NJ Phone: 609-818-1555 * FL Phone: 561-247-1557

Thursday, December 23, 2010

Federal Estate Tax Reform 2011

As you may be aware, President Obama recently signed the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010”. In addition to keeping most of the income tax rates at their 2010 levels, this Act includes a major change to the federal estate tax.

Summary of the New Tax Law

Starting in 2011, each United States citizen and permanent resident alien will be entitled to a $5 million lifetime gift and estate tax exclusion amount. Anything over $5 million will be taxed at 35%. This means that starting January 1, 2011, you will be able to give away $5 million dollars either during your lifetime or at your death… but only for 2 years. This new tax law sunsets at the end of 2012.

Another major change in the federal estate tax law is that it allows for the transfer of a decedent’s estate tax exclusion amount to his or her surviving spouse. This is known as the portability provision. So let’s say a husband dies in 2011, leaving $3 million to his children; his widow can receive his $2 million in unused exclusion amount so that if she dies in 2012 she can pass on $7 million to her children free of the federal estate tax. This is a major boon to couples who fail to prepare a Will and for couples who have not equalized their estates.

So How Does the New Tax Law Affect You?

For 99.5% of the population, it means that you will not have to pay a federal estate tax if you pass away in 2011 or 2012, and you may or may not have to pay a huge estate tax if you die after that. Tax planning must be done to deal with state estate and inheritance taxes as well as the possibility that the federal estate tax will return in full force in 2013. Additionally, traditional estate planning documents should still be prepared to direct where assets go, set up trusts for children, nominate executors, guardians and trustees, where necessary, avoid probate.

It is also important to remember:
  1. In Florida, the benefits of setting up a revocable living trust and avoiding probate remain unchanged. Additionally, if you own real estate in another jurisdiction other than Florida, you may have to pay an inheritance tax or estate tax in that jurisdiction.
  2. New Jersey still has an estate tax that applies to anyone who dies with more than $675,000 in assets and New Jersey DOES NOT have a portability provision. Furthermore, New Jersey also has an inheritance tax, up to 16%, on transfers to certain individuals, including siblings, nieces and nephews and friends.
  3. New York still has an estate tax that applies to anyone who dies with more than $1 million in assets. Moreover, New York DOES NOT have a portability provision and it is strongly recommended that clients title their assets in a way that will avoid probate.
  4. Pennsylvania still has an inheritance tax of up to 15% that applies to everyone who plans to leave assets to anyone other than a spouse or a charity.
In most cases, the new law should not affect most of the documents that competent attorneys will have drafted over the last 5 years. However, I highly recommend estate planning documents should be reviewed if they were drafted by an attorney who does not focus on tax planning or if you have had changes in your personal life or a substantial change in your wealth.

The new tax law also provides ample opportunity for gift planning, including gifts to trusts; however, such gifting could also have negative capital gains tax implications if done incorrectly.

As always, I am available for a consultation if you have any questions.

Friday, December 17, 2010

Revised Estate Tax Appears to Be a Done Deal

As I write this post, the new tax law appears to be a done deal. We are just awaiting President Obama to sign off on it. It will probably take me a week or so to digest all of the finer points of the new tax law, but I will briefly discuss the main points that I am aware of:
  1. The new estate tax AND gift exemption amounts will be $5,000,000 per person (this is a reunification, previously the gift tax exemption amount had been $1,000,000) - This takes effect in 2011;
  2. There will only be one rate for gift and estate taxes - 35% on transfers above the exemption amount - This also takes effect in 2011;
  3. Capital Gains tax rates will continue at 15%
  4. It appears that there is a portability provision. This would allow one spouse to give the other spouse everything outright at death, and then the surviving spouse would have a $10,000,000 exemption. (NOTE: This would not be advisable in New Jersey or New York where an increase in state estate tax would result.)
Also of note:
  1. There appears to be a 0% GST tax rate for 2010, so for the super wealthy, you have another few weeks to fund generation skipping trusts. In 2011 and 2012, the GST Exemption amount will be $5 million;
  2. There appears to be an extension of a provision that would allow certain IRA owners to contribute money in their IRA to charity with favorable tax consequences;and of course
  3. There will be a continuation of almost all of the tax rates that were in place in 2010.

It looks like I owe my dad a dinner.

Tuesday, December 14, 2010

The New Jersey QDOT Trap - Revised

When a person dies, the surviving spouse can receive all of the decedent's money free of tax, but only if the surviving spouse is a citizen of America. If the surviving spouse is not a U.S. citizen, anything over the estate tax exemption amount is subject to an estate tax. One way to avoid paying a tax on money going to the benefit of a surviving non-citizen spouse is to set up a Qualified Domestic Trust (QDOT).

With the ever increasing federal estate tax exemption, and the fact that we do not have a federal estate tax in 2010, most practitioners are not giving much thought to the use of QDOTs. This is because many practitioners are trying to avoid the large federal estate tax and not the smaller NJ Estate tax. If the estate is not going to be subject to the federal estate tax, the thinking is that there is no need to set up a QDOT for the surviving spouse.

Unfortunately, New Jersey has a little known rule that subjects the estate of a decedent to the New Jersey Estate tax if assets in are being left to a non-citizen spouse. This could create a significant tax on the death of the first spouse and another tax when the surviving spouse dies as well.

To avoid the NJ Estate tax, a QDOT can be set up for the surviving non-citizen spouse to deal with assets passing to him or her. Normally, if a QDOT is set up, almost all distributions other than income distributions and distributions for hardship will be subject to the federal estate tax. However, it appears that according to Treasury Regulation 20.2056a-6, the federal estate tax would not kick in until after the original decedent's exemptions are used up.

If the surviving spouse intends on becoming a citizen shortly after the first spouse passes, the QDOT can be dissolved with no tax consequences provided no disqualifying distributions were made.

The New Jersey QDOT trap only applies to decedents who own more than $675,000 at the time of their death and who were married to non-citizen spouses. However, when calculating the size of a decedent's estate, New Jersey will look at all of the decedent's assets, including retirement accounts, life insurance homes, stocks, bonds, etc.

(Note: it does not matter if the decedent is a citizen or a permanent resident alien. What is important is the citizenship of the surviving spouse.)

REVISION NOTE: This posting was revised on October 19, 2011 to correct errors and make clarifications.

Friday, November 12, 2010

Betting on the Estate Tax

With all the uncertainty surrounding the federal estate tax, I still refuse to speculate on what will happen. I did however make a bet with my father (Dinner) over when a decision will be made on the estate tax.

My father believes that since Congress is in a lame duck session, they will try to act and create a little certainty to make things clear for planners and the citizens of this country.

I believe that the Democrats have absolutely nothing to gain by acting before 2011. If they vote in 2010, they will want to vote on something less than a full repeal of the estate tax - which is effectively a tax increase.

