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estate tax

Executor of Estate? Use our Executor Checklist as your Road Map

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The responsibilities of an Executor aren’t limited to deciding who gets which assets – it also means identifying all the decedent’s assets, and ensuring that the proper paperwork is filed with the

Overwhelmed?

IRS, the State and other agencies.To help you through this overwhelming time, Urbach & Avraham, CPAs has prepared an Executor Checklist that outlines the issues that an executor needs to consider.

         Click here to access the Executor Checklist

 

The checklist is a roadmap of tasks, from probating the will, to filing a final Income Tax return and other required estate filings, to dealing with beneficiaries and distributing the assets. It’s loaded with tips on how to locate all assets, save various taxes and efficiently manage the estate administration.   

This handy checklist is packed with reminders about technical questions to ask your CPA, legal or other financial advisor. We work with many qualified estate attorneys to seamlessly coordinate your situation.

Finally, the Urbach & Avraham Executor Checklist highlights the complexities presented when a family owned business is involved. Was there a buy sell agreement? Who is paying the estate tax on the business, and are funds available to pay the tax?

As an executor, you’re already coping with a lot of emotional and other issues. We’re available to help lift the financial burden by assisting you with accounting and tax matters during this difficult time.

Provide for Your Loved Ones with Prudent Estate Planning

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The recent, tragic passing of Robin Williams reminds us of just how fleeting life can be. The void in his loved ones’ hearts may never be filled, but the popular entertainer did take steps to care for them financially by engaging in effective estate planning. Among other acts, Williams reportedly created a revocable trust before he died. 

Revocable Trusts

Sometimes known as “living trusts,” a revocable trust refers to a fiduciary arrangement that you (the grantor) create during your lifetime. A living trust can help a grantor manage his or her assets, and protect the individual if he becomes ill, disabled or challenged as he ages.  

During your lifetime, you (the grantor) may transfer property to the “living trust,” which will be administered by a trustee you have selected; and during that time he or she is generally responsible for managing the property as you direct, for your benefit.  

Once you pass away, the trustee is generally obligated to distribute the trust property to your beneficiaries, or to continue to hold it and manage it for the benefit of the beneficiaries.  

How Do Wills and Trusts Differ?

Although both a will and a revocable trust can provide for the distribution of property upon your demise, a revocable trust can also provide you with a way to manage your property during your lifetime. A revocable,

or “living” trust may also enable the trustee to manage the property and use it for your benefit, and your family’s benefit, if you become incapacitated. Of course, the trust must be adequately funded when you are mentally competent to be useful. If the revocable trust is properly funded and structured, it can help avoid the need for a court-appointed guardian, if you become mentally incapacitated.

Most revocable trusts will not help a grantor avoid estate tax, but they may help you avoid probate, which is generally not expensive in New Jersey but may still expose the will to public scrutiny.

Talk To Your Trusted Advisor First

In some circumstances, particularly when a special needs individual is involved, it may be advisable to establish a kind of irrevocable trust called a “Special Needs Trust.” An SNT may enable the grantor to ensure that his or her assets will enhance the lifestyle of the special needs person without impairing his or her ability to receive government benefits. 

There are many issues to consider regarding the establishment of a trust, so before making a decision about setting up either a living trust, a will or another approach, it may be advisable to consult with your account and/or attorney, who can help you to consider the tax and other implications and the costs and benefits.  

Hit by the NJ Exit Tax for Selling Real Estate? Recover Your Money Quickly

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If you’re a non-resident selling investment real estate in New Jersey, there’s a unique NJ tax you should be aware of. Both residents and non-residents always had to pay income tax on the gain upon the sale of real estate. This tax is required to be withheld for non-residents.  The “Exit Tax”, which came into law six years ago, requires the seller to file a GIT/REP form (Gross Income Tax form) in order to record a Deed for the transfer of his property. When a non-resident sells the property, New Jersey will withhold this income tax in the amount of either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher. Therefore, even if the property is sold at a loss, tax must be withheld to fulfill the two percent requirement.

You Can Recover Your Money

It’s important to realize that while the Exit Tax requires a substantial withholding, it doesn’t have any impact on the tax liability. When the seller eventually files his NJ tax return he is refunded the difference between what was withheld and what was owed. This recovery can be very significant when one factors in the selling costs and original purchase price, both of which reduce the taxable gain.

