Category: Estate Planning

Estate Planning and the SECURE Act

On January 1, 2020, the “Setting Every Community Up for Retirement Act of 2019” (the “SECURE” Act) went into effect. This Act ushered in the first major retirement reform in over a decade. The Act makes substantial changes to the rules governing retirement accounts, including IRAs and 401(k)s, which affect account owners and beneficiaries of those accounts.

  • The age for Required Minimum Distributions is now age 72. Participants will no longer be required to withdraw assets from their retirement accounts at age 70 ½.
  • The Act eliminates the maximum age cap (70 ½) for traditional IRA contributions.
  • The Inherited “Stretch IRA” is eliminated. SECURE replaces the life expectancy payout with a 10 year payout (unless the beneficiary is a surviving spouse, a minor child, is disabled and chronically ill, or a beneficiary who is less than 10 years younger than the deceased participant).

Estate Planning and the SECURE Act: Many of our clients have designated their children as primary or contingent beneficiaries (after the death of their spouse) of their retirement accounts with the goal of “stretching” the IRA out over the lifetime of their children and providing children with a source of income. The new 10 year payout rule for Inherited IRA’s will accelerate the payout of the IRA and may push the beneficiary into a higher income tax bracket resulting in increased taxes.

In the past, we may have recommended to a client who was concerned about a beneficiary receiving an Inherited IRA outright upon their death (due to the age, disability or financial indiscretion of the beneficiary) to establish a trust and designate the trust as the beneficiary of their IRAs. However, our recommendations may now change since the SECURE Act requires a 10 year distribution period for trust beneficiaries. The Trustee is not required to pay out all of the IRA to the beneficiary within 10 years (unless mandated by the trust agreement), and the Trust may accumulate the IRA distributions in trust for the beneficiary, but the Trust will have to pay the income tax on the IRA distributions over the 10 year distribution period. The income tax bracket for trusts are compressed. Trusts are taxed at the highest marginal income tax rate (37%) once trust income exceeds $12,950. Thus, the Trust may pay out more in income taxes on the Inherited IRA distribution than if the IRA named an individual as a beneficiary.

If you have named a Trust as a beneficiary of your IRA or retirement account, or if are concerned about an individual beneficiary receiving an Inherited IRA on an accelerated basis over 10 years, please contact the firm to discuss your estate plan, trusts and options for your IRAs.


Connecticut/Massachusetts 2019 Year End Estate and Gift Tax Planning Update

State and Federal laws have significantly increased estate tax exemptions.  We recommend clients review their estate plan at least every five years, or sooner if there are changes in your financial or personal life, changes in your relationship with your fiduciaries or beneficiaries, or changes in the state or federal estate tax law.

NEW Connecticut Uniform Trust Code. In the past twenty years the use of trusts as Will substitutes, for tax planning and asset management has continued to grow around the country. To date, 35 states (including Massachusetts, Vermont, New Hampshire, Maine and Florida) have enacted various forms of the Uniform Trust Code (“UTC”). Connecticut’s version of the UTC goes  into  effect  January  1,  2020.   The  act  encompasses  four  major  changes to Connecticut trust law and significantly enhances the options for and administration of trusts in Connecticut.

  • Domestic Asset Protection Trusts are now permitted. Under specific circumstances one may transfer assets into a trust for their own benefit and those assets are not generally available to creditors of the trust creator (not available for Title XIX planning).
  • Directed Trusts are now permitted. A non-trustee may direct a trustee to act with regard to distributions, investment decisions and other matters. For example, a trust which owns a closely held corporation may have a management advisor who directs the operation of the business (rather than the institutional trustee).
  • The Rule Against Perpetuities has been modified to allow for trust duration of up to 800 years (for new trusts).
  • Codification of trust law. Probate courts have expanded jurisdiction over inter vivos trusts (such as revocable trusts). New provisions affect notice to beneficiaries, accountings, non-judicial settlement agreements, modifications and terminations of trusts.

