Law Office of Frank Bruno, Jr.

Category: Blog

  • Someday’ Is Sooner than You Think

    If you and your siblings have been worrying about older parents please understand that ‘someday’ is sooner than you think.

    The cause for sleepless nights for many, now comes from worrying about older parents. As parents age, it becomes more important to talk with them about a number of “someday” issues, advises Kanawha Metro in the article “Preparing for someday.” As their lives move into the elder years, your discussions will need to address housing, finances and end-of-life wishes.

    Where do your parents want to spend their later years? It may be that they want to move to an active retirement community not far from where they live now, or they may want a complete change of scenery, perhaps in a warmer climate.

    One family made arrangements for their mother to take a tour of a nearby senior-living community, after their father passed. By showing their mother the senior-living community, they made an unknown, slightly intimidating thing into a familiar and attractive possibility. Because she saw the facility with no pressure, just a tour and lunch, she knew what kind of options it presented. The building was clean and pretty, and the staff was friendly. Therefore, it was a positive experience. She was able to picture herself living there.

    Money becomes an issue, as parents age. If the person who always handled the family finances passes away, often the surviving spouse is left trying to figure out what has been done for the last five decades. A professional can help, especially if they have had a long-standing relationship.

    However, when illness or an injury takes the surviving spouse out of the picture, even for a little while, things can get out of control fast. It only takes a few weeks of not being able to write checks or manage finances, to demonstrate the wisdom of having children or a trusted person named with a power of attorney to be able to pay bills and manage the household.

    As parents age and their health becomes fragile, they need help with doctor appointments. Having a child or trusted adult go with them to speak up on their behalf, or explain any confusing matters, is very important.

    Having an estate plan in place is another part of the business of aging that needs to be accomplished. It may be helpful to go with your parents to meet with an estate planning attorney to create documents that include a last will and testament, durable power of attorney and advanced health care directive. Without these documents, executing their estate or helping them if they become incapacitated will be more complex, and more costly.

    Eliminate a scavenger hunt by making sure that at least two siblings know where the originals of these documents are.

    One of the more difficult conversations has to do with end-of-life and funeral arrangements. Where do your parents want to be buried, or do they want to be cremated? What should be done with their remains?

    What do they want to be done with their personal belongings? Are there certain items that they want to be given to certain members of the family, or other people they care for? One family used masking tape and a marker to write the names of the people they wanted to receive certain items.

    Finally, what do they want to happen to their pets? If there is a family member who says they will take their parent’s pet, can that person be trusted to follow through? There needs to be a Plan A, Plan B and Plan C so that the beloved pet can be assured a long and comfortable life after their owner has passed.

    Yes, these are difficult conversations. However, not having them can lead to far more difficult issues. Knowing what your loved ones wish to happen, and making it enforceable with an estate plan, provides everyone in the family with peace of mind.

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  • Creating an Estate Plan for a Child with Special Needs

    “As special needs parents we don’t have the power to make life “fair,” but we do have the power to make life joyful.” Anonymous

    “All kids need is a little help, a little hope, and someone who believes in them” Magic Johnson.

    Parents want their children to be taken care of after they die. But children with special needs have increased financial and care needs, so ensuring their long-term welfare can be tricky. Proper planning by parents is necessary to benefit the child with a disability, including an adult child, as well as assist any siblings who may be left with the caretaking responsibility.

    Special Needs Trusts

    The best and most comprehensive option to protect a loved one is to set up a special needs trust (also called a supplemental needs trust). These trusts allow beneficiaries to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose their eligibility for certain government programs, such as Medicaid and Supplemental Security Income (SSI). The trusts are drafted so that the funds will not be considered to belong to the beneficiaries in determining their eligibility for public benefits.

