Any Ideas How to Pay for Long-Term Care? – Annapolis and Towson Estate Planning

SGE’s recent article entitled “How to Pay for Long-Term Care” explains that although long-term care insurance can be a good way to pay for long-term care costs, not everyone can buy a policy. Insurance companies will not sell coverage to people already in long-term care or having trouble with activities of daily living. They may also refuse coverage, if you have had a stroke or been diagnosed with dementia, cancer, AIDS or Parkinson’s Disease. Even healthy people over 85 may not be able to get long-term care coverage.

The potential costs of long-term care be challenging for even a relatively prosperous patient if they are forced to stay for some time in a nursing home. However, there are a number of options for covering these expenses, including the following:

  • Federal and state governments. While the federal government’s health insurance plan does not cover most long-term care costs, it would pay for up to 100 days in a nursing home if patients required skilled services and rehabilitative care. Skilled home health or other skilled in-home service may also be covered by Medicare. State programs will also pay for long-term care services for people whose incomes are below a certain level and meet other requirements.
  • Private health insurance. Employer-sponsored health plans and other private health insurance will cover some long-term care costs, such as shorter-term, medically necessary skilled care.
  • Long-term care insurance. Private long-term care insurance policies can cover many of the costs of long-term care.
  • Private savings. Older adults who require long-term care that is not covered by government programs and who do not have long-term care insurance can use money from their retirement accounts, personal savings, brokerage accounts and other sources.
  • Health savings accounts. Money in these tax-advantaged savings can be withdrawn tax-free to pay for qualifying medical expenses, such as long-term care. However, only those in high-deductible health plans can put money into health savings accounts.
  • Home equity loans. Many older adults have paid off their mortgages or have a lot of equity in their homes. A home equity loan is a way to tap this value to pay for long-term care.
  • Reverse mortgage. This allows a homeowner to get what amounts to a home equity loan without paying interest or principal on the loans while they are alive. When the homeowner dies or moves out, the entire balance of the loan becomes due. The lender usually takes ownership.
  • Life insurance. Asset-based long-term care insurance is a whole life insurance policy that permits the policyholder to use the death benefits to pay for long-term care. Life insurance policies can also be purchased with a long-term care rider as a secondary benefit.
  • Hybrid insurance policies. Some long-term care insurance policies are designed annuities. With a single premium payment, the insurer provides benefits that can be used for long-term care. You can also buy a deferred long-term care annuity that is specially designed to cover these costs. Some permanent life insurance policies also have long-term care riders.

While long-term care can be costly, most people will not face extremely burdensome long-term care costs because nursing home stays tend to be short, since statistics show that most people died within six months of entering a nursing home. Moreover, the vast majority of elder adults are not in nursing homes, and many never go into them.

Reference: SGE (Dec. 4, 2021) “How to Pay for Long-Term Care”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What’s the Best Way to Mess Up Estate Plan? – Annapolis and Towson Estate Planning

Forbes’ recent article entitled “5 Ways People Mess Up Their Estate Plan” describes the most common mistakes people make that wreak havoc with their estate plans.

Giving money to an individual during life, but not changing their will. Cash gifts in a will are common. However, the will often is not changed. When the will gets probated, the individual named still gets the gift (or an additional gift). No one—including the probate court knows the gift was satisfied during life. As a result, a person may get double.

Not enough assets to fund their trust. If you created a trust years ago, and your overall assets have decreased in value, you should be certain there are sufficient assets going into your trust to pay all the gifts. Some people create elaborate estate plans to give cash gifts to friends and family and create trusts for others. However, if you do not have enough money in your trust to pay for all of these gifts, some people will get short changed, or get nothing at all.

Assuming all assets pass under the will. Some people think they have enough money to satisfy all the gifts in their will because they total up all their assets and arrive at a large enough amount. However, not all the assets will come into the will. Probate assets pass from the deceased person’s name to their estate and get distributed according to the will. However, non-probate assets pass outside the will to someone else, often by beneficiary designation or joint ownership. Understand the difference so you know how much money will actually be in the estate to be distributed in accordance with the will.  Do not forget to deduct debts, expenses and taxes.

Adding a joint owner. If you want someone to have an asset when you die, like real estate, you can add them as a joint owner. However, if your will is dependent on that asset coming into your estate to pay other people (or to pay debts, expenses or taxes), there could be an issue after you die. Adding joint owners often leads to will contests and prolonged court battles. Talk to an experienced estate planning attorney.

