Trusts to transfer property, avoid probate and sometimes reduce NJ Estate Tax

Compiled by Kenneth Vercammen

Probate is defined as the procedure by which an Executor proceeds to admit a Will to
the jurisdiction of the Surrogate Court, which is proed to be alid or inalid! "he term
generally includes all matters relating to the administration of estates! "here are instances
where Surrogate Court monitoring of the estate is desirable! #uch has been written about
the disadantages of probate! $ollowing are just a few of the problems associated with
probate and why certain people set up "rusts in addition to Wills!
%ac& 'f Priacy
(ocuments filed with the Surrogate Court are public information! "hey are aailable for
inspection to anyone who as&s! )n large estates, which re*uire an accounting, your probate
file will contain a complete list of all assets deised by your Will including business assets!
"his lac& of priacy may lead to problems among family members who now &now the plan of
distribution and may then contest any proisions with which they disagree! (isinherited
relaties and creditors are notified and gien time by the Court to contest the Will distribution!
"ime Consuming
"he probate of an estate may ta&e seeral months to seeral years to complete!
(uring that time family members may hae to apply to the Surrogate Court for an allowance!
$ragmentation + ,eal Estate
)f you own real property in more than one state, probate rules must be followed in
each state in which real property is located! "he cost and time may be increased!
,EV'C-.%E %)V)/0 ",1S" )rreocable "rust
- ,eocable %iing "rust is a legal deice that allows you to maintain complete control
oer your assets and aoids Probate! 2oweer, a reocable trust does not reduce Estate
"ax and does not protect your assets from nursing home fees!
.ecause there is no probate of a %iing "rust, your priate financial matters remain
priate, there are no probate costs, no long delays and loss of control, and no fragmentation
of the estate! 2oweer, since you still control the trust, it cannot shield assets from /ursing
2ome, #edicaid or Estate "axes! "o do that, you will need to hire an attorney to prepare an
)rreocable "rust! $ees are minimum 34,555+ 36,555 for trusts!
7ou #aintain Complete Control 'er 7our Property )n a ,eocable %iing "rust
"he principle behind a ,eocable %iing "rust is simple! When you establish a %iing
"rust, you transfer all your property into the "rust, and then name yourself as trustee, or you
can name you and your spouse as co+trustees of the "rust! "he trustees maintain complete
control oer the property, the same control you had before your property was placed in trust
7ou can buy, sell, borrow, pledge, or collaterali8e the trust property! 7ou can een
discontinue the "rust if you choose! "hat is why it is called a 9,eocable9 %iing "rust! We
will explain the 9)rreocable "rust9 at the end of the article!
"ransferring Property )nto the "rust
"he transfer of title to property into the "rust is a relatiely simple matter when you hire
:
an attorney! -nywhere you hae assets, you will get help in transferring your property into
the "rust! 7our attorney, securities inestor, etc!, will proide you with assistance needed to
transfer your property into your ,eocable %iing "rust! 7our attorney will proide the
information and assistance you need to properly fund your "rust!
Complete Priacy
Probate records are public, your "rust documents are priate! - "rust will safeguard
the priacy of your family and your priate financial matters!
/aming - "rustee
#ost people name themseles and their spouse as the initial "rustees of a ,eocable
"rust! "his 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! 2oweer, for an )rreocable or
#edicaid trust, the spouse cannot be the trustee!
0ifts "o ,eligious -nd Charitable 'rgani8ations
#any people wish to gie a portion or sometimes all of their assets to a religious or
charitable organi8ation in order to carry on the wor& of those organi8ations that hae gien
them comfort or peace of mind during their lifetimes! "his is easily accomplished with a
,eocable %iing "rust!
#arital "ax (eductions
$ederal estate taxes must be paid on any estate worth more than 36,:55,555
beginning at a tax rate of 4;<! 7our estate includes not only the current alue of your real
estate, but also the face alue of any life insurance policies, pension or retirement benefits,
),- accounts, ban& accounts, stoc&s and bonds, etc! When you add these all together, and
subtract your debts, your might hae imagined!
Current $ederal tax laws allow you to leae an unlimited amount to a spouse, tax+free!
