Hooper Law Office,LLC Estate Planning Blog

Monday, May 9, 2016

Prince Died Without a Will: What Can You Learn

If you’ve managed to catch a glimpse of the news in the past two weeks, you likely heard about the tragic and unexpected passing of pop icon, Prince. 

But what you may not have heard about is this—

The 57-year-old musician died without a will, leaving behind an estate valued between $150-300 million dollars, a vault of unreleased songs, and no explicitly defined benefactors.

The absence of a will is surprising for an artist known for having a meticulous nature, and questions abound as to what will happen to his hard-earned wealth.

At Hooper Law Office, LLC we have a few ideas surrounding what happens next…

When someone dies without an estate plan, they leave what’s legally known as an “intestate estate”—one in which the dying party has surrendered control of their assets because they’ve left no legally binding instructions as to how their wealth should be distributed. 

With no specific guidelines, it will become the court’s job to fill in the blanks and arrange for the intestate succession of Prince’s assets.

Read more . . .

Tuesday, January 19, 2016

Changes to Social Security Rules for 2016

The Bipartisan Budget Act of 2015, passed by Congress and signed into law on November 2, included some changes to Social Security for 2016.

The first two affect how married couples can claim their Social Security benefits. These changes, which were designed to eliminate perceived loopholes for married couples, may present some planning opportunities for you. Please contact our office if you have questions or would like to arrange a personal consultation.

1. No more “file and suspend” when claiming benefits.

Under the current law, John files for Social Security benefits then suspends his benefits before receiving a payment. His wife Mary files for spousal benefits on John’s account. John continues to work, building higher retirement benefits on his account. Mary can also continue to work and build higher retirement benefits on her own account. This method of taking benefits could provide them with up to $40,000 or more in additional retirement income.

Under the new law, effective April 30, 2016, John must actually receive benefits under his account before Mary can take a spousal benefit from his account.

Note: This change in the law does not apply to married couples who have already filed and suspended benefits.

Planning Tips: If you are age 66 now or will become age 66 before April 30, 2016, you can still file and suspend. Also, if you have filed benefits on your own record, you can later suspend and accumulate credits to age 70. However, your spouse would not be able to claim a spousal benefit from your account during this time.

2. No more “claim now, claim more later” or “restricted applications.”

Under the current law, John (who earns more than Mary) claims a spousal benefit on Mary’s account at his full retirement age. When he reaches age 70, he stops taking the spousal benefit and takes his maximum benefit from his own account. This provides John with a larger benefit from his account because he has waited until age 70 to start taking his benefits.

Under the new law, only those age 62 or older at the end of 2015 will be able to choose which benefit is desired at their full retirement age. Those under age 62 may only apply for benefits under their own work record. They would still be eligible for the higher benefit, but would not be able to take the spousal benefit first, keep working to build up their account, and then switch to their own account at age 70. 

3. No Cost of Living Adjustment (COLA) for 2016

There will be no cost of living adjustment for Social Security recipients in 2016 or for those who receive pension benefits from the Veterans Association. Increases to both are tied to the Consumer Price Index (CPI), which fell .2% in September. Presumably, this means that the cost of living should be going down for all of us. However, with the ever-increasing costs of health care, especially for seniors, this is not actually the case. And for those who are on fixed incomes, this is not good news. This is actually the third time in recent years there has not been a COLA.

Content courtesy of ElderCounsel, LLC

Monday, January 11, 2016

Do I need a Medicaid Trust if I already have a Revocable Living Trust?

While a revocable trust is the foundation of many good estate plans, by itself your revocable trust will not protect your assets from nursing home care costs.  A Medicaid Trust may be needed to obtain this additional protection.

If you are not ready now to create your own Medicaid Trust, you can still authorize the trustee of your revocable trust (or the agent of your power of attorney) to activate a nursing home plan for you when needed.  This requires drafting special instructions to make sure that your plan if followed.  An estate planning attorney whose practice is dedicated to helping clients explore these complex issues should be consulted to see if this option is preferable to creating a Medicaid Trust now.

