We recognize that you may have general questions regarding estate planning and estate administration. The following discussion addresses some common questions and answers and is intended to make you better understand the importance of having properly drafted legal documents.

1. What legal documents do you recommend?

Answer: At a minimum, you should have a properly drafted Last Will and Testament, General Durable Power of Attorney and a Health Care Power Attorney. Depending upon the size of your assets or your particular circumstances, you may consider having Irrevocable Trusts or additional legal documents prepared on your behalf.

2. What is the current federal estate tax exemption?

Answer: For the year 2005, the federal estate tax exempts the first $1,500,000 of your net estate. This is referred to as your credit shelter or applicable exemption amount. The applicable exemption amount is scheduled to increase according to the following schedule:

Year Applicable Exemption Amount

2004-2005 - $1,500,000
2006-2008 - $2,000,000
2009 - $3,500,000
2010 - Repealed
2011 - $1,000,000

3. What are the assets that make up your estate?

Answer: Your estate consists of the fair market value of all of your assets including bank accounts, real estate. CD’s, stocks, bonds, mutual funds, business interest, automobiles and personal items, retirement accounts, life insurance, annuities and any additional assets.

4. Do married couples each receive an applicable exemption amount?

Answer: It depends. If married couples have a Will leaving everything outright to the surviving spouse, then potentially the applicable exemption amount of the first spouse to die has been wasted. Typically, there would be no tax due on the death of the first spouse to die. However, if all of the assets were left outright to the surviving spouse, then the full value of the assets would be included in the surviving spouse’s estate. If a married couple person’s Will leaves everything to a spouse then the first spouse to die will not utilize his or her exemption. Consequently, only the surviving spouse will take advantage of his or her applicable exemption.

5. What are some of the common reasons to establish a Trust?

Answer: Trusts are established for a number of reasons. Sometimes a client establishes a Trust to reduce their federal estate tax liability. Other times clients establish Trusts to control the ultimate beneficiary of their assets. This often occurs if a spouse is concerned with a surviving spouse remarrying or if the spouse has children from prior marriage. Other reasons to establish Trusts are to achieve creditor protection, generation skipping benefits and asset protection.

6. What is the difference between a “Testamentary” and “Intervivos” Trust?

Answer: A Testamentary Trust is established at death. Typically this is a Trust that is set up in a Last Will and Testament. On the other hand an Intervivos Trust is often referred to as a Living Trust. As its name designates this Trust would be set up while you were living. A Living Trust can be funded by placing the assets in the Trust during your lifetime or having the assets “poured over” into the Trust upon a person’s death.

7. Please explain what a “Disclaimer Trust” is.

Answer: The applicable exemption amount will increase from $1,500,000 starting in year 2005 to $3,500,000 in the year 2009. Consequently, individuals owning assets in excess of the exemption amount today may not own assets exceeding the exemption amount in later years. For individuals who are only establishing a Trust for estate tax savings, a Credit Shelter Trust may not be necessary. A Disclaimer Trust combines provisions of a Simple Will with a Credit Shelter Trust. Upon one spouse’s death all assets are left to the surviving spouse. However, if the surviving spouse assets would exceed the current exemption amount, the individual can disclaim the excess assets into a Disclaimer Trust. Any assets disclaimed into a Trust would be available to the surviving spouse during his or her lifetime, but will be sheltered from federal estate tax upon the surviving spouse’s death.

It is important for the surviving spouse to remember that there are procedural steps that must be followed in order to properly disclaim part of the assets into a trust. To make this disclaimer all that will be necessary is the following:

A. The surviving spouse must notify the holders of the accounts that he/she is disclaiming his/her interest in the funds.

