Revocable Living Trust

January Question – I just signed my Revocable Living Trust and feel pretty good knowing my assets are protected!

RLG’s Attorney Answer – Not all trusts are “built” alike and unfortunately, your Revocable Living Trust, although excellent for many things (and there will be more on that in the months to come), will not protect your assets.

The best way to understand trusts is that there are two primary types of trusts – Living Trusts (those created during your lifetime) and Testamentary Trusts (those that are created upon death).  However, Living Trusts can be further divided into Revocable Living Trusts (RLTs) or Irrevocable Living Trusts.  And, know that all testamentary trusts are automatically irrevocable – otherwise what would be the point of someone saying in their Wills that they want their loved ones to inherit in trust upon that someone’s death, if the loved one can go ahead and change it.  That would defeat the purpose of that someone’s objectives wouldn’t it?

By virtue of its name, all Irrevocable Trusts offer some type of asset protection – either from the IRS (for death tax purposes) or from creditors & predators of a beneficiary.  So if Irrevocable Trusts are like vaults or treasure chests, Revocable Living Trusts are really like “Cookie Jars” – those glass jars on the kitchen counter – transparent, easy to access, and perfect for managing your sweet assets during your lifetime. However, people often mistake the cookie jar for a vault. The term “trust” creates this illusion of impregnability, leading many to believe that any trust, including RLTs, have a high-security protection.

The charm of RLTs lies in their revocable nature – like a lid you can lift anytime to add or remove cookies. It’s great for sole control and flexibility, but this very feature makes the contents vulnerable to outside hands, unlike the sealed vault. Your assets in an RLT are more like cookies where you can put your hand in to get your cookies out and legitimate creditors can take a bite as well if they wish.

Conclusion: RLTs are nothing more than Will substitutes and both RLTs and Wills can have language within them to set up testamentary trusts for their loved ones upon death. Its only Irrevocable Living Trusts set up during the lifetime of someone that can get assets out of his or her estate to save on estate taxes or provide asset protection during the lifetime of that person. RLTs are effective during lifetime and when assets are in them, they can be convenient, flexible, and perfect for daily use. However, mistaking them for impenetrable vaults might leave you with a trail of crumbs.

 

Estate Planning for Families with Special Needs

Rekha will be discussing why estate planning for parents with loved ones with special needs is even more important particularly from the legal perspective.

Discover how to create a comprehensive estate plan that safeguards your loved ones, ensures financial security, and addresses the unique needs of individuals with disabilities. Gain valuable insights on wills, trusts (both revocable and irrevocable), guardianship, and government benefits. Don’t miss this opportunity to gain peace of mind and build a brighter future for your family.

Registration link is below. Registration is FREE but Required!
https://tinyurl.com/BrightTomorrows

Questions? Reach out to pep@sknfoundation.org

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Disability Pride Month

As we all know, July is Disability Pride Month, commemorating the anniversary of the Americans with Disabilities Act (ADA), which was signed into law on July 26, 1990. This landmark legislation prohibits discrimination against individuals with disabilities and ensures their equal rights and opportunities.

 

In honor of this month let us take a closer look at Special Needs Trusts that are crucial estate planning tools designed to protect the financial well-being of individuals with disabilities. We will delve into the essential aspects of special needs trusts, their benefits, and the considerations involved in setting up and managing them.

 

1. What is a Special Needs Trust?

A special needs trust is a legal arrangement that allows funds to be held and managed for the benefit of an individual with a disability. It is established to supplement and not supplant government benefits so additional financial resources can be provided to him or her to enhance the quality of life without jeopardizing their eligibility for assistance programs like Medicaid and Supplemental Security Income (SSI).

