Articles Posted in Estate Planning

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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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The general durable power of attorney is an important and powerful document. New Jersey law, N.J.S.A. 46:2B8-1, et seq., provides this mechanism so that you may appoint another to handle your affairs. A durable power of attorney is effective during the lifetime of the person who signs it (the “principal”). Its purpose is to appoint another person (or multiple people) who can stand in the shoes of the principal and act on their behalf. The designated person is referred to as the “agent”.

In a general durable power of attorney the principal designates one or more people to act on the principal’s behalf. If the principal appoints more than one persons, he can require that the designated agents must act together, or structure the power so that each person can act alone without the knowledge or consent of the co-agent. Appointing two agents who can act individually can however have drawbacks. If both do not agree on a proposed course of action, it can lead not only to discord and infighting, but to litigation. If one agent feels it is in the principal’s best interest to sell his home, but the co-agent disagrees, the co-agent might bring an action in court to block the sale. The situation would be more difficult if one of the agents had signed a contract for sale with a buyer, as now, the buyer may join the litigation to force the sale. If the agents were required to act jointly they would be forced to come to an agreement before third parties and/or the courts were involved. Finally, it is always recommended that the principal name a successor agent who can act if the first named agent is unwilling or unable to do so.

The most difficult decision the principal has is deciding who to name as agent. Since the agent under a power of attorney must handle the financial affairs of the principal, it is important to choose someone who is organized, responsible and financially savvy. Obviously, it should be a person the principal trusts implicitly. The principal should speak with the proposed agent prior to the appointment to ensure that the person would be willing to take on the responsibilities if it becomes necessary.

However, it is important to make this difficult decision and execute a power of attorney because without one there is no one who can make financial decisions for person once they are no longer capable of handling their own affairs. Unless appointed by a power of attorney, even a spouse does not have the power to handle her spouse’s affairs. For example a spouse cannot access IRA or 401K accounts, cannot mortgage or sell real estate and cannot speak to social security or the motor vehicle commission. Once a person is incapacitated and no longer able to handle their own affairs, they in all likelihood no longer have the capacity to execute a general durable power of attorney. At that point, the only option is to have a guardian appointed for the incapacitated individual. To appoint a guardian, a court action is required which, even if it is uncontested takes considerable time and expense.
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American_quarter_horse.jpgMany people feel that their pets are members of their family and want to make sure that their pets will be well cared for in the event of their death or incapacity. You must plan if you want to make sure that someone will care for your pet were you to pass away or become incapacitated, since that is not necessarily the case and people and normally under no obligation to do so. As a result, pets are often abandoned after their owners are no longer able to care for them.

In order to ensure that your beloved pets continue to be cared for, you can establish an “animal care trust,” which will designate a caregiver, provide funding for your pet’s care and appoint a trustee to fulfill the terms of the trust. New Jersey is one of forty-six states which have laws allowing for the creation of a pet trust. These trusts are gaining in popularity with pet owners who love their pets and want to guarantee that their pets are well cared for, and want to determine who will provide that care.

New Jersey law, NJ ST 3B:11-38, authorizes the creation of an animal care trust. The trust must be created specifically for the purpose of providing care for a domestic animal. It is only permitted to last for a period of 21 years, or the life of the pet (whichever is shorter). The trust must designate who shall be the caregiver of the pet in the event you are no longer able to provide such care. It must also designate a trustee who will be charged with carrying out the terms of the trust. TheTrustee will ensure that the pet is delivered to the caregiver and will oversee disbursement of the funds in the trust for the purposes of caring for the pet. The trust should designate an alternate caregiver and an alternate trustee to serve if the primary caregiver and/or trustee are not able or willing to do so. The principal and income of the trust must only be used to provide care for the pet. The trust must also designate who will receive any funds remaining upon the trust’s termination. The trustee’s final duty under the trust shall be to transfer the unused trust property pursuant to the terms of the trust.

