Q. I’m trying to decide the best way to re-title our assets for estate planning purposes. I have a 401(k) worth $500,000 and an IRA worth $270,000. My wife’s IRAs are worth $330,000, and we own a home worth about $750,000. There’s also a brokerage account of about $90,000 and savings bonds of about $25,000. What do you suggest?
— Avoiding taxes

A. This is a complex topic, and one well worth discussing with an estate planning attorney who knows your entire story.

That’s because without knowing more about you, your goals and your assets, any advice you receive would be incomplete.

Among the important items is whether there’s a mortgage on the property, whether you or your wife own life insurance and the names of the beneficiaries of the qualified savings plans, such as 401(k) and IRAs, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

She said it’s also important to know if you intend to remain in New Jersey, your ages, whether you’re currently employed, your income and their expenses, whether you have long-term care insurance or are concerned about financing long term care in the future.

Still, we’re happy to give you some items to consider here.

Whitenack said each spouse may leave to the other spouse an unlimited amount of property free of federal and state estate taxes. This is a called the “unlimited marital deduction.”

“This has the effect of deferring federal and state estate taxes on all property until the death of the second spouse to die,” Whitenack said. “However, if one spouse leaves all of his or her property to the other spouse outright, they would forego the tax savings opportunity that could be obtained by utilizing the `applicable exclusion amount’ of the first spouse to die.”

As a result, the surviving spouse will be able to pass assets in an amount equal to only the survivor’s applicable exclusion amount to their descendants free of federal and New Jersey estate tax, Whitenack said.

In addition to the unlimited marital deduction, each spouse currently has a $5.45 million federal applicable exclusion amount, which is exempt from federal estate and gift taxes, she said, but it seems you don’t have to be concerned with federal estate tax.

But you do need to worry about the New Jersey estate tax.

Whitenack said the New Jersey applicable exclusion amount for each spouse is only $675,000, which means only $675,000 is exempt from New Jersey estate tax.

“Each of the spouses potentially have more than $675,000 in their estate so they should consider tax planning to reduce their New Jersey taxable estate,” she said.

A common estate planning technique is to include disclaimer trust provisions in wills.

“Each spouse can leave the balance of his or her estate to the surviving spouse, outright,” Whitenack said. “The survivor, however, may elect — within nine months of the date of death of the first spouse to die — to `disclaim’ a portion of assets passing from the first spouse to die.”

The disclaimed assets would be placed in trust for the survivor’s benefit. Because of the disclaimer, the surviving spouse will be deemed to have never received the disclaimed assets so that the disclaimed assets to be held in trust can be protected to the extent of the applicable exclusion amount of the first spouse to die, she said.

“In this manner, it will be possible to potentially pass assets currently worth up to $1.35 million to the couple’s descendants free of New Jersey estate tax,” Whitenack said. “The provisions allowing for a spousal disclaimer provide the needed flexibility in an ever changing estate tax environment, allowing the survivor to consult with a tax professional to determine the most tax-wise course for the estate.”

Your wills would not govern joint assets or assets with a beneficiary designation. Instead, all joint assets will automatically pass to the joint owner, and all assets with a beneficiary designation, such as IRAs, qualified retirement plans and life insurance will pass to the designated beneficiary also outside of the wills, although the value of those assets is included in their respective taxable estates, Whitenack said.

More on that in a moment.

Whitenack said if this is a second marriage where either of you has children with a former spouse, you may want to consider wills containing marital and bypass trust provisions to ensure that those children are able to inherit assets if their parent predeceases the other spouse.

“The couple can also reduce or eliminate their New Jersey taxable estates by making gifts of their property to their descendants or others but there are other ramifications that they must be aware of, especially if either or both spouses need long-term care in the future,” Whitenack said.

Let’s take it a step further and look at what we do know about your assets.

Most of your assets are owned in retirement accounts, said Andrew Novick, a certified financial planner and estate planning attorney with The Investment Connection and Brookner Law Offices in Bridgewater.

These accounts belong to the account holder and that ownership can’t be changed, but the beneficiary designations on these accounts can be changed easily to coordinate with the rest of your financial and estate plan, Novick said.

“For instance, maybe you want some or all of these accounts to pass directly to your children or into a trust for the benefit of the surviving spouse,” he said. “These accounts are already afforded some creditor protection under federal and state law.”

The next biggest asset is your home.

Unless otherwise specified on the deed, homes in New Jersey purchased by spouses are owned as Tenants by the Entirety (TBE), which is a special kind of joint with rights of survivorship titling that includes some creditor protection, Novick said.

“Creditors can always put a lien on a home, but they can’t foreclose on a TBE home unless the debt is against both spouses,” he said.

It’s possible the home should be owned by one spouse or perhaps the type of joint ownership should be changed to what is known as Tenants-in-Common, where each joint owner’s share passes along with other probate assets rather than to the surviving joint owner automatically, Novick said.

“A common situation where this titling is useful is to pass one joint owner’s share of the house into a trust created in the will for the surviving spouse and/or children,” Novick said. “Changing the titling of your home is somewhat cumbersome because it requires changing the deed and that often involves an attorney.”

Plus, he said, unless there is a really good reason to change it, he says he’s found that most spouses like keeping the home in joint name with rights of survivorship.

That leaves the brokerage account and savings bonds. Novick said the titling of these assets can also be changed easily, but because they represent such a small portion of your net worth, it’s probably not worth the effort.

Novick said life insurance can significantly alter how an estate plan is developed. If you had any life insurance, both the ownership and beneficiary designation of the policies should be reviewed.

“The bottom line is that more information is needed before I’m comfortable recommending whether any titling or beneficiary designations should be changed, so please see a qualified estate attorney or financial planner to get the process moving in the right direction,” he said.

Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.

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