To find out more information, go to WomenBiz.Gov, for key information about women owned businesses becoming involved in the federal procurement area. Note that a woman or personal of minority to a small business having majority ownership is never enough to take advantage of many of the special contracting opportunities offered by the federal government - women or person's of minority must be actively involved in the business and be in possession of the knowledge and authority to run the business.
Also, the Small Business administration announced today that they are acting to increase the contracting opportunities for women-owned small businesses. The press release is available at Yahoo Finance "SBA to Implement Women-Owned Small Business Contracting Program".
In New Jersey, there is a Surrogate for each County. The Surrogate is a limited judicial post whose authority extends to facilitating the administration of wills, estates and trusts and acting as the clerk of the Superior Court for activities ranging from adoptions to incompetency matters. Each Surrogate has an office and full staff assisting the Surrogate in the execution of his or her duties.
In many states the process of Probating a will can be expensive and time consuming - this is not so in New Jersey. To understand why, one must first understand what it means to Probate a Will - at its simplest, Probating a Will is the process of offering an original Will to the Surrogate, the Surrogate (or more likely his or her clerk) examining the Will for completeness, the Surrogate issuing Letters Testamentary authorizing the Executor to act on behalf of the Estate, and the Executor giving the Surrogate a check for services rendered. That's it - Probate done.
Everything else that needs to be done with reference to an Estate - gathering and valuing the assets, paying liabilities, preparing tax returns and making tax elections, and making distributions - has to do with Estate Administration, not Probate. These items must be done whether the decedent has a Will, a Living Trust or nothing at all. Estate administration is a complicated and time consuming task - there is generally a lot of information to go through and it takes a long time to do it. Probate is only the starting point of an Estate Administration, not the end-all.
In New Jersey, each Surrogate strives to make the process of Probate even simpler. There is a website - njsurrogates.com, that acts as a portal to all the Surrogate's Courts in New Jersey. And "Court" can be misleading as well - while the Surrogate's office is located near each County Courthouse, you will be visiting an office, and taken into a private room by a clerk to obtain all the necessary information about the Will. You will be asked to sign some papers (if your attorney prepared the papers in advance, they will already be there waiting for you) and Letters Testamentary issued. These Letters Testamentary are the key to the next phase, which is the Estate Administration.
Not all Probate's are as easy as described - but the majority are. Probate is just part of the process of Estate administration.
There seems to be quite a bit of mis-information about what it takes to be a Florida resident. The concept of a "6 month rule" is often bandied about - live in Florida for 6 months and you are a resident. However, there is no 6 month rule. Florida residence is governed by Chapter 222.17, F.S. - Homestead and Exemptions.
Essentially, becoming a Florida resident requires 4 simple steps:
1. Obtain a valid Florida driver's license
2. Register your automobile in Florida
3. File for voter registration
4. File a Declaration of Domicile with the Clerk of the Circuit Court in the County where you are residing.
All of this information and much more can be found on the Florida Residency Guide, operated by the State of Florida.
An excellent HSA resource can be found at the US Treasury website: All About HSA's.
With second marriages, the issues multiply, as well as the opportunity to fail to plan. Consider these unintended scenarios from my own practice from an asset distribution perspective:
- Scenario - You never changed your beneficiaries on your retirement plan or life insurance and they still name your ex-spouse; not your children or your new spouse. The proceeds will pass to your ex-spouse, or perhaps to your minor children outside of any appropriate trust. Better Idea - Review all your beneficiary designations now and plan for where the assets should go.
- Scenario - You changed your beneficiary on your life insurance, but have a requirement in your divorce agreement to provide an insurance benefit to your ex-spouse. Your ex-spouse has a claim against your estate for the full amount of the death benefit. Better Idea - Purchase a term insurance policy and have your ex-spouse own it and be the beneficiary. You pay the premiums. If you miss payments, the ex-spouse can pay. He or she will have a claim against you for the missed premium payments, but that will be less than the full death benefit.
