Thursday, January 31, 2013

2013 update Wills and Estate Planning Seminar materials

2013 update Wills and Estate Planning Seminar materials
by Kenneth Vercammen Co-Chair of Elder Law Committee ABA , plus tax portion by the Greenbaum Rowe Law Office Alert - An Overview of Key Provisions of the American Taxpayer Relief Act of 2012. We thank the Greenbaum Rowe office for permitting us to share their valuable information.

1. Federal Estate Tax exemption now permanently increased so no tax for Estates under $5,250,000, and will be adjusted annually for inflation. However, New Jersey taxes estates over $675,000.

2. Gifts permitted without Federal Estate & Gift tax was increased to $14,000 per person. 

3. Non-formal writings could be Wills under the New Probate Law

4. We recommend Self- Proving Wills since witnesses often move or pass away

5. Revised statute requires Palimony agreements to be in writing.

6. Recent case can void Will signed under suspicious circumstances
7. NJ Inheritance tax
8. Power of Attorney
9. Federal Health Privacy Law (HIPAA)
10. Competency required to sign a Will or Power of Attorney

1.  Federal Estate Tax exemption is now permanently increased so no tax for Estates under $5,250,000, and will be adjusted annually for inflation. However, New Jersey taxes estates over $675,000.
New Jersey has an Estate Tax on amounts over $675,000.  So, even if no Federal Estate Tax due, the estate must still file a Federal Estate Tax Return, plus NJ Estate Tax Return.
So, for an unmarried or widowed person with assets of $1,000,000, there is No Federal Estate Taxes, but
the Estimated State Estate Tax:  $33,200.00

   For  an unmarried or widowed person with assets of $1,500,000, estimated NJ Estate Tax is over $60,000.
The Federal Tax rate on estates over $5,250,000 has been increased from 35% to 40%.
How to avoid NJ Estate Tax- hire an attorney to set up a personal residence trust or irrevocable trust and have the assets taken out of your name and put into a trust or given to children and grandchildren in the trust. Minimum fees for trust are $3,000. This is probably not something a non attorney can do on their own. It is illegal for a non attorney to provide legal advice or prepare most legal documents.

2. Gifts permitted without Federal Estate & Gift tax was increased to $14,000 per person. 

        However, the amount permitted for Medicaid transfers is zero.

3. NJ SENATE Law No. 708 made a number of substantial changes to the NJ Probate Law.

Non formal writings could be Wills under the Revised provisions governing the administration of estates and trusts in New Jersey.  So make sure you have a Formal Will drafted by an estate attorney.

  The law expanded situations where writings that are intended as Wills would be allowed, but requires that the burden of proof on the proponent would be by clear and convincing evidence. Possibly a Christmas card with handwritten notes could be presented as a Will or Codicil.
To present a non-formal Will or writing requires an expensive Complaint and Order to Show Cause to be filed in the Superior Court, and a hearing in front of a Superior Court Judge.
Be careful; have a Will done properly by an experienced attorney.

   Beware of the “Elective share” rights of a new spouse. Have a Prenuptial Agreement if entering into a 2nd marriage
The elective share provisions of the present Code has still not been changed yet.  Currently, the new spouse who is not given money in a Will can challenge the terms of the Will. This is called "electing against the Will by a spouse". A spouse could receive up to 1/3 of the estate, even if only married for 2 weeks. The spouse must file a Caveat or lawsuit in Superior Court.  We suggest a formal prenuptial agreement in 2nd marriage situations.
    A Testator now means both male and female individuals, removing the term “Testatrix”. Will forms that say executrix should not be used.
        The law provides a statute of limitations with respect to creditor claims against a decedent's estate. There is no longer a need to publish a Notice Limiting Creditors.

4. We recommend Self- Proving Wills since witnesses often move or pass away
An old New Jersey Probate law required one of the two witnesses to a Will to travel and appear in the Surrogate’s office and sign an affidavit to certify they were a witness. This often created problems when the witness was deceased, moved away, or simply could not be located.  Some witnesses would require a $500 fee to simply sign a surrogate paper. My Grandmother’s Will was not self- proving, and the witness to Will extorted a $500 fee.
The New Jersey Legislature later passed a law to create a type of Will called a “Self-Proving Will.”  In such a Will, the person for whom the Will is made must sign.  Then two witnesses sign.  Then the attorney or notary must sign; with certain statutory language to indicate the Will is self-proving. 
    When done properly, the executor does not have to locate any witnesses.  This usually saves time and money.  If your Will is not “self-proving” or if you are unsure, schedule an appointment with an elder law attorney. Some law offices ignore the revised law, and fail to prepare self proving Wills. Do not use a law office that follows old methods and does not do a self proving Will.

