Attorney-Client Confidentiality with Aging Clients

Although the subject of attorney-client confidentiality and its nuances are drilled into every aspiring law student throughout law school and beyond, most clients don’t have an understanding of what exactly this means in the context of the attorney-client relationship. To them it’s vague, and they only have a simplistic understanding of this concept.  A few clients even believe that attorneys have the discretion to disclose confidential client communication. Complications arise when a prospective client wants one or more of their children in an initial meeting, or when they want a non-attorney professional advisor in the room. Sometimes the client’s financial advisor, in his or her eagerness to provide a holistic approach to their clients’ wealth management, expresses an interest to the client and the attorney to be included in these initial discussions. All these situations make it challenging for the attorney to educate their clients about confidentiality and explain the risks of disclosure. Clients do not realize that they are the only ones protected and the only ones authorized to waive this protection.

Because attorneys have special ethical responsibilities, it becomes more complicated and challenging when representing clients with diminished capacity. Here, attorneys are bound by the Model Rules of Professional Conduct (RPC 1.14) and have a duty to maintain (as far as possible) a normal attorney-client relationship with such clients and ensure they are treated with the same degree of respect and attention that any other attorney-client relationship is afforded.

For example, earlier we stated that complications are possible when a client wants one or more of their children in an initial meeting. Some of the risks of waiving confidentiality with respect to the presence of only one child in the room with a mother or father could be that the other children could bring an action of undue influence, where they could assert that the child in the room pressured the mother or father to disproportionately change the disposition of assets.

It is important for the attorney to utilize different interviewing techniques during the meeting to maximize client capacity and his or her participation in the discussion. Attorneys have to be on high alert to make sure the client is not facing any substantial physical, financial, or other harm, by someone else, who could often be a close family member. In such cases, it becomes the attorney’s ethical duty to consider disclosure of confidential information to other certain individuals or entities who may be able to take action to protect the client from such harm.  At the same time, the attorney needs to be extremely careful that such disclosure is only what they believe is necessary to protect the client.

One potential conflict we face when we have concerns about the client’s capacity is to choose between the client’s wishes or the client’s best interest. Here we need to consider several factors to resolve the conflict – type of representation sought, forum in which the services are to be provided, involvement of other parties in the matter, etc.

Ultimately, its critical for attorneys to balance the client’s needs for decision-making assistance with the clients’ other interests, including autonomy, safety, independence, financial well-being, health care, and personal liberty.

Revocable Trusts – Common Misconceptions

A few days ago, I was explaining the concept of “funding” to clients who were new to the world of estate planning, and I was struck by the fact that what I’d always thought were commonly understood concepts were actually the cause of significant gaps in the clients’ understanding of what trusts do and how they operate. The two main areas of confusion appear to be in: 1) figuring out exactly how trusts differ from wills; and 2) the mechanics of how accounts are transferred into trusts, which make the trust the “new owner” of those accounts. This article hopes to shed light on these two seemingly simple (or so I thought!) concepts: trusts and trust funding.

We’ve heard people use the word trusts in different settings and under different circumstances. Many mistakenly believe that all trusts offer asset protection. However, not all trusts are made equal – trusts can either be living (i.e. inter-vivos trusts set up during the lifetime of the Settlor or Grantor) or testamentary (i.e. those that become effective upon the death of an individual). All testamentary trusts are irrevocable, but living trusts can be revocable or irrevocable.

Living trusts are typically stand-alone entities that become effective immediately upon the signing of the trust agreement. Those that are revocable are called Revocable Living Trusts, RLTs, or Will substitutes. These RLTs allow a Grantor (also called a Settlor or Trustor) to set up the trust and retain full control of the trust assets as a Trustee, while enjoying the full benefits of the trust assets as a beneficiary. There are several benefits for setting up an RLT, but more notably, RLTs are meant to avoid probate upon death and the associated hassle-ridden probate process in some states.