I believe that the Democrats can and will position the sunset as a Republican act (since it was done in 2001 when the Republicans controlled the House, Senate and Presidency). Then, in 2011, when the estate tax exemption returns to $1 million and up to a 55% tax rate, the Democrats can offer a tax cut without having to offer a full repeal.

The Democrats can then force the Republicans to vote against tax cuts that they don't like.

Who will win the bet? Clarity or politics. I've bet on politics winning the day.

Saturday, October 30, 2010

Titling of Assets

The way you hold title to your assets is key to any comprehensive estate plan. The greatest Will in the world is going to be ineffective if you have survivorship assets, IRAs or life insurance benefits going to people you don't want them going to. In short, how you own your property determines where it goes when you die. Additionally, how you own your property can affect how it is used if you become disabled.

There are many different ways to own property. You can:
  1. own it outright, solely in your own name (these assets pass by your Will);
  2. own it outright with another as joint tenants in common (your share of these assets pass by your Will);
  3. own it outright with a spouse (this asset passes to your spouse on death regardless of what your Will says);
  4. own it outright with another as joint tenants with rights of survivorship (this asset passes to the other person on death regardless of what your Will says);
  5. own it outright, but have it be payable on death to another. This includes: Life Insurance, Annuities, Retirement Accounts, 529 Accounts and POD Accounts or TOD Accounts. (These assets pass to the named beneficiary regardless of what your Will says.);
  6. own it through a business (Many businesses that are owned with other parties will have an agreement that says where the business will go when you die. Accordingly, this will trump what you have in your Will.);
  7. own it through a revocable living trust (Assets in the trust will usually pass according to the terms of the trust);
  8. be a beneficiary of a trust (Assets in the trust will usually pass according to the terms of the trust - but this trust was not a trust established by you, so you may not have control over where it goes); and
  9. be a third party beneficiary. (This is basically a trust without a written trust document. This scenario often occurs when there is a contract between two people that benefits a third party. For example, a divorce agreement between a husband and wife might require the husband to leave $100,000 to his children. This will trump whatever the husband puts in his Will if rights a Will cutting out his children.)
A good estate planning attorney will make sure to review the title of all of your assets. By doing so, he can help you:
  1. ensure that your money goes where you want it to go;
  2. advise changes that should be made to the title of assets (particularly for married couples) to maximize estate tax exemptions and minimize taxes;
  3. avoid the risk of litigation; and
  4. reduce probate costs.

Friday, October 29, 2010

Seminar Announcement - Which Side of the Delaware River Should I Live on?

Let’s Get The Facts Straight!

Which Side of the Delaware River Should We Live On?

New Jersey vs. Pennsylvania

We invite you to be enlightened on the Facts and Myths about Estate Planning and how it may or may not differ depending on where you live. Our free seminar will cover such topics as:
· Inheritance Taxes, Estate Taxes, Laws that affect Non-Traditional Couples & Titling of Assets
· Financial Investment Opportunities, Income Taxation of Retirement Plans & The Importance of Proper Beneficiary Designations
· Property Tax, Property Values, Schools & Real Estate Investment Opportunities
Guest Speakers

Kevin A. Pollock, J.D., LL.M.

Attorney at Law, licensed in NJ, NY, PA & FL
Law Office of Kevin A. Pollock LLC

Kate P. Sweeney, CFP, CIMA

Senior Vice President
Senior Investment Management Consultant
Morgan Stanley Smith Barney

Saturday,November 6, 2010
9:00 a.m. to 11:00 a.m.
44n Sugan Rd.
New Hope, PA 18938
Weidel Realtors
New Hope/Lambertville Regional Office
Refreshments will be served

Thursday, October 28, 2010

Comparison of PA and NJ Inheritance Tax Laws - Chart

As a followup to my October 4 post comparing the PA and NJ Inheritance tax laws, I thought it might be helpful to see all the information in a format that is a little easier to comprehend. Accordingly, I have prepared a chart, which you can view by clicking on this link: Chart Comparing New Jersey and Pennsylvania Inheritance Tax Laws.

Tuesday, October 5, 2010

Pennsylvania Inheritance Tax Trap

Estate Planning Practitioners and clients should be aware that there is an inheritance tax trap in Pennsylvania. In most states, it is common to set aside a certain amount for the spouse and the children in one trust on the first to die. This is known as a bypass trust and done for a variety of reasons, but usually to take advantage of the federal estate tax exemption on the first to die.

In Pennsylvania, a trust like this will cause an immediate inheritance tax because a portion of the money is going to children who are taxed at a rate of 4.5%. Accordingly, if you are moving to PA from another state, it is highly likely that you should to redo your estate plan.

Monday, October 4, 2010

A Comparison of the Pennsylvania and New Jersey Inheritance Tax Laws

Some states, including New Jersey and Pennsylvania, have an inheritance tax. Other states, like Florida and New York, do not have an inheritance tax. An inheritance tax is a tax on the person who receives money from a decedent.

The inheritance tax rate itself depends upon the relationship between the person receiving the money and decedent. For example:

  1. In both New Jersey and Pennsylvania, if the person receiving the money is a spouse (or a charity), there is no tax.
  2. If the person receiving money is a sibling, there is a flat 12% tax in PA. In NJ it is a bit more complicated - the first $25,000 is exempt; beyond that there is a tax of 11-16% depending upon on the amount of the bequest.
  3. Generally, if the person receiving money is anyone else (besides a child, parent or same sex partner), then there is a 15% flat Pennsylvania inheritance tax and a 15 or 16% New Jersey inheritance tax depending upon the amount of the bequest.
  4. The first BIG DIFFERENCE is that Pennsylvania taxes bequests to all lineal descendants and certain lineal ascendants at 4.5%. New Jersey does not charge an inheritance tax to any lineal descendants or ascendants. (Note: Pennsylvania does not charge a tax on the bequest to a parent if the decedent was under 22 years of age.)
  5. The second BIG DIFFERENCE is that Pennsylvania has a 15% inheritance tax on bequests to a same sex partner. In New Jersey, as long as the partners are in a civil union or domestic partnership, there is zero inheritance tax. If the partners are not in a civil union or domestic partnership, then there is a 15 or 16% tax, depending upon the amount of the bequest. For more information, see my blog on Estate Planning for Same Sex Couples.
  6. In NJ, a bequest to a son-in-law or a daughter-in-law is taxed at the same rate as a bequest to a sibling. N.J.S.A. Section 54:34-2c. In PA, such transfers are taxed at the same rate as a bequest to a child. 72 PS 9116 (Note: If the son-in-law or daughter-in-law later remarries, this does not apply.)
  7. In both NJ and PA, step children and adopted children are taxed in the same manner as natural children. New Jersey also allows inheritance tax free transfers to mutually acknowledged children in certain circumstances. N.J.S.A. Section 54:34-2a.
  8. The only other significant difference in the rates is that New Jersey exempts transfers that are less than $500. Pennsylvania exempts certain transfers of up to $3,000.
New Jersey and Pennsylvania also have similarities and differences between the types of assets that they will tax. This is not a complete list, but as an example:
  1. Neither state taxes life insurance, real property located outside of the state or business interests located outside of the state;
  2. Both states will fully tax cash and brokerage assets of individuals who died while domiciled in their state.
  3. Both states will fully tax real estate and business interests located inside the state of resident and non-resident domiciliaries.
  4. Joint property held with rights of survivorship are fully taxed in New Jersey unless the recipient can prove he or she contributed to the joint property. In Pennsylvania, only the portion of the property owned by the decedent is taxed.
  5. IRAs, Annuities, 401(k)s, 403(b)s and other retirement assets are taxed in New Jersey, but not in Pennsylvania, provided the account owner passes away before having the right to withdraw the money free of penalty (generally before retirement age of 59.5) AND provided that a person was named as beneficiary of the retirement plan. In PA, if the owner of the 401(k) has the right to close down the account it will also be subject to a tax, this is generally age 62 or 65.
  6. Retirement plans, annuities and other benefits payable by the federal government to a beneficiary are not subject to an inheritance tax in NJ or PA.
  7. In Pennsylvania, transfers made within one year of death are taxable, but each such transfer is subject to a credit of up to $3,000 per recipient. In New Jersey, transfers "made in contemplation of death" are taxable for inheritance tax purposes. There is a presumption that transfers made within three years of death are made "in contemplation of death".
Note: An inheritance tax is not to be confused with an estate tax. A state can have either an inheritance or an estate tax, both, or neither. Additionally, many of the assets that are exempt from inheritance tax (such as life insurance) are subject to an estate tax.

The NJ inheritance tax is due within 8 months from the date of death. In PA, the inheritance tax is due within 9 months of the date of death, but there is a 5% discount if the tax is paid within 3 months from the date of death.

The NJ Inheritance tax statute can be found at N.J.S.A Section 54:34-1, et. seq. The PA Inheritance tax statute can be found at 72 PS 9101, et. seq.

Edited on January 20, 2011 thanks to input from Patricia Picardi.

Sunday, October 3, 2010

New Jersey Estate Tax

New Jersey has many different types of taxes, including two different taxes on death: the NJ Estate Tax and the NJ inheritance tax. The New Jersey estate tax is a tax on transfers at death and certain transfers in contemplation of death.

Transfers to charities, a surviving spouse or a surviving Civil Union partner are exempt from the NJ estate tax. Transfers to anyone else are taxable to the extent that the transfer exceeds $675,000. New Jersey never does anything in a simple manner, and it does not technically offer a $675,000 exemption from the estate tax. NJ actually exempts the first $60,000 of transfer and then taxes the next $615,000 at 0%. The effect of this is that the first $675,000 can almost always pass to whomever you want tax free.

Each New Jersey resident is entitled to the NJ estate tax exemption. Accordingly, married couples and Civil Union couples can double the amount that they pass on to their children with proper planning. (This usually involves setting up a bypass trust for the surviving partner or spouse rather than leaving them money outright.)

The New Jersey estate tax is a progressive tax, meaning that the more you pass on, the higher the tax rate. The NJ estate tax rate generally varies from 0% to 16% depending upon the amount of the transfer. The major exception is that for the first $52,175 over $675,000, there is a 37% tax. For a detailed breakdown of the tax rates, see page 10 of the NJ Estate Tax Return.

New Jersey offers two different method of calculating the state estate tax on the NJ Estate Tax Return: the 706 method and the so called "Simplified Method". The Simplified Method allows the executor or administrator of the estate to avoid filing a 2001 version of the federal estate return, but it often results in a higher tax. For this reason, it is often advisable to hire a competent estate planning attorney to minimize this tax liability.

A decedent's estate can be subject to both the NJ estate and inheritance taxes. New Jersey does offer some relief if an estate is subject to both taxes. For example, if a person with $1,000,000 dies and leaves the entire amount to her nephew, this transfer would be subject to both taxes. A transfer of one million dollars in normally subject to a $33,200 New Jersey estate tax. A transfer of this amount though is also subject to a $150,000 New Jersey inheritance tax. In such an instance, New Jersey would only collect only the higher tax, the 15% inheritance tax in this case.

The NJ estate tax is due within 9 months from the date of the decedent's death. This is different than the NJ inheritance tax, which is due within 8 months from the date of the decedent's death.

The NJ estate tax should not be confused with the federal estate tax. Unless Congress acts to extend the repeal of the federal estate tax (which I think to be highly unlikely), the United States will have a separate and additional tax on death.

Tuesday, September 28, 2010

Lawyer's CARE Legal Clinic

From time to time, a number of attorneys, including myself, get together to volunteer our time helping those who might need free legal advice. Anyone who wishes to receive free legal advice can see an attorney for 15 minutes.

There are usually attorneys who can advise people on a range of legal topics including Wills, Trusts and Estates, Bankruptcy, Foreclosure, Real Estate, Family Law, Personal Injury, Sports and Entertainment, and Business matters.

The next clinic is scheduled for Thursday, October 7, 2010 at the Lawrence Library Branch, Room 1. The Library is located at 2751 Brunswick Pike, Lawrenceville, New Jersey 08648. The clinic starts at 5:30 pm and lasts until 7 pm.

The Lawyer's CARE clinic is sponsored by the Mercer County Bar Association.

Friday, September 3, 2010

Estate and Trust Litigation

Unfortunately I have been given another reminder of how important it is to select appropriate executors for your Will, trustees for your trusts and agents in your financial powers of attorney.

No matter how good an attorney does in drafting your estate planning documents, if there is a person in charge of the money who is not honorable, a large portion can be easily stolen. The person who you put in control of such money is known as a fiduciary.

When you name someone as a fiduciary, you must realize that while they are legally forbidden from taken this money for their own personal benefit, mechanically it is very easy to do. For this reason I always recommend that when deciding on who should be in charge of your finances you always choose someone who is trustworthy rather than someone who is good with money. A trustworthy person can always hire others to help who are good with money. You would be hard pressed to discover the money from someone who is smart and sneaky.

For people who want to do everything they can to avoid probate - just realize that by avoiding probate you are also avoiding oversight. So if you have named a bad trustee, it will just be that much harder to prove that they in fact stole the money.

If your heirs find themselves in a situation where they think that money has been stolen from an estate or trust, the first remedy is an accounting. Unfortunately there is very little satisfaction in this because it can take years and can be very costly. It is not uncommon for this type of litigation to start at about $40,000.

The best way to avoid estate and trust litigation after you are gone is to really think about the people you name as fiduciaries. If you can't trust anyone, there are plenty of independent fiduciaries that you can hire.