When your spouse dies, the estate is entitled to a 36,:55,555 tax exemption! "he first
36,:55,555 goes to your beneficiaries free of estate tax! 2oweer, the /= Estate "ax starts at
3>;6,555!
NJ Estate Tax
5 - /ew =ersey estate tax return must be filed if the decedent?s gross estate plus
adjusted taxable gifts as determined in accordance with the proisions of the )nternal
,eenue Code in effect on (ecember 4:, @55: exceeds 3>;6,555! )t must be filed within
nine months of the decedent?s death Anine months plus 45 days if the $orm ;5> method is
usedB! -dditionally, a copy of any $ederal estate tax return filed or re*uired to be filed with
the $ederal goernment must be submitted within 45 days of the date it is filed with the
)nternal ,eenue Serice and a copy of any communication receied from the $ederal
goernment must be submitted within 45 days of its receipt from the )nternal ,eenue
Serice!
"he NJ Estate Tax is in addition to any /= )nheritance "ax!
Who #ust $ile
- /ew =ersey estate tax return must be filed if the decedentCs 0ross Estate exceeds
3>;6,555! "here is a substantial tax that must be paid after the @
nd
spouse dies on amounts
@
oer 3>;6,555! 7ou can hire an attorney to set up "rusts to try to reduce taxes due! We
charge a minimum fee of 3>55 for each trust within a Will! - separate stand alone "rust has
a minimum fee for 3@,555!
Een if your net worth is well below the $ederal threshold where the federal estate
tax becomes an issue, the /ew =ersey Estate "ax may still be a problem! "he /ew =ersey
Estate "ax affects any person or married couple with net worth oer 3>;6,555! "here is no
exemption for assets you leae to your childrenD those assets are fully taxed! "here is also no
exemption for the alue of your home and life insurance, so it is easy to hit the 3>;6,555
threshold ery *uic&ly!
)f you hae assets such as ban& accounts in joint names, or ban& accounts payable
upon death, these go directly to the beneficiary! 7our Will cannot change who the beneficiary
is on a joint account, payable upon death accounts, or other assets such as %ife )nsurance
policies! 7ou would hae to directly contact the ban& or company where the assets are held
and either direct that they change the beneficiary or not list any beneficiary at all other than
your Estate! "herefore, if you hae 3:,@55,555 in assets, you can change the beneficiary so
the husband owns 3>55,555 and the wife owns the other 3>55,555!
Examples of /= Estate "ax due if no estate planning
Estate of $800,000
7our Estimated $ederal Estate "axE 5!55
7our State "axable Estate ValueE 3;F5,555!55
7our Estimated State Estate "axE 3@@,;GG!>5
If Estate Value: $00,000!00
7our Estimated $ederal Estate "axE 35!55
7our State "axable Estate ValueE 3HF5,555!55
7our Estimated State Estate "axE 3@;,>55!55
W2-" )S C,E()" S2E%"E, ",1S"I
"he Credit Shelter "rust Asometimes referred to as a J.ypass "rustK or an J-L. "rustKB
is a popular estate planning techni*ue used by married couples with combined assets in
excess of 3>;6,555! "he purpose of the Credit Shelter "rust is to aoid the wasting of
federal and state exemptions on the death of the first spouse! )nstead of leaing all assets
to the suriing spouse and thereby exposing the suriing spouseCs estate to more tax,
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both spouseCs Wills are drafted to establish a Credit Shelter "rust to come into existence
and be funded on the first spouseCs death!
)n a typical Credit Shelter "rust, the suriing spouse is entitled to receie all of the
income from the "rust 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 liing! (istributions in excess of that standard re*uire the
cooperation of a Co+"rustee M often an adult child of the suriing spouse or a trust
department of a ban&!
"he amount, which funds a typical Credit Shelter "rust, aries according to a
particular ClientCs financial and family circumstances! $or $ederal Estate "ax purposes, a
Credit Shelter "rust can be funded with the (ecedentCs remaining federal estate tax
exemption A36 million as of @5:@ if no prior gifts hae been madeB! 2oweer, in /ew
=ersey, since the state estate tax exemption is only 3>;6,555, if the Credit Shelter "rust is
funded with more than 3>;6,555, this will cause some /ew =ersey Estate "ax to be paid!
