Why You Should Have A Will

I am happy to announce that we have finally finished creating a series of short videos regarding the estate planning and estate administration process.  Here is our first video on the importance of having a Will.

Why Repeal of the NJ Estate Tax Means Married Couples Should Update Their Wills

Effective January 1, 2018, New Jersey repealed its estate tax.  The question then become how does this affect you and do you need to do anything about it?  For most people the change is a positive one because it means their heirs pay less taxes and they do not need to do anything to update their documents.

Generally, You are Unaffected by the Repeal of the NJ Estate Tax If...

1. You do not have children and plan on leaving money to siblings, nieces, nephews, friends or charity.
2. You are NOT married but have surviving descendants.
3. You are married couples with children and you plan to leave everything outright to your surviving spouse on the first to die.

In all three situations above, the repeal of the New Jersey estate tax should not affect you and you generally will not need to update your Will or Revocable Living Trust.*  In the first situation, if you are leaving money to siblings, nieces, nephews and friend, be aware that NJ did NOT repeal its inheritance tax, so you still are affected by that.

For married couples who have a Disclaimer Trust plan, your documents are also generally unaffected.

Repeal of the NJ Estate Tax Can Dramatically Affect Married Couples Who Set up a Trust for the Surviving Spouse

To understand why the repeal of the New Jersey Estate Tax can adversely affect married couples who set up a trust for the surviving spouse, I will take a step back to discuss why we often recommend a trust be created for a surviving spouse.

Reasons to Create a Trust for a Surviving Spouse

1. The first spouse to die wants to ensure that if the surviving spouse gets remarried, the children are protected from future spouse and still receive an inheritance.
2. You have children from a previous relationship and want to ensure that upon the death of your spouse, your children receive whatever is left over.
3. The surviving spouse isn't good with money and needs assistance managing the wealth.
4. Estate Tax Efficiency - Prior to 2017, New Jersey had a ‘use it or lose it’ state estate tax exemption of $675,000.  

Why Was It Tax Efficient to Create a Trust for a Surviving Spouse

Protecting money for the benefit of the your children or from a spendthrift spouse are still very valid reasons to set up a trust, so I will spend the rest of the article talking about how trusts for a surviving spouse in older Wills and Revocable Trusts are usually no longer tax efficient.  

Let's presume it's 2016 and we have a married couple with $1,350,000 of assets.  One spouse dies leaving everything to survivor outright.  The surviving spouse then dies shortly after leaving everything to the children.  In this scenario, we would lose the NJ estate tax exemption of the first spouse to die and the children would only benefit from the $675,000 NJ estate tax exemption of the Surviving Spouse.  Assuming no growth in assets, the children inherit the full $1.35M, but $675,000 would be subject to a tax of almost $55,000.

To minimize the NJ estate tax, attorneys would advise clients to set up a trust for the surviving spouse instead of having funds go outright.  So, in the example above, when one spouse dies, he could leave everything to a trust for the survivor.  The surviving spouse then dies shortly after leaving everything to the children.  In this scenario, by funding a trust for the surviving spouse, we are utilizing each spouse's NJ estate tax exemption.  Upon the death of the surviving spouse, children would receive $675,000 from the trust tax free and the other $675,000 from the surviving spouse tax free.  This type of planning could easily save $55,000 in NJ estate taxes.

Funding a Trust for the Surviving Spouse May Be Tax Inefficient after the Repeal of the NJ Estate Tax.

Now that you know why it was advisable to set up a trust for a spouse and why it was tax efficient, you need to know why most older trusts should be amended.  Basically, now we can make it even MORE tax efficient.  This time, however, we are not talking about estate tax efficiency - now we are trying to make the trusts more efficient for income tax and capital gains tax purposes.  Let me give you two examples again:

Let's presume it's 2010 and we have a married couple with $1,350,000 of assets.  Dad dies leaving everything to Mom.  Mom lives another 20 years before dying and leaving everything to the children.  Since Mom lived another 20 years, let's presume the assets grew by $1M and were now worth $2,350,000. We do not have to worry about the NJ estate tax anymore, so the assets would go to the children completely free tax.  Additionally, when the children receive their inheritance, it is eligible for a step-up in basis.  This means that the children can effectively sell their inheritance the day after Mom dies and pay no capital gains tax on the $1M+ of appreciation.  (Please read this post to better understanding basis.)  

