2010 Frequently Asked Questions:
- My partner and I are not married and we are state employees. I heard that there is a new law that may give us rights to each other's state retirement benefits. Is this true?
- I am considering buying a home since this is clearly a "Buyer's Market". Should I consider hiring an attorney?
- If an estate is small, is filing a probate case necessary?
- If I am in a business with only one other member, do I really need an operating agreement?
- I have a Will, but I need to make some changes to it. Can I cross out the section in my Will that needs to be changed and write in how I want it to read?
- If I want to leave one of my life insurance policies to my children or to a trust for my children, do I need a Marital Property Agreement with my wife?
- We just found out that one of our family members will not automatically be able to take care of our child should something happen to both of us. How can we make sure that our child is taken care of without interruption?
- How do I keep up with changes in the law that could affect my financial and estate planning efforts?
- What should I think about when choosing a guardian for my child?
- Our developmentally disabled child turns 18 years old soon. What should we do to make sure we, as his parents, can continue to make decisions on his behalf and protect him from people that could take advantage of him financially?
- Recently, my father passed away. We had a tough time trying to figure out what he owned, what he owed and where his assets were located. I don't want to leave my loved ones with the same situation. What should I do?
- How will the new Power of Attorney for Finances law affect me if I already have a Power of Attorney for Finances?
- I heard from a friend that Wisconsin changed its statutory Power of Attorney for Finances and Property form. Is that true and do I need to revise mine?
- If I agree to act as someone's Guardian or Financial Agent, will I be held personally liable for that person's bills?
- There has been so much upheaval in the financial services industry. I think that the company that I purchased my annuity from many years ago was bought by another company. Should this concern me?
- Is it necessary to have a Service Contract with my son if he is going to do some work on my home and I think that someday I may need to apply for Medicaid?
My partner and I are not married and we are state employees. I heard that there is a new law that may give us rights to each other's state retirement benefits. Is this true?
Yes. Wisconsin Chapter 40 went into effect on January 1, 2010. This new law provides that if you and your partner consider yourselves to be member's of each other's immediate family, are responsible for each other's basic living expenses, share a common residence, and are participating in one of the WI Employee Trust Funds programs as a state or local government employee, you may be able to claim spouse and/or dependent benefits related to that program - regardless of whether you are the same sex as your partner. For more information about Wisconsin Chapter 40 or other estate planning matters, please contact the Law Offices of Christenson and Allex, LLC at (608) 273-8609.
I am considering buying a home since this is clearly a "Buyer's Market". Should I consider hiring an attorney?
Yes. Buying a home is a major financial transaction--perhaps the largest financial transaction you'll ever enter into. As a Buyer, you'll be signing numerous contracts that require up-to-date knowledge of real estate law, lending laws and most importantly, contract law (the Offer to Purchase, a Mortgage, etc.). Even if you are an experienced Buyer, you will benefit from legal advice regarding those parts of the contracts that can be modified to favor you as a Buyer and those parts of the contracts that you should simply refuse to accept. An experienced real estate attorney can help you understand the "small print", act as your advocate throughout the transaction, and make sure that your home purchase is a pleasant experience.
If an estate is small, is filing a probate case necessary?
Not always. If the assets in an estate are less than $50,000, an heir may be able to change ownership of the assets using an "Affidavit for Small Estates." This method of settling an estate is typically used when the decedent is survived by one or two heirs, there are no disputes, there are no outstanding debts and the assets do not include real estate. Before using an affidavit, it is advisable to consult an attorney to determine if the assets can be transferred with this method.
If I am in a business with only one other member, do I really need an operating agreement?
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 wants out, 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 at a time when the business may not able to afford it. An Operating Agreement for a business with two or more Members can be kept simple and understandable.
I have a Will, but I need to make some changes to it. Can I cross out the section in my Will that needs to be changed and write in how I want it to read?
In Wisconsin, any change to a Will must be witnessed by two disinterested witnesses in order for the change to be valid. If you pencil in a change to your Will without having the change properly witnessed, the change will likely be ignored after your death or may open the door for a Will contest. If you wish to make changes to your Will, it is best to hire an attorney to review your current Will with you and to prepare a document called a "Codicil" that details the changes to your Will. This will make sure that the changes will be binding on your beneficiaries.
If I want to leave one of my life insurance policies to my children or to a trust for my children, do I need a Marital Property Agreement with my wife?
