These descriptions of U.S. and state law regarding wills and trusts are not intended to serve as specific legal advice but as general guiding principles for thought regarding these areas of law.
We send our children to Gan Aviv, a daycare in Bergenfield, that has strong Israeli roots and a bilingual program. We are not Israelis but have a lot of Israeli pride. The Jewish curriculum at Gan Aviv is strong as well, and the daycare has impressed us over the COVID period with nurturing a close community. Credit must be given to the school administration’s Israeli grit and resourcefulness.
Over our three years sending two kids to the daycare, when I tell Israeli parents there that I am an estate-planning attorney, they ask me, “What should I do to protect my children in case I am gone? I don’t have family here. How will my Israeli family take my children back to Israel? What about making sure that they are provided for in Israel? Is setting up a trust a good idea?”
Questions of inheritance are as old as time; Hashem instructed Moshe to address them in Parshat Pinchas even before the Jews arrived in the land of Israel. Living in exile now with a large Jewish contingent in the U.S., but some having ties in other countries, including Israel, many people’s inheritance questions carry cross-jurisdictional implications for which a U.S.-based attorney’s knowledge of U.S. law is not enough.
To expand my horizons regarding the Israeli system, I sought out my attorney peers in Israel. I learned that a trust created in the U.S. may complicate access to funds in Israel. Does that mean a trust should not be set up in the U.S.? No, but a plan should be devised regarding how funds from a U.S. trust would be distributed to beneficiaries in Israel. I learned that the Israeli probate court will place great weight on guardianship preferences expressed in an Israeli will. Does that mean it is a good idea for dual citizens to have an Israeli will? Yes. I learned from my Israeli counterparts a great deal about their legal system, which differs in some important regards from the American. In light of these conversations, I would like to take the rest of this article to share some insights into the U.S. wills, trusts and estates system.
In the U.S., as in other countries, it is important to have a last will, designating an administrator (called an “executor” in New Jersey) of all monetary possessions (called an “estate”) when a person is gone, and nominating a guardian for minor children. When someone passes away, his/her will is submitted for probate in the surrogate court of the state and county where he/she was domiciled. Probate means verification of the authenticity of the will, notification of heirs and recording of the document in public records. Once the executor is officially appointed by the surrogate court, he/she has to act on behalf of the estate to distribute assets according to the wishes of the decedent as stated in the will. If minor children are left without parents, the surrogate court will also oversee the guardianship proceedings and rely on the parents’ wishes as to the guardians named in the will.
Despite some common misconceptions, without a will the family will ultimately still receive the assets, and a guardian, hopefully a family member, will be appointed. But, in the absence of a will, the pattern of asset distribution is governed by a default statutory family tree (regardless of whether it matches the decedent’s actual wishes). And, even if one or more surviving family members step up to act as a guardian of minor children, the entire court process of establishing individuals to serve in these roles becomes more protracted and costly.
Examples of complications in the absence of a will include a family conflict regarding who should serve as the executor and whether he/she should take statutory executor fees, which has the effect of depleting the inheritance of the beneficiaries. To avoid the heartache such issues would bring, a will is meant to help the person leaving his/her estate to sort out the individuals best equipped to handle the various roles, including successors if those individuals cannot serve. One has the option to state in the will that anyone challenging it will automatically forfeit his/her inheritance or that a family executor cannot take executor fees. All This will help minimize chaos and attorney fees.
Of course, some of the contingencies covered in the will, like both parents passing while the children are minors, are just that—remote contingencies, but, unfortunately, not completely unheard of. While we cannot control these events, as “planners” by name, estate-planning attorneys advise against throwing the fate of one’s children, and, literally, one’s fortune, to the winds.
As for trusts in the U.S., the short answer when people ask if a trust can save income taxes is yes, but there are complexities. For example, one can save state income taxes on certain assets with a trust created in an income tax-free state, while saving federal income taxes generally requires establishing a trust deemed to be “foreign” under U.S. law.
But besides tax planning, a trust in the U.S., if structured properly, could help minimize exposure to creditor claims, including in the event of a divorce. This goes just for an “irrevocable” trust, or a gift of control of one’s assets, often for the benefit of one’s children. An irrevocable trust can be set up both during life, or under the will upon a person’s death. Conversely, a “revocable” trust offers no creditor protection, but does allow one to avoid probate completely as to the assets transferred to such trust during one’s life.
Lastly, for those with substantial assets, starting at about $5 million per person in New York, there is estate tax (also known grimly as “death tax”) planning that can be done through trusts. There is no estate tax in New Jersey currently, but there is still New Jersey inheritance tax of up to 16% if assets at death pass to someone other than a spouse or lineal relatives. Federally, exemption from estate taxes is currently approximately $11.5 million per person, but this number may go down under the Biden administration, causing estate taxes to apply to more individuals at lower wealth thresholds.
Areas of estate planning and administration, like all areas of law, are not monolithic and have many tentacles. My hope is that introducing the building blocks can help families start tackling these difficult questions of “what happens when,” especially where families and assets are dispersed in multiple countries.
Juliya Ismailov, Esq., practices New York and New Jersey tax, trusts and estates law, and has an advanced degree in tax from NYU in these areas. Juliya graduated from Yale University where she reconnected with her Jewish roots through a program called Maimonides Fellowship; is on the board of Mesorah NJ, an outreach organization for Jewish young professionals; and lives with her husband and three children in Bergenfield, New Jersey. She can be reached at [email protected].
