New Jersey Law for Children with Special Needs

Trust Advisory Committees

Mary W. Browning — Wed, 13 Jan 2010 09:31:18 -0500

Sometimes, when a parent creates a third-party special needs trust, he or she does not want the entire burden of decision making to fall on the trustees. Or sometimes the trustees were chosen for their financial and investment savvy and background and they do not necessarily know how to handle the day-to-day life of the child with special needs. In these cases, the appointment of a Trust Advisory Committee by the trust creator may be appropriate.

A Trust Advisory Committee is a group of people (typically 3-5 people) chosen by the person creating the trust or chosen by the trustee who are responsible for advising and making distribution requests on behalf of the special needs person to the trustee. The committee is designed to provide insight, advice and information to the trustee with respect to the special needs person's residential placement, emotional, social, education, medical and therapeutic issues. The committee usually consists of family members, a social worker, care manager, accountant, attorney, nurse, friends, etc. These advisors have no legal authority over the trust, but the trustee is required to consult with them.

Special Needs Tax Credit for Legal Fees?

Mary W. Browning — Tue, 29 Dec 2009 09:18:37 -0500

There is a movement underway to encourage Congress to change the tax code to provide up to a $5,000 tax credit for legal fees paid with establishing legal guardianship. The tax credit may also be available for legal fees paid in connection with establishing a trust for a person with disabilities. The tax credit would be available for the person who actually paid the legal fees.

The Special Needs Tax Credit Alliance, a non-profit organization, has been formed in order to raise awareness for this issue and to build national support for the tax credit. The Special Needs Tax Credit Alliance petition is located at http://specialneedstaxcredit.com.

Ending Your Marriage Does Not Mean Ending Your Commitment to Your Special Needs Child

Lori I. Wolf — Tue, 15 Dec 2009 15:37:06 -0500

The end of a marriage does not end your commitment to your child with special needs. First, it is important for any child support dedicated to a child with special needs to be allocated under the separation agreement to a special needs trust so that these assets do not affect the child’s ability to receive government assistance. It is important in connection with a divorce that each spouse consider the impact of the separation on his or her individual special needs planning. Each parent must have appropriate special needs planning in order to protect the child’s eligibility for assistance. Each spouse can have their own special needs trust with different trustees and different beneficiaries. Despite this, it is important that where possible, the parents of the child with special needs coordinate the funding of the trusts to ensure that adequate resources will be available to the child, and to ensure that the both spouses have incorporated the planning necessary to preserve the child’s eligibility for assistance.

If you incorporate special needs planning in your estate plan, but your ex-spouse has not, the planning you have done will not be enough to protect your child’s eligibility for assistance at the time that your ex-spouse dies.

In obtaining the divorce, one issue which is not often contemplated is who is responsible for becoming the guardian of the child upon the child’s attainment of age 18 (one parent or both together) and who has responsibility for educational decisions with respect to a child (this could be both parents or one). These issues should be addressed in a divorce agreement to minimize disputes following the divorce.

Who Can Set Up a Special Needs Trust?

Mary W. Browning — Tue, 01 Dec 2009 14:24:45 -0500

The answer depends on what type of Special Needs Trust – a Third Party Special Needs Trust or a First Party Trust.

A third party trust, that is created to hold assets of another person for the benefit of the person with special needs, can be set up by anyone who is over the age of 18 and has the mental capacity to create such a trust. Typically, a parent or grandparent sets up a third party trust because they are usually the ones who are leaving assets to the person with special needs. However, with older couples, sometimes one spouse sets one up for the surviving spouse. In addition, a friend or other non-relative may set up a third party special needs trust to be the recipient of gifts from other friends of the person with special needs.

A first party trust, which is a trust created to own the assets of the special needs person, can only be created by a parent, grandparent, guardian or court. First Party Trusts have many more requirements than third party trusts and it is important that all formalities, starting with the creator of such trust, are followed.

Five Mistakes Commonly Made By Families of Special Needs Children

Lori I. Wolf — Thu, 19 Nov 2009 10:12:19 -0500

Families who do their best to protect their children with special needs often make several critical mistakes in developing their family plan. These mistakes are outlined below.

