Estate Planning – Changing as We Age (Part 2)

            Last week we were talking about how estate planning and what’s in your legal documents need to change as you age.  Our hypothetical couple, Jack and Diane, have reached their 60’s.  The focus of their plan needs to shift to what we call senior estate planning.

            One of the big issues that Jack and Diane must face is the specter of long term care.  How do they pay for it without running out of money or seriously depleting their savings?  Much of this blog is devoted to that topic.  But what about more traditional estate planning – answering the questions, “what happens if I die?”.  “How do I pass my assets on to my loved ones while paying as little as possible in estate taxes?”

            Many people mistakenly believe they don’t need to worry about estate taxes because a few years ago Congress raised the federal exemption – that amount of money that can be passed free of estate taxes – to $5,000,000 (now $5,430,000 when indexed for inflation).  What they don’t realize is that New Jersey’s estate tax kicks in on estates greater than $675,000.  New Jersey also has an inheritance tax on amounts passed to heirs who are not immediate family members.  That means that a majority of people do have an estate tax problem.

            Jack and Diane’s current wills probably do not have tax planning if done when they were younger simply because their estates weren’t large enough at that time.  They were at a stage early in their marriage when they had just begun to save and accumulate wealth.   And if they did address tax planning at that time, they should still have someone take a look at their plan to determine if it is the best way to reduce taxes now because in the past 20 years there have been many changes to the estate tax system.

      When addressing New Jersey estate and inheritance taxes there is another problem to consider, something called a tax waiver.  Next week I’ll share with you what it is and how to avoid it.