Orlando Estate & Elder Law

Protecting Your Family’s Inheritance

The name sounds like you might be trying to keep children and grandchildren from being irresponsible with the assets you’ve amassed through a lifetime’s work but irrevocable trusts offer a flexible solution. They are also helpful in cases of divorce, substance abuse and other situations, reports The Chattanoogan in an article titled “Keeping Your Family from Losing Its Inheritance.”

If we are lucky, we are able to leave a generous inheritance for our children. However, that doesn’t necessarily mean we should give them easy access to all or some of the assets. Some people, particularly younger adults who haven’t yet developed money management skills, or others with problems like a troubled marriage or a special needs family member, aren’t ready or able to handle an inheritance.

In some cases, like when there is a substance abuse problem, handing over a large sum of money at once could have disastrous results.

Many people are not educated or experienced enough to handle a large sum of money. Consider the stories about lottery winners who end up filing for bankruptcy. Without experience, knowledge or good advisors, a large inheritance can disappear quickly.

An irrevocable trust provides protection. A trustee is given the authority to control how funds are used when they are given to beneficiaries and when they are not. Depending on how the trust is created, the trustee can have as much control over distributions as is necessary.

An irrevocable trust also protects assets from creditors. This is because the assets are owned by the trust and not by the beneficiary. An irrevocable trust can also protect the funds from divorces, lawsuits and bankruptcies, as well as manipulative family members and friends.

Once the money leaves the trust and is disbursed to the beneficiary, that money becomes available to creditors, just as any other asset owned by the person. However, there is a remedy for that, if things go bad.  Instead of distributing funds directly to the beneficiary, the trustee can pay bills directly. That can include payments to a school, a mortgage company, medical bills or any other costs.

The trustee and not the beneficiary, is in control of the assets and their distributions.

The person establishing the trust (the “grantor”) determines how much power to give to the trustee. The grantor determines whether the trustee is to distribute funds on a regular basis, or whether the trustee is to use their discretion, as to when and how much to give to the beneficiary.

Here’s an example. If you’ve given full control of the trust to the trustee, and the trustee decides that some of the money should go to pay a child’s college tuition, the trustee can send a check every semester directly to the college. The trustee, if the trust is written this way, can also put conditions on the college tuition payments, mandating that a certain grade level be maintained or that the student must graduate by a certain date.

Appointing the trustee is a critical piece of the success of any trust. If no family members are suitable, then a corporate trustee can be hired to manage the trust. Speak with a qualified estate planning attorney, to learn if an irrevocable trust is a good idea for your situation and also to determine whether or not a family member should be named the trustee.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: The Chattanoogan (July 5, 23019) “Keeping Your Family from Losing Its Inheritance.”

Second Marriages Need Plan to Protect Children, New Spouses

There are a number of issues in estate planning that are more important in second and subsequent marriages, as discussed in the article “Estate planning documents for second marriages” from the Cleveland Jewish News. A couple who each have children from a prior marriage are planning to marry again and blend their families. Consequently, the couple needs to address income taxes, a prenuptial agreement, pension and 401(k) benefits, Social Security, college funding, cost sharing and estate planning documents.

Here’s an example of how important estate planning is for blended families. A couple who has children of their prior marriages get married. Twenty years later, the husband dies. He had wanted to provide for his second wife, so his will stated that all his assets went to his wife, with the understanding that on her death, those assets would go back to his children.

What actually occurred was that his wife lived a long time after he passed and she simply combined their assets. When she died, the money went to her children and her husband’s children received nothing. The husband’s children didn’t believe that he meant to do that but because of the lack of planning, that’s exactly what happened.

What were the alternatives? He could have set up a marital trust that would have held the assets for his second wife on his death but upon the wife’s passing, would have gone back to his children. The trust document prohibits the wife from transferring the assets to her children.

It’s wonderful to have a verbal agreement with your spouse but if you don’t set up a formal legal plan, there’s no way to be sure that assets will be distributed as intended.

Another way to ensure that children from a blended family receive what they are intended is to have an independent person or entity, like a bank or a trust company, oversee a marital trust.

Other important documents include a durable financial power of attorney, durable health care power of attorney and a living will declaration.

Anyone who has been divorced needs to review their estate planning documents to ensure that they reflect their new marital status, especially when they marry again. That is also the time to review beneficiary designations that appear on insurance policies, 401(k)s, pensions, retirement accounts and investment accounts.

