Many people put off making a will, convinced that such documents are for older folks who are nearing the end of their lives. In fact, statistics show that more than half of Americans currently have no will or other estate plan in place, which means if they were to die tomorrow, someone else would decide how their assets are distributed – and not necessarily according to their wishes.
“That’s why you need a will: You want to be able to control disposition of your property,” says John Loalbo, a partner in the Trusts & Estates practice of Riker Danzig Scherer Hyland & Perretti LLP in Morristown.
Loalbo explains that drawing up a will allows you to choose what happens to your estate – which includes your bank accounts, real estate, personal property, stocks, bonds and insurance policies (if not specifically designated). You are also able to choose an executor, the person who collects the assets, pays all debts, files papers in probate court, files tax documents and eventually distributes what’s left to family, friends, charities and/or any other beneficiaries.
For those who die without a will, the estate is handed off to the county surrogate, who can appoint a relative to be the estate administrator. The surviving spouse gets first dibs, followed by children and then other heirs. In many cases, the administrator will need to get bonded by a surety company, which can cost $5,000 or more, depending on the size of the estate.
“One of the main benefits of a will is control – control over who represents your interests, how your assets are distributed and to whom,” says Angela Titus McEwan, a lawyer with Archer & Greiner, P.C., in Haddonfield. “In a society that now has many blended families, second marriages, children from prior marriages and disabled children, it is more important than ever to have everything spelled out so that the people you want in charge are actually [in charge], and the people you want to receive your assets do so in the way that you provide – and all with as little a chance for fighting as possible.”
Having a will is only one aspect of estate planning, which is the umbrella term for setting things up so your assets pass to your loved ones in accordance with your wishes. Increased media coverage in recent years has put a new spotlight on estate planning.
“When helping someone plan an estate, it’s important to get a sense of his or her family situation: Who are the family members, are there any special circumstances or needs involved, what are the assets, and how exactly are they owned?” asks Laura Kelly, a partner in the Newark office of McCarter & English, LLP, who represents high net-worth clients in estate planning and administration matters.
Kelly often recommends a trust, which can go hand in hand with a will and allows a third party – called the trustee – to hold assets on behalf of one or more beneficiaries. Trusts can be used for many purposes: For the orderly and private transfer of property to another individual; to sidestep probate costs; or to manage your affairs should you become incapacitated.
A common misconception is that only wealthy people need trusts. In fact, trusts are highly flexible and can address any number of issues regardless of the size of one’s estate. One of the primary reasons people have trusts is to reduce estate tax liability, which is particularly important in New Jersey, whose $675,000 estate-tax exemption is the lowest in the nation. Upon the death of a spouse, a Credit Shelter or Bypass Trust preserves that exemption for the surviving spouse, while allowing access to the money during his or her lifetime.
“A credit-shelter trust can be like the family nest egg. If the surviving spouse needs the property, it is there for them. If not, it can be invested with the potential to increase in value,” Kelly says. “When the second spouse passes, the trust isn’t dragged into the estate, and the children get the benefit of two estate tax exemptions instead of one.”
There are many other good reasons to establish a trust as part of one’s estate plan. For a special needs or disabled family member receiving government benefits, a sudden inheritance can reduce or even end those benefits if disbursement isn’t properly spelled out in a trust. Or, if one doesn’t like the idea of his or her teen or young adult child getting a big wad of cash in their pocket, a trust can be created to give the right to withdrawal over time.
“You don’t want them to receive it at 18 and go out and buy a Lamborghini,” Loalbo says. “You might want to allow them to have 25 percent of the inheritance at age 25, 50 percent at age 30, and 25 percent at age 35, or something along those lines.”
In any case where children are involved, choosing the right trustee is vitally important, as that person is responsible for managing and investing the trust money, and making disbursements. A trust can be drafted to give the trustee broad discretion in making distributions – for whatever reason the trustee deems advisable – or to limit a trustee’s discretion to the narrowest of circumstances, say for the payment of medical bills or other emergencies.
“The trick for any parent is to find someone to act as the trustee who is on the same page when it comes to money,” Kelly says. “They’re standing in your shoes when it comes to investments and distributions and considering what you’d do if you were still here.”
In addition to wills and trusts, estate planning can also include strategies like reducing your taxable assets by gifting money to loved ones during your lifetime. (There is no gift tax in the state of New Jersey, and under current law, one can give away up to $5.43 million over a lifetime without paying a federal gift tax). Estate planning can address many issues, and each person or family’s plan should be crafted according to their unique needs and circumstances.
The price range for services is broad, from $69 to do a simple will on LegalZoom.com, to thousands of dollars to draft a will and/or trust addressing multiple concerns. McEwan says it’s important to remember there is no “cookie cutter” estate plan, and what may be appropriate for one person may not be for another. “It is important to select an attorney who concentrates his or her practice in the area of trust and estate law to ensure that one’s wishes are carried out and the family remains protected,” she says.
Kelly adds that a properly executed plan – while there are costs involved – can potentially mean more money in a loved one’s pockets later on. “You can save a few dollars up front, but that might be a case of being penny wise, pound foolish,” she says. “An inartfully drafted estate plan could miss out on potential tax savings for your family or – even worse – spark a costly litigation over a badly-worded provision.”