New Jersey Estate Planning Blog

Asset protection planning is an important part of estate planning. The purpose of asset protection in the context of estate planning is to prevent a person's lifesavings from going down the tubes as a result of a lawsuit, an imprudent investment or an unforeseen personal liability. Reducing the amount of estate taxes on an estate is another of asset protection planning.

In general trusts are a wonderful way to ensure one's assets go for a purpose that fits in with one's estate planning goals, as is gifting. But there are other forms of asset protection planning that work well. Let's look at some of them.

In estate planning, things can get fairly complex depending on the amount and type of assets, the family situation, and estate planning goals. Still, there are some things that are considered fundamental to an estate plan. These things constitute what might be called a basic estate plan.

What would be included in a basic estate plan? Opinions may differ, but a basic estate plan should generally include the following steps: an inventory of current assets; defining one's estate planning goals; identifying family relationships that touch on estate planning; addressing long-term care, end of life and funeral matters; and developing a plan of action.

Ensuring that a loved one with special needs is properly cared for is often a burden for many families. The number of families dealing with this challenge is not small either. Census statistics show that roughly 21 million families are currently caring for an individual with special needs, and one in every 26 families is raising a child with a disability.

It is important for families dealing with this challenge that they understand the importance of proper financial planning. Rising health care costs, limitations in eligibility for government benefits, unemployment among parents with disabled children, and the historic opportunity to transfer large amounts of wealth free of taxes are all reasons to get on the ball with a financial plan.

As we have mentioned on this blog in the past, the federal estate tax exemption amount, which is currently at $5 million through the end of this year, is set to decrease to $1 million if Congress takes no action. That means that, in 2013, those who die with estate with a value in excess of $1 million will be subject to federal estate taxation.

2010 estates that were at or below $5 million, as well as 2011 estate at those values, were and are eligible to elect out of paying federal estate tax. 2012 estates at or below $5.12 million will generally have the ability to elect out of federal estate tax as well. These exemption amounts are affording many people the opportunity to pass on much greater wealth.

In our previous post, we began looking at the various changes set to take place in the income tax and estate/gift tax systems. These changes, which could be significant, should prompt readers-especially those who are wealthy-to review their estate plan to take maximum advantage of the current situation.

As with the federal estate tax, the top rate for the federal gift tax in 2012 is 35 percent and the lifetime gift tax exemption amount is $5,120,000 per individual. The top rate is set to change to 55 percent in 2013 and the exemption amount is set to fall to $1 million per person. In addition, taxpayers have a yearly gift tax exclusion amount of $13,000 per recipient, as well as unlimited gift tax exclusion for qualifying medical and education payments.

At the start of 2012, all the same incentives to engage in estate planning that were present in 2011 are still present. What may be different, though, is a greater sense of urgency, as things are set to change at the end of the year, unless Congress takes action. Both in terms of income taxes and estate/gift taxes, changes are in store.

Beginning with income taxes, the current top bracket for federal income tax is 35 percent, and this will remain through 2012. If no action is taken, it will increase to 39.6 percent in 2013.

Our readers have likely heard of the possibility of going with trust-based estate plan and the various benefits of trusts. Many people, in particular, have questions about how income tax impacts trusts. Here we'll look at some basic trust income taxation matters.

Beginning with definitions, a trust is technically a legal entity involving a grantor, trustee and a beneficiary. Every trust must have a specific purpose, and is governed by the law of the state in which it is formed. It may be formed by declaration, transfer of property by the owner during his or her lifetime or at death, or by a power of appointment.

In our last couple posts, we've been looking at the concept of Medicaid estate recovery. As we've noted, Medicaid estate recovery refers to the ability of state governments to recover from the beneficiary's estate benefits paid out while they were alive. Because these claims only arise after the beneficiary's death, they are sometimes described as Medicaid's "death tax."

Medicaid estate recovery is a good thing to be aware of when approaching estate planning, as it can affect the assets of the Medicaid beneficiary's spouse, as well as other beneficiaries. One issue that can come up with Medicaid estate recovery is what happens when the Medicaid beneficiary's spouse-also known as the community spouse-predeceases the Medicaid spouse.