Proper planning with a comprehensive estate plan can avoid probate, provide protection and planning in the event of incapacitation, minimize taxes and secure your distribution provisions. An estate plan may consist of a Will, Trust, Living Will, Power of Attorney and Medical Authorization. Attorney Sheri L. Montecalvo will customize your estate plan to fit your unique needs. Many people think that estate plans are for someone else, not them. They may rationalize that they are too young or don’t have enough money to reap the tax benefits of a plan. But as the following list makes clear, estate planning is for everyone, regardless of age or net worth.
- Loss of capacity.What if you become incompetent and unable to manage your own affairs? Without a plan, the courts will select the person to manage your affairs. With a plan, you pick that person through a power of attorney.
- Minor children. Who will raise your children if you die? Without a plan, a court will make that decision. With a plan, you are able to nominate the guardian of your choice.
- Dying without a will/trust.Who will inherit your assets? Without a plan, your assets pass to your heirs according to your state’s laws of intestacy (dying without a will). Your family members (and perhaps not the ones you would choose) will receive your assets without benefit of your direction or of trust protection. With a plan, you decide who gets your assets, and when and how they receive them.
- Blended families.What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would wish. With a plan, you determine what goes to your current spouse and to the children from a prior marriage or marriages.
- Children with special needs. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or SSI benefits, and may have to use his or her inheritance to pay for care. With a plan, you can set up a supplemental needs trust that will allow the child to remain eligible for government benefits while using the trust assets to pay for non-covered expenses.
- Keeping assets in the family.Would you prefer that your assets stay in your own family? Without a plan, your child’s spouse may wind up with your money if your child passes away prematurely. If your child divorces his or her current spouse, half of your assets could go to the spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and, for example, pass to your grandchildren.
- Financial security. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard. With a plan, life insurance can mean that your family will enjoy financial security.
- Retirement accounts.Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs. With a plan, you can choose the optimal beneficiary.
- Business ownership. Do you own a business? Without a plan, you don’t name a successor, thereby risking that your family could lose control of the business. With a plan, you choose who will own and control the business after you are gone.
- Avoiding probate.Without a plan, your estate may be subject to delays and excess fees (depending on the state), and your assets will be a matter of public record. With a plan, you can structure things so that probate can be avoided entirely and remain private.
Contact Attorney Sheri L. Montecalvo to discuss your estate planning needs in detail.
Elder Law and Medicaid Planning
With careful Medicaid planning, you may be able to preserve some of your estate for your children or other heirs while meeting the Medicaid asset limit (For RI, an individual nursing home resident covered by Medicaid may have no more than $4,000 in “countable” assets).
The problem with transferring assets is that you have given them away (for less than fair market value). You no longer control them, and even a trusted child or other relative may lose them. A safer approach is to put them in an irrevocable trust. A trust is a legal entity under which one person — the “trustee” — holds legal title to property for the benefit of others — the “beneficiaries.” The trustee must follow the rules provided in the trust instrument. Whether trust assets are counted against Medicaid’s resource limits depends on the terms of the trust and who created it.
A “revocable” trust is one that may be changed or rescinded by the person who created it. Medicaid considers the principal of such trusts (that is, the funds that make up the trust) to be assets that are countable in determining Medicaid eligibility.) Thus, revocable trusts are of no use in Medicaid planning.
An “irrevocable” trust is one that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the “grantor”) for life, and the principal cannot be directly applied to benefit you or your spouse. At your death the principal is paid to your beneficiaries. This way, the funds in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for either of your benefits. However, if you do move to a nursing home, the trust income will be assigned to the nursing home.
You may also choose to place property in a trust from which even payments of income to you or your spouse cannot be made. Instead, the trust may be set up for the benefit of your children, or others. These beneficiaries may, at their discretion, return the favor by using the property for your benefit if necessary. However, there is no legal requirement that they do so.
Another advantage of these trusts is that if they contain property that has increased in value, such as real estate or stock, the trust can be structured so that the beneficiaries receive the property with a step-up in basis at your death.
Remember, funding an irrevocable trust within the five years prior to applying for Medicaid (the “look-back period”) may result in a period of ineligibility. The actual period of ineligibility depends on the amount transferred to the trust.
