Thursday, February 9, 2012

Estate Planning for Newlyweds: “Easier than Planning the Wedding!”

Why is it so important for newlyweds to address critical estate planning matters?  In the simplest of terms: life is full of surprises and it can save you a lot of money.  When love is in the air, it is easy to overlook the devastating consequences of unexpected events such as illnesses, accidents, or tragedy.  If tragedy does strike and no plan exists, family feuds can arise and cost thousands of dollars.  The necessity of an estate plan for newlyweds with children is even more pronounced.

Marriage is a romantic notion but carries with it important consequences as well.  As unromantic as it may seem to discuss estate planning for the present and the future, now is the time to do so if you are a newlywed.  The good news is, after these items have been discussed and a plan is in place, a huge burden will be lifted and an added layer of security will strengthen the union.  

Younger Couples Often Take Advantage of a Revocable Living Trust

Contrary to what you may have heard, a “Will” is not the only document – and certainly not the preferable document – to serve as a primary estate planning tool.  A Revocable Living Trust has several advantages:  it avoids the probate process; it isn’t public; and there are fewer expenses and delays since the probate process is not necessary.  A Revocable Living Trust enables a couple to plan estate matters with efficiency and without sacrificing control of assets.

Some Older Couples Prefer a Living Trust Plusto Protect Assets from Catastrophic Expenses Associated with Long-Term Care

A Revocable Living Trust protects assets from the expenses of probate, is private, but does not protect assets from the expenses of long-term care while you or your spouse is alive.  Since the settlor(s) (creators) of a revocable living trust maintain control and can reach the assets placed in the trust, so can creditors. 
Since long-term care insurance is often very expensive (and in some cases, difficult to qualify for), another solution can handle this problem.  A Living Trust Plus™ protects assets from the expenses and difficulties of probate as well as the expenses of long-term care.  Not only that, but it also protects assets from lawsuits and a multitude of other financial risks.

Note: If you are an attorney and are interested in offering your clients the Living Trust Plus™ follow this link.

70% of Americans who live to age 65 will need long-term care at some time in their lives.  50% of all couples and 70% of single persons become impoverished within one year after entering a nursing home. The best estate plan in the world is useless if you wind up in a nursing home, spending all of your money on long-term care.

Some Documents are Important to All Couples

Many people think of a premarital agreement as only dealing with the consequences of divorce. However, the most important reason for a premarital agreement is to determine how your estate will be distributed upon death of a spouse during the marriage.

If you remember Terri Schiavo case in the headlines several years ago, you know how family members and spouses can tragically dispute an injured person’s intent to live.  An Advance Medical Directive can solve these problems.  Generally, this document is incorporated into a Medical Power of Attorney.

The Financial Power of Attorney is an essential tool in the event that, due to age, illness, or injury, one is unable to carry on legal and financial affairs. Having a Financial Power of Attorney will generally avoid the need to go through the time consuming, expensive, and publicly embarrassing process whereby someone has to go to court to have that person declared mentally or physically incompetent.  

Wedding season is upon us; if you or a family member will be tying the knot this season, then you are aware of the flawless planning required to pull off a successful wedding. It’s an important day, and undoubtedly worth all the effort.  But as special as that day may be, proper estate planning lasts a lifetime.

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Monday, February 6, 2012

Medicaid Asset Protection: What Works and What Does Not

By Evan Farr, Certified Elder Law Attorney

This article was posted by ElderLaw Answers
Much confusion abounds in the world of asset protection trusts, including the false belief by many elder law, estate planning, and asset protection attorneys that self-settled Offshore Asset Protection Trusts and/or Domestic Asset Protection Trusts are helpful in connection with Medicaid asset protection planning.  In fact, these trusts are useless when it comes to the world of Medicaid asset protection planning.

“Self-Settled Trust” Defined
The term “self-settled asset protection trust” refers to a very specific type of “self-settled,” i.e., an irrevocable asset protection trust where the settlor is allowed to receive distributions of both income and principal. Such trusts have historically been prohibited in the United States.

