Estate Administration and Probate

Published on: October 26, 2012

Minimizing New Jersey Estate Taxes by Utilizing a Disclaimer Trust Provision in a Will

New Jersey imposes an estate tax on assets passing to any beneficiary other than a surviving spouse. The New Jersey exemption amount is $675,000, meaning that a decedent whose estate exceeds $675,000, and whose assets are to be inherited by any individual other than a surviving spouse, is subject to New Jersey State estate tax. While both spouses are entitled to an exemption amount of $675,000, careful planning is required to take full advantage of both spouses’ exemption amount and shield $1,350,000 from taxes when it is passed to the next generation.

A disclaimer trust is an excellent vehicle for married couples to ensure that their heirs can maximize their exemptions. This trust can be included as a provision in both spouses’ wills. It provides that the trust will on be funded upon the death of first spouse if the surviving spouse executes and files a valid and proper disclaimer within nine months of the spouse’s death. It is important that the surviving spouse does not exercise any control over the assets being disclaimed after the decedent’s death. There are a number of factors to consider when deciding whether to disclaim assets and thereby fund the disclaimer trust, including the value of the estate, the age of the surviving spouse, the health of the surviving spouse and the current status of estate tax law. A disclaimer trust provision in a will is flexible and allows the surviving spouse to decide whether or not to fund the trust. However, if the decedent’s will does not contain the necessary provisions, the surviving spouse does not have the option to fund the trust and minimize future New Jersey estate taxes for the next generation.

The terms of the disclaimer trust are usually that the surviving spouse is entitled to all of the income from the trust during her lifetime, and the surviving spouse also has the right to access the trust principal for her health, education, support and maintenance. Distributions in excess of that are not automatic and require the agreement of the co-trustee. Typically, upon the surviving spouse’s death, the couple’s children become the trust beneficiaries.
Continue reading

Published on: October 8, 2012

Accessing Online Accounts After the Account Holder’s Death

by Jennifer C. Meusel

NJ Assembly Bill A-2943 will ease access to Online Accounts after a persons death.

The New Jersey State Assembly has approved legislation allowing an executor or administrator of an estate to assume control of a person’s online accounts in the event of her death. If the bill is approved by Congress, the executor or administrator will be able to conduct, continue or terminate the social networking website, micro-blogging, and e-mail websites.

Currently the executor or administrator must research, navigate and wade through the protocols in place for each separate website. For example, Yahoo! Mail will not allow access to an executor or administrator, or anyone else, unless it is court ordered while G-mail and Hotmail will allow access upon providing proof that the executor or administration has been authorized to access these accounts.

Social media websites each have their own rules. Facebook will not allow access to a deceased person’s account. They do however, provide a memorial status for the deceased person’s account. They require a copy of the death certificate to close the account, but will not grant access.
Continue reading

Published on: August 31, 2012

New Jersey Living Wills

by Jennifer C. Meusel

Under New Jersey estate planning law, a living will, which is legally called an advanced directive, allows a person to give instructions for what care she is to receive her health is extremis. A living will must be in writing, signed and dated before two adult witnesses who attest that the person signing the advanced directive is of sound mind, and is not under duress or undue influence. Alternatively, it may be signed, dated and acknowledged before a New Jersey notary public or a New Jersey attorney.

Under law New Jersey law, a living will becomes effective when it is provided to the physician who has determined that the patient does not have the capacity to make her own health care decision. If at any point the patient regains the ability to make her own health care decisions, the patient regains the legal authority to direct her own care.

The main purposes of the living will are to allow a person to give her instructions or her wishes for when she is unable to do so herself and to appoint an agent to make decisions when she is unable to make her own decisions. The living will may direct that certain life-sustaining treatments be withheld. If, for example, the patient has an incurable or irreversible, severe mental or severe physical condition; is in a state of permanent unconsciousness or profound dementia; is severely injured; and in any of these cases there is no reasonable expectation of recovering and regaining any meaningful quality of life, then the living will may direct that life-sustaining treatments be withheld. New Jersey law provides that the attending physician, if it is consistent with the terms of the advance directive, may issue a “Do Not Resuscitate” order.

There are two types of advanced directives: an instruction directive and a proxy directive. These can be combined into one document. A person can chose to execute both types or either one standing alone.
Continue reading

Published on: August 21, 2012

The Purpose of a Power of Attorney

by Jennifer C. Meusel

Attorneys often focus on the importance of an estate plan and having a will to minimize costs and conflicts when a person dies. But it is just as important to plan for problems that may occur during people’s lives if they are unable to manage their own affairs, particularly the serious problems that can occur as the result of illness or incapacity.