Changing beneficiary designations. Changing your beneficiary on a life insurance policy could present another issue. The policy may have been payable to your trust to pay bequests, shelter monies from estate taxes, or pay estate taxes. If it is paid to someone else, your planning could be down the drain. Likewise, if you have a retirement account that was supposed to be payable to an individual and you change the beneficiary to your trust, there could be adverse income tax consequences.

Talk to your estate planning attorney and review your estate plan, your assets and your beneficiary designations. Do not make these common mistakes!

Reference: Forbes (Oct. 26, 2021) “5 Ways People Mess Up Their Estate Plan”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What to Do with an Inherited IRA? – Annapolis and Towson Estate Planning

Most of us do not have to worry about paying federal estate taxes on an inheritance. In 2021, the federal estate tax does not apply, unless an estate exceeds $11.7 million. The Biden administration has proposed lowering the exemption, but even that proposal would not affect estates valued at less than about $6 million. However, you should know that some states have lower thresholds.

Kiplinger’s recent article entitled “Minimizing Taxes When You Inherit Money” says that if you inherit an IRA from a parent, taxes on mandatory withdrawals could leave you with a smaller legacy than you anticipated. With IRAs becoming more of a significant retirement savings tool, there is also a good chance you will inherit at least one account.

Prior to last year, beneficiaries of inherited IRAs (or other tax-deferred accounts, such as 401(k) plans) were able to move the money into an account known as an inherited (or “stretch”) IRA and take withdrawals over their life expectancy. They could then minimize withdrawals which are taxed at ordinary income tax rates and allow the untapped funds to grow. However, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 stopped this. Most adult children and other non-spouse heirs who inherit an IRA on or after January 1, 2020, now have two options: (i) take a lump sum; or (2) transfer the money to an inherited IRA that must be depleted within 10 years after the death of the original owner.

Note that this 10-year rule does not apply to surviving spouses. They are allowed to roll the money into their own IRA and allow the account to grow, tax-deferred, until they must take required minimum distributions (RMDs), which start at age 72. If it is a Roth IRA, they are not required to take RMDs. Another option for spouses is to transfer the money into an inherited IRA and take distributions based on their life expectancy. The SECURE Act also created exceptions for non-spouse beneficiaries who are minors, disabled or chronically ill, or less than 10 years younger than the original IRA owner. Any IRA beneficiaries who are not eligible for the exceptions could wind up with a big tax bill, especially if the 10-year withdrawal period coincides with years in which they have a lot of other taxable income.

Note that the 10-year rule also applies to inherited Roth IRAs. However, there is an important difference. You still deplete the account in 10 years. However, the distributions are tax-free, provided the Roth was funded at least five years before the original owner died. If you do not need the money, waiting to take distributions until you are required to empty the account will give up to 10 years of tax-free growth.

Heirs who simply cash out their parents’ IRAs can take a lump sum from a traditional IRA. However, if you do, you will owe taxes on the entire amount, which could push you into a higher tax bracket.

Reference: Kiplinger (Oct. 28, 2021) “Minimizing Taxes When You Inherit Money”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How to Protect Assets from Medicaid Spend Down? – Annapolis and Towson Estate Planning

Medicaid is not just for poor and low-income seniors. With the right planning, assets can be protected for the next generation, while helping a person become eligible for help with long-term care costs.

Medicaid was created by Congress in 1965 to help with insurance coverage and protect seniors from the costs of medical care, regardless of their income, health status or past medical history, reports Kiplinger in a recent article “How to Restructure Your Assets to Qualify for Medicaid.” Medicaid was a state-managed, means-based program, with broad federal parameters that is run by the individual states. Eligibility criteria, coverage groups, services covered, administration and operating procedures are all managed by each state.

With the increasing cost and need for long-term care, Medicaid has become a life-saver for people who need long-term nursing home care costs and home health care costs not covered by Medicare.

If the household income exceeds your state’s Medicaid eligibility threshold, two commonly used trusts may be used to divert excess income to maintain program eligibility.

QITs, or Qualified Income Trusts. Also known as a “Miller Trust,” income is deposited into this irrevocable trust, which is controlled by a trustee. Restrictions on what the income in the trust may be used for are strict. Both the primary beneficiary and spouse are permitted a “needs allowance,” and the funds may be used for medical care costs and the cost of private health insurance premiums. However, the funds are owned by the trust, not the individual, so they do not count against Medicaid eligibility.

