tag:blogger.com,1999:blog-13350767969876053842024-03-05T06:50:44.016-05:00Kevin A. Pollock BLAWGKevin A. Pollock, J.D., LL.M. is an attorney and the managing partner at The Pollock Firm LLC. Kevin's practice areas include: Wills Trusts & Estates, Guardianships, Tax Planning, Asset Protection Planning, Corporate and Business Law, Business Succession Planning & Probate Litigation. Kevin Pollock is licensed in NJ, NY, PA and FL. We have offices located near Princeton, New Jersey, and Boca Raton, Florida.
Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.comBlogger216125tag:blogger.com,1999:blog-1335076796987605384.post-9510354384489850872019-05-01T15:57:00.004-04:002019-05-01T15:57:55.489-04:00Joint Trusts - A Great Planning Opportunity for Non-Traditional Couples and Blended Families<span style="font-family: Verdana, sans-serif;">Creating an estate plan for clients who are in non-traditional relationships or are part of a blended family can be very tricky.</span><br />
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<span style="font-family: Verdana, sans-serif;">Why is Estate Planning for Non-Traditional Couples So Tricky?</span></h3>
<span style="font-family: Verdana, sans-serif;">Let's assume a hypothetical fact situation where you have a women (Jane) with $4M in assets. She is a widow and has 2 children. Now let's also assume that she is in a committed relationship with a person (Alex) who has $2M in assets, and Alex has three children. Finally, let's assume that they agreed to set up a joint bank account and that they want to buy a house together worth about $1M, with Jane putting up three-quarters of the money for the house. </span><br />
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<span style="font-family: Verdana, sans-serif;">Typically, the clients in this scenario will want to take care of each other, but they also want to ensure that a certain amount of their assets go to their respective children. Let's assume the specific goal for Jane and Alex is that the surviving partner can have the joint bank account and use the house for the rest of their life, but everything else goes to their respective children. To accomplish this, they buy the house as joint tenants with rights of survivorship and create <a href="https://pollockfirm.com/last-will-and-testament/" target="_blank">Wills</a> leaving everything else to their respective children.</span><br />
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<span style="font-family: Verdana, sans-serif;">In this hypothetical, if Jane dies first, the house and the joint bank account go to Alex because they are joint assets and supersede the Will. When Alex dies, his $2M <u><b>plus</b></u> the house goes to his children. This is not necessarily a far result for Jane's children. Alternatively, if Alex dies first, the house and the bank account goes to Jane, and then upon her death, it all goes to her children, cutting out Alex's descendants with respect to the joint assets. As you can see, the problem with this traditional plan is that one partner dies and the survivor takes the house and bank account and it cuts out the descendants of the first client to die with respect to the joint assets.</span><br />
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<span style="font-family: Verdana, sans-serif;">Why a Joint Trust Can Be an Important Estate Planning Tool for Non-Traditional Couples</span></h3>
<span style="font-family: Verdana, sans-serif;">One of the best ways to handle a situation like this is for Jane and Alex to set up a joint trust. The trust could be funded with the house and cash (in whatever amount they like). While Jane and Alex are alive, the trust could be <a href="https://pollockfirm.com/revocable-living-trusts/" target="_blank">revocable</a> and they could have complete control over it to do whatever they like. The trust becomes really powerful when the first partner dies (or becomes incapacitated), because we can then make the trust Irrevocable. While we can customize these types of trusts in many ways, most people want to guarantee that the survivor can: live in the house for the rest of their lifetime, sell it and buy other real estate, or sell it and have an income stream to live off of. </span><br />
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<span style="font-family: Verdana, sans-serif;">The main benefit to this type of <a href="https://pollockfirm.com/trust-planning/" target="_blank">trust planning</a> is that we can provide a much safer way of ensuring that ALL of Jane and Alex's descendants receive whatever is left over when the survivor dies. Moreover, we can make sure that their descendants receive money in a way that is more fair based upon need or based upon how Jane and Alex contributed funds towards the trust. In this example, since Jane is putting up $750,000 towards the house, the trust can say that, following the deaths of both Jane and Alex, the remainder of the trust assets go 3/4 to Jane's children and 1/4 to Alex's children. </span><br />
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<span style="font-family: Verdana, sans-serif;">Initially, Jane and Alex could be in control of the Trust (making them the Trustees). We can also have a system in place so that one of Jane's children steps up as co-trustee if something happens to Jane and one of Alex's children steps up as co-trustee if something happens to Alex. If Jane's children and Alex's children can't work together, we can also have a neutral trustee appointed. </span><br />
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<span style="font-family: Verdana, sans-serif;">Can Anyone Create a Joint Trust?</span></h3>
<span style="font-family: Verdana, sans-serif;">Anyone can create a joint trust. The type of trust I am describing in this post works for unmarried or married couples. </span><br />
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<span style="font-family: Verdana, sans-serif;">Are There Any Downsides to Creating a Joint Trust?</span></h3>
<span style="font-family: Verdana, sans-serif;">When creating any estate plan, one of the downsides is the cost to create the plan. Creating a custom plan like this will certainly cost more than simply <a href="https://willstrustsestates.blogspot.com/2010/10/titling-of-assets.html" target="_blank">titling assets</a> in joint name. However, the more money over which you are trying to control the disposition, the more it is worth setting up this type of trust.</span><br />
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<span style="font-family: Verdana, sans-serif;">Another potential downside to creating a joint trust is that, depending upon its structure, the trust may need a tax identification number and a tax return will need to be filed for the trust for any income earned. </span><br />
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<span style="font-family: Verdana, sans-serif;">It should also be pointed out though that if the couple is unmarried and they live in a jurisdiction with an inheritance tax (like New Jersey or Pennsylvania), this structure would trigger the inheritance tax on both the first to die and likely the second to die. However, for unmarried couples, this tax would be incurred on the first to die regardless of whether or not a joint trust was utilized. In New Jersey, the inheritance tax could be avoided if the couple agrees to enter into a <a href="https://nj.gov/health/vital/registration-vital/domestic-partnerships/" target="_blank">NJ Domestic Partnership</a> agreement.</span><br />
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<h3>
<span style="font-family: Verdana, sans-serif;">How Do I Create a Joint Trust?</span></h3>
<span style="font-family: Verdana, sans-serif;">If you would like to know more about estate planning for non-traditional couples or setting up a joint trust, we would happy to speak with you to so that it could be properly customized to meet your needs. <a href="https://pollockfirm.com/employees/attorney-kevin-pollock/" style="background-color: white; color: #007710; font-size: 14.85px; text-decoration-line: none;" target="_blank">Kevin A. Pollock, Esq., LL.M.</a><span style="background-color: white; color: #333333; font-size: 14.85px;"> is an attorney licensed to practice in NJ, NY, PA and FL. Kevin Pollock meets with clients in <a href="https://pollockfirm.com/princeton-nj-office/" target="_blank">Lawrenceville, NJ</a> and in </span><a href="https://pollockfirm.com/boca-raton-florida-office/" style="background-color: white; color: #007710; font-size: 14.85px; text-decoration-line: none;" target="_blank">Boca Raton, FL</a><span style="background-color: white; color: #333333; font-size: 14.85px;"> by appointment only. Kevin may be reached at (609) 818-1555.</span> </span>Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-26840161067883895912019-02-22T15:17:00.000-05:002019-02-22T15:17:12.844-05:00You Can Create a Pet Trust - Just Like the One For ChoupetteAccording to multiple news sources, when the creative director and fashion designer <a href="https://en.wikipedia.org/wiki/Karl_Lagerfeld" target="_blank">Karl Lagerfeld</a> died on February 19, 2019, he left his famous cat, <a href="https://twitter.com/ChoupettesDiary" target="_blank">Choupette</a>, a significant amount of money in trust.<br />
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Pet trusts are now quite common, and specifically authorized by statute in most jurisdictions. Many people consider pets as a part of the family, and want them to be cared for as such. A pet trust can provide money to pay for a caregiver, food, pet supplies, and a veterinarian. It can also provide a place for your pet to live (or board), and in the case of Choupette, a personal chef.<br />
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Most estate planning attorneys who create pet trusts will provide a check and balance on the trustee, the caregiver, and the remainder beneficiary. In other words, we do not recommend that the person in charge of caring for the pet be the one managing the money and the ultimate remainder beneficiary when the pet dies, as this would create a perverse incentive for the caregiver to do a bad job in caring for your beloved pet.<br />
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For people who do not want to create trust, they can always leave money to a caregiver (or charitable organization) with the hope that the caregiver will maintain the pet properly. The benefit of a trust is that it makes the arrangement more legally enforceable and provides greater oversight.<br />
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New Jersey, Pennsylvania, and Florida have statutes based upon the Uniform Trust Code. The NJ Pet Trust Statute can be found at: <a href="https://law.justia.com/codes/new-jersey/2015/title-3b/section-3b-31-24/" target="_blank">3B:31-24 Trust for care of animal</a>. The Pennsylvania Pet Trust Statute can be found at: <a href="https://www.legis.state.pa.us/cfdocs/legis/LI/consCheck.cfm?txtType=HTM&ttl=20&div=0&chpt=77&sctn=38&subsctn=0" target="_blank">20 Pa.C.S.A. § 7738. Trust for Care of an animal</a>. The Florida Pet Trust Statute can be found at: <a href="http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0736/Sections/0736.0408.html" target="_blank">Florida Statute 736.0408 Trust for care of an animal</a>. The State of New York also has a statute specifically authorizing the creation of a pet trust, which can be found at <a href="https://law.justia.com/codes/new-york/2013/ept/article-7/part-8/7-8.1/" target="_blank">NY Est Pow & Trusts L § 7-8.1 Trusts for pets</a>. <br />
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It should be noted that the NJ statute, enacted in 2015, amended a previous version of the law that limited Pet trusts to 21 years. It also clarified that a Pet trust could be created under a revocable trust document, not just as part of a trust created under a Will.<br />
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It should also be noted that living money to a pet (in trust or to a caregiver) will likely give rise to an inheritance tax in both Pennsylvania and New Jersey. Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-37259799596999591122019-01-31T13:19:00.000-05:002019-01-31T13:22:28.169-05:00Why Florida Probate Can Be DifficultWhen deciding whether or not to do a <a href="https://pollockfirm.com/last-will-and-testament/" target="_blank">Will</a> package or a <a href="https://pollockfirm.com/revocable-living-trusts/" target="_blank">Revocable Trust</a> package, many of my Boca Raton, Florida clients will ask why choose one over the other. Among the many benefits that a Revocable Trust has over a Will is the ability to minimize or even avoid probate. This leads to the obvious question of:<br />
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Why should I avoid probate in Florida?</h4>
The reason many people wish to avoid probate in Florida because it can bypass the restrictions on who can serve as the person in charge of your affairs, make things more simple for the person in charge of your affairs, keeps costs down, speeds up the process of getting money to your intended beneficiaries, and allows you to have greater privacy.<br />
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How does avoiding probate avoid the restrictions in Florida with respect to who can manage your affairs?</h4>
Avoiding probate makes it easier for the person you want to manage your affairs after death to qualify as the person in charge because not everyone can serve as an Executor of Administrator in Florida. For example, a nonresident person may not serve as an executor unless they are related to you by blood, marriage, or adoption (See FL Statute Section 733.304) So, if you want to name a family friend to be an executor, they are not permitted to serve as executor unless that friend lives in Florida.<br />
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Additionally, there is often a bonding requirement for anyone who wants to serve as an administrator of an estate when the decedent died without a Will. If the proposed administrator does not have good credit, they likely will not qualify for a bond, and therefore would be ineligible to serve as administrator.<br />
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<h4>
How does avoiding probate in Florida make things more simple?</h4>
Avoiding probate in Florida makes things more simple because instead of the person in charge of your affairs having to go through a three step process to transfer your assets, he or she only has to do a two step process. Specifically, if you die in a manner that requires probate, then your Executor or Administrator (if you die without a Will), needs to file a Petition with the Court to be officially named in charge of the estate. (This is step one)<br />
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Once your executor or administrator qualifies, he or she must gather up the estate assets, set up an estate account, and pay the bills and taxes. (This second step is often the longest step.)<br />
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The third step is to pay the beneficiaries and close down the estate. When you use a revocable trust (which is fully and properly funded before death), the first step can be avoided. Needless to say, when you don't have to go to Court and file a Petition, that speeds up the <a href="https://pollockfirm.com/estate-administration-2/" target="_blank">estate administration</a> process and reduces the overall costs.<br />
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<h4>
Other reasons to avoid probate.</h4>
I would also like to point out that another benefit to avoiding probate is that some counties have a routine practice of requiring executors and administrators to put all of the funds of an estate into a restricted depository account that can only be released by Court order. This also has the negative effect of making the administration process take longer and more expensive (because you need another Court order). However, I do understand that this practice is being challenged. If you would like to learn more about that, Boca Raton, Florida Attorney Chuck Rubin has written a nice piece called: <a href="http://rubinontax.floridatax.com/2019/01/mandatory-restricted-depository.html" target="_blank">Mandatory Restricted Depository Arrangements in Probate Questioned</a>.<br />
