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Upcoming Seminars for Lawyers and Clients

Monday, February 8th, 2010

 

I’m conducting two seminars this week on the topic of Income Only Trusts. The first one is a teleseminar for attorneys around the country who are members of the professional group ElderLawAnswers.  Entitled Using Income Only Trusts for Medicaid (and General) Asset Protection, this teleseminar is Thursday, Feb. 11, at 2pm Eastern. If you’re a member of ElderLawAnswers, you can click here to register for the Teleseminar, 

The other is a free seminar I’m teaching on Saturday morning for clients and potential clients, entitled How to Protect Your Assets from the Expenses of Probate and Long Term Care.  This will be held at the Tysons Corner Mariott, 1960-A Chain Bridge Road, McLean, VA 22012.  Please click here to register for the Saturday morning seminar. 

The answer to the question “How Can You Protect Your Assets from the Expenses of Probate and Long Term Care?” is, of course, to use the Living Trust Plus™ Asset Protection Trust, my highly-developed and proprietary income only trust that’s currently used by dozens of successful Estate Planning and Elder Law Attorneys across the country. 

 As stated by Elder Law Answers, “Income Only Trusts have been around since the 17th century, but have only recently gained in use and popularity, in large part due to the publications and educational efforts of our speaker and long-time ElderLawAnswers member, Certified Elder Law Attorney Evan Farr.”

What most Elder Law attorneys don’t understand is that income only trusts also provide clients with protection from lawsuits and other general creditors, and in the ElderLawAnswers teleseminar, I will be demystifying the income only trust, explaining how and why it works, and explaining to my fellow ElderLawAnswers Members the dos and don’ts of income only trusts so that they may properly serve clients in this exciting and growing practice area.

For middle class Americans seeking asset protection, the income only trust is the preferable form of asset protection trust because, for purposes of Medicaid eligibility, the income only trust is the only type of self-settled asset protection trust that allows a trust settlor to retain an interest in the trust while also protecting the assets from being counted by state Medicaid agencies.

 For my clients and potential clients in the Washington, DC Metro area, by coming to my FREE class on Saturday, you’ll learn what thousands of my clients already know . . .

- That a Will puts your assets through probate, and is a very poor estate planning document.
- That a regular living trust protects your assets from probate, but offers you no asset protection.
- That my proprietary Living Trust PlusTM Asset Protection Trust protects your assets from the expenses of probate PLUS lawsuits PLUS the catastrophic expenses of nursing home care.

If you answer YES to any of the questions below, you need to attend this class:

 - Is someone in your household over age 65?
- Does someone in your household have a serious medical condition?
- Has someone in your household been turned down for long-term care insurance, or found it too expensive?
- Do you want to protect your assets for your family from the devastating expenses of long-term care?
- If you need long-term care in the future, do you want to receive the best possible care?

To learn all the details and find out if the Living Trust Plus™ is right for you, please register now at http://VirginiaElderLaw.com/seminars.html 

Protect and Prosper! 

–
Evan H. Farr, Certified Elder Law Attorney
Creator of the Living Trust Plus:  http://www.LivingTrustPlus.com
ALI-ABA Co-Author, Planning and Defending Asset-Protection Trusts (2009): http://www.ali-aba.org/bk64
ALI-ABA Co-Author, Trusts for Senior Citizens (2009): http://www.ali-aba.org/bk65
Farr Law Firm, 10640 Main St., Suite 200, Fairfax, VA  22030
Tel: 703-691-1888 | Fax: 703-940-9160
www.VirginiaElderLaw.com & www.VirginiaEstatePlanning.com
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NOTICE – Unless expressly stated otherwise, this communication: (1) is not legal advice absent an existing attorney-client relationship between us; (2) does not create an attorney-client relationship; (3) does not constitute an offer, acceptance, or contract amendment; (4) may contain confidential or legally privileged information protected by the attorney-client relationship and/or work product privilege; (5) is only for the use of the individual to whom it is intended by the sender to be sent, and if you are not such recipient, disclosure, copying, distribution or reliance upon this  communication is prohibited; and (6) is not intended, and cannot be used, to avoid tax-related penalties pursuant to treasury department circular 230.

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Posted in Asset Protection, Elder Law, Estate Planning, Medicaid Planning, Senior Care, Senior Professionals, Tax Planning | Comments Off

Major Change in Estate Tax and Capital Gains Tax for 2010

Wednesday, January 13th, 2010

Because of a Congressional failure to act before the end of 2009, there’s good news and bad news to report on the Estate Planning and Elder Law front.  The good news is there’s no Estate Tax if you die this year.  The bad news is you may owe significant capital gains taxes if a loved one dies this year and leaves you significant appreciated assets. If you have total assets of around $1 million or more (including face value of life insurance, retirement plans, home equity, etc.) you should make sure your estate plan is up to date.

Congress has had nine years to prevent this from happening, but has failed to act. Under the provisions of a Bush-era tax-cut bill enacted in 2001, the estate tax exemption has been gradually raised over the past eight years while the tax rate on estates has been reduced. For estates of those dying in 2009, only assets worth $3.5 million or more were subject to estate taxed, at a rate of 45 percent. But now, for the year 2010, the estate tax has disappeared entirely, only to be restored in 2011 at a rate of 55 percent on estates of $1 million or more, which is exactly where things stood before the 2001 change.