Yes, if your goal is to have ALL of the death benefits pay out to your children or their trust. In Wisconsin, the presumption is that life insurance is partially or totally marital property, if any premiums for the policy have been paid during the marriage. Even if you name your children as the only beneficiaries, your wife is entitled to "elect" (claim) 1/2 of the marital property portion of the death benefits because she is entitled to 1/2 of all marital assets. The solution, if your wife agrees, is to enter into a Marital Property Agreement that says the life insurance policy is your Individual Property and the premium payments on the policy are also your Individual Property. If you have this type of agreement, you can then name whoever you wish as beneficiaries and your wife will not be able to claim any portion of the death benefits.
We just found out that one of our family members will not automatically be able to take care of our child should something happen to both of us. How can we make sure that our child is taken care of without interruption?
In order for your child to be taken care of without interruption should something happen to both of you before your child turns 18, you both must name one or more persons in your Wills as the guardian of the estate and the person of your child. The guardian of the estate will be responsible for the money and assets held by your child. The guardian of the person will be responsible for the health and well-being of your child. You can name different people for each role, but it is important that you consult with an attorney once you make your decision as to who you would like to name to make sure that your choice is legally binding and official.
How do I keep up with changes in the law that could affect my financial and estate planning efforts?
The least effective method is to rely on an internet search and the idea that you can select the search phrases or words that will magically locate an article that applies to your unique situation. Reading a "Do It Yourself" Law book is a little better because you'll learn some legal terminology that will help you become a better consumer of legal services. However, those types of books take time to write and publish and are "out-of-date" within a very short time. The best method is to have regular contact with an attorney you trust who charges reasonable rates for a review of your situation and your documents. A review every 5 years is a good approach, if your personal situation has not changed significantly. However, if your financial status or family relationships have changed (divorce, death, disability, etc.), you should consider meeting with your attorney, even if the laws have not changed since your last meeting.
What should I think about when choosing a guardian for my child?
There are two types of guardians that can be named if a child's parents are dead or incapacitated: guardian of the estate and guardian of the person. A guardian of the estate is responsible for the child's finances, while a guardian of the person is responsible for the health and well-being of the child. Different people can be chosen for each job and an effort should be made to match the attributes of the person with the job. In addition, consideration should be given to naming people with similar values to your own, who are financially stable, and who will be able to take care of your child through to adulthood. It is also important to talk with the people who you would like to serve as guardian prior to naming them as such. Finally, once you select a guardian for your child, it will be necessary to talk with an attorney to make sure that your selection is legally binding. For assistance with this and any other estate planning matter, please contact the Law Offices of Christenson and Allex, LLC.
Our developmentally disabled child turns 18 years old soon. What should we do to make sure we, as his parents, can continue to make decisions on his behalf and protect him from people that could take advantage of him financially?
You can file for Guardianship of both the "Person" and the "Estate" before he turns 18 so the Guardianship would be in effect on his 18th birthday. As Guardian of the Person you could make decisions, on his behalf, about living arrangements, health care and many other non-financial decisions. As Guardian of the Estate you could make his financial decisions, and protect him from being coerced into purchases or contracts that he cannot afford. In addition to acting as his Guardian, you should consider setting up a Special Needs Trust to protect assets that he may inherit from you or other family members. A Special Needs Trust can hold assets of any amount and pay for expenses that his disability benefits or medical benefits don't cover. An Elder Law attorney can assist you with the Guardianship process and creating a Special Needs Trust for your child.
Recently, my father passed away. We had a tough time trying to figure out what he owned, what he owed and where his assets were located. I don't want to leave my loved ones with the same situation. What should I do?
It a good idea to periodically review and organize your important documents. You should keep your documents in a safe place, but let your loved ones know where those documents will be kept. In addition, you should create a comprehensive list of who to contact in the event of your disability or death (including key advisors) and the passwords to any internet accounts that you have. The time that you spend getting and keeping your affairs in order will be invaluable to your loved ones upon your disability or death. For this and other estate planning assistance, please contact the Law Offices of Christenson and Allex, LLC.
How will the new Power of Attorney for Finances law affect me if I already have a Power of Attorney for Finances?
