With the world and our culture being more uncertain than ever before, it is exponentially more important to begin thinking about life after retirement, as well as the lives of our loved ones after we’re gone. And while it may be impossible to predict what the economy may be like down the line, all the better reason to get a solid plan in place.
Frank Brunetti, of the firm Scarinci Hollenbeck, has been working in the field of estate planning and retirement trusts since 1973, and has become a master of the subject. He took a moment from his busy schedule to explain a bit of the ins and outs of planning one’s estate, some of the different available setups, and some reasons to do so.
To start, could you introduce yourself?
I have been practicing law for forty years in the areas of estate and wealth preservation, tax planning for business entities and complex tax matters. I handle all aspects of client financial, family and tax matters including gift and estate planning, tax-exempt organizations, family business arrangements and corporate tax matters. I have extensive experience in federal and state individual income and corporate tax compliance and tax controversy matters. I am admitted to the New Jersey and New York Bars as well as the United States Tax Court.
In addition to practicing law, I am also a Professor of Taxation and Law at Fairleigh Dickinson University, where I teach several graduate tax courses. I am the author of numerous articles and books in the income tax and estate planning field, including Fundamentals of Federal Tax Accounting, published by the American Law Institute-American Bar Association. I also lecture extensively on topics that include tax accounting, corporate taxation and estate planning. Mr. Brunetti is also an Observer Member of the United Nations Committee of Experts on Cooperation in International Tax Matters.
For people who are unfamiliar with the term, can you briefly define what estate planning is? Why is it important?
The term “estate planning” is sometimes criticized as being overused, but other term describes as well the process by which individuals arrange their affairs in an orderly way for management during their life and for disposition during life and/or after death.
Estate planning includes numerous documents such as Wills, Trusts and other vehicles including retirement accounts of many types, etc. It also includes non-tax matters including personal family matters, physical and mental conditions of children such as special needs, and fundamental tax aspects that a client may have to deal with.
I sometimes say that “one’s death is the biggest financial event one will have, and they only get to do it once.”
Can you briefly describe what a retirement trust is? What are some reasons either a new retiree or someone about to retire should consider this?
A retirement trust could take the form of a simply IRA or 401(k) or other retirement vehicle. The important point is that most of these vehicles are creditor proof and cannot be reached by anyone except perhaps the IRS. Hence, an important way of protecting one’s assets is to build up one’s retirement accounts.
As for setting up a trust for oneself, in most states these are known as self-settled trusts, which do not protect the beneficiary against creditors and are not completed gifts. In some states – Delaware, Alaska, Nevada, etc. – one can set up a self-settled trust and after a certain length of time the assets contained therein are protected even though the grantor is the beneficiary. In New Jersey we do not have this vehicle.
You are the chair of tax, trusts, and estates for Scarinci/Hollenbeck. What are some legal aspects that are unique for planning trusts and estates?
In order to properly conduct planning for trusts and estates, one needs to obtain a complete inventory of the individual’s assets and knowledge about the family’s situation. As stated above, estate planning is more than just tax planning. Tax planning is necessary in most cases because absent having a Will or a Trust for disposing of one’s assets, all assets would pass otherwise intestate, which means that the state statute would control the disposition of one’s assets, and such disposition may not be in accordance with the intent of the decedent. In order to accomplish these goals, we use Wills, Trusts, Revocable Trusts and non-probate vehicles such as pensions, 401(k)s, IRAs, etc.
You’ve been specializing in estates and trusts for over forty years. What are some of the main ways you’ve seen things change in that time?
When I started practicing law in the early 1970s, the estate tax system was entirely different than it is today. Marital gifts were in part subject to tax, the exemption was extremely low, the tax rate was high and the estate tax system was a way in which significant taxes were raised. This has all changed in that many states have eliminated the estate tax (not New Jersey) and the federal exemption has increased to $5,430,000 for each decedent with married couples being able to use the unused exemption of the first decedent. The federal tax, which used to be a significant part of tax planning, has been diminished greatly. We still have state death taxes to contend with, however, taxpayers can move out of states that impose an estate tax to avoid death taxes.
You wrote a blog post recently speculating whether or not Obama would lower the estate tax. For those who haven’t heard of it, what is the estate tax? What is at, currently, and what effect would lowering it have?
Currently, the estate tax exemption is, as stated above, $5,430,000 and is increasing every year and is “permanent.” The estate tax quite simply is a tax imposed on all of the assets of a decedent, both tangible and intangible and including insurance owned by the decedent. Whether the current President would lower the estate tax or not is speculative. On one hand, he has indicated to eliminate it entirely; however, in doing so he would impose a capital gains tax on property transferred through death. So in one hand he would eliminate one tax but on the other hand he would increase another tax. These times are uncertain and difficult to plan for.
What advice do you have for people who are concerned about outliving their retirement fund, not being able to keep up the cost of living?
Outliving one’s retirement fund is a big concern of everyone’s. There are many factors to consider. Probably the most important factor, besides the cost of living, is the impact of health costs. With Obamacare, the cost of health insurance has risen dramatically. Moreover, the burden of paying for one’s healthcare is not only placed on the individual but placed on hospitals and doctors. Of course, taxes play a big role as well. In some states such as New Jersey, retirement accounts are taxed, whereas in many states they are not. Hence, if one were to leave New Jersey, they would avoid paying income taxes on their retirement account, lower their other tax bills and be able to stretch out their retirement funds. Again, because of the uncertain times, including taxes, cost of living, healthcare, etc., these decisions are very difficult.
Apart from the obvious practical reasons, what are some personal, mental, or emotional reasons for someone getting their estate and retirement in order?
Having practiced for over 40 years, I often suggest to my clients that they should get their estate and retirement planning in order. This includes not only having proper Wills, Powers of Attorney, Living Wills, Trusts if necessary, but also dealing with a possible nursing home event, in which case we would often transfer assets to prevent them from being a “Medicaid Asset” to be used for their care.
I often suggest that the individual check their insurance policies to make sure they have beneficiary and alternate beneficiary designations as well as their retirement accounts. I also suggest that they maintain a binder, which would include not only their financial assets and documents but also their medical history and information and contact information.
In some cases, we engage in pre-death transfers for planning and for tax savings. From an emotional point of view, since death always has an impact, planning ahead of time including planning for one’s burial, etc., can save the emotional trauma imposed on the surviving heirs.
How can having a Retirement Trust help someone get the most satisfaction out of their retirement?
Regarding a Retirement Trust, as stated above, assuming the Trust is not a self-settled Trust and takes the form of a 401(k), an IRA or other kind of retirement vehicle such as the Trusts described in the third question, funding and selection of assets and proper management are key to making sure that the funds are available when they will be needed.
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