Last month, we discussed real estate terms to know, and this month, we tackle estate planning terms. I’ve picked five fairly common terms, but if you haven’t had experience with estate planning before, you might not know exactly what they mean.
Power of Attorney or POA. This document appoints a person (your agent) that you authorize to handle your financial and other matters in case you cannot do so yourself due to accident, injury, or even a circumstance such as traveling and you’re out of the country. Your agent needs to be at least 18 years old and understand their obligations. You can set a successor in case your first choice is unable to take on the duty. I believe this is one of the most important documents you should have while you are alive. Your children over 18 should have one, too.
Probate: This is the legal process of validating a will and distributing assets. You might have heard “it’s tied up in probate” when someone is discussing this matter and that is because this process can take a long time. The Probate Court oversees the process and due to the complexity and/or any issues that arise, it can take months or even years for assets to be distributed.
Intestate: This means someone passes away without a valid will. The state determines how assets are distributed when this occurs. Family members will receive assets first, in New York, the surviving spouse would be first, then children, then parents, then siblings. Similarly, the Court must appoint an administrator to take charge of the estate assets and distribute them, so it may take some time for the court process to be completed.
Revocable Living Trust: This is a trust that can be altered during the grantor’s lifetime and helps avoid probate. Rather than filing a will and having someone appointed the fiduciary of the estate, the trustee automatically has the authority to distribute the assets owned by the Trust according to the terms of the Trust. Since you have complete control over the Revocable Trust, Medicaid will count a Revocable Trust as part of your assets. Along with this term would be an Irrevocable Trust, which is a Trust that cannot be altered once created (or at least not in very extreme circumstances.)The key difference is that you have no control over your assets for Medicaid purposes, so the assets are protected from clawback by Medicaid liens.
Estate Tax: This is a tax on the transfer of a deceased’s estate. These can be federal and/or state taxes. The estate tax rate for New York is graduated, meaning the tax rate increases with the estate’s value. Rates range from 3.06% to 16%. For deaths occurring in 2025, the New York State estate tax exemption is $7,160,000. Estates valued at or below this amount are exempt from New York estate tax. Right now, the lifetime exemption for Federal Estate taxation is over $14,000,000 but that law expires at the end of 2025, so depending on what Congress will do to extend or renew it remains to be seen.
Bonus word because it was mentioned above:
Grantor: This is a person, or entity that transfers or conveys real property or an interest in real property to another party. Also another name of the person who grants (transfers) property into a trust.
If you want to chat more about estate planning, reach out to us anytime.
