Gifts, Wills, and Guardians: A Case Study (Part 1 of a 3-Part Post)

By Fredrick P. Niemann, Esq. a New Jersey Guardianship Attorney

A judgment of incapacity has legal significance in our judicial system.  The appointment of a guardian confers such power and responsibility onto this person that our courts, through the Surrogate, require this person to report in on the well-being of his or her ward, along with how the person’s money is being used.  While our statutes do give the power to the guardian of a ward’s estate (i.e. his or her property) to manage in the best interests of the ward, there are times where it is prudent for a guardian to file an application with the Chancery Division of the Superior Court to get its blessings to perform certain types of transactions.  This could be anything from creating a trust for the benefit of the ward and move his or her property into this trust to selling a house that the ward owns to pay for a nursing home or rehabilitation center.  The court also has the ability to approve gifts from a ward’s estate to other beneficiaries so long as it is in the ward’s best interest.  But what if the gifting plan conflicts with the estate plan created prior to the ward’s incapacity?  The case of In re Cohen discusses that type of scenario.

Henrietta Cohen was 88 years old when she went to her lawyer to get her estate plan drafted.  At that time, she was widowed.  She had two boys, Howard and Charles.  Howard was married to Karen, and the two had two children, Douglas and Michele.  Howard divorced Karen, and married Jacqueline.  Charles died, but had two boys prior to his death, Alan and Bruce.  Both are married.

Henrietta’s will and revocable trust agreements split her estate in half between Howard’s family and Charles’s family.  Charles’s boys would get distributions outright from Henrietta’s estate, while Howard, Douglas, and Michele would receive the other half of the estate in separate trusts made for each of them.  Howard would receive 70% of that half, while Douglas and Michele each would receive 15% of the half.  Note that Jacqueline does not receive a share of the estate.

As her estate was worth around $5 million, and the year was 2000, the estate was subject to both federal and state estate tax.  Therefore, certain types of estate planning techniques were discussed with Henrietta to minimize these taxes, including putting assets in special types of trusts and outright gifting these assets to Howard and her grandchildren.  But as her lawyer attested to, Henrietta said no to each of these recommendations.  She wanted Howard’s portion of the estate to stay in trust to protect her ½ share of the estate for her grandchildren.  Her biggest worry?  Jacqueline.  If Howard’s money was distributed outright to him, Jacqueline could potentially be entitled to a portion of it, whether it was through his estate or equitable distribution should Howard and Jacqueline divorce.  By putting it in trust and out of Howard’s name, neither Howard nor Jacqueline could touch it unless Howard needed a distribution pursuant to the terms of the trust.

If you guessed that this didn’t sit well with Howard or Jacqueline, you would be right.  In our next blog, I will discuss what happened as she grew older and began to lose her faculties.

To discuss your NJ Will or Guardian matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing consultations if you are unable to come to our office.

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