Now, let's presume the same facts as above except that when Dad died, he left $675,000 to Mom in trust.  Let's also presume that the trust received the benefit of all the appreciation, so that when Mom died, she had $675,000 in her own name and $1,675,000 in trust.  The children would still receive a step-up in basis from the $675,000 in assets that came from Mom, but the basis in the trust fund assets would only be $675,000 (the value on Dad's date of death).  So when the children sold the assets that were in the trust, there would be a capital gains tax (up to 23%) on the $1M.  

Most older Wills and Revocable Trusts used this formula for a trust for a surviving spouse, so hopefully it is easy to see why it is no longer tax efficient to continue using it.

Do I Need to Update My Estate Planning Documents?

If you have a Will or Trust created prior to 2017 leaving money in trust to a surviving spouse, the short answer is probably yes.  The one major exception to this is if you have a Disclaimer Trust plan.  If money goes outright to the surviving spouse, and the survivor has to make an affirmative election to fund a trust, then the plan most likely is fine the way it is written.

How You Can Fix Your Older Trusts

If you have an estate plan that automatically leaves money in trust for the surviving spouse, there are two easy ways you can fix it so that it is more tax efficient. 

1. Option one is to get rid of the trust for the surviving spouse and leave everything to the survivor outright.  This is an easy solution when the estate isn't very large or complex.  However if you are in a second marriage situation or if you are concerned about the surviving spouse getting remarried or spending away the children's inheritance, then you should consider the second option.
2. Option two is to revise the formulas in the Will or Trust so that it gets a step-up in basis when the surviving spouse dies.  (There are hundreds of ways to do this which are far beyond the scope of this post.)

To further complicate things, most tax attorneys like me will also build in a fail-safe so that if the NJ estate tax comes back, we can have the option of funding an old-style trust.

Conclusion 

If you have an older Will or trust that leaves money to a surviving spouse in trust - have it looked at.

* Regardless of whether you have a trust for a surviving spouse, always have your own estate planning documents reviewed by your attorney just to be sure it matches your wishes and still complies with state law.  The purpose of this blog post is to discuss who is most likely to be affected by the repeal of the New Jersey estate tax.

Why Titling Of Assets Is So Important In Second Marriages

I was talking to another estate planning recently and discussing how much of our work involves assisting clients who have blended families.  Blended families generally refers to clients who are married but at least one of the spouses has a child from a previous relationship.

In comparing stories and ways that we can assist clients, we discovered that the biggest hurdle that we face is with respect to titling of assets.  To understand the problem, you must realize that the following are examples of things generally trump whatever you put in your Will or Trust:

1. Life insurance beneficiary designations;
2. IRA/401k/403b and other retirement beneficiary designations;
3. Annuity beneficiary designations;
4. Owning real estate as husband and wife;
5. Owning real estate with a survivorship clause;
6. Owning real estate with a life estate;
7. Having someone on your bank account as a Pay on Death (POD) or Transfer on Death (TOD) beneficiary;
8. Owning a bank account or brokerage account jointly with someone;
9. Contractual agreements (such as a buy-sell agreement or divorce decree);
10. Joint ownership of cars and other vehicles; and
11. Joint ownership of bonds.

So, to put this another way, if you have two children from a previous relationship and are married to a new spouse, you may want 1/3 to go to each of your two children, and 1/3 to your spouse.  Well, even if you have a Will which says 1/3 goes to each person, this will not happen if some of your assets name a beneficiary or are in a joint account with someone.

