Wills Insights

The idea of giving up an inheritance might sound foolish, but in certain circumstances it can be a beneficial estate planning tool. While we as estate planning attorneys try to prepare for every possible outcome at the time of a death, there is no way to predict the timing of a death, the laws at that time, nor the assets a decedent will actually hold at death. Especially in today’s environment where COVID-19 has shocked our economy, the tax laws could change at any time.

A disclaimer or a renunciation is a refusal to accept an interest in property.  No one can be forced to receive a gift or bequest; everyone has the right to either accept or refuse what is given.  In certain situations, disclaiming may be more beneficial than actually receiving the gift.  If the beneficiary of a decedent’s estate disclaims an asset passing to the beneficiary (the “disclaimant”) as a result of decedent’s death, the asset passes to the next-in-line beneficiary as if the disclaimant had predeceased the decedent.

Under federal law, a “qualified disclaimer” is an irrevocable and unqualified refusal by a person to accept an interest in property so long as the following requirements are met:

The SECURE Act (“Setting Every Community Up for Retirement Enhancement” Act), which was enacted in December 2019, eliminated the “stretch IRA” – a feature of an inherited IRA account[1] that allowed the beneficiary to stretch out required minimum distributions (RMDs) over his or her lifetime, thereby deferring a significant amount of income taxes on the RMDs. Now, beneficiaries must withdraw the entire account over the 10-year period following the owner’s death. Doing so will significantly accelerate the income tax due with respect to the account.

Perhaps you are thinking: this is a piece of legislation coming from Washington – there’s got to be a loophole, right? The answer is: maybe. Here are a few planning ideas to consider in light of the SECURE Act:

  • Increase the number of designated beneficiaries.

The CARES Act (Coronavirus Aid, Relief, and Economic Security), which became law on March 27, 2020, made some important modifications to retirement accounts for 2020. For example:

  1. Required minimum distributions (RMDs) are waived, for both account owners and beneficiaries who have inherited an account.
  2. The 10% early withdrawal penalty is waived for distributions up to $100,000, if any of the account owner, spouse or a dependent has been diagnosed with coronavirus; or if the owner has experienced adverse financial circumstances as a result of coronavirus.

We are proud to announce 11 of our attorneys have been named to the 2021 Best Lawyers® list, two of which were named “Lawyer of the Year.” This recognition in The Best Lawyers in America© 2021, identifies each for their leading legal talent in their corresponding practice areas.

The following Lindabury attorneys were named as Best Lawyers honorees:

Dino Flammia from New Jersey 101.5 FM interviewed Lindabury attorney Elizabeth Candido Petite, to discuss the the importance of having a will, a power of attorney and a living will, as well as the latest news from our Wills, Trusts, and Estates practice group. You can read the interview here and listen to the recording below.

On June 19, 2020, the IRS released Notice 2020-50, which provides additional guidance and relief for retirement plan participants taking coronavirus-related distributions and loans under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  Under the CARES Act, “qualified individuals” may take coronavirus-related distributions of up to $100,000 from their eligible retirement plans without being subject to the 10% additional tax on early distributions.  In addition, a coronavirus-related distribution can be included in income ratably over the three-year period commencing with the year of distribution and the individual taking the distribution has three years to repay the distribution to the plan, or roll it over to an Individual Retirement Account (“IRA”) or other qualified retirement plan, with the effect of reversing the income tax consequences of the distribution.  In addition, the CARES Act allows plans to suspend loan repayments due from March 27, 2020 through December 31, 2020 and further allows for an increase in the dollar amount on loans made between March 27, 2020 and September 22, 2020 from $50,000 to $100,000.  Notice 2020-50 expands the definition of qualified individuals under the Act and provides additional, clarifying guidance regarding coronavirus-related distributions and loans.

Expansion of the Definition of “Qualified Individual”

Under the original language of the CARES Act, a qualified individual included the following persons:

Will your assets pass to family if you die without a Will in New Jersey? Not necessarily. In some cases, a decedent’s property can actually escheat, or revert, to the State of New Jersey when the decedent has living relatives. The only way to ensure that your property is distributed according to your wishes is to execute a Will. While it may be tempting to let estate planning take a back burner to the hustle and bustle of everyday life, having a Will and other necessary estate planning documents helps your loved ones avoid additional hassles at the time of your passing.