The new Power of Attorney for Finances law (Chapter 244: Uniform Power of Attorney for Finances and Property") goes into effect on September 1, 2010. The new law doesn't invalidate prior Power of Attorney forms. However, the new law includes rules that govern all powers of attorney (for finances). If your power of attorney does not specifically cover an issue or is unclear about a particular issue, the new Chapter 244 will be the default that you, your agent and anyone who accepts the power of attorney will have to follow. The new statutory form will be available online after 9/1/2010 at: www.dhs.wisconsin.gov/forms/AdvDirectives/index.htm. Before using the statutory form or any other online form, consider consulting with an attorney to determine if you need a form that includes long term care planning language or tax planning provisions. A power of attorney for finances can be a very powerful tool to assure your financial security and protect your estate planning goals.
I heard from a friend that Wisconsin changed its statutory Power of Attorney for Finances and Property form. Is that true and do I need to revise mine?
Recently, Wisconsin adopted the new Uniform Power of Attorney for Finances and Property Act. The Act takes effect September 1, 2010 and includes, among other things, an updated statutory power of attorney form. If you have a Power of Attorney for Finances and Property that was properly executed before the Act's effective date, your Power of Attorney will remain valid. If, however, you would like to take full advantage of the Act's new provisions, you should have your Power of Attorney for Finances and Property reviewed by a knowledgeable attorney and possibly modified to accommodate the new provisions of the Act.
If I agree to act as someone's Guardian or Financial Agent, will I be held personally liable for that person's bills?
No, you won't be expected to pay the bills of the person who appointed you to act as his or her agent from your funds or need to worry about that person's creditors being able to claim your assets. However, there are rules you must follow as an agent (also referred to as a fiduciary). If you violate the rules for fiduciaries, there could be civil penalties. Some improper actions taken by a financial agent could even result in criminal penalties. If you are ever unsure about your responsibilities as an agent, you should consider hiring an attorney to provide you with advice related to your fiduciary role.
There has been so much upheaval in the financial services industry. I think that the company that I purchased my annuity from many years ago was bought by another company. Should this concern me?
Yes. Unfortunately, sometimes certain important documents, such as beneficiary designation forms, can get lost or misplaced during a transition. This may lead to unintended distribution and/or income tax consequences after a person has died. If there has been a change in ownership of the original company where you purchased your annuity, you should contact the new company and request a copy of your beneficiary designation form. This will let you know if the company still has the form and, if so, who your named beneficiaries are. If you find out that the company no longer has the form or you wish to name different people than are currently listed on your form, you will be able to complete a new one.
Is it necessary to have a Service Contract with my son if he is going to do some work on my home and I think that someday I may need to apply for Medicaid?
Yes. A recent ruling by an administrative law judge (MEH Decision MDV 16/107) makes it clear that you'll need to prove that the money you paid to your son was not a gift and therefore a "divestment". To prove the payment was not a gift, you should have a Service Contract that was signed BEFORE you paid your son. In the past, some attorneys would rely on an MEH rule that allowed payments to relatives without a contract if the payments were considered reasonable for the type of work being performed (e.g. caregiver services, remodeling work, etc.). This recent ruling leaves no doubt that payments to relatives will be considered gifts, even if the payment is reasonable and the amount is low. The solution is to seek the assistance of an elder law attorney to draft a Service Contract between you and your son.
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2009 Frequently Asked Questions:
- Information about the Increase in the Gift Tax Annual Exclusion Amount
- Have any laws or rules changed recently that could affect my estate plan?
- Have you reviewed your beneficiary designations recently?
- I am considering transferring my home to my children. Is that a good idea?
- What is the Waiver of Required Minimum Distributions for 2009?
- Should I change any of my documents due to the changes in the Medicaid rules that became effective on January 1, 2009?
- I co-own real estate with my brothers as Tenants in Common. We share the bills and get along now but what happens if one of them stops paying the bills?
- I have a Will and Power of Attorney documents but they are 10 years old. When should I consider updating my documents?
- My child is home from college. Should I consider having Power of Attorney documents created for my child?
- I am packing for my vacation and want to make sure that I pack well. Should I pack a copy of my Power of Attorney for Health Care?
- I have a Trust but I honestly don't understand most of it. The Attorney I worked with has retired. What should I do? I don't want to start over.
- Are Estate Plans for "blended families" usually more complex?
- What are the qualities of a good "financial agent"-the person who will handle your finances if you are not able to handle them yourself?
- I am starting a new business and would like some advice as to where to start.
- If I agree to be someone else’s financial agent will I be held liable for that person’s debts?