Monday, January 4, 2016

What is a Medicaid Trust?

A Medicaid Trust is a special irrevocable trust created by you during your lifetime for the purpose of holding title to your home and other assets.  The Medicaid Trust can maintain your right to live in your home, as well as the right to choose the trustees.  Because these trusts offer management and legal protection of the assets you place in them, they provide an excellent option for those who are concerned about protecting their estates from the impact of nursing home care costs.  Nonetheless, there are important factors that must be considered to determine if it is the right choice for you.

Medicaid trusts are irrevocable.  Therefore, once you create one you cannot change it.  This is usually not a problem, since all of the trust’s instructions are written by you to benefit only you and others of your choosing.  You can also retain the right to use all of the income earned by the trust’s assets.  Further, by prohibiting your access to the principal in the trust, those assets (including your house) are not considered owned by you when determining your Medicaid eligibility.

However, you need to be aware that a transfer of your house or other property into your Medicaid Trust will be treated as a divestment that will trigger a penalty period.  This means that it is best to create your Medicaid Trust and transfer your property into it while you are still healthy.  The goal is to create and fund your trust and complete the entire lookback period well before you need to apply for Medicaid.

A Medicaid Trust can be drafted to allow you to change beneficiaries and direct the distribution of trust property to your beneficiaries at your death.  More importantly, it can allow the distribution of trust property to your beneficiaries during your lifetime.  Since the divestment occurred when the property went into the Medicaid Trust, distributions during the lookback period can be made to your beneficiaries without creating a penalty period.  Because your property is held in trust you eliminate the concern that your property is lost because a child divorces, dies, or gets sued.  The Medicaid Trust also allows your beneficiaries to receive the tax benefits of receiving property as an inheritance rather than as a gift.

To summarize, there are substantial advantages to creating and funding a Medicaid Trust.  needless to say, special knowledge and skill is needed to draft a Medicaid Trust so that it complies with both federal and state law. 

Monday, December 28, 2015

What other problems could happen if I give my property to my kids?

Everyone assumes that their children will outlive them.  But what happens if one of your children dies first?  Your property will likely be tied up in probate court and distributed according to that child’s Will.  If your child does not have a Will, state law will control the distribution.  In either case this may result in the wrong people getting your property.  If transferring title of your house was your attempt to preserve the value for your family, your planning goal has failed.

If the gifting of your house is an important option for you to consider, it is critical that it be done correctly.  If you do it at the wrong time or under the wrong circumstances, you will be creating more problems than you are solving.  Rather than just giving your house away to avoid nursing home costs, a possible solution is to place it in a Medicaid trust.

Monday, December 21, 2015

Will the nursing home take my house?

Remember that for purposes of determining Medicaid eligibility, your house is an exempt asset.  This means your home cannot be taken from you while you are alive.  However, under some circumstances the state that provides Medicaid benefits may retain the right to place a lien against your home for the value of your care.  This type of lien is enforced when the house is sold.  Depending upon the value of the benefits you receive, your equity in the house could be lost.

We frequently hear from our clients that they want to give their home to their children but still retain the right to continue living there as long as they want.  There are many risks involved with gifting your home to your children including the following:

  • If you transfer (gift) your house to the kids it will be counted as a divestment.  You will be taking an exempt asset (which the state does not consider when determining Medicaid eligibility), and turning it into a non-exempt asset (one that is subject to a penalty period).  While some states allow Medicaid applicants to transfer a non-exempt asset without penalty, most will impose a penalty period on the transfer of the house.
  • Your home will now be at risk from the claims of your children’s creditors.  Your children’s creditors, divorcing spouses, business debts, and lawsuits can present a bigger danger than the state’s lien.
  • Your children may incur capital gains taxes when the house is sold that could have been avoided had they inherited the property from you after your death.

These and other problems can strike those who gift their property away without careful planning.

