Posts Tagged ‘estate planning’

PROPER ESTATE PLANNING ESSENTIAL IN ENSURING YOUR WISHES ARE HONORED AFTER YOUR DEATH

Friday, January 13th, 2012

By Fredrick P. Niemann, a NJ Estate Planning Attorney

 
The death of a family member can be one of the most stressful periods of a person’s life. Adding to this stress can be conflict among family members over how to honor the deceased. Where should the funeral be held? Who will pay for it? Should the body be buried or cremated? These and many more questions must be answered by family members if the decedent did not elect to create a will or trust indicating their wishes. Unfortunately, family members sometimes disagree as to how the situation should be handled, adding controversy to this already stressful period. Proper estate planning, whether it be creating a will or trust, can help you ensure your wishes are honored and help avoid any disputes among family members

 New Jersey law states that if a deceased individual has not indicated their wishes in a will or trust, the disposition of the body is to be determined by the individual with the  highest priority from the following:

 1. The surviving spouse or partner in a domestic partnership or civil union;
 2. The majority of any surviving adult children of the deceased;
 3. Surviving parent or parents;
 4. The majority of any surviving brothers and sisters of the deceased;
 5. Any other relatives of the decedent, with priority given to closer relatives;
 6. Anyone else acting on behalf of the decedent.

As one can imagine, disputes often arise among interested individuals when it comes time to bury a loved one. Different factors uniquely affect each family, but concerns such as religion, money, and location often come into play. Sometimes disputes arise when there is a second marriage involved, particularly when there are children from both marriages. A properly crafted will or trust will make sure your wishes are met and help avoid any controversy among your family members. Estate planning is a crucial tool that cannot be underestimated. You owe it not only to yourself, but to your loved ones as well to appropriately plan for your funeral and burial arrangements.

Fredrick P. Niemann is an experienced Estate Planning Attorney who has practiced throughout the state of New Jersey. He encourages you to contact him immediately if you have any questions regarding the process of setting up a trust or will. He can be reached toll-free at 855-376-5291 or by email at fniemann@hnlawfirm.com. He looks forward to hearing from you.

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THE BIG ESTATE PLANNING QUESTION OF 2011

Wednesday, May 25th, 2011

By: Fredrick P. Niemann a N.J. Estate Planning Attorney
        

Should you exploit the new $5 million lifetime gift exemption?

In 2010, Congress voted to give us all a $5 million dollar lifetime gift estate tax individual exemption.

In addition, between married couples, upon the death of one spouse, the executor of the estate can elect to transfer any unused portion of the $5 million individual exemption to the surviving spouse.

At the moment, these tax rates and generous exemptions apply through 2012.  In 2013, things may change.  So estate planning and tax planning professionals are alerting their clients of this window of opportunity.

The big news:  The $5 million lifetime gift tax exemption.  For married couples, the lifetime gift tax exemption is actually $10 million dollars.  In 2010, the lifetime gift tax exemption was only at $1 million dollars.

So considering all this, the big question is:  Should you give away as much as you can to your children before 2013 with the intent of reducing estate taxes down the road?

After all, lifetime gifts reduce your taxable estate.  Additionally, if you give your children appreciated securities, the long-term capital gains of those securities will be taxed when sale at their capital gains rates rather than yours.  If your children’s income puts them in the 10 percent or 15 percent tax bracket, their capital gains tax rate is zero percent through 2012.

Let’s illustrate how this works.  Dad doesn’t gift up to $5 million during his lifetime – he only ends up gifting $3 million.  Well, Mon can subsequently gift up to $7 million after he passes thanks to the portability rules, as there would still be $7 million to go toward the $10 million lifetime gift tax exemption for a married couple.  When the first spouse passes away, the executor of his or her estate must file an estate tax return even if no estate tax is owed.  That estate tax return formally notifies the IRS that you are transferring the unused or partially used gift tax exemption.

Incidentally, this estate tax return is due nine months after the death of said spouse, with a six month extension permissible.

Do families need bypass trusts anymore?  We can’t say goodbye to them, because 15 states still levy their own estate taxes with exemptions commonly at $1 million or under like in New Jersey.  Moreover, who knows if portability will be permitted five or ten years from now?

The potential for savings could be great.  When you look at this remarkably generous lifetime gift tax exemption allowance in light of certain estate planning techniques that might leverage it – such as the grantor-retained annuity trust and the family limited partnership – the potential is intriguing.

