The Importance of Preparing a Will, Asset Management and Estate Planning Options

Importance of a Will

Regardless of your age or your wealth, it is very important to prepare a will, therefore, it is important to have a will even if you do not have a large estate.  There are many problems that can arise as a result of not having a will. For example, a family member will need to apply for administration, which increases the cost to the estate because the administrator will have to pay the premium on a surety bond. Further, the beneficiaries will be determined by statute as opposed to going to the people who you would want. This is particularly important if you are in second marriage and have children from a prior marriage.  Your second spouse or children may get more or less of your estate than you would have intended if you had prepared a will.

The benefits to having a will include: protecting the assets that are being bequeathed to minors or disabled children through the creation of trusts; selecting an executor and provide that he or she can serve without a bond; selecting guardians for your underage children and trustees who will be responsible for handling the trusts set up in the will; the ability to select your beneficiaries, including charitable organizations, and estate tax planning strategies.

Asset Management

It is also important to understand that your will only controls the distribution of your probate assets.  Assets that are jointly held, or have designated beneficiaries, such as bank accounts, real estate, retirement accounts and life insurance.  Our attorneys will discuss with you any questions you have regarding the proper titling of your assets and beneficiary designations.

Estate Planning

Your estate includes real estate, retirement accounts and life insurance for purposes of the Federal Estate Tax. In the event your estate exceeds the Federal Estate Tax Exclusion amount, you should consult with an attorney or law firm, such as ours, that specializes in estate tax planning to create a more complex will or prepare trusts which will reduce your estate tax liability.

There are several different ways to reduce your estate taxes. One example is to use a By-Pass Trust Will or a Disclaimer Trust Will if you are married.  The purpose for this type of will is to be able to use the Federal Estate Tax exemption of both spouses so that your children pay less estate taxes when the second spouse dies.  Another way to reduce estate taxes is to use an Irrevocable Life Insurance Trust. Life insurance proceeds are included in your estate for Federal Estate tax purposes, therefore, in order to get exclude the value of the life insurance policy proceeds from your estate for estate tax purposes you can transfer the life insurance policy to a trust, where the beneficiary and the Trustee is someone other than you or your spouse.  Other ways to reduce your estate tax liability is through the use of a Grantor Retained Annuity Trust or the creation of a Family Limited Partnership, which allow you to make a discounted gift for gift tax purposes.

While many estate planning shows or articles will promote the use of Revocable Living Trusts to reduce estate taxes, this type of trust is generally not needed in the State of New Jersey.  The purpose of this type of trust is to avoid probate, which is important in states that have high probate taxes such as New York and Florida. New Jersey does not have a probate tax and the administrative cost to probate an estate is minimal, therefore, you do not need to prepare a Revocable Living Trust prepared in New Jersey to minimize your estate or inheritance tax liability. 

New Jersey Inheritance Tax

In addition to the Federal Estate Tax, you should also be aware of the New Jersey State Inheritance Tax laws when you are planning to make a will.  The New Jersey Inheritance Tax is based upon the relationship of the beneficiary to the decedent. The following are the Classes of beneficiaries:

• Class A - father, mother, grandparents, spouse/civil union partner (after 2/19/07), domestic partner (after 7/10/04), child or children of the decedent, adopted child or children of the decedent, issue of any child or legally adopted child of the decedent and step-child of the decedent.
• Class B - eliminated by statute effective July 1, 1963.
• Class C - brother or sister of the decedent, including half brother and half sister, spouse/civil union partner (after 2/19/07) or widow(er)/surving civil union partner (after 2/19/07) of a son or daughter of the decedent.
• Class D - Any other transferree, distributee or beneficiary who is not included in Classes A, C, or E.
• Class E - The State of New Jersey or any political subdivision thereof, and other various charitable and educational facilities as further described in the Inheritance Tax Resident Return (see www.nj.gov/treasury/taxation/index).

The tax rates are as follows:

• Class A transferees are entirely exempt in estates of decedents dying on or after 7/1/1988.
• Class C transferees in estates of decedents dying on or after 7/1/1988 are:

• Class D transferees