New Jersey Law for Children with Special Needs : New Jersey Special Needs Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Special Needs Children Planning & Trusts

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 In 2010, the Federal estate tax is scheduled to be repealed, but only for one year.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 In 2010, the estate tax will be repealed.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.

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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.

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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. 

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Now is one of those times when it is important to revisit your planning. In the past few years, shifts in thinking by the Department of Health and Senior Services have resulted in positions being taken that would eliminate the effectiveness of many special needs trusts. In the past, under New Jersey law, it has been acceptable to create purely discretionary trusts where the trustees have the ability to use income and principal for the discretion of the special needs beneficiary, with no standard as to when the money should be used and in what manner. This created the greatest degree of flexibility in planning and was utilized much of the time. The alternative, the creation of a luxury trust that more specifically delineated how monies could be used, was less appealing as an alternative.

Due to constraints on government funds and an increase in the number of people becoming eligible for benefits in New Jersey, the government has taken a harder look at where benefits can be denied. Special needs children who have purely discretionary trusts have recently been denied eligibility for government assistance as a result of the trusts’ existence. There have been no changes in statutes or regulations that justify this change, however, as a result, it is critical that all special needs trusts be restructured as luxury trusts to best ensure that government benefits will be available to a child with special needs in the future.

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New Jersey's residents with special needs will benefit from the new $787 billion stimulus plan, signed by President Obama on February 17th.

New Jersey expects to receive $2.2 billion for its Medicaid program - a program that has been severely stressed as the economy has faltered. According to the Department of Health and Senior Services, Medicaid provides health care to over 1 million people in New Jersey and counting. The first $362 million slated for Medicaid will be paid to New Jersey right away. The rest of the money is expected to flow into New Jersey over the next two years.

Special education in New Jersey is also receiving help from the stimulus package – to the tune of approximately $360 million. Federal support nationwide for special education will grow by $12 billion over a two year period.

Details of how this money will be used is still forthcoming. Governor Corzine recently announced that two members of his administration, Chief of Staff Ed McBride and Comptroller Matt Boxer, will oversee the distribution of this money.
 

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Estate planning is an important aspect of an overall financial plan for any individual, but it takes on even greater significance for the parents of children with special needs. Parents of children with special needs face a number of unique estate planning decisions that should be carefully considered with professional assistance. These considerations include:

Naming guardians. If parents pass away, who will provide day-to-day care for the special needs child? This is a critical and difficult decision and must be provided for in the parents’ Wills.

Creating a special needs trust.  A special needs trust is a trust that permits (but does not require) distributions to a child with special needs for a variety of reasons. Often, distributions are permitted only to supplement but not supplant monetary support that the individual is receiving from governmental benefit programs such as Social Security Disability Income (“SSDI”), Supplemental Security Income (“SSI”) and Medicaid. Failure to create a proper special needs trust can inadvertently disqualify the special needs child for these programs. The trust structure is also important to ensure that assets are not placed in a child’s hands before the child is responsible enough to invest and use the assets prudently (if ever).

The choice of trustee for a special needs trust is another critical decision. A trustee should have financial savvy, should have the parents’ complete trust, and should be or become knowledgeable regarding the child’s needs.

Powers of attorney.  A power of attorney allows an individual to appoint people to manage his or her assets and make investment decisions on his or her behalf. Having this document avoids the necessity of having to go to court to get someone appointed as a guardian if an individual cannot manage his or her own affairs. A power of attorney is important for all individuals, but in a special needs situation, it is important for both the parents and the special needs child.

Parents of an adult child with special needs should also consider whether a power of attorney is adequate or if parents should be named as guardians of the adult child to better protect the child’s interests. If there is a concern that the child cannot adequately manage his or her own affairs at all or could be taken advantage of, a guardianship (full or limited) may be more appropriate.

Life insurance. Life insurance is typically used to ensure that sufficient assets are available to provide adequate income to the surviving spouse and to provide for the care of children until they finish schooling and are able to earn a living. In a special needs situation, life insurance can be used to fund a special needs trust to ensure there will be assets available for the rest of the child’s lifetime. This may be especially important if parents can no longer provide the care the child needs.

While estate planning is essential for any individual, for a parent with a special needs child it takes on additional significance.
 

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As your child with special needs approaches the age of 18, it is very important to consider whether applying for guardianship is appropriate. If the child is not able to handle his or her own medical or financial decisions as a result of his or her special needs issues, you as a parent should apply to become legal guardian of the child. Once a child obtains the age of 18, a parent has no legal right to make decisions on behalf of his or her child.

In order to retain control of decisions related to the child, parents must be named guardian of the person and property of the child. In New Jersey, limited guardianships are also an option. This permits guardians to be named to assist a child where needed without taking full control away from the child. For example, a limited guardianship could permit a child to obtain a drivers license, to retain control over a bank account with some set dollar amount or to make or participate in medical decisions.

Alternatively, a full guardianship gives complete control and total decision-making power over the child and his or her finances to a parent or other named individual. In New Jersey, judges will not build in successor guardians when naming guardians, so often families will name multiple individuals as guardians from the inception (such as both parents, or both parents and an adult sibling together).

A guardianship action begins with the filing of a complaint with the Court requesting that a guardian be named. Two affidavits must be submitted with the Complaint. These must either come from two doctors or psychologists, or if the child with special needs is registered with the Division of Developmental Disabilities (“DDD”), an affidavit from DDD can replace one of the two above referenced affidavits. The affidavits must be signed, and the child must have been seen by the doctor or doctors within thirty days of the filing.

A court appointed attorney will be named to represent the child with special needs and advocate on his or her behalf. That attorney will review the medical records of the child with special needs, will meet with the child with special needs and the proposed guardian or guardians, and will prepare a report of his or her opinion regarding the motion for guardianship. Some judges require the motion for a guardian to be named to be heard in Court, with the proposed guardian present, and others will respond on the papers with respect to the motion.

It is important for you to anticipate that the guardianship process from start to finish will take approximately three to six months, so this should be started before the child turns age 18. A guardian will not be named until the child reaches 18, however, so the action cannot be commenced too early either.

Unfortunately, many parents do not think to get this process moving until there are extenuating circumstances (such as the need for urgent medical care or hospitalization). While the courts will appoint a temporary guardian on an expedited basis where an emergency exists, even these can take several weeks to complete.
 

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