Monday, December 14, 2015

The guy at the barbershop said his sister-in-law's mother's best-friend gave all of her assets to her kids. Should I do the same thing?

It is amazing how much legal advice is dispensed in barbershops and beauty parlors!  Unfortunately, much of this advice is just plain wrong.  Whenever you divest assets, great care must be taken to make sure that it does not render you ineligible for Medicaid benefits.  More than any other type of estate planning, a good tong-term care plan must be individually tailored to fit your family and your assets.

The key to good estate planning is to keep you in as much control of your life and your property as possible.  If you give all of your property to your children, you risk losing it to your children’s creditors, to their spouses should they divorce, and to anyone else who sues them.  Effective long-term care planning will protect your assets by keeping you in control of them instead of putting them at risk.  You should only consider divesting your assets when done as part of a carefully crafted estate plan that is developed with the assistance of a qualified attorney,  a well-designed individualized plan will allow you to stay in control of your property as long as you want and transfer it to your loved ones only when you are ready.

Monday, December 7, 2015

How is the penalty period calculated?

When you meet the income and assets levels needed to be eligible for Medicaid, you must file an application to receive benefits.  In addition to disclosing your income from all sources and all of your assets, you must also identify any divestments that you made during the lookback period.

Each state has a divisor that it uses to calculate the penalty period.  The divisor is reset each year, and the amount of the divisor varies from state to state.  The caseworker handling your application will divide the total value of all divestment made during the lookback period by the divisor to calculate the penalty period.

As an example, let us assume that you made divestments totaling $60,000 during the lookback period.  Let us further assume (for easy mathematical calculation) that the daily divisor is $200.  By dividing $60,000 by $200, we find that you must serve a penalty period of 300 days before you become eligible for benefits.  Under current law, the penalty period dies not start until you are income and asset eligible and you have applied for Medicaid.

You can see the dilemma.  If the penalty period prevents you from receiving benefits for any extended length of time, most nursing homes will not accept you as a patient unless you have the means of guaranteeing self-payment.  If you gave away your property, you have no means of payment.  While giving away your property (divesting it) may once have seemed like a good idea at the time, it may no longer be an attractive option if the catastrophic result is to render you ineligible for the care you need.  Divestment is dangerous without both careful planning and appropriate counseling.

Monday, November 30, 2015

What is a "lookback"?

Divestments can subject you to a penalty period for Medicaid eligibility, rendering you ineligible for benefits for a set amount of time.  Only girts made during the Medicaid “lookback” period of time will count as a divestment that incurs a penalty period.  The lookback period is a specific amount of time (usually years) set by your state; any gift you make during this period can be counted a s a divestment.  Carefully planning your divestments to minimize or eliminate the Medicaid penalty period you incur is one of the most important skills your advisors can provide.

Monday, November 23, 2015

I thought I could make a tax-free gift each year to my children without any problems.

Many of our clients mistakenly confuse the gift tax laws with the Medicaid eligibility rules.  The amount that the IRA allows you to gift tax-free each year, otherwise known as the “annual exclusion amount,” has nothing to do with Medicaid eligibility.  They are different rules for different purposes.  Many people have learned to their great dismay that their perfectly legal tax-free gifts were treated as divestments under the Medicaid rules, which rendered them ineligible for benefits.

Monday, November 16, 2015

What else about the divestment rules do I need to know?

Any non-exempt assets either you or your spouse gives away without receiving something of equal value in return may be classified by the state as a “divestment”.  Forgiving a debt or refusing money owned to you by someone else is also considered a divestment.  Such uncompensated divestments will render the applicant ineligible for Medicaid for a certain period of time, known as the “penalty period”.  A Medicaid penalty period is imposed because the government does not want you to deliberately impoverish yourself (by giving everything to your children or others) and then applying for Medicaid.  Your intent when making gifts is important.  For example, small regular gifts for birthdays, anniversaries, or graduations may not be classified as divestments.

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