Hanlon Niemann Blog | A Freehold, New Jersey Law Firm

By Fredrick P. Niemann, Esq., a NJ Estate Planning and Administration Attorney

Many people don’t get serious about estate planning until they are well into middle age.  By then, some of them are part of blended families:  they are marries, and one or both spouses have children from previous families.  Estate planning in such families can be tricky because the spouses may want to provide both for each other and their own children.  If you’re in such a situation, you should proceed cautiously.

Rethinking Retirement Plans
In a blended family, one or both spouses may have a sizable retirement account such as an IRA.  One practice is to name the other spouse as primary beneficiary of the IRA, with the account owner’s children as secondary beneficiaries.  This approach is common in first marriages, in which the children are the offspring of both spouses, but it can lead to trouble in a blended family.

EXAMPLE 1: David Jennings has $500,000 in his IRA.  He names his wife Christine as the primary beneficiary and his tow children from a prior marriage as the secondary beneficiaries.  Thus, if Christine predeceases the children, they will inherit the IRA.  Even if Christine does inherit the account, the balance will pass to David’s children at Christine’s death.

There are two flaws in this strategy.  First, Christine can tap the IRA at will as long as she takes required minimum distributions.  She can take out all $500,000 at once, pay the income tax, and then either spend the money or give it to, among others, her own children from her previous marriage.

Second, in this example Christine is a surviving spouse and sole beneficiary of David’s IRA.  Under the tax code, Christine can roll over David’s IRA to her own new or existing IRA (no other beneficiary can do this).  Then Christine can name any beneficiaries she wishes, such as her own children.

In either scenario, there is no guarantee that David’s children will see a penny of his $500,000 IRA.

How can David avoid this outcome if he wants to provide for Christine and his own children?  One tactic is to divide his $500,000 IRA into two $250,000 IRA’S.  He can designate Christine as the beneficiary of one IRA; his children can be co-beneficiaries of the second IRA. Alternatively, David can leave the entire $500,000 IRA to his children, who can stretch out required minimum distributions over their longer life expectancy and thus enjoy extended tax deferral.  If David adopts this plan, he can leave other assets to Christine, depending on the size of his estate and her financial needs.

Trusts Traps
In blended families, spouses also may use trusts in their estate planning.  The first spouse to die might leave assets in trust for the surviving spouse, who will get the trust income and also might have some access to the trust principal.  At the surviving spouse’s death, remaining trust assets may pass to the children of the spouse who funded the trust.  Some trusts of this nature can be qualified terminable interest property (QTIP) trusts and defer estate tax.

Trusts can play a valuable role in estate planning.  Again, though, trusts can cause problems in blended families. With the arrangement described previously, the trustee might face a conflict between investing for current income (which would benefit the surviving spouse) and investing for long-term growth (which would benefit the trust creator’s children).  In addition, the children may have to wait for many years before receiving any inheritance if the first spouse to die leaves all of his assets to such a trust.

Dividing the estate might be a better solution.  Some assets could be left to the surviving spouse and some to the children, outright or in separate trusts.  If the spouses fear that such a plan would leave insufficient amounts to the beneficiaries, they might buy life insurance and increase the total estate value.

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.

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 Elder Law Attorney
 
Often times when I meet with new clients, the first appointment is not with the parent(s) but with the children.  Commonly, they come to us after or during a crisis, such as a parent’s hospital or nursing home stay.  Just as often they have little or no information about what is going on with the parent, medically and financially, and cannot provide much of the information we need to assist them.

Communication between parent and child before a crisis is so important and can provide peace of mind and reduce stress for both.  The following are some of the questions that families should discuss, which will often begin a dialogue about the type of preplanning parents can do before a crisis occurs.

1. Children should know roughly how much and where their parents’ assets are.  Do they have enough to sustain the healthy spouse should one spouse become ill and need extended hospitalization and/or nursing home care?

2. What does the income picture look like?  If one spouse dies, how much income will the surviving spouse be left with?  Will there be a significant drop in income?  Often time’s steps can be taken before that spouse passes to help boost the surviving spouse’s income.

