Can’t I Just Give My House To My Kids?

Can’t I Just Give My House To My Kids?

654659_origWithout a doubt, the number one question I get from clients is, “Can’t I just give away my house to my kids?” At this point, I start to worry if clients don’t ask this question. Everyone thinks they can trust their kids and that their kids will get along fine after they are no longer around. I usually answer the question by telling two real life stories that ends this line of discussion.

First, I tell them about a former client who has since passed away and decided to give her house to her son and daughter. The client went to a solo practitioner and the lawyer prepared what is called a life estate deed. Basically, the client gave away the right to own the house after she died to her two children. Unfortunately, her son died before she did. Then, because technically the client’s kids owned a right to the house even though their mom was still alive, the daughter-in-law sued the client and the client’s son to compel a sale of the home through a process called partition. Keep in mind, this is while the client is still alive and residing in her own home!

Second, I trot out the story of the mom who gave her house to her daughter when they were living together. The mom thought she was doing a good thing and followed some advice she received from her friend. Well, because of a fight the mom and daughter got into, the daughter evicted her mother from the house. She then proceeded to sue her mom to keep her off the premises!

These examples are extreme, but they are both real cases that came to me after the fact to try to preserve some of the assets the parents had left. It may seem unbelievable that these stories could even be allowed to occur in real life, they almost seem like something out of a television show. The lesson is that what seems the simplest path, especially in planning your affairs, may end up much more complex in the long run. This is why we recommend the Family Protection Trust for clients in this situation and with a desire to preserve the family home and maintain control over that asset for as long as possible.

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Long-Term Care Insurance Update

Long-Term Care Insurance Update

6337999_origIt feels like we are writing about this topic quite frequently lately, but the New York State Department of Insurance recently approved massive premium increases for owners of long-term care insurance policies provided by three companies: Genworth, First Unum, and MetLife.

The story carried by the New York Times details the increases requested by these companies, mostly in the 85% range, but none will be raised by more than 60%. That still can be a huge amount of money. Let’s say Sally buys a long-term care insurance policy when she is 60 and the annual premium is $3,500. Now Sally is 70, on a fixed-income and recently retired. If her annual premium increases 60% she will have to pay $5,600 this year to keep the policy. On average, that could cost her another $25,000 over the life of the policy in addition to what she already planned to pay.

This is the reason so many insurers are now offering a variable product, basically life insurance with a long-term care rider and some are even offering policies that just pay for in-home care. As we recently discussed, you will want to think long and hard if you are planning on canceling the policy because of the increase, because there could be a lot of hidden traps and exposure by canceling. We also think it’s a great time to consider a Family Protection Trust. 

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How To Save Money When You’re Already In The Nursing Home And Have Done No Planning

How To Save Money When You’re Already In The Nursing Home And Have Done No Planning

626213There is a common misconception that when a loved one or client enters the nursing home having done nothing in advance to protect assets, there are no options remaining. This is simply not true. While it is cheaper and easier to protect your assets in advance of needing nursing home care by using our Medicaid Trust, there are at least two important planning devices that can be implemented in a scenario where no advanced planning has been completed.

Spousal Refusal
First, for married couples, a strategy exists which potentially allows a spouse who remains in the community to retain significant assets in their name while the spouse residing in the nursing home qualifies for Medicaid benefits to pay for their stay at the facility. This strategy, called “spousal refusal”, allows a couple with assets in excess of the permitted limits to still qualify for Medicaid. For 2015 in New York State the spouse residing in the community is permitted to retain between $74,820 and $119,220 on a sliding scale in assets (called the Community Spouse Resource Allowance), depending on the amount of assets.

In addition to this Community Spouse Resource Allowance, a community spouse may retain: their home, an automobile, pre-paid funerals and burials for immediate family members, necessary tangible personal property, and retirement accounts in payout status. These assets are exempt for purposes of Medicaid qualification of the institutionalized spouse, but do not prohibit the government from instituting collection activities to recover the assets after the death of both spouses.