If you qualify as disabled, you may be able to use a Pooled Income Trust. This is another irrevocable trust where your “surplus income” is deposited. Income is pooled together with the income of others. The trust is managed by a non-profit charitable organization, which acts as a trustee and makes monthly disbursements to pay expenses for the individuals participating in the trust. When you die, any remaining funds in the trust are used to help other disabled persons.

Meeting eligibility requirements are complicated and vary from state to state. An estate planning attorney in your state of residence will help guide you through the process, using his or her extensive knowledge of your state’s laws. Mistakes can be costly—and permanent.

For instance, your home’s value (up to a maximum amount) is exempt, as long as you still live there or will be able to return. Otherwise, most states require you to spend down other assets to $2,000 per person or $4,000 per married couple to qualify.

Transferring assets to other people, typically family members, is a risky strategy. There is a five-year look back period and if you have transferred assets, you may not be eligible for five years. If the person you transfer assets to has any personal financial issues, like creditors or divorce, they could lose your property.

Asset Protection Trusts, also known as Medicaid Trusts. You may transfer most or all of your assets into this trust, including your home, and maintain the right to live in your home. Upon your death, assets are transferred to beneficiaries, according to the trust documents.

Right of Spousal Transfers and Refusals. Assets transferred between spouses are not subject to the five-year look back period or any penalties. New York and Florida allow Spousal Refusal, where one spouse can legally refuse to provide support for a spouse, making them immediately eligible for Medicaid. The only hitch? Medicaid has the right to request the healthy spouse to contribute to a spouse who is receiving care but does not always take legal action to recover payment.

Talk with your estate planning attorney if you believe you or your spouse may require long-term care. Consider the requirements and rules of your state. Keep in mind that Medicaid gives you little or no choice about where you receive care. Planning in advance is the best means of protecting yourself and your spouse from the excessive costs of long term care.

Reference: Kiplinger (Nov. 7, 2021) “How to Restructure Your Assets to Qualify for Medicaid”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Do I Need a Living Trust? – Annapolis and Towson Estate Planning

Yahoo Finance’s recent article entitled “What Is a Living Trust in Real Estate?” says that a living trust is a legal document that makes it easier for you to pass assets to your loved ones after you die. It allows property to be transferred directly to your designated beneficiaries without needing to go through probate. A living trust will be managed by a trustee, while you are still living (that can be you).  You will name a successor trustee who will manage the trust, if you become incapacitated and distribute its assets after you pass away.

While the trust holds these assets, you are still considered in possession of them while you are alive (assuming you named yourself the trustee). Therefore, you can move assets in and out of the trust as you see fit. If you have a revocable trust, you can even cancel or change it at any time.

Creating a living trust can simplify the inheritance process for your family when you die. That is because any property you own is subject to the probate process when you die. Probate can be a very lengthy process.

While waiting, your family may be unable to manage, use, or sell the property you left behind. Until probate is complete, your executor will be responsible for maintaining the property, including paying taxes, making repairs and paying the bills (like insurance).

A living trust is a beneficial financial product for many reasons. First, it bypasses the probate courts. There are some types of assets that will pass on to your beneficiaries directly, and others will need to clear the probate courts before they can be disbursed to your beneficiaries. This probate process can take months or even years and can be both costly and complicated.

Another benefit of a trust is that you keep control of your estate, even after you pass away. A living trust lets you set rules, timelines and stipulations for your estate. This may be something like keeping your children from getting a substantial sum of money in their early 20s. With a living trust, you can state instructions for your trustee as to when your kids receive that inheritance. For example, you may provide that they receive their inheritance in stages, like a third at 30, 35 and 40.

Finally, a trust is private. Unlike a will, your trust can be kept as private as you want. Once you pass away, and your will is filed with the probate court, it becomes public record. However, if you would rather have your estate and your wishes kept out of the public eye, a trust can help you do so.  Because a trust skips the probate process, it is also much harder for someone to challenge your directives.

Reference: Yahoo Finance (Oct. 7, 2021) “What Is a Living Trust in Real Estate?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Who Pays Mortgage When I Pass Away? – Annapolis and Towson Estate Planning

No one automatically assumes your mortgage after your death, says Credible’s recent article entitled “What Happens to Your Mortgage When You Die?”

Your estate executor—the individual you name to carry out your will and manage your estate after you die—will continue to make payments using funds from the estate, while everything is being settled. Later, the person who inherits the home might be able to assume the loan.

