Author: Renee Bechamps

Inheritance Planning: Stark Differences between U.S. Beneficiary & Indian Nominee Rights!

Posted on | by Renee Bechamps

Certain persons of Indian descent, their progeny and spouses could qualify to register as Overseas Citizens of India giving them permanent residence rights among other things.  Similarly in the United States, qualified individuals may acquire lawful permanent status in many ways including via employment or through family connections.  Lawful permanent residents are popularly known as green card holders.  Inheritance laws apply equally to citizens and permanent residents in these two countries.  Recently, a few of us (accounting and legal professionals) from both India and the US, were researching inheritance planning issues related to “Overseas Citizens of India” and discovered significant differences in the United States and India when it comes to the succession of bank accounts from a deceased account holder to his or her ultimate beneficiaries.  We will discuss these differences in this article as they apply to citizens and permanent residents.

On the US side:

Probate vs. Non-probate accounts: In the US, an account can be a probate asset or a non-probate asset, depending on how it is set up.

A probate account is an account owned in the sole name of the individual account holder, with no beneficiary designation(s) attached to it. Upon death, the probate account goes through the probate process, which is the legal route by which these accounts make their way through the Last Will & Testament (“Will”) of the deceased account holder (“decedent”) over to the beneficiaries named in the Will. Where there is no Will, the account has to pass through the intestacy laws of the State in which the decedent resided and the beneficiaries (or heirs) of the decedent are determined by State law. In either case, the probate process involves court supervision or oversight.

By contrast, if the account is non-probate, then it does not go through the same channels and instead the account passes directly to the beneficiary or beneficiaries by operation of law, by contract or by trust. Joint accounts, or accounts with a “Transfer on Death or TOD” beneficiary or a “Payable on Death or POD” beneficiary[1], life insurance policies or retirement accounts with beneficiary designations or assets inside of a Revocable or Irrevocable trust, are all considered non-probate assets.  Except in limited circumstances (typically in matters of public policy, state law etc.), once an individual is named as a beneficiary of an account or is joint account holder with another, this individual becomes the legal owner of the account and inherits the account automatically – outside of the court system.

Therefore, in the US, upon on the death of an individual, things are relatively straightforward (especially if there is a Will in place).  All probate assets in the name of the decedent pass into an estate account that is set up by the Executor named in the Will. To open the estate account, the Executor will need to appear at his or her bank of choice armed with a Death Certificate, photo ID, a Tax Identification Number or TIN# (in lieu of the decedent’s Social Security Number for taxes), and a Letters Testamentary (or Appointment Letter) procured from the Court.  Similarly, if there was no Will, the same process is followed except that the individual stepping forward to serve – now called the Administrator – has to post a bond to secure the estate assets (as an insurance for the ultimate beneficiaries) before he or she can obtain the Letters of Administration from the Court.

It is pertinent to note that in either case, Courts as well as the banks do not proceed without first obtaining proper documentation from the individual stepping forward to serve and banks will likely be subject to liability if they fail to obtain the necessary documentation.  More importantly, it is unheard of for banks and other institutions to transfer probate assets of a decedent directly to an account belonging to the Executor/Administrator.  These accounts must be transferred to the estate account of the decedent and held there until the estate administration formalities are completed, including payment of any taxes/debts or other obligations of the estate, before money passes to the beneficiaries.

On the India side:

A bank/financial account can be held individually or jointly.  Joint accounts can be held: ‘either or survivor’, ‘anyone or survivor’ or ‘former or survivor.’  Account holders are also often referred to as First Holder and Second Holder where if the first holder dies, the second holder automatically receives the beneficial interest in the account.  However, all accounts (including those that are individually owned) can have nominee designations.  Unlike the US where a nominee designation would be treated as a beneficiary designation, the person named as the nominee receives payment from the bank only “as a trustee of the legal heirs of the deceased depositor, i.e. such payment to him shall not affect the right or claim which any person may have against the survivor(s)/nominee to whom the payment is made.” [2]

So here is where things can get quite tricky, and often messy, when the nominee designations don’t match up to either the beneficiaries listed under the Will or, the account holder dies intestate i.e., where there is no Will, when the nominee designations do not reflect the lawful heirs of the estate.

Let’s start with what a bank is instructed to do –  in an effort to alleviate the “tortuous procedures …[that] caused considerable distress” to family members upon the death of a deceased account holder, the RBI or Reserve Bank of India issued a circular stating that where accounts have a valid nomination, the bank has to follow a 3-step protocol, before paying out the balance directly to the survivor(s)/nominee, with full discharge of any liability against the bank for making such payments.