    There are three main types of special needs trusts:

    A first-party trust is designed to hold a beneficiary’s own assets. While the beneficiary is living, the funds in the trust are used for the beneficiary’s benefit, and when the beneficiary dies, any assets remaining in the trust are used to reimburse the government for the cost of medical care. These trusts are especially useful for beneficiaries who are receiving Medicaid, SSI or other needs-based benefits and come into large amounts of money, because the trust allows the beneficiaries to retain their benefits while still being able to use their own funds when necessary.

    The third-party special needs trust is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party special needs trust in that the assets held in the trust do not affect a beneficiary’s access to benefits and the funds can be used to pay for the beneficiary’s supplemental needs beyond those covered by government benefits. The key distinction is that a third-party special needs trust does not contain the “payback” provision found in first-party trusts. This means that when the beneficiary with special needs dies, any funds remaining in the trust can pass to other family members, or to charity, without having to be used to reimburse the government.

    A pooled trust is an alternative to the first-party special needs trust. Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources with those of other trust beneficiaries for investment purposes, while still maintaining separate accounts for each beneficiary’s needs. When the beneficiary dies, the funds remaining in the account reimburse the government for care, but a portion also goes towards the non-profit organization responsible for managing the trust.

    Life Insurance

    Not everyone has a large chunk of money that can be left to a special needs trust, so life insurance can be an essential tool. If a special needs trust has been created, a life insurance policy can pay directly into it, and it does not have to go through probate or be subject to estate tax. Be sure to review the beneficiary designation to make sure it names the trust, not the child. You should make sure you have enough insurance to pay for your child’s care long after you are gone. Without proper funding, the burden of care may fall on siblings or other family members. Using a life insurance policy will also guarantee future funding for the trust while keeping the parents estate intact for other family members. When looking for life insurance, consider a second-to-die policy. This type of policy only pays out after the second parent dies, and it has the benefit of lower premiums than regular life insurance policies.

    ABLE Account

    An Achieving a Better Life Experience (ABLE) account allows people with disabilities who became disabled before they turned 26 to set aside up to $15,000 a year in tax-free savings accounts without affecting their eligibility for government benefits. This money can come from the individual with the disability or anyone else who may wish to give him money.

    Created by Congress in 2014 and modeled on 529 savings plans for higher education, these accounts can be used to pay for qualifying expenses of the account beneficiary, such as the costs of treating the disability or for education, housing and health care, among other things. ABLE account programs have been rolling out on a state-by-state basis, but even if your state does not yet have its own program, many state programs allow out-of-state beneficiaries to open accounts. (For a directory of state programs, click here.)

    Although it may be easy to set up an ABLE account, there are many hidden pitfalls associated with spending the funds in the accounts, both for the beneficiary and for her family members. In addition, ABLE accounts cannot hold more than $100,000 without jeopardizing government benefits like Medicaid and SSI. If there are funds remaining in an ABLE account upon the death of the account beneficiary, they must be first used to reimburse the government for Medicaid benefits received by the beneficiary, and then the remaining funds will have to pass through probate in order to be transferred to the beneficiary & heirs.

    Get Help With Your desire to Create an Estate Plan for a Child with Special Needs.

    Creating an Estate Plan for a Child with Special Needs takes forethought, patience and a willingness to include caregivers in your plan. you decide to provide for a child with special needs, proper planning is essential. Talk to your attorney to determine the best plan for your family.

  • You Need a Power of Attorney in Your Estate Plan

    A power of attorney is an important legal document that allows a person, known as the principal, to designate a person of their choice to become their agent, acting on their behalf. This is usually done when the principal is unable to manage their financial affairs due to disability, illness or incapacity. It must be done while the principal is still competent, notes Delco Times in the article “What’s the difference between guardianship and power of attorney?” There are also instances when power of attorney is used when the principal is unable to conduct their own affairs, because they are traveling or are deployed overseas.

    Related documents are the health care power of attorney and the durable power of attorney. A durable financial power of attorney is a document where the principal designates the powers that the agent may exercise over their finances. The powers granted by this document can be used by the agent, regardless of the principal’s capacity or disability.

