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Articles Posted in Estate Planning

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supreme-administrative-court-3565618_960_720-300x200A holographic will is a will that is handwritten, signed and dated by the testator (the person whose will it is).  Under New Jersey estate planning Law, holographic wills can be probated and will serve to ensure that the Testator’s assets are bequeathed according to the Testator’s wishes.  In fact, a holographic will is valid even in the absence of witnesses.   While a formal, written will with witnesses prepared by an experienced estate planning attorney is always preferable, a holographic will can be used in an emergency.

During the current health crisis, particularly for those who have tested positive for COVID-19 or those who are at particular risk, it may be better to have a holographic will than to have no will at all.  However, it is important to know the requirements as well as the risks and downsides to using such a handwritten will.   If at all possible, it is certainly better for everyone involved, from the testator to the executor and beneficiaries, for there to be a properly executed traditional will.

The crucial requirement under New Jersey wills and estate law,  for a handwritten will to be admitted to probate in New Jersey is that the will was written by hand, signed and dated by the decedent and that the signature and key provisions are clearly written by the same hand and that the handwriting is identifiable as that of the decedent.   To prove that in court usually requires testimony by a handwriting expert and/or witnesses who are familiar with the decedent’s handwriting.   The holographic will must be presented to the Superior Court by an order to show cause in order to be probated, even if all interested parties agree that the will is valid and represents the decedent’s wishes and intentions about their estate.

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Senior, Elderly, People, Couple, PersonsMany financial accounts provide the account holder with the option to designate beneficiaries.  If a beneficiary is designated on a financial account, upon the death of the account holder, the assets to the account do not pass according to the provisions of the decedent’s Last Will and Testament, but instead will pass to the designated beneficiary.   Therefore, such designations are a crucial part of estate planning, and can significantly change the distribution of an estate.  Yet beneficiary designations are over overlooked during the estate planning process.  Accounts with designated beneficiaries must be considered when structuring your estate plan and when estate planning documents are being drafted.  You must ensure your beneficiary designations are consistent with the rest of your estate plan and together with your estate planning documents accomplish your estate planning goals.   I have met with many clients who needed significant revisions to their Will because their beneficiary designations were not considered when the Will was drafted.  Beneficiary designations which are not considered during the consultations and drafting of estate planning documents often skew or even completely override the intent of the decedent.

Often, people do not consider the effect a beneficiary designation will have on their estate plan.  Instead, believing it to be a simple decision, they just pick someone when asked by a financial advisor or when completing account paperwork.   Sometimes, they don’t want to “bother” their attorney with questions about their accounts, which people often think of as separate from their estate plan.   It is routine and expected for a life insurance agent or retirement account professional to ask for beneficiary designations, but it is also a common option now for brokerage and bank accounts.  Clients often think they “named the same beneficiaries” on all of their accounts, but when documentation is obtained and reviewed, the beneficiaries designated often undermine their estate planning intentions.

It is always a good idea to consult with your various professionals – you lawyer, financial advisor, and insurance broker – to confirm that you have named beneficiaries where necessary, and that these designations are carefully considered to effectuate your estate plan.

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money-2724241__340-300x203If a person wants to control the distribution of funds held in an IRA after their death, it is possible to do so by naming a trust as the beneficiary of the IRA.  However, in order to minimize tax consequences, the trust named as the beneficiary must be a “look-through” trust which qualifies for payout of the IRA funds over time rather than as a lump sum upon the death of the IRA owner.

While IRAs and qualified retirement plans generally do not require probate, distribution of these assets are controlled by contract law and are distributed pursuant to the beneficiary’s “designations” which were filed with the financial institution prior to the account owner’s death.   A trust can be named as the beneficiary.   However, the structure of the trust will determine whether the proceeds must be paid in a lump sum, and thus subject to potentially significantly higher income tax, or if the Trust qualifies as a “look through” trust in which the payout of the proceeds can be stretched-out over the life expectancy of the oldest beneficiary of the Trust.

You might wonder why the owner of an IRA would want to name a trust as his or her beneficiary, particularly when it is much simpler to merely name the individuals as the beneficiaries.  The primary reason is to control the distributions to the beneficiaries after death. You do not avoid paying taxes by naming a trust.  However, you can prevent your beneficiaries from taking lump sum distributions of your IRA, which would likely result in additional taxes and the remaining balance of which could be squandered by your beneficiaries.  But the purpose of a naming a Trust as the Beneficiary of an IRA is not tax savings.   In fact, it’s quite possible to pay more in taxes even if trust is designed properly. Therefore, you would only use trusts for personal (non-tax) reasons.

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hand-229777__340-300x215The last acts of an Executor of an estate are often making final distributions to the beneficiaries of the estate.  But beware, in New Jersey, before making distributions, an Executor should require each beneficiary to provide a properly executed refunding bond and release.

Under New Jersey law, N.J.S.A. 3B:23-24,  the executor or personal representative of an estate is required to take a refunding bond upon making a distribution pursuant to a dececendent’s Last Will and Testament.  The same statue also requires that the refunding bond be filed with the surrogate who probated the decedent’s Will.

After all the estate assets have been collected, all debts of the estate have been paid, and a determination as to what each beneficiary is entitled to receive has been made, the executor or personal representative of the estate must prepare, or have the attorney representing the estate prepare, a refunding bond and release for each beneficiary which states, among other things, what the beneficiary will be receiving as their distribution from the estate.

