Thursday Q&A: Estate Planning & Elder Law – June 4, 2020

Each week estate planning and elder law attorney Bill Henry takes questions from individuals around Colorado.

Below is the June 4, 2020 installment of Thursday Q&A with Bill Henry.

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All right, welcome to Estate Planning Thursday. My name is Bill Henry, I am an estate planning elder law attorney for Robinson and Henry.

So every Thursday we’re answering your questions, so if you’ve got additional questions feel free to post them in the Q&A and I will do my best to get to them. If for whatever reason I can’t get to those questions I’ll make sure that I send you a response after the event and then also we always send out all the answers to the questions after the event as well.

So all right let’s get into it, we’ve got a bunch of questions today.

Question 1: Are there Colorado estate taxes I should be worried about? 

So our first one is from Marie from Denver.

And Marie says that her husband and herself do not consider themselves rich, but they’ve saved quite a bit over the years and they’re not super concerned about federal estate tax, and just so everyone knows, the current federal state tax credit is 11.5 million per spouse, so it’s quite a bit.

Anyway they say is there any other taxes that they should be concerned about. So good question.

Most People Should Not Worry About Estate Taxes

Taxes always come up every time I talk with clients. And the answer is for the most part from the state planning standpoint, you really don’t need to be too worried about estate tax.

So there is no Colorado state tax. And from an income tax standpoint your beneficiaries will not be taxed.

So not a major concern there either. So I guess the answer Marie is that no, we do not need to be super concerned about estate tax or any other taxes.

Taxes & Making Gifts

Now I will tell you that if you start making gifts during life there can be some issues there, but from a state tax standpoint nothing to be concerned about.

Questions 2: How can I help my dad afford a nursing facility? 

All right, our next question is Kate from Golden.

And she says that her dad had a major stroke and he now has to go to a facility to get taken care of. And apparently it was pretty sudden and she’s very concerned because her parents cannot afford the care. And she doesn’t have enough funds to pay for ’em, they don’t have enough funds to pay for themselves.

So her question is how can she afford the care for her father?

Well first thing Kate, sorry to hear about your father, I know it’s never easy, never easy on both your father or you, just trying to take care of your father.

So what happens whenever we can’t afford to pay for skilled nursing? And that’s what’s Kate’s really talking about. So nursing-home-level care.

Well the government has a program and that program is Medicaid. And Medicaid is different from Medicare. So everyone, whenever they reach the age of 65 or nearly everyone, they will be qualified for Medicare.

But Medicare will only pay for up to 100 days of skilled nursing care. Or 100 days in a nursing home. And so at some point if we can’t afford the care, the level of care that we need, who’s gonna pay for it?

When Medicaid Pays for Nursing Home Care

And that would be the government through the Medicaid program. But to qualified for Medicaid, there’s lots and lots of rules, Kate, that you have to be concerned about.

Medicaid Qualifications

So for example, your father and your mother, I can’t quite tell if your mother’s still alive, but if she is, your father and your mother can only have, if your father’s just alive, he can only have $2000 going into the nursing home.

And then between the two of them, they can only have approximately $167,000 combined assets before the government’s going to pick up the bill.

So there’s a lot of planning that often needs to be done in these situations, there are also income tests.

But I guess the short answer would be that Medicaid is the program that can help your father pay for his care.

Medicaid Planning

To qualify for Medicaid though, he cannot have a lot of money or there needs to be some planning done ahead of time to help him qualify for Medicaid.

And what does that planning look like? Well, for example, if your mother is alive, often times some of those assets can be changed the way, the character of the asset, instead of being a big pile of cash it can be moved over into more of an income stream for your mother.

So those assets can be preserved and yet your father can also get the care that he definitely needs.

So anyway Kate, very complicated. Also obviously a difficult time, but that would be the answer, so Medicaid is the program you would wanna look into.

Question 3: What do I do if I find a will?

Okay, Katherine from Boulder asks what do I do if I find a will?