Let's say in the example above Husband is the parent to 2 children and he owns the following:  A $400,000 house in New Jersey with Wife (who has no children), a $1,500,000 apartment in New York in just his name, a business worth $10,000,000 owned 70/30 with a partner, a 401k worth $3,000,000 naming his wife the beneficiary, a life insurance policy worth $1,000,000 naming his wife as a beneficiary, a brokerage account in his name worth $2,000,000 and a checking account with Wife worth $100,000.   Accordingly, the Husband has a net worth of $15,000,000.  (I'm only including $7M of the $10M business.)  It is Husband's desire to give $5M to each.

Without any additional planning and assuming that Husband and business partner have no agreement in place, a Will that leaves everything 1/3 to each child and Wife has the following consequences:

1)  The Wife would get the NJ house, the 401k, the life insurance, plus the joint checking account for a subtotal of $4,500,000.  Additionally, she would receive 1/3 of everything else (another $3,500,000) for a total of $8M.
2)  Each of the kids would receive $3,500,000 of assets - far less than what H intended.
3)  The business would be owned 23.33% by each of the children, 23.33% by the Wife and 30% by the business partner.

Unfortunately, however, life is usually even more complicated than this!  Frequently, there is a divorce agreement that might require that the life insurance be payable to the children.  Sometimes either the surviving spouse or the child is named as executor - and then the surviving spouse does not get along with the children.

Because these situations are so complex, they are very likely to result in estate litigation.  To minimize the costs of an expensive an hostile administration, it is very important to understand that title of assets frequently overrides what a Will or Trust might state and plan accordingly.

Do I Need An Attorney To Prepare A Simple Will?

I occasionally get asked if it is really necessary to hire an attorney to prepare simple estate planning documents.  Usually, the answer is NO, however, I find that once I start asking a few questions, most people really don't need a simple Will and they would be much better served with professional guidance.

Let me take you through some of the questions that I ask to determine whether it is worthwhile to engage legal counsel:

1) Do you have children from a previous marriage?  If so, I strongly recommend that you hire an attorney.
2) Do you minor children?  Most likely you would benefit from professional advice.
3) Are you wealthy?  If you have less than $300,000, I would say you probably would not need an attorney. Between $300,000 - $500,000 is maybe.  Between $500,000 to $2,000,000 is probably.If you have over $2,000,000, I strongly recommend that you hire an estate planning attorney with a masters in taxation.
4) Do you wish to leave money to a person with special needs child, drug/alcohol problems, going through divorce, bad with money or might otherwise require special instructions?  If so, I strongly recommend that you hire an attorney.
5)  Are you leaving money UNEQUALLY to your children or are you cutting out one of your next of kin?  If so, I strongly recommend that you  hire an attorney.
6)  Do you have concerns that your next of kin might fight over your inheritance?   If so, I strongly recommend that you hire an attorney.
7)  Do you plan to leave more than a token amount to charity?  If so, I strongly recommend that you hire an attorney with a masters in taxation.
8)  Do you plan to leave different types of assets to different people?  (For example, a business to one child, one piece of real estate to another child, and an IRA to a third child)  If so, I strongly recommend that you hire an attorney.
9)  Do you intend to leave money to a pet?  Yes - serious question for some and if you do, I recommend using an attorney.
10) Do you own any unusual items that have value (such as artwork, intellectual property, family heirlooms)?  If so, you probably wish to hire an attorney.
11) Do you own assets in more than one jurisdiction?  If so, I recommend using an attorney.
12) Are you elderly and worried that you may need to spend significant time (over 2 years) in a nursing home?  Then you should probably meet with a Medicaid attorney.
13) Where do you live?  In some states, probate is an absolute nightmare, so even with a small amount, you might wish to hire an attorney to help you avoid probate.

So what do I consider a simple situation?  Generally it is a person who has less than $300,000 of traditional assets, has responsible adult children who all get along, and the testator wishes to leave everything outright to those children in a probate friendly state.  Most others could basically save time or money with professional advice.

The Difficulty of Porting a Deceased Spouse's Unused Exemption Amount in Second Marriage Situations

Many estate planning commentators have joked that estate tax portability will lead to rich individuals marrying others simply to make use of their estate tax exemption.  I have found, in practice, that planning can be far more complicated.

