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Living Wills vs. Advance Health Care Directives

Advance-Health-Care-Directives

As a part of your estate planning, you need to consider how decisions will be made about your health, if you lack the capacity to manage your own affairs. You may have strong feelings about the type of care you will receive and such issues as whether or not you want to be kept alive by artificial means. You may have heard the terms “living will” and “advance medical directive” used in reference to such decisions. Are they the same thing? Do you need both or is one sufficient?

Living Wills

A living will is an enforceable legal document that identifies the types of medical treatment you do or do not wish to have in the event of a medical emergency. Living wills are frequently used to state your wishes with respect to artificial life support. Also known as a “health care declaration,” the living will typically does not name a person to act as your medical power of attorney or make decisions for you. Instead, it’s customarily limited to specific instructions about care, which can be implemented by anyone.

Advance Directives

An advance directive is a legally binding document that provides instructions for actions to be carried out or avoided while you are still alive, but typically in the instance where you lack the mental capacity to make rational decisions. The advance directive is broader in scope than a living will, typically merging the “health care declaration” with a designation of a health care power of attorney. The living will is essentially a subset or type of advance directive, more limited in scope.

If you have an advance directive, you typically don’t need a living will, provided the directive includes any declarations you want to make about your health care.

Contact Our Office

At the law offices of Gary F. Woodend, MBA, JD, we have protected the rights of hundreds of New Jersey residents in probate and estate matters. We have the knowledge, skill and experience to handle complex, multimillion dollar estates. To schedule a confidential consultation, call us at 609-654-5489 (toll-free at 888-336-8417) or contact our office online.

The Probate Process in New Jersey—Part One

Probate-Process-in-New-Jersey

If your loved one has died in New Jersey, and there’s a significant estate, or assets not jointly titled, the estate will have to go through the probate process to ensure the orderly distribution of property. Whether you are the executor or a potential beneficiary, it’s helpful to have a basic understanding of how the probate process works.

Step One—Determining Whether You Need to Take the Estate to Probate

The purpose of the probate process is to ensure the orderly distribution of assets owned by the deceased at death. Because the deceased can no longer make decisions or take actions with respect to the property, the court needs to oversee the distribution to ensure that it’s in compliance with the wishes of the deceased. Accordingly, certain property can pass without the intervention of the probate court:

  • Property jointly held at the time of death—Under law, property owned in joint tenancy or tenancy by the entirety passes to all other joint owners by operation of law. That means that it passes automatically, without need for any legal proceeding or document.
  • Property specifically designated to a named beneficiary outside of a will—This includes life insurance proceeds, retirement accounts and payable on death bank accounts
  • Assets held in a trust—A trust is an independent legal entity, with the capacity to own property. Accordingly, any property owned by or held in trust at the time of death is technically not owned by the decedent, and its ownership is unaffected by the person’s death

Contact Our Office

At the law offices of Gary F. Woodend, MBA, JD, we have protected the rights of hundreds of New Jersey residents in probate and estate matters. We have the knowledge, skill and experience to handle complex, multimillion dollar estates. To schedule a confidential consultation, call us at 609-654-5489 (toll-free at 888-336-8417) or contact our office online.

A Will or a Trust – What’s Right for You?

Estate Planning

If you’ve decided that it’s time to put an effective estate plan in place, one of the first decisions you’ll have to make is what type of vehicle you’ll use to distribute your assets. While there are other ways to pass on some of your estate—through the re-titling of assets or lifetime gifts—the most common ways to allocate your net worth are through the use of wills or trusts. What’s the difference and what’s right for you?

What is a Will?

A will is a legally enforceable document that only goes into effect upon your death. You can use a will to accomplish a number of objectives—designate specific beneficiaries for certain assets, identify who will receive the remainder of your estate, ensure that creditors are satisfied and taxes paid, and name guardians for any minor children living at the time of your death. A will is usually pretty simple to prepare and execute, and can usually be done fairly inexpensively. It can always be revised (during your lifetime and provided you are of sound mind), but you will, however, be required to have witnesses to verify the validity of the will. Any property in a trust will need to go through the probate process.

