104 Questions UPDATED...your life story, family history, memories, and life lessons. Finally,...
Transcript of 104 Questions UPDATED...your life story, family history, memories, and life lessons. Finally,...
104CommonlyAskedQuestionsatSeminarsIncludesMedicaidQuestions
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103CommonlyAskedQuestionsatSeminarsIncludesMedicaidQuestions
TABLEOFCONTENTS
ESTATEANDLEGACYPLANNINGQUESTIONS……………………………………………………PAGE1TAXES:ESTATETAXES,GIFTTAXES,CAPITALGAINS,GSTQUESTIONS…………………..PAGE10POWERSOFATTORNEY&INCAPACITYPLANNINGQUESTIONS………………………….….PAGE12ADVANCEDPLANNINGQUESTIONS…………………………………………..…………………..PAGE15MEDICAIDPLANNINGQUESTIONS……………….……………………………………………….PAGE17
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ESTATEANDLEGACYPLANNINGQUESTIONS
1 WhatisLegacyWealthPlanning?
LegacyWealthPlanningisthecreationofadefinitiveplanformanagingyourtotalwealthwhileyou’realive,distributingyourestatehowyouchooseafteryourdeath,andaclearplantopassonyourlegacy.Yourestateincludesallassetsofanyvaluethatyouown.Thisincludesnon-financialassetsaswellasfinancial assets, including real property, business interests, investments, insurance proceeds,retirementaccounts,andpersonalproperty.Your legacy incorporates importantdecisionsensuringyourfamilycorevalues,responsiblebehaviorsandcommunityinvolvementarepassedontofuturegenerations. Keep in mind, your legacy also includes personal effects, such as family heirlooms,stories,andaccumulatedwisdomandlifelessonsofyourfamily.
2 Whatis“traditional”estateplanning?
Traditionalestateplanning(WillsandTrusts)focusesontheaccumulation,thepreservation,andthedistributionof only your financial assets andworldly possessions. It protectsmaterialwealth fromprobateandminimizestaxes.
3 Whatisthedifferencebetween“traditional”estateplanningandLegacyWealthPlanning?
Traditionalestateplanningisfocusedonfinancialassetsandisconcernedwithavoidingprobateandestatetaxes.Ontheotherhand,LegacyWealthPlanningisconcernedwithfinancialandnon-financialassetsofafamilyandcreatingafamily’spersonallegacyplan.LegacyWealthPlanningaddresseshowtocaptureandtransferfamilytraditionsandvalues,aswellasprotectingfinancialwealthforcurrentandfuturegenerations.
4 WhatisaFamilyWealthTrust?
AFamilyWealthTrust isthemaincomponentofaLegacyWealthPlanandcovers important issuesotherthanavoidingprobate.
5 HowdoesaFamilyWealthTrustdifferfromaRevocableLivingTrust?
MostRevocableLivingTrustsareprimarilyconcernedwithavoidingprobateandestatetaxes.AFamilyWealthTrustofferslifetimebenefits,andprotectswealthforcurrentandfuturegenerations.
6 WhatstepscanItaketopreservemylegacy?
The best approach is to meet with an attorney who understands the Legacy Wealth Planningprocess.Thiswillensureyouaddressthefinancialandnon-financialassetsofyourfamily.Therightattorneywill help you, first, set up a FamilyWealth Trust to preserve your financial legacy. Then,youwillbeeducatedaboutcompletingtheMyLegacyworkbook,toshareinyourownwordsabout
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yourlifestory,familyhistory,memories,andlifelessons.Finally,writingaLegacyPlanningLettertodistributeyourcherishedpossessionswithsentimentalvalue.
7 WhatwillhappentomypropertyifIdiewithoutaWillorTrust?
IfyoudiewithoutaWillorTrust,thestatedetermineswhowillbeyourultimateheirs.Thisdistributionplancanbefoundintheintestacystatuesofeachstate.Theapplicablestatecanbeeitherthelocationofyourlegalresidence(personalproperty),orthestateinwhichyourassetsarelocated(realproperty).In the stateofCalifornia, for example, the law requires thatwithout a validWill or Trust inplace,communitypropertygoesentirelytothesurvivingspouse,andseparatepropertygoestothesurvivingspouseandchildren(ifany),inthisorder:Ifthedecedenthadonlyonechild,thespousegetshalfandthechildgetshalf.Ifthedecedenthadmorethanonechild,thespousegetsone-thirdandthechildrendividetwo-thirdsamongthemequally.(Thechildren,ifany,ofpredeceasedchildrentaketheirparent’sshare.) If the decedent leaves no spouse or direct lineal descendants, parents (or their linealdescendantsiftheyarepredeceased)wouldtaketheestate.
8 HowismypropertytransferredifIdieintestate?
If you die intestate, the transfer of your property is accomplished through a court-supervisedproceedingcalledprobate thatgenerally takesaminimumof sixmonths, typicallya yearormore.Theseproceedingsgenerallyareexpensiveandtime-consumingandtieupyourpropertyforseveralmonths.Probatecanbeavoidedwithproperestateplanning.
9 Whatisprobate?
Probateisthecourtprocedureusedtochangetitletoassetsfromthenameofanindividualwhohaspassedawayintothenameofthelivingbeneficiaries.Itisalsowhereallcreditorsofadecedentfileclaimstocollecttheirdebtsandwhereinterestedpartieswhohaveacomplaintregardingthedeceasedcan file their complaint (aWill contest). Evenwithout a contest, probate can be costly and time-consuming.Probateisapublicproceeding.
10 Canprobatebeavoided?
Probatecanbeavoidedwithcarefulplanning.Thereareanumberofdifferenttechniquesfordoingsowhichcanbeusedaloneorincombination.
11 Whatisjointtenancywithrightsofsurvivorship?
Itisaformofpropertyownershipwhere,uponthedeathofoneoftheowners,allofthedeceasedowners'interestinthepropertyistransferredimmediatelytothesurvivingowners.
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12 Canamarriedcoupleusejointtenancyuntilonespousedies,thensetupaTrustforthesurvivor?
