Posts By: Jeffrey A. Asher
What is a Living Trust?
A Living Trust (not to be confused with a Living Will) is an estate planning legal document that is similar to a Will, but accomplishes more than just passing out your assets upon your death. Unlike a Will, a Living Trust is effective as soon as you sign it. A Will, on the other hand, is only effective after you pass away. This means that a Living Trust can contain instructions for what should happen to you and your assets should you become mentally disabled, and how your assets should be distributed when you pass away.
Here’s How the Living Trust Works
A Living Trust needs at least one trustee. The first trustee is typically the person making the trust. This person (or persons for a married couple) is called the “trustmaker”, “settlor”, “trustor”, or “grantor”.
The trustee (or trustees), is the person in charge of the Living Trust assets.
While you are alive and well, you are the trustee and the beneficiary of your Living Trust.
After your Living Trust is created, your assets are retitled from your name to the name of your Living Trust. Your Living Trust can also be set up to receive your estate assets such as your life insurance proceeds and your death benefits from your retirement accounts.
While you are alive and well (meaning you are not suffering from a mental disability), you are in full control of the assets in the Living Trust. You can revise or revoke your Living Trust at any time. Your Living Trust does not have to file a tax return or pay any income taxes. It is disregarded for tax purposes.
At Your Passing
At your passing, assets in your Living Trust are distributed to your loved ones according to your wishes.
As illustrated here, because the trust document, rather than a Will, owns your assets and directs how those assets will be distributed, you can avoid probate.
As you can see, your loved ones will receive their inheritances faster, and won’t have to pay all of the costs associated with probate.
This is especially helpful when you own real estate in more than one state, which necessitates a probate in each of those states.
Other Advantages of a Living Trust
One of the greatest benefits of a Living Trust is the ability to avoid probate. Probate costs can be effectively reduced or even eliminated by your Living Trust. Without a Living Trust, probate or some type of court administration is guaranteed. If all of your assets are in your Living Trust, your entire estate will avoid probate.
What’s more, by owning all of your assets in your Living Trust, you will make the administration of your estate easier for your loved ones and shorten the time they must wait to receive their inheritances. Probate can typically take 6 months to two (2) years to complete. Because you are avoiding probate, and the necessary court interference and costs that come with it, your loved ones won’t have to wait and they won’t have to pay the huge probate costs.
Another advantage to your Living Trust is that it can make it more difficult for anyone to challenge the administration of and distributions from your estate. Probating a Will guarantees an objectant the opportunity to be heard by the Court. If there is no Court, there is no forum in which a disgruntled beneficiary can complain about your estate.
Also, unlike a Will, which is effective only after you pass away, your Living Trust allows you to include instructions for someone else to manage your personal assets and needs if you ever suffer from a mental disability.
Your Living Trust is also an extremely flexible way to protect your loved ones from creditors, bankruptcy, divorce, etc. Your Living Trust can also protect the assets being left to your minor children and/or grandchildren. Also, a Living Trust can be especially useful for parents who want to provide fairly for children from previous marriages.
In some cases, small-business owners would benefit from a Living Trust. You may wish to transfer ownership of your businesses to your Living Trust. At death, your Living Trust can benefit your loved ones, while making sure that your businesses continue to grow in the hands of a qualified trustee who can keep your businesses going.
Setting Up Your Living Trust
You should only let a qualified and competent attorney help you set up a Living Trust. Be careful of people who will “sell” you a living trust. If you talk with a qualified and competent attorney now, you may save yourself and your loved ones trouble later.
Estate Planning is applying the law of property, trusts, wills, insurance, and taxation to the ordering of one’s affairs, while keeping in mind the possibility of retirement and the certainty of death. Estate Planning is controlling your property while you are alive and well, planning for yourself and your loved ones in case you become mentally disabled, giving what you have to whom you want when you want and the way you want, and having full access to today’s legal and financial opportunities.
The basic estate plan consists of a Power of Attorney, Health Care Proxy, Living Will, and Last Will and Testament. Having these documents as part of your basic estate plan will help you identify and address whatever legal, health, or financial issues you might face, as well as help you satisfy your estate planning objectives.
Power of Attorney.
A Power of Attorney serves a useful function, when used appropriately. When used appropriately, the Power of Attorney is a wonderful tool to make sure your property, financial, and/or legal decisions are made effectively and efficiently by the person you trust and who will be responsible for making these important decisions. However, the Power of Attorney can also be a dangerous weapon in the hands of an agent who is not trustworthy and does not act in your best interest. The Power of Attorney can also be a dangerous weapon when prepared by a short-sighted legal or financial professional.
For people who do not have the independent capacity to make decisions for him or herself, a Power of Attorney is, many times, the only way to a successful long-term care plan. Having the necessary and appropriate authority within a valid Power of Attorney will assist your agent/family member/decision-maker make the decisions to put the plan together and put it in place. Without this authority, your family’s only other option might be a guardianship, and all of the problems associated with that.
See also my blog post – Appointing a Power of Attorney – from August 2015.
Health Care Proxy.
In New York, appointing someone you can trust to decide about your medical treatments and/or health care if you become unable to decide for yourself is the best way to protect your wishes and concerns regarding your health care decisions. “Health care” means any treatment, service, or procedure to diagnose or treat, a physical or mental condition. You have the right to appoint someone by filling out a form called a Health Care Proxy.
The Health Care Proxy designates an agent to make your health care decisions (in the event you are not mentally able to make those decisions for yourself). Also, the agent is designated to represent your wishes, as set forth in your Living Will (discussed next), with respect to the use of unnatural extraordinary means to sustain your life. Hospitals, doctors, and other health care providers/facilities must follow your health care agent’s decisions as if they were your own. You may give the health care agent as little or as much authority as you want, and may allow your health care agent to make all of your health care decisions or only certain ones. The Health Care Proxy can also be used to document your wishes or instructions with regard to organ and/or tissue donation.
If you are worried about when the Health Care Proxy becomes effective, discuss options with your attorney. Your attorney should be able to discuss with you language detailing the process by which your attending physician certifies that you are mentally disabled. The following language may be used as an example: “For purposes of establishing incapacity, whenever two (2) licensed, practicing medical doctors who have personally examined me (one of whom shall be my primary care or attending physician) who are not related to me or to any beneficiary or heir at law by blood or marriage certify in writing that I am unable to make my own decisions relating to my health care choices because of mental or physical infirmity and the certificates are written into my medical record, then the agent appointed hereunder shall assume all powers granted in this Health Care Proxy.”
See also my blog post – Health Care Proxies for Minor Children – from March 2015.
A Living Will is essentially a document whereby you set forth in writing your desire to have, or not have, your life extended by unnatural extraordinary means, such as life support and other extreme medical technologies. For example, if your death is imminent but for the use of respirators, feeding tubes, etc., your substitute decision-maker, as designated in your Health Care Proxy (discussed above), would have the power to instruct the doctors to terminate their efforts.
Adults in New York have the right to accept or refuse medical treatment, including life-sustaining treatment. This means that you have the right to request or consent to treatment, to refuse treatment before it has started, and to have treatment stopped once it has begun. Many patients turn to family members, friends, or caregivers for advice, or want medical decisions ultimately made by them, but sometimes a patient cannot make his or her medical decisions, and has not effectively delegated that decision-making authority to others. For this reason, it is important for you to make your wishes explicitly known, in advance.
