Must I Sell Parent’s Home if They Move to a Nursing Facility? – Annapolis and Towson Estate Planning

If a parent is transferring to a nursing home, you may ask if her home must be sold.

It is common in a parent’s later years to have the parent and an adult child on the deed, with a line of credit on the house. As a result, there is very little equity.

Seniors Matter’s recent article entitled “If my mom moves to a nursing home, does her home need to be sold?” says that if your mother has assets in her name, but not enough resources to pay for an extended nursing home stay, this can add another level of complexity.

If your mother has long-term care insurance or a life insurance policy with a nursing home rider, these can help cover the costs.

However, if your mom will rely on state aid, through Medicaid, she will need to qualify for coverage based on her income and assets.

Medicaid income and asset limits are low—and vary by state. Homes are usually excluded from the asset limits for qualification purposes. That is because most states’ Medicaid programs will not count a nursing home resident’s home as an asset when calculating an applicant’s eligibility for Medicaid, provided the resident intends to return home

However, a home may come into play later on because states eventually attempt to recover their costs of providing care. If a parent stays a year-and-a-half in a nursing home—the typical stay for women— when her home is sold, the state will make a claim for a share of the home’s sales proceeds.

Many seniors use an irrevocable trust to avoid this “asset recovery.”

Trusts can be expensive to create and require the help of an experienced elder law attorney. As a result, in some cases, this may not be an option. If there is not enough equity left after the sale, some states also pursue other assets, such as bank accounts, to satisfy their nursing home expense claims.

An adult child selling the home right before the parent goes into a nursing home would also not avoid the state trying to recover its costs. This is because Medicaid has a look-back period for asset transfers occurring within five years.

There are some exceptions. For example, if an adult child lived with their parent in the house as her caregiver prior to her being placed in a nursing home. However, there are other requirements.

Talk to an elder law attorney on the best way to go, based on state law and other specific factors.

Reference: Seniors Matter (Feb. 25, 2022) “If my mom moves to a nursing home, does her home need to be sold?”

 

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

Taking Care of Dying Parent’s Financial Affairs Can Be Challenging – Annapolis and Towson Estate Planning

It is not uncommon for adult children to have to face a parent’s decline and a stay in hospice at the end of their life. The children are tasked with trying to prepare for his passing. This includes how to handle his financial matters.

Seniors Matter’s recent article entitled “How do I handle my father’s financial matters now that he’s in hospice?” says that caring for a sick family member is a challenging and emotional time. Because of this major task, it is easy to put financial considerations on the back burner. Nonetheless, it is important to address a few key issues.

If a family member is terminally ill or admitted to hospice – and you are able to do so – it may be a good idea to start by helping to take inventory of your family member’s assets and liabilities. A clear idea of where their assets are and what they have is a great starting point to help you prepare and be in a better position to manage the estate.

An inventory may include any and all of the following:

  • Real estate
  • Bank accounts
  • Cars, boats and other vehicles
  • Stocks and bonds
  • Life insurance
  • Retirement plans (such as a 401(k), a traditional IRA, a Roth IRA and a SEP IRA);
  • Wages and other income
  • Business interests
  • Intellectual property; and
  • Any debts, liabilities and judgments.

Next, find out what, if any, estate planning documents may be in place. This includes a will, powers of attorney, trusts, a healthcare directive and a living will. You will need to find copies.

This is hard to do while a loved on is dying, but it can make the aftermath easier and less stressful.

Reference: Seniors Matter (Feb. 22, 2022) “How do I handle my father’s financial matters now that he’s in hospice?”

 

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

What Is Elder Law? – Annapolis and Towson Estate Planning

WAGM’s recent article entitled “A Closer Look at Elder Law“ takes a look at what goes into estate planning and elder law.

Wills and estate planning may not be the most exciting things to talk about. However, in this day and age, they can be one of the most vital tools to ensure your wishes are carried out after you are gone.

People often do not know what they should do, or what direction they should take.

The earlier you get going and consider your senior years, the better off you are going to be. For many, it seems to be around 55 when it comes to starting to think about long term care issues.

However, you can start your homework long before that.

Elder law attorneys focus their practice on issues that concern older people. However, it is not exclusively for older people, since these lawyers counsel other family members of the elderly about their concerns.

