Wednesday, September 10, 2014
You’ve hired an attorney to draft your will, inventoried all of your assets, and have given copies of important documents to your loved ones. But your estate planning shouldn’t stop there. Regardless of how well your will is drafted, if you do not take certain steps regarding your non-probate assets, you run the risk of unintentionally disinheriting your chosen beneficiaries from a significant portion of your estate.
A will has no effect on the distribution of certain types of property after your death. Such assets, known as “non-probate” assets are typically transferred upon your death either as a beneficiary designation or automatically, by operation of law.
For example, if your 401(k) plan indicates your spouse as a designated beneficiary, he or she automatically inherits the account upon you passing. In fact, by law, your spouse is entitled to inherit the funds in your 401(k) account. If you wish to leave your 401(k) retirement account to someone other than a surviving spouse, you must obtain a signed waiver from your spouse indicating her agreement to waive her rights to the assets in that account.
Other types of retirement accounts also transfer to your beneficiaries outside of a probate proceeding, and therefore are not subject to the provisions of your will. An Individual Retirement Account (IRA) does not automatically transfer to your spouse by operation of law as is the case with 401(k) plans, so you must complete the IRA’s beneficiary designation form, naming the heirs you want to inherit the account upon your death. Your will has no effect on who inherits your IRA; the beneficiary designation on file with the financial institution controls who will receive your property.
Similarly, you must name a beneficiary on your life insurance policy. Upon your death, the insurance proceeds are not subject to the terms of a will and will be paid directly to your named beneficiary.
Probate avoidance is a noble goal, saving your loved ones both time and money as they close your estate. In addition to the assets listed above, which must be handled through beneficiary designations, there are other types of assets that may be disposed of using a similar procedure. These include assets such as bank accounts and brokerage accounts, including stocks and bonds, in which you have named a pay-on-death (POD) or transfer-on-death (TOD) beneficiary; upon your passing, the asset will be transferred directly to the named beneficiary, regardless of what provisions are in your will. Depending on the state, vehicles may also be titled with a TOD beneficiary.
To make these arrangements, submit a beneficiary designation form to the applicable financial institution or motor vehicle department. Be sure to keep the beneficiary designations current, and provide instructions to your executor listing which assets are to be transferred in this manner. Most such designations also allow for listing of alternate beneficiaries in case they predecease you.
Another common non-probate asset is real estate that is co-owned with someone else where the deed has a survivorship provision in it. For example, many deeds to real property owned by married couples are owned jointly by both husband and wife, with right of survivorship. Upon the passing of either spouse, the interest of the passing spouse immediately passes to the surviving spouse by operation of law, irrespective of any conflicting instructions in your will. Keep in mind that you need not be married for such a provision to be in effect; joint ownership of real property with right of survivorship can exist among any group of co-owners. If you want your will to be controlling with regard to disposition of such property, you need to have a new deed prepared (and recorded) that does not have a right of survivorship provision among the co-owners.
You’ve spent a lifetime of hard work to accumulate your assets and it’s important that you take all necessary steps to ensure that your wishes regarding who will get your assets will be honored as you intend. Carve a few hours out of your busy schedule, several times a year, to review all of your deeds and beneficiary designations to make certain that they remain consistent with your objectives.
Saturday, August 30, 2014
Special needs trusts allow individuals with disabilities to qualify for need-based government assistance while maintaining access to additional assets which can be used to pay for expenses not covered by such government benefits. If the trust is set up correctly, the beneficiary will not risk losing eligibility for government benefits such as Medicaid or Supplemental Security Income (SSI) because of income or asset levels which exceed their eligibility limits.
Special needs trusts generally fall within one of two categories: self-settled or third-party trusts. The difference is based on whose assets were used to fund the trust. A self-settled trust is one that is funded with the disabled person’s own assets, such as an inheritance, a personal injury settlement or accumulated wealth. If the disabled beneficiary ever had the legal right to use the money without restriction, the trust is most likely self-settled.
On the other hand, a third-party trust is established by and funded with assets belonging to someone other than the beneficiary.
Ideally, an inheritance for the benefit of a disabled individual should be left through third-party special needs trust. Otherwise, if the inheritance is left outright to the disabled beneficiary, a trust can often be set up by a court at the request of a conservator or other family member to hold the assets and provide for the beneficiary without affecting his or her eligibility for government benefits.
The treatment and effect of a particular trust will differ according to which category the trust falls under.
A self-settled trust:
Must include a provision that, upon the beneficiary’s death, the state Medicaid agency will be reimbursed for the cost of benefits received by the beneficiary.
