Articles Posted in Trusts

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Many people think of a Last Will and Testament as the main tool for “normal” estates, with trusts only being for large estates. However, revocable living trusts are one of the most underutilized estate planning tools.

Living trusts are documents that give a set of instructions for the use of one’s assets during their lifetime and for the distribution of those assets after their death. Although they aren’t necessary for everyone, living trusts can be useful even for small estates, depending on the type of property and the needs of everyone involved.

Living trusts are a user-friendly trust option and provide these four major benefits:

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Do you need a professional trustee?

There has been more of a spotlight on legacy planning and the need to get our estate plans in order during the last year. Along with the prospect of a lower estate tax exemption and an aging baby boomer population, 2021 is the perfect time to focus on estate planning and on making sure important documents are up-to-date.

Since the current elevated estate credit is set to expire in 2025, many people were already anticipating the need for a trust before the pandemic began. This year brought an urgency to people’s focus on making sure their financial and legal affairs are in order in case of an illness or death.

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When it comes to trusts and their potential benefits, a lot of people assume trusts are for “others” and don’t realize they may be ideal candidates for a trust that could help to protect their assets and avoid probate. Here are some of the most common misconceptions regarding trusts:

“I don’t want to lose control of my assets. Doesn’t someone else control the Trust?”

– Answer: Not necessarily. When setting up a Revocable or Irrevocable Trust, you can be the Trustee (the person who manages the trust). You can also choose other Co-Trustees, such as your spouse, child, or someone else you trust. You also choose who your successor trustees will be, and these people will take over the trust if you become incapacitated and after you pass away.

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During the COVID-19 pandemic, many of us in Illinois are complying with the governor’s stay-at-home order. We are hunkered down in our homes – making only necessary trips for essential matters such as medical treatment, supplies, or perhaps taking a walk to breathe in in some fresh air and soak in some sunshine while maintaining social distancing. We thank and applaud everyone who is doing their part in curbing the spread of this virus.

At this time, some of you may reflect on the “what ifs” of the future. What will happen if you become incapacitated, or worse, if you pass? What if your child has special needs and you wish to preserve assets for the benefit of your child? What if you have minor children? How or who will take care of them and assets for their benefit should you be unable to care for them, or worse, die? Are you able to make or coordinate health care and financial decisions for your spouse, parent or other elder loved one?

Illinois law provides defaults for distributions through probate court proceedings if you were to pass away and a legal process (namely, guardianship) should you become incapacitated. Depending on Illinois law could involve what could be costly court proceedings. Ultimately, the result of the Illinois laws may not reflect your wishes as to the disposition of your assets and/or who will be in charge. A properly executed estate plan sets out your wishes and names the trusted persons you want in charge of your affairs during life and afterward. Estate plan documents can and often include wills, powers of attorney, living wills, and trust documents – such as living trusts, special needs trusts, or asset protection trusts.

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The elimination of the Stretch IRA as part of the Setting Every Community Up for Retirement Enhancement (Secure) Act is going to create big changes for wealth advisors, estate planners, and parents planning to leave behind savings in individual retirement accounts for their kids.

“For a lot of people, the bulk of their wealth has been established in their IRAs,” said Michael Repak, vice president and senior estate planner with Janney Montgomery Scott.

The Secure Act is the most comprehensive retirement bill to pass in a decade and a half, and much of it is designed to stimulate more and better options in the workplace defined contribution market.

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Open enrollment for Medicare runs from October 15th to December 7th this year. If you are eligible for Medicare, you are more likely than ever to be the target of Medicare related scams this year. Medicare scammers are smart and they know exactly what types of scenarios, incentives and stories are most likely to ensnare seniors.

Typical scam calls may be about a refund of premiums, the need for a new Medicare card, false offers of free medical services and bogus Medigap plans. No matter the story used, service offered, or purported identity of the caller, the objective is for the scammer to obtain the senior’s Social Security number by slowly extracting as much personal information as possible from their victim.

