Surrogates - In the news, but what do they do?

In Morris County right now we have an election race for the Morris County Surrogate.  The Surrogate is an office that I deal with frequently, but many people do not know much about.  

I must first say that Surrogate John Pecoraro does a wonderful job.  My clients interact with his office usually due to the death of a family member and his office and staff are warm, caring and efficient so that the executor can leave their office feeling empowered rather than scared and confused (disclaimer - this endorsement is not upon request or even knowledge of his office, but because I feel Surrogate Pecoraro has excelled in the position).

The Surrogate is an elected judicial role.  The Surrogate has jurisdiction in limited areas:

  1. When a person dies, the Surrogate reviews the will and if all is in order, formally empowers the Executor to act on behalf of the estate
  2. When a person dies without a Will, the Surrogate formally empowers the Administrator (who is named to act based on relationship to the decedent) to act on behalf of the estate, as well as ensure that the estate administrate is completed
  3. If a person is incompetent (due to mental disability or being a minor) the Surrogate is involved with the process of the naming of the Guardian.
  4. The Surrogate facilitates adoptions.
  5. The Surrogate managed funds paid to minors (inheritances left to a person under age 18, or personal injury awards).  The Minors' Intermingled Trust Fund for Morris County minors manages approximately $25 million.

As an aside, you can now search for probated estates online to see if a will was probated or an estate administration opened in Morris County.  

The Surrogate's role is quiet, but important.  They facilitate moving families through times of grief and joy.  Having dealt with many other Surrogates, it is pleasure to represent cases in Morris County.

First Time Home Buyer Credit - Enough is Enough

To extend the credit or kill the credit, that is the question.  And will killing the credit take the real estate market along with it?

Much has been written, blogged, and talked about the first time home buyers credit - a very popular program that gave purchasers of new homes from January 1, 2009 to November 30, 2009 an $8500 credit.  

Now, of course the program is popular - those who qualify get a check from the IRS for $8500 - what could be unpopular about that?   According to Yahoo News ("Congress Scrutinizes Problems in Home Buyers Credit"), about 1.5 million applications have been made, and $10 Billion in tax revenue  ($10,000,000,000.00 - wow, that's a big number) has been refunded to homebuyers.

But what about all the people who don't qualify and are also getting $8500 checks. According to Yahoo News today:

  • Treasury Inspector General for Tax Administration identified more than 19,000 people that filed 2008 tax returns or amended returns claiming the credit for homes they had not yet purchased. The program didn't start until 2009.  The cost - $139 million ($139,000,000.00 - always write out the zeros in those numbers the government throws around).
  • The Treasury Inspector General identified another $500 million ($500,000,000.00) in claims, by some 74,000 taxpayers, where there were indications of prior home ownership (mortgage interest deduction, real estate tax deductions, etc.).
  • The Treasury Inspector General also found 580 taxpayers under the age of 18 who claimed $4 million ($4,000,000.00) in first-time home buyer credit. One was 4 years old.

Look, I believe in home ownership and the American Dream.  But this program was created a year ago in an entirely different economy when total bank failure was not out of the question, and the real estate market was frozen by the credit crunch.  Irrespective of the outright fraud (which deserves jail time in my opinion - the IRS does have criminal powers to address people stealing from us, the taxpayers), enough is enough.  If you can't afford the house, save until you can.  People buying houses they couldn't afford is part of what got us into this mess in the first place.  There are enough great deals out there without tax dollars being added to the pot.  The Great Spend needs to end, and closing out the first time home buyer credit is a good start.

What do you think?

When it Snows - Clean Your Car! New Law Coming

Snow Covered CarAs winter approaches (which last weeks unexpected snow reminded us is close at hand) a point of irritation bubbles to the top again - trying to get somewhere and dodging the ice, snow and debris from the car in front of you.  You know the car I am talking about - it snowed 3 days ago, and the car in front of you is encased in a 4 inch shiny snow crust with a square cut into the windshield and a rectangle in the driver side window for viewing.  As you are driving behind it you can only watch as sheet after sheet of ice comes sliding off, into your window, and making you almost get into an accident because you can't see.

Well, good news is on they way.  According to the Daily Record "Legislation that would toughen New Jersey's notoriously weak snow-removal law passed the Senate and Assembly in June. Gov. Jon S. Corzine is expected to sign it".

