Kansas and Missouri Estate Planning

How do Trusts Impact Medicaid Eligibility?

Medicaid eligibility is subject to certain asset requirements.

Health care expenses only increase as you age .

You have run the numbers.

It looks as if you will require Medicaid assistance.

You are concerned about having to become destitute to qualify.

Can you keep your assets in a revocable land trust and still receive Medicaid?

According to a recent nj.com article titled “What revocable land trusts mean to Medicaid eligibility,” this is not an option.

Why?

The "revocable" nature of the trust means you can determine to terminate it at any time.

Medicaid considers the assets in the trust as yours since you can reclaim them and access them at any time.

Medicaid will require any assets you have—including those in this trust—to total no more than $2,000.

Are there any other trust options?

Yes.

You can create an irrevocable trust.

This would need to be created and any assets transferred into it more than five years before you submit a Medicaid application.

This will enable you to avoid the look-back period and attending penalty provisions for Medicaid.

If you need more help understanding Medicaid rules and application requirements, you should work with an experienced elder law attorney.

The National Academy of Elder Law Attorneys has a directory of elder law attorney you may search online.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: nj.com (April 9, 2018) “What revocable land trusts mean to Medicaid eligibility”

Why Would Aaron Hernandez Create a Trust?

Protecting assets for loved ones is a popular reason for trust creation.

Celebrities.

They rise, and they fall.

Some leave on top.

Others do not.

The latter is the sad story of Aaron Hernandez who formerly played tight end for the Patriots in the NFL.

After being convicted of murder, he hanged himself in prison earlier this year.

The criminal conduct and subsequent conviction cost Hernandez a contract worth some $40 million with the Patriots.

According to a recent Yahoo article titled “Report: Aaron Hernandez may have hidden money in trust before his death,” Hernandez also left behind an irrevocable living trust.

Why would he create an irrevocable trust?

 

An irrevocable trust could be appealing because, under the right circumstances, it would protect trust assets from creditors.

His assets at death were estimated at $1.2 million, but he also had more than $2.8 million in debt.

In the midst of all of this, Hernandez left behind his partner and their minor daughter Avielle (age five).

Consequently, an irrevocable trust would allow Hernandez to pass along some financial support to Avielle, despite his personal creditors.

Although Hernandez made many poor decisions in his life, this estate planning choice may have been a smart one for his family.

There have been no updates on the status of this irrevocable trust.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Yahoo (November 28, 2017) “Report: Aaron Hernandez may have hidden money in trust before his death”

How do I Pass my Vacation Home to All of My Kids?

Passing along property can have significant tax consequences if done wrong.

You have a vacation home.

Perhaps it is a cabin.

Maybe it is a beach condo.

Either way, you want to keep it in the family.

This will not happen without planning.

According to the recent Financial Planning article titled “Save clients from tax pitfalls, family strife when passing on that lake cabin,” you could cause arguments and divisions.

It may seem nice to keep the vacation home for family gatherings.

But not everyone may feel the same way.

They may simply want cash.

What then?

How can a family member who wants to keep the vacation home ... keep the vacation home?

You could arrange for them to purchase the shares from their siblings.

In other words, give them a "right of first refusal" to purchase before the property would ever be offered to a third party.

What if this family member does not have enough money to exercise this right?

You could put the home in an irrevocable trust.

This could create a future capital gains tax burden for your children.

What happens if you do simply sell your home?

You could take a huge tax hit.

Why?

Vacation homes do not qualify for the $250,00 (if single) or $500,000 (if marriage and filing jointly) capital gains tax exclusion.

How much could you be taxed?

You could be taxed at 20 percent for the long-term capital gain and have a 3.8 percent surtax on net investment income.

Yikes!

Leaving the vacation home to your children will allow you to avoid income tax and the capital gains tax.

How?

The vacation home, along with your other assets that have appreciated in value, will enjoy a new step up in basis to the value on your date of death.

All that aside, practically speaking, your children may have discussed this situation amongst themselves already. 

Regardless, communicate with your children about your estate planning wishes early and often.

By doing so, you may be able to reach a favorable solution for everyone.

Work with an experienced estate planning attorney to determine the best option for your family.