Friday, August 20, 2010

Termination Clause in Special Needs Trust

The Social Security Administration has issued new rules, SI 01120.199, related to the early termination of Self Settled Special Needs Trusts created on or after January 1, 2000. Self Settled Special Needs Trusts, also known as First Party Special Needs Trusts established under Section 1917(d)(4)(A) of the Social Security Act. are designed to avoid being counted as a resource that would affect the trust beneficiary's right to receive Supplemental Security Income (SSI) and Medicaid.

Typically, a Self Settled Special Needs Trust does not terminate until the death of the beneficiary.
The new rules provide guidance on how beneficiaries of these trusts can still qualify for government benefits in the event the trusts contain an early termination provision.

An early termination provision is a clause that would allow the trust to terminate before the death of the beneficiary. A termination clause is very important to have in a special needs trust in case the trust beneficiary is no longer disabled, becomes ineligible for SSI and Medicaid, or when the trust fund no longer contains sufficient assets to justify its continued administration.

The most common need for an early termination clause comes when a child wins a very large personal injury settlement. Settlement agreements will routinely require that a special needs trust be established. However, if in twenty years the child is fully functioning and not in need of SSI or Medicaid, a special needs trust will be overly restrictive.

A special needs trust with a termination clause will qualify under the new rules if the trust:

  1. has a payback provision on the date of the termination. This means that the trust has to pay to the State all amounts remaining in the trust up to an amount equal to the total medical assistance paid on behalf of the beneficiary by the State;
  2. only makes payment of the balance remaining directly to the trust beneficiary (reasonable administration expenses and taxes are allowed to be paid to other parties); and
  3. gives the decision on whether or not to terminate the trust to a person other than the trust beneficiary.
In the event you have an existing trust that does not meet the termination standards set forth by this new rule, such trusts will be evaluated under Section 1613(e) of the Social Security Act.

SI 01120.199 also apply to Pooled Trusts established under Section 1917(d)(4)(C) of the Social Security Act.
SI 01120.199 will take effect October 1, 2010.

Thursday, August 19, 2010

Are Contributions Made to a Non-Profit Organization Tax-Deductible if 501(c)(3) Status Has Not Yet Been Received?

The classic chicken and the egg problem as it relates to charities. You want donors to give money to a non-profit so that you can have money to pay for the legal fees and filing fees associated with forming the non-profit. However, how do you convince people to donate money to the non-profit if they can't get a tax deduction?

IRS Publication 4220 provides the answer. Generally, if the non-profit organization files Form 1023 (an application to be recognized as a tax-exempt entity) within 15 months from the date the non-profit was created will be considered to be a tax exempt organization as of the date of creation.

The practical impact of this is as follows:
  1. An organization may have fundraisers prior to receiving proof that it has been declared tax-exempt by the IRS;
  2. The non-profit MUST advise potential donors that the 501(c)(3) status is pending.
  3. If the tax-exempt status is granted by the IRS, contributions by donors will be tax deductible.
  4. If tax-exempt status is denied, contributions made by donors will NOT be tax deductible. Additionally, the organization may be liable for paying taxes on money it has received.

Wednesday, August 18, 2010

Self Settled Special Needs Trusts

There are generally two types of private special needs trusts:
  1. 1) Third Part Special Needs Trusts; and
  2. 2) Self Settled Special Needs Trusts (also known as First Party Special Needs Trusts or D-4A Trusts).
A person who is receiving (or about to receive) Medicaid and Supplemental Security Income (SSI) may wish to consider establishing a Special Needs Trust just before he or she is about receive a substantial gift, inheritance or personal injury award. By receiving money outright, the person will no longer be eligible to receive SSI and Medicaid.

The Social Security Act (Section 1396p(d)(4)(A)) specifically allows a Special Needs Trust to be created for a person so that the person can continue to qualify for Medicaid and SSI. This particular trust is called a Self Settled Special Needs Trust because it is being funded with the person's own money (as opposed to money given to a trust by a third party).

The prime difference between the terms of a Self Settled Special Needs Trust and a Third Party Special Needs Trust is that when the beneficiary of a Self Settled Special Needs Trusts dies (or the trust terminates), the balance in the trust must pay off any Medicaid liens that have been built up. If there money left in the trust after that, the balance can be paid to the beneficiary's relatives. With a Third Party Special Needs Trust, there is no payback provision necessary.

The reason why a beneficiary of either a Self Settled Special Needs Trust or a Third Party Special Needs Trust can qualify for SSI and Medicaid is because those trusts are limited in what they can pay for. In general, the trust may not pay for food, shelter, electricity, gas or water and it may not pay for anything that can be converted into food, shelter, electricity, gas or water. So cash should almost never be distributed to a beneficiary from the trust. (Note: there are special rules about a trust owning a home)

A Self Settled Special Needs Trust can be created on behalf of the individual who receives the money by the person's guardian, the person's parent or grandparent, or by a court (as often happens in personal injury settlements). The beneficiary must be under the age of 65 when the trust is created and funded and the trust must be for the sole use of the beneficiary.

The costs of creating a Special Needs Trust vary from attorney to attorney, however, hundreds of thousands can be saved by setting up one properly.

Tuesday, August 3, 2010

The "Gift" of Health Insurance

I frequently come across clients who want to help their children financially, but they do not want to give them money directly. There are numerous ways to do this, including:
1) gifting an interest in a limited liability entity (such as an LLC, an S-Corp or a limited partnership);
2) making gifts to a child via a trust;
3) paying for a child's or grandchild's tuition; and
4) paying for a child or grandchild's medical expenses.

In the first two categories, there is a limit to the amount that can be given tax free. This amount is known as the 2503(b) exemption amount, and it currently stands at $13,000. However, for the third and fourth categories, a parent can pay educational and medical expenses for a child, regardless of amount, and not have to worry about paying a gift tax at all.

When many people consider making a gift for medical purposes, they think that they have to pay the doctor directly on behalf of the child. There is something else that can be done though - they can also pay their child's health insurance premiums. According to Treasury Regulation 25.2503-6(3), "the unlimited exclusion from gift tax includes amounts paid for medical insurance..."

Since insurance premiums have been increasing by double digit percentages almost every year, wealthy parents should take advantage of this option to help out their children and provide piece of mind to themselves. This is particularly true if their child has been laid off in this down economy.

By directly paying the insurance company for their child's health insurance bills, parents can also make an additional $13,000 gift (either in cash or indirectly), to help out their child or minimize their estate for estate tax purposes.

Friday, July 2, 2010

Choosing an Attorney to Help Probate an Estate

Did you know that if you are an executor or personal representative of an estate that you do not have to hire the attorney that drafted the Will to handle the probate of the estate?