In contrast, Irrevocable Living Trusts cannot be changed once established. The Grantor transfers assets into trust by assignment, sale, gift, or loan, and then completely gives up control over the assets. The two main benefits of irrevocable trusts are: 1) assets are removed from the Grantor’s estate upon his or her death, thereby avoiding estate taxes; and 2) assets are protected from both the Grantor’s creditors as well as the creditors and predators of the beneficiaries. Properly designed trusts may even escape Medicaid recovery and preserve assets for the Grantor’s ultimate beneficiaries should the Grantor be receiving public benefits. Regardless of which irrevocable trust is used, these trusts are typically sophisticated planning techniques established as part of an individual or married couple’s advanced planning. They should always accompany a robust foundational plan complete with a Will and/or an RLT, a General Durable Power of Attorney, and Advanced Healthcare Directive. For more information on the benefits of an RLT, check out our earlier posts on this subject.[1]

When it comes to “funding” trusts though, it is important to note that this term of art refers the act of transferring accounts into the trust or retitling assets into the name of the trusts and has nothing to do with refinancing or getting loans to trusts. The following comparison may help provide a better understanding of how RLTs[2] actually “receive” assets.

If you think of your trust as a cookie jar, then our firm would work with you to take your cookie jar from concept to design to setup. Once you sign the trust agreement, your cookie jar is now ready to be filled with assets or “cookies.” And because your trust is like your alter-ego, it can do almost anything you can do. This means that if you have five bank accounts, each at a different bank, and you want to continue to bank at these five banks, then you can open five trust accounts at these banks. Our office would then provide you with the necessary documentation you need to present to your bank representative, who will then open a new trust account and give you a new account number. Depending on the type of trust you are setting up (revocable or irrevocable), the account will either be associated with your social security number or have its own separate tax identification number (or EIN#) for income tax reporting moving forward. This process of funding may involve several back-and-forth communications with institutions and can sometimes be challenging, especially if the bank representative is unfamiliar with trusts. This is when your choice of law firm becomes critical, so the firm can coordinate with you and the institutions to see this process through to the end. Our hope is that as trusts become more and more mainstream, funding becomes less daunting on Grantors, who can then leave their organized estates to their loved ones in a smooth manner, completely free of the probate process.

This article would not be considered complete if we did not address funding in connection with real property, businesses, and accounts with beneficiary designations. Here is a quick synopsis of how these assets are funded:

  • REAL PROPERTY: Real property must undergo a title change (i.e. the deed needs to reflect the new owner as the trust) in order for this to properly avoid probate. This deed must be recorded at the county clerk’s office just like any other deed. So long as the property is being transferred into an RLT, and the Grantor continues to reside in the property, a lender holding mortgage to the property cannot trigger the due on sale clause as the Grantor is protected by statute.
  • BUSINESSES: Depending on how a business is structured (LLC, S Corp., C Corp.), a Grantor-owner’s interest could be assigned to the RLT.
  • ACCOUNTS: Accounts passing by beneficiary designations, typically retirement accounts, life insurance policies. and/or brokerage and investment accounts with beneficiaries, must be amended to ensure the RLT (or its subtrusts for the various beneficiaries) is the primary beneficiary of these accounts.

While funding is relatively straightforward and may be handled by the Grantor on his or her own, it is always best to do so under the guidance and counsel of the drafting attorney (or even let the drafting attorney’s office handle the funding process for an extra fee) to ensure the transition is completely correctly and efficiently.

 

[1] Benefits of Revocable Living Trusts: https://estateelderplanning.com/2020/09/01/why-revocable-living-trusts-should-not-be-getting-such-a-bad-rap-in-new-jersey/ and Revocable Living Trusts Misunderstood: https://estateelderplanning.com/2018/02/26/legal-tip-of-the-week-22518/

[2] Our focus in this article is to address funding challenges with Revocable Living Trusts and only briefly discusses Irrevocable Living Trusts in passing.

Using Long-Term Care Riders in Estate Planning

For those that reach age 65, estimates show these individuals have a 70% chance of needing long-term care. To protect the assets individuals hope to leave behind to loved ones, one could consider adding an indemnity Long-Term Care (LTC) rider to their life insurance policy.
Though this approach may not work for everyone. Click the link below to learn more from Nationwide about LTC riders while held in an irrevocable life insurance trust.
Source: Nationwide “Using Long-Term Care Riders in Estate Planning”

Per Stirpes, Per Capita, and By Representation – What does this all mean and why this may impact your estate planning!

Per Stirpes. Per Capita. By Representation. Have you come across any of these terms in your (or a family member’s) estate planning documents? If you have, did you truly understood what they meant? Chances are you may have glossed over these terms of art, never giving much consideration, knowing they sounded strange, or assuming they were typos. Whatever the case, you might have put those thoughts aside, not reading into it further.  However, in certain circumstances, these terms may have a large impact your estate planning.

