Estate Matters
The Klenk Law Blog



Posted on Monday, July 28th, 2014 by Peter Klenk

Marriage is supposed to be for love and planning the wedding can be exciting, but take a few minutes and think about the less-fun aspects of your upcoming marriage such as the income tax ramifications. By spending some time thinking through various tax implications you just might have a happier…and more profitable…marriage.

Governor Chris Christie’s announcement on October 21, 2013 that he would not pursue an appeal of the New Jersey superior Court decision in Garden Stat Equality v. Dow means that same-sex marriage is here to stay in New Jersey. This means a same-sex marriage will result in the same tax treatment both with the IRS and with the New Jersey Division of Taxation. Equality is finally here, but some tax aspects of the equal treatment are advantageous and some are disadvantageous.

Tax Advantages of Marriage:

1. The Marriage Bonus
A married same-sex couple may file joint federal income tax return or they can choose to file separately. If there is one person in the marriage that earns much more than the other spouse then filing a joint return often results in a reduced total income tax due for the married couple. The combined return allows more of the total income to be taxed at a lower rate.

2. Receiving Your Spouses’ Tax-Free Employer and Government Benefits
Before being married, you were likely not eligible for your spouse’s tax free employee benefits such as medical insurance, be eligible for benefiting from your spouse’ social security payments or veteran’s benefits. Now same-sex couples in New Jersey are eligible for all of these benefits. Your spouse can check with Human Resources, Social Security and the VA to discovery what tax-free benefits your marriage might bring.

3. The Ability to Inherit Qualified Plans Tax Free and Un-liquidated
Qualified plans, such as IRAs, 401ks, TIAA-CREF and 403bs are arrangements where you can place pretax income into a program where the assets grow tax deferred. At death, in most cases the assets pass to a beneficiary who has to pay inheritance and estate taxes on the total amount and must either liquidate the IRA and pay all the income tax due, or at least elect to start taking the assets out a little at a time starting the year after your death. But, if the person who inherits your plan is your surviving spouse, there is no estate or inheritance taxes due and the surviving spouse can roll over the qualified plan into the surviving spouse’s own IRA. The surviving spouse can then put off taking any distributions until the year following when he or she turns 70½. This is huge advantage for your surviving spouse if you happen to have a large 410k or IRA. The tax savings can be substantial.

4. Avoiding the New Jersey Inheritance Tax, the New Jersey Estate Tax and the Federal Estate Tax
There is no New Jersey Inheritance Tax, New Jersey Estate Tax or Federal Estate Taxes on assets that pass to your surviving spouse. This can be a huge tax savings, as a transfer from one person to someone with whom they are not married, but only living together, is subject to all three taxes.

5. Portability of the Federal Estate Tax Exemption
Every person at death has the ability to pass on a certain amount, free of the Federal Estate Tax ($5,340,000.00 in 2014) but if you are married you can act as a team and transfer double that amount. As the Federal Estate Tax is a flat, 40% tax, this teamwork can provide huge tax savings if a same-sex married couple plans ahead. Portability allows the surviving spouse to save up any unused Federal Estate Tax Exemption the deceased spouse did not use, even if the surviving spouse took all the inheritance into his or her name. This substantial tax savings is only available to married couples.

6. Unlimited Gifts Without Taxation
To stop taxpayers from giving away their assets to avoid the Federal Estate Tax, congress created the Federal Gift Tax. Transfers between spouses are not subject to the Federal Gift Tax. In the case where one spouse has an estate substantially larger than the other spouse, this ability to make tax-free transfers to the same-sex spouse can provide substantial asset protection and eventually Estate and Inheritance Tax savings.

7. Sharing Annual Gifts
While the Federal Gift Tax limits your Annual Gift Tax exclusion ($14,000.00 per recipient in 2014), if you are a married same-sex couple you can borrow your spouse’s ability to make the recipient an annual tax-free gift resulting in your being able to double your gift tax free transfers. For a same-sex spouse whose goal is to reducing the taxable estate, this provides an enormous advantage.

