There is a quote that aptly defines what estate planning actually is and it goes like “A will can save one’s family from being put into a quagmire pit of the legal conundrum, in case of death (which may even be untimely).” Estate planning is a procedure of transferring one’s assets to other person or persons called beneficiaries as per the desire of the former. It is done to have an assurance that after your death your property will be with your family without any legal interference. The property includes all your belongings such as cash, clothes, jewellery, cars, houses, land, insurance policies, stocks, investments and savings accounts, etc.
Apart from this, the estate planning also lets you pay the least amount of taxes on your estate and also if one has minor children, he/she can assign a guardian for them as well. So, one has to plan this ahead of time to avoid the situation that the New York courts do the same according to the Estates, Powers and Trusts Law (EPTL).
In order to avoid the same one must either makes his/her will or trust to ensure the proper management and distribution of the property. For a rich person, it is more convenient to opt to use a trust instead of will for managing his property and specifying the fate of his wealth after his death. These are also quite helpful to reduce tax at the time of death and prevent their assets from going to probate.
Estate Planning Eligibility criteria
Estate Planning can be done when a person is legally capable by age (usually 18) and should be in good physical and mental health.
Documents to be included:
It is a document that directs that to whom and how your assets will be distributed after your demise along with the name of the executor.
These are the financial plans that protect and manage your property both when you are alive and after your death avoiding the court proceedings.
Through this document, you can allow someone to manage your finance if ever required due to your ill health or other reasons.
Through this document, you can allow someone to take care of your health-related decisions if you ever are incapable of doing so.
It is a document that takes care of your wishes concerning if the life-extending medical measures are required to be taken to prolong your life in case you suffer from a terminal illness or coma.
Trust and its categorization:
Trust is an arrangement of management plans set up by a person to protect and manage his/her possessions both while living and after death. The trust is set during the lifetime of a granter so that he/she will be assured that their assets are being used in the most appropriate way as required by them. After the formation of the trust and placement of the assets are inside the trust is done, they are managed by a third party called the trustee whose responsibility is to take care of the management and the distribution of the assets among the beneficiaries after the owner’s passes away, while following the guidelines set during the formation of the trust. These trusts are categorized into two categories as described below:
The owner or the granter has the full control of the trust in the revocable type of trust. He/she has the authority to add or eliminate the beneficiaries and can modify the conditions regarding the management and distribution of the assets. The granter has also the authority of revoking the trust anytime as per his/her desire.
As the revocable trusts are fully controlled by the granter, the assets thus involved are considered to be similar to his/her own private assets. The assets are transparent to the creditor. If in case the owner is sued then the assets might be dissolved in order to compensate the judgement. Also, in case the owner passes away, the assets are subjected to both state estate taxes and federal estate taxes.
This kind of trust can be managed by the successor trustee, who is named by the owner if the owner gets mentally unstable. This also avoids probate of the property and privacy of the owner and beneficiaries.
The irrevocable trust is the one which once formed, can’t be changed, though there is some specific exclusion that can led to modification. Once placed inside this type of trust, the assets are no longer be owned by the granter, and he/she doesn’t have control over the trust after forming the same.
The main benefit of this type of trust is the protection from the state and federal estate taxes. As the assets are removed from the owner’s estate, the assets can no longer be taxed as per estate taxes at the time of his/her death as well as from the income generated by the assets.
Thus, the assets are permanently transferred to the trust and its beneficiaries. Also, the assets are shielded and hence can’t be reached by the creditors. A revocable trust can also become irrevocable if the owner dies and considering the beneficiaries the trust is divided into separate irrevocable trusts to benefit them.