Hanlon Niemann Blog | A Freehold, New Jersey Law Firm

By Fredrick P. Niemann, Esq., a Monmouth, Ocean, Middlesex and Mercer County NJ Estate Planning and Administration Attorney

Earlier this year, I spoke about concern over the elimination of federal estate tax for this year.  While that sounds like a good thing, it’s not really because the law also eliminated the capital gains “step up” in basis.  So many estates which never would have been subject to estate tax (or capital gains tax) may now face capital gains tax, unless Congress decides to retroactively reinstate the old law, which it has been unable to do all year.

We are now 9+ months into the year, the first estate tax returns for those who died in 2010 are now due, and still nothing from Washington.  Many estate plans have built in flexibility in terms of placing assets into trusts to take advantage of the tax laws.  The problem is that if we don’t know what tax law is in effect how can anyone know what choices to make?

The latest word is that a reinstatement of the old law is unlikely.  Democrats want the reinstatement of a $3,500,000 exemption.  Republicans want to eliminate the tax entirely.  That would certainly be welcome news to many families.  Neither side has the votes to get what it wants, however, a compromise that is now being floated may be good news for all.

Congress may permit more modest estates to elect to benefit from the step up in basis rules that were in effect in 2009.  This would mean, for example, that if you inherited, at your dad’s death, his house or stocks that he held for many years, the basis for calculating capital gains tax is not what he paid but the value of the assets at the date of his death.  So, if you sell those assets shortly after his death you owe no capital gains tax.  This way, the 2010 law would benefit everyone, not just the wealthy.

While this makes a lot of sense, as we all know, that isn’t going to be enough to carry the day, especially in Washington.  Lawmakers will be taking their traditional summer recess in a few weeks.  It’s not clear whether anything will happen but this all should come to a head soon.  Stay tuned.

For further information and advice on any estate planning or estate administration matter, do not hesitate to contact me at 888-800-7442, or fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., NJ Estate Administration Attorney

If you inherit property, of course you should be grateful and count your blessings. Still, consider the possibility that the gift may come with a big string attached-a debt linked to the prop¬erty, such as is particularly common with real estate or a car. In that event, the question arises as to whether the debt must be satisfied from the particu¬lar asset or from the decedent’s estate more generally. How this question is answered can cause a big swing in the respective gift amounts for beneficiar¬ies of an estate.

Historically, the law presumed that the debt was not to be paid from the property that was connected to it. The reasoning was that a true gift should not come laden with such a burden. Over time, as taking on debt became commonplace, this thinking changed and statutes flipped the conventional assumption. Increasingly, these laws start from the premise that the property left to someone includes the debt on the property, unless the decedent in his or her will clearly indicated a different intent. That is where careful estate planning, with professional guidance, comes in.

It is best to leave no doubt for the ordinary lay reader of a will. A general directive in the will to pay all debts of the testator is too nebulous. Instead, if the intent is not to keep the asset joined to the debt, language something like this should be used in a will: “If [the specific asset] is subject to a mortgage, security interest, or other lien, I direct that my executor pay the debt from other prop¬erty of my estate which is not given to a specific person or entity.”

This scenario was played out re¬cently in a case in which a farmer left to his (favored?) son three different farms, each of which was encumbered by debt. To his other son he left the residue of the estate. When the father died, the executor used part of the es¬tate proceeds to pay off the loans to the farms, so that the first son would re¬ceive them debt-free. Not surprisingly, the second son, whose inheritance was thereby diminished, brought the matter to court.

The second son prevailed, forcing payment of the debts for the farms to come from the farms themselves. The father’s will directed in a general way that debts were to be paid from the estate. However, under the relevant state statute, that was not a sufficiently explicit indication of intent to satisfy the debts on the farms from the residu¬ary estate. In other words, the will had not clearly shown an intent that the first son was to receive the farms debt-free. As a result, the first son got the three farms, but he, not the second son, also got the responsibility for paying off the attached encumbrances, which totaled almost a quarter of a million dollars.

For further information and advice in any estate matter, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

Warning: Your Decision Does Matter

Fredrick P. Niemann, Esq., NJ Estate Plan Attorney

When creating an estate plan, especially in your will and/or trust, an important decision is who to name as your fiduciary. A fiduciary is a fancy legal term for the person who will take care of your property for you if you are unable to do it yourself, such as the executor of an estate, the trustee of a trust, or an attorney-in-fact under a power of attorney. Your first instinct might be to name one of your children as a fiduciary, but if you want to avoid conflict among your children, this might not be the best option.

