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Estate Planning

Why Estate Planning Matters to Us

The wealth we build over a lifetime, no matter how great or small, is part of our legacy to our families and the many other people, causes, and ideals that we hold dear in life.

We encourage our friends and supporters to contact us to learn more about how estate planning can benefit the hungry and the infirm in a number of ways. A properly executed estate plan has the potential to:

  • maximize the resources that survivors will have at their disposal to continue living independently,
  • provide clear direction to aid in the care of the elderly,
  • create trusts to ensure financial assets will be put to their intended use, and
  • empower our kind supporters to continue their generosity through effective planned giving activities.

We have compiled some basic estate planning information that we hope you will find useful. If you do not have – or think you do not need – an estate plan of your own, this information might help motivate you to reconsider. If you are among our many friends and supporters who have an estate plan in place, it will serve as a reminder of the great service you are doing yourself and others by planning ahead.

We hope you will contact us if you would like additional information or would like to be directed to groups and resources that can help you get started or re-evaluate your existing estate planning strategy.

A Living Will, which is a form of Advance Directive, is a document that may be used under certain situations to tell others the care you would like to receive or not receive in the event that you become incapacitated. A Living Will is a form of advance directive.

Family Trusts

A trust is an instrument that is used, often in conjunction with a will, to provide for the distribution of assets in an estate to individuals, charities, foundations, or other groups according to certain conditions over a period of time.

Trusts are often used in cases where heirs are underage or for elderly dependents that would be unable to manage the assets effectively if distributed to them in a lump sum. Trusts are administered by a named Trustee.

Trusts are also used in other situations related to taxation, so consulting with professionals such as tax accountants and attorneys is always advisable when discussing a trust.

Example of a Family Trust:

Henry is an 80-year-old widower. He has a 45-year-old daughter and three grandchildren, who are ages 17, 10, 6. In discussing his estate, he decides he wants to leave 50 percent of his assets to his daughter, and split the remaining 50 percent evenly between the three grandchildren.

Instead of creating a will that would give the grandchildren a lump sum of money, his attorney recommends a family trust. Henry names his daughter as Trustee, which means that she can distribute money from the trust to her children based on Henry’s wishes that the children use the money to pay for college.

Revocable Living Trusts

A New Jersey Revocable Living Trust allows a person (the grantor) to place his or her assets into a trust while they are still living, to be passed on to beneficiaries after they die. Revocable living trusts are useful because they help avoid the probate process for certain assets and help to keep assets they contain from affecting a grantor’s individual federal income tax obligation. Once the Revocable Living Trust is set up, the grantor can continue to manage those assets.

For example, the assets in the trust can be bought, sold, traded, mortgaged, liquidated, gifted, etc., as if the grantor still owned them. Living trusts are very well suited to property such as real estate. Other assets, such as vehicles and IRA’s cannot be placed in Living Trusts. Additionally, some bank accounts (like checking accounts where money is moved in and out frequently), should not be put into a Revocable Living Trust.

Example of a New Jersey Revocable Living Trust:

Earl is retired and is living on a fixed income from his pension. He owns two vacation homes that he would like to leave to his son John after he dies. He sets up a Revocable Living Trust and places the vacation properties into the Revocable Living Trust. This will allow the properties to pass to John without going through probate.

A year later, Earl realizes that the cost of maintaining both vacation homes (utility bills, property taxes, upkeep costs) is getting expensive. He asks John which property he would prefer to inherit and sells the other property. Because the property was part of the revocable living trust, and the money from the sale will remain in the trust, this will not put Earl into a higher federal income tax bracket for the year when he sells the house. His individual income tax return will only reflect the payout from his pension – not the profit on the house.

Irrevocable Living Trusts

Irrevocable Living Trusts are similar to Revocable Living Trusts (see above), except that one cannot revoke (that is, change or end) the trust after it has been established. An Irrevocable Living Trust also may provide savings on the estate taxes, and may prevent the loss of government benefits for a loved one.

Life Insurance Trusts

A life insurance trust is an estate planning tool that is used when a person’s assets, including all life insurance, exceed the amount that is exempt from the estate tax (currently $675,000 in New Jersey). The life insurance trust can help minimize taxation on the estate and still make the money available to the heirs as needed.

Estate Planning Tax Issues

When planning an estate, it is important to consider taxes. Below are some fast facts about state and federal taxes that apply to estate planning;

  • In the state of New Jersey, estates of less than $675,000 are exempt from the estate tax when willed to a non-spouse.
  • Estate planning can include giving gifts while a person is still living. If the value of such gifts doesn’t exceed certain limits, they will not be subject to the Federal gift tax, which is typically paid by the person giving the gift.
  • The IRS permits gifts of up to $13,000 per year from an individual and $26,000 a year from a couple before the gift tax may apply.
  • Over a lifetime, an individual may give up to $1 million in gifts without being subject to the gift tax.
  • Gifts of property, such as a home, are counted toward the limit on gifts based on the market value at the time the gift is given.
  • Money given to a family member to pay for medical bills or education is not counted toward the limits on gifts.

Planned Giving

Planned giving is a way to support Community Services, Inc. and other organizations through your estate plan or will. Your thoughtful foresight, generosity and commitment can help end senior hunger in Ocean County.Planned gifts can be made in several ways, and they are best made with the counsel of a financial or legal advisor.

Financial benefits of planned gifts may include a federal income tax charitable deduction and an estate tax deduction.Please contact us at 732-367-1400 Ext. 320 or email jsigurdson@csimow.org for more information or to discuss planned giving options.