There’s no “set it and forget” plan for estate documents, so before you walk down the aisle a second time, or shortly after you do so, speak with an estate planning attorney to clarify your goals and put them into the appropriate estate planning documents.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Cleveland Jewish News (May 7, 2019) “Estate planning documents for second marriages”

Everyone Needs Advance Healthcare Directive, Durable Power of Attorney

The numbers are unsettling. If one in three seniors dies with Alzheimer’s or another form of dementia, chances are good that you or someone you love will likely endure this diagnosis, according to the Press Herald’s article “Planning for Incapacity: Advance Healthcare Directive and Durable Power of Attorney.” The smart thing to do is to take the opportunity in advance to deal with the tough issues, while the person is still legally competent.

The best way to plan for end-of-life wishes is to have two very important documents in place:

A healthcare directive documents end-of-life wishes and gives one or more people the legal right to make healthcare decisions on your behalf, while you are living.

A durable power of attorney is similar to a healthcare directive but is focused more on financial matters.

What often happens is that people wait until they are “old enough” to have these documents created. That is a big mistake. We never know when they will be needed and we never know what the future will bring. However, it is safe to assume that at some point, these documents will be needed.

For adult children, keep an eye on your aging parent’s orientation. If you see a marked change in behavior, if they seem not to know what day/date/time it is, or if you see them appearing confused about things they used to handle with no issues, then it’s time to start talking and planning. Don’t neglect to speak with other family members, so you are all on the same page. That will make the process easier going forward.

When considering who should be named, think about the people who know your loved ones well, are familiar with their values and wishes and are in the best position to advocate on their behalf. One person might be very good with finances and another might have the knack for navigating health care issues and caregivers. There needs to be a conversation about their responsibilities and expectations should they take on the role.

What if these documents aren’t created in time?

Here’s where things can get expensive, time-consuming and stressful. Without these and other estate planning documents in place the court has to become involved with guardianship and conservatorship planning.

Among other problems, it is possible that the court may appoint someone you and your family may not know to be responsible for their financial and medical well-being. Having a healthcare directive and a durable power of attorney in place, will ensure that the family remains in charge of their loved ones.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Press Herald (May 20, 2019) “Planning for Incapacity: Advance Healthcare Directive and Durable Power of Attorney.”

What Happens When a Relative Sells a Home They Inherited to another Relative?

Sometimes a kindness to a family member can backfire in unexpected costs. It is best to be fully informed about the short and long-term impact of any well-intentioned actions. The woman in this scenario gave her sister a $25,000 reduction in the price of the home, which was sold far below the appraisal value, according to the Los Angeles Times’ article “Selling an inherited house to a relative will affect tax treatment.”

For her generosity, the sister will not be able to take any kind of a loss on her taxes as a result of the lowered price.

The law is not entirely clear on the topic because every situation is different but the IRS and the Tax Court both frown on any use of real estate for personal purposes, after the death of a parent.

When it comes to a capital loss, the IRS appears to require that the inherited property be sold in an “arm’s length” transaction to an unrelated person. This means that both parties in the transaction, the buyer and the seller, are both acting in their own best interest and are not imposing any pressure or duress on each other in the transaction. Selling an inherited home to a sister is definitely not an “arm’s length” transaction, because of the relationship of the buyer and the seller.

The IRS also requires that the heirs and siblings did not use the property for personal purposes and did not intend to convert the property to personal use before the sale.

Even the Tax Court cases appear to at least require a conversion to an income-producing purpose before the sale and no personal use of the property after the death of the parent.

While the family may find a court willing to say that a personal use by a sibling is not a personal use by the heir and from the executor’s position, it was converted to investment property. However, in this case, an outright sale to a sibling and not an unrelated person makes it highly unlikely that the IRS would be amenable to the person taking a tax loss on the sale.

Talk with an experienced estate planning attorney before selling any large inherited asset to a family member or a non-family member. There are tax implications for the sale of inherited property that may not be readily apparent. The estate planning attorney will be able to explain the tax consequences and help create a plan for achieving the final end result, without creating any additional costs.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Los Angeles Times (June 2, 2019) “Selling an inherited house to a relative will affect tax treatment.”

When Retirement Is Devoted to Elderly Parents

Lynda Faye planned to spend her retirement gardening and visiting eight grandchildren. Instead, she is caring for her mother, 99-year-old Yetta Meisel. The former art teacher is busy all day long, helping her mother bathe, making meals, picking up prescriptions, scheduling home aides and transporting a wheelchair for excursions, reports The New York Times in the article “At 75, Taking Care of Mom, 99: ‘We Did Not Think She Would Live This Long.’”

