Estate PlanningThe Legal and Tax Aspects of “Finishing Strong”

As Presented By:David K. Whitlock, Esq.Law Office of David K. WhitlockE. 80 Route 4 – Suite 170Paramus, NJ(201) 655-7160davidkwhitlock.com

The Basic Three Legal Documents Will Power of Attorney Medical Directive

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

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”

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

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

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

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2008 = $2 million 2009 = $3.5 million 2010 = Repealed – no federal estate tax 2011 = $1 million

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)

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)

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

State Gift Tax No New Jersey gift tax

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

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

Life Insurance Trusts Avoids estate tax on life insurance proceeds

in both spouses’ estates

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