What is a Trust?

Unlike a will, a trust creates a separate legal entity with the right to own property. A trust can go into effect during your lifetime (what is known as an “inter vivos” trust) or upon your death (a “testamentary” trust). The trust document typically contains very specific instructions with respect to how property will be held, who will have access to the property, when it may be sold and when it may be distributed. There are no requirements that you have witnesses to execute a trust. You can revise the trust during your lifetime. Because the trust is a separate legal entity, the property held by the trust is no longer owned by you. It will stay in the trust upon your death and won’t have to go through probate. It’s generally a bit more expensive to prepare and execute a trust.

Contact Our Office

At the law offices of Gary F. Woodend, MBA, JD, we have protected the rights of hundreds of New Jersey residents in probate and estate matters. We have the knowledge, skill and experience to handle complex, multimillion dollar estates. To schedule a confidential consultation, call us at 609-654-5489 (toll-free at 888-336-8417) or contact our office online.

Attorney Review Clause in New Jersey

Attorney reviewing documents

The most common question I get on the subject is, “Should I sign the contract before or after my attorney has had a chance to review and comment on our real estate contract?”

This dilemma goes back to 1995 when the NJ Bar Association and the NJ Board of Realtors entered into a settlement agreement in which the Bar Association would allow non-lawyers (i.e., real estate agents) to prepare a residential real estate contract (a legal document) so long as the contract included an attorney review clause. This is section 35 of the presently used Board of Realtors recommended contract. The case was called New Jersey State Bar Association v. New Jersey Association of Realtors, 139 N.J. 323 (1995). This only covers residential real estate contracts and leases. It does not apply to vacant land or commercial property. In other words, only and attorney can write contracts for vacant land and commercial property.

The crux of the Attorney Review Clause is this: You don’t have to have a lawyer review the contract, but it’s probably the largest financial transaction you will be involved with in your entire life, so we recommend that you have it reviewed by an experienced real estate attorney. If you decide not to, that is up to you, but you have three business days to get it reviewed. After that, you cannot make any changes.

The three days does not count legal holidays or weekends. A “legal holiday” sounds simple enough, Christmas, New Years, Easter, Fourth of July, Memorial Day etc. But, does it include Rev. Dr. Martin Luther King’s birthday? How about when Christmas falls on a Sunday? Is that Monday a holiday? That depends. Halloween does not count.

The time begins to run when all parties have signed, and you get a fully signed copy back (without any changes). Day one of attorney review would be the next day after you received your fully signed copy. For example, if you signed on a Thursday, the attorney review period would end on Tuesday. (Friday, Monday, Tuesday…. that’s three business days.) When we passed around hard copies to be signed, this was a little easier to track. Now that we are using electronic signatures, there are some timing problems. For example, if you signed late Thursday evening, and a fully signed copy was e-mailed right back to you, but you didn’t open your e-mail until Monday, your attorney review period still ends on Tuesday. That’s probably not enough time to have an attorney review it for you. So, watch your time. I generally recommend that my clients don’t sign on a Thursday or Friday, but rather push it off until the weekend. That way, we have the rest of the weekend, and a full three days to review the contract.

An important nuance to note is that I cannot make changes to the agreement after it is signed. I can only recommend changes. And, I can reject the agreement if my recommended changes are not accepted. In other words, my only legal options under the attorney review clause is to accept or reject the agreement. Most attorneys reject the agreement, but add in their Notice of Attorney Disapproval that we can reinstate the contract if the other party agrees to certain changes. That is not my preferred way to handle changes to the contract. (See below.)

