Duet of New York City has provided support to hundreds of older adults and their families in the past decade. From our firsthand experience, we know how important it can be to establish clear decision-making capabilities in matters of “health and wealth”. We all live with the possibility of needing someone else to make important decisions on our behalf, whether due to a condition such as Alzheimer’s disease that affects decision-making or any number of events that could render us unable to advocate for ourselves. Thus, you may want to consider planning for these possibilities well in advance.
While estate planning can prove very important, it is also fraught with many considerations and a need to understand the pertinent laws. Therefore, it is wise to obtain the counsel of a knowledgeable attorney who can advise you on your options and help you to draft important legal documents. This month, we are lucky to have the insights of Britt Burner, Esq., a seasoned attorney in the field of estate planning and elder law. Britt is a partner at Burner Law Group, P.C., one of the leading law firms on Long Island and in New York City specializing in these matters. In the following article, Britt is going to help us demystify this often-complex topic.
Planning for our later years and after death can be a difficult topic to tackle, but it is so crucial. Those who plan are taking steps to ensure that their own wishes are followed and needs are met, while also creating clear instructions for their agents and heirs. These instructions come in the form of documents including Power of Attorney, Health Care Proxy, Living Will, MOLST, Last Will and Testament, and possibly a Trust.
Let’s first take a look at the documents that will affect decisions made about our health care and treatment decisions during life. This includes the Health Care Proxy, Living Will, and Do Not Resuscitate (DNR) documents.
A health care proxy is a document that states who will make medical decisions if you lack the mental capacity to make them on your own. This document is often created in advance of needing it. Some choose to sign a health care proxy when they are creating their estate planning documents, while others are prompted to sign such a document when they are going into the hospital for a procedure. A lack of mental capacity can be temporary, for example if someone is under anesthesia, or more of a long-term loss of capacity from dementia or some other cognitive impairment.
Choosing a health care agent can be difficult. The best health care agent is someone who knows your wishes and who you believe will act as you would, making the choices you would make. Remember, this person is substituting their judgment for your own.
While the health care proxy document may only name one person to act on your behalf, other successors can be listed. If the agent is expected to make end of life decisions, the document should state this and indicate that your agent is aware of your wishes regarding artificial nutrition and hydration.
A living will is a companion document to the health care proxy and is intended to more specifically direct the substituted decision-maker in their actions. The living will refers to a time when you are unable to speak for yourself and are in an irreversible state, with no reasonable expectation of recovery. The living will often directs an agent to withhold or withdraw treatments if recovery is not expected. The document can list specific treatments to be withheld, such as cardiopulmonary resuscitation, dialysis, antibiotics, etc.
Keep in mind that, in certain circumstances, the living will can also direct the opposite: that someone be kept alive by all measures necessary.
Beyond the health care proxy and living will, which are often created well in advance, certain directives can be created with your treating physician. Do Not Resuscitate (“DNR”) and Do Not Intubate (“DNI”) documents are medical orders that are signed by a physician. A DNR refers specifically to cardio-pulmonary resuscitation. This document can be completed at the hospital, rehab or nursing facility bedside or can be done as a non-hospital DNR/DNI for those who remain in their home.
Another document completed with the physician is a Medical Orders for Life Sustaining Treatment form (or “MOLST”, as it is known in New York). Unlike the health care proxy and living will, this document is intended for those that may die within one year and specifically intended for those that want to avoid life-sustaining measures. The MOLST is signed by both the physician and patient, or the patient’s designated agent. The MOLST can include DNR/DNI orders but is more comprehensive. The MOLST includes more specific treatment guidelines, including when to transport a patient to the hospital, in what circumstances antibiotics or artificial nutrition/hydration should be used or withheld, etc.
The other major aspect of estate planning is the creation of documents that will assign important financial decision-making authority to someone else, as well as provide clear instructions for the inheritance of your assets after death. This includes the Power of Attorney, Last Will & Testament, and Trusts.