The three steps outlined were that the bank:

  • exercise due care and caution as to the identity of the survivor(s)/nominee and valid proof of demise of the accountholder;
  • make sure that there was no court order restricting the Bank/institution from making such payment; and
  • makes it clear to survivor(s)/nominee that payment is being made to him or her only as a trustee of the funds and that valid beneficiaries to the funds could have a claim against the survivor(s)/nominee.

But interestingly, there is also some indication to suggest that if banks insists that the survivor(s)/nominee produce legal documentation like the succession certification, Letter of administration or probate etc., or ask for him or her to obtain a bond, that would actually “invite serious supervisory disapproval”[3].  Where there are no nominee designations, the bank is “advised to adopt a simplified procedure for prepayment to legal heir(s)…keeping in view the imperative need to avoid inconvenience and undue hardship to the common person.”[4]

It follows that if the nominee designation does not match the Will of the succession rights of the beneficiary, then the legal heir’s only option is to fight it out in court.  In an article on the subject, S.S, Rana & Company cite Supreme Court cases where the Court has held that the nominee is only a custodian of the account[5].  Moreover, Section 72 of the Companies Act, 2013, states that while the nominee shall become entitled to all the rights in the shares and debentures of the company immediately upon the death of the shareholder, the rightful ownership of shares remains with the legal heir and not the nominees[6]. Courts in India have time and again reiterated that the legal heir is the ultimate, rightful owner of the property of a deceased individual, a nominee (pursuant to a nomination given by the deceased during his / her lifetime) would act only as a trustee on behalf of the rightful legal heir(s), and hold such property until the matter of succession or inheritance is decided and implemented. Even in the case of a minor being a nominee and not a legal heir, the natural or legal guardian acting on behalf of such minor nominee has to act as Trustee on behalf of the legal heirs.

Complexities increase where there is no testamentary instrument, and the personal law of the decedent provides a certain set of rules/guidelines for devolution of the estate on the legal heirs.  For example, in the case of a Hindu male, Class 1 heirs (mother, children, grandson of his predeceased son and so on) who get priority over his assets, leave out the father, who is not considered an immediate legal heir and therefore has no right to his son’s assets[7].

Some exceptions to the above are in the case of life insurance or Relief/Savings Bonds where the nominee is also considered the beneficial owner and therefore entitled to the proceeds of the policy or the bonds.

Solution for both countries –

It is imperative for anyone with assets located both in India and overseas to execute a well thought succession plan. One must aim at erasing confusion over the nominees and his/or legatees/beneficiaries. One must not only consider setting up a Will (in all countries where applicable) clearly delineating the various beneficiaries under the Will but also to methodically and systematically go through every single account and align nominee designations in accordance with the Will. Nomination and Will must be in harmony.

Those who are US citizens/residents should understand the contrasts that exist in the two countries where a beneficiary designation trumps the Will in almost every case in the United States whereas it follows a completely different treatment in India.  The easiest way to ensure a smooth and a seamless transition to your loved ones in India, is to ensure that the nominee designations mirror your intention, irrespective of a Will being made, listing the true and intended beneficiary of the account.

Our goal as planners and professional advisors is to guide families to pass on their wealth to the intended beneficiaries in a clear and hassle-free manner. This means keeping families out of the judicial system and not have legal heirs bring a court action to assert his or her lawful claim over the estate assets against an unscrupulous nominee.  Unfortunately, in its efforts to make things stress-free for grieving families, the Indian banking system may have inadvertently made it more difficult for lawful beneficiaries to claim what may have been theirs.

 

Contributing Authors:

Poorvi Chothani, Esq. is the founder and managing partner of LawQuest, an employment and immigration boutique law firm. Poorvi, a graduate of University of Pennsylvania, is admitted to the bar in India and the USA and is a registered and practicing solicitor, England and Wales.

Sujatha R. Krishnaswamy is a Chartered Accountant & MBA from Georgia Tech.  She is also the co-founder of Crestworth Management Partners Pvt. Ltd., management consultants & tax advisors, based in Bangalore, with a special focus on Indian and U.S. taxation for individuals.

Roopa P. Doraswamy, B.A., L.L.B (Hons), J.D., is a Co-Founder at Flywork Innovations Pvt. Ltd, a SaaS enabled marketplace for legal and compliance.  She is a graduate of National Law School of India University (NLSIU) Bangalore and Northeastern University School of Law, Boston

Sushma Nagaraj, B.A., L.L.B from Bangalore University, India is a qualified lawyer in India who manages an independent private law practice.  Her specialty is in the areas of estate, trust and property laws in India.