Everyone — lawyers, politicians, and political commentators — has expected for the past 9 years that this law would be “fixed” before the end of 2009, but it wasn’t.  According to some commentators, the Republicans concluded that it was in their interest to let the estate tax repeal occur; and the Democrats apparently don’t agree among themselves as to what they think the estate tax law should be, as Democrates have differing opinions over what the tax rate and the exempt amount should be. Senate Democrats tried to persuade Republicans to extend the 2009 estate tax law for a couple of months until a more permanent solution could be devised, but even that effort failed.  Accordingly, there is currently no tax on the estates of those dying during 2010. Congress could reinstate the tax retroactively in 2010, perhaps as part of broader tax reform, but this is not likely according to many commentators.

As the law stands, a few thousand very wealthy families have great financial incentive to hope that their loved ones die this year.  On the other hand, tens of thousands of taxpayers of more modest wealth may have great incentive to keep their loved ones alive into 2011, because if their loved one dies in 2010 and they inherit an appreciated asset, they may have pay capital gains on that inherited asset, and someone acting as an executor will face additional and confusing administrative burdens.

Loss of Step-Up in Basis May Be Quite Expensive for Many Taxpayers

For most people, the main concern with the law as it now stands is not that the estate tax is repealed for 2010; a bigger problem for many is that it’s replaced with a 15 percent capital gains tax on inherited assets that are later sold.  Previously, someone inheriting an appreciated asset (for example, a house that had greatly appreciated in value over the lifetime of your parents) upon a loved one’s death got a “step-up in basis” in the property. A step-up meant that heirs could sell the inherited, appreciated asset right away without owing any capital gains taxes, because the tax “basis” in the property was “stepped-up” to the value of the property at death.

If you inherit an asset now (in 2010), only the first $1.3 million in assets gets a step-up in basis. Anything over the $1.3 million in assets (plus $3 million for assets transferred to a surviving spouse) will not get a step-up in basis.  Instead, when you sell the property you’ll have to pay capital gains taxes based on the original cost basis (typically the price paid for the asset). This raises an additional concern — having to determine what the cost basis of the asset was.  This in itself could be quite expensive, not to mention time-consuming in trying to ascertain the original price paid for assets, including any renovations or improvements made to real estate over the years.

The capital gains tax rules can be quite complicated, but let’s look at a relatively simple example:  a client called me a few days ago with a home worth approximately $1 million and 40 acres of commercial land that her father gifted to her prior to his death, now worth approximately $2 million. The home was originally purchased by my client for $8,000 in 1961 and she put a $40,000 addition on the home in 1982, so her tax basis in the home is $48,000. Her father originally purchased the 40 acres of land around 1943, for $1,000; at the time of his death in 1992, the 40 acres was worth about $600,000.  Had he left the land to his daughter upon his death, she would have taken a stepped-up basis under the old law, but because he gifted it to her prior to his death, she took over his cost basis of $1,000.  So now her two parcels have a total cost basis of $49,000.  If my client had died last year, then her heirs would have received a step-up in basis, meaning if they sold the properties for their current value of $3 million, they would pay no capital gains tax.  Under today’s law, if my client dies this year, in 2010, her heirs will inherit her cost basis of $49,000, meaning that if her heirs then sell these properties for their current value of $3 million, they will pay a 15% capital gains tax on $1,651,000 ($2,951,000 – $1,300,000), or $247,650 in tax.

The chief tax counsel for the House Ways and Means Committee estimates that continuing the estate tax at its 2009 rates would have affected about 6,000 people, but the new capital gains provisions that we now have will affect more than 70,000. And, in general, these 70,000 will be far less wealthy than the heirs who would have been affected by a continuation of the estate tax.

Couples With Credit Shelter Trusts at Risk

The new world of no estate tax places at particular risk certain couples who have built in “Credit Shelter” trust provisions (also called ”Bypass Trust” or “Family Trust” provisions), that are designed to allow both spouses to take advantage of their estate tax exemptions. These are common arrangements used in estate planning for married couples. With the estate tax gone, one possible problem is that the wording of some of these trusts could cause all assets to completely bypass the surviving spouse when the first spouse dies, meaning a surviving spouse might get nothing without the expensive process of claiming her “elective share.” For a more detailed explanation of this potential problem, click here.

Why Did This Happen?

The House passed a bill in early December permanently extending the 2009 estate tax rules, which would have brough in an estimated $25 billion for 2009 by imposing the 45 percent rate on estates over $3.5 million (or $7 million for a couple). The Senate’s Democratic leadership wanted to pass a similar bill and put it on President Obama’s desk before the estate tax expired at the end of 2009, but they were blocked by united Senate Republicans who prefer a lower tax rate of 35 percent and a higher exclusion amount of $5 million ($10 million for couples).

“Republicans who claim to have accomplished something by blocking an extension need to explain why raising taxes on the middle class while lowering them for the very rich is something to be proud of,” the Los Angeles Times editorialized.

