Warning: Medicaid Eligibility Planning Often Gets Overlooked When a Spouse Dies

In this post we address how important it is for families to deal not only with the Louisiana Succession when a married person dies, but also to deal with future Louisiana Long Term Care Medicaid Eligibility, and future Succession avoidance, all while dealing with the probate of the first spouse to die.

Often a married couple will experience something like this later in life: one spouse gets ill and is in and out of the hospital. Sometimes, the sick spouse must go to a nursing home or rehabilitation facility from the hospital. Medicare covers a limited number of days of rehabilitation services after staying in the hospital. But that Medicare coverage runs out quickly and then the patient must pay for their nursing home care out of their pocket, always at many thousands of dollars each month.

Then, after the sick spouse passes away, the surviving spouse often visits the law office to complete the Succession (other states besides Louisiana call it "probate").

Although this is a sensitive time, perhaps the conversation that may be just important is the conversation about how the surviving spouse can protect his or her home and savings in the event the surviving spouse needs nursing home care.

While both spouses were alive and well, the conversation about protecting assets often does not take place. The couple's plan is that when one spouse gets sick, the other spouse will hold down the household. But after one spouse dies, the surviving spouse realizes that they are alone with no one to take of them or their household if they get sick. So, Medicaid planning and protecting the assets can, and often does, take a top priority.

So, if you are a surviving spouse, and you don't think you can afford to spend $80,000 to $100,000 per year for your long term care, without it depleting your life savings, then make sure you have a conversation with an attorney who is well-versed in not only probate law, but property law, tax law, and Medicaid Eligibility regulations.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

When the Surviving Spouse's Usufruct Ends, Is There Anything Than Can Be Done to Prevent the Naked Owner from Abusing the Inheritance?

This post addresses whether a person who owns the usufruct of an asset can prevent the naked owner from blowing the asset when the usufruct terminates.

Here's the situation. Mom dies intestate (without a last will and testament) residing in Louisiana. Dad inherits the usufruct of Mom's share of the home and the money. Because Mom dies intestate, Dad's usufruct terminates when he remarries. A few years later, Dad gets engaged but one of Mom and Dad's children has a substance abuse problem, and Dad is worried that when his usufruct terminates and child gets the funds he inherited from his mother, that son will blow the funds. Can Dad do anything to prevent the child from being able to blow the inheritance once Dad's usufruct terminates?

The short answer is that there is nothing Dad can do to prevent Son from getting and blowing his inheritance once the usufruct terminates and Dad is required to turn over assets to the naked owners. But is there anything Dad can do to prevent the naked owner from abusing the inheritance?

Well, I suppose Dad could avoid getting married. Then, the usufruct would not terminate until Dad died and, hopefully, the naked owner would not abuse the inheritance at that time, which may be many years later.

Perhaps Dad could convince the naked owner to voluntarily allow the naked owner's inheritance to be place in a trust with someone other than the naked owner as the trustee. But the abusive naked owner is not likely to agree to that.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

When an IRA Owner Should Take More Than Their Required Minimum Distributions In Order To Save Income Tax and Avoid Nursing Home Spend-Down

In this post we discuss the topic of whether IRA owners should take more than their Required Minimum Distributions (RMDs) in order to have the family pay less overall income and capital gains tax, and to protect accounts from nursing home costs.

My best guess is that more than 90% of IRA owners elect to take only their Required Minimum Distributions from their Traditional IRA. It seems that the only people who take more than the RMD are those who need the money to spend it.

What many don't realize is that the net amount to family is often not as much as it could be when IRA owners take only their RMDs. The rational goes something like this: When an IRA owner takes RMDs only, it is likely there will be a taxable IRA that will be left to beneficiaries. The beneficiaries must pay income tax on distributions they get from their Inherited IRA - sure, they can postpone distributions but they will still pay income tax on these postponed distributions.

