Planning

NEW YEAR’S RESOLUTION

WELCOME 2019!  The new year is upon us and like most individuals, you may have made resolutions for the new year.  Often times when making resolutions, we forget to address the important matters and I challenge you this year to think outside the box and make a resolution to address your estate planning matters using the 7 steps below.

The burden on the family of an incapacitated loved one is increased when they are unprepared.  Crisis often arises as a result of their lack of knowledge of their loved one’s personal matters and these crises require legal counsel.  Many of these situations can be avoided with proper planning.  We counsel our clients to be proactive in these areas and minimize the stress and expense for their family.  The following are some of our top suggestions:

1. Tell Your Story:

Prepare a letter of last instruction to help transition the details of your personal life to those who will be helping you when you are no longer able to act for yourself.

1a.       Personal Financial “Blue Print” Prepare a list of your passwords, assets, and liabilities – complete with account numbers.  Include the names, addresses, and telephone numbers for your financial planner, attorney and accountant.  Identify the location of your bank/brokerage statements, bills, and tax returns.

1b.       Personal Medical “Blue Print” Prepare a list of your health insurance policies and claim centers, medications, physicians and pharmacies.  Prepare a medical history or obtain a copy from your primary care physician.  State your preferences for hospitals, rehabilitation centers and care services.

2. Financial Spring Cleaning:

Review the manner in which your assets are titled with your fiduciary team (consisting of your lawyer, accountant and financial planner).  Many clients name a joint account holder for convenient access to the account.  However, a creditor of the joint account holder could attempt to collect that money or the joint account holder could inherit it to the exclusion of the other heirs. This result is normally not contemplated and can be avoided by designating an agent under a power of attorney for the account as opposed to a joint account holder.

3. Secure Your Finances:

Identity theft is rampant.  Predators are very creative and we have even seen the elderly duped by paying for sham “investments” by credit cards leaving clients with huge credit card debt and no viable recourse.

4. Fiduciary Check:

Review your Health Care Power of Attorney/Advanced Health Care Directive, Durable Power of Attorney and Last Will and Testament.  Do your fiduciary choices remain viable?  Prepare a list of fiduciaries along with their contact information and display it in a prominent location so it is available in the case of emergency.

5. Care Consultant:

Consider engaging a geriatric care consultant to help ease any transition between your apartment here and the health center or a hospital or an extended care facility.  A geriatric care consultant can monitor, navigate the administrative maze which accompanies this process, identify care requirements and advocate for you or your loved one.  This is a particularly useful tool for those whose loved ones are not local.

6. Make Binding Final Arrangements:

Under New Jersey law, the only way to make legally binding funeral arrangements is to sign a document in the same fashion you would sign a will with witnesses and a notary.  Avoid the potential for disagreements by executing a proper binding statement.

7. Decide Who Gets Your Engagement Ring and the Family China:

The disposition of your personal property by your heirs is a common catalyst for disputes.  New Jersey law allows you to dispose of your tangible personal property by way of a memorandum which is a written statement provided it is signed and dated by you.  Make sure the use of the technique is described under your will.

With changes in the tax laws at the federal level as well as changes to state death tax laws, some individuals may feel that they do not need to give heed to their estate planning.

With the new tax law roughly doubles the federal estate-tax exemption, to about $11.2 million per person in 2018, a vast majority of individuals will not be subject to federal estate tax. In New Jersey, for decedent’s dying in 2018, there is no estate tax (but dependent upon the class of beneficiaries, there may be NJ inheritance tax and PA has an inheritance tax for all beneficiaries except spousal and charitable). But before you take a call to your estate planner off of your TO-DO list, consider this: The sharp increase in the federal exemption amount means that old wills and trusts may be in urgent need of an update.

There are new opportunities for estate-planning techniques to include creditor protection, defense against elder financial abuse, and maximizing bequests. Just to cement your estate planner’s job security, the new higher exemption amount sunsets at the start of 2026, when the old $5 million exemption—adjusted for inflation—reappears. And the law could be changed legislatively even sooner. State laws can change very quickly.

It’s always a good idea to review your estate plan regularly, regardless of legislative changes. Your net worth changes, you or your children get married or divorced, grandchildren are born—and old documents may no longer reflect your wishes.