Rekha V. Rao, J.D. from the Elisabeth Haub School of Law at Pace University is the principal and founding member of Rao Legal Group, LLC.  She is licensed to practice in New York and New Jersey and has developed her firm’s niche in the areas of estate planning, estate & trust administration, elder law, guardianship, and special needs planning.

Priya Gidwani is the CFO and founding member of Rainmaker. As a CFO with emerging, growth and mid-market companies, Priya’s experience spans everything from helping to launch start-up enterprises to managing finance for mid-size companies. Priya also has significant experience of working in the US with companies like Siebel Systems Inc. and Providian Financial Corporation. Priya is a Chartered Accountant from India and holds a Master’s degree in Accounting from Illinois State University.

 

[1] Note that not all bank accounts have or offer a POD or TOD designation but if it does (part of the contract), then such accounts will pass directly to the named beneficiary or beneficiaries and bypass probate

[2] Settlement of Claims in respect of deceased depositors – Simplification of Procedure; RBI/2004-05/490, DBOD. No. Leg. BC. 95/09.07.005/2004-05, 2(A)(2.1)(c),

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=2284&Mode=0#:~:text=Banks%20are%20advised%20to%20settle,(s)%2C%20to%20the%20bank’s [emphasis added]

[3]  Id. at 2(A)(2.2).

[4] Id. at 2(B)(2.3)

[5] In its article, Legal heir or Nominee? Who is the rightful owner?, some cases cited to are: Shalkti Yezdani v. Jayanand Janat Salgaonkar, Smt. Sarbati Devi and Anr. V. Smt. Usha Devi, Uma Sehgal and Ors. vs. Dwarka Dass Sehgal And Ors etc.,

https://s3.amazonaws.com/documents.lexology.com/6edb5a5b-1308-4947-bfac-5f69d1f58278.pdf?AWSAccessKeyId=AKIAVYILUYJ754JTDY6T&Expires=1650889871&Signature=dfN8XJOf4BRwSKqO3v4VdBueUbE%3D

[6] Id.

[7] Wrong Nominee and right nominee for bank A/cs, FDs, mutual funds, financial assets by Pragati Kapoor & Preeti Motiani, ET Online (2021), https://economictimes.indiatimes.com/wealth/legal/will/wrong-nominee-and-right-nominee-for-bank-a/cs-fds-mutual-funds-financial-assets/articleshow/85396026.cms?from=mdr

New Jersey’s Intestate Share Title 3B:5-3: Intestate share of decedent’s surviving spouse or domestic partner

Posted on | by Renee Bechamps

The intestate share of the surviving spouse or domestic partner is:

a) The entire intestate estate if:

  1. No descendant or parent of the decedent survives the decedent; or
  2. All of the decedent’s surviving descendants are also descendants of the surviving spouse or domestic partner, and there is no other descendant of the surviving spouse or domestic partner who survives the decedent.

b) The first 25% of the intestate estate, but not less than $50,000.00 nor more than $200,000.00, plus three-fourths of any balance of the intestate estate, if no descendant of the decedent survives the decedent, but a parent of the decedent survives the decedent.

c) The first 25% of the intestate estate, but not less than $50,000.00 nor more than $200,000.00, plus one-half of the balance of the intestate estate:

  1. If all of the decedent’s surviving descendants are also descendants of the surviving spouse or domestic partner and the surviving spouse or domestic partner has one or more surviving descendants who are not descendants of the decedent; or
  2. If one or more of the decedent’s surviving descendants is not a descendant of the surviving spouse or domestic partner.

 

IN PLAIN ENGLISH

If your spouse or domestic partner dies without a Will, then

  • You, as the surviving spouse, can inherit the entire estate only if you and the decedent had children together, and these children were the only children from that marriage (and there were no other children from other marriages or relationships).
  • If you are the surviving spouse, and you and the decedent had NO CHILDREN together AND if the decedent’s PARENTS are still alive, then you are entitled to get the first 25% of the decedent’s estate up to the first $50K and 75% of the remaining balance. The decedent’s parents get the rest!
  • If you are the surviving spouse, and you and the decedent HAD CHILDREN/DESCENDANTS FROM OTHER MARRIAGES OR RELATIONSHIPS who are alive, then you are entitled to get the first 25% of the decedent’s estate up to the first $50K and 50% of the remaining balance. The other children get the rest!

 

TAKEAWAYS

  • Understand the difference between probate assets and non-probate assets (check out our website for our blog posts about that) and know that the intestate estate only deals with probate assets.
  • If you are (1) newly married; (2) do not have children; or (3) have a blended family, get yourself a Will now!!

What if something happens to both of us…!