When the recipient of property under a will (or by intestate succession) dies before the death of the person leaving the property, a determination must be made as to who will receive the property. [1]

Per Stirpes (which means “by way of the stems or stocks” in Latin) and Per Capita (Latin for “by way of the heads”) are the two most commonly used methods to divide property.  In some states, there is also a third hybrid method known as “Per Capita at Each Generation” or “By Representation.” New Jersey, like the Uniform Probate Code (UPC), has adopted this hybrid approach.

These terminologies rarely make a difference when all of your named beneficiaries are alive at the time of your death. However, they may make a significant impact when one or more beneficiaries have predeceased you, and have left behind children themselves. This could leave your fiduciaries in a bind if the document does not clearly spell out who should receive the property.

Here is an example which may help understand the concepts better:

Facts: A, the Testator, has 3 children, C, D, and E. C died two years ago leaving behind 3 children – P, Q, and R. D died last year leaving behind 1 child – S. E is alive with no children of her own. If A dies, the terminology specifies how the asset divisions would play out:

  • Per Stirpes: C, D, and E would each get 1/3 share. Since C is predeceased, his children, P, Q, and R would equally share 1/3 of this share (1/6 each); S would get the full 1/3 share of D; and E would get her full 1/3.
  • Per Capita: Here, there would be 5 shares for the total of 5 heads: 3 shares for C’s children, 1 share for D’s child, and 1 for E. Everyone, including E, would get 1/5 of the estate.
  • Per Capita at Each Generation or By Representation: In this method of distribution, each surviving child (or the generation nearest to the designated ancestor) gets a share, and all of the remaining shares are divided equally among the surviving descendants of the deceased children. Therefore, in the above example, E would keep her 1/3 share and the 4 grandkids (3 children of C, and 1 child of D) would get to equally share the remaining 2/3.

Key Takeaway

If you would like your estate to be divided in a specific way, it is important to have a discussion with your estate planning attorney, who can choose the right terminology to help fulfill your objectives.

[1] Robert B. Fleming & Lisa Nachmias Davis, Elder Law Answer Book, Q 4:25 (4th Edition, 2021-2 Supp. 2016)

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

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!

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

Navigating Cultural Differences in Estate Planning

For those of you who don’t know, I am of South Asian descent. I grew up in Bangalore, India and came to the United States as a young adult in the 1980s. Growing up, I was surrounded by extended family members – my aunts, uncles, cousins, and grandparents were part of my everyday world. It wasn’t until I came to the United States that I discovered that the family structure I was accustomed to was not a familiar concept in the United States. Culturally, in India the family structure is very different from that of its US counterpart  – we treat our extended family as part of our nucleus. Although less common now,  the “joint family system” was the norm for many Indian families, and some households still function like this today. In the joint family system, the oldest son typically does not leave the family home.  Instead, after he gets married, his new wife joins her husband in the family home. Children are then raised in the family home, growing up alongside their cousins, aunts, uncles, and grandparents. In fact, in Indian culture, cousins are referred to as “cousin-brother” and “cousin-sister”, which I think is an excellent illustration of how close extended family members are. I was surprised to discover this term was alien in the United States!

So why does all this matter in the context of estate planning? Because at the heart of estate planning is family, and the US legal system considers family much differently than India, especially  when it comes to estate, inheritance, or gift taxes. For example, in estate planning cases US law treats extended family differently than how it treats the immediate nuclear family. As a result, I am often confronted with a situation among my South-Asian clients where uncles and aunts, who treat their nieces and nephews as their own children, are bewildered that there is a separate taxation structure if they wanted to divide their estate equally among their children, nieces, and nephews.

There is also a culture clash when it comes to attorney-client privilege. For many South Asian families, it is presumed that sons or sons-in-law who become the head of the household (when the father or father-in-law passes away) can speak on behalf of their parents or in-laws when it comes to estate planning. This is compounded when not all members of the family speak English fluently.  Many South Asian immigrants (most commonly homemaker wives) who came to the US in the mid 20th century never really became fluent in the English language and must rely on their children to serve as interpreters for them.

However, according to N.J.S.A 2A: 84A-20 (3), a client is a someone who consults with a lawyer for the purpose of getting legal advice, and any communication that is made during this relationship is subject to attorney-client privilege.  The client expects that the attorney will act in the best interests of the client at all costs and will protect the client from any undue influence. The presence of some other person could nullify this privilege and could lead to disclosure in a court of law.  Most Will contests are due to the presence of a third person (a sibling, a friend etc.) in the room  who may be unduly influencing the client to set up a Will that may be contrary to his or her initial objectives.

