In planning your estate, you most likely have concerned yourself with “big picture” issues. Who inherits what? Do I need a living trust? However, there are numerous details that are often overlooked, and which can drastically impact the distribution of your estate to your intended beneficiaries. Listed below are some of the most common overlooked estate planning issues.
Liquid Cash: Is there enough available cash to cover the estate’s operating expenses until it is settled? The estate may have to pay attorneys’ fees, court costs, probate expenses, debts of the decedent, or living expenses for a surviving spouse or other dependents. Your estate plan should estimate the cash needs and ensure there are adequate cash resources to cover these expenses.
Tax Planning: Even if your estate is exempt from federal estate tax, there are other possible taxes that should be anticipated by your estate plan. There may be estate or death taxes at the state level. The estate may have to pay income taxes on investment income earned before the estate is settled. Income taxes can be paid out of the liquid assets held in the estate. Death taxes may be paid by the estate from the amount inherited by each beneficiary.
Executor’s Access to Documents: The executor or estate administrator must be able to access the decedent’s important papers in order to locate assets and close up the decedent’s affairs. Also, creditors must be identified and paid before an estate can be settled. It is important to leave a notebook or other instructions listing significant assets, where they are located, identifying information such as serial numbers, account numbers or passwords. If the executor is not left with this information, it may require unnecessary expenditures of time and money to locate all of the assets. This notebook should also include a comprehensive list of creditors, to help the executor verify or refute any creditor claims.
Beneficiary Designations: Many assets can be transferred outside of a will or trust, by simply designating a beneficiary to receive the asset upon your death. Life insurance policies, annuities, retirement accounts, and motor vehicles are some of the assets that can be transferred directly to a beneficiary. To make these arrangements, submit a beneficiary designation form to the financial institution, retirement plan or motor vehicle department. Be sure to keep the beneficiary designations current, and provide instructions to the executor listing which assets are to be transferred in this manner.
Fund the Living Trust: Unfortunately, many people establish living trusts, but fail to fully implement them, thereby reducing or eliminating the trust’s potential benefits. To be subject to the trust, as opposed to the probate court, an asset’s ownership must be legally transferred into the trust. If legal title to homes, vehicles or financial accounts is not transferred into the trust, the trust is of no effect and the assets must be probated.
The recent proliferation of online estate planning document services has attracted many do-it-yourselfers who are lured in by what appears to be a low-cost solution. However, this focus on price over value could mean your wishes will not be carried out and, unfortunately, nobody will know there is a problem until it is too late and you are no longer around to clean up the mess.
Probate, trusts and intestate succession (when someone dies without leaving a will) are governed by a network of laws which vary from state to state, as well as federal laws pertaining to inheritance and tax issues. Each jurisdiction has its own requirements, and failure to adhere to all of them could invalidate your estate planning documents. Many online document services offer standardized legal forms for common estate planning tools including wills, trusts or powers of attorney. However, it is impossible to draft a legal document that covers all variations from one state to another, and using a form or procedure not specifically designed to comply with the laws in your jurisdiction could invalidate the entire process.
Another risk involves the process by which the documents you purchased online are executed and witnessed or notarized. These requirements vary, and if your state’s signature and witness requirements are not followed exactly at the time the will or other documents are executed, they could be found to be invalid. Of course, this finding would only be made long after you have passed, so you cannot express your wishes or revise the documents to be in compliance.
Additionally, the online document preparation process affords you absolutely no specific advice about what is best for you and your family. An estate planning attorney can help your heirs avoid probate altogether, maximize tax savings, and arrange for seamless transfer of assets through other means, including titling property in joint tenancy or establishing “pay on death” or “transfer on death” beneficiaries for certain assets, such as bank accounts, retirement accounts or vehicles. In many states, living trusts, also called a revocable trust in CA are the recommended vehicle for transferring assets, allowing the estate to avoid probate. Trusts are also advantageous in that they protect the privacy of you and your family; they are not public records, whereas documents filed with the court in a probate proceeding are publicly viewable. There are other factors to consider, as well, which can only be identified and addressed by an attorney; no online resource can flag all potential concerns and provide you with appropriate recommendations.
