An Ounce of Authority

One of my father’s favorite sayings is, “They have an ounce of authority.”  What the saying encompasses is individuals who are relatively low-level employees but who have a sufficient amount of authority to stand in the way of what you are attempting to achieve.  In my practice of law, the “ounce of authority” concept has become one of my favored ways of summarizing the issue with which a client is presented.

A client might come to me and ask how they go about administering a deceased family member’s estate.  With most estates, the administration of the estate is fairly straightforward.  The problem is, life is not always as simply as it should be.

I have personally administered a large number of estates, either serving in the role of guardian for an incapacitated person or the executor/administrator of a deceased person’s estate.  In the course of my serving in these roles, I have visited numerous banks attempting to accomplish some goal—closing an account, opening an account, attempting to find values of accounts.  I have dealt with many bank employees.

Based upon my experiences, before I go to a bank, I tell myself that what I am trying to accomplish might take several trips to the bank.  This is my way of bracing myself for the inevitable roadblocks that will be thrown in my way.  Ironically, when you enter many banks, a greeter will ask, “How my I help you today?”

I’m never quite sure why they ask this question, because the minute you begin to ask them for help, they throw up roadblocks.  As someone who knows a good amount about the law governing estates, I am often familiar with the issues the bank employee is raising, and I typically have documents with me that can overcome their questions or objections.  But just because you are right and just because you have the proper documents with you, doesn’t mean you are going to be able to accomplish the things you need to accomplish.

This is the “ounce of authority” dilemma.  It doesn’t matter if you are right, what matters is the person who has the authority believes you are right, and in order to get to that point, the person frequently needs to work the issue out in their own head.

For instance, I recently went to the bank to close out a small account titled in the name of a decedent.  I am the administrator of the decedent’s estate.  I had all the proper paperwork.  This was my third trip to the same bank attempting to close out this account.  I had provided the paperwork showing I was the administrator of the estate to the bank many months prior to my recent visit.  The bank statements for the account had been coming to my office for months.

It took me an hour at the bank to close out the account.  Several times, the bank employee questioned whether I had the proper paperwork.  The paperwork had to be faxed to the estate department of the bank and the bank’s manager had to be consulted multiple times.  After an hour, I left the bank with the promise that a check would be mailed to my office closing the account.  I still have not received the check.

As I sat there, I simply allowed the bank employees to work the issues out amongst themselves.  They would frequently make misstatements of law, but I simply sat there and waited for them to resolve the conflicts they had.  In my numerous dealing with banks, I have learned that if I attempt to correct them, they only view my assistance with skepticism, sometimes seeking to correct what I say with their own incorrect statements of the law.

I often wonder what my clients would be thinking in situations such as these.  I may have told the client the proper way to accomplish a goal, but I cannot account for the misconceptions of the law other people harbor, people with an ounce of authority.  And the problem for me is, the ounce of authority person is standing in the way of my client, so my client thinks my advice is incorrect because they can’t accomplish the thing they want to accomplish.  My point is, as with all things in life, being right doesn’t always mean you get what you want.  You have to keep trying and persevere.

 

Time To Review Your Estate Planning Documents

Recently, I wrote about the changes to the estate tax laws, both federal and New Jersey estate tax.  The upshot of my article was, unless you are worth more than $11,200,000, you don’t have to worry about the estate tax.  I also mentioned that the implication for the gift tax—and there is only a federal gift tax, there is no New Jersey gift tax—was the same.  Unless you are worth more than $11,200,000, you don’t have to worry about gift tax.

Having said that, I know that no matter how many times I say it, people will continue to worry about the estate tax and the gift tax.  For some reason, people worry about these taxes, even though, for years, these taxes haven’t affected the majority of Americans.  And when I say the majority of Americans, I mean all but the richest 1% or fewer.  Now, with the recent changes that have occurred in the laws governing estate and gift tax, it is even more unlikely that any of you will ever be affected by these taxes.  Unless, of course, you are worth more than $11,200,000.

“I thought I could only gift $15,000 a year?”  You will ask.  To which I always tell people that is only half the legal concept.  The full statement is–A person can gift $15,000 each and every year to an unlimited number of people without reducing his $11,200,000 lifetime credit exemption equivalent against gift tax.  If you gift more than $15,000 in a given year, then your lifetime exemption equivalent is reduced.  For example, if you gifted $16,000 to your son, then your lifetime exemption equivalent would be reduced from $11,200,000 to $11,199,000.  Technically, if you gift more than $15,000, you have to file a gift tax return, but no tax is owed and the return would take hardly any time to prepare and file.

