The majority of people in the United States do not have a will. In most cases, this leaves a mess for the family to deal with after a loved one dies. Here’s what the scenario may look like.
If you die without a will (called “intestacy”), New Jersey law decides how your estate will be divided. The law may mirror your wishes but many times it will not. For example, if you die with a spouse and one or both parents still living but you have no children, your spouse will have to divide your estate with your living parents. If you die with a spouse and children (but some of your children are from a prior marriage), your spouse will get the first 25% of your assets (but not less than $50,000 nor more than $200,000) plus ½ of the balance and your children divide the remaining assets.
When you die with a will, you decide who will act as the executor (the person who carries out your wishes as expressed in your will). If you have no will, any relative can be appointed as the executor. And the court will require that person to pay a premium for a surety bond to ensure his honest performance. Your will can require that no surety bond is required.
If you die without a will and your children are minors, the court will appoint a guardian for your children and their assets. This may not be the person that you would want to raise your children and it might not be the person you would want to handle their money. The guardian appointed by the court needs the court’s permission to take certain actions, so he will be paying lawyers’ fees and court costs every time he needs to go into court. This can be time-consuming and expensive. This is true even if your spouse if the guardian of your children’s inheritance.
If you die without a will, your children will inherit their money when they turn
18. A will would allow you to postpone them getting their inheritance until they are older and more responsible about money.
When you do not consult an estate planning lawyer, you generally do not learn about different estate tax avoidance methods. Did you know that New Jersey law does provide for a state estate tax? The asset level for owing New Jersey estate taxes is $675,000 and up.
No one seems to like thinking about his/her death or spending the money on consulting a lawyer. But, in the end, not consulting a lawyer to write the will that you want and making sure it’s written in accordance with New Jersey requirements will cost your family thousands of dollars more than doing it the right way now.
Monday, March 30, 2009
Tuesday, March 24, 2009
Communicating with Your Beneficiaries
If your family has adult children, there is a possibility that you may decide to split your estate unevenly. After all, if one child is very successfully financially, and another child is taking care of you now that you need help, should you treat them the same when it comes time to pass on your assets?
It is up to you how you want to pass on your property, including your personal possessions. Your possessions might mean so much to one child but would only be looked at as a waste of space by another child. You may have plans to bring one or more of your children into the family business but they may have other ideas for their life. Your assets can be divided any way you want, including leaving nothing to one or more of your children. You can give your entire estate to charity if you choose.
If you do choose to treat your children differently in terms of what they inherit from you, I recommend that you communicate your plans to your family before you die. A family meeting can do so much to help lessen the feelings of anger and betrayal among family members that can occur if they find out your estate plan when they read the will. You can explain your thinking to them so they understand your actions. At a family meeting, you can also communicate your philosophy about money and possessions, you can smooth over any bad feelings from family members who feel they have been treated unfairly, and you can discuss health issues in the event you need additional care in your later years.
Such a meeting can be held at your lawyer’s office, in a neutral place like a restaurant, or in your home, at the kitchen table. The meeting should include your children, their spouses, and perhaps any older grandchildren. If there is a family business involved, you may also want to invite key employees and your accountant.
If there is any feedback that you find helpful, you can use it to make changes to your estate plan. It could be that everyone is in favor of your plan. Or you could find out that the child who you had hoped would run your business wants some other career entirely.
A family meeting every few years goes a long way to ensuring that your children are still speaking to each other after you are gone.
It is up to you how you want to pass on your property, including your personal possessions. Your possessions might mean so much to one child but would only be looked at as a waste of space by another child. You may have plans to bring one or more of your children into the family business but they may have other ideas for their life. Your assets can be divided any way you want, including leaving nothing to one or more of your children. You can give your entire estate to charity if you choose.
If you do choose to treat your children differently in terms of what they inherit from you, I recommend that you communicate your plans to your family before you die. A family meeting can do so much to help lessen the feelings of anger and betrayal among family members that can occur if they find out your estate plan when they read the will. You can explain your thinking to them so they understand your actions. At a family meeting, you can also communicate your philosophy about money and possessions, you can smooth over any bad feelings from family members who feel they have been treated unfairly, and you can discuss health issues in the event you need additional care in your later years.
Such a meeting can be held at your lawyer’s office, in a neutral place like a restaurant, or in your home, at the kitchen table. The meeting should include your children, their spouses, and perhaps any older grandchildren. If there is a family business involved, you may also want to invite key employees and your accountant.
If there is any feedback that you find helpful, you can use it to make changes to your estate plan. It could be that everyone is in favor of your plan. Or you could find out that the child who you had hoped would run your business wants some other career entirely.