- I'm going to live away from home while I attend college. Should I complete Power of Attorney documents?
- My spouse recently passed away and I would like to transfer our vehicle to my name only. How do I do that?
- Is it important to plan for the disposition of personal items, such as jewelry, artwork, tools, furniture, etc., after my death?
- How are annuities treated now, under the new Medicaid law? Are annuities still a good strategy to protect assets?
- If one of my parents needs nursing home care, will my other parent have to liquidate their assets to pay the nursing home bills?
- How can I plan for the care of my pets after I pass away?
- Where can I find basic information about the new Medicaid rules?
- How can I keep my estate plan organized?
Information about the Increase in the Gift Tax Annual Exclusion Amount
The IRS has announced that the annual exclusion amount from gift taxes will increase as of January 1, 2009 to $13,000. The "annual exclusion amount" is the maximum amount that you can give to any person during a calendar year without incurring a gift tax. If you anticipate that your estate will be subject to estate tax upon your death and you can afford to give gifts, making an annual exclusion gift could be an important estate tax savings tool because it would allow you to save your lifetime gift tax exemption (currently $1 million) for larger gifts. In addition, each gift you made would reduce the amount of your taxable estate by the amount of the gift plus any future appreciation on the property gifted. If you have questions about making a gift or have other questions concerning your estate plan, please contact the Law Offices of Christenson and Allex for assistance.
Have any laws or rules changed recently that could affect my estate plan?
Yes. Wisconsin recently began applying the new laws regarding Medicaid eligibility to applications submitted after January 1, 2009. Medicaid is the program people rely upon to cover the cost of nursing home care when they run out of funds. The new "look-back period" for gifts that were given by the Medicaid applicant is now 5 years. The rules regarding penalty periods caused by gifts are also much harsher and make it even more important to plan ahead. If you are concerned about protecting or preserving your assets for your spouse or your children, you should consult with an elder law attorney to make sure your estate plan contains the necessary language to allow your "agent" to engage in Medicaid Planning and you understand how to make gifts so you won't face a penalty period if you ever need Medicaid.
Have you reviewed your beneficiary designations recently?
A change in family status due to your marriage, divorce, or the birth of a child may cause your retirement plan or life insurance proceeds to be distributed upon your death to someone who you do not wish to benefit. In addition, a charity that you named as the beneficiary of your retirement plan or life insurance may no longer exist. Unfortunately, your Will or Trust may not govern who or what should be the beneficiary of these accounts. Therefore, it is important to review and update not only your Will or Trust on a periodic basis, but your retirement account and life insurance beneficiary designations as well. Coordination of all aspects of your estate plan will provide you with the best opportunity to see to it that your loved ones and favorite organizations are properly cared for.
I am considering transferring my home to my children. Is that a good idea?
Before I answer, I have a few questions. Why do you want to transfer your home to your children now? Do hope to protect the home from long term care costs? Is your goal to avoid probate? If your answer is yes to either or both of these questions, there are better methods to transfer the home than a complete transfer. You could retain a Life Estate ownership interest in the home and transfer the Remainder Interest if your goal is to protect the home from long term care costs and avoid probate. Or, you could list your children as "transfer on death" (TOD) beneficiaries, if your only goal is to avoid probate. Either solution is better than an outright transfer now because the tax basis of the home will be changed to the value as of your date of death (stepped up basis) thereby avoiding some or all capital gains taxes.
What is the Waiver of Required Minimum Distributions for 2009?
On December 23, 2008, President Bush signed the Worker, Retiree and Employer Recovery Act which, among other things, eliminated the need for some beneficiaries to receive required minimum distributions from certain retirement accounts for the 2009 calendar year. The retirement accounts from which required minimum distributions can be waived include: IRAs and employer-provided defined contribution plans such as 401(k), 403(b) and 457(b) plans. If you need more information about required minimum distributions or have other estate planning questions, please contact the law offices of Christenson and Allex, LLC at (608) 273-8609.
Should I change any of my documents due to the changes in the Medicaid rules that became effective on January 1, 2009?
