Estate Tax Changes

As many of you know, Congress did not act to change the Federal estate tax prior to 2010.  Therefore, the Federal estate tax, as of 1/1/10, was officially repealed.  If a client dies in 2010, absent any future changes in the law, there is no Federal estate tax, however, there is still a New Jersey estate tax imposed on assets valued over $675,000.  Also, with the estate tax repeal, there is no step-up in the income tax basis of estate assets at death (as there was in the past).  Therefore, clients will need to work hard to keep accurate records of the basis of each asset.  The basis is calculated as purchase price, plus any capital improvements or further investment.  This will result in capital gain being incurred at the sale of any one or more of the estate assets.

The 2010 repeal of the Federal estate tax will once again change, absent any future change in the tax laws, in 2011 when the Federal exemption amount will be $1,000,000.  This means that all assets valued over $1,000,000 will be subject to taxation at the Federal taxable rate.  This is not a good result for our clients, as each individual can pass only $1,000,000 tax free, whereas, they could have passed $3,500,000 tax free in 2009.

We believe that Congress will act soon to change the current law and freeze the Federal expemtion amount at approximately $3,000,000, adjusted for inflation.  The tax rate will be approximately 45%.  However, there is no guarantee.  It is very important for clients to review their planning to be sure they take advantage of every opportunity these changing times afford.

Stay tuned.  We will update you on any changes in the estate tax laws.

AnnMarie Palermo-Smits, Esq.

Palimony Agreements

     The New Jersey Legislature is one step closer to passing legislation requiring palimony agreements to be in writing.  Palimony is defined as a court-ordered allowance paid by one member to the other of a couple that is unmarried.  This new legislation is in response to two recent New Jersey Supreme Court cases.  In Devaney v. L’Esperance, the Court held that cohabitation is not an essential requirement for a cause of action for palimony, but that a marital-type relationship is required.  Prior to the Devaney decision, the State Supreme Court held in In re Estate of Roccamonte, that an implied promise of support for life is enforceable against the promisor’s estate.  Proponents state that judges should not determine the credibility of the relationship, while opponents argue that the partner who does not control the purse strings is harmed by such a requirement.

     The bill, which was approved by the Senate and Assembly Judiciary Committee is now slated for a full Assembly vote.  This bill is intended to overturn the above-referenced decisions by requiring that any such contract, either to provide support for the other party during the course of such relationship or after its termination, be in writing and signed by the person making the promise to be enforceable.  Should this legislation pass, any agreement for support between unmarried partners would have to be memorialized in writing in a palimony agreement, equivalent to that of a premarital/prenuptial (or post-nuptial) agreement for married couples.

UPDATE: On January 18, 2010, Governor Jon Corzine made it official: Palimony agreements will only be enforceable if a couple memorialized their agreement in writing.

Nicole E. Cleenput, Esq.

Powers of Attorney

Effective September 1, 2009, New York State enacted a new statutory form of Power of Attorney and a Major Gifts Rider. 

Powers of Attorney are essential tools in estate planning and elder law planning.  If an individual becomes incapacitated and cannot communicate and handle his or her legal and financial affairs, he or she will need someone to act for him or her.  As part of the estate and elder law planning process, we reccommend to the client (“Principal”) that he or she execute a Power of Attorney in favor of a family member or trusted individual (“Agent”) so that his or her affairs can be taken care of in the case of incapacity. 

The Power of Attorney allows the Agent to take care of banking, investments, insurance needs, real estate transfers and purchases and many other legal and financial matters.  Relative to estate planning, the Agent can, if permitted in the document, make gifts or continue a pattern of giving in order to facilitate estate planning goals.  Therefore, the attorney must pay close attention to the laws in each state to be sure he or she complies with the statutory and other requirements so that a Power of Attorney is 100% effective.

New York changed the statutory form as follows:  1) both the Principal and the Agent must sign the form and have their signatures acknowledged; 2) the authority to make gifts must be made through a separate Major Gifts Rider executed by the Principal, and not in the Power of Attorney; 3)executing a new Power of Attorney automatically revokes all prior Powers of Attorney, unless otherwise stated in the documents; 4) if multiple agents are named, they must act together unless otherwise stated in the document; 5) a “monitor” or “protector” can be named in the Power of Attorney to oversee the Agent’s actions; 6) the Principal’s rights are clearly stated on the first page and the Agent’s fiduciary obligations, role and legal limitations are explained and the Agent’s signature signifies the acknowledgment of his or her fiduciary responsibility; and 7) 12 point font is required on the form and no deviation from the form is permitted.  This is a brief description of some of the changes.

Powers of Attorney created prior to September 1, 2009 will continue to be valid provided they were valid at the time of their creation. 

It is important to keep your estate planning updated in accordance with current law.  If you have any questions about the new New York Power of Attorney or any other estate planning need, do not hesitate to call.

AnnMarie Palermo-Smits, Esq.