In the area of corporate reorganizations, there is a theory known as the "Step-Transaction" doctrine. The argument is that you cannot accomplish in two steps what would be disallowed in one. Therefore, any corporate reorganizations, which appear to be non-taxable, are treated as taxable when the taxpayers attempt to accomplish in several steps what is not allowed in one transaction. A further discussion of this topic in the corporate area is beyond the scope of our analysis.
However, the state attempted to apply the doctrine when transfers to disabled children were not allowed. The attempted theory was that if the disabled child transferred the assets to another child after the initial transfer, under the step-transaction the transfer would have been treated to the healthy child and not the disabled child. However, the state has recanted its position. There is no justification for application of the doctrine in the elder law area.
However, in discussing the two-year rule (child providing the necessary care so that a transfer of a house to the child is exempt from the transfer rules), I pointed out that there should not be a preconceived plan that the transferee child divide the transferred assets amongst the protected transferee and the other children. That is, there is always a danger that the state could apply the doctrine, in which case a transfer would not have been deemed made to the child who provided the necessary care, but rather to all the children, which would result in a penalizing transfer.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© November 2011, Post 173
Tuesday, November 29, 2011
Monday, November 21, 2011
Purposes of a Buy-Sell Agreement
In Post 138, I raised the possibility that stock of a closely-held corporation might be deemed an inaccessible resource. Although not directly related to the elder law area, I think it would be helpful to discuss the purposes of a buy-sell agreement.
A buy-sell agreement has the following purposes:
1. To set the value for estate tax purposes
2. To provide liquidity to the estate of the shareholder
3. To prevent the beneficiaries of a shareholder from owing stock so that the remaining shareholder(s) can have the stock
4. If a stockholder is disabled, the stock can be purchased mandatorily.
Valuation of stock is set forth in Section 7203 of the Internal Revenue Code, which requires that stock can be valued in accordance with the industry.
Although the purchase of stock during lifetime can be optional, it must be mandatory upon death.
One might also provide that if a shareholder becomes disabled it is mandatory that the stock be purchased by the corporation. In the event such shareholder does not become disabled, the stock can be treated as key-man insurance. That is, such insurance would replace the value of the deceased shareholder to the corporation.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© November 2011, Post 172
A buy-sell agreement has the following purposes:
1. To set the value for estate tax purposes
2. To provide liquidity to the estate of the shareholder
3. To prevent the beneficiaries of a shareholder from owing stock so that the remaining shareholder(s) can have the stock
4. If a stockholder is disabled, the stock can be purchased mandatorily.
Valuation of stock is set forth in Section 7203 of the Internal Revenue Code, which requires that stock can be valued in accordance with the industry.
Although the purchase of stock during lifetime can be optional, it must be mandatory upon death.
One might also provide that if a shareholder becomes disabled it is mandatory that the stock be purchased by the corporation. In the event such shareholder does not become disabled, the stock can be treated as key-man insurance. That is, such insurance would replace the value of the deceased shareholder to the corporation.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© November 2011, Post 172
Wednesday, November 16, 2011
The Issue of Competence
Many people confuse the meaning of competence for medical purposes and for legal purposes.
The standard for legal competence varies depending upon the document to be signed. For example, competence with respect to testamentary capacity (ability to make wills) requires that the individual be aware of the objects of his or her bounty, the assets that they own and the disposition to those individuals. Competence for power of attorney purposes requires that the grantor of the power understand that control is being given to the holder.
It is extremely important in preparing a power of attorney that the power not be joint, either several or together. A joint power of attorney gives rise to conflict, which should be avoided at all costs.
Some of the clauses in a power of attorney should include transfers when appropriate (i.e. the home to a child or children who provided the necessary care, the home to a spouse who does not go into a nursing home,) HIPAA language, revocation of a prior power of attorney, avoiding staleness and the ability to undertake general Medicaid planning.
