Estate Planning & Asset Protection

Estate Planning Attorney, Stacey Pilato, Warren NJ

Estate Planning and Asset Protection for sophisticated and complex individuals is one of our specialties. Our goal is to help create a plan that will not only optimize your tax savings and make the administration of assets and probate process as smooth as possible, but provide as much protection necessary for those assets to be inherited by those whom you intend to receive them.

We will review every bank account, stock certificate, savings bond, life insurance policy, retirement account, pension benefit, governing business document, safe deposit box, investment account and any other assets you own, either alone or with someone else, and we will create a plan to ensure that all of your assets pass as you intend, with the most value and the most protection possible.

Where minor children are involved, we will help you understand the role of a guardian who provide care for your children, and the role of a trustee who will manage your children’s inheritance for them, and the most appropriate form of titling assets that will pass for your children’s and grandchildren’s benefit.

In order to create the best plan for you, the following documents and transactions may be considered:

Last Will & Testament:

Not every asset is governed by a Last Will & Testament. When we die, our assets pass in one of three ways: 1) by probate, 2) by operation of law, or 3) by contract. So it is very important that we examine our client’s entire estate and we make adjustments where needed so that all assets pass as our client intends them to pass.

  • Probate assets are governed by a Last Will & Testament. The will names your Executor, whose job is to gather assets that exist in your sole name and have no other form of direction (such as a beneficiary designation or “TOD”/”POD” transfer on death instruction), pay your funeral, medical expenses, costs of administration, taxes and debts, and then distribute your assets as you set forth in the will. The Last Will & Testament can establish trusts for a surviving spouse, or civil union partner, children, or other beneficiaries, and appoint a guardian and trustee for minor children.  In New Jersey, your will can also set forth who is in charge of determining your final arrangements, which can be of great importance in second marriage situations. The pitfalls and dangers of not having a Last Will & Testament are great. Without a Last Will & Testament, who receives your assets and who is in charge of your final arrangements are governed by default statutes, which may not be as you intend. And worse, your family may battle over who handles your estate and who gets custody of and manages funds for minor children. Sadly, these types of conflicts will likely be paid for by your estate. Our attorneys can help you solve these dilemmas and avoid potential conflicts by preparing a Last Will & Testament for you that sets forth your specific desires. Be aware, however, that your Last Will & Testament does not govern the other two types of assets: operation of law assets, and contract assets. 
  • Operation of law assets are typically assets that are held with another party, either as husband and wife (also known as tenancy by the entirety) or as “joint tenants with right of survivorship.” These assets will pass to the surviving owner or owners, and will not be overruled by your Last Will & Testament.  Homes and bank accounts are commonly held in this fashion. It is important to review this type of ownership, especially where a divorce has occurred, or where a child was added as an owner on an account for the purpose of accommodating a parent to help with paying bills, but was not intended to solely receive the asset to the detriment of other children. Our attorneys can explain the law on these types of assets and help ensure they match your wishes.
  • Contract assets are assets that are subject to a contract. They may have a beneficiary designation, transfer on death (“TOD”) or payable on death (“POD”) provision, By-Laws or Operating Agreements, or are subject to a trust (Grantor/Trustee relationship). These assets pass by virtue of the contract and are not governed by the terms of the will unless the contract in fact directs the asset to the will. We often update our clients’ beneficiary designations to direct them in a variety of fashions such as to a trust under the Will or adding a custodian for a minor. We may also suggest the removal of “POD” or “TOD” designations, or split assets that are jointly-held for the purpose of taking advantage of estate tax savings or completing the divorce.

Why the “Honey, I Love You, You Get Everything Will” Is Not the Best Plan for Certain Couples:

  • Federal Estate Tax: Each of us has the ability to pass assets to our intended beneficiaries, in addition to our spouse, charity and certain government entities without the Federal government seeking to collect an estate tax if our taxable estate currently (2015) does not exceed $5.43 million.
  • New Jersey Estate Tax: In New Jersey, however, the amount we can pass without New Jersey seeking to collect a tax is much, much smaller. In New Jersey, each of us has the ability to pass assets to our intended beneficiaries, in addition to our spouse, civil union or domestic partner, charity or certain government entities, if our taxable estate exceeds $675,000. Many bills are pending in the New Jersey Legislature to increase the exemption, but to date it has remained $675,000 since the year 2001.
  • New York Estate Tax: In New York, the law changed on April 1, 2014 to increase its prior $1 million exemption. For individuals who died between April 1, 2014, and March 31, 2015, the exemption was $2.0625 million. For individuals who die between April 1, 2015 through March 31, 2016, the exemption is $3.125 million. For individuals who die between April 1, 2016 through March 31, 2017, the exemption is $4.1875. For individuals who die between April 1, 2017 through December 31, 2018, the exemption is $5.25 million. Then beginning January 1, 2019, the exemption will be equal to the Federal exemption and indexed for inflation.
  • Portability of Estate Tax Exemptions: The Federal government’s current rule on estate taxes now allows spouses to “port” one deceased spouse’s exemption so that it is possible to pass (in 2015) $10.86 million to intended beneficiaries. In New Jersey and New York, this concept of “portability” does not exist, and often when one spouse dies the “honey I love you, you get everything” will creates a tax where one could have been avoided.  If you have an estate you believe will exceed your State estate tax exemptions, our attorneys can help create a plan for you in order to avoid the New Jersey or New York tax, or reduce it significantly. Our attorneys can create “estate tax-oriented wills” for couples that provide tax-sheltering trusts to fully utilize the first spouse’s tax credit and provide for the surviving spouse’s benefit during their remaining lifetime. This type of planning includes trusts that may be referred to as “Unified Credit Trust,” “Family By-Pass Trust,” or “A-B Trust.” Upon the second spouse’s death, the assets in this type of trust pass to the remainder beneficiaries estate-tax free if certain rules were followed, and are protected from creditors, predators and the surviving spouse’s potential subsequent marriage.  In second marriages and certain other families, it is also wise to utilize a trust known as a “QTIP” trust (qualified terminable interest property) so that the surviving spouse may enjoy the benefit of the first dying spouse’s estate, but upon the second spouse’s death, the remaining assets pass as the first spouse intended, usually to his or her children from the prior marriage. The QTIP assets are included, however, in the surviving spouse’s estate for estate tax purposes. This type of trust is useful to provide assurance that the deceased spouse’s children will not be excluded from their parents’ estate, and may also provide the surviving spouse protection from “predators” and “gold-diggers” as the surviving spouse ages.
  • Non-U.S. Citizen Spouses: Do you have a spouse who is not a United States citizen? Special attention must be placed upon this type of couple. In general, transferring assets between spouses does not trigger any tax, even upon the first spouse’s death, because of the marital deduction. In addition to increasing the surviving spouse’s taxable estate, the “honey, I love you, you get everything” will triggers estate tax upon the first U.S. citizen spouse’s estate if the taxable estate exceeds the applicable exemption. There is no “marital deduction” available to non-U.S. citizen spouses. Our attorneys can draft a specialized trust in your will or other planning instrument known as a “QDOT” (qualified domestic trust), which can be utilized to shelter the deceased spouse’s assets from estate tax until after the surviving non-U.S. citizen spouse dies, and provide for all income and needs known as “maintenance, education, support and health” for the surviving spouse.
  • Medicaid Eligible Surviving Spouses: If one spouse is either already receiving Medicaid benefits or is medically eligible and near financial eligibility, passing the predeceasing spouse’s whole probate estate (and/or non-probate assets) to the surviving spouse could disqualify or make the surviving spouse ineligible until the assets are spent down to $2,000, the current Medicaid available resource limit. If the couple desires to preserve assets to pass on to their heirs, we can engage in sophisticated planning techniques for you that can avoid this consequence of the “honey I love you,” will.

Sophisticated Trusts:

  • Revocable Trust – a trust that avoids probate, creates privacy, and allows for continued management of assets by the successor trustees. In certain situations, it can protect assets from claims in divorce. It can either be a single joint trust between spouses which is helpful for estate tax planning, or it can be an individual trust. This trust does not provide asset protection from other types of claims or judgment and it does not protect assets from a nursing home claim or Medicaid estate recovery. Because many other states require probate to be supervised by the court system, this trust is useful if our clients hold real estate or other assets in states outside of New Jersey. In order to avoid probate, however, all assets to be governed by the revocable trust must be transferred to the trust by completing and recording deeds, and submitting transfer of ownership documents with financial institutions. Oftentimes we meet new clients who have previously established the “toolbox” known as the Revocable Trust, but there are no “tools,” the assets, in the box. We ensure our clients not only receive the toolbox, but we assist in moving the assets into the toolbox so the estate plan functions as intended. We can draft protective provisions into the trust that create future trusts for loved ones upon the client’s death, such as trusts for children and grandchildren, a Unified Credit Trust, a QTIP, a Medicaid eligible trust, and a QDOT for non-U.S. citizen spouses. The Revocable Trust acts in lieu of your Last Will & Testament, but because client’s may have a probate asset that lies outside the trust, we prepare a “pour-over” Last Will & Testament to ensure the asset passes in accordance with the trust’s direction.
  • Life Insurance Trust – an irrevocable trust that removes life insurance death proceeds from the taxable federal estate. The insurance may be on either one or two lives. There are statutory requirements in order to qualify the trust for annual gift exemptions which we educate our clients upon and assist them with compliance, and upon death, we often have drafted into the trust document instruction that the proceeds cascade into further trust for the surviving spouse or children to further estate tax planning and asset protection.
  • Children/Grandchildren’s Trust: an irrevocable trust that is useful when a client desires to gift out assets during his or her lifetime to reduce estate tax exposure, and can receive additional assets upon the client’s death. The trust that we draft for our clients can protect the beneficiaries of the trust from spendthrifting, creditors, predators, in-laws and “out”-laws.  For example, auto accident claims, professional liability claims, and divorce claims. The person establishing the trust determines when and under what conditions the beneficiary receives the assets of the trust. One such trust that Joseph A. Lambariello drafted for his clients was challenged in a divorce where the beneficiary sought alimony from her estranged husband. The New Jersey Appellate Division ruled, and the New Jersey Supreme Court affirmed, the trust was protective against alimony claims in divorce in the case of Tannen v. Tannen. The case is now precedent in the State of New Jersey!

