Kenneth Vercammen, Esq is Chair of the ABA Elder Law Committee and presents seminars to attorneys and the public on Wills, Probate and other legal topics related to Estate Planning and Elder law. He is author of the ABA's book "Wills and Estate Administration. Kenneth Vercammen & Associates,
2053 Woodbridge Avenue - Edison, NJ 08817
(732) 572-0500 More information at www.njlaws.com/

Monday, May 22, 2017

Trusts to protect your estate from your spouse’s future spouse

Trusts to protect your estate from your spouse’s future spouse

        Compiled by Kenneth Vercammen

        Many married persons have basic Wills that say if they pass away their estate goes 100%  to their spouse, and then their children. However, in our modern age, there is an outside possibility that your spouse may get remarried after you pass away. In New Jersey, a spouse can “Elect against the Will”.

In general, a surviving spouse dissatisfied with his or her share under the Will of the deceased spouse may renounce the will and elect to take his or her statutory share of the testator’s entire estate. The surviving spouse is entitled to one-third of the estate provided that at the time of death, the surviving spouse and decedent had not been living separate and apart in different habitations. Generally, the surviving spouse must elect to take his/her elective share by filing a complaint within six months after the appointment of a personal representative of the decedent's estate.

       
        So, if you get married on a Saturday and die on a Sunday, the new spouse could possibly file a complaint to obtain 1/3 of the assets you worked for.

        Occasionally, a husband will say if I die I want my assets to go into a Trust within the Will to support my wife, then the assets go to your surviving children upon your death. This way  if they wife remarries she cant leave the money she inherited to the new husband or outsiders. The wife sometimes wants to protect the family’s money after she dies from her husband’s new mail order bride. Below are a few ideas NJ attorneys may set up to help protect the family’s money.

        Revocable Living Trust & Irrevocable Trusts
       
        A Revocable Living Trust is a legal device that allows you to maintain complete control over your assets and avoids Probate.  However, a Revocable Trust does not reduce Estate Tax and does not protect your assets from nursing home fees.
        Because there is no probate of a Revocable Living Trust, your private financial matters remain private, there are no probate costs, no long delays and loss of control, and no fragmentation of the estate. However, since you still control the trust, it cannot shield assets from Nursing Home, Medicaid or Estate Taxes. To do that, you will need to hire an attorney to prepare an Irrevocable Trust. Fees are minimum $3,000- $5,000 for trusts.

        A Revocable Living Trust can easily be structured to automatically create separate Trusts upon the death of either your spouse.  Here's how it works.  If the wife dies first, the husband has total control of his Trust. Also, for the remainder of his life, he receives all income from her Trust and has the use of the assets whenever needed for living expenses.  When he dies, each Trust will claim its tax exemption, and some will go tax-free to their children, or any other beneficiary they designate, without having to go through probate.

Irrevocable Trust:
        A Trust, which cannot be changed or canceled once, it is set up without the consent of the beneficiary. contributions cannot be taken out of the trust by the grantor. Irrevocable trusts offer tax advantages that revocable trusts don't, for example by enabling a person to give money and assets away even before he/she dies. Opposite of revocable trust.

You Maintain Complete Control Over Your Property In a Revocable Living Trust
        The principle behind a Revocable Living Trust is simple.  When you establish a Living Trust, you transfer all your property into the Trust, and then name yourself as trustee, or you can name you and your spouse as co-trustees of the Trust.  The trustees maintain complete control over the property, the same control you had before your property was placed in trust  You can buy, sell, borrow, pledge, or collateralize the trust property.  You can even discontinue the Trust if you choose.  That is why it is called a "Revocable" Living Trust. We  will explain the "Irrevocable Trust" at the end of the  article.

Transferring Property Into the Trust
        The transfer of title to property into the Trust is a relatively simple matter when you hire an attorney. Anywhere you have assets, you will get help in transferring your property into the Trust.  Your attorney, securities investor, etc., will provide you with assistance needed to transfer your property into your Revocable Living Trust.  Your attorney will provide the information and assistance you need to properly fund your Trust.

