IRS Resolves the “Key West Dilemma” by Recognizing Same Sex Marriages Throughout the U.S.

by attorney Mark R. Friedman, FriedmanLaw

The IRS announced today that they would treat same-sex couples as legally married based upon the couple’s state of ceremony, not their state of residence.

In June, the Supreme Court struck down Section 3 of the Defense of Marriage Act, meaning married same-sex couples could now enjoy the same privileges under federal law as heterosexual couples.  However, same-sex marriage is permitted in only a small patchwork of states. Uncertainty remained over whether the government would define marriage based on where the couple was married, or where they lived.

For example, if a same-sex couple got married in New York, but lived in Florida where the marriage is not recognized (the “Key West Dilemma”), would the feds recognize the marriage?

The IRS today said yes, legal marriages will be recognized regardless of where the couples lives.  This means that all same-sex couples can now benefit from filing joint tax returns, using the estate tax marital deduction, and more.

A plethora of other important government agencies have yet to chime in over whether marriage will be recognized based on state of residence or ceremony.

Plan Your Estate to Benefit Your Loved Ones– Not the Taxman

[The following article is by guest blogger Julie Donald, a freelance writer with a strong background is finance.  Julie obviously knows her stuff and FriedmanLaw/ are proud to feature her work.]

While we’ve come a long way since The Beatles sang about the 95% tax rate England then charged certain high earners, Estate tax planning still is an important part of financial planning. Since New Jersey has an inheritance tax as well as a separate estate tax, understanding when these taxes apply is an important step toward minimizing the amount you will have to pay when a loved one dies. Estates with a value of $675,000.00 or more are subject to the estate tax. The inheritance tax applies to any estate. The rate depends on the relationship of the beneficiary to the person who has passed away.

When an Estate Tax Return is Required

When a New Jersey resident leaves an estate with a gross value of $675,000.00 or more, the executor of the estate must file an estate tax return. Federal estate tax returns are only required if the estate is worth more than $5.25 million (inflation adjusted after 2013). New Jersey estates of non-residents are not subject to the NJ estate tax.

The gross value of the estate is calculated by adding up all the assets a person owned as of the date of his or her death, including the following:

  • New Jersey real estate
  • Funds held in bank accounts or certificates of deposit
  • Investment accounts and securities
  • Funds from retirement accounts
  • Cars, trucks, and personal property
  • Any small business interests (small corporation, sole proprietorship, limited liability company)

Tax is based on the total assets less most property that is left to a spouse or civil union partner, debts, and certain expenses.

Proceeds from life insurance policies may be taxable even if the decedent did not own the policy. By the same token assets that pass outside probate may be subject to New Jersey inheritance and estate tax. However, FriedmanLaw can help you develop an estate plan that avoids or minimizes tax on life insurance and other assets.

Paying Estate Tax

If a New Jersey estate tax return is required, it must be filed within nine months after the date of a person’s death.  While the filing date can be extended, if the estate tax isn’t fully paid within the nine-month period, interest will be charged at the rate of 10 percent per year from the nine month anniversary of the date of death until the amount is paid. The Director can choose to extend the time for filing the estate tax return but not the time for paying the tax. Rather than having the amount of the estate reduced by the amount of the estate tax, some people may choose to fund a financial product which will pay this amount on their death. A separate life insurance policy could be bought and the proceeds used toward the estate taxes.  However, these life insurance and other tax funding products will generate additional tax unless properly designed.  Therefore, it is advisable to get legal advice before making a purchase.

New Jersey Inheritance Tax

Under state law, close relatives are exempt from the inheritance tax. They are classified as Class A. The following people are included in this group:

  • Spouse, civil union or domestic partner
  • Parent or grandparent
  • Child (includes biological or adopted) or other descendant stepchild

Class B was eliminated when the law was updated.

Class C includes the following:

  • Brother or sister
  • Spouse or civil union partner of the deceased’s child
  • Surviving spouse or civil union partner of the deceased person’s child

For Class C relatives, the first $25,000.00 in property is not taxable. For amounts over $25,000.00, the tax rates are as follows:

  • Next $1,075,000: 11%
  • Next $300,000: 13%
  • Next $300,000: 14%
  • Over $1,700,000: 16%

Anyone else is placed in the Class D category, for which there are no special exemptions. The tax rates are 15 percent on the first $700,000.00 and 16 percent on any amounts higher than that.

Gifts Made During a Person’s Lifetime

Any gifts transferred in the three years before a person’s death are presumed subject to the state’s inheritance tax unless the recipient is exempt from having to pay. The gifts will not be taxed if it can be shown that the person did not transfer the money or property “in contemplation of death.”