Posted on | by Renee Bechamps

We had just completed the signing of our Clients’ estate planning documents – Revocable Living Trusts, Pour Over Wills, Healthcare and Financial Powers of Attorney; we had a beautifully prepared asset spreadsheet listing out their assets along with our detailed recommendations on titling changes/beneficiary updates to align those with the ultimate dispositions reflected in their estate planning documents.  We had a ton of other useful information like flowcharts, funding instructions etc. when our clients ended the meeting with a very thoughtful question – “All of this is great but what is the first thing our children should do if something happens to both of us? How does the Will get “probated”?  Can our children follow your guidelines and take care of the estate themselves or do they need your help? Our kids will no clue as to where to begin!!”

That question got us thinking and has been the inspiration for this Consumer Guide which we hope will inform and educate clients both existing and potential on what exactly families should consider if both spouses die leaving behind children and/or other beneficiaries.

Important Disclaimer: while this guide is meant to provide general advice to all individuals (both single unmarried as well as married couples with or without children), this guide was not meant to be exhaustive, capturing every nuance that may be unique only to your particular situation.  Our hope is that for those of you whose situation does not fit squarely within the assumptions noted below, then you will give us a call so we can further discuss.  Below are the assumptions:

  • that some type of foundational plan is already in place (Will/Revocable Trust) etc[1].
  • that there are 2 parents leaving behind assets to their children
  • all individuals and their fiduciaries are United States’ citizens
  • if the children are minors, then the named fiduciaries have close ties to the family

Definitions:

Fiduciaries: these are your trusted individuals appointed to serve as Executor of the estate, Guardian of minor children or Trustee of any trust assets.  These individuals sole function is to ensure that any action taken is done in line with the best interests of the beneficiaries of the estate and/or minor children

  • Executor: we call this person the manager or representative of the estate. His or her job is to go through the court formalities to get appointed, then marshal up all of the assets in the estate, pay of debts & expenses if any, then distribute the assets pursuant to the Will
  • Trustee (or guardian of the property): this individual is appointed to serve as the guardian of property either for a limited duration or for the long haul (a/k/a lifetime trusts). They usually can appoint successors in case they cannot serve and they can also be removed by all the beneficiaries if they are not doing a good of managing the trust assets on behalf of the beneficiaries
  • Guardian (of the person): these individuals are normally close family members or friends who are willing to step in and take physical charge of the minor children and take care of their day-to-day needs. If the child(ren) lives in a dorm or boarding school, then the Guardian’s role becomes more like that of a Legal Representative for that child(ren) and one who can make legal, financial, social, and healthcare decisions on the child(ren)’s behalf.

Decedent or Deceased: the individual who has just passed away

Testator or Testatrix: the individual who has executed/signed his or her Last Will & Testament

Grantor: of a Revocable Living Trust who established this trust during his or her lifetime.

Probate: the process of admitting the Will to probate so that there is court oversight from start to finish

  • Probate Assets – are assets that are part of the decedent’s estate and therefore disposed of by Will ex. If the deed to the family home was titled in parents’ joint names, then upon simultaneous death, the home becomes a probate asset

Non-probate: assets that pass outside of the Will either directly to a joint owner or via a beneficiary designation (including “Payable/Transfer on Death” or POD/TOD designations)

So let’s begin:

Let’s presume this was yesterday, and your children have just been dealt with the news that both parents are no more.  What is the first thing that needs to be done?  Well, nothing … at least for the next ten days as New Jersey law requires everyone to give grieving families a 10-day period during which time no one is expected to do anything with regards to the Will.  The public policy rationale behind this is to give families a chance to grieve and mourn and not have to worry about attending to the legal affairs of the estate.

Once that 10-day period is over, then here are some recommended steps for beneficiaries that may be followed:

Step 1:  Information Gathering

  1. Look for the estate planning documents

The first thing you want to look for is the original Will. Did your parents tell you whether they had their estate planning documents prepared?  More importantly, did they tell you where the originals were kept? In our office, on signing day, we always instruct our clients that we will be giving them back all original signed documents in a binder so it is important for them to (1) inform their fiduciaries about who we are  (note: our business card is included within in the binder); (2) to let them know where they are planning to keep our binder (ex. locked filing cabinet in home office or vault in basement etc.); and if kept locked, then where can they find the key or combination/password.

  1. Review the Will. Notify those who are serving as the appointed Executor (Guardian or Trustee) where applicable

Once you have located the original Will, you will want to review it to see who has been appointed for the various positions.  If the Will appoints someone other than you, contact them and let them know what the Will/Trust says.  In our office, we provide something called the Confirmation of Names and Fiduciaries Summary that lists all of the people appointed for the various roles along with their current address and phone number.  During the signing, we encourage our clients to share this document with these individuals right away, so they know exactly what role they are serving and when they might possibly be called in.