 

2. Types of Special Needs Trusts:

There are different types of special needs trusts, including First-party or self-settled trusts, third-party trusts, and pooled trusts. First-party trusts are funded with the individual’s assets, such as an money earned by the individual prior to the disability, or inheritance or personal injury settlement When the individual dies, any money remaining in this trust must be paid back to the StateThird-party trusts, on the other hand, are created by someone other than the beneficiary typically a parent or grandparent, for the benefit of the individual with disability. Money left over in these types of trusts upon death of the beneficiary can be redistributed among other family members. Pooled trusts are managed by nonprofit organizations, combining resources from multiple beneficiaries for investment purposes.

 

3. Preserving Eligibility for Government Benefits:

One of the primary advantages of special needs trusts is the ability to protect the individual’s eligibility for government benefits. These trusts ensure that the assets held within the trust are not considered as owned by the individual, preventing them from exceeding the income and asset limits set by benefit programs. As a result, the individual can continue receiving essential government assistance.

 

4. Using Trust Funds for Supplemental Needs:

Special needs trusts allow funds to be used to cover a wide range of supplemental needs beyond what government benefits provide. These may include medical and dental expenses not covered by insurance, therapy and rehabilitation services, educational expenses, transportation costs, assistive technology, home modifications, and recreational activities, sometimes even air-fare for the individual along with a companion. Therefore, the Trust funds are used to enhance the individual’s quality of life and promote their overall well-being.

5. Protection from Exploitation and Mismanagement:

Establishing a special needs trust also provides an added layer of protection for individuals with disabilities. By appointing a trustee to manage the trust funds, you can ensure that the funds are used responsibly and in the best interest of the beneficiary. This protects the individual from potential exploitation or mismanagement of their financial resources.

 

6. Selecting the Trustee:

Therefore, trustee selection can become a crucial decision in establishing a special needs trust. It is important to choose someone who is trustworthy, reliable, and capable of handling financial matters. We prefer appointing a professional trustee (like Plan NJ or Bryn Mawr Trust) rather than a family member or close friend to ensure proper management and adherence to the trust’s terms.

 

Conclusion:

Special needs trusts are powerful tools that enable families to protect their loved ones with disabilities, preserve eligibility for government benefits, and enhance their quality of life. Understanding the different types of trusts, their benefits, and the proper management of trust funds is crucial in ensuring the long-term financial security and well-being of individuals with disabilities.

Aretha Franklin’s Will Drama Is Over

This article highlights the importance of having a Last Will and. Testament drafted by an attorney; but it fails to mention another important estate planning vehicle – a Revocable Living Trust – that could have not only avoided the family drama related to Aretha Franklin’s objectives on how and who her assets should go to but could have kept this entire affair very private and out of the Court’s and public’s scrutiny. Same destination but a different (and in this case, a critically essential) route to get there!

 

https://www.wealthmanagement.com/estate-planning/aretha-franklins-will-drama-over?fbclid=IwAR23XBxa68i7EIXDztXQTnnQtT_WJSs8ZY4fILOF_MChg3HOKFV_IMroK7Y

What you Should Know about Having a Joint Account with your Child. Copy

Most banks will not allow minors to set up bank accounts by themselves. To get around this, many parents set up joint accounts with their children, so the child can deposit money they get from working, gifts, etc.

Joint accounts are easy to set up, but they may not be the best way to get your child access to a bank. They can expose the child and the parent to unnecessary risk.

Problems for the Child

A joint account is owned by both individuals 100%. This means that either the parent or the child can take all of the money out no matter who put in the money.

This means the child can be exposed to the parent’s creditors.

Example 1

John is 15. He works at a retail store after school, and his mother, Sally, opens a joint account with him, so he can get his wages via direct deposit.

Unfortunately, Sally had some outstanding credit card debt. She ignored the summons from the credit card company; the company got a default judgment against her, and then went to court to get her bank account garnished.

There were insufficient funds in Sally’s account, so bank took the money from John’s account and gave it to the credit card company.

Unfortunately, John has no recourse. The bank was required to turn over the money as it was legally John’s AND Sally’s. John can only hope that his mother straightens out her finances and is able to pay him back in the future.