For more on the implications of the disappearance of the estate tax, see CBS MoneyWatch’s “Estate Tax: What You Need to Know for 2010,”SmartMoney’s “The Federal Estate Tax Is Dead: Now What?,”and Kiplinger’s “FAQs on the Death of the Estate Tax.”

Everyone — Especially Married Couples — Should Have Their Estate Planning Reviewed ASAP

Because of these somewhat unexpected tax changes, a review of your existing estate planning documents is essential.  If you are a member of the Farr Law Firm’s Estate Plan Protection Program or Lifetime Protection Program, you are entitled to a free review (and, if necessary, a free modification) of your existing estate planning documents every year, and you should call us to take advantage of this annual review as soon as possible.  Most of our trusts will not need to be modified because of special language we inserted in the document, but changes to some trusts may be required.  If your estate planning was done by a different attorney, you should consider going back to that attorney for a review; alternatively, please feel free to contact our office and we will be happy to do a free review of your estate planning documents, determine if any changes are required, and quote you a fee for us to prepare the necessary revised documents.

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Posted in Asset Protection, Elder Law, Estate Planning, Medicaid Planning, Senior Professionals, Tax Planning | Comments Off

Important Elder Law and Estate Planning Numbers for 2010

Tuesday, January 5th, 2010

Under current law, there will be no cost-of-living adjustment (COLA) in Social Security in 2010 — the first time that has happened since automatic cost-of-living adjustments began in 1975. Several bills before Congress would grant a special increase in Social Security payments for 2010.

In addition, when no Social Security COLA is provided, Medicare Part B premiums — which are deducted from Social Security checks — are frozen for most beneficiaries so that the Social Security checks do not drop (click here for more information).

Below are figures for 2010 that are frequently used in the elder law practice, including the new Medicaid spousal impoverishment figures, the long-term care insurance deductibility limits, and Medicare premiums and co-pays, and Social Security Figures:  

Medicaid Figures for 2010 

Divestment Penalty Divisor $ 6,654.00 – Northern Virginia (Arlington, Fairfax, Loudoun and Prince William Counties and the Cities of Alexandria, Fairfax, Falls Church, Manassas and Manassas Park.)
$ 4,954.00 – All Other
Individual Resource Allowance $ 2,000.00
Monthly Personal Needs Allowance $ 40.00
Minimum Community Spouse Resource Allowance $ 21,912.00
Maximum Community Spouse Resource Allowance $ 109,560.00
Minimum Monthly Maintenance Needs Allowance $ 1,821.25
Maximum Monthly Maintenance Needs Allowance $ 2,739.00
Shelter Standard $ 546.38
Standard Utility Allowance $ 141

Estate Tax Exclusion / Exemption Equivalent Amount: 

Unlimited Exemption (Estate Tax Temporarily Repealed for 2010).  Exemption currently set to revert to $1 million in 2011.

 Annual Gift Tax Exclusion: $13,000  

Attained age before the close of the taxable year Maximum deduction
40 or less $330
More than 40 but not more than 50 $620
More than 50 but not more than 60 $1,230
More than 60 but not more than 70 $3,290
More than 70 $4,110
Beneficiaries who file an individual tax return with income: Beneficiaries who file a joint tax return with income: Income-related monthly adjustment amount Total monthly premium amount
Less than  or equal to $85,000 Less than or equal to $170,000 $0.00 $110.50
Greater than $85,000 and less than or equal to $107,000 Greater than $170,000 and less than or equal to $214,000 $44.20 $154.70
Greater than $107,000 and less than or equal to $160,000 Greater than $214,000 and less than or equal to $320,000 $110.50 $221.00
Greater than $160,000 and less than or equal to $214,000 Greater than $320,000 and less than or equal to $428,000 $176.80 $287.30
Greater than $214,000 Greater than $428,000 $243.10 $353.60
 

Social Security Figures for 2010

         (Click here for SSA Press Release)
         (Click here for SSA Fact Sheet) 

  • Cost of Living Increase: 0 percent 
  • Maximum Taxable Earnings: $106,800   

SSI Federal Payment Standard:  

  • Individual: $674/mo.
  • Couple: $1,011/mo.

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Posted in Asset Protection, Elder Law, Estate Planning, Medicaid Planning, Tax Planning, health care | 1 Comment »

Did you see last Sunday’s Washington Post article?

Friday, November 6th, 2009

Did you catch last Sunday’s Washington Post article by David Hilzenrath, about the October bankruptcy filing of Erickson Retirement Communities? My phone has been ringing all week with people concerned about this news, because Erickson is a major developer and manager of Continuing Care Retirement Communities (CCRCs) for senior citizens.

In the Washington area, Erickson communities include: Greenspring in Springfield, Virginia; Ashby Ponds in Ashburn, Virginia; and Riderwood in Silver Spring, Maryland. I spoke with the author prior to the article and gave him some of the information that he referenced in the article. As he explained, the recession and the real estate crisis have raised concerns for people who paid significant money — often hundreds of thousands of dollars — to enter CCRCs such as these.

It’s important to understand that the deposits that senior pay are simply for the privilege of moving in; at most CCRCs, the deposits generally do not confer any ownership in the real estate, and the deposits are in addition to the regular monthly fees for the facility, which increase as the level of care increases — from independent living up to assisted living and eventually nursing home care. Here’s a link for the article in case you missed it: http://tinyurl.com/EricksonBankruptcy.

