estate planning lawyer baton rouge

Pros and Cons of Leaving Everything to Your Spouse

When married couples engage in estate planning, one of the questions they often are required to answer is, "If I die before my spouse, do I want to leave complete ownership and control of my estate to my spouse?" Or, "Do I want to leave my estate to my spouse in a way that my children (or other heirs) are protected?"

Leaving all of your assets to your spouse is pretty easy to understand - when you die, your spouse owns everything. Maybe you are thinking that it is ok to leave everything to your spouse because you are confident that when your spouse dies, your spouse will leave it all to your kids. Or maybe you like the thought of leaving your estate to your spouse because your descendants circumstances may change after you die and you want your spouse to be able to leave the estate to your descendants the right way.

However, if you leave your estate to your spouse, your spouse "could" leave your estate to people other than your children, like your spouse's next spouse!

Some people want to leave their estate to their spouse in a way that their children or heirs are protected. The two common ways to do this are (1) in trust; and (2) via the Louisiana usufruct.

Leaving your estate to your spouse may be the best overall tax outcome, but it used to be the worst. In the old days, it did not make sense to leave your estate to your spouse because when you lumped your estate on top of your spouse's estate, it caused the spouse's estate to be subject to a 50% or more federal estate tax upon the death of the surviving spouse. But now, with an $11.4 million estate tax inclusion, and with portability (making it easier for married couples to exempt $22.8 million from the estate tax), rarely are couples penalized for leaving everything to each other.

The tax benefit that often results from leaving your estate to your spouse is that your heirs will benefit from a "double step up" in basis, for capital gains tax purposes. In community property states (like Louisiana) all community property gets a new stepped-up basis when the first spouse dies. And when you leave all of your assets to your spouse, all of the assets will get another step-up in basis when your spouse later dies. This can save considerable capital gains tax when assets are later sold, particularly if there is appreciation that occurs from the date of death of the first spouse to the date of death of the surviving spouse.

In addition, if you live in Louisiana, you are prohibited from leaving your entire estate to your spouse if you have forced heirs. Forced heirs are children of your that, at the time of your death, are 23 years of age or younger, or, are of any age but incapacitated.

Leaving assets to the surviving spouse is common for traditional families - one marriage and all children are from the one marriage. And if you really want to make it as simple as possible on your spouse when you pass away, consider establishing a revocable living trust and titling the appropriate assets in your trust. Assets in your living trust don't go through the court-supervised probate/Succession procedure, so having your assets in your living trust will prevent your spouse from having to hire lawyers and go through the courts just to get ownership of your assets after you die.

Other factors that are typically discussed when married couples engage in estate planning legal services include: who makes your decisions when you are incapable; protecting assets from long term care costs; and how will assets be managed and disbursed after both spouses pass away. These are all important components of any estate planning legal program.

Note also that if you have no legal plans in place, Louisiana laws won't do your spouse any favors. These laws will favor your descendants much more than your spouse.

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 Are Options That People Consider When Attempting To Protect Their Estate From Nursing Home Poverty?

I've talked to many Louisiana families about things that they had done in an effort to protect their money from all being sucked up by the nursing home costs which can exceed $100,000 annually. Lots of mistakes being made here by people who don't truly understand the intricacies of the Louisiana Long Term Care Medicaid law and regulations. While you won't get all the answers in this post, you'll learn what some of the common mistakes are. So...here are options that just don't work.

Do Nothing

Probably the worst thing that you can do if you want to protect your estate from being eaten up to nursing home costs is to ignore the problem.

Example. Nelda had her home worth $150,000 (no mortgage). She also owned accounts totaling $450,000 in value. Nelda procrastinated taking action to protect her estate from skilled care cost. A stroke caused Nelda to have to reside in a nursing facility. Nelda was forced to spend all of her $450,000 (until there was less than $2,000 remaining) before qualifying for Medicaid. When Nelda died, Medicaid pursued its Estate Recovery rights, forcing Nelda’s home to be paid to reimburse Medicaid for what it had spent on her nursing home care.

The people who protect their estate from nursing home costs typically are those who are proactively seek out the right information, at the right time, and work with the right people, and get it right the first time. Others risk losing everything they own.

