JUNE 2024
CURRENT ISSUES IN THE AREAS OF ESTATE, TAX AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
Common Asset Protection Planning Errors – Continued. Many problems stem from life insurance. If a life insurance policy exists and if it has not been dealt with prior to the filing of the Medicaid application, eligibility will most likely be denied until the policy has been properly dealt with. Dealing with insurance companies can be frustrating and time consuming. I had to clean up one case when, due to the existence of life insurance policies, and continued Medicaid denials and re-applications with the “help” of the nursing home, $60,000 of accumulated nursing home charges had been incurred. I was able to resolve the problem, but in that case the nursing home haC d to eat the additional expense. While it is possible to recover that expense through a “deviation”, that process takes a long time. Another common problem occurrs when filing a Medicaid application too soon. The application should never be filed until a person is actually eligible. One does not save time by filing pre-eligibility with a goal of establishing eligibility later. Unless the timing works out correctly, the FSSA will not keep the case open long enough to complete the process, and then it will be necessary to turn around and reapply. Further, if there is a transfer and a penalty, filing the application too soon may result in not being able to “cure” the penalty by gifting the property back. In addition, one should not file before the five-year “look-back” period has expired if it may be financially beneficial to wait out that time period in order to avoid the penalty when the remainder of the five-year period is less than the months of the penalty. Once the penalty has been invoked, it may be more difficult to cure it.
Retirement Gifts To Charity. Retirement gifts to charity can present special opportunities, but also occasional pitfalls. If a person wishes to leave something to charity, it will probably be better to do so through a retirement account than through a specific gift in the will or by leaving a fractional or percentage part of the estate to charity. If one makes a specific gift (or a fractional or percentage gift) through a will, the charity will be receiving non-taxable benefits as will the other estate beneficiaries. If the other estate beneficiaries then receive a retirement account, the non-charitable beneficiaries will be receiving more taxable money through the retirement account rather than non-taxable money through the will. The same issues apply with gifts through a trust. If instead a specific gift through a retirement account is made to the charity, more taxable dollars will pass to the charity and fewer taxable dollars will pass to the individual beneficiaries. Since the charity will not be taxed on the retirement dollars it receives, it make sense to use retirement accounts for charitable funding whenever possible. A person can make a gift to charity with retirement accounts in the same way that the person would do for beneficiaries, i.e., either leaving a pecuniary gift (that is, a specific dollar amount) to the charity, or a specific portion or fraction of the retirement account. Please note, however, that if larger pecuniary gifts are contemplated, it may be best to separate a retirement account into the portion that will go to the charity and the remaining portion that will go to non-charitable beneficiaries. Further, it should be remembered that when retirement accounts benefit both charitable and noncharitable beneficiaries, there are specific issues pertaining to beneficiary designations that must be adhered to and considered before such decisions are made. Using a formula bequest in a charitable beneficiary designation will be considered in the next issue of this newsletter.
Life Insurance And Planning For The Elderly. Life insurance can be an important part of estate and asset protection planning, but life insurance will often create particular difficulties when planning is being done for older clients or when Medicaid qualification is being attempted. Often it may make sense to eliminate the insurance so that it does not need to be dealt with at a later time or for a life insurance claim to be filed post-death. Getting information from life insurance companies can be extremely frustrating and time consuming. Call centers are now ubiquitous and many of the people answering the phones speak English as a second language, and often not well. People find themselves shuffled from one person to another and then may receive conflicting information and contradictory instructions. When one person is helping another person and utilizing a power of attorney for that purpose, the situation is even more complex. The first article above in this newsletter discusses how difficult life insurance may make the process of Medicaid qualification, but it can also frustrate the funding of trusts and coordinating arrangements for estate settlement. Many old life insurance policies will have a death benefit that is not significantly greater than the cash value. In many such instances, it might be best to surrender the policy for its cash value so that the surrender value can be used in conjunction with the estate plan implementation. A life insurance policy might also be used to fund a portion or all of a pre-paid funeral arrangement as long as it is no longer necessary to pay premiums and the policy will support itself. It may make sense to transfer the ownership of the policy to a trust, for asset protection purposes, but unless there is a substantial death benefit to be preserved, there will then need to be a claim filed postdeath, and resulting complications could arise from that. By the time the process of transferring the policy prior to death is completed, and then a claim is filed post-death, in many instances it would have been simpler and better, without a loss of a significant death benefit, if the policy had just been surrendered in the first instance. Life insurance companies are becoming harder and harder to deal with. They never seem to want to turn loose of the money that they are holding even though people have paid premiums on these policies for many years. It is one of the most frustrating aspects of my practice. People should never overlook the existence and importance and possible complications of life insurance when implementing any estate or asset protection plan.
Additional Information. Future issues of this newsletter will address other issues of current interest. Please contact my office with any questions that you might have.