The author Vance Parker (blue helmet) with vaccinated whitewater kayaking friends at the Cheoah River, North Carolina May 30, 2021.
The safety-conscious whitewater paddling community has done a great job encouraging each other to get vaccinated for COVID-19. Being vaccinated both increases our own safety when “shuttling” in vehicles carrying paddlers and gear to river “put in” and “take out” locations, and protects the family businesspeople in the rural and small town communities all over the Southeast, where we visit to paddle.
Tourists of all types enjoy visiting the beautiful far Southwestern Graham County area of North Carolina. My friends and I traveled there this last Sunday, May 30 to whitewater kayak its Class IV-V rated Cheoah whitewater river on one of its “dam release” weekends. The exciting upper Cheoah feels like riding floodwaters through a wooded creek bed … the last two miles open up, which allowed me to get video from shore of friends paddling Class V Bear Creek Falls and other classic Cheoah rapids. See Vance’s Cheoah River Whitewater Kayaking Video here.
Tourists to this beautiful area can hike in nearby Joyce Kilmer Memorial Forest (one of the last uncut stands of timber in the Southeast), paddle themselves on lakes, flatwater, or whitewater rivers, or on guided whitewater trips in the pretty Nantahala or Tuckaseegee rivers close by. Motorcyclists and sports car drivers (as well as slower driving tourists in automobiles) travel from all over the country to ride the famous scenic twisting Cherohala Skyway or “Tail of the Dragon” routes. The beautifully restored Tapaco Lodge (built in the 1930s to house the workers who constructed the impressive Cheoah Dam and hydropower facility) looks right over the clear whitewater Cheoah River. On Cheoah whitewater release weekends, guests can relax and eat lunch while watching whitewater boaters paddle Class IV Topoco Lodge rapid right in front of them.
Tourists make sure to take a “selfie” at Cheoah Dam. This is where Harrison Ford’s character Dr. Richard Kimble jumped into a raging river far below, as part of an exciting chase scene in the 1993 movie “The Fugitive.”
At my legal practice Vance Parker Law, we lost some friends and clients to COVID-19 in a very difficult pandemic year, like so many others around the world. As everyone moves forward now, we hope that all of you will take advantage of the effective vaccines widely available in the U.S., and encourage any unvaccinated friends and family members to get vaccinated. And please celebrate life in your own ways this summer, while supporting all of those small business families who have been bravely holding on out there, just waiting for your visit.
Outdoor diners at the historic Tapoco Lodge watching whitewater boaters paddling the last part of the Cheoah River’s Class IV Topoco Lodge Rapid.
The historic Tapoco Lodge, from its motorcycle parking lot.
Cheoah Dam and hydropower generating station. Harrison Ford’s character Dr. Richard Kimble jumped off of this dam during an escape scene in the 1993 movie “The Fugitive.”
Vance taking a “selfie” with whitewater paddling friends after paddling whitewater Section 9 of Western North Carolina’s French Broad river, the day before the Cheoah run. All of these whitewater friends were previously vaccinated for COVID-19 as well.
On a bright North Carolina Saturday, Molly sits on her front porch while the goldfinches take turns pecking out thistle seeds from the feeder. But she is not watching her favorite birds at breakfast like usual, as Molly sits deep in thought, worrying. Her mother’s dementia is getting worse, and her father is having a lot of trouble helping her mother out of bed, and up from the family room chair. Plus the nurse who visits has been telling her that mom’s diabetes and its complications are getting hard to manage at home, predicting that her mother will need skilled nursing facility care within a few months.
Molly has heard though that skilled nursing home care may cost $10,000 / month. Her father remains pretty healthy, but she worries that her parents’ IRA money saved up will not take care of her father with his modest social security check for very long, if they have to pay a nursing home $10,000 / month plus pay mom’s other unreimbursed medical costs at the same time. But Molly’s best friend Carol has explained to her that before her mom and dad can get Medicaid to cover long term care expenses, they will have to spend down most of their assets, then the government will get their house when they pass away. Molly also knows that her parents have always been proud of paying their own way, and may be reluctant to get government help.
Fortunately, Molly has gotten bad advice from her friend Carol — an elder lawyer may be able to use Medicaid planning techniques to protect many of her parents’ assets, and allow their home to be passed down to Carol and her brother Richard when they both pass away, as Mom and Dad have already planned for in their wills. But is it ethical to protect assets from the government and a nursing home in this way? How will Carol convince her father to visit an elder law attorney?
Asset protection in North Carolina actually has a long history, going back over 2,000 years. Over time, kings and rulers in Europe (where much of U.S. and North Carolina law developed) allowed their subject families to keep more wealth and pass it down to their families, as they learned that people who were treated better would fight harder for their king, and had more wealth that could be taxed to support the king’s military campaigns. As time went by, evolving legal concepts better protecting individual rights, liberties, and individual property against creditors were transferred by European settlers to the Americas, and were written into United States law, and into the laws of the individual states that comprised the United States.
Older through more modern asset protection concepts including asset protection trusts (Thomas Jefferson used an asset protection trust to protect his daughter Martha’s inheritance against his son-in-law’s creditors), corporate protections shielding investors from business risks, bankruptcy protections, certain real property protections against creditors, creditor protected qualified retirement accounts, and creditor protected life insurance transfers have become standard protections available to all North Carolinians today.
Although they are more hidden, both federal law and state law creditor protections (available to North Carolina families) have been interwoven into (or allowed to exist with) Medicaid law. Elder law attorneys utilize these available protections when helping families shield assets through Medicaid planning.
Two often cited court rulings from other states provide examples of judges upholding Medicaid planning techniques as appropriate and ethical.
In the elder law case In the Matter of Kashmira Shah, 2000 NY Int. 69, the New York Court of Appeals reaffirmed that a spouse who served as guardian for her mentally incompetent husband, was able to use Medicaid planning to “spend down” her husband’s assets by transferring all of her husband’s assets to herself, to be used to support herself while her husband received Medicaid long term care benefits.
In justifying its decision, Judge Bellacosa agreed with a lower court’s moral reasoning:
[N]o agency of the government has any right to complain about about the fact that middle class people confronted with desperate circumstances choose voluntarily to inflict poverty on themselves [by using Medicaid planning to get the ill spouse financially qualified for Medicaid while saving assets for the well at-home spouse] when it is the government itself which has established the rule that poverty is a prerequisite to the receipt of government assistance in the defraying of the costs of ruinously expensive, but absolutely essential, medical treatment.
In the elder law case In the Matter of Mildred Keri, 181 N.J. 50; 853 A.2d (2004), the unanimous Supreme Court of New Jersey held that that where a skilled nursing facility constituted appropriate care for an ill mentally incapacitated mother with severe dementia, it was legal and ethical for her guardian son to use Medicaid planning techniques to benefit himself and his brother (the two brothers were also the sole primary beneficiaries in their mother’s will) in order to get the mother qualified for Medicaid long term care benefits. In explaining its ruling, the Supreme Court of New Jersey stated:
When a Medicaid spend-down plan does not interrupt or diminish an incompetent person’s care, involves transfers to the natural objects of the person’s bounty, and does not contravene an expressed prior intent or interest, the plan clearly provides for the best interests of the incompetent person and satisfies the law’s goal to effectuate decisions an incompetent would make if he or she were able to act.
Because Medicaid law is complicated, it is important to consult an elder law attorney to help determine if Medicaid planning is right for you, or for someone you care about.
A special needs trust (SNT) allows families to save significant assets for a special needs, disabled, or elderly person who receives Medicaid, Social Security Income (SSI), or other “means tested” (has strict beneficiary asset or income limits) government benefits. Federal law makes SNT assets “noncountable” (counted as zero dollars) with respect to the beneficiary’s monthly asset limit (typically set at $2,000 for a single Medicaid or SSI beneficiary.) SNT funds may pay for a variety of goods or services that supplement government payments, while allowing the special needs or disabled beneficiary to keep their government benefits.
An SNT may pay for:
Medical, psychological, or dental treatment;
Private rehabilitation;
Educational training;
Pharmaceuticals/drugs;
Home care;
Personal care and living expenses;
Medical equipment;
Food supplements;
Automobile or van expenses; adaptive modification expenses;
Adaptive equipment;
Enrichment items and activities;
Electronic devices, radios, televisions, audio, video, and computer equipment;
Recreational opportunities, trips, family visits, visits to friends;
Health insurance premiums and deductibles;
Life insurance premiums;
Purchase and maintenance of a primary residence for the elderly, special needs, or disabled individual
ABLE Accounts
Enacted in 2014, the federal Stephen Beck, Jr., Achieving a Better Life Experience Act (ABLE Act), allowed states to set up programs to create tax free savings accounts owned by special needs or disabled individuals, that do not disrupt their government benefits. Learn more about the North Carolina ABLE account program here. A special needs or disabled person may manage their own account, or the account may be managed by a parent, legal guardian, or power of attorney agent. Although an ABLE account may be established at any time, the account owner and beneficiary must have become blind or disabled by a condition that began before the individual’s 26th birthday.
Housing (includes mortgage and required property insurance expenses, real property taxes, rent, heating fuel, gas, electricity, water, sewer, and garbage removal)
Transportation
Employment training and support
Assistive technology and related services
Personal support services
Health
Prevention and wellness
Financial management and administrative services
Legal fees
Expenses for ABLE account oversight and monitoring
Funeral and burial
Basic living expenses (includes food)
Special Needs Trusts and ABLE Accounts: Differences, Advantages, and Limitations
Even though SNT and ABLE account assets may be used for a number of overlapping purposes, SNTs and ABLE accounts were originally authorized under different federal laws. Depending on the need, either an SNT or an ABLE account may provide a better solution. In many cases, an SNT and an ABLE account can be set up to work together, so that an SNT trustee may be authorized to direct SNT funds into the SNT beneficiary’s ABLE account.
A first party SNT (such as a “d4A” SNT) may be set up to make a beneficiary’s assets noncountable when those assets are owned by, or titled to, the beneficiary. First party SNTs are frequently set up to make a Medicaid or SSI beneficiary’s inheritance (if that inheritance is not held within a 3rd party SNT set up by the giver), or asset award noncountable, so that the beneficiary’s Medicaid or SSI benefits are not disrupted.
Because a first party SNT must adhere to a strict federal “sole benefit” rule, the trustee of a first party SNT should not fund an ABLE account with first party SNT assets. 3rd party SNTs, which do not have to comply with the sole benefit rule, provide the trustee with more spending options. A third party SNT may thus fund an ABLE account, and keep the ABLE account funded. The rest of this article will thus refer only to 3rd party SNTs.
3rd Party Special Needs Trust Advantages
No age limits – may be set up for a special needs or disabled individual of any age
No total funding limit – may hold any amount of assets
No annual funding limit – assets may be placed in the trust at any time, in any amount, without a yearly maximum limit
May hold a wide variety of asset types, including real property such as a home, and motor vehicles
No government payback requirement – if the beneficiary passes away, remaining SNT assets may be directed to other family members
3rd Party Special Needs Trust Limitations
The SNT beneficiary may not serve as trustee or manage SNT funds
Spending SNT funds on In Kind Support and Maintenance (ISM) expenses for SSI beneficiaries, such as for food expenses, or housing support expenses, may lead to lower monthly SSI benefits
The trust grantor will need to pay legal fees in order for SNT documents to be drafted properly
ABLE Account Advantages
A special needs or disabled person who is mentally competent may create an ABLE account, and manage his or her own assets
An ABLE account may pay for food or housing expenses
Very inexpensive to set up; may be appropriate for small amounts of assets
May be used to shield extra assets such as gifts, personal receipts, or work salary when the beneficiary’s personal checking account nears its $2,000 countable asset limit
A parent, legal guardian, or power of attorney agent may be authorized to manage an ABLE account when needed
ABLE Account Limitations
The account applicant’s onset of disability must have occurred prior to age 26, with the applicant having significant functional limitations resulting from the disabling condition
Annual contributions are limited to the individual annual gift tax exclusion amount ($15,000 in 2021)
A maximum of $450,000 may be held in the account
Account funds are subject to Medicaid or other government payback if the account owner/beneficiary passes away with account funds remaining
Using a 3rd Party SNT with an ABLE Account
A special needs or disabled person may remain more independent and happy when that individual can save money, and manage his or her own assets (when mentally able to manage assets.) In contrast, federal law requires that a trustee who is not the beneficiary serve as the manager of SNT funds.
But a 3rd party SNT may be drafted to allow the SNT trustee to fund, and keep funded, a separate ABLE account owned and managed by the special needs or disabled beneficiary. This can provide the beneficiary with funds for food, housing, or other important expenses, that the beneficiary can manage and spend independently.
An Integrated Approach (1)
When a 3rd party SNT is set up to fund an ABLE account, three sources of funds will now be available to pay a Medicaid or SSI benefits recipient’s expenses: 1) the beneficiary’s primary personal checking account; 2) the beneficiary’s ABLE account; 3) the SNT account.
All three accounts may be used together in the following manner:
Personal checking ($2,000 Medicaid or SSI asset limit – less if other countable assets are available): Receives SSI payments and work earnings
Used for paying rent, mortgage, meals, groceries, utilities, and for cash needs
ABLE account ($15,000 yearly contribution maximum): Receives funds from the SNT trustee, receives funds from personal checking when the personal checking account nears its $2,000 limit, receives gifts or other personal payments
May be used for any qualified disability expense (see above), such as for transportation, assistive technology, employment support, housing expenses, or food
3rd Party SNT: Receives larger gifts and inheritances
May purchase a home residence or automobile for beneficiary; pays for larger expenses including unreimbursed health-related expenses, vacations, insurance, and other large expenses
In North Carolina, when a state resident passes away leaving behind assets, the estate administration process may begin.
A person interested in properly winding up the deceased resident’s estate may apply with the Clerk of Superior Court serving the deceased resident’s county of residence to become the estate’s personal representative. The personal representative may serve either for a county resident who died intestate (without a will), or for a county resident who died with a will (testate.) This begins the estate administration process (also called probate.) Where a North Carolina resident (the will testator or testatrix) dies with a will, that will normally names a person (or persons) executor, with the Clerk of Superior Court normally qualifying the will’s stated active executor as the deceased resident’s personal representative.
The deceased resident’s assets which legally must pass through the probate process are known as the resident’s probate estate. Where a deceased resident’s trust owns assets at the resident’s death, those trust assets form the deceased resident’s trust estate. Trust assets are managed by the active trustee stated in the trust document. Trust assets normally bypass the county probate process (although North Carolina law provides that revocable trust assets may be pulled back to pay valid creditor claims in probate, where there are not enough probate assets to pay valid estate debts left behind at the trust grantor’s death.) The process of managing the trust’s affairs following the trust grantor’s death is called trust administration.
A trust grantor (the person who sets up and funds a trust; that person may also be called the trust settlor or trustor) often creates a will too (this will may be called a pour-over will where it is paired with a revocable living trust document.) Such a pour-over will is designed to address any probate assets that were not placed into the trust prior to the trust grantor’s death. Where such probate assets exist following a trust grantor’s death, the will’s executor may have probate duties involved in closing the deceased trust grantor’s probate estate. The will executor and trust trustee may be one and the same person, as named in the deceased resident’s estate planning documents (the executor and trustee may also be different individuals.)
As the trust grantor moves assets out of the grantor’s probate estate and into the grantor’s trust during the grantor’s lifetime (a process called funding the trust), the grantor simplifies the probate process required after the grantor’s death. Carefully funding a trust leaves less work for the grantor’s will executor to do in probate. North Carolina law provides for a shortened summary administration of a person’s probate estate where a surviving spouse is the sole current heir of a deceased North Carolina resident’s estate, and a simplified procedure for small [probate] estates (less than $20,000 in personal property remains in the deceased person’s probate estate, or less than $30,000 if a surviving spouse is the sole current heir.) See the North Carolina Estate Procedures for Executors, Administrators, Collectors by Affidavit, and Summary Administration manual, pages 11-13.)
In addition to trust assets, certain other types of assets avoid probate in different ways. For example, life insurance may pass at the policy owner’s death directly to named policy beneficiaries. Qualified retirement account (such as IRA and 401K) assets transfer directly at the account holder’s death to beneficiaries or entities (such as trusts) named in the retirement account provider’s records. Regular (non-retirement account) bank, brokerage, or securities account assets may pass directly to beneficiaries named as payable on death (POD) or transfer on death (TOD) account beneficiaries. Bank or securities account assets owned jointly may be fully owned by the survivor at a joint owner’s death (note, however, that North Carolina probate law provides that creditors may call POD, TOD, or a decedent’s joint account assets back into probate to pay valid creditor claims, where there are not enough probate assets left in a deceased resident’s estate to pay valid estate debts.)
Real estate jointly owned by a married couple in a tenancy by the entirety, real estate owned by joint tenants with rights of survivorship, or vehicles specifically titled joint tenants with rights of survivorship (JTWROS or JROS) by the North Carolina Division of Motor Vehicles (or comparable out-of-state agency) may pass to surviving owners at an owner’s death by operation of law, outside of the probate process.
Preliminary advice
A trust trustee is a type of fiduciary (acts on behalf of another person, with a legal and ethical duty to put that person’s interests ahead of his or her own interests) named in the trust document to manage trust assets. The trustee’s duty to act in the best interests of the trust and trust beneficiaries is legally enforceable, with the trustee having the legal duty to follow the instructions provided in the trust documents. Although an unaffiliated trustee who manages assets properly is not personally liable for estate or trust debts, a trustee who violates his or her fiduciary duties may be held personally accountable.
During trust administration, and at all times while administering the trust, the trustee must be careful to follow trust instructions and the law, act in good faith, keep good and transparent financial records, and act in the interest of all beneficiaries. A trustee who is also a trust beneficiary must remain neutral in all trust transactions, and cannot distribute assets to himself or herself in a way that jeopardizes distributions to other trust beneficiaries (as provided by the instructions written into the trust document.) Likewise, North Carolina law provides that all current trust beneficiaries have a right to receive a copy of the trust document, and a right to financial accountings and trust management records at “reasonable intervals.” It is a good idea for a trustee to be proactive, and responsive, in providing these items to current trust beneficiaries.
A trustee may keep trust accounting records on a computer program (such as Quickbooks or Quicken), with more specialized trust accounting software available for professionals. Particularly where a trustee manages funds that benefit others (or are otherwise subject to inspection or audit), a trustee should consider consulting a Certified Public Accountant (CPA), law practice that provides trust administration services, or other highly qualified accounting professional to help set up, oversee, or provide trust accounting and trust administration assistance.
A trustee who is a close family member of a deceased grantor, or a beneficiary of the trust, frequently chooses to provide trustee services without charge. But, a trustee may choose to pay himself or herself a management fee according to the language of the trust document (which often states that a trustee may receive “reasonable” compensation from trust assets.) Where the language of the trust does not provide for trustee compensation, North Carolina law provides that a trustee is entitled to compensation that is “reasonable under the circumstances,” a term that is further defined in a list of 11 different considerations.
The trustee should be upfront with beneficiaries early on in the trust administration process about an intent to compensate himself or herself from trust assets, and be conservative and reasonable when disbursing such payments to himself or herself. Such fees and expenses should be clearly stated and communicated within the periodic accounting statements provided to trust beneficiaries.
NORTH CAROLINA TRUST ADMINISTRATION CHECKLIST
Attend to the needs of any minor child, disabled, ill, or in-facility adult, pets, or livestock left unattended by the trust grantor’s death.
Secure any home, other structures, vehicles, or personal property left unattended following the trust grantor’s death. Do not let surviving or current beneficiaries or others take personal property prior to the executor’s or trustee’s formal distribution of that property. Store vehicles in a closed garage if possible. Consider changing or re-keying locks. Take photos of jewelry or other small valuables; consider storing such valuables in a safe deposit box or safe, at least temporarily. Notify the insurance carrier if a home or other important structure is now vacant. If not properly notified, an insurance carrier may not cover thefts, damages, or other losses.
Ensure that the funeral director has submitted a notification of death to the proper local registrar in the county where the death occurred. Obtain at least 12 copies of the death certificate (normally provided by the funeral director.)
Locate original estate planning documents. Will and trust documents are very important. Power of attorney documents become invalid at the principal’s (or document signer’s) death. Do not ask the financial or general durable power of attorney agent to make financial transactions, or sign legal documents, via a power of attorney document following the principal’s death.
Notify the Social Security Administration about the death at the SSA’s customer service number 1-800-772-1213. Claim the deceased resident’s death benefit ($255 in 2021), and claim any applicable benefits for a surviving spouse or dependent children. Warren Coble & Associates, Inc. may be consulted in Asheboro, North Carolina to help determine survivors’ Social Security benefits.
If the deceased resident was a military veteran, contact the Department of Military and Veterans Affairs (Veteran’s Administration or VA) to determine if the deceased resident is eligible for funeral or burial costs, or to see if a surviving spouse or dependent children are eligible for continuing benefits. Consider contacting the deceased person’s county Veterans Service Center for their help in determining potential benefits. This link provides more information on VA memorial benefits.
Review will and trust documents. Seek legal assistance when needed to understand specialized terms and provisions (for example, what is per stirpes or per capita distribution?)
Obtain a new Certification of Trust document (summarizes the long trust document and communicates its validity to 3rd parties) from a trust attorney if needed. Have the active trustee sign and properly execute the new Certification of Trust document.
Open (if needed) and/or maintain the primary trust checking account, or checking accounts for any discrete subtrusts which become active.
Evaluate and attend to the ongoing operations of any business entity held by the trust, where the trust grantor’s or beneficiary’s death left a vacancy. Obtain professional assistance if needed.
Identify current trust beneficiaries. Notify current trust beneficiaries of their beneficiary status, and provide them with a copy of the trust and will documents.
If the grantor’s death initiated a conversion of the grantor’s revocable trust to an irrevocable trust, or created a new irrevocable or separately taxable trust(s), obtain a new federal taxpayer identification number (Employer Identification Number, or EIN) from the IRS for the irrevocable trust(s). A new EIN may be obtained quickly online at the IRS’s Online EIN webpage.
Find and organize the deceased trust grantor or beneficiary’s important financial documents.
If the grantor’s death leaves a home vacant, cancel non-critical utilities such as cable television and internet service, telephone service, and magazines, newspapers, or other subscriptions. Keep electricity connected, and any HVAC system running, to guard against accumulating mold and mildew in the warmer months, or freezing pipes in cool months.
Inventory trust assets, and get trust assets appraised where needed.
Inventory probate estate assets, and get probate estate assets appraised where needed.
Review trust investments; take over management of trust assets and probate estate assets, and connect with or involve professionals (such as a financial advisor) when needed.
Where appropriate, seek, update, and/or maintain insurance on assets that will remain in trust.
Make claims on any bank or brokerage accounts, individual stocks or securities, life insurance policies, annuities, retirement accounts, or any other assets where the trust is named as the beneficiary.
If named as the Executor in the deceased trust grantor’s will document, make an appointment, then apply as the Personal Representative of the probate estate with the Clerk of Superior Court, in the deceased grantor’s / will testator’s (or testatrix’s) county of residence. Bring the original will document to the appointment, along with a copy of the the deceased individual’s death certificate, an initial inventory of the will testator’s or testatrix’s probate assets, and any other documentation requested by the county Clerk’s estates representative. Begin any required small estates, summary administration, or other probate process with respect to the deceased testator’s or testatrix’s probate estate assets. Involve an estate administration or probate attorney, if needed. Complete any required probate estate tasks, following the legal and accounting requirements. If another person or entity is serving as the will executor, coordinate with that executor to make sure that any needed probate tasks are completed.
Create or take over the record keeping system / accounting system for trust assets. Consider using accounting software to organize and track assets, and to create initial and periodic accounting reports. Involve a CPA or other appropriate professional when needed.
Monitor the deceased resident’s incoming mail, and pay valid probate estate debts and trust estate debts as they come up. Pay any other known, valid debts.
Collect any funds owed to the probate estate, or owed to the trust(s).
Prepare and provide an initial accounting of trust assets to current trust beneficiaries.
Return the entire Social Security payment made to the deceased person for their month of death, no matter what day of that month the death occurred (this is required.) Note that a Social Security’s monthly payment for a given month is normally made in the first week of the next month. If Social Security payments were deposited directly into the deceased grantor’s bank account, keep that account open, as it can take several months for Social Security to recall payments made after death.
File a final federal Form 1040 and an associated North Carolina state tax return for the final year of the deceased grantor’s life. File a federal Form 1041 for the trust if trust taxable income, after subtracting its withholding and credits, is more than $600 (tax year 2020 requirement.) Issue a federal Schedule K-1 (Form 1041) to each beneficiary receiving trust distributions.
Provide periodic accountings and statements to trust beneficiaries.
Sell trust assets, where such assets will not be distributed directly “in kind” to beneficiaries, instead of remaining in trust.
Obtain, from an attorney, real estate deeds and other documents required to distribute real estate to beneficiaries (as provided by the distribution language written into the trust), and properly execute and file these documents.
Prepare proper documentation to retitle motor vehicles, where they will be distributed directly “in kind” to beneficiaries, according to the language of the trust.
Distribute personal property, trust income, and principal to trust beneficiaries, according to the terms of the trust.
Document any final trust distributions to beneficiaries in a formal letter, accompanied by a final distribution statement.
Continue to manage assets to be held in ongoing trust(s) for beneficiaries.
The author kayaking Pillow Rock rapid on the Upper Gauley river, October 10, 2020.
Now almost 58 years old, I had last kayaked West Virginia’s Upper Gauley river (American Whitewater Class IV-5.0 difficulty rating) in my early 40s. Prior to this year, I had been away from whitewater kayaking 10 years. With boater friends one mist-shrouded morning this last October, I became one with the water again thundering down Gauley gorge.
During “Gauley Season” each fall, the Army Corps of Engineers lowers Summersville Lake on consecutive weekends, opening the outflow tube at Summersville Dam. Newly free epic whitewater charges downriver, as it has for eons. Gauley Season attracts whitewater boaters from all over the United States, with American Whitewater’s colorful Gauley Fest whitewater festival (postponed this year due to COVID-19) rowdily celebrating everything whitewater.
Although the Upper, Middle, and Lower Gauley are physically challenging runs, one notices silver-haired paddlers mixing in with the young pups, eager to run “Insignificant” or “Pure Screaming Hell” rapid one more time. When I was younger, one of our favorite whitewater companions paddled the Upper into his ’80s, always with a big smile on his face.
In our elder law practice a few years ago, my wife Karen and I started noticing that some of our clients we were helping qualify for assisted living admissions were our own ages, or younger, with many of these folks suffering from avoidable illnesses. Without a healthy diet and without enough exercise, our clients had become more susceptible to diabetes, heart disease, or stroke. For clients wanting to “age in place” in their own homes, those who had put on too much weight now had to enter assisted living instead, because their family caregivers were no longer strong enough to help them safely out of bed, or up from a chair. These clients now required the specialized lifts and extra staff attendants that an assisted living facility could provide.
These observations helped motivate me to get back in shape myself. I joined a Crossfit gym, started making healthier food choices, and lost quite a few pounds as I become ready to tackle the Upper Gauley once again.
Vance Parker Law supports healthy aging. I hope that you enjoy my Upper Gauley whitewater video, and that you will get outdoors yourself whenever you can, to create your own healthy adventures…
The author paddling through the froth at Pillow Rock rapid, working to stay “on line.”
Whitewater friends paddling to the Lower Gauley takeout, after completing the 26+ Gauley marathon run (Upper, Middle, and Lower sections), with over 100 Class III to Class 5.0 rapids, on October 10, 2020.
The United States has not strategically planned aging well. Because aging-associated long term care costs are so high, and good alternatives for ill aging people may no longer be available, Medicaid for the “Aged Blind and Disabled” in North Carolina is now accessed by not only lower-income applicants, but also many middle class applicants as well. If skilled nursing care is needed, the Medicaid program now finances approximately 51% of that care, with Medicaid paying 62% of U.S. nursing home care expenses.
The public does not normally walk around thinking about complex Medicaid gifting rules, and those whom have heard about Medicaid gift rules often follow bad advice. Gift-giving mistakes routinely cause caseworkers to deny Medicaid applications. Seniors now ill enough to need long-term care but who have gifted within 5 years of the Medicaid application, in a way that cannot be reversed, may find themselves “between a rock and a hard place”–unable to obtain Medicaid support for essential long term care services, and without enough funds to private pay for that care.
HOW MEDICAID’S 5 YEAR LOOK-BACK GIFTING RULES ARE APPLIED IN NORTH CAROLINA
Designed to prevent an individual from becoming “poor” enough to receive Medicaid support (“countable” assets valued at $2,000 or less), by gifting away assets to children or others prior to filing a Medicaid long term care application, Medicaid’s 5 year look-back rules are strictly enforced by the Medicaid caseworkers that review and evaluate those applications. If a Medicaid applicant (or his or her spouse) has gifted out of the applicant’s estate within 5 years prior to the Medicaid application, Medicaid may issue a potentially costly “gift sanction” to that applicant. Such a gift sanction disqualifies the Medicaid applicant (during the “Medicaid penalty period”) from receiving Medicaid long term care benefits for a certain number of months.
North Carolina uses a penalty divisor [$6,818 in 2020] to determine the number of months a Medicaid gift sanction recipient must private pay a skilled care facility or provider, before Medicaid will pay. For example, a North Carolina Medicaid applicant receiving nursing home care, who has gifted $100,000 to a child three years before applying for Medicaid long term care benefits, must private pay that nursing home for $100,000 / $6810 = 14.68 months before being eligible for Medicaid benefits.1
EIGHT COMMON SENIOR GIFTING MISCONCEPTIONS
“A senior who gets too old or becomes ill should then gift away assets early to get ready for Medicaid.” Although it is important for a senior to plan for their potential long term care needs (and it may be impossible to tell what care may be needed in advance), the majority of seniors end up never using Medicaid to pay for long term care, and most age in their own residences. Even when Medicaid is needed to pay for long term care expenses, higher quality facilities either require private pay, or require some period (one year for example) of private pay before allowing a senior to convert to Medicaid reimbursement. Most seniors should thus keep their own money for themselves and their spouses (and not gift it away) to continue to support retirement, or to help self-finance future care (if needed.) If a senior already has enough assets to fund the rest of his or her retirement and medical care plus enough to transfer to children or others, or wants to better asset-protect real property for later transfer to heirs, then an elder law attorney may employ advance Medicaid planning or an asset protection trust (APT) to help preserve family assets. If a crisis requires a senior to quickly become Medicaid-qualified, an elder law attorney may be able to utilize Medicaid rules to transfer assets to a spouse or make them noncountable without gifting, in order to help the Medicaid applicant become qualified while preserving family assets at the same time.
“If a senior gives family members gifts of no more than $15,000 each, that is OK.”Because it has to do with “gifts”, many people think that the IRS annual gift tax exclusion limit ($15,000 per individual recipient or donee in 2020) creates a universal gift-giving rule for government programs. This IRS rule, which provides a “safe harbor” for making individual gifts before a federal gift tax return must be filed, has nothing to do with Medicaid (which is run at the federal level not through the U.S. Department of the Treasury/IRS, but through the U.S. Department of Health & Human Services.) Medicaid may instead penalize gifts of any amount, made out of a senior’s estate.
“A gift to charity is always OK.” This is incorrect. When reviewing an application, Medicaid assumes that any gift, including a gift to charity, is given with the intent to “spend down” assets to meet the Medicaid long term care applicant’s countable asset limit. Although in some cases Medicaid will exempt gifts if a Medicaid applicant has a long-term history of giving to a charity on a regular basis (and those gifts do not appear to have been intentionally made in order to qualify for Medicaid), a large one-time donation will likely not be exempted. It may thus be better for a senior to plan large charitable gifts through their will or trust, to take place after the senior has passed away.
“It’s OK to manage a senior’s assets as a joint account owner on a senior’s bank account.” Although this common practice may be legal, it can create real problems for a Medicaid applicant. A Medicaid caseworker may view a non-spouse joint account owner on a senior’s account as having received a 50% gift of the senior’s account assets. Caseworkers are taught to look for gifts, and may search with even greater scrutiny for gifts made to a non-spouse joint bank account owner (whom the caseworker may unfortunately suspect, based on the caseworker’s real world experience, to be improperly converting the senior’s assets to the joint account owner’s own use.) It’s much better instead to manage senior assets using a financial or general/durable power of attorney, or through a trust.
“It’s OK to give my caregiver cash, so my caregiver can make purchases for me.” A Medicaid caseworker will most likely first view a senior’s cash transfers to non-spouse others as gifts. It may be difficult for the senior to then later prove otherwise, particularly without good documentation. It’s much better for the senior or the senior’s legally authorized financial agent or trustee to instead pay for goods or services benefitting the senior directly with the senior’s bank account check or credit card, then carefully file and save all receipts.
“It’s OKto pay a family member to care for me.” A Medicaid caseworker will likely first view this arrangement as a subtle way to make gifts to the designated family caregiver. Establishing a caregiver agreement to formally document the family care relationship first, and properly keeping a time log documenting the family member’s daily caregiving services, provides more acceptable Medicaid documentation.
“It’s OK to sell the senior’s car to the senior’s grandchild for $500.” If the market value, or the “book value” of the car is actually higher than $500, this strategy will not work. When later evaluating such an undervalued sale from the Medicaid applicant’s estate, Medicaid may then subtract $500 from the actual market value or book value of the car, and count the difference as a gift to the grandchild. Similar undervalued transfers of any senior asset, to anyone other than a spouse, may create a later Medicaid gift penalty placed on the senior Medicaid applicant.
“I should gift the family farm to my children to prevent Medicaid from getting it.”If it is unlikely that Medicaid will be needed to support long term care within the next five years, placing the farm in a properly structured asset protection trust (APT) or similar Medicaid Asset Protection Trust (MAPT) may lower future family capital gains taxes, and can asset-protect the family farm for children and grandchildren (advantages which are not available through gifting.) To make real property noncountable in many North Carolina counties, or to protect against Medicaid estate recovery less than five years before Medicaid will be needed, properly reclassifying (consult an elder law attorney for assistance) the real property as “joint with rights of survivorship” (JTWROS) real property, and creating proper Medicaid documentation, may both make the real property noncountable, and protect it against Medicaid estate recovery, without creating a later Medicaid gift sanction.
Notes:
Note that the number of days is determined here by multiplying .68 x 31 days = 21.08 = 21 days, i.e. the Medicaid applicant must private pay the nursing home for 14 months and 21 days before he or she would qualify for Medicaid benefits.
You are getting a little older and wiser, and are thinking about what is really important. The family album you have tucked within your mind (and review there often before drifting off to sleep) has grown a lot, and now there are grandkids birthdays with giggles and smiles bundled in there too… The memories are wonderful, but you are hoping to leave even more for your family…
A Medicaid Asset Protection Trust (MAPT) may represent the best way in North Carolina to protect those assets that you want to share with your children and grandchildren. Even if you have significant assets and don’t think you will ever need Medicaid to assist with long term care if you need it, a MAPT-style irrevocable trust can more securely lock what’s important away now for them, and guard against high health costs of all types. A MAPT may better protect essential family assets against those financial risks that can “just happen” in an uncertain world.
BACKGROUND
In the Piedmont Triad region of North Carolina, skilled professional nursing care, whether in a facility (“nursing home”) or at home, may cost between $7,000 to $10,000+ per month. Senior government “Medicare” health insurance only pays up to 100 days of such care at a decreasing reimbursement rate, but regulations frequently allow Medicare insurance providers to get “off the hook” and stop paying much earlier than the 100 day limit. As lifespans increase, and adult children frequently outlive their own parents (often by many years), those best laid plans may not be enough, savings may get short, and a care recipient without good long term care insurance (which most do not have) may need the government Medicaid program to take over long term care expenses.
