will be rows and rows of books about the best new ways to take advantage of the tax code or recent changes to same. Accountants even advertise about how they can maximize your tax filings each year to take advantage of the laws of the land.
While taxes seem to get the headlines when it comes to planning and saving money, planning for the other certainty in life can result in even more savings to you and your family. Unfortunately, the idea of planning for death is not as marketable as keeping Uncle Sam’s paws off your hard- earned money come tax time. For those that do actually engage in thoughtful estate planning with true estate planning experts however, the reward is well worth the effort.
When someone passes away, his or her assets need to go somewhere, to somebody. Whom it goes to and how it gets there depends on three questions:
- What did they own?
- How did they own it?
- Did they have a Will?
While the first question is relatively straightforward, the answer to the second and third can decide whether thousands of dollars are lost through what we generally call “estate administration”. An estate administration is required when someone passes away with assets that (i) did not have death beneficiaries and, (ii) were not titled in a way where it automatically goes to someone else. Examples of estate ad- ministration assets can include Real Estate, Bank Accounts, Stocks/Bonds, Valuable Personal Property, etc.
Probate is a type of estate administration and it is the proper terminology when someone dies with a Last Will & Testament. Probate, which means to prove in Latin, is technically the process of submitting the Will to a County Surrogate’s Court in order for it to be certified as the actual and final Will of the person who passed away. If the Will gets admitted to probate, its provisions will be the basis for distributing the assets belonging to one’s estate. If the Will is not admitted for probate (or if there is no Will), NY Law will determine how those assets will be distributed. In either event, the result will be a time consuming and expensive court-monitored administration of the estate. The “probate” process usually involves retaining an attorney and submitting to Court about a dozen documents ranging from the original copy of the Will (if there was a will) to death certificates, petitions, waivers, citations, affidavits and so on. The Courts require that any interest- ed parties to the estate (those who either have a financial stake in the Will being presented or would have a financial stake in the estate if there was no Will) be involved in the Probate with their involvement based on the nature of their prospective interest.
The first part of an estate administration is figuring out whether there is a Will or not, whether it was signed properly and whether there are any objections to the document. The goal of this first part is to figure out where assets will end up eventually. The second part of the estate administration involves the active administration of the assets, dealing with estate creditors and eventually disbursing money. So what is the big deal about estate administrations and probate?
For one, the court filing fees in an estate administration can be as much as $1,250. For another, attorneys are not known to be cheap, and even when there is what we consider a cut and dry, easy-peasy estate where there is no dispute of the Will, everyone gets along and there are no delays, the estate administration will take about a year. A little amount of work each month for 12 months leads to sizable legal fees. Estate Administrations cost thousands of dollars and that is before considering estate creditors including, when applicable, Medicaid liens, as well as giving those family members who did not agree with your estate plan a venue and opportunity to contest the Will in hopes of getting more money from your estate.
Put simply, a Will should not be the mechanism that gets your assets to your beneficiaries. Not only is it inefficient as discussed above but there are so many better alternatives. I am partial to using Trusts to estate plan, not only because of the ability to avoid costly and time consuming estate ad- ministrations but also because, with the right trust, we can provide a plan to conserve assets as clients age and need long term care. In fact, it is not uncommon to create estate plans that save clients hundreds of thousands of dollars.
Now find a tax deduction that does that!
If you don’t have an estate plan of your own, create one. If you have a plan, fine-tune it. Realize that an estate plan does not end with a Will and that while accountants can help you save money during your life, estate planning attorneys can save you money during and after your life.