| Estate Planning: Planning for death to get the assets to | | | | Percentage bequests to charities should be avoided |
| whom you want, when you want, the way you want, | | | | so that the family may avoid having to account to the |
| with the least amount of taxes and legal fees possible. | | | | charity for the expenses of administering the estate. |
| Elder Law: Planning for disability to get the persons you | | | | In terms of the type of trust, we are generally looking |
| want to handle your affairs and to protect your assets | | | | at several options for most clients. It is important to |
| from being depleted for long-term care. | | | | determine whether there should be one trust or two. In |
| Introduction to Estate Planning and Elder Law | | | | order to avoid or reduce estate taxes, there should be |
| Practicing estate planning and elder law is one of the | | | | two trusts for spouses whose estates exceed or |
| most enjoyable and professionally rewarding careers | | | | may at a later date exceed the state and/or federal |
| an attorney may choose. Imagine a practice area | | | | estate tax threshold. Should the trust be revocable or |
| where your clients respect your knowledge and treat | | | | irrevocable? The latter is important for protecting |
| you with kindness and courtesy. They pay your fees in | | | | assets from nursing home expenses subject to the |
| a timely fashion and tell their friends how much they | | | | five-year look-back period. Primary features of the |
| have enjoyed working with you and your firm. At the | | | | irrevocable Medicaid trust are that neither the grantor |
| same time, you are rarely facing the pressure of a | | | | nor the grantor's spouse may be the trustee and that |
| deadline, much less an adversarial attorney on the | | | | these trusts are income-only trusts. Most people |
| other side of a matter trying to best you. In most | | | | choose one or more of their adult children to act as |
| instances, you are acting in the capacity of a counselor | | | | trustees of the irrevocable trust. Since principal is not |
| at law (trusted advisor) rather than an attorney at law | | | | available to the grantor, the client will not want to put all |
| (professional representative). | | | | of their assets into such a trust. Assets that should be |
| We spend our days meeting with clients, discussing | | | | left out are IRA's, 401(k)'s, 403(b)'s, etc. The principal of |
| their lives and their families and addressing their fears | | | | these qualified assets are generally exempt from |
| and concerns. Through our knowledge, training, | | | | Medicaid and should not be placed into a trust, as this |
| experience and imagination, we craft solutions, | | | | would create a taxable event requiring income taxes |
| occasionally elegant ones, to the age old problem of | | | | to be paid on all of the IRA. If the institutionalized client |
| passing assets from one generation to another as | | | | has a community spouse, up to about one hundred |
| quickly and painlessly as possible. At the same time, | | | | thousand dollars may also be exempted. |
| we also seek to protect those assets from being | | | | Notwithstanding that the home is exempt if the |
| depleted by taxes, legal fees and nursing home costs | | | | community spouse is living there, it is generally a good |
| to the extent the law allows. | | | | idea to protect the home sooner rather than to wait |
| The end result of this process is a client who feels | | | | until the first spouse has passed, due to the five-year |
| safe and secure in the knowledge that, in the event of | | | | look-back period. It should be noted that the look-back |
| death or disability, they have all their bases covered. | | | | means that from the time assets are transferred to |
| Having achieved peace of mind that their future is well | | | | the irrevocable trust, it takes five years before they |
| planned and in good hands, they can get on with the | | | | are exempt, or protected from being required to be |
| business of enjoying their lives. For the attorney, a | | | | spent down on the ill person's care before they qualify |
| happy and satisfied client has been added to the | | | | for Medicaid benefits. What if the client does not make |
| practice and another potentially lifelong and mutually | | | | the five years? Imagine that the client must go into the |
| rewarding relationship has begun. Let's look at the | | | | nursing home four years after the trust has been |
| strategies and techniques we use to achieve this | | | | established. In such a case, by privately paying the |
| enviable state of affairs. | | | | nursing facility for the one year remaining, the family will |
| Major Issues Facing Senior Clients Today | | | | be eligible for Medicaid after just the remaining year of |
| One of the ways that we help clients is in setting up a | | | | the five-year penalty period has expired. |
| comprehensive plan so they may avoid court | | | | Although the Medicaid trust is termed irrevocable, the |
| proceedings upon death or in the event of disability. | | | | home may still be sold or other trust assets traded. |