Many states have enacted laws that relate to a patient’s right to prolong or terminate his or her own medical treatment, resuscitation efforts, and life-sustaining measures. New York is not one of those states. The common law right to express one’s wishes as to his or her so-called “right to die” is found in the caselaw beginning with In re Westchester County Medical Center, wherein the court established the need for “clear and convincing” evidence of a patient’s wishes and stated that the “ideal situation is one in which the patient’s wishes were expressed in some form of writing, perhaps a ‘living will’.”
There are no formal requirements to the signing of the Living Will. The person signing the Living Will must be in all respects mentally competent. The Living Will must be signed by the patient, dated, and should be witnessed by at least two (2) independent witnesses. The Living Will need not be notarized.
Your attorney should understand that general instructions about refusing treatment, even if written down, may not be effective. Your instructions must clearly cover the treatment decisions that must be made. For example, if a client merely writes down that he or she does not want “heroic measures,” the instructions may not be specific enough for the hospital or health care facility to honor. A Living Will must specify the type of treatment, such as a respirator or chemotherapy, and describe the medical condition(s) when the client would refuse such treatment, such as when the client is terminally ill or permanently unconscious with no hope of recovering normal brain function.
Last Will and Testament.
For many, the Last Will and Testament is an important document within their comprehensive Estate Plan. For some, the Last Will and Testament is important because it converts a deceased’s intestate estate into a testate estate. When a person dies with a Will, he or she is said to have died “testate”. When a person dies without a Will, his or her estate is an “intestate” one.
For a family of moderate means, not having a Will means that the surviving spouse may have to share a small estate with children which may effectively deprive the surviving spouse of property needed for his or her welfare. Moreover, if one or more children are minors, then guardianship may be needed for property passing to the minor child. Similarly, if a beneficiary is disabled and receiving government benefits, a distribution to him or her, without condition, might disqualify that beneficiary for his or her benefits. In these cases, the Last Will and Testament could provide that the surviving spouse receive the full estate, the minor children’s shares be held in trust, thus avoiding the guardianship, and that the disabled beneficiary’s government benefits not be supplanted by the inheritance.
For spouses where there are no children, each spouse might assume that without a Will the surviving spouse would take everything. In that case, they would be wrong. Under Florida law, for example, if the deceased is survived by a spouse and issue of the deceased but not of the surviving spouse, then the surviving spouse’s share is one-half of the intestate estate. The other one-half goes to the surviving issue of the deceased or, if none, then to the deceased’s parents. The devolution of property continues, but the point is made: If the married couple do not have children, then the surviving spouse does not inherit the whole intestate estate. He or she must share it with the parents, and successive generations, of the deceased’s heirs.
The Will also gives the deceased the opportunity to name his or her own Executor or Personal Representative. That person may be different than the person who may want to be the Administrator under the state’s laws in an intestate administration proceeding.
In the 1990s, Prince’s war with his record label was monumental. Prince argued, quite publicly, that his record label owned and controlled his name as well as any music released under that name. Prince passionately believed that artists must remain the owner of their own art. This belief resulted in Prince refusing to use his name in any of his productions, creating the now-infamous “” as his symbol, being referred to as “the Artist Formerly Known as Prince”, writing the word “slave” on his face during shows and appearances, and putting out half-hearted music just to fulfill the terms of his record contract.
In addition, it has been reported that Prince made hundreds of hours of music, which has been described by Rolling Stone magazine as some of Prince’s best work, but, for whatever reason, has never been released by Prince. Prince’s vaults of music also supposedly contain at least 50 fully-produced completed music videos and a documentary about Prince videotaped by Kevin Smith. Prince apparently told Rolling Stone magazine that his vaults contain complete Revolution albums, two Time albums, and one Vanity 6 album.
For whatever reason, Prince did not want this music, or even the videos or documentary, released. If Prince had died with a Will, he could have directed his Executor(s) to never release the contents of his vaults, or at least instruct his Executor(s) on what to do with the contents of his vaults. Yet, without a Will, there is no such instruction or prohibition.
Instead, with the federal government wanting its taxes, and the lawyers and accountants wanting their fees, and the eventual inheritor(s) (whether it be his child(ren) or his siblings) wanting the rest, everyone is going to want to make sure that his estate makes as much money as possible. Even if that means releasing the music, the videos, the documentary, and whatever else is contained in the vaults, which is likely not what Prince would have wanted.
The real tragedy of Prince’s death is that for someone who so passionately believed that an artist should control the fate of his own art, by not signing a Will, or in any other way protecting his estate, Prince left the fate of his own music and productions to the whim of financially-motivated people who may not have ever really cared about him.
Prince’s legacy will certainly continue, but not according to Prince’s wishes.
A man, born in Minnesota in the 1980s, claims he is a child of Prince. This man, who remains unnamed, claims that he was born as a result of a “fling”. But, whether that “fling” turns into a $300-plus million dollar inheritance will be determined by DNA tests. Heir Hunters International, a Los Angeles based company, is helping this man pursue his claim.
Under Minnesota law, if this man is truly Prince’s child, then he (and any other child(ren)) will be the sole inheritor of Prince’s estate. Prince’s sister, Tyka Nelson, who has filed papers to be the administrator of Prince’s estate, and Prince’s half-siblings, Omarr Baker, Alfred Nelson, John Nelson, Norrine Nelson, and Sharon Nelson, and Prince’s grandniece, Victoria Nelson (granddaughter of Prince’s predeceased half-brother, Duane Nelson), will inherit nothing.
So, the interesting question is whether or not this unnamed love child is, in fact, Prince’s son. DNA tests have been ordered and, I would imagine, everyone in that family is awaiting the results.
Under Minnesota law, if Prince died without a spouse (and we are not certain, at this time, that he was not married at the time of his death), then his estate would pass to his children. While we know that Prince had a son who died shortly after birth, we do not know, for sure, that Prince did not have any other children. But, assuming that Prince did not have any other children, then Prince’s estate would pass to his parent(s). If a parent is not living, then Prince’s estate would pass to his siblings (including half-siblings).
If, on the other hand, Prince died with a Will, then the terms of the Will would govern.
There are generally two types of Medicaid coverage: Medicaid home care (also referred to as community based Medicaid), which provides home health care, some hospital coverage, doctor appointments, medications, etc. And, Medicaid nursing home care (also referred to as institutional Medicaid), which is care in a skilled nursing facility or similar institution.
To qualify for Medicaid, a Medicaid recipient (whether for home care or nursing home care) may only keep a small amount of assets and income. In 2016, a Medicaid recipient living alone may keep no more than $14,850 in non-exempt assets and have no more than $825 per month in income (both of these amounts increase depending on the number of family members who live with the Medicaid recipient), plus an unearned income credit of $20 if the applicant is over 65, blind, or disabled. An individual in a nursing home or similar institution is restricted to a personal needs allowance of $50 per month. Income includes Social Security payments, distributions from IRAs and other retirement accounts, interest, and dividends, etc.
Transfer of Assets
Giving assets away to qualify for Medicaid is not permitted. A Medicaid applicant who does so is “penalized” – denied Medicaid benefits – for a period of time following the transfer; provided, however, that there are certain transfers which are considered “exempt transfers”.
The Look-Back Period
In determining the penalty period, Medicaid will “look back” at the applicant’s assets over a period of five (5) years. The “look back” period examines account statements, deeds, tax returns, etc., and is intended to discover any transfer of assets which would disqualify an applicant from Medicaid. The transfer of assets penalty period begins on the date the applicant makes his or her Medicaid application, is in an institution receiving care, and would otherwise be eligible for Medicaid but for the transfer of assets.