In a companion article (http://tinyurl.com/ScrutinizeContracts), headlined Scrutinize any contract to avoid nasty surprises at continuing care community, the author points out that the entrance agreements for these facilities should always be reviewed by an attorney. “If you are considering moving to a continuing care retirement community,” the author says, “you would do well to consult a lawyer and read the fine print of any contract to determine whether the potential benefits outweigh the risks.” I have recommended this to my clients for years, and encourage everyone in the Northern Virginia area moving into a CCRC to have me review the contract.  But please note — it is very important to have me review the contract prior to signing the contract. For many of the people calling me this week who read the article and are concerned, there’s nothing I can do because they already signed their contract. These folks I referred to a real estate litigation attorney to discuss the possible results of what might happen if they fail to go through with their contract. Those results could include being sued for breach of contract by the owner of the facility, and possibly being forced to pay significant monetary damages.

One risk in connection with the entrance contract is that most CCRC contracts require you to agree not to give away any assets that would bring your net worth below a minimum requirement (in order to help assure management that you have the ability to pay their ongoing charges). The author quotes me in article, saying “Evan H. Farr, a Fairfax lawyer who specializes in issues facing the elderly, recommends putting any extra assets in an asset protection trust before you move in.” 

I’m very glad that the author included this quote in his article, because far too many people move into these types of facilities without giving asset protection a second thought. If you are considering moving into a CCRC, it behooves you to not just have me review the contract, but to also have me create the proper type of asset protection trust for you to put your extra assets in before you move in to the community.  What is the proper type of asset protection trust?  It’s my proprietary Living Trust PlusTM Asset Protection Trust — the trust that protects your assets from the expenses of probate PLUS lawsuits PLUS the catastrophic expenses of nursing home care. 

As the creator of the Living Trust PlusTM and the leading expert on this type of trust in the country, I’ve taught thousands of attorney across the country about the benefits of these trusts, and I’m actually teaching another course on this subject to attorneys tomorrow at an annual conference of the National Academy of Elder Law Attorneys.  If you want to find out more about the  Living Trust PlusTM, please come to a free class I’m teaching for members of the public on Saturday, November 14, 2009 at 10:00:00 AM, at the Tysons Corner Mariott, 1960-A Chain Bridge Road, McLean, VA 22012. 

By coming to this FREE class, you’ll learn what thousands of attorneys and clients already know . . .

- That a Will puts your assets through probate, and is a very poor estate planning document.
- That a regular living trust protects your assets from probate, but offers you no asset protection.
- That my Living Trust PlusTM Asset Protection Trust protects your assets from the expenses of probate PLUS lawsuits PLUS the catastrophic expenses of nursing home care.

To register, just go to http://evanfarr.com/seminars.html.

I hope to see you soon!

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Posted in Asset Protection, Elder Law, Estate Planning, Medicaid Planning, Senior Care, health care | 1 Comment »

What Does the Bible Teach us About Estate Planning?

Monday, October 5th, 2009

Sorry for the last minute notice, but I just found out that my church, Fairfax United Methodist Church (10300 Stratford Avenue, Fairfax, VA  22030), has space left for a course I’m teaching tomorrow evening entitled What Does the Bible Teach us About Estate Planning?This is a brand-new two part course seminar that I’ve just put together as part of my church’s Paths of Faith educational outreach program.  

 

 Did you know there are hundreds of mentions of the word “inheritance” in the Bible, but there is very little information available to families seeking to plan and protect their estates.  Every person’s estate is different, and each estate plan must be designed to meet the needs of that family’s situation, but we should look not just to the law, but also to the Bible for direction in planning our estates and protecting our wealth (and not just our material wealth).

Part 1 of this course (tomorrow evening, October 6, from 7 to 8:30) will examine and summarize the Biblical perspectives on estate planning, elder law, and asset protection and explain what the Bible teaches us about these complex and ever-changing areas of the law. 

Part 2 of this course (next Tuesday evening, October 13, from 7 to 8:30) will examine how families, through the use of traditional and not-so-traditional estate planning tools, can legally and morally take the steps they need to plan and protect themselves, their families, and their estates, while glorifying God in the process. 

I’d love for you to attend if you’re able to make it, and bring your friends and family! Tuition for both sessions is $25.  To register, please call the church at 703-591-3120 ext. 105.  I hope to see you there!

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Posted in Asset Protection, Elder Law, Estate Planning, Medicaid Planning, Senior Care, Tax Planning, health care | 2 Comments »

Evan Farr Teaches Course for Elder Law Attorneys Natonwide

Sunday, September 20th, 2009

~You Can Sign Up for a Similar Course for Consumers~

Last Thursday, Evan Farr conducted a national, attorney-only teleconference sponsored by the National Business Institute (NBI) on the topic of the Income Only Trust — an asset protection trust which, though very similar to a revocable living trust, when done properly protects assets transferred to it after five years in connection with Medicaid.

Here’s an article written about Evan’s seminar and about the income-only trust: http://tinyurl.com/l3qc7q.