| Trusts are used in place of wills for older persons | | | | The trust itself, through the actions of the trustees, |
| since they do not require court proceedings to settle | | | | may sell the house and purchase a condominium in the |
| the estate. Trusts also avoid the foreign probate | | | | name of the trust so that the asset is still protected. |
| proceeding required for property owned in another | | | | The trust may sell one stock and buy another. For |
| state, known as ancillary probate. This saves the | | | | those clients who may wish to continue trading on their |
| family time in settling the estate as well as the high | | | | own, the adult child trustee may sign a third party |
| costs of legal proceedings. In addition, since revocable | | | | authorization with the brokerage firm authorizing the |
| living trusts, unlike wills, take effect during the grantor's | | | | parent to continue trading on the account. The trust |
| lifetime, the client may stipulate which persons take | | | | continues to pay all income (i.e., interest and dividends) |
| over in the event of their disability. Planning ahead helps | | | | to the parent grantor. As such, the irrevocable trust |
| maintain control in the family or with trusted advisors | | | | payments should not affect the client's lifestyle when |
| and avoids a situation that may not be in the client's | | | | added to any pensions, social security, and IRA |
| best interest. For example, in the event of a disability | | | | distributions the client continues receiving from outside |
| where no plan has been put in place, an application to | | | | the trust. It should also be noted that while no separate |
| the court may be required in order to have a legal | | | | tax return is needed for a revocable trust, the |
| guardian appointed for the disabled person. This may | | | | irrevocable trust requires an "informational return" |
| not be the person the client would have chosen. In | | | | which advises the IRS that the income is "passing |
| such a case, assets may not be transferred to protect | | | | through" to the grantors and will be reported on their |
| them from being spent down for nursing home costs | | | | individual returns. |
| without court permission, which may or may not be | | | | If there is a disabled child, consideration will be given to |
| granted. | | | | creating a supplemental needs trust, which will pay |
| Another area in which we assist the client is in saving | | | | over and above what the child may be receiving in |
| estate taxes, both state and federal, for married | | | | government benefits, especially social security income |
| couples by using the two-trust technique. Assets are | | | | and Medicaid, so that the inheritance will not disqualify |
| divided as evenly as practicable between each of the | | | | them from those benefits. |
| spouse's trusts. While the surviving spouse has the use | | | | Finally, with the size of estates having grown today to |
| and enjoyment of the deceased spouse's trust, the | | | | where middle class families are leaving substantial |
| assets of that trust bypass the estate of the surviving | | | | bequests to their children (depending, of course, on |
| spouse and go directly to the named beneficiaries | | | | how many children they have), the trend is toward |
| when the second spouse dies. Tens to hundreds of | | | | establishing trusts for the children to keep the |
| thousands of dollars, or more, in potential estate taxes | | | | inheritance in the bloodline. Variously termed inheritance |
| may be saved, depending on the size of the estate. | | | | trusts, heritage trusts, or dynasty trusts, these trusts |
| Furthermore, the revocable living trust avoids the two | | | | may contain additional features, such as protecting the |
| probates that would occur were the clients to use wills, | | | | inheritance from a child's divorce, lawsuits, creditors, |
| as the couple's estate must be settled after the death | | | | and estate taxes when they die. The primary feature |
| of each spouse in order to save estate taxes. We | | | | of all of these trusts for the heirs, however, is to |
| also help to protect assets from being depleted due to | | | | provide that when the child dies, in most cases many |
| nursing home costs. Irrevocable Medicaid trusts may | | | | years after the parent, the hard-earned assets of the |
| be established, subject to a five-year look-back period, | | | | family will not pass to a son-in-law or daughter-in-law |
| to protect the client's home and other assets from | | | | who may get remarried, but rather to the grantor's |
| having to be spent down due to the high cost of | | | | grandchildren. On the other hand, if the client wishes to |
| nursing home care. We use Medicaid asset and | | | | favor the son-in-law or daughter-in-law, they may |
| transfer rules to protect assets in the event a client | | | | choose to provide that the trust, or a portion of it, |
| requires nursing home care but has done no | | | | continue as an "income only" trust for their adult child's |
| pre-planning. Through the use of Medicaid qualifying | | | | surviving spouse for their lifetime, and only thereafter |
