KIT Communication: Wills, Trusts & Estates

Now that the tax filing deadline has passed for most people, it is a good time to review your estate and personal documents and be sure that your assets are properly protected and your children are provided for.  These documents include a will, advance healthcare directive and power of attorney, but might also include the use of several trust documents as well.

Included in this mailing is some basic information about these documents, along with some additional information.  You can read more detailed information by clicking here to visit our website.

WILLS:  A will is a legal document that designates the distribution of an individual’s estate upon death. An individual must be at least eighteen years of age in order to execute a will. This document specifies how property is to be divided and to whom it shall be distributed and who is in charge. If an individual does not have a will, an appointed administrator distributes the estate according to the laws of the State of New Jersey. It is therefore very important for individuals over the age of eighteen to have a will, in order to protect specific interests and intentions concerning the distribution of their property.

As a general rule, a will is probated in the state and county in which the decedent or testator is a legal resident at the time of death and should be kept in a safe place that is accessible in case of an emergency or upon the testator’s death. Executors, family members, or those close to the testator should be aware that the will exists and where it is kept.

A standard will is one that is written, signed by the testator, and witnessed by two individuals. A standard will also contains an attestation clause that declares it to be the last will of the testator.  A will can be self-proving if it is signed by two witnesses at the time the will is notarized. The will must include an acknowledgement and affidavit relating to execution of the will that is attached to the original will. Having a self-proving will eliminates the need for witnesses to appear before the Surrogate in order to have the will admitted to probate.

A non-standard “holographic” will is one that bears no witnesses and is generally (and recommended to be) written in the handwriting of the testator. Such a will must be signed by the testator. A holographic will can be admitted to probate only in Superior Court, and in the manner prescribed by the Rules Governing the Courts of New Jersey. This type of will is more vulnerable to challenge.

A will is a legal document that is not effective unless properly prepared. Individuals should not undertake to execute a will unless they are knowledgeable about the requirements of a legally enforceable will, or have had an opportunity to consult legal advice. The process of executing a will can be simple, but certain items should be kept in mind while going through this process.

  1. All beneficiaries should be specifically named and amounts of bequests specifically itemized.
  2. Alternate beneficiaries should be specifically named in the event a designated beneficiary dies before the testator. If money or assets remain in the testator’s estate, an individual should be named to receive the remainder in specific dollar amounts or percentages.
  3. All wills must designate an executor. That individual is responsible for carrying out the intent of the testator with respect to property distribution.
  4. Provide that an executor and guardian(s) will serve without bond. This bond will prevent the need to set aside money from the estate for that purpose.
  5. If the testator has children under the age of eighteen, name a guardian for those children. The designation of a guardian should be discussed in advance of executing the will. One or two individuals may be so designated. These individuals are responsible for the day to day care of the testator’s children as well as for any property the children may own or inherit.
  6. All wills must be signed in the presence of two witnesses who are at least eighteen years of age, fully competent, and neither blind nor deaf. The State of New Jersey requires that the will be signed and witnessed by two witnesses. It becomes a self-proving will, provided it is properly worded and signed by a notary public.

ADVANCE HEALTHCARE DIRECTIVES:  An advance directive is a legal document that you can complete on your own that can help ensure your preferences for various medical treatments are followed if you become unable to make your own healthcare decisions. Your advance directive only goes into effect if your physician has evaluated you and determined that you are unable to understand your diagnosis, treatment options or the possible benefits and harms of the treatment options.

There are two sections of an advance directive: a “proxy directive” and an “instruction directive.” A well-drafted directive should contain both sections.  Be aware that some practitioners may draft these sections as two separate directives.

The proxy directive allows you to appoint a person to make healthcare decisions for you in the event you become unable to make them yourself. This directive goes into effect whether your inability to make healthcare decisions is temporary because of an accident or permanent because of a disease. The person that you appoint is known as your “healthcare representative” and they are responsible for making the same decisions you would have made under the circumstances. If they are unable to determine what you would want in a specific situation they are to base their decision on what they think is in your best interest.

The instruction directive allows you to tell your physician and family about the kinds of situations you would want or not want to have life-sustaining treatment in the event you are unable to make your own healthcare decisions. You can also include a description of your beliefs, values, and general care and treatment preferences. This will guide your physician and family when they have to make healthcare decisions for you in situations not specifically covered by your advance directive.

POWERS OF ATTORNEY:  Many people may know they should have a will so their estate can be administered and distributed to beneficiaries promptly and efficiently upon their death.

Unfortunately, many people fail to plan adequately for lifetime disability that leaves them unable to legally handle their business, financial and personal affairs.

A power of attorney (or “POA”) allows you to choose who will be in control of your affairs, should you be unable to act on your own behalf, eliminating the need for the courts to appoint a guardian.