Federal Estate and Gift Taxes. On January 1, 2020, the federal estate tax exemption will rise to $11.58M per person ($23.16M for married couples).  The exemptions are set to expire and revert back to $5M per person, adjusted for inflation, after 2025.  Your beneficiaries will continue to receive the benefit of a “step up in basis” to the date of death value on assets included in your estate. If a new administration is elected after the 2020 federal elections it is possible the exemptions may be reduced back to $3.5M.  Thus, consideration should be given to utilizing the large estate and gift tax exemptions while they are available.  However, clients must also weigh the potential estate tax savings against the loss of a “step up in basis” at death.

Federal Gift Tax Annual Exclusion. The federal gift tax annual exclusion is $15,000 per recipient for 2019 and 2020. There is an unlimited gift tax marital deduction for U.S. citizen spouses. The annual exclusion for gifts to non-citizen spouses is $155,000 for 2019 and $157,000 for 2020.

Connecticut Estate and Gift Tax: Clients in Connecticut must consider the impact of the state gift tax (the only state with a gift tax).  The Connecticut estate and gift tax exemption rose to $3.6M in 2019 and will rise to $5.1M in 2020, $7.1M in 2021, $9.1M in 2022 and match the federal exemption in 2023 (currently $11.4M but indexed for inflation).  The federal exemption will revert back to $5.1M in 2026. The tax rate ranges from 7.8% to 12% with a cap on the maximum estate/gift tax of $15M.

Massachusetts Estate Tax: The Massachusetts estate tax exemption remains at $1M per person with tax rates ranging from 0.08% to 16%.

Update Your Estate Planning Documents: Many estate plans provide for the creation of a Family Trust (or Credit Shelter Trust) upon the first spouse to die. In older estate plans, the formula for funding that trust may continue to reference funding it with the maximum amount that can pass free of federal estate tax which could result in an over-funded Family Trust and/or significant state estate tax. In newer plans, the funding formula may have been based upon the maximum state estate tax exemption. With the larger state estate tax exemptions this may no longer be necessary or a desired result.  Estates below the state and federal exemption may be suitable for a simplified estate plan.


The Uniform Electronic Wills Act (the “E-Wills Act”) was introduced and, finally, approved by the National Conference of Commissioners on Uniform State Laws also known as the Uniform Law Commission (“ULC”) in July of 2019.  The E-Wills Act provides that a Last Will and Testament, a document traditionally printed and executed on paper, can now be created, signed, witnessed and notarized electronically.  The ULC has worked, for over a century, to propose laws in an effort to simplify life for people who live, work, or travel in multiple states and to facilitate interstate commerce.

For example, the 1999 Uniform Electronic Transactions Act, adopted in all but three states, permits electronic signatures in commercial and contract matters.  However, the Uniform Electronic Transactions Act contains an exception for Wills which cannot be electronically signed. The execution requirements of Wills are normally set by state statutes to ensure validity of a Will.  The long-standing tradition of executing paper Wills is now changing as people are increasing using technology in more and more aspects of their lives.

The ULC has provided through the E-Wills Act that a testator’s electronic signature or even a “mark,” using a stylus or typed signature, must be witnessed contemporaneously and/or notarized contemporaneously with all physically present.  However, states that adopt the E-Wills Act will have the option to include language that allows remote witnessing of a Will and remote notarization.  The E-Wills Act allows a testator to execute his or her “electronic will” with witnesses who are in the “electronic presence” of the testator and allows probate courts to give such a Will legal effect.  In addition, notaries can be permitted to notarize E-Wills remotely to make a Will self-proving.

Hopefully, the E-Wills Act and online estate planning will not increase fraud and coercion with respect to Will creation and execution.  While New Jersey has not yet adopted the E-Wills Act, the issue of electronic Wills executed under the law of another state is one that New Jersey residents, businesses and Courts are soon to face.

Dying with Dignity in New Jersey: New Jersey’s Aid in Dying for the Terminally Ill Act

New Jersey residents should be aware that on August 1, 2019, New Jersey’s Aid in Dying for the Terminally Ill Act went into effect.  The Aid in Dying for the Terminally Ill Act permits qualified terminally ill patients to self-administer medication to end their life in a humane and dignified manner. Both patients and physicians are protected by several safeguards built into the recently enacted New Jersey statute.

