The 6 Essential Steps to Estate Planning in New York

Estate planning is crucial for ensuring that your assets are distributed according to your wishes after your death, minimizing taxes, and protecting your loved ones from legal complications. The process involves more than just drafting a will; it includes various legal tools to safeguard your financial legacy and healthcare preferences. In New York, estate planning requires a thoughtful approach tailored to state laws. Below are six essential steps to estate planning in New York, explained in detail.

1. Inventory Your Assets and Debts

The first step in estate planning is taking stock of what you own and what you owe. This comprehensive list should include:

• Real estate: Homes, land, or any other property holdings.
• Bank accounts: Checking, savings, and any certificates of deposit.
• Investments: Stocks, bonds, mutual funds, and retirement accounts such as IRAs or 401(k)s.
• Personal property: Jewelry, cars, art, or collectibles.
• Life insurance: Policies and potential death benefits.
• Business interests: If you own or have an interest in a business, outline how you wish it to be managed or transferred.
• Debts: Mortgage balances, personal loans, credit card debts, or any other liabilities.

This inventory serves as the foundation for your estate plan. By understanding the full scope of your assets and liabilities, you can make more informed decisions about how to distribute your wealth. Additionally, this inventory helps your executor or trustee when they are tasked with settling your estate.

2. Create a Will and/or Trust

Creating a Last Will and Testament is one of the most essential steps in estate planning. A will outlines how your assets will be distributed after your death and appoints an executor to oversee the process. In New York, wills must be in writing, signed by the testator (you), and witnessed by at least two individuals.

For more complex estates, or if you wish to avoid probate court, a Revocable Living Trust might be a better option. With a living trust, you can place your assets into the trust during your lifetime, and they will be managed by a trustee for your benefit. Upon your death, the trust assets pass directly to your beneficiaries without going through probate.

A Will is still necessary even if you establish a trust, as it will cover any assets not included in the trust. New York estate law allows for the creation of various other trusts, such as irrevocable trusts for Medicaid planning or charitable trusts, depending on your goals.

3. Designate Beneficiaries and Review Accounts

Many financial assets, such as life insurance policies, retirement accounts, and certain bank accounts, allow for beneficiary designations. These designations bypass the probate process, allowing the assets to go directly to the named beneficiary upon your death. In New York, it is crucial to review and update these designations regularly, especially after major life changes like marriage, divorce, or the birth of a child.

If you don’t update your beneficiaries, an ex-spouse or estranged relative may receive these assets, regardless of what your will or trust stipulates. Be sure to coordinate your beneficiary designations with your overall estate plan to avoid contradictions.

4. Establish Powers of Attorney

To safeguard your financial and healthcare interests in case you become incapacitated, you must appoint trusted individuals to manage your affairs. This requires two primary documents in New York:

• Durable Power of Attorney (POA): This document appoints someone (an “agent”) to manage your financial affairs if you become incapacitated. In New York, a POA can be customized to grant broad or limited powers, and you must clearly specify what your agent can and cannot do on your behalf. Be aware that the power remains in effect until revoked or upon your death.
• Health Care Proxy: A healthcare proxy designates someone to make medical decisions for you if you’re unable to do so yourself. In New York, the healthcare proxy form must be signed by you in the presence of two adult witnesses. Without this document, your family may need to seek court intervention to make healthcare decisions on your behalf.

Additionally, consider executing a Living Will, which outlines your preferences regarding life-sustaining treatments, including mechanical ventilation, feeding tubes, and resuscitation. In New York, living wills are not specifically addressed by statute but are generally honored if clearly written and consistent with your healthcare proxy.

5. Plan for Taxes and Probate

New York imposes an estate tax on estates valued above $6.58 million as of 2024. If your estate exceeds this threshold, proactive planning is necessary to minimize tax liabilities. Some tools to consider include:

• Gifting Strategies: You can gift up to $17,000 per recipient annually (2024 limit) without incurring federal gift taxes. These gifts reduce the overall size of your estate and help mitigate estate tax exposure.
• Irrevocable Life Insurance Trusts (ILITs): Placing life insurance in an ILIT removes the death benefit from your taxable estate, reducing your estate tax liability.

New York also has a “cliff” feature for its estate tax: If your estate exceeds 105% of the exemption amount, the entire estate becomes taxable. Therefore, it’s essential to use a combination of trusts, gifts, and other strategies to ensure your estate stays within exemption limits.

While taxes are a concern, probate is another issue to address. In New York, probate can be time-consuming and expensive, particularly for larger estates. Using trusts and proper beneficiary designations helps avoid probate, but even if you must go through probate, New York’s probate process is generally manageable with proper planning.

6. Regularly Update Your Estate Plan

Estate planning is not a “set it and forget it” endeavor. Over time, your financial situation, personal circumstances, and New York estate laws will change. It’s essential to regularly review and update your estate plan to ensure that it reflects your current wishes.

Common reasons to update an estate plan include:

• Marriage or divorce
• Birth of children or grandchildren
• Significant changes in your financial situation
• Acquisition or sale of real estate
• Changes in tax laws or estate planning laws

New York law also stipulates specific requirements for amending or revoking estate planning documents. For example, you cannot simply handwrite changes on your will; instead, you must execute a codicil with the same formalities required for the original will.