Click here to read the Superior Court of New Jersey, Appellate Division ruling.

  • Medicaid Qualifying Trust/Special Needs Trust – an irrevocable trust specifically written and administered to protect assets of the elderly or disabled beneficiary, including disabled or injured children, and to prevent the lifetime beneficiary from qualifying for or losing current public benefits. Assets moved to the Medicaid Qualifying trust from an elderly person who may have long term care needs are subject to the current five-year (5 year) “look-back” period and the trustee must utilize them for the beneficiary’s benefit. There are various types of special needs trusts, depending upon the ownership of the assets before they pass to trust. Some trusts, known as “d(4)(a) & (c)” trusts, are established for a disabled person younger than age 65, do not have a “look-back” period, but require “payback” provisions which set forth that the assets remaining after death of the beneficiary must reimburse Medicaid prior to distribution to family members. If you have a family member who may be in need of long term care, our firm attorneys can establish a plan that seeks to preserve as much of the assets as possible and ensure the disabled client’s eligibility for benefits. A greater discussion of these types of trusts for the elderly under our Elder Care Planning section.
  • Qualified Personal Residence Trust – an irrevocable trust that allows for the transfer of a principal or secondary residence to a cascading trust for the future benefit of children and/or grandchildren. We can utilize this transaction for our clients to create a present gift with a discounted value, and we seek to ultimately reduce the client’s estate tax exposure. The client must survive the trust’s “term of years” in order for the residence’s value to be removed from the client’s taxable estate upon the client’s death. This type of trust allows for the client’s continued home ownership for a period of years, and we structure the cascading trust to allow the client to remain in the home without fear of removal by the children/grandchildren. If the client does not survive the term of years, however, the home value is fully includable in the taxable estate.
  • Grantor Trust – this type of sophisticated trust is an estate-tax reducing method in which the Grantor only retains a fixed rate of return from the assets transferred to the trust, and may pass future appreciation of the assets on to younger family members. In order for the trust to remove the assets from the client’s taxable estate upon death, the client must survive the term of years set forth in the trust. It may take the form of a “Grantor Retained Income Trust,” or a “Grantor Retained Annuity Trust.” These trusts are most often utilized with investment assets in which your investment rate of return is expected to exceed the fixed interest rate established by the Internal Revenue Service (known as the “AFR”).  If your estate is subject to State and/or Federal estate tax, and you are in good health, we can examine if this type of trust is suitable for you and your family.
  • Charitable Lead Trust – this type of sophisticated trust provides charitable tax deductions for income and estate tax purposes, and supports an individual’s charity upon the Grantor’s or beneficiary’s death. Do you have an estate exposed to Federal estate taxes because your net taxable estate is in excess of the current combined spousal exemption $10.86 million (2015)? Clients for whom Joseph A. Lambariello has drafted this type of trust are, typically, large business owners, but clients who have either CEO-type salaries, large investments, lottery winnings or inherited assets are also good candidates for this type of trust. The basic concept of a Charitable Lead Trust requires the client to donate certain assets to the trust and the trust would pay out a percentage of the assets to charity each year for a period of years with the remainder in a trust passing to the client’s beneficiaries.  The assets placed into the Charitable Lead Trust are excluded from the client’s estate and there is no requirement that the trust last for a certain term or that the client survive its term.
  • IRA Designation Trust – this type of sophisticated trust may be revocable or irrevocable, but is required to be irrevocable upon the death of the Grantor. It allows for the continued income tax deferral of qualified retirement assets such as those in an IRA, 401(k) or other type of qualified retirement plan owned by the client upon his or her death and transfer to an IRA account. This type of trust is useful if the client’s other estate assets are not enough to fully utilize his or her estate tax exemptions, and/or the client wishes to protect the inherited retirement assets for his or her beneficiaries from spendthrifting, creditors, predators, in-laws and “out-“laws. and while qualifying the principal of a retirement asset for either unified credit trust purposes or, alternatively, may qualify the IRA for marital deduction (QTIP) while maintaining control over the principal of the IRA.
  • Lifetime Asset Protection Trust – this type of trust may take several formats and is intended to protect beneficiaries from spendthrifting, predators, creditors, in-laws and “out”-laws, such as auto accident judgments, claims in divorce for equitable distribution and alimony, professional liability claims and other types of creditors. If a client desires their assets to remain in their bloodline and protect the assets from winding up in the hands of persons it was never intended, such as a child-in-law or creditor, this type of trust can be tailored to set forth the specific protections sought. This type of trust can be inserted into all of the different types of estate planning instruments including Last Wills & Testaments, Revocable Trusts, Life Insurance Trusts, Children/Grandchildren’s Trusts, Qualified Personal Residence Trusts, IRA Designation Trusts, and Grantor Trusts.