Problems for the Parent.

Most parents set up joint accounts with  their child wherever they already do their banking. This exposes the parents’ other accounts.

Example 2

Annie opened a joint account with her daughter, Marcia, when Marcia was 17 for her to put in money she was gifted from relatives. Annie occasionally sends $50 to her daughter for fun money, but Annie does not pay attention to this account and does not consider the money in the account to be hers.

When Marcia went to college, Marcia continued to use the joint account and never opened a solo one. Unfortunately, Marcia is spendthrift. She really likes to shop, and she spent more money than she had in her account.

Since the account was tied to one of Anne’s other account that served as an overdraft protection, this account was depleted due to Marcia’s excess spending.  Annie was furious and complained to the bank, but she was out of luck.  Because Annie was on Marcia’s account, she was liable for her daughter’s overspending.

Alternatives to a Joint Account.

Joint Accounts are the most common way for parents to set up accounts for their minor children, but they are not the only option. Here are two other options for parents who may not want to have a joint account with their child.

Custodial Accounts

One option for parents is establishing a custodial bank account. With a custodial account, the child is the owner and primary beneficiary, but there is an adult (usually the parent but it can be a financial institution) who oversees the account until the child is 18 (or 21 in some states), which is when control of the account is given to the child.

The advantages here are that the parent’s money and the child’s money are separate, so the child is not exposed to the parent’s creditors, and the child cannot overdraw the account.

Neither John nor Annie would have been in trouble if they had custodial accounts instead of joint accounts.

Prepaid Debit Cards

Another alternative to a joint account is a reloadable pre-paid debit card.

Several institutions allow parents to set up pre-paid debit cards for their minor children.

No two cards, however, are exactly the same. Before signing up for one, the parents should review the terms carefully, and make sure they understand what their rights and obligations are with that institution.

For example, some cards offer parental monitoring and control or are designed to teach the child how to save and invest wisely. Usually, these features come with a monthly fee.

If the parent prefers to be more hands-off approach, there are a number of cards that are free to use, but do not offer parental monitoring, so the child is left to his or her own devices.

In addition to the ability to control or monitor the child’s spending, parents should also consider if the card offers overdraft or fraud protection.

Be aware that some institutions do require the parent to also have an account if the minor child is to have his or her own debit card; this could expose the parent to the same risk that a joint account would.

Conclusion

There are different options for parents who want to help their child better access his or her money. A joint account is often used by married couples and generally are preferred in such situations.  However, there could be problems when owned by parents together with children so it is worth exploring your option to see what works best for you and your family.

 

 

 

 

What you Should Know about Having a Joint Account with your Child.

Most banks will not allow minors to set up bank accounts by themselves. To get around this, many parents set up joint accounts with their children, so the child can deposit money they get from working, gifts, etc.

Joint accounts are easy to set up, but they may not be the best way to get your child access to a bank. They can expose the child and the parent to unnecessary risk.

Problems for the Child

A joint account is owned by both individuals 100%. This means that either the parent or the child can take all of the money out no matter who put in the money.

This means the child can be exposed to the parent’s creditors.

Example 1

John is 15. He works at a retail store after school, and his mother, Sally, opens a joint account with him, so he can get his wages via direct deposit.

Unfortunately, Sally had some outstanding credit card debt. She ignored the summons from the credit card company; the company got a default judgment against her, and then went to court to get her bank account garnished.

There were insufficient funds in Sally’s account, so bank took the money from John’s account and gave it to the credit card company.

Unfortunately, John has no recourse. The bank was required to turn over the money as it was legally John’s AND Sally’s. John can only hope that his mother straightens out her finances and is able to pay him back in the future.

Problems for the Parent.

Most parents set up joint accounts with  their child wherever they already do their banking. This exposes the parents’ other accounts.

Example 2

Annie opened a joint account with her daughter, Marcia, when Marcia was 17 for her to put in money she was gifted from relatives. Annie occasionally sends $50 to her daughter for fun money, but Annie does not pay attention to this account and does not consider the money in the account to be hers.

