Your estate plan is all about you! It’s an investment in you and your family’s future. As the years pass, you and your family will age, perhaps grow in number, and your assets will change. Without doubt, new laws will be passed by the state and federal government as well as the IRS.
We recommend that our clients review their estate planning documents once every five (5) years or so, especially after a major personal or financial change.
The estate planning checklist I have created for you below focuses on the foundation of your plan, including the creation of documents such as a Last Will and Testament, Revocable Trust, General Durable Power of Attorney, and Living Will. (Note that references to a “Will” in this checklist are generally interchangeable with the term “Revocable Trust”, which can also be used as the centerpiece of an estate plan.) However, irrevocable trusts – such as a Life Insurance Trust or Asset Protection Trust as well as other estate planning documents should also be reviewed periodically to see if they are still appropriate to your life.
Estate Planning Checklist
TESTIMONIAL
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—Frank Mollo, Manchester, NJ
Below are some questions YOU should ask yourself when reviewing your existing estate plan documents.
Who Has the “Final Say” Over Your Body and Funeral Arrangements?
Gifting to Save New Jersey and Federal Estate and Death Taxes
Are you Responsible for Your Spouse’s Debts After They Die?
Checklist Details
- Do you have a (i) Last Will and Testament, (ii) Revocable Trust, (iii) General Durable Power of Attorney, and (iv) Health Care Power of Attorney/Health Care Proxy/Living Will? Every complete estate plan must contain at least three of these documents.
- Have you moved since you last updated your estate planning documents? If you have moved from one state to another, especially into or out of New Jersey, there may be questions regarding the interpretation or validity of your existing estate planning documents in your new state of residence, especially as relates to estate and inheritance tax issues.
Generally, estate planning documents executed in one state will be valid in another state, but your new state of residence may have specific statutes or tax laws that are not addressed in your existing estate planning documents. You may want to contact an attorney in your new state of residence (including NJ if you have relocated to here) to advise you about what might need to be updated.
- Do you have a personal property designation? This document is a writing where you itemize who receives specific items of your personal property such as photographs, jewelry, artwork, guns, fishing equipment, etc. If you have this document, you should review it and make sure that it is still an expression of your wishes. If you don’t have a personal property designation, you may want to create one so that specific items of personal property will go to specific people.
- Is any person receiving your estate a minor (under age 18)? If so, your estate plan should make provisions for their inheritance to be held by the minor’s Guardian or Trustee until he or she attains an appropriate age.
- Do you have any specific gifts or bequests you want to make? Any gift of cash or of an asset other than personal property should be stated in your Will or Trust. If you plan to give away a specific asset or real estate to a person in your Will (i.e. your shore vacation house), confirm that the asset/property still exists and has not been sold. Also, your Will should provide for what happens if the specific asset is sold during your lifetime.
- Are your total combined assets, including life insurance death benefits, greater than $2,000,000? If so, there may be New Jersey Inheritance Tax imposed at your death. Both Federal and New Jersey Inheritance Taxes can be reduced or even eliminated with appropriate estate tax planning. If you are married, both spouses’ assets should be totaled in present-day value. If you have a taxable estate your estate plan should contain trusts or other provisions to reduce taxes.
- Do you own assets held in joint accounts, or where you have a named beneficiary? These assets will not be distributed in accordance with your Will. Instead, all joint assets will pass to the surviving joint owner, and all assets with a beneficiary designation will pass to that beneficiary.Accordingly, if you have a convenience account with one of your children, the assets in that account will pass to that one child at your death, regardless of what your Will might say. You should carefully review the ownership and beneficiary designation of all of your assets to be sure that the assets will be distributed to the right people at your death.
- Are your residuary beneficiaries correct? Residuary beneficiaries are the people who receive the balance of your estate after (i) all the debts, expenses and taxes have been paid, (ii) any specific bequests have been made, and (iii) joint accounts or any assets with beneficiary designations have been distributed to the appropriate people. You should review this section of your estate planning documents carefully. If one of the beneficiaries were to predecease you, will that beneficiary’s share pass to his or her children, your other children, or otherwise?
- Are assets being distributed to your beneficiaries outright or in trust? If assets are distributed to a beneficiary outright, the beneficiary can do whatever he or she pleases with the assets. However, those assets are at risk from the beneficiary’s creditors, spouse in a marital action, and poor judgment. It is possible to create trusts that give the Trustee (who may also be a beneficiary) great flexibility in distributing the assets to the beneficiaries, and at the same time protects those assets from a beneficiary’s immaturity, misuse, creditors, divorce, etc. Also, trusts may be used when you want to direct how assets will pass upon the beneficiary’s death. For instance, many times in a second marriage a trust will be established for the benefit of the spouse, but provide that upon the spouse’s death the assets will pass back to the decedent’s children. You should speak with your attorney about the benefits and drawbacks of using a trust to distribute your assets to your beneficiaries.
