Category: Uncategorized

Step-Up in Basis and Joint Trusts

Posted on | by Mercy Kurian

False

The income tax treatment of assets at death is governed by Internal Revenue Code §1014, which generally provides for a step-up in basis to fair market value for property included in a decedent’s gross estate. This means that there is sometimes a significant benefit to holding appreciated assets in one’s own name rather than “selling” them during lifetime and incurring capital gains. It’s important to understand that when married couples hold accounts jointly, 50% of the account is considered to be the other spouse. These are especially important considerations for divorce, gift and death tax purposes.
Community Property vs. Equitable Distribution
Before we begin to see the connection between basis and how property is held in a particular state, we need to understand the difference between community property and equitable distribution. In community property states, IRC §1014(b)(6) provides that both the decedent’s and the surviving spouse’s one-half interests in community property receive a full step-up in basis at the first spouse’s death. As a result, 100% of community property may be sold by the surviving spouse with minimal or no capital gains tax. Joint trusts in those jurisdictions are often designed to preserve community property character and efficiently implement this favorable tax treatment.
New Jersey, by contrast, is an equitable distribution state. Ownership controls. At the death of the first spouse, only the decedent’s ownership interest in an asset receives a basis adjustment. The surviving spouse’s interest retains its historic carryover basis. Accordingly, the use of a joint trust in New Jersey does not replicate community property treatment and does not produce a full step-up in basis.
Limitations of Joint Trusts in Equitable Distribution States
In an equitable distribution state, a joint trust:
• Does not alter underlying ownership interests
• Does not convert assets into community property for income tax purposes
• Does not trigger a full basis adjustment under IRC §1014
In practice, joint trusts may also introduce ambiguity regarding ownership, reduce post-mortem planning flexibility, and complicate basis optimization strategies. Therefore, in New Jersey and other non-community property states, separate revocable trusts, coupled with deliberate asset titling, typically provide greater clarity and tax planning precision.

Emergency Preparedness for People With Disabilities

Posted on | by Mercy Kurian

Did you know that if you or loved one has a disability you may be entitled to a priority power restoration in the event of a electrical outage? Or that your local community may have designated special needs shelters with electrical outlets and medical support in the case of emergency evacuations? Read this really important article by SNA member Attorney Ashley Shannon Burke who presents some eye-opening and practical tips on how families with loved ones with disabilities can prepare for emergencies. Follow the articles guidelines on steps you can take now to be prepared in the future which will give you some peace of mind.

 

Emergency Preparedness for People With Disabilities

Think your home is covered under your policy? Check out this article for a common pitfall

Posted on | by Mercy Kurian

FALSE

You bought your home several years ago.  You and your spouse were all excited about the purchase.  You did everything you were supposed to do at that time – i.e got your recorded deed, set up the mortgage, got title insurance, set up the electric and water/sewer accounts, then called up your homeowner’s insurance policy to start up a policy.  But…did you inadvertently skip naming your spouse on the policy?

This past week we had not one but two instances where we found out (post death of one spouse) that the surviving spouse’s name was never listed on the policy.   How did we find out?  In one case, we had transferred the house into an irrevocable trust to do some pre- planning for Medicaid.  The house got recorded in the name of the trust and when the spouse called to add the trust as an additional insured, she found out that she had no authority to do so!! Many irate phone calls later and several calls to coordinate trustee availability across different time zones, we were finally able to get the trust and the surviving spouse listed on the policy.  What should have been a 5min call took almost 10 days to resolve along with undue stress and inconvenience for all parties involved.  Additionally, what if the problem was never discovered and the house suffered damage during this time?  What if there was a fire/theft/flood that required the spouse to file a claim?

Well, that is where all the problems begin.  The  insurance company could likely deny reimbursement of claims because the spouse was not on the policy.

Spend a few minutes and check your policy coverage today.  If your spouse’s name is missing, call the company immediately to add him or her on!  And of course, always consult with your counsel before doing anything that could impact your overall estate plan.

 

Preparing Your Own Will Using Online Resources – Stop!!

