Looking for something you can give your children and grandchildren that can’t be swallowed, won’t be recalled and doesn’t contain excessive amounts of lead? Consider contributing to your children’s and grandchildren’s 529 college savings plan.

The gift of a 529 plan probably won’t make your children and grandchildren squeal with joy but years from now, when they graduate from college debt-free, they’ll thank you.

Every state offers at least one 529 college savings plan, and you don’t have to invest in your own state’s plan. Your contributions aren’t deductible on your federal tax return, but more than 30 states allow residents who contribute to their own state’s plan to deduct some or all of their contributions from their state taxes. Your investments grow tax-deferred, and withdrawals are tax-free, as long as the money is used for college expenses.

Parents and grandparents can set up their own 529 plan, naming the child or grandchild as a beneficiary, or contribute to an existing plan set up by the child’s parents.

Even if the account isn’t in your name, you might be eligible for a state tax break. Most states that provide tax deductions permit non-account owners who contribute to an existing account to deduct their contributions, says Chris Hunter, program manager for the National Association of State Treasurers.

Make sure you keep a copy of your canceled check for your state tax records. You can find the rules for your own state at www.collegesavings.org.

The biggest drawback to contributing to an existing account is that you relinquish control of the money. The plan’s account owners can do anything they want with money in the account, says Bill Raynor, vice president of 529 plan sales for OppenheimerFunds. Raynor says he generally advises grandparents who want to contribute to a 529 to set up a separate account and name themselves as owner, so they can retain control of the money. That’s particularly important if you plan to make a large contribution to a 529 plan, he says.

Otherwise, he says, your contribution “could become a red Porsche convertible instead of the kid’s college fund.”

In addition, keeping the account in your name means you’ll be able to withdraw the money for emergencies, such as catastrophic medical expenses. You can withdraw money in your 529 account at any time, for any reason, says Jeff Coghan, Director of College Savings Programs for Hartford Financial Services. If the money isn’t used for higher-education expenses, however, you’ll owe income taxes and a 10% penalty on the earnings.

Contributions to a 529 savings plan are removed from your taxable estate, even if the account is in your name. That feature makes 529 savings plans a powerful estate-planning tool for wealthy parents and grandparents who are concerned about inheritance taxes, Raynor says.

You can contribute up to $12,000 a year, per beneficiary, to 529 plans without filing a gift-tax return with the IRS. Better yet, you can “frontload” your 529 plans by contributing five years’ worth of annual contributions in one year.

That means you can contribute up to $60,000 to a grandchild’s 529 plan — or $120,000 if you’re married — without filing a gift-tax return. If you have several children or grandchildren, you can set up multiple accounts and shelter hundreds of thousands of dollars from estate taxes, Raynor says. And if a couple of your children or grandchildren eventually don’t go to college, you can always change beneficiaries — as long as the accounts are in your name.

There’s one major drawback to setting up a 529 plan — or several plans — in your name. If you need nursing home care in the future, your 529 plan could hurt your eligibility for Medicaid, a joint federal/state health insurance program for low-income people. Because you control the account, the government considers your 529 plan a “countable asset.” That means you’ll be required to use that money to pay for your long-term care expenses before you qualify for Medicaid. (Except if you live in Arkansas, which enacted a law this year exempting 529 plans from Medicaid eligibility.)

If you think you might need to apply for Medicaid in the future, consider contributing to an account in someone else’s name, says Joe Hurley, founder of Savingforcollege.com. That way, the plan won’t be considered a countable asset for purposes of Medicaid.

Yet even this strategy won’t get you off the hook entirely. When you apply for Medicaid, the state will review your finances during the previous 60 months. Financial gifts made during this period, including contributions to a 529 savings plan, could hurt your eligibility for Medicaid benefits.

For more information, call or e-mail me or a financial adviser who specializes in long-term care.

November 30, 2007 – Fredrick P. Niemann participated in a seminar hosted by the Mercer County Bar Association entitled “Utilizing Special Needs Trusts in Personal Injury and Matrimonial Settlement”, and successful mediation in Probate Litigation and Family Disputes.

