By Scott Goldstein 6/2/2008 NJBIZ magazine
Owners of closely held companies—especially family businesses—have a lot on their minds, and it often doesn’t involve what happens if an owner or partner dies or leaves the company unexpectedly.
“To fail to plan is no plan. You are leaving things to chance,” says Parag P. Patel, a Woodbridge-based business and tax lawyer who helps companies create succession plans.
Experts say most small and mid-sized private companies don’t have succession plans—and that can lead to confusion and loss for the business.
The main questions for a succession plan are: Who will lead the company? Who will buy out the deceased partner? And in the case of a family business, will the successor come from within the company or from within the family?
“These are challenging questions. It’s better to have this conversation before a partner actually dies or pulls out, when the stakes and the emotions aren’t as high,” says Marguerite Mount, an accountant with The Mercadien Group in Princeton. “You can apply more intellect than emotion. That why it’s called succession planning.”
A succession plan addresses more than just death, she says. It can apply when a partner retires, gets divorced or becomes disabled.
“Do you have one partner sell to the others? Do you find another partner to sell to? Do you continue operating the business the same way? And who will take the leadership role?” Mount cites as questions that need to be explored.
And some of the answers help create a philosophy for the business as it currently exists, Mount says. Are you building the company to sell? To merge? Are you going to take the company public? Or will you let the company perpetuate in the same form?
When a partner is suddenly gone, the succession plan can designate whether the shares go to the departing shareholder’s estate or are sold to the surviving shareholders, says Patel.
“With a plan, you won’t have the remaining shareholders arguing and you won’t have an unexpected shareholder entering the business,” Patel says.
“Without a plan, you can have a bank become a shareholder in the case of a bankruptcy,” he adds. “And you can have a wife become a shareholder in the case of a divorce or death. There are many scenarios.”
Setting up a succession plan involves communication and time.
“First thing you need to do is set up a vision statement and if you can’t do that between yourselves, then you need to have that facilitated,” Mount says. “That can take the form of professional facilitators or you can use someone who has knowledge in your industry.”
When The Mercadien Group is hired as a facilitator, it sets up a meeting among company partners in a “retreat setting” for a day, Mount says. Then the firm follows up to implement the plan with a broker or an attorney if a legal document is created, says Mount.
“The idea is to have a game plan that covers the inevi-table but unexpected.”
A family business’ succession plan should include a “buy-sell agreement” that specifies terms of ownership am-ong partners and the value of their shar-es, Patel says. “Of course, the lower the specified sh-are price, the lower the estate- and gift-tax value of the shares,” Patel says. That “avoids valuation disputes with the IRS, which may otherwise value the business higher and seek more on taxes after it is sold.”
A way to reduce estate taxes is for a business owner to shift minority shares to family members before the owner retires, Patel says. The IRS taxes transfers of business shares among family at a lower rate than it does the inheritance of business shares, he notes.
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Tuesday, July 1, 2008
Wednesday, June 25, 2008
Leave Your IRA to a Special Needs Trust
In a private letter ruling recently, the IRS addressed the issue of transferring an inherited IRA into a Special Needs Trust. The law around taxation of inherited IRAs and the interaction with trusts has been unpredictable and fast-moving for several years now.
Fortunately, this private letter ruling indicates the direction the IRS is headed on two important questions:
First, the transfer to the SNT was not a taxable transfer for estate and gift tax purposes. That's great! It means that if a person with special needs inherits an IRA, we can still do some limited planning without immediate tax consequences.
Second, the trustee was able to stretch out the distributions from the IRA (and therefore stretch out the tax deferral benefits) over the life expectancy of the beneficiary. Another positive result.
Of course, the best result would have been achieved if the decedent had made the IRA payable to the SNT directly. That way, court costs, private letter ruling costs, anxiety, and a "pay back to the state" provision all could have been avoided.
Fortunately, this private letter ruling indicates the direction the IRS is headed on two important questions:
First, the transfer to the SNT was not a taxable transfer for estate and gift tax purposes. That's great! It means that if a person with special needs inherits an IRA, we can still do some limited planning without immediate tax consequences.
Second, the trustee was able to stretch out the distributions from the IRA (and therefore stretch out the tax deferral benefits) over the life expectancy of the beneficiary. Another positive result.
Of course, the best result would have been achieved if the decedent had made the IRA payable to the SNT directly. That way, court costs, private letter ruling costs, anxiety, and a "pay back to the state" provision all could have been avoided.
Monday, June 16, 2008
Contesting a Will: Protect Your Parents From Undue Influence
Contesting a Will: Protect Your Parents From Undue Influence
Ways to Avoid Will Contests and Estate Litigation
In our estate litigation practice, inquiries from persons seeking to contest a decedent’s last will and testament are on the rise. Often the inquiry comes as the result of a parent having made an unequal distribution among his or her children, favoring one child and excluding other children as beneficiaries.
There are two grounds for contesting a last will and testament: lack of capacity and undue influence. Lack of testamentary capacity means that the decedent was not of sound mind when he or she made the will. To have testamentary capacity, a person must know in general terms what s/he has and who the natural objects of his bounty are. This is not a high standard, and challenges to a will based on lack of testamentary capacity are usually difficult to win in the absence of good medical evidence that the decedent was mentally incompetent.
More and more, our estate litigation attorneys receive calls from people who claim that the person who made the will was coerced into doing so by someone else, often a child or relative who lived near or with the decedent. Medical advances have resulted in the populace becoming much older. The care and burden of the elderly tends to fall on the shoulders of a child. Even though we like to believe that our parents will always be a great strength and knowledge in our lives, there comes a time when the roles are reversed and the child must take on responsibility for his or her parent. Such responsibilities might include the child taking on the role of caretaker.
In some families one sibling takes on a greater burden of the care of the ill and dependent parent than the other siblings. We have seen many examples where the child who takes on these responsibilities during the parent’s final years, months or even days becomes the sole heir of the parent’s estate. Sometimes, this is the bona fide choice of the parent who feels indebted to the child as a result of the care, and all the siblings are made aware of this arrangement and are in agreement.