Complete Privacy 
        Probate records are public, your Trust documents are private.  A Trust will safeguard the privacy of your family and your private financial matters.

Naming A Trustee
        Most people name themselves and their spouse as the initial Trustees of a Revocable Trust. This is usually true unless one spouse is incapacitated to the point that he or she is not able to manage your assets in the same way you do now. However, for an Irrevocable or Medicaid trust, the spouse cannot be the trustee.

Gifts To Religious And Charitable Organizations
        Many people wish to give a portion or sometimes all of their assets to a religious or charitable organization in order to carry on the work of those organizations that have given them comfort or peace of mind during their lifetimes.  This is easily accomplished with a Revocable Living Trust.

NJ Estate Tax
                A New Jersey estate tax return must be filed if the decedent's gross estate plus adjusted taxable gifts exceeds $675,000. It must be filed within nine months of the decedent's death (nine months plus 30 days if the Form 706 method is used).
        Current Federal tax laws allow you to leave an unlimited amount to a spouse, tax-free. When your spouse dies, the estate is entitled to a $5,250,000 tax exemption. The first $5,250,000 goes to your beneficiaries free of estate tax. However, the NJ Estate Tax starts at $675,000.

     The NJ Estate Tax is in addition to any NJ Inheritance Tax.
WHAT IS CREDIT SHELTER TRUST IN A WILL?

The Credit Shelter Trust (sometimes referred to as a “Bypass Trust” or an “A/B Trust”) is a popular estate planning technique used by married couples with combined assets to avoid the NJ Estate Tax.

       The purpose of the Credit Shelter Trust was to avoid the wasting of federal and state exemptions on the death of the first spouse. Instead of leaving all assets to the surviving spouse and thereby exposing the surviving spouse’s estate to more tax, Nursing Home & Medicaid issues, plus elective share by a future spouse, both spouse’s Wills are drafted to establish a Credit Shelter Trust to come into existence and be funded on the first spouse’s death.
           In a typical Credit Shelter Trust, the surviving spouse is entitled to receive all of the income from the Trust for his or her lifetime, and has the right to demand principal distributions for his or her health, education, support and maintenance in his or her accustomed manner of living. Distributions in excess of that standard require the cooperation of a Co-Trustee – often an adult child of the surviving spouse or a trust department of a bank.
         Since NJ is eliminating the NJ Tax, a Testamentary Trust within the Will is still a useful device to help ensure children and grandchildren with receive money down the road. Otherwise, the surviving spouse can spend all the money in Atlantic City. The surviving spouse could also get remarried and do a new Will leaving all assets to the new spouse. Many families want to protect at least some of the money from wasteful spending or a new spouse.
      If the Intervivos Trust technique is implemented as part of a Client’s Estate Plan, you can hire the attorneys for a separate fee  to assist the Client in re-titling his or her assets so that assets are available to fund the Credit Shelter Trust. Re-titling is necessary because most Clients tend to hold assets jointly with right of survivorship and assets must be titled individually in a person’s name in order to be eligible to fund a Credit Shelter Trust. We work with a tax attorney to help our clients.

        Irrevocable Trust Accounts: Irrevocable trust accounts are deposits held by a trust established by statute or a written trust agreement in which the grantor (the creator of the trust - also referred to as a trustor or settlor) contributes deposits or other property and gives up all power to cancel or change the trust.
        An irrevocable trust also may come into existence upon the death of an owner of a revocable trust. The reason is that the owner no longer can revoke or change the terms of the trust. If a trust has multiple owners and one owner passes away, the trust agreement may call for the trust to split into an irrevocable trust and a revocable trust owned by the survivor. Because these two trusts are held under different ownership types, the insurance coverage may be very different, even if the beneficiaries have not changed.

