Revocable Trusts Avoid Probate


I know, it sounds like lunacy. Your loved one created a Revocable Trust for the purpose of avoiding the cost and red-tape of probate. But there are some instances when you, the Trustee left in charge after the death of the Grantor (who created the trust), should consider filing a probate anyway. The instance is when you need to cut-off or diminish potential claims against the Trust.

One scenario is this: prior to the Grantor’s death, he was involved in a motor vehicle accident. Even if the Grantor doesn’t appear to have been at fault, a lawsuit might still yet be filed claiming that he was at fault and seeking money. I am not suggesting that every fender bender be considered a problem large enough to warrant filing for probate, but if it was a serious accident with possible injuries, filing a probate sets at short window within which a claim would have to be filed in order to recover from the Grantor’s personal assets held by the Trust that you are now in charge of.

Other scenarios are as follows: The Grantor suffers a protracted illness or even if short, an expensive one, mounting up enormous bills. Or the Grantor is a spend-thrift and had a lot of credit card or other debt.

Probating the Grantor’s estate can be a way to manage, lower, or even eliminate creditor claims against the Trust Estate. Any situation where there are a lot of debts merits looking at probate as a way to deal with these debts. You may decide not to file, but considering probate and, perhaps, talking with a probate lawyer about this, is something a Trustee must consider in order to do his or her best at administering the Trust.

Types of Trusts – What They Can and Cannot Do

I have had more than a couple of clients come to me after their friends or financial advisors told them to put all of their wealth into a trust so that it would be protected from Medicaid/Medicare when they die. That’s it. That’s all they have been told and it sounds simple enough. However, these people have, by and large, been healthy people in their 50s or 60s, so when I tell them exactly how that works, very few of them really want to create the kind of trust that accomplishes protection from Medicaid liens.

First of all, there is a big difference between Medicare and Medicaid. Medicare is health insurance provided to the public beginning at age 65 regardless of your income, your asset level, or your employment. When you get on Medicare, you will probably want to also purchase a Medicare Supplement which will pay the portion of your medical bills that Medicare does not pay (usually Medicare pays 80% and you pay 20%). Generally, there are no liens that Medicare assesses at your death. You may, indeed, have unpaid medical bills that will be debts at your death (your 20% if you don’t have a Medicare Supplement policy), but, generally, Medicare doesn’t attempt to get back from your estate any sums that it paid on your behalf.

Medicaid, on the other hand, is health insurance for people below certain income and asset levels. If you have worked all of your life at a job that pays decently, you probably won’t have had to apply for Medicaid. If you collect SSI (Supplemental Social Security Income) because you are disabled and you didn’t work long enough to collect SSD (Social Security Disability), you automatically get Medicaid to pay your health care bills. However, due to the fact that Medicaid is an asset qualifying program, if you die with assets, Medicaid is going to assert liens on your estate and property for monies it has expended on you during your lifetime.

So how is this relevant to ordinary folks like my clients.
Long-Term Care

In-home, assisted living, and skilled nursing care (in a nursing home) are very expensive. The average annual cost of a semi-private room in a nursing home in Florida is over $87,000. The average annual cost of assisted living is over $37,000. That cost, of course, can wipe out a lifetime of hard-earned savings pretty quickly.

Medicare does not pay for these kinds of care. Medicare will pay the first 100 days only of a stay in a nursing facility and will only pay for a limited amount of in-home care. The Medicare Supplements do not extend to pay these costs either.

Therefore, for long-term care, there are only 3 options available for people: 1) private pay; 2) long-term care insurance; or 3) Medicaid or VA benefits. Again, private pay is you paying for your own care at the very high rates just discussed. Long-term care insurance is special, specific insurance that you can pay for, but it is costly unless you lock in the rates when you are young.

That leaves Medicaid (or if you are a veteran or spouse of a veteran, VA benefits). However, Medicaid is only available to persons without assets over a certain level.
Revocable and Irrevocable Trusts

The only way to become eligible for Medicaid is to spend down your money. If you simply gift it away, Medicaid will deem you to be ineligible for benefits for a period of time determined by the amount you gave away. Medicaid is able to examine your bank and other financial records for 5 years to determine whether you have made any transfers that they consider to be gifts (not for value received). This is called the “look-back period.”

There are exemptions from assets which are not counted as assets by Medicaid, such as a homestead up to a value of $552,000 and one vehicle of any value (even a Rolls Royce). A lot of assets can go into these types of assets and not be counted by Medicaid; however, any assets left over have to be taken out of the name of the person trying to qualify for Medicaid.