Sometimes the arrangement is kept secret, however, and this is when problems arise. When an aged parent suffers from mental or physical infirmity that makes him or her dependent on a child caretaker, the potential for undue influence is present. The phrase undue influence with respect to the making of a will means that a person exerted influence over another such that it destroyed the free agency of the person whose will it is. In cases that we have handled one sibling has had the burden of the care of the parent, while other siblings have had minimal communications with the parent.
There is no way to prevent a sibling from taking an elderly parent to an attorneys’ office and inducing the parent to execute a new will, but some preventive measures can be taken to assure that the elderly parent is not subject to undue influence by the caretaker child.
First, have a family meeting and come to some type of financial arrangement to assist the sibling who has taken on the care of the parent. Memorialize the arrangement in writing. Second, confirm that the parent has a will and discuss the will together as a family. Third, videotape the parent explaining his/her testamentary intent and make sure the parent understands the terms of the will. Fourth, keep the lines of communication with all the siblings and the parent open.
Unfortunately, if undue influence occurs it can be difficult to prove. Because the parent has died, it becomes a situation where the only evidence is circumstantial rather than direct. Some of the circumstantial evidence a Court would find relevant would include: (1) the health of the person at the time s/he signed the will; (2) the observations and factual commentary of the attorney who prepared the will; (3) did the favored child contact the attorney; (4) was this a sudden change in disposition of the estate of the parent; (5) was the favored child at the attorney’s office when the will was signed; (6) did the favored child keep possession of the will; and (7) did the favored child keep the will a secret from the other siblings.
If you have any questions about the last will and testament of someone you know, please do not hesitate to call us.
Ways to Avoid Will Contests and Estate Litigation
In our estate litigation practice, inquiries from persons seeking to contest a decedent’s last will and testament are on the rise. Often the inquiry comes as the result of a parent having made an unequal distribution among his or her children, favoring one child and excluding other children as beneficiaries.
There are two grounds for contesting a last will and testament: lack of capacity and undue influence. Lack of testamentary capacity means that the decedent was not of sound mind when he or she made the will. To have testamentary capacity, a person must know in general terms what s/he has and who the natural objects of his bounty are. This is not a high standard, and challenges to a will based on lack of testamentary capacity are usually difficult to win in the absence of good medical evidence that the decedent was mentally incompetent.
More and more, our estate litigation attorneys receive calls from people who claim that the person who made the will was coerced into doing so by someone else, often a child or relative who lived near or with the decedent. Medical advances have resulted in the populace becoming much older. The care and burden of the elderly tends to fall on the shoulders of a child. Even though we like to believe that our parents will always be a great strength and knowledge in our lives, there comes a time when the roles are reversed and the child must take on responsibility for his or her parent. Such responsibilities might include the child taking on the role of caretaker.
In some families one sibling takes on a greater burden of the care of the ill and dependent parent than the other siblings. We have seen many examples where the child who takes on these responsibilities during the parent’s final years, months or even days becomes the sole heir of the parent’s estate. Sometimes, this is the bona fide choice of the parent who feels indebted to the child as a result of the care, and all the siblings are made aware of this arrangement and are in agreement.
Sometimes the arrangement is kept secret, however, and this is when problems arise. When an aged parent suffers from mental or physical infirmity that makes him or her dependent on a child caretaker, the potential for undue influence is present. The phrase undue influence with respect to the making of a will means that a person exerted influence over another such that it destroyed the free agency of the person whose will it is. In cases that we have handled one sibling has had the burden of the care of the parent, while other siblings have had minimal communications with the parent.
There is no way to prevent a sibling from taking an elderly parent to an attorneys’ office and inducing the parent to execute a new will, but some preventive measures can be taken to assure that the elderly parent is not subject to undue influence by the caretaker child.
First, have a family meeting and come to some type of financial arrangement to assist the sibling who has taken on the care of the parent. Memorialize the arrangement in writing. Second, confirm that the parent has a will and discuss the will together as a family. Third, videotape the parent explaining his/her testamentary intent and make sure the parent understands the terms of the will. Fourth, keep the lines of communication with all the siblings and the parent open.
Unfortunately, if undue influence occurs it can be difficult to prove. Because the parent has died, it becomes a situation where the only evidence is circumstantial rather than direct. Some of the circumstantial evidence a Court would find relevant would include: (1) the health of the person at the time s/he signed the will; (2) the observations and factual commentary of the attorney who prepared the will; (3) did the favored child contact the attorney; (4) was this a sudden change in disposition of the estate of the parent; (5) was the favored child at the attorney’s office when the will was signed; (6) did the favored child keep possession of the will; and (7) did the favored child keep the will a secret from the other siblings.
If you have any questions about the last will and testament of someone you know, please do not hesitate to call us.
Thursday, June 5, 2008
Administrator of a Probate Estate: Duties and Responsibilities
The procedures in an estate administration may take from six months to several years, and a client’s patience may be sorely tried during this time. However, it has been our experience that clients who are forewarned have a much higher tolerance level for the slowly turning wheels of justice.
The following is a portion of the duties of an administrator:
Some of the Duties of the Administrator in Probate Estate Administration
Conduct a thorough search of the decedent’s personal papers and effects for any evidence that might point you in the direction of a potential creditor;
Carefully examine the decedent’s checkbook and check register for recurring payments, as these may indicate an existing debt;
Contact the issuer of each credit card that the decedent had in his or her possession at the time of his or her death;
Contact all parties who provided medical care, treatment, or assistance to the decedent prior to his or her death;
The attorney for the administrator will not be able to file any estate or inheritance tax return until it is clear as to the amounts of the medical bills. Medical expenses can be deducted in determining the amount of any inheritance tax.
In a Supreme Court case, Tulsa Professional Collection Services, Inc., v. Joanne Pope, Executrix of the Estate of H. Everett Pope, Jr., Deceased, the court held that the administrator/personal representative in every estate is personally responsible to provide actual notice to all known or “readily ascertainable” creditors of the decedent. This means that it is the administrator’s responsibility to diligently search for any “readily ascertainable” creditors.
