New Jersey Estate Planning & Elder Law Blog : New Jersey Estate Planning Lawyer & Attorney : Deirdre Wheatley-Liss : Fein Such Kahn & Shepard Law Firm : Elder Law, Tax Planning

Over the past few years, more and more of our practice has become devoted to estate litigation. These questions generally revolve around the validity of a decedent's Last Will and Testament, or gifts/transfers the decedent made prior to their death. Typical situations might include a caregiver child taking mom to a lawyers office and having a new Will made out so that the house (mom's largest asset) is left only to the caregiver child, or grandma puts all of her accounts in joint name with the grandchild who comes over once a week to set up her medicine, or dad always planned to leave his assets to his kids, but then suddenly married his housekeeper and creates a new Will leaving everything to her. (Yes, these are sure you coming up on our all real life situations we have seen in our practice).

First and foremost, there is no right of inheritance in the New Jersey. Any person is free to leave their assets to whomever they want to, including in many states, their pets. A person can leave their assets to charity, not giving anything to their family whatsoever. You can give more than one child than the other.  you can skip over your children leave everything grandchildren. You can leave all of your assets to one person because they were when you took care of you.   Just because you are related to somebody does not mean that you will share in their estate upon their death (with the exception of a spouse).

However, the manner is which you distribute your assets in the event of your death must be of your own free will. If the beneficiary that is now receiving more of the estate has either influenced the decedent, or the decedent created the new testamentary scheme when they had diminished capacity, then the new Will may not be a true reflection of the testator's intent  - instead, it's reflection of the beneficiaries desires (see Undue Influence in a Will Contest or Estate Administration). It is to address these issues that the legal ground to contest a Will were created.

When a family members passes away, that there are concerns about the validity of their most recent Will, there are three key time frames to bear in mind:

• 10 days - In New Jersey, a Will cannot be offered for probate until 10 days after the person passes away. During this time frame, a person with an interest in the estate may file a caveat with the Surrogate Court of the county where the decedent resided.  The filing of the caveat will prevent the Surrogate from probating the Will through their administrative powers, and instead the Will must be formally admitted to probate before the Superior Court judge. This will give the challenging party time to retain legal counsel to file a formal brief outlining why the Will should not be admitted to probate.
• 4 months – If the Will has already been admitted to probate, and you are a New Jersey resident, you have 4 months from the date that the Will was admitted to probate to file an action to overturn the Will.  if you are a beneficiary of the estate, or next of kin, you should receive a Notice of Probate advising you as to the date that the Will was admitted to probate. Alternatively, you can contact the Surrogate Court in the county in which the decedent resided to find out when the Will was admitted to probate. See New Jersey Court Rule 4:85-1. This time frame may be extended in the case of newly discovered fraud.
• 6 months - If the Will has already been admitted to probate, and you are not a New Jersey resident, you have 6 months from the date that the Will was admitted to probate to file an action to overturn the Will.   See New Jersey Court Rule 4:85-1.  Again, this time frame may be extended in the case of newly discovered fraud.

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When you think of Nevada, ways to lose your money, not keep it, may first come to mind as you think about the Las Vegas strip, casinos, and all those games of chance.  However, for attorneys counseling clients on how to keep control of their assets, Nevada is one of the best jurisdictions out there.  Why?  The Nevada legislature has made it a goal to attract new business by creating laws that allow people to legally protect their assets from unknown claims that arise in the future.

How so?  In Nevada, you can create a trust for the benefit of yourself and your family, and future creditors cannot seek payment from the assets in the trust.  This can be very attractive for successful business owners or professionals such doctors and lawyers who have a higher than normal risk of liability claims.  Oh, and Nevada has no state level income tax, so assets in Nevada Trust may pay less tax on earning then if those same assets were located here in New Jersey or New York.

The Nevada Trust Reporter advises that the Nevada legislature has taken steps to strengthen this asset protection law through newly signed legislation that further bolsters their assets protections laws starting October 1, 2011.  The article gives a detailed overview of relevant legislative changes.

Image Courtesy: http://en.wikipedia.org/wiki/File:Las_Vegas_89.jpg

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As part of a lecture series I am giving, I am providing attendees with an overview of estate planning (separate from tax planning or asset protection planning, which are other topics in the series).  It occurred to me that it is always good to go back to basics to provide a context both for estate planning and other foundation concepts, as they create a foundation for many of the points raised in this blog.  