A family meeting every few years goes a long way to ensuring that your children are still speaking to each other after you are gone.
Monday, March 16, 2009
Revocable Living Trusts
A few years ago, everywhere you looked, there was a lawyer giving a seminar on revocable living trusts (RLTs). The RLT was supposed to help you avoid the high cost and lengthy process of probate, avoid estate taxes, and protect your privacy. It was supposed to be the one estate planning document you needed, forget having a will.
Does an RLT really have all those wonderful benefits? For some people, it’s a great estate planning tool. For others, it’s overkill, way too much work and way too expensive. How do you know if it’s right for you?
An RLT is a device created by a trust document whereby title to your assets, as the grantor of the trust, is now given to a trustee (the trustee is also you). The trust agreement will then describe what happens to your assets when you die. Normally, when you die, all assets in your name must be distributed to your heirs through a process called probate. When you have an RLT that is properly set up, you don’t have any assets in your name. All of your assets are in the trust’s name. So, probate is not required. However, probate in New Jersey is a fairly quick, fairly inexpensive process (unlike in other states). So, avoiding probate is usually not the goal in New Jersey.
Having an RLT does not mean saving on estate taxes. The law does not give any special treatment for assets that you have in an RLT, since you can dissolve the RLT at any time.
When does having an RLT make sense? If you own property in more than one state, you would normally have to have probate done in every state in which you own property. The usual scenario is being a resident of New Jersey but having a second home in another state (maybe a house in the Poconos, or a condo in Florida). If all of your property is in an RLT, you do not have to go through probate in any state.
An RLT can make sense if you become incapacitated and cannot carry out your own affairs. A trust agreement can provide for a successor trustee to act in your stead if you cannot act for yourself, it can provide for determining when you can’t act for yourself and can spell out exactly what you would want done if you are incapacitated so your successor trustee knows how to carry out your wishes. In some instances, the actions of your successor trustee will be accepted by others more readily than if you have a durable power of attorney (a document that appoints someone to act for you when you can’t act for yourself).
Even if you do have an RLT, you should still have a will. In the event you have not transferred all of your assets into the RLT, you need the will to distribute those assets not in the RLT after you die.
Does an RLT really have all those wonderful benefits? For some people, it’s a great estate planning tool. For others, it’s overkill, way too much work and way too expensive. How do you know if it’s right for you?
An RLT is a device created by a trust document whereby title to your assets, as the grantor of the trust, is now given to a trustee (the trustee is also you). The trust agreement will then describe what happens to your assets when you die. Normally, when you die, all assets in your name must be distributed to your heirs through a process called probate. When you have an RLT that is properly set up, you don’t have any assets in your name. All of your assets are in the trust’s name. So, probate is not required. However, probate in New Jersey is a fairly quick, fairly inexpensive process (unlike in other states). So, avoiding probate is usually not the goal in New Jersey.
Having an RLT does not mean saving on estate taxes. The law does not give any special treatment for assets that you have in an RLT, since you can dissolve the RLT at any time.
When does having an RLT make sense? If you own property in more than one state, you would normally have to have probate done in every state in which you own property. The usual scenario is being a resident of New Jersey but having a second home in another state (maybe a house in the Poconos, or a condo in Florida). If all of your property is in an RLT, you do not have to go through probate in any state.
An RLT can make sense if you become incapacitated and cannot carry out your own affairs. A trust agreement can provide for a successor trustee to act in your stead if you cannot act for yourself, it can provide for determining when you can’t act for yourself and can spell out exactly what you would want done if you are incapacitated so your successor trustee knows how to carry out your wishes. In some instances, the actions of your successor trustee will be accepted by others more readily than if you have a durable power of attorney (a document that appoints someone to act for you when you can’t act for yourself).
Even if you do have an RLT, you should still have a will. In the event you have not transferred all of your assets into the RLT, you need the will to distribute those assets not in the RLT after you die.
Tuesday, March 10, 2009
Update Your Estate Plan
I recommend to my clients that they come in for an estate plan check-up every two years. An estate plan check-up is a time when I meet with my client, ask about what has changed in her life in the past two years, and describe what changes have taken place in the law that might affect her estate plan. After we have our conversation, I ask whether, in light of what we just spoke about, would my client want to change anything in her estate plan.
Usually, the answer is “yes.” Why? Because the laws affecting estate tax is changing fairly often these days and that impacts how your estate plan is structured. Frequently, in order to avoid paying estate tax to the state or the federal government, I will create one or more trusts in your will. A trust is a great device to get money out of your estate, and therefore not have to pay estate tax on it, but it can be a burden in terms of living with it. You have to file tax returns for the trust every year and sometimes prepare an accounting to the beneficiaries of the trust so they know how much was earned, through which investments, and how the income from the trust was distributed. A lot of extra work that you may not want to go through if you don’t need to.
