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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, an experienced 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, and handling negotiations, and inspections. These are all things to consider. I generally recommend going with a realtor unless you have someone that is already interested in your home.

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:

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.

Conditional Discharge

CONDITIONAL DISCHARGE

A Conditional Discharge is designed to give first time, minor drug offenders a break.  It’s a slap on the wrist, with fees and costs in the neighborhood of $1,000.  They don’t call them “fines” because there is not conviction of a crime, and no admission of guilt.  When you request a conditional discharge, make sure you specify that you are doing so without an admission of guilt, and without any loss of driving privileges.  It really is best not to try to do this on your own.  It is easy for an experienced attorney, but not so easy for someone new the criminal justice system.

Essentially, the case is put on hold for one year.  If you pay the “fees” and stay out of trouble for the next year, you will not have to face a criminal conviction.  After being granted the conditional discharge by the court, and you are later asked on a job application if you have ever been convicted of a crime or a drug offense, you can legally answer “NO.”  That will be quite a relief to you.  But not so much as you think.

What if your prospective employer, or college application asks if you were ever arrested?  How do you answer that?  The conditional discharge avoids the conviction, but what about the arrest?

The unfortunate answer is that the arrest, even after successfully being granted a conditional discharge, remains on your criminal record.  Is that fair?  Probably not, but life is not always fair.

So, what can you do about it?  Call us.  We can probably help.  If your record is otherwise clean, and your year is up, it is pretty likely that we can get your arrest record expunged.  Thereafter, if an employer asks you if you were ever arrested, you can confidently answer, “NO!” and that is a great thing.

Chapter 11 Bankruptcy

Chapter 11 Bankruptcy

There are three basic forms of bankruptcy. Chapter 7, Chapter 11, and Chapter 13. It is very unlikely that you would want, or be able to, file for a Chapter 11 bankruptcy. A Chapter 11 bankruptcy is the “Business Reorganization Bankruptcy”. A Chapter 11 bankruptcy is very complicated and extremely expensive. When I was doing bankruptcy work on a regular basis, the average Chapter 11 bankruptcy cost almost $20,000.00 in legal and accounting fees. As a result, it is generally only feasible for large businesses, e.g. airlines, casinos, automobile manufacturers. My practice focuses on exploring alternative to bankruptcy. Contact us today via email or by calling 609-654-5489 or Toll Free at 888-336-8417.

Disclaimer: Although I am an attorney licensed to practice law in the State of New Jersey, the information on this website is for general information purposes only and is not to be construed as legal advice. Every situation is different and there are many exceptions for every legal principal or rule. You must consult with an attorney licensed to practice law in your jurisdiction for help and advice. If you reside in the State of New Jersey, I can provide you with legal advice, however, it needs to be done in person, by telephone, or by video conferencing.