The Medicaid program originally arose out of the public welfare system, with extensive anti-poverty origins. Passed on July 30, 1965 along with Medicare, by President Lyndon B. Johnson as part of his “Great Society” initiatives, the Medical Assistance Program (Medicaid) was designed to allow the states to receive federal funding for healthcare services provided to different categories of needy people.
Because the United States has not strategically planned aging well, aging-associated medical costs are so high, and good alternatives for ill aging people may no longer be available, Medicaid for the “Aged Blind and Disabled” in North Carolina is now accessed by many middle class, and even upper middle class families. If skilled nursing care is needed, the Medicaid program now finances approximately 51% of that care, with Medicaid paying 62% of U.S. nursing home care expenses.
The poor frequently do not have the lobbying power that wealthier sectors of society enjoy. Public insurance programs like Medicare allow users to keep their family assets that are not paid into premiums. Medicare’s earlier use by a more advantaged sector of society on average, has enabled this program to be better defended over time, with more reasonable results. Medicaid, originally designed for the poor, retains harsher trade-offs.
Medicaid Estate Recovery, required by federal law in all 50 states, requires state governments to count the dollars spent on Medicaid recipients. In general, if significant value (a senior’s home for example) is left in the Medicaid recipient’s estate after the senior passes away (or if the senior is married, after the senior’s spouse passes away), federal law requires the state to attach the Medicaid bill to the estate during probate proceedings. A home may need to be sold to pay all or part of the Medicaid bill, with the adult children or other intended heirs then unable to receive what then goes to the state. Attempts to limit such harsh results by creating affordable federal government-sponsored long term care (LTC) insurance have historically failed.
THE MEDICAID ASSET PROTECTION TRUST
A MAPT is a legal tool designed to more reliably assure that a senior’s assets will reach the senior’s intended heirs or beneficiaries, such as the senior’s children or grandchildren, and will not be potentially lost to future aging costs or later financial problems. Donating properly to a MAPT is designed to remove that donation out of the donor’s estate for creditor liability purposes (future creditors will likely not be able to reach those assets), while keeping those assets protected against creditors that children, grandchildren, or other beneficiaries may encounter, either at the time of donation, or in the future.
Federal Medicaid law treats contributions to an irrevocable MAPT like it treats gifts out of a Medicaid applicant’s estate; both are subject to Medicaid’s 5 year look-back rules. If a Medicaid applicant (or his or her spouse) has gifted out of the applicant’s estate within 5 years prior to the Medicaid application, Medicaid issues a potentially costly “gift sanction” to that applicant, where that applicant will be disqualified during the “Medicaid penalty period” from receiving Medicaid long term care benefits for a certain number of months. North Carolina uses a penalty divisor [$6,818 in 2020] to determine the number of months a Medicaid gift sanction recipient must private pay a skilled care facility or provider, before Medicaid will pay.
For example, a North Carolina Medicaid applicant receiving nursing home care, who has either gifted $100,000 to a child, or donated $100,000 to an irrevocable trust benefiting that child, three years before applying for Medicaid long term care benefits, must private pay that nursing home for $100,000 / $6810 = 14.68 months before being eligible for Medicaid benefits.1
WHEN SHOULD I CONSIDER A MAPT?
You do not have any significant creditor obligations, or a liability event has not occurred against you that would create a reasonably foreseeable creditor obligation;
Your family is stable, your beneficiaries care about you, and are mature decision makers;
You have enough assets to provide for your own current and future retirement and care needs, so that you would otherwise consider making a gift(s) of your assets to children, grandchildren, or other beneficiaries;
You like to plan early, and you (and your spouse) are still relatively healthy;
You have been diagnosed with a progressive disorder that may eventually require skilled nursing care, but you have enough assets for you (and your spouse) so that you do not believe that either of you will need Medicaid (remember that a MAPT can protect a family against most types of future financial creditors, not just Medicaid);
You have been diagnosed with a progressive disorder that may lead to, or has required, skilled nursing care, but you have enough assets or long term care insurance to pay for care for up to 5 years. 2
You own real estate (a family farm or ranch, beloved vacation home or rural recreational property) not just financially valuable, but emotionally valuable also, that you want to protect for the family long term;
You want to make sure that the children or grandchildren will have enough for their future education;
You want to make sure to provide for a special needs child or grandchild (a MAPT may include special needs trust provisions for a special needs or disabled beneficiary.)
WHY DONATING THROUGH A MAPT MAY BE SMARTER THAN GIFTING
Unlike with gifting, a MAPT may be structured so that a senior or senior couple may have the enforceable legal right to occupy and use real estate donated to the MAPT as long as they live, while that real estate remains asset protected;
Unlike with gifting, a properly-structured MAPT can greatly lower future capital gains taxes on appreciated assets donated to the MAPT, or on assets which appreciate during the senior’s remaining lifetime after being donated to the MAPT, if children or grandchildren later sell those assets (step-up in basis);
Unlike with gifting, the written terms of the MAPT, created by the senior donor(s), dictate how a donation to the MAPT must be used by children and grandchildren. Family or professional trustee(s) chosen by the senior asset donors, will be left in charge to make sure that donated assets are used wisely over time as the donors intended;
Unlike with gifting, assets which remain in the MAPT continue to be protected against future creditor problems that beneficiary children or grandchildren could encounter. In this way, a beloved family farm or favorite mountain or lake home may be protected well into the future for children and grandchildren.
IF I ALREADY HAVE SOME HEALTH PROBLEMS, OR AM ALREADY AGE 65, 70, OR ABOVE, CAN A MAPT POTENTIALLY STILL BE HELPFUL?
A large percentage of seniors never use Medicaid or other government long term care programs. Even though approximately 52% of people turning age 65 will need some type of long term care services in their lifetime, that figure implies that 48% do not. Of those who need long term care, approximately 48% need such care for one year or less. Even though 37% of people will need some type of nursing facility or assisted living care, the majority of us will remain home as we age. And when we do remain home, where 65% of us will need some type of care, the majority of home care we receive, 59%, will be unpaid care (very frequently by family members) not covered by Medicaid. 3
In addition, because private pay residents are typically much more profitable for skilled nursing facility owners and investors (or provide more operating and infrastructure revenue to non-profits), the more upscale facilities may not accept Medicaid-financed residents (with much lower reimbursement rates) at all. Many other better quality facilities maintain a required private pay period (one year for example) before they will allow a private pay resident to convert to Medicaid financing. Available “Medicaid beds” are in very short supply, with facilities accepting more Medicaid residents often associated with lower-quality care, frequently because they are not able to afford as many nurses and CNAs (certified nursing assistants) or other nursing aids.
Thus seniors and their families desiring higher-quality skilled nursing care can expect to finance some significant portion of that care themselves. If set up properly (an elder law attorney should assist), Medicaid may credit such time spent private paying a skilled nursing facility as paying off its gift sanction.
Once any discrete donation an individual or couple has transferred to a MAPT (without Medicaid being used for long term care expenses) has “aged” within the MAPT for five years, that donation is then “safe” from becoming a Medicaid gift sanction issue again. For example, a couple in their late 60s, Matt and Jane, established a MAPT benefitting their two adult daughters on January 1, 2020. They donate $50,000.00 to the MAPT on March 15, 2020, $15,000 on December 28, 2021, then $15,000.00 on December 29, 2022. If Jane unexpectedly developed cancer and needed Medicaid to start paying for skilled nursing facility care on April 7, 2027, the $50,000 year 2020 donation, and the $15,000 2021 donation, or $65,000 total, would be “safe” from causing a Medicaid 5 year look-back problem, and can likely continue to be safely stored in the MAPT for the benefit of Matt and Jane’s two children. 4
The more a MAPT is front loaded, or funded early, the safer those early donations will be against creating a later Medicaid gift sanction. Although each family situation is different, A MAPT may prove useful in many cases. An experienced elder law attorney can review details and provide valuable advice specific to you and your family.
WHAT IF I MISCALCULATE AND NEED MONEY BACK FROM THE MAPT TO PAY FOR FUTURE CARE?
Medicaid allows others such as the Medicaid applicant’s children, to voluntarily “cure” a gift sanction by gifting back assets;
A MAPT may be designed so that the trustee and family beneficiaries can later voluntarily decide to “unwind” the MAPT, and then gift back needed assets to the senior donors, as long as those assets have remained in the MAPT;
Even if the MAPT is not unwound, assets that a lifetime beneficiary receives from the MAPT may free up enough of that beneficiary’s own assets to allow the beneficiary to gift back assets to the senior donor, in order to cure a Medicaid gift sanction.
Notes:
Note that the number of days is determined here by multiplying .68 x 31 days = 21.08 = 21 days, i.e. the Medicaid applicant must private pay the nursing home for 14 months and 21 days before he or she would qualify for Medicaid benefits.
In North Carolina, a Medicaid program called “Special Assistance” may also pay for lower level “assisted living” care. Although income must go to the facility, a Medicaid for skilled nursing care applicant in NC does not have a similar monthly income cap. Medicaid’s Special Assistance program for lower level assisted living care challenges applicants with monthly income restrictions low enough that many people with enough assets to contemplate establishing a MAPT have correspondingly high monthly income also, and will not qualify for Special Assistance.
A patchwork of Medicaid-financed home care skilled nursing assistance may be available in North Carolina, through the PACE or CAP programs. What’s available depends on the senior’s county of residence. In Forsyth County (the author’s county of residence) for example, CAP-DA home care is technically available, but a current applicant may wait one year or more to receive such services, with the skilled nursing staffing needed to run this program effectively in short supply. CAP services may be much more available in adjoining (and more rural) Yadkin County.
This conclusion assumes that the family will be able to private pay less than three months of facility care, in order to pay off any Medicaid gift sanction created because of the $15,000 MAPT donation made less than 5 years before Jane entered the skilled nursing facility on April 7, 2017.
I can still remember the gentle resistance to the clear drinking glass rim as I pressed it through the soft biscuit dough. Then the hard “clack” as the glass struck the countertop. The child I was knew the fledgling biscuit was cut, almost perfectly round.
My younger brother and I were in my grandmother “Lady’s” bright white tile Texas kitchen, with the woman I knew as “Julia” instructing. Julia had shared her cooking, wit, and wisdom with my family for many years, and was probably already well into her 70s on that bright summer day over 50 years ago.
Julia taught my brother and I to make pie crusts too, cutting the dough into strips, interlacing those strips at 90 degree angles to each other across the soft sweet apple pie filling mounded up in the pan, fluting the dough edges, then sprinkling the top with white granulated Imperial “Pure Cane” sugar.
With hands held up, fingers splayed wide, framing her face feigning delighted surprise, Julia called my grandmother over to view our edible art. “Look, look Marie!” “Look at what the boys have done!” My dramatic grandmother Lady then walked over with her own best surprised look arrayed across her face, exclaiming “Julia, I did not know these boys could create such beautiful pies…!”
Fast forward 50 years. It will be a hot day today in Winston-Salem, North Carolina as July ambles into view. It’s Saturday, and I am ambitiously planning (with help from some young people neighbors) planting some sun loving flowers out front. Almost July is not normally the best time to plant ornamentals, but I’m still pretty sure that these daylilies are going to make it.
“If you are going to put a pretty plant in your yard, you should choose a hardy plant!” I remember Lady advising me. She was fond of relocating attractive specimens (already locally adapted to the South Texas heat) from the rural family ranchland, lovingly replanting them into her own yard in town.
My daylily bulbs (that I have not gotten around to permanently planting yet after they arrived mail order this spring) are already thriving in the plastic outdoor holding box, within the peat moss where my wife temporarily planted them. They are, as my grandmother taught me, “hardy.”
University of California, Berkeley psychology and cognitive development professor Dr. Alison Gopnik wrote recently in her Wall Street Journal “Mind and Matter” column about the paradox evolutionary scientists face when exploring why it has been so important for humans, throughout our time on Earth, to care for our elders for so long, even when younger members of our clans take over the heavy family work as elder bodies age.
Gopnik asks that If humans are shaped by genetic evolution (“survival of the fittest”), why did we evolve to be so vulnerable for such a long period of our lives as we age?
New thinking postulates an intriguing but simple answer.
In a recent special issue of the Philosophical Transactions of the Royal Society, co-edited by Dr. Gopnik, Dr. Michael Gurven from the University of California at Santa Barbara argues that older people have a special place within human evolution. Many human foraging skills require years of practice. Hunters and fishers don’t reach their peak until they are in their 30s.
Dr. Gopnik notes that “it’s hard though to actively practice a skill and teach it to someone else at the same time (Sunday pancakes take twice as long when the kids help).” Dr. Gurven and his team found mathematically, however, that the best evolutionary strategy for developing many complex skills, is to have the old teach the young. That way, the peak, prime of life performers can focus on getting things done, while young learners are matched with older, very wise and experienced (but less physically productive) teachers.
Here we are now in mid-2020, with a dangerous virus disproportionately threatening our elders. We can bring this virus home to them unwittingly, without knowing. It’s not really that hard for most of us to social distance when in public, to wear a mask, until there is a vaccine, or some reliable cure. It’s not about autonomy, independence, politics, or convenience. It’s about love and caring, remembrance and thankfulness.
And it’s about valuing our elders the way the best-adapted members of our species have always done, throughout human history.
If you are a special needs parent, you are likely already thinking about how to best protect your special needs child throughout life. Fortunately, it is not difficult to put estate planning protections in place which can give your special needs child, and the rest of your family, a more secure financial future.
Special Needs Trusts (SNTs) are designed to hold assets to benefit a special needs child or adult, without disrupting government benefits (such as Medicaid or SSI) which the child may either receive now, or may need later. But one SNT is not just like another SNT — in my legal practice, I draft 5 different types of SNTs designed to comply with different federal and state laws. Each type of SNT has different strengths and weaknesses, and may be appropriate for some situations but not others.
A TESTAMENTARY SNT, OR A 3RD PARTY SNT, KEEPS THE PARENT’S ASSETS WITHIN THE FAMILY
A parent who is a better advance planner can choose between the two SNT types which provide the most flexibility to parent and child, and help insure that the parent”s hard-earned assets stay within the family.
When I do estate planning for families with minor children (including where the children do not have known special needs), I typically recommend to parent(s) that we add a “testamentary” family trust benefitting the children to to a parent’s will or trust documents. If the parent(s) passes away, the parent’s chosen caretaker (trustee) then steps in to manage the money the parent left behind in “trust” for the children, following the instructions in the parent’s will (or revocable trust) that the parent left for the financial caretaker.
If the parent has passed away after previously purchasing life insurance benefitting the family trust, the life insurance payout is added to the trust, which can help insure that enough funds are left behind to take care of the children’s education and other needs, into adulthood (and beyond if needed.) These testamentary family trust funds are asset protected, which means that any future creditors cannot get to assets left for the children, making these trusts much safer than leaving benefits behind “in cash.”
“Testamentary” means that the trust starts at the parent’s death. When one or more of the children have special needs, I can set up specific “testamentary SNT” language within the parent’s will or revocable trust document, which means that any trust money that later flows to the special needs child complies with federal and state laws, so that the money can be used to pay for the special needs child’s “supplemental needs” (expenses that Medicaid, SSI, or other government programs do not pay for.)
Even if the government program’s rules provide that the child’s assets must remain under a strict “asset cap” ($2,000 or less for example), the testamentary SNT makes the $10,000, $75,000, $500,000 (or more) that the parent leaves for the special needs child “noncountable.” In other words, the SNT assets are counted by the government as “zero dollars,” and do not count against government benefit program asset limits.
Funds which flow into a child’s asset protected testamentary SNT remain noncountable no matter how old the child is when the parent passes away. And, when the special needs child passes away himself or herself in time, any funds left behind in the child’s SNT may be directed to other family members, such as the SNT child’s own children, or the special needs child’s brothers and sisters, so that the parent’s funds remain in the family.
A parent or other relative who wants to start setting aside funds for a special needs child during the giver’s lifetime (which can start benefitting that child right away)may set up a 3rd party SNT. The 3rd party SNT can make the parent’s or other relatives assets donated to the SNT asset protected immediately. These SNT funds will also remain asset protected even if the special needs child later has legal or financial problems. A 3rd party SNT may protect assets for a special needs beneficiary of any age. The 3rd party SNT does not have a mandatory government payback provision, so that if the SNT beneficiary passes away unexpectedly, any funds remaining in the special needs child’s SNT may then be used to benefit other family members. And, I can set up the parent or donating relative’s estate documents so that any additional funds left for the special needs child at the giver’s death will be directed into that child’s existing 3rd party SNT.
IF A PARENT DOES NOT PLAN, THE “SELF SETTLED” OR “D4A” SNT PROVIDES MORE LIMITED BENEFITS
As a special needs attorney, it is not uncommon for me to receive an urgent call from a special needs person, or their advocate, letting me know that the special needs person has inherited, or is about to inherit, a parent or relative’s assets, but is now at risk of being kicked off Medicaid or SSI for having too many assets. In these cases, the parent or relative may have wanted to benefit the special needs person, but did not plan well, thus I now have to make up for lost opportunities. If the special needs individual, or their advocate, is not aware that emergency options exist for making inherited assets noncountable, an unfortunate special needs person may lose access to needed government benefits, or needlessly private pay down the inheritance to become asset qualified again for government benefits programs.
In North Carolina, an “NC ABLE” account may now be used to make inherited assets noncountable, as long as the inherited assets (along with any other assets placed into the ABLE account within a year’s time) do not rise above the NC ABLE program’s $15,000 annual contribution limit.
If the inheritance is larger than $15,000, using an NC ABLE account (to make inherited assets noncountable against a government benefits program’s asset cap) may no longer be a good option. The “self settled” d4A SNT (named for the federal rules which authorize it), may be available in these cases, but the d4A SNT provides more limited benefits than a testamentary SNT or 3rd party SNT would have provided.
Unlike the testamentary or 3rd party SNTs discussed above, under North Carolina trust law, the “self settled” (meaning a person sets up a trust with the person’s own money that later benefits that same person) d4A SNT is not asset protected. Thus, for example, if the d4A special needs beneficiary is a licensed automobile driver but has a car accident causing harm to others that is not fully insured, their SNT assets may potentially be tapped to help pay an accident award to an opposing attorney and their clients.
The d4A SNT is also age-limited–it cannot make a special needs beneficiary’s assets noncountable once the special needs beneficiary reaches age 65.
Federal and state law also requires the d4A to be drafted with a government payback provision. This means that if a special needs beneficiary passes away, any funds left in their SNT must first be used to pay back the government for the money the government expended on the special needs beneficiary, before any other family members or other “successor beneficiaries” may use these funds. Realistically, the government’s care bill may insure that no remaining funds reach other potentially needy family members.
THE D4C POOLED SNT IS NOT AGE LIMITED, BUT IT ALSO CONTAINS A MANDATORY POOLED TRUST FUND PAYBACK PROVISION AND GOVERNMENT PAYBACK PROVISION
If a special needs beneficiary who inherits funds is age 65 or older, as the attorney, I may be able to make those funds noncountable against a government benefits program’s asset cap (as long as the beneficiary was disabled before reaching age 65) by using a “d4C” pooled SNT.
The pooled d4C SNT “pools” the funds benefitting a special needs beneficiary with the funds benefitting other special needs beneficiaries (but separate accounting is provided for each individual beneficiary.) In North Carolina, mandatory payback provisions must be included within these trusts which provide that if a special needs beneficiary passes away, up to 50% of their remaining SNT assets may be directed back to benefit other pooled fund special needs beneficiaries, with the state agency that benefitted the deceased special needs individual potentially receiving funds as well to reimburse for that individual’s state-supplied care.
CONCLUSION
Parents (and other relatives of special needs persons) who plan in advance do not leave their special needs child’s future to chance. Parents who plan may choose from testamentary or 3rd party SNT options that help insure that the funds that they leave for their special needs child will remain asset protected regardless of that child’s age, and will remain in the family to benefit other loved ones (instead of being directed back to the government or others) if their special needs child unexpectedly passes away.
A new statute added to North Carolina’s omnibus COVID-19 pandemic legislation includes new provisions that temporarily allow remote notarization of legal documents until August 1, 2020.
Before the new temporary law took effect, the NC notary statutes required notaries to be in the physical presence of someone signing a legal document. With the COVID-19 social distancing restrictions and other precautions, elder law attorneys and other professionals were having a great deal of trouble getting legal signatures from clients in “locked” facilities such as assisted living facilities and nursing homes.
We have added a remote video notarization service to our telephone and video appointment services, to make sure that all of our elder and special needs, and estate planning clients can be fully served while COVID-19 precautions are recommended. If video is not available at a client’s residence, and that cannot be corrected, we have other “safer signing” procedures available which could then be used to take care of that client’s needs.
Already thinking about going back again, I have been playing my own video of a recent trip a friend (Boater X) and I made to the Whitewater Chattooga Wild and Scenic National River in northern Georgia, where much of the 1972 Burt Reynolds whitewater disaster thriller “Deliverance” was filmed. It helps me to keep positive during Coronavirus 2020 to look through old travel photos and videos, and plan future trips in my mind to be taken after Bad Boy Coronavirus has hopefully been tamed.
If you are still physically able to get out there, where would you like to go next? I am sharing my “Return to Deliverance River” video below, in case you too are interested in seeing this unique and beautiful area. f you are not already a whitewater boater, local Chattooga rafting companies near Clayton, Georgia offer guided trips to visitors on the whitewater Chattooga National Wild and Scenic River.
Whitewater Kayaking the Chattooga Wild and Scenic National River, Georgia, United States (video with audio)
American Whitewater rated Class III-IV+ ; IV-IV+ Five Falls Section. Level 2.0 feet on the paddler gauge.
Gesturing with finz instead of handz, dolphin-dude Boater X guides me, after a 22 year absence, through this classic Southeastern whitewater run, where many of the whitewater scenes for the Burt Reynolds movie “Deliverance” were filmed.
Watch for Boater X’s Jedi line through Corkscrew!
Rapids include Bull Sluice (single drop line), Woodall Shoals (right sneak), Seven Foot Falls (right sneak), Five Falls Entrance, Corkscrew, Crack-In-The-Rock, Jawbone (mandatory portage) and Sock ‘Em Dog! (Puppy Chute Sneak.) Plus, we climb up a beautiful incoming waterfall.
The Chattooga National Wild and Scenic River shares with us awesome power and delicate beauty, all interwoven within the same miles.
Viruses, as a group, are 1.5 billion years old, predating humans (200,000 years old) by approximately 1,499,800,000 years. Humans live intertwined with viruses in a complex web of life. As one looks at tinier and tinier pieces, the building blocks that make up unbelievably small viruses (RNA, DNA, proteins) are the same building blocks that make up humans.
This relationship, historically, has not always been bad for humans. James Shapiro, a University of Chicago microbiologist notes that “we wouldn’t be here without them.”[i] Researchers speculate that as a part of the evolution of mammals more than 100 million years ago, a viral infection in a primitive mammal uploaded a gene for the protein syncytin that helped the mammalian placenta to evolve.[ii]
Viruses use the protein syncytin to fuse cells together, so that viruses may move from one host cell to the next. In mammals, that very same protein is the actual substance that fuses the placental cells (connected to the fetus through the umbilical cord) with the mother’s uterine cells, allowing vital nutrients to be transmitted through those tissues, and the human fetus to develop and grow.[iii] Without that long ago viral infection in a mammalian ancestor, no human child may have ever blinked their eyes open on a warm summer morning, to greet a bright new day.
Modern humans like to believe that we are in control of most things, but the COVID-19 pandemic has abruptly reminded us that we are still subject to the laws of nature. Although the illness, deaths, and disruption created by COVID-19 may seem unprecedented to modern humans right now, in biological time, periodic waves of both viral and bacterial infections have ebbed and flowed, much like the tides, for as long as humans have existed here on this earth.
But humans have made great progress in preventing, treating, or curing disease, and should continue to do so. When my grandmother Marie Oliver Vance Zipp was born in Texas in 1911, her life expectancy was then 53 years. Her later husband, my grandfather Dr. Raymond Zipp, treated childhood and adult diseases like polio, pertussis (whooping cough), and tuberculosis in the small South Texas town of Edna, Texas, where my mother Valerie grew up, and where I later graduated from high school. These diseases had no effective preventative vaccine, or treatment back then.
A female child now born in 2017 (latest figures available) expects to live for 81 years, 28 years longer than in my grandmother’s time. And the diseases above that my grandfather battled at close range, are now under control in this country. Scientific research has brought us so many more years of life in a relatively short time.
In the early 1980s, my first biology professor at the University of Texas at Austin died of the human retrovirus AIDS while in his 40s, when I was still an undergraduate biology student. Not unlike our 1960s space program that eventually brought us to the moon, the focused time, attention, and money brought to bear against that AIDS crisis eventually yielded great benefits. If my first biology professor had contracted AIDS now, the antiretroviral therapies gleaned from that global research response could have allowed him to live a significantly longer productive life.
With the focused financial and scientific attention now being directed towards COVID-19, we can better respond to this new crisis also, hopefully reducing transmission rates while COVID-19 eventually runs its course. Research advances are already coming. Just this week, my old molecular biology professor at the University of Texas, Dr. Matthew Winkler, announced that one of the biotech companies he founded, Asuragen, has developed molecular diagnostics technology which can now be used to develop more sensitive and accurate COVID-19 molecular diagnostic tests.[iv]
Humans have big brains, with much more capacity than we need for just survival. We have plenty of room to hold worry, and stress, within our extra cognitive spaces, but that can be counterproductive to our health — worry and stress actually depress our immune systems,[v] making us more vulnerable to infections like COVID-19.
The more normal we can make life while it is not normal, the more we can remember things that make us laugh, and the more we can go back to our own personal ways to exercise and reduce stress, the healthier we will be. And when we can feel a little better, the more we will realize that this too shall pass.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder and special needs law, and estate planning attorney Vance Parker as he explains how an asset protection trust should be set up early in North Carolina, to better create a family “nest egg” of assets free from future medical creditors, Medicaid estate recovery, or other future financial problems.
For more information on creating a North Carolina asset protection trust, please see attorney Vance Parker’s article:
Vance talks with WTOB Radio in Winston-Salem, NC every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker as he explains how it does not take much money to better protect your rural North Carolina real property from accident liability risks.
For a published, written version of this article, please also see:
Medieval knights of St. John (Hospitallers), riding on bay horses
The basic right of a person to dispose of his or her possessions at death (testamentary transfer) originated in ancient times. The ability for the deceased to then protect the transfer of those possessions against claims by the State or government, or against other creditors, also originated in legal traditions which began hundreds, or thousands, of years ago. North Carolinians benefit from both legal traditions. Our ability to direct our assets and cherished possessions that we collected while on earth to those we wish, may represent our last basic freedom exercised when we leave this world.
The ancient Greek biographer and essayist Plutarch (born approximately 46 AD), attributed the legal reform allowing a person to freely transfer his belongings at death to whomever he pleased, to the Athenian legalist Salon, born about 630 BC.[i] The ancient Romans later developed “fidei commissum” (meaning to commit something to one’s trust), a sophisticated system developed to leave property to one’s heirs after death (testamentary trusts.)[ii]
The English legal scholar William Blackstone explains that the law that developed in many societies gives a real property owner, who occupies a property, the right to peaceably transfer that real property at death, according to his wishes, to another chosen owner and occupier. Blackstone notes that this ordered transition of real property from one owner and occupier to another was necessary “for the peace of society,”[iii] and prevents “an infinite variety of strife and confusion.”[iv]
ORIGINS OF NORTH CAROLINA REAL PROPERTY ASSET PROTECTION LAW
The real property laws transferred to, and now used in North Carolina, were originally developed several hundred years ago within the English feudal system. At that time, the king was the only absolute owner of land, with his lords subsequently holding land from the king. The practice of “wardship” provided that a lord would provide land to a male tenant (where the tenant could grow crops and raise livestock, marry, and raise a family.) In exchange, the tenant provided services such as military service, or “knight service”, to protect the lord and king.[v]
Originally, at the ward’s death, all land reverted to the lord, and the widowed wife and children could then become impoverished. The lords, and kings, eventually learned though that the wards would fight harder for them if the wards and their families were better treated, and thus began to allow the wards to keep the land within their families.[vi] Extended families or clans now developed on inherited lands, that would fight hard for the lord and king.
Because families could now keep their livestock and crops on land that they had a continued right to occupy, widows and children no longer became so impoverished upon the father’s death. More prosperous families meant that the lords and kings now had access to more wealth within their kingdoms which they could tax, in order to fund their extended wars and military campaigns.
Two types of concurrent real property possession developed in feudal England 600 years ago that provided additional financial protection to families. Both joint tenancy (land held by more than one person) and tenancy by the entirety (land held as one unit by husband and wife) landholders enjoyed the right of survivorship (the decedent’s land was automatically passed to survivors), and freedom from the estate creditors of the decedent.[vii]
Joint tenancy, and tenancy by the entirety real property ownership remains alive and well in modern North Carolina. North Carolina law adopts the English common law definitions of both joint tenancy and tenancy by the entirety real property ownership. Here, surviving joint landowners automatically inherit the real property ownership interest of a deceased joint landowner by operation of law, with the surviving joint landowners not legally responsible for any individual estate debts of the deceased joint landowner.
The 1960 North Carolina legal case Wilson County v. Wooten[viii], which held that the welfare departments of Durham and Wilson counties could not attach bank account assets transferred to a beneficiary via right of survivorship, likely protects all right of survivorship transfers (including joint with right of survivorship, or JTWROS, real estate transfers) not otherwise specifically available to estate creditors under NC statutes, from the decedent’s estate creditors.
Wilson County v. Wooten implies that the Executor or Personal Representative of the decedent’s estate (and the creditors of that estate) would have no claim to such transferred JTWROS real property. A more recent 1994 legal case, Miller v. Miller[ix], reconfirms that in North Carolina, JTWROS property is not part of a decedent property owner’s estate, and that the surviving JTWROS property owners take the entire property, free and clear of the claims of heirs or creditors of the deceased JTWROS property owner.
ORIGINS OF NORTH CAROLINA ASSET PROTECTION TRUST LAW
In medieval England, creditor protection additionally became available during the evolution of English trust law. English legal scholars borrowed from the much older Roman fidei commissum trust law, and developed ways to leave property in trust to heirs free from creditors.[x] That refined English trust law, brought to the United States’s original 13 colonies (including North Carolina) from England, was used by founding father Thomas Jefferson to establish an asset-protected testamentary trust for his daughter Martha Randolph. With this trust, Thomas Jefferson left assets to daughter Martha protected from the creditors of Thomas Jefferson’s indebted son-in-law Thomas M. Randolph.[xi]
All 50 states, including North Carolina, have now adopted and enforce English trust law providing various types of asset protection trusts which convey creditor protection to beneficiaries.
ORIGINS OF NORTH CAROLINA CORPORATE LAW PROVIDING ASSET PROTECTION TO BUSINESS INVESTORS
The idea of a “corporation” also developed in medieval Europe. The word “corporation” originates from the Latin corpus, which refers to a group or body of people. The original idea of a corporation, which evolved in medieval European business entities, provided that the corporation would allow a body of people to survive “in perpetuity,” and not be limited by the lives of any single stockholder.[xii]
The Catholic Church was one of the first European organizations that took advantage of a “perpetual existence.” As corporate law later developed in England, the concept of personal asset protection for investors, or stockholders, in risky businesses was first used in the 1600s by the Dutch East India Company. The Dutch East India Company, which issued what were likely the first stock certificates, played a major role in the Western exploration of the entire world.[xiii]
The ability of investors to invest in bold new corporate enterprises while keeping their personal assets safe, which spread from England, through Europe, to the United States (and North Carolina), was significantly responsible for the entire industrial revolution, and for much of the wealth and prosperity that many North Carolinians still enjoy today.
EXPANDED ASSET PROTECTION IN NORTH CAROLINA: BANKRUPTCY LAW, PROTECTED RETIREMENT ACCOUNTS, AND PROTECTED LIFE INSURANCE TRANSFERS
Asset protection ideas originating long ago have spread to other later creditor protection constructs protected by federal and/or North Carolina law. Our current President of the United States has personally benefitted from federal business bankruptcy laws (also available to North Carolina residents) many times, which provided his businesses with a fresh start. Federal ERISA law provides asset protection to funds held within North Carolina residents’ qualified retirement plans, such as IRA and 401K plans.[xiv]
The cash value of life insurance policies which name the insured person’s spouse or children as beneficiaries has long been protected against creditors in North Carolina, with this protection enshrined within the North Carolina Constitution. Life insurance payouts to these beneficiaries, following the insured person’s death, are protected against the insured person’s estate creditors also.[xv]
Most asset protection techniques now available to North Carolina citizens, and protected under federal and state law, have been many, many years in the making. By allowing more families to keep more of their assets, our economy continues to provide jobs and income, our people enjoy a healthier and more successful existence, and our government earns more tax dollars from its more prosperous citizenry, which it can better distribute to our less fortunate.
REFERENCES
[i] Plutarch, Plutarchs Lives: Translated from the Original Greek, with Notes, Critical and Historical, and a life of Plutarach. New York: Derby & Jackson, 1859.
[ii] George Long, Fidei Commissum: A Dictionary of Greek and Roman Antiquities. John Murray, London, 1875.
[iii] William Blackstone, Commentaries on the Laws of England, Book 2, Chapter 2. Boston: Beacon Press, 1962.
[v] Peter M. Carrozzo, Tenancies in Antiquity: A Transformation of Concurrent Ownership for Modern Relationships, Marquette Law Review 85, Issue 2, Winter 2001.
Photograph: Jaqueline Kennedy, First Lady and wife of the 35th President of the United States John F. Kennedy, arriving at Lincoln Center, New York City, September 23, 1962.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker as he explains how family valuables, such as jewelry, silver, art, a family firearms collection, or a coin or stamp collection, become publicly available if passed down to heirs through a will. A will is normally probated following death, which is a government administered legal process that makes the contents of a deceased person’s will, including the valuables and assets listed in that will, publicly available. Thefts have followed disclosure of family valuables in probate, and the information about a family’s valuables, and who inherited those valuables, may be also potentially later accessed’ by con artists, scammers, and swindlers.
Jaqueline Kennedy Onassis (often later nicknamed “Jackie O” by the press), the wife of America’s 35th president John F. Kennedy remarried to Greek shipping tycoon Aristotle Onassis, chose to pass down her assets to heirs in her will. Following her death in Manhattan , on May 19, 1994, her will was probated, and then became available to the news media and general public, like most wills do. As a result, the text of Jaqueline Kennedy Onassis’ will, what she had and who she gave it to, entered the public domain, and now has been posted to various Internet sites where it has been viewed thousands of times by people from all over the world.
A commonly available estate planning document called a revocable trust can pass down grandmother’s silver set, a gold coin collection, family firearms, and all other family assets privately, escaping public probate disclosure. When a revocable trust is used, the list of family valuables and assets being passed down to heirs is written into the trust document, not into the publicly-probated will document. Under North Carolina law, the contents of a trust may be kept completely private, with only the trustee (the trusted family or professional manager of the trust assets) and beneficiaries actually written into the trust document, having legal access to the written contents of the trust.
A trust, such as a revocable trust, may thus be the best way to pass down family valuables and assets to loved ones after you pass away, so that what you have, and who you give it to, stays private.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics. Please listen to Vance’s July 23, 2019 conversation with WTOB radio personality Bob Scarborough about “Why You Should Use a Trust to Pass Down Family Valuables” by clicking the audio link below.
From my earliest memory, my family lived near the water, and as a young boy, I wanted to be just like my dad. How wise he was—how could he know so many things? We always had a small powerboat, and, from the time I was little, my dad was always teaching me how to use it. The ways of the sea, so to speak.
Ropes and knots are a fundamental part of boating lore and safety. The variety of knots that mariners learned time and again from their own dads vary in form and purpose, and are elegantly spare in design. My father taught me to tie knots from the time I can remember being old enough to hold a fishing pole.