You could consider changing your Durable Power of Attorney document to make sure that your "agent" has as much authority as possible to "fix" your beneficiary designations. The new rules require that annuity beneficiary forms name the State of Wisconsin as a beneficiary after a spouse or a minor or disabled child. Also, it is advisable to make sure that your life insurance policies all have "named" beneficiaries and do not pay out to your "estate", if your goal is to make sure that your beneficiaries inherit those benefits. There are several other powers that could be granted to your "agent" under a Durable Power of Attorney that are helpful if you ever need long term care services. These types of provisions are typically drafted by an elder law attorney and are not found in standard Power of Attorney documents.
I co-own real estate with my brothers as Tenants in Common. We share the bills and get along now but what happens if one of them stops paying the bills?
You could enter into a Tenancy-In-Common Agreement. A good time to enter into this type of Agreement is when all of the co-owners are getting along. It is very difficult to obtain everyone's signature on any type of Agreement after a problem arises. An Agreement can spell out exactly what happens if someone fails to pay their share of the expenses. The Agreement can also provide a set or procedures to follow when a co-owner dies or becomes disabled. The Agreement is filed with the Register of Deeds office and limits when a co-owner can sell or encumber his share of the property. Another type of ownership, an LLC with an Operating Agreement, is similar to a Tenancy-In-Common Agreement but offers even more protection since it offers liability protection.
I have a Will and Power of Attorney documents but they are 10 years old. When should I consider updating my documents?
Your documents may be fine. However, having them at least reviewed every five years is a smart move. In just the past five years we've seen significant changes in the laws regarding Medicaid, Guardianship, Probate and Taxes (primarily income taxes and estate taxes). These changes have required changes in the way we draft Wills, Trusts and Power of Attorney documents. Another reason to update your docs may be changes in your situation. Perhaps you need to appoint different people as your agent(s) or personal representative.
My child is home from college. Should I consider having Power of Attorney documents created for my child?
Yes. Anyone can become incapacitated due to illness or accident. Once your child turns 18, your ability to make health care or financial decisions for your child significantly decreases. Having a Power of Attorney for Health Care and a General Durable Power of Attorney for Financial Matters created for your child can prevent lengthy and costly court proceedings should you need to provide assistance.
I am packing for my vacation and want to make sure that I pack well. Should I pack a copy of my Power of Attorney for Health Care?
Yes. It is a fact of life that accidents happen. If you bring a copy of your Power of Attorney for Health Care document with you, you will be able to have your appointed health care agent help you without delay should you get into an accident or become ill while on vacation.
I have a Trust but I honestly don't understand most of it. The Attorney I worked with has retired. What should I do? I don't want to start over.
You won't have to start over. However, it would be wise to have your documents reviewed by an Estate Planning Attorney and, in the process, ask questions about the language in the Trust that is difficult to understand. In addition, there may have been a change in the law that should be reflected in an Amendment to your Trust. It is extremely important that you understand your documents so you know when or if a change is needed.
Are Estate Plans for "blended families" usually more complex?
Absolutely. Planning for a "blended family" (second marriages, step-children, etc.) involves very careful planning due to the impact of marital property laws and intestacy laws. If a person has children from a prior marriage and does not have a will, intestacy laws give the children the right to inherit. The new spouse may have to "buy out" the children's inherited interest in certain assets, such as the home. Also, many people don't realize that step-children are not included in the definition of "children", unless the document specifically says that step-children should be included. A person may inadvertently disinherit a step-child. A person in a "blended family" should consult an experienced attorney when beginning the estate planning process. Doing so will help to achieve the desired results and prevent unnecessary litigation.
What are the qualities of a good "financial agent"-the person who will handle your finances if you are not able to handle them yourself?
You should give your choice of "financial agent" a great deal of thought and not simply choose your oldest child or your closest sibling. Remember, a financial agent will have significant control over your assets and could do some serious damage to your bank accounts, even if the agent is handling matters for a very short period of time. Your agent should be someone who is financially secure and yet has the time to take care of your finances. The type of person who takes pride in finishing tasks on time and is typically very concerned when a bill is overdue would make a great agent. Your agent doesn't have to be an expert in finances but should be willing to ask for help from professionals when a task is complex.
I am starting a new business and would like some advice as to where to start.
One of the first questions that you should answer is what kind of legal form your business is going to take. The legal form of your business will affect how much you pay in taxes, who can invest in your business, and whether your personal finances will be at risk. Some of the legal forms that you could use include: sole proprietorship, partnership, limited liability company, or corporation. As you can imagine, each form has its advantages and disadvantages. For advice as to what legal form to use for your business, please contact the Law Offices of Christenson and Allex, LLC, prior to making your decision.