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<a href="https://pollockfirm.com/employees/attorney-kevin-pollock/" target="_blank">Kevin A. Pollock, Esq., LL.M.</a> is an attorney licensed to practice in NJ, NY, PA and FL. Kevin meets with clients in <a href="https://pollockfirm.com/boca-raton-florida-office/" target="_blank">Boca Raton, FL office</a> located at 5499 N. Federal Highway, Suite K, Boca Raton, FL 33487 by appointment only. Kevin may be reached at (561) 247-1557.Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com1tag:blogger.com,1999:blog-1335076796987605384.post-83672984925303381652019-01-18T08:57:00.000-05:002019-01-18T08:57:01.658-05:00What to Think About Before Meeting With an Estate Planning LawyerI am happy to announce that we have finally finished creating a series of short videos regarding the estate planning and estate administration process. Here is our third video in which <a href="https://pollockfirm.com/employees/attorney-kevin-pollock/" target="_blank">Kevin A. Pollock, Esq., LLM</a> is being interviewed by <a href="https://pollockfirm.com/employees/pierson-w-backes/" target="_blank">Pierson W. Backes, Esq</a>., the head of our estate litigation department, regarding the things a person should think about before meeting with an estate planning attorney.<br />
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<iframe allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/RNgo5xhPs5k" width="560"></iframe>
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Some of the things people should think about include where you want your money to go, who you want to be in charge of your estate, who you would want to act as trustee of any trusts you create, and who should be guardians of any minor or disabled children. <br />
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The role of the attorney should be help people put the legal structure in place, including setting up trusts, and to make the plan tax efficient. A good estate planning attorney will also help you understand the options on how to get money to different people. For example, if you want to leave $100,000 to a sibling, it might be more tax efficient to name them as beneficiary of a life insurance policy rather than naming them as a beneficiary under your Will,<br />
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To learn more about estate planning or hiring an elder law Attorney, please visit us at: <a href="https://pollockfirm.com/">https://pollockfirm.com/</a>Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-39053550824951310232018-12-27T17:00:00.000-05:002018-12-27T17:02:50.594-05:00Pass-Through Business Alternative Income Tax Act<span style="font-family: inherit;">New Jersey may be getting a lot tax friendlier for small business owners. I hesitate to even write this blog post, as I generally prefer to wait until legislation is actually passed before I write on a topic (mainly because it is a waste of everyone's time to read about something that may never come into law). However, the NJ State Senate has already passed the "<span style="background-color: white; color: #272727; font-size: 16px;"><a href="https://www.njleg.state.nj.us/2018/Bills/S3500/3246_R1.PDF" target="_blank">Pass-Through Business Alternative Income Tax Act</a>" by vote of 40-0, so there's a good chance that this may become law, and very soon.</span></span><br />
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<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">Here's the gist of how the new law is supposed to work:</span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">1) NJ will start implementing a new business tax, effective January 1, 2018, on pass through business entities (such as limited liability companies, S-Corporations, and Partnerships).</span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">2) This new business tax will be roughly equal to the tax the owners of the business are already paying on their NJ income tax returns.</span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">3) The owners of the business will receive a dollar for dollar credit on their personal NJ income tax returns for any business taxes paid. </span></span><br />
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<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">The legislature was effectively trying to make this a wash from a NJ revenue standpoint, but let's be clear, this will raise significant revenue for New Jersey because the tax rates don't align perfectly with the income tax rates for either individuals or married couples. </span></span><br />
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<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">For example, under the new business tax law, there is a:</span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">1) 5.525% tax on the distributive proceeds less than $250,000 (per owner);</span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">2) 6.37% tax on distributive proceeds between $250,000 and $1M (per owner);</span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">3) 8.97% tax on distributive proceeds between $1M and $3M (per owner); and</span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">4) 10.75% tax on distributive proceeds over $3M.</span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;"><br /></span></span><span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">For a single person, the NJ income tax rates are as follows:</span></span><br />
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<table class="table table-striped table-bordered" style="background-color: white; border-collapse: collapse; border-spacing: 0px; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; color: #333333; font-family: Ubuntu, Tahoma, "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin-bottom: 20px; margin-top: 1em; max-width: 100%; width: 428px;"><thead style="box-sizing: border-box;">
<tr style="box-sizing: border-box;"><th style="border-bottom-color: rgb(221, 221, 221); border-bottom-style: solid; border-image: initial; border-left-color: rgb(221, 221, 221); border-left-style: solid; border-right-color: rgb(221, 221, 221); border-right-style: solid; border-top-color: initial; border-top-style: initial; border-width: 0px 1px 2px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: left; vertical-align: bottom;"><span style="color: black;">NJ Tax Bracket - Single Person</span></th><th style="border-bottom-color: rgb(221, 221, 221); border-bottom-style: solid; border-image: initial; border-left-color: rgb(221, 221, 221); border-left-style: solid; border-right-color: rgb(221, 221, 221); border-right-style: solid; border-top-color: initial; border-top-style: initial; border-width: 0px 1px 2px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: left; vertical-align: bottom;"><span style="color: black;">NJ Tax Rate</span></th></tr>
</thead><tbody style="box-sizing: border-box;">
<tr style="background-color: #f9f9f9; box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$0.00 - $19,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">1.4%</span></td></tr>
<tr style="box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$20,000.00 - $34,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">1.75%</span></td></tr>
<tr style="background-color: #f9f9f9; box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$35,000.00 - $39,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">3.5%</span></td></tr>
<tr style="box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$40,000.00 - $74,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">5.53%</span></td></tr>
<tr style="background-color: #f9f9f9; box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$75,000.00 - $499,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">6.37%</span></td></tr>
<tr style="box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$500,000.00 - $4,999,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">8.97%</span></td></tr>
<tr style="background-color: #f9f9f9; box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$5,000,000 +</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">10.75%</span></td></tr>
</tbody></table>
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">For a married couple, the NJ income tax rates are as follows:</span></span><br />
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<table class="table table-striped table-bordered" style="background-color: white; border-collapse: collapse; border-spacing: 0px; border: 1px solid rgb(221, 221, 221); box-sizing: border-box; color: #333333; font-family: ubuntu, tahoma, "helvetica neue", helvetica, arial, sans-serif; font-size: 16px; margin-bottom: 20px; margin-top: 1em; max-width: 100%; width: 428px;"><thead style="box-sizing: border-box;">
<tr style="box-sizing: border-box;"><th style="border-bottom: 2px solid rgb(221, 221, 221); border-left: 1px solid rgb(221, 221, 221); border-right: 1px solid rgb(221, 221, 221); border-top-width: 0px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: left; vertical-align: bottom;"><span style="color: black;">NJ Tax Bracket - Married Couple</span></th><th style="border-bottom: 2px solid rgb(221, 221, 221); border-left: 1px solid rgb(221, 221, 221); border-right: 1px solid rgb(221, 221, 221); border-top-width: 0px; box-sizing: border-box; line-height: 1.42857; padding: 8px; text-align: left; vertical-align: bottom;"><span style="color: black;">NJ Tax Rate</span></th></tr>
</thead><tbody style="box-sizing: border-box;">
<tr style="background-color: #f9f9f9; box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$0 - $19,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">1.4%</span></td></tr>
<tr style="box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$20,000 - $49,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">1.75%</span></td></tr>
<tr style="background-color: #f9f9f9; box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$50,000 - $69,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">2.45%</span></td></tr>
<tr style="box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$70,000 - $79,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">3.5%</span></td></tr>
<tr style="background-color: #f9f9f9; box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$80,000 - $149,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">5.53%</span></td></tr>
<tr style="box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$150,000 - $499,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">6.37%</span></td></tr>
<tr style="background-color: #f9f9f9; box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$500,000 - $4,999,999</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">8.97%</span></td></tr>
<tr style="box-sizing: border-box;"><td class="text-success" style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">$5,000,000.00 +</span></td><td style="border: 1px solid rgb(221, 221, 221); box-sizing: border-box; line-height: 1.42857; padding: 8px; vertical-align: top;"><span style="color: black;">10.75%</span></td></tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">However, if this new law goes into effect, it will be a significant net savings for NJ business owners because they will not be as badly impacted by the new federal law. Remember, the Tax Cuts and Jobs Act signed by President Trump stated that State income taxes and local property taxes are capped at $10,000 per year. The reason that NJ business owners will not be adversely affected by this new (and usually higher) business tax is that NJ is converting a non-deductible state income tax (from your personal return) into a deductible business expense.</span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;"><br /></span></span>
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">Let's run through an example. Let's say that Joanne owns a nearby estate planning law firm structured as a limited liability company. Joanne's net income after all expenses (except state income taxes) is $150,000. (For purposes of this example, let's assume that she is single and has no other income and is not entitled to any other deductions other than a $10,000 property tax deduction for her primary residence.) </span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;"><br /></span></span>
<span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">If the New Jersey </span></span><span style="background-color: white; color: #272727; font-size: 16px;">Pass-Through Business Alternative Income Tax Act does not come into law, then she would have a state income tax liability of approximately $7,365 and a federal income tax liability of $19,533 (after factoring in the 199A deduction of 20% and the $10,000 property tax deduction). Total tax liability of approximately $26,898. Joanne does not get to deduct the $7,365 from her federal income taxes.</span><br />
<span style="background-color: white; color: #272727; font-size: 16px;"><br /></span>
<span style="background-color: white; color: #272727; font-size: 16px;">If the N</span><span style="font-family: inherit;"><span style="background-color: white; color: #272727; font-size: 16px;">ew Jersey </span></span><span style="background-color: white; color: #272727; font-size: 16px;">Pass-Through Business Alternative Income Tax Act does come into law, then there would be a NJ business tax of $7,875, no NJ personal income tax, and a federal income tax liability of approximately $18,118 after reducing the $150,000 of income by $7,875 and then factoring in the 20% 199A deduction. Total tax liability of $25,993. </span><br />
<span style="background-color: white; color: #272727; font-size: 16px;"><br /></span>
<span style="background-color: white; color: #272727; font-size: 16px;">As you can see, the big difference is that the $7,875 should be considered a deductible business expense for purposes of the federal tax law. So even though there is an additional $510 of NJ state taxes, there is $1415 less of federal income taxes, <b><u>for a total savings of $905</u></b>. </span><br />
<span style="background-color: white; color: #272727; font-size: 16px;"><br /></span>
<span style="background-color: white; color: #272727; font-size: 16px;">If and when the NJ law actually passes, I will provide another update.</span><br />
<span style="background-color: white; color: #272727; font-size: 16px;"><br /></span>
<span style="background-color: white; color: #272727; font-size: 16px;">* Note - all calculations for taxes done using free software with minimal assumptions, so please do not rely on them. I am just trying to illustrate how the new tax law should work in theory.</span><br />
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Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-66950835492426430992018-12-24T09:38:00.000-05:002018-12-24T09:41:14.382-05:00Elizabeth Ketterson named as Partner to The Pollock Firm LLC<div style="background-color: white; box-sizing: border-box; color: #474747; font-family: Roboto, sans-serif; font-size: 18px; line-height: 1.5em; margin-bottom: 20px; text-align: center;">
<span style="box-sizing: border-box; color: #008244; font-family: "brush script MT"; font-size: 50px; letter-spacing: 0px;">We are Pleased to announce</span></div>
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Elizabeth C. Ketterson, Esq.</h2>
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has been named Partner to our firm and</div>
<div style="background-color: white; box-sizing: border-box; color: #474747; font-family: Roboto, sans-serif; font-size: 18px; line-height: 1.5em; margin-bottom: 20px; text-align: center;">
Director of the estate administration department.</div>
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<span style="box-sizing: border-box; font-family: "brush script MT"; font-size: 30px; letter-spacing: 0px;">&</span></div>
<div style="background-color: white; box-sizing: border-box; color: #474747; font-family: Roboto, sans-serif; font-size: 18px; line-height: 1.5em; margin-bottom: 20px; text-align: center;">
Our firm name has changed from:</div>
<div style="background-color: white; box-sizing: border-box; color: #474747; font-family: Roboto, sans-serif; font-size: 18px; line-height: 1.5em; margin-bottom: 20px; text-align: center;">
<span style="box-sizing: border-box; font-weight: 600;">Law Office of Kevin A. Pollock LLC </span></div>
