What Is a Living Will, and What Does It Mean to Me?

When an RLG team member sits down with a client to discuss designing their estate planning documents, we are often met with confusion when we bring up the topic of creating a  “Living Will.” Clients often have already completed a Living Will document at the hospital before going in for surgery or through AARP – in this document, you would specify “medical treatments you would want to be used and those you would not want to be used to keep you alive, as well as your preferences for other medical decisions, such as pain management or organ donation” (Mayo Clinic Staff).  However, in our office, we set up the Living Will so that this document seeks to address only one medical-related decision, which we will cover in the next paragraph. Clients also often think that the “Living Will” is the same as the “Last Will and Testament” because both documents share the word “Will” in the title. This article is intended to clarify the confusion about what a Living Will document is and what purpose it serves.

A Living Will is a legal document that is part of your “advance healthcare directives.” It contains a set of legal instructions laying out your wishes for the termination of artificial treatment if you are unable to make your own healthcare decisions (for example, if you are in a coma or vegetative state and there is no chance of meaningful recovery). The Living Will works in conjunction with another key advance healthcare directive document – the Healthcare Power of Attorney (HCPOA) document. The HCPOA document appoints one or more individuals to make healthcare decisions on your behalf if you cannot make them yourself. Although the HCPOA document is central to one’s advance healthcare directives, the Living Will is even more significant for some. But what is a Living Will?

Imagine that you are given a multiple-choice test that reads as follows:

In the event that I am terminally ill, with no chance of a meaningful recovery, whom do you want to make the final “end-of-life” decision?

  1. Two physicians
  2. The person whom I have appointed to make healthcare decisions on my behalf (aka my Healthcare Representative)

If you answered “A.” to the above question, you are saying that you want to execute a Living Will.  This document allows you to clearly state in no uncertain terms that in the event you are terminally ill with no possibility of recovery, and you cannot live without artificial support (i.e., if you are irreversibly brain dead and cannot breathe without a ventilator), you authorize two physicians to make the final “end-of-life” decision to terminate life support (it is important to stress that typically, physicians would only make this decision after consulting with the family, but they take away the burden of having a family member make this decision).

If you answered “B.”, you choose NOT to sign a Living Will – instead, the “end-of-life” decision will remain the responsibility of your Healthcare Representative. Simply put, if you want the end-of-life decision to be made by two physicians, you sign a Living Will. If you want the end-of-life decision made by the family member or friend you have appointed as your Healthcare Representative, you do not need to sign a Living Will.

Although the terms may be simple, the decision of whether or not to sign a Living Will is often very difficult. It is important to remember that there is no right or wrong answer – signing a Living Will is a completely subjective decision based on your personal feelings and values, as well as the personal feelings and values of your healthcare representatives. On the one hand, some people say, “I am going to sign a Living Will as I do not want my Healthcare Representatives to bear the emotional burden of making the end-of-life decision, even if they know that is what I want.” On the other hand, others may say, “ I am not going to sign a Living Will as I do not feel comfortable with two strangers making such an important decision that will impact my family and me.” Both points of view are equally valid. Whatever your decision may be, it is essential to have an open and honest discussion with those closest to you about your choices for end-of-life care.

 

Mayo Clinic Staff. Living wills and advance directives for medical decisions. Mayo Clinic, 2022,  https://www.mayoclinic.org/healthy-lifestyle/consumer-health/in-depth/living-wills/art-20046303

Why Pay for a Lawyer?

Why Pay for a Lawyer?

Legal services can be expensive. In estate planning, hiring a lawyer to design and draft an estate plan that includes a Will or a Trust and one or more Powers of Attorney can cost thousands of dollars.

What is it, exactly, that you are paying for? You know it’s possible to create your own Will using online software for a few hundred dollars. This option seems appealing when all you have to do is answer some questions, and the documents will be ready in minutes, while a law firm may take several weeks. Isn’t it just cheaper and faster to do it all yourself?

