2008 Frequently Asked Questions:
1. Define the term "legacy."
2. Where should I keep my Will?
3. How can a motor vehicle be transferred to a Surviving Spouse?
4. My adult child takes care of me so that I can stay in my own home. Should we have a contract?
5. I want to loan money to my adult daughter. Should we have a contract?
6. My wife handles the finances and I'm clueless. What do I need to know incase she is
ever unable to continue managing the finances?
7. What is a Revocable Living Trust and who needs this type of estate plan?
8. Who should consider having Power of Attorney documents created for them?
ANSWERS: 2008
Define the term "legacy."
Leg-a-cy \’le-g?-se\ n.
The 10th edition of Merriam-Webster’s Collegiate Dictionary defines “legacy” as a gift by will especially of money or other personal property. This is a start, but what really does legacy mean and why is it important? Legacy is the connection between the past, the present, and the future. It is includes one’s responsibility towards future generations and is shaped heavily on a person’s past experiences. To a child, an adult’s legacy may create a sense of security and continuity because it can show that a person cared about them. To an adult, a loved one’s legacy may show hope because it can make the future much brighter than the past. A positive legacy consists of many elements, but comprehensive estate planning, including planning for disability and the care of minor children is essential. If you are concerned about creating a positive legacy for yourself and your loves ones, please consult with an estate planning professional.
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Where should I keep my Will?
You have taken the time to meet with an attorney to have a Will prepared for yourself. You have reviewed your Will and found it to be acceptable. You have signed your Will and now, almost done, you ask the question “so, where should I keep my Will?” You are right to ask this question because the Will should be stored in a safe place. Often, people store their Will in a safe deposit box. This is a safe place, but your family may need a court order to gain access to the box after your death which could result in delay in resolving your affairs. We recommend that you store your Will in a fireproof box in your home or, for a nominal fee, file it with the Probate Register’s Office in the county in which you reside. It is also important to let your family members know the location of your Will.
How can a motor vehicle be transferred to a Surviving Spouse?
A surviving spouse may transfer up to five motor vehicles that were solely owned by his or her deceased spouse without the need to begin a probate administration or other court action. A copy of the death certificate will not be required if the decedent was a Wisconsin resident and the death occurred in Wisconsin. A surviving spouse that would like a motor vehicle to be titled in his or her name must file (1) a Statement of Transfer of Vehicles to a Surviving Spouse or Surviving Heir (Form MV2300), (2) a Certificate of Title for the motor vehicle, (3) a Wisconsin Title and License Plate Application (Form MV1), and (4) $62 transfer fee with the Wisconsin Department of Motor Vehicles.
My adult child takes care of me so that I can stay in my own home. Should we have a contract?
It is wise to have a Contract called a “Caregiver Agreement” for several reasons. If you have an Agreement, the payments to your child for services shouldn’t be considered a gift, if you ever have to apply for Medicaid. Without the Agreement, your application for Medicaid may be delayed for months because the funds you paid your child will be considered gifts. A penalty period must be served if any gifts are given within 5 years of applying for Medicaid. An Agreement can also prevent a dispute between your children if the Agreement clearly explains the types of services you are receiving and the payment is reasonable. You should be able to prove that the payments are reasonable by comparing the cost of hiring someone else from a private agency to the amount you are paying your child. The Agreement should be drafted by an elder law attorney who is very familiar with the recent changes in Medicaid law and recent rulings on Caregiver Agreements.
I want to loan money to my adult daughter . Should we have a contract?
Be aware that loans between family members can create tension in the relationship, especially if the loan isn’t repaid. Think about how you will feel if a payment is late or skipped or if you aren’t repaid at all. If you decide that you can trust your daughter to repay the loan, you should still have her sign a properly drafted Promissory Note with the correct interest rate and repayment schedule. The use of the correct interest rate and a payment schedule will assure that the loan is not considered a gift for tax reporting purposes. The minimum interest rate you should charge is calculated using the Applicable Federal Rates (AFR). The length of the loan will determine the correct AFR. You should also consider whether or not you will want your daughter to pay any unpaid balance to your estate, if you die before she repays the entire loan amount. You may need to amend your estate plan to clearly say how the unpaid balance should affect her share of the estate.
My wife handles the finances and I'm clueless. What do I need to know incase she is ever unable to continue managing our finances?
