Thursday Q&A: Estate Planning & Elder Law- August 6, 2020

Each week, estate planning attorney Bill Henry spends time educating the community about their estate planning and elder law options.
Thursday Q&A is dedicated to answering your questions. See what Coloradans asked on August 6, 2020. (A transcript of the event is available below.)

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All right, Bill Henry here with Robinson & Henry back for another Estate Planning Thursday, I was out last week. Lucas Frie, attorney here, does tax, elder law, and estate planning, filled in for me, but I’m glad to be back. So let’s jump right in. I guess before we do that, as always, if you have any specific questions, make sure you talk to an attorney. Everything we go over is, of course, general, and no attorney-client relationship is formed by watching this Q&A or asking questions. So if you have any specific questions, reach out to us, reach out to another attorney, make sure you get someone that’s competent in the area you’re looking for and they are licensed in your state. Okay, so let’s get right to it.

How can you pay a family member who is acting as a caregiver, without running into Medicaid issues?

So first question, how can you pay a family member who is acting as their parents’ caregiver without running into Medicaid issues? So I think what we’re talking about here is if you are helping out a parent and you believe that your parent is going to need to qualify for Medicaid in the future, how can you get paid, but not create a disqualification period? Because if your parent pays you and you don’t do it right, all those payments are gonna be treated as a gift. So everything you do for your parent, unless you do it under a caregiver agreement, we’ll talk about that in a second, and it’s done properly, everything that you did for your parent was deemed to be for love and affection and not for money. So what does that mean? That means that you can’t retroactively get paid by your parents for work that you do. If you want to get paid for all the different services you’re providing your parents, your elderly parents, the idea is then that Medicaid won’t be needed as soon. And so therefore then they’re willing to allow your parent to pay you that money to you. And then at the same time, you don’t end up with this disqualification period. So what do you do? How do you solve this? You do it with a caregiver agreement, or in Colorado, we would call it a personal care services agreement. It’s exactly the same thing, but what’s most important to understand is that you have to do it right. And far too often, I see clients come in and they’ve missed one little detail. And if you miss a detail, then everything is going to be counted against your parents for Medicaid purposes. So let me give you a few of the big ones to look out for, but just know there’s a lot of rules around these caregiver agreements statute to know what’s what. So first thing is the agreement has to be signed by your parents before the services are rendered that you’re gonna get paid. It also has to be notarized. So that means you can’t go retroactive. You can’t have done all these different things for your parents and then all of a sudden say, Oh, now I want to get paid for it, and here’s this caregiver agreement. It’s not gonna work. It’s gotta be from that point in time forward. And you can’t get paid for anything after the date that the Medicaid application is filed in Colorado. So that’s the Colorado rule. Remember, every state can be a little bit different. So that caregiver agreement, of course, has to be in writing, has to be signed by your parents, has to be notarized like they talked about, and it has to detail what you’re gonna do and the frequency that you’re going to do it. So how much time are you planning to spend on a weekly or monthly basis caring for your parents? And what specifically are you gonna do? How much are you going to get paid? That also has to be listed. Now, you can’t just get paid whatever you want. You can only get paid up to what’s relevant in your community and what’s reasonable. Well, so that’s gonna vary community by community. You know that it’s not gonna be less than minimum wage, but, you know, where’s that number? It really, again, depends on where you live, $15 an hour, $20 an hour, maybe somewhere in there you can probably use for most communities. But, again, you’re really got to understand what are other people getting paid? If you weren’t gonna do this work and somebody else was gonna come into the home and do these things for your parent, well, what would that look like? All right. The other part that always catches so many people is, all right, you put together this great caregiver agreement, this personal services agreement, and then you don’t track what you do. Well, if you don’t track what you do, then you can’t get paid for it. So what do I mean by that? If you’re gonna take them to the doctor, for example, well, you’ve got to write that down. I spent 30 minutes and this is what we did, and this is where we went. So it’s a contemporaneous log. So it’s an actual log by the minute, so to speak, but whatever you’re doing, so the amount of time that you spent and what you did, and it needs to be contemporaneous with you actually doing it. So every day after you do things for your parent, you’re gonna put down what you did. And remember, you’ve already dictated how much time you’re gonna spend with them. All right, well, those are kind of like the main rules around caregiver agreements. They can be a great tool because kids sometimes do a tremendous amount of work for their parents. They end up not working because they’re caring for their parents. And so it’s a good thing to have in your tool belt, but just know that most times it’s done incorrectly. And so we really need to be careful when we’re doing those. Little long-winded there, but a really important topic.