Tax Disadvantage of Marriage:

1. The Marriage Penalty

Like married couples before Garden Stat Equality v. Dow, LGBT same-sex married couples who are both affluent will end up paying a larger federal income tax bill after combining their incomes. For the wealthy, a same-sex marriage can actually cost them more in income taxes than staying single.

While taxes are not often the deciding factor on whether a person marries or not, having a good understanding of the tax changes that the marriage will bring can at least prepare you for both the “better and worse.”

Wills, Trusts and Estates, Its’ All We Do!

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Posted on Tuesday, July 22nd, 2014 by Peter Klenk

Marriage is supposed to be for love and planning the wedding can be exciting, but take a few minutes and think about the less-fun aspects of your upcoming marriage such as the income tax ramifications. By spending some time thinking through various tax implications you just might have a happier…and more profitable…marriage.

Governor Tom Corbett’s announcement in May of 2014 that he will not pursue an appeal of U.S. District Judge John Jones’ decision in Whitewood v. Wolf means that same-sex marriage is here to stay in Pennsylvania. This means a same-sex marriage will result in the same tax treatment both with the IRS and with the Pennsylvania Department of Revenue. Equality is finally here, but some tax aspects of the equal treatment are advantageous and some are disadvantageous.

Tax Advantages of Marriage:

1. The Marriage Bonus
A married same-sex couple may file joint federal income tax return or they can choose to file separately. If there is one person in the marriage that earns much more than the other spouse then filing a joint return often results in a reduced total income tax due for the married couple. The combined return allows more of the total income to be taxed at a lower rate.

2. Receiving Your Spouses’ Tax-Free Employer and Government Benefits
Before being married, you were likely not eligible for your spouse’s tax free employee benefits such as medical insurance, be eligible for benefiting from your spouse’ social security payments or veteran’s benefits. Now same-sex couples in Pennsylvania are eligible for all of these benefits. Your spouse can check with Human Resources, Social Security and the VA to discovery what tax-free benefits your marriage might bring.

3. The Ability to Inherit Qualified Plans Tax Free and Unliquidated
Qualified plans, such as IRAs, 401ks, TIAA-CREF and 403bs are arrangements where you can place pretax income into a program where the assets grow tax deferred. At death, in most cases the assets pass to a beneficiary who has to pay inheritance and estate taxes on the total amount and must either liquidate the IRA and pay all the income tax due, or at least elect to start taking the assets out a little at a time starting the year after your death. But, if the person who inherits your plan is your surviving spouse, there is no estate or inheritance taxes due and the surviving spouse can roll over the qualified plan into the surviving spouse’s own IRA. The surviving spouse can then put off taking any distributions until the year following when he or she turns 70½. This is huge advantage for your surviving spouse if you happen to have a large 410k or IRA. The tax savings can be substantial.

4. Avoiding the Pennsylvania Inheritance Tax and the Federal Estate Tax
There is no Pennsylvania Inheritance Tax or Federal Estate Taxes on assets that pass to your surviving spouse. This can be a huge tax savings, as a transfer from one person to someone with whom they are not married, but only living together, is subject to a 15% Pennsylvania Inheritance Tax and if the estate is large enough, a 40% Federal Estate Tax.

5. Portability of the Federal Estate Tax Exemption
Every person at death has the ability to pass on a certain amount, free of the Federal Estate Tax ($5,340,000.00 in 2014) but if you are married you can act as a team and transfer double that amount. As the Federal Estate Tax is a flat, 40% tax, this teamwork can provide huge tax savings if a same-sex married couple plans ahead. Portability allows the surviving spouse to save up any unused Federal Estate Tax Exemption the deceased spouse did not use, even if the surviving spouse took all the inheritance into his or her name. This substantial tax savings is only available to married couples.