This is the 2nd national teleseminar that Evan Farr has done for NBI on this topic. Evan has also done a similar national teleseminar for ALI-ABA (American Law Institute – American Bar Association), in connection with two recent scholarly publications for the legal profession published by ALI-ABA, with Evan Farr as the lead author, entitled Planning and Defending Asset Protection Trusts and Trusts for Senior Citizens.

If you’d like to attend a similar seminar for consumers, we still have openings for our 2 lunch seminars this week — on Tuesday and Thursday at noon. To register, please click the link to the right or call 703-691-1888 and speak to Jeannie.

For more information about the Income Only Trust, and about Evan Farr’s Living Trust Plus™ Asset Protection Trust (which is Evan’s highly-developed and perfected Income Only Trust, used by dozens of attorneys across the country), please visit http://www.livingtrustplus.com.

Every day, our firm helps clients protect significant assets through the use of the Living Trust Plus™ Asset Protection Trust and still qualify for Medicaid. Our Firm specializes in Asset Protection and Estate Planning for clients concerned about the devastating expenses of long-term care. To begin the process, please call us today at 703-691-1888.

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Posted in Asset Protection, Elder Law, Estate Planning, Long-Term Care Insurance, Medicaid Planning, Senior Care, Uncategorized | Comments Off

Update on Virginia Life Estate Law

Wednesday, July 8th, 2009

In June of last year, I wrote that “in the near future, life estates will no longer be considered exempt assets when applying for Medicaid.” This was due to the fact that the Virginia General Assembly had recently passed legislation instructing DMAS (the Department of Medical Assistance Services, the agency that oversees the Virginia Medicaid program) to amend the State Medicaid Plan to consider all life estates as countable resources in the determination of Medicaid eligibility. After my column, the new change in Medicaid policy did indeed go into effect. However, since then, the policy has been changed yet again. This article will summarize the changes in the life estate law and explain the current Virginia Medicaid policy.

Life Estate Rule Made More Restrictive
Prior to August 2008, the Virginia Medicaid State Plan treated life estates in real property as exempt resources, meaning that the ownership of a life estate did not affect Medicaid eligibility. Effective August 28, 2008, the aforementioned change in Medicaid policy made life estates created after that date countable resources under most situations, though subject to the same exclusions that apply to other residential real estate (e.g. the home subject to the life estate would be exempt if the Medicaid Applicant, or a spouse or dependent child, was living in the home or the Medicaid Applicant was using “reasonable efforts” to sell the property interest, or during the first 6 months of institutionalization provided the Medicaid Applicant intended to return home).

The American Recovery and Reinvestment Act of 2009 (Recovery Act) that President Obama signed into law on February 17, 2009 provided increased federal funding for state Medicaid programs. To be eligible for the enhanced federal financing, states may not have eligibility standards, methods or procedures in place that are more restrictive than those effective on July 1, 2008. States that implemented more restrictive policies after July 1, 2008 had until July 1, 2009 to reverse these restrictions to receive the increased funding.

More Restrictive Life Estate Rule Rescinded
The August 28, 2008 change in Virginia Medicaid policy regarding life estates created a more restrictive eligibility standard than was in existence in Virginia on July 1, 2008. Therefore, in order for Virginia to qualify for the increased federal funding, the more restrictive life estate policy needed to be reversed. As of May 15, 2009, the more restrictive life estate policy was rescinded. Accordingly, we now have two diferrent Medicaid rules for life estates, depending on the date that the life estate was created:

* As a general rule, life estates created prior to August 28, 2008, or on or after February 24, 2009, are considered exempt assets.
* Life estates created on or after August 28, 2008, but before February 24, 2009, are treated in the same manner as other real property, subject to any applicable residential real property exclusions as mentioned above.

How Can Life Estates Now Be Used in Medicaid Asset Protection Planning?
Life estates have been used throughout Virginia history for many different purposes – Medicaid asset protection planning, estate planning, probate avoidance, and tax planning.

One asset protection strategy involves a parent purchasing a life estate in the home of a child. This strategy is specifically allowed by Medicaid under current law so long as the parent actually resides in the home for at least a year after the purchase of the life estate.

Another planning strategy involves the sale of real estate to a child, coupled with the retention of a life estate. This allows the parent to effectively sell the home for a discounted value, retain the lifetime right to live in the home, and avoid probate, while also preserving a step-up in basis for capital gains purposes on the death of the parent.

A third planning strategy involves the gift of real estate to a child, coupled with a retained life estate. Although this gift will trigger a period of Medicaid ineligibility if application for Medicaid is made within five years of the transfer, because the value of the remainder interest is lower than the full value of the entire piece of real estate, a gift of a remainder interest results in a shorter Medicaid penalty period than a transfer of the entire house.

A parent retaining a life estate in a home that is being sold or gifted to a child has several advantages:

1) The parent continues to qualify for any property tax exemptions such as senior citizens exemptions that were available prior to the transfer.
2) The parent retains the legal right to live in the property.
3) The parent retains the legal ability to obtain a reverse mortgage (with the agreement of the remainder beneficiary).
4) The child receives a stepped-up basis for capital gains tax purposes.