If you are a co-borrower or co-signer with the decedent, you do not have to do anything to take over the mortgage because you are already responsible for paying it.

Mortgage loans have a due-on-sale clause, also called an acceleration clause. This requires the loan to be paid in full, if it transfers to a new owner. However, federal law prohibits lenders from accelerating a loan in the event of a borrower’s death.

Those who acquire ownership this way are considered “successors in interest,” and lenders must treat them as if they were the borrower. A successor in interest can assume the loan without having to apply or qualify, and continue making the payments. You also can modify the mortgage to avoid foreclosure, if you want to keep the home.

A significant step in estate planning is drafting a will stating exactly how you want your estate handled after you die and naming an executor.

When planning to bequeath a mortgaged home, you should disclose the mortgage to your executor and close relatives. If you fail to do so, they will not know how to make payments. As a result, the home could be inadvertently lost to foreclosure.

Finally, think about whether the person who inherits your home will be able to afford mortgage payments and upkeep.

An experienced estate planning attorney can help you devise a strategy to keep your gift from becoming a burden to your loved ones.

Reference: Credible (Sep. 24, 2021) “What Happens to Your Mortgage When You Die?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What is a ‘Property Trust’? – Annapolis and Towson Estate Planning

Yahoo Finance’s article “What Is a Property Trust and Who Needs One?” says that there technically is not a specific type of trust known as a “property trust.”

Any trust can be filled with a variety of assets, including property and real estate.

Trusts are most often used by people who are planning their estates and want to make certain their financial legacy is carried out to their wishes.

Know that a trust does not necessarily protect your assets from estate taxes. Therefore, if the estate is valued above the state and or federal threshold, the applicable taxes will be assessed, even if everything you own is in a trust.

Nonetheless, there are some good reasons to consider creating a trust for the purpose of storing property.

First, it makes it easier to make sure your wishes are followed after you die, since you appoint a trustee to manage the trust after you die. You can state exactly who should get various physical items. In addition, property trusts make it easier for your family after you have died. Property in a trust will allow such property to avoid probate. That means your family will spend less time dealing with the court and receive any inheritance more quickly.

However, not everyone needs a trust. Those with fewer assets might not. However, if you have very specific ideas as to what you want done with your assets or if you have a particularly large and complex estate, a trust may be a good idea. Sit down with an experienced estate planning attorney to discuss your trust needs.

A property trust is not technically a specific type of trust. All trusts can be “property” trusts, if they are used to house the ownership of property.

There are revocable trusts, which can be modified and terminated, along with irrevocable trusts, which are permanent.

Reference: Yahoo Finance (Sep. 10, 2021) “What Is a Property Trust and Who Needs One?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How Can I Pass Wealth to My Children and Grandchildren? – Annapolis and Towson Estate Planning

AARP’s recent article “6 Ways to Pass Wealth to Your Heirs” says that providing financial security to your heirs after you are gone is a goal you can reach in a number of ways.

Let us look at a few common options, along with their pluses and minuses:

  1. 401(k)s and IRAs. These grow tax-free while you are alive and will continue tax-free growth after your beneficiaries inherit them. Certain heirs, such as spouses and people with disabilities, can hold these accounts over their lifetime. Withdrawals from Roth IRAs and Roth 401(k)s are nearly always tax-free. However, other heirs not in those categories have to empty these accounts within 10 years.
  2. Taxable accounts. Heirs now get a nice tax break on investments that have grown in value over time. Say that years ago you bought stock for $300 that now trades for $3,000. If you sold it now, you would owe taxes on $2,700 in capital gains. However, if your son inherited the stock when it was trading at $3,000 and sold it at that price, he would owe no taxes on the sale. However, note that the Biden administration has proposed limiting the amount of investment capital gains free from taxes in this situation, which could impact wealthier families.
  3. Your home. If you own a home, it will typically be the most valuable non-financial asset in your estate. Heirs might not have to pay capital gains tax on it, if they sell it. However, use caution: whoever inherits the home will have to cover large expenses, such as upkeep and taxes.
  4. Term life insurance. This can be a great tool for loved ones who depend on your income or rely on your unpaid caregiving. You can get a lot of coverage for very little money. However, if you purchase plain-vanilla term insurance and do not die while the policy is in force, you do not get the money back.
  5. Whole life insurance. These policies provide a guaranteed death benefit for heirs and a cash-value component you can access for emergencies, long-term care, or other needs. However, these policies are more expensive than term insurance.
  6. Annuities. A joint-and-survivor annuity guarantees the survivor (your spouse, perhaps) a steady stream of income for life. Annuities with a death benefit can provide a lump sum for a beneficiary. However, while you are alive, annual fees for variable annuities can be high, limiting potential returns. Moreover, cashing in your annuity for a lump sum may be expensive or impossible.