529 Plan. Often there is a 529 Plan in the name of a special needs child. The existence of this account in a child’s name can affect the child’s ability to receive government assistance. The 529 plan is considered an available asset of the child’s in determining his or her eligibility following the death of the individual who established the plan for such child. The best solution would be to change the designated beneficiary under the 529 Plan to name another child, if that is an option.
Custodial Accounts. The presence of custodial accounts in a child’s name will also affect the child’s availability for government assistance. Custodial accounts are often established long before the child’s special needs are recognized. Parents must deplete any such accounts for the care of their child if the account has assets in excess of $2,000 to qualify for Medicaid assistance or allocate the assets to a pooled trust or first party special needs trust. Going forward, if there is a goal to allocate assets to or for the benefit of that special needs child, a special needs trust can be established by parents or other family members and gifts can be made directly to this trust account.
Retirement Plan and Insurance Policy Beneficiaries. Often times, parents may have worked to develop a special needs trust to which their estate plan is tied, however they forget one critical issue. Life insurance policies and retirement plan accounts pay to designated beneficiaries and do not pass under an individual’s Will. It is vital that parents tie these assets with the special needs trust. If a life insurance policy or retirement plan account are paid directly to a special needs child, the receipt of the assets will affect the child’s ability to receive government assistance.
Discussions with Extended Family. A discussion with extended family members who may want to benefit a special needs child is a difficult and awkward conversation for parents to have; however, the discussion is critical. Well meaning grandparents may allocate a portion of their estate to the special needs grandchild to make sure there are monies available to benefit their special needs grandchild and while intentions are good, the receipt of these monies could affect the grandchild’s ability to receive government benefits. Alternatively, a grandparent’s Will could leave assets to his or her children and if a child predeceases him or her, to the deceased Child’s issue (which could include a special needs grandchild). A bequest by grandparents to a special needs grandchild should be made to a special needs trust. If the parents of a special needs child feel there are family members who might make gifts or bequests to his or her special needs child, the parents should discuss with family members this issue to make sure that they understand that to the extent that they do want to leave assets to a special needs child, the assets should be left to the special needs trust created for the benefit of that child.
Use a Specialist. It is important that parents use an attorney who specializes in special needs planning instead of a general practitioner since there are specific issues which must be incorporated in a special needs plan.

When Flexibility Matters in Special Needs Trusts

Lori I. Wolf — Wed, 04 Nov 2009 15:50:13 -0500

Parents of a young child with special needs may be unable to assess whether their child will actually be eligible to receive government benefits in the future because of an inability to determine whether the child will be able to be self-supporting and earn income through employment as an adult. For example, children with Asperger’s Syndrome, mild autism and other issues may become part of the mainstream. Locking assets up in a special needs trust for the child’s benefit where assets are to be used for luxury items only may not be the best way of utilizing the assets towards the child’s care in those circumstances. In this situation, the parent’s estate plan can create the flexibility to reassess the situation in the future. The trust could initially be structured as a lifetime trust for the benefit of the child. The trustee could have the ability to make income and principal distributions to that child for health, education, maintenance and support purposes for the life of the child.

If, in the future, the trustee believes that the child has the financial savvy and wherewithal to handle the investments on his or her own, the trustee would always have the ability to make discretionary distributions of principal to the child or to terminate the trust entirely and distribute the assets to the child.

Alternatively, if the trustee determines in the future that the child cannot be self-supporting and would be eligible to receive government assistance, the trustee could have the flexibility to convert this trust at the time of that assessment to a special needs trust. The conversion would not require court consent and upon conversion, the trustee would have the ability to use trust assets for luxury items (items not otherwise covered by government assistance) such as equipment, vacation costs and therapies and any other expenses to supplement (but not replace) government benefits.

The family should be careful in assessing who is the best individual to serve as trustee of this trust as this person will be responsible for making the determination as to how this trust should be structured going forward. This flexible structure permits the child to achieve his or her potential allowing the trustee to use trust assets to enhance the child’s lifestyle, while ensuring that the trust will not create a impediment to the best care of the child where government assistance is needed in the future.

