Getting Documents Signed Amid Coronavirus Precautions

During this time of worldwide uncertainty, many of us are facing huge portions of our lives suddenly being moved online. Telecommuting has proven that we can do plenty of our daily activities from home—but there are still limitations. Historically, the signing and notarization of estate planning documents is not something that can be done without all participants sitting together at a table with the physical documents between them. In many places and for many kinds of documents, this is still true, but remote online notarization is a practice that is gaining more recognition.

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In New York, Governor Cuomo recently signed an executive order amidst coronavirus precautions allowing the use of remote online notarization statewide; this is an unprecedented usage of executive orders.1 Some have called for guidance from the highest state courts regarding this action, seeking assurance that the order will be allowed to stand before its validity is confirmed. At the same time, other states are considering the option to take similar measures in order to respond to the spread of coronavirus worldwide—these orders may have even been signed by the time of this reading.

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For a few weeks, New Jersey lagged behind many states who had already jumped on the bandwagon. Both houses of the New Jersey state legislature debated whether “certain notarial acts” could be performed remotely since mid-March, but it took until nearly a month later for an Act to be signed into law. On April 14, Governor Murphy signed a bill into law that allows for certain kinds of remote notarization during the Public Health Emergency and State of Emergency declared by the governor in Executive Order 103 of 2020.2 Frustratingly, this Act excludes the signing of wills and codicils. However, it is at least applicable for matters such as the creation of HIPAA waivers, healthcare directives, and powers of attorney.3 Firms have developed creative strategies to sign estate planning documents during the past month of waiting to hear whether the bill would pass; now that we have a path forward, we can use remote online notarization in conjunction with these strategies to ensure that we continue to serve our clients’ needs without face to face conference room type meetings.

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Overall, 23 states have approved remote online notarization in some capacity, though the requirements and breadth of this ability differ from state to state. Efforts are underway to establish federally recognized remote online notarization.4 The SECURE Notarization Act is a proposed bill in the Senate that aims to do exactly that, legalizing remote online notarizations nationwide—possibly immediately, should it be passed. Currently, the text of the bill is not available, but a summary of the bill indicates that it will provide minimum security standards for the usage of remote online notarization as well as provide certainty for recognition of online notarization between states. States would continue to have the flexibility to implement their own remote online notarization standards above the federal baseline.

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As with many other things during the unfolding COVID-19 outbreak, the status of New Jersey’s remote online notarization is still uncertain as the situation continues to unfold. If you are concerned about how best to get your documents executed within the state during this time, the best thing you can do is speak to a specialized estate planning attorney who you can trust to evaluate your options and explain what options may potentially be on the way in the coming days to look out for. Here at Rao Legal Group, LLC (“RLG”) we are utilizing phone calls and video conferences to continue to provide our clients with the outstanding service we are known for while keeping the distance necessary to protect our communities. We are available to help you—call us today to learn more about how we can help you prepare for the future at a time when it’s more important than ever to do so.

 

  1. 1. https://www.governor.ny.gov/news/no-2027-continuing-temporary-suspension-and-modification-laws-relating-disaster-emergency
  2. 2. https://www.njleg.state.nj.us/bills/BillView.asp?BillNumber=A3903
  3. 3. https://www.njleg.state.nj.us/bills/BillView.asp?BillNumber=A3864
  4. 4. https://senatorkevincramer.app.box.com/s/baz8p9czm0bijkicxbeb7mb7cxby7mio

Spousal Lifetime Access Trusts (SLATs)—How Can They Help?

Chocolate and flowers have been exchanged, dinner reservations have been made and fulfilled, and Valentine’s day has officially passed. However with the end of February approaching, there is more you can do for your spouse than buying gifts or sharing a romantic evening. Although it’s far from a traditional Valentine’s gift, a well-written and up-to-date estate plan is one of the most important ways you can protect your loved ones. There are many estate planning strategies available to help you meet your personal goals, whatever they may be. In the spirit of the time of year, a nice gift exchange between clients and their spouses is a Spousal Lifetime Access Trust (SLAT).

 

So, what is a SLAT? A SLAT is a type of irrevocable trust (that is, a trust that cannot be modified without the permission of the trustees/beneficiaries once it is created) where one of the beneficiaries is the spouse of the creator/grantor. Because they cannot be amended, irrevocable trusts result in some loss of control and flexibility regarding the assets contained within them. However, in exchange, they provide tax savings and asset protection from creditors. A SLAT is a type of irrevocable trust set up by one spouse for the benefit of the other, and it can be a valuable estate planning tool for the right client.

