One of the biggest decisions you must make in structuring your estate plan a good five years before your perceived timing of prolonged medical care — as in three months of hospital and rehabilitation care, or long-term skilled nursing care, or the co-payment of the balance on the portion Medicare will pay when you turn 65 years old — is whether you should apply for Medi-Cal.
If you’re indigent, you need not worry. But if you plan to make yourself indigent in order to apply for Medi-Cal, then this is serious business.
Medi-Cal has a five-year “look-back’’ to make certain you didn’t give your wealth away in questionable transactions to siblings, friends, trusts or the wrong kind of irrevocable trust in order to make your estate indigent. The application form is a test of your time, diligence and bookkeeping abilities just to get your foot in the door. Any and every transaction in the past five years must be verified on both ends to make certain of its legitimacy. Then you must reapply every year in a shorter form, but usually face to face with your case worker.
If your application isn’t verified, you will be penalized by a formula based on how much money you gave away (which was not exempt) in order to get your estate down to the $2,000 minimum in liquid assets. The penalty is the amount of time you will remain ineligible before you are able to reapply for Med-Cal. It may be months or years, which means you are almost certain to be indigent by the time you are eligible — given the cost of surgeries and skilled medical care.
Why would someone plan to become indigent? The simple answer in the general case is that at 65 years old (some choose 62), you begin to draw Social Security benefits based on the amount of money and years you paid into the program. With this monthly financial stipend, you automatically can sign up for the federal Medicare health insurance benefits. If you had very poor insurance coverage, or no coverage at all, Medicare will greatly reduce the cost of your health care — but it doesn’t pay for it all. There is a long range of co-pays for which you are personally responsible to pay. But if you also have Medi-Cal, it will cover the co-pay for you.
California’s system of comprehensive medical coverage is different from any other Medicaid coverage in the other states. Unfortunately, there aren’t counselors standing in line to help the elderly understand what they should do because it is so complicated in its conflicts with many of the benefits from Medicare that you could do more harm than good in some cases. Medi-Cal is not for everyone, and it would be ill-advised to recommend it. The application takes initiative — and sometimes it’s too late.
Medicare is an offspring of the Social Security Administration and intertwines with that agency so much that if you did start receiving benefits at 62, you automatically become entitled to the health insurance program at age 65. Medicare provides some — but not all — the benefits you may need to pay for a $500-a-night stay in the hospital, particularly longer than 100 days. That’s why there is Medi-Cal.
As for Medicare, if you postpone signing up for Medicare when you’re 65, and continue to work and stay with your employer’s health-care plan, you have made your eligibility options for Medicare when you do retire much more complicated and limited. You can’t just sign up when you feel like it. There are deadlines that must be met. If you want the least hassle, apply during the seven-month enrollment period beginning three months before your birthday month and three months after — giving you seven months.
But you must be aware of what you’re getting from Medicare. It’s broken down into four parts. Part A covers hospitalization for free for those age 65 or older, before the co-pay. Part B covers doctor visits and other forms of outpatient care, but this is based on specific needs and the environment in which you live. You can be certain that it will not be sufficient to cover all of your costs. It keeps skilled nursing and home caregiver hours to an absolute minimum. After that, you either pay for it yourself, which is impossible if you have only $2,000, you have insurance to pay for it or you’re taken to a home from which your chances of returning to your own home are very slim.
Part C is an individual “Advantage” plan from Medicare that A and B don’t cover and for which the individual pays a premium. If you can work that out while being on Medi-Cal, you have accomplished more than most people can do; and Part D, etc.
Generally speaking, medical expenses for nearly all seniors in California are covered by Medicare, supplemental insurance, HMOs, veterans benefits, Medi-Cal and any combination of those. You can file for Medicare and be eligible for the benefits, even if you’re still working and even if you’re not collecting Social Security.
Medi-Cal is a combined federal and state program that pays for health care and long-term care for eligible low-income citizens and legal residents of the United States. Some people receive both Medicare and Medi-Cal; many do not.
