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

Monday, December 30, 2013

Florida Office

I'm pleased to announce that effective January 1 that I will have a new office in Boca Raton, Florida.  The new office address is:

5499 N. Federal Highway
Suite K
Boca Raton, FL 33487

My phone number in Florida will remain unchanged: 561-247-1557.

Please contact me for any of your Wills, Trusts or Estate Administration needs.

Tuesday, December 17, 2013

Right to Name Guardian for Minor Children When Parents are Separated or Divorced

I was discussing the affect of a divorcee naming a guardian for minor children in a Will with a few colleagues the other day and I thought I would share some of our findings. 

When there is a custody dispute between a natural parent and a third party, the law regarding who has custody of the child is governed by the case:Watkins v. Nelson, 163 N.J. 235 (2000).

The court found that there is a presumption in favor of the natural parent which arises from a parent’s fundamental liberty interest protected by the Due Process Clause of the Fourteenth Amendment to the United States Constitution and is rooted in the right to privacy.  However, a parent’s right to custody of his or her own child is not absolute. The presumption in favor of the natural parent.  This presumption can be rebutted by a showing of gross misconduct, unfitness, neglect, or exceptional circumstances affecting the welfare of the child.

When a third party seeks custody of a minor child (or an incapacitated individual), the court must engage in a two-step analysis. First, the court must determine whether the presumption in favor of the legal parent is overcome by either a showing of unfitness or exceptional circumstances. If either is satisfied, the court must then decide whether awarding custody to the third party would promote the best interests of the child.  So, at the end of the day, a court will decide who should have custody based upon what is in the best interests of the child.

In New Jersey, there also a statute on point as to the decedent's right to name a guardian and to what extent it will be honored.  The relavent statute is: N.J.S.A. § 9:2-5. Death of parent having custody; reversion of custody to surviving parent; appointment of guardian by superior court; removal
In case of the death of the parent to whom the care and custody of the minor children shall have been awarded by the Superior Court, or in the case of the death of the parent in whose custody the children actually are, when the parents have been living separate and no award as to the custody of such children has been made, the care and custody of such minor children shall not revert to the surviving parent without an order or judgment of the Superior Court to that effect. The Superior Court shall have the right, in an action brought by a guardian ad litem on behalf of the children, to appoint such friend or other suitable person, guardian of such minor children, and shall have the right to remove such guardian, and to appoint a new guardian or guardians, and to make such judgments and orders, from time to time, as the circumstances of the case and the benefit of the children shall require.

Even if the court does not honor your request for guardian, you can still set up a trust for your child, and you can name anyone you wish to act as trustee to manage your funds until the child is old enough to handle his or her own finances.  This is important because otherwise the guardian or surviving naturual parent will have complete authority over these funds.

To summarize, if you do not want the surviving parent of the child to receive legal custody of your child:
1) It is a good idea to create a Will;
2) You should name a guardian under your Will for your minor children and any incapacitated children because it gives that proposed guardian standing to sue the surviving natural parent for custody (I would also recommend giving reasons in the Will or elsewhere to estatablish why the person you are proposing as guardian would be better suited to care for the child than the surviving parent);
3) The courts do not have to honor your request as to whom you name as guardian, they will try to determine the best interests of the child; and
4) Regardless of custody issues, you should set up trusts for your children and name a trustee to manage the funds until the child is of age, otherwise the surviving parent will have authority as natural guardian to spend that money as he/she sees fit.

Monday, October 28, 2013

Choosing an Executor, Trustee and Guardian

Clients frequently ask me for advice on who they should name as Executor, Trustee or Guardian when creating their Last Will and Testament.  First, let me explain the difference between the three roles.

The Executor is the person who probates your Will, goes into your house and looks through all your things, safeguards your assets, gathers up your money, pays your bills, files any income tax, estate tax or inheritance tax returns that need to be filed, and then distributes the balance of your money according to the instructions in your Will.  One or more individuals or corporate fiduciaries can serve as Executor.

The Trustee is the person who takes the assets that the Executor (or Grantor) gives him, invests the money in a prudent fashion, and distributes the money to the beneficiary of the trust in accordance with its terms.  One or more individuals or corporate fiduciaries can serve as Trustee. 

The Guardian is the person who will raise your minor children until they are 18 (or longer for an incapicitated individual). 

The three main qualities that you want to look for in an Executor and Trustee are:
  1. Someone that is trustworthy and won't steal the money;
  2. Someone that will not be overwhelmed by the role, there is a lot of work involved; and
  3. Someone that does not have a bad relationship with the beneficiaries and will be able to communicate with them.
You will notice that I did not say that the exeuctor or trustee must be good at investing money.  That is because I believe the other characteristics are much more important.  An honest person who is diligent can always hire an investment manager. They just need to keep an eye on the investment manager.

The three main qualities that you want to look for in a Guardian are:
  1. Someone that will love and care for your children;
  2. Someone that will raise your children in a manner that you wish (including religion, education, diet, etc.); and
  3. Someone that will have a stable family household.
Frequently, clients will name one party as executor or trustee and another person as guardian.  Sometimes this can be a good idea as the two parties can then monitor each other.  Additionally, this is a way to get two parts of the family to interact.  However, if there is someone that you truly trust to serve in all three roles, it is usually best to name them and not divide the roles just for the sake of dividing the roles.

For all of these positions, age may be a factor as well as you may not want to name someone too young or too old.  It is a heavy burden to put on people.  I never, ever recommend naming people just so they won't feel excluded. 

Finally, an attorney can serve as an Executor or Trustee, but you can name whomever you wish.