The Planning Process
Because of the threat of a penalty period, the obvious solution would be to merely wait the five (5) years from the date of the transfer to apply to Medicaid. That way, Medicaid will not see the transfer within the look-back period.
But, what if, as happens many times, the applicant needs Medicaid to pay for the nursing home within the five (5) year look-back period? Or, as happens quite often, the applicant needs Medicaid nursing home care immediately? This is where the Good Elder Law Practitioner’s long-term care planning techniques are useful.
One technique that we use to protect assets AND qualify a person for Medicaid nursing home benefits is what we call the promissory note (i.e., loan) / gift plan. It entails a transfer of some of the exposed assets and a loan of the remaining exposed assets, and is explained as follows:
Under Medicaid’s rules, whereas a transfer of funds is a penalty transfer, a loan of those same assets instead is not a transfer but is a conversion of those assets into an income stream. In other words, loaning money, instead of gifting it, will not create a penalty period nor will it create an exposed asset for Medicaid purposes. The loan would merely create an income stream to the Medicaid applicant and income does not disqualify a person for Medicaid benefits.
Scenario One: John has $450,000 in non-exempt assets. John must be admitted to a nursing home. John does nothing with his assets. His family pledges to use his assets to pay for his care. The nursing home costs $400 per day. On average, this amounts to $12,000 per month. $450,000 divided by $12,000 per month is 37.5 months. In 37.5 months, John’s $450,000 will be spent entirely on his nursing home with nothing left to show for it. After the money has all been spent down, then John could make a Medicaid application to pay for his Medicaid. Because John would then have less than the threshold for purposes of Medicaid nursing home care benefits, Medicaid would pay for John’s nursing home.
Scenario Two: John has $450,000 in non-exempt assets. John must be admitted to a nursing home. John gives all $450,000 to his daughter, Darla. While John now has less than the $14,850 threshold for purposes of Medicaid nursing home care benefits, the $450,000 gift created a penalty period of approximately 38 months … or a little more than three years. $450,000 divided by $12,029 per month (which is what Medicaid believes is the average cost of nursing home care in NYC) or 37.41 months.
Scenario Three: Rather than gifting the entire $450,000 to Darla, John gifts only half of it but loans to Darla the other half. Medicaid applies a penalty period on the half that he gifted, but not on the half that is a loan. So John, who transferred $225,000 to his daughter, will incur a roughly 18 month penalty period during which he will not be able to receive Medicaid but will use the monthly loan repayments from his daughter to pay for nursing home care. After the roughly year and half penalty period, John starts getting Medicaid while his daughter legally keeps $225,000.
In Scenario One and Two, John’s family will have preserved nothing from John’s assets. In Scenario Three, John’s family will have preserved at least half of John’s assets, with the savings likely being greater when an actual calculation can be made. The question boils down to whether, in this hypothetical, John’s family wants to do the planning … or not. The bottom line is that Medicaid will likely be needed at some point. Is it better to get Medicaid involved sooner and save a good amount of money? Or, wait until it become necessary and get Medicaid involved when there is nothing left to save.
Nursing home Medicaid planning is not to be entered into lightly. Use only a qualified Elder Law attorney. If you would like to learn more about nursing home Medicaid benefits, or other types of Medicaid planning, or have questions regarding the above, please contact us at (877) 207-6803 or email@example.com.
There are generally two types of Medicaid: Home care (or Community) Medicaid and nursing home (or Institutional) Medicaid. To qualify for either type of Medicaid, in New York (in 2016), an individual cannot have more than $14,850 in non-exempt assets. Exempt assets generally include, among other things, your home (provided that the equity in your home is less than $828,000) and your retirement accounts (provided that your retirement accounts are in “payout status”). Any asset that is not exempt is called an exposed asset or otherwise called a non-exempt asset or an available resource for Medicaid purposes.
Imagine the following scenario: Applicant owns a home worth about $700,000. He also has an IRA worth approximately $500,000. Applicant is currently withdrawing his Required Minimum Distributions (RMDs) from the IRA. Applicant also has a checking account with approximately $10,000 in it. Applicant’s monthly income includes his Social Security Retirement income of $1,260, pension income of $1,800, and a small other pension of $800.
Because the equity in the Applicant’s home is less than the $828,000 threshold, his home is not counted as an available resource for Medicaid purposes. Because the Applicant’s IRA is in payout status (i.e., he is withdrawing his RMDs), the IRA is not counted as an available resource for Medicaid purposes. And, finally, because the Applicant’s checking account is less $14,850, the checking account is not counted as an available resource for Medicaid purposes. This means that the Applicant is qualified for home care Medicaid.
Imagine the following modification to the above scenario: In addition to the above, the Applicant also has a $250,000 brokerage account. The home is still not counted as an available resource. Nor is the IRA or the checking account. But, the $250,000 account at UBS is not an exempt asset. In fact, it is an exposed asset and will be counted as an available resource for Medicaid purposes. What should the Applicant do if he wants to qualify for home care Medicaid?
In New York, there is no penalty period or look-back period for home care Medicaid. That’s not true for nursing home Medicaid, but that’s for a different discussion. One thing that the Applicant could do to qualify for home care Medicaid would be to create a Medicaid Irrevocable Income-Only Trust and transfer the $250,000 brokerage account into the Trust (or, some say re-title the $250,000 brokerage account into the name of the Trust).
The Applicant is the grantor (a/k/a creator) of the Medicaid Irrevocable Income-Only Trust and someone the Applicant appoints (e.g., child or children) is the Trustee (a/k/a manager). The Trust agreement provides that the Applicant gets all of the net income from the Trust, but he cannot get any of the principal from the Trust. By preventing the Applicant’s access to the principal of the Trust, we prevent Medicaid’s access to the principal of the Trust. And, since income does not disqualify anyone from Medicaid, it is safe to pay the income from the Trust to the Applicant.
And, what, you may be asking, is the income from the Trust? Income from the Trust depends on what the Trust assets are invested in. In this case, the Trust asset is a $250,000 brokerage account. In that account may be stocks, bonds, some cash, etc. So, income from the brokerage account would be dividends, interest on the bonds, interest on the cash account – in other words, whatever type of income one would normally earn on an investment account. All of that income would be paid from the Trust to the Applicant – monthly, quarterly, semi-annually, however often the Applicant wants it.
You may be also asking: what happens if the Applicant needs more than just the income from the Trust? What happens if the Applicant needs some of the principal from the Trust? Just because we said above that paying principal from the Trust to the Applicant makes that principal available to Medicaid (which it does), it is not impossible to get some portion of the principal back to the Applicant. This is where the Trustee(s) and Beneficiary(ies) come into play.
A Medicaid Irrevocable Income-Only Trust agreement generally provides that, although the Trustees cannot pay principal to the Applicant, the Trustees may pay principal to the Beneficiary(ies). Imagine the following further modification to the above scenario: In addition to the above, we know that the Trustees of the Trust are the Applicant’s two children. We likewise know that the Applicant’s two children are also the Beneficiaries of the Trust. In addition to paying the Applicant the net income from the Trust, the Trust agreement also allows the Trustees to pay to the Beneficiaries any portion they want of the principal of the Trust. This means that the Applicant’s children, as Trustees, can pay a portion (or all) of the Trust principal to themselves, as Beneficiaries, legitimately, pursuant to the terms of the Trust agreement. And, if the Beneficiaries, as the Applicant’s children, choose to give to their father, the Applicant, all or some portion of the principal they received from the Trust, then that’s their business and they do not need to explain anything to Medicaid.