Life Estate transactions, and the financial and life expectency calculations that must be made in connection with these transactions, are extremely complicated and must be done pursuant to the applicable Medicaid regulations. It is essential that these types of transactions be done under the direct supervision of an experienced Elder Law firm such as the Farr Law Firm.

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Posted in Asset Protection, Elder Law, Estate Planning, Medicaid Planning, Tax Planning, Uncategorized | 1 Comment »

Updating Your Estate Plan When Your Finances Change

Wednesday, June 24th, 2009

In the recent economic downturn, many homes have lost considerable value and stock portfolios have plummeted. If this is the case for you, as it is for many of our clients, you may need to change your will or amend your living trust.

If your estate plan divides your estate into percentages for beneficiaries, then changes in value won’t affect how your estate is distributed. However, if you include specific bequests in your will, a fall or rise in the value of your estate could have significant consequences. For example, if your estate plan gives $50,000 to your favorite charity and the rest of your estate to your children, a reduction in the value of your estate could mean your children won’t get as much as you intended.

A change in value of assets could also affect your estate plan if you intended to treat your children equally by giving them assets of equal value. For example, suppose your will gives your house worth $500,000 to your daughter and your stock worth $500,000 to your son. If the value of either the house or the stock portfolio increases or decreases significantly in value, your children will no longer receive equal gifts. It is also important to update your estate plan if the overall nature of your assets has changed. For example, if you sold the stock and bought real estate instead, this will affect the distributions to your children.

In addition, given the current uncertainty surrounding estate taxes, it is important to assess whether your estate might be subject to estate taxes. Under current law, estates in 2009 worth more than $3.5 million will be subject to federal taxes on death; next year, in 2010, there will be no estate taxes; but in 2011, estates worth more than $1 million will be subject to federal estate taxes. Hopefully Congress will act before 2011 to prevent this drastic decrease in the estate tax exemption, but they may not, so it is important to be prepared for any eventuality.

Lastly, whether you’re rich, poor, or somewhere in between, you cannot afford to ignore the potentially devastating costs of nursing home care and other types of long-term care, because the best estate plan in the world quickly becomes useless if you lose need nursing home care and haven’t planned for how to pay for such care. Approximately 70% of Americans who live to age 65 will need long-term care at some time in their lives; and nursing homes are the most likely and one of the most expensive creditors that most Americans are likely to face in their lifetimes.

In response to this problem, Evan Farr has developed a unique solution – he’s created a special type of asset protection trust called the Living Trust PlusTM that functions very similarly to a revocable living trust and maintains much of the flexibility of a revocable living trust, but protects your assets from the expenses and difficulties of probate PLUS the expenses of long-term care while you’re alive, PLUS lawsuits and a multitude of other financial risks during your lifetime. The Living Trust PlusTM Asset Protection Trust protects your assets from lawsuits, auto accidents, creditor attacks, medical expenses, and — most importantly for the 99% of Americans who are not among the ultra-wealthy — from the catastrophic expenses often incurred in connection with nursing home care. For more information about the Living Trust PlusTM, click here.

The Farr Law Firm specializes in Estate Planning and Asset Protection for clients in all walks of life. With the expert guidance of Evan Farr, who is a Certified Estate Advisor and Certified Elder Law Attorney, we empower clients each day to plan their estates to weather future contingencies. To begin the process, or to have your current estate plan reviewed by Evan Farr, please call us at 703-691-1888 or visit our Web site.

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Planning for Long-Term Care (Part 2)

Monday, February 16th, 2009

“Long-Term Care” refers to the broad spectrum of medical and support services provided to persons who have lost some or all capacity to function on their own due to a chronic illness or disabling condition, and who are expected to need such services over a prolonged period of time. Long-term care can consist of care in the home by family members (assisted by voluntary or employed help), adult day health care, or care in assisted living facilities or nursing homes.

In Part 1 of this series I mentioned that 60% of us will need long-term care at some point in our lives. When this statistic is put in perspective with the relatively low likelihood of making an automobile or homeowner’s claim, the risk that you or I will need long-term care at some point in the future is shocking. Yet, the majority of Americans are either unaware of these statistics or refuse to plan for the often catastrophic costs of long-term care. Part 1 of this series outlined the necessity to create a good Long-Term Care Plan in addition to, or as part of, your Estate Plan; Part 2 will now discuss the three most essential documents found in a good Long-Term Care Plan, as well as two additional documents that are often also part of a Long-Term Care Plan.

General Power of Attorney
A General Durable Power of Attorney (POA) containing Asset Protection Powers is the first essential document. Not all POA’s are created equal; it is crucial that this document be prepared by a knowledgeable and experienced Elder Law Attorney. One way to ensure the qualifications of your attorney is to look for one who is Certified as an Elder Law Attorney by the National Elder Law Foundation, the only organization accredited by the American Bar Association to certify lawyers in the specialty area of Elder Law. For a list of Certified Elder Law Attorneys, please visit http://www.nelf.org/findcela.asp.

A POA (always “durable” when used in connection with estate planning and long-term care planning) authorizes your “Agent,” sometimes called an “Attorney in Fact,” to act on your behalf and sign your name to legal and financial documents. It is an essential tool in the event that, due to age, illness, or injury, you are unable to carry on your legal and financial affairs. Asset Protection Powers written into the POA are essential in order for your Agent to protect your assets from the often-catastrophic expenses of long-term care. Attorneys who are not experienced Elder Law Attorneys often fail to put these essential Asset Protection Powers into the POA.

