Trust & Estate and Elder Law Considerations on Capacity if New Jersey Legalizes Recreational Marijuana Use

New Jersey’s 56th Governor, Phil Murphy, has indicated his intent to sign into law sensible regulation of non-medical marijuana when it crosses his desk.  It may only be a matter of time before New Jersey will join the trend toward legalizing the recreational use of marijuana for people 21 years of age and older.  Therefore, it is important for New Jersey’s trust & estate and elder law attorneys to be conscious of the issues they may face in their practices if and when such legislation becomes law.

Issues to be considered by trust & estate and elder law attorneys include: the potential impact of marijuana use on capacity; trust administration considerations (i.e. when the trust contains a provision regarding the use of “illegal” drugs); estate administration considerations (i.e. when a decedent owned marijuana-related assets, such as business interests, at the time of death); tax implications; and the potential impact on life insurance as a planning tool.  This article will focus on the considerations relating to capacity and marijuana use.

One of the biggest challenges faced by trust & estate and elder law attorneys alike revolve around whether the client has the requisite capacity to accomplish his or her legal goals.  Generally, a person signing a legal document must understand what they are signing when they are signing it.  However, when determining whether a client has capacity, there are different thresholds that may apply depending on your state and what your client is trying to accomplish.  For instance, the capacity required to enter into a contract is a higher standard than that needed to sign a Will.  Generally, in order to execute a valid Will, an individual must understand:

  • The nature of his or her assets;
  • The natural objects of his or her bounty; and
  • That he or she is making a Will and the effect of that Will (even if they forgot they signed it the next day).

While there are many grounds for contesting a Will, lack of testamentary capacity is one of the most popular.  New Jersey courts have yet to address whether a Will can be invalidated for lack of capacity due to marijuana use.  Absent such guidance from the Court, practitioners should be guided by parallel case law that addresses the creation of a Will while an individual is under the influence of intoxicants, chemical dependents, or other mind-altering substances.

Generally, the Courts tend to focus on the circumstances surrounding the execution of the Will when determining whether capacity was present, and, absent evidence to the contrary at the time of execution, Courts do not find that habitual drunkenness and/or drug use impairs an individual’s capacity as a matter of course.  For instance, the court in Bannister et al. v. Jackson held that despite evidence of the decedent’s “habitually excessive indulgence in strong drink [it] had not produced a fixed mental disease sufficient to destroy his testamentary capacity and that at the very time of the execution of that document he was not so intoxicated that the act in which he was engaged was vitiated.”  45 N.J. Eq. 702 (1889).

Diminished capacity might not always be evident.  An individual’s capacity can be impacted by many different factors, and capacity might vary depending on the day, and, for some, the time of day.  If you determine that a client’s capacity is diminished, then you must take the steps necessary to determine whether the client has the capacity required to proceed with his or her specific goal.  Whether or not New Jersey legalizes the recreational use of marijuana for people 21 years of age and older, it is imperative for trust & estate and elder law attorneys to continue to be vigilant to ensure that their client in fact has capacity that is appropriate for his or her stated objective.

Pashman Stein Walder Hayden is carefully monitoring developments in New Jersey and federally with respect to marijuana legislation and will be available to help its clients navigate the sure-to-be complex regulatory framework of this potential business frontier.

Please contact Naomi Becker Collier at ncollier@pashmanstein.com or 201.639.2011 for further information.

Major Changes to the Estate & Gift Tax Laws Make Review of Your Estate Plan Documents Imperative in 2018

Each year, as a new year begins, we encourage you to review your estate plan and your estate plan documents (Will, Power of Attorney, Health Care Directive/Proxy, Trusts) to ensure that they reflect changes to the tax law and/or changes to your family or financial situation since your documents were executed.  This year, as 2018 begins, recent significant changes to the estate and gift tax laws make that review imperative.

With the enactment of The 2017 Tax Cuts and Jobs Act only a few weeks ago, the federal estate and gift tax exemption that was scheduled to increase to $5,600,000 has doubled (to approximately $11,200,000) and portability remains in place.  This means that a married couple (who have not previously used any of their unified credit) can now have combined assets of approximately $22,400,000 without incurring federal estate tax.