Typically, an animal care trust will direct the trustee to utilize the principal and income of the trust as the trustee deems necessary for the care, maintenance and medical treatment of the pet. The caregiver must request funds from the trustee, and the trustee must decide if the funds should be paid out of the trust.
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Thumbnail image for Thumbnail image for hands-833821-s.jpgOur clients often ask how they can protect their assets from Medicaid in the event a spouse must enter an assisted living facility in the future. While the Medicare Catastrophic Coverage Coverage Act of 1988 allows a community spouse (the spouse who does not require the coverage) to preserve certain assets,, the community spouse may only retain up to $113,640 (this is known as the “Community Spouse Resource Allowance”). However, often Community Spouse Resource Allowances will be insufficient for the community spouses to maintain their current standard of living.

One method which can be used to increase the funds available to the community spouse is an annuity which converts funds into income for the community spouse. As the community spouse’s income is not considered when determining Medicaid eligibility, the funds which would have been countable are removed from the eligibility determination. Those funds no longer need to be spent down prior to applying for Medicaid.

For instance, suppose a New Jersey couple has $500,000 in assets. While a community spouse may be permitted to retain $113,640, the balance of the assets would need to be “spent down” before the spouse would be permitted to apply for Medicaid. However, if the assets are transferred to the community spouse and then the community spouse uses the funds to purchase a qualifying annuity, then the assets are no longer “countable” for Medicaid purposes. This is a permissible way to protect assets for two reasons: First, transfers to spouses are permitted under the Medicaid rules and are not subject to the 5 year “look back” rule and, second, the money used by the community spouse to purchase the annuity was spent to purchase something of equal value and are also not subject to the five year look back rules. As the community spouse’s income is not considered for purposes of Medicaid eligibility, the assets have effectively been converted into an income stream and protected for the use of the community spouse. This, of course, is subject to the community spouse’s Minimum Monthly Maintenance Needs Allowance restrictions. The income cannot exceed the allowed amount.
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Thumbnail image for hello-my-name-is-1428915-m.jpgIndividuals are permitted to change their names as long as they have a permissible reason to do so. Obviously, a name change will not be approved if the purpose or effect of the change is fraudulent, such as avoiding creditors or criminal proceedings. The court can also deny an application for a name change if the reason for the change is “frivolous.”

In order to change your name in New Jersey, you must prepare and file a complaint in the Superior Court of New Jersey. You must certify that the information contained in the complaint is true to the best of your knowledge. The complaint must include: the reason for the name change, your current name, your marital status, that you are not attempting to avoid creditors or criminal prosecution, your citizenship status, the place and date of your birth, and your parents’ names. There is a $200 filing fee which must be paid when the complaint is filed with the court.

After the complaint to change your name and related documents are filed with the Superior Court of New Jersey, the judge will issue an order with a hearing date. You must appear before the judge and ask for your name to be changed. In the order issued by the judge, you will be required to publish the hearing date in a newspaper and present an affidavit of publication to the court. Then, if you properly complied with the notice requirements and the judge is satisfied with the reason for your request, the information you provided and that you are not seeking a name change for a fraudulent purpose, the judge will issue a final judgment changing your name.

If you have pending criminal charges against you, you may still seek a name change. However, you must first notify the prosecutor by sending a copy of the verified complaint and order fixing the date of hearing by certified mail to either the prosecutor of the county where the matter is pending, or to the director of criminal justice in Trenton if the charges were brought against you by the office of the New Jersey attorney general.
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stock-photo-15852330-elderly-couple-talking-and-smiling.jpgThe American Bar Association Task Force on Real Property Probate and Trust Law issued a report discussing the following shortcomings of drafting your own estate planning documents using the services of a “Do It Yourself” package. Some of those short comings are as follows.