In a way, becoming a man used to be a lot simpler. The father spent time with his child, dispensing wisdom slowly, one nugget as a time. The child, a boy in my case, wanted to learn everything.
How do you tie an anchor line? I remember my dad telling me, “that knot can’t slip, son!” He showed me the knot to use to hold the anchor firm. “If the knot slips out, son, the anchor might be lost, and the boat set adrift. The boat could drift into rocks, and crash against them. While the boat is at anchor during the night, if the anchor knot slips, the whole boat can drift away, never to be found again.”
When mooring a boat to a dock, I learned the hard way that if you tie the wrong knot (particularly if the water is rough and the boat is heaving up and down), the heavy boat will repetitively jerk the knot so tight that you could never untie it. Instead, you had to cut the whole rope in two.
“Son, here is how you tie a mooring line to a dock post. If you just wrap the rope around the post several times first, the friction between the rope and the post will hold the boat firm when the swells load up the post. A very loose simple half hitch, easy to untie, is all that is then required to hold the whole assembly together.”
“Here is how you tie the mooring line to the cleat, son. Just a couple of loops around and back this way will do it, then run the last loop under the previous loop and loop it back over the cleat again, so the tension from the boat pulling against the post will hold the rope firm to the cleat, but the line will still be easy to remove when we are ready to go back out fishing…”
“Son, this is how you tie a blood knot to add a swivel when using slick monofilament line. You wrap a lot of loops around the long shaft of the main line, then thread the end back through the hole right above the top of the swivel eye… then tighten up the loops like this… Do you see how this looks like a hangman’s noose? Watch what happens when I wrap the line a few times around my finger, then hold the swivel like this [between my right thumb and index finger], and pull down hard. Do you see how the cinch loops only tighten, and the knot never gets looser? If you tie your blood knot like this, you are not going to lose your fish, no matter how hard he pulls!”
My dad, still young in his 20s back then, was an able teacher, but I didn’t fully understand how wise he was until I was much older. I learned later that at the time that my dad was first teaching me knots, he was driving his little, tan VW Beetle from our West Palm Beach, Florida home far into the Everglades. Deep in the swamp, he was testing powerful prototype SR-71 Blackbird spy plane engines as a mechanical engineer for Pratt & Whitney Aircraft, at its top secret test facility. “We tested those engines outside on test stands” my dad later told me, “where only the alligators and 5 inch wide rattlesnakes could hear. The shock waves were so powerful, they felt like a man beating you in the chest.”
I think all of those engineers and scientists in the SR-71 spy plane program back then intuitively appreciated knots that would hold fast, and would not slip under load, because they were trying to hold fast an entire airframe as it was pushed to speeds never attempted before.
It was the middle of the Cold War, and Francis Gary Powers had been shot down over Russia in our country’s much slower U-2 spy plane. The engineers and scientists designing the SR-71 engine at Pratt & Whitney in Florida, together with those working on the fuselage in Lockheed Martin’s Skunk Works in Burbank, California, knew that they must now launch our flyboys high and fast, hold fast their ship through tremendous heat and pressure, then bring our boys home safely again.
And fly fast those boys did, at over three times the speed of sound, faster than a 30-06 rifle bullet. No SR-71 mission pilot was ever lost or shot down during this plane’s entire operating life.
As I grew older, those strong, steadfast knots I learned to tie early from my father became metaphors for the interwoven life lessons he later taught us by word and example: perseverance through stress… always protect those you love … practice makes perfect…
Fifty years after my dad taught me to tie those first knots, I found myself standing in Stokes County’s Dan River, rescue rope in hand. I had spent years whitewater kayaking with boaters in and around North Carolina, and had been invited to accompany some Sierra Club friends on their annual novice kayak trip down the Dan near Hanging Rock State Park.
One of the trip participants was having a very hard time that day, could barely walk with a hurt knee, and was very cold after successive spills into the river. I did not think that she could swim, at least I had not seen her attempt a stroke. She was sitting down shivering on a rock bar out in the river. A fast current cut off her route to shore, which was washing straight under a downed log, a mortal hazard that whitewater boaters call a “strainer.”
I readied myself to tie a “bowline” knot into my rescue rope, an open rescue loop which the rescue victim needed to put over her torso and under her arms, so we could pull her to safety. The bowline knot had to hold fast under load, and could not slip, because if it did so it could cinch down tight on the victim’s torso or neck, and asphyxiate her.
Although my father had not taught me how to tie the bowline, he had taught me the old way of ropes and knots, and I had everything I needed from him to be successful that day. I silently recited the “Rabbit Story” tool I used to remember how to tie the bowline: “construct the rabbit hole” … “the rabbit hops out of his hole” … “the rabbit hops around the tree” … “the rabbit hops back down his hole” … “the rabbit stops to watch the tree grow”…
The knot did hold fast that day under load, and did not slip. The old mariners’ wisdom had been passed on again, in a way as old as fathers and sons.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker as he explains how the new North Carolina Uniform Power of Attorney Act (enacted December 2018) may have made your existing financial power of attorney document deficient (or obsolete) for many later elder law, Medicaid planning, or asset protection needs.
Now-deficient powers of attorney, such as the once popular North Carolina Statutory Short Form Power of Attorney that many people still use today, can cause great problems when a person is later diagnosed with a dementia or becomes mentally impaired so that use of the financial power of attorney is needed to make critical financial, legal, Medicaid planning, or asset protection decisions. Such decisions may later be required in order to protect the senior’s home and other assets from Medicaid estate recovery, or from medical creditors. When the senior or disabled person’s financial power of attorney is deficient, key decisions that the agent must make to financially or legally protect the senior may now need to be first approved by the county Clerk of Superior Court, which can be an expensive, time consuming, and unpredictable process.
Adding an inexpensive financial power of attorney document containing detailed elder law powers (an Elder Law Power of Attorney) to one’s estate documents in the first place, while a person is still healthy to sign such documents, can prevent all of the problems caused by the new NC Power of Attorney Act. With an Elder Law Power of Attorney, the senior or disabled person’s agent will have all of the tools (if needed later) to legally protect the senior’s assets, so that critical Medicaid planning or asset protection decisions can be made quickly to save the senior’s home and assets for the senior, spouse, and family, without having to go to the county Clerk of Superior Court for permission first.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
Whenever I draft wills for a young couple expecting their first baby, or for a couple who already have at least one child, I always set up a children’s asset protection trust for them within the will documents. In case the parents pass away before their children have finished their education, or in case the parents become incapacitated so that they can no longer financially care for their kids, the parents always want to plan for a responsible adult family member or friend to manage their children’s assets for them as trustee of the children’s asset protection trust, in a way where the assets of the children’s trust will be protected against any possible future liability, creditor, or financial problems encountered by one of their children.
All of my client parents agree that such asset protection for their kids is a good thing! But while parents definitely want asset protection for their children, my younger client parents frequently are a lot more cavalier (“it won’t happen to me”) about asset protection for themselves.
Many of my client parents initially ask me for the following will planning:
Sweetheart Will. If either one of the parents pass away leaving a surviving parent, all of the deceased parent’s assets benefit the surviving parent. The surviving parent can then use this money to take care of the children.
Surviving Parent Wants Benefits in Cash. Except for the deceased parent’s share of the home, his or her personal property, or retirement account proceeds, the surviving parent receives the deceased parent’s assets “outright,” or in cash. Any life insurance (important in financially protecting young families) owned by the deceased parent benefits the surviving parent directly, in cash.
The Parent’s Assets, Retirement Accounts, and Life Insurance Proceeds Flow Directly Into the Children’s Asset Protection Trust When Both Parents Pass Away. When both parents pass away, all of their assets, and any life insurance (and any retirement account proceeds in inherited retirement accounts) flow into the children’s trust, where a trusted adult family member can manage trust assets for the children as they grow and complete their educations. Once assets are held within the family trust, if one of the 17 year old children later has a car accident creating financial liability, all of the children’s family trust assets within the family trust are protected from the liability claims brought by an opposing attorney.
This is a pretty good strategy, but it can be greatly improved! The parents’ desire to receive their deceased spouse’s assets unhindered in cash (in Step 2 above), and life insurance benefits unhindered in cash, may leave the liability window open! This open liability window could seriously chill the financial outlook of both the surviving parent, and the surviving children.
DON’T LEAVE THE LIABILITY WINDOW OPEN!
Most parents would want to guard against the following tragic scenario: The dad is works late one night, falls asleep at the wheel driving home, and has a car accident killing both himself and the driver of the other car.
As is typical, both the mom and the dad are the co-owners of the car that dad was driving. The opposing plaintiff’s attorney receives a large financial judgement for the family of the other deceased accident victim, greatly in excess of mom and dad’s automobile liability policy limits.
If the unlucky mom and dad had set up a sweetheart will, where many of the deceased dad’s assets flowed directly to the mom in cash, and the dad’s $500,000 life insurance policy benefitted mom directly, both mom and the surviving children may be in trouble! The dad’s individual assets may have to pay vehicle liability claims in probate, where valid creditor claims have to be paid before the deceased person’s assets can flow through the will to beneficiaries. Thus there may be none of dad’s own assets left for mom, and the kids, to live on!
What about the $500,000 life insurance policy? Well, since mom was a co-owner of the car, the opposing plaintiff’s attorney could sue her individually, even though she was not even in the car with her husband during the accident. Since mom receives the $500,000 from the life insurance policy directly, and in cash, all of the $500,000 insurance proceeds may now be available to the opposing plaintiff’s attorney. And if mom never gets the $500,000, the children will now never get it either, because the liability window was left wide open!
THE SURVIVING PARENT’S ASSET PROTECTION TRUST
North Carolina law would have allowed, however, the dad to have set up a testamentary asset protection trust (testamentary irrevocable 3rd party trust) in his will benefitting mom, which is a type of “vault” which could have protected assets that dad left for mom from any of mom’s future creditors. Even though North Carolina probate rules would not have protected dad’s individual assets from his own probate creditors (for example the auto accident claim holders), dad could have set up his $500,000 life insurance policy where mom’s testamentary asset protection trust was the direct beneficiary of dad’s life insurance benefits, not mom individually. Planning this way, where dad’s $500,000 life insurance benefits would flow directly into mom’s asset protection trust, could have saved the $500,000 life insurance proceeds for both mom, and the children.
Some younger parents worry that leaving assets from a deceased spouse in trust for them may be too restrictive. But in North Carolina, the surviving parent can be the full manager, or “trustee” of his or own asset protection trust, writing checks to himself or herself as needed for his or her health, education, maintenance, or support, or for his or her children’s same needs. A “right of withdrawal” may also be written into the surviving parent’s asset protection trust, where, as beneficiary of the trust, the surviving parent can decide to withdraw any portion, or all, of the trust funds out the trust at any time, for any purpose.
A lawsuit called a will or trust “contest” occurs where a disinherited heir tries to get assets which were not willed to him or her, or not distributed to him or her through a trust by the deceased asset owner. Frequently, the deceased person had a very good reason for not leaving assets to an heir who had not treated the deceased person well during life.
Because a will becomes a public document once its author passes away and probate begins, anyone can view the probate file and see what assets were left to whom. A disgruntled or disinherited will heir can use the long, open probate process to his or her advantage, using a court process to tie up estate assets so that probate cannot effectively proceed. Thus, the will challenger can potentially hold the executor and listed will beneficiaries “hostage” by blocking distribution of their inherited assets, which can give the challenger a lot of power to force a settlement with the will executor (and beneficiaries.)
Several features may make a trust harder to challenge in North Carolina. Assets held in valid trust do not go through the probate process. In addition, North Carolina law protects trust privacy. Only trustees or beneficiaries actually named in the trust are legally entitled to receive a copy of a trust, or an accounting from the trust, without a judge’s order. So, a challenger disinherited from the trust (and his attorney) may not be easily able to get a copy of the trust from the trustee–it may thus be much harder to challenge distribution of the assets with no road map to follow. And, unlike the probate of a will, the trustee is not legally required to give notice to all of the heirs of the deceased trust grantor.
A will challenger can challenge will beneficiaries more efficiently, as a group, by hijacking public probate proceedings. When challenging a trust, however, a challenger may be forced to file a lawsuit against each beneficiary individually, making the challenger’s job much more difficult, and increasing the challenger’s legal costs.
The following two methods are commonly used by attorneys to challenge wills:
capacity challenge–the challenger tries to prove that the testator (will author) was mentally incompetent when the testator signed the will, thus the testator did not know what he was doing when he left the challenger out, and the entire will is invalid. The challenger may try to prove that the testator did not intend to sign a will at all, and that some other heir made the will instead of the testator.
duress or undue influence challenge–the challenger attempts to prove that the testator was pressured by someone else (such as another heir) to leave the challenger out of the will.
Capacity, duress, or undue influence may also be argued in a revocable trust contest case, but these arguments can be harder to win. The following example demonstrates why.
EXAMPLE: When widowed Dad turns 70, he has a lawyer draft a revocable trust for him, where he leaves all of his assets at his death to Good Son, who has good manners, is always around, and always helps out. Dad disinherits Bad Son in that document, who joined a motorcycle gang 25 years before, rode out to Las Vegas, and never looked back.
The revocable trust that Dad signed at age 70 is a “living” trust, meaning that dad “funds” the trust with all of his assets right away, and in this case manages these assets himself as trustee of his own trust for 15 years, until Dad turns 85. A dementia diagnosis at age 85 causes Dad to resign as trustee, and turn over the management of his trust assets to his successor trustee Good Son.
When Bad Son learns in Las Vegas that Dad has passed away at age 87, Bad Son hops on his Harley, and rides back to North Carolina to find an attorney to help him get Dad’s assets (Bad Son assumes that Dad would not knowingly leave Bad Son any assets.) Good Son confirms (as trustee of Dad’s trust) that Dad did not leave Bad Son anything.
Bad Son finds a North Carolina lawyer to consult. The lawyer Bad Son visits has some bad news, and recommends against attempting a lawsuit. Because Dad set up the revocable living trust at age 70, and picked Good Son as the sole beneficiary at that time, Dad has a 15 year history of successfully managing Dad’s own assets after selecting Good Son as sole beneficiary. With Dad’s successful 15 year history of competently managing his own assets, it would be extremely hard to prove that Dad was not previously competent to set up the trust at age 70 (when he left Bad Son out.)
Plus, because Dad could have chosen to add Bad Son as a beneficiary during the 15 year period when Dad was managing his own trust assets, but continued to leave Bad Son out, it would be very hard to prove that Good Son continually unduly influenced Dad to leave Bad Son out during Dad’s entire 15 year period of successful trust management.
The extra difficulty in challenging Dad’s revocable living trust could cause Bad Son to ride back to Vegas, and look for some other trouble to get into.
Elder and special needs, and estate planning attorney Vance Parker discusses why good elder caregiving begins in childhood, in his new opinion essay “Who Will Help Me to Age in Place,” published on March 5, 2019 in the Winston-Salem Journal.
To read Vance’s essay in the Journal, please click the following link:
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about why more and more millennials are becoming elder caregivers. Vance discusses the huge need for family caregivers as millions of baby boom parents cross over age 65 within the next few years.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about how telephone scammers can hit anyone, even a retired FBI and CIA director and his wife. Vance concludes with basic tips for senior telephone and internet safety.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
In the Jan 24, 2019 article “Scamming Grandma: Financial Abuse of Seniors Hits Record,” the Wall Street Journal states that U.S. banks reported a record 24,454 suspected cases of elder financial abuse to the Treasury Department last year, more than double the amount five years earlier. Although it is hard to obtain an exact figure because so much elder financial abuse goes unreported, the AARP frames elder financial abuse as a $40 billion to $50 billion problem within the U.S. Trusts can help.
The United States reports higher rates of elder financial abuse than other industrialized nations. In Europe, seniors’ retirement funds are mostly doled out to them gradually, in monthly payments from government or other pension funds, where they are used to pay monthly expenses. In the United States, because of insufficient monthly Social Security and pension payments, workers are encouraged to save a great deal of their retirement funds themselves, held in potentially large IRAs or other accounts which they control. In fact, according to the Wall Street Journal article and the American Bankers Association, people over 50 represent only one third of the population, but account for 61% of bank accounts, and 70% of bank deposits.
In the U.S., these large pots of money in the hands of seniors (who also exhibit higher rates of illness and cognitive decline) are irresistible to thieves–who can be local door to door scammers, local or long distance romance scam artists, household workers or care providers, nefarious family members, or international financial scam and con artists who reach seniors through telephones, computers, and cell phones. Recent scientific studies reported by the National Institutes of Health tell us that as brains age, they undergo physiological changes that diminish older people’s ability to identify threats and assess the trustworthiness of potential predators. Thieves, of course, discovered these weaknesses long ago.
An elder law or estate planning attorney can create a trust for a senior who is still competent, which figuratively creates a “vault” holding the seniors’ assets, and gives the vault key to a responsible family member or institution. Only this “trustee” can make financial transactions on the senior’s behalf. When predators, such as telephone scam artists, figure out that the senior does not have the key to the vault holding his or her assets, they often quickly lose interest in continuing the scam.
Trusts may also be set up much earlier in life, so that as long as the owner of the assets is mentally competent and not susceptible to predators, the asset owner can act as his or her own trustee and account manager. As the asset owner ages, a co-trustee may be added to help watch the accounts and help the account owner when needed. If the asset owner later becomes susceptible to financial abusers or is no longer mentally competent to manage assets, another responsible family member or an institutional corporate trustee may become sole trustee and manager of the senior’s accounts.
Because trusts may contain detailed, legally enforceable instructions for how a senior’s money is to be used, but financial or durable power of attorney documents typically do not, a trust may be a safer vehicle for managing a senior’s money than a power of attorney. In addition, trusts are more complex, and frequently put together in a lawyer’s office where the trustee can potentially be screened by the drafting attorney. A power of attorney document is often easily downloaded from the Internet, and used by a thief or dishonest family member very quickly, without an attorney’s involvement, to scam a senior.
As banks and financial institutions see higher rates of fraud with powers of attorney, and because trusts are often associated with more affluent clientele, a trustee managing a senior’s assets may be treated with more deference by financial institutions, and experience fewer hassles, than an agent on a power of attorney document.
An elder law or estate planning attorney can help a family determine if a trust is right for their needs.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about how a caregiver agreement allows a senior to transfer assets to a family member who is caring for him or her, in a way allowed by Medicaid. Without a caregiver agreement, if a senior pays a family member for taking care of him or her and Medicaid is later needed to assist with long term care expenses, Medicaid will often penalize such transfers as a gifts. A significant gift transfer penalty or penalties can jeopardize the senior’s ability to receive government help for long term care.
Using a caregiver agreement represents the best way to document senior payments made to a family caregivers in return for care. Such agreements are recognized by Medicaid if drafted and used properly,
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about how to protect your assets before marriage.
Adults of all ages fall in love, and hope to get married. As adults get older, they may accumulate more and more separate property. In my practice, I have worked with clients in their 20s through their 80s who desire to tie the knot. But marriage remains a legal institution (in addition to a religious and emotional institution), thus it is important for couples to understand their separate and marital property rights.
Because love may sometimes be blind, and U.S. divorce rates remain high, here are my 10 Ways to Protect Your Assets Before Marriage.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about using a Medicaid qualified promissory note to shelter assets from Medicaid. Particularly useful with couples, an elder lawyer may transfer an ill spouse’s assets to the well spouse, then use a Medicaid qualified promissory note (authorized under federal law) to loan those assets to someone else, in order to reduce the ill spouse’s estate and qualify him or her for Medicaid. The loan may then be repaid in full, with interest, to the well spouse, so that the ill spouse’s funds stay within the family, and are not lost.
The Medicaid qualified promissory note technique may be used to quickly qualify a senior or special needs person for Medicaid long term care benefits.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about using joint with rights of survivorship (JTWROS) ownership to protect your car from estate creditors after you pass away. If you pass away leaving large medical bills, or had to use Medicaid to help pay long-term care expenses, your car may need to be sold in probate following your death to pay estate creditors.
Owning your car jointly with another person, and adding the right of survivorship to the car title, helps make sure that your car will pass directly to the surviving car owner out of probate, and free of estate creditors.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about using a life estate deed to protect your home or other real property against future high healthcare bills or other unknown creditor costs. A life estate provides the life tenant with an enforceable legal right to remain in his or her home for the rest of their life, in a way that is protected against attachment by any future medical creditors, or other creditors. An heir or loved one can serve as the real property remainder interest holder–which can insure that the loved one inherits the real property free of creditor problems.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, and estate planning attorney Vance Parker about how forming a third-party special needs trust may be an excellent way to save protected funds for your child (or other important beneficiary in your life.) A third-party trust may protect against future creditors of both the parent and child, does not disrupt your child’s Medicaid, SSI, or other public benefits, does not have a government payback provision, and can benefit other family members if your child passes away. The trust may benefit your child right away, during your life, and may also provide a protected “nest egg” of assets for your child if you pass away.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about why your assets may be subject to probate creditors after you pass away in North Carolina, and how probate creditors may keep assets that you will to your loved ones from benefiting them. Vance then discusses a number of different types of assets that you can use to avoid probate creditors.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
It’s not hard to imagine a white-bearded old-timer, somewhere up in the North Carolina mountains, up early one morning, barely visible through the mist as his spade turns up dirt. He is burying an old WWII ammo can underneath a tree out back, filled with some jewelry he has collected over his lifetime, cash neatly double-wrapped in gallon Ziploc bags, and his collection of gold and silver coins. He feels relieved when this job is done.
Modern asset protection estate planning still represents a hedge against hard times; insurance against financial disaster. In North Carolina, an adult may plan in advance to make smart use of existing laws to protect a “nest egg” of assets against misfortune. Asset protection estate planning may protect assets against future hazards such as 1) the death or divorce of a spouse; 2) medical or other creditors; 3) uninsured legal liability or legal liability in excess of insurance limits; 4) bankruptcy brought about by loss of a job, illness, high healthcare costs (or for other reasons); 5) Medicaid estate recovery and other estate creditors; 6) business risks.
Outline
Types of Creditors
Asset Protection Methods That Do Not Work to Protect Against Creditors During Life, or Estate Creditors Following Death
Revocable Trusts
Joint Bank Accounts With Rights of Survivorship
Transfer on Death (TOD) / Payable on Death (POD) Accounts
Best Asset Protection Techniques for North Carolina
Gifting
Retirement Accounts
Life, Liability, and Health Insurance
Tenancy by the Entirety Property
529 Plan
Life Estate
Joint With Rights of Survivorship (JTWROS) Real Property
Separate Automobile Ownership / Joint With Rights of Survivorship Automobile Ownership
Limited Liability Companies (LLCs) and Limited Partnerships
Irrevocable Trusts / Asset Protection Trusts
Types of Creditors
In this article, I will break creditors into two principal groups: “creditors during life,” and “estate creditors.” The law and statutes applying to these two groups of creditors in North Carolina are frequently different.
Creditors During Life
In general, federal and North Carolina law describe three types of creditors during life: 1) present creditors (the debtor’s obligation to the creditor already exists); 2) known potential future creditors (a potential debtor can reasonably foresee the potential future creditor making a claim, for example a victim of an auto accident who has not filed a lawsuit yet); and 3) an unknown future creditor (a future creditor that the potential debtor cannot reasonably foresee, for example a future hospital creditor with respect to a potential debtor’s future illness.)
Advance asset protection estate planning can best prepare against creditor type 3 above, the unknown future creditor that the client cannot reasonably foresee. Because both federal and North Carolina debtor/creditor law allows attorneys to most effectively protect against future problems that have not happened yet, early planning is the most reliable way to protect assets.
Under both federal and North Carolina law, it is frequently too late to utilize asset protection estate planning to protect clients against present or identifiable future creditors. Moving assets out of the estate without receiving market value in return, or attempting to hide assets away once an identifiable creditor obligation is established, may be voided or overturned by a court in favor of the creditor, under federal or North Carolina fraudulent conveyance law. N.C. Gen Stat. § 39-23.5(a) and 28 U.S.C. § 3304.
Estate Creditors
Debts incurred during life, which have not been paid before someone dies, may be collected from the deceased person’s (decedent’s) estate under North Carolina estate administration (probate) statutes. N.C. Gen. Stat. § 28A.
North Carolina probate law requires all timely and valid creditors of an estate to be paid before assets are distributed to beneficiaries through a will, or by intestate succession (the statutory process for distributing probate estate assets to beneficiaries when a person dies without a will), or by other means.
Thus, estate creditor claims can reduce, or eliminate, the decedent’s assets that he or she intended to leave for loved ones. Estate creditors may cause loved ones to inherit a reduced amount, or not to inherit at all.
If a person had to use Medicaid during his or her life to pay for health care, long term care, or nursing home expenses, Medicaid keeps track of every dollar it spends on the Medicaid recipient during his or her life. If there are assets left in an estate after the Medicaid recipient dies, such as the decedent’s home, in many cases Medicaid will apply as a creditor to the Medicaid recipient’s estate during probate, seeking payment of the Medicaid bill from the assets left in the estate. This federally-mandated process is called Medicaid Estate Recovery, and is reliably directed in North Carolina from an office in Raleigh. 42 U.S.C. § 1396(p)(b).
In addition to Medicaid, medical estate creditors are common. Medical care at the end of life may be extremely expensive. Unpaid hospital and other medical care bills may be attached to the ill person’s estate following death. Such bills may be quite large, and may add many thousands of dollars in debt to an estate following an ill person’s death. Too many bills may bankrupt an estate, so that a deceased person’s intended estate beneficiaries receive nothing.
Under the Doctrine of Necessaries (recognized in North Carolina) a spouse of a person receiving healthcare or medical services may also be liable for medical care bills, even after the medical care receiving spouse has passed away.
Asset Protection Methods That Do Not Work to Protect Against Creditors During Life, or Estate Creditors Following Death
Frequently, the following techniques are mistakenly thought to protect assets from creditors. These do not work, however, in North Carolina, except that testamentary trusts (trusts which become active at the death of a will testator or trust grantor), or revocable trusts which include ongoing subtrusts for surviving beneficiaries, may provide useful asset protection to those beneficiaries once the decedent’s valid creditor claims are paid, probate is settled, and the decedent’s remaining assets have been moved into the decedent’s testamentary trust(s) or ongoing subtrust(s) set up to protect surviving beneficiaries.
Revocable Trusts
A revocable trust can provide very important asset protection, if it includes one or more “subtrusts” that become active following the grantor’s (the person who sets up the trust) death, which benefit others such as a surviving spouse, or children. Such subtrusts may form asset protected “vaults” where the grantor’s assets (once all of the grantor’s valid estate creditors are paid off) may leave assets then protected against a beneficiary’s current or future creditors, as long as those assets remain in the asset-protected subtrust.
During the grantor’s lifetime, however, the assets within the grantor’s revocable trust are specifically available to the grantor’s creditors, as provided by statute. N.C. Gen. Stat. § 36C-5-505(a)(1).
Even though a revocable trust may keep assets out of the probate process, North Carolina law allows estate creditors to access assets in a decedent’s revocable trust in order to pay estate creditor (probate creditor) claims. N.C. Gen. Stat. § 36C-5-505(a)(3).
Joint Bank Accounts With Rights of Survivorship
Even though a joint bank or securities account with the right of survivorship (frequently established by married couples) will initially keep the assets held within that account out of the probate process, the account assets may be called back into probate to satisfy creditor claims against the decedent’s estate. N.C. Gen. Stat. § 28A-15-10(a)(3).
Transfer on Death / Payable on Death Accounts
Even though Transfer on Death (TOD) or Payable on Death (POD) bank or securities accounts may be transferred to beneficiaries outside of probate, these assets are subject to the debts of the decedent, and may be called back into probate to satisfy creditor claims against the decedent’s estate. N.C. Gen. Stat. § 41-48(b).
Best Asset Protection Techniques For North Carolina
Gifting
An asset that is gifted out of a person’s estate is not normally subject to the claims of the giver’s unknown future creditors. This technique can preserve the asset for another family member, and can preserve the net value of family assets in close families. Once gifted, the receiving party can decide to later benefit the giver if needed with some or all of these assets, but the recipient is under no legal obligation to do so.
Once an asset is given away, the giver normally has no legal recourse to get it back. Losing title to the gift asset, or the legal ability to benefit from the asset, limits this technique in practice. In addition, if the giver may later need Medicaid to help with long term care or other medical costs, any gift made within 5 years of applying to Medicaid may violate Medicaid’s 5 year lookback requirement, and create a costly penalty for the Medicaid applicant.
Retirement Accounts
Individual retirement account (IRA) assets are generally well-protected against creditors in North Carolina, along with qualified retirement plans, and qualified profit-sharing plans. Such accounts are protected against creditors during the account contributor’s lifetime, and rollovers or direct transfers to account beneficiaries are generally protected following death. Inherited IRAs to beneficiaries generally continue to be protected following the contributor’s death under North Carolina state law. N.C. Gen. Stat. § 1C-1601(a).
The U.S. Supreme Court ruled in 2014 that assets held in an inherited IRA for a non-spouse no longer constitute protected retirement funds for federal bankruptcy purposes, thus are not protected from creditors’ claims when a non-spouse inherited IRA beneficiary files for bankruptcy. Clark v. Rameker, 134 S. Ct. 2242 (2014). Although North Carolina law generally does protect non-spouse inherited IRA beneficiary residents against creditor claims, because of the Clark v. Rameker decision, non-spouse inherited IRA beneficiaries who live outside of North Carolina, or who move outside of North Carolina, could lose creditor protection on their inherited IRA assets.
Any basic asset protection strategy should include annual contributions (maximum contributions if possible) to IRA accounts. In addition to conveying tax benefits, IRAs remain broadly protected against creditors in North Carolina.
Life, Liability, and Health Insurance
The cash value of life insurance policies which name the insured person’s spouse or children as beneficiaries have long been protected against creditors in North Carolina, under the North Carolina Constitution. Life insurance payouts to these beneficiaries, following the insured person’s death, are protected against the insured person’s estate creditors also. N.C. Gen. Stat. § 1C-1601(6); N.C. Const. art. X, § 5.
Once a spouse or child receives the life insurance proceeds, however, the life insurance proceeds are no longer protected. The insured may instead leave life insurance proceeds to a protected third-party irrevocable trust benefitting his or her spouse or children, which can protect the insurance proceeds from their creditors. See more about third-party trusts below.
In North Carolina, purchasing a life insurance policy to benefit loved ones may make great sense. When adults are younger, and may not have many assets saved up yet, purchasing a life insurance policy (which is normally less expensive when purchased by a younger adult) may be an economical way of funding a family trust for a spouse or children left behind, in case the insured passes away.
Life insurance policies may be available to older adults also. Given the strong creditor protection benefits in North Carolina, purchasing life insurance can be an excellent way of insuring that assets that a person leaves behind to benefit a spouse or children will reach them without problems.
Purchasing liability insurance or health insurance may lower creditor risk also. Purchasing automobile, boat, motorcycle, RV, homeowners, landlord or landowners, business liability, or professional malpractice insurance may additionally protect personal assets against legal liability claims, and make associated financial problems (with attendant creditor claims) or personal bankruptcy less likely. Purchasing appropriate health insurance, or a long-term care or disability policy may make it less likely that a serious illness will lead to insurmountable medical creditor debt.
Tenancy by the Entirety Property
A tenancy by the entirety represents a unique way for married couples to concurrently own real property (land and buildings on the land.) Its common law history stretches back to old England, and is rooted in the Biblical story of God creating Eve: “This at last is bone of my bones and flesh of my flesh…” “Therefore a man shall leave his father and his mother and hold fast to his wife, and they shall become one flesh.” Genesis 2:23-24 (King James).
English jurist William Blackstone describes real property held by husband and wife as one indivisible unit, without equal parts or shares, and noted that “husband and wife are considered one person in law.” William Blackstone, Commentaries on the Laws of England 182 (9th ed. 1783).
In North Carolina, real property purchased by husband and wife during their marriage, or converted during their marriage, may be held in a tenancy by the entirety. Tenancy by the entirety ownership conveys both 1) a right of survivorship (if one member of the married couple dies, the survivor immediately owns the whole property); and 2) creditor protection against the creditors of one indebted spouse.
If one spouse becomes indebted to a creditor(s) in North Carolina, and not the other, as long as the marriage lasts, the creditor cannot attach or take entireties real property concurrently held with the unindebted spouse. In addition, if the indebted spouse dies, the entireties property will immediately transfer to the surviving member of the couple by operation of law, free from the indebted spouse’s creditor.
Thus, a married couple holding real property in a tenancy by the entirety conveys significant creditor protection to the couple. Holding entireties property has limits as an asset protection strategy, however. If the couple becomes divorced, the creditor protection stops for the indebted spouse. Because death also severs this tenancy, if one member of the couple dies, leaving an indebted spouse, the creditors of the indebted spouse can immediately attach the real property (now wholly owned by the surviving indebted spouse.)
A tenancy by the entirety only protects against creditors of one or the other spouse singly, but not against joint creditors of both spouses at the same time. For example, suppose a husband is driving a car that is jointly titled in both the husband and wife’s name, and has an accident creating $500,000 of uninsured liability. Because auto accident liability in North Carolina may attach to both the driver of a car and all owners of the car, and the wife is also a car owner, the couple may then be jointly liable for the $500,000 debt. Tenancy by the entirety ownership of the couple’s home or other real property may then not protect their real property against the joint accident liability.
If one member of a couple dies with unpaid medical debt, the Doctrine of Necessaries can obligate the surviving spouse to that medical debt also, making the surviving spouse a joint creditor. Even if the home is owned in a tenancy by the entirety, a married person passing away with medical debt can imperil the home left for the surviving spouse.
If the surviving indebted spouse is age 65 or older and single, North Carolina law allows the widow or widower to keep up to a $60,000 interest in a residence formerly held in a tenancy by the entirety with his or her deceased spouse. N.C. Gen. Stat. § 1C-1601(a)(1).
529 Plan
North Carolina law protects up to $25,000 placed in a 529 college savings plan, which benefits a child of the debtor and will actually be used for the child’s college or university expenses, if the plan was purchased more than 12 months prior to a creditor obligation. N.C. Gen. Stat. § 1C-1601(a)(10).
Life Estate
To shield a person’s home from all unknown future creditors, including creditors during life and estate creditors, a real property owner may gift the remainder interest in his or her home away to beneficiaries during life, while retaining a life estate, so that the giver (grantor) may legally remain in his or her home during the real property grantor’s lifetime (the grantor becomes a “life tenant”.) This normally helps assure that no unknown future creditors of the grantor, including medical creditors such as Medicaid, will be able to successfully attach and force sale of the home following the conveyance–the remainder interest has already been transferred out of the life tenant’s estate to the remainder beneficiaries, with the life estate owner’s interest disappearing at the life estate owner’s death.
In addition to allowing the grantor to continue to use his or her home during the grantor’s lifetime, retaining the life estate interest allows the grantor to include the home in his or her gross estate for federal estate tax purposes under Internal Revenue Code Section 2036. The grantor’s heirs can then receive a step up in (tax) basis, re-setting the tax basis of the property to its market value at the time of the grantor’s death. Because the grantor’s heirs will not have to pay capital gains taxes on the amount the grantor’s home appreciated during the grantor’s lifetime, this can save the family thousands in capital gains taxes.
The gift transfer while retaining a life estate technique is often not appropriate for seniors who may need Medicaid within 5 years. If the senior attempts to qualify for Medicaid within five years of transferring the remainder in his or her home to heirs, Medicaid will require the senior to private pay (for example to a nursing home or managed care facility) the value of the transfer (as determined by Medicaid’s actuarial life estate chart and gift sanction calculus) before Medicaid will provide any government dollars (Medicaid 5 year lookback penalty.)
In some cases, the family may be able to give the house back to the senior to avoid this Medicaid problem, but family dynamics may make this an unsure result.
A related type of deed, called an “enhanced life estate deed,” or Ladybird deed, may get around the 5 year lookback problem, but this deed can be trickier to use in practice, with several North Carolina title insurance companies not recognizing this type of deed.