So, with the Medicaid Irrevocable Income-Only Trust, the Applicant has protected the brokerage account, as follows: The Applicant transferred the brokerage account to the Trust; the Applicant will keep the same amount of income from the Trust as he had been receiving from the account before he transferred it to the Trust; none of the principal will be available to Medicaid; but, if the Applicant ever needs principal, then his children can decide at that time to give him some.
Here are a few points to consider when using a Medicaid Irrevocable Income-Only Trust:
- A Medicaid Irrevocable Income-Only Trust-based plan should only be considered with the help of a qualified Elder Law attorney.
- Penalty periods and look-back periods are real, but only in the world of nursing home Medicaid benefits.
- A Medicaid Irrevocable Income-Only Trust based plan should be contemplated with great caution if there is a real risk of imminent nursing home care.
The Medicaid Irrevocable Income-Only Trust is only one tool in the Medicaid planning toolbox. If you would like to learn more about Medicaid Irrevocable Income-Only Trusts and other types of Medicaid planning, or have questions regarding the above, please contact us at (877) 207-6803 or firstname.lastname@example.org.
Whether you are called an executor or administrator, or anything in-between, your job is relatively the same. Marshal the assets of the estate, pay the legitimate claims of the decedent, dispose of the illegitimate claims against the decedent, distribute the net estate pursuant to the terms of the dispositive instrument and/or state law, as the case may be, prepare the necessary estate tax return(s), and file an inventory with the court.
1.Marshaling the assets of the estate.This entails:
a.notifying the decedent’s asset companies – banks, credit unions, brokerage companies, financial institutions, etc. – of the decedent’s death.
b.opening a checking account in the name of the estate – e.g., “Estate of John Doe” – so that you will have access to estate money to pay the estate expenses. You will need the Taxpayer Identification Number to open accounts in the name of the estate.
c.liquidating assets for deposit into the estate checking account or determining whether assets can be re-titled into the name of the decedent’s estate;
d.notifying the decedent’s income sources. If the decedent was working, contacting HR at the decedent’s employment to arrange for back pay and future pay.
e.contacting benefits companies – retirement accounts, annuities, life insurance, etc. – and receiving the forms. If the decedent/estate is not the beneficiary of these accounts, the asset company will likely not talk to you. In that case, you merely should inform the beneficiaries of the existence of the account and who to contact to get the proper form(s).
To locate decedent’s assets, you should get and thoroughly review the decedent’s:
ii.financial statements, including premium statements (e.g., insurance policies, annuity contracts, etc.);
iii.checkbooks and passbooks;
iv.safe deposit boxes;
v.income tax returns (speak with the decedent’s accountant or use Form 4506-T to get a copy of the decedent’s income tax returns);
vii.unclaimed funds in the states where the decedent lived.
2.Pay the legitimate claims against the decedent.This entails:
a.contacting the decedent’s credit card companies, notifying them of the decedent’s death, and determining how much is owed.
b.canceling the decedent’s expense accounts (e.g., utilities, credit cards, cable, cell phone, subject to the needs of the family).
c.determining if the decedent had any private debt (e.g., private loans, IOUs, etc.
d.identifying the decedent’s real property and determining the proper debt of the property – e.g., mortgage payments, real estate taxes, co-op maintenance, homeowner association dues, etc.
e.making arrangements to pay the legitimate, unavoidable debt.
f.Weeding out the illegitimate claims and/or determining which debt will not have to be paid back.
3.Dispose of the illegitimate claims against the decedent.This entails:
a.Deciphering the real debt versus the fake debt.
b.What to do when you receive a claim against the estate? A claim filed against an estate does not, on its face, mean anything. You need to determine whether the claim is legitimate or illegitimate. If illegitimate, you do not need to respond. It is not your duty to perfect the creditor’s claim. A claim ignored is a claim rejected. If rejected, the creditor will have to bring a proceeding, typically an accounting proceeding, to prove the claim is legitimate. Regardless, however, you are precluded from distributing the net estate (see Paragraph 4(a) below) until the claim is disposed of, or, at least, leave enough cash in the estate to pay the claim, if necessary.
4.Distribute the net estate pursuant to the terms of the dispositive instrument and/or state law, as the case may be.
a.A creditor of the decedent has seven (7) months from the date Letters are issued (or, on or before the date fixed in the published notice to creditors) to file a claim against the estate. That does not mean the creditor is necessarily out-of-luck if a claim is filed against the estate after the seven (7) months, if there is value left in the estate. In other words, you should not distribute anything from the estate until the expiration of the seven (7) months. If you make a distribution from the estate before the expiration of the seven (7) months, and if the claim against the estate is legitimate, then you will have to get back enough from the beneficiaries to pay the claim. If you are is unable to get back enough from the beneficiaries to pay the claim, then you may be personally liable for the claim. If, however, you make a distribution from the estate after the expiration of the seven (7) months but before a claim against the estate is filed, then you do not have to get anything back from the beneficiaries. The onus is on the creditor to file his, her, or its claim within the seven (7) months. If, on the third hand, the creditor files a claim against the estate after the expiration of the seven (7) months but before you distribute the estate, the creditor can have his, her, or its claim (if a legitimate claim) paid out of the estate (or whatever is left of the estate).
b.Once the assets of the estate have been marshaled, the legitimate claims of the decedent paid, the illegitimate claims against the decedent disposed of, you can distribute the net estate pursuant to the terms of the dispositive instrument and/or state law, as the case may be. If a testamentary trust(s) is created under the terms of the Will, then you will create the trust account and hand the assets of the trust over to the trustees of the trust. If distributions to the beneficiary(ies) are outright under the terms of the Will, then you will make arrangements with the beneficiary(ies) to take possession of the assets.
5.Prepare the necessary estate tax returns.Currently, the NYS estate tax exemption amount is $4,187,500. The federal estate tax exemption amount is $5,450,000. If the decedent’s taxable estate (as opposed to probate estate) is greater than $4,187,500, then you must prepare and file the decedent’s NYS estate tax return and pay whatever NYS estate tax is due. If the decedent’s taxable estate is greater than $5,450,000, then you must prepare and file the decedent’s NYS estate tax return and federal estate tax return and pay whatever NYS and/or federal estate taxes are due. Federal and NYS estate tax exemption amounts will increase until 2019, at which time it is expected that the two rates will become equal.
6.File an inventory with the court.Once the assets of the estate have been marshaled, the legitimate claims of the decedent paid, the illegitimate claims against the decedent disposed of, and the net estate has been distributed pursuant to the terms of the dispositive instrument and/or state law, as the case may be, you must file an inventory of assets with the court. You cannot be discharged from your duties without filing an inventory of assets and failure to file an inventory of assets will (eventually) lead to revocation of Letters. If an estate tax return was filed for the decedent’s estate, you can attach the estate tax return to the Inventory of Assets without having to complete the entire form for the Inventory of Assets.
Top Mistakes Fiduciaries Make (Liability Landmines).
1.The common (but not small) mistakes:
a.Not marshaling all of the assets.
b.Not determining all of the debt.
c.Not disposing of all of the debt.
d.Not paying the expenses on time, including the estate taxes owed by the decedent’s estate.
e.Making distributions prior to the seven (7) months.
f.Paying the decedent’s creditors without confirming the claim(s).
g.Not listening to the beneficiary(ies) of the estate.
h.Not heeding the concerns or needs of the beneficiary(ies) of the estate.