Other Duties of the Administrator
In General
The administrator’s job is to (1) administer the estate—i.e., collect and manage assets, file tax returns and pay taxes and debts—and (2) distribute any assets or make any distributions of bequests, whether personal or charitable in nature, as the deceased directed (under the provisions of the will). Let’s take a look at some of the specific steps involved and what these responsibilities can mean. Chronological order of the various duties may vary.
Probate
The administrator must “probate” the will. Probate is a process by which a will is admitted. This means that the will is given legal effect by the court. The court’s decision that the will was validly executed under state law gives the administrator the power to perform his or her duties under the provisions of the will.
An employer identification number (EIN) must be obtained for the estate; this number must be included on all returns and other tax documents having to do with the estate. The administrator should also file a written notice with the IRS that he or she is serving as the fiduciary of the estate. This gives the administrator the authority to deal with the IRS on the estate’s behalf.
Pay the Debts
The claims of the estate’s creditors must be paid. Sometimes a claim must be litigated to determine if it is valid. All estate administration expenses, such as attorneys’, accountants’, and appraisers’ fees, must also be paid.
Manage the Estate
The administrator takes legal title to the assets in the probate estate. The probate court will sometimes require a public accounting of the estate assets. The assets of the estate must be found and may have to be collected. As part of the asset management function, the administrator may have to liquidate or run a business or manage a securities portfolio. To sell marketable securities or real estate, the administrator will have to obtain stock power, tax waivers, file affidavits, and so on as the case may be.
Take Care of Tax Matters
The administrator is legally responsible for filing necessary income and estate-tax returns (federal and state) and for paying all death taxes (i.e., estate and inheritance). The administrator can, in some cases, be held personally liable for unpaid taxes of the estate. Tax returns that will need to be filed can include the estate’s income tax return (both federal and state), the federal estate-tax return, the state death tax return (estate and inheritance), and the deceased’s final income tax return (federal and state). Taxes usually must be paid before other debts. In many instances, federal estate-tax returns are not needed as the size of the estate will be under the amount for which a federal estate-tax return is required.
Often it is necessary to hire an appraiser to value certain assets of the estate, such as a business, pension, or real estate, because estate taxes are based on the “fair market” value of the assets. After the filing of the returns and payment of taxes, the Internal Revenue Service will generally send some type of estate closing letter accepting the return. Occasionally, the return will be audited.
Distribute the Assets
After all debts and expenses have been paid, the administrator will distribute the assets. Frequently, beneficiaries can receive partial distributions of their inheritance without having to wait for the closing of the estate.
Under increasingly complex laws and rulings, particularly with respect to taxes, in larger estates an administrator can be in charge for two or three years before the estate administration is completed. If the job is to be done without unnecessary cost and without causing undue hardship and delay for the beneficiaries of the estate, the administrator should have an understanding of the many problems involved and an organization created for settling estates. In short, an administrator should have experience.
At some point in time, you may be asked to serve as the administrator of the estate of a relative or friend, or you may ask someone to serve as your administrator. An administrator’s job comes with many legal obligations. Under certain circumstances, an administrator can even be held personally liable for unpaid estate taxes. Review the major duties involved before you accept such a responsibility.
By Kenneth A. Vercammen
Kenneth A. Vercammen is a Middlesex County, New Jersey, trial attorney who has published 125 articles in national and New Jersey publications on probate and litigation topics. He is chair of the ABA General Practice, Solo & Small Firm Division's Estate Planning, Probate & Trust Committee.
The following is a portion of the duties of an administrator:
Some of the Duties of the Administrator in Probate Estate Administration
Conduct a thorough search of the decedent’s personal papers and effects for any evidence that might point you in the direction of a potential creditor;
Carefully examine the decedent’s checkbook and check register for recurring payments, as these may indicate an existing debt;
Contact the issuer of each credit card that the decedent had in his or her possession at the time of his or her death;
Contact all parties who provided medical care, treatment, or assistance to the decedent prior to his or her death;
The attorney for the administrator will not be able to file any estate or inheritance tax return until it is clear as to the amounts of the medical bills. Medical expenses can be deducted in determining the amount of any inheritance tax.
In a Supreme Court case, Tulsa Professional Collection Services, Inc., v. Joanne Pope, Executrix of the Estate of H. Everett Pope, Jr., Deceased, the court held that the administrator/personal representative in every estate is personally responsible to provide actual notice to all known or “readily ascertainable” creditors of the decedent. This means that it is the administrator’s responsibility to diligently search for any “readily ascertainable” creditors.
Other Duties of the Administrator
In General
The administrator’s job is to (1) administer the estate—i.e., collect and manage assets, file tax returns and pay taxes and debts—and (2) distribute any assets or make any distributions of bequests, whether personal or charitable in nature, as the deceased directed (under the provisions of the will). Let’s take a look at some of the specific steps involved and what these responsibilities can mean. Chronological order of the various duties may vary.
Probate
The administrator must “probate” the will. Probate is a process by which a will is admitted. This means that the will is given legal effect by the court. The court’s decision that the will was validly executed under state law gives the administrator the power to perform his or her duties under the provisions of the will.
An employer identification number (EIN) must be obtained for the estate; this number must be included on all returns and other tax documents having to do with the estate. The administrator should also file a written notice with the IRS that he or she is serving as the fiduciary of the estate. This gives the administrator the authority to deal with the IRS on the estate’s behalf.
Pay the Debts
The claims of the estate’s creditors must be paid. Sometimes a claim must be litigated to determine if it is valid. All estate administration expenses, such as attorneys’, accountants’, and appraisers’ fees, must also be paid.
Manage the Estate
The administrator takes legal title to the assets in the probate estate. The probate court will sometimes require a public accounting of the estate assets. The assets of the estate must be found and may have to be collected. As part of the asset management function, the administrator may have to liquidate or run a business or manage a securities portfolio. To sell marketable securities or real estate, the administrator will have to obtain stock power, tax waivers, file affidavits, and so on as the case may be.