Monday, October 21, 2013

Same Sex Marriage Now Legal In New Jersey

Effective today, same sex marriage is now legal in New Jersey after Governor Chris Christie dropped his plans to appeal the ruling of Superior Court Judge Mary Jacobson.  On September 27, 2013, Judge Jacobson had ruled that New Jersey must allow same sex marriages in the wake of the Supreme Court's decision in United States v. Windsor.

Previously, New Jersey had only allowed Civil Unions and it recognized same sex marriages from other jurisdictions as Civil Unions.  The Governor elected to drop his appeal after receiving very clear signals from the New Jersey Supreme Court that his appeal would not be successful. 

Remaining at issue is whether or not all Civil Unions in New Jersey would automatically be treated as same sex marriages.  The New Jersey legislature had sought to pass a bill to that affect several months ago, but it was vetoed by the Governor.  (The bill included a provision that couples could opt out of the automatic conversion to marriage if they did so within 30 days.)  As it stands, if a couple wishes to be recognized as a married couple, they should not rely on this automatic conversion, but should instead proceed with a marriage ceremony.

I would like to remind individuals who were married in another state that they should consider refiling their income tax returns for the past few years if there is a tax benefit to do so.

Friday, October 4, 2013

When Should I Write a Will?

Many people question when they should start their estate planning. The short answer to this is that there is no specific age someone should see an attorney to plan their Will, Financial Power of Attorney and Advance Directive for Healthcare. However, you do need to be a minimum of 18 years of age.

If you know a major event is going to happen in your life such as marriage, the birth of a child, retirement, or divorce it is time to start planning your estate. However, there are some major life events that we simply cannot anticipate, including contracting a terminal illness, receiving a large sum of money, or even a fall out with a family member. So it is always good to be prepared.

This brings us to another factor to consider when you begin to plan your Will, Financial Power of Attorney, and Advance Directive for Healthcare. You should take into account the size of your family and if you are married. If you have assets that you own with a spouse, such as a house, a car or a bank account, your assets automatically go to your surviving spouse through Joint Tenants with Right of Survivorship.

However, this plan only workd properly if you have no children from any other relationships. If you have children from another relationship, a Will must be created so your assets can be divided up to care for both your new spouse and children from your previous relationship. In other words, if you are in a non-traditional relationship, it is much more important for you to do proper planning. 

At the end of the day, the most important thing to realize is that you want to have your estate plan in place before you need it.  The more complicated the plan, the earlier you should start.

Friday, August 30, 2013

IRS Issues Ruling on Tax Filings for Same Sex Couples

Yesterday the Internal Revenue Service issued an important ruling in the wake of the Windsor case in which the Supreme Court ruled that the Defense of Marriage Act was unconstitutional.  Specifically the IRS stated that it will recognize all same sex marriages regardless of where the couple was married. 

The Supreme Court did not specifically address what would happen if a same sex couple got married in one state and then moved to another state that did not recognize the union.  Now it is clear that the IRS will respect the marriage regardless of where the couple moves afterwards.

The IRS also stated that starting with the 2013 tax year, all married couples (same sex or opposite sex) must either file as married or married filing separately.  Additionally, same sex married couples may elect to file an amended income tax return for the 2010, 2011, or 2012 calendar years.  You should seriously consider amending the return if one spouse worked and the other didn't or if there are other significant tax advantages. 

It should be noted that the IRS rules only applies to married couples, not civil unions.  New Jersey and two other states currently allow only civil unions.  The most likely outcome of this is that the civil union laws will eventually fall by the wayside in favor of same sex marriages as separate is once again inherently unequal.

Thursday, July 18, 2013

Pennsylvania Makes Significant Changes to Inheritance Tax Law

On July 9, 2013, Pennsylvania enacted new legislation that made significant changes to their inheritance tax law by exempting the transfer of small family owned businesses. (H.B. 465)  A qualified family-owned business is defined as a proprietorship or entity with fewer than 50 full time employees and assets less than $5,000,000 at the decedent's death.  The decedent and the decedent's family must own 100% of the business at the time of the decedent's death, be an active business (not just the management of investments or income-producing assets), and have been in existence for five years prior to the decedent's date of death.

The decedent must transfer the business to one or more qualified transferees, which include a spouse, lineal descendants, siblings, lineal descendants of a sibling, ancestors or a siblings of an ancestor.  Lineal descendants most likely includes stepdecedendants as well as adopted children. 

It is very important to note that the business must be held by the qualified transferee for seven years, or you will lose the exemption.  Accordingly, the Pennsylvania Division of Revenue will require that the transferee submit a form for each of those seven years to maintain the exemption.

This is the second time that Pennsylvania has changed its inheritance tax laws in the last two years as it most recently eliminated the tax of many family farms.  Both of these laws are designed to allow families to keep small businesses and farms without having to sell them off to pay the tax.  They are also designed to help people keep their jobs.

I will note that the law also makes dramatic changes to other tax laws, including requiring owners of out of state entities to report their Pennsylvania source income.

Tuesday, July 16, 2013

United States - Japan Estate, Inheritance & Gift Tax Treaty

My links to this have expired and it always takes me forever to find the treaty, so I'm going to reprint the whole thing here.  Hopefully it is accurate:



[Signed 4/16/54]


(1) The taxes referred to in the present convention are:

  (a) In the case of the United States of America: The Federal estate and gift taxes.

  (b) In the case of Japan: The inheritance tax (including the gift tax).

(2) The present convention shall also apply to any other tax on estates, inheritances or gifts which has a character substantially similar to those referred to in paragraph (1) of this Article and which may be imposed by either contacting State after the date of signature of the present convention.


(1) As used in the present convention:

  (a) The term "United States" means the United States of America, and when used in a geographical sense means the States, the Territories of Alaska and Hawaii, and the District of Columbia.

