Q: My husband and I are in reasonably good health and although we are in our 60s, we have had conversations about the day when we may need to move to a nursing home facility. How can we preserve most of our assets for our children?
A: There are several things you can do before one or both of you need nursing home care. Before we begin, make a comprehensive list of all your assets, including their current value, the name of the company and/or adviser, location of the asset, legal description of any real estate, minerals, wind or water rights, how ownership is titled, and current beneficiary information. This list should include any assets that are non-income producing such as inherited mineral interests, business interests, insurance policies, etc. You will need to share this information with an experienced long-term care planning attorney for their recommendations.
Below is a list of options you may want to consider:
1. Meet with your long-term care planning attorney and accountant to discuss if your financial situation will allow you to begin transferring assets to your children now, either in part or in whole. Ideally, you would transfer as many assets to your children as possible at least five years before your admission to a full time nursing facility, as you will be penalized for any gifting done in the five years preceding an admission, which increases your overall out-of-pocket expense. Be aware that just because you gifted assets to your children with the expectation that they help with any financial problems you may encounter in your later years, they are under no legal obligation to comply. Gifting can be done to your children outright or in a trust. A trust is more costly, but gifting outright to your children means your newly-gifted assets are subject to your children’s possible divorce settlement, lawsuit or bankruptcy.
2. Continue to age at home and attempt to avoid nursing home care altogether. If you have not already developed a healthy routine of diet and exercise, begin immediately. Consult with your physician to see what suggestions they have to improve your odds of remaining independent at home.
3. When you need assistance, move in with one of your children. This may not be a popular option for either you or your child, but if you wish to preserve as many assets as possible from nursing home expenses, this strategy can be an answer. You may need to provide some fair compensation to your care-giving child, as they are taking on the additional responsibility of caring for you and will incur additional expenses and loss of personal freedom as a result. Consult with your long-term care planning attorney to structure compensation to the care-giving child so that it won’t be considered a gift and factored against you when computing your nursing home costs if that becomes necessary at a later date.
4. Depending on your age and your ability to pay, you may be able to purchase long-term care insurance. Long-term care insurance is expensive and may not pay the full amount of your nursing home care, but it can cover a large portion of the expense. Be sure to thoroughly research the insurance agent and company before purchasing any policy. Additionally, be sure to inquire about the policy’s inflation protection and waiting period you must incur prior to payment being issued to the nursing home. We advise getting 2-3 quotes for long-term care insurance to avoid an inferior product.
5. If you have a disabled child, you may want to consider making donations to fund a special needs trust on their behalf. These donations are not considered a gift when the nursing home calculates your expected expense. Donations to a special needs trust are irrevocable and cannot be used for the benefit of anyone other than the disabled individual for whom the trust was established until such time as the disabled individual is deceased.
If you and your family have questions about long-term care planning and asset protection, please contact Davis & McCann, P. A., Dodge City, KS. We are members of Wealth Counsel, a national consortium of Estate Planning Attorneys and the National Academy of Elder Law Attorneys (NAELA). We focus our practice on providing clients with the best legal advice on estate planning, Medicaid and Long-term Care Planning, Family Business/Small Business Succession Planning, Probate, Trust Administration, Real Estate Transactions, 1031 Exchanges, and related matters.
You may have heard of a Special Needs Trust, but do you fully understand what it is or how it can be beneficial? Over the years, we’ve had the privilege of working with multiple families of special needs individuals to establish this type of trust. Let’s cover a few of the most common questions we are asked:
1. What is a Special Needs Trust? A Special Needs Trust is a legal tool established specifically to benefit someone with physical and/or mental disabilities. These trusts are used to provide financial support for the individual with the disability.
2. What are the benefits of a Special Needs Trust? By using a Special Needs Trust for a disabled individual, a family member or friend can establish a fund that will be used to provide comfort care items to a disabled person, without jeopardizing that individual’s eligibility for government assistance. Without a Special Needs Trust, substantial financial gifts made to a disabled person, even those provided for in a trust established for their benefit, could disqualify them from receiving government benefits for which they would otherwise be eligible.
3. Can the beneficiary (the disabled individual) access the funds in the Special Needs Trust? No, a Trustee is appointed when the trust is established who is solely responsible for buying services and products for the individual, like vacations, home furniture and supplies, medical and dental expenses, educational expenses, vehicles, personal care attendants, etc. If the disabled individual were to have direct access to the funds in the Special Needs Trust, he/she could be disqualified from government benefits.
4. Who can set up a Special Needs Trust? Anyone may establish a “third party” Special Needs Trust for the benefit of a physically and/or mentally disabled person. You need not be a relative of the individual. A “first party” Special Needs Trust or a “payback trust” is established by a disabled individual or a conservator on their behalf and holds assets that belong to the disabled person, who must have special needs and be
Q: My wife and I have farmed our entire married lives and we are nearing retirement. Several years ago, we formed a Kansas Limited Liability Company (LLC) for our farming operation and now we would like to begin to gift LLC membership units to our three adult children. One of our sons is the LLC manager but the other two children are not involved in the farming operation. I’d like the children to receive only distributions of income from the LLC at this point, not voting rights. What is the best way to make this happen?
