Answer to Reverse Mortgage Question is Provided by our Connecticut State Coordinator, Attorney Henry C. Weatherby

Question:  What are the qualifications for getting a Reverse Mortgage, what happens to my home after my death, and will my 3 children have any rights to my home after I die?

Answer:  The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage program. To be eligible for a reverse mortgage you must be 62 or older and own your home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan. Your home must be a single family home, a one-unit to four-unit dwelling, or a condominium. Cooperative houses and trailer homes are excluded. You must live in your home. You are also required to talk to a reverse mortgage counselor and receive consumer information prior to obtaining the loan.  When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed will belong to your spouse or estate, so your three children can inherit any remaining equity. No debt will be passed along to the estate or heirs.

If you need help with this or other elder care matters, you can find thousands of Elder Care Professionals on ElderCareMatters.com – America’s National Directory of Elder Care / Senior Care Resources for Families. You can also find Elder Law Attorneys on ElderLawAttorneys.us and Estate Planning Attorneys on EstatePlanningAttorneys.us – 2 additional websites sponsored exclusively by the national ElderCare Matters Alliance.

Connecticut State Coordinator, ElderCareMatters.com
Henry C. Weatherby, Esq., CLU, ChFC, CEBS

Weatherby & Associates, PC
Bloomfield, Connecticut
Connecticut State Coordinator of ElderCareMatters.com

Should my elderly parents consider setting up a Living Trust?

Question:  What exactly is a Living Trust, and is this something that my elderly parents should consider setting up?

Answer:  A living trust is simply a trust that is created during your lifetime as opposed to a testamentary trust that is created after your death. And trusts, living or testamentary, can be as different as the various models of automobiles available to your parents today. Whether your elderly parents should set up a living trust depends entirely on what they are trying to accomplish because different kinds of trusts can achieve different results.

Think of the decision like this – your parents can walk, ride a bus, take a train, or perhaps even fly to their destination but they can also drive themselves. If they decide they want to drive themselves then which automobile best suits them? Will they need a van to haul a lot of people? Do they want to travel in luxury such as a Lexus would provide? Do they want reliable and cheap transportation like a Toyota Prius, or will they be carrying tools and supplies to work with them and need a pickup truck?

Just like automobiles, trusts come in many different models. A trust is simply an agreement between a trust creator and a trustee (i.e. trust manager) where the trust creator transfers assets to a trustee to hold and manage under the terms dictated in the trust agreement for the benefit of someone identified by the trust creator. Trusts have gained a lot of popularity in recent decades among the middle class who recognize that trusts can solve many everyday routine challenges even if we don’t have millions or billions of dollars to manage.

Revocable Living Trust

Revocable living trusts, typically, are established by a trust creator who may also serve as the trustee to manage the assets for themselves during their lifetime. They are revocable and changeable by the creator at any time during the creator’s lifetime.

In order to understand the advantage of this type of trust it is necessary to think about the three stages of life that most of us will progress through. First, we are fully capable and competent to mange everything our self and the management of assets in a living trust are not really much different from owning the assets outright and managing them ourselves.

The first important advantage of a revocable living trust arises when we become unable to handle our affairs. Traditionally, management of our assets in this situation either required a conservator or an agent under a power of attorney, neither of which is ideal. A conservatorship requires probate court intervention that means we turn over control to a probate judge who may never have even met us and almost certainly will not have any intimate knowledge of us or our families. Because of the loss of control and costs of conservatorship proceedings, many middle class families appoint an agent under a power of attorney instead. This is also not an optimum solution, however, for a couple of reasons:

  •  Financial institutions are reluctant to accept a powers of attorney and many states’ laws do not require them to accept a power of attorney so they many times don’t; and
  • A power of attorney is nothing but a super blank check, it typically says whatever I can do with my stuff my agent may do also. The grant of authority does not contain any limitations, conditions, restrictions, or instructions because these provisions would insure that gun-shy financial institutions would not accept the agent for fear that they could be implicated if the agent violated any restriction or limitation.

A revocable living trust, however, is the owner of the financial account and when the trustee becomes incapacitated a successor trustee simply assumes the management responsibilities for the trust just as a new president of a corporation would when the old president retires. Banks are comfortable with this transition in management responsibilities because trusts have existed for hundreds of years and the body of law surrounding them is extensive so their perceived liability is much less than following the directions of an agent.