<div style="background-color: white; box-sizing: border-box; color: #474747; font-family: Roboto, sans-serif; font-size: 18px; line-height: 1.5em; margin-bottom: 20px; text-align: center;">
to:</div>
<h2 style="background-color: white; box-sizing: border-box; color: #443f3f; font-family: Ubuntu, sans-serif; font-size: 32px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 500; line-height: 1.1; margin: 10px 0px 24px; text-align: center;">
The Pollock Firm LLC</h2>
Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-67925020409450886322018-12-21T09:53:00.001-05:002018-12-21T09:53:04.925-05:00Excellent Social Security Strategy LinkAs part of the estate planning process, we frequently need to analyze how much a person is likely to have upon death. As part of an overall wealth analysis, this invariably leads to questions such as:<br />
<br />
<ol>
<li>How much are you earning now?</li>
<li>When are you expecting to retire?</li>
<li>How much should you gift to your children to minimize taxes while still having enough to live on?</li>
<li>What do you expect to earn/spend in retirement?</li>
<li>How much are you likely to receive from Social Security?</li>
</ol>
<br />
Many clients are concerned with running out of money and have a lot of difficulty calculating the best strategies for how and when to start claiming their Social Security. After all, the strategy of wait until as late as possible simply doesn't work for everyone. From a pure return on investment strategy, it might be worthwhile for a low income earner in a marriage to take the benefits early. This is particularly true when there is a big age disparity between spouses.<br />
<br />
In looking around online, I found a wonderful website to help you analyze the best strategies. The site <a href="https://opensocialsecurity.com/" target="_blank">Open Social Security</a> has a great calculator for spouses that let's you know, based upon your ages and the amount Social Security expects you to receive at full retirement, when is the best time for each of you claim your social security. <br />
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We still recommend speaking with your attorney and other advisors to fully flush out all the issues, such as factoring in the health of your and your spouse, discussing when other income should come in, and what type of guaranteed money is otherwise likely to be available. Nevertheless, this is definitely one of the better calculators I've seen.<br />
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Happy holidays!Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-10394583014158571332018-12-12T18:46:00.000-05:002018-12-12T18:46:17.186-05:00What is the first thing an executor of a Will should do?I am happy to announce that we have finally finished creating a series of short videos regarding the estate planning and estate administration process. Here is our second video in which Elizabeth Ketterson, Esq., the Director of our estate administration department, is being interviewed by Kevin A. Pollock, Esq., LL.M. regarding the first things a person who is in charge of an estate should do.<br />
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<iframe allowfullscreen="" frameborder="0" height="270" src="https://www.youtube.com/embed/_58oUJdBJGs" width="480"></iframe><br />
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If the person is named under a Will, that person is known as the executor. If there is no Will, that person can apply to the court to be appointed as an administrator of the estate.<br />
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We recommend that you meet with an attorney that your are comfortable with to help you prepare the paperwork necessary to be appointed as Executor or Administrator. The Court will then give you the necessary paperwork to speak with banks, set up an account, and make any claim for funds owed to the estate. Once you have started collecting assets, then you can arrange to pay the estate's bills.<br />
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We strongly recommend that you do NOT distribute money to any beneficiaries until all the bills have been paid and you have received a waiver or release from the beneficiaries stating that they approve of your actions as executor.<br />
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To learn more about estate administration or hiring a probate Attorney, please visit us at: <a href="https://pollockfirm.com/estate-administration-2/">https://pollockfirm.com/estate-administration-2/</a>Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0Princeton, NJ, USA40.3572976 -74.667222640.2604856 -74.8285841 40.4541096 -74.5058611tag:blogger.com,1999:blog-1335076796987605384.post-22222836688070718432018-10-31T09:01:00.000-04:002018-10-31T09:01:04.065-04:00Why You Should Have A WillI am happy to announce that we have finally finished creating a series of short videos regarding the estate planning and estate administration process. Here is our first video on the importance of having a Will.<br />
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<br />Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-73955665881027449572018-10-03T19:07:00.003-04:002018-10-03T19:07:58.200-04:00Why Repeal of the NJ Estate Tax Means Married Couples Should Update Their Wills<span style="font-family: inherit;">Effective January 1, 2018, New Jersey repealed its estate tax. The question then become how does this affect you and do you need to do anything about it? For most people the change is a positive one because it means their heirs pay less taxes and they do not need to do anything to update their documents.</span><br />
<span style="font-family: inherit;"><br /></span>
<h3>
<span style="font-family: inherit;">Generally, You are Unaffected by the Repeal of the NJ Estate Tax If...</span></h3>
<ol>
<li><span style="font-family: inherit;">You do not have children and plan on leaving money to siblings, nieces, nephews, friends or charity.</span></li>
<li><span style="font-family: inherit;">You are NOT married but have surviving descendants.</span></li>
<li><span style="font-family: inherit;">You are married couples with children and you plan to leave everything outright to your surviving spouse on the first to die.</span></li>
</ol>
<span style="font-family: inherit;">In all three situations above, the repeal of the New Jersey estate tax should not affect you and you generally will not need to update your <a href="https://pollockfirm.com/last-will-and-testament/" target="_blank">Will</a> or <a href="https://pollockfirm.com/revocable-living-trusts/" target="_blank">Revocable Living Trust</a>.* In the first situation, if you are leaving money to siblings, nieces, nephews and friend, be aware that NJ did NOT repeal its inheritance tax, so you still are affected by that.</span><br />
<span style="font-family: inherit;"><br />For married couples who have a <a href="https://pollockfirm.com/disclaimer-trust/" target="_blank">Disclaimer Trust</a> plan, your documents are also generally unaffected.</span><br />
<span style="font-family: inherit;"><br /></span>
<h3>
<span style="font-family: inherit;">Repeal of the NJ Estate Tax Can Dramatically Affect Married Couples Who Set up a Trust for the Surviving Spouse</span></h3>
To understand why the repeal of the New Jersey Estate Tax can adversely affect married couples who set up a trust for the surviving spouse, I will take a step back to discuss why we often recommend a trust be created for a surviving spouse.<br />
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<h4>
<u>Reasons to Create a Trust for a Surviving Spouse</u></h4>
<ol>
<li>The first spouse to die wants to ensure that if the surviving spouse gets remarried, the children are protected from future spouse and still receive an inheritance.</li>
<li>You have children from a previous relationship and want to ensure that upon the death of your spouse, your children receive whatever is left over.</li>
<li>The surviving spouse isn't good with money and needs assistance managing the wealth.</li>
<li>Estate Tax Efficiency - Prior to 2017,<span style="background-color: white; color: #474747;"> New Jersey had a ‘use it or lose it’ state estate tax exemption of $675,000. </span></li>
</ol>
<h4>
<span style="background-color: white; color: #474747;"><u>Why Was It Tax Efficient to Create a Trust for a Surviving Spouse</u></span></h4>
<br />
<span style="background-color: white; color: #474747;">Protecting money for the benefit of the your children or from a spendthrift spouse are still very valid reasons to set up a trust, so I will spend the rest of the article talking about how trusts for a surviving spouse in older Wills and Revocable Trusts are usually no longer tax efficient. </span><br />
<span style="background-color: white; color: #474747;"><br /></span>
<span style="background-color: white; color: #474747;">Let's presume it's 2016 and we have a married couple with $1,350,000 of assets. One spouse dies leaving everything to survivor outright. The surviving spouse then dies shortly after leaving everything to the children. In this scenario, we would lose the NJ estate tax exemption of the first spouse to die and the children would only benefit from the </span>$675,000 NJ estate tax exemption of the Surviving Spouse. Assuming no growth in assets, the children inherit the full $1.35M, but $675,000 would be subject to a tax of almost $55,000.<br />
<br />
To minimize the NJ estate tax, attorneys would advise clients to set up a trust for the surviving spouse instead of having funds go outright. So, in the example above, when o<span style="background-color: white; color: #474747;">ne spouse dies, he could leave everything to a trust for the survivor. The surviving spouse then dies shortly after leaving everything to the children. In this scenario, by funding a trust for the surviving spouse, we are utilizing each spouse's NJ estate tax exemption. Upon the death of the surviving spouse, children would receive </span>$675,000 from the trust tax free and the other $675,000 from the surviving spouse tax free. This type of planning could easily save $55,000 in NJ estate taxes.<br />
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<h4>
<u>Funding a Trust for the Surviving Spouse May Be Tax Inefficient after the Repeal of the NJ Estate Tax.</u></h4>
<br />
Now that you know why it was advisable to set up a trust for a spouse and why it was tax efficient, you need to know why most older trusts should be amended. Basically, now we can make it even MORE tax efficient. This time, however, we are not talking about estate tax efficiency - now we are trying to make the trusts more efficient for income tax and capital gains tax purposes. Let me give you two examples again:<br />
<br />
<span style="background-color: white; color: #474747;">Let's presume it's 2010 and we have a married couple with $1,350,000 of assets. Dad dies leaving everything to Mom. Mom lives another 20 years before dying and leaving everything to the children. Since Mom lived another 20 years, let's presume the assets grew by $1M and were now worth $2,350,000. We do not have to worry about the NJ estate tax anymore, so the assets would go to the children completely free tax. Additionally, when the children receive their inheritance, it is eligible for a step-up in basis. This means that the children can effectively sell their inheritance the day after Mom dies and pay no capital gains tax on the $1M+ of appreciation. (Please read this post to better <a href="https://pollockfirm.com/understanding-basis/" target="_blank">understanding basis</a>.) </span><br />
<span style="background-color: white; color: #474747;"><br /></span>
<span style="color: #474747;"><span style="background-color: white;">Now, let's presume the same facts as above except that when Dad died, he left $675,000 to Mom in trust. Let's also presume that the trust received the benefit of all the appreciation, so that when Mom died, she had $675,000 in her own name and $1,675,000 in trust. The children would still receive a step-up in basis from the $675,000 in assets that came from Mom, but the basis in the trust fund assets would only be $675,000 (the value on Dad's date of death). So when the children sold the assets that were in the trust, there would be a capital gains tax (up to 23%) on the $1M. </span></span><br />
<br />
Most older Wills and Revocable Trusts used this formula for a trust for a surviving spouse, so hopefully it is easy to see why it is no longer tax efficient to continue using it.<br />
<br />
<h4>
<u>Do I Need to Update My Estate Planning Documents?</u></h4>
<br />
If you have a Will or Trust created prior to 2017 leaving money in trust to a surviving spouse, the short answer is probably yes. The one major exception to this is if you have a <a href="https://pollockfirm.com/disclaimer-trust/" target="_blank">Disclaimer Trust</a> plan. If money goes outright to the surviving spouse, and the survivor has to make an affirmative election to fund a trust, then the plan most likely is fine the way it is written.<br />
<br />
<h4>
<u>How You Can Fix Your Older Trusts</u></h4>
<br />
If you have an estate plan that automatically leaves money in trust for the surviving spouse, there are two easy ways you can fix it so that it is more tax efficient. <br />
<br />
<ol>
<li>Option one is to get rid of the trust for the surviving spouse and leave everything to the survivor outright. This is an easy solution when the estate isn't very large or complex. However if you are in a second marriage situation or if you are concerned about the surviving spouse getting remarried or spending away the children's inheritance, then you should consider the second option.</li>
<li>Option two is to revise the formulas in the Will or Trust so that it gets a step-up in basis when the surviving spouse dies. (There are hundreds of ways to do this which are far beyond the scope of this post.)</li>
</ol>
<br />
To further complicate things, most tax attorneys like me will also build in a fail-safe so that if the NJ estate tax comes back, we can have the option of funding an old-style trust.<br />
<br />
<h3>
Conclusion </h3>
<br />
<span style="font-family: inherit;">If you have an older Will or trust that leaves money to a surviving spouse in trust - have it looked at.</span><div>
<span style="font-family: inherit;"><br />* Regardless of whether you have a trust for a surviving spouse, always have your own estate planning documents reviewed by your attorney just to be sure it matches your wishes and still complies with state law. The purpose of this blog post is to discuss who is most likely to be affected by the repeal of the New Jersey estate tax.</span></div>
Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-12739208364257468282018-10-02T15:56:00.000-04:002018-10-03T12:45:25.094-04:00What is a Disclaimer Trust?<div>
A Disclaimer Trust is a special type of trust often created under a <a href="https://pollockfirm.com/last-will-and-testament/" target="_blank">Will</a> (or as a sub-trust of a <a href="https://pollockfirm.com/revocable-living-trusts/" target="_blank">revocable living trust</a>) that generally allows a person to refuse an asset and still benefit from it under a trust. In order to understand Disclaimer Trusts, you first need to understand what a disclaimer is and what happens when you make a disclaimer so that you can understand the purpose and mechanics of Disclaimer Trusts.<br />
<br /></div>
<h3>
What is a Disclaimer?</h3>
<div>
A disclaimer is literally when someone refuses to accept money or an inheritance. A person can disclaim a gift, an inheritance, an interest in a trust, or certain powers. (Let's call this the "Disclaimed Interest".) A person can also make a partial disclaimer, such as disclaiming half of their inheritance (although special rules apply to this).<br />
<br /></div>
<h3>
What Happens When a Disclaimer Is Made?</h3>
<div>
When a Disclaimer is done correctly, it has the affect of treating the person who disclaims as if he or she died prior to the Disclaimed Interest being made. So, if a Wife is disclaiming an inheritance from her Husband, it treats the Wife as if she had died before the Husband for whatever amount Wife disclaims. Generally, in order for a disclaimer to be effective for tax purposes, it must be done within nine months from the date of death AND the beneficiary cannot have accepted the Disclaimed Interest.<br />