  (b) The term " Japan", when used in a geographical sense, means all the territory in which the laws relating to the tax referred to in paragraph (1)(b) of Article I are enforced.

  (c) The term "tax" means those taxes referred to in paragraph (1)(a) or (b) of Article I, as the context requires.

  (d) The term "competent authorities" means, in the case of the United States, the Commissioner of Internal Revenue as authorized by the Secretary of the Treasury; and, in the case of Japan, the Minister of Finance or his authorized representative.

(2) In the application of the provisions of the present convention by either contracting State any term not otherwise defined shall, unless the context otherwise requires, have the meaning which such term has under the laws of such State relating to the tax.

(3) For the purpose of the present convention, each contracting State may determine in accordance with its laws whether a decedent at the time of his death or a beneficiary of a decedent's estate at the
time of such decedent's death, or a donor at the time of the gift or a beneficiary of a gift at the time of the gift, was domiciled therein or a national thereof.

Article III

(1) If a decedent at the time of his death or a donor at the time of the gift was a national of or domiciled in the United States, or if a beneficiary of a decedent's estate at the time of such decedent's death or a beneficiary of a gift at the time of the gift was domiciled in Japan, the situs at the time of the transfer of any of the following property or property rights shall, for the purpose of the imposition of the tax and for the purpose of the credit authorized by Article V, be determined exclusively in accordance with the following rules:

  (a) Immovable property or rights therein (not including any property for which specific provision is otherwise made in this Article) shall be deemed to be situated at the place where the land involved is

  (b) Tangible movable property (including currency and any other form of money recognized as legal tender in the place of issue and excepting such property for which specific provision is otherwise made in this Article) shall be deemed to be situated at the place where such property is physically located, or, if in [transit], at the place of destination.

  (c) Debts (including bonds, promissory notes, bills of exchange, bank deposits and insurance, except bonds or other negotiable instruments in bearer form and such debts for which specific provision
is otherwise made in this Article) shall be deemed to be situated at the place where the debtor resides.

  (d) Shares or stock in a corporation shall be deemed to be situated at the place under the laws of which such corporation was created or organized.

  (e) Ships and aircraft shall be deemed to be situated at the place where they are registered.

  (f) Goodwill as a trade, business or professional asset shall be deemed to be situated at the place where the trade, business or profession to which it pertains is carried on.

  (g) Patents, trade-marks, utility models and designs shall be deemed to be situated at the place where the trade, business or profession to which it pertains is carried on.

  (h) Copyrights, franchises, rights to artistic and scientific works and rights or licenses to use any copyrighted material, artistic and scientific works, patents, trade-marks, utility models or designs shall be deemed to be situated at the place where they are exercisable.

  (i) Mining or quarrying rights or mining leases shall be deemed to be situated at the place of such mining or quarrying.

  (j) Fishing rights shall be deemed to be situated in the country in whose government's jurisdiction such rights are exercisable.

  (k) Any property for which provision is not hereinbefore made shall be deemed to be situated in accordance with the laws of the contracting State imposing the tax solely by reason of the situs of property within such State, but if neither of the contracting States imposes the tax solely by reason of the situs of property therein, then any such property shall be deemed to be situated in accordance with the laws of each contracting State.

(2) The application of the provisions of paragraph (1) of this Article shall be limited to the particular property, and any portion thereof, which without such provisions would be subjected to the taxes
of both contracting States or would be so subjected except for a specific exemption.


Where one of the contracting States imposes the tax solely by reason of the situs of property within such State, in the case of a decedent who at the time of his death, or of a donor who at the time of
the gift, was a national of or domiciled in the United States, or in the case of a beneficiary of a decedent's estate who at the time of such decedent's death, or a beneficiary of a gift who at the time of the gift, was domiciled in Japan, the contracting State so imposing the tax:

  (a) shall allow a specific exemption which would be applicable under its laws if the decedent donor, or beneficiary, as the case may be, had been a national of or domiciled in such State, in an amount not
less than the proportion thereof which (A) the value of the property, situated according to Article III in such State and subjected to the taxes of both contracting States or which would be so subjected except for a specific exemption, bears to (B) the value of the total property which would be subjected to the tax of such State if such decedent, donor, or beneficiary had been a national of or domiciled in such State;  and

  (b) shall (except for the purpose of subparagraph (a) of this paragraph and for the purpose of any other proportional allowance otherwise provided) take no account of property situated according to
Article III outside such State in determining the amount of the tax.


(1) Where either contracting State imposes the tax by reason of the nationality thereof or the domicile therein of a decedent or a donor or a beneficiary of a decedent's estate or of a gift, such State shall
allow against its tax (computed without application of this Article) a credit for the tax imposed by the other contracting State with respect to property situated at the time of the transfer in such other State and included for the taxes of both States (but the amount of the credit shall not exceed that portion of the tax imposed by the crediting State which is attributable to such property). The provisions of this
paragraph shall not apply with respect to any property referred to in paragraph (2) of this Article.

(2) Where each contracting State imposes the tax by reasons of the nationality thereof or the domicile therein of a decedent or a donor or a beneficiary, with respect to any property situated at the time of the transfer outside both contracting States (or deemed by each contracting State to be situated in its territory, or deemed by one contracting State to be situated in either contracting State and deemed by the other contracting State to be situated outside both contracting States or deemed by each contracting State to be situated in the other contracting State), each contracting State shall allow against its tax (computed without application of this Article) a credit for a part of the tax
imposed by the other contracting State attributable to such property.
  The total of the credits authorized by this paragraph shall be equal to the amount of the tax imposed with respect to such property by the contracting State imposing the smaller amount of the tax with respect to such property, and shall be divided between both contracting States in
proportion to the amount of the tax imposed by each contracting State with respect to such property.