However, an IRA owner whose taxable distributions exceed the RMDs, so much so that the entire IRA is depleted, will be able to invest these after tax proceeds in such a manner that the appreciation on those after-tax investments will never be taxed, due to the step-up in basis rule.

The kicker comes when an IRA owner wants to protect their IRA from nursing home expenses. When they take only the RMDs, it will create a situation that when they enter a nursing home, they will still own an IRA and will be forced to take distrubtions, pay income tax, and spend the after-tax proceeds on their nursing home care until they have less than $2,000, leaving virtually nothing for their heirs or designated beneficiaries.

However, the IRA owner who took larger IRA distributions, paid taxes, and put after-tax proceeds in a Medicaid qualifying Grantor Trust will protect those assets from future nursing home expenses, and will maximize what goes to the beneficiaries income tax free and capital gains tax free.

While I understand that people don't want to pay tax until the positively, absolutely have to, perhaps some thought should go into whether an IRA should take only the RMDs that are required, or whether they should take out more than the RMDs, and invest the after-tax proceeds in a manner that is both protected from nursing home spend-down, and income or capital gains tax at death.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

What Does "Asset Protection" REALLY Mean?

In this post we dig a little deeper about who wants to protect their assets and their estate from losing their estate to (1) nursing home expenses; (2) a lawsuit; and (3) government intervention.

People often call our office or request to discuss with me how they can "protect their assets." But different people, in different circumstances, have different ideas regarding what they want to protect their estates FROM.

One group of people asks me about how to protect their estate from long term care expenses. Perhaps they are 65 or older, and they have seen family members and friends be forced to deplete their estate, and even lose their home, sue to the costs they must pay to reside in a nursing home.

When we engage in a conversation about Long Term Care Medicaid eligibility, we have to take an in depth look at an individual's, or couple's, assets, monthly income, health, age, and the different rules that apply. Often we make some determination regarding what assets should remain in the individual or couple's name, and what assets, perhaps, should be transferred to some form of a trust. Not that the traditional "avoid probate" revocable living trust does NOT provide much in the way of protection from nursing home expenses. Also note that this form of "asset protection" is most effective when transacted at least five years before entering a nursing home.

The second theme of asset protection involves protecting assets you own in the event you get successfully sued. Sometimes people contact us and they are a nervous wreck because "something happened," (maybe the threat of a lawsuit, maybe an automobile accident where you were determined at fault, maybe someone injured on real estate you own, or maybe you have a serious illness and you are worried about the millions of dollars of potential health care expenses).

Two common obstacles I've seen to this kind of asset protection are: (1) People do not want to give up the control over what they own; or (2) people don't engage in this kind of asset protection until it is too late - whereby action could be later undone due to the rules on fraudulent conveyances and the intent to defraud creditors.

The third category of asset protection requests comes from those who, in general, want to protect their estate from "the government." When I ask follow-up questions and dig deeper, they often want to protect their estate from the various forms of taxation, and they want to keep their estate out of probate (the court system).

The solutions for these three categories of asset protection vary based on the appropriate set of laws, rules, and regulations that apply to your situation, and the solutions vary based on your particular financial and estate situation.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

What Happens After Louisiana Resident Dies With No Will, No Spouse, No Kids, and No Surviving Parents.

What does a family do when someone dies unexpectedly with no last will and testament, no surviving spouse, no children or grandchildren, and no surviving parents?

This can be a stressful time for surviving family members. The first question that often gets answered is, "Who inherits from this person?" The second question that often gets answered is, "How do the heirs settle the estate and get the assets?"

When a Louisiana resident dies with no will, no descendants, no surviving parents, and no spouse, the deceased's estate will go the the deceased's brothers and sisters. If any of the deceased's brothers and sisters had died before the deceased, then the deceased sibling's children will represent the deceased sibling.

One of the first things to do in settling an estate like this is to have a judge appoint an Administrator of the Succession. In a matter like this, it would be common for one of the siblings to step up and ask to be appointed as the Administrator. If all of the heirs agree, it would be advisable for the sibling to ask to be appointed as the Independent Administrator, since less judicial supervision is required of an Independent Administrator. But remember, all of the heirs must sign an Agreement allowing the Administrator to be Independent.