Posted on | by Mercy Kurian

 

 

 

 

 

 

 

 

FALSE!!

 

Top reasons why your DIY Will might be worse than having no Will at all!!

 

Online legal forms promise an inexpensive fix and a quick solution to what you may think are seemingly expensive legal fees but they often create more problems than they solve?

Are you thinking?

“Oh no, the cost is waay too much; mine is just a straightforward estate” or

“I just need a Simple Will” or

 “I don’t have a large estate that warrants spending so much of money” or

“my friend got hers for just $500, why is yours so expensive” and the best one yet..

 “isn’t this just a boiler plate document where you cut and paste from one document to the next?”

You are not alone!  But estate planning isn’t just filling in blanks — it’s about making sure your wishes actually work under state law. Here are a few real-world examples of what can go wrong:

  • Outdated or invalid forms: Many online templates don’t comply with your state’s laws. For example, a New Jersey Will that isn’t properly witnessed can be thrown out entirely leaving your estate to pass under intestacy rules.  Worse, if the self-proving affidavit is missing, the Witnesses will now be called to court to testify as to its validity
  • Unintended disinheritance: A form that doesn’t account for blended families could leave a surviving spouse or stepchildren with nothing.
  • Tax traps: Online documents (Wills or Trusts) often fail to address estate and inheritance tax issues, especially in states like New York or New Jersey. A poorly drafted document could increase your tax exposure instead of minimizing it. In New Jersey, if you leave assets to a non-Class A beneficiary, your Executor could be faced with significant challenges getting the tax paid so he or she can be released from liability
  • Funding mistakes: Even the best trust won’t work if it’s not funded correctly — something online services rarely explain.
  • Ambiguous language: Vague clauses can lead to family disputes, court battles, and thousands in legal fees to “fix” a DIY document after the fact.  If an inheritance tax is due, then vagueness as to who has to pick up the tax, the beneficiary or the estate, could lead to significant time and expense for the estate and the Executor to deal with
  • Unintended beneficiaries: An important role of an attorney is to guide families on how to align their estate plan (through a Will or Trust or both) with their assets.  If your Will states who your beneficiaries are but your accounts are jointly held with someone else or you named other individuals as beneficiaries of accounts, then you could be leaving the estate in complete chaos.

Estate planning is deeply personal. A good attorney doesn’t just fill out forms — they help you anticipate life’s “what ifs,” protect your loved ones, and avoid costly mistakes down the road.

Online legal forms may seem convenient, but they often do more harm than good. Estate planning is not one-size-fits-all — the right plan depends on your family, your assets, and your goals. Generic online templates can leave critical gaps, fail to comply with state laws, or even create unintended tax and inheritance consequences.

When it comes to protecting your loved ones and your legacy, precision with flexibility matters. A well-drafted Will or Trust should reflect your intent, comply with your state’s requirements, and anticipate real-world issues that software cannot.

Think of it this way: you wouldn’t want to try to fix the brakes of your car by reviewing online instructions! A good mechanic can save you from making a costly mistake later on.  Similarly, a good estate planning attorney is here to ensure that your family does not have to deal with costly mistakes after you are gone.  Instead give them peace of mind knowing that your estate was well thought out, state law compliant and hassle free for the beneficiaries.

 

Thinking Of Transferring Your Home To Your Children? STOP!!

Posted on | by Mercy Kurian

Answer: True

We often hear from many potential clients at their initial consultations who say they want to transfer their primary residence to their children – they often mistakenly believe that if they do so, then should they fall sick and incur huge hospital bills, their hard earned assets will not get sucked up in paying for their care.

However, in their eagerness to do so, they may inadvertently forego the right to protect and pass down their home in a Medicaid compliant manner and instead fall into the trap of a large penalty being imposed on such a transfer if it happened within 5 years from the date of Medicaid application submission.

This right to protect under New Jersey Medicaid is called the caregiver exemption.

What is the Caregiver Exemption?

