Michele Peters offers counsel specifically as to estate planning. The information provided herein is intended as an introduction to ideas and legal principals and is not a comprehensive discussion of the many options available in estate planning. Please scroll down this page to read about Pre and Post-Nuptial Agreements; and AB Trusts. Additionally, please see the Resource Information area of the website regarding New Jersey estate tax proceedings and Special Needs Trusts. What is Estate Planning?
Additionally, it is a plan for your
care in the event of your inability to express your wishes as a result of physical or mental disability during your
lifetime. How is an Estate Plan created? An
estate plan usually involves several meetings with your attorney during
which you will be asked a series of questions designed to ascertain
your specific financial and familial issues. The estate planning
process also involves a careful analysis of how you own your assets and
the implications that you should consider in the event of mental
incapacity and death. Among the questions asked will be those related
to your retirement goals and plans, Social Security and other benefit
and pension programs. We often work with other advisers (e.g., CPA,
Financial Adviser, Insurance Agent) to ensure that your assets are
titled and your estate plan is established in a manner that maximizes
your ability to achieve your goals. Many estate plans incorporate a combination of ways that your property can pass to your beneficiaries, but in order to ascertain the best way to structure the ownership of your assets, there needs to be a thorough understanding of what you currently own and how your assets are titled. Working with Elderly Clients Michele Peters will travel to meet with clients. Very often the children of elderly persons initiate the contact with our office. It is important to us that the elderly person feel confident in the representation and agrees with whatever estate plan is being created. Ms. Peters is a certified guardian in New York State and has worked for many years with New York State's Office for People With Developmental Disabilities and is sensitive to the challenges presented in these situations. |   |
A will-based plan uses a will as the primary set of directives the Personal Representative (Administrator/Executor or Executrix) is to follow to settle your estate when you die. Since a will is only effective after someone dies, it is necessary to utilize powers of attorneys and advanced medical directives to address pre-death matters. There are important estate tax considerations so it is important to gather the information as to all your assets and their current value to discuss with your attorney.
Important to consider are expenses -- incurred during your lifetime and after death. If your debts are minimal, and there is cash to pay funeral / cremation expenses (customarily $5,000 and more with publication), there should not be cause to worry. We need to look to our state's laws to find guidance as to the debts that remain and the rights of creditors. Often persons leave cash to one beneficiary and "goods" to another. Remember if there are debts outstanding at death, they will be paid by the cash remaining first and therefore possibly depleting whatever bequest had been intended to the cash receiving beneficiary. Taxes will be paid out of the liquid assets.
- What is a Trust?
A living trust is one that's created while the property owner is alive. Many people have a trust that becomes created at death to distribute their property to their heirs. This is called a testamentary trust. Some people use a will as well as a trust to distribute their property. They may use the trust to transfer property that has title, such as a car or a house, and use the will to transfer all other property.
- What are the uses of a trust?
Trusts can be of great
benefit when properly set up and managed. One of the uses of a trust is
to provide flexible control of assets for the benefit of others – such
as minor children, children of another marriage, for the benefit of a disabled child (see Special Needs Trusts); or even for pets
(see Pet Trusts). In certain circumstances, trusts are a god-send to a family caring for someone who experienced a devastating accident or illness. Please read more about this below under "Avoiding a Conservatorship".
Are there advantages to a trust?
New Jersey has a rather straight forward probate process since New Jersey follows the Uniform Probate Code and unless the gross estate exceeds $675,000, ($1,000,000 in New York State) the use of a trust - without other considerations such as special needs - may not be worth the time and expense to create.
However there are advantages.
- A Living Trust
A "living trust" (also called an "intervivos" trust ) is simply a trust created
while you're alive, rather than one that is created at your death under
the terms of your will. A "living trust" is
legally in existence during your life.
Similar to a will, a living trust can provide for the distribution of property upon your death. Unlike a will, it can also make available for you a means to manage your property during your life and authorize the trustee to manage the property and use it for yours or your family’s benefit. This is especially important if you become incapable of taking care of your financial affairs because of physical or mental illness.
- Avoiding a Conservatorship in the Event of Incapacity
If you've created a trust with your spouse or
partner as trustee or (successor trustee to yourself), he or she would have authority over all the trust property. If you've
made an individual trust, your trust document should authorize your "successor trustee" whose job is to take over as trustee at your
death, (this is called a "triggering event"), to step in and manage the trust property if you become incapacitated.
Most trust documents require that before a successor trustee can take charge of trust property, your incapacity would have to be certified in writing by one or two physicians. Once that determination has been properly made, the successor trustee has legal authority to manage all property in the trust, and to use it for your health care, support, and welfare. The law requires the trustee to act honestly and prudently.
A successor trustee who takes over must also file an annual income tax return for the trust. (As long as you are the trustee of your own trust, no separate trust income tax return is required.)
You should also make a durable power of attorney. Your successor trustee has no authority to manage property outside the trust. It's always a good idea to sign a document called a Durable Power of Attorney for Financial Management.
This document can authorize your successor trustee to make
financial and property management decisions for non-trust property if
you become incapacitated.
If you decide to have only a will, the durable power of attorney should also be executed.
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In New Jersey, if I make a living trust, do I still need a will?
