You worked hard your whole life, saved and invested wisely, and are now in a position to pass along significant assets to the next generation. What estate planning and administration questions should you be asking to make the transfer of wealth to your family happen smoothly and securely, even in a time of economic uncertainty?
Federal Gift Tax Exclusion
For one thing, you'll want to consider the implications of the increase in the federal gift tax exclusion enacted in December 2010. There is a limit on the amount of taxable gifts that someone can make while still living without having to pay gift tax. The December 2010 legislation increased this exclusion from $1 million to $5 million.
The exclusion is scheduled to go back down to $1 million, however, at the end of 2012, unless Congress decides otherwise. In order to make strategic use of the $5 million exclusion, many business owners and high-net-worth individuals are thinking about making substantial gifts to children and grandchildren this year. The goal would be to obtain maximum advantage from the increased gift tax exclusion amount.
For New Jersey families, there is also the question of state estate and inheritance taxes to consider. This is because New Jersey is one of only two states in which there are both estate and inheritance taxes assessed at the state level. This is something you'll want to discuss with a New Jersey estate planning lawyer.
Gift and inheritance tax questions are only some examples of how intelligent wealth transfer decisions depend on many factors, including the status of current legislation.
Unique Concerns of Surviving Spouses
Another example of the delicacy of wealth transfer decisions is the question of a disclaimer by a surviving spouse of interests in property that was jointly owned with the spouse who has passed away. Subject to regulations issued by the Internal Revenue Service, a surviving spouse who jointly owned an asset may be able to disclaim some or all of his or her interest in that asset.
The decision must be made, however, within nine months of the decedent's death. And various circumstances regarding the status of the asset have to be present. This often means that the surviving spouse must not have accepted any advantages from the asset in his or her lifetime.
Whether the execution of this disclaimer would be a prudent decision in your case is an issue you examine closely with the help of your attorney. Disclaimer may be beneficial for the surviving spouse or it may not be, depending on how it fits into an overall estate and tax planning strategy.
Estate Administration Issues
The death of a family member can trigger a series of decisions producing effects that can ripple across the waters of a family's emotional life for decades. This process starts, as it should, on the emotional level, with the challenges of grief and loss. Funeral planning is often a forum where families begin to deal with these deep issues.
Regarding the transfer of wealth, often someone in the family will call a lawyer and ask, "What do I do now?"
How smoothly the process progresses from that point on depends considerably on the care exercised by the deceased in crafting an estate plan. The execution of a will that names an executor of the estate, the creation of trusts, and the identification of other elements of a sound estate plan should already be in place.
And, there are the inescapable practical steps that are necessary to begin the estate administration process. For the executor or surviving spouse, these include getting the death certificate, securing the house, gathering the insurance proceeds, and marshalling other assets. It often helps to have a checklist, as the responsible person goes about these tasks.
Your Family's Unique Circumstances
The wealth transfer issues discussed above are intended as a place to start in strategizing about how you can best accomplish your specific goals. Besides your attorney, you may have other professionals involved, such as an accountant or an investment manager. Together, this team of advisors can help you develop and implement a sound and effective wealth transfer plan.
From our law offices in Hackensack and Manhattan, Kirsch Gartenberg Howard LLP has served individuals and businesses across northern New Jersey, including Bergen County, Essex County, Union County, Middlesex County and Passaic County, and the five boroughs of New York City since 1984.