A common clause in older wills utilized formulas tie to the federal estate-tax exemption – previously as low as $675,000 vs. the current exemption of $11.2 million. If the language in the will which could stipulate that the amount that can pass free from federal estate tax should go to your children and the remainder to your spouse, would you be happy to disinherit your spouse if your estate was less than $11.2 million?

Older documents could have that result. It might be a good idea to have your estate planning documents reviewed today.

If you have a trust, you may think that their original purpose no longer seems compelling. Your estate plan may designate that your assets will pass into a “bypass” or “credit shelter” trust, which will pay income to your surviving spouse and ultimately pass assets to your children. Historically, it was common for married couples to set up such trusts to avoid wasting a deceased spouse’s unused estate-tax exemption. But “portability,” introduced in 2011, allows a surviving spouse’s estate to use any estate-tax exemption amount that the first-to-die spouse did not use.

What’s more, beneficiaries inheriting assets from such bypass or credit shelter trusts miss out on a big tax break. When assets such as stocks and real estate are passed directly through an estate, these assets “step up” in basis to the market value on the day the owner died, so heirs pay tax only on appreciation after that date. Assets passed through bypass trusts don’t get the basis step-up.

While the estate tax exemption has been increased and your estate may not be subject to federal estate tax, before you decide these trusts have not value, consider that they can serve many purposes beyond avoiding federal estate tax. Here are a couple of things to consider: Do you need the creditor protection that a trust can provide? What if you wind up in a nursing home and spend down all your assets, leaving nothing for heirs?

The new law also opens the door to trust strategies that provide immediate income-tax savings and asset protection while allowing you to maintain access to your money. If you are interested in getting around the new tax law’s $10,000 annual limit on state and local income and property tax deductions, there are planning options available that can help to save income taxes. Real estate transfers to a limited liability company could provide tax savings with regard to real estate tax deductions.

It is wise to review your estate planning documents periodically and especially when there have been significant changes in the tax laws or changes in personal situations. Each person’s situation is unique and may have options different than those of their neighbor.

When reviewing and updating your documents, wills and trusts are not the only documents to be reviewed. Don’t forget durable powers of attorney and health care directives. Situations may have changed that would be cause for updating these documents as well.

Ok, so now you have a Last Will and Testament where you have directed where your assets will go after you pass away and who will be responsible for administering your estate. But who will help you during your lifetime if you become incapacitated and need assistance handing your finances? Enter the Durable Power of Attorney.

First, it is important to understand what a Power of Attorney does. A Power of Attorney allows another individual to act on your behalf in regards to your finances. That means that the individual can access your bank account, pay your bills, operate business accounts, etc. The person you give Power of Attorney over your finances is called the Attorney-In-Fact or Agent There a few different types of Powers of Attorney, including a General, Special, and Durable Power of Attorney.

A General Power of Attorney gives your Attorney-In-Fact the broad authority to handle all of your financial affairs. This is effective for when you age and have someone who you trust with the ability to handle your finances. However, a General Power of Attorney will become invalid immediately if you lose mental capacity.

A Durable Power of Attorney helps solve the issue of a General Power of Attorney becoming invalid once you become mentally incapacitated. A Durable Power of Attorney will allow the Power of Attorney to remain valid even if you become mentally incapacitated. To accomplish this, there must be express language in the Power of Attorney that indicates your intention for the Power of Attorney to remain valid even if you become mentally incapacitated. This is particularly effective if you are aging or your mental capacity is showing signs of deteriorating.

The third type of Power of Attorney is a Special Power of Attorney. This Power of Attorney is beneficial to an individual who wants someone to only handle a certain aspect of his or her financials. In a Special Power of Attorney, you have the ability to choose exactly what powers the Attorney-In-Fact can exercise. For example, you may only want the Attorney-In-Fact to manage your rental property, or handle your company’s business transactions, or handle the sale of your real estate. With a Specific Power of Attorney, you have the power to dictate exactly when and in what circumstances your Attorney-In-Fact may utilize the Power of Attorney.

A Power of Attorney, however, does not last forever. In addition to being revocable at any time, the Power of Attorney will automatically become invalid when you pass away. It is said that the Power of Attorney “dies with you”. After you pass away, the terms of you Last Will and Testament will govern the disposition of your assets, making it all the more important to have a valid Last Will and Testament.