Whatever the case for you or those you love, winding through the maze of limitations and benefits needs more than a treasure map. You need an attorney trained by the National Academy of Elder Law Attorneys, the National Elder Law Foundation or a California State Bar specialist in estate planning and probate in the Elder Law Section.
— No opinion herein is a “marketed opinion” and no information provided herein can be used to avoid tax penalties for which the taxpayer would otherwise be responsible. I have lived in Santa Barbara for more than 30 years and practiced law here for 25 years. My book, Estate Planning: The Heroes Way for Baby Boomers, can be purchased via my Web site, www.MarkCornwall.com; Amazon.com; or locally at Chaucer’s and Borders bookstores. To schedule an appointment, contact me at mark@babyboomerpublishing.com or 805-845-7558.
Wednesday, July 28, 2010
Wednesday, July 21, 2010
Estate Planning Preferable to the Crisis Before Dying
The difference between the theory of estate planning well in advance and the reality of dealing with a mother, father, sister, brother or child dying can’t be measured in money or emotion. It’s not until you have to put that plan into effect that you begin to understand its absolute necessity.
The only thing worse is to get to those days of a sudden emergency that eventually causes a death only to find out that the estate plan isn’t valid, either because it doesn’t represent the person’s last wishes or because events have changed in the life of the trustee/testator that makes the old revocable trust or last will and testament invalid.
This not only would cause you to revoke the old revocable trust and transfer the real estate in that trust back to the original trustee, but then to create a new revocable trust or will while the trustee/testator is still alive and competent — making sure it is accomplished before the trustor/trustee dies.
This requires extraordinary haste in drawing up the legalities necessary to perform this documentary feat, which means it’s never going to be cheap — unless someone in the family is an estate planning attorney. It begins with the durable power of attorney to manage personal financial affairs meant to aid those who can’t make it to the bank.
As we have discussed, if the bank doesn’t know you, it will only provoke an argument as to what the trustor wants done. Normally the resolve can end with the bank manager who has personally heard it from the trustor’s mouth. But some banks, such as the Bank of America in one known incident, will give you only the fax number to their legal department to send the document and letter of explanation, and you don’t get called back without more diligence until weeks later.
But putting the legal documents aside, the even bigger challenge is having to deal with the social services such as Social Security, Medicare and Medi-Cal, which hopefully have been put in place, and will be if the patient is 65 years old or older.
Those first two federal agencies are a godsend when it comes to the aid of the exorbitant cost of getting your loved one the vital surgeries that must be performed immediately to save the patient’s life. There will be no three weeks to wait for Anthem Blue Shield to give the OK, presuming the patient is lucky enough to have insurance.
If the patient is in the hospital longer than 72 hours, Medicare also will help pick up a portion of the tab for 24-hour health care at the rehabilitation center. But the margin on the balances of the medical bills during this period, which can be months, are expected to be paid by the patient —or, depending on their financial status, it will have to come from your pocket.
However, there is the third resource, Medi-Cal, if the patient is indigent, meaning he doesn’t have more than $2,000 in cash or doesn’t have private insurance to pick up the “co-pay” after Medicare has paid its share of the medical cost.
Medi-Cal is California’s version of the federal Medicaid program, and it must be approached very cautiously because California’s rule and regulations as to which applicants can qualify for benefits conflicts with many of the rules regarding Social Security’s Medicare. In many cases, it will turn out that you can’t qualify for both. If you have planned ahead and do qualify for both, then you have the best insurance available.
But for many who could use it, the mere filling out of the application for medical insurance is so daunting a task, fraught with the requirement of verifying every asset regarding its cost and value, along with filling out the statement of facts by stating just the right things, that clients would rather get an ulcer over starving to death than getting one filling out the application form for Medi-Cal.
This short article is not capable of walking a reader through the complications and review system that is required every year. The best advice is to plan this insurance resource well in advance of the five-year “look-back” by the agency at the time the application is filed to determine when you would be eligible.
Other than that, keep living a healthy lifestyle of exercise and nutrition, and good luck.
