NJ Phone: 609-818-1555 * FL Phone: 561-247-1557

Tuesday, October 3, 2017

Can the Trustee of a New Jersey Special Needs Trust Buy Clothing?

Although the federal government clearly changed the rules in 2005 to allow a Trustee of a First Party Special Needs Trust to buy an unlimited amount of clothing for person receiving Medicaid and SSI, there is still a lot of confusion regarding this issue in New Jersey.

New Jersey Administrative Code Section 10:71-4.11, which was enacted in 2001, states that if a Trustee of a Special Needs Trust purchases clothing for someone who has qualified for Medicaid or SSI, it will be considered income to the beneficiary and could reduce the beneficiary's government benefits.  Moreover, if the trust allowed distribution for purchase of clothing, it had the possibility of having the entire trust counted as an asset that may disqualify the beneficiary from benefits.  THIS IS OLD LAW.

To quote from the new law, POMS S.I. 01130.430: "A change in the regulations, effective March 9, 2005, establishes that the resource exclusion for household goods and personal effects no longer has a dollar limit. As a result, beginning with resource determinations for April 2005, SSA no longer counts household goods and personal effects as resources to decide a person’s eligibility to receive Supplemental Security Income (SSI) benefits."  The 2005 law goes on to define "personal effects" to include clothing.

There are several reasons why things are still so confusing:

  1. New Jersey has not updated the Administrative Code to reflect the change of law on the federal level by POMS S.I. 01130.430.  The Social Security Regulations clearly override any state rules with respect to eligibility for Medicaid and SSI benefits.  So when Social Security updated its rules in 2005, the NJ rules were automatically updated as well.
  2. When looking up the NJ rule online, there is a lot of bad, old information on many websites.
  3. When looking up the NJ Administrative Code, which is free on Lexis-Nexis (thank you by the way), unfortunately it has the most recent year next to the Code.  That has the unfortunate side effect of making it look like a new and current law, even if it is not.
So, to be clear - a Trustee of a Special Needs Trust (regardless if it is a first party trust or a third party trust) can buy clothes for the beneficiary and not be concerned that such expenditures will be counted as income or that the beneficiary will lose his or her government benefits.  That being said, if you are spending an excessive amount on clothes, you should probably expect extra scrutiny from the government and potential problems because they could make the argument that the person is just taking the clothes back in exchange for cash, and the fight wouldn't be worth it.

Thursday, September 7, 2017

Keep an Eye on Your Credit - Equifax Breached

In perhaps one of the largest security breaches ever, the credit reporting agency Equifax has admitted that criminal hackers have had access to over 143 Million consumers' files, including names, Social Security Numbers, birth dates, addresses and driver's licenses.  Make sure you monitor your credit very carefully with a reputable agency.  For more information, see this USA Today news article.

Wednesday, August 30, 2017

Terry Pratchett's Executor Destroys Unpublished Work of Author

As a fan of the works of Author Terry Pratchett, in particular Going Postal and Making Money, I got a chuckle out of this story in the New York Times.  As some of you are aware, Terry Pratchett died in 2015.  One of his last wishes was that all of his unpublished works be destroyed by a steamroller.  A few days ago, Rob Wilkins, his estate manager posted a picture of a steamroller running over a hard drive.

Compare what Terry Pratchett did with what the Administrator of Prince's estate is doing.  Comerica Bank and Trust, as Trustee of Prince's estate, is slowly analyzing all of Prince's unpublished works and the plan is to release an album shortly to maximize the value of the estate.  Whether or not Prince would have wanted the works to be released is debatable, but because he did not leave clear instructions, an Administrator is obligating to exploit the assets as best it can so that his heirs receive the most money possible.

Remember, if you have written any books or have any other intellectual property where you wish to control of their disposition after you pass away, you must leave specific instructions for what you want done in your last Will and Testament (or other estate planning documents).  You may also name a separate executor or agent to manage your intellectual property (who may be distinct from the person managing the rest of your financial affairs).

Friday, August 18, 2017

Will the New Jersey Estate Tax Repeal Become Permanent?

As most of my estate planning clients are aware, I have been very cautious regarding whether or not New Jersey will keep a $2,000,000 estate tax exemption beyond 2017 or allow for a full repeal. However, it is worth noting that the front-runner for Governor, Phil Murphy, released part of his tax and spending plan today.  See this article on NJ.com: http://www.nj.com/politics/index.ssf/2017/08/murphy_tax_plan_would_raise_13_billion_heres_whod.html

As part of the plan, he stated that he has NO intentions of re-introducing the estate tax.  Accordingly, there is probably a good chance that the repeal of the NJ Estate Tax does become permanent.  Only time will tell though.

Wednesday, August 9, 2017

NJ Has Finally Released 2017 Estate Tax Return and Calculator

As I know many of you have been waiting anxiously, I wanted to make sure that you are aware that the New Jersey Division of Taxation has finally released the 2017 Estate Tax Return form.  They have also released an estate tax calculator so that we can accurately prepare the return.  The NJ 2017 Estate Tax Calculator can be downloaded from the NJ Department of Treasury website.

The New Jersey Estate Tax Calculator is important because the new estate tax law was crafted with a slight flaw in it because it has a circular calculation.  (This means the tax can't be calculated without reference to the tax, which in effect, changes the tax, over and over again.) For example, if you were to look at the statute, you may think that if you had an estate of $2,001,000, the estate would be taxed at 7.2% on the $1,000 that you were over the $2M threshhold.  This is not true.  According to the calculator, the tax is $66.82, not $72.  As the numbers get higher, this obviously becomes more important.

Anyway, the good news is that if you are an executor, administrator or involved in an estate of someone who passed away in 2017, you can now start the process of filing a New Jersey estate tax return.

Monday, May 8, 2017

Where Is The Best Place To Die From An Estate And Inheritance Tax Perspective?

Several years ago, I wrote a few articles comparing the tax consequences of dying in New Jersey, New York, Pennsylvania and Florida.  Now that New Jersey has amended its estate tax laws, I thought I should write another post for 2017.

I will write this blawg post with the following assumptions in mind:
1) Nothing is going to a surviving spouse (since no state taxes transfers to a surviving citizen spouse, this is generally not a factor).  Note, NJ still has an estate tax on transfers to a surviving NON-CITIZEN spouse if the transfer is for more than the state estate tax exemption amount, currently $2,000,000.
2) Nothing is going to anyone other than lineal descendants (children, grandchildren, etc.)  Transfers to nieces, nephews, friends, etc. can lead to a significant inheritance tax in New Jersey and Pennsylvania, so that is really a different comparison.
3) Since different states have different rules regarding what types of assets are taxable and where they are located, I will presume that all assets described herein are taxable by your state of domicile at the time of death.
4) The tax rates computed here are approximations only.  This is particularly true because New Jersey has a well known problem with its current estate tax that needs to be addressed.  (Basically, NJ's estate tax law contains a "circular" math calculation to figure out the tax.  We are still awaiting guidance from NJ on how to best do this or if they will issue a correction making the math easier and more straightforward.)

FLORIDA
Let's start off with the easiest of the four states, Florida.  Florida does not have an estate tax. Simply put, you do not have to worry about a tax upon death.

PENNSYLVANIA
Pennsylvania has a FLAT 4.5% inheritance tax on all transfers to children and grandchildren.  There are some notable exemptions though.  In particular, Pennsylvania does NOT have an inheritance tax on:
1) life insurance;
2) real estate or business interests owned outside of Pennsylvania;
3) a "qualified family owned business interest" - defined as having fewer than 50 full-time equivalent employees, a net book value of assets less than $5 million dollars, and being in existence for at least five years at the decedent's date of death. In addition, the principal purpose of the business must not be the management of investments or income-producing assets of the entity.  Here is a short post I wrote about the inheritance taxation of small businesses in PA;
4) Most family farms; and
5) certain IRAs, 401(k) plans and 403(b) plans.  Generally, if the decedent is under 59.5 years of age and not disabled, it won't be subject to a PA inheritance tax.  The decedent must have the right to terminate or withdraw the money without penalty to avoid the PA inheritance tax.

Additionally, Pennsylvania only taxes a portion of money held in joint account with another if it has been titled in joint name for more than 1 year.

NEW YORK
New York has slowly been raising its estate tax exemption up towards the federal estate tax exemption limit.  However, NY never makes anything too easy.  For individuals dying between 4/1/16 and 3/31/17, the exemption amount is $4,187,500 and for individuals dying between 4/1/17 and 12/31/18, the exemption amount is $5,250,000.  Additionally, while NY exempts real estate located outside the state of New York from its estate tax, it also forbids deductions related to such property, which occasionally has the effect of taxing a portion of the property!

The worst part of New York's estate tax regime is that it has a substantial cliff.  Basically, if your assets are 5% higher than the exemption amount, YOU DO NOT QUALIFY FOR THE EXEMPTION!  So, currently if your estate is above $5,512,500, your pay a full tax on everything, and if you are between $5,250,000 and $5,512,500, you only receive a partial estate tax exemption.

The tax rates in New York range from 3.06% to 16% once you have over $10,100,000 of assets.

NEW JERSEY
As stated above, because of the technical problem with NJ's statute, I my calculations are based upon the assumption that New Jersey will offer a true dollar for dollar credit for its $2,000,000 exemption in 2017 (on the first $2M of assets in the name of the decedent, not the last $2M).

Moreover, it should be noted that NJ has the fewest items that it excludes from its estate tax.  It doesn't include out of state real property or business interests fully, but it does do so on a proportionate level, effectively taxing some of it once you are above the exemption amount.

New Jersey DOES have an estate tax on life insurance if you owned the policy on your own life, unless paid to a citizen spouse or charity.

New Jersey's tax rates will be 7.2% to 16% depending upon how far above the $2,000,000 exemption amount you are.

SO JUST GIVE ME THE ANSWER, WHERE IS THE LEAST EXPENSIVE PLACE TO DIE?
It's still never that easy, except for Florida.  There is never a death tax in Florida, but let's compare:

NY estate tax vs. NJ estate tax vs. FL
Starting April 1, 2017, between New Jersey, New York and Florida,  if you have assets of less than $2,000,000 and are leaving everything to your children, it does not matter.  There is no state estate tax.

If you have assets between $2,000,000 and $5,250,000, it is cheaper to die in New York and Florida as neither of those two has an estate tax.  At about $5,000,000, New Jersey will have an estate tax of close to $292,000.

As your estate approaches, $5,500,000, New York quickly becomes the most expensive place to die because of the tax cliff.

NY estate tax vs. PA inheritance tax 
Starting April 1, 2017, between Pennsylvania and New York,  if you have assets of less than $5,250,000 and are leaving everything to your children, New York is the clear winner as it does not have a death tax and Pennsylvania has a flat 4.5% tax from the first dollar.

As your estate approaches, $5,500,000, New York quickly becomes a much more expensive place to die because of the tax cliff and because the rate is so much higher.

NJ estate tax vs. PA inheritance tax 
Starting January 1, 2017, between Pennsylvania and New Jersey,  if you have assets of less than $2,000,000 and are leaving everything to your children, New Jersey is the clear winner as it does not have a death tax and Pennsylvania has a flat 4.5% tax from the first dollar.

As your estate approaches, $4,000,000, New Jersey quickly becomes a much more expensive place to die because it has a higher tax rate.

Interestingly, the last time I made these calculations, for individuals dying before 2017, the cross-over point was $1,500,000.

RECOMMENDATIONS
As always, each client has a unique situation.  Many people who have assets in excess of $4,000,000 tend to own real estate in more than one jurisdiction, further complicating the tax picture.  Also just because you have a taxable estate now, it does not mean that you should move to avoid taxes upon your death.  It is usually possible to engage in tax planning to minimize any estate and inheritance taxes.  For instance, we can assist you with gift planning to minimize taxes upon your death.  Please contact us if you would like to learn more about how the changing laws affects you.

Wednesday, March 15, 2017

New Jersey Has Yet To Create An Estate Tax Return Form For People Dying In 2017

As many of you know, New Jersey recently revised its estate tax law.  Effective January 1, 2017, people who die in the year 2017 will have a New Jersey estate tax exemption of $2,000,000.  Since the law was enacted towards the end of 2016, the division of tax needs some time to prepare a new estate tax return form.

Unfortunately, if you are the executor or an administrator of an estate, and the estate is in excess of $2,000,000, you will not be able to file an estate tax return until the State of New Jersey provides guidance on the type of information they will need in order to issue Tax Waivers.  Inevitably, this will lead to a delay in getting access to funds.

If you are an executor trying to access funds from a financial institution, remember, the financial institution is required to release one-half of the funds.  We have heard a few horror stories recently about banks not doing this.  If this happens to you, please refer them to this notice from New Jersey. You will see in the section titled "Blanket waiver" that the bank may release 50% of the funds without a tax waiver.

Note, New Jersey has released Form L-8 and Form L-9 so that decedents who are leaving everything to Class A beneficiaries and charities and who have a taxable estate under $2,000,000 can access their accounts completely and apply for a tax waiver for any real estate owned.  (Thanks to the head of my estate administration department, Elizabeth Ketterson, for the reminder.)

This can be tricky when a decedent wants to give a token gift to a niece, nephew, godchild, step-grandchildren or friend.  Any bequest of more than $500 means that the Executor of the estate cannot use Form L-9 or L-8 to have more than 50% of the funds released as an inheritance tax will result and New Jersey will have an automatic lien on all New Jersey accounts and property.





Thursday, February 9, 2017

Notification of the Death of a Loved One

New Jersey recently passed a new law that requires senior citizen housing developments to notify the next of kin in the event that a resident passes away in the development.  See http://www.nj.com/politics/index.ssf/2017/02/christie_signs_next-of-kin_notification_law_to_pre.html#incart_river_home

You would think that most organizations would have procedures in place for sort of thing, but it is actually a fairly common occurrence that families are not notified immediately when a loved one dies, goes to the hospital or is injured.  Accordingly, it is best for each family to make sure that if you are moving a loved one into a facility of any kind that you determine what policies and procedures the facility has in place to notify emergency contacts.

The facility should be able to recognize that when health emergencies take place, it is often important to notify a different one set of people and that if there is a death or other type of emergency, a different set of people should be notified.  Ideally, whatever facility or organization you work with can build a custom plan and contact tree that meets your needs.  

Monday, January 23, 2017

Why Titling Of Assets Is So Important In Second Marriages

I was talking to another estate planning recently and discussing how much of our work involves assisting clients who have blended families.  Blended families generally refers to clients who are married but at least one of the spouses has a child from a previous relationship.

In comparing stories and ways that we can assist clients, we discovered that the biggest hurdle that we face is with respect to titling of assets.  To understand the problem, you must realize that the following are examples of things generally trump whatever you put in your Will or Trust:


  1. Life insurance beneficiary designations;
  2. IRA/401k/403b and other retirement beneficiary designations;
  3. Annuity beneficiary designations;
  4. Owning real estate as husband and wife;
  5. Owning real estate with a survivorship clause;
  6. Owning real estate with a life estate;
  7. Having someone on your bank account as a Pay on Death (POD) or Transfer on Death (TOD) beneficiary;
  8. Owning a bank account or brokerage account jointly with someone;
  9. Contractual agreements (such as a buy-sell agreement or divorce decree);
  10. Joint ownership of cars and other vehicles; and
  11. Joint ownership of bonds.

So, to put this another way, if you have two children from a previous relationship and are married to a new spouse, you may want 1/3 to go to each of your two children, and 1/3 to your spouse.  Well, even if you have a Will which says 1/3 goes to each person, this will not happen if some of your assets name a beneficiary or are in a joint account with someone.

Let's say in the example above Husband is the parent to 2 children and he owns the following:  A $400,000 house in New Jersey with Wife (who has no children), a $1,500,000 apartment in New York in just his name, a business worth $10,000,000 owned 70/30 with a partner, a 401k worth $3,000,000 naming his wife the beneficiary, a life insurance policy worth $1,000,000 naming his wife as a beneficiary, a brokerage account in his name worth $2,000,000 and a checking account with Wife worth $100,000.   Accordingly, the Husband has a net worth of $15,000,000.  (I'm only including $7M of the $10M business.)  It is Husband's desire to give $5M to each.

Without any additional planning and assuming that Husband and business partner have no agreement in place, a Will that leaves everything 1/3 to each child and Wife has the following consequences:

1)  The Wife would get the NJ house, the 401k, the life insurance, plus the joint checking account for a subtotal of $4,500,000.  Additionally, she would receive 1/3 of everything else (another $3,500,000) for a total of $8M.
2)  Each of the kids would receive $3,500,000 of assets - far less than what H intended.
3)  The business would be owned 23.33% by each of the children, 23.33% by the Wife and 30% by the business partner.

Unfortunately, however, life is usually even more complicated than this!  Frequently, there is a divorce agreement that might require that the life insurance be payable to the children.  Sometimes either the surviving spouse or the child is named as executor - and then the surviving spouse does not get along with the children.

Because these situations are so complex, they are very likely to result in estate litigation.  To minimize the costs of an expensive an hostile administration, it is very important to understand that title of assets frequently overrides what a Will or Trust might state and plan accordingly.




Tuesday, January 17, 2017

Opening of New York Law Firm Office

I am pleased to announce that we have officially opened an office in Manhattan.

While our main office is still located near Princeton, New Jersey, we will be happy to meet with clients by appointment at our New York location:

122 East 42nd Street
Suite 620
New York, NY 10168
Phone: 646-727-0399



The Law Office of Kevin A. Pollock LLC in midtown Manhattan, New York is located in walking distance from Grand Central Station in the historic Chanin Building at the corner Lexington Avenue.