When we eventually depart this earth, a revocable living trust becomes irrevocable (i.e. unchangeable) and serves as a will substitute by outlining the same wishes that we would put into a will. But, a trust, unlike a will, does not have to be probated. Many people consider this an advantage and, indeed, in states such as California the probate system is so expensive and time consuming that it should be avoided but in many states probate is not very onerous. Even in these states, however, having a revocable living trust serve as a substitute will is desirable when:

  •  Minor heirs exist. In probate each minor must have a separate guardian ad litem (i.e. attorney other than the one who represents the estate) appointed to protect their interests whether they are receiving any inheritance or not. As you can imagine, with multiple attorneys working, costs can mushroom; or
  • You anticipate trouble from disgruntled heirs. A probate court is a convenient forum for a disgruntled heir to cause problems. They do not have to hire an attorney or file suit in order to have their claims heard because the estate is already in court. Additionally, it is much easier to claim that you were unduly influenced or incompetent when you made your will because it may have been executed years ago and placed on a shelf to gather dust. The creator of a living trust who also serves as trustee, however, has many witnesses who can testify to capacity and influence issues because they interacted with the trustee during their lifetime.

Irrevocable Living Trust 

An irrevocable living trust can also be used advantageously but many people forego their advantages because (1) they don’t really understand how trusts operate and (2) irrevocable sounds an awful lot like cast in concrete (i.e. non-changeable) and they are afraid they will be trapped if their wishes or laws change.

Traditionally, irrevocable living trusts have been used to minimize estate taxes and had to, therefore, conform to very strict IRS rules that if not cast in concrete at least created a bog of quicksand that would be hard to slosh through to change course. But here is the good news today, an individual must have more than $5.34 million net worth and a couple $10.68 million net worth before estate taxes are relevant so most of us do not have to concern ourselves with the overly burdensome IRS rules. We can, therefore, have an irrevocable trust that is changeable and flexible.

So if we can have a flexible and amendable irrevocable trust how can we use it for middle class folks? The uses are only limited by our imaginations and some of the more popular uses include:

  • Protecting our assets from nursing homes while retaining the income from and access to the assets;
  • Qualifying for a non-taxable Veterans Administration pension of up to $25,020, indexed for inflation and guaranteed by the full faith and credit of the United State government; and
  • Protecting assets from divorce, lawsuits, and other predators.

So, should your parents consider a living trust? Yes, if they are concerned about any of the following: 

  • Management of their resources during incapacity;
  • Disgruntled or minor heirs;
  • Privacy;
  • Protecting what they have spent a lifetime scrimping and saving to accumulate form a nursing home;
  • Qualifying for as much as $25,000/year tax-free pension; or
  • Protecting what they have spent a lifetime scrimping and saving to accumulate form other creditors and predators.

If you need help with this or other legal elder care matters, you can find Elder Law Attorneys near you on ElderCareMatters.com – America’s National Directory of Elder Care / Senior Care Resources for Families. You can also find Elder Law Attorneys on ElderLawAttorneys.us and Estate Planning Attorneys on EstatePlanningAttorneys.us – 2 additional websites sponsored exclusively by the national ElderCare Matters Alliance.

An ElderCare Matters Partner
Attorney Stephen J. Bailey
Birmingham, Alabama
An ElderCare Matters Partner

What are the major financial requirements for being approved for Medicaid long term care benefits?

Question:  What are the major financial requirements for being approved for Medicaid long term care benefits?

Answer:  Generally, there are asset requirements such as some states called “SSI” states say that the Medicaid applicant can keep up to $2,000 and exempt property such  as the home and a car, wedding rings, funeral trusts, burial plots, and a small burial expense fund to cover incidentals such as Thank you cards, postage and things of that nature.  Other states called “209(b) states” only let the Medicaid applicant keep up to $1,500 plus exempt property.  There are also limits for what the spouse not in a nursing home can have.  Sometimes it becomes necessary to convert non-exempt property into exempt property.  Such an example would be taking cash and buying things for fair market value such as fixing up a house (new roof, new carpet, new cabinets for the home that is usually exempt  You might spend cash to fix up the Medicaid applicant’s car, even though, they may never drive it again. 

There are also income rules that vary from state to state.  Some states don’t care how much you make because all of the Medicaid Applicant’s cash (Social Security, VA Pension, other pensions and income from stock, bonds, royalties) goes to the nursing home.  In those states, the Medicaid rules have the state pay the difference between the actual cost of the nursing home less what already has been paid by the Medicaid Applicant.  Of course, if your income is so great you may not need Medicaid at all.    There are other states that are called “income gap states”.  Those states say that if you are receiving more income than the state allows that you have to set up a Miller Trust otherwise known as a Qualified Income Trust the money that goes through a Miller Trust is considered “unavailable” to the Medicaid Applicant and it will then say that that income going through the trust is “unavailable” to the Medicaid Applicant.  The now “unavailable” income goes to the nursing home (some may be diverted to the spouse, if the spouse does receive enough income on their own) and Medicaid again pays the difference between the actual cost of the nursing home less what the Medicaid Applicant has already paid each month.  The more money each month that the Medicaid Applicant receives, then the less that Medicaid has to pay.  And conversely, the less money that the Medicaid Applicant pays, then the more that Medicaid pays each month to the nursing home.