Once a judge signs the court order appointing the Independent Administrator, the clerk of court will issue, "Letters of Independent Administration." This permits the Independent Administrator to open an estate account at a bank, and pool all of the deceased's funds from the deceased's frozen accounts into the estate account.

Once that is addressed, it is likely that the Independent Administrator would start selling estate assets, such as vehicles and real estate. Proceeds from the sale of these estate assets would be deposited by the Independent Administrator into the estate account.

In the meantime, the attorney for the Independent Administrator and the heirs will put together an inventory of assets and debts, often called a,"Sworn Detailed Descriptive List of Assets and Liabilities," showing estate assets and debts as of the date of death of the deceased. This inventory is submitted into the court record for judicial review and oversight.

Finally, after expenses and debts are paid, a judge may sign a "Judgment of Possession," a court order ordering that remaining estate assets be disbursed to the appropriate heirs in the appropriate proportions. The Independent Administrator may withhold some funds for unexpected expenses and final income tax return preparation.

A few comments regarding matters like this:

(1) If the assets of the deceased totaled less than $125,000 in value, they should consider using Louisiana's Small Succession Affidavit Procedure;

(2) Perhaps the deceased's wishes could have been better expressed in a last will and testament, which would name an executor, and designate heirs.

(3) Perhaps the deceased could have created a revocable living trust, designating a Successor Trustee and trust beneficiaries, so that the settlement of the trust and estate could have taken place without attorney involvement and government intervention.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

If Your Estate Attorney Talks Too Much, Fails To Listen, or Speaks Over Your Head - Leave. Questions He SHOULD Be Asking

Some people get nervous before they go see an estate planning attorney for the first time. They don't know what to expect.

Selecting the right estate attorney is important in making sure that your legacy is preserved the right way.

Before we get into which questions you should expect to be asked by your estate planning attorney, let's address some characteristics of an estate attorney that should turn you away.

First, if you find that the attorney talks the entire time during your visit, then stand up an leave. Second, if your attorney speaks in terms you do not understand, get up and leave. And finally, if your attorney is not a good listener, leave.

With that being said, here are some things you should plan to discuss in your initial conversation with your estate planning attorney.

The first question I like to ask, right out of the box, goes something like, "So as we start a conversation about your estate legal program, what kinds of things do YOU want to make sure we discuss?"

Some people have specific things they want to address, such as, a blended family situation, a problem child, specific bequests they want to make, or providing for grandchildren, just to name a few. When a client has specific issues they want to address, we need to drill down on those to make sure the estate program is tailored for their specific needs.

Other people do not have a specific issue they want to address. Perhaps they don't know what to ask and they just want to make sure their estate legal affairs are in order.

In every estate planning conversation, there are discussions about particular issues that each client has, and there are questions that we ask virtually every client. Here's a few of the questions asked of just about every client (assuming a married couple but can be adapted to a single person):

(1) After you both pass, how do you want your estate disbursed?

(2) If you have to put someone in charge of the disbursement, who should it be?

(3) When one of you passes, how do you want to leave things to the surviving spouse? Remarriage is in the back of people's minds during this conversation.

(4) If you become incapacitated while you are alive, who do you want to make your medical and financial decisions?

(5) Do you want to leave bequests through your last will and testament (requires probate), or through your revocable living trust (avoids probate)?

What I have not addressed in this short post are questions related to Medicaid Planning (nursing home poverty), estate tax planning (only affects the super wealthy), charitable bequest planning, and the creation of entities for lawsuit protection purposes (particularly if you own rental property).

The discussion you have with your estate planning attorney about your legacy is an important one. Make sure you work with an attorney who doesn't merely want to hear himself/herself talk. Make sure you work with an attorney who doesn't speak in legal-ese (over your head). And make sure you work with an attorney who listens to what you say so that he or she can ask the next right question - and then listen again!

