Protection from NJ’s estate tax

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Q. My parents did their wills online and they’re very simple, but they have an estate that’s over the $675,000 New Jersey limit. How can I tell if they should do more estate planning than an online will?
— Want to help

A. You’re correct that estates worth more than $675,000 in New Jersey may need some special attention.

That’s because of the state’s dreaded estate tax, which is assessed on estates worth more than $675,000.

There is rarely a “one size fits all” approach to estate planning, even in New Jersey, so without seeing your parents’ wills, it’s tough to know if what they have is appropriate for them, said Frederick Schoenbrodt, an estate planning attorney with Drinker Biddle & Reath in Florham Park.

In most cases, he said, a couple with a combined estate that exceeds the $675,000 New Jersey estate tax exemption should have some state estate tax planning built into their wills.

Schoenbrodt said the most typical approach is the inclusion of so-called disclaimer trust planning.

“When using a disclaimer trust approach, the first spouse to die’s will usually provides that his or her residuary estate will pass to the surviving spouse outright and free of trust, but if the survivor disclaims any amount, the disclaimed amount passes into a trust for the survivor’s benefit,” he said.

Disclaiming simply means choosing not to accept an inheritance or part of an inheritance.

That’s doesn’t mean the surviving spouse is giving it all up, though. Even with disclaiming the property, the surviving spouse can access the asset’s income, and even the principal, depending on how the disclaimer trust is structured.

The benefit on the estate planning side is that drafted properly, the assets in that trust would not be included in the survivor’s taxable estate at his or her subsequent death, he said.

And it would then hopefully save your family some estate taxes.

“This approach presents an appealing blend of traditional estate tax planning techniques — the use of a credit shelter or bypass trust — and the flexibility to react to the personal, family, financial and legal circumstances that exist at the first spouse’s death,” Schoenbrodt said.

If your parents go this route, they’d want to make sure that other essential details are specified, including naming an executor of the estate and, if trusts are involved, trustees of those trusts, he said. In most cases the testator — the person making the will — will waive any requirement that the executor post a surety bond when accepting his or her appointment.

Also be sure to understand that there are many details in planning an estate and it is easy to overlook something if you are not familiar with the traditional approaches and common issues, Schoenbrodt.

For that reason, best thing you can do is recommend to your parents that they sit down with a trust and estate lawyer to review what they have already done.

“If it looks good, there may be nothing more to do but your parents will have the peace of mind of knowing that their documents are in order,” he said. “If there is a problem or an improvement to be made, the lawyer can point those out and together they can decide how best to proceed.”

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This story was first posted in October 2015. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.