Hanlon Niemann Blog | A Freehold, New Jersey Law Firm

Part 3 of 4
By: Fredrick P. Niemann, Esq.
         
This is the third post of a four part series on estate planning by use of a beneficiary designation form.

Avoid leaving assets to minors outright. Also avoid disabled people, and in certain cases, your estate or spouse.  If you do, a court will appoint someone to look after the funds, a cumbersome and often expensive process.  Also think about what can happen when the money reverts to the child at age 18 or 21, depending on the state.

I’ve seen 18-year olds receive proceeds from life insurance policies.  While one of them still has her money, “the other two bought and wrecked brand new cars, splurged on clothes, and champagne, lent money to friends and generally went from $150,000.00 to actually owing money in just one year.”  The problems could have been avoided if the parents had set up trusts for the kids payable at, say age 30, and named the trusts as beneficiaries of the life-insurance policies.

Disabled children and adults-require “special or supplemental needs trusts” that preserve their ability to receive government benefits, as even a small outright inheritance can prevent them or disqualify them from getting public aid and assistance.

For retirement plans, the biggest mistake is to name your estate as beneficiary, because that means when you die, the full amount of the plan must be paid out and taxed within five years. Individual beneficiaries, by contrast, could stretch out the distributions and the taxes for decades.  Because many people have a large portion of their assets in retirement accounts, they also should be sure that the combination of the distribution arrangements on those accounts and their wills provide for family members as they wish, particularly in complex situations such as a second marriage when there are children from the first union.

Beneficiary designations are crucial to estates in New Jersey.  For more information please contact Fredrick P. Niemann, Esq. toll-free at (888) 800-7442 or email him at fniemann@hnlawfirm.com.  For further information, please go to http://www.youtube.com/user/NJElderLawCenter#p/search/0/XpuVawQtBnQ to learn more.

By Fredrick P. Niemann, Esq., an Estate Planning Attorney
Individuals don’t get serious about estate planning until they are well into middle age.  By then, some of them are in second marriages. They are married, and one or both spouses have children from a previous marriage.  Estate planning should be taken very seriously because each the spouse may want to provide for each other and their own children.  If you’re in such a situation, proceed cautiously.

SECOND MARRIAGES AND YOUR RETIREMENT PLAN

In a second marriage, one or both spouses may have a sizable retirement account such as an IRA, SEP or 401 (k).  One technique is to name the other spouse as primary beneficiary of the IRA, with the children as secondary beneficiaries.  This approach is common in first marriages, in which the children are the offspring of both spouses, but it can lead to trouble in a blended family:  Real trouble.

 EXAMPLE 1: Tom Jones (no, not the singer) has $500,000 in his 401 (k).  He names his wife Martha as the primary beneficiary and his three children from a prior marriage as the secondary beneficiaries.  Thus, if Martha predeceases the children, they will inherit the IRA.  Even if Martha does inherit the account, the balance will pass to Tom’s children at Martha’s death.

There are several mistakes in this approach.  First, Martha can use the IRA at will as she takes required minimum distributions.  She can take out all $500,000 at once, pay the income tax, and then either spend the money or give it to, her own children not Tom’s children.

Second, in this example Martha is a surviving spouse and only beneficiary of Tom’s IRA.  Under the federal tax code, Martha can roll over Tom’s IRA to her own new or existing IRA (no other beneficiary can do this).  Then Martha can name any beneficiaries she wishes, such as her own children.

In either example, there is no assurance that Tom’s children will see a penny of his $500,000 IRA.

How can Tom avoid this outcome if he wants to provide for Martha and his own children?  One strategy is to divide his $500,000 IRA into two $250,000 IRA’S.  He can designate Martha as the beneficiary of one IRA; his children can be co-beneficiaries of the second IRA.  Alternatively, Tom can leave the entire $500,000 IRA to his children, who can spread out required distributions over their longer life expectancy and thus enjoy extended tax deferral.  If Tom adopts this plan, he can leave other assets to Martha, depending on the size of his estate and her economic needs.

TRUSTS TRAPS

In second marriages, spouses also can create trusts in their estate planning.  The first spouse might leave assets in trust for the surviving spouse, who will get the trust income and access to the trust principal.  At the surviving spouse’s death, the balance of trust assets may pass to the children of the spouse who funded the trust.  Some trusts can be qualified terminable interest property (QTIP) trusts and defer estate tax.