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Since the Disclaiming party is treated as if he or she died before the gift or bequest was made, the Disclaimed Interest will pass to the next person in line who is suppose to receive that. For example, if a Will says, everything to my spouse, and upon the death of my spouse, it all goes to my children, then if the surviving spouse disclaims her inheritance, it would all go to the children. However, that may not be the result the surviving spouse wants. She might want to have access to that money during her lifetime and only have it go to the children upon her death.<br />
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<h3>
What is the Purpose of a Disclaimer Trust?</h3>
The purpose of a Disclaimer Trust is that it allows a surviving spouse to inherit money, but to do so in a way that would be more tax efficient for the descendants of the person creating the Will.<br />
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This tax efficiency is probably best illustrated by two examples of how it affected NJ residents prior to 2017. Back when NJ had a state estate tax, it often wasn't beneficial for the surviving spouse to inherit everything outright. New Jersey had a 'use it or lose it' state estate tax exemption of $675,000. So, if a married couple owned $1,350,000 of assets, and when one spouse dies they wish everything to go for the benefit of the survivor and then down to the children:<br />
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<ol>
<li>Example 1 - Upon the first to die, everything goes to surviving spouse outright. When the second spouse dies, she would only have one NJ estate tax exemption of $675,000. So assuming no growth in assets, the remaining $675,000 would have been subject to the NJ estate tax, resulting in a tax of almost $55,000.</li>
<li>Example 2 - Upon the first to die, everything goes into trust for the surviving spouse. This utilized the estate tax exemption of the first person to die. The surviving spouse still had access to the funds in trust, but when she died and everything went to the children, there was no NJ estate tax because she also had an estate tax exemption.</li>
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Under What Circumstances Should a Surviving Spouse Disclaim Assets into a Disclaimer Trust?</h3>
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A surviving spouse should disclaim an inheritance into a Disclaimer Trust when it would be tax efficient to do so. If we go back to our example above, let's say the couple with $1,350,000 has their estate dwindle down to $500,000, or they move to another estate without a state estate tax, or the estate tax exemption has increased well beyond what they expect to have when the surviving spouse dies, there would be no point in the surviving spouse disclaiming. </div>
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If it is highly like that the surviving spouse will live in a state that has a state estate tax, and it the surviving spouses assets (including the inheritance) would be above that state's estate tax thresh-hold, then it often beneficial for the surviving spouse to disclaim the assets into a Disclaimer Trust.</div>
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(Incidentally, before the federal government had portability between spouses of the federal estate tax exemption, this was a part of practically every single Will for married couples. Since portability and the increase the federal estate tax thresh-holds, fewer attorneys are including these clauses unless the state has an estate tax.)<br />
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When Should a Surviving Spouse Disclaim Assets into a Disclaimer Trust?</h3>
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For a disclaimer to be effective for tax purposes, it must be done within nine months from the date of death. The nice thing about Disclaimer Trust planning for couples is that it allows the surviving spouse to take a look at all the facts and circumstances when the first spouse dies. </div>
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It is important to remember that the funding of a Disclaimer Trust is always optional. A disclaimer Trust will NOT get funded unless the surviving spouse makes files a qualified disclaimer according to local state rules. You can analyze your wealth situation, need for cash, look at the tax laws and figure out what is best for your situation.<br />
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<h3>
What are the Tax Consequences of a Disclaimer?</h3>
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If a Surviving Spouse disclaims within the nine period and does so according the rules set out by the IRS (basically not taking the property first, not directing where the disclaimed property goes, and complying with state rules on disclaimers), then the disclaimed amount will be includible in the decedent's taxable estate. This is generally what you want as you are disclaiming to utilize the decedent's estate tax exemption amount.</div>
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The person disclaiming must be careful not to disclaim too much, otherwise that might trigger an estate tax on the first to die.</div>
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It should be noted that failing to disclaim in a timely fashion or in a way proscribed by the IRS will result in the disclaimer be treated as a taxable gift by the Disclaimant. Basically, it's as if the surviving spouse accepted the property and then gifted it away.<br />
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Alternatives to a Disclaimer Trust Plan</h3>
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The question I always ask my clients is whether or not they want to guarantee that money go into trust for the surviving spouse. If they want to guarantee the use of an estate tax exemption or if they want to protect the money from a future spouse, we wouldn't do a Disclaimer Trust plan, we would just automatically fund a trust for the benefit of the surviving spouse upon the death of the first spouse instead of giving the surviving spouse the option to fund it upon the first to die.</div>
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However, many people aren't concerned about the surviving spouse remarrying, and they want to keep things simple. Usually in those cases, we would allow the surviving spouse to disclaim their inheritance into a Disclaimer Trust upon the first to die if there is a tax reason to do so.</div>
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If the surviving spouse really doesn't need the money, he or she can also take the money and gift it to the children (or wherever you wish). Remember, this can result in a taxable gift. However, with the high estate and gift tax exemption limits ($11.2M per person in 2018), most people will not actually incur a gift tax unless you make a very large gift.<br />
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Who Can Make a Disclaimer?</h3>
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Throughout this post I have talked about the ability of a Surviving Spouse to make a disclaimer, and while anyone can disclaim an asset, only a Surviving Spouse can disclaim an asset in to a trust for the benefit of himself or herself. The general rule for anyone other than a surviving spouse is that you cannot disclaim money and still benefit from it. Accordingly, your child can never disclaim into a trust for his or her benefit. </div>
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On the other hand, attorneys frequently create estate plans that give money to child, but if child dies, her share goes to grandchild in trust. If the child is wealthy, she might not want or need the money and then Child can disclaim funds into grandchild's trust and act as trustee of that trust.<br />
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Problems With Disclaimer Trust Planning</h3>
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The biggest problem with Disclaimer Trust planning is that the surviving spouse often fails to make an effective disclaimer. If the surviving spouse doesn't seek counsel within nine months of the first spouse's date of death, or they transfer money into their own name, then an effective disclaimer cannot be made.<br />
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Balancing Estate Tax Planning and Capital Gains Tax Planning</h3>
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One of the trickiest aspects of deciding whether or not to do a disclaimer is calculating whether a disclaimer will minimize overall taxes and expenses. If the assets are in the surviving spouse's name, it can be subject to extra estate taxes. If the assets are titled in the name of a Disclaimer Trust, it could produce additional capital gains taxes, accounting fees and other costs. I would strongly urge you to consult with a tax attorney before exercising a disclaimer.<br />
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How Do I Know if My Estate Plan Includes a Disclaimer Trust?</h3>
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The Will or Revocable Trust usually says something to the effect of "I leave everything to my spouse, but if my spouse disclaims all or a part of his or her inheritance, such disclaimed portion will be distributed pursuant to the Disclaimer Trust created hereunder."</div>
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A surviving spouse should be careful of disclaiming if no Disclaimer Trust is established under the Will or Revocable Living Trust as a disclaimer could have the effect of sending everything to the children.<br />
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<h3>
If a Disclaimer Trust is Primarily for Married Couples Living in a State That Has a State Estate Tax, Why Do My Documents Have a Disclaimer Trust?</h3>
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Disclaimer Trust planning is most useful in states still have a state estate tax. However, many attorneys will automatically put it in the estate planning documents for a married couple even if they live in a state that doesn't have a state estate tax just in case the client moves to a jurisdiction that does have the tax. Moreover, it was common practice to do Disclaimer Trust planning prior to 2001 when the federal government allowed spouses to port their unused federal estate tax exemption to the surviving spouse. Accordingly, there is a historical component to this in all states.<br />
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<h3>
Is there Any Harm to Having a Disclaimer Trust in my Will or Revocable Trust Even Though I Know I Will Never Use It?</h3>
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Attorneys never like to use the word "never". So, I will say that it would be very surprising if there is any harm in having a Disclaimer Trust in your Will or other estate planning documents. It is a great failsafe.</div>
Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-39553480200325808202018-08-24T14:34:00.002-04:002018-08-24T16:23:33.223-04:007 Simple Ways to Minimize the Pennsylvania Inheritance Tax<span style="font-family: "verdana" , sans-serif;">It's been a little while since I have written an article on the Pennsylvania inheritance tax. However, before I discuss ways to minimize the PA inheritance tax, it is important to understand that the tax rate is affected by who receives money upon your death.</span><br />
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<span style="font-family: "verdana" , sans-serif;">As a refresher, Pennsylvania has an inheritance tax on most assets that are transferred at the time of your death if they are going to anyone besides a spouse or a charity. There is also no inheritance tax if a child under age 21 dies and leaves their estate to their parent or step-parent.</span><br />
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<b><span style="font-family: "verdana" , sans-serif;">Pennsylvania Inheritance Tax on Assets Passing to your Children, Grandchildren, Parents and Grandparents</span></b></h3>
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<ul>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">There is a flat 4.5% inheritance tax on most assets that pass down to your children, grandchildren, great-grand children or your other descendants.</span></li>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">There is a flat 4.5% inheritance tax on most assets that pass up to your parents, grandparents or your other lineal ascendants. (Exception if the decedent is under age 21.)</span></li>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">Pennsylvania treats a son-in-law or daughter-in-law as if they are a child for purposes of the inheritance tax. As a result, there is a flat 4.5% PA inheritance tax on assets that pass to the wife or widow and husband or widower of the decedent's child. </span></li>
</ul>
<h3>
<b><span style="font-family: "verdana" , sans-serif;">Pennsylvania Inheritance Tax on Assets Passing to your Brothers, Sisters, Nieces, Nephews, Friends and Others</span></b></h3>
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<ul>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">There is a flat 12% inheritance tax on most assets that pass to a sibling (brother or sister). </span></li>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">There is a flat 15% inheritance tax on most assets that pass up to nieces, nephews, friends and other beneficiaries. (This means there will be 15% tax on money you leave to your dog, cat or horse.)</span></li>
</ul>
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<h3>
<b><span style="font-family: "verdana" , sans-serif;">7 Simple Ways to Minimize the Pennsylvania Inheritance Tax</span></b></h3>
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<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;"><b>Set up joint accounts with the people you wish to benefit.</b> Pennsylvania will only tax the percentage of assets owned by the decedent, not the full amount. </span></li>
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<li><span style="font-family: "verdana" , sans-serif;">This is a particularly useful strategy if you have one child that you trust completely as only one-half of the jointly owned assets will be taxed. However, if you have more than one child, it is possible that you and all the children are joint owners of the account, so if you have three children, only 1/4 of the account will be subject to the PA inheritance tax.</span></li>
<li><span style="font-family: "verdana" , sans-serif;">If you have more than one child, be careful of setting up a joint account with just one person (because you may accidentally cut your other children out)</span></li>
<li><span style="font-family: "verdana" , sans-serif;">Be sure that you don't have any concerns that your child will take your money and it won't be available for you to use.</span></li>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">Transfers must occur more than one year before death to achieve the maximum tax benefit.</span></li>
</ul>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;"><b>Gift your assets to your children. </b> This can be a very dangerous strategy, so I strongly recommend consulting with a <a href="https://pollockfirm.com/employees/attorney-kevin-pollock/" target="_blank">tax attorney</a> or accountant before making the gift.</span></li>
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<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">Dangers include giving away an asset that has a low basis resulting in a capital gains tax which could be far more expensive than simply paying the PA inheritance tax.</span></li>
<li><span style="font-family: "verdana" , sans-serif;">If you give away too much, you could be subject to federal gift taxes or generation skipping transfer taxes.</span></li>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">This could potentially cause problems if you wish to qualify for Medicaid.</span></li>
</ul>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;"><b>Buy extra life insurance.</b> Life insurance is not subject to the Pennsylvania inheritance tax, so converting non-life insurance assets to life insurance will reduce the tax.</span></li>