A big concern for many families is how do I get started and how much planning do I have to do ahead of time?

If you are talking about an estate plan, what’s stored just in your head is usually enough preparation to get the ball rolling and speak with an experienced estate planning or elder law attorney.

They can create an estate plan that may consists of a basic will, a financial power of attorney, a medical power of attorney and a living will.

For long term care planning, people will frequently wait too long to start their preparations, and they are faced with a crisis. That can entail finding care for a loved one immediately, either at home or in a facility, such as an assisted living home or nursing home. Waiting until a crisis also makes it harder to find specific information about financial holdings.

Some people also have concerns about the estate or death taxes with which their families may be saddled with after they pass away. For the most part, that is not an issue because the federal estate tax only applies if your estate is worth more than $12.06 million in 2022. However, you should know that a number of states have their own estate tax. This includes Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington, plus Washington, D.C.

Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania have only an inheritance tax, which is a tax on what you receive as the beneficiary of an estate. Maryland has both.

Therefore, the first thing to do is to recognize that we have two stages. The first is where we may need care during life, and the second is to distribute our assets after death. Make certain that you have both in place.

Reference: WAGM (Dec. 8, 2021) “A Closer Look at Elder Law“

 

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

Can I Restructure Assets to Qualify for Medicaid? – Annapolis and Towson Estate Planning

Some people believe that Medicaid is only for poor and low-income seniors. However, with proper and thoughtful estate planning and the help of an attorney who specializes in Medicaid planning, all but the very wealthiest people can often qualify for program benefits.

Kiplinger’s recent article entitled “How to Restructure Your Assets to Qualify for Medicaid says that unlike Medicare, Medicaid is not a federally run program. Operating within broad federal guidelines, each state determines its own Medicaid eligibility criteria, eligible coverage groups, services covered, administrative and operating procedures and payment levels.

The Medicaid program covers long-term nursing home care costs and many home health care costs, which are not covered by Medicare. If your income exceeds your state’s Medicaid eligibility threshold, there are two commonly used trusts that can be used to divert excess income to maintain your program eligibility.

Qualified Income Trusts (QITs): Also known as a “Miller trust,” this is an irrevocable trust into which your income is placed and then controlled by a trustee. The restrictions are tight on what the income placed in the trust can be used for (e.g., both a personal and if applicable a spousal “needs allowance,” as well as any medical care costs, including the cost of private health insurance premiums). However, due to the fact that the funds are legally owned by the trust (not you individually), they no longer count against your Medicaid income eligibility.

Pooled Income Trusts: Like a QIT, these are irrevocable trusts into which your “surplus income” can be placed to maintain Medicaid eligibility. To take advantage of this type of trust, you must qualify as disabled. Your income is pooled together with the income of others and managed by a non-profit charitable organization that acts as trustee and makes monthly disbursements to pay expenses on behalf of the individuals for whom the trust was made. Any funds remaining in the trust at your death are used to help other disabled individuals in the trust.

These income trusts are designed to create a legal pathway to Medicaid eligibility for those with too much income to qualify for assistance, but not enough wealth to pay for the rising cost of much-needed care. Like income limitations, the Medicaid “asset test” is complicated and varies from state to state. Generally, your home’s value (up to a maximum amount) is exempt, provided you still live there or intend to return. Otherwise, most states require you to spend down other assets to around $2,000/person ($4,000/married couple) to qualify.

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

 

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

How Do I Plan with a Special Needs Child? – Annapolis and Towson Estate Planning

The three main structures a family should put in place to provide future protection for their child relate to money management, self-care and housing, says CNBC’s recent article entitled “If you have a child with special needs, here’s how to plan for their life after you pass.”

Money Management: If the child gets government benefits, such as Supplemental Security Income or Medicaid, parents will usually establish a special needs trust to shield assets to allow the child continued access to those benefits. A trustee oversees the funds and other trust provisions not under the child’s control.

Life Insurance. This is the cheapest way to fund a trust. That is because you need to know what is left over from your estate to care for the child, and this creates that certain bucket of money.