(3) The credit authorized by this Article, if applicable, shall be in lieu of any credit for the same tax authorized by the laws of the crediting State, the credit applicable for the particular tax being
either credit authorized by this Article or credit authorized by such laws, whichever is the greater. For the purposes of this Article, the amount of the tax of each contracting State attributable to any
designated property shall be ascertained after taking into account any applicable diminution or credit against its tax with respect to such property (other than any credit under paragraph (1) or (2) of this
Article), provided, however, in case another credit for the tax of any other foreign State is allowable with respect to the same property pursuant to any other convention between the crediting State under the present convention and such other foreign State, or pursuant to the laws of the crediting State, the total of such credits shall not exceed the amount of tax of the crediting State attributable to such property computed before allowance of such credits.

(4) Credit against the tax of one of the contracting States for the tax of the other contracting State shall be allowed under this Article only where both such taxes have been simultaneously imposed at the time of a decedent's death or at the time of a gift.

(5) No credit resulting from the application of this Article shall be allowed after more than five years from the due date of the tax against which credit would otherwise be allowed, unless claim therefor
was filed within such five-year period. Any refund resulting from the application of this Article shall be made without payment of interest on the amount so refunded, unless otherwise specifically authorized by the crediting State.

(6) Credit against the tax of one of the contracting States shall not be finally allowed for the tax of the other contracting State until the latter tax (reduced by credit authorized under this Article, if any)
has been paid.


(1) The competent authorities of both contracting States shall exchange such information available under the respective tax laws of both contracting States as is necessary for carrying out the provisions
of the present convention or for the prevention of fraud or for the administration of statutory provisions against tax avoidance in relation to the tax. Any information so exchanged shall be treated as secret and shall not be disclosed to any person other than those, including a court, concerned with the assessment and collection of the tax or the determination of appeals in relation thereto. No information shall be exchanged which would disclose any trade, business, industrial or professional secret or any trade process.

(2) Each of the contracting States may collect the tax imposed by the other contracting State (as though such tax were the tax of the former State) as will ensure that the credit or any other benefit
granted under the present convention by such other State shall not be enjoyed by persons not entitled to such benefits.


Where representative of the estate of a decedent or a beneficiary of such estate or a donor or a beneficiary of a gift shows proof that the action of the tax authorities of either contracting State has
resulted, or will result, in double taxation contrary to the provisions of the present convention, such representative, donor or beneficiary shall be entitled to present the facts to the competent authorities of the contracting State of which the decedent was a national at the time of his death or of which the donor or beneficiary is a national, or if the decedent was not a national of either of the contracting States at the time of his death or if the donor or the beneficiary is not a national of either of the contracting States, to the competent authorities of the contracting State in which the decedent was domiciled or resident at the time of his death or in which the donor or beneficiary is domiciled or resident. Should the claim be deemed worthy of consideration, the competent authorities of such State to which the facts are so presented shall undertake to come to an agreement with the
competent authorities of the other contracting State with a view to equitable avoidance of the double taxation in question.


(1) The provisions of the present convention shall not be construed to deny or affect in any manner the right of diplomatic and consular officers to other or additional exemptions now enjoyed or which may hereafter be granted to such officers.

(2) The provisions of the present convention shall not be construed so as to increase the tax imposed be either contracting State.

(3) Should any difficulty or doubt arise as to the interpretation or application of the present convention, or its relationship to conventions between one of the contracting States and any other State, the competent authorities of the contracting States may settle the question by mutual agreement; it being understood, however, that this provision shall not be construed to preclude the contracting States from settling by negotiation any dispute arising under the present convention.

(4) The competent authorities of both contracting States may prescribe regulations necessary to interpret and carry out the provisions of the present convention and may communicate with each other directly for the purpose of giving effect to the provisions of the present convention.


(1) The present convention shall be ratified and the instruments of ratification shall be exchanged at Tokyo as soon as possible.

(2) The present convention shall enter into force on the date of exchange of instruments of ratification and shall be applicable to estates or inheritances in the case of persons who die on or after the
date of such exchange and to gifts made on or after that date.

(3) Either of the contracting States may terminate the present convention at any time after a period of five years shall have expired from the date on which the convention enters into force, by giving to
the other contracting State notice of termination, provided that such notice is given on or before the 30th day of June and, in such event the present convention shall cease to be effective for the taxable years beginning on or after the first day of January of the calendar year next following that in which such notice is given.

IN WITNESS WHEREOF, the undersigned Plenipotentiaries have signed the present convention.

DONE at Washington, in duplicate, in the English and Japanese languages, each text having equal authenticity, this sixteenth day of April, 1954.





Monday, July 1, 2013

Copyrights after Death of Author

If you are a writer, artist, musician, photographer or other professional who has created a copyrightable work, you should realize that you are creating an asset that should be carefully managed after you pass away.

The first thing that you should know is that if you have created a work after January 1, 1978, the copyright will generally last for another 70 years after you die.  This does not apply to works created under a pseudonym or published anonymously.  In those situations, the rule is that the copyright lasts for 120 years from creation or 95 years from first publication, whichever expires first. (Section 203 of Copyright Statute)

Under your Will, you may direct who inherits your copyrights.  Additionally, you may set up an "Intellectual Property Executor" to deal with such copyrights while a traditional executor handles your other affairs.  This may be important if management of your copyrights requires special business acumen.

Importantly, under the 1978 Act, the creater of a copyright who assigned the copyright has the right to rescind such assignment.  Additionally, if a loved one who has produced copyrighted material has passed away, the heirs or the executor may also have the right to rescind such assignment

If you are the heir to (or an executor of) an estate of someone who has produced any copyrighted works, please feel free to contact us so that we can help you determine what rights you may have.