New Legislation Will Protect the Estates of Developmentally Disabled Individuals

Mary W. Browning — Wed, 21 Oct 2009 17:08:17 -0500

Gov. Corzine signed new legislation this week, known as “Ronnie’s Law,” that requires fiduciaries (such as executors, testamentary guardians and testamentary trustees) of estates of developmentally disabled individuals to post bonds in Superior Court. The statute is the Legislature's response to the theft of $814,000 by a disbarred Audubon Heights attorney from an estate established for an autistic man, Ronnie Mich, by his father. The bond amount is based on the value of the estate’s assets and the purpose of the bond is to protect the estate’s assets from bad acts by the fiduciaries. The fiduciary will be required to provide the court with an estate accounting every five years.

Certain blood relatives of the disabled individual who are appointed as fiduciaries, such as children, grandchildren, great-grandchildren, parents, grandparents, great-grandparents, brothers/sisters, aunts/uncles and nieces and nephews, as well as certain financial institution and non-profit community trusts, are exempt from having to post the bond. In addition, if the estate is below $25,000, or if the court otherwise orders, no bond is required. This bill takes effect in 60 days.

The definition of “developmental disability” under the statute means a severe, chronic disability of a person which: (1) is attributable to a mental or physical impairment or combination of mental or physical impairments; (2) is manifest before age 22; (3) is likely to continue indefinitely; (4) results in substantial functional limitations in three or more of the following areas of major life activity, that is, self-care, receptive and expressive language, learning, mobility, self-direction and capacity for independent living or economic self-sufficiency; and (5) reflects the need for a combination and sequence of special interdisciplinary or generic care, treatment or other services which are of lifelong or extended duration and are individually planned and coordinated. Developmental disability includes but is not limited to severe disabilities attributable tomental retardation, autism, cerebral palsy, epilepsy, spina bifida and other neurological impairments where the above criteria are met.

Third-Party Special Needs Trusts vs. First-Party Special Needs Trusts

Mary W. Browning — Thu, 08 Oct 2009 17:12:08 -0500

There are two types of special needs trusts – one designed to hold assets gifted or bequeathed to a person with special needs from a third party (a “Third-Party Special Needs Trust”), and one designed to hold assets that are already deemed to be owned by that person with special needs (a “First-Party Special Needs Trust”).

A Third-Party Special Needs Trust is created to receive gifts and bequests from third parties, such as parents and other friends and family members. These trusts can be set up at any time to receive gifts or bequests from various friends and family members or can be set up under a parent’s (or other family member’s or friend’s) Will to just receive assets from that person’s estate.

Whether a Third-Party Special Needs Trust is set up during someone’s lifetime or under someone’s Will, the basic terms of the trust are the same. Third-Party Trusts provide that during the lifetime of the person with special needs, the trustee can use trust assets to provide for his or her well being after first considering the benefits which are provided through governmental assistance. The trustee is directed to use the assets for such child’s special needs, i.e. to obtain goods and services to maintain or improve his or her comfort, welfare and care, including luxuries beyond basic needs. The trustee can use assets to supplement basic health care services, to pay the expenses of his or her vacations, and to make improvements to real estate that would provide suitable housing for him or her. The trust is set up to preserve a child’s eligibility for whatever governmental benefits may be available under New Jersey law or the law of the state where the person with special needs resides.

At the death of the person with special needs, 100% of the remaining trust assets can pass to anyone that the grantor (creator) of the trust decides at the time of the creation of the trust. These beneficiaries are often siblings or other family members of the person with special needs.

A First-Party Special Needs Trust is a trust created to own the assets currently owned in the name of a person with special needs. These assets may be gifts or bequests from well meaning family or friends that were given to person with special needs either outright or in a trust that does not qualify as a special needs trust. These assets may also be assets received by a person with special needs in a lawsuit.