I assume Katherine means what do I do if I find a will after somebody dies. So if they’re alive, give it back to ’em, but if they’re not alive and they just passed away and you’re clearing out the house and you find a will, the question is what am I supposed to do with this thing?

Here’s What Colorado Law Says About Finding a Will

Well under Colorado law, you have 10 days, the custodian of the will, so Katherine in your situation, you would be the custodian of the will, whenever you find it.

You have 10 days to lodge it with the court.

And all that means is you take it down to the courthouse, you go to the clerk of the court and you give it to ’em.

So lodging it just simply means that you give it to ’em. It does not mean that you’re opening a case.

So often times people are confused and they think if I don’t need to open a probate for my parent, for example, after they pass away, I don’t need to do anything with the will, I just have the original and I don’t know what people do with it, I guess they put it into their drawer. But that’s not what you’re supposed to do.

An original will has to be lodged with the court, but you only lodge the will after somebody dies. So we don’t take a will that’s an original while someones alive and lodge it with the court, the court will not accept it. It’s only after somebody dies that within 10 days of the date that we find it that we need to take it to the court.

Now I can tell you if it’s been longer than 10 days, most people take longer than 10 days. Nothing bad is going to happen, just really what you need to do is when you find it, now that you know, Katherine, is you gotta take it down to the court house in the county where they lived and you just lodge it with the court.

And, again, it does not mean that you’re opening up a new probate case. And like I said, even if you’re not opening a probate, you still gotta take it there.

Question 4: Is there a fund we should set up now for long-term care?

All right next question. Carrie from Highlands Ranch.

She says that both she and her husband are healthy. They’re in their early 60s, and they’re thinking ahead about assistance and what they mean by that is long term care needs. So what if they need to go into a nursing home, they need that level of care. Is there anything we should do now to prepare for that?

Well, Carrie it’s great that you’re thinking about that ahead of time because pre-planning is often the best avenue to take. So what can you do? And it really of course depends on how much you have in assets and are you going to need the government’s assistance in the future?

Is Long-Term Care Insurance an Option?

So the first question is do you have long term care insurance? And if not, can you get it? So you should always evaluate that to see do I have long term care insurance?

If I don’t, would I still be qualified for it? Most likely in your 60s, typically, they’re not going to give you long term care insurance. The insurance company’s not going to insure you but you should definitely check on and just see if they will.

Options if You Don’t Have Long-Term Care Insurance

So if you don’t have insurance and you’re worried about how you’re going to be able to afford that level of care, you have a few options.

Become Indigent to Get Medicaid (not a great choice, by the way)

So you could of course give away all your assets to make yourself indigent, and then after five years or 60 months, the government won’t consider the fact that you divested or gave away everything in your entire estate. They won’t consider that and then you can qualify for Medicaid.

But for most people they’re like well that’s the last thing in the world that I want to do, I’ve worked my entire life for these assets and I just want to have to give them away. So, what do we do in that case?

Create the Right Kind of Trust

Well, there’s different vehicles like trusts, but what’s important to know is that most people’s trusts do not help them qualify for any level of government assistance. And that’s because most people have a revocable trust.

A revocable trust is included 100%. Meaning that all those assets in that trust or nearly all those assets will need to be paid over to the nursing home before you qualify for government assistance.

So again, this is another question like we had before on Medicaid planning and strategies around Medicaid. And is there anything that I wanna do?

And it’s always really important question and conversation to have with your attorney to understand how much you need to give away, or if you even want to give anything away, to help yourself qualify if you feel like you’re gonna need that level of care in the future and you’re not gonna be able to afford it. So good question.

Question 5: Is there a downside to putting my child on my home?

Daniel from Denver. Is there a downside to putting my child on my house?

And the Answer is a Resounding Yes.

So, Daniel, I get this question all the time when I do seminars throughout the state. People often times have already put their children on their house, but let me give you a few examples as to why it could be so damaging to put your kids on your house.