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key-2114044__340-300x169Generally, before the estate of a decease person can sell real estate, the individual(s) named as executor in the will must probate and be formally appointed as executor.  If there is no will, then the closest heir at law must apply to the surrogate’s court to be appointed as administrator of the estate.  An administrator would follow the same steps as an executor in order to sell real estate.

Estates with a value in excess of $5,450,000 are subject to federal estate tax pursuant to IRC Section 6324.  IRS estate tax liens automatically attach to real property (“real estate”) which was owned by a decedent on her date of death.  In order to have this tax lien discharged, the seller must follow these steps in order to close on the sale of the property and have the federal estate tax lien discharged:

The executor of the estate must complete and file IRS Form 4422 and provide the required supporting documents.  In order to compete this form you must know the value of all estate assets and expenses.  And you must have the required supporting documentation including: the last will and testament, the contract for sale of the real estate, the closing statement or proposed closing statement for the sale (which shows all payments, credits, expenses and offsets), the federal estate tax form 706 and documentation reflecting the value of all the estate’s assets.  With Form 4422 the executor must also submit for 8821, a tax information authorization form.  Additionally, IRS Form 4422 must be filed at least 45 days prior to the closing of the sale of the real estate.

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twitter-292994__340-300x200When you think about estate planning, most people think about their physical possessions, their real estate and their financial assets, but in this day and age, you also need to consider your digital assets.   You may have as much as 20 years of active digital presence.  This can include documents, photos, and on-line accounts such as Facebook, Google,  back-up services, Linked In, Twitter, Snapchat, etc.  Such digital accounts generally have no expiration date.

It is important to consider what will happen when you die to your accounts and the data contained them.  It is important to consider what will happen if you do nothing, and decide if that is what you want to happen.   It is an often overlooked part of estate planning.

Many online accounts allow you plan during life for what will happen to the account upon death.  However, this is all very new and some of the most popular online accounts do not provide a way to plan for what will happen to the account upon the account owner’s death. For any accounts which do not allow you to plan, it is desirable to establish a plan now with a trusted loved one.

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Frequently, when you or a family member are first diagnosed with dementia, you still have the capatestament-1183175__340-300x200city and are legally “competent” to make your own estate planning decisions.  The four documents discussed here will assist a person with dementia and their loved ones as the disease progresses and they no longer have the mental capacity under the law to execute these documents and are no longer able to make decisions for themselves.   If a person has not already made these planning decisions and executed the necessary documents, they must act immediately while they still have the mental (and legal) capacity to do so.

In order to be legally capable to sign estate planning documents a person must have “testamentary capacity” – they must be able to understand the import and consequences of what they are signing.  They must understand the mechanisms being put in place and the who they are appointing to make decisions for them.  Even if a person only has periods of lucidity it does not mean they automatically lack the required mental capacity.   That can be complicated, as they need to review and execute the documents during a period of lucidity.  Sometimes meetings with their attorney will need to be rescheduled to accomplish this goal.

The most important documents for a person who has been diagnosed with dementia are the Durable Power of Attorney, the Living Will, the Health Care Proxy and the Last Will and Testament.

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The New Jersey Estate Tax is being phased out beginning with residents dying on or after January 1, 2017.  Governor Christie signed a new law calculator-385506__340[1], the new tax laws reduce the estate tax for resident decedent’s dying in 2017 by increasing the exemption amount to $2,000,000.00, and then eliminating the New Jersey Estate Tax altogether for resident decedents dying on or after January 1, 2018.  New Jersey is no longer one of the worst states in which to die, and New Jersey resident seniors may no longer feel the need to establish domicile elsewhere. Those New Jersey decedents dying in 2016 with estates exceeding $675,000 will remain subject to New Jersey estate tax. Further, the federal estate tax will continue to apply to estates greater than the federal exemption amount, currently $5,450,000, which increases annually based on inflation.  And, after the recent elections, we need to keep an eye out for new laws enacting changes to the tax code.

However, while the New Jersey Estate Tax is being phased out, the Inheritance Tax will remain.  New Jersey is one of only six states which impose an inheritance tax on transfers from a decedent to a beneficiary.   Whether an estate is subject to inheritance tax is determined by the relationship between the decedent and the beneficiary.  Bequests to “Class A” beneficiaries (i.e. spouses/domestic partners, parents, children) are not subject to inheritance tax.  The tax rate on transfers to non Class A beneficiaries depends on the “Class” of the beneficiary and the value of the asset transferred to that beneficiary.  Likewise, non-resident decedents who own New Jersey real estate or tangible personal property will continue to be subjected to the New Jersey Inheritance Tax.  Additionally, New Jersey Inheritance Tax Waivers will still be required in order to transfer title to real estate, brokerage accounts, securities and bank accounts.

Please call or e-mail the attorneys at McLaughlin & Nardi, LLC to create an estate plan or  review and update an existing plan.

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This is called dying intestate and if you die without a Last Will and Testament as a resident of the the State of New Jersey your estate will be distributed according to the New Jersey laws of intestacyhand-229777__180   Since there is no will to probate, your nearest living relative who is willing to do so will need to be appointed as administrator of your estate by the surrogate’s court.

However, not all of your assets will be distributed through the process of estate administration.  There are many assets which, through contract law, pass automatically to a designated beneficiary.  Examples of assets that pass automatically are:

  • Real estate owned with another person as joint tenants
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