The patient must be a New Jersey resident who is at least 18 years of age and can document his or her residency with a driver’s license or identification card issued by the New Jersey Motor Vehicle Commission; a New Jersey resident gross income tax return filed for the most recent year; or other government record that demonstrates residency. The patient must be able to communicate health care decisions and be capable of making informed decisions. The patient’s attending physician and consulting physician will make the determination regarding a patient’s mental capacity.  Finally, the patient must be terminally ill, as defined in the statute. If a patient is in the terminal stage of an irreversibly fatal illness, disease, or condition with a prognosis, based upon reasonable medical certainty, of a life expectancy of six months or less, he or she will be considered “terminally ill” under the statute.

Some of the requirements for the attending physician include: (i) examining the patient and confirming that the patient is terminally ill; (ii) informing the patient of the feasible alternatives to taking the life-ending medication, including, but not limited to: concurrent or additional treatment opportunities, palliative care, comfort care, hospice care and pain control; (iii) referring the patient to a consulting physician for medical confirmation of the diagnosis and prognosis and a determination that the patient is capable of decision-making and is acting voluntarily; (iv) referring the patient to counseling with a mental health care professional; and (v) recommending the patient participate in consultation regarding the alternatives to self-administering the life-ending medication.

Prior to providing a prescription for the medication, the physician is required to recommend that the patient notify their next of kin. Whether the patient decides to withhold notice to their next of kin is left entirely up to the patient. The patient must make two oral requests and one valid written request, in the written form set forth in the statute, to their attending physician to receive a prescription for the life-ending medication.

The State of New Jersey is now the 8th state in the United States to enact a compassionate death with dignity statute. Presently, each of California, Colorado, District of Columbia, Hawaii, New Jersey, Maine (will be effective in September 2019), Oregon, Vermont, and Washington have death with dignity statutes. The State of Montana relies on case law to permit physician-assisted deaths.

Should you wish to receive additional information, or if you have any questions relating to this topic, we invite you to contact our firm’s Private Clients Services and/or Health Care Practice Groups for further discussion.

Gift Tax Update – Taxable Gifts and the I.R.S. Anti-Clawback Regulation

For 2019, for U.S. citizens, the Federal estate and gift tax basic exclusion amount is $11.4 Million per individual and the Federal gift tax annual exclusion amount is $15,000 per donee, per year.  In 2019, an individual can pass up to $11.4 Million estate and gift tax free; for married couples, the figure is doubled.

Making gifts in excess of the $15,000 annual exclusion amount will chip away at the maximum amount that an individual can give away gift tax-free during life.  If an individual (a “donor”) gifts $15,000 to each of ten donees in 2019 for a total of “taxable” gifts in the amount of $150,000, there will be no gift tax due, and there is no decrease in the donor’s $11.4 Million available estate and gift tax basic exclusion amount. In contrast, if a donor gifts $150,000 to a single donee in 2019, only $15,000 of the gift would be exempt from gift tax, and the donor must file a gift tax return showing an excess gift of $135,000.  The donor will not have any tax due; however, the $11.4 million of available exclusion amount will be reduced by the excess gift of $135,000. Thus, the larger the gifts, the quicker a donor will use up his or her $11.4 Million exclusion amount. Given the sizable exclusion amount in 2019, most people would never come close to using the entire exclusion amount.

The Tax Cuts and Jobs Act of 2017 put the whopping $11.4 Million exclusion amount into effect – but the law is only temporary. The law will sunset and for the year 2026, the exclusion amount will automatically drop to $5 Million (adjusted for inflation) if Congress fails to act by the end of 2025. Many estate planning practitioners believe the exclusion will revert to an amount of approximately $6 Million for 2026.

Planners have raised questions due to the temporary nature of the $11.4 Million exclusion amount. In the event that a gift is made in accordance with the applicable exclusion amount in effect at the time the gift was made, but the exclusion amount decreases by the time of the donor’s death, will the donor’s excess gift be subject to a “clawback” and, accordingly, be included in the donor’s taxable estate for Federal estate tax purposes? In an effort to resolve the question, on November 20, 2018, the IRS released a proposed regulation to eliminate “clawback” for estate and gift tax purposes.

