Estate Planning and Life Insurance Trusts

By Parag P. Patel, Esq.

Few people realize that, even though they may have a modest estate, their families may owe the government hundreds of thousands of dollars because they own a life insurance policy with a substantial death benefit. This is because life insurance proceeds, while not subject to federal income tax, are considered part of your taxable estate and are subject to federal estate tax at rates from 37% to 55%.

The solution to this problem is to create an irrevocable life insurance trust to own the policy and receive the policy proceeds on your death. A properly drafted life insurance trust keeps the insurance proceeds from being taxed in your estate as well as in the estate of your surviving spouse. It also protects the trust beneficiaries from their own "excesses," against their creditors and in the event of divorce. Moreover, the trust also provides reliable management for the trust assets. Here's how the irrevocable life insurance trust works.

You create an irrevocable life insurance trust to be the owner and beneficiary of one or more life insurance policies on your life. You contribute cash to the trust to be used by the trustee to make premium payments on the life insurance policies. The contributions you make to the trust for premium payments generally will qualify for the annual gift tax exclusion. The life insurance trust typically provides that, during your lifetime, principal and income, in the trustee's discretion, may be paid or applied to or for the benefit of your spouse and descendants. This allows indirect access to the cash surrender value of the life insurance policies owned by the trust, and permits the trust to be terminated if desired despite its being irrevocable. On your death, the trust continues for the benefit of your spouse during his or her lifetime. Your spouse is given certain beneficial interests in the trust, such as entitlement to income, limited invasion rights, and eligibility to receive principal. On the death of your spouse, the trust assets are paid outright to, or held in further trust for the benefit of, your descendants.

If you own a life insurance policy with a significant death benefit, an irrevocable life insurance trust may be of substantial benefit to you.

My experience indicates that for most clients this is an issue. If you have an estate plan, review your documents to ensure proper estate tax planning is in place. If you have no estate plan, you should talk to an estate planning attorney to minimize your estate tax bill and maximize your estate assets for your family.

How to Stretch Your IRA Into a Family Fortune

 

Your individual retirement account (IRA) can do much more than provide funds for your retirement -- it can be stretched to provide millions of dollars in payouts to your children, grandchildren or others you choose to be beneficiaries.

Example: An IRA balance of only $100,000 may provide more than $8 million in future distributions when left to a young child.

What you need to know...

stretching an IRA

Most IRA owners think of their IRAs as providing savings only for themselves -- and their spouses, if married.

This is largely because traditional IRAs are subject to annual required minimum distributions (RMDs) that begin at age 70½ and cause the IRA's funds to be distributed over the life expectancy of its owner.

IRA owners typically believe that if they live to their full life expectancies (or longer), there will be little or nothing left in their IRAs to leave to heirs.

Surprise: The life expectancies that govern mandatory IRA distributions as given in IRS tables are not actual life expectancies. The IRS life expectancies are much longer than actual average life expectancies.

The table below shows the life expectancies as provided by the IRS's "Uniform Lifetime Table" for IRA distributions, which is used by most IRA owners (single persons and married persons with spouses not more than 10 years younger) to determine the size of RMDs, versus actual average life expectancies as given by the National Center for Health Statistics.

Life Expectancies

Age	IRA Table Years	Actual Years
70	27.4	14.9
75	22.9	11.8
80	18.7	9.0
85	14.8	6.8
90	11.4	5.0
95	8.6	3.6
100	6.3	2.6

Key: As a result of the difference, you may be able to leave funds in an IRA for much longer than you expect.

Moreover, initial RMDs may be so small that your IRA will continue to grow in value for years after distributions begin.

Explanation: At age 70½, when RMDs start, life expectancy under the IRS table is 27.4 years.

Each year's RMD is determined by dividing the IRA balance by the number of years in life expectancy -- so at age 70½, the RMD is 1/27.4, or 3.6%, of the IRA's value. If your IRA earns more than this, it will continue to grow in value in spite of the distributions.

So, if you take only minimum distributions each year from your IRA and it earns 8% annually, it will continue to grow until you reach age 88! (Under the IRS table, the RMD won't reach 8% of the IRA's value until then.)

the stretch

Once a beneficiary receives an IRA, its value may resume growing at a much faster rate.

Rule: A beneficiary can take required distributions over his/her life expectancy starting in the year after the inheritance. But if the beneficiary is young, life expectancy may be 50, 60 or 70 years, or even more, making initial RMDs so small that the IRA can grow rapidly.

Example: A grandparent leaves a $100,000 balance in an IRA that earns 8% annually to a one-year-old grandchild. The child's life expectancy under the IRS single life tables used by beneficiaries is 81.6 years, so the initial RMD is only 1.2% of the IRA balance.

Under the applicable IRS life expectancy table, the RMD won't reach 8% of the IRA balance until the grandchild is 70 years old. If the child takes minimum distributions, the IRA balance will grow for 69 years -- even with the child taking minimum distributions from it all that time.

In total, over the 82 years of the child's life expectancy, the IRA will pay the child $8,167,629 dollars -- more than eight million dollars from the initial $100,000.

how to do it

Steps to make the most of your IRAs...

Roll over funds from other retirement accounts into IRAs. This will let you use the "stretch IRA" strategy for as much of your retirement savings as possible.

Open Roth IRAs or convert traditional IRAs to Roths if eligible. These are even better to stretch than traditional IRAs. Distributions from them are tax free and there are no required minimum distributions for the original IRA owner. (Beneficiaries must take RMDs.) This lets you save funds in them for longer periods to earn more compounding.

Plan retirement spending to preserve IRAs. Build your investment portfolio for your retirement years. Best: Plan to consume IRA funds last. This will provide more tax-favored compounding within the IRA for you, and help you leave a bigger IRA balance to heirs.

Rules for the stretch

The beneficiary who takes a stretch IRA must be a named person, not your estate.

Be sure the custodial agreement with your IRA trustee provides for allowing a stretch IRA -- not all do.

Either have separate IRAs for each beneficiary or formally "split" your IRA among them, such as by designating a set percentage as going to each. Traps...

If an IRA with multiple beneficiaries isn't split up, the life expectancy of the oldest governs distributions for the others.

If a non-person (such as a charity) is co-beneficiary of an IRA, its life span of zero applies to all other co-beneficiaries, forcing them to take rapid distributions -- and eliminating the stretch.

When an IRA is left to a spouse, to use its funds to set up a stretch IRA for a child (or other beneficiary), the spouse must first convert the inherited IRA into his own IRA (only a spouse can do this), and then name the child (or other party) as beneficiary.

After the spouse dies, the inherited IRA must be retitled with the deceased owner's name in it, or the IRS will deem it distributed and taxable.

Example: "Frederic Jackson, IRA (deceased June 15, 2006) for the benefit of Sandra Jackson, beneficiary."

Important: Convince your beneficiaries of the importance of taking minimum "stretch" distributions. If they empty your IRA of cash as soon as they inherit it, all the potential decades of future compounding will be lost.

Saver: A trust can be named as beneficiary of your IRA to pass through payments to an heir, assuring that only minimum RMDs are taken (unless the trustee deems there is good reason to take larger distributions) so compounding is maximized.

Many technical rules apply to trusts and IRAs generally, so consult an IRA expert.

Stretch your IRA

How would you like to make your grandchildren millionaires? Would it put a smile on your face to insure that your great-grandchildren never have to think about money?

Its easy ... if you have the discipline and self control to budget annual savings, if you're right about any number of assumptions and if you read on.

We're talking about Stretch IRAs.

Individual Retirement Accounts (IRAs) have been one of the most popular retirement vehicles for the past generation of investors. They let you enjoy tax-deferred savings over an extended period of time.

A Stretch IRA is a term commonly used to describe an IRA established to extend the period of tax-deferred earnings, typically over multiple generations.

In the short run, you can use the concept to reduce the required withdrawal you must take from the account if you're retired or at least age 70 1/2, and you'll cut your current income tax bill as well.

Meanwhile, because you are extending the IRA payout until your grandchildren retire (or further, if appropriate), you get substantial additional deferral years to compound the earnings growth. Depending on the earnings and payout rates, potential payouts may approach multi-million-dollar levels.

Distribution rules simplified
All of this becomes possible thanks to rules a few years ago that simplified distribution rules for qualified plans and IRAs. These rules:
Provide a uniform table to determine lifetime required minimum distributions regardless of age.