| annuities, promissory notes, and housing and care | | | | to the Grantor's grandchildren. |
| agreements, significant assets may be protected | | | | 5. Applying for Medicaid Benefits |
| despite the five-year look-back, even when the client | | | | In the event the client requires home care or |
| may be on the nursing home doorstep. | | | | institutionalized care in a nursing home facility, an |
| Five Steps to Estate Planning for Seniors | | | | application for Medicaid benefits may be required. Due |
| 1. Understanding the Family Dynamics | | | | to complex asset and transfer rules, the application |
| The first step in an elder law trusts and estates matter | | | | should be made with the aid of an experienced elder |
| is to gain an understanding of the client's family | | | | law attorney. Again, it is useful in this context for a |
| dynamics. If there are children, which is usually the | | | | confidential survey of the client's assets, as well as |
| case, we need to determine whether or not they are | | | | any transfers of assets, to be filled out prior to the |
| married. Is it a first or second marriage? Do they have | | | | initial consultation. This form of financial survey will be |
| any children from a previous marriage or do their | | | | significantly different from the one used for estate |
| spouses? What kind of work do they do, and where | | | | planning purposes. As a combined federal and state |
| do they live? Do they get along with each other and | | | | program, Medicaid asset and transfer rules vary |
| with the parent clients? We are looking to determine | | | | significantly from state to state. A few techniques, |
| which family members do not get along with which | | | | nevertheless, will be widely applicable. First, in the event |
| others and what the reasons may be. This goes a | | | | an adult child takes the parent into their home in order |
| long way toward helping us decide who should make | | | | to care for them in their later years, a housing and |
| medical decisions and who should handle legal and | | | | care agreement should be executed so that assets |
| financial affairs. Should it be one of them or more than | | | | may be legitimately moved from the parent to the child |
| one? How should the estate be divided? Is the client | | | | prior to any nursing home care. The adult child will be |
| himself in a second marriage? Which children, if any, | | | | required to report any payments received under the |
| are his, hers, or theirs? Sometimes all three instances | | | | agreement as earned income on their tax returns. |
| may occur in the same couple. Here, further | | | | Also, since the family home is usually the most |
| exploration of the family functioning will be needed as | | | | significant asset, consideration will need to be given as |
| the potential for hurt feelings, conflicts of interest, and | | | | to whether the home should be deeded to the client's |
| misunderstandings multiplies. In addition, great care must | | | | adult children while retaining a life estate in the parent |
| be taken to develop a plan for management, control, | | | | or whether the irrevocable Medicaid trust should be |
| and distribution of the estate that will not only be fair to | | | | used to protect the asset. |
| the children from a previous marriage but will be seen | | | | While the deed with a life estate will be less costly to |
| to be fair as well. At times, the assistance of the | | | | the client, in most cases it offers significant |
| professional advisor in acting as trustee may be | | | | disadvantages when compare to the trust. First, if the |
| invaluable in helping to keep the peace between family | | | | home is sold prior to the death of the Medicaid |
| members. Finally, this step will also flesh out whether | | | | recipient, the life estate value of the home will be |
| there are any dependents with special needs and | | | | required to be paid towards their care. If the house is |
| which family members and assets might be best | | | | rented, the rents are payable to the nursing facility |
| suited to provide for such children. | | | | since they belong to the life tenant. Finally, the client |
| 2. Reviewing Existing Estate Planning Documents | | | | loses a significant portion of their capital gains tax |
| The second step in an elder law trusts and estates | | | | exclusion for the sale of their primary residence as |
| matter is to review any prior estate planning | | | | they will only be entitled to a pro rata share based on |
| documents the client may have, such as a will, trust, | | | | the value of the life estate to the home as a whole. All |
| power of attorney, health care proxy and living will, to | | | | of the foregoing may lead to a situation where the |
| determine whether they are legally sufficient and | | | | family finds they must maintain a vacant home for |
| reflect the client's current wishes or whether they are | | | | many years. Conversely, a properly drafted |
| outdated. Some basic elder law estate planning | | | | irrevocable Medicaid trust preserves the full capital |
