Importance of Estate Planning: Preparing for the Inevitable – Program Recap

Estate planning is often overlooked until it’s too late; your will will not solve everything!

Thank you to Adam Lipps, Senior Staff Attorney for Central Jersey Legal Services, for an overview of the different components that make up estate planning, specifically the different types of documents and their purpose. Did you know that about 95% of people should have a will when they pass, but only about 30% of people actually die with a will? This can lead to a host of problems for your loved ones, heirs and beneficiaries, exposing them to expensive legal proceedings or tax implications. So let’s take a closer look at 4 importance documents that might make up your estate plan.

Wills

What is a will?

Wills are the most common and most important part of a person’s estate planning. A will is a legal document that determines what will happen in the event of the individual’s passing, who is in charge of a person’s estate upon their death, how property should be take care of, and a variety of other considerations. In most wills, an executor will be named; that person is in charge of carrying out the directives in the will and making sure that the will is probated. Beneficiaries may also be named in a will; those are the individuals who will be receiving all or portions of the estate of the deceased. After a will has been signed, keep the original document in a secure, but accessible location and destroy previous iterations of the will; courts will not accept duplicate copies of a will and it can create a legal nightmare, especially if older, original wills are used to contest the probate process.

Considerations

When drafting a will, it is of utmost importance to name the right people to manage your estate and who should receive that estate. Ensure your executor is able to carry out the functions that will involve gaining the necessary documents, communicating with a variety of parties, following through with probate and/or court orders. Beneficiaries should be carefully considered as inheritance can affect those receiving government needs-based programs; an increase in income or assets can make them ineligible for critical support services. Additionally, all beneficiaries should be specifically named in the will or they could be unintended consequences; for example, step-children are not automatically considered as beneficiaries according to the law.

In New Jersey, when a will is probated, there must be a Child Support Learn Judgement search conducted to determine if the individual owes any child support over $2,000; this can complicate how much any beneficiaries may receive. Additionally, any creditors of the deceased can come forward and file claims against the estate; in fact, creditors have up to 9 months after a will is probated to file a claim so probating a will too quickly without a full understanding of the deceased financial situation can cause beneficiaries to be liable to pay the deceased debts. If you have non-adult children or provide care of anyone with special needs, you can appoint guardianships in your will.

A person’s finances are not affected by a will. All financial accounts and other elements that contained named beneficiaries have no bearing on the content of a will. Even by naming someone as a beneficiary of a financial account does not have any affect; all beneficiaries for financial accounts should be named in those documents. If a financial account does not have a named beneficiary, it becomes part of a the deceased estate and will require further probate proceedings to determine a beneficiary.

Probate Process

One a person dies, the will must be probated in the county surrogate’s court. To start the probate process, the original will, information intake sheet (varies by county), original death certificate, and all necessary fees must be submitted to a county court responsible for probate. In NJ, wills can be probated as early as 10 days after a person’s passing; the 10 day period allows anyone to file a caveat with the court to prevent the will from being probated.. After filing, the executor will be given all legal documents related to the probate process, including letters the executor can take to financial institutions and other organizations to carry out the directives in the will.

Next comes the “Notice of Probate Process” where the executor must draft letters containing the information about when and where the will was probated and offer to provide copies of the will. These letters must be sent to everyone who was named in the will as well as any intestate beneficiaries, those individuals excluded from the will, but that would be legally considered beneficiaries if the person died intestate. If an intestate beneficiary wishes to challenge the will, they have 4 months if living in-state or 6 months if living out of state to file a challenge to the probated will.

