Wills Insights

In an era where digital transactions are becoming increasingly prevalent, the mechanisms by which financial institutions inform customers of potential fraudulent activities are under scrutiny.  Recently proposed revisions seek not only to bolster security measures but also to ensure that customers are promptly and clearly notified, thus minimizing the risk of financial loss.

Possible Changes to Bank’s Notice of Suspected Fraud Under Review

On the first day of the 2024 New Jersey legislative session, Assembly Bill No. 1832 was introduced and referred to committee. If approved as enacted, A1832 would require financial institutions to release financial records to adult protective services if there is suspected fraud of a vulnerable adult or senior customer. It would also permit adult protective services to release these records to law enforcement, where necessary.

Artificial intelligence (AI) is in the beginning stages of a revolution.  For the better part of the last century, this technology saw little application outside of data analytics and computer algorithms.

Today, AI can replicate real communication with surprising ease.  ChatGPT, for instance, is known for its ability to draft essays and summarize long passages from a book in mere seconds, a boon for many a student. Recently, ChatGPT even passed the uniform bar exam on its first attempt. Which begs the question, will this technology replace estate planning attorneys?  If you ask ChatGPT yourself, you might be surprised.  We typed “I have a legal question” in the search bar, and nearly instantaneously ChatGPT responded, “Sure, I can try to help.  Please keep in mind that I’m not a lawyer, and my responses are not a substitute for professional legal advice.”

Still curious, we pressed on, and asked ChatGPT the following question:

A 529 plan account is a tax-efficient way to save for a child’s or grandchild’s education costs.  529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.  529 plan accounts have multiple tax advantages, including allowing an individual to contribute up to $18,000 per year, or $36,000 per married couple.  These contributions are considered gifts to the beneficiary of the account but are not taxable because they qualify for the so-called “annual exclusion” from taxable gifts.  The investments in the 529 plan grow tax-deferred, and withdrawals are not subject to income tax when used for qualified educational expenses.

Considering the high cost of education today, it may seem unlikely that any assets in a 529 plan account would go unused.  However, if an account’s beneficiary decides not to attend college, attends a more affordable school, or receives a significant scholarship or financial aid, it is possible there would be funds remaining in the 529 account when the beneficiary’s education is concluded.  Withdrawals from 529 accounts that are not used for qualified educational expenses are subject to income tax and excise tax of 10% on the earnings portion of the withdrawals.  Certain exceptions to the 10% penalty apply.  To avoid the income and excise taxes, account holders have the option to change the beneficiary of the 529 account to an eligible relative of the original beneficiary, such as a sibling, child, or other descendant.  Beginning in January of 2024, another option that avoids the income and excise taxes is to roll over the amount remaining in the 529 account to a Roth IRA.  Whereas amounts withdrawn from 529 accounts may only be used for qualified educational expenses, withdrawals from Roth IRAs do not have restrictions on their use.

In the Setting Every Community Up for Retirement Enhancement Act 2.0 (“SECURE 2.0”) enacted by Congress at the end of 2022, it is now possible to roll over 529 plan account assets to a Roth IRA in the name of the account beneficiary, free of income and excise taxes.

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The Federal Tax Cuts and Jobs Act of 2017 (“TCJA”) amended section 2010(c)(3) of the Internal Revenue Code (the “Code”) to provide that, for decedents dying and gifts made after December 31, 2017 and before January 1, 2026, the basic exclusion amount (BEA) and Generation-Skipping Transfer Tax (“GST”) exemptions would increase to $10 million as adjusted for inflation. On January 1, 2026, these exemptions will revert to $5 million (the pre-TCJA figure), adjusted for inflation. The inflation adjustments over the years since 2018 have resulted in BEA and GST Exemptions of $12,920,000 in 2023.

On November 9, 2023 the IRS issued Revenue Procedure 2023-34 setting forth the inflation adjusted transfer tax exemptions for 2024. The BEA will be $13,610,000—an increase of $690,000. The increase means that in 2024, an individual may make gifts during life or at death totaling $13,610,000 without incurring gift or estate tax; a married couple will be able to transfer $27,220,000 of assets free of transfer taxes. The GST Exemption under section 2631 of the Code will also increase to $13,610,000.

The annual gift tax exclusion provided by Code section 2503 will increase in 2024 to $18,000 per donee (or $36,000 if spouses elect gift-splitting).

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When a taxpayer contributes $250 or more to a charitable organization, in order for the taxpayer to claim an income tax charitable deduction the organization must provide the taxpayer with a contemporaneous written acknowledgment of the gift.  I.R.C. § 170(f)(8)(A).  The acknowledgment must include (i) the amount of cash and a description (but not the value) of any property other than cash contributed, (ii) an explicit statement of whether the donee organization provided any goods or services in consideration for part or all of the gift, and (iii) a description and good faith estimate of the value of the goods or services referred to in clause (ii), or if such goods and services consist solely of intangible religious benefits, a statement to that effect.  I.R.C. § 170(f)(8)(B).

The following recent cases have confirmed the need for strict compliance with the Internal Revenue Code (the “Code”) in connection with securing the charitable deduction.

Izen v. Commissioner, 38 F.4th 459 (5th Cir. 2022).  Taxpayer contributed a 50% interest in a private jet to the Houston Aeronautical Heritage Society and claimed a deduction of $338,080, which was disallowed.  Taxpayer’s income tax return did not include a contemporaneous written acknowledgment of the gift.  Taxpayer subsequently obtained and filed an acknowledgment of the gift, but the Fifth Circuit found it was not contemporaneous and lacked a statement about whether donee provided goods or services in consideration for the gift.  The taxpayer argued substantial compliance.  The court said that while substantial compliance may suffice to meet the requirements imposed by the Treasury, it does not satisfy requirements imposed by the Code.

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Internal Revenue Code Section 645 was enacted in 1997 because of the increasing use of revocable trusts as will substitutes to avoid probate in many states. While in some states like New Jersey and Texas, probate isn’t terribly expensive or difficult, an increasing number of individuals are designing their estate plans with revocable trusts for non-probate purposes. During the grantor’s life, they may be used for streamlined asset management and a less expensive alternative to guardianships in the event of incapacity. After death, trusts provide increased privacy as well as ease of administration when it comes to out-of-state property and possible inheritance tax freezes that can delay the availability of cash to administer an estate. By making an IRC Section 645 election, clients can treat certain trusts as part of their estate. Here are some of the benefits of doing that.

Statutory Requirements

Section 645 sets forth the statutory requirements for making the election to treat certain trusts as part of an estate. The Internal Revenue Service issued final regulations on Dec. 4, 2002.

The goal of this article is to highlight some of the changes to the rules governing retirement account distributions under the Securing a Strong Retirement Act of 2022 (aka SECURE 2.0). The positive changes include the following:

  • The age at which one must withdraw required Minimum Distributions (RMDs) has increased to age 73 effective January 1, 2023; it increases again to age 75 effective January 1, 2033;
  • The penalty (excise tax) for failure to make a timely withdrawal is reduced to 25% from 50% and, in some cases, to 10%;

After someone passes away, their estate must be administered. This is true whether the person was worth $10,000 or $10 million. The process of administering the estate is often the same regardless of its value. This article discusses the basic process of estate administration and the duties of the executor, who is the person or persons responsible for the process.

Appointment to act on behalf of the estate

The first step for an executor (or administrator, if there is no Will) is to be appointed by the local Surrogate’s Court as executor. In New Jersey, this is a simple process where the Will and death certificate are presented to the court, along with the names and addresses of the next-of-kin and beneficiaries named in the Will. Assuming everything is in order, the Surrogate will admit the Will to probate and issue a Certificate of Letters Testamentary to the executor, which serves as his or her official appointment to act on behalf of the estate. The executor is then responsible for notifying all heirs and beneficiaries that probate has been completed.

Grantor trusts can provide substantial estate and income tax savings to those who establish them.  The grantor of a “grantor trust” is treated as the owner of the trust assets for federal income tax purposes. The grantor continues to pay the income tax generated by the assets contributed to the trust and receives the benefit of all deductions and credits. Whether the grantor trust property is excluded from the estate of the grantor, and thus escapes estate tax, is dependent on the drafting of the trust. The rules regarding grantor trusts can be found in Sections 671 through 679 of the Internal Revenue Code. [1]

It is beneficial for the grantor to be treated as the income tax owner of a trust because trusts have more compressed tax brackets than do individuals. For example, in 2022, individuals were taxed at the highest marginal rate of 37% on income over $539,900, or $647,850 for married taxpayers.[2] Trusts, however, reached the top marginal rate of 37% at income above $13,450.[3]

In general, the following provisions  in a trust will create a “grantor trust.”

Divorcing parents of minor children are faced with many hard decisions that must be addressed while separating. These considerations include resolving custody, parenting time and support for their children, which are often much harder and more emotionally charged than the issues involving dividing assets and calculating financial support between spouses. When there’s a child with special needs in the family, there are additional decisions to be made surrounding their continued care, often well past the time that other children would be deemed to be emancipated, and the finances surrounding the support they’re receiving. Special needs children are best served when their parents fully address these issues during the divorce proceeding and are able to focus on the best interests of the children, and the divorcing parents are best served by attorneys who fully understand the issues and can offer practical solutions based on the specific circumstances.

Child Support

In any divorce involving children, the parties need to resolve custody, which involves both the legal and physical sharing of their children. In most cases, parties will agree or a court will order that the parties share joint legal custody of their children. Joint legal custody generally means joint decision making for all major decisions in a child’s life. These major decisions typically fall into three larger categories, which are the child’s: (1) health, (2) education, and (3) well being. For example, both parties would need to participate in the decision-making process and agree on whether the child will attend public or private school or whether the child will have their tonsils removed on a nonemergency basis. If parents are unable to agree on these decisions, they can enlist the help of attorneys, mediators or the court, who will help decide these issues with or for them. For parents of a child with special needs these decisions may involve the continuation of certain therapies or treatments or their continued care if they’re no longer able to reside at home.

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