| questions are also addressed at this time such as:a. Is | | | | gains tax exclusion on the primary residence and the |
| the client a US citizen? This will impinge on the client's | | | | home may be sold by the trust without obligation to |
| ability to save estate taxes.b. Is the client expecting to | | | | make payment of any of the principal towards the |
| receive an inheritance? This knowledge helps in | | | | client's care, assuming we have passed the look back |
| preparing a plan that will address not only the assets | | | | period. It should be noted here that both the life estate |
| that the client has now but what they may have in the | | | | and the irrevocable Medicaid trust will preserve the |
| future.c. Does the client have long-term care | | | | stepped-up basis in the property provided it is only sold |
| insurance? If so, the elder law attorney will want to | | | | after the death of the parent who was the owner or |
| review the policy and determine whether it provides an | | | | grantor. Upon the death of the parent, the basis for |
| adequate benefit considering the client's other assets | | | | calculating the capital gains tax is stepped up from |
| and income, whether it takes inflation into account, and | | | | what the parent paid, plus any improvements, to what |
| whether it is upgradable. This will allow the practitioner | | | | it was worth on the parent's date of death. This |
| to decide whether other asset protection strategies | | | | effectively eliminates payment of capital gains taxes |
| may be needed now or later.d. Does the client need | | | | on the sale of appreciated property, such as the home, |
| financial planning? Many clients that come into the elder | | | | after the parent dies. Both the revocable and |
| law attorney's office have never had professional | | | | irrevocable trusts also preserve any tax exemptions |
| financial advice or are dissatisfied with their current | | | | that the client may have on their home, such as senior |
| advisors. They may need help understanding the | | | | and veteran's exemptions. |
| assets they have or with organizing and consolidating | | | | Finally, even with a client already in a nursing home, |
| them for ease of administration. They may also be | | | | significant assets may be saved through advanced |
| concerned with not having enough income to last for | | | | techniques that are beyond the scope of this guide. |
| the rest of their lives. The elder law attorney will | | | | Please consult your elder law attorney for further |
| typically know a number of capable financial planners | | | | information if you or a family member is in this situation. |
| who are experienced with the needs and wishes of | | | | Major Mistakes in Estate Planning and Elder Law |
| the senior client, including (1) secure investments with | | | | 1. Failure to address all of the issues. |
| protection of principal, and (2) assets that tend to | | | | A comprehensive review of the client's situation should |
| maximize income. | | | | address planning for disability as well as for death, |
| 3. Reviewing the Client's Assets | | | | including minimizing or avoiding estate taxes and legal |
| The third step is to obtain a complete list of the client's | | | | fees and proceedings. A plan should be in place to |
| assets, including how they are titled, their value, | | | | protect assets from nursing home costs. Like a chess |
| whether they are qualified investments, such as IRA's | | | | player, counsel should look ahead two or three moves |
| and 401(k)'s and, if they have beneficiary designations, | | | | in order to determine what may happen in the future. |
| who those beneficiaries are. Armed with this | | | | For example, attorneys will too often place a majority |
| information, the advisor is in a position to determine | | | | of the assets in the wife's name or in her trust in light |
| whether the estate will be subject to estate taxes, | | | | of the husband having significant IRA assets in his |
| both state and federal, and may begin to formulate a | | | | account. However, since the husband is often older |
| strategy to reduce or eliminate those taxes to the | | | | and has a shorter life expectancy, this may result in |
| extent the law allows. This will often lead to shifting | | | | the IRA assets rolling over to the wife, all of the |
| assets between spouses and their trusts, changing | | | | couple's assets ending up in the wife's estate, and no |
| beneficiary designations, and, with discretion, trying to | | | | estate tax savings effected. Another example would |
| determine which spouse might pass away first so as | | | | be where the client's children are in a second marriage |
| to effect the greatest possible tax savings. Ideally, the | | | | but have children (the client's grandchildren) from a |
| attorney should have the client fill out a confidential | | | | previous marriage. Unless planning is done with |
| financial questionnaire prior to the initial consultation. | | | | inheritance trusts for the client's children, a situation |
| 4. Developing the Estate Plan | | | | may occur one day where the client's child |