Take Care of Tax Matters
The administrator is legally responsible for filing necessary income and estate-tax returns (federal and state) and for paying all death taxes (i.e., estate and inheritance). The administrator can, in some cases, be held personally liable for unpaid taxes of the estate. Tax returns that will need to be filed can include the estate’s income tax return (both federal and state), the federal estate-tax return, the state death tax return (estate and inheritance), and the deceased’s final income tax return (federal and state). Taxes usually must be paid before other debts. In many instances, federal estate-tax returns are not needed as the size of the estate will be under the amount for which a federal estate-tax return is required.
Often it is necessary to hire an appraiser to value certain assets of the estate, such as a business, pension, or real estate, because estate taxes are based on the “fair market” value of the assets. After the filing of the returns and payment of taxes, the Internal Revenue Service will generally send some type of estate closing letter accepting the return. Occasionally, the return will be audited.
Distribute the Assets
After all debts and expenses have been paid, the administrator will distribute the assets. Frequently, beneficiaries can receive partial distributions of their inheritance without having to wait for the closing of the estate.
Under increasingly complex laws and rulings, particularly with respect to taxes, in larger estates an administrator can be in charge for two or three years before the estate administration is completed. If the job is to be done without unnecessary cost and without causing undue hardship and delay for the beneficiaries of the estate, the administrator should have an understanding of the many problems involved and an organization created for settling estates. In short, an administrator should have experience.
At some point in time, you may be asked to serve as the administrator of the estate of a relative or friend, or you may ask someone to serve as your administrator. An administrator’s job comes with many legal obligations. Under certain circumstances, an administrator can even be held personally liable for unpaid estate taxes. Review the major duties involved before you accept such a responsibility.
By Kenneth A. Vercammen
Kenneth A. Vercammen is a Middlesex County, New Jersey, trial attorney who has published 125 articles in national and New Jersey publications on probate and litigation topics. He is chair of the ABA General Practice, Solo & Small Firm Division's Estate Planning, Probate & Trust Committee.
Sunday, May 25, 2008
Deficient Nursing Homes Listed
The federal Centers for Medicare & Medicaid Services (CMS) has released the complete list of U.S. nursing homes that have failed to meet safety and quality standards for care.
The list, which identifies 131 "Special Focus Facilities" that require additional oversight, follows the release in November 2007 of a list of 54 such facilities. At that time, CMS came under intense criticism for making public only a partial list of Special Focus Facilities while sharing the full list with three associations representing the nursing home industry. (See "Feds Publish List of 54 Poorest-Performing Nursing Homes.")
CMS created the Special Focus Facility initiative in 1998 in response to the number of facilities that were consistently providing poor quality of care. Those facilities were periodically instituting enough improvement so that they would pass one survey, only to fail the next for many of the same problems as before. Facilities with this compliance history rarely addressed underlying systemic problems that were giving rise to repeated cycles of serious deficiencies.
Serious deficiencies include such things as failing to give residents their medications in the correct dose at the correct time, not taking steps to prevent abuse or neglect, inappropriate use of restraints and failure to prevent or properly treat bed sores.
Once a facility is selected as a Special Focus Facility, state survey agencies are responsible for conducting twice the number of standard surveys and, according to CMS, will apply progressive enforcement until the nursing home either significantly improves and is no longer identified as a Special Focus Facility, is granted additional time due to promising developments, or is terminated from Medicare and/or Medicaid.
Angela Brice-Smith, Deputy Director the Survey and Certification Group at CMS, told the National Citizens' Coalition for Nursing Home Reform that the list will be updated on a quarterly basis, and that names of the Special Focus Facilities will be kept on the CMS Web site for six months indicating their status. CMS is working on a modification to its Nursing Home Compare site that will link users to the list from a Special Focus Facility's site. Brice-Smith said there are no plans to release the larger list of facilities whose names are provided to states as candidates for the Special Focus Facility status.
CMS seems to suddenly be on a crusade to identify suspect nursing homes. It recently released the names of thousands of nursing homes across the country that don't meet federal standards in rates of using patient restraints or preventing bedsores.
The list, which identifies 131 "Special Focus Facilities" that require additional oversight, follows the release in November 2007 of a list of 54 such facilities. At that time, CMS came under intense criticism for making public only a partial list of Special Focus Facilities while sharing the full list with three associations representing the nursing home industry. (See "Feds Publish List of 54 Poorest-Performing Nursing Homes.")
CMS created the Special Focus Facility initiative in 1998 in response to the number of facilities that were consistently providing poor quality of care. Those facilities were periodically instituting enough improvement so that they would pass one survey, only to fail the next for many of the same problems as before. Facilities with this compliance history rarely addressed underlying systemic problems that were giving rise to repeated cycles of serious deficiencies.
Serious deficiencies include such things as failing to give residents their medications in the correct dose at the correct time, not taking steps to prevent abuse or neglect, inappropriate use of restraints and failure to prevent or properly treat bed sores.
Once a facility is selected as a Special Focus Facility, state survey agencies are responsible for conducting twice the number of standard surveys and, according to CMS, will apply progressive enforcement until the nursing home either significantly improves and is no longer identified as a Special Focus Facility, is granted additional time due to promising developments, or is terminated from Medicare and/or Medicaid.
Angela Brice-Smith, Deputy Director the Survey and Certification Group at CMS, told the National Citizens' Coalition for Nursing Home Reform that the list will be updated on a quarterly basis, and that names of the Special Focus Facilities will be kept on the CMS Web site for six months indicating their status. CMS is working on a modification to its Nursing Home Compare site that will link users to the list from a Special Focus Facility's site. Brice-Smith said there are no plans to release the larger list of facilities whose names are provided to states as candidates for the Special Focus Facility status.
CMS seems to suddenly be on a crusade to identify suspect nursing homes. It recently released the names of thousands of nursing homes across the country that don't meet federal standards in rates of using patient restraints or preventing bedsores.