    The principal has the option to grant very broad authority to their agent. For instance, the principal could give their agent the authority to gift all their assets, while they are still living. That’s why it is very important for the specific provisions in the power of attorney to be carefully reviewed and tailored to the principal’s wishes. There are risks in naming an agent, since they are able to exercise complete control over the principal’s assets. The agent must be 100% trustworthy.

    A health care power of attorney allows an agent to make decisions about the principal’s health. Note that this document is operative only when a copy is provided to the attending physician, and the physician determines that the principal is incompetent.

    Both health care power of attorney and financial power of attorney may be revoked by the principal at any time and for any reason.

    If the principal has not had these documents prepared in advance and then becomes incompetent by reason of injury, illness, or mental health issues, they may not have the legal right to sign the power of attorney. When this happens, it is necessary for a guardianship proceeding to occur, so that other people may be named to take charge of the person’s financial and health affairs. Advance planning is always preferred.

    If an individual is born with a disability that impacts their capacity and upon attaining legal age, does not have the capacity to sign a power of attorney, then a guardianship proceeding will be necessary. The court must determine if the person is truly incapacitated and if there might be an alternative to appointing a guardian. Once the guardian is appointed, the principal no longer has the legal right to make decisions on their own behalf.

    A guardianship is a much more restrictive tool than a power of attorney. For one thing, the power of attorney generally does not need the involvement of the court. There is always the possibility that a guardian is appointed who does not know the family or the individual. A durable power of attorney allows a person to appoint someone they know and trust to help them and their family, if and when they become incapacitated.

    Speak with your estate planning attorney about how power of attorney works, and when guardianship issues might arise. Being prepared in advance by having the right documents in place, is always better than having the family going to court and hoping that the right decisions are made.
    Reference: Delco Times (May 8, 2019) “What’s the difference between guardianship and power of attorney?”

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  • Top 6 Questions (and Answers) about Conservatorships and Guardianships

    Top 6 Questions (and Answers) about Conservatorships and Guardianships

    When someone becomes incapacitated due to illness, injury or disability, the court appoints a guardian to handle healthcare and certain non-financial decisions for that person. A guardian can be anyone over the age of 18, but must also be able to show that they are qualified to make these decisions for their loved one. A guardian is not necessarily the person who is the caregiver over the incapacitated individual.

    What is a conservator?

    A conservator is appointed by the court to make financial decisions for an incapacitated person. In some states, those who are appointed “conservator of the estate” are those who make financial decisions.

    Those who are appointed “conservator of the person” handle the same issues as a “guardian.” Conservators can be expensive, as is the process to obtain one. There is also the potential that the incapacitated individual may be taken advantage of. To avoid a conservatorship, designate a power of attorney for your financial and medical care.

    New York uses the frame of guardian for person or for the property and one person can be both.
    Does my elderly loved one need a guardian?

    If your family member is unable to make healthcare or financial decisions on her own, due to an injury following an accident, an illness, or disability, and she has not designated a healthcare power of attorney, she will need a guardian.

    When is a conservator more appropriate than a guardian?

    In some cases, someone may be perfectly capable of making her own healthcare decisions, but are unable to manage her finances. In this case, a conservator would be more appropriate. If an individual cannot make financial or healthcare decisions, both may be appropriate.

    Who does the court appoint as guardian or conservator?

    A court will appoint the person it deems most competent to fill the role of conservator or guardian. In general, the person must be over the age of 18. The court’s first choice is a spouse, or other close family member. If none of those is available or is unwilling to serve, then they may consider extended family or friends. If those are unwilling or unavailable, then the court will appoint a neutral third party, such as an attorney, to act as conservator or guardian. In New York, the Court maintains a list of qualified persons for that role.

    How do I relinquish guardianship over my wife?

