Estate and Trust Issues

Oftentimes I hear from clients that gathering their financial information is the most daunting task they will face during the divorce process. They picture being buried in an avalanche of documents, account numbers and canceled checks.

The New Jersey Divorce App’s Finance Tracker can help.  In fact, I have recommended it to my clients before, with great results.

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The Finance Tracker is designed to help you focus in on the necessary information that you will need throughout the divorce process.

It is split up into 4 categories:

Income

Assets – like your house, car, bank accounts, retirement accounts, etc.

Expenses

Liabilities

Each section is then split into subcategories, which allows you to categorize the information in a way that makes sense.

Here is the best part: you can send the information directly to your attorney – straight from the app!

While the divorce process can be overwhelming at times, the New Jersey Divorce App, along with its Finance Tracker and other great features make things a little bit more manageable.

For more information and to download the New Jersey Divorce App, click here.

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Eliana T. Baer is a frequent contributor to the New Jersey Family Legal Blog and a member of the Family Law Practice Group of Fox Rothschild LLP. Eliana practices in Fox Rothschild’s Princeton, New Jersey office and focuses her state-wide practice on representing clients on issues relating to divorce, equitable distribution, support, custody, adoption, domestic violence, premarital agreements and Appellate Practice. You can reach Eliana at (609) 895-3344, or etbaer@foxrothschild.com.

Today, the New Jersey Supreme Court rendered an opinion discussing whether the creation of a Special Needs Trust for an adult disabled child may be used to eliminate direct child support payments to the custodial parent and whether a guardian ad litem should be appointed on behalf of the child when litigation ensues under these circumstances.  J.B. v. W.B. (A-111-11)(069972).  The short answer to both questions is maybe.

In the J.B. v. W.B. matter, the parties had negotiated a Property Settlement Agreement when their autistic child was fourteen years old.  J.B. agreed to pay $50,000 per year in child support and unreimbursed medical expenses, provide for medical benefits and maintain a $2.5 million insurance policy to secure child support in the event of J.B.’s death.  The parties both acknowledged in the Property Settlement Agreement that the child would likely never be emancipated.  The Property Settlement Agreement further indicated that if the parties were unable to agree as to the payment of post-high school educational costs, either party had to the right to apply to the Court for appropriate relief.

In 2009, J.B. filed an application with the Court requesting that a Special Needs Trust be created, that his child support payments be paid to the Trust and that a Guardian Ad Litem be appointed on behalf of the child who was then twenty-one years old and expected to attend an out-of-state post-secondary school.  W.B. opposed the application asserting that while she did not wholly object to the creation of a Special Needs Trust, she objected to termination of direct child support payments to her as the custodial parent until such time as government benefits commenced.

The trial Court denied J.B.’s application finding that no change in circumstances existed to warrant relief especially because the parties acknowledged that the child would have special needs in the future.  The Appellate Division affirmed the trial Court’s determination noting that the applicable standard to apply to the application was changed circumstances and further found that J.B. did not establish with certainty that the child would be eligible for governmental benefits.  J.B. appealed to the New Jersey Supreme Court.  The Supreme Court found that J.B.’s application to establish a Special Needs Trust for the future financial needs of his autistic son should have been evaluated in accordance with the best interests of the child standard.

The decision of the New Jersey Supreme Court noted that Federal and New Jersey statutory laws permit creation of Special Needs Trusts to allow disabled persons to maintain eligibility for needs-based government benefits such as SSI and Medicaid since assets of such Trusts are not considered available assets for purposes of determining eligibility of these government benefits.  The Court found that creation of such Trusts may be an effective tool in planning for the financial support of a disabled child.  However, a parent seeking to modify a child support obligation through a Special Needs Trust must demonstrate a specific plan and show how the plan will benefit the disabled child.  At a minimum, the Court must have a complete understanding of the current physical, psychological, educational, vocational, and recreational needs of the dependent, disabled child, the cost to support those needs, and the resources available to fund those needs.  The Court must also be provided eligibility rules, the time it will take to gain eligibility, and how long it will take to access benefits once eligibility is established.  The plan must also address the terms and conditions for disbursement of the corpus of the trust and designate a trustee.