  • Things are often more complicated than they seem. When a person writes their own will, often the results are not what she intended. For example, an elderly widow wants to divide her assets equally between her two adult children. Her assets consist or a house worth $500,000 and an IRA worth $500,000. She decides to write her own will giving one child the house and the other the IRA. Then after her death, it comes to light that the IRA, which has designated beneficiaries, is to be shared equally by her two children. Moreover, at the time of her death, her IRA is valued at $200,000 and the value of the house has appreciated to $600,000. So, one child receives the house and $100,000 from the IRA house, a total value of $700,000 and the second child receives $100,000 from the IRA. This was not what she intended. Having an experienced estate planning lawyer can help prevent this.
  • An estate planning lawyer offers more than the expertise in drafting your documents. A significant role of an estate planning lawyers is to counsel clients when making these important and personal decisions, for example, guidance on whom to choose as a guardian for minor children. While this may seem simple, it is complex decision on who is best suited to nurture children, but consideration must also be given the ability to provide financial support. Moreover, when a couple makes decisions, it may be important to have an attorney help the couple chose guardians who are acceptable to both parties.
  • In the event of a dispute after a person’s death, the court will often hear a wide variety of allegations about the decedent’s intentions – all from family members who have an interest in how the court will decide. This is a difficult role for a judge who will look to hear from a person who had discussion with the decedent while she was alive about how she wanted her assets to be distributed. Often, that person is the estate planning lawyer.
  • Technical issues with your will can render it void. A will must unequivocally state the decedent’s intentions. If you draft your own will, you might inadvertently use words which are meaningless in the probate court. For example, if you state “I would like my niece to have my car” would be an unenforceable provision. Moreover, the will must be executed in accordance with New Jersey probate and estate law in order to be admitted to probate and enforced.
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stock-photo-6126140-bank-sign-on-building.jpgIt is a fairly common practice for people to open joint bank accounts. Often joint accounts are held by spouses, and the funds do actually belong to both individuals. However, sometimes these accounts are opened for the convenience of allowing a child or to access funds and write checks to pay bills, or as a way to have ownership of the funds pass to the surviving joint account holder upon death. While this is an effective and simple way to give someone else control of your assets of have the funds pass to another upon death, there are problems associated with joint accounts which should be considered before opening a joint account.

1) The joint account holder has unfettered access to the funds in the account. There is no oversight over the way the funds are used. Both joint account holders can utilize the funds for any reason; there is no need for permission – either account holder can withdraw of any portion or all of the money in the account for any purpose.

2) A joint bank account is at risk from legal actions by the creditors of either account holder. If the joint account holder has a judgment entered against her, all the funds in the joint bank account can be attached and used to pay the judgment. For example, a one account holder gets divorced and his spouse claims a right to some of the funds in the account, then the account holder who deposited the funds in the joint account would need to go to court to prove that the money does not belong to the divorcing account holder. Another example is if the other joint account holder is sued, loses and does not pay the resulting judgment.

3) Upon the death of either account holder, the money would indeed pass to the surviving joint account holder. However, the money remains subject to estate and inheritance taxes. If the individual who passes is not the individual who contributed the funds to the account, the account would nonetheless be taxed as part of the deceased account holder’s estate. In other words, the survivor would have to pay inheritance tax even if she deposited the funds in the first place. Depending on the amount of assets in the account, the relationship between the two joint account holders, and the value of the decedent’s total estate, this can result in a significant death tax burden which could have been avoided.
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Thumbnail image for 800px-Flower-arrangement-funeral-white.jpgGifting your assets to your intended beneficiaries is an effective way to minimize Federal and New Jersey Estate taxes. In order to do so, you must consider the tax implications of making the gift, who will receive the gift, the type of gift, the value of the gift, and the cost basis of the gift.

There are several possible tax liabilities which can be incurred as the result of making a gift: federal gift tax, capital gains tax, generation skipping transfer tax, federal estate tax, New Jersey estate tax, and New Jersey inheritance tax.