2.The subtle mistakes:
a.Not investing the assets of the decedent’s estate properly.
b.Not continuing or winding down the decedent’s business.
c.Taking too long to administer the decedent’s estate.
3.The BIG mistakes:
a.Wasting (or acting negligently with) the assets of the estate.
c.Self-dealing with the assets of the estate.
d.Embezzling the assets of the estate.
When navigating through estate and trust administration, the good fiduciary must be aware of his or her role, as well as his or her duties to the decedent, the decedent’s estate, and the beneficiaries of the decedent’s estate. Estate, Will, and trust conflicts will arise even in the best of estate plans. A fiduciary should not compound the problem by creating further conflict, or being the reason for the conflict.
If you would like to discuss your role as fiduciary of the estate, or need assistance in representing an estate, call us at (877) 207-6803.
Your home may be hiding a significant amount of cash that could otherwise be used to pay for such things as household expenses, renovations, travel, or retirement expenses. A Reverse Mortgage allows a homeowner to convert the available equity in the home to cash. The cash from a Reverse Mortgage could also be used to pay for long-term care.
To qualify for a Reverse Mortgage, the homeowner(s) must be at least 62 years old, and must reside in the home. The Reverse Mortgage typically does not have to be repaid until the last homeowner dies, sells the home, or moves out of the home.
With a Reverse Mortgage, the homeowner(s) receives a lump sum of money from the lender. The amount received by the homeowner(s) is based on the value of the home, the age of the homeowner(s), and current interest rates.
For a client in need of quick cash to finance long-term care, a Reverse Mortgage may be a great idea. However, for those clients that wish to pass on their home to their loved ones, it probably will not be. With a Reverse Mortgage, there is no obligation on the homeowner(s) to make monthly payments. Interest on the loan is tacked onto the outstanding balance of the loan. At the time the loan becomes due (e.g., when the last homeowner dies, sells the home, or moves out of the home) the lender gets paid the original amount borrowed plus all of the accrued interest. The potential for exposure is if the house value is out-stripped by the outstanding balance on the loan. However, Reverse Mortgages are non-recourse loans. This means that the homeowner(s) is not responsible for the unpaid balance of the loan if there is not enough value in the home to satisfy the outstanding balance. So, even though the homeowner(s) would not be able to pass the home onto his or her loved ones, the homeowner’s(s’) loved ones are not obligated to make the lender whole.
Disadvantages of the Reverse Mortgage include the possibility that the homeowner will not be able to pass the home onto loved ones; the forced sale of the home in the event the homeowner moves out (e.g., into a nursing home); and the closing costs – which are higher than normal closing costs on conventional mortgages/home equity loans. Reverse Mortgages are usually offered by commercial financial institutions. The typical Reverse Mortgage is offered as a line of credit, but it is not required. This means that the Reverse Mortgage proceeds, although still offered as a lump sum, are instead deposited into the financial institution’s account for the homeowner. When the homeowner needs money from the account, the line of credit dispenses the amount. One of the advantages of this program is that the money is protected, even invested for the homeowner, and the homeowner does not incur interest on the amount borrowed until actually received by him or her. However, one of the disadvantages of this program is that the homeowner does not receive his or her financing right away but has to set up a system with the financial institution whereby the homeowner can make withdrawals from the line of credit account. Plus, because the closing costs are paid out of the loan proceeds, the homeowner already has an amount outstanding from day one. Many times, the homeowner is unaware that he or she is already accruing interest on this amount, especially when the homeowner does not withdraw any money from the line of credit.
Another disadvantage is the treatment of Reverse Mortgages for government benefit purposes. For most Medicaid applicants/recipients, Reverse Mortgages are disregarded as income but countable as a resource if the proceeds from the Reverse Mortgage are kept beyond the month received, but this may be inconsistent with state law. However, if the Reverse Mortgage is in the form of an annuity, then the annuity payments are unearned income in the month received and a resource thereafter.
If you would like to learn more about reverse mortgages, and how the Law Offices of Jeffrey A. Asher, PLLC, can help you, please contact us at (877) 207-6803 or email@example.com.
Long-term care (LTC) insurance is becoming more and more vital to getting quality long-term care for ourselves and our loved ones when it is needed most.
An LTC insurance policy should be discussed as part of an overall Elder Care plan to provide full and complete long-term care for you and/or your loved ones.
We should be concerned about our long-term care options. We deserve and are entitled to the best care we can get along with the ability to pay for such care. LTC insurance is designed to provide the financing to pay for home care services and long-term living arrangements, such as assisted living facilities or skilled nursing facilities. Additionally, by ensuring that we will get the care that we need, and have it paid for by the LTC insurance company under the terms of the LTC insurance policy, we will make sure that our loved ones act as our caregivers by choice not by obligation.
Take a few moments to discuss your long-term care options with your Elder Care attorney. Ultimately, your Elder Care plan may or may not include LTC insurance. But, you will be better off for asking the right questions of the right professionals, than not fully understanding your rights and options when it comes to your own long-term care.
The firm’s Elder Care Department works with its clients in connection with their long-term healthcare decisions, disability protections, and need for advanced medical directives. We also represent individuals and assist them in obtaining Medicare and Medicaid benefits to pay for long-term home care and nursing home care.
If you would like to learn more about long-term care planning, and how the Law Offices of Jeffrey A. Asher, PLLC, can help you, please contact us at (877) 207-6803 or firstname.lastname@example.org.
Health Care Proxies for minor children
As thoughts of the long winter leave us and as the weather outside turns nice, some may begin to think about travel. Whether it is day trips, going away over a long weekend, or full blown vacations, one thing people rarely think of is health care decision-making for minor children. But, maybe you should.
A few years ago, my wife and I were away for a short vacation. Our children – our daughter, 7, and our son, 3 – were staying with my parents. During their stay, our daughter had a very minor health scare and my parents took her to the ER. The admissions nurse took down my parents’ information, but because they were the grandparents, the admissions nurse questioned what authority they had to make health care decisions.
That’s a typical scenario – and maybe a scary one. Especially if the parents are away and not able to be reached quickly. Or, if the health scare was something worse. Lucky for us, the health scare was minor AND my wife and I had signed a Health Care Proxy appointing my parents as health care decisions makers while we were on vacation. So, when the admissions nurse asked what authority my parents had to make health care decisions for their granddaughter, my parents were able to show her the Health Care Proxy we had signed and there were no further issues.
Granted, we were in constant communication with my parents and were rushing back home to be there. But, what if we could not be there quickly? What if the doctor’s office could not reach us? What if my parents did not have the Health Care Proxy form? Likely, the hospital would have still cared for our daughter, but there would have been a lot of uncertainty, a lot of stress, and a lot of anxiety as we made our way to the hospital.
The point is that it was a simple document that saved hours of aggravation. When we arrived at the hospital, our daughter was being cared for, my parents were fully in charge, but we were able to take over now that we were there.
That’s the kind of Protection, Security, and Peace of Mind proper estate planning gives you.
The Internal Revenue Service has issued the 2015 long-term care insurance premium deductibility limits.
Long-term care insurance is becoming more and more vital to getting quality long-term care for ourselves and our loved ones when it is needed most. Having the increased income tax deduction will make it easier for people to afford long-term care insurance. You should factor the availability of the deduction into your calculation whether long-term care insurance is the right choice for you and/or your loved ones. Generally, my advice to our clients is that long-term care insurance is ALWAYS a good idea provided that you can afford it. Now, with the increased deduction limits, and the fact that you can treat premiums paid for long-term care insurance for yourself, your spouse or any tax dependents (such as your parents) as a personal medical expense, long-term care insurance just became a much more worthwhile option for many of our clients.
