Punitive Damages Okayed in Probate Case:

The New Jersey Supreme Court on July 22, 2008 considered the circumstances in which it is appropriate to award punitive damages against a fiduciary in a case involving Wills, Trusts, Probate proceedings and lifetime transfers.
 
In this case, a lawsuit was filed against a doctor who was alleged to have persuaded the decedent to transfer a large home in Spring Lake, New Jersey to him in lieu of the local Volunteer First Aide Squad who was the prior testamentary beneficiary under her Last Will and Testament.  In its analysis, the Court concluded that the remedy of punitive damages is limited to situations where an individual (who is essentially a stranger to the testator) gains access to him or her through undue influence and then carries out a scheme to place himself or herself in a position to seize control of the testator=s (decedents) assets through a lifetime transfers or a bequest under their Last Will and Testament.  The Court generally opinioned that any punitive damage award arising in such a case filed in the Probate Division of the Superior Court must be in compliance with the New Jersey Punitive Damages Act.  This remedy will be infrequent and limited to circumstances in which the person who received the lifetime gift or bequest is an individual who otherwise cannot be punished through a lesser available remedy by the Probate Court. Because of the unique facts of this case, an award of compensatory damages and potentially punitive damages was available.   The case was remanded back to the Probate court for further determination of the issue of compensatory and punitive damages in light of the Supreme Court decision.  This case is significant for the proposition that Executors, beneficiaries of lifetime and testamentary gifts when obtained through undue influence, suspicious circumstances, etc.  can be held personally liable for punitive damages.

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The old saying goes “a little bit older, a little bit wiser.” If your next marriage isn’t your first one, then you have probably learned that marriage is more than romance – it’s finance. You don’t have to be a multimillionaire to consider the benefits of a prenuptial agreement. Think of it as a business arrangement or as an insurance policy to help remove some of the emotional angst of getting remarried. A prenuptial agreement and the earnest discussions that go with it can help ensure the financial well-being of the marriage. Under the laws of New Jersey, the court divides assets based on what it considers a fair distribution. The judge would take into consideration such factors as the length of the marriage, whether there are children born of the marriage, and the couple’s age, health, job skills, the income of the parties, and other factors.

With those facts in mind, it is easy to see why a prenuptial agreement could be one of the best decisions that you make in your life. Here are some tips to successfully deal with some of the thorny issues that surround a prenuptial agreement:

a. Discuss the subject early. The mention of a prenuptial agreement shouldn’t come as a surprise if you and your companion have been open with each other as the relationship became more serious.

b. Ask your attorney at the first meeting what the anticipated charges will be.

c. Hire separate attorneys. To help ensure that a prenuptial agreement will be legally enforceable, both spouses must hire separate lawyers. Use only matrimonial lawyers who are familiar with prenuptial agreements. Moreover, make sure that your lawyer has at least ten years of experience.

d. Make sure the agreement is in writing and ensure that the signing is witnessed by a lawyer.

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Many widows and widowers simply do not like living alone after their beloved spouse dies. As widows and widowers increasingly meet and decide to get remarried, they need to be aware of important estate planning considerations. As the life expectancy of people in the United States dramatically increases, the reality of second and third marriages becomes more likely. Widows and widowers are increasingly likely to meet and decide that a second marriage is an excellent way to avoid spending their golden years alone.

A remarriage can be one of the best parts of a senior’s life. However, a remarriage later in life often creates a unique set of legal questions. For example, many older clients take for granted that their adult children will inherit from them when they pass away. The reasoning behind this assumption is because the majority of their property and life have been spent with their previous spouse, who was often a co-parent to those children, and the one who helped to build or sustain the family assets.

However, a new marriage means that the marital property is governed by the laws of the new marriage. If there is no prenuptial agreement, then the surviving spouse would, under the laws of New Jersey, inherit at least one-third of the estate. This means that the adult children from the first marriage might be in for a rude awakening. A large part of the children’s inheritance might be “swallowed up” by the second spouse’s right to inherit one-third of her new husband’s estate.

