Estate tax savings strategies

Karin Price Mueller/The Star-Ledger  writes: Question:. If you lived in New Jersey and wanted to avoid probate, what would you do? This is for a married couple who have a house in their joint names in New Jersey. They also have an interest in a Limited Liability Company, and they want to save on estate taxes, which kick in after $675,000 for New Jersey. Is a revocable trust the right thing?

— Seeking Answers

A. In some states, probate is onerous, time-consuming and expensive. Not so in New Jersey, where the process is fairly simple.

Residents should understand how probate works in New Jersey before deciding to incur the costs and go through the trouble of arranging their affairs to avoid probate after their deaths, said Frederick Schoenbrodt, an estate planning attorney with Neff Aguilar in Red Bank.

He said in New Jersey, the probate process typically involves little more than filing an application for appointment as executor with the surrogate of the county where the decedent resided.

"The original will and a death certificate must be filed with the application, along with a small fee," he said. "After the surrogate appoints the executor by issuing certified Letters Testamentary, the executor must send a Notice of Probate to the decedent’s beneficiaries and next of kin notifying them of the executor’s appointment."

In most cases, the mailing of the Notice of Probate concludes the formal part of the probate process, he said. And unlike some states, the continuing oversight of the executor by the probate court and the preparation and filing of formal accounts are usually not required in New Jersey.

Schoenbrodt said it’s important to understand that avoiding probate means something completely different from avoiding or minimizing estate taxes.

"A person’s non-probate assets are part of his or her taxable estate, so any required estate or inheritance tax returns must still be filed, even if the property was owned by a revocable living trust at his or her death," he said. "The administration of a person’s estate, which includes paying debts and expenses, collecting and distributing assets and filing tax returns, will still go on even if probate is effectively avoided."

If you decide to go the trust route, the administration of your trust will be private.

You’re talking about some specific issues that could use some professional planning help, said Victor Medina, an estate planning attorney with Medina Law Group in Pennington.

"For that reason, I would agree with their suggestion to use a revocable living trust for their planning," he said.

Medina said you can use a joint revocable living trust, which places all assets into a single "bucket" using either spouse’s Social Security number to identify the assets in the trust.

"The advantage here is that with separate trusts, you will always have to make sure that the asset values in the respective trusts are equally balanced," he said. "You can still split out assets into credit shelter amounts and a marital trust. So, you would be able to keep the home in a joint trust, rather than splitting into two trusts, or putting into one spouse’s trust."

Schoenbrodt said revocable living trusts can convey other benefits, outside of probate avoidance.

"The use of a revocable living trust may be advisable if a client is elderly and does or could need assistance managing his or her affairs, if a client owns property out-of-state and wishes to avoid an ancillary probate proceeding in that state, or if privacy, after death, is especially important to the family," he said.

It’s worth meeting with an estate planning attorney to discuss all your options.