Pros:

  • • Allows the grantor access to trust assets through his or her spouse;
  • • Allows the grantor to be responsible for the income taxes on the interest earned by the assets growing within the trust, thereby avoiding the compressed trust tax structure;
  • • Offers creditor protection to the beneficiaries as assets in the irrevocable trust are outside of the reach of the beneficiaries’ creditors;
  • • Offers protection from children’s potential divorcing spouses;
  • • Drafted properly, assets can bypass the estates of the grantor, the spouse, and the ultimate beneficiaries of the grantor;
  • • Compared to costs associated with defending lawsuits brought by creditors, these trusts are relatively inexpensive to set up;
  • • May avoid state income taxes (if properly set up in specific jurisdictions); and
  • • Use of trust protectors within the trust can provide flexibility to otherwise irrevocable trusts

Cons:

  • • Expensive, especially if established in Asset Protection Trust (APT) jurisdictions
  • • If the spouse passes away, access to trust assets may pass outside the reach of the grantor’s indirect access as the ultimate beneficiaries will now have full control over trust assets; and
  • • Depending on the jurisdiction and when and how the trust is set-up, these trusts may not protect against a subsequent divorce of the grantor

 

SLATs work best for couples with stable marriages, with significant assets, or with asset protection concerns for both themselves and their loved ones and who have no hint or threat of a potential lawsuit or claim either presently or in the imminent future. For those clients, SLATs present a valuable tool to protect the couple’s estates from creditors as well as increase tax efficiency. Additionally SLATs can protect the ultimate beneficiaries (typically the grantor’s children) from their own creditors. With SLATs, as with any other estate planning strategy, the benefits can be lost if they are not drafted by a knowledgeable and specialized estate planning attorney. If you want to find out whether SLATs can help you in achieving your estate planning goals, don’t wait—call us and schedule a time to speak with us today.

We launched a new program!

How this program may help ensure your estate plan will never let you & your family down at the critical moment

 

We hear it all the time when talking about estate plans—“I already have an estate plan in place, so I don’t have to worry.” But there are a few major things people don’t realize about estate planning that can put them at risk of not being prepared when the time comes. Plans need to be constantly updated, monitored and maintained on an ongoing basis. What was set up many years ago may not necessarily be current today. Asset changes, law updates and family changes can cause a well designed plan to fail when the time comes to “test” the plan much later.

 

If your plan includes Revocable Living Trusts (“RLT”) that were established to avoid probate, then were the trusts fully funded (i.e. were the relevant accounts titled to the name of the trust)? If you had planned for your beneficiaries to inherit in trust upon your (or your spouse’s) death, were beneficiary designation forms updated to make the trust(s) a beneficiary? We advised you during your signing that your asset spreadsheet should be updated by you every year, but do you understand when the documents themselves must be changed by the law firm? To ensure the documents work properly, you will need to keep in mind the changes in the law, purchases of new assets, changes in family structure such as marriage or divorce, births or deaths, relocations of your fiduciaries, and more. If you met with your attorney to draft and sign documents, received a nice looking binder filled with those vital documents, but then put it away in a safe place never to be thought of again during your lifetime, you may be at risk that your documents won’t accomplish what was originally intended. Failing to address critical life or asset changes by updating your new documents will jeopardize the entire plan you put in place. The number one reason estate plans fail is because they are out of date.1

 

Many good estate planning attorneys are concerned about how to ensure clients’ objectives are fulfilled and how to address ongoing updates long after the representation with the client has ended—we’ve joined an exclusive group of firms who have come up with an answer! We understand that your estate plan isn’t completed when you sign your documents and leave our office; rather, your estate plan is completed when your heirs are able to carry out your wishes set forth in the documents after you are gone. Therefore, we, as your estate planners, need to be available to you on an ongoing basis and remain involved throughout your lifetime to ensure that we maintain the integrity of your plan. This is why we are offering our Annual Membership Program (or AMP) to continue to take on the responsibility of monitoring and tailoring the plans that we have set up for you for the duration of your lifetime.

 

So if you are an existing client of ours and you created an estate plan with us, consider calling us so we can explain the benefits of AMP and how it can ensure that your plan still functions the way you intended. Additionally, please join us at our office on February 6th, 2020 at 6:00 pm for an AMP workshop where you can get more details of this program and find out how it can help you achieve peace of mind for you and your loved ones. But if you haven’t created your estate plan as yet—we hope you will choose us as your estate planning firm, as we will not only prepare superior quality documents but also stand behind our plans long after they are first created.

 

1. Bonazzoli, V. E. (2017). How an ordinary lawyer creates and sustains an extraordinary client care program. Parker, CO: Outskirts Press.

Things we still need to be grateful for in 2019…!

This Thanksgiving, there are several things that we need to be grateful for—and hey, we are after all an estate planning firm, so naturally we’re talking from the estate planning perspective.

 

Many of you may already know that we are currently in a taxpayer favorable environment and so it behooves us all to at least take notice, if not take advantage of, some of the planning techniques that are still around for the foreseeable future. Changes may occur in the administration a lot sooner than we all anticipated, so the “wait and see” approach is now no longer prudent—being thankful for the current environment may mean acting now rather than later. Some of the tax law changes that are being talked about will directly impact YOU. It isn’t only the wealthiest people who need to pay attention; the moderate to high net worth client may have big changes waiting around the corner [fn: our definition of moderately wealthy is anyone who has or might soon have a net worth of 3.5 million dollars and above if single and over 7 million dollars if married (and U.S. citizens)].