So, what is the big deal about this three day attorney review period? The big deal is that you don’t have a binding real estate contract until that time period is up. Personally, my standard practice is to try to get the contract e-mailed to me as early as possible. Even if it is not fully signed. I almost always have changes I want to make, simply because the most recent version of the Board of Realtors contract has many gaps and potential areas for misunderstandings. Those changes are set forth in an addendum (or amendment) to the contract that I create as I go through your contract line-byline. What I try to accomplish is to have that addendum and circulated prior to the end of the three day attorney review period.

Now back to my original question: “Should you sign the contract before or after my attorney has had a chance to review and comment on our real estate contract?” Your real estate agent is going to push you to sign it first, which is fine and understandable. He or she wants to get the property off the market, and so should you. I just recommend, highly recommend, that you do not wait until the contract is fully signed before engaging the services of an attorney. AND, do not sign on a Thursday! If you can hold off until Friday after midnight, your attorney will have until Wednesday to make changes. And, as I said earlier, I like to get my recommended changes out there and signed by everyone before the end of the attorney review period. That way, I don’t have to reject the agreement, we stay under contract, and everyone is happy.

Give us a call at 609-654-5489, or send us and e-mail at gfwoodend@aol.com. You’ll be glad you did.

Expenses that May Be Deducted in Estate Tax Filings in New Jersey

New Jersey is one of two states in the country that collects both inheritance and estate taxes at the state level. The New Jersey state estate tax laws are very similar to the federal estate tax statutes, and provide filers with the same deduction available on federal returns. Here are the expenses that may be used to minimize state estate tax liability in New Jersey:

  • Most expenses realted to a funeral or burial, including all costs of a funeral home, mortuary services, the costs of a headstone and any engraving, any meals or food/beverages provided at a funeral or memorial service, flowers, thank you notes and any fees or honorariums paid to an officiants, organ players, etc.
  • All legal fees tied to administration of the estate, including filing fees, notices, appraisals and title transfer fees
  • All accounting fees incurred to prepare the estate tax returns
  • Any commissions or fees paid to an executor or administrator
  • The cost of any bond required to be filed by an executor or administrator
  • Any outstanding obligations of the decedent as of the date of death, including credit card debt, unpaid medical bills and other debts
  • Unpaid income tax obligations
  • All costs associated with the sale of real property, including real estate commissions, title fees and closing costs

Contact Our Office

At the law offices of Gary F. Woodend, MBA, JD, we have protected the rights of hundreds of New Jersey residents in probate and estate matters. We have the knowledge, skill and experience to handle complex, multimillion dollar estates. To schedule a confidential consultation, call us at 609-654-5489 (toll-free at 888-336-8417) or contact our office online.

Understanding Special Needs Trusts

If you have a loved one who suffers from a disability, you want that person to have access to as many governmental benefits and programs as possible. However, if that person owns property or has income, eligibility for Medicaid, Medicare or other government benefits can be compromised. Accordingly, if you leave property to that person in your estate, it will likely put them at risk of losing critical benefits until they go through their inheritance, at which time they would go back on public assistance. We recommend a Special Needs Trust to give your special needs person some relief and improved quality of life without losing their governmental benefits.

How a Special Needs Trust Works

A trust is a separate legal entity that has the capacity to own money and property. When you create a special needs trust, you essentially form a new legal entity into which you can transfer property. Because the trust owns the property (and your loved one with special needs does not own the property), the inheritance will not be used to disqualify that person from benefits.

Setting Up a Special Needs Trust

In any trust, you have a grantor, a trustee and a beneficiary. The grantor creates the trust and conveys property into the trust. The trustee is charged with managing the property in the trust—overseeing investment of trust assets, making distributions and otherwise governing the trust assets. The beneficiary is the recipient of trust assets and/or income.

To establish a trust, you must create a legal document that identifies who the trustee will be, what the trustee’s responsibilities are, and how trust assets will be managed and distributed. The trust may be funded while you are alive—what is known as an “inter vivos” trust (Latin for during your life) or it may be funded at the time of your death, through what the law calls a “testamentary” trust.