The problems that are created by second marriages should not be taken lightly. It is important to talk these things through with your future spouse. Chances are, he or she also wants to make sure that adult children receive assets. If you don’t have a frank discussion with your would-be spouse, you may end up causing your loved ones a great deal of heartache and confusion as they struggle to figure out what would be best and what you would have wanted.

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If a spouse dies, then the surviving spouse may elect to take a one-third share of the deceased’s estate. This is called an elective share. Basically, a spouse can’t be disinherited. The surviving spouse has a right to the elective share. The only way that a surviving spouse can be completely disinherited is through a prenuptial agreement, where both spouses can agree to waive any claims to an elective share of each other’s respective estates.

Your elective estate includes not only property in your name alone, but also most assets with beneficiary designations such as bank accounts, securities, IRA accounts, your interest in jointly-held property, annuities, certain interests in trusts, the cash value of life insurance, and even property that you might transfer to a child during the one-year period preceding your death. In other words, you cannot easily ignore your spouse’s rights to his or her elective share. Many clients ask me how the surviving spouse will be able to claim his or her share if the assets are left in trust for a child. The answer is that the surviving spouse can file a probate proceeding and force the child to return the assets to satisfy the elective share obligation.

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Due to an increased life expectancy, a 50% or higher divorce rate in the United States, and an increasing amount of second marriages, prenuptial agreements are now widely accepted. It is very important for seniors to approach the idea of a prenuptial agreement with an open mind. It must be emphasized that a prenuptial agreement does not mean that you are planning to get a divorce, or that you do not trust your new spouse. Instead, senior couples are now recognizing the seriousness of their upcoming commitment of marriage. Moreover, senior couples are now communicating their concerns for the future financial security of their other relatives, and are expressing their respect for the hard-earned assets and accomplishments of their future spouse.

Although many people look at a prenuptial contract as rather “unromantic,” the reality is that individuals in middle and later life are likely to have more significant assets than younger couples. Additionally, seniors often have important financial obligations in the form of alimony or child support payments, hard-earned estates they wish to leave to their children, and emotional baggage from their previous marriages. In order to provide a solid foundation for their future marriage, seniors should consider sorting through their finances. They should also create a plan for how they will merge their economic as well as their emotional lives.

Seniors should not jump into the serious business of marriage. There are some very harsh consequences that can occur if a senior does not carefully plan for economic ramifications. Life is not a romantic experience. If seniors came with me to divorce court for a week, then at least half would choose not to get remarried. At this later stage of life, seniors should carefully prepare a detailed and comprehensive prenuptial agreement that addresses every aspect of their financial life.

If you are getting remarried, you obviously want to celebrate, but it is also important to focus on less exciting matters like redoing your estate plan. You may have created an estate plan during your first marriage, but this time it will probably be more complicated–especially if you have children from your first marriage or more assets. The following are some pointers for ensuring your interests are taken care of when you remarry:

• Take an inventory. The first thing you and your partner should do is each take an inventory of your assets and debts and share it with the other person. Don’t forget to include life insurance policies and retirement plans in your inventories. It is important to be open and honest about money if you want to prevent bad feelings in the future.

• Decide how you want to handle finances. Once you know what you are dealing with, then you need to decide if you want to combine (or not combine) assets when you are married. For example, if one partner is selling a house and moving in with the other partner, will he or she contribute to the cost of the house? If one partner has significant debt, you may not want to combine finances or make any joint purchases. These decisions need to be made upfront so everyone is clear on what to expect.

• Decide what you want to happen when you die. You and your future spouse need to figure out where each of you wants your assets to go when you die. If you have children from a previous marriage, this can be a complicated discussion. There is no guarantee that if you leave your assets to your new spouse, he or she will provide for your children after you are gone. There are a number of options to ensure your children are provided for, including creating a trust for your children, making your children beneficiaries of life insurance policies, or giving your children joint ownership of property. Even if you don’t have children, there may be family heirlooms or mementos that you want to keep in your family. Again, open discussions can prevent problems in the future.