The only thing worse is to get to those days of a sudden emergency that eventually causes a death only to find out that the estate plan isn’t valid, either because it doesn’t represent the person’s last wishes or because events have changed in the life of the trustee/testator that makes the old revocable trust or last will and testament invalid.
This not only would cause you to revoke the old revocable trust and transfer the real estate in that trust back to the original trustee, but then to create a new revocable trust or will while the trustee/testator is still alive and competent — making sure it is accomplished before the trustor/trustee dies.
This requires extraordinary haste in drawing up the legalities necessary to perform this documentary feat, which means it’s never going to be cheap — unless someone in the family is an estate planning attorney. It begins with the durable power of attorney to manage personal financial affairs meant to aid those who can’t make it to the bank.
As we have discussed, if the bank doesn’t know you, it will only provoke an argument as to what the trustor wants done. Normally the resolve can end with the bank manager who has personally heard it from the trustor’s mouth. But some banks, such as the Bank of America in one known incident, will give you only the fax number to their legal department to send the document and letter of explanation, and you don’t get called back without more diligence until weeks later.
But putting the legal documents aside, the even bigger challenge is having to deal with the social services such as Social Security, Medicare and Medi-Cal, which hopefully have been put in place, and will be if the patient is 65 years old or older.
Those first two federal agencies are a godsend when it comes to the aid of the exorbitant cost of getting your loved one the vital surgeries that must be performed immediately to save the patient’s life. There will be no three weeks to wait for Anthem Blue Shield to give the OK, presuming the patient is lucky enough to have insurance.
If the patient is in the hospital longer than 72 hours, Medicare also will help pick up a portion of the tab for 24-hour health care at the rehabilitation center. But the margin on the balances of the medical bills during this period, which can be months, are expected to be paid by the patient —or, depending on their financial status, it will have to come from your pocket.
However, there is the third resource, Medi-Cal, if the patient is indigent, meaning he doesn’t have more than $2,000 in cash or doesn’t have private insurance to pick up the “co-pay” after Medicare has paid its share of the medical cost.
Medi-Cal is California’s version of the federal Medicaid program, and it must be approached very cautiously because California’s rule and regulations as to which applicants can qualify for benefits conflicts with many of the rules regarding Social Security’s Medicare. In many cases, it will turn out that you can’t qualify for both. If you have planned ahead and do qualify for both, then you have the best insurance available.
But for many who could use it, the mere filling out of the application for medical insurance is so daunting a task, fraught with the requirement of verifying every asset regarding its cost and value, along with filling out the statement of facts by stating just the right things, that clients would rather get an ulcer over starving to death than getting one filling out the application form for Medi-Cal.
This short article is not capable of walking a reader through the complications and review system that is required every year. The best advice is to plan this insurance resource well in advance of the five-year “look-back” by the agency at the time the application is filed to determine when you would be eligible.
Other than that, keep living a healthy lifestyle of exercise and nutrition, and good luck.
Wednesday, July 14, 2010
Planning Pays Off When Leaving Money to Children
Strangely enough, last week’s column — which reveled in the fulfillment of those who are able to reconcile their sibling rivalry before they die — nevertheless prompted a number of calls from potential clients who are unable to reconcile the rivalry with their brothers or sisters.
Each of them had a story based on alleged fraud and deceit regarding the handling of their parents’ revocable trusts.
In every case, the theme was that an older or younger sibling had somehow gained control over the disbursement of funds in the trust in an attempt to cut a brother or sister out of the percent of the assets they were apparently due under the trust. These children had not reached that epiphany of realizing the only thing that matters when you near the pearly gates are those family members and others you love and who support you. Apparently that requires laying on your death bed.
But when it comes to the sibling rivalry after the parents are gone, it doesn’t so easily come to a halt. In fact, it grows worse because the siblings left behind still believe that money is more important than loving the sister you never got along with during the past 20 years. These cases are resolved only through litigation or arbitration.
However, this type of unforeseen rivalry can be easily avoidable by putting enough thought into your revocable trust during the course of your estate planning.
