So…you want to leave your massive estate to a zoo?!

NJ Estate Planning

I’m a very lucky man. I work in a business where my job is to help and protect people and I actually get paid for it! On top of that, I have the best clients who often send me (sometimes hilarious) articles about estate planning. For our 40th End-Of-The-Month-Newsletter (yes, 40 months of newsletters!) I’d like to share a couple of these articles with you!

Imagine you’re an attorney, and your clients come in with a large estate ($22 million). They have no children, and they are Holocaust survivors. The question is, where will they leave their vast fortune?

Immediately the husband stands up and says, “I know! I want to donate my fortune to a zoo! Not just any zoo – but a zoo in…Germany!”

If I was that planner I’d probably fall out of my chair – yet that’s exactly what happened a couple of weeks ago in New Jersey. A 93 year-old widow has pledged to donate her husband’s massive fortune to the Cologne Zoo in Germany. She even set up a foundation and zoo will start receiving $1 million a year!

CLICK HERE to read more. It’s wild.

Another client shared a much sadder (but with a happy-ish ending) story with me about another widow. Max Hopper (an American Airlines executive) died in 2010 without a will and as a result his widow (Jo) was lost in understanding how to administer her husband’s $19 million estate.

If you are reading this and still don’t have a will, or you know someone who does not have a will, think about Jo for a second. Her husband dies, and she has no idea how to handle his estate. What would you do in that situation? Instead of her husband being able to provide for his wife after death, Max left her to her own devices and she was easy prey for a company (or someone else) to take advantage of her.

A jury found J.P. Morgan, the company Jo hired to administer Max’s estate, guilty of fraud and of breaching their fiduciary duty to her. The jury awarded her $4 billion in damages. You read that right. To read more about it CLICK HERE.

There are a few lessons to understand here. First, you absolutely cannot leave your heirs out on a lurch when you pass, especially if you have a sizeable estate (think Prince). And second, if you take on a fiduciary duty (as an executor, power of attorney, trustee), it’s a serious responsibility and you cannot take it lightly. You might pay the price. You definitely will if you commit fraud.

Lastly, if someone who you give power of attorney to does, in fact, breach that duty, you do have recourse. Jo sued J.P. Morgan and won a huge verdict. I don’t think you will win a verdict that high (if you do – I know a few lawyers who can help!), but understand that you can fight back, you’re not a victim if someone you trust breaches that (legal) relationship.

Thanks very much for 40 great issues. To our Jewish readers – Happy New Year! Thanks for reading.

To discuss your estate planning matter with us, contact Alec Borenstein, Esq., a partner with the firm at alec@bmcestateplanning.com or call 908-236-6457 today.

Will Charitable Giving Die with the Death Tax?

death tax charity

There are three crucial domestic subjects on our minds right now. First, Hurricanes Harvey, Irma and Maria. Our thoughts and prayers go out to Texas, Louisiana, Florida and Puerto Rico, especially in light of what we (in the New York City area) went through with Superstorm Sandy. It’s hard not to think about the devastation. If you’d like to give to the Red Cross, please CLICK HERE.

The second subject is fantasy football. But that’s not really my area of expertise as I have a hard time even making the playoffs in my fantasy football league. Also, many of my readers don’t care about fantasy football.

The third subject is tax reform. Trump has given numerous speeches about tax reform, and all of the political pundits say that Trump and the GOP need “a win” which must come from reforming our tax code.

An essential piece of tax reform is the repeal of the estate (or “death”) tax. Most conservatives want to repeal the estate tax and its tax rate of 40%. What many of these people do not know is that currently the federal estate tax exemption is $5,490,000 for a single person and almost $11,000,000 for a married couple. Only .02% of the estates in the country are subject to federal estate tax.

I read a fascinating Bloomberg articleabout the impact of the death of the death tax on charitable giving. In 2010, the last time we had no death tax in the country, gross charitable bequests totaled almost $7.5 billion, which was a 37% drop from $11.9 billion in 2009. When the death tax was resurrected in 2011, charitable giving soared to $14.36 billion.

