oseph M. Hoffmann, Esq.
© 2012 Joseph M. Hoffmann, Esq. All Rights Reserved
Joseph M. Hoffmann, Esq. is a Lawyer who represents clients in New Jersey and serves:
All of Northern NJ including: Sussex County | Warren County | Morris County | Passaic County | Somerset County | Union County | Newton | Andover | Sparta | Branchville
Morristown | Vernon | Sussex | West Milford | Hopatcong | Rockaway | Dover | Mt. Olive | Hackettstown | Randolph |
Specialty Trusts
GRITS, GRATS and QPRITS are all acronyms (names) for some of the available special-planning techniques used by our
office to minimize federal estate taxes. For example, a "QPRIT" is a "Qualified Personal Residence Trust". It reflects a planning
technique permitted under sections of the Internal Revenue Gift and Estate Tax Code to allow part of the value of up to two homes
to be excluded from your taxable estate. We can review these and many other estate tax planning techniques with you.
Federal
Estate Tax
The Internal Revenue code imposes a steep tax upon estates which are greater than the current exemption ($5,000,000 in 2012).
The estate tax can be in addition to other taxes and can top out at 55%. Most transfers between U.S. citizen spouses or to charities
are exempt from the tax. The estate tax also covers transfers which ultimately go to grandchildren. Large gifts to grandchildren may
be subject to the Generation Skipping Tax (GST). This tax has a special set of rules and can be costly for large gifts or inheritances.
The federal estate tax is reported on I.R.S. form 706 and the tax is due nine months after someone dies. With businesses and assets
that are not liquid, it can become a significant burden unless there is careful planning in advance.
Our federal
government imposes a unified tax on property which is transferred through lifetime gifts, or as part of an estate. Transfers between
U.S. citizen spouses are generally exempt from both taxes. There is currently a lifetime exemption under the Federal Gift and Estate
Tax Code of $5,000,000.
In addition, every person is allowed to make gifts of $13,000 to any person (whether related or not) per year.
Some tuition and health cost payments are also exempt from gift and estate taxation. The gift tax is reported and paid on I.R.S. form
709.
If you have minor children, your Will is an excellent way to provide for a choice of person(s) to care for
them in the event that both parents die. We recommend that you also establish a trust in your Will to provide for the proper use of
the monies which your children will receive. The trust is often handled by an independent Trustee whom you select. You can direct
the payment of college, living, medical, and other expenses.
While this is often the most difficult decision for parents to make,
it is better for you to make the choice by writing a will as opposed to leaving the decision to the court system.
Living
Trusts
Many people transfer all of their assets to a "Revocable Living Trust." Generally, they do this to avoid overblown probate problems.
Considering that New Jersey is the most user-friendly state in which to probate a Will, and that trusts have administration and tax
implications, we do not think that Living Trusts represent the best planning advice for most of our clients.
Living Trusts do not exempt
your assets from New Jersey or federal inheritance tax. While they are useful in certain limited cases and for particular people,
you simply cannot write a document and claim to be exempt from taxation.
More importantly, Living Trusts raise issues about insurance,
income, trust tax returns, asset ownership and their proper administration in accordance with the New Jersey Prudent Fiduciary Law.
Our firm uses them when appropriate for our clients.
A Living Will is a special medical Power of Attorney which
appoints someone to make medical decisions on your behalf when you are unable to make those decisions for yourself. The term "Living
Will" is most often associated with a Power of Attorney which directs the removal of life support systems for terminally ill patients.
Living Wills can make certain that your intentions are carried out. This is important to your family and survivors for both emotional
and financial reasons. They are important economic documents to protect your assets from being wasted.
New Jersey currently does not impose an inheritance tax on immediate family members such as spouses, children and grandchildren.
It also exempts charities from the tax. There is a New Jersey Inheritance Tax on transfers to friends, some non-married partners and
most other beneficiaries who are not close family members. The tax has exemptions and is approximately 11% to 15% on taxable inheritances.
In 2012, New Jersey collected $ 434,000,000.00 in Estate and Inheritance Taxes.
A Power of Attorney is
your written authorization to allow someone to do things on your behalf. It can be limited to a specific area such as medical treatment
or tax returns. A Power of Attorney can be general and allow someone you trust to take care of all of your affairs. A "Durable Power
of Attorney" means that it is still effective if you are incompetent or disabled. We can help you write any document you need in this
regard.
Probate
Probate is the formal court process of having the state recognize a valid Will and appoint an Executor or
an Administrator.
New Jersey is the most user-friendly state in which to probate a Will. With a valid self-proving Will, probate is
a relatively inexpensive and simple process.
Probate should be distinguished from the process of assembling and dividing all an estate's
assets. By way of example, the Executor who is in charge of a large farm may have many responsibilities in settling that estate which
are not fairly called a probate.
You might have a loved one who is financially or medically challenged.
They also might be receiving valuable government benefits. If they are given or inherit property, it may exclude them from entitlements
like group homes, medical benefits and treatment.
For heirs with special needs, we can set up a trust which takes these issues into
consideration. Your trustees can be given limited and defined powers to help your loved one without disqualifying them from the benefits
which they receive. We can also work with you to establish trusts for heirs and loved ones who are not financially capable of properly
handling their own money.
Trusts have been called "the crown jewels" of our legal system. New Jersey recently amended
its laws to allow "dynasty trusts". A Trust is the transfer of an asset, property or money to a special owner called a "trustee".
When we create the trust document with you, you can specify the terms, conditions and uses for the money or assets which are placed
into the Trust. You can also designate contingent, residual or charitable beneficiaries to ultimately receive these assets.
Trusts can be useful planning techniques for minors, charities, financially challenged beneficiaries and as part of an estate tax
plan.
There are specific reasons why trusts must be carefully planned and administered. Trusts, like other
taxpayers, are subject to both state and federal income tax. For federal tax purposes, the income which a trust receives has very
limited deductions and quickly escalates to the 37% bracket. In addition, New Jersey also has a trust income tax which graduates to
8%. Most trusts are required to obtain a federal identification number, which is similar to a person's social security number,
and file the required tax returns on an annual basis.
Wills
A will is your written direction as to how your property should
be divided. It can contain a trust and appoint Guardians, Trustees, and Executors. A will allows you to make your own decisions about
your family, heirs and assets. Wills are generally "self-proving" and make the probate process very easy. You can also waive the cost
of a bond for the people who you entrust to handle your estate. A will is just taking care of business for the people you love.
Common Will Questions
Why write a will?
You make the decisions, not the state. Probate is quicker
and less costly. Your heirs can avoid the cost of a bond and you can appoint your Guardians, Executors and Trustees.
What is
the best place for an original will?
In your safety deposit box. Alternatively, we do hold wills for our clients without charge.
Does
the Government take much?
Only (1%) one percent of all estates are subject to the Federal Estate Tax. Most transfers to your U.S.
Citizen spouse are exempt and there is currently a $5,000,000.00 estate tax exemption.
Should I have duplicate originals of my
will?
Generally, we recommend that there be only 1 original will.
Can I change my will?
You can change, rewrite or revoke your
will whenever you want.
What if I don't have a will?
Your property will be divided among your heirs (generally family members)
by state law. It may not be the distribution that you wanted. The state does not take everything and all estate taxes are the same
whether you have a will or not. Probate is more costly, your heirs may need a bond and you will have given up your right to appoint
Executors, Trustees, Guardians and to do tax and asset planning.
Can I file my will?
No. Your will is your private document. It is
only filed "probated" when you die.
