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Ridgewood Estate Planning Blog

Music icon's death highlights the importance of estate planning

The unexpected death of musician Prince stunned people across the United States and the world. Having sold more than one hundred million albums over his career and having completed many successful concert tours, Prince amassed a fortune estimated at many hundreds of millions of dollars. Considering the size of his estate, the fact that Prince died without a will or trust was surprising to many estate planning professionals.

Had Prince died with a valid will or trust in place, his assets and property would have been transferred in an orderly fashion to the manner he intended. Instead, multiple individuals have made claims against the late musician's estate. Among these individuals are Prince's sister, Tyka Nelson and six half-siblings. Moreover, other individuals have made claims against his estate as well. For instance, a federal inmate in Colorado claims that he is Prince's son. If true, this man would stand to inherit Prince's entire fortune. However Prince's estate is eventually resolved, there is no question that with a will or trust, the process would be easier, faster and relatively free of drama.

Is relocation the answer to avoiding New Jersey estate and inheritance taxes?

New Jersey is one of the only states to have both an estate tax and inheritance tax. Currently, New Jersey has an estate tax rate of up to 16% on assets more than $675,000. Furthermore, New Jersey has an inheritance tax of 16% that applies to people other than spouses, children and parents. These taxes are in addition to the federal estate tax.

At least some New Jersey residents consider relocating due to estate planning considerations. Of note, New Jersey's wealthiest resident has relocated to Florida. David Tepper, a hedge fund manager worth approximately $10.6 billion, moved to Florida in October of 2015. Florida does not have an estate tax, nor does it have a state income tax. According to people familiar with Mr. Tepper, tax considerations were one factor for the move although not the only factor.

Is a Qualified Income Trust (QIT) right for you?

One of the biggest concerns many people have about growing older is spending the assets they earned over a lifetime to pay for nursing home care. The cost of nursing home care is astronomical. According to the New Jersey Department of Human Services, the average daily cost of nursing home care was approximately $330 a day in 2015. These costs can drain decades' worth of savings in a relatively short period of time.

Medicaid covers these costs for individuals who qualify. The problem is that in order to qualify for Medicaid, you must prove that you have limited income and assets. Thankfully, there are many effective strategies to qualify for Medicaid without first spending down all of your assets. On December 1, 2014, the federal government authorized the use of Qualified Income Trusts (QITs) in New Jersey. These instruments have proven to be an effective estate planning tool for many families.

Pets may be a concern of New Jersey owners during estate planning

Many New Jersey residents often consider their pets as part of the family. Therefore, they may be concerned about the welfare of those pets in the event that the owners suffer from a situation in which they are not able to properly care for their pets. In some cases, that issue could be due to illness or incapacitation or potentially due to the owner's demise. If individuals are concerned about pet care, they may wish to consider addressing the matter during estate planning.

If incapacitation occurs, parties are often unable to care for themselves let alone their pets. Therefore, individuals may wish to ensure that they have appointed caretakers for their pets. Additionally, if a durable power of attorney has been appointed, a pet owner will likely want to make sure that the appointed individual has to ability to use funds to take care of pet-related expenses.

Estate planning can put New Jersey families at ease

For New Jersey residents who want to ensure that their families understand their end-of-life wishes, estate planning is an action to consider. By creating an estate plan, individuals can detail what actions should take place in the event of their incapacitation, who should receive what assets after death and other similar topics. Though estate planning can prove beneficial in the future, many individuals put off creating their plans.

It was recently reported that 40 percent of individuals in the Baby Boomer generation do not have a will. Furthermore, when individuals over the age of 34 are considered, that number increases to 71 percent. Many parties may not follow through with their planning because they feel they have ample time to get around to it, but an unexpected accident or illness could occur at any time.

An unusual approach to estate tax planning

Many New Jersey families are interested in ways to reduce their estate tax obligation. While there are a number of ways to reach that goal, some are more creative than others and can benefit multiple members of the same extended family. An example lies in a practice known as upstream gifting, which can have capital gains and estate tax planning benefits for three generations or more within the same family.

Capital gains tax comes into play when a property is sold. The original purchase price is known as the cost basis and is adjusted considering aspects such as real estate appreciation/depreciation. The difference between the cost basis and the sales price of the property is the amount that is subject to capital gains tax. A higher basis means a lower tax obligation.   

How to select beneficiaries while estate planning

One of the primary purposes of an estate plan is to create a body of documents and vehicles to smoothly transfer wealth from one party to others after death. The concept is a simple one, but the construction of an estate planning package can be complex. One of the first and foremost matters that must be handled by New Jersey clients involves selecting one's beneficiaries.

Choosing who will inherit one's wealth can be a difficult decision. For parents, the matter is rarely cut-and-dried. Some parents wish that their wealth be divided evenly between all of their surviving children. Even this approach involves complex decision-making, however, as not all assets hold the same type and volume of wealth. For example, a piece of real estate is valued quite differently than a life insurance policy, and is far less liquid an asset; in order to maintain parity, it is necessary to think about which blend of assets most closely meet that goal.

Including dementia risk within estate planning

For many older people, concern over the possibility of dementia is a serious matter. Anyone who has cared for a loved one who suffers from dementia understands the difficulties involved. When a fully capable adult begins to lose his or her ability to function independently, the entire family is affected. Many in New Jersey look for ways to address this risk within their estate planning package, especially in regard to IRA savings.

When one spouse has an IRA, he or she often wants to name the other spouse as the primary beneficiary of that account, with the expectation that they will roll the fund over into their own IRA at the time of death. From that point forward, couples usually plan to name their children as the beneficiaries of the surviving spouse's IRA. When there is a concern that the surviving spouse could develop dementia, those plans can become more difficult to implement.

An estate planning gift that truly keep giving

As the holidays come to a close, many New Jersey families are wondering if they gave their loved ones the best possible gifts, and if those gifts will be put to use in the coming year. One present that many may not have considered is the gift of estate planning services. While it may seem like an odd thing for one family member to give to another, this set of advance planning tools is a present that can be incredibly powerful and effective.

Most often, parents will complete their estate planning package far in advance of their adult children. Once that process is complete, many individuals and couples feel relief that these needs have been addressed, and confident that their wishes will be carried out as desired. Giving that same assurance to their adult children becomes a priority for some.

Estate planning news: Exclusion amount rising in 2016

Most people in New Jersey are aware that there are rules in place that govern how much estate tax can be charged on assets handed down after an individual's death. Some know that the current amount lies at $5.43 million, and they will go to great lengths to create estate planning packages that minimize their taxable estates. Anything above that amount is subject to estate tax, which currently sits at 40 percent. The amount of the estate tax exclusion is adjusted for inflation, and it will increase to $5.45 million in 2016.

Estate planning is more than simply avoiding excessive taxation, however. The primary goal of any good estate plan is to hand down assets in a manner that meets the goals and intentions of the person shaping the plan. Those goals can and will change over the years, which makes it vitally important to engage in a periodic review of the existing plan.