When Marcia went to college, Marcia continued to use the joint account and never opened a solo one. Unfortunately, Marcia is spendthrift. She really likes to shop, and she spent more money than she had in her account.

Since the account was tied to one of Anne’s other account that served as an overdraft protection, this account was depleted due to Marcia’s excess spending.  Annie was furious and complained to the bank, but she was out of luck.  Because Annie was on Marcia’s account, she was liable for her daughter’s overspending.

Alternatives to a Joint Account.

Joint Accounts are the most common way for parents to set up accounts for their minor children, but they are not the only option. Here are two other options for parents who may not want to have a joint account with their child.

Custodial Accounts

One option for parents is establishing a custodial bank account. With a custodial account, the child is the owner and primary beneficiary, but there is an adult (usually the parent but it can be a financial institution) who oversees the account until the child is 18 (or 21 in some states), which is when control of the account is given to the child.

The advantages here are that the parent’s money and the child’s money are separate, so the child is not exposed to the parent’s creditors, and the child cannot overdraw the account.

Neither John nor Annie would have been in trouble if they had custodial accounts instead of joint accounts.

Prepaid Debit Cards

Another alternative to a joint account is a reloadable pre-paid debit card.

Several institutions allow parents to set up pre-paid debit cards for their minor children.

No two cards, however, are exactly the same. Before signing up for one, the parents should review the terms carefully, and make sure they understand what their rights and obligations are with that institution.

For example, some cards offer parental monitoring and control or are designed to teach the child how to save and invest wisely. Usually, these features come with a monthly fee.

If the parent prefers to be more hands-off approach, there are a number of cards that are free to use, but do not offer parental monitoring, so the child is left to his or her own devices.

In addition to the ability to control or monitor the child’s spending, parents should also consider if the card offers overdraft or fraud protection.

Be aware that some institutions do require the parent to also have an account if the minor child is to have his or her own debit card; this could expose the parent to the same risk that a joint account would.

Conclusion

There are different options for parents who want to help their child better access his or her money. A joint account is often used by married couples and generally are preferred in such situations.  However, there could be problems when owned by parents together with children so it is worth exploring your option to see what works best for you and your family.

 

 

 

 

Inheritance Taxes and How They Can Affect Your Planning

 

New Jersey is one of the six states that has an inheritance tax.[1] This means that if you live in New Jersey (or if you own property in New Jersey), the beneficiaries of your estate may need to pay a tax depending on how much they inherit, what type of asset they inherit, and their relationship to you.

Who is exempt and who has to pay?

Class A beneficiaries are exempt from the inheritance tax. Class A beneficiaries are your spouse, children, stepchildren, grandchildren, parents, or grandparents. They do not have to pay an inheritance tax in New Jersey. This means that not all of your relatives are Class A beneficiaries. You may love your niece as a daughter, but she could be subject to an inheritance tax if you leave her a part of your estate in your Last Will & Testament or Revocable Living Trust.

Class C[2] includes your siblings and your son in law (or daughter in law). The first $25,000 is exempt, but anything more than that is subject to a tax that starts at 11% and is based on a graduated scale.

Class D beneficiaries include everyone else who is not in A, C, or E. Your nieces, nephews, friends, or significant other are Class D. There is a $500 exemption after which they have to pay at least 15% on any inheritance which is subject to the tax.

Class E beneficiaries are tax exempt entities such as charities. They do not have to pay an inheritance tax.

What Assets are Subject to the Inheritance Tax?
Most assets are subject to the inheritance tax including bank accounts, IRAs, real property, personal property. Life Insurance, however, is not subject to inheritance tax in New Jersey.

