Plan Your Estate

No! Many people think that putting their assets into a Revocable Living Trust will help them qualify for Medicaid because the assets would no longer be titled in their name. Because a Living Trust is revocable and under your complete control you have not “given anything away.” The assets are still available.

Nursing home care is expensive. The average cost is close to $50,000 a year. Like many people, you may think Medicare pays for it, but unfortunately it does not. Medicare covers only short periods of skilled nursing home care after a hospital stay.

How many people can afford the cost of nursing homes?

Many nursing home residents have to pay the full cost of their care when they are admitted but they deplete their savings and other assets by paying for care. As a result, they will eventually qualify for Medicaid. Medicaid helps people with low incomes pay for medical bills. Medicaid is not the same as Medicare. Both programs provide health coverage, but Medicaid provides health coverage for people of all ages whose incomes are low.

Medicaid is a federally funded health care program that was created to provide health care services for the poor. It also pays for an unlimited number of days in a nursing care facility. This benefit appeals to many people. However, in order to qualify for Medicaid you can only have a certain amount of assets and receive a certain amount of income.

As a result you have two choices. Spend your assets, or give them away. If you transfer or give away your assets, to avoid triggering a “period of ineligibility,” you must wait a minimum of 60 months and one day before applying for Medicaid. To apply for Medicaid benefits before the mandated waiting period has expired will trigger a period of ineligibility.

In August 1996 former President Clinton signed into law the Health Insurance Portability and Accountability Act. Under the law if you decide to qualify for Medicaid by transferring assets you had better do the transfers correctly or suffer stiff consequences.

Before you do anything about trying to quality for Medicaid, consult with an attorney who specializes in Elder Law.

Remember an alternative to Medicaid is long-term care insurance, which one would purchase to pay for the costs of long-term care.

Many times people try to avoid probate by holding their assets in Joint Tenancy. Joint Tenancy is the method of putting your child’s name on property or accounts. Any good attorney or estate planner should warn you of the possible risks.

Lawsuits

If you hold an assets with a child and the child was ever held in a lawsuit, you could lose your asset. Once you hold the asset in Joint Tenancy with the child, it is then subject to any judgments that they may have placed on them.

Stepped-up valuation

Property held in Joint Tenancy with a child will lose half of the stepped-up valuation. Stepped-up valuation is a very important issue that needs to be of concern. If you bought your home in 1955 for $25,000 and today your home is valued at $200,000 after your death your child would only received the original cost basis of $25,000 and not the market value. They would have a big capital gains tax bill! However, if you would have passed the home to the child in a Living Trust they would have inherited the home at the market value and not had a capital gains tax due.

Precedence Over a Will

If you leave your assets in Joint Tenancy to one of your children. That one child does not have to honor your will. Because you gave it to them as a joint tenant they are a legal owner and do not have to share it with the other beneficiaries of your will.

Bottom Line

The Living Trust is a better solution because it will protect your estate from your children’s creditors, avoid probate, maintain the full stepped up value to your assets, keep both federal tax exemptions, and pass your estate to your children the way you desire!

A living trust, also known as a Revocable Living Trust or a Family Trust is a legal document that holds title or ownership to your real property and assets. When you create a Revocable Living Trust you transfer ownership of your assets to the trust. Transferring assets is typically called “funding.” When you transfer title you DO NOT relinquish any control. You can still buy, sell, borrow or transfer.

To many the living trust looks a lot like a will. It includes the details and instructions for how you want your estate to be handled at your death. However, unlike a will a properly funded trust:

• Does not go through probate.
• Prevents the courts from controlling your assets at incapacity.
• Gives you control over the assets you leave to your minor children or grandchildren.

Will I lose control of my assets?

No! The living trust is a written legal document that allows you, as the trustee(s), unlimited access to and full control of your assets during your lifetime. It also enables you to pass property after your death to family, friends and/or loved ones. It allows you to appoint someone (a successor trustee) to make certain your property goes to the ones you choose after your death.

I thought a will avoids probate?

Many individuals are under the impression that their will alone is sufficient to avoid probate. Unfortunately, a will is simply an expression of your wishes and must go through some kind of court process before the assets can be distributed to the heirs.

The reason for probate is needed because the owner of the property or asset is deceased. Once the owner of the asset has died, probate court is the legal process needed to take their name off the title of an asset and put it in the new owner’s name. Learn more about probate here.

Will joint tenancy avoid probate?

Putting your children’s name on your property does not avoid probate, rather it only puts it off for a few more years. To learn more about joint tenancy and why it is a poor option click here.

How does a living Trust Work?

For a trust to be effective it has to own title to the property or asset. Remember, when you transfer title of your assets into the trust it is called “Funding your Trust.” Funding is the process of transferring the name on accounts or property to the name of the trust. For example, accounts in the name of Jim and Doris Hart, would now be held as “Jim and Doris Hart, Trustees of the Hart Family Trust dated [date signed and year].”

When the assets are in the name of the trust there is no need for probate since the estate is now controlled by the trustee of the trust. You or you and your spouse can be the primary trustees receiving full control to buy, sell, borrow or transfer in the case of a spouse’s death. After both spouses pass, the trust identifies the person who will act as successor trustee. The trust gives that person the right to manage all assets on behalf of your wishes made known in the trust document. Remember, you and your spouse will decide who will manage all affairs.

Who’s involved in my living trust?

To better understand the trust, we thought it would be important to explain the different roles of the people who would be involved.

Grantor

This is the person who sets up the trust. This would be you. The grantor has many names such as the creator, settlor or trustor. As the grantor, you have full control to manage or change the trust at any time.