  1. Review the Assets in the Estate. What assets are in the estate of the deceased person?

Next, look for all asset information. If you have not completed your estate plan with us, then you will want to go through all of the places your parents may have saved their financial documents.  In this digital era when a lot of account statements are generated online, it may very important to know a list of institutions and banks where your parents have accounts.  In our office, our Asset Integration Worksheet or AIW is a revered document.  This is where list out a snapshot of our clients assets (from across the globe) and gear the document towards estate administration.  We empower our clients to keep the document updated each year or, for a nominal fee, help them keep it updated.  This way, if the unfortunate happens, beneficiaries have one document to reference to know exactly what their parents left behind.  Once you have this information, you can figure out the extent of the complexity and decide for yourselves whether or not  you need to engage the services of an estate administration attorney. See Step 3

Step 2: How do you order death certificates?

Your funeral home director will not only help you get the death certificates (DC).  The DCs generally arrive 1-3 weeks after death.  Once you get this, make sure to look at it carefully for any errors and if any, make sure to inform the director immediately – this will help avoid running into various problems later.

Step 3: Who needs to be contacted?

  • Social Security and pension: The funeral home typically informs the Social Security Administration on your behalf. Note that typically social security benefits terminate at the death of the surviving spouse unless there are minor children or adult children with disabilities. If your family situation happens to fall into this category, then be sure to call up the SSA office on your own to establish ongoing payments. Same as true for pension benefits except you will need to contact the relevant department within the company/organization to reinstate pension where applicable
  • Banks & Institutions: Depending on the complexity of the estate assets, you may require our help in contacting these institutions and helping you release the accounts over to the estate and/or trusts established for the beneficiaries. This is where it will be important to call our office as soon as possible to schedule a call to discuss next steps and to find out whether any inheritance or estate taxes may be due or if any estate income tax considerations need to be taken onto account for that year, if waivers need to be filed with the State Tax Branch and/or if trusts need to be set up

Step 4: What’s the time commitment your fiduciaries are looking at to administer an estate? Normal time frames could range anywhere from 4 to 6 months to several years (especially if there is a business involved or if the matter becomes contested) with the probate of a Will.  Revocable Living Trusts avoid probate but there may be some aspects to trust administration (like set up of further testamentary trusts or estate tax filings) that may be necessary. However, both probate costs and time delays due to waivers are significantly reduced when Grantors of Revocable Living Trusts pass away.

Step 5: Common mistakes or traps to avoid

  • Schedule the initial consultation with the law firm post death – don’t make the mistake of foregoing this call since there may be aspects of your plan (disclaimer trust planning; portability elections) that are time sensitive.
  • Taking out the RMD for the year – which could avoid up a 50% penalty imposed by the IRS
  • Account for foreign assets – every US green card holder and US citizen is subject to death taxes based on his or her worldwide assets so its important to consider everything that the decedents owned when thinking about estate taxation. Also important is to see if the decedents have a foreign Will.  In our office we guide and counsel several clients with international assets and have always recommended that they set up another Will in the overseas jurisdiction
  • Avoid consulting only a CPA and not also an estate administration attorney with the probate of the estate. There are aspects to estate planning that may catch an unwary CPA who is not familiar with estates & trusts off guard and as a result end up giving the wrong advice.

We hope you found this helpful.  We would love to hear from you to let us know what you think and if there are other questions that we can address to improve this Consumer Guide.   At some point, we plan to include a Frequently Asked Questions Section to this blog so we can consistently inform and educate our clients.

 

[1] For any prospective clients reading this Consumer Guide, note that the estate becomes significantly more difficult to probate when no estate planning documents are in place so it is always better to have something than nothing at all. But we strongly encourage you to use a specialized estate planning attorney for even the simplest of Wills as you just ‘don’t know what you don’t know’.

Earning back your trust & respect for the legal profession!

Posted on | by Renee Bechamps

I recently traveled to India for a quick trip to visit my parents who both celebrated 3 milestone events in 2021 – my mother turned 80, my father turned 90 and they celebrated their 60th wedding anniversary.

Although not a lawyer himself, my father has always been interested in the law as he comes from a family of lawyers.  His father, my grandfather (who had passed away even before I was born) was the dean of the first law college in Bangalore, India, the city where I grew up.  So, this trip, my father recounted a few of his favorite childhood memories watching his father practice out of his tiny home office when he was in private practice.  Grandpa was poor but brilliant.  He could hardly afford the clothes on his back, yet people came from far and wide to have him try their cases.  On one occasion when a rich client had a scheduled appointment with my grandfather, my father remembers telling him to put on some better clothes to make a good impression.  To that, my grandfather had replied “this client is coming to see me for my brains and not for my outfit”.

