Protect Your Estate

We're a Blended Family. We Don't Want Each Other's Kids Breathing Down our Necks When One of Us Dies

Estate planning for blended families has become the norm. It is common, these days, for a husband and wife to each have children from prior marriages or relationships. But couples with blended families who fail to put the right estate legal program in order is a recipe for disaster.

For prospective law firm clients who want to schedule a free 15 minute initial phone call with Paul Rabalais, go to: https://go.oncehub.com/Paul8

The conversation to me goes something like this, "Mr. Rabalais, we each have our own children. Right now, everything is ok...everybody gets along well. But I wasn't born yesterday. I know that when one of us dies, if we don't have our estate legal matters buttoned up just right, the kids of the first spouse to die will pounce on the surviving spouse like white on rice in an attempt to preserve their inheritance."

Louisiana law that applies in these circumstances is cumbersome at best. When a spouse is a blended family dies without a legal plan in place, the children of the deceased spouse can force the surviving spouse to purchase and post a bond that will protect the children's inheritance. And that's just for starters.

There are several components of the "intestate usufruct" that couples don't like: (1) the surviving spouse can't sell real estate or stock without the "permission" of the children of the first spouse to die. (2) If the surviving spouse is forced to spend assets over which she has usufruct, she still owes a debt to children of the 1st spouse to die for the full value of the usufruct. And (3) if the surviving spouse is not the parent of the children of the 1st spouse to die, the children of the 1st spouse to die can force the surviving spouse to post a bond to protect the interests of the children of the 1st spouse to die. These issues often wreck what was a delicate relationship to begin with.

There are number of legal strategies you can take advantage of in order for couples who are in a "blended family situation" to protect each other, but also protect the interests of the children.

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 the Louisiana Succession Doesn't Ever Get Done...And How to Make Sure Yours Does Get Done

Two reasons estates don't get settled are (1) the survivors are unaware of the need to complete the probate (in Louisiana we call it a "Succession"); and (2) at least one of the participants is not cooperative.

For prospective law firm clients who want to schedule a free 15 minute initial phone call with Paul Rabalais, go to: https://go.oncehub.com/Paul8

It is not uncommon for someone to pass away leaving survivors, and those survivors are unaware of the need to complete the probate of the deceased family member. For example, let's day Dad dies. Dad and Mom had purchased a home 35 years earlier. After Dad dies, Mom decides to continue living in their home. Mom has access to all of the joint bank accounts, and Mom was the designated beneficiary of Dad's IRA. She doesn't even think about seeing a lawyer to complete a Succession. Years later, Mom wants and needs to move into an assisted living facility. She decides to sell the home to help cover the expenses of moving and living in the assisted living facility. She puts the house up for sale, finds a buyer, and signs a purchase agreement. The buyer's title attorney conducts a title examination and discovers the home is still in the names of both Dad and Mom. The buyer's title attorney says, "No sale will take place until Dad's probate is complete!" So the sale is suspended, or perhaps worse, the buyer backs out of the sale.

We often see surviving family members unaware of the need to complete a Succession after their loved one dies. Perhaps the deceased owned a rental property and the family merely continued to collect rent from a tenant but never went through the Louisiana Succession to get the title transferred. Perhaps the deceased had owned a one-third undivided interest in family property, with her two siblings, and no one bothered to include that as a Succession asset after she died. Perhaps the deceased owned real estate out of state, and the Louisiana Succession does not transfer any of the real estate owned in the name of the Louisiana resident.

So there are many circumstances where surviving family members are unaware of the need to complete a Louisiana Succession after the death of a loved one. And when they finally uncover that need years later, it is more complicated because there is urgency, or perhaps an heir of the deceased passed away in the interim, making more probates necessary.

A second, and perhaps more frustrating, reason estates don't get settled, is when one or more of the participants is uncooperative. Neither the executor acting alone, or a majority of the heirs, can complete a Louisiana Succession by themselves.

In order to transfer assets of the decease to the heirs, a judge must sign a court order ordering third parties to transfer assets out of the name of the deceased, and into the names of the heirs. A judge will not sign the necessary court order until ALL OF THE PARTIES sign off on the petition requesting the judge to sign the order (this order is referred to as a "Judgment of Possession").

Sometimes a participant will refuse to sign the necessary paperwork - sometimes for valid reasons and sometimes for petty reasons. Nonetheless, one participant refusing to fully cooperation will stop an estate settlement in its tracks.

