Plymouth MN Estate Planning Blog

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.

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.
 

Let’s face it – it’s tough getting old. The aches, pains, and pills often associated with aging are things that many members of the baby-boomer generation know all too well by now. Though you might not be able to turn back time, you can help an aging loved one enjoy their golden years by giving them a safe, affordable place to call home. If an aging parent is moving in with you and your family, there are many quick fixes for the home that will create a safe environment for seniors.

Start by taking a good look at your floor plan. Are all the bedrooms upstairs? You may want to think about turning a living area on the main floor into a bedroom. Stairs grow difficult with age, especially for seniors with canes or walkers. Try to have everything they need accessible on one floor, including a bed, full bathroom, and kitchen. If the one-floor plan isn’t possible, make sure you have railings installed on both sides of staircases for support. A chair lift is another option for seniors who require walkers or wheelchairs.

Be sure to remove all hazards in hallways and on floors. Get rid of throw rugs – they can pose a serious tripping hazard. Make sure all child or pet toys are kept off the floor. Add nightlights to dark hallways for easy movement during the night when necessary. Also install handrails for support near doorframes and most importantly, in bathrooms.

Handlebars next to toilets and in showers are essential for senior safety. Use traction strips in the shower, which should also be equipped with a seat and removable showerhead. To avoid accidental scalding, set your hot water heater so that temperatures can’t reach boiling. You may also want to consider a raised seat with armrests to place over your toilet, to make sitting and standing easier.

This applies to all other chairs in the house as well. Big, puffy chairs and couches can make it very difficult for seniors to sit and stand. Have living and dining room chairs with stable armrests, and consider an electronic recliner for easy relaxation.

To keep everyone comfortable and help avoid accidents, store all frequently used items in easily accessible places. Keep heavy kitchen items between waist and chest height.

Even with appropriate precautions, not all accidents can be avoided. Purchasing a personal alarm system like Life Alert can be the most important preparation you make for a senior family member. If they are ever left alone, Life Alert provides instant medical attention with the push of a button that they wear at all times.

Amidst all the safety preparations, remember that it’s important to keep the brain healthy, too. Have puzzles, cards, large-print books and magazines, computer games, and simple exercises available to keep seniors of healthy body and mind.

These simple preparations can not only help extend the life of your loved one, but help to make sure their remaining years are happy and healthy.

Filial responsibility laws impose a legal obligation on adult children to take care of their parents’ basic needs and medical care. Although most people are not aware of them, 30 states in the U.S. have some type of filial responsibility laws in place. The states that have such laws on the books are Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia and West Virginia.

Filial responsibility laws and their enforcement vary greatly from state to state. Eleven states have never enforced their laws, and most other states rarely enforce the laws. Currently, Pennsylvania is the only state to aggressively enforce its filial responsibility laws.

One of the main reasons why filial responsibility laws are not widely enforced is due to the fact that in the context of needs-based government programs such as Medicaid, federal law has prohibited states from considering the financial responsibility of any person other than a spouse in determining whether an applicant is eligible. However, as many local programs aimed at helping the elderly continue to struggle with insolvency, many states may consider more aggressive enforcement of their filial responsibility laws.

Twenty-one states allow lawsuits to recover financial support. Parties who are allowed to bring such a lawsuit vary state by state. In some states, only the parents themselves can file a claim. In other states, the county, state public agencies or the parent’s creditors can file the lawsuit. In 12 states, criminal penalties may be imposed upon the adult children who fail to support their parents. Three states allow both civil and criminal penalties.

In some states, children are excused from their filial responsibility if they don’t have enough income to help out, or if they were abandoned as children by the parent. However, the abandonment defense can be difficult to prove, especially if the parent had a good reason to abandon the child, like serious financial difficulties. Sometimes, children’s filial responsibility can be reduced if prior bad behavior on the part of the parent can be proven.

