To keep assets from disappearing or being claimed by a creditor, your estate plan should…
When someone passes it is a great tragedy for their friends and loved ones. It is also, in many instances, a beginning of a long and arduous road to settling of decedent’s estate. An estate is everything a decedent owned during their lifetime. Settling of an estate involves addressing claims by the decedent’s creditors prior to making final distributions to the heirs.
A settling of an estate through a Court is done either by Probate (decedent dying with a properly executed Last Will and Testament), or by Administration (where there is no Last Will and Testament, and thus the decedent is said to have passed away intestate).
The key concept to keep in mind is that everyone has an estate plan. Where a Client cannot afford an attorney, one may be assigned to represent them by the Court. Similarly, if a Client did not take minimal steps to provide for their estate plan (by executing a Last Will and Testament, or settling a Trust with provisions of distribution upon a Client’s death), an estate plan is provided by the State’s statutory scheme in a form of rules of intestacy. The difference is that if a Client had taken affirmative steps towards creating their own estate plan, they would be able to make their wishes known about their intended beneficiary designations. And these beneficiaries could certainly be friends, relatives, charities, and any other legal entity. Even pets get their own trusts, so that they are taken care of in the event of the owner’s untimely demise!
But rules of intestacy are stricter, and the distribution of inheritance is usually done by marriage and blood relations. Thus, if one passes without a Will or a Trust, some of their assets may go directly to those who might not have been the intended beneficiaries, if, for example, a Client only maintained good relationships with some of their children, or siblings, but not others. Also, a lifelong friend, whom decedent may have promised a valuable gift out the decedent’s estate, may end up being cut out as an intended beneficiary as they are not a blood relative.
There are two types of assets: probate and non-probate, and this holds true for both Probate and Administration proceedings. A probate asset, in general, is everything that the decedent owned during their lifetime (including fractional interests), but that cannot be described as a non-probate asset.
A non-probate asset is something the decedent owned or had interest in that would pass automatically upon one’s death, without necessity for the Court’s involvement. Some of the instances of a non-probate asset are retirement accounts, life insurance policies and property held jointly by decedent with someone else during their lifetime. A house, as an asset owned by a husband and wife as tenants by the entirety, or by two or more persons as joint tenants with right of survivorship, would pass to the surviving tenant(s) by operation of law. Retirement accounts are paid out directly to the beneficiaries designated on the policy by the owner of said policy, same as life insurance benefits.
The same type of asset may, however, be considered a probate or a non-probate asset, and thus their value may be includible into the overall value of the decedent’s estate. This depends on the type of the asset and its’ ownership. A checking account held jointly by a husband and wife would, naturally, be a non-probate asset. But the same account passing in this scenario from the second-to-die, or surviving, parent to the children would be included into the surviving parent’s estate for probate purposes. A whole life insurance policy owned by the decedent at the time of their death may also be tricky, as the built-up cash value of the policy would be includible into a decedent’s overall estate value, though the death benefit would be paid out directly to the beneficiaries.
It is important to know the value and title of each of the decedent’s assets to have a clear picture of the size of their estate for estate evaluation purposes. Estates over certain amounts are taxable by the New York State, and larger estates are taxable on both Federal and New York levels.