May significantly limit the kinds of payments the trustee can make, which can vary according to state law.
May require an annual accounting of trust expenditures to the state Medicaid agency.
May cause the beneficiary to be deemed to have access to trust income or assets, if rules are not followed exactly, thereby jeopardizing the beneficiary’s eligibility for SSI or Medicaid benefits.
Will be taxed as if its assets still belonged to the beneficiary.
May not be available as an option for disabled individuals over the age of 65.
A third-party settled special needs trust:
Can pay for shelter and food for the beneficiary, although these expenditures may reduce the beneficiary’s eligibility for SSI payments.
Can be distributed to charities or other family members upon the disabled beneficiary’s death.
Can be terminated if the beneficiary’s condition improves and he or she no longer requires the assistance of SSI or Medicaid, and the remaining balance will be distributed to the beneficiary.
Wednesday, August 20, 2014
Individuals who are beginning the estate planning process may assume it's best to have their adult child(ren) join them in the initial meeting with an estate planning attorney, but this may cause more harm than good.
This issue comes up often in the estate planning and elder law field, and it's a matter of client confidentiality. The attorney must determine who their client is- the individual looking to draft an estate plan or their adult children- and they owe confidentiality to that particular client.
The client is the person whose interests are most at stake. In this case, it is the parent. The attorney must be certain that they understand your wishes, goals and objectives. Having your child in the meeting could cause a problem if your child is joining in on the conversation, which may make it difficult for the attorney to determine if the wishes are those of your child, or are really your wishes.
Especially when representing elderly clients, there may be concerns that the wishes and desires of a child may be in conflict with the best interests of the parent. For example, in a Medicaid and long-term care estate planning context, the attorney may explain various options and one of those may involve transferring, or gifting, assets to children. The child's interest (purely from a financial aspect) would be to receive this gift. However, that may not be what the parent wants, or feels comfortable with. The parent may be reluctant to express those concerns to the attorney if the child is sitting right next to the parent in the meeting.
Also, the attorney will need to make a determination concerning the client's competency. Attorneys are usually able to assess a client's ability to make decisions during the initial meeting. Having a child in the room may make it more difficult for the attorney to determine competency because the child may be "guiding" the parent and finishing the parents thoughts in an attempt to help.
The American Bar Association has published a pamphlet on these issues titled "Why Am I Left in the Waiting Room?" that may be helpful for you and your child to read prior to meeting with an attorney.
Sunday, August 10, 2014
A Pooled Income Trust is a special type of trust that 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 which is set up and managed by a not-for-profit organization.
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: (a) 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 Pool 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.
As with all long term care planning tools, it’s imperative that you consult a qualified estate planning attorney who can make sure that you are in compliance with all local and federal laws.
Thursday, July 31, 2014
Veterans’ Non-Service Connected Pension Benefits
The Veterans’ Administration’s non-service connected pension program can help supplement the income of elderly or disabled veterans. The VA deems any veteran age 65 or older to be permanently and totally disabled. This “disabled” classification entitles senior citizens who are veterans, or their widows, to tax-free pension payments regardless of their actual physical condition, provided they meet the needs-based criteria.
One significant advantage of this program is that, unlike a traditional service-connected pension, there is no requirement that your injury or disability be tied to your time in service. On the other hand, this is a needs-based assistance program, so many veterans may not qualify for benefits.
To qualify for benefits under the program, you must have served on active duty for at least 90 days, and at least one of those days must have been during a time of war. Additionally, you must not have had a dishonorable discharge from the military.
Periods of war time are determined by the U.S. Congress as follows:
- Mexican Border Period: May 9, 1916 through April 5, 1917, only if you served in Mexico, on its borders or in adjacent waters
- World War I: April 6th, 1917 through November 11, 1918, or through April 1, 1920 if you served in Russia
- World War II: December 7, 1941 through December 31, 1946
- Korean Conflict: June 27, 1950 through January 31, 1955
- Vietnam Era: August 5, 1964 through May 7, 1965, or beginning February 28, 1961 you served in Vietnam
- Persian Gulf War: August 2, 1990 through the present
Once qualifying military service is established, you must also pass the income and asset tests. The VA must determine that your net worth is not enough to adequately support you during your lifetime. Your vehicle and primary residence are not counted when determining your net worth. The VA generally caps net worth, exclusive of your car and primary residence, at $80,000 for a married veteran, or $40,000 for a single person.
Additionally, your countable income must be lower than the available pension amount. Fortunately, countable income is offset by your unreimbursed, recurring health care costs, including prescriptions, insurance premiums or assisted living expenses.