For individuals domiciled in New Jersey, the estate tax exemption has been eliminated as of January 1, 2018 (although with Governor-Elect Phil Murphy soon to take office, this could soon change).  The New York estate tax exemption is currently $5,250,000 and is scheduled to equal the federal exemption on April 1, 2019.

On account of these changes, individuals may wish to revise an existing Will, particularly if it contains a “credit shelter” provision based on a formula calling for funding up to the amount of the available exemption, even if only the state exemption.  Such a Will may now cause an individual’s entire estate to be left in trust instead of having a significant portion passing outright to the surviving spouse.  Furthermore, older individuals in various stages of relocating to Florida may now wish to reconsider whether a change in domicile is advisable.

Periodic review of an estate plan and related documents is always a good idea.  This year, on account of dramatic tax law changes, a review of your estate plan is especially important.

We would be pleased to discuss your estate plan with you.  If you would like to set up an appointment, please contact Joseph L. Goldman (jgoldman@pashmanstein.com) or Naomi Becker Collier (ncollier@pashmanstein.com).

Where Elder Law and Estate Planning Meet

Pashman Stein Walder Hayden’s (PSWH) Trusts and Estates’ group provides clients with advice to help them preserve, manage and plan for the transfer of their assets and wealth.  We assist in developing planning strategies designed for each client’s unique situation, to achieve their personal goals, while minimizing the gift, inheritance and estate tax impact of implementing those strategies.  While this traditional estate planning remains as important as ever, PSWH’s Trusts and Estates/ group has expanded to include an Elder Law practice.  Our Trusts and Estates/Elder Law group now also addresses the specific needs of aging individuals, people with disabilities and their families, providing a more comprehensive and holistic approach to planning for our clients while providing future options in case of an emergency.

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It is important to note that a Last Will and Testament, a Durable Power of Attorney, an Advanced Directive for Health Care/Health Care Proxy and Directive (commonly referred to as a Living Will) are basic estate planning documents that all individuals should have in place.  Without them, in the event of incapacity or death, your specific wishes and goals may not be realized.  The Last Will and Testament memorializes your wishes relating to your estate after you have died, while the other documents are important during your lifetime if you are unable to make decisions for yourself.

It is a common misconception that elder law is simply estate planning for elderly individuals. While it is imperative to ensure that older people (just like their younger counterparts) have appropriate estate planning documents in place to cover all of the “what ifs”, and that those documents are reviewed periodically to ensure that they continue to make sense under the circumstances and comply with current law, elder planning is much more than that.  The focus of elder law is on planning for common issues that arise when individuals live longer.  The objective is not only to help them preserve family wealth, but also live with dignity.

For instance, many individuals ultimately require some level of care as they get older, from extra assistance in the home to around the clock long-term care in a nursing home.  Many people are understandably concerned about how this care will be funded.  PSWH’s Trusts and Estates/Elder Law group now provides advice regarding asset protection planning that specifically includes educating our clients about the tax and legal issues surrounding long-term care, Medicare and Medicaid.  We are also able to provide tailored recommendations to minimize long-term care costs, with particular attention to how those recommendations may impact your other estate and tax planning goals.

Other issues commonly covered under the umbrella of elder law include determining what sources are available to fund long-term care, how to qualify, and how to apply for those needs based benefits.  They also include guardianship and conservatorship actions when individuals have not put the appropriate estate planning documents in place before mental capacity has declined.  An elder law attorney can also assist individuals with diminished capacity that may be suffering from elder abuse, including physical, emotional and financial abuse and exploitation.

Many of you have elderly parents or other family members who currently need elder planning.  Additionally, even if you have estate planning documents in place, there may come a time where the focus shifts from traditional estate planning to elder law planning.  Advance planning before an emergency situation arises provides individuals with a wider array of options.

If we can assist you or your family with issues relating to elder law and/or planning for individuals with disabilities, please contact Joseph L. Goldman (jgoldman@pashmanstein.com) or Naomi Becker Collier (ncollier@pashmanstein.com)..

Before You Retire: Steps for Planning In Advance

By Joseph L. Goldman, Esq. and Naomi B. Collier, Esq.

The article below appeared in the November issue of Meadowlands USA newsletter.