The current law is ridiculous - "Under the 1997 state law, a driver can get a ticket for not clearing a vehicle — but only if the snow dislodges and causes an injury or property damage, and only in the unlikely event an officer is nearby or the victim has the wherewithal to jot down a license plate number." (emphasis added).

While the new proposed law sounds better - it "would create an "affirmative duty" for snow removal with fines of up to $75"  - there will be many exemptions.  These appear to be aimed at:

  1. not being responsible for snow accumulation while it is still snowing (reasonable, so long as you cleared your car before your started your drive - not just clear a circle and go),
  2. not more than 1 ticket in a day (ridiculous - clean off your car, and if one ticket doesn't motivate you, another one might), and 
  3. exempting commercial trucks that are enroute to a place with snow removal equipment (reasonable in the sense that a trucker can't really clean whole rig, but those trucks are a hazard after the storm has passed).  

In typical New Jersey fashion, a fund is supposed to be created with some of the ticket revenue to educate people about the law. Given the state of our State's finance, I think that adding the general revenues would be a better choice.

Does your Estate Plan reflect Who You Are Today?

I came across this interesting article "8 Life Stages of Estate Planning".  The premise is simple, but often overlooked in today's busy lifestyle.  You aren't the same person at 45 you were at 30, or at 65 you were at 45, or at 85 you were at 65 - your estate plan should reflect the you of today, not who you were yesterday.

1. Young, Single and Carefree - Until you turn 18, your parents make financial decisions for you.  Once you hit that magic age, they no longer have the legal authority to do so.   Give them the power to make decisions for you if you can't by at least having:

  • A General Durable Power of Attorney naming your parents to make financial decisions for you if you can't
  • A Health Care Proxy/Living Will naming your parents to make medical decisions for you if you can't

2. Single, but Committed - Unless you have a Will or Trust that says otherwise, upon  your death all your assets will pass to your parents or siblings.  You may want to create a Will or Trust that names your partner as beneficiary, or perhaps name them as a beneficiary of life insurance or IRA or 401(k), or own assets in joint name with a right of survivorship.

3. We're Engaged! - Congratulations, but face the fact that a lot of marriages don't work out.  A Prenuptial Agreement can protect assets you acquired before marriage so they can be security for you if the marriage ends.  Parents, if your children don't get a prenuptial agreement, you may want to change your estate plan to leave inheritances in trust instead of outright to your children to protect them from claims of equitable distribution in a divorce.

4.  Just Married - This is a major life change that calls for taking another look at all your estate planning documents.

  • Update your Power of Attorney and Living Will/Health Care Proxy to name your spouse (or other appropriate person).
  • Create a new Will or Trust benefiting your spouse and perhaps other family members.  Bear in mind that when you get married your spouse becomes entitled to some part of your estate when you die (typically 1/3 to 1/2) just by virtue of being married.
  • Change your Beneficiary Designations on things such as life insurance, pension, 401(k), IRA, 403(b) - the beneficiary does not automatically become your new spouse just because you got married.  Speak to your Human Resources department about such things as health insurance, flexible spending accounts, health savings accounts, etc.

5 - The Joys of Parenting - You MUST, MUST, MUST create a new Will naming a Guardian for your minor child.  The Will is the only place you can name a Guardian, and as difficult as it may be to consider this decision, it is incumbent upon you as a parent to provide for who will care for your child if you can't - it is not fair to your family or your child to leave the decision to some overworked judge.

You should also consider revising your Will to leave any assets passing to your children in trust until such age as they can manage them.  You will need to name a Trustee (who can be different from the Guardian or the same) to manage the money until a certain age.  I recommend mandatory distributions be no earlier than 25 (they may still be in school at that age) and staggered over time (such as 1/2 at 25, the balance at 40) so the child has time to learn financial skills before the dollars are turned over to him or her.  The Trustee should have broad discretion to make distributions from the trust to the child before the mandatory distribution ages.

You may also want to consider life insurance (particularly term insurance) at this point to create additional assets for your spouse and children in the event of your death.