• Consult an elder law or estate planning attorney. Even if you don’t have a lot of assets, you should consult an attorney, especially if you have children. You will definitely need to update your will. You may also need to update or create other estate planning documents such as a durable power of attorney and a health care proxy. If you have significant assets, a prenuptial agreement may be appropriate. In addition, the attorney can help you decide if a trust is necessary to protect your children’s interests.

• Change your beneficiaries. You may want to change the beneficiaries on your life insurance policy, annuity, and/or retirement plan. If you are divorced, however, you may not be able to change some of the beneficiaries. Bring your divorce decree with you to the attorney so he or she can make sure you do not violate the decree. If you can’t change your beneficiaries, you may want to buy additional life insurance or retirement plans that will include your new spouse.

The most important thing to remember is to be open and honest with your future spouse and your family members about your wishes.

On March 12, 2008, Washington State Governor Christine Gregoire signed into law House Bill 3104, extending 170 legal rights and responsibilities to couples in domestic partnerships (same- or opposite-sex relationships). Among the new responsibilities is that the state will treat surviving members of the couple the same as surviving spouses of married couples for purposes of estate recovery by Medicaid.

The new law, which takes effect June 12, 2008, prohibits recovery by Medicaid if the agency would not have been permitted to recover from a surviving spouse in similar circumstances.

Introduction: Special Needs Trusts can themselves be complicated and confusing. The rules governing their creation and administration, and the effect on public benefits eligibility of specific trust payments, can be even more complicated. Let us try to simplify some of the rules, particularly those governing provision of food and shelter to a Special Needs Trust beneficiary.

Background: A “Special Needs” Trust is one established for the benefit of an individual with a disability — as that term is defined by federal Social Security rules. Such a trust is not counted as an available resource for a Supplemental Security Income (SSI) or Medicaid recipient. Its primary purpose — whether funded by gifts from others or with the beneficiary’s own money — is to improve the individual’s quality of life without the loss of public benefits.
 
Where the assets come from is critical and determine how SSI and Medicaid will view the trust, but many of the rules are the same regardless of the source of funds. While the trust is not a resource, payments from the trust may be counted as income to the beneficiary depending on how and to whom the payments are made.

If a disbursement is made in cash directly to the beneficiary, the money received is unearned income that will reduce the individual’s monthly SSI benefit dollar-for-dollar, after considering any applicable exclusion. Of course, if the beneficiary’s income is from Social Security Disability, or from some other Social Security program that is not means-tested (and there are several), then payments to the beneficiary will not have any effect on the Social Security payments. That does not mean that such payments are a good idea, however, as they might still affect Medicaid eligibility. Besides, if the beneficiary’s disability has an effect on his or her ability to handle money, outright distributions may cause problems beyond their effect on benefits eligibility.

Direct payments to others: If disbursements are made from the trust to third parties that result in the beneficiary receiving non-cash items (other than food or shelter), the beneficiary receives in-kind income if the items would not be a partially or totally excluded non-liquid resource if retained into the month after the month of receipt. Take as an example a trust which buys a car for the beneficiary, even though the beneficiary’s spouse already has a car which is being excluded for SSI eligibility calculations. The second car is income in the month of receipt since it would not be an excluded resource in the following month.

In-kind Support and Maintenance (ISM): If disbursements are made from the trust to third parties that result in the individual receiving food or shelter, the individual is charged with the receipt of income in the form of “in-kind support and maintenance.” Rather than causing a dollar-for-dollar reduction in benefits for the value of the ISM payment, however, it is valued at no more than the “presumed maximum value,” a concept unique to SSI regulations. The presumed maximum value is calculated each year for all SSI beneficiaries by dividing the maximum SSI payment ($637 in 2008 for a single person, and $955 for a married couple) by three, and then adding $20.00. That means that the “presumed maximum value” for 2008 is $232.33 for an individual and $338.33 for a couple.

