Tuesday, May 23, 2017
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.
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