- Scenario - You created a Will upon your divorce leaving everything to your kids. You didn't change it after you got married. Upon your death, regardless of the terms of your Will, your current spouse has a claim to take approximately 1/3 of your estate (the "Elective Share"). Better Idea - Purchase an insurance policy for your spouse to satisfy his or her Elective Share as well as executing a pre-nuptial agreement and/or a new Will.
- Scenario - Your second spouse and children get along fabulously. You leave all your assets to your second spouse in your Will under the theory that they will get along and the new spouse will provide for your children. After your death, the new spouse: becomes ill needing expensive care, remarries, has a falling out with your children, develops a gambling habit, dies leaving a Will leaving all assets to his or her family (fill in the blank). Better Idea - Leave all your assets in trust for the benefit of your spouse and children, with a third party Trustee able to allocate the trust funds in accordance with your wishes. Upon the second spouse's death, the remaining funds pass to your children.
- Scenario - Your second spouse and children begrudgingly share the same room on holidays, but that is it. You don't want to create a Will for fear of antagonizing one of the two most important people in your life. If you don't create a Will, in New Jersey 1/2 passes to the spouse and 1/2 if left to children outright. This is not what you want either. Better Idea - Create an insurance Trust to satisfy one faction, and leave your other assets to the other faction. This way,you control who gets what and when, and each party receives an inheritance, but they are not administered jointly.
Planning an estate plan in the context of a second marriage requires a more thorough examination of the party's intent and assets then a first marriage with common children. An attorney may only be able to represent one spouse, not both. Insurance should be considered to alleviate some of the common issues. Tax planning must be done because where there are not common beneficiaries between a couple, tax allocation clauses can cause unintended results.
For other issues to consider in terms of the financial considerations of a second marriage, see the MSN Money - Make marriage No. 2 -- and the finances -- work.
Potential Trap - Paying for your parent's Nursing Home Care - You are NOT financially responsible in New Jersey
NJSA 30:13-3.1 provides in relevant part that a Nursing Home may NOT":
"(2) require a third party guarantee of payment to the facility as a condition of admission or expedited admission to, or continued residence in, that facility; except that when an individual has legal access to a resident's income or resources available to pay for facility care pursuant to a durable power of attorney, order of guardianship or other valid document, the facility may require the individual to sign a contract to provide payment to the facility from the resident's income or resources without incurring personal financial liability."
However, I recently had a client a come to me whose mother had just been admitted to a nursing home. The mother was admitted directly from a hospital, and, as is common, the client was given a huge stack of papers to sign in order for mom to be admitted. The client did not really look at all the papers but to fill them out and turn them in - her sole motivation was obviously her mother's well being and "doing the right thing".
Luckily, the client's husband did read the paperwork. One of the paper's was labeled "Guarantee". This document stated that the "Responsible Party" - defined as the person who was signing the paperwork - agreed to be personally responsible for the nursing home costs. Here, as in most situations where a person is admitted to a nursing home directly from a hospital, the nursing home resident was incapable of signing the paperwork - hence, her daughter did so for her. Under the terms of the contract, the daughter became the "Responsible Party". If she had signed the Guarantee, the daughter would have been agreeing to pay for all of her mother's care, regardless of if the mother had assets or not. This is illegal, but if you aren't aware of your rights, you could be taken for money you don't have to pay.
The purpose of the Medicaid system is to pay for the long term health care of poor people. If the mother spent all of her money, Medicaid is designed and created to pay for her care. However, many nursing homes don't like dealing with Medicaid (though all are required to accept Medicaid patients in New Jersey), being that they get more revenue from private paying patients. This is not a charge against all nursing homes. It is however a "buyer beware". You need to know your rights in order to deal with this situation.
When I contacted the Nursing Home, they said that I misunderstood the "Guaranty", that is was just so that the resident agreed to pay for her care. This is not what the document said, it said my client was financially responsible. My client refused to sign it, and her mother was admitted in any event.
While my client was very appreciative of all we had done, I began to wonder how many other people had unknowingly signed the guarantee and were using their savings for their parents care when another financing source exists. The fact that this practice exists at all is an outrage.