Trusts can play a valuable role in your estate planning.  Trusts can cause problems in second marriages. With the situation described before, the trustee could be conflicted between investing for current income (which would benefit the surviving spouse) and investing for long-term growth (which would benefit the children).  Also, the children may have to wait many years before receiving their inheritance if the first spouse to die leaves all of his assets to such a trust.

Dividing and separating out the estate might be a better option.  Some assets could be left to the surviving spouse and some to the children, outright or in separate trusts.  If the spouses fear that such a plan would leave insufficient amounts to the beneficiaries, they might buy life insurance and increase the total estate value.

If you have any questions about this post, please call Fredrick P. Niemann, Esq., a knowledgeable Estate Planning Attorney. He can be reached toll free at 888 800-7442 or by email at fniemann@hnlawfirm.com.  For further information, go to http://www.youtube.com/user/NJElderLawCenter#p/search/0/8be14yDEeJc to learn more.

By: Fredrick P. Niemann, Esq. an Estate Planning Attorney

This is the second post on the subject of beneficiary designations and their importance in New Jersey probate and estate planning.

Individuals, trusts, charities, other organizations, your estate, or no one at all can be named a beneficiary of your assets.  You might specify one or more people or name a specific group of individuals, such as “all my grandchildren who survive me.” This might include current and future grandkids and spare you from having to update forms as families change and grow.  However, it generally would not include step-grandchildren; they’d need to be designated specifically by name.

Avoid the tendency to choose a different beneficiary for each of your accounts.  One woman left her estate equally to her two daughters in her will, but named one daughter or the other as beneficiary of her various bank and brokerage accounts.  The result:  Just about all of her assets passed outside of her estate, and one daughter received much more than the other.

“That was very unpleasant for everybody.”  It would have been better, if the mother had named both daughters as beneficiaries of each of her accounts or not named anyone and allowed the assets to flow into her estate, where the assets would have been distributed according to her will.

Watch out, too, for beneficiary forms that don’t allow your assets to pass “per stripes,” or equally among the branches of a family.  Say you name your adult three children as beneficiaries of your IRA.  If one of them predeceases you, you might want that child’s share to go to his or her children.  However, many standard beneficiary forms provide that your two remaining adult children would share the proceeds to the exclusion of your deceased child.
For more information on naming beneficiaries on various institutional forms, please contact Fredrick P. Niemann, Esq. toll-free at (888) 800-7442 or email him at fniemann@hnlawfirm.com

By: Fredrick P. Niemann, Esq. an Estate Planning Attorney
Part 1 of 4         

Do you think your estate planning is done once you’ve gone to the trouble of making a will or trust?  Think again. All your hard work can be undone with a stroke of a pen when you open a bank, brokerage or retirement account.  Individuals have the option of naming beneficiaries directly on a wide range of financial products.  When the account owner dies, the assets go directly to the beneficiaries named on the accounts, bypassing the sometimes long and costly probate process.  The problem:  Because these beneficiary designations override your will or trust, they need to be carefully coordinated with your over-all estate plan.

People don’t realize the importance of this.  A carelessly named beneficiary on a financial account can cause a loved one to be disinherited, a disabled child to lose government benefits, and heirs to be slapped with a big tax bill.  Seeing so many cases like this, I’ve coined a term for it: “bank-teller estate destruction.”

Many people simply don’t remember whom they named as beneficiaries of accounts they opened years ago.  Fredrick P. Niemann, a Freehold New Jersey lawyer, tells of one man who wrote a will leaving his entire estate to his long time girlfriend, and on his deathbed recalled that he had certificates of deposit naming relatives, some since deceased, as beneficiaries.  The man tried to change the beneficiary designations before he died, but the case is now mired in a lawsuit.

Advisers tend to recommend reviewing all of your beneficiary designations regularly, at least every few years, but certainly after you experience a life-changing event, such as a marriage, divorce, birth or death of a loved one.  Job-changers and retirees also take note:  Beneficiary designations on retirement plans don’t carry over when you roll a 401(k) to a new employer’s plan or to an IRA, or when you convert a regular IRA to a Roth IRA.

What kinds of accounts can have beneficiaries?