Self-Care: Parents must arrange the services their child will need to live independently or semi-independently, which may be overseen by a court-appointed conservator (or guardian). This person makes all decisions regarding an individual’s financial and/or personal affairs. In the alterative, decisions may be made by a person with power of attorney, as well as the individual.

Parents may want to write a “letter of intent,” which is a guide for those who will care for the child in the future. This letter can cover family history, medical care, benefits, daily routines, diet, behavior management, residential arrangements, education, social life, career, religion and end-of-life decisions, according to the Autism Society.

Housing: With respect to future housing for the child, location is more important than the house itself. Parents should consider options beyond keeping their loved one in the family home. It is more important to look at the individual and the interests and supports they might require. Parents may think of retiring to a community that supports the interests of the child. There is a trend toward more community-based living. State-administered Medicaid HCBS waiver programs allow people with disabilities to live in a house or apartment. The state, in turn, provides staffing for a group of similar residents. Sometimes, a group of families will purchase a collection of houses or condominiums. Also, people are rehabbing houses for roommate living, resulting in neighborhoods of people with special needs.

It is critical to work with specialists in this type of planning, such as an experienced estate planning or elder law attorney.

Reference: CNBC (Dec. 6, 2021) “If you have a child with special needs, here’s how to plan for their life after you pass”

 

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You May Need a ‘Durable’ Power of Attorney – Annapolis and Towson Estate Planning

An individual (the “principal”) can execute a power of attorney authorizing another person (known as an “agent”) to act on his or her behalf to handle finances, sign contracts on their behalf, buy and sell investments and other decisions of this nature.

Powers of attorney are frequently drafted as people age and find these matters burdensome, even though they may be mentally and physically able to address them on their own.

Fed Week’s recent article entitled “Considerations for Providing a Power of Attorney” suggests that you be sure to execute a “durable” power of attorney.

Some seniors may wonder about giving such authority in a power of attorney to someone else while they are still competent.

In many states, a senior can sign a “springing durable power of attorney,” which takes effect only under certain specified circumstances.

A common example is when a springing power is to take effect only after two doctors, including a senior’s personal physician, have determined that the principal has become incapacitated.

Regardless of the type of power a person selects, it should be reviewed and updated every few years with the help of an experienced estate planning or elder law attorney.

The reason is that a person’s situation may change. This may result in the need to name another agent. Some financial institutions also will not accept old powers of attorney.

Ask your bank, broker and mutual fund company about whether they will accept your power, or if they will insist that their own form be used—which is a common practice in the financial world.

Reference: Fed Week (Nov. 1, 2021) “Considerations for Providing a Power of Attorney”

 

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

What If Account has No Named Beneficiary? – Annapolis and Towson Estate Planning

It is not uncommon for a person to have a banking, retirement, or other investment account with no designated beneficiary when they pass away.

Beneficiaries can include spouses, children, other family members, friends and charities. Beneficiary designations can generally be added to assets, such as bank accounts, securities accounts, retirement accounts, life insurance policies, savings bonds and a number of other assets. Designating a beneficiary will determine how an asset is distributed at the owner’s death– regardless of the provisions of the person’s will or trust.

The first step is to probate the will of a deceased, assuming she had one, says nj.com’s recent article entitled “My wife died and her account has no beneficiary. What’s next?”

When a person dies without a surviving beneficiary named for an account, the assets go to that person’s estate.

So, if a person left a will, the assets in the banking account would pass to the beneficiaries under that will.

If the decedent had no will, the beneficiaries would be dictated by the laws of the state in which the decedent resided. These are known as intestacy laws, and they describe who inherits if there is no will.

An estate may have to go through the probate process before the decedent’s assets can be transferred to the will’s beneficiaries. It depends on the size of the decedent’s estate, and where he or she lived and died. States have what is called a small estate limit: if an estate falls below that limit, no probate is required.

If you do not need to go through probate, there is a way for a beneficiary to request that a banking account be transferred without a court order. If an estate must go through probate, you will need a court order (which is how probate ends) to have the assets transferred to your name.

Reference: nj.com (Oct. 22, 2021) “My wife died and her account has no beneficiary. What’s next?”

 

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

How can I Revoke an Irrevocable Trust? – Annapolis and Towson Estate Planning

Is there a way to get a house deed out of the trust?

