Arturo and Alyssa Abernacky come to your office in Trenton, New Jersey, for estate planning. The facts relevant to their family are as follows:
- Arturo is 67 years old and Alyssa is 66.
- The couple have two children: Brenda and Bob. Both children are in their 30s and have spouses and children of their own.
- Bobby’s second child, Kayla, is 7 years old and suffers from severe mental disorders that prevent her from interacting appropriately with children her age. She is currently attending a private school for disabled children and is being treated for her disorders. It is hoped that she will recover and be able to live a normal adult life, but there is no guarantee of this. Government assistance, including the Medicaid Waiver Program, greatly helps pay for Kayla’s care. Whatever happens, they want to make sure that Kayla does not lose her eligibility for government assistance at any time in the future.
- Arturo and Alyssa trust both Brenda and Bob. They want them to serve as trustees of any trust that you will draft for them. However, they also think that a third person should also be a trustee to make sure that there is a third person to mediate any potential dispute between the children. Both clients think that Alyssa’s brother, Aaron Abernacky, would be suited to this task. Since Aaron is 68 years old and so may not be able to assist forever, they also want Arturo’s niece, Shana Lane, as the backup co-trustee.
- The primary purpose of their visit is to ensure that they become eligible for Medicaid assistance as soon as possible. The clients realize that, while they are now comparatively young, they may reach a time that they will need long term care Medicaid assistance and they do not want their assets to be depleted paying for such care. They want their assets preserved for their children and grandchildren.
Arturo and Alyssa own the following assets:
- A single family residence in Camden, New Jersey. They purchased the residence in 1983 for $165,000. It now has an estimated fair market value of $700,000. They have no immediate plans to sell the house, but in the long term they are considering selling and moving to a warmer climate.
- Brokerage accounts that include a portfolio of stocks, bonds, and cash worth approximately $400,000.
- Individual retirement accounts (one owned by each spouse), each worth about $125,000.
- A small checking account that they use for day-to-day expenses.
Of these, they want to transfer the first two to the trust. They do not want to withdraw (and thus be taxed on) their retirement account assets and so they cannot be placed into the trust.
Although the primary purpose of the trust should be for Medicaid planning purposes, it is also worthwhile to draft the trust in a manner that limits or eliminates the imposition of the New Jersey state estate tax (which is assessed on taxable estates above $675,000). You should also take into account capital gains tax implications in the event that the house and/or stocks are sold during the clients’ lifetimes or after their deaths.
Please draft a trust for the Abernacky couple. Please try to keep all relevant Medicaid and benefits eligibility requirements in mind, along with all relevant tax consequences of the trust. You may use one of the trust templates in the appendix of Trust Drafting for Paralegals, but you must alter it to fit the facts and strategies relevant to our case. You may omit boilerplate provisions that have no direct impact on the issues discussed above from your draft.