E704 VercammenLaw News

1. What Assets Cannot Be Placed in a Revocable Trust?

2 Recent cases Putting tracking device on ex-girlfriend car could be DV Domestic Violence K.E.Z. v. J.H.

3 Police here not permitted to search person of guest

4 Post-Mortem Tax Planning Ideas

5 Happy 1^st birthday Grandson Logan with his guard dogs Daisy & Lexi

6 Amanda Dalton Clark Esq Chair of Criminal Law Section

7 Jersey Shore & Central Jersey Bands and places for Music

1 What Assets Cannot Be Placed in a Revocable Trust?

There are a variety of assets that you cannot or should not place in a Living trust. These include:

Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust. Doing so would require a withdrawal and likely trigger income tax. In this instance, it is possible to name the trust as the primary or secondary beneficiary of the account, which would ensure the funds transfer to the trust upon your death.

Health savings accounts or medical savings accounts. Since these accounts already allow you to use the money tax-free for allowable medical expenses, they cannot be transferred to a living trust. Like retirement accounts, however, you can name the trust as the primary or secondary beneficiary.

Active financial accounts. It is not advisable to transfer accounts you use to actively pay your monthly bills unless you are the trustee and granted full control of the trust assets. For many people, it is simply easier to keep these accounts out of the trust. Clients are often concerned about keeping a working bank account separate from the trust because of the potential for lengthy probate and the inability to quickly convey these funds to heirs. This is where designating beneficiaries comes in handy. When you opened your checking or savings account, your financial institution or bank may not have asked you to select a beneficiary when you signed the signature card. Review these accounts for a payable-on-death (POD) option that allows you to add primary and secondary beneficiaries.

UGMA/UTMA accounts. Uniform Gifts or Transfers to Minors Accounts, or UTMA accounts, are established to benefit minor children. A trust could potentially be pulled into probate if the trustee were to predecease the minor. Consider instead utilizing a successor custodian on these accounts.

Vehicles. Generally, everyday vehicles like cars, boats, trucks, motorcycles, airplanes or even mules or snowmobiles are not placed in a trust because they often do not go through probate, and unlike collectible vehicles, they are not appreciable assets. Additionally, many states impose a tax when the vehicles are retitled, and some do not allow vehicle owners to name a beneficiary after death.

Source: https://www.kiplinger.com/retirement/estate-planning/604051/what-assets-should-be-included-in-your-trust

2 Recent cases Putting tracking device on ex-girlfriend car could be DV Domestic Violence K.E.Z. v. J.H.

Defendant appealed trial court's entry of a final restraining order against him in favor of his former girlfriend pursuant to the Prevention of Domestic Violence Act. Trial court conducted a one-day trial in which both parties were represented and no evidence was introduced by either party. Defendant stipulated he had previously dated plaintiff and had committed the predicate act of stalking by placing a tracking device on her vehicle. The sole issue for determination was whether plaintiff required the protection of an FRO. Plaintiff testified she broke off her relationship with defendant, who was a police officer, and later found the tracking device on her vehicle. Plaintiff stated that although defendant had promised not to contact her again, she still wanted an FRO because he had lied to her about details surrounding his installation of the tracking device, and he knew where she lived and worked. Defendant admitted to installing the tracking device, which he then monitored from his cell phone. Trial court issued the FRO, noting plaintiff testified credibly that she was in fear based on defendant's actions and his failure to remove the tracking device or take corrective measures. Court noted that placing a tracking device on a vehicle, which can then be surveilled by cell phone, is a criminal violation. Court concluded that absent an FRO defendant might suffer another "lapse in judgment" and track plaintiff again. Defendant appealed.

Court affirmed. Trial court's finding that plaintiff needed an FRO was supported by defendant's admission and trial court's finding that defendant placed a tracking device on plaintiff's car, which allowed him to know where she was at all times just before and after their breakup. That satisfied the elements of stalking, and defendant's apology and promise not to do so again was of no consequence. Trial court's imposition of the FRO was supported by its determination that plaintiff gave credible testimony, and court found no basis to disturb trial court's findings that an FRO was necessary for plaintiff's protection. Court thus affirmed. A-3172-21 Unreported Source Daily Briefing 2023-08-08

3 Police here not permitted to search person of guest State v. Nolan

Defendant appealed trial court's denial of his motion to suppress narcotics evidence found on his person by police while he was a guest in another person's residence. Township police responded to an apartment resident's call for assistance. Officers had been in the apartment for approximately thirty minutes when the bathroom door opened and an officer saw defendant inside. Defendant, who was known to law enforcement as a drug user, said he had been hiding from the officers in the bathroom and denied he lived in the apartment. Defendant explained he had been placing his cigarettes in his pocket, and he then displayed a pack of cigarettes. An officer concluded defendant had additional material in his pocket. In response to an officer's demand, and while strenuously objecting, defendant removed from his pocket and displayed a wax fold. Defendant was arrested. An ensuing search of defendant's person revealed drug paraphernalia and a baggie believed to contain methamphetamine. Defendant moved to suppress the items found during the search. Upon hearing, trial court denied the motion. Defendant appealed. Court reversed. Court agreed with trial court that the officers were lawfully present in the apartment and that they had reasonable and articulable suspicion to justify detaining defendant while they posed questions to him.