Let me take you through a common situation that I am dealing with:
1) I represent a wealthy person (let's say $10M+) who is married to someone not as well off, but not poor (about $1M);
2) Each spouse has children from a previous marriage; and
3) The spouse who has less money has no real desire to give money to the surviving spouse and wants everything to go to his/her children.

I'll call the wealthy person Wendy and the less wealthy spouse Harry.  In a situation like this, if Harry dies first, and leaves his entire $1M to his children, then he will only have used up $1M of his $5.43M federal estate tax exemption.  Wendy is entitled to receive the Deceased Spouse's Unused Exemption Amount (DSUEA) of $4.43M.  This concept is known as portability and would increase what she can pass on to her children tax free from $5.43M to $9.86M - an estate tax savings of $1,772,000.

Now, if Harry is leaving everything to his children, it is likely that one of them is the Executor, and not Wendy.  This is important because the only way for Wendy to receive the DSUEA is for the Executor of Harry's estate to file a federal estate tax return.  Harry's executor might not want to incur the trouble or expense of filing a return that does not benefit them in any way.  After all, there is no need to file the federal estate tax return if the estate is less than $5.43M.

If Wendy gets along well with the Executor, she can agree to pay for the return, but that is no guarantee.  The safest approach to ensure that Wendy has access to Harry's DSUEA is to get Harry to redo his Will and make a specific bequest of his DSUEA to Wendy AND require the executor to file the federal estate tax return (or do whatever is necessary to ensure that the wealthier spouse actually gets to port his unused estate tax exemption amount).

Harry can of course require that Wendy pay for all costs associated with such return, which I would imagine she would be happy to do.  After all, a federal estate tax return, even on the expensive side, is likely to save Wendy's heirs millions of dollars.

Duty of Executor to Defend a Will Against a Will Contest in Pennsylvania

In most states, when a person is named as an executor in the Will, the executor has an affirmative duty to defend the Will from Will contests.  For example, if mom dies testate leaving her entire estate to child one, cutting out child number two, and child number two sues to say the Will is result of undue influence, the executor would be obligated to defend the validity of the Will and could hire an attorney using estate assets to aid in the defense.  Unless the executor caused the undue influence, he would not be personally liable to the estate for the cost in defending the validity of the Will.

Pennsylvania law is quite different from most other states in that while an executor is a necessary party to a contest involving the Will, the executor is generally not a party in interest who has standing to instigate a contest or to appeal a decree of distribution. (In re Estate of Fleigle, 664 A.2d 612, 444 Pa Super. 632 (1995))  An executor who has not been surcharged or is not required to distribute an amount larger than the total assets of the estate has no standing to except to an adjudication of the auditing judge regarding payment of claims against an estate unless the executor is also a residuary beneficiary of the estate.  (Appeal of Gannon, 428 Pa. Super. 349, 360-61, 631 A. 2d 176, 181 (1993))  The executor is entitled to notice and may then elect whether to become a party (Royer’s Ap. 13 Pa. 569; Yardley v. Cuthbertson, 108 Pa. 395, 445-448), although if he does become a party his costs and counsel fees must be paid by him or those who authorize him, not by the estate.  (Faust Estate, 364 Pa. 529 (1950))

The Faust case is extremely important because it shifts the burden for payment of legal fees from the estate to the executor personally if the executor decides to insert himself or herself into a Will contest.  Additionally, if executors engage in an act that is beyond their scope as representatives of an estate, they risk losing their executor's commission.

Pennsylvania law does have a few exceptions for when an executor can get involved in a Will contest.  An exception exists where a testator directs or imposes a duty on the executor to defend the Will against contests.  (Bennett Estate, 366 Pa. 232 (1951); See also:  Tutelea Estate, 4 Pa. D. & C. 3d 199 (1974))  Another exception to the Pennsylvania rule is where the executor is also a trustee and is required to defend the trust.  (Fetter's Est., 151 Pa.Super. 32, 29 A.2d 361 (1942)).