The spousal refusal option comes into play only when one spouse is already in the nursing home and requires careful planning by an attorney to shift assets into the community spouse’s name and subsequent to enrollment in Medicaid to use a Medicaid Trust to potentially shelter those same assets if the community spouse needs nursing home care within the following 5 years.

Gift Planning
In 2005 a major shift in Federal law altered the landscape of crisis planning for individuals already in a nursing home or for whom nursing home placement was imminent. Prior to that change, you could simply give away 1/2 of your assets and retain the other 1/2 and eventually qualify for Medicaid by spending down the 1/2 you retained until you reached the Medicaid resource qualification levels. After 2005, Medicaid now requires that if you want to start the clock running to qualify for Medicaid, you must be at the Medicaid resource qualification levels.

This means that you can no longer retain 1/2 of your assets and use them to spend down until you qualify for Medicaid. This change in Federal law resulted with the creation of what is referred to as a DRA (the Federal Deficit Reduction Act of 2005) compliant promissory note planning.

At its simplest, if you give away 1/2 of your assets, and loan the other 1/2 of your assets to your children, pursuant to a promissory note that complies with all the technical requirements of the Federal law, and your children repay you under the terms of the promissory note, you can qualify for Medicaid after you have turned over the amount of the loan to the nursing home. This is a complicated concept and requires the skills of a trained elder law attorney prior to implementation. The calculations for how much to give away and how much to loan are not 50/50, but rather, are dependent on the average cost of nursing home care and your monthly income, so the calculations are different in every single case.

These are just two of the strategies possible to qualify for Medicaid in a nursing home even if you have not done any planning. Please contact us if you or a loved one is interested in discussing these strategies further.


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Why Your Trust Is A Waste Of Money

Why Your Trust Is A Waste Of Money

2452038_origYou’ve done your homework, you shopped around, you met with an attorney several times and you finally have a set of signed documents. It is most unfortunate that you wasted a sum of money, probably in the thousands of dollars for these documents, because they may not be working for you. We have seen dozens of clients who come to consult with us that have trusts that are either inappropriate for their needs, not properly funded with their assets or do not convey the client’s intentions. Some trusts are a combination of these problems. So let’s explore some of these common problems with trusts and what you, as the consumer, can do to avoid these pitfalls:

  • Revocable Trust: One of the biggest problems we see are clients with revocable trusts that do not really need them or know why they have them. A revocable trust accomplishes NOTHING if you are interested in protecting your assets. Let me repeat that, a revocable trust does NOTHING to protect your assets from your long-term health care expenses. Many attorneys push revocable trusts on clients to avoid the process known as probate, which the attorneys advertise as expensive, scary and time-consuming. On the contrary, the probate process in New York is rather straightforward, and depending on your level of assets, not nearly as expensive as an improperly established and maintained revocable trust. There are certain times when a revocable trust would be useful, particularly for people who only have distant relatives and no immediate family and in instances where a probate contest is likely based on prior acrimony. We find that for most clients, the revocable trust is not the best vehicle to accomplish their goals and limit their future exposure to expenses.

 

  • Trust Not Funded: The biggest problem for people with trusts in existence today is that the trusts do not own what they are supposed to own. In New York, if you want the terms of your trust to direct what happens to a particular asset, that asset needs to be presently titled to the trust. If I have a savings account and I want that money to be administered after my death according to the terms of my trust, I need to retitle that account into the name of my trust. Many attorneys do not assist clients with this aspect of trust administration. We spend the most time helping clients fund their trusts and make sure that everything they want the trust to own has been retitled properly. 

 

  • Doesn’t Say What You Want: The worst thing that can happen is you pay thousands of dollars for a trust that doesn’t convey your true intentions. Part of the problem usually is that either the attorney who prepared the trust did not spend enough time with you to figure out what you really want, or, you told them what you really want and they just used their standard and form language because it is easier for them to produce documents that way. This is where a commitment to client service makes a huge difference. I don’t want to put people into a trust that they (a) don’t totally understand and (b) don’t like because it doesn’t convey their intentions and goals appropriately. I spend a lot of time with clients figuring out what they want the end product to look like, and then we customize each individual trust to fit those goals and needs.