We hear it time and time again. People considering whether or not to have estate planning documents done, but stopping short of following through because they think “I really do not have anything to leave behind” or “There is no need right now, I only have one bank account anyway”.

While that may be true right now, it may not always be true throughout your life, and having proactive estate planning documents can come in handy before it really is too late.

Consider this: You currently may have a few assets that you do not believe have much value. But what happens if an unfortunate event happens in your life where you pass on but your Estate comes into a large amount of money via a settlement from an accident? Do you really want to leave who inherits your assets up to the laws of New Jersey? Having estate planning documents can help you and your estate be prepared for the future and can help prepare for the unexpected.

This is precisely why estate planning is so important, even at a young age. There may be someone specific you would want to inherit the settlement, or, sometimes more importantly, someone who you don’t want inheriting from your estate. If you do not have a will directing who is to inherit from your estate, that decision is taken out of your hands and placed in the hands of a state statute.

But you don’t just pass down cash when you pass away. There are more assets that would be a part of your estate than you likely think. Your car, your home, your computers, your collectables, all are items that you can choose to pass to certain people when you pass away.

There are generally three important documents in an individual’s estate plan. First, is the Last Will and Testament. Second, the Living Will (Healthcare Power of Attorney). Finally, there is the Power of Attorney. This article, and the next few to follow, will discuss each of these instruments and provide a general overview of each to give you an idea of the considerations needed when creating estate planning documents.

Are you just getting married, or maybe having children, or buying your first home, or even going on vacation? These are all important times and life moments where you should consider updating your estate planning documents, or, if you haven’t already, creating estate planning documents. Estate planning allows you to dictate how you want things to be distributed after your death. So before you think that estate planning may not be worth the time or that you are too young to do so, consider all your different life moments coming up, and think again!

Are your beneficiary designations for life insurance, IRAs, 401(k) plans as you intend them to be?  Are you sure?

Query:  If you have designated a beneficiary for a life insurance or an annuity-related asset as “my children in equal shares,” is that truly your intention?  Keep in mind that if that particular designation exists on your beneficiary election forms and you have the unfortunate situation that a child should predecease you leaving grandchildren, the grandchildren will be precluded from receiving their deceased parent’s share of that particular asset.  The asset would pass in equal shares to your then-living children, completely bypassing any children of a predeceased child.

Consider reviewing your beneficiary designations for life insurance and annuity-related accounts to ensure that your beneficiary designations are as you intend.

If you have questions, please do not hesitate to contact one of the attorneys in our Estate and Trust Department who would be glad to assist you in this regard.

Questions regarding this article may be sent to Publications@Capehart.com.

While traveling abroad as a student, John met Grace. Grace was a citizen of Spain. Love at first sight, they began a whirlwind courtship and got married. They returned to the United States and eventually settled down as residents of New Jersey. Intending to reside permanently in this country, she nevertheless maintained her Spanish citizenship.

Married for 10 years, they had three wonderful children. Then, John died suddenly. Although tragic, it appeared that he had properly provided with Grace. Between savings, a 401(k) and substantial life insurance, she was the sole beneficiary of his $3,000,000 estate.

Yet when she consulted an attorney to assist her with the administration of his estate, she was informed that she was required to pay an estate tax to the State of New Jersey of approximately $82,400. Aghast at this revelation, Grace told the attorney that she had been married to John for ten years and had paid income taxes since coming to New Jersey. Of course, she further told the attorney that her friends, as well as her “research on the internet”, revealed that she was not liable to pay any taxes because married couples don’t need to pay these taxes. Unfortunately, in her case, she was wrong.

The reality is that the tax laws often treat non-citizen spouses differently than those who are United States citizens. In general, when an individual dies as a resident of the State of New Jersey, his or her estate is subject to three potential death taxes: (1) the Federal Estate Tax, (2) the New Jersey Estate Tax, and (3) the New Jersey Transfer Inheritance Tax.

The Inheritance Tax is imposed upon the heirs of an estate. A spouse is considered to be what is known as a Class A beneficiary who is exempt from this tax. For this tax, there is no requirement that a spouse be a citizen in order to be a Class A beneficiary. Thus, Grace is not required to pay this tax.