Thursday, May 1, 2008
Living Wills in New Jersey
Living Wills in New Jersey
Anyone who cares about the feelings of their family members, or their own final health care treatment, should consider executing a Living Will. It has become an essential element in the practice of Estate Planning Attorneys.
Why? A Living Will permits the patient to communicate, in advance, the medical care decisions he or she would make if rendered incapacitated, so that their family won’t be put in the difficult position of having to do so for them.
The recent nationwide controversy caused by the unfortunate situation of a woman in Florida, who did not possess a Living Will, has demonstrated the family pain created by this issue and sparked renewed public interest in the Living Will. Clients from California to New Jersey have contacted Estate Planning Attorneys to learn more about them.
The Basics:
The legal name for a Living Will is an Advanced Directive, a document codified nearly 15 years ago by The New Jersey Advanced Directives for Health Care Act.
In New Jersey, according to the law, an Advanced Directive, or Living Will, in and of itself, is a simple document needing only to be in writing, signed and dated in the presence of two subscribing adult witnesses who must attest to the fact that the person is of sound mind and free from duress and undue influence. Alternatively, it simply may be signed, dated and acknowledged before a notary public, an attorney or other person authorized in New Jersey to administer oaths.
The Advanced Directive becomes operative when it is transmitted to the attending physician who has determined that the patient lacks the capacity to make a particular health care decision.
Once made, the patient may revoke the Advanced Directive either by oral or written notification of the revocation to the “Health Care Representative”, physician, nurse or other health care professional, or by any other act evidencing an intent to revoke the document. In other words, the patient can change his or her mind, at any time, simply by saying so.
What It Does:
Consistent with the terms of an Advance Directive, life-sustaining treatment may be withheld or withdrawn from a patient if the life-sustaining treatment is:
· Experimental and not proven therapy, or is likely to be ineffective or futile in prolonging life, or is likely to merely prolong an imminent dying process;
· The patient is permanently unconscious, as determined by the attending physician and confirmed by a second qualified physician;
· The patient is in a terminal condition as determined by the attending physician and confirmed by a second qualified physician, or
· The patient has a serious irreversible illness or condition, and the likely risks and burdens associated with the medial intervention to be withheld or withdrawn may be reasonably judged to outweigh the likely benefits to the patients from such intervention or imposition on an unwilling patient would be inhumane.
The law allows the attending physician, consistent with the terms of the Advance Directive, to issue a “Do Not Resuscitate” Order.
Two Types -- Instruction and Proxy:
There are two types of New Jersey Advanced Directive, or Living Will: An Instruction Directive and a Proxy Directive. You may choose to create either one or both.
The first type, an Instructive Directive is what clients usually mean when referring to a Living Will. It provides instructions and directions regarding health care in the event that the patient subsequently lacks such decision-making capacity. The Instruction Directive may state the person’s general treatment philosophy and objections together with the person’s specific wishes regarding the provision, withholding or withdrawal of any form of health care, including life-sustaining treatment.
The second type, the Proxy Directive is more similar to a Power of Attorney because it appoints a “Health Care Representative” to make health care decisions in the event the patient subsequently loses the capacity to make such decisions.
A person may appoint as his “Health Care Representative” any competent adult, including a family member, a friend or a religious adviser. Once the person’s attending physician determines that a person lacks decision- making capacity (along with confirmation of another physician, unless that person’s lack of decision-making capacity is clearly apparent), the “Health Care Representative” has the authority to make health care decisions on behalf of the patient. The “Health Care Representative” is to make all health care decisions the patient would have made had he or she possessed decision-making capacity, or where the patient’s wishes cannot be determined adequately, to make a decision in the best interest of the patient.
In carrying out the person’s wishes, the “Health Care Representative” is to give priority to that patient’s Instruction Directive, if one exists. Also, a Proxy Directive can be written in New Jersey so as to place specific limitations upon the authority of the “Health Care Representative”.
Also important to note, the Living Will statute in New Jersey covering Proxy Directives specifically protects the patient’s “Health Care Representative” from liability. The law states that the “Health Care Representative” is not imposed with any liability for any portion of the person’s health care costs, not subject to criminal or civil liability for any action performed in good faith and in accordance with the provisions of the act to carry out the terms of the Advance Directive.
Physician and Hospital Responsibilities:
Interestingly, the law requires the attending physician to make affirmative inquiry of the patient, his family or others as appropriate under the circumstances, concerning the existence of an Advance Directive. In other words, the attending physician must initiate the question of a Living Will. The attending physician is required to note in the patient’s medical records whether an Advance Directive exists and the name of the patient’s “Health Care Representative”, if any. If an Advance Directive exists, a copy must be attached to the patient’s medial records.
Health care institutions including hospitals, nursing homes, home health care agencies and hospice programs are required to adopt policies and practices that are necessary to provide for routine inquiry at the time of admission and other appropriate times concerning the existence and location of an Advance Directive. Moreover, health care institutions must adopt policies and practices necessary to provide appropriate informational materials concerning Advance Directive to all interested patients, their families and their “Health Care Representatives”, and to assist those patients in discussing the executing an Advance Directive.
These health care institutions will also be required to adopt policies and practices necessary to educate patients, their families and “Health Care Representatives” about the availability, benefits and burdens of rehabilitative treatment, therapy and services, included but not limited to family and social services, self-help and advocacy services, employment and community living, and the use of assisting devices. Health care institutions must establish procedures and practices for resolution of the disputes among the patient, and “Health Care Representative” and attending physician in the event there is disagreement concerning the patient’s decision making capacity or in the interpretation of the Advance Directive concerning the patient’s course of treatment.
The New Jersey law on Living Wills expressly states that it should not be interpreted to impair the obligations of health care professionals to provide for the care and comfort of the patient and to alleviate pain, in accordance with accepted medical and nursing standards.