Notable Exceptions

Interestingly, Life Insurance is not subject to Inheritance Tax.  Payments from certain pension plans such as the New Jersey Public Employees Retirement System, the New Jersey Teachers’ Pension and Annuity Fund, and the New Jersey Police and Firemen’s Retirement System are not subject to Inheritance Tax. Also, in New Jersey, there is no inheritance tax on gifts made during lifetime so long as the gifts were made 3 years before death

How Does this Impact Your Planning?

Since not everyone is subject to an inheritance tax and among those who are, not everyone is subject to the same rate, it would be wise to consult with a specialized estate planning attorney when creating your estate plan so that you can maximize the amount of money going to your beneficiaries and minimize the amount going to taxes.  Additionally, it would be important for your beneficiaries to know who has to pay the inheritance tax – by making the estate pay the taxes out of the residue, it would make it  easier for the Executor to administer the estate as he or she can avoid chasing after the various non-Class A beneficiaries to pay up, but it also would mean that less money would go to the residuary beneficiaries.

Example:

Bob is a widower. He and his late wife never had children, but he has two siblings, two nephews, and three close friends who he would like to include in his Will. He would like to give his seven beneficiaries 1/7 of his total $500k estate.

Half of Bob’s estate comes from his life insurance policy; in which Bob had named his wife as the beneficiary but never updated it when she died, nor had he named any contingent beneficiaries. This means Bob’s estate became the beneficiary upon his death and his seven beneficiaries now have to pay inheritance taxes on their respective shares

Result: Each beneficiary inherits $71,428, but the siblings would only have $66,321 after taxes and the other beneficiaries would have $60,714 after taxes. Out of the $500,000 estate, $63,784 or 12.7% will go to the State.

What could Bob do differently?

If Bob goes to an estate planning attorney, the attorney can advise Bob that his beneficiaries are subject to an inheritance tax, and that his nephews and friends are subject to a greater tax than his siblings.

With this awareness, Bob can be more strategic in how he distributes his estate, can reduce the total amount paid in taxes, and can allow for each beneficiary to inherit more money.

Instead of splitting the estate in 7 equal parts, Bob can split his life insurance amongst his five class D beneficiaries, giving each one 20% of the policy. To make it up to his siblings, Bob can give each sibling 30% of his estate and divide the remaining 40% amongst the class D beneficiaries, giving each one 8% of the estate.

By doing this, each sibling will receive $69,500 instead of $66,321, and the nephews and friends will receive $67,000 each instead of $60,714. Out of the $500,000 estate, only $26,000 or 5.2% goes to taxes.

Conclusion

An estate planning attorney can help you achieve the best results for your beneficiaries. Not only would the attorney have advised Bob on proper titling of all probate and non-probate assets but could have helped ensure which beneficiaries inherit what amount and from where. Just splitting the estate equally might sound fair, but as you saw with Bob, it created a not so great outcome for all of his beneficiaries.

[1] Iowa is phasing its out and is set to be gone by 2025.

[2] Class B no longer exists.

 

When Your Estate Plan Does Not Match Your Assets

Henry is a widower with three children. He wants his children to inherit in equal shares, and he hires a lawyer to create his Will.

The lawyer creates the Will using Henry’s instructions, and six weeks later, Henry signs in front of two witnesses and a notary.

The Will is valid, and as far as Henry is concerned, his work is over. When he dies, his children will inherit equally. Unfortunately, Henry did not understand that the Will applies only to probate assets, i.e those assets that go into the estate upon death. The will does not apply to his non-probate assets, assets that  bypass the Will because they automatically belong to someone else upon the owner’s death.

Henry did not discuss with his lawyer what arrangements he needs to make to ensure that all his assets flow the way he wants once he dies. He thought the Will was all that he needed.

What happens to Henry?

Five years later, Henry is having health issues and is struggling with his bills. He has the money, but he is tired, sleeps a lot, and does not always remember which bill is due when. Henry’s son Kevin creates a joint account with Henry, so that Kevin can pay his father’s bills for him.

Kevin does so, dutifully, until his father dies two years later.

