Articles Posted in Financial Planning

Medicaid is an important needs-based program to help pay for the vital healthcare of millions of at risk people in this country. In fact, many older Americans plan on using some part of Medicaid to pay for nursing home or in-home nursing care later on in life only to find out they do not qualify for the program because they own too many assets.

Fortunately, with a little forward thinking and estate planning, these individuals can spend down their assets to qualify for Medicaid and avoid possible look back penalties, if applicable. In fact, you may already be working on some of these types of thing already and never knew they would help you qualify for Medicaid.

Paying off debt

When someone passes away without creating a last will and testament or trust, the individual passes away in intestate, meaning his or her assets will be distributed to heirs based on a line of succession under New York state probate laws. While most of us plan for the time after we pass away, not everyone goes through the process of creating a will or trust and this can create some complex legal issues when the estate passes through probate.

 

Unless a trust is created, every estate must pass through probate court in New York, even if the deceased created a clear and concise will. However, there are a few types of assets that will not need to pass through intestate sucession if the decedent pases away without a will. These include:

 

  • Life insurance payouts
  • IRA, 401(k), or other retirement account
  • Securities from a transfer-on-death account
  • Bank accounts set up as payable-on-death
  • Property owned with someone else in joint tenancy

 

These types of assets already have beneficiaries named to them and therefore do not need to pass through any type of probate. However, other assets like homes, vehicles, personal possessions, other bank accounts will likely be subject to intestate succession.

 

Who receives inheritance in New York

 

New York Estates, Powers, and Trusts Laws lay out a clear line of succession when individuals pass away intestate. Typically, surviving spouses and children are among the first in this line of asset distribution. This table shows the full line of succession:

 

 

Children and no spouse Entire estate
Spouse and no children Entire estate
Spouse and children Spouse inherits first $50,000 of estate property & 1/2 balance. Children inherit remaining balance
Surviving parents, no children and spouse Entire estate
Surviving siblings only Entire estate

When can the state seize and estate?

 

The state of New York can actually take possession of an estate without a last will and testament in very limited circumstances. For the state to seize the estate, the deceased must pass away without creating a trust or last will and testament and must not have any surviving relatives.

 

Other surviving relatives eligible to receive assets from an intestate include half-siblings, adopted children, children conceived posthumously. Foreign relatives are also to receive assets from an intestate decedent, regardless of immigration status in the country.

 

While many of these scenarios are unlikely for your beneficiaries to go through if you created a trust or estate, you may find yourself in a position to inherit assets from a relative who did not create his or her own last will and testament. By understanding intestates and lines of succession in New York, you can advocate for yourself as an interested party in probate court and recover duly owed assets.

All grandparents want the best for their children and grandchildren and many take the initiative to set aside part of an estate to help future generations get a head start in life. Forward thinking grandparents should also be aware there are certain tax and entitlement benefits rules seniors need to follow to remain in compliance with the law in order to avoid jeopardizing many of their own assets.

First, grandparents need to know the Internal Revenue System (IRS) places a $14,000 limit on untaxable gifts each year to individual grandchildren. Married couples may each give up to $14,000 to each and every grandchildren without any taxes, making the total $28,000 per year. Grandchildren receiving these gifts will not have to pay any income tax of these gifts, unless the assets generate income.

Additionally, grandparents can make direct payments to doctors and educational institutions to cover services on behalf of their grandchildren. The IRS does not consider payments for medical treatment and education as gifts subject to tax and grandparents can still give up to $14,000 each per year to their grandchildren without worrying about gift taxes.

When determining how you want your estate and assets administered upon your death, it is also important to consider how you want decisions made in the event that you cannot make them for yourself. Naming a power of attorney has a number of benefits that will avoid any drawn out court proceedings to name an agent in the event of your incapacitation. Power of attorney documents name an individual, also known as an agent, to perform specific tasks when you cannot. These powers can vary, as there is medical/health care power of attorney and also property or financial power of attorney powers.

Medical power of attorney gives an individual the ability to make your health care decisions, such as where you should receive care, if you should receive a specific treatment in the event your wishes are not listed, as well as dealing with your insurance and medical premiums. Financial powers of attorney allow an individual, upon a specific event, to handle a variety of your financial matters on your behalf. While many people will name someone as power of attorney in the event of incapacitation, some will name a power of attorney to take effect immediately, thus, delegating decision making power.

These situations are predisposed to undue influence, something the court is very suspect of and will closely monitor in the event they believe an individual is abusing their power of attorney role over an elderly individual. In the event that you are competent and have named someone as a power of attorney, but due to a number of circumstances, including the end to a relationship or a possibility of undue influence, you wish to revoke the power of attorney, you can do so by delivering a notice to the power of attorney, your estate attorney, as well as other interested parties notified of the document.