Since New Jersey inheritance tax laws and estate planning matters can be very complicated, you should consider options very carefully to avoid leaving your beneficiaries with a large tax bill.  FriedmanLaw has years of experience helping families plan estates to minimize tax and accomplish non-tax goals.  We look forward to working with you.


Social Security Amends POMS Governing Special/Supplemental Needs Trust Expenditures

People with serious disabilities often qualify for government benefits like Supplemental Security Income (SSI) and Medicaid that limit eligibility based on finances.  Thus personal injury recoveries attributable to a disabled person often are placed in trust to minimize benefit reduction.  However, federal and state law provide that trusts containing assets of the disabled beneficiary or the beneficiary’s spouse may be disqualifying unless the trust satisfies a safe-harbor exception.

Social Security Administration (SSA) Program Operations Manual System (POMS) SI 01120.201 says that to satisfy a safe-harbor exception, a trust must be for the exclusive benefit of the trust’s disabled beneficiary.  While a safe-harbor trust may pay reasonable amounts for goods and services routinely provided to the disabled beneficiary, other trust payments can prove suspicious.  For instance, where a trust pays family to provide services to the beneficiary, the trust should be prepared to prove the payments are reasonable and have a sole purpose to benefit the trust’s disabled beneficiary rather than family.

New POMS provisions issued in 2011, caused an uproar among the disabilities community and families with special needs trusts by dramatically tightening the exclusive benefit rule.  The 2011 POMS provided that a trust violates the exclusive benefit requirement if the trust authorizes payments for the beneficiary’s family to visit the disabled beneficiary because trust payments of travel costs benefit the family.  Compounding the concern, SSA staff orally stated that payments to family to care for a trust’s disabled beneficiary also may be disqualifying in common situations.

While SSA’s goal to guard against diversion of trusts that should be administered to benefit a disabled trust beneficiary, the SSA pronouncements triggered great concern and impeded trust flexibility to provide legitimate benefits to disabled people..  Reacting to these undesirable side effects, SSA withdrew the travel provision from the POMS, agreed to study the exclusive benefit rule, and invited the disabilities community to work with SSA to resolve the issue.

On May 15, 2013, SSA announced a series of POMS changes designed to ensure that safe-harbor trusts operate for the sole benefit of the trust’s disabled beneficiary without unduly precluding legitimate expenditures to aide the disabled beneficiary that also impart incidental benefits to family or others.  The POMS now provide that when a trust purchases durable goods like a car or house, the trust or beneficiary must receive appropriate equity interest.  It is unclear whether this requirement will be triggered where a trust funds accessibility improvements that don’t increase value.  The POMS also now permit a trust to pay a third person’s travel costs when necessary for the trust’s disabled beneficiary to get medical treatment or to visit the trust beneficiary in a long term care facility, group home or other supported living arrangement in which persons other than family are paid to provide or oversee the living arrangement and the travel is to ensure safety or health.  While the POMS don’t say trust payment of third party travel costs in all other situations will be disqualifying, that is a major risk and generally should be avoided unless facts are extremely favorable.

The new POMS go a long way to protecting rather than hampering disabled trust beneficiaries.  While they still leave questions open, they are a major improvement over the POMS issued in 2011.

Further information on special needs planning, elder law, long term care, wills, trusts, and estates is available throughout To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

New Rules Condition Division of Developmental Disabilities Housing Aid on Qualifying for CCW Medicaid

 People with severe, chronic disabilities that are manifest by age 22 and substantially limit at least three kinds of major life activities are developmentally disabled and potentially eligible for services from the New Jersey Department of Human Services Division of Developmental Disabilities (“DDD”). For many families, the most important DDD benefit is residential housing aid (“Residential Services”). Without DDD assistance, few people with developmental disabilities could afford a group home or even a semi-independent household.  

Newly issued DDD regulations now require people with developmental disabilities to qualify for Medicaid or forfeit Residential Services. To obtain Medicaid, an individual must be aged, blind, or disabled and meet financial requirements. Because resource and income caps are quite low for most Medicaid programs, wages or Social Security Disability benefits often push people with developmental disabilities over regular Medicaid financial limits.

Medicaid financial rules are too complex to address in detail in a short article. However, most income and resources are Medicaid countable if they can be used to satisfy an applicant’s needs for food and shelter. Thus, cash, food or shelter provided in-kind, and valuables that can be liquidated to cash quickly are Medicaid countable unless eligible for very limited statutory exemptions.