So what's the Solution? Twofold:

(1) On the planning side, particularly if you anticipate relationship issues among your heirs, establish an estate legal program to eliminate or minimize the potential for problems. Avoid probate. Put the right people in charge with the authority to get things done. Communicate your reasons exactly why you are doing what you are doing.

(2) Once a family member dies, make sure you have very quick and very open communication with all of the parties involved. This early and open communication will build trust among the parties, often eliminating discourse.

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 You Look at the Initial Legal Planning Expense AND the Estate Settlement Expense, Which Estate Planning Program is More Efficient: the Last Will Plan or the Revocable Living Trust Plan?

People often ask how much a will or a trust costs. In this post, we look at the overall financial involvement, from implementation until after death, of having a Last Will-based Legal Plan versus a Revocable Living Trust based Legal Program.

For most, there are two different ways you can leave your estate to your survivors - through your Last Will and Testament, or through your Revocable Living Trust.

It is generally less expensive to establish a Last Will based Estate Planning Program because with a Will Plan, you will leave all of your assets in your name. You won't need to re-title your home, your other property, your investments, or other assets into a trust's name. However, when you pass away, your assets will be frozen, and your executor and heirs must go through a court-supervised process to remove your name from your home, investments, and other "probate assets."

When you set up your revocable living trust, and re-title assets in your trust, you are arranging your affairs in such a way that your trust assets will not be frozen when you die. Your trustee, when you pass away, retains thet authority to access, manage, and transfer your trust assets to your trust beneficiaries in the manner you arranged in your trust instrument. In effect, your trust replaces your last will.

While there is generally more cash outlay up front for the legal services necessary to set up a trust versus a will, the overall cash outlay considering the two probates the family must go through when each spouse dies, typically far surpasses the outlay of setting up the living trust and avoiding the two probates.

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

Is Estate Planning Mainly For the Rich?

Is estate planning only for the rich? Do middle class folks really need to engage in estate protection or estate planning?

While there are dozens of reasons people engage in estate planning with estate planning lawyers, this post addresses who REALLY benefits the most from engaging the services of the right estate planning attorney. Let's look at three aspects of estate planning - taxes, probate, and long term care expenses - and see who gets whacked the most from failing to plan.

Let's say Rich and his wife have accumulated $8 million. They never engage in any estate planning because they are too busy sailing on their boat and travelling in the Caribbean. But as they age, they get sick and they spend a staggering $1 million on long term care expenses. Then, they die, and between all the probates in the various states (they own real estate in multiple states), their estate incur a total of $400,000 in probate cost. Still, their two children divide the remaining $6.6 million - each child walks away with $3.2 million - not too shabby.

Now, let's say Middle Class Max worked his tail off to pay off his $350,000 home and accumulated $700,000 in savings. They also neglect estate planning. Later in life, Max has a stroke, and Max's wife has dementia. They too spend $1,000,000 in long term care expenses. They spend their life savings of $700,000, and Medicaid pays the remaining $300,000. They are not forced to sell their home during their lifetime, but Medicaid pursues reimbursement of $300,000 from the estates through Medicaid's Estate Recovery Program. During the probates, the house is sold for $350,000, Medicaid is paid $300,000, and funeral and probate expenses wipe out the remaining $50,000. Middle Class Max's two children are left with zippo, $0, not a thing.

So you tell me, which family would have benefited more from engaging in estate planning the right way? Rich's family or Middle Class Max's family?

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

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

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

Five Reasons Louisiana Residents Take Advantage of the Legal Services of an Estate Planning Attorney

The following are five reasons that Louisiana residents (and anyone for that matter) take advantage of the services of an estate planning lawyer:

1. Protect your Children's Inheritance from Their Divorces. Yes, the moment your children inherit from you, the inheritance is separate property. But if they commingle the inheritance (accidentally or intentionally), the inheritance becomes community property. Then, when your child later divorces, your child loses half the inheritance. You can proactively take legal steps to ensure that your child's inheritance will always be your child's inheritance.

2. Avoid Probate. When you leave assets to your survivors through your Last Will and Testament, your survivors will be required to hire attorneys and go through what many perceive to be an expensive, time-consuming, and inefficient court-supervised probate/Succession procedure to gain access to your estate assets. You can proactively arrange an estate legal program to enable your loved ones to receive your estate without having to be burdened by these court procedures.