Ms. Faye and her mother are part of what is expected to be a growing phenomenon of children in their 60s and 70s who are devoting their retirement years to caring for parents who are in their 90s and beyond.

The financial cost of caring for an older parent is not an easy one. In Ms. Faye’s case, she persuaded her parents to move to their hometown. An addition was added to the Faye’s home, but her parents chose to move to a three-bedroom condo nearby. The Faye’s turned the addition into a bed-and-breakfast suite.

When Mrs. Meisel’s husband died, she qualified for a state program that paid some of the costs of home aides. While Mrs. Faye kept the B&B busy, she paid for 24/7 care and other expenses for her mother from the $25,000 nest egg that her father had. In a few short years, that money was gone.

Now the family home is on the market. Mrs. Faye and her husband have moved into their mother’s condo. Her mother lives in a one-bedroom unit in the same building. To save money, Ms. Faye cut back on the home aides and cares for her mother herself three days a week. Her mother’s Social Security and the state program pay for the balance of her care. There’s an additional $1,000 needed every month, which comes from Ms. Fay’s pension.

With no assets, her 99-year-old mother does qualify for nursing care paid by Medicaid. However, Ms. Faye has made the decision not to go that route. She considers herself fortunate to have a living mother with a good sense of humor who appreciates what her daughter has done and is doing for her.

A study being conducted on the relationships of 120 parents who are 90 and older and children who are 65 and older found that many late-in-life caregivers suffer from their own failing health, which can worsen with the stress, physical tasks and isolation that accompanies caregiving. It can be tough financially, when retirement funds are needed for caregiving. If the child does not have a good relationship with the parent, it can become toxic.

It may be helpful to seek professional advice to find out what financial and care giving resources are available. Children who are draining their own retirement savings should consider a nursing home that accepts Medicaid. A geriatric care manager will be able to help estimate the costs of different types of care a parent may need over time, and a financial advisor can asses how much the caregiver can afford before their own retirement is at risk.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: The New York Times (June 27, 2019) “At 75, Taking Care of Mom, 99: ‘We Did Not Think She Would Live This Long.’”

I Want to Make a Generous Gift but the Taxes?

That’s the short answer to the question, which is often asked in a roundabout manner: “How much am I allowed to gift?” There are more details in the complete answer, as reported in The Mercury’s article, “Can I gift more than $15,000?” You can gift as much as you wish, to whomever you wish, but you do have to know the tax implications.

A total of $10,000 used to be the annual exclusionary gift amount, which is now $15,000. However, that figure has less significance than it used to have.

In 2019, the annual exclusionary gift limit is $15,000. If you give away up to but no more than $15,000 in a calendar year to one or more individuals, whether that gift is in cash or any property of value, you don’t have to file the federal tax form, known as Form 709. If you gift more than that amount, you need to file that form.

However, the taxpayer for a gift tax form is the person who gives the gift and not the person receiving the gift.

If you gift more than $15,000, it doesn’t necessarily mean that you have to pay a Federal gift tax. It’s actually unlikely, even if you have to file the form.

Here’s another point: it’s actually pretty easy to give away more than $15,000 and not have to exceed the annual exclusionary amount and even technically being required to file a Form 709. How is that possible?

You are permitted to gift an unlimited amount to your spouse as long as your spouse is an American citizen. The rules are different for non-citizens.

If you are married and want to help out a child who is also married with children, you and your spouse may gift $15,000 each to your son (there’s $30,000) and also to your son’s spouse (another $30,000) and to each of your son’s children, however many grandchildren you may have. If you want to compound your gifting, you can make that same gift every year.

The federal estate and gift tax are “unified.” This allows you to give away any property above the annual exclusionary gift amount or for your heirs to inherit a total of $11.4 million currently, without paying gift or estate taxes. Unless your combined lifetime estate giveaways are subject to gift tax and your estate on death is valued at more than $11.4 million, there’s no need to worry about that gift tax.

There are other ways to be generous. If you pay for someone else’s medical care (and pay directly to the medical care provider, not to the person), or for someone else’s college tuition (pay directly to the college and not to the person), you can give an unlimited amount to that person without having to file a gift tax form or making a gift tax payment.

Charitable gifts are also except from the reporting requirement, providing that no interest in the gifted assets is retained by the person gifting.

There are several reasons why you might want to file a gift tax return. One might be to keep track of the value of the gift at the time it was given. If the asset has increased in value since the purchase, both you and the party receiving it may need to track its value, as of the date of the gift. This is the concept known as basis. If the person sells the gift, this will be necessary to determine federal taxes regarding profit or losses.