Back in those days, lawyers, doctors, and teachers were part of a noble profession where “service” was the name of the game and not how much revenue or profits one made.  The concept of a lawyer’s fee was based on a client’s ability to pay – and lawyers of that era (including my grandfather), never asked their clients for an upfront fee.  Instead, they would take on each matter based on their individual ability to handle the workload.  It is said that apparently these lawyers had pouches on their backs atop their black overcoats.  When a case was tried and won, their clients would just put as much money into that pouch that the clients could afford.  The lawyer would never know which client paid what amount.  Such was the nobility of the profession!  Can one ever imagine that happening in today?  Too many of us are caught up in our flat fee or fixed fee billing models and never stop to think whether we have really and truly have earned the respect of our clients. Do we truly “serve” our clients in the way we should?

So, in this 2022, almost 8 decades since the death of my grandfather, I want to honor him by having us at Rao Legal Group do something different and hopefully something out of the ordinary for a small law firm.  At some undisclosed time of the year, we are going to “place our pouches on our backs” for a month to allow financially strapped families pay us only what they are able to pay for their estate plans – no questions asked.  We want to earn back the trust and respect of our clients and show them that law can still be a noble profession.

Do Your Children Know Where Your Assets Are? The Importance of proper Estate Planning!

Posted on | by Renee Bechamps

There are several reasons why it is important to have an estate plan. However, by far, one of the overarching reasons people have told us why they want an estate plan in place is because they want to see their loved ones inherit the full benefit of their hard-earned assets, in a smooth hassle-free manner.

When you pass away, it is the job of the Executor (after he or she gets appointed by the Court) to marshal up all of the assets in the estate, pay off all debts and expenses before distributing the remaining assets in accordance with your Will. To do this, the Executor needs to know what assets you owned at the time of your death.

A good estate plan will include a separate list of assets which the Executor can then refer to and use to make sure the beneficiaries receive what is due and owing to them. If your estate plan does not have such a list, you run the risk of certain assets going unclaimed and subsequently escheated over to the State.

Example, John dies in 2017 and his brother Bill is the named Executor. Bill starts searching through all of John’s desks, drawers and filing cabinets to see what, if any, documentation he can find about John’s assets.  During his search, he uncovers bank account statements from Wells Fargo, so he contacts Wells Fargo to inform them of his brother’s death and has the accounts turned over to an Estate account.  From this account, Bill uses to pay for John’s funeral and other expenses/debts before distributing the rest of the money to John’s children.

What Bill did not know, however, is that John also had an account with Bank of America that was worth $25,000. John had requested these statements to be sent to him online so there was no record of this account among John’s paperwork.  Moreover, John had last used the account in 2015, so in 2018, after three years of inactivity, Bank of America, per its internal policies and state rules, turned over the account to the state.

Once the state has unclaimed property, the owner has a limited amount of time to claim the property before the state can claim the property for itself. Each state has its own rules as to how long owners have to reclaim his or her property.  According to the New Jersey Department of Treasury, approximately 1 in every 10 individuals, has unclaimed property.[1]  Common examples include unpaid life insurance benefits, forgotten bank accounts, utility deposits and unused rebate cards.

In this case, if Bill never learns of the Bank of America account (or if he does not learn of it in time to claim the money for the Estate), then John’s children will be out of luck.

A good estate planning firm should offer as part of their fee, an asset list that incorporates every single asset/account you own along with recommendations on how to retitle ownership into trusts (should you decide to establish one or more) as well as how to properly update your beneficiary designations. These firms would also be mindful of overseas assets that are particularly susceptible to escaping the notice of an otherwise diligent Executor.  Not all estate planning law firms offer detailed spreadsheets prepared in conjunction with the estate plan. Therefore, it is extremely important when choosing a law firm to assist with your estate plan to not only pick one that specializes in estate planning but can also offer these important (yet hidden) value-adds as a normal and commonplace part of its overall fee package. Ultimately, a good law firm’s objectives must be aligned with your own and which can help set up a proper estate plan for you to ensure your loved ones inherit the full benefit of your hard-earned assets.

 

[1] As a fun exercise, check out this link to see if you or a loved one may have unclaimed property right now that may have escheated to New Jersey State: https://unclaimedfunds.nj.gov/app/claim-search

Questions you didn’t know that you did not know about Medicaid planning: What I have learned as a Medicaid specialist at an elder law firm!

Posted on | by Renee Bechamps

Life has a way of going on, the clock is always ticking, and time never stops. However, if that unfortunate time comes when you may need financial assistance from the government to help pay for long term care costs, then your life may come to a screeching halt as you now must look back on your life (five years to be exact) and recall the “why” and “for what” on certain withdrawals from your accounts for this period of time.

