March 29, 2020










Estate Planning for New Parents

New parents have many things to think about. Is it a boy or a girl? How do we decorate the nursery? Day care or a nanny? Some of the most important questions, however, are put on the back burner because most new parents either choose not to discuss them or can’t come to any conclusions with their spouse.

Guardian

Perhaps the most important decision for a new parent is that of choosing a guardian for their children. His brother or her sister? My parents or yours? For some, choosing a guardian simple. Perhaps they only have 1 sibling (and they get along) or a close cousin or best friend. For others, however, the choose of a guardian can be agonizing. Whether it is because they do not know who to ask, don’t have anyone they trust or can’t agree with their spouse, often times, the inability to make a decision on a guardian is the #1 reason why new parents do not do wills.

This is a mistake. The reason it is a mistake is because of what will happen if they do nothing. In the absence of Last Will & Testament appointing a guardian for minor children, family members can fight for custody and/or visitation rights. They can fight for control of the child’s inheritance. If you thought that Thanksgiving with the entire family was awkward, wait to see what happens when everyone thinks they are the best choice to raise your children.

The best tip I can give to new parents is to make a decision. You need to sit down with your spouse and talk about what is best for your children. Many young parents will want to choose their parents as guardians. This may be your only choice, but consider the age of your parents and the physical demands of raising young children. Are your parents able to do it? If you must appoint your parents, be sure to also name a back up guardian – just in case something happens to your parents or they are unable to do it.

Minors Trust

A minors Trust is a provision in a will that allows parents to determine how their children will inherit. In the absence of a Minors Trust, a minor child will assume control of their inheritance at the age of 18. A minors trust allows a parent to set age milestones for when their children will have control.

Lets say that parents have two young children. The Wills can state that each child’s portion will be placed into a trust until the child reaches the age of 21. At that point 1/3 of the child’s inheritance will be given to him. The next third at 25 and the final 3rd at 30. These are only examples. A parent is free to choose the ages and percentages that they deem appropriate.

The money in the Trust, though not in the control of the child, can be used for their Health, Maintenance, Education and Support prior to the stipulated ages. Additionally, the parents name the Trustees of the money. The Trustee can be the same as the guardian, but there is no such requirement.

When choosing to include a Minors trust in your Will, be sure to organize your beneficiary designations properly. Keep in mind that if your children are named as a beneficiary of an investment account or life insurance policy, the proceeds of such will pass to them directly, outside the terms of the will and thus outside the terms of the Minors Trust.

Insurance

Life Insurance is a very important aspect the estate plan of new parents. Most young parents will buy Term Life Insurance. A term policy is a policy in effect for a term of years (15, 20, 30). The premiums are affordable because no cash value accumulates in the policy. The only purpose is to provide protection against the loss of income that would occur when a parent passes.

Policies should be purchased on the life of each parent, but perhaps not in equal amounts. If one spouse stays at home with the kids, a small policy is advisable because there is no income to replace. The only cost that would arise would be that of childcare. A larger policy should be purchased on the life of the income earner. When thinking of amounts, consider how much your spouse and children would need if they lost your income. Such factors include college, weddings, Bar and Bat Mitzvahs, mortgage on the house, cost of living and security.

If you are a soon to be new parent seek the advice of an Estate Attorney and/or financial advisor to discuss these important issues. Inaction can only harm your surviving spouse and children.

Estate Planning for those in 2nd Marriages in New York

For those in second marriages, Estate Planning can pose many different issues. This is because spouses may have to provide for their new spouse, their new spouse’s children, and their own children from the previous marriage. If you are marrying later in life and already have substantial assets, this can make the situation even more difficult and complex. One of the challenges will be to use those assets to ensure that a surviving spouse is financially secure during his or her lifetime, while preserving a sizable sum for the children from your first marriage.

With a second marriage, spouses may need to consider how long the second marriage has lasted and the financial situation of each spouse. In addition, a great deal of thought should go into what the children from the first marriage will receive if their parent is the first spouse from the new marriage to pass away. If there is no prenuptial agreement in the second marriage, it is likely that the surviving spouse will get half of the deceased spouse’s assets, and this may not be what the deceased spouse would have wanted for his or her children from a previous marriage.