A: You and your wife can each gift up to $15,000 per child, per year, without federal or state gift tax consequences. Therefore, you can gift each child a combined total gift of up to $30,000 worth of LLC units each year. Unless your existing Operating Agreement established a value for each LLC unit or a method of valuation, we would recommend that you contact a certified appraiser to establish the current value of your LLC. Based on information from your appraisal, you will be able to determine how many units you can gift to each child and still avoid federal and state gift tax consequences.
Before you proceed to gift any LLC units, you should have your Operating Agreement thoroughly reviewed by an attorney experienced in corporate law to determine whether your existing Operating Agreement
If you have been fortunate enough to acquire a substantial amount of wealth during your lifetime, you might be inclined to look for ways to share that wealth with those individuals you love, as well as reduce your potential estate tax.
Only you can decide whether your loved ones are responsible enough to manage a monetary gift at this time, but if you would like to see them enjoy some of the fruits of your labor while you are alive, here are a few things you should consider before making a financial gift:
1. Under current law, you may gift up to $15,000 (the annual exclusion amount) to any person in a year without having to file a gift tax return or pay gift taxes to the IRS. If you gift over this amount to any one person during the year, then something called your lifetime exemption comes into play. The current lifetime exemption amount is $11.4 million, but will increase to $11.58 million in 2020. Therefore, if a person makes a gift over $15,000 to an individual in a year, they use up a portion of their lifetime exemption, which they document with the IRS by filing a gift tax return, even if there is no gift tax due. If an individual gifts more than $15,000 to an individual in a year and has used up their lifetime exclusion amount then, that person will face a hefty 40% tax on the amount of the gift valued over $15,000.
2. If you are married, you and your spouse may each gift up to $15,000 to the same person in the same year, without gift tax consequences. The gift recipient does not need to be related to you.
3. What if you want to make a financial gift to your spouse? You are in luck! Gifts to spouses are generally unlimited and require no gift or estate tax payment. An exception to this rule: If your spouse is not a U.S. citizen, you are limited on the amount that you can gift tax free.
Family gatherings, holidays and special events are perfect opportunities to check in on your aging loved one’s health and well-being. If you suspect your loved one may be struggling with their mental health, here are a few signs you can watch for at your next visit:
1. Confusion, or increased problems with decision-making.
2. Loss of weight and decrease (or abnormal increase) in appetite.
3. New complaints of fatigue or insomnia.
4. Difficulty managing finances or calculating numbers.
5. A noticeable change in personal hygiene, appearance, or home maintenance.
6. Memory loss, especially short-term memory issues.
7. Depression symptoms lasting more than a few weeks.
8. A change in social habits; withdrawal from events and people they normally enjoy.
The last of the children have moved away from home. You’re officially an empty nester! If you’re like many parents, adjusting to this new found freedom and income will take some time. Here are some great tips to keep in mind as you plan for your future:
1. Schedule an appointment with a reputable financial planner or accountant to review your retirement plan and make any necessary adjustments to your savings and investment plan to accommodate the lifestyle you want to have in your post-retirement age. For example, you may want to lower your household budget because you no longer have expenses related to raising children, but possibly increase your personal spending because you would like to travel.
2. Examine your estate planning documents, old will and powers of attorney and make sure they still reflect what you want to happen if you can’t act on your own behalf. A few things you should consider: (a) Do any of your children have legal or marital concerns that might put their inheritance at risk? (b) Are any of your beneficiaries receiving government benefits, whose eligibility might be jeopardized by an inheritance from you? (c) Do you still want the same people acting as your health care or business powers of attorney? (d) If you plan to become a “snowbird” and travel out of state for extended stays, do you know if your current estate planning documents will be honored in your secondary state of residence? (e) Has your net worth increased significantly since you signed your will or trust? (f) Do you still want the same people named in your original will or trust as beneficiaries? (g) Have any deaths or births occurred within the family that would require an amendment to your will or trust? (h) Have you acquired any titled assets since you did your original estate plan (real estate, minerals, investments, vehicles, business interests, etc.)?
Q: My parents are in their early 70s and have done no estate planning. My mother has wanted to do planning for the last several years but my father refuses to discuss the subject. They own their home as joint tenants, and they have a couple of bank accounts, retirement accounts, and some life insurance, as well as their vehicles. Can my mother do her own estate planning, even if my father still refuses to cooperate?
A: Yes, your mother can and should do her estate planning. While she may be limited with what she can do since your father is unwilling to cooperate, she can do some important basic planning. Without your father’s consent and cooperation, she may not be able to utilize the most advantageous tax saving options, but she will be able to get some very important legal safeguards in place for herself. At the very least, some basic documents that she should immediately request include a health care power of attorney, a financial power of attorney, a living will (if she wants to dictate how her end of life treatment will be handled), and, if possible, a simple will or trust.
