John and Mary were happily married for 30 years. John loved Mary very much and he intended to draw up a Last Will and Testament. Unfortunately, he never got around to it and passed away without having one. John had an account in his sole name worth $300,000. If John had had a Will, he could have left the entire account to Mary. However, because he did not have a will, Mary received $50,000 from the account and had to split the rest with John and Mary’s two children.
Thinking Having a Will is Enough
Paul dutifully created a will for himself to protect his family. However, he did not have a well drafted power of attorney. Paul suffered a stroke and was no longer capable of signing a power of attorney. His stroke totally paralyzed him, resulting in a need for nursing home care. In