I hope you have not wasted any money purchasing a trust that does not work for you. Perhaps you have a revocable trust and don’t really need one, maybe your trust is not funded correctly or at all, or it does not say what you want it to say. In any event, we enjoy working with people to correct these issues and to modify your existing trust or create a new trust that works best for you.

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Five Things To Know About A Medicaid Trust.

Five Things To Know About A Medicaid Trust.

8621533One of the main goals our clients have is to protect and preserve assets for the next generation. Against that context, we provide an extensive amount of consultation surrounding Medicaid planning, particularly for those who cannot afford or do not want to pay in excess of $10,000 per month to the nursing home, and for those without long-term care insurance.

I wanted to provide a basic explanation of the Trust and give you five quick things to know about it, and provide some links for additional reading for those who are interested. It is a complicated topic, but here are my top five things you need to know to determine if this planning is right for you:

  1. You remain in control: Our Family Protection Trust is designed to allow you to maintain the maximum level of control over your assets the law will allow. This means you cannot distribute trust principal to yourself. A quick example may be useful: say your house is owned by the Trust, you can sell your house (see #2 below!), and you can even use the proceeds to buy or rent a replacement residence. However, you cannot sell your house and take the proceeds and go on a trip to Bali. There is a loophole (yay lawyers!) that allows you to distribute principal to a beneficiary, but you can’t distribute it to yourself.
  2. You can still sell your house and other assets: As discussed above, if your Family Protection Trust owns your house or other assets, you have the discretion to sell those assets and purchase replacement assets. So if you want to downsize your home to a condominium, you can do that all within the confines of the Family Protection Trust.
  3. You don’t need to file a second tax return: We prepare the Family Protection Trust so that it uses your Social Security Number for income-tax purposes. This means you retain all the tax benefits of your assets and there is no additional tax preparation fee or any additional taxes caused by the Trust.
  4. There is no ongoing cost: The Family Protection Trust is designed to be user-friendly and there is no ongoing maintenance costs to keep it going or to add assets to it later on down the road. This coupled with the lack of any additional tax reporting makes the Family Protection Trust the easiest way to protect and preserve assets for the next generation.
  5. Orderly administration at time of distribution: If nothing else, the Family Protection Trust allows you to avoid probate on assets titled to it at the time of distribution. It is important that all of the assets you want the Family Protection Trust to own actually are formally re-titled to the Trust, otherwise we may still need to probate your Last Will and Testament to distribute assets held in your name alone and not in the name of the Family Protection Trust.

This is just a quick snapshot of some of the reasons we love the Family Protection Trust for clients who desire some asset protection planning and want to preserve the resources they have worked their whole life to save. Contact us for more information or to discuss this planning in-depth.


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Book Review: Can’t We Talk About Something More Pleasant? By Roz Chast

Book Review: Can’t We Talk About Something More Pleasant? By Roz Chast

6268974_origYou probably recognize the author of this book more from her great cartoons in The New Yorker than as the author of one of the greatest modern works on caregiving. Roz Chast is a member of the Sandwich Generation, a group of folks in their 30s-50s tasked with providing care to both aging parents and growing children. It is a phenomenon birthed of both our increasing longevity as a people, and the delayed onset of starting a family by many born in the 1970s-80s.

This book, but its not really a book, its what the cool kids call a graphic novel, beautifully traces Chast’s experience with her own conservative, urban parents as they age and Chast struggles to provide for their needs. Chast perfectly described her feelings, which I feel sum up a lot of the current struggles we all have with long-term care costs in her interview on Fresh Air by saying, “They were frugal…they were very careful about money. To see all that scrimping just sort of…like a Niagara Falls of expense at the end.”

I won’t spoil any more of the details, but I feel the book is a perfect lighthearted and quick read for anyone going through or having been through a struggle with parents or other relatives as they navigate leaving the family home, transitioning to some kind of senior living, the loss of a parent, and ultimately the loss of both parents.

I recommend this for all of my clients and friends who are dealing with any parent or relative in these various stages, and I’ve never heard a disappointing review. I’ve got so many copies of this book in circulation right now, I should start a library system. Check it out here.

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