Don’t wait another minute. At a minimum, you should begin by finding out where she keeps ALL of the records. If the records are in different locations or if they are unorganized, help her get them organized and ask her to make a list for you of all of the assets and bills. Be sure to obtain passwords and contact names, if she uses online banking or communicates with financial advisors via online methods. Next time your wife meets with a financial advisor, insurance agent or attorney attend those meetings with her. Learn the language they are speaking. If you don’t know where documents are located, you may fail to claim assets. If you don’t know the schedule for monthly, quarterly and annual payments, you may fail to pay important bills and incur late fees or worse yet, allow an important insurance policy to lapse. If you don’t know the basics of investing or estate planning you may end up paying unnecessary fees. Of course, this same advice applies if the husband usually handles the couple’s finances.
What is a Revocable Living Trust and who needs this type of estate plan?
A Revocable Living Trust (RLT) is a type of Estate Plan document that effectively transfers your assets to your intended heirs without the cost of probate related fees and is most often used when an individual or couple owns real estate in more than one state. Other advantages include; privacy and the avoidance of litigation regarding guardianship, when used in combination with the appropriate power of attorney documents. An RLT works best when the attorney who drafts the documents assists the client in transferring the assets to the name of the RLT. If the assets aren’t transferred into the RLT, the RLT is not “fully funded” and will not prevent Probate Court involvement. A Revocable Living Trust is a great cost saving strategy, whenever it is “fully funded”.
Who should consider having Power of Attorney documents created for them?
Anyone who is eighteen (18) years of age or older. Anyone can become incapacitated due to an illness or accident. The Financial Power of Attorney and Healthcare Power of Attorney documents can prevent lengthy and costly court proceedings, if you are ever unable to make your own financial or healthcare decisions. Even if you don’t have a Will or Trust, you can have these documents created.
1. Every year I make a New Year's Resolution to make an Estate Plan but I never actually do it because I don't know where to begin. How do I get started?
2. My spouse and I didn't have a Pre-Nuptial Agreement and now we wish we had done one because we both have children from a prior marriage and we want to leave assets to each of our own children. In addition, my spouse has prior debt. Is it too late?
3. What do I have to do to "get my house in order?"
4. Why do some people try to "avoid" probate?
5. My elderly parents have done some estate planning but I’m sure their documents are over 10 years old. What can I say to them to encourage them to have their documents reviewed and updated?
6. I just completed my Will. How often should I review it?
7. What is a letter of last instruction and do I need one?
8. I am trying to plan for long term care expenses. What should I consider?
9. Could including someone as a beneficiary ever create a problem for that person?
10. Do I need to update my beneficiary forms, even if I just created a new Will?
11. I have usually given gifts of about $12,000 per year to my two childrent because there are no tax consequences. Are there any other problems I could face if I give that amount this year?
Every year I make a New Year's Resolution to make an Estate Plan but I never actually do it because I don't know where to begin. How should I get started?
January 2007
It isn’t as difficult, costly, or time consuming as you may imagine. You should contact an Estate Planning attorney and request an initial consultation to determine exactly which documents you’ll need and the cost. (Our office offers a free, 30-minute, initial consultation.) After that initial meeting, you should be able to complete the process with 1-2 more meetings, if your estate plan is “typical”. The total cost depends on the complexity of your estate plan. However, most attorneys charge a “flat fee” for estate planning services and should be able to quote a “flat fee” by the end of your initial meeting. There shouldn’t be any surprises regarding the fees.
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My spouse and I didn't have a Pre-Nuptial Agreement and now we wish we had done one because we both have children from a prior marriage and we want to leave assets to each of our own children. In addition, my spouse has prior debt. Is it too late?
February 2007
Absolutely not. You and your spouse can enter into a Marital Property Agreement to reclassify your assets anytime during your marriage. You’ll need to specify exactly which assets you wish to classify as each spouse’s individual property. With careful drafting, this reclassification can apply to assets acquired before or during the marriage. Reclassifying debts is more complex. If one purpose of your Agreement is to protect yourself from your spouse’s pre-marriage debts, the safest approach would have been to enter into the Agreement before your marriage to be sure the debts were classified as the individual responsibility of your spouse. However, if you enter into a Marital Property Agreement now, the pre-wedding debts will likely be considered “marital” and the responsibility of both spouses, especially if the debts have been consolidated with other debts. Even so, you and your spouse may find it useful to classify future debts (including interest and penalties on “old” debts) as the sole responsibility of the debtor spouse as a way of limiting the damage.
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What do I have to do to "get my house in order?"
March 2007
Initially, you’ll want to focus on completing the basic estate planning documents. Everyone’s “Plan” should include a Financial Power of Attorney, a Power of Attorney for Health Care and one of several types of wills or trusts. Next, you’ll need to complete your beneficiary forms to be sure they coincide with your estate planning documents. Finally, it is smart to collect all of your important documents and store them in a safe place that your personal representative or trustee can easily find. If you complete these three steps your “house will be in order”.