A major issue, which will be discussed by Janice Chapin, Esq., at our upcoming webinar entitled: "Constitutional Aspects of Elder Law and Guardianship" is the mental state of an individual coming from another jurisdiction to New Jersey. As indicated in the seminal case of Shapiro v. Thompson 394 U.S. 618,89 S. Ct. 1322,22 L. Ed. 2d, if a person enters New Jersey, it would be unconstitutional to deny such individual benefits. The question to be addressed is that if the person came to New Jersey and were not competent, I believe the person would not be entitled to benefits, since the person's domicile would be the last jurisdiction in which the individual had competence. Another major issue is the definition of domicile. In this regard, I refer you to In Re Dorrance's Estate 309 Pa. 151, 163 A. 303, cert. denied, 288 U.S. 617 (1932). Although domicile is a subjective determination (a place where a person lives and intends to make a home,) such subjective termination is made by objective factors such as time spent in a jurisdiction, place of filing of income taxes, the jurisdiction in which a car was rented and similar matters.
Finally, from a legal point of view, if an individual meets the test of competence at the moment of signing of documentation, that would be sufficient. Therefore, it is an attorney's ethical obligation to make his or her own determination of legal competence in order for an individual to sign documents.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© November 2011, Post 171
The standard for legal competence varies depending upon the document to be signed. For example, competence with respect to testamentary capacity (ability to make wills) requires that the individual be aware of the objects of his or her bounty, the assets that they own and the disposition to those individuals. Competence for power of attorney purposes requires that the grantor of the power understand that control is being given to the holder.
It is extremely important in preparing a power of attorney that the power not be joint, either several or together. A joint power of attorney gives rise to conflict, which should be avoided at all costs.
Some of the clauses in a power of attorney should include transfers when appropriate (i.e. the home to a child or children who provided the necessary care, the home to a spouse who does not go into a nursing home,) HIPAA language, revocation of a prior power of attorney, avoiding staleness and the ability to undertake general Medicaid planning.
A major issue, which will be discussed by Janice Chapin, Esq., at our upcoming webinar entitled: "Constitutional Aspects of Elder Law and Guardianship" is the mental state of an individual coming from another jurisdiction to New Jersey. As indicated in the seminal case of Shapiro v. Thompson 394 U.S. 618,89 S. Ct. 1322,22 L. Ed. 2d, if a person enters New Jersey, it would be unconstitutional to deny such individual benefits. The question to be addressed is that if the person came to New Jersey and were not competent, I believe the person would not be entitled to benefits, since the person's domicile would be the last jurisdiction in which the individual had competence. Another major issue is the definition of domicile. In this regard, I refer you to In Re Dorrance's Estate 309 Pa. 151, 163 A. 303, cert. denied, 288 U.S. 617 (1932). Although domicile is a subjective determination (a place where a person lives and intends to make a home,) such subjective termination is made by objective factors such as time spent in a jurisdiction, place of filing of income taxes, the jurisdiction in which a car was rented and similar matters.
Finally, from a legal point of view, if an individual meets the test of competence at the moment of signing of documentation, that would be sufficient. Therefore, it is an attorney's ethical obligation to make his or her own determination of legal competence in order for an individual to sign documents.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© November 2011, Post 171
Tuesday, November 8, 2011
Engagement Letters for Elder Law Attorneys
Very often an individual will be represented by two attorneys in the elder law field. For example, an elder law attorney might not have the vision and expertise to handle a real estate transaction or might be of the opinion that to represent two individuals would be a conflict. For example, an attorney representing a potential transferee of real estate (i.e. a child who provided care to allow a parent to remain home rather than go into a nursing home - see Post 6), might be of the opinion that to represent the applicant and the transferee would be a conflict.
It would be wise for the two attorneys to have separate engagement letters as the representation of the individuals is separate. However, if one of the attorneys is of counsel to the lead attorney, a separate engagement letter is not necessary. However, it is my opinion, that it would still be prudent for an individual who is "of counsel" to have a separate engagement letter.
As Carol Johnston, Esq. of the Advisory Committee on Professional Ethics and I pointed out in my webinar entitled "Ethical Dilemmas for Elder Law Practitioners", the question often is not whether there is a conflict, but whether the conflict should be waived. Therefore, elder law counsel who feels there is a conflict, should have a separate engagement letter from the other attorney.