Is there a downside to having a co-trustee?

Is there a downside to having a co-trustee? When would this ever be advisable? Is there a downside? I mean, I guess there’s a downside and upside to everything. So what’s the good news if you do co-trustees? Well, now you’ve got more than one person making decisions. And so therefore there’s less likely for abuse, right? If I got three trustees and they all have to make a decision, that’s a little bit harder for one trustee to steal property out of the estate or out of the trust. So what are the downsides? Well, it’s basically exactly that. How are these trustees gonna be handled? In other words, is it going to be that each trustee has the right to make a decision independently? Or is it unanimous? All my example three trustees have to make a decision, or is it by majority? And if you only have two trustees, what if they have a conflict? How’s that going to get resolved? So there could be some issues with, you gotta be very clear with what the rights are of the individual trustee. The other problem is, just practically speaking, if I’ve got three trustees and I need a check signed, who has the right to sign it? Do I need all three signatures? Which is fine if that’s what you want, but it’s gonna slow things down tremendously, ’cause I got three different trustees sign-off on it. If I say, Oh, any trustee could do anything for me, well, that makes it easier, but now we’ve kind of eliminated some of the reasons that we probably went to three trustees. Is it ever advisable? Yeah, I mean, I, you know, I wouldn’t say the majority of our clients do co-trustees, probably about 10% of the time we see that. There’s no magic as to, it’s really specific to the people creating the trust. Husband and wife, very common, are going to be co-trustees, but they can each act for themselves.

How might the Secure Act affect my current estate plan?

All right. Big picture. How might the Secure Act affect my current estate plan? So the Secure Act was passed. Let’s call it January 1st of 2020, slightly before that, but that’s good enough, January 1st, 2020. And the Secure Act changed, from an estate planning perspective, how IRAs are taxed, to the, phone ringing in there. So how IRAs are going to be taxed to beneficiary. So what do I mean by that? Let’s use an example. So let’s say I have an IRA, and it’s my IRA, and there’s a $100,000 in it, and then I die. Well, if it goes to my spouse, then my spouse can take distributions out of the IRA over the course of her lifetime. So that is called her required minimum distributions, this RMDs. It used to be if, let’s say, if my spouse wasn’t alive and it was gonna go to my kids, that my kids could do the same thing, and they could take out distributions out of this IRA over the course of their lifetime. Well, Congress decided, the government decided, they weren’t getting enough tax revenues, so they changed how that happens. So instead of being over the course of my children’s lifetime, it’s now at a maximum of 10 years. So that means all the money has to come out of the IRA within that 10-year period. So that’s kind of the background on the Secure Acts. It all has to do with retirement accounts and requirement of distributions as we’re concerned about it with estate planning.

Would a trust be advisable?