Joint With Rights of Survivorship Real Property
Transferring real property to joint with rights of survivorship (JTWROS) ownership may protect the transfer of real property at death from estate creditors, but not from creditors during life. JTWROS ownership remains quite useful however, because it can protect real property against Medicaid estate recovery (where Medicaid attaches the Medicaid bill for a person’s care to their estate following the Medicaid recipient’s death), and where the joint tenant is single, against large medical creditor bills from the end of a person’s life that may commonly be attached to a person’s estate following death.
An elder law attorney can retitle a person’s real property as “joint with the right of survivorship”, or JTWROS, in the following manner: A small percentage of the real property (frequently 1%) is sold by the property grantor to a beneficiary, such as a child (with the largest percentage ownership of the real property, frequently 99%, retained by the grantor), so that the real property will now be owned jointly (in a joint tenancy.) With respect to Medicaid, in many North Carolina counties, undivided real property owned jointly by a Medicaid applicant and a non-spouse third-party is currently treated like “real property held by tenants-in-common” under the North Carolina Medicaid rules, which is not a countable asset when qualifying for Medicaid in North Carolina.
Adding the “right of survivorship” to the deed re-characterizes the real property to provide survivorship rights. This means that if a property owner dies, that owner’s property interest automatically transfers proportionately to any surviving property owners. If a parent grantor passes away before the other property owners, the grantor’s ownership percentage (99% for example) automatically transfers by operation of law to the minority (1% for example) beneficiary(ies) (frequently the senior’s child/children), so that the beneficiaries now automatically own 100%. This becomes an out-of-probate transfer directly to the grantor’s beneficiaries. With respect to Medicaid, the Medicaid recipient’s real property passes immediately to the recipient’s beneficiary(ies), without Medicaid being able to force the sale of the real property to repay the original grantor’s Medicaid costs.
Another positive result is that the grantor’s heirs will not have to pay taxes on any appreciation of the home during the grantor’s life. Because the home will be includable in the grantor’s gross estate for federal estate tax purposes, the tax basis will be reset to the market value of the property at the senior’s death, thereby potentially saving the senior’s heirs thousands of dollars in capital gains taxes.
Where an owner of JTWROS real property dies with non-Medicaid medical debt, however, that debt obligation may be shared by a surviving spouse JTWROS real property co-owner. In this case, the surviving spouse’s share of JTWROS property may be attached by the medical creditors of the decedent.
Separate Automobile Ownership / Joint With Rights of Survivorship Automobile Ownership
In North Carolina, it is best to keep car ownership in one name only for liability reasons. Although it may seem natural for couples to own a car jointly, if that vehicle is involved in an accident, the injured person’s attorney can sue both an at-fault driver and all owners of the car. When a couple instead owns their vehicles only in their own names, an at-fault driver does not normally imperil his uninvolved spouse’s separate assets. Thus couples who own their cars separately can decrease their liability risk significantly, depending on how financial assets are distributed between the couple.
Even given the increased liability risk, some people prefer to own their car jointly. Normally in North Carolina, when a couple of any kind jointly purchases a car at a dealer and does not give the dealer specific instructions about how they want the car owned, the dealer will fill out the paperwork in a way that translates into tenancy-in-common ownership on the car title. This means that each member of the couple will own a 50% undivided interest in the car (which is, unlike land, and undividable asset) with no survivorship rights. This can produce undesirable results.
In order for the survivor of any couple, including a married couple, to inherit a jointly-owned car in North Carolina (not held in a trust) directly (outside of probate), the joint owners must explicitly tell the dealer that they want the car owned as joint with right of survivorship, or JTWROS. They also must insure that the letters “JTWROS” or “JWROS” appear on the car title itself. Without JTWROS on the car title, there is no right of survivorship held by the surviving owner.
It is important to specifically check the car title for the JTWROS designation, because many DMV workers do not understand the JTWROS designation, or do not know that JTWROS ownership of vehicles is permitted in North Carolina.
The JTWROS designation on the car title will insure that if one of the joint car owners dies, the remaining living owner will then receive full ownership of the car (except for any portion owned by a lender), potentially free of many types of estate creditors, in an automatic out-of-probate transfer.
Corporations, Limited Liability Companies (LLCs), and Limited Partnerships
Corporations, LLCs, and limited partnerships can be very effective at limiting the personal liability of business owners for liability arising from the business. In normal circumstances, corporate shareholders, LLC members, or limited partners are not personally liable to creditors of the business. N.C. Gen. Stat. § 55-6-22; § 57D-3-30; § 59-303. Business liability insurance may be additionally helpful in protecting the value of the business assets held within the corporate entity.
LLCs and limited partnerships may additionally provide some protection for an owner’s share in the business against future personal creditors of the owner. In North Carolina, a creditor of an LLC interest owner may only obtain a “charging order” to attach distributions that would be ordinarily paid from the LLC business to the owner. A creditor of a limited partner only has rights to distributions or allocations from the partnership. With respect to both an LLC and a limited partnership, the owner retains the actual ownership interest in the underlying assets, and retains any voting rights attached to the ownership interest. N.C. Gen. Stat. § 57D-5-03; § 59-703.
It’s a common misconception, however, to place personal assets like a personal residence, or vacation home into a corporate entity like an LLC, and think that this maneuver provides effective asset protection. While a properly operated LLC (or other corporate structure) may be appropriate for holding active business properties, rental properties, or passive investments, significant personal use of the investment(s) (as may be done with a personal residence, vacation home, or vehicle) may erode the ability of the corporate structure to protect its owner(s) against the corporate entity’s liabilities. The less the corporate entity looks like an operating business, the more likely that a judge could invoke “piercing the corporate veil” doctrine to find a corporate shareholder personally liable for corporate debts.
Irrevocable Trusts_/ Asset Protection Trusts
Certain types of irrevocable trusts (the trust cannot be revoked or modified by the grantor) can provide significant protection against both the grantor’s unknown future creditors, and against creditors of the trust beneficiary(ies) as well.
In North Carolina, not all irrevocable trusts protect against the grantor’s unknown future creditors. Self-settled irrevocable trusts generally do not protect against the grantor’s future unknown creditors in North Carolina. Third-party irrevocable trusts (where the grantor does not retain a beneficial interest in the assets transferred into the trust), may be structured to protect against unknown future creditors of the grantor, and may protect against creditors of the beneficiaries.
Self-Settled (First-Party) Trusts. A self-settled irrevocable trust exists where a grantor places assets in an irrevocable trust, and then becomes a beneficiary of those assets. In North Carolina, self-settled trusts generally do not protect a grantor’s assets placed in such a trust which later benefit the grantor. By statute, “With respect to an irrevocable trust, a creditor or assignee of the settlor [grantor] may reach the maximum amount that can be distributed to or for the settlor’s benefit. N.C. Gen. Stat. § 36C-5-505(a)(2).
Federal bankruptcy law, in particular, is far-reaching when allowing creditor access to irrevocable trust funds which benefit the grantor. Under 11 U.S. Code § 548 (U.S. Bankruptcy Code; Fraudulent transfers and obligations), assets may be reached in bankruptcy which benefit the grantor/debtor within 10 years before the date that the bankruptcy petition was filed.
Third-Party Trusts. Trusts created to benefit third parties, or third-party trusts, can be drafted in North Carolina to protect against the grantor’s unknown future creditors (and to protect against creditors of the third-party beneficiaries also.) Where effectively drafted, the grantor’s contribution to a third-party irrevocable trust is treated by federal law as a gift to the trust under 26 U.S.C. § 2501. The IRS considers a gift to be “any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.”
Because a valid gift to a properly-drafted third-party trust transfers assets out of the grantor’s estate for liability purposes, the gift may be well-protected against unknown future creditors of that grantor.
If the irrevocable third-party trust beneficiary(ies) is in debt, or becomes a debtor, a properly drafted third-party irrevocable trust may protect trust assets against the beneficiary’s creditors in North Carolina, even if a beneficiary serves as trustee. N.C. Gen. Stat. § 36C-5-504(f).
The following types of irrevocable third-party trusts may provide asset protection against either unknown future creditors of the grantor, creditors of the beneficiaries, or both in North Carolina:
AVAILABLE ASSET PROTECTION TRUSTS IN NORTH CAROLINA
Testamentary trust, including marital or family trust.
Discretionary trust. N.C. Gen. Stat. § 36C-5-504.
Spendthrift trust. N.C. Gen. Stat. § 36C-5-502.
Protective trust. N.C. Gen. Stat. § 36C-5-508.
Testamentary or third-party special needs trust (SNT).
Third-party asset protection trust (APT).
Spousal lifetime access trust (SLAT).
Medicaid asset protection trust (MAPT).
Veterans’ asset protection trust (VAPT).
Domestic Asset Protection Trusts / Foreign APTs
For a grantor to set up a trust which benefits the grantor (self-settled trust), while also receiving protection against unknown future creditors, the grantor must look to a state other than North Carolina, which offers a domestic asset protection trust (DAPT.)
Currently, approximately 17 states outside of North Carolina, such as Delaware, offer domestic asset protection trusts. These trusts are normally more appropriate for grantors with a significant level of assets to protect. Many states require the involvement of an institutional (bank or trust company) trustee, which may not normally manage trusts funded with less than $1 million in assets or more. The various out-of-state statutes involved may provide other restrictions on grantor and beneficiary.
Also, the law remains unsettled regarding whether a non-resident who serves as grantor on an out-of-state asset protection trust fully benefits from the laws of the DAPT state with respect to asset and creditor protection.
Offshore asset protection trusts may be available, but these are generally complex. Courts apply U.S. law in dealing with these trusts, and tax issues may also be complicated.
Conclusion
In much the same way that it’s wise to diversify one’s investment portfolio, it is best to not rely too much on any one asset protection technique. A diversified asset protection approach tailored to the needs and concerns of the individual, while utilizing life, liability, and health insurance where available, may provide the best overall protection.
You love your pet as a member of your family, but what might happen to your dog or cat if you couldn’t be there for him or her? Unfortunately, many pets from senior owners end up at North Carolina animal shelters, after their owners either become ill or pass away.
Many of these pets tend to be older than average, so animal shelters have a hard time finding another loving home for them. Potential adoptive parents frequently don’t pick them because they are afraid that these pets will pass away too soon, or that the older pets’ vet bills will be too high. Thus many seniors’ pets must be euthanized, which is the last thing their loving senior parents would have wanted.
Under North Carolina law, you can’t just gift your pet money, or simply leave money for your pet in your will, like you can do for a human loved one. That’s because our legal system treats a pet as a person’s personal property, not as an individual with legal rights. Fortunately, North Carolina law does provide you with a valuable alternative: the pet trust.
Animal care trusts (pet trusts) have their own separate section in the North Carolina Trust Code (the statutes which describe how trusts must be formed and administered in North Carolina.) The North Carolina pet trust is a legally enforceable document which allows any person to leave money or other assets for one or more named pets that are alive at the time the trust was created. Trusts or wills containing testamentary pet trust language may later be amended if needed (with a trust amendment or codicil), to account for pets that have left or have been added to the owner’s household.
Under the pet trust statute, the grantor (the person who sets up the trust) chooses a trusted caretaker for the pet (trustee). The trustee uses the funds the grantor left for the pet to take care of the pet, and to pay such expenses as food and housing costs, and vet bills. The instructions for the pet’s care that the grantor writes into the trust are legally enforceable, and it is illegal for the trustee or anyone else to use any of the money left for the pet for anything other than the pet’s care.
The North Carolina pet trust may be set up affordably, and may be added to a will, added to an existing trust (such as a revocable trust), or set up as a freestanding document. Because a will document is normally only used after a person passes away, it may be better to set up a pet trust within a living revocable trust, or as a freestanding trust. This is the best way to make sure that your pet will be provided for if you become ill and can no longer take care of your pet, or after you pass away.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, guardianship and estate planning attorney Vance Parker about how to make planning decisions for your special needs child before he or she becomes an adult at age 18. If appropriate, and your child will not be competent to make his or her own financial, legal, health care, and housing decisions as an adult, guardianship proceedings may be established for your child in North Carolina starting at your child’s age of 17 1/2, Full general guardianship, and alternatives to full general guardianship (for children who may be able to live as adults on their own) including powers of attorney, and partial guardianship (guardianship of the estate only) are discussed. Because it is important to allow a child as much freedom as possible to promote continued intellectual development, and to support a sense of independence and self-worth, guardianship or alternatives should be carefully-considered family decisions, which can be supported through advice from a special needs and guardianship attorney.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder law, and estate planning topics.
Explaining immigration is no easy task. In this article, Elder and Special Needs Law Attorney Vance R. Parker explains immigration in this Winston-Salem Journal article how reducing the supply of U.S. immigrants threatens the caregiver supply for American seniors. Read the entire article HERE.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about why it may make sense to protect your pet with a pet trust. Because animal shelters are facing a crisis of unwanted pets from incapacitated seniors or seniors who have passed away, pet trusts provide a legally enforceable way to protect your pets should something happen to you. Pet trusts are protected under North Carolina law, and may be easily added to a standard will or revocable trust document.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about using a Medicaid Compliant Annuity (protected by federal law), to shelter assets when applying for Medicaid. When applying for Medicaid coverage of nursing home, assisted living, or home care expenses, it may be necessary to make assets non-countable in order to meet Medicaid’s strict applicant asset restrictions.
The Medicaid Compliant Annuity (MCA) technique may be particularly useful for making assets non-countable within retirement accounts.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, and estate planning attorney Vance Parker about how to use a special needs trust to keep an inheritance or other financial award from disrupting a senior or person’s Medicaid or disability benefits. Vance further explains why it is critical to make sure that any assets “willed” to a spouse diagnosed with dementia, or any assets left for a child, be distributed through a trust for the disabled beneficiary.
Vance additionally discusses when adult guardianship of a special needs individual may be appropriate.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and law, and estate planning topics.
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about the most effective estate planning for a senior (or younger person) diagnosed with a dementia or disabling illness. Click below to play the attached audio file and listen to the interview.
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
Categories: Elder law, veteran, veterans, veterans’ law, VA law, VA planning, estate planning, Aid and Attendance, veterans’ planning, Medicaid planning, Winston-Salem, North Carolina, NC.
According to a study by the RAND Corporation, an estimated 5.5 million family caregivers provide care for ill or disabled veterans in the United States. That’s 5.5 million people who are sacrificing time, energy, and money to provide care for veterans they love, as these veterans recover or age.
Family caregivers have been saving the government money by providing care to veterans that expensive medical professionals would normally perform, and the VA is recognizing this fact. Lawmakers have approved reinforcing and expanding the VA Caregiver program, through the VA Mission Act, which expands caregiver support to benefit pre 9/11 veterans, in addition to post 9/11 veterans. The VA Mission Act, which authorizes $860 million in veterans’ caregiver support over the coming years, was signed into law on June 7, 2018.
As these programs become implemented and available, ill or disabled veterans will be able to apply to a VA program to support those who are caring for them.
For many veterans, aging is not an easy process. In the words of Brad Barton, a Vietnam Veteran whose spinal cord was severed from a mortar round during the Vietnam War’s Tet Offensive: “I want to see veterans treated equally. We all served our country when our country needed us, and now we need their help. And I think they should do this for us.”
At a time where the number of people who need care is increasing, and the number of caretakers is decreasing, this bill may provide an example for eventually providing caregiving financial support to non-veteran families.
Veterans and their families should make certain that they receive all VA support benefits available to them. Programs such as Aid and Attendance and Housebound benefits may add valuable funds to a veteran’s pension which can be used to help with home care or assisted living expenses. An elder law attorney can provide VA asset planning services to help veteran families qualify for and receive all available veterans home support and long-term care benefits.
Categories: Estate planning, elder law, special needs, trusts, special needs trust, supplemental needs, disabled, disability, Winston Salem, North Carolina, NC.
Elderly, special needs, and disabled persons may depend on public benefits programs such as Medicaid, Special Assistance, or Supplemental Security Income (SSI) to assist with healthcare, assisted living, skilled nursing care, support, and other needs. These programs are “means tested,” meaning that they have strict asset, and/or income limits for applicants, and ongoing limits for beneficiaries supported by these programs.
A Spike in Assets May Endanger an Applicant’s or Beneficiary’s Medicaid or SSI Status
If Medicaid or SSI applicants or beneficiaries receive a spike in assets from sources such as a personal injury award or other legal award, a child support award, monetary gifts or support donations from relatives or others, or inheritance bequests, their Medicaid or SSI status may be threatened. An applicant may be denied access to Medicaid or SSI until the windfall is spent down. Beneficiaries already in the programs may have their benefits terminated until the windfall is spent down, or a penalty has been paid (if the assets are gifted elsewhere.)
Special Needs Trusts
Special Needs Trusts (SNTs), or “Supplemental Needs Trusts,” are designed to protect trust assets of Medicaid or SSI recipients, making them non-countable to Medicaid or SSI. SNTs were specifically created by federal law, which provides classifications of trusts which can benefit applicants and beneficiaries, without triggering asset restriction limits or penalties.
Federal statute 42 U.S.C. § 1396p(d) provides for two types of SNTs: “Third Party SNTs” and “Testamentary SNTs.” Federal statute 42 U.S.C. 1396p(d)(4) carves out three additional types of SNTs: “Self-Settled D4A SNTs,” “D4C Pooled SNTs,” and “Sole Benefit SNTs.”
SNTs represent a federally protected “safe harbor” for keeping assets directed to elderly, special needs, or disabled persons from disrupting their Medicaid or SSI benefits.
Supplemental Needs
Special needs trusts are set up to supplement, not replace, government benefits. Funds placed in special needs trusts may be used to provide for supplemental needs, such as the following:
Medical, psychological, or dental treatment;
Private rehabilitation;
Educational training;
Pharmaceuticals/drugs;
Home care;
Personal care and living expenses;
Medical equipment;
Food supplements;
Automobile or van expenses; adaptive modification expenses;
Adaptive equipment;
Enrichment items and activities;
Electronic devices, radios, televisions, audio, video, and computer equipment;
Recreational opportunities, trips, family visits, visits to friends;
Health insurance premiums and deductibles;
Life insurance premiums;
Purchase and maintenance of a primary residence for the elderly, special needs, or disabled individual.
Testamentary SNTs
Special Needs Child
A parent of a special needs child commonly wants to provide for that child in the parent’s will or trust documents. But if the special needs child is using Medicaid or SSI, or may potentially need Medicaid, SSI, or other means-tested benefits later in life, assets left by the parent for the child in a standard will or trust could disqualify the child’s future public benefits.
A testamentary SNT allows a parent (or anyone else) to create a special needs trust which is a part of the parent’s will, or part of a parent’s trust, to benefit the special needs child while protecting that child’s access to public benefits. The word “testamentary” means that the SNT for the child does not go into effect until the parent passes away.
Ill Senior Spouse
A senior’s spouse who has been diagnosed with a progressive, disabling illness (such as a dementia) may more likely need future institutional or home care supported by Medicaid or Special Assistance, or may already be receiving benefits from such means-tested programs. In these cases, a senior should leave any asset bequests to his or her ill spouse within a testamentary SNT (part of the senior’s will) for that ill spouse. This insures that assets left behind for the ill spouse will not disrupt the public benefits that the ill spouse may require for her ongoing care.
When deciding whether or not to add a SNT to a will in order to benefit an ill senior spouse, it is best to err on the side of caution. If the SNT is later not needed, the trustee can use discretionary language (which can be inserted into the SNT) to benefit the senior just like a normal trust, so that the trustee will not be limited by the supplemental benefit language of the SNT.
Testamentary SNT Characteristics
Used for estate planning; becomes active at the death of the grantor;
Revocable prior to the death of the grantor; irrevocable after the death of the grantor;
SNTs for children or other non-spouse beneficiaries may be placed into either a will or another trust;
A SNT for a spouse must be placed within a will;
No government payback provision; successor beneficiaries can be any persons or entities.
Self-Settled (First Party) D4A SNTs
A “self-settled” (first party) D4A SNT becomes active during the lifetime of the grantor who sets up the SNT. The D4A trust is designed to hold funds legally titled in the in the disabled person’s name (although third party funds may be also added to the trust), or to be received by the disabled person.
D4A SNT Characteristics
May be set up by the disabled individual, a parent, grandparent, guardian, or court;
Irrevocable;
May hold personal injury or lawsuit awards, child support, inheritance, the disabled individual’s personal funds, or other funds;
Beneficiary must be under age 65 when the trust is created;
Funds which flow into the trust are not shielded from Medicaid or SSI beyond the beneficiary’s age of 65;
A disabled person applying for Medicaid or SSI may spend down assets by placing them in a D4A SNT.
After the beneficiary dies, the state agency which benefitted the disabled individual must be paid back with any remaining assets, to reimburse for that individual’s care;
If funds remain after agency payback, they may be distributed to successor beneficiaries.
D4C Pooled SNTs
A D4C Pooled SNT is set up by a non-profit organization, which serves as trustee. The funds of all collected beneficiaries are pooled together, but separate accounting is provided for each individual beneficiary. D4C Pooled SNTs are important because they may be used by a special needs or disabled person of any age.
D4C Pooled SNT Characteristics
May be set up by the disabled individual, a parent, grandparent, guardian, or court;
Irrevocable;
May be used by a disabled person of any age, except that the beneficiary must be disabled as defined by the Social Security Administration before reaching age 65;
The pooled trust agreement language is provided by the non-profit trustee organization;
At the death of the beneficiary, the non-profit trustee organization may retain up to 50% of the remaining trust principal;
The state agency which benefitted the disabled individual then receives the other remaining percentage of the trust principal, if needed, to reimburse for the beneficiary’s care;
Any funds remaining after the state care reimbursement has been paid may be distributed to the beneficiary’s relatives, depending on the language within the non-profit trustee organization’s trust agreement.
Non-profit organizations in North Carolina which operate D4C Pooled SNTs for disabled individuals, and who serve as professional trustees for SNTs include:
Third party SNTs are formed with the funds of a third party (such as a parent or grandparent), to provide for a beneficiary’s supplemental needs, without a state payback provision.
Third Party SNT Characteristics
Set up by a third party, such as a parent or grandparent, to benefit a special needs, disabled, or elderly individual either using or potentially needing Medicaid or SSI;
SNT may be either revocable or irrevocable during the lifetime of the grantor, and is irrevocable after the death of the grantor;
No beneficiary age requirements;
No state agency payback requirements; successor beneficiaries can be anyone, or any entity.
Sole Benefit SNTs
A sole benefit SNT is normally used by a third party who himself (or herself) wants to spend down to qualify for Medicaid or SSI. The trust must provide its “sole benefit” to another disabled person. As an example, an elder wishing to spend down to qualify for Medicaid coverage of nursing home costs could place her assets into a sole benefit trust in order to benefit a disabled child or grandchild. Assets placed into this type of trust by the grantor become non-countable with respect to the grantor for Medicaid, but still benefit the disabled beneficiary.
Sole Benefit SNT Characteristics
Set up by a grantor wanting to spend down to qualify for Medicaid or SSI;
Trust benefits the grantor’s blind or disabled child of any age, or another disabled person under age 65;
Grantor is not penalized by Medicaid or SSI for the trust transfer to the disabled person;
After the beneficiary dies, the state agency which benefitted the disabled individual must be paid back with any remaining assets for that individual’s care;
If funds remain after agency payback, they may be distributed to successor beneficiaries.
Setting up a special needs trust may be the best way to financially protect an elderly, special needs, or disabled individual. Because the law in this area is complex, it is best to consult an elder law or special needs attorney for advice.
Categories: Elder law, estate planning, Medicaid planning, nursing home, asset protection, long term care, Winston Salem, North Carolina, NC.
Medicare was set up by our government as a health insurance program, which helps to pay seniors’ health care costs. Because it is insurance, when a senior uses Medicare to pay for medical expenses, the senior does not have to pay Medicare back.
But if the senior will need skilled nursing care, such as nursing home care, the Medicare program covers only 100 days, with part of that time requiring copays. Frequently, the Medicare insurance carrier will terminate the senior’s 100 days of skilled nursing care early, requiring the senior to private pay for further skilled nursing care.
In North Carolina, monthly nursing home expenses can range from $5,000 to $10,000 per month. Because most older families cannot afford to pay skilled nursing care expenses by themselves for very long, they must rely on Medicaid to pay those expenses. Medicaid now pays about 63% of our long term care bill in America.
Because the U.S. has not developed a comprehensive long-term care program for seniors, seniors frequently must use Medicaid, which was originally designed as a poverty program (not a healthcare program), to supplement their assisted living payments, or to pay for nursing home care. Because it is a poverty program, Medicaid has strict asset limits for participants.
Medicaid Planning
An individual needing to use Medicaid to pay for long term care may not have more than $2,000 in assets when he or she applies to Medicaid. If the applicant is married, his or her spouse is allowed to keep more assets, but that amount is still limited.
Because $2,000 is such a small amount, many people believe that a senior, or a senior and her spouse, must “spend down,” or “give away” many of their assets so that they lose use of those assets, in order to qualify for Medicaid.
Medicaid Planning is instead designed to help a senior, and a senior’s spouse, to keep as many assets as possible for themselves and their families, while qualifying for Medicaid. Proper Medicaid planning may save the family from unnecessarily losing many thousands of dollars.
There are two types of Medicaid planning. Advance Planning, or Proactive Planning may help protect assets well in advance of needing Medicaid. Crisis Planning takes place when a family knows that Medicaid will definitely be needed.
In both advance and crisis planning, the elder lawyer may “shelter” countable Medicaid assets by exchanging them for non-countable assets.
Medicaid Planning may involve the following techniques:
Moving Assets between husband and wife. Medicaid allows the home or community spouse to have many more assets than the institutionalized spouse–thus assets may be moved between spouses.
Irrevocable trusts. Assets may be protected from Medicaid more than 5 years in advance by using an irrevocable trust, such as a Medicaid Asset Protection Trust (MAPT).
Medicaid annuity. Assets such as retirement accounts may be moved into a special Medicaid Compliant Annuity (MCA), which is exempt from Medicaid.
Real property such as the home and family farm may be protected through estate creditor protection techniques such as JTWROS ownership.
Promissory note. Assets may be sheltered by using a Medicaid-compliant promissory note.
Other ways to preserve assets include:
Making home improvements or a new car purchase.
Buying an exempt single premium life insurance policy designed for ill seniors.
Purchasing real property held in a joint tenancy with right of survivorship.
Purchasing a prepaid irrevocable burial policy.
Shifting assets to a family business.
Sheltering assets in an appropriate Special Needs Trust.
Transferring assets to an appropriate Sole Benefit Trust for another disabled person.
If a senior may need Medicaid to help pay the long term care bill in the future, advance planning can help to protect assets early against high medical costs.
An elder law attorney can potentially help seniors keep more their assets when applying for Medicaid, and to better protect those assets for their heirs and loved ones.
During our first meeting, I’ll frequently hear a client story that goes something like this:
“When I pass away, I can’t give any of my assets to my son Johnny. He plays fantasy football and bets on football teams. Unfortunately, he’s a terrible better and I think he has lost thousands of dollars. His wife Judy is about to split up with him.”
Such financially risky heirs frequently fall into one of the following categories:
Spendthrifts (can’t manage money or consistently waste money);
Substance abusers (drugs or alcohol);
Immature adults;
Gamblers;
Heirs with creditor or bankruptcy problems;
Heirs facing divorce or other legal challenges;
Heirs with untrustworthy spouses, close relatives, or associates.
The Discretionary Trust
In many cases, disinheritance is not the only solution for such financially risky heirs. I may instead structure a testamentary “discretionary trust” within a will document, or a discretionary subtrust within a trust document, to safely award assets to a financially risky heir.
The client selects a trustee (a “manager” of the trust legally obligated to act in the best interests of the beneficiary), and back up trustees, to make future distributions to the heir.
I’ll agree with the client on a “distribution standard,” which provides directions to the trustee(s) stating what types of expenses to the risky heir are permissible.
“HEMS” represents the most common “ascertainable” (measurable) distribution standard. When in place, this means that the trustee can only make distributions from the risky heir’s trust for that heir’s “Health, Education, Maintenance, or Support.” Distributions to buy alcohol or to pay off a gambling debt would be off limits. If needed, a discretionary trust may be set up so that the trustee may make direct purchases on behalf of a risky heir, so that the risky heir never has a chance to spend the assets unwisely.
Protecting Against the Risky Heir’s Creditors
Discretionary trusts are legally valuable, because they protect any assets being held or to be distributed by a will or trust document from lawsuits or creditors of the risky heir. In addition to protecting the risky heir’s assets, when assets are also being held in trust for other beneficiaries, the risky heir’s potential lawsuits or creditors cannot jeopardize the other beneficiaries’ trust assets.
In North Carolina, in order to protect against creditors, the trustee must be granted the full discretion (complete autonomy or independence) to either make or not make distributions to the risky heir within the will or trust document. Discretionary trusts protect against creditors in North Carolina when structured as follows:
The amount to be received by the beneficiary, including whether or not the beneficiary receives anything at all, is within the discretion of the trustee; or
The trustee has no duty to pay any particular amount to the beneficiary, but only has a duty to pay sums, in the trustee’s discretion, that he determines are appropriate for the support, education, or maintenance of the beneficiary. N.C. Gen. Stat. § 36C-5-504
If Dad worries that the assets he wants to leave for his daughter Sue may be jeopardized by his son Johnny’s gambling debts, setting up a discretionary trust for Johnny in Dad’s will or trust documents protects Dad’s assets left for both Johnny, and Sue.
A discretionary trust may be set up for any length of time needed, and may be drafted to protect the assets left for a risky heir for that heir’s entire lifetime.
If a client is considering leaving assets to a financially risky heir, a discretionary trust may be his or her best option for safely benefiting that loved one.
CATEGORIES: Elder Law, Special Needs Law, Winston Salem, North Carolina, NC.
Family caregivers may provide essential care to disabled seniors, or to special needs/disabled adults of any age. Such family care may allow the senior or special needs adult to remain in the home environment that he or she prefers, and can provide numerous other benefits.
If the senior or special needs adult has available funds, it may make sense for them to pay the family caregiver for those services. But if the disabled adult may need future Medicaid benefits, improperly documented transfer of the disabled adult’s assets to a family member (to compensate for care services) may be viewed by Medicaid as a sanctionable gift transfer. Such transfers violate Medicaid’s 5-year lookback provisions, which penalize the disabled adult for any gifts made during that time.
Family Members May Create Valid and Enforceable Contracts With Each Other
Our federal and state legal system allow family members to create valid and enforceable contracts with each other.
Likewise, Medicaid (and other public benefits programs) also allow a disabled adult to transfer assets to a family caregiver in return for services. Specifically, the Health Care Financing Administration (HCFA), in Transmittal No. 64, Section 3258.1.A.1., provides that relatives and family members can be paid for care provided to loved ones, and that such payment shall not result in a penalty period, provided that fair market value compensation has been paid to the caregiver for the services rendered. A written agreement, which should already be in place at the time care services are provided, is suggested as acceptable proof of such an arrangement.
Types of Services Documented by a Care Agreement
Care agreements (caregiver agreements) are quite flexible, and can be tailored to meet client needs. An elder law attorney who structures a care agreement for a disabled adult (the “Principal” in the agreement) may include the following types of care services to be provided by the “Caregiver”:
Monitoring physical and mental health;
Finding, providing, and managing appropriate medical and dental care providers;
Providing assistance with activities of daily living (ADLs), such as bathing, toileting, continence, dressing, feeding, and transferring;
Providing personal hygiene services such as assistance with haircare, shaving, fingernail and toenail care;
Assisting with personal shopping;
Providing nutrition and meal services;
Providing laundry services;
Providing housecleaning services;
Providing visitation, socialization, and entertainment services;
Providing social services advocacy, and government services advocacy;
Serving as a spokesperson;
Providing financial management services.
Real Property Upgrades, Rent, Utilities, and Upkeep
If the disabled adult is living within the caregiver’s home, the following types of non-caregiving provisions may be added to the care agreement, in order to provide compensation documentation for other benefits provided by the caregiver to the disabled adult:
Reimbursements for improvements made to the home in order to accommodate the disabled adult;
Rent proportional to the amount of the residence occupied by the disabled adult;
Proportional compensation for utilities and housing upkeep costs.
Tax Issues
The IRS and the NC Department of Revenue normally view the caregiving relationship formally (as an employer/employee or employer/contractor relationship). Funds received by the caregiver are typically classified as taxable income, with the disabled adult potentially subject to employer rules and procedures with respect to reporting, compensation, and taxes.
A family using a care agreement (or entering into a compensated care relationship) should seek ongoing advice from a CPA or other appropriate tax professional, with respect to the care agreement and employment relationship.
Fair Market Value
As mentioned above, the compensation to the caregiver must be set at fair market value for the services performed. The caregiver should keep and maintain a daily journal detailing the care he or she provides to the disabled adult, noting the time spent on each activity.
Other Benefits
Social Security Credits
A family member who either leaves outside work (either wholly or partially), or does not seek work, in order to care for a disabled relative may then stop receiving Social Security work credits.Such credits may be essential to maximizing Social Security retirement benefits for the caregiver.
In using a care agreement, where a caregiver consistently reports to the IRS her income received for taking care of a disabled relative, the caregiver keeps adding Social Security credits to her employment record. This helps insure that the caregiver will maximize her Social Security retirement benefits as much as possible.
Transparency for Other Family Members
It is common for only one family member to serve as primary caregiver for a disabled adult. A care agreement can reward the family caregiver for her time and effort. In addition, the care agreement helps clearly document how the disabled adult’s money is being spent on caregiving, so that all family members can better understand the care relationship, in a way that can prevent family disagreements or misunderstandings.
References
ElderCounsel
Andrew Olsen, Caregiver Agreements and Elder Care Mediation, in Top Elder Care Planning Strategies, (2016).
CATEGORIES: Elder Law, Medicaid Planning, Winston Salem, North Carolina, NC.
Many individuals or couples must apply to Medicaid to finance nursing home or other long-term care costs. Medicaid planning allows an individual or couple to shelter their assets from Medicaid, while simultaneously “spending down” to meet strict Medicaid asset requirements.
When a Medicaid applicant must move quickly to spend down assets, a properly drafted Medicaid Promissory Note may preserve valuable funds for the applicant(s), rather than losing these assets to pay for facility costs.
Congress Created a “Safe Harbor” With Respect to Medicaid for Drafting Promissory Notes
Congress, in passing the federal Deficit Reduction Act (DRA) of 2005, provided legislative permission for Medicaid applicants to use “Medicaid-qualified” promissory notes. As long as a promissory note meets the following requirements, it will be viewed as a permissible compensated transfer, and not penalized as a gift transfer. Such Medicaid qualified promissory notes must be:
Irrevocable, and cannot be cancelled if the lender dies
Divided into equal payments
Payable within the lender’s actuarial life expectancy
The North Carolina Medicaid Manual, which Medicaid caseworkers use to evaluate Medicaid applicants, is consistent with federal law in allowing properly drafted promissory notes.
The Medicaid Promissory Note technique for sheltering assets from Medicaid was upheld in federal court in Lemmons v. Lake (U.S. Dist. Ct., W.D. Okla., No. CIV–12–1075–C, March 21, 2013). Juanita Lemmons, a resident of Oklahoma, transferred her Edward Jones account and her farm to her son, in exchange for a promissory note in the amount of $86,400, before applying for Medicaid benefits in Oklahoma. The State of Oklahoma Medicaid agency denied resident Juanita Lemmon’s Medicaid application largely because it ruled that the asset transfer was a “sham transaction.” The Oklahoma federal district court overruled that decision, holding that Mrs. Lemmons’ asset transfer was not a sham transaction, because an enforceable promissory note governed and memorialized the transaction.