When naming a fiduciary, it is important to be able to trust the individual, which is why people often name family members as fiduciaries. However problems can arise when a parent with two or more children names one child as a fiduciary. According to Fredrick P. Niemann, an attorney from Freehold, New Jersey, who spoke on the issue of family harmony at a recent estate planning seminar, a child is often not the best fiduciary for several reasons:

• It is hard for a child to be completely objective. 
• Children often disagree over many things, including how long the estate should take to complete, the selling of assets, and the division of personal property.
• Children often don’t communicate with each other well.

An alternative is to hire a professional fiduciary. A professional fiduciary can be a bank or investment firm with trust administration experience with trust powers, a certified public accountant, or a trust company. A professional fiduciary will charge a fee, but the fee should be explained ahead of time. In addition, because a professional is experienced in managing money and property, your assets are more likely to increase under this person’s or institution’s guidance.

To ensure that your family has some input, you can include a provision that allows one or more family members to discharge the fiduciary if they feel the professional is not doing a good job. This will allow your family to make sure the fiduciary is performing properly without having the burden of acting as fiduciary.

For further information and advice in any estate planning matter, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., a NJ Estate Planning Attorney

We all know we are supposed to do estate planning, but not all of us get around to it.  So what happens if you don’t have a will when you die in New Jersey? Your estate will be distributed according to New Jersey state laws, which may or may not be the way you want it to be distributed.

Dying without a will is called dying “intestate”. New Jersey has laws that determine what will happen to your estate if you don’t have a will. If you are married, New Jersey law will award a portion of your estate to your spouse, with the rest divided among your children.  If you don’t have children, then your estate will be divided among other living relatives such as your parents or siblings. If you are single, New Jersey provides that your estate will go to your children or to other living relatives if you don’t have children. If you have absolutely no living relatives, then your estate will go to the state.  This is called escheating to the state of New Jersey.

Note that any jointly held assets, such as bank accounts or real estate, will go directly to the co-owner. In addition any life insurance policies or retirement accounts will go directly to the beneficiary designated on the account. And if you have a trust, any assets in the trust will go to the beneficiary designated in the trust.

One purpose of a will is to name a guardian for your young children; if you do not have a will, the court will determine who will act as guardian of your children. The court will also appoint the person who will administer your estate. In addition, if you are unmarried but have an unregistered partner, your partner will not inherit anything from your estate without a will naming him or her as a beneficiary.

The best way to ensure your estate is distributed the way you want it is to plan your estate with a will and/or a trust attorney.

For further information and advice on NJ estate planning laws, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., a Power of Attorney Lawyer

The misuse of powers of attorney to exploit the elderly appears to be on the rise, but a new AARP report says that states can improve protections for older people by adopting a model law that addresses this type of abuse.

For most people, the power of attorney is the most important estate planning instrument — even more useful than a will. A power of attorney (POA) allows an individual to name a trusted person — their agent — to make financial decisions for them if they ever become incapacitated.

But while a POA avoids the costly and time-consuming process of having a court appoint a guardian or conservator, it also confers a great deal of authority on the agent. This is why advocates for the elderly often call the POA a “license to steal.” Increasingly, it seems, dishonest agents have been taking advantage of this license. AARP says that adult protective services and criminal justice professionals are reporting “an explosion” of financial exploitation cases of this type against the elderly.

Powers of attorney are regulated by state law and most states lack adequate safeguards, AARP contends; not New Jersey however. “New Jersey has strong fiduciary laws that are readily enforceable by the courts” says Fredrick P. Niemann, an elder law attorney in Freehold, Monmouth County, New Jersey.  New Jersey has laws on Powers of Attorney to offer help to protect people who execute POAs and discourage POA abuse. “There are stringent requirements for agents to exercise certain powers, as well as provisions making malfeasant agents liable for damages, attorney’s fees and costs”, says Niemann.

The AARP report, “Power of Attorney Abuse: What States Can Do About It,” compiled by the American Bar Association Commission on Law and Aging under contract to AARP.