3. Protect Assets from Long Term Care Costs. If you must enter a nursing home with assets in your name, you will be forced to deplete those assets on your long term care expenses until you are left with less than $2,000 in your name. You can take actions ahead of time to protect them but stay in control of them. This is a huge problem for the middle class that most don't address until it's too late.

4. Put the Right People in Charge. Absent your direction, a judge will select someone to handle your finances, make your medical decisions, and oversee the distribution of your estate. You will want to control who makes the decisions when you are no longer able to make them for yourself.

5. Avoid Taxes. Most estates avoid the 40% estate tax, but virtually every family faces income and capital gains tax consequences when family assets are transitioned from one generation to the next. You can be proactive and minimize these tax burdens for your family.

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

How to Keep Your Farm or "Family Property" in the Family for Future Generations

Many parents who have both children and grandchildren want to keep some of the property that they own so that their kids and grandkids can enjoy the property for many years to come. Perhaps the parents have seen how much their kids and grandkids enjoy the property.

However, when parents pass away and their property is left to children, property rules apply that may conflict with what the parents are trying to accomplish. Customizing the right legal program can ensure that one rogue descendant, or perhaps even the spouse of one child or grandchild, will not be able to mess up or destroy the family property that you'd want them all to enjoy.

First, let's look at some of the Louisiana laws that apply when multiple owners own real estate in Louisiana. Louisiana has a rule that states that no owner can be compelled to own property with another. When children inherit their parents' land, the children are considered "owners in indivision."

Anyone who owns an undivided interest in real estate in Louisiana, regardless of how big or small their ownership interest, can sell their ownership interest, or can force a "partition" of the property. The two kinds of partition are "partition in kind" and "partition by licitation."

When a piece of property is susceptible to being divided into lots, an owner can force a partition in kind whereby each owner would wind up with their own tract. Or, particularly if property is not susceptible to division into lots, an owner in indivision can force a sale of the property and the proceeds would be distributed to the co-owners in proportion to their ownership interest in the property.

Due to these rights that co-owners have, family property often gets sold eliminating future descedants from being able to enjoy the property.

Some owners of property think that by forming a limited liability company (LLC), the owners can keep the property in the family for generations. While owners of property should consider forming an LLC, and transferring their property to it, this is more of a "protection from lawsuits" vehicle than a "keep it in the family for generations" vehicle. Placing the property in an LLC and leaving membership interests in the LLC to your descendants won't prevent an owner/member from (1) selling or disposing of their LLC interest; (2) a member's creditor seizing their interest; or (3) giving or bequeathing their LLC membership interest to a non-family member.

These conversations about keeping property in the family for generations often turn toward creating a family trust. Parents would name a trustee or co-trustees (perhaps the "responsible" descendant") who will manage the trust assets for the benefit of all of the children and grandchildren. Backup trustees would need to be provided for since this trust may be in existence for many decades. Thanks to trust law, the descendants (trust beneficiaries) would not be permitted to sell, alienate, or mortgage, their interest in the trust, and the creditors of a beneficiary could not seize their interest in the trust.

Other issues to consider before pulling the trigger on something like this include the gift and estate tax, future Medicaid qualification, leaving funds to the trust to provide for ongoing management and expenses, and perhaps having the parents transfer the property (or their LLC which owns the property) to a revocable trust now (which trust would become irrevocable when the parents die) in order to avoid having the property go through a court-supervised probate proceeding when they pass away.

Every set of family circumstances is unique. You likely only have one "shot" to get it right. And the decisions that you make (or don't make) will affect your descendants for many, many years to come.

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

Use "Return of Transferred Resources" Rules To Qualify for Louisiana Long Term Care Medicaid

This post will help people who have a family member or loved one in a nursing home (or their loved one is about to enter a nursing home) and the family member or loved one has more than $70,000 of countable resources.

Most people think that if you enter a nursing home owning more than $2,000 of assets (other than your home and car), then you will be forced to spend all of those assets on your care until you deplete them down to less than $2,000. Nursing homes are expensive so the money gets depleted rapidly, preventing seniors from being able to leave an inheritance to their children or other loved ones.

But there is a particular legal strategy that can enable you to protect at least half of your countable resources, even if you don't take advantage of the strategy until you (or your loved one) are already in the nursing home as a private pay patient.

