Estate Planning Bits

Handling estate taxes due upon death

When a person dies, the executor/executrix is in charge of gathering up the estate’s assets and distributing them in accordance to the decedent’s Will. Depending on how much a person owns at his or her death, there is a strong possibility that an estate tax might be due.

Prior to distributing the assets of an estate the executor/executrix must pay all estate taxes owed. This becomes important where you have an estate of mostly real estate and little to no cash. The executor/executrix must file a federal estate tax return (form 706) within nine (9) months of a decedent’s passing if the estate exceeds the applicable exclusion.

Unless an extension is requested, in most cases, the full tax amount and cash payment will be due within that 9 month time frame. In the event that one dies with a large amount of real estate and little cash, the executor/executrix may be forced to liquidate some of the real estate assets to obtain the cash needed to pay the taxes.

Life insurance and Medicaid planning

There are several rules regarding life insurance relative to long-term care/Medicaid planning. There are two principal types of life insurance, namely term insurance and whole life insurance.

Whole life insurance is a policy that builds cash value, and the premiums are usually significantly greater than term. With a term policy, you pay the premiums and there is very seldom any cash build up. Therefore, the policy has no value until you die.

Term life insurance usually does not count in Medicaid planning since it has no cash value. However, there are policies that do pay a dividend on term insurance, and it must be noted that the income or value built up in a term policy is countable in a long-term care application for medical assistance. In most cases, if the policy is not greater than $1,500.00, then the cash value does not count. Once the policy face value is greater than $1,500.00, then all of the cash value is countable.

For example, if you have a term life insurance policy of $100,000.00 and are applying for Medicaid, this policy has no cash value and therefore, the policy is not countable for Medicaid purposes. When you die, your family will receive the death benefit of $100,000.00, which will not be countable as long as the beneficiary of the policy is not also institutionalized.

If your policy is a whole life policy of $1,500.00, then the cash value will be countable toward your allowable assets. In many cases, you may have a $1,500.00 policy, which means that the original death benefit was $1,500.00. However, if your family has paid this policy for fifty years, the cash value may be $2,500.00 and the death benefit may therefore be in the vicinity of $5,000.00. This policy is a non-countable asset for Medicaid purposes so long as it is not cashed in. However, if it is cashed in, then the cash surrender value of the policy becomes an asset and has to be utilized for expenses if you want to apply for Medicaid benefits.

There are some policies, such as VA life insurance, which must be owned solely by the applicant. These policies may not be transferred. For example, while other life insurance policies may be assigned to a funeral home to prepay expenses, a VA life insurance policy may not be assigned, since only the veteran may own the policy. Therefore, in cases such as those where the cash value is in excess of the limits, there may not be an opportunity to do much planning with the life insurance policy except cash it in and spend down the assets on applicant expenses such as funeral costs and possibly nominal gifting. However, in a case where the applicant is married, the surviving spouse may be entitled to retain all or a portion of the cash of the policy even though it has to be surrendered.

Prior to surrendering any policy, an insurance agent, accountant and attorney should all be consulted relative to the best possible opportunity for the policy, since there may be some adverse tax consequences from cashing it in. If a term or whole life policy is of a significant value, it may be wiser to consider a viatical settlement of the policy prior to having it surrendered. These types of arrangements are such that a third party would consider buying the life insurance policy on the applicant’s life at the current time for a discounted value from the death benefit, and the family receives cash immediately rather than waiting for the family member to pass away. At the same time, the family does not need to continue paying premiums on the policy. These are specialized situations, which must be reviewed very carefully prior to selling the policy, and sometimes it is appropriate to have multiple bids from purchasers of these policies prior selling them.

By: Hyman G. Darling, Esquire

Disinheriting a child, even with the best of intentions, can be hurtful

I recently sat with a client who wanted a new Will and was looking to give money to some of her children because they were having financial trouble. She also had a child who was doing very well financially, and she figured it would be fair to take that child’s share and divide it among the other children who needed assistance. The client asked if she could leave to some of the children and not the other? Although there is nothing legally or inherently wrong with this type of request, there is a potential for trouble both for the estate and the emotional harm to a child when one is disinherited from a Will.