While second marriages can present challenges for estate planning, these issues can be resolved if clients are thoughtful and seek the advice of an experienced estate planning attorney.

A couple of Tips:

  1. New Spouses should discuss their planning together. Avoiding the discussion will only lead to heartache later.
  2. Prior to Marriage, discuss a Prenuptial agreement. If you have not done so, their are other options, such as a QTIP Trust that can achieve the desired outcome.
  3. Be fair and reasonable. Often, children and new spouses do not get along. Remember the everyone of feelings.
  4. Consider discussing your planning with your children. Depending on the family, doing so can make things that much easier. However, on the flip side, there are some situations where discussing these issues with your children will cause more problems.
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Pooled Income Trusts

How to protect your excess income when receiving community Medicaid

A Pooled Income Trust is an option for a disabled individual who has excess income while receiving Community Medicaid Benefits.

Here is how it works:

Recipients of Community Medicaid – those who receive the assistance of a home health aide – are allowed to keep $787 per month of their income. Any additional income, called a “Spendown”, is supposed to be spent down on the individuals care. Therefore, if a Medicaid recipient has income of $1,500 per month, they would be allowed to keep $787 and the remainder would go to the home health aide – with Medicaid paying for any additional costs of the care.

However, for many recipients of Community Based Medicaid, loss of income would prevent them from remaining in their homes. Enter the Pooled Income Trust. A Pooled Income Trust is similar to a bank account, however it administered by a Non-profit Trust Company, such as NYSARC Trust Services or AHRC.

If Mr. Smith has a monthly income of $2,787 in Social Security and pension income, and he is receiving Medicaid benefits for home care in his Long Island home, he has $2,000 in “excess income” under the current Medicaid rules. As a result, Mr. Smith is required to send a check each month in the amount of $2,000 to his home care agency as a contribution to the cost of his care.

However, when Mr. Smith joins a qualified pooled income trust, his $2,000 check will be sent to the trust instead of his home care agency. The trust will then be able to pay any of Mr. Smith’s expenses, such as his utilities, his food, or his clothing, from his own funds or even the taxes on his Long Island home. Mr. Smith will continue to receive his Medicaid home care, as well.

The pooled income trust contains the funds of many disabled persons and is managed by a non-profit organization that maintains separate accounts for each individual. In order to participate in the trust, the disabled person (or his representative acting under durable power of attorney) signs an agreement with the trust. Under this agreement, upon the beneficiary’s death, if there are any remaining funds they are kept by the trust.

Those who wish to participate in a pooled income trust will have to establish that they are disabled, but findings of disability by the Social Security Administration or by Medicaid are valid for this purpose.

New ‘Power of Attorney’ Law – Frequently Asked Questions

By Andrew M. Lamkin, Esq.

On January 27, 2009, Governor Patterson signed into law revisions to the New York laws which powers of attorney. The news laws became effective on September 1, 2009. Many of the changes substantially affect the power of attorney. It is not surprising that, during the execution ceremony, my clients have had many questions regarding some of the changes. The following is a sample of some of the questions I have been posed with.