A First-Party Special Needs Trust can only be set up by a parent, grandparent, guardian or a court. A First-Party Trust can only be set up for someone who is deemed disabled under the Social Security Administration definition. For a minor, a person would be considered disabled if he or she “has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” An individual age 18 and older is “disabled” if he or she has a medically determinable physical or mental impairment, which results in the inability to do any substantial gainful activity; and can be expected to result in death; or has lasted or can be expected to last for a continuous period of not less than 12 months.

Under a First-Party Special Needs Trust (as with the Third-Party Special Needs Trust), the trustee can use trust assets to supplement (but not replace) any benefits or governmental assistance such person is or may become entitled to receive.

One major difference between a Third-Party and First-Party trust is that in a First-Party Trust, at the beneficiary’s death, the remaining trust assets will reimburse Medicaid for any monies expended while the Trust was in existence for medical care, home health care or nursing home care of the person with special needs. Thereafter, any other public assistance programs which have a valid right of reimbursement under state or federal law will be repaid.

Any remaining trust assets will pass to those persons appointed by the person with special needs in his or her Will to receive the assets. If a person with special needs is under the age of 18 and/or is incompetent, then the assets will pass to those persons entitled to receive the assets under the intestacy laws of New Jersey.

There are also many reporting requirements for a First-Party Special Needs Trust that are not required for a Third-Party Special Needs Trust. Any new appointment of trusteeship must be disclosed to the Division of Medical Assistance and Health Services. In addition, as is required under Medicaid regulations (10:71-4.11 of the New Jersey Regulations), the trustee must file annually an informal accounting of the administration of the trust’s assets, income and expenses with the agency charged with the beneficiary’s Medicaid eligibility re-determination. Additionally (as is required by state law), the State of New Jersey must be given 45 days advance written notice of any expenditure by the trust in excess of $5,000, or of any amount which would substantially deplete the principal of the trust. Finally, subsequent additions to the Trust must be reported to the appropriate determination agency (any agencies from which such beneficiary is receiving benefits, such as Medicaid).

Although the First-Party Trust may preserve some of the assets of a person with special needs during his or her lifetime, at that person’s death, the money is subject to the claims of Medicaid and other agencies. Therefore, it is important that assets are never titled in the name of a person with special needs in order to prevent the need for a First-Party Trust. However, if assets are already in his or her name, it is important to create a First-Party Trust to at least preserve the assets during his or her lifetime.

Letters of Intent

Lori I. Wolf — Tue, 22 Sep 2009 14:38:40 -0500

While having a properly constructed estate plan from a legal perspective is critical in protecting a child with special needs, it is equally important for the parents of a child with special needs to make every effort for a seamless transition following a parent’s death for the caregivers of a child.

Towards that end, a letter of intent is critical in providing assistance to future caregivers. As a parent, you know all of those special things about your child which likely no one else in the world does. You know what sets your child off and what calms your child down. You know what routines and schedules are important to your child and what items they need in bed with them in order to sleep soundly through the night. You know what therapies have worked with your children, what medications have worked and those that have failed to enhance the quality of your child’s life.

At your death, this critical information is lost unless recorded in some fashion that is easily accessible to the people who assume responsibility for your child going forward. This could mean future guardians, trustees of a trust for your children or simply family members who step into the void left upon your death. A letter of intent contains all of that information.

The letter of intent should be updated annually so that it always contains current information. If you would like a copy of a sample letter of intent, please let us know and we will provide you with one. Please note that this letter of intent should be updated annually as the needs of your child change over time. A copy of the letter of intent can be kept with your attorney or simply in a file clearly marked in your home. It is not a legal document and legal counsel is not required in order to prepare this document.

Guardianship - Safeguarding Children with Special Needs

Luis J. Amaro, Jr. — Mon, 17 Aug 2009 15:35:24 -0500

Once your child turns 18 years of age, she is considered an adult and presumed to be competent. Physicians and other health care providers are bound to protect your child’s privacy under the law and are restricted from discussing your adult child’s medical care with anyone without her consent. A health care provider’s ability to disclose health care information becomes particularly complicated in the case of a patient with special needs that impairs their mental capacity. This complication arises because your child’s lack of mental capacity may prevent her from consenting effectively to the sharing of her health care information. Consequently, a health care provider may refuse to discuss your child’s medical treatment and other issues with you.