Permit a beneficiary to be determined up to the end of the year following the death of the primary owner.
Allow the normal life expectancy that would apply at the time of death to be taken into account in the calculation of post-death minimum distributions.
The rules let you determine your minimum distribution each year, based on your current age and account balance. The new distribution schedule is based on the joint life expectancies of you and a survivor who's at least 10 years younger. It assumes that both begin receiving distributions beginning at age 70. (There's an even simpler distribution table for spouses who are not more than 10 years apart in age.)

These new rules also allow you to determine your beneficiary up to your death, and to select a beneficiary more than 10 years younger than you. These moves are what combine to reduce current minimum distribution requirements and extend the deferral period. (Remember, you can always take more than the minimum required annual distribution from your retirement plan. These changes affect people who want to take out the lowest required amount.)

Checking out the numbers
Lets take an example. Assume I started my IRA at age 29. (I know, I know: I should have started earlier.) And I plan to contribute $2,000 per year until age 69 when I die. That gives me 40 years of compounding, and, at a 7% rate of return, my IRA at the end of that time should be worth $399,270.

I leave the IRA to my wife, whos 20 years younger than I am and who lives until shes 69. Thats another 20 years of tax-deferred compounding, which, at 7%, compounded monthly, brings the value of the account to $1,612,547.

She leaves the account to our granddaughter, who has additional 70 years of compounding. At the same 7% rate, her account is then worth $213,487,584 when she retires!

I can see the smile on her face now ... even if the money becomes all taxable. I can hear her children laughing, freed from any financial concerns.

(The numbers potentially could be bigger. Thanks to the 2001 and 2003 tax cut laws, you have been able to make larger contributions to IRAs. For 2005 and 2006, the contribution limit is $4,000 a year. It will rise to $5,000 a year starting in 2008.)

IRAs have been an excellent and extremely popular investment tool. As of 2004, millions of Americans have saved $3.07 trillion for retirement using IRAs and employer-sponsored defined contribution plans, according to the Investment Company Institute. The IRA total was $1.49 trillion.

Is the Stretch IRA right for you?
But before you jump at Stretch IRAs, recognize that its all in the assumptions. Any changes in the assumptions change the potential value of your investment fund. A Stretch IRA assumes:
You dont need the money, either before or after retirement. That's a big assumption.

You will take the smallest amount of money the law allows, and at the latest time it allows, without penalty (currently at age 70 1/2).

Your primary beneficiaries die early, before they can deplete the investment fund.

That tax laws will remain constant and not change.

That inflation is minimal, and will not significantly cut into your rate of return and the ending values of the account.

That your returns dont vary. Most Stretch IRAs assume a constant rate of return that can be projected accurately over the long term. In the real world, those investors in the stock market who got in six years ago and got out two years ago -- before the market crash -- will have a very different rate of return than those who started their investment portfolio two years ago.

Stretch IRAs are a great way to accumulate financial freedom for your heirs. But their true value depends on realistic assumptions being made and realized. Lots of things can happen that will stunt the growth of an IRA. And you have to be sure the account fits YOUR needs.

But that $213 million looks awfully attractive to me!

NEW JERSEY’S DEATH TAX: WHAT ARE MY OPTIONS?

If you die with an estate greater in value than $675,000, your estate will pay New Jersey Estate Tax. In the past, the State’s estate tax was based on and equal to the credit that the federal government would give to an estate for estate tax paid to a state. Wow! That sounds complicated, right?

Well, not really. What that means in English is this, if an estate had to pay $10,000 to New Jersey for estate tax, the federal government would give the estate a $10,000 credit against the federal estate tax that the estate owed to the feds; accordingly, if the total federal estate tax would have been $100,000 without the credit, then the estate would owe New Jersey $10,000 and the feds $90,000. The state estate tax did not increase the overall tax liability of the estate.

On July 1, 2002, that all changed. Since a new federal tax law—passed in June 2001—increased the credit that the federal government gives an estate against federal estate tax and eventually eliminates the federal estate tax and since that same law reduces the credit that the federal government will give to an estate for estate tax paid to a state and eventually eliminates the credit, New Jersey’s estate tax would have disappeared, along with hundreds of million dollars revenue. So, on July 1, 2002, New Jersey passed a new law that freezes the State’s estate tax at the rate that existed on December 31, 2001.

Now, even though the federal government provides a reduced—and eventually no—credit for state estate tax paid, New Jersey will continue to receive its revenue. For some estates, this new law could actually increase the overall tax liability, notwithstanding the federal governments sweeping tax law, which was sold as the death to death taxes.

So, now that you know about New Jersey’s new tax law, how do you plan for it? New Jersey’s elder law attorneys have been discussing the planning options for several months now. Here are some of the options:

Relocate. One suggestion is that you move to another state where the estate tax isn’t so onerous or where there is no state estate tax. I don’t view this option as viable for two reasons. One, I think it’s unlikely that anyone—or at least very few people—would relocate in the twilight years of their life after having lived in a state for most, if not all, of their life just to avoid a death tax. Secondly, the state to which the person moves may—and probably will—change its estate tax law in a manner similar to the manner in which New Jersey modified its law.

Gifts. If you give assets away, the reasoning goes, those assets won’t be included in your estate for purposes of calculating the estate tax. The catch is, the gift must have been made three years prior to the date of death. If the gift was made within three years of death, then the gift is brought back into the estate for purposes of calculating the New Jersey Estate Tax. So, not only would the decedent have lost the benefit of the asset gifted during his/her life if he failed to live for three years after making the gift, the gift still would not escape the estate tax. Gifting is an option, but not a great option.

Credit Shelter Trust. Briefly, a married couple can draft trusts into their Wills that protect each spouse’s applicable exemption against the federal estate tax. In English, if the federal government gives a credit equal to $2,000,000 against federal estate tax, then the credit shelter trust will receive $2,000,000 of assets on the death of the first spouse. If the federal credit were $3,500,000, the trust will receive $3,500,000 on the spouse’s death, and so on.

If the credit against the State death tax is now frozen at $675,000, a trust could be drafted into the couple’s Wills that will be funded with $675,000, and the remainder of the estate of the deceased spouse can pass to the surviving spouse. This type of trust preserves each spouse’s credit against New Jersey Estate Tax and $675,000 of the federal credit.

What I think everyone can agree on is, the new law requires an estate plan to be reviewed if the estate is greater in value than $675,000.

Probate Basics

The legal process of transferring of property upon a person's death is known as "probate." Although probate customs and laws have changed over time, the purpose has remained much the same: people formalize their intentions as to the transfer of their property at the time of their death (typically in a will), their property is collected, certain debts are paid from the estate, and the property is distributed.

Probate Administration

Today the probate process is a court-supervised process that is designed to sort out the transfer of a person's property at death. Property subject to the probate process is that owned by a person at death, which does not pass to others by designation or ownership (i.e. life insurance policies and "payable on death" bank accounts). A common expression you may have heard is "probating a will." This describes the process by which a person shows the court that the decedent (the person who died) followed all legal formalities in drafting his or her will. What is often taught about the probate process is how to avoid it. The movement to avoid probate is primarily motivated by the desire to avoid probate fees. It is, in fact, quite possible to avoid the probate process completely. There are three primary ways to avoid probate and its protections: joint ownership with the right of survivorship, gifts, and revocable trusts. The probate system, however, exists for the protection of all the parties involved and the focus of this article is what occurs in probate.

What Happens in Probate?
The probate process may be contested or uncontested. Most contested issues generally arise in the probate process because a disgruntled heir is seeking a larger share of the decedent's property than that he or she actually received. Arguments often raised include: the decedent may have been improperly influenced in making gifts, the decedent did not know what they were doing (insufficient mental capacity) at the time the will was executed, and the decedent did not follow the necessary legal formalities in drafting his or her will. The majority of probated estates, however, are uncontested. The basic process of probating an estate includes:
• Collecting all probate property of the decedent;
• Paying all debts, claims and taxes owed by the estate;
• Collecting all rights to income, dividends, etc.;
• Settling any disputes; and
• Distributing or transferring the remaining property to the heirs.