Intestacy laws govern what happens to a person’s assets when he or she dies without a Will. Intestacy laws, however, do not interfere with assets that are jointly owned–those go to the survivor; or assets that are subject to a separate designation of beneficiary–those go to the designated beneficiary. In New Jersey, heirs must survive the decedent by at least 120 hours to inherit. New Jersey has adopted an intestacy system that only considers those relatives in the third branch and closer as “heirs” for the purposes of intestate succession. This is known as a parentelic system. The first branch includes the decedent, his children, grandchildren and great-grandchildren. The second branch includes decedent’s parents, siblings, and nieces and nephews down the line to great-grandnieces and great-grandnephews. The third and final branch of heirs for purposes of the New Jersey intestacy laws consists of the decedent’s grandparents and descendants of grandparents including aunts, uncles, and first cousins.

It is important to note that if a decedent dies without a Will and has a spouse or domestic partner, that spouse or partner may not inherit the full estate. This debunks the common misconception that if you pass without a Will, your spouse will automatically receive everything. The surviving spouse or partner’s share depends on many things including but not limited to whether the couple had children together, whether there are children from a prior marriage, and whether the decedent has parents who are still living.

The COVID-19 crisis, and its attendant rules of social distancing, face masks, etc. have presented new challenges to estate planning attorneys in the realm of document executions.  How are we advising clients who wish to sign their estate planning documents during this pandemic?  The usual participants when we meet with clients to execute wills and other documents include the client(s), the attorney who serves as one witness, a staff member who serves as the second witness, and a notary public.  Like many other law firms in New Jersey, we have not been meeting with clients in our offices since mid-March.  Many of our attorneys, and most of our staff, are working remotely.  Hence we cannot easily assemble the normal cast of characters to participate in the execution of client documents.    Further, wills and other estate planning documents may not be signed by electronic signature; such documents must be signed in person with a so-called “wet” signature.

Here are some of the ways we have been helping our clients sign their documents in these challenging times.

1.  The signing may be handled by the client at home or elsewhere, with execution instructions provided by the attorney:

Federal Law.  On April 9, 2020, the IRS issued Notice 2020-23, amplifying earlier Notices 2020-18 and 2020-20.  Notice 2020-23 indicates that because of the COVID-19 emergency, the due dates for filing federal tax returns and payment of taxes due on or after April 1, 2020 and before July 15, 2020 have been postponed to July 15, 2020.  The postponements are automatic; taxpayers are not required to take any action, such as filing an extension request, in order to qualify for the relief.

The Notice confirms the grant of additional time to file individual, corporate, partnership, and estate and trust income tax returns to July 15, 2020.  Estate, gift, and generation-skipping tax returns and payment due dates have been similarly postponed.

The Notice also clarifies that not only first quarter estimated income tax payments due April 15, but also second quarter estimates due June 15, have a new due date of July 15.

As estate planning attorneys, we are frequently asked by clients how often they should review their estate planning documents.  Should it be every three years … every five years … every ten years?  Rather than consider the response in terms of time, we prefer to advise clients to think in terms of need or life stage.  On occasion, reviewing estate planning documents after a specified period of time has passed will be prudent, but more often other factors will weigh more heavily.  This article will provide guidance to individuals who might wonder whether their estate planning documents are due for review.

The first consideration should be whether there is a need to change a document.  For example, after a move to a new state, the estate planning documents should be reviewed by an attorney licensed to practice in that state.  Further, if the executor named in a will has died, moved out of state, or is no longer the appropriate person to serve, then the will should be updated to substitute another executor for the one who will no longer serve.  Similarly, if a guardian for a minor child is no longer appropriate because he or she has relocated to another state, or because the guardian’s personal circumstances have changed, it may be necessary to revise the will to name a new guardian.  A change in the tax laws may also suggest a need for revision of a will or trust.

New life stages may also provide reasons to update estate planning documents.  For example, when children are minors, it is oftentimes appropriate to establish a trust to hold a child’s inheritance until a child reaches a specific age in order to safeguard the funds and minimize potential waste.  As a child grows up, the need for a trust may be eliminated, or the terms of a trust might warrant a change to give a child different benefits or more control.  Similarly, when a child becomes an adult, it may be appropriate to name the child to a position of responsibility, as perhaps appointing the child as an executor.

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