WHAT IS MEDICAID..........
        Medicaid is a Federal medical bills assistance program that pays medical bills for eligible, needy persons. It is administered by each state. All payments are made directly to the providers of medical and other health care services. The Medicaid-eligible person does not pay the health care provider for services. The only exception is a patient in a Medicaid-approved nursing facility who may be required to contribute part of his/her income toward the cost of care.

        It is important to note Medicaid typically has a lien on assets you own.

        Someone can avoid Medicaid and nursing home liens by settling up an Irrevocable Trust and waiting 60 months to apply for Medicaid.

Kenneth A. Vercammen is an Edison, Middlesex County, NJ trial attorney who has published 125 articles in national and New Jersey publications on business and litigation topics. He often lectures to trial lawyers of the American Bar Association, New Jersey State Bar Association and Middlesex County Bar Association. 

        He is a highly regarded lecturer on litigation issues for the American Bar Association, ICLE, New Jersey State Bar Association and Middlesex County Bar Association. His articles have been published by New Jersey Law Journal, ABA Law Practice Management Magazine, and New Jersey Lawyer.  He is co-chair of the ABA Probate & Estate Planning Committee.

        He has served as a Special Acting Prosecutor in nine different cities and towns in New Jersey and also successfully handled over One thousand Municipal Court and Superior Court matters in the past 28 years.

        In his private practice, he has devoted a substantial portion of his professional time to the preparation and trial of litigated matters. He has appeared in Courts throughout New Jersey several times each week on Criminal and Litigation matters, Municipal Court trials, and contested Probate hearings.  He serves as the Editor of the popular legal website www.njlaws.com

KENNETH  VERCAMMEN & ASSOCIATES, PC
ATTORNEY AT LAW
2053 Woodbridge Ave.
Edison, NJ 08817
(Phone) 732-572-0500
(Fax)    732-572-0030
website: www.njlaws.com

www.CentralJerseyElderLaw.com

What are the changes to the NJ Estate Tax?

What are the changes to the NJ Estate Tax?

NJ Estate Tax eliminated on Estates under $2,000,000 as of January 1, 2017
      The new law phases out the estate tax over two years, by first replacing the old $675,000 threshold with a “true” exclusion amount established at $2.0 million for decedents dying on or after January 1, 2017, and then eliminating the estate tax for decedents dying on and after January 1, 2018. 
     P.L. 2016, c. 57 provides that the New Jersey Estate Tax exemption  increased from $675,000 to $2 million for the estates of resident decedents dying on or after January 1, 2017, but before January 1, 2018.  For these estates, the New Jersey Estate Tax no longer conforms to the provisions of the federal Internal Revenue Code of 1986 in effect on December 31, 2001 and instead follows the current federal Internal Revenue Code for determining the value of the estate, which will be subject to New Jersey Estate Tax.
Married couples filing jointly will, over the course of 4 years, exclude the first $100,000 in retirement from their income from their taxes,, up from the current amount of $20,000.
There will be a $3,000 deduction for veterans of the armed forces.