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<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">An interesting planning opportunity is to by a long term care insurance policy that has a life insurance rider. This way if you don't use up the LTC policy, it can pass tax free to your heirs. </span></li>
</ul>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;"><b>Utilize life insurance to give money to beneficiaries who are taxed at the highest tax rates.</b> So let's say you have total assets of $1.1 million dollars including a life insurance policy worth $100,000, and you want to leave $100,000 to your nieces and nephews and you want to leave the rest of your estate to your children. </span></li>
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<li><span style="font-family: "verdana" , sans-serif;">If you have name your nieces and nephews the beneficiary of the life insurance and give the rest of your assets to your children, there will be a total PA inheritance tax of $45,000 (4.5% x $1M). </span></li>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">If you give the children the life insurance money, and have a will leaving your nieces and nephews $100,000 from your Will with the rest to the children, the total PA inheritance tax will be $55,500 (15% x $100,000 + 4.5% x $900,000). </span></li>
</ul>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;"><b>Buy real estate outside of Pennsylvania. </b> OK, maybe this isn't very simple, but Pennsylvania only taxes assets located in Pennsylvania, so a shore property in New Jersey will pass free of the PA inheritance tax.</span></li>
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<li><span style="font-family: "verdana" , sans-serif;">Beware of taxes in other states</span></li>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;">Don't put the real estate in an entity such as an LLC - Pennsylvania reserves the right to tax an interest in business. (The legal theory is that you no longer own real estate, but the LLC, which <i>is</i> subject to a PA inheritance tax.)</span></li>
</ul>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;"><b>Pay the PA inheritance tax early. </b> If you pay the Pennsylvania inheritance tax within 3 months from date of death, you are entitled to a 5% discount.</span></li>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;"><b>Convert your IRA to a Roth IRA.</b> The conversion will come at a cost to your current non-retirement assets, thereby reducing your PA taxable estate for inheritance tax purposes.</span></li>
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<li><span style="font-family: "verdana" , sans-serif;">This strategy works best when you have enough funds outside your retirement account to pay for the income taxes on the conversion.</span></li>
<li><span style="font-family: "verdana" , sans-serif;">This strategy is especially valuable if your children are high income earners, this way they can receive distributions from the ROTH, after your death, free of income tax.</span></li>
<li><span style="font-family: "verdana" , sans-serif;">I strongly recommend consulting with a tax attorney or accountant though before doing the conversion. </span></li>
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<b><span style="font-family: "verdana" , sans-serif;">Other Not-So-Simple Ways to Minimize the PA Inheritance Tax</span></b></h3>
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<ol><span style="font-family: "verdana" , sans-serif;">
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;"><b>Move to another state. </b> Again, this may not be simple for many people, but if you already have a property in another jurisdiction, consider whether you should change your domicile for tax purposes. (Obviously you must actually meet the requirements of changing your domicile.)</span></li>
<li style="padding-bottom: 16px;"><b>Invest in farmland or a family business. </b> <a href="http://willstrustsestates.blogspot.com/2012/07/inheritance-of-farm-exempt-from.html" target="_blank">Pennsylvania exempts certain farmland and small businesses from the inheritance tax</a>. The problem with this may be getting your money back out of the business.</li>
<li style="padding-bottom: 16px;"><b>Setting up a GRAT or GRUT</b> (setting up a special type of trust that creates an annuity back to you and gives excess investments to your heirs).</li>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;"><b>Setting up a CLAT or CLUT </b>(s</span>etting up a special type of trust that creates an annuity to charity and leaves the rest to your heirs).</li>
<li style="padding-bottom: 16px;"><span style="font-family: "verdana" , sans-serif;"><b>Setting up a CRAT or CRUT </b>(s</span>etting up a special type of trust that creates an annuity to your heirs and leaves the rest to charity).</li>
<li style="padding-bottom: 16px;"><b>Setting up a spousal access trust.</b> These are typically over-funded life insurance trusts. Money can be used for your spouse and children while your alive and then it goes completely tax free to your children. This is a fantastic way to minimize the federal estate tax as well as minimizing the PA inheritance tax.</li>
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<span style="font-family: "verdana" , sans-serif;">Simple is Never Simple</span></h3>
<span style="font-family: "verdana" , sans-serif;">As always, be very careful that any changes you make to beneficiary designations or joint ownership of accounts could dramatically alter your overall plan. So it never hurts to run what might seem like a simple change by an estate planning attorney.</span><br />
<br />Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-21677490284951236102018-07-02T11:39:00.001-04:002018-07-02T11:39:24.909-04:00New Jersey Estate Tax - Permanent Repeal?As many of you know, the new Democratic Governor of New Jersey, Phil Murphy, was engaged in a recent budget showdown with members of his own party. A last minute government shutdown was avoided, however, as the legislature and the Governor came to terms on a variety of tax increases and spending priorities. For more specifics, NJ.com has a good <a href="https://www.nj.com/politics/index.ssf/2018/07/nj_budget_so_how_much_will_you_actually_pay_in_new.html#incart_2box_nj-homepage-featured" target="_blank">article here</a>.<br />
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From the perspective of estate planning attorneys, what is noteworthy is that there was never any mention of bringing the New Jersey estate tax back. One of the concerns with many lawyers was whether, with a new Governor, the estate tax repeal would be lifted. This does not appear to be the case any time soon, so it looks as if we should continue to plan as if New Jersey will not have a state estate tax, at least for the time being.<br />
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Remember, New Jersey still does have an <a href="http://willstrustsestates.blogspot.com/2010/09/comparison-of-pennsylvania-and-new.html" target="_blank">inheritance tax</a> though.<br />
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As a reminder, this permanent change means people who have older Wills and Trusts should bring them in for a review. It is possible that the tax formulas are outdated and that there are new planning opportunities to simply your documents or minimize capital gains taxes upon your death.Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-34370611147999540692018-05-14T15:40:00.001-04:002018-05-14T15:40:30.505-04:00Reasons to set up a Third Party Supplemental Needs Trust as an Accumulation IRA Stretch TrustIn a previous post, I described the <a href="https://willstrustsestates.blogspot.com/2018/03/reasons-to-set-up-3rd-party.html" target="_blank">Reasons to Set up a 3rd Party Supplemental Needs Trust as an Irrevocable Life Insurance Trust</a>. The same Third Party Supplemental Needs Trust can also be set up as an <a href="https://willstrustsestates.blogspot.com/2007/05/ira-stretch-trusts.html" target="_blank">IRA Stretch Trust</a>. <br />
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If a Special Needs person is named as beneficiary of an IRA, 401k, 403b or any other asset, that could ruin their ability to qualify as for SSI and Medicaid. However, paying retirement money to a traditional <a href="https://pollockfirm.com/third-party-special-needs-trusts/" target="_blank">Third Party Supplemental Needs Trust</a> can cause income tax problems. Accordingly, we usually recommend that the Supplemental Needs Trust be created with provisions that allow a slow withdrawal of the retirement account over the lifetime of the beneficiary into a trust for the following reasons:<br />
<ul>
<li>A traditional Third Party Supplemental Needs Trust can be named as a beneficiary of a retirement account, however, that is usually very tax inefficient from an income tax perspective as the IRS will require the retirement money to be paid to the trust within 5 years, and it will be taxed and the very high trust rates. </li>
<li>To minimize income tax consequences, the trust should be designed as a modified <a href="https://pollockfirm.com/ira-stretch-trust/" target="_blank">IRA Stretch Trust.</a></li>
<li>An IRA Stretch Trust requires the Trustee to withdraw a certain amount each year from the retirement accounts which name the trust as the beneficiary. The amount the Trustee is required to withdraw from the retirement account into the Supplemental Needs Trust is known as the Required Minimum Distribution (RMD) Amount. The Required Minimum Distribution Amount is a based upon a formula set by the IRS that is tied to the life expectancy of the beneficiary of the trust (the Special Needs person). </li>
<li>By taking out only the RMD each year, the IRA can continue to grow tax deferred. After the trustee withdraws the RMD from the retirement account into the Third Party Supplemental Needs Trust, the trustee may leave the money in the trust or distribute it to the Special Needs person subject to the normal limits of Special Needs Trusts. </li>
<li>PLANNING NOTE: This should never be set up as a Conduit Stretch Trust as that will ruin the benefits of the Special Needs Person. A Conduit Stretch Trust requires the RMD be distributed to the beneficiary every year.</li>
<li>PLANNING NOTE: In order to establish the Special Needs Person's life as a measuring life for IRS tax purposes, and have the Third Party Supplemental Needs Trust be treated as an Accumulation Trust, upon the death of the Special Needs Person, the balance of the trust and the retirement money can ONLY be paid to a person who is younger than the Special Needs Person. </li>
<li>PLANNING NOTE: If you think that the client may wish to benefit an older sibling of Special Needs Person, consider making that older sibling the measuring life.</li>
</ul>
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One downside to naming a properly designed Third Party Special Needs Trust with accumulation provisions as the beneficiary of a retirement account is that the income tax rates for trusts is higher than that of an individual. However, if you wish to engage in special needs trust planning and provide a special needs person access to money from a retirement account, this appears to be one of the most tax efficient ways of doing so while also preserving the the government benefits of the special needs person. </div>
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It should be noted that when doing <a href="https://pollockfirm.com/special-needs-trusts/" target="_blank">Special Needs Trust Planning</a>, sometimes, if parents have more than one child, they will name name a non Special Needs child as beneficiary of retirement money and a trust for the Special Needs Child as beneficiary of other assets. This is a completely viable alternate type of plan, but care should be considered regarding what happens if that other child predeceases the parents.</div>
Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-16132052725098626252018-03-16T10:51:00.002-04:002018-03-16T10:51:37.333-04:00Reasons to set up a 3rd Party Supplemental Needs Trust as an Irrevocable Life Insurance TrustRecently, I wrote a post explaining the <a href="https://willstrustsestates.blogspot.com/2018/02/understanding-differences-between.html" target="_blank">differences between a First Party Special Needs Trust and a Third Party Supplemental Needs Trust</a>. As you are aware, the goal of a Special Needs Trust or a Supplemental Needs Trust is to provide financial resources to a Special Needs Person in a way that will not cause them to lose their government benefits, like Medicaid. Today, I wanted to explore the benefits of a Third Party Supplemental Needs Trusts in more depth.<br />
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A <a href="http://pollockfirm.com/third-party-special-needs-trusts/" target="_blank">Third Party Supplemental Needs Trust</a> can be created under a Will or it can be created as a stand alone trust by the parent or grandparent. We usually recommend that it be created as a stand alone Irrevocable Life Insurance Trust for the following reasons:<br />
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<li>Money/Insurance held by the Third Party Supplemental Needs Trust will pass free of estate tax and inheritance tax. However this may not be a concern for federal estate taxes if your assets are below the current threshold of $11.2 million. (Remember, the federal estate tax gets reduced to $5 million dollars, indexed for inflation, in 2026.) </li>
<li>Other relatives who wish to benefit the special needs child can name the stand alone trust as a beneficiary under their Will or as beneficiary of a life insurance policy. This is important because otherwise each parent, grandparent, aunt, uncle and sibling that may want to benefit the special needs person would have to set up their own special needs trust, creating complexity and extra costs.</li>
<li>We frequently recommend that parents of a Special Needs child purchase a permanent life insurance policy to guarantee money will be there for the Special Needs Child as other assets may dissipate. </li>
<li>A Third Party Supplemental Needs Trust and Life Insurance Trusts are protected from creditors of both the parents and child.</li>
<li>Creating a stand alone trust during your lifetime generally avoids the need to get the Court involved. This can come up in various different ways:</li>
<ul>
<li>Every time the trustee of a Trust created under a Will changes, it requires Court permission. This is not true of a trust that is created as a stand alone trust. A change of trustee of a stand alone Third Party Supplemental Needs Trust or Life Insurance Trust can be accomplished very easily and usually without having to go to Court if the documents are drafted properly.</li>
<li>If the trust needs to be modified or moved to another jurisdiction, the document can provide mechanisms for these changes without getting Court permission. A frequent reason to move a trust is to get better protection or lower the income tax consequences.</li>
</ul>
<li>The beneficiary of a stand alone trust has access to funds more quickly than if it were to go through an estate administration under a Will. (Probate can take months or even years. If a Special Needs Person is reliant on a certain amount of monthly funding, naming a Third Party Supplemental Needs Trust as the owner and beneficiary of any insurance policy can be a tax efficient and quick way to guarantee that money will be available in a manner that will not cause the Special Needs Person to lose his or her government benefits.</li>
</ul>
NOTE: A stand alone trust is frequently referred to as an Inter Vivos Trust. There are many <a href="http://pollockfirm.com/trust-planning/" target="_blank">types of stand alone trusts</a>, including <a href="http://pollockfirm.com/revocable-living-trusts/" target="_blank">Revocable Trusts</a>. So while a Third Party Supplemental Needs Trust can be set up as a Revocable Trust, we usually recommend it be established in the same manner as an irrevocable <a href="http://pollockfirm.com/life-insurance-trusts/" target="_blank">life insurance trust</a> for tax reasons. <br />
<div>
<br />
