I know that you are only trying to help.   When a client comes in and tells you that their spouse has died, your first instinct is to help your client through a difficult time. You may open an estate account, move some assets into it. You may remove the deceased’s name from an account or transfer assets to the surviving spouse.  This is, after all, what you do. But now, I am asking you to pause.

Many of your clients have seen estate planning attorneys. I know that you routinely advise your clients to plan their estate and obtain the proper documents. You may also understand that, whether your client has prepared a Last Will or a Living Trust, there is often a clause calling for the creation of a Disclaimer Credit Shelter Trust. This clause allows the surviving spouse to shelter the deceased spouse’s estate tax credit, and shield it from New Jersey or Federal Estate Tax. In order for this disclaimer to work, the surviving spouse, sitting before you in your office, has the right to disclaim all or a portion of the deceased spouse’s assets, meaning that he or she will not put them in his or her name. Instead, these disclaimed assets will be placed in a trust.

The practical problem is that the surviving spouse may not understand this process when they visit you in your office. Your natural reaction to help by changing owners on accounts and opening new accounts will prevent this spouse from taking advantage of the very estate plan you advised him or her to obtain. Once the survivor takes ownership of the deceased spouse’s assets, the survivor, generally, cannot disclaim them. The assets then become part of the survivor’s estate, and an important estate tax planning tool will have been defeated.

In the past year, I have had two such estate plans destroyed by well-meaning financial service professionals. They moved assets into the widow’s name, not realizing that they were defeating the Disclaimer Credit Shelter Trust provision in the husband’s will. As a result, only $675,000.00 was sheltered from New Jersey Estate Tax upon her death, not the planned for $1,300,000.00.   Less money will now go to her children, and you may have some explaining to do.

I can only write the will; I cannot be there when the survivor comes to your office; hence, this letter. Please, before you transfer funds, retitle assets, or open accounts, do me this favor: send the client back to the estate planning lawyer, to implement the plan. Tell me what you would like to do. If it does not impact the plan, I can tell you, with the client’s permission, to go ahead. If it will impact the plan, I can tell you, and the client’s estate plan can be preserved.

I am open to your responses, as well as to your ideas. Please feel free to contact me. Thank you.

Cordially,

Robert J. Shanahan, Jr.