Yes,but thisunfortunatelyhas severalproblemsassociatedwith it.There isnoguarantee that thesurvivingspousewillhavetimetosetupaTrustafterthefirstspousedies,or,moretothepoint,willactuallygetaroundtosettingupaTrust,regardlessoftheamountoftimeavailable.Thismethodalsolosesthe$5.43millionApplicableExclusionAmounttaxadvantage,because,likeanoutrightgift,jointtenancylumpsalltheassetsinonespouse'sestate(unlessanestatetaxreturnisfiledand“portability”iselected).Inaddition,thesurvivorwillnotseetheincreaseinbasisforthesurvivor'sinterestaswouldhappeninacommunitypropertystate.
13 WhatifIcreateajointtenancywithmychild?
Thisisadisadvantageouswaytoplananestate.Theproblemwithputtingyourchild'snameonthetitletoyourpropertyasajointtenantisthatwhileitwillavoidprobate,creditorsofthechildwillbeabletoreachthejointtenancyproperty.Itmayalsocreateataxablegiftwhennoneisexpected,andmaynotbeconsistentwithyourultimatelydesireddistribution.
14 HowdoIknowifIhavea“barebones”LivingTrust?
VeryfewestateplanningattorneysofferLegacyWealthPlanning.A"barebones"LivingTrustcoversprobateavoidanceandusuallyignoresimportantissuestoprotectyou,yourspouse(ifmarried)andyourchildren.BringyourexistingTrusttoyourfreeone-hourconsultationandwecanreviewitforyou.
15 IfIhavea“barebones”LivingTrustshouldIgobacktotheattorneywhodraftedtheTrust?
Youcancertainlygobacktotheattorneyyouworkedwithbefore,however,fewattorneysofferLegacyWealthPlanning.IfyouwantLegacyWealthPlanning,contactamemberoftheAmericanAcademyofEstatePlanningAttorneys.
16 WhyisaFamilyWealthTrustbetterthanaPowerofAttorney?
AFamilyWealthTrustisoftenrecommendedtoclientsasthekeydocumentintheirestateplan.OnereasonforthisisthattheFamilyWealthTrustisnormallythebestmethodformanagingassetsduringincapacity.AmajoradvantageoftheFamilyWealthTrustoverthePowerofAttorneyisthataTrusteehasactualtitletotheassetsandthereforethirdpartiesmustdealwiththeTrusteeastheowner.Anagentdoesnothavetitleandhencethirdpartiesmayrefusetodealwiththeagent.ThisisparticularlytrueifthePowerofAttorneyismorethanafewyearsold.
17 WhyshouldIhaveaFamilyWealthTrust?
NotonlydoesaFamilyWealthTrustprovideforthedispositionofyourproperty(likeaWill),butitalsooffersthefollowingbenefits:
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• Providesfortheimmediatetransferortrustmanagementanddistributioninthefutureofassetsafterdeath;
• Allowsforasmoothtransitionofmanagementuponincapacityordeath;• Avoidstheexpenseandhassleofprobateproceedings;• Minimizesestatetaxesanddeferspaymentofestatetaxesformarriedcouples;• Allowsforcontinuedcontroloverassetsafterdeathorincapacity;• Providessecuritytoyouandyourlovedones;• Protectsyourchildren’sinheritancefromtheirownpotentialdivorce;• Safeguardsyourestateforyourkidsifyoursurvivingspouseremarries;• Offersflexibility.
18 WillIstillhavecontrolovermypropertyifIestablishaFamilyWealthTrust?
Absolutely! While you are alive and mentally competent, you have complete control over yourproperty.Youcanbuy,sell, improve,spend,changeinvestments,orgiveawayproperty justasyouwouldwithoutaTrust.TheTrustcanbemodifiedinanymanneryoudesireoritcanbecompletelyrevoked.Uponyourdeath,theTrustbecomesirrevocablesothatnoonecanchangeyourtestamentarywishes.Uponyourincapacity,thesuccessortrusteeyou’venamedwillmanageyourassetsforyourbenefit.Formarriedcouples,theotherspousestillhastotalcontroloverhisorhershareofproperty.
19 WhoistheTrusteeofmyFamilyWealthTrust?
Whileyouarealive,youmayactasTrustee.Formarriedcouples,eitheroneorbothspousesmayactasTrusteeorco-Trustees.ThesuccessorTrusteeisanindividualorcorporationfiduciarywhomyoudesignatetobeinchargeofyourTrustintheeventofdisabilityorupondeath.
20 WhoshouldbedesignatedassuccessorTrusteeofmyFamilyWealthTrust?
YouwillneedtodesignateoneormoresuccessorTrustees.Thesecanbeindividuals,suchasfamilymembers,trustedfriends,Trustedprofessionals,oryoucoulddesignateaninstitution,suchasabankorprofessionalTrustcompany.Individualsmaypredeceaseyou,whileaninstitutionwill(mostlikely)still exist at the time of your death. Institutions provide the benefit of experience in moneymanagementandTrustadministration,whilefamilymembersandclosefriendsaremore"personal"andhavefirst-handknowledgeofyourdesires.Ifyouchooseanindividual,theindividualshouldhavesomebusinesssense,oryoumightwishtonameanindividualandaninstitutionasco-Trustees.Thedownsidetoco-Trusteesisthepossibilityofdisagreements.
21 CanyoubetheTrusteeofmyFamilyWealthTrust?
TechnicallyalawfirmoranattorneyatalawfirmispermittedtobetheTrustee.However,atourlawfirm,weneveractasTrusteeforourclients.Wethinkitisinappropriate.
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22 WillmyincometaxeschangeifIcreateaTrust?
AFamilyWealthTrustdoesnotchangeyourincometaxliability.TheInternalRevenueServicedoesnotrequireanyadditionalincometaxfilingswhenyoucreateaFamilyWealthTrust,andthesameannual1040taxreturnisfiledaslongasamarriedcouplefilesjointlyandtheTrustholdsnoforeignproperty.
23 DopropertytaxeschangeifIcreateaTrust?
Generally,propertytaxesremainthesamewhenrealestateistransferredintoaFamilyWealthTrust,althoughlawsvaryfromstatetostateandcountytocounty.Relevantstatelawneedstobereviewedbeforeanytransferismade.
24 WhatistheannualfeeforaTrust?
ThereisnoannualfeeassociatedwithmaintainingaTrust.FeesareinvolvedwhenanamendmenttotheTrustismadewhichinvolveschangingthetermsoftheTrust.WhenaspouseorTrusteepassesaway,feeswillbechargedinordertohandletheTrustAdministrationtotakeadvantageofcertaintaxbenefits,ifapplicable,andtofollowthetermsoftheTrust.