Henry named his good friend Mark to be the executor of the estate. Mark knew that Henry had wanted his assets to be equally divided amongst his children. Unfortunately, Henry’s assets were not set up to allow for this.

While trying to administer the estate, Mark ran into three different problems.

Problem #1: The Joint Account

The joint account that Henry and Kevin both had access to had $50,000 in it when Henry died – money that Henry had put into the bank. Kevin’s siblings want him to share the money, as Henry’s Will states everything is to be split evenly.

Kevin refuses, stating that the money is legally his, as that is what the bank has told him. He is angry that his siblings did not do more to help him when their father was struggling, and he does not think they deserve the money.

The siblings go to Mark for help, but there is nothing Mark can do. The joint account is a non-probate asset, which means that the Will does not apply to it. as The account automatically belongs to Kevin once Henry has passed away.

Problem #2: The Life Insurance

When Henry was younger, he purchased  a life insurance policy for $100,000, and named his brother, Cory, as the beneficiary. When Henry got married and had children, he forgot to update  the beneficiary on the policy.   Therefore, when Henry died, the money went straight to Cory. Mark asks Cory to give the money to Henry’s children voluntarily, but Cory cannot because he owes a lot of back child support, and the government took takes the money as soon as it reaches his account.

Problem #3 The IRA

Henry also had an IRA (Individual Retirement Account) when he died. He had made his wife the beneficiary, but he never updated the policy when she died, nor did he name contingent beneficiaries. Mark was able to get the IRA into the Estate, so it could be shared amongst the three children, but this led to a poor tax consequence. When an estate inherits an IRA, it must be cashed out within five years.

If Henry had named his children as the beneficiaries, they could have stretched the payout over ten years, which would have allowed them to pay less in income taxes.

What could Henry have done differently?

If Henry had aligned his non-probate assets with his estate plan, his children would have inherited all his money equally in a tax efficient manner, as he intended when he created a will. Henry could have done several things differently to have a better outcome for his children.

Instead of having a joint account with Kevin, Henry could have appointed  Kevin his power of attorney, which would have allowed Kevin to help Henry with the bills without making Kevin an owner of the account.

Then, Henry could have made each of his children equal  beneficiaries of the joint account. The bank account would still have bypassed the Will, but it would have been allocated the way Henry wanted.

Additionally, Henry could have updated his life insurance policy and IRA , naming his wife as the primary beneficiary of each policy and his children as contingent beneficiaries, inheriting equally. Therefore, when Henry’s wife passed before him and there was no longer a primary beneficiary, the contingent beneficiaries were still in place to automatically inherit the policies upon Henry’s death.

When you are creating an estate plan, it is important to understand how that plan will treat your probate assets, and what you need to do with your non-probate assets to make sure they pass on the way you intend. It is essential  to review your estate plan each time you have a life event, and make sure that the designations on your accounts reflect how you want them to be distributed. It is also important to name contingent beneficiaries in case your primary beneficiary pre-deceases you. When working with an estate planning attorney, always be sure to discuss how to make changes to all your assets to ensure they align with your overall estate planning goals. Life is full of changes – make sure your estate plan and accounts don’t get left behind.

 

 

What if something happens to both of us…!

We had just completed the signing of our Clients’ estate planning documents – Revocable Living Trusts, Pour Over Wills, Healthcare and Financial Powers of Attorney; we had a beautifully prepared asset spreadsheet listing out their assets along with our detailed recommendations on titling changes/beneficiary updates to align those with the ultimate dispositions reflected in their estate planning documents.  We had a ton of other useful information like flowcharts, funding instructions etc. when our clients ended the meeting with a very thoughtful question – “All of this is great but what is the first thing our children should do if something happens to both of us? How does the Will get “probated”?  Can our children follow your guidelines and take care of the estate themselves or do they need your help? Our kids will no clue as to where to begin!!”

That question got us thinking and has been the inspiration for this Consumer Guide which we hope will inform and educate clients both existing and potential on what exactly families should consider if both spouses die leaving behind children and/or other beneficiaries.