Your House Could be Used to Fix Your Child’s Mistake

So let’s say I put my daughter on my house and she goes off and she gets into a car accident and she has the minimum amount of insurance in Colorado, which I wanna say is around $50,000, but she runs someone over and they’re a pedestrian and now all of the sudden they sue her for a million dollars.

Well, that person, through their attorneys is gonna be looking to get some more money. And now all of the sudden I’ve put her on my house. So my house can now be sold to help pay for her judgment that she got for hitting that person. So that’s one issue.

Your Kid(s) Could Sell Your House!

The other issue that arises when we put our kids onto our house is that now I’ve given my kids the right to sell my house.

And I think that shocks a lot of people because everyone thinks, well it’s my house, I gave it to ’em, but that’s right…

You gave them an actual legal interest so they can go to an attorney and they can do what’s called a partition action and literally have the house sold from underneath you.

So once again, another terrible reason to put kids on our house.

Your House Could be Caught up in a Family Law Matter

Another issue would be well all of the sudden if my daughter gets divorced. I put her on my house, is my house going to be included? And it really depends on what my daughter does with the house. Whether she then put her husband on the house.

Because, again, once I give her that interest in my house, she owns it, so it could be a lot of terrible things that could happen.

Tax Implications

But even if you’ve got a child that you’re putting on the house, they’re an absolute angel, it’s still not a good idea from a tax perspective. And let me give you a little example.

If I buy a house for $100,000. And then on the same day I give my daughter 50% of my house, I put her on the house. And then several years later we sell it for half a million dollars, so with great appreciation.

Well, my tax would be about $60,000, so that’s about 15% of $400,000.

So, therefore, my daughter would pay $15,000 in tax.

But let’s say, instead, I didn’t put her on the house but I waited all the way until I passed away and then I gave her the house after I died.

Well in that case, she gets the house, let’s say the house is worth half a million dollars, she gets the house as if she paid the same amount that it was worth the day I died.

So in my example, if it was worth half a million dollars, when she sells it the next day, guess what? She pays zero in tax. So great result from a tax perspective as well.

So, again, Daniel we don’t wanna put our kids on the house, it’s never a good idea.

Instead, Consider Putting Your House Into a Trust

If you’re concerned about probate, that’s often times why people put their kids on their house, then the better way to do that would be putting your house into a trust and then letting your daughter be a beneficiary of the trust.

Or, alternatively, doing what’s called a beneficiaries deed in Colorado. That would also avoid probates.

So there’s ways to get to our goals and, at the same time, we don’t make our kids’ problems our problems.

So a little bit of a long answer there. But really really important question. It also can have effects if we decide to go we can be disqualified, depending on how long ago that transfer occurred. So great question.

Question 6: Where is the best place to keep my will?

Okay, William from Colorado. What is the best place to keep my will? Another good question answered almost every single time I do a will-signing.

A Little Bit About Wills & Your Intentions…

So where do we keep our will? So in Colorado, we need to first understand that only the original will really matters. So copies do not matter.

The presumption is if we can’t find your original will, that you intended to destroy it.

And, if you think about it from the court’s perspective, that makes a lot of sense. Because if we can’t find it, how do I know that you still want that particular will to be operative, and you want the people listed in that will to actually get stuff.

So, if we can’t overcome the presumption, meaning that it was in your possession last and there’s some fire for example. And that’s how we know that you didn’t intend to destroy it.

But if we don’t know that, then we assume that you intended to destroy your will, so its very important to keep your will in a safe place and to let your personal representative, which is an executor, we just call it personal representative in Colorado, know where that document is.

Here’s Where to Put Your Will

Safe Deposit Box

So where do we keep it? So safe deposit box. There are companies in Colorado that, and I can post them in the notes after this, there are companies in Colorado that all they do is operate safe deposit box.

