What Is the Main Purpose of a Trust?

There are advantages and disadvantages of an irrevocable trust, and you’ll want to be fully informed before taking steps that may be costly to undo, explains the article “Understanding your trust” from The Sentinel. Once your home is deeded to an irrevocable trust, you won’t be able to make any changes without getting permission from the beneficiary or beneficiaries named in the trust. Your rights of ownership are transferred to the trust, when you deed it to the trust.

A separate legal agreement with the trustee, the person in charge of the trust, will be needed to give you a legal right to occupy the home also. Any changes could be made but will take time and could be costly. Changes can also only be made, if the beneficiaries agree.

There was a time when lenders inserted clauses into mortgages that any time a sale or transfer of the deed occurred, full payment of the mortgage would be due. This changed, and today the mortgage is not due just because of a change in the deed. However, it may be a challenge to refinance if the home is held in an irrevocable trust.

For most people, the reason to put a home into an irrevocable trust is to prevent the home from being lost to a creditor, including protecting the home’s equity from the cost of nursing home care, during life or after death. In some states, like Pennsylvania, the state will initiate a collection action against the estate to recover the amount paid for the deceased homeowner’s nursing care costs.

The move to put a home into an irrevocable trust can work as long as the trust remains intact and the homeowner does not apply for financial assistance for nursing home care for at least five years from the date that the deed was transferred as recorded in the courthouse.  If long-term care needs arise before that time, putting the home into an irrevocable trust may not serve its intended purpose.

There are some tax benefits from an irrevocable trust. If the homeowner lives at least one year after the home is deeded to the trust, in some states no inheritance taxes will be due on the home. Check with a local estate planning attorney to learn what the rules are in your state.

If the trust is prepared by an experienced elder law attorney, it is likely that the capital gain on the sale of the home by the trust after the homeowner’s death will be taxed based on the home’s value at the time of sale, rather than the value at the time it is placed into the trust or on the day of death.

If the home is the only asset in the trust, the taxpayer ID of the trust will be the homeowner’s Social Security number, and no annual tax return is required. If, however, other assets, particularly income-producing assets, are placed in the trust, then the trust needs to have its own EIN (a federal tax identification number) and annual tax returns will need to be paid. Taxes on a trust are normally at a higher rate than individual income rates.

Your estate planning attorney will explain the numerous strategies that can be used to protect your assets and your home from the high cost of long-term care. There are many Medicaid compliant techniques and tools, depending upon the situation of the individual and the family.

Reference: The Sentinel (April 23, 2021) “Understanding your trust”

 

Can a Person with Alzheimer’s Sign Legal Documents?

If a loved one has been diagnosed with Alzheimer’s disease or any other form of dementia, it is necessary to address legal and financial issues as soon as possible. The person’s ability to sign documents and take other actions to protect themselves and their assets will be limited as the disease progresses, so there’s no time to wait. This recent article “Financial steps to take when dealing with Alzheimer’s” from Statesville Record & Landmark explains the steps to take.

Watch for Unusual Financial Activity

Someone who has been sensible about money for most of his life may start to behave differently with his finances. This is often an early sign of cognitive decline. If bills are piling up, or unusual purchases are being made, you may need to prepare to take over his finances. It should be noted that unusual financial activity can also be a sign of elder financial abuse.

Designate a Power of Attorney

The best time to designate a person to take care of finances is before she shows signs of dementia. It’s not an easy conversation, but it is very important. Someone needs to be identified who can be trusted to manage day-to-day money matters, who can sign checks, pay bills and supervise finances. If possible, it may be easier if the POA gradually eases into the role, only taking full control when the person with dementia can no longer manage on her own.

An individual needs to be legally competent to complete or update legal documents including wills, trusts, an advanced health care directive and other estate planning documents. Once such individual is not legally competent, the court must be petitioned to name a family member as a guardian, or a guardian will be appointed by the court. It is far easier for the family and the individual to have this handled by an estate planning attorney in advance of incompetency.

An often-overlooked detail in cases of Alzheimer’s is the beneficiary designations on retirement, financial and life insurance policies. Check with an estate planning attorney for help, if there is any question that changes may be challenged by the financial institution or by heirs.

Cost of Care and How It Will Be Paid

At a certain point, people with dementia cannot live on their own. Even those who love them cannot care for them safely. Determining how care will be provided, which nursing facility has the correct resources for a person with cognitive illness and how to pay for this care, must be addressed. An elder law estate planning attorney can help the family navigate through the process, including helping to protect family assets through the use of trusts and other planning strategies.

If the family has a strong history of Alzheimer’s disease or other cognitive diseases, it makes sense to do this sort of preparation far in advance. The sooner it can be addressed, even long before dementia symptoms appear, the better the outcome will be.

Reference: Statesville Record & Landmark (April 11, 2021) “Financial steps to take when dealing with Alzheimer’s”

 

Planning for the Unexpected

Sadly, this is not an unusual situation. The daughter spoke with her mother once or twice a week, and the fall happened just after their last conversation. She dropped what she was doing and drove to the hospital, according to the article “Parents” in BusinessWest.com. At the hospital, she was worried that her mother was suffering from more than fractures, as her mother was disoriented because of the pain medications.

