Legal Tip of the Week – 1/3/2017

Happy New Year! Here’s wishing you all a healthy, happy and prosperous 2017!

For our first legal tip of the year, we want to discuss the subject of Joint Wills.  Every now and then we get clients who have either downloaded a Joint Will form from the internet or want our office to design one for them & their spouses.  Generally the reasons for wanting Joint Wills may stem from a desire to save money (the cost of one Will must be less than two individual ones, right?) or to legally bind the surviving spouse from changing the Will upon the death of the first spouse.  However, Joint Wills can give rise to any number of messy complications.  For ex. probating the original Will at first death and then the same document again upon the second death can confuse many a probate clerk unfamiliar with the concept of a Joint Will and this can cause undue delay and hardship for the family trying to settle the estate quickly and expediently.  Taxation of property at second death and basis calculations could get complicated and finally, if important changes need to be made to the disposition of assets after first death even though in the best interests of all parties (and in accordance with the testator’s intent), the surviving spouse may be restricted from doing anything not within the four corners of the document.

Therefore, the preferable way to set up Wills is to create separate individual Wills for a husband and a wife, making them mirror images of one another and providing for a Qualified Terminable Interest Property Trust under the Will such that the surviving spouse receives assets in trust; or the couple could sign a contract not to change the Will upon first death in a way that would materially affect the couple’s ultimate intentions regarding the disposition of assets to their beneficiaries.  Typically the cost should be the same (or very slightly more) but the headaches & hassles your loved ones will face with Joint Wills is avoided!




Legal Tip of the Week – 12/22/2016!

Professional advisors like myself are always coaxing, urging, encouraging and maybe sometimes pestering you to get your estate planning done because we really want to convey to you the importance of getting your estate affairs in order.  However, there is one type of scare tactic being used by some well-meaning folks which is completely inaccurate and I thought it was important to clear this up once and for all.  Every now and then my clients tell me that they’ve heard from someone that if they don’t get their Wills drawn up naming guardians for their minor children, then should something happen to both parents, the State will swoop in and snatch away those kids and place them in foster care.  These clients are led to believe that their children would be left in foster homes for months until a guardianship can be established by a family member or friend.  Actually this is not true – the Division of Youth and Family Services (commonly known as DYFS) is not in the business of checking into the homes of every decedent to see if any minor children are being taken care of.  In fact to the contrary, should something happen to both parents, a friend or family member can in fact step in to temporarily take care of the child or children until a guardianship is established by a qualified individual.

BUT…. parents before you heave that sigh of relief, know that what is true, is that this family member or friend who willingly jumps in to serve as guardian of your minor children will have a lot harder time qualifying as guardian if he or she is not named in the Will.  They will have to spend inordinate amounts of time & money to prove to the court that they have the child’s best interests at heart.  Additionally, they will have to post a bond for the amount of assets in the estate which bond requirement could have easily been avoided if it had been waived under the Will.

Therefore, by setting up a Last Will & Testament and naming guardians for your minor children, you have made these individuals’ lives a lot easier because they can bypass the administrative hassle and quickly & expediently take over the care of your children.


Legal Tip of the Week!

This week’s legal tip is about the importance of preserving official documents in perpetuity.  This may sound contradictory to what we have normally heard – which is generally around 5-7  years and primarily for IRS purposes.  However, from the estate administration perspective, documents like birth certificates, death certificates, surrogate’s Letters testamentary etc. ought to be preserved well after the family member is deceased.  In New Jersey, where a resident decedent  leaves behind no surviving spouse or children, his or her parents, then siblings, and finally, the children of the siblings, in that order, become next in line to inherit the decedent’s assets.  In such cases, a death certificate becomes crucial to establish priority.  So for example, if a brother of a decedent is the sole surviving heir to the decedent’s estate, he would have to provide the death certificates of both his parents to prove to the court that he not only has the authority to take over the administration of the estate but also inherit the assets of his brother.  For families where the parents died when the children were very young, this may present an unnecessary hardship that could have very easily been avoided had these documents been preserved.

Cloud based “vault-like” storage may be a solution to this problem; however, this must be weighed against the security and confidentiality of such document storage.


Legal Tip of the Week!

Most of us know, but its worth re-iterating, that our assets are divided into probate and non-probate assets.  The Will addresses only probate assets – i.e assets that we own in our individual names; however life insurance, retirement accounts, joint accounts, POD or TOD accounts, etc. pass outside of the Will to the beneficiaries named on the beneficiary designation forms or to the joint tenant of the accounts.

