FAQs

Estate planning is a broad term for getting one’s “affairs in order” by using wills, trusts, and powers of attorney, as well as other techniques so that there can be an orderly transition between one living their life normally to a period of incapacity (when you cannot act on your own) through to death and after death how your “beneficiaries” take what you want to give them. As you can imagine, it is more than just “writing a will” on a napkin.

“Probate” refers to the act of “proving” the will of a deceased person is valid.

The “Probate Process” refers to the entire court process of administration of a deceased person’s estate. This process involves “probating” a deceased person’s will, naming a personal representative, collecting and distributing assets, notifying and dealing with creditors, and handling any expenses and taxes. Probate is usually required for assets owned in one’s own name.

There are procedures that streamline probate for smaller estates and for surviving spouses.

Individuals often wish to avoid probate because it is a slow and sometimes costly process. We are fairly lucky in Pennsylvania and New Jersey in that the probate process is not as costly or time-consuming as in some states (like California or Florida) but it still involves time, effort, and money (including paying executors and/or attorneys). You can imagine why avoiding probate might be a good idea.

Another benefit of avoiding probate is to maintain privacy. Because probate proceedings are a public record, details of a deceased person’s debts, finances, and gifts to heirs are discoverable by the public.

No. A will has no impact on whether a probate proceeding is required. If a person dies owning assets in their own name and the assets pass at the direction of a will or by law (the laws of intestacy for those who die without a valid will) probate can still apply to those assets owned in the deceased’s own name.

Remember that many of your assets actually are not controlled by your will but by “contracts” such as beneficiary designations (on life insurance, IRAs, and 401(k) plans), payable on death (POD) designations, joint ownership of various types. One recent survey stated that 60-70% of assets of current retirees are actually controlled in this way and would not be handled under a will. Remember that the “contract” with the financial institution “trumps” a will.

A revocable living trust is a legal relationship whereby a “settlor” directs a “trustee” to manage and distribute property for a named “beneficiary.” While the trust is still revocable, the same person often occupies all three roles. After a person’s death, these roles usually change. For example, John could transfer his home to himself as trustee, to be managed by himself for his benefit during his lifetime. At his death, the role of trustee transfers to his son, who then follows the instructions in the trust instrument for management and distribution if the home. The trust instrument is often referred to as a “declaration” or “agreement.”

Revocable trusts can be useful for avoiding probate, incapacity planning, and providing for a coordinated approach to the management and distribution of an individual’s estate.

In my experience, people who value an orderly transition understand why a revocable living trust is valuable and how it can make things easier for loved ones. I also have found that those with living trusts are more organized and better understand their estate plan.

Proper estate planning requires an initial investment in lawyers’ fees, in addition to the time needed to collect information and meet with your lawyer.

That does not sound fun to most people. However, have you thought of what will happen if you do not complete comprehensive estate planning? Some people like the idea of “do it yourself” kits or websites. The problem is you will not know you made an error until it is too late (you are incapacitated or dead)! Let’s face it, if you are going to research and spend your hard-earned money on the purchase of a car or home, or spend many years paying a life insurance premium it only makes sense to make some level of investment in estate planning so that all you worked for is protected for your loved ones!

In my experience, the cost of cutting corners can come back to “bite you” in the you-know-where. Spending thousands on a nice vacation makes sense when you do it because it is enjoyable. Writing a will is not so enjoyable but costs a lot less and leaves an enduring legacy.

Federal Estate Taxes are in flux. In fact, at this point, they only affect a very small percentage of Americans – those individuals with about $5 million and those married couples with about $10 million in assets.

However, New Jersey residents need to beware! The New Jersey Estate Tax is a separate tax on assets over $675,000 for individuals and $1,350,000 for married couples – this means that if you have a decent amount of life insurance and a home and other savings you are very likely in the growing category of residents with a New Jersey Estate Tax problem. You should be concerned but we can address it in a fairly straightforward manner but you have to act.

I don’t recommend it, because the cost of improper planning is often higher than not planning at all. A few inadvertent errors we have come across include: failure to integrate non-probate assets with the estate plan; un-funded trusts, resulting in unnecessary probate proceedings; out-dated or inappropriate estate tax planning techniques; and lack of “tax apportionment” clauses which can have disastrous consequences. Because the risks of “do-it-yourself” forms and kits are so high, I cannot recommend this approach. An ounce of prevention is worth a pound of cure

Like a revocable trust, an irrevocable trust involves transfer of property to a trustee, who is directed to administer and ultimately distribute the property to a beneficiary named in the trust instrument. Unlike a revocable trust, transfers to an irrevocable trust have immediate consequences regarding the ownership of the property, as well as income and transfer tax. Individuals execute irrevocable trusts for a variety of reasons. These reasons include: reducing the size of an individual’ s estate; removing appreciation from the estate; leveraging the annual gift tax exclusion and generation-skipping transfer tax exemption; making taxable gifts; asset protection; and deferring gifts until a future date.

Yes. Transfer tax laws are different for non-US Citizens and individuals who are not domiciled in the United States. In addition, these individuals often have property, family, and friends in multiple jurisdictions. As a result, different

strategies are used to minimize transfer taxes, plan for guardianship of children, and keep assets in the family.

Family business entities are usually the best means to hold and operate a family enterprise. The benefits of using a business entity include: limited liability; asset protection; and coordinated management. Moreover, operating through family business entities may have certain estate planning advantages.

A corporation is taxed under IRC subchapter C unless it elects to be taxed as an S corporation. C corporations are taxed at both the entity and the shareholder level, while S corporations are taxed only at the shareholder level (for federal income tax purposes). There are several other important differences: for instance, an S corporation may only have 100 shareholders, including only individuals who are US Citizens or residents. Moreover, only qualified trusts may be shareholders of an S corporation. Sometimes, an S corporation can inadvertently lose its S corporation status, resulting in unanticipated costs.

LLC is the newest form of business entity. It is essentially a hybrid of a corporation and a partnership, allowing business owners to enjoy pass through taxation, limited liability, and a high degree of structural flexibility. An LLC can be structured to operate like a sole proprietorship, partnership, corporation, or some combination of all of these.

A buy-sell agreement is a legal arrangement that provides for the transition of an interest in a business upon the occurrence of a pre-determined event, such as death, retirement, disability, divorce, or bankruptcy. Buy-sell agreements can help ensure continuity in a family-owned business, and provide liquidity upon a buy-out o an owner’s interest.