There is some question whether DDD may deny Residential Services simply because an applicant can’t qualify for Medicaid. However, that rarely should be an issue because DDD Residential Services clients usually can get Medicaid through DDD’s Community Care Waiver (“CCW”) even if finances exceed regular Medicaid limits.

While CCW uses enhanced income and asset limits, they still are rather modest. Therefore, many people with developmental disabilities will need Medicaid planning to maintain eligibility. Planning may involve a Medicaid payback special needs trust (“SNT”) that complies with complex federal and state rules as well as other Medicaid “spend down” techniques. Some situations call for a new SNT while others cry out to convert a non-qualifying trust to an SNT. With so much at stake though, experienced special needs counsel should assist with SNT formation to avoid the minefield of traps for the unwary. In some cases, a court application may be essential for Medicaid planning and/or to establish a qualifying Medicaid payback trust.

Families may benefit over time if an infusion of federal Medicaid money leads New Jersey to augment current services for people with developmental disabilities. Nevertheless, in the near term, people with developmental disabilities must scramble to comply with the new DDD Medicaid requirement. Fortunately, CCW should allow must people with developmental disabilities to obtain Medicaid, but they may require Medicaid planning to qualify. Expert advice on CCW, Medicaid, and special needs planning is available from FriedmanLaw.

Further information on finances, elder law, funding long term care without going broke and other subjects is available throughout To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

Lawrence A. Friedman’s Special Needs Article is Featured in Law School Textbook

 “Special Needs Estate Planning” has been included in the new law school textbook Teaching Materials on Estate Planning by Gerry Beyer, Professor of Law at Texas Tech University School of Law. Originally written by attorney Lawrence A. Friedman for N.J. Lawyer magazine, the article explains how to plan your estate to protect your child or other loved one with disabilities. The article isn’t just for legal professionals and can help anyone concerned about a person with disabilities as the article discusses how government benefit programs, special needs trusts, and other estate planning techniques can further the welfare of a loved one with disabilities. To read this and many other articles on the topics of special needs, elder law, wills, trusts, estates, and tax click the Articles tab onthis website. 

Signing a Care Facility Contract Without Counsel Costs Wife Big Bucks

While it always is dangerous to sign any contract without first consulting a lawyer, it is especially risky to sign papers provided by a nursing home, assisted living facility, or other care center upon a loved one’s admission.  First, you likely will be under substantial stress and not in a frame of mind to give the contract the deliberate attention needed.  Second, care facility contracts typically contain jargon foreign to lay persons.   I can almost guaranty that you’d be surprised to learn all the obligations you undertake when signing as ”responsible party” for a nursing home or assisted living resident.

What can go wrong if you sign on the dotted line as ”responsible party?”  Plenty!  For instance, do you really want to risk your own house and savings if the facility doesn’t get paid and you haven’t promptly and properly applied for Medicaid [a daunting task on its own]?  I didn’t think so, but, nevertheless, you may incur personal liability if you you don’t obtain legal advice before agreeing to be “responsible party.”

Care facilities may not require you to guaranty a parent’s bill but courts have been known to enforce a so-called “voluntary” guaranty.  When you sign as “responsible party” are you voluntarily guarantying your loved one’s bills?  I would argue not, but wouldn’t you rather avoid the risk entirely by having us negotiate more favoarable contract terms before you sign.

Our Oct. 29, 2012 blog entry illustrates the risks of signing a care facility agreement without counsel.  Cook Willow Health Center v. Andrian (Conn. Super. Ct., No. CV116008672, Sept. 28, 2012).  In signing as “responsible party” the resident’s daughter agreed to arrange payment to the facility from the resident’s assets or Medicaid, but apparently the daughter didn’t follow through.  Since the daughter signed the admission agreement, the daughter is obligated to take the actions to which she agreed as “responsible party” and the nursing home could sue the daughter for the unpaid bills.

Even more recently the New York courts held a wife liable for her husband’s nursing home costs in Sunshine Care Corp. v. Warrick (N.Y. Sup. Ct., App. Div., 2nd Dept., No. 2011-02193, Nov. 28, 2012).  In signing the admission agreement as “designated representative” for her husband in a nursing home, the wife agreed to pay the facility from her husband’s resources and be personally liable if the nursing home wasn’t paid due to the wife’s actions or omissions.  The court held that the contract obligates the wife for her husband’s unpaid bills because she had access to her husband’s funds but didn’t pay the nursing home.