The Supreme Court found that J.B.’s application failed to present a plan to the Court and failed to show how the Special Needs Trust would benefit the child.  J.B.’s mere assertion that creation of a Special Needs Trust would benefit the child because he would be eligible for government benefits was more of a recitation of a “concept” and also speculative.  Since a specific plan was not presented, the trial Court could not evaluate whether a special needs trust furthers the best interests of the child.

With respect to whether or not New Jersey law allows the appointment of a guardian ad litem on behalf of a child under the same circumstances as the J.B. v. W.B. matter, the Supreme Court found that such a determination is within the discretion of the trial court and that under certain circumstances, the court should not hesitate to appoint a person to permit the dependent, disabled child to have a voice in an application that may fundamentally affect his or her future.

The application for creation of a Special Needs Trust is not only more complex than a child support application or child support modification application but the outcome of which could have long-lasting financial effects for the child and the parents. Litigants faced with these types of situations and are considering Special Needs Trusts in place of child support, should retain an attorney.  In handling such matters and in light of the Supreme Court decision, in addition to presenting the required information, I would also enlist the help of one of my colleagues well-versed in creation of Trusts in preparing and pursuing the application with the Court.

Mark Ashton, a partner in our Exton (Chester County, PA) office and former editor of our Pennsylvania Family Law Blog, wrote a very in depth and interesting post entitled "Qualified Personal Residence Trusts:  Are These Homes Subject to Claims in Equitable Distribution", on that blog.

Mark discusses how an estate planning tool called a Qualified Personal Residence Trust (QPRT) can be used to get appreciating residential property out of a person’s estate, and possibly, to avoid increase in value claims in equitable distribution in Pennsylvania.  The post does an excellent job explaining how this works.

In Pennsylvania, the passive increase in value on separate property (premarital, inherited, etc.) is subject to equitable distribution.  Mark talks about the possibility of using a QPRT to avoid these claims because the recipient never has a possessory interest in the trust assets.

These same concerns do not exist in New Jersey because passive appreciation on separate assets is not subject to equitable distribution as long as the asset is not put in joint names or otherwise commingled (active appreciation or increase in value due to the efforts of either or both of the spouses would be subject to equitable distribution). 

Other issues regarding the use of trusts and their impact on divorce have been previously reported on this blog.  In fact, the issue of trust income and whether a trust can be compelled to distribute income where the trust documents do not allow it, is before the New Jersey Supreme Court in Tannen v. Tannen.  Stay tuned for an update when that case is decided.

A recent matrimonial case points out the difficulties of when one party to a divorce is the beneficiary of one or more trusts.

In Tannen v Tannen, a recent published case from the Appellate Division, the wife was the beneficiary of a trust established by her parents. She was the sole beneficiary and was also one of the trustees along with her parents. The standard for distributions, by the terms of the trust, was for the best interests of the wife’s “health, support, maintenance, education and general welfare.” The trust was of the “discretionary” type, that is, under the terms thereof, the trustees had “sole discretion” over distributions of both income and principal, and they should make their determinations after considerations of the wife’s other financial resources, but “without regard to the duty of any person to support” her. The trust also included a “spendthrift” provision which prohibited the wife, as beneficiary, from assigning, selling, encumbering, or in other ways “alienating” income or principal distribution without the written consent of the trustees. At the time of trial, the corpus of the trust included cash and securities, investment real estate, the home in which the parties and the children lived. The trust paid for the property taxes on the home, half of the cost of a housekeeper, and various capital improvements. The trust also paid for the children’s private school tuition, but on at least one occasion, the wife’s father refused her request for distribution for a vacation trip. Without there being delineation in the body of the opinion, it nonetheless appears that income generated by the trust may have significantly exceeded these disbursements on an annual basis.

At the trial judge’s direction, the trust was named as a party to the litigation and participated at trial.