There are essentially 2 ways property can be transferred upon your death - Probate and Non-Probate.

Probate transfers are ones where the transfer is of property in your own name at the time of your death, with no beneficiary designation.  Examples might include a house owned by John Smith, or a bank account in the name of Betty Peterson, with no beneficiary.

By contrast, Non-Probate transfers are ones where the property passes outside of probate due to how the property is titled or a beneficiary designations.  We say that these assets pass on a person's death "by operation of law". Examples include:

• Joint accounts
• Property owned as Joint Tenants with Rights of Survivor ship (JTWROS) or Tenants by the Entirety
• Transfer on Death and Pay on Death Accounts
• Life insurance naming anyone other than the insured's estate as beneficiary
• Retirement Plans (IRA, 401(k), 403(b))  naming anyone other than the participant's estate as beneficiary

Probate property is distributed to beneficiaries depending on if a person died Testate (with a Will) or Intestate (without a Will).  

If a person dies with a Will (Testate), then the Will controls who gets the probate assets when the person dies.  The Will has no effect on non-probate assets.  We often run into the unfortunate situation when the Will leaves the assets to Person A, but there is a joint account with Person B.  This is great if this is what the decedent intended, but can be a mess if it was not.

If a person dies intestate, they still essentially have a Will because the state that they resided in when they died will govern who gets the assets.  The obvious problem here is that New Jersey may not leave your assets to whom you want.  For example, in a second marriage, the spouse gets essentially 50% of the assets, and the children of the decedent share the other 50%, and get them at age 18.  This may not be your plan, so you are free to create a Will to create your own plan of distribution in the event of your death.

Next in the series - A Will says:  Who gets What, When and How.

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2010 - The year of there wasn't an estate tax, there could be an estate tax, or you choose if there will be an estate tax (nice thoughtful tax law policy there Washington ... not).  

However, we now do have a date of when you must elect to go with the 2010 no estate tax law, or the 2011 $5 million exemption per person law (which estates of decedents who died in 2010 can choose to use).  The deadline?  November 15, 2011.

Question: Why would you pay estate tax if you don't have to?  Answer:  Capital gains tax.

For people who died in 2010 who elect the no-estate tax regime, the beneficiaries' basis in inherited assets is the cost basis of the decedent, plus some additional basis adjustment.  For more information look at Federal Estate Tax "Death" in 2010 Creates Capital Gains Trap and "Death" of Estate Tax in 2010 creates Tax Trap for Spouses.  With capital gains tax rates at 15% federal and up to 10% state and looking to potentially rise, paying a fixed tax now can be attractive.

For people who died in 2010 where their estates elect the 2011 estate tax regime, they have the benefit of the current $5 million exemption from estate taxes AND the cost basis of assets is stepped up to the date of death value (thus wiping out all that untaxed appreciation during lifetime).

While this tax issue only applies to a very small number of people, the right v. wrong decision can have large implications.  Now that a deadline is looming, the time to do some analysis and decide how to act is now.

Image: jscreationzs / FreeDigitalPhotos.net

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Many are feeling this week how the congressional quagmire has impacted their portfolios.  One other impact that many may be unaware of is that the downgrade of US credit rating has changed the credit rating of major life insurance companies (see below).

What action should you be taking to review your investment in life insurance?  If you have any kind of policy other than a term life contact your agent or company and request an "inforce illustration" showing a guarantee rate of 4%.  This is a new illustration/calculation of the health of your policy which takes into account your payments to date, the performance on those payments, and what would happen to your policy if you only got a 4% rate of return.  Look to see how long the death benefit lasts.  What you may learn is (1) your premiums are going to jump in the future, (2) you may be paying premiums longer than expected, (3) the policy is unsustainable.  You then need to speak to your insurance agent about what can be done now to make sure your insurance will still be in place when you need it.

Thanks to David Robinson of Lenox Advisors for bringing this to our attention in an alert email:

Following the downgrade by Standard & Poor’s of the U.S. sovereign credit rating on Friday, the credit rating agency also announced rating actions on 10 U.S. life insurers.

The following actions were announced by S&P this week:

• Five U.S. life insurers were downgraded from AAA to AA+ and removed from credit watch negative, with outlook remaining negative: Knights of Columbus, New York Life, Northwestern Mutual, TIAA and USAA.