25 HowdoIfundmyTrust?
FundingaTrustentailstransferringassetsyouownasanindividualintothenameofyourTrust.Forsomeassets,ourlawfirmmakesthetransfersandpreparesthedocumentsforyoutosign,forexample,realestate.Forotherassetsthatourlawfirmisunabletochangeforyou,wewillgiveyouinstructionsastohowtitleischanged,andwillprovideyouwiththenecessarypaperwork.Forexample,tofundyourTrustwithbankaccounts,aletterispreparedforyoutotaketothebanktochangetitleofyouraccounts.YouwillhavetogotothebankinpersontosignanewsignaturecardasTrusteeofyourTrust.
26 WhatassetsareleftoutsideofmyTrust?
Althoughthere'snothingwrongwithhavingyourcheckingaccountinthenameofyourTrust,someindividualsliketohavejusttheirnameonthechecks.YoucandosoeveniftheaccountisintheTrust,oryoucansimplychoosetoleaveasmallcheckingaccountoutsideoftheTrust.OtherassetswhichshouldnotbefundedintotheTrustareIRAsandpensionplans.What'simportantistocoordinatetheappropriatebeneficiarydesignationwithyouroverallestateplan.Thisisacomplexareaofplanningandmustbebasedoneachperson'sindividualfamilycircumstancesandsizeofestate.
27 Howisout-of-statepropertyfundedintomyTrust?
Out-of-statepropertyistransferredintotheTrustbyusingalocalattorneyinthatstateworkingwithour lawfirm.Weareamemberof theAmericanAcademyofEstatePlanningAttorneys,anationalorganizationwithmemberscoasttocoast.Therefore,wecancontactanothermemberattorneyinthestatewhereyourpropertyislocatedtohaveittransferredtoyourTrustwithaminimumofdelay.
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28 Howaretime-sharesfundedintoaTrust?
Timeshares are transferred based upon the type of ownership you have. Some timeshares are acontractandaretransferredtotheTrustbyanassignmentofthecontract.Othertimesharesareafee-simple,whichmeans you have absolute ownership and it is a form of real estate. Therefore, it istransferredbydeedingittotheTrust
29 IfItransferrealestatetomyTrustcanthebankcallmyloan?
EnactedaspartoftheGarn-St.GermainDepositoryInstitutionsActof1982(P.L.97-320;96Stat1501)adue-on-saleclausecannotbeenforcedona"transferintoanintervivosTrustonwhichtheborroweris and remains a beneficiary andwhichdoesnot relate to a transfer of rights of occupancy in theproperty."Thisexemptionappliestoresidentialrealpropertycontaininglessthanfivedwellingunits{12USCSec.1701j-3(d)}.Theregulationslistthattheborrowerinthistypeofsituationmustremainthe beneficiary and occupant of the property {12 CFR 591.5(b)(vi)}. However, "occupancy" is notdefined.Therefore,prudencesuggestsnotifyingthelendinginstitutionbeforethetransfer.
30 DoesaFamilyWealthTrustprovideassetprotection?
DuringthelifetimeofbothspousesthereisnoassetprotectionprovidedbyaFamilyWealthTrust.However,theremaybesomeprotectionforthesurvivorafterthefirstspousedies,dependinguponthe choices you select. The Trust can also be created to provide creditor protection for otherbeneficiariesoftheTrust.
31 IsaFamilyWealthTrustonlyfortherich?
No.AFamilyWealthTrustcanhelpanyonewhowantstoprotecthisorherfamilyfromunnecessaryprobate fees,attorney’s fees,courtcostsand federalestate taxes. In fact, theFamilyWealthTrustofferssubstantialprotectionforyourfamily,regardlessofyourtotalestate.Inadditiontosavingsatdeath,especially ifyourestate isover$100,000,theFamilyWealthTrustalsoprovidessavingsandpeaceofmindduringlife,becauseitavoidstheexpenseandemotionalnightmareofanincapacityor“living probate” proceeding. Also, a Family Wealth Trust can protect spouses in the event ofremarriageafteronespousediesandcanaffordgreaterprotectionforchildren.
32 HowdoIknowifmyestatehasenoughliquidity?
Liquidityplanningispartofestateplanning.Generally,itisnecessarytolookattheestateandseeifthereisenoughcashtopaytaxes,administrativeexpenses,andsupportdependentfamilymembers.Therearegenerallytwowaystodealwiththeliquidityissue,eitherbyreducingtaxesandexpenseswhichrequirecash,orbyincreasingthecashandliquidityoftheestate.TechniqueswhichreducetaxesincludefullyusingtheApplicableExclusionAmountatdeath,makingannualgifts,andusingplanningtechniques such as GRITs and QPRTs. Other techniques which reduce expenses include avoidingprobateandusingaFamilyWealthTrust.Ofcourse,increasingtheliquidityoftheestatecanbedonethroughconversionofassetsaswellaslifeinsurance.
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33 WhydoIneedaPour-OverWillifIhaveaFamilyWealthTrust?
A Pour-OverWill is used first to name a guardian for minor children. Second, it protects againstintestacy in the event any assets have not been transferred into the Trust at the death of theTrustor/Owner.Itsfunctionisto"pour"anyassetsleftoutoftheTrustintoitsotheyareultimatelydistributedaccordingtothetermsoftheTrust.
34 Whataretheadvantagestokeepingassetsinatrustformybeneficiaries,insteadofdistributingthemoutright?Whataboutthedisadvantages?
Theadvantages includepotentialprotection fromdivorce,creditors, taxingauthorities,bankruptcy,beneficiaryindiscretionandmismanagement,aswellasassuringtheassetsremaininthefamily.Thedisadvantagesarethattheremaybesomesmalladministrativeburdens,suchaspotentiallyneedingtofileanincometaxreturnforthetrust.
35 HowdoIchangemyTrust?
AnactualchangetothetermsofaTrustiscalledanamendmenttotheTrust.Anexamplewouldbechangingthedistributionfromtwochildrentojustonechild.ATrustcanalsobechangedbyatotalrestatementoftheTrustifmultiplechangesareinvolved.
