Wills Insights

To the owners of family businesses, estate planning can sometimes be an after-thought. Owners are often so involved in building their business and managing its daily operations that they do not have time to devote to the planning that will become important when the owner is ready to hand over management control and ownership to successors. It is often the case with successful family businesses that there has been little or no thought given to the transition of management and ownership, with the result being there is no succession plan in place. Further, available strategies to transfer the ownership of the business to younger generations of the family in a tax-effective manner may not have been utilized.

When a family business is one of the assets, or perhaps the primary asset, a well thought out strategic and financial plan for the business and an estate plan for the family are critically important. The following is a brief and by no means exhaustive outline of some points to consider.

Strategic Planning

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Every state has an unclaimed property program holding forgotten property belonging to its residents such as uncashed checks, security deposits, abandoned accounts, and more. “Unclaimed property” generally refers to tangible (items in safe deposit boxes) and intangible (bank accounts, stocks, and checks) personal property. Eventually, the state takes over the unclaimed property in a process known as “escheatment.”

In New Jersey, the Unclaimed Property Administration is a section of the Department of the Treasury. The Mission Statement of the Unclaimed Property Administration is set forth on its website and reads as follows:

“The Unclaimed Property Administration (UPA) recovers and records abandoned or lost intangible and tangible property. The UPA’s goal is to return this property to the rightful owner and/or heirs. The New Jersey Unclaimed Property Statute ensures that property owners never relinquish the right to this property and the UPA only acts as a custodian until the property is returned.”

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The federal estate and gift tax exemption (known as the “basic exclusion amount”) has increased to $11.7 million per taxpayer in 2021. The exemption in 2020 had been $11.58 million. The increase means that in 2021, an individual can make gifts during life or at death totaling $11.7 million without incurring gift or estate tax; a married couple can transfer $23.4 million of assets. The annual gift tax exclusion remains at $15,000 per donee (or $30,000 if spouses elect gift-splitting).

Note that it seems likely the Biden administration will attempt to pass a reduction in the exemption as well as other changes to the estate and gift tax law during the next two years when there are Democratic majorities in the House and Senate. It is unknown whether any such changes will be made retroactive to January 1, 2021.

We recommend consulting with your estate planning attorney early in 2021 to discuss whether large gifts now may be advisable.

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In the latest article for WealthManagement.com, the Honorable Judge Katherine Dupuis, (Ret.) of Lindabury’s Alternative Dispute Resolution Practice Group offers insight on how mediation can be a viable way to achieve cost savings and justice during estate-planning disputes. This write-up addresses both what can go wrong and how to move forward through the process. To read it in its entirety, click here.

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:

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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:

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