Many people are confused by advance directives. They are unsure what type of directives are out there, and whether they even need directives at all, especially if they are young. There are several types of advance directives. One is a living will, which communicates what type of life support and medical treatments, such as ventilators or a feeding tube, you wish to receive. Another type is called a health care power of attorney. In a health care power of attorney, you give someone the power to make health care decisions for you in the event are unable to do so for yourself. A third type of advance directive for health care is a do not resuscitate order. A DNR order is a request that you not receive CPR if your heart stops beating or you stop breathing. Depending on the laws in your state, the health care form you execute could include all three types of health care directives, or you may do each individually.

If you are 18 or over, it’s time to establish your health care directives. Although no one thinks they will be in a medical situation requiring a directive at such a young age, it happens every day in the United States. People of all ages are involved in tragic accidents that couldn’t be foreseen and could result in life support being used. If you plan in advance, you can make sure you receive the type of medical care you wish, and you can avoid a lot of heartache to your family, who may be forced to guess what you would want done.

Many people do not want to do health care directives because they may believe some of the common misperceptions that exist about them. People are often frightened to name someone to make health care decisions for them, because they fear they will give up the right to make decisions for themselves. However, an individual always has the right, if he or she is competent, to revoke the directive or make his or her own decisions.  Some also fear they will not be treated if they have a health care directive. This is also a common myth – the directive simply informs caregivers of the person you designate to make health care decisions and the type of treatment you’d like to receive in various situations.  Planning ahead can ensure that your treatment preferences are carried out while providing some peace of mind to your loved ones who are in a position to direct them.

In the unsettled time after a loved one’s death, imagine the added stress on the family if the loved one died without a will or any instructions on distributing his or her assets.  Now, imagine the even greater stress to grieving survivors if they know a will exists but they cannot find it!  It is not enough to prepare a will and other estate planning documents like trusts, health care directives and powers of attorney.  To ensure that your family clearly understands your wishes after death, you must also take good care to preserve and protect all of your estate planning documents.

Did you know that the original, signed version of your will is the only valid version?  If your original signed will cannot be found, the probate court may assume that you intended to revoke your will.  If the probate court makes that decision, then your assets will be distributed as if you never had a will in the first place.

Where should you keep your original signed will?  There are several safe options – the best choice for you depends on your personal circumstances.

You can keep your will at home, in a fireproof safe.  This is the lowest-cost option, since all you need to do is purchase a well-constructed fireproof document safe.  Also, keeping your will at home gives you easy access in case you want to make changes to the document.  There are two main disadvantages to keeping your will at home:

• You may neglect to return your will to the safe after reviewing it at home, which increases the risk it will be destroyed by fire, flood, or someone’s intentional or accidental actions.
• Your will could be difficult to find in the event of your death, unless you give clear instructions to several people on how to find it, which then creates a risk of privacy invasion.

You can keep your will in a safety deposit box.  Most banks have safety deposit boxes of various sizes available to rent for a monthly fee.  Banks, of course, tend to be more secure than private homes, which is one primary advantage.  Also, if you keep your will in a safety deposit box, then after your death, only the Executor of your estate may access the original will.  Thus, the will is strongly protected against alteration or destruction, because family members may have access to a copy but only the Executor will have access to the all-important original.

If you do keep your will and other estate planning documents in a safety deposit box, try to do so at the same bank where you keep your accounts and inform your executor of its location.  This will streamline the financial accounting process.

You can also keep your original will and other estate planning documents at your lawyer’s office.    Law firms often have systems for long-term document storage.  However, keep in mind that the law firm may dissolve before the willmaker’s death, which can make it difficult to track down your will.  

You may also be able to store your will and other documents online.  Many large financial institutions have begun offering long-term digital storage of important documents.  However, any electronic version of your original will is – by definition – a copy, not the original.  So, you still must find a safe place to store the original, signed and witnessed will.  Online storage “safes” may be an excellent back-up, but you must still find a secure place to store the paper originals.