For more information, please contact Fredrick P. Niemann, Esq. at (888) 800-7442 or email him at fniemann@hnlawfirm.com

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LEARN MORE ABOUT CHARITABLE REMAINDER TRUSTS AS PART OF YOUR N.J. ESTATE PLANNING

Wednesday, May 25th, 2011

In general, a charitable remainder trust is a trust in which the creator of the trust reserves the cash flow from the property contributed to the trust, and upon the death of the creator (and the creator’s spouse).  The property that remains is distributed to the charity.

There are two basic types of charitable remainder trusts, a  charitable remainder unitrust (CRUT) and a charitable annuity trust (CRAT).  The primary difference between the CRUT and the CRAT is how the cash flow is measured:

• In a CRUT, the non-charitable beneficiary is entitles to receive a fixed percentage (not less than 5 percent) of the annual fair market value of the trust assets.  Thus, in an inflationary economy, the payments to the non-charitable beneficiary will increase as the value of the assets increases.  However, in deflationary times, the amount paid to the non-charitable beneficiary will decrease as the value of the assets decreases.

• In a CRAT, the non-charitable beneficiary is entitled to receive a fixed percentage (not less than 5 percent of the initial fair market value of the trust assets) each year, and this amount does not fluctuate with the fluctuation of the value of the trusts assets.

As a general rule, charitable remainder trusts created for older individuals tend to be CRATS because older individuals want certainty as to the annual payments, and their life expectancies, usually are not long enough to benefit from the historical inflationary economy.  Conversely, CRUTS are generally selected by younger donors whose life expectancies are long enough to benefit form increasing asset values, therefore increasing distributions later in life.

For more information, please contact Fredrick P. Niemann, Esq. at (888) 800-7442 or email him at fniemann@hnlawfirm.com

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REASONS TO CONSIDER A CHARITABLE REMAINDER TRUST AS PART OF YOUR NEW JERSEY ESTATE PLANNING

Wednesday, May 25th, 2011

By: Fredrick P. Niemann, Esq. a NJ Estate Planning Attorney

 Besides being one of the few charitable-giving techniques that permit a donor to reserve an interest in the property that is given to charity, the charitable remainder trust has another unique feature that makes it attractive to donors who have low-basis property that they want to diversify without paying the capital gains tax.

 A charitable remainder trust generally pays no income tax itself, so property can be contributed to a charitable remainder trust and sold by the rest of the trust without payment of capital gains tax; 100 percent of the property (unreduced by capital gains tax) can be reinvested in a more diversified asset mix to generate increased cash flow for the donor (and the donor’s spouse).

 The donor can be the trustee, so the donor can control the trust investments.  The annual payments to the donor are taxable either as ordinary income or capital gain, depending on the nature of the income inside the trust.

 In addition to the reservation of cash flow and the non-payment of income tax upon sales of assets, the creator of a charitable remainder trust receives an income tax deduction at the time the trust is created based upon the cash f low that is reserved, the donor’s age, and the Internal Revenue interest rate that is applicable at the time the trust is created.

 Below is an illustration of how a Charitable Remainder Trust works:

 Mr. A, age 68, is an employee of the ABC Corporation.  Mr. A purchased 10,000 shares of ABC Corporation at $1 per share, when shares were first made available to employees.  Mr. A’s shares are now worth $2 million and pay no dividends.  Mr. A is thinking of retiring, and would like to diversify his investment in ABC Corporation to reduce the risk of having a substantial portion of his assets in one stock and also to increase his cash flow by $100,000 per year to supplement other retirement income.

 If Mr. A sells his ABC Corporation stock for $2 million, he will pay $497,500 in federal and state capital gains tax (assuming a 25% combined federal and state rate).  The sale would leave Mr. A with $1,502,500 to invest to generate $100, 000 per year retirement income.  Under current economic conditions, it would be difficult for Mr. A to achieve the almost 7% return that would be necessary to yield $100,000 per year.

 Instead of selling the AC stock, Mr. A contributes it to a charitable remainder unitrust that pays him 5% of the annual fair market value of the trust assets each year during his lifetime, then following his death, the same percentage to his wife, age 66, for her lifetime, and upon the death of the survivor of Mr. and Mrs. A, whatever assets remain in the trust will be paid to the Leukemia & Lymphoma Society.

 In the year the charitable remainder unitrust is created, Mr. A will be entitled to a charitable income tax deduction of approximately $800,000 which can be used up to 30% of his adjusted gross income in the year of the gift and five succeeding years.  Thus, a substantial amount of Mr. A’s retirement income can be sheltered over a six-year period.  Beginning with the year the charitable remainder unitrust is created, Mr. A will begin receiving $100,000 per year, hopefully increasing over time as the assets of the trust, which are now diversified, increase in value.