The officers did not have probable cause to make a custodial arrest, however, when defendant was directed to empty his pockets, which in turn meant the officers had no probable cause to initiate a search incident to a lawful arrest. The plain view doctrine did not support the search because the officer admitted that it was not immediately apparent that the paper object in defendant's pocket was a wax fold. Absent proof of probable cause to arrest defendant and conduct a search at the moment defendant was first directed to reveal the contents of his pocket, the formal arrest and ensuing search were a fruit of the unlawful command that defendant reveal what he had in his pocket. Court therefore reversed and remanded for further proceedings. A-2107-21 Unreported Source Daily Briefing 2023-08-09

4 Post-Mortem Tax Planning Ideas from the Begley Law Group

After an individual dies, the estate and trust administration process can and should include more than just the basic steps of marshalling assets, paying debts, and distributing the remaining funds. Along with making necessary tax filings, there are often cost-effective and highly advantageous strategies that can be employed to reduce the tax burden on the estate or trust, as well as to the ultimate beneficiaries.

1. An estate and a grantor trust (after death of the grantor) are their own tax-filing entities. For each year these entities remain active they are required to file income tax returns. The federal return is known as Form 1041, with similar state forms as well. When the estate or trust is only opened for a short period of time- less than a year, which is typical- the fiduciary only needs to fine one income tax return. The return is both the initial and final return. Wrapping up the administration within a year, and making all distributions, enables the fiduciary to pass through all income to the beneficiaries to the K-1. The estate or trust pays no tax. No subsequent returns are needed, saving the estate or trust money.

2. Capital gains are somewhat limited on 1041s as most assets held by the estate or trust received a stepped-up basis as of date of death. However, many brokers and investment managers fail to step up the basis on their accounts unless told to do so. If the assets are sold quickly there is limited time for them to accrue value. On the other hand, if investments are retained during the administration, those assets (typically securities) may grow significantly. If the assets are then sold, there are capital gains reportable to the estate or trust. If the bases were never stepped up the gains may also be artificially inflated. All capital assets held by the estate or grantor trust are treated as long-term capital gains. Making sure the basis of all appreciating assets is stepped-up to the date-of-death value ensures the best possible income tax outcome for the entity and its beneficiaries.

3. While S corporation (S-corp) status can have many benefits for small business owners, there can be significant pitfalls for the unwary after a shareholder dies. If all shareholders of the S-corp are not properly qualified owners, the corporation loses the tax-advantaged status; the S-corp can be involuntarily terminated. While an Estate can be a qualified shareholder, IRS rules do not condone keeping estates open for an unlimited period of time. Similarly, certain trusts, such as testamentary trusts, may be qualified S-corp shareholders, but only for a 2-year grace period. This can leave estate administrators and trustees in a difficult situation, having to determine how to dispose of the stock during this 2-year window. One option that should not be overlooked is converting a trust into a qualifying S-corp trust, such as a Qualified Subchapter S Trust (QSST) or Electing Small Business Trust (ESBT), by modifying the dispositive terms of the trust. Similarly, fiduciaries must ensure that the proper S-corp election as to the new shareholder is timely made.

4. One step many fiduciaries fail to take is filing an IRS Form 56. Filing Form 56 creates for the IRS a legal record of the fiduciary appointment, helping to establish the fiduciary's authority to act on behalf of the or entity. Critically, Form 56 denotes for the IRS where to send all tax notices. In many cases where a decedent has died, the mail forwarding (through USPS) is often not a seamless process. Without a Form 56 on record, the IRS will send all tax notices to the decedent’s last known address; this is unlikely to be the fiduciary’s address. Form 56 is protective of the fiduciary in that they can be assured all tax notices will make it to their attention. Absent this simple step, the fiduciary may become liable for the decedent’s tax burden.

5. When individuals are named beneficiaries of retirement accounts, like IRAs, they have various options on how they would like to withdraw the money. Many people do not carefully consider these options. Individual withdraw all inherited funds withing 10 years. However, Eligible Designated Beneficiaries (EDBs) may withdraw from the retirement account over the anticipated lifetime, stretching the investment and deferring the taxation. A surviving spouse, a minor child of the decedent, a disabled or chronically ill individual, or an individual who is less than 10 years younger than the decedent can qualify as an EDB. Unintentionally failing to qualify as an EDB for this select group of beneficiaries can have disastrous tax consequences. Source: Begley Law Group by Adam Cohen, Esquire

begleylawgroup.com

Tom Begley Jr., Esq., a distinguished author and speaker in New Jersey. Tom’s website has a wealth of information and forms on Medicaid, Special needs planning, and guardianship. Ken Vercammen has been fortunate to serve as a speaker with Mr. Begley for the NJ State Bar Association numerous times.

Begley Law Group, P.C. has served the New Jersey and Philadelphia area for over 90 years. Our attorneys have expertise in the areas of Personal Injury Settlement Consulting, Special Needs Planning, Long-Term Care Planning, Estate Planning, Estate & Trust Administration, and Guardianship.

5.Happy 1^st birthday Grandson Logan with his guard dogs Daisy & Lexi

also with Great Grandpa Al V and family