4. Revised statute requires Palimony agreements to be in writing.
This law is intended to overturn recent "palimony" decisions by New Jersey courts. An agreement to provide support or any such contract must be in writing and signed by the person making the promise. More specifically, the law provides that a promise by one party to a non-marital personal relationship to provide support or other consideration for the other party, either during the course of such relationship or after its termination, is not binding unless it is in writing and signed.  The law provides that no such written promise is binding unless it was made with the independent advice of counsel for both parties.
     This law eliminates the holdings of two  cases  New Jersey Supreme Courts  which unwisely upheld palimony agreements between two unmarried cohabitants.  
The new palimony law almost totally eliminates palimony in NJ.

6. NJ Supreme Court held a Will could be void if signed under suspicious circumstances
      When there is a confidential relationship coupled with suspicious circumstances, undue influence is presumed and the burden of proof shifts to the Will proponent to overcome the presumption. 
  If there is undue influence in making of Will and transfer by Deed of a house by persons in Confidential relationship, this could subject those persons to punitive damages in some instances, plus voiding of the Will. In the Matter of the Estate of Madeleine Stockdale, Deceased 196 NJ 275 (2008)

Wills should be prepared without undue influence. No one other than the person who is signing the Will should be in the room. We usually request the person who wants the Will to fill out the interview form themselves.

7. NJ Inheritance tax
   The NJ Inheritance Tax Return instructions and NJ Estate Tax Forms were revised in 2011. Throw out old forms.  Even if no inheritance tax due, a Tax Waiver on a house must still be obtained and filed if the house was not co-owned by the spouse.

8. Power of Attorney
        Do not use a form purchased online, unless it contains reference to the NJ statute requiring banks to honor the Power of Attorney. Section 2 of P.L. 1991, c. 95 (c. 46:2B-11).

9. Federal Health Privacy Law (HIPAA)
A federal regulation known as the Health Insurance Portability and  Accountability Act (HIPAA) was adopted regarding disclosure of individually identifiable health information. This necessitated the addition of a special release and consent authority to all healthcare providers before medical information will be released to agents and interested persons of the patients.     
       The effects of HIPAA are far reaching, and can render previously executed estate planning documents useless, without properly executed amendments, specifically addressing these issues.
        Any previously executed Powers of Attorney, Living Wills, Revocable Living Trusts, and certainly all Medical Directives now require HIPAA amendments.   
Powers of attorneys and Living Wills should be updated to reference this new law. More information on the HIPAA law at
After you sign the Living Will in your attorney’s office, provide a copy to your doctor and family.

10. Competency required to sign a Will or Power of Attorney
My law office cannot prepare a Power of Attorney, Will or any other legal document unless a person is mentally competent. If someone is unable to come into our office, we require the client or client’s family to have the treating Doctor sign the “Doctor Certification of Patient Capacity to Sign Legal Documents” It is the client or client’s family’s responsibility to contact the doctor, obtain the signed Certification at the clients’ expense, and then provide the law office with the original signed Certification. The law office cannot accept phone calls stating someone is competent. Therefore, it is wise do have your documents drafted while you can drive and are healthy.

More information on Wills and Probate at

2053 Woodbridge Ave.
Edison, NJ 08817
(Phone) 732-572-0500
American Taxpayer Relief Act of 2012
Signed into Law by President Obama on January 2, 2013

January 2013

     By the Greenbaum Rowe Law Office
        On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 ("Act") which was signed into law on January 2, 2013. While certain provisions of the Act are considered to be "permanent", an overhaul of the Internal Revenue Code later this year or in a subsequent year could impact certain of the "permanent" changes. An overview of some of the Act's provisions, which are likely to be applicable to our clients, is provided below.

Important Provisions Included in the Act

Estate Tax

The $5,000,000 gift and estate lifetime exemption has been made permanent and will be adjusted annually for inflation (it is expected that the IRS will set it at $5,250,000 for 2013). The $5,000,000 indexed exemption for the generation skipping transfer tax has also been made permanent. Portability (i.e., the provision in the estate tax law that allows a surviving spouse the benefit of the unused lifetime exemption of his or her predeceased spouse) has also been made permanent. The one downside of the new law is that the maximum estate tax rate has increased from 35% to 40%.