US savings bonds have had forms for naming beneficiaries for 50 years.  Bank accounts and certificates of deposit can be made payable on death (POD) to a beneficiary.  Same with so called Transfer on Death (TOD) registrations for securities, including stocks, bonds and mutual funds. Life-insurance benefits and retirement –plan assets are paid directly to the beneficiaries named on those accounts.

POD and TOD accounts were devised as alternatives to joint accounts, which also bypass probate.  When one owner of a joint account dies, the assets automatically go to the surviving owner.  But this is not a particularly safe way to leave funds to anyone because the assets are subject to your co-owner’s whims and creditors.

 
For more information on beneficiary designation and how they relate to New Jersey probate and estate planning, please contact Fredrick P. Niemann, Esq. toll-free at (888) 800-7442 or email him at fniemann@hnlawfirm.com.  In our next post we will address who can be listed on a beneficiary designation form.

By Fredrick P. Niemann, Esq., a NJ Estate Planning Attorney

It is important that you review any agreements you may have to ensure they comply with your intended estate plan. Property settlement agreements from the divorce with your first spouse, as well as marital agreements you may have with your second spouse, whether it be pre-marital or post-marital, should all be reviewed to ensure compliance. Additional agreements may have to be created with your spouse as desired. Certain plans you may have previously entered into may need to be adjusted if you have new beneficiaries that you wish to receive your assets. These include Life Insurance policies and retirement plans. Other agreements specific to your situation may have to be created or adjusted depending on your situation.

Estate planning is important for your future. Entering into a second marriage brings about a number of significant issues that must be addressed. It is imperative you see an experienced New Jersey estate planning attorney to ensure that your estate plan is well thought out. Please contact Fredrick P. Niemann, a knowledgeable NJ Estate Planning Attorney today if you have any questions pertaining to estate planning and your second marriage. He can be reached toll-free at 888-800-7442 or by email at fniemann@hnlawfirm.com. He looks forward to hearing from you.

Do you have a question(s) not addressed here?  If so, contact Fredrick P. Niemann, Esq. toll-free at (888) 800-7442 or e-mail him at fniemann@hnlawfirm.com to schedule a consultation about your particular needs.  He welcomes your calls and inquiries and you’ll find him very approachable and easy to talk to.

By Fredrick P. Niemann, Esq. a NJ Estate Planning and Trust Attorney

Irrevocable trusts are beneficial for estate planning tax purposes. They allow you to place your assets into trust and therefore avoid the estate tax involved when it is time to pass on your estate, along with other tax benefits. However, these tax benefits are not without a price. When you place your assets into an irrevocable trust, you are generally not allowed to modify the terms of the trust anymore. You no longer own the assets. The trustee of the trust will manage the assets and terms of the trust until the beneficiaries receive the assets. Unfortunately for us, circumstances often change in our lives. This can lead to an adjustment in our desires as to the terms of the trust we created. Irrevocable trusts leave us in a bind however, as they are much more difficult to change the terms of. Without getting the Courts involved, the best method to adjust the terms of your irrevocable trust is by decanting it.

For estate planning objectives, decanting a trust essentially involves the trustee of the irrevocable trust taking the assets and placing them in a new trust with different terms. This is arguably the most flexibility one will receive when placing assets in an irrevocable trust.  Unlike other states, New Jersey law does not have a statute that specifically addresses decanting. However, the NJ Courts have allowed decanting in situations in which the transfer of assets to a new trust was for the benefit of the beneficiary and in which the trustee completed the transfer voluntarily, not under any directions or stipulations. Courts have allowed this based on a clause that is placed in the majority of irrevocable trusts, which states that distributions may be made “to or for the benefit of a beneficiary”. Therefore, if the distribution to the new trust is for the benefit of the beneficiary, it will likely be allowed assuming certain specific requirements are followed.

Decanting a trust is a very complicated process. There are numerous New Jersey requirements that must be followed. It is important you see an experienced estate planning attorney to assure that your decanting is successful and does not fail due to a simple requirement that you are unfamiliar with. Please call Fredrick P. Niemann, Esq. today toll-free at 855-376-5291 or email him at fniemann@hnlawfirm.com. Mr. Niemann is an experienced, knowledgeable trust and estate planning attorney and would be more than happy to discuss any trust or estate planning matter you may have.