    To relinquish guardianship over any loved one, you must go to court and petition to do so. It is best if you have someone else in mind to take over when you submit your petition, to ensure your loved one’s needs are met.

    Resources:

  • 401(k) Withdrawals and Taxes

    A simple way to decrease the taxes you have to pay on 401(k) withdrawals, is to convert to a Roth IRA or Roth 401(k). Investopedia’s recent article, “How to Minimize Taxes on 401(k) Withdrawals” explains that withdrawals from those accounts aren’t taxed, provided they meet the rules for a qualified distribution. However, you’ll need to declare the conversion, when you file your taxes.

    The primary issue with converting your traditional 401(k) to a Roth IRA or Roth 401(k) is the income tax on the money you withdraw. If you’re near pulling out the money anyway, it may not be worth the cost of converting it. The more money you convert, the more taxes you’ll owe.

    You can divide your assets between a Roth account and tax-deferred account to share the burden. You may pay more taxes today, but this strategy will give you the flexibility to withdraw some funds from a tax-deferred account and some from a Roth IRA account to have more control of your marginal tax rate in retirement. Remember that the five-year rule requires that you have your funds in the Roth for five years, before you start your withdrawals. This may not work for you if you’re already 65, about to retire, and concerned about paying taxes on your distributions.

    Some of the ways that let you save on taxes, also make you take out more from your 401(k) than you actually need. If you can trust yourself not to spend those funds and save or invest the extra money, it can be a terrific way to spread out the tax obligation. If the individual is under 59½ years of age, the IRS allows use her to use “Regulation T” to take substantially equal distributions from a qualified plan, without incurring the 10% early withdrawal penalty. However, the withdrawals need to last a minimum of five years. However, a person who’s 56 and starts the withdrawals must keep taking those withdrawals to at least age 61, despite not needing the money.

    If you take out distributions earlier while you’re in a lower tax bracket, you could save on taxes, instead of waiting until you’ll have Social Security and possible income from other retirement vehicles. If you plan ahead and are 59½ or older, you can take out just enough money from a 401(k) (or a traditional IRA) that will keep you in your current tax bracket but still lower the amount that will be subject to required minimum distributions (RMDs) when you’re 70½. The objective is to reduce the effect of the RMDs (which are based on a percent of your retirement account balance, along with your age) on your tax rate, when you have to begin taking them.

    Although you’ll have to pay taxes on the money you withdraw, you can save by then investing those funds in another vehicle, like a brokerage account. Hold it there for at least a year and you’ll only have to pay long-term capital gains tax on what it earns.

    Reference:

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  • A Love Letter to Your Family

    A Love Letter to Your Family.

    “A real love letter is made of insight, understanding, and compassion. Otherwise it’s not a love letter. A true love letter can produce a transformation in the other person, and therefore in the world. But before it produces a transformation in the other person, it has to produce a transformation within us. Some letters may take the whole of our lifetime to write.”
    ― Thich Nhat Hanh, Your True Home: The Everyday Wisdom of Thich Nhat Hanh: 365 days of practical, powerful teachings from the beloved Zen teacher

    “Wish not so much to live long as to live well.” – Poor Richard’s Almanack, 1738

    Now, to the 70% of Americans who do not have an estate plan, the article “Senior Spotlight: Composing the ‘family love letter’” from the Lockport Journal should help you understand why this is so important. One reason why people don’t take care of this simple task, is because they don’t fully understand why estate planning is needed. They think it’s only for the wealthy, or that it’s only for old people, or even that it’s only about death and taxes.

    Consider this idea: an estate plan is about protecting yourself while you are alive, protecting your family when you have passed and leaving a legacy for the living.

    Some of the main elements of an estate plan are to create and execute documents that provide for incapacity and death, as well as provide information about your assets, liabilities and wishes.