Contact Attorney Sheri L. Montecalvo to learn more about this complicated area of law.
Some individuals and their families don’t use a lawyer to plan for long-term care or Medicaid, often because they’re afraid of the cost. But an attorney can help you save money in the long run as well as make sure you are getting the best care for your loved one.
Instead of taking steps based on what you’ve heard from others, doing nothing, or enlisting a non-lawyer referred by a nursing home, you can hire an elder law attorney. Here are a few reasons why you should at least consider this option:
- No conflict of interest. When nursing homes refer the families of residents to non-lawyers to assist in preparing the Medicaid application, the preparer has dual loyalties, both to the facility that provides the referrals and to the client applying for benefits. To the extent everyone wants the Medicaid application to be successful, there’s no conflict of interest. But it’s in the nursing home’s interest that the resident pay privately for as long as possible before going on Medicaid, while it’s in the nursing home resident’s interest to protect assets for the resident’s care or for the resident’s spouse or family. An attorney hired to assist with Medicaid planning and the application has a duty of loyalty only to the client and will do his or her best to achieve the client’s goals.
- Saving money. Nursing homes can cost as much as $15,000 a month in some areas, so it is unusual for legal fees to equal the cost of even one month in the facility. It is not difficult to save this much in long-term care and probate costs.
- Deep knowledge and experience. Professionals who work in any field on a daily basis over many years develop both the depth and breadth of experience and expertise to advise clients on how they might achieve their goals, whether those are maintaining independence and dignity, preserving funds for children and grandchildren, or staying home rather than moving to assisted living or a nursing home.
- Peace of mind. When you consult with an elder law attorney, the consultation will provide peace of mind that you have not missed an important opportunity. In addition, if obstacles arise during the process, the attorney will be there to work with you to find the optimal solution.
Medicaid rules provide multiple opportunities for nursing home residents to preserve assets for themselves, their spouses, children and grandchildren, especially those with special needs. There are more opportunities for those who plan ahead, but even at the last minute there are almost always steps still available to preserve some assets. Set up a meeting today with Attorney Sheri L. Montecalvo, to ensure that all of your assets are protected with a proper Medicaid plan.
Probate and Estate Administration
Estate administration is the process of managing and distributing a person’s property (the “estate”) after death. If the person had a will, the will goes through probate, which is the process by which the deceased person’s property is passed to his or her beneficiaries (people named in the will). The entire process, supervised by the probate court, usually takes about a year. However, substantial distributions from the estate can be made in the interim.
The emotional trauma brought on by the death of a close family member often is accompanied by bewilderment about the financial and legal steps the survivors must take. The spouse who passed away may have handled all of the couple’s finances. Or perhaps a child must begin taking care of probating an estate about which he or she is not knowledgeable about. This task often comes on top of commitments to family and work that can’t be set aside.
When you’re ready, meet with Attorney Sheri L. Montecalvo to review the steps necessary to administer the deceased’s estate. Bring as much information as possible about the decedent’s family, assets, finances, taxes and debts.
The exact rules of estate administration differ from state to state. In general, they include the following steps:
- Filing the will and petition at the probate court in order to be appointed executor/executrix or personal representative. In the absence of a will, heirs must petition the court to be appointed the administrator/admininstratrix of the estate.
- Marshaling, or collecting, the assets. This means that you have to find out everything the deceased owned. You need to file a list, known as an “inventory,” with the probate court. When the timing is appropriate, it’s generally best to consolidate all the estate funds to the extent possible. Bills and bequests should be paid from a single estate checking account, either one you establish or one set up by your attorney, so that you can keep track of all expenditures.
- Paying bills and taxes. If a state or federal estate tax return is needed it must be filed within nine months of the date of death. If you miss this deadline and the estate is taxable, penalties and interest may apply. If you do not have all the information available in time, you can file for an extension and pay your best estimate of the tax due.
- Filing tax returns. You must also file a final income tax return for the decedent and, if the estate holds any assets and earns interest or dividends, an income tax return for the estate. If the estate does earn income during the administration process, it will have to obtain its own tax identification number in order to keep track of such earnings.