There are few limits to the types of property that can be placed in trust—cash, investments, business interests, real and personal property can all be held in trust. However, because the purpose of a special needs trust is typically to provide financial support, the trust document will usually grant the trustee the right to convert hard assets, such as cars and jewelry, to cash.

In addition, almost anyone can place property into a trust—the only exception being the beneficiary of the trust.

Contact Our Office

At the law offices of Gary F. Woodend, MBA, JD, we have protected the rights of hundreds of New Jersey residents in probate and estate matters. We have the knowledge, skill and experience to handle complex, multimillion dollar estates. To schedule a confidential consultation, call us at 609-654-5489 (toll-free at 888-336-8417) or contact our office online.

For Sale By Owner (FSBO) Real Estate Transactions in New Jersey

When thinking about selling your home, you will first need to decide whether or not to sell it on your own, or work with a realtor. Avoiding the payment of a real estate commission, typically six percent, is the primary reason potential sellers consider selling on their own. That can add up to a significant amount of money! But on the other hand, a diligent real estate agent may be able to get more money for your house than you could on your own. By listing with an agent, your home will be listed with the realtor’s multiple listing service and website listings. Plus, the realtor will take care of scheduling showings, handling negotiations, and inspections. These are all things to consider. But, is it worth paying a $30,000 commission on a $500,000 home?  Maybe.  It depends.  We can represent you from beginning to end for a fraction of that amount.  Our typical fee for a private sale, or For Sale By Owner (aka FSBO) is only $2,500.  We don’t do the same things that a Realtor will do, but then again, a real estate agent cannot give you legal advice, cannot review a contract, cannot review a title report for you, cannot prepare a deed nor prepare nor review other legal documents.  Bottom line, a real estate agent cannot protect your legal interests like an attorney can.  If you retain us, you will get the best legal representation money can buy. BUT, we don’t schedule showings, have copies of keys made, let contractors in to do work, call the homeowner’s association to get a copy of the by-laws, arrange for inspections, meter readings, and many other things a real estate agent will often do for you.  (See, Choosing a Realtor.)

Each situation is unique and you should weigh the options carefully. In either case, we can help you through the process.

If you decide to proceed without a realtor, I recommend taking the following steps to market your property (after hiring us to represent you, of course):

Formulate a Comprehensive Plan

You will want a presence in as many places as possible, from the Internet to advertisements in local publications. Look for web sites that specialize in handling FSBO listings. Take your time to put together the best signage, both for your front yard and for critical intersections nearby. Go professional. Handmade signs do not make a favorable impression. There are many on-line sign manufacturing companies that make it easy to get a first rate, custom sign made to order. Find ways to network with others, so that you get maximum visibility.

Take an Honest Approach to Pricing Your Home

Everyone wants to maximize the sale price on their home, there’s nothing wrong with that. But expect that prospective buyers will look at the list or sale price of similar properties in the neighborhood. If yours is out of line, you will need to explain why (if you even get the chance to do so). If you know someone in the real estate business, consider asking for a free fair market analysis of the value of your property. Make a list of the unique features your house offers, but also be realistic about any potential challenges.

Hire an Experienced Real Estate Attorney

Real estate transactions are document-intensive, and many of those documents are beyond the expertise of even the most experience real estate investor—and the sale of your home is likely to be one of the largest transactions of your life—not the time you want to fill in the blanks of forms you pulled off the Internet. An experienced real estate lawyer will help you ensure that you’ve crossed all your T’s and dotted all your I’s crosses, so that all buy-sell agreements, mortgages, deeds, notes and financing instruments, easements and restrictive covenants are enforceable.

“Brokers Welcome”

You no doubt will be contacted by realtors stating they have someone looking for a home just like yours. Usually, they are telling the truth. If you put “Broker’s Welcome” on your sign and in your advertising, you will get more calls you will get. They will want one-half of the regular commission for their efforts (3.0%), and I would encourage you to accept that deal. It is well worth it.