The next phase is the “Asset Gathering and Taxation” phase in which all of the assets named in the will are turned over to the executor and tax documents (in any) are filed. There is a federal estate tax for estates in excess of $15,000,000. In NJ, there is no estate tax; however, there is an inheritance tax. The inheritance tax is determined by the individual who is inheriting the asset or property. There are 4 “classes” for a beneficiary, each with there own tax implication:

• Class A: spouse, child, or any lineal descendant (parent, step-child) – not subject to state inheritance tax. A L8 (non-real estate) or L9 (real estate) form must be filed with the NJ Division on Taxation.
• Class C: siblings – graduated taxation. The first $25,000 is exempt, then taxed at 11% until $1,060,000 where the rate increases to 16%.
• Class D: individuals not part of Class A or B (friends, partners, nieces, nephews, etc.) – graduated taxation. Taxed at 15% up to $700,000, and 16% on anything over that limit.
• Class E: state or non-profit organization – not subject to state inheritance tax.

If an inheritance tax must be paid, the will is not considered fully probated until those individuals file the correct documents when filing their yearly taxes, which can extend the length of the whole process. To avoid the inheritance tax, an individual can pay a “gift of anticipation” to a non-exempt beneficiary at least 3 years before their death. When managing this phase, be aware that a 1040 must still be filed for the deceased individual and if an estate made any money (from dividends, interest, etc.) in excess of $600 before the probate process officially ends, that money is subject to federal and state taxes.

Once the assets have been gathered and the tax implications have been addressed, all property in the estate is disbursed and the will is fully probabted.

No Will and Will-Lite

In New Jersey, if someone dies without a will, they are considered intestate. However, there is a mechanism that create a speedy conclusion of this process. If you have an estate of less than $50,000 and those who want to inherit would be the same as those designated under intestacy (what the state determines you would have wanted should you have had a will), the courts will assign an “Administrator” through an “Affidavit of Next of Kin” or “Affidavit of Surviving Spouse”.

Trusts

Trusts are accounts where money and property can be “stored” with certain conditions. Generally, with the federal estate tax so high now, the main two types of trusts are revocable and irrevocable trusts. A revocable trust allows an individual the flexibility to modify the arrangements of the trust (how much control they have, beneficiaries, executors, length of time, etc.) while an irrevocable trust cannot be changed. Generally, anything that put into a trust is considered outside of our estate and would not be part of the probate process.

Life Estate Deeds

A life estate deed transfers ownership of a property to an heir while allowing the person to still live in the residence. This can remove the property from being probated, protect against Medicaid estate recovery, and provide potential capital gains tax savings if the property is sold. However, a life estate deed cannot be revoked or changed unless the beneficiary agrees to the changes. Additionally, if the heir has creditors, gets divorced, or has other financial problems, the property may be sold or removed from their custody, forcing the resident out of the home.

Power of Attorney

A power of attorney grants someone specific authority over a person’s life while they are still alive. Powers of attorney can be used for financial decisions, business decisions, medical decisions, and a variety of other considerations. Medical power of attorneys are commonly called living wills and you do not need to have one person act as power of attorney for all decisions. By granting someone Power of Attorney, you are relinquishing all rights related to aspects proscribed in the document. All aspects of decision-making should be identified in the document to avoid confusion.

Powers of attorney come in 2 forms: general and springy. General power of attorney occurs as soon as the document is signed by all parties; a springy power of attorney is only declared valid upon the determination of mental incapacitation by a doctor.

More Information

Before considering any estate plans, it is recommended to speak with an attorney; all the information provided here is not considered legal advice. For more information, contact Adam Lipps at alipps@lsnj.org. You can view a recording of the webinar on our YouTube channel at https://youtu.be/4m9wcM9FhZI.

NJSL Presents

NJSL is committed to providing our patrons with information services, including NJSL Presents, our series of free, virtual programs, presentations, and trainings on topics of interest to State government, Thomas Edison State University (TESU), and the public.

NJSL Presents Events Calendar 

Sign up to attend our live, online presentations on topics including genealogy, NJ history, personal finance, and career development.

NJSL Presents Newsletter

Sign up for our monthly newsletter to stay in the loop about upcoming programs, exciting events, library news, and highlights from our special collections!