In simple terms, the caregiver exemption is an exception that allows people who have provided or will provide care to a family member to avoid penalties that usually come with transferring assets. Normally, Medicaid looks back five years from the date of transfer of money or property to see if the transfer was made for less than fair value ( in other words, if there was a gift made).  If yes, the applicant might have to wait before qualifying for benefits. Instead, if you utilize the exemption correctly, it can help prevent or reduce those delays if certain conditions are met.

Why is This Important for You?

  1. Saving Your Assets: Many people worry about losing their savings to pay for long-term care. This exemption helps safeguard assets for your loved ones if they have spent at least 2 years of their lives caring for you in the home.
  2. Supporting Family Caregivers: If you or someone you love is providing care, this rule acknowledges that and can make it easier to plan transfers and support without penalties.
  3. Making Smarter Choices: Knowing about this exemption allows you to avoid gifting or transfer penalties should you decide to apply for Medicaid when you need it most.
  4. Avoiding Mistakes: It’s important to document your caregiving arrangements properly so that they will qualify for the exemption and won’t lead to costly delays in getting Medicaid.

 

 

How Does It Work?

This rule applies when:

  • You transfer assets to someone who is providing or will provide care for you or a family member,
  • You have a written agreement that details the care services and their value,
  • The transfer and care arrangement follow the rules set out in the law, and
  • You keep good records to show the transfers and caregiving arrangements.

What Should You Do?

If you are caring for a loved one or planning to do so:

  • Keep detailed notes about the care you provide or will provide,
  • Consider drafting a written care agreement drawn up by an elder law attorney and which explains the services and their value,
  • Consult an elder law attorney to make sure your plans follow New Jersey rules and help you qualify for Medicaid without unnecessary delays.

In Summary

The caregiver exemption in New Jersey is a helpful rule that recognizes the importance of family caregivers and can protect your home when you need long-term care. Understanding this law allows you to make informed decisions and get the help you need without losing everything you’ve worked hard for.

If you have questions about how this exemption might apply to your situation, speaking with an experienced elder law attorney can give you the guidance and peace of mind you deserve.

 

Third-Party Special Needs Trust

Posted on | by Mercy Kurian

Answer: True

Article – Third-party Special Needs Trusts (sometimes referred to as Supplemental Trusts) are not subject to Medicaid payback.

In New Jersey, a Third-Party Special Needs Trust (also called a Supplemental Needs Trust) lets you provide long-term support for a loved one with a disability without affecting their eligibility for benefits like Medicaid or SSI.

The critical difference from a First-Party Special Needs Trust (funded with the beneficiary’s own assets) is that a third-party trust is funded with assets belonging to someone else—such as a parent, grandparent, sibling, or friend—and has no Medicaid “payback” requirement. In a first-party trust, the state must be repaid from remaining assets after the beneficiary’s death. With a properly drafted third-party trust, any remaining funds can go to other family members, charities, or heirs you choose.

These trusts can cover “supplemental” expenses beyond what Medicaid provides—like education, travel, recreation, therapies, and adaptive equipment—without counting against the beneficiary’s benefits. This ensures a better quality of life while keeping vital public assistance intact.

Including a Third-Party Special Needs Trust in your estate plan offers peace of mind and flexibility. Because the rules are complex, consult an attorney experienced in New Jersey special needs planning to ensure your trust is structured for maximum protection.

 

Medicaid Look-Back

Posted on | by Mercy Kurian

Is It True That the Medicaid Look-Back Is 36 Months in New Jersey?

FALSE  — in New Jersey, the look-back period for long-term care Medicaid is 60 months (5 years).

When someone applies for Medicaid to cover nursing home or home-based long-term care, the state reviews financial records from the past five years. They look at every single account or asset you have (including accounts closed out within the last 5 years) in order to see if you gave away money or assets for less than fair market value.  If you did and you cannot prove that you used the funds for the care of the applicant, then Medicaid imposes a penalty period — a delay in eligibility.  The penalty is calculated using a penalty divisor which is based on the average cost of care.  This number is adjusted every so often and each time the agency puts out a new divisor, it get reflected on a MEDCOMM or Medicaid Communication

Why People Think It’s 36 Months

  • Outdated info: Before 2006, the federal look-back period was 36 months, but New Jersey now follows the 60-month rule.
  • Different programs: Medicaid for health insurance (under the ACA) doesn’t have a look-back, which causes confusion.