B. This notification must be in writing within 9 months from the date of the first spouse's death.

C. Once this disclaimer is made, it is irrevocable.

D. This disclaimer must be made prior to accepting any benefits from the above-mentioned accounts.

8. Please explain what a “Credit Shelter Trust” is.

Answer: A Credit Shelter Trust is a mechanism for which married couples can each take advantage of their applicable exemption amount. Upon the first spouse’s death, he or she will leave the maximum amount allowable by law into a Trust for the surviving spouse. Often the surviving spouse is entitled to income and principal from the Trust. However, upon the surviving spouse’s death, the assets remaining in the Trust will be sheltered from federal estate tax.

9. Please explain what a “Q-TIP” Trust is?

Answer: The provisions of a Q-TIP Trust are specified in Internal Revenue Code Section 2056(b)(7). Assets left into a Q-TIP Trust are treated for tax purposes as if the assets were left directly to the surviving spouse. However, the person establishing the Q-TIP Trust is able to control the ultimate beneficiary of the Trust. The provisions of the Internal Revenue Code require that all income in a Q-TIP Trust be distributed to the surviving spouse. Any assets in a Q-TIP Trust are included in the surviving spouse’s estate. Q-TIP Trusts are usually established to preserve control over assets rather than to reduce or eliminate estate tax.

10. Can retirement proceeds be payable to a Trust?

Answer: Because a spouse is permitted to make a spousal rollover into the spouse's retirement plan thereby deferring the payment of income taxes, it is usually preferable to name the surviving spouse as beneficiary on the retirement accounts. However, it may be necessary to name your Trust as primary or contingent beneficiary of all or a part of your retirement plan to fully take advantage of the Credit Shelter Amount from the federal estate tax.

As of December 29, 1997, the IRS regulations state that there are five requirements that must be met as of the later of (1) the date the trust is named as beneficiary, or (2) the required beginning date.

The five requirements are as follows:

(1) The trust is valid under state law.

(2) The trust is irrevocable, or, will become irrevocable upon the death of the participant.

(3) The beneficiaries of the trust’s interest in the plan are identifiable from the trust instrument.

(4) Proper documentation has been provided to the plan administration.

(5) All trust beneficiaries must be individuals (i.e., no charities, estates, or corporations named as beneficiary).

As long as the trust meets the above-referenced requirements, then the trust will be treated as a designated beneficiary. Therefore, the retirement proceeds disclaimed into the trust can remain in tax-deferred status. Mandatory distributions may be made over the life expectancy of the oldest beneficiary of the trust. Consequently, income tax will only be payable as the proceeds are withdrawn from the trust.

11. What is an Irrevocable Life Insurance Trust?

Answer: Life insurance is included in your estate if you are either a beneficiary or have incidents of ownership over a policy. Often clients with life insurance establish Irrevocable Insurance Trust to remove insurance proceeds from an estate. By transferring all “incidents of ownership” of a life insurance policy to a Trust, it is possible to exclude the insurance proceeds from the insured’s estate. In order to obtain the estate tax savings, there are certain procedures that must be followed.

Each gift by the Grantor to the trust may be a taxable gift unless the beneficiaries have a present interest in the amount transferred to the trust. In order to avoid this gift tax, the trust provides that each of the beneficiaries will have a limited right to withdraw any additions to the trust within thirty (30) days of the transfer. After review of the cases and IRS rulings in this area, we recommend the following procedures:

First, we recommend that your trustee open a separate checking account for the trust.

B. At least thirty (30) days in advance of the premium payment, the Grantor(s) should make a check payable to the trustee in an amount sufficient to pay the insurance premium. This check should be deposited into the trust checking account for a minimum of thirty (30) days before a premium payment is made.

C. In addition to making sure that the funds are available to satisfy any demand by a beneficiary, it is recommended that each beneficiary be notified of the additions as they are made. This form should be sent by the trustee to each beneficiary to inform them that funds are available in the trust over which each of them have powers of withdrawal. The trustee should have the notification forms executed where indicated. It is important for tax purposes that these forms are signed each year. If any future additions are made to the trust, similar forms should be signed by the beneficiaries. Each beneficiary, or his or her guardian, should acknowledge receipt of the notice and waiver of the right of withdrawal. If the money in the trust checking account earns interest in excess of $100, then a Form 1041 Fiduciary Tax Return will have to be filed on an annual basis.