Let's use an example to describe how the Return of Transferred Resources provisions of the Louisiana Medicaid Eligibility Manual ("Medicaid Manual") can help one family save $100,000. Let's say Mom (who is not married) is entering the nursing home with a bank account balance of $200,000.

Now we must look at a couple of provisions of the Medicaid Manual. The first provision says, "Do not continue to count the uncompensated value of a transferred resource if the original resource is returned."

Another important provision states, "If only a part of the asset or its equivalent is returned, the penalty period is modified, but not eliminated."

In our example, let's say Mom donated $200,000 to Daughter just prior to Mom entering the nursing home. Mom then applies for Medicaid and gets denied due to the transfer of countable resources. Medicaid will assess a penalty period equal to 40 months ($200,000 transferred divided by $5,000 LA monthly private pay rate). The penalty period begins the month Mom is determined eligible for Medicaid except for the transfer of resources.

Next, Daughter returns to Mom $100,000 of the original $200,000 transferred. As a result, Medicaid will modify the penalty period from 40 months to 20 months. Now, Mom has $100,000 in Mom's account. Daughter has $100,000 in Daughter's account. And Mom's modified 20 month penalty period is underway. Mom uses the $100,000 in Mom's account to pay for her care during the 20 month penalty period.

At the end of the 20 month penalty period, Mom has less than $2,000 of countable resources, the penalty period expires, Medicaid starts covering Mom's nursing home expenses, and Daughter still has $100,000 in Daughter's account.

A few things to keep in mind. We are basing this on the Louisiana Medicaid Eligibility rules. If you live in another state, find out what your state's rules are on the return of transferred resources. Second, DON'T TRY THIS AT HOME. Complications result through the Medicaid Application process, the many transactions that take place, and the providing of appropriate financial institution documentation to Medicaid and other third parties. Get good help. One false move and you could do more harm than good.

Also, the family members that play a role in this must be 100% cooperative and supportive. It does not good if they turn around and spend all of the money on themselves.

So, what should you do? Call our office and say you'd like to find out of t he "Transfer and Return" strategy can help your family protect assets. We'll look at your situation and determine whether this would be worthwhile to take advantage of.

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

Designating Your Spouse versus a Trust for your Spouse as Beneficiary of your IRA

A common estate planning principle communicated by spouses who have children from prior marriages and relationships is, “If I predecease my spouse, I want my assets to be available for my surviving spouse’s needs, but when my surviving spouse dies, I want my assets to revert back to MY children.”

This can get complicated when the estate consists of Traditional IRAs, as many estates do. Let’s take the example of a Husband and Wife who each have two children. When H dies, his IRA is worth $1,000,000. In the year after Husband dies, Wife is 80 years old.  

When it comes to income tax planning and IRAs, most recommend to keep the IRA balance as large as possible, allowing an IRA owner to earn investment income on deferred income taxes. 

In this post we will discuss two strategies: (1) Naming the surviving spouse as the designated beneficiary of Husband’s IRA; and (2) Naming a trust (for the benefit of the spouse) as the beneficiary of Husband’s IRA. 

When a surviving spouse is the designated beneficiary of an IRA, the surviving spouse’s ability to roll over inherited benefits to her own IRA gives her a powerful tax-deferring option, not available to any other IRA beneficiaries. If the surviving spouse holds the IRA as an owner, her Required Minimum Distributions (RMDs) are determined using the Uniform Lifetime Table under which her Applicable Distribution Period (ADP) is the joint life expectancy of the surviving spouse and a hypothetical 10-years-younger beneficiary. If she withdraws only the RMDs under the Uniform Lifetime Table, the IRA is guaranteed to outlive the surviving spouse. And it’s likely that the IRA will be worth more in the surviving spouse’s late 80’s than it was when she inherited it at age 80. 

Let’s look at some numbers. Since Wife can use the Uniform Lifetime Table, her first required distribution the year after Husband dies (assuming a $1,000,000 IRA value) is $53,500 (5.35% of the IRA value). The next year her RMD is 5.59%. And the next year, 5.85%. If the investment performance of the IRA exceeds these distribution percentages, and she only takes the RMDs, the IRA will grow.  

The downside, however, is that since Wife is treated as the owner of the IRA, Wife can name whoever she wants as the beneficiary of beneficiaries of her IRA. She could exclude Husband’s children by naming Wife’s children, or perhaps even Wife’s new spouse that she married after Husband died! 