• Five U.S. life insurers had their ratings affirmed and outlooks revised to negative: Assured Guaranty, Berkshire Hathaway, Guardian, MassMutual and Western & Southern.

• S&P's view of these companies' fundamental credit characteristics has not changed. The actions follow as a result of the downgrade of the U.S. sovereign credit rating on Friday from AAA to AA+ with negative outlook.

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Besides the negative effect we are seeing in the market today from the S&P downgrade of the US credit rating, the debt deal may have far reaching consequences to seniors.  Medicare, Medicaid and Social Security are a huge proportion of the US budget.  Elderlawanswers.com has provided a summary of what seniors need to pay attention to:

Congress has agreed to allow the President to raise the debt ceiling in exchange for $2.4 trillion in budget cuts over 10 years. How this deal will affect the three major programs crucial to the elderly -- Medicare, Medicaid and Social Security -- may not be known until almost year's end, but the impact could be significant.

The agreement calls for two stages of spending reductions. In the first stage, which will pare $917 billion from the budget, "entitlement" programs like Medicare, Social Security and Medicaid are spared. Instead, the cuts are evenly divided between defense and non-defense "discretionary" programs. Some aging and poverty programs that the elderly rely on, such as heating assistance, could be hit with budget reductions, but so will defense programs.

In the second stage, a 12-member Congressional committee - six members from each party -- must agree on an additional $1.5 trillion in cuts by Thanksgiving, and Congress must vote on their proposal (with no modifications) by December 23. Here, Medicare, Medicaid, and Social Security will all be back on the table. In the case of Medicare, the powerful panel will be looking at changes like raising the eligibility age, increasing premiums for wealthy recipients, hiking deductibles and co-pays, and slashing payments to providers and drug companies.

To cut Medicaid, this joint committee will consider giving states more flexibility to reduce eligibility and benefits, meaning that it might become even tougher for elderly nursing home residents to qualify for Medicaid. The committee will also be looking at cutting payments to nursing homes, which just got hit with a more than 11 percent reduction. Nursing home residents could feel the impact in the form of reduced services and compromised care.

For Social Security, one thing the panel will undoubtedly consider changing is how the program's cost of living increase is calculated, which will result in lower benefits. Pushing back the eligibility age for future retirees could also be on the table.

Although President Obama will be pressing the joint committee to not just cut programs but to increase revenues by raising taxes on the wealthy and corporations, it is anybody's guess whether the panel's Republican members will agree to this.

"The future of the programs really hangs in the balance," said Joe Baker, president of the Medicare Rights Center, an advocacy group. "It could lead to deep cuts and irreversible changes to Medicare and Medicaid that shift costs to beneficiaries."

If the 12-member panel can't agree on a plan to pare at least $1.2 trillion from the budget -- or Congress votes down its proposal or President Obama vetoes it -- automatic spending cuts totaling that amount would kick in beginning in 2013. Medicaid, Social Security and veterans programs are among the programs that will be exempt from these mandatory cuts, but Medicare is not exempt. There would be a 2 percent cut to Medicare, although the savings would have to come from payments to providers like doctors and hospitals, not from beneficiaries. Such a reduction to providers would be on top of a 6 percent drop in provider payments already enacted to help finance health care reform. Doctors and hospitals would feel the impact initially, but Medicare beneficiaries would experience it soon enough as more providers refuse to treat Medicare patients, reduce services or go out of business.

There is, however, a strong incentive for the joint committee to avoid these automatic cuts and instead agree on a plan that Congress can pass and the President can sign: Along with the 2 percent automatic Medicare cut would be an automatic 8 percent reduction in defense spending, or nearly $500 billion. The thinking is that both Democrats and Republicans would view defense cuts of this magnitude as too damaging to their parties to contemplate.

Further reading:

"Five cuts the debt commission might make to Medicare, Medicaid" (Washington Post blog)

"FAQ: Debt Deal 'Super' Committee's Impact On Health Spending Explained" (Kaiser Family Foundation Health News)

"Tea Party groups see Medicare overhaul chance" (Reuters)

"Social Security, Medicare dodge bullet, but cuts loom" (Reuters blog)

"Debt Deal Triggers Nerves In Health Industry; Providers Brace For Cuts" (Kaiser Family Foundation Health News)

"What Does the Debt Ceiling Agreement Mean for Medicare?" (Center for Medicare Advocacy, Inc.)

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