- If you currently have a trust established, are the trust terms still appropriate? Many people establish trusts for young beneficiaries. You should look at the ages when the assets will be distributed outright to the beneficiaries, keeping in mind that assets distributed to somebody who is 18 are likely to be spent differently than if distributed to a person who is 25 or 30 or older. It may be appropriate to increase or reduce the ages at which the beneficiaries will receive an outright distribution from the trust. Alternatively, it may be appropriate to give the beneficiary an income stream or give the Trustee greater discretion to make distributions from principal. For example, a trust might say that a child will receive the income from the trust starting at age 25, and that the principal must be distributed to the child outright at age 30 and 35. Prior to age 35, the trust principal could be used for the beneficiary pursuant to the terms of the trust. By structuring a trust this way, the beneficiary has an opportunity to learn how to manage money.
- Do any of your beneficiaries have special needs? If you have a beneficiary who is elderly or disabled, that beneficiary may need to qualify for public benefits in order to maintain their standard of living. If a person who is receiving public benefits receives an inheritance directly, the public benefits will cease, and the person must exhaust the inheritance to pay for the care that the public benefits would otherwise have provided for. Once the inheritance is exhausted, the person must then reapply for benefits. This can be a traumatic and expensive process. Instead, you should consider leaving assets in a purely discretionary Special Needs Trust for the person, drafted in such a way that it does not interfere with the person’s ability to receive public benefits. By using this approach, the trust becomes a security blanket for the beneficiary, not a burden.
- What authority does the Trustee have to distribute the assets in the trust? Is the Trustee’s authority to make distributions limited to health, maintenance, education and support, or are distributions within the Trustee’s total discretion? If the beneficiary is also serving as Trustee, then distributions to the beneficiary/Trustee must be limited to health, maintenance, education and support. If the beneficiary and the Trustee are separate people, you may want to give the Trustee more flexibility in deciding how to distribute assets. You should also let the Trustee know what your goals are in terms of the distribution of assets.
If the trust is for the benefit of the spouse and children, is the primary beneficiary the spouse, the children, or both? If the trust is for the benefit of minor children, is the goal of the Trustee to hold the assets until the child reaches a certain age, or to use them for certain things along the way such as education, marriage, etc?
- Are your alternate beneficiary designations appropriate? In the event that all of your primary beneficiaries pass away, who will your assets go to? Many people take the approach that half of the assets will pass to one spouse’s siblings and their children, and the other half of the assets will pass to the other spouse’s siblings and their children. However, this approach may not work for you, in which case you should make sure that your assets are directed to one or more specific people or organizations. This desire should be stated in your Will.
- Are your Executors, Trustees, and Guardians still the appropriate people, in the appropriate order? Over time, people and relationships change, so it may be appropriate to rearrange your Executors, Trustees and/or Guardians.
You have the ability to appoint one or more people to serve in these roles, as well as Successors for those people. In addition, if addresses are listed, you should verify that they are current.
- If you have a taxable estate, have you and your spouse reallocated ownership of and title to your assets to minimize estate or inheritance taxes? Estate planning for a taxable estate will normally include the formation of a trust upon the death of the first spouse. However, if all of your assets are in joint name, there will be no assets available to fund that trust because all of the assets will pass by operation of law to the surviving spouse.
This means that the estate tax exemption of the first spouse will be wasted. Accordingly, if you have a taxable estate it is critical that you re-title your assets pursuant to your attorney’s recommendations. By doing this, upon the death of one spouse, he or she will have sufficient assets in his or her individual name to fund the trust(s) that will create the estate tax savings in the future.
- Is your General Durable Power of Attorney more than 10 years old? If so, banks in New Jersey are not required to accept it. We recommend that your General Durable Power of Attorney and Living Will be refreshed every 3 to 6 years.
- Does your General Durable Power of Attorney continue to name appropriate attorneys-in-fact? You are allowed to name one or more attorney(s)-in-fact to act in your place with reference to your financial matters in the event that you are unable to do so. You should verify that your named attorney(s)-in-fact and any successors have current addresses.
- Does your General Durable Power of Attorney allow for Medicaid planning or gifting? Many seniors want the ability to engage in asset protection planning to shelter assets from the cost of nursing home care. Your General Durable Power of Attorney should specifically grant your attorney(s)-in-fact the power to engage in this type of planning. We are recommending to all or our clients that they update their General Durable Power of Attorney if it does not specifically authorize this type of planning in the future.
- Does your Health Care Power of Attorney reference the Health Insurance Portability and Accountability Act (“HIPAA”)? The HIPAA privacy rules have created a new category of private information called “Protected Health Information” (PHI) or “Protected Medical Information” (PMI). In order to avoid any issues about the persons to whom your healthcare provider may divulge your PHI, you should specifically state who has the right to receive your PHI. We are recommending to all of our clients that they update their Health Care Powers of Attorney to include a HIPAA provision to avoid any inability of a Health Care Representative to receive information in the event of a medical emergency.
- Does your Living clearly state your desire about what medical treatment you want to receive or refuse in a terminal situation? You have a right to direct your care if you are terminally ill. You should make sure your Living Will clearly states your desires.
