Lawmakers Consider Changes to New Jersey’s Death Tax Laws

New Jersey is one of those rare states that collects not just one, but two death taxes.  First, New Jersey residents are subject to a death tax on their estate if the value exceeds a measly $675,000 – this is called the New Jersey estate tax.  Second, certain relatives and all non-relatives who inherit from a New Jersey resident (including brothers, sisters, nieces, nephews, and friends) are subject to a death tax on the amount they inherit – this is called the New Jersey inheritance tax.

Both Indiana and North Carolina repealed their state death taxes in 2013.  In addition, multiple states have tweaked their state death tax laws over the past few years to make them, well, for lack of a better phrase, less taxing – this includes Maryland, Minnesota, New York, Rhode Island, Tennessee (where the state death tax will go away for good in 2016) and Washington.  With all of these recent favorable state death tax moves, it should come as no surprise that New Jersey lawmakers are considering changes to their state’s death tax laws since New Jersey not only collects two death taxes, but also has the lowest estate tax exemption by nearly $250,000 (the state exemptions currently range from $921,655 in Rhode Island – which will increase to $1.5 million beginning in 2015 – to $5.34 million in Delaware and Hawaii).

While Governor Chris Christie supports raising the estate tax exemption to $1 million, some lawmakers would go as far as to completely repeal both death taxes, while others would raise the estate tax exemption to match the federal exemption (which is currently $5.34 million; this is the route that both Maryland and New York have taken).  According to Ashlea Ebling of Forbes, there are currently 21 bills that have been introduced to make changes to New Jersey’s estate tax, inheritance tax, or both.  Nonetheless, with New Jersey’s well-publicized budgetary problems and death taxes bringing in $700 million in revenues annually, it appears that the death tax debate is raging at the wrong time.

So will lawmakers be able to make death less taxing in New Jersey?  I predict that at the very least the estate tax exemption will be increased to $1 million, but the inheritance tax will remain untouched.  Stay tuned to see if I’m right.

Photo: John Francis Bongiovi, Jr., known publicly as Jon Bon Jovi, a New Jersey native

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Prince Harry Inherits £10 Million From Princess Diana’s Estate

When Diana, Princess of Wales, died on that warm August night in Paris in 1997, she left behind two young princes and an estate valued at approximately £21 million. And of course a woman of her stature had a last will and testament which she signed in June 1993 and then modified with a first and only codicil in February 1996. The original will and codicil left the young princess’s estate in equal shares to the young princes when each child reached the age of 25.

Since both princes are well over the age of 25 (William Arthur Philip Louis, known as Prince William, is currently 32, and Henry Charles Albert David, known as Prince Harry, just turned 30 on September 15), one would think that they had already received their inheritances a while ago, but not so fast. Apparently the executors of Princess Diana’s estate, her mother, Frances Ruth Shand Kydd, and her oldest sister, Lady Elizabeth Sarah Lavinia McCorquodale, didn’t like the provisions of the will because they were able to obtain a secret “variation order” from the High Court of Justice in December 1997. Under the terms of “The Arrangement,” as it is referred to in the court order, the will was modified to provide that Princess Diana’s estate wouldn’t be distributed outright to her sons until each reached the age of 30.  This was certainly sneaky and wouldn’t happen in the U.S. since notice would be required to be given to all parties interested in an estate if the executor didn’t want to follow the terms of the will.

In any case, as a result of “The Arrangement,” back in June 2012 when Prince William turned 30, he inherited a lump sum of £10 million, or about $16 million U.S. dollars.  And when Prince Harry turned 30 on September 15, he also inherited a lump sum of £10 million.  The princes also received some of their mother’s personal items on Harry’s 30th birthday, including her wedding gown, personal letters, jewels, and the score and lyrics to Elton John’s version of “Candle in the Wind” which he performed at the princess’s funeral.

Photo: By Glyn Lowe (http://www.flickr.com/photos/glynlowe/8723778475/) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)%5D, via Wikimedia Commons

Senator Sanders “Sock it to the Super Rich” Estate Tax Proposal

While we’re still about a month away from the IRS’ release of the 2015 inflation-adjusted federal estate tax exemption, Michael Rudegeair over at the Fiduciary Income Tax blog has projected that the 2015 exemption will be $5,420,000.  This is an $80,000 increase over the 2014 exemption of $5,340,000 and a $420,000 increase in the exemption since 2011.  (Update:  The exemption was increased to $5,430,000 in 2015:  IRS Releases 2015 Estate Tax Exemption and Other Related Inflation Adjustments.)

Meanwhile, just last week Socialist Senator Bernie Sanders (VT) laid out his plan for a “progressive estate tax on multi-millionaires and billionaires” in a Huffington Post blog as follows:

  • Call for a progressive estate tax rate structure so that the super wealthy pay their fair share of taxes. The tax rate for the value of an estate above $3.5 million and below $10 million would be 40 percent. The tax rate on the value of estates above $10 million and below $50 million would be 50 percent, and the tax rate on the value of estates above $50 million would be 55 percent.
  • Include a billionaire’s surtax of 10 percent. This surtax on the value of estates worth more than $1 billion would currently apply to fewer than 500 of the wealthiest families in America worth more than $2 trillion.
  • Close estate tax loopholes that have allowed the wealthy to avoid billions in estate taxes. Some of the wealthiest Americans in this country have exploited loopholes in the tax code to avoid paying an estimated $100 billion in estate taxes since 2000. My bill would close those loopholes.
  • Exempt the first $3.5 million of an estate from federal taxation ($7 million for couples), the same exemption that existed in 2009. Under this legislation, 99.75 percent of Americans would not pay a penny in estate taxes.