Below is the new statute:
NJSA 54:38-1 is amended to read as follows:
     54:38-1.  a. In addition to the inheritance, succession or legacy taxes imposed by this State under authority of chapters 33 to 36 of this title (R.S.54:33-1 et seq.), or hereafter imposed under authority of any subsequent enactment, there is hereby imposed an estate or transfer tax:
     (1)   Upon the transfer of the estate of every resident decedent dying before January 1, 2002 which is subject to an estate tax payable to the United States under the provisions of the federal revenue act of one thousand nine hundred and twenty-six and the amendments thereof and supplements thereto or any other federal revenue act in effect as of the date of death of the decedent, the amount of which tax shall be the sum by which the maximum credit allowable against any federal estate tax payable to the United States under any federal revenue act on account of taxes paid to any state or territory of the United States or the District of Columbia, shall exceed the aggregate amount of all estate, inheritance, succession or legacy taxes actually paid to any state or territory of the United States or the District of Columbia, including inheritance, succession or legacy taxes actually paid this State, in respect to any property owned by such decedent or subject to such taxes as a part of or in connection with the estate; and
     (2)   (a)   Upon the transfer of the estate of every resident decedent dying after December 31, 2001, but 2[after December 31, 2016,] before January 1, 2017,2 which would have been subject to an estate tax payable to the United States under the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001, the amount of which tax shall be, at the election of the person or corporation liable for the payment of the tax under this chapter, either 
     (i)    the maximum credit that would have been allowable under the provisions of that federal Internal Revenue Code in effect on that date against the federal estate tax that would have been payable under the provisions of that federal Internal Revenue Code in effect on that date on account of taxes paid to any state or territory of the United States or the District of Columbia, or
     (ii)   determined pursuant to the simplified tax system as may be prescribed by the Director of the Division of Taxation in the Department of the Treasury to produce a liability similar to the liability determined pursuant to clause (i) of this paragraph reduced pursuant to paragraph (b) of this subsection.
     (b)   The amount of tax liability determined pursuant to subparagraph (a) of this paragraph shall be reduced by the aggregate amount of all estate, inheritance, succession or legacy taxes actually paid to any state or territory of the United States or the District of Columbia, including inheritance, succession or legacy taxes actually paid this State, in respect to any property owned by such decedent or subject to such taxes as a part of or in connection with the estate; provided however, that the amount of the reduction shall not exceed the proportion of the tax otherwise due under this subsection that the amount of the estates's property subject to tax by other jurisdictions bears to the entire estate taxable under this chapter.
     (3)   (a)   Upon the transfer of the estate of each resident decedent dying on or after January 1, 2017, 2[but before January 1, 2020,]2 whether or not subject to an estate tax payable to the United States under the provisions of the federal Internal Revenue Code (26 U.S.C. s.1 et seq.), the amount of the taxable estate, determined pursuant to section 2051 of the federal Internal Revenue Code (26 U.S.C. s.2051), shall be subject to tax pursuant to the following schedule:

On any amount up to $100,000 . . . . . .

0.0%

On any amount in excess of $100,000, up to $150,000  . . . . . . . . . . . . . . . 


0.8%  2of the excess over $100,0002      

On any amount in excess of $150,000, up to $200,000. . . . . . . . . . . . . . . . 


$400 plus 1.6% of the excess over $150,000

On any amount in excess of $200,000, up to $300,000. . . . . . . . . . . . . . . . 


$1,200 plus 2.4% of the excess over $200,000

On any amount in excess of $300,000, up to $500,000. . . . . . . . . . . . . . . . 


$3,600 plus 3.2% of the excess over $300,000

On any amount in excess of $500,000, up to $700,000. . . . . . . . . . . . . . . . 


$10,000 plus 4.0% of the excess over $500,000

On any amount in excess of $700,000, up to $900,000. . . . . . . . . . . . . . . . 


$18,000 plus 4.8% of the excess over $700,000

On any amount in excess of $900,000, up to $1,100,000. . . . . . . . . . . . . . . 


$27,600 plus 5.6% of the excess over $900,000

On any amount in excess of $1,100,000, up to $1,600,000. . . . .


$38,800 plus 6.4% of the excess over $1,100,000

On any amount in excess of $1,600,000, up to $2,100,000. . . . . 


$70,800 plus 7.2% of the excess over $1,600,000

On any amount in excess of $2,100,000, up to $2,600,000. . . . . 


$106,800 plus 8.0% of the excess over $2,100,000

On any amount in excess of $2,600,000, up to $3,100,000. . . . . 


$146,800 plus 8.8% of the excess over $2,600,000

On any amount in excess of $3,100,000, up to $3,600,000. . . . . 


$190,800 plus 9.6% of the excess over $3,100,000

On any amount in excess of $3,600,000, up to $4,100,000. . . . . 


$238,800 plus 10.4% of the excess over $3,600,000

On any amount in excess of $4,100,000, up to $5,100,000. . . . . 


$290,800 plus 11.2% of the excess over $4,100,000

On any amount in excess of $5,100,000, up to $6,100,000 . . . . 