As for leaving money to children, there is much to take into consideration depending on the age and temperament of the child. The older you get, the more outrageous it seems to leave a large sum of money to an 18-year-old.
It is commonly recommended that a trust be used to stagger payments, possibly at ages 23, 26 and 30. The expectation is that at 23 your son will want to buy a Porsche, at 26 he will have graduated college, and at 30 he will have settled down and knows what he wants to do in life. For others, the ages of 20, 30 and 40 sound more appropriate.
Yet some parents may want to provide for their children’s education and then leave the rest of the money to charity. This is easily accomplished through a wonderful tax-saving device known as a charitable remainder unitrust (CRUT).
A CRUT is very flexible and will allow you to — among other things — sell stocks with a very low tax basis at a very high price, and not pay any capital gains taxes on the appreciation of the stock. It works the same for highly appreciated real estate. As you will see, whether used to pay for the education of your children, or to provide a percentage of the income to you for retirement, a CRUT is a valuable tool in estate planning. (See Chapter 16 of my book for more details on CRUTs).
The normal prerequisite of a trust for children is that it protects the corpus (that amount of money in the trust) from them — thus the name “spendthrift trusts.”
Another way of helping young adults manage money, rather than keeping it from them or forcing it on them, is to allow them to withdraw money from the trust as they believe they need it. This essentially allows them to be their own trustee without the responsibility of managing the entire sum of money in the trust.
Another way to manage children’s money is to establish a family pot trust that can be distributed to each child in accordance with his or her needs, according to the trustee’s discretion or by the terms in the trust. Another way is a minor’s trust, and yet another is a custodial account — and there are more.
Therefore, as you can imagine, there are many ways to plan your child’s inheritance. Most parents are afraid a trust may be a distraction for a young person. They believe it might rob the children of their incentive to go out in the world and do well. More than one child has been lured away from college or taken up a life of drugs because the easy money was there with no conditions required before getting the money.
These concerns can be relieved by language in the trust that stops money when the child is not enrolled in college full time, fails to maintain a certain grade point average, gets arrested more than once or violates some other standard of conduct that was outlined in the trust.
Each of them had a story based on alleged fraud and deceit regarding the handling of their parents’ revocable trusts.
In every case, the theme was that an older or younger sibling had somehow gained control over the disbursement of funds in the trust in an attempt to cut a brother or sister out of the percent of the assets they were apparently due under the trust. These children had not reached that epiphany of realizing the only thing that matters when you near the pearly gates are those family members and others you love and who support you. Apparently that requires laying on your death bed.
But when it comes to the sibling rivalry after the parents are gone, it doesn’t so easily come to a halt. In fact, it grows worse because the siblings left behind still believe that money is more important than loving the sister you never got along with during the past 20 years. These cases are resolved only through litigation or arbitration.
However, this type of unforeseen rivalry can be easily avoidable by putting enough thought into your revocable trust during the course of your estate planning.
As for leaving money to children, there is much to take into consideration depending on the age and temperament of the child. The older you get, the more outrageous it seems to leave a large sum of money to an 18-year-old.
It is commonly recommended that a trust be used to stagger payments, possibly at ages 23, 26 and 30. The expectation is that at 23 your son will want to buy a Porsche, at 26 he will have graduated college, and at 30 he will have settled down and knows what he wants to do in life. For others, the ages of 20, 30 and 40 sound more appropriate.
Yet some parents may want to provide for their children’s education and then leave the rest of the money to charity. This is easily accomplished through a wonderful tax-saving device known as a charitable remainder unitrust (CRUT).
A CRUT is very flexible and will allow you to — among other things — sell stocks with a very low tax basis at a very high price, and not pay any capital gains taxes on the appreciation of the stock. It works the same for highly appreciated real estate. As you will see, whether used to pay for the education of your children, or to provide a percentage of the income to you for retirement, a CRUT is a valuable tool in estate planning. (See Chapter 16 of my book for more details on CRUTs).
The normal prerequisite of a trust for children is that it protects the corpus (that amount of money in the trust) from them — thus the name “spendthrift trusts.”