Freehold, NJ – The National Academy of Elder Law Attorneys (NAELA) has announced that Fredrick P. Niemann, Esq. of Hanlon Niemann, P.C. in Freehold has attended its annual Advanced Elder Law Institute held in Memphis, Tennessee, November 2-4 2007.

Some of the highlights of the 2007 NAELA Advanced Elder Law Institute, “It’s Now or Never!” included:

• Changing issues in Veteran’s benefits facing our aging veterans.
• Guardianship and elder abuse issues and ways the “system” can be improved to help our elders retain their dignity and remain safe.
• Cases involving patients who have suffered traumatic brain injury.

About NAELA

Established in 1987, the National Academy of Elder Law Attorneys (NAELA) is a non-profit association that assists lawyers, bar organizations and others. Members of NAELA are attorneys who are experienced and trained in working with the legal problems of aging Americans and individuals of all ages and disabilities. The mission of the National Academy of Elder Law Attorneys is to establish NAELA members as the premier providers of legal advocacy, guidance and services to enhance the lives of people with special needs and people as they age.

The Department of Veterans Affairs should overhaul its outdated system of compensating former military personnel for disabling injuries they suffered during their service, the Institute of Medicine recommended yesterday.

The current system dates, in part, to the World War II era. It is out of step with modern medical advances in diagnosing, understanding and treating conditions such as traumatic brain injury, the institute said in a report requested by the federal Veterans’ Disability Benefits Commission. The institute is a branch of the National Academies, an organization chartered by Congress to advise the government on scientific and technical issues. The disability benefits commission, created by Congress in 2003 to study the VA compensation system, is expected to issue a report this year.

For years, the VA rating system has been criticized for bureaucratic delays and disability ratings that many veterans say are lower than they should be, which means they get less compensation. The subject is getting renewed attention as veterans of the wars in Iraq and Afghanistan return home with post-traumatic stress disorder, brain damage, amputations and other serious injuries and conditions.

Estates holding a closely held business interest valued at greater than 35 percent of the adjusted gross estate can elect to pay estate taxes in installments. The rules also permit the IRS to require the estate to post a surety bond to secure the government’s interest in the deferred tax. The IRS has imposed a policy to make the bond mandatory and the issue was litigated in Tax Court. The Tax Court held that the IRS should apply the bond requirement on a discretionary case-by-case basis. In response, the IRS announced a revision of its policy (IRS Notice 2007-90, 2007-46 IRB 1003) and will apply various factors to determine the need to require a bond. Among the factors to be considered are (1) the duration and stability of the business, (2) the timely ability to pay the installments of tax and interest, and (3) the compliance history of the business. The Notice requests comments from practitioners about other factors that might be appropriate. If you have questions on this issue, please call me to discuss.

Failure to Name an Alternate Beneficiary to an IRA Accelerates Income Tax Liability

In a recent case, the decedent, aged 78, owned an IRA at the time of his death. The designated beneficiary of his IRA was his wife. The decedent failed to name a secondary beneficiary, although a prior designation named his daughter as secondary beneficiary. When his wife died, the decedent failed to complete a new beneficiary form before his death. The executor got the probate court to approve a change in the beneficiary to the IRA owner’s daughter subsequent to his death. The IRS ruled (Ltr. 200742026) that the estate is the beneficiary of the IRA and that no individual can be named beneficiary for the purposes of determining the applicable distribution period of the IRA. Thus, the account must be distributed over the decedent’s remaining fixed-term life expectancy instead of the daughter’s life expectancy, causing income taxes to be incurred earlier than necessary. This ruling indicates the importance of checking beneficiary designations and making timely changes as necessitated by individual circumstances.

