What is the Purpose of Estate Planning?

A carefully crafted estate plan can control what happens to your assets and provides an increased likelihood that they will be used in the way you want. Through thoughtful estate planning, you can protect your loved ones, maintain your standard of living during retirement or periods of incapacity, reduce your taxes, and have peace of mind that the wealth that you’ve worked so hard to accumulate during your lifetime will be directed to the people or organizations that you love the most.

What is Probate?

Probate is a Court-supervised process which determines whether a decedent left a valid Will and permits the executor to transfer assets to the beneficiaries in accordance with the terms of the Will.

What Assets must be Probated?

Generally, assets titled in the decedent’s name must go through probate to be transferred to a beneficiary.

Certain assets are exempt from the probate process, including assets held in a living trust and joint tenancy assets. Additionally, bank accounts, life insurance policies, annuities, and IRAs with beneficiary designations are exempt from the probate process.

What is Intestacy?

Intestacy is the state of dying without a Will. When a person dies without a will, they are said to have “died intestate.” When an individual dies intestate, the state (where the decedent resided) determines how assets are distributed.

The table below demonstrates the typical disposition of assets when they are subject to New Jersey’s intestacy statutes:

What Are Estate Planning Documents?

Last Will and Testament

A Will allows the testator (the person creating the Will) to direct the disposition of specific assets to certain people (your beneficiaries). This includes physical assets, such as jewelry and real estate, and intangible assets such as brokerage accounts. Your beneficiaries can be family members, friends, and charitable organizations.

A Will can include the appointment of a guardian for your minor children and even your pets.

Additionally, a will includes the appointment of an executor, who will be responsible for carrying out the terms of your Will and ensuring that your final debts are paid.

Revocable Living Trust

A Revocable Living Trust is created by a person during lifetime (the “Grantor”), and sets forth a legal relationship between the Grantor, the beneficiaries of the trust assets and the trustee, who manages the trust assets for the benefits of the beneficiaries.

A Revocable Living Trust allows you to avoid probate only to the extent of the assets that are transferred to your revocable living trust during your lifetime.

If you become incapacitated, the Trustee (or the successor trustee if you are serving as the initial trustee) can immediately begin you trust assets for your benefit, thereby avoiding the need for a costly and time consuming guardianship proceeding.

A Revocable Living Trust will not protect your assets from creditors or from divorce, but it can protect the assets held for your beneficiaries from their creditors or from being lost in their divorce, after your death.

Irrevocable Trusts

An irrevocable trust can be created during lifetime or established upon death. When an irrevocable trust is created during the grantor’s lifetime, the trust assets are removed from the Grantor’s estate, which serves to eliminate or diminish transfer taxes due on death.

A testamentary trust is an irrevocable trust that is created through a person’s Will. Testamentary trusts are typically used where a minor could potentially inherit estate assets. They are also implemented when a testator does not want a beneficiary to receive a lump sum, but instead have assets distributed to him for certain uses and over the course of time.

Beneficiary Designations

There are certain assets that can skip the probate process, and instead transfer directly to a beneficiary upon death. Beneficiary designations are only available for certain assets, such as bank accounts, IRAs, annuities and life insurance policies.

Please remember that the terms of a Will have no impact on a beneficiary designation.

Advance Health Care Directive and Living Will

An Advance Health Care Directive appoints a Health Care Representative to act on the principal’s behalf in the event the principal (the person creating the document) becomes mentally incapacitated. This document also includes the appropriate HIPAA release language that permits the Health Care Representative to access medical information so as to be able to make informed decisions.

The Living Will provides for end-of-life instructions as to when and under which circumstances life support should be provided or withheld. Additionally, the Living Will includes the Agent’s directions for burial or cremation and organ donation.

Power of Attorney

A power of attorney is a document in which the principal (the person creating the document) appoints an agent and grants specific financial powers to that agent. These financial powers include paying bills, opening and closing bank accounts, making deposits and withdrawals from bank accounts, selling property and filing tax returns.

A power of attorney may be effective immediately or may spring into being effective upon a future event or upon the principal’s incapacity.

Who is Estate Planning for?

Single People

It is especially important for unmarried people to implement estate planning documents that don’t pertain to the disposition of assets. If you become disabled to the point where you become unable to manage your financial affairs or communicate your health care wishes, you will need someone to act on your behalf. By having a Power of Attorney and an Advanced Health Care Directive/Living Will, the person of your choosing will be able to make financial and health care decisions on your behalf and without delay. Without these documents, the person who you would have otherwise chosen to make these important decisions for you may not be recognized as a person who has the authority to do so.

A single person should also consider implementing estate planning documents which direct the disposition of assets. If you are unmarried and have no children and pass away in the State of New Jersey, without a Will, the law directs that the entirety of your estate (what you own when pass away) goes to your parents, and if none, to your siblings in equal shares. By having a Will, a single person can control who will inherit your assets and in what proportions.

People with Minor Children

If you have minor children, it is essential to have a Last Will and Testament. In addition to directing the disposition of your assets, the Will is the instrument that is used to name guardians for your minor children. Without a Will, the State will choose a guardian from among your relatives, and it may not be the person you would have otherwise chosen.

People with minor children should also consider implementing a trust for their children. A trust will permit you to create a management plan for your children’s finances. You can direct at what ages and for which purposes trust funds can be distributed to or on behalf of your children.

People with Pre-Nuptial Agreements

If you have a prenuptial agreement, it likely contains a provision that directs how certain assets are to be distributed upon the death of a spouse. A conflict between your prenuptial agreement and your Will can result in an ambiguity as to who your intended beneficiary is, which can lead to inter-familial disputes. A properly crafted estate plan will ensure that your assets are properly distributed upon death.

People Who Love Their Pets

If you are lucky enough to have a four-legged family member, you have probably wondered about who will take care of your beloved furry friend in your absence. With a pet trust, you can provide specific instructions for your appointed caregiver, to take care of your pet with funds that you have set aside for that purpose. When deciding how much money to allocate to a pet trust, it’s important for that amount to be considered reasonable by an objective person. Consider your pet’s health issues, their age, and life expectancy when determining this amount.

People With Complex Families

People who are married and have children from a prior relationship are often concerned with how to treat their children and current spouse fairly. If you were to pass away in New Jersey under these circumstances without an estate plan, your current spouse would receive the first 25% of your estate and half of the balance, with the remainder divided equally amongst your children. A tailored estate plan will allow you to make fair distributions to all of your loved ones based on your overall assets and the individual needs of your spouse and children.

Business Owners

Business owners should strongly consider implanting a succession plan, which can provide a detailed contingency plan in the event of the business owner’s incapacity or death. Having a plan in place can prevent costly disruptions to your business and ensure that your replacement is someone you fully trust.

People Who Own Real Property in Multiple States

If you own real property in multiple states, an estate plan can help your executor avoid having to probate your estate and multiple states, which will result in extra costs and delay the inheritance to your beneficiaries.

People Who Care for Someone With Special Needs

If your loved one has special needs, an estate planning attorney can prepare a special needs trust that will permit your loved one to receive gifts and other funds (including by way of inheritance) without risking ineligibility for government benefit programs.

People Who Want to Participate in Charitable Giving

If you want to support a favorite charity or cause, it is essential that this is included as part of your estate plan. Your attorney can work with you to determine the tax classification of your preferred charities and draft a Will which provides for how those funds are to be used by your favorite charity.