He or she has likely been there and done that when it comes to intra-family estate planning matters.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Financial Planning (May 23, 2017) “Save clients from tax pitfalls, family strife when passing on that lake cabin”

Is Dividing Estate Evenly (Always) the Best Plan?

Equal and fair are not synonyms.

Do you have several heirs?

Have you provided varying support to each over the years?

Are some children more responsible?

Let me cut to the chase: have some of your children become adults, while others have just gotten older?

Perhaps you should consider leaving different amounts to each.

According to a recent Forbes article titled “Where Inheritance Is Concerned, Equal May Not Always Mean Fair,” simply bequeathing the same percentage to each child could leave one worse off intentionally.

How so?

Let us say you have two children.

One child has graduated college—paid for by you.

One child has not yet reached college age.

You die.

If you leave each an equal amount, your second child will have to use the funds on college while the first child merely gets to keep the money.

In the end, your second child has received less from you.

How can you avoid this?

You can create an irrevocable trust.

The trust allows for the money to be held and specific distribution instructions to be given.

In the above case, you could instruct the trust to divide the assets equally only after the trust has funded the college for the second child.

Another option?

Instead of having the trust distribute all of its property to the child or children, you could make the child or children trustees over their own respective shares.

What would this do?

It would allow the heir to make distributions to himself or herself while affording asset protection through spendthrift provisions.

As you can tell, things can get a little complicated pretty fast.

Trusts should not be attempted on your own.

Work with an experienced estate planning attorney to create a plan specific to your needs and goals.

An experienced estate planning attorney can build a trust to hold your home, business and other significant assets while protecting them from legal complications like divorce or creditors.

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").

Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

Two helpful online resources are just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com.

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Forbes (February 27, 2017) “Where Inheritance Is Concerned, Equal May Not Always Mean Fair”

What Steps Can I Take Now to Facilitate a Smooth Estate Administration Later?

Being proactive will help keep your asset transfers peaceful.

However, some families are just prone to fighting.

Period.

This may be the result of a blended family or simply a clash of personalities.

Everything is cause for a feud—no matter how big or small.

Does this sound familiar?

If yes, what can you do to avoid the seemingly inevitable arguing when you pass away?

The Motley Fool provides welcome advice in a recent article titled “Avoid family fights over inheritance.”

What does it say?

Consider an irrevocable trusts.

Why?

You will proactively protect the money in your trust from any mental lapses as you age.

It will also nullify suspicion amongst beneficiaries as none of them will be able to modify the trust.

Plan ahead.

People do not always make the best decisions under stress.

Work with an estate planning attorney well in advance to ensure the choices regarding your assets are well thought out.

Use a professional trustee.

Avoid any semblance of favoritism or manipulation by hiring a third party to administer your trust and estate.

If they disagree with someone, it will be with a professional who has years of experience—not a family member.

Hiring a trustee will cost more money, but it may be worth it to keep the peace and avoid court cases.

Discuss your decisions together.

Equal may not be fair.

And fair may not be equal.

Consequently, if your estate will not be left even-steven to your loved ones, then you will definitely want to explain your reasons.

 

When possible, explaining your decisions in person will always be more beneficial for everyone.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Motley Fool (November 7, 2016) “Avoid family fights over inheritance”

What is an ILIT?

ILITs were designed to avoid taxes on life insurance payouts.

ILIT is an acronym for  "irrevocable life insurance trusts."

Why would you need one?

If your life insurance is included in your estate - and your estate exceeds the applicable estate tax exemption - then any proceeds could be taxed up to 40%.

Not good.

Creating an ILIT to hold the title to your life insurance can enable you to avoid estate taxes on this payout.

Sounds great, right?

It can be.

Before you make the decision, you will need more information.

As a recent Motley Fool article titled “What's an Irrevocable Life Insurance Trust and Why Do I Need One?”  points out, look before you leap,.

For the ILIT to accomplish its mission, the i's gotta be dotted and the t's gotta be crossed.

Here are a few issues to keep in mind.

How are payments made?

Insurance premium payments need to be paid by the trust.

This is done by funding the trust with money to pay the initial premiums.