This is a common line of thinking for many people who want a will or trust, but experience “sticker shock” once they consult with a lawyer. However, most people who think this way don’t realize that what you are actually paying for is the lawyer’s expertise, which can save you time and money in the long run. If you don’t know what you don’t know, how can you be sure that the documents you create will achieve your goals? That’s where a specialized lawyer comes in.  Abraham Lincoln once said, “A lawyer’s time and advice are his stock in trade.”  Without a lawyer’s expertise, the documents you draft may create more issues for you or your beneficiaries in the future.

Here is one example:

Improperly Drafted General Durable Power of Attorney:

Dan is a widower with one adult son, Kevin. He wanted to create an estate plan, but the law firm he called quoted $2,500, which Dan thought was too expensive. Instead, Dan created his own documents online for $500.

Five years later, Dan is ill, and Kevin wants to move Dan into a facility where he can get the proper care. Unfortunately, the General Durable Power of Attorney Dan created did not give Kevin the authority he needed to sign a lease on Dan’s behalf, nor did it reference the critical New Jersey banking statute so Kevin could access Dan’s bank account to pay the rent.

If Dan still has the cognitive capacity, he can hire a specialized estate and elder law attorney to create the proper documents. But if Dan is incapacitated, Kevin will have to seek a guardianship, which is a lengthy and expensive court process.

In the end, trying to save a few thousand dollars on documents in the short term could cost Dan and Kevin much more overall. Our advice – If you don’t know what you don’t know, lean on the expertise and experience of the right lawyers who have spent hours researching the law and can guide you on achieving your goals.

Want to discuss if RLG is the right fit for you? Contact us today!

What to do if Your Income is Too High for Medicaid

What to do if Your Income is Too High for Medicaid?

Ben is retired. He receives a pension and social security totaling $4,000 a month and uses this money to pay for all his expenses, including rent, food, transportation, etc. Other than his home, Ben has less than $1500 in savings.

In the past six months, Ben has had two falls; the second one caused him to go to the hospital. As such, Ben’s doctor recommended that he no longer live alone. Ben’s son, James, finds an assisted living facility nearby so Ben can still see his friends and James can take care of his father’s needs. Unfortunately, the facility is expensive, costing over $6,000 a month. If Ben does not receive some assistance, he will run out of money.

James wants to apply for Medicaid benefits for his father. However, he has heard from one of his friends that Medicaid will only accept you if your income is less than $2523 a month (which is the 2022 income cap limit) – even if all your other income is going towards paying the facility bill but the income is still insufficient to cover the total cost of care. What can James do to help his father get on Medicaid?

James can and should contact an elder law attorney for help because a qualified attorney can set up a Qualified Income Trust or a QIT. Sometimes, this is referred to as a Miller Trust.

A QIT is a special Trust that can help Medicaid applicants whose income exceeds the threshold amount to become financially eligible for Medicaid. The Trust can accept the excess income, but the Trustee will need to use all the money coming in to pay the facility. A qualified attorney can ensure that the trust is drafted correctly so that it not only gets accepted by Medicaid but also, the attorney can guide the Trustee on how to properly administer the trust after it receives the income each month so that the applicant becomes eligible for Medicaid and maintains their eligibility after being approved.

If you have further questions or need assistance with a QIT, don’t hesitate to get in touch with us today.

Do Your Children Know Where Your Assets Are? The Importance of proper Estate Planning!

There are several reasons why it is important to have an estate plan. However, by far, one of the overarching reasons people have told us why they want an estate plan in place is because they want to see their loved ones inherit the full benefit of their hard-earned assets, in a smooth hassle-free manner.

When you pass away, it is the job of the Executor (after he or she gets appointed by the Court) to marshal up all of the assets in the estate, pay off all debts and expenses before distributing the remaining assets in accordance with your Will. To do this, the Executor needs to know what assets you owned at the time of your death.

A good estate plan will include a separate list of assets which the Executor can then refer to and use to make sure the beneficiaries receive what is due and owing to them. If your estate plan does not have such a list, you run the risk of certain assets going unclaimed and subsequently escheated over to the State.

Example, John dies in 2017 and his brother Bill is the named Executor. Bill starts searching through all of John’s desks, drawers and filing cabinets to see what, if any, documentation he can find about John’s assets.  During his search, he uncovers bank account statements from Wells Fargo, so he contacts Wells Fargo to inform them of his brother’s death and has the accounts turned over to an Estate account.  From this account, Bill uses to pay for John’s funeral and other expenses/debts before distributing the rest of the money to John’s children.