This prohibition is seen in both the Restatement of Trusts, Second, and the Uniform Trust Code.  Section 156 of the Restatement of Trusts, Second, states the traditional rule as follows:  “(1) Where a person creates for his own benefit a trust with a provision restraining the voluntary or involuntary transfer of his interest, his transferee or creditors can reach his interest. (2) Where a person creates for his own benefit a trust for support or a discretionary trust, his transferee or creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit.”

Section 505(a)(2) of the Uniform Trust Code states that “with respect to an irrevocable trust, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor’s benefit.”

Offshore Asset Protection Trusts
The demand for self-settled asset protection trusts (i.e., irrevocable asset protection trusts where the settlor is allowed to receive distributions of both income and principal) and the refusal of anyU.S.jurisdiction to recognize them led to the development of a prosperous Offshore Asset Protection Trust industry by the mid-1980s.  Offshore Asset Protection Trusts make it nearly impossible for general U.S.creditors to reach the underlying assets because the trusts are not subject to the jurisdiction of the States. Thus, in order to enforce the judgment, the creditor must theoretically file suit in the offshore jurisdiction and then try the case in the foreign jurisdiction. Foreign law will apply and the creditor and witnesses must travel across the globe to try the case.

Domestic Asset Protection Trusts
The Domestic Asset Protection Trust (DAPT) is a spin-off of the Offshore Asset Protection Trust. DAPTs were first introduced in theUnited Statesin 1997 as an effort to retain in theU.S.some of the wealth that had been steadily moving into Offshore Asset Protection Trusts. Alaska and Delaware were the first to offer DAPTs. Since then, eleven other states have enacted DAPT legislation: Colorado, Hawaii, Missouri, Nevada, New Hampshire, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah and Wyoming. 

Subject to certain exceptions that vary from one DAPT state to another, most creditors cannot reach property in a DAPT unless that property was fraudulently transferred to the trustee. Most important, for elder law attorneys, however, is the fact that the term “most creditors” does not include Medicaid.

On the contrary, the biggest limitation of both Offshore and Domestic Asset Protection Trusts, which makes them essentially useless for a client who desires complete asset protection, is that these trusts allow the settlor to have access to principal and are therefore absolutely ineffective for Medicaid asset protection purposes because, under federal Medicaid law and under the Medicaid laws of every state, if the Medicaid applicant or the spouse of the Medicaid applicant has access to principal, the assets in the trust will be deemed “countable” for Medicaid purposes.

The Asset Protection Trust that Works for Medicaid and General Asset Protection
Only an irrevocable trust that puts 100 percent of the principal beyond the reach of the settlor is effective for both Medicaid asset protection and general asset protection. This can be a trust designed so that the settlor has no direct access to income or principal or, if the settlor wishes to retain use of at least the income from the trust, it can be designed an Income-Only Trust (IOT), which allows the settlor to receive all ordinary income from the trust, but no direct access to principal.  Based on the author’s research, IOTs work in all 50 states for general asset protection because of the general common law as seen in both the Restatement of Trusts, Second, and the Uniform Trust Code.

IOTs work for Medicaid asset protection because of OBRA ’93 and two ensuing clarification letters from HCFA (now CMS) – one dated 12-23-1993 (the Richardson letter), and one dated 2-25-1998 (the Streimer letter), which together made clear that:  “[t]ransfers to an irrevocable trust with retained income only interests are considered available only to the extent of the income earned”;  and “transfer of those assets to or for the benefit of someone other than the beneficiary does not incur a separate transfer penalty.”  Based on the author’s research, the only two states where the IOT does not work for Medicaid asset protection are Connecticut and Minnesota, both of which have “trust buster” statutes that effectively nullify the Medicaid asset protection features of an IOT.

For more information about the benefits and flexibility of IOTs, and how to properly draft IOTs, visit the author’s Web site at or order the ALI-ABA publication Planning and Defending Asset-Protection Trusts (2009) at, in which the author’s chapter Asset Protection for the Middle Class:  Income-Only Trusts & Medicaid Asset Protection provides a detailed treatise on the topic.

If you are interested in learning more about the Living Trust Plus™ from the Author's Firm's website, simply connect via Facebook by clicking the button below:

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