Yes, you need a will. A will is the backup plan for any property that doesn't enter into your trust. For example, if you acquire new property and don't add it to your trust before you die, that property won't pass under the terms of the trust document. You can use a will to name someone to inherit property that you haven't left to a particular person or entity in your trust.
If you don't have a will (known as dieing intestate), any property that isn't transferred by your living trust or other method (such as joint tenancy with the right of survivorship) will go to your next of kin as determined by New Jersey state law succession rules.
- Can writing a living trust reduce estate tax in New Jersey?
It depends on the kind of trust you create. A simple probate-avoidance living trust has no effect on federal estate tax. However, more complicated living trusts, such as an AB Trust can reduce the federal estate tax bill for people who possess many valuable assets. (Most people though don't need to worry about federal estate tax because it only affects estates worth more than $5 million - the current law in effect until December 31, 2012.)
- About AB Trusts:
- Federal law in effect for decedents in 2011 and 2012, states that wealthy married couples can transfer up to $10 million or more without owing federal gift tax or estate tax. This ability to combine each spouse's individual estate tax exemption is called "portability." For many couples, it eliminates the need to create an AB trust, or bypass trust, to avoid estate tax.
- The portability provision of the current law lets the surviving spouse use any part of the total exemption -- $10 million for deaths in 2011, $10.24 million for deaths in 2012 -- not used by the first spouse to die. So for most couples, there's no need for an AB trust.
- Revocable versus irrevocable trusts
There are two categories of trust: revocable and irrevocable. A revocable trust is one that you can change while an irrevocable one cannot be changed after it is established. There are important consequences to what type of trust is created. If your trust is revocable, it may prevent you from qualifying from
certain government assistance programs such as Medicaid and Medicare.
Four components of a trust
There are four basic components of trusts:
- A grantor, the person who establishes the trust;
- The beneficiaries, who receive the benefits of the trust, which may include income and/or principal;
- The assets, which are the properties transferred into the trust; and
- The Trustee, is the person or entity that manages the trust's assets and distributes the property according to terms established by the grantor. A trustee may be an attorney, a trusted friend, a bank, a company, to name a few examples.
One common misconception is that a revocable living trust saves on what is referred to as “death taxes”. The assets of a revocable living trust are subject to federal and state death taxes in exactly the same way as assets passing under the terms of a will.
- Another mistaken belief is that the trust is beyond the reach of creditors. Because it’s a revocable trust, your creditors can go after those assets during your lifetime even though you have transferred ownership of the assets to the trust. However, the trust’s existence makes if difficult for creditors to reach the assets. Creditors must petition the court for an order before pursuing the trust’s assets.
In most instances, a revocable trust becomes irrevocable upon the death of the grantor if not originally created as irrevocable. This means that the assets in the trust can no longer be taken back, and they must be distributed to the beneficiaries of the trust.
- Looking again at the example of creditors -- while creditors of the deceased can try and collect from the trust assets, once the trust is irrevocable, the trust beneficiaries are usually not able to use the assets of the trust as collateral for their debts, so their creditors can’t get to the assets of the trust. While the assets are held in the trust and the beneficiaries do not have control over the property; distributions are subject to the trustee's discretion.
Creditors cannot force a trustee to make a distribution to trust beneficiaries; thus the assets held in a trust can remain outside the reach of the beneficiaries' creditors as long as they are held by the trust. However, once assets are distributed to the beneficiaries, creditors can attach the distributions as they can any other property owned by the beneficiaries.
- Pour-over Will
- A common misconception is that a living trust replaces a last will and testament.
- In fact, a special type of last will, referred to as a “pour-over will”, is a companion to the living trust.
- Assets not transferred to the living trust are subject to probate upon the grantor's death.
- Because a pour-over will is used to transfer or "pour" all of the grantor's remaining property into the living trust upon his or her death, a pour-over will is usually executed simultaneously with a living trust.
Pre-nuptial and Post-nuptial (Antenuptial) Agreements
The post-nup is a contract signed during marriage or civil union to manage financial affairs and divide income and assets in the event of death or divorce. The pre-nup - its better known cousin - is the contract signed prior to marriage or civil union. While these agreements do not guarantee there will not be litigation at divorce, if carefully drafted, they assist in expediting the divorce resolution.
The purposes of both agreements is estate planning. "That is a perfectly good reason to do it," says Jeff Atkinson, principal author of "The American Bar Association Guide to Marriage, Divorce & Families" (Random House, 2006). It is a way to direct retirement benefits to children of a previous marriage, or to a child with special needs. Or to make sure a beloved summer home stays in the family of a previous marriage by making it separate from the current couple's community property.
For those who never considered the pre-nup agreement, the post-nup assists in removing money as an issue in marriage and allows the couple to focus on their relationship.
Post-nups are held to a
very high standard of fairness. These agreements are not about love.
They can help couples deal with financial issues.
Many couples disagree about money -- one is a spendthrift, the other a saver. A post-nup can give couples predictability and a sense of security about their financial future.
What is necessary:
- Spouses must fully disclose their income, assets and debts;
- They should each have legal representation;
- PLUS plenty of time to think about the terms so that neither is pressured to sign;
- And most important, the agreement has to be fair to both parties.
