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.

New Jersey has an Inheritance Tax, too?

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As we the New Year begins to take hold – it’s time for us to circle back to a few basic estate planning concepts. If you live in New Jersey, or know someone who does, there’s nothing more ominous than New Jersey Estate & Inheritance Taxes. I recently wrote an article here about the NJ Inheritance Tax and I’m publishing it below:

As an estate planner, I often feel as though I’m the bearer of bad news. Especially since every time you turn around it seems like the government is taxing you for something, especially in New Jersey.

This is how some of my client sessions go:

“You want to give everything to your kids – got it. And you have life insurance – fantastic. Just know that life insurance is includable in your estate for estate tax purposes and New Jersey has the worst estate tax in the country.”

Or how about this one:

“You need a Will, great. But you want to give $100,000 to your nephew. No problem. Just know that New Jersey also has an inheritance tax. Yes, New Jersey has inheritance taxes also. While many of my clients may be familiar with and troubled by the state’s property taxes and estate taxes, you may be unaware of New Jersey’s inheritance tax. Please don’t hurt me.”

So what, exactly, is an inheritance tax? It’s a tax you must pay after you receive assets or property from a decedent (i.e., the one who died) unless the decedent makes other arrangements to pay the tax under her Will. The NJ inheritance tax should not be confused with the NJ (or federal) estate tax, which is usually satisfied from the estate of the decedent.

Currently, there are only six states in the Union that still have an inheritance tax — Nebraska, Iowa, Pennsylvania, Kentucky, Maryland and New Jersey. Additionally, New Jersey and Maryland have both an estate tax and an inheritance tax — a double whammy.

How does the NJ inheritance tax affect you?

How you are affected by the inheritance tax in New Jersey depends on your relationship to the decedent. If you are a Class A beneficiary (father, mother, grandparent, descendant, spouse, civil union partner, or domestic partner), no tax is imposed. Therefore, if you want to leave everything to your spouse and then your kids (or grandkids) – I can give you some good news – there is no NJ inheritance tax!

For Class C beneficiaries, the first $25,000 received is exempt and a tax of 11% is imposed on the rest of the inheritance. If you are a brother or sister of the decedent, or the husband, wife, or widow(er) of a child of the decedent, civil union partner or surviving civil union partner of a child of the decedent then you are a Class C beneficiary.

Class D beneficiaries (i.e., everyone else who is not Class A or C) are taxed 15-16%.

(In case you noticed, there are no Class B beneficiaries. Just A, C & D.)

Are there exemptions to the NJ transfer inheritance tax?

As a result of the combined inheritance tax and estate tax, many New Jersey residents are looking to states in the South and West as retirement age approaches. However, depending on your situation, a New Jersey resident may be able to claim certain exemptions from the state’s inheritance tax. According to the New Jersey Department of Treasury Division of Taxation, the following exemptions are available from the transfer inheritance tax:

  • All transfers with a total value under $500;
  • Transfers for public purposes made to New Jersey or any political subdivision thereof;
  • Federal civil service retirement benefits payable to a beneficiary other than the estate, executor, or administrator;
  • Any life insurance that has been paid to a named beneficiary (but not the decedent’s estate);
  • Charitable donations for the use of any educational institution, church, hospital, orphan asylum, public library, etc;
  • Annuities payable to survivors of military retirees;
  • Qualified employment annuities paid to a surviving spouse, civil union partner, or domestic partner.

I know – a very exciting list! But important to note, there are no inheritance taxes for: gifts that are less than $500 and life insurance proceeds payable to designated beneficiaries. Therefore, if you wanted to leave your $100,000 life insurance proceeds to your nephew, there would be no inheritance tax (but there could potentially be estate tax).

Yes, lots of bad news. But I would like to end on a positive note: any inheritance taxes that are paid to New Jersey are counted as a credit toward the overall estate taxes given to New Jersey. Thus, if there is $45,000 due in inheritance taxes, and the estate tax bill is $50,000, your estate would only owe $5,000 in estate taxes because $45,000 was paid in inheritance taxes. New Jersey will not tax your estate twice.

As you consider gift giving throughout this New Year, perhaps give your nephew a little more. It will save on inheritance taxes down the road!

If you have any estate planning questions, please feel free to call us at (908) 236-6457, or email me at alec@bmcestateplanning.com.

Thanks for reading!

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