What Bill did not know, however, is that John also had an account with Bank of America that was worth $25,000. John had requested these statements to be sent to him online so there was no record of this account among John’s paperwork.  Moreover, John had last used the account in 2015, so in 2018, after three years of inactivity, Bank of America, per its internal policies and state rules, turned over the account to the state.

Once the state has unclaimed property, the owner has a limited amount of time to claim the property before the state can claim the property for itself. Each state has its own rules as to how long owners have to reclaim his or her property.  According to the New Jersey Department of Treasury, approximately 1 in every 10 individuals, has unclaimed property.[1]  Common examples include unpaid life insurance benefits, forgotten bank accounts, utility deposits and unused rebate cards.

In this case, if Bill never learns of the Bank of America account (or if he does not learn of it in time to claim the money for the Estate), then John’s children will be out of luck.

A good estate planning firm should offer as part of their fee, an asset list that incorporates every single asset/account you own along with recommendations on how to retitle ownership into trusts (should you decide to establish one or more) as well as how to properly update your beneficiary designations. These firms would also be mindful of overseas assets that are particularly susceptible to escaping the notice of an otherwise diligent Executor.  Not all estate planning law firms offer detailed spreadsheets prepared in conjunction with the estate plan. Therefore, it is extremely important when choosing a law firm to assist with your estate plan to not only pick one that specializes in estate planning but can also offer these important (yet hidden) value-adds as a normal and commonplace part of its overall fee package. Ultimately, a good law firm’s objectives must be aligned with your own and which can help set up a proper estate plan for you to ensure your loved ones inherit the full benefit of your hard-earned assets.

 

[1] As a fun exercise, check out this link to see if you or a loved one may have unclaimed property right now that may have escheated to New Jersey State: https://unclaimedfunds.nj.gov/app/claim-search

Questions you didn’t know that you did not know about Medicaid planning: What I have learned as a Medicaid specialist at an elder law firm!

Life has a way of going on, the clock is always ticking, and time never stops. However, if that unfortunate time comes when you may need financial assistance from the government to help pay for long term care costs, then your life may come to a screeching halt as you now must look back on your life (five years to be exact) and recall the “why” and “for what” on certain withdrawals from your accounts for this period of time.

Working as a Medicaid Specialist for Rao Legal Group, an estate and elder law firm in Princeton, NJ, I have come to see the value in planning early and preparing for the day when you may need long term care.

The things you do now can change what happens in the last chapter of your life, and so many people don’t even consider the consequences of each and everything they do on a daily basis.

Something as simple as paying your grandson when he mows your lawn every week because that chore has become difficult for you. Did you know that even a small check made out to him for mowing could be called into question later should you decide to apply for Medicaid benefits? And if you wrote out these checks on a weekly basis, then without clear proof that you were getting something in exchange for this payment, Medicaid could likely consider those checks as gifts to him?

Or, how about when your daughter and her family were kind enough to help by doing your grocery shopping for you. Maybe you’re not able to shop on your own, or you simply don’t have the energy for it. When your family pitches in to help you by paying for certain things with their own money, of course you want to reimburse them for the items purchased. Did you write a check? Did you take some cash out of your ATM for this purpose? Are they doing your shopping every week? Did you remember to keep the receipts and keep an accurate record? Do you have a loan agreement in place? If not, Medicaid may look at these checks or withdrawals as gifts, too. And they have up to five years of these transactions, so maintaining proof of all these receipts/reimbursements may be useful to justify such expenses.

Perhaps you have a son who is hardworking and providing for his family by working two jobs, but suddenly, he is unable to work because of an accident. Now, the bills are adding up for him, and his family needs groceries and the electric bill is overdue. This is a time when you would like to help them out, buying food or paying a bill — isn’t that what families do for one another? But what if we told you that Medicaid would treat that as a gift, which could in turn disqualify you for a certain period from receiving government assistance if this transaction occurred within five years of your Medicaid application.

Have you ever needed to have someone move into your home to help with bills? Or maybe you just have a friend who needs a place to stay temporarily. Your friend wants to pay rent to you for the time at your home. Has a rental agreement been prepared? What will Medicaid require as proof of the payments made to you?

