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