Therefore, for US attorneys who are not familiar with the Indian family dynamics, there is confusion and misunderstanding when they represent their Indian clientele and discover that they are not just interacting with the individual or couple who signed the engagement agreement, but often their extended  family as well! The attorneys are (and rightfully so!) concerned that: (1) there may be ulterior motives behind the children asking to speak on behalf of the entire family; (2) there is no clear understanding on who is the client really is in this situation – especially if the person who is paying the attorney fee is the child; and (3) there is destruction of attorney-client privilege due to the presence of a third party (even though the third party is an adult child).

As a lawyer of South Asian descent, I have a unique advantage when working with Indian families to create an estate plan. I understand the nuances of Indian culture enough to parse through the various family dynamics to see if there are in fact any ulterior motives that may negatively impact my clients. I am also able to communicate with an elderly client in a few of the Indian languages to see if the clients really want their child or children to speak on their behalf for the remainder of the representation. Based off my experience, one way we can circumvent the  stringent rules for attorney-client privilege to account for  the cultural differences is to have clients execute broad powers of attorney that name their children and/or extended family as the authorized representatives of the clients to communicate on their behalf.  Although this may also be of concern should there be an abuse of this power, at least for the right family situation, this can  serve as a good simple option.

 

SSI and Spousal Impoverishment Standards for 2021

Every year the Social Security Administration publishes its list of Supplemental Security Income & Spousal Impoverishment Standards that are adjusted for inflation. These standards define the minimum and maximum amount of resources and income limits that an individual and/or their spouse can have in order to be on Medicaid. Here are the new numbers for 2021 (also available on the Medicaid Website):

 

Individual Limits

Income Cap Limit for an Individual: $2,382.00 per month

Resource Cap for an Individual: $2,000 per month (same as previous year)

 

Spousal Limits

Minimum Monthly Maintenance Needs Allowance (MMNA): $2,155.00

Maximum Monthly Maintenance Needs Allowance: $3,259.50

 

Community Spouse Resources:

Minimum Resource Standard: $26,076.00

Maximum Resource Standard: $130,380.00

 

Home Equity Limits:

Minimum: $603,000.00

Maximum: $906,000.00

 

The expense of nursing home care can devastate a family’s resources as expenses for a nursing home rise. Currently, a stay at a skilled nursing facility can easily cost $15,000 or more per month. It seems hard to fathom how a couple can survive on the above thresholds, especially if there is a “Community Spouse” (i.e. spouse living in the community). There are strict rules for the use of income of the spouse on Medicaid and an even stricter limit for resources. These rules are complex and hard to navigate. However, with the proper legal guidance and direction, you can help plan for your or your loved one’s nursing home care costs, or plan to receive home and community-based waiver services. Whether you or a loved one is looking to qualify for Medicaid or continue to remain eligible for Medicaid to supplement the cost of long-term care, Rao Legal Group is here to help! Contact us via our website at www.EstateElderPlanning.com or call our office at 609-372-2855 to see how we can help you!

The Unicorn of Long-Term Care Insurance

As an estate planning firm that also specializes in elder law, we are always heartened to see a potential Medicaid applicant client’s portfolio containing a long-term care insurance (“LTCI”) policy. This is because, as planners, we know that the client is uniquely positioned to take advantage of creative strategies to accelerate his or her eligibility for Medicaid while protecting some assets from getting swooped up to pay for long term care.  More importantly, it buys us and our clients precious time to think and plan.

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As excited as we are when a potential Medicaid applicant has a long-term care insurance policy, we get even more excited for the rare moment when we discover that the client’s long-term care insurance policy participates in the New Jersey Long-Term Care Insurance Partnership Program – making them “unicorns” among LTCI plans! This is truly a happy occurrence because in these cases we can protect assets by setting aside amounts equal to the insurance benefits received from such a policy so that such assets are treated as “unavailable” or “disregarded” for Medicaid qualification purposes.