Trustee

The trustee is the person who will manage the assets in the trust. Again, this will most likely be you while you are alive. When a trust is created, the trustees are usually the same individuals as the grantor. For married couples, usually the husband and the wife both act as co-trustees. You do not have to be your own trustee if you do not want to or do not feel you are able to. You can name a child or friend or even an institution to manage your affairs for you while you are alive.

Successor Trustee

This is the person who will manage your assets for you when you die or if you should become incapacitated. This person or persons will have the right to manage your affairs without the need for any probate court. The successor trustee will immediately have the same powers that you as grantor/trustee had to buy, sell, borrow, or transfer the assets inside the trust. More importantly, the successor trustee has the right to distribute the trust’s assets according to your instructions in the trust. This immediate control can allow your estate to be transferred to your children or loved ones right away avoiding the time delay of probate which can usually consume anywhere from 6 months to 2 years.

Fortunately for you and for the protection of your heirs, the successor trustee does not have the legal right to change your trust. The trust becomes irrevocable or unchangeable after the death of the grantor(s). However, the successor trustee does have the right to manage the assets in the estate, but must do so for the benefit of the beneficiaries.

Beneficiaries

The people who will receive the benefit of the trust’s assets are called the beneficiaries. Typically the estate will go to the surviving spouse. If there is no surviving spouse, assets will pass to the people you named in your trust. You are not limited to who you want to receive your estate. You can name your children, relatives, friends, or a charitable organization to be your beneficiary.

What happens when I die?

Other advantages of using a Revocable Living Trust include the following:

• If an illness or accident leaves you incapacitated, your successor trustee can handle your financial affairs without the need for a court appointed guardian or conservator.
• If the beneficiaries of your trust are minor children or others who might not use an inheritance as you intend, the trust can continue to hold the assets until they reach a more mature age.
• If you own real property in more than one state you avoid the expense, time and hassle of multiple probate proceedings.
• By using a trust, a husband and wife can maximize both their federal estate tax exemptions.
• Trusts are generally more difficult to contest than a traditional will. To invalidate a will you must either prove it was signed under duress or that the maker was incompetent on the day it was signed. To invalidate a living trust you would have to prove it was invalid not only on the day it was signed but each and every day it was in existence thereafter.
• It is more difficult to contest a Living Trust. When a will is contested the assets are frozen and they cannot be distributed until the claim is resolved. Assets placed in a living trust are not frozen pending the outcome of a legal challenge. Anyone wishing to contest the trust must file suit against each of the beneficiaries; in the meantime the assets in the trust can be distributed.

Estate Planning Course Volumen 1

It is a common misconception that estate planning is important for only those with money or who are advanced in age. This myth is a cruel deception. In most states, if you own property over $30,000 your children or family could be subject to probate. By investing the time now to plan your estate you could possibly save your loved ones months if not years of agony and literally thousands of dollars in court fees and/or estate taxes.

What is Estate Planning

Arranging for the distribution of one’s wealth is what estate planning is all about. A critical part of estate planning is creating documents that outline your wishes for distributing your assets after you die. Every individual has an estate plan. If you do not have a formal written will or trust, your estate plan is created out of default by your state. Every state in America has laws governing the distribution of property when a person dies without a will or trust. If you have not made any provisions for the distribution of your estate before you die, your estate would be distributed according to your state’s “intestate succession” statutes which provide for the distribution of your estate to your spouse and relatives in an order established by your state’s law. So the question is not whether you will have an estate plan, but whether you will have an estate plan of your own selection or one imposed upon you by law.

Unfortunately, many people have neither a will or a trust which would identify their intent and desires after their death. They become so involved in their daily activities that they give little thought to the consequences of their demise. However, many do realize the importance of estate planning documents to protect and provide for their dependents, but people often die prematurely leaving dependents unprotected. Families can be financially devastated and ripped apart by this procrastination.

So, as discussed your choices for estate planning are as follows:

• Doing nothing
• Preparing a Will or a Trust

 

Traditionally, estate planning has involved creating a will. A will is a legally binding document that addresses how your assets will be distributed at your death and also names an executor who will assist with the administration of your estate. Settlement of your estate may be supervised by the probate court. This process depending on the nature of your estate can last as quick as 6 months for a simple estate or up to 1-2 years for more complex estates.

A will is a flexible tool that can be changed at any time as long as you are mentally competent. In addition to naming distribution of the estate, your will can:

• Designate a trust to be established under the will for family members after assets go through probate. (This type of trust is known as a testamentary trust not to be confused with a Living Trust.)
• Nominate a guardian.
• Direct how debts, taxes and expenses are to be paid.

Some of the advantages of a will are:

• Disputes can be settled through the probate court.
• A will is traditionally cheaper to prepare than a trust ($500 versus $3,500).
• The probate process can lessen the time allowed creditors to make claims against your estate. Probate estates can select a fiscal year rather than a calender year for income tax purposes.

Some the disadvantages of a will are:

• Lack of privacy: Your files can be accessed through the records office.
• Time: Probate can take 6 months to 2 years or more until distribution is administered. If you own property in more than one state, then probate needs to be held in each state.
• Probate and legal fees can range anywhere from 3% to 10% of your gross estate.

If you should become incapacitated, a will does not make any provisions. You need a separate Durable Power of Attorney. By preparing a will, most people feel they have effectively safeguarded their family’s inheritance. However, this is often a false “peace of mind”. A Last Will and Testament outlines your wishes about the distribution of your property after death, but testamentary documents such as wills usually require probate. In preparing only a will, you may be forcing your loved ones through months, even years, of agony in the probate court. In some states, probate can take 10% of your GROSS estate.