Contact Our Office

At the law offices of Gary F. Woodend, MBA, JD, we have protected the rights of hundreds of New Jersey residents in probate and estate matters. We have the knowledge, skill and experience to handle complex, multimillion dollar estates. To schedule a confidential consultation, call us at 609-654-5489 (toll-free at 888-336-8417) or contact our office online.

The New Jersey Estate Tax Exemption Set to Increase

Close up of estate tax return

At long last, New Jersey is finally moving into the 21st century with regard to death taxes! This has been a long time coming.

The New Jersey Estate Tax exemption will increase from $675,000 to $2 million for the estates of resident residents dying on or after January 1, 2017, but before January 1, 2018.

I have not yet seen anything yet regarding the rates for an estate greater in value than $2,000,000, but I assume the rates will be the same as they are now for an estate of that size, or a little bit higher.

There have been no changes regarding the New Jersey Inheritance Tax. Meaning, beneficiaries who are not direct, lineal descendants will pay 11% or 15% depending on their degree of kinship.

If you have any questions, or need help probating the estate or filing estate or inheritance tax returns, give us a call at (609) 654-5489. That’s what we do for a living.

Choosing a Business Structure

Choose your business structure carefully. Your choice affects how your business is taxed, your financial liability and who makes decisions about the company. For a variety of reasons, we generally recommend forming a Limited Liability Company, a/k/a L.L.C. for most small business, start-ups in New Jersey. Although we recommend talking to your accountant, only an attorney licensed to practice law in the State of New Jersey can advise you.

Sole Proprietorship

A sole proprietorship is a business that is owned and operated by an individual. It is the simplest and most common structure chosen to start a business. There is no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.

Tax Implications

You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities. Because you and your business are one and the same, the business itself is not taxed separately – the sole proprietorship income is your income. You report income and/or losses and expenses with a Schedule C, E, F, etc. and the standard Form 1040. It’s your responsibility to withhold and pay all income taxes, including self-employment and estimated taxes.

General Partnership

A general partnership is formed by two or more persons who agree to contribute money, labor, and/or skill to a business and to share its profits, losses, and management. All partners typically are held legally responsible for their own actions and the actions of the other partners.

Tax Implications

A partnership is a single business where two or more people share ownership. A partnership must file an annual information return Form 1065 with the IRS to report the income, deductions, gains and losses from the business’s operations, but the business itself does not pay income tax. Instead, the business “passes through” any profits or losses to its partners. Partners include their respective share of the partnership’s income or loss on their personal tax returns.

Corporation

A corporation is a separate legal entity from the individuals who form it and its owners (stockholders). Owners are generally protected from personal liability from business debts. You may apply to the IRS to be either an S-corporation or a C-corporation, which has implications on income taxes.

Professional corporations and professional LLC’s register with the Business Registration Section of the NJ Department of the Treasury. These include attorneys, accountants, doctors, therapists, and many other professions.

Tax Implications

S-Corporations

An “S-Corporation” is a special type of corporation created through an IRS tax election. It is generally not subject to corporate tax rates. It has between 1 and 100 shareholders and passes through net income or losses to shareholders. The business profits are taxed at individual tax rates on each shareholder’s individual tax return.

There is an important caveat, however: any shareholder who works for the company must pay him or herself “reasonable compensation.” Your corporation must file the Form 2553 to elect “S” status within two months and 15 days after the beginning of the tax year or any time before the tax year for the status to be in effect. S-Corporations use IRS Form 1120S to report revenue to the federal government.

C-Corporation

A “C-Corporation” is taxed as a separate business entity. Corporations have their own tax form and their own tax rates. Corporations may choose to retain their profits and earnings as part of their operating capital, or they may choose to distribute some or all of their profits and earnings as dividends paid to shareholders. Dividends paid to shareholders are essentially taxed twice. C corporations are taxed once at the corporate level, and again at the individual level.