 

The current gift exemption is the highest it’s ever been—but it might be going down:

 

Currently, our lifetime tax exemptions for gifting are $11.4 million per person; $22.8 million for a married couple (2019 amounts). This is both an estate and gift tax exemption, which means that if you don’t gift anything during your lifetime, your estate has this entire amount as an exemption upon your death for estate tax purposes. However, there are proposals in Congress to lower this amount—some to as low as $1 million for the gift exemption and $3.5 million for the estate exemption. While this may not be an immediate concern to most of us, it might become critical for those who are in the $3.5 to $7 million range in asset net worth as planning opportunities for those in that net worth range might be extremely limited.

 

Grantor trusts are highly tax efficient—but they may no longer be an option:

 

Until now, estate planners have been able to successfully set up irrevocable trusts as an estate planning strategy; these trusts remove an asset from a client’s name while allowing them to still take advantage of the client’s income tax brackets instead of the trust’s compressed tax brackets due to certain provisions in the tax code. However, now it seems like grantor trusts may no longer be a viable planning vehicle due to ongoing talks that the grantor trust may be eliminated. If that truly is the case, planning NOW ahead of those changes may be vital to avoid paying increased taxes as part of your estate.

 

GRATs remove taxes on asset appreciation—but they may also disappear:

 

Grantor retained annuity trusts (or GRATs) are commonly used as planning techniques to minimize taxes on certain taxable estates; they allow clients to pay taxes on the transfer of an asset upfront, meaning that any appreciation in the asset’s value will pass ownership at the end of the trust’s term tax-free. However, these may no longer be around by the end of 2020. This also means that wealthier clients may not be able to sell, loan or transfer assets to these trusts either, thereby removing these popularly used techniques from the planning vocabulary.

 

Irrevocable life insurance trusts (ILITs) allow clients to make large lifetime gifts—but they may be affected by the annual exclusion:

 

Until now, we have always recommended that grantors try to utilize unlimited annual exemptions per donee trust beneficiary so large annual premiums to trust would not need to be reported as eating into a client’s lifetime gift amount. However, there’s some talk about limiting the annual exclusion amount to $20,000 per year per donee and $10,000 per year per donor in total, so that strategy may be turned on its head. Estate planners need to think about the future of such strategies and what impact these changes will have on clients who have large premiums coming out this year into the trusts.

 

So what does this mean?

 

Not much for those with estates that fall well under the estate tax threshold as of right now (or even if there’s a decrease in exemption). But for those moderately wealthy and high net worth clients, it may be wise to start planning with the horizon in mind. Taking advantage of the high gift exemptions now might be a good idea, but doing it in such a way that it is protected inside of a trust is prudent. There is a lot of opportunity for families with either less wealthy parents or more wealthy children to allow them to either utilize their exemptions or their children’s exemptions to ensure planning strategies are implemented now (well before the 2020 storm happens) for maximum benefits no matter what comes in the future. This is especially true where spouses may need to transfer assets to one another to allow for enough time to pass between such transfers (i.e. 2019-2020) so that planning strategies for both spouses’ assets can be implemented.

 

For those clients with irrevocable life insurance trusts or ILITs, they might want to take advantage of paying the future premiums in advance of any changes to avoid being impacted negatively by the new annual gift exemptions proposed by the Democratic party in Congress.

 

Finally, while there is no guarantee that any of these above changes are going to be written into law, and we certainly do not want the tax tail to wag the estate planning dog, we can be both thankful and mindful at once. We currently have in place the highest recorded exemptions in history and access to a number of crucial strategies to preserve our clients’ assets. So if any of the information above concerns you and you want to benefit from implementing some of these techniques to grandfather them into your estate plan ahead of a potentially-changing tax regime, then we hope you will call our office right away so we can put into motion a plan that you can be thankful for—in 2020 and well beyond.

Changes to the Kiddie Tax

Now that the new tax law has been underway for a few months now, this is probably a good time for a refresher on how the new changes affect the kiddie tax that could impact some families.

 

The kiddie tax was first introduced in the Tax Reform of 1986 to close the loophole through which wealthy parents and grandparents would transfer assets the produced investment income to their children or grandchildren so that the child would be taxed at the lower tax rate. The tax was imposed on a portion of the affected child’s unearned income at the parent’s marginal rates if that was higher than the child’s rate.

 

Today, the new changes have revised kiddie tax in that those under 18 and those who are full time students between the ages of 19 & 24 at the same rate as trusts & estates.  This means that any income over $12,500 would be subject to the highest tax bracket of an individual or a married couple filing jointly.  The following table represents this new kiddie tax rate:

 

UNEARNED INCOME SUBJECT TO KIDDIE TAX TAX RATE
Up to $2,550 10%
$2,551 to $9,150 24%
$9,151 to $12,500 35%
Over $12,501 37%

So unless you are such high earners that the kiddie tax would still be a savings, wait until your kids turn 25 (and are hopefully out of school) before making them wage-earners of your businesses or recipients of your unearned income.