Month: March 2013

The Usefulness of Trusts in the Medicaid Planning Process

For many people, especially seniors, one of their greatest goals is to leave a legacy for their families, be it great or small. One key aspect of that legacy is their home, and one large threat to that goal is the prospect of a nursing home stay, and the resulting need for Medicaid benefits. “Is Medicaid going to take the house?” is an oft-asked refrain. The answer to this question may boil down to how much, and how well, they’ve planned.

Under federal law, each state must enact laws designed to recover from the estates of citizens who receive Medicaid assistance. The federal laws do not mandate the specifics of how the states should pursue recovery from estates, resulting in substantial variation in these programs from one state to the next.

Wisconsin has one the most vigilant and aggressive Medicaid estate recovery programs in the country. The Wisconsin program takes a two-prong approach. In addition to filing claims against the probate estates of deceased assistance recipients, Wisconsin takes the added step of filing liens on the homes of certain citizens who receive assistance.

With proper estate planning, including the appropriate use of trusts, one can significantly lessen the financial burden of receiving medical assistance. The use of irrevocable trusts can serve as a key element of an estate plan equipped to deal with the possibility of receiving Medicaid benefits.

Using Trusts to Continue to Provide for Your Loved Ones, Even After You’re Gone

You’ve spent a lifetime accumulating wealth with the hope of leaving a legacy after you pass away. However, you know your loved ones best, and know that, sometimes, simply handing your children or grandchildren a large sum of money or sizable assets is not necessarily the best way to take care of them and leave the legacy you want. Fortunately, with proper estate planning, you can take steps to help protect the legacy you leave behind.

In most families, there are some members who are more stable than others. Perhaps you have a child with an unstable marriage, a spouse who as a substance abuse issue, a grandchild who is notoriously poor at managing money or another loved one whose career situation places him/her at great risk of being sued personally. In each of those situations, you may worry that providing a large, direct inheritance could prove risky or unwise. Spendthrift trusts or Beneficiary Protection Trusts are tools that may be helpful in these circumstances.

A spendthrift trust is a special type of irrevocable trust created for the benefit of a loved one, but not controlled by that beneficiary. The trust is managed by a trustee who is independent of the beneficiary. These trusts often exist in cases where the beneficiary has problems managing money or is otherwise financially unstable. In this way, the trust can allow you to provide for your financially unstable loved one, not just throughout your life, but also for the duration of their life as well.

A Beneficiary Protection Trust is also an irrevocable asset protection trust, but it is controlled by the beneficiary most of the time. However, the beneficiary is removed from control and the trust is locked down if there is an attack on the trust assets by divorce, a lawsuit, etc. This type of trust allows the most flexibility for the beneficiary, while offering very significant protections.

Trusts, Transfer-on-Death Deeds and Avoiding Probate in Wisconsin

Over the last several years, authors have expended much ink discussing the topic of probate and, specifically, avoiding probate. Today, with the continued evolution of the law, in Wisconsin and elsewhere, you have more choices than ever if you want to create an estate plan designed to avoid probate.

Using the probate process can be helpful in some circumstances. For example, opening a probate estate creates a specific deadline date by which time all creditors must request payment or forfeit their claims. If these types of creditor issues are not a significant factor for you, then you may decide that probate’s advantages are too few, given the drawbacks. Even a relatively simple and straightforward probate administration can take many months and cost thousands of dollars. Additionally, probate cases are public records, and anyone may view them.

For those seeking to avoid probate, many vehicles exist to accomplish this end. A revocable living trust offers many potential benefits to address a variety of issues. The process of “settling” a living trust (which means distributing the trust’s assets upon the occasion of the creator’s death,) does not require court intervention and is not a public record. This means, that, if many cases, distributing your assets using a trust may often be more private, less expensive and less time consuming than using the probate process.

In addition to trusts, other tools exist to pass assets outside probate. The law allows you to place “pay-on-death” or “transfer-on-death” designations on many assets, like bank accounts, stocks and bonds. These designations work like a life insurance beneficiary designation. The beneficiary only needs proof that he/she is the beneficiary, and that the owner is deceased, in order to take ownership of that asset.

Additionally, since 2005, Wisconsin law permits owners to place a transfer-on-death designation on real property. To accomplish this, the owner records a “transfer-on-death deed” with the appropriate county’s register of deeds. These deeds are fully revocable during your lifetime. You may either record a new deed or simply revoke the transfer-on-death designation. The law does not require you to notify the beneficiary before revoking the designation. Transfer-on-death deeds may be useful for consumers who have homes, or other real properties, of significant value, but little else in their estates.

Consider Location of Assets, Loved Ones as You Plan Your Estate

Most everyone remembers the childhood song, “It’s A Small World.” With today’s technological advances, that world is getting progressively smaller. Along with this technology, the realities of modern economics mean that more people choose to be, or must be, more transient than ever. Sunny retirement prospects, or distant job opportunities, may lead you further away from home and family. In addition to impacting relationships, this affects your estate planning, as well.

