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Estate Planning & Wills


Estate Planning & Wills

Many people think that a will is only for those who want to set up trusts or save taxes. That may be one benefit. But the primary reason for making a will is to leave your property to those you care about, and in the proportions that you choose.

If you die without a will, the property in your name in most instances will be distributed among your family members, and perhaps not exactly the way you prefer.

Thus, if you are survived by:

  • spouse and descendants, your spouse takes the first $50,000 and one-half the balance of the property, and the descendants share the rest.
  • spouse but no descendants: spouse takes all.
  • descendants, no spouse: descendants take all.
  • a parent or parents, no spouse, no descendants: the parent or parents take all.
  • parents’ descendants but none of the closer relatives: the parents’ descendants take all.
  • one or more grandparents or their descendants, but none of the closer relatives: half goes to the maternal side and half to the paternal (but not including second cousins if you have any first cousin on either side)

Here’s something else to consider: If your children are under 18 years old at your death, a court-appointed guardian will be required to manage your child’s share.

Although the court probably would appoint your spouse as guardian, a bond may have to be posted. Payment of the bond premiums will cost money. If any money has to be used to pay for your child’s education, clothing or living costs, prior approval of the court is necessary. The court also requires annual accounting of income and expenses. In addition, investment of the funds by the guardian may be limited as well. If the guardianship lasts for any length of time , the child’s funds may not grow at an acceptable pace. All these problems could be easily avoided with a properly drafted will. If you and your spouse should die at or about the same time it is important that you make provision not only for a guardian of the property of any child under age 18 but also, and perhaps more important, you should name a guardian of the child’s person. A guardian of the person is given custody of the child during minority.

With proper preparation a will can be custom designed to support your family’s needs and concerns.

With careful Medicaid planning, your parents may be able to preserve some of their estate for you, your children or other heirs while meeting the Medicaid asset limit (in most states, a nursing home resident covered by Medicaid may have no more than $2,000 in “countable” assets).

The problem with transferring assets is that you have given them away. You no longer control them, and even a trusted child or other relative may lose them. A safer approach is to put them in an irrevocable trust. A trust is a legal entity under which one person — the “trustee” — holds legal title to property for the benefit of others — the “beneficiaries.” The trustee must follow the rules provided in the trust instrument. Whether trust assets are counted against Medicaid’s resource limits depends on the terms of the trust and who created it.

A “revocable” trust is one that may be changed or rescinded by the person who created it. Medicaid considers the principal of such trusts (that is, the funds that make up the trust) to be assets that are countable in determining Medicaid eligibility. Thus, revocable trusts are of no use in Medicaid planning.

An “irrevocable” trust is one that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to your parent (the person establishing the trust, called the “grantor”) for life, and the principal cannot be applied to benefit you or your spouse. At their death the principal is paid to you or their designated heirs. This way, the funds in the trust are protected and they can use the income for living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to the grantor or their spouse for either of their benefits. However, if they do move to a nursing home, the trust income will have to go to the nursing home.

You should be aware of the drawbacks to such an arrangement. It is very rigid, so you cannot gain access to the trust funds even if you need them for some other purpose. For this reason, you should always leave an ample cushion of ready funds outside the trust.

They may also choose to place property in a trust from which even payments of income to you or your spouse cannot be made. Instead, the trust may be set up for the benefit of grandchildren, or others.

One advantage of these trusts is that if they contain property that has increased in value, such as real estate or stock, you (the grantor) can retain a “special testamentary power of appointment” so that the beneficiaries receive the property with a step-up in basis at your death. This will also prevent the need to file a gift tax return upon the funding of the trust.

Remember, funding an irrevocable trust can cause you to be ineligible for Medicaid for the following five years.

Testamentary trusts are trusts created under a will. The Medicaid rules provide a special “safe harbor” for testamentary trusts created by a deceased spouse for the benefit of a surviving spouse. The assets of these trusts are treated as available to the Medicaid applicant only to the extent that the trustee has an obligation to pay for the applicant’s support. If payments are solely at the trustee’s discretion, they are considered unavailable.

Therefore, these testamentary trusts can provide an important mechanism for community spouses to leave funds for their surviving institutionalized husband or wife that can be used to pay for services that are not covered by Medicaid. These may include extra therapy, special equipment, evaluation by medical specialists or others, legal fees, visits by family members, or transfers to another nursing home if that became necessary. But remember that if you create a trust for yourself or your spouse during life (i.e., not a testamentary trust), the trust funds are considered available if the trustee has the ability to use them for you or your spouse.

The Medicaid rules also have certain exceptions for transfers for the sole benefit of disabled people under age 65. Even after moving to a nursing home, if you have a child, other relative, or even a friend who is under age 65 and disabled, you can transfer assets into a trust for his or her benefit without incurring any period of ineligibility. If these trusts are properly structured, the funds in them will not be considered to belong to the beneficiary in determining his or her own Medicaid eligibility. The only drawback to supplemental needs trusts (also called “special needs trusts”) is that after the disabled individual dies, the state must be reimbursed for any Medicaid funds spent on behalf of the disabled person.

To discuss these important topics and others , Please contact the Law Office of Garvey Tirelli & Cushner, LTD to set up a free consult with one of our experienced Attorneys.

Estate Planning Specialists


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