As you can see, there are many benefits to creating a Third Party Supplemental Needs Trust during your lifetime, rather than having it created under your Will. If you have any questions regarding the best way to set up a Supplemental Needs Trust or a Special Needs Trust for a loved one, please don't hesitate to contact one of our <a href="http://pollockfirm.com/employees/attorney-kevin-pollock/" target="_blank">estate planning attorneys</a>.</div>
Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-35273939083411308662018-02-25T12:00:00.000-05:002018-02-26T10:35:31.524-05:00Understanding the Differences Between Special Needs Trusts and Supplemental Needs Trusts"Special Needs Trusts" and "Supplemental Needs Trusts" are terms to describe trusts designed to provide benefits to a person in a way that will preserve the public benefits that he or she is entitled to receive. These types of trusts are most commonly created when a person has some sort of special needs or disability. The person who benefits from the trust is called the beneficiary.<br />
<br />
In New Jersey, Pennsylvania and Florida, the terms "Special Needs Trusts" and "Supplemental Needs Trusts" are often used interchangeably, although they should not be as it often results in serious problems. I personally try to use the term "Special Needs Trust" as a way to refer to a <a href="http://pollockfirm.com/self-settled-special-needs-trusts/" target="_blank">First Party Special Needs Trust</a> (i.e. the money used to fund the trust belongs to the special needs person). I try to use the term "Supplemental Needs Trust" to refer to a <a href="http://pollockfirm.com/third-party-special-needs-trusts/" target="_blank">Third Party Special Needs Trust</a> (i.e. the money used to fund the trust belongs to someone other than the Special Needs Person).<br />
<br />
Both a First Party Special Needs Trust and a Third Party Supplemental Needs Trust are intended to protect different public benefits. Most disabled individuals and special needs individuals receive Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, subsidized housing and food stamps. The most important rule for all First Party Special Needs Trusts and Third Party Supplemental Needs Trusts is that the trust may not pay cash to the beneficiary and it may not pay to or for the benefit of the beneficiary for any medical needs covered by Medicaid, food, shelter, or any asset which could be converted into food or shelter.<br />
<br />
A First Party Special Needs Trust and a Third Party Supplemental Needs Trust allow the beneficiary to continue to receive government benefits, but also have money for clothing, education, travel, cable and cell service, electronics, furniture, personal care, medical care not covered by Medicaid, and many other items that make life worth living. <br />
<h3>
<br /><b><u>Key features of a Third Party Supplemental Needs Trust:</u></b></h3>
<br />
<b>1. It is a Discretionary Trust</b><br />
A Discretionary Trust is a Trust that allows the trustee to give money for the benefit of the Special Needs Person as the trustee sees fit. If the trustee has complete discretion whether to make distributions for the beneficiary, the trust principal and income will usually not be counted as available to the beneficiary for purposes of obtaining government benefits.<br />
<b><br /></b>
<b>2. Established using funds of
someone other than the Special Needs Person</b><br />
A Supplemental Needs Trust is most common when a parent, grandparent or other relative wants to leave money for the benefit of a Special Needs Person. Care must be taken to avoid giving that person money outright, otherwise he or she risks losing public benefits. The Supplemental Needs Trust is a way for third parties to provide a Special Needs Person access to money in a way that will not cause them to lose their benefits.<br />
<b><br /></b>
<b>3. No government payback upon the death of beneficiary is required</b><br />
After the Special Needs beneficiary passes away, Medicaid does not require reimbursement for the funds it expended during the lifetime of the beneficiary if the trust is funded DIRECTLY with the money of someone other than the beneficiary. Please note that if a parent leaves money to a child and then the child sets up a trust, that will be considered a First Party Special Needs Trust, and not a Third Party Supplemental Needs Trust. The key difference is that the third party must set up the trust AND fund it to qualify as a Third Party Supplemental Needs Trust.<br />
<b><br /></b>
<b>4. A Supplemental Needs Trust can have more than one Beneficiary</b><br />
While there are substantial restrictions on how the Special Needs Person can receive money, because the trust fund is not comprised of funds of the Special Needs Person, there are few guidelines on how the rest of the Supplemental Needs Trust can be administered. Accordingly, the sole benefit rule that applies to First Party Special Needs Trusts does not apply to Third Party Supplemental Needs Trusts. As government benefits are available only to those with financial need, the most important rule is that the beneficiary should <i>never</i> be entitled to the money in the trust.<br />
<b><br /></b>
<b>5. Taxation of Third Party Supplemental Needs Trusts</b><br />
A Third Party Supplemental Needs Trust can be established as a Grantor Trust while the Grantor is alive, a Qualified Disability Trust or a complex trust. If the trust is set up as a Grantor Trust, income generated by the trust will be allocated to the Grantor (or Creator) of the Trust during his or her lifetime. If the trust is taxed as a complex trust, the trust will pick up most of the tax consequences in these types of trusts. Designing the trust as a Qualified Disability Trust may offer a small tax break, but it offers less privacy. Often privacy is better than saving a few dollars in taxes as it can<span style="background-color: transparent; color: black; display: inline; float: none; font-family: "times new roman"; font-size: 16px; font-style: normal; font-variant: normal; font-weight: 400; letter-spacing: normal; text-align: left; text-decoration: none; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;"> reduce confusion by government officials looking into the benefits and income of the Special Needs Person. When fewer people question the validity of the trust, that saves legal fees and aggravation.</span><br />
<h3>
<br /><b><u>Key features of a First Party Special Needs Trust:</u></b></h3>
<br />
<b>1. It is a Discretionary Trust</b><br />
A Discretionary Trust is a Trust that allows the trustee to give money for the benefit of the special needs person as the trustee sees fit. However, payments to any one person or entity in excess of $5,000 during a single calendar year requires government approval.<br />
<br />
<b>2. Established using funds of the Special Needs Person</b><br />
A First Person Special Needs Trust is most commonly created when a person inherits money outside of trust or is awarded money in a personal injury settlement. Prior to actually receiving the money, the Special Needs Person can create this type of trust to avoid losing their public benefits.<br />
<br />
<b>3. There is a government payback at the death of the Special Needs Person</b><br />
After the Special Needs beneficiary passes away, the government requires that the First Party Special Needs Trust reimburse Medicaid for expenses it has incurred. For this reason many trust specialists semi-jokingly recommend that the trustee of a First Party Special Needs Trust try to spend the last dollar of the Trust on the day the Special Needs Person dies.<br />
<b><br /></b>
<b>4. A First Party Special Needs Trust must be for the sole benefit of the Special Needs Person</b><br />
The sole benefit rule of a Special Needs Trust is very tricky and many states, including New Jersey, have changed their definition of this term many times over the years. For example, can payments be made for the care of a pet for a Special Needs Person? Many New Jersey officials say no, but most will also say yes, if it is a therapy animal. The biggest issue comes up over incidental benefits. For example, a First Party Special Needs Trust can pay for a Special Needs Person to go to an amusement park, but it shouldn't pay for the ticket of a family member caretaker even that caretaker has no interest in going to the park and is only going to assist the Special Needs Person.<br />
<br />
<b>5. Establishing a First Party Special Needs Trust.</b><br />
Creation of a First Party Special Needs Trusts is much more complicated than the creation of a Third Party Supplemental Needs Trust. Usually (but not always), a First Party Special Needs Trust must comply with a federal law enacted in 1993. That law requires that most First Party Special Needs Trusts be established by a judge, a court-appointed guardian or the parents or grandparents of the beneficiary with notification being given to the government so that they can appropriately monitor it.(In some cases Social Security regulations may also require a judge to sign off on the creation of trusts). In addition, the trust must generally be created before the beneficiary turns 65 years of age.<br />
<b><br /></b>
<b>6. Alternate names of a First Party Special Needs Trust</b><br />
First Party Special Needs Trusts are frequently referred to as d(4)(A) Trusts because that is the section of the <a href="https://www.law.cornell.edu/uscode/text/42/1396p">government statute that allows for these trusts</a>. They are also frequently called self settled special needs trusts.<br />
<br />
<b>7. Taxation of First Party Special Needs Trusts</b><br />
Because this is a grantor trust for IRS tax purposes, all income earned by the trust is taxable to the Special Needs beneficiary. There is no option to tax the trust itself. The trust is also includible in the gross estate of the Special Needs Person for estate tax purposes. However, the trust still need its own separate EIN and must file a federal Form 1041. (Note: This can be a very simplified form merely advising the IRS that the Grantor/beneficiary will be picking up all the taxable income on their personal income tax return.)<br />
<b><br /></b>
<b>8. Other Issues with First Party Special Needs Trusts</b><br />
Income generated inside a properly created 1st Party Special Needs Trust should not affect the beneficiary’s eligibility for government programs. However, while taxable income is not “countable” income for purposes of Medicaid or other government benefits, government agencies often get a “tracer” report from the IRS about the beneficiary's income, and may issue a notice that benefits will be terminated unless they receive proof that the beneficiary did not have countable income. The trustee must be prepared to explain that although the income was reportable to the IRS as the beneficiary’s income for tax purposes, the beneficiary only received "in-kind” distributions that should not be counted as income for purposes of SSI, Medicaid, or other programs. In other words, the Trustee will likely have to explain to many different people that the Special Needs Person is being taxed on income that the beneficiary never receives.<br />
<br />
<h3>
<b><u>Summary</u></b></h3>
The administration of First Party Special Needs Trusts and Third Party Supplemental Needs Trusts can be somewhat difficult. A <a href="http://pollockfirm.com/employees/attorney-kevin-pollock/" target="_blank">special needs trust attorney</a>, familiar with public benefits programs and special needs trust provisions, should always be involved in the preparation of a Special Needs Trust or a Supplemental Needs Trust. While many legal matters can be undertaken without a lawyer, or with a lawyer with a general background, <a href="http://pollockfirm.com/special-needs-planning/" target="_blank">special needs planning</a> is complicated enough to require the services of a specialized practitioner.Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-9615497175194495102018-02-19T11:48:00.004-05:002018-02-19T11:49:28.713-05:00<h2>
<span style="color: #38761d; font-size: large;"><b>What Happens to My Facebook When I Die? : How to Choose a Facebook Legacy Contact </b></span></h2>
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<div style="margin-bottom: 0in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: small;">It’s probably not
surprising to learn that Facebook has become the most widely-used
social media outlet in the world, boasting over 2 billion active
users as of late 2017</span><span style="color: #0563c1;"><span lang="zxx"><u><sup><span style="font-size: small;"><a href="https://zephoria.com/top-15-valuable-facebook-statistics/" target="_blank">(1)</a></span></sup><span id="goog_2083078873"></span><a href="https://www.blogger.com/"></a><span id="goog_2083078874"></span></u></span></span><span style="font-size: small;">.
The social networking giant is unique in that it caters not only to
the younger Gen-X & Millennial demographics, but also to those
born before: 79% of online adults ages 30 to 49 in the U.S. use
Facebook, and about 56% of online Seniors age 65 and up use the site
as well</span><span style="color: #0563c1;"><span lang="zxx"><u><a href="https://www.omnicoreagency.com/facebook-statistics/" target="_blank">(2)</a></u></span></span><span style="font-size: small;">.
<br /> Facebook is a regular part of the daily lives of 53% of
Americans</span><span style="color: #0563c1;"><span lang="zxx"><u><a href="https://www.theatlantic.com/technology/archive/2016/11/facebook-americas-favorite-media-product/507452/" target="_blank">(3)</a></u></span></span><span style="font-size: small;">,
but what happens when we pass away and leave our profile behind,
locked with password that is most likely a total mystery to others?
Previously, when Facebook learned of a death, it would “memorialize”
the account, which left it viewable, but unable to be managed by
anyone. However, Facebook has recently introduced a “Legacy
Contact” feature that allows users to designate a Facebook friend
to manage their account after they pass away. <br /> Upon telling
Facebook that someone has died (by submitting a </span><span style="color: #0563c1;"><span lang="zxx"><u><a href="https://www.facebook.com/help/contact/234739086860192"><span style="font-size: small;">memorialization
request</span></a></u></span></span><span style="font-size: small;">), Facebook will
memorialize the account and the pre-chosen Legacy Contact will be
able to write a post to pin at the top of the Timeline, respond to
new friend requests, and update the profile picture and cover photo.
However, the legacy contact will </span><span style="font-size: small;"><b>not </b></span><span style="font-size: small;">be
able to see the private messages of the original user. </span>
</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: small;"><br /></span>
<b><span style="font-family: "arial" , "helvetica" , sans-serif;">If you’re into
planning ahead, here’s a step-by-step guide to designating a Legacy
Contact for your Facebook: </span></b><br />
<b><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></b>
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<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: small;"><b>1, </b>Once logged in, select the triangle in the upper right-hand corner of the screen. On the drop-down menu that appears, click </span><span style="font-size: small;"><b><span style="font-family: "arial" , "helvetica" , sans-serif;">Settings</span>.</b></span><br />
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<span style="font-size: small;"><b><br /></b></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEida2MsM5MEgAHEKC5mrU_enYUoKQR2EPUIItJ0NPj7LOHF7pv91ICY19ki1HoXaT3Uf1wTpJX8JPWqO9vbZYLkHD-PeHSB0szC5QWzYQ029hizhSCt4WTQdIx9-Jdm8LqEiIVfbCq_0lrc/s1600/What-Happens-To-My-Facebook.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="439" data-original-width="283" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEida2MsM5MEgAHEKC5mrU_enYUoKQR2EPUIItJ0NPj7LOHF7pv91ICY19ki1HoXaT3Uf1wTpJX8JPWqO9vbZYLkHD-PeHSB0szC5QWzYQ029hizhSCt4WTQdIx9-Jdm8LqEiIVfbCq_0lrc/s320/What-Happens-To-My-Facebook.jpg" width="206" /></a></div>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"><b>2, </b>On the
General Account Settings page, at the bottom of the list of options,
click on </span><span style="font-size: small;"><b>Manage Account</b></span><span style="font-size: small;">.
This will expand the box, and you’ll be able to type in the name of
the Facebook friend who you’d like to be your Legacy Contact</span><span style="font-size: small;"><b>.
