Walsh, Brule & Nault

ACT NOW AND SAVE YOUR HOME

2014-04-30T18:00:00.001-04:00

As some of you might know, last Spring, Rhode Island attempted to pass legislation which would have ended the procedure by which many Rhode Islanders have been able to save their homes from loss for payment of nursing home expenses, without giving up control of their homes. This process is known by many different names, such as enhanced life estates, ladybirds, non vested or contingent (or conditional) remainder and other names. Regardless of the name, last Spring, we warned clients that because of proposed legislation, this technique might soon become unavailable. The proposed legislation did include “grandfathering” language, which said if your home was structured in the particular manner prior to the effective date of the law, it would continue to receive the protections unavailable to others after the passage of the law. This resulted in a number of people taking advantage of the short time that was then possibly remaining to consider whether such option was appropriate for them.

The good news, for most of our clients, is that the bill did not pass. Therefore, this technique to protect your home, yet retain full control, (subject to an equity cap of just over $500,000) remains available. However, I warned that here was a good likelihood that the State would reintroduce similar legislation in the 2014 legislative session, and that rather than wait for such changes to become imminent, it would be far better to give whatever consideration you believe is appropriate to the question sooner, rather than later.

Well, now that the 2014 legislative session has started, I can tell you that yes, indeed, the prognostication was correct and specifically it is proposed budget Article 27. As drafted, the proposal does contain “grandfathering language”. In particular, the proposal provides that any Rhode Island Medicaid applicant who has such an arrangement in place before the effective date “shall not be ineligible for medical assistance on the basis of such deed …”

Many of our clients have already availed themselves of this technique to save their home, or have been considering whether to implement this technique as regarding their home. If the proposed legislation were to pass, the homes of those clients with the proper arrangements in place would be safe. We would strongly recommend that you sit with your legal advisors to evaluate the advantages and disadvantages of using this approach. Be certain to allow yourself time to implement this solution, if in the end you find it desirable. For those readers with homes in Rhode Island, while the technique currently remains available, time may soon be running out.

WHAT IS THE ESTATE TAX ON A MILLION DOLLARS?

2014-03-10T17:57:00.000-04:00

Rhode Island is one of many States that has its own estate tax. In fact, the Rhode Island estate tax ranks among the highest of the States in terms of its aggressiveness against taxpayers. How the tax works is a mystery to many of our clients. So here is some help.

First off, the tax only applies against those assets owned or controlled by an individual when they pass away. Secondly, there is no Rhode Island estate tax against assets passing to a spouse or to charities. However, if the assets pass elsewhere, such as to children, then the tax would apply to the extent that the total amount of assets passing in that manner exceeds $ 921,655.00 for calendar year 2014.

If that number is high enough so that you are not concerned about estate taxes, you might instead focus on saving your assets from potential loss for payment of nursing home expenses. Even if your assets are sufficient to generate potential Rhode Island estate taxes, the potential for loss of those assets to nursing home expenses might still be sufficient reason for you to consider how to protect your assets.

We have heard “experts” argue as to how the tax is calculated if one’s estate is subject to Rhode Island estate taxes. The pessimist says that even if you are just $1.00 over the threshold, the estate taxes are calculated on all of your assets, starting with the first dollar. The optimist says while that iss true, in that situation you still won’t pay more than $1.00 in taxes. In fact, you’ll pay much less.

As strange as it may seem, both the pessimist and the optimist are correct. Though these “experts” might argue until they are red in the face, in the long run, all that really matters is how much the tax would be. In our office, we have developed some ball park figures to assist people with their preliminary plans. These figures should not be relied upon by anyone in particular as regarding their own circumstances, because there are quite complex rules involving jointly held assets, the availability of certain deductions and other certain personal particulars that would require any individual or couple to review their own personal matters with an experienced advisor. But having said that, generally speaking, in 2014, if the estate is worth a million dollars, and what is being taxed is anything over $921,655.00, the Rhode Island estate tax on that would be $30,555.00. Now one could look at that number and effectively argue that it is about 3% of one million dollars. Others could look at that number and say it is 39% of the amount over $921,655.00. Again, both the optimist and pessimist would be correct.