Situations where this distinction can have significant adverse consequences is when married couples either: (1) don’t have any children of their own but would like to pass some of their assets to their siblings &/or nieces and nephews; or (2) have children from a former marriage who need to be provided for upon the death of the survivor of the two.  The Will can be drafted very easily to take into account these objectives by drafting in Qualified Terminable Interest Property (“QTIP”) trust provisions that ensure the surviving spouse inheriting in trust.  Upon the death of this surviving spouse, the assets would revert back to the first spouse’s beneficiaries.  But if the first spouse’s wealth was accumulated within an IRA and the surviving spouse had been named an outright beneficiary, the very objectives that the couple were trying to achieve would be defeated because this retirement account will not pass under the Will.  Therefore, it’s extremely important in such cases to have the beneficiary designations point to the relevant provisions in the Will to ensure that this perfectly designed Will ties in neatly with how the non-probate assets should pass.


Legal Tip of the Week!

Its all about the “timing”!  In the estate administration world (and especially in New Jersey). there are two important deadlines that every Executor or Administrator needs to become quickly aware of – (1) the estate tax (both state and federal) filing deadline which is 9 months from the date of death; and (2) the New Jersey Inheritance tax filing deadline which is 8 months from the date of death.

We all know the tumultuous changes happening to the state estate tax structure and possibly the federal estate tax structure.  It is likely that families will soon worry less about these estate taxes when a loved one dies.  However, NJ has not gotten rid of its inheritance taxes.  This means for those estate of decedents leaving assets to their siblings, nieces, nephews, cousins or even step-grandchildren (basically all non-Class A beneficiaries, except charities), the Executor or Administrator has 8 months from the date of death to file the return, pay any taxes due to and do everything to avoid interest and/or penalties from accruing.  For those families dealing with the loss of a loved one, it is wise to seek the advice of counsel reasonably soon after the death to see if there are deadlines looming.  Even for those who may have missed the NJ Inheritance Tax return filing deadline, there is a benefit to consulting with an estate planning/estate administration attorney to explore strategies to “stop the bleeding.”


Legal Tip of the Week!

Some of you may know that in the past I've touted the benefits of life insurance trusts (ILITs) to hold insurance policies with significant
death benefits which, although income tax free, are not estate tax free... 

Up until recently, I had been telling NJ residents with assets well over our current $675k threshold that ILITs were "no-brainers" trusts because
they could remove the entire death benefit out of one's estate thereby greatly reducing and sometimes even eliminating the NJ and/or federal estate
tax.  Although the recent changes in the NJ estate tax structure calls for the elimination of NJ estate taxes by 2018, for those trusts that are 
(or will be) created, it is important for them to be administered properly.  Otherwise, the very benefit of setting up these trusts is defeated. 
For example the Grantor of a trust (i.e. the person who sets up the trust) cannot continue to make the premium payments to the insurance company 
directly; rather he or she needs to make the payments to the Trustee(s) of the trust. This way, the Trustee can ensure that the proper notice 
requirements are adhered to before making the final payment to the insurance company. This simple two-step process can easily be followed with the 
least amount of administrative hassle so long as the Grantor and the Trustees have the proper guidance from their attorney who helped establish 
the trust.  

The consequences of not doing so could mean that the IRS could go back in time to challenge all of the premium payments made going
back several years and consider those payments as taxable gifts. For those estates that fall close to or above the federal estate tax threshold
this could be a devastating result. 

So the legal tip today is if you have set up or are thinking of setting up insurance trusts, make sure you consult with an estate planning attorney
who can guide you through the process so that you thoroughly understand the operation of your trust.

Wills vs. Trusts – Simply Put

Everyone has heard of Wills and Trusts. Most articles written on these topics, however, often presume that everyone understand the basics of these important documents. But, in reality, many of us don’t – and with good reason – as they’re rooted in complicated, centuries-old law.

Let’s face it, if you’re not an estate planning attorney, these concepts tend to remain merely that – concepts. So, if you’re “fuzzy” about Wills and Trusts, know that you are not alone. After we show you the difference between all these documents, we’ll let you decide why you think one may be better off than the other for your particular situation.

Wills vs. Trusts: Defined

Let’s take a minute and define both “Will” and “Trust”:

Will. A Will is a written document that is signed and witnessed. A Will is considered a “death” document as it only goes into effect when you die.  A Will provides for the distribution of assets owned by you, but not assets directed to others through beneficiary designations (e.g. life insurance or retirement benefits).  It permits you to revoke or amend your instructions during your lifetime, tends to cost less than a Trust on the outset but costs more to settle during court proceedings after death.  Example – to probate a 50-page Will, you are looking at a cost of $300 just for the filing fee plus more for the Executor Short certificate etc.  Trust. There are 2 types of trusts – (1) A Testamentary Trust; (2) An inter-vivos (or living) Trust.  Inter-vivos trust can either be Revocable or Irrevocable.