Usually, the decedent names a person (executor) to take over the management of his or her affairs upon death. If the decedent fails to name an executor, the court will appoint a personal representative, or administrator, to settle the estate. The administrator will fulfill many of the same duties listed above.
Typically, people may leave property to any person they wish, and may make such designations in their will. However, in certain situations, depending on the relationship to the decedent and the laws of the state, the decedent's wishes may have to be overridden by the court. For example, in most states, a spouse is entitled to a certain amount of property. Furthermore, creditors may have a claim on the property of the estate. Each jurisdiction usually prescribes how long an estate must be open to give creditors an adequate time frame in which to present claims to the estate. The more complex and sizable the estate, the longer and more time-consuming this process can be.

The probate process itself also carries with it a number of costs that are usually paid out of estate assets. These costs include:
• Fees of the personal representative;
• Attorneys' fees; and
• Court costs.

President-elect Obama's tax plan

Tax-Plan Highlights

Here are some of the details of President-elect Obama's tax plan.

INCOME TAX
Maintain current tax rates of 10% to 28% for most Americans. Reinstate top tax rates of 36% and 39.6% on joint income of more than $250,000 ($200,000 for individuals).

CAPITAL GAINS/DIVIDENDS
Maintain maximum rate of 15% for most taxpayers. Boost top rate to 20% for investors with income of more than $250,000. Under current law, taxpayers in the two lowest income-tax brackets pay zero capital gains in 2008, 2009 and 2010. Eliminate capital-gains taxes on start-ups and small businesses to encourage innovation.

RETIREMENT ACCOUNTS
Suspend mandatory distributions for those 70½ and older. Permit taxpayers to withdraw up to $10,000 from retirement accounts penalty-free; withdrawals would still be subject to income taxes.

NEW TAX CUTS
Tax credit of up $1,000 to offset Social Security taxes for low-wage earners. Eliminate income tax for seniors making less than $50,000. Double the tax credit for college expenses to $4,000. Create a 10% mortgage tax credit for those who don't itemize. Provide a $1,000 rebate funded by a windfall-profits tax on oil companies to offset high energy costs.

AMT
Maintain current exemption and index to inflation.

ESTATE TAX
Set exclusion at $3.5 million per person ($7 million per couple); keep rate at 45%.

SOCIAL SECURITY
Maintain current wage base of $106,800, indexed for inflation. Impose additional tax of 2% to 4% paid by employers and employees on earnings exceeding $250,000 -- but delay implementation for at least ten years.

CORPORATE TAX
Keep top rate at 35%; close corporate loopholes.

2008 Year End Estate and Trust Taxes and Planning: Before It's Too Late!

Although year-end tax planning generally focuses on income taxes, a thorough year-end tax assessment should include reviewing your estate plan and estate tax situation as well. In 2008, the highest marginal estate tax rate is 45 percent. If your estate is large enough to be subject to this tax, you can begin planning to reduce or eliminate that tax liability. Without proper planning, the estate tax can consume a substantial portion of your estate, leaving less property for your loved ones.

1. How Do I Know If My Estate Is Subject to Estate Tax?
The estate tax generally is based on the fair market value of a person’s estate at death. However, every estate is entitled to an exclusion that effectively exempts a certain amount of property from the tax. This exclusion amount currently is scheduled to increase over time and is illustrated in the chart below:


Based on the estate tax exclusion, in 2008 an individual can pass $2 million to the next generation estate tax-free. A husband and wife can pass up to $4 million estate tax-free if their estate is properly structured and their assets are properly titled.
Although everyone has an estate tax exclusion, it could be wasted if an estate plan is not properly structured or assets are not titled properly. The key is to make sure that an individual has assets at least worth the exclusion amount in his or her name or in a trust that is included in his or her estate for estate tax purposes. If a husband and wife own all of their assets jointly (or one spouse owns the majority of the assets and the other spouse owns little or no assets), they run a good chance of wasting one of their exclusions, thereby subjecting more property than necessary to estate tax.
To ensure full utilization of both spouses’ exclusions, each spouse should have at least $2 million in their name or a trust that is included in their estate for estate tax purposes.
For married couples, the estate tax law also provides an unlimited marital deduction. This deduction allows an individual to leave an unlimited amount of assets to a surviving spouse (either outright or in certain types of trusts) without incurring an estate tax on the death of the first spouse. Proper marital deduction planning allows an individual to defer estate tax until the death of the surviving spouse.
In order to determine if your estate is subject to estate tax, review the assets you own and determine what they are worth. What you own is broader than just your security portfolio. Your estate generally includes real property, the death benefit of life insurance (unless you do not have any “incidents of ownership” with respect to the policy), IRAs and other retirement plan benefits. Add the value of these assets up. If they total less than $2 million, your estate should not generally be subject to estate tax, assuming you did not make any taxable gifts during your life. If your estate is worth more than the estate tax exclusion, you may want to consider meeting with your professional tax advisor to determine what opportunities are available to reduce this tax in a way that is consistent with your overall estate planning goals and objectives.

2. What’s All This I Heard About Estate Tax Repeal?
In 2001, tax legislation was enacted that repealed the estate tax. However, this repeal is being phased in over time. In 2008, we still have an estate tax. The exclusion chart shows how the phase-out of estate tax repeal is scheduled to occur. It is based on an increasing amount an individual can leave without incurring an estate tax (i.e., the estate tax exclusion). As of now, the estate tax is set for complete repeal only in 2010 only because a sunset provision in the tax legislation repealed the estate tax for just one year. The estate tax is scheduled to be fully reinstated in 2011 (with an exclusion amount of only $1 million), unless Congress acts to make the repeal permanent. To date, Congress has not been successful in passing legislation that would make estate tax repeal permanent. There are numerous proposals floating around Washington that seek to minimize the burden of the estate tax short of complete repeal. One proposal that has gained attention would increase the estate tax exclusion amount to $5 million per individual (as opposed to $2 million per individual) and tie the estate tax rate to the capital gain rate for smaller estates or two times the capital gain rate for larger estates. It is important to remember that no one knows if the estate tax will be repealed or whether a compromise proposal will even be reached. Therefore, proper planning is still essential.

3. What About Family Limited Partnerships?
Many people have created family limited partnerships for estate, asset protection or other purposes. From an estate tax perspective, assets are put into an FLP and, in return, limited partnership interests are received. These limited partnership interests have traditionally generated discounts for gift and estate tax purposes because they are not marketable and provide no control over the management and operation of the FLP. Because of the discounts, the limited partnership interests are worth “less” than the limited partnership interests’ proportionate value of the underlying assets in the FLP. Since the limited partnership interests are not as valuable as the FLP’s assets, less estate or gift tax would ultimately be due.
The IRS has been challenging the estate tax benefits that have traditionally been available to FLPs. These challenges have culminated in a series of successful court cases for the IRS. The IRS has had success in cases where the facts indicate, among other things, that the person who established the FLP either controlled the partnership or had an express or implied agreement that he or she would benefit from the FLP property if needed. These cases tended to involve transactions in which substantially all of a person’s assets were transferred to an FLP and there was no real or business purpose to engage in the planning other than to generate estate tax discounts.

If you have engaged in estate planning that includes an FLP, it would be prudent to review the impact of this recent string of cases on your plan. This review should include not only determining if there are any problems posed by the creation or operation of your partnership, but also what, if any, remedies can be pursued if a problem exists.

4. What Should I Be Thinking About Before Dec. 31, 2008?
a. Annual Exclusion Gifting
If an individual is subject to the estate tax, one manner to reduce that future liability is by making gifts. If gifts are made while you are alive, the gifted property, plus any appreciation generated by that gifted property, would be removed from your estate for estate tax purposes.
The tax law provides every individual with an annual gift tax exclusion. Under this exclusion, the first $12,000 of gifts ($24,000 for married couples who elect to split gifts) made by a donor to each donee in calendar year 2008 is excluded from the amount of the donor’s taxable gifts. Utilizing these exclusions can save both transfer tax for the donor and family income taxes because the annual exclusion makes the transfer free of gift tax. Estate tax can be saved because both the value of the gift and post-transfer appreciation will not be included in the donor’s estate. Subject to the kiddie tax rules, family income tax savings can be realized when income-producing property is given to family members in lower-income tax brackets.