The amount of the estate tax increases as the size of the estate increases. For example, on a two million dollar estate, the Rhode Island estate tax would $90,600.00. But let me conclude by saying that the vast majority of our clients have no worries under the Rhode Island estate tax rules. Their estates do not quite reach up to the levels required for the tax to take effect. So to these clients, we tell them, don’t worry about the estate taxes. Instead, focus on nursing home planning protection. For those clients whose assets do exceed the estate tax threshold, various solutions are available to address all of the important issues.

ARE YOU PROTECTED?

2014-03-06T17:05:00.001-05:00

When a client comes into our office, they generally want to be “protected”. Another way a client might express it is that they want to “protect their assets”. Regardless of the exact words that are chosen, the theme of “protection” is an important concept to our clients.

Of course, it does raise the question of “protected from what?” Given our years of experience, we don’t have to ask. Clients are looking for protection from the three main fears common to almost all of our clients. Those fears are taxes, probate and nursing homes.

As regarding taxes, our clients tend to be looking for protection both from income taxes and estate taxes. The general rule as regarding inheritances is that the amounts are received income tax free. There are some big exceptions, such as 401ks and most IRAs, however, most inheritances are inherited income tax free, regardless of the amount. As regarding estate taxes, for clients with a net taxable estate of less than $910,000, there are no Rhode Island estate tax concerns.

Turning to probate concerns, we remind people that they need to be protected from probate at two points in time, first while they are alive and second at the time of their passing away. Most people are familiar with the need to avoid probate at their death, but the need to avoid probate during their lifetime comes as a surprise to many clients. This is best accomplished through the use of powers of attorneys. Avoiding probate at death can be avoided through the use of jointly held property and named beneficiaries, but frequently, especially for people owning real estate, we recommend the use of a Revocable Living Trust.

Finally, our clients are concerned about protection from the loss of their assets due to payment of nursing home expenses. The solutions here range from long term planning, sometimes requiring as long as five years, to some very simple and easy steps. Some of these steps can be accomplished without giving up any control by the couple, which is often times sufficient to save all of the assets, especially if in regards to the first of two married people going into a nursing home. Even for a single person, some simple steps be taken, again, without giving up of any of the control within the family, but can still often times lead to the saving of over Fifty (50%) Percent, and often times close to all of the assets, in the event of the need for nursing home care. The variety of alternatives to address these concerns is well beyond the scope of this article. But nonetheless, the purpose of this article is to confirm that yes, many of our clients have come to us needing protection, or, asking us to protect their assets.

How about you? Are you protected?

IS A TRUST ALWAYS A GOOD IDEA?

2010-11-12T16:18:00.001-05:00

As regular readers of this blog know, we offer insights to our readers regarding the saving of assets from risk of loss for payment of nursing home expenses. We also address other general estate planning topics. Today’s topic is general estate planning as regarding trusts.

Is a trust always a good idea? The surprising answer to the question is, “not always!” This seems to fly in the face of conventional wisdom, expressed to us by many of our clients who say they’ve been told “Everyone needs a trust.” As with most absolutes, this one also has several exceptions. Trusts, to an experienced attorney, are not a “miracle cure” for every estate planning problem, but just another tool to help address certain issues.

Perhaps the biggest reason people establish a trust is to avoid probate. While avoiding the time and expense that go along with the probate process is appropriate, there are several other ways to avoid probate. Some of these alternatives are easier and less costly than using a trust. One way is through joint ownership. Most people know that with joint ownership, both owners have complete access to the account, and that when one joint owner dies, the other becomes the sole owner, typically without probate or other hindrances. Admittedly, joint ownership is not always the best solution, because these are also some risks and potential disadvantages to the use of joint ownership. However, the point is that there are alternatives which should be considered, and as such, no one answer is “always” correct.

The use of trusts can also achieve spectacular tax advantages. In order to realize significant tax benefits, you have to start off with very specific tax situations. Although we certainly see cases where trusts can help our clients pay less in taxes, we also see many cases where using a trust will not result in any tax savings whatsoever! Also, it is important to note that as with everything else in life, circumstances change. While using a trust may help you save lots of money in taxes at one time in your life, later changes in either your life or the tax laws may eliminate the advantage.

