Oconee Estate Planning Blog

Why Do I Need a Will, Like Yesterday?

A recent Gallup poll found that fewer than half of Americans (46%) have a last will that states the way in which their assets are to be handled after their death.

Surprisingly, the results of this survey have been nearly unchanged since 1990 at between 44% and 51%.

Real Simple’s recent article “6 Reasons You Need to Make a Will Now” says that one of the most common myths is that a last will isn’t needed if you want all of your assets to go to your family.

1. While the state has laws on what happens if you die without a last will, what if that’s not exactly how you want your estate to be distributed?
2. Another major reason for creating a last will is to make certain that someone is named to care for your minor children.
3. A last will lets you designate guardians to care for your children after your death. Without a guardian in a last will, a judge will decide who raises your children if you pass away. That judge likely would be someone who does not know you or your children or your family and friends. Without a last will, you will be allowing this “stranger” to make this life-changing decision for your children.
4. Also, there are taxes. If you have a last will in place, it will minimize estate taxes your family may have to deal with. A comprehensive estate plan created with the help of an experienced estate planning attorney can reduce tax exposure by as much as 40%. This move alone can help avoid having to pay taxes on your income a second time.
5. A last will isn’t just for your benefit. Your family will ultimately be most impacted by whether you took the time to draft up this important document. Creating a last will can give them some peace and comfort during a difficult time. In contrast, not having a last will leaves them with no guidance as to your wishes and can add to their burdens and stress during their grieving.
6. Care and maintenance of pets. The law says that pets are just property. If you regard your pets as members of the family, then you can leave money to an individual whom you designate as the caregiver for your pet if it survives you. A last will lets you to give your pet to a chosen loved one. This simple step alone can help prevent your pet from going to a shelter.

Reference: Real Simple (June 25, 2021) “6 Reasons You Need to Make a Will Now”

Suggested Key Terms: Estate Planning Lawyer, Wills, Intestacy, Probate Court, Inheritance, Asset Protection, Probate Attorney, Estate Tax

What Happens to My Home If I Leave It to a Medicaid Recipient in My Will?

When a beneficiary is on Medicaid and she’s set to get a bequest of the grantor’s home in her last will, the question may arise about the impact on her Medicaid benefits.

The answer will depend on the Medicaid program and what the daughter decides to do with the house, says nj.com’s recent article entitled “What happens to my daughter’s Medicaid if I leave her my home?”

Medicaid provides health coverage for some low-income people, families and children, pregnant women, the elderly, and people with disabilities.

In some states the program covers all low-income adults below a certain income level.

Medicaid programs are required to follow federal guidelines, but coverage and costs may be different from state to state.

Here, if the daughter receives Medicaid because she also receives SSI or has ABD Medicaid, the house will not be counted as a disqualifying asset if the house is the daughter’s principal place of residence.

If the daughter sells the house, the sale proceeds would be countable.

If she is getting expanded Medicaid through Obamacare, her eligibility would be based on income. So, if the daughter rented the house or sold the house, the income that would be generated could disqualify her from continuing to receive benefits, depending on the amount of income she gets.

If the daughter is disabled, consider leaving the daughter the house in a special needs trust. With a special needs trust, there’s a legal arrangement and fiduciary relationship that allows a physically or mentally disabled or chronically ill person to enjoy trust assets without jeopardizing their eligibility for Medicaid.

A Medicaid Asset Protection Trust is an irrevocable trust, and assets placed in the trust are considered completed gifts to the beneficiaries, protecting the assets from Medicaid (after the look-back period).

With a Medicaid Asset Protection Trust, even if the house is sold, the sale proceeds wouldn’t disqualify the daughter from receiving Medicaid.

Ask an experienced elder law attorney for help with this situation.

The laws regarding Medicaid and Medicaid eligibility are extremely complex and vary from state to state. Accordingly, nothing in this article should be considered legal advice.

Reference: nj.com (July 30, 2021) “What happens to my daughter’s Medicaid if I leave her my home?”

Suggested Key Terms: Elder Law Attorney, Special Needs Trust, Medicaid Trust Planning, Medicaid Planning Lawyer, Disability

What Should I Know about Medicaid and VA Pensions?

