We sometimes hear from people that are looking for damage control solutions after a loved one has made an estate planning mistake. As a result, we are aware of the mistakes that can be made, and we will look at some of them here to raise awareness.
Assuming Trusts Are Only for the Wealthy
You should not assume that trusts are only used by very wealthy people that have complex holdings and estate tax concerns. Yes, there are trusts that can provide estate tax efficiency and provide income over multiple generations, but there are other types of trusts.
A revocable living trust is one of them, and you would act as the trustee during your life if you have this type of trust. As the grantor, you can change the terms at any time, and after your passing, the successor trustee would distribute assets to the beneficiaries.
The trust would become irrevocable after your death and the assets would be protected from the beneficiary’s creditors. You could instruct the trustee to provide limited, incremental distributions over time if you choose to do so.
Many people with disabilities rely on Medicaid as a source of health insurance, and they receive Supplemental Security Income. A direct inheritance could cause a loss of eligibility because these are need-based programs.
As a response, you can make someone that is in this position the beneficiary of a supplemental needs trust. They would not have access to the principal, but the trustee could use the assets to make them more comfortable in many ways.
These are a couple of the different types of trusts that can be used, and there are others, so you should discuss your options with an estate planning attorney.
Failure to Prepare for Incapacity
There is more to estate planning than the facilitation of monetary asset transfers. You should also address end-of-life possibilities when you are planning your estate.
Many people become unable to handle their own affairs late in their lives. The state can be petitioned to appoint a guardian to act on your behalf if you take no steps in advance to prepare for this eventuality.
You can take the matter into your own hands if you include an incapacity plan within your broader estate plan, and it will start with advance directives for health care. A living will is the document that is used to express your preferences with regard to the use of life-support measures.
Your plan should include a durable power of attorney for health care to name an agent to make medical decisions on your behalf. It would apply to situations that are not covered in the living will.
A durable power of attorney for property should be added to name someone to make financial decisions for you if it becomes necessary. If you have a living trust, you can empower a disability trustee to assume the role in the event of your incapacity.
No Nursing Home Asset Protection Plan
Another major mistake people make is a failure to address nursing home costs. The median annual cost for a private room in a Memphis area nursing home in 2020 was $92,163. This can be a heavy blow to your legacy, and a married couple may get a double dose.
Medicare does not pay for the custodial care that nursing facilities provide, and this is where the challenge lies. Medicaid will pick up the tab if you can gain eligibility, but you cannot qualify if you have more than $2000 in countable assets.
This is another situation that calls for the utilization of a trust. If you convey assets into an irrevocable Medicaid trust, you would be able to accept distributions of the trust’s earnings. You would not have access to the principal, but it would not count if you apply for Medicaid.
Timing is key, because there is a five-year look back period. You have to fund the trust at least 60 months before you apply for Medicaid.
We Are Here to Help!
Our doors are open if you are ready to work with a Memphis, TN estate planning lawyer to put a plan in place. You can call us at 901-763-2500 or 866-997-6325 schedule a consultation, and you can use our contact form if you would prefer to send us a message.
At Mendelson Law Firm, Mr. Wachtel focuses on Litigation (Business Litigation, Insurance Defense, Commercial Collections, Subrogation, Landlord/Tenant, Automobile Litigation, etc.), Probate and Estate Planning (Wills, Estates, Trusts, Powers of Attorney).
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