by Thomas D. Begley, Jr., Esquire, CELA, andJoellen C. Meckley, Esquire
This is the first of a two-part series in Estate Planning in New Jersey. Estate Planning is a very important process. (The second part can be found here.) Most people have worked their entire lives and lived sensibly with the result that they have accumulated some assets that they would like to pass along to their spouse and/or children or other family members or friends. If someone in New Jersey dies without a Will, the State writes a Will for them. This is called “intestacy.” The result of intestacy is seldom what anyone really wants and the process of administering an intestate estate is more complicated than it needs to be. The best plan is to design an estate plan, which would include basic Estate Planning documents such as a Will, Living Will, Power of Attorney and, possibly, a Living Trust.
Will
A Will is a legal document that expresses the individual’s intention with respect to the distribution of property after death. It appoints someone to act as Executor to probate the Will with the Surrogate’s Office and carry out the individual’s wishes as expressed in the Will. Wills should appoint an Executor and a back-up Executor. Co-Executors can also be considered. The Will should address whether the Executor will be compensated and, if so, what that compensation will be. The Will should also appoint a Funeral Representative to make funeral arrangements, if they have not been made at the time of the individual’s death. If a Guardian is necessary for minor or incapacitated persons, this should be addressed in the Will. Compensation for the Guardian should also be addressed.
If there is a Living Trust, the Will typically leaves all assets to the Living Trust and the Living Trust contains dispositive provisions. If there is no Living Trust, the Will contains dispositive provisions.
Living Trust
A Living Trust is established during a client’s lifetime. Typically, the trust is revocable and the client serves as his or her own trustee. In a situation where there is a husband and wife, separate trusts are established for each party. The Living Trust should always name successor trustees in the event the client dies or becomes incapacitated. The successor trustees can serve as sole trustees or as co-trustees. If there is a Living Trust, it should contain dispositive provisions.
Dispositive Provisions
It is good practice to identify all beneficiaries setting forth the name of the beneficiary and the beneficiary’s relationship to the client. This is important for tax reasons. In New Jersey there is currently no estate tax for monies left to spouses and lineal ascendants such as parents and grandparents, and lineal descendants such as children, grandchildren, and stepchildren. However, there is an inheritance tax for other beneficiaries. This is why identifying the relationship of the beneficiary to the client is important. If the client has a power of appointment in a Living Trust established by someone else, it is important to determine if the client intends to exercise that power of appointment and, if so, to do so in the Will or Living Trust. If a client is going to disinherit someone such as a child or grandchild, it is important to state who is being disinherited and why in the Will or Living Trust so that the person disinherited doesn’t file a claim against the estate saying they were inadvertently left out.
The Will or Living Trust should address who will receive tangible personal property. If specific bequests are going to be made to children, grandchildren or others, these should be set forth. With respect to the remaining estate, also called the residuary estate, there are a number of options. Will the residuary estate be paid to the spouse outright or to a trust for the spouse? Will the spouse receive the minimum amount necessary to satisfy the elective share? Will monies be left to the spouse in certain trusts to minimize or eliminate federal or state estate taxes? Will a Disclaimer Trust for the spouse be established? Will monies be left to the children outright or in a Bloodline Trust? Will monies be left to minor children in trust until the beneficiary reaches a certain age? Will monies be left to grandchildren in trust? Should the Will or Living Trust include an equalization clause, so that if one person is receiving monies from non-probate assets, additional monies are left to others to equalize for the non-probate assets. If an individual beneficiary dies before the client, who will receive the deceased beneficiary’s share? Will it be descendants of the deceased beneficiary or remaining descendants of the client? Will there be distributions to charities? If retirement accounts are payable to a trust established under a Will or Living Trust, will the trust contain Conduit Trust provisions or Accumulation Trust provisions? How will death taxes be paid? Will they be paid from the residuary estate, from a Disclaimer Trust? Will they be apportioned among beneficiaries? Will the taxes be paid from a QTIP Trust? With respect to descendants, will adopted children, stepchildren or children born out-of-wedlock be included or excluded? If there is a common disaster, shall the husband be presumed to have predeceased the wife, or vice versa?
Living Will
A Living Will is sometimes known as an Advance Directive or a Medical Power of Attorney. Actually, it is good practice to combine the Advance Directive and Medical Power of Attorney into one document. The Living Will should appoint a Health Care Representative to make medical decisions for a client, if the client is no longer to make them for themselves. There should always be a successor named. It is good practice not to name Co-Health Care Representatives, because if there is a dispute as to whether or not certain medical treatment is to be given or withheld litigation could ensue. The document should indicate if there is no hope of recovery or regaining a meaningful quality of life, whether life-sustaining treatment should be instituted or continued or whether such treatment should be withheld or discontinued. If the client wants life care treatment to be withheld or withdrawn, the document should state whether the document controls or that the Health Care Representative controls, if there is any dispute. If the client indicates that he wants to continue treatment aggressively, even if a doctor says there is no hope, then the document should state that the document should control. If the client wants the Health Care Representative to consult with other family members, the document should so indicate. The document should also cover whether the client wants to make organ donations, an anatomical gift or, in the case of a woman of childbearing years, whether or not she would want to be kept alive artificially until the baby is delivered. A Living Will enables a designated Health Care Representative to make medical decisions for an individual, if they cannot make them for themselves.
