Top Seven Myths and Mistakes in Estate Planning

What not to do and how not to do it

After practicing law for almost twenty years, Matt Dorsey of our Trusts and Estates Department has heard and seen a lot of misinformation about estate planning.  Compiled below is his list of the top seven most common myths and mistakes in estate planning.

Number 1: If I don’t have a Will, the government will take all my money.

Dying without a Will is known as dying “intestate.”  If you die intestate, the rules of intestate succession under NY Estates Powers and Trusts Law section 4-1.1 determine which of your relatives will inherit your assets.  The rules of intestacy, however, may not be consistent with your wishes.  For example, the intestate estate of a deceased spouse is shared by the surviving spouse and his or her children, instead of all going to the surviving spouse.  To avoid this result, it is best to have a Will or Trust in place to ensure your assets are left to the proper beneficiaries.

Number 2: I have a Will, so I have nothing to worry about.

Having a Will is an important part of your estate plan, but you should remember that your Will does not necessarily dispose of all your non-probate assets.  Non-probate assets include assets that pass upon death because they are jointly held with another or are payable to a named beneficiary.  As part of your estate plan, you should review all non-probate assets to ensure that they will pass to the beneficiary that you want.  For example, you may have forgotten that the insurance policy you obtained through work is still payable to your ex-wife and that a beneficiary change to your children is now in order.

Number 3: I did my Will with a form I got from a website – it’s legal.

Using a Will “form” from the internet does not ensure its validity.  For a Will to be valid, it must be executed consistent with the legal requirements of New York law.  The Will should be witnessed by two disinterested witnesses, who were present in the room when you signed it and who saw you physically affix your name to the document.  You must also affirmatively ask the witnesses to act as witnesses.  You must also “publish” your Will by clearly stating that the document you are signing is your Last Will and Testament.  If you fail to abide by all the legal formalities of execution, your Will could later be found invalid by a court.  To ensure all these formalities are attended to properly, it is best to have an attorney oversee the execution of your Will.

Number 4:  I have my assets in a Trust so they are protected if I go to a nursing home.  

Transferring your assets to a Trust can potentially be an excellent strategy to protect them from having to be sold to pay for nursing home costs.  You have to be sure, however, that the Trust is an Irrevocable Trust properly drafted to protect your assets.  If your Trust is a Revocable Trust, which was drafted primarily to avoid probate, such a Trust provides little or no protection of your assets from nursing home costs.

Number 5:  I can handle my spouse’s financial affairs because we’re married.

In general, you and your spouse are individuals who can make financial decisions only for yourselves.  If you have joint assets, like a joint checking account, you can withdraw and deposit money from the account without the other’s permission.  Assets which you own individually, however, cannot be controlled by your spouse.  As a result, it is generally recommended that spouses have Powers of Attorney to allow them to handle financial decisions for each other.

Number 6:  I can make gifts of $10,000 per year per beneficiary and not affect my later eligibility for Medicaid.

The annual exclusion amount, which is the amount you can gift without needing to file a gift tax return, is currently $15,000 per year but used to be $10,000 per year.  This amount is irrelevant to Medicaid planning, because any gift made within five years of a Medicaid application to pay for nursing home care can potentially subject the donor to a Medicaid penalty period.   The penalty period can delay the onset of the Medicaid coverage for weeks or months.

Number 7:  My spouse passed away and I am now responsible for his debts.

Surviving spouses are generally not responsible for the debts of their deceased spouses.  One key exception would be cases where a surviving spouse affirmatively took on the obligation of the debt, i.e. in the case of a jointly held credit card.  If the deceased spouse had an individual credit card, by contrast, the surviving spouse generally has no obligation to pay back that debt.

With the advent of the internet, there is an abundance of misinformation regarding estate planning.  Unfortunately, minor mistakes can quickly become major catastrophes after a person loses their competency or passes away.    The experienced estate planning professionals at O’Connell and Aronowitz are available to work with you to ensure you have a plan consistent with your wishes.