Give It Away

Some people choose to give their assets away so that the assets will not be in their name when they get sick and apply for Medicaid.

People generally utilize one of two different gifting strategies when they attempt to help their financial situation by giving their assets away:

1.      Give $14,000 Away. Gift and estate tax laws provide that you can donate $14,000 to as many people as you want to without gift and estate tax consequences. Many people mistakenly interpret this as an income tax rule. Many mistakenly believe that either the donor or the recipient must pay income tax on gifts that exceed $14,000. Example: Dad gives Daughter $114,000. No one owes any income tax, but since the gift exceeded $14,000 (by $100,000) Dad has used up $100,000 of his $5.450,000 estate tax exemption. No one owes tax, but when Dad dies, he can “only” leave $5,350,000 free of the 40% estate tax. The problem, however, with making $14,000 annual gifts, from a Medicaid Planning standpoint, is that assets are not protected until five years after they are given away. So, giving it away in $14,000 increments does little good.

2.      Give Everything Away. Some people think that they will beat the government by putting all of their assets in their kids’ names. But his could be really dumb move for tax purposes. Example: Mom and Dad own a home that they bought 35 years ago for $30,000. Today, the home is worth $240,000. If Mom and Dad donate the home to the kids during Mom and Dad’s lifetime, then the kids will get Mom and Dad’s $30,000 “carry-over” capital gains tax basis. When the kids later sell the home, there could be an extra $60,000 or so of capital gains tax due. Plus, when Mom and Dad donate their home to their kids, Mom and Dad will lose their property tax homestead exemption. In addition, many parents that I talk to don’t like to give up the control over their assets that they give up when they put everything in their children’s names. Serious problems could result if the children die, go bankrupt, have IRS issues, get divorced, have spouses with bad spending habits, or if they can’t pay their debts. Don’t turn over everything you own to your kids.

Rely on Medicare To Pay Nursing Home Costs

While Medicare will pay for some of the nursing home costs for the first 100 days of rehabilitation if you had a prior hospital stay of at least three days, you must pay 100% of the remaining costs of the skilled nursing facility (unless you qualify for Medicaid).

Have a Last Will and Testament and Power of Attorney

If you think that somehow your last will and testament will help you avoid losing your home and life savings to nursing home poverty, then think again. A last will and testament (“Last Will”) names your executor who will administer the court proceeding when you die, and your Last Will tells a judge who to make sure remaining assets get disbursed to at the end of the court proceeding (“Probate”). But a Last Will does nothing to protect your estate from long term care costs.

Example. Mom had a Last Will prepared naming her daughter, Sue, as the executor. In her Last Will, Mom left her estate to her two children, Sue and Richard. Mom felt like she did all she needed to do to “protect her estate for her children.” Eight years after writing her Will, Mom went into a nursing home. Mom was forced to spend her entire life savings on her nursing home care. When Mom died, Sue, as the executor of Mom’s probate, was forced to sell Mom’s home on behalf of the estate and give all of the proceeds of the sale to Medicaid – leaving the children with nothing.

A common Last Will technique can get you in bigger trouble. Many married couples write Last Wills. Often, the Wills are structured so that the first spouse to die leaves all of his or her assets to the surviving spouse. Then, because all of the assets were lumped into the surviving spouse’s estate, the surviving spouse must deplete the entire family estate before getting any help from Medicaid. So, the “I Love You” Will leaving everything to your spouse can be a disaster.

Put Your Money In a Safe Deposit Box – Or In A Hole You Dig In The Back Yard

One of the questions on a Medicaid application asks where you have a safe deposit box and what is in the box. Documents of Proof that Medicaid says it may need from you includes, “A list of what is inside any safe-deposit box.  This must be a written statement by a bank employee or a sworn statement from someone who looked inside.”

Failing to disclose the necessary information on a Medicaid application is Medicaid Fraud. It’s easier to plan ahead, get the right information to enable you to protect your estate, and then take that action.

Some people mistakenly believe that if they “put their child’s name on their bank account,” then the bank account somehow is no longer a Countable Resource for Medicaid eligibility purposes. Wrong.