Many conservatives are ambivalent as they contemplate the repeal of the death tax. On the one hand, GOPers are big believers in charitable giving. On the other hand, conservatives think the death tax is unAmerican and, according to Representative Jim Jordan of Ohio, “It’s peoples’ money. It’s their families’ money. It’s not the government’s money.”

The problem, as I see it, is that too many of our legislators are simply denying the truth. Death tax repeal does not hurt small businesses and farmers as many conservatives say. At most, it hurts 3% of farmers and small businesses.

Moreover, repeal of the estate tax will absolutely hurt charitable giving. There’s no way around it. According to the article (which I encourage you to read) our representatives think that repealing the estate tax will actually encourage “Americans to give more.” All of the evidence points to the contrary.

Thus, the debate. Repeal the unAmerican death tax or maintain the status quo and focus on other tax issues (like the corporate tax). Perhaps there is a middle ground, and I hope there is. Until then, the debate rages on.

(As an important aside to many of my readers, estate tax repeal also has a negative impact on the insurance industry. Wealthy households often use insurance products as: (1) estate tax paying vehicles, (2) charitable giving devices, or (3) estate equalization strategies. If there is no estate tax, there could be no reason for many wealthy people to buy these insurance products.)

To discuss your estate planning matter with us, contact Alec Borenstein, Esq., a partner with the firm at alec@bmcestateplanning.com or call 908-236-6457 today.

Why You Really Don’t Want a Free Online Will in New Jersey or NYC

Times are changing. Almost everything today is automated or on the internet. We buy our shoes at zappos, our groceries at Fresh Direct, our rooms on Airbnb, and everything else on Amazon. Many jobs, including attorneys, are going to become obsolete within the next 20 years due to automation.

Amazon’s robot army (i.e., the robotics Amazon uses in their warehouse fulfillment centers) is now at 45,000! Those are 45,000 jobs that could have gone to hardworking employees, but those tasks are now being handled by robots instead. Let’s face it, robots don’t need healthcare, they don’t take breaks, and they don’t ask for raises.

In the estate planning context, there are hundreds of websites devoted to helping you create your plan online. As an experiment, I visited a few of these websites to see the quality of the documents produced. The truth is, many of these websites are not completely terrible. They are simple to use, produce documents instantaneously, and, most importantly to many consumers, are very cheap.

However, if you have an free online will in New Jersey or New York City, or if you are contemplating getting a will online, there are serious issues of which you must be aware.

The most common problem with buying (or not buying as the case may be) an online will is that even when you put the documents together, they are not valid until they are executed (i.e., signed) the right way.

A couple of weeks ago I was sitting with a friend in my home and asked him if he had a will. He enthusiastically said he did have a will and he got it online – for free! I was thinking about writing an article about online wills and so I asked him how he “executed” the document. He said he used his finger online, signed his name and thought he was good to go. He’s not (literally).

When you sign your documents, there are certain things that must be done in order to ensure that your will can be accepted in your county’s Surrogate’s Court. You need witnesses, a notary and a special affidavit attached to your will.

Many of our estate litigation cases have come through our doors because of online or form wills. Their parents thought they were saving money, however, the Surrogate’s Court did not accept the documents they used because they were not executed properly. They paid virtually nothing for their online forms, but their heirs paid almost $10,000 to use the will in Court.

Moreover, if your estate has any level of sophistication, a free online will might make things worse for your heirs. Quite simply, if your estate is over 1-2 million dollars, inclusive of retirement accounts and/or life insurance, you’re not going to want to get an online will. There are many reasons for this, but, to name an important one, many of these online wills do not have adequate trusts for children or grandchildren (if they have trusts at all).

Ask yourself, would you want to leave 1 million dollars to your 18 or 21-year-old child? How can you protect your children from themselves? There are countless examples of young children getting too much money too quickly (see, e.g., Whitney Houston’s daughter). What is the best way to protect your children from spouses or creditors? What happens if you have a large estate and one of your children predeceases you? Your will should have some level of sophistication if your estate warrants it.

Similarly, if your children might not get along, you most certainly do not want to draft a will online. You are inviting conflict between your children. I’ve see children fight over $20,000 the way they fight over $2,000,000. Even if you properly execute your online will you are making it highly likely that a fight will ensue. This is especially true if one of your children is helping you as you age.