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Which revocable or irrevocable trusts allow you protection from the dreaded nursing home expenses?

"Do revocable or irrevocable trusts help qualify for Long Term Care Medicaid?"

That is the question we often get from clients and prospective clients who are concerned that they will lose their savings and home if they wind up in a nursing home facility.

There are many different kinds of trusts, but often people tend to break them down into two types: revocable and irrevocable.

Regarding revocable trusts, the Louisiana Medicaid Eligibility Manual could not be much clearer, "The entire corpus of a revocable trust is counted as an available resource to the individual."

Revocable trusts have never been used to protect assets from nursing home expenses. Revocable trusts are, however, used extensively for Succession / Probate avoidance purposes. And quite frankly, when the revocable living trust works like it should, it's a wonderful thing for the survivors of the person who set up the trust. When the person who set up the trust (Settlor) dies, the Successor Trustee (often a family member) can immediately disburse assets to the trust beneficiaries (often the children) without any of the attorney and court involvement, expense, and delay associated with a court-supervised probate process.

Regarding irrevocable trusts, it is important to note that not every irrevocable trust offers nursing home protection and Medicaid eligibility. An important provision in the Louisiana Medicaid Eligibility Manual provides, in pertinent part, that, "The portion of the corpus that could be paid to or for the benefit of the individual is treated as a resource available to the individual..."

There are several other factors that affect Medicaid eligibility when someone has established an irrevocable trust, but clearly of the trustee can pay corpus to or for the individual seeking Medicaid eligibility, then the trust assets will need to be spent prior to eligibility.

Some parents, in order to protect assets, establish an irrevocable trust and provide in the trust instrument that a trustee may make distributions to or for the children of the Settlor of the trust.

Here's my words of warning regarding Medicaid eligibility. Seek out good legal help in your area. Medicaid is a combined state and federal program, so you must work with someone who is well-versed in your state's eligibility provisions. Don't try this at home on your own. Get it right the first time.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Louisiana Trust Code Rules Regarding Shifting a Trust Beneficiary's Interest in Principal

Many people who put their estate plan in place do not understand the rules regarding the shifting of a trust beneficiary's interest in principal.

Occasionally, people who are putting their estate legal program in order want to make a bequest, in trust, for others - often grandchildren. Since the grandchildren are often young and immature, the grandparents often want to put stipulations on the bequest.

A common request goes something like, "I want to leave $100,000 to my grandchild when I die, but I want it to be in a trust. And if my grandchild doesn't go to college, or does drugs, or goes to jail, then that money will go back to other people I designate."

Well, you can certainly leave $100,000 in trust for another, but there are restrictions on your ability to shift that trust principal to someone else. One such restriction in the Louisiana Trust Code provides that the interest of a principal beneficiary is acquired immediately upon the creation of the trust. Once the grandparent passes away, the trust for the grandchild is created and that trust is for the grandchild only while the grandchild is alive.

What you CAN control is when the grandchild gets the principal. You could give the trustee the discretion regarding distributions of principal to the grandchild. So if the grandchild goes to jail, the trustee could exercise his or her discretion and perhaps never distribute the principal to the grandchild while the grandchild is alive.

Other controls you have include certain powers to direct principal when the grandchild dies. if the grandchild dies with descendants, you can state in the trust that the principal vests in one or more of his descendants. If the grandchild dies without descendants, you can direct who the principal vests in upon the grandchild's death.

And if you do not direct where the principal vests upon the beneficiary's death, then his interest vests in his heirs or legatees, subject to the terms of the trust.

In other words, get good legal help when you are leave a bequest, either through your last will and testament or your revocable living trust, to individuals (such as grandchildren) who you are unsure how they will turn out from a maturity standpoint. Failing to comply with the rules regarding the shifting of a beneficiary's interest in principal can cause all kinds of legal problems for your descendants in the future.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

The Medicaid Five Year Rule Regarding the Transfer of Resources for Less than Fair Market Value

Many people understand the general rule that if you own more than $2,000 of assets (there are definitions of "assets") when you enter a nursing home, then you will not be eligible for Medicaid, and you must privately pay the entire nursing home expense, which in every state is many thousands of dollars monthly.