Putting money into a Revocable Trust does not do anything as far as Medicaid is concerned. That is because a Revocable Trust is considered a Grantor Trust. Because it is revocable, it is still money available to you. To make these assets unavailable to you, you would have to put your assets into an Irrevocable Trust with a Trustee that is not you. An Irrevocable Asset Protection Trust is one that is set up with someone other than you as Trustee, but you as beneficiary. But you don’t get to call the shots as to how the money is invested or even how it is paid to you. This type of trust starts the five-year clock, so you would still have to wait for 5 years after setting up the trust before you would be eligible to apply for Medicaid. The benefit of this trust is that after you die, your heirs can inherit the remaining assets in the Trust. You could also put money into a Special Needs Trust. This type of Irrevocable Trust is an exempt transfer so the five years doesn’t apply, but because you set it up, the first beneficiary of the Trust is Medicaid to the extent of any lien Medicaid can assert for money paid by it for your care. Monies from this Trust can be used to pay for your care over and above what Medicaid pays for.

That is why most of the clients who came to me thinking they wanted to set up a trust to protect against Medicaid liens decided they didn’t really want to do that kind of thing yet.
When to Set Up an Irrevocable Trust for Applying for Medicaid

First of all, if you have substantial assets (liquid assets of over $500,000 or more), you may not want to ever apply for Medicaid. Not all skilled nursing facilities accept Medicaid and if you want a certain high level of care and luxurious surroundings, Medicaid is probably not the way to go. You could, under these circumstances, decide how long you want to pay for your own care in the luxury facility, set that money aside, and then put the rest in a trust, either an asset protection trust or a Special Needs Trust. Again, however, you need to be in a position where you don’t mind losing control over your assets.

Second, if you have been diagnosed with a condition that raises the chances that you will end up in long-term care eventually (Alzheimer’s, dementia, multiple sclerosis, Parkinson’s, etc.), you will want to consult with an Elder Law attorney to see what options are available and to make a plan for your future care.
The Bottom Line

For most healthy individuals, losing control of their assets is not something they really want to do without some indication that they will actually need long-term care. The latest statistics from the Family Caregiver Alliance indicates that 35% of persons over 65 years of age will eventually enter a nursing home. Accordingly, you may not need long-term care and if you don’t, do you really want to lose control over your assets? The bottom line is this – set up an appointment with an Elder Law/Estate Planning attorney. Go over your health and your financial status, as well as your estate planning goals. When and if you suspect you may end up needing long-term care in the future, go back to the attorney and have another in-depth review. But as common sense would dictate, it isn’t as simple as placing your money into a trust and then magically having the government pay for your long-term care. If it was that simple, I suspect Medicare would be paying for long-term care for everyone.

In This Day & Age, Are Original Documents Even Necessary?

We are in the technological age. Many of us don’t ever think about keeping physical copies of documents that we have in electronic form. For example, do you have a physical photograph of last Christmas with the family? I know I don’t. I have a digital image on my phone (more like my husband’s phone, since he is the photographer) and it is posted to my Facebook page. Do you have copies of important emails? Other than in my business, I never print out emails, so if I ever needed a past email, I would be out of luck if I couldn’t find in on my computer.

Even in the legal sphere, almost all documents filed with Courts nowadays are filed electronically. The Courts don’t want paper anymore. From criminal cases to divorce to lawsuits, court cases are handled electronically for the most part.

This is ALMOST true for Probate, but not quite. I am an estate planning attorney who also represents estates in probate. When I am planning for my clients, I make sure that I have my clients sign DUPLICATE ORIGINALS of every document and then I store one original of each document in my fireproof cabinet. I send the client home with the other set of original documents. I also send to my clients who have computers a digital copy of each document so they can send these to their family members/loved ones if they choose. But I also tell them in a letter the importance of original documents.

Here is a list of documents that MUST BE ORIGINAL to be valid:

Last Will and Testament
Durable Power of Attorney
Amendments to Trusts
Codicils to Wills

There is a reason why these documents must be original: These are the documents that are the most susceptible to fraud and forgery. The Last Will and Testament gives away your assets upon your death. The Durable Power of Attorney allows your agent to manage your assets, including spend or sell your assets, during your lifetime. These are the documents that if someone wanted to swindle you of your money, they would need to do so. So it is important to have original documents.

These documents will not be accepted in digital or copy form; therefore, it is important that you know where your originals are, your loved ones know where they are, and, I believe, for your lawyer to have a duplicate original if needed.