To take advantage of annual exclusion gifting for 2008, you must act no later than Dec. 31, 2008, by making a completed gift. Unused annual exclusions cannot be carried over to future years.
Planning Point: A gift must be “complete” in order to get an annual exclusion credit. Typically, a gift is complete when the donor gives the property to the donee. However, care must be taken when gifts are made by check. If a gift of a check is made near the end of 2008 and the donor wants to take advantage of the exclusion for that year, the donee must deposit the check before year-end so there is no doubt when the gift was made. Direct deposit of funds into the donee’s account would be even better.
b. 529 Plan Gifting
Contributions made to a 529 Plan are treated as gifts and will therefore use some or all of an individual’s annual exclusion. However, because of a special provision in the tax law, an individual is allowed to make a lump sum contribution of up to $60,000 to a 529 Plan for any number of donees and treat the contribution as if it was made ratably over a five-year period. If a person makes this election, he or she will not exceed the $12,000 per year gift tax exclusion. In effect, he or she will be using future annual exclusions so the amount that can be gifted in future years by annual exclusion gifting will be reduced. The benefit of making a lump sum contribution is that there is more money in the 529 Plan available for growth.

5. What Should I Be Thinking About Before April 15, 2009?
a. Make Annual Exclusion Gifts Early in the Year
For those individuals who are making annual exclusion gifts, there is no reason to wait until the end of the year to make the gifts. Beginning Jan. 1, 2009, a person can begin making annual exclusion gifts for 2009. The benefit of making the gifts early in the year is that any appreciation on the gifted property during the year would not use up any of your annual exclusion.

b. Funding Your Revocable Living Trust
Many clients have revocable trusts as part of their estate plan. One of the main reasons people establish revocable trusts is to avoid the cost and delay of probate. However, simply signing a revocable trust is not enough. A person’s assets need to be re-titled in the name of the trust to avoid probate. If you have a revocable trust as part of your estate plan, it is a good idea when you are gathering all of your income tax information to review your brokerage statements, 1099s and other tax statements to see how your assets are titled. It could be that you have an estate plan that looks good on paper but will not achieve the probate avoidance results you anticipated because your assets are not titled appropriately.

c. Complex Trusts and Estates Can Choose the Tax Year for Deducting Distributions
Complex trusts and estate distributions made within the first 65 days of 2009 may elect to be treated as paid and deductible in 2008. As a result, fiduciaries do not need to make payments in 2008 for those payments to be deductible in that year. They can wait until 2009, when the 2009 tax picture should be clearer, to decide whether the payments should be imputed back to 2008 or treated as 2009 payments. If an estate or complex trust elects to treat a 2008 distribution as paid in 2008, the distribution is taxable to the beneficiary in 2008.
Of course, there are many more strategies that a person might want to consider implementing as part of his or her estate plan. As always, the key is proper planning. The end of the year is a good time to review your estate plan to determine if it still meets your goals and objectives and maximizes all estate tax planning opportunities available. If you have never executed an estate plan, the end of the year also is a good time to begin the process.

10 Costly Mistakes to Avoid in Helping Families with Special Needs

This article examines the unique planning requirements of families with children, grandchildren or other family members (such as parents) with special needs. There are many misconceptions in this area that result in costly mistakes in planning for these special needs beneficiaries. It is therefore incumbent upon us - the client's advisors - to ensure that clients understand all of their options.

COSTLY MISTAKE #1: Disinheriting the child.Many disabled people rely on SSI, Medicaid or other government benefits to provide food and shelter. Your clients may have been advised to disinherit their disabled child - the child who needs their help most - to protect that child's public benefits. But these benefits rarely provide more than basic needs. And this "solution" does not allow your clients to help their child(ren) after the client becomes incapacitated or is gone. When a child requires, or is likely to require, governmental assistance to meet his or her basic needs, parents, grandparents and others who love the child should consider establishing a Special Needs Trust.

Planning Tip: It is unnecessary and in fact poor planning to disinherit a special needs child. Clients with special needs beneficiaries should consider a Special Needs Trust to protect public benefits and care for the child during the client's incapacity or after the client's death.

COSTLY MISTAKE #2: Procrastination.Because none of us knows when we may die or become incapacitated, it is important that your clients plan for a beneficiary with special needs early, just as they should for other dependents such as minor children. However, unlike most other beneficiaries, a child with special needs may never be able to compensate for a failure to plan. A minor beneficiary without special needs can obtain more resources as he or she reaches adulthood and can work to meet essential needs, but a child with special needs may never have that ability.

Planning Tip: Parents, grandparents, or any other loved ones of a special needs child face unique planning challenges when it comes to that child. This is one area where the client simply cannot afford to wait to plan.

COSTLY MISTAKE #3: Failure to coordinate a planning team effort.It is critical that the advisor assisting with special needs planning include in the planning team: an attorney who is experienced in this planning area; a life insurance agent who can ensure that there will be enough money to maintain the benefits for the special needs child; a CPA who can advise on the Special Needs Trust's tax return; an investment advisor who can ensure that the trust fund's resources will last for the child's lifetime; and any other key advisors that may support the goals of the trust going forward.

Planning Tip: Special needs planning dictates that the client's advisors work together to ensure that there are sufficient trust assets to care for the child throughout his or her lifetime.

COSTLY MISTAKE #4: Ignoring the special needs when planning for the child's benefit.Planning that is not designed with the child's special needs in mind will probably render the child ineligible for essential government benefits. A properly designed Special Needs Trust promotes the special needs person's comfort and happiness without sacrificing eligibility.Special needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (for example, a specially equipped van), training and education, insurance, transportation, and essential dietary needs. If the trust is sufficiently funded, the disabled person can also receive spending money, electronic equipment & appliances, computers, vacations, movies, payments for a companion, and other self-esteem and quality-of-life enhancing expenses: the sorts of things your clients now provide to their child or other special needs beneficiary.

Planning Tip: When planning for a child with special needs, it is critical that the client utilize a Special Needs Trust as the vehicle to pass assets to that child. Otherwise, those assets may disqualify the child from public benefits and may be available to repay the state for the assistance provided.

COSTLY MISTAKE #5: Creating a "generic" special needs trust that doesn't fit.Even some "special needs trusts" are unnecessarily inflexible and generic. Although an attorney with some knowledge of the area can protect almost any trust from invalidating the child's public benefits, many trusts are not customized to the particular child's needs. Thus the child fails to receive the benefits that the parent provided when they were alive.Another frequent mistake occurs when the Special Needs Trust includes a "pay-back" provision rather than allowing the remainder of the trust to go to others upon the death of the special needs child. While these "pay-back" provisions are necessary in certain types of special needs trusts, an attorney who knows the difference can save your clients hundreds of thousand of dollars, or more.

Planning Tip: A Special Needs Trust should be customized to meet the unique circumstances of the child and should be drafted by a lawyer familiar with this area of the law.

COSTLY MISTAKE #6: Failure to properly "fund" and maintain the plan.When planning for children with special needs, it is absolutely critical that there are sufficient assets available for the special needs beneficiary throughout his or her lifetime. In many instances, this requires utilization of a funding vehicle that can ensure liquidity when necessary. Oftentimes permanent life insurance is the perfect vehicle for this purpose, particularly if the clients are young and healthy such that insurance rates are low.Also, because this is an ever-changing area, it is also imperative that the clients revisit their plan frequently to ensure that it continues to meet the needs of the special needs beneficiary.

Planning Tip: Clients should consider permanent life insurance as the funding vehicle for special needs beneficiaries, particularly when the beneficiary is young given the often staggering costs anticipated over that beneficiary's lifetime.If the client may be subject to estate tax, consider having an Irrevocable Life Insurance Trust own and be the beneficiary of the policy, naming the Special Needs Trust as a beneficiary. Alternatively, in a non-taxable situation, consider naming the client's revocable trust as the beneficiary to help equalize inheritances if that is the client's objective.

COSTLY MISTAKE #7: Choosing the wrong trustee.During your client's life, he or she can manage the trust. When the client is no longer able to serve as trustee, they can choose who will serve according to the instructions that they have provided. They may choose a team of advisors and/or a professional trustee. Whomever they choose, it is crucial that the trustee is financially savvy, well-organized, and, of course, ethical.

Planning Tip: The trustee of a Special Needs Trust should understand the client's objectives and be qualified to invest the assets in a manner most likely to meet those objectives.

COSTLY MISTAKE #8: Failing to invite contributions from others to the trust.A key benefit of creating a Special Needs Trust now is that the beneficiary's extended family and friends can make gifts to the trust or remember the trust as they plan their own estates. For example, these family members and friends can name the Special Needs Trust as the beneficiary of their own assets in their revocable trust or will, and they can also name the Special Needs Trust as a beneficiary of life insurance or retirement benefits.