Here are some important things for seniors to remember about Medicare to help weed out fake callers:

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At our office we are frequently approached by elderly clients who are considering a second marriage later in life. A new romantic relationship can mean new friends, new experiences, increased happiness and an overall better quality of life. That being said, older couples do have some important issues to consider when deciding whether or not to take the plunge. Adult children, retirement plans, long-term care consideration and government benefits are all topics that should be discussed thoroughly before an elderly couple decides to marry.

A particularly sensitive issue is what happens to the family home. Whether the couple decides to remarry, or decides that they would prefer to just live together, it is important to plan for what will happen to the home they decide to cohabit. Seniors in this situation are faced with the competing goals of wanting to keep the equity of the home in their family, while wanting to provide a place for their significant other to live should the owner predecease. Through the use of proper estate planning such as a life estate or properly drafted land trust, this can be achieved. Care should be taken to ensure that assets are available to maintain the home and that the owner’s family understands their wishes.

Another sticky topic, is how to pay for long-term care and what happens if one spouse requires Medicaid benefits. Long-term care can be very expensive and the Illinois Department of Human Services will require that a spouse’s assets be taken into consideration even in the face of trust and prenuptial agreements when reviewing an application for Medicaid benefits. One spouse’s refusal to make their assets available for the care of another can have a significant negative impact on Medicaid eligibility. We strongly advise against later in life marriages when the need for Medicaid benefits to pay for long-term care is relatively foreseeable.

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No area of our practice causes more confusion and angst for seniors and their families as the question of how to pay for nursing home care. Within that practice area, no topic causes more problems for seniors as asset protection planning. Myths abound about how to protect assets prior to applying for Medicaid. Some of the most common are: 1) that a Medicaid applicant can transfer $14,000 per child per year; 2) that the kids can be added to financial accounts to shield assets; or 3) that investing in annuities will solve all their problems. In fact all of these theories about asset protection are wrong. Worst of all, engaging in these activities can leave the senior in an incredibly precarious position.

The $14,000 per child myth is based on IRS gifting rules which have no relationship to Medicaid eligibility or planning; adding your children to your account will have no effect on how Medicaid counts the assets when determining your eligibility for benefits; and the rules concerning Medicaid and annuities has changed dramatically over the years to that point that only one, very specific type of annuity will help a Medicaid applicant qualify for benefits while preserving assets.

Even playing by all the rules can created problems. For example, current Medicaid rules will not take into account any transaction that occurred more than five years before the application for benefits. This leads many seniors to transfer their assets to children well in advance of applying for Medicaid benefits.  Unfortunately this creates a whole new set of problems. Assets transferred to children are now vulnerable to the creditors and spouses of the kids. There can also be serious capital gains and real estate tax implications for transferring property to children that must be taken into account.

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Gary Cohn, a White House advisor on tax-planning, uttered these words to a group of senate Democrats recently.  To Cohn, his comment underscored the fact that very few of the uber wealthy pay estate taxes anyway so eliminating the tax would do very little to the revenue side of the government’s ledger.

But Mr. Cohn has a point here.  Only 1 out 500 Americans are affected by the tax and those that are usually use a myriad of IRS allowed techniques to eliminate the tax all together. Some of these strategies are the following:

Using the Annual Exclusion(now $14,000 per person) to gift monies and/or assets out of their estates.

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Many clients ask, ” Do we have to sell their loved one’s house when she enters a nursing home?”  Our response is usually, “Not necessarily”.

One of the ways to avoid a sale, is to use the Five Year Plan when doing Medicaid Planning.  This strategy entails the transfer of the house at least 5 years before the loved one files for Medicaid. The transfer does not need to be disclosed since it was transferred before the Medicaid look back period of 5 years begins.  For example, if the parent’s house is transferred to the kids or other transferee on September 1, 2017 and that parent does not file a Medicaid application until October 1, 2022, then the house is clear of any Medicaid forced sale.

Another strategy is to transfer the house to a person with a disability or that person’s Special Needs Trust.  This can be done at any time-even within the 5 year look back period.  The person with a disability is usually someone who has been declared disabled under the Social Security regulations.

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