When determining how you want your estate and assets administered upon your death, it is also important to consider how you want decisions made in the event that you cannot make them for yourself. Naming a power of attorney has a number of benefits that will avoid any drawn out court proceedings to name an agent in the event of your incapacitation. Power of attorney documents name an individual, also known as an agent, to perform specific tasks when you cannot. These powers can vary, as there is medical/health care power of attorney and also property or financial power of attorney powers.

Medical power of attorney gives an individual the ability to make your health care decisions, such as where you should receive care, if you should receive a specific treatment in the event your wishes are not listed, as well as dealing with your insurance and medical premiums. Financial powers of attorney allow an individual, upon a specific event, to handle a variety of your financial matters on your behalf. While many people will name someone as power of attorney in the event of incapacitation, some will name a power of attorney to take effect immediately, thus, delegating decision making power.

These situations are predisposed to undue influence, something the court is very suspect of and will closely monitor in the event they believe an individual is abusing their power of attorney role over an elderly individual. In the event that you are competent and have named someone as a power of attorney, but due to a number of circumstances, including the end to a relationship or a possibility of undue influence, you wish to revoke the power of attorney, you can do so by delivering a notice to the power of attorney, your estate attorney, as well as other interested parties notified of the document.

Blind Trusts

Blind trusts are another type of trust that is established in order to set assets aside and preserve them for a specific period of time, however the person establishing the trust has no control over the  funds and thus does not receive access to them. Additionally, the individual also does not receive periodic reporting of the assets held in trust and their investments.

Blind trusts are a type of irrevocable trust, meaning that the beneficiary does not have any control over the administration or distribution of the trust or its terms. The person establishing the trust relinquishes his or her rights to make decisions and gives the trustees, those people who are now in charge of managing and handling the assets, full power to make decisions. The maker of the trust only has the power to establish the trust and to terminate it.

The New Rule

When consulting a financial advisor, we all assume that they would have our best interest in mind when determining where our portfolio should be invested and what investments best suit our interests, however, this has not always been the case. This year, the Labor Department issued new regulations that require industry professionals dealing with individual retirement accounts and 401k accounts to act on the best behalf of their clients.

Before this new standard was issued, financial advisors only needed to meet a suitability standard, meaning that the financial advisor only has to choose what is suitable for the portfolio, which is not always what is in the client’s best interest. A financial advisor under this standard could invest in a fund he found suitable, but may be more risky or expensive, although a similar option is available with a different fund. This suitability standard led to many advisors investing in funds they were personally interested in, sparking a need for change.

Spendthrift trusts are a type of irrevocable trust in which the grantor seeks to leave property or assets to a beneficiary, under the terms they outline, by which the beneficiary cannot alter, because they have no legal claim to the trust property. An irrevocable trust is a type of trust by which the beneficiary cannot modify the terms of the trust without the first obtaining the permission of the grantor.

Irrevocable trusts allow the grantor to create this trust document in which they transfer their rights to the property into the trust and the trustee, a third party manager of the trust, now technically holds legal title, until the trust allows for vestment in the beneficiaries. Beneficiaries are not the only ones who lack control in these trust situations; in an irrevocable trust, once it is created, the grantor cannot undo the trust to obtain title to the property without first getting the consent of the trustee and beneficiaries.

When To Use a Spendthrift Trust

According to the 2010 Census, over 7.5 million unmarried couples or 15 million people, live together, a sharp increase from the 3.2 million unmarried couples living together in 1990. This increase in cohabitation has been attributed to a number of different factors, including increased living costs, decisions to marry later or not at all, and until recently, due to legal barriers for same sex couples.

There are many legal benefits to marriage, including rights to social security, immigration rights if one party is not a citizen, surviving spouse benefits, estate benefits, as well as joint bankruptcy filings and the right to refuse to testify against a spouse in a legal proceeding. However, these reasons alone are not justification to get married, which many couples are finding is not for them.

In order to ensure that your partner gets inheritance in the event of your passing, it is critical that the couple executes estate planning documents such as a will or trust. Naming your partner in your will ensures that they will be the beneficiary of the assets and property executed in the document. Additionally, name your partner as your beneficiary on all pensions, retirement accounts, and insurance policies and check those policies to determine if naming a non-family member is allowed or subject to specific rules.

Depending on the purpose of a trust, a trust may be able to further sustain its’ life and generate additional income by investing the funds originally set aside by the grantor in a variety of investment tools. In order to generate additional income, a professional investor will seek to have a diverse portfolio established in order to mitigate any potentially large losses and keep your funds safe.

While the idea of hitting it big with one major investment is the dream of many, the reality is highly unlikely, thus, investing money in a wider range of areas is beneficial. While the investment team and trustee will be able to best assess the proper investments for your trust funds, each situation will differ and will be influenced by the risk the trust is willing to take as well as the timeline for distribution of funds needed.

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