Planning Tip: Creating a Special Needs Trust now allows others, such as grandparents and other family members, to name the trust as the beneficiary of their own estate planning.

COSTLY MISTAKE #9: Relying on siblings to use their money for the child with special needs' benefit.Your client may be relying on their other children to provide for their child with special needs from their own inheritances. This can be a temporary solution for a brief time, such as during a brief incapacity if their other children are financially secure and have money to spare. However, it is not a solution that will protect the child with special needs after your client has died or when siblings have their own expenses and financial priorities.What if the inheriting sibling divorces or loses a lawsuit? His or her spouse (or a judgment creditor) may be entitled to half of it and will likely not care for the child with special needs. What if the sibling dies or becomes incapacitated while the child with special needs is still living? Will his or her heirs care for the child with special needs as thoughtfully and completely as the sibling did?Siblings of a child with special needs often feel a great responsibility for that child and have felt so all of their lives. When your clients provide clear instructions and a helpful structure, they lessen the burden on all their children and support a loving and involved relationship among them.

Planning Tip: Relying on siblings to care for a special needs beneficiary is a short-term solution at best. A Special Needs Trust ensures that the assets are available for the special needs beneficiary (and not the former spouse or judgment creditor of the sibling) in a manner intended by the client.

COSTLY MISTAKE #10: Failing to protect the child with special needs from predators.An inheritance from parents who fund their child's special needs trust by will rather than by revocable living trust is in the public record. Predators are particularly attracted to vulnerable beneficiaries, such as the young and those with limited self-protective capacities. When you plan with trusts rather than a will, your client decides who has access to the information about their children's inheritance. This protects their special needs child and other family members, who may be serving as trustees, from predators.

Planning Tip: A Special Needs Trust created outside of a will ensures that information about the inheritance is not in the public record, protecting the special needs beneficiary from predators.
Conclusion Planning for special needs beneficiaries requires particular care and the participation of all of the client's wealth planning advisors. A properly drafted and funded Special Needs Trust can ensure that the beneficiary has sufficient assets to care for him or her, in a manner intended by the client, throughout the beneficiary's lifetime.

The Secret Stretch IRA

It may seem like a contradiction, but there is a way to leave a lot of money to your heirs even if you're not rich. Individual retirement accounts (IRAs) were established to let you save tax-deferred until age 70 1/2, after which you were required by law to begin withdrawing funds. But new rules define how you can pass on your wealth for two generations and reduce the amount you must take out. Called a stretch IRA, this new version has become a popular estate-planning tool.

"Stretch" is a bit complicated, but at its heart is the miracle of compounding. Over the course of 60 years, assuming an 8% rate of return, $200,000 in an IRA can pay out more than $4.9 million, according to Putnam Investments.

Here's one way a stretch IRAcould work: A father names his son as a beneficiary. When the father reaches age 70 1/2, he elects to have the benefits stretched over his life and his son's life. When he dies, the son gets the IRA and can take the money out slowly by spreading withdrawals over his remaining life expectancy. He has to pay income taxes only on the amount he withdraws every year. That's a huge tax benefit considering that if the father died without naming a beneficiary, the IRA would be liquidated and more than a third could be eaten up by taxes. Spreading the payments out over more time and thus reducing the withdrawals means the beneficiary won't have to take such a big tax hit right away. The son can also name his own beneficiary, perhaps his daughter, and spread the remaining proceeds to a third generation (although that's where it stops). Talk about the gift that keeps on giving. "It could grow exponentially," says financial planner Lee Rosenberg of ARS Financial Services in Jericho, N.Y.

Even though the IRS offers these provisions, some financial institutions won't let you stretch out your IRA. So before you open an account or decide to keep the IRA where it is, make sure your firm will allow it. If so, designate the beneficiary before you are required to start taking distributions. And keep the paperwork in a safe place. "People lose their IRA assets after death because they can't find the documents. If you can't find your beneficiary forms, the firm may treat it as if you don't have a beneficiary," says Ed Slott, a Rockville Centre, N.Y., accountant and editor of Ed Slott's IRA Advisor.

Another problem: you or your parents may have already hit the age that requires you to start taking IRA benefits, which is generally April 1 of the year following the year you turn 70 1/2. Right now, if you missed the deadline, you're out of luck. But there's legislation working its way through Congress that would give everyone a chance to start anew. If enacted, the fresh-start rule would go into effect on Jan. 1, 2002.

Keeping track of all these provisions can be confusing, and there are serious tax implications. So you might want to seek the advice of a retirement planner to determine if the stretch IRA works for you. It may not make sense if you're planning to live off your IRA assets in retirement. But if you have a sizable nest egg, taking the stretch can be a valuable option for you and your heirs. You can't take it with you, so you might as well leave as much as you can.

THE PROBATE PROCESS IN NJ

Probate is the process whereby a Will is proved to be valid by a Surrogate, who has the authority to determine the authenticity of such a document. It also involves appointing an individual for an Estate when someone dies without a Will.

Probate is done when someone dies with assets in their name alone. The individual named in the Will as the Executor/rix (hereinafter referred to as the personal representative) would come to the office of the Surrogate with the original Will and a certified copy of the death certificate.

Application is made to the Surrogate of the County where the decedent resided at the time of death. If the Will is self- proving (language added to the will that allows the document to prove itself), no further proof or testimony will be necessary to probate the Will.

If the Will is not self-proving, a proof of one of the witnesses is necessary to complete the probate.

Certain qualification forms would need to be signed by the personal representative. No probate can be completed until the day following the tenth day after death. Fees will be charged as set forth by the New Jersey legislature. It is a relatively inexpensive process.

If someone dies without a Will, an individual can make application to be appointed as Administrator/rix (also hereinafter referred to as the personal representative) to represent the Estate.

After signing qualification papers, the Administrator/rix would need to post a bond that represents the full value of the Estate and file renunciations from any individual that has a prior or equal right to be appointed.

The Surrogate, as part of the process, will issue letters and certificates evidencing the appointment of the individual to the Estate which will allow them to access and transfer assets such as bank accounts, stocks, bonds, etc.

Once the probate is complete, the personal representative of the Estate has sixty days in which to notify the heirs at law, next of kin and beneficiaries that application was made for probate.

McCain & Obama's Estate Tax Plans

From Wall Street Journal: Stayin' Alive: How to Cheat The Estate Tax, by Tom Herman:

The Obama Plan. Sen. Obama proposes a $3.5 million exclusion in 2009 and thereafter, with a top rate at 45%. His plan will "fully repeal the estate tax for 99.7% of households," says Jason Furman, Sen. Obama's economic policy director. "He would add certainty and stability to the tax code by making the 2009 estate tax parameters permanent, exempting estates of up to $7 million for a married couple," Mr. Furman says. The Obama plan "retains the estate tax for the top 0.3% of estates in order to restore fairness to the tax system, helping to pay for a tax cut for 95% of workers and their families."

The McCain Plan. Sen. McCain proposes raising the exclusion to $5 million per person and cutting the top federal estate-tax rate to 15%, says Douglas Holtz-Eakin, the senator's senior policy adviser and a former director of the Congressional Budget Office. This plan "should go into place ASAP after he is elected," Mr. Holtz-Eakin says. "If the political climate makes it next to impossible to achieve full repeal, then Congress should look towards a compromise," says Mr. Holtz-Eakin, referring to President Bush's unsuccessful efforts to kill the estate tax permanently. He calls Sen. McCain's plan "a compromise that holds the potential for breaking the logjam and providing some much-needed certainty." Cutting the tax rate to 15% "would link the death tax with the current capital-gains tax rate," Mr. Holtz-Eakin says. "By doing so, Americans will not be forced to pay more in death than they would if they had sold property prior to their death." He also says that a $5 million exclusion "is generally thought by many to be the appropriate size to help small-business owners avoid cash-flow difficulties" upon the death of a family member.

A Good Time To Review Estate Tax Plans: Decline in asset value prompts new strategies

The fallout from an unsteady economy that has toppled Wall Street titans also is shaking up New Jersey, with unemployment rising and fears that more upheaval is yet to come.

But the financial maelstrom may offer opportunities for business owners, according to some accountants and lawyers, who say the downturn in stocks, housing and other assets makes it a good time to review estate tax plans.