Continue Reading To Trust or Not

While the Appellate Division’s in the case of Tannen v. Tannen (addressed in another blog by Larry Cutler), primarily ruled that income paid to the divorcing wife as the beneficiary of a discretionary trust (the “WTT”) cannot be considered an asset available to fund alimony, that discussion naturally begged the question which was addressed in the second part of the case; namely – what effect does the actual income disbursed from the trust have on a determination of the needs of the parties in setting the alimony and child support obligation of the supporting spouse?

It is well-settled in New Jersey that the “marital standard of living” serves as the touchstone for the initial alimony award in a divorce. The standard of living during the marriage is the way the couple actually lived, whether they resorted to borrowing and parental support, or if they limited themselves to their earned income. The Court examines the couple’s “lifestyle expenses” in order to determine how much support is required by the dependent spouse to maintain that lifestyle support.

In Tannen, the trail judge sought to apply his conclusions regarding the parties’ lifestyle expenses to the calculation of the amount of support required by the dependent spouse to maintain that lifestyle. The judge acknowledged that the lifestyle expenses included those incurred by the parties and their children, however did not give any analysis as to the costs associated with the wife’s actual needs post-divorce in light of the fact that income was paid to her at least monthly by the WTT. He also failed to consider at all the husband’s post-divorce needs. The Appellate Division took issue.

Continue Reading Tannen Continued: Income from Discretionary Trust Not Income, But Does it Reduce Need?

A recent case was filed concerning a woman who entered into a Marital Settlement Agreement with her then husband in which the marital home was not to be sold immediately, but provided for how the proceeds would be distributed when it was. The Husband, however, was in poor health, and the agreement did not provide for the possible event of his death prior to sale of the home. In fact, the husband died prior to the sale of the house, but after the limited divorce that the couple had obtained .  His interest in the house went to his estate rather than to his former wife as she had anticipated. The former wife was then forced to purchase the half interest from the estate in order to retain the home, something that was not anticipated by her, and cost her a significant amount of money.

I am sure that the former wife assumed that the deed to her home contained a right of survivorship in the event of her former husband’s death. Instead,  the property was most likely titled in such a way that the parties owned the property as tenants by the entirety, which means that they owned as husband and wife, and upon the death of one spouse  title of the property would go to other, assuming they were still married. Upon the divorce of parties to a tenancy by the entirety,  however, the title changes to what is known as a tenancy in common, which means that they each had a one half interest in the property which would then go to their beneficiaries upon death unless there is a specified right of survivorship.

 

The moral of this story? Make sure your lawyer has a copy of your deed as well as any other important documents.   If you do not have one, make sure that a title search is conducted on the property.   It is critical that a lawyer understand how property is held between spouses and/or other co-owners. Many times, incorrect assumptions are made about these kinds of issues and the results can be expensive. My motto is, I can never have to much information from my client.

As seen in Affluent Magazine.

Divorce for those of substantial wealth relative to those of limited wealth is an oxymoron – aspects of divorce between the two classifications are both similar and yet quite different. In final analysis, it is a question of degree – that is, the number of zeros behind the dollar signs. This summary discussion will deal with certain procedures and aspects of divorce which are similar to both. The distinctions lie in the availability and desirability of various procedural vehicles to the two groups.

Privacy and Confidentiality

Nearest to the hearts of you — the rich and famous (next to, of course, your money) — is privacy and confidentiality. None of you in your right mind wants to spread your dirty laundry in public – least of all those of you blessed with substantial wealth. With divorces of such persons being instant grist for media dissemination, generally, it is better for all concerned (especially their children on a whole host of levels) to have disposition of your matter not a matter of public spectacle. All too often, the perceived lesser-advantaged spouse may play the publicity card (or threaten to do so) in order to opt out a financial advantage – or in simple parlance – vie for “hush” money. Perception by the lesser-advantaged spouse that the financially-advantaged spouse will deal with her or him fairly (whatever that may mean) will usually go a long way toward negotiations where calmer minds prevail. Another method of seeking to assure a divorce far from the public eye is for a pre-marital agreement to address issues of confidentiality and mediation and/or arbitration out of the public limelight.

Continue Reading Divorce for the Well-To-Do