However, if you draft a will with an attorney, the attorney can vouch for your “capacity” (i.e., your ability to execute the will) and your intentions, which makes the chance of an argument less likely. Or, even if there is an argument, the attorney’s presence will help ensure your wishes are carried out.

Lastly, and perhaps most importantly, a free online will does not account for the counsel in the attorney-client relationship. There have been many times when people have come to see us thinking one person could fulfill a certain role in their estate plan, but upon reflection with one of our attorneys, the client understood that their initial decision would have been a huge mistake. Attorneys are called counselors because we provide counsel to our clients, counsel that an online form will never provide.

I could give you another four reasons where drafting a will online is not a good idea (especially in the area of tax planning), but I do not wish to belabor the point. Perhaps there will come a time in the next 20 years when getting an online will is not a terrible idea. However, we are certainly not there yet, which is why you really don’t want to get a will online.

Whether you have an online will, or need help with your current plan, be sure to consult with a skilled attorney. To discuss your estate planning matter with us, contact Alec Borenstein, Esq., a partner with the firm at alec@bmcestateplanning.com or call 908-236-6457 today.

The Estate Plan Phil Jackson Wished He Had

Phil Jackson and NJ Estate Planning

Today has been a lovely day. In fact, I’m having a hard time containing my smile right now. After three years of futility, my beloved New York Knicks have finally decided to part ways with the Zen Master – Phil Jackson.

In case you aren’t a Knicks fan, Phil Jackson, the basketball coach who coached Michael Jordan, Scottie Pippen, Kobe Bryant, Shaquille O’Neal, among other hall of famers, to NBA Championships, was hired as the Knicks President three years ago by the Knicks owner, James Dolan. Back then we were all hopeful that the Zen Master would guide our team back to respectability.

Alas, it was not to be. Jackson compiled a record of 80-166 in his three years as President. He was an absolute train wreck (I’m being kind) and infuriating to follow as a fan. His best quality was that he was not Isiah Thomas, but that’s another story.

All of this having been said, Jackson’s leaving reminds me of an estate planning technique that many of my clients have been asking me about – The Revocable Living Trust (RLT). Phil Jackson will probably want to have owned his New York property in a RLT, assuming he’s moving back to Montana (or Los Angeles?).

Let’s talk about trusts. I’ve heard a trust described as a contract between various parties to benefit other parties, but I find definitions like that hard to conceptualize.

Instead, thanks to my Partner Erin Calpin, I like to think about a trust as a box. Whenever there is a box, there are people involved with the box. There’s the person (or people – but I’m going to use the singular for simplicity) who creates the box – that person is called the Grantor or the Settlor. There’s the person who manages the box, that person is the Trustee. And then there is the best role to play, the person who benefits from what’s in the box, that’s the beneficiary.

The unique thing about a RLT is that (in most instances) the same person who creates the box is the same person who manages the box who is the same person who benefits from the box, i.e. the Grantor, Trustee and Beneficiary are all the same person.

If you create a RLT there is no tax benefit because for all intents and purposes the box is you, i.e., the assets can be managed just as easily as if they were in your own name. A RLT also does not have a separate Social Security Number. You can put things (or assets) in the box, you can take things out of the box. You can chuck the box entirely.

You must be wondering – if there is no tax advantage, then why would you want to create this magical box?

Great question! There are three main reasons to create the RLT. The first has to do with Incapacity. Specifically, as mentioned above, you are all three roles (Grantor/Trustee/Beneficiary) for the RLT. But, if you become incapacitated, your “successor trustee” can easily step into your shoes and manage your assets for you. Some banks would much rather your assets be in a RLT and your successor trustee step into your shoes to manage those assets then be forced to use a Power of Attorney. If you have ever had a Power of Attorney rejected from a bank you know what I’m talking about.

The second reason has to do with Privacy. A Will is a public document. You can easily find David Bowie’s or James Gandolfini’s will, because their wills are public documents. However, anything mentioned in a RLT is private. No one will gain access to the contents of the Trust because it’s private.

The third reason to create a RLT brings us back to our good friend Phil Jackson. The third reason to have a RLT is to avoid the probate process. Without getting into a much longer digression, anything in your individual name (that does not have a beneficiary form) will transfer to your beneficiaries through your Will. In order to probate (or to use) the will your executor has to qualify as the executor and then go through the probate process to make the necessary transfers. If all of your assets are in New Jersey, then it’s not that difficult.

But imagine this scenario. Phil Jackson names Jeannie Buss as his executrix. And Phil has property in Montana, New York and Los Angeles, and everything is owned in his individual name. When Phil dies, Jeannie has to qualify in Montana, New York and Los Angeles Surrogates Courts, paying the filing fees in each state (perhaps even having to make an appearance in each location) in order to transfer all of these homes to Phil’s beneficiaries. However, if Phil had his properties owned in the name of his RLT, Jeannie could deal with all of Phil’s properties in the comfort of her office at the Staples Center.

Similarly, if you live in New Jersey (New York is an altogether different story, we recommend all of our New York clients have RLTs) and you have properties in other states, you’re going to want to own them in the name of your Revocable Living Trust. You might also want a RLT for incapacity purposes, but especially if you own multiple properties in multiple states.

Unfortunately, I’m sure estate planning is the last thing on Phil Jackson’s mind. Fortunately, now that he is gone, Phil Jackson will be the last thing on my mind. Go New York Go New York Go!

Alec Borenstein, Esq., an estate planning attorney, is a Teaneck resident with offices in Springfield, Lebanon and NYC.  His firm’s website is bmcestateplanning.com. If you’d like a free estate planning consultation in the comfort of your own home or office, please email alec@bmcestateplanning.com or fill in the form to your right. 

What happens to your debt after you die?

One question I get often from clients is, What happens to my debt after I die? Great question – but before we delve into the answers, I wanted to share with you three opportunities in June to attend a seminar I’m hosting with Round Table Wealth Management titled: Trump: Time to Update Your Investment & Estate Plan, But How? On June 7, I’ll be presenting in Scotch Plains, on June 8 in Red Bank, and on June 13 in Princeton. Please email me if you’d like to attend and I’ll send you an invitation! Our first seminar in Franklin Lakes was a great success!

 

Back to our regularly scheduled programming: Debt. While you ponder your mortality from time and time and think about the distribution of your assets, have you thought about what will happen to your outstanding debt?

In the past we have written about the need to appoint an executor you trust who will administer your estate in the most efficient way possible. One of the responsibilities of your executor is to take care of your outstanding debt. This is done by using the assets and property you leave behind to cover the balance. It some cases, this may require liquidation of property. Whatever is left over after your debts have been paid may then be distributed among your heirs.

Consider the following types of debt and what happens to it when you die:

  • Student loans — Federal loans are discharged upon death. Private loans, however, are not. In some rare cases, a private loan company may issue debt forgiveness, but it is unlikely. If you pass away with private student loan debt, the balance will attempt to be collected from your remaining assets and estate. Should your estate fail to cover the cost, the private loan company will then attempt to collect the debt from your spouse.
  • Credit card — If you are the sole owner of the credit card debt, then the credit card company will attempt to collect the balance from your estate. Should you have a joint credit card account, the co-signor of the account will be responsible for the outstanding debt.
  • Medical debt — In the event that you have medical debt, the funds from your estate will be used by your executor to cover the cost. Another person may take on the responsibility of your medical debt if they signed legal documents agreeing to do so. In the event that your estate is unable to pay off your medical debt, it will not be inherited by your heirs.

When drafting your estate plan, it is always a good idea to try and reduce the debt you owe by as much as possible, especially if you want to leave substantial property or assets to your loved ones. Any debt you accrue while you’re alive may deprive your family of the inheritance you intended for them to enjoy.

Whether you need help setting up a trust, probating a will or creating a detailed estate plan, be sure to consult with a skilled attorney. To discuss your estate planning matter with us, contact Alec Borenstein, Esq., a partner with the firm at alec@bmcestateplanning.com or call 908-236-6457 today.

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