We also need to differentiate cases where an executor is being sued for his services as executor.  (Browarsky Estate, 437 Pa. 282 (1970))  Because the executor is placed in the position to be sued because of duties he had performs for the estate, it would be unjust to require him personally to bear the reasonable costs of the defense of suits brought against them solely by reason of their positions as executors. "It is well established that whenever there is an unsuccessful attempt by a beneficiary to surcharge a fiduciary, the latter is entitled to an allowance out of the estate to pay for counsel fees and necessary expenditures in defending himself against the attack [citing cases]." Wormley Estate, 359 Pa. 295, 300-01, 59 A.2d 98, 100 (1948). Accord: Coulter Estate, 379 Pa. 209, 108 A.2d 681 (1954).

Finally, there is very old case that stands for the proposition that: “The executor propounding a Will for probate, acting in good faith, is entitled to costs out of the estate, whether probate is granted or refused.”  (Ammon’s Appeal, 31 Pa. 311).  I note that I can’t find the case, only a cite in a treatise, but I believe this to still be good law if the executor does not get involved in a Will contest.

If an executor uses estate assets to pay for legal fees related to a lawsuit against himself or because the executor impermissibly got himself involved in a Will contest, a judge can surcharge counsel of an estate or counsel for an executor. (Faust)

The rationale behind the Pennsylvania case law is that a Will contest is between the testamentary beneficiary and the heirs or next of kin, therefore the executor should not waste estate assets on their dispute.  The rationale behind the rules in most other states presumes that the testator wrote the Will the way he or she wanted it and the executor should try to uphold the testator's intent.

From a practical point of view of estate administration attorneys, we need to consider three things.  One, we need to understand the source of the money from which we are getting paid and keep track of it. If we are paid from the estate for a Will contest or for an objection to an accounting, we may be required to give the money back to the estate.  Personally, we always ask for a retainer from a proposed executor before they have qualified executor.  Accordingly, they are paying me with their own money and getting reimbursed from the estate later.  Also, attorneys should put language in their retainer agreements stating that the proposed executor is personally liable for the legal work if he cannot qualify as executor or if we wind up doing work for the executor in an individual capacity.

Second, in the event of a Will contest or an objection to an accounting, attorneys should track their time separately.  Time spent on the Will contest or an objection to an accounting should be differentiated from time spent administering the estate.

Finally, attorneys should consider whether they want to draft their estate planning documents in a way to change the default rules regarding an executor's duty to defend the Will.  Personally, I think that it makes more sense for an executor to use estate assets to defend the integrity of a Will and that the executor shouldn't be personally liable absent gross negligence, willful misconduct or bad faith. After all, some beneficiaries might not have the resources or the mental capacity to act in their own best interests.
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Thanks to Pierson W. Backes, Esq. for his help with this article.

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.

Estate Administration and Bad Credit

Everybody knows that good credit is important for receiving favorable financing terms when buying a car or a house. Let me give you another reason to keep your credit up: the ability to act as administrator of the estate of parent or loved one.

When a person passes away without a Will, the closest next of kin can petition the Court to act as Administrator for the decedent's estate. The Court will usually agree to let the next of kin act as Administrator provided that they agree to pay for a Probate Bond. A Probate Bond is basically an insurance policy that insures provides the intestate beneficiaries and creditors of the estate with a way to receive some money in the event the Adminstrator absconds with the funds.

The Court will require a probate bond in almost all situations in which the decedent dies without a Will. A person can only qualify for a Probate Bond if he or she has good credit or significant assets to their name.

Obviously, the way to avoid this situation is to make sure your parents and loved ones prepare a Will which states that no bond is required. However, you find that you are involved in an estate administration in which the decedent did not prepare a Will, before you spend a lot of money trying to qualify as an Administrator, Executor or Trustee, make sure you have good credit.