There are a lot of myths and misconceptions surrounding estate planning. Many people think that a last will and testament is the only estate planning document you really need. This of course is false. Others assume that you only need to have an estate plan in place if you’re a millionaire. This too is false. Another popular myth in the world of estate planning is that the best way to disinherit a relative (particularly a child) is to leave him or her a single dollar in your will. You probably guessed it- this too is entirely false.

The truth of the matter is that you must be very careful with leaving someone you really want to disinherit a token gift of $1 or some other small amount. By doing so, you have now made that person a beneficiary of your estate. It is possible, if not likely, that state law will require your executor to provide all beneficiaries with copies of all pleadings, an accounting, and notice of various administration activities. This may make it easier for this "beneficiary" to now complain about things and may cause problems for your executor which could cost your estate money.

Instead of leaving a token amount, you might consider mentioning the person by name so it is clear that you have not simply overlooked them. Then, you would specifically state you are intentionally disinheriting them from your estate. Also, consider if you wish to disinherit that person's children or more remote descendants and if so specifically state that as well in your will. You should consult with an estate planning lawyer to assist you in the proper wording as you will want to make sure there is as little likelihood of a will contest as possible.

For many people, retirement savings accounts are among the largest assets they have to bequeath to their children and grandchildren in their estate plans.  Sadly, without professional and personally tailored advice about how best to include IRAs in one’s estate plan, there may be a failure to take advantage of techniques that will maximize the amount of assets that will be available for future generations.

Failure to Update Contingent Beneficiaries

Assets in an IRA account usually transfer automatically to the named beneficiaries upon the death of the account holder, outside of the probate process.  If the account holder’s desired beneficiaries change, due to marriage, divorce, or other major life events, it is critically important to update the named beneficiaries as quickly as possible to prevent the asset from passing to an outdated beneficiary.  When updating beneficiaries, account holders should not neglect contingent beneficiaries – those individuals named to receive the asset if the primary named beneficiary is already deceased when the account holder dies.

Example:  Sarah’s IRA documents name her husband, Harold, as the primary beneficiary of her IRA.  The contingent beneficiary is Harold’s son, George, from Harold’s first marriage.  Sarah and Harold divorce.  Harold dies.  If Sarah dies before changing her IRA beneficiaries, George will receive the IRA.  This may no longer be the result Sarah would have wanted.

Failure to Consider a Trust as the Contingent Beneficiary of an IRA

There are three main advantages of naming a trust as the contingent beneficiary of your IRA: 

1. It avoids the problem described above of having incorrect contingent beneficiaries named at death.
2. It protects the IRA if the desired beneficiary is a minor, has debt or marital troubles, or is irresponsible with money.
3. It protects the IRA from intentional or unintentional withdrawal.

Since 2005, the IRS has allowed a type of trust created specifically to be the beneficiary of an IRA.  The IRA Beneficiary Trust is also known as an IRA trust, an IRA stretch trust, an IRA protection trust, or a standalone IRA trust.

The main advantage of using an IRA Beneficiary Trust instead of a standard revocable living trust is that the IRA trust can restrict distributions to ensure compliance with tax rules and minimum distribution requirements – thus maximizing the amount of tax-free growth of the investments.

Another advantage is that the IRA stretch trust has a framework that allows it to be structured in a way that guarantees protection of the distributions from the IRA as well as protection of the principal of the IRA.  When you first establish the IRA protection trust, you structure the trust as either a conduit trust or an accumulation trust.  A conduit trust will pass the required minimum distributions directly to your named beneficiaries, maximizing the tax deferral benefits.  An accumulation trust passes the required minimum distributions into another trust over which a named trustee has discretion to accumulate the funds, resulting in greater asset protection for the benefit of the beneficiary.

During your lifetime, the IRS allows you to switch between the conduit trust and accumulation trust for each of your beneficiaries, as circumstances change.  Furthermore, you may name a “trust protector” who may change the type of trust one last time after your death.  This change may be made on a beneficiary-by-beneficiary basis, so that some of your intended heirs have accumulation trusts for their portion of the IRA and others have conduit trusts.