    You’ve spent a lifetime accumulating assets. It is now time to sit down with family members and have a heart-to-heart talk about the details of the estate and what your intentions are with respect to its distribution. The subject of death can be challenging for all. However, discussing your estate plan is vital, if you want to protect your family from what might come after you are gone. Each family has its own goals, so it’s a good idea to talk about it frankly, while you still can.

    Without discussions and an estate, the chances of a family split, assets not going where you had intended and unnecessarily higher costs in taxes and legal fees, are a very real possibility.

    If speaking about these topics is too hard, you may want to write your family a love letter. It would contain all the information that your family would need at the time of your death or if you become incapacitated because of illness or injury.

    Your estate plan should also include the documents needed, so your family can make decisions on your behalf, if you are incapacitated. That includes a power of attorney, a health care directive and may include others specific to your situation.

    Ideally, all this information will be located in one convenient place. Don’t put it on a computer where you use a password. If the family cannot access your computer, all your hard work will be useless to them. Put it in a folder or a notebook, that is clearly labeled and tell family members where it is.

    They’ll need this information:

    • A list of your important contacts — your estate planning attorney, financial advisor, CPA, insurance broker and medical professionals.
    • Credit card information, frequent flier miles.
    • Insurance and benefits including all health, life, disability, long-term care, Medicare, property deeds, employment and any military benefits.
    • Documents including your will, power of attorney, birth certificates, military papers, divorce decrees and citizenship papers.

    Think of these materials and discussions as your opportunity to make a statement for the future generation. If you don’t have an estate plan in place already or if you have not reviewed your estate plan in more than a few years, it’s time to make an appointment for a review. Your life may have not changed, but tax laws have, and you’ll want to be sure your estate is not entangled in old strategies that no longer benefit your family.

    Reference: Lockport Journal (Feb. 16, 2019) “Senior Spotlight: Composing the ‘family love letter’

  • Are You Forgetting this Estate Planning Document?

    Forbes’ recent article, “Two-Thirds Of All Americans Are Missing This Estate Planning Document,” explains that a health care directive is a legal document in which an individual writes down his decisions for caregivers in the event of illness or dementia and makes instructions about end of life decisions. It can also provide guidance on how caregivers should handle the body after death.

    Health care directives are also called living wills, durable health care powers of attorney, or medical directives, but they all serve the same function, which is to provide guidance and direction on how a person’s medical and death decisions should be made.

    Despite the importance of a health care directive, a 2017 study found that only 33% of all Americans have one.

    A critical decision in a health care directive is selecting an agent. This is a proxy who acts on your behalf to make decisions that are consistent with your wishes. It’s important to pick an individual whose values are aligned with yours. This is your advocate on decisions, like if you want to have treatment continued or just be kept comfortable in palliative care.

    Once you choose an agent, review your directive with her. This will give her guidance if and when the need for her to step in arises.

    The agent’s role in the health care directive doesn’t end at death but continues to ensure that your post-mortem wishes are carried out. When the person dies, the agent takes control of the body. Prior to funeral plans, the agent must make certain that any organ donation wishes are carried out. This decision is usually shown on a person’s driver’s license, but it’s also re-stated in the health care directive.

    After the donation wishes are carried out, the agent helps to make sure funeral wishes are handled properly. These instructions can be detailed in the health care directive.
    Are You Forgetting this Estate Planning Document? With a health care directive put in place, you make things easier for your family and loved ones.

    Reference: Forbes (December 13, 2019) “Two-Thirds Of All Americans Are Missing This Estate Planning Document”

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  • Big Eight: Retirement Mistakes to Avoid

    “You don’t stop laughing when you grow old, you grow old when you stop laughing.” George Bernard Shaw.

    “Living each day as if it were your last doesn’t mean your last day of retirement on a remote island. It means to live fully, authentically and spontaneously with nothing being held back.” Jack Canfield.

    During our working lives, we have a cash flow called a “paycheck” that we rely on. A similar cash flow occurs when we retire and start the process of “deaccumulation” or creating income streams from sources that include our retirement funds. However, generating enough income to enjoy a comfortable retirement requires managing that cash flow successfully, says CNBC.com in the article “Here are 8 costly retirement mistakes to avoid.”

