Estate Planning – Changing as We Age (Part 2)
Last week we were talking about how estate planning and what’s in your legal documents need to change as you age. Our hypothetical couple, Jack and Diane, have reached their 60’s. The focus of their plan needs to shift to what we call senior estate planning. One of the big issues that Jack and Diane must face is the specter of long term care. How do they pay for it without running out of money or seriously depleting their savings? Much of this blog is devoted to that topic. But what about more traditional estate planning – answering the questions, “what happens if I die?”. “How do I pass my assets on to my loved ones while paying as little as possible in estate taxes?” Many people mistakenly believe they don’t need to worry about estate taxes because a few years ago Congress raised the federal exemption – that amount of money that can be passed free of estate taxes – to $5,000,000 (now $5,430,000 when indexed for inflation). What they don’t realize is that New Jersey’s estate tax kicks in on estates greater than $675,000. New Jersey also has an inheritance tax on amounts passed to heirs who
Estate Planning – Changing as We Age
When I ask someone if they’ve got an estate plan in place – the basics being a will, power of attorney and health care directive, often the response is “yes, we took care of that a number of years ago”. But, what many people don’t realize is that the plan you may have put in place 5 or 10 or 20 years ago most likely won’t meet your needs now. Why? Because as time, passes many changes occur. We change, our families change, our needs change. Nothing stays static. Especially in today’s fast paced technologically dominated world. Let’s take a look at a young couple in their 20’s and 30’s, we’ll call them Jack and Diane, In those early years, the estate planning focus is on support for the surviving spouse and young children, typically with a heavy reliance on life insurance. In the event both Jack and Diane die, who will be guardians of their young children and who will manage the money left for their benefit? This is typically done thru the use of minor trusts. In the early stages of growing their assets, there is less of a focus on estate taxes. As Jack and Diane
A Special Needs Plan Gone Wrong (Part 2)
Last week I was telling you about Bob’s call. Dad’s will left everything to Bob and his brother Sam. According to Bob, they had conversations with his dad about setting up a special needs trust for their disabled sister, Sally and transferring her 1/3 share to that trust. When Sam reneged on that agreement Bob didn’t really have a good option. Going to court to try to enforce a verbal agreement is costly and not likely to get the result he wants. Since Dad isn’t alive to support Bob, it is Bob’s word against Sam’s. So, where did they go wrong? What his dad should have done is make his wishes clear in writing by way of his will. It would seem obvious, but to be clear, no one can know for sure what your wishes are after you die unless you put them in writing. As we can see with Bob and Sam, wishes stated verbally can’t be proven later on if there is a dispute. Court intervention is costly, time consuming and likely to get an unsatisfactory outcome. That’s why the law has established a process to carry out those wishes. It’s called a Last Will and
A Special Needs Plan Gone Wrong
Bob called with the following story. Dad had passed away a year earlier. He had three children, Bob, Sam and Sally. Bob told me that Dad’s will left everything to Bob and Sam because Sally, who is severely disabled and receiving government benefits, would otherwise lose those benefits if she received an inheritance. According to Bob, he and Sam had discussions with Dad about setting up a special needs trust (SNT) for Sally and placing 1/3 of the assets of Dad’s estate into that trust. “It was what Dad always wanted”, Bob told me. So, why was he calling? Because he told me that Sam had agreed to it but then changed his mind and backed off. “Is there anything that I can do to force Sam to put the assets into an SNT”, he asked. “Can we go to court and ask a judge to order Sam to keep his promise?” Unfortunately, without a written agreement in place, a judge isn’t likely to agree. Once Dad died and his will was probated, ½ of his estate was now Sam’s, to do with it as he wishes, even if Dad’s wishes are to the contrary. Spending a lot of
Gifting and the Medicaid Penalty (Part 2)
Last week I was telling you about a recent New Jersey court case which resulted in a 10 and ½ year Medicaid penalty. The family tried to navigate New Jersey’s Medicaid rules on their own and then tried to fix their mistake. It didn’t work. Let’s examine why. To summarize the facts, C.W. transferred her home and $540,000 in other assets to her children. She applied for Medicaid and was assessed a 10 and ½ month penalty because of the transfers. The children tried to fix the problem and then reapplied for benefits. Part of the problem was that after the penalty was calculated by Medicaid, the children returned some but not all of the money. It has been clearly established by New Jersey courts that partial returns will not reduce the penalty. It’s all or nothing, meaning unless you return all the transferred money the State won’t reduce the penalty. C.W.’s family should have consulted with an elder law attorney before applying for Medicaid. With a better understanding of the rules, they could have made a partial return before any Medicaid penalty and used that money to pay for care until they were ready for eligibility. A second
Gifting and the Medicaid Penalty
Once again, a recent New Jersey court case has highlighted the dangers of do it yourself Medicaid planning. In the case in question, C.W. v. New Jersey Division of Medical Assistance and Health Services, 90 year old C.W. moved into a nursing home in 2007. She then transferred her home and $540,000 in other assets to her 3 children. The total value of all assets transferred was just under $864,000. A year later, in March, 2008, C.W. applied for Medicaid benefits. Predictably, the application resulted in New Jersey Medicaid imposing a penalty of 10 years and 4 months. This meant that she would not be eligible and would have to pay for her own care at the facility’s private pay rate for nearly 10 and ½ years before being eligible for Medicaid. The family made a big mistake. Had they waited another 4 years to apply for Medicaid the transfers would have fallen outside of Medicaid’s 5 year lookback period. Instead they must pay an additional 5 and ½ years, should C.W. live that long, before the State will provide any help. They then tried to fix their problem. The children returned $235,000 to Mom who used it to