Another concern relates to protecting your child’s finances from individuals who seek to take advantage of her because of her special needs. As an adult, your child can enter into contracts and maintain bank and other accounts which can be exploited by persons with bad intentions. This is of particular concern where your child may be the recipient of a large monetary gift or the beneficiary of an estate or life insurance policy. Therefore, parents of a child with special needs who is going to turn 18 should consider applying to the courts of the county in which they live to be appointed as their child’s legal guardians. While guardianship applications can be made at any time and are routinely made for older adults under varying circumstances, making an application before your child becomes an adult insures that your ability to safeguard your child and to make medical and other necessary decisions for her will be seamless.

Guardianship appointments are flexible and can be comprehensive or, depending on your child’s functionality, be tailored to allow your child the greatest freedom possible to make medical, financial and other decisions. The process requires the filing of specified documents with the court that include one or more physician or psychologist certifications and, if applicable, a certification from the appropriate representative of the Division of Developmental Disabilities ("DDD") for your region. The application process is streamlined and can be concluded within a few months. Parents seeking to protect their children with special needs should consider making an application for guardianship before the need to make significant medical, financial or other important life decisions arise. These applications are regularly incorporated into a family’s estate plan which often involves setting up special needs trusts and taking other measures in conjunction with guardianship applications to secure and protect the futures of your children with special needs.

Allocation of Assets to a Special Needs Trust

Lori I. Wolf — Tue, 28 Jul 2009 11:04:30 -0500

In preparing a Will, parents of a special needs child must give careful thought as to how to divide up their assets among multiple children. In deciding how to allocate resources, consideration should be given to the financial needs of each child, the ability of each child to support himself or herself both currently and in the future and the message sent to children in the decision of how to divide assets. There is no right or wrong answer but the general default rule of estate planning to leave assets equally to children should not be an assumption which is accepted without careful consideration.

When all children are very young, often assets are divided equally among children since all children are dependent at that time. As children get older, where a special needs child will have a large portion of his or her needs met through government assistance and may not have the expensive lifestyle of other children, some parents cap the amount allocated to that child (after ensuring sufficient assets are available to supplement monies from government assistance to provide the lifestyle the parent wants for such child) with the balance of the assets distributed to the other children.

Alternatively, parents may decide that other children will be able to support themselves in the future so a larger share of the estate should be allocated to a special needs child.

In considering this issue, the value of the assets to be divided up must be considered as well as the anticipated expense of each of the children and potential sources of payment of these expenses (earned income, governmental benefits, potential outside inheritances, to name a few). Further, since all of these variables change over time, the decision on how to allocate assets among children should be revisited every few years.

Permissible and Impermissible Distributions from Special Needs Trusts

Mary W. Browning — Thu, 18 Jun 2009 09:39:07 -0500

The following are some examples of expenses and distributions that can and cannot be made from a Special Needs Trust. This list is not exhaustive, but is meant to provide some guidelines as to the proper administration of a Special Needs Trust.

Permissible Distributions

1. Purchase of home or condo, as long as rent is paid by the special needs person at its fair rental value from income he or she receives from SSI or other sources (other than payments from the Trust);

2. Home improvements and repairs by a third party;

3. School tuition, books and supplies;

4. Vacation travel;

5. Entertainment, such as books and magazines, movies, plays, electronic equipment, games, etc.;

6. Insurance premiums;

7. Transportation (such as purchase of a handicap van, car or train tickets);

8. Telephone and cable television expenses;

9. Dental care and other medical costs not covered by any benefit program;

10. Medical equipment and medical expenses for care not covered by any benefit program.

Distributions Which May Reduce or Eliminate Government Benefits

1. Shelter expenses, such as mortgage payments, real property taxes, utilities, etc., if rent is not paid by occupants. If the Trust owns a home that the special needs person lives in and he or she does not pay rent, SSI and other benefits may be reduced and Medicaid may have the right to take the home after the special needs person’s death;

2. Food;

3. Clothing;

4. Cash paid directly to the special needs person.

You should contact legal counsel if you have any questions about distributions from a Special Needs Trust.