Personal medical expenses, reported as itemized deductions on your individual income tax return, are deductible to the extent that they exceed 7.5% of your Adjusted Gross Income (AGI). The portion of the long-term care insurance premium that is allowed as a medical expense in 2015 (and the change from 2014) is shown in the table below.
Attained Age Before Close of Taxable Year
40 or below
Above 40 but not older than 50
Above 50 but not older than 60
Above 60 but not older than 70
Older than 70
To fit within the increased deduction limits, the long-term care insurance policy must be a “qualified” policy. A “qualified” policy, issued on or after January 1, 1997, satisfies certain requirements within the policy details. For example, policies that offer optional provisions for “inflation” and “nonforfeiture” protections are qualified policies. Policies purchased before January 1, 1997 are grandfathered into the new deduction limits, and will be treated as “qualified,” provided that they policies have been approved by the insurance commissioner of the state in which they are sold.
Taxation of Benefits: Benefits from reimbursement policies – policies that pay for the actual services a beneficiary uses – are not included in taxable income. Benefits from indemnity policies – policies that pay a predetermined amount each day, or otherwise called “per diem policies” – are likewise excluded from taxable income, except to the extent that the per diem amount received exceeds the beneficiary’s total qualified long-term care expenses per day. The per-diem limitation for periodic payments received under a qualified long-term care insurance contract for 2015 remains at $330 (the 2014 limit was also $330).
Planning Tips: Long-term care insurance may be expensive, but there are things you can do to minimize the cost. For example, some long-term care insurance companies offer a “shared care” policy where husband and wife can share the benefit pool under one long-term care insurance policy. With a shared care policy, the pool of benefits is split between you and your spouse. This is especially helpful when there is a difference in ages between the spouses.
The most significant way to reduce the cost of long-term care insurance is think about how long you will need the policy. First, unless you have a family history that includes specific, long-term illnesses, the typical insured under a long-term care insurance plan is not likely to need coverage for more than five or six years. Second, when combined with a viable Medicaid plan, long-term care insurance is only required for a five- or six-year period. By limiting coverage to approximate a five- or six-year period, you can save thousands of dollars in premiums.
Medicaid Planning: A long-term care insurance policy is typically combined with a legal and ethical Medicaid plan to provide full and complete long-term care for you and/or your loved ones. Everyone is entitled to Medicaid-funded long-term care; eligibility for the government benefit is a different question. Eligibility for benefits depends on both a medical qualification and financial qualification. The Law Offices of Jeffrey A. Asher, PLLC, will assist you with the financial eligibility question and get you and/or your loved ones Medicaid benefits when appropriate.
The best way to keep Medicare covered skilled maintenance care in place is to know your loved one’s rights and have the support of your loved one’s physician. Your loved one should not lose access to therapy because he or she will not improve or because he or she has reached the financial cap.
Here is the typical scenario:
Your love one is receiving skilled nursing care, home health services, or other certain types of therapy. Medicare Part B is paying for this care because it is provided by a skilled professional (a physical, occupational, or speech therapist) or in a qualified facility. You are told that the care will be discontinued because your loved one has “plateaued,” returned to “baseline,” is “maintenance only,” or requires only “custodial care.” You believe your loved one continues to need, and will continue to benefit from, the provided care.
Facilities and skilled care providers sometimes try to convince Medicare beneficiaries that Medicare coverage for their care may be denied on the grounds that they are not likely to improve, or are “stable,” or “chronic,” or require “maintenance services only.” These are not legitimate reasons for Medicare denials. Even if full recovery or medical improvement is not possible, a patient may need skilled services to prevent further deterioration or preserve current capabilities.
First, tell the facility that they’re wrong and ask them to reconsider the termination of benefits.
The 2013 settlement of Jimmo v. Sebelius, a federal classaction lawsuit, means that Medicare can no longer deny coverage for skilled nursing care, home health services, or other maintenance services because the patient or resident reaches a “plateau” and their condition is not improving. This allows people with Medicare who have chronic health problems and disabilities to get the skilled maintenance care they need, for as long as they need it, if they meet other coverage criteria.
As of December 6, 2013, the Centers for Medicare and Medicaid Services (CMS) Policy Manuals have been updated to reflect the settlement provisions. The manuals now make it clear that improvement is not necessary for coverage of physical, occupational, and/or speech therapy. What matters is the need for care to maintain or slow deterioration of the individual’s condition.
The intent of the Jimmo v. Sebelius settlement was to clarify Medicare’s longstanding policy that when services are required in order to provide care that is reasonable and necessary to prevent or slow further deterioration, coverage cannot be denied based on the absence of potential for improvement or restoration.
When talking with the facility, try to keep your loved one’s care in place. Medicare pays for care that has been prescribed. It does not pay for care that should have been prescribed. Once your loved one’s care is discontinued, it will be essentially impossible to reinstate the care without a Medicare appeal. The first step, therefore, is to keep the care in place. When services are terminated, your loved one’s long-term health may be endangered.
Second, contact your loved one’s doctor and ask him or her to order more care.
Therapists work under the orders of physicians. If the physician ordered three therapy sessions, the therapist will discharge your loved one after three therapy sessions. If you do not think your loved one is ready for the discharge, contact your physician and ask him or her to order more care.
Medicare will only pay for services if the services are medically reasonable and necessary. Unfortunately, for a long time, many believed that Medicare would only cover therapy if the patient would improve significantly in a short period of time. The use of this illegitimate standard, known as the “Improvement Standard”, caused patients with chronic conditions to lose access to reasonable and necessary medical care.
Ask your physician to write a letter explaining why your loved one’s services was, and still is, medically reasonable and necessary, including information about possible medical harm that might occur if your loved one does not receive the services. If possible, also include a letter supporting the claim from the treating therapist (even though this is sometime difficult because the therapist may work for the facility who is terminating services).
Because of the devastating effect of the improvement standard on the lives of people living with chronic conditions, the Jimmo v. Sebelius settlement stated that Medicare coverage does not require actual or even the possibility of improvement.
Third, show the facility the new materials published by the Center for Medicare and Medicaid Services (CMS) following the Jimmo v. Sebelius settlement.
CMS published the following, clarifying that maintenance therapy is covered by Medicare:
2. CMS Transmittal 179 – Manual Updates to Clarify Skilled Nursing Facility (SNF), Inpatient Rehabilitation Facility (IRF), Home Health (HH), and Outpatient (OPT) Coverage Pursuant to Jimmo vs. Sebelius.
3. CMS Medicare Learning Network Notice on Manual Updates to Clarify Skilled Nursing Facility (SNF), Inpatient Rehabilitation Facility (IRF), Home Health (HH), and Outpatient (OPT) Coverage Pursuant to Jimmo vs. Sebelius.
If your loved one’s therapy is ending because your loved one’s therapist or facility believes your loved one will not improve or not improve quickly enough, but also thinks that continued care is necessary to maintain your loved one’s condition or slow determination, give the therapist or facility a copy of the CMS publications listed above. In addition, ask your loved one’s physician to give the therapist and/or facility copies of published research or clinical guidelines from professional sources supporting the medical benefit of maintenance therapy for your loved one’s medical condition. This information, in combination with the Jimmo settlement, should convince your loved one’s therapist to continue maintenance therapy and bill Medicare.
