Estate Planning

No matter your net worth, it is important to have a basic estate plan in place to ensure that your family and financial goals are met after you die.

The objective of estate planning is to conserve and transfer your assets through a logical process that seeks to decrease legal entanglements and taxes, while increasing the amount of wealth transferred to your beneficiaries.  Estate planning can include, but may not be limited to, any or all of the following: your will, trusts, powers of attorney, living will and life insurance or other funding source.  

A common misconception about estate planning is that it is only for the wealthy.  While the wealthy may require more involved estate planning, the process is beneficial to everyone who has assets that will need to be transferred upon death.  Depending on your age, family status and assets, the process could be no more involved than establishing a will, or as complex as establishing and funding trusts, and setting in place a variety of tax-reducing strategies. 

 If you are a small business owner, estate planning for your business is also an important process.  Should business ownership be transferred to beneficiaries or new owners – perhaps current, key employees?  Is there a business continuation agreement in place? Is it funded? Will the business assets be liquidated and distributed? How would selling the business while you are alive impact your estate?

Without a will, intestacy laws will determine the distribution of your assets, and such distribution may not be what you would have wanted.  For example, in New Jersey if a married individual dies without a will, his or her spouse may not be entitled to the entire estate.  

If you are a single person with assets of less than $675,000, consider establishing a simple will that distributes your assets as you choose, after debt obligations are satisfied.

 If you are married, many spouses write wills that leave all assets to each other and establish contingency plans if both husband and wife die simultaneously.  Due to the unlimited marital deduction, a surviving spouse can inherit the entire estate without tax liability.  However, if more than $675,000 is bequeathed out of either spouse’s estate, the estate could be exposed to New Jersey and federal estate tax liability.  With simple planning, those taxes may be avoided.

If you have any children, there are additional considerations.  Your will should make clear your wishes for custody of any minors in the event of a single parent’s death or the simultaneous death of both parents.  In addition, you will need to determine what a child will receive through a potential inheritance and when.

Without a will, the courts will make these decisions for you, and your wishes may not be carried out.

There are other personal considerations you may make when establishing your will, including a living will and naming a power of attorney for healthcare and financial decisions.

A living will allows you to make decisions regarding prolonging your life through various means prior to a time when you may not be capable of making those decisions, relieving your family of that burden.  Naming a healthcare power of attorney or healthcare proxy places medical decisions in trusted hands.

A durable power of attorney is a written document executed by an individual (the “principal”) authorizing another person (the “attorney in fact”) to act on his or her behalf.  A power of attorney authorizes another individual to enter into and discharge virtually all legal obligations on behalf of the principal.

Generally, more advanced estate planning is beneficial in New Jersey if your assets total more than $675,000. 

Many people underestimate the size of their estates.  Your estate includes all of your assets – both liquid and illiquid.  This includes your investment portfolio, bank accounts, real estate, business interests, life insurance, automobiles, jewelry, and even collectibles.  For many farmers, simply owning 50 acres of land may be enough to reap tax savings from advanced estate planning.  Depending on when you die, state and federal estate taxes could consume up to 55% of your estate.  Without proper planning, your beneficiaries may be forced to liquidate assets, potentially losing a long held family business or farm.

If an individual (the “donor”) gives another individual (the “donee”) a gift, in any form, there is a potential for gift taxes.  For any gift with a value greater than $13,000, the donor must file a gift tax return with the IRS.  In addition to the $13,000 annual exclusion, each donor has a lifetime exclusion of $1,000,000.  If lifetime gifts are greater than $1,000,000, the donor may be liable for gift tax.  If you are considering making a gift of greater than $13,000, estate planning techniques should be used to structure the gift in a way to avoid any potential gift tax, as well as a potential increase in estate taxes.