The Federal Estate Tax and the New Jersey Estate Tax are taxes upon the overall size of a decedent’s estate. There are two primary exemptions from these taxes: (a) the marital deduction and (b) the applicable exclusion amount. The marital deduction exempts spouses from paying any estate tax regardless of the amount received when their husband or wife dies. The applicable exclusion amount is that sum that may pass from a decedent’s estate prior to it being assessed with the estate tax.

Unlike the inheritance tax, a surviving spouse must be a United States Citizen to qualify for the marital deduction. Thus, if a surviving spouse is not a US citizen when his or her spouse dies, he or she is not eligible for the marital deduction and the deceased spouse’s estate is assessed a tax for the amount exceeding the applicable exclusion amount.

For the Federal Estate Tax, the applicable exclusion amount is adjusted annually for inflation. For 2017, this amount is $5,490,000. As John’s estate is less than this amount, no Federal Estate Tax will be due.

For the New Jersey Estate Tax, the applicable exclusion amount is $2,000,000. (The tax is scheduled to be eliminated in 2018, but there is a distinct possibility it will be restored.) Although New Jersey exempts non-citizen spouses from its inheritance tax, it does not do so for its estate tax as its estate tax regulations are tied into the federal regulations. Thus, in this case, the initial $2,000,000 from John’s estate passes to Grace free of tax under the applicable exclusion amount. The additional $1,000,000 will be assessed a tax of approximately $82,400.

Non-citizen spouses are denied the marital deduction based on the premise that they may leave the United States with the inheritance they receive. In that event, these assets will not be subject to taxation when they die.

There are ways to minimize or avoid the New Jersey Estate Tax as well the Federal Estate for non-citizen spouses. The easiest way is for the non-citizen spouse to become a US citizen. Of course, many non-citizen residents have strong personal reasons for maintaining their citizenship from the country of their origin.

In the alternative, certain tax planning may be done. Specifically, either estate tax can can be minimized, if not avoided altogether, by what is known as a Qualifying Domestic Trust (QDOT). When an individual dies, assets transferred to a QDOT are not taxed upon their receipt into the QDOT. The law provides that a surviving non-citizen spouse may receive the income earned from the QDOT without any penalty. However, principal withdrawn from a QDOT will be assessed for the otherwise unpaid estate tax. An exception from this assessment may be granted if the surviving spouse on the grounds of “hardship”.

“Hardship” can be demonstrated if principal is withdrawn to pay for the health, support and maintenance of the spouse if and to the extent said spouse’s income and own assets are insufficient to provide for same.

Upon surviving spouse’s death, the remaining principal and accrued income, if any, should pass to the remainder beneficiaries of the QDOT without any penalty. Based on the manner in which the QDOT is established, the assets in the trust may be considered as part of the surviving spouse’s taxable estate, yet these assets will have only been subject to the estate tax upon the death of the surviving non-citizen spouse and not upon both spouses.

There are a variety of requirements a QDOT must meet trusts to be valid. Most notably, there must be at least one US citizen of a domestic corporation serving as a trustee (although a non-citizen may serve as a co-trustee). Moreover, the trust may be established not only through a decedent’s estate plan but the surviving spouse may establish same albeit in a finite period of time after the decedent’s passing. In all, although non-citizen spouses, like Grace, are not entitled to the marital deduction, planning may be available to minimize the potential estate tax burden they face when their US citizen spouses die.

By Thomas D. Begley, III, Esq.
Co-Authored by Brittany A. Verga, Esq.

Although most people initially think that a Will is the cornerstone of estate planning, it is often asserted that the most important document is a power of attorney. A power of attorney is a document in which one individual vests authority in another to act on his or her behalf. Unfortunately, many problems arise in the preparation and use of this document. This blog will share some practical tips to help avoid these issues and insure that a power of attorney is a useful tool in the event of an individual’s disability.

1. What type of power of attorney? Everyone should have what is known as a general durable power of attorney. The person who executes the power of attorney is known as the principal. The person who is given authority to act on behalf of the principal is known as the agent (or the attorney-in-fact).