Thursday, July 17, 2014
Important Issues to Consider When Setting Up Your Estate Plan
Often estate planning focuses on the “big picture” issues, such as who gets what, whether a living trust should be created to avoid probate and tax planning to minimize gift and estate taxes. However, there are many smaller issues, which are just as critical to the success of your overall estate plan. Below are some of the issues that are often overlooked by clients and sometimes their attorneys.
Is there sufficient cash? Estates incur operating expenses throughout the administration phase. The estate often has to pay state or federal estate taxes, filing fees, living expenses for a surviving spouse or other dependents, cover regular expenses to maintain assets held in the estate, and various legal expenses associated with settling the estate.
How will taxes be paid? Although the estate may be small enough to avoid federal estate taxes, there are other taxes which must be paid. Depending on jurisdiction, the state may impose an estate tax. If the estate is earning income, it must pay income taxes until the estate is fully settled. Income taxes are paid from the liquid assets held in the estate, however estate taxes could be paid by either the estate or from each beneficiary’s inheritance if the underlying assets are liquid.
What, exactly, is held in the estate? The owner of the estate certainly knows this information, but estate administrators, successor trustees and executors may not have certain information readily available. A notebook or list documenting what major items are owned by the estate should be left for the estate administrator. It should also include locations and identifying information, including serial numbers and account numbers.
Your estate can’t be settled until all creditors have been paid. As with your assets, be sure to leave your estate administrator a document listing all creditors and account numbers. Be sure to also include information regarding where your records are kept, in the event there are disputes regarding the amount the creditor claims is owed.
Some assets are not subject to the terms of a will. Instead, they are transferred directly to a beneficiary according to the instruction made on a beneficiary designation form. Bank accounts, life insurance policies, annuities, retirement plans, IRAs and most motor vehicles departments allow you to designate a beneficiary to inherit the asset upon your death. By doing so, the asset is not included in the probate estate and simply passes to your designated beneficiary by operation of law.
Fund Your Living Trust
Your probate-avoidance living trust will not keep your estate out of the probate court unless you formally transfer your assets into the trust. Only assets which are legally owned by the trust are subject to its terms. Title to your real property, vehicles, investments and other financial accounts should be transferred into the name of your living trust.
Tuesday, July 8, 2014
Common Estate Planning Myths
Estate planning is a powerful tool that among other things, enables you to direct exactly how your assets will be handled upon your death or disability. A well-crafted estate plan will ensure you and your family avoid the hassles of guardianship, conservatorship, probate or unpleasant estate tax surprises. Unfortunately, many individuals have fallen victim to several persistent myths and misconceptions about estate planning and what happens if you die or become incapacitated.
Some of these misconceptions about living trusts and wills cause people to postpone their estate planning – often until it is too late. Which myths have you heard? Which ones have you believed?
Myth: I’m not rich so I don’t need estate planning.
Fact: Estate planning is not just for the wealthy, and provides many benefits regardless of your income or assets. For example, a good estate plan includes provisions for caring for a minor or disabled child, caring for a surviving spouse, caring for pets, transferring ownership of property or business interests according to your wishes, tax savings, and probate avoidance.
Myth: I’m too young to create an estate plan.
Fact: Accidents happen. None of us knows exactly when we will die or become incapacitated. Even if you have no assets and no family to support, you should have a power of attorney and health care directive in place, in case you ever become disabled or incapacitated.
Myth: Owning property in joint tenancy is an easier, more affordable way to avoid probate than placing it in a revocable living trust.
Fact: It is true that property held in joint tenancy will pass to the other owner(s) outside of the probate process. However, it is a usually a very bad idea. Placing property in joint tenancy constitutes a gift to the joint tenant, and may result in a sizable gift tax being owed. Furthermore, once the deed is executed, the property is legally owned by all joint tenants and may be subject to the claims of any joint tenant’s creditors. Transferring a property into joint tenancy is irrevocable, unless all parties consent to a future transfer; whereas property owned in a living trust remains under your control and the transfer is fully revocable until your death.
Myth: Keeping property out of probate saves money on federal estate taxes.
Fact: Probate, and probate avoidance, are governed by state law and address how property passes upon your death; they have nothing to do with federal estate taxes, which are set forth in the Internal Revenue Code. Estate planning can reduce estate taxes, but that has nothing to do with a discussion regarding probate avoidance.
Myth: I don’t need a living trust if I have a will.
Fact: A properly drafted trust contains provisions addressing what happens to your property if you become incapacitated. On the other hand, a will only becomes effective upon your death and specifies who will inherit the property. If you own real property, or have more than $100,000 in assets, both a will and a living trust are generally recommended.