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Why do some people try to "avoid" probate?
April 2007
“Probate” is the court supervised process of settling an estate. The process can be time consuming, usually involves publication of the case in a local newspaper and is more costly than other methods of estate administration due to the probate fees and legal fees. In some cases, court involvement is helpful such as when family members are unable to communicate without fighting. The court official will issue an order to settle the dispute, if necessary. If, however, your family members or other heirs get along with each other and are able to cooperate, you should consider using the many “probate avoidance strategies” that are available for estates of any size.
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My elderly parents have done some estate planning but I’m sure their documents are over 10 years old. What can I say to them to encourage them to have their documents reviewed and updated?
May 2007
You could tell them that laws affecting most estate plans have changed significantly in the past 10 years. More specifically, marital property laws, tax laws pertaining to retirement benefits, laws pertaining to Medicaid benefits, and laws affecting estate taxes on both the federal and state level, have all changed in ways that affect most people. You could also explain that new techniques have been developed to reduce or eliminate court involvement in estate settlement. If neither of these approaches is effective, consider setting a good example by having YOUR plan reviewed and updated.
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I just completed my Will. How often should I review it?
June 2007
A good rule of thumb to keep in mind when thinking about your will's "shelf life," is to pull it out for review whenever your family, economic sitiation or health changes. You will also want to review it if the tax or property laws change, or if you move to another state. For most people, a review of their will every three to five years will help to make sure that it continues to meet their estate planning objectives.
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What is a letter of last instruction and do I need one?
July 2007
A letter of last instruction is a way for you to communicate to your loved ones thoughts about your life and family, special wishes about your funeral arrangements, instructions for the care of your pets and other information that is not appropriate to put into your will. Although it is not binding and cannot take the place of your will, it is a good idea to prepare a letter of last instruction because it can make administering your estate easier for your loved ones. Your letter of instruction should be kept in an accessible place.
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I am trying to plan for long term care expenses. What should I consider?
August 2007
Whether you are planning for the long term care expenses of a child or an adult, you’ll need to be very familiar with the rules related to Medicaid. Medicaid is the federal government program which funds medical expenses for a person with less than $2,000 in non-exempt assets. The rules regarding Medicaid have changed dramatically as a result of the passage of The Deficit Reduction Act of 2005. Wisconsin will be adopting new procedures, within the next few months, to conform to the federal law changes. So, before you engage in any of the following planning strategies, you should consult an Elder Law attorney about the new rules; gifting to children, purchasing long term care insurance, converting accounts to joint accounts, purchasing annuities, gifting to charities, and/or transferring assets to a Trust.
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Could including someone as a beneficiary ever create a problem for that person?
September 2007
It sounds like a strange questions. Who would ever think of an inheritance as a problem? Well, it can actually be a problem in certain situations. It is possible for an inheritance to cause a disabled person to lose medical/disabilitly benefits temporarily or permanently. If a person is receiving Medicaid, he or she can only have $2,000 in non-exempt assets. Another person who may not need or want an inheritance is a single person who has been trying to redue his or her gross estate to avoid estate taxes. Your bequest might convert an estate that could have been exempt from taxes into an estate that will owe thousands in estate taxes. It is possible to "fix" these problems but the solutions involve extra costs. So, be sure that people you name as beneficiaries will actually benefit from the inheritance.
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Do I need to update my beneficiary forms, even if I just created a new Will?
October 2007
Yes, especially if you own any tax-deferred assets. Remember, your beneficiary form is a contract with the account holder that the account holder must follow, no matter what your will says. Your new will doesn’t override that contract. By updating your beneficiary forms to include the correct language for tax-deferred assets (e.g. IRA accounts) you could be increasing the value of the inheritance by thousands of dollars. If the beneficiary form is completed correctly and your will includes language that prevents a lump sum payout of tax-deferred funds, your beneficiaries will be able to “stretch” the payout over many years and avoid being charged income taxes immediately upon your death.
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I have usually given gifts of about $12,000 per year to my two childrent because there are no tax consequences. Are there any other problems I could face if I give that amount this year?
November 2007
You’re right. You can give up to $12,000/year to an individual without a tax consequence to you or the person receiving the gift under IRS rules. However, since the rules regarding Medicaid have changed dramatically, a gift of any amount could cause a period of ineligibility if you need Medicaid. The new look-back period is 5 years. If you want to give gifts and you don’t have enough money to pay for nursing home care for at least 5 years, talk to an elder law attorney before gifting.
