Wills & Trusts Q&A

01. How do you approach estate planning?

Rather than use one size fits all forms, we listen carefully and then develop an estate plan based on your wishes and circumstances. While saving tax is important, we don’t let it over shadow your other key concerns such as protecting a child with disabilities or providing for a spouse in second marriages.

02. What should my will cover?

A will should clearly designate intended beneficiaries and name executors. Where beneficiaries may be young or impaired estate plans also should include trusts and designate trustees and possibly guardians. Trusts may serve other purposes as well. Because the will is a key instrument in estate tax planning, most wills for married couples should include at least basic tax planning trusts while wealthier folks may be interested in more sophisticated tax planning.

03. Do I need a revocable living trust?

Everyone should have a will, but most people don’t need the revocable living trusts that often are promoted to bypass probate or supposedly save tax and legal fees. Avoiding probate isn’t worth the extra cost, complexity, or inconvenience of a living trust because probate is a simple, inexpensive process in New Jersey. Tax-wise wills can save tax in similar manner to revocable living trusts, but living trusts can frustrate long term care planning. They also may entail ongoing maintenance costs in addition to hefty initial fees. Nevertheless, some living trusts serve legitimate purposes such as financial management when family can’t be trusted with power of attorney or simplifying administration when an individual owns real estate in several states.

04. Should my estate plan include other kinds of trusts?

Trusts are important components of many estate plans. Special/supplemental needs trusts can preserve government aid for individuals with disabilities that ordinary estate plans might jeopardize. Trusts are key tools to reduce tax, protect against remarriage, and occasionally to save assets from long term care costs. They also can protect against a beneficiary’s immaturity, impairments, creditors, and divorce and implement your views on spending gifts and inheritances or accumulating them for future generations. Finally, trusts can manage your finances, especially if capacity declines.

05. How can I carry out my wishes if I become disabled?

If you become impaired, an advance directive for health care can carry out your wishes on medical treatment, end of life decision making, pain killers, and other health concerns and name an agent to manage your health care. In contrast, bare bones living will forms available at hospitals or online only say whether to provide life support or resuscitate. A comprehensive power of attorney or financial management trust can secure your finances against taxes and long term care costs if your capacity declines. Unfortunately, generic power of attorney forms that some lawyers use actually may impede tax and long term care planning. Because it is too late to execute legal instruments once you lose capacity, expensive court proceedings to appoint a guardian may be the only option unless you execute an advance directive for health care and comprehensive power of attorney or financial management trust now.

06. How often should I update my will and other legal instruments?

Your legal instruments can’t meet your goals unless they evolve with your circumstances. Periodically, reviewing your estate plan with counsel can keep it up to date and avoid the ugly surprises that can come with stale legal instruments. For instance, different tax and financial provisions may be essential as wealth increases, retirement looms, or tax laws change. By the same token, will and trust terms and trustee and guardian appointments typically change as children grow up, marry, divorce, or start a family. Retirement, marriage, divorce, or a spouse’s death or decline can necessitate estate plan changes. Out of date advance directives for health care and powers of attorney may be rejected as stale.

07. Do I need new estate planning documents if I move?

A lawyer should review your estate planning documents whenever you change states because laws and tax rules differ from state to state. Some wills and trusts don’t require revision but relocation almost always calls for new advance directives for health care and powers of attorney.

08. What if my spouse needs long term care?

New wills, deeds, and beneficiary designations are essential when a spouse may need long term care. Legal instruments made while healthy almost surely will disqualify a spouse for Medicaid and divert to long term care costs amounts a new estate plan could pass to children. However, to keep from doing more harm than good, the new estate plan must be drawn in accordance with arcane and complex Medicaid and elective share rules.

09. How can I protect my children from prior marriage against disinheritance?

A surviving spouse may disinherit your children (especially if they are from a prior marriage). Even if your spouse’s current will provides for your kids, your spouse may change it after you pass away. Trusts, contracts to make a will, life insurance, and other techniques can protect your children against disinheritance, but only if you add them to your estate plan. However, legal advice is essential to understand that benefits and costs of each option and incorporate your preferences into your estate plan.

10. How can I benefit a loved one without jeopardizing disability aid?

Unless your estate plan includes a special/supplemental needs trust, it may disqualify a child or other loved one with special needs for disability aid like Medicaid, SSI, and housing causing your hard earned estate to replace rather than supplement government programs. Special needs planning also is important to protect medical malpractice settlements and other legal recoveries. However, to be effective a so-called special/supplemental needs trust must satisfy complex rules.

11. Why should I be concerned with taxes even if my estate is modest?

While most estates don’t pay federal estate tax, estates over $675,000 may owe New Jersey estate tax, and even small estates can face inheritance tax. Since your tax estate may include a home, 401(k) and other retirement funds, life insurance, savings, and investments, your estate may trigger tax even if you don’t feel wealthy.

12. How do recent tax law changes affect me?

Nearly all wills and estate plans should be reviewed to see if recent changes in tax laws present opportunities to reduce New Jersey estate and inheritance tax or federal estate, gift, and generation skipping transfer tax. With an LL.M. in taxation from New York University School of Law’s prestigious Graduate Tax Program, Lawrence Friedman is well equipped to help you develop a tax-wise estate plan.

13. How can I minimize estate and inheritance tax?

Estate tax planning is most effective when both spouses adopt tax-wise wills. Having no will or a simple will that leaves everything to a surviving spouse can trigger estate tax that tax planning wills could avoid while still providing for your surviving spouse. If either spouse is not a U.S. citizen, a Qualified Domestic Trust or other special planning may be needed to minimize tax. Advance planning also can avoid substantial estate tax on life insurance. While gifts can reduce potential estate and inheritance tax, they also can prove costly if made without tax counsel. For instance, gifts in trusts may be taxable gifts unless the trust contains special provisions. With careful planning gifts can be insulated from inheritance tax.

14. How do my IRA, 401(k) plan, and other retirement funds fit in?

Substantial tax and penalties can arise when retirement plan distributions don’t follow strict and complicated rules. Depending on age and other factors, you or your beneficiaries can face stiff penalties for failing to take required minimum annual distributions or receiving early distributions. By properly designating beneficiaries, you allow your spouse or descendants to defer tax for years, but faulty designations can prove costly. For instance, mixing individuals and charities as beneficiaries, not designating a beneficiary, or having your estate as beneficiary can dramatically accelerate tax.