Giving Series: One Time, Direct to Individuals

There is never a bad time to want to give. The reasons for giving are varied, but we are blessed to help our clients give strategically so that our client’s gift can help establish and continue their legacy.  This series of gift giving will go over six ways of giving. The first one being: One Time, Direct to Individuals :

You can give one-time, direct gifts to individuals.  The IRS Code limits the gifts one person can give to another person to:  $14,000.00 per year; or, an unlimited amount directly to a medical facility for another person’s medical expenses; or, an unlimited amount directly to an accredited education institution for another person’s education expenses.  Unfortunately, funding a 529 Plan or Education Savings account does not qualify for the education gifting exemption.  This means that you may gift up to $14,000 to one other person, but also help them by directly paying for medical or educational expenses.  If you are married, you may each give the cash amount so that you can gift $28,000.00.

Why Asset Protection Planning is the Next Step for Your Long Term Care

So, you have a traditional trust — one that is revocable, and changeable, and will avoid the need for a guardian or probate in the event of incapacity or death.  But, did you know that this type of trust offers no additional protection against your creditors, not during your life nor after it?  For many people it is this gap — the lack of protection against the rising cost of long term care and the risk to their non-liquid assets — that motivates them to use an irrevocable trust to hold their assets.

The reality is that the cost of long term care is increasing exponentially.  In 2015, the US Department of Health and Human Service’s determined that the average cost of care is $138,000 per individual.  In the same month, Forbes Magazine estimated the higher figure of $265,000 per individual.  This is not limited to medical care costs like a hospital stay, or medication.  Long term care is defined as the care one needs to meet their basic activities of daily living, like meal preparations, using the rest room, paying bills, or taking medication.  According to the same government study, each of us has a 50% chance of needing assistance to meet these needs if we are 65 years old and older.  And, sadly, between inflation, and economic troubles, and decades of relying on limited pensions and social security to meet financial needs, the reality is that many people do not have the liquid investments on hand to meet the rising cost of their long term care needs.

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Annuities May Create Too Much Income

The last several weeks, I’ve addressed how individuals can maximize their available resources in order to afford needed care as they age.  One to the questions I regular get is whether a person is automatically disqualified from Medicaid if he or her income is too high.  The short answer is no.

Medicaid says that you cannot qualify if you earn more than $2,199 per month.  However, you may still apply for Medicaid even if you earn income above that amount.  In order to apply, you must set up something called a “Qualified Income Trust.”  Some states call it a “Miller Trust.”  Usually this trust is managed by the well spouse.

The basic concept for this kind of trust is that it siphons off and holds the applicant’s income.  All of the applicant’s income, no matter it’s source, must be deposited into the bank account for the Qualified Income Trust.  For example, the applicant’s social security, pension payments, and any annuity payments must all be deposited there.

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Start Tracking Now to Avoid Penalty Later

When applying for Medicaid, the government will presume that any transfers you made for less than fair market value in the last five years was done with the specific intent to qualify for Medicaid.  Even if that was not your intention, Medicaid will treat the transfer as a gift.  Under Medicaid rules, amounts gifted are treated as if they were still in your possession on the day you otherwise qualified for Medicaid and you will be penalized as if that cash was still in your bank account.

For example, Jane gave $15,000 to her grandson to help him with college.  Three years later, she applies for Medicaid when moved into a skilled nursing facility.  Even though that money is long gone, Nevada Medicaid will treat it as if that money was still in her bank account and could be used for her care.  Even though she would otherwise qualify for Medicaid, she would be disqualified for a period of three months.  This means that for a period of three months, Jane would not have any assistance from Medicaid even though she actually has less than $2,000 in the bank.


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Proper Planning Can Protect Healthy Spouse

As we or our parents’ age, we will be forced to confront how to receive quality long term care.  At a certain point, aging adults will need assistance to meet their daily needs.  Many times, this is done in an assisted living or skilled nursing facility.  The concern becomes affording such care.  Medical insurance rarely covers skilled nursing.  Instead, the cost of such a facility may be covered by long term care insurance, privately funded, or covered by Medicaid.

If you are married, the well spouse does not have to become impoverished to place the disabled spouse in skilled nursing.  As a married couple, you do not need to spend all of your assets on care for the sick spouse.  It is very poor planning to spend all of your hard earned retirement on the care of one spouse, and then have years or decades left in your own life with no way to pay for your basic necessities like food or shelter.  Instead, with proper planning, we can protect assets for the well spouse staying at home while still providing for the sick spouse’s care with the assistance of Medicaid.

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Deciphering Medicare & Medicaid

As you age, you will be faced with many difficult decisions, not the least of which is how to pay for mounting medical costs.  Medicare and Medicaid are two government programs that purport to help you pay for care.  But often, these programs are insufficient, encourage you to impoverish yourself, and offer poor quality of life.  Proper planning, however, can help you avoid these traps, and maintain your independence.

Medicaid.  Medicare.  These terms can be confusing.  People often mix them up, or think that one provides more medical coverage than it actually does. Continue reading “Deciphering Medicare & Medicaid”

Make Your Own Plan to Pass Your Values

One of the biggest legal fallacies that I see clients hold is the belief that if they die, all of their assets go to a certain person automatically.  Most assume that if they are married, that their assets will go to their surviving spouse.  Absent a will or trust, however, that statement may not be true.

Property owned in joint tenancy will go to the other owner no matter who that owner is – whether it is a spouse, sibling, or child.  Many hold their homes and bank accounts in joint tenancy.  If you hold property like that, then you need to understand that the property becomes owned wholly by the surviving joint tenant upon your death.  Most commonly, I see older adults add one child as the joint tenant on a bank account in order to assist with the payment of bills.  When you do that, the bank account becomes owned by that child upon your passing – potentially bypassing your other children. Continue reading “Make Your Own Plan to Pass Your Values”

Giving Notice to Creditors Best Defense

When someone acts as the Executor of a probate estate or the Successor Trustee of a trust, they often focus on the ultimate beneficiaries of the will or trust.  The Executor or Trustee tends to be concerned about whether a beneficiary will object, or how quickly they can distribute to a beneficiary in need.  While certainly valid concerns, you should not overlook the creditors of an Estate.

When someone passes away, they will owe money to someone.  Sometimes it is as simple as the last month’s utility bills.  There are also usually bills owed from the last illness, like medical or funeral expenses.  There may be larger debts owed such as credit card bills and the mortgage.  Just because someone has passed away does not mean that these debts can go unpaid.  Indeed, the assets of an Estate must be used to pay the last bills of the deceased person.

An Executor or Trustee is not personally responsible for the debts of the deceased, unless the Executor or Trustee guaranteed the debt (such as a co-signer for a mortgage).  The Executor or Trustee has a legal obligation to use the deceased’s assets to pay outstanding bills.  If an Executor or Trustee fails to pay known creditor’s bills when there were assets in the Estate to pay that bill, then the Executor or Trustee could be liable to pay that bill him or herself.

When someone passes away, a creditor has up to three years to go after the deceased person’s assets in order to have those assets used to satisfy the bill.  However, that time can be cut short by simply giving notice to creditors.  By mailing notice to known creditors and publishing notice in the newspaper, the Executor or Trustee can force creditors to file a claim for payment within 60 to 90 days.  If the creditor fails to timely file, then their claim is forever barred by statute. Continue reading “Giving Notice to Creditors Best Defense”

Executor Has Solemn Duty

When a probate case is filed with the court, the court appoints an executor to manage the probate.  When someone is appointed as an Executor – also known as a Personal Representative or Administrator– there are certain legal obligations and duties he or she must carry out.  In Douglas County, an Executor must actually sign a court-form acknowledging that they bear these duties before they can begin to act on behalf of the Estate.

Foundational to all of these duties is the fact that an Executor acts in a “fiduciary capacity.”  This means that the Executor must manage the assets of the Estate and treat all the beneficiaries and creditors of the estate fairly and equally.  The Executor is often a beneficiary of the Estate, and he or she cannot show preferential treatment to him or herself, nor to any one beneficiary or creditor.  These duties can be generally broken down into the following:

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Probate is Not a Four Letter Word

Sometimes I think “probate” is a four letter word.  Many people are more concerned about avoiding probate than avoiding the IRS.  Yet, many people do not understand what probate is.

Probate is the court-supervised process of transferring assets from one generation to the next.  Under strict laws and deadlines, a judge requires the executor to gather your assets, pay your creditors, file your last tax return, and then distribute the assets.  If you leave a Last Will and Testament, then the judge generally directs that the assets be divided as you instructed.  Think of a Last Will as legally-enforceable instructions to the judge about where you want your belongings to go.  If you do not leave a Last Will, then state law provides that your assets are to be distributed to your next-of-kin.

As a court process, there are fees and costs involved in a probate. There is a court filing fee (between $200 and $600 per statute). There may be attorney’s fees, and your executor is entitled to a percentage of the assets probated as compensation for all of his or her hard work.  As a rough estimate, approximately 5% to 10% of the value of the assets will be used to pay for court fees, costs, and compensation.

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