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Here is how it works–

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Medicaid has strict limitations on income and assets.  Typically, an unmarried individual Medicaid Applicant (Institutionalized or Ill Spouse) can only have $2000 in resources.  For a married couple, the spouse of the Medicaid applicant (“Community Spouse”) can only keep $130,380 in resources (2021 figures).  These numbers are adjusted for inflation, and every year the government circulates information establishing the thresholds for the following year. If an individual has more assets then the established threshold when applying for Medicaid, he or she is at  risk for being considered over-resourced and therefore would be denied eligibility.

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Due to these strict thresholds, elder law attorneys like myself analyze our client’s countable assets that are deemed “available” for Medicaid purposes and separate those from exempt or “unavailable” assets prior to submitting the application. We want to ensure as much as of the client’s assets as possible are exempt from Medicaid and any excess assets are “spent down” in a Medicaid permissible manner to achieve the maximum benefits.

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This is where long term care insurance and the NJ Long-Term Care Insurance Partnership Program comes in.

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The Partnership Program is a public/private arrangement between the state government and private long-term care insurers to assist individuals in planning for their long-term care needs.  People who purchase these specific types of policies can protect more of their assets should they later need to have the state pay for their long-term care. According to the bulletin issued by the State of New Jersey, “These special rules generally allow the individual to protect assets equal to the insurance benefits received from a Partnership Policy so that such assets will not be taken into account in determining financial eligibility for Medicaid and will not subsequently be subject to Medicaid liens and recoveries”1. For example, if you received $100k in benefits under your long-term care insurance, you may be allowed to protect an additional $100k in assets at the time you apply for Medicaid through a feature known as “Asset Disregard” under the New Jersey Medicaid Program.

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Our office has had the good fortune of being presented with such a “unicorn-like” situation recently.  Because of  our thorough oversight together with our patience & persistence working with the Medicaid caseworkers, we were able to  have them disregard a significant amount of our client’s assets over and above the Medicaid threshold limits and get  our client eligible for Medicaid.  The amount set aside in turn has helped the Community Spouse retain more of the assets than originally anticipated, which became a win-win for all.

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If you have a stand-alone long term care insurance policy, look at the benefits to see if you have this “unicorn plan” or call your agent to find out.  And if and when the time comes where the policy needs to be triggered, call our office immediately so we can provide the proper assistance and guidance on what your next steps ought to be.

 

  1. 1. The Deficit Reduction Act of 2005, Public Law 109-171, (the “DRA”) allows for the expansion of Qualified Long Term Care Insurance Partnership Programs by states (nj.gov)

Benefits of Revocable Living Trusts

As a newbie estate planner, many moons ago, I heard the “gurus” of estate planning tout the benefits of New Jersey being a “probate friendly” state. This meant that New Jersey’s court systems were easy on a family’s representative to adhere to the rules and formalities to admit the Will to probate and was also relatively inexpensive In fact, I remember an incident at a Continuing Legal Education seminar once when an older, more experienced estate planning attorney berated a young managing attorney of a boutique Trusts & Estates firm for what he called “churning out” Revocable Living Trusts (or “Rev Trusts”, as we often call them) just to make more money. The older attorney felt that the younger attorney should respect the long-standing tradition of creating the simpler and less expensive Wills, like most New Jersey attorneys were doing at the time. Boy, times have changed! Today, some of those very “gurus” have come to realize the valuable role Rev Trusts play in many a client’s life – and not just because these clients have property out of state (which used to be one of the primary reason for setting up these trusts), but because their benefits far outweigh their downsides, which we will address later on in this article.

Do not get me wrong – having a Will is still far better than not having anything at all. It is better to formalize your intentions to ensure that the people who you want to receive your assets ultimately end up getting your assets, rather than letting New Jersey’s intestacy laws determine who those assets go to. For example, many starry-eyed newlyweds (am I dating myself if I refer to them as DINKs – Dual Income No Kids?) who haven’t begun to think about death or incapacity may be surprised to know that in the unlikely event that something should happen to them or their partner, if there is no will in place, their new spouse will need to share the assets of the estate with their parents. For those who would want their assets to go solely to their spouse, setting up a Will that stipulates this is a crucial step. An added bonus for newlyweds, Wills are less expensive (note that I did not say “cheap”) than Rev Trusts, and for these newlyweds, a simple Will package may be all that they need to get their affairs in order. And keep in mind, Rev Trusts (contrary to popular misconception) do not offer creditor protection or estate tax savings. They are purely meant to serve as Will substitutes or as one client called it – Rev Trusts are just “Wills 2.0”!