A durable power of attorney can be invaluable in such situations. A durable power of attorney authorizes one person to handle all non-medical matters for another. It can also be limited as desired by the principal (the person who is signing the power of attorney, the grantor of the power). It is a durable power of attorney because it remains in effect even if the grantor becomes incapacitated. The durable power of attorney can be revoked at any time as long as the grantor has not become incapacitated.

In the event a person becomes incapacitated, the agent appointed in the durable power of attorney can take care of their affairs. The durable power of attorney thus eliminates the need to apply to a court to declare a person incapacitated so that a guardian can be appointed. The application for guardianship is a costly, time consuming and emotionally draining experience. One simple document, the durable power of attorney, properly drafted and executed saves the principal and their loved ones from this difficult and expensive proceeding. It also ensures that the principal gets to chose who will act on her behalf if she becomes incapacitated, rather than having the existing laws and a court make that determination. It is also recommended that the principal designate a successor agent, someone who will take over as the agent if the first named agent is unwilling or unable to fulfill that role.
Continue reading

Published on: July 30, 2012

Avoid Estate and Gift Taxes With a Self-Canceling Installment Note

by Jennifer C. Meusel

A self-cancelling installment note (“SCIN”) can be used to sell a business interest, stocks, real estate or other types of assets, usually to a family member of the current owner. This is a variation of an installment sale where the remaining payments are cancelled upon the death of the note holder.

When using a SCIN, the person selling assets essentially serves as a bank. They transfer title to the asset to the buyer in exchange for installment payments, including interest, (at regular intervals, i.e. monthly, quarterly or annually) over a specified time period. The SCIN will contain a provision that the unpaid balance of the note is cancelled upon the seller’s death. If the seller lives beyond the term of the note, the cancellation provision has no meaning and is just ignored, because the entire balance will have been paid. However, if the seller dies before the term has expired, the buyer’s obligation to make the installment payment ends at the seller’s death.

The main purposes of utilizing a SCIN to transfer assets are: 1) minimizing estate taxes – the unpaid balance is not includable in the seller’s gross estate; 2) avoiding gift taxes; and 3) prorating capital gains on the increase in value.

Estate taxes are saved because the title to the asset was transferred to the purchaser for value before the seller’s death. This includes all appreciation which accumulated since the seller took possession of the asset. Additionally, any appreciation in value after the sale will be excluded from the seller’s taxable estate.
Continue reading

Published on: June 6, 2012

What is Probate?

by McLaughlin & Nardi, LLC

When a person dies owning assets, probate is often required to transfer the title. Some assets are “probate assets.” These assets can only be transferred after an executor or administrator has been appointed by one of the New Jersey Surrogates. Each county in New Jersey has its own Surrogate. The county where probate is initiated is determined by the decedent’s residence. If that person died with a will, the executor named in the will will be appointed by the Surrogate, then the assets will be transferred to the beneficiaries named in the will by that executor. If the person died without a will, the surrogate will appoint an administrator, then the assets will be transferred according the New Jersey Intestacy Statutes by the administrator.

There are, however, assets which can be transferred without probate. These assets are transferred to a designated beneficiary under contract law. Examples include: the joint tenant of real estate automatically becomes the sole owner of that real property; the “payable on death” beneficiary on a bank account takes ownership of the entire account; the named beneficiary on a contract for life insurance will be paid the proceeds of the policy without the need for the executor or administrator to take any action. Other assets which typically pass without the need for probate include IRAs, 401(k)s, and employee death benefits. Determining if an asset must go through probate to effectuate transfer is dependent upon how the title to the asset was held at the time of the person’s death.

Personal property, including stocks, bonds and bank accounts, vehicles and real property which are held solely in the decedent’s name require probate for transfer to the beneficiary. These assets are referred to as “probate property” and are transferred to the people designated in the will, or if there is no will, to the people designated by New Jersey’s laws of intestacy.

If probate is required, this is done at the New Jersey Surrogate’s Court in the county where the decedent resided. A will cannot be probated until ten days following the death of the testator (the person who executed the will). The person who is named executor in the will must appear at the Surrogate’s County with the original will, an original certified death certificate, the names and addresses of the next of kin (the surviving family members), a check to pay the Surrogate’s fees for probating the will, and valid identification.
Continue reading

Published on: June 1, 2012

New Jersey Estate and Inheritance Tax

by Jennifer C. Meusel

Estates of New Jersey residents are potentially subject to two types of state taxes: New Jersey Estate Tax and New Jersey Inheritance Tax.

First, an estate is subject to New Jersey Estate Tax if the value of the estate is more than $675,000.00. This tax is based solely on the value of the assets held by a person when they die, whether held individually or jointly with another person. If the value of the estate exceeds $675,000 a New Jersey Estate Tax Return (NJ IT-E) must be filed within nine months after death.