A power of attorney is a legal document that names another person(s) to step into your shoes to handle the business of your life. The person signing the document and giving the power is the “principal” and the person they are naming to act on their behalf is the “agent.” A power of attorney is only in effect while the principal is living, whereas other documents or agreements will assign rights to others after death.
It is important to know that not all powers of attorney are created equal. An agent is only authorized to act if the power is specifically listed in the document. An agent may be able to access bank accounts, pay bills, sign contracts, hire household staff, handle health insurance claims, apply for government benefits, etc. Think carefully about what powers you may want to assign to someone else, and make sure they are clearly articulated in the document. Consider an example: among the standard powers granted by a power of attorney is the ability to engage in “real estate transactions”; however, it may become necessary for the power of attorney to include a modification power giving the agent authority over a specific property, naming the address of the house, coop, or condominium that you are allowing your agent to transfer or sell.
The law creating the New York State Power of Attorney was amended effective June 13, 2021. Among other things, the law created a new standard form for the creation of the document.
In its simplest form, the document does not include many of the powers that may be necessary in the future, especially in cases of incapacity. One such example relates to gifts and transfers – it is necessary to list in the document itself what powers relating to transfers can be bestowed on the agent. The additional powers are now needed for any gifts over $5,000.
Other changes to the law now allow for a third party to sign the power of attorney document on behalf of an individual that is physically unable to do so, provided that the individual has the requisite mental capacity and is present to direct the person signing on their behalf. This is a significant win for the physical disability community. The new law also puts in place provisions to ensure the power of attorney document is not unreasonably rejected by third parties, e.g. banking institutions, title companies, etc. There is now a process in place, with specific time periods prescribed, for a third party to provide notification that it is rejecting the authority of an agent under a validly signed power of attorney and a process for the principal and agent to defend their position.
A power of attorney signed before June 13, 2021 is still valid, although it should be reviewed by a knowledgeable attorney to be sure it contains all the potentially necessary powers.
A last will & testament (or “will”) is a document that states how you want your assets to be handled after your death. In that document, you nominate an executor, the person who will oversee your estate, and list the beneficiary(ies) of your assets. You can list a set dollar amount or certain items to a named beneficiary – this is called a specific bequest. The document will also list “residuary beneficiaries” that will take the remainder of your estate in set percentages or shares.
Your will has to go through the court process of “probate” after your death. Probate is the legal process in which a will is reviewed to determine whether it is valid and authentic. Without probate, the will is just a list of your wishes and intentions. The process is what validates the document, and results in an executor being formally appointed by the court with the ability to collect and distribute your assets to all intended individuals.
Probate requires that the deceased person’s legal next of kin be notified that the will was admitted to probate. If the next of kin are being disinherited or are difficult to locate, probate will likely be a timely and costly process worth avoiding. Owning real property in multiple states also presents issues because probate would be required in each of the states where the property is located.
Joint ownership of property will avoid probate, as will naming a beneficiary on an asset. The other way to avoid probate is to create a trust while living and transfer assets to the trust so nothing remains in your sole name.
First and foremost, a trust is a document. Once signed, the document creates a legal entity, an “alter ego” of the creator of the trust, which can then own things. Trusts can own real property, brokerage accounts, CDs, and other classes of assets. The trust document defines the rules by which the various trust assets must be managed. Similar to a will, the trust can list who will handle trust assets in the event of incapacity or upon death, and also list how trust assets will be distributed at death. The trust lays out the rules of the game, including the powers of the trustees.
There are many types of trusts. If avoiding the court process of probate after death is the only goal, a Revocable Living Trust will achieve that goal. In this trust, the creator can remain in control as trustee and can retain the powers to manipulate trust assets just as they could before creating the trust. While the creator is alive, an income tax return does not have to be filed for the Revocable Living Trust, as all income is reported directly to the creator.