Disability can arise from a number of different causes, such as illness, injury, an accident or old age. If this happens – and you have not executed a durable power of attorney – then the court may decide who will act on your behalf. Known as guardianship and conservatorship proceedings, these court actions can consume time and money and leave the decision of who will handle your affairs in the hands of a judge.   With an “ordinary” power of attorney, which gives a relative, friend or bank the power to act on your behalf, becomes invalid if you become incompetent.

The New Jersey Legislature responded to this problem by creating the “Durable Power of Attorney,” which remains in effect even if you become mentally incapacitated. Having a Durable Power of Attorney can save time, expense and the inconvenience of a court proceeding.

To create a durable POA, you, as “principal,” name another individual or an institution (such as a bank) as your “agent” or “attorney-in-fact” to act for you in handling your affairs. The appointment gives them the power, for example, to sign checks and make deposits, pay bills, contract for medical or other professional services, sell property, obtain insurance and do all the things you do in managing your daily affairs.

The authority you give to your agent can be as broad (to do anything you could do) or as narrow (to sell a particular piece of real estate) as you choose to make it. A power of attorney should be in writing, signed by you in the presence of a notary public who witnesses your signature. This way, your agent can prove he or she has the authority to act for you.

Unlike a simple power of attorney, a durable power of attorney survives even if you become incapacitated and cannot act on your own behalf. It typically contains words like: “This power of attorney shall not be affected by subsequent disability or incapacity of the principal, or a lapse of time.”  If you wish for your power to only become effective at the time of your disability, you can create a “springing” POA with language such as “this power of attorney shall become effective upon the disability or incapacity of the principal.” In order to be valid, it must be signed by you before you become disabled.

You should still have a power of attorney if you and your spouse own all your property in joint name.  If you are incapacitated, your spouse can still sign checks and make withdrawals on joint bank accounts, but your spouse cannot sell jointly owned stocks or your jointly owned home without your signature. Your spouse cannot name or change a beneficiary on your life insurance or your retirement benefits. Even if you own everything jointly, you both should consider having Durable Powers of Attorney.

As long as you have capacity, you can revoke your Durable Power of Attorney. The revocation should be in writing and it should be delivered to the agent and third parties with whom the agent is dealing. While a guardian appointed by the probate court cannot revoke a Durable Power of Attorney, a court may void the Power of Attorney as part of a guardianship order.

Finally, the Durable Power of Attorney terminates at the time of your death, unless there is uncertainty as to whether you are dead or alive. Until a third party has received actual notice of the principal’s death, the third party is not held liable for continuing to rely on the Durable Power of Attorney.

A LITTLE BIT ABOUT TRUSTS:  A trust is a separate document (or section of your will) that creates a “separate” account to hold and manage some or all of your assets.  This account will have its own rules and a person appointed to administer these rules (the “trustee”).  Some trusts are created while you are alive (“inter-vivos” or “living” trusts) and others are created as part of your will at the date of your death (“testamentary” trusts).

Some living trusts are created to hold and manage your assets and avoid the costs of probate.  These trusts may be cancelled or “revoked” by you at anytime and all the assets in theses trusts will still be included as part of your estate at your death.  New Jersey probate is generally a simple and low cost process, so you do not see a lot of revocable trusts being used in NJ.  In other states where probate is involved and costly, such as NY and FL, these trusts are commonly used.

Other living trusts are created to be “irrevocable” meaning they cannot be cancelled by you.  These trusts may be used to hold and manage assets on behalf of your spouse or children and to protect them against lawsuits, divorce, propensity to spend money, and especially if your children are minors as they cannot personally own property until the age of 18.  If created and administered properly, the assets of these trusts should be excluded from the calculation of estate taxes at your death.  All testamentary trusts are irrevocable by nature, in that the person (yourself) that created them is not living and cannot revoke them.

The use and inclusion of trusts in your estate plan will vary based upon many factors including (but not necessarily limited to) your net worth (assets minus liabilities), the age of your children, and the age of you and your spouse.

Trusts may be designed to hold and administer assets for your spouse or your children, other relatives or even for a charity of your choosing.  These factors may also be combined whereby family members are paid income during their lives with the remainder of the assets at their death being given to a charity.  Trust planning and drafting can get very complicated, so it is important to seek the advice of an experienced estate planning attorney.

TAXES AT YOUR DEATH:  You should also be aware of the potential taxes that are imposed on an estate once someone dies.  There are no taxes imposed on property left to a surviving spouse.  For bequests to nonspousal beneficiaries, New Jersey imposes an estate tax on assets in excess of $675,000.  New Jersey also imposes an additional Inheritance Tax for nonlineal descendants (siblings, cousins, nieces, nephews, etc…).

It is important that you consult with your legal and tax advisors to help guide you when making all of these important decisions.

Leave a Reply

Your email address will not be published. Required fields are marked *