36 WillmyTrustneedtobechangedwhenIbuyorsellassets?
BuyingorsellingassetsdoesnotchangetheTrustterms.ItmerelychangestheassetsintheTrust.SothinkofbuyingandsellingassetsasassetsgoinginandoutoftheTrustwithoutchangingthetermsoftheTrust.
37 DoIhavetocometoyourlawfirmtochangetheTrust?
Thereisnothingthatrequiresyoutoworkwiththeattorneyorthelawfirmthatoriginallypreparedyourestateplanningdocuments.We,ofcourse,hopethatyouwillreturntoourfirmtodoanyworkintheestateplanningarea,baseduponourphilosophyofbeingofservicetoourclientsandbeingtherewhenweareneeded.
38 WhatarethefeestochangemyTrust?
Atourfirm,wealwayschargeaflatfeeonceweknowexactlywhatthechangesareyouwant.Inthepreviousexample,foranamendmentchangingthedistributionofassets,wecharge<InsertAmount>atthepresenttime
39 WhendoesaTrustendorterminate?
A Trust will end or terminate when the distribution of all assets is made pursuant to the Trustdocument.
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40 HowdoIrevokemyTrust?
Trustsarerarelyrevoked.Mostofthetime,onceaTrustissetup,noonewantstorevokeit.However,therearesituationswhereitdoesoccur,primarilyinthecaseofdivorce.Abriefwrittenagreementisprepared,indicatingthattheTrustisnowrevoked.Theassetsareremovedandputinthenameoftheindividuals,whoarefreetoestablishnewTrustsiftheysodesire.
41 CansomeonecontestaTrustlikebreakingorcontestingaWill?
Anyonecanhireanattorneytoquestionhowlegalaffairshavebeenarranged.So,intheory,anyonecanattempttocontestaTrust.Inpractice,however,itismuchmoredifficultthancontestingaWill.AsallWillsmustbeprobated,anyinterestedpartycaneasilyjointheroutineprobatecourtproceedingsandcontesttheWillatthattime.Incontrast,someonewhowantstocontestaTrustmusttaketheinitiativetobeginhisorherownlawsuit,completewithcourtandattorneyfees.
42 WhathappenstoaFamilyWealthTrustwhenonespousedies?
Whenonespousepassesaway,atthattime,thesurvivingspouseshouldcontactourofficesothatwecansetupameeting.AtthatmeetingweexplainwhatneedstobedoneinordertofollowthetermsoftheTrust.WeneedtoinventoryallassetssothatweknowwhatisintheTrustinordertodividetheassetsintotheATrustandtheBTrust--thesurvivor’sTrustandthefamilyTrust,ifapplicable.TherearetremendoustaxbenefitsassociatedwiththeA/BtypeofTrust,whichiswhyasnapshotistakenoftheassetsatthedateofdeathofthespouse.
43 Whatisthecostwhenonespousedies?
Wechargeanhourlyfeebaseduponthetimeweworkonthematterorapercentageofthevalueoftheestate.Itvariesfromclienttoclientdependinguponthenatureoftheassetsandthecomplexityof the financial situation.Our fees rangeanywhere from<InsertAmount> in a simple situation to<InsertAmount>foralargerestateandmorecomplicatedfinancialpicture.
44 WhathappensifIamsinglewhenIdie?
Whenasingleindividualpassesaway,whoeverisnamedassuccessorTrusteeshouldcontactouroffice.Inmostcases,theTrusteeisinstructedthatassetsneedtobecollected,debtsneedtobepaidandthenultimatelythedistributionofassetswillbemadepursuanttothetermsoftheTrust.Inessence,thetermsoftheTrustarecarriedout.
45 HowlongdoesittaketosetupaTrust?
Inourfirm,weliketocompletetheworkwithinfourweeksofourfirstclientmeeting.
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46 DoIworkwithyouoraparalegal?
Thefirststepintheestateplanningprocessisforyoutocomeinforyourinitialconsultation.Atthattime,youwillmeetwithmeoroneoftheotherestateplanningattorneysatthefirm.Wewillworkwithyouand,ofcourse,draftallofthedocumentationtoimplementyourestateplan.Wedoalsohavespeciallytrainedparalegalsinourlawfirm,whodospecificjobssuchasassetcollectionandfundingandthingsofthatnature,aswellasthenotarizationoftheappropriatedocuments.Youwillmeetthemasyourestateplantakesshape.
47 WhatistheTrustname?
YourTrustnamewillbe“[yourname]asTrusteeofthe[yourlastname]FamilyWealthTrustdated[date],andanyamendmentsthereto”.Anexamplewouldbe“BillandMarySmithasco-TrusteesoftheSmithFamilyWealthTrustdatedJanuary1,2009,andanyamendmentsthereto”.
48 DoesyourlawfirmdoWills?
Atourfirmourmaingoalistoeducateclientsabouttheiroptionsinestateplanning.Wethengiveourclientsourjudgmentastowhatisbestforthem.IfitisappropriateaWillmaybeprepared.
49 Doesyourlawfirmhandleprobate?
Whatever your estate planning needs, from start to finish, we are here to help.We handle TrustAdministrationsandProbates.Itisofteninthesecircumstances,whenafamilycomestousdistraughtoverthelossofalovedone,thattheyfindourprobateservicessoveryimportant.Wecanhelpthemthroughthedifficultandoftentime-consumingprocessofprobate.
50 WhathappenstomyTrustifyouoryourfirmisgone?
The benefit of working with our firm is that we have several attorneys who do estate planning.<Dependinguponfirmsize.>Intheunlikelyeventthatthefirmisnotaround,Iamsurethatwewillhavejoinedwithanotherfirminordertocarryonthebusinessandtobeabletoserveourclients.Iftherearechangesinthefirm,wewillinalllikelihoodcontactyoutoletyouknowaboutthemandhowtocontactusinthefuture.
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TAXES:ESTATETAXES,GIFTTAXES,CAPITALGAINS,GSTQUESTIONS
51 Howlargeofanestatecanpassfederalestatetax-free?
The federalgovernmentallowsevery individualanamount free fromestate taxat theirdeath, the“ApplicableExclusionAmount,”whichis$5millionandisindexedforinflation.Thismeansthatin2015,estatetaxeswillnotbeowedatthetimeofanindividual'sdeathunlessthenetvalueoftheestateexceeds$5.43million.