- Does somebody know where all of your estate planning documents are? If you have the greatest estate plan in the world, but nobody knows how to access your documents in the event of an emergency, it is going to be useless to you. One or more trusted people should know where they can find originals and copies of your Last Will and Testament, General Durable Power of Attorney, and Living Will/Health Care Power of Attorney. In addition, we recommend having copies of your Health Care Power of Attorney and Living Will placed into your medical record with your primary care physician. Note that your original General Durable Power of Attorney is a very powerful document and could allow somebody to access your accounts while you are alive without your permission. As a result, it may be best not to have the original of the General Durable Power of Attorney easily accessible.
- Your New Jersey estate plan is an investment. If your estate plan does not address your current situation, or if it was not completed through appropriate re-titling of assets, then that investment may have little or no value. The law gives you the right to direct what happens to your assets upon your death and gives you the ability to minimize any tax consequences. You should take advantage of the law to make sure that your estate plan meets your needs today and into the foreseeable future.
Choosing a Fiduciary: It’s a Job, Not a Reward
We spend about 45 years of our lives slaving to provide for our retirement and to leave a legacy for our family. By some standards, that’s approximately 85,000 hours at work, probably more. So, tell me why so many of us spend so little time deciding who will protect our life’s savings if we become incapacitated before our death and then after we die?
The decision of who will serve as the personal representative (executor) of your estate or the trustee of your trust (collectively, your “fiduciaries”) should be one of the most important decisions you make during the estate planning process, yet this decision is often made thoughtlessly or in haste. There are many options available to you when selecting your fiduciaries. You may decide to name a single family member, trusted advisor, bank, or trust company, or you may decide to name multiple fiduciaries to manage your estate and/or trust.
It is very common for an individual to name a surviving spouse, child or other family members to serve as the fiduciary. There are plenty of advantages to naming a family member, including the fact that they often will serve without charging a fee. Because they have a personal stake in the estate or trust and probably are familiar with you and your value(s), they may know some of the more intimate details associated with your family and assets. As such, a family member may have a greater understanding of your estate planning goals and objectives.
Naming a family member as your sole fiduciary may also have some significant disadvantages. For example, the person named may be overcome with grief, become ill or become disabled and be unable to act in the future, particularly if he or she is an aging spouse. The family member serving as the fiduciary may encounter conflicts among siblings, and distant or estranged beneficiaries or he/she may lack the skills to administer the estate and estate assets. In the case of a second marriage, conflicts often develop between the new spouse and the children of the deceased parent. Finally, the individual may lack the time, organization skills or intellectual ability to serve as the fiduciary. An alternative to naming a family member is to name a bank or trust company to serve alone or as co-fiduciary with a family member. Naming a professional or corporate fiduciary has many benefits, especially when it comes to actually administering the estate or trust. Because of the considerable experience these fiduciaries have with estates and trusts they understand the accounting, tax and compliance issues associated with estate administration and therefore will often be more efficient. Further, because they don’t have a stake or personal interest in the administration, a bank can be more objective and impartial when making decisions regarding distributions to beneficiaries. Finally, a corporate trustee will provide experienced and professional investment advice.
Naming a professional or corporate trustee also has some disadvantages, including the fees for their services and their investment decisions may be more conservative than the beneficiaries’ desire. However, fees charged by a corporate fiduciary may be no more than an individual trustee pays to delegate the investment decisions to a professional advisor or a paid CPA or attorney to assist with the income tax issues, and conservative investments may not be bad.
Fredrick P. Niemann Esq.
In making decisions regarding fiduciaries, it is important to select someone who is financially stable, trustworthy and organized and has enough time to handle all of their responsibilities. All too often, this decision is based solely upon the desire to avoid fees charged by professionals, banks or trust companies. However, when selecting a fiduciary, it is important to think of the appointment as a job, not a way to reward (or punish) that chosen person. The question to ask is, would you hire that person to run your business or your household while you’re alive? If not, why put them in charge after you’re gone?
We can help you in all aspects of estate planning in NJ including elder care, asset protection and tax reduction law. Don’t wait until it’s too late to plan for the future. Call Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or e-mail him at fniemann@hnlawfirm.com today and speak to him personally. He welcomes your call.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Estate Planning Attorney
NJ Estate Planning Attorney serving these New Jersey Counties:
Monmouth County, Ocean County, Essex County, Cape May County, Camden County, Mercer County, Middlesex County,
Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County
Freehold, Red Bank, Wall, Long Branch, Marlboro, Manalapan, Howell, Jackson, Brick Township, Holmdel, Middletown, Atlantic Highlands, Aberdeen, Toms River, Manahawkin, East Brunswick, Monroe Township, Cranbury, Lyndhurst, Teaneck, Hamilton, Robbinsville, Millstone, Manasquan, Lakewood, Eatontown, West Long Branch, Tinton Falls, Ocean Township, Neptune, Spring Lake, Newark, Hillsborough, Somerset, Hoboken, Jersey City, Parsippany, Edison, Plainfield, South Plainfield, Dumont, Mount Laurel, Vineland, Cherry Hill, Ocean Township, Atlantic City, Camden, Union Township, Kearny, Lambertville