Monthly Archives: February 2014

An Issue We Hope You Will Never Have to Deal With

By Louis Pashman, Esq.

For people who have disabled dependents, there is a device called a special needs trust.  A special needs trust is intended to allow a disabled individual to maintain eligibility for certain needs-based government benefits such as Medicaid, supplemental security income and others.  Assets in a special needs trust are not considered “available assets” for those purposes.

In order to achieve the purpose of a special needs trust, the trust must be properly created and administered.  The requirements for creation and administration of special needs trusts are precise and complex.  This is not intended as a tutorial on how to do it.

Two recent decisions addressed certain very specific issues related to special needs trusts.  Special needs trusts implicate both state and federal law.  One obligation of a trustee is to take care that certain state-permitted acquisitions by the trust do not disqualify the beneficiary from federal benefits.

In The Matter Of A.N., a Minor, 430 NJ Super 235 (App. Div. 2013) examined that question.  A trustee sought to purchase a home for the benefit of the disabled beneficiary, permitted by the State.  The trustee sought approval of the transaction from the Chancery Division and also sought an instruction regarding the impact of the transaction on Medicaid eligibility.  Such an application must be served on the Division of Medical Assistance and Health Services (DMAHS), the agency that makes Medicaid eligibility determinations.  After review, the court decided that the Chancery Division could review and approve the transaction but could not issue any direction on future Medicaid eligibility.  Only DMAHS could do that after an application for Medicaid had been filed.

The other recent case, J.B. v. W.B., 215 NJ 305 (2013), examined the use of special needs trusts as part of a divorce and resulting support obligations.  That case was complicated because it involved modification of an existing property settlement agreement, but putting that aside the court noted

“A special needs trust in conjunction with a thoughtful plan to gain eligibility and and receipt of government benefits, including Medicaid, SSI, and Division of Developmental Disability (DDD) programs, permits a family to provide health care, income, housing, and vocational services for their disabled, dependent child.  The redirection of a child support obligation from a parent to a trust designed to meet the present and future needs of the dependent, disabled child should not be considered exceptional or extraordinary relief, if such a plan is in the best interests of the unemancipated child.”

As noted earlier, this is not intended to give guidance on how to prepare or administer a special needs trust, or even if such a trust is appropriate for your circumstances.  It is intended only to point out two recent cases of interest.  Should you have to deal with these unfortunate issues, we are ready to help.

A Good Time to Review Your Estate Plan

By Joseph L. Goldman, Esq.

Many of you are currently gathering your income tax information for filing your 2013 income tax return.  You might want to take a little extra time to review your existing estate plan and estate plan documents (Will, Power of Attorney, Health Care Directive) to reflect current state and gift tax law, and changes in your family situation.

For 2014, the top federal estate tax rate is 40%.  The federal exemption amount is up to $5,340,000 ($5,000,000 indexed for inflation) per individual.  That amount is $10,680,000 for a married couple, if each owns at least $5,340,000 in their own name, or if they can take advantage of “portability”.

The New Jersey exemption amount remains at only $675,000.  That means that for couples with assets of over $1,350,000 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.

The New York exemption amount is currently $1,000,000, although Governor Cuomo has proposed raising it to conform with the federal exemption amount.  So under current law in New York, for couples with assets of over $2,000,000 there can be New York estate tax due on the death of the surviving spouse.

There is no “portability” for state estate tax purposes.

In addition to tax considerations, changes in your family situation, such as marriage or divorce, births or deaths, or a change of residence to another state, may 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.