Estate Planning

A Child’s Husband or Wife if Often a Concern During Estate Planning

Let’s face it, not everyone is crazy about their in-laws.  Whether it is greed, money problems, maturity, substance abuse or a possible divorce; these things create concerns when deciding how to pass along an inheritance.

How is an Inheritance Treated During Divorce?  In Oklahoma.

Theoretically, things or money your kid inherits is their separate property.  However, this can change if assets are co-mingled.  One example is an inheritance deposited into a joint account.  Transmutation is the act of changing separate property into joint property by gift, use or titling.  In a divorce setting these assets should not be included in a property division.  In reality, the ownership often becomes blurred when the other spouse gains title, has access or helps maintain the property.

Manipulative, Demanding, or Stealing In-Laws

Sometime the worry is not divorce but a continued marriage with a spouse who’s need for resources never runs dry.  In these situations a Trustee can prevent wasting of an inheritance.

 Lifetime Trusts:

A Trust splits the legal and beneficial ownership from property.  The Trustee is the person or company that holds title.  However, the Trustee can only use the property for the beneficiary.

Example 1:  The Smith Trust purchases a home for the benefit of Sally.  Sally lives in the home but her name is not on the title to the property.  If Sally’s is legally unable to sell, mortgage or give it to anybody else because only the Trustee has this power.  Sally’s husband cannot force her to do anything with regard to that asset.  The Trustee can sell the property if Sally’s needs change.

Example 2:  The Smiths want leave money to their son.  His demanding wife had credit, gambling, and/or alcohol problems.  The funds a placed in Trust so that the Trustee can manage the money.  The Trustee has sole discretion on how and when money is released for son’s benefit.

In both examples the assets in the Trust are not available to the divorcing spouse.  This is because the assets are not “owned” but the child.

Effective September 1, 2016 DHS Will Now Treat a Home in a Revocable Trust as a Countable Asset:

This could mean that current residents will lose Medicaid benefits.

 

On September 1, 2016, DHS changed the rules about how it treats assets in a Revocable Trust.  As a result, more applicants will be denied benefits.  Also, current recipients will lose their benefits.

Before The Change:

DHS treated a home in a Revocable Trust as an Exempt or Non-countable asset.  This means that the home’s value would not be used as an element to disqualify an Medicaid applicant from benefits.  This made sense because a home in a Revocable Trust retains homestead rights.  A couple or an individual could qualify even though the home was in the name of a trust.

After the Change:

Now DHS treats the family home as a countable resource if it is in a Revocable Trust.  What does this mean?

Current Residents:

 

Married Couples

Individuals

Potential loss or denial of Medicaid benefits if the home, together with other countable assets, exceed the certain limits.

Loss or denial of benefits as an individual is only allowed $2,000 in countable resources.

 

DHS’s Action Required:

Deed the property from trust to individuals or couples.

But how is the property venerable after restoration?

Married Couples

Individuals

If property is deeded to both individuals and the non-institutionalized spouse dies first, then DHS can place liens on the home for the cost that it incurred.

After 12 months of the stay in a nursing home there is a strong presumption that the individual will not return to the home and resume residency.

DHS will treat the home as a countable resource.  This  will require the sale of the home and spending down the funds to regain Medicaid eligibility.

 

What can be done to protect the home or it’s value?

Married Couples

Individuals

Steps to prevent liens:

The healthy spouse should maintain the home as his or her primary residence.

  In addition, considerations should be taken to further protect the home.  This may involve making the healthy spouse the sole owner and Estate Planning to prevent the property from reverting to the nursing home bound spouse.

Care should be taken to determine how deeds are created.  There may be a need to have the healthy spouse place the property into an Irrevocable Trust to avoid probate and for Medicaid Asset Planning.

If the individual in facing liquidation of the home, there are two choices.

1.      Sell the home then use the proceeds to pay for care until the resources dip below $2,000; or

2.      Sell the home, give some of the cash to a family member.  This creates a penalty period and some of the funds will be used to fund a Medicaid qualified promissory note or annuity to pay through the penalty period.

Result of option 2?

  35-45% of the proceeds might be saved for the family.

What can be done in our case?

 

 

Risk to Nursing Homes:

There is substantial risk that an individual in Medicaid payment status will become ineligible.  The directive to the caseworkers is to give the family a 10-day notice and if the home remains in the Revocable Trust, then an individual will become disqualified and a couple may exceed their resource allowances.

What Should a Nursing Home Should Do Today?

The worst case is to wait for the 10 day notice.

  1. If it is known that the client’s property is in a Revocable Trust, the family should be contacted to inform them of the risk of loss of the benefits.