$402,800 plus 12.0% of the excess over $5,100,000

On any amount in excess of $6,100,000, up to $7,100,000 . . . . . 


$522,800 plus 12.8% of the excess over $6,100,000

On any amount in excess of $7,100,000, up to $8,100,000 . . . . . 


$650,800 plus 13.6% of the excess over $7,100,000

On any amount in excess of $8,100,000, up to $9,100,000 . . . . . 


$786,800 plus 14.4% of the excess over $8,100,000

On any amount in excess of $9,100,000, up to $10,100,000 . . . . 


$930,800 plus 15.2% of the excess over $9,100,000

On any amount in excess of $10,100,000. . . . . . . . . . . . . . . . . . . 


$1,082,800 plus 16.0% of the excess over $10,100,000

     (b)   A credit shall be allowed against the tax imposed pursuant to subparagraph (a) of this paragraph equal to the amount of tax which would be determined by subparagraph (a) of this paragraph if the amount of the taxable estate were equal to the exclusion amount.
     For the transfer of the estate of each resident decedent dying on or after January 1, 2017, but before January 1, 2018, the exclusion amount is  2[$1,000,000] $2,000,0002.
     2[For the transfer of the estate of each resident decedent dying on or after January 1, 2018, but before January 1, 2019, the exclusion amount is $2,000,000.]2
     3[For the transfer of the estate of each resident decedent dying on or after January 1, 2[2019] 20182 , but before January 1, 2020, the 2[exclusion amount is $3,000,000] tax imposed by this section shall be based upon the applicable exclusion amount determined pursuant to subsection (c) of section 2010 of the federal Internal Revenue Code (26 U.S.C. s.2010), as amended or adjusted by federal law, rule or regulation2 .]3
     (c)   The amount of tax liability of a resident decedent determined pursuant to subparagraphs (a) and (b) of this paragraph shall be reduced by the aggregate amount of all estate, inheritance, succession or legacy taxes actually paid to any state of the United States, including inheritance taxes actually paid this State, in respect to any property owned by that decedent or subject to those taxes as a part of or in connection with the estate; provided however, that the amount of the reduction shall not exceed the proportion of the tax otherwise due under this subsection that the amount of the estate's property subject to tax by other jurisdictions bears to the entire estate taxable under this chapter.
     (4)   For the transfer of the estate of each resident decedent dying on or after January 1, 3[ 2020] 20183 , there shall be no tax imposed.
     3[(5)  Upon the transfer of the real or tangible personal property within New Jersey of each nonresident decedent dying on or after January 1, 2017, but before January 1, 2020, which tax shall bear the same ratio to the entire tax which that estate would have been subject to pursuant to subparagraphs (a) and (b) of paragraph (3) 2and paragraph (4)2 of this subsection if that nonresident decedent had been a resident of this State, and all of the decedent’s property, real and personal, had been located within this State, as the taxable property within this State bears to the entire estate, wherever situated.]3
     b.    (1)   In the case of the estate of a decedent dying before January 1, 2002 where no inheritance, succession or legacy tax is due this State under the provisions of chapters 33 to 36 of this title or under authority of any subsequent enactment imposing taxes of a similar nature, but an estate tax is due the United States under the provisions of any federal revenue act in effect as of the date of death, wherein provision is made for a credit on account of taxes paid the several states or territories of the United States, or the District of Columbia, the tax imposed by this chapter shall be the maximum amount of such credit less the aggregate amount of such estate, inheritance, succession or legacy taxes actually paid to any state or territory of the  United States or the District of Columbia.
     (2)   In the case of the estate of a decedent dying after December 31, 2001, but before 2[December 31, 2016] January 1, 20172, where no inheritance, succession or legacy tax is due this State under the provisions of chapters 33 to 36 of this title or under authority of any subsequent enactment imposing taxes of a similar nature, the tax imposed by this chapter shall be determined pursuant to paragraph (2) of subsection a. of this section.