If I agree to be someone else's financial agent will I be held liable for that person's debts?
No. You will not be held personally liable for a person's debts just because you've agreed to act as his/her agent or even the person's Conservator or Guardian. However, anyone who takes on one of these roles must follow the rules for fiduciaries. An agent is a "fiduciary" - a person who is financially responsible for managing someone else's money or property. As a fiduciary you must manage the assets properly according to Wis. Stat. § 112. So, before you agree to act as an agent, you should consider consulting with an attorney regarding the types of assets you'll be managing and determine exactly what you'll be expected to do as a "fiduciary". For example, if you'll be managing a rental property, you'll want to become familiar with landlord/tenant laws, the laws that pertain to the type of business entity you're managing and the financial aspects of running that type of business.
I'm going to live away from home while I attend college. Should I complete Power of Attorney documents?
Yes. Basic financial and health care power of attorney documents would assure that the people you choose will handle your finances and/or health care decisions if you are ever unable to make your own decisions due to an illness or an accident. Completing these documents should be a simple and inexpensive process. In fact, the Power of Attorney for Health Care form can be obtained online at dhs.wisconsin.gov. A standard form may also be used for the financial power of attorney, however, it is advisable to consult with an attorney about the provisions of a financial power of attorney to be sure it is as limiting or as broad as necessary to fit your individual situation. A "boilerplate" type of form may not be the best choice for you.
My spouse recently passed away and I would like to transfer our vehicle to my name only. How do I do that?
The vehicle may be transferred to your name by sending the Wisconsin Division of Motor Vehicles the vehicle's title, signed by you as the surviving spouse, along with a statement also signed by you, which includes your spouse's date of death, a description of your vehicle, and your intention to assume liability for your spouse's debts and charges to the extent of your vehicle's value. If yo have any questions about transferring property or any other estate administration issues, please feel free to contact our office.
Is it important to plan for the disposition of personal items, such as jewelry, artwork, tools, furniture, etc., after my death?
It is important to make a plan for disposing of your personal effects after you die. Your personal effects may not have much monetary value, but they may have significant emotional value to your loved ones. Not planning for the disposal of your personal effects after you die could result in arguments and hurt feelings among your loved ones. If you are interested in discussing various options for the effective disposal of your personal effects, please contact the Law Offices of Christenson and Allex, LLC.
How are annuities treated now, under the new Medicaid law? Are annuities still a good strategy to protect assets?
Be extremely cautious when purchasing annuities, if you haven't already purchased one. Under the new Medicaid rules (effective January 1, 2009), annuities can be very problematic, if your goal is to create an exempt asset and be able to leave assets to your heirs. It is difficult to prove that an annuity should be considered exempt and challenging the decision of the caseworker involves costly litigation (a hearing before an administrative law judge). In addition, you can only name a spouse or a minor or disabled child as the contingent beneficiary. The State of Wisconsin must be named as the beneficiary after a spouse or minor or disabled child. If you are considering purchasing an annuity, be sure you and your financial advisor are familiar with the new restrictions on annuities and the requirements regarding beneficiaries. If you purchased an annuity before March 1, 2004, the rules that apply to your annuity are much less stringent.
If one of my parents needs nursing home care, will my other parent have to liquidate their assets to pay the nursing home bills?
No. Your parent who continues to live in the community will be able to keep some assets, even if your other parent needs nursing home care and must apply for Medicaid to cover the high cost of nursing home care. The amount of non-exempt assets your parent who lives at home can keep will be between $50,000 and $109,560 (2009 figures) and depends on the amount of assets your parents had on the day your other parent entered the nursing home (this date is called the "snapshot date"). Your parent who is at home will also be able to keep exempt assets including but not limited to the home, a car of any value, prepaid funeral plans and his/her retirement benefits. If your parents don't already have some of the exempt assets, it is smart to wait to purchase those assets until after the "snapshot date".
How can I plan for the care of my pets after I pass away?
Many people view their pets as family members, but forget to include such pets in their estate plan. It is important to plan for the care of your pets upon your death so that your pets can continue to receive good care. This can be done by naming in your Will or Trust Agreement one or more people to care for your pets upon your death and setting aside money to assist with such care. If you are interested in including your pets in your estate plan, please contact the Law Offices of Christenson and Allex, LLC for assistance.
Where can I find basic information about the new Medicaid rules?