Fourth, know what to say when the therapist and/or facility claims services are denied because of the annual Medicare payment cap.
Your loved one’s therapist or facility might discharge your loved one from services because he or she reached the annual Medicare payment cap. If your loved one continues to need skilled maintenance care, you should ask your loved one’s therapist or facility to bill the ongoing care through the “Exceptions Process”. To support your loved one’s need for ongoing care and in case Medicare denies payment for the care; the therapist and/or the facility should obtain documentation from the medical literature or guidelines from professional sources supporting your loved one’s need for ongoing therapy. Your loved one’s physician may be able to help locate this literature.
If the steps above do not succeed and Medicare denies coverage, and you continue therapy, paid by you or another agency, the denial can be appealed through the Medicare Part B appeals process.
Fifth, if maintenance therapy is denied, consider appealing.
If your loved one’s Medicare Summary Notice (MSN), or the service provider, indicates that your loved one’s care has been denied coverage, look to see whether your or your loved one, or the provider, has been held financially responsible. If you or your loved one have been held financially responsible, you should certainly appeal.
If the therapy provider has been held financially responsible, and you want to get more therapy of a similar kind, you should also appeal.
The need for legal advice and estate planning for same-sex couples is more critical now after the Supreme Court’s recent decision striking down DOMA.
The Supreme Court’s recent decision in United States v. Windsor struck down the Defense of Marriage Act of 1996 (DOMA), the federal law that prohibited the federal government from recognizing same-sex marriages legalized by the states, and which allowed states to refuse to recognize same-sex marriages performed under the laws of other states.
DOMA contained two operative provisions: Section 2 of DOMA allows states to refuse to recognize same-sex marriages performed under the laws of other states. Section 3, which was the subject of the challenge before the Supreme Court, defined “marriage” and “spouse” as excluding same-sex partners.
While DOMA did not, by its terms, forbid states from enacting laws permitting same-sex marriages or civil unions or providing state benefits to residents in that status, its definition of marriage for purposes of more than 1,000 federal laws, regulations, and/or directives effectively denied federal benefits to same-sex married couples.
The Supreme Court’s decision in Windsor held that DOMA’s operation in practice created two different classes of married couples in states that allow same-sex marriage. As the Court said, “same-sex couples were forced to live as married for the purpose of state law but unmarried for the purpose of federal law,” thus diminishing the stability and predictability of a basic personal relationship the state found proper to acknowledge and protect. And because DOMA’s principal purpose and practical effect was to create inequality amongst state-sanctioned marriages whereby federal law is normally supposed to create equality amongst US citizens, the Supreme Court struck down DOMA as unconstitutional.
This means that for the first time, same-sex married couples, and their families, are entitled to various federal benefits they otherwise were denied because of DOMA. For example, same-sex spouses of government employees are now entitled to government healthcare benefits without additional costs and taxes. Same-sex married couples are now able to file jointly on their federal income tax returns – no longer forced to file state income tax returns one way and federal income tax returns another. Same-sex married couples are now able to inherit federal pensions and retirement accounts the same way opposite-sex married couples can. Same-sex married couples may now be buried together in veterans’ cemeteries. Same-sex married couples are now entitled to the Bankruptcy Code’s special protections for domestic-support obligations.
The Supreme Court’s decision in Windsor also guarantees Social Security benefits to families upon the loss of a spouse and parent, benefits that were previously denied because of DOMA’s far-reaching effects. It also serves to resolve problems in immigration cases where same-sex couples may have been legally married but the federal government, through DOMA, refused to acknowledge the marriage.
The Supreme Court’s decision also allows same-sex married couples the benefit of the federal marital deduction, thus potentially saving millions of dollars in federal estate and gift taxes.
Federal estate and gift tax law enables married couples who are US citizens to make both lifetime gifts and testamentary bequests to one another entirely tax free. These gifts may be made in unlimited amounts and may be made outright or in trust, all because of the federal dollar-for-dollar marital deduction. However, the marital deduction requires that the spouses be legally married. Prior to the Supreme Court’s decision in Windsor, same-sex couples were not entitled to the federal unlimited marital deduction because they were not legally married in the eyes of the federal government. However, with the demise of DOMA, a same-sex married couple would be entitled to the same federal marital deduction as an opposite-sex married couple, thus paving the way for same-sex married couples to properly and effectively plan their estates to save as much in federal estate and gift taxes as opposite-sex married couples already do.
So, if you, or a loved one, need our guidance and support to know what you or they are entitled to, now that DOMA is no more, please call us. Whether it is a new Will to make sure the federal marital deduction is applied, or new trusts to ensure more effective and comprehensive estate tax savings, it is time to take advantage of the tried and true estate planning techniques that, until the Supreme Court’s decision in Windsor, have only been available to opposite-sex married couples.
If you would like more information on how the Law Offices of Jeffrey A. Asher, PLLC, can help you, please contact us at (877) 207-6803 or at email@example.com.
Generally, transfers between spouses are free of federal estate and gift taxes, provided that the recipient-spouse is a U.S. citizen. These tax-free transfers are authorized under the so-called “marital deduction” regulations of the applicable federal gift and estate tax laws.
Where the recipient-spouse is not a U.S. citizen, the marital deduction for estate and gift taxes is eliminated. The deceased spouse’s estate will be taxed on the value of property left to a non-U.S. citizen spouse in excess of the deceased spouse’s available estate tax exemption, unless special language is included in the deceased spouse’s Last Will and Testament or Revocable Living Trust or a special tax election is made at the deceased US citizen spouse’s death.
For example, Husband (H) and Wife (W) are a married couple. H is a U.S. citizen. H leaves all of his property that he owns at his death to W. If W is a U.S. citizen, then H’s estate is not liable for any estate taxes. However, if W is not a U.S. citizen, H’s estate will be responsible for the estate taxes imposed on the value of the property passing to W in excess of the estate tax exemption amount.
In the case of lifetime transfers to a non-citizen spouse, the normally unlimited marital deduction is restricted for federal gift tax purposes. In that case, an individual may transfer up to $133,000 annually (as of 2009) to a non-citizen spouse without gift taxes being imposed, provided the gift would otherwise qualify for the marital deduction (for example, a gift of a future interest in property would not qualify).
For example, in 2009 H transfers property valued at $500,000 to his wife, W, a non-U.S. citizen. The transfer to W is fully reported on H’s 2009 gift tax return. However, gift taxes are only paid on $367,000 – the portion that exceeds the $133,000 exemption.
The conclusion, as it pertains to many of our clients, is that there may be significant consequences of giving property to a non-citizen spouse, both at death and during life. If you are, or are married to, a non-U.S. citizen spouse, then special estate planning is needed to minimize the estate and gift taxes your estates will pay.
Issues Facing Clients with Real Estate in More Than One State
If you own real estate in more than one state (New York and Florida, for example) you may need to probate your Will or administer your estates in each state. And while we may be able to represent you in our state, depending on the state, we may need to hire a local attorney to help us with the probate in the “other” state.
When a person owns real estate in his or her sole individual name (i.e., the deed is titled in the individual name of the owner), the real property has no direction and no instruction on how to be distributed to the next owner. To give you an idea, real property owned by husband and wife, as “joint tenants with right of survivorship”, passes to one or the other by operation of law upon the death of one owner. This is because the title on the deed contains the instruction that the surviving joint owner becomes the sole owner of the property following the death of the other joint owner.