However, most people, if they must enter a nursing home for long term care services, would prefer to have Medicaid cover this expense, rather than have to pay for it out of their own life savings. But in order to qualify for Medicaid, you have to meet your state's definition of "poor."

For starters, when you enter a nursing home and apply for Medicaid, you can have no more than $2,000 of countable resources. Countable resources include things like money in the bank, investments, savings bonds, retirement accounts, real estate (not your home), and interests in a business or LLC.

Some uneducated folks think they can get around this rule by "quietly" transferring assets out of their name just prior to going into a nursing home. But the Medicaid Manual's rules are quite extensive - making it impossible to get around the rules.

When one enters a nursing home having transferred assets out of their name at least 60 months prior to applying for Medicaid, then it is likely that those assets are, as people say, "protected."

It's much trickier if assets are transferred within the 60 months prior to entering a nursing home.

If you are considering transferring assets to start the five-year clock ticking, you'll likely consider whether you should transfer assets to individuals or trusts. Most people who get educated on the subject tend to transfer assets to particular types of trusts, for two reasons: (1) control reasons; and (2) tax reasons (income tax and capital gains tax).

If you take one item away from this discussion, it's that there are rules which make it very difficult to avoid losing your life savings and home if you enter a nursing home, but by planning ahead (ideally, at least five years before entering a nursing home), you can protect a very large portion of what you own for yourself and your loved ones. But know that the rules are complicated and you need good legal help - ideally, from an attorney who is well-versed on the ins and outs of your state's Medicaid eligibility rules.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

What to Tell Your Heirs About Your Estate Planning Legal Program

Many people ask me how much should they tell their children or other heirs about their estate planning legal program.

Most of the time, I tell them that it is a personal decision. But the decision regarding what to tell your children or heirs about your estate can be broken down into two questions:

(1) Do I tell my heirs what I own (How much?)?

(2) Do I tell them why I made certain estate planning decisons (the Why)?

Regarding telling your heirs WHAT you own, there are two schools of thought. One school suggests that you NOT tell your heirs what you own because you don't want them to rely on a future inheritance and be less productive today. Or perhaps you don't tell them what you own because you plan to "spend their future inheritance."

Others, however, want their heirs to know what they own. Some parents feel it can be a good teaching moment when the children know how the parents saved and sacrificed to build an estate, and perhaps some of that can "rub off" on the children.

The bigger issue, however, is how you communicate the WHY of your decisions. If you don't communicate the WHY you made decisions, it leaves your heirs guessing, or wondering, why you did what you did.

During the estate planning process, you will be required to make many decisions. Some of the questions you will be required to answer include:

(1) Who will oversee the settling of your estate after you die (as either the "executor" or "trustee")?

(2) Who will handle your financial matters while you are alive but do not have the capacity to make your own financial decisions?

(3) Who will have the authority to make your medical decisions and access your medical records when you no longer can medical decisions for yourself?

(4) Why did you make the decision you did regarding life-sustaining procedures?

(5) If you left specific bequests to certain people, why?

(6) Regarding your grandchildren, either why or why not did you include or exclude them?

If you don't communicate your WHY, survivors are left guessing. You don't want them guessing.

So how do you communicate your WHY. Well, everyone is different. Some people communicate their WHY in a family meeting after the estate planning program is in place. Some people write a letter to their survivors explaining their WHY. Typically, it's not a good idea to expect the attorney to put your WHY in the formal legal documents.

So, you could either way regarding telling your heirs WHAT you own. But communicating your WHY, either during your lifetime, or in some communication you leave behind, can potentially keep their heirs calm and keep the survivors' relationships intact or even prosperous.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

The Amendable But Irrevocable Trust

Is it possible to amend, modify, or change the provisions of an irrevocable trust?