  1. Is the old Power of Attorney still valid?If the old power of attorney was signed prior to September 1, 2009, it is still valid. However, the new form should be used going forward. Therefore, if you have an unsigned power of attorney, drafted under the old law, you should not sign that form and ask your attorney to prepare a new form for execution.
  2. What is the reason for using the new Power of Attorney form?The purpose of the law is to ensure that the principle is aware of the powers he/she is granting to the agent. The new form also describes the consequences of granting such powers, particularly as it relates to the ability of the agent to make gifts or asset transfers on behalf of the principle.
  3. Is it true that the agents I appoint also need to sign the Power of Attorney? If so, why?Yes, the agent must accept the responsibility and fiduciary duties of serving as an agent. The new form contains instructions to the agent, such as to act in accordance with previous instructions from the principle or in the best interest of the principle, to avoid conflicts that would impair the agents ability to act in the best interest of the principle, keep receipts and a record of all transaction made and keep their property separate from the principles property. While the agent does not need to sign at the same time as the principle, the document is not effective until the date is signed by the agent before a notary public.
  4. Why would I also sign the Statutory Major Gifts Rider?Quite often a Power of Attorney is used to transfer assets out of the name of the principal. The transfer is considered a gift – whether it be given to the agent making the transfer to a 3rd party. In the older version of the POA, the principal could initial next in a box next to the “gifting Power” and thus their agent would have the authority to “gift” on their behalf. The form has additional rider whereby the principal can authorize the agent(s) to gift on his/her behalf. Without using this additional rider (SMGR), the agent will not be allowed to transfer assets on behalf of the principal – thus defeating the purpose of Power of Attorney.
  5. I’ve heard that banks and other financial institutions have in the past refused to accept the Power of Attorney. Are they allowed to do that?It is true that many have previously encountered difficulties with their financial institutions when attempting to use the power of attorney. The new law addresses this issue by making it unlawful to refuse to accept an original (or certified copy of the original) power of attorney. Specifically, the law provides that financial institutions may refuse a power of attorney for “reasonable cause.” The financial institution has reasonable cause if the agent refuses to provide an original or certified copy of the power of attorney, if it has actual knowledge of the death of the principle, if it has actual knowledge of the revocation of the power of attorney, if it has actual knowledge of a report or investigation by the local adult protective services concerning the principle or if it has actual knowledge of the principle incapacity if the power of attorney presented is “Non-Durable.” The new law also goes to the extent to allow a special proceeding to be brought to compel a financial institution to accept the power of attorney.
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Veteran’s Aide and Attendance Program

An additional pension for qualifying veterans

Recently I have had many clients come to my office with a similar problem. They have had to hire a home health aide for their parents or place them into an assisted living facility. The problem that my clients, typically the adult children of a disabled senior, have is that their parent’s income does not cover their living expenses with an aide or the monthly cost of the assisted living facility. When I am confronted with this problem, I have been asking my clients whether one of their parents was a veteran. If one of the parents was in fact a veteran and require the assistance of a home health aide or reside in an assisted living facility, they may be entitled to an additional pension via the Veterans Administration’s (VA) Aid and Attendance Program.

The Aid & Attendance pension provides benefits for veterans and surviving spouses who require the assistance with the activities of daily living (ADL’s). This includes regular attendance of another person to assist in eating, bathing, dressing and undressing. Assisted care in an assisting living facility also qualifies.

The requirements to qualify are as follows. First, it must be established by your physician that you require assistance with the above mentioned activities. Importantly, you do not need to show that you require assistance with all of these activities – only that you cannot function completely on your own.

Second, you must provide the VA with proof of your net worth, net income (including social security, other pension and IRA distributions) and complete breakdown of your monthly expenses, including the cost of the aide, assisted living and other medical expenses.

Qualifying applicants may be entitled to receive up to $1,632 per month to a veteran, $1,055 per month to a surviving spouse, or $1,949 per month to a couple. It should be noted that not every applicant will receive the same pension. The VA will compute the actual needs of the applicant in determining the pension amount. The pension is not contingent on a “service related” injury or condition.

The VA has made it illegal to hire someone to file the application on your behalf, but you can hire an Aid and Attendant Consultant to offer you advice on how to file the claim. You can also contact this office for questions about the program and advice on how to file a claim.

Planning for Families with Disabled Children: Supplemental Needs Trusts

By Andrew M. Lamkin, Esq.

Clients came to my office for advice on how to make arrangements for their 5-year-old son. Their son is autistic and their situation is common to parents who have children with disabilities. Two major problems exist. First, when a disabled child turns 18, the parent loses the ability to make medical and financial decisions for the disabled child. Second, parents, such as my clients, are never sure of the proper way to leave assets to their disabled child and plan for their disabled child’s care when they pass away. Do they leave money to a family member to take care of the disabled child? Do they leave money to the disabled child directly? What happens to government benefits such as Medicaid and SSI? This article will address the second issue.

Autistic children, like most children with any developmental or emotional disability, are entitled to receive government benefits such as Medicaid or SSI. To be eligible for these benefits, the recipient must have less than $13,050 in assets ($2,000 for SSI). Therefore, if a disabled child inherits or received money from a lawsuit, the child will lose his benefits because he will be over the asset threshold.