Many times, attorneys will do a simple will as a favor to a neighbor or relative. This is all fine and dandy as long as all that is needed is a simply Will. However, frequently, many tax forms must be filed when administering an estate and clients need advise on when NOT to accept money. A good attorney should also be able to act as the "bad guy" when an executor must deliver bad news to the beneficiaries. An attorney that does not focus on estate administration may not be able to help.

I'm often amazed at the number of times that I meet with a client who was unhappy with the attorney that administered a parent's estate. I ask why they didn't switch and I am told that they did not realize they could. Remember this - you always have the choice of who you wish to represent you. It may not be cost efficient to change if you are too far along, but you always have the right to change.

My best advise is that before you start the process of estate planning or estate administration, make sure you hire someone who practices frequently in the field. You are far less likely to encounter problems.

Monday, June 7, 2010

Giving to Charity Using Life Insurance

When I meet with clients who are charitably inclined, I frequently advise them that, for tax reasons, the last money they give to charity should come from life insurance. Typically, the first money that should go to charity on death should come from your retirement account or from some asset which has a low basis and is not entitled to an increase in fair market value as a result of death because receipt of these assets can often result in estate, inheritance and income taxes.

Recently, I was having this discussion with a colleague of mine, Adam Altman, about this topic. He advised me that AXA has a special life insurance policy that encourages charitable giving. Apparently, this policy contains a rider that allows for an additional death benefit, whereby AXA agrees to pay an additional 1% of the death benefit, up to $100,000, to the 501(c)(3) organization of your choice. The best part - there is no additional charge and it does not reduce the cash value of the policy.

This program is ideal for those of you who wish to give something to charity, but do not want to take away from anything your relatives will receive.

If you are interested in this program, please contact my fellow Tulane alumnus, Adam at: 732-326-5230.

Tuesday, May 25, 2010

Business Organization and Succession Planning

In 2007, I wrote about the importance of business succession planning. Nothing has changed. Having a clear plan as to how to transfer the ownership of a business is crucial. However, merely transferring your interest in a business to your next of kin is only part of the equation. A good business succession lawyer will also try to make sure that you are comfortable with who will actually run your business when you no longer capable of doing so. If you are not really sure whether any of your family members can run the business, and you have not been mentoring someone to take the reins from you, it is probably a good idea to meet with a business consultant.

Tom Reinhard of the Juncture Group suggests that owners should document and make flow charts for key business processes and develop position descriptions for key employees. If a key person dies or suddenly becomes ill, this information can be vital to the continuity of a business. Tom also notes that by going through this process, owners and managers often find ways to improve their business.

Tom specifically recommends:

1. Document organizational roles and responsibilities along with a chart of organizational reporting relationships. Writing clear descriptions of each employees roles and responsibilities, has a side benefit besides making a new employee’s job clear. It can also help uncover when employees are duplicating their efforts or when there are gaps in responsibilities. These descriptions can be very helpful in searching for and identifying suitable candidates to fill vacant job positions.

2. Developing base line documentation of core business processes. After members of your staff describe the tasks for which they are responsible and write down the details of how they accomplish their duties, these written descriptions can be improved though the development of work flow diagrams and flow charts. The process descriptions and charts often reveal opportunities to improve the quality and efficiency of the business. It is also a great way for a new senior executive to obtain a quick understanding of how the business runs.

3. Engage the key members of the organization in periodic review and update of the aforementioned documents to adjust for changes and process improvements. Getting your staff involved in maintaining process documentation is a great way to involve them in improving the efficiency and productivity of the business.

There are many things that are out of your control as a business owner. However, by working with a business succession attorney and a business consultant you can better ensure your enterprise continues to move forward if tragedy hits.

Thomas Reinhard and the Juncture Group may be contacted at 609-799-3386. For more information about Tom, please see:

Friday, May 21, 2010

New Jersey Estate Tax for Non-Residents Coming?

New Jersey State Senator Andrew Ciesla, a Republican from Brick, has introduced legislation to modify the New Jersey estate tax so that non-residents, in addition to residents, are responsible for paying the tax.

Currently, New Jersey has two types of death taxes. There is the New Jersey estate tax, which generally imposes a tax of 6-12% on all estates over $675,000. The New Jersey estate tax is currently only imposed upon the estates of decedents who are residents of New Jersey.

Additionally, New Jersey has an inheritance tax of 0-16%, depending upon whom assets are transferred. The New Jersey inheritance tax is imposed on the estates of all New Jersey residents as well as non-residents who own real or tangible personal property in New Jersey.

If the assets pass to a spouse, civil union partner, lineal ascendant, lineal descendant or charity, then the transfer is exempt from the inheritance tax. If the assets pass to a sibling, a son-in-law, daughter-in-law or civil union partner of one of your children, there is an inheritance tax of 11-16%. New Jersey does exempt the first $25,000 of the transfer though.

If the assets pass to anyone else, there is an inheritance tax of 15-16%, but the first $500 is exempt.

The proposed law is designed to target people who die owning homes in New Jersey but are residents of other states. Most of the estates of these decedents currently do not pay any estate or inheritance tax to New Jersey because the estate tax does not apply to them as a non-resident and the inheritance tax will only affect those who leave money to someone other than immediate family or charity.

If enacted, the modified New Jersey estate tax will require the representatives of people who die as residents outside of New Jersey to file a New Jersey estate tax return and pay a proportional share of taxes. For example, if a person's estate is $1,000,000 and they owned property in New Jersey worth $500,000. Normally, if the person was a New Jersey descendant, the tax would be $33,000. In this situation though, since 1/2 of the assets are outside of New Jersey, the tax would most likely be 1/2 of the $33,000.

The proposed tax would surely raise a significant amount of money in this cash strapped state. However, with a Governor highly opposed to any new taxes, I would be surprised it passes.

Tuesday, April 27, 2010

Follow up to Articles on Expatriation

The New York Times had an interesting article online today about how more and more people are giving up their citizenship. It did not surprise me that many give up their citizenship to save money on income taxes. However, I was surprised to learn that the Patriot Act is also partly to blame.

Apparently, the Patriot Act makes it very difficult for citizens to maintain bank accounts in the United States if they have lived overseas for a long time because the Patriot Act requires a United States residence. Since overseas residents cannot provide a US address, they are being treated the same as terrorists and the banks are closing the accounts.

In the short term, giving up your citizenship may make things easier, but remember, there can be serious income tax and inheritance tax ramifications to giving up your citizenship.

Wednesday, April 21, 2010

Pennsylvania (and Philadelphia)Tax Amnesty Programs

Starting April 26, 2010, Pennsylvania will offer partial amnesty for taxpayers who are delinquent in paying their taxes. The program runs through June 18, 2010. Frankly, this is an incredibly generous amnesty because Pennsylvania is agreeing to waive 100% of any penalties plus 50% of the interest.