Thursday, June 27, 2013

Affect of United States v. Windsor on NJ Same Sex Couples

After scrutinizing the United States v. Windsor decision yesterday a little more thoroughly, it occurs to me that same sex couples in New Jersey are still a state of limbo.  It should be noted that the Supreme Court relied on the fact that the couple in the Windsor case not only were legally married in Canada, but resided in New York, a jurisdiction that recognized the marriage. 

The Supreme Court left open the question as to whether a couple that is in a Civil Union (like in New Jersey) would be entitled to the same benefits as a same sex married couple and it also left open the question as to whether the federal government would have to recognize the marriage of a same sex couple that legally married in one jurisdiction and resides in a jurisdiction that does not recognize the marriage.

While New Jersey recognizes same sex marriages from other jurisdictions in New Jersey, according to the 2007 Opinion of Attorney General Stuart Rabner, it ONLY recognizes them as Civil Unions.  New Jersey does not currently allow same sex marriages.  Therefore, there is a real question as to whether the Windsor case will benefit same sex couples living in New Jersey, regardless of whether they entered into a Civil Union or were married in another jurisdiction.

To take the analysis a little further, the 2007 Opinion of Rabner was not meant to be restrictive, it was actually near the forefront at the time and designed to treat same sex couples as married couples, just using different terminology.  Moreover, New Jersey Statute 26:8A-6(c) specifically states: A domestic partnership, civil union or reciprocal beneficiary relationship entered into outside of this State, which is valid under the laws of the jurisdiction under which the partnership was created, shall be valid in this State.  This statutory language (which was written in 2003, one year before Massachusetts became the first state to allow same sex marriages) would seem to imply that the New Jersey should in fact recognize foreign same sex marriages.

Finally, the New Jersey Supreme Court has already issued an opinion in Lewis v. Harris, 188 N.J. 415 (2006), which held that New Jersey's State Constitution requires that same sex couples be afforded access to a government sanctioned relationship that provides all of the rights and obligations of marriage.  As a result, it is my opinion that if the federal government does not recognize New Jersey Civil Unions or it does not recognize the validity of the legal marriage of same couples living in New Jersey, New Jersey will be required to modify its statutes to allow for same sex marriages.

Perhaps the easiest and best way to test this is for a same sex couple to file a joint federal tax return and see if it is accepted...

Wednesday, June 26, 2013

Same Sex Couples Entitled to Unlimited Marital Deduction

In a landmark Supreme Court case today, United States v. Windsor, the Supreme Court ruled that the Defense of Marriage Act ("DOMA") was unconstitutional.  DOMA was signed into law in 1996 and defined marriage as between a man and a woman for purposes of federal law.  Importantly, this meant that same sex couples could not file joint tax returns and that a surviving same sex spouse was not entitled to a marital deduction (resulting in higher federal estate taxes).

As a result of this ruling, same sex couples who have married should immediately consider whether they should amend their federal tax returns for the last few years.  Consideration should also be given to whether your estate planning documents should be updated to reflect the change in the law.

The ramifications of this ruling are extremely broad, as it can affect immigration laws, the right to receive health insurance, the right to receive a pension, and Social Security.  All told, there are about 1000 laws that may be affected.

Importantly, it does not require that a state allow a same sex couple to marry.  Accordingly, in states where same sex couples are not allowed to marry, they will have to travel to another jurisdiction to get married in order to receive federal benefits.  (It is still slightly unclear at this point whether the state that the couples lives in must recognize the marriage to take advantage of federal benefits - I haven't had time to read the full opinion yet.  I will point out that New York allows same sex marriages and New Jersey recognizes same sex marriages from other jurisdictions*.  Pennsylvania and Florida have both enacted laws banning such recognition.)

Just a reminder though, strictly from a tax perspective, it does not always make financial sense to get married due to the "marriage penalty".  The marriage penalty is a called a penalty because it creates a higher tax on a married couple when both spouses work.  However, if one spouse works and the other does not, it does create a substantial tax benefit. 

*See post on the Affect of United States v. Windsor on New Jersey Same Sex Couples

Monday, June 10, 2013

A Trust can Qualify for a Section 121 Deduction (For Sale of a Personal Residence)

Typically, people take it for granted that there will not be any tax when they sell their personal residence.  Technically, there is a tax, but the government also offers a limited exclusion under Section 121 of the Internal Revenue Code.

For individuals who sell their primary residence, you can exclude the first $250,000 of gain.  After that, it is subject to a capital gains tax.  For married couples, you can exclude the first $500,000 of gain.

In order to qualify for the exclusion, you must have OWNED and USED the residence as your principal residence for 2 of the last 5 years ending with the date of sale (it does not have to be consecutively). If the home was previously used as a rental property, in a business or for another non-qualified use, there may be longer holding requirements or a reduced exemption amount.

One common estate planning tool that many attorneys create is a revocable living trust.  A revocable living trust, also known as just a Living Trust, is device to manage a person’s assets during life and after death. While the Grantor is alive, the Grantor can manage his or her trust funds as the Grantor wishes. When the Grantor passes, it acts like a Will but with the added benefit of avoiding probate.  If a person sets up a revocable trust, it is highly recommended to transfer all real estate into this trust, including the primary residence.

Another common estate planning tool, particularly for individuals doing Medicaid planning or VA benefit planning, is to move the primary house to an irrevocable trust, which is set up as an intentionally defective grantor trust (IDGT).  An IDGT is a type of trust that is outside a Grantor’s estate for estate tax purposes while simultaneously requiring the Grantor to be taxed on the income earned in the Trust.