Will we ever do away this need for original documents? Perhaps. But there will need to be some other safeguard to protect against fraud – perhaps digital fingerprinting of documents. Until then, keep your documents safe!

Do I Need to Open a Probate Estate?

When your loved-one dies, you have a million things to do and it may not even dawn on you to ask the question, “Do I need to open a Probate Estate?” That is, until you go to close a bank account, sell a car, or sell a home.

The reality is this: unless your loved one owned everything in joint name with someone else, there is probably some asset that cannot be passed to someone else without going through some sort of probate process.
What does it mean to be jointly owned?

For example, a husband and wife are both listed on the deed to their home or other real estate located in Florida. Regardless of whether it says “joint tenants with right of survivorship” or “tenants by the entities”, real property titled in the name of a husband and wife passes, upon death, to the surviving spouse.
The same is true of personal property like bank or stock accounts.

Here in Florida, it is a common occurrence to have older people list one or more children on their bank accounts with them. Those assets also pass upon death to the survivors named on the account.

A lot of older Floridians have taken these steps to include their children on their assets. For reasons that are not addressed in this blog, there are tax implications about why this might not be the best estate planning method available, but at least it is some sort of estate planning which takes into account the avoidance of probate.
What is Probate?

Probate is a court proceeding that gives the surviving heirs and/or beneficiaries the right to distribute assets.
Does this include all assets?

Theoretically, all of a decedent’s assets belonged to him/her and they have to be transferred to heirs and/or beneficiaries through probate. However, when we are talking about tangible assets with no titled or deed, there is really no incentive to do so through probate. However, in order to transfer title to a vehicle, someone has to sign the title and, accordingly, a probate has to be opened to either appoint a Personal Representative to sign the title, or a summary administration or lesser probate has to be opened for the court to order who gets title to the vehicle. The same goes for real property. Finally, any bank or stock accounts that are not left “payable on death” to a beneficiary also have to be transferred in some manner, either through formal probate or summary administration.
What is the difference between the various types of probate?

I will write a blog next time which explores the various types of probate in depth, but for now, let it suffice to say that if there are not a lot of assets, summary administration, which is cheaper and less time consuming than formal administration, may be an option. If, however, there are assets more than $75,0000 (exclusive of the homestead), this option is not available and a formal probate administration, which could take 6 months to a year to complete, will be required.
Clear as mud?

If you don’t understand all this, don’t feel alone or stupid. It is complex and not necessarily easy to navigate or understand without a lawyer to help you. Call me if I can help answer your questions. The first consultation is always free!

Special People Need Special Consideration

You may have someone in your life that is struggling with a disability. You want to be helpful and even generous. They could use your financial help, right?

WAIT! If your someone is receiving Medicaid or other government benefits, helping them out may do more harm than good. Helping them out financially may cut their benefits to an extent that they will be out more money than you give them.

Here is an example:

I have a friend whose son was receiving Medicaid and SSI as he was disabled. The son’s father died and Social Security issued a check for death benefits to the son. Even though it was Social Security on both sides of the equation, the Social Security death benefits would disqualify the son for Medicaid and SSI benefits. Luckily, my friend knew enough to call an attorney. She had to scramble around and get the money put into a Trust, but at least she was able to do that and her son wasn’t knocked off SSI and Medicaid until his regular bills and expenses ate up the death benefit.

What is a Special Needs Trust?

A Special Needs Trust (SNT) is a trust that is set up so that money that a disabled person gets can be saved and spent on items that will better that person’s life.

Medicaid and Supplemental Security Income (SSI) are monies made available to disabled people who have little to no assets. In fact, recipients must have less than $2,000 non-exempt assets in order to qualify. Qualifying is not just a once and done thing either. The person receiving benefits must qualify every month. That means, in the case of my friend, if the Death Benefit was placed into the bank account of my friend’s son, Social Security would have said he had too many assets to qualify that month for both SSI and Medicaid. Then the $10,000 he received would have gone to pay the son’s medical expenses, ordinarily covered by Medicaid, and regular living expenses, paid for out of the son’s SSI check, until the $10,000 became less than $2,000. You can see how this is not a situation that would have benefited anyone other than Social Security.

With a Special Needs Trust, the money is placed into a trust that is not considered to be an asset of the disabled person; however, the money is used for that person’s benefit. There are a bunch of rules about what you can and can’t spend the money on, but the general premise is that it pays for things that Medicaid doesn’t pay for: like a car, modifications to a home for the benefit of the disabled person, or even a vacation.