So instead of naming Wife as the designated beneficiary of Husband’s IRA, Husband considers naming a trust for Wife as beneficiary. The trust instrument might provide that RMDs go to Wife for her lifetime, but when Wife subsequently dies, trust assets revert back to Husband’s children. But since a trust was named as the beneficiary of Husband’s IRA, even if the trust qualifies as a “see-through” trust, RMDs after Husband dies will be based on the single life expectancy of the surviving spouse (Wife) which results in substantially less income tax deferral than would be available if the surviving spouse were named as the outright beneficiary and rolled over the benefits into her own IRA. 

Let’s look back at the numbers. If a trust for Wife is named as beneficiary of Husband’s IRA, the first RMD when Wife is 80 (based on the same $1,000,000 IRA) will be $98,000 (9.8% of the IRA value). At age 81, the RMD will exceed 10% of the account value. And each year, the percentage will increase. If Wife lives long enough after Husband dies, the RMDs based on the required single life expectancy table will cause most of the benefits to be distributed to Wife outright which will defeat the purpose of trying to protect those IRA assets for Husband’s children. 

So keep in mind that there are tradeoffs when it comes to naming beneficiaries of IRAs.

Medicaid Eligibility: What If You Transfer Assets, And Then Transfer Additional Assets Later?

We get asked the following question often: "What if I make a transfer out of my name to other individuals, or to a trust, and then I transfer additional assets out of my name at a later date? Which of these assets will be protected? How will this affect my long term care Medicaid application or eligibility?

One of the biggest threats to a person's estate is that they will be forced to deplete their estate while they are alive due to long term care expenses, and then the state will exercise it's estate recovery rights when they die so that the children or other heirs will not be able to inherit the family home.

Many people transfer assets to individuals or certain kinds of trusts while they are alive in an attempt to "protect" those assets from nursing home expenses. However, the complicated Medicaid eligibility rules make it difficult for people to take the actions they want or need to take to protect their estate.

One area that causes a great deal of confusion is when an individual makes multiple transfers at different times. Let's take an example: Let's say Joan transfers assets having a value of $400,000 on January 1, 2016. Then, on January 1, 2020, Joan transfers an additional $50,000. Then, on March 1, 2021, Joan moves into the nursing home and applies for Louisiana Long Term Care Medicaid. The following is the analysis that takes place.

An inquiry will be made to determine whether Joan had transferred any resources in the previous five years. The only resource transferred in the previous 5 years was the $50,000 transfer on 1/1/20. Since a transfer had taken place in the previous 5 years, a transfer of resources penalty period must be determined. In order to determine the penalty period, one must divide the value of the resource transferred ($50,000) by the average monthly private pay rate (determined to be $5,000), rendering Joan ineligible for Medicaid for 10 months beginning with 3/1/21 (the date of Medicaid application and otherwise eligible except for the transfer).

Many people, once they realize the application of the rules to the multiple transfers will conclude that the $400,000 is protected but the $50,000 is not.

So, what should Joan do? One option is to have the $50,000 returned to her and spend that prior to Medicaid application. The Louisiana Long Term Care Medicaid Manual provides that the uncompensated value of a transferred resource is not counted if the original resource is returned.

Or, Joan could apply for Medicaid, get denied originally, and then be eligible for Medicaid 10 months later. Or, she could go through the complicated and often mis-understood process of applying, getting denied, and then returning part of the resources to reduce the penalty period, pursuant to the rule which states that if only part of the asset or its equivalent value is returned, the penalty period is modified but not eliminated.

None of these legal strategies should be attempted by the lay person who does not have an excellent working knowledge of the Medicaid Eligibility Manual. The key in protecting your estate is to start early, work with the right people, and get it right the first time. One mistake could make things really difficult for your spouse, children, and grandchildren.

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

Protect IRA From Nursing Home: Medicaid Planning

Often, when an individual enters a nursing home, a determination is made regarding whether they will be a private pay patient or a Medicaid recipient while in the nursing home. One part of the Medicaid application process revolves around the Medicaid applicants assets.

An individual often owns exempt assets and countable resources. Common exempt assets include a home and one vehicle. Countable resources include most other assets, including bank accounts, stocks and bonds, non-home real estate, and LLC interests.

The question often comes up as to whether an Individual Retirement Account (IRA) is a countable resource.