$or example, if the 3@ million is funded, the tax to the State of /ew =ersey is 3GG,>55!
.ecause of this, many Clients choose to fund the Credit Shelter "rust with only 3>;6,555!
)f the Credit Shelter "rust techni*ue is implemented as part of a ClientCs 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 aailable to fund the Credit Shelter "rust! ,e+titling is necessary
because most Clients tend to hold assets jointly with right of suriorship and assets must
be titled indiidually in a personCs name in order to be eligible to fund a Credit Shelter
"rust! We wor& with a tax attorney to help our clients!
- ,eocable %iing "rust can easily be structured to automatically create separate
"rusts upon the death of either your spouse! 2ere?s how it wor&s! )f the wife dies first, the
husband has total control of his "rust! -lso, for the remainder of his life, he receies all
income from her "rust and has the use of the assets wheneer needed for liing expenses!
When he dies, each "rust will claim its tax exemption, and some will go tax+free to their
children, or any other beneficiary they designate, without haing to go through probate!
httpELLwww!njlaws!comLtrustNNNwills!htm
"efinitions
- trust, which cannot be changed or canceled once, it is set up without the consent of
the beneficiary! contributions cannot be ta&en out of the trust by the grantor! )rreocable
trusts offer tax adantages that reocable trusts don?t, for example by enabling a person to
gie money and assets away een before heLshe dies! opposite of reocable trust!
)rreocable "rust -ccounts N)rreocable trust accounts are deposits held by a trust
established by statute or a written trust agreement in which the grantor Athe creator of the
trust + also referred to as a trustor or settlorB contributes deposits or other property and gies
up all power to cancel or change the trust!
-n irreocable trust also may come into existence upon the death of an owner of a reocable
trust! "he reason is that the owner no longer can reo&e or change the terms of the trust! )f a
trust has multiple owners and one owner passes away, the trust agreement may call for the
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trust to split into an irreocable trust and a reocable trust owned by the surior! .ecause
these two trusts are held under different ownership types, the insurance coerage may be
ery different, een if the beneficiaries hae not changed!
Someone can aoid #edicaid and nursing home liens by settling up an )rreocable
"rust and waiting >5 months to apply for #edicaid!
W2-" )S #E()C-)(!!!!!!!!!!
#edicaid is a $ederal medical bills assistance program that pays medical bills for
eligible, needy persons! )t is administered by each state! -ll payments are made directly to
the proiders of medical and other health care serices! "he #edicaid+eligible person does
not pay the health care proider for serices! "he only exception is a patient in a #edicaid+
approed nursing facility who may be re*uired to contribute part of hisLher income toward the
cost of care!
#edicaid typically has a lien on assets you own!
Kenneth -! Vercammen is an Edison, #iddlesex County, /= trial attorney who has
published:@6 articles in national and /ew =ersey publications on business and litigation
topics! 2e often lectures to trial lawyers of the -merican .ar -ssociation, /ew =ersey State
.ar -ssociation and #iddlesex County .ar -ssociation!
2e is a highly regarded lecturer on litigation issues for the -merican .ar -ssociation, )C%E,
/ew =ersey State .ar -ssociation and #iddlesex County .ar -ssociation! 2is articles hae
been published by /ew =ersey %aw =ournal, -.- %aw Practice #anagement #aga8ine, and
/ew =ersey %awyer! 2e is co+chair of the -.- Probate O Estate Planning Committee!
2e has sered as a Special -cting Prosecutor in nine different cities and towns in
/ew =ersey and also successfully handled oer 'ne thousand #unicipal Court and Superior
Court matters in the past :H years!
)n his priate practice, he has deoted a substantial portion of his professional time to the
preparation and trial of litigated matters! 2e has appeared in Courts throughout /ew =ersey
seeral times each wee& on Criminal personal injury matters, #unicipal Court trials, and
contested Probate hearings! 2e seres as the Editor of the popular legal website
www!njlaws!com
KE//E"2 VE,C-##E/ O -SS'C)-"ES, PC
-""',/E7 -" %-W
@564 Woodbridge -e!
Edison, /= 5HH:;
APhoneB ;4@+6;@+5655
A$axB ;4@+6;@+5545
websiteE www!njlaws!com
www!Central=erseyElder%aw!co
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