52 Whatisthemaritaldeduction?
TheInternalRevenueServiceallowsanindividualtoleaveanyamountofassetstohisorherspousewithout taxation. At the death of the surviving spouse, however, all assets in the estate over theApplicableExclusionAmountwillbeincludedinthesurvivor'staxableestate;assetsabove$5.43millionaretaxedat40%in2015.
53 HowcanIleavemyestatetomyspousetax-free?
Anoutrightgiftatdeathqualifiesfortheunlimitedmaritaldeductionforestatetaxesand,therefore,therewill be no tax paid on the amount left to the surviving spouse. However, the $5.43millionApplicableExclusionAmountontheestateofthefirstdeceasedspouseislostwhenthesecondspousedies,unlessanestatetaxreturnisfiledand“portability”iselected.
54 Whatis“Portability”andcanIjustrelyonit?
“Portability” is theability foronespousetouse theremainingunusedestate taxexclusionof their
spousewhodiedbeforehimorher.InordertotakeadvantageofPortability,thedeceasedspouse’s
estatemustfileanestatetaxreturnandmustelectsuchPortability.RelyingonPortabilitymayormay
notberightforyou.Portabilitydoesnotmaximizetheamountofmoneythatmaybeabletopassfree
ofestatetax.Amountspassingdirectlytoaspouse,even ifwithintheestatetaxexclusion,maybe
subject claims from the surviving spouse’s creditorsornewspouse.Portability is effectiveonly for
federalestatetaxesandnotstateestateandinheritancetaxes.Forthesereasonsandothers,relying
onPortabilitymaynotberightforyou.
55 ShouldIusemy$5.43millionApplicableExclusionAmountduringmylifetime?
Thisisacomplexquestion.Theanswerdependsuponindividualfamilycircumstancesandthesizeofyourestate.
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56 WhatistheAnnualGiftTaxExclusion?
TheAnnualGiftTaxExclusionisanamountthatcanbegivenawayannuallywithoutresultingingifttaxonthetransfer.TheAnnualGiftTaxExclusionamountisinflationadjustedandcurrentlyis$14,000perrecipient.Thereisnolimitonthenumberofrecipientstowhomqualifyinggiftscanbemade.
57 Whathappensifthetaxlawchanges?IsmyTruststillvalid?
Intheeventofataxlawchange,theTrustisstillvalid.However,amendmentstotheTrustmaybeneededtocomplywithortakeadvantageofthenewlaw.
58 WhatisCapitalGainsTax?
CapitalGainsTaxisanincometaxpaidontheappreciationofthevalueofanassetfromwhenyoubought it to when you sold it. If you lost money, it would be a "capital loss."Theincometaxrateforcapitalgainsonpropertyheldforoverayearistypicallymuchlowerthanthetaxrateonordinaryincome.
59 Whatisastep-upinbasis?
Astep-up—orstep-down—inbasisisanadjustmentfortaxpurposestoanasset'sfairmarketvalueatthedateofthedeathoftheowneroftheasset.Forexample,ifyouboughtashareofstockfor$100thatincreasedinvalueto$500atthetimeofyourdeath,yourtaxbasiswas$100butincreasesto$500atthetimeofdeath.Thisincreaseisknownasastep-upinbasis.Ifyouboughtthestockfor$500anditwasworth$100atthetimeofyourdeath,itwouldbeastep-downinbasis.
60 Domyassetsgetastep-upinbasisifthey’reinmyTrustwhenIdie?
YourshareoftheassetsheldintheTrustdoesgetastep-up—orstep-down—inbasisuponyourdeath.Therewillbeanotherstepup—orstep-down—inbasisofyourspouse'sshareoftheTrustassetsatthedeathofyourspouse.Thestep-upinbasisallowsthepersoninheritingtheassettosellitwithouthavingtopaycapitalgainstax.
61 Whenisanestatetaxreturndue?
Anestatetaxreturnisdueninemonthsafterthedateofdeathandmaybeextendedforsixmonths.AreturnisrequiredifassetsareinexcessoftheApplicableExclusionAmountremainingatdeath,evenifthenetestateislessthantheApplicableExclusionAmount.Undercertaincircumstances,filinga706isrecommendedeveniftheestateislessthantheApplicableExclusionAmount,inordertostartthestatuteof limitations running,or toelect “portability”of thedeceased spouse’sunusedApplicableExclusionAmount.
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62 WhatistheGeneration-SkippingTransferTax?
Thisisataxleviedonassetsthataregiventoindividualswhoaremorethanonegenerationyoungerthanthedonor.Anexamplewouldbeagrandparentgivinganassettoagrandchildeitherduringthegrandparent's lifeoratdeath.Eachdonorhasa$5.43millionexemptionintheyear2015fromtheGeneration-SkippingTransferTax.Effectively,thisexemptioncanallowyoutoskipestatetaxinyourchild’sestate.
POWERSOFATTORNEY&INCAPACITYPLANNINGQUESTIONS
63 WhatisaPowerofAttorney?
APowerofAttorneyisadocumentauthorizingsomeoneelse(youragent)toactonyourbehalf(theprincipal).Thepurposeofgivingsomeonesuchapoweristoenabletheagenttoactonyourbehalfwhenyoucannotactforyourself.
64 WhocancreateaPowerofAttorney?
Generally,anyindividualcancreateaPowerofAttorneyifover18yearsofageandlegallycompetent.This,however,variesfromstatetostate.
65 WhomayactasanagentunderaPowerofAttorney?
Ingeneral,anagentmaybeanyonewhoislegallycompetentandovertheageof18.Usually,itisafamilymembersuchasaspouseorachild.Morethanonepersoncanbenamedasanagent.However,sometimesnamingtwoormoreindividualstoacttogethercanproveinconvenient,particularly ifapowerofattorneymustbeexercisedpromptly.Abettercourseistonameoneindividualasagentandthenanotherasabackup.
66 WhatisthedifferencebetweenaGeneralandaLimitedPowerofAttorney?
AGeneralPowerofAttorneyauthorizesyouragenttodoalmosteverythingonyourbehalfwhichyoucoulddoforyourself.ALimitedPowerofAttorneyauthorizesyouragenttoperformonlycertainactsspecificallylistedinthedocument.