If you need help with this or other legal elder care matters, you can find Elder Law Attorneys near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior Care Resources for Families. You can also find Elder Law Attorneys on ElderLawAttorneys.us and Estate Planning Attorneys on EstatePlanningAttorneys.us – 2 additional websites
sponsored exclusively by the national ElderCare Matters Alliance.

An ElderCare Matters Partner
Attorney I. Michael Tucker
Altamonte Springs, Florida

An ElderCare Matters Partner

One of Pennsylvania’s TOP Attorneys Provides Today’s Elder Care / Senior Care Answer on ElderCareMatters.com

Question:  Why would one use a Trust to help plan for long term care?

Answer:   Planning for long-term care involves the consideration of many factors. There are a number of reasons that trusts can be used as part of an individual’s long-term care plan. Sometimes an individual may place assets inside of a revocable living trust. If the individual becomes incapacitated, the trustee will have the ability to manage the trust assets immediately, and those assets can be used for the care of the individual. Revocable trusts are more commonly used as part of planning for an individual’s death to deal with issues such as probate (or multi-state probate), or privacy.

Irrevocable trusts are more commonly used in planning for an individual’s long-term care. If an individual does not have a long-term case insurance policy, they are self-insured for any long-term care needs they may have. That means it is up to the individual to pay for all of the costs associated with long-term care. Medicaid is the federally-funded, state-implemented program which pays the costs of long-term care for individuals who qualify. To qualify for Medicaid, an individual must generally have a very limited amount of assets in his or her name.

Irrevocable trusts can be used, either alone or in conjunction with other planning strategies, to reduce the amount of assets in an individual’s name for Medicaid purposes. By transferring assets into an irrevocable trust, that individual may qualify for Medicaid sooner; and at 5 years after the time of the transfer into the irrevocable trust, those assets are protected from having to be spent on long-term care. The Medicaid rules are very complex, and implementing a planning strategy using trusts should only be done with a qualified elder law attorney to avoid any potential planning failures or pitfalls.

If you need help with this or other legal elder care matters, you can find Elder Law Attorneys near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior Care Resources for Families. You can also find Elder Law Attorneys on ElderLawAttorneys.us and Estate Planning Attorneys on EstatePlanningAttorneys.us – 2 additional websites
sponsored exclusively by the national ElderCare Matters Alliance.

An ElderCare Matters Partner
Attorney James J. Ruggiero, Jr.

Paoli, Pennsylvania
An ElderCare Matters Partner

Personal Care Contract – Is this income subject to self employment tax?

Question:  Can you tell me if the money that I receive from a Personal Care Contract is subject to self-employment tax? I know that it is subject to ‘income tax’.

Yes, the money you receive under the Personal Care Contract otherwise known as a Personal Service Contract will be subject to self-employment tax treatment.  The tax situation causes some families to look for other solutions to protect the parent’s money.

If you need help with this or other legal elder care matters, you can find Elder Law Attorneys near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior Care Resources for Families. You can also find Elder Law Attorneys on ElderLawAttorneys.us and Estate Planning Attorneys on EstatePlanningAttorneys.us – 2 additional websites
sponsored exclusively by the national ElderCare Matters Alliance.

An ElderCare Matters Partner
Attorney I. Michael Tucker
Altamonte Springs, Florida
An ElderCare Matters Partner

 

Missouri Elder Law Attorney Answers Today’s Question about Trusts

Question:  When would it make financial sense to place our assets in a Trust? Are there different types of Trusts?

Answer:  A trust is an estate planning document that allows assets and other property that has a title or deed to be re-named in the trust so when the person creating the trust dies, the assets and property in the trust are distributed according to the terms of the trust and avoid probate. The most common reason people create trusts is to avoid having their assets go through the probate process for failure to name a beneficiary. If people are married, they can create their own, individual trusts or a joint trust.

A trust allows the person or persons created the trust (called the “Grantor”, “Settlor” or “Trustmaker”) to handle their money and assets as they always have done so when they have capacity, but if they become incapacitated and unable to handle their finances, a trustee that is appointed then assumes the duties as Successor Trustee. The Grantor may include specific instructions for the Successor Trustee regarding support of dependents, support of the spouse (if both spouses are incapacitated) and other financial matters.