The document should be extremely thorough. For many years, a power of attorney only needed to be a few pages. However, over the past few decades, financial institutions, government agencies and medical providers will not accept a power of attorney unless the actions which an agent wishes to perform are specifically set forth in the document itself. Many financial advisors communicate that their companies reject one-third to one-half of the powers of attorney that they review. A qualified estate planning attorney should be engaged to make sure the power of attorney is drafted properly. Although there are forms on the internet, remember the old adage: “You get what you pay for.”

2. Who should be my agent? One of the fastest growing forms of probate litigation over the past twenty years has been fiduciary abuse and neglect. Although there is no guarantee that a power of attorney will not be abused, the chances can be minimized. Unfortunately, many individuals select their agent for a power of attorney based on their age, gender, proximity or a desire to not hurt someone’s feelings. The cases of fiduciary abuse and neglect almost always arise from this absurd form of decision making. Agents should be selected based on two primary factors: (a) integrity and (b) common sense.

3. What types of powers of attorney should I execute? At the very least, an individual should execute a general durable power of attorney to handle financial and personal matters and a health care power of attorney to assist in the handling of medical decisions. The two should not be combined. Doctors and medical staff do not want to root through the financial provisions of a lengthy document to find the provisions that apply to health care. In addition, the individual who is best suited to handle financial decisions may not be the best person to handle medical issues, and vice versa.

Although lawyers have different practices, some also add a real estate power of attorney and a banking power of attorney. Those powers should be included in the general durable power of attorney. However, many banks prefer a shorter specific document. In addition, the recording fees in states like New Jersey make it more practical to have a shorter power of attorney recorded for the sale, purchase or financing of a home.

4. How many powers of attorney should I execute? Many individuals run into an obstacle when they only have one original power of attorney to use. A title company may need to record the original for a real estate closing, which will leave the agent unable to handle other financial matters of the principal until the power of attorney is recorded and returned. In addition to having different types of powers of attorney to address this situation, it is practical to execute three sets. I maintain one set for my clients and provide them with two. On many occasions over the years, for example, I have received calls from an agent who rushed to the hospital to address a medical crisis of his principal, but inadvertently forgot to bring the health care power of attorney. When we receive these calls, we are able to calm the agent’s concerns by sending over our original.

5. Where should I keep my power of attorney? Simply, these documents should be kept at a place in your home where your agent can find them when needed. They should not be kept in a safe deposit box. (For example, if the principal is rushed to the hospital on a weekend night, the box will not be accessible.) Unless the principal is elderly and in immediate need of assistance, it should not be given to the agent, as it should not be accessible to use until needed.

6. What if I change my power of attorney? The execution of a new power of attorney does not automatically revoke the old power of attorney. However, a power of attorney should include language stating that execution of the same revokes any and all prior powers of attorney. You should destroy the old power of attorney and any copies. If the agent has one, he or she should be notified that it is revoked and that the original should be returned to you to be destroyed. In the event that there is a new agent, any financial institution which may be relying on the power of attorney should be provided with written notification stating that the old power of attorney has been revoked.

Mark Babyatsky died on August 25, 2014. He was 55 years old. He left behind a wife, Elizabeth, and their two minor sons. He was also survived by a daughter, Amanda, who was the offspring from a prior marriage.

Shortly after he was buried, Elizabeth sought to disinter Mark’s remains and transfer them to another cemetery. Elizabeth felt that the two plots which she and Mark owned at the cemetery were poorly situated and too small. With the assistance of their rabbi, she purchased 8 lots at another cemetery.

In order to transfer remains in New Jersey, the law requires the consent of the surviving spouse, any adult children, and the owner of the internment space. Initially everyone agreed. However, after a personal dispute with Elizabeth, Amanda revoked her permission.

The Superior Court in Bergen County noted that disinterment is generally disfavored and clear evidence must be shown to support disinterment when there is a family dispute. The Court stated that the statutory rule could be set aside if equitable principles allowed same. In this case, the Court found that it was appropriate to do so because the reasons to move the remains were sound, other members of the family consented and supported the application, and the dissenting daughter did not have a particularly close relationship with her father.

In all, the Court decided the case on what it felt would be the decedent’s clear preference. In order to make sure those wishes are clear, we need to do so with our family members when we plan our estates.