Another way of helping young adults manage money, rather than keeping it from them or forcing it on them, is to allow them to withdraw money from the trust as they believe they need it. This essentially allows them to be their own trustee without the responsibility of managing the entire sum of money in the trust.
Another way to manage children’s money is to establish a family pot trust that can be distributed to each child in accordance with his or her needs, according to the trustee’s discretion or by the terms in the trust. Another way is a minor’s trust, and yet another is a custodial account — and there are more.
Therefore, as you can imagine, there are many ways to plan your child’s inheritance. Most parents are afraid a trust may be a distraction for a young person. They believe it might rob the children of their incentive to go out in the world and do well. More than one child has been lured away from college or taken up a life of drugs because the easy money was there with no conditions required before getting the money.
These concerns can be relieved by language in the trust that stops money when the child is not enrolled in college full time, fails to maintain a certain grade point average, gets arrested more than once or violates some other standard of conduct that was outlined in the trust.
Tuesday, July 6, 2010
Settling Sibling Rivalry
If you’re not currently involved in issues involving hatred, estrangements and petty jealousies among your siblings, you may find it hard to understand how a belt buckle could turn two loving brothers or sisters into squabbling enemies for years. But you should read about this problem anyway, in hopes of avoiding ever having it happen to you.
Actually, there are no problems in estate planning unless you’re trying to do something illegal. There are only solutions.
The solution as to whether it is prudent for one sibling to be named as the durable power of attorney for a sister or brother if one of them becomes mentally or physically incompetent is the issue we are exploring here. It is the same as asking whether a sibling should be named the “successor trustee” of his or her brother’s/sister’s revocable trust. The answer hopefully can be determined before the question of mental capacity of the trustor raises its ugly head and makes things more complicated, but sometimes it takes a crisis to get beyond the pettiness of relationships.
Are siblings the best person for that powerful position?
At first glance, if the older brother was 69 years old, unmarried with no adult children and had accumulated some wealth over his lifetime, most siblings would choose their 60-year-old younger brother to take over their financial affairs, especially if the younger brother had a proven reputation of business acumen. The ideal would be that because blood runs thicker than water, there would be no better person to trust and act in his brother’s best interest. At least that is the way it would be portrayed between Wally and Beaver Cleaver when they hit 69 and 60 years old.
But just as not every mom wore a string of pearls every day like June Cleaver, not every set of brothers or sisters were as close as Wally and the Beav. In fact, most siblings have as many things to fight about as they may have inside jokes they have laughed about over and over again as they grew up in the past 40 years.
The question in the twilight of the older brother’s years — when he begins an early onslaught of dementia and starts to forget more than he remembers, and his failure to remember makes him paranoid and distrustful of everyone — is, is it wise to put the younger brother between the older brother and his money? Wouldn’t it be wise to hire an attorney whose hands are codified by a code of ethics where upon breach of his duty he would lose his license to practice law and be civilly liable for damages? The attorney is, after all, trained to be “reasonably prudent” in all business dealings with the client’s money, which means “he must do whatever a reasonably prudent person would do under the same or similar circumstances.”
My response to this requirement is that if that is all it takes, then why can’t a reasonably prudent brother with perhaps more business experience than the attorney offer the same prerequisite — even more so because he cares deeply about being successful in bringing his brother’s last days into fruition as his brother had planned? The attorney, on the other hand, although he has a fiduciary relationship to his client, will necessarily keep his lawyer/client relationship at arm’s length. This is not only because it’s easier that way, but because it keeps the attorney from facing his own mortality, whereas the brother has no other choice.
Make no mistake: Once you bring Social Security, Medi-Cal and Medicare onto the scene, everything becomes complicated and far more personal than the hundreds of rules and regulations these agencies will reveal. It takes a lot of reading and talking to experts before you may understand the system — if ever — but there is no reason a reasonably intelligent sibling could not do a better job, if it was only because they had more at stake than money in the outcome.
