Wednesday, August 26, 2015

What rights do I have as a trust beneficiary?

As a trust beneficiary, you may feel like you are at the mercy of the trustee, but depending on the type of trust, trust beneficiaries may have rights to ensure the trust is properly managed.
A trust is a legal arrangement through which one person, called a "settlor" or "grantor," gives assets to another person (or an institution, such as a bank or law firm), called a "trustee." The trustee holds legal title to the assets for another person, called a "beneficiary." The rights of a trust beneficiary depend on the type of trust and the type of beneficiary.
If the trust is a revocable trust—meaning the person who set up the trust can change it or revoke it at any time--the trust beneficiaries other than the settlor have very few rights. Because the settlor can change the trust at any time, he or she can also change the beneficiaries at any time. Often a trust is revocable until the settlor dies and then it becomes irrevocable. An irrevocable trust is a trust that cannot be changed except in rare cases by court order.
Beneficiaries of an irrevocable trust have rights to information about the trust and to make sure the trustee is acting properly. The scope of those rights depends on the type of beneficiary. Current beneficiaries are beneficiaries who are currently entitled to income from the trust. Remainder or contingent beneficiaries have an interest in the trust after the current beneficiaries' interest is over. For example, a wife may set up a trust that leaves income to her husband for life (the current beneficiary) and then the remainder of the property to her children (the remainder beneficiaries).
State law and the terms of the trust determine exactly what rights a beneficiary has, but the following five common rights are often given to beneficiaries of irrevocable trusts:
  • Payment. Current beneficiaries have the right to distributions as set forth in the trust document.
  • Right to information. Current and remainder beneficiaries have the right to be provided enough information about the trust and its administration to know how to enforce their rights.
  • Right to an accounting. Current beneficiaries are entitled to an accounting. An accounting is a detailed report of all income, expenses, and distributions from the trust. Usually trustees are required to provide an accounting annually, but that may vary, depending on the terms of the trust. Beneficiaries may also be able to waive the accounting.
  • Remove the trustee. Current and remainder beneficiaries have the right to petition the court for the removal of the trustee if they believe the trustee isn't acting in their best interest. Trustees have an obligation to balance the needs of the current beneficiary with the needs of the remainder beneficiaries, which can be difficult to manage.
  • End the trust. In some circumstances, if all the current and remainder beneficiaries agree, they can petition the court to end the trust. State laws vary on when this is allowed. Usually, the purpose of the trust must have been fulfilled or be impossible.

Sunday, February 22, 2015 Article Highlights Family Feuds in the Probate Process

While I work with my clients to eliminate many of these challenges during the estate planning process, I saw the issues highlighted by this article on probate and family feuds pop up all too often in my time as a probate judge, among those clients who come to me after a loved one with no estate plan has passed, and when do-it-yourself estate planning documents lack the detail and clarity needed to avoid will contest litigation. As with most aspects of estate planning, in my experience, preventing these issues from becoming problems involves carefully determining your wishes and making sure your will and trust documents are carefully drafted to make sure those wishes are carried out. 

If you want to make sure your estate plan is drafted to avoid these and other potential pitfalls call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Probate Lawyer Matthew Fabisch at 401-324-9344.

Wednesday, February 4, 2015

Why a will is not enough (or why your estate plan should include a revocable trust)

Your will is a legally binding statement directing who will receive your property upon your death. It also appoints a legal representative, often called an “executor” or “personal representative,” to carry out your wishes. The process by which a person’s property is passed to the people or institutions named in the will is called probate. However, a will covers only probate property. Many types of property or forms of ownership pass outside of probate. Examples of property that pass outside of probate and, thus, are not mentioned in a will, include: jointly-owned property, property in a trust, life insurance proceeds, and property with a named beneficiary, such as IRAs or 401(k) plans.

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” The rules or instructions under which the trustee operates are set out in the trust instrument. There can be a number of advantages to establishing a trust, depending on the individual situation. Particularly important for the basic estate plan, revocable or living trusts give the donor complete control over the trust. The donor may amend, revoke or terminate the trust at any time. The donor can take back the funds he put in the trust or change the trust’s terms. The donor can also title other assets, including non-probate assets in the name of the trust. Thus, the donor is able to reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to death.