67 HowdoesanagentuseaPowerofAttorney?
Youragentpresentsthepowertotheotherpartyinvolvedinthetransactionandsignsanynecessarydocumentsneededforsuchtransactionsonyourbehalf.Youragentnormallysignsyourname,addingthereafter“byAttorneyinFactMarySmith.”
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68 WhataretheformalitiesofsigningaPowerofAttorney?
Requirementsvaryfromstatetostate,butgenerallyasimplenotarizationorsigningthepowerinthepresenceofwitnessesisnecessary.
69 WhendoesaPowerofAttorneybecomeeffective?
Thisdependsuponwhatthepowersays.Itcanbemadeeffectiveatthetimeofsigningoritcanbecomeeffectiveatthetimeofyourincapacityoranotherevent.
70 HowdoesaPowerofAttorneyterminate?
Death revokes a Power of Attorney. You may also cancel your Power of Attorney by signing arevocation.ThebestwaytorevokeaPowerofAttorneyistodestroyallcopies.However,thirdpartieswithoutnoticeoftherevocationmaystillrelyonthePowerofAttorney.So,itisbesttosendanoticeofrevocationtoanyonethathadhonoreditinthepast,suchasthebank.IfthepowerisaNon-durablePowerofAttorney itwill be ineffectiveduring your incapacity,while aDurable PowerofAttorneysurvivesyourincapacity.
71 UnderaPowerofAttorney,canmyagentmakeagiftonmybehalf?
Yes,butyourPowerofattorneymustspecificallyauthorizeyouragenttomakesuchgiftsfromyourassetstopersonswhomyouwouldlikelymakegifts.
72 Mustthird-partieshonoraPowerofAttorney?
Thereisnowaytoforceathird-partytoacceptthepower.Manybankswillrequireyoutocompletetheirownformstoauthorizeyouragenttowritechecksonyouraccount,soitisadvisabletoinquireastowhetheryourbankinginstitutionrequiressuchformsthatcanbecompletedinconjunctionwithexecutingapowerofattorney. Inaddition, the IRSgenerallywillnothonoranyPowerofAttorneyunlessyouusetheIRSForm2848.
73 WhatarethedisadvantagesofaPowerofAttorney?
First,third-partiesmaynotrecognizeyourPowerofAttorney.Second,itcanbedifficulttorevokeaPowerofAttorney,especiallyifyouragenthasgivencopiestothird-partiesthathavehonoredit.Third,theagentcanreachyourassetswithoutcourtapprovalorsupervision.Therefore,itisimperativethatyouselectanagentwithgreatcareandhavetremendousconfidenceinthatindividual.
74 Aretherealternativesformanagingpropertywhenapersonbecomesincapacitated?
Thereareseveral.OneisusingaDurablePowerofAttorney.Anotherisacourt-supervisedproceedingreferredtoasaguardianshiporconservatorship.Anotheralternative is theuseofaFamilyWealthTrustwhereassetsarefundedintotheFamilyWealthTrust.
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75 WhatmakesaDurablePowerofAttorneydurable?
ADurablePowerofAttorneyremainseffectiveevenifyoubecomeincapacitated.Generally,unlessthepowerspecificallyindicatesitisdurable,itisnotdurableandwillterminateuponyourincapacity.
76 ShouldIhaveaDurablePowerofAttorney?
Yes.TheDurablePowerofAttorneyforpropertyisoftenusedinconjunctionwithaTrusttoenableyouragenttotransferyourassetsintoyourTrustintheeventyoubecomedisabled.ADurablePowerofAttorneycanbemadeeffectiveimmediatelyuponbeingsignedorcanbecomeeffectiveatthetimeofyourincapacity,whichisalsocalleda“springing”PowerofAttorney(checkrelevantstatelawtoseewhatisallowed).
77 WhataretheadvantagesofaDurablePowerofAttorneyforProperty?
A Durable Power of Attorney can be a better way to deal with incapacity than a guardianship orconservatorship.Itavoidsthecourtproceedingthataguardianshiporconservatorshiprequires.
78 ShouldIhaveaDurablePowerofAttorneyforHealthCare?
Yes,itisimportanttohaveaDurableHealthCarePowerofAttorney,sometimescalledaHealthCareProxy. Itallowsyouragenttomakeanumberofhealthcaredecisionsonyourbehalf.Oftenthis isaccompaniedwithaLivingWilloraphysician'sdirectivethatcancovertheissueofremainingonlifesupportsystemsundervaryingcircumstances.
79 WhatisaLivingWill?
ALivingWill,orsometimescalledaphysician'sdirective,isadocumentinwhichyougivedirectionsforlifesustainingtreatmentshouldyoubecomeunabletocommunicateyourwishes.SomestateshavecombinedthisintotheAdvancedHealthCareDirective.
80 Whatisaguardianshiporconservatorship?
Thisisacourt-supervisedproceedingwhichnamesanindividualorentitytomanagetheaffairsofanincapacitatedperson.Aguardianshipmayalsoincludethedutytocarefortheincapacitatedperson.
81 Whatisthenominationofaguardian?
The nomination of a guardian occurswhen an individual seeks court approval to act on behalf ofsomeonewhoisincapacitated.ThisisavoidedthroughthecreationofaPowerofAttorneythatcanbeusedtonameaguardianintheeventoneisneeded.
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82 Whatarethedisadvantagesandadvantagesofaguardianship?
A primary disadvantage to a guardianship is that it is a public proceeding, thereby exposing theincapacitatedindividualtoembarrassmentasthedetailsoftheirincapacityarediscussedatlength.Itisalsoexpensive,andisarestrictiveprocedure.Inaddition,thereisnoguaranteethattheendresultwill be in accordance with the incapacitated person's wishes, and someone unacceptable to theincapacitated person could be placed in charge of his or her affairs. A major advantage to aguardianshipisthatthecourtswatcheverymovetheguardianmakesinrelationtotheassets.Somefeelthisprovidesincreasedprotectionaswellasestablishingtheauthorityofaguardianasthirdpartiesmustdealwiththeguardianduetothecourt'ssupervision.