Myth: With a living trust, a surviving spouse need not take any action after the other spouse’s death.
Fact: Failure to adhere to the proper legal formalities following a death could result in significant administrative and tax implications. While a properly drafted and funded living trust will avoid probate, there are still many tasks that have to be performed such as filing documents, sending notices and transferring assets.
Tuesday, June 24, 2014
Senior Citizens Comprise Growing Demographic of Bankruptcy Filers
It’s called your “golden years” but for many seniors and baby boomers, there is no gold and retirement savings are too often insufficient to maintain even basic living standards of retirees. In fact, a recent study by the University of Michigan found that baby boomers are the fastest growing age group filing for bankruptcy. And even for those who have not yet filed for bankruptcy, a lack of retirement savings greatly troubles many who face their final years with fear and uncertainty.
Another study, conducted by Financial Engines revealed that nearly half of all baby boomers fear they will be in the poor house after retirement. Adding insult to injury, this anxiety also discourages many from taking the necessary steps to establish and implement a clear, workable financial plan. So instead, they find themselves with mounting credit card debt, and a shortfall when it comes time to pay the bills.
In fact, one in every four baby boomers have depleted their savings during the recession and nearly half face the prospect of running out of money after they retire. With the depletion of their savings, many seniors are resorting to the use of credit cards to maintain their standard of living. This is further exacerbated by skyrocketing medical costs, and the desire to lend a helping hand to adult children, many of whom are also under financial distress. These circumstances have led to a dramatic increase in the number of senior citizens finding themselves in financial trouble and turning to the bankruptcy courts for relief.
In 2010, seven percent of all bankruptcy filers were over the age of 65. That’s up from just two percent a decade ago. For the 55-and-up age bracket, that number balloons to 22 percent of all bankruptcy filings nationwide.
Whether filing for bankruptcy relief under a Chapter 7 liquidation, or a Chapter 13 reorganization, senior citizens face their own hurdles. Unlike many younger filers, senior citizens tend to have more equity in their homes, and less opportunity to increase their incomes. The lack of well-paying job prospects severely limits older Americans’ ability to re-establish themselves financially following a bankruptcy, especially since their income sources are typically fixed while their expenses continue to increase.
Thursday, June 12, 2014
You’ve Finally Done Your Healthcare Directives – Now What?
Healthcare directives can be vitally important, as recent cases, like that of Terry Schiavo, clearly brought to light. These important documents can mean the difference between your health care wishes being carried out or family members fighting over whether a loved one should be placed in a nursing home or removed from life support. Healthcare directives usually include both a healthcare power of attorney and a living will, or a form which is a combination of the two. In a healthcare power of attorney, an individual authorizes another individual to make healthcare decisions for him or her if the individual becomes unable to do so. A living will expresses an individual’s preferences about life support.
Once you have executed your healthcare directives, you may be uncertain as to what to do with them. First, you should make copies of the documents and inform others of their existence. In addition to your health care agent, persons you should consider notifying of the directives include family members and your health care providers. Ideally, the originals should be kept in a place that is both safe and easily accessible.
You may wish to consider using a secure registry service to store your healthcare directives. Such services allow you to access healthcare directives any time and in any location with access to the Internet. Some also allow the documents to be accessed via an automated fax-back service. In addition to providing the healthcare directives, many registries also allow caregivers to access information like emergency contacts, allergies, and other pertinent medical information.
You should review your healthcare directives regularly. As individuals get older, their preferences about health care and life support change, and it’s important that your directives reflect your current health care wishes. Of course, life changing events such as marriage, divorce, or the death of a loved one typically require changes in those documents to ensure that the people named in them are still those you wish to make decisions on your behalf.
Moving to another state? Many states provide that healthcare directives prepared in another state are valid, but you should consult an attorney to make sure your wishes will be carried out in the manner you desire.
Establishing your healthcare directives can spare your family a great deal of anguish if they need to make decisions at a time that is already very emotionally-charged. By keeping the documents in a secure place, providing copies to loved ones, and reviewing them regularly, you can be more certain that your healthcare wishes will be carried out.
Tuesday, June 3, 2014
A Simple Will Is Not Enough
A basic last will and testament cannot accomplish every goal of estate planning; in fact, it often cannot even accomplish the most common goals. This fact often surprises people who are going through the estate planning process for the first time. In addition to a last will and testament, there are other important planning tools which are necessary to ensure your estate planning wishes are honored.
Do you have a pension plan, 401(k), life insurance, a bank account with a pay-on-death directive, or investments in transfer-on-death (TOD) form?