The city of Philadelphia is also showing a little brotherly love by offering its own tax amnesty program, starting on May 3, 2010 and ending on June 25, 2010.

For those of you who owe back taxes, it is usually advisable to try and take advantage of the amnesty programs to reduce your overall tax liability and clean up your credit. Moreover, the government will frequently issue additional penalties to those who do not come forward during the amnesty.

Friday, April 16, 2010

How to Avoid Estate Litigation - Communication

Sometimes there is no preventing an estate litigation. When a family member steals items from the estate, or when the Will is poorly drafting making it confusing, litigation is sure to follow.

However, most good estate attorneys will tell you, one of the biggest reasons that unnecessary litigation results is due to family members not communicating with each other. Lack of communication by the person in charge of the estate leads the other family members to believe that the executor (or administrator) is hiding something. More often than not, the person in charge is just too busy or overwhelmed. Things get said which are better left unsaid, and then the worst of all situations arises - it no longer is about getting what you are entitled to under the Will, but about how Mom or Dad always loved the other one more.

Once the administration of an estate is no longer about getting through the difficult administration process, but about opening old family wounds, people seem more than happy to hire aggressive litigators to settle the score. In the long run, this ALWAYS costs the estate far more. It costs the estate more money in attorneys' fees and it costs the family any semblance of family unity. It is rare that siblings, or cousins, will ever get along again after there has been an estate litigation.

Many times, you do not need to hire an attorney to handle the probate and administration of a loved one's estate. However, if you find yourself overwhelmed, you must not just sit and wait. It will cost you far more than money. A qualified estate administration attorney can guide you through the process. Moreover, the person named as executor is not individually responsible for paying for the fees - it comes from the estate off the top. After all, it is in everyone's interest to make sure Mom and Dad's wishes are carried out.

Friday, April 9, 2010

Who exactly is a Covered Expatriate?

In 2008, President Bush signed the Heroes Earnings Assistance and Relief Tax (HEART) Act. One of the major provisions of the Heart Act was to collect substantial taxes from certain United States taxpayers (whether a citizen or a permanent resident alien) who expatriated from the United States after June 16, 2008. The individuals that this law applies to are known as "Covered Expatriates."

There can be harsh federal income tax and federal inheritance tax consequences if you are deemed to be a Covered Expatriate.

A person is considered a Covered Expatriate if he or she:
1) is a US citizen who renounced his or her citizenship OR a permanent resident alien who relinquishes his or her status after being a permanent resident alien for 8 of the last 15 years; AND
2) has had an average annual net income tax of more than $124,000 ($136,000 adjusted for inflation) in the preceding five years OR has a net worth equal to or more than $2,000,000 OR such person fails to certify, under penalty of perjury, that he or she has met the income and asset requirements.

Additionally, this statute does not apply to dual citizens who became a citizen of the United States by birth, but have never had substantial contacts with the United States. A person is considered to have substantial contact with the United States if he or she was ever a resident of the United States, ever held a passport OR was present in the United States for more than 30 days during any calendar year 10 years prior to the person giving up their United States citizenship. There is a slight variation on this rule for dual citizens who give up their US citizenship prior to age 18 and 1/2.

To learn more about who is a Covered Expatriate, wee Internal Revenue Code Section 2801 and Section 877A(g)(1).

Income Tax Consequences of Expatration

In this down economy, many companies are laying off employees. While this could be deeply troubling for those who get laid off, imagine if you were also subject to a huge income tax penalty as a result. This could be happening to you now if you are a permanent resident alien who decides to leave America after losing your job.

In 2008, President Bush signed the Heroes Earnings Assistance and Relief Tax (HEART) Act. This ironically named Act was designed to prevent wealthy people from leaving the United States before paying what Uncle Sam thinks they owed.

The Heart Act applies to citizens and permanent resident aliens who meet certain income and asset requirements. These individuals are known as "Covered Expatriates". To see who exactly Covered Expatriates are, read here.

The Heart Act created Section 877A of the Code. Section 877A takes a snapshot of your assets the day before you expatriate. Then, on the day you expatriate, you are then immediately taxed on the net built in gain which is in excess of $600,000 (indexed for inflation - so this amount is $627,000 in 2010). So, if you are a Covered Expatriate and own several real estate properties with built in gain of $1,000,000, there would be a deemed gain of $363,000, and you would have to pay a tax on that gain.

In the case of an IRA, but not most other retirement accounts, expatriates are also deemed to have received a distribution equal to their entire interest. Luckily, there is no early distribution penalty unless you actually do take the money out early. For most qualified and non-qualified retirement accounts, the IRS will continue their existing practice of requiring the employer to withhold 30% when the money is actually distributed from the account.

Perhaps the only positive feature of this law for those affected is that it does allow certain taxpayers to defer making payments on their tax obligations.

Note: There is an open question about whether Section 121 of the Code, which allows a capital gains tax exclusion on sale of primary residence, still applies to Covered Expatriates. It would probably be advisable to sell your primary residence before expatriating to avoid this issue and also to avoid having to obtain a valuation report for the property.

Is there a Federal Inheritance Tax?

It's true. Most people think that the United States only has a federal estate tax (and yes, I know that technically there is no federal estate tax this year). However, the United States also has an inheritance tax that taxes certain inheritances that are received by United States citizens and permanent resident aliens if the inheritance came from a "Covered Expatriate". To see who exactly a Covered Expatriate is, see my article here.

Moreover, the inheritance tax can be an extremely expensive tax as it is taxed at the highest federal gift or estate tax rate. Currently the highest rate is 35%, but this could potentially go as high as 50% after 2010. Unlike the estate tax, which has a large exemption amount (i.e. you can pass on a lot of money before the tax hits), the inheritance tax exemption amount is minimal. You can only pass on an amount equal to the maximum amount that a person can gift annually under Section 2503(b) of the Internal Revenue Code, currently $13,000.

The federal inheritance tax became law when the Heart Act was passed in 2008. The Heart Act created Section 2801 of the Internal Revenue Code to try to collect a tax on the inheritance that United States persons received from wealthy relatives who had fled the United States for tax avoidance reasons.

Since this is an inheritance tax, the tax is paid by the recipient, not the estate. This was done for jurisdictional reasons. It should be noted, however, that the recipient of the inheritance can receive a credit if an estate or inheritance tax was paid in another jurisdiction.

Spouses and charities are specifically exempt from paying this tax, so this tax is mainly going to apply to the children of wealthy parents who have expatriated from America. Due to the number of permanent resident aliens who are returning to their native country in this economy, and leaving adult children in America, it may actually affect a lot of people.

It should be noted that you can not simply get around this tax by giving money to a trust (foreign or domestic). Moreover, indirect gifts and bequests will also be taxed. It is a far reaching act that can also have massive income tax repercussions. To see more about this, read Income Tax Consequences of Expatriation.