On the flip side, sometimes people have worked hard and are lucky enough to have some assets set aside to pay for the needs of their families. They may have even been frugal enough to save this money for the future, along with paying a mortgage on their home. What if your house needs some repairs? Have you hired a contractor to help with some renovations? Did you have them write up a contract? Or did they want you to make out the check to cash? Are you aware that if you do not have accurate records and receipts, then Medicaid might look at those expenses as gifts, too?

Finally, if you own your home — have you considered what could happen if you became ill and needed long term care? What will happen to your home? Have you thought about the rules surrounding Medicaid and the agency’s rights to assess a lien on your home upon your death?

Maybe you have other assets, another property besides your primary residence? Or perhaps you have acquired some stocks and bonds, an IRA, or even a life insurance policy? All such assets will be looked at by Medicaid as countable assets that would need to be completely spent down prior to applying for Medicaid.

Another area to consider is the rising cost of care. You could have a small “nest egg” built up, one you worked hard to put away, and you believe that some of these investments will allow you to live out your life on these assets with a small portion passing down to your loved ones. But with the rising costs of long-term care, one major health event could land you in a situation where that nest egg is depleted and without proper advanced planning, you may not be able to protect your assets.

It can be daunting to apply for Medicaid benefits — trust me, I know this first-hand in my role as a Medicaid specialist and assisting clients and their families with their Medicaid applications.

If you meet the clinical eligibility requirements for Medicaid, you still must jump over the hurdle of meeting the financial eligibility requirements. If you don’t meet with a qualified elder law firm to help you with your planning, you could be missing out on the opportunity to avail yourself of certain strategies to help you to protect some of your assets and still qualify for Medicaid.

Some final questions: Have you set up a Financial or Healthcare Power of Attorney? How about a Will? It is so important to have these Estate Planning documents prepared. When you are suddenly not able to make decisions for yourself, it is imperative that you have someone in place that can make those decisions for you. When the day arrives that you no longer can care for yourself, you want to be ready.

The best advice I can offer to you is to do your research, get your Estate Planning documents prepared by a qualified elder law attorney, and then have your questions addressed by the attorney so that you can be ready when the day comes that you need help. Don’t wait until you already need the help, because remember, life has a way of going on, and the clock is still ticking.

My aunt named me “POD” beneficiary of a bank account before she died, but the bank refuses to give me the money!

Decedent had a bank account in her own name worth $50K. She named her nephew as a “Payable On Death” or POD beneficiary of this account, unbeknownst to her spouse and children. He was her favorite nephew, who’d cared for her a lot during her lifetime, and she had hoped he could quietly liquidate the funds upon her death and use the funds to pay back some of his college fees.

Little did she know, this little act of love would cause so many adverse ramifications, and the series of events that unfolded next were nothing short of a nightmare for the poor nephew.

The nephew was dealt a nightmare because New Jersey imposes an inheritance tax for assets more than $500 passing to all non-Class A beneficiaries. The nephew in this case would be a Class D beneficiary, who would be required to pay a 15% tax on the amount passing to him, minus the $500 exemption.

Worse, the bank would put a freeze on the account until he was able to produce a waiver from the State of NJ Tax Branch, and the only way to secure this waiver would be if the Executor of the Estate (or Administrator, if there was no Will) files a NJ Inheritance Tax Return (ITR) with the Tax Branch reporting the distributions from the estate. All of this must be accomplished within eight months of the date of death. NOTE: There is a blanket waiver that allows the nephew to receive 50% of the assets in the account (i.e. $25K) immediately, but he would have to wait for the balance after the estate administration was completed and final waivers issued.

Had the aunt consulted with an estate planning attorney before her death, she would have learned that gifting during her lifetime would have no gift tax ramifications in New Jersey (NJ does not have a gift tax), and apart for a minor reporting requirement on a Form 709 to report gifts over $15K per year, she could have effectively transferred the funds over to her nephew achieving the very objective she was trying to accomplish. Better even, if she had paid the college directly with the amount, it would not have been deemed a gift at all.

