Trusts and Estates Wills and Probate Tax Saving Strategies Medicaid

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Gratitude has to do with appreciation. Appreciation means to add value to. Things that appreciate tend to grow, just as being grateful for something or someone raises its or their value in our estimation.  Even though, at any given time, countless more things are going right than going wrong in most of our lives, too many of us focus more on what’s going wrong and take for granted what’s going right — our health, our loved ones, our resources.

“Gratitude interventions” is the term used for cultivating the attitude of gratitude in our lives. The father of positive psychology, Martin E. P. Seligman, suggests an exercise called “Three Good Things” whereby at the end of the day you write down three good things that happened to you and why. The “why” is very important.

An app called “Gratitude Plus” allows you to (1) share gratitude with your favorite people (2) easily reflect on the good in your life (3) create groups with friends and family (4) hear from people around the world (5) track progress and understand trends (6) use streaks to build a habit (7) get creative with a variety of prompts, and (8) stay positive with daily affirmations. As to the latter, your writer has found reading daily affirmations to be an invaluable resource for maintaining a positive mindset. The great motivational speaker Zig Ziglar notably said that “People say that motivation doesn’t last.  Neither does bathing – that’s why we recommend it daily”. Daily positive affirmations may be found by googling “daily affirmations” and choosing one of the free services that appeals to you.

When Husband Handled the Finances

While women and men have many issues in common, some of these issues tend to affect women more deeply. For example, in the case of the death or disability of a spouse, it is more often the surviving wife who is unfamiliar with handling the family finances. In the course of planning for such a couple, it is wise to find a financial advisor that the wife can turn to. Ideally, this relationship should be developed over the years while the husband is living, so that there is a seamless transfer of decision-making. Where such a relationship with a financial advisor is absent, one of the financially savvy children may be named as a co-trustee with the surviving wife or, should none of the children be suitable for that role, the attorney as co-trustee may be considered.

 Children from Prior Marriages

Gifting to minors raises some unique considerations. For one, people under the age of eighteen lack the legal capacity to own assets.  The Uniform Transfer to Minors Act (UTMA) was created to protect assets that are passed on to minors.  This act determines when minors can receive an inheritance for assets passed to the control of a custodian.

The primary advantage of an UTMA account is that funds passed into it are exempt from paying a gift tax of up to $17,000 a year for 2023.  This gift may be in the form of money, bonds or stocks.  Any money earned on contributed funds is taxed at the minor’s rate.  Given that a minor’s income is almost always lower than an older donor’s rate, this often results in income tax savings.  One disadvantage to using an UTMA account is that it can make a recipient less eligible for needs based scholarship opportunities.

Whereas an UTMA account must pay out any unused balance to the minor at age 21, inheritances that involve substantial assets should be left to a trust instead which may extend the distribution to any age or “stagger” the distribution in a series of payments, or percentages, at stated ages.

  1. Trusts can shield your assets from the high cost of home care making you eligible for home health aides through the Medicaid program.
  2. Trusts start the five year “look-back” for institutional care, making you eligible for Medicaid benefits to pay for a nursing home.
  3. Trusts can ensure the inheritances you leave will stay in the bloodline for your grandchildren and not end up with in-laws and their families.

Two overriding questions govern your choices in an elder law estate plan. First, what will happen to your assets when you pass away? Second, what will happen to your assets if you need long-term care? A comprehensive plan covers both issues. You must protect assets from going to long-term care costs so that the assets may transfer to your beneficiaries instead.

Plan A, and the best protection from long-term care costs, is long-term care insurance. Factors to consider include the daily benefit amount and an inflation rider that keeps pace with the increasing cost of nursing homes. Long-term care insurance also pays for home health aides, which allows you to “age in place,” rather than go to a facility.

If you don’t have, or cannot get, long-term care insurance, Plan B is the Medicaid Asset Protection Trust (MAPT).  Assets that have been in the MAPT for a minimum of five years are protected from nursing home costs and, under upcoming laws, two and a half years for home care.

Planning for, and then executing, inheritances is often fraught with emotion.