Generally, since the state often violates federal pre-emption (which I will be discussing in my next webinar entitled "Constitutional Aspects of Elder Law and Guardianship", dated December 15, 2011,) counsel should point out in correspondence to a nursing home applicant areas of uncertainty. For example, in order to execute a proper caretaker agreement, the payments to a child must be "reasonable". The state refuses to define reasonable and will not give an a priori decision. Therefore, counsel should indicate in his or her correspondence to the client, this vague language and that you have advised the client that there is no guarantee that the payment to the child would be deemed unreasonable, and the excess of the amount of the payment over the amount deemed "reasonable" by the state would be deemed a transfer.
For example, I personally feel that the word "reasonable" violates the due process clause as it does not provide adequate notice as to the amount of payment that can be made by a parent to the child.
In my upcoming webinar, I point out many of the ambiguities in the state's statue due to violation of federal pre-emption. Whether your ambiguities should be in an engagement letter or a separate letter, is at the discretion of counsel. The main areas of violation of federal pre-emption are "disinheritance of the community spouse" and "spousal refusal".
The state has retracted "reverse half-a-loaf planning." Although I have pointed out in Post 113 that such planning should work, it is highly advisable not to undertake such a plan in light of the state's decision in Medicaid Communications 10-02 and 10-03. Therefore, I would point out in an engagement letter or subsequent letter, the fact that such planning should work but is not acceptable by the state.
I am particularly concerned about the violation of federal pre-emption in the state's denying reverse half-a-loaf planning. Firstly, the real reasons are set forth in Post 113. Moreover, the ruling which denied reverse half-a-loaf planning (Medicaid Communication 10-02), was dated May 26, 2010. Notwithstanding, the state has denied such planning even before that date. It is my opinion that such position not only violates federal pre-emption, but constitutes an ex post facto law, since the state is applying such ruling prior to the date of the Medicaid Communication.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© November 2011, Post 170
It would be wise for the two attorneys to have separate engagement letters as the representation of the individuals is separate. However, if one of the attorneys is of counsel to the lead attorney, a separate engagement letter is not necessary. However, it is my opinion, that it would still be prudent for an individual who is "of counsel" to have a separate engagement letter.
As Carol Johnston, Esq. of the Advisory Committee on Professional Ethics and I pointed out in my webinar entitled "Ethical Dilemmas for Elder Law Practitioners", the question often is not whether there is a conflict, but whether the conflict should be waived. Therefore, elder law counsel who feels there is a conflict, should have a separate engagement letter from the other attorney.
Generally, since the state often violates federal pre-emption (which I will be discussing in my next webinar entitled "Constitutional Aspects of Elder Law and Guardianship", dated December 15, 2011,) counsel should point out in correspondence to a nursing home applicant areas of uncertainty. For example, in order to execute a proper caretaker agreement, the payments to a child must be "reasonable". The state refuses to define reasonable and will not give an a priori decision. Therefore, counsel should indicate in his or her correspondence to the client, this vague language and that you have advised the client that there is no guarantee that the payment to the child would be deemed unreasonable, and the excess of the amount of the payment over the amount deemed "reasonable" by the state would be deemed a transfer.
For example, I personally feel that the word "reasonable" violates the due process clause as it does not provide adequate notice as to the amount of payment that can be made by a parent to the child.
In my upcoming webinar, I point out many of the ambiguities in the state's statue due to violation of federal pre-emption. Whether your ambiguities should be in an engagement letter or a separate letter, is at the discretion of counsel. The main areas of violation of federal pre-emption are "disinheritance of the community spouse" and "spousal refusal".
The state has retracted "reverse half-a-loaf planning." Although I have pointed out in Post 113 that such planning should work, it is highly advisable not to undertake such a plan in light of the state's decision in Medicaid Communications 10-02 and 10-03. Therefore, I would point out in an engagement letter or subsequent letter, the fact that such planning should work but is not acceptable by the state.
