How To Avoid Four Common Estate and Elder Law Planning Mistakes

Although formulating an estate and long term care plan is an important step towards financial security, many people fail to have even the most basic plan and advanced directives. One potential hurdle is a fear of putting together a poor plan. Having a basic understanding of these common mistakes can help reduce the risk of making some unfortunate errors. The following are examples of the most common errors made:

1. Failing to create an estate and elder law plan: Arguably the most common mistake is simply failing to create any estate and long term care plan. Without any written plan whatsoever, your intended wishes as to who will receive your estate and handle your affairs may go by the wayside. Without a Last Will and/or Trust, the laws governing intestate distribution (not your wishes) will control who will receive your estate and virtually anyone can apply to be the administrator of your estate.

Additionally, without a long term care plan you may end up utilizing all of your savings for your long term care needs and never be able to take advantage of any government program that will pay for said needs. The lack of an estate plan can also result in your estate not taking advantage of any available estate tax credits and exclusions. A variety of legal tools can help to better ensure that your loved ones or preferred charitable organizations benefit from your estate — not the IRS and/or New York State.

2. Not revisiting/updating your estate and long term care plan: An estate plan and long term care plan should be revisited with any major life event. This includes births, deaths, marriages and divorces. It is also wise to review an estate plan on a regular basis even without these major changes. For example, any changes in estate tax and income tax laws should be considered on a regular basis when reviewing one’s existing plan. Additionally, the rules for Medicaid eligibility should be consulted and considered.

3. Utilizing only a Last Will as your planning tool: A Will is just one of many documents that can aide in the transfer of assets. A trust may also be beneficial. Trusts allow the trustor, or owner of the assets, to avoid probate. Probate is the court process that a Will goes through before the assets are distributed. This process is public and can be arduous and costly. Trusts can be established to avoid this process and, depending on the language used to create the trust, can also take advantage of tax savings, protect assets from the cost of long term care, shelter assets from creditors and allow the owner to have more control over how the assets are used.

4. Neglecting beneficiary designations: Designations on life insurance policies, retirement plans and other beneficiary designations should also be updated with any major life event. Additionally, it is most important that named alternate beneficiaries are named for said assets. For example, if no alternate beneficiary is named, the default beneficiary would be your estate, which could result in creditors/Medicaid against said assets. These documents generally are not governed by a will, trust or divorce decree. As a result, an unintended beneficiary could remain a recipient.

These are a few of the more common mistakes that are made when putting together an estate and elder law plan. Those that are either in the initial stages of estate and/or elder law planning or looking to revise their plans are wise to seek the counsel of an experienced estate and elder law planning attorney. This lawyer will be able to discuss the various tools that can help you meet your goals and can better ensure a plan is tailored fit to meet your needs.

Revocable Living Trusts: The Facts and Fiction

Over the last ten to fifteen years much has been written about the Revocable Living Trust (RLT) by estate and financial planners, some of which has been factually accurate and some of which has been purely fictional. In truth, there are a number of benefits as well as some drawbacks to a RLT. While many default to a last will and testament when planning the future of their estate, I urge seniors to consider the RLT as a potentially preferable option.

What is a Revocable Living Trust?

The revocable living trust (RLT) has been gaining in popularity over the past decade, particularly among the baby boomer generation. Created during an individual’s lifetime, a RLT determines how property which is titled in the name of the trust is to be managed and distributed while he or she is alive and upon death. The RLT’s grantor, or creator, retains the power to freely amend and revoke the trust as well as to reacquire its assets.

In New York, the same person can be both the grantor and sole trustee so long as one or more other person holds a beneficial interest (can be vested or contingent – for the present or future). A lifetime trust will be deemed to be irrevocable, which generally means it cannot be amended or revoked by the grantor, unless it expressly provides that is revocable.

The Advantages

The use of a RLT as an estate planning tool provides the following benefits over a last will and testament:

• Avoids the cost and time of probate and its attending expenses and requirements
• It is more difficult to challenge than a Last Will and Testament
• Protects grantor’s privacy (unlike a will, its provisions are not accessible for public review)
• Its assets will be available for immediate distribution after the death of the grantor, subject to insuring sufficient assets are available to pay estate taxes and debts
• No gift tax consequences of making transfer of assets to the trust
• Continuation of management of the trust assets in the event the grantor becomes disabled or incapacitated

The Disadvantages

• You must transfer (re-title) all of your assets, including the titles to any real property, to the RLT during your lifetime. Additionally, any assets acquired during the trust’s existence must be transferred to the trust.
• The cost of having an attorney prepare a RLT can be a little than the cost of preparing a last will and testament.

The Fiction

While a RLT offers many benefits, it does not have any distinct estate tax planning advantages over a last will and does not necessarily eliminate the need for a last will in its entirety. It is entirely possible that you may not have transferred all of your assets into a RLT during your lifetime. This creates a need for the existence of a will – to transfer the assets that are in your name alone at the time of your death.

Furthermore, assets transferred to a RLT are not protected for purposes of Medicaid eligibility or long-term care planning. Since the trust is revocable, it is considered an available resource for Medicaid and would be subject to a spend down to meet eligibility levels.

It is important to fully understand the advantages and disadvantages of all available options when planning the future of an estate. I would advise anyone considering a revocable living trust or last will to consult with an experienced attorney to determine the best course of action for their circumstances.

Are You Ready for the Elder Years? (Part 1)

Between work and family, our busy lives often leave little time to focus on our own personal affairs, especially those related to our aging. I cannot emphasize enough, however, the importance of stepping back to assess whether you have adequately prepared yourself for the elder years before they are upon you.

The following are my suggestions for your consideration. These tips focus primarily on gathering, organizing and updating documents that will be particularly important for the years ahead. A second post will offer advise on what to do once these documents are in order.

1.) Physically organize your affairs. Locate and organize into separate folders/binders all of the most important legal documents you have executed, such as your original Last Will and Testament, trust(s), advanced directives (Powers of Attorney, Health Care Proxies, etc.), deeds to your properties, mortgages and notes, insurance policies (life, health, disability, home, long-term care, malpractice), bank and investment records, income tax returns, passports, birth certificates and military discharge records, etc. While organizing these documents will be a time consuming process, it allows you to revisit many matters you may have not paid attention to for a number of years. Once you have physically organized these documents, I would suggest that you let your spouse and/or loved ones know where they are located.

2.) Review and update your existing last wills, trusts and advance directives. Ensure these documents are up to date and reflect your present financial circumstances and wishes. The Last Will you prepared when you were newly married with minor children may not be reflective of your current state of affairs and/or wishes. For example, your existing Last Will and the titling of your assets may not allow for appropriate estate tax planning on your death or the death of your spouse.

An extremely important document to have as one ages (which is often not properly drafted) is the Durable Power of Attorney (POA). It is most important that the POA be Durable (survive your subsequent incapacity) and be sufficiently broad to allow the agent to take all steps necessary to protect and preserve your assets in the event of your incapacity. You should, in my opinion, have a Durable Power of Attorney with as many powers (including broad gifting powers) as humanly possible. Many Guardianship proceedings would be avoided in their entirety if a sufficiently broad POA existed.

3.) Organize and review all existing insurance policies. You may know that you have purchased life, disability and/or long-term care insurance, but it may have been years since you assessed the adequacy of the coverage. From an estate tax and planning perspective, it may be wise to have the policy owned by an irrevocable life insurance trust so that it is not part of your taxable estate. Generally, most insurance professionals are willing to provide a no cost review of one’s existing policies.

4.) Inventory, organize and keep at least eight years of your financial and bank records. Many families are unsure and unable to locate all of the bank and financial accounts their loved ones have at a time of illness or death. Additionally, if you need to apply for Medicaid to cover your possible stay in a nursing home, you will need the last five years of all bank and investment account statements and records.