Understanding What "Per Stirpes" Means

Sometimes it's easier not to reinvent the wheel. Back in 2006, Debra M. Simon, CPA wrote an excellent article about Understanding the Pitfalls of Beneficiary Designation Forms. Included in that article is a clear explanation what it means to name your issue, "per stirpes" compared to naming your issue, "per stirpes by representation" as beneficiaries under a retirement account, Will or life insurance policy.
I strongly recommend anyone who has more than one child read this article because if one of your children passes before you, you may inadvertently be cutting your grandchildren out of your estate plan.
Thank you to Robert Kenny, Esq. for bringing this article to my attention.

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.

Special Needs Planning in NJ - Part 3 of 4

ESTATE PLANNING FOR A SPECIAL NEEDS CHILD

In Part III of this Series, I want to discuss estate planning issues for parents of a special needs child.

A typical estate plan for parents without a special needs child includes:

1. Will;
2. Financial Power Of Attorney;
3. Health Care Power of Attorney;
4. Advanced Health Care Directive; and
5. Naming Beneficiaries of Retirement Plans.

The parent of a special needs child must also do everything possible to avoid giving money outright to the Special Needs Child. This includes arranging for care and financial resources for the Special Needs Child.

In order to do everything possible to avoid giving money outright to the Special Needs Child, there are certain steps that can be taken:

1) Setting up a special trust for the Special Needs Child that will not be counted against the child's income for purposes of eligibility for government programs;
2) Redoing beneficiary designation notices on life insurance contracts and retirement plans; and
3) Telling family members to either leave money to a special needs trust for the child or specifically exclude the Special Needs Child from their Wills.

There are also specific arrangements that need to be made to ensure that your special needs child is cared for after your passing. This includes:

1) Arranging for a guardian to be named for the Special Needs Child;
2) Arranging for government services (SSI, SSDI, Medicaid, etc.); and
3) Arranging for living arrangements for the child.

Parents of special needs children always have a lot to deal with, but much of this planning should be done shortly after you find out that you have a child with special needs. Most importantly, life insurance planning should be done as soon as possible. If you wait too long, you may no longer qualify for insurance - and special needs parents, more than most, need to guarantee that money will be there after they pass.

Weird Wills

I happened to come across this interesting site at www.trutv.com which has a section that posts "Weird Wills". As a bit of a practical joker, I think my favorite is the Will of Charles Vance Millar.

Speaking of unusual Wills, if you haven't seen the movie "Brewster's Millions" - I highly recommend it as it deals with three subjects I love - baseball, estate planning, and practical jokes.

Why Should I Hire an Estate Planning Attorney?

The short answer is: control. Proper estate planning is essential to controlling how much of your estate you pass on, to whom you pass it on, and when it is passed on. Back in March, I listed the Top 10 Reasons to Have a Will. However, not only should you have a Will, but in most instances it should be drafted by a qualified estate planning attorney.

“Do it yourself” will kits seem easy enough, but they can’t advise you. If you have children and will be naming guardians or setting up trusts, you need the advice of someone who knows the intricacies of estate planning laws. While providing for your children's protection, you need to consider how your money will be transferred to them. Who will control the money until the kids are old enough to take care of it themselves? Will they get staggered amounts as they hit certain milestone birthdays, or get it all at once? What if one of your children is a spendthrift (i.e. a reckless spender)? In this day and age, the issue of blended families can make drafting a will for your loved ones even more complicated. However, an estate planning attorney can not only draft a Will to provide for your wishes, but can also serve as a counselor, suggesting customized trusts that can be used to provide for your spouse and children on various levels. An estate planning attorney can even set up trusts that direct assets to someone other than family in a way that ensures your family has access to the money when that non-family member no longer needs it.

Moreover, tax and trust planning go hand in hand and should be considered simultaneously. In order to maximize how much of your estate stays intact and is passed to your family, you need to minimize the amount paid to the government and maximize the investments held in trust. This requires a considerable amount of coordination among your assets. In order for the trusts to work as intended, all assets must be accounted for, both at the time the trust is established and moving forward. I’ve written before about tax exemptions, but the short version is that if your estate is properly planned, you (and your heirs) can potentially avoid tax liability altogether.