</b></span><span style="font-size: small;">Click on their name when they pop up. Please
note that you can </span><span style="font-size: small;"><b>only</b></span><span style="font-size: small;">
select someone who is your friend on Facebook.</span></span></div>
<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_tDdwbugxzlSWImqU8ISD9Q5CkXDTy1Rum1dDoKWMvy-cLFy8u9S7RZyWY0wSXFpAxGAQ588OnyU5xig6ZDvT_hKxM8tl30-l_leklpU_P5gqpsx6-z67IN-77u8LSP0qnUlqLtuUjjh0/s1600/What-Happens-To-My-Facebook-2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="347" data-original-width="801" height="138" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_tDdwbugxzlSWImqU8ISD9Q5CkXDTy1Rum1dDoKWMvy-cLFy8u9S7RZyWY0wSXFpAxGAQ588OnyU5xig6ZDvT_hKxM8tl30-l_leklpU_P5gqpsx6-z67IN-77u8LSP0qnUlqLtuUjjh0/s320/What-Happens-To-My-Facebook-2.jpg" width="320" /></a></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlIo3esAH0a6xaf7iz9CCxvGcty7AzOyqAGElKNGm2XbCI0pQYPS9z8DovAfH2matQE-0kZaU756HfeSvxR-odhmv_8ZTgqZb_lJafZBUrA45_fQ2Q1mGeR-8yzZ82nUFIDroOQFtHcO6_/s1600/What-Happens-To-My-Facebook-3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="510" data-original-width="760" height="214" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlIo3esAH0a6xaf7iz9CCxvGcty7AzOyqAGElKNGm2XbCI0pQYPS9z8DovAfH2matQE-0kZaU756HfeSvxR-odhmv_8ZTgqZb_lJafZBUrA45_fQ2Q1mGeR-8yzZ82nUFIDroOQFtHcO6_/s320/What-Happens-To-My-Facebook-3.jpg" width="320" /></a></div>
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"><b>3, </b>A small window will
appear with the option to send a message to your Legacy Contact
letting them know that you’ve selected them. You can choose to
edit and </span><span style="font-size: small;"><b>Send</b></span><span style="font-size: small;"> the
message, or hit </span><span style="font-size: small;"><b>Not Now</b></span><span style="font-size: small;">
if you want to talk with them about it later. </span></span><br />
<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbZICHxScXLN4-liHr7vxvKPoKBpN41YGVM5lUeR4Tt-qaH8wNVDYczw7i5TFlvnWb46fyqWtAdmwbv0MOfFF4PdlgCTKptYOJKVsgTsBjLKpUpRvx4fhRZAQjx0FWQvA6BhrGPaYA999s/s1600/What-Happen-s-To-My-Facebook-4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="360" data-original-width="445" height="258" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbZICHxScXLN4-liHr7vxvKPoKBpN41YGVM5lUeR4Tt-qaH8wNVDYczw7i5TFlvnWb46fyqWtAdmwbv0MOfFF4PdlgCTKptYOJKVsgTsBjLKpUpRvx4fhRZAQjx0FWQvA6BhrGPaYA999s/s320/What-Happen-s-To-My-Facebook-4.jpg" width="320" /></a></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"><b>4,</b> Once you’ve
selected your contact, you may choose to check (or not check) the
</span><span style="font-size: small;"><b>Data Archive Permission</b></span><span style="font-size: small;">
box, which will allow your Legacy Contact to download a copy of
things you’ve shared on Facebook, including photos, videos, and
other public info. Your contact will NOT be able to access your
private messages.</span><br /><span style="font-size: small;">You
may also choose to simply have your account deleted after your death
by selecting </span><span style="font-size: small;"><b>Request account deletion.</b></span></span>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEglLRo9ZJRpMB2iFkl5Oj2Jm5iKdDBcK83OIbX-lvEeG5ffsD8V4cKu0WOypbQ6N2kpLmGqy70CeXypInsSLc3CVOFAopVZG9nL1vdiVLDN98A6s6vLpKVnLM9TNrvuxX8mUQ1Onfu3uBcl/s1600/What-Happens-To-My-Facebook-5.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="605" data-original-width="757" height="255" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEglLRo9ZJRpMB2iFkl5Oj2Jm5iKdDBcK83OIbX-lvEeG5ffsD8V4cKu0WOypbQ6N2kpLmGqy70CeXypInsSLc3CVOFAopVZG9nL1vdiVLDN98A6s6vLpKVnLM9TNrvuxX8mUQ1Onfu3uBcl/s320/What-Happens-To-My-Facebook-5.jpg" width="320" /></a></div>
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<div style="margin-bottom: 0in; margin-left: 0.5in; text-indent: 0.5in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: small;">Selecting a Legacy Contact via Facebook is a very simple
process and worth considering if you would like to be able to have
your photos, words, and memories immortalized….or at least,
downloaded and saved by those you love for years to come. </span>
</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><br />
</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: small;">Special thanks to </span><span style="color: #0563c1;"><span lang="zxx"><u><a href="http://pollockfirm.com/supporting-staff/"><span style="font-size: small;">Chelsea
Robinson</span></a></u></span></span><span style="font-size: small;"> for researching
and writing the vast majority of this article.</span></span></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span>
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Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-48566678021481839242017-11-29T14:35:00.001-05:002017-11-29T14:35:55.836-05:00Benefit of a Life Insurance Trust after the Repeal of NJ Estate Tax<span style="font-family: Verdana, sans-serif;">As we get closer to the repeal of the New Jersey Estate Tax on January 1, 2018, it is important to remember that New Jersey has NOT gotten rid of its inheritance tax. Accordingly, if you wish to leave money to brothers, sisters, nieces, nephews, friends or a significant other (besides a spouse) and if you have life insurance, you should explore whether a trust is a good option.</span><br />
<span style="font-family: Verdana, sans-serif;"><br /></span>
<span style="font-family: Verdana, sans-serif;">Here's generally how the NJ Inheritance Tax works. There is no inheritance tax on money going to charities or Class A Beneficiaries. Class A Beneficiaries include: </span><br />
<br />
<ol>
<li><span style="font-family: Verdana, sans-serif;">A spouse (or civil union partner or a registered domestic partner);</span></li>
<li><span style="font-family: Verdana, sans-serif;">Lineal ascendants (parents, grandparents, etc.);</span></li>
<li><span style="font-family: Verdana, sans-serif;">Lineal descendants (children, grandchildren, great-grandchildren, etc.) and</span></li>
<li><span style="font-family: Verdana, sans-serif;">Step-children (but not step-grandchildren)</span></li>
</ol>
<br />
<span style="font-family: Verdana, sans-serif;">New Jersey excludes a number of items from the inheritance tax. Specifically, the major items are excluded from the NJ Inheritance Tax are:</span><br />
<br />
<ol>
<li><span style="font-family: Verdana, sans-serif;">Real estate or real property owned outside of NJ (Note that if you own a co-op, you technically do not own real estate, you own stock, which is intangible asset that is subject to the NJ inheritance tax.); </span></li>
<li><span style="font-family: Verdana, sans-serif;">Money recovered under the NJ Death Act (as compensation for wrongful death); and</span></li>
<li><b><u><span style="font-family: Verdana, sans-serif;">Life insurance that is payable to anyone except to a person's estate.</span></u></b></li>
</ol>
<br />
<span style="font-family: Verdana, sans-serif;">As you can see, when it comes to life insurance, if you ultimately want money going to </span><span style="font-family: Verdana, sans-serif;">brothers, sisters, nieces, nephews, friends or a significant other, you don't want to name your estate as the beneficiary (even if it filters through a Will) because it results in a NJ inheritance tax.</span><br />
<span style="font-family: Verdana, sans-serif;"><br /></span>
<span style="font-family: Verdana, sans-serif;">Now, the easy and obvious solution in most cases is that you can simply fill out a beneficiary designation form for the life insurance policy and name the people that you want, and then the death payout will be excluded from the NJ Inheritance Tax. However, many people want to create more complex arrangements. Here are some situations in which it is likely worth the time and expense to set up a trust:</span><br />
<br />
<ol>
<li><span style="font-family: Verdana, sans-serif;">If you want to set money aside for the benefit of an elderly parent or special needs relative, but upon their death, want the balance to go to other people.</span></li>
<li><span style="font-family: Verdana, sans-serif;">If you want to have a complex formula for who gets your assets. (For example: If Person A and B are alive, they get 30% each and person C gets 40%, but if A or B is not alive, then person C gets their share.)</span></li>
<li><span style="font-family: Verdana, sans-serif;">If you don't want to let the beneficiary of your policy have immediate access to the money upon your death. Let's say you want to leave money to a niece or nephew, but they are a minor, so you want them to have money for college, but not play money until later in life. A trust is especially good here if you don't trust your sibling to manage the money.</span></li>
<li><span style="font-family: Verdana, sans-serif;">If you have multiple policies and many beneficiaries, you may not want to update all the policies every time you change your mind regarding who the beneficiaries should be. If you name the trust as beneficiary, you can just change the trust and you won't need to redo beneficiary designation forms at multiple institutions.</span></li>
<li><span style="font-family: Verdana, sans-serif;">If you want to name certain people as beneficiaries, but you don't want them to know. (Keep in mind that some insurance companies ask for Social Security Numbers of the beneficiaries and you may not want to ask people for that, or they may want to know why. With a trust, you don't even need to have that conversation.)</span></li>
<li><span style="font-family: Verdana, sans-serif;">In divorce settings. Let's say you are obligated to pay life insurance to a ex-spouse, for a certain period of time, or based upon a formula. You can name the trust as the beneficiary, and put the formula in the trust. The alternative is revising your policy each year.</span></li>
</ol>
<br />
<span style="font-family: Verdana, sans-serif;">Remember, in many of the scenarios above, you can simply create a Will that sets up a trust, but if you name the estate as the beneficiary, it causes the inheritance tax. If you set up the trust before you die, and name the trust, it won't cause an inheritance tax. It is also very important to realize that if you are only worried about avoiding the NJ inheritance tax, </span><u style="font-family: Verdana, sans-serif; font-weight: bold;">it does NOT have to be a traditional irrevocable life insurance trust.</u><span style="font-family: Verdana, sans-serif;"> This means that if you even have a traditional revocable trust and name that as the beneficiary of your policy, it avoids the NJ inheritance tax.</span>Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-29747218172810139792017-11-09T14:51:00.002-05:002017-11-09T14:51:38.806-05:00Change to Estate Tax Exemption Limit for 2018While the House and Senate are considering competing tax proposals, including a proposal to eliminate the federal estate tax, it is worth noting that the IRS has release <a href="https://www.irs.gov/pub/irs-drop/rp-17-58.pdf">Revenue Procedure 2017-58</a> which provides inflationary updates for a number of provisions in the Internal Revenue Code.<br />
<br />
Assuming that the Republicans do not pass a bill that modifies the existing estate tax and gift tax structure, for 2018:<br />
<br />
<ol>
<li>US Citizens and Permanent Residence Aliens can pass on $5,600,000 per person upon death or during their lifetime. The federal estate tax exemption is also known by several other terms including the lifetime gift exemption, the basic exclusion amount, and the unified applicable exclusion amount. The exemption is being increased by $110,000 from its 2017 limit of $5,490,000;</li>
<li>The annual gift tax exclusion will increase to $15,000 per person, per donee. This is up from $14,000 in 2017; and</li>
<li>The annual exclusion for gifts made to a non U.S. Citizen spouse has been increased to $152,000. This is up from $149,000 in 2017.</li>
</ol>
<br />
<br />
This revenue procedure does not change any laws. It is simply designed to inform taxpayers of any changes in tax provisions as a result of inflation. <br />
<br />
Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-84243447544646905392017-11-03T17:52:00.000-04:002017-11-03T20:47:08.169-04:00Proposed Tax Policy By Republicans Would Enable Wealthy to Pass On A Massive Income Tax Deduction to Their Heirs Upon Death<div class="MsoNormal">
As most of you know, I generally try to avoid political
discussions and I really try to avoid commenting on proposed tax policy before
it becomes law for the simple reason that most proposed law changes never get
enacted. However, I feel compelled to
talk about what I believe is a major flaw in the proposed “Tax Cuts and Jobs
Act”. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Before I do, I think it is important to have a quick
discussion on the background of estate and gift taxes, social policy and the purpose
of an estate tax. As many of you know,
the United States has a 40% federal estate tax and gift tax that kicks in when
someone transfers assets in excess of about $5.5 million (either upon death or
through gifting). Note, the amount that
can be passed on tax free is doubled for married couples. Additionally, there is no tax when one spouse
dies and leaves assets to a surviving citizen spouse. So to be clear, the estate tax currently
affects very few people, about 5000 per year.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Proponents of an estate tax feel that it is a socially
beneficial tax because it prevents wealth from being concentrated in the hands
of a few. Moreover, because wealth
generally equals power, it also means that you are avoiding concentrating power
in the hands of just a few individuals. Opponents
of an estate tax feel that if a person has already been taxed on their income,
they should be able to do what they want with the money, including giving it
away to their heirs without having to pay another tax. They also object to the fact that frequently
a decedent’s wealth is illiquid, because they own real estate or a business,
and they are forced to sell assets off in order to pay the taxes.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
However, I won’t go into the merits of either argument, as that
is not the purpose of this article.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Specifically, my concern is that under the new tax act
proposed by the Republican party leaders, they would like to repeal the federal
estate tax while maintaining both the step-up in basis provisions under Section
1014 of the Internal Revenue Code and the ability of taxpayers to depreciate
their rental property under Section 179.
