Articles Posted in Elder Law

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Current estate tax law demonstrates why it is so important to consult with a New Jersey estate administration and planning attorney.

A deceased individual’s estate is entitled to an exemption from Federal Estate Taxagreement-3476369__340-300x217 currently in the amount of $12,060,000.00.  However, since a surviving spouse pays no Federal Estate Tax on inheritances from the deceased spouse, the surviving spouse is permitted to claim the deceased spouse’s exemption for use upon the death of the surviving spouse.  When creating an estate plan and upon the death of the first spouse, a New Jersey estate attorney must consider whether the surviving spouse would benefit from claiming the deceased spouse’s exemption.  In order to claim that exemption, a Federal Form 706 Estate Tax must be prepared and filed.

The surviving spouse and her estate attorney must decide if it is beneficial to use the estate tax exemption of the first spouse to die at that time.  The decedent spouse’s estate may be valued far in excess of the exemption amount, and the deceased spouse’s exemption should be used to create a credit shelter trust that will allow assets to appreciate and accumulate outside the surviving spouse’s estate.

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key-2114044__340-300x169Generally, before the estate of a decease person can sell real estate, the individual(s) named as executor in the will must probate and be formally appointed as executor.  If there is no will, then the closest heir at law must apply to the surrogate’s court to be appointed as administrator of the estate.  An administrator would follow the same steps as an executor in order to sell real estate.

Estates with a value in excess of $5,450,000 are subject to federal estate tax pursuant to IRC Section 6324.  IRS estate tax liens automatically attach to real property (“real estate”) which was owned by a decedent on her date of death.  In order to have this tax lien discharged, the seller must follow these steps in order to close on the sale of the property and have the federal estate tax lien discharged:

The executor of the estate must complete and file IRS Form 4422 and provide the required supporting documents.  In order to compete this form you must know the value of all estate assets and expenses.  And you must have the required supporting documentation including: the last will and testament, the contract for sale of the real estate, the closing statement or proposed closing statement for the sale (which shows all payments, credits, expenses and offsets), the federal estate tax form 706 and documentation reflecting the value of all the estate’s assets.  With Form 4422 the executor must also submit for 8821, a tax information authorization form.  Additionally, IRS Form 4422 must be filed at least 45 days prior to the closing of the sale of the real estate.

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The New Jersey Estate Tax is being phased out beginning with residents dying on or after January 1, 2017.  Governor Christie signed a new law calculator-385506__340[1], the new tax laws reduce the estate tax for resident decedent’s dying in 2017 by increasing the exemption amount to $2,000,000.00, and then eliminating the New Jersey Estate Tax altogether for resident decedents dying on or after January 1, 2018.  New Jersey is no longer one of the worst states in which to die, and New Jersey resident seniors may no longer feel the need to establish domicile elsewhere. Those New Jersey decedents dying in 2016 with estates exceeding $675,000 will remain subject to New Jersey estate tax. Further, the federal estate tax will continue to apply to estates greater than the federal exemption amount, currently $5,450,000, which increases annually based on inflation.  And, after the recent elections, we need to keep an eye out for new laws enacting changes to the tax code.

However, while the New Jersey Estate Tax is being phased out, the Inheritance Tax will remain.  New Jersey is one of only six states which impose an inheritance tax on transfers from a decedent to a beneficiary.   Whether an estate is subject to inheritance tax is determined by the relationship between the decedent and the beneficiary.  Bequests to “Class A” beneficiaries (i.e. spouses/domestic partners, parents, children) are not subject to inheritance tax.  The tax rate on transfers to non Class A beneficiaries depends on the “Class” of the beneficiary and the value of the asset transferred to that beneficiary.  Likewise, non-resident decedents who own New Jersey real estate or tangible personal property will continue to be subjected to the New Jersey Inheritance Tax.  Additionally, New Jersey Inheritance Tax Waivers will still be required in order to transfer title to real estate, brokerage accounts, securities and bank accounts.

Please call or e-mail the attorneys at McLaughlin & Nardi, LLC to create an estate plan or  review and update an existing plan.

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This is called dying intestate and if you die without a Last Will and Testament as a resident of the the State of New Jersey your estate will be distributed according to the New Jersey laws of intestacy. hand-229777__180   Since there is no will to probate, your nearest living relative who is willing to do so will need to be appointed as administrator of your estate by the surrogate’s court.