Life Insurance Is Critical for Special Needs Planning

Lori I. Wolf — Tue, 02 Jun 2009 10:15:21 -0500

In implementing an estate plan for the benefit of your family, it is critical to take into consideration the role of life insurance. Life insurance can provide a source of liquidity for your family, including a child with special needs, following a death. A special needs trust without adequate funding will not properly care for your child with special needs.

There are many forms of life insurance and it is important to take into consideration the form of insurance that best fits your needs. When a child with special needs is involved, it is important that you have insurance that will be available at the time of death.

A term policy is much less costly than other forms of insurance, however, it is the least likely to be available at the insured’s death. This is because term policies typically last for a term of years with a level premium during that term or through the time the insured reaches a certain age, such as age 70. As you get older, with most forms of term insurance, the cost of the insurance (the premium) rises dramatically. Both due to restrictions in the policy which terminate the policy at a certain age and since it becomes prohibitively expensive as you get older, these policies are often dropped or terminated long before an insured’s death. Therefore, it is important to consider the role of permanent insurance in your estate plan. There are several kinds of permanent insurance. For example, guaranteed universal insurance (the kind which provides a death benefit with little cash surrender value) and whole life insurance, which can be an investment vehicle for your family, can play an important role in planning. This is a more costly form of insurance, however, it is more likely to pay when the insured dies, and in some cases can be used as an investment. Where cost is a factor, a term policy which is convertible in the future to a permanent product can be utilized.

No matter what the form of insurance, it is not enough to have appropriate planning documents, without confirming with a financial advisor that there are sufficient assets in the special needs trust to adequately provide for your child with special needs. Where there is a shortfall, insurance can fill the void.

Moving To Another State May Affect Your Special Needs Trust

Mary W. Browning — Tue, 19 May 2009 10:15:00 -0500

If you have an existing special needs trust, moving to another state could require a change to the trust in order to comply with the rules of the new state. This applies to both first-party trusts (trusts funded with the assets previously owned by an individual with special needs) and third-party trusts (trusts funded with assets gifted or bequeathed from third parties for the benefit of an individual with special needs).

Each state has different rules related to special needs trusts. For example, for third-party trusts, some states will recognize a basic discretionary trust as a special needs trust, while other states require more specific “supplemental needs trust” language to qualify as a special needs trust.

Each state may have different rules related to first party trusts, as well. Although many of the rules related to these trusts are imposed by federal law, many states require additional language or information in the trusts in order to ensure that the beneficiary of the trust who has special needs will qualify to receive governmental assistance. In addition, each state may have different reporting requirements. For example, some states require you to send a copy of the trust to each agency from which you are receiving benefits. Some states also require additional notice when certain dollar amounts are distributed from the trust. For example, in New Jersey, if an expense of $5,000 or more is to be paid from a first party trust, prior written notice must be provided to the New Jersey Division of Medical Assistance and Health Services.

Although special needs trusts are typically irrevocable, a well drafted trust should include a provision allowing the trustee (or the grantor in the case of a first-party trust) the right to modify the trust to conform with state or federal law. If your trust does not contain this language, and the state law of your new state does not allow a modification of the trust, you may need to apply to a court for a modification.

Selection of Trustees for a Special Needs Trust

Lori I. Wolf — Tue, 05 May 2009 10:45:00 -0500

Careful attention should be given in deciding who to name as the trustees of your special needs trust. These can be family members, friends, professional advisors or others. Trustees should be people who you trust implicitly and who have some financial savvy. This does not mean that you must name a financial advisor to be trustee of the trust, but the person named should be someone financially responsible who will use appropriate professional advisors. Another important criteria is to name a trustee who has your values so the decisions made in the care of your child with special needs are consistent with the decisions you would have made for your child.

One or more people can be named as trustees of a special needs trust. If more than one individual is selected, it is important to consider if unanimity should be required by the trustees or if majority vote rules should apply. If two or four individuals are named as trustees, consideration should be given to naming a tie-breaker who can resolve any disputes between trustees. This will quickly and efficiently resolve any deadlock without the need for court involvement.