C- Corporations use IRS Form 1120 to report revenue to the federal government.

Limited Liability Company

A limited liability company or LLC is legally distinct and separate from its owners. An LLC offers its owners both limited personal liability for actions of the business and special tax treatment that may prevent what has been called “double taxation” of the owners’ income.

Tax Implications

(For Professional LLCs and Disregarded Member LLCs, see the tax implication discussion above under corporation.)

A Limited Liability Company or LLC is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The “owners” of an LLC are referred to as “members,” not shareholders or partners.

LLCs that have more than one member will be treated as a partnership for federal income tax purposes unless the members elect to be treated as an association taxable as a corporation.

An LLC with only one member is not recognized for tax purposes as an entity separate from its owner. No election is required as the LLC is invisible to the federal tax law. However, the single-member LLC is a separate entity for state law purposes and is taxed as either a partnership or a corporation depending upon the member’s election.

You should file the following tax forms depending on your classification:

  • Single Member LLC. A single-member LLC files Form 1040, Schedule C, like a sole proprietor.
  • LLC filing as a partnership. An LLC designated as a partnership files Form 1065 partnership income tax return.
  • LLC filing as a Corporation. An LLC designated as a corporation files Form 1120 or 1120S, the corporation income tax return.
  • Disregarded Member LLC. Reports income as a part of the owner’s income tax return.
    Limited Partnership

A limited partnership or LP may be formed by two or more individuals, partnerships or corporations. Limited partnerships have both general and limited partners. A limited partner is usually the investor. General partners are involved in operating and managing the business and are subject to unlimited liability for the acts and debts of the partnership.

Limited liability partnerships or LLP’s are not widely used in New Jersey, have only general partners, but nonetheless afford protection from personal liability.

Tax Implications

Partnership income and expenses flow through to the individual partners. Income is taxed to the partner whether or not it is actually distributed.

Avoiding Probate in New Jersey

How To Avoid Probate in New Jersey

Fountain pen, pocket watch on a last will and testament.

If you’ve talked to friends and family about the distribution of your estate after your death, you’ve likely heard someone talk about “avoiding probate.” So what is the probate process, why would you want to implement strategies to avoid probate, and just what might those strategies be?

Probate, essentially shorthand for “probate administration,” is a legal process whereby the probate court oversees the settlement of your estate, ensuring that

  • All interested parties are notified and have an opportunity to be part of the process
  • A thorough and accurate accounting of the estate is prepared
  • All final debts and tax obligations are satisfied
  • Any remaining assets are distributed in accordance with your wishes

Not surprisingly, the probate process can take a fair amount of time to complete, and can be costly.  In addition, any property that must go through probate can be tied up for many months or sometimes a few years, if there are estate or inheritance taxes to pay, or there are challenges to the validity of the will or the value of property.

So how can you avoid probate? The simplest way is by not owning the property. The probate process only applies to property that you own in your personal name. If you gift assets while you are still alive, or sell/transfer title to the property to your family, the property will not be a part of your estate, and that property will be excluded from the probate process. With real estate, you can transfer title to your children, and retain a life estate, which gives you the right to stay in the property until your death.

Another effective way to circumvent probate is to put your property into a trust. When you do this, you give up personal ownership of the property—the trust becomes the owner, yet we can let you stay in control of the property by naming you Trustee over the property. Because you no longer own the property, you don’t have to worry about it passing through probate. There are some rules with respect to the specific types of trusts that you can use, so it’s a good idea to have all your work done by an experienced attorney.

Contact Our Office

At the law offices of Gary F. Woodend, MBA, JD, we have protected the rights of hundreds of New Jersey residents in probate and estate matters. We have the knowledge, skill and experience to handle complex, multimillion dollar estates. To schedule a confidential consultation, call us at 609-654-5489 (toll-free at 888-336-8417) or contact our office online.