However, not all of your assets will be distributed through the process of estate administration.  There are many assets which, through contract law, pass automatically to a designated beneficiary.  Examples of assets that pass automatically are:

  • Real estate owned with another person as joint tenants
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The general durable power of attorney is an important and powerful document. New Jersey law, N.J.S.A. 46:2B8-1, et seq., provides this mechanism so that you may appoint another to handle your affairs. A durable power of attorney is effective during the lifetime of the person who signs it (the “principal”). Its purpose is to appoint another person (or multiple people) who can stand in the shoes of the principal and act on their behalf. The designated person is referred to as the “agent”.

In a general durable power of attorney the principal designates one or more people to act on the principal’s behalf. If the principal appoints more than one persons, he can require that the designated agents must act together, or structure the power so that each person can act alone without the knowledge or consent of the co-agent. Appointing two agents who can act individually can however have drawbacks. If both do not agree on a proposed course of action, it can lead not only to discord and infighting, but to litigation. If one agent feels it is in the principal’s best interest to sell his home, but the co-agent disagrees, the co-agent might bring an action in court to block the sale. The situation would be more difficult if one of the agents had signed a contract for sale with a buyer, as now, the buyer may join the litigation to force the sale. If the agents were required to act jointly they would be forced to come to an agreement before third parties and/or the courts were involved. Finally, it is always recommended that the principal name a successor agent who can act if the first named agent is unwilling or unable to do so.

The most difficult decision the principal has is deciding who to name as agent. Since the agent under a power of attorney must handle the financial affairs of the principal, it is important to choose someone who is organized, responsible and financially savvy. Obviously, it should be a person the principal trusts implicitly. The principal should speak with the proposed agent prior to the appointment to ensure that the person would be willing to take on the responsibilities if it becomes necessary.

However, it is important to make this difficult decision and execute a power of attorney because without one there is no one who can make financial decisions for person once they are no longer capable of handling their own affairs. Unless appointed by a power of attorney, even a spouse does not have the power to handle her spouse’s affairs. For example a spouse cannot access IRA or 401K accounts, cannot mortgage or sell real estate and cannot speak to social security or the motor vehicle commission. Once a person is incapacitated and no longer able to handle their own affairs, they in all likelihood no longer have the capacity to execute a general durable power of attorney. At that point, the only option is to have a guardian appointed for the incapacitated individual. To appoint a guardian, a court action is required which, even if it is uncontested takes considerable time and expense.
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incapacitated.jpgWhen a person can not continue to manage her own affairs due to a physical or mental incapacity, another person needs to have the power to do so. If the incapacitated person had executed a valid power of attorney prior to their incapacity, the individual incapacitated person chose and appointed as their agent has that power. However, once a person is no longer able to take care of themselves, they can no longer execute a valid power of attorney. In that case, an application for guardianship must be made to the Superior Court of New Jersey to have a trusted family member, friend or professional to handle the person’s affairs. Unless the person appointed someone prior to their incapacity through a power of attorney or the court appoints a guardian there will be no one with legal authority to act on behalf of the incapacitated person.

A guardianship proceeding is an involved and difficult process where the court must be satisfied that the person is indeed incapable of managing their own affairs, and then determine the appropriate person to appoint as their guardian to make decision for the mentally incapacitated person (who is called a “ward”). This is commonly needed for older adults who have become incapacitated due to physical or mental illness.

A guardianship must be established when a person has lost capacity and there is no one who can lawfully act for him or her. Guardianships are divided into two types, the guardianship over the person and guardianship over the person’s property. Guardianship of the person authorizes the guardian to make personal and medical decisions for the incapacitated person. Guardianship of the property authorizes the guardian to make financial decisions for the incapacitated person. While these are legally two separate roles which can be filled by separate individuals, most often one individual will be appointed as guardian of both the person and the person’s property. There can also be more than one guardian, where two or more people are appointed as co-guardians and must act together. The law allows any responsible adult to be a guardian, but the law gives priority to the spouse of the incapacitated person, and if the spouse is unwilling or unable, priority is then given to an adult child.

An action for guardianship is commenced in Superior Court of New Jersey in the county where the prospective ward resides. In order to get a guardian appointed the court will review the personal, medical, and financial information regarding the ward. Every guardianship action starts with a complaint filed in Superior Court of New Jersey in the county where the incapacitated individual is domiciled. The complaint must state the petitioner’s name, age, domicile and address, the mentally incapacitated person’s name, age, domicile and address, a list of the names and addresses of immediate family members, her finances, and why the guardianship is needed.
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Thumbnail image for Thumbnail image for hands-833821-s.jpgOur clients often ask how they can protect their assets from Medicaid in the event a spouse must enter an assisted living facility in the future. While the Medicare Catastrophic Coverage Coverage Act of 1988 allows a community spouse (the spouse who does not require the coverage) to preserve certain assets,, the community spouse may only retain up to $113,640 (this is known as the “Community Spouse Resource Allowance”). However, often Community Spouse Resource Allowances will be insufficient for the community spouses to maintain their current standard of living.