By implementing the correct plan now, you will save your loved ones time, frustration and potentially a great deal of money. In most cases, proper estate planning that is tailored to your specific situation can avoid probate altogether, and ensure the transfer of your property happens quickly and with a minimum amount of paperwork. If your estate is large, it may be subject to inheritance tax unless the proper estate planning measures are put in place. A qualified estate planning attorney can provide you with recommendations that will preserve as much of your estate as possible, so it can be distributed to your beneficiaries. And that’s something no website can deliver.
Establishing a Life Estate is a relatively simple process in which you transfer your property to your children, while retaining your right to use and live in the property. Life Estates are used to avoid probate, maximize tax benefits and protect the real property from potential long-term care expenses you may incur in your later years. Transferring property into a Life Estate avoids some of the disadvantages of making an outright gift of property to your heirs. However, it is not right for everyone and comes with its own set of advantages and disadvantages.
Life Estates establish two different categories of property owners: the Life Tenant Owner and the Remainder Owner. The Life Tenant Owner maintains the absolute and exclusive right to use the property during his or her lifetime. This can be a sole owner or joint Life Tenants. Life Tenant(s) maintain responsibility for property taxes, insurance and maintenance. Life Tenant(s) are also entitled to rent out the property and to receive all income generated by the property.
Remainder Owner(s) automatically take legal ownership of the property immediately upon the death of the last Life Tenant. Remainder Owners have no right to use the property or collect income generated by the property, and are not responsible for taxes, insurance or maintenance, as long as the Life Tenant is still alive.
Advantages
Life Estates are simple and inexpensive to establish; merely requiring that a new Deed be recorded.
Life Estates avoid probate; the property automatically transfers to your heirs upon the death of the last surviving Life Tenant.
Transferring title following your death is a simple, quick process.
Life Tenant’s right to use and occupy property is protected; a Remainder Owner’s problems (financial or otherwise) do not affect the Life Tenant’s absolute right to the property during your lifetime.
Favorable tax treatment upon the death of a Life Tenant; when property is titled this way, your heirs enjoy a stepped-up tax basis, as of the date of death, for capital gains purposes.
Property owned via a Life Estate is typically protected from Medicaid claims once 60 months have elapsed after the date of transfer into the Life Estate. After that five-year period, the property is protected against Medicaid liens to pay for end-of-life care.
Disadvantages
Medicaid; that 60-month waiting period referenced above also means that the Life Tenants are subject to a 60-month disqualification period for Medicaid purposes. This period begins on the date the property is transferred into the Life Estate.
Potential income tax consequences if the property is sold while the Life Tenant is still alive; Life Tenants do not receive the full income tax exemption normally available when a personal residence is sold. Remainder Owners receive no such exemption, so any capital gains tax would likely be due from the Remainder Owner’s proportionate share of proceeds from the sale.
In order to sell the property, all owners must agree and sign the Deed, including Life Tenants and Remainder Owners; Life Tenant’s lose the right of sole control over the property.
Transfer into a Life Estate is irrevocable; however if all Life Tenants and Remainder Owners agree, a change can be made but may be subject to negative tax or Medicaid consequences.
Creating a Will is not a one-time event. You should review your will periodically, to ensure it is up to date, and make necessary changes if your personal situation, or that of your executor or beneficiaries, has changed. There are a number of life-changing events that require your Will to be revised, including:
Change in Marital Status: If you have gotten married or divorced, it is imperative that you review and modify your Will. With a new marriage, you must determine which assets you want to pass to your new spouse or step-children, and how that may relate to the beneficiary interest of your own children. Following a divorce it is a good practice to revise your Will, to formally remove the ex-spouse as a beneficiary. While you’re at it, you should also change your beneficiary on any life insurance policies, pensions, or retirement accounts. Estate planning is complicated when there are children from multiple marriages, and an attorney can help you ensure everyone is protected, which may include establishing a trust in addition to the revised Will.
Depending on jurisdiction, this may also apply to couples who have established or revoked a registered domestic partnership.