For further information and advice on Powers of Attorney, do not hesitate to contact Fredrick P. Niemann at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., an Elder Law Attorney

The Internal Revenue Service (IRS) has issued guidance to financial institutions clarifying the new law that allows seniors to avoid making required withdrawals from depleted retirement accounts in 2009.

Taxpayers over 70 ½ years old generally must begin withdrawing a certain percentage of the balance of retirement accounts like IRAs and 401(k)s each year or pay, in addition to income tax, a 50 percent excise tax on the amount that should have been withdrawn but was not. While tax payers who turned 70 ½ in 2008, can delay the 2008 distribution until April 1, 2009, the guidance makes clear that those seniors must still take their withdrawals because the new law only suspends required withdrawals for the 2009 tax year.

Some beneficiaries must deplete an IRA by the fifth anniversary of the IRA owner’s death. The guidance explains that if a beneficiary must take required minimum distributions under the five-year rule and the fifth year is 2009, the beneficiary has an extra year (until 2010) to liquidate the account.

Finally, according the guidance, the IRA trustee is not required to give the IRA owner a notice detailing the required withdrawal for 2009. Instead, the trustee may, if it wishes, send a statement that the required distribution is zero or a statement showing what the required distribution would have been and an explanation of the waiver.

For further information and advice in any elder law matter, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., an Asset Protection Attorney

If you are looking for a steady stream of income in retirement, an immediate fixed annuity may be the answer. An immediate fixed annuity isn’t flashy and doesn’t promise big gains, but with the stock market so uncertain, sometimes steady is better.

When you purchase an immediate fixed annuity you give a lump sum to an insurance company. The insurance company then pays you a set amount each month for the rest of your life. There are several different types of annuities, but the immediate fixed annuity has two key elements. The annuity is immediate — meaning the insurance company starts making payments right away. This is in contrast to a deferred annuity, which begins making payments at a later date. In addition, the annuity is fixed. Unlike a variable annuity, which can fluctuate with the stock market, the amount you get with a fixed annuity stays the same each month. It is sort of like having your own personal pension plan.

The benefit of an immediate fixed annuity is a steady stream of income for life. This can be helpful if payments from Social Security and your pension or 401(k) don’t cover your needs. Immediate annuities can also be used to make up missed income if you retire early.

Immediate annuities are also useful for Medicaid planning. Purchasing an immediate annuity is a way for people with assets in excess of Medicaid’s limits to turn the assets into an income stream while avoiding a penalty for transferring the assets.

Immediate fixed annuities do have some downsides and are not for everyone. First, you must have accumulated some savings to use for the annuity premium payment. Another issue is that payments are not adjusted for inflation, so over time the money you receive is not worth as much. In addition, the money in the annuity is not liquid, so if you need a large sum of money for a medical or other emergency, it will not be available. Because of the lack of liquidity, experts advise putting not more than 20 to 30 percent of your assets into a fixed annuity.

If you are planning on purchasing an immediate fixed annuity, be wary of sales agents who try to convince you to purchase a variable annuity. Many companies have come under scrutiny for unscrupulous sales tactics with regard to annuities. In addition, because the payments are meant to last a lifetime, you want to be sure the insurance company you pick will still be around. Make certain that the insurer is rated in the top two categories by one of the services that rates insurance companies, such as A.M. Best, Moodys, Standard & Poor’s, or Weiss.

For further information and advice, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., a Probate and Estate Administration Attorney

A new Supreme Court decision illustrates the importance of making sure your beneficiary designations are up-to-date. The Court has unanimously ruled that an employer must distribute a deceased employee’s retirement benefits to his ex-wife even though she had renounced the benefits in their divorce. Kennedy v. Plan Administrator for DuPont Sav. and Investment Plan (U.S., No. 07-636, Jan. 26, 2009).

William Kennedy worked for DuPont Co. and had a retirement plan through the company. His wife, Liv, was the designated beneficiary of the plan. In 1994, William and Liv divorced and the divorce decree stated that Liv waived the right to any of William’s retirement plans. However, William never changed the beneficiary designation on his retirement plan. When William died, his daughter, who was the executor of his estate, asked DuPont to distribute the plan to the estate. But DuPont relied on William’s beneficiary designation and instead distributed the plan benefits, totaling $402,000, to Liv.