Bonus Tip. Discuss your plans with your children sooner rather than later, especially if you are leaving them different amounts or giving a large sum to a favorite cause, so you have time to explain your rationale.

Reference: AARP (Sep. 9, 2021) “6 Ways to Pass Wealth to Your Heirs”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What is the Difference between a Trust and a Will? – Annapolis and Towson Estate Planning

Trusts and wills are two different ways to distribute and control your assets after your death. They have some key differences. Family trusts and wills are both worthwhile estate planning tools that can make sure your assets are protected and will pass to heirs the way you intended, says MSN’s recent article entitled “Family Trusts vs. Wills: What Are the Differences Between These Estate-Planning Options?”

This article tells you what you need to know about the differences between family trusts and wills to help you avoid estate planning mistakes.

Remember that without a will, the state probate laws will determine what happens to your assets. It may or may not be what you want. In contrast, a will lets you state to whom you want to distribute your assets.

Note that a trust permits the grantor (the person making the trust) to do what he or she wants with the assets. A trust also avoids probate.

A family trust is a wise choice for those who want to provide for the management of their assets if they become incapacitated, people interested in keeping information about their assets and who inherits those assets private and those who have a significant number of assets or a large estate. Here are some other situations in which a family trust would be appropriate to use:

  • Asset protection from creditors and divorce
  • For disabled beneficiaries who need to qualify for government benefits
  • For tax-planning; and
  • For cost and time efficiency over a lengthy probate process.

Everyone should have a will. It is a way to leave bequests, nominate guardians for a minor child and an executor.

If you have a family trust, you still need a will. There may be some assets not owned by the trust, such as vehicles and other personal property. There may also be payments due you at your death. Those assets must go through probate, if not arranged to avoid probate.

Once that process is complete, the assets are distributed to the family trust and are governed by its provisions. This is what is known as a “pour-over will” because the assets “pour over” to the family trust.

Contact an experienced estate planning attorney to discuss the estate planning options available for you and your situation.

Reference: MSN (Aug. 27, 2021) “Family Trusts vs. Wills: What Are the Differences Between These Estate-Planning Options?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Why Do Families Fail when Transferring Wealth? – Annapolis and Towson Estate Planning

A legacy plan is a vital part of the financial planning process, ensuring the assets you have spent your entire life accumulating will transfer to the people and organizations you want, and that family members are prepared to inherit and execute your wishes.

Kiplinger’s recent article entitled “4 Reasons Families Fail When Transferring Wealth” gives us four common errors that can cause individuals and families to veer off track.

Failure to create a plan. It is hard for people to think about their own death. This can make us delay our estate planning. If you die before a comprehensive estate plan is in place, your goals and wishes cannot be carried out. You should establish a legacy plan as soon as possible. A legacy plan can evolve over time, but a plan should be grounded in what your or your family envisions today, but with the flexibility to be amended for changes in the future.

Poor communication and a lack of trust. Failing to communicate a plan early can create issues between generations, especially if it is different than adult children might expect or incorporates other people and organizations that come as a surprise to heirs. Bring adult children into the conversation to establish the communication early on. You can focus on the overall, high-level strategy. This includes reviewing timing, familial values and planning objectives. Open communication can mitigate negative feelings, such as distrust or confusion among family members, and make for a more successful transfer.

Poor preparation. The ability to get individual family members on board with defined roles can be difficult, but it can alleviate a lot of potential headaches and obstacles in the future.

Overlooked essentials. Consider hiring a team of specialists, such as a financial adviser, tax professional and estate planning attorney, who can work in together to ensure the plan will meet its intended objectives.

Whether creating a legacy plan today, or as part of the millions of households in the Great Wealth Transfer that will establish plans soon if they have not already, preparation and flexibility are uber important to wealth transfer success.

Create an accommodative plan early on, have open communication with your family and review philosophies and values to make certain that everyone is on the same page. As a result, your loved ones will have the ability to understand, respect and meaningfully execute the legacy plan’s objectives.

Reference: Kiplinger (Aug. 29, 2021) “4 Reasons Families Fail When Transferring Wealth”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys