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.

Improper Estate Planning Reveals the Secret KFC Recipe!

Happy New Year! In the culinary world, a secret recipe is everything. For fast food giant KFC, the recipe for its chicken is so closely guarded that it sits in a 770-pound safe covered in two feet of concrete and monitored by motion sensors and video cameras. Seriously, it sounds like something out of a Mission Impossible movie!

Yet recently, as covered in a New York Times article, the company’s lip-smacking spice blend may have been revealed to the world via the last will and testament of Colonel Sanders’ second wife. It all started this past August when Jay Jones, a reporter for The Chicago Tribune, traveled to Corbin, Kentucky to write a piece about the town where the famous Colonel first made his fried chicken.

Mr. Jones set up a meeting with Colonel Sanders’ nephew, Joe Ledington. At some point during the meeting, Mr. Ledington pulled out an old scrapbook that contained pictures and family memoirs. Allegedly, the scrapbook was the property of Claudia Ledington, Colonel Harland Sanders’ second wife who passed away in 1996. Tucked away in the back of the scrap book was Claudia’s last will and testament. In the last pages of the will was a handwritten recipe for a spice rub. Mr. Ledington claimed that the 11 spices and herbs listed in the last will were in fact the secret recipe locked up tight in a safe weighing nearly 800 pounds.

Yum Foods, the parent company that owns KFC, claims the recipe isn’t accurate. The exact spice blend from Claudia Ledington’s last will and testament is as follows and should be mixed with 2 cups of flower:

2/3 tablespoon salt
1/2 tablespoon thyme
1/2 tablespoon basil
1/3 tablespoon oregano
1 tablespoon celery salt
1 tablespoon black pepper
1 tablespoon dried mustard
4 tablespoons paprika
2 tablespoons garlic salt
1 tablespoon ground ginger
3 tablespoons white pepper

Now, from an estate planning perspective, a couple of things can be learned. First, you can bequeath amazing recipes to your descendants. However, if you have a recipe that may be responsible for hundreds of franchise restaurants and billions of dollars in revenue, you may want to update your estate plan. In 1996 when Claudia Ledington passed away, KFC was already a successful brand and household name. Instead of leaving the original spice rub on a hand-written note in the back of a scrap book, she may have wanted to rewrite and seal the document in a safe or safety deposit box.

Second, if you do have a secret recipe to leave in your safety deposit box, it’s never a good idea to leave your last will and testament in your safety deposit box. It’s like leaving the key to the deposit box in your deposit box.

Whether you need help leaving Grandma’s famous apple pie recipe to your children or establishing a trust, it is in your best interests to contact an experienced estate planning lawyer. If you have any questions, please call us at (908) 236-6457, or email me at alec@bmcestateplanning.com.

What to Leave Out When Making Your Will

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So you’ve finally decided to sit down and draft your Will. While you should be applauded for your effort, what you may not realize is what you leave out of your Will can be just as important as what you include.

Having a sound Will in place is important because it tells your surviving loved ones how your property and assets should be disposed of after you’re gone. Without a Will in place, your estate falls under New Jersey’s intestacy laws. Many people assume that by creating a Will, they can distribute their property and assets with impunity. However, depending on your situation, you may have certain assets or properties that are already bequeathed to another beneficiary.

One common example is joint tenancy property. Let’s say you and your brother own a piece of property together. When drafting your Will, however, you request that your ownership pass to your spouse. Upon your death, by law, your interest in the joint tenancy property would pass to your brother and not your spouse despite your Will requesting otherwise.

Another similar example is life insurance. If you already have a beneficiary to your life insurance policy, stating in your Will that you would like another person to be your beneficiary is a futile effort. According to the law, you already named a beneficiary — your Will cannot invalidate your policy and designate a new beneficiary.

Avoid leaving gifts for unlawful purposes

When leaving a gift in your Will, do not include unlawful instructions regarding how the gift should be used. For example, you would be unable to leave your Malibu home to your nephew under the condition that the home only be used for trafficking drugs.

Leave funeral instructions out of your Will

If you have detailed instructions about how you wish to buried, you aren’t alone. However, you should resist the urge to include funeral instructions in your Will. Why? Because most estates and probate proceedings aren’t dealt with until after the funeral, making your extensive and well-thought out funerary guidelines of little use to your heirs. Instead, simply talk to your loved ones about how you wish to be buried.

For more information about what you should and should not include in your will, consult with an experienced estate planning attorney today. Contact Alec Borenstein, Esq., at alec@bmcestateplanning.com, or call 908-236-6457 for assistance with estate planning matters in New Jersey and New York.

Tomorrow is a New Day in New Jersey

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New Jersey. The Garden State. The land of extremely high taxes, corrupt politicians, and (often) broken roads. But at least we have the second cheapest gas in the coun–wait, what?

Is our gas tax going up tomorrow?

On October 23, 2016, Chris Christie signed legislation which raises our gas tax by 23 cents per gallon. If you live in the Garden State, then your gas bill will go from the second lowest in the country to the seventh highest.

Why do we live here again? It must be the weather!

There is a saving grace to this legislation, and it directly impacts your estate plan.

First, let’s discuss the new law. The “gas tax bill” calls for a 23 cents per gallon increase. In total, our gas tax will be 37.5 cents a gallon. The tax increases are supposed to generate $1.23 billion a year for the Transportation Trust Fund.  According to the American Automobile Association, this will cost the average driver about $170 more a year.

That’s the bad news. And for people like me who drive all the time, it’s very bad news.

But for my estate planning clients, it’s a Game Changer.

In exchange for the gas tax increase, our governor negotiated a raise to the estate tax. As I’ve written before, New Jersey currently has the worst estate tax in the country, with an exemption of $675,000. This means that for estates over $675,000, the amount of tax owed to New Jersey could get as high as 16% (in the most extreme cases). If you own a home and an insurance policy and a few retirement assets your kids will probably have to pay something to New Jersey.

However, that seems to be changing. In exchange for the raise in the gas tax, the New Jersey estate tax exemption will be raised from $675,000, to $2,000,000 in 2017, and eventually fully repealed in 2018.

This is huge. I can’t tell you how many times I meet with clients who do not want to leave New Jersey, but they feel compelled to leave because they do not want our legislature getting their hard-earned money.

According to NJ.com, about 3,500 estates are subject to the estate tax each year. The richest 94 estates paid an average of $1.2 million. The non-partisan New Jersey Office of Legislative Services has estimated that the estate tax elimination should decrease the budget by $16 million in 2017, $116 million in 2018, and $320 million in 2019.

What those numbers do not account for are all the people (many of my clients included) who have left the state because of our crazy estate tax. My hope is that, what New Jersey loses in estate tax, it will gain in income tax. I can personally think of dozens of clients who will now stay in New Jersey because of estate tax change.

There is more good news. The Earned Income Tax Credit will get a rise from 30% to 35% (the federal level). For retirees, the news is also positive. Currently, a married couple who files jointly can exclude the first $20,000 in retirement income from state income taxes. The gas tax bill increases that number to $100,000 for married filing jointly, $75,000 for individuals, and $50,000 for married filing separately. There is also another tax exemption for veterans.

A question I’ve been getting a lot – do I need to change my documents? Yes, and no. If your estate plan is older than 10 years, you probably should have someone look at your plan immediately. Older plans often forced people to set aside money (in a Credit Shelter Trust) to save on New Jersey estate taxes after the death of the first spouse. But if there is no New Jersey estate tax, then there is no reason to make your money harder to access.

On the other hand, none of my clients have to change their plans because we made setting aside the money in a Credit Shelter Trust an option, but not the only option. Many other attorneys have done the same thing, which is why you may or may not be OK. If you would like me to take a look at your plan (for free) send me an email and I’ll let you know if you’re covered.

As I write this on October 31, 2016, I know that tomorrow we will all wake up to a new day in New Jersey. If you drive you will suffer, but your children and heirs will not. Just another day in the Garden State!

If you or someone you know wants to make sure your estate plan is prepared for the estate tax situation, please feel free to call us at (908) 236-6457, or email me at alec@bmcestateplanning.com.

More Help for Modest Estates in New Jersey

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For people of modest means, the estate administration process often adds legal and administrative expenses that serve only to reduce the amount of the estate that passes onto heirs. In addition to these hard costs, a lot of the heirs’ time and energy can be lost at a time when they are likely already grieving the loss of a loved one. It hardly seems worth it to process these modest estates.

Fortunately, the State of New Jersey recognizes the burden that estate administration can place on people of modest means and thus always allowed intestate estates valued at less than $20,000.00 to pass to a surviving spouse or partner without the need for administration. An intestate estate is an estate where there is no Will.

Recently, the New Jersey State Legislature passed two new laws which expand upon this policy. First, the amount that can be transferred to a surviving spouse or partner has been increased to $50,000.00. This adjustment will allow a much larger number of estates to pass without administration and should serve to alleviate unnecessary stress on many New Jersey families.

If the decedent does not have a surviving spouse or partner, the maximum amount that could pass was previously $10,000.00, but that amount has also been increased and is now $20,000.00.

The second law assists some of the State’s least financially secure individuals — nursing home patients. Under this new law, nursing homes are required to work with residents to help them designate a beneficiary who will be entitled to any personal needs allowance funds that amount to $1,000.00 or less. The named beneficiary will usually be able to take these monies without administration.

If you have questions regarding your eligibility, or the eligibility of a loved one, under the provisions of either of these laws, consult with a lawyer as soon as possible. For residents of New York and New Jersey seeking estate planning assistance, contact Alec Borenstein, Esq., at alec@bmcestateplanning.com, or call 908-236-6457.

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