6. Unlimited Gifts Without Taxation
To stop taxpayers from giving away their assets to avoid the Federal Estate Tax, congress created the Federal Gift Tax. Transfers between spouses are not subject to the Federal Gift Tax. In the case where one spouse has an estate substantially larger than the other spouse, this ability to make tax-free transfers to the same-sex spouse can provide substantial asset protection and eventually Estate and Inheritance Tax savings.

7. Sharing Annual Gifts
While the Federal Gift Tax limits your Annual Gift Tax exclusion ($14,000.00 per recipient in 2014), if you are a married same-sex couple you can borrow your spouse’s ability to make the recipient an annual tax-free gift resulting in your being able to double your gift tax free transfers. For a same-sex spouse whose goal is to reducing the taxable estate, this provides an enormous advantage.

Tax Disadvantage of Marriage:

1. The Marriage Penalty

Like married couples before Whitewood v. Wolf, LGBT same-sex married couples who are both affluent will end up paying a larger federal income tax bill after combining their incomes. For the wealthy, a same-sex marriage can actually cost them more in income taxes than staying single.

While taxes are not often the deciding factor on whether a person marries or not, having a good understanding of the tax changes that the marriage will bring can at least prepare you for both the “better and worse.”

Wills, Trusts and Estates, Its’ All We Do!

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Posted on Sunday, July 20th, 2014 by Peter Klenk

Often people will ask me if their assets are large enough to justify an estate plan. The simple answer is that if your life never changes, if you never get ill, if your assets never change and if your children’s lives are worry free, you might not need an estate plan. Otherwise, if your life is like the rest of ours, you will benefit form an estate plan. It might not be a complicated plan, but the chances are that even a simple estate plan will provide you great benefits.
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Posted on Thursday, July 17th, 2014 by Peter Klenk

A Will is a legal document which:

  • Specifies the beneficiaries who are to inherit your assets either outright or in trust.
  • Names a representative (an executor or personal representative) to administer the estate, pay your debts and any taxes and then to be responsible for distributing your assets to the beneficiary or to a trustee.
  • Nominates a guardian for your minor children.

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Posted on Tuesday, July 15th, 2014 by Peter Klenk

All your assets are included in your estate. For estate planning purposes, your estate includes all the assets that you own at your death that could be used to pay your debts. This would include things that you own in your own name or things that you own jointly with others, including real property and bank accounts. It also includes your personal property, such as jewelry, cars or furniture. Your assets may also include your qualified plans (IRAs, 401ks, etc.) and life insurance, assets that you typically would have beneficiary designations.

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Posted on Friday, July 11th, 2014 by Peter Klenk

Rich or poor, everyone needs to designate a person to manage assets or make medical decisions in case of incapacity. No matter what your age, you could become ill or have an accident. If you were unable to pay your bills or decide which medical treatment to receive, who would have that power? Working through that decision and then signing a General Durable Power of Attorney and a Medical Power of Attorney is the bare minimum estate planning everyone should accomplish.
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Posted on Monday, July 7th, 2014 by Peter Klenk

A Will is a legal document that specifies the beneficiaries who are to inherit your assets either outright or in trust. It is a good idea to consider the possibility that any beneficiary that you name in your will might die before you. If so, you can name an alternative beneficiary who will receive the asset.
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Posted on Tuesday, July 1st, 2014 by Peter Klenk

If you are the executor or administrator of a Pennsylvania estate you will need to file a Pennsylvania Inheritance Tax Return.

If you are not familiar with the Pennsylvania Inheritance Tax, this return can be rather difficult and confusing.

To help you, I have written an Article that I hope will help you to understanding how the Pennsylvania Inheritance Tax Works. I hope you find it useful! An Overview of the Pennsylvania Inheritance Tax.

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Posted on Monday, June 30th, 2014 by Peter Klenk

Robinson Estate: Discovery in an Orphans’ Court dispute can be tricky to understand. Read Peter Klenk’s new article dissecting a real, Pennsylvania Orphans’ Court case that ruled on a subtle discovery issue. Reviewing a real case can help you understand rules that otherwise are difficult to follow.