Under Internal Revenue Code Treasury Regulation 1.121-1(c)(3)(i), if a residence is owned by a trust, for the period that a taxpayer is treated under sections 671 through 679 (relating to the treatment of grantors and others as substantial owners) as the owner of the trust or the portion of the trust that includes the residence, the taxpayer will be treated as owning the residence for purposes of satisfying the 2-year ownership requirement of section 121, and the sale or exchange by the trust will be treated as if made by the taxpayer.

So, the long winded answer to the question is, yes, if a trust owns a primary residence and it is set up correctly, it can qualify for the Capital Gains Tax Exclusion under Section 121 of the Code.

Wednesday, June 5, 2013

IRS FATCA Form 8938 and the FBAR Form TD F 90-22.1

For US citizens and US permanent residents, you must file Form 8938 (also known as the FATCA Form) if your overseas investment assets are above $50,000 for an individual or $100,000 for a married couple (filing jointly) at year end. Additionally, on any given day during the year if your assets are above $75,000 for an individual or $150,000 for a married couple (filing jointly), you will also be required to file the FATCA Form. (If you are married but file separate tax returns, follow the rules for an individual.)

For US Citizens living abroad, you must file the Form 8938 if your overseas investment assets are above $200,000 for an individual or $400,000 for a married couple (filing jointly) at year end. Additionally, on any given day during the year if your assets are above $300,000 for an individual or $600,000 for a married couple (filing jointly), you will also be required to file the FATCA Form.

The IRS has listed a helpful chart of what assets count towards the reporting threshhold.  Note, ownership of foreign real estate outside of the United States does not need to be reported on the FATCA Form if you own it directly, but it does need to be reported if you own it through a foreign entity.

The FATCA Form should not be confused with Form TD F 90-22.1 (FBAR). The FBAR form relates strictly to foreign bank accounts that hold more than $10,000 at any time during the year for ALL foreign bank accounts. This can be a real problem for individuals who own small accounts held in multiple countries that fluctuate greatly against the US Dollar. 

A good rule of thumb is that if must file a FATCA Form 8938, you should almost always be filing a FBAR Form as well.

The penalties for failure to file Form 8938 can be quite high. If you do not file an accurate Form 8938 in a timely manner, there is a $10,000 penalty.  If the IRS asks for a FATCA form and you refuse to comply, they may assess you with a $50,000 penalty for noncompliance.  Form 8938 should be filed along with your income tax Form 1040.

The penalties for failure to file the FBAR Form can also be quite high. If you do not file an accurate FBAR in a timely manner, they may assess up to a $10,000 penalty for each non-willful violation or the greater of $100,000 or 50% of the highest account balance for willful violations.  The FBAR must be filed by June 30th - there is no ability to extend this deadline.
Finally, other individuals subject to the US taxing authority may also be required to complete the FATCA form.

Receiving Gifts or an Inheritance from Relatives Overseas

If you live in the United States and receive a gift from a family member who lives overseas who is not a US citizen, you should be aware that the IRS requires the US beneficiary to file Form 3520 to report the gift.  You are also required to file Form 3520 if you are receiving money as part of an inheritance or a distribution from a foreign trust.

The requirement to report the gift, bequest or trust distribution kicks in for assets valued at more than $100,000.  All gifts, bequests and trust distributions received during the calendar year must be aggregated if they come from related parties.  So, if you receive $70,000 from your mother and $50,000 from your father (both of whom live in a foreign country and are not citizens of the US), you will be required to complete the Form 3520.  However, if you receive a gift of $95,000 from your parents and $10,000 from a friend, you will not have to report it.

Payments by a foreign person for qualified medical or tuition payments do not count against the $100,000 threshhold provided the payments are made directly to the health care provider or school.

The penalties for failure to file Form 3520 can be quite high.   If you do not file an accurate Form 3520 in a timely manner, you may be penalized 5% of the amount of the foreign gift for each month for which the failure to report continues (not to exceed a total of 25%).   The return is due when you file or income tax.

If you receive a gift of foreign property, money in a foreign bank account or a foreign business interest, do not forget that you may also need to file a IRS Form 8938 (FATCA Form) and the FBAR Form in addition to the Form 3520.

Finally, there are special rules for gifts from individuals who ceased to be a US Citizen or green card holder after June 16, 2008.  There are also special rules for gifts received from foreign corporations or foreign partnerships as gifts from those entities in excess of $14,723 (adjusted annually for inflation) must be reported as well.

Friday, May 24, 2013

Can an Attorney for an Estate who is also an Executor Double Dip?

I am frequently asked whether an attorney who is acting as an executor for an estate can receive both an executor's commission and legal fees for representing the estate.  Although this may sound like a conflict of interest, the short answer in New Jersey is yes, it is specifically allowed under New Jersey Statute 3B:18-6. 

As a practical matter, the attorney's fees are also subject to guidelines as to reasonableness. Unlike Pennsylvania and Florida, were it is common practice to charge a legal fee which is a percentage of the estate, in New Jersey, it is far more common to charge an hourly rate.  So, if an attorney charges a fixed fee, and there was not a lot of legal time involved, a court could reduce the attorney fee. 

Thursday, May 16, 2013

New Estate Administration Comedy

In the spirit of the great film, Brewster's Millions, Fox TV has come out with a new comedy called The Goodwin Games.  You can see the first episode on Hulu if you want.  I'm always a sucker for wacky Will scenarios, and this seems to fit right in.  It appears to be about a father who is trying to get his family together after he dies by making them fight over his fortune. The father set up a series of games for the children to play, and the winner gets the full inheritance.

Most likely it will turn out to be a nice twist on the traditional estate litigation that people often encounter in that instead of fighting it out in court, the heirs have to compete in various children's games (as well as get their lives in order) to be able to inherit anything at all. 