As the cases referenced above show, signing a care facility agreement without counsel can be very costly.  In addition to leading to personal responsibility for a loved one’s bills, signing an unfavorable agreement can force you to spend on your loved one’s care costs amounts you otherwise lawfully could preserve through Medicaid planning.  While many facilities routinely include in a care contract terms that may frustrate Medicaid planning, I typically negotiate out those provisions before my clients sign a contract.

So, what should you do when a loved one needs long term care?  Consult an elder law attorney BEFORE signing anything.  Thousands of dollars [or more] may be at stake.  FriedmanLaw frequently helps clients understand complex care facility contracts and negotiate away unfavorable provisions.

Further information on finances, elder law, funding long term care without going broke and other subjects is available throughout To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

Is a Reverse Mortgage Right for You

Reverse mortgages can provide income to cash-strapped older homeowners, but they aren’t a panacea.  They can be a quick source of cash but come with a price.  To determine whether a reverse mortgage can help you meet your goals, consider the plusses and minuses.

How reverse mortgages work

Meant for homeowners age 62 and older, reverse mortgages are a special type of loan because the lender pays the homeowner while the homeowner continues to live in their home. The two main types of reverse mortgages are the Home Equity Conversion Mortgages (HECM) offered by the federal Department of Housing and Urban Development (HUD), and Proprietary Reverse Mortgages offered by some banks, credit unions, and other financial companies for higher value homes. (About 95% of the the reverse mortgages out there are HECM loans.) The HECM program offers two types of reverse mortgages: the traditional HECM Standard loan, and the HECM Saver loan which has lower upfront charges but also lower payouts.

The amount of the loan is determined by factors such as the borrower’s age; the amount of equity in the home; and in the case of HECM loans, a national limit imposed by HUD. Payments may be taken as a lump sum; line of credit; fixed monthly payments – for a specific period, or for as long as the borrower lives in the house; or a combination of payment options.

The loan must be repaid in full when the homeowner no longer lives in the home as the principal residence or fails to meet the obligations of the mortgage.

What reverse mortgages cost

A primary negative to reverse mortgages can be comparatively high costs.  Reverse mortgages have closing costs just like traditional mortgage loans, but they can prove more costly. These expenses can include: an origination fee, an appraisal, a title search and insurance, surveys, inspections, and recording fees. HECM Standard loan borrowers must also pay a mortgage insurance premium up to 2% of the value of the home. Total fees are limited by federal regulations, but they can still add up. The HECM origination fee is capped at $6,000, and the minimum fee is $2500. Most of these costs, however, can be paid as part of the reverse mortgage loan.


Benefits of reverse mortgages

A reverse mortgage is a way to tap home equity but remain in the home.  As such it gives up future access to value (and perhaps the children’s inheritance) in exchange for cash now.  The cash from the reverse mortgage can help seniors remain in their homes by paying for extra help with their daily living or medical needs. It can be used to pay off the existing mortgage or other debts, or it can supplement the homeowner’s monthly income for a more comfortable lifestyle or to fund emergencies.  However, since there aren’t limitations on how a borrower uses reverse mortgage proceeds, they also are available for less weighty purchases such as a trip, home modernization, new car, etc.

Reverse mortgages can be part of a sound financial plan for older homeowners, but must be carefully considered. Before using this device, which draws on the built-up equity in the home, homeowners should explore other programs which supplement a limited income. Many public and private benefits exist to help with expenses like property taxes, home energy, meals, and medications. The National Council on Aging (NCOA), a nonprofit advocacy organization for seniors, provides tools, information, and counseling on reverse mortgages and alternative options on their website  Additional information about reverse mortgages appears at our Aug. 30, 2012 entry on this blog.

A big thankyou to FriedmanLaw’s paralegal Nancy Hochenberger for contributing to this article.


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Don’t Become Liable for Your Parent’s Long Term Care Costs

Nursing homes may not require a child to guaranty a parent’s bill although some courts  may enforce a so-called “voluntary” guaranty.  Of course, in the stress filled admission of a parent to a care facility, a child may not realize that he/she is agreeing to a “voluntary” guaranty.  Care facility contracts frequently have other unfavorable provisions that can be difficult to understand or even notice.  Nevertheless, courts often enforce contracts against an individual who later claims he/she didn’t realize that the contract imposes undesirable obligations.

A recent case illustrates what can go wrong when a child signs a care agreement without fully understanding its terms and their ramifications.  Cook Willow Health Center v. Andrian (Conn. Super. Ct., No. CV116008672, Sept. 28, 2012).  The care facility alleged that a resident’s daughter signed an admission contract in which she agreed to take steps to pay the facility with her mother’s assets or qualify the mother for Medicaid.  Apparently the daughter didn’t follow through, as the nursing home sued the daughter for its unpaid bill.  The daughter tried to side step liability citing the prohibition of guaranty requirements, but the court held that there was no guaranty.  Instead, the court said in signing the admission contract as “responsible party”the daughter  had voluntarily committed to certain actions that should get the nursing home paid and the facility had a right to rely on that undertaking and sue the daughter for breach of contract.