Important Disclaimer: while this guide is meant to provide general advice to all individuals (both single unmarried as well as married couples with or without children), this guide was not meant to be exhaustive, capturing every nuance that may be unique only to your particular situation.  Our hope is that for those of you whose situation does not fit squarely within the assumptions noted below, then you will give us a call so we can further discuss.  Below are the assumptions:

  • that some type of foundational plan is already in place (Will/Revocable Trust) etc[1].
  • that there are 2 parents leaving behind assets to their children
  • all individuals and their fiduciaries are United States’ citizens
  • if the children are minors, then the named fiduciaries have close ties to the family

Definitions:

Fiduciaries: these are your trusted individuals appointed to serve as Executor of the estate, Guardian of minor children or Trustee of any trust assets.  These individuals sole function is to ensure that any action taken is done in line with the best interests of the beneficiaries of the estate and/or minor children

  • Executor: we call this person the manager or representative of the estate. His or her job is to go through the court formalities to get appointed, then marshal up all of the assets in the estate, pay of debts & expenses if any, then distribute the assets pursuant to the Will
  • Trustee (or guardian of the property): this individual is appointed to serve as the guardian of property either for a limited duration or for the long haul (a/k/a lifetime trusts). They usually can appoint successors in case they cannot serve and they can also be removed by all the beneficiaries if they are not doing a good of managing the trust assets on behalf of the beneficiaries
  • Guardian (of the person): these individuals are normally close family members or friends who are willing to step in and take physical charge of the minor children and take care of their day-to-day needs. If the child(ren) lives in a dorm or boarding school, then the Guardian’s role becomes more like that of a Legal Representative for that child(ren) and one who can make legal, financial, social, and healthcare decisions on the child(ren)’s behalf.

Decedent or Deceased: the individual who has just passed away

Testator or Testatrix: the individual who has executed/signed his or her Last Will & Testament

Grantor: of a Revocable Living Trust who established this trust during his or her lifetime.

Probate: the process of admitting the Will to probate so that there is court oversight from start to finish

  • Probate Assets – are assets that are part of the decedent’s estate and therefore disposed of by Will ex. If the deed to the family home was titled in parents’ joint names, then upon simultaneous death, the home becomes a probate asset

Non-probate: assets that pass outside of the Will either directly to a joint owner or via a beneficiary designation (including “Payable/Transfer on Death” or POD/TOD designations)

So let’s begin:

Let’s presume this was yesterday, and your children have just been dealt with the news that both parents are no more.  What is the first thing that needs to be done?  Well, nothing … at least for the next ten days as New Jersey law requires everyone to give grieving families a 10-day period during which time no one is expected to do anything with regards to the Will.  The public policy rationale behind this is to give families a chance to grieve and mourn and not have to worry about attending to the legal affairs of the estate.

Once that 10-day period is over, then here are some recommended steps for beneficiaries that may be followed:

Step 1:  Information Gathering

  1. Look for the estate planning documents

The first thing you want to look for is the original Will. Did your parents tell you whether they had their estate planning documents prepared?  More importantly, did they tell you where the originals were kept? In our office, on signing day, we always instruct our clients that we will be giving them back all original signed documents in a binder so it is important for them to (1) inform their fiduciaries about who we are  (note: our business card is included within in the binder); (2) to let them know where they are planning to keep our binder (ex. locked filing cabinet in home office or vault in basement etc.); and if kept locked, then where can they find the key or combination/password.

  1. Review the Will. Notify those who are serving as the appointed Executor (Guardian or Trustee) where applicable

Once you have located the original Will, you will want to review it to see who has been appointed for the various positions.  If the Will appoints someone other than you, contact them and let them know what the Will/Trust says.  In our office, we provide something called the Confirmation of Names and Fiduciaries Summary that lists all of the people appointed for the various roles along with their current address and phone number.  During the signing, we encourage our clients to share this document with these individuals right away, so they know exactly what role they are serving and when they might possibly be called in.

