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Sunday, September 11, 2016

Social Security After Death

One of the first questions we are asked is “do I have to do anything about Social Security”?  Here are some important things to know if a decedent was receiving SSA benefits at the time of passing:


Normally the funeral director will contact Social Security to report a person’s death if you give them the decedent’s social security number, but family members and personal representatives can also report the information directly to the SSA by calling 1-800-772-1213.  The most important thing is to make sure SSA records reflect the correct information.  Check out SSA Death Master File and familysearch.org

FYI - Reporting cannot be done online.

Survivor Benefits

Surviving spouses (and in some cases ex-spouses) and children are entitled to different types of survivor benefits:

1)      If you are already receiving social security benefits on behalf of decedent, you are eligible for:

a)      A one-time survivor benefit of $255 (surviving spouse or children), which can be automatically processed;

b)      Continuation of benefits – Payments should be automatically be changed to survivor benefits;

No new application is required for benefits and you do not need to go to a local Social Security office.

2)      If you are not receiving social security benefits on behalf of decedent AND/OR you are receiving your own benefits, you are eligible for:

a)      A one-time survivor benefit of $255 (surviving spouse or children), which must be applied for within 2 years of death and is NOT retroactive to DOD(*);

b)      New survivor benefits – You need to submit an application to the local SSA office

You will need to go to the local SSA office and take with you a certified copy of the death certificate as well as proof of your relation to the decedent (e.g. your birth certificate, marriage certificate).  You might be able to make the application over the phone but this can be a long, slow process; SSA calls are often answered by volunteers who pass along your contact information to a representative for call back later.  Whether you apply in person or over the phone, be sure to have your banking information available if you want the benefits direct deposited.

See "How to Find Your Local Office" service at www.ssa.gov, or call the SSA, toll-free, at 800-772-1213

FYI – Application for benefits cannot be done online.

IMPORTANT:  Don’t wait to apply for benefits!  With limited exception, the SSA won’t pay you for the period prior to the date you made the application.  i.e. if you waited 6 months after the date of death to apply, you won’t likely be able to recoup the benefits that could have been paid during that 6 month period.

Decedent Benefits and Reclamation

It’s just one week after your mom’s passing - you’re looking at the bank statement for  her checking account and notice that her direct deposit social security payment was   auto-deducted after she died. Now what?

Social Security payments are:

·         Retroactive i.e. a payment made in August represents the benefit due for July

·         Paid on specific days of the month according to a person’s birthdate and/or the types of benefits received.  Click here to see the Schedule for Social Security Benefit payments

·         Not pro-rated. In other words, a person is only entitled the monthly benefit only if she was alive for the full month.

·         Subject to automatic reclaim. Monthly benefits that are direct-deposited to a decedent’s bank account will be automatically reclaimed if the Treasury Department determines the decedent was ineligible for the benefit. (Direct deposit is required for all SSA applicants after March 1, 2013, and for anyone receiving benefits as of that date. Direct Express card is another payment option)

Example #1: 

Mom died July 15, 2016.  Social security payment was deposited August 2, 2016.  Mom did not live for the full month of July, so the payment will be auto-reclaimed.  (If by chance you’ve acted quickly enough to close the account and withdraw the funds prior to the Treasury reclaiming the benefit, you cannot keep the money; Mom was not entitled to the benefit and the government will absolutely want it back. You will need to reimburse the government via check sent to your local Social Security office. ) 

Example #2:

Mom died August 10, 2016.  Social security payment was deposited August 2, 2016. Mom lived for the full month of July so payment can be kept.  If a deposit is made in September (representing the August benefit), the September payment will be reclaimed because Mom did not live for the full month of August.

Example #3:

Same scenario as Example #2, Mom died August 10, 2016 and Social security payment was deposited August 2, 2016. However, even though your mom was eligible for the benefit, it is later auto-deducted on August 15, 2016 which you believe to be in error.   A family member or personal representative of Mom’s estate can apply for payment using Form SSA-1724

Example #4:

Mom died August 10, 2016 and her checking account was closed on August 20, 2016.  Mom lived for the full month of July and is entitled to the July benefit, but the Social security payment which should have been deposited Wednesday, August 23, 2016 (DOB April 27) was not received.  A family member or personal representative of Mom’s estate can apply for payment using Form SSA-1724.   

Example #5:

Mom died July 15, 2016, a deposit was made August 10, 2016 and it is now December and no reclamation has occurred. 

120-day Rule: It’s possible that the bank itself properly contested the reclaim.  SSA has 120 days to submit a request for reclaim from the date it receives notification of date of death and sends a “death notification entry”.  While this is the rule, it’s best to double-check with the bank directly to confirm that is the case – it could be that the bank simply hasn’t responded to the request and is sitting on money that should be returned.

Written by Elizabeth C. Ketterson, Esq.  Elizabeth is a Senior Associate at the Law Office of Kevin A. Pollock LLC and helps to run the Estate and Probate Administration Department at the firm.

Monday, August 29, 2016

Income Taxation of Trusts - Determining Which State Can Tax the Trust

Determining the situs of a trust (i.e. the residence of a trust) is not always an easy matter.  Each state has its own rules regarding whether a trust is a "Resident Trust", and often these rules are different from the tax rules, and in some states these rules have been challenged in Court as unconstitutional, where the taxpayer has prevailed, but yet the "unconstitutional rule" is still on the books.

This brings us to the wonderful worlds of New Jersey and Pennsylvania.  (Although I am sure a challenge is coming to New York soon.)

Let's take four different situations:
1) A NJ Resident Trust;
2) A Non-Resident NJ Trust;
3) A PA Resident Trust; and
4) A Non-Resident PA Trust.

In situation 1, a Trust is considered a NJ Resident Trust for state income tax purposes, and must file Form NJ-1041, if:
a) The Trust consists of property transferred by a NJ decedent via his/her Will;
b) If a NJ person gifts property to an irrevocable trust; or
c) If a NJ person owns assets in a revocable trust dies and now the trust is irrevocable.

It is important to note that an irrevocable trust is NOT considered a NJ Resident Trust if it was created in another jurisdiction even if all the trustees and beneficiaries are now NJ residents unless the trust situs is changed to New Jersey.

Moreover, even if the trust is considered a NJ Resident Trust, it is NOT subject to New Jersey income tax if:
a) It does not have any tangible assets in NJ;
b) It does not have any income from NJ sources; AND
c) It does not have any trustees who are NJ residents.

It is probably worth creating a separate post on what it means for a person to be domiciled in a particular state, but for now, let's say that it is clear that a person has fixed, permanent home in New Jersey.

All of the above can be gathered simply by looking at the instructions for NJ Form-1041.  However, what happens if the Trustees and beneficiaries move out of state?  Can NJ still tax the entire trust if only a portion of the income is attributable to NJ?  In 2013, the Tax Court of New Jersey decided in Residuary Trust A under the Will of Fred E. Kassner, Michele Kassner, Trustee v. Director, Division of Taxation, that New Jersey could not impose a tax on undistributed income generated by the trust simply because the Trust owned an S-Corporation created in New Jersey when the Decedent was a New Jersey domiciliary, but the Trustee was located outside of NJ and all of the other assets of the trust were located outside of NJ.

Specifically, the Court stated that the due process clause bars NJ from taxing undistributed income of a trust to the extent the trustee, assets and beneficiaries are outside of New Jersey, citing Pennoyer v. Taxation Division and Potter v. Taxation Division.

So, even if a trust is considered a NJ Resident Trust, it does NOT mean it will actually be subject to NJ income tax.

In situation 2, a Non-Resident NJ Trust, which can best be described as any trust that is not a NJ resident Trust, is only subject to NJ income tax to the extent the trust has income from NJ sources, such as a NJ business, real estate or gambling winnings.  (Although hopefully your trustee is not actually gambling!)

With respect to Situation 3, the rules for determining whether a Trust is a PA Resident Trust are almost identical to New Jersey.  However, where NJ had some clear exclusions whereby a trust was not subject to the NJ income tax, PA tries to tax all income if there was a resident trust.  This can be a big problem if you have a PA grantor of a Trust or a PA decedent where following the creation of the trust, the Trustees and the beneficiaries are all out of state.

Now, all is not lost as there was very recently an important case, McNeil vs. Commonwealth of Pennsylvania, in which the Court decided that Pennsylvania did NOT have the right to tax the income of a trust, which was created by a PA Grantor, when the trust was created in another jurisdiction, the Grantor had died, the Trustees where located outside of PA, and the only connection to PA where some discretionary beneficiaries that had not in fact received any income.

Pennsylvania seems to have acquiesced considerably in this decision.  While they still say "Resident Trusts" are subject to PA income tax and must file the PA Form 41, the instructions on that form, Pennsylvania allows a Resident Trust to be converted to a Non-Resident Trust by change the trust situs if it lacks sufficient nexus to PA.  It appears that the Trustees must follow certain steps to do this, but once done, the trust will no longer be subject to PA income tax.  (See page 3 of the form and 20 PA Code Section 7708.)

With respect to Situation 4, if there is a PA Non-Resident Trust (basically a trust that was not created by a PA resident), PA generally takes the position that the Trustee must only file a tax return in PA if the trust has PA source income or if there is a resident beneficiary.  The requirement to file the return when there is a resident beneficiary is new and particularly problematic because the requirement to file is true EVEN IF THE TRUST MAKES NO DISTRIBUTION TO THAT BENEFICIARY.

Importantly, the failure to file the PA-41 (Income tax return for a PA Trust) can trigger interest and penalties as high as 50%.

Sunday, June 12, 2016

Is NJ finally going to repeal the Estate Tax and the Inheritance Tax?

I tend not to get too excited about any legislation until it is actually signed, but there is a fair amount of rumbling from both Republicans and Democrats about repealing the NJ Estate Tax.  The NJ Transportation Trust fund is running out of money, and Governor Christie has refused to sign any deal to increase the tax on gasoline without a corresponding tax cut somewhere else.

According to various sources, including this article on www.nj.com, lawmakers are close to finalizing a deal to raise the gas tax by $0.23/gallon in exchange for a 4-5 year phaseout both NJ's estate tax and inheritance tax.

Part of the proposed deal would also include a reduction on income tax on retirement money for people earning less than $100,000, an increase in the tax credit for the working poor and an increase in the deduction for charitable gifting.

It is important to note that they are trying to get a deal together by the end of the month to fund the Transportation Trust Fund.   Despite support from both Republican and Democratic senate members, a Chris Christie veto is expected (presumably because he does not think it cuts enough taxes)... that's why I'll believe a deal when I see it.

Monday, May 23, 2016

Trouble with Banks Accepting a Power of Attorney - Florida

As I've written in my last two posts, more and more Banks have been routinely rejecting Power of Attorney forms drafted by attorneys in New Jersey.  Obviously this irks me enough to write about it in three consecutive posts.

Apparently, this practice is not as common in Florida, and banks do so at their own peril after a Florida Court of Appeals awarded attorney fees against an insurance company for refusing to accept a person's power of attorney in Albelo v. Southern Oak Insurance Co.  This is because under Florida Statute 709.2120, no third party can unreasonably reject a valid power of attorney.

For a nice summary of the topic, please see David M. Goldman, Esq.'s post in his Florida Estate Planning Lawyer Blog.

Thursday, May 19, 2016

Banks Required to Accept a Power of Attorney Under NJ Statutory Law

Yesterday I wrote a post about how banks are routinely refusing to accept powers of attorney.  I thought this statute may be helpful to people who may need to argue with the banks (at least in NJ anyway):

N.J.S.A 46:2B-13.    Banking institutions to accept power of attorney      4.   With respect to banking transactions, banking institutions shall accept and rely on a power of attorney which conforms to this act and shall permit the agent to act and exercise the authority set forth in this act, provided that: 

   a.   The banking institution shall refuse to rely on or act pursuant to a power of attorney if (1) the signature of the principal is not genuine, or (2) the employee of the banking institution who receives, or is required to act on, the power of attorney has received actual notice of the death of the principal, of the revocation of the power of attorney or of the disability of the principal at the time of the execution of the power of attorney; 

   b.   The banking institution is not obligated to rely on or act pursuant to the power of attorney if it believes in good faith that the power of attorney does not appear to be genuine, that the principal is dead, that the power of attorney has been revoked or that the principal was under a disability at the time of the execution of the power of attorney.  The banking institution shall have a reasonable time under the circumstances within which to decide whether it will rely on or act pursuant to a power of attorney presented to it, but it may refuse to act or rely upon a power of attorney first presented to it more than 10 years after its date or on which it has not acted for a 10-year period unless the agent is either the spouse, parent or a descendant of a parent of the principal; 

   c.   If the power of attorney provides that it "shall become effective upon the disability of the principal" or similar words, the banking institution is not obligated to rely on or act pursuant to the power of attorney unless the banking institution is provided by the agent with proof to its satisfaction that the principal is then under a disability as provided in the power of attorney; 

   d.   If the agent seeks to withdraw or pay funds from an account of the principal, the agent shall provide evidence satisfactory to the banking institution of his identity and shall execute a signature card in a form as required by the banking institution; 

   e.   If the banking institution refuses to rely on or act pursuant to a power of attorney and the agent or principal has, in writing, provided the banking institution with an address of the agent, the institution shall notify the agent by a writing addressed to the address provided to it that the power of attorney has been rejected and the reason for the rejection; 

   f.   The banking institution has viewed a form of power of attorney which contains an actual original signature of the principal. Alternatively, if the banking institution receives an affidavit of the agent that such an original is not available to be presented, the banking institution may accept a photocopy of the power of attorney certified to be a true copy of the original by either (1) another banking institution or (2) the county recording office of the county in which the original was recorded. 

   L.1991,c.95,s.4; amended 1994,c.142,s.2.  
46:2B-14.    Banking institutions not liable for action in reliance on power of attorney       No banking institution acting in reliance on a power of attorney as set forth in this act, nor any person acting on behalf of such an institution, shall be held liable for injury for any act or omission if it is performed in good faith and within the scope of the institution's or person's duties, unless the act or omission constitutes a crime, actual fraud, actual malice or willful misconduct.  

Wednesday, May 18, 2016

Growing Problem of Banks refusing to Honor a Financial Power of Attorney

Please be advised that more and more banks are refusing to accept any financial power of attorney other than their own form.  This may not be a huge problem if you are still competent, but if you become incapacitated later and have not sign the "Bank approved form", it could make life very difficult for your agent to act on your behalf.

I recently ran in to this problem with a client and it took a long time to straighten out.  Also, I just came across this excellent article in the New York Times written by Paula Span on the topic. I strongly suggest reading it as it details how widespread the problem is and offers some helpful solutions.

I do note that, to date, the banks have tended to back down if you approach the managers and legal department.   Unfortunately, hiring an attorney to fight that fight may cost the client a fair amount in legal fees.  Another approach, if you are politically connected, is to get your ombudsman involved.

As a result of these news, I tend to be advocating Revocable Living Trusts even more.  Unfortunately, that won't help if the client has an IRA or other retirement account.  I'm interested in hearing how others are dealing with this problem.

Wednesday, May 11, 2016

Estate Planning and Divorce in New Jersey

Men and women who are contemplating a separation or divorce have unique needs. Some divorces are very friendly and you can still count on your soon-to-be ex, but in most other situations, you may find that you rethink many aspects of your life, including where you wish your assets to go should something happen and who you can trust. 

Accordingly, it is essential to update your estate planning documents.  This should be done:
  1. To ensure that someone trust-worthy will be able to make medical and financial decisions for you in the event that you are incapacitated; 
  2. To prevent your soon-to-be-former spouse from receiving all of your assets; and 
  3. To give you as much control as legally possible over how your children or any embryos created during infertility treatments will be taken care of and provided for in the event that you pass away.
The less trust-worthy your spouse is, the more important it will be that you take action to protect yourself (and your children). To help you get safely through this time of transition, you should consider creating:   
  1. A Will. If you are married and die without a Will, your spouse would generally be entitled to 100% of your estate. However, if even if you are still married you are generally permitted to leave your assets to whomever you wish if you write a Will.  Most people think that your spouse may still be entitled to a third of your estate (the “elective share” under N.J.S.A. 3B:8-1), but the statute contains many exceptions which typically allow you to completely cut out your soon to be ex. This is because the elective share statute requires that at the time of death the decedent and the surviving spouse must not have been living separate and apart in different habitations, they must still been cohabiting as spouses and not under circumstances which would have given rise to a cause of action for divorce or nullity of marriage to a decedent prior to the decedent's death.
  2. An Advance Directive for Health Care/Health Care Power of Attorney. This will allow you to control who will make medical decisions for you if you are unable to make them for yourself, helping to ensure that your wishes will be achieved. For example: would you want the person you are divorcing to be able to make decisions about your medical care and whether or not to remove life support, or would you want this decision to be made by a relative or close friend?
  3. A Financial Power of Attorney. This will allow your agent to use your money to pay for your medical bills, attorney fees connected to your divorce, and potentially take action to do anything else needed for your benefit. Depending on how this document is structured, it can take effect as soon as you sign it, so that a trusted friend, relative, or financial services professional can help you through this stressful period. The divorce process is a stressful one and often brings with it a slew of new responsibilities and challenges. This document can allow you to outsource emotionally-difficult tasks such as selling your marital home and managing the transition of your assets from joint to separate accounts while you focus on making the big decisions, attending court, and adjust to life as a single parent. This document can also prove invaluable if symptoms of anxiety and depression (which can often be triggered by major life events) set in and you become unable to manage your affairs. Being proactive and creating a plan for dealing with your responsibilities can help make your daily life easier and more manageable during this difficult time. 

Speaking with an estate planning attorney can help you better understand your options and create the best possible plan when preparing for challenging circumstances.  

Written by: Jessica J. Sauer, Esq. & Kevin A. Pollock, Esq., LL.M.