Month: June 2021

My special needs child is about to turn 18 – What should I do?

Posted on | by Tom

Children with special needs, who are under the age of 18, are considered minors in the state of New Jersey. Until then, parents have full authority to act on behalf of their child(ren) when it comes to making important decisions. But once the child turns 18, parents are often caught off guard when they discover that although the child continues to be dependent on his or her parents long after they turn 18, parents no longer have the same authority as before, as the children are now deemed adults under the eyes of the law. Financial, legal, and healthcare decisions can no longer be made as before, and in the unfortunate situation when one or both parents pass away, assets passing to the child as an inheritance could trigger adverse consequences if the child has been receiving critical government benefits.

So what can you do now to avoid a disaster from occurring?

As a first step, you will need to begin the process of a guardianship (typically, this should be started a few months before the child turns 18). This involves filing a Verified Complaint with the courts, requesting your (and your spouse, where applicable), appointment as legal guardian of your child.  While it is rare for a judge to deny guardianship to a parent, the formalities of the guardianship process still need to be adhered to. 

The application must include, among other things, certifications from two physicians (one of these could be made by a licensed psychologist). The court will then appoint an attorney to conduct an investigation of the interested parties and then prepare a report for the judge, either confirming or rejecting the appointment of the Petitioner. Finally, a hearing is conducted before the judge, so all relevant parties can appear and be heard in court. Once the judge approves the appointment, a final judgment containing the decision is circulated to all parties. 

At this time, the parent(s) will need to appear at the surrogate’s office to become qualified and collect their Letter of Appointment. Be prepared to incur some expenses associated with the filing fees and legal costs, especially if you choose to go with private attorneys for both the submission of your application (as opposed to going pro se) and for the court appointment. Depending on the situation, a court may also be able to appoint an attorney from the Public Defender’s office at no charge to the parents, but this could delay things a bit. A final judgment signed by the judge at the end of the proceeding will then grant you the right to procure Letters of Guardianship.

The next step is to consider whether or not you want to set up Special Needs Trusts (SNT) for your child. Here you have an option to set up (1) a first-party special needs trust and/or (2) a third-party supplemental needs trust as stand-alone trusts. These trusts can hold assets of your child’s or assets passing from you, respectively, without jeopardizing your child’s government benefits. These assets are meant to supplement, but not supplant, any other benefits so your child can have an enhanced quality of life without concern that the critical benefits provided by the government would be denied.  

Finally, you should definitely consider setting up or updating your own existing estate plan to ensure that all of your assets passing to your child upon death are protected by either having the assets pass into the stand alone SNT that you set up (see above paragraph), or have it pass into a SNT under your Will. It is  important to consult with the estate planning attorney as to which trust should hold the inheritance.  Inadvertently naming the wrong SNT could result in having the assets inside of the trust going to the estate, instead of the family or other heirs.  

Primer on Spousal Access Trusts – What you need to know about this important estate planning technique!

Posted on | by Tom

Very often we meet clients looking for a more nuanced estate planning with specific assets – they may want to (1) protect assets from creditors; or (2) they would like to minimize the estate tax liability upon death. For these clients, Irrevocable Trusts are a critical piece of advanced estate planning that can accomplish these goals. It is important to remember here that these trusts are set up in addition to (and not in lieu of) their foundational planning, which typically consists of Wills or Revocable Living Trusts, as well as the Financial or Healthcare Powers of Attorney.

Irrevocable Trusts come in many flavors – insurance trusts or ILITs, gifting trusts for children, residence trusts or QPRTs, and a whole lot more in between. These trusts can either be established locally (i.e. situs of the trust is New Jersey), or a NJ resident can situs his or her trust in other U.S. states with favorable Domestic Asset Protection Trust laws (also called DAPT states).

This post discusses the popular Spousal Access Trusts or SLATs, where the spouse of the Grantor or Settlor of the trust is a named beneficiary, while the trust continues to accomplish its primary objectives regarding creditor protection and estate tax savings. It is key to remember here that if the 2-SLAT approach is being utilized (one trust each for the husband and the wife), then utmost care must be taken by the drafter of these trusts to ensure the trusts are not identical to one another, which would run afoul of the reciprocal trust doctrine.

Consider the following when establishing these trusts in New Jersey:

  • Pros:
    • There is no need to get an outside Independent Trustee who is a resident – a trusted friend would be able to serve in this role.
    • There is no need for outside counsel review.
    • You can accomplish the current asset protection goals even with the spouse as a beneficiary, but the Grantor[1] of the trust cannot become a beneficiary of the trust if the two primary objectives of creditor protection and estate tax savings are desired.
  • Cons:
    • The Grantor cannot be (or be added back later) as a named beneficiary.
    • Death of a spouse-beneficiary can make things problematic for the Grantor, who will now no longer have access to the funds in the trust.
    • If the 2-SLAT approach is being used, then there is higher probability of IRS scrutiny if both trusts are sitused in NJ.

However, if we go outside the state of NJ to one of the DAPT states[2], these trusts become more sophisticated and robust, but are also expensive – not only for set up but also in annual costs. The following are some considerations:

  • Pros:
    • The Grantor can be added back as a beneficiary after the trust is set up.
    • There are greater asset protection laws in these DAPT states, so creditor challenges are much harder.
    • With the 2-SLAT approach, situsing these trusts in two different DAPT states ensures even greater asset protection.
    • Resident Trustees can be Directed Trustees where they are only acting upon the direction of another – this keeps costs down each year.
    • This approach has potential to avoid IRS/Creditor scrutiny, especially where an independent, objective third party is serving as a trustee.
  • Cons:
    • This route is more expensive, because these are sophisticated trusts part of advanced planning.
    • Co-counsel needs to be retained to get the trusts reviewed by attorneys in that state.
    • Resident Trustees are a requirement.
    • Although trustees may be “Directed Trustees,” depending on the DAPT state, annual fees may vary between states and could become quite costly.

To minimize costs, some alternate solutions include:

  1. Staying within NJ and set up both trusts within the state, but be willing to give up some of the added benefits of DAPTs.
  2. Creating one trust in a DAPT jurisdiction and another trust in NJ, so you can take advantage of the “pros” for at least one trust, where the Grantor can be named back as the beneficiary.

 

 

 

[1] Grantor refers to the individual setting up the trust and is often used interchangeably with the terms Trustor or Settlor.

[2] As of 2020, there are at least 19 states that are now considered to be DAPT states and which have amended their statues to offer strong creditor protection and favorable treatment towards Grantors’ irrevocable trusts. http://www.actec.org/assets/1/6/Shaftel-Comparison-of-the-Domestic-Asset-Protection-Trust-Statutes.pdf