In addition to selecting initial trustees, you should consider who you want to name as successor trustees if the initial trustee dies, resigns, becomes incapacitated or is otherwise unable to serve. If the creators of a special needs trust are married, and the trust is created during lifetime (and not at death through a Will), one spouse can be trustee of the trust and one spouse can be the grantor (the creator of the trust and person responsible for making gifts to the trust). The trustee can (if desired) be given the power to remove and replace successor trustees and to name new successor trustees.

In all cases, the last named trustee should be given the power to name successor trustees to hopefully avoid a situation where nobody is available to serve as trustee and a court appointed trustee is required.

Where there is no one individual or group of individuals who a family feels can adequately serve as trustees of a special needs trust, an institution can be named as trustee. This can be a financial institution (such as a bank or trust company) or an entity such as Plan/NJ which is specially designed to handle these situations.

The Annual Exclusion and Special Needs Trusts

Mary W. Browning — Tue, 21 Apr 2009 10:31:38 -0500

Beginning in 2009, the annual exclusion amount increased to $13,000 per person. The annual exclusion is the amount that each person can gift to anyone each year without any gift tax or use of the $1 million gift tax exclusion.

In order to qualify for the annual exclusion, the recipient must have a present interest in the gift. A present interest means that the recipient receives the gift today and not in the future. Trusts can be drafted in such a way to qualify for the annual exclusion by giving the trust beneficiaries the right to withdrawal up to the annual exclusion amount each year. Any amounts not withdrawn will stay in the trust. This right of withdrawal is often referred to as a "Crummey" power, named after a court case of the same name.

Special needs beneficiaries cannot have Crummey powers because having the right to withdraw this money could disqualify them from governmental benefits they may be entitled to. Therefore, generally, gifts to special needs trust will not qualify for the annual exclusion amount and instead, will use part of the donor's $1 million gift tax exemption.

One way to use annual exclusions with special needs trusts is to add additional beneficiaries to the special needs trust. The grantor’s spouse or siblings of the special needs beneficiary can be added to the trust, and thus, given Crummey powers, so that annual exclusion gifts can be made to the trust using annual exclusion amounts available to these additional beneficiaries.

For example, if a father creates a special needs trust for his son, the father can include the mother as a discretionary beneficiary under the trust. The mother would also have Crummey powers, thus allowing donors to give up to $13,000 per year to the trust using their annual exclusion amounts towards the mother.

If tax planning is important to you, make sure you are maximizing tax planning opportunities by creating and funding a trust for your children with special needs using available annual exclusions.

The Economy May Effect Your Special Needs Planning

Lori I. Wolf — Tue, 07 Apr 2009 10:35:00 -0500

The economy can have an effect on every aspect of your life, including your special needs planning. If the parent of an individual with special needs has lost his or her job, it’s important to note the loss of employer provided benefits and how this loss might affect your child with special needs. Health insurance coverage is vital for a child with special needs.

Loss of benefits can also affect the funding of your special needs plan. In contemplating the assets available to fund the plan, group life insurance coverage is often considered. If your plan is dependent on these benefits in order to reach appropriate levels of funding for your special needs child, you should think about replacing these insurance benefits with a separate policy.

Additionally, as the value of your assets diminishes with the decreasing stock market values, again this can have an effect on funding. The reduction of assets available to fund a plan may require a reconsideration of the allocation of assets as between your child with special needs and other children. A child with special needs may not have the ability to be self-supporting in the future that other children may have.

The Basics: New Jersey and Federal Estate, Inheritance and Gift Taxes

Mary W. Browning — Tue, 24 Mar 2009 10:02:58 -0500

The federal estate tax is based on the value of one’s assets less liabilities at the person’s date of death. There are three important exceptions that are critical to understanding how the federal estate tax works.

First, there is the unlimited marital deduction, which means that all of the assets one leaves to his or her surviving spouse are exempt from federal estate taxes.