For purposes of calculating this reduction, the notion of “shelter” which might be provided by in-kind payments includes only the following household operating expenses:

•    Mortgage payments
•    Home insurance (but only if it is required by the terms of a
      mortgage)
•    Rent
•    Real property taxes
•    Heating fuel
•    Gas
•    Electricity
•    Water
•    Sewer, and
•    Garbage removal.

Other in-kind payments from the trust: Other direct payments from the trust to providers do not result in the receipt of support and maintenance and are not treated as income for SSI purposes. Those disbursements might include payments for educational expenses, therapy, medical services not covered by Medicaid, phone bills, recreation, entertainment, therapy, companionship, and many other beneficial services.

If payments from the trust to a third party result in the beneficiary receiving non-cash items other than food or shelter, they will not be counted as income when the item would become a totally or partially excluded non-liquid resource if retained into the month after the month of receipt. For example, if the trust purchases a computer for the beneficiary, there would be no affect on SSI or Medicaid benefits. Since the computer would be excluded from resources as household goods in the following month, the computer is not  income. The same principles would apply to purchases of furniture, adaptive or assistive devices, clothing and other goods.

Summary: This explanation of the “in-kind support and maintenance” rules may seem confusing, but the application and effect are straightforward. If a Special Needs Trust purchases services directly, the purchase will not cause a reduction or loss of the beneficiary’s SSI benefits. If the trust purchases goods that are exempt from being counted as assets, there should again be no effect. If, however, the trust pays for housing-related expenses or food, there may be a reduction in benefits and, in some limited cases, even a complete loss of eligibility. Similarly, purchase of non-exempt assets that could be converted to food or shelter will cause problems.

Of course, the best choice for the trustee of a Special Needs Trust is to seek competent legal advice before making a decision about paying any in-kind goods or services. A good special needs attorney will be able to explain the effect of proposed payments not only to the trustee, but also to the beneficiary and his or her family, who may have expectations that simply can not be met given the constraints of public benefits eligibility rules.

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On March 12, 2008, Washington State Governor Christine Gregoire signed into law House Bill 3104, extending 170 legal rights and responsibilities to couples in domestic partnerships (same- or opposite-sex relationships). Among the new responsibilities is that the state will treat surviving members of the couple the same as surviving spouses of married couples for purposes of estate recovery by Medicaid.

The new law, which takes effect June 12, 2008, prohibits recovery by Medicaid if the agency would not have been permitted to recover from a surviving spouse in similar circumstances.

An Ohio appeals court rules that assets held in an irrevocable trust are available to a Medicaid applicant because the trustee has the discretion to make payments of trust principal for the applicant’s benefit. Balanda v. Ohio Dept. of Job (2008-Ohio-1946, April 24, 2008).

After living in a nursing home for three years, Eleanor Balanda applied for Medicaid in December 2004. The Ohio Department of Job and Family Services denied her application due to excess resources. In February 2005, Eleanor’s husband, Vincent, created an irrevocable trust and subsequently transferred $40,800 into it. In December 2005, Eleanor again applied for Medicaid and the Department again denied her application, this time holding that the assets in the trust were available because the trust gave the trustee discretion to distribute principal to or for the benefit of either Eleanor or Vincent. Eleanor appealed.

The Court of Appeals of Ohio affirms the Department’s decision. The court points out that Ohio law considers a trust an available asset “[i]f there are any circumstances under which payment from [an irrevocable] trust could be made to or for the benefit of the applicant/recipient.” Ohio Admin.Code 5101:1-39-27.1(C)(2)(c)(i). Since, in this case, the trustee has the discretion to distribute funds to or for the benefit of Eleanor or Vincent, the court finds that the trust assets were correctly counted as an available resource.

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