- Distributing property to the heirs and beneficiaries. Generally, executors do not pay out all of the estate assets until the period runs out for creditors to make claims, which can be as long as a year after the date of death (RI has a 6-month creditor period). After the expiration of the creditor period, once the executor understands the estate and the filed claims, he or she can distribute most of the assets, and the costs of closing out the estate.
- Filing a final account. The executor must file an account with the probate court listing any income to the estate since the date of death and all expenses and estate distributions or an Affidavit of Complete Administration. Once the court approves this final account, the executor can distribute whatever is left in the closing reserve and finish his or her work.
Some of these steps can be eliminated by avoiding probate through joint ownership or establishing a trust plan. Regardless, whoever is left in charge still has to pay all debts, file tax returns, and distribute the property to the rightful heirs/beneficiaries. You can make it easier for your family by keeping good records of your assets and liabilities.
Schedule a meeting today with Sheri L. Montecalvo to learn more about the probate process.
Many individuals chose to utilize trusts in their estate plan for various reasons (avoidance of probate, privacy, tax planning, etc.) When a settlor deceases, a trust administration is required in order to properly distribute the assets of the trust to the named beneficiaries of the trust. A trust administration is a private and non-court supervised process the goal of which is to transfer the trust property from the trust to the beneficiaries according to the specific terms of the trust. The advantages of a trust administration over a probate proceeding are privacy, quicker completion time, avoidance of probate/probate fees and costs. Attorney Sheri Montecalvo is versed in trust administration and can guide the trustee and afford the trustee with an in-depth understanding of the duties and personal liabilities associated with the fiduciary duties of a trustee.
Special Needs Planning
Americans are living longer than they did in years past, including those with disabilities. Planning by parents can make all the difference in the life of a child with a disability, as well as that of his or her siblings who may be left with the responsibility for caretaking (on top of their own careers and caring for their own families).
Supplemental needs trusts (also known as “special needs” trusts) are an important component of planning for a disabled beneficiary. These trusts allow a disabled beneficiary to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose his or her eligibility for certain government programs. The trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining her/his eligibility for public benefits.
Supplemental needs trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that could not be paid for by public assistance funds. These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life.
Planning by parents can make all the difference in the life of a beneficiary with a disability, as well as that of his or her siblings. Any plan should include the following components:
- A plan of care that carefully establishes where the beneficiary with special needs will live, who will be responsible for assisting the person with special needs with decision making and who will monitor the person with special needs’ care. It will help everyone involved if the parents create a written statement of their wishes for their child’s care. They know him or her better than anyone else. They can explain what helps, what hurts, what scares their child (whether a child or adult), and what reassures him or her. When the parents are gone, their knowledge will go with them unless they pass it on.
- In almost all cases where a parent will leave funds at death to a disabled child, this should be done in the form of a trust. Trusts set up for the care of a disabled beneficiary generally are called “supplemental” or “special” needs trusts. Trusts designed to aid a person with special needs are commonly known as “special needs trusts”. There are three main types of special needs trusts: the first-party trust, the third-party trust, and the pooled trust. All three name the person with special needs as the beneficiary, but they differ in several significant ways, and each type of trust can be useful in its own way. Choosing a trustee is also an important issue in supplemental needs trusts. Most people do not have the expertise to manage a trust, even if they are family members, and so a professional trustee may be considered.
- Life insurance. A parent with a child with special needs should consider buying life insurance to fund the supplemental needs trust set up for the child’s support. What may look like a substantial sum to leave in trust today may run out after several years of paying for care that the parent had previously provided. The more resources available, the better the support that can be provided to the child.
Every adult is assumed to be capable of making his or her own decisions unless a court determines otherwise. If an adult becomes incapable of making responsible decisions due to a mental disability, the court will appoint a substitute decision maker, often called a “guardian.” Guardianship is a legal relationship between a competent adult (the “guardian”) and a person who because of incapacity is no longer able to take care of his or her own affairs (the “ward”).
The guardian can be authorized to make legal, financial, and health care decisions for the ward. Depending on the terms of the guardianship and state practices, the guardian may or may not have to seek court approval for various decisions. In many states, a person appointed only to handle finances and/or the ward’s property is called a “conservator.”