So now would a trust be advisable? A trust isn’t gonna change that. It could change it for the worse unless the trust is specifically written to handle IRA assets. So whenever we have a trust as a beneficiary under a retirement account, if we can’t look through that trust to see the actual underlying beneficiaries, then instead of being a 10-year payout or, in the case of a spouse or some other very specific scenarios over the course of the person’s lifetime, all the money has to come out of the IRA or the retirement account within five years. So we accelerate that even more. But let’s say we draft a proper trust. It’s not going to put us in a better position in terms of these distributions. ‘Cause again, we’re going to look through to these beneficiaries. What it can do, however, is give us asset protection for those children. So a quick story, this happened in 2014. There was a case where Ruth, this woman, had an IRA and we’re gonna say there was about $300,000, and I don’t honestly know what exactly was in it, but let’s just call it 300,000. She gave it to her daughter Heidi upon her death. Heidi then goes off and files a bankruptcy. The bankruptcy court ultimately says, it goes all the way up to Supreme Court, bankruptcy court ultimately says, Hey, that money has to be given over to the bankruptcy court and therefore paid to the creditor. So if we didn’t want that to happen, what do we do? Well, we’re talking about Colorado law. This could be different in different states. So instead, what we would look to do is create a trust. Those funds would then be funneled through this trust. The trust would be set up in such a way that we would give Heidi, in our example, asset protection so that same result wouldn’t happen. So a trust can be useful. Would I say that it’s gonna have a ton of effect on the Secure Act? You can have a negative effect if it’s not done properly, so be very careful whenever you’re listing your trust as a beneficiary of a retirement account. Is there any way, oh, we just went over that one. I guess I kind of combined the other one.Their was second question was is there any way to simplify the distributions of retirement accounts? Would a trust be advisable? So, again, it really comes back to when we’re using a trust as a beneficiary for retirement assets, we’re doing it mainly for asset protection purposes. There’s other reasons we could do it as well, but I kind of combined two questions in one. So that was a little confusing. Feel free to shoot me a follow-up email on that.

What happens if I write in my will that I want my retirement to go to my nieces and nephews but my IRA lists a single beneficiary?

Okay, scenario. Someone wants, or, wants, someone writes in their will that they want their retirement money to go to their nieces and nephews, but their IRA lists a single beneficiary who was an adversary of the person that died at the time of their death. Is there any way for the family to recover the IRA funds? Well, there’s no way I can actually answer that question directly, because so many more details we would have to know. But let’s look at it at least from a big picture. So generally speaking, whenever we have an IRA, whoever’s listed as the beneficiary under that IRA, that money is going there. It doesn’t matter what your will’s going to say. So if it was a pretty straightforward scenario, then whatever that beneficiary designation says on the IRA, that’s where it’s going. It’s not gonna go, in this example, to the nieces and nephews. Now, having said that, if the person, whenever they filled out their IRA designation, didn’t have capacity or they are under some sort of undue influence, well, then there’s an argument there that that was invalid, that there was basically fraud committed whenever that was written, or that beneficiary was listed. So that could be one reason. Another way could be, well, maybe if our beneficiary, instead of being the nieces and nephews, it was a spouse. Well, spouses have certain rights to an amount of money, so that could potentially play in here as well. And we can’t necessarily disinherit a spouse. So we definitely need more information to really be able to answer that question. But generally speaking, the beneficiary designation is going to control assets whenever, after somebody dies, the distribution of those assets. So will is used in probate. Beneficiary designation, that’s more of a contract with the trust company or the company that holds those retirement accounts.

What’s the best way for a caregiver to access a parent’s money?

Next question. What is the best way for a caregiver to access a parent’s money without being on their checking account? And kind of the follow-up there is to avoid any potential creditors of the caregiver from taking money out of the parent’s account. So I talk about this all the time whenever I do seminars. We have another seminar coming up next week. That’s basically a Zoom call that I do with 20 to 50 people. So if you want information on that, just feel free to email me afterwards. It’s billhenry, one word, @robinsonandhenry.com. So back to the question, what’s the best way to do it? So the first thing is why do we not want to do it? Well, we don’t generally want to put ourselves on the accounts of our parents, or should say another way, or if it’s your account, you don’t want to put somebody else on there other than a spouse, you say, because if that person has a debt, then the creditor, whoever that person that they owe the money to, can come back and they could potentially garnish that account and take our money. So let me give you an example. If I have a checking account with $10,000 on it, I put my son on that account, my son goes out and he ends up in a car accident, gets sued and they’re looking for more money and they garnish his bank accounts, well, that could include my $10,000. So not a good result there. Likewise, by putting my son on my account, got a son and a daughter, well, now upon my death, where’s that $10,000 gonna go? It’s probably just gonna go to my son. But maybe I wanted my estate to go 50/50 to my son and my daughter. So I might’ve just messed up my estate plan by doing that as well. So what’s a better approach to doing that? Well, we wanted, instead of doing it where we put somebody on the title, instead, what we would be better to do would to actually execute a power of attorney, so a general durable power of attorney, a financial power of attorney, that just says, hey, my example, son, you can write checks out of this account. That’s the better way to do it. That’s what generally I would recommend. You could also put the bank account into a trust, a little more complicated, and then make the son the trustee in that example. So lots of different ways to do it. But to avoid creditors, we don’t want to put the person on the account. Great, great question there.