All trusts can be classified as either revocable or irrevocable. The #1 reason people create revocable trusts is to hold title to assets in a way that you keep total control but eliminate the attorney and court-involved probate process when you pass away. Quite a bit is written about using revocable living trusts to avoid probate, so that is not the topic of this post.

Irrevocable trusts, however, are created for many different reasons: avoid taxes, lawsuit protection, and nursing home protection, just to name a few.

The word "irrevocable" scares many consumers, but it may not need to. Someone can establish an "irrevocable" trust, yet reserve the right to modify certain terms of the trust after the trust is created.

Here's an example: Parent sets up a trust. Parent is referred to as the "Settlor." In the trust instrument, it states that "X" is the trustee of the trust. It further states that "Y" and "Z" are the principal beneficiaries of the trust. The trust states that the trustee may distribute principal to the principal beneficiaries during the lifetime of the Settlor. The trust instrument further provides that when the Settlor dies, the trustee shall terminate the trust and distribute the principal to the principal beneficiaries.

Then, the trust instrument further provides that the Settlor can replace the trustee, and the trust instrument also provides that the trustee can replace the principal beneficiaries. Now you have an irrevocable trust where the Settlor has expressly reserved the right to modify certain provisions of the trust, yet there are some provisions of the trust that the Settlor cannot, under any circumstances, modify.

Fueling this concern over the inflexibility of irrevocable trusts is the fact that back in the 1990's, most irrevocable trusts were set up to avoid the 55% estate tax on assets that exceeded $600,000 in value at death. Settlors of those irrevocable trusts almost never reserved the right to modify those trust provisions for fear that the "right to modify" would cause the trust assets to revert back to the estate of the Settlor.

But since we now have an $11.4 million estate tax exemption, and portability between spouses, married couples can exempt $22.8 million in assets from the estate tax. Moving assets out of the estate to avoid estate tax just isn't a concern any more.

Now, irrevocable trusts are established for a variety of reasons: yes, tax avoidance is one. But so is lawsuit protection, nursing home protection, and many other reasons. But you need to be very careful when you are attempting to take advantage of trusts and other legal strategies to gain these protections because the slightest alterations of wording can have adverse tax, creditor protection, and Medicaid eligibility consequences.

So, in summary, an irrevocable trust does not need to be as scary as it first sounds, due to the fact that you can reserve the right to modify certain provisions, but you will want to tread carefully.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Under What Circumstances Should You Give a Trustee the Discretion to Make Distributions to a Trust Beneficiary?

How much discretion should you give a trustee when you establish a trust for the benefit of one or more beneficiaries?

Trusts are set up for many different reasons. Sometimes people want to leave assets at their death to others, but they don't want the inheritors to receive the inheritance in one lump sum. Some people who leave an inheritance want to dictate what the inheritance is to be used for, and under what conditions they can receive it.

For example, let's say a grandparent wants to leave $150,000 to his grandchild. At the time that the grandparent is establishing his estate legal program through a Last Will or Living Trust, the grandchild is only six years old. So the grandparents is advised to leave the bequest in a trust for the benefit of the grandchild.

One decision the grandparent must make is who should be the trustee of this trust after the grandparent dies. Let's say the grandparent selects grandparent's child as the trustee.

And now the decision comes regarding when distributions can be made to or for the grandchild, from the trust, by the trustee.

When you establish a trust like this, you will make a decision regarding whether you want the trustee to have discretion or no discretion in making trust decisions.

If you choose to allow the trustee to exercise discretion in making distributions, you might include trust language that permits the trustee to make distributions to or for a beneficiary for the "health, education, maintenance, and support," of the beneficiary. This can work well when you have a trustee that you know will exercise that discretion in the best interests of the beneficiary. When you choose this option, you may believe that you don't know what future circumstances may bring, and you trust that the trustee will exercise their discretion in a manner consistent with your overall objectives. Perhaps you even communicate to your trustee during your lifetime how you would want the trustee to exercise their discretion.

