Hello, I am deciding whether to establish a Revocable Living Trust. I have a sizable savings account, large life insurance policy, and a 401K account and other assets, no real estate though. I have a will and also designated beneficiaries on all of these accounts, but not sure which estate components are taxed in NJ. I'll be greatful if you could let me know or point me to a good source of information about the matter. Thank you, Victoria
State/Country relating to question: New Jersey
Read very general literature on the matter.
Hello and thank you for your question.
The beneficiary designations should really only be used for your 401k (or IRA) assets. The other assets, since they are sizable, should be transferred and controlled by a trust. This will help ensure that, if one beneficiary dies before you, the asset (or portion of an asset, if you desire) goes specifically to who you direct and is not controlled by a company's beneficiary designation form. A trust also helps protect you in the event you later become incapacitated because you will have already named a person to take over the control of your assets. This way, a court is not going to get involved, cause delay and expense. A trust will also keep your estate, the beneficiaries and the distributions private, unlike a probate, which would be public and needed if you only die with a Will. Without knowing a specific dollar value of your overall net estate, it's difficult to be exact in my response. However, I've been handling only estate planning and probate clients for 15 years, and it's extremely rare for a trust "not" to help one's estate and heirs. Essentially, it saves time and expense. Does this help some? Please feel free to ask any follow up questions. Kind regards.
Are life insurance proceeds taxable?
Life insurance proceeds ARE NOT taxable to the person who receives them upon your death. BUT, life insurance proceeds ARE part of your estate and subject to estate tax if you are the owner of the policy. Most people do own their own life insurance. So, the proceeds, while not taxable to the beneficiary, do add to the value of your estate and therefore can cause your estate to incur more tax than it might without the insurance. To avoid this, people have their life insurance owned by a separate "irrevocable" trust. This means the insurance is not owned by you (because it's owned by an irrevocable trust you set up) and thus, it's not part of your estate at your death, thus it does not add to the value of your estate just to be subject to estate tax. In basic terms, you create an irrevocable life insurance trust, name that trust as the sole beneficiary of the insurance proceeds upon your death, and then within the trust you list your beneficiaries --- those people you want to get your life insurance.
Thank you very much for your reply. I need to leave now, but I may have follow up questions.
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Over 12 years of practical experience in Estate Planning, Trust and Probate law.
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