One option for a parent is to leave money to another person, with instructions to support the disabled child. A common example would be to leave money to another child, with instructions to support their disabled sibling. However, there are problems with this strategy. First, while the disabled child would still receive Medicaid and SSI, there is no legal obligation for the sibling to support the disabled child. The money becomes the property of the sibling and he can do with it what he chooses. Second, the sibling may go through a divorce or be sued for something unrelated to the disabled sibling, such as a car accident where the siblings assets become part of a personal injury suit. Unfortunately, even the assets the sibling is holding for his disabled sibling would be vulnerable to a personal injury lawsuit. If either occurs, the money left for the benefit of the disabled child could be lost.

While the first option of leaving money outright to the disabled child will result in a loss of benefits, the second option carries with it the risk that the assets are not truly protected for the disabled child. The goal is to find a way to protect your child’s benefits, while at the same time, leaving money for his support.

Fortunately, a parent can create a Supplemental Needs Trust (SNT), to solve both issues. An SNT enables a person with a disability to maintain eligibility for government benefits. A parent can establish an SNT during the life of the disabled child (Third Party Intervivos SNT) or pursuant to a Last Will and Testament, which is not funded until the death of the parent (Testamentary SNT).

The logistics are as follows. A parent can leave assets to the SNT, whether through the Will or as a beneficiary of a bank account or insurance policy. A Trustee, presumably the person caring for the disabled child when the parent passes away, is appointed by the parent to manage the money for the disabled child. The Trustee is authorized to use the funds in the Trust for the benefit of the disabled child. The funds can be used by the Trustee to pay rent, credit cards, or other expenditures, such as medical costs (which may not be covered by Medicaid) for the disabled child.

The benefit of creating an SNT is simple. It is the only way to ensure both, that funds will be available to provide for the disabled child and that he will continue to receive SSI and/or Medicaid. Supplemental Needs Trusts should be a consideration for every parent, grandparent and sibling of an individual who receives SSI and/or Medicaid. Everyone has varying circumstances and therefore the proper way to set up an SNT should only be determined after consultation with an attorney experienced with the rules regarding Supplemental Needs Trusts.

Call 516-605-0625 or contact me online to schedule an appointment. I am available to meet with you at your home or my office.

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Deficit Reduction Act of 2005 – Impact on Medicaid

By Andrew M. Lamkin, Esq.

On February 8, 2006, President Bush signed into law the Deficit Reduction Act of 2005 (DRA). The Act reduces federal entitlement spending for Medicaid, among other federal programs. The Medicaid program pays for services for disabled seniors who meet the eligibility requirements. Most commonly, Medicaid pays for the cost of home health aides and nursing home care.

The effects of the Deficit Reduction Act on Medicaid are significant, especially when applying for nursing home benefits. First, the look back period on asset transfers has been increased from three to five years. When an uncompensated transfer, or gift, is made during this look back period, Medicaid will impose a “penalty period.” The “penalty period” is the length of time during which Medicaid will not pay for the cost of nursing care, during which time the family of the applicant is responsible. At the end of the penalty period, Medicaid will pick up the cost of care. Due to this change in the law, the goal when establishing an estate plan is to protect assets five years before having to apply for Medicaid. Unfortunately, it is difficult to anticipate when a family member may be forced to enter a nursing home. To ensure you are eligible for Medicaid should the need arise; it is advisable to plan well ahead of time.

The second major change as a result of the DRA, is in regard to the start of the penalty period. Under the old law, the penalty period began on the date when the assets were transferred. Depending on the fair market value of the transfer, the penalty period may have expired by the time the application was filed. Therefore, an applicant who transferred assets within the three year look back may have qualified for Medicaid before the time they apply.

Under DRA, however, the penalty period begins when the applicant applies for nursing home benefits. Therefore, any transfer made within the 5 year look-back period will certainly result in a penalty period. This is a drastic change and many applicants will be ineligible for a longer period of time. This will require applicants to pay for the cost of the nursing home with their savings, and perhaps require the sale of the family home.

A common misconception is that if proper planning has not occurred by the time a person enters a nursing home; there is no option other than to exhaust his savings. In reality, this is not the case. The opportunity to protect all of the assets may be lost, but by utilizing a strategy known as “Reverse Rule of Halves,” it is possible to protect up to one-half of the applicant’s assets. In order for this strategy to work, it is vital to transfer assets as soon as the person enters the nursing home.