Finally, using a trust can be incredibly effective, or amazingly disastrous, from a Medicaid/nursing home planning perspective. One simple example is that while one’s home is usually considered an “exempt resource” when applying for state aid for nursing home care, if that home is located in Rhode Island and is in a revocable trust, depending upon the date of the Trust, it will not be considered an exempt asset!

The point is that under the right circumstances, using a trust is a great idea and can achieve results that would be difficult, if not impossible, to achieve otherwise. Knowing when and how to use a trust is a lot like fixing a car: You need the right combination of education and experience to succeed.

About the Author:

Paul A. Brule, Esq., is a founding partner at Walsh, Brule & Nault, a Cumberland, Rhode Island law firm concentrating in Elder Law, Medicaid and Estate Planning.

MEDICAID MYTHS ABOUT GIFTS TO FAMILY MEMBERS

2010-11-02T13:49:00.000-04:00

In this blog, we like to tackle some of the more popular myths about Medicaid. Medicaid law is a complex area of the law and one that causes most attorneys to steer clear of this area completely. Those of us who practice in this area encounter a whole list of myths about Medicaid. Today, we look at another one of those myths: “If you are going into a nursing home, give everything to your kids and the State will pay your nursing home bill.”

I am sure that many of you have heard this one before. Well, let me be the first to tell you, this one is flat wrong. In fact, if you are going into a nursing home, giving things away to other people is one of the worst things to do. There are only a few situations in which we would ever advise one of our elderly clients to make such gifts to their children and that is only with the aid of an experienced attorney. Otherwise, there is the potential for disaster.

Let us begin with the description of the problem and why this myth seems to perpetuate itself. If a 70 year old man with $100,000 in cash moves into a nursing home, he will need to privately pay the nursing home on a monthly basis and if he were to apply for Medicaid, he would be denied. However, if the same 70 year old man only had $2,000 in cash and no other assets, he would apply for Medicaid and the State would pay the nursing home bill. Both of those statements are true.

However, that certainly doesn’t mean that the man in our example can give away his assets. In fact, if he were to give away his $100,000, he would be denied Medical Assistance due to the gift. When an individual makes a gift to another person, the State assesses what is called a “transfer penalty” against that individual. That penalty is expressed as a number of months and days of ineligibility for Medicaid. The penalty is calculated based on a complex formula laid out in the Medicaid regulations. In the scenario above, where a $100,000 gift was made, the individual then becomes ineligible for Medicaid for over 12 months. At that time, the person is in a tragic situation where he has no money and the State refuses to pay for his nursing home care. By following the myth of giving your kids all of your money when you enter the nursing home, our poor fellow made his problems much worse.

Fortunately, in the above scenario, the State does allow the individual to solve part of his problem by getting the money back. Normally, this isn’t a problem, because the kids will simply gift the money back and “cure” the transfer. However, if the kids refused to give the money back, there isn’t much that can be done. In addition, all he can do is get back to square one, which is privately paying the nursing home, so he really hasn’t helped himself at all.

Does this mean that if you are going into a nursing home that you can’t spend any of your money? Absolutely not. You can still spend your money on anything you want, so long as you receive fair market value for it. Fair market value is really just another way of saying that you received a fair price for the amount that you spent. You cannot just give it away or greatly overspend on a purchase.

Hopefully, we can put this myth to bed once and for all. If you are going into a nursing home, giving money to your kids is almost never a good idea. This myth seems to be driven by two main factors: the high price of nursing home care and a desire to leave some sort of inheritance to an individual’s loved ones. Unfortunately, given the complexity of the Medicaid regulations, making large gifts to family members isn’t a real answer without a great deal of complicated planning. Fortunately, attorneys who specialize in this area can usually provide answers that accomplish those goals without breaking the Medicaid rules.

About the Author:

Paul A. Brule, Esq., is a founding partner at Walsh, Brule & Nault, a Cumberland, Rhode Island law firm concentrating in Elder Law, Medicaid and Estate Planning.

Nursing Home Planning and Pre-paid Funeral Contracts

2010-10-19T16:21:00.000-04:00

One of our long term clients came into our office last week looking for some advice. His questions were simple: What are pre-paid funeral contracts and do I need one? We are asked about pre-paid funeral contracts on a regular basis, and often enough, recommend them to our clients.