Revocable trusts are generally used for the following purposes:

1. Asset management. They permit the trustee (the person who manages the trust) to administer and invest the trust property for the benefit of one or more beneficiaries of the trust.

2. Probate avoidance. At the death of the person who created the trust, the trust property passes to whomever is named in the trust. It does not come under the jurisdiction of the probate court and its distribution need not be held up by the probate process. However, the property of a revocable trust will be included in the donor’s estate for tax purposes.

3. Tax planning. While the assets of a revocable trust will be included in the donor’s taxable estate, the trust can be drafted so that the assets will not be included in the estates of the beneficiaries, thus avoiding taxes when they die.

4. Disability planning. Wills only provide for death. Trusts can help a person have a plan in place in the event of their own illness.

Monday, February 2, 2015

Medicaid's Rules on Giving Away Your Assets and Qualifying for Nursing Home Long Term Care

In order to be eligible for Medicaid, you cannot have recently transferred assets. Congress does not want you to find out you need nursing home care on Monday, give all your money to your children (or anyone else) on Tuesday, and qualify for to have the government pay for your nursing home long term care by qualifying for Medicaid on Wednesday. So it has imposed a penalty on people who give away assets without receiving fair value in return.

This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The period is determined by dividing the amount transferred by what your state Medicaid program determines to be the average private pay cost of a nursing home in your state.

Example: For example, if you live in a state where the average monthly cost of care has been determined to be $5,000, and you give away property worth $100,000, you will be ineligible for benefits for 20 months ($100,000 / $5,000 = 20).

In 2015 the State of Rhode Island has determined that the average private pay cost of nursing home care is $9,113 per month. Massachusetts, which determines the cost on a daily basis, has determined that the number is $300 per day.

Another way to look at the above example is that for every $5,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month. In theory, there is no limit on the number of months a person can be ineligible.

Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 / $5,000 = 80).

A person applying for Medicaid must disclose all financial transactions he or she was involved in during a set period of time -- frequently called the "look-back period." The state Medicaid agency then determines whether the Medicaid applicant transferred any assets for less than fair market value during this period. The look-back period for all transfers is 60 months.  

Under the current law, the Medicaid eligibility penalty period will not begin until (1) the person making the transfer has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer. 

Returning to the example above, if an individual transferred $100,000 on April 1, 2014, moves to a nursing home on April 1, 2015, and spends down to Medicaid eligibility on April 1, 2016, that is when the 20-month penalty period will begin, and it will not end until December 1, 2017.

In other words, the penalty period would not begin until the nursing home resident was out of money, meaning there would be no money to pay the nursing home for however long the penalty period lasts. In order to make sure your parent is able to receive the nursing home care they need, it is critical to make sure they make adequate arrangements with an elder law lawyer before gifting away their money or property.  

If you need assistance understanding how any of these numbers impact you or a family member's eligibility for nursing home coverage through medicaid, or  with a probate,  estate planning or other elder law matters call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Nursing Home Lawyer Matthew Fabisch at 401-324-9344.

Key Information for Rhode Island Nursing Home Medicaid Coverage for 2015

Protections for the Community Spouse

Community Spouse Resource Allowance (CSRA):Minimum: $23,844
Maximum: $119,220
Increased CSRA:Not permitted. 
:Actuarially sound annuities are permitted.
Monthly Maintenance Needs Allowance:Minimum: $1,966.25
Maximum: $2,980.50
For explanation, click here.


Average monthly cost of nursing home care according to state:$9,113
For explanation, click here.
Has a Long-Term Care Partnership program been implemented?Yes
For explanation, click here.


Is the state an "income cap" state?No
For explanation, click here.

Estate Recovery

Has the state expanded the definition of "estate" beyond the probate estate?No
Has the state included a hardship provision in its estate recovery plan?Yes
For explanation, click here.

Home Equity Limit

The state Medicaid program will not cover long-term care services for those with home equity above this limit, with certain exceptions.$552,000
For explanation, click here.

If you need assistance understanding how any of these numbers impact you or a family member's eligibility for nursing home coverage through medicaid, or  with a probate,  estate planning or other elder law matters call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Nursing Home Lawyer Matthew Fabisch at 401-324-9344.

Saturday, January 24, 2015

Can I Give My Kids $14,000 a Year?

Gift moneyIf you have it to give, you certainly can, but there may be consequences should you apply for Medicaid long-term care coverage within five years after each gift.