It is also important to note that there are a few exceptions to transfers made during the look-back period. Transfers made within the look back period to a spouse or disabled child do not result in a penalty period. Furthermore, an applicant can transfer his home to a “caretaker” child. This exception applies only in a situation where a child of the applicant has been residing with the applicant in the applicant’s home for at least two years. In this situation, the applicant can transfer the home to the “caretaker” child while, retaining a life estate.

Fortunately, the eligibility requirements for Community-based Medicaid, where a home health aide is provided, are more lenient than nursing home based applications. Most importantly, there is not a look-back period on assets transfers. Hence, an applicant for Community Medicaid may transfer assets for the purposes of qualifying without the imposition of a penalty period. Therefore, an applicant can transfer assets to anyone in March and be eligible for Community Medicaid in April.

A big concern with community based applications is the “spenddown” requirement imposed on income over $767.00 per month. Any income over this amount must be “spent down” on the cost of care and Medicaid will pay for the remaining cost. For example, if an applicant receives Social Security benefits and a pension totaling $2,500 per month, he is allowed to keep only $767.00 per month. He is required to contribute the difference of $1,733 per month to the cost of the home care aide. If the aide costs more than $1,733 per month, Medicaid will pick up the difference. However, with proper planning and the use of a Pooled Income Trust, it is possible to protect 100% of the applicant’s income and he will not have to contribute to the cost of the home care aide. Therefore, by utilizing a Pooled Income Trust, Medicaid will pay for the entire cost of the home care aide.

Overall, the Deficit Reduction Act makes it more difficult for those in need to qualify for Medicaid benefits. The new provisions are complex and can be difficult to navigate. With these changes, it is even more important for the protection of your family to have a plan in place.

Taking time to speak with an Elder Law attorney can help to devise a plan that will insure that your loved ones receive the necessary care they need, while at the same time protecting their income and assets for their use.

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World Elder Abuse Day

The International Network for the Prevention of Elder Abuse (INPEA) has announced that World Elder Abuse Day 2010 is June 15. According to INPEA somewhere between 4% and 6% of the elder population suffer some form of abuse in the home and even more at risk of abuse in institutions such hospitals and nursing home.

Risk factors for elder abuse include the following: Conflict arising from financial dependence of seniors, frailty and weakness of older people, erosion of bonds between the generations, tensions arising from possible inheritance issues, the growing trend of adult children not living near their aging parents thus creating the need for others to help care for the elderly.

Symptoms of elder abuse include frequent injuries or illnesses that require medical attention, implausible explanations for injuries from caregivers and inconsistent stories from patient and caregiver.

The purpose of World Elder Abuse Awareness Day is to raise awareness of the growing problem of elder abuse. If you think that an elderly person is being abused you should contact the Police, the Local Department of Health or an attorney.

Trusts and Taxes

Grantor Trusts

Any Trust which is created by an individual and where the individual transfers assets to the trust and the assets remain in the trust for the lifetime enjoyment of that individual. The Individual is referred to as the Grantor.

Examples of Grantor Trusts and the various Tax implications of each

Revocable Trust – Trust whereby the Grantor reserves the right to revoke any term of the trust during their lifetime. The grantor transfers assets such as property, investments and savings to the trust. The grantor typically names himself and his spouse as Trustee.

  1. Income Taxes– The grantor typically reserves the right to the income that the Trust generates. This includes rental income from property and dividends and interest from investments. As a result any income generated from the Trust is attributed to the grantor. The Tax ID for the Trust can be the social security number of the grantor or they can obtain an EIN from the IRS.It is possible to create a Revocable were the grantor assigns the income of the trust to another individual, such as a child. In this instance, the income is taxed to that beneficiary.
  2. Gift Taxes – Because a revocable trust can be revoked by the Grantor, it is considered an incomplete gift. As such there is no gift tax implications.
  3. Estate Taxes– Assets transferred to a revocable trust are considered to be part of the Grantors estate. Therefore, the value is added to the Grantor’s total estate and used in any estate tax calculation.A revocable trust can include a Credit Shelter provision or QTIP language. In either scenario, the grantor’s assets will pass to a testamentary trust (Credit Shelter Trusts are also disclaimer trusts – meaning that the surviving spouse has to disclaim the assets for them to pass to the trust). The purpose of establishing these trusts is to limit the estate tax liability.