 If Mr. A wanted to be certain that he and his wife received $100,000 per year for the balance of their lifetimes, irrespective of the investment performance of the trust assets, Mr. A could have created a charitable remainder annuity trust that would pay his wife and himself $100,000 per year, irrespective of asset performance.  Mr. A would have been entitled to an income tax deduction of approximately $860,000 in the year the trust was created, to be used to up to 30% of his gross adjusted income in the year of the gift, and five succeeding years.

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Estate Planning: Beware of the Gift of Debt

Wednesday, April 14th, 2010

Fredrick P. Niemann, Esq., NJ Estate Administration Attorney

If you inherit property, of course you should be grateful and count your blessings. Still, consider the possibility that the gift may come with a big string attached – a debt linked to the property, such as is particularly common with real estate or a car. In that event, the question arises as to whether the debt must be satisfied from the particular asset or from the decedent’s estate more generally. How this question is answered can cause a big swing in the respective gift amounts for beneficiaries of an estate.

Historically, the law presumed that the debt was not to be paid from the property that was connected to it. The reasoning was that a true gift should not come laden with such a burden. Over time, as taking on debt became commonplace, this thinking changed and statutes flipped the conventional assumption. Increasingly, these laws start from the premise that the property left to someone includes the debt on the property, unless the decedent in his or her will clearly indicated a different intent. That is where careful estate planning, with professional guidance, comes in.

It is best to leave no doubt for the ordinary lay reader of a will. A general directive in the will to pay all debts of the testator is too nebulous. Instead, if the intent is not to keep the asset joined to the debt, language something like this should be used in a will: “If [the specific asset] is subject to a mortgage, security interest, or other lien, I direct that my executor pay the debt from other property of my estate which is not given to a specific person or entity.”

This scenario was played out recently in a case in which a farmer left to his (favored?) son three different farms, each of which was encumbered by debt. To his other son he left the residue of the estate. When the father died, the executor used part of the estate proceeds to pay off the loans to the farms, so that the first son would receive them debt-free. Not surprisingly, the second son, whose inheritance was thereby diminished, brought the matter to court.

The second son prevailed, forcing payment of the debts for the farms to come from the farms themselves. The father’s will directed in a general way that debts were to be paid from the estate. However, under the relevant state statute, that was not a sufficiently explicit indication of intent to satisfy the debts on the farms from the residu¬ary estate. In other words, the will had not clearly shown an intent that the first son was to receive the farms debt-free. As a result, the first son got the three farms, but he, not the second son, also got the responsibility for paying off the attached encumbrances, which totaled almost a quarter of a million dollars.

For further information and advice in any estate matter, do not hesitate to contact me at 888-800-7442, or info@fnlawyerinnj.com.

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Pitfalls of Improperly Drafted Will

Friday, August 29th, 2008

A number of years ago, I received a call from a potential client who had the following tale to tell.  The woman’s husband had died leaving a will and some assets, one of which was a 401k. The marriage was a second for her husband, who had 2 sons from his first marriage.  While he was single he had changed the beneficiaries of his life insurance and 401k plan to his sons and had redone his will.
 
After his second marriage, the husband and his new wife bought a new home together.  They asked their real estate attorney, who handled the purchase for them, to draft new wills as well.  The husband listed for his attorney the assets he wanted to pass to his sons and which to his new wife.  The 401k he wanted to go to his wife. Unfortunately, the attorney didn’t understand the difference between probate and non-probate assets.  So when he wrote  a will that specifically left the 401k to the wife, he didn’t know that the will would have no effect on this asset because the beneficiary designations on file with the custodian of the 401k plan still listed the sons from the first marriage.
 
When the husband died, the wife received a big shock when she was told that she had no interest in the $500,000 account.  That’s because a will doesn’t automatically control the distribution of all your assets.  Contract property such as life insurance, annuities and retirement accounts pass in accordance with whom you have designated on the beneficiary forms completed and filed with the life insurance and annuity companies or retirement account custodians.  Other types of property pass by operation of law such as joint accounts with right of survivorship or real estate that is owned by husband and wife.  When one owner dies the property automatically passes to the surviving owner.  It does not matter what the will says.
 
That is what happened in our story.  The 401k is contract property so it passed according to the beneficiary designation form on file, not by the will.  The wife tried unsuccessfully to get a court order directing the funds be paid to her.

The moral of the story is that although many people think drafting a will is simple and often undertake to do it themselves or ask the attorney who did other work for them to handle this task as well, they may miss important steps that must be taken that can save a lot of heartache and money. 

This example is further reason why attorneys should reconsider doing “simple wills” when requested by a client.  Simple does not mean right.  For more information on this post, contact Fredrick P. Niemann, Esq. at fniemann@hnlawfirm.com.

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