Banks sometimes have safe deposit box. I know Wells Fargo in a few locations still has them available, but it’s fewer and fewer, and it often can be very difficult to get an actual safe deposit box.

A Safe in Your Home

So, a safe at the house would be another place.

What’s most important is that you know and your executor, your personal representative, knows where that document is. 

If you ever can’t find it, you need to have it re-executed, or if you can’t or you don’t know the attorney or whoever created that underlying document, then you need to just have an entire new will created, so there you go.

Question 7: If I apply for Medicaid, does my trust count against me?

All right Marion from the Springs. If I apply for Medicaid, is my trust included? In other words, does it count against me?

The answer is: most likely.

So, like I was mentioning before, revocable trusts are gonna be completely included.

So every asset you have will, in effect, disqualify you or push the qualification date for Medicaid further and further out.

Most irrevocable trusts, unless they’re drafted in a very particular way, are also going to be included or partially included.

How to Know What Kind of Trust You Have

Well, first you gotta look at your trust, itself. And so if you look at the trust and it says, well this trust can be amended or restated by the grantors, the settlors, the trust maker, some other language like that, that means it’s revocable and that means that it is going to be 100% included.

So in that case then, you’re gonna, it’s gonna be counted against you for Medicaid purposes.

Now if you have a truly irrevocable trust and you have no rights in it, so no one can even give you the money, well in that case it can be excluded.

Why Most People’s Trusts Are Counted

But just know that when you make that contribution to the trust, it is going to be counted against you for five years.

So 60 months have to pass from the time that that trust becomes completely irrevocable and you have no rights at all into it.

So, generally speaking, most people’s trusts are included.

Question 8: I’m divorced with kids. Do I need a trust for their inheritance, or is a will enough?

All right, Jason from Golden. I’m divorced with kids. Do I need a trust for their inheritance or is a will okay? So great question.

And it really comes down to do I need a will or do I need a trust?

So, the answer to that, of course, depends on your particular circumstances and what are you trying to accomplish?

So often times a will can be absolutely fine. A will, though, only transfers our probate assets, so that means that the assets are going through probates. So let me give you an example.

Example of a Will

Let’s say you have a 401K, and the 401K has beneficiaries listed, and you’ve listed your Uncle Bob to get 100% of your 401K. But now in your will, you instead say, I want, you know, my Aunt Mary to get all my assets and then you die.

So the question is where will all your 401K assets go?

If you sign that will after the date that you put that beneficiary of your uncle down on your 401K, where is it gonna go? Does your uncle get it? Does your aunt get it? Well, the answer is, your uncle’s going to get it.

So again, the 401K assets in that example are not gonna go through probate, and, therefore, the will doesn’t even matter.

So a will is like an instruction sheet to the court to say where you want your property to go.

When You Might Want a Trust

So if you need a trust, really comes down to, again, what are your goals?

Avoid Probate

If you’re trying to avoid probate, that can be a goal for a trust. If you’re trying to help yourself with some sort of long term care planning, that’s another goal for a trust.

Question 8: I’m divorced with kids. Do I need a trust for their inheritance, or is a will enough?

Protect Your Beneficiaries

If you wanna protect your beneficiaries from their creditors and their ex-spouses and things of that nature, another goal.

A Child with Disabilities

Or maybe one of your beneficiaries, a child has some sort of disability, another goal for a trust. So it really comes down to what are you trying to accomplish as to whether or not you’re gonna need a trust? So great question.

Question 9: Once I create my will, do I give it to someone? If so, who?

Okay. Once I create my will, do I give it to someone, if so, who? The answer to that is no.

Do Not Give Your Will to Anyone

So we don’t wanna give our will to anyone because what if you’re gonna change it in the future?

So you don’t want multiple original wills floating around there and then to end up with some big battle in the future on the will and all of the sudden saying which will is my original will and then oh here’s this will I’ve got over here and we’ve got wills all over the place.

