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Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
Estate Planning
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Estate Planning

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  • 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 davidkwhitlock.com
  • 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. State Gift Tax <ul><li>No New Jersey gift tax </li></ul>
  • 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. 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. Life Insurance Trusts <ul><li>Avoids estate tax on life insurance proceeds in both spouses’ estates </li></ul>
  • 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>

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