So one may ask the question – “If a will is good enough for the hypothetical newlyweds, why won’t it suffice for me??”

Well, planning becomes more complicated once you have children to pass on your assets to, and as your family grows you may begin to form opinions on how children ought to inherit the “gift” passing from you to them upon your death. Also, as the assets grow over time, investments also become more complex. Once you have reached this stage of life, you may begin considering how the benefits of a Revocable Living Trust apply to you, such as:

  • They afford privacy (it is not a public document like the Will)
  • They offer smooth succession upon incapacity
  • So long as all assets are properly re-titled into the trusts, or at least have the trust named as a beneficiary, they completely avoid the courts (which may make a huge difference, especially if you have assets in multiple states some of which may have an expensive and cumbersome probate process, such as New York, California or Florida)
  • They travel with you. For example, imagine that you set up a Rev Trust in NJ and transfer assets into it, and then move to New York, you can still keep the same trust (but you may want to just have a NY attorney restate the trust to make it compliant to NY law).

However, there are 2 additional important considerations that you may not have thought about:

  • With the Rev Trust, the cost of probating a Will upon death is avoided (or at least minimized). If you think about the savings in probate costs down the road, you may not mind paying a small premium for a Rev Trust plan now rather than three times that amount down the road (it could be as much as $5k now compared to $15k later).
  • Having a Revocable Living Trust can save your beneficiaries valuable time. Imagine you are concerned about how your children (or other non-spousal beneficiaries) will inherit your assets, and you create a testamentary trust to protect the assets passing to them. If you are a resident of the state of New Jersey and have a testamentary trust in place but no Rev Trust, your beneficiaries will be forced to wait 9-15 months (maybe more if the Tax Branch is understaffed) until they receive their full inheritance. This is because New Jersey has an interesting rule: If assets do not flow into a trust at death (such as when the decedent has a Rev Trust), then the Executor can easily sign a self-executing waiver and transfer all of the assets immediately to the estate, and then to the beneficiaries. However, if assets are to pass into a trust, then the Executor/Trustee has to file a tax return with the State of New Jersey Estate and Inheritance Tax Branch and patiently wait until the waiver is received before the full amount of assets can be transferred over.

Now for the cons of a Rev Trust. After drafting several hundred Wills & Trusts for our clients as well as assisting a similar number of families with probate upon the death of a loved one, I really and truly believe that the cons of setting up a Rev Trust boil down to just 2 compared to a Will:

  • Its more expensive than a Will to set up – almost double in cost; and
  • It’s a 2-step process – unlike a Will plan, which is complete upon signing, in the case of Rev Trusts, you still need to “fill ‘em up” after you sign the trust agreements and when the trusts become effective. This is an essential part of the process that leaves many clients nervous, intimidated, and downright fearful of the administrative hassles they expect to encounter. That said, like anything else that reaps huge rewards at the end (no pain, no gain, right?), in my humble opinion, the short-term hassles seem worth it in the long run.

Families (especially non-spousal beneficiaries) find inheriting assets smooth and hassle free when they inherit assets from Rev Trusts. They don’t have to run around from institution to institution trying to transfer over the assets into the estate, struggle with the court formalities to ensure all of the court’s rules & regulations are adhered to, pay large retainers to attorneys to help these families with the probate process, file tax returns when necessary, and where applicable get trustees qualified in Court once assets are ready to be distributed to the beneficiaries’ trusts. These delays and added costs (which add up in the long run) make setting up Rev Trusts more desirable – maybe not for all clients but more and more for a good number of New Jersey residents.

In conclusion – most of our clients who have shied away from Rev Trusts over these years, have really done so because of the cost factor – they said they were not quite ready to spend on a trust just yet. And while that is a legitimate concern, there are some people whose estates are too complex to be properly covered by a simple last will and testament package. Although the price tag may seem high at first glance, spending some extra effort and money on a Revocable Living Trust now can prevent one’s loved ones from dealing with a mountain of bills and paperwork in the future.

Rao Legal Group, LLC is committed to providing comprehensive estate plans which include both Last Wills & Testaments or Revocable Living Trusts. Our packages not only include the main document that will cover you (and spouse) upon death but our well designed General Durable Powers of Attorney (authorizing someone to handle financial affairs) and the Healthcare Power of Attorney (authorizing someone to handle healthcare decisions) will ensure that you are adequately protected upon incapacity as well. Call us today – we are just a phone call away!