Working as a Medicaid Specialist for Rao Legal Group, an estate and elder law firm in Princeton, NJ, I have come to see the value in planning early and preparing for the day when you may need long term care.

The things you do now can change what happens in the last chapter of your life, and so many people don’t even consider the consequences of each and everything they do on a daily basis.

Something as simple as paying your grandson when he mows your lawn every week because that chore has become difficult for you. Did you know that even a small check made out to him for mowing could be called into question later should you decide to apply for Medicaid benefits? And if you wrote out these checks on a weekly basis, then without clear proof that you were getting something in exchange for this payment, Medicaid could likely consider those checks as gifts to him?

Or, how about when your daughter and her family were kind enough to help by doing your grocery shopping for you. Maybe you’re not able to shop on your own, or you simply don’t have the energy for it. When your family pitches in to help you by paying for certain things with their own money, of course you want to reimburse them for the items purchased. Did you write a check? Did you take some cash out of your ATM for this purpose? Are they doing your shopping every week? Did you remember to keep the receipts and keep an accurate record? Do you have a loan agreement in place? If not, Medicaid may look at these checks or withdrawals as gifts, too. And they have up to five years of these transactions, so maintaining proof of all these receipts/reimbursements may be useful to justify such expenses.

Perhaps you have a son who is hardworking and providing for his family by working two jobs, but suddenly, he is unable to work because of an accident. Now, the bills are adding up for him, and his family needs groceries and the electric bill is overdue. This is a time when you would like to help them out, buying food or paying a bill — isn’t that what families do for one another? But what if we told you that Medicaid would treat that as a gift, which could in turn disqualify you for a certain period from receiving government assistance if this transaction occurred within five years of your Medicaid application.

Have you ever needed to have someone move into your home to help with bills? Or maybe you just have a friend who needs a place to stay temporarily. Your friend wants to pay rent to you for the time at your home. Has a rental agreement been prepared? What will Medicaid require as proof of the payments made to you?

On the flip side, sometimes people have worked hard and are lucky enough to have some assets set aside to pay for the needs of their families. They may have even been frugal enough to save this money for the future, along with paying a mortgage on their home. What if your house needs some repairs? Have you hired a contractor to help with some renovations? Did you have them write up a contract? Or did they want you to make out the check to cash? Are you aware that if you do not have accurate records and receipts, then Medicaid might look at those expenses as gifts, too?

Finally, if you own your home — have you considered what could happen if you became ill and needed long term care? What will happen to your home? Have you thought about the rules surrounding Medicaid and the agency’s rights to assess a lien on your home upon your death?

Maybe you have other assets, another property besides your primary residence? Or perhaps you have acquired some stocks and bonds, an IRA, or even a life insurance policy? All such assets will be looked at by Medicaid as countable assets that would need to be completely spent down prior to applying for Medicaid.

Another area to consider is the rising cost of care. You could have a small “nest egg” built up, one you worked hard to put away, and you believe that some of these investments will allow you to live out your life on these assets with a small portion passing down to your loved ones. But with the rising costs of long-term care, one major health event could land you in a situation where that nest egg is depleted and without proper advanced planning, you may not be able to protect your assets.

It can be daunting to apply for Medicaid benefits — trust me, I know this first-hand in my role as a Medicaid specialist and assisting clients and their families with their Medicaid applications.

If you meet the clinical eligibility requirements for Medicaid, you still must jump over the hurdle of meeting the financial eligibility requirements. If you don’t meet with a qualified elder law firm to help you with your planning, you could be missing out on the opportunity to avail yourself of certain strategies to help you to protect some of your assets and still qualify for Medicaid.

Some final questions: Have you set up a Financial or Healthcare Power of Attorney? How about a Will? It is so important to have these Estate Planning documents prepared. When you are suddenly not able to make decisions for yourself, it is imperative that you have someone in place that can make those decisions for you. When the day arrives that you no longer can care for yourself, you want to be ready.

The best advice I can offer to you is to do your research, get your Estate Planning documents prepared by a qualified elder law attorney, and then have your questions addressed by the attorney so that you can be ready when the day comes that you need help. Don’t wait until you already need the help, because remember, life has a way of going on, and the clock is still ticking.

Estate Planning Is Not Just for the Wealthy!

Posted on | by Renee Bechamps

We have this saying here at Rao Legal Group (RLG): It does not matter whether you have $10K or $10M – if you have anything of value that you would like to pass on to someone, then you need to have your proper foundational documents in place to formalize your intentions. A cornerstone of foundational documents is your Will, an important element that determines what happens to your assets upon death. The Will can answer important questions such as:

  • What will you leave for your children or your favorite charity?
  • Who should take care of your minor children if you are not around?
  • What do you want your funeral arrangements to include?
  • How will your estate taxes be paid?

