The Right Tool for the Job: Choosing the Correct Trust or Trusts to Meet Your Goals for Estate Planning in New Jersey


There are lots of benefits you can receive from a well-crafted estate plan. Your will, trust or trusts can give you the peace of mind of knowing that your wishes and preferences are in “black and white” in valid legal document. Such legal documents can help you to provide for friends or relatives who are outside your immediate family… or perhaps benefit a cherished charity. You can also, in some situations, help to avoid certain taxes. To do that, though, you should make sure you’re working with the right legal team. Your skilled Hoboken estate planning attorney can help you get this kind of plan set up cor

rectly, and setting it up right is critical because, if your plan is set up incorrectly, it can have devastating tax consequences.

That was the case for the estate of M.V.R. New Jersey is one of just a few states that have an inheritance tax. As with many forms of what’s often called “death taxes,” there are ways of potentially reducing your tax liability exposure through estate planning techniques. One common method to address the inheritance tax in New Jersey is for married couples to establish two trusts during their lifetime. When the first spouse dies, his/her trust takes ownership of his/her half of the marital home, and the trust pays a tax based on the home’s value at that time. The same thing happens upon the second spouse’s death, with the second spouse’s trust taking ownership of that half of the home and paying the associated taxes.

M.V.R. and her husband, W.V.R., had an estate plan that did something a bit different. Their plan established a single irrevocable trust and the couple transferred ownership of their home into that trust during their lifetime.

Whatever the reasons (which the court didn’t specify) for the couple’s choice of estate planning tools, it was a flawed one in terms of tax planning. After the husband died, the Division of Taxation assessed no taxes at that time. Several years later, when the wife died, the state Division of Taxation taxed the full value of the home, which was $935,000. This meant that a substantially larger sum in taxes ended up being owed than if the couple had used the two-trust method.

The wrong tool can make things less clear, more complex… and more costly

The wife’s estate sued, but ultimately, the Supreme Court concluded that the Division of Taxation was correct. Ruling in favor of the estate would make the state’s tax laws less clear, more complicated and harder to implement, as it would force the Division of Taxation to engage in speculation. The two-trust method, the court declared, “makes it easy” to complete the required process of valuing the home (in order to assess the correct amount of tax.)

So, assuming that one of the couple’s goals for their estate plan was to minimize the amount of inheritance taxes owed, they had the wrong tool for the job. Many times, this is one of the most critical processes in estate planning: determining what the tasks are that you’re trying to accomplish and then, based on the identification of your objectives, picking the best tool for the job.

Whatever your goals are for your estate planning – whether it is simply to direct the distribution of your assets after death, or whether your objectives include additional goals like tax planning, asset protection and/or Medicaid planning, the right legal representation can provide you with the advice and the legal documents you need to achieve those goals. Talk to knowledgeable Hoboken estate planning attorney Frank Marciano, who has been helping people for many years to accomplish their estate planning objectives. To set up a consultation, contact the office online or call 201.656.1000.

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