So - pardon the pun, but if there is anything even remotely complicated about your plan, then a do it yourself Will will not do. Finally, this area has become some complex due to the ever changing tax laws, you really do want to have someone who does this work frequently, otherwise you really are just paying an attorney to fill out a Will kit for you.

Written by: Nancy McMillin & Kevin Pollock

Should I Tell My Family About What's In My Will?

I must say, I get this question quite a bit. Accordingly, I was very happy to read this article in the New York Times discussing the benefits of an open and honest dialogue with your heirs about the inheritance that they should expect.

Many older clients feel that their kids should learn about their inheritance the same way that they did - only after the surviving parent died. There are several good arguments why clients tell me that they don't want their children to know about their inheritance, with sloth being the biggest one. They want their children to work hard and not rely on getting a large sum of money.

I, however, must generally agree with the article written by David Cay Johnston. I have always felt that, except in limited circumstances, it is usually better to advise your family of what they should expect. I have seen too many estates go into litigation because the elder parents did not properly advise their heirs of their testamentary plans. This is especially true when their is an unequal distribution or if the decedent had been married more than once.

Now, this does not mean that you need to give all the details, and certainly many of the details should be age appropriate. For example, I would tend to advise against telling a 19 year old that he will be inheriting a million dollars, but it would be OK to tell him that his disabled sister or his step mother will have special trusts set up for them. On the other hand, once a client has children over the age of 45, unless the children have medical or psychological problems, there is usually very little reason to keep this kind of information secret.

As with many things in life, there is a sliding scale of what is appropriate and what needs to be mentioned to the family. At a minimum, I request that parents who do not leave their money in a traditional fashion write a letter explaining why they did what they did. I usually do not like to put the reasons themselves in a Will as that is a public document and someone may get offended.

So what do I tell clients who are still worried their children will become lazy if they inherit a lot of money? I tell them to advise their children that they can always change their Will to give the money to charity if the children do not earn their inheritance. Financial incentive can be a power motivating force - and that they can consider it a bonus for a "job" well done. (Note, If a client has multiple children, I do not recommend that a client say he or she will give all their money to only one kid. It is better to say you will give that undeserving child's share to charity or the undeserving child's children, otherwise the anger that the disinherited child feels will be directed at his or her sibling.)

Top Ten Reasons to Have a Will

1. To determine who gets your money (Naming beneficiaries)

2. To determine guardianship (Saying who will take care of you children)

3. To determine who controls the money (Naming of executors and trustees)

4. To minimize estate or inheritance taxes

5. To avoid the cost of an insurance bond (If you do not allow for an executor or administrator to serve without paying for an insurance bond, the court will require one. In New Jersey, this can cost your heirs $500 for each $100,000 of assets you leave them)

6. To develop a trust for your heirs (This controls the timing of payout to beneficiaries)

7. To specify the authority of the Executor and Trustees (E.g. should they run a business, sell your property, or keep certain stocks?)

8. To determine who pays estate taxes (you can actually specify this and frequently should)

9. It provides for a quicker probate process

10. It clarifies your living intentions after your death (in other words, it maximizes the chance that your heirs will respect your wishes)

Revocable Inter Vivos Trust (a/k/a the Grantor Trust)

The Revocable Grantor Trust is a favorite of practitioners who wish to help their clients avoid probate. The other advantage to the trust is that for individuals who wish to keep their family secrets out of the public domain, it provides a means to keep their estate planning wishes private.

1. The major benefit of the Grantor Trust is that it provides a method for managing the Grantor’s assets, which is particularly useful in the event of incapacity.
2. It is valuable for clients who are not sure if they plan to stay domiciled in New Jersey and may move to a part of the country where avoiding probate is of utmost importance.
3. Planning considerations

a. When transferring real property into any trust, there is a cost associated with the transfer. Additionally, there may be real estate transfer fees and if there is a mortgage on the property, the mortgage company may have an issue with the transfer.
b. Under Revenue Ruling 85-45, the sale of a person’s principal residence held in trust qualified for the I.R.C. §121 capital gains tax exclusion provided the person and trust otherwise qualified for the exclusion.
c. Probate of property in New Jersey is not as expensive or time consuming as in other jurisdictions, so the cost of establishing the trust may not always be justified.

