NC and SC Estate Planning and Elder Law Firm

You’ve likely heard that one of the many benefits of estate planning is reducing the amount of federal, and state, taxes owed upon your passing. While it may seem like estate tax planning must run afoul of IRS rules, with the proper strategies, this is far from the case.

It is very common for an individual to take steps to try to reduce the amount of federal estate taxes that his or her "estate" will be responsible for after the person's death. As you may know, you may pass an unlimited amount of assets to your spouse without incurring any federal estate taxes. You may pass $5.25 million to non-spouse beneficiaries without incurring federal estate tax and if your spouse died before you, and if you have taken certain steps to add your spouse's $5.25 million exemption to your own, you may have $10.5 million that you can pass tax free to non-spouse beneficiaries.

If your estate is still larger than these exemption amounts you should seek out a qualified estate planning attorney. There may be legal, legitimate planning techniques that will help reduce the taxable value of your estate in order to pass more assets to your loved ones upon your death and lessen the impact of the estate taxes. After your death, the duty normally falls on your executor (or perhaps a successor trustee) to file the appropriate tax returns and pay the necessary taxes. Failure to properly plan for potential estate taxes will significantly limit what your executor/trustee will be able to accomplish after your passing.

If you have taken steps to try to reduce the taxes owed, it is possible that the IRS may challenge the reported value or try to throw out the method you used. This does not mean that the executor/trustee will be in trouble; it just means that they will need to be prepared to support their position with the IRS and take it through an audit or even a tax court (or other appropriate court system). In the event of a challenge, a good attorney will be critical to ensure all of the necessary steps are taken.

Medicaid is a federal health program for individuals with low income and financial resources that is administered by each state. Each state may call this program by a different name. In California, for example, it is referred to as Medi-Cal. This program is intended to help individuals and couples pay for the cost of health care and nursing home care.

Most people are surprised to learn that Medicare (the health insurance available to all people over the age of 65) does not cover nursing home care. The average cost of nursing home care, also called "skilled nursing" or "convalescent care," can be $8,000 to $10,000 per month. Most people do not have the resources to cover these steep costs over an extended period of time without some form of assistance.

Qualifying for Medicaid can be complicated; each state has its own rules and guidelines for eligibility. Once qualified for a Medicaid subsidy, Medicaid will assign you a co-pay (your Share of Cost) for the nursing home care, based on your monthly income and ability to pay.

At the end of the Medicaid recipient's life (and the spouse's life, if applicable), Medicaid will begin "estate recovery" for the total cost spent during the recipient's lifetime. Medicaid will issue a bill to the estate, and will place a lien on the recipient's home in order to satisfy the debt. Many estate beneficiaries discover this debt only upon the death of a parent or loved one. In many cases, the Medicaid debt can consume most, if not all, estate assets.

There are estate planning strategies available that can help you accelerate qualification for a Medicaid subsidy, and also eliminate the possibility of a Medicaid lien at death. However, each state's laws are very specific, and this process is very complicated. It is very important to consult with an experienced elder law attorney in your jurisdiction.

In creating a trust, the trustmaker must name a trustee who has the legal obligation to administer it in accordance with the trustmaker’s wishes and intentions. In some cases, after the passing of the trustmaker, loved ones or beneficiaries may want to remove the designated trustee.

The process to remove a trustee largely depends on two factors: 1) language contained with the trust and 2) state law. When determining your options, there are a number of issues and key considerations to keep in mind.

First, it is possible that the trust language grants you the specific right to remove the named trustee. If it does, it likely will also outline how you must do so and whether you must provide a reason you want to remove them. Second, if the trust does not grant you the right to remove the trustee, it may grant another person the right to remove. Sometimes that other person may serve in the role of what is known as a "trust protector" or "trust advisor." If that is in the trust document you should speak to that person and let them know why you want the trustee removed. They would need to decide if they should do so or not. Finally, if neither of those is an option, your state law may have provisions that permit you to remove a trustee. However, it may be that you will have to file a petition with a court and seek a court order. You should hire an attorney to research this for you and advise you of the likelihood of success.

Another option may be to simply ask the named trustee to resign. They may do so voluntarily.

Assuming the trustee is removed, whether by you, a trust protector, or by court order, or if the trustee resigns, the next issue is who is to serve as the successor trustee. Again, looking at the terms of the trust should answer that question. Perhaps a successor is specifically named or perhaps the trust provides the procedure to appoint the successor. Before proceeding, you will want to make certain you know who will step-in as the new trustee.

Many people erroneously assume that when one spouse dies, the other spouse receives all of the remaining assets; this is often not true and frequently results in unintentional disinheritance of the surviving spouse.