  1. Review the Assets in the Estate. What assets are in the estate of the deceased person?

Next, look for all asset information. If you have not completed your estate plan with us, then you will want to go through all of the places your parents may have saved their financial documents.  In this digital era when a lot of account statements are generated online, it may very important to know a list of institutions and banks where your parents have accounts.  In our office, our Asset Integration Worksheet or AIW is a revered document.  This is where list out a snapshot of our clients assets (from across the globe) and gear the document towards estate administration.  We empower our clients to keep the document updated each year or, for a nominal fee, help them keep it updated.  This way, if the unfortunate happens, beneficiaries have one document to reference to know exactly what their parents left behind.  Once you have this information, you can figure out the extent of the complexity and decide for yourselves whether or not  you need to engage the services of an estate administration attorney. See Step 3

Step 2: How do you order death certificates?

Your funeral home director will not only help you get the death certificates (DC).  The DCs generally arrive 1-3 weeks after death.  Once you get this, make sure to look at it carefully for any errors and if any, make sure to inform the director immediately – this will help avoid running into various problems later.

Step 3: Who needs to be contacted?

  • Social Security and pension: The funeral home typically informs the Social Security Administration on your behalf. Note that typically social security benefits terminate at the death of the surviving spouse unless there are minor children or adult children with disabilities. If your family situation happens to fall into this category, then be sure to call up the SSA office on your own to establish ongoing payments. Same as true for pension benefits except you will need to contact the relevant department within the company/organization to reinstate pension where applicable
  • Banks & Institutions: Depending on the complexity of the estate assets, you may require our help in contacting these institutions and helping you release the accounts over to the estate and/or trusts established for the beneficiaries. This is where it will be important to call our office as soon as possible to schedule a call to discuss next steps and to find out whether any inheritance or estate taxes may be due or if any estate income tax considerations need to be taken onto account for that year, if waivers need to be filed with the State Tax Branch and/or if trusts need to be set up

Step 4: What’s the time commitment your fiduciaries are looking at to administer an estate? Normal time frames could range anywhere from 4 to 6 months to several years (especially if there is a business involved or if the matter becomes contested) with the probate of a Will.  Revocable Living Trusts avoid probate but there may be some aspects to trust administration (like set up of further testamentary trusts or estate tax filings) that may be necessary. However, both probate costs and time delays due to waivers are significantly reduced when Grantors of Revocable Living Trusts pass away.

Step 5: Common mistakes or traps to avoid

  • Schedule the initial consultation with the law firm post death – don’t make the mistake of foregoing this call since there may be aspects of your plan (disclaimer trust planning; portability elections) that are time sensitive.
  • Taking out the RMD for the year – which could avoid up a 50% penalty imposed by the IRS
  • Account for foreign assets – every US green card holder and US citizen is subject to death taxes based on his or her worldwide assets so its important to consider everything that the decedents owned when thinking about estate taxation. Also important is to see if the decedents have a foreign Will.  In our office we guide and counsel several clients with international assets and have always recommended that they set up another Will in the overseas jurisdiction
  • Avoid consulting only a CPA and not also an estate administration attorney with the probate of the estate. There are aspects to estate planning that may catch an unwary CPA who is not familiar with estates & trusts off guard and as a result end up giving the wrong advice.

We hope you found this helpful.  We would love to hear from you to let us know what you think and if there are other questions that we can address to improve this Consumer Guide.   At some point, we plan to include a Frequently Asked Questions Section to this blog so we can consistently inform and educate our clients.

 

[1] For any prospective clients reading this Consumer Guide, note that the estate becomes significantly more difficult to probate when no estate planning documents are in place so it is always better to have something than nothing at all. But we strongly encourage you to use a specialized estate planning attorney for even the simplest of Wills as you just ‘don’t know what you don’t know’.