4. Tax aspects

a. While the Grantor is alive, this trust will be ignored for tax purposes and taxed to the Grantor. The trust may also use the Grantor’s social security number until this time.
b. Upon the death of the Grantor, the taxation of the trust will be dependent upon the terms of the trust. A new tax ID number will usually be appropriate.

5. Administration

a. During the life of the Grantor.

1) The administration of Grantor trusts is quite simple while the Grantor is alive as the Grantor who acts as his own Trustee generally has complete control over all the assets as if he owned the assets outright.
2) At any time a Grantor may terminate (or revoke) the trust and receive all of his assets back. This may be especially useful if there is a third party Trustee who is not doing what the Grantor wants.
3) All bank accounts and titling of assets should be made as follows: “[Trustee Name], as Trustee of the [Trust Name]”.
4) To avoid confusion, a Trustee should always indicate when he or she is acting on behalf of the trust rather than in an individual capacity. Accordingly, checks, letters and any other documents should be signed as Trustee.

b. Upon the death of the grantor, the trust turns into an irrevocable trust. The administration will be dependent upon the actual terms of the trust instrument.

1) Unlike trusts created under a Will, the Trustee does not need to acquire Letters of Trusteeship from the Surrogate. This is both a time saver and a small cost saver.
2) Summaries of various common irrevocable trusts to be discussed later.

Reasons for a Will

1. General Benefits
   a) Ensures a clear WRITTEN clear plan for the distribution of assets after your death
   i. Provides proof of plan
   ii. You get to choose who serves as executor, trustee and guardian
   iii. A clear plan can help avoid infighting amongst surviving family members
   

   b) Important means of ensuring that money will go to whom you wish it to go rather than according to state law
   c) Eliminates need for Insurance bond for Trustees and Guardians (Savings of approximately $500 for every $100,000 that the estate is valued at)

   
   
2. Establish trusts for your children/grandchildren
   a) Minors – allows for both discretion over distribution and control over timing of distributions
   i. Tiered distribution – traditional means of giving money to children (age 21, 25, 30)
   ii. Dynasty trusts – stays in family blood forever if funded with enough money.
   

   b) Problem children – can give trustee discretion as to when to distribute money out

   
   
3. Flexibility
   a) A Modern Will should allow for a great deal of flexibility because of the ever-changing tax laws.
   i. Regardless of whether a Testator’s estate goes up or down, the will should contain formulas to take into account the current state of the tax laws and future anticipated changes.
   ii. Ability to take into account State Tax laws in conjunction with Federal Tax Laws
   

   b) Trustee provisions - Many problems occur when beneficiaries are stuck with trustees whom they cannot remove. A modern Will should have the ability for trusted beneficiaries to replace trustees and appoint independent trustees to allow for invasion of principal to beneficiaries in a way that will not produce adverse tax consequences.
   c) Post mortem planning - A will should allow for the surviving spouse or an independent executor to do planning after the death of the testator including tax planning.
   i. Disclaimers
   ii. Limited Powers of Appointment – You can allow the surviving spouse to appoint the balance of a trust among your children as he or she sees fit. (This is especially useful when children have varied income levels.)
   iii. Granting of a General Power of Appointment for tax purposes.
   

   d) Side letters – Under New Jersey law, a testator may revise the provisions regarding disposition of tangible personal properties without redoing the entire will. (E.g. You can easily change your mind about who you want to leave your golf clubs to without redoing your Will.)
   e) Combining trusts – A well drafted will (and trust) should allow you to combine two or more trusts with similar terms to save time and money.

   
   
4. Minimization of Tax consequences
   a) Establishing trusts allows couples to make full use of both spouses’ tax exemptions.
   b) Anyone who plans to distribute to non-lineal descendents, up or down, must plan to minimize inheritance taxes
   c) Establishment of multiple trusts for minimization of Generation Skipping Transfer Tax (GST tax)