As the average life expectancy in the United States seems to increase with each passing year, having a secure retirement plan is more important than ever. Retirement planning encompasses much more than simply saving enough money to live on after you stop working—it is an ongoing and dynamic process.

While it is tempting to put it off, the best time to start planning for retirement is well in advance of when you are actually ready to retire.

Consider the following suggestions as you start down the long, winding road that is your retirement:

  1. Get organized. Organizing and understanding your finances is a great starting point. Create a balance sheet that contains your financial information, including asset type and value, and how owned. Consider how the assets will be distributed upon your death. Consolidate your account log-in information and corresponding passwords—and ensure that your advisors and trusted family members/friends can access the information in the event of your incapacity or death.
  1. Build your team. Pick professional advisors that you trust to work with you towards your goals. Make sure your team works together. By gathering a well-rounded team, including an attorney specializing in estate planning, a financial planner, an accountant and an insurance adviser, you will have put in place a system with built-in checks and balances.
  1. Create a budget and savings plan. Carefully monitor your spending patterns and expenses to determine how much you will need to live during your retirement years. This will enable you to work with your advisors to create realistic current and projected budgets, and tailor your savings approach. Review spending and expenses (at least annually) to reflect any significant changes.
  1. Consider retirement goals. Think about your life after retirement. Consider where you might live, your desired retirement lifestyle, any ongoing obligations, as well as expected and unexpected health care expenses. Consider the impact of these factors on your finances in retirement.
  1. Review your estate planning documents. Review your existing estate planning documents to make sure they still make sense. Have the documents reviewed by a trust and estates attorney to ensure that they reflect current law. If you do not have documents in place (including a will, durable power of attorney, and health care proxy/living will) consult with an attorney qualified to assist you with preparing and implementing these documents.
  1. Review your beneficiary forms. Even if you have estate planning documents in place, be mindful that certain assets pass outside of a will. For example, life insurance, IRAs and retirement plans generally pass to the designated beneficiaries. If your beneficiary designation forms are not coordinated with your estate planning goals, your objectives may not be realized. Be aware that failure to designate individual beneficiaries may also have adverse income tax consequences.
  1. Consider estate tax implications on your estate. It is also important to discuss with your attorney whether your estate will be subject to estate tax. While the federal exemption has increased dramatically over the years ($5,450,000 in 2016, indexed for inflation), some states continue to have much lower exemptions ($675,000 in New Jersey). If your estate will be subject to estate and/or inheritance tax, consider how it will be paid and/or whether you can minimize those taxes.
  1. Consider long term care implications on your estate. Consider how you will fund your long term care, if necessary. Are your assets sufficient to self-fund such care? Alternatively, evaluate whether long term care insurance is a viable option or if qualifying for government benefits might be necessary. Consult an attorney versed in elder law to better understand the options available to you.
  1. Talk about it. Most people do not want to think about what will happen when they die or become incapacitated, let alone talk about it! However, having a discussion with the important people in your life when you still can, before you are in a crisis situation, beats the alternative. Ensure that everyone understands your wishes as related to health care decisions, why you made certain provisions in your estate planning documents and how you wish your affairs to be handled if you are unable to handle them yourself.

Not all roads to retirement are alike and events often occur that require adjustments to your plan.  However, if you create a retirement plan in advance, select the right advisors to help you implement and oversee your plan and make adjustments as necessary, you will go a long way to helping yourself enjoy a successful and rewarding retirement.

New Jersey Passes Law Repealing Estate Tax By 2018

On October 14, 2016 Governor Christie signed into law the much discussed gas tax hike bill, ultimately repealing the New Jersey estate tax in its entirety.  Beginning on January 1, 2017, a decedent will not be subject to New Jersey estate tax unless his or her taxable estates are greater than $2,000,000 (a significant increase from the current $675,000 New Jersey estate tax exemption).  For individuals dying on or after January 1, 2018, the New Jersey estate tax is repealed entirely.  A decedent domiciled in New Jersey and dying in 2016, however, will remain subject to New Jersey estate tax if the value of his or her taxable estate exceeds $675,000.