The IRS proposed regulation provides that the donor’s estate can compute its estate tax credit using the higher of the “Basic Exclusion Amount” applicable to gifts made during life or the “Basic Exclusion Amount” that applies on the date of the donor’s death. REG-106706-18, (83 Fed. Reg. 59343).  Therefore, if a donor dies on or after January 1, 2026, but made taxable gifts prior to 2025 relying on a higher exclusion amount and, in the year of his or her death, the applicable lifetime gift tax exclusion amount is lower than the amount gifted prior to 2025, the donor’s estate will have the benefit of using the higher exclusion amount that applied during his or her life. The proposed regulation should inspire large gift planning and year-end gift planning in 2019.  We encourage you to contact us if you wish to discuss gifting as a part of your estate planning.

What You Should Do Now to Make Your Executor’s Job Easier

Sorry to begin with such a sobering thought, but we are all going to die.  Most frequently, the Executor of your Estate is someone with whom you had a close relationship:  either a spouse, child or close friend.  They are dealing with your loss.  You have asked them to serve as Executor, a role for which most persons have had no experience.  What can you do now to make their job easier?

First, make certain that the person you name to serve as Executor knows you are making this request of them.  Verify they are willing to serve in that capacity.  Tell them where they can find the original of your Will and where they can find a list of instructions which you will make available for their use.  That list of instructions should identify accounts, insurance policies, whether you have a safe deposit box and, if so, in what institution and the passwords for all of your digital accounts.

It is helpful to you to create a document reflecting your current financial information.  It really simplifies the job of Executor if such a document is available with this information.  Remember, you don’t need to tell your Executor what you have by way of assets at this time.  They simply need to know how they can readily determine the answer to that question when called upon to fulfill their responsibilities.

Many families end up squabbling over items of personal property.  Often, it makes little difference whether the items have significant monetary value.  I want that ring, Mom promised me the grandfather clock, Dad promised me his baseball autographed by some major league star.  Avoid, or at least minimize, this problem by creating a List.  On the List, you can identify individual items of personal property and the person who is to receive them.  Make sure there is only one such List in existence at any moment in time.  You must sign the List and remember to date it as only the most recent List will be effective.

Have you named a person to serve as your funeral representative in your Will?  In the absence of doing so, most states have a statute which establishes the priority ranking for the person to carry out your wishes.  That sounds fine, but if your spouse has passed and you have children, each child has equal right to make those choices.  If they don’t agree, how do they iron out any disagreement?  Name one person and make certain that individual knows your wishes and will be willing to carry them out on your behalf.

When did you last update your Will?  Did you list individuals who are no longer living and for whom you have named no successor?  If you named a charity, is that charitable institution clearly identified?  Does it exist?  For example, there have been several situations in which a decedent named a Catholic school or other organization to which they had a strong attachment.  However, by the time they passed away, that institution was no longer in existence.  In such a case, what is the Executor required to do?  Perhaps it is time to review your Will and update it to address this potential problem.

Finally, and speaking from experience, if you have lived in your home for a long time you probably have accumulated many “treasures”.  It is the responsibility of the Executor to review those items, sell the items unless specifically given to someone through your List, decide what to discard and make the arrangements to do so.  If you are like me, maybe it’s time to clean out the attic, the basement and other cubbies in which you have stored your children’s grade school papers or “stuff” you got from your parents when they died.

What is a Funeral Agent, and Why Do I Need One?

In 2003, the New Jersey Legislature amended the New Jersey Cemetery Act to permit individuals to designate a personal representative, known as a funeral agent, to control the individual’s funeral arrangements and disposition of his/her remains.  See N.J.S.A. 45:27-22(a).  The designation of a funeral agent must be included in your will to be enforceable.  If a decedent does not appoint a funeral agent in his or her will, the statute sets forth the order of those with the right to control the decedent’s funeral and the disposition of his/her remains.  The order of priority set forth in the statute is as follows:

  1. The decedent’s surviving spouse, civil union partner, or domestic union partner;
  2. A majority of the surviving adult children of the decedent;
  3. The surviving parent or parents of the decedent;
  4. A majority of the brothers and sisters of the decedent; and
  5. Other next of kin of the decedent according to the degree of consanguinity.

