As you go through life, you probably have found that there is no shortage of people who want to give you estate planning advice. This may include your friends. The likelihood is that you realize that these friends are not estate planning professionals and you take everything that they say with a grain of salt.
However, there are professionals out there who give well meaning but erroneous estate planning advice because they are not estate planning or elder law specialists. You may have relied on this advice from your banker, financial advisor, accountant, the register of deeds or nursing home. Because of this reliance, you may have followed this advice to your detriment.
When you are dealing with estate planning and elder law matters, make sure that you are dealing with a qualified estate planning professional. The old adage “penny wise and pound foolish” is especially true in these situations. You may have not have wanted to spend the money to get proper advice, but then it could cost you much more to fix it after the fact.
Of all the estate planning advice stories I have heard from clients and others over the years, the following are the top seven I hear on a fairly regular basis.
7. My bank or my financial advisor won’t let me put my co-trustees as signers on my accounts. If you have a co-trustee, your co-trustee can be listed with you as a signer on any accounts that you have titled in your trust. This includes Canadian trustees. If you are not incapacitated, you can name as many co-trustees of your trust that you want and add them as signers to all of your accounts. Even if a person is not a co-trustee of your entire trust, you can name them as a special trustee over certain accounts if your trust has provisions to allow for it.
6. The bank won’t let me put my power of attorney agent as a signer on my bank accounts unless I take my name off as signer. The purpose of an immediate power of attorney is generally to allow someone to sign on your behalf in addition to you, not in replacement of you. If your power of attorney is effective immediately, insist that you and your agents be put on as signers on all of your accounts now. When needed, your agents need to do nothing additional. For example, when you go out of town on vacation, you can just ask your power of attorney agent to pay your bills while you are gone. If your power of attorney becomes effective upon your incapacity, you will have to wait to have your power of attorney agents as signers on your accounts until such incapacity.
5. The Register of Deeds told me that all I needed to do to put my property in my trust was a quit claim deed and they gave me a form. This is one misconception I have heard quite frequently lately. Firstly, you shouldn’t be using a quit claim deed to put property in your trust; you should be using a warranty deed. Using a warranty deed instead of a quit claim deed can maintain not only the integrity of the chain of title, but also any title insurance coverage you may have. I only occasionally see the need to use a quit claim deed. Most of the time, a warranty deed is more protection for the parties.
In addition, you should not attempt to draft your own deeds. Use an experienced real estate legal professional. Deeds look deceptively simple because they are only a one page form. However, one or two little words on a deed can make huge differences in the owners’ interests in the property. I have seen a number of occasions in which it cost thousands or tens of thousands of dollars in legal fees and associated court costs to fix do-it-yourself deeds.
4. When my special needs child receives a personal injury award, inheritance, gift (pick one), my child is disqualified from governmental benefits until those assets are spent down to minimums. If you have a loved one who is on Supplemental Security Income and/or Medicaid and you anticipate that he or she will receive a personal injury award, gift, inheritance or even a divorce property settlement, contact your elder law attorney before your loved one receives the money. These assets can be put in a court ordered special needs trust. This trust would provide for your loved one’s special needs, but does not disqualify him or her from governmental benefits. These trust assets can then be used to enhance the life of your special needs loved one for such things as vacations, going out to dinner or other entertainment. The only hitch with these trusts is that if there are any assets left in the trust after your loved one’s death, then those assets must be used to reimburse the government for the benefits paid.
3. My spouse is in the nursing home and I am still at home; the nursing home says that we have to spend down all of our countable assets to $2,000 each before my spouse can qualify for Medicaid to pay for nursing home care. This is a fairly common misconception. The general rule is, if your spouse goes into a nursing home, you can keep one-half of the countable assets, but not more than $109,560, and at least $21,912. The remainder of the assets would then have to be spent down on nursing home care or other expenses. In this situation, through the use of a solely for the benefit of spouse trust for you, none of your assets need to be spent down and you can save all of your countable marital assets for your needs.
2. My financial advisor, banker or accountant says that I do not need a trust unless I have at least $1 million. The amount of assets you have is rarely the driving force in choosing a trust. The reason why most of my clients choose a trust versus a will is that you can have many instructions and protections in a trust that you cannot have in a will. These include probate avoidance, divorce protection, creditor protection, re-marriage protection, governmental benefits protection, addiction protection, disability protection, pet trusts, cottage trusts, incentive trusts, etc. Many of my clients with less than $1 million choose trusts. A number of my clients with less than $100,000 have also chosen trusts since trusts met their estate planning needs.
1. My financial advisor, insurance company, bank, accountant (pick one) says that I can’t name my trust as the primary beneficiary of my IRAs, 401(k)s, 457s, 403(b)s or other retirement accounts. This is probably the most common misconception that I hear on almost a weekly basis. If your trust is properly drafted, you generally should name your trust as the primary beneficiary of your IRAs or other retirement accounts. Although the rules regarding naming of trusts as beneficiaries of retirement assets changed in 2002, the practices under the old rules still persist.
There are 3 main reasons to name your trust as a primary beneficiary of these accounts. Firstly, you get all of the protections that you have in your trust for your beneficiaries that you cannot have with a direct beneficiary nomination. Secondly, you can still get the stretch-out of the retirement account over the lifetime of your beneficiaries. Lastly, if you are married, you can double the amount you can leave to your loved ones estate tax free. This is not such a big deal this year because the IRS exemption amount is $5 million. However, in 2013 and thereafter, you and your spouse would be able to leave $2 million estate tax free instead of $1 million.
These are the most common estate planning misconceptions that I have heard over the last few years. If you come across any of these misconceptions, please consult with a qualified estate planning and elder law specialist who can guide you through the maze of rules regarding these matters. Even things that look as simple as a deed are far more complex than it may seem at first glance. Protect yourself. Protect your loved ones or it may end up costing you and them a lot more. It is generally cheaper to do it right in the first place, than to fix something that was done wrong. As the old Fram oil filter commercial used to say, “You can pay me now or pay me a lot more later.”
By: Matthew M. Wallace, CPA, JD
Published edited July 10, 2011 in The Times Herald newspaper, Port Huron, Michigan as: Protect yourself against estate planning mistakes