On May 1st of this year, my father, Robert, died after suffering a massive heart attack. With my mother predeceasing him two years prior, I was left with the unenviable task of administering their collective estates for the benefit myself and my brother.
During the last years of their lives, my parents and I spoke numerous times about their estate planning. My father, a non-estate planning attorney, had drafted wills and trusts for them and had executed them several years before I became an attorney. Despite the knowledge that their planning needed an update, they never got around to making the necessary changes.
Overall, their plan was effective, but several issues popped up that delayed the administration of their estate and cost the estate more in expenses and taxes than if their plan had been revised to include the following changes:
- Adding a self-proving affidavit to their wills. In New York, a will is considered valid if it is signed by the testator and two subscribing witnesses. In addition, if the witness sign a self-proving affidavit at the time the will is created, the Executor of the estate will not need to seek out the witnesses at the time of the testator’s death. Neither of my parents’ wills contained a self-proving affidavit and I was required to seek out the two witnesses to have them confirm that they had witnessed the execution of the wills. This required a trip upstate and a half day away from other matters.
- Refrain from using unclear provisions and dispositions. A common cause of estate litigation is the use of unclear or complicated language. Using such language can result in conflict between beneficiaries and require a court interpretation of the will to confirm which interpretation was correct.
My parents’ wills contained provisions regarding my brother’s competency in the event that a cure or treatment was found to his condition. The language that was used made it unclear who had to raise the issue of competency, how it would be determined and whether the estate administration could continue before such issues were determined.
3. Make lifetime gifts to persons with disabilities utilizing a Supplemental Needs Trust. When a disabled person or minor is an interested person in an estate administration, the Court may appoint a Guardian ad Litem. A Guardian ad Litem is a representative for interested parties who cannot represent themselves and whose interests may be in conflict with their natural guardians or parents. Using a lifetime gifting mechanism such as a Supplemental Needs Trust can reduce the likelihood that a Guardian ad Litem will be appointed and this can save the estate the cost of the Guardian ad Litem’s fees. Because my brother did receive bequests under my parents’ wills, a Guardian ad Litem was appointed.
4. If you own personal and real property in multiple jurisdictions consider the use of a revocable trust to avoid ancillary estate administration. When an individual resides in one jurisdiction, but owns real or personal property situated in another jurisdiction, an ancillary estate administration proceeding is required in the secondary jurisdiction to give an estate the right to transfer said property.
My father bought a home in Florida following my mother’s death and owned it in his name at the time of his death. If he had drafted a revocable trust and properly funding it prior to his death, his estate would not have had to have a separate estate administration in Florida
5. Consider changing your domicile from a high estate tax state to allow or no estate tax state. For many New Yorkers who own homes in New York and in another state, changing their domicile can be a powerful tool to protect their assets from taxation. States such as Arizona, Florida and other popular retirement destinations do not have a state specific estate tax. With the increase in the federal estate tax exemption to $5.25 million per individual ($10.5 million per married couple), eliminating state estate taxes can eliminate all estate taxes.
My father chose to retain his New York domicile and residency despite spending significant time in Florida. This decision resulted in an estate tax liability that would not exist if he had domiciled in Florida.
As I mentioned earlier, my parents’ plan worked well comparative to many other plans. Even so and even with my years of experience in the field, the estate administration process has not been easy. The difficult times that follow the death of a loved one can be significantly eased by properly planning ahead of time and working with a qualified professional to guide you through the administration process.
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