Estate Planning


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Estate Planning

  1. 1. Estate Planning The Legal and Tax Aspects of “Finishing Strong” As Presented By: David K. Whitlock, Esq. Law Office of David K. Whitlock E. 80 Route 4 – Suite 170 Paramus, NJ (201) 655-7160
  2. 2. The Basic Three Legal Documents <ul><li>Will </li></ul><ul><li>Power of Attorney </li></ul><ul><li>Medical Directive </li></ul>
  3. 3. Reasons for Having a Valid Will <ul><li>If there is no Will, State Intestacy Statutes will decide who inherits your assets </li></ul><ul><li>Avoids cost and delay of posting a surety bond </li></ul><ul><li>Names Executor to settle your Estate </li></ul><ul><li>Names Guardians for minor children </li></ul><ul><li>Control ages heirs will inherit assets </li></ul>
  4. 4. Power of Attorney <ul><li>Effective during life </li></ul><ul><li>Name person to handle financial matters on your behalf </li></ul><ul><li>“ Durable “or “Springing Power” of Attorney </li></ul><ul><li>Important to choose proper “gift clause” </li></ul>
  5. 5. Medical Directives <ul><li>Also known as Living Wills, Advance Health Care Proxies and Directives </li></ul><ul><li>Names person to make medical decisions if you cannot make your own decisions </li></ul><ul><li>Makes wishes known in advance concerning a terminal illness or permanent coma </li></ul><ul><li>Include HIPAA Privacy clauses </li></ul>
  6. 6. What is a Revocable Trust? <ul><li>Revocable Trust (or Living Trust) is a Trust you control yourself while you are alive and acts as a Will on your death </li></ul><ul><li>Typically uses your social security number, so no separate income tax return required while you are alive </li></ul><ul><li>Trust can be funded while you are alive </li></ul>
  7. 7. Do I need a Revocable Trust? <ul><li>Not absolutely necessary in New Jersey – probate is relatively easy </li></ul><ul><li>Some benefit of using Revocable Trust </li></ul><ul><ul><li>Privacy: not a public record </li></ul></ul><ul><ul><li>NJ Tax Waivers not required on death </li></ul></ul><ul><ul><li>Good for holding out-of-state real estate </li></ul></ul><ul><ul><li>Estate is easier to administer </li></ul></ul><ul><ul><li>Useful is there is a disability </li></ul></ul>
  8. 8. Federal Estate Tax Law <ul><li>No tax on assets left to citizen spouse </li></ul><ul><li>New Legislation expected soon </li></ul><ul><li>45% tax on amount over exemption </li></ul><ul><li>Exemption depends on year of death: </li></ul><ul><ul><li>2008 = $2 million </li></ul></ul><ul><ul><li>2009 = $3.5 million </li></ul></ul><ul><ul><li>2010 = Repealed – no federal estate tax </li></ul></ul><ul><ul><li>2011 = $1 million </li></ul></ul>
  9. 9. New Jersey Estate Tax <ul><li>No tax on assets left to citizen spouse </li></ul><ul><li>Exemption = $675,000 </li></ul><ul><li>Tax rate is 37% between $675,000 and $727,000 (“bubble”) </li></ul><ul><li>Progressive rate between 5% -16% </li></ul><ul><li>Tax on $1 million = $33,200 </li></ul><ul><li>Tax on $1.5 million = $66,400 </li></ul><ul><li>Tax on $2 million = $99,600 </li></ul><ul><li>Death Bed Gifts Avoids New Jersey Estate Tax (but watch loss of step-up in cost basis) </li></ul>
  10. 10. New Jersey Inheritance Tax <ul><li>Tax is Based on Relationship of Decedent to Beneficiary </li></ul><ul><li>Spouses, Children, Grandchildren and parents are Exempt (“Class A”) </li></ul><ul><li>Brothers and Sisters are exempt on first $25,000; 11% on next $1,075,000; 13% on the next $300,000; 14% on next $300,000 and 16% on any amount over $1,700,000 (“Class C”) </li></ul><ul><li>All others are taxed at 15% on first $700,000 and 16% on excess (“Class D”) </li></ul><ul><li>Tax is collected on the greater of the New Jersey Estate Tax or New Jersey Inheritance Tax (not both) </li></ul>
  11. 11. Federal Gift Tax <ul><li>Unlimited gifts to citizen spouses </li></ul><ul><li>$13,000 exclusion per year to each recipient (“annual exclusion”) </li></ul><ul><li>If annual exclusion is exceeded, there is a $1 million lifetime exemption and gift tax returns need to be filed </li></ul><ul><li>45% tax rate if $1 million exemption exceeded </li></ul><ul><li>Gift tax exemption used reduces estate tax exemption remaining at death </li></ul><ul><li>Spouses can “split” gifts </li></ul>
  12. 12. State Gift Tax <ul><li>No New Jersey gift tax </li></ul>
  13. 13. Attention to Non-Probate Assets <ul><li>Many Assets Don’t pass under a Will or Revocable Trust: </li></ul><ul><ul><li>Life Insurance </li></ul></ul><ul><ul><li>Annuities </li></ul></ul><ul><ul><li>Joint Accounts (convenience or inheritance?) </li></ul></ul><ul><ul><li>IRA, 401k and other retirement accounts </li></ul></ul>
  14. 14. Credit Shelter Trusts <ul><li>On first spouse’s death, Trust is created to shelter assets from tax in second spouse’s estate </li></ul><ul><li>Geared to State amount ($675,000) or federal amount ($3.5 million – causes NJ tax on first death) – Credit shelter trust created prior to 2002 most likely have federal amount and will cause NJ estate tax on death of first spouse </li></ul><ul><li>Sometimes structured as a Disclaimer Trust – only if spouse files a disclaimer within 9 months of death is Trust funded </li></ul>
  15. 15. Life Insurance Trusts <ul><li>Avoids estate tax on life insurance proceeds in both spouses’ estates </li></ul>
  16. 16. Medicaid Planning <ul><li>Long Term Care Insurance important – recover premiums in first year of illness </li></ul><ul><li>5 year rule for gifts </li></ul><ul><li>Prepaid funerals allowed </li></ul><ul><li>Gift of house to caretaker child living in house for 2 years </li></ul><ul><li>Gifts to disabled child are exempt </li></ul><ul><li>Spouse allowed to keep house and between $20,000 and $100,000 of assets </li></ul><ul><li>Gift clause in Power of Attorney document </li></ul>