When the Grantor(s) has died, the Successor Trustee will likely have specific instructions about distribution of trust assets to named beneficiaries, charitable organizations or other beneficiaries the Grantor designated. The Successor Trustee may have on-going trustee responsibilities if there are minor or disabled beneficiaries whose inheritance under the trust will continue to be managed by the Trustee.

The most common type of trust is the Revocable Living Trust. It can be changed at any time, can easily accept additional assets as the Grantor acquires new assets and property and only becomes irrevocable (unable to be changed) when the Grantor dies. During the Grantor’s life, the Grantor’s Social Security number is the identification number of the trust and no separate tax return is filed for the trust.

Irrevocable Trusts are used primarily to hold either life insurance, to take advantage of favorable tax treatment of life insurance held in such a trust and to enable the Grantor (the owner of the life insurance policy/policies) to be able to designate to whom and how the life insurance is to be distributed upon his or her death or to protect and preserve assets for estate or Medicaid planning. The terms of an irrevocable trust cannot be changed, other than administrative provisions that may need to be changed due to changes in the law or as a court may allow. Since these trusts cannot be changed, a person considering creating this type of trust should consult with an experienced attorney who knows the pros and cons of creating such a trust. Although these trusts do protect assets for Medicaid and VA planning purposes, they do not allow the Grantor to have access to the trust funds and have other restrictions that may make these undesirable.

Special Needs Trusts are another type of trust, but applicable to individuals who are disabled. This type of trust allows a disabled individual to qualify and maintain eligibility for public benefits, such as Medicaid, SSI, food stamps, and keep assets that would usually be counted as disqualifying the individual from these need based programs. The assets in a Special Needs Trust are not available to the disabled person – the funds and other assets are held in the trust and the Trustee has the discretion whether to use the assets for good and services that the disabled individual’s benefit programs do not pay for. The intent of this type of trust is to supplement, not replace, public benefits available to the disabled individual. In this way, a disabled individual can receive an inheritance, maintenance through a divorce, a lump-sum Social Security disability payment or settlement/award from a lawsuit and not have these funds spent-down to regain eligibility or to become eligible for public benefits.

If you need help with this or other legal elder care matters, you can find Elder Law Attorneys near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior Care Resources for Families. You can also find Elder Law Attorneys on ElderLawAttorneys.us and Estate Planning Attorneys on EstatePlanningAttorneys.us – 2 additional websites
sponsored exclusively by the national ElderCare Matters Alliance.

ElderCare Matters State Coordinator, Missouri
Debra K. Schuster, M.H.A., J.D.
St. Louis, Missouri
Missouri State Coordinator, ElderCareMatters.com

Elder Care / Senior Care Question on ElderCareMatters.com: If my parents die without a Will how will their assets be divided between the children?

Question:  If my parents die without a Will how will their assets be divided between the children?

Answer:  This is a state specific issue and not all of the states treat this the same.  I will speak only to Connecticut law on this subject, which is called intestate succession.  It is highly unusual for both spouses/parents to die at the same time.  Even if it is only minutes apart it is always important to determine the order in which they die.  That being said, lets assume that Mom passed first, even if it was only five minutes before Dad.  The state statutes first consider if there are any surviving issue (meaning children, grandchildren, etc.) of the decedent.  In the question asked we know that there were children.

Next, the statutes look to see if all of the surviving issue are all issue of the surviving spouse (Dad), and if this is the case, then the surviving spouse (Dad) would get the first one hundred thousand dollars, and one-half of the balance of the estate.  As an example, we will assume that in Mom’s estate she had $300.000 solely in her own name.  Dad would get the first $100,000, plus one-half of the remainder (another $100,000) for a total of $200,000 and the surviving issue would get $100,000 to be divided equally between them.

If the surviving issue of Mom were not also surviving issue of Dad, Dad would get one-half of the total estate and Mom’s children would get the remaining one-half to be divided equally between them.  In the above example of a $300,000 estate, Dad would get $150,000 and the surviving issue would get the other $150,000 again to be split equally between them.

This rule applies only to assets owned solely by the decedent.  If Mom and Dad owned any jointly held property, such as a bank account, brokerage account, real estate, etc. upon her death it would pass “by operation of law” to the other named owner.  If Mom owned any assets with named beneficiaries, such as life insurance, annuities, bank accounts, etc. those assets would also pass to the named beneficiary.

As an example, if all the assets Mom owned, i.e. $100,000 worth of bank accounts jointly held with Dad, and real estate worth $200,000 held jointly with rights of survivorship with Dad, when she passed it would all go to Dad and nothing to the children, grandchildren, etc. regardless of who were the natural parents.

