Do It Yourself Plans & Bad Advice Can Wreak Havoc

If you are like 70% of Americans, you have no formal estate plan. However, you may have attempted to do your own estate planning with joint ownership, beneficiary designations or quit claim deeds after receiving free advice from others. Although this advice is generally well meaning, it is often only partly true and can result in unintended results. This free advice may have come from your financial institution or advisor, insurance agent, health care provider or government staffers.

When you receive advice from others, remember that these persons are generally not estate planning or elder law professionals. Also, consider how much you have paid for the advice. The free advice that you receive from non-experts is usually worth what you have paid for it. In addition, following such advice can cause more problems than it solves and can result in significant costs to you and your family. In this column, I will cover some poor advice that I have heard the most frequently lately.

Misinformation #1: If you name your trust as a beneficiary of your IRA, it has to be paid out in 5 years. I regularly hear from many individuals who were given this advice from financial institutions, annuity companies or even their financial advisors. This is the old law. The law changed in 2002. It has been more than nine years. If your trust is properly drafted, you look through your trust to the age of your beneficiaries and you can stretch out the payments of your IRA over the life expectancy of that beneficiary. If you have multiple beneficiaries, then you generally have to use the oldest beneficiary’s life expectancy, unless you have specifically named each beneficiary’s separate trust as the IRA beneficiary. By running the IRA distributions through your trust, you not only get the stretch out, but also all of the protections you have in your trust.

Misinformation #2: You have to spend down your assets on nursing home expenses to $2,000 before you are eligible for Medicaid to pay for nursing home care. I regularly hear from spouses or children of nursing home residents who were told this by well meaning health care or senior care providers. This is only partly true. Although it is correct a Medicaid applicant can have no more than $2,000 of countable or non-exempt assets, it is not true that they must be spent on nursing home care. If you are a nursing home resident, there are a variety of ways your assets can be spent and still qualify you for Medicaid to pay for your nursing home care. You can pre-pay your funeral, burial plot, monument and the opening and closing of your grave. Expenditures can also be made on your home, such as maintenance, repairs, improvements or utilities. You can buy a vehicle or a Medicaid compliant annuity. There are a variety of expenditures that can be made that will still allow you to qualify for Medicaid to pay for your nursing home care. You can pay fees for services, such as legal fees.

Properly structured, you even make gifts to your non-nursing home spouse or other family members. If you are a single nursing home resident, you can generally protect half of your assets for your family. And if you are a married nursing home resident with your spouse still at home, you can protect 100% of your assets for your spouse.

I know of a case in which a woman spent down $120,000 to $4,000 for her husband’s nursing home expenses, because she was told that they could each only have $2,000 before he could qualify for Medicaid. Had she done proper planning when he entered the nursing home, she could have protected the entire $120,000 for herself. In that instance, she probably would not have needed to move out of her home because she no longer could afford it.

Misinformation #3: You can do your own quit claim deed to transfer your property and here is the form. There is no shortage of family, friends, websites, real estate professionals or government staffers willing to give this advice. A typical bad tip is if you want to transfer your home to your family upon your death, just do a quit claim deed they can record after your gone, and here is the form. Another bad tip is all you need to put your home in your trust is a quit claim deed and here is the form.

Firstly, most of the time you should be using a warranty deed instead of a quit claim deed for a number of reasons, including the preservation of title insurance. I rarely use quit claim deeds and prefer to use warranty deeds for these types of transfers. Secondly, unrecorded deeds are often void upon death. And lastly, deeds look deceptively simple since they are usually one page forms. However, there are dozens of areas in a deed in which you can and many people do mess up. I regularly probate homes for which the deceased attempted to do his or her own quit claim deed. This has resulted in substantial legal fees for the family which could have been avoided. One area that is often a problem in these do-it-yourself quit claim deeds is the legal description.

Misinformation #4: When drafting a deed, just cut and paste the legal description off of the government website. I have had many people come to my office with problem deeds saying they were told that they could just use the description on the county or municipal website. Do not follow this advice. The website descriptions are typically only tax descriptions, enough to identify the parcel and the parcel number. They often times do not contain all of the elements that should be included in a deed legal description. This is partly due to the limited character spaces that is available in the website computer programs, but also because a full description is not necessary for county or municipal needs.

For example, if you live in a recorded plat, the tax description rarely indicates the liber (file) and page where your home’s plat can be found at the register of deeds office. These are unique letters and/or numbers which specifically identifies your home’s plat so that it can never be confused with another plat. Many municipalities have assessor’s plats or assessor’s replats. Without the specific liber and page of the plat, you may not be transferring clear title to your property.

If your property is not in a plat, it is usually has what is called a “metes and bounds” description in which all of the outside boundary lines of the parcel are described. The description usually has distances, directions, degrees, minutes, seconds, and may include cords, tangents, right of ways, etc. The website computer program fields are often not large enough to include the entire full description so there has to be abbreviations and some omissions in the tax description. I have seen tax descriptions that have only covered part of the parcel or did not include all of the description. Legal descriptions must be accurate and they must be exact. The best descriptions I have found to use for deeds are surveyors’ descriptions, since surveyors usually include a full and complete description of the parcel.

I have fixed many of these do-it-yourself plan and deeds and it usually costs the family more to fix a bad plan or deed than it would have cost to do it right in the first place. As I have said in other columns, it is like the old Fram oil filter commercial, “pay me now, or pay me a lot more later.” .

Remember there is a lot of free advice out there. Most of it is well meaning, but similarly, most of it is only partly true. If you are going to rely upon advice, please rely upon a knowledgeable legal specialist with experience in that area of law. You will thank yourself and your family will also thank you, when issues arise in the future. Also remember, when you are dealing with free advice, you get what you pay for.

By Matthew M. Wallace, CPA, JD

Published edited November 13, 2011 in The Times Herald newspaper, Port Huron, Michigan as: Free advice comes with hefty price tag

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