Life insurance — a useful tool for estate planning and management

An illiquid estate can be very difficult to administer. If the estate assets include real estate or a business to be sold,  there can be a need for substantial cash to maintain these pending sale. If the beneficiaries of the Estate are Class C (siblings) or Class D (all others), New Jersey Transfer Inheritance Tax will need to be paid. Many Wills direct that these taxes be paid from the estate itself, rather than paid by the beneficiary who receives the inheritance. The Executor may need to pay for the funeral bill.  401Ks or IRAs generally have designated beneficiaries, and therefore are not used to pay estate expenses. There may be  substantial debts to clear up as well, or unfiled income taxes. So there’s often a need for cash in the estate so that the Executor can reasonably take care of the Estate’s obligations.  Life insurance that is payable “to my Estate” can be used to create the liquidity that’s needed.

If the estate plan needs to balance the amounts being left to different people, and certain people are receiving, let’s say, the tax-deferred accounts, the beneficiary designations on the life insurance can take care of the others.

Perhaps there is a Trust within the Will to protect the inheritance for certain heirs, or a supplemental needs trust for a disabled heir, or an unfunded standby trust for another person’s benefit. Life insurance can be made payable  to the Trustee of the Trust, to ensure that there will be an inflow of dollars to fund the trust. This is a particularly useful technique when the Trust includes a house that the beneficiary will live in.

Life insurance is one of many tools in the toolbox for an effective estate plan. Call us for advice to design the plan that meets your needs ….. 732-382-6070


Special Needs Trusts continue to be Vital for People with Disabilities

The term “special needs trust” is used to refer to a trust that’s for benefit of a person with disabilities who depends on means-tested public benefits that have income limits or resource/asset limits. Sometimes these are “first party trusts” — created by the disabled person (over age 18) or his parent, grandparent, or guardian with court permission, or by a court, and funded with assets owned by the disabled person. Other times they are “third party trusts” — created by somebody (such as a parent or grandparent) for benefit of a disabled family member, and funded with the parent or grandparent’s assets. Still other times, these Trusts are written into a Last Will and Testament, so that the share being left to the disabled person will be protected within the “special needs trust.”  Now more than ever, families and individuals should review their estate plans to see if trusts are needed.

When an estate inheritance passes to a person who depends on means-tested benefits like SSI or Medicaid/.MLTSS, the individual might lose their benefits after receiving the inheritance because they will have excess resources. This creates a particularly risky situation for a person who receives Supports services through the NJ Division of Developmental Disabilities, because DDD benefits depend upon the person meeting those means-tested criteria. It can also be risky for an individual who receives skilled nursing benefits through the Medicaid/MLTSS program. There are remedies available, such as filing a court petition, but time and benefits can be lost while the remedies are being pursued. And now in this time of court closings due to COVID-19, everything is more difficult to pursue in court. Supreme Court release 3-27-2020

A special needs trust can be written in your Will and can be named as the beneficiary of your tax-deferred account (IRA, 401K, etc.) or your life insurance. The trust can be designated to receive the share of your probate assets that would otherwise go directly to the person with disabilities (causing the problems described above). Careful planning can prevent a crisis. If one of the potential heirs of your estate or your Will is disabled, you may want to review your plans to see if a special needs trust  would be protective for your heir.

Call us for advice about estate planning with special needs trusts …  732-382-6070

What to do if you want to resign as a fiduciary — don’t just walk away

Being appointed as a Guardian, Trustee or Agent under Power of Attorney can be an enormous task. Each of these appointments confers decision-making power and authority on the fiduciary, but at the same time, each of them involves tremendous responsibilities. In an ideal world, the document which appointed the fiduciary also appoints a string of successors and has a non-judicial way to designate a further successor.  When preparing such estate planning documents, it’s a good idea to make sure that the designated fiduciary has the contact information for the successors in case s/he needs to turn over the reins. This information can also be kept in the attorney’s file (or electronic database), since it is likely that the preparer of the estate plan will get the call about the resignation. The whole idea is to avoid logistical and financial havoc that can occur when a fiduciary resigns. Of course, the Guardian is court-appointed, on notice to all interested parties as well as the next of kin who would be entitled to the appointment, so if a Guardian needs to resign, further court proceedings will be required.

Since a Guardian is court-appointed, the Guardian is serving under a court order called a Judgment of Guardianship, and violation of a court order creates the risk of being held in contempt of court. If the Guardian wants to resign, s/he must notify the Court and seek permission to be released from all the obligations that were placed on him/her by the original Judgment. The Court will want to make sure that there is no “gap in coverage,” so to speak.  There will still be certain final responsibilities, such as filing of a final accounting and turnover of records. In non-emergent situations, the Court could require the Guardian to continue to serve for a reasonable period of time in which to provide the final accounting and initiate a legal proceeding on notice for appointment of a replacement guardian. If the ward is over 55, the Office of Public Guardian could be appointed temporarily.

Trustee and Power of Attorney appointments are private matters and the appointment is generally not made by court order. If the Trustee was appointed by the court — such as through the probate of the Will containing a trust — the Court has to accept the resignation and appoint the successor. In all cases, with or without the need for a court appointment of the successor,  the trustee has a legal responsibility to the Trust’s beneficiaries, and the Agent under Power of Attorney has a legal duty to protect the interests of the Principal. So if the fiduciary is becoming overwhelmed with the responsibilities of the job, s/he needs to contact the successor fiduciary and make arrangements to produce updated financial information and turn over all records before it is too late. Letting things just fall apart due to exhaustion or neglect is not a good plan and could expose the fiduciary to potential liability if damage results. And of course, getting legal advice is a good idea. By facilitating a smooth transition, everyone’s interests can be protected.

Call us to prepare trusts and estate plans, and for advice about guardianship and power of attorney matters ….. 732-382-6070