12. Please explain what a “common disaster” clause is.

Answer: We sometimes put a common disaster clause in our tax planning documents which deems one person to have predeceased another. The benefit of the common disaster clause is to allow each couple to take advantage of their applicable exemption amount.

13. Please explain the “Rule Against Perpetuities.”

Answer : In the past, a Rule Against Perpetuities applied in New Jersey. This rule provided that a Trust could not go on forever. However, in the Fall of 1999, the Rule Against Perpetuities was abolished. Nevertheless, we often include the paragraph pertaining to the Rule Against Perpetuities in the event that the situs of a Trust later changes to another jurisdiction which still recognizes the Rule Against Perpetuities.

14. What are reasonable fees for an Executor to be compensated for administering an Estate?

Answer : Normally an Executor is entitled to reimbursement for all reasonable expenses incurred in the discharge of his or her duties. Under state law an Executor can take a commission as specified in N.J.S.A. 3B:18-1 et seq. Typically an Executor is entitled to 5% of the first $200,000; 3½% of the amount between $200,000 and $1,000,000; and 2% on any amount over $1,000,000. This amount could be increased slightly. An Executor is not obligated to take this fee.

15. I have heard that a Living (inter vivos) Trust is a good way to avoid the costs of probate and inheritance taxes. Is it a good idea?

Answer : New Jersey probate costs are minimal ($100 to $150). A Living Trust does not save inheritance taxes. A Living Trust is a good idea if:

A. You own real estate outside New Jersey.

B. You want to save Executor's commissions.

C. You want to keep something private.

D. You may move to another state where probate is more complex.

E. You may acquire real estate in another state such as a vacation home or retirement home.

16. What are the differences between tenants in common and joint tenants with right of survivorship?

Answer : Tenants in Common: This type of ownership means that the interest owned by each tenant is subject to probate. Their share will pass through their Will when they die.

Survivorship: Each of you own the whole and each you have equal rights to the property. Upon the death of one, the surviving joint tenants automatically get the interest of the deceased joint tenant.

17. Do beneficiary designations supersede my Will?

Answer : Yes. Under New Jersey law, when you designate a beneficiary on an account the account will pass to the designated beneficiary. This will occur even if the Will specifies that your assets are to pass in some other manner.

18. Do I have to leave something in my Will to my children?

Answer : No. You are not required to leave anything in your Will to your children. In order to avoid a Will contest, you should specify in your Will that you are leaving out a child (or certain children) and the reasons for doing so. If you don't want to put the reason in the Will, you should at least have a memorandum in the attorney's file indicating that information.

19. What is the “generation-skipping” tax?

Answer : Generation-skipping occurs when you give assets either during your lifetime or upon your death (through a Will or Trust) to your grandchildren “skip” your children. A federal transfer tax (known as “GST tax”), in addition to the federal estate tax, is imposed on these types of property transfers. Since a Generation-Skipping Trust can occur intentionally or unintentionally (an unintentional transfer can occur, for example, if an individual leaves assets in a Trust for his or her child and the child dies before the Trust creator so that the Trust assets pass to the creator’ grandchildren), we may include provisions in your estate planning documents designed to avoid the GST tax even if you do not intend to leave any assets immediately to your grandchildren. As of 2005, the GST exemption is $1,500,000 and is scheduled to be repealed as of 2010.

20. Can a beneficiary of a Will also be a witness to the Will?

Answer : It is not expressly prohibited, but it is not recommended. When a beneficiary is also a witness, if the Will is contested, anything the beneficiary might have received through the Will could possibly be invalidated to the extent it is more than the witness would have received if there was no Will at all.