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In order to understand the gobbledygook that I just said,
you need to understand depreciation and you also need to <a href="http://willstrustsestates.blogspot.com/2009/12/understanding-basis.html">understand
basis</a>. The simplest way to understand depreciation is that the government
gives you the ability to deduct the cost of an asset over its useful life. Different assets have different depreciation
schedules. For purposes of this article,
you should know that rental property (but not the land) can depreciated over
27.5 years. So, if you purchased land
and a building for $4 Million, and the building was worth $2.75 million, you
would be able to deduct $100,000 per year on your taxes for close to three
decades.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The simplest way to understand basis is that the basis of an
asset is generally the price you pay for something. In other words, if you pay $20 for Apple
stock, your basis is $20. If you sell it
for $100, you have an $80 gain. With a
20% capital gains tax rate, the tax on that would be $16.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Basis in real estate is more complex because it is increased
by capital improvements and decreased by depreciation. So if you bought that building for $4 million,
and spend $200,000 fixing up the bathrooms, the new basis will be $4,200,000. (Let’s allocate $2.95M to the building and
$1.25M the rest to the land.) If you
sell it for $5 million, there will be $800,000 of gain. To take this example further, let’s say you
have been renting this building out for 30 years and depreciated it that entire
time, you would have received a tax deduction for about $110,000 each
year. However, because you had depreciated
the property, the basis in the land would still be $1.25, but the basis in the
building would be $0. Therefore, upon a
sale, there would be a total gain of $3.75M.
Equally as important, $2.95M of that gain would be treated as ordinary
income and the balance would be treated as capital gain. (Total taxes of about $1.4 million.)<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Under the current tax laws, whenever a person dies, the
beneficiary of that person’s estate receives a new basis in all assets owned by
the decedent. This concept is known as
receiving a step-up in basis. The original
policy reasoning behind allowing for a step-up in basis is that it would be unfair
for a person to pay both an estate tax and a capital gains tax when the asset
was sold. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So in the example above, if you had kept that building until
your death, it would have received a new basis equal to $5 million, then if
your kids sold it for $5 million, there would be no gain on the sale, therefore
would have been NO TAX. As mentioned,
the proposed tax law does not change this.<o:p></o:p></div>
<div class="MsoNormal">
More importantly, since the heirs would receive the property
with a stepped up basis of $5 million dollars, they could decide to depreciate
it AGAIN and receive a tax write-off of close to $150,000 per year for another
27.5 years. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The policy of having a step-up in basis makes sense so as to
avoid a double tax, but it also makes sense because so many people have trouble
tracking what they originally paid for things.
Accordingly, the government thought that a step-up would make it easier
to track basis. Back when the estate tax
threshold was $1,000,000, everyone benefited from this step-up rule, and it was
not a significant tax policy concern because wealthier individuals would be
paying the estate tax instead of a capital gains or income tax. Basically, back before 2001, only people with
less than $1 million dollars could take advantage of this loophole.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Under the current law, people with assets under $5.5 million
($11M for married couples) can take advantage of this loophole, but the estate
tax still prevents the ultra-wealthy from doing so. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Under the tax law proposed by the Republicans, not only
would the ultra-wealthy become eligible for this loophole, they could do it
over and over again at every generation, meaning that you are effectively
giving birth to a class of individuals who will be born with a tax
deduction. Literally passing on a rental
property to an heir means you would be passing on the ability to deduct have a
reduced income for income tax purposes.
Taken to an extreme, this would consolidate wealth and power in the
hands of a few individuals. This will
stifle social mobility as land will become the most valuable commodity and
create a feudalistic system similar to what existed in Europe for ages.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As far as I am aware, all other countries that have an
estate tax also have a step-up in basis rule to avoid a double tax. Countries that do not have an estate, inheritance
tax or some other sort of death tax, do not allow the basis of a decedent’s
assets to be adjusted on death because that would mean a person’s assets could
never be taxed.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The solution to this problem is quite simple though. Keep the estate tax. Alternatively, don’t allow a step up in basis
upon death. I am not currently suggesting
that we remove the depreciation deduction provision as I believe that we should
encourage people to buy property. As
long as they pay tax on it sometime, society will be fine.<o:p></o:p></div>
<div class="MsoNormal">
<b><br /></b></div>
<b>In summary, the proposed tax law allows for the creation of a new and more powerful class of land owners by combining 3 tax breaks that were not meant to be combined:
</b><br />
<ol>
<li><b>Repealing the estate tax (meaning that wealthy land owners pay no tax upon their death);</b></li>
<li><b>Maintaining the Section 1014 step up in basis for all assets - This means that if a real estate mogul purchased land and buildings for $20,000,000 and it was worth $200,000,000 at the time of the
mogul’s death the heirs would inherit it at a new basis of $200 million.</b></li>
<li><b>Allowing for depreciation of rental Property. During the mogul’s lifetime, he could depreciate the property get a tax deduction of over $700,000 per year and upon the mogul’s death, his heirs could do it again at a much higher level.</b></li>
</ol>
<b>By combining these three provisions<span style="color: #333333;">, the heirs described above would receive a property worth $200 million tax free. They could then either (i) sell the land and buildings for $200 million dollars and never pay any estate tax, income tax or capital gains taxes</span>; or (ii) keep the real estate and depreciate it from its new stepped up basis of $200 million, not just the original $20 million purchase price</b>. <b>The heirs of mogul, after paying no taxes ever on this property, would be able to receive approximately a $6 million annual tax break for doing nothing other than inheriting property! </b><br />
<b><br /></b>
<b>What makes this amazing is that this can happen at EVERY GENERATION! Each time a parent passes away, the heirs would inherit tax
free and then they would get to depreciate the property with a new increased basis. People would literally be born into a situation where they are inheriting millions of dollars worth of tax deductions.</b>
Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-79344730600470931952017-10-03T20:21:00.002-04:002018-07-03T13:47:02.395-04:00Can the Trustee of a New Jersey Special Needs Trust Buy Clothing?<span style="font-family: "verdana" , sans-serif;">Although the federal government clearly changed the rules in 2005 to allow a Trustee of a First Party Special Needs Trust to buy an unlimited amount of clothing for person receiving Medicaid and SSI, there is still a lot of confusion regarding this issue in New Jersey.</span><br />
<span style="font-family: "verdana" , sans-serif;"><br /></span>
<span style="font-family: "verdana" , sans-serif;">New Jersey Administrative Code Section 10:71-4.11, which was enacted in 2001, states that if a Trustee of a Special Needs Trust purchases clothing for someone who has qualified for Medicaid or SSI, it will be considered income to the beneficiary and could reduce the beneficiary's government benefits. Moreover, if the trust allowed distribution for purchase of clothing, it had the possibility of having the entire trust counted as an asset that may disqualify the beneficiary from benefits. <b>THIS IS OLD LAW.</b></span><br />
<span style="font-family: "verdana" , sans-serif;"><br /></span>
<span style="font-family: "verdana" , sans-serif;">To quote from the new law, <a href="https://secure.ssa.gov/poms.nsf/lnx/0501130430">POMS S.I. 01130.430</a>: "A change in the regulations, effective March 9, 2005, establishes that the resource exclusion for household goods and personal effects no longer has a dollar limit. As a result, beginning with resource determinations for April 2005, SSA no longer counts household goods and personal effects as resources to decide a person’s eligibility to receive Supplemental Security Income (SSI) benefits." </span><span style="font-family: "verdana" , sans-serif;">The 2005 law goes on to define "personal effects" to include clothing.</span><br />
<span style="font-family: "verdana" , sans-serif;"><br /></span>
<span style="font-family: "verdana" , sans-serif;">There are several reasons why things are still so confusing:</span><br />
<br />
<ol>
<li><span style="font-family: "verdana" , sans-serif;">New Jersey has not updated the Administrative Code to reflect the change of law on the federal level by <a href="https://secure.ssa.gov/poms.nsf/lnx/0501130430">POMS S.I. 01130.430</a>. The Social Security Regulations clearly override any state rules with respect to eligibility for Medicaid and SSI benefits. So when Social Security updated its rules in 2005, the NJ rules were automatically updated as well.</span></li>
<li><span style="font-family: "verdana" , sans-serif;">When looking up the NJ rule online, there is a lot of bad, old information on many websites.</span></li>
<li><span style="font-family: "verdana" , sans-serif;">When looking up the NJ Administrative Code, which is free on Lexis-Nexis (thank you by the way), unfortunately it has the most recent year next to the Code. That has the unfortunate side effect of making it look like a new and current law, even if it is not.</span></li>
</ol>
<div>
<span style="font-family: "verdana" , sans-serif;">So, to be clear - a Trustee of a Special Needs Trust (regardless if it is a first party trust or a third party trust) can buy clothes for the beneficiary and not be concerned that such expenditures will be counted as income or that the beneficiary will lose his or her government benefits. That being said, if you are spending an excessive amount on clothes, you should probably expect extra scrutiny from the government and potential problems because they could make the argument that the person is just taking the clothes back in exchange for cash, and the fight wouldn't be worth it.</span></div>
<div>
<br /></div>
Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-4357736759064182012017-09-07T17:49:00.005-04:002017-09-07T17:49:59.629-04:00Keep an Eye on Your Credit - Equifax BreachedIn perhaps one of the largest security breaches ever, the credit reporting agency Equifax has admitted that criminal hackers have had access to over 143 Million consumers' files, including names, Social Security Numbers, birth dates, addresses and driver's licenses. Make sure you monitor your credit very carefully with a reputable agency. For more information, see this <a href="https://www.usatoday.com/story/money/2017/09/07/credit-reporting-giant-equifax-says-cyber-breach-could-affect-143-m-u-s-consumers/643679001/">USA Today news article</a>.Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-86699934037387815882017-08-30T18:12:00.002-04:002017-08-30T18:12:53.792-04:00Terry Pratchett's Executor Destroys Unpublished Work of AuthorAs a fan of the works of <a href="https://www.terrypratchettbooks.com/">Author Terry Pratchett</a>, in particular <a href="https://www.terrypratchettbooks.com/book/going-postal/">Going Postal</a> and <a href="https://www.terrypratchettbooks.com/book/making-money/">Making Money</a>, I got a chuckle out of this <a href="https://www.nytimes.com/2017/08/30/books/terry-pratchett-steamroller-unpublished-work.html?mcubz=0">story in the New York Times</a>. As some of you are aware, Terry Pratchett died in 2015. One of his last wishes was that all of his unpublished works be destroyed by a steamroller. A few days ago, Rob Wilkins, his estate manager posted a picture of a steamroller running over a hard drive.<br />
<br />
Compare what Terry Pratchett did with what the Administrator of Prince's estate is doing. Comerica Bank and Trust, as Trustee of Prince's estate, is slowly analyzing all of Prince's unpublished works and the plan is to release an album shortly to maximize the value of the estate. Whether or not Prince would have wanted the works to be released is debatable, but because he did not leave clear instructions, an Administrator is obligating to exploit the assets as best it can so that his heirs receive the most money possible.<br />
<br />
Remember, if you have written any books or have any other intellectual property where you wish to control of their disposition after you pass away, you must leave specific instructions for what you want done in your last Will and Testament (or other estate planning documents). You may also name a separate executor or agent to manage your intellectual property (who may be distinct from the person managing the rest of your financial affairs). Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0tag:blogger.com,1999:blog-1335076796987605384.post-90971790059069481552017-08-18T17:24:00.005-04:002017-08-18T17:24:44.182-04:00Will the New Jersey Estate Tax Repeal Become Permanent?As most of my estate planning clients are aware, I have been very cautious regarding whether or not New Jersey will keep a $2,000,000 estate tax exemption beyond 2017 or allow for a full repeal. However, it is worth noting that the front-runner for Governor, Phil Murphy, released part of his tax and spending plan today. See this article on NJ.com: <a href="http://www.nj.com/politics/index.ssf/2017/08/murphy_tax_plan_would_raise_13_billion_heres_whod.html">http://www.nj.com/politics/index.ssf/2017/08/murphy_tax_plan_would_raise_13_billion_heres_whod.html</a><br />
<br />
As part of the plan, he stated that he has NO intentions of re-introducing the estate tax. Accordingly, there is probably a good chance that the repeal of the NJ Estate Tax does become permanent. Only time will tell though.Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com3tag:blogger.com,1999:blog-1335076796987605384.post-11556311837781613372017-08-09T15:46:00.000-04:002017-08-09T15:46:43.361-04:00NJ Has Finally Released 2017 Estate Tax Return and CalculatorAs I know many of you have been waiting anxiously, I wanted to make sure that you are aware that the New Jersey Division of Taxation has finally released the <a href="http://www.state.nj.us/treasury/taxation/pdf/other_forms/inheritance/it-estate2017.pdf">2017 Estate Tax Return</a> form. They have also released an estate tax calculator so that we can accurately prepare the return. The NJ 2017 Estate Tax Calculator can be downloaded from the <a href="http://www.state.nj.us/treasury/taxation/prntinh.shtml">NJ Department of Treasury website</a>.<br />
<br />
The New Jersey Estate Tax Calculator is important because the new estate tax law was crafted with a slight flaw in it because it has a circular calculation. (This means the tax can't be calculated without reference to the tax, which in effect, changes the tax, over and over again.) For example, if you were to look at the statute, you may think that if you had an estate of $2,001,000, the estate would be taxed at 7.2% on the $1,000 that you were over the $2M threshhold. This is not true. According to the calculator, the tax is $66.82, not $72. As the numbers get higher, this obviously becomes more important.<br />
<br />
Anyway, the good news is that if you are an executor, administrator or involved in an estate of someone who passed away in 2017, you can now start the process of filing a New Jersey estate tax return.<br />
<br />
Kevin A. Pollock, J.D., LL.M.http://www.blogger.com/profile/08329649326376128858noreply@blogger.com0