6 - The Agony of Divorce - Divorce is a reality.  In some states becoming separated or divorced cuts any benefits to or fiduciary roles of your former spouse  - in other, it doesn't.  You need to change your Will to reflect your new status.  You may need to change your Will or Trust once during the separation stage and once when the divorce is final.  Some people still name their former spouse in some roles, others don't want the person in their life ever again.

Divorce does not automatically rescind all Beneficiary Designations.  So just like you did when you got married, you need to change your Beneficiary Designations on thing such as life insurance, pension, 401(k), IRA, 403(b).  Speak to your Human Resources department about such things as health insurance, flexible spending accounts, health savings accounts, etc.

If you get re-married, you need to consider how to best provide from children from one marriage and a spouse and children from another marriage.  You may wan to consider life insurance owned by a trust to create an additional pool of assets upon your death.

7.  The Middle Years - Here, your estate may be increasing to the point you need to consider estate tax planning.  In New Jersey, estate tax planning is relevant for estates over $675,000.  You may want to create trusts within your Wills or Trust that are designed to minimize estate tax so more of your assets eventually pass to your children.

You may also want to look at long term care insurance at this point to create a source of dollars to pay for your care should you become ill and need assistance as you age.

8. The Golden Years - At this point, you likely know what you have and know how you spend it.  Your plan needs to be focused not so much on "What happens if I die?" (as all your prior planning addresses that), but "What happens if I live?".

You may want to engage in a gifting strategy, either to reduce taxes, or just to see your beneficiaries enjoy while you are still here.  You can do outright gifts, pay for grand-children's education, gift real estate or businesses over time, or a myriad of other strategies.

You may also be concerned about asset protection - either for yourself if you get sick, or in how your beneficiaries receive assets.  Trusts can be designed to make sure only the beneficiaries have the benefit of the assets, not their creditors or spouses.

Estate Tax Opponents Shift Strategy

The Huffington Post heralds "An Estate Tax Victory By Any Other Name".  Contributor Chuck Collins advises that the richest (billionaires, not mere millionaires) families in America have recently changed their strategy from calling for the death of the so-called "death tax" to the reducing the impact of the same.

The federal estate tax effects less than 2% of estates nationwide.  However, Collins reports that "Wealthy families, including 18 dynastic families such as heirs to the Mars candy family fortune, had spent millions in lobbying funds to save billions in future taxes."   Now, they have apparently changed this mission statement to their lobbyist not to "kill the death tax" but to mitigate its impact.

I understand how the estate tax seems categorically unfair.  However, it bears reminding that the estate tax stands in lieu of the capital gain tax when a person dies. When you die, you may have assets that have increased in value between when you bought them and when you died.  For example, you bought stock in Acme, Inc. at $10 a share and it is now $100 a share.  If you sell that stock, during your lifetime, you owe capital gains tax on the gain of $90.  

However, due to Section 1014 of the Internal Revenue Code, when you heirs sell that same inherited stock, their cost basis is $100 (the tax basis is "stepped-up" to the date of death value, and all that appreciation during your lifetime disappears, as does the governments opportunity to tax it.  

The cost for the the "magic wand'? - the existence of an estate tax that taxes your assets at death (assuming you have more than $3.5 million from a federal estate tax perspective).  The kicker is that capital gains tax rates are 15% presently, and estate tax rates 45%, so perhaps it is the rates that need to be looked at, not the existence of the tax.

Libraries as a Lifeline

 I have always been a huge proponent of public libraries - after all, what could be better than free books?  Over the weekend a New York Times article caught my eye "In New Jersey, Libraries Are Lifelines for Needy".  Apparently, there is better stuff at your local library than free books - there is career research and word processing for those in transition, and information on help available to those in need (mortgage assistance, food stamps, subsidized child care).  

What impressed me was not that our libraries have these resources (as a regular patron I can attest that local libraries are a fountain of information), but that New Jersey's public librarians have recognized that many patrons seeking this information might too uncomfortable to ask for it (especially in their hometown).  So the state librarians came together and created

The site "provides links to state agencies and nonprofits, and information on jobs, food assistance, military benefits, utility assistance and even free tax preparation for people with low incomes, disabilities or difficulty speaking English."  Among other categories there are compilations of services under the heading of New Jersey Financial Tools, New Jersey Work Tools, and New Jersey Parental Tools.  The is also a link for information for seniors under  Tools For Seniors.