How the Medicaid Promissory Note Works
The basic promissory note concept is pretty simple: the Medicaid applicant, or her spouse, acts like a bank “lender,” making a loan for the full (or partial) amount that Medicaid requires her to “spend down” in order to qualify for Medicaid. The “borrower” must be a non-spouse third party, such as a child. Both lender and borrower sign the loan document, called a Medicaid Promissory Note, where the borrower agrees to pay the Medicaid applicant back every month at the same monthly rate, over a scheduled period of time, with interest.
Here is an example of how the Medicaid Promissory Note works:
Married Mom, Jenny, suffers from congestive heart failure and has received an FL-2 form from her physician stating that she requires “SNF”, or Skilled Nursing Facility care, a medical term for “nursing home” care.
Jenny and her husband Tom have very modest assets and decide that they need to apply for Medicaid, before she can commit to the nursing home (which costs $7,000/month).
Jenny moves her assets over to her husband Tom, as allowed by Medicaid. When Jenny and Tom apply for Medicaid assistance, their Medicaid caseworker determines that Tom holds $4,600 more assets than his Medicaid Community Spouse Resource Allowance (CSRA) allows.
Thus, in Medicaid terms, Jenny and Tom are $4,600 “over resource”, meaning that they have $4,600 too many countable assets for Jenny to be accepted by Medicaid. Medicaid may then direct the couple to “spend down” the $4,600 (which could mean private-paying this money to Jenny’s nursing home in the first month). Unfortunately, however, once Jenny and Tom use the $4,600 to pay the nursing home, the money is gone to Jenny and Tom and can no longer benefit them personally.
Instead of losing the $4,600 to the nursing home, Jenny and Tom could instead choose to preserve those assets for their later use, or her family’s later use, by using the Medicaid Promissory Note to shelter those assets from Medicaid. Since Tom now holds the couple’s assets, he asks his elder law attorney to set up a Medicaid Promissory Note for a $4,600 loan amount to Tom’s (and Jenny’s) son Chuck.
The attorney determines that Tom’s actuarial life expectancy (Tom is 82 years old) is 8.58 years, and also determines an IRS-appropriate lending rate for intra-family loans at 2.54%. He structures a 96-month loan (a loan term within Tom’s actuarial life expectancy), where the $4,600 Tom loans to Chuck will be paid back by Chuck to Tom at a rate of $53.00/month ($52.95 principal + $0.11 interest.)
The IRS will count $0.11 of each month’s payment as Tom’s earned interest, with $52.95 of each month’s payment a non-taxable return of loan principal. The IRS will require Tom to report the interest payments he receives from Chuck as taxable income.
When Tom and Chuck sign the Medicaid Promissory Note, Tom writes a check to son Chuck for $4,600, which Chuck deposits in his bank account. Because the Medicaid Promissory Note represents a market interest rate compensated transaction, it is not a gift under Medicaid’s 5-year lookback rules, making the Medicaid Promissory Note a quick and easy “last minute” method of sheltering assets when applying for Medicaid.
Under standard accounting rules, the funds that Chuck owes Tom would normally remain Tom’s assets (Tom’s note receivable and Tom’s interest receivable.) Medicaid does not follow standard accounting rules regarding certain types of loans, such as the Medicaid Promissory Note, however. Under Medicaid rules, once the Promissory note is signed, the $4,600 is no longer the lender’s (Tom’s) asset. Thus Tom and Jenny can use this technique to remove $4,600 from their net Medicaid countable assets.
Jenny and Tom have thus saved $4,600 for their use that will not be lost to a facility payment. Because the Medicaid Promissory Note has constructively created an immediate spenddown for the $4,600 that the couple was over resource, their net countable assets have now been lowered by $4,600, so that Jenny can now be accepted by Medicaid. Thus, Medicaid will be then responsible for paying the $4,600 facility fees, not Jenny.
In another departure from standard accounting rules, the entire stream of monthly return of loan principal and interest income payments that Tom receives from son Chuck will all be cumulatively viewed by Medicaid as “income” to Tom. But because this will be the “community spouse’s” (Tom’s) income, not the applicant spouse’s (Jenny’s) income, this “income” can be saved by the couple, and will not be required to be spent on facility fees.
The 2005 DRA requires that the Medicaid Promissory Note cannot be cancelled at the lender’s death. Thus, if Tom dies before the 96-month loan term has ended, Chuck technically still owes the loan principal and interest balance to Tom’s estate. This note may never be called following Tom’s death, however, because North Carolina probate rules have very specific requirements and deadlines for creditors’ claims. These deadlines frequently are missed by creditors of small or insolvent estates.
An irrevocable Asset Protection Trust (APT) may be used as part of an advance asset protection planning strategy, to help a client create a “nest egg” of assets to be passed to his loved ones free from the claims of unforeseen future creditors. Such trusts can help protect estates against large future medical care bills, such as bills from Medicaid Estate Recovery, hospital, or nursing home bills, or other unforeseen future liabilities such as legal liabilities, auto accidents, financial liabilities, bankruptcy, or can provide financial protection from nefarious family members.
In order to create an APT free from unknown future creditors in North Carolina, the trust must be designed so that the trust grantor, who sets up the trust, does not benefit directly from the trust assets. The trust beneficiaries, however, may benefit from APT assets during the grantor’s lifetime—in fact the APT may be set up to start benefitting a spouse (see item 4 below), children, or other beneficiaries immediately.
When the client’s estate is large enough to make a gifting strategy useful, it may make more sense to set up an APT instead. The StepAPT™ asset protection trust is designed to protect close family members, and provides these benefits:
The StepAPT™ Can Provide Creditor Protection to The Grantor. Making a proper transfer into the StepAPT™ is legally very similar to making a gift to a family member. Once the grantor properly transfers assets into the StepAPT™, North Carolina and federal law considers this a transfer out of the grantor’s estate for creditor purposes, and future creditors such as Medicaid or hospitals cannot legally reach the assets in the APT.
The StepAPT™ Can Provide Creditor Protection to Trust Beneficiaries. The StepAPT™ may be set up to provide creditor protection to trust beneficiaries both during the grantor’s life, and after the grantor’s death.
A Beneficiary May Serve as His or Her Own Trustee. If appropriate, a non-grantor beneficiary can be set up as Trustee, so that he or can distribute assets to himself or herself according to the terms of the trust, while still retaining valuable creditor protection.
The StepAPT™ May Be Set Up to Protect Spouses. If the Grantor has enough assets so that the need to use Medicaid to pay for long term care is not likely, the StepAPT™ may be set up to benefit and protect a grantor’s spouse. Spouses can decide to set up asset protection trusts for each other.
The StepAPT™ Provides a Step Up in Tax Basis Which Can Greatly Reduce Taxes on Appreciated Assets. Transferring appreciated assets by gift, like a house, family farm, or stocks that have appreciated, can cause the gift recipient to pay capital gains taxes on all of the increase in value during the giver’s lifetime, which can total thousands of dollars, or more. Putting assets in a StepAPT™ asset protection trust, however, provides a step up in basis to the beneficiary, so that all of the capital gains accumulated during the grantor’s lifetime are erased. The beneficiary then only owes capital gains taxes for asset appreciation between the time that the grantor dies, and the time that the beneficiary sells the asset.Here is an example of how important getting a step up in basis can be: Suppose Dad bought a family farm in 1945 for $50,000. That farm then increases in value so that it is worth $500,000 in 2017. Then Dad gifts the farm away to son Bob in 2017, and Dad dies on January 1, 2018. If son Bob then sells the farm, at a 15% federal capital gains tax rate Bob would have to pay the IRS $67,500 in capital gains taxes for the farm’s appreciation during Dad’s life.If Dad would have benefitted Bob by placing the family farm in the StepAPT™ instead of making the gift to Bob, Bob would have received the step up in basis, the $67,500 would be erased, and the family would have saved $67,500 in income taxes.
Not a Medicaid Asset. Any assets placed into the StepAPT™ are not countable as Medicaid assets, thus are protected from Medicaid. But because the StepAPT™ is an advance planning tool, and Medicaid considers transfers into an irrevocable trust as gift transfers, assets must be transferred into the StepAPT™ more than 5 years before the grantor uses Medicaid, to avoid penalties. The StepAPT™ should not be set up to benefit spouses when Medicaid may later be needed.
The StepAPT™ Avoids Probate. Assets placed in the StepAPT™ do not pass through probate following the grantor’s death, making the surviving family’s job easier.
The StepAPT™ May Reduce Income Taxes. The StepAPT™ is designed as a grantor trust, which means that income taxes paid by the trust are taxed at the grantor’s individual tax rate during the grantor’s lifetime, which is normally lower than a trust tax rate.
When using an APT, such as the StepAPT,™ it is important to plan early. An APT may not protect against any creditor already known prior to moving assets into an APT. Planning early helps assure that assets placed in an APT will be protected against any unknown future creditors, both under North Carolina and federal law.
USING A StepAPT™WITH A REVOCABLE TRUST
The different, popular Revocable Living Trust (RLT) does not protect trust assets from the grantor’s creditors during the grantor’s life, or from estate creditors immediately following his death. But a revocable trust does allow the grantor to easily pull assets out of the trust at any time to benefit him during his life. An irrevocable StepAPT,™ cannot benefit the grantor during life, but it can protect against creditors both during life and following death.
A flexible estate planning strategy may include forming both a revocable living trust and a StepAPT™ for the client, allowing the client to utilize the best features of each type of trust. If a client has a downturn in health, or for any other reason, the revocable trust trustee may flexibly protect any amount of assets at any time by moving them from the revocable trust to the StepAPT™.
The old saying “An ounce of prevention is worth a pound of cure” certainly holds true in estate planning.Planning well can make certain that your estate wishes will be reliably carried out after you pass away, and can save your family the time, expense, and exasperation of having to pass your estate through the probate process in order to settle it, at a time when they are already in mourning following the loss of a loved one.
Probate is the public process where the state inventories the assets of a deceased person at the county courthouse, assesses fees on those assets, and makes sure that state law is followed by the executor or personal representative as he closes the estate.The process is rule-bound and bureaucratic, and the courthouse workers may be very controlling in protecting their domain.
Probate may take a year or more, and my clients who must go through probate frequently become frustrated and infuriated by the process.Frequently, clients must hire an attorney to help them through probate.
Avoiding Probate—A Trust is a Lot Like McDonalds
I tell my clients that the easiest way to keep your assets out of probate is to place them in a trust, with the revocable trust (which can be “revoked” or dissolved by the grantor at any time) being the most frequent type of trust that I recommend.
So, exactly how does a revocable trust keep assets out of probate?
Well, a trust is a lot like McDonalds.
McDonalds is organized as a corporation, which is not a person, but an “entity,” with its own separate lifetime.
Imagine that the President and CEO of McDonalds passes away one evening.Even though the President and CEO has died, McDonalds will still be serving Happy Meals to kids around the world the very next day.
Similar to McDonalds, a trust is its own separate entity, with its own independent lifetime.When the person who sets up a trust, called a “grantor,” dies, the trust does not die, but keeps right on living.Thus, any assets that the grantor has placed into his trust stay out of probate, because no trust death has occurred, and the trust continues to live.
Ancillary Administration
If a person with a simple will only owns real property (land and buildings located on the land) out-of-state, a separate probate process called “ancillary probate,” or “ancillary administration” may have to occur in each separate state where the real property is located, following that person’s death. A separate out-of-state attorney may have to be hired to assist with ancillary probate in each state where real property is held. This process can be costly, burdensome, and time consuming.
I tell my clients owning real property located in other states that they can avoid ancillary probate in those states following their deaths by having their revocable trust hold their out-of-state real property. Distribution of their out-of-state real property can then be managed by their trustee(s) following their death, saving time, hassle, and legal fees.
Trust Assets Remain Private
Probate remains a public process—so that after someone dies, anyone can see what his will says, and anyone can review his inventory of assets required by the probate process.In contrast, by law the trust document can remain private—following a death, only the trustee and the beneficiaries of the trust document have the right to see the trust document, not the government or public.
A revocable trust works best for people who hold valuables such as jewelry, art, coin collections, stamp collections, or firearms, because a trust keeps all of those valuables secret, and the valuables do not have to be inventoried by the government following death.
Marital Trust
Following death, a revocable trust may be set up so that it becomes an irrevocable marital trust, first benefiting the grantor’s spouse, then benefitting the grantor’s children following the spouse’s death.
The trust principal may then be protected against any creditors of the surviving spouse, and if the spouse enters a new marriage with an inappropriate partner, the new husband or wife will have no legal right to the trust principal, so that any remaining assets may flow to the grantor’s children following the spouse’s death.
Incapacity Planning
The revocable trust may be an excellent tool for managing the assets of an aging client.A grantor who is managing his own assets may add a spouse or younger child as co-trustees.If the grantor then becomes ill and needs help managing his assets, a co-trustee can step in right away, at any time, and manage all of the grantor’s assets when needed.
When Appropriate
If my clients hold $300,000 to $500,000 in assets or more, I talk with them about a revocable trust as a cost-saving option.I can set up an estate package with a revocable trust for only a few hundred dollars more than a standard will package. The revocable trust can provide benefits in both dollars saved and probate frustration avoided for loved ones left behind.
CATEGORIES: Elder Law, Special Needs Law, Guardianship, Guardian, Custodian, Petition, Winston Salem, North Carolina, NC.
To fully protect an adult who is physically or mentally incapable of taking care of himself, it may be necessary to become his or her adult guardian.Guardianship is employed most frequently to care for special needs adults, adults with traumatic brain injury or other injury, mentally ill adults, or to care for seniors with dementia or other degenerative neurological conditions.
The responsibilities and authority legally provided to an adult guardian in North Carolina resemble the responsibilities and authority provided to a parent of a minor child.
Types of Guardianship
Anyone may petition the Clerk of Superior Court (who has the judicial authority to decide guardianship cases) in the disabled person’s county of residence to become his guardian.The petitioner may apply to become 1) guardian of the person (responsible for personal and medical decisions); 2) guardian of the estate (responsible for financial and legal decisions); or 3) general guardian (responsible for all personal, medical, financial, and legal decisions) for the disabled adult.
The disabled adult may be legally referred to as the “ward” after guardianship has been established.
Power of Attorney Documents
If the disabled adult has previously signed (as “Principal”) Health Care Power of Attorney and Financial (Durable) Power of Attorney (POA) Documents, and the agents (or attorneys-in-fact) selected in those documents can still reliably make health care, financial, and legal decisions for the disabled adult, guardianship may not be needed.
POA documents are normally easy and inexpensive to obtain, and typically are provided as part of a document package by attorneys who practice elder law or estate planning.
Because these POA documents do not normally replace or overrule the wishes of the disabled adult, and because guardianship status provides a more complete, authoritative, and “parental” means of caring for a disabled adult, adult guardianship may still be desirable in some cases.
Parents of special needs children may want to continue their full parental role after their child becomes 18.In dementia cases where the disabled adult becomes uncooperative or irrational, the additional control provided by guardianship (where the disabled adult’s legal decision making authority has been removed) may be desirable or needed.
If the disabled adult is already legally incompetent, thus cannot sign POA documents, guardianship may be required.
POA documents normally either 1) require one or more physicians to determine incompetency, in order to become active; or 2) become active immediately upon being signed by the principal and properly executed.
Where an agent or attorney-in-fact has been trying to make decisions for an uncooperative adult prior to any physician’s finding of incompetency, it may be helpful to go ahead and obtain a letter of incompetency from one of the disabled adult’s physicians.The agent can then use the physician’s incompetency letter (together with the POA documents) to better establish his authority to make the disabled adult’s personal, medical, financial, and legal decisions.
The Process
The guardianship petitioner, who is frequently represented by an attorney, fills out the required “Petition for Adjudication of Incompetence and Application for Appointment of Guardian“ (AOC-SP-200) and Guardianship Capacity Questionnaire (AOC-SP-208) forms, which ask questions about the mental and physical competency of the disabled person.These documents are filed with the Clerk.The Clerk sets a hearing date, and a Sheriff’s officer is sent to serve the potential ward with notice of the hearing.
Although the potential ward holds the right to a jury proceeding, most guardianship proceedings are adjudicated by the Clerk.The potential ward has the right to select his own attorney to represent him.If he does not have his own attorney, the Clerk selects a guardian ad litem (GAL), normally an attorney, to protect the legal rights of the potential ward, and to represent the potential ward.
The Hearing
In the initial guardianship hearing, the Clerk (or a hearing officer in a larger county) must first rule on the competency (or incompetency) of the potential ward.To help the Clerk find the potential ward mentally incompetent, the petitioner should provide solid medical evidence, such as a physician’s letter stating that the potential ward is currently mentally incompetent, to the Clerk.
The GAL normally conducts his own review of the potential ward’s recent medical records and history, and reviews any other information available to him about the potential ward’s current medical condition.The attorneys, petitioner, potential ward, GAL, interested close family members, other witnesses, and other interested professionals (such as medical professionals or involved social workers), may testify during the hearing.
If the Clerk is satisfied with the evidence supporting mental incompetency, he or she rules the potential ward “mentally incompetent” during the initial hearing.If the Clerk is not yet satisfied with the incompetency evidence, the Clerk may ask any party at the hearing for specific additional medical tests, reviews, opinions, or other additional evidence.Another hearing may be scheduled to review and evaluate this additional information.
Once the potential ward has been found mentally incompetent, the Clerk then evaluates the credentials of the petitioner who has applied to serve as guardian.Because nefarious petitioners can apply to serve as guardian seeking to convert the potential ward’s assets to their own use, and because elder financial abuse remains common, the Clerk normally asks questions about the petitioner’s intentions and capabilities in serving as the potential ward’s guardian, in a process that seeks to screen out abuse.
Close family members with a demonstrated history of caregiving to the potential ward more easily pass the Clerk’s review.If the petitioner has applied as a guardian of the estate or a general guardian, and will be managing the potential ward’s assets, the Clerk frequently requires the petitioner to post a bond from a bonding company before issuing a final guardianship order.
Special Needs Guardianship
Parents of special needs children frequently do not realize that in order to legally continue their parental decision making role past their child’s age of 18, they must petition for adult guardianship of their child (which they can establish in North Carolina starting at their child’s age of 17 1/2.)
Because many parents may wish their special needs child to live independently after he or she reaches age 18, whether or not to establish adult guardianship of a special needs child should be a carefully considered family decision.Such adult guardianship effectively removes the adult legal rights of the special needs child in favor of the guardian’s decision making.
Unfortunately, however, the special needs adult who is not properly protected by a guardian, or is not properly supervised, may be sought out and targeted by financial abusers or other predators.Such a special needs adult can be vulnerable living alone (potentially with power to sign documents and make contractual agreements) without the protection of an accessible guardian.
Establishing adult guardianship of a special needs child may make the parent’s estate planning more certain.A parent may choose his or her choice of adult guardian for their special needs child (to serve after the parent has died) in the parent’s will document, a recommendation which is normally followed by the Clerk.
If the parent has already established adult guardianship of his or her special needs child during the parent’s lifetime, the parent has not left the uncertain determination of his or her special needs child’s guardianship up to others following the parent’s death.
If the parent has previously established adult guardianship, the parent’s choice of a successor or continuation guardian in the parent’s will (without the Clerk also needing to find the special needs child incompetent first) provides an easier and less complicated decision for the Clerk, and may more predictably assure the parent that his or her special needs child will continue to be protected.
Medicaid Compliant Annuities (MCAs) provide the Medicaid planning attorney with a way to convert countable Medicaid assets into exempt Medicaid assets, creating an income stream for the applicant or his/her spouse. The MCA may be used to quickly “spend down” the Medicaid applicant’s (or the community spouse’s) assets, in order to preserve the family’s funds while qualifying the applicant for Medicaid.
Congress Created a “Safe Harbor” With Respect to Medicaid for Medicaid Compliant Annuities (MCAs)
Congress, in passing the Omnibus Reconciliation Act of 1993 (OBRA), and the federal Deficit Reduction Act (DRA) of 2005, provided legislative permission for Medicaid applicants to utilize Medicaid Compliant Annuities (MCAs). As long as a MCA meets the following requirements, it will be viewed to be exempt as a Medicaid asset. As stated within OBRA and the DRA, Medicaid Complaint Annuities must be:
Irrevocable, and non-assignable
Have no cash value
Be payable within the life expectancy of the annuitant
Have equal monthly payments, with no delay in payments, and no balloon payments
Must name the state as the irrevocable beneficiary after the death of the annuitant
How Medicaid Countable Asset Limits are Calculated
When one member of a couple must apply to Medicaid to finance nursing home or long term care expenses in North Carolina, both members of the couple must meet certain asset restrictions.In general, the long term care applicant must not have more than $2,000 in individual countable assets when applying for Medicaid.
The spouse remaining at home is allowed to keep more assets.In North Carolina, the stay-at-home, or “community” spouse may keep a maximum of $120,900 and a minimum of $24,180 in countable assets (2017 figures) when his or her spouse is applying for Medicaid.The amount of countable assets that the community spouse may hold is called the “Community Spouse Resource Allowance,” or CSRA.
In order to calculate the exact CSRA for a particular community spouse, Medicaid performs an assessment of the applicant couple’s combined joint countable assets as of the “snapshot date.”Medicaid determines the snapshot date based on when the Medicaid applicant spends 30 consecutive days in a hospital or nursing home (“continuous period of institutionalization” or CPI.) The “snapshot date” is the last day of the month prior to the month when the applicant was first hospitalized, and/or transferred to a nursing home, for 30 consecutive days.
The snapshot date stays fixed in time based on events only, and remains the same date no matter when the actual Medicaid application is filed (i.e. the Medicaid application may be filed years after the snapshot date.)
After the snapshot date is determined, the applicant couple’s total combined countable assets on the snapshot date are divided by two.I’ll use an example to explain how the at-home spouse’s final CSRA (again the amount of countable assets Medicaid will allow the at-home spouse to keep) is calculated:
Suppose a married North Carolina Medicaid applicant couple has $280,000 in combined countable assets as of the snapshot date.Total combined countable assets are divided by two as the first step in determining the CSRA, i.e. $280,000/2 = $140,000.Because the CSRA is capped at $120,900 in North Carolina, and $140,000 is greater than $120,900, the actual CSRA (again the amount of countable assets Medicaid will allow the at-home spouse to keep) equals the maximum CSRA cap of $120,900.
How a Medicaid Annuity Can Shield and Protect Assets
In the above example, because Medicaid will only allow the ill applicant spouse to keep $2,000, and the at-home spouse to keep $120,900, with the couple’s actual combined countable assets at $280,000, Medicaid will require the couple to “spend down” $280,000 – $2,000 – $120,900 = $157,100 before the ill spouse will qualify for Medicaid.
If the couple does not do any Medicaid planning with a qualified attorney, the couple (and their extended family) may effectively lose the benefit of all or part of their $157,100 in assets, because the Medicaid 5-year lookback penalty will prevent the $157,100 from being gifted to children or other family members (thus the $157,100 may have to be unnecessarily spent by the couple on “private pay” facility costs.)Since the couple will remain on a tight budget, losing the $157,100 may jeopardize the at-home spouse’s future standard of living.
A Medicaid planning attorney works with the couple to preserve as many assets as possible.Fortunately in the above case, instead of spending down and losing the benefit of the $157,100, the Medicaid planning attorney may help the applicant couple to protect and keep the $157,100 by converting it into a non-countable exempt asset (or assets.)
A “Medicaid Compliant Annuity,” or MCA, pays interest like a normal annuity, but is a non-countable, exempt Medicaid asset.As long as the above couple’s $157,100 is liquid enough to be converted to a Medicaid annuity, instead of spending down and losing the $157,100, the couple can instead keep all of that money by investing it in the MCA, making those formerly countable assets now essentially invisible to Medicaid.
The Medicaid Compliant Annuity is owned by the couple just like any other typical investment security, but it does have transfer on death (TOD) beneficiary restrictions.The State of North Carolina’s Medicaid program must be named primary TOD beneficiary, unless the following persons are named primary TOD beneficiary, in which case Medicaid is named contingent TOD beneficiary:
The community spouse (at-home spouse);
A child of the couple under age 21; or
A disabled child of any age.
To get around these TOD beneficiary restrictions, elder law attorneys frequently choose an annuity with a very short term (for example, six months, or one year.)
MCAs may be particularly useful in converting countable IRA, 401K, or other retirement account assets into Medicaid exempt assets.It is normally difficult to convert retirement account assets to other types of Medicaid exempt assets because of the need to liquidate (and incur tax penalties) the retirement account to purchase other non-security Medicaid exempt assets (such as home improvements, for example.)But because a MCA is an investment security, the assets held in a Medicaid countable retirement account may be converted to a exempt Medicaid asset within the tax-deferred retirement account (with the individual annuity payments payable out of the account to the individual Medicaid applicant or the community spouse).
References:
Krause Financial Services; David Zumpano, Esq., CPA, Lawyers With Purpose
CATEGORIES: Elder Law, Elder Care Attorney, Winston Salem, North Carolina, NC.
Given time, any brain can succumb to dementia — memories fade, thoughts scatter, basic abilities wither on the vine. Brains don’t come with lifetime guarantees, but there is one major step you can take to protect yourself from Alzheimer’s or other causes of mental decline: exercise your body. Nothing protects the brain quite like regular exercise, says Jennifer Heisz, a cognitive neuroscientist at McMaster University in Ontario, Canada. Not crossword puzzles, not supplements, not prescription medications. Exercise seems to beat them all, reducing the risk of Alzheimer’s disease or cognitive decline by about 35 percent to 45 percent, according to the latest evidence. People who don’t exercise as they age are taking a gamble. In a study of more than 1,600 older adults published in January in the Journal of Alzheimer’s Disease, Heisz and colleagues found that a lack of exercise was about as risky as having certain types of genes that raise the risk of Alzheimer’s. Genes are forever, but exercise habits can change.
Exercise enhances the release of chemicals known as nerve growth factors that help brain cells function properly, according to Teresa Liu-Ambrose, director of the Aging, Mobility and Cognitive Neuroscience Laboratory at the University of British Columbia. Nerve growth factors probably also help build new brain cells, giving the brain an extra cushion against age-related losses.
Studies in rodents show that exercise encourages formation of new brain cells in the hippocampus, an organ in the medial temporal lobe of the brain that plays an important role in memory.
“It’s like investing in a retirement fund for the brain,” Liu-Ambrose says. Exercise enhances blood flow to the brain, which can help keep it healthy and nourished. Liu-Ambrose notes that exercise also helps prevent hypertension and diabetes, which are two major risk factors for dementia.
There’s no particular type of exercise that seems to be best for the brain. Heisz notes that most of the subjects in her study walked three times a week. “It could be as simple as that,” she says. About 2.5 hours of moderate to vigorous aerobic exercise every week would be a reasonable goal, she says.
“Even a 15-minute walk per day would be much better than doing nothing at all,” Liu-Ambrose says. “People just need to do it.”
Sources:
National Academy of Elder Law Attorneys, (May 24, 2017).
CATEGORIES: Elder Law, Medicaid Planning, Crisis Planning, Advance Planning, Asset Protection, Trusts, Nursing Home, Long Term Care, Elder Care Attorney, Medicaid Estate Recovery, Winston Salem, North Carolina, NC.
A MAPT MAY PROTECT A HOME WITH A MORTGAGE FROM MEDICAID ESTATE RECOVERY
It’s often essential to protect an older person’s home from Medicaid Estate Recovery, particularly if the older person could eventually need Medicaid to pay for long term care. As part of an elder law “proactive planning” process, a home with a mortgage can be placed in a “Medicaid Asset Protection Trust,” or “MAPT,” to keep it out of the reach of Medicaid Estate Recovery, while still allowing the senior(s) to remain in the home and the mortgage to be paid normally. Because the MAPT is a “grantor trust,” where the senior who sets it up still benefits from the home, under the Garn-St. Germain Depository Institutions Act of 1982, placing the home in the MAPT does not trigger the “due on sale clause” contained in most mortgages.
OTHER COMMON REAL ESTATE ASSET PROTECTION STRATEGIES MAY NOT WORK WHEN A MORTGAGE IS INVOLVED
Homes with mortgages may be excluded from other types of elder law creditor protection strategies (such as gifting, life estate deeds, and right of survivorship deeds.) Because of the due on sale clause, and other provisions in their mortgage contract, homeowners with mortgages may not be able to give their home away, give part of their home away, or sell or transfer their home prematurely during their lifetimes while the mortgage remains in place. If they do, their entire mortgage balance may become immediately due and payable at once. Whether the due on sale clause will or will not apply in a particular instance requires an individual legal analysis under the Garn-St. Germain Depository Institutions Act.
A MAPT MAY BE USEFUL FOR TRANSFERRING APPRECIATED ASSETS TO CHOSEN HEIRS
When appropriate, seniors may utilize a MAPT to create a “nest egg” of protected assets that they want safely passed down to their heirs, potentially free from Medicaid Estate Recovery following the senior’s death. The MAPT works well with assets, such as real estate, which have increased in value during the senior’s lifetime, because the senior’s chosen heirs will receive a stepped-up capital gains tax basis in any assets transferred to the chosen heirs at death. This means that the chosen heirs will not have to pay capital gains taxes for asset appreciation during the senior’s lifetime, which may save the children or other heirs from having to pay potentially thousands of dollars in unnecessary capital gains taxes.
PROPER USE OF THE MAPT FOR PROTECTING A HOME WITH A MORTGAGE REQUIRES PROACTIVE PLANNING
Even though using a MAPT may provide a potential option for protecting a home (or other real estate) with a mortgage from Medicaid Estate Recovery and other creditors, the home should be placed in the MAPT at least 5 years in advance of needing Medicaid to pay for long term care. Using the MAPT to protect a senior’s home with a mortgage from Medicaid Estate Recovery remains an important tool in the elder law proactive Medicaid planning process. The MAPT may be more limited, however, in protecting the home from future federal bankruptcy creditors.
CATEGORIES: Elder Law, Incapacity Planning, Estate Planning, Trusts, Elder Care Attorney, Winston Salem, North Carolina, NC.
As they age, some seniors become less and less able to manage their own assets. Attorneys frequently use the phrase “incapacity planning” to indicate estate planning done for a client diagnosed with dementia, or with other mental or physical disabilities, who will require another responsible adult to eventually manage his financial (and legal) affairs.
THE FINANCIAL POWER OF ATTORNEY
The Financial Power of Attorney (FPOA), also called a Durable Power of Attorney (DPOA), allows a fiduciary, called an “agent”, to manage an impaired senior’s financial and legal affairs. The term “fiduciary” refers to a person who must act in the best interests of the principal when managing his assets. While the FPOA remains the most commonly known tool for managing an incapacitated senior’s assets, management through a Revocable Living Trust (RLT) can offer significant advantages.
HOW A REVOCABLE LIVING TRUST WORKS FOR INCAPACITY PLANNING
After a RLT is set up, the client’s assets are moved into the trust, and those assets are then managed by a fiduciary called a “trustee”. During the senior’s lifetime, and while the senior is mentally able, he serves as trustee for his own assets.
A spouse, and/or a trusted adult from a younger generation (such as the senior’s child), may also be added to the trust document as current co-trustees (along with the senior.) Then, at any time that the senior needs help managing his or her assets, a responsible co-trustee is available, and can step in immediately to help out, with no delay and with no additional legal requirements.
MANAGING FINANCIAL ASSETS THROUGH A REVOCABLE LIVING TRUST: ADVANTAGES
Using a RLT for incapacity planning conveys the following advantages:
Higher Level of Authority. In both U.S. and European law, a trustee is generally provided a higher level of authority to manage assets than a FPOA agent, and a trustee usually receives a higher level of respect and deference;
Clear Directions for Managing Assets. Trust documents normally give the trustee detailed directions for managing the senior’s assets. In contrast, FPOA documents typically do not provide any directions to agents regarding how the senior’s assets are to be managed or used.
Banks Prefer Dealing With Trustees. Banks, brokerage firms, and other financial management firms greatly prefer dealing with trustees over agents, for these reasons, and with these results:
FPOA Documents Are Frequently Associated With Fraud. FPOA documents are inexpensive, easy to obtain, and frequently forged. Seniors often sign these documents without understanding the repercussions, or are inappropriately pressured to sign these documents by unethical agents. In contrast, RLTs are more commonly drafted by attorneys, and signed in the lawyer’s office, thereby lowering the risk of fraud.
Legal Department Review May Take a Significant Amount of Time. Because of the fraud risk associated with FPOAs, a financial institution’s legal department may take a significant time, sometimes months, to review a FPOA. When reviewing the application for a new RLT trustee, if any documents are required to be reviewed at all, a fairly straightforward review of the Certification of Trust document (a summary of trust terms), along with any required personal identification information, can be all that the financial institution needs.
The Bank’s Own Form May Be Required. Because of the ongoing fraud risks, some financial institutions may require the use of their own FPOA forms, and not accept outside FPOA forms. If the senior has already become incapacitated, he or she will not be able to sign a new bank FPOA form. In contrast, such rules do not apply to RLTs.
FPOA Forms May Become Outdated. Because of the ongoing fraud problem, some financial institutions may not accept FPOA forms which are greater than a certain number of years (5 years for example) old. If the senior has already become incapacitated, he or she will not be able to sign a new FPOA form. In contrast, however, even very old trust documents are commonly relied on.
Even where a RLT is successfully used for incapacity planning, a valid FPOA document signed together with the RLT remains useful in certain areas. The trustee provisions of the RLT only apply to the assets which are held by the trust (the trust estate.) Any of the senior’s assets not held within the trust (the probate estate) may still need to be managed through the FPOA. In addition, the FPOA may convey important authority to the agent to manage the senior’s legal affairs, in ways that may not be addressed by the RLT.
Because these subjects may be complicated, incapacity planning should be discussed directly with a licensed elder law, or estate planning, attorney.
CATEGORIES: Elder Law, Medicaid Planning, Crisis Planning, Advance Planning, Asset Protection, Nursing Home, Long Term Care, Elder Care Attorney, Medicaid Estate Recovery, Winston Salem, North Carolina, NC.
Seniors who must use Medicaid to finance their long-term care, risk losing their home to Medicaid estate recovery following their death, or following the death of their spouse. In Medicaid estate recovery, Medicaid bills the Medicaid recipient’s estate for every dollar spent on the Medicaid recipient during life. Because such bills can reach several hundred thousand dollars in size, the senior’s home may need to be sold in probate to pay all or part of the Medicaid bill.
CAREGIVER CHILD EXCEPTION
A caregiver child who lives with the senior for two years prior to the Medicaid recipient’s institutionalization may keep the home away from Medicaid estate recovery, at least while that child remains in the home. The caregiver child must have provided care that may have delayed the recipient’s admission to a nursing home or other medical institution. Such a child who meets these conditions may continue to live in the home as long as needed free of Medicaid estate recovery. If the child moves out of the home, however, the state can then legally initiate estate recovery.
RESIDENT SIBLING EXCEPTION
A sibling who continues to reside in the senior’s home following the senior’s institutionalization may also save the home from Medicaid estate recovery. Such a sibling must have an equity interest in the home, and must have lived there for at least one year before the deceased Medicaid recipient was institutionalized. As with the caregiver child above, if the qualifying sibling moves out of the home, the state can then legally initiate estate recovery.
SPOUSE, CHILD UNDER AGE 21, AND BLIND OR PERMANENTLY DISABLED CHILD EXCEPTIONS
The home is protected, and Medicaid estate recovery is prohibited, if the deceased Medicaid recipient is survived by: 1) a spouse; 2) a child under age 21; or 3) a blind or permanently disabled child of any age. All three categories of survivors are not required to live in the home, and may do what they wish with the home following the Medicaid recipient’s death.
ELDER LAW METHODS
An elder lawyer may incorporate other methods to prevent Medicaid estate recovery of the home, including utilizing a specialized deed such as a joint with right of survivorship (JTWROS) deed or Ladybird deed.
