Q. I’m overdue for estate planning. We need up update our will, and I was planning on a trust because we have about $2.2 million including our home. With the changes for the New Jersey estate tax, do I need to consider trusts?
— Need advice
A. New Jersey lawmakers reached an agreement as part of the gas tax bill to phase out the New Jersey estate tax, raising the exemption threshold from $675,000 this year to $2 million in 2017, then eliminating it completely in 2018.
While this effectively wipes out many of the traditional tax benefits one would receive by setting up a trust in New Jersey, there are still plenty of reasons when it makes sense to do so, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.
It all depends on your specific situation.
DeFelice said one of the most important reasons to set up a living trust is to protect your assets for the benefit of your children if they are too young to handle large sums of money on their own.
He gave this example: Let’s say mom and dad both die in a car accident. If you’ve got minor children under the age of 18, they won’t even be able to own certain property in their name without an appointed guardian. However, most parents would cringe at the prospects of giving even an 18-year-old any large sum of money at once.
“Despite your best intentions, they may very well decide to forget college, buy an expensive car, and go on a perpetual spring break,” he said.
Even those out of college in their early 20’s may not be mature enough to make smart money choices on their own, DeFelice said. There are also plenty of folks over the age of 25 that shouldn’t have access to that kind of capital either. Some are spendthrifts, others may be in bad marriages where you don’t want the soon-to-be ex-spouse to have access to any inheritance money, and some may even have bad credit or bankruptcy issues.
All of this depends on your situation of course, but as a parent this can be a vital part of your estate planning, DeFelice said.
“Setting up a trust will allow you to pass your money to your kids while at the same time protect their inheritance until they are old enough to handle it,” he said.
DeFelice said you would name someone you trust as the trustee – another relative, a close friend, an attorney or your private banker – and they would manage and invest the assets for the benefit of your children until they reach an age you stipulate in your trust document. In the meantime, they can disperse the money as needed to pay for college tuition, help with general living expenses, or any other expenses you outline up front like a down payment on a home.
Another reason to set up a trust is so that it is ready to accept assets when you no longer have the ability to manage your own affairs because you have become incapacitated mentally or physically, DeFelice said.
“We constantly see clients whose parents are getting to the age where their mental capacity is diminishing, and they worry that their bills won’t get paid on time or that someone is going to take advantage of them and take off with their money,” he said. “Although it may be tough to imagine, we may be faced with those prospects ourselves one day.”
He said setting up a revocable living trust in advance allows you to appoint a successor trustee to handle your finances when you are no longer able to. There is generally no interruption in the management of your property, and there is no court supervision, he said.
“While it is true that a living trust isn’t effective unless your property is actually in the trust, a durable power of attorney used in conjunction with this document will enable your attorney-in-fact to transfer property into your trust if you can’t do it on your own,” he said.
Another reason people set up trusts is for privacy issues.
DeFelice said a living trust is not made public, so upon your death your estate will be distributed in private. Conversely, a simple will is public record and anyone can view it at the local courthouse or online. To check for yourself, simply Google the “Last Will and Testament of James Gandolfini” as an example, he said.
“As with any big life planning decisions, we recommend you consult with an estate planning attorney and a financial planner who can work in conjunction for you and with you to determine what kind of trust if any is in your best interests to establish,” DeFelice said.
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