The term “Testamentary Trust” refers to a Trust established by the terms of a decedent’s Last Will and Testament, indicating only that the Trust provisions are described within the pages of the decedent’s Last Will and Testament.
 

The term “Inter-Vivos Trust” refers to a Trust established during lifetime, indicating only that the Trust provisions are described in a separate Trust Agreement, not in the individual’s Last Will and Testament.
 

The term “Medicaid Qualifying Trust” refers to a Trust that disqualifies its beneficiary for Medicaid benefits, since the Trust is presumed to have been established solely for the purpose of qualifying for Medicaid benefits.  Under Massachusetts Law, Inter-Vivos Trusts are presumed to be Medicaid Qualifying Trusts, but Testamentary Trusts are not.
 

In Victor v Mass. Executive Office of Health & Human Services (Mass. Ct. App. No. 09-P-1361, July 21, 2010), Mr. Victor wanted to create a Trust for the benefit of his wife, to take effect upon his death if he predeceased her.  To accomplish that result, he could have created a Testamentary Trust in his Last Will and Testament, or he could have created an Inter-Vivos Trust, with the Trust provisions in a separate Trust Agreement.  In either case, the Trust provisions would have been identical and the Executor of Mr. Victor’s Estate would be directed to transfer the balance of Mr. Victor’s Estate to the Trustee of the Trust.  The sole difference would have been the piece of paper which Mr. Victor used to describe the Trust provisions.
 

If Mr. Victor had chosen to include the Trust provisions in his Last Will and Testament, creating a Testamentary Trust, the Trust would not be a Medicaid Qualifying Trust and Mrs. Victor would have been eligible for Medicaid benefits.  Unfortunately, when Mr. Victor created the Trust more than 25 years earlier, he chose to use an Inter-Vivos Trust instead, making it a Medicaid Qualifying Trust and, thereby, making Mrs. Victor ineligible for Medicaid benefits.
 

Logic and reason can, sometimes, overcome technical deficiencies, but not when it comes to Medicaid eligibility.  One cannot assume that an individual will receive Medicaid benefits because it seems to make sense, or it seems to be the fair outcome.  Fairness and logic cannot replace technical precision.
 

Mrs. Victor did nothing to warrant being ineligible for Medicaid benefits.  She violated no Medicaid regulations.  She did not even create the Trust - her deceased husband did.  The Trust provisions did not lead to the disqualification.  This case was decided solely on the fact that Mrs. Victor’s deceased husband chose to use an Inter-Vivos Trust, instead of a Testamentary Trust, more than 25 years earlier.

Even so, in more than 30 years of practicing law, I have never seen anything as absurd as what is happening now.  In 2001, a political compromise led to a temporary reduction in the federal estate tax.  Without the 2001 tax reduction, the amount exempt from federal estate taxation would have been $1,000,000.  The 2001 law temporarily increased that exemption through 2009, eliminated the estate tax for 2010 estates, and will reinstate the $1,000,000 exemption on January 1, 2011.
 

By its very nature, estate planning deals with uncertainty because so many life events will always be unpredictable.  How long will I live?  What health issues will I face?  What will my family look like?  What special needs will my beneficiaries have? Will anyone challenge my choices?  With all that uncertainty, having a stable, permanent, estate tax law helped keep the planning simpler, and therefore, less costly.  Since 2001, the task of developing estate plans that met our clients’ needs and objectives has been like trying to hit a moving target.  The estate tax uncertainty left us trying to plan around an infinite number of possibilities - a $1,000,000 exemption, an unlimited exemption, and anything in between.
 

Since 2001, most pundits have been certain that Congress would never let 2009 pass without amending this illogical tax law.  Even after Congress proved the pundits wrong, they remained convinced that Congress would act in 2010.  At the least, Congress was expected to allow 2010 estates to elect to use the 2009 law, since couples with a net worth of $7,000,000 or less fared better in 2009 than in 2010.  Still no action and only 2 weeks left in the year.
 

Sadly, Congress is not even discussing a permanent fix.  To the contrary, the only proposal currently being debated is whether to continue the uncertainty with another temporary fix - this one good for only 24 month.  Observing Congress’ 10-year failure to enact a permanent fix, the question is whether there is a political disincentive to do so.  The estate tax is a perfect wedge issue on both sides of the political aisle, giving rise to speculation that we will never have a rational and permanent solution.

In addition to the act of getting estate planning done, many other factors play into the fact that so many probate estates end up in litigation.  As families grow away from each other, natural suspicions arise.  Did someone influence the preparation of the Will?  Was the maker of the Will competent?  How were the assets divided?  How long was the marriage?  The questions are virtually endless.