An experienced estate planning attorney will be able to help determine how gifting can fit in with your overall estate plan. Every situation is unique, and you want to be sure that your gifting strategy fits in with creating a legacy and tax planning.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: The Mercury (June 26, 2019) “Can I gift more than $15,000?”

Planning for the Impact of Medicaid

One of the most complicated and fear-inducing aspects of Medicaid is the financial eligibility. The rules for the cost of long-term care are complicated and can be difficult to understand. This is especially true when the Medicaid applicant is married, reports Delco Times in the article “Medicaid–Protecting Assets for a Spouse.”

Generally speaking, to be eligible for Medicaid long-term care, the applicant may not have more than $2,400 in countable assets in their name, if their gross monthly income is $2,313 or more. That’s the 2019 income limit.

There are Federal laws that mandate certain protections for a spouse so they do not become impoverished when their spouse enters a nursing home and applies for Medicaid. This is where advance planning with an experienced elder law attorney is needed. The spouse of a Medicaid recipient living in a nursing home, who is referred to as the Community Spouse, is permitted to keep as much as $126,420 and a minimum of $25,284, known as the “Community Spouse Resource Allowance,” without putting the Medicaid eligibility of the spouse who needs long-term care at risk.

Determining the Community Spouse Resource Allowance requires totaling the countable assets of both the community spouse and the spouse in the long-term care facility, as of the date of admission to the nursing home. The date of admission is referred to as the “snapshot” date. The community spouse is also permitted to keep one-half of the couple’s total countable assets up to a maximum of $126,420 in 2019 and no less than the minimum of $25,284. The rest of the assets must be spent down.

Countable assets for Medicaid include all belongings. However, there are a few exceptions. These are personal possessions, including jewelry, clothing and furniture, one car, the applicant’s principal residence (if the equity in the home does not exceed $585,500 in 2019) and assets that are considered inaccessible, such as a spouse’s retirement accounts.

Unless an asset is specifically excluded, it is countable.

There are also Federal rules regarding how much the spouse is permitted to earn. This varies by state. In Pennsylvania, the spouse is permitted to keep all of their own income, regardless of the amount.

The rules regarding requests for additional income are also very complicated, so an elder law attorney’s help will be needed to ensure that the spouse’s income aligns with their state’s requirements.

These are complicated matters, and not easily navigated. Talk with an experienced elder law estate planning attorney to help plan in advance, if possible. There are many different strategies for Medicaid applications, and they are best handled with experienced professional help.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Delco Times (June 26, 2019) “Medicaid–Protecting Assets for a Spouse”

Special Tips for Retiring Singles

A 2018 Census Bureau report found that about 6% of Americans have never married and that 22% of Americans aged 64-75 live by themselves. For those who expect to retire as singles, special attention needs to be paid to financial, legal and social aspects of life, says the article “Retiring single” from Paradise Post.

Whether you perceive a solo retirement as liberating or challenging, you’ll need to be aware of how your future may be different than your present.

Be aware that your retirement needs might change. They can be impacted by the unexpected, from health issues or changes in your goals. A new ambition may emerge or a long-postponed dream could come to fruition. At this time of life, people begin new ventures, from travelling around the world to starting a new business.

Another thing to consider is that once you retire, your social circles are likely to change. The people who were a big part of your day-to-day life, like clients and co-workers, won’t necessarily remain friends once you retire. If you leave your current residence to retire to a new community, connections with people at your current location may also drift apart.

Make a concrete plan for strengthening existing relationships and friendships if you want them to continue. Don’t rely on social media for connections—you’ll want to see people in real life. Leave yourself open, especially if you relocate, to many different ways of making new connections and new friends. A hobby that you used to love, or a new hobby, could bring you into a new community. Consider volunteering for a cause that has meaning for you.

You also need to address your estate plan. This is especially important, if you have no family and no heirs. You still have an estate and you should have a say in how you are treated as you age and what happens to your possessions when you pass away. A will is used to distribute your possessions according to your wishes.

You will also want a power of attorney to protect you, should you become incapacitated. There are several different types and an estate planning attorney will be able to review which ones are best suited for your situation. A general power of attorney gives another person, your “agent,” the power to make financial decisions on your behalf. A special power of attorney gives that person the ability to act for you, but with limitations. A durable power of attorney is revocable by you and stays in effect, if you become incapacitated or mentally incompetent. There is also one more: the health care power of attorney authorizes another person who you name to make medical treatment decisions for you.