On the other hand, you may wish to remove all discretion from the trustee, by providing something like, "I direct the trustee to distribute $1,500 monthly to the beneficiary until trust principal is gone."

Or, you might even get more restrictive by stating that the beneficiary must meet certain standards (GPA, no criminal activity, no drug use, etc.) before distributions can be made. However, the more restrictions you place in the trust, the more difficult it will be for a trustee to adapt to circumstances that may not have been able to have been contemplated at the time of the creation of the trust.

So, granting lots of trustee discretion allows a trustee to use their discretion in a manner that is consistent with your overall objectives, but it may create a situation where a beneficiary is badgering the trustee to exercise their discretion, so you'd need to designate a trustee that has the ability to say, "NO" to a beneficiary when appropriate.

Or, you may choose to eliminate trustee discretion by imposing specific restrictions in the trust that must be met for distributions to be made.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

If You Have a Revocable Living Trust, Then Why Do You Need a Last Will and Testament?

If you have a Revocable Living Trust, do you need a Last Will and Testament?

When someone dies with assets in their name, like real estate, or interests in a business, or investments, those assets will be frozen when they die, even if they have a Will disposing of them, and their survivors are stuck hiring lawyers and all will go through a court process commonly referred to as probate, or in Louisiana, a Succession.

Many people, in an effort to simplify their estate settlement and avoid the court process, often create a revocable living trust, and they transfer title of their assets to their trust while they are alive, so that when they pass away, the court process is avoided because assets in a trust bypass the whole “settle your estate through the court system” process. You simply designate a Successor Trustee of your trust who can immediately sell or disburse assets from your trust to your trust beneficiaries, all outside of government supervision.

Your trust replaces the Will because the trust instrument governs who gets what as it relates to trust assets.

But even if you establish your revocable living trust, you still need to have a Will just in case assets are in your name when you die. Maybe you left something out of trust. Perhaps you acquired an asset or account in your name after you established your trust, and you forgot to title it in the name of your trust.

Someone who utilizes a revocable living trust often has a last will that is often referred to as their “pour-over” Will because it pours over the assets in your name at your death to your trust. It is there only as a "catch-all" to cover assets that should have been, but were not for some reason, put in your trust before you died.

Now, your pour-over Will may never be used because everything you have either has a beneficiary designation, is titled in the name of your trust when you die, or survivors will somehow have access to the asset upon your death.

So, in summary, if you have a revocable living trust that is designed to avoid probate and provide for the distribution of your estate when you die, you’ll also have a Will, but your Will may never need to be used because the Will is there as a "catch-all" to allow for the transfer of assets that are in your name when you die and require a probate to access.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Why You Don't Need a Death Certificate to Begin the Louisiana Succession

Here's the typical situation: Survivors of the deceased wait to schedule something with the estate attorney until after the family receives the death certifcates - which always takes either weeks or months to come in. Finally, they sit down with the estate attorney, like myself, and say something like, "Well, before we get started, let me give you a death certificate because I know you will be needing this. Do you want an original or copy?"

Then, I respond to their dismay, "I don't need one."

Death certificates are not typically filed at the courthouse as part of the Louisiana Succession process. While the judge needs proof that the deceased actually died, along with information about whether they were married, where they lived, when the deceased died, and whether they had children, the judge does not need to see a death certificate. These facts are typically evidenced, or proven, by affidavits.

Typically, instead of filing death certificates at the courthouse, two people who have knowledge of the above mentioned facts each sign what is commonly referred to as an, "Affidavit of Death, Domicile, and Heirship."

The statement we often hear from survivors that "It won't do any good to see the attorney because we don't have death certificates yet," is inaccurate. Waiting weeks or months to get the death certificates is unnecessary waiting.

