Not as Much Time as You Think (Part 2)
In last week’s blog post I started to tell you about Mary’s call to our office. She reached out because her dad, who was in the hospital, wanted to make a change to his will to leave his home to Mary. It’s something he had told her he would do several years ago but just never got around to it. We scheduled an appointment but he died the next day. The next week Mary called back to discuss Dad’s wish and the probate of his will. She related to me that while his will left everything equally to Mary and her sister, Kate, both of them were aware of Dad’s wish. “Kate has agreed to honor Dad’s wish”, Mary told me. “Can’t we transfer the title directly to me”, she asked. I explained to Mary that the will needs to be probated. As the named executor, it is her job to carry out her dad’s wishes as set forth in that will. Even though he communicated to both Mary and Kate his desire to leave the home to Mary he did not put it in writing in a form that would qualify as
Not as Much Time as You Think (Part 1)
A part of what we do as elder law attorneys involves drafting the essential legal documents that will help clients set forth clearly their wishes and help family members assist them in accomplishing their goals. This usually includes a power of attorney, health care directive, last will and testament and in some cases trusts. A common impediment to planning is the tendency to think that there is time. “It’s on my ‘to do list’ and I’ll get to it eventually.” There is often a lack of urgency if everything is fine for now. “I’ll need these documents in place if something happens down the road.” As I always say to prospective clients, “no one will tap you on the shoulder to tell you that now is the time to get that plan in place”. A recent call reminded me of just how true that is. We received a call from Mary who had moved into Dad’s house after Mom had passed away to help care for him. Dad had discussed with Mary and her sister that he wanted to leave the home to Mary when he died, however, he had never formalized that wish by updating his will. Mary
Required Minimum Distributions – Part 2
In last week’s blog post I covered the basics of how required minimum distribution (RMD) rules work for IRAs and other tax deferred retirement accounts. To summarize you must take out a minimum amount from your account each year. That’s RMD and it starts in the year you turn age 70 and ½. If you have more than one IRA you don’t have to take out a proportional amount from each account. You total all your IRA balances and calculate the RMD. As long as you withdraw at least that amount from any of your retirement accounts, the IRS does not care which ones. In other words, you can withdraw your RMD all from one account and nothing from another as long as the total withdrawn is at least the minimum. And what happens if you don’t withdraw enough? The IRS assesses a pretty hefty 50% penalty on the amount you should have withdrawn but didn’t. (and of course, you still have to withdraw the rest of your RMD.) Many people are reluctant to withdraw more than their RMD because they know they will have to pay 35 to 40% in federal and state income taxes on most of the
Required Minimum Distributions – Part 1
This week’s blog post topic is one I touched on briefly at the end of last year, required minimum distribution. It is something that applies to retirement or nonqualified accounts and comes up frequently with clients who sometimes misunderstand it. IRAs, 401ks and other retirement accounts are tax deferred accounts. Under tax laws, the government does not tax the interest and dividends earned in these accounts until they are withdrawn. This gives a boost to the value of these accounts since no tax paid means more money that can continue to grow. Eventually, however, Uncle Sam does want to get its share. That’s where the required minimum distribution (RMD) comes in. RMD rules require that account owners must start making minimum withdrawals from their retirement accounts no later than when they reach age 70 and ½. These rules apply to most IRAs, such as SEP, SIMPLE, traditional, rollover and inherited IRAs. It does not, however, apply to Roth IRAs (no RMDs necessary) and some exceptions apply to certain 401ks. The amount of RMD you must take is based on a formula. You take the value of your IRAs on December 31 of the previous year and then divide by
That Pesky Tax Waiver – Part 3
This week’s post is the last of 3 on New Jersey’s tax waiver. Last week I showed you how a small bequest in a will to a non-Class A beneficiary will trigger the need to file an inheritance tax return. I also said, however, that in some instances a return must be filed even if no tax is due, which is what the L-8 and L-9 affidavits are supposed to help avoid. Let’s look at some examples. The first $25,000 left to a sister or brother – Class C beneficiaries – is exempt from inheritance tax so you might think that using the affidavits should be permissible. The need to file a complete return, however, does makes sense because the State wants to take a look for itself at where the money is going. It is not willing to take our word that there is no tax due. Another example involves trusts and disclaimers. A disclaimer is a statement by an heir that he/she does not wish to receive an asset to which he or she is entitled. The person disclaims it. The asset then passes to someone else according to instructions established in the will or according to
That Pesky Tax Waiver – Part 2
In my post last week, I referred to New Jersey’s tax waiver. It is an often misunderstood process designed to insure that the State receives the appropriate amount of taxes when someone dies. As I explained, New Jersey’s estate tax was phased out as of 2018 but we still have an inheritance tax. Very few estates actually owe the tax. New Jersey has a law in place that places a lien on certain financial accounts and real estate. This is the way it can insure that it will be paid. The State releases the lien by way of a tax waiver which is usually issued when a tax return is filed and the appropriate amount of tax is paid. New Jersey has also created what are called self executing affidavits, which if used will automatically release the lien. There are a series of questions on the affidavits – one is used for New Jersey real estate and the other for New Jersey bank accounts, stocks, bonds and brokerage accounts. Using the forms allows most estates to avoid filing a complete inheritance tax return just to obtain the waivers. Given the very small number of estates that owe inheritance tax