Monday, April 22, 2013

Major Changes to Tax Law in New Budget Proposal

Recently, President Obama announced his proposed budget for 2014.  Included in the budget are some major changes to the recently enacted "permanent" estate tax exemption laws.  If you recall, a few short months ago, a fiscal cliff deal was enacted that provided for a $5,000,000 exemption from the federal estate and gift tax (indexed for inflation).

Among the recommendations in the proposed budget include a return to a federal estate and gift tax exemption of $3,500,000.   This exemption amount would not be indexed for inflation.  There is also a recommendation to increase the tax rate on estates over the exemption threshhold from 40% to 45%.

Furthermore, the proposed budget recommends certain changes that would curtail the use of many popular estate planning options (particuarly Grantor Trusts and Dynasty Trusts). In particular, there would be restrictions on the ability to do a technique known as a short-term GRAT, and trusts longer than 90 years would be subject to a generation skipping-transfer tax again.

Other major changes include a cap on tax deferred retirement contributions, reducing future Social Security benefits by recalculating benefits under a chained CPI formula, a minimum alternate tax of 30% on households earning more than $1,000,000 per year, and capping itemized deductions at 28%.

It is unlikely that most of these changes will ever go into affect and is more likely an opening salvo in a negotiation strategy.  However, it does provide insight as to the types of taxes the President wants raise and the planning options that are in jeopardy.

Thursday, February 14, 2013

Creating a Trust for Personal Injury Settlement

Victims of a personal injury have many burdens to bear.  Most people can expect to deal with the stress of a lawsuit, loss of income, coping with with injuries and physical therapy.  However, one item that many people are not prepared to deal is a sudden influx of money from a settlement or trial verdict that good personal injury attorney will help them receive.

For some, they are just not used to handling large sums of money, and a traditional trust can be created so that the recepient of the money can handle it jointly with a trusted family member or potentially a corporate trustee.

For individuals who are disabled to the point where they will qualify for SSI and Medicaid, receipt of a large personal injury award will jeopordize a person's ability to qualify for government benefits unless that money is placed into a special needs trust. This type of trust is typically known as a First Party Special Needs Trust, a Self Settled Special Needs Trust or a (d)(4)(A) Trust. 

Administration of Special Needs Trusts can be very complex because those trusts are limited in what they can pay for by statute. Special Needs Trusts can generally 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. Additionally, cash should almost never be distributed to a beneficiary from the trust and there are special rules about a trust owning a home.

One very important rule about Special Needs Trusts is that the beneficiary of the trust, the victim of the personal injury, can never ever act as Trustee.  This means that just as you are receiving the money, you need to give up all control of it.  This is not an easy thing to do psychologically, especially if you know that the trust is going to be limited in what it can pay for. 

The goal at this point is to find somebody that you can truly trust to manage the money and look after the your best interests,  If you do not know of anyone, a good attorney should be able to help you find a corporate trustee or independent trustee that can be counted on.

Tuesday, January 8, 2013

Probate In New Jersey - When There Is A Will

One of the questions I frequently get is: What is involved with probate in New Jersey?

In some jurisdictions, I know attorneys go out of their way to help their clients avoid the probate process by creating trusts and titling assets so that they can be transferred automatically on death.  In New Jersey, probate usually is not that costly or difficult - at least compared to places like California, New York, Pennsylvania and Florida.

Part of the reason for this is that New Jersey requires attorneys to charge a reasonable fee, and not a percentage of the estate.  Additionally, the New Jersey does not charge much for filing a Will or for any other administration fees.  Moreover, in almost every county that I've had to deal with, the local Surrogate has been tremendously helpful in trying to assist us through the process.  I know I frequently call the Mercer County Surrogate's Office, which is a wealth of information.

So, going back to what is involved, each estate is highly unique.  However, here are some good steps to take:

1)  Deal with the family and make funeral arrangements.  An executor does not have to pay for the funeral.  Whoever pays can be reimbursed by the Estate later on.

2)  Identify valuable assets and the Will and secure them for safe keeping.  (This may include searching the house and possibly even changing locks if you think that someone may access the property unlawfully.)

3)  Identify the decedent's next of kin and obtain contact information for them.  You will need this when applying to be executor.

4)  After the Original Will has been found, identify who the Executor is. If the Executor is not alive or not willing to serve, steps must be taken so that a backup can be named.  If the Original Will cannot be found, there is a process for a having a copy approved by the Court.

5)  Take the Will to the Surrogate in the County where the Decedent resided.  Be aware that no Will can be probated in New Jersey until ten (10) days have passed since the Testator has died.  An Executor can go down to the Surrogate with all the paperwork within the first ten days, but the Letters Testamentary won't be released until that time frame has expired.

6)  Once the Executor receives Letters Testamentary (also known as Short Certificates), he can transfer assets from the name of the Decedent into estate accounts for the Decedent.  New Jersey automatically puts a lien on a Decedent's bank accounts, brokerage assets and real estate when a person passes away.  Banks will only release 50% of the assets to pay bills of the estate until they receive a tax waiver from the New Jersey Division of Tax.

7)  Shortly after qualifying as Executor, you must mail out a notice of probate to all people named in the Will AND all immediate next of kin, regardless of whether they are named in the Will or not.  This can be problematic if you wish to cut an heir out or cannot locate an heir.  I would also be a good reason to create an estate plan that will avoid probate.  If a charity is named as a beneficiary, then a notice must be sent to the Attorney General's office.

8) If the Executor did not already have access to a safe deposit box, he can do so at this point. 

