People from all wealth levels are encouraged to consider the benefits of establishing a Will. The following are important reasons to have a Will—even if you do not have substantial assets.

  • You should name Guardians for any minor children.
  • If you do not have a Will, your assets Will pass under the laws of “intestacy”, essentially a Will determined for you by State Law; and your Personal Representative (Administrator) is determined by law as well.
  • You can avoid the cost of having your Personal Representative (Executor) post a surety bond with a standard provision in your Will waiving the bond requirement. If a Will does not contain this provision, or if you die without a Will (an intestacy), the Executor (of a Will) or the appointed Administrator (if there is no Will) must post a (often expensive) surety bond.
  • You can avoid assets being left to minor children; this would avoid posting another surety bond until each child attains the age of 18, or requiring a deposit of estate assets with the County Surrogate.
  • You can control the date that your children inherit assets (by creating trusts) — without a Will they will inherit at age 18—an age probably too young for most children to handle substantial funds.

Every individual and family has unique needs based upon their current stage in life. At Davidson, Sochor, Ragsdale and Cohen, LLC, we establish custom-drafted wills that pay specific attention to each clients’ unique needs. Whether you have a young family with modest assets and are interested in establishing trusts for minor children and naming a Guardian to protect them, whether or you have reached retirement, and have accumulated some wealth and want to achieve some estate tax savings through the use of a more sophisticated will, we can help.

A “Credit Shelter” Trust (sometimes referred to as a “B” Trust, a “Bypass Trust” or an  “Applicable Exclusion Trust”) is a popular estate planning technique used by married couples with combined assets in excess of $675,000 (including the face value of Life Insurance). The purpose of the Credit Shelter Trust is to avoid the wasting of Federal and State exemptions on the death of the first spouse. Instead of leaving all assets to the surviving spouse and thereby exposing the surviving spouse’s estate to more tax, both spouse’s Wills are drafted to establish a Credit Shelter Trust to come into existence and be funded on the first spouse’s death. In a typical Credit Shelter Trust, the surviving spouse is entitled to receive income from the Trust during his or her lifetime, and has the right to withdraw principal distributions for his or her health, education, maintenance and support in his or her “accustomed manner of living”.  Distributions in excess of that standard require the cooperation of a Co-Trustee – often an adult child of the surviving spouse, other close relative, a lawyer or CPA, or a long-time friend.

The amount which funds a typical Credit Shelter Trust varies according to a particular Client’s financial and family circumstances. For Federal Estate Tax purposes, a Credit Shelter Trust can be funded with the Decedent’s remaining Federal estate tax exemption ($5.25 million in 2013 if no prior gifts have been made). However, in New Jersey, since the state estate tax exemption is only $675,000, if the Credit Shelter Trust is funded with more than $675,000, this will cause some New Jersey Estate Tax to be paid. If, for example, $2 million is funded, the tax to the State of New Jersey is $99,600; and if the full $5.25 million were funded the tax to the State of New Jersey is $420,800. Because of this, many Clients choose to fund the Credit Shelter Trust with only $675,000 (although every situation must be assessed on its own merits). In New York, the state estate tax exemption is $1 million (but estates over $1 million have the same estate tax as New Jersey).

If the Credit Shelter Trust technique is implemented as part of a Client’s estate plan, our law firm can provide guidance as to whether re-titling assets is necessary so that assets are available to fund the Credit Shelter Trust. This may be necessary because most Clients tend to hold a majority of assets jointly with right of survivorship and assets must be titled individually in a person’s sole name in order to be eligible to fund a Credit Shelter Trust.

A Disclaimer Trust is also established in a Will but is funded only if the Decedent’s surviving spouse files a “Qualified Disclaimer” within nine (9) months of the Decedent’s death. The terms of the Disclaimer Trust are similar to those contained in a Credit Shelter Trust. Disclaimer Trusts became popular after the 2001 Tax Act was passed because of the uncertainty created by the (then) temporary nature of the Federal Estate Tax Law. The actual Disclaimer must meet certain legal and filing requirements and the person disclaiming must not accept any benefits from the assets disclaimed before filing the Disclaimer.

There are several important variables that come into play in estate planning. Certain variables that are important at the time of the first spouse’s death include: the value of the estate, the age of the surviving spouse, the health of the surviving spouse and the status of the Federal and State estate tax laws. The theory behind the Disclaimer Trust technique is that all relevant variables can be evaluated at the time of the first spouse’s death, and the surviving spouse can make an informed decision at that time whether or not to fund the Disclaimer Trust. It is important to consult with an experienced estate planning attorney soon after the death of a spouse who has used the Disclaimer Trust technique as part of his or her Estate Plan to see if a Disclaimer is advisable.