Creating an Estate Plan That Works for You
Putting an estate plan into place is a prudent step even for the young and healthy. Estate planning becomes even more important when we enter our golden years. A carefully designed estate plan could ensure that important financial and medical decisions are made by a trusted individual if you become incapacitated by illness or injury, and it will give you more control over how your assets are distributed after you pass away. An estate plan can make sure that loved ones do not lose access to government programs like Medicaid, and it could reduce or even eliminate estate taxes. This has become more important in recent years as several laws have been passed that change the way estates and inheritances are taxed.
Avoiding New Jersey’s Inheritance Tax
New Jersey no longer has an estate tax, but the Garden State does have an inheritance tax. The New Jersey inheritance tax rate ranges from 11% to 16%, but you may be able to spare your loved ones from this expense by making gifts. As opposed to bequests, gifts are not taxed to the recipients, and the federal gift tax exemption for 2024 is $18,000 for an individual and $36,000 for a married couple. If your estate is considerable, you could save your beneficiaries a lot of money by making annual gifts to them instead of leaving them a large inheritance.
Setting Up an Irrevocable Trust
Assets placed into an irrevocable trust are not subject to estate taxes because they are no longer part of the grantor’s estate. You will lose direct control of your assets if you place them in an irrevocable trust, but you will reduce your estate tax exposure and protect those assets from creditors. Irrevocable trusts cannot be changed or modified after they have been created, so you should think carefully before you create one. If you have questions about irrevocable trusts or estate taxes, an experienced New Jersey estate planning lawyer could answer them.
Paying Medical and Education Expenses Directly
The federal estate tax exemption for 2024 is $13.61 million per individual, but it will drop to only $7 million per individual in 2026 (depending upon inflation). Placing assets in trusts is a popular way to reduce estate tax exposure, and so is paying a family member’s medical and education expenses.
Maintaining Access to Medicaid
Individuals who receive large inheritances may lose access to government programs like Medicaid and Supplemental Security Income. Placing assets in a special needs trust can prevent this from happening. Income from a special needs trust will not affect qualification for these programs, and it can be used to pay a beneficiary’s medical expenses and caretaker costs.
Using Trusts to Protect Assets
We live in a litigious society, which means you should consider lawsuits as well as taxes when you create an estate plan. This is especially true if you own a business. Placing money in an asset protection trust could reduce the value of your estate for tax purposes and ensure that your beneficiaries are taken care of. These trusts are popular because the assets placed into them are still accessible.
Controlling How Assets Are Distributed
If you have heirs who have had problems with drugs or alcohol or who have been irresponsible with money in the past, leaving them a large inheritance could do more harm than good. Assets bequeathed in wills are distributed as soon as the probate process is completed, but assets placed in trusts can be distributed in a manner established by the grantor. This means that you could determine how and when your assets are distributed. You could stipulate that a beneficiary will receive assets when they reach a certain age, graduate college or maintain sobriety for a specified period, or you may structure a trust to distribute assets over time instead of all at once.
Legal Assistance With Estate Planning Matters
If you would like to enjoy the peace of mind that a carefully constructed estate plan can provide, an experienced New Jersey estate planning lawyer can help you to achieve your goals and avoid common pitfalls. The attorneys at the Knee Law Firm have more than 60 years of estate planning and elder law experience, and they are ready to answer your questions. Schedule a consultation at our office by calling (201) 996-1200.