Some incapacitated individuals can make responsible decisions in some areas of their lives but not others. In such cases, the court may give the guardian decision making power over only those areas in which the incapacitated person is unable to make responsible decisions (a”limited guardianship”). In other words, the guardian may exercise only those rights that have been removed from the ward and delegated to the guardian.
The standard under which a person is deemed to require a guardian differs from state to state. In some states the standards are different, depending on whether a complete guardianship or a conservatorship over finances only is being sought. Generally, a person is judged to be in need of guardianship when he or she shows a lack of capacity to make responsible decisions. A person cannot be declared incompetent simply because he or she makes irresponsible or foolish decisions, but only if the person is shown to lack the capacity to make sound decisions. For example, a person may not be declared incompetent simply because he spends money in ways that seem odd to someone else. Also, a developmental disability or mental illness is not, by itself, enough to declare a person incompetent.
In most states, anyone interested in the proposed ward’s well-being can request a guardianship. An attorney is usually retained to file a petition for a hearing in the probate court in the proposed ward’s county of residence. Protections for the proposed ward vary greatly from state to state, with some simply requiring that notice of the proceeding be provided and others requiring the proposed ward’s presence at the hearing. The proposed ward is usually entitled to legal representation at the hearing, and the court will appoint an attorney if the allegedly incapacitated person cannot afford a lawyer.
At the hearing, the court attempts to determine if the proposed ward is incapacitated and, if so, to what extent the individual requires assistance. If the court determines that the proposed ward is indeed incapacitated, the court then decides if the person seeking the role of guardian will be a responsible guardian.
A guardian can be any competent adult — the ward’s spouse, another family member, a friend, a neighbor, or a professional guardian (an unrelated person who has received special training). A competent individual may nominate a proposed guardian through a durable power of attorney in case she/he ever needs a guardian.
The guardian need not be a person at all — it can be a non-profit agency or a public or private corporation. If a person is found to be incapacitated and a suitable guardian cannot be found, courts in many states can appoint a public guardian, a publicly financed agency that serves this purpose. In naming someone to serve as a guardian, courts give first consideration to those who play a significant role in the ward’s life — people who are both aware of and sensitive to the ward’s needs and preferences. If two individuals wish to share guardianship duties, courts can name co-guardians.
Courts often give guardians broad authority to manage the ward’s affairs. Guardians are expected to act in the best interests of the ward, but given the guardian’s often broad authority, there is the potential for abuse. For this reason, courts hold guardians accountable for their actions to ensure that they don’t take advantage of or neglect the ward.
The guardian of the property inventories the ward’s property, invests the ward’s funds so that they can be used for the ward’s support, and files regular, detailed reports with the court. A guardian of the property also must obtain court approval for certain financial transactions. Guardians must file an annual account of how they have handled the ward’s finances. In some states guardians must also give an annual report on the ward’s status. Guardians must offer proof that they made adequate residential arrangements for the ward, that they provided sufficient health care and treatment services, and that they made available educational and training programs, as needed. Guardians who cannot prove that they have adequately cared for the ward may be removed and replaced by another guardian.
Alternatives to Guardianship
Because guardianship involves a profound loss of freedom and dignity, state laws require that guardianship be imposed only when less restrictive alternatives have been tried and proven to be ineffective. Less restrictive alternatives that should be considered before pursuing guardianship include:
Power of Attorney. A power of attorney is the grant of legal rights and powers by a person (the principal) to another (the agent or attorney-in-fact). The attorney-in-fact, in effect, stands in the shoes of the principal and acts for him or her on financial, business or other matters. In most cases, even when the power of attorney is immediately effective, the principal does not intend for it to be used unless and until he or she becomes incapacitated.
Representative or Protective Payee. This is a person appointed to manage Social Security, Veterans’ Administration, Railroad Retirement, welfare or other state or federal benefits or entitlement program payments on behalf of an individual.
Conservatorship. In some states this proceeding can be voluntary, where the person needing assistance with finances/property petitions the probate court to appoint a specific person (the conservator) to manage his or her financial affairs. The court must determine that the conservatee is unable to manage his or her own financial affairs, but nevertheless has the capacity to make the decision to have a conservator appointed to handle his or her affairs.
