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Estate Planning

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. The Basic Three Legal Documents. Will Power of Attorney

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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 • Will • Power of Attorney • Medical Directive

  3. Reasons for Having a Valid Will • If there is no Will, State Intestacy Statutes will decide who inherits your assets • Avoids cost and delay of posting a surety bond • Names Executor to settle your Estate • Names Guardians for minor children • Control ages heirs will inherit assets

  4. Power of Attorney • Effective during life • Name person to handle financial matters on your behalf • “Durable “or “Springing Power” of Attorney • Important to choose proper “gift clause”

  5. Medical Directives • Also known as Living Wills, Advance Health Care Proxies and Directives • Names person to make medical decisions if you cannot make your own decisions • Makes wishes known in advance concerning a terminal illness or permanent coma • Include HIPAA Privacy clauses

  6. What is a Revocable Trust? • Revocable Trust (or Living Trust) is a Trust you control yourself while you are alive and acts as a Will on your death • Typically uses your social security number, so no separate income tax return required while you are alive • Trust can be funded while you are alive

  7. Do I need a Revocable Trust? • Not absolutely necessary in New Jersey – probate is relatively easy • Some benefit of using Revocable Trust • Privacy: not a public record • NJ Tax Waivers not required on death • Good for holding out-of-state real estate • Estate is easier to administer • Useful is there is a disability

  8. Federal Estate Tax Law • No tax on assets left to citizen spouse • New Legislation expected soon • 45% tax on amount over exemption • Exemption depends on year of death: • 2008 = $2 million • 2009 = $3.5 million • 2010 = Repealed – no federal estate tax • 2011 = $1 million

  9. New Jersey Estate Tax • No tax on assets left to citizen spouse • Exemption = $675,000 • Tax rate is 37% between $675,000 and $727,000 (“bubble”) • Progressive rate between 5% -16% • Tax on $1 million = $33,200 • Tax on $1.5 million = $66,400 • Tax on $2 million = $99,600 • Death Bed Gifts Avoids New Jersey Estate Tax (but watch loss of step-up in cost basis)

  10. New Jersey Inheritance Tax • Tax is Based on Relationship of Decedent to Beneficiary • Spouses, Children, Grandchildren and parents are Exempt (“Class A”) • 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”) • All others are taxed at 15% on first $700,000 and 16% on excess (“Class D”) • Tax is collected on the greater of the New Jersey Estate Tax or New Jersey Inheritance Tax (not both)

  11. Federal Gift Tax • Unlimited gifts to citizen spouses • $13,000 exclusion per year to each recipient (“annual exclusion”) • If annual exclusion is exceeded, there is a $1 million lifetime exemption and gift tax returns need to be filed • 45% tax rate if $1 million exemption exceeded • Gift tax exemption used reduces estate tax exemption remaining at death • Spouses can “split” gifts

  12. State Gift Tax • No New Jersey gift tax

  13. Attention to Non-Probate Assets • Many Assets Don’t pass under a Will or Revocable Trust: • Life Insurance • Annuities • Joint Accounts (convenience or inheritance?) • IRA, 401k and other retirement accounts

  14. Credit Shelter Trusts • On first spouse’s death, Trust is created to shelter assets from tax in second spouse’s estate • 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 • Sometimes structured as a Disclaimer Trust – only if spouse files a disclaimer within 9 months of death is Trust funded

  15. Life Insurance Trusts • Avoids estate tax on life insurance proceeds in both spouses’ estates

  16. Medicaid Planning • Long Term Care Insurance important – recover premiums in first year of illness • 5 year rule for gifts • Prepaid funerals allowed • Gift of house to caretaker child living in house for 2 years • Gifts to disabled child are exempt • Spouse allowed to keep house and between $20,000 and $100,000 of assets • Gift clause in Power of Attorney document

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