If one of your Will’s beneficiaries experiences a change in marital status, that may also trigger a need to revise your Will.
Births: Upon the birth of a new child, the parents should amend their Wills immediately, to include the names of the guardians who will care for the child if both parents die. Also, parents or grandparents may wish to modify the distribution of assets provided in their Wills, to include the new addition to the family.
Deaths or Incapacitation: If any of the named executors or beneficiaries of a Will, or the named guardians for your children, pass away or become incapacitated, your Will should be revised accordingly.
Change in Assets: Your Will may need to be changed if the value of your assets has significantly increased or decreased, or if you dispose of an asset. You may want to modify the distribution of other assets in your estate, to account for the changed value or disposition of the asset.
Change in Employment: A change in the amount and/or source of income means your Will should be examined to see if any changes must be made to that document. Retirement or changing jobs could entail moving to another state, thus subjecting your estate to the laws of that state when you die. If the change in income modifies your investing, saving or spending habits, it may be time to review your Will and make sure the distribution to your beneficiaries will be as you intended.
Changes in Probate or Tax Laws: Wills should be drafted to maximize tax benefits, and to ensure the decedent’s wishes are carried out. If the laws regarding taxation of the estate, distribution of assets, or provisions for minor children have changed, you should have your Will reviewed by an estate planning attorney to ensure your family is fully protected and your wishes will be fully carried out.
When planning your estate, you must consider how you hold title to your real and personal property
The title and your designated beneficiaries will control how your real estate, bank accounts, retirement accounts, vehicles and investments are distributed upon your death, regardless of whether there is a will or trust in place and potentially with a result that you never intended.
One of the most important steps in establishing your estate plan is transferring title to your assets. If you have created a living trust, also called a revocable trust in CA it is absolutely useless if you fail to transfer the title on your accounts, real estate or other property into the trust. Unless the assets are formally transferred into your living trust, they will not be subject to the terms of the trust and will be subject to probate.
Even if you don’t have a living trust, how you hold title to your property can still help your heirs avoid probate altogether. This ensures that your assets can be quickly transferred to the beneficiaries, and saves them the time and expense of a probate proceeding. Listed below are three of the most common ways to hold title to property; each has its advantages and drawbacks, depending on your personal situation.
Tenants in Common
When two or more individuals each own an undivided share of the property, it is known as a tenancy in common. Each co-tenant can transfer or sell his or her interest in the property without the consent of the co-tenants. In a tenancy in common, a deceased owner’s interest in the property continues after death and is distributed to the decedent’s heirs. Property titled in this manner is subject to probate, unless it is held in a living trust, but it enables you to leave your interest in the property to your own heirs rather than the property’s co-owners.
Joint Tenants
In joint tenancy, two or more owners share a whole, undivided interest with right of survivorship. Upon the death of a joint tenant, the surviving joint tenants immediately become the owners of the entire property. The decedent’s interest in the property does not pass to his or her beneficiaries, regardless of any provisions in a living trust or will. A major advantage of joint tenancy is that a deceased joint tenant’s interest in the property passes to the surviving joint tenants without the asset going through probate. Joint tenancy has its disadvantages, too. Property owned in this manner can be attached by the creditors of any joint tenant, which could result in significant losses to the other joint tenants. Additionally, a joint tenant’s interest in the property cannot be sold or transferred without the consent of the other joint tenants.
Community Property with Right of Survivorship
Some states allow married couples to take title in this manner. When property is held this way, a surviving spouse automatically inherits the decedent’s interest in the property, without probate.
Make sure your estate planning attorney has a list of all of your property and exactly how you hold title to each asset, as this will directly affect how your property is distributed after you pass on. Automatic rules governing survivorship will control how property is distributed, regardless of what is stated in your will or living trust.
When most hear the word estate, they think of the wealthy few with numerous large houses, expensive cars, and other substantial assets. However, believe it or not, everyone has an estate. An estate consists of everything you own, including your home, motor vehicle, checking and savings accounts, life insurance, investments, and even your furniture. Yet, it is even more important to realize that no matter how small or large this estate is, you cannot take it with you when you pass away.