In certain circumstances, it may be advisable to create an Irrevocable Trust. In an Irrevocable Trust, the creator is restricted in some manner regarding the control and use of assets to achieve certain protections, such as estate tax reduction or eligibility for government benefits. In New York State, if a person dies with less than $6.11m in assets (in 2022) , no estate taxes will be charged. However, once that exemption is surpassed by 105%, the exemption disappears and a large estate tax will be imposed. Several types of irrevocable trusts can be used to plan to reduce or eliminate this tax.
One such type of trust is an irrevocable life insurance trust (“ILIT”), which can be used to remove the death benefit of life insurance policies from the estate. It is a common misconception that life insurance is not taxable at death. On the contrary, a life insurance policy death benefit is added to the full amount of the estate when determining if estate taxes are owed. Making the ILIT the owner of the life insurance will remove this amount from the gross estate.
Another common trust is an Irrevocable Trust for Medicaid asset-protection purposes. Medicaid is a type of medical insurance that can be used to assist with payment of long-term care costs if someone is financially eligible. For New Yorkers over 65 years old who qualify, Medicaid becomes a secondary insurance to Medicare and provides additional services, such as assistance with payment of nursing home or in-home care.
Since qualification for Medicaid is based on an individual’s income levels and wealth, an irrevocable trust can be a valuable tool to remove assets from the name of the applicant so they can gain eligibility. In 2022, a New York Medicaid applicant can have $16,800 in assets, and certain other exempt assets, such as tax deferred retirement account. This means that an applicant will not be disqualified if they have an IRA, 401k, 403(b) or other tax deferred retirement account that exceeds $16,800. (Note that a recent change in the law will raise the Medicaid income and assets standards in 2023).
A trust can also provide for protection of your assets. Since Medicaid can only recover or “claw back” assets from the probate estate after death, placing assets in Trust will avoid a Medicaid lien. When created for this purpose, the trust document often allows the creator to receive all income from trust assets, but under no circumstance may principal be used for the benefit of the creator. The creator can also maintain the power to change the trustees and after-death beneficiaries.
If the trust allows the applicant to receive trust income, this will be paid out to the applicant and considered as part of the Medicaid application, as well. While there are income limits for the Medicaid program, applicants with excess income should seek advice on how to utilize the program and protect their income.
Placing a residence in trust is often a good idea to ease administration at death.
When a primary residence is transferred to the trust, the creator can maintain the exclusive right to reside in the property and remains responsible for all maintenance, utilities, upkeep, etc.
If properly drafted as a Grantor Trust, real property taxes will not be negatively impacted if the trust is revocable or a Medicaid asset protection trust. Also, the creator can still receive a $250,000 ($500,000 for a couple) exemption on capital gains tax if the residence is sold during the creator’s life.
The benefits of placing a residence in trust can be even more crucial with a cooperative apartment, or “Co-Op”, as New Yorkers would say. With the delays of the probate process, a cooperative often sits vacant during that time without the nominated executors or beneficiaries having any access. Monthly maintenance payments continue to be due and, while that bill is mounting, the apartment cannot be cleaned out or sold.
As you can see, there are many considerations when planning an estate. Receiving legal advice in the organization of one’s estate and the drafting of the relevant documents is imperative. An estate planning attorney can guide you through the decisions that will ultimately lead to how assets are handled in incapacity and at death. Estate planning is not “one and done.” A plan that is appropriate in younger years will most certainly require adjustments as time goes on.
Attorney Advertising: Burner Law Group, P.C. is an Elder Law firm based in New York. None of the information contained can be deemed to apply in other states, nor may it be interpreted in any way as an attempt by the law firm of Burner Law Group, P.C. to practice law in any state other than New York. Information and data received by the readers are not intended to provide legal advice nor does it establish an attorney- client relationship. Legal advice can be obtained through a finalized consultation with our attorneys according to our firm procedure.