How could the daughter have avoided liability?  A child doesn’t normally have an obligation to spend a parent’s money or apply for Medicaid– but see our May 8, 2012 blog post regarding state laws that may make a child liable for a parent’s health care costs.  Therefore, the daughter shouldn’t have agreed to these obligations unless  she was prepared to honor them.  Of course, the facility may have refused to admit the parent without a contract and the obligations weren’t inherently unreasonable.

Thus, it is crucial to consult a lawyer before signing any care facility agreement (or other contract).  A lawyer should explain the ramifications of a proposed contract and possibly recommend changes.  For instance, FriedmanLaw often helps clients understand facility agreements and negotiate more favorable terms.  Since ignorance of contract terms doesn’t excuse their breach, it is risky to sign any contract without first consulting a lawyer.

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How Old is Too Old to Drive?

Of course, it’s a “trick question.”  There is no bright age line between those who should and shouldn’t be driving.  As we all know, many factors beyond age influence whether an individual should drive.  As a car or other motor vehicle is a lethal weapon that can harm both the driver and others, nobody whether age 20 or 80 should drive unless he/she has the ability to handle the vehicle safely and is reasonably rested, alert, and attentive.  However, there is no basis to preclude an individual from driving merely because he/she has reached a particular age.   Nevertheless, since reflexes, vision, and acute hearing naturally decline when we age, it’s not surprising that we may need to change our driving habits as we age.  Fortunately, the federal government has studied this question in detail and produced a helpful and informative tool.

A new online resource from the National Institute of Health, (NIH) National Institute on Aging (NIA) at NIH and the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) can help older drivers and their families address this often sensitive topic. The Older Drivers webpage addresses ways in which aging affects driving–such as physical and cognitive changes, and changes in driving habits. Also discussed are common driving errors that seniors make, ways to avoid such mistakes, and general information on preventing accidents.  This thorough resource provides tips for safe driving as well as important safety features to look for in vehicles. It reviews the regulations many states have adopted to keep older drivers and those around them safe on the road. Finally, the Older Drivers webpage offers suggestions for how to assess when an older driver’s skills change, information on refresher courses, and alternative ways to get around when driving is no longer an option. Check out this valuable new resource at NIH’s website

A big thankyou to FriedmanLaw’s paralegal Nancy Hochenberger for contributing to this article.

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Is a Reverse Mortgage Right for Most Seniors?

Reverse mortgages often are marketed as a way for seniors to get extra cash.  While they can be a godsend to some, they also come with negatives.  Reverse mortgages are available only to homeowners age 62 or above with significant home equity.   Thus, a senior isn’t likely to qualify for a reverse mortgage if the home already is subject to substantial mortgage debt.   On the other hand, a valuable home with little or no mortgage debt can be a good candidate for a reverse mortgage.

To take out a reverse mortgage, a senior homeowner applies for a loan and if approved proceeds to a loan closing.  The senior can choose a reverse mortgage that provides a lump sum, income stream, or credit line, which the senior can spend as he chooses, but someday the senior or his/her heirs will have to pay the piper.  No payments are due on a reverse mortgage while it remains the borrower’s home but when the senior dies or moves out, the loan comes due.

Reverse mortgages come with drawbacks.  Set up costs can be substantial.  With the borrower paying origination fees, mortgage insurance, title insurance, appraisal fees, attorney fees and other costs, a reverse mortgage can be an expensive way to obtain cash.  A reverse mortgage incurs typical mortgage costs like interest, but the no payments are due until the homeonwer dies or otherwise vacates the home.  Thus, a reverse mortgage essentially sells some of a senior homeowner’s equity for an upfront cash agent.  If the homeowner lives in the home for life, the homeowner never need pay against the reverse mortgage, but at the homeowner’s death, the home must be sold to repay the reverse mortgage principal plus interest and other costs.

Is a reverse mortgage the panacea that some ads portray?  Obviously, not, but it can be a good option for older homeowners who need cash but don’t want to have to repay debt while still living in the home.  Because a reverse mortgage is a legal arrangement involving most folks’ primary asset, you should consult an elder law attorney before entering into a reverse mortgage.

Further information on finances, elder law, funding long term care without going broke and other subjects is available throughout To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”


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