ESTATE PLANNING IN NEW JERSEY- PART 2
by: Begley Law Group
by Thomas D. Begley, Jr., Esquire, CELA, and Joellen C. Meckley, Esquire
This is the second of a two-part article on Estate Planning in New Jersey. The first article discussed Wills, Living Trusts, Dipositive Provisions, and Living Wills. This article will discuss Powers of Attorney, who should serve as fiduciary, health care representative, agent under Power of Attorney, and probate/non-probate assets.
Powers of Attorney
The Power of Attorney enables the Agent named in the document to make financial decisions and engage in financial transactions on behalf of the principal. The Power of Attorney should be durable, which means that it remains in effect even after the mental incapacity of the principal. The document should name an Agent and/or Co-Agents, and Successor Agents and/or Successor Co-Agents. Compensation should be addressed, and the powers that the Agent should have should be carefully delineated. Powers should include the right to deal with real estate, securities, retirement plans, safe deposit boxes, gifting (including gifts to agents), operating businesses and/or partnerships, caring for or disposing of pets, environmental hazards, providing for the principal’s incapacitated children, establishing and/or contributing to 529 Plans, dealing with annuities, and establishing ABLE accounts for beneficiaries with disabilities.
In addition to a General Durable Power of Attorney, consideration should be given to carving out limited Powers of Attorney for banking, real estate, and securities. A thorough General Durable Power of Attorney will be approximately 20 pages. No one wants to read 20 pages. A Banking Power of Attorney or Securities Power of Attorney can be 2 or 3 pages. A Real Estate Power of Attorney can similarly be 2 or 3 pages. If the Power of Attorney is used for real estate, it would have to be recorded and County Clerk’s office charge for recording by the page.
Who Should Serve as Fiduciary?
The four fiduciaries that need to be considered in connection with Estate Planning are an Executor, a Trustee, a Health Care Representative, and an Agent under a financial Power of Attorney. Upon the death of the client, the Executor’s job is to take the Will to the Surrogate’s Office for probate, gather the assets, pay the bills, file any tax returns that may be required, render an accounting to beneficiaries, and distribute assets in accordance with the Will. Typically, a trusted family member or friend is selected for this job. If the estate is complicated, the Executor can retain the services of a law firm to assist in administration.
The job of the Trustee is to invest trust assets and make distributions in accordance with the terms of the trust document. Often a family member or a friend is selected to serve as Trustee. Age may be a factor. It is helpful if the Trustee can outlive the term of the trust, which usually means living longer than the beneficiary. The Trustee must have sufficient sophistication to manage investments or at least retain the services of a financial advisor to do so. The Trustee must also understand the terms of the trust document can be willing and able to carry them out. Another alternative for a Trustee is a professional. If the trust is large, i.e., $500,000 or more, and is complex, then a Professional Trustee should be definitely be considered. A Professional Trustee can handle the investments and will understand the limits on distributions. It is much easier for a Professional Trustee to say no to a beneficiary who is requesting an inappropriate distribution than it is for a family member to do so. Professional Trustees also tend to avoid conflicts of interest. A trust frequently is established for a beneficiary during the beneficiary’s lifetime, but then names the person selected to serve as Trustee as the remainder beneficiary. This incentivizes the Trustee to minimize the distributions made to the initial beneficiary.
Health Care Representative
The Health Care Representative makes medical decisions if the principal is not able to do so. These decisions can be end-of-life decisions or not. Perhaps the principal is unconscious and the physician recommends surgery, but it is not life-threatening. In other situations the doctors indicate that there is no reasonable hope of recovery or regaining a meaningful quality of life and the family member should interact with the physician to carry out the wishes of the principal. Probably a spouse or child is the appropriate person to serve as Health Care Representative. If someone in the family has a medical background, this is a consideration. If one family member is close by and the other lives far away, this should also be considered.
Agent Under Power of Attorney
The Agent under the Power of Attorney makes financial decisions and engages in financial transactions on behalf of the principal. Typically this is a spouse or child. If the principal owns a business, someone with expertise in business, such as a partner, CPA, financial advisor or attorney, might be considered to be a Co-Agent. That person’s authority might be limited to decisions relating to the business.
Non-probate assets are assets that are owned jointly or tenancy by the entirety, life insurance, retirement accounts, annuities, payable on death (POD) accounts, and transfer on death (TOD) accounts. Joint accounts and tenancy by the entirety pass automatically to the surviving joint owner or tenant by the entirety. Life insurance, retirement accounts, annuities, POD accounts, and TOD accounts pass to the named beneficiary. All other assets are considered probate assets and pass through the estate of the decedent. It is very important to coordinate non-probate assets and beneficiary designations with the dispositive plan in the Will or Trust of the decedent.