What happens when the people set forth in the statute can’t agree?  In a recently published decision, Matter of the Estate of John E. Travers, Jr., No. P-2253-2017, 2017 WL 10841709 (N.J. Super. Ct. Ch. Div. Nov. 17, 2017), the New Jersey Superior Court provided guidance over how to resolve disputes where individuals with equal statutory standing cannot agree on funeral and burial arrangements.

John E. Travers, Jr., died unexpectedly at the age of twenty-two.  Travers was not married, and had no children.  He did not have a will, and therefore had not appointed a funeral agent.  Pursuant to the statute, John’s parents had the first priority to control his funeral and the disposition of his remains.  However, John’s parents, who were divorced when John was 14, could not agree on the appropriate disposition of their son’s remains.  John’s father wanted John’s remains to be buried, while his mother wanted John’s remains to be cremated.  Each parent provided the court with reasonable, personal and emotionally-charged explanations for their respective positions.

The Court identified four factors to be considered in any dispute where next-of-kin of equal statutory standing cannot agree on funeral arrangements and disposition of remains.  Those factors are:

  1. Which person is more likely to abide by the wishes and desires of the decedent as expressed through communications with another, to the extent the decedent made those communications;
  1. Which person established a closer relationship to the decedent, and is thereby in a better position to surmise the decedent’s desires and expectations upon death;
  1. Which person is more likely to adhere to the religious beliefs and/or cultural practices of the decedent, to the extent that funeral arrangements and/or disposal of remains are addressed by such beliefs and practices, and to the extent that those beliefs and practices are relevant to inform the court as to the wishes, desires and expectations of the decedent upon death; and
  1. Which person will ultimately be designated as administrator(s) of the estate and act in the best interests of the estate to: (a) determine the costs, funeral arrangements and/or disposition of human remains; (b) assess the ability of the estate to pay for the costs of funeral arrangements and/or disposition of human remains; and (c) arrange for alternative funding and/or resources to effectuate the funeral and/or disposition in the event that the estate does not have the ability to pay for the costs of human remains.

After reviewing these factors, the court concluded that John’s father should be granted the authority to control the disposition of his son’s remains, because John had a closer relationship with his father than with his mother.  John lived with his father following his parents’ divorce, and was employed full-time by his father in the family business.  John only saw his mother sporadically and primarily communicated with her through telephone calls.  Based on these facts, the Court concluded that John’s father was in a better position to surmise John’s wishes and desires for the disposition of his remains.

The appointment of a funeral agent in your will is extremely important.  It is the best way to avoid a dispute between family members and to ensure that your wishes regarding your funeral and the disposition of your remains are honored.  While sharing your wishes with family members prior to your death is important, it is not enough.  What if you were to die while you were in the middle of a divorce?  Your soon-to-be ex-spouse would control your funeral.  Or if you outlive your close family members, your funeral could be left in the hands of a distant family member with whom you have not had any relationship.

Your funeral agent should be someone who you are confident will adhere to your wishes, regardless of the order of priority established by the statute, and regardless of their personal beliefs.  Your funeral agent does not have to be the same person you appoint as the executor of your will – you can appoint a family member, a friend, or even a clergy member.

We encourage you to contact the firm if you have any questions about the appointment of a funeral agent.

Please Pass the Turkey, and Sign that HIPAA Authorization Form

Many families with college students are eagerly anticipating their return for Thanksgiving break.  In the flurry of making all of the necessary preparations for college, it is easy to lose track of the fact that most college students either are 18, or will turn 18 during their freshman year.  Once a child turns 18, parental authority ends.

In order to ensure that parents will be provided with medical information and are able to act on behalf of an adult child in the event of a medical emergency or illness, parents should consider getting three documents in place before your adult child goes off to college, or when they are home for the next break:

  1. HIPAA Authorization Form

HIPAA stands for the Health Insurance Portability and Accountability Act, which was passed by Congress in 1996.  HIPAA privacy regulations require health care providers to develop and follow procedures that ensure the confidentiality and security of health information. In short, without this form, medical providers are prohibited from sharing medical information with anyone other than their patient.  A signed HIPAA authorization form allows health care providers to disclose health information to anyone designated on the form, including parents.   Your child can limit the information that will be disclosed pursuant to the form, so that sensitive information regarding mental health treatment and drugs remains private.