One method which can be used to increase the funds available to the community spouse is an annuity which converts funds into income for the community spouse. As the community spouse’s income is not considered when determining Medicaid eligibility, the funds which would have been countable are removed from the eligibility determination. Those funds no longer need to be spent down prior to applying for Medicaid.

For instance, suppose a New Jersey couple has $500,000 in assets. While a community spouse may be permitted to retain $113,640, the balance of the assets would need to be “spent down” before the spouse would be permitted to apply for Medicaid. However, if the assets are transferred to the community spouse and then the community spouse uses the funds to purchase a qualifying annuity, then the assets are no longer “countable” for Medicaid purposes. This is a permissible way to protect assets for two reasons: First, transfers to spouses are permitted under the Medicaid rules and are not subject to the 5 year “look back” rule and, second, the money used by the community spouse to purchase the annuity was spent to purchase something of equal value and are also not subject to the five year look back rules. As the community spouse’s income is not considered for purposes of Medicaid eligibility, the assets have effectively been converted into an income stream and protected for the use of the community spouse. This, of course, is subject to the community spouse’s Minimum Monthly Maintenance Needs Allowance restrictions. The income cannot exceed the allowed amount.
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Thumbnail image for 1062252_happy_elderly_couple.jpgThere are many things mature persons need to plan for. An often overlooked area which requires careful planning is potential long-term care. More than half of people sixty five and over will require some form of long-term care. The Medicare office estimates that by the year 2020 approximately twelve million people will need long-term care. The cost of health care continues to increase and government support programs are being cut. The median cost of a one year stay in a nursing home in New Jersey is approximately one hundred thousand dollars per year.

The five possible sources for payment for long term care are private payment, long term care insurance, Medicaid, Medicare and the Veterans Administration. If you are a veteran entitled to those VA benefits, if you are eligible for long term care insurance and able to afford it , or if you are able and willing to pay privately for long-term care, then perhaps you do not need to plan. However, most people do not fit into any of those three categories. The two remaining options are Medicare and Medicaid.

Medicare has specific rules and will only provide coverage up to one hundred days. The patient must be eligible for Medicare, have spent three days in a hospital and enter long term care within thirty days of the hospital stay. Medicare will cover the first twenty days of the stay, then for the next eighty days Medicare may require the patient to pay up to $144.50 per day and Medicare will cover the balance. After the first one hundred days, Medicare will stop providing coverage. Moreover, the care must qualify as “medically necessary”. Medicare will not pay for what is classified as “custodial care,” that is it will not pay the cost of general assistance with daily activities, i.e. eating, dressing, bathing, etc. The patient must require skilled nursing care. Thus, this is a very limited payment option.
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Thumbnail image for Thumbnail image for 1221950_to_sign_a_contract_1.jpgUnder New Jersey estate planning law, a living will, which is legally called an advanced directive, allows a person to give instructions for what care she is to receive her health is extremis. A living will must be in writing, signed and dated before two adult witnesses who attest that the person signing the advanced directive is of sound mind, and is not under duress or undue influence. Alternatively, it may be signed, dated and acknowledged before a New Jersey notary public or a New Jersey attorney.

Under law New Jersey law, a living will becomes effective when it is provided to the physician who has determined that the patient does not have the capacity to make her own health care decision. If at any point the patient regains the ability to make her own health care decisions, the patient regains the legal authority to direct her own care.

The main purposes of the living will are to allow a person to give her instructions or her wishes for when she is unable to do so herself and to appoint an agent to make decisions when she is unable to make her own decisions. The living will may direct that certain life-sustaining treatments be withheld. If, for example, the patient has an incurable or irreversible, severe mental or severe physical condition; is in a state of permanent unconsciousness or profound dementia; is severely injured; and in any of these cases there is no reasonable expectation of recovering and regaining any meaningful quality of life, then the living will may direct that life-sustaining treatments be withheld. New Jersey law provides that the attending physician, if it is consistent with the terms of the advance directive, may issue a “Do Not Resuscitate” order.

There are two types of advanced directives: an instruction directive and a proxy directive. These can be combined into one document. A person can chose to execute both types or either one standing alone.
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