The point is, any money given to the disabled person, if put into a Special Needs Trust, really does end up making their life better.

Newly Married?

Two souls have become one. But your estates are still “his” and “hers” unless you update your estate plan.

While the State of Florida recognizes that even without a Will your spouse is entitled to a portion of your estate upon your passing, this “portion” may not be what you want your beloved to have. For example: what if you and your spouse have good jobs, and you planned on giving some money to your niece for college or to a special charity that you hold near and dear. If you die without a Will, leaving no children, your spouse will get 100% of your estate. You will be relying on your spouse to carry out wishes that you didn’t place in writing (your Will). How likely is that to happen, do you think?

As for so many of us, including me, this may not be your first trip down the aisle. As a parent of children from a prior marriage, I needed to be sure not only that my new spouse but also that my children were taken care of in my Will. In Florida, the intestate laws, those which apply to persons dying without a valid Will, determine the division of assets between children of prior marriages and the current spouse. In cases where a spouse dies, leaving children or grandchildren who are not the legal children or grandchildren of the surviving spouse, the surviving spouse receives one-half of the estate and the children of the deceased spouse that are outside of that current marriage receive the other one-half.

This may sound fair, but suppose that when you pass, your children are grown and doing well for themselves, whereas your spouse needs money to live on. Without a Will, you will be hoping your children do the right thing and take care of your spouse after you are gone, but the law certainly doesn’t require that.

Or suppose your spouse is the one with the good job and access to funds while your children still need to go to college. Without a Will, your spouse and prior children will each get half of your own smaller estate, and you will be relying on your spouse to pay for his or her stepchildren’s education. This gets even more difficult if you also have children together in this marriage who need to have college paid for.

In any scenario where there is no valid Will, children of the current marriage are not given any interest in the estate. Instead, the State assumes that the surviving spouse will take care of those children. This may sound relatively safe, but suppose your spouse remarries and has additional children. Your children’s share of your money just got smaller.

What if you wanted some of your estate put away in a fund for your children’s college? Without a Will, that would only happen if your spouse does it for the children after you are dead. If you are the bread-winner, the money you would have left for your children might very well be long spent by the time they reach college. This doesn’t mean your spouse is an unconcerned parent. It simply means that the plans that you and your spouse had that were based upon your living and working until your kids were through college were disrupted. Without proper planning, those plans will almost surely go out the window.

What does all this mean to you? It means that the State Legislature decided long ago how to divide up your estate between your spouse and your children. Wouldn’t you like to decide that for yourself? While you can’t legally cut your spouse out of your estate without your spouse’s consent (they are entitled by law to roughly 1/3), you can certainly spell out your wishes and decide whether you want to give your spouse more or less than the intestate laws allow. You may also set up trusts to keep money for your children’s future care and education. Planning your estate doesn’t have to be an all-consuming practice in control from beyond the grave, but a little time spent planning now will assure your spouse and your children of your care, even if something does happen to you.

Financial Wellness Month

What is a Financial Wellness Program?

According to Lee Eliav, digital marketing manager of HelloWallet, “Financial Wellness” may mean one thing to employees and another to their employers. Employers see financial wellness programs as practices that guide employee behavior and create positive productivity. Employees, on the other hand, see Financial Wellness Programs as those which assist them personally to save money and guide retirement saving.

In his article, What is Financial Wellness? 5 Elements of Financial Wellbeing, Eliav lists the five elements of financial wellness: 1. Spending; 2. Emergencies; 3. Guidance; 4. Benefits; and 5. Investments. In other words, to be financially well, a person needs to 1. Know what he/she spends money on and how that needs to be modified to reach certain goals; 2. a nest-egg of 3-4 months of income to be set aside for emergencies; 3. Sound and trustworthy financial guidance from someone knowledgeable and who has only your best interests in mind (not necessarily your stock broker if he/she is making fees from your trades or from managing your accounts); 4. A thorough knowledge of the benefits that are available to you and how to make proper use of them; and 5. A sound investment plan that takes into account your work and retirement goals.

Of all of these elements, Eliav elevates “Guidance” to the position of most important.

After all, if you have a knowledgeable and objective financial guide, and if you follow their advice, you are on-course for avoiding poor financial decisions. No one, of course, can see into the future and know how investments will fare, but a good financial guide will help you diversify your assets so that during a period of loss in one sector, you will be covered by gains in another.

