Tag: New Jersey

Navigating Cultural Differences in Estate Planning

Posted on | by Tom

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

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

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

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

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

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

 

The Unicorn of Long-Term Care Insurance

Posted on | by Tom

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

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

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Here is how it works–

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

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

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

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

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

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

 

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

Benefits of Revocable Living Trusts

Posted on | by Tom

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

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

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

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

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

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

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

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

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

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

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

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