We don’t give our wills to anyone. So our beneficiaries under our will only have what’s called an expectancy, meaning that they have no actual rights to any of your property just because they’re listed in your will.

It’s only after you’ve died does that become operative. So good question.

Just wanna jump back for one second to Marion’s question, or excuse me, Jason’s question. I didn’t mention, so he’s divorced with kids and so this is back to do I need a trust or do I need a will? Generally for parents that are divorced when they have minor children we typically will end up doing a trust and that’s because we don’t want our ex-spouse to have any sort of control over the funds. And I’m not saying they would be entitled to it but what I am saying is that if they are the natural legal guardian over the minor children then they’re gonna have a lot of influence of when those children end up getting money because they are making decisions on behalf of the kids. So, just wanted to make sure I clarified that.

Question 10: I expect to be a family caregiver. How can I get paid?

Okay, this is from anonymous. I expect to be a family caregiver and because of that I’m gonna have to reduce my hours at work, is there any way I can get paid for caregiving?

Great question, and you’re absolutely right. It is so common that the caregivers do not make as much money during their career while they’re caring for, typically, an elderly loved one.

It is emotionally taxing and financially taxing. Believe it or not they often times will end up spending some of their own money.

The Rules of Paying a Family Caregiver

So the issue we have is that the way the laws are written is that any money that is transferred without being very specific, I’ll get into a few of the rules, to a person that is a family member is assumed to, that work that the family member is doing is assumed to be done for their love and affection and what that really means is that it’s a gift.

Avoiding Medicaid Disqualification

So a gift will disqualify the loved one if at some point they need to qualify for Medicaid.

Whether it’s in-home services through Medicaid or in a nursing home level of care.

Well, we don’t want that person to get disqualified right because now who’s gonna take care of them? How are we gonna pay those bills?

Create a Caregiver Agreement

So we need to be, we need to find a way to transfer those funds to the caregiver legally for the work that they’re doing. And we do that by what’s called a caregiver agreement.

That agreement is between you, anonymous, and your loved one that you’re taking care of. And so that loved one will sign that agreement if they have the ability to. If not, their power of attorney can do it, so long as it’s not you, there’s a few other rules.

Formalizing the Document

And we have to be very specific about how much money we’re gonna get paid, what duration we’re going to get paid, how often we’re gonna get paid, it has to be notarized, the document has to be in writing.

And just so you know, if you make one misstep when creating this document, 100% of the money given will be counted against your loved one as a gift if they ever have to qualify for Medicaid so we wanna be really careful.

A Reasonable Wage

And the amount that we pay ourselves needs to be reasonable. And that can vary. Minimum wage is always going to be safe because it’s really based on what that type of care, somebody else would require to be paid to give the type of care that you’re giving. So minimum wage, 100% going to be safe there.

$20 and hour often times works, you can go a little bit higher than that, but again, the higher you go, the more risk that the Medicaid office is going to object in the future.

So just be really careful when you’re creating that agreement, know what you’re doing, find legal counsel that can help you create that document, because again, you won’t find out for years, and once you do, and if it wasn’t done correctly, it was all for naught, it’s 100% going to be counted against your loved one.

Question 11: How easy is it to change my estate plan if something happens?

Okay, how easy is it to change my estate plan in the event that something happens? And then a followup with that. Is do I have to go through the whole process again or is it a pretty easy fix?

Well that really just depends on what we’re changing together so for people that don’t know, what’s a typical estate plan look like? Or what could we say what’s a core estate plan?

So pretty much at the minimum, all of our clients at Robinson and Henry, at least have a will, a medical power of attorney, a general durable power of attorney, which is a financial power of attorney, HIPAA release, that just says who can talk to my doctors. We have a living will as well, did I forget anything? And then that’s it, five documents.

So that would be a core estate plan for all of our clients and then often times many of our clients will add a trust on as well, if it makes sense. And I probably say maybe 60% or so of our clients. 55-60% will add a trust on as well. So that’s a core estate plan that everyone’s going to need. So back to the question.