According to Senator Sanders, “A progressive estate tax on multi-millionaires and billionaires is the fairest way to reduce wealth inequality, lower our $17 trillion national debt and raise the resources we need for investments in infrastructure, education and other neglected national priorities.”

The senator plans to introduce legislation as outlined above very soon.  My prediction about the percentage chance that his progressive estate tax proposal will become law:  0%.

Photo: © Geffen Records

Can You Establish the Validity of Your Will or Trust Before You Die?

If you’ve made the tough decision to disinherit a child or other relative in your estate plan, then chances are you’ve increased the likelihood that your decision will be challenged after you die.  But what if you could head off the challenge before you die?  A handful of U.S. states now allow for just that – a legal process that lets you validate your will or trust while you’re still alive and kicking – you can do this in Alaska, Arkansas, Delaware, New Hampshire (which just passed its law in July 2014), Nevada, North Dakota and Ohio.

While the pre-death process for validating a will or trust varies, in general the steps involved are as follows:

  1. Named beneficiaries of the will or trust and disinherited heirs are notified of the existence of the will or trust and its contents.
  2. Named beneficiaries and disinherited heirs then have a limited number of days (from 30 to 120 days depending on state law) to bring a legal court challenge to the will or trust.
  3. If a legal challenge is not filed within the applicable time period, then the named beneficiaries and disinherited heirs are barred from challenging the contents of the will or trust after the testator or trustmaker dies.

The driving theory behind this process questions why you should have to wait until after your death to let your family challenge your estate planning decisions since you won’t be around to defend your actions.  Instead, you should be able to force the issue while you’re alive and well and fully capable of defending your decisions.

But while the pre-death validation of an estate plan may look good on paper, there are several questions about the process that remain unanswered:

  • What happens if you go through the process but later decide that you want to change your estate plan?  Then you’ll most likely have to go through the process again, and if you don’t then you’ll leave the door open for a post-death challenge of the revised plan.
  • Will the pre-death process carried out in a state that permits it stand up in a state that doesn’t?  For example, you could go through the process in one of the states that only allow residents to take advantage of it, but then move to a state that doesn’t recognize it.
  • What about real estate that you own in a state that doesn’t recognize the process?  The laws of the state where real estate is located generally dictate what happens to the property after death, so while your disgruntled heirs will be barred from challenging your final wishes in your home state, they may still be able to challenge the distribution of your out of state real estate after your death.
  • What if the person who pre-validates their estate plan later marries, divorces, or has more children, or what if a beneficiary named in the estate plan dies?  Will the plan need to be validated again because a new beneficiary has come into play?

These are just a few examples of how the pre-death validation of a will or trust could end up being a waste of time and money.  So while these laws may look good on paper, the process appears to have quite a few kinks that need to be worked out before it becomes a practical solution to head off a will or trust contest.

Actress Lauren Bacall’s Will Filed for Probate

Actress Lauren Bacall died on August 12, 2014, from an apparent stroke. She was 89. Although she won two Tony awards and an honorary Oscar, Ms. Bacall was probably best known for her marriage to actor Humphrey Bogart and the movies they filmed together (my favorite – Key Largo).

Ms. Bacall was survived by her two children with Humphrey Bogart, Stephen Humphrey Bogart and Leslie Bogart, and her son with actor Jason Robards, Sam Prideaux Robards.

As a native New Yorker (Ms. Bacall was born in Brooklyn) and a resident of Manhattan at the time of her death, it’s no surprise to me that like fellow actors and New Yorkers James Gandolfini (Tony Soprano) and Philip Seymour Hoffman, Ms. Bacall used a Last Will and Testament, not a Revocable Living Trust, as the governing document of her estate plan.  As we learned after Mr. Gandolfini’s death in June 2013 and Mr. Hoffman’s death in February 2014, wills are public records that anyone can read.  So as soon as Ms. Bacall’s will was filed for probate in Manhattan’s Surrogate Court on August 22, reporters snatched up a copy and revealed all of its intimate details to the world.

According to the New York Post, which reported that the will was filed for probate a mere ten days after Ms. Bacall’s death because the family wants to auction off her art work this fall, the 10-page will was signed in September 2013 and provides that the estate, estimated to be worth $26.6 million, will be distributed as follows:

  1. The sum of $10,000 is left to son Sam to care for the actress’ beloved dog, Sophie.
  2. The sum of $250,000 is left to each of Ms. Bacall’s grandsons, Calvin Robards and Justin Robards, with the request that they use the funds for their education.  They will receive the balance at age 30.
  3. Employee Ilsa Hernandez is left $15,000.
  4. Employee Maria Santos is left $20,000.
  5. The balance of her estate, consisting of her $9 million apartment at The Dakota on Central Park West (where Beatle John Lennon lived and died), her interest in a trust created for her benefit by Humphrey Bogart, cash, personal effects, and rights to her likeness and movie and book royalties, is left equally to her three children with one caveat.  The will states the following:  “I request that my children respect my wish to keep private certain personal letters, writings, diaries and other papers or memorabilia.”
  6. The three children are named as co-executors of the estate.

So there you have it, all of the intimate details of actress Lauren Bacall’s final wishes.  If you don’t want all of the intimate details of your final wishes available for the whole world to read, then do what actors Elizabeth Taylor and Paul Walker did – create and fund a revocable living trust.