Navigating the Probate Process Begins With Proper Estate Planning
Delaying the preparation of your Will is normal, but it can have consequences. You need a Will to ensure that your family and loved ones are protected and receive what was intended for them. You also want to make sure that you have appointed people you trust to carry out your wishes and implement your estate plan. If you pass away without a strategy in place, your loved ones will be forced to work out the details of your estate. This could lead to additional heartache and legal disputes. To avoid unnecessary disruption during difficult times, we work with our clients to develop an estate plan that includes all the documents that distribute your assets to your loved ones with minimal tax consequence.
At Byrnes, O’ Hern and Heugle, based in Red Bank, NJ, we regularly prepare the following documents when constructing appropriate estate plans for our clients:
- Last Wills & Testaments
- Living Wills and Health Care Proxies
- Revocable and Irrevocable Trusts
- Special Needs Trusts
- Powers of Attorney
- Medicaid Trusts
What Is Probate?
Probate is a court-supervised legal process established to ensure that a person’s wishes, as reflected in their Will and estate planning documents, are honored. The most important aspect of Probate is appointing a personal representative (e.g. Executor or Administrator), who is usually the surviving spouse or other family member, to gather the person’s assets, and pay debts and taxes.
Understanding the NJ Probate Process
In most instances, Probate in New Jersey is required, although a simplified process could be available for small, uncomplicated estates. However, the reach of probate may not extend to all assets owned by someone at death. This makes estate planning even more important to ensure the assets with beneficiary designations are coordinated with the disposition of assets reflected in someone’s Will.
Some examples of non probate assets include:
- Assets the deceased person owned with someone else on a joint tenancy, which would then pass on to the spouse or loved one.
- Most qualified retirement assets, like IRAs or 401(k) plans for which the deceased person named a beneficiary
- Life insurance proceeds or pension benefits that are payable to a named beneficiary
Last Will & Living Wills
A last will and testament is a document that clearly sets forth how assets owned by someone will be distributed at the time of his or her death. Oftentimes, the individual may choose to pass their assets to their children or grandchildren, spouse, or any other loved ones or family members. But this document can also be used to donate estates to charity & provide funeral home arrangements. A Will will also appoint that person’s representative, an Executor, who has the responsibility to carry out those wishes. The Will might also determine who will be the guardian of any minor children.
A living will is a document that specifies a person’s wishes having to do with medical treatment, more specifically, treatments that will prolong life. This may take place if the individual cannot make medical decisions on their own. This can also be used for people who wish to decline dialysis or blood transfusions for personal or religious reasons. A health care proxy is a medical power of attorney in which you appoint someone to make decisions for you if you are unable to do so.
What Is A Trust?
A trust is a legal document that appoints a trustee and makes the trustee responsible for the administration of assets. Certain trusts can be used to protect your estate from unnecessary taxation. Trusts have two primary parties involved, the trustor (or grantor) and the trustee. The trustor gives the trustee the right to hold title to property or assets for the benefit of someone known as the beneficiary. There are two primary types of trusts, a revocable and an irrevocable trust. A revocable trust allows you, the grantor, to change the guidelines or void the trust at any time. An irrevocable trust typically does not allow any change to its terms. Living trusts created during someone’s lifetime can be revocable or irrevocable. Trusts created by someone’s Will are irrevocable. Normally, from a taxation perspective, an irrevocable trust is more desirable. Its irrevocable and unchangeable nature means that the trust, and not the former owner of the assets, is the legal owner. Provided the trust is property administered, once inside the irrevocable trust, the asset will no longer be considered part of the person’s taxable estate. One technique used for larger estates is the creation of any irrevocable life insurance trust, which owns a life insurance policy, so that upon the death of the grantor or trustor who created the trust, the proceeds of the life insurance policy are not counted as part of the person’s estate at death.
Elder Law and Guardianships or Conservatorships
A guardianship is a legal arrangement that is established by a court judgment in which an individual, who is unable to govern their own affairs and care for themselves, is deemed incapacitated. The judgment also appoints a guardian charged with the care of the incapacitated person. When the judgment is entered, a person is designated the guardian of the person, or of property, or both. The guardian of the person usually makes medical decisions and personal decisions of the incapacitated person. The guardian of property usually makes legal and financial decisions for the ward. The court may also designate one person for both of these.
In situations where the medical evidence may not justify a full blown guardianship, the Court might still grant a Conservatorship under which a Conservator is appointed and given the job of administering the assets of the person.
The Importance Of Estate Planning
Proper estate planning serves several important goals. A good estate plan protects assets and reduces taxes. Clients want to protect their hard-earned assets from unnecessary taxes and creditor risks. The most prevalent form of asset protection is also the simplest; preparing a Will. Through the use of credit shelter trusts (also known as bypass trusts), individuals can take advantage of the federal exemption for federal estate taxes. Without these trusts, individuals can be subject to substantial tax rates in excess of 40%.
By putting an estate plan in place, clients also ensure that the administration of their estate is in the hands of someone they trust, not someone appointed by the Court. And for those clients with young children, perhaps the most important component of a well-drafted Will is the designation of guardians and trustees for young children. In some instances, the guardian may be different from the trustee depending upon the skills and strengths of the individuals chosen for these important roles. Putting a Will in place allows the client to decide who will carry out each function.
Clients can also execute Trusts to achieve similar goals and perhaps avoid the probate process. Trusts also are useful when someone has doubts about the ability of a beneficiary to manage assets prudently. By instituting a trust, a person can appoint a Trustee to oversee the management of assets. This same Trustee can also ensure that the wishes of the client creating the trust are adhered to. These trusts also protect assets intended for certain beneficiaries like children from being attached or pursued by spouses of those beneficiaries. Trusts also become important where clients are in second marriages or whose spouses have children from a prior marriage.
As clients age and their assets grow, there may also be strategies available to them that will minimize the tax burden on their estate. Through the use of gifting strategies to beneficiaries or the use of charitable gifts or trusts, individuals can accomplish their goals of helping a favorite charity and reducing the tax burden on their estate assets.
New Jersey Estate Planning Checklist
- Make a Will: In a will, you state who you will want to inherit your assets and name a guardian to care for your children in the event that something happens to you.
- Make a Healthcare Directives: Writing out your wishes for healthcare can protect you if you become unable to make medical decisions on your own. Healthcare directives include a living will or health care proxy that gives someone you choose the ability to make medical decisions in the event that you no longer can.
- Make a Durable Power of Attorney: With a power of attorney, you can give someone you trust the authority to handle your finances and property if you no longer can.
- Protect Your Business: If you are the sole owner of a business, you should have a succession plan. If you own the business with others, you should have a buyout agreement.
- Consider Life Insurance: You may want life insurance to pay off debts or other expenses. This may be important if you own a small business or investment real estate.
Contact Byrnes O’Hern & Heugle
Byrnes O’Hern & Heugle is committed to building long-term client relationships. We do that by putting clients and their concerns first. If you feel you need to speak to a lawyer, call us. We will take the time to discuss your issue and give preliminary advice. To speak with one of our attorneys about your estate planning, contact Byrnes O’Hern & Heugle today.