Ten Estate Planning Myths

A WILL AVOIDS PROBATE

Actually the opposite is true, if you have a Will the only way it is given effect is through the Probate Court. Having a Will insures that your property will pass according to your wishes, but it will be handled in the Probate Court. It allows you to name who will handle your estate, specify who will get your assets, and under what terms. With a properly drafted Will, you can benefit children or grandchildren, set money aside for college, benefit charities, and leave assets to children (or others) with protection from their creditors.

I CAN GIVE AWAY $10,000 A YEAR.

The annual gift tax exemption (also known as the annual gift tax exclusion) increased to $14,000, per person, for 2013 ($28,000 for married couples.) This means that a person can give to any other person the total amount of $14,000 in 2013 without having to pay any gift tax or fulfill any special reporting requirements to the IRS. Any amount you give on an annual basis at or below the annual gift tax exemption also does not apply to nor affect your lifetime gift tax exemption. Using the maximum annual gift tax exemption, or a lesser amount, is a tool that allows you to give to your heirs now rather than wait until you have passed away.

However, be advised that the annual exclusion has to do with Gift and Estate taxes, it has nothing to do with Medicaid Planning. Under the current Medicaid rules, any gifts made within 5 years of applying for Medicaid (the “look back period”) will result in a Medicaid penalty. The way the new rules apply the penalty could have disastrous consequences for the elderly.

MEDICAID/ THE NURSING HOME WILL TAKE MY HOUSE

No matter how nice your house is, neither Medicaid nor the Nursing Home want it, but it does not mean it is entirely safe. Your house, or at least $500,000 in equity value, is an ‘exempt asset’ for Medicaid purposes as long as you live provided you claim it as your primary residence, even if you will never physically be able to return to live in the home. The problem arises when you die. If the house passes through Probate to go to your beneficiaries, Medicaid may claim reimbursement and the house might have to be sold to pay the claim. There are simple ways to avoid this and preserve your house for your beneficiaries.

A REVOCABLE TRUST PROTECTS ASSETS

Again, the reverse is true. Property held in a Revocable Living Trust is considered as your individual property and treated as if the Trust did not exist. This is true generally and for Medicaid purposes, except for your house. If your house is titled in the trust, for Medicaid purposes it loses its exempt status and becomes a countable resource. While Revocable Living Trusts can be an excellent Estate planning method, they are not for asset protection and they need to be carefully considered if nursing home planning might be needed.

IT WILL NOT HAPPEN TO ME

You can never tell when something bad will happen. People of all ages have unexpected accidents or illnesses that can leave them incapacitated or dead. While many people think that Estate Planning is just for the wealthy or the elderly. Consider that you should have a comprehensive estate plan including an Advance Medical Directive to specify who would make medical decisions and what kind of medical treatment and life sustaining treatment you want and you should have a Durable Power of Attorney to allow your spouse or appointed Agent manage your affairs.

EVERYTHING IS JOINT, MY SPOUSE CAN HANDLE IT ALL

This is not exactly true. While your spouse may have access to some joint property, such as bank accounts or investments, joint onwershipdoes not cover everything. If you own land jointly, you still have to sign any legal documents to transfer it or to mortgage it. You need to sign legal documents, various insurance forms, and lots of other things.Obviously you cannot do this is you are dead.  Further, just because someone is your spouse does not mean they can make medical decisions for you. You need to have documents in place to give those powers. That is why everyone, single or married, once they reach 18, should consider Advance Medical Directives and Durable Powers of Attorney.

I HAVE TO SPEND ALL MY MONEY TO GET MEDICAID

This is nearly true, if you are single. While your house is protected and you can set aside some money for burial, you cannot have more than $2000

0in countable assets and qualify for Medicaid. Also, not all assets are countable, so things like cars, certain retirement plans and income producing property, to name a few, may be not countable.

I CANNOT LEAVE ANYTHING TO MY SPECIAL NEEDS CHILD

Many parents of disabled or special needs children, who receive various types of government benefits, think that if they leave any money or property to that child the child will lose benefits. They are correct, in that if the child received money outright, the child would lose benefits. However, money can be left in a Supplemental Needs Trust (“SNT”) for the child without jeopardizing benefits. Money in such a trust can be used to provide all types of things to improve the child’s quality of life, from housing to travel to additional medical procedures and equipment. A SNT can be a very powerful planning tool to provide for a disabled or special needs child.

I CAN DO IT MYSELF

Sure, there is a lot of information available about Estate Planning and Medicaid. There are websites and computer programs and free forms that will allow you to create Wills, Advance Directives, Powers of Attorney and other documents all by yourself. But be aware that each state has its own requirements for each of the various legal documents. If you create your own and does not meet the Pennsylvania requirements, your documents may not be effective. If you are dead or disabled when that is discovered, it will be too late. Similarly, Medicaid is very state specific. The rules that govern Medicaid in Pennsylvania may not be same rules as in Florida. What you read about online or in magazines may work somewhere, but might not work here.

There are legal requirements for documents, gift tax, estate tax, capital gains tax and income tax issues in even small estates, Medicaid issues, etc. Money spent to consult an attorney who can guide and advise you and draft proper documents for you is money well spent. It is easy to be ‘penny wise and pound foolish’, saving a few hundred dollars by doing it yourself and then costing thousands in taxes or probate costs or additional nursing home expenses.

At Fiore & Barber, LLC, we have 25+ years of experience and expertise in estate planning and administration. If you have any questions or wish to discuss any estate matter with me, please do not hesitate to call and schedule a no-cost consultation. Contact me today at 215.256.0205.

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Fiore & Barber, LLC

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Harleysville, PA 19438
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