If you have not created an estate plan, you may be wondering what type of plan best fits your more mobile lifestyle. Perhaps you own multiple properties in multiple states. You may own separate residences for winter and summer, or perhaps job relocation during the housing crash of the last decade left you unable to sell your previous residence. For those with real estate assets in multiple states, a revocable trust may be very beneficial. If your estate plan centers around a will, the law says your executor must probate your will in every state where you own property. So, if you own your residence in Wisconsin, a rental property in Iowa, and a vacation home in Florida, that would require three separate probate procedures to distribute your assets.

With a revocable trust, however, your estate could avoid the expense and time of these processes, as a trust permits your successor trustee to distribute all of your assets upon your death, anywhere in the U.S., regardless of what state your assets, or you, are at the time of your death.

Another consideration is the location of your loved ones, particularly, the person or people you want to oversee the distribution of your assets upon your death. Each state has varying laws regarding a non-resident serving as an executor of an estate. Some forbid it entirely. Wisconsin does not bar it, but it can be complicated, as many probate courts prefer that executors of the estates under their jurisdiction are Wisconsin residents. The probate judge may exclude your preferred person from serving based upon where he/she lives. Even if the judge approves your executor, Wisconsin law requires your executor to appoint a business or person residing in Wisconsin to serve as her/her agent, and the court may require your preferred executor to post a substantial bond in order to serve.

Personalization is Key to Ensuring Wisconsin Estate Plan Functions Properly

If you are like many people, you understand that planning your estate is extremely important, but still have not put a plan in place. As you contemplate options for creating a plan, it is important to understand the advantages of a well-written, customized plan, and the risks of a “one-size-fits-all” one.

Recent reports by respected sources like Forbes magazine and the New York Times report that anywhere from 57 to around 70 percent of American adults have no will. A 2009 survey, conducted by Harris Interactive, found that more than 70 percent have no living will. Why do so few people plan? The reasons vary, but many are driven by fear or uncertainty. Put off by these fears, some people gravitate to options they see as simpler or less intimidating. They may purchase a kit from the Internet or a book store, or they may accept a visit from an in-home salesperson seeking to talk to them about “avoiding probate.”

The Wisconsin Bar Association explained the risks involved in using a kit product or the services offered by a salesperson, especially when it comes to trust planning. “Do-it-yourself kits and formbooks are available, but these tend to take a one-size-fits-all approach, rather than meeting your unique needs.” The Bar also explained that some “unscrupulous businesses sell revocable living trusts, even if unneeded, to gain access to your private financial information. Then they try to sell you other financial products.”

It is important to keep in mind that a poorly-crafted estate plan can be worse than no plan at all. A plan that is not customized to meet your individual needs may not function the way you want, and may fail to achieve your estate planning goals. The documents you received through your in-home salesperson, or from your form book, may not comply with current Wisconsin law. Wisconsin has specific laws regarding the proper legal format for wills, trusts, powers of attorney and living wills, including what information the documents must include, certain language that is required, and how they must be signed, witnesses and notarized. Failure to follow these laws precisely may make your documents legally invalid and, therefore, useless. Additionally, trusts require significant follow-up work after signing the documents, to make sure they are properly funded. An unfunded trust governs nothing, making it, like an invalid document, useless.

Supreme Court Case Highlights Need for Proper Estate Plan Maintenance

Everyone is aware of the need for conducting periodic maintenance on their cars and their homes, or undergoing periodic checkups for their health. But what about your estate plan? Simply adopting a “create it and forget it” approach to estate planning, with no checkups, can sometimes be harmful to your estate plan’s well-being, as one case going before the U.S. Supreme Court, Hillman v. Maretta, highlights.

In 1996, Warren Hillman named his wife, Judy, as the primary beneficiary on his Federal Employees’ Group Life Insurance (FEGLI) policy. Two years later, the couple divorced. Warren remarried in 2002. Warren and his subsequent wife, Jacqueline, remained married until Warren died in 2008. However, Warren’s insurance policy beneficiary designation remained unchanged from when he created it in 1996, leaving ex-wife Judy as the named beneficiary.

Both women filed claims for the $124,000 policy benefit. Hillman’s ex-wife ultimately received the payout, because the policy named her as the intended death beneficiary. Jacqueline sued, contending that, under Virginia law, Warren and Judy’s divorce triggered an automatically revocation of the beneficiary designation in favor of Judy. The Virginia Supreme Court, however, ruled for the ex-wife, deciding that federal statutes governing FEGLI trumped Virginia law, and required giving first priority to “the beneficiary or beneficiaries designated by the employee,” which, in this case, remained the ex-wife. Under the federal law, Judy’s relationship to Warren was irrelevant.

The wife appealed the ruling and the U.S. Supreme Court has agreed to take the case. What makes the facts of this case such a cautionary tale is that the dispute, and subsequent protracted litigation, was entirely avoidable. There are many common mistakes people make with estate planning, with the chief one being never creating a plan at all. However, even those who create a plan fall into traps too often, with the Hillman case hinting at two of those.

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