Unfortunately, more than half of the adults in the United States do not have a Will, which means when those individuals die, their assets (provided they were solvent) are distributed based on the laws of the state where they lived. There will be no consideration for what the person wanted during their lifetime.

Consider this hypothetical (but not uncommon) scenario:

Bill has no children and intends to leave his estate to his brother, Tom. Bill dies unexpectedly and never executed a Will or established a Trust during his lifetime. According to the laws of his state, Bill’s estate goes to his estranged wife, Susie, whom he had not spoken to in the past three years, but from whom he had not legally divorced.

Tom hires a lawyer and goes to court, but there is nothing the Court can do to help Tom because the law is on Susie’s side.

Bill did not get around to setting up his Will, because he did not expect to die when he did.  Unfortunately, many people die unexpectedly, highlighting the need for a Will. What we hear often from clients who come to us to assist them with probating the estate of a loved one is that the decedent (the person who died) had planned to set up his or her Will but never got around to it. If Bill had created his estate plan, Tom would have avoided the unnecessary emotional and financial stress of dealing with litigation against Susie and would have received his inheritance, as his brother wished.

Many people also have the misconception that they do not need a Will because their estates are “straightforward,” in that their assets will automatically pass to their loved ones because they don’t have estranged wives or children from a prior relationship. But even for these individuals, having a Will is preferable than to dying intestate (without a Will). With a Will, you can name an executor or guardian of your choice; you can ensure that your assets pass to your spouse or children in trust instead of outright, which is invaluable if you have concerns about remarriage or spendthrift children; and you can clearly identify who must pay the estate taxes and how the distributions should be made to your loved ones. To put it simply, a Will makes it easy for the people handling your estate to know exactly what your wishes are.

When there is no Will, then you die “intestate,” and the laws of intestacy of that state control what happens to your assets. This means that someone will have to be appointed as the administrator (not Executor) of the estate, who will then need to get bonded before he or she can start doing the same work as the Executor, making the process lengthier and more expensive.

By creating a valid Will, you can make it easier and less expensive for your heirs to inherit your estate, and you can ensure that the right people become beneficiaries.

In conclusion: Estate Planning is not for just the wealthy. It is nothing more than the act of getting “what you have” over to “who you want to inherit.”  We at RLG will help you formalize those intentions to give you peace of mind, knowing that your wishes are being carried out properly and in a seamless manner.

My aunt named me “POD” beneficiary of a bank account before she died, but the bank refuses to give me the money!

Posted on | by Renee Bechamps

Decedent had a bank account in her own name worth $50K. She named her nephew as a “Payable On Death” or POD beneficiary of this account, unbeknownst to her spouse and children. He was her favorite nephew, who’d cared for her a lot during her lifetime, and she had hoped he could quietly liquidate the funds upon her death and use the funds to pay back some of his college fees.

Little did she know, this little act of love would cause so many adverse ramifications, and the series of events that unfolded next were nothing short of a nightmare for the poor nephew.

The nephew was dealt a nightmare because New Jersey imposes an inheritance tax for assets more than $500 passing to all non-Class A beneficiaries. The nephew in this case would be a Class D beneficiary, who would be required to pay a 15% tax on the amount passing to him, minus the $500 exemption.

Worse, the bank would put a freeze on the account until he was able to produce a waiver from the State of NJ Tax Branch, and the only way to secure this waiver would be if the Executor of the Estate (or Administrator, if there was no Will) files a NJ Inheritance Tax Return (ITR) with the Tax Branch reporting the distributions from the estate. All of this must be accomplished within eight months of the date of death. NOTE: There is a blanket waiver that allows the nephew to receive 50% of the assets in the account (i.e. $25K) immediately, but he would have to wait for the balance after the estate administration was completed and final waivers issued.

Had the aunt consulted with an estate planning attorney before her death, she would have learned that gifting during her lifetime would have no gift tax ramifications in New Jersey (NJ does not have a gift tax), and apart for a minor reporting requirement on a Form 709 to report gifts over $15K per year, she could have effectively transferred the funds over to her nephew achieving the very objective she was trying to accomplish. Better even, if she had paid the college directly with the amount, it would not have been deemed a gift at all.

It is critical to consult with an attorney before making significant decisions to ensure that these choices do not morph out of control and cause unintended consequences that could have easily been avoided.

Attorney-Client Confidentiality with Aging Clients

Posted on | by Renee Bechamps

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

Posted on | by Renee Bechamps

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.