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2006 Frequently Asked Questions:
1. One of my New Year's resolutions is to complete a will. How do I get started?
2. Congress just passed the Debt Reconciliation Act of 2005. How will this change in the laws regarding Medicaid affect families with and elderly or disabled family member?
3. Are life insurance benefits a "tax free" asset?
4. If I'm in business with only one other Member, do I really need an operating Agreement?
5. My elderly mother is considering gifting some of her assets to me. If she gives me some large gifts three years before she applies for Medicaid, will she be able to get medicaid if she has less than $2,000.00 in assets when she applies?
6. Since the medicaid rules now have a five year "look back period" - the period of time when gifts would disqualify a person from Medicaid, do you have any suggestions for a person who wants to protect assets and leave an inheritance to his/her children?
7. How are annuities treated now under the new Medicaid law? Are annuities a good strategy to protect assets?
8. Is it ever advisable for a parent to co-own property with a child or several children?
9. What is the biggest change in the laws related to Estate Planning, in recent years, that could effect a person's estate plan?
10. What is the best time in a person's life to create a Will and Power of attorney documents?
11. I'm a single person. if I want to give large gifts (money or other assets), I can give up to $12,000/year to each person. Is that correct? What happens if I give more than $12,000?
ANSWERS: 2006
One of my New Year's resolutions is to complete a will. How do I get started?
January 2006
First, call a few attorneys (listed in phone book or online under category “Estate Planning” or “Elder Law” and ask about their fees and their years of experience in these areas of law. Most experienced attorneys in Dane County and the surrounding counties charge a “flat fee” (a set amount for each document or set of documents) if the client’s situation is uncomplicated. Next, assemble your financial records. The records you’ll need to assemble are the same records you gather for your accountant and/or financial planner each year around this same time. Finally, when you meet with the attorney don’t be afraid to ask questions and express your goals for your estate plan. Most importantly, take the first step and don’t let this year’s resolution find its way onto your next year’s list.
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Congress just passed the Debt Reconciliation Act of 2005. How will this change in the laws regarding Medicaid affect families with and elderly or disabled family member?
February 2006
The new law will affect the “look back period” if a disabled person gifts assets to someone within 5 years of applying for Medicaid. The prior rule had a “look back period” of 3 years for assets, unless the assets were in a trust. The new law will also affect when the “period of ineligibility” begins. The new law says that the “period of ineligibility” begins on the date the person enters the nursing home. The prior rules said the “period of ineligibility” could be calculated from the date the gift was given. Both of these changes will have a dramatic effect on elderly, disabled persons, nursing home providers and many others who work with the elderly and disabled. If you are concerned about these issues, you’ll want to discuss your individual situation with an elder law attorney.
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Are life insurance benefits a "tax free" asset?
March 2006
Many people purchase life insurance with the misconception that the entire “death benefit” will be paid to the beneficiaries “tax free”. The reality is that, while the death benefits are not taxed under income tax laws, the benefits ARE included in a person’s “gross estate” and may be subject to estate taxes. If your “gross estate” (including your life insurance death benefits) is over $675,000.00, your estate may be subject to estate taxes. Before you become too concerned you’ll want to determine if your estate qualifies for charitable deductions or other deductions that would lower the size of your estate below the $675,000.00 amount. I’d advise you to discuss this issue with your accountant to determine if your estate would be taxed and then speak with your estate planning attorney to be sure your documents include tax planning strategies.
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If I'm in business with only one other Member, do I really need an operating Agreement?
April 2006
An Operating Agreement is a very useful tool if you are in business with even one other Member. The Operating Agreement will provide solutions when disputes arise and prevent needless litigation. Every business should have a plan in place in case one of the Members becomes disabled, goes through a divorce and/or dies. Without a written agreement covering these likely events, the business could be forced to pay large sums of money to a departing Member at a time when the business is not able to afford the payment or even dissolve. An Operating Agreement for a business with two Members can be kept simple and understandable.
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My elderly mother is considering gifting some of her assets to me. If she gives me some large gifts three years before she applies for Medicaid, will she be able to get medicaid if she has less than $2,000.00 in assets when she applies?
May 2006
Under the old rules regarding transfers of assets, she would have been eligible. Unfortunately, under the new rules (DRA – 2005: Deficit Reduction Act), gifts given after February 8, 2006 would result in a period of ineligibility that begins on the date she has less than $2,000.00 in assets, if she applies for Medicaid within five years of making the gift. For example: If she gives you $26,695.00 now and applies for Medicaid four years from now, she would have a five month “period of ineligibility”. Under the new rules, people should be very careful about making gifts and keep excellent financial records for at least five years.