Revocable trust. A revocable or “living” trust can be set up to hold a person’s (settlor’s) assets, with a relative, friend or financial institution serving as trustee. Alternatively, the settlor can be a trustee of the trust and can nominate another individual who will take over the duties of trustee should the settlor ever become incapacitated.
Attorney Sheri L. Montecalvo will navigate you through the guardianship process.
Many people periodically update their wills or other estate plans, but do not update who will receive distributions from their retirement plans (such as IRAs and 401(k)s) upon their deaths. Every year you should review your entire estate plan, and the review should include retirement plan and Life Insurance “beneficiary designations” to make sure that they are not outdated. The following are some tips for naming a plan beneficiary:
- It is important to name a beneficiary. Do not assume that your retirement plan will be distributed according to your will. If you don’t name a beneficiary, the distribution of benefits may be controlled by state or federal law or according to your particular retirement plan or become part of your probate estate. Some plans automatically distribute money to a spouse or children. While others may leave it to the retirement plan holder’s estate, this could have negative tax consequences. The only way to control where the money goes is to name a beneficiary.
- You may want to designate a trust as your beneficiary. If your estate is more than the current estate tax exclusions and a large portion of it consists of retirement plans, it may make sense to direct that the plans be payable to a trust rather than to the surviving spouse. The trust must be properly drafted to avoid tax consequences, so consult with your attorney before doing this. If you want your money to go into a trust for your children, be sure to designate the trust as the beneficiary. If you name your children, the money will go directly to them.
- If you have major life changes, be sure to keep your plans updated. If you get married or have children, you may want to change your beneficiary. Also, if your spouse was your beneficiary and you get divorced, your former spouse will still be the beneficiary — divorce does not automatically remove an ex-spouse as beneficiary. If you wish to remove a former spouse from the plan, you will have to fill out a new beneficiary designation form.
- Even if you don’t have big changes, you should review your beneficiary designation periodically. Your beneficiary may not be who you remembered it to be or it may be outdated. A Change of Beneficiary form can often be downloaded from the web site of the firm holding the plan assets.
Contact Sheri L. Montecalvo for a consultation.
Our pets are cherished members of our family and deserve to be protected and provided for in the event of incapacitation or passing away of their caretakers. Although we have many relationships our pets rely solely upon their primary caretakers. Accordingly, it is important to plan appropriately for our pets especially for pets that have long life expectancies, expensive costs of care and pets with special needs. Attorney Sheri L. Montecalvo often plans for pets with the implementation of care provisions in a Last Will and Testament, Durable Power of Attorney for Pet Care, Pet Trusts and Care Instructions for fiduciaries regarding your pets.
A Pet Trust can be incorporated into your existing trust/estate plan or can be created as a separate standalone trust. The key elements of the Pet Trust are: affords you the opportunity to name the caretaker of your pets, the nominated caretaker (fiduciary) is obligated to care for your pets as outlined in the Pet Trust, you will fund the Pet Trust from your assets, the trustee of the Pet Trust is obligated to ensure that the funds are used as outlined in the Pet Trust and allows you to nominate successor caretakers/trustees in the event that named fiduciaries should be unable or unwilling to serve.
A Durable Power of Attorney for Pet Care provides your nominated agent the authority to act on behalf of your pets in the event that you become incapacitated. The Power of Attorney can be drafted to authorize your agent to seek medical care for your pet and can specify what other actions your agent is authorized to conduct under the Power of Attorney. For example, the authority to interact with trainers, boarding facilities, veterinarians, etc.
Pet Care Instructions are specific instructions to your caretakers and fiduciaries about the everyday care required for each pet. These instructions could include, feedings instructions and requirements, daily routines, exercise schedule, medical information, veterinarian contact information, emergency contacts, your pet’s personality (likes/dislikes). This document is versatile and should be updated regularly.
As opposed to leaving your pet’s care and livelihood to chance, a solid estate plan for your pets ensures that your pets will be properly provided and cared for along with placed in the custody of fiduciaries that you nominate. Attorney Sheri L. Montecalvo, a lifelong animal lover shares her home with her Goldendoodle Tanner and American Quarter Horse Triton.