In a traditional 401(k), contributions are made on a pre-tax basis. The contributions, and the earnings on them, are subject to income tax upon withdrawal. If you withdraw the funds, you pay the income tax. If your beneficiary withdraws the funds, they pay the income tax. You must withdraw the funds starting age 70 1/2 and start paying tax on them, whether you need the fading or not. Since the balance of the 401(k) is including in your estate, depending on the size of your estate, estate tax may be due at your death, and an additional income tax upon withdrawal.
A Roth 401(k) will have similar contribution and distribution rules to a Roth IRA. Contributions will be made on an after tax basis. There are contribution limits similar to a 401(k) (up to $15,000 per year - $20,000 if you are 50 or older). In addition, there are income restrictions - if you make too much money (($110,000 for single individuals, $160,000 for married individuals) you will not be qualified to create a Roth 401(k). All "qualified" distributions will be made tax free - on a participant's termination of employment, death, disability, attainment of age 59½ (if permitted under the terms of the plan), or hardship.
Note there are two areas relevant to distributions where the Roth 401(k) differs from the Roth IRA. First, a first time home purchase is not a qualified distribution under a Roth 401(k), but is under a Roth IRA. Second, a Roth 401(k) is subject to the same minimum distribution rules starting at age 70 1/2 as a traditional 401(k) - a traditional Roth IRA does not have any minimum distribution requirement.
For employers, you need to investigate what type of benefit this might be for you to attract and retain quality employees. While the Roth 401(k) will create a second set of administrative requirement, the tradeoff might be worthwhile, especially if (i) interest in the new Roth 401(k) increases overall employee contributions, thus increasing or removing any limitations there might be on your own contributions, and (ii) a third party administrator packages the plan as part of your current employee benefits offering.
For employees, speak to your financial advisor to see what benefits this new type of retirement plan might offer for you.
The terms "Living Will", "Advance Directive" and "Health Care Power of Attorney" are often used interchangeably. Essentially, a complete document will contain the following:
- An expression of your wishes of the type of care you want to receive in a terminal situation. This may be done through a parenthetical description or through a list where you initial the decisions you would like made on your behalf.
- The appointment of a Health Care Representative to act on your behalf in making health care decisions. This is the person who will direct the medical staff as to your care based on your expressed wishes.
- A statement that your Health Care Representative is authorized to receive your "Protected Health Information" under HIPAA. HIPAA is relatively recent legislation that enacted broad changes in the area of medical privacy. For more information, click here.
In creating a Living Will or similar document, you should be aware that the most important thing you are doing is nominating another person, your Health Care Representative, to make decisions on your behalf. It would be impossible for you now to go through a list of the precise medical care you would and would not want - you need to name a trusted person to make those decisions for you. By making a statement to your Health Care Representative of the care you would and would not want in a terminal situation, you are allowing him or her to act knowledgeably on your behalf. As your Health Care Representative will be close to you, making a statement about what you would want may make it easier for them to act on your behalf.
Caring for an elderly parent involves a foray into whole new worlds for most people - medical decisions, long term care decisions, understanding what Medicare does and does not pay for, learning about different types of care facilities and how to finance it all. This is coupled with the huge emotional stress that a family illness causes. However, there are many resources out there to educate and assist you, to whatever level you are comfortable.
Retirement plan savings in particular make up a good portion of many people's net worth. Even if you have spent hours setting up your estate plan, it is common for a more cavalier attitude to be taken towards beneficiary designations. At some point you were probably asked to complete some stacks paperwork naming your designated beneficiaries - maybe you named your spouse and then children, or maybe you forgot to complete the paperwork altogether; and you probably haven't given much thought to it since. Many people are under the common misconception that if they change their Will, the beneficiary designations will follow. This is not true - your beneficiary designations control who gets and how they get those specific assets at your death; your Will governs other assets in your own name at the time of your death. In your Will you may be leaving assets to a spouse or children in trust, or setting aside some percentage of assets among a group of people. The key to maximizing your beneficiary designations is matching them to your estate plan, and then making appropriate adjustments to account for the unique qualities of these benefits.
