Tuesday, June 20, 2006

Failure to Exercise Spousal Right of Election a Transfer for Medicaid

Category: Elder Law, Probate and Estate Administration

A new New Jersey ruling affects estate plans where one spouse leaves assets to another spouse in a testamentary trust, and the surviving spouse then needs to apply for Medicaid for his or her long term care needs. The case is I.G. v. Department of Human Services (N.J. Super. Ct. App. Div., No. A-0006-05T5, June 13, 2006).

In New Jersey, a surviving spouse has a right to an "elective share" of a deceased spouse's estate. The "elective share" statute, N.J.S.A. 3B:8-1 to -19, essentially provides that the surviving spouse must receive 1/3 of the "augmented estate" of the deceased spouse. The "augmented estate" is defined to include both probate and certain non-probate assets (to prevent a person from disinheriting a spouse by merely ensuring that all assets pass to a non-spouse via a non-probate vehicle, such as joint ownership or the use of a beneficiary designation). Per N.J.S.A. 3B:8-1 the "'augmented estate' consists of the value of all property of both the deceased and surviving spouse as well as other property transferred to third parties without adequate consideration before the decedent's death."

What happens from a Medicaid perspective if (1) the first spouse's will leaves everything in a trust to the surviving spouse, and (2) the surviving spouse does not make an elective share claim?

According to I.G. v. Department of Human Services, the failure of the surviving spouse to make an elective share claim is a "transfer" for Medicaid purposes. The court found that the failure to elect the elective share was a transfer of an amount equal to 1/3 of the deceased spouse's estate.

What is the effect of this case?

First, if your estate plan calls for all your assets to pass into a discretionary trust for the benefit of your spouse, or if you disinherited your spouse altogether, in the hopes of shielding assets in the future from a Medicaid spend-down, you need to re-examine your plan as it likely will not meet your goals.

Second, if a surviving spouse (or his or her fiduciary if he or she cannot act) fails to seek the elective share, this failure to act will (1) create a penalty period, during which the surviving spouse will not qualify for Medicaid, and (2) that penalty period will come into effect at the time when (a) the surviving spouse has exhausted all of his or her assets outside the trust, and (b) the surviving spouse is in a nursing home. The elective share claim must be made within 6 months from the date of death.

Monday, June 05, 2006

Medallion Guarantee of Stock Certificates - A Good Thing, But to be Avoided

Category: Estate Planning, Probate and Estate Administration

Have any stock certificates? Real ones, on the fancy, colorful paper? If so, at some point you, or your Personal Representative (Power of Attorney, Executor, Trustee, etc.) will need to deal with having those stock certificates "Medallion Guaranteed" in order to sell or transfer them.

According the Securities and Exchange Commission article “Signature Guarantees: Preventing the Unauthorized Transfer of Securities":

If you hold securities in physical certificate form and want to transfer or
sell them, you will need to sign the certificates or securities powers. You
will probably need to get your signature "guaranteed" before a transfer agent
will accept the transaction. Although it's an inconvenience to get your
signature guaranteed (emphasis added) the process protects you by making it
harder for people to take your money by forging your signature on your
securities certificates or related documents. Transfer agents insist on
signature guarantees because they limit their liability and losses if a
signature turns out to be forged. One way to avoid having to get your signature
guaranteed is to have your securities held in street name, meaning that your
securities are held in the name of your brokerage firm instead of your name
(emphasis added).

An investor can obtain a signature guarantee from a financial institution –
such as a commercial bank, savings bank, credit union, or broker dealer – that
participates in one of the Medallion signature guarantee programs.

A Medallion imprint or stamp indicates that the financial institution is a
member of a Medallion signature guarantee program and is an acceptable signature
guarantor. By participating in the program, financial institutions can guarantee
customer signatures with the assurance that their guarantees will be immediately
accepted for processing by transfer agents.

Transfer agents can refuse to accept a signature guarantee from an
institution that does not participate in the Medallion program or that is not
recognized by the transfer agent. While guarantor firms can charge a fee for
their services, they often don't and offer them as part of their customer

While getting stock certificates Medallion Guaranteed may not be impossible, it is a hassle (the SEC actually calls it an “inconvenience” in the article) – especially when you are not the owner, but the owner’s fiduciary (executor, trustee, attorney-in-fact, etc.). More importantly, it is a hassle that can be very easily avoided by taking all your stock certificates to a broker and turning them over into a brokerage account. The discount broker fees are very small. You are not giving up any control. You are gaining a huge amount of convenience (to buy and sell yourself without getting a Medallion Guarantee) as well as giving a “gift” to your fiduciary by making your estate infinitely easier to manage. Also, if there is a fire or other disaster, your brokerage accounts won’t disappear, but your stock certificates might. If you aren’t here to have them re-issued, those assets may never pass to your family.