In addition to contacting our office, I would suggest that you contact the Coalition of Wisconsin Aging Groups (CWAG). They have a very informative website and create a book for consumers each year that covers topics that are of concern to the elderly (Social Security, Medicare, Medicaid, etc.). Their website is: www.cwag.org and the title of the consumer book is "Elder Rights and Benefits Book". If you have a question regarding your benefits under government programs, you can call the benefit specialist for your county. You can obtain the phone number of your benefit specialist by calling 1-800-488-2596. Becoming familiar with the basic rules and terminology used by Medicaid caseworkers will definitely be an advantage when you are consulting with an attorney or other financial advisor and developing an individualized Medicaid Plan.
How can I keep my estate plan organized?
It is not only important to develop an estate plan to provide for the orderly disposition of your assets and care of loved ones upon your disability or death, but to keep your important papers organized. This will save your loved ones countless hours of time. We recommend creating an estate plan organizer to store copies of your Will, Powers of Attorney, Trust Agreement and other estate planning documents. In addition, you should include a list of who to contact in the event of your disability or death. For assistance with creating an estate planning organizer or other estate planning questions, please contact the Law Offices of Christenson and Allex, LLC.
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2008 Frequently Asked Questions:
- Define the term "legacy."
- Where should I keep my Will?
- How can a motor vehicle be transferred to a Surviving Spouse?
- My adult child takes care of me so that I can stay in my own home. Should we have a contract?
- I want to loan money to my adult daughter. Should we have a contract?
- 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?
- What is a Revocable Living Trust and who needs this type of estate plan?
- Who should consider having Power of Attorney documents created for them?
- Are there any reasons I should be leery if doing my own will?
- Do my spouse and I have to agree on everything in our estate plans?
- What happens if I list my children (or grandchildren) as beneficiaries of my life insurance and they are younger than 18 years of age?
- Can a grandparent who may need to apply for Medicaid someday transfer assets to a disabled grandchild?
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.
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.
Are there any reasons I should be leery if doing my own will?
The advantage of doing your own will is, of course, low cost. You'll save money now, however, you or your family is likely to spend hundreds or even thousands of dollars in litigation costs and taxes later, if you didn't include all of the right phrases and documents within your estate plan. At the very least you should consult with an attorney to learn about the strategies for avoiding litigation and other unnecessary costs that are not included in a "basic will form."
Do my spouse and I have to agree on everything in our estate plans?
No, you don't have to agree on the appointment of alternate agents. However, it does help if you can agree to name each other as Personal Representative and as primary agent in your financial and health care power of attorney documents. You can imagine the problems that would develop if someone else is your spouse's agent for those important decisions. Some spouses name a person in their own family as alternate agent for finances and/or health care decisions. You could also consider naming a person from each family as co-personal representatives in both wills. If you think naming co-personal representatives would simply cause more problems, consider agreeing on a corporate entity (a bank trust department) as the alternate personal representative.
What happens if I list my children (or grandchildren) as beneficiaries of my life insurance and they are younger than 18 years of age?
The Court may permit a surviving parent to receive assets on behalf of a child if the amount is less than $50,000.00. The Court may also consider entering an Order to permit the insurance company to transfer the funds to a custodial account, if the amount is considered small enough. If the amount is greater than 50,000.00, it will be necessary to petition the Court to name a Guardian of the Estate to manage the funds, until the child is 18. A guardianship proceeding can be time consuming and expensive. A better approach is to include a trust for minor beneficiaries in your will and refer to the trust in the beneficiary form. Seek the assistance of an attorney to make sure that your beneficiary forms contain the correct wording and your will contains a trust for minors.
Can a grandparent who may need to apply for Medicaid someday transfer assets to a disabled grandchild?
Yes. A grandparent can transfer assets to a disabled grandchild and still be able to apply for Medicaid without a waiting period. This type of transfer is not considered a divestment and should not result in a penalty period for the grandparent. The best method for transferring the assets to the disabled person is to create an Irrevocable Special Needs Trust to hold and manage the assets for the sole benefit of the disabled person. The Special Needs Trust is called a "Third Party Trust" because it is funded with assets that didn't originally belong to the beneficiary. Another advantage of this type of trust is that the grandparent can specify who he or she wants to receive the assets as contingent beneficiaries.
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2007 Frequently Asked Questions:
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.
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.
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”.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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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