  2. Include announcements in their statements.

  3. Have them attend an OnLine Class discussing what can be done.

This can likely mean that the nursing home resident will become ineligible for benefits.  A recent email from the DHS’s top attorney, said:


For several years OAC 317-35-41.1 said that home property held in a revocable trust retains its exempt character.  As of 9/1/16, this is no longer true, with OAC 317-35-41.1 being amended to conform to 42 U.S.C. § 1396p(3)(A)(i). DHS Medicaid eligibility workers have been given the following instructions:

Effective September 1, 2016, home property in a revocable trust is considered an available resource.  When a client’s (Medicaid recipient’s) home property is in a revocable trust, the worker informs the client, or his or her representative, that the home property exemption does not apply unless the property is removed from the revocable trust.  The worker provides the client or his or her representative with Form 08AD092E, Client Contact and Information Request, giving the client 10-calendar days to provide proof the property was removed from the trust.

(1)       When the client does not remove the property from the trust and the value exceeds the resource limit per Schedule VIII.D of the Oklahoma Department of Human Services Appendix C-1, Maximum Income, Resource, and Payment Standards, the worker denies or closes the SoonerCare (Medicaid) benefit.

(2)       When the client:

(A)       lives in the home and provides proof the home was removed from the revocable trust, it is excluded as home property;

(B)       does not live in the home or a nursing facility and does not plan to return home, the client must take steps to convert the property for use in meeting his or her current needs per (b)(1) of this Section; or

(C)       lives in a nursing facility, refer to Oklahoma Administrative Code 317:35-5-41.8 for the home property exemption time frame


 

 

 

“What is the difference between a Will and a Trust?”  In many ways these Estate Planning Documents are very similar in what they accomplish the major difference is how the goals are accomplished.

Both Distribute an Inheritance At Death

Both a Will and a Trust distribute property upon the death of its maker.  The major difference is how we get to the point where the property is distributed.

Five Major Differences Between a Will and a Trust

  1. A Will requires a probate court and judicial oversight to work.  A Trust requires no oversight by a court or judge.
  2. A Will distributes property without restrictions which allows somebody as young as 18 with full access to an inheritance.  A Trust can control the timing of distributions.
  3. A Will does not protect an inheritance from claims of your kid’s creditors.  A Trust can be structured to protect an inheritance from a kid’s creditors and predators.
  4. A Will does nothing until the maker dies.  A Trust is a living document which allows the person in charge the ability to manage the assets and make distributions to beneficiaries.
  5. A Will becomes public record that anybody can snoop to see how much is in an estate and who ended up with your assets.  A Trust is a private document and few of its details require public disclosure.

Todd’s Story

Todd’s father passed away.  He was named Trustee of this father estate.  While he was cleaning out the house a passerby inquired whether the home would be for sale.  He was able to accept an offer and close that very same month.  If the property was left in a Will nothing could happen until there was approval of a probate court.  Instead of one month he would have had a delay of up to 6 months and incurred attorney, publication, appraiser and filing fees.  Todd was glad to avoid those troubles.

How a Will Works

A person makes a will by drafting and signing a written document.  It must clearly be a statement of the person’s “Testamentary Intent”.  In other words, it must state to whom property is to be given after their death.  There are also strict rules on how the document is drafted and witnessed.  If any of these are messed up then it is not a valid will.

A Will is a Lazy Document

After a Will is created it lays around and waits for its maker to die.  None of its provisions becomes effective until the person dies.  For instance, if the plan is to give land to a son, he does not own it yet.   There is a a further requirement that a Probate Court determines that the Will is valid.

Once a Will is approved by the Court then it must be administered according to Probate Procedure.  This includes:

  • Filing a copy of the Will with the Court (making available for the public to see online)
  • Notifying all heirs (relatives who could inherit)
  • Notify all legatees (persons given something in the will)
  • Publish notices in the Newspaper
  • Appointing an Executor (the person in charge of collecting assets, paying claims and distributing assets)
  • Posting a Bond (a fund used if the Executor misbehaves
  • Sending notices and receiving claims from creditors
  • Report all of the assets (publicly available)
  • Provide and accounting
  • File a report of distribution (the public what everybody receives under the will)
  • Pay fees for attorneys, court clerks, mailing, publication and bonds
  • Keep in mind that this is just a snapshot of what is involved in a simple case.

A probate procedure can take nine months to several years to complete.

How does a Trust Work?

In the simplest terms, a Trust is a vehicle that holds assets in the name of the Trustee.  Imagine a child’s Radio Flyer wagon.  When things are placed in it the wagon “owns” them.  The kid pulling the wagon gets to decide what gets put into it.  He also writes a Rule Book that describes when and how things are taken out of it.  He pulls the handle so he is in control.  Someday he will not be able to pull the handle because he dies or loses the ability to manage it.  The Rule Book states who picks up the handle and what is to happen with the things in the wagon.  Unlike the Will, the Trust works without the need for a Probate Court of Judicial Oversight.  In Todd’s story, he picked up the handle and managed the property quickly and efficiently.

 

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