In a recent case decided in the United States District Court for the District of New Jersey, the Federal District had to decide whether there was appropriate subject matter jurisdiction for the Federal District Court to hear probate matters.  In the matter of Berman v. Berman, 2009 WL 1617758 (D. N.J.) the case involved allegations of undue influence and lack of testamentary capacity to execute a Will, among other claims.   The plaintiff filed the case in the New Jersey State Court, Probate Division and the defendant removed the case to the Federal District Court.  The central issue for consideration was whether the Federal District Court could hear the dispute between the parties, which included probate issues.

The Federal District Judge noted that the United States Supreme Court had recognized a "probate exception" to otherwise proper federal jurisdiction.  Accordingly, when a case may otherwise qualify to be heard in Federal Court, the Federal Court would not have jurisdiction where the matter involved (1) the probate or annulment of a will; (2) administration of a decedent's estate; or (3) the assumption of jurisdiction of over property that was in the custody of the probate court.

Since the case in Berman involved questions of the validity of a Will, the Court determined that the "probate exception" applied and that the case had to be heard in the State Court.   The case was therefore remanded to the Superior Court of New Jersey, Chancery Division.

In the State of New Jersey, there are essentially two ways in which an individual may challenge a Will.  The first way is to allege that the decedent lacked the requisite capacity the date the Will was executed.  This is a fairly low standard to meet, as the decedent need only be aware that he/she possesses assets, and in addition, that he/she wishes to transfer these assets to certain other individuals.  In levying a challenge in this regard, the Court may review medical records and other information concerning the decedent’s physical and mental health in order to determine if this individual possessed the requisite mental capacity on the day the Will was executed.  The medical records are relevant as they may demonstrate physical or mental conditions which could suggest that the decedent may have lacked the capacity to execute a Will on the date the Will was executed.  This often involves the need for expert witnesses to review medical records, and thereafter, to render their opinion as to the capacity of the decedent on the date the Will was executed. 
 

The other way in which an individual may challenge a Will concerns an allegation of undue influence.  Simply put, undue influence means that the Will does not reflect the true intentions of the decedent, but instead, reflects the wishes of an individual who asserted their influence over the Testator, thereby rendering the Will inconsistent with the Testator’s true wishes.  In order to prove a claim of undue influence, the contestant must first establish that there existed a confidential relationship between the decedent and the party which is alleged to have unduly influenced the Testator.  A confidential relationship exists when the Testator and another individual shared a relationship where trust or confidence is naturally reposed by the decedent with this individual.  Another instance under which a confidential relationship arises is in an attorney/client relationship where there is a fiduciary relationship between the parties. 
 

Once the contestant of the Will has established the existence of  a confidential relationship, he/she must establish suspicious circumstances with regard to the creation and execution of the Will.  Once this has been achieved, the Court can shift the burden of proof upon the proponent of the Will to demonstrate the validity of this document. 
 

After a lawsuit has been commenced, the Court will often recommend that the parties consider mediation in an attempt to resolve the matter without the need for additional litigation.  Often, the parties are able to resolve the litigation through Mediation without the parties incurring additional expenses.  If a case cannot be resolved through mediation, the case will move forward through discovery, and thereafter, to Trial.  Once an Estate litigation matter is scheduled for Trial, the parties should be aware that the Trial will not be heard before a jury, but rather is decided by a Chancery Judge that hears probate matters.  Once the Judge renders his/her decision, either side may make an application for fees to the Estate. 
 

If the party prevails in contesting the Will, the Will could revert to a previous Will, if said document still exists, or the individual could be deemed as having died without a Will.  Thereafter, the Court may appoint an independent Executor if the named Executor is disqualified.  If the Will is not invalidated by the Court, then it will be probated in the manner which had been sought to be probated by the Executor originally.  Thereafter, the Estate litigation will conclude.

You can read the full article online here.

On the issue of "undue influence", Judge Doyne, citing the Haynes case, noted that undue influence is the "mental, moral or physical" exertion which destroys the "free agency of the testator" by preventing him "from following the dictates of his own mind and will and accepting instead the domination and influence of another." As in the case of testamentary capacity, the burden of proving undue influence falls upon the party claiming that there was undue influence.

However, of particular significance is the fact that the burden of proof will switch if it can be shown that a confidential relationship existed between the testator and beneficiary and suspicious circumstances are present.

