The Importance of Having a Will
Serving Clients in New York City and the New York Metropolitan area
Individuals should have a Will so that family and friends can be assured their wishes for the distribution of their estate will be honored. A Will is a legal document that designates who should receive your assets when you pass away. When an individual does not have a will, the estate will be distributed according to the laws of the state in which the deceased resided.
Since only the original document is legally recognized, your Will should be stored in a safe place. A fireproof box in your home is the best place. Copies may be kept for your records and distributed as you wish. A safe deposit box is not the best choice because it is sealed at the death of the owner. Be certain your family, executor, or attorney know where your original copy is stored. While wills may be amended at any time, it is wise to review them along with other valuable documents on a regular basis or when a life circumstance changes (divorce, death, births).
Important issues to consider when creating your will:
- Compile an accurate list of your assets so your Executor will have an asset inventory to help with collection of assets.
- Make a list of all the people named in the Will, and their contact information. A family tree drawing is also helpful.
- Name an executor and a successor executor to manage your estate and alert them of this appointment.
- Name a guardian for your children if they are under 18 years of age or disabled; if you don’t, the Court will choose the guardian.
- Decide whether you wish to make gifts to charities or organizations. Note these are tax deductible.
- Name alternate beneficiaries should your primary heirs die before you do. Have a Plan B.
- Your Will must be signed in front of two disinterested witnesses.
While creating a Will is not difficult, it may be a complex process if the estate is large, as tax considerations must be included. Be sure to read the documents carefully and make any necessary changes before the Will is signed. An attorney should be used to draft a Will if there are complex legal issues that need special planning such as multiple families or businesses, special health needs of your heirs, and/or gift and estate tax concerns.
Efficiently Settling an Estate
When a loved one dies, the family’s resources, both emotionally and financially, can be challenged. Our firm can help settle the estate, both fairly and equitably. The estate settlement process will often involve presenting a Will to Surrogate’s Court for approval.
This process is called Probate and will result in the court’s appointment of an r Executor to collect the deceased’s assets from banks, stock companies and other financial institutions. The Executor is awarded “Letters Testamentary”.
A court-appointed estate representative owes a duty to the estate and all the beneficiaries. Our firm will help the Executor complete the estate tasks efficiently and effectively, including informing all heirs of the estate’s status.
Settling the Estate Taxes in a Timely Efficient Way
The expression “the only thing that is certain is death and taxes” certainly applies to Estate Administration. A central part of settling an estate is to satisfy all tax liabilities of the decedent and the estate. Our firm will calculate tax payments in the most advantageous way. We will work with the family tax accountant to file the decedent’s final income tax return. In addition, we will assist the Executor in analyzing assets for potential capital gains tax implication to help in deciding whether to liquidate assets.
Finally, our firm will calculate the estate tax liability on decedent’s estate. The federal and state estate tax rules are based on legislation, and, as such, are subject to change.
The federal estate tax must be paid nine months from the date of death. New York also has an estate tax. It is separate from the federal tax exemption amount; thus New York estate tax may be due even if no federal tax is due. The New York State exemption amount is different from the federal law and is $5.93 million in 2021 and increases subject to inflation rates. Paying taxes is an important part of settling an estate; our firm’s advice and direction on the allocation of expenses could prove vital to securing the best tax outcomes.
An executor may either be an individual, often a family member, a trusted advisor or a financial institution officer, such as a bank or trust company. Attorneys often serve as Executors, but it is not required. Sometimes the two are combined and/or a bank or trust company serves as a co-executor alongside a family member.
When settling an estate, an executor performs four basic functions:
- Locates and collects assets and is responsible for the estate’s assets until they are distributed to the beneficiaries.
- Pays the decedent’s funeral expenses, debts, and estate administration expenses.
- Handles tax matters. This includes filing the decedent’s final income tax returns and paying the income taxes; filing the estate’s income tax returns and paying the estate’s income taxes; and filing the estate’s tax returns and paying the estate taxes, if any.
- Distributes the remaining assets in accordance with the terms of the will.
- Executors will be reimbursed for any expenses or costs they incur and can receive a commission set by state law.
Considerations when Choosing an Executor
Consider these qualities when choosing executor: integrity, knowledge, experience, impartiality, availability and financial responsibility.
When selecting an executor, a primary consideration should be integrity. Honesty and the ability to act impartially toward all beneficiaries is critical.
An executor’s initial task is to locate, collect, and if necessary, take physical possession of assets owned by the decedent. An executor must also protect, insure and appraise the assets. When necessary, the executor must raise the cash required to pay debts, taxes and administrative expenses.
These financial responsibilities require the executor to make an investment analysis of all assets in the estate and determine which to retain and which to sell, and how the estate’s cash needs will be met.
Much of the administrative work in handling an estate is record keeping and giving close attention to detail. An executor prepares and files the decedent’s final federal and state personal income tax returns.
For estates of descendants with assets exceeding the estate tax exemption act, an executor is responsible for filing the federal estate tax return and, depending upon the jurisdiction, a state estate or inheritance tax return. The federal estate tax is a complex return, due nine months after the date of death. Since the estate is a separate taxpayer, an executor is also required to prepare and file annual income tax returns for the estate.
Depending on the nature and value of the assets, their form of ownership and the relevant provisions of the will or trust agreement, the executor will be faced with decisions — referred to as elections — on the federal estate tax return, which could determine the amount of taxes due.
Certain decisions the executor must make, such as tax elections, have a direct financial impact on each beneficiary. Therefore, a family member or friend must be able to make these decisions impartially. In addition to having the education and training to make these decisions, an executor must have the objectivity to handle such issues without favoring one beneficiary over another. It is advised to secure professional help such as an attorney or CPA in making these decisions.
Another major consideration is the accountability and financial responsibility of the individual or entity selected to be the executor. The settlement of an estate is a full-time job for the estate administration department in a bank or trust company. By comparison, it usually must be a part-time job for an individual. It can be a time consuming venture.
The selection of an executor should not be made solely on the basis of a family relationship or years of friendship. The factors discussed above are helpful in selecting the best executor for your estate. The estate attorney can work in conjunction with the appointed executor for the efficient and successful settlement of the estate.