William’s estate sued DuPont under the Employee Retirement Income Security Act (ERISA), claiming that in signing the divorce decree, Liv had voluntarily relinquished, or waived, her right to the plan benefits. A U.S. district court ordered DuPont to pay the value of the plan to the estate. Liv appealed and the U.S. Court of Appeals for the Fifth Circuit reversed the district court’s ruling, holding that Liv had not waived her right to the plan benefits. DuPont then appealed.

In an opinion written by Justice David Souter, the U.S. Supreme Court agrees with the Court of Appeals and holds that according to ERISA, DuPont had to follow William’s instructions on the original document and distribute the retirement benefits to Liv. The Court notes that William had an easy way to change the beneficiary designation, but he chose not to.

If you have any questions, contact Fredrick P. Niemann, Esq. at 732-863-9900, or fniemann@hnlawfirm.com.  He is happy to answer your inquiries.

Fredrick P. Niemann, Esq., NJ Medicaid Application Attorney

When money is running out and the family is faced with the need to apply for Medicaid to pay for long term care the question becomes “should we do this ourselves or should we hire an elder law attorney to help?”  Sometimes the hospital or the nursing home tells the family they will qualify without too much difficulty.  Many places strongly encourage families to hire an experienced Medicaid attorney.  So they try to do it themselves.

The pitfalls of going it alone are many and varied, especially since the latest round of Medicaid changes effective February, 2006 made the laws and regulations in this area much more complicated.  Timing is critical.  By that, I mean to say, that when you spend down assets and what assets you have at a certain point in time will have an impact on qualifying for benefits.  Let me illustrate by way of example.

John and Mary were in their 80’s and living in their home, which they owned.  They had other countable assets of approximately $50,000.  John and Mary had done no planning for their long term care needs.  John became ill in October, was admitted to the hospital and then to a nursing home for rehabilitative services.  His condition was such, that he could not go home and needed to remain in the nursing home on a long term basis, at a private pay cost of $10,000 per month.

Mary was told by various personnel at the hospital and the nursing home that based on their level of assets “John would qualify for Medicaid” in January and they arranged for her to meet with a Medicaid caseworker to make an application for benefits.  Being stressed out by the reality that John would not go home and uncomfortable with the complicated process she did not understand that for John to qualify she would have to spend down a portion of their assets to get below a certain dollar amount.  In her case that number was $27,000.  The caseworker explained this to her at the interview but, quite frankly, she was receiving so much information that she really didn’t fully understand how important that was.

She waited for medical and nursing home bills to come in.  She figured she owed the money so it was as good as spent.  In other words, in her mind she didn’t have $50,000.  They owed $28,000 so she had $22,000 left.  Not true under Medicaid rules.  Until she wrote those checks, John and Mary were “over-resourced”, Medicaid’s term for having too much money to qualify for benefits.  If you are over-resourced by even $1.00 you won’t get Medicaid for that month.  You will never get Medicaid for that month.

Had she paid those bills right away John would have qualified for benefits in January.  Instead, she didn’t write those checks until June, meaning John didn’t qualify for Medicaid until July.  Great, so Medicaid picked up the nursing home bill in July.  There was one small problem.  Who was going to pay the nursing home bill for January through June?  The answer was John and Mary, and at the private pay rate of $10,000 per month that was $60,000.  The shame is that this didn’t need to happen.

This example illustrates the pitfalls of going it alone.  The rules are quite complicated and timing is critical.  You don’t want to be left with a huge nursing home bill which you can’t pay.  The nursing home doesn’t really want to be in the position of suing their residents.  Having a knowledgeable elder law attorney representing you can save huge dollars and huge amounts of stress.

For further information and advice in any elder law matter, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., NJ Estate Planning Attorney

• What authority does the Trustee have to distribute the assets in the trust? Is the Trustee’s authority to make distributions limited to health, maintenance, education and support, or are distributions within the Trustee’s total discretion? If the beneficiary is also serving as Trustee, then distributions to the beneficiary/Trustee must be limited to health, maintenance, education and support. If the beneficiary and the Trustee are separate people, you may want to give the Trustee more flexibility in deciding how to distribute assets. You should also let the Trustee know what your goals are in terms of the distribution of assets.

If the trust is for the benefit of the spouse and children, is the primary beneficiary the spouse, the children, or both? If the trust is for the benefit of minor children, is the goal of the Trustee to hold the assets until the child reaches a certain age, or to use them for certain things along the way such as education, marriage, etc? 

