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

Why the Sensational Administration of Leona Helmsley’s Estate Matters For You

Leona Helmsley, a hotel owner and real-estate investor known by many as “The Queen of Mean,” died in 2007, leaving behind over $4 billion in assets. At first, it would seem like she did everything to leave her estate organized the way one is supposed to; she left a 14-page Will behind with little ambiguity as to how her sizable assets would be divided upon her death, neatly packaged into individual testamentary trusts for her grandkids to be set up after her death and to be paid out over time. And yet, the final Court ruling did not conclude until earlier this year in 2019—a full 12 years since her passing—due to various disputes by disgruntled beneficiaries.1 She had a Will, so why did the probate process take so long?

 

The answer comes back not only to the unusual size of her Estate, but also to the language of Mrs. Helmsley’s Last Will and Testament. While it was explicit in reflecting who would receive what amount of money and how, her intentions guiding such declarations were less clear. She had disinherited two of her four grandchildren, and yet her Will’s only mention of them was as follows:

 

“I have not made any provisions in this Will for my grandson CRAIG PANZIRER or my granddaughter MEEGAN PANZIRER for reasons which are known to them.” 2

This declaration was in stark contrast to the $12 million dollars left to her dog, Trouble, who she wished to have buried beside her (an impossibility due to New York State laws barring animals from being interred alongside human remains). This significant apparent inequity in pay-outs caused a foreseeable Will contest by the disinherited heirs, leading to a Court settlement on this issue in 2008.3 It’s possible that despite what she thought were clear instructions to disinherit her grandchildren, the lack of clearly laid out reasons for their omission and the large bequest to her pet opened up questions on the testator’s state of mind which ultimately resulted in a favorable outcome for the disinherited grandchildren.

 

Better foresight by Mrs. Helmsley and her drafting attorney of an inevitable Will contest and the Court’s possible ruling in favor of family members over pets may have prevented this situation. While Mrs. Helmsley’s Will was probated in New York, both New York and New Jersey allow Wills to be contested due to incapacity or undue influence even if there is a standard no-contest provision written into the Will. Full disclosure in a Will or better yet, setting up a Revocable Living Trust to ensure the courts are not involved, may have avoided this lengthy legal battle. Furthermore, a Revocable Living Trust would have kept all this messy family drama out of the public eye.

 

Of course, that’s not all there is to say regarding Leona Helmsley’s Will and the Estate Administration that followed; even at the end of probate, there was another issue regarding Executor compensation that was only finalized this past August. This matter was brought before the Court in 2016, and finally in 2019 the Court awarded $100 million to be divided equally between four Executors, with an additional $6.25 million to be paid to the Estate of the fifth Executor. This was over the objections of New York Attorney General’s office, which claimed that the compensation was an exorbitant amount and suggested it be cut by as much as 90 percent, based on a third party expert evaluation.

 

The Court upheld the Executors’ request for the $100 million fee, explaining that their efforts could not be accurately measured by an hourly compensation and that these Executors faced extensive challenges in dealing with the administration of the Estate. This decision resulted in fees paid to the Executors five times more than the original individual bequests included in the Will.

 

Was this decision in line with Mrs. Helmsley’s intentions? Most likely not. Generally, statutory laws dictate how much an Executor is entitled to as compensation out of the Estate barring any specific provisions about this in the Will. Therefore, if you have thoughts on how you would like your Executors to be compensated for their work, or if you would like to provide flexibility in their fees that the law does not, a specialized estate planning attorney can advise you on the best way to include such considerations in your Will.

 

Leona Helmsley’s Will, though it encompasses more assets than most of us are likely to have in our lifetimes, illustrates several of the nuanced challenges faced when writing a Will. Sandor Frankel, the attorney who drafted her Will, had nearly 40 years of litigation experience, but he was not an estate planning lawyer. This outcome for Mrs. Helmsley’s estate highlights the importance of working with a specialized Estate Planning lawyer who understands how to effectively deter Will contests and draft documents with the end goal of avoiding court intervention. Ensure that your Estate does not face these challenges after your passing by drafting your Will with a lawyer who understands how to plan for the needs of your unique situation.