The patient’s family, “Health Care Representative”, and appropriate others should be informed that if a person has appointed a “Health Care Representative” and subsequently lacks decisions-making capacity concerning a particular health care decision, the attending physician must obtain the informed consent for, or refusal of, health care from the “Health Care Representative” after discussing the nature and the consequences of the person’s medical condition, and the risks, benefits and burdens of the proposed health care and its alternatives. However, if the patient is subsequently found to possess adequate decision-making capacity, the patient shall retain legal authority to make the health care decision.
Moreover, even if the patient lacks decision-making capacity, but nonetheless clearly expresses the wish that medically appropriate measures be utilized to sustain life, that wish shall take precedence over any contrary decision of the “Health Care Representative” and over any contrary statement in the patient’s Instructive Directive.
Conclusion:
The services of an Estate Planning Attorney are not necessarily required in New Jersey to execute a Living Will – just as they are not required to execute a Real Estate Contract or a Last Will & Testament – provided the document is in the proper form, correctly drafted, signed and witnessed. However to be sure that a Living Will conforms to New Jersey legal guidelines and that the patient’s wishes in the event of incapacity are clearly expressed – so as to be understood and followed – it may be prudent to consult a lawyer experienced in Estate Planning before the occasion arises in which the Living Will is needed.
Anyone who cares about the feelings of their family members, or their own final health care treatment, should consider executing a Living Will. It has become an essential element in the practice of Estate Planning Attorneys.
Why? A Living Will permits the patient to communicate, in advance, the medical care decisions he or she would make if rendered incapacitated, so that their family won’t be put in the difficult position of having to do so for them.
The recent nationwide controversy caused by the unfortunate situation of a woman in Florida, who did not possess a Living Will, has demonstrated the family pain created by this issue and sparked renewed public interest in the Living Will. Clients from California to New Jersey have contacted Estate Planning Attorneys to learn more about them.
The Basics:
The legal name for a Living Will is an Advanced Directive, a document codified nearly 15 years ago by The New Jersey Advanced Directives for Health Care Act.
In New Jersey, according to the law, an Advanced Directive, or Living Will, in and of itself, is a simple document needing only to be in writing, signed and dated in the presence of two subscribing adult witnesses who must attest to the fact that the person is of sound mind and free from duress and undue influence. Alternatively, it simply may be signed, dated and acknowledged before a notary public, an attorney or other person authorized in New Jersey to administer oaths.
The Advanced Directive becomes operative when it is transmitted to the attending physician who has determined that the patient lacks the capacity to make a particular health care decision.
Once made, the patient may revoke the Advanced Directive either by oral or written notification of the revocation to the “Health Care Representative”, physician, nurse or other health care professional, or by any other act evidencing an intent to revoke the document. In other words, the patient can change his or her mind, at any time, simply by saying so.
What It Does:
Consistent with the terms of an Advance Directive, life-sustaining treatment may be withheld or withdrawn from a patient if the life-sustaining treatment is:
· Experimental and not proven therapy, or is likely to be ineffective or futile in prolonging life, or is likely to merely prolong an imminent dying process;
· The patient is permanently unconscious, as determined by the attending physician and confirmed by a second qualified physician;
· The patient is in a terminal condition as determined by the attending physician and confirmed by a second qualified physician, or
· The patient has a serious irreversible illness or condition, and the likely risks and burdens associated with the medial intervention to be withheld or withdrawn may be reasonably judged to outweigh the likely benefits to the patients from such intervention or imposition on an unwilling patient would be inhumane.
The law allows the attending physician, consistent with the terms of the Advance Directive, to issue a “Do Not Resuscitate” Order.
Two Types -- Instruction and Proxy:
There are two types of New Jersey Advanced Directive, or Living Will: An Instruction Directive and a Proxy Directive. You may choose to create either one or both.
The first type, an Instructive Directive is what clients usually mean when referring to a Living Will. It provides instructions and directions regarding health care in the event that the patient subsequently lacks such decision-making capacity. The Instruction Directive may state the person’s general treatment philosophy and objections together with the person’s specific wishes regarding the provision, withholding or withdrawal of any form of health care, including life-sustaining treatment.
The second type, the Proxy Directive is more similar to a Power of Attorney because it appoints a “Health Care Representative” to make health care decisions in the event the patient subsequently loses the capacity to make such decisions.
A person may appoint as his “Health Care Representative” any competent adult, including a family member, a friend or a religious adviser. Once the person’s attending physician determines that a person lacks decision- making capacity (along with confirmation of another physician, unless that person’s lack of decision-making capacity is clearly apparent), the “Health Care Representative” has the authority to make health care decisions on behalf of the patient. The “Health Care Representative” is to make all health care decisions the patient would have made had he or she possessed decision-making capacity, or where the patient’s wishes cannot be determined adequately, to make a decision in the best interest of the patient.
In carrying out the person’s wishes, the “Health Care Representative” is to give priority to that patient’s Instruction Directive, if one exists. Also, a Proxy Directive can be written in New Jersey so as to place specific limitations upon the authority of the “Health Care Representative”.
Also important to note, the Living Will statute in New Jersey covering Proxy Directives specifically protects the patient’s “Health Care Representative” from liability. The law states that the “Health Care Representative” is not imposed with any liability for any portion of the person’s health care costs, not subject to criminal or civil liability for any action performed in good faith and in accordance with the provisions of the act to carry out the terms of the Advance Directive.
Physician and Hospital Responsibilities:
Interestingly, the law requires the attending physician to make affirmative inquiry of the patient, his family or others as appropriate under the circumstances, concerning the existence of an Advance Directive. In other words, the attending physician must initiate the question of a Living Will. The attending physician is required to note in the patient’s medical records whether an Advance Directive exists and the name of the patient’s “Health Care Representative”, if any. If an Advance Directive exists, a copy must be attached to the patient’s medial records.
Health care institutions including hospitals, nursing homes, home health care agencies and hospice programs are required to adopt policies and practices that are necessary to provide for routine inquiry at the time of admission and other appropriate times concerning the existence and location of an Advance Directive. Moreover, health care institutions must adopt policies and practices necessary to provide appropriate informational materials concerning Advance Directive to all interested patients, their families and their “Health Care Representatives”, and to assist those patients in discussing the executing an Advance Directive.