Given the extremely high exemption equivalent against estate and gift tax—so high that it is safer to say there is no estate and gift tax than to say there is such a tax—what are the implications for you?  For one, stop worrying about estate and gift tax.  As stated, it’s safer to assume that there is no estate and gift tax.

Before the credit against the estate tax went to its presently lofty height of $11,200,000 and before the New Jersey estate tax was repealed (the credit against New Jersey estate tax was $675,000 for many years), a number of people implemented planning techniques to address the federal or New Jersey estate taxes.  Many of my clients drafted trusts into their Wills commonly known as credit shelter trusts to address the estate tax, particularly the New Jersey estate tax.

If you implemented planning techniques into your estate plan—such as credit shelter trust in your Wills—then I’d recommend you have your estate plan reviewed.  You may be able to eliminate these planning techniques and have a much more simple Will.

For instance, three years ago, if your estate were worth more than $675,000, your attorney might have suggested planning techniques to address the New Jersey estate tax.  These techniques, while not harmful, are more complicated than need be given your current situation, unless you are worth more than $11,200,000.

Now, there may be other reasons for you to have a trust as part of your estate plan.  In fact, recent changes in New Jersey’s trust laws have me recommending trusts to clients for various reasons; however, these reasons have nothing to do with estate or gift tax. For instance, a person might want to have a trust in his Will to ensure that his assets pass to his blood relatives, not to an in-law.  In my opinion the elimination of the estate tax offers up planning opportunities for clients, because a person’s estate plan doesn’t need to be weighted down and burdened with planning for the estate tax.

 

The Estate and Gift Tax Are Dead!

For years, I have been writing about the federal estate and federal gift tax, and my message has been fairly consistent—Most people don’t have to worry about these taxes. Until recently, a good number of people had to worry about New Jersey’s estate tax.  (New Jersey does not impose a gift tax.)  But with recent changes in the laws governing New Jersey’s estate tax and even more recent changes to the federal estate and gift tax, I think it is finally safe to say the estate and gift tax are dead.

At the beginning of 2017, New Jersey changed its estate tax laws.  The exemption equivalent amount against the estate tax was increased for the year 2017 from a paltry exemption amount of $675,000 to a more robust amount of $2,000,000.  This meant that if you died in 2017, the value of your estate would have to exceed $2,000,000 before your estate had a chance of paying New Jersey estate tax.

With the ringing in of the New Year, New Jersey’s estate tax is now completely repealed.  In short, there is no New Jersey estate tax, irrespective of the value of your estate.  New Jersey continues to have an inheritance tax, but the inheritance tax is only imposed if you leave a portion of your estate to someone other than a spouse, parent, child, grandchild or other lineal descendant.

Recently, as part of the federal reform of the tax code, the exemption equivalents against federal estate and gift taxes were doubled.  In addition, the exemption amounts have been indexed for inflation for many years, so the New Year brought an inflationary increase to the exemption equivalent.

Without the recent change in the tax code, the lifetime exemption equivalent against federal estate tax increased to $5,600,000 for an individual and $11,200,000 for a couple.  With the doubling of these exemptions under the new tax law, a single person would now have to have an estate in excess of $11,200,000 before his estate would pay estate tax.  A couple would have to die with more than $22,400,000 before their estate would pay estate tax.

In plain English, what this means is, if you are single and if you are worth less than $11,200,000 (hint:  This would be just about every United States citizen except for about .1%), then there is no chance your estate will pay federal estate tax.  And since there is no New Jersey estate tax, this means that if your estate is worth less than $11,200,000, your estate will not pay any estate tax.

If you are a married couple, you can easily shelter $22,400,000, assuming the $11,200,000 exemption is insufficient to cover your vast estate.  A federal estate return would need to be filed after the death of the first spouse and the surviving spouse would merely have to check a box to preserve the deceased spouse’s $11,200,000 exemption.

What about gift tax?  There is no New Jersey gift tax.  There is a federal gift tax.  The annual exclusion amount against the gift tax increased from $14,000 to $15,000 for 2018, but the annual exclusion amount is only half the story.

People often come to me and say something such as, “I thought I could only give $14,000 a year.”  The truth is, you can give any amount of money that you like.  The first $15,000 (for 2018) qualifies as an annual exclusion gift.  This means that if you gift no more than $15,000, your lifetime exemption against gift tax, which is now $11,200,000, will not be reduced.

If you gifted $16,000, then your lifetime exemption would be reduced to $11,199,000.  At a minimum, you would have to gift more than $11,200,000 before you ever would pay gift tax.  If you don’t have more than $11,200,000, then I wouldn’t worry about gift tax.  So, yes, technically, there still is a federal gift and estate tax, but if you are worth less than $11,200,000, neither tax affects you.