21. What are the duties of a personal representative of a Will and whom should I select?

Answer : If your estate is modest in size, you should probably select a family member. If your estate is substantial in size, you might want to consider a professional, such as a lawyer, bank or trust company.

The Executor’s job in New Jersey is to leave the Will for probate with the Surrogate's office, gather the assets, pay the bills, file any necessary tax returns and distribute the assets in accordance with the Will.

If there is a trust, you need a Trustee. The Trustee needs to manage the money for the term of the trust which is often the remaining life of the surviving spouse or until younger children reach an age of responsibility. Individuals usually do not manage money as well as financial institutions. Therefore, you might want to think of having a family member and a financial institution act as Co‑Trustees if the size of the trust is substantial.

22. Can a beneficiary of a Will also be a personal representative of the Will?

Answer : Yes, in New Jersey. However, if you move to another state, you should check the laws of that state.

23. How can I change my Will?

Answer : By Codicil or by executing a new Will.

24. Are Wills required to be registered?

Answer : No. Wills are not registered until they are presented for Probate.

25. How do I alter or revoke my Will?

Answer : A Will can be revoked by being destroyed (torn, shredded). However, if the Will is not replaced, your estate may be subject to the Laws of Intestacy. A Will can be changed by a Codicil (and a Trust can be changed by an Amendment). However, it should not be changed by handwritten or typewritten marks on the Will itself. Frequently, such changes will make the Will or Trust inadmissible.

If you wish to change or revoke your Will or Trust, please contact our office so that the change can be implemented properly.

 26. Is a Will executed in another state valid in this state?

Answer : Generally, a Will which is valid in the state where it is signed is valid in New Jersey.

27. What are the requirements to execute a valid Will?

Answer : To have a valid Will, the Testator (Testatrix) must be over 18 years of age and mentally competent. The Will needs to be in writing and must be signed in front of two (2) witnesses. It is a good idea to have an acknowledgment signed by a Notary Public so that the Will is self proving in almost any state.

28. When is someone unable to make a Will due to lack of mental capacity?

Answer : To have capacity to make a Will, a person needs to know the nature and extent of their holdings, the natural objects of their bounty, and be able to form a rational plan of disposition. (Who do they want to leave the money to?) (Who are their family members?) (What do they own?)

29. Are handwritten or oral Wills valid?

Answer : Oral Wills are not valid, but handwritten Wills are valid. However, handwritten Wills cause a tremendous amount of probate litigation. The cost of having a Will professionally prepared is very small compared to the cost of the probate litigation which often results from a handwritten Will.

30. Can I make a Will in this state if I own property in another state?

Answer : You should make your Will in the state in which you have your principal residence. If you own real estate in another state, you should consider a Living Trust so that you can avoid probate in the other state.

31. When do I have to file a gift tax return?

Answer : Everyone can give everybody in the world $11,000 per person per year without filing a federal gift tax return. Gifts in excess of this amount require filing of a federal gift tax return. The excess over the $11,000 annual exclusion gift is subtracted from the Credit Shelter Amount available to persons for transfers made during the lifetime or upon death.

 Example : If you made a $50,000 gift to one of your children, you would file a gift tax return showing that you had made a $50,000 gift and that $11,000 was to be considered your annual gift and the other $39,000 was to be subtracted from your $1,500,000 exemption equivalent. If you made no more such gifts during your lifetime, you would have a $1,459,000 exemption from federal estate tax when you died, rather than $1,500,000.

32. Where shall I keep my Estate Planning documents?

Answer : Place your Will or Trust in a safe deposit box, in our office’s locked, fireproof cabinet, or a similar secure location. If desired, our office will send one copy of your Living Will to your primary care physician. You might also consider giving copies of your Living Will to your Health Care Representative. You might consider giving a copy of your Power of Attorney to your Agent. If you are uncomfortable giving a copy of your Power of Attorney to your Agent, let that person know that he or she is your Agent and give him or her the location of your documents. I would suggest that you keep one copy of your Living Will at home and that you place one copy of your Power of Attorney in a safe deposit box.