With a Health Care Power of Attorney, your mother will be able to appoint a person, or a group of individuals whom she trusts, to make immediate health care decisions on her behalf if she becomes incapable of making decisions for herself. Without this important document, in an emergency, the physician or hospital may require additional paperwork and permissions prior to treatment. This document becomes especially important if the emergency occurs outside your parents’ local area and your mother’s regular physician is not present. The time that it takes to gain additional permissions and paperwork could drastically impact your mother’s care in an emergency.
Q: “My mother, who resided in Kansas, died in June. She had a Last Will and Testament and owned several pieces of real estate. She told us children that we would receive an equal share of her estate. How long will I have to wait to receive my share and what situations might delay the distribution?”
A: Because your mother chose to use a Will as her estate planning strategy, her estate will require a probate action initiated by the filing of a Petition for Probate of Will with the District Court in the county of her permanent residence. Filing must happen within six months after the date of her death. Failure to file her Will within this six month period will result in her estate being handled as if no Will existed. Anyone having knowledge and access to her Will may offer it for probate at any time within the six months following her death. Usually, the Executor or Administrator named in her Will is responsible for filing the Petition with the assistance of a probate attorney.
Your Mother’s estate may need to file a federal estate tax return. Kansas currently doesn’t have an estate tax, so no state estate tax return should be necessary, unless your Mother owned property in another state. Tax payments are due no later than nine months after the date of death. For your mother’s estate, these tax returns must be filed and paid (if applicable) no later than next March, unless an extension has been properly requested. Additionally, if your mother owned property in a state other than Kansas, a separate probate action in that state may be required.
After the Petition for Probate of Will has been filed, you generally can expect the Executor or Administrator to be appointed by the Court within 4 to 5 weeks from the date the petition is filed.
If your mother had outstanding debts due to creditors, they have 4 months after they have been notified to file their claims against the estate. Any distributions of an estate will typically not occur until after this time period has run.
Since each estate is unique, no exact time schedule can be given for the length necessary to probate an estate. Distributions to beneficiaries generally don’t happen until the estate is ready to close, but if circumstances warrant it, the Executor or Administrator may do a partial distribution prior to that time.
Some factors that may delay an estate closure and distribution can include:
1. Appraisal of real property, equipment and household items. A certified appraiser is not always available in a timely fashion, especially for rural residents. Certified appraisers are often booked out months in advance, or must travel long distances, so obtaining a quick appraisal for the real estate isn’t always feasible. If family members are contentious, multiple appraisals may be required to satisfy the parties involved, which can add to the delay.
“An ounce of prevention is worth a pound of cure.”
You may be familiar with this famous quote by Benjamin Franklin and think advice from the 1700s would be inapplicable for business decisions in 21st century. However, our experience tells us otherwise.
Business owners who try to act as their own attorney when entering into a legally binding document, like a commercial lease agreement, assume a tremendous amount of financial risk. Many intelligent individuals find themselves in the middle of what would have otherwise been a preventable legal or financial mess if they had only sought proper legal advice.
Some common items that often trip up business owners when it comes to commercial leases are the exclusion or deficient use of the following clauses:
1. Attorney Fee Clause: If your contract dispute requires litigation, attorney’s fees and court costs should be paid by the person who loses the litigation. Including this clause acts as a deterrent to the filing of frivolous claims.
2. Use of the Property: Avoid surprises by ensuring that the tenant’s intended use of the property is explicitly permitted in the lease.
3. Approval of Alterations and Signage: A commercial lease should require the landlord’s prior written approval prior to the tenant making any substantial alterations to the property. There should also be language requiring that any alterations made be in a workmanlike manner. Finally, the landlord should have to approve in writing to the tenant’s outdoor signage. This is due to the fact that many signage require making permanent alterations to the exterior of the building.
What is the best way to revoke or change your existing Last Will and Testament? As with many things in law, it depends on your individual circumstance. Some common reasons you may wish to revoke or change your Last Will and Testament include:
• You, a fiduciary, or a beneficiary has changed their name;
• You are recently divorced;
• You wish to add, delete or change beneficiaries;
• You have sold, transferred or gifted away assets previously included in your Will;
• You have acquired new assets you wish to leave to a specific beneficiary;
• Your financial status has changed and your estate could now benefit from more sophisticated tax planning;
• You have married or remarried;
• Your family has grown, either by birth or adoption;
• One of your named beneficiaries is now receiving government assistance for a disability and an inheritance from you may disqualify them from such program;
• Your spouse or another named beneficiary under your will has died;
• Your beneficiary’s life is unstable (financially irresponsible, drug or alcohol abuse, credit problems, rocky marriage, etc.) and you now wish to include some type of limitation or protection for their inheritance.
In Kansas, you can revoke your existing Last Will and Testament in one of three ways: 1) Revoke your original Last Will and Testament in writing; 2) Destroy your original Last Will and Testament and all copies; or 3) Execute a new Last Will and Testament that includes a provision stating that it replaces all previous Wills and Codicils signed by you. In practicality, you also can sell or gift away all of your assets during your lifetime or set up all of your assets to transfer by way of beneficiary designations at the time of your death and nullify the effects of your written Will.
A word of caution however: NEVER, EVER destroy your original Last Will and Testament before you have
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