As a result, if you do not plan for the future, you risk your family having to deal with numerous conflicts and expensive court proceedings that will not guarantee that your wishes are carried out. Consequently, even though estate planning may not be on everyone’s “to do” list, not having one can leave your family dealing with significant problems that can forever impact their future.
What Exactly Is an Estate Plan?
Estate planning involves making a written plan for two major events: disability and death. Many of us do know know if we will become injured or disabled. But we all know that each of us will pass away someday. Also remember that every person in California has a one-size-fits-all, government controlled, no freedom estate plan. If you gin advance, arranging your personal and financial affairs, and expressing your personal wishes so that in the event of your death or incapacity, those left to oversee your well-being and your family can carry out your wishes as efficiently as possible.
However, a proper estate plan can also do so much more, such as:
Providing instructions for your care and financial affairs
Providing for the transfer of your business when you become disabled, incapacitated, or pass away
Naming a guardian for your children and inheritance
Help family members with special needs
Minimize court costs, taxes, and unnecessary legal fees
More importantly, when it comes to estate planning, this is not a one-time event. It is an ongoing process that individuals need to review and update as their circumstances change over time.
What is the Cost of Not Having an Estate Plan?
An estate plan is about more than just money. These plans are also in place to give you and your family the peace of mind that when issues arise in the future, your loved ones will be taken care of and will not need to head to court, no matter what happens to you.
Consequently, if you do not have an estate plan:
The courts will have to decide who gets your assets, a process that will rack up fees, take years to resolve and become a headache for everyone involved.
The courts will determine who will raise your minor children, which will not ensure that your children are cared for in a manner that you approve of or by those you trust most.
Your heirs can face significant tax burdens, having to pay substantial federal and state estate taxes and state inheritance taxes.
Your spouse may have to depend on the court for an allowance to pay everyday expenses pending the probate of your estate.
What is the Cost of Only Having a Will?
A willis a legal document that expresses a person’s wishes as to how their property will be distributed after their death and which person will manage the property until its final distribution.
However, while creating a will is an important aspect of planning for the future, it is only a small part of effective estate planning. For instance, if you only create a will before you die, you are guaranteeing that your loved ones will have to go to court when you pass away and likely leave your family to deal with unnecessary, time-consuming, and expensive legal processes when you become incapacitated.
What is the Cost of Not Planning for Incapacity?
When people think about planning for the future, they often believe it only involves figuring out the proper distribution of their assets upon their death. However, there is much more to this process. In fact, planning that is only focused on who gets what after you die does not leave your family prepared for other devastating situations, such as when you become incapacitated by an illness or an accident.
And while incapacity, like death, leaves individuals incapable of caring for their loved ones, incapacity comes with uncertain timeframes and outcomes. Nobody knows how long an individual will be incapacitated, whether they will recover, or will it become a costly event that finally ends when the person dies. That is why this uncertainty makes incapacity planning so important to your life and your family, as not having a plan in place can lead to extensive financial costs, substantial emotional trauma, controversial court battles, and internal family conflict.
What Is the Cost of Not Keeping the Estate Plan Up to Date?
One of the most common mistakes people make, outside of not creating an estate plan, is not updating an estate plan over time. This is because when an event arises, such as incapacity and the family has an estate plan that no longer works. It is too late to do anything about it.
For these reasons, it is recommended that you review these estate plans every year, or at least every three years, to verify that the information is correct. You should also check these plans immediately following events such as births, deaths, divorce, and inheritances, and ensure that your estate plan is up-to-date regarding your assets. This way, your loved ones know what they have to do with your things when something happens.
Work with an Estate Planning Law Firm Today and Ensure Your Future and Your Family Is Taken Care Of
While planning for your death may not be the most enjoyable conversation you want to have, making sure your family and assets are taken care of when you pass away can be a significant burden lifted off your shoulders and theirs. For these reasons, if you are thinking about estate planning or want to explore your options, make sure you reach out to an experienced estate planning law firm today.