Another thing to keep in mind when looking at these situations, is that children who were born out of wedlock and the issue of such children along with legally adopted children are assumed to be natural children for the purpose of this succession of estate assets.

If you need help with this or other legal elder care matters, you can find Elder Law Attorneys near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior Care Resources for Families. You can also find Elder Law Attorneys on ElderLawAttorneys.us and Estate Planning Attorneys on EstatePlanningAttorneys.us – 2 additional websites
sponsored exclusively by the national ElderCare Matters Alliance.

An ElderCare Matters Partner
George P. Guertin, Esq.
Guertin and Guertin, LLC
North Haven, Connecticut
An ElderCare Matters Partner

Today’s Q&A on ElderCareMatters.com is about the appropriate use of Reverse Mortgages

Question:  When would it make financial sense for my elderly parents to consider a reverse mortgage?

Answer:  Reverse mortgages can be valuable tools for someone who is house rich but cash poor.  Generally, though, given the costs involved and the new restrictions on use, they are best used when other financial resources are extremely limited and the older adult needs to access the equity in order to stay at home.  Reverse mortgages are not to be used to enhance a lifestyle.

If you need help with this or other elder care matters, you can find Elder  Care Professionals near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior  Care Resources for Families

You can also find Elder Law Attorneys on ElderLawAttorneys.us and Estate Planning Attorneys on EstatePlanningAttorneys.us – 2 additional websites
sponsored exclusively by the national ElderCare Matters Alliance.

An ElderCare Matters Partner
Robert M. Slutsky, Esq.
Robert Slutsky Associates
Plymouth Meeting, Pennsylvania
An ElderCare Matters Partner

Today’s Q&A on ElderCareMatters.com is about providing Elder Care Services for your parents

Question:  May I charge for the elder care services that I provide to my parents, and will these services be tax deductible for my parents?

Answer:   In general, the answer is yes and maybe.  If you are providing elder care services that word normally be paid for, you can charge a fee as well.  However, whether you want to do that depends upon a number of factors, some financial, some personal.  If one or both of your parents ultimately needs to apply for Medicaid, any payments made to family members will be scrutinized.  The fees would have to be reasonable for the services provided (as compared to normal providers of that services who have similar qualifications), may require a comprehensive written contract setting out the terms of engagement and be documented and reasonable services given the circumstances (i.e. you cannot charge for 24 hour personal caregiving if your parents are playing tennis 3 times per week).  Some states will require that you report your income from these paid services on a schedule C on your tax return. 

There are also personal issues you need to work around.  Are there other family members providing the care?  Are they going to be compensated as well?  Will they resent you being paid.  How will this work within your parents’ testamentary plans? Will your payments deplete their estate causing friction among the other family members who expected to receive money but will not because your services cost your parents a substantial amount of money.  How will your parents feel about that? 

Tax deductibility is going to depend on if you can convince the IRS that the need for your services was a medical necessity that would qualify them as an unreimbursed medical expense.  If your parents are in a nursing home, these deductions are more easily documented.  For personal services provided by a family member you would need documentation from a physician that the services you are providing medically necessary in the event of an audit.

If you need help with this or other legal elder care matters, you can find Elder  Law Attorneys near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior  Care Resources for Families.  You can also find Elder Law Attorneys on ElderLawAttorneys.us and Estate Planning Attorneys on EstatePlanningAttorneys.us – 2 additional websites
sponsored exclusively by the national ElderCare Matters Alliance.

An ElderCare Matters Partner
Robert M. Slutsky, Esq.
Robert Slutsky Associates
Plymouth Meeting, Pennsylvania
An ElderCare Matters Partner

Estate Planning Attorney defines difference between a Will and a Living Will

Question:  What Is the Difference Between a Will and a Living Will?

Answer:  A will deals with assets, whereas a living will deals with medical care. Many States have done away with the so-called living will and replaced it with the advance health-care directive (“AHCD”). An AHCD can accomplish a variety of objectives, from saying who will make health care decisions for you if you cannot communicate with your doctors, to saying under what circumstances conventional health care will be withheld from you so that nature will be allowed to take its course.

If you need help with this or other legal elder care matters, you can find Elder Law Attorneys near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior Care Resources for Families.  You can also find Elder Law Attorneys on ElderLawAttorneys.us and Estate Planning Attorneys on EstatePlanningAttorneys.us – 2 additional websites sponsored exclusively by the national ElderCare Matters Alliance.

smakuakane
Scott A. Makuakane, Esq., CFP

Est8Planning Counsel LLLC
Honolulu, Hawaii
An ElderCare Matters Partner