If you are thinking about expatriating from the United States, there is some planning that can be done to avoid being treated as a Covered Person. At a minimum, there is planning that you can do to lessen the tax burden.

Wednesday, April 7, 2010

IRA Planning in Light of Robertson v. Deeb

In December of 2009, the Florida Court of Appeals concluded in Robertson v. Deeb, 16 So. 3d 936 (Fla. 2d DCA 2009), that the beneficial interest that a person owns in an inherited IRA may be subject to garnishment. In other words, an IRA that you inherit may be taken by your creditors. This is different from an IRA that you establish yourself, or a retirement plan like a 401(k) or 403(b), which are all protected against creditors.

The result itself did not surprise me much until I read and article by Kristen M. Lynch and Linda Suzzanne Griffin in the April 2010 Florida Bar Journal. Intuitively, it made sense that a creditor can go after an asset that you inherit. Usually, the rule of thumb is that unless an asset is specifically exempted, a creditor can sue to get it.

What made this case unusual, and what I was not aware of, is the fact that there was a specific statute on point, F.S. Section 222.21, which seems to indicate that money payable to the "beneficiary" of an IRA is exempt from all claims of creditors. The Court, however, stated that a beneficiary who inherits an inherited IRA is not entitled to the same protection as a beneficiary who contributes to his or her own IRA.

I do not wish to argue the merits of the Court's decision, but I will point out that as a result of this case, anyone who has a substantial IRA should seriously consider establishing a trust for their loved ones which has "stretch" and asset protection provisions.

For many people, their IRAs are their biggest asset.
It is clear, now more than ever, that if you wish to protect your IRA from creditors, you cannot simple name your loved ones as the beneficiaries without risking it being taken. Moreover, you cannot simple name a traditional trust as the beneficiary without incurring large income taxes. You need to do comprehensive IRA planning.

Wednesday, March 31, 2010

Mercer County

As most of you may know, I am an attorney with clients based primarily in Mercer County, New Jersey. Accordingly, I was curious how much in estate taxes the residents of each county pay. While having trouble finding that information, I did stumble across some data on the www.taxfoundation.org web site which breaks down how much the residents of each state paid in state estate taxes in 2007.

Not surprisingly, New Jersey residents paid the most per resident, with Pennsylvania residents paying the 2nd most and New York residents paying the 3rd most. What does this mean in real numbers? New York, which received the most in terms of total dollars collected, only received $1,053,384. Pennsylvania collected only $736,610 and New Jersey only collected $586,589. In the scheme of things, this is represents less than .02% of each state's budget.

To be honest, I was a bit surprised by how little was collected, both on a percentage basis and in terms of total dollars. If anyone could send me additional information on other estate tax facts, such as breakdown by county, I would appreciate it.

Wednesday, March 24, 2010

The Importance of Planned Gifting

One of the best ways to minimize your taxable estate is through planned gifting. Anyone who may be subject to a federal or state estate tax, or a state inheritance tax, should at least consider a gifting plan.

The first item to think about is - can you afford it? This is not always an easy question because you may be worth a lot of money, but you might not have a large income to cover your annual expenditures. Accordingly, sometimes the best items to gift are items that do not produce a lot of income, but are worth a lot of money for estate tax purposes. Vacation homes, valuable art collections and a minority interest in a business are all perfect examples of this.

Once you figure out whether you can afford to make a gift, the second question is how much to gift and who do you wish to benefit. These go hand in hand because often times you only wish to benefit certain people or certain charities by a set dollar amount rather than by everything you can afford to give away.

When trying to calculate how much to gift, valuation of the gift becomes crucial. It is beyond the scope of what I wish to discuss here, but be aware that certain gifts may valued at less than you think because discounts should be taken if the gift is not freely marketable and/or the donee does not have much control over the asset after it is received.

Additionally, tax law often plays a key role in how much you give away. Even if you can afford to give away $2,000,000 to charity or to your grandchildren, it may be more beneficial for tax reasons to make smaller gifts over a number of years rather than a large lump sum gift.

This leads us to the third item that we must think about in a gift plan is the timing of the gift. (For more information on this, see my earlier blog post on timing.) You may be aware that the federal government allows you to gift away a certain amount every year (currently $13,000) without a gift tax consequence. Moreover, you may gift away up to $1,000,000 before there is any out of pocket gift tax consequence because you are entitled to a $1,000,000 federal gift tax exemption.

Any good gifting plan is going to try and make maximum use of your lifetime gift tax exemption, annual exclusion amounts as well your ability to pay for
another person's educational or medical expenses without incurring any tax consequences. (There is technically no gift if you make payments, for the benefit of another person, when such payments are made directly to certain educational institutions or medical care givers.)

Due to the annual exclusion allowance, practitioners frequently encourage clients to make gifts to their loved ones over the course of many years

The final item to think about, is the manner in which the gift is made. There are thousands of different ways to make gifts. You can make gift directly to the person or charity you wish to benefit. You can make a gift via a trust (and there are many different trusts such as insurance trusts, charitable lead or remainder trusts, dynasty trusts with or without withdrawal rights, qualified personal residence trusts, etc.). You can make gifts to a 529. You can give away partial ownership of a property. You can have an indirect gift by "giving" money to a company in which you are not the sole owner and not getting anything in return for that extra contribution. You can give up a power that you were entitled to.

Once you have figured out what you can afford, who you want to benefit, how much you want to give, when to make the gift and how to make the gift - then you have a truly planned gift.

NOTE: All items discussed here assume that you are a US citizen or permanent resident alien.

Timing of a Gift

When doing gift planning, it is imperative to have the gifts completed on the schedule that you want otherwise you may accidentally gift too much one year, causing a tax, or you may gift too little, and lose your annual gift tax exclusion for the year.

Therefore, you must know the answer to this question: When is a gift complete for purposes of the federal gift tax?

Unfortunately, tax law is much like a magic trick - what may appear to be true is not always true. If you give someone cash, is the gift is complete the moment the other person receives the cash? What about a check? What about a transfer of real estate by deed?

Would it make a difference if, when giving you the cash, I told you that you could only spend it on a new car, otherwise I want it back? What if there was not enough cash in the account to cover the check? What if after making the deed I held it and did not show it to anyone else or record it? Things get trickier then

Three elements are required to establish a gift: "(1) donative intent on the part of the Donor; (2) an actual or symbolic delivery of the subject matter of the gift; and (3) an absolute and irrevocable surrender by the donor of ownership and dominion over the subject matter of the gift, at least to the extent practicable or possible, considering the nature of the thing to be given." (Jennings v. Cutler, 288 N.J. Super 553 (App. Div. 1996)

Donative intent means that the person making the gift (or the Donor) believes in his own mind that he is giving something away. For example, if I give you cash, but I expect you to repay it, it is not a gift - even if I do not tell you at the time that I want to be repaid. Since I expect to be repaid, I do not have the proper mindset, or intent, to qualify this as a gift.