By Fredrick P. Niemann, Esq., a NJ Estate Planning Attorney

Owners of family businesses often look forward to the day they are able to retire and pass on the business to their child or children. This not only allows them to relax, but is also a proud time where they can watch their children take control and manage the business they’ve worked hard at for so many years. Unfortunately, many family businesses are not successfully transferred to children due to the unforeseen challenges that business owners are presented with when it is time to transfer the business. Planning for the future transfer of your business today can significantly increase the likelihood that you will be able to successfully pass your business along to your children.

You are probably saying to yourself, “I know when I am going to retire and I know my son/daughter wants to take over, so what could possibly prohibit that from happening?” Unfortunately, lack of a capable or interested successor for your business is not the only problem. The most significant challenge to family business owners wishing to transfer their business is taxation. Most unsuccessful family business transfers fail due to this obstacle. Depending on how you transfer the business, whether it be by passing it through your estate, gifting it at some point in your life, or placing the assets in a trust and passing it to your child via that trust, different tax implications arise. The financial situation of your business and timing of the transfer are some of the factors to consider when choosing the appropriate method of transfer. If you do not plan for the future transfer of your business and do not consult an experienced estate planning attorney as to the appropriate method, you will likely be forced to pay undesirable tax rates, which could lead to the collapse of your business if you are not able to pay these rates.

Other challenges to successful business transfers include lack of teamwork among family members (usually when one child is receiving more responsibility or ownership than another), second-thoughts by owners about letting go, and lack of planning for the direction of the business to name a few. Meeting with a knowledgeable business succession attorney to plan the future transfer of your business can make all of the difference and help give you peace of mind that you will not be met with unforeseen challenges when it is time to transfer to your business to your children. Please call Fredrick P. Niemann, Esq. toll free at 888-800-7442 or email him at fniemann@hnlawfirm.com today. He wants to discuss this important business matter with you.

Fredrick P. Niemann, Esq., a NJ Estate Planning & Tax Law Attorney

As some of you may be aware, the IRS allows tax deductions to be made for certain charitable contributions. Unfortunately, the government has made this a somewhat complicated area, resulting in many confused individuals who are eligible for a tax deduction not claiming it. This may be because they are unsure if they meet the requirements or even simply because they do not know what to do in order to receive their deduction. A knowledgeable tax law attorney can assist you in making sure your charitable contributions qualify for a deduction.

The IRS rules are very specific. In order to receive the deduction, you must meet all of the requirements. While the specifics should undoubtedly be discussed with an attorney to assure you meet the criteria, some of the basics rules are easy to understand. First, your donation must be to a qualified organization that the IRS has approved. Donations to individuals and unapproved organizations do not qualify for the deduction. Second, your donation cannot exceed a certain percentage of your adjusted gross income. This amount is determined based on what you are donating, what type of organization you are giving it to and other factors. Your donation must also be in a permitted form. The IRS allows cash, property, gifts, and contributions to be deductible. You must be sure to value your cash, property, or contribution properly, usually using a fair market value standard. You must also have records to back up your donation. Finally, it is important to report your donation appropriately on your tax return. Depending on the value of your donation, a different section of your tax return must be filled out and possibly additional records must be attached. These are just some of the basic requirements that the IRS has mandated you follow in order to receive a tax deduction for your charitable contribution.

Receiving an estate tax deduction can be complicated. If you have donated to charity and want to make sure you appropriately file for your deduction or if you are seeking to make a charitable donation but want to make sure your donation will qualify for a tax deduction, please call Fredrick P. Niemann, Esq. today. Mr. Niemann is experienced in charitable donations and would be happy to help you. He can be reached toll-free at 888-800-7442 or by email at fniemann@hnlawfirm.com. He looks forward to speaking with you.

By Fredrick P. Niemann, a NJ Estate Planning Attorney

Did you know that there are three different types of taxes associated with death and the passing on of an estate in New Jersey? Both the federal government and the state of New Jersey will tax you upon your death, making it expensive and sometimes difficult for your family to receive your assets. While a properly written irrevocable trust can help minimize some of these taxes, it is important to understand the different types of taxes and the exemptions for each.