What Happens If You Made a Gift?

If you gifted $50,000 to a relative within the last 5 years, and you apply for Medicaid eligibility in 2025, then since the New Jersey penalty divisor is $402.74 per day, or $12,250.01 per month, then you could face a penalty of about 4 months ($50,000 ÷ $12,250).

Bottom Line for New Jersey Residents

New Jersey applies a 5-year look-back period to long-term care Medicaid applications. If you’re planning ahead or already transferred assets, call our office to schedule a consultation with our office. The wrong move could delay or deny coverage.

 

Planning Estates with Special Needs Children Does Not Have to Be Complicated

Posted on | by Mercy Kurian

Parents of children with special needs often say they plan to distribute their entire estate to their children without special needs so they can take care of their sibling with special needs. Some parents believe the opposite – that they need to leave more to their child with special needs since they believe their other children will take care of themselves. But how do you know which approach is right for you?

 

Working with a specialized estate planner can alleviate concerns about unequal distributions to children and prevent innocent but costly mistakes in planning your estate. An estate planner with experience in special needs planning is practiced in navigating the complex interpersonal relationships between parents and children as well as among siblings. Most importantly, a specialized estate planner understands the importance of creating a plan that is tailored to your specific needs and circumstances.

 

Parents: if you are concerned about one or more of your children with unique needs, here are some simple yet effective ways to dispose your assets while keeping things fair for all of your children.

 

Third-party special needs trusts: Families with children with special needs can set up a third-party special needs trust (“SNT”) to allow their children to benefit from an inheritance or gift from a friend or family member without jeopardizing their child’s eligibility to receive government benefits. Drafted properly, these trusts are invaluable for the child’s benefit. They allow more than just a parent or grandparent to pass down wealth into these trusts.  Any person— an aunt, uncle, family friend etc.— who might want to bequeath assets to this child can do so by naming the third-party SNT as a beneficiary of their estate. As long as this trust is managed and administered properly, none of the assets remaining after the death of the child-beneficiary is available for Medicaid recovery.

 

Retirement plans: Since the passing of the Secure 2.0 Act, individuals with special needs now have some additional benefits compared to adult children without these special needs. A chronically ill or disabled individual, also referred to as an eligible designated beneficiary (“EDB”) under the Secure Act, can inherit retirement plans through a SNT without jeopardizing their eligibility for government benefits. Additionally, they can take advantage of the life expectancy stretch that is otherwise not afforded to a non-spouse or non-EDB.

 

Life insurance is a great equalizer: Life insurance often gets a bad reputation. People are asked to purchase insurance when their children are young, when there is a perceived greater need for insurance at that time. However, once the children are older, friends and well-wishers offer unsolicited advice that money is wasted on life insurance and claim there are other “better” investment opportunities than wasted life insurance premiums. However, we see insurance as a great equalizer that can help balance an otherwise unequal distribution of assets. For example, if Mr. and Mrs. Drew have a net worth of $2 million and a $1 million joint-to-die life insurance policy, they could name their daughter’s SNT as a beneficiary while the rest of the estate could be divvied up between their other two children. Conversely, for those parents who have a home of significant value which they would like their child with special needs to continue to live in after they are gone, one or more life insurance policies naming the other two children as beneficiaries could balance out the estate.

 

Consulting with a specialized estate planner allows families to dispel mistaken notions about the disposition of their estates while giving them peace of mind knowing that their affairs are organized during their lifetime and ensure their children’s well care long after

they are gone.

 

Contact Rao Legal Group, proud sponsored member of the Special needs Alliance (SNA), for more information!

What Do You Do In New Jersey After An Injury Forces You Into Early Retirement and You Receive A Small Settlement From Your Employer!