Prepaid Funerals

Prepaying for funeral expenses can help ensure that your estate or heirs will not be stuck paying your funeral bill after death. In New Jersey, a person can prearrange and prepay for their funeral by meeting with a funeral director.

Funding for prepaid funerals can be managed in three ways:

(1) by placing money in a bank account in the name of the funeral consumer, (2) by assigning ownership of an existing life insurance policy, such as a whole life or group term life insurance policy to be used for funeral expenses, or (3) by purchasing a new life insurance policy specifically written for purposes of paying for the funeral (only policies approved for such purposes by the NJ Department of Insurance can be used).

Prepaid funeral arrangements in New Jersey are 100% refundable (revocable). The consumer can transfer the funeral arrangement to another funeral home or cancel the plan and receive 100% of their prepayment, plus any interest earned. Interest may be taxable to the consumer if withdrawn.

There are a few exceptions to the 100% refundabilty laws, which apply to recipients of SSI/Medicaid benefits.Prepaid funeral arrangements of individuals who are receiving assistance, such as Supplemental Security Income (SSI) and Medicaid, must be “Irrevocable”, which means the funds cannot be withdrawn from the trust except to pay for the funeral. Any money left over in and irrevocable funeral arrangement (excess proceeds) after the funeral bill is paid are forwarded to the State of New Jersey.

This prevents people from sheltering assets to qualify for benefits, only to withdraw the funds for personal use later.Irrevocable prepaid funeral arrangements can be very useful for people who are applying for SSI/Medicaid or expect to apply for benefits in the near future.

The money that is placed into an irrevocable arrangement does not count as an asset for SSI/Medicaid purposes under the Prepaid Funeral Resource Exclusion. Excluding these funds as an asset can help you qualify for SSI/Medicaid.

Example of an Irrevocable Prepaid Funeral:

Anne is an 87-year-old widow who is planning to apply for Medicaid benefits. Having paid for her late husband’s funeral a few years earlier, she deposited some of his life insurance payout into a bank account for her family to put toward her own final expenses when the time comes. She learns that the money she put away – about $5,000 – will affect her ability to receive Medicaid benefits, because it is a resource.

After talking to a social worker and her local funeral director, Anne sets up an irrevocable prepaid funeral arrangement. The $5,000 is paid to the funeral home and the funeral home places every penny of it into an irrevocable funeral trust account. As a result, Anne will be able to begin receiving Medicaid benefits sooner, instead of waiting until that $5,000 has been eaten away by medical expenses. Instead, the money will remain in an account and earn modest interest that can also be put toward the funeral.

Neither Anne, nor the funeral home, will be able to withdraw the $5,000 from the funeral trust while Anne is alive. However, those funds will be available to pay for the funeral. If for some reason the funeral bill is less than $5,000, any money left over (excess proceeds) will go to the State of New Jersey.

Last Will & Testament

The Will is a critical part of an estate plan that spells out the distribution of a person’s assets after death. It can be used alone or in combination with a trust. Having a will and keeping it up to date is important. The Will names an executor who is the person who will be in charge of carrying out the wishes set forth in the Will. It is the executor’s job to:

  • probate the Will
  • locate all property owned by the deceased
  • open an estate checking or other bank depository account for the estate,
  • gather information about all outstanding bills, debts and legal obligations,
  • pay outstanding bills
  • file estate tax returns
  • transfer property out of the deceased?s name into the beneficiaries? names
  • pay all fees for lawyers, accountants and the executor’s (an executor is entitled to a fee for services).
  • disburse inheritance to the beneficiaries
  • file documents with the County Surrogate?s office

When someone dies without a Will in the State of New Jersey, the County Surrogate appoints an administrator to act in the place of the executor. The administrator is selected based on an order of kinship that gives certain relatives priority over others. The deceased?s spouse, civil union partner or domestic partner is the first choice, followed by their children, then parents, grandchildren, and other relatives in that order.

In cases where there is no Will and there are no known family members, the assets of the estate can be kept by the State of New Jersey through a process known as escheat.

Power of Attorney

A written Power of Attorney is a document that gives one person a right to act on someone else’s behalf on legal matters. Any person, age 18 or older, can designate someone else, who must also be over the age of 18, to serve as their Power of Attorney in the State of New Jersey.

By assigning a Power of Attorney, a person does not give up his right to represent himself; he simply gives another person the right to act on his behalf. Power of Attorney may be limited to one situation or transaction (limited power of attorney), or may give some else broader power over a person’s financial affairs.

A Power of Attorney can include Durable Power of Attorney provisions, which allow the Power of Attorney to remain in effect if the person who is being represented becomes incapacitated. Durable Power of Attorney must be identified before a person becomes incapacitated. At the time of the person’s death, a Power of Attorney, even one with durability provisions, ceases.

Health Care Proxy

A Health Care Proxy (or Durable Power of attorney for health care) is a document that allows you to name someone else (who must be 18 or older) to make health care decisions in the event that you become incapacitated. The Health Care Proxy can provide instructions for the person who is appointed to help them make the decisions regarding the types of care you do and do not wish to have.

In cases where the Health Care Proxy does not provide instructions, the person who is appointed can decide what is in your best interest.

Living Will

A Living Will, which is a form of Advance Directive, is a document that may be used under certain situations to tell others the care you would like to receive or not receive in the event that you become incapacitated. A Living Will is a form of advance directive.

The above information should not be considered legal or tax advice. You should consult with an attorney or tax professional to learn more.

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