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Posted on Monday, June 30th, 2014 by Peter Klenk

Whenever a fiduciary files an Orphans’ Court Accounting, whether the filing is by an Agent under a Power of Attorney, a Trustee of a Trust or the Executor of an Estate, a person interested in that accounting has a handicap. The person filing the accounting has all the information; the beneficiary has only what the fiduciary has given them.

Interested persons do have a right to object to an accounting, but if, for example, the beneficiary does not have access to the bank statements, how exactly does the beneficiary know if the charges reflected on the accounting are accurate?

Typically, the fiduciary will provide all this information voluntarily to the beneficiary’s estate litigation attorney, but sometimes they do not. When this happens, how does the beneficiary procedurally obtain the records and information they need to accurately object to the accounting?

I find that when explaining legal matters, following the actual facts of an actual case can help understand how the law works. Though I could give you a general outline of the Orphan’s Court Rules on discovery, I think you will find it easier to understand if the rules are applied to a set of real facts. In this example, I will use the case, Robinson Estate, decided upon by the Orphans’ Court Division of the Court of Common Pleas of Monroe County.

The issue before the court was whether or not to grant the Petition to Compel Discovery Answers.

Factual Background:

  • BR died. During his lifetime, RG served as his Agent under a Power of Attorney.
  • RR filed BR’s will and began serving as Executor of the estate of BR.
  • RR filed a Petition to force RG to Account, and to distribute real property claimed to be part of the probate estate.
  • RG filed an accounting with the Monroe County Orphans’ Court.
  • A year passed without anyone filing objections to RG’s accounting.
  • RR reviewed the accounting, but before filing objections he wanted to do discovery in order to focus his objections.
  • He sent to RG a set of Interrogatories and Request for Documents.
  • RG would not respond to the interrogatories.
  • BR, filed the Petition to Compel Discovery Answers, hoping the judge would allow discovery. BR is therefore the “petitioner”, RG is the “respondent”.

Respondent’s Legal Arguments: RG argued that discovery is not appropriate at this point in the accounting process because there have not been any objections to his accounting filed. If there is not yet a dispute, how can the court order him to turn over documents? RR filed a petition to account and RG filed an account. RG reasons that he satisfied everything that RR had requested, so until RR objects to his accounting, there is no dispute, so no discovery is allowed under the Orphans’ Court Rules.

How the Judge Reasoned:

  • First, the judge noted that RR’s petition was not limited to requesting that RG account, it also requested the return of certain real property to the probate estate.
  • The judge then explained the applicable procedural rules:
    • The Orphans’ Court is able to prescribe the practice relating to discovery on matters before it.
    • Rule 3.6 of the Supreme Court Orphans’ Court Rules also permits the local Orphans’ Court to prescribe the discovery practice, and unless otherwise prescribed by local rule, discovery shall conform to the civil division practice.
    • In Monroe County, there is no local Orphans’ Court Rule specific to discovery (therefore, Rule 3.6 says the court should conform to the civil division practice).
  • The judge then found that it is common practice to allow pre-complaint discovery in certain situations in the Civil Court.

How the Judge Ruled:

  • After finding that pre-complaint discovery is comparative to pre-objection discovery, the judge reasoned that it would be helpful to the petitioner to have discovery prior to filing objections to the accounting. Potentially, the discovery would help “clarify and narrow the scope of the matters to be objected to by him.”

  • The Petition to Compel Discovery Answers was Granted, and GR was ordered to answer RR’s First set of Interrogatories and Request for Documents.

Conclusion:

Orphans’ Court procedures have been developed over generations and though there a reason exists for each rule, they are not always intuitive. Hopefully, this dissection of a real Orphans’ Court Case dealing with the Orphans’ Court Rules on discovery was helpful in explaining the subtle rules that a judge will apply.

If you have further questions, feel free to contact me. Wills, Trusts and Estates, Its’ All We Do!

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