3. Is financial support anticipated?  People are living longer than ever.  Many people are at risk of outliving their money.   Answering this question means not simply looking at current expenses vs. income but looking at the next step in the elder care journey and the next step after that and asking “Do I have enough to pay for long term care and if so, for how long?  And if not, what is my plan then?

4. What types of insurance are there (ie., health, long term care, life)?  Is coverage adequate? If not, can coverage be increased?  You certainly want to do that before you become uninsurable.

5. Are there a power of attorney and a health care directive and where are they?  Are they up to date or stale?  If these documents are not in place then the only alternative is a costly and time-consuming process called guardianship.  The court will be involved in your family’s affairs and you may not get the result you want.

6. Is there an up to date will?  A clear, thought out estate plan can avoid family squabbles after the parent passes away. Even people with small estates should have a will.  Also, make sure the original will can be located. Probating a copy is difficult and expensive.

For further information and advice in any elder law or estate planning matter, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, toll-free at 888-800-7442, or fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., a Real Estate Attorney

In one of my last posts I explained how Mom’s transferring her home to a child(ren) during her lifetime will result in capital gains tax whereas passing the home after she dies can reduce or even eliminate the tax.  However, Mom considered transferring the house because she wanted to protect it from being consumed completely by the cost of long term care, especially important where other family members live in the home.

Right there is the dilemma.  What to do?  Capital gains tax, at worst, will never consume the entire proceeds of sale.  Long term care, however, could easily exceed the home value if it is needed for several years.  But do I have to really choose between the two?  Well, maybe there is another way.

Putting the home in a trust, if set up properly, can accomplish both goals.  The home is removed from the parent’s name and, if done 5 years or more before needing long term care, will be outside the Medicaid lookback, that time frame within which Medicaid looks to confirm that you have in fact spent all your money and haven’t given it away.  At the same time, the trust can be set up in such a way that the assets it holds will be part of Mom’s estate and she will be able to take advantage of both the capital gains tax exclusion and the step up in basis that I discussed in my last post.

We accomplish the best of both worlds.  The home can be protected and tax advantages will not be lost.  But, there are even more potential benefits.  Since the home is not in the child’s name but in the trust, it is not subject to the child’s creditors, or to being split with the child’s spouse in a divorce.  Additionally, if Mom needs care within 5 years of the transfer, the home can be sold or borrowed against to help pay the cost of care.  In other words, some of the asset can be used for care but not all of it need be consumed.

As you can see, a simple question, or so you thought.  Is home transfer right for you and your family?  Well, that depends on many factors, including the health of the parent, what other assets exist to pay for long term care and what goals the parent and child want to accomplish.  One thing is for sure.  Planning early makes things easier and the outcome so much better than waiting until a crisis hits.

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

Fredrick P. Niemann, Esq., a Real Estate Attorney

In one of my last posts I explained how Mom’s transferring her home to a child(ren) during her lifetime will result in capital gains tax whereas passing the home after she dies can reduce or even eliminate the tax.  However, Mom considered transferring the house because she wanted to protect it from being consumed completely by the cost of long term care, especially important where other family members live in the home.

Right there is the dilemma.  What to do?  Capital gains tax, at worst, will never consume the entire proceeds of sale.  Long term care, however, could easily exceed the home value if it is needed for several years.  But do I have to really choose between the two?  Well, maybe there is another way.

Putting the home in a trust, if set up properly, can accomplish both goals.  The home is removed from the parent’s name and, if done 5 years or more before needing long term care, will be outside the Medicaid lookback, that time frame within which Medicaid looks to confirm that you have in fact spent all your money and haven’t given it away.  At the same time, the trust can be set up in such a way that the assets it holds will be part of Mom’s estate and she will be able to take advantage of both the capital gains tax exclusion and the step up in basis that I discussed in my last post.

We accomplish the best of both worlds.  The home can be protected and tax advantages will not be lost.  But, there are even more potential benefits.  Since the home is not in the child’s name but in the trust, it is not subject to the child’s creditors, or to being split with the child’s spouse in a divorce.  Additionally, if Mom needs care within 5 years of the transfer, the home can be sold or borrowed against to help pay the cost of care.  In other words, some of the asset can be used for care but not all of it need be consumed.