The conversation with her brother and mother about why she wasn’t notified immediately was frustrating. They “didn’t want to worry her.” She was worried, and not just about her mother’s well-being, but about her finances, and whether any plans were in place for this situation.

Her brother was a retired comptroller and she thought that as a former financial professional, he would have taken care of everything. That was not the case.

Despite his professional career, the brother had never had “the talk” with his mother about money. No one knew if she had an estate plan, and if she did, where the documents were located.

All too often, families discover that no planning has taken place during an emergency.

The conversation took place in the hospital, when the siblings learned that documents had never been updated after their father had passed—more than 20 years earlier! The attorney who prepared the documents had retired long ago. The originals? Mom had no idea. The names of her banks and financial institutions had changed so many times over the years, that she wasn’t even sure where her money was.

For this family, the story had a happy ending. Once the mother got out of the hospital, the family made an appointment to meet with an estate planning attorney to get all of her estate planning and elder law planning completed. In addition, the family updated beneficiaries on life insurance and retirement accounts, which are now set to avoid probate.

Both siblings have a list of their mother’s assets, account numbers, credit card information and what’s more, they are tracking the accounts to ensure that any sort of questionable transactions are reviewed quickly. They finally have a clear picture of their mother’s expenses, assets and income.

If your family’s situation is closer to the start of the story than the end, it’s time to contact a qualified estate planning attorney who is licensed to practice in your state and have all the necessary preparation done. Don’t wait until you’re uncovering family mysteries in the hospital.

Reference: BusinessWest.com (Aug. 1, 2019) “Parents”

 

Elder Law Estate Planning for the Future

Seniors who are parents of adult children can make their children’s lives easier, by making the effort to button down major goals in elder law estate planning, advises Times Herald-Record in the article “Three ways for seniors to make things easier for their kids.” Those tasks are planning for disability, protecting assets from long-term care or nursing home costs and minimizing costs and stress in passing assets to the next generation. Here’s what you need to do, and how to do it.

Disability planning includes signing advance directives. These are legal documents that are created while you still have all of your mental faculties. Naming people who will make decisions on your behalf, if and when you become incapacitated, gives those you love the ability to take care of you without having to apply for guardianship or other legal proceedings. Advance directives include powers of attorney, health care proxies, durable powers of attorney and living wills.

Your power of attorney will make all and any legal and financial decisions on your behalf.  With a health care proxy, a person is named who can make medical decisions. In a living will, you have the ability to convey your wishes for end-of-life care, including resuscitation and artificial feeding.

When advance directives are in place, you spare your family the need to have a judge appoint a legal guardian to manage your affairs. That saves time, money and keeps the judiciary out of your life. Your children can act on your behalf when they need to, during what will already be a very difficult time.

Goal number two is protecting assets from the cost of long-term care. Losing the family home and retirement savings to unexpected nursing costs is devasting and may be avoided with the right planning. The first and best option is to purchase long-term care insurance. If you don’t have or can’t obtain a policy, the next best is the Medicaid Asset Protection Trust (MAPT) that is used to protect assets in the trust from nursing home costs after the assets have been in the trust for five years.

The third thing that will make your adult children’s lives easier is to have a will. This lets you leave assets to the family as you want, with the least amount of court costs, legal fees, taxes and family battles over inheritances. Work with an experienced estate planning attorney to have a will created.  If your attorney advises it, you can also consider having trusts created so your assets can be placed into the trusts and avoid probate (which is a public process). A trust can be easier for children because estates settle more quickly.

Think of estate planning as part of your legacy of taking care of your family ensuring that your hard-earned assets are passed to the next generation. You can’t avoid your own death, or that of your spouse, but you can prepare so those you love are helped by thoughtful and proper planning.

Reference: Times Herald-Record (July 13, 2019) “Three ways for seniors to make things easier for their kids”

 

What Kind of Money Do I Need to Put into a Special Needs Trust for my Child?

One of the toughest things about planning for a child with special needs, is trying to calculate the amount of money it’s going to take to provide both while the parents are alive and after the parents pass away.

Kiplinger’s recent article asks “How Much Should Go into Your Special Needs Trust?” The article explains that it’s not uncommon for people to have done some estate planning but not necessarily special needs estate planning. They haven’t thought about how much money they should earmark to fund that trust someday and which assets would be the best to use.

Special needs estate planning involves creating a special needs trust that allows a person with a disability continue to receive certain public benefits. Typically, ownership of assets more than $2,000 would make the individual ineligible for certain public benefits. Assets held in a special needs trust don’t count toward this amount.

A child with special needs can generate multiple expenses. The precise amount will be based on the needs and lifestyle of the family and the child’s capabilities.

When the parents die, this budget must be increased, because the things the parents did must be monetized.

A special needs trust usually isn’t funded until the parents’ death. The trust would then need to file a tax return each year and pay taxes.