Family Partnership/LLC:

An operating partnership that allows for assets to be held in a single entity, with gifts of partnership interests to children, grandchildren, or trusts for their respective benefits.  This entity allows  our clients to retain control of the assets and cash flow without giving up physical control over the underlying assets, it provides protection from creditors, and it is useful for discounting gifts in order to stretch the lifetime gift exemption. The entity functions in accordance with statutory business practices and is subject to annual tax reporting and registration. Our attorneys can not only set up the company and draft the operating agreement, but we will advise you on how to make gifts and comply with statutory requirements in order to preserve your gift exemptions. The discount offered by this planning tool is the subject of much debate in Congress, but to date, the rules permitting family partnerships remain in force.

Gift Planning:

The making of planned gifts in order to reduce estate tax exposure, either through the use of the various trusts or family partnership described above. The advice and direction we provide includes the direction of gift tax return preparation and annual maintenance meetings.

  • Prior Gifts: We must also take into consideration for our clients how prior gifts they may have made prior to engaging our services fit into their taxable estate, and whether they will affect their lifetime gift exemption, which currently matches the Federal exemption ($5.43 million in 2015), and additional annual exemptions which are $14,000 (2015) per individual donee. Gifts to charity and between U.S. citizen spouses are unlimited and do not create a gift tax. But if the donee spouse is not a U.S. citizen, the gift tax annual exemption to a non-citizen spouse is currently $147,000 (2015). When we make gifts that exceed our annual exemptions, our lifetime gift exemption is reduced by the amount the annual gift exemption is exceeded.

Advanced Healthcare Directive (“Living Will”) & Proxy Directive, and General Durable Power of Attorney:

No Estate or Asset Protection Plan is complete without the following two crucial documents that are effective while we are living: An Advanced Healthcare Directive (“Living Will”) & Proxy Directive, and a General Durable Power of Attorney. We cannot stress enough the utmost importance of having these two documents in place. If we suffer a catastrophic injury or illness, and survive, but are no longer capable of handling our healthcare and financial affairs, if we don’t have these documents, our loved ones will have no choice but to apply to the court in a formal Guardianship proceeding. Everyone over the age of 18 needs these two documents because a parent is no longer authorized to speak or act for their adult child unless the parent applies for formal Guardianship.

  • An Advanced Healthcare Directive (“Living Will”) & Proxy Directive sets forth a person’s stated intention with regard to medical care decisions and end of life decisions, as well as appointment of a Healthcare Agent to make those decisions prior to the effect of the Living Will directives. We ensure our clients not only prepare this vital document, but we also deliver it to our client’s physician so that it will become part of their permanent medical file. The document is of no use if no one knows where it is, and when an emergency and incapacitating event happens, it is crucial that the document be located in order to avoid someone having to go to court on a formal proceeding called “Guardianship.”
  • We ensure our clients not only have a General Durable Power of Attorney, but have one that we tailored to their particular needs. The one-page document which was common in the past, permitting a loved one to handle our bank accounts and “all those things which I am authorized to do myself” is no longer sufficient in order for our loved one to accomplish specific tasks for our benefit.  Making application for public benefits like Medicaid or Veterans Benefits, establishing and funding trusts, continuing gifting plans, transferring title to real estate as part of an asset protection plan, or challenging an Explanation of Benefits or credit card bill are all powers, among a multitude of others, that may be necessary to be included in the document or our loved one may have no choice but to make application to the court for authority under a Guardianship proceeding. Our document takes into account all aspects of our client’s estate plan, and is tailored to reasonably anticipate a multitude of “what if” scenarios.

Let us help you create the best estate plan and asset protection for your personal needs. Call us for a consultation at (908) 754-4500.

Disclaimer:
The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between Lambariello & Pilato, LLC and the user or browser. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

Disclaimer:
The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between Lambariello & Pilato LLC and the user or browser. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

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