The Louisiana Medicaid Eligibility Manual provides, in pertinent part, "Count funds in an IRA as a countable resource."

When people pre-plan for a future Long Term Care Medicaid eligibility, they often transfer title to their assets to either other individuals or to certain types of trusts. While it is fairly simple to transfer title of real estate, investment accounts, and most other assets, it is not possible to transfer ownership of an IRA to others or to a trust.

Some people consider taking a large distribution from their IRA, paying the taxes, and then protecting the after tax proceeds, but this often requires the IRA owner to pay a huge income tax bill and most people don't want to do that  - I don't blame them.

We often tell people that while you are fortunate to have an IRA, you are kind of "stuck" with it for nursing home purposes.

But know that strategies exist to protect the funds in your traditional or Roth IRA, but most of those strategies require that you plan years in advance of entering a nursing home - so it's critical that you get armed with the possibilities and take sufficient action to protect those funds.

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

How To Keep Your Sons-In-Law and Daughters-In-Law Out of Your Estate

It's common for parents to want to keep their sons-in-law and daughters-in law out of their estate, for a variety of reasons. Common reasons include the fact that the in-law spends too much money; the in-law has their own kids; the in-law will inherit from their own parents and grandparents; some parents want to keep everything in the "bloodlines" because they inherited from parents and grandparents; others just don't like their in-laws; and others fear that their children will get divorced in the future and lose their inheritance.

Parents have several options when establishing an estate legal program. One option is simply leave the inheritance to the child - outright. Some parents reason that an inheritance is the separate property of the child so that should take care of it. However, inheritances that children receive are often, either intentionally or unintentionally, commingled with community property causing the inheritance to lose its separate property status.

A second option parents have is to leave their child's inheritance to a trust for the benefit of the child. If the parents name the child as the trustee, the child's spouse could exert influence over the child and force the child to take excessive distributions from the trust. But some parents tell me, "Let's leave it to a trust for our child and name our child as the trustee. If our child screws it up, so be it. We did what we could do to try to protect him without taking away his access to his inheritance."

A third option is to leave your child's inheritance to a trust, but name a 3rd party as the trustee of the trust - in essence restricting your child's access to his or her inheritance. By restricting your child's access to the trust, your are restricting your child's spouse from influencing your child to access the trust. You may even wish to name your child's children as the principal beneficiaries of the trust so that when your child later passes away, remaining trust assets would stay in the bloodlines benefiting your grandchildren. Your child's withdrawal or distribution rights become key components to this program.

There are many factors that play into how you leave an inheritance to your children. You must factor in the Louisiana community property law, the Louisiana Trust Code, laws which state that fruits of separate property are community property, family law, marriage contract law, and laws allowing spouses to sign a Declaration reserving the fruits of separate property as separate property.

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

Four Key Medicaid Rules Regarding Bank Accounts as Countable Resources

Many indviduals, couples, and families are concerned that a nursing home stay will cause them to deplete their life savnigs, and force them to lose their home to the State of Louisiana when they die due to the State's Estate Recovery Rights.

While it is important to take advantage of legal strategies to protect your estate from nursing home poverty at least five years before you wind up in a nursing home, it's also important to understand what you can and cannot own at the time one goes into a nursing home and applies for Louisiana Long Term Care Medicaid.

A single person can have no more than $2,000 of Countable Resources when they apply for Louisiana Long Term Care Medicaid. Bank accounts are a Countable Resource. This post takes a closer look at four key Medicaid rules regarding bank accounts as a Countable Resource for purposes of Louisiana Long Term Care Medicaid.

(1) 1st Day of Month. Medicaid counts the balance shown by your bank for the first moment of the first day of the month. Be prepared to furnish banking records.

(2) Encumbrances Deducted From Bank Balance. If you have written a check for a legal obligation, and that check has not cleared by the first moment of the first day of the month, the encumbrance may be deducted from the actual bank balance.

(3) Unrestricted Access ("or") Accounts. The Medicaid applicant is presumed to be the owner of all funds held in an "or" account.

(4) Rebutting the Presumption for an "or" Account. If the Medicaid applicant is not the owner of funds in an "or" account, the applicant can rebut the presumption of ownership by providing written and corroborating statements regarding ownership, withdrawals, and deposits, along with a change in account title or the establishment of a new account with only the Medicaid applicant's funds.

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