There are also legal and trust administration expenses to think about. Public program benefits can, in many cases, offset many of the above-mentioned costs.

It’s vital to conduct a complete analysis of the future costs to provide for a child with special needs so that parents can start saving and making adjustments in their planning.

Speak with an elder law or estate planning attorney about special needs trusts.

Reference: Kiplinger (June 10, 2019) “How Much Should Go into Your Special Needs Trust?”

 

Things You Need to Know About Handling Your Aging Loved One’s Finances

Sometimes a loved one starts having trouble managing her money because of confusion, cognitive decline, Alzheimer’s disease, or some other form of dementia. When that happens, you might find yourself having to serve as her money manager. Here are some things you need to know about handling your aging loved one’s finances.

Changes to Make Now

Your loved one must be legally competent to takes steps, like adding a trusted friend or relative to a bank account or creating a legal power of attorney or executing a will. Once your aging loved one becomes incapacitated, she will not be able to hand the reins over to someone else.

At that point, the only option is to go to court and obtain a Guardianship or Conservatorship using an experienced estate planning attorney. These processes can take months or longer, and they often cost hundreds of dollars in legal fees for the lawyer who files and handles the Guardianship/Conservatorship and court costs.

People often challenge changes that a person makes when in the early stages of Alzheimer’s or after a certain age.

How to Avoid Elder Financial Abuse

Sadly, the vast majority of people who steal from older adults, are the people they trust the most. Family members, friends, clergy and financial professionals commit the lion’s share of elder financial abuse. To prevent this outcome for your loved one, you should:

  • Have one person in charge of your loved one’s finances. Speak with an experienced estate planning attorney and execute a Durable Power of Attorney to do this should you take ill.

When this person takes over, the person should prevent identity theft and fraud by canceling and shredding your relative’s debit cards and credit cards. The individual would be able to close any  accounts at PayPal etc.

Keep All Transactions Above Suspicion

Because incapacitated people are so vulnerable to theft and fraud, the people who manage your loved one’s money and other assets should take precautionary measures to make it clear they are acting in your relative’s best interests. Always write the reason for the payment on the memo line of the check. NEVER CO-MINGLE FUNDS.

Do not borrow from the account. Do NOT use your loved one’s assets for purchases that benefit anyone other than your relative. Do NOT use HER assets for your own benefit, like driving HER car to work.

Every state has different regulations, and this article covers the general law. You should talk to an experienced elder law attorney near you.

References:

AARP. “Managing a Loved One’s Money.” (accessed July 11, 2019) https://www.aarp.org/caregiving/financial-legal/info-2017/managing-someone-elses-money.html?intcmp=AE-CAR-LEG-EOA1

 

What the Elder Law Attorney Needs to Know

If you went to a doctor’s office and did not tell the doctor what your symptoms were, it would be hard to get a good diagnosis and treatment. The same goes for a visit to the elder law estate planning attorney. Without all the necessary facts, advises the Times Herald-Record in the article “What you need to tell the elder law estate planning attorney,” the estate plan may need to be revised or created all over again, the inheritance may be given to people other than those you intended and there could be family conflicts.

Elder law is all about planning for disability and incapacity, to include identifying the people who would make decisions for you, if you become incapacitated and protecting your hard-earned assets from the cost of nursing home care.

Estate planning is focused on transferring assets to the desired people, the way you want, when you want, with minimal court costs, taxes, or unnecessary legal fees and avoiding disputes over an inheritance.

Here are some of the things your attorney will need to know, with full disclosure from you:

Family dynamics. If you have a child you haven’t seen in years, you need to discuss the child. They may have a legal claim to your estate, and that must be planned for. Perhaps you want to include the child in the estate, perhaps you don’t. If you disinherit a child in a will and you die without a plan, that child becomes a necessary party to probate proceedings and has the right to contest your will.

Health issues are important to disclose. If you don’t have long-term care insurance, you need five years to protect assets in a Medicaid Asset Protection Trust (MAPT). Therefore, now may be the time to start a plan. If you have a child who is disabled and receives government benefits, you can leave them money in a Special Needs Trust (SNT).

Full disclosure of all your assets, income, how assets are titled, who the beneficiaries are on your IRAs, 401(k)s and life insurance policies, are all the kinds of information needed to create a comprehensive estate plan. Keeping secrets during this process could lead to a wide variety of problems for your family. Your entire estate could be consumed by taxes, or the cost of nursing home care.

There’s no doubt of the seriousness of these issues. You or your spouse may experience some strong emotions, while discussing them with your attorney. However, creating a proper estate plan, preparing for incapacity and loved ones with special challenges will provide you with peace of mind.

One last point: an estate plan is like your home, requiring maintenance and updates. Once it is done, make a note in your schedule to review it every time there is a major life event or every three or four years. Laws change, and life changes. Your estate plan may also need to change so speak with an experienced elder law/estate planning attorney in your area who can assist you.

Reference: Times Herald-Record (May 25, 2019) “What you need to tell the elder law estate planning attorney”