9)  Within eight (8) month of the Decedent's date of death, the Executor must file a New Jersey Inheritance Tax Return and pay any taxes due.  Typically an inheritance tax return must be filed if assets are transferred to someone other than a spouse, civil union partner, child, grandchild, parent or charity.  There is a 3 year lookback.

10)  Within nine (9) months of the Decedent's date of death, the Executor must file a New Jersey Estate Tax Return and pay any taxes due.  A New Jersey Estate Tax Return must be filed if the TAXABLE estate is in excess of $675,000.  Note, the taxable estate can be different from the probate estate because the taxble estate may also include life insurance, retirement benefits, and joint accounts.  If the taxable estate is above $5,000,000 (indexed for inflation), a federal estate tax return must also be filed.  (It might be advisable to file this return in most situations on the death of the first spouse to pass on the Deceased Spouses unused tax exemption.) 

11)  The Executor must arrange for income tax returns to be filed and pay any taxes due. 

12)  The house must be cleaned and potentially sold or transferred.

13)  If there is real estate located in other jurisdictions, the Executor must do an ancillary probate.

14)  Other duties could include dealing with any business interests or intellectual property rights, assisting beneficiaries with any claims they might have for life insurance or retirement benefits, investigating the validity of claims against the estate and researching the proper title to assets.

15)  The executor should prepare an accounting for the estate.  This includes what the assets of the estate are, income, expenditures and distributions.  Unless the matter is contested, an informal accounting will usually suffice.

16)  Conduct child support searches on all beneficiaries.

17)  After the tax returns are filed and the estate receives tax waivers and all bills are paid, the Executor can transfer the assets of the estate as directed in the Will.

18)  Simultaneous with the transfers from the estate, an Executor should obtain a release and refunding bond.  This acts as a waiver to release the Executor from liability and a means by which the executor can retrieve the inheritance back in the event that new bills arise for the estate.

An executor is not required to hire an attorney to help out with an estate admistration, but it can make the process much smoother. 

Thursday, January 3, 2013

Estate Tax Portability Here to Stay

It occurs to me that other than a few minor modifications to the federal estate tax rate, very little has changed with respect to the law as it existed in 2012.  This means that estate tax portability is here to stay.  Portability is the term given when a surviving spouse receives a deceased spouse's unused estate tax exemption (also know as DSUE).  Whether or not portability would last under a new deal was a hotly debated topic. 

For anyone who has had a spouse die in 2012 and has been waiting to see what will happen with the law, it would be highly advisable to file a federal estate tax return (Form 706) to port your spouse's unused exemption amount.  Even if the surviving spouse does not have more than $5,000,000 in assets, it does not mean that his or her assets will not grow, that he or she will not win the lottery or inherit money from a wealthy relative before passing.

Additionally, as mentioned in an earlier post on same sex couples being entitled to the unlimited marital deduction, if you are in a same sex marriage, you should also considering filing a protective Form 706 as the state of the law is in flux right now.

Wednesday, January 2, 2013

Summary of Tax Law Changes 2013 (Fiscal Cliff Deal)

As you know by know, the Congress and the President have finally agreed to a fiscal cliff deal.  While I haven't had a chance to read all 157 pages of the American Taxpayer Relief Act of 2012 yet, here is what I can gather from most major news sources:

1) The federal estate tax, gift tax and the federal generations skipping transfer (GST) tax will continue to have $5,000,000 exemptions, indexed for inflation.  The estate tax, gift tax and GST tax exemption amounts were $5,120,000 for 2012.  It will be $5,250,000 for 2013 after the most recent inflation adjustment.  The highest rate will go up from 35% to 40%.  This is a permanent change to the law.

  Note: Technically there are mulitiple rates for estates under $5,250,000.  This will not affect most people, but it can affect non-resident aliens with significant assets in the US or people who are otherwise not entitled to the full estate tax exemption.

2)  The income tax rates for 2013 are:
                              Married Filing Jointly        Single
     10% Bracket    $0 - 17,850                       $0 - 8,925
     15% Bracket    $17,850 - 72,500              $8,925 - 36,250
     25% Bracket    $72,500 - 146,400            $36,250 - 87,850
     28% Bracket    $146,400 - 233,050          $87,850 - 183,250
     33% Bracket    $233,050 - 398,350          $183,250 - 398,350
     35% Bracket    $398,350 - 450,000          $398,350 - 400,000
     39.6% Bracket $450,000 and up              $400,000 and up

    The change here was an increase in the top rate for married couples earning $450,000 or more and individuals earning $400,000.  For Head of Household, I believe it is $425,000.  The amounts here have been indexed for inflation for 2013.

3) Payroll taxes will increase to 6.2%, reverting back to the levels of 2010.

4) There will also be a phaseout of personal exemptions for individuals earning more than $250,000 and couples earning more than $300,000.  Head of Household limit is $275,000.  These appear to be indexed for inflation.

5)  Permanently indexes Alternative Minimum Tax (AMT) for inflation.

6)  Capital Gains Tax Rates for 2013 go from 15% to 20% for individuals earning $400,000 or more and couples earning $450,000 or more.  It will stay at 15% for everyone else.  (Caveat:  It is unclear to me at this stage whether the $400,000 & $450,000 threshhold refers to all earnings or simply earnings from dividends and capital gains.)

7) Extenstion for 5 years of the child tax credit and $2,500 tax credit for college tuition.

8) Extension for 1 year of the accelerated "bonus" depreciation on business investments.

9) Extension of tax free distributions from individual retirement plans for charitable purposes.

In other news, the 2503(b) annual exclusion amount was will increase from $13,000 to $14,000 as it was indexed for inflation.  This is not as part of the Fiscal Cliff deal.

Revised on January 11, 2013. Indexing brackets for inflation.