By Ronald A. Fatoullah, Esq. and Debby Rosenfeld, Esq.
{5:37 minutes to read} As trusts, estates and elder care attorneys, our practice involves meeting with individuals and couples and, based on a lengthy intake, coming up with a comprehensive plan that fits the specific needs of the client. Very often, clients will come to our office with their own preconceived notions of the documents they will need in order to effectuate their estate plans. Many times the clients are very much on target. However, in many instances, individuals do not necessarily know what the best plan is, and the consultation we conduct is extremely elucidating and educational. The following are some of the most commonly asked questions that are posed to us as well as the answers:
1. What is the difference between a will and a lifetime trust?
A will is a document that articulates how a specific person's (the testator's) assets are distributed upon his or her death. A will govern's those assets remaining in the person's name alone at the time of death. The will does not go into effect until the Testator dies (at such point the Testator becomes the decedent), and in order for the testator's wishes to be carried out, the will must be admitted to probate. When a will is probated, the person designated to carry out the decedent's wishes (the executor) typically hires an attorney to handle the probate. The probate process involves "proving" the will and is handled in the Surrogate's Court located in the county in which the decedent lived.
Unlike a will, a trust generally goes into effect as soon as it is signed by the individual who creates the trust (the grantor) and the individual who will be managing the trust's assets (the trustee). This is an "inter-vivos" trust, which is created during the lifetime of the grantor. Like the will, the trust describes how the grantor's assets should be distributed upon the grantor's death. However, once the assets are transferred by the grantor to the trust, i.e., during the grantor's lifetime, the trust's provisions will govern how the assets are managed. For example, if the grantor transfers several bank accounts to a trust, the provisions of the trust will now determine how the accounts are treated. The terms of the trust may indicate that only the income from the accounts will be paid to the grantor, with the balance remaining in the trust. If all of an individual's assets are transferred to the trust during the individual's lifetime, probate of one's will can be avoided because there will be nothing remaining in the person's individual name.
2. When should one choose a trust over a will as part of one's estate plan?
The phrase "probate process" sometimes has negative connotations. People envision the process as lengthy and costly and want to do anything to avoid it. As indicated, when a person with a properly executed will dies with assets in his name alone, the probate process must be initiated in order for the person's heirs to access these assets. Part of the process involves contacting any person who would have inherited from the decedent's estate had there been no will. Such person is referred to as a distributee. The rules governing these distributions are referred to as the laws of intestacy. For example, in New York State, if a man dies leaving a wife and children and has no will, the laws of intestacy dictate that his surviving spouse will inherit the first $50,000 of his estate and the balance of the estate will be divided between the spouse and the children (half to the spouse and half to the children). If a widow dies leaving four children and no will, the four children will each inherit equal shares.
The probate process is often straightforward and uncomplicated and should only be avoided when certain criteria are met. For example, if someone has four children but wishes to disinherit one of them, a trust is probably a more optimal vehicle to use. The disinherited child would have to receive notification of the probate and could cause a tremendous delay in the probate process. When a will contest is anticipated, a trust is the planning vehicle of choice. The same would be true for a distributee who cannot be located. A trust can also be challenged, but in the context of a will contest, each distributee is given a roadmap as to how to challenge the will. Conversely, the distributions from a trust do not have to be publicized. Further, if an individual owns real property in more than one state, ancillary probate must be initiated in every state where the property is located. In order to reduce the expense and time constraints, transferring the real property to a revocable trust during the person's lifetime makes more sense.
3. My father passed away, but I have a power of attorney authorizing me to act on his behalf; can I use it?
A power of attorney is a document by which the person signing the form (the principal) authorizes another person or persons (the agent) to act on his behalf with respect to financial matters. While a power of attorney is a crucial document to have because it ensures that the principal's financial affairs can continue uninterrupted by the agent if the principal becomes incapacitated, it completely terminates upon the death of the principal. Once the principal dies, the power of attorney can no longer be used by the agent.
Each question posed by a client leads to a myriad of other inquiries, and all clients come with their own specific facts and circumstances. In a later publication, we will address additional commonly asked questions.
Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Debby Rosenfeld, Esq. is a senior staff attorney at the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.
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