In most states a child will inherit from his/her parents if they are named in the Will or the parent dies intestate (without a Will.) Otherwise, they have no real legal right to inherit from the parent(s). However, a potential problem that can arise is that a child can contest a parent’s Will, claiming that the parent forgot to mention the child or was under undue influence, duress, or not of sound mind when the parent made the Will. That is why it is important to address the “disinheritance of a child” in your estate planning documents. By identifying the child and making it clear that the child is not to inherit from the parent, there is little to no room for the child to contest.

With regard to the emotional harm, parents should know that even if a child is financially stable, there is a symbolic meaning to receiving something from a parent’s estate. If you choose to disinherit a child, you should consider explaining it to the child so that he or she understands you mean no ill will to them, and that you are merely trying to help.

If you choose not to disclose what you have in your Will, then make sure you address the child in the Will to avoid any legal claims, and/or leave a letter explaining your decision for disinheriting the child so that they can have some understanding as to your last wishes.

Remember, estate planning is the process of planning for the management and disposition of one’s estate when they die. It is also the process of stating your last wishes and desires to loved ones. In order for people to understand what you were thinking at the time of your planning, you need address it in a manner that best fits your situation, as well as accounts for and gives clarity to the family with regard to what you were thinking, and the good intentions you had at the time.

How to qualify for Medicare home health care benefits

The home health benefit is one of the least understood and utilized benefits available to you under the Medicare program. Unfortunately, it is not so easy to qualify. You must be homebound and in need of home health services, the services must be reasonable and medically necessary, and they must be prescribed by your doctor. If you qualify, you can receive up to thirty-five hours of free skilled nursing and therapy services each week.

However, once you meet the eligibility criteria, you must also qualify for coverage. Your doctor must certify that the prescribed services are both reasonable and necessary, and the physician should be able to direct you to a home health agency for a home health care assessment. If you are hospitalized and being discharged to home, be sure to ask the hospital social worker or discharge planner to arrange for an in-home care assessment prior to your discharge.

The home health benefit is available at no cost, with no premium and no deductible. It is available under Part B of the Medicare coverage, so you must qualify for Part B in order to obtain it. Also the home health agency cannot bill you for a Medicare covered service.

As we all know, home is the best place to be, especially after a hospital stay.

By: Hyman G. Darling, Esquire

Saving money on prescriptions

As we all understand, prescriptions are a significant expense, especially as we get older. You may wish to speak to your physician to determine if a less expensive version of your medication, whether generic or an older drug, would suit you. Also, be sure to ask for free samples!

There are also various state programs that may assist you with medication expenses. Be sure to call any state health department or agency on aging or you may go to www.benefitscheckup.org to find programs for which you may qualify.

There are also various veterans and military benefits. If you are a veteran, you may wish to call 877-222-8387 or go to www.va.gov to search for additional benefits, which may qualify you for reduced medication expenses, or to determine if they are available to you free to charge. Also, if you are a military retiree or dependent, including one who is widowed or divorced, you may wish to call 800-538-9552 for further information.

There is also a free drug company assistance line you may call at 800-762-4636 or visit online at www.helpingpatients.org to search for drug makers who offer free supplies of their own products or to Medicare enrollees who do not have drug coverage.

By: Hyman G. Darling, Esquire

The state has already drafted your Will, so you might want to take a look and customize it

Do you have a Will?

Did you draft a Will but failed to sign it or get some people to witness it?

Do you know where you put your Will?

What if you can't find it?

No matter how you answered these questions, you should know that everyone has a Will, whether or not they know it. You might say: “I never drafted a Will, so I can’t have one.” The reality is that if you fail to draft or properly execute a valid Will, then the laws in your state will determine how your estate will be distributed. Thus, even though you have failed to address your wishes as to how to distribute your estate, state law will step in to help distribute your estate (based on their guidelines and determination) upon your passing.

A Will is a legal document that states your wishes regarding the distribution/settlement of your estate (the property that you own and hold in your name) after you have passed away. As a legal document, a Will is designed to guarantee that your wishes be carried out. In a well drafted Will you determine and state:

• To whom your property will pass
• How your property will pass (either by gift or trust)
• When the distribution will be made, (i.e. when a child reaches 21,) and
• Who will serve as your executor/trustee.
  

In basic terms, a Will guarantees that your wishes will be carried out the way you have requested once you die. If you die without a Will, then you are said to have died “intestate” and your estate will be divided up by the Probate Court according to state law. The problem with this is that the laws in your state may not yield the same results that you wish to occur upon your passing.