ADVANCEDPLANNINGQUESTIONS
83 Whatisa“CTrust”or“QTIPTrust”?
A“CTrust”or“QTIPTrust”(QTIPstandsforQualifiedTerminableInterestProperty)isamaritalTrust.ThisiswhereonespouseownsmorethantheApplicableExclusionAmount($5.43millionin2015)andwantstocontrolthatadditionalamountofmoneyafterheorshepassesaway,yetalsodeferthetaxontheamountabovetheApplicableExclusion.ByputtingtheamountabovetheApplicableExclusionintoaQTIPTrust,estatetaxesaredeferreduntilthesurvivingspousepassesaway.Animportantissue,oftenoverlooked,iswhopaystheestatetaxontheQTIPassets(thesurvivingspouse).AQTIPTrustisalsousedinconnectionwithmaximizingwhatiscalledtheGeneration-SkippingTransferTaxexclusionamount.
84 WhatistheUniformTransferstoMinorsAct?
Thisisalawthatestablishesacustodianshipforholdingthepropertyofaminor.Propertyisgiventothecustodianwhomanagesitandusesitforthebenefitoftheminor.
85 WhatisaQDOTTrust?
AQDOTTrust(QDOTstandsforQualifiedDomesticTrust)isaspecialTrustsetupwhenanon-citizenspouseisthesurvivingspouse.Thetaxlawgenerallydoesnotallowanindividualtoobtainthemaritaldeduction when leaving assets to a non-citizen spouse. The marital deduction is obtained if thepropertyisheldinaQDOTTrust.
86 WhatisaCharitableRemainderTrust(CRT)?
ACharitableRemainderTrustpermitsadonortodefertheincometaxconsequencesonthesaleofacapitalgainpropertyandmakeacharitablegift.ThedonortransferspropertytotheTrust,retainingtherighttoreceiveastreamofannualpaymentsforatermchosenbythedonor.Atthedonor’sdeaththeremainingassetsgotothecharity.ThetwotypesareCharitableRemainderAnnuityTrustsandCharitableRemainderUniTrusts.
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87 WhatisaFamilyLimitedPartnership(FLP)?
AFamilyLimitedPartnershipisapartnershipmadeupoffamilymembersandisusedinmanycasestofacilitateassetmanagement,taxplanningandgifting.Generally,theparentsarethegeneralpartners,controlling the partnership and making all decisions. The limited partners are often children orgrandchildrenwhoreceivegiftsofpartnership interests.This isaverypopularandeffectiveestateplanningtool.
88 WhatisaCrummeyPower?
ACrummeyPowerisaspecialpowerregardinggiftsinTrust.Itwasnamedforacourtcaseofsomeyearsago.InorderforagiftinTrusttoqualifyfortheannualgifttaxexclusion,theindividualrecipientmusthavearighttowithdrawthemoneyforsomecertainperiodoftime.TherighttotakethegiftfromtheTrustduringtheperiodoftimeindicatedisknownastheCrummeyPower.
89 WhatisanILIT?
ILIT stands for Irrevocable Life InsuranceTrust. This is anestateplanning technique,oftenused toensurethatlifeinsuranceproceedswillnotbesubjecttofederalestatetax.Itcanbeusedeffectivelytoreducethesizeofthetaxableestateandtoprovideasourceoftax-freefundsthatmaybeusedtopayanydeathtaxesdueatthedeathoftheinsured.
90 WhatisaGrantorRetainedAnnuityTrustorGRAT?
This is a Trust into which an individual transfers property and retains the right to receive annualpaymentsfromtheTrustforatermofyears.Thisisataxplanningtechniquetoreducethesizeofanestateandtheamountoftheresultingestatetax.Ifthepropertygrowsfasterthantheassuredinterestrate, set monthly by the IRS, what remains in the Trust passes to children or other remainderbeneficiaries,freefromstateandgifttax.
91 WhatisaQualifiedPersonalResidenceTrust(QPRT)?
ThisisanirrevocableTrustintowhichapersonalresidenceistransferred.TheindividualorcouplewhocreatedtheTrustretainstherighttousethepropertyforthetermoftheTrust.ThisisataxplanningtechniquetoremovetheassetfromtheestateoftheindividualmakingtheTrust.IfthegrantorsurvivesthetermoftheTrust,thentheassetisnotpartoftheestate.
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MEDICAIDPLANNINGQUESTIONS
92 WhatisthedifferencebetweenMedicaidandMedicare?
PeopletendtoconfuseMedicareandMedicaid,butthetwoprogramsarenotthesame.Medicaidisajointfederal-stateprogramthatpayscertainhealthcarecosts.Theprogramisneeds-based,meaningthat it is available to thosewhomeet certain financial criteria, including income and asset limits.Medicareisafederally-fundedhealthinsurancedesignedforpeople65andolder.Itisalsoavailableforyoungerpeoplewhohavecertaindisabilities.WhileMedicarecoversmanyhealthcareexpenses,itdoesnotprovidecompletecoverage.For instance,manypeopleare surprised todiscover that theprogram’scoverageforlong-termcareisextremelylimited.
93 Can’tIjustgiveawaymyassetsandqualifyforMedicaidbenefits?
Somepeoplemistakenlybelieve that theycansimplygiveawaysomeorallof theirassets to theirchildrenorotherrelativesinordertoqualifyforMedicaid.WhilepartofMedicaidplanningmayinvolvegivingawaysomeofyourassets,thishastobedonewithextremecautionandshouldonlybedonewiththeadviceofanexperiencedelderlawandestateplanningattorney.Ifyougiveawayyourassetsat the wrong time, or use the wrongmethod, you can face tough penalties. In 2006, the federalgovernmentpassedalawthatincludeda“5-yearlook-backperiod”whichimposespenaltiesforcertainassettransfersmadewithinthe5yearsbeforeyouapplyforMedicaidcoverage.
94 Can’tIjustaddmyson/daughter’snametothetitleofmyhousetoavoidlosingmyhometoMedicaidrecovery?
IfyoureceiveMedicaidbenefits,afteryourdeaththestatetriestorecoupthemoneyspentonyourcare.Theydothisbytryingtocollectagainsttheassetsyouleavebehind.SinceyoucanhaveverylittleassetsinordertoqualifyforMedicaid,thestateusuallygoesafterthefewremainingassetsleft,likethehome.ThisisknownasestateorMedicaidrecovery.RecoveryisallowedinmostcircumstancesandinmoststatesonassetsownedinJointTenancy,unlesstheonlyotherjointtenantbesidesyouisyourspouse.Additionally,ifyouchangethetitleonyourhometoyourchild’snamealone,ratherthanaddingthemtothetitle,itwouldbeconsideredagiftandinmostcircumstanceswouldcreateapenaltyifyouappliedforMedicaidbenefitswithin5years.Also,keepinmindthataddingyourchild’snametothe title on your home or other assets could expose you to their creditors, divorce, and otherunforeseenfinancialproblems.Therefore,there isonlyaverysmallpercentageofsituationswhereaddingachild’snametothetitlecouldworkforMedicaidplanning.