| The fourth step is to determine, with input from the | | | | predeceases their second spouse, all assets pass to |
| client, who should make medical decisions for the client | | | | the second spouse, and the client's grandchildren, from |
| if they are unable to and who should be appointed to | | | | a son or daughter's prior marriage, are denied any |
| handle legal and financial affairs through the power of | | | | benefit from the grantor's estate. |
| attorney in the event of the client's incapacity. Next, | | | | 2. Failure to Regularly Review the Estate Plan |
| we will consider what type of trust, if any, should be | | | | At a minimum, each client's estate plan should be |
| used, whether a simple will would suffice, who should | | | | reviewed every three years to determine whether |
| be the trustees (for a trust) or executors (for a will), | | | | changes in the client's personal life, such as their health, |
| and what the plan of distribution should be. In order to | | | | assets, or family history (births, deaths, marriages, |
| avoid a conflict, the trustees who are chosen in lieu of | | | | divorces, etc.) impact the plan. It is unrealistic to expect |
| the grantor should be the same persons named on the | | | | a plan established today to be effective ten, twenty, |
| power of attorney. At this point, great care should also | | | | thirty, or more years in the future. Over time, clients will |
| be taken to ensure that the feelings of the heirs will not | | | | want to change their back-up trustees or plan of |
| be hurt. Good estate planning looks at the client's | | | | distribution. They may wish to add inheritance trusts for |
| estate from the heirs' point of view as well as the | | | | their children. They might, after a number of years, |
| client's. For example, if there are three children, it may | | | | wish to change from a revocable trust to an |
| be preferable that one be named as trustee or | | | | irrevocable trust because they were unable or unwilling |
| executor, as three are usually too cumbersome and if | | | | to obtain long-term care insurance. The attorney will |
| the client chooses only two, then they are leaving one | | | | benefit from the additional legal work needed, and the |
| out. If there are four or five children, we prefer to see | | | | client will benefit from having a plan better suited to |
| two trustees or executors chosen. This way, the | | | | their current needs at any given time. |
| pressure will be reduced on just the one having to | | | | Conclusion |
| answer to all the others. More importantly, the others | | | | Despite the knowledge, earnestness and even charm |
| will feel far more secure that two siblings are jointly | | | | of some of the finest practitioners in the land, clients |
| looking after their interests. | | | | occasionally do not act on the advice given. As |
| If the distribution is to be unequal, it may need to be | | | | experienced attorneys, we know not to take it |
| discussed with the affected children ahead of time to | | | | personally when clients choose to ignore our advice or |
| forestall any ill will or even litigation after the parents | | | | perhaps choose other counsel. We know that people |
| have died. By considering the relative ages of the | | | | don't always do what they need to. They do what |
| children, where they live, and their relationships | | | | they want to and, even then, only when they want to. |
| amongst each other and with their parents, the advisor | | | | Recently, a ninety-three year old client told us that she |
| will generally find a way to craft a plan that | | | | "wanted to think about it" so far as planning her affairs. |
| accommodates the needs and desires of all parties | | | | Experience tells us that this client is not ready to plan |
| concerned. Some of the techniques we find useful in | | | | at the present time, despite her advanced years, and |
| this context are to offer a delayed distribution, such as | | | | we respect that choice. On the other hand, we |
| twenty percent upon the death of the grantor, one-half | | | | recently had a client come in to see us eleven years |
| of the remaining balance after five years, and the | | | | after their initial consultation stating that they were now |
| remainder after ten years. These same percentages | | | | ready to proceed. We prepared their estate plan. |
| may also be used at stated ages, such as thirty, | | | | Perhaps the best approach to the estate planning and |
| thirty-five, and forty. Also, when leaving percentages of | | | | elder law practice is to follow the four SW's. Some will, |
| the estate, unless it is simply to the children in equal | | | | some won't, so what, someone's waiting. We move |
| shares, it is often useful to determine the monetary | | | | forward, help those who will allow themselves to be |
| value of those percentages in the client's current | | | | helped by us and keep turning towards those to |
| estate. This will allow the client to see whether the | | | | whom our firm's services are appreciated, admired, |
| amount is truly what they wish to bequeath. | | | | and sometimes even considered heroic. |