All financial advisors that you speak with will ask you some very common questions. One of the first things they will ask is whether you have your Estate Plan in order – that is, do you have a Will, a Trust, A Power of Attorney, have you designated someone to make health care decisions for you. Why are these important? Because if you don’t have your emergency documents in order, an emergency could mean that your assets, instead of taking care of you and your loved ones, are being spent in Court to appoint a guardian for you or your loved ones, or probating your estate, instead of transferring your estate immediately, as a trust could do.

The best advice I have for people is to decide that you will take an open-minded and fearless look at your financial reality and plan for the future. It is tempting to hide your head in the sand and deny that anything could happen to you, but we all know, intellectually, that is nonsense! The Artist formerly known as Prince died in his fifties a very wealthy man. Because he had no Will or estate plan, there are numerous people coming out of the woodwork claiming to be his illegitimate children. If he had a Will, these people would have no claim on his money. Without one, it is going to be a free-for-all. Don’t let that happen to you and your loved ones. It is better to look at life clear-eyed and realistically than to base our inaction on folly. The New Year is a good time to start that clear-eyed investigation.

Good luck!

If you want more information on the subject of financial wellness, check out these sites and articles!


Small Business Succession Planning

In some ways, this business is your baby! You have watched it be born, nurtured it through the scrapes and bruises, educated and enlightened it, and helped it mature into something you are really proud of. But just like your human babies, your business needs to become independent from you so that when you no longer want to put in the thankless long hours, it will continue to grow, evolve and thrive!

Here are some questions you need to ask yourself, and some common solutions that you may want to consider:

If you are sick for two weeks, who will be there to pay the bills, order the supplies, and deal with customers? That one is probably an easy one as you hopefully have a second-in-command who has the power to write checks and deal with the day-to-day operations. If you don’t have that power already delegated, you should consider designating a person to have A Limited Power of Attorney. This document will allow that person to do those things, and only those things, that you need him/her to do in your absence.
But what about if you need to exit the business totally for health or emergency reasons? Some business owners are lucky enough to have their children involved in the business with them. But how do you keep control of the business during your life, and seamlessly turn it over to them once you have passed? You may want to consider putting your business ownership interest in a Trust. In a Revocable Living Trust, your business profits could still be used to support you during your life even if you are incapable of returning to the business. Then when you pass away, the ownership would be passed on to the children involved in the business. If these are fewer than all of your children, you may want to divert other assets to the non-business children to even things out.
What if you have no family involved in the business? The business could take out a life insurance policy on your life that the business would use to buy out your share of the business upon your death. This is helpful if you have non-related business partners. Or your family could try to sell the business if there is no one involved in the business capable of buying your interest. In this case, it would be helpful to your family for you consult with a business broker while you are still alive so that you know and can inform them of the sales process to be undertaken upon your death. In your Will, you could give direction to your Personal Representative about how you anticipate the sale of the business on behalf of your estate.

In any event, if you are a small business owner, you need to have an exit plan in place (business succession planning), just like we, as people, need to have an exit plan in place in the form of an Estate Plan. Ideally, these two plans, both personal and business, will have been thought out and designed together to maximize the health and continued vitality of your biggest baby – your business – after you are gone.

When I Tell People That I Am A Lawyer And Also A Yoga Teacher

When I tell people that I am a lawyer and also a yoga teacher, they think that this is quite unusual. Typically, lawyers are type A personalities. I certainly am. Yoga teachers are thought to be very calm, steady and grounded – not concerned with the hustle and bustle of the daily rat race. That is precisely why I was attracted to yoga and why I pursued that attraction with a passion for the role of a yoga teacher.

Yoga helps a person turn off the “monkey mind” – the constant churning and ping-ponging of thoughts and ideas. Mental chatter is a very human characteristic, but someone who depends for a living on her thought processes gets a lot of positive validation for the constant mental process. However, for the person, herself, this mental chatter is, at least half the time, an extreme detriment. It causes irritability, insomnia, and exhaustion.

Yoga is, by definition, “the cessation of the fluctuation of the mind.” (Yoga Sutras, Patanjali). We Americans think of yoga in terms of postures, exercise, flexibility and lithe bodies. Actually, asana – postures – is only one limb of eight limbs of Yoga. All limbs lead the inquirer inward toward peace.

I have noticed that the ABA and some state bar associations have paid some tribute to the benefits of yoga for the practicing attorney. I could not agree more. But more than that, I recommend it to everyone. We all need less inner turmoil so that our outer-selves can be more consistent with our inner strivings.

Sit for two minutes a day and watch your breath. “Everyone can breathe, therefore everyone can do Yoga.” TKV Desikachar, Master Yogi.