95 WhenisittoolatetodoMedicaidplanning?
ItisnevertoolatetodoMedicaidplanning.However,thebestwaytoplanforMedicaidandlong-termcareistodosowellbeforetheneedarises.Thisispre-needplanning,anditgivesyouthemostoptionsfor preserving your assets. Crisis planning, when someone is already in a nursing home or needsimmediatelong-termcare,canbeanincrediblehelptothosefacinganimmediateneedforMedicaid
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benefits.But,crisisplanninghasitsdisadvantages,suchastheinabilitytotakeadvantageofplanningthatescapes the5-year look-backperiod,whichmay reduce theamountof assets youareable topreserve.
96 Myparent/spousehasearlysignsofdementia,canwestilldoMedicaidPlanning?
Thefirststepistodeterminetheir“capacity,”whichmeanssomeonefullyunderstandsthedecisionstheyaregoingtomake.Whenyoucomeintoouroffice,ifthereisaconcernaboutcapacitywewillaskyoutocontacttheirphysicianandaskforastatementfromthemonyourlovedone’sabilitytomakethesedecisions.Ifitisdeterminedthatyourlovedonehascapacity,thenwewouldneedtoensurethatthereisanincapacityplaninplacetopreservetheabilitytodofutureplanningwiththeuseofPowersofAttorney,etc.ThenwecanhelpyouwithanyMedicaidplanningthatwouldbeappropriateforyoursituationrightnow.However,ifitisdeterminedthattheydonothavecapacity,wewillneedtoseeiftheyhaveanincapacityplaninplacethatwouldallowsomeoneelsetomaketheseplanningdecisionsontheirbehalf.Ifthereisnoincapacityplaninplace,itmaybenecessarytogotocourttoappointsomeonetomakethosedecisionsforthem.
97 DoesMedicaidpayforin-homecare?
IfyouqualifyforMedicaidthenyoucanqualifyforbenefitsthatcouldpayforin-homecare.ThisiscalledCommunityMedicaidandtherulesandbenefitscanvarygreatlyandcouldbeimpactedbyyourpersonalsituation.Therefore,wewouldneedtomeetwithyoupersonallytodeterminethenatureofyourneedsandwhatMedicaidcouldpotentiallypayfor.
98 WhatarethedisadvantagestoaMedicaidtrust?
Themaindisadvantageisthatyou’vemadeanirrevocabletransferofyourassetstothetrustandyoucannotundothistransfer.However,typicallyyouretaintherighttoincomefor lifefromtheassetsyou’ve transferred and youmay continue to live in your home,while preserving your home fromMedicaidrecovery.
99 WhatarethedifferencesbetweenaFamilyWealthTrustandaMedicaidTrust?
AFamilyWealthTrustcanbechangedatanytimeandyouhavecompletecontrolandfullaccesstoyourassetstitledinthetrust.TheMedicaidTrustmayprovideassetprotectionfromlong-termcarecostsandMedicaidrecovery.Bothtrustsprovidenumerousbenefits,suchasremarriageanddivorceprotectionandprobateavoidance.Wefindthatmanyfamiliesbenefitfromhavingbothtrustscreated.Wecangiveyouarecommendationaboutwhatisbestforyouandyourfamilywhenwemeetwithyou.
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100 MyspouseandIarehealthyandwedon’thaveafamilyhistoryofdementiaordisability,shouldwestillconsiderMedicaidplanning?
As Americans live longer lives, the possibility of needing long-term care increases considerably,regardlessoffamilyhistory.Infact,Americans65andolderhavea40%chanceofenteringanursinghome in their lifetime.Withthehighriskof losingyourassetsandyour familyhomeasa resultofpayingnursinghomecostswithoutMedicaidplanning,itmakessenseformostfamiliestoengageinsome sort of pre-needMedicaid planning to protect against the unexpected.We can discuss yourpersonalsituationfurtherduringyourconsultation.
101 I’veheardthatyouhavetoimpoverishyourselfinordertoqualifyforMedicaid,howmuchcanaMedicaidTrustprotect?
Medicaiddoeshavestrictincomeandassetlimitsbutifyouplanfarenoughinadvance,thereisnolimittotheamountofmoneythataMedicaidTrustcanprotect,aslongasplanningisdonefarenoughinadvanceofneedingandapplyingforMedicaid.
102 IsthereanassetmaximumforplanningandqualifyingforMedicaidbenefits?
Yes,thereareassetslimitsimposedbyMedicaidinourstate.InordertoqualifyforMedicaidyoumustpassa“means”testthatreviewsyourassetsandthoseofyourspouse,ifyou’remarried.Withproperplanning,doneatleast___yearsbeforetheneedforMedicaid,wecanrepositionassetssotheyareexemptfrombeingcountedforMedicaidqualification.Thesooneryouplan,themorewecanhelpyouprotect.
103 IfIneverendupneedinglong-termcareandMedicaidbenefits,whathappenstomyassetsintheMedicaidTrust?DoIstillhavecontroloverthem?CanIundothetrust?
WhetherornotyouendupneedingtoqualifyforMedicaidtopaylong-termcareexpenses,theassetsyouplaceintheMedicaidTrustwillbedistributedtoyourbeneficiariesasyouhadoriginallydecided.Youalsoretainarighttochangethebeneficiariesoraddnewones(exceptyourself),however,thetrustisirrevocable,whichmeansthatyoucannotundoit
104 What’sthedifferencebetweenSSDIandSSI?
Thereisalotofconfusionoverthesetwotermsandbenefits.SSDIisSocialSecurityDisabilityInsuranceand isavailable topeoplewhohavepaid intoSocialSecurity for the requiredperiod, regardlessofincomeorassets,andwhoarenowdisabledorblind.Ontheotherhand,SSIisSupplementalSecurityIncome,whichisavailabletopeoplewhohavelimitedresourcesandincome,andaredisabled.