“Even if a company has not been directly impacted by Wall Street troubles, this may be a particularly good time for business owners to think about estate tax planning,” since certain tax strategies are pegged to interest rates, says Elizabeth E. Nam, a senior manager in the family office group of Rothstein Kass, an accounting firm with an office in Roseland.

One such planning vehicle is a grantor trust—a way to transfer business interests and other assets to next-generation heirs while minimizing estate tax liability.

“A low-interest-rate environment like this could open up some good opportunities to move a business from the senior generation to the next generation of owners,” Nam says.

In some cases, the value of real estate and other assets are now at depressed levels, so “giving them away now can mean that any later growth will be excluded from an individual’s estate, for tax purposes,” says Warren K. Racusin, a partner in the Morristown law office of McElroy, Deutsch, Mulvaney & Carpenter LLP. He is co-chair of the firm’s private client services group, and focuses on estate planning and other matters.

“This opportunity is perhaps the best since the early ‘90s, when we went through the savings and loan crisis,” he says. “Stocks, real estate and some business assets have taken a drubbing, so getting them out of an individual’s estate now may make sense.”

Scott Testa, a tax principal at the East Hanover office of Friedman LLP, an accounting firm, agrees.

“It’s a classic move,” he says. “When assets are depressed, you can generally gift more of an interest in them at a lower value, potentially reducing your taxable estate and your exposure to gift tax liability.”

One strategy involves transferring ownership rights in a closely held company without losing control of the business.

“A business may be able to create two classes of stock or interests, preferred interests—with fixed or stated priority as to dividends or distributions—and common interests that allow for future appreciation,” Testa says. “The current owner would retain the preferred interests, thus ‘freezing’ the value of his or her retained share of the business, while the common interests would be gifted to the owner’s children.” Those common interests would appreciate with the market’s recovery.

Another way to reduce the taxable value of an estate involves gifting cash, an interest in a business or other assets without running afoul of exemptions to gift taxes.

Generally, individuals can give away as much as $12,000 a year per recipient without having to pay a tax based on the value of the gift. On a cumulative basis, donors generally are subject to a $1 million lifetime exemption before they have to pay tax on the gifts.

“The key is to leverage these gifts using techniques that allow for discounts, or to take advantage of the currently low IRS valuation and interest rates,” Testa says. In

the case of marketable securities that have depreciated below the value paid, “it may be best to sell the shares first and then gift the cash.”

The timeline of the estate tax is another consideration, Testa says. It’s scheduled to be repealed in 2010, and reinstated in 2011.

“I’ve been counseling clients about strategies they can adopt,” Testa says. “But some of them are hesitant to take any action because of uncertainty surrounding the future of the estate tax.”

Estate Planning: More Than A Will

By Parag P. Patel, Esq.
www.patellawoffices.com



During our lifetime, most of us strive to create and build upon our net worth. We generate savings, purchase a home, and eventually invest in stocks, bonds, mutual funds, IRAs and retirement plans. Unfortunately, most of us risk losing an unnecessarily large amount of these assets by failing to plan to protect them.



Recent surveys have revealed that over 40% of our population does not have a will. For those individuals, their death often creates a scenario whereby their family must needlessly waste money to petition the court for an individual to administer the estate. In many instances, this insult is compounded by the assets being subject to taxes, which could easily have been avoided. Thus, an integral part of anyone's financial planning must be an estate plan.



Traditionally, an estate plan was simply a will. However, with the growing medical needs of an aging population, as well as the ever-present threat of the Internal Revenue Service, prudent estate planning requires additional protections for all of us. Even the best written will has little value if one's assets are depleted in later years by health care costs which can be mitigated or borne by someone else.



Any prudent estate plan should address four questions:

(1) Where do I want my money to go after I am dead?

(2) How can I minimize any taxes as a result of my death?

(3) How can I protect my estate and myself if I become disabled?

(4) Do I want my life to be extended by life support even though a medical event has left me in critical condition without any hope of recovery?



The basic documents, which are necessary to answer these questions, are a will, living will and power of attorney. A will declares who shall inherit an individual's assets (the beneficiaries) and who shall be responsible for distributing them to such beneficiaries (the executor). For young parents, a will can also be used to appoint a guardian for their children and a trustee to manage a child's money until they are old enough to handle it themselves.



Often, individuals wish to care for their spouse first, then their children. Often, this intention is reflected in a will. If you die without a will, though, your spouse is only entitled to the first $50,000.00 outright. In New Jersey, he or she must split the rest of your assets with your children, no matter how young or old they are. If you have no children, your parents step into their place.



Even if you have a will, your assets are not completely protected. It is necessary to execute a Power of Attorney to provide to appoint someone to care for you and your assets if you are disabled. Individuals, who become disabled mentally and do not have a power of attorney, can only be protected by an expensive and humiliating procedure known as a guardianship, whereby they are judged to be "incompetent" in the public forum of a court.



Finally, a living will should be executed to announce your intentions in the event an accident, stroke or other serious medical event leaves you brain dead or physically depleted of any possible quality of life. A living will protects your assets from being used for unnecessary and costly life support. Without a living will, there is no authority, outside of a court proceeding, to allow a doctor to discontinue this treatment.

Estate Planning Checklist

This initial estate planning questionnaire is presented in a narrative form. The detailed explanations and the space provided for answers are designed to garner more complete and helpful information than would be afforded by merely filling in blanks.


ESTATE PLANNING REVIEW

FOR

__________________________

The purpose of this questionnaire
Your lawyer will use the information you provide in this
questionnaire:
1. To help you organize personal and financial
information so that you can assess your current
estate plans and evaluate whether changes are desired
or required.
2. To provide your estate planning attorney with the
information needed to make a similar analysis.
3. To help you evaluate your lawyer's estate planning
recommendations. The estate plan is your plan, not
your lawyer's, and you must be satisfied that it is
workable.

The information you provide must be as accurate as
possible. If you are uncertain about exact information,
tell your lawyer that and give your best assessment. If
your lawyer believes that exact information is required,
he or she will ask you to be more precise. You may provide
as much or as little information as you want. We recognize
that this questionnaire is a fairly intrusive document.
Keep in mind, however, that the more complete the
information is, the better it will equip you and your
lawyer throughout the planning process to come up with the
best possible estate planning alternatives. Your
information will be kept confidential by your lawyer
unless you authorize or request its release to others.
PERSONAL AND FAMILY INFORMATION
State the names requested below exactly as you want them to
appear in your will and other estate planning documents.
Where the space on the form is insufficient, please use the
reverse side.
Your name: _____________________ Date of birth: ___________
Spouse's name: _________________ Date of birth: ___________
Home Address:______________________________________________
Telephone No.: ______________________
Are you a United States citizen? _______________
If not, of what country are you a citizen? ________________
Is your spouse a citizen of the United States?_____________

If not, of what country is he/she a citizen? ______________
Your children, their spouses, and their children
Indicate which, if any, of your children is your child but
not your spouse's, or vice versa. Also show the date and
place of adoption of any adopted child. Be sure to include
any deceased child and indicate the date of the child's
death and his or her surviving spouse and children.
1.(a) Child:___________________ Date of birth: ____________
(b) Personal data (specify is the child from prior
marriage, adopted, deceased, etc.)
___________________________________________________________
___________________________________________________________
(c) Child's spouse:___________________ (d) Child's children
(and their dates of birth):
___________________________________________________________
___________________________________________________________
2.(a) Child:___________________ Date of birth: ____________
(b) Personal data (specify is the child from prior
marriage, adopted, deceased, etc.)
___________________________________________________________
___________________________________________________________
(c) Child's spouse:___________________ (d) Child's children
(and their dates of birth):
___________________________________________________________
___________________________________________________________
3.(a) Child:___________________ Date of birth: ____________
(b) Personal data (specify is the child from prior
marriage, adopted, deceased, etc.)
___________________________________________________________
___________________________________________________________
(c) Child's spouse:___________________ (d) Child's children
(and their dates of birth):
___________________________________________________________
___________________________________________________________
4. If either you or your spouse has been married
previously, state the name of each prior spouse and
indicate whether he or she is now living (if living give
his or her address).:______________________________________
___________________________________________________________
If either you or your spouse has been divorced, attach a
copy of the divorce decree.
5. Is there other important personal information that might
affect your estate plans? For example, does a member of
your family have a serious long-term medical or physical
problem that will require special care or attention in the
future?
___________________________________________________________
___________________________________________________________
PERSONAL AND FAMILY FINANCIAL ASSETS
The following questions do not require detailed responses.
For example, shares in publicly traded companies might be
shown simply as "common stocks." On the other hand, for
property interests that are more or less unique, such as
interests in real estate, greater detail will be helpful.
With regard to real estate, it is important for your lawyer
to know the location (city and state) of the real estate,
how title is held, and the character of the property, e.g.,
residence, shopping center, apartment house, or similar
description.
The following abbreviations may be used to describe certain
attributes of particular assets:
JT = Joint tenancy with right of survivorship
TE = Tenancy by the entirety
TC = Tenancy in common
H = Husband's name alone
W = Wife's name alone
LT = Land trust
FMV = Fair market value (or your best estimate)
CV = Cash value of life insurance policy
PV = Proceeds of life insurance policy
1. Personal residence:
Address: ______________________________________________
Description (e.g., single family, condo, or co-op,
similar description): _________________________________
How you hold title:

FMV:__ Mortgage balance, if any:______________ Mortgage

life insurance?__________________

2. Other personal residences or vacation homes:
Address: ______________________________________________
Description (e.g., single family, condo, or co-op,
similar description): _________________________________
How you hold title:

FMV:__ Mortgage balance, if any:______________ Mortgage

life insurance?__________________

3. Personal and household effects: If you think that the
general categories do not provide an adequate description,
please provide additional detail. Also state your best
estimate of the value of each kind of property and who owns
it (how you hold title).
Automobiles:_______________________________________________
General personal and household effects such as furniture,
furnishings, books, and pictures of no special value: _____
___________________________________________________________
___________________________________________________________
Valuable jewelry (indicate if insured): ___________________
___________________________________________________________
Valuable works of art (indicate if insured): ______________
___________________________________________________________
Valuable antiques (indicate if insured): __________________
___________________________________________________________
___________________________________________________________
Other valuable collections, e.g., coins, stamps, or gold
(indicate if insured):_____________________________________
___________________________________________________________
___________________________________________________________
Other tangible personal property that does not seem to be
covered by any of the other categories: ___________________
___________________________________________________________
___________________________________________________________
4. Cash, cash deposits, and cash equivalents: State the
name and address of each bank or institution and who owns
each item.
(a) Checking accounts, including money market
accounts:
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
(b) Ordinary savings accounts:
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
(c) Certificates of deposit:
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
(d) Short-term U.S. obligations (T-bills):
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
5. Pension & profit-sharing plans, IRAs, ESOPs or other
tax-favored employee-benefit plans.
(a) Pension plans.

You:___________________ Vested:____ Current value: _______
Spouse:________________ Vested:____ Current value: _______
(b) Profit-sharing plans.
You:___________________ Vested:____ Current value: _______
Spouse:________________ Vested:____ Current value: _______
(c) Individual Retirement Accounts (IRAs).

You:_________________________ Current value ______________
Spouse:______________________ Current value ______________
(d) Other tax-qualified employee benefit plan
interests. Please provide similar information. ___________
__________________________________________________________
6. Life Insurance on your life.
(a) Ordinary life insurance. List company, name,
address, and policy number.

__________________________________________________________

__________________________________________________________
Face amount of policies (proceeds):_______________________
If you do not own it, who does? __________________________
Beneficiaries: ___________________________________________
Cash value:_______ Loans, if any, against it: ____________
Amount of accidental death benefits, if any:______________

(b) Term/group term insurance. List company, name,
address, and policy number.
__________________________________________________________
__________________________________________________________
Face amount of policies (proceeds):_______________________
Owner other than you:_____________________________________
Beneficiaries:____________________________________________
__________________________________________________________
Accidental death benefits:________________________________
__________________________________________________________
(c) Please supply similar information with respect
to other life insurance or other insurance having life
insurance features:_______________________________________
__________________________________________________________
7. (a) Life insurance on your spouse's life. List
company, name, address, and policy number.________________
__________________________________________________________
Face amount of ordinary life insurance:___________________
Owner other than spouse:__________________________________
__________________________________________________________
Beneficiaries:____________________________________________
Cash value:_______ Loans, if any:____________
Accidental death benefits:___________________
(b)Term/Group life insurance. List company, name,
address, policy number.___________________________________
__________________________________________________________
Face amount of term/group term insurance:________
Owner other than spouse:__________________________________
Beneficiaries:____________________________________________
Cash value:_______ Loans, if any:____________
Accidental death benefits:________________________________
(c) Other insurance on spouse's life:______________

__________________________________________________________
8. Closely held business interests. Describe any interest
you have in a family or other business with limited
shareholders. Include the nature of the business, its form
of organization (e.g., corporation, partnership, or the
like), whether you are active in its operations, and your
estimate of its value. If it is a corporation, please
indicate whether an "S election" is in force with respect
to the federal taxation of the corporation._______________
__________________________________________________________
__________________________________________________________
__________________________________________________________
With respect to any such business, do you believe it would
continue to operate successfully in the event of your
permanent absence from it or the permanent absence of some
other key person? ________________________________________
__________________________________________________________
9. Investment assets. With respect to each category, please
state the owner (how title is held) and the approximate
value.
(a) Publicly traded stocks and corporate bonds.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(b) Municipal bonds.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(c) Long-term U.S. Treasury Notes and Bonds.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(d) Limited partnership interests.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(e) Other investments. Please describe the general
nature and value of other investment interests:
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
Other interests of current or future value
1. Interests in trusts. Describe any trusts created by you,
by any other person, such as a parent or ancestor, in which
you or a member of your immediate family has a right to
receive distributions of income or principal, whether or
not such distributions are actually being received or
anticipated in the future. Be as specific as you can. If
possible, submit a copy of the trust agreement. If the
trust agreement is not available, show the date the trust
was created, whether it can be amended or changed, whet
her someone has a power of appointment over it, when the
trust terminates, and who will receive the trust property
upon termination. Also, state the approximate current
value of the trust and the annual income from it.
___________________________________________________________
___________________________________________________________
2. Anticipated inheritances. If you or any other members of
your immediate family are likely to receive substantial
inheritances in the foreseeable future from persons other
than yourself or your spouse, describe your best estimate
of the value and the nature of each inheritance.
___________________________________________________________
___________________________________________________________
3. Other assets or interests of value. Describe the general
nature, form of ownership, and your estimate of the value
of any asset or interest of value that does not seem to
fit in any of the categories above.
__________________________________________________________
__________________________________________________________
Liabilities
Describe here substantial financial liabilities not
reflected in the asset information you have provided above.
If they are secured, indicate the nature of the security.
Also show any substantial contingent liabilities, such as
personal guarantees you have made on obligations of a
business, a family member, or any other person. Indicate
whether you have insured against any of these obligations
in the event of your death, or if the obligations do not
survive your death.
PERSONAL ESTATE PLANNING OBJECTIVES
1. How would you dispose of your estate at your death if
there were no such thing as estate or inheritance taxes?
__________________________________________________________
__________________________________________________________
__________________________________________________________
2. In the event of your death, would your spouse or
children be likely to receive income from sources other
than your estate, such as the continuance or resumption by
your spouse of his or her vocation or profession?
__________________________________________________________
__________________________________________________________
__________________________________________________________
3. Describe any personal objectives you have for your
family and your estate that override possible adverse tax
consequences arising from trying to achieve them.
__________________________________________________________
__________________________________________________________
__________________________________________________________
GUARDIANS, EXECUTORS, AND TRUSTEES

1. Guardians for minor children. If you have minor
children, you may designate in your will a guardian or
guardians of the person and their estate in the event of
your death and/or your spouse's.
(a) Guardian of the person.