The $14,000 figure is the amount of the current gift tax exclusion (for 2015), meaning that any person who gives away $14,000 or less to any one individual does not have to report the gift to the IRS, and you can give this amount to as many people as you like.  If you give away more than $14,000 to any one person (other than your spouse), you will have to file a gift tax return.  However, this does not necessarily mean you’ll pay a gift tax.  You’ll have to pay a tax only if your reportable gifts total more than $5.43 million (2015 figure) during your lifetime. 

Many people believe that if they give away an amount equal to the current $14,000 annual gift tax exclusion, this gift will be exempted from Medicaid's five-year look-back at transfers that could trigger a waiting period for benefits.  Nothing could be further from the truth.
The gift tax exclusion is an IRS rule, and this IRS rule has nothing to do with Medicaid’s asset transfer rules. While the $14,000 that you gave to your grandchild this year will be exempt from any gift tax, Medicaid will still count it as a transfer that could make you ineligible for nursing home benefits for a certain amount of time should you apply for them within the next five years.  

If you think there is a chance you will need Medicaid coverage of long-term care in the foreseeable future, see your elder law attorney before starting a gifting plan. 

If you need assistance with a probate matter, medicaid planning, estate planning or other elder law matters call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Probate Lawyer Matthew Fabisch at 401-324-9344.

Wednesday, January 21, 2015

The Top 10 Elder Law Decisions of 2014

Below, in chronological order, is our annual roundup of the top 10 elder law decisions for the year just ended. Number three in the list, M.W., was a decision not of a court but of the Director of the New Jersey's Division of Medical Assistance and Health Services.
1. Iowa High Court Rules State May Recover Medicaid Payments From Irrevocable Trust
Holding that the provision of medical assistance creates a debt immediately upon the provision of services to a recipient, the Supreme Court of Iowa rules that the state may recover Medicaid payments from the corpus of a husband and wife’s irrevocable income-only trusts. Estate of Melby (Iowa, No. 12–1593, Jan. 10, 2014).  
2. Long Annuities Not Subject to Medicaid Transfer Penalty While Short Annuities Are
A federal district court rules that five-year annuities purchased by Medicaid applicants are not transfers for less than fair market value, but transfers to 18-, 14-, and 12- month annuities are subject to a penalty period. The court also declines to enforce a state law making it a crime to counsel clients in the disposal of assets. Zahner v. Mackereth (U.S. Dist. Ct., W.D. Penn., No. 11-306 Erie, Jan. 16, 2014). 
3. New Jersey Medicaid Agency Reluctantly Rules That Gift-Annuity Plan Will Work
New Jersey's Medicaid agency holds that a Medicaid applicant who made a substantial gift and purchased an annuity to help pay for the resulting ineligibility period will be eligible for benefits. M.W. v. Division of Medical Assistance and Health Services (N.J. OAL Docket No. 2998-2013, Jan. 28, 2014). 
4. Spouse's Retirement Account Is Available Resource for Purposes of Medicaid Eligibility
According to Arkansas' highest court, the state may count a spouse's retirement account as an available resource when determining a Medicaid applicant's eligibility. Arkansas Dept. of Human Services v. Pierce (Ark., No. CV-13-870, May 29, 2014). 
5. Veterans Benefits Not Countable As Income in Medicaid Eligibility Determination
Veterans pension benefits may not be counted as income for the purposes of Medicaid eligibility if the benefit is the result of unusual medical expenses, a U.S. district court has ruled. Galletta v. Velez (D. N.J., No. 13-532 (RBK/AMD), June 3, 2014). 
6. Transfer of House in Exchange for Promissory Note Is Not Subject to Penalty
A U.S. district court holds that a Medicaid recipient who transferred his house to his daughter in exchange for a promissory note does not incur a transfer penalty and that the promissory note is not an available asset. Peterson v. Lake (U.S. Dist. Ct., W.D. Okla., No. CIV-13-1235-W, June 30, 2014). 
7. State Can Recover From Entire Value of Property in Which Medicaid Recipient Had Life Estate
The Idaho Supreme Court rules that the state may recover Medicaid benefits from the entire value of a property that a Medicaid recipient transferred to his daughter while retaining a life estate for himself. In re Estate of Peterson (Idaho, No. 40615, Aug. 13, 2014). 
8. Penalty Period Does Not Begin Until Medicaid Applicant Spends Down Returned Assets
A federal district court rules that the state can recalculate a Medicaid applicant's penalty period when transferred assets are returned, holding that federal Medicaid law does not directly address the issue. Aplin v. McCrossen (U.S. Dist. Ct., W.D. N.Y., No. 12-CIV-6312-FPG, Aug. 25, 2014). 
9. Medicaid Applicant's Irrevocable Trust Is Not Countable Resource
A Massachusetts trial court rules that an irrevocable trust that contains a provision allowing the trustee to distribute the principal to others for the benefit of the beneficiary is not a countable resource for purposes of Medicaid eligibility. O'Leary v. Thorn (Mass. Super. Ct., No. WOCV2013-02013A, Sept. 18, 2014). 
10. Medicaid Applicant's Penalty Period Not Reduced by Use of Transferred Assets to Pay Assisted Living
A New York appeals court determines that a Medicaid applicant's penalty period should not be reduced even though the applicant's daughter used some of the transferred money to pay for her mother’s assisted living facility. Weiss v. Suffolk County Dept. of Social Services (N.Y. Sup. Ct., App. Div., 2nd Dept., No. 2013-09464, 5418/13, Oct. 1, 2014). 