On the other hand, maybe you never needed to think about estate taxes, but your mother died and left you a significant inheritance. Now you have some real money to think about. That can change your estate plan.
Your estate plan may change because you have had a big fight with your executor (or divorced him if it was your husband) and now you don’t want that person to act as your executor. Or perhaps the couple that you chose to be your children’s guardian have moved away from your neighborhood and your kids haven’t seen them in a few years. So you want to name a different guardian.
Your estate plan is never set in stone. It’s not a one-shot deal that you never have to re-think until someone dies. If it has been more than two years since you last talked to your estate lawyer, make an appointment now. You might find that you need to change more than you thought.
Usually, the answer is “yes.” Why? Because the laws affecting estate tax is changing fairly often these days and that impacts how your estate plan is structured. Frequently, in order to avoid paying estate tax to the state or the federal government, I will create one or more trusts in your will. A trust is a great device to get money out of your estate, and therefore not have to pay estate tax on it, but it can be a burden in terms of living with it. You have to file tax returns for the trust every year and sometimes prepare an accounting to the beneficiaries of the trust so they know how much was earned, through which investments, and how the income from the trust was distributed. A lot of extra work that you may not want to go through if you don’t need to.
On the other hand, maybe you never needed to think about estate taxes, but your mother died and left you a significant inheritance. Now you have some real money to think about. That can change your estate plan.
Your estate plan may change because you have had a big fight with your executor (or divorced him if it was your husband) and now you don’t want that person to act as your executor. Or perhaps the couple that you chose to be your children’s guardian have moved away from your neighborhood and your kids haven’t seen them in a few years. So you want to name a different guardian.
Your estate plan is never set in stone. It’s not a one-shot deal that you never have to re-think until someone dies. If it has been more than two years since you last talked to your estate lawyer, make an appointment now. You might find that you need to change more than you thought.
Wednesday, March 4, 2009
Grandparents Paying for College
College is a very expensive proposition these days. The cost of attending the most prestigious college is over $50,000 per year. It’s very difficult for parents to save that kind of money, especially if they have more than one child. If there are grandparents who are capable and willing to help out with college expenses, even a portion of them, they can accomplish two goals.
The first goal is obviously to help the grandchild pay for the enormous cost of college. In some cases, it is the difference between the grandchild attending the best college for that grandchild and a less-costly, but not great alternative. The other goal is that it reduces the size of the grandparent’s estate and may mean the difference between paying estate tax and not paying estate tax.
If paying for any part of college would squeeze the grandparent financially, then the grandparent should not even attempt it. The financial security of the grandparent is more important – no one should place himself in financial jeopardy to help her children or grandchildren.
But if the grandparent has enough for her needs and wants and there is money left over, helping pay for a grandchild’s college expenses is a terrific gift.
There are different ways to accomplish this goal. There are 529 plans, education savings accounts, and payments made directly to the college. The grandparent should not make a direct gift to the grandchild. Even if the grandchild makes every promise to use the money for college, the grandparent no longer has control of it and he could use the gift money to buy a car. It will also reduce the amount of financial aid that he might get from his college. If a grandparent gives more than $13,000 per year to her grandchild, it counts against yherlifetime gift and estate exemption.
Before a grandparent makes any contribution to a grandchild’s college costs, she should consult her tax advisor and her financial planner to coordinate her plan to help with college with her overall financial plan.
The first goal is obviously to help the grandchild pay for the enormous cost of college. In some cases, it is the difference between the grandchild attending the best college for that grandchild and a less-costly, but not great alternative. The other goal is that it reduces the size of the grandparent’s estate and may mean the difference between paying estate tax and not paying estate tax.
If paying for any part of college would squeeze the grandparent financially, then the grandparent should not even attempt it. The financial security of the grandparent is more important – no one should place himself in financial jeopardy to help her children or grandchildren.
But if the grandparent has enough for her needs and wants and there is money left over, helping pay for a grandchild’s college expenses is a terrific gift.
There are different ways to accomplish this goal. There are 529 plans, education savings accounts, and payments made directly to the college. The grandparent should not make a direct gift to the grandchild. Even if the grandchild makes every promise to use the money for college, the grandparent no longer has control of it and he could use the gift money to buy a car. It will also reduce the amount of financial aid that he might get from his college. If a grandparent gives more than $13,000 per year to her grandchild, it counts against yherlifetime gift and estate exemption.
Before a grandparent makes any contribution to a grandchild’s college costs, she should consult her tax advisor and her financial planner to coordinate her plan to help with college with her overall financial plan.
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