The Center for Medicare Advocacy has just issued a report discussing the circumstances in which Medicare may be liable for dental services. The report concludes: “The likelihood of obtaining Medicare coverage for non-routine dental care can be increased by taking certain steps. First, a treatment plan established at the outset by the primary physician providing covered medical services should include provision for ancillary dental care. As dental services are needed, the physician should record the fact that they are incident to and necessary for the patient’s primary treatment, and prescribe the specific dental services. This will take such dental services out of the exclusion for routine care, and show that they are “incident to and an integral part of” a covered course of treatment. In order to obtain a successful decision, it may be necessary for the beneficiary to go through a number of unsuccessful lower levels of administrative appeal before reaching the ALJ or federal court levels. At these higher levels of appeal, the beneficiary or her advocate will have an opportunity to overcome the presumption that Medicare never covers dental services. Testimony and medical records from the beneficiary’s physicians should be presented to show that the dental services were ordered and supervised by them as part of the claimant’s covered treatment. Legal arguments can be made that 1) the controlling Medicare statute, as shown by its legislative history, excludes only coverage of routine dental services; 2) the manual requirement that services be “incident to and an integral part of” covered services was met; or if not met, 3) the interpretations of the statute in the manual are too inconsistent and unreasonable to be given deference.”

Monmouth County’s largest newspaper, the Asbury Park Press, recently wrote a featured article entitled “How To Prepare Your Will” with New Jersey based Fredrick P. Niemann of Hanlon Niemann, a commentator on the importance of a properly written Will, Health Care Directive and Power of Attorney.

Mr. Niemann was extensively quoted, along with a client of the firm, on the reasons that cause people to prepare wills, trusts and estate planning documents.

Mr. Niemann, a 30 year practicing attorney with extensive experience in elder law, asset protection, estate tax reduction and counseling of individuals and family businesses, was recommended to the Asbury Park Press as an attorney with significant experience in preparing estate plans, trusts and life care planning documents, particularly for individuals with sudden health setbacks like Alzheimer’s, dememtia, stroke, Parkinson’s, etc.

The firm is conveniently located in the central New Jersey County of Monmouth County on U.S. Highway 9, Freehold Township, and has a statewide practice.

APPELLATE DIVISION RULES ON SPOUSAL ELECTIVE SHARE RIGHTS UNDER A PREMARITAL CONTRACT

The New Jersey Appellate Division on June 20, 2007, decided that a widow’s premarital waiver of an elective share to the Estate of her late husband was void when the underlying premarital contract was found unenforceable.

In a case between a step-parent and the children of the decedent, the issued involved the enforceability of the steps-parents’ rights to inherit a portion of her late husband’s estate, even though she had waived her rights to the estate before her marriage. The Court found that because of the requirements of N.J.S.A. 3B:8-10 and N.J.S.A. 37:2-30, the premarital agreement could not be enforced and, therefore, plaintiff’s waiver was unenforceable.

Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold New Jersey law firm commented that this decision points out the extreme caution and adherence to form and substance that must be followed by individuals who contemplate second and/or successive marriages and who want to protect their estate for the benefit of their children. Mr. Niemann cautions that without a carefully prepared pre-marital agreement, “Older, financially successful men and women must be aware of the significant, almost enormous risks to them should the marriage fail. By consulting with a qualified attorney, the individual can take meaningful steps to protect their life’s savings for the benefit of all who are intended to receive it.”

Mr. Niemann is a partner of Hanlon Niemann, P.C. and directs the firm’s business and estate/elder law practice group. The case referred to is In The Estate of Shenn, A-3819-05T5.

Wal-Mart workers suing the world’s largest retailer have been handed a major victory by the New Jersey Supreme Court and the hard work of lead New Jersey attorney, Christopher J. Hanlon, Esq. of Hanlon Niemann, P.C. located in Freehold, New Jersey.

Reversing both the trial and Appellate Division Courts, the Supreme Court agreed with the position taken by Mr. Hanlon that the lawsuit should proceed as a “class action” against Wal-Mart by its former employees.

The suit centers on allegations that the retailer knowingly encourages missed breaks and off-the-clock work among its employees to cut costs and maximize profits. The lower Courts had refused to certify the lawsuit as a class action, thereby effectively “killing” it.

With this decision, Mr. Hanlon and his team of national lawyers will go to trial against Goliath Wal-Mart. Responding to the decision, Mr. Hanlon said “Initial justice for Wal-Mart workers has been achieved. Now, it’s time to prove the pervasive and systematic practice of Wal-Mart to deprive its workers of their rights. I look forward to final victory supporting the cause of worker’s rights.”Mr. Hanlon is a certified civil trial attorney and founding partner of Hanlon Niemann, a highly regarded firm located in central New Jersey with a statewide practice.