Name(s):__________________________________________________
Address:__________________________________________________

(b) Guardian of the estate, if different.
Name(s):__________________________________________________
Address:__________________________________________________
(c) Substitute guardian of the person.
Name(s):__________________________________________________
Address:__________________________________________________
(d) Substitute guardian of the estate.
Name(s):__________________________________________________
Address:__________________________________________________
2. Executor. Your executor has the responsibility to wind
up your affairs at your death, see to it that your assets
are collected, that claims, expenses, and estate and
inheritance taxes are paid, and then distribute your
property to trustees or others you have named. It is a
task of limited duration, substantial responsibility, and
much work.
(a) Principal executor.
Name(s):__________________________________________________
Address:__________________________________________________
(b) Substitute executor.
Name(s):__________________________________________________
Address:__________________________________________________
3. Trustees. Your trustees have the responsibility for the
long-range management of property that is to be held in
trust for the benefit of the beneficiaries of trusts you
may create.
Depending on the terms of the trust, there may be adverse
tax consequences if a trustee has an interest or possible
interest in the trust, although usually if the trustee's
discretion is limited those adverse tax consequences are
similarly limited. A trustee can be a corporation
(qualified to act) or individual. You may choose to have
co-trustees, one of which may or may not be a corporation.
Because corporate trustees must charge fees for their
services, they may decline to accept small trusts. Their
fees to administer a small trust may turn out to be
disproportionately large if they are to cover their costs
in handling the trust. In general, choose a trustee with
the following qualities: integrity, mature judgment,
fiscal responsibility, and reasonable business and
investment acumen. If you wish to select co-trustees, you
may want to choose them for how well their individual
strengths compliment each other. Frequently, the same
person(s) or corporation selected as executor(s) may be
designated as trustee(s).
(a) Principal trustees.
Names:_____________________________________________________
___________________________________________________________
Addresses:_________________________________________________
___________________________________________________________
(b) Substitute trustees (to act if one or more of
the principal trustees cannot or will not act).
Names:_____________________________________________________
___________________________________________________________
___________________________________________________________
Addresses:_________________________________________________
___________________________________________________________
___________________________________________________________
OTHER MATTERS
1. Other factors. Describe or list here any facts or
matters that do not seem to be covered by the other
sections of this questionnaire and that you believe may be
important for your estate planning attorney to know.
___________________________________________________________
___________________________________________________________
___________________________________________________________
2. Community property. If you now live in or have lived in
one of the states listed below, or if you own real estate
in one of these states, please circle the name of the
state and indicate whether you and your spouse have
entered into any agreement about whether that property is
separate property.
States: Arizona, California, Idaho, Louisiana,
Nevada, New Mexico, Texas, Washington, Wisconsin___________
___________________________________________________________
3. Powers of attorney. Have you given a power of attorney
to your spouse, a child, or any other person authorizing
them to do either specific things on your behalf or to act
generally on your behalf? If so, please indicate to whom it
was given, the nature of the power (specific or general),
the date, and the location of the document granting the
power. ____________________________________________________
___________________________________________________________
___________________________________________________________
4. Living will. Have you signed any document indicating
your wishes concerning the "heroic" or extraordinary
measures to save your life in the event of a catastrophic
illness or injury? If not, would you like to do so? ______
5. Health care power. Have you signed any document
specifically authorizing another person such as your spouse
to make decisions with respect to your health care in the
event that you are unable to do so? If not, would you like
to do so? ___________
Date completed:____________
The American Bar Association Guide to Wills and EstatesCopyright © 2004 American Bar Association

Guardianship of Children With Special Needs

Two good posts coming from Leanna Hamill in Massachusetts and Tredway, Lumsdaine & Doyle in California on planning for children with special needs. Among the excellent suggestions are the following:
Special Needs Trust - allowing parents, grandparents and guardians to provide funds for a special needs child without disrupting eligibility for government aid.
Exploring the qualifications of the child’s guardian. Specifically, are they located close enough to qualified medical personnel? Can they handle (or are they knowledgeable) about the particularities of caring for your child?
Have you left enough financial and other resources to care for the child? Everything from remodeling a house to make it wheelchair accessible to paying for the guardian to stay home full-time should be considered.

Estate Planning in New Jersey

Estate Planning in New Jersey
You can save a lot of money and potential chaos and hard feelings among those closest to you by preplanning how you want your assets managed when you are incapacitated, and how your property will be divided at your death.


Powers of Attorney
In New Jersey, you can sign a durable power of attorney to appoint someone to handle your assets if you become incapacitated. At a minimum, a power of attorney should include the power to:

Manage and transfer all assets
Deal with the IRS
Make gifts on your behalf
Create and amend any trusts you set up
You don't need to transfer any assets at the time you sign a power of attorney, but it's a good idea to keep the person you've chosen informed about your ongoing financial matters.

You can also appoint a Durable Power of Attorney for Health Care to make health care decisions for you when you're unable to do so yourself. This person can provide informed consent for treatment, or even refuse treatment for you.

Dying Without a Will
If you die without a will (known as dying "intestate") in New Jersey, your assets will be divided amongst your immediate family. If you do not have children or parents, your estate will go to your spouse. If you have a spouse and children, your spouse gets the first $50,000 plus one-half of the balance of your estate. The remainder will go to your children. If you have a spouse and parents but no children, your spouse also gets the first $50,000 plus one-half of the balance of your estate.

If you do not have a spouse, your children will receive your estate. If you do not have a spouse or children, your parents will receive your estate.

Alternatives to a Will
Wills eventually become public after your death, with the details of what you owned and how much it was worth available to anyone curious enough to read the court file. As a result, many people look for more private ways to transfer their assets.

In New Jersey, alternatives to making a will include:

Life insurance policies or trusts
Gifting cash or other assets before your death
"Transfer On Death" ("TOD") or "Payable On Death" ("POD") bank accounts
Holding assets by joint tenancy with right of survivorship ("JTROS"), with the assets transferring automatically to the other joint tenant at the time of death
Holding assets through a tenancy in common, with each tenant having a divided interest in the property which can be independently sold
Retirement plans and Individual Retirement Accounts ("IRAs")
"Revocable living trusts" (sometimes called "grantor trusts"), giving all your assets to a trustee for management before your death
Making a Will
In New Jersey, you can make a valid will if you are at least 18 years old and of sound mind. The will must be in writing and signed by you or by another at your direction and in your presence. Two or more competent witnesses must witness your signature.

A lawyer who does a lot of estate planning can explain the consequences of some of the most basic choices you must make, such as whether property you want to leave to your minor children should be put into a trust at your death. For that reason, it makes sense to consult with a New Jersey estate planning lawyer and have him or her draft your will, so that you don't make costly mistakes or accidentally not accomplish what you intended.

Providing For Young Children
There are many kinds of trusts, but the most common is one you would set up for your minor children or incapacitated adult relatives for their care after you are gone and until they are old enough or well enough to take care of themselves. A parent can name a trustee to be in control of the finances and decide whether to sell or keep property, and manage assets such as real estate. The trustee, usually a family member or trusted friend, can be paid an hourly rate or a set monthly amount for their services out of the trust assets.

You will probably also want to name a guardian for your children, someone who would have physical custody of and take care of your children on a daily basis should you or your spouse be unable to do so.

Probate
"Probate" is the public process of:

Filing and validating a will in court
Paying all the debts and taxes of the deceased person
Dividing up the assets according to the will or New Jersey law
If you have no debts and no "titled property" such as real estate or vehicles to pass along to heirs, there may be no need for probate.

Probate lawyers generally charge by the hour, and they make sure everything gets processed according to the law.

Naming Your Executor

You should name an executor in your will. In order to decide who is best to carry out this position, you need to know what responsibilities the position has.

The executor’s job is to start the probate process with the court, gather all of your assets, pay your debts, last expenses, and taxes, and distribute whatever is left over to the persons named in your will. Additionally, your executor will notify Social Security, pension providers, insurers, financial institutions, and other entities of your death. If you have antiques or valuable collections (coins, stamps, collectibles), your executor will need to hire an appraiser to get a value for these items. If anyone owes you money, the executor must collect that debt. At the end of the distribution, the executor must be able to give an accounting to all of your beneficiaries that your wishes, as expressed in your will, were carried out.

The executor owes fiduciary duties to anyone who has an interest in the estate, and the executor must act in the best interests of the estate. For example, if an executor mismanages the estate assets, he or she can be held personally liable and may have to repay the estate for any losses.

The executor for a New Jersey estate is entitled to a fee for services performed. Under New Jersey law, the executor of an estate is generally entitled to the following commissions:

6% on all estate income;
5% of the estate up to $200,000;
3.5% on excess above $200,000 up to $1,000,000;
2% on excess over $1,000,000 or such other percentage as the Superior Court may determine.

There are different rules for commissions when there is more than one executor, or when the executor has rendered unusual or extraordinary services. In some cases family members may choose not to accept (waive) fees. However, a decision to waive fees should be made only after the legal (who will get the money) and tax (what is the cost of the lost deduction) issues are considered.