But this is where there is strong resistance. If, at the time of crisis, two brothers were for some reason passionately estranged and had not talked for years, people who have not experienced the fulfillment of reconciliation between their siblings have difficulty believing it is genuine. They do not understand there is nothing more important than those people who love and support you in the end, and they do come back to do so for all the right reasons.
If you are alone and dying, suddenly houses, cars, money or anything else of material worth means nothing. If you are lucky enough (or perhaps unlucky in some cases) to be thinking straight when you believed you saw the pearly gates within sight about the time you believed or even wished that you were dying, can you imagine thinking of anything other than who you really loved? You will not be thinking about belt buckles. Forgiveness will be foremost on your mind, and that comes best served when it is not you having to ask for it.
Actually, there are no problems in estate planning unless you’re trying to do something illegal. There are only solutions.
The solution as to whether it is prudent for one sibling to be named as the durable power of attorney for a sister or brother if one of them becomes mentally or physically incompetent is the issue we are exploring here. It is the same as asking whether a sibling should be named the “successor trustee” of his or her brother’s/sister’s revocable trust. The answer hopefully can be determined before the question of mental capacity of the trustor raises its ugly head and makes things more complicated, but sometimes it takes a crisis to get beyond the pettiness of relationships.
Are siblings the best person for that powerful position?
At first glance, if the older brother was 69 years old, unmarried with no adult children and had accumulated some wealth over his lifetime, most siblings would choose their 60-year-old younger brother to take over their financial affairs, especially if the younger brother had a proven reputation of business acumen. The ideal would be that because blood runs thicker than water, there would be no better person to trust and act in his brother’s best interest. At least that is the way it would be portrayed between Wally and Beaver Cleaver when they hit 69 and 60 years old.
But just as not every mom wore a string of pearls every day like June Cleaver, not every set of brothers or sisters were as close as Wally and the Beav. In fact, most siblings have as many things to fight about as they may have inside jokes they have laughed about over and over again as they grew up in the past 40 years.
The question in the twilight of the older brother’s years — when he begins an early onslaught of dementia and starts to forget more than he remembers, and his failure to remember makes him paranoid and distrustful of everyone — is, is it wise to put the younger brother between the older brother and his money? Wouldn’t it be wise to hire an attorney whose hands are codified by a code of ethics where upon breach of his duty he would lose his license to practice law and be civilly liable for damages? The attorney is, after all, trained to be “reasonably prudent” in all business dealings with the client’s money, which means “he must do whatever a reasonably prudent person would do under the same or similar circumstances.”
My response to this requirement is that if that is all it takes, then why can’t a reasonably prudent brother with perhaps more business experience than the attorney offer the same prerequisite — even more so because he cares deeply about being successful in bringing his brother’s last days into fruition as his brother had planned? The attorney, on the other hand, although he has a fiduciary relationship to his client, will necessarily keep his lawyer/client relationship at arm’s length. This is not only because it’s easier that way, but because it keeps the attorney from facing his own mortality, whereas the brother has no other choice.
Make no mistake: Once you bring Social Security, Medi-Cal and Medicare onto the scene, everything becomes complicated and far more personal than the hundreds of rules and regulations these agencies will reveal. It takes a lot of reading and talking to experts before you may understand the system — if ever — but there is no reason a reasonably intelligent sibling could not do a better job, if it was only because they had more at stake than money in the outcome.
But this is where there is strong resistance. If, at the time of crisis, two brothers were for some reason passionately estranged and had not talked for years, people who have not experienced the fulfillment of reconciliation between their siblings have difficulty believing it is genuine. They do not understand there is nothing more important than those people who love and support you in the end, and they do come back to do so for all the right reasons.
If you are alone and dying, suddenly houses, cars, money or anything else of material worth means nothing. If you are lucky enough (or perhaps unlucky in some cases) to be thinking straight when you believed you saw the pearly gates within sight about the time you believed or even wished that you were dying, can you imagine thinking of anything other than who you really loved? You will not be thinking about belt buckles. Forgiveness will be foremost on your mind, and that comes best served when it is not you having to ask for it.
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