33. When should I review my Estate Planning documents?

Answer : Estate Planning documents should be reviewed by your attorney at least every five (5) years. However, it is recommended that you review your financial status on an annual basis. In addition, there are three (3) major occasions upon which an estate plan should be amended:

A. Change in Personal Circumstances - Such changes include: marriage, divorce, or remarriage; the birth or adoption of a child; the death of a beneficiary; or the death of a personal representative such as an Executor, Health Care Representative or Agent under your Power of Attorney.

B. Change of Assets - This includes a significant change in your income or assets, including the receipt of an inheritance or substantial gift.

C. Change in the Laws Which Affect Your Estate Planning - You should have our office review your estate plan whenever an existing law is amended or a new law is adopted.

34. Who should get copies of my estate planning documents?

Answer : Whether copies of your estate planning documents should be distributed is a personal decision. However, it is important to let your personal representatives know of their appointment, their responsibilities and where your documents are kept.

35. Will my estate planning documents be valid if I relocate?

Answer : If you relocate to another state, your documents should be valid in that state, since most states follow the Uniform Wills Act. However, if you relocate to another state, you should contact an experienced estate planning attorney in that state to determine if your documents need to be changed. This office will make a recommendation, if you so desire.

If you relocate within the same state, a mere change of address does not require a change in your estate planning documents. If your personal representatives, including your Executor, Trustee, Health Care Representative, and Agent under your Power of Attorney change their addresses, it is not necessary for you to change your documents.

36. I want my child to take care of my affairs when I am no longer able to do so. How can I make sure she will be permitted to act for me?

Answer : A Durable Power of Attorney (POA) is the best way to do this. Creating joint accounts is not always a good choice because of possible tax consequences and for Medicaid planning purposes.

37. What is a Durable Power of Attorney?

Answer : It is a legal document whereby you give another person (called an Agent) the legal authority to manage your affairs. A Durable Power of Attorney means that the POA remains in effect even if you become disabled.

38. How do I revoke a Power of Attorney?

Answer : You can revoke a POA by giving written notice to your Agent. It is also a good idea to give notice to any banks, brokerages or other places where the Agent conducted normal business on your behalf. If a POA is durable and you become incompetent, only the court can revoke the POA and then only for good cause.

39. Can my Agent under my POA be forced to act, even if he or she does not want to do so?

Answer : No. Make sure to appoint alternate Agents. The alternate agent serves if the primary agent is unable or unwilling to do so.

40. If I have given someone a Durable Power of Attorney, will it be necessary to have a guardianship proceeding if I become incapacitated?

Answer : Usually the power of attorney makes a guardianship unnecessary.

41. Can a bank or other institution refuse to honor a valid POA?

Answer : There is a New Jersey statute which provides that a bank cannot force you to use the institution’s POA and that the bank must honor the POA you have if it specifically refers to the statute and includes certain language.

42. lf I give a POA to another, do I give up the right to manage my own affairs?

Answer : No. You retain full control over your affairs. You can allow your Agent to act if you so choose and you can revoke those rights at any time. You can also have a springing power of attorney that does not become effective until a physician certifies that you are incapacitated.

43. Is a Living Will valid?

Answer : Yes, if it conforms to New Jersey law with respect to its content and execution. This means that it can only be exercised to order the withdrawal of life support in certain circumstances, such as when a person is brain dead or has a terminal illness. It should include a list of treatments and procedures that you do and do not want. It needs to be signed before two witnesses and/or a Notary Public.

Some doctors are still reluctant to recognize Living Wills. The more specific your Living Will is, the more likely it will be honored.

44. Is a Power of Attorney for health care valid?

Answer : Yes, they are valid if they are signed in front of either two witnesses and/or a Notary Public.