At California Probate and Trust, PC, our trust attorneys are ready to answer your questions, go over your estate planning options and help you prepare for the future. Contact us today for more information and find out how we can help.
2BGWDXM JACKSONVILLE, USA - OCTOBER 21: a french soldier with a tank behind him getting ready for the Amphibious Bold Alligator Exercise organized by the US N
There are benefit programs (“Aid and Attendance”) through the Department of Veterans Affairs (the VA) that can help wartime veterans and their spouses pay for care, including assisted living, memory care and nursing homes. Here are some little-known facts about these benefits:
1. The veteran does not need to have been involved in actual combat, only to have served during a period considered wartime. Wartime dates can be viewed here: Periods of War for VA Benefits Eligibility
2. The approval process for VA benefits usually takes five to six months, but it pays retroactively. That means if an application takes six months to be approved, the first award includes a lump-sum payment for the six months that the application was pending.
3. Applicants 70 and over can request that the review process be expedited.
4. Those who intend to apply but don’t have all necessary documents ready can submit a one-page form (VA Form 21-4138) to get the process started. Retroactive benefits will then be based on the date that this “intent to apply” form was received, rather than the date the final documents are submitted.
5. There are maximum allowable incomes for VA benefit applicants, but medical and personal care expenses can be deducted from applicants overall income to calculate “countable income.” Even applicants with above-average incomes may be eligible when medical and care expenses become high.
The maximum benefit payable to the veteran or veteran’s spouse is about $1950 per month. The benefit is paid directly to the veteran or spouse, and not to the nursing home or care provider.
Veteran’s Aid and Attendance is different that Medi-Cal (Medicaid in other states) in that it does not require that you impoverish yourself before qualifying. As soon as your out-of–pocket medical bills (including nursing home or in-come care) exceed your gross income, you are qualified.
If you have questions about Veterans Benefits, planning for long-term care, or general estate planning, please call us at (916) 729-1307
The irrevocable Medicaid Asset Protection Trust has proven to be a highly effective estate planning tool for many older Americans.
There are many factors to consider when deciding whether a Medicaid Asset Protection Trust is right for you and your family. This brief overview is designed to give you a starting point for discussions with your loved ones and legal counsel.
A Medicaid Asset Protection Trust enables an individual or a married couple to transfer some of their assets into a trust, to hold and manage the assets throughout their lifetime. Upon their deaths, the remainder of the assets will be transferred to the heirs in accordance with the provisions of the trust.
This process is best explained by an example. Let’s say Mr. and Mrs. Smith, both retired, own stocks and savings accounts valued at $300,000. Their current living expenses are covered by income from these investments, plus Social Security and their retirement benefits. Should either one of them ever be admitted to a skilled nursing facility, the Smiths likely will not have enough money left over to cover living and medical expenses for the rest of their lives.
Continuing the above example, the Smiths can opt to transfer all or a portion of their investments into a Medicaid Asset Protection Trust. Under the terms of the trust, all investment income will continue to be paid to the Smiths during their lifetimes. Should one of them ever need Medicaid coverage for nursing home care, the income would then be paid to the other spouse. Upon the deaths of both spouses, the trust is terminated and the remaining assets are distributed to the Smiths’ children or other heirs as designated in the trust. As long as the Smiths are alive, their assets are protected and they enjoy a continued income stream throughout their lives.
Pitfalls of the Medicaid Asset Protection Trust
However, the Medicaid Asset Protection Trust is not without its pitfalls. Creation of such a trust can result in a period of ineligibility for benefits under the Medicaid program. The length of time varies, according to the value of the assets transferred and the date of the transfer. Following expiration of the ineligibility period, the assets held within the trust are generally protected and will not be factored in when calculating assets for purposes of qualification for Medicaid benefits. Furthermore, transferring assets into an irrevocable Medicaid Asset Protection Trust keeps them out of both spouses’ reach for the duration of their lives.
Deciding whether a Medicaid Asset Protection Trust is right for you is a complex process that must take into consideration many factors regarding your assets, income, family structure, overall health, life expectancy, and your wishes regarding how property should be handled after your death. An experienced elder law or Medicaid attorney can help guide you through the decision making process.