Source:
Medicaid Treatment of the Home: Determining Eligibility and Repayment for Long-Term Care, Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services (April 1, 2005), https://aspe.hhs.gov/basic-report/medicaid-treatment-home-determining-eligibility-and-repayment-long-term-care
CATEGORIES: Elder Law, Elder Care Attorney, Winston-Salem, North Carolina, NC.
For obese people over age 64, the combination of aerobic exercise and weight training is better for improving physical functioning than either form of exercise alone, a new study concludes.
Each type of exercise, and a combination of the two, produced 9 percent reductions in body weight over six months. But the combination provided the best mix of protection against muscle and bone loss with improved aerobic capacity. Aerobic exercise and weight training (also known as resistance training) “have additive effects in improving your physical function,” chief author Dr. Dennis Villareal of the Baylor College of Medicine and the DeBakey VA Medical Center in Houston told Reuters Health by phone.
The findings in the New England Journal of Medicine have broad significance because one third of older adults in the United States are obese, and frequently experience all the health risks that obesity creates.
Lifestyle and Southern diet factors place a large number of North Carolina seniors at risk for obesity, and being sedentary places seniors at an even greater additional risk. Those risks, however, are mostly preventable. An improved diet, and regular exercise, can help seniors remain independent, active, healthier, happier, and in control of their business and legal affairs much longer, adding to quality and length of life.
Sources:
National Academy of Elder Law Attorneys, (May 24, 2017).
Dennis Villareal, at al, Aerobic or Resistance Exercise, or Both, in Dieting Obese Older Adults, New England Journal of Medicine (May 18, 2017), http://www.nejm.org/doi/full/10.1056/NEJMoa1616338
CATEGORIES: Special Needs Law, Elder Law, Guardianship, Winston Salem, North Carolina, NC.
Researchers have found a surprising connection between intelligence and autism. On May 23, scientists announced the discovery of 40 new genes linked to human intelligence, and found that many people with the genes were also on the autism spectrum. The findings could one day help shed light on the condition’s origins.
Autism, more properly known as autism spectrum disorders (ASD) – includes Asperger’s syndrome. It has long been known that some sufferers have superior abilities in areas such as mathematics and science. The neurological condition affects four to five times as many males as females, believed to be around 1.5 percent of all children. Its exact cause remains unknown, and diagnosis requires many doctors specializing in a number of different disciplines.
The 40 new genes were discovered by researchers from the Centre for Neurogenomics and Cognitive Research in Amsterdam, based on a study of 78,000 people of European descent. Most of the newly discovered gene variants linked to elevated IQ play a role in regulating cell development in the brain. Computers have made it possible to scan and compare hundreds of thousands of genomes, matching tiny variations in DNA with diseases, body types, or in this case, native smarts.
Many of the genetic variations linked with high IQ also correlated with other attributes: more years spent in school, bigger head size in infancy, tallness, and even success in kicking the tobacco habit.
People with autism may require special care, and may need some type of government assistance during their lives, including Medicaid assistance. Medicaid and similar government programs may have strict asset or income limits. Thus any will or trust bequest left to an autistic person should be directed to a special needs trust (SNT), which will leave such needed government benefits intact.
Sources:
National Academy of Elder Law Attorneys, (May 24, 2017).
CATEGORIES: Elder Law, Medicaid Planning, Crisis Planning, Advance Planning, Asset Protection, Nursing Home, Long Term Care, Elder Care Attorney, Medicaid Estate Recovery, Winston Salem, North Carolina, NC.
While putting a home or other real property into a Joint With Right of Survivorship (JTWROS) deed has been effective in protecting homes and other real property from Medicaid Estate Recovery claims following the owner’s death, key members of the North Carolina Elder Law bar believe that JTWROS deeds may protect real property against claims from many other types of estate creditors as well.
REAL PROPERTY, NOT SET UP TO TRANSFER BY RIGHT OF SURVIVORSHIP, MAY BE SUBECT TO PROBATE CREDITORS
If real property owned by a person who dies (decedent) has not been set up to be transferred directly to an heir or hears via Right Of Survivorship (ROS), through a life estate deed, or via a proper irrevocable trust, such real property may be available to estate creditors under North Carolina probate law. Under NC probate law, before the decedent’s beneficiaries can be paid according to a will (or according to state law if there is no will) or revocable trust, all valid estate creditors (including Medicaid) must be paid first.
MEDICAID AND OTHER MEDICAL BILLS MAY BANKRUPT AN ESTATE
For anyone who dies with large unpaid medical bills, including hospital bills, ambulance bills, physician bills, surgery bills, medical treatment bills, and unpaid care facility bills, all of these bills may likely be attached to the decedent’s estate during probate. If Medicaid has been used for nursing home care or other care, Medicaid has kept track of every dollar spent on the Medicaid recipient’s care during their life. Medicaid then constructively attaches its bill, which can be hundreds of thousands of dollars in some cases, to the Medicaid recipient’s/decedent’s estate during the county probate process. Any such large bills may bankrupt the decedent’s estate, leaving no assets for beneficiaries, and any home or real property (frequently the largest assets most people own) may be lost to medical estate creditors.
JTWROS DEEDS PROTECT AGAINST MEDICAID ESTATE RECOVERY
In order to protect homes, family farms, and other real property against Medicaid Estate Recovery, elder law attorneys may use a Joint with Right of Survivorship (JTWROS) deed to reconfigure ownership of the real property between a senior individual or couple, and one or more of their children or other persons.
JTWROS transfers are not subject to Medicaid’s 5-year lookback penalty (under current NC Medicaid rules), when the beneficiary who receives joint ownership pays the county tax value for his or her share (the beneficiary’s initial share is typically 1% or less of the entire parcel.)
JTWROS deeds have proven effective in keeping property away from probate Medicaid Estate Recovery, as Medicaid does not currently attempt to attach homes or other real property transferred to heirs by JTWROS deed in North Carolina.
JTWROS DEEDS MAY PROTECT REAL PROPERTY AGAINST OTHERESTATE CREDITORS IN ADDITION TO MEDICAID
Key members of the NC Elder Law bar believe that JTWROS deeds have even more usefulness than protecting from Medicaid Estate Recovery alone—JTWROS may additionally protect NC real property transfers to beneficiaries against many other types of general estate creditors.
In many situations, the legal case Wilson County v. Wooten 251 N.C. 667, 111 S.E.2d 875 (1960), which held that the welfare departments of Durham and Wilson counties could not attach bank account assets transferred to a beneficiary via right of survivorship, likely protects all right of survivorship transfers not otherwise specifically available to estate creditors under NC statutes, including JTWROS deed real estate transfers, from the decedent’s estate creditors in North Carolina.
The Wilson County v. Wooten ruling follows old English joint tenancy common law going back many years, where real property held in a joint tenancy passes at death by operation of law to the survivor free and clear of claims of creditors or other heirs of the deceased joint tenant. The Executor or Personal Representative of the decedent’s estate (and the creditors of that estate), thus have no claim to such transferred property. A more recent legal case, Miller v. Miller 117 N.C. App. 71 (N.C. St. App. 1994), reconfirms that in North Carolina, JTWROS property is not part of a decedent property owner’s estate, and that the surviving JTWROS property owners take the entire property, free and clear of the claims of heirs or creditors of the deceased JTWROS property owner.
The JTWROS procedure has limits protecting real property against creditor problems during the senior’s life (bankruptcy proceedings for example), because the senior still owns an attachable interest in his or her real property. In addition, the JTWROS procedure has limits protecting real property against medical estate creditors other than Medicaid if the senior is married, because under the “Doctrine of Necessaries” in North Carolina, both members of a married couple may be individually obligated to pay an ill spouse’s medical bills, including after an indebted spouse has passed away.
In many cases, however, JTWROS deeds may remain very useful in protecting real property against Medicaid and other types of estate creditors.
SOURCES
Burti, Christopher L., Statewide Title, Farmville, NC.
Categories: Probate, asset protection, Winston Salem, North Carolina, NC.
In North Carolina, it’s best to keep car ownership in one name only for liability reasons.Although it may seem natural for couples to own a car jointly, if that vehicle is involved in an accident, the injured person’s attorney can sue both an at-fault driver and all owners of the car.When a couple instead owns their vehicles only in their own names, an at-fault driver does not imperil his spouse’s separate assets.Thus couples who own their cars separately can decrease their liability risk by up to 50% or more, depending on how financial assets are distributed between the couple.
Regarding probate, there are two main ways of keeping a car transfer out of probate court following a death, which in some cases can tie up or prevent use of the car for some time following the individual owner’s (or first-to-die of a joint owner’s) death:
Revocable trust.Placing a car in a trust owner’s single revocable trust can keep it out of probate, because a revocable trust has its own lifetime which transcends the car owner’s death.I do not recommend placing a car into a couple’s joint revocable trust, however, because this unnecessarily expands the liability of an individual car driver so that it imperils the joint financial assets of both members of the couple.
JTWROS.Not everyone chooses trusts as part of their estate planning.For couples or others who prefer to own their car jointly, they can own their car jointly in North Carolina with a right of survivorship (JTWROS, or JWROS), so that it will pass directly from one to the other party outside of probate at the first death.
Why is the JTWROS designation important for jointly-owned vehicles in North Carolina?
Even given the increased liability risk, some people prefer to own their car jointly.Normally in North Carolina, when a couple of any kind jointly purchases a car at a dealer and does not give the dealer specific instructions about how they want the car owned, the dealer will fill out the paperwork in a way that translates into tenancy-in-common ownership on the car title.This means that each member of the couple will own a 50% undivided interest in the car (which is, unlike land, and undividable asset) with no survivorship rights.This can produce undesirable results.
The JTWROS Title
In order for the survivor of any couple, including a married couple, to inherit a jointly owned car in North Carolina (not held in a trust) outside of probate, the joint owners must explicitly tell the dealer that they want the car owned as joint with right of survivorship, or JTWROS.They also must insure that the letters “JTWROS” or “JWROS” appear on the car title itself.Without JTWROS on the car title, there is no right of survivorship held by the surviving owner.
It is important to specifically check the car title for the JTWROS designation, because many DMV workers do not understand the JTWROS designation, or do not know that JTWROS ownership of vehicles is permitted in North Carolina.
The JTWROS designation on the car title will insure that if one of the joint car owners dies, the remaining living owner will then receive full ownership of the car (except for any portion owned by the lender) in an automatic out-of-probate transfer.
CATEGORIES: Elder Law, Medicaid Planning, Crisis Planning, Advance Planning, Asset Protection, Nursing Home, Long Term Care, Elder Care Attorney
Medicaid pays for 63% of all long-term care in the United States. Long-term care, particularly memory or other specialized care, may cost in excess of $5,000.00/month. Because many seniors cannot afford such expenses over the long term, Medicaid may need to be utilized to pay the senior’s long-term care bills.
Where there is one spouse within a senior couple who needs long-term care, and where Medicaid will be required to finance these expenses, an elder law attorney may utilize Medicaid planning techniques to help the couple preserve as many assets as possible. Incorporating a Medicaid-compliant (or Medicaid-qualified) annuity may help the ill spouse to qualify for Medicaid, while preserving assets for the well (community) spouse.
WHAT IS A MEDICAID-COMPLIANT ANNUITY?
When a person purchases an annuity, he or she invests a principal amount in exchange for a stream of future payments (normally with interest) which is returned to the investor.
The most important feature of a Medicaid-compliant or Medicaid-qualified annuity is that once the principal investment is made, Medicaid no longer counts the stream of future payments received back by the investor as Medicaid “countable assets.” Thus, previously countable Medicaid assets may be shielded from Medicaid by converting them to a future income stream emanating from a Medicaid-compliant annuity.
USE OF A MEDICAID-COMPLIANT ANNUITY BY A MARRIED COUPLE IN QUALIFYING THE ILL SPOUSE FOR MEDICAID
Medicaid-qualified annuities are most useful where an ill spouse needs to qualify for a nursing home (or other long-term care facility), and the well spouse (community spouse) desires to stay at home.
Suppose an ill spouse, who cannot have more than $2,000 in assets to qualify for Medicaid, is $100,000 over resource (or has $100,000 too many liquid assets to qualify for Medicaid.)
Because the ill spouse can transfer an unlimited amount to the community (well) spouse, he transfers the $100,000 to his wife. If the $100,000 was still in excess of the wife’s Medicaid community spouse resource allowance (CSRA), the wife can purchase a $100,000 Medicaid-compliant annuity to immediately transfer the wife’s countable $100,000 asset into a stream of Medicaid-exempt income payments.
Income is counted by Medicaid only if payable to the Medicaid applicant. Income to the community spouse is specifically excluded by Medicaid, thus the community spouse is allowed to keep all income payable to the community spouse. The husband’s $100,000 countable asset has been transferred by the $100,000 Medicaid-compliant annuity into an exempt source of monthly income payments for the community spouse. Her ill husband now qualifies for Medicaid.
Once the Medicaid applicant qualifies for Medicaid, the Medicaid beneficiary must only show on an ongoing basis that he does not have $2,000 in assets. So even though the community spouse receives a monthly annuity check that could accumulate into an asset if saved, the value of the assets in the name of the community spouse is no longer a concern of Medicaid.
CHARACTERISTICS OF A MEDICAID-QUALIFIED ANNUITY
Medicaid-qualified annuities must have the following attributes:
Category: A single-premium immediate annuity (SPIA). The premium is paid for in a lump-sum premium payment and the annuity immediately begins paying back the premium to the owner/annuitant.
Sold by company or bank in the business of selling annuities.
Irrevocable: The annuity is irrevocable and cannot be assigned to another party.
Life expectancy payout required: The annuity payments must be completed before the end of the annuitant’s life expectancy.
Equal Payments: The annuity payments must be equal throughout the annuity’s payment period with no deferral or balloon payments.
Medicaid named as primary or contingent beneficiary: The State of North Carolina’s Medicaid program must be named primary beneficiary, unless the following persons are named primary beneficiary, in which case Medicaid is named contingent beneficiary:
The community spouse (spouse at home);
A child under 21; or
A disabled child of any age.
When properly used, a Medicaid annuity may help a Medicaid applicant preserve valuable assets for his or her family.
CATEGORIES: Elder Law, Medicaid Planning, Crisis Planning, Advance Planning, Asset Protection, Nursing Home, Long Term Care, Elder Care Attorney, Medicaid Estate Recovery
Almost everyone realizes that medical care at the end of life can be incredibly expensive. Even though Medicare and private insurance may be available, the unreimbursed cost of hospital stays, medicines, and institutional care, including nursing home care, may be unaffordable for the senior or his family. Because of this, Medicaid, a federal poverty support program, remains the largest payer of long-term medical care expenses in the United States, paying 62% of the nation’s long-term medical care costs.
MEDICAID ESTATE RECOVERY
Many believe Medicaid to be another health insurance program like Medicare, but it is not. When a senior uses Medicaid to pay his care bills, Medicaid counts and records every dollar spent on the Medicaid recipient. Following the Medicaid recipient’s death, Medicare will place a lien on the recipient’s estate for every dollar Medicaid spent during life, through a program called Medicaid Estate Recovery.
The estate’s Medicaid bill can be tens of thousands of dollars. Because the home is frequently the most valuable asset left in a senior’s estate, and because the probate process requires an estate to pay all valid estate bills before distributing remaining assets to the deceased senior’s beneficiaries, the home must often be sold to pay off estate creditors. If the senior intended to pass down the home to a loved one following his death, Medicaid Estate Recovery can prevent the home from reaching that loved one.
Medicaid Estate Recovery is prohibited if the deceased Medicaid recipient is survived by a blind or disabled child of any age, a child under age 21, or is survived by a spouse. But Medicaid Estate Recovery can continue once the spouse has died.
PROTECTING THE HOME FROM MEDICAID ESTATE RECOVERY
Medicaid laws are complex. During life, a senior’s home is normally not a “countable asset” when the senior is trying to qualify for Medicaid, as long as the senior has the “intent to return” to his home even while he resides in managed care or a nursing home, or as long as his spouse or other dependent relatives live in the home. But even though the home is not a countable asset when qualifying for Medicaid, or while the applicant and his spouse are alive, it can still be attached by Medicaid Estate Recovery after the senior and his spouse die, as discussed above.
The JTWROS Deed
Real property which passes directly to heirs outside of probate by right of survivorship is not currently subject to being attached in a Medicaid Estate Recovery proceeding in North Carolina. An elder law attorney can thus retitle the real property containing the senior’s primary residence as “joint with the right of survivorship”, or JTWROS. A small percentage of the real property (frequently 1%) is sold to a beneficiary, such as a child (with the largest percentage ownership of the real property, frequently 99%, retained by the senior) so that the real property will now be owned jointly. Undivided real property owned jointly by a Medicaid applicant and a non-spouse third party may be treated in many North Carolina counties the same as “real property held by tenants-in-common” under the North Carolina Medicaid rules, which is not a countable asset when qualifying for Medicaid in North Carolina.
Adding the “right of survivorship” to the deed re-characterizes the real property to make it similar to a jointly owned bank account with survivorship rights. The senior’s ownership percentage (99% for example) automatically transfers to the minority (1% for example) beneficiary (frequently the senior’s child/children) at his death, so that the beneficiaries now own 100%. This becomes an out-of-probate transfer directly to the senior’s beneficiaries. The home passes immediately to the senior’s beneficiary(ies) without Medicaid being able to use it to repay Medicaid costs.
Another positive result is that the senior’s heirs will not have to pay taxes on any appreciation of the home during the senior’s life. Because the home will be includable in the senior’s gross estate for federal estate tax purposes, the tax basis will be reset to the market value of the property at the senior’s death, thereby potentially saving the senior’s heirs thousands of dollars in capital gains taxes.
The JTWROS procedure may not work properly if a mortgage remains on the senior’s home, particularly if the intended minority real estate undivided interest holder(s) is not a spouse, or a child of the senior. Otherwise, the sale of a minority percentage of the property to the senior’s beneficiary(ies) may trigger the bank loan’s “due on sale” clause, making the balance of the loan immediately due. For this reason, a bank loan attached to the senior’s primary residence typically must be paid off if anyone other than a spouse or child is to be added to the deed, before the elder law attorney can set up a JTWROS conveyance. If done early enough before the senior needs Medicaid, the mortgaged home may also be protected from Medicaid Estate Recovery by placing it in a Medicaid Asset Protection Trust (MAPT).
Because family relationships can be more complex than what can be captured on a JTWROS deed, in addition to the JTWROS deed, the elder lawyer may create a real estate contract to be signed by the involved family members to better clarify the results of the JTWROS transfer.
The JTWROS procedure has limits protecting real property against creditor problems during the senior’s life (in bankruptcy proceedings for example), because the senior still owns an attachable interest in his or her real property. In addition, the JTWROS procedure has limits protecting real property against medical estate creditors other than Medicaid if the senior is married. That is because under the “Doctrine of Necessaries” in North Carolina, both members of a married couple may be individually obligated to pay an ill spouse’s medical bills, including after an indebted spouse has passed away.
Other Real Property
The JTWROS procedure may also be used to protect real property owned by the senior other than the home from Medicaid Estate Recovery in many (but not all) North Carolina counties. In addition, because other real property may be a countable asset(s) when trying to qualify for Medicaid, in many NC counties, converting such real property from single ownership to JTWROS ownership prior to applying for Medicaid can work to convert the property to a non-countable asset for Medicaid qualification purposes.
GIFT TRANSFER OF THE HOME TO HEIRS WHILE RETAINING A LIFE ESTATE
The JTWROS procedure may work to prevent against Medicaid Estate Recovery and other estate creditors, but it may not work in North Carolina to protect the senior’s home from medical or other creditors during the senior’s lifetime.
To shield the senior’s home from all creditors, including creditors during life, the senior may gift the remainder interest in his home away to his beneficiaries during life, while retaining a life estate so that he may legally remain in his home during his lifetime. This assures that no future creditors, including medical creditors such as Medicaid, will be able to “take” the home from the senior following the conveyance.
In addition to allowing the senior to continue to use his home during his lifetime, retaining the life estate allows the senior to include the home in his gross estate for federal estate tax purposes under Internal Revenue Code Section 2036. His heirs will then receive a step up in (tax) basis, re-setting the tax basis of the property to its market value at the time of the senior’s death. Because the senior’s heirs will not have to pay capital gains taxes on the senior’s home appreciation during the senior’s lifetime, this can save the family thousands in capital gains taxes.
If the senior transfers his home to his heirs without including a life estate for himself, his heirs will have to pay capital gains taxes on all home appreciation from the time that the senior originally purchased the property forward.
The gift transfer while retaining a life estate technique is often not appropriate for seniors who may need Medicaid within 5 years. If the senior attempts to qualify for Medicaid within five years of this transfer, Medicaid will require the senior to private pay the value of the life estate interest that has been gifted to the remainder interest owner(s), using their procedure for assigning gift transfer sanctions.
DO NOT WAIT TOO LONG TO CONVEY PROPERTY
The family should not wait too long to shield the senior’s home against creditors, including medical creditors. Under North Carolina law, such procedures such as the home gift transfer with the retention of a life estate work to protect against future creditors, but may not work to protect against any already known or current creditors.
In addition, seniors could encounter sudden illness at any time which could make them mentally incompetent, and unable to sign the legal documents needed to protect their home from creditors.
CONCLUSION
It may frequently make good sense in many cases to use a JTWROS deed as insurance to shield a senior’s home from Medicaid Estate Recovery. Because a senior’s Medicaid bill can be so large, the JTWROS deed could help the family keep from losing the home to creditors in probate. Because the senior retains as much as 99% ownership in his home as part of a JTWROS conveyance, the senior retains control of his home and can use it like he or she always did. Thus, the JTWROS deed is a “low impact” asset preservation technique.
To guard against all creditors, including future creditors during the senior’s lifetime, the senior may gift away the remainder interest in his home, and retain a life estate. This can work well when done early, but frequently should not be done if the the senior will need Medicaid in less than five years. Other asset preservation techniques may also be available if used early, including deeding the home to an irrevocable asset protection trust (APT), while retaining the continued right to occupy and use the home while living.
CATEGORIES: Elder Law, Elder Care Attorney, Senior Safety
The Spanish moss swayed almost unperceptively one warm morning above a coastal Carolina cemetery, where a recently widowed grandmother kneeled weeping by her husband’s headstone.Unexpectedly, a younger man approached and started comforting the woman, eventually gaining enough trust to type his telephone number into the grandmother’s cell phone, and assuring her that he would help her if she ever needed anything.Lonely and upset, the widow placed a call to the stranger before she arrived home.
Disgustingly, the above scenario was actually reported not long ago by a distraught daughter to the NC Attorney General’s office.As the reader may have guessed by now, the lurker in the graveyard was not a good Samaritan–instead, he was a “sweetheart” scammer faking love and compassion for the lonely widow in order to steal her assets.Such scams may take months to develop, as the scammer slowly gains the victim’s trust, and gains greater and greater access to her financial assets.
The NC Department of Justice, Attorney General’s Office reports that they heard from 20 NC sweetheart scam victims in 2015, reporting $3.4M in total losses.Recently, one North Carolina woman sent more than $40,000 to a sweetheart scammer she met through Facebook who claimed to be working out of state when his bank account was supposedly frozen.Another victim lost nearly $100,000 to two sweetheart scammers she met through Match.com, both whom claimed to be Americans working on construction projects in the Middle East.
In addition to the particularly odious graveyard incident reported above, attorney Caroline Farmer, Deputy Director of the Victims and Citizens Section of the NC Attorney General’s office, reports that sweetheart scammers frequently troll newspaper obituary sections, looking for suitable prospective widow or widower victims.Such victims are frequently not contacted until about six months after the death of their spouse, because, as Ms. Farmer reports, most of the family who initially comforts the widow or widower has left, and loneliness starts to peak at the six month point.
Such scammers are good at their craft, and convince the victim that they really care about and love them.In-person scammers may even develop a sexual relationship with the victim, in order to become more deeply emotionally intertwined with them.When a senior is targeted, usually by a younger con artist, it may be much easier for other family members to see the problem than the victim, who may argue with those trying to help.
Even though a person of almost any age can fall victim to a sweetheart scam, seniors are viewed by these criminals as more vulnerable.Because many seniors now use computers, most sweetheart scams are now either wholly or partially conducted online.Since seniors now frequent online dating sites, the NC Attorney General’s office reports that scammers create fake identities on sites like SeniorPeopleMeet, OurTime, ChristianMingle, Match.com, eHarmony, and Facebook to target lonely people.
Because of the threat ofencountering sweetheart scammers online or in person, seniors seeking romance should remember the following guidelines:
Watch for foreign visitors.Beware of any person who claims to be working abroad, or claims to be a wealthy citizen working abroad, or a person who wants to visit the United States–such “foreigners” are frequently scammers.
Leaving the dating site.Watch for anyone who asks to leave a dating site and communicate personally by email.
Meeting in person.Be careful when meeting someone you met online in person.Meet only in a public place, and better yet, bring a friend or meet with a group of friends.
Don’t share your personal information.Don’t share any personal or financial information, including your address, phone numbers, account numbers or passwords, with anyone you meet online (or any new individual you meet in person), even if their story sounds convincing.Be suspicious if you’re asked to make online purchases or forward packages to an address outside of the country.
Get some help.Let your friends and trusted family members help you assess any new person who wants to become a part of your life.
Watch out for superlatives.Watch out for anyone who is consistently positive or upbeat about a new romance with you, or who quickly speaks in glowing terms about his unconditional love for you.
If either you, or someone you know, may have been targeted by a sweetheart scam, please report the matter to local law enforcement, or to the NC Attorney General’s office scam report line at 1-877-5-NO-SCAM, or online at ncdoj.gov.Because many victims are so emotionally upset and embarrassed after falling for a sweetheart scam, these crimes are greatly underreported.By reporting such crimes, you can help keep others from becoming victims of these predators.
The LLC has become one of the most popular legal structures for shielding an owner’s personal assets from business liability risks. An LLC owned by a single person, or “member”, is considered a desirable “disregarded entity” by the IRS, which allows the LLC owner to skip filing a partnership return and instead report his LLC income directly on his personal income tax return.
In North Carolina, the personal ownership interest in an LLC, or membership, is classified as an item of personal property. Unfortunately, that classification leads to this not-commonly-known fact: when the individual owner of a single-member LLC dies, the LLC’s necessary ownership transfer to the decedent’s heirs must pass through probate.
While the LLC is passing through probate, its revenue stream flows to the decedent’s estate, not to the heirs. The LLC membership may thus be tied up in probate for months, or even a year or more. This can interrupt a family’s finances. For example, if a retired husband and wife were living on the monthly income from 10 rental properties held in the husband’s single-member LLC, the wife’s access to cash flow from the LLC may be disrupted if the husband dies and his LLC membership passes into probate.
In North Carolina, the best way to keep a single-member LLC’s ownership interest out of probate is to employ a trust. The popular revocable living trust keeps assets held by the trust out of probate because the trust is a separate entity which transcends the trust grantor’s death.
When a grantor’s revocable trust becomes owner of the grantor’s single-member LLC, the LLC Articles of Organization and Operating Agreement are set up so that the trust owns the single membership in the LLC. Because the IRS considers a revocable trust a grantor trust, income from the single-member LLC owned by a grantor’s revocable trust is still reported on the grantor’s individual tax return, maintaining desirable pass-through taxation.
Distribution terms added to the grantor’s revocable trust direct how ownership of the LLC will be transferred to the grantor’s beneficiaries following the grantor’s death. Because trust distribution following the grantor’s death takes place privately outside of probate, the ownership transfer from the grantor’s trust to the beneficiary(ies) can take place almost immediately, keeping the LLC’s cash flow intact and uninterrupted to a needy beneficiary(ies).
When you choose beneficiaries for your IRA account, you insure out-of-probate transfers to those beneficiaries when you die.
But picking proper beneficiaries can be tricky. Here’s a list of the best and worst IRA beneficiary choices:
BEST IRA BENEFICIARIES
Your Spouse
If you are married, it’s likely that the first person you want to benefit is your spouse. Your spouse is the only person that the Internal Revenue Service allows to “rollover” the IRA participant’s IRA to their own IRA account. The rollover will allow your spouse to then control your IRA assets, and to invest them as he or she likes.
If your spouse does not need the IRA funds immediately, he or she can keep them growing tax-deferred until April 1 following the year he or she reaches age 70 1/2. At that time, annual taxable Required Minimum Distributions (RMD) will begin. The remainder of the account not required to be distributed can continue tax-deferred growth.
Your Children, Grandchildren, or Younger Individuals
With the exception of your spouse, choosing an individual (or individuals) as your IRA beneficiary allows that beneficiary (following your death) to receive the money as an inherited IRA.
With the inherited IRA, Required Minimum Distributions (RMDs) will begin in the year following the original account owner’s death. These RMDs are calculated based on the beneficiary’s age-based actuarial life expectancy. The IRS provides a worksheet for calculating RMDs at https://www.irs.gov/publications/p590b/index.html
The younger beneficiary can pull out more funds than the annual RMD requires if needed, but the additional withdrawals will also be taxed.
If the younger beneficiary can afford to let the IRA principal continue to grow tax-deferred, the younger beneficiary’s longer life expectancy can lower the annual RMD, and stretch the IRA’s tax-deferred growth over a longer lifetime. Intentionally using this strategy to grow the IRA’s tax-deferred principal from one generation to the next is called the “stretch IRA” concept.
When used properly, growing your IRA by leaving it to a younger individual(s) who can afford to stretch out the inherited IRA’s tax-deferred growth can provide significant returns to the beneficiary. Assuming a 7% return with only the annual RMD withdrawn, a $100,000 IRA left to a 20 year old child or grandchild can provide $1,765,731 in income over that child’s expected 63 year lifetime. Please see the chart below:
TOTAL INCOME FROM IRA OVER BENEFICIARY’S LIFETIME
Age
Life Expectancy
Value of IRA When Inherited by Beneficiary
$50,000
$100,000
$500,000
20
63
$882,865
$1,765,731
$8,828,658
50
34.2
$201,067
$402,134
$2,010,671
A See-Through Trust
A trust which qualifies as a “see-through” trust under IRS regulations can be an appropriate beneficiary for your IRA. There may be many practical reasons to employ a trust instead of giving IRA assets directly to a beneficiary. For example, a father wanting to leave a $250,000 IRA account to his 14 and 16 year old children would be wise to protect the proceeds with a trust instead of directing the funds to his children directly.
In general, leaving an IRA to a non-human entity like an estate or a trust ruins “stretch IRA” optimization, because such beneficiaries must withdraw all funds within five years (instead of 63 years for a 20 year-old individual, for example.)
But under IRS regulations, the “see-through” trust is able to “see through” the trust entity to the individual life expectancy of the oldest beneficiary of the trust.
To qualify as a see-through trust, the trust must meet the following IRS rules:
The trust must be valid under state law;
The trust must be irrevocable following the IRA participant’s death;
Trust beneficiaries must be identifiable;
The IRA plan administrator must be provided with proper documentation regarding the trust beneficiaries and/or the trust by October 31 of the year following the participant’s death;
All trust beneficiaries must be individuals.
Typical testamentary trusts (found in wills) or revocable living trusts become irrevocable after the death of the will testator or trust grantor. If properly drafted, and with proper beneficiaries, such trusts may qualify as see-through trusts under the above IRS rules.
A Charity
A tax-deferred account may be appropriate to give to a charity, if none of your human beneficiaries need the funds. You can transfer the full tax-deferred IRA value to the charity because the charity will pay no income taxes when it receives the money, and the account will not be included in your taxable estate when you die (reducing the amount that your family will have to pay in estate taxes, if applicable.)
WORST IRA BENEFICIARIES
Your Estate
Naming your estate as your IRA beneficiary is a bad idea. This insures that the IRA funds must now go through probate, increasing the time, complexity, and expense of your probate estate. The IRA’s creditor protection will be lost, making your IRA funds newly eligible to pay estate debts. Your intended beneficiaries will no longer be able to stretch out their Required Minimum Distributions over their lifetimes (and save tax dollars) because the IRA funds will now be required to be fully withdrawn (and taxes paid on the withdrawals) within five years.
An Individual and an Entity
In order for tax-saving stretch IRA provisions to be available to your human beneficiaries, all of your IRA assets must go to human beneficiaries following your death.
For example, you may intend for your two children to be able to stretch out their Required Minimum Distributions over their lifetimes, leaving 95% of your IRA to them and 5% of your IRA to your church. But even this small bequest of your IRA funds to your church will trigger the five-year IRA distribution rule for your children. Having to fully distribute all of your IRA proceeds (and pay the associated taxes) over a short five-year period can greatly reduce the stretch IRA tax savings available to your children.
A Person who has Problems Managing Money or who is in Debt
A person who cannot manage money would withdraw the inherited IRA funds very rapidly, with income tax having to be paid on every withdrawal, negating the potential stretch IRA tax savings of an inherited IRA.
In addition, unlike with a traditional IRA, a 2014 U.S. Supreme Court decision held that the proceeds from an inherited IRA are fully available to creditors. Thus if you leave your IRA outright to someone in debt, they may lose all of that money to creditors in a short amount of time.
To protect your IRA assets directed to a beneficiary with money management problems, or with creditor or debt problems, consider setting up a see-through discretionary trust for the beneficiary. You could then choose another responsible family member to serve as trustee to manage the IRA funds, and to make the spending decisions on behalf of the encumbered beneficiary.
An Older Individual
Leaving an IRA to an older person frequently insures that the Required Minimum Distributions will be accelerated, leading to increased taxes. If the beneficiary really needs the funds, however, and there are no alternative assets to transfer, the increased taxation rate may be less important than taking care of the beneficiary.
CATEGORIES: Elder Law, Elder Care Attorney, Senior Safety
Identity theft is scary. Charlie, a 72-year-old retiree, hears the first ring while heating up the spaghetti sauce for dinner. He thought about letting the phone go, but something about the ring telegraphed urgency.
The caller sounded excited, as he spoke in a Hispanic accent: “Congratulations! You have won the lottery!” “What lottery?” Charlie asks. The caller explained further: In order to improve its economy, Portugal, in 2011, established an international lottery, and you are one of the 2016 winners. “Congratulations Charlie, you have won $383,000.00!”
Charlie has not won much in his life, and has grown a bit tired of living on a fixed income. He is just the type of target that the swindler was hoping for–the type of mark willing to believe that big money might drop into his lap one day, just like that, money for nothing!
The Forsyth County Sheriff’s Department reports that the swindlers who conduct such telephone scams understand human nature, mostly targeting seniors who may have more difficulty recognizing predators, and who may be receptive to receiving a promise of money. Calls are intentionally made at busy times of day, such as dinner time, because it is easier for crooks to swindle people when they are distracted.
Such come-ons as the one above are like money in the bank for crooks–they set up “boiler rooms” with lots of experienced callers in both foreign countries and the U.S. Connecting with every few calls, their schemes work reliably and predictably, day in and day out. And, just like portrayed in the movie “The Sting,” the swindlers close up shop and move elsewhere every few days, which makes them incredibly hard for the authorities to catch.
As reported by the Forsyth County Sheriff’s Department, telephone scams such as the one above frequently lead to identity theft. The swindler’s call may continue like this:
The caller explains to Charlie that nothing will be required of him to receive his $383,000.00, except filling out a few forms. The caller asks for Charlie’s address, which Charlie gives him, so that Charlie can fill out a 7-page Acceptance Document which will be Federal Expressed to him. The caller promises Charlie that once he fills out the form and sends it back, his $383,000.00 will be on its way!
The next day, Charlie receives the 7-page document as promised. The document contains blanks for Charlie to fill in the following type of information:
Charlie’s full name;
Charlie’s wife’s full name, and her maiden name (if Charlie is married);
The last 3 addresses where Charlie has lived;
Information about Charlie’s current and previous automobiles, and where they were financed;
Detailed name and contact information about Charlie and his wife’s physicians.