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Since the medicaid rules now have a five year "look back period" - the period of time when gifts would disqualify a person from Medicaid, do you have any suggestions for a person who wants to protect assets and leave an inheritance to his/her children?
June 2006
The new five year “look back” requires that families plan far ahead of the date a family member needs nursing home care – at least five years. With proper advance planning, assets can be protected through the use of Life Estate Deeds for real estate, an Irrevocable Trust for other assets or outright gifts to intended beneficiaries. None of these strategies should be used without carefully considering the consequences of needing nursing home care earlier than predicted.
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How are annuities treated now under the new Medicaid law? Are annuities a good strategy to protect assets?
July 2006
Under DRA – 2005: Deficit Reduction Act (the new Medicaid law), some fixed annuities are considered exempt and won’t prevent a person from obtaining Medicaid. However, the State must be named as the second beneficiary after a spouse (or a minor or disabled child). Not all annuities work. The annuity must be irrevocable and pay out the correct monthly payment. Given all the new requirements, annuities are rarely a good option, if the goal is to protect assets.
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Is it ever advisable for a parent to co-own property with a child or several children?
August 2006
There are many situations when co-ownership between parent(s) and a child or children (if over 18) is helpful, however, each type of co-ownership comes with its advantages and disadvantages. Most co-ownership arrangements involve the risk of subjecting the property to the debts of the child(ren). A “Payable on Death” (P.O.D.) Deed would not have that affect but it offers no protection in the event of disability. A Life Estate Deed, on the other hand, is a co-ownership strategy that offers protection in the event either parent needs to apply for Medicaid but involves some risk if the child(ren) has/have unhappy creditors. Several co-ownership arrangements have the advantage of avoiding probate and should be considered, if probate avoidance is your primary concern. Most importantly, before signing a new deed transferring all or part of the property to your child(ren), consider carefully the tax consequences, the risk of creditor’s leins, the effect of gifting on Medicaid eligibility and ultimately, the effect on inheritance rights.
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What is the biggest change in the laws related to Estate Planning, in recent years, that could effect a person's estate plan?
October 2006
A significant change in the law regarding Medicaid just passed on February 8, 2006—the Deficit Reduction Act of 2005 (called DRA-2005). This new law drastically changed the way elderly and/or disabled persons and their families can plan for covering the cost of long-term care. DRA-2005 severely limits the strategies people can use to protect assets. Anyone considering transferring assets to children in an effort to “protect assets”, even five (5) years before applying for Medicaid, should be extremely careful. ANY gift to a child (or anyone else for that matter), if given within five (5) years of an application for Medicaid will cause a period of ineligibility, with very exceptions. The length of the period of ineligibility will depend on the size of the gift, of course. Before giving a gift of any size and for any reason, an elderly and/or disabled person should consult with an elder law attorney who has studied the effect of DRA-2005.
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What is the best time in a person's life to create a Will and Power of attorney documents?
November 2006
This may seem like a silly question with an obvious answer but, based on people’s behavior, I believe many people are answering the question incorrectly. Many procrastinate saying I/we will create our estate planning documents “after our children are grown” or “after I/we own more property” or “when we’re ready to retire”. Unfortunately, I know of too many situations in which people waited for these events and either became incapacitated or died without having created any of the documents. The result in those cases was a legacy of confusion, litigation, unnecessary legal bills and tax liability, all of which could have been avoided. So, the best time to create your estate planning documents is when you are over 18, competent, and have a desire to leave a positive legacy to your beneficiaries, no matter how much you own.
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I'm a single person. if I want to give large gifts (money or other assets), I can give up to $12,000/year to each person. Is that correct? What happens if I give more than $12,000?
December 2006
It is “legal” to gift as much as you wish to another person. However, the current “exclusion amount” is $12,000. If you give more than $12,000 to someone within the same year, you’ll need to file a Gift Tax Return form to report the amount of the gift that exceeds $12,000. The Gift Tax Return form is filed at the same time you file your other tax documents. The effect of giving more than the permitted exclusion amount is that you are reducing your unified credit by the “extra” gift. When you reduce your unified credit your estate may incur estate taxes. In addition, you should be aware that gifting any amount may result in a penalty period, if you need to apply for Medicaid within 5 years of making the gift. So, before making large gifts, you should consult with your Estate Planning/Elder Law attorney and your accountant.
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