 If you need assistance with a probate matter, medicaid planning, estate planning or other elder law matters call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Probate Lawyer Matthew Fabisch at 401-324-9344.

Sunday, January 4, 2015

Review Your Estate Plan for a Secure New Year

As we bask in the afterglow of a joyous holiday season and turn our thoughts to the new year a review of our estate plans is an essential step to make sure our assets are protected from creditors, taxing authorities, nursing homes, and others who pose a potential threat to the financial well-being of ourselves and our families. 

1. Review and update beneficiary designations on insurance policies, 401(k) plans, and IRAs.

Did you get married this year? Have a child? Get divorced or start a new job? Now is a great time to take stock of the beneficiary designations to make sure that these assets, that pass outside of probate, are directed to go to the person you want. If you entered a second marriage and either of you has kids from a previous relationship you also might consider whether a qualified terminable interest property QTIP trust is helpful to protect those children's inheritance. 

2.Update advanced heathcare directives and guardianship designations. 

The person or persons nominated as your children's guardian need not be the person you choose to otherwise serve as trustee or executor or your estate. Make sure your agent and doctors all have copies so that they know your wishes in the event of an emergency. New in Rhode Island are Medical Orders for Life Sustaining Treatment or MOLST forms. These forms, which supplement a durrable healthcare power of attorney, are printed on neon pink paper and filed with your physician. Once this form is filed it must be followed by all of your medical providers and in any Rhode Island healthcare facility where you go for care.   

3. Review your will and trust documents to make sure they still do what you want them to do. 

Are your basic estate planning documents designed to protect your home and other assets from estate taxes, probate fees, or nursing home expenses? Will they still accomplish this goal? Has someone explained to you how changes in state and federal law will impact your will and trust documents?  While Massachusetts rules have remained largely constant over the past two years, there are at least two major changes to estate planning rules that Rhode Islanders need to worry about. One change eliminated the so called cliff that subjected the entire value of a Rhode Island estate to the state estate tax if the total value of the estate exceeded a certain inflation adjusted value. Now, state estate taxes are only paid on the "excess" value of the estate above $1,500,000. The second significant change is to no longer permit use of the so called "lady bird" deed in qualifying for Medicaid nursing home coverage. While those who had transferred thier title prior to July 1,  2014 are grandfathered, that particular option is no longer available to those who are looking at asset protection estate plans. Understanding how these and other changes impact your existing estate plan will ensure that it still meets your goals.

4. Check will and trust distribution ages.

By law beneficiaries of your will, will inherit the sums you left for them at the age of 18, unless your documents specify otherwise.  For this reason, many people designate that a child's inheritance should be held in trust until they are 25 or 30 in the hopes that they have sowed any wild oats and are just a little bit more responsible. 

5. Revisit your life insurance coverage.  

Many have life insurance policies that are too expensive for the benefit received or are otherwise misaligned with thier financial plan and interests. Others are woefully underinsured, exposing thier family and loved ones to unnecessary risk of financial ruin if something should happen.