Estate Planning Bits

The advantage of disclaiming an inheritance

Although it is counterintuitive, one or more of your beneficiaries may wish to decline part or all of the inheritance left to them. Refusing to receive an inheritance is often referred to as “disclaiming” it. Under federal law, a beneficiary has the legal right to disclaim or refuse all or any part of a gift. In the event that a beneficiary disclaims property, an alternate or residual beneficiary will inherit the property. 

There are a few common reasons why a beneficiary may desire to disclaim an inheritance. The most common one is to reduce their individual or family’s overall estate tax burden. Alternatively, some beneficiaries may wish that the property will pass to needier, contingent beneficiaries. 

Disclaimers may also reduce or eliminate estate and gift taxes because any property disclaimed by a beneficiary is construed have never been legally owned by that person. As such, the property cannot be included in the beneficiary’s taxable estate upon death. Similarly, the person who disclaims a gift is not assessed a gift tax because the he never owned it.

Disclaimers are particularly useful when a primary beneficiary already has a large estate, and receipt of the property may add significantly to his or her taxable estate. However, if the alternate beneficiary has much less wealth, then the overall estate tax most likely will be reduced.

Disclaiming property is an important decision that could have significant tax implications on an estate. A meeting with an experienced estate planning attorney to discuss the situation and potential options most often proves extremely helpful.

Todd C. Ratner, Esq.

Estate Planning Myth #4: “If I need nursing home care, Medicare will pay for my care.”

In some part, this myth is perpetuated due to the fact that “Medicare” sounds very much like “Medicaid,” which does pay benefits for nursing home care for approved applicants. 

Medicare Part A will pay for medically necessary inpatient care in a skilled nursing facility, but only following a 3-day hospital stay. Medicare will pay for up to 100-days of skilled nursing care or rehabilitation services; however, the actual length of benefits could be much shorter than 100-days if those services are no longer required.

When Medicare benefits are paid, Medicare pays 100% of the cost for the first 20-days, but only 80% of the cost of the next 80 days. Most Medicare recipients also have Medigap insurance, which will pay the balance not paid by Medicare. When Medicare benefits are exhausted, an alternative payment source is needed to pay for ongoing nursing home care

Estate Planning Myth #3: “I can give away assets when I enter a nursing home and still obtain Medicaid benefits.”

When faced with a nursing home bill of approximately $8,000 per month, many people wish to obtain Medicaid benefits to pay for this care. In order to obtain Medicaid benefits, an asset limit must be met; therefore, assets valued above this amount must be reduced to the asset limit before benefits will be granted.

In their efforts to reduce the excess assets, many people believe that they can gift the excess assets due to the gift tax exclusion explained in Myth #2. However, while a person can make a gift of up to $13,000 per person in 2010 without filing a gift tax return, the Medicaid program is not governed by the gift tax rules. 

The Medicaid program imposes a penalty when any assets are given away within 5-years of the application for benefits, except in very specific circumstances. This penalty results in being unable to obtain Medicaid benefits for at least 5-years after such a gift is made. Thus, a gift of any amount will typically result in a penalty being imposed even if the gift does not have to be reported on a gift tax return.

Gina M. Barry, Esq.

Estate Planning Myth #2: “I can give away $10,000 to as many people as I want each year, but if I give more, then I have to pay gift tax.”

Another common estate planning myth is one that emanates from the gift tax system. In 2010, the rule with respect to gift tax is that you may give up to $13,000 to as many people as you want without having to file a gift tax return. 

Note that the amount that can be gifted is stated incorrectly in the myth, as most people remain unaware of the ongoing increases to the allowable gift amount. 

Also under the current rules, even if a gift tax return must be filed because more than $13,000 is given to one person, the giver of the gift will not pay any gift tax until they have gifted more than $1 million during their lifetime. Thus, if a person has $100,000 and gives all of it away in one year to one person, they will need to file a gift tax return, but they will not owe any gift tax because the gift does not exceed the lifetime threshold.

Gina M. Barry, Esq.

Estate Planning Myth #1: “If I have a valid Will, my estate does not have to go through probate.”

Many people believe that having a Will means that their estate will not have to be probated when they pass away, and this is inaccurate.

A Will is a document that, in part, gives instructions as to how you want your assets distributed upon your death. The assets in your probate estate are those that are held in your name alone and do not have a designated beneficiary. 

Therefore, whether or not probate is needed is not based upon whether or not you had a Will, but rather upon how your assets are owned. If you leave probate assets, then in order for your Will to “speak,” a probate estate must be opened. If all the assets held in your name are jointly owned with a right of survivorship, or have named beneficiaries, then there is no need for probate.

Gina M. Barry, Esq.

When you don't want your co-parent to become guardian

As an estate planning attorney, I am often confronted with a single parent who doesn’t want the other parent to obtain custody of their joint child(ren) upon my client’s death. Generally, unless there is good cause, one parent will usually not succeed in appointing someone other than the co-parent to be guardian.

Good cause may be found if the other parent has legally abandoned the child(ren) or is unfit as a parent. In the event that the other parent seeks custody upon your death, it is typically quite difficult to prove that parent is unfit absent significant issues such as alcohol or chemical abuse, a history of violent tendencies, or mental illness. As such, if you wish to name someone other than your co-parent as guardian for your child(ren,) you may wish to inform that person that this may lead to a custody contest.

I suggest that my clients not only insert language within their Will explaining their choice as guardian and also explaining why the other parent is a poor choice, but I also suggest preparing a letter in their own handwriting with similar language that shall be attached to the Will. 

If you do not wish for your child(ren’s) other parent to gain custody, it is wise to discuss the matter with an experienced attorney that specializes in estate planning.

Todd C. Ratner, Esq.