In cases where a couple shares a home but only one spouse’s name is on it, the home will not automatically pass to the surviving pass, if his or her name is not on the title. Take, for example, a case of a husband and wife where the husband purchased a home prior to his marriage, and consequently only his name is on the title (although both parties resided there, and shared expenses, during the marriage). Should the husband pass away before his wife, the home will not automatically pass to her by “right of survivorship”. Instead, it will become part of his probate estate. This means that there will need to be a court probate case opened and an executor appointed. If the husband had a will, the executor would be the person he nominated in his will who would carry out the testator’s instructions regarding disposition of the assets. If he did not have a will, state statutes, known as intestacy laws, would provide who has priority to inherit the assets.

In our example, if the husband had a will then the house would pass to whomever is to receive his assets pursuant to that will. That may very well be his wife, even if her name is not on the title.

If he dies without a will, state laws will determine who is entitled to the home. Many states have rules that would provide only a portion of the estate to the surviving spouse. If the deceased person has children, even if children of the current marriage, local laws might grant a portion of the estate to those children. If this is a second marriage, children from the prior marriage may be entitled to more of the estate. If this is indeed the case, the surviving spouse may be forced to leave the home, even if she had contributed to home expenses during the course of the marriage.

Laws of inheritance are complex, and without proper planning, surviving loved ones may be subjected to unintended expense, delays and legal hardships. If you share a residence with a significant other or spouse, you should consult with an attorney to determine the best course of action after taking into account your unique personal situation and goals. There may be simple ways to ensure your wishes are carried out and avoid having to probate your partner’s estate at death.

Many people purchase a life insurance policy as a way to ensure that their dependents are protected upon their passing. Generally speaking, there are two basic types of life insurance policies: term life and whole life insurance. With a term policy, the holder pays a monthly, or yearly, premium for the policy which will pay out a death benefit to the beneficiaries upon the holder’s death so long as the policy was in effect. A whole life policy is similar to a term, but also has an investment component which builds cash value over time. This cash value can benefit either the policy holder during his or her lifetime or the beneficiaries.

During the Medicaid planning process, many people are surprised to learn that the cash value of life insurance is a countable asset. In most cases, if you have a policy with a cash value, you are able to go to the insurance company and request to withdraw that cash value. Thus, for Medicaid purposes, that cash value will be treated just like a bank account in your name. There may be certain exceptions under your state law where Medicaid will not count the cash value. For example, if the face value (which is normally the death benefit) of the policy is a fairly small amount (such as $10,000 or less) and if your "estate" is named as a beneficiary, or if a "funeral home" is named as a beneficiary, the cash value may not be counted. However, if your estate is the beneficiary then Medicaid likely would have the ability to collect the death proceeds from your estate to reimburse Medicaid for the amounts they have paid out on your behalf while you are living (this is known as estate recovery). Generally, the face value ($10,000 in the example) is an aggregate amount of all life insurance policies you have. It is not a per policy amount.

Each state has different Medicaid laws so it’s absolutely essential that you seek out a good elder law or Medicaid planning attorney in determining whether your life insurance policy is a countable asset.

Individuals who are beginning the estate planning process may assume it's best to have their adult child(ren) join them in the initial meeting with an estate planning attorney, but this may cause more harm than good.

This issue comes up often in the estate planning and elder law field, and it's a matter of client confidentiality. The attorney must determine who their client is- the individual looking to draft an estate plan or their adult children- and they owe confidentiality to that particular client.

The client is the person whose interests are most at stake. In this case, it is the parent. The attorney must be certain that they understand your wishes, goals and objectives. Having your child in the meeting could cause a problem if your child is joining in on the conversation, which may make it difficult for the attorney to determine if the wishes are those of your child, or are really your wishes.

Especially when representing elderly clients, there may be concerns that the wishes and desires of a child may be in conflict with the best interests of the parent. For example, in a Medicaid and long-term care estate planning context, the attorney may explain various options and one of those may involve transferring, or gifting, assets to children. The child's interest (purely from a financial aspect) would be to receive this gift. However, that may not be what the parent wants, or feels comfortable with. The parent may be reluctant to express those concerns to the attorney if the child is sitting right next to the parent in the meeting.

Also, the attorney will need to make a determination concerning the client's competency. Attorneys are usually able to assess a client's ability to make decisions during the initial meeting. Having a child in the room may make it more difficult for the attorney to determine competency because the child may be "guiding" the parent and finishing the parents thoughts in an attempt to help. 

The American Bar Association has published a pamphlet on these issues titled "Why Am I Left in the Waiting Room?" that may be helpful for you and your child to read prior to meeting with an attorney. 

Happy Memorial Day to all of those who have served past and present. Thank you for your service. 

Estate Planning: How Certificates of Shares Are Passed Down

How is the funding handled if you decide to use a living trust?

Certificates represent shares of a company. There are generally two types of company shares: those for a publicly traded company, and those for a privately held company, which is not traded on one of the stock exchanges.

Let's assume you hold the physical share certificates of a publicly held company and the shares are not held in a brokerage account. If, upon your death, you own shares of that company's stock in certificated form, the first step is to have the court appoint an executor of your estate.

Once appointed, the executor would write to the transfer agent for the company, fill out some forms, present copies of the court documents showing their authority to act for your estate, and request that the stock certificates be re-issued to the estate beneficiaries.

There could also be an option to have the stock sold and then add the proceeds to the estate account that later would be divided among the beneficiaries. If the stock is in a privately held company there would still be the need for an executor to be appointed to have authority. However, the executor would then typically contact the secretary or other officers of the company to inquire about the existence of a shareholder agreement that specifies how a transfer is to take place after the death of a shareholder.  Depending on the nature of the agreement, the company might reissue the stock in the name(s) of the beneficiaries, buy out the deceased shareholder’s shares (usually at some pre-determined formula) or other mechanism.   

If you set up a revocable living trust while you are alive you could request the transfer agent to reissue the stock titled into the name of the trust. However, once you die, the "trustee" would still have to take similar steps to get the stock re-issued to the trust beneficiaries.

If you open a brokerage account with a financial advisor, the advisor could assist you in getting the account in the name of your trust, and the process after death would be easier than if you still held the actual stock certificate.

Monk Law Firm, PLLC is excited to announce it's newest addition! Liam Douglas Monk was born on February 27, 2014. Ryan and Michelle are overjoyed. Big Sister Hannah and Big Brother James are over the moon to have a new friend.

*photograph taken by Madison Lane Photography, LLC

What Does the Term "Funding the Trust" Mean in Estate Planning?

If you are about to begin the estate planning process, you have likely heard the term "funding the trust" thrown around a great deal. What does this mean? And what will happen if you fail to fund the trust?

The phrase, or term, "funding the trust" refers to the process of titling your assets into your revocable living trust. A revocable living trust is a common estate planning document and one which you may choose to incorporate into your own estate planning. Sometimes such a trust may be referred to as a "will substitute" because the dispositive terms of your estate plan will be contained within the trust instead of the will. A revocable living trust will allow you to have your affairs bypass the probate court upon your death, using a revocable living trust will help accomplish that goal.

Upon your death, only assets titled in your name alone will have to pass through the court probate process. Therefore, if you create a trust, and if you take the steps to title all of your assets in the name of the trust, there would be no need for a court probate because no assets would remain in your name. This step is generally referred to as "funding the trust" and is often overlooked. Many people create the trust but yet they fail to take the step of re-titling assets in the trust name. If you do not title your trust assets into the name of the trust, then your estate will still require a court probate.

A proper trust-based estate plan would still include a will that is sometimes referred to as a "pour-over" will. The will acts as a backstop to the trust so that any asset that is in your name upon your death (instead of the trust) will still get into the trust. The will names the trust as the beneficiary. It is not as efficient to do this because your estate will still require a probate, but all assets will then flow into the trust.

Another option: You can also name your trust as beneficiary of life insurance and retirement assets. However, retirement assets are special in that there is an "income" tax issue. Be sure to seek competent tax and legal advice before deciding who to name as beneficiary on those retirement assets.

The bond between a grandparent and grandchild is a very special one based on respect, trust and unconditional love. When preparing one’s estate plan, it’s not at all uncommon to find grandparents who want to leave much or all of their fortune to their grandchildren. With college tuition costs on the rise, many seniors are looking to ways to help their grandchildren with these costs long before they pass away. Fortunately, there are ways to “gift” an education with minimal consequences for your estate and your loved ones.

The options for your financial support of your heirs’ education may vary depending upon the age of the grandchild and how close they are to actually entering college. If your grandchild is still quite young, one of the best methods to save for college may be to make a gift into a 529 college savings plan. This type of plan was approved by the IRS in Section 529 of the Internal Revenue Code. It functions much like an IRA in that the appreciation of the investments grows tax deferred within the 529 account. In fact, it is likely to be "tax free" if the money is eventually used to pay for the college expenses. Another possible bonus is that you may get a tax deduction or tax credit on your state income tax return for making such an investment. You should consult your own tax advisor and your state's rules and restrictions.

If your granddaughter or grandson is already in college, the best way to cover their expenses would be to make a payment directly to the college or university that your grandchild attends. Such a "gift" would not be subject to the annual gift tax exemption limits of $14,000 which would otherwise apply if you gave the money directly to the grandchild. Thus, as long as the gift is for education expenses such as tuition, and if the payment is made directly to the college or university, the annual gift tax limits will not apply.

As with all financial gifts, it’s important to consult with your estate planning attorney who can help you look at the big picture and identify strategies which will best serve your loved ones now and well into the future.