These basic concepts and points of law are relevant to almost every will contest. Unfortunately, probate litigation usually involves fights among family members where the relationship has deteriorated over the years. When a loved one dies, some family members will have remained close with the decedent, and the relationship with others will have faded. Whatever the relationship, questions as to the disposition of a loved one's assets often present issues of capacity and undue influence.

Technorati Tags: New Jersey : Probate Litigation : Will Contests

The seminar included a presentation by Allen Silk and Rosemary Durkin, members of the Firm's Trusts & Estates group. Also presenting at the seminar was Richard Oring of Oring and Company who discussed long term care insurance.

You can listen to the presentation here (67MB).

You can also download PDF versions of the PowerPoint slides which were used.

Protecting Your Family: Estate Planning

Long Term Care

Ms. Durkin will discuss the legal issues surrounding living wills and health care powers of attorney.

The panel discussion will be held at 12:00PM at Covenant Presbyterian Church, Trenton New Jersey. Admission in free but registration is required. To register, please call 609.393.9922.

On January 4, 2005, the appellate court ruled that a state regulation capping the amount of funds that a Medicaid applicant may use to purchase a commercial annuity contravenes federal law. Estate of F.K. V. Division of Medical Assistance and Health Services (App. Div. No. A-1004-02T5).

Then on January 21, 2005, in the matter of A.B. v. Division of Medical Assistance and Health Services (App. Div. No. A-4973-02T2), the appellate court held that federal law prohibits the State of New Jersey from requiring that it be named as the remainder beneficiary of an actuarially sound commercial annuity purchased by the community spouse of a Medicaid applicant.

In both cases, Medicaid applicants successfully challenged state regulations which went far beyond what federal law provided and which were used to deny Medicaid eligibility for the applicant. The courts found that the State exceeded its authority and that the regulations were improperly drawn or enforced.

Supporting the State of New Jersey's aggressive efforts to pursue the recovery of Medicaid benefits paid for a nursing home resident following the resident's death, the New Jersey Appellate Division concluded in a November 10, 2004 opinion, Estate of Michael DeMartino v. State of New Jersey, Division of Medical Assistance and Health Services, that the State could assert a lien against a testamentary trust created by Anne DeMartino upon her death for the benefit of her husband, Michael. Although Michael died less than one year later, Anne had given to the trustee authority to distribute the trust funds in limited circumstances for her husband's benefit. The balance remaining in trust after the husband's death was to be distributed to Anne's children. After Michael's death, the State sought to recover from the testamentary trust benefits which were paid by the State for the benefit of Michael - despite the fact that Anne had specifically disallowed the funds to be used in such a manner.

Federal law supports and encourages the states to recover Medicaid benefits paid following a recipient's death from property of the recipient at death, as well as property in which the recipient had a legal interest, specifically described as 'other arrangements' including joint accounts and living trusts. New Jersey has adopted the most aggressive definition of a decedent's estate for recovery purposes, and has expanded the reach of federal law by adopting regulations which permit recovery from third party trusts which contain property in which the recipient had an interest in the previous five years.

Despite the fact that New Jersey laws can be no more restrictive than federal law, the Appellate Court in this case stretched to find that the testamentary trust created by Anne fell into the category of 'other arrangements' which entitled the State to make recovery from it. The judges deemed the testamentary trust to be an arrangement intended to pass assets to Anne's children and avoid estate recovery, focusing on Anne's perceived intent and not on specific laws and regulations.

Three months ago, the New Jersey Supreme Court overturned a similarly reasoned decision of the Appellate Division relating to Medicaid planning, In Re Keri, recognizing that individuals can work within the framework of existing laws and regulations to undertake Medicaid and estate planning. It is expected that the DeMartino decision will be appealed.

A Chancery Division judge has denied an estranged husband's application to serve as Administrator to his wife's estate. In this matter, the husband and wife were in the midst of a divorce when she died. The Chancery judge held that, if a plaintiff in a matrimonial matter dies intestate while the divorce complaint is pending, the estranged spouse is barred by, primarily, a conflict of interest, from becoming Administrator of the Estate. The application by the decedent's son from a previous marriage to serve as Administrator was granted.

The New Jersey Supreme Court decided that it is lawful to institute a Medicaid spend-down on behalf of an incompetent individual when certain criteria are met. Medicaid spend-down plans are permissible when the plan does not interrupt or diminish the care that an incompetent person receives, when that plan involves the transfer of that person's natural objects, when the plan is not contrary to any expressed prior interest or intent, and the plan is clear in providing for the best interest of the incompetent person and satisfies the law's goal of allowing decisions to be made on an incompetent person's behalf that the person would make if he or she were able to act.