Individual Income Tax Rates

Ordinary Income.   The new law increased the highest marginal federal income tax rate to 39.6% for married couples filing jointly with $450,000 of taxable income, heads of household filers with $425,000 taxable income, and single filers with $400,000 of taxable income. The existing tax brackets for lower income thresholds were not changed.
 Long Term Capital Gains.   Although the long term capital gains rate remains at 15% for most filers, those in the 39.6% tax bracket will be faced with a 20% capital gains rate and a 3.8% additional investment surtax (which will be used to fund healthcare).
Temporary Payroll Tax Cut Expires.   For each of the past two years, FICA withholding on wages had been reduced from 6.2% to 4.2% on the first $100,000 of wages. The new law does not extend this payroll tax holiday. As a result, wage earners will see a direct adverse effect on their paychecks (of up to $2,000 per year).

Miscellaneous Taxes

Many temporary tax provisions were extended for 2013, including but not limited to the child tax credit, the earned income credit, the American Opportunity tax credit, qualified tuition deductions, bonus depreciation, various research and energy credits, the temporary exclusion of the gain on the sale of certain small business stock, and the reduction of the recognition period for built-in gains tax in the case of S corporations.

Roth 401(k) Conversions

Effective January 1, 2013, 401(k) plans may be amended to permit participants to convert pre-tax accounts, including amounts accumulated prior to 2013, to designated Roth accounts within the same plan, without regard to the participant's eligibility to take a distribution from the plan. Prior to the enactment of the new law, 401(k) participants could only complete an in-plan Roth conversion with respect to the portion of their account balance that was otherwise distributable under the terms of the plan, such as on account of severance from employment, attainment of a particular age (e.g., 59½ ) or disability. Pre-tax contributions, and earnings on such amounts, that are converted to a designated Roth account are includable in the participant's gross income in the year of the conversion. Subject to certain timing and other restrictions, however, all Roth 401(k) contributions and earnings may be withdrawn tax free. The new, more flexible Roth conversion rules also apply to 403(b) and governmental 457(b) plans.

Qualified Charitable Distributions from IRAs

The Act reinstates, through the end of 2013, the ability for individuals aged 70½ or older to make "qualified charitable distributions" from their traditional or Roth IRAs to certain charitable organizations without having to include such amounts in gross income or take a charitable contribution deduction. To constitute a "qualified charitable distribution," the amount(s) donated by an IRA owner must, among other requirements, be transferred directly from the IRA to the recipient charity and cannot exceed the aggregate amount of $100,000 in a single taxable year. Although excludible from gross income, qualified charitable deductions still count toward the annual "required minimum distribution" that generally must be taken by an IRA owner beginning in the calendar year after attaining 70½ years of age. Under special rules applicable for 2012, a taxpayer may make a qualified charitable distribution in January 2013 and elect to treat it as having occurred in 2012. In addition, a taxpayer may retroactively elect to treat an IRA distribution received in December 2012 as a qualified charitable distribution for that year, provided, among other requirements, that cash in the distribution amount is transferred to the charitable organization in January 2013.

Important Provisions Not Included in the Act

Grantor Retained Annuity Trusts ("GRATs"). The President's proposed changes to the taxation of grantor retained annuity trusts that had been considered, were not addressed in the Act. As a result, GRATs continue to be a tax planning technique to be considered in the appropriate circumstances.

Provisions Regarding the Tax Treatment of "Carried Interests". As Congress has done in the past, it again considered changing the favorable tax treatment afforded "carried interests", including profits interests that are granted in a partnership or limited liability company in exchange for services. Such changes were not contained in the Act as signed into law on January 2. As a result, the granting of such interests to a service recipient can still result in compensation for services being taxed at favorable capital gains rates under certain circumstances.

The two provisions discussed above, as well as certain others that were considered by Congress and not included in the Act, could again be considered and included as part of a tax overhaul at a later date.

Planning Opportunities and Next Steps

As a result of the stability provided under the Act in the estate and gift tax areas, it is now an opportune time for individuals to review their personal situations and consider moving forward with certain wealth transfer transactions or changes to their Wills which may have been put on hold. In addition, individuals with significant holdings in a 401(k) plan or an individual retirement account or annuity, may want to revisit the possibility of making a Roth election or contributing retirement holdings to a charity. The 4.6% increase in the highest marginal federal individual income tax rate makes contributions to qualified retirement plans more attractive than they have been in the last few years.

Please contact the attorneys in the Greenbaum Rowe Law Office   Tax, Trusts & Estates Department if you have any questions regarding this Alert, or would like additional information concerning this important new tax legislation.

732-476-2450 |

732-476-2650 |

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