There is no doubt about it: Funerals are expensive. The only good news is that it is the last bill that you’ll ever have to pay. Many funerals cost as much as Five to Ten Thousand Dollars and sometimes more. The problem created by the expense of a funeral is worsened by a Medicaid system which requires an applicant to spend down all of their money before applying for Medicaid. So, without some planning, you can have a Medicaid recipient who dies with very little cash assets, leaving the family members with the bill for the funeral. The result is that the family members pay most or all of the funeral costs out of their own assets. Fortunately, a pre-paid funeral contract can address the costs and the planning of a funeral.

A pre-paid funeral contract is a legal contract which allows an individual to plan, and pay for, his or her funeral, burial, cremation or other services from a funeral home. Almost all of the funeral homes that we have dealt with allow and, in fact, welcome individuals who want to pre-plan and pre-pay for their funeral. A prepaid funeral contract allows the individual to purchase whatever services he or she wants then makes that funeral home legally bound to provide those services at the agreed upon price. Such a contract ensures that the funeral, burial and/or cremation all go according to the wishes of the departed. In addition, the stress and headache of planning and paying for a loved one’s funeral is alleviated when the planning is already done and the bill is already paid. Anyone who has lost a loved one knows that it is an emotional enough time, without all of the stress and burden of planning the funeral and, possibly, fighting with other family members about the details. As a result, pre-planning funerals takes a lot of the burden off family members and should strongly be considered. In addition, pre-paying for the funeral ensures that your wishes are carried out, but also ensures that there is enough money to pay for your wishes, without leaving your loved ones with the bill.

Before this becomes an advertisement and the readers start wondering whether we bought stock in a funeral home, let’s take a step back. We are not saying that everyone needs to purchase a prepaid funeral plan. There are certain situations where a prepaid funeral plan is not a good idea. In fact, depending on your situation, it may be the wrong time to purchase such a contract. Depending on your age, health and other investments, it may be preferable to wait to purchase such a plan. However, we tend to recommend such plans in two distinct situations. The first is those clients who have very specific wishes for their funeral. The second is those clients who need to spend down their assets in order to apply for Medicaid.

For those who have very specific funeral wishes, we strongly recommend purchasing a pre-paid funeral contract. Rhode Island law also allows you to appoint a funeral agent. There is no better way to guarantee that your wishes are met than by meeting with the funeral director and your funeral agent, discussing exactly what you want and purchasing a prepaid funeral plan that does it. In addition, pre-planning your funeral makes it clear to everyone exactly what you want and who you want in charge of the funeral. We have had a number of clients who want their funeral wishes put into their wills. A Last Will and Testament usually is not approved by the Probate Court until well after the funeral. Therefore, rather than putting your funeral wishes into your will, put your wishes into written funeral agent designation under Rhode Island law and a prepaid contract with the funeral home of your choosing, thereby changing your wishes about something that you can not control, into an affirmative obligation on behalf of another who has the power to do it.

The second situation in which we will recommend a prepaid funeral contract is for a client who needs to spend down their assets in order to qualify for Medicaid. Without getting bogged down in the details, certain prepaid funeral contracts will reduce the amount of cash on hand that you may be required to spend on your own nursing home care, before the Medicaid program begins paying the bills. As a result, under the right circumstances, a prepaid funeral plan is a great idea for those who may need to enter a nursing home, or have already entered a home.

As you can see, while they may not be right for everyone, a prepaid funeral plan can be an effective estate planning tool to discuss with your attorney.

About the Author:

Paul A. Brule, Esq., is a founding partner at Walsh, Brule & Nault, a Cumberland, Rhode Island law firm concentrating in Elder Law, Medicaid and Estate Planning.

ARE MY JOINT ACCOUNTS SAFE?

2010-10-12T13:29:00.000-04:00

Are my joint accounts safe from risk of loss for payment of nursing home expenses? It sounds like a simple question. We hear it often from our older clients who are concerned about loss of their assets for payment of nursing home expenses. The question is raised in regard to obtaining State aid, also known as Medicaid, for payment of those nursing home expenses.

Though the question is simple enough, the problem, as with most areas of the law, is that the answer is quite complicated. In order to arrive at the proper answer, a host of questions must be asked, answered and analyzed. Even then, the answer will differ depending upon whether the answer is being given to a married couple or a single person and will differ depending upon the dollar amount involved, not only in the joint account, but in other assets as well. Other important questions concern when the account was opened, when joint names were added and if we are discussing a joint bank account or some other joint account such as savings bonds, corporate bonds or even stocks or mutual funds.

