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ESTATE, TRUST, GUARDIANSHIP

US Estate Tax: When Filing is Optional but Advisable

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Your beloved spouse has passed away.  The last thing you need is extra paperwork.  But…sometimes completing an extra form can mean the difference in literally millions – $5.25 million to be exact – able to be passed  free of federal estate taxes upon your death to your loved ones.

Completing a US Form 706 (US Gross Estate Tax Return) allows a decedent who is married and does not fully use his $5,250,000 exemption, to pass his unused exemption (“Decease Spousal Unused Exclusion or DSUE”) to his spouse. This is known as portability.

What does this mean in practical terms?

Take Advantage of our Updated Executor Checklist

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Urbach & Avraham, CPAs, is proud to offer an executor checklist to help alleviate the nightmare of financial affairs of a deceased relative. This comprehensive list, which is regularly updated to reflect the latest changes in estate tax regulation, will help you:

  • Ensure compliance with tax requirements
  • Take advantage of tax saving opportunities
  • Preserve the assets of the estate
  • Clarify the tax ramifications of distributions
  • To view the checklist, click here: Executor To-Do List

Life Insurance Proceeds: Name your Heirs or the Government Shares!

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Do you have a life insurance policy without a specified beneficiary (other than your estate)?  Are you leaving your estate (residuary estate) to individuals other than a spouse or child?

Many people assume life insurance proceeds, regardless of who the beneficiary is, are exempt from NJ Inheritance tax.  Therefore, even if they are leaving their estate to a beneficiary who is not a spouse or child, they see no need to designate a beneficiary for the life insurance policy.  However, life insurance left to an estate where the ultimate beneficiary is not a spouse or child is not exempt from NJ Inheritance tax.  As NJ Inheritance taxes can be as high as 16%,  it is prudent to take the simple step of naming a beneficiary to avoid the NJ Inheritance Tax. 

Unfortunately life insurance policies owned by individuals are includable for NJ Estate tax purposes, regardless of who is named as the beneficiary, if the assets of the estate are at least $675,000 (not an uncommon scenario for an insured decedent).  However, unless you cherish Chris Christie more than your loved ones, you can at least avoid paying NJ Inheritance taxes by simply naming an individual as beneficiary on your life insurance policy.     

Let’s illustrate:                                                              

Example #1: Uncle Harry dies and names his nephew in his will as sole heir of his entire estate. His only asset is a $500,000 life insurance policy. Since his estate is less than $675,000 there is no US or NJ Estate tax. If he named his nephew as beneficiary of his life insurance policy, there is no NJ Inheritance tax as well. However, if there is no named beneficiary (the estate is the beneficiary), the $500,000 is subject to a 15% inheritance tax, or $75,000.

Example #2: Same as above, except the policy is $1,000,000. NJ law states that the estate calculates the estate tax and the inheritance tax and pays the greater of the two, not both. The NJ Estate tax on $1,000,000 is $33,000. If Uncle Harry named his nephew as beneficiary, the inheritance tax is zero and the estate pays $33,200. If Uncle Harry did not name his nephew as beneficiary, the inheritance tax is 15-16% of $1,000,000 or $153,000. The Estate pays $153,000. The cost of not naming a beneficiary is $119,800 ($153,000 less $33,200).

 

Pamela Avraham Achieves Fraud Examiner Certification

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Congratulations to Partner Pamela Avraham on her well-deserved certification as a Certified Fraud Examiner (CFE). It comes as no surprise that Pamela passed all four sections of the CFE exam on the first sitting, as she has used her forensic skills in preventing and detecting fraud for over 25 years. Clients who have gained from her expertise are from a wide range of industries, including medical and health care practices and staffing agencies.

Pamela has also applied her forensic accounting abilities in the reconstruction of books and records for fiduciaries, and has frequently prepared court accountings for executors, trustees and guardians. Her unique expertise and experience is reflected in the outstanding success of the U&A forensic team.

Separated Husband’s Will Upheld by Court despite Spouse’s Court Order

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In Estate of Jon den Hollander, an interesting question arose regarding a court order restricting a separated spouse from dissipating marital assets. This order is often established to prevent the deprivation of one’s spouse of equitable distribution. What if the separated husband dies before the divorce is finalized with a will directing his assets to those other than his spouse? Would that be considered, “dissipating marital assets” and therefore be in violation of the court order? [Read more…] about Separated Husband’s Will Upheld by Court despite Spouse’s Court Order

NJ Court Rules in Favor of Estate with Madoff Account

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An estate’s assets are valued for tax purposes by their fair market value at the time of the decedent’s death. A subsequent decrease in value would generally not affect that tax basis, as has been ruled in several NJ court cases. An interesting issue brought up in Estate of Warshaw v. Dir., Div. of Taxation was whether a subsequent discovery that the funds in an IRA account were worthless on the decedent’s date of death would be taken into consideration by the court. [Read more…] about NJ Court Rules in Favor of Estate with Madoff Account