    Big Eight: Retirement Mistakes to Avoid:

    Preparing for the risk of a bear market. If markets take a nosedive the year you retire and you stick with your plan to withdraw four percent from your portfolio, your plan is no longer sustainable. Better: have an emergency fund in place, so you don’t have to tap investment accounts until the market recovers.

    Investing with inflation in mind. We have been in such a low inflation environment for so long, that many have forgotten how devastating this can be to retirement portfolios. You may want to have some of your money in the market, so you can continue to get rates above any inflation. If inflation runs about 3.5% annually, a moderate portfolio returning 6% or 7% keeps up with inflation, even after withdrawals.

    What about interest rates and inadequate returns on safer investments? This is a tricky one, requiring a balance between each person’s comfort zone and the need to grow investments. Current fixed-income returns lag behind historical performance. Some experts recommend that their clients look into high-dividend stocks, as an alternative to bond yields.

    Be ready for longevity. Worries about outliving retirement savings are due to a longer overall life expectancy. There’s a good chance that many people alive today, will make it to 95. One strong tactic is to delay taking Social Security benefits until age 70, to maximize the monthly benefit.

    NOT to dump stocks in a temporary downturn. Without strong stomachs and wise counsel, individual investors have a long history of dumping stocks when markets turn down, amplifying losses. We are emotional about our money, which is the worst way to invest. Try working with a financial advisor to remove the emotion from your investments.

    Don’t withdraw too much too soon. It looks like a lot of money, doesn’t it? However, even 4% may be too much to take out from your investments and retirement accounts. It all depends upon what other sources of income you have and how markets perform. Be careful, unless going back to work in your seventies is on your bucket list.

    Prepare for cognitive decline. This is way harder to conceive of than inflationary risks, but it becomes a real risk as we age. Even a modest level of age-related cognitive impairment, can make managing investments a challenge. Have a discussion with family members, your estate planning attorney and a financial advisor about deciding who will manage your investments, when you are no longer able.

    Are you ready for health care costs? If at all possible, wait until 65 to retire, so you will be eligible for Medicare. Even when you have this coverage in place, there may still be considerable expenses that are not covered by Medicare. If you don’t have long-term care insurance, get it as soon as possible. In the event you are not qualified plan to qualify for medicaid to assist with long term care costs.

    Please review the Big Eight: Retirement Mistakes to Avoid with your financial adviser and estate planning attorney.

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  • Can Retirement be Recession-Proof?

    Can Retirement be Recession-Proof? It was a tough time for people who had just retired, but since that time stocks have rebounded in a spectacular manner. However, says Money in the article “This is the Best Way to Recession-Proof Your Retirement, According to Experts,” it is possible that the long rally may be coming to an end.

    Is there anything that can be done do to protect your retirement accounts from the next financial disaster? Those who are closest to retirement, are always the most vulnerable to drops in the stock market, and those who are retired and drawing down savings are even more at risk. However, you can build a financial buffer to help your retirement funds survive any downturns. No one knows when the next recession or stock slide will occur. There will always be one, so it’s best to be prepared. It’s simply an acknowledgement of the real risks of markets. On average, recessions last about 18 months. What can you do?

    Build a cushion. Commit to building an emergency fund. That should be three to six months of expenses. And it doesn’t matter how rock solid or large your retirement investments are. If you take money out prematurely, it’s going to weaken your portfolio.

    Pay down all debt, or as much as possible. That is key to feeling fiscally secure, once you leave the workforce. This is because less of your assets are tied up in long-term retirement investments. Tackle the highest interest rate debt first.