THE FEDERAL ESTATE TAX IS IMPOSED BY THE FEDERAL GOVERNMENT. This is one of the largest taxes you and your family will ever have to pay. For 2011 and 2012, the federal estate tax rate is 35%. Fortunately, the federal government currently offers an exclusion of $5 million for 2011 and 2012, meaning you will only be taxed on the amount of your estate that exceeds $5 million. However, in 2013, that exemption amount is expected to shrink to $1 million, possibly with an increased top rate of 55% taxation depending on how much the estate is worth.  Another reason you should think about who you’ll vote for in 2012.

THE STATE OF NEW JERSEY WILL ALSO TAX YOU WHEN YOUR ESTATE PASSES. New Jersey has both an inheritance tax and an estate tax. Both taxes depend on the value of the estate being passed, with higher taxation rates being imposed the more valuable your estate is. The NJ Inheritance tax applies to all property that has a total value of $500 or more and passes from a decedent to a beneficiary, while the NJ Estate Tax allows for a $675,000 exemption, meaning the tax would only apply to the value of the assets over that amount. New Jersey does not anticipate any changes in the near future to its taxation laws.

Both the federal government and the state of New Jersey exempts all transfers of assets between a husband and wife, meaning there will be no tax whenever the first spouse dies. Proper estate planning, such as placing your assets in an irrevocable life insurance trust, may also allow certain individuals to avoid or minimize some of the taxation. For example, proper estate planning may allow a married couple to double the $675,000 exclusion in New Jersey, while preserving the availability of these assets throughout their lives.

Estate taxation can be a complicated and burdensome area of the law. Proper estate planning can help you and your family minimize the effects that taxation will have on your estate. Please call Fredrick P. Niemann, Esq., an experienced New Jersey Estate Planning attorney today toll-free at 888-800-7442 or email him at fniemann@hnlawfirm.com. He will be happy to meet and discuss estate planning and answer any questions you may have about taxation of your estate.  For further information, go to http://www.youtube.com/user/NJElderLawCenter#p/search/0/iysxOtkAByo to learn more.

By Fredrick P. Niemann, a NJ Trust Attorney

The death of a family member can be one of the most stressful times of anyone’s life. Adding to this stress can be drawn-out proceedings under New Jersey probate, the process in which the court oversees the division of the decedent’s estate. Many times, dividing the estate of a loved one is the last thing you want to think about at such an emotional time. Luckily, there are ways to minimize the stress and sometimes avoid the probate process.

During the probate proceedings, the Court will not only oversee the division of the decedent’s assets, but will also resolve claims of creditors and debts and hear any claims of interest that heirs to the estate may have. Pertaining to the assets of the deceased, the Court will follow the division that the decedent set forth in their will, if the deceased has one. If they do not have a will, the Court will divide the assets according to law, increasing the likelihood that your assets will not go to the people you specifically intended them to.

The Court will appoint someone, called an executor, to become the overseer of the entire estate. Their job is to then write checks, sign over deeds, and handle any other affairs the estate may have. It is the executor’s responsibility to settle all debts and claims against the deceased. Often the executor will hire an experienced probate attorney experienced in New Jersey Estate Administration to assist with most matters, particularly in larger estates with a multitude of complex issues.

As you can imagine, the probate process can be long and drawn-out. Most families desire to avoid such a process. Creating a living trust allows you to ensure that your family will not have to suffer through the probate process during such an emotional time. When you create a living trust, you place your assets that are going to be distributed in trust and name a trustee to distribute them upon your death. The Court will not be involved in the distribution, nor will a court-appointed executor. The trustee acts as the administrator of your estate upon your death. Not only is the trustee someone trustworthy that you choose, but they are obligated by law to follow your wishes indicated in the trust. The living trust thus effectively ensures that your estate will be administrated to your heirs as you wish, while avoiding the stressful death probate process for your family. 

The probate process can take quite a while, depending on how complex your estate is. It is often desirable to avoid this process, especially since it is during a difficult, emotional time for any family. Creating a living trust allows your family to avoid the process, while assuring you that your estate will be distributed as you desire.  If you have questions about New Jersey probate or the benefits of creating a living trust, please call Fredrick P. Niemann, Esq., an experienced New Jersey Trust & Estate attorney today.  He can be reached toll-free at 888-800-7442 or by email at fniemann@hnlawfirm.com. He would happy to meet with you on any estate planning matter you may have.  For further information, go to http://www.youtube.com/user/NJElderLawCenter#p/search/3/I5rmD8r1Qjg to learn more.