However, what happens when the real property is only owned by one person, or by multiple people as “tenants in common” (i.e., not as joint owners)? In that case, there is no instruction written into the deed registration like there is with “joint” property. The deceased person’s ownership interest passes to his or her heirs at law. As such, the local court must get involved. That means time and money to the estate.
This predicament can be resolved with proper asset ownership (e.g., joint ownership versus individual ownership), an enlightened and educated family, or with the use of certain types of trusts the most popular of which is the Revocable Living Trust.
The language of the Revocable Living Trust agreement itself directs who gets the real property, and does not typically need the involvement of the local court or the hiring of local counsel. Because the Revocable Living Trust agreement, rather than a Will, owns your assets and directs how those assets will be distributed, you can avoid probate. As you can see, your loved ones will receive their inheritances faster, and won’t have to pay all of the costs associated with probate.
Get Your Legal and Financial Houses in Order
(1) Health and Financial Documents, (2) Death and Distribution Documents, and (3) Elder Care Plan. These are not necessarily in order, but should be accomplished at the same time and as part of the same comprehensive Elder Care Plan created with a qualified Elder Care attorney.
Health and Financial Documents:
These are generally the Health Care Proxy (known sometimes as a Durable Power of Attorney for Health Care), the Financial Power of Attorney, the Living Will, the Designation of Guardian, and the DNR. The purpose of these documents is to evidence in writing the wishes and decisions of the loved one themselves vis-à-vis health care and financial decisions, so that the burden is lifted from the caregiver and/or the loved one’s family.
For a loved one diagnosed with Alzheimer’s disease, or other similar progressive disease, issues of health care will dominate the rest of his or her life. At the beginning, decisions may be easy because they can still be made by the parent diagnosed with the disease. However, as the disease takes its course, the parent will slowly (although sometimes quite quickly) be unable to make these decisions for himself or herself. The Health Care Proxy (or otherwise in some fashion known as a Durable Power of Attorney for Health Care) is used to name an alternative decision maker for health care purposes. If the parent becomes unable to make his or her health care decisions, then the Agent under the Health Care Proxy would be able to make those decisions. Without a Health Care Proxy, on the other hand, the hospital, nursing home, long-term care facility would have to rely on the decisions of the spouse and if there is no spouse, the unanimous decisions of the children. However, if the hospital, nursing home, long-term care facility found reason to doubt the motive or sincerity of the spouse, or if there was disagreement among the children, or there was no one else to make these health care decisions, then the hospital, nursing home, long-term care facility may insist upon a guardianship to sort out the differences. This is not a good solution. In fact, this is not any solution. This is an example of what happens when you don’t plan properly.
Going hand-in-hand with the Health Care Proxy is the Authorization for Release of Health Information Pursuant to HIPAA, or otherwise called the HIPAA Privacy Release. HIPAA, or the Health Insurance Portability and Accountability Act provides, in small part, that a person’s personal medical information is private to him or her and may not be disclosed by certain health care providers, without being authorized to do so by the patient. This document is extremely important when facing disability issues, such as Alzheimer’s disease, since without it and without the loved one’s consent the health care provider would be powerless to release, much less discuss, the private medical information.
The financial Power of Attorney (either “Springing” or not) is similar to the Health Care Proxy, to wit: it names an alternative decision maker for financial purposes. A standard Power of Attorney is effective the moment that it is signed by the necessary parties, whereas the “Springing” Power of Attorney is effective upon some occurrence in the future. That occurrence is typically the principal’s mental disability as noted by the principal’s doctor(s).
The Living Will is a document which evidences the maker’s intent to either be kept alive by heroic and life-sustaining measures in the event he or she has no hope of survival without such measures. Or, the Living Will evidences the maker’s intent to be kept off of and away from the same heroic and life-sustaining measures. Many people believe that a Living Will is only necessary if you do not want to be “kept alive on a machine,” but what if you do want to be kept alive and no one knows. Use the Living Will to make sure that everyone knows.
The Designation of Guardian is a document whereby it expresses the maker’s selection for Guardian if all other planning fails. In a Guardianship proceeding the selection of Guardian is left to the Judge. Although the Judge will still make the final decision, it would be nice if the Court knew that the incapacitated person had a preference for Guardian and evidenced that preference in a Designation of Guardian before he/she became incapacitated.
And finally the DNR – or Do-Not-Resuscitate Order. There are two kinds: A Hospital DNR, or one that is issued while the person is in a hospital or other facility, and the Non-Hospital DNR, or one that is issued while the person is not in a hospital or other facility. Whether the person needs a Hospital DNR or a Non-Hospital DNR, one this is absolutely clear – this is not a document that can be requested of or provided by an attorney. A DNR can only be issued by a doctor, and so the family must discuss this issue with the doctor and medical staff. If the medical staff believe that it is appropriate, then they will work with the family to have a DNR issued.
Death and Distribution Documents:
These would be the Will, Trusts, and the burial fund. The Will and any Trusts should be self-explanatory – they are used to make sure that assets remaining after the parent dies are passed down to whomever they are intended, at the most minimal of costs and effort. Trusts are also used in connection with Elder Care Planning, which I will discuss in the next section.
Burial funds are very important since now is the time to create them. Waiting for the parent to become incapacitated is not going to help with this inevitable decision. Burial must take place. It is better to set it up now, and pay for it, while the parent is alive and well and can make his or her decisions. Of course, if the conversation will add unnecessary stress to an already frail mind and body of the parent, then don’t have the conversation. But, still set up the burial fund with your preferred funeral home. As with Trusts, burial funds are useful in Elder Care Planning, especially as it relates to Medicaid planning. In that context, the only thing to keep in mind about burial funds is that in order for them to be exempt from Medicaid’s reaches, the funds must be placed in an irrevocable “Medicaid compliant” burial account or pre-need funeral arrangement.
Elder Care Plan:
This usually entails a comprehensive plan to arrange for and coordinate the elder parent’s appropriate living arrangement. This may be at home with a home health aide or attendant, or in a nursing home, or anything in between. The question that is most often posed is this … how can we pay for the care without either spending all of our money or losing our home? These are good questions, especially after spending the better part of an adult lifetime earning and saving the money. The bottom line is Medicare and Medicaid. The third part of “GET YOUR LEGAL AND FINANCIAL HOUSES IN ORDER” is sometimes the most important. The reason is because this part must be answered by a qualified Elder Care attorney, who if he/she is truly qualified and knowledgeable would be able to capably assist with both Part One (Health and Financial Documents) and Part Two (Death and Distribution Documents) of “GET YOUR LEGAL AND FINANCIAL HOUSES IN ORDER”.
With that said, a qualified Elder Care attorney will help the family arrange for the appropriate living arrangements, will advise the family on the selection of home health care agency, and may work toward getting Medicare, Medicaid and other government benefits as applicable and appropriate. Medicaid planning is not inappropriate per se – as in wrong – but it must be appropriate for the client and his/her circumstances and needs. There are many tried and true techniques and planning options in getting Medicaid to pay for the home care or the nursing home care. But, because Medicaid is a need-based welfare program, the applicant must qualify both medically and financially. Medically qualified merely means that the applicant is in need of home care or nursing home services and Medicaid agrees. Financially qualified means that the applicant has no more than a certain level of assets and/or income, and has not made any transfers that would otherwise disqualify the applicant from Medicaid benefits. The level of assets and/or income changes depending on whether home care or nursing home care is needed, and the types of transfers that would disqualify an applicant are complicated and best explained by the qualified Elder Care attorney.