What can you do to review your beneficiary designations:
- Get a copy of the beneficiary designation currently on file with the benefit provider - not your copy, but their filed copy. Look to see who your primary and contingent beneficiaries are.
- In naming your spouse as your primary beneficiary, consider whether or not you have set up any trusts for your spouse in your estate plan. If so, speak to your attorney about the pros and cons on naming the trust as your beneficiary instead of your spouse.
- In naming your children as your primary or contingent beneficiaries, again consider whether or not you have set up any trusts for them as part of your estate plan. If so, shouldn't these assets be passing to the trusts as well, especially if the trusts were designed to govern the assets until your children had reached certain ages?
- See if you have named your estate as a beneficiary at all. If you have, you may have negative income tax consequences on your death. An estate must take full payout of retirement plan benefits within 5 years of the date of your death - and pay income tax on all untaxed portions upon receipt of payment. A better alternative is to name one or more individuals (or properly created trusts) as beneficiaries - an individual can stretch our receipt of the retirement plan distributions over their life expectant, and thus defer the payment of the any income tax.
- File your changed beneficiary designation, and get a filed copy for your records.
If you have made the investment to create and estate plan, you should review your beneficiary designations and speak to your estate planning attorney to make sure that all of your assets pass as part of one plan.
Note that there are significant and interesting questions of how to minimize income taxes on an inherited retirement plan - but that is for another post.
Owning rental real estate is a business venture - you treat it on your taxes as such and you should consider treating it as such when it comes to the form of ownership. I recommend that my clients own all rental real estate in the name of an LLC, and if more than one person owns the property, an agreement be drawn up between the parties addressing their rights and responsibilities.
What are the risks to not acting to shield yourself from liability with rental real estate? One is personal financial liability for activities that take place on the property. If a person is injured on property that you own, a claim for damages may be lodged against you as a the property owner. If that claim is in excess of your liability insurance, your personal assets will be at risk to satisfy the claim. Another concern is what if your business partner dies or becomes divorced? Ownership in the property may pass from your partner, who you have a relationship with, to his or her spouse - who may be a lovely person, but not necessarily someone you want to be in a business relationship with.
How to address these problems? One course of action is to create a limited liability company ("LLC") to own the property.
- An LLC has the benefit of "pass-through" taxation - all of the property's income and losses will continue to be reported on your 1040.
- More importantly, an LLC acts as a liability shield between you and the property. As a general rule, your exposure is capped at your interest in the property. If you own 50% of property with a value of $500,000, the maximum amount of your loss is $250,000 - even if the claim is greater. Barring a bad act on your part, the LLC acts as a shield between the property and your other assets. The assets of the LLC can be used to satisfy the claim, in their entirety, but the litigant cannot reach through the LLC to you to satisfy their claim.
- An LLC is governed by an Operating Agreement. The owners, or "members" of an LLC have the opportunity in the Operating Agreement to say who will be the members of the LLC and how ownership interests in the LLC may be transferred. For example, if your partner were to die, the Operating Agreement can direct that upon the death of a member, his or her estate must sell the membership interest to the remaining members for its fair market value. There could be further restrictions in the Operating Agreement preventing the membership interest from being transferred as part of a divorce settlement or in the event of a bankruptcy, by forcing it to be sold to the remaining members if such a scenario were to arise.
Setting up an LLC is a one-time investment in your real estate. The entity must be formed, the operating agreement prepared, and a deed filed transferring title from you to the LLC. The ongoing costs might include the costs of filing additional tax returns each year and a $150 per year "head tax" in New Jersey per member where there are 2 or more members. Also, before setting up an LLC you should be aware that (i) you will need an endorsement from your Property and Casualty insurer to name the LLC as an additional insured; (ii) it may be more difficult to get an equity line against the property as you will usually need to go through the commercial lending department of your bank; and (iii) you should consider getting an endorsement from your title insurance company for the transfer of the property to the LLC.