Do I need to state in my will my intentions to disinherit an estranged child?

All right. Do you need to state your intentions to disinherit an estranged child in Colorado, in a Colorado will, to avoid them from being part of the estate? Maybe is the answer there. So let’s play out a few scenarios. So the first thing to know is that under probate intestacy law, so if I didn’t have a will, then my child would be one of the people that would inherit. Now, there’s a lot of rules, and it depends on am I married at the time of my death and a bunch of other things, but let’s just say I’m not married at the time of my death. So spouse would have predeceased, divorced, or I never was married and I die and I’ve got two children, including this one child we don’t want to inherit. Well, if I don’t have a will, then guess what? That kid is going to get 50% if I’ve got two kids in that example. So what if I have a will though? Do I need to specifically say that I don’t want them to inherit? The short answer is no, because a child has no legal right, unlike a spouse, to any portion of your estate. So instead, in my will, I could say, Upon my death, if I’m not married again, upon my death, 100% is going to go to, I dunno, some charity, give it to St. Jude’s. Well, just because my son’s not listed, doesn’t mean all of a sudden he can come back or just because I didn’t specifically say I was disinheriting my son, doesn’t mean that he can come back and get a portion of that. But what if St. Jude’s isn’t around? Or alternatively, let’s say I list my brother, but my brother predeceases me. Well, what then? Well, if nobody else is listed, it’s gonna default back to state law. Well, I have a child, so therefore my child would end up getting something. So the best way to do this is you would absolutely list your child that you wanted to disinherit saying, this is my child, but I also am specifically disinheriting them and they are deemed to have predeceased me. And that’s how we would avoid all of these different scenarios from happening. So it would be very specific. So best practice, we definitely want list them and disinherit them. Do we have to? I mean, technically no. But if you come to an attorney, of course, they’re always going to do it. Okay. We’re kinda slowly wrapping up here.

If I have a trust, do i need a will?

If I have a trust, do I also need a will? The answer to that is yes. Technically you don’t need to actually have a will. You don’t have to have a will, but what if you forgot to put something into your trust, which happens more often than not. So I have a, let’s say I create a revocable trust, and I put my house in it. But then, I don’t know, a year later I buy another house in Florida, but I don’t put it into the trust. Well, then what happens? If I have a will, in my will I can say if I didn’t get it into my trust, pour it over into my trust. So that’s where I would need a will. But if I don’t have that will, well, where’s it gonna go? We’re gonna default back to intestacy law. We’re gonna default back to state law as to where that second house is gonna go. So best practice, definitely you would want a will if you have a trust.

Will a joint tenant face tax implications if the property is transferred to them upon the other owner’s death?

Let’s see here, final question. Does a joint tenant face any tax implications when the property is transferred to them upon the other owner’s death? Little bit complicated there because there’s lots of different types of tax. I’m going to just focus on estate taxes. I happen to be the state planning attorney. The short answer is no, the joint tenant wouldn’t pay the tax, but is there going to be a tax implication to the person that died? Maybe, and that just depends on how big the overall estate is. If their estate is over the estate tax limit, so for an individual that’s about $11.5 million, then there would be a tax on the estate to them. And, of course, it would depend on what the law is at the time that they die. So maybe is the, the real short answer is no, the joint tenant’s not gonna pay any tax. There could potentially be tax on the estate of the person that died.

All right, well, I’m Bill Henry there, here. A little longer. Can tell I’m just getting back, a little bit slower than usual. If you’ve got any questions, feel free to email me. My email is billhenry@robinsonandhenry.com. I look forward to seeing you next week. If you’d like to join me for a little bit different of a format, that is a, where I basically do a estate planning conference where I kind of have more of a set information I’m gonna provide instead of using it as a Q&A, feel free to join me. Again, email me, and we can get you over a invite to that. I will talk to you next time. If you’ve got any questions, as always, just let me know.

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