A properly-drafted POA is designed to avoid the need to go through a court-supervised conservatorship proceeding, which is a time consuming, expensive, and publicly embarrassing process whereby someone goes to court to have you declared incompetent and to be appointed as your Conservator. The Conservatorship process is often referred to as a type of “living probate” because the Conservator is subject to all the rules of the probate court, including the onerous requirement of filing annual accountings with the Court. State laws vary regarding the use and acceptance of a power of attorney.

Advance Medical Directive
 The second essential document in a good Long-Term Care Plan is an Advance Medical Directive (AMD) containing a Long-Term Care Directive. As with General Powers of Attorney, every lawyer drafts AMDs differently, and most attorneys do not include a Long-Term Care Directive within the AMD. Therefore, it is again in your best interest to have your AMD written by an attorney who specializes in long-term care planning, such as a Certified Elder Law Attorney.

An AMD (also called a Medical Power of Attorney or a Health Care Power of Attorney) authorizes another person (called your “Medical Agent”), to make decisions with respect to your medical care in the event that you are physically or mentally unable to do so. This document includes the type of provisions that used to be in what was commonly called a “Living Will,” allowing you to indicate your wishes concerning the use of artificial or extraordinary measures to prolong your life in the event of a terminal illness or injury. In the AMD you will also appoint a “Medical Agent” and give that person the power to consent to medical and health care decisions on your behalf with regard to providing, withholding, or withdrawing a specific medical treatment or course of treatment when you are incapable of making or communicating an informed decision on your own behalf. A comprehensive AMD will also allow you to indicate your wishes with regard to organ donation, disposition of bodily remains, and funeral arrangements.

A properly-drafted AMD is designed to avoid the need to go through a court-supervised guardianship proceeding, which is a time consuming, expensive, and publicly embarrassing process whereby someone goes to court to have you declared incompetent and to be appointed as your Guardian, typically at the same time they are requesting appointment as your Conservator.

Long-Term Care Directive
 Most importantly for your Long-Term Care Plan, your AMD should include a Long-Term Care Directive (or this could be drafted as a separate document), which will allow you to make your desires known in the event you need long-term care in the future. For instance, do you want to remain at home and receive home-based care as long as possible, regardless of cost, even if it drastically reduces or entirely depletes your estate? Or would you prefer to remain at home and receive home-based care only if it doesn’t drastically reduce or entirely deplete your estate? If nursing home care is absolutely required, would you like to protect as much of your assets as can be legally protected so that you can qualify earlier for publicly-funded Medicaid benefits? If so, do you prefer that the protected assets be used to enhance your quality of care, or to provide an inheritance for the beneficiaries of your estate?

In order to be easily accessible when needed, your AMD should be registered with an electronic archive service that can immediately fax the document to any desired destination. Some Elder Law Attorneys, including our firm, provide such registrations to clients at no charge.

Advance Care Plan
The third essential document that is found in a good Long-Term Care Plan is a document called an Advance Care Plan. The Advance Care Plan is a document that is created by special software that gathers, organizes, stores and disseminates information provided by you in an interview, in order to guide those who you will depend or for future care. The Advance Care Plan identifies your specific needs, desires, habits and preferences and incorporates all of this information into a document that your future caregiver can use to provide you with the best possible long-term care.

As an example, Alice wrote in her Advance Care Plan that if Alzheimer’s disease or some other type of dementia inhibited her mental abilities to communicate or recognize her surroundings, she wished to be in a respectable facility and only asked that she be visited and brought chocolates. To her children this request seemed silly at the time, but when her mental capacities did diminish, the instructions were there. No one had to wonder if they should try to take care of Alice at home and how they would do it. Without guilt or question they placed her in a respectable facility that took care of her needs. All they had to do was make loving visits, and of course they brought chocolates.

Because of the importance of the Advance Care Plan, the Farr Law Firm provides one to all of our clients as part our comprehensive Long-Term Care Planning services. To learn more about the benefits of having an Advance Care Plan, please click here or visit our Web site at: www.farrlawfirm.com/advance-care-plan.htm

Living Trusts
A good Long-Term Care Plan will always include the three documents mentioned above, and will typically also include a Living Trust — either a Revocable Living Trust (RLT) or an Irrevocable Income-Only Trust (IOT).

An RLT generally provides for the creator of the trust to have full use of the trust income and principal for life. On the death of the creator, the assets may continue to be held in trust (or may be distributed) for the benefit of the named beneficiaries, such as the grantor’s children. Although the most important benefit of the RLT is to avoid probate, a well-drafted RLT also can help protect from incapacity and can therefore be an important part of a Long-Term Care Plan. Similar to a General Power of Attorney, an RLT can provide uninterrupted management of your assets by your trustee if you become incapacitated, sparing you and your family from having to go through the expense and complexities of a court-appointed conservatorship. It is important to note that an RLT does not protect your assets from the expenses of long-term care. On the contrary, the assets in an RLT must be spent, if necessary, in providing long-term care, even if that means spending down all of the assets in the RLT to provide such care. For more information on RLTs, please click here or visit our Web site at: www.farrlawfirm.com/revocable.html

 An IOT is a living trust that is designed to protect your assets from the expenses and difficulties of probate and also protect your assets during your lifetime from a multitude of other financial risks, including the threat of lawsuits, auto accidents, creditor attacks, extended hospitalization, and — most importantly – the catastrophic expenses associated with nursing home care. Part 4 of this series will explore the IOT in detail.