For seniors who are looking at Medicaid and VA Pensions, there are a few key things to consider, says WRAL.com’s recent article entitled “The top 5 things to know about Medicaid and VA pension.”

1. Background and criteria for qualification. An initial question that arises with Medicaid and VA Pension is how to know whether you are eligible. Both are needs-based programs and examine your net worth and your income. You also must satisfy certain thresholds, before you qualify for these benefits.
2. Medicaid and your assets. A frequent concern for those looking at Medicaid, is what will happen to their assets after they no longer need this assistance. Being proactive can help avoid or decrease any asset seizures. Proactive planning can save the house, and Medicaid won’t sell the house out from underneath your spouse. After the death of the person getting Medicaid, the state will attempt to recoup the cost of what it is spent on the individual. In effect, Medicaid becomes a creditor of their estate after their death. The state can potentially foreclose on the house. That is where people hear stories about Medicaid taking the house. However, with planning and the help of a Medicaid planning attorney, a senior can implement some simple tools to avoid this.
3. Misconceptions about Medicaid and VA Pension. A big misconception about these programs is that after you’ve applied once and been denied, you can’t try to qualify again. However, if your life circumstances change, you may meet requirements. Work with an elder law attorney to see exactly when you meet the eligibility requirements, so you don’t miss out on funds that might be needed.
4. Factors that affect qualification. For some planning on receiving Medicaid or VA Pensions, they may inadvertently disqualify themselves or extend their waiting period. A senior will frequently give the house to the children, and then a few years later, they need Medicaid. Medicaid has the lookback period, so they look at the past five or three years, depending on the type of Medicaid, to see if you gave anything away for less than fair market value. A house is a non-countable resource for Medicaid, if you have the intent to return home. However, if you transfer it to your children, it could cause a penalty which presents many complications upon qualifying for benefits. If you sell the house and turn it into cash in your name, the home can be taken. It’s a non-countable resource and turned it into cash, which is a countable resource. This must be spent down before qualifying.
5. Getting started. For information on Medicaid and VA pension eligibility, government websites have more information. But understanding these eligibility requirements can be difficult — and an experienced elder law attorney can make certain that you’re taking full advantage to what you’re entitled.

Reference: WRAL.com (July 1, 2021) “The top 5 things to know about Medicaid and VA pension”

Suggested Key Terms: Elder Law Attorney, Medicaid, Veterans’ Benefits, Financial Planning, Pension

More Benefits for Vets Next Year?

A new plan, to be voted on by a House Appropriations subcommittee, asks for $113.1 billion in discretionary spending for VA programs in fiscal 2022.

That’s an increase of about 8% from current levels and about $176 million more than what President Biden asked for in his budget proposal released last month.

Military Times’ recent article entitled “House lawmakers back big budget boost for Veterans Affairs programs” says that if it were approved, the proposal would result in total department spending of more than $270 billion in 2022.

“This bill demonstrates a strong commitment to our servicemembers, their families and our veterans,” said Rep. Debbie Wasserman Schultz, D-Fla., in a statement accompanying the budget proposal release.

“It’s a blueprint to make our VA and military stronger and more responsive to all those who proudly protect America, now and in the past,” the Democratic Congresswoman said.

Total department spending is expected to be more than $250 billion in fiscal 2022.

This draft budget also includes $10.9 billion for military construction projects next fiscal year—roughly $3 billion above current year levels and $1 billion more than the president’s request.

House appropriators are expected to vote to pass the plan to the full chamber soon. A possible vote on the package is expected in late July.

However, it will likely still be months before a final budget agreement is reached on VA and military construction spending with the U.S. Senate.

The latest plan calls for $97.6 billion for veteran medical care spending, of which $778.5 million would go towards gender-specific care for women veterans ($73 million more than what the White House requested), $902 million for medical and prosthetic research ($20 million more), and $84 million for “whole health” initiatives ($10 million more).

Reference: Military Times (June 24, 2021) “House lawmakers back big budget boost for Veterans Affairs programs”

Suggested Key Terms: Military, Veterans Benefits, Legislation

Powers of Attorney and Advance Directives

A medical crisis only gets worse, when you learn you don’t have legal authority to make medical decisions for a loved one, or find out after a loved one is incapacitated that you can’t gain access to assets in their trust. You need to have certain estate planning legal documents already in place, according to the article “Tips you should know for Powers of Attorney and Advance Directives” from seacoastonline.com.

Power of Attorney. The power of attorney (POA) allows one person, the “principal” to appoint another person as their “agent” (also known as an “attorney in fact”). The agent has the authority to act on behalf of the principal, depending on the powers described in the document. Each state has its own laws about who can be an agent, if more than one person can be appointed as agent and if there are any limits to what power can be given to an agent. Your estate planning attorney will be able to create a POA to suit your situation.

A POA can be created to give extremely broad powers to an agent. This is sometimes called a “general” POA, where agents can do everything that you would do, from accessing and managing bank accounts, applying for Social Security, to filing tax returns. A POA can also be limited in scope, known as “limited” POA. You could permit an agent to only sign a tax return or conduct a specific transaction.

In most estate planning scenarios, the POA is “durable,” meaning the named agent can continue to have authority to act, even if the principal is incapacitated after the documents have been executed. This makes sense: a durable POA generally avoids having to go to court and have a guardian appointed. The person you have selected will be the POA, not a court-appointed person.

Advance Directive. The advance directive allows a person to appoint another person to make medical decisions on their behalf if incapacitated. In some states, this is called a durable power of attorney for health care, and in others it is referred to as a health care proxy.

In most cases, the advance directive becomes effective when one or more treating physicians determine the person no longer has capacity to make or communicate health care decisions. Having this document in place avoids having to go to court to have a guardian appointed. If time is of the essence, any delay in decision-making could lead to a poor outcome. If there is no advance directive and physicians have decided you are unable to make these decisions, they go by a hierarchy of relatives to make the decisions for you. If you have an estranged adult child, for instance, but they are your next-of-kin, they could be the one making decisions for you.

If you have children who recently became legal adults (usually age 18), these documents will protect them as well, since just being their parent does not provide you with the right to make these decisions.

Reference: Seacoastonline.com (June 27, 2021) “Tips you should know for Powers of Attorney and Advance Directives”

Suggested Key Terms: Durable Power of Attorney, Agent, Principal, POA, Advance Directive, Guardian, Health Care Proxy, Advance Directive, Estate Planning Attorney

How to Prepare for Higher Taxes

Taxing the appreciation of property on gifting or at death as capital gains or ordinary income is under scrutiny as a means of raising significant revenue for the federal government. The Biden administration has proposed this but proposing and passing into law are two very different things, observes Financial Advisor in the article “How Rich Clients Should Prepare For A Biden Estate Tax Regime.”

The tax hikes are being considered as a means of paying for the American Jobs Act and the American Families Act. Paired with the COVID-19 relief bill, the government will need a total of $6.4 trillion over the course of a decade to cover those costs. Reportedly, both Republicans and Democrats are pushing back on this proposal.

A step-up in basis recalculates the value of appreciated assets for tax purposes when they are inherited, which is when the asset’s value usually is higher than when it was originally purchased. For the beneficiary, the step-up in basis at the death of the original owner reduces the capital gains tax on the asset. Taxes are reduced significantly, or in some cases, completely eliminated.

For now, taxpayers pay an estate tax on the value of the assets and the basis of appreciated assets is stepped up to fair market value. The plan under consideration would treat appreciated assets owned at the time of death as sold, which would trigger income tax and subject those assets to estate tax.

Biden’s proposal would also subject many families to the estate tax, which they would not otherwise face, since the federal estate tax exclusion is still historically high—$11.7 million for individuals and $23.4 million for married couples. Let’s say a widowed mother dies with a $3 million estate. Most of the value of the estate is the home she lived in with her spouse for the last four decades. Her estate would not owe any federal tax, but the deemed sale of a highly appreciated home would generate income tax liability.

The proposal allows a $1 million per individual and $2 million per married couple exclusion from gain recognition on property transferred by gift or owned at death. The $1 million per person exclusion is in addition to exclusions for property transfers of tangible personal property, transfers to a spouse, transfers to charity, capital gains on certain business stock and the current exclusion of $250,000 for capital gain on a personal residence.

How should people prepare for what sounds like an unsettling proposal but may end up at a completely different place?

For some, the right move is transferring properties now, if it makes sense with their overall estate plan. Regardless of what Congress does with this proposal, the estate tax exemption will sunset to just north of $5 million (due to inflation adjustments) from the current $11.7 million. However, the likelihood of the proposal passing in its present state is low. The best option may be to make any revisions focused on the change to the estate tax exemption levels.

Reference: Financial Advisor (June 28, 2021) “How Rich Clients Should Prepare For A Biden Estate Tax Regime”

Suggested Key Terms: Capital Gains, Estate Plan, Federal Tax, Appreciated Assets, Federal Estate Tax Exemption, Step-Up in Basis, Fair Market Value, Inherited, Gifting

Succession Planning for Farm Transition and Estate Planning

If you think it’s bad that 60% of farmers don’t have a will, here’s what’s even worse: 89% don’t have a farm transfer plan, as reported in the recent article “10 Farm Transition and Estate Planning Mistakes” from Farm Journal’s Pork Business. Here are the ten most commonly made mistakes farmers make. Substitute the word “family-owned business” for farm and the problems created are identical.

Procrastination. Just as production methods have to be updated, so does estate planning. People wait until the perfect time to create the perfect plan, but life doesn’t work that way. Having a plan of some kind is better than none at all. If you die with no plan, your family gets to clean up the mess.

Failing to plan for substitute decision-making and health care directives. Everyone should have power of attorney and health care directive planning. A business or farm that requires your day-in-day-out supervision and decision making could die with you. Name a power of attorney, name an alternate POA and have every detail of operations spelled out. You can have a different person to act as your agent for running the farm and another to make health care decisions, or the same person can take on these responsibilities. Consult with an estate planning attorney to be sure your documents reflect your wishes and speak with family members.

Failing to communicate, early and often. There’s no room for secrecy, if you want your farm or family business to transfer successfully to the next generation. Schedule family meetings on a regular basis, establish agendas, take minutes and consider having an outsider serve as a meeting facilitator.

Treating everyone equally does not fit every situation. If some family members work and live on the farm and others work and live elsewhere, their roles in the future of the farm will be different. An estate planning attorney familiar with farm families will be able to give you suggestions on how to address this.

Not inventorying assets and liabilities. Real property includes land, buildings, fencing, livestock, equipment and bank accounts. Succession planning requires a complete inventory and valuation of all assets. Check on how property is titled to be sure land you intend to leave to children is not owned by someone else. Don’t neglect liabilities. When you pass down the farm, will your children also inherit debt? Everyone needs to know what is owned and what is owed.

Making decisions based on incorrect information. If you aren’t familiar with your state’s estate tax laws, you might be handing down a different sized estate than you think. Here’s an example: in Iowa, there is no inheritance tax due on shares left to a surviving spouse, lineal descendants or charitable, religious, or educational institutions. If you live in Iowa, do you have an estate plan that takes this into consideration? Do you know what taxes will be owed, and how they will be paid?

Lack of liquidity. Death is expensive. Cash may be needed to keep the business going between the date of death and the settling of the estate. It is also important to consider who will pay for the funeral, and how? Life insurance is one option.

Disorganization. Making your loved ones go through a post-mortem scavenger hunt is unkind. Business records should be well-organized. Tell the appropriate people where important records can be found. Walk them through everything, including online accounts. Consider using an old-fashioned three-ring binder system. In times of great stress, organization is appreciated.

No team of professionals to provide experience and expertise. The saying “it takes a village” applies to estate planning and farm succession. An accountant, estate planning attorney and financial advisor will more than pay for their services. Without them, your family may be left guessing about the future of the farm and the family.

Thinking your plan is done at any point in time. Like estate planning, succession planning is never really finished. Laws change, relationships change and family farms go through changes. An estate plan is not a one-and-done event. It needs to be reviewed and refreshed every few years.

Reference: Farm Journal’s Pork Business (June 28, 2021) “10 Farm Transition and Estate Planning Mistakes”

Suggested Key Terms: Succession Planning, Estate Planning Attorney, Inventory, Valuation, Assets, Inheritance Tax, Farm Families, Property, Liabilities, Debt, Power of Attorney, POA, Will, Family Owned Business

I’ve Been Appointed My Aging Parents’ Power of Attorney but What Now?

A durable power of attorney is frequently signed by aging parents. However, sometimes the elderly can misunderstand exactly what that entails, especially when it comes to the authority of the person given decision-making powers.

The person appointed (called the agent or attorney-in-fact) is also typically an adult child. Nevertheless, he or she may be unaware of the appointment or does not grasp what is permitted and when it is permitted. It can be very confusing.

Forbes’s recent article entitled “Let’s Get Clear: What Does It Mean To Be Appointed Aging Parents’ Power Of Attorney?” provides the answers to three frequently asked questions of many heard from families.

Question: Can my father, who’s in charge of our family finances but now has dementia, revoke his DPOA that he signed years ago and name a child to take over managing his money when he needs help?

Answer: Perhaps. If Dad has dementia, he needs to be evaluated by a doctor to see if he still has the capacity to make financial decisions. This is a legal determination with help from doctors and particularly psychologists, who can perform the evaluation and give standardized test results. If the parent is found to have financial capacity, he is permitted to revoke the durable power of attorney at any time. However, if he doesn’t have mental capacity, he’s no longer legally capable of revoking the document.

Question: What if my mother is found to be incapacitated for financial decisions? If I’m the appointed agent on the DPOA, when can I use this authority?

Answer: Provided you’ve met any requirements detailed in the DPOA document itself, you can immediately take over financial authority. Some durable power of attorney documents require that a doctor or even two doctors must say the parent no longer has capacity before you can act. Some durable powers of attorney say the document is effective immediately. The agent’s authority is contained in the document.

Question: Am I allowed to keep my father from recklessly giving away money or making imprudent decisions with his wealth, if I’m the appointed agent on his DPOA?

Answer: Yes. Usually, the durable power of attorney gives the agent full authority over all financial matters.

Reference: Forbes (June 22, 2021) “Let’s Get Clear: What Does It Mean To Be Appointed Aging Parents’ Power Of Attorney?”

Suggested Key Terms: Elder Law Attorney, Capacity, Power of Attorney, Elder Care

What Happens to My Home If I Go to a Nursing Home?

An aging parent who does not have any other assets and believes she would end up on Medicaid sooner rather than later, may not know what would happen to the house that is in both her name and the name of her son.

Nj.com’s recent article entitled “What happens to my house if I go into a nursing home?” says that timing is everything, and the answer may depend on when and how the son obtained his interest in the parent’s house.

If the parent owned the house and put her son’s name on the deed along with hers, the parent made a gift of an interest in the house to her son.

Medicaid has a five-year look back period when a senior applies for Medicaid.

If an applicant made any gifts during this look back period, a penalty period will apply. During that time, an applicant isn’t eligible for Medicaid. However, if the gift was made prior to the five-year period, the penalty period is inapplicable.

If the son bought the interest in the parent’s house, the Medicaid lookback rules don’t apply.

However, in any event, Medicaid requires an applicant to “spend down” her assets to $2,000 (in most states, but the amount may vary) to qualify for the program.

A home the parent or a spouse or disabled child are living in will be considered exempt. However, it won’t be exempt if the parent, spouse, or disabled child, aren’t living in it and have no expectation of returning to it.

If the parent will not be living in or returning to her home, the parent will need to sell her interest in the home before she qualifies for Medicaid.

Alternatively, the parent and her son will have to sell the home, and she will have to use her share of the proceeds before she can qualify for Medicaid.

In addition, if the son is also providing a level of care for the parent for a period of at least two years, the parent has allowed you to stay in her home and not have to relocate to a nursing facility sooner. This exception has a complex set of rules.

Medicaid is complicated and the above information is only general in nature. Medicaid rules sometimes change and can even be applied differently based on where you live. You should consult with an estate planning or elder law attorney to make certain you take the steps that will be most beneficial to your specific set of circumstances.

Reference: nj.com (June 4, 2021) “What happens to my house if I go into a nursing home?”

Suggested Key Terms: Elder Law Attorney, Medicaid, Paying for a Nursing Home, Long-Term Care Planning, Spend Down, Medicaid Nursing Home Planning, Assisted Living, Nursing Home Care, Medicaid Planning Lawyer