It is critical to consult with an attorney before making significant decisions to ensure that these choices do not morph out of control and cause unintended consequences that could have easily been avoided.

Attorney-Client Confidentiality with Aging Clients

Although the subject of attorney-client confidentiality and its nuances are drilled into every aspiring law student throughout law school and beyond, most clients don’t have an understanding of what exactly this means in the context of the attorney-client relationship. To them it’s vague, and they only have a simplistic understanding of this concept.  A few clients even believe that attorneys have the discretion to disclose confidential client communication. Complications arise when a prospective client wants one or more of their children in an initial meeting, or when they want a non-attorney professional advisor in the room. Sometimes the client’s financial advisor, in his or her eagerness to provide a holistic approach to their clients’ wealth management, expresses an interest to the client and the attorney to be included in these initial discussions. All these situations make it challenging for the attorney to educate their clients about confidentiality and explain the risks of disclosure. Clients do not realize that they are the only ones protected and the only ones authorized to waive this protection.

Because attorneys have special ethical responsibilities, it becomes more complicated and challenging when representing clients with diminished capacity. Here, attorneys are bound by the Model Rules of Professional Conduct (RPC 1.14) and have a duty to maintain (as far as possible) a normal attorney-client relationship with such clients and ensure they are treated with the same degree of respect and attention that any other attorney-client relationship is afforded.

For example, earlier we stated that complications are possible when a client wants one or more of their children in an initial meeting. Some of the risks of waiving confidentiality with respect to the presence of only one child in the room with a mother or father could be that the other children could bring an action of undue influence, where they could assert that the child in the room pressured the mother or father to disproportionately change the disposition of assets.

It is important for the attorney to utilize different interviewing techniques during the meeting to maximize client capacity and his or her participation in the discussion. Attorneys have to be on high alert to make sure the client is not facing any substantial physical, financial, or other harm, by someone else, who could often be a close family member. In such cases, it becomes the attorney’s ethical duty to consider disclosure of confidential information to other certain individuals or entities who may be able to take action to protect the client from such harm.  At the same time, the attorney needs to be extremely careful that such disclosure is only what they believe is necessary to protect the client.

One potential conflict we face when we have concerns about the client’s capacity is to choose between the client’s wishes or the client’s best interest. Here we need to consider several factors to resolve the conflict – type of representation sought, forum in which the services are to be provided, involvement of other parties in the matter, etc.

Ultimately, its critical for attorneys to balance the client’s needs for decision-making assistance with the clients’ other interests, including autonomy, safety, independence, financial well-being, health care, and personal liberty.

Revocable Trusts – Common Misconceptions

A few days ago, I was explaining the concept of “funding” to clients who were new to the world of estate planning, and I was struck by the fact that what I’d always thought were commonly understood concepts were actually the cause of significant gaps in the clients’ understanding of what trusts do and how they operate. The two main areas of confusion appear to be in: 1) figuring out exactly how trusts differ from wills; and 2) the mechanics of how accounts are transferred into trusts, which make the trust the “new owner” of those accounts. This article hopes to shed light on these two seemingly simple (or so I thought!) concepts: trusts and trust funding.

We’ve heard people use the word trusts in different settings and under different circumstances. Many mistakenly believe that all trusts offer asset protection. However, not all trusts are made equal – trusts can either be living (i.e. inter-vivos trusts set up during the lifetime of the Settlor or Grantor) or testamentary (i.e. those that become effective upon the death of an individual). All testamentary trusts are irrevocable, but living trusts can be revocable or irrevocable.

Living trusts are typically stand-alone entities that become effective immediately upon the signing of the trust agreement. Those that are revocable are called Revocable Living Trusts, RLTs, or Will substitutes. These RLTs allow a Grantor (also called a Settlor or Trustor) to set up the trust and retain full control of the trust assets as a Trustee, while enjoying the full benefits of the trust assets as a beneficiary. There are several benefits for setting up an RLT, but more notably, RLTs are meant to avoid probate upon death and the associated hassle-ridden probate process in some states.