Posted on | by Mercy Kurian

Our hypothetical discusses a 60 year old New Jersey resident who was forced into early retirement due to a workplace injury and her employer settles out of court by giving her a $100k as a settlement for her pain and suffering.  She is now having to face some tough decisions – especially about health coverage. Our facts did not say this but let’s say this individual has to move into a nursing home because they are now unable to live by themselves without 24/7 supervision.  Normally, Medicaid may be an option but receiving that $100,000 settlement adds a layer of complexity.

Let’s break down how Medicaid works in New Jersey, and how that settlement may affect your eligibility.

Understanding Medicaid in New Jersey

Medicaid is a joint federal and state program that provides health coverage to low-income individuals, including seniors, people with disabilities, and others with limited income and resources.

In New Jersey, Medicaid is administered through the NJ FamilyCare program. There are several pathways to qualify, but for a 60-year-old individual who’s not yet eligible for Medicare and may end up need nursing home level of care, will likely need to take advantage of Aged, Blind, and Disabled (ABD) Medicaid under which falls the MLTSS program or Managed Long Term Services and Supports (MLTSS) program.

An individual under the age of 65 may qualify for the ABD Medicaid if he or she is unable to engage in Substantial Gainful Activity (SGA) which means they are unable to earn more than $1620 per month (disability criteria).

Additionally, in order to qualify, there is an asset limit as well which is a mere $2k which means that at any month if there is account that goes over the $2k limit, their Medicaid benefits could be compromised.  Therefore, the $100,000 lump sum would likely disqualify our individual unless the money is legally protected or “spent down” appropriately.

Spend-down options: include spending the money on qualifying expenses (medical bills, home improvements, etc.) to reduce countable assets under the $2k limit.

Here are some other options you might consider:

  • Establish a First Party Special Needs Trust (if you meet the disability criteria)[1]
  • Spend down on non-countable assets (home modifications, car repairs, etc.)
  • Purchase an irrevocable funeral trust
  • Use a structured settlement to spread payments over time (this must be set up before you receive the money)

Important Considerations

  • Timing matters: Medicaid eligibility is based on your assets at the time of application. If you can legally reduce your countable assets before applying, you may still qualify.
  • Reporting is required: Failing to report a settlement could lead to penalties or Medicaid recovery later.
  • You may qualify for Medicare at 65, but you still need health coverage in the meantime—so exploring Medicaid is key especially if you have significant medical bills each month.

Next Steps

  1. Consult with a Medicaid planner or elder law attorney familiar with NJ Medicaid.
  2. Avoid spending the settlement impulsively—some uses may make you ineligible.
  3. Consider a spend-down strategy or trust if that is your best long-term option.

Bottom Line

A $100,000 settlement doesn’t automatically disqualify you from Medicaid in New Jersey—but how you handle it can make all the difference. If you’re under 65, retired early due to injury, and need healthcare, you may still qualify through the ACA-expanded Medicaid program. Careful planning, proper documentation, and trusted advice are key to keeping your health and financial future on track.

[1] First Party trusts hold the assets of the disabled individual but there are 3rd party trusts out there that have funds from other individuals. Care must be taken never to mix assets between the two as that could impact what the government can take back after death.

Estate Planning Services Are Becoming Table Stakes

Posted on | by Mercy Kurian

This article brings to light a growing number of companies offering online Trust or Will services and its nice to see people still want a live professional helping them with their estate planning needs. That said, there are a sobering number of people who just don’t take the necessary steps to move forward. While we are confident that once we get a chance to sit in front of clients, they will see the value in using a specialized estate planning firm for their documents. But our challenge is getting them to the initial consultation table. Time and again, we hear from our existing clients how surprised they are that their close friends and family just don’t want to even talk about this important subject. We at Rao Legal Group, strive each and every day to spread the word as far as we can to let people know that we are here to listen and to implement their wishes. Ultimately, we want clients to have peace of mind knowing that their estate affairs have been properly set up and organized.

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