I am particularly concerned about the violation of federal pre-emption in the state's denying reverse half-a-loaf planning. Firstly, the real reasons are set forth in Post 113. Moreover, the ruling which denied reverse half-a-loaf planning (Medicaid Communication 10-02), was dated May 26, 2010. Notwithstanding, the state has denied such planning even before that date. It is my opinion that such position not only violates federal pre-emption, but constitutes an ex post facto law, since the state is applying such ruling prior to the date of the Medicaid Communication.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© November 2011, Post 170
Tuesday, November 1, 2011
Negating the State's Position that Disinheritance is a Transfer by a Nursing Home Resident
In Post 60, I pointed out the State's position that disinheritance be treated as a transfer of one-third the augmented estate (i.e. the elective share).
Notwithstanding pursuant to N.J.S.A. 3B: 8-1, a surviving spouse or domestic partner does not have a right of election if the decedent and the surviving spouse or domestic partner (i.e. nursing home resident) had been living separate and apart in different habitations or ceased to cohabit as man and wife, as a result of a judgment of divorce from bed and board or circumstances which would give rise to a cause of action for divorce or nullity of the marriage prior to the date of death of the decedent. In my prior posts, I pointed out that the state violates federal pre-emption in treating a disinheritance as a transfer, on the theory that the elective share is an option and not an affirmative act (i.e. a transfer). Moreover, pursuant to the statute, the elective share does not apply if the decedent and the surviving spouse or domestic partner (i.e. nursing home resident) had been living separate and apart in different habitations or had ceased to cohabit as man and wife.
Therefore, if there is no elective share based upon the definition in N.J.S.A. 3B: 8-1, the state's argument that disinheritance is a transfer is completely negated.
N.J.S.A. 3B: 8-2 provides that the right of a surviving spouse or domestic partner (i.e. nursing home resident) to take an elective share of property in New Jersey is governed by the law of the decedent's domicile at date of death.
The meaning of "augmented estate" is set forth in N.J.S.A. 3B: 8-3 through 3B: 8-18.
Specific reference is made to N.J.S.A. 3B: 8-12 which gives the surviving spouse or domestic partner an election to take his elective share in the augmented estate by filing a complaint in the Superior Court within 6 months after the appointment of the personal representative of the estate. That is, as Post 137 indicates, the right to take the elective share is not an affirmative act but the surviving spouse or the domestic partner may elect to take the elective share. This statute indicates that the 6 month period may be extended for "good cause shown" by the surviving spouse or domestic partner.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© November 2011, Post 169
Notwithstanding pursuant to N.J.S.A. 3B: 8-1, a surviving spouse or domestic partner does not have a right of election if the decedent and the surviving spouse or domestic partner (i.e. nursing home resident) had been living separate and apart in different habitations or ceased to cohabit as man and wife, as a result of a judgment of divorce from bed and board or circumstances which would give rise to a cause of action for divorce or nullity of the marriage prior to the date of death of the decedent. In my prior posts, I pointed out that the state violates federal pre-emption in treating a disinheritance as a transfer, on the theory that the elective share is an option and not an affirmative act (i.e. a transfer). Moreover, pursuant to the statute, the elective share does not apply if the decedent and the surviving spouse or domestic partner (i.e. nursing home resident) had been living separate and apart in different habitations or had ceased to cohabit as man and wife.
Therefore, if there is no elective share based upon the definition in N.J.S.A. 3B: 8-1, the state's argument that disinheritance is a transfer is completely negated.
N.J.S.A. 3B: 8-2 provides that the right of a surviving spouse or domestic partner (i.e. nursing home resident) to take an elective share of property in New Jersey is governed by the law of the decedent's domicile at date of death.
The meaning of "augmented estate" is set forth in N.J.S.A. 3B: 8-3 through 3B: 8-18.
Specific reference is made to N.J.S.A. 3B: 8-12 which gives the surviving spouse or domestic partner an election to take his elective share in the augmented estate by filing a complaint in the Superior Court within 6 months after the appointment of the personal representative of the estate. That is, as Post 137 indicates, the right to take the elective share is not an affirmative act but the surviving spouse or the domestic partner may elect to take the elective share. This statute indicates that the 6 month period may be extended for "good cause shown" by the surviving spouse or domestic partner.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© November 2011, Post 169
Subscribe to:
Posts (Atom)