IRA Beneficiary Trusts are complicated legal documents with intricate IRS rules and tremendous implications for your family’s wealth accumulation for future generations.  It is wise to seek advice specific to your family’s unique circumstances when considering the establishment of this powerful type of trust.


 

Properly drafted estate planning documents are integral to the success of your legacy and end-of-life wishes.  Iron-clad estate planning documents, written by a knowledgeable attorney can make the difference between the success and failure of having your wishes carried out.  However, there’s more to estate planning than paperwork.  For your wishes to have the best chance of being honored, it is important to carefully choose the people who will carry them out.

Your estate plan can assign different responsibilities to different people.  The person who you most trust to raise your children, for example, may not be the person you’d designate to make health care decisions on your behalf, if you are incapacitated.  Before naming individuals to carry out your various estate and incapacity planning wishes, you should carefully consider the requirements of each role and the attributes which each individual has that will allow him or her to perform the duties effectively.

Executor.  You name the executor, (also known as a personal representative), in your will.  This person is responsible for carrying out all the terms of your will and guiding your will through probate, if necessary.  The executor usually works closely with a probate or estate administration attorney, especially in situations where will contests arise and your estate becomes involved in litigation.  You may appoint co-executors, or name a professional – such as a lawyer or accountant – as the co-executor.

Health care proxy.  Your health care proxy is the person you name to make medical decisions for you in the event you are incapacitated and unable to do so yourself.  In addition to naming a health care proxy (sometimes called a health care power of attorney), most people also create a living will (or health care directive), in which they directly state their wishes for medical care and end-of-life care in the event of incapacity.  When choosing a health care proxy, select a person who you know understands your wishes regarding medical care, and who you trust to carry out those wishes, even if other family members disagree.  You should also consider individuals who have close geographic proximity to you as well as persons you believe can make difficult decisions under pressure.

Power of attorney.  A financial power of attorney (or simply power of attorney) is different from a health care power of attorney in that it gives another person the authority to act on your behalf in financial matters including banking, investments and taxes.  You can limit the areas in which the person may act, or you may grant unlimited authority.  A power of attorney may also be limited for a specific time, or it may be a durable power of attorney, in which case it will continue even after the onset of incapacity (until your death).  A power of attorney can take effect immediately or “spring” into effect in the event of incapacity.

Guardians.  If you have minor children or other dependents (disabled adult children or other disabled adults for whom you are the named guardian), then your estate plan should name a person or persons to take over the parental role in the event of your death.  The guardian may also have control over any assets that you leave directly to your minor children or other dependents.  If you create a trust for the benefit of your minor children, then the trust’s trustee(s) will have control over those assets and their distribution.  Important considerations include age of the guardian, compatibility with his or her personality and moral values as well as the extent and quality of the existing relationship with your children.

Trustee.  If you place any assets in trust as part of your estate plan, then you must designate one or more trustees, who will act as the legal owners of the trust.  If you do not wish to appoint someone you know personally, you may appoint a corporate trustee – often a bank – to play this role.  Corporate trustees are often an excellent choice, since they are financial professionals and neutral, objective third parties.  Its important you select individuals who are not only trustworthy but also organized, diligent and detail oriented.

 

Transfer of property at death can be rather complex.  Many are under the impression that instructions provided in a valid will are sufficient to transfer their assets to the individuals named in the will.   However, there are a myriad of rules that affect how different types of assets transfer to heirs and beneficiaries, often in direct contradiction of what may be clearly stated in one’s will.

The legal process of administering property owned by someone who has passed away with a will is called probate.  Prior to his passing, a deceased person, or decedent, usually names an executor to oversee the process by which his wishes, outlined in his Will, are to be carried out. Probate property, generally consists of everything in a decedent’s estate that was directly in his name. For example, a house, vehicle, monies, stocks or any other asset in the decedent’s name is probate property. Any real or personal property that was in the decedent’s name can be defined as probate property.  