As you can see, a simple question, or so you thought.  Is home transfer right for you and your family?  Well, that depends on many factors, including the health of the parent, what other assets exist to pay for long term care and what goals the parent and child want to accomplish.  One thing is for sure.  Planning early makes things easier and the outcome so much better than waiting until a crisis hits.

For further information and advice in any real estate matter, do not hesitate to contact me at 888-800-7442, or email 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., NJ Veterans Attorney

Nursing home coverage for veterans is available from two sources within the Department of Veterans Affairs — the veteran’s health care system and the state veteran’s homes system.

Nursing Home Coverage Through the VA Health Care System
Nursing home coverage along with other long term care services such as home care and assisted living as well as geriatric care management are available through the Veterans Health Administration for qualifying veterans.

In order to get into the veterans health care program, the veteran must have service-connected disabilities, or be below a qualifying income level or be receiving Veterans Pension income. Once in the system, veterans are not guaranteed long term care services, including nursing home care, unless they meet specific requirements. Here is a list of these requirements for nursing home coverage.

Who is Eligible for Nursing Home Care

• Any veteran who has a service-connected disability rating of 70 percent or more; 
• A veteran who is rated 60 percent service-connected and is unemployable or has an official rating of “permanent and total disabled;” 
• A veteran with combined disability ratings of 70 percent or more; 
• A veteran whose service-connected disability is clinically determined to require nursing home care; 
• Non-service-connected veterans and those officially referred to as “zero percent, non-compensable, service-connected” veterans who require nursing home care for any non-service-connected disability and who meet income and asset criteria; or 
• If space and resources are available, other veterans on a case-by-case basis with priority given to service-connected veterans and those who need care for post-acute rehabilitation, respite, hospice, geriatric evaluation and management, or spinal cord injury.

VA’s nursing home health system programs include VA-operated nursing home care units and contract community nursing homes. Many VA hospitals operate nursing home care units located in or near the hospital. Other hospitals, without adequate nursing home beds, contract with approximately 2,500 community private nursing homes nationwide to provide services.

State Veterans Homes
State veterans homes fill an important need for veterans with low income and veterans who desire to spend their last years with “comrades” from former active-duty. The predominant service offered is nursing home care. VA nursing homes must be licensed for their particular state and conform with skilled or intermediate nursing services offered in private sector nursing homes in that state. State homes may also offer assisted living or domiciliary care which is a form of supported independent living.

Every state has at least one veterans home and some states like New Jersey have three (3) of them. There is great demand for the services of these homes, but lack of federal and state funding has created a backlog of well over 130 homes that are waiting to be built.

Unlike private sector nursing homes where the family can walk in the front door and possibly that same day make arrangements for a bed for their loved one, state veterans homes have an application process that could take a number of weeks or months. Many state homes have waiting lists especially for their Alzheimer’s long term care units.

No facilities are entirely free to any veteran with an income. The veteran must pay his or her share of the cost. In some states the veterans contribution rates are set at a certain level and if there’s not enough income the family may have to make up the difference. Federal legislation, effective 2007, also allows the federal government to substantially subsidize the cost of veterans with service-connected disabilities in state veterans homes.

Eligibility and Application Requirements for State Veterans Homes
From state to state, facilities vary in their rules for eligible veterans. And even in the same state it is common, where there is more than one state home, for some homes to have very stringent eligibility rules and others to be more lenient. New Jersey’s regulatory criteria are uniform.  These differing rules are probably based on the demand for care and the available beds in that particular geographic area.

Federal regulations allow that 25% of the bed occupants at any one time may be veteran-related family members, i.e., spouses, surviving spouses, and/or gold star parents who are not entitled to payment of VA aid. When a State Home accepts grant assistance for a construction project, 75% of the bed occupants at the facility must be veterans.

Domicile residency requirements vary from state to state. New Jersey requires an applicant to be a NJ resident domiciliary.

All states require an application process to get into a home. Typically a committee or board will approve or disapprove each application. Many states have waiting lists for available beds.

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