When you established each of these accounts, you designated at least one beneficiary of the account in the event of your death. You cannot use your will to change or override the beneficiary designations of such accounts. Instead, you must change them directly with the bank or company that holds the account.
Special Needs Trusts
Do you have a child or other beneficiary with special needs?
Leaving money directly to a beneficiary who has long-term special medical needs may threaten his or her ability to qualify for government benefits and may also create an unnecessary tax burden. A simple vehicle called a special needs trust is a more effective way to care for an adult child with special needs after your death.
Conditional Giving with Living or Testamentary Trusts
Do you want to place conditions on some of your bequests?
If you want your children or other beneficiaries to receive an inheritance only if they meet or continually meet certain prerequisites, you must utilize a trust, either one established during your lifetime (living trust) or one created through instructions provided in a will (testamentary trust).
Estate Tax Planning
Do you expect your estate to owe estate taxes?
A basic will cannot help you lower the estate tax burden on your assets after death. If you think your estate will be liable to pay taxes, you can take steps during your lifetime to minimize that burden on your beneficiaries. Certain trusts operate to minimize estate taxes, and you may choose to make some gifts during your lifetime for tax-related reasons.
Joint Tenancy with Right of Survivorship
Do you own a house with someone “in joint tenancy”?
“Joint tenancy” is the most common form of house ownership with a spouse. This form of ownership is also known as “joint tenancy with right of survivorship,” “tenancy in the entirety,” or “community property with right of survivorship.” When you die, your ownership share in the house passes directly to your spouse (or the other co-owner). A provision in your will bequeathing your ownership share to a third party will not have any effect.
Do you want to leave money to your pets or companion animals?
Pets are generally considered property, and you cannot use your will to leave property (money) to other property (pets). Instead, you can use your will to name a caretaker for your animals and to leave a sum of money to that person for the animals’ care.
Thursday, May 29, 2014
What’s Involved in Serving as an Executor?
An executor is the person designated in a Will as the individual who is responsible for performing a number of tasks necessary to wind down the decedent’s affairs. Generally, the executor’s responsibilities involve taking charge of the deceased person’s assets, notifying beneficiaries and creditors, paying the estate’s debts and distributing the property to the beneficiaries. The executor may also be a beneficiary of the Will, though he or she must treat all beneficiaries fairly and in accordance with the provisions of the Will.
First and foremost, an executor must obtain the original, signed Will as well as other important documents such as certified copies of the Death Certificate. The executor must notify all persons who have an interest in the estate or who are named as beneficiaries in the Will. A list of all assets must be compiled, including value at the date of death. The executor must take steps to secure all assets, whether by taking possession of them, or by obtaining adequate insurance. Assets of the estate include all real and personal property owned by the decedent; overlooked assets sometimes include stocks, bonds, pension funds, bank accounts, safety deposit boxes, annuity payments, holiday pay, and work-related life insurance or survivor benefits.
The executor is responsible for compiling a list of the decedent’s debts, as well. Debts can include credit card accounts, loan payments, mortgages, home utilities, tax arrears, alimony and outstanding leases. All of the decedent’s creditors must also be notified and given an opportunity to make a claim against the estate.
Whether the Will must be probated depends on a variety of factors, including size of the estate and how the decedent’s assets were titled. An experienced probate or estate planning attorney can help determine whether probate is required, and assist with carrying out the executor’s duties. If the estate must go through probate, the executor must file with the court to probate the Will and be appointed as the estate’s legal representative. Once the executor has this legal authority, he or she must pay all of the decedent’s outstanding debts, provided there are sufficient assets in the estate. After debts have been paid, the executor must distribute the remaining real and personal property to the beneficiaries, in accordance with the wishes set forth in the Will. Because the executor is accountable to the beneficiaries of the estate, it is extremely important to keep complete, accurate records of all expenditures, correspondence, asset distribution, and filings with the court and government agencies.
The executor is also responsible for filing all tax returns for the deceased person including federal and state income tax returns and estate tax filings, if applicable. Additional tasks may include notifying carriers for homeowner’s and auto insurance policies and initiating claims on life insurance policies.
The executor is entitled to compensation for his or her services. This fee varies according to the estate’s size and may be subject to review depending on the complexity as well as the time and effort expended by the executor.
Peña & Bromberg, a Professional Law Corporation serves clients throughout Central Valley CA including San Francisco Bay, Oakland, Bakersfield, Madera, Stockton, Fresno, Sacramento, & Modesto.
The office assists Social Security Disability & Veterans Disability clients nationwide.