• Are your alternate beneficiary designations appropriate? In the event that all of your primary beneficiaries pass away, who will your assets go to? Many people take the approach that half of the assets will pass to one spouse’s siblings and their children, and the other half of the assets will pass to the other spouse’s siblings and their children. However, this approach may not work for you, in which case you should make sure that your assets are directed to one or more specific people or organizations. This desire should be stated in your Will.

   

• Are your Executors, Trustees, and Guardians still the appropriate people, in the appropriate order? Over time, people and relationships change, so it may be appropriate to rearrange your Executors, Trustees and/or Guardians.

You have the ability to appoint one or more people to serve in these roles, as well as Successors for those people. In addition, if addresses are listed, you should verify that they are current.

• If you have a taxable estate (assets exceeding $675,000), have you and your spouse reallocated ownership of and title to your assets to minimize estate taxes? Estate planning for a taxable estate will normally include the formation of a trust upon the death of the first spouse. However, if all of your assets are in joint name, there will be no assets available to fund that trust because all of the assets will pass by operation of law to the surviving spouse.

This means that the estate tax exemption of the first spouse will be wasted. Accordingly, if you have a taxable estate it is critical that you re-title your assets pursuant to your attorney’s recommendations. By doing this, upon the death of one spouse, he or she will have sufficient assets in his or her individual name to fund the trust(s) that will create the estate tax savings in the future.

• Is your General Durable Power of Attorney more than 10 years old? If so, banks in New Jersey are not required to accept it. We recommend that your General Durable power of Attorney and Living Will be refreshed every 3 to 6 years.

   

• Does your General Durable Power of Attorney continue to name appropriate attorneys-in-fact? You are allowed to name one or more attorney(s)-in-fact to act in your place with reference to your financial matters in the event that you are unable to do so. You should verify that your named attorney(s)-in-fact and any successors have current addresses.

   

• Does your General Durable Power of Attorney allow for Medicaid planning or gifting? Many seniors want the ability to engage in asset protection planning to shelter assets from the cost of nursing home care. Your General Durable Power of Attorney should specifically grant your attorney(s)-in-fact the power to engage in this type of planning. We are recommending to all or our clients that they update their General Durable Power of Attorney if it does not specifically authorize this type of planning in the future.

   

• Does your Health Care Power of Attorney reference the Health Insurance Portability and Accountability Act (”HIPAA”)? The HIPAA privacy rules have created a new category of private information called “Protected Health Information” (PHI) or “Protected Medical Information” (PMI). In order to avoid any issues about the persons to whom your health care provider may divulge your PHI, you should specifically state who has the right to receive your PHI. We are recommending to all of our clients that they update their Health Care Powers of Attorney to include a HIPAA provision to avoid any inability of a Health Care Representative to receive information in the event of medical emergency.

   

• Does your Living clearly state your desire about what medical treatment you want to receive or refuse in a terminal situation? You have a right to direct your care if you are terminally ill. You should make sure your Living Will clearly states your desires.

   

• Does somebody know where all of your estate planning documents are? If you have the greatest estate plan in the world, but nobody knows how to access your documents in the event of an emergency, it is going to be useless to you. One or more trusted people should know where they can find originals and copies of your Last Will and Testament, General Durable Power of Attorney and Living Will/Health Care Power of Attorney. In addition, we recommend having copies of your Health Care Power of Attorney and Living Will placed into your medical record with your primary care physician. Note that your original General Durable Power of Attorney is a very powerful document and could allow somebody to access your accounts while you are alive without your permission. As a result, it may be best not to have the original of the General Durable Power of Attorney easily accessible.

Your New Jersey estate plan is an investment. If your estate plan does not address your current situation, or if it was not completed through appropriate re-titling of assets, then that investment may have little or no value. The law gives you the right to direct what happens to your assets upon your death, and gives you the ability to minimize any tax consequences. You should take advantage of the law to make sure that your estate plan meets your needs today and into the foreseeable future.

Fredrick P. Niemann is managing partner at Hanlon Niemann located at 3499 Route 9 North, Freehold, NJ. His practice focuses primarily in the areas of Elder Law, Asset and Estate Protection Planning, Medicare, Medicaid and Veteran’s Benefit Assistance. He can be reached at fniemann@hnlawfirm.com, or by calling 732-863-9900, Ext. 101.