In contrast, Irrevocable Living Trusts cannot be changed once established. The Grantor transfers assets into trust by assignment, sale, gift, or loan, and then completely gives up control over the assets. The two main benefits of irrevocable trusts are: 1) assets are removed from the Grantor’s estate upon his or her death, thereby avoiding estate taxes; and 2) assets are protected from both the Grantor’s creditors as well as the creditors and predators of the beneficiaries. Properly designed trusts may even escape Medicaid recovery and preserve assets for the Grantor’s ultimate beneficiaries should the Grantor be receiving public benefits. Regardless of which irrevocable trust is used, these trusts are typically sophisticated planning techniques established as part of an individual or married couple’s advanced planning. They should always accompany a robust foundational plan complete with a Will and/or an RLT, a General Durable Power of Attorney, and Advanced Healthcare Directive. For more information on the benefits of an RLT, check out our earlier posts on this subject.[1]

When it comes to “funding” trusts though, it is important to note that this term of art refers the act of transferring accounts into the trust or retitling assets into the name of the trusts and has nothing to do with refinancing or getting loans to trusts. The following comparison may help provide a better understanding of how RLTs[2] actually “receive” assets.

If you think of your trust as a cookie jar, then our firm would work with you to take your cookie jar from concept to design to setup. Once you sign the trust agreement, your cookie jar is now ready to be filled with assets or “cookies.” And because your trust is like your alter-ego, it can do almost anything you can do. This means that if you have five bank accounts, each at a different bank, and you want to continue to bank at these five banks, then you can open five trust accounts at these banks. Our office would then provide you with the necessary documentation you need to present to your bank representative, who will then open a new trust account and give you a new account number. Depending on the type of trust you are setting up (revocable or irrevocable), the account will either be associated with your social security number or have its own separate tax identification number (or EIN#) for income tax reporting moving forward. This process of funding may involve several back-and-forth communications with institutions and can sometimes be challenging, especially if the bank representative is unfamiliar with trusts. This is when your choice of law firm becomes critical, so the firm can coordinate with you and the institutions to see this process through to the end. Our hope is that as trusts become more and more mainstream, funding becomes less daunting on Grantors, who can then leave their organized estates to their loved ones in a smooth manner, completely free of the probate process.

This article would not be considered complete if we did not address funding in connection with real property, businesses, and accounts with beneficiary designations. Here is a quick synopsis of how these assets are funded:

  • REAL PROPERTY: Real property must undergo a title change (i.e. the deed needs to reflect the new owner as the trust) in order for this to properly avoid probate. This deed must be recorded at the county clerk’s office just like any other deed. So long as the property is being transferred into an RLT, and the Grantor continues to reside in the property, a lender holding mortgage to the property cannot trigger the due on sale clause as the Grantor is protected by statute.
  • BUSINESSES: Depending on how a business is structured (LLC, S Corp., C Corp.), a Grantor-owner’s interest could be assigned to the RLT.
  • ACCOUNTS: Accounts passing by beneficiary designations, typically retirement accounts, life insurance policies. and/or brokerage and investment accounts with beneficiaries, must be amended to ensure the RLT (or its subtrusts for the various beneficiaries) is the primary beneficiary of these accounts.

While funding is relatively straightforward and may be handled by the Grantor on his or her own, it is always best to do so under the guidance and counsel of the drafting attorney (or even let the drafting attorney’s office handle the funding process for an extra fee) to ensure the transition is completely correctly and efficiently.

 

[1] Benefits of Revocable Living Trusts: https://estateelderplanning.com/2020/09/01/why-revocable-living-trusts-should-not-be-getting-such-a-bad-rap-in-new-jersey/ and Revocable Living Trusts Misunderstood: https://estateelderplanning.com/2018/02/26/legal-tip-of-the-week-22518/

[2] Our focus in this article is to address funding challenges with Revocable Living Trusts and only briefly discusses Irrevocable Living Trusts in passing.

Using Long-Term Care Riders in Estate Planning

For those that reach age 65, estimates show these individuals have a 70% chance of needing long-term care. To protect the assets individuals hope to leave behind to loved ones, one could consider adding an indemnity Long-Term Care (LTC) rider to their life insurance policy.
Though this approach may not work for everyone. Click the link below to learn more from Nationwide about LTC riders while held in an irrevocable life insurance trust.
Source: Nationwide “Using Long-Term Care Riders in Estate Planning”