In our practice, we hear many “Medicaid Myths”. Our clients tell us the “Medicaid Myths”, insisting that they are true and that everyone says they are true. Admittedly, some, if not most, of them do contain a kernel of truth, but even then, the Medicaid Myth is almost always applied in an incorrect way to a specific set of facts.

One example of the many “Medicaid Myths” that we hear is that if one’s children are listed on a joint savings account, the children’s share of that money is safe from loss for nursing home expenses. In almost every case that we see, it is simply not true. In fact, regardless of how long the account been structured in such way, a joint savings account is often times completely at risk for loss due to nursing home expenses.

Sometimes, confusion arises between Medicaid planning, taxes and probate. Joint accounts are a simple and effective way to avoid probate. But rarely do joint accounts provide an effective Medicaid solution and sometimes joint accounts can make a tax situation worse! Taxes present a particularly vexing area of law because of the interplay between income taxes, gift taxes, estate taxes and for certain types of joint accounts, even capital gains taxes.

So what is the answer? Are my joint accounts safe? Here is the best answer that we can provide without knowing more of the facts as discussed above: “It depends.” I am sorry we could not be more helpful, except we can recommend the following:

Planning to protect your assets from loss from taxes, probate or nursing home expenses can be quite complicated. It is not an area to be pursuing on your own. Our best advice to you is not to rely on “what everyone says”, but instead, get good professional advice.

About the Author:

Paul A. Brule, Esq., is a founding partner at Walsh, Brule & Nault, a Cumberland, Rhode Island law firm concentrating in Elder Law, Medicaid and Estate Planning.

WHY YOU NEED A POWER OF ATTORNEY

2010-10-05T10:42:00.006-04:00

We often times consider a Durable Power of Attorney to be a client’s most important estate planning tool. For many of our clients, it is far more important then their Last Will and Testament. Without a Last Will and Testament, the assets of most people are going to be controlled either by beneficiary designations, surviving joint ownership arrangements or even State law, which often controls their assets in a manner that in very consistent with their wishes. Also, Last Wills and Testaments do not avoid probate. On the other hand, without a Durable Power of Attorney intact at a time of disability, management of retirement policies, real estate, many life insurance policies, as well as other assets becomes impossible, unless there is a Probate Court appointed guardian.

Since the purpose of the Power of Attorney is to avoid probate at that time, it is important to understand the advantages of avoiding probate under such a situation. The Power of Attorney is far less expensive then a Probate Court guardianship, allows the family to react in a far quicker manner than would otherwise be the case and usually gives the family far greater flexibility then would otherwise be found.

Powers of Attorneys come with all different kinds of variations. Some can be extremely limited, for instance, a Power of Attorney to allow you to sell a very specific piece of real estate, at a very specific price, only to a specific buyer, at a certain closing date. For general estate planning purposes, we prefer very broadly worded powers of attorneys, granting a wide range of authority.

Powers of Attorneys can name a single individual. Often times, we see spouses name each other as their power of attorney. In all cases, we recommend that people appoint successors or backups, in the event that the person named in the first instance becomes unable to serve in that capacity. There is no limit as to the number of successors or backups that an individual may have. In addition, someone might prefer to have two, three or more people acting together. In such cases it would make sense to address whether they have authority only when all agree, or so long as there is a majority.

Like all legal documents, in order for the power of attorney to be valid, it has to be both prepared properly and signed properly. This is where a qualified attorney can be of important assistance. While these types of forms, like most other legal forms, can be found in libraries, stores of various kinds or the internet, being certain of what the document says, and just as importantly, understanding what the document does not say, is crucial. Like the brakes on your car, when you need to use them, it is not the time to find out whether or not they were prepared properly. Our advice, as with all other legal matters, is don’t go it alone. Seek competent assistance. Like the brakes of your car, there is too much riding on it to do it any other way.

About the Author:

Paul A. Brule, Esq., is a founding partner at Walsh, Brule & Nault, a Cumberland, Rhode Island law firm concentrating in Elder Law, Medicaid and Estate Planning.