Gifts made in contemplation of death can trigger New Jersey inheritance tax liability if the value of the gift is over $500 and they are made within three years of the date of a person’s death. New Jersey Inheritance tax is a tax imposed upon certain classes of beneficiaries. Thus, you must consider who is receiving the gift before you can determine if this will result in liability. The New Jersey tax code separates beneficiaries into “Classes.” Class A beneficiaries pay no inheritance tax, Class C beneficiaries will pay tax on gifts over $25,000 made within three years of the date of death and Class D beneficiaries will pay tax on gifts over $500 made within three years of the date of death.

The decedent’s spouse, civil union partner, domestic partner, children, grandchildren, great-grandchildren, parents, grandparents, great-grandparents, and step-children are Class A beneficiaries, and no inheritance tax will be attributable to gifts made to these people. The decedent’s brother and sister, and son-in-law, and daughter-in-law (if they are the spouse of decedent’s predeceased child) are Class C beneficiaries. Anyone not included in Class A or Class C are Class D Beneficiaries.
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Thumbnail image for 1062252_happy_elderly_couple.jpgThere are many things mature persons need to plan for. An often overlooked area which requires careful planning is potential long-term care. More than half of people sixty five and over will require some form of long-term care. The Medicare office estimates that by the year 2020 approximately twelve million people will need long-term care. The cost of health care continues to increase and government support programs are being cut. The median cost of a one year stay in a nursing home in New Jersey is approximately one hundred thousand dollars per year.

The five possible sources for payment for long term care are private payment, long term care insurance, Medicaid, Medicare and the Veterans Administration. If you are a veteran entitled to those VA benefits, if you are eligible for long term care insurance and able to afford it , or if you are able and willing to pay privately for long-term care, then perhaps you do not need to plan. However, most people do not fit into any of those three categories. The two remaining options are Medicare and Medicaid.

Medicare has specific rules and will only provide coverage up to one hundred days. The patient must be eligible for Medicare, have spent three days in a hospital and enter long term care within thirty days of the hospital stay. Medicare will cover the first twenty days of the stay, then for the next eighty days Medicare may require the patient to pay up to $144.50 per day and Medicare will cover the balance. After the first one hundred days, Medicare will stop providing coverage. Moreover, the care must qualify as “medically necessary”. Medicare will not pay for what is classified as “custodial care,” that is it will not pay the cost of general assistance with daily activities, i.e. eating, dressing, bathing, etc. The patient must require skilled nursing care. Thus, this is a very limited payment option.
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369110_taxpapers.jpgThe Internal Revenue Service increased the annual gift tax exclusions for 2013. The annual gift tax exclusion amount will increase from the 2012 amount of $13,000 to $14,000 in 2013 for gifts made to anyone other than a person’s spouse. New Jersey does not impose a gift tax, with the limited exception that gifts made within three years of a person’s date of death are subject to tax upon the death of the giver.

Individual annual gift tax exclusions can be combined with gifts of spouses to give up to $28,000 to any person each year and no gift tax will be due. There is no limit as to the number of gifts which may be made to different people. Additionally, there is no limit to the marital deduction for taxpayers who make gifts to their U.S. citizen spouses. The annual gift exclusion for gifts made to non-U.S. citizen spouses is being increased to $143,000 in 2013.

If an annual gift is made during 2013 which exceeds $14,000 to any one person, or if it exceeds $143,000 to a non-US citizen spouse, it is a taxable gift and the giver must file a U.S. Gift Tax Return with the IRS on Form 709. Each person is afforded a lifetime gift tax exemption. At present, the lifetime gift tax exemption amount is $5,120,000. However, that amount is scheduled to decrease to $1,000,000 when the county hits the “fiscal cliff” in 2013 unless Congress acts to change the law. Even if you make an annual gift to an individual over of the applicable annual exclusion amount, the giver will have to file a gift tax return, but will not owe gift tax unless they have exceeded the lifetime gift tax exemption.

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