Give some thought to a plan for extended or long-term care. Not everyone ends up needing extended care, but a plan in place will give you peace of mind.

An estate planning attorney will be able to review your situation and determine what documents you need to achieve your goals and protect you during your retirement years.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Paradise Post (June 24, 2019) “Retiring single”

What Happens When Real Estate Is Inherited?

The number one question on most people’s minds when they inherit real estate is whether they have to pay taxes on it. For the part, people don’t have to pay taxes on what they inherit, unless they live in a state with an inheritance tax. There are tax forms to be filed, says the Petoskey News-Review in the article “The pros and cons of inheriting real estate,” but not every estate has to pay taxes.

The estate has to pay taxes on any gains or losses after the death of the decedent, if and when they sell the property. The seller will have either capital gains or capital losses, depending upon what the house was purchased for and what it sold for.

Let’s say that Mom purchased the house for $100,000, gave it to her children and then they sold it for $120,000. They have to pay capital gains on the $20,000. When someone dies, heirs get the step-up in basis, so they get the value of the property at the date of the decedent’s death. If mom bought the house for $100,000 and when she died it had jumped in value to $220,000 the children sold it for $220,000,n there would be no capital gain.

People who inherit property should have it appraised by an experienced real estate appraiser to determine the actual value at the date of death. An estate planning attorney will be able to recommend an appraiser.

One of the biggest disagreements that families face after the death of a loved one, centers on selling real estate property. Some families actually break up over it, which is a shame. It would be far better for the family to talk about the property before the parents die and work out a plan.

The sticking point often centers on a summer home being passed down to multiple heirs. One wants to sell it, another wants to rent it out for summers and use it during winters and the third wants to move in. If they can resolve these issues with their parents, it’s less likely to come up as a divisive factor when the parents die, and emotions are running high. This gives the parents or grandparents a chance to talk about what they want after they have passed and why.

Conflicts can also arise when it’s time to clean up the house after someone inherits the property. Mom’s old lemon juicer or Dad’s favorite barbeque fork seem like small items, until they become part of family history.

The best thing for families that are able to pass a house down to the next generation is to start the discussion early and make a plan.

An estate planning attorney can help the family work through the issues, including creating a plan for how the real estate property should be handled. The attorney will also be able to help the family  plan for any taxes that might be due so there are no big surprises.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Petoskey News-Review (June 25, 2019) “The pros and cons of inheriting real estate”

Estate Planning Can Solve Problems Before They Happen

Creating an estate plan, with the help of an experienced estate planning attorney, can help people gain clarity on larger issues like who should inherit the family home and small details like what to do with the personal items that none of the children want. Until you go through the process of mapping out a plan, these questions can remain unanswered. However, according the East Idaho Business Journal, “Estate plans can help you answer questions about the future.”

Let’s look at some of these questions:

What will happen to my children when I die? You hope that you’ll live a long and happy life and that you’ll get to see your children grow up and have families of their own. However, what if you don’t? A will is used to name a guardian to take care of your children, if their parents are not alive. Some people also use their wills to name a “conservator.” That’s the person who is responsible for the assets that any minor children might inherit.

Will my family fight over their inheritance? Without an estate plan, that’s a distinct possibility. Without a will, the entire estate goes through probate, which is a public process. Relatives and creditors can both gain access to your records and could challenge your will. Many people use and “fund” revocable living trusts to place assets outside of the will and to avoid the probate process entirely.

Who will take care of my finances, if I’m too sick? Estate planning includes documents like a durable power of attorney, which allows a person you name (before becoming incapacitated) to take charge of your financial affairs. Speak with your estate planning attorney about also having a medical power of attorney. This lets someone else handle health care decisions on your behalf.

Should I be generous to charities, or leave all my assets to my family? That’s a very personal question. Unless you have significant wealth, chances are you will leave most of your assets to family members. However, giving to charity could be a part of your legacy, whether you are giving a large or small amount. It may give your children a valuable lesson about what should happen to a lifetime of work and saving.

One way of giving is to establish a charitable lead trust. This provides financial support to a charity (or charities) of choice for a period of time with the remaining assets eventually going to family members. There is also the charitable remainder trust, which provides a steady stream of income for family members for a certain term of the trust. The remaining assets are then transferred to one or more charitable organizations.

Careful estate planning can help answer many worrisome questions. Just keep in mind that these are complex issues that are best addressed with the help of an experienced estate planning attorney.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: East Idaho Business Journal (June 25, 2019) “Estate plans can help you answer questions about the future.”