    It’s far easier to adjust discretionary expenses, than it is to add cash to a stockpile. You can skip a vacation. You can’t skip a mortgage payment. Depending on how close you are to retirement, consider tweaking your investment portfolio. Portfolios can become unbalanced over time, as assets in different classes grow or fund managers change. Review your portfolio to limit your exposure to volatility. Scrub out any unnecessary risk. That may include putting some money in cash or cash equivalents, like savings accounts, CDs and short-term bond funds.

    You don’t have to be very conservative on the entire portfolio. People nearing retirement age usually trim some of their stock holdings. It is not now as black and white. You’ll need stock growth to outpace inflation, so your equity allocation must be fine-tuned. Many retirees are working part time jobs to keep some cash coming in and minimize what they take from retirement accounts. If you’re earning enough to live on, you can even avoid taking any distributions, except those that are required. Be aware of how your income impacts your Social Security benefits and taxes, if you have already started to take benefits.

    There are other advantages to working part time. It keeps you active and engaged with others, allows your mind to stay sharp and offers the opportunity to socialize with new people.

    Finally, make sure your estate plan is in place. You should have a will, power of attorney and healthcare power of attorney. An estate planning attorney can help protect you and your family, regardless of when the next recession arrives.

    Reference: Money (March 13, 2019) “This is the Best Way to Recession-Proof Your Retirement, According to Experts”

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  • What’s the Difference Between a Life Estate and an Irrevocable Trust?

    What’s the Difference Between a Life Estate and an Irrevocable Trust? Investopedia’s recent article asks “Life Estate vs. Irrevocable Trust: What’s the Difference?” The article explains that a life estate and an irrevocable trust are two different ways to make certain that assets are transferred to the right party. Each of these has advantages and disadvantages.

    A life estate that’s used to gift property will divide the ownership between the giver and receiver. Some parents create a life estate to reduce their assets to qualify for Medicaid. While the parent still has some interest in the property, Medicaid doesn’t count it as an asset. A life estate lasts for the lifetime of its creator and it prohibits the selling of the asset, without the permission of its beneficiaries. Therefore, a parent can’t sell a home without the permission of his children, if they are beneficiaries of the life estate.

    If you’re attempting to be eligible for Medicaid and are concerned that your home will disqualify you, ask your estate planning or Medicaid planning attorney about an irrevocable trust. With this trust, if a husband and wife both own a home, the husband can transfer his portion to his wife, and his Medicaid eligibility won’t include the home.

    There must be a five-year gap between the creation of the trust and the application for Medicaid. If there isn’t, those funds will be counted as part of existing assets when determining Medicaid eligibility. Therefore, you can’t start an irrevocable trust right before you apply for Medicaid if you want to receive those benefits.

    One negative of an irrevocable trust is that the founder of the trust relinquishes any rights he has to the home. However, the beneficiary of the trust can’t sell the home, unless he or she is also named as a trustee. Once an irrevocable trust has been created, the trustee can’t take back control of the trust.

    Remember that a life estate and an irrevocable trust aren’t always mutually exclusive. It’s possible to place an asset (like a home) in an irrevocable trust and keep a life estate. In that case, you’re irrevocably transferring ownership of your house to the trust. However, you still keep control. In this case, you are permitted to sell the home, remodel, or rent out a room, but the house itself—or the sales proceeds from it—would remain in the irrevocable trust.

    In this situation, a parent would also not risk giving their children part of the tax liability that is associated with owning a home. The parent would keep more personal control over the house and wouldn’t need their child’s permission to sell the home. This may be the best option because it would still allow the parents to apply for Medicaid and not have the property count in their assets, but he or she would remain the sole decision-maker for the house.

    What’s the Difference Between a Life Estate and an Irrevocable Trust? Both have their pros and cons, but a combination of the two can often be the best answer. Make no moves either way, without the advice of an experienced elder law attorney.

    Reference: Investopedia (June 16, 2019) “Life Estate vs. Irrevocable Trust: What’s the Difference?”

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    “Life Estate vs. Irrevocable Trust: What’s the Difference?”