Nj.com’s recent article entitled “Can I dissolve an irrevocable trust to get my house out?” says that prior to finalizing legal documents, it is important to know the purpose and consequences of the plan.

An experienced estate planning attorney will tell you there are a variety of trust types that are used to achieve different objectives.

There are revocable trusts that can be created to avoid probate, and others trusts placed in a will to provide for minor children or loved ones with special needs.

Irrevocable trusts are often created to shield assets, including the home, in the event long-term nursing care is required.

Conveying assets to an irrevocable trust typically starts the five-year “look back” period for Medicaid purposes, if the trust is restricted from using the assets for, or returning assets to, the individual who created the trust (known as the “grantor”).

When you transfer assets to a trust, control of the assets is given to another person (the ‘trustee”).

This arrangement may protect assets in the event long-term care is required. However, it comes with the risk that the trustee may not always act how the grantor intended.

For instance, the grantor cannot independently sell the house owned by the trust or compel the trustee to purchase a replacement residence, which may cause a conflict between the grantor and trustee. Because the trust is irrevocable, it could be difficult and expensive to unwind.

In light of this, it is important to designate a trustee who will work with and honor the wishes of the grantor.

An experienced estate planning attorney retained for estate and asset planning should provide clear, understandable and thoughtful advice, so the client has the information needed to make an informed decision how to proceed.

Reference: nj.com (April 6, 2021) “Can I dissolve an irrevocable trust to get my house out?”

 

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

What are the Big Tax Penalties to Avoid in Retirement? – Annapolis and Towson Estate Planning

Building and living off a nest egg can be a challenge. However, you can make the situation worse, if you encounter some important laws for retirement accounts.

Money Talks News’ recent article entitled “3 Tax Penalties That Can Ding Your Retirement Accounts” says make one wrong step and the federal government may want some explanations. Here are the three penalties to avoid at all costs, when contributing to or withdrawing from your retirement accounts.

Excess IRA Contribution Penalty. If you put too much away in an individual retirement account (IRA), it can cost you. The IRS says you can (i) contribute an amount of money that exceeds the applicable annual contribution limit for your IRA; or (ii) improperly roll over money into an IRA.

If you get a little too anxious to build a nest egg and make one of these mistakes, the IRS says that “excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax cannot be more than 6% of the combined value of all your IRAs as of the end of the tax year.”

The IRS has a remedy to address your mistake before any penalties are imposed. You must withdraw the excess contributions — and any income earned on those contributions — by the due date of your federal income tax return for that year.

Early Withdrawal Penalty. If you take your money out too soon from a retirement account, you will suffer another potentially costly mistake. If you withdraw money from your IRA before the age of 59½, you may be subject to paying income taxes on the money—plus an additional 10% penalty, according to the IRS. The IRS explains there are several scenarios in which you are permitted to take early IRA withdrawals without penalties, such as if you lose a job, where you can use your IRA early to pay for health insurance. The same penalties apply to early withdrawals from retirement plans like 401(k)s, although again, there are exceptions to the rule that allow you to make early withdrawals without penalty. However, note that the exceptions which let you make early retirement plan withdrawals without penalty sometimes differ from the exceptions that allow you to make early IRA withdrawals without penalty. The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act of 2020 also created a one-time exception to the early-withdrawal penalty for both retirement plans and IRAs, due to the coronavirus pandemic. Therefore, coronavirus-related distributions of up to a total of $100,000 that were made in 2020 are exempt.

Missed RMD Penalty. Retirement plans are terrific because they generally let you defer paying taxes on your contributions and income gains for many years. However, at some point, the federal government will want its share of that cash. Taxpayers previously had to take required minimum distributions (RMDs) from most types of retirement accounts starting the year they turn 70½. However, the Secure Act of 2019 moved that age to 72. The consequences of failing to make RMDs still apply, and if you do not take your RMDs starting the year you turn 72, you face harsh penalties. The IRS says:

“If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.”

It is important to understand that the RMD rules do not apply to Roth IRAs. You can leave money in your Roth IRA indefinitely, but another provision of the Secure Act means your heirs must be careful if they inherit your Roth IRA.

Reference: Money Talks News (Feb. 18, 2021) “3 Tax Penalties That Can Ding Your Retirement Accounts”

 

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