Most families choose to leave the inheritance “to my children in equal shares, per stirpes.”  Per stirpes is Latin meaning “by the roots” so that if a child dies before the parent, their share goes to their children (if any) in equal shares.  If there are no children, then generally the inheritance is disregarded and their share goes to their surviving siblings in equal shares.

What about gifts to grandchildren?  Let’s say one child has five children and the other has two children — seven grandchildren altogether. When a significant gift is given to grandchildren equally, it is not uncommon for the child with two children to say “well it was my brother’s choice to have five children, why do I have to pay for it?”  Good estate planning also looks at inheritances from the heirs’ point of view as well.

An Aging Life Care Manager (ALCM) is a health and human services specialist who acts as a guide and advocate for families who are caring for older relatives or disabled adults.  The expertise of ALCM’s can be summarized into these knowledge areas.

Health and Disability.  From physical problems to mental health and dementia-related problems, ALCM’s interact with the health care system by attending doctor appointments and facilitating communication between doctor, client and family.  They help determine types of services – such as home health and hospice – that are right for a client and assist in engaging and monitoring those services.

Financial. Reviewing or overseeing bill paying or consulting with a client’s accountant or agent under a power of attorney.  ALCM’s provide information on Federal and state entitlements, connecting families to local programs when appropriate. They also help clients and families with insurance concerns, claims and applications.

Revocable living trusts, where the grantor (creator) and the trustee (manager) are the same person, use the grantor’s social security number and are not required to file an income tax return. All income and capital gains taxes are reported on the individual’s Form 1040.

Irrevocable living trusts come in two main varieties, “grantor” and “non-grantor” trusts. Non-grantor trusts are often used by the wealthy to give assets away during their lifetime and for all income and capital gains taxes to be paid either by the trust or the trust beneficiary but not by them. Gifts to non-grantor trusts are reported to the IRS but are rarely taxable. Currently, the annual exclusion is $17,000 per person per year to as many people as you wish. However, if you go over the $17,000 to any one person you must report the gift to Uncle Sam, but they merely subtract the excess gift from the $12,920,000 each person is allowed to give at death. Most of our clients are “comfortably under” as we like to say. These gifts then grow estate tax-free to the recipient.

Grantor trusts, such as the Medicaid Asset Protection Trust (MAPT), are designed to get the assets out of your name for Medicaid purposes but keep them in your name for tax purposes. You continue to receive income from the MAPT and pay income tax the same as before. The MAPT files an “informational return” (Form 1041) telling the IRS that all the income is passing through to you.  Gifts to non-grantor trusts take the grantor’s “basis” for calculating capital gains taxes on sale, i.e. what the grantor originally paid and, if real estate, plus any capital improvements.

New York law prevents spouses from being disinherited. Instead, a spouse who is disinherited may go to court and claim their “elective share” which is the greater of fifty thousand dollars or one-third of the estate.

Questions often arise as what the “estate” of the deceased spouse consists of. Naturally, any assets in the decedent’s name only and listed in the estate court proceeding apply. Other assets, known as “testamentary substitutes” because they do not pay by will, and is against which the spouse may make their claim are: bank accounts, investment accounts and retirement accounts with named beneficiaries other than the spouse or, similarly, those same asset if they have a joint owner other than the spouse. An exception would be if the other joint owner had made contributions to the joint account and then as to the contributions only.

Gifts made within one year of death are also available for the elective share claim. Oddly enough, life insurance is not considered a testamentary substitute however annuities are.

In the fall of 1990, some thirty plus years ago, your writer first heard of the proposition that if you set up a living trust your estate doesn’t have to go to court to settle – the so-called probate court proceeding for wills. Having spent the previous eleven years as a litigation attorney, and having faced numerous problems probating wills, this sounded too good to be true.

At the time, some of the best estate planning lawyers were in Florida. Perhaps you can guess why. In any event, off I went to Florida to train as an estate planning lawyer and, upon returning, closed the litigation practice and founded Ettinger Law Firm in April 1991, to keep people just like you, dear reader, out of probate court.

The reason I was so excited about the living trust, and continue to be so to this day, is the concept of taking back control from the courts and government and giving it back to you and your family. After all, who doesn’t want control over their affairs?

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