Estates Often Recover Most if Not All of the Tax Withheld

The recovery is often even greater in the case of real estate sold by an estate, as there is a step up in cost basis which would typically minimize a gain on the sale, often resulting in full recovery of the entire withholding. If a taxpayer has excess withholding it would be prudent to file Form NJ1040 (individual) or NJ1041 (estate) quickly to expedite the recovery of the excess withholding. 

 So who’s considered a “resident” and who’s a “non-resident” with regard to this tax? The law defines a resident taxpayer as one of the following:

  • An individual who is and intends to continue to maintain a permanent place of abode (home, residence) in New Jersey on/after the day of transfer
  • An estate established under the laws of New Jersey
  • A trust established under the laws of New Jersey

A nonresident is simply defined as “any taxpayer that does not meet the definition of resident taxpayer.”

 

Lesson from James Gandolfini’s Estate: Look at the Whole Picture

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When it comes to planning an estate, it’s important to look at the whole picture.  There was recently a lot of buzz surrounding the will of James Gandolfini, the actor from the Sopranos. The media was quick to point out that Mr. Gandolfini‘s last will and testament exposed most of his $70M to estate taxes. The general reaction was one of criticism at clumsy and ill-advised estate planning.  We at Urbach and Avraham don’t believe such a reaction is fair.

The goal of estate planning is not just to save taxes; the goal is to provide for your loved ones in the proper manner. Mr. Gandolfini left 20% of his estate to his wife, who was not the mother of his son. Only her portion was protected from estate tax, the other 80%, of which 30% went to each of his sisters and 20% went to his daughter, was exposed. Often in situations involving stepparents and children of previous marriages, parents are reluctant to leave all their money to a surviving spouse, as they want to ensure that their children won’t have to rely on their stepparent to provide for them. What critics fail to mention is that Mr. Gandolfini utilized an excellent estate planning strategy by setting up an irrevocable life insurance trust for his son. By placing his life insurance into the irrevocable trust, he avoided its exposure to estate taxes. Mr. Gandolfini also wanted to provide for his sisters. The portion passing to his sisters does not qualify for the marital deduction and therefore it is subject to estate taxes.

Urbach & Avraham, CPAs, has over two decades of experience working in conjunction with estate attorneys to guide individuals with their estate planning needs. We always take into careful consideration each family’s unique dynamics and needs. Contact us today for a free consultation and for a recommendation for a suitable estate attorney.

Supreme Court Decision Impacts Same-Sex Couples

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The Supreme Court’s ruling that a key component of the Defense of Marriage Act (DOMA) is unconstitutional was perceived by most as a victory for same-sex couples. The Court decided to leave the definition of a “marriage” to the States, 12 of which currently permit same-sex marriages. Same-sex couples living in one of those states will now be entitled to the same federal benefits as traditional couples. The 12 states include NY and all of the New England states, MD and DE. This has many far-reaching implications, including:

  • Medical insurance coverage will become more affordable, as they will now be recognized as a married couple. Employers must offer insurance to same-sex spouses of employees in the 12 states.

 

  •  They will be able to file jointly on their federal tax returns to ensure tax savings, and will be able to amend prior year tax returns (most likely as far back as 3 years).

 

  • Federal benefits, such as Social Security, military and veteran benefits, pension and health benefits for federal employees will be available.  

 

  • The federal gift and estate tax marital deduction will be available to same sex married couples. As a result, they will be able to transfer assets between one another without payment of a transfer tax. This also means they can amend prior year estate tax returns to claim refunds previously disallowed due to DOMA.

 

 Sounds like cause for celebration, right? Welcome to married life. While the ruling is clearly a victory for equality, it actually has a negative tax implication for many same-sex couples. They will now be subject to the “marriage penalty,” a penalty that has become more significant due to several recent changes in tax law. Under the Patient Protection and Affordable Care Act (“Obamacare”), for example, an additional 0.9% Medicare tax on wages and self-employment income, as well as a 3.8% tax on investment income will be imposed. While the threshold is $200,000 for a single taxpayer, married taxpayers only get a $250,000 threshold. As a result of this ruling, many married same-sex couples that would have previously avoided the new tax by filing their federal income tax returns separately will now have to pay the tax.

All this is just the beginning. With over 1,000 federal rules and regulations that need rewriting, aside from tax, time will tell just how far reaching the implications will be.