These health care institutions will also be required to adopt policies and practices necessary to educate patients, their families and “Health Care Representatives” about the availability, benefits and burdens of rehabilitative treatment, therapy and services, included but not limited to family and social services, self-help and advocacy services, employment and community living, and the use of assisting devices. Health care institutions must establish procedures and practices for resolution of the disputes among the patient, and “Health Care Representative” and attending physician in the event there is disagreement concerning the patient’s decision making capacity or in the interpretation of the Advance Directive concerning the patient’s course of treatment.
The New Jersey law on Living Wills expressly states that it should not be interpreted to impair the obligations of health care professionals to provide for the care and comfort of the patient and to alleviate pain, in accordance with accepted medical and nursing standards.
The patient’s family, “Health Care Representative”, and appropriate others should be informed that if a person has appointed a “Health Care Representative” and subsequently lacks decisions-making capacity concerning a particular health care decision, the attending physician must obtain the informed consent for, or refusal of, health care from the “Health Care Representative” after discussing the nature and the consequences of the person’s medical condition, and the risks, benefits and burdens of the proposed health care and its alternatives. However, if the patient is subsequently found to possess adequate decision-making capacity, the patient shall retain legal authority to make the health care decision.
Moreover, even if the patient lacks decision-making capacity, but nonetheless clearly expresses the wish that medically appropriate measures be utilized to sustain life, that wish shall take precedence over any contrary decision of the “Health Care Representative” and over any contrary statement in the patient’s Instructive Directive.
Conclusion:
The services of an Estate Planning Attorney are not necessarily required in New Jersey to execute a Living Will – just as they are not required to execute a Real Estate Contract or a Last Will & Testament – provided the document is in the proper form, correctly drafted, signed and witnessed. However to be sure that a Living Will conforms to New Jersey legal guidelines and that the patient’s wishes in the event of incapacity are clearly expressed – so as to be understood and followed – it may be prudent to consult a lawyer experienced in Estate Planning before the occasion arises in which the Living Will is needed.
Friday, April 25, 2008
Recent Case Allows Special Needs Trust After Death
A New York trial court recently approved a trustee's petition to reform his deceased father's trust in order to protect his disabled sister's Medicaid benefits. In Matter of Newman (2008 NY Slip Op 50127, Jan. 22, 2008).
When he died in 1988, William Newman established a trust in his will for his disabled daughter. The will required the trustee to use the trust income for the daughter's benefit and gave the trustee discretion to spend the trust principal for her support and maintenance. Mr. Newman's daughter lived on her own until 2006, when she moved into an adult care facility and qualified for Medicaid. In order to maintain her eligibility, her brother, the trustee, then petitioned the court to reform the trust to make it a Supplemental Needs Trust. The guardian ad litem opposed the petition, arguing that the trustee, who was also a remainderman, had a conflict of interest.
The court approved the petition, finding that the trust meets all of the statutory conditions for reformation. Specifically, the court determined: 1. that the beneficiary is disabled; 2. that the intent of the donor was to supplement her benefits; 3. that the trust prohibits the trustee from using the assets to jeopardize her benefits; and 4. that the beneficiary cannot compel distributions from the trust. Finally, the court dismissed the guardian ad litem's argument regarding the conflict of interest, calling the analysis "restrictive" and contrary to the intent of the donor.
When he died in 1988, William Newman established a trust in his will for his disabled daughter. The will required the trustee to use the trust income for the daughter's benefit and gave the trustee discretion to spend the trust principal for her support and maintenance. Mr. Newman's daughter lived on her own until 2006, when she moved into an adult care facility and qualified for Medicaid. In order to maintain her eligibility, her brother, the trustee, then petitioned the court to reform the trust to make it a Supplemental Needs Trust. The guardian ad litem opposed the petition, arguing that the trustee, who was also a remainderman, had a conflict of interest.
The court approved the petition, finding that the trust meets all of the statutory conditions for reformation. Specifically, the court determined: 1. that the beneficiary is disabled; 2. that the intent of the donor was to supplement her benefits; 3. that the trust prohibits the trustee from using the assets to jeopardize her benefits; and 4. that the beneficiary cannot compel distributions from the trust. Finally, the court dismissed the guardian ad litem's argument regarding the conflict of interest, calling the analysis "restrictive" and contrary to the intent of the donor.
Friday, April 18, 2008
New guidance on fixing a botched IRA stretch after it's "too late"
To preserve the ability to stretch IRA distributions for a beneficiary, that individual must start taking withdrawals based on his/her life expectancy in the year after death. If those required withdrawals don't start on time, can you still rectify the situation to preserve the tax deferral? A recent private letter ruling procured our by our law firm indicates the answer is "yes."
In the recently released Private Letter Ruling 200811028, an IRA owner died in 2002 and the beneficiary failed to take any distributions from the account until 2005. In 2005, the beneficiary took all of the make-up distributions from the RMDs that were not taken in 2003 and 2004 (in addition to taking the 2005 amount), and paid the 50% excise penalty for the insufficient RMDs for 2003 and 2004, but in return the IRS allowed the beneficiary to subsequently continue RMDs based on the beneficiary's life expectancy, preserving a significant amount of tax deferral for the bulk of the IRA.
Normally, to preserve the ability to stretch over the beneficiary's life expectancy, distributions should have commenced by December 31, 2003, as required by Treas. Reg. 1.401(a)(9)-3, Q&A-3 and IRC Section 401(a)(9)(B)(iii). However, the Service acknowledges that the "default" rule for post-death distributions is to apply the life expectancy rule (as supported in Treas. Reg. 1.401(a)(9)-3, Q&A-4); thus, in essence the Service's view was not that the beneficiary had made an election to take distributions out more rapidly (e.g., under the 5-year rule since the decedent died prior to his/her required beginning date), but simply that the beneficiary had failed to take withdrawals according to the default rule. Thus, the beneficiary could come back into conformance with the life expectancy stretch rules by simply making up the missed RMDs, paying the associated penalty, and then proceeding forward with the stretch from that point on.