Despite the imminent repeal of the New Jersey estate tax, New Jersey will continue to impose an inheritance tax on transfers after death.  Unlike the estate tax, which is based on the size an estate, this tax is based on the relationship between the decedent and the beneficiary receiving the assets.  There is no inheritance tax imposed on Class A beneficiaries (spouse or civil union or domestic partner, lineal ancestors, descendants, and stepchildren) and qualifying charities.  The rate of inheritance tax imposed on transfers and exemptions available to other individuals depends on the Class that they fall under.  The New Jersey inheritance tax rates range from 11% to 16% (the applicable rate depends on the transfer amount and the class of beneficiary).  The inheritance tax excludes the transfer of certain assets, including retirement benefits and life insurance paid directly to a beneficiary or trust.  However, the inheritance tax is imposed on transfers for less than fair market value (gifts) that occur within three years of death to beneficiaries who are not Class A or qualified charities.

In light of the elimination of the New Jersey estate tax, you should consider reviewing your estate plan to ensure that it achieves your objectives.  The repeal of New Jersey’s estate tax does not negate the need for estate planning.  There are many issues to consider during the planning process that have nothing to do with New Jersey estate tax planning.  The federal estate tax exemption remains at $5.45 million, indexed for annual inflation, and inheritance planning might still be relevant, depending on your individual circumstances.  A well thought out estate plan will let you decide for yourself what is best for you and for your family, both during your life (in the event of incapacity) and after your death.

If you have any questions about how the phase-out and elimination of the New Jersey estate tax impacts your specific planning, please contact us.  We are happy to assist you in achieving your estate planning goals.

If you would like to discuss these issues further, please do not hesitate to contact Joseph L. Goldman, Esq., or Naomi B. Collier, Esq., at 201-488-8200.

Joe Goldman Interviewed by NJ1015 Radio

Partner Joe Goldman is interviewed by NJ1015 radio. See link for full article: http://nj1015.com/survey-majority-of-american-parents-have-a-will/

Another Year, Another Chance to Review Your Estate Plan

By Joseph L. Goldman, Esq.
jgoldman@pashmanstein.com

In the words of John Lennon:  “Another year over.  And a new one just begun.”  So this year, among your New Year’s resolutions, why not review your existing estate plan and estate plan documents (Will, Power of Attorney, Health Care Directive)?

For 2015, the top federal estate tax rate remains at 40%.  The federal estate tax exemption amount is up to $5,430,000 per individual.  That amount is $10,860,000 for a married couple, if each owns at least $5,430,000 in his or her own name, or if they take advantage of “portability”.  But remember, there is no “portability” for state estate tax purposes.

The New Jersey estate tax exemption amount remains at only $675,000.  For couples with total assets of over $1,350,000 that means there can be New Jersey estate tax due on the death of the surviving spouse, even if their assets are well below the federal estate tax threshold.

A big change in the New York estate tax exemption amount took place last year.  An increase to the New York exemption is being phased in so that it will conform to the federal exemption amount in 2019.  For decedents who die prior to April 1, 2015, the New York estate tax exemption amount is $2,062,500.  For decedents dying after April 1, 2015, the exemption is $3,125,000.  For couples with total assets of over $6,250,000 there can be New York estate tax due on the death of the surviving spouse after April 1, 2015.

Non-tax considerations, including changes in your family situation, such as marriage or divorce, births or deaths, or a change of residence to another state, may also call for updating your estate plan documents and your estate plan.

Consider also the use of gifting strategies, life insurance planning, and use of lifetime trusts for both tax and non-tax purposes.  Even if you fully used up your federal state and gift tax exemption in 2015 ($5,340,000 for an individual, $10,680,000 for a married couple), the increased 2015 exemption amount ($5,430,000) allows you to make additional gifts of $90,000 ($180,000 for a married couple) in 2015 beyond the $14,000 annual gift tax exclusion gifts per donee.  But be careful what you give away.  A gift of appreciated property can result in a loss of the stepped-up basis the donee would take if he or she inherited the property.  The capital gain on the subsequent sale of that property could exceed any estate tax savings.

Finally, don’t forget to check your beneficiary designations on retirement plans and life insurance to make sure they are up to date.

Here’s hoping you stick to your New Year’s resolutions in 2015!