Time To Review Your Will

In the last several years, the laws governing estate taxes have changed at both the state and federal levels of government.  The short of it is, unless you are quite wealthy, you no longer need to worry about estate tax.

Currently, a decedent’s estate only needs to pay federal estate tax if the gross value of the estate exceeds $5,490,000.  A married couple can easily shelter twice that amount by having the surviving spouse prepare and file a federal estate tax return for her deceased spouse’s estate and by making an election on the estate tax return for the deceased spouse’s estate.

So, for all intents and purposes, married couples can shelter nearly $11,000,000 from federal estate tax. Since very few people have an estate worth more than $11,000,000 (or more than $5,490,000 for that matter), very few people even have to think about federal estate tax.

Recently, the state of New Jersey changed its state estate tax law. Currently, only estates with a value in excess of $2,000,000 have to pay New Jersey estate tax.  Beginning January 1, 2018, the New Jersey estate tax is completely eliminated.

A married couple can currently shelter up to $4,000,000 from New Jersey estate tax with a simple and common estate planning method utilizing a trust in the couple’s last wills and testaments. The trust is called a “credit shelter trust.”

With credit shelter trusts, each spouse drafts a Will in which he devises a portion of his estate into a trust for the surviving spouse equal to the amount that can pass free of tax. So, for instance, Mr. Smith dies leaving up to $2,000,000 into a trust for Mrs. Smith’s benefit that is in his Will.  Mrs. Smith can use the assets in the trust for her health, maintenance, and support.  Mrs. Smith may even serve as the trustee of the trust, so Mrs. Smith is free to use the assets of the trust at any time without consulting anyone else.

When Mrs. Smith dies, the remaining assets in the trust would pass to Mr. and Mrs. Smith’s children. Any assets that Mrs. Smith owned in her own name at the time of her death (those assets not owned in the trust) would pass free of tax to her children if her assets had an aggregate value of less than $2,000,000.

Credit shelter trusts were a simple and benign method to double the amount of assets that could pass free of New Jersey estate tax to a married couple’s family. Beginning next year, however, a married couple will no longer have to employ the use of credit shelter trusts in their Wills.

What all of this means is that the vast majority of estates in New Jersey (and throughout the country) will no longer have to pay an estate tax. What this also means is that many people who were planning to avoid the estate tax by employing credit shelter trusts in their Wills can eliminate this planning technique.

While the planning technique is not harmful, it has become unnecessary in most instances. Having a credit shelter trust in your Will could cause the administration of your estate to be more cumbersome than is necessary.

If you have a credit shelter trust in your Will, then I would recommend you have your Will examined to determine if the trust is beneficial given your circumstances. Depending upon your circumstances, a lawyer might recommend removing the trust in its entirety or might recommend replacing your existing trust with a “disclaimer trust.”

A disclaimer trust is a trust that is only funded if the surviving spouse says she doesn’t want (disclaims) a portion of the deceased spouse’s estate. With a disclaimer trust, the surviving spouse can decide to fund the trust, or not, after the death of the first spouse, depending upon the size of the overall estate at that time.

Death Panels and the Death of Reality

I wanted to address a small issue and a much larger issue.  A Republican congressman from Florida this week told a number of assembled constituents at a town hall meeting that the Affordable Care Act (Obamacare) contained a provision that created federal death panels.

According to the death panel myth, these panels consist of government bureaucrats who decide whether or not a sick person will receive a given medical treatment or procedure. The panels make life or death decisions because if the sick person does not receive the necessary medical care, he will die.  Hence the panel is a death panel.

The reality is, we have had death panels for many decades now. They are called Health Maintenance Organizations or HMOs.  HMOs are private health insurance companies that decide whether or not an insured will receive a given, necessary medical treatment or procedure.  The author John Grisham wrote about these death panels two decades ago in his book entitled The Rainmaker in which an HMO denies a young man with terminal cancer a lifesaving medical procedure.  In the book the young man dies, because the HMO denied him a bone marrow transplant that would have saved his life.

Obamacare does not contain a death panel provision. The phrase “death panels” was actually coined by no less of a scholar and philosopher than Sarah Palin, the amusing former governor of Alaska and former vice presidential candidate.

Sarah Palin’s foundation for the phrase came from a proposed provision of Obamacare that would have paid physicians to counsel terminally ill patients on end-of-life decisions. The provision was actually removed from the bill that became the Affordable Care Act because of Sarah Palin’s claim.  A year after its removal and the passage of the law, doctors bemoaned its removal because the doctors believed that the lack of counseling to patients facing end-of-life decisions was actually harmful to these patients.  Clearly an example of an ill-informed individual’s comment (Sarah Palin) having a real-life, negative impact on all of us.

In 2009, Sarah Palin’s phrase was termed the myth of the year. Yet, eight years later, a congressman from Florida stands up in front of a room of people and tells them that Obamacare contains such a provision.

As an elder law attorney who has served as the guardian for hundreds of people, I have personally made medical decisions, including end-of-life decisions, for hundreds of people. As such, I am familiar with making such decisions, and I believe that I have a somewhat realistic view of when such decisions need to be made.

But having met with thousands of individuals who are in the midst of making medical decisions for family members, I can tell you that the vast majority of people are ill-equipped to make such decisions. I cannot tell you how many people have come to see me who tell me that their husband or father is of advanced age and in extremely poor mental or physical health, yet they opine to me that their family member may live another five or ten years.  I have had clients tell me that their ninety-five year old mother who suffers from a terminal illness may live another five years.

In a way, it’s nice to be that optimistic. My mother is ninety-two years old and if she passed away today, I would not be surprised.  But in some ways, I feel that it would nice if I thought my mother was going to live another five or ten years.

Reality though, is that people do pass away, and sometimes, medical personnel know that death is imminent, but they do not share this information with family members. No one adequately prepares the family for the inevitable, which causes the death to seem unexpected and the family to be ill-prepared.  The counseling provisions of Obamacare were designed to help families in these situations.  But when we let ignorant people drive decision-making at the highest levels of government, we all suffer.