Also, you also make ongoing future gifts to the trust to feed any ongoing premium payments.

In short though, you do not directly buy the insurance.

The trust purchases the insurance with the trust as the beneficiary.

Remember, an ILIT must avoid giving you “incidents or ownership.”

What are these?

“Incidents of ownership” are the management rights to the policy—including the ability to change beneficiaries, to alter how the payouts are distributed or to borrow against the policy.

Why is this important?

Keeping any of these rights defeats the purpose of the ILIT.

Your assets would be taxed as part of your estate.

Other trust provisions apply at your death.

What are the trustee responsibilities?

The trustee is responsible for giving notice to the trust beneficiaries each time a gift is made to the trust so such gifts qualify as a "present interest" under the annual gift exclusion rules.

By the way, the written notices are called "Crummey Letters"!

I kid you not.

Yes, this stuff gets complicated fast.

When can an ILIT be terminated?

When all the protective terms of the ILIT are satisfied, the trust can terminate, and final distributions are made to its recipients.

Are there potential issues with an ILIT?

Oh, yes.

The most common?

If the cost to continue the policy becomes too great, the trustee may have to surrender the trust or choose to borrow against the trust to fund it.

Neither is ideal.

To determine whether the costs are worth the rewards of an ILIT, work with an experienced estate planning attorney.

He or she can advise you on this tool and set up this complex trust if it appropriate for you unique circumstances.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Motley Fool (August 24, 2016) “What's an Irrevocable Life Insurance Trust and Why Do I Need One?”

Are there Any Tax Issues for Beneficiaries of Irrevocable Trusts to Consider?

Some trusts are "revocable" when recreated, but become "irrevocable" later on. Others are "irrevocable" from the get go.

Regardless, there are tax consequences that just naturally attend any irrevocable trust.

If you are a beneficiary of such a trust, then there are some tax issues of which you should be aware.

This was the message in a recent article from The Motley Fool titled, “Tax Consequences of an Inheritance From an Irrevocable Trust.”

For starters, whether an irrevocable trust will be subject to estate taxation at the death of the trustmaker will hinge on the terms of the trust and how it was created. 

Typically, an irrevocable trust is a separate legal entity and, as a result, it is not part of the estate of the trustmaker.

On the other hand, its creation is usually attended by a taxable gift and that can have estate tax consequences in terms of requiring a gift tax return and thereby reducing the eventual estate tax exemption for the estate of the trustmaker.

Whew.

Yes, this can be rather complicated stuff.

Danger Will Robinson!

Irrevocable life insurance trusts (ILITs) can be extra tricky.

How?

If the trustmaker who creates the ILIT retains any "incidents of ownership" in the life insurance policy, then the death benefits will be included in the trustmaker's estate.

Obviously, such a misstep would foil the fundamental estate tax planning objective of the trust — to completely remove the death proceeds from his or her estate.

So what are some of these no-no "incidents of ownership"?

Avoid retaining the power to change beneficiaries, cancel or further transfer the policy, use the policy as collateral for a loan, or borrow against the policy's value. 

 

If you retain any of these powers, then estate taxes may be due on the life insurance proceeds thereby decreasing the overall inheritance. 

The impact of income taxes also depends on the terms of the irrevocable trust.

As the original article notes, if the trust terminates at the trust creator's death and the trust distributes assets to you as beneficiary, then your tax basis in those assets will be that of the trust.

Make sure you have detailed information from the trustee before making plans to sell those inherited assets.

Why?

You may trigger capital gains taxes upon the sale, especially if the assets funding the trust appreciated in value after the trust was created and funded.

What if the trust continues after the death of the trustmaker?

Some complex trust income tax rules will likely apply.

If the trust makes regular distributions to you, then they will be treated as taxable income.

In fact, each year you will receive a year-end informational return showing how much income is taxable and whether it is ordinary income, capital gains, or some other specialized type of income. 

Every trust is different.

Make sure you get sage advice from a experienced estate planning attorney.

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family members and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").

Third, either way, verify. Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

There are two helpful resources just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com.

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there. 

Reference: The Motley Fool (October 24, 2015) “Tax Consequences of an Inheritance From an Irrevocable Trust”