The cover letter accompanying the 7-page document that Charlie received explains that he will be receiving his $383,000.00 prize money via wire transfer, thus the Lottery Prize board will need Charlie to fill in the following information so that they can wire him the money:
Charlie’s Social Security number;
Charlie’s bank account numbers and accompanying passwords.
Of course, once Charlie returns the form, his and his wife’s identities have been stolen.
As an estate planning attorney, one of my jobs is to assist seniors and others with keeping their money, so they will have enough during life, and pass it down to their beneficiaries as they wish. It’s important for seniors and their caregivers to understand the risk of such telephone scams, because such telephone identity theft schemes are prevalent in the Piedmont Triad, and they keep working. A public educator for the Forsyth County Sheriff’s Department reports that when he warns seniors in his talks about the above identity theft telephone scam, he frequently meets Forsyth County seniors who have already become victims.
The Forsyth County Sheriff’s Department shares the following advice with seniors regarding telephone calls from strangers:
Remember what Mama told you: Nobody ever gives you something for nothing;
Never promise or agree to give money to anybody over the telephone;
Never give out any personal information over the telephone;
If a caller’s story seems too good to be true, it is not true;
The best defense to a telephone scam is to hang up the telephone, quickly!
Modern marriage can be a minefield for both estate planners and their clients. In 2016, a majority of marriages end in divorce, second, third, or fourth marriages are common, and blended families represent the norm. Frequently, the estate planner advises families where the husband brings in children from a prior marriage, the wife brings in kids from a prior marriage, and (if industrious enough) the new couple adds new kids of their own to the mix. And, unfortunately, divorce lawyers are more litigious and aggressive than ever.
Growing up in South Texas, I learned a saying about the rugged Texas landscape which sticks in my mind: “Everything in Texas either bites, stings, sticks, or breaks your heart.” Although funny at first, that statement conveys honesty. Despite their best intentions, I know that many of my clients approaching marriage will have their hearts broken by their partner one day.
Thus, here is my financial advice to star-crossed lovers contemplating marriage in 2016: A) It is both highly ethical and appropriate to protect your separate assets against an unanticipated divorce when entering a new marriage; B) It is conversely both ethical and appropriate to take care of your spouse, provide him or her with a home, and reward the spouse who stuck with you, with part or all of your assets, when you die.
Here are 10 ways to financially and legally prepare for a new marriage:
Keep your individual assets separate. If you want to preserve assets which you bring to a marriage, keep those assets separate. If you commingle your separate funds with funds that come from your spouse, or with your and your spouse’s joint funds, it’s easy for an opposing attorney to argue later that the whole pot has now become divisible marital funds because of the commingling.
Keep gifts separate. If you receive financial gifts from your family or anyone else during your marriage, that property will be considered separate property unless those assets are commingled with your spouse’s funds or marital funds. You should keep such gifts in a separate account, or if you have an individual revocable living trust, have such gifts made directly to your revocable trust.
Keep inheritance separate. If you receive financial assets from an inheritance, these assets are normally considered separate property within a marriage, unless these assets are commingled with marital property, or with your spouse’s separate funds. So keep such inheritance assets in a separate account, and keep separate financial records for your inheritance assets. If you have an individual revocable living trust, it makes sense to have inheritance bequests made directly to your individual trust.
Keep your real estate separate. If you bring separate real estate into a marriage, keep that real estate separate, and do not add your spouse’s name to the deed. No matter what the purpose, if you add your spouse’s name to the deed, an opposing divorce lawyer can later successfully argue that by adding your spouse to the deed, you intended him or her to own up to 50% of your real property.
If you want your spouse to later have your home or other separate real property when you die, it is best to will it to her in your will, or distribute it to her from your trust document after your death.
Get your business valued shortly before marriage. If you bring a business into the marriage, and if your spouse later divorces you, a court may later award your spouse up to 50% of the value that your non-marital business appreciated during your marriage.
Thus you should have your business professionally valued shortly before marriage. That way, you may be able to subtract the value of your business that you brought into the marriage from any portion that a court divides with your divorcing spouse.
A proper premarital agreement (see below) may help to keep such business assets separate.
Maintain separate property with non-marital funds. When maintaining a home or other separate property brought into the marriage, maintain the property only with your separate funds. If you use your spouse’s or your marital property to maintain your separate property, you will be commingling these assets so that your spouse’s attorney may be able to get a portion of them upon divorce.
Keep retirement account records as of the date of your marriage. Upon divorce, individual retirement accounts such as 401Ks, IRAs, and pension accounts may be considered marital property subject to division. If you keep the statements close to your marriage date for these retirement accounts that you bring into the marriage, a court may later let you subtract those amounts from the marital retirement assets that are divided.
Place your assets into a revocable living trust before marriage. An individual revocable living trust may provide valuable prenuptial protection for separate property added to that trust before marriage. Because a trust is an individual stand-alone legal entity (like a corporation), individual property becomes trust property when properly added to the trust. It is then much harder for an opposing lawyer to later successfully argue that such trust property should be divided with the opposing spouse.
Use separate revocable living trusts (RLTs) during marriage, not a joint trust. Most estate planning attorneys now utilize separate revocable living trusts (one for the husband and one for the wife) for estate planning, because they provide better protection against spousal creditor or spousal liability events, and more easily allow spouses from blended families to pass down their assets differently. Such separate revocable living trusts are also much better at not commingling marital or spousal assets.
Couples (and their estate planning attorneys) may, however, choose to use a joint RLT to hold a couple’s assets for estate planning purposes. Even though some joint RLTs purport to separately identify individual assets within the joint trust and keep them separate, in reality an opposing divorce attorney can later argue that any property placed into a joint trust was intended to become joint property.
Use a prenuptial agreement. A prenuptial agreement may provide an important tool for defining and protecting separate property during the marriage, and in providing for how property will be divided in case of divorce. Even though couples may consider a prenup highly unromantic, later divorce is completely unromantic. The couple may prevent later agony by defining their rights in advance.
North Carolina case law provides that a prenuptial agreement may be more enforceable if: A) both parties disclose their premarital assets to each other in writing; B) each party is advised by their own attorney; C) there is no pressure or coercion used on either party before signing the agreement.
References:
Rebecca Zung, 5 Ways to Protect Your Money Without a Prenup (May 10, 2015) Credit.com/ABC News, http://abcnews.go.com/Business/ways-protect-money-prenup/story?id=30908390 .
Categories: Estate planning, special needs trusts, Winston Salem, North Carolina, NC.
The federal Achieving a Better Life Experience (ABLE) Act of 2014 authorized a savings account designed for Special Needs Beneficiaries. With similarities to the popular 529 education savings accounts, 529 ABLE accounts have already been rolled out in Ohio, Nebraska, and Florida, with active development taking place in most other states including North Carolina.
North Carolina parents and caregivers will soon be able to create a new “529 ABLE” savings account in the individual name of their disabled child or adult to save for that child’s future disability-related expenses. Primary benefits include tax-deferred savings for the disabled individual, without affecting eligibility for Medicaid, SSI, or other governmental disability programs. These unique features will allow caregivers to start planning and saving for disabled individuals immediately, with these funds allowed to be used as a supplement to governmental assistance.
In order to establish a 529 ABLE account, the disabled individual must be entitled to benefits under the federal SSI (Social Security Income) or SSDI (Social Security Disability Insurance) program, and must have been disabled before age 26. Because caregivers will be able to set up this account for the beneficiary right away and it can be accessed right away, there is no waiting period (such as with testamentary special needs trusts which do not become active until the death of the parent.) Note, however, that unlike properly designed special needs trust assets, funds remaining in a 529 ABLE account after the beneficiary’s death may be tapped to help repay state Medicaid costs.
The 529 ABLE account will not impact eligibility for government assistance programs, with the first $100,000 in such an account exempt from being counted toward the SSI program’s $2,000 resource limit. The account has a yearly contribution limit of $14,000, with any yearly contributions over that amount subject to a 6% penalty. Total lifetime contributions are limited to $394,000. The disability-related expenses paid for by account funds must be for the benefit of the individual with the disability, and must be related to the disability.
Allowable disability expenses are defined fairly broadly. In addition to medical expenses, allowable disability expenses may include housing, transportation, education, legal fees, and additional categories. To track 529 ABLE development progress in North Carolina, and for more information, click here.
CATEGORIES: Elder Law, Elder Care Attorney, Senior Safety
It’s a fact that crooks and swindlers have known for years: Seniors are often easier targets for financial predators. Modern science and Neuroscience now tells us why.
A new neurological study from the Georgia Institute of Technology indicates that older people have weaker “clutter control” in their brains. Brain EEG studies indicate that the brain space where seniors go to recall memories becomes very cluttered over time, containing both relevant and irrelevant information. Seniors have more trouble than younger people with brain “clutter control,” or sorting out what is important in their brains from what is not important. This clutter leads to a loss of confidence about memories.
Cluttering of the brain, and the resulting loss of confidence about selecting the correct memories, is a significant reason why older people are more susceptible to manipulation by predators.
Other scientific studies reported by the National Institutes of Health tell us that as brains age, they undergo physiological changes that diminish older people’s ability to assess the trustworthiness of potential predators.
Older people are also more susceptible to dementias, such as Alzheimer’s disease, which impair judgment, making them more vulnerable to the predators who may either be strangers to them, or who can lurk within their own close network of family and caregivers.
This new scientific information should help inform professionals, policymakers, and families that senior vulnerability represents an inevitable scientific fact. Many of our seniors need aggressive, consistent, and effective help protecting them from the in-person, telephone, and computer crooks, swindlers, and predators who target them daily. Sadly, the crime of Elder Financial Abuse has grown to a multibillion dollar industry in our country, and will only grow worse without everyone’s focused action.
Neuroscience Explains Why Seniors are More Vulnerable to Predators
Source:
James T, Strunk J. Arndt J, Duarte A. Age-related deficits in selective attention during encoding increase demands on episodic reconstruction during context retrieval: An ERP study. Neuropsychologia. 2016 Jun: 86:66-79. doi: 10.1016/j.neuropsychologia.2016.04.009. Epub 2016 Apr. 16.
Even though Prince, the master showman and electric guitar virtuoso, appreciated the big stage, he probably would not have liked the drama following his death becoming a stadium spectacle. Following his tragic death, hundreds of claimants, including his own half-siblings, their smiling lawyers, lovers that no one ever knew about, and love children of lovers that no one ever knew about, have come forth, seeking a part of Prince’s potential $500 million estate. The claims have gotten so out-of-hand in Minnesota that a judge has ordered Prince’s blood to be genetically sequenced, in order for the courts to start eliminating some of the false heirs.
A half-billion dollar payoff will bring out a lot of lottery contestants. So why did Prince, who was very comfortable using lawyers to protect his recording assets and his professional image, neglect to complete his estate planning? The answer may be pretty mundane. One of Prince’s lawyers, who had worked with him for many years, remarked: “I really don’t think that Prince thought that he was going to die just yet.”
Like many of us, it seems that Prince may have simply looked away from something fundamental to his life here on Earth: even The Artist (Formerly Known as Prince) would pass.
Prince remains in good company, however: many wealthy celebrities have been caught short, dying without wills.
Pioneering African-American professional quarterback Steve McNair, of the Tennessee Titans, was unexpectedly murdered in his Nashville hotel room at age 36, leaving a $90M estate and no will. When Sonny Bono died without a will after hitting a tree while snow skiing, a man claiming to be his illegitimate son later showed up, making a claim on his estate. Rock guitarist Jimi Hendrix died without a will, leaving an estate battle that burned on for over 30 years. The legendary reggae singer Bob Marley died in 1981 with a $30M estate and no will, with dozens of claimants arguing for possession. And artist Pablo Picasso died without a will in 1973, leaving 45,000 works of art, and an estate now several billion dollars in size, but not completely settled.
Prince was known to be both philanthropic and generous. But he may lose over half of his estate to government estate taxes. Assuming a $500M estate (which music intellectual property experts have estimated), the 2016 federal estate tax individual exemption amount at $5.43M, and the 2016 federal estate tax rate at 40%, Prince may lose approximately $198M to the federal government. And with Minnesota’s estate tax exemption amount at $1.6M, and with its upper estate tax rate at 16%, Prince’s estate may lose an additional $80M to Minnesota estate taxes, for a total $278M in funds lost to the government.
For a lesson in estate planning, it’s too bad that Prince did not model another celebrity, Hillary Clinton. Clinton, a lawyer by training, and her husband Bill, have shielded millions of dollars of personal assets within the Clinton Foundation, in a way that has magnified their influence and shielded these funds from estate taxes.
If Prince had established his own large charitable foundation, that organization could have additionally benefitted the people in his home state of Minnesota so greatly that they surely would have added the color purple to their state flag.
Those with smaller estates can learn from the Prince case, because without a will, the same behavior may repeat on a smaller scale. In 2015, I was attending a family business event, when a father I met there told me a story about how important a will could have been to his family. The father told me that his oldest son did very well in school, and eventually came to work in Washington, DC. While in DC, his son was successful enough to purchase a home in the prestigious Georgetown area. But his son then died young, without a will.
After that, unwelcome family members emerged from three different states, trying to get a piece of the son’s Georgetown real estate. The matter had to be litigated over a several year period, at a great cost, and causing significant stress to the son’s close family.
Planning ahead by enacting proper estate documents remains the best way to prevent such family disasters.
CATEGORIES: Elder Law, Elder Care Attorney, Estate Planning, Winston Salem, North Carolina, NC.
It’s common for aging parents to need some help with their business and legal affairs. Adult children frequently reach this conclusion at the beginning of a new year, after they have spent time with their parents over the holidays.
PROBLEMS WITH JOINT BANK ACCOUNTS
Many adult children choose to assist their parents by opening joint bank accounts with them. However, this is not the best option, because it can result in unwanted legal problems that can later become intractable. Joint accounts are normally set up with “survivorship” rights, so that if the parent dies, the remaining child on the account is legally entitled to the remaining assets. If that child has siblings, this child’s inheritance of the account assets outside the will may be in direct conflict with how the parent’s inheritance is divided in the parent’s will document.
Even if the parent does not have a will, N.C. laws of intestate succession, which govern inheritance for people without a will, may directly conflict with the adult child’s receipt of the remaining joint account proceeds following the parent’s death. Either problem may be difficult to fix, and can create unpleasant disagreements that lead formerly congenial family members to litigate against each other.
THE DURABLE POWER OF ATTORNEY
The best solution is to use a durable power of attorney (also called a financial power of attorney or a general power of attorney; durable POA in short) which offers the most economical and legally straightforward method to assist aging parents with their business and legal affairs.
HOW IT WORKS
The person who signs the durable POA document, called the principal, grants significant powers to an agent or agents, allowing them to manage the principal’s business and legal affairs. In order for this document to be legally valid, the principal must be mentally competent, or have “capacity” (the mental ability to comprehend both the nature and consequences of one’s acts) when he or she signs the document. Before the document may be used by the selected agent(s), it must be properly recorded in the appropriate county Register of Deeds office.
LIVE AT EXECUTION
It is a frequent misconception that durable POA documents are designed only to allow the agent to assist an aging parent following his or her incapacity (mental incompetence.) Most become “live” when the principal signs and executes the document. Thus, these documents allow the agent(s) to start helping the principal right away, without waiting for the principal’s incapacity. If used correctly, this type of durable POA provides the most flexibility to both parent and child.
BE CAREFUL IF YOU DO IT YOURSELF
Banks and other financial institutions are very familiar with durable POA documents and accept those that are properly and professionally prepared.
Beware of versions of durable POA documents available on the Internet. Legal fees to an estate planning attorney or elder law attorney for properly prepared, executed, and filed durable POA documents are normally very modest. Unless you are a legal professional, you can’t judge the quality of a form that you download from the Internet.
When a bank receives a POA document, it is carefully reviewed by the bank’s legal professionals, who will only accept a document that is proper in every way. If the bank rejects your Internet durable POA when your family needs it, and your parent is no longer competent, the family may then be forced to resort to a much more expensive and complicated guardianship proceeding before a family member is able to legally take care of the impaired parent’s business and legal affairs.
Estate planning attorneys and elder law attorneys normally try to screen out improper family members from serving as agents or “fiduciaries” on behalf of their clients. (For example, I have had to remove a family member addicted to hard street drugs from serving as a fiduciary for a client.) A durable POA becomes highly dangerous in the wrong hands–it can give away the principal’s keys to his entire financial portfolio. It is essential to keep the durable POA in the hands of only honest and proper agents.
AN ADDITIONAL ALTERNATIVE
Another alternative is to create revocable living trusts, with children serving as co-trustees with the parents. This type of estate planning is more expensive and complicated and should only be conducted with the assistance of an experienced estate planning or elder law attorney.
CATEGORIES: Elder Law, Elder Care Attorney, Senior Safety
As an attorney who frequently works with seniors in preparing wills and estate plans, I too often hear of cases in which my clients have been swindled in some way.
While spring brings out the welcome return of robins and daffodils, it also, unfortunately, brings out unwelcome human spring visitors. As the weather gets warmer, con artists targeting homeowners — particularly seniors — become more active, according to local law enforcement.The Forsyth County Sheriff’s Office warns that seniors and others should watch out for these top 5 con artists:
1. The fake tree trimmer: Law enforcement officials report that most legitimate tree services have enough work to make selling door-to-door unnecessary. Be particularly aware of someone purporting to be from a tree service who knocks at the door without any vehicle parked in front of your house. Or, if there is a pickup truck parked outside, beware if it does not have any tree service signage on it, or if it is not carrying any chain saws or tree equipment. Fake tree trimmers will frequently try to get part of the money for a tree job up front, then will run off with your money, never to be seen again. Or they will use the conversation with you to case both you and your house for later robbery.
2. The rancid meat seller: Believe it or not, one of the most successful cons is to sell meat from an ice chest door-to-door. After the purchase, the buyer will find out that the meat he purchased is rancid, and the seller is long gone.
3. The fake roof-repair guy: The fake roof repair con artist will knock at your door, then explain that there is something wrong with your roof that he will be happy to fix. He usually asks for some money up front, will crawl up on the roof, lie around for awhile, then get off and leave with your money. Or he will use the opportunity to case your house, which he will burglarize later.
4. The vacuum-cleaner salesman: This con is pretty old, but remains popular among con artists. Most of us over 50 can remember Lucille Ball selling vacuum cleaners on “I Love Lucy.” A vacuum cleaner salesman will come to your home, demonstrate a good working vacuum cleaner to you, then offer to sell you a model just like he is using if you will pay in advance. The con artist then leaves with your money, and you never receive that vacuum cleaner that you ordered.
5. Young children selling magazines: Have you ever seen those young children with ID cards around their necks knocking at your door selling magazines? They always have a compelling story about why they are selling the magazines, and the fact that they are kids makes seniors more likely to buy from them.
But the ID cards are usually fake (almost anyone with a computer can fake ID cards) and the stories are normally false as well. Law enforcement officials report that most of these children do not even live in our area — many are driven in from the Midwest in vans by crooked adults. Seniors and others who buy magazines from them find out later that their money is gone and that they will never receive those magazines.
Tips for protecting yourself from con artists:
Don’t open your door to strangers.
If you do open the door, do not leave it open or allow the stranger to look inside. A crook who knocks at your door is often using the occasion to evaluate your valuables inside so he can steal them later.
Do not tell a stranger at your door any personal information whatsoever. Crooks target older people because they are more vulnerable, so if you are a widow and tell a crooked stranger that you have lost your husband, that may lead the crook to see you as an easy target for a robbery.
Watch out for visitors between 5 p.m. and 7 p.m. This is a popular time for con artists, because they know that you are likely to be home and likely to be preparing dinner. If a crook can reach you when you are more distracted, it makes his job easier.
And finally, if you see con artists in your neighborhood, make sure that you call local law enforcement. It may take everyone working together to put a stop to these crooks.
Married couples in North Carolina contemplating adding a living trust to their estate plan may have a choice: one joint trust or two separate trusts? In most cases, I recommend a separate trust for each spouse, for the following 6 reasons:
NORTH CAROLINA IS A COMMON LAW PROPERTY STATE. North Carolina is a “common law, ” or “separate property” state. In general, separate trusts are preferred by planners and attorneys in common law property states like North Carolina, and joint trusts are used more frequently in community property states like California.
SEPARATE PROPERTY STAYS SEPARATE. Many married clients enter into the estate planning process owning a significant amount of separate property. They may own assets that they acquired before the marriage, they may have inherited family farmland, and they may expect to inherit assets or receive gifts from their parents or grandparents in the future. Using a separate trust for each spouse more cleanly keeps their separate assets separate, so that they will be more easily characterized as separate at death or in case of divorce.
JOINT TRUSTS MAY COMMINGLE SEPARATE PROPERTY. Where separate property (which has not been properly identified and tracked as separate property) is combined by both spouses in a joint trust, it may become “commingled.” Where such property has been commingled, or has become jointly titled in a joint trust, it may be considered by our court system as having been converted from the contributing spouse’s “separate property” to “marital property.” The spouse who contributed the separate property to the joint trust may lose the ability to control it as separate property in case of divorce, or the spouse’s fiduciaries or beneficiaries may lose access to that property following the spouse’s death.
SEPARATE TRUSTS WORK BEST WITH BLENDED FAMILIES OR WHERE SPOUSES HAVE DIFFERENT TRUST BENEFICIARIES. It is common for spouses to have separate sets of children from prior marriages. Separate trusts allow couples with blended families to each select different primary or secondary trust beneficiaries.
CONSUMER DEBT PROTECTION. With a joint trust, all of the assets of both spouses may be endangered by the debts of just one spouse. But if separate trusts are used, the separate assets of the uninvolved spouse may be protected from the creditors of the indebted spouse. This protection may be limited in certain cases however– if the debt involves certain “necessities” such as food or medical care, the North Carolina “necessities doctrine” provides that both spouses may be responsible for the debt.
LIABILITY PROTECTION. Where separate trusts are used, if one member of a couple is involved in a car wreck which creates liability, the uninvolved separate assets of the other spouse within the other spouse’s separate trust may be protected against that liability.
Joint trusts may still be appropriate for married couples in some cases, but for the above 6 reasons, separate trusts are the most flexible choice for married couples in North Carolina, and allow each spouse to have better control over their separate assets.
Categories: Estate planning, revocable trust, trusts, living trust, elder law, Winston Salem, North Carolina, NC.
Probate, the court-associated process where your estate debts are paid, your estate is settled, and your assets are distributed to your heirs or beneficiaries, can be costly and lengthy. In addition, probate is a public process where you estate assets may be viewed by anyone.
It’s a good idea to keep as many assets out of probate as possible. Here are 5 ways to accomplish this:
1 – Set Up Your Financial Accounts to Transfer to Your Beneficiaries at Your Death.
Your bank, brokerage, retirement, and life insurance accounts can normally be set up to either “pay” or “transfer” to your selected beneficiaries on death. Assets which are transferred this way avoid the probate process completely.
2 – Establish Joint Real Property Ownership With Right of Survivorship Where It Makes Sense.
It often makes sense for married spouses to own real property jointly. Where the property will pass to the other spouse when a spouse dies, that “right of survivorship” will keep the transfer out of probate court. In North Carolina, both ownership as” joint tenancy with the right of survivorship” and “tenancy by the entirety” provide real property survivorship rights to married couples.
3 – Donate or Gift Away Property
Property that you gift away before your death does not go through probate court. In some circumstances, it may make sense to give away some assets to charity, or to selected beneficiaries, to get these funds out of your estate before you die. But if your estate is large enough, you should consult an attorney about the potential tax consequences of such gifts.
4 – Utilize the Small Estates Laws
If the size of a deceased person’s estate is small enough, North Carolina provides expedited procedures for settling the estate, greatly shortening and simplifying the probate process.
5 – Create a Revocable Living Trust, Where Appropriate
If your estate size is large enough, or for other reasons, it may make sense to establish a revocable living trust. Assets which are properly added to a trust normally escape the probate process after the death of the grantor. In addition, assets placed in trust typically stay private, away from the public eye.
Singles must plan carefully for retirement, because they do not typically have another income-earner in the family who can help out.
Here Are 5 Retirement Savings Tips For Singles
Complete Your Estate Plan. Even if you do not have a family to inherit your assets, completing your estate plan is critically important. Your estate plan includes advance directive documents where you set up agents to make your medical decisions, take care of your finances, and take care of your legal affairs should illness render you unable to help yourself.
Set Up An Emergency Reserve Fund. Married families typically include an additional breadwinner to fall back on financially in case of emergencies, but a single adult typically does not have such a backup. You should keep at least 6 months normal household expenses reserved in a liquid savings account. You can start with 1 month’s reserve savings at first, then build up to six months as your savings habits improve.
Build Up Your Credit Score. A single adult typically faces more difficulty purchasing large-ticket items like a home or a car on credit than a married person who may have more income streams to rely on. So it is important to build up your credit score.Credit rating agencies like Equifax typically sell FICO (Fair Issac Corporation) and other monitoring products which can help you learn to improve your credit scores. To improve your score, reduce your credit card accounts to no more than 5, keep your credit card balances as low as possible, pay your bills on time, and try to keep your overall debt as low as possible.
Purchase Disability Insurance. If you are single, particularly if you have no children or do not plan to have children, becoming disabled or acquiring serious long term health problems in your later years can decimate you financially. You need to make up for your lack of a family safety net should you become seriously ill.It is easier to acquire essential disability insurance or long-term care insurance while you are young and healthy. Talk to a trusted insurance provider about finding a disability insurance policy to meet your needs.
Continually Save For Retirement. Particularly because as a single you have no other financial backup, start early and give as much as you can afford every paycheck to your 401(k), IRA, or other retirement savings account.
As Amazon.com gains market share each holiday season, we keep observing the Internet offering faster, better, and cheaper solutions for the goods and services that we purchase.
But some Internet purchases remain unwise. Consumers who purchase wills, trusts, and other estate documents online in an attempt to save money frequently risk their life savings to inferior products.
Why are online estate document services inferior? See the following three reasons below:
Legal Advice is Prohibited
. Because there is no state licensed attorney involved, Internet legal sites are prohibited from providing legal advice. When you are trying to protect your life savings with a will or trust, the first thing required is legal advice tailored to your particular needs and circumstances. But by law, the Internet legal sites are prohibited from giving you the personal legal advice that you need.
Only Form Documents are Provided. The Internet legal services are known merely as “document assistants,” which primarily only let the customer fill out generic form documents. Such forms are frequently not tailored to the customer’s individual needs or circumstances.
Your Internet Forms May Not Work. Consumers seeking a will and or trust need documents that will properly distribute a lifetime of savings to chosen beneficiaries. Unfortunately, most consumers only get one chance to get their will right.
Internet forms do not even promise to work when needed. They may not be in compliance with state law, and they may include significant mistakes or oversights. Because no legal advice is given, the Internet legal companies cannot promise a particular legal result, or even that your documents will work.
If wills, trusts, or other estate documents are not drafted properly, lawyers will need to be hired later to clean up the mess, at great expense to your estate and your family. In addition, improperly drafted estate documents may lead to family arguments, which in turn may lead to expensive litigation. It is almost always more cost effective to use a licensed attorney to draft estate documents properly in the beginning, than to clean up a mess later resulting from improper Internet form estate documents.
If you have a toothache, you will probably turn to your dentist, and not the Internet for dental work, right? It makes just as much sense to use a licensed estate planning attorney to develop your critical estate documents, instead of placing your trust in generic form documents from the Internet that might not work when needed.
Source: David Hiersekorn, Can You Trust Your Trust? Why an Online Will or Trust Could Be the Dumbest Mistake You Ever Make, EstatePlanning.com (May 15, 2012), https://www.estateplanning.com/Should-You-Trust-Online-Legal-Document-Services/.
A new online calculator developed by the federal Consumer Financial Protection Bureau helps consumers determine the best time to start receiving retirement benefits, and what those benefits will be.
To use the calculator, a consumer merely types in his or her birthday, and maximum yearly salary received during his or her work career, and the calculator does the rest.
The basis in your home is its value for tax purposes. It can be increased by changes such as home improvements.
When your home is sold, the capital gain on the sale is calculated as the difference between the sale price and the home’s basis. If you have been in the home for many years and the home has appreciated, the capital gain could be large, and subject to a large capital gains tax.
Fortunately, where the primary residence is sold and it was the principal residence for two of the last five years before the sale, individuals may typically exempt up to $250,000 in federal capital gains taxes. Couples may typically exempt up to $500,000 in capital gains taxes under these conditions.
If you want to give your home to another, it is typically much better to leave the home to an heir in a will bequest than to gift the home to the recipient during life.
When your home is passed down to a beneficiary in a will, the beneficiary frequently benefits from a “step up in basis,” where your basis in the asset is updated to the current market value of the home. If the home has appreciated since its original purchase, this “step up in basis” may save the beneficiary thousands of dollars in capital gains taxes.
This rule may be more complicated in cases where the bequest is made to a spouse, and where the home is held jointly with right of survivorship.
Source:
Avoid Taxes on Your Home Sale Legally, THE HUFFINGTON POST (October 20, 2015), http://www.huffingtonpost.com/moneytips/avoid-taxes-on-your-home-_b_8307234.html.
Categories: Estate planning, asset protection, estate tax, gift tax, elder law, Winston Salem, North Carolina, NC.
Higher net worth individuals and families are increasingly looking to family private foundations to both advance their charitable goals, and to avoid estate taxes.
A private foundation is a freestanding legal entity which can be 100% controlled by the donor. The donor, and anyone he chooses to advise him, fully decide how the money is invested.
Private foundations may own almost any type of asset, including real estate, jewelry, closely held stock, stock options, art, insurance policies, and other variables. Founders can donate highly appreciated stock to the foundation to avoid capital gains taxes so that the full market value of the stock grows tax free, ultimately benefitting the charities to be funded by the foundation.
A private foundation may be established quickly, with an investment of $250,000.00 or less. In fact, 67% of all private foundations have less than $1 million in assets. Establishing the private foundation may take as little as three days, with set up cost being often very affordable.
The following types of charitable gifts are available to private foundations:
Funding 501(c)(3) public charities
Funding tax-exempt organizations that are not 501(c)(3) entities
Making grants directly to individuals and families facing hardship, emergencies, or medical distress
Supporting charitable organizations based outside of the U.S.
Making loans, loan guarantees, and equity investments
Providing funding to for-profit businesses that support the foundation’s charitable mission
Setting up and running Scholarship and award programs
Running their own charitable programs.
Source:
Robert Chartener, Financial Planning, http://www.financial-planning.com/blogs/wealth-ideas/this-may-be-the-best-bet-for-charity-minded-clients-2694760-1.html?utm_medium=email&ET=financialplanning:e5499154:4512791a:&utm_source=newsletter&utm_campaign=Nov%209%202015-am_retirement_scan&st=email , November 9, 2015.
Often, elder law disputes involve close family members and can involve emotions such as jealousy and greed. When such emotions are present, long and costly litigation can also permanently destroy family relationships.
Mediation can serve as a much better technique for resolving such emotional family disputes, and can often better preserve family peace, privacy, and can frequently result in a settlement in much less time and using much less money.
The parties in an elder law dispute may all voluntarily agree to use mediation as a means to seek a mutually accepted settlement of their dispute. But, where the opposing party remains contentious about using the mediation process, it may be more effective to use a “carrot and stick” approach to frame mediation as the most reasonable alternative. For example, an attorney may file a lawsuit or a motion with a court, then offer mediation to the opposing side as a more reasonable dispute resolution alternative than litigation. Or, in cases where competency may be an issue, an attorney may file a petition for guardianship of the elder, then offer to mediate after the guardianship application has been filed.
Because of the specialized subject matter involved in elder law, the mediator should be carefully selected to make sure that he or she has sufficient specialized experience in settling elder law disputes, and a good reputation among his or her peers.
Because mediation is private, and because a mediator may shuttle between parties during a mediation rather than having parties face each other in the same room, the environment may be much less threatening than in a courtroom, and may be used to to find more creative solutions for resolving disputes than is possible in a courtroom.
According to Shirley Berger Whitenack, President of the National Academy of Elder Law Attorneys and a professional elder law mediator, mediation of elder law disputes may be appropriate and successful under the following circumstances:
The parties have or had an ongoing personal relationship and have communication problems,
The primary barriers to settlement are personal or emotional,
The parties want creative solutions to fit their particular needs,
There is an incentive to settle because of the time or cost of litigation,
The parties want a confidential forum to resolve their dispute.
Source: Shirley Whitenack, Mediation: A Possible Option for the Dispute Involving Your Client, NAELA News Jul/Aug/Sept 2015,
https://www.naela.org/Public/Library/Publications/Publications_Main/NAELA_News_Archive/NAELA_/JulAugSept2015/PracticeSuccess_Mediation.aspx?WebsiteKey=24646538-b6f0-4066-8569-164bcf663977
Categories: Estate planning: Elder law, Winston Salem, North Carolina, NC.
The legal landscape for LGBT civil rights is changing, but the LGBT community still needs careful and timely estate planning to ensure protection for the ones they love.
Married LGBT Couples
As North Carolina LGBT adults are aware, on October 10, 2014, the United States District Court for the Western District of North Carolina issued an order that struck down the ban on same sex marriage in North Carolina. The ruling allows LGBT couples to seek the rights and privileges of marriage in North Carolina. Legal LGBT marriage has improved estate rights in two areas.
Legal LGBT Marriage — Two Estate Rights Improvements
Second Parent Adoptions – Although North Carolina adoption law is still evolving, both spouses in a LGBT marriage should now be able to legally adopt the same child. Legal “second parent” adoption for married LGBT couples will solidify the rights of both LGBT spouses to care for and raise the children should something happen to one spouse. Because legal LGBT marriage is still so new in NC, adoption laws remain tricky and untested. When adopting in NC, it is important for the married LGBT couple to consult with an North Carolina family lawyer familiar with LGBT family issues.
Intestate Succession – Better Protection for Surviving Married LGBT Spouses When There is No Will
When an adult in North Carolina dies without a will (called dying intestate), the probate court will look to a complex set of North Carolina laws called the NC intestate succession statutes. Generally, only spouses, legally adopted children and genetic or “blood” relatives inherit under these statutes when there is no will. Unmarried partners, friends, and charities get nothing.
Because LGBT marriage is now legal in NC, if one spouse dies without a will, the surviving spouse should inherit as allowed by the NC intestate succession statutes.
Despite the above two improved estate law protections, married LGBT spouses should still create valid wills in order to pass down their property according to their wishes after death. A proper will also allows a married LGBT couple to name their choice of guardians for their children, which is normally upheld by the courts.
Unmarried LGBT Domestic Partners
North Carolina law provides no statewide protections for domestic relationships related to sexual orientation, gender identity, or gender expression that are not within marriage. Proper estate planning is absolutely critical for unmarried LGBT domestic partners.
As discussed above, if an unmarried LGBT domestic partner in NC dies without a will, a court will look to the NC intestate succession statutes to determine who will receive inheritance. NC’s intestate succession statutes provide the strongest inheritance rights to married spouses, genetic or legally adopted children, and close “blood” or genetic relatives. Without a valid will, an unmarried LGBT domestic partner will likely inherit nothing from the deceased partner.
North Carolina law does, however, allow people to select whomever they wish as “beneficiaries” and “fiduciaries” in their estate documents. Through a proper will, an LGBT partner can “will” or “bequeath” property to the other domestic partner.
LGBT domestic partners who do not plan properly may not be able to care for each other should one partner become seriously ill. If an LGBT domestic partner becomes mentally incapacitated, hospitals or courts may look first to blood relatives to make health care decisions for the incapacitated partner, instead of to the other domestic partner.
To ensure that they will be making each other’s health care decisions in cases of serious illness, LGBT domestic partners must execute proper Health Care Power of Attorney documents listing each other as the highest priority agents for making each other’s health care decisions in case of incapacity.