  1. Health Care Power of Attorney

By signing this document, your adult child designates one or both parents as her/his proxy or health care representative.  The health care proxy/parent is granted legal authority to make medical decisions for the adult child in the event the child becomes incapacitated and is unable to make decisions on her/his own behalf.

  1. General Durable Power of Attorney

Having this document naming one or both parents as agent will allow a parent to make financial decisions and handle legal affairs for their adult child in the event that the child becomes incapacitated.  A general durable power of attorney will allow a parent to, among other things, manage bank accounts, pay bills, sign tax returns, and apply for government benefits.

Important considerations:

  • Once the documents are properly signed, scan them so that they are easily available on your cell phone and computer
  • Provide copies of the HIPAA authorization form and Health Care Power of Attorney to the health services office at your child’s college
  • If your child is attending an out-of-state college, sign separate documents in both your home state, and the state where your child’s college is located
  • Remember that your adult child can revoke the documents either orally or in writing
  • Make sure that your child shares passwords for any online services that you may need to access in the event of a child’s illness or incapacity, including online banking accounts, and credit card accounts

Why Estate Planning is Still Important in Light of the Tax Cuts and Jobs Act

Last week, we covered some of the important provisions in the Tax Cuts and Jobs Act passed by the U.S. House of Representatives and Senate.  Under the House and Senate versions, the individual estate tax exemption amount is doubled to $10.98 million in 2018, and the House version would completely repeal the estate tax for individuals dying after 2023.  Because this means married couples can effectively leave up to $22 million to beneficiaries tax-free, you may believe estate planning is no longer necessary.  However, estate planning is still important to ensure your assets are properly managed, and here are a few reasons why:

  • Federal Income Tax Remains Under the Law: Income taxation affects potential beneficiaries and heirs to your estate.  Upon death, your assets’ basis is “stepped-up”.  The step-up basis of assets that occurs is an important tax planning technique that affects beneficiaries’ income.  In order to ensure your beneficiaries are not negatively impacted by the step-up basis, proper estate planning is required.
  • Planning for potential disabilities or illness: There may come a time where you become disabled or fall ill. It is best to put documents in place, such as a power of attorney, in advance of such circumstances. Further, you may lack the required mental capacity to appoint persons to handle your affairs in the future. If a valid power of attorney does not exist, a court may appoint a legal guardian to control your assets, who may mismanage your affairs or may not act in your best interest.
  • Asset Protection and Control: Asset protection is another important reason to consider implementing an estate plan. The use of a last will & testament and trusts allow you to maintain control of your assets for future generations to enjoy.

ο  Transferring assets outright to your beneficiaries allows them to take direct ownership of the assets, which exposes the assets to creditors, divorcing spouses, as well as bad decisions of those beneficiaries. Placing the assets into a trust, however, does not allow the beneficiaries to unilaterally draw down on the assets for their own desires (e.g., extravagant purchases, gambling, addictions). Further, the trusts generally provide protection from the beneficiaries’ creditors and divorcing spouses. Moreover, if properly structured, the assets can be placed in a trust that is domiciled in a state that affords asset protection benefits against your creditors.

ο  While providing these protections, trusts typically are structured to provide the beneficiaries to access funds for lifetime needs (e.g., health, education, maintenance, support) upon the approval of a trustee. Additionally, a trust may allow for distributions outright to the beneficiaries when they reach an appropriate age or circumstance (e.g., lack of creditors, existence of prenuptial agreement, no addictive behavior)

  • Protecting Familial Relationships: Estate planning decisions can cause some hard feelings within families.  Careful thought and consideration must be given to how your assets are transferred, and having a discussion with family members about wealth-planning decisions often leads to better outcomes.  An experienced estate planner can offer their advice and expertise, ultimately making sure your assets are transferred smoothly.