    An example of how it works: Married individuals are worth $5,000,000. If they did not do anything, and one spouse passed away, the surviving spouse would be worth the entire $5,000,000. Upon their passing, the heirs would be responsible for a potentially large estate tax bill.

    By placing assets into a Credit Shelter or QTIP Trust, the assets of the spouse who passes first remain in their estate for tax purpose. The surviving spouse has limited access to those assets, however, the assets do not pass to children until the passing of the second spouse. Because the “disclaimed” assets remain in the estate of the first spouse, the children benefit from the exemptions of each parent. As a result, in the example above, each estate would be values at $2,500,000. Assuming the Federal Estate Tax exemption is $2,500,000, the children would not be responsible for a federal estate tax (there would still be a NY State Estate Tax). However, if they did not plan, assuming the same numbers, the children would be responsible for approximately $1,000,000 in federal estate taxes upon the death of the second parent.

Irrevocable Income Only Trust (IIOT)– Trust whereby the Grantor does not reserve the right to revoke any term of the trust during their lifetime. It is typically done to protect assets against the cost of long term care (home health aide or nursing home)

  1. Income Taxes – The grantor typically reserves the right to the income that the Trust generates. This includes rental income from property and dividends and interest from investments. Often spouses who create a Irrevocable Income Only Trust would create a joint trust. Therefore, an EIN should be requested from the IRS. However, if it is a sole individual, their SSN can be used.
  2. Gift Taxes – An IIOT is also an incomplete gift when the grantor retains an interest income and a limited power of appointment to change the beneficiaries in their Will. No Gift taxes owed.
  3. Estate Taxes – Cannot include Credit Shelter or QTIP language. All assets included in Taxable estate.

Supplemental Needs Trust – Trust whereby the Grantor places assets into a trust for the benefit of a disabled individual.

  1. Income Taxes – New EIN for the Trust is recommended. A tax return will be done for the Trust because the income does not go to the grantor or beneficiary but remains in the trust.
  2. Gift Taxes – When an individual transfers assets to an SNT for the benefit of another individual, they should file a gift tax return if the yearly transfer exceeds $13,000.
  3. Estate Taxes – Included in the estate of the disabled individual.
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Client Case Study: Be Organized, or else

A few months ago, I met with a client who wished to update his Last Will and Testament and learn how to protect his assets against the cost of Long Term Care. He was widowed, had a partner of 10 years and two children from his previous marriage. He was 85 years old. His assets included his primary residence and modest savings, mostly in the form of CD’s.

He wished to leave his assets to his partner and one of his daughters – disinheriting the other daughter. Because of this – and because he wanted to protect his assets – I suggested that he create an Irrevocable Trust. This would help protect his assets in case he had to be placed in a nursing home or require the assistance of a home health aide. More importantly, perhaps, it would allow his estate to avoid the probate process – especially important when disinheriting a child.

Probate is the process of proving the validity of the will and administering the estate. During this process, all children are asked to be involved by consenting to the appointment of the named Executor – including those who are disinherited. Because he wanted to disinherit a child, I thought that the probate process could be difficult for his partner and other daughter.

He decided to take my advise and create a Trust and then transfer his assets to the trust, including the deed to the house. We began the process by drafting and executing the Trust agreement. Unfortunately, he could not find the deed to his house. He took more time to try and locate the deed, but to no avail could not locate it. We eventually found the deed with the assistance of a Title company.

Unfortunately, before we had time to draft and sign the deed, my client passed away. The house, therefore, was not owned by the Trust. Accordingly, the house would pass through the Will, forcing probate. Because the Will states that one of his daughter is not to inherit, we expect there to be a contested proceeding.

It is all too common for individuals not to know exactly where their important documents are located. Whether they be Wills and Trusts, Powers of Attorney and Health Care Proxies, Deeds and Health Insurance information, or a list of bank accounts, it is important that you be organized and know where everything is located so that when the time, comes there are not unnecessary delays that cause unnecessary problems.