Although this PLR is only that - a private letter ruling, and not necessarily binding on the IRS - the logic in the ruling is fairly straightforward, and some IRA experts have suggested for many years that this should be an available (albeit untested) remedy. Whether it is appealing in any particular situation, though, will still depend on the facts and circumstances of the situation. The cost for fixing a botched RMD situation is not cheap - aside from the potential concentrated income (and thus higher marginal tax rates) on several years of RMDs lumped into a single year, the beneficiary must still pay the whopping 50% excise tax on the amounts that were not appropriately withdrawn. If it's only one year's worth of RMDs, and the beneficairy is young and may stretch the IRA for 4-6+ decades, this is probably still a very good deal. On the other hand, if there are more years of failed RMDs and associated penalties, or if there's a high risk the beneficiary will withdraw the funds more rapidly anyway, and/or if the beneficiary is older and doesn't have as long of a life expectancy, this remedy may not be as appealing. And of course, because this is only guidance via a PLR, some beneficiaries may ultimately wish (or find it necessary as a mandate from the IRA custodian) to get their own ruling to secure their particular situation (which has its own associated cost).
Nonetheless, the fact that the strategy has now worked at least once in a direct ruling from the IRS is promising, and provides a better roadmap for how other beneficiaries that have botched IRA RMDs or a failed stretch may be able to remedy their own situation in the future!
In the recently released Private Letter Ruling 200811028, an IRA owner died in 2002 and the beneficiary failed to take any distributions from the account until 2005. In 2005, the beneficiary took all of the make-up distributions from the RMDs that were not taken in 2003 and 2004 (in addition to taking the 2005 amount), and paid the 50% excise penalty for the insufficient RMDs for 2003 and 2004, but in return the IRS allowed the beneficiary to subsequently continue RMDs based on the beneficiary's life expectancy, preserving a significant amount of tax deferral for the bulk of the IRA.
Normally, to preserve the ability to stretch over the beneficiary's life expectancy, distributions should have commenced by December 31, 2003, as required by Treas. Reg. 1.401(a)(9)-3, Q&A-3 and IRC Section 401(a)(9)(B)(iii). However, the Service acknowledges that the "default" rule for post-death distributions is to apply the life expectancy rule (as supported in Treas. Reg. 1.401(a)(9)-3, Q&A-4); thus, in essence the Service's view was not that the beneficiary had made an election to take distributions out more rapidly (e.g., under the 5-year rule since the decedent died prior to his/her required beginning date), but simply that the beneficiary had failed to take withdrawals according to the default rule. Thus, the beneficiary could come back into conformance with the life expectancy stretch rules by simply making up the missed RMDs, paying the associated penalty, and then proceeding forward with the stretch from that point on.
Although this PLR is only that - a private letter ruling, and not necessarily binding on the IRS - the logic in the ruling is fairly straightforward, and some IRA experts have suggested for many years that this should be an available (albeit untested) remedy. Whether it is appealing in any particular situation, though, will still depend on the facts and circumstances of the situation. The cost for fixing a botched RMD situation is not cheap - aside from the potential concentrated income (and thus higher marginal tax rates) on several years of RMDs lumped into a single year, the beneficiary must still pay the whopping 50% excise tax on the amounts that were not appropriately withdrawn. If it's only one year's worth of RMDs, and the beneficairy is young and may stretch the IRA for 4-6+ decades, this is probably still a very good deal. On the other hand, if there are more years of failed RMDs and associated penalties, or if there's a high risk the beneficiary will withdraw the funds more rapidly anyway, and/or if the beneficiary is older and doesn't have as long of a life expectancy, this remedy may not be as appealing. And of course, because this is only guidance via a PLR, some beneficiaries may ultimately wish (or find it necessary as a mandate from the IRA custodian) to get their own ruling to secure their particular situation (which has its own associated cost).
Nonetheless, the fact that the strategy has now worked at least once in a direct ruling from the IRS is promising, and provides a better roadmap for how other beneficiaries that have botched IRA RMDs or a failed stretch may be able to remedy their own situation in the future!
Saturday, April 5, 2008
Living Trusts Are Revocable And Not An Asset Protection Tool
This great post comes from Jennifer N. Sawday of The California Estate Planning Blog.
Her post is titled: Living Trusts Are Revocable And Not An Asset Protection Tool and describes a fundamental (and often misunderstood) aspect of asset protection planning - if you have relatively unfettered access to your money, so do your creditors. It comes up all the time, she writes.
A call comes in from a potential client: “I need to set up a living trust now to protect my assets.”
Generally, if the person (called the settlor) who created the living trust and transfers property to this living trust has retained the right to revoke the living trust then he also retains an interest in the trust assets. There is no protection from outside entities or creditors regarding what has been transferred into the living trust.
In other words, a living trust is known as a revocable trust. As such, living trusts are not considered a vehicle for asset protection. A living trust is used mainly to allow assets to transfer at death without going through probate or to allow a co-trustee or successor trustee manage assets in the event of incapacity of the settlor of the trust.
Her post is titled: Living Trusts Are Revocable And Not An Asset Protection Tool and describes a fundamental (and often misunderstood) aspect of asset protection planning - if you have relatively unfettered access to your money, so do your creditors. It comes up all the time, she writes.
A call comes in from a potential client: “I need to set up a living trust now to protect my assets.”
Generally, if the person (called the settlor) who created the living trust and transfers property to this living trust has retained the right to revoke the living trust then he also retains an interest in the trust assets. There is no protection from outside entities or creditors regarding what has been transferred into the living trust.
In other words, a living trust is known as a revocable trust. As such, living trusts are not considered a vehicle for asset protection. A living trust is used mainly to allow assets to transfer at death without going through probate or to allow a co-trustee or successor trustee manage assets in the event of incapacity of the settlor of the trust.
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