IRAs are usually among the largest assets inherited. These retirement accounts have been able to grow to such very large amounts because income taxes on the growth in the account are deferred until the owner begins to take distributions. (You may take distributions as early as age 59 1/2, but must take them at age 70 1/2).
Cash-Out Option: Anyone who inherits an IRA can cash it out and withdraw the full amount. But because income taxes must be paid on the full amount withdrawn, this is not usually the best choice.
Spouse IRAs: A surviving spouse who inherits an IRA from his/her deceased spouse can roll that IRA into a new IRA or merge it with an existing IRA. In either case, the account can continue to grow tax-deferred, and the surviving spouse can continue to make contributions to the IRA, until s/he must start take distributions at age 70 1/2.
If the IRA is rolled into a new IRA, the surviving spouse will be asked to name new beneficiaries. It is highly advantageous to name someone much younger (e.g., children and/or grandchildren) because future distributions to the beneficiaries will be based on their actual life expectancies. This allows the IRA to potentially stretch out for decades. In some cases, it may be advisable to make your Revocable Living Trust the beneficiary of your IRA.
Non-Spouse Options: If the original owner of the IRA died before taking distributions, a non-spouse beneficiary can establish a Beneficiary IRA and start taking distributions based on his/her own life expectancy, with the option to take a lump sum at any time. (Ask your financial adviser to describe the difference between the “life expectancy option,” and the “five year rule”).
If the original owner died after beginning to receive distributions, a non-spouse beneficiary must take a distribution equal to the owner’s required minimum distribution for the year he/she died if one had not yet been taken. In future years, distributions can be based on either the new owner’s life expectancy, or the original owner’s remaining life expectancy, whichever is longer.
The original owner’s name must be listed on the title, but the inheriting beneficiary will name new beneficiary(ies). A non-spouse beneficiary cannot roll an inherited IRA into his/her own IRA or make contributions to an inherited IRA. But when distributions are stretched out over a longer period of time, the tax payments are also stretched out. And by keeping more money in the IRA for as long as possible, the tax-deferred growth can be maximized…which will result in a much larger balance.
Skilled nursing facilities (SNF), commonly called nursing homes or rehab centers, provide temporary and long-term care for those who need medical care while recuperating, or for those who need assistance with daily living on a permanent basis. Financial planning for SNF is an important aspect of estate planning, one that should be discussed with your estate planning lawyer.
Medicare will cover SNF care only if all of the following are true:
1. You have Medicare Part A (Hospital Insurance) and have days left in your benefit period available to use.
2. You have a “qualifying hospital stay.” This means an inpatient hospital stay of at least 3 consecutive days, starting with the day the hospital admits you as an inpatient, but not including the day you leave the hospital You must enter the SNF within a short time of leaving a hospital, typically 30 days.
3. Your doctor has ordered the services you need for SNF care, which require the skills of professional personnel such as registered nurses, licensed practical nurses, physical therapists, occupational therapists, speech- language pathologists or audiologists, and are furnished by, or under the supervision of, these skilled personnel.
4. You require the skilled care on a daily basis and the services must be ones that, as a practical matter, can only be provided in a SNF on an inpatient basis. If you are in a SNF for skilled rehabilitation services only, your care is considered daily care even if the therapy services are offered just 5-6 days a week.
5. You need these skilled services for a medical condition that (a) was treated during a qualifying 3-day hospital stay; or (b) started whole you were getting SNF care for a medical condition that was treated during a hospital stay. For example, if you are in a SNF because you broke your hip and then have a stroke, Medicare may cover rehabilitation services for the stroke, even if you no longer need rehab for your hip.
6. The skilled services must be reasonable and necessary for the diagnosis or treatment of your condition.
7. You get these skilled services in a SNF that is certified by Medicare.
Medicare will pay up to 100 days of SNF coverage in a benefit period. Once you use those 100 days, your coverage is ended. However, if you have another 3-day qualifying hospital stay and meet the Medicare requirements listed above, you can get up to another 100 days of SNF benefits.