Conclusion
A good Long-Term Care Plan will always include a General Power of Attorney, Advance Medical Directive, and Advance Care Plan, and will typically also include a Living Trust — either a Revocable Living Trust or an Irrevocable Income-Only Trust. However, as mentioned in Part 1, these essential legal documents are only part of the requirements for a good Long-Term Care Plan. The other important component is a plan for how to pay for long-term care. The next installment in this series will discuss protecting your assets by purchasing long-term care insurance.

The Farr Law Firm specializes in long-term care planning and we would be happy to assist you in your preparations. Please visit us at www.virginiaelderlaw.com or call 703-691-1888.

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Estate Planning For Parents of Special Needs Children

Wednesday, October 22nd, 2008

A recent Wall Street Journal article focused on estate planning for parents of children with special needs, which includes the following challenges:

 - How do you leave funds for the benefit of the child without causing the child to lose important public benefits?
- How do you make sure that the funds are well managed?
- How do you make sure that your other children are not over-burdened with caring for the disabled sibling?
- What is fair in terms of dividing your estate among your disabled child and your other children?
- How do you make sure there’s enough money to meet your disabled child’s needs?

Often, parents of children with special needs try to resolve these issues by leaving their estates to their healthy children — disinheriting the disabled children. These parents offer a variety of justifications for this approach:

- The disabled child shouldn’t receive anything because she can’t manage money and would lose her benefits.
- She doesn’t need any inheritance because she will be taken care of by the public benefits she receives.
- The other children will take care of their sister.  

This approach is to be discouraged for a number of reasons. First, public benefits programs are often inadequate. They need to be supplemented with other resources. Second, both public benefits programs and individual circumstances change over time. What’s working today may not work tomorrow. Other resources need to be available, just in case. Third, relying on one’s other children to take care of their siblings places an undue burden on them and can strain relations between them. It makes it unclear whether inherited money belongs to the healthy child to spend as he pleases, or whether he must set it aside for his disabled sister. If one child sets money aside, and the other doesn’t, resentments can build that may split the family forever.

The better answer to many of these questions is a special type of trust called a “Supplemental Needs Trust” or a “Special Needs Trust.” Such trusts fulfill two primary functions: the first is to manage funds for someone who may not be able to do so himself or herself due to disability. The second is to preserve the beneficiary’s eligibility for public benefits, whether that be Medicaid, Supplemental Security Income, public housing, or any other program. They come into play in a multitude of situations, including parents planning for a disabled child, a disabled individual coming into an inheritance or winning or settling a personal injury claim, or one spouse planning for a disabled spouse. 

First, a short explanation of what trusts are and how they work: A trust is a form of ownership of property, whether real estate or investments, where one person – the trustee – manages such property for the benefit of someone else – the beneficiary. The trustee must follow the instructions laid out in the trust agreement as to how to spend the trust funds on the beneficiary’s behalf – whether and when to distribute the trust income and principal. In the special needs context, trusts fall generally into two main categories: self-settled trusts that the beneficiary creates for himself with his own money and third-party trusts that one person creates and funds for the benefit of someone else. 

Each situation and each benefit program has its own rules which affect the drafting, funding and administration of special needs trusts. The public benefit programs in many ways track the treatment of trusts in terms of creditor protection. Just as in most states you cannot create a trust for your own benefit and protect the trust funds from creditors, you generally cannot create a trust for your own benefit and have the funds uncountable for purposes of Medicaid, SSI and other public benefits programs. However, Medicaid and SSI have provided for “safe harbors” that permit the creation of self-settled special needs trusts in certain circumstances. 

Preserving Public Benefits  

In general, if one person creates a trust for the benefit of someone else, and the trust is drafted to give the trustee complete discretion whether and when to make distributions to the beneficiary, the trust funds will not be considered as available when considering the trust beneficiary’s eligibility for public benefits. Unfortunately, matters get more complicated when the trust assets are actually used for the beneficiary. For instance, trust funds distributed to a beneficiary will reduce that beneficiary’s SSI dollar for dollar. In many circumstances, trust funds used on the beneficiary’s behalf will also cause a reduction in SSI benefits. In other words, while the existence of a properly-drafted trust will not affect eligibility for benefits, the use of the trust funds could if extreme care is not taken. 

The Farr Law Firm can help parents decide what type of Special Needs Trust best fits their child’s particular situation. Parents need to consider the structure of the trust with their child’s basic needs in mind.  Factors to consider include the nature of the child’s special needs, the source and type of the child’s assets and whether the child is going to have access to the trust throughout his or her lifetime.

For additional information about Special Needs Trusts, please see www.VirginiaSpecialNeeds.com and click on the link for Special Needs Trusts.

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