  • Testamentary trusts are created under a Will or a Revocable Living Trust and assets pass into such trusts only after the death of a Testator. That means, in order for these testamentary trusts to become effective, death needs to occur.  Example:  My Will states that upon my death my minor child who is 17 now shall inherit my assets at age 35.  This means that a testamentary trust has been created under my Will so that if my death occurs before my minor child turns 35, the assets passing from my estate will go into a trust until my minor child turns 35.
  • Inter-vivos or living trusts are legal documents, signed and either witnessed or notarized (or both) effective during your lifetime, during any period of disability, and after death. However, in order to be effective, either trust needs to be funded with your assets.  They are of two types – revocable living trust or irrevocable living trust.

Revocable Living Trust (RLT).  RLTs are nothing more than Will substitutes and form an important part of an individual’s foundational estate plan.  They become effective immediately upon execution and remain effective during your lifetime until terminated.  Just like Wills, they are completely changeable or modifiable during lifetime and minor changes can be added on by restating the original or including amendments.  Upon death, RLTs function just like Wills by providing for the distribution of your assets to your ultimate beneficiaries. It avoids probate if fully funded, provides for a successor trustee upon your death or incapacity, allows for the management of your property – even if you’re incapacitated, can address appointing disability guardians during your lifetime for any minor beneficiaries of your estate and permit you to revoke or amend your wishes during your lifetime.  It does cost more than a simple Will on the outset but much less upon administration, since there is no probate and costly delays are avoided.  If you have property in another states, putting these properties into an RLT will avoid ancillary probate in all these states.  Finally, in NJ, no Inheritance Tax lien is imposed on any of the assets inside the RLT – your estate may still be subject to taxes but there is no “freezing” of the any bank accounts or other probate assets while the estate is waiting for the waivers to be issued by the NJ Tax Branch.

Irrevocable Living Trusts.  These trusts, as the name suggests, are set up during an individual’s lifetime but are irrevocable.  When established, the Grantor (the person setting up the trust) transfers either by sale or gift, assets into this trust and completely gives up all dominion and control over the assets in the trust.  The appointed Trustees now “own” the assets in the trust and manage the assets on behalf of the beneficiaries.  These trusts are set up primarily to save on estate taxes as the assets in the trust are not included in the Grantor’s estate upon death, provides creditor protection both to the Grantor as well as to the beneficiaries and depending on how the trust provisions are drafted, the assets may avoid passing into the estates of the individual beneficiaries as well.  In the Elder Law area, irrevocable living trusts may also be established as part of Medicaid planning to get individuals elligible for Medicaid.  No matter which trust structure is utilized, irrevocable living trusts are sophisticated planning techniques that are established as part of an individual or married couple’s advanced planning.

Probate Process: Key Element in Deciding Between a Will and Revocable Living Trust

A key element in deciding between a Will and a Revocable Trust (your foundational plan) is understanding the probate process[1]. “Probate” – which literally means “proving” – refers to the process wherein a decedent’s Last Will & Testament must be authenticated, outstanding legitimate debts paid, and assets transferred to the beneficiaries.  The downside is that probate can take a long time – even years – it’s expensive in many places and the entire process is completely public, meaning your nosey neighbor Nancy and evil predator Paul both know exactly who got what and how to contact them.  Additionally, as explained previously, in New Jersey, due to the inheritance tax structure, assets passing through probate will have an immediate lien imposed until waivers are obtained.

  • Probate Guaranteed with a Will.If you use a Will as your primary estate planning tool, you own property in your individual name, or property is made payable to your estate, probate is guaranteed.
  • Probate Avoided with a Revocable Living Trust.If you use a fully-funded Revocable Living Trust as your estate planning tool, probate is avoided – saving your family time and money.

 Consult an attorney who specializes in estate planning & elder law to see whether trust planning is necessary for you and whether they will help in fulfilling your overall estate planning goals.  Trusts may not be necessary in every situation but it is important to understand if there may be ways in which your specific estate plan may benefit from them!

[1] Note that Irrevocable Living Trusts are only an add-on to your foundational plan and the key element in deciding whether or not you need an Irrevocable Living Trust is determining whether or not minimizing death taxes and/or qualifying for Medicaid is part of your overall objectives