Although the 2001 changes altered the structure of the estate tax, they were temporary, leaving pundits certain that the law would be changed or made permanent before long.  They were wrong.  The law has remained unchanged for the past 7 years, preventing families from engaging in meaningful planning based on a reliable and predictable tax law.  The federal budget deficit makes it now unlikely that the changes will become permanent.

The absurdity for New Jersey residents is reflected in the chart below, which shows the effect of the 2001 estate tax changes on three estates:

	Estate #1	Estate #2	Estate #3
Value	$1,000,000	$10,000,000	$100,000,000
2008	$33,200 More Tax	$607,820 Savings	$2,047,460 Savings
2009	$33,200 More Tax	$1,282,820 Savings	$2,722,460 Savings
2010	$33,200 More Tax	$3,727,400 Savings	$39,187,400 Savings
After 2010	$33,200 More Tax	No Difference	No Difference

The federal estate tax debate is unlikely to end.  It serves as a useful political tool, allowing opponents of the tax to demonstrate concern for its impact on family businesses and farms, while allowing supporters of the tax to point to repeal as yet another clash between the haves and the have-nots.  The only question remaining is whether the uncertainty will ever end.

These seminars will focus on important issues women need to face when planning for retirement, addressing the financial well-being of their future generations, and providing sufficient income for a lifetime. Women live an average of 5-7 years longer than men, the average life expectancy for women is 80-years old, 80% of women will be responsible for their own finances and estate planning, and most women are unaware that without proper planning, up to 55% of their estate could go to the government.

Join hosts Susana Lugones and Katherin Romero, Financial Advisors from Merrill Lynch, and Rose Durkin in this free educational seminar.

While the seminar is free, dinner will be provided and a reservation is required. To register, please contact Susana Lugones at 866-243-4311 or by email.

You can read the article here.

You can read the article here.

The presenters, Allen Silk, Chair of Stark & Stark's Business Law group, Donald Cowan, Managing Director of Cowan, Gunteski & Co., and Deborah Mathis, Principal of Cowan, Gunteski & Co. will cover such topics as succession planning, practice valuation and retirement planning.  

Download the seminar information here.

On the issue of whether an individual has the "testamentary capacity" to execute a will, Judge Doyne noted that the mental capacity of a testator is to be tested as of the time of the execution of the will. Gellert v. Livingston, 5 N.J. 65 (1950). The test of whether an individual has the necessary testamentary capacity to execute a will centers around whether the testator was able to comprehend and understand: the property he was about to dispose; the natural objects of his bounty; the meaning of the business in which he is engaged; the relation of each of these factors to the other and the manner of distribution that is set forth in the will. See, In re Will of Landsman, N.J. Super. 252, 267 (App.Div. 1999).

In addition to what the party claiming a lack of testamentary capacity must prove, the contestant usually has the burden of proving that there was a lack of capacity by clear and convincing evidence, In re Coffin's Estate, 103 N.J. Super. 1 (App. Div. 1968), as it is presumed that the testator was of sound mind and competent when a will is executed. Haynes v. First National State Bank, 87 N.J. 163, 175-176 (1981).

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.

This week's New Jersey Legal Update is presented by Steven Friedman, Chair of the Firm's Trusts & Estates Group.

You can download the New Jersey Legal Update Podcast # 37 here.(9.7 MB)

Technorati Tags: New Jersey : Podcast : Estate Plan : Wills

If a will has been admitted to probate by the Surrogate's Court, New Jersey Court Rule 4:85-1 allows a party four months to file a complaint to set it aside. However, if the complaint is not filed within the four month period, a party may seek relief under the "escape provision" of Rule 4:85-1 and file the complaint within a "reasonable time under the circumstances". Under section (f) of New Jersey Court Rule 4:50, this relief can only be secured where there are exceptional, extraordinary and compelling grounds for such relief.

In The Matter of the Estate of Florence Schifftner, Deceased, decided on April 25, 2006, the Appellate Division of the New Jersey Superior Court dealt with the issue of whether an inability to afford counsel constitutes "exceptional, extraordinary and compelling grounds" and therefore a reason to allow a litigant to attack the probate of a will after the four month period.

The plaintiff in the Schifftner case was seeking to overturn a judgment admitting the will of his late mother to probate. The will had been probated after due notice to the plaintiff and he did not file an appeal. The plaintiff argued that although he was aware of the will being probated, he was unable to take appropriate action as his did not have sufficient funds at the time to hire an attorney. The Appellate Division concluded that indigence, under the circumstances of this case, was not an "extraordinary" reason justifying relief. The Court noted that it was an unfortunate fact that many litigants were unwilling to obtain, or unable to afford, representation. The Court went on to say that pro se litigants are allowed the same protection afforded to represented litigants and pro se litigants are given the right to be heard. The Court held that counsel is only required when a litigant faces a "consequence of magnitude" such as a criminal prosecution that threatens actual incarceration or the loss of a fundamental constitutional right such as an interference with the parental relationship.

The Court went on to say that where the consequences are less severe, the failure of representation is not fatal. The possibility of losing a civil suit does not implicate the need to have counsel. The plaintiff in Schifftner, having filed his complaint to overturn probate of a will more than four months after probate, was therefore not allowed to use the Rule 4:50 "escape provision" based upon the fact that he could not afford to hire a lawyer during the applicable time period.

Most individual business owners do not have sufficient plans in place to address the many issues which will arise upon their death or severe disability. This podcast outlines the things that business owners should be thinking about now to ensure the smooth transition of their business should a catastrophic event occur.