The difference between non-probate property and probate centers around whose name is listed as owner. Non-probate property consists of property that lists both the decedent and another as the joint owner (with right of survivorship) or where someone else has already been designated as a beneficiary, such as life insurance or a retirement account.  In these cases, the joint owners and designated beneficiaries supersede conflicting instructions in one’s will. Other examples of non-probate property include property owned by trusts, which also have beneficiaries designated. At the decedent’s passing, the non-probate items pass automatically to whoever is the joint owner or designated beneficiary.

Why do you need to know the difference? Simply put, the categories of probate and non-probate property will have a serious effect on how plan your estate.  If you own property jointly with right of survivorship with another individual, that individual will inherit your share, regardless of what it states in your will.  Estate and probate law can be different from state-to-state, so it’s best to have an attorney handle your estate plan and property ownership records to ensure that your assets go to the intended beneficiaries.

You’ve likely heard that one of the many benefits of estate planning is reducing the amount of federal, and state, taxes owed upon your passing. While it may seem like estate tax planning must run afoul of IRS rules, with the proper strategies, this is far from the case.

It is very common for an individual to take steps to try to reduce the amount of federal estate taxes that his or her "estate" will be responsible for after the person's death. As you may know, you may pass an unlimited amount of assets to your spouse without incurring any federal estate taxes. You may pass $5.25 million to non-spouse beneficiaries without incurring federal estate tax and if your spouse died before you, and if you have taken certain steps to add your spouse's $5.25 million exemption to your own, you may have $10.5 million that you can pass tax free to non-spouse beneficiaries.

If your estate is still larger than these exemption amounts you should seek out a qualified estate planning attorney. There may be legal, legitimate planning techniques that will help reduce the taxable value of your estate in order to pass more assets to your loved ones upon your death and lessen the impact of the estate taxes. After your death, the duty normally falls on your executor (or perhaps a successor trustee) to file the appropriate tax returns and pay the necessary taxes. Failure to properly plan for potential estate taxes will significantly limit what your executor/trustee will be able to accomplish after your passing.

If you have taken steps to try to reduce the taxes owed, it is possible that the IRS may challenge the reported value or try to throw out the method you used. This does not mean that the executor/trustee will be in trouble; it just means that they will need to be prepared to support their position with the IRS and take it through an audit or even a tax court (or other appropriate court system). In the event of a challenge, a good attorney will be critical to ensure all of the necessary steps are taken.

A Pooled Income Trust is a special kind of trust that is established by a non-profit organization. This trust allows individuals of any age (typically over 65) to become financially eligible for public assistance benefits (such as Medicaid home care and Supplemental Security Income), while preserving their monthly income in trust for living expenses and supplemental needs. All income received by the beneficiary must be deposited into the Pooled Income Trust.

In order to be eligible to deposit your income into a Pooled Income Trust, you must be disabled as defined by law. For purposes of the Trust, "disabled" typically includes age-related infirmities. The Trust may only be established by a parent, a grandparent, a legal guardian, the individual beneficiary (you), or by a court order. 

Typical individuals who use a Pool Income Trust are: (1) elderly persons living at home who would like to protect their income while accessing Medicaid home care; (2) recipients of public benefit programs such as Supplemental Security Income (SSI) and Medicaid; (3) persons living in an Assisted Living Community under a Medicaid program who would like to protect their income while receiving Medicaid coverage.

Medicaid recipients who deposit their income into a Pooled Income Trust will not be subject to the rules that normally apply to "excess income," meaning that the Trust income will not be considered as available income to be spent down each month. Supplemental payments for the benefit of the Medicaid recipient include: living expenses, including food and clothing; homeowner expenses including real estate taxes, utilities and insurance, rental expenses, supplemental home care services, geriatric care services, entertainment and travel expenses, medical procedures not provided through government assistance, attorney and guardian fees, and any other expense not provided by government assistance programs.