The Ease of Changes Depends…

Here’s an Simple Fix.

So what if I need to make a change, how easy is it to fix? And it just depends. So if we’re talking about I did what’s called a tangible personal property memorandum which is a document that allows me to say I want my jewelry to go to this person, or I want my car to go to my son, whatever the case may be. Well that’s a really easy fix because you can change that document yourself and you don’t need anyone’s help.

Another Simple Change.

On the other hand if it’s say you say, well the person I named as my medical power of attorney, they’re really not fitting the bill anymore or they’ve got some sort of issues where I wanna make a change there, very easy fix.

Easy Fix. 

Same thing if you wanna change your personal representative, also, that’s the executor, what we call an executor in Colorado. Easy fix. We do what’s called a codicil, very straightforward, same thing with a trust.

Here’s a More Complex Change.

Now on the other hand, if we all of the sudden go, you know what, our trust is not meeting our goals, we need more asset protection. One of my children ended up with some sort of a disability; one of my children has a spouse that is overbearing.

Well in that case we’re gonna have to have a much bigger revision and it’s just gonna take us longer to do it because of what we’re trying to change, so very fact dependent on what that would look like.

Question 12: What do I do with my power of attorney?

Anne from Colorado, you mentioned what to do with a will earlier, but what do you do with a power of attorney? Great followup question, Anne.

So we talk about powers of attorney, again, we’ve got multiple types of powers of attorney. So we have a medical power of attorney, and we have a financial power of attorney.

What to do With a Financial Power of Attorney 

So financial power of attorney, you could give it if it’s effective immediately, you could give those to the agent, the person that you’ve listed that you want to be in charge with you, not for you, but with you. Make the financial decision for you.

What to do With a Medical Power of Attorney 

But when we talk about your medical power of attorney, your living will, also called here in Colorado an advanced directive for medical and surgical treatment, your HIPAA release, those documents go to all your physicians and they’re totally effective with copies.

So you give a copy of all those to all of your doctors. If you went to the hospital for some sort of surgery, you would bring those with you as well. So really good question there, Anne, on what we do with all those documents.

Question 13: Is probate really all that bad?

Okay. Let’s see if we have any other questions. All right. So, let me see here before we drop off make sure we’ve got everything covered. Here’s one more: oh, no I answered that from Katherine.

Oh, one more. Brent from Castle Rock. Okay, you hear people talk about probate court being a nightmare, should we always avoid probate? Is it a really bad thing? Great question, Brent.

So I talk with clients all the time, some clients have found the probate process to be incredibly difficult and incredibly complex. But having said that, Colorado has what’s called an administrative probate.

Colorado Probate Designed to be Easier

So it is designed to be easier and simpler than any other, than the way it used to be or particularly on the coast, where it’s far more complicated.

So often times I’ll also meet with clients who say it was a breeze, it was very easy and wasn’t that complicated.

Now having said that, there are notice requirements, it is an actual court filing, and the whole process will probably take you anywhere from six months to a year to get through from start to finish.

So, for other people, they put their house or other assets into a trust, their trustee just takes over it’s more like a contract. And then they’re just in charge. In other words, there’s no probate process that’s needed.

Probate & Simple Estates

But for people that have relatively simple assets, and I don’t mean the value so much as I mean the complexity, we just have a house, one house in Colorado, maybe we’ve got some 401Ks or IRAs or we’ve listed our beneficiaries on them, well then probate can be a pretty straightforward and easy process.

So it’s unfortunately a case by case and it depends on what the whole family dynamics are, we can have a big battle, often times battles can be way more difficult whenever we have more of a will-based plan than a trust-based plan, but that’s not to say that you can’t challenge a trust as well, so, sort of all up there.

All right, so that is it, that’s all we’ve got. If you’ve got any questions you’d like for me to answer next week, I’m happy to do so. Just either send them ahead of time or join us at 11a.m. every Thursday.

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