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Helping Someone With Dementia Sell the Home

On By Jane Fearn-Zimmer, Esq.In Dementia, Elder Law, Estate Planning, Guardianship, Long-term care, MedicaidLeave a comment

Selling the home through guadrianship

Sometimes, a home must be sold, but the homeowner is no longer able to sign a listing or sale agreement due to cognitive impairment, confusion, advanced dementia or severe and persistent addiction issues (i.e., Wernicke-Korsakoff syndrome), or new onset dementia after recovering from COVID-19.  covid-19-pneumonia-increases-risk-of-dementia-study-says  Others may be temporarily incapacitated due to cardiac issues, surgery, or severe illness.  These conditions can prevent an adult from being temporarily or permanently able to make important financial, medical or legal decisions.  Adults who can no longer make decisions may be incapacitated.  And in real estate bubble with many residential properties reaching their peak value, it’s critical to act fast to accept the best home sale offer.

Unfortunately, incapacitated adults are unable to enter into a binding contract, such as an agreement to list or sell the home. When this happens, one option may be to use a general durable power of attorney or a real estate power of attorney to sell the home.  But that can only be successful where there is already a valid general durable power of attorney or real estate power of attorney in place.  If there is a power of attorney, and the homeowner is able to make decisions, the home cannot be sold through a power of attorney without the homeowner’s consent to the sale.  Giving a power of attorney to a trusted adult child or friend is like giving them an extra set of keys to the car. You can always take back the keys when you wish.

More to the point, a power of attorney is an important legal document by which the principal (i.e., the person signing the power of attorney) gives authority to an agent to carry out the affairs of the principal.  The catch-22 is that in order to make a power of attorney, the principal must have legal capacity.  Unfortunately, there are many incapacitated persons who never bothered to obtain a power of attorney before they lost capacity.   Another risk is that there may be a valid power of attorney, but the agent named may be deceased, very ill, or no longer available to serve.  Once again, there is no one with legal authority to sign the home sale agreement and the house cannot be sold even if there is a buyer.

The solution is to seek a court order for authority to sell the home.  This involves filing a lawsuit in the Superior Court for a judgment of incapacitation and award of guardianship.  The guardianship process is not a simple one. There are several different types of guardianships and the correct type must be selected.  Various court rules, required information and forms must be complied with.

The guardianship process requires doctor’s reports and an investigation into the finances and health of the alleged incapacitated person. As part of the process, the Superior Court judge appoints an independent attorney to investigate these matters and to write a report.  This attorney is referred to as the court-appointed attorney.  Often, that attorney’s report carries great weight with the court.  Testimony by the doctors may be waived, or if the guardianship is disputed, there may be an adversarial hearing.  If the evidence, any testimony and the court-appointed attorney’s report indicates that the alleged incapacitated person cannot make any significant decisions as to his person or property, then a plenary guardianship may be awarded.

But this is only the first step in obtaining court-authority to sell the home of the incapacitated person, who may urgently need the anticipated net home sale proceeds to pay for long-term care.  The next step is to file a motion with the court to sell the home through the guardianship.  The court can potentially award the requested order.  Only when such an order is in place, can the home be legally sold.

Not surprisingly, this process requires additional legal work and documentation.  The guardian must show that the proposed sale is fair and reasonable and in the “best interests” of the incapacitated person. In deciding whether this standard is satisfied, the judge may consider whether the incapacitated person will ever be able to return to the home to live there independently or with the assistance of paid caregivers, provided there are sufficient funds.  The fair market value and the tax-assessed value of the home will also be considered, as will the outcome of any prior attempts to sell the property, the cost of continued homeownership, and whether the anticipated net house sale proceeds are needed to pay for long-term care. In many cases, the home must be sold as a condition of Medicaid eligibility for the former homeowner in a nursing home.

This process takes time.   In limited cases where the safety of the alleged incapacitated person is endangered, or a very good purchase offer may be lost without swift court approval, the guardianship process can be expedited in New Jersey.

The bottom line, is that when capacity is in issue, selling the home a general durable power of attorney or a real estate power of attorney is much more efficient than through a guardianship. However, selling the home through a guardianship can be done in the difficult cases where there is no legal authority in place to sell the home.

Questions, or if you need help clearing title to sell a home through a guardianship? Let Jane know.

Estate Planning Check Up and the New Tax Laws

On By Jane Fearn-Zimmer, Esq.In Estate Planning, Tax ReformLeave a comment

Estate planning tax reform

The Tax Cuts and Jobs Act of 2017 enacted the most sweeping changes to the federal tax code since 1986. Many people assume that due to the increase in the basic exclusion amount (BEA) to $11,180,000 per individual, only the wealthiest need now estate planning. That is just not true!

Certainly, many fewer federal estate tax returns will be required to be filed. However, it is still important to periodically review your documents and your estate plan.  Most clients should review their existing wills and trusts. Particularly where a formula bequest was incorporated, the estate plan must be reviewed to ensure consistency with the client’s legacy goals.  This is due to the increase of the BEA.  The BEA functions like a sponge to limit or prevent a decedent from any federal estate tax liability at death. The BEA soaks up the decedent’s aggregated lifetime gifts and the assets remaining in the decedent’s estate at the moment of death, allowing the donor’s wealth up to the BEA limit to be transferred free of federal estate and gift taxes. Beyond the BEA, the estate will incur federal estate transfer tax liability. When the BEA was significantly lower, it was very common for estate planners to draft formula bequests, which allocated all of the decedent’s assets up to the decedent’s basic exclusion amount, to a “credit shelter trust” for the benefit of the surviving spouse and/or the descendants of the decedent. The remaining assets would pass outright to or in trust for the surviving spouse. With the doubling of the BEA and with credit shelter trusts which do not name the surviving spouse as a trust beneficiary, those estate plans will now disinherit the surviving spouse, and the surviving spouse will then be entitled to a one-third elective share of the decedent’s augmented estate in New Jersey.  The solution is to update the estate planning now, possibly with a disclaimer formula.  The new law sunsets on December 31, 2025.

At least until the new law sunsets, under the current regime, family limited partnerships remain a viable planning strategy, with the possibility of discounts for lack of marketability and lack of control. Trusts will continue to be useful for non-tax reasons, including privacy by avoiding the probate process, creditor protection, curbing spendthrift children, centralizing asset management, fostering family harmony through controlled asset disposition, and preserving a fund for a special needs beneficiary while protecting the beneficiary’s Medicaid and SSI eligibility.

Questions? Let Jane know.