In response to the great need for partner security in North Carolina, we have prepared the following advice for the North Carolina LGBT community
Do not let the courts make your critical estate planning decisions for you after you are gone. Obtain a valid will so that YOU decide:
who is considered part of your family;
the guardian for your children;
the terms of a family trust to provide for your family;
what happens to your pets; and
what happens to your property.
Help keep the peace even after you pass. Obtain a well-drafted will so that your friends and family are certain of your wishes and no one fights or litigates over differing interpretations of your intentions.
Complete a valid will as soon as possible. If your family or your wishes change, you can update your will.
Complete both your Health Care Power of Attorney and your Living Will documents so that the partner you trust will be able to maintain control of your healthcare if you become medically incapacitated.
Obtain a Durable Power of Attorney document to select an agent to take care of your business and legal affairs when you are unable to care for those yourself. Make sure a licensed attorney prepares this document; otherwise, banks and other institutions may refuse to recognize the document when it is needed.
Estate planning documents are designed to protect clients’ wishes both during life and after death. In a durable power of attorney document, a client may pick an agent to help him manage his finances and legal affairs should he become mentally incapacitated during life. And in both will and trust documents, the client may determine how he wants his assets used or distributed after death.
But in the Internet age, it can be difficult to separate certain assets such as financial accounts from the computers, websites, and software used to operate, manage, manipulate, and convey information about those accounts. Thus without proper estate planning incorporating the client’s digital assets, it is a mistake to assume that client fiduciaries such as agents, guardians, executors, and trustees will have the tools they need to perform their obligations.
Existing Laws Do Not Provide Automatic Fiduciary Access To Digital Accounts And Digital Information
In North Carolina, statutory law does not support automatic fiduciary access to digital accounts and digital assets. An NC proposal addressing estate planning and digital accounts was removed from the statute S.L. 2013-91 (N.C. Gen. Stat. 30-3.1) before the Governor signed on March 12, 2013. A few other states have passed digital assets legislation.
Without clear direction from NC state law, controlling law is still mostly dictated by two 1986 Federal statutes which predate the commercial Internet. Although these Federal statutes are outdated, they still guide court decisions.
The overriding purpose of both the 1986 Stored Communications Act (SCA) and the Computer Fraud and Abuse Act (CFAA) is to protect the computer user’s privacy and to prevent unauthorized access to the user’s digital assets. As a result, the computer service providers subject to the SCA and CFAA maintain service agreements that include only one user, and strictly prohibit “unauthorized access.” Some service agreements also state that the individual user’s rights are “nontransferable.” Thus, when a user becomes mentally incompetent or dies, fiduciaries may have difficulty getting access to his online accounts.
In addition, many online services will refuse to release the password information from a deceased user, even in the face of a judicial order or civil lawsuit.
Best Practices Require Both Authorization And Transfer Of Log-on Data Including Passwords
In the absence of a modern statute controlling fiduciary access to digital assets, best estate planning practices require both 1) clear authorization from the principal, grantor, or testator in the estate documents authorizing the fiduciary to access the digital accounts; 2) the actual transfer of account information including log-on information and passwords.
Although these preparations may not work forever and may not work with every digital account, these steps may be the best that NC estate planners can do until controlling laws are modernized. Some digital providers have revised their rules to permit fiduciaries to access online accounts when the proper authorization is included in the primary user’s estate planning documents.
Authorization Language and Definition
Estate planner Jean Gordon Carter and colleagues provide sample authorization language, which may be included in a will:
“Digital Assets. My executor shall have the power to access, handle, distribute and dispose of my digital assets.”
They also advocate including a broad definition of “Digital Assets” in the will.
Proper authorization to use digital assets language should additionally be included in the durable power of attorney document, in order for the agent to be fully able to conduct an incapacitated grantor’s business and legal affairs.
Transfer of Account Administrative Information
In addition to the digital assets authorization language needed in the estate documents, the grantor must also physically transfer to the proper fiduciaries the administrative information required for using the digital assets. This includes account information, log-on information, and passwords.
Randy Siller, a registered representative of Lincoln Financial Advisors Corporation, shares the following seven best practices for clients transferring digital access information to fiduciaries as part of an estate plan:
Digital Hardware. List all digital hardware, including desktops, laptops, smartphones, iPads, USB flash drives, and external hard drives.
Financial Software. List all financial-related software programs used, such as Quicken, QuickBooks, and Turbo Tax, which may include important tax and business information, as well as passwords.
File Organization/Passwords. Provide an outline of the file organization on digital devices so fiduciaries will know where to find important files, as well as any passwords they may need to gain file access.
Social Media. List all social media accounts, such as Facebook, LinkedIn, Twitter, and Cloud websites, as well as the information needed to access each one.
Online Accounts. Prepare a list of all online accounts including bank accounts, investment accounts, retirement accounts, e-commerce accounts (Amazon, PayPal), credit card accounts, and insurance accounts. It is critical for fiduciaries to have access to these providers.
Subscriptions. Ensure that a list of online subscriptions such as Netflix, Norton Anti-Virus, credit reporting/protection subscriptions, and streaming music subscription services are documented so fiduciaries can access or cancel those services.
Email. List all personal and business-related email accounts, and how to access them.
Social Media
It is easy for estate planners to focus on protecting monetary assets. But the control of a client’s “digital legacy” on social media may also be important.
Geoffrey Fowler, writing for the Wall Street Journal, has noted: “The digital era adds a new complexity to the human test of dealing with death. Loved ones once may have memorialized the departed with private rituals and a notice in the newspaper. Today, as family and friends gather publicly to write and share photos online, the obituary may never be complete.”
To deal with the desire for users to allow their loved ones to memorialize them through their Facebook accounts at death, Facebook recently decided to allow members to designate a “legacy contact” to manage parts of their accounts posthumously. Members may now also choose to have their presence deleted entirely at death.
On The Horizon
Likely the most complete proposal addressing the need of clients to effectively give fiduciaries access to their digital estate has been written under the auspices of the Uniform Law Commission. The Uniform Law Commission approved the recent Uniform Fiduciary Access to Digital Assets Act (UFADAA) on July 16, 2014 in Seattle, WA.
The Commission states:
The UFADAA gives people the power to plan for the management and disposition of their digital assets in the same way they can make plans for their tangible property: by providing instructions in a will, trust, or power of attorney. If a person fails to plan, the same court-appointed fiduciary that manages the person’s tangible assets can manage the person’s digital assets, distributing those assets to heirs or disposing of them as appropriate.
Until such reforms become law, the best strategy for passing down digital assets to fiduciaries requires both including proper fiduciary authorization language in the estate documents, and the physical transfer of digital asset user information to fiduciaries.
Randy Siller, Seven Tips for Managing Your Digital Estate, WealthManagement.com, (Nov. 25, 2014), http://wealthmanagement.com/estate-planning/seven-tips-managing-your-digital-estate#slide-0-field_images-715801
NFL Tennessee Titans quarterback Steve McNair, age 36, was unexpectedly found murdered in a Nashville, TN hotel room on July 4, 2009. McNair had earned about $90 million during his NFL career, yet he died without a will, or intestate. Because he had done no estate planning, his family lost millions of dollars to taxes and legal fees.
Estate planners strongly recommend that every adult who owns property or who has minor children should maintain valid estate planning documents, including a will. Yet every year thousands of North Carolina adults die intestate.
In certain groups, the numbers of adults without a will are remarkably high. 68% of African-American adults and 74 percent of Hispanic adults do not have one. And strikingly, 92% of adults under the age of 35 (prime parenting age) do not have a will.
NC Intestate Succession Laws
In North Carolina, when the probate court addresses an estate where the property owner died intestate, the court looks to the North Carolina intestate succession laws to help the court divide up the deceased person’s property. Unfortunately, the probate court often will make different decisions than the deceased would have made had he or she made a will while living.
Under North Carolina intestate succession law, typically only spouses and genetic relatives inherit. Unmarried partners, friends, and charities get nothing.
Remaining Problem
Dying without a will may create many problems not addressed by the probate court applying NC’s intestate succession statutes.
Fighting and Expensive Lawsuits
If the deceased person’s (decedent’s) intent was never expressed in a will, potential heirs and others seeking part of the estate often argue about what the deceased really intended. Those disputes may lead to expensive litigation.
Because the intestate succession statutes deal mainly in percentages and do not address individual items of personal property, family members may fight over who gets certain family heirlooms or individual items of value.
Where infighting leads to litigation, the potential heirs may spend many times more in legal fees than what a proper will (which could have prevented the arguments) would have cost the decedent.
A Court Decides Who Gets The Children
Parents who plan use a will to name their choices of guardians for their children. Courts normally uphold the parents’ choices for their children’s guardians in a will. But where there is no will and both parents die intestate, guardians will be appointed for the children by a court. This is a result that no parent intended.
Higher Fees, Taxes and Legal Costs
Proper estate planning helps minimize probate fees, taxes, and legal costs. The goal of all legal planning should be to prevent problems. Preventing problems is always less expensive than paying to clean up a mess later, and is more predictable and less harrowing for the family.
Please contact us with any questions and to learn how we can help with your estate planning in North Carolina.
The differences between federal gift taxes and federal estate taxes confuse many. Taking a step-by-step approach helps to clarify these concepts.
Types of Gifts
U.S. tax laws recognize two principal categories of gifts. A gift made during one’s lifetime is called an inter vivos gift. A gift made after death (normally through a will or some other instrument like a trust) is called a testamentary gift.
Gift taxes are normally concerned with gifts made during life, or inter vivos gifts. Estate taxes are normally concerned with gifts made after death, or testamentary gifts.
Wealth Taxes
The gift tax and estate tax are the only “wealth taxes” prescribed by the federal government.
States may levy another “wealth tax” called an inheritance tax in addition to, or in substitution for, a state estate tax. The federal government does not levy inheritance taxes. Most states, including North Carolina, have repealed their inheritance and estate taxes. And very few states still levy a gift tax.
History And Purpose
The first U.S. federal estate tax was enacted in 1916 in order to gain revenue from wealthy individuals at death in addition to their income taxes collected during life.
The gift tax was first enacted in 1924, so that the government could reduce the avoidance of estate taxes through giving inter vivos gifts.
Without the gift tax, a wealthy citizen could reduce his or her family’s estate tax burden at death by making gifts to others while alive, which would reduce the size of his or her taxable estate at death. The gift tax serves as a “backstop” to the estate tax by also taxing the gifts made during life, making it more difficult for a wealthy citizen to escape federal wealth taxes.
Unification, The Lifetime Gift Tax Exclusion, The Annual Gift Tax Exclusion, And The Estate Tax Exemption
There are several similarities between the federal gift tax and the federal estate tax which invite confusion. In 1976, the federal gift tax was “unified” with the federal estate tax, which created a common tax rate schedule for both types of taxes.
Recent updates have equalized the lifetime gift tax exclusion and the estate tax exemption, so that they are now the same number. For example, in 2014, no gift tax is owed to the IRS until the giver exceeds the 2014 lifetime gift tax exclusion of $5.34 million for all gifts made during the giver’s lifetime in excess of the annual gift tax exclusion amount (discussed below). And the 2014 federal estate tax exemption allows the individual “testator,” or giver, in a will to leave his heirs up to $5.34 million free of estate tax. The $5.34 million gift tax exclusion and estate tax exemption are indexed annually for inflation. In 2015, both the federal individual gift tax exclusion and estate tax exemption will rise to $5.43 million.
Unification dictates that if some of an individual’s 2014 $5.34 million lifetime gift tax exclusion is used up by making a taxable gift during life, the estate tax exemption used to shield testamentary bequests (transfers of property by will or trusts at death) will be reduced accordingly.
In addition to the lifetime gift tax exclusion, it is important to understand its annual counterpart, the annual gift tax exclusion. In 2014, the annual gift tax exclusion allows a taxpayer to give away up to $14,000 each to as many individuals as he wishes without those gifts counting against his or her 2014 $5.34 million lifetime gift tax exclusion.
Married spouses, acting in concert, could give $28,000 in 2014 to each of an unlimited number of recipients without gift tax consequences.
Unification Example
Suppose Laura, who is single, makes a $1 million gift to her nephew Ken in 2011, then dies in 2014. How much federal estate tax exemption would be available to her estate at death?
First, we must determine how much the lifetime gift tax exclusion has been reduced by Laura’s 2011 gift. To calculate this, we subtract the 2011 annual gift tax exclusion amount, which was $13,000 in 2011, from the amount of the gift, as follows: $1,000,000 – $ 13,000 = $987,000.
Because of unification, the amount of the total $5.34 million federal estate tax exemption available to Laura’s estate at her death in 2014 would be reduced by the countable portion of her gifts during life, or $5,340,000 – $987,000 = $ 4,353,000 estate tax exemption available to Laura’s estate at death to shield her assets from estate taxes.
Even though Laura would not have had to pay gift taxes in 2011 on the amount of her gift, $987,000, in excess of the $13,000 2011 annual gift tax exclusion amount, she does have to report any gifts in excess of the annual gift tax exclusion amount to the IRS so the IRS can keep track of the lifetime total.
Note that Ken, the 2011 recipient of the $1 million gift, does not have to pay any tax on the gift, because gifts are not included as taxable income to the recipient.
The Unlimited Marital Deduction And Portability
The federal unlimited marital deduction provides that an individual may transfer an unlimited amount of assets to his or her spouse at any time, in life or at death, free from any tax (including gift and estate tax).
The concept of estate tax exemption portability allows a surviving spouse to use a deceased spouse’s unused estate tax exemption (up to $5.34 million in 2014).
In marriages, the unlimited marital deduction and estate tax exemption portability may be used in tandem to protect marital assets from estate taxes.
For example, suppose Henry and Anne are married. Henry dies in 2013 (when the estate tax exemption was $5.25 million), leaving all of his assets to Anne. Because of the unlimited marital deduction, Henry’s 2013 testamentary bequest to Anne is tax-free for both parties; neither Henry’s estate nor Anne are taxed on this bequest at all in 2013.
If Anne then dies in 2014, federal estate tax portability rules provide that both spouses’ combined estate tax exemptions may be used, so that $5.25 million (2013 federal estate tax exemption amount for Henry) + 5.34 million (2014 federal estate tax exemption amount for Anne) = $10.59 million total combined estate tax exemption could be utilized by the couple’s estate, which would shield $10.59 million of Anne’s bequest to her heirs from estate taxes at Anne’s death.
In order to take advantage of portability, a federal estate tax return must be filed at the first spouse’s death, even if not otherwise required.
Estate planning for large estates typically takes full advantage of both spouses’ estate tax exemptions. In addition to portability, this could also be done, for example, by funding a Family Trust at the first death using the estate tax exemption amount of the first-to-die spouse, then utilizing the unlimited marital deduction to protect the transfer of the remaining assets to the surviving spouse. The Family Trust, which may benefit the surviving spouse, can pass to the heirs without tax at the death of the surviving spouse.
Tax-Exempt Gifts
In addition to the annual gift tax exclusion, the following types of gifts are tax-exempt. The taxpayer may make unlimited gifts of any amount to these categories without any gift tax or estate tax consequences, and without having to file gift tax returns:
Gifts to IRS-approved charities
Gifts to a spouse (if the spouse is a U.S. citizen)
Gifts made to cover another person’s medical expenses (must be made directly to the medical service providers)
Gifts covering another person’s tuition expenses (must be made directly to the educational institution).
Understanding how the federal government treats gift and estate taxes should allow the taxpayer to make better gift planning and estate planning choices.
Please contact us with any questions and to learn how we can help with your estate planning in Winston-Salem, North Carolina.
Sources:
Estes and Estes, Estate and Gift Taxation, http://www.estesandestes.com/Estate_and_Gift_ Taxation.html
Internal Revenue Service, Gift Tax, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Gift-Tax
David Joulfaian, U.S. Department of the Treasury, Tax Topics: Federal Estate and Gift Tax, Urban Institute and Brookings Institution Tax Policy Center, http://www.taxpolicycenter.org/publications/url.cfm?ID=1000526
Arleen Richards, The Difference Between Estate Taxes and Gift Taxes, The Epoch Times (Jan. 29, 2013), http://www.theepochtimes.com/n2/life/the-difference-between-estate-taxes-and-gift-taxes-334217.html
U.S. Trust, Portability of a Deceased Spouse’s Unused Exclusion Amount, http://www.ustrust.com/Publish/Content/application/pdf/GWMOL/UST-WSR-Portability-of-estate-tax-exemption.pdf
CATEGORIES: Elder Law, Elder Care Attorney, Senior Safety, Elder Financial Abuse, Estate Planning, Winston Salem, North Carolina, NC.
Katsu and Charles Bradley of Tacoma, Washington, owned their own home and enjoyed ample savings for their retirement. Later, when they could no longer live on their own because of advanced dementia, the family hired Norma Cheesman to be a live-in caregiver.
The Bradleys’ daughter, Caroline Moye of Seattle, reported that Cheesman “took everything” her parents had worked and saved for their entire lives. “In a matter of 10 months, she made my parents homeless and penniless.”
The prosecutor in King County, Washington, reported that Cheesman convinced 86-year-old Charles Bradley to give her power of attorney, name her as the beneficiary of his estate, disinherit his wife, and purchase the house Cheesman was living in for her. Cheesman also orchestrated a reverse mortgage on the Bradleys’ home and used that to fill the Bradleys’ bank accounts with several hundred thousand dollars in cash, which she stole. (Source: NBC News 2014)
The Crime of the 21st Century
Atlanta attorney Kristen M. Lewis names it “The Crime of the 21st Century.” And it has already earned its own acronym: Elder Financial Abuse (EFA). The money involved is enough to run a small country: estimated annual losses to U.S. older citizens run $2.9 billion annually.
As Ms. Lewis reports, one out of every six adults over age 65 has been a victim of EFA, with women twice as likely as men to be victims. Financial exploitation accounts for up to 50 percent of all forms of elder abuse, and is the third most frequent type of elder abuse following neglect and emotional or psychological abuse.
The elderly are vulnerable to this crime for many reasons. Alzheimer’s disease and other dementias that impair judgment increase significantly with age. The National Institutes of Health has determined that increasing age causes physiological changes to the brain that diminish older people’s ability to assess the trustworthiness of potential predators. Because localized multi-generational families are no longer common in our mobile American society, elders are becoming socially isolated, with almost one-third of non-institutionalized elders living alone. Unfortunately, this means that there are fewer people in an elder’s life who can reliably detect EFA.
According to Ms. Lewis, perpetrators of EFA include:
Both strangers and people that the elder knows;
family, friends, and neighbors;
in-home caregivers;
people acting as agents under powers of attorney or as guardians or conservators;
business, professional, and financial service providers.
Ms. Lewis notes that in their estate planning work with elders, attorneys must guard against one of the most insidious forms of EFA—financial abuse from people that the elder knows personally, or from people within the elder’s own family. Elders report financial abuse from strangers much more often than financial abuse by people they know, because of the shame that an elder commonly feels when he or she is victimized by someone familiar. In addition, the elder may not report EFA from a family member because she does not want her family member to go to jail or face public embarrassment. She may believe that admitting she is vulnerable will result in being placed in a nursing home.
Estate Planning Approaches to Combat EFA
According to Ms. Lewis, preventative “legal” approaches that address the problem of EFA within estates include 1) using more than one agent, or co-agents, in the durable power of attorney for property document designed to take care of an incapacitated elder client’s business and legal affairs; 2) requiring annual accountings of estate financial records; 3) placing most of the elder’s assets in a Revocable Living Trust (RLT) and having the trustee that takes care of the medical and personal needs of the client also control the funds within the living trust; 4) utilizing a detached, non-family, third party trustee, such as a trustee from a bank, to serve as the RLT trustee. This trustee may also serve with another professional co-trustee, such as an attorney with duties to act in the best interests of the client.
Although any of the legal approaches that Ms. Lewis outlines may be important, attorneys must not overlook a more fundamental approach to preventing EFA, related to requiring annual estate accountings but more expansive.
Borrowing From the Corporate Sector: Incorporating Financial Transparency Into the Elder’s Private Estate
Abusers of all types, including financial abusers, are like vampires— they cannot survive the light of day. Our free market corporate financial system has understood this for a long time. The business term “financial transparency,” according to the Securities and Exchange Commission (SEC) definition, “means timely, meaningful and reliable disclosures about a company’s financial performance.” It is a crucial requirement for informed investment in companies. It is also necessary for exposing, and therefore preventing, fraud and other forms of corruption.
The alert estate planning attorney does not always have to reinvent the wheel when developing effective techniques to guard against EFA. Borrowing from tested concepts fundamental to our financial system, estate planning attorneys should strive to develop greater financial transparency in their elder clients’ private estates to help guard against EFA. In the case of private estates, greater financial transparency will not result from disclosure of financial records to the public, but will instead result from periodic disclosure to, and monitoring of the records by, a CPA firm, disclosure to the elder’s estate planning attorney, and disclosure to appropriate stakeholders within the family who may be pre-selected by the elder client.
Estate planning attorneys understand that the most effective tools needed to assist their clients are not always legal tools. In helping elder clients, the estate planning attorney should strongly consider working with the client’s CPA firm (or helping the client to find an appropriate CPA firm) to ensure that a fundamental, appropriate filing and bookkeeping system is installed or maintained in the client’s home, or where the elder’s financial records are kept. This is an essential first step to bringing financial transparency, and its ability to prevent theft of assets, to the elder client’s private estate. But fortunately, installing a more professional recordkeeping, filing, and bookkeeping system in an elder’s home need not be difficult.
As communication and computer technologies have progressed, more professionals are working flexibly out of home offices and are willing to visit clients where they live. As a result, professionals such as secretaries, bookkeepers, and even CPAs who are willing to help reliably manage and maintain home finances on site are available for reasonable fees.
A typical arrangement would include a lower-cost secretary or bookkeeper (with a solid résumé and good references) helping the elder get his financial records and files in order, then setting up the accounting on a computer accounting program such as QuickBooks ®. The information keyed into the accounting program can be shared with a CPA firm at a pre-set interval, such as monthly or quarterly, where an off-site accountant or CPA looks over the figures and makes any accounting adjustments necessary.
Professionals and families should not avoid this approach, thinking that it is too expensive. The secretary or clerical worker needed to manage files and input data often costs less monthly than the expense of a housekeeper. Accounting firms can typically deal efficiently with QuickBooks data from home accounts, and keeping the records and accounting accurate on an ongoing basis may make year-end accounting and tax preparation much simpler and less expensive.
In this way, getting unbiased outside third parties into the elder’s home to keep the books, monitored by a CPA who must follow a strict code of ethics and who is trained to spot financial irregularities, can provide a strong deterrent to the type of financial crimes plaguing elders. Having this type of oversight is like installing an alarm system in a home—most criminals, when confronted with the signage and warnings of an alarm system, will look for easier pickings. Likewise, it is only a more hardened—and rarer—criminal that would risk taking funds from an elder’s estate that is being tracked by a bookkeeper and monitored by a CPA.
An attorney who desires even greater financial oversight of his client’s estate may utilize other existing financial tools. For mid-size or larger estates, the attorney may require in the estate documents that a CPA perform a reasonably priced annual “compilation,” where the CPA prepares financial statements from the client’s financial records to help ensure financial transparency. For larger estates, an attorney could draft into the estate documents a requirement that a CPA firm prepare annual “reviewed” financial statements which require greater CPA inquiry into the client’s accounts and records, but which also may cost significantly more. Annual audits may not be needed except in very large or complex estates, as they may come with a significant price tag.
Any annual financial reports required by the estate planning documents should be evaluated by other professionals in addition to those at the CPA firm, such as the estate planning attorney, any involved outside trust officers, and key stakeholders within the family pre-selected by the client. With all of these trained or interested eyes watching the elder’s estate, opportunities for EFA may be significantly limited.
Ongoing professional maintenance of the estate may even convey additional benefits. Sarah Chisholm, a Texas CPA and corporate chief financial officer with both public company audit experience and private estate experience, states, “Ongoing maintenance of a private estate’s accounts by an unbiased licensed professional such as a CPA or estate attorney allows for an accurate valuation and location of all of the estate’s assets during the estate’s existence, and at the time of estate settlement.”
Attorneys who work with elders should recognize that a holistic approach may meet their clients’ needs best. In addition to drafting appropriate estate planning documents, estate planning attorneys should recognize that theirs is a “peace of mind” profession which may require additional client support after the documents are drafted. Estate planning attorneys are in an excellent position to work with other professional colleagues such as CPAs to ensure that their elder clients will not become victims of EFA. Elders should select an estate planning attorney who will employ a broad level of understanding to meet their needs.
Please contact us with any questions and to learn how we can help with your estate planning in Winston-Salem, North Carolina.
References:
Kristen Lewis, The Crime of the 21st Century: Elder Financial Abuse, American Bar Association Probate & Property Magazine. Vol 28, No. 04. July-August 2014
Categories: Estate planning, elder law, Winston Salem, North Carolina, NC.
Estate Planning is not just for wealthy people with lots of assets. Individualized, professional estate planning may provide the following 10 benefits to anyone:
Assures that your hard-won savings and assets will be passed down correctly to the loved ones that you designate, while shielding as many assets as possible from taxes, court costs, and unnecessary legal fees (Will, Trust, Living Trust)
Provides for the care and well being of any loved ones left behind (Will, Trust)
Allows you to choose a guardian to care for your children in your absence, and to choose a responsible adult to take care of their legal and business affairs (Will, Trust)
Provides for family members with special needs without disrupting their government benefits (Will, Trust, Special Needs Trust)
Provides for the transfer of your business at your retirement, disability, or death (Will, Trust, Business Succession Plan)
Allows you to choose a trusted adult to make your medical decisions for you in case you become seriously ill (Durable Power of Attorney for Healthcare)
Allows you to choose a trusted adult to take care of your legal and business affairs in case you become seriously ill (Durable Power of Attorney)
Provides that physicians will share important information about your medical conditions with the individuals whom you have selected to make your health care, business, and legal decisions for you (HIPAA Document)
Allows you to choose how you will be treated by healthcare facilities at the end of life, and what actions may or may not be taken to extend your life (Living Will)
Allows you to designate how you want your body to be treated after you are gone, and what funeral or memorial arrangements you may or may not want (Will, Letter of Personal Instruction)
No adult should leave these essential rights and benefits to chance. Life is uncertain — the best time for estate planning is now.
Please contact us with any questions and to learn how we can help with your estate planning in Winston-Salem, North Carolina.
Why every adult needs a living will and a health care power of attorney
Terri Schiavo collapsed in her St. Petersburg, Florida home after a massive heart attack on February 25, 1990. Because of a lack of oxygen, she suffered extensive brain damage and after two and one half months in a coma physicians ruled that she was nonresponsive and in a vegetative state.
Unfortunately, Ms. Schiavo had not previously conducted any formal estate planning and had neither a Health Care Power of Attorney nor a Living Will. Because her actual wishes were unclear, Ms. Schiavo was kept alive in a persistent vegetative state (PVS), while never improving, for 15 additional years despite formidable legal attempts by her husband to allow her to die a natural death.
Nightmare Government Involvement
For any citizen who cringes at the thought of government intervention into private life, this case remains an absolute nightmare. The courts eventually involved included all levels of the Florida courts up to the Florida Supreme Court and the Federal Appeals Courts, and they entertained challenges from a host of entities claiming to represent Terri’s interests, including the Florida legislature, Florida Governor Jeb Bush, various disability rights groups, the U.S. Congress, and President George Bush.
What exactly went wrong here?
Terri’s Husband, Michael Schiavo, who claimed that he knew that Terri would not want to live for an extended period in a persistent vegetative state, tried to serve as Terri’s sole legal representative determining Terri’s wishes. But because Terri had not executed a Health Care Power of Attorney formally giving Michael sole authority to make Terri’s health care decisions if she became incompetent, the courts ruled at various times that other parties, including Terri’s parents, could also represent Terri’s wishes. Indeed Terri’s parents maintained that their Catholic Church beliefs were also Terri’s beliefs, and that Terri would not want to violate the Church’s teachings against euthanasia (intentionally ending a life in order to relieve pain and suffering.)
Terri Schiavo still could have made her own wishes formally known in a way protected by the Florida courts if she would have executed a proper Living Will. Indeed, in 1990, the Florida Supreme Court had ruled in Guardianship of Estelle Browning that because elderly Estelle Browning had expressed in a Living Will her wish not to be kept alive by artificial means including a feeding tube, that Browning had “the constitutional right to choose or refuse medical treatment, and that right extends to all relevant decisions concerning one’s health.”
Good Lawyering Cannot Undo Bad Planning
Michael Schiavo hired the same noted Florida attorney who had argued the 1990 Guardianship of Estelle Browning case before the Florida Supreme Court, George Felos. Felos argued to a January, 2000 Pinellas (Florida) County Court that Terri Schiavo would not want to be kept alive artificially when her chance of recovery was miniscule. Felos won the initial case, but, even with the prior Browning decision, because Terri Schiavo had not executed a formal Living Will document expressing her actual wishes, Michael Schiavo’s attorneys could not successfully stave off the multitude of court challenges seeking to keep Terri Schiavo on life support for almost five more years.
Preventing Problems
The goal of all legal planning should be to prevent problems. Preventing problems is always less expensive than fighting a battle in court, and is much more predictable and much less harrowing for the client.
If, because of poor legal planning, one of the parents in a family is kept alive beyond her actual wishes, what would the cost of the additional medical expenses and additional legal bills do to a typical family? These costs could be devastating, and could quickly wipe out an estate as well as wipe out the plans that the parent intended.
North Carolina Recognizes the Living Will and the Health Care Power of Attorney
North Carolina law provides two methods for an adult to make his or her health care wishes known in advance–the Living Will and the Health Care Power of Attorney.
An adult may use a Living Will to communicate to her doctors that she does not want to be kept alive by extraordinary medical treatment or by artificial nutrition or hydration if she is terminally ill or in a persistent vegetative state. An adult may use a Health Care Power of Attorney to appoint someone to make his medical decisions if he is unable to make them himself. Because each of these documents has a different purpose, the best estate planning practices include both the Living Will and the Health Care Power of Attorney to be used in tandem. All North Carolina adults should utilize the Living Will and the Health Care Power of Attorney as part of a comprehensive estate planning process.
Please contact us with any questions and to learn how we can help with your estate planning in Winston-Salem, North Carolina.
Author Biography
Vance R. Parker practices elder and special needs law, and estate planning law at Vance Parker Law, PLLC in Winston-Salem, North Carolina. He is a member of the National Academy of Elder Law Attorneys (NAELA), ElderCounsel, The North Carolina Bar Association Elder and Special Needs Law Section, the North Carolina Bar Association Estate Planning and Fiduciary Law Section, The North Carolina Bar Association Real Property Section, the Financial Planning Association (FPA), and is accredited to practice before the Department of Veterans Affairs (VA.)
Vance holds Doctor of Jurisprudence (JD), Master of Business Administration (MBA), and Bachelor of Arts (BA) in Biology with Honors degrees from the University of Texas at Austin, and holds a Master of Arts in Teaching (MAT) degree from Salem College, Winston Salem, North Carolina.
Vance has a particular passion for elder and special needs law. As an honors biology graduate at the University of Texas at Austin, and a former biomedical company executive, he understands the medical conditions that seniors and special needs individuals face. “I practice elder and special needs law to honor my parents and grandparents, whose quiet integrity and wisdom still guide my life, and whose love never fades,” he says.
Vance gained inspiration for his special needs focus within his legal practice from the special needs students he assisted while teaching Honors Chemistry, Biology, and Scientific Visualization in the Forsyth County and Guilford County, North Carolina public school systems.
The readers of Triad City Beat magazine voted Vance Parker Winston-Salem, North Carolina’s “Best Family Law Attorney” and Vance Parker Law, PLLC “Best Law Firm–Runner Up” in its 2020 “Best of the Beat” reader poll. The Better Business Bureau of Northwest North Carolina rates Vance Parker Law, PLLC “A+.”
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Whenever I draft wills for a young couple expecting their first baby, or for a couple who already have at least one child, I always set up a children’s asset protection trust for them within the will documents. In case the parents pass away before their children have finished their education, or in case the parents become incapacitated so that they can no longer financially care for their kids, the parents always want to plan for a responsible adult family member or friend to manage their children’s assets for them as trustee of the children’s asset protection trust, in a way where the assets of the children’s trust will be protected against any possible future liability, creditor, or financial problems encountered by one of their children.
You love your pet as a member of your family, but what might happen to your dog or cat if you couldn’t be there for him or her? Unfortunately, many pets from senior owners end up at North Carolina animal shelters, after their owners either become ill or pass away.
According to a study by the RAND Corporation, an estimated 5.5 million family caregivers provide care for ill or disabled veterans in the United States. That’s 5.5 million people who are sacrificing time, energy, and money to provide care for veterans they love, as these veterans recover or age.
CATEGORIES: Elder Law, Medicaid Planning, Crisis Planning, Advance Planning, Asset Protection, Trusts, Nursing Home, Long Term Care, Elder Care Attorney, Medicaid Estate Recovery, Winston Salem, North Carolina, NC.
CATEGORIES: Elder Law, Medicaid Planning, Crisis Planning, Advance Planning, Asset Protection, Nursing Home, Long Term Care, Elder Care Attorney
CATEGORIES: Elder Law, Medicaid Planning, Crisis Planning, Advance Planning, Asset Protection, Nursing Home, Long Term Care, Elder Care Attorney, Medicaid Estate Recovery
CATEGORIES: Elder Law, Elder Care Attorney, Senior Safety
When you choose beneficiaries for your IRA account, you insure out-of-probate transfers to those beneficiaries when you die.
CATEGORIES: Elder Law, Elder Care Attorney, Senior Safety
Categories: Estate planning, asset protection, trusts, Winston Salem, North Carolina, NC.
Categories: Estate planning, special needs trusts, Winston Salem, North Carolina, NC.
CATEGORIES: Elder Law, Elder Care Attorney, Senior Safety
Even though Prince, the master showman and electric guitar virtuoso, appreciated the big stage, he probably would not have liked the drama following his death becoming a stadium spectacle. Following his tragic death, hundreds of claimants, including his own half-siblings, their smiling lawyers, lovers that no one ever knew about, and love children of lovers that no one ever knew about, have come forth, seeking a part of Prince’s potential $500 million estate. The claims have gotten so out-of-hand in Minnesota that a judge has ordered Prince’s blood to be genetically sequenced, in order for the courts to start eliminating some of the false heirs.
CATEGORIES: Elder Law, Elder Care Attorney, Estate Planning, Winston Salem, North Carolina, NC.
CATEGORIES: Elder Law, Elder Care Attorney, Senior Safety
Categories: Estate planning, revocable trust, trusts, marital trust, elder law, Winston Salem, North Carolina, NC.
Categories: Estate planning, revocable trust, trusts, living trust, elder law, Winston Salem, North Carolina, NC.
Singles must plan carefully for retirement, because they do not typically have another income-earner in the family who can help out.
As Amazon.com gains market share each holiday season, we keep observing the Internet offering faster, better, and cheaper solutions for the goods and services that we purchase.
Fortunately, where the primary residence is sold and it was the principal residence for two of the last five years before the sale, individuals may typically exempt up to $250,000 in federal capital gains taxes. Couples may typically exempt up to $500,000 in capital gains taxes under these conditions.
A private foundation is a freestanding legal entity which can be 100% controlled by the donor. The donor, and anyone he chooses to advise him, fully decide how the money is invested.
Categories: Elder law, Winston-Salem, NC.
Categories: Estate planning: Elder law, Winston Salem, North Carolina, NC.
Categories: Estate planning, elder law, trusts, probate, Winston Salem, North Carolina, NC.
Categories: Estate planning, elder law, wills, Winston Salem, North Carolina, NC.
Categories: Estate planning, trusts, elder law, Winston Salem, North Carolina, NC.
One Family’s Tragic Story
Why every adult needs a living will and a health care power of attorney