You can download the New Jersey Legal Update Podcast # 26 here.(7.5MB)

Technorati Tags: New Jersey : Podcast : Succession Planning

In The Matter of the Estate of Lee Siegel, deceased, Docket No. P-480-04, Judge Gerald C. Escala, Presiding Judge of the Chancery Division for Bergen County, rendered a decision on December 8, 2005, following a two-day bench trial in an estate matter. The decision centered around attorney fee applications made in the case.

While finding the attorney fee applications themselves to be reasonable, the Court admonished the litigants and counsel for having failed to perform a reality check as they proceeded with the case toward trial. Judge Escala noted that:

"All too often, litigants leave common sense behind when they embark on litigation in which they convince themselves they are destined to prevail, oblivious to the fact that they might not be successful. They also fail to notice the sometimes astounding amount of time in legal services (and costs) they are incurring to pursue their claim. It must be because in addition to their self-conviction of the justice of their case, they also firmly believe they will not have to pay for the legal services, so they proceed vigorously without regard to the costs. Or, they have a notion that counsel fees can be assessed by the court from some unidentified source, that is, one not related to the cause at hand."

The Court went on to explain that New Jersey follows the American Rule with regard to payment of legal fees, which requires that each side pay their own legal fees, with certain limited exceptions.

Judge Escala's words should be seriously considered by every attorney and client that becomes involved in litigation. Our courts are not a place to litigate personal feelings or personal agendas. Economic realities must play a key, if not defining, role. The toll in terms of cost, time and emotion is often not appreciated at the outset of a case. Parties should assess the strength of their case at the outset and honestly consider the strength of the other side. Playing the devil's advocate is a must. Attempting to settle early on through the process of mediation is a wise course to follow. It is true that certain cases will go to trial. However, all trial attorneys and litigants should heed the well written words of Judge Escala.

Technorati Tags: New Jersey : Litigation

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.

New Jersey's Domestic Partnership Act provides the same sex community with new rights and protections. However, these rights are still not at the same level that married couples in that state enjoy. As such, proper estate planning still remains a major consideration.

Estate planning is especially important for same sex couples, because that is the only way they can make their preferences known. The following is intended to provide ideas of the estate planning options available to same sex couples.

LIFETIME PROTECTION

A Durable Power of Attorney designates another person, an Agent, to handle financial affairs. This may include paying bills, transferring funds between accounts, buying and selling securities, buying and selling real estate, accessing a safe deposit box, and other financial matters. It is an essential part of any client's estate planning documents. In planning for same sex couples, the Durable Power of Attorney may be more crucial because of the high potential for resentment toward the well partner as they attempt to look after the needs of the stricken partner. The well partner may be confronted by the family members of the ill partner in an attempt to challenge the well partner's decisions regarding the assets of the stricken partner.

In many respects, the Health Care Power of Attorney is even more important than the Durable Power of Attorney. A Health Care Power of Attorney designates an Agent to make health care decisions for the Principal (the person signing the Health Care Power of Attorney), in the event that the Principal cannot make their own medical decisions. Given the possibility that the well partner will be placed in a difficult position regarding the stricken partner's family members, a well-drafted health care power of attorney will be crucial to not only address issues of medical treatment, but also for the well partner's ability to visit and give comfort to the stricken partner.

In future posts I will discuss disposition plans, estate and inheritance taxes, irrevocable trusts and other matters that same sex couples should be aware of when planning their estate.

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 legal document that is commonly prepared to memorialize the "ideas" is the Buy-Sell Agreement. Simply put, the Buy-Sell Agreement provides for the continuation of a business upon a "triggering event." A "triggering event" could include death and retirement at a certain age and may include disability, early retirement, involuntary or voluntary termination from employment, or some sort of a force-out situation of a shareholder or partner. The Buy-Sell Agreement, much like the Last Will and Testament, is the controlling document that details the succession of the company in accordance with the owner's wishes. A properly drafted Buy-Sell Agreement should cover in detail the who, what, when why, and how of the succession. Who the successor or successors of the company will be; what aspects or part of the company will be transferred; when the transfer or succession will occur; why the succession plan is necessary; and how the succession will occur.

Although all Buy-Sell Agreements should cover all these issues, no two Buy-Sell Agreements are the same. Again, similar to the Last Will and Testament, each Buy-Sell Agreement needs to be individually prepared for each company in order to properly address each company's uniqueness and circumstances. However, unlike a Will, the Buy-Sell Agreement could be triggered while the business owner is still actively employed or working in the company. Depending on the circumstances of the company, if the company's growth and success are largely dependent on the owner's or principal's relationships with the company's customers or clients, the Buy-Sell Agreement should provide for a transitioning plan whereby a time period (ie. three to five years) is set aside prior to the owner's retirement or withdrawal from employment in order for the owner to have sufficient time to transition the company's clients or customers to the successor of the company. Otherwise, without such a "transition plan", businesses that are dependent on the owner's continued relationships with the company's clients will experience difficulty in maintaining success once the owner leaves.

In addition to addressing the transitioning of clients to the successor, where applicable, the Buy-Sell Agreement should also address the transfer of ownership or stock, as the case maybe, to the successor. This would entail the owner considering the various options in determining the purchase price for the transfer, valuation of the company, and the various payment options depending on the "triggering event."

Obviously, there are many elements to consider in preparing the appropriate Buy-Sell Agreement for your company. A properly structured succession plan takes time, effort, and some creativity, but once properly completed, your succession plan should ensure the continued growth and success of the company that you leave behind.

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.