What do you need to get started on the Louisiana Probate (also known as "Succession")? You need the original Will, if one exists, and you need two people familiar with the family circumstances (such as a surviving spouse or adult children) to sign the appropriate Affidavits of Death, Domicile, and Heirship."

In addition, if you can compile a list of assets and debts of the deceased as of the date of death, that would be helpful, but this detailed information typically is needed later, not at the very beginning.

The family WILL need death certificates to, for example, have the executor open an estate account after the judge confirms the executor (or appoints an administrator). And after the judge signs the final Judgment of Possession, which orders third parties to transfer assets to heirs, the heirs will need a death certificate, with this Judgment, before the financial institution will release the funds or investments to the heirs listed in this Judgment.

Since delays are one of the main complaints about probate, it makes sense to meet with the attorney and get started on this process as soon as practical after the death of a loved one, rather than delaying until you receive death certificates, which can take weeks or months to arrive.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Dave Ramsey Says OK to Give Assets Away to Avoid Tax, But Not to Protect From Nursing Home

When seniors are either uninsurable for long term care insurance, or they make a conscious decision to avoid purchasing long term care insurance, they have a decision to make regarding potential future nursing home expenses.

And America disagrees with Dave Ramsey regarding his stance on paying for nursing home costs.

First of all, I like Dave Ramsey and his message regarding getting and staying out of debt. I also like his message about living within your means and saving for a rainy day. His message is contrary to the commercial messages people see and hear daily encouraging people to borrow and spend.

Dave Ramsey despises the estate tax. I'm sure Dave encourages all taxpayers to take advantage of tax laws like the mortgage interest deduction, the business expense deduction, and the charitable deduction to keep as much of their money in their pocket and send as little to the government for redistribution. Regarding the estate tax, I'm sure Ramsey would encourage people who are subject to the estate tax to give away as much as they can to avoid the 40% tax, and keep the family wealth "in the family."

But when it comes to nursing homes, Dave's advice is different. He suggests that you never take a penny out of your name, or re-title an account or an asset. He says if you have money you should spend it all on your care. Don't dare engage in any activity, even though it is permissible, to protect your estate from long term care costs, he says.

Here's an example. Let's say Couple A and Couple B live in the same street and all four individuals are 72 years old. Each couple has $460,000 in life savings, and each couple has a home worth $160,000. Annual nursing home costs in their state are $80,000 per person per year.

Couple A listens to Dave Ramsey and they keep everything in their name. Five years later, at age 77, both husband and wife enter a nursing home. They must spend their $460,000 in life savings on their care down to less than $3,000 - it takes them three years to do this because they are spending $160,000 per year. They then qualify for Medicaid. They live one more year in the nursing and they both pass away after residing in the nursing home for four years. After the die, Medicaid pursues its Estate Recovery rights, forces the sale of the home to reimburse Medicaid for the $160,000 of expenses it incurred. The family gets ZERO.

Couple B ignores Dave's advice and takes estate planning action to protect their savings and home. Five years later, at 77, Couple B enters the nursing home and qualifies for Medicaid. Four years later, just like Couple A, Couple B passes away. The children of Couple B now share the $640,000 of assets that Couple B had worked for, paid taxes on, and saved.

Dave Ramsey implies that what Couple B did was fraud. But it's fraud when, for example, you remove all of your assets from your name one month or one year before applying for Medicaid and you lie about it. But the government says it is permissible to engage in Medicaid planning, so long as you engage in it at least five years before applying for Medicaid.

I find it odd that Dave Ramsey would encourage people to take advantage of all tax deductions available to keep assets in the family while still taking advantage of the services the government has to offer, but don't dare move a penny of your assets in order to protect it from privately paying for nursing home costs - particularly when the government says it is ok to do so, as long as you follow their rules.

Again, I like Dave Ramsey's message on being debt-free and avoiding debt, but America does not think it is fair when those who carelessly spend everything get a 100% free ride for their long term care costs, while those who scrimp and save and accumulate a few hundred thousand dollars must get wiped out if they must reside in a nursing home.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450