The second important exception involves the estate and gift tax applicable exclusion. Under current law, the estate tax applicable exclusion permits you to transfer up to $3,500,000 at your death to anyone without incurring an estate tax. In 2010, the Federal estate tax is scheduled to be repealed, but only for one year. Starting in 2011, estates will once again be subject to estate tax at 2001 rates (top rate of 55%) with only a $1 million exemption available.

The federal gift tax applicable exclusion is fixed at $1 million and permits you to transfer that amount to anyone during your lifetime without incurring a gift tax. If you use any portion of the gift tax exemption during your lifetime, it is essentially subtracted from the $3.5 million exemption allowed at your death.

The tax law also allows you to gift up to $13,000 per year to anyone without using any part of your $1 million exemption. This is called the annual exclusion.

The third exception applies to certain qualified charitable organizations. In general, assets passing to charity are exempt from estate tax.

Currently, the federal estate tax rate is 45%. In 2010, the estate tax will be repealed. In 2011, the estate tax will return with a maximum estate tax rate of 55%. It is anticipated that Congress will consider new estate tax legislation in 2009.

Under New Jersey law, there is a state estate tax imposed on assets in excess of $675,000 passing to someone other than a spouse. The rates are range from 4.8%-16% (with the first $52,174 taxed at 37%).

In addition, there is a New Jersey inheritance tax for assets passing to someone other than a parent, child or grandchild. Any assets left to siblings or spouses of children would be subject to this tax at a rate of 11-16%, and any assets left to anyone else, as well as any amounts left in trust, would be subject to this tax at a rate of 15-16%. Estates subject to inheritance tax will receive a credit for the amount of inheritance tax paid against the New Jersey estate.

New Jersey does not impose a separate gift tax.

Although each spouse is allowed both the federal and New Jersey estate tax exemptions, Wills must be drafted in a particular way in order for each spouse to take advantage of his or her exemptions. If you do not have a Will, or if your Will is not drafted properly, the first spouse could be wasting his or her exemptions, which could result in more tax owed at the second spouse’s death and less assets being available to care for your child with special needs.

Have You Checked Your Estate Planning Lately?

Lori I. Wolf — Tue, 17 Mar 2009 10:30:00 -0500

Just as it is important to go to the doctor, the dentist and the eye doctor and to review the status of your finances on a regular basis, it is as important to reevaluate your estate planning on a regular basis.

Over the course of any period of years, there can be multiple issues which arise – there can be changes to tax laws which affect planning decisions; there can be changes in a family’s financial situation (both increases and decreases in wealth) which affect the decisions that are appropriate; there can be changes in relationships with the people appointed to serve in various capacities (as executors, trustees, guardians); and there can be changes in situations with children which necessitate the need to revisit planning.

Where a child with special needs is involved, the need to revisit planning on a regular basis becomes even more paramount. First, it is critical to ensure that there is adequate funding for a plan on a long term basis. Since in many situations, these children will not be able to support themselves, this issue take on heightened importance. Further, changes in the law or in positions taken by state agencies may change what is appropriate for a special needs trust. Evaluating your plan at least every 1 or 2 years is crucial to ensure that you have the best plan in place for you and your loved ones.

Death and Taxes: Estate Tax Here to Stay

Mary W. Browning — Tue, 10 Mar 2009 10:29:00 -0500

With a financial crisis and ever increasing deficit, the Estate tax is likely here to stay. Forbes.com recently published a few articles on the importance of estate planning - even if your assets fall well below the federal estate tax exemption (currently $3.5 million) (10 Estate Planning Moves to Make Now, Dems Dedicated to Death Tax and Why I Need a Will). The articles mention New Jersey as one of the 16 states with a separate estate tax and one of only 2 states with both an estate and inheritance tax.

Proper estate planning (for both non-tax and tax reasons) is especially important for those with children with special needs. Without a properly structured Will, New Jersey intestacy laws are unlikely to protect your child with special needs and could result in a loss of benefits for that child. In addition, properly structured Wills that take advantage of the New Jersey and federal estate tax exemptions will help you save New Jersey and federal estate taxes, thus allowing more assets to pass to a special needs trust as well as to your other children.