Hoboken Family Law Blog
Engaging in proper estate planning can benefit almost all New Jerseyans. It can allow you to ensure control of your assets, benefit the people and charities you hold dear and maybe even save your family money when it comes to so-called “death taxes.” There are various methods and processes that can help you do this, and an experienced Hoboken estate planning attorney can help you pick out which one is best for you.
In January 2021, Americans witnessed a new presidential administration taking control of the executive branch. With that transfer of power will come a changed focus in terms of policy priorities, as the Biden administration focuses on Democratic priorities and moves away from the Republican priorities of the Trump administration.
One area where priorities will likely change is tax policy, as Bloomberg Tax recently reported. Under the Trump Administration, the estate tax exemption swelled to more than $11.5 million in 2020. That, of course, means that very few people are currently subject to paying federal estate taxes, as only a very small percentage of estates have that amount of wealth.
The incoming administration has indicated that it will seek to make changes to estate tax laws. As Forbes reported, President Biden has called for the federal estate tax exemption to revert back to where it was in 2009. That would mean that the estate tax exemption would shrink to $3.5 million per person.
That may still sound like a huge number, but it really isn’t as much as you might think. When you consider that a 3-bedroom family home here in Hoboken can easily be worth $1.5-$2 million, it is easy to see how quickly an estate can clear that $3.5 million figure.
How can my estate plan help me minimize these taxes?
So, what kind of estate planning can you do to minimize your potential federal estate tax liability exposure? One option is a specific type of trust. It is only available to married couples and goes by many different names, like “AB trust” or “bypass trust.” In an AB/bypass trust, the trust agreement sets up not one but two trusts. One part, generally considered to be the “A” trust, is the part that remains revocable at all times.
It is after the first spouse dies that the second part comes into play. That part – the “B” trust or bypass trust – is an irrevocable trust that is funded with assets up to the current federal estate tax exemption amount. This type of planning means that, when the second spouse dies, the couple has retained both spouses’ estate tax exemptions and can pass up to double the individual exemption amount without owing any federal estate taxes.
In more recent years, the law has begun allowing married couples to preserve both spouses’ estate tax exemptions in new ways. Federal law now allows the exemption of the first-to-die spouse to “port,” or transfer, to the surviving spouse through the use of the federal Form 706, the Estate and Generation-Skipping Transfer Tax Return.
Even if you don’t need an AB/bypass trust, a revocable living trust may still make sense for you. These trusts can potentially offer many excellent benefits, such as avoiding the expense and extensive delays of the probate process, along with increased privacy.
Not everyone will need to do federal estate tax planning, even if the exemption amount is lowered. However, it never hurts to find out whether or not that planning can benefit you, and it never hurts to get started today doing all the forms of estate planning you will need, whether or not that includes estate tax planning. Count on experienced Hoboken estate planning attorney Frank Marciano to provide you with the advice and counsel you need and to guide you through the estate planning process. To set up a consultation and find out how we can help, contact the office online or call 201.656.1000.