New Jersey Estate Planning
Typically, estate planning starts with a Last Will and Testament. Often, New Jersey estate planning attorneys will also recommend a power of attorney and an advance directive and healthcare proxy (this is also colloquially known as a “living will”) - the “holy trinity” of estate planning. However, some estates may find utility in grantor trusts and limited liability companies (“LLC”) as vehicles to reduce the cost of probate administration and distribute principal and income to different classes of beneficiaries.
Wills
While New Jersey recognizes “holographic” wills, or handwritten wills, as well as writings intended as wills, those documents must be proved to the Surrogate or the proponent must file a verified complaint and order to show cause, and appear in the Superior Court in front of a judge. It is therefore recommended to hire an estate planning attorney as there are other considerations to factor into creating a will, such as alternate executors, the need for a bond, to account, to inventory assets, whether taxes are apportioned from specific bequests, specifying your funeral arrangements, and so on.
Typically, wills must be in writing, signed by the testator, and signed by two witnesses. Witnesses who have an interest in the estate through the will may still sign and do not disqualify the will or the devise. In order to have the requisite mental capacity to create a will, an individual must simply be 18 or more years of age and of “sound mind.” Despite how that may sound, this is, in the law, a low bar.
Even if you need a simple will, it is recommended you speak with a New Jersey estate planning attorney to ensure the will is valid, self-proving, and takes advantage to make your executor’s job as easy as possible once probated.
Power of Attorney
A power of attorney is a written instrument by which an individual known as the principal authorizes another individual or individuals or a qualified bank known as the attorney-in-fact to perform specified acts on behalf of the principal as the principal's agent. New Jersey Statutes define and control powers of attorneys, found at N.J.S. 46:2B-8. A power of attorney is only effective dependent upon when the power of attorney document determines: general or durable (open or upon an event). Power of attorney instruments also only effect financial decisions, and not medical ones.
A durable power of attorney is a power of attorney which contains the words "this power of attorney shall not be affected by subsequent disability or incapacity of the principal, or lapse of time," or "this power of attorney shall become effective upon the disability or incapacity of the principal," or similar words showing the intent of the principal that the authority conferred shall be exercisable notwithstanding the principal's subsequent disability or incapacity, and unless it states a time of termination, notwithstanding the lapse of time since the execution of the instrument.
Unless otherwise defined in the power of attorney instrument, a principal shall be under a disability if the principal is unable to manage his property and affairs effectively; and an attorney-in-fact shall be under a disability if the attorney-in-fact is unable to exercise the authority conferred by the power of attorney effectively.
Power of Attorneys are also potential options for people facing the possibility of a guardianship. Guardianships in New Jersey for adults allow an individual to be appointed either to oversee the person or the estate (property) of an alleged incapacitated person. However, guardianships require a verified complaint and order to show cause to have the proposed guardian appointed. While sometimes necessary and important, it can also be costly - much more costly than creating a power of attorney. The critical caveat to note in this instance is that the principal, and not the agent, of the power of attorney is the lawyer’s client, and must have capacity to make the document. If it is too late, then guardianship may be the best option. However, if you know of a disease (I.e. early on-set Alzheimer’s) or degenerative mental state, it may consequently be worthwhile to speak with a New Jersey estate planning lawyer.
Proxy Directive and Instruction Directive - Advance Directives
An advance directive is a written instrument where a principal predetermines their preferences for various medical treatments in the event they are incapacitated or unable to make those decisions on their own. The instrument only becomes effective if your physician evaluates you and determines you are unable to understand your diagnosis, treatment options, and/or the possible benefits and harms of the treatment. In New Jersey, there are two kinds: Proxy Directives and Instruction Directives.
Proxy Directive - Durable Power of Attorney for Healthcare
Whereas a General or Durable Power of Attorney is for financial decisions, a Durable Power of Attorney for Healthcare is to appoint an agent to make medical decisions on your behalf. However, the proxy directive only goes into effect upon your incapacity, and they are only able to make the decisions you have predetermined in the proxy directive instrument. If you had failed to make a decision, or if the durable power of attorney agent for healthcare is unable to determine what decision you want want in a given situation, they are able to base their decision upon what they think is in your best interest. It is therefore best to choose someone you trust!
Instruction Directive - Living Will
An instruction directive, also called a “living will,” is similar to a proxy directive as a written instrument used to dedtermine your medical decisions. However, unlike a proxy directive, this instrument typically does not appoint a power of attorney for healthcare. Instead, the living will can simply include religious, medical, and general care and treatment preferences. These preferences for healthcare could include life sustaining treatment, intravenous fluid treatment, CPR, anatomical or after-death gifts, and so forth.
The living will therefore is a guide for your physician and family to make healthcare decisions for you in situations not specifically covered by your advance directive and in the instance you are unable to do so for yourself.
Trusts
There are several different types of legal trusts, and many reasons why they may be beneficial or worthwhile for your specific estate planning needs. Generally, to create a trust: the settlor must have capacity to create a trust; indicate an intention to create the trust; the trust has a definite beneficiary or is created for a number of specifically enumerated purposes; the trustee has duties to perform; and the same person is not the sole trustee and sole beneficiary of all beneficial interests.
Grantor Trusts
A common form of trust is the Grantor Trust, in which the grantor is the trustee and retains power to distribute income or otherwise manage the assets in the trust. These trust agreements are the most common because most estates are not subject to the federal estate tax exemption and are ways to minimize, ease, and control the probate administration process. For instance, a woman who owns two homes in different states, but resides in New Jersey, may decide to transfer those properties into a grantor trust so on her passing, her beneficiaries can easily manage any insurance, rental agreements, and the like without having to go directly through the probate process. It is best to discuss with a New Jersey estate planning and probate attorney whether something like this is right for your situation.
Revocable and Irrevocable Trusts
A revocable trust is a trust agreement whereby the grantor may change or dissolve the trust on their own. An irrevocable trust, by contrast, can only be dissolved with the consent of all trust beneficiaries and the court. Irrevocable trusts may be thought of as “written in stone” because, much like the ancient hieroglyphics: you can erase your mistakes, but it is incredibly difficult! For tax purposes, irrevocable trusts potentially grant tax benefits whereas revocable trusts do not. The benefit to a revocable trust is the ability to flexibly change the terms of the trust agreement and what is held by the trust. Trustees of Irrevocable trusts may also accept and transfer property, but they are limited to the terms of the trust agreement and are beholden to the beneficiaries in a much stricter manner.
Limited Liability Companies; LLCs
While you may think of an LLC as something a small business owner or up-and-coming real estate magnate may venture into, these flexible companies can be useful estate planning tools as well. It may be preferable to use an LLC over a trust, and the LLC can even allow multiple people to be members, have rights to income and interests, and control for dissolution and winding up by the terms of the operating agreement. Since there are several ways to create and set-up an LLC, there may also be certain tax benefits that may not apply to trusts in the same way.
Ultimately, the best estate plan is the one that meets your needs. In certain situations, it may be wise to have all of the above. If you need estate planning, or are interested in having your current plan updated, you can email me at Ranalli@ranalli-law.com. Your rights and privacy are protected. I never share or sell your information or email. No one wants spam email and I respect your right to privacy. I am here to help you.