Second, the requirement to file New Jersey Inheritance Tax Return (NJ IT-R) is triggered by the classification of the estate’s beneficiaries. The NJ IT-R must be filed within eight months after death. The tax is determined by the relationship of each beneficiary to the decedent. Class “A” beneficiaries are not required to file or pay New Jersey Inheritance Tax. Class “A” beneficiaries are spouses, children (or lineal descendants), parents, grandchildren, grandparents, or stepchildren. There is also no inheritance tax on bequests to a qualified charity. Since, these are usually who most people leave their estates to, most estates are not subject to the New Jersey Inheritance tax.

If a person leaves property to a brother, sister, son-in-law or daughter-in-law (these are class “C” beneficiaries), the New Jersey Inheritance Tax Return must be filed. The first $25,000 of the bequest is not subject to inheritance tax. However, the next $1,075,000 is subject to tax at a rate of 11%; amounts in excess of that are taxed on a sliding rate scale ranging from 13% to 16%.
Continue reading

Published on: March 2, 2012

Do You Really Need a Will?

by Jennifer C. Meusel

The short answer is yes. Your will ensures that:
• your assets are given to those whom you want to receive them;
• you can control the way in the which your assets are distributed (for example, establishing a trust for the protection of a beneficiary, and designating the trustees);
• the guardians you choose will be entrusted with raising your children;
• your estate will be administered by someone you trust;
• your estate will not be reduced by the cost of an administration bond; and • estate taxes are minimized.

In your will, you choose who will receive your assets (beneficiaries) and what they will receive (bequests). If you do not have a will, your estate will pass through the laws of intestacy. Many people believe the laws of intestacy will align with their wishes for distribution of their estate. However, many times that is not the case. For example, if you are married, have no children, and do not have a will, people assume that the surviving spouse will inherit the entire estate. However, under New Jersey intestacy law , your surviving spouse is entitled to the first twenty five percent of your estate (not less than $50,000 nor more than $200,000) and seventy five percent of the remaining portion. The balance will go to your parents. So, for example, if you have a $1,000,000 estate your surviving spouse will receive a total of $800,000 and your parents would receive $200,000. In another example of unintended consequences in intestacy, if you have no living relatives and no will, your entire estate will be given to the State of New Jersey. There are many other scenarios under the laws of intestacy which would distribute your property in ways that you may not intend. Having a will ensures that your estate is distributed to people or charities that you have chosen.

Without a will, your assets are distributed under the laws of intestacy directly to the people designated by New Jersey law. In some circumstances, it may be wise to put the money in a trust for some of your beneficiaries so that you can direct when and for what purposes the money will be distributed. This is particularly useful if there are potential beneficiaries with special needs whose governmental benefits need to be protected.

A will designates your children’s guardians – a will is the only way to appoint guardians. This is an important choice. You should discuss this choice with the people you choose beforehand because you will be placing a great responsibility upon them.

You will also select executors and trustees. Executors are responsible for probating your will, paying expenses, and collecting and distributing the assets to the beneficiaries. Trustees manage assets placed in trust for designated beneficiaries. By New Jersey law, if there is no will, or a will that does not waive the bond, fiduciaries (such as executors and trustees) must post a bond with the surrogate’s court. The cost of the bond varies with the value of the estate’s assets, and can become very costly. To ensure that your assets are not diminished by the bonding requirement, you can waive it in your will.
Continue reading

Published on: March 1, 2012

A Basic New Jersey Estate Plan

by Jennifer C. Meusel

An estate plan carries out a person’s wishes at the time of their death and appoints people to make decisions during life.

An estate plan commonly consists of three main documents:
• Last will and testament
• Durable power of attorney • Living will and health care proxy (medical power of attorney)

Last Will and Testament. The fundamental document is the last will and testament. The will takes effect upon death. The will must meet the formal requirements under New Jersey law in order to be effective in New Jersey
The will designates people and their roles:
• Beneficiaries – recipients of the decedent’s assets;
• Executors – the persons who will probate the Will, collect the estate assets
and distribute the estate assets to the beneficiaries;
• Trustees – the persons who will manage the assets placed in a Trust usually
for the benefit of either the surviving spouse or the children or both;
• Guardians – the persons who will care for minor children until they reach the
age of majority (which is age 18 in New Jersey).

Durable Power of Attorney. The power of attorney is in effect when a person is alive; it becomes effective when it is signed. When a power of attorney is “durable”, it remains in effect even if the person is incapacitated. The durable power of attorney authorizes the people selected to handle your financial matters. Common tasks include banking, including writing checks and paying bills, real estate, trading investments, communicating with social security, pension benefits departments, Medicaid/Medicare, and the IRS, hiring accountants, attorneys, and financial advisors, and any other related financial need.
Continue reading