The moment that I no longer wish to be repaid, then that transfer can be a completed gift if the other requirements are met. Often times practitioners make positive use of this intent requirement. We can draft a promissory note for a parent transferring a large sum of money to a child, whereby the child agrees to pay back $X per year. The parent can then forgive that annual repayment, thereby completing a gift as to $X. This technique is commonly used by a parent who wishes to help a child make a down payment on a house, but does not want to use up their lifetime $1,000,000 gift tax exemption. The payments of $X can be structured to be less than or equal to the annual exclusion amount, thereby passing on additional money free of gift and/or estate taxes.

To have actual or symbolic delivery is important because it puts the person receiving the gift (the donee) on notice that they are receiving something. Let's go back to the example of a person making a deed for the benefit of their child and then keeping hidden away from the world. It would be similar to make saying to myself that I'm going to give each of my blog readers $100,000, putting the money in my sock drawer, but not telling you about it. I may have the proper intent, but unless there is some further act, it is not enough.

What further act is necessary puts us into a gray, mushy area of the law. I do not physically have to give you the gift. Some sort of act in furtherance of the gift is enough. Three situations that come up frequently are the writing of a check, the preparation of a deed and the transfer of a business ownership interest, so I will discuss them a bit further.

If you write a check to another person, the gift becomes complete when you've gone that extra step to ensure the other person receives the check. This could mean physically handing it to them or putting it in the mailbox. If there is not enough money to cover the check in your account, the gift would not be complete until there is enough money in the account to cover it. (This gets into another gray area however if bank covers your check.) If, however, you tell the donee not to cash it yet, and they obey, then the gift is not complete until they receive permission to cash the check.

For the gift of real estate, the donor does not necessarily have to record the deed, but the recording of a deed clearly proves the gift was made. (see Fischer v. Gerndt, N.J. Eq. 53, 55 (Ch.1922). Anything short of the deed being recorded puts us in yet another mushy gray area of the law. You could give the deed to the donee to record, which would complete the gift, but then take out a mortgage, negating the gift. You could give the deed to the donee's agent, which would complete the gift, but then sell it that same afternoon to another party, negating the gift. Ultimately, it would be an after the fact determination. Accordingly, when doing gift planning, you should not wait until the end of the year to transfer real estate, because it can take up to a month to record the deed. As stated in the beginning, timing is everything for proper gift planning.

For a gift of a business interest, the donor does not necessarily have to enter something in the stock book or file something with the state, but doing so clearly completes the gift. A letter by the donor to the donee stating, "I hereby give you 10% of XYZ business" could be enough, unless the donor turns around quickly and sells it to someone else. As with the deed, for proper planning, it is best just to take the appropriate steps to make the gift clearly complete.

With respect to the final requirement, "
an absolute and irrevocable surrender by the donor of ownership and dominion over the subject matter of the gift, at least to the extent practicable or possible, considering the nature of the thing to be given", it is actually a mouthful but easy to show by example. If I tell you that you can have my art collection when I am done with it - it is not a gift until I tell you I'm done with it. In the example at the beginning, the gift of cash subject to the fact that you can only use it for a new car, the gift is not complete until you either use it for the new car, or I change my mind and agree you can have it no matter what. Generally, you have to give up control of what you are gifting. When you have done that, this element is satisfied.

For more on the importance of planned gifting, see: The Importance of Planned Gifting

Note: Thanks to Paul Kostro for keeping me up to date on much of this information. Paul's Blog can be found at: http://www.kostrolaw.com/NJFamilyIssues/

Friday, February 19, 2010

Time to Start Expecting Congress Will Do Nothing on the Estate Tax

Having an estate plan in place gives you control over your assets, but only if it is up to date. It is important to review your estate planning documents every few years due to changes in personal circumstances and also due to the frequent changes in the tax and probate laws.

As you may be aware, in 2001 there was a major change in the federal estate tax law eliminating the estate tax for the 2010 calendar year. Most professionals, myself included, thought that Congress would modify this law before the estate tax was actually repealed. I guess we should never be surprised though when our government does not behave the way we expect.

It is still unclear what will happen with federal estate tax, but unless Congress acts, by the terms of that same 2001 law, the federal estate tax will be reinstated on January 1, 2011 with an exemption amount of only $1,000,000 per person (indexed for inflation). Moreover, the federal estate tax rate will return to a graduated rate, generally between 41% - 55% depending upon the amount of your assets.

Additionally, the change in the federal estate tax law in 2001 caused New Jersey, and many other states, to modify their respective state estate tax laws. New Jersey, in particular, decided to lock in a state estate tax exemption amount of $675,000.

Accordingly, if your Will contains a formula provision to fund certain trusts or bequests, the change in the tax laws could greatly affect where your money goes upon your death and may result in unnecessary taxes being owed.

My recommendation is that anyone who has assets in excess of $650,000 have their Will reviewed. If necessary, they should be revised to build in maximum flexibility to take into account as many reasonably foreseeable outcomes that we might have if the Congress decides to pass a new law or decides not to do anything.

Friday, February 5, 2010

Free Seminar

Aging: Myths, Facts and Superstitions

Wednesday, February 17, 2010
4pm until 5pm

Join us! The Stony Brook Assisted Living Community is hosting three experts in the field of aging who will discus need-to-know issues critical to your loved one's medical, legal and emotional health.

  • Polypharmacy: Multiple prescriptions + multiple medical conditions = medical disaster. Learn ways to avoid this serious health threat. By Dr. Priti Gujar, a physician with Geriatric Treatment Resources LLC in Pennington, NJ.

  • Legal Superstitions: Key legal documents and the superstitious reasons people avoid creating them. What are the criteria for judging competency to sign such documents? By Kevin A. Pollock, J.D., LL.M., an attorney with the Law Office of Kevin A. Pollock LLC in Pennington, NJ.

  • Myths about Aging: Exploring myths about aging and the truth about cognitive and functional changes. The important conversations that you must have with family members and how to approach them. Presented by Mary Kay Krokowski, a geriatric care manager with Aging Advisors, LLC in Pennington, NJ.

If you are interested in attending, please RSVP to 609-730-9922 by February 12.

Location: Stony Brook Assisted Living, 143 West Franklin Avenue, Pennington, NJ 08534

Wednesday, January 13, 2010

2010 SSI Monthly Payment Amounts

Last year was a difficult economic year for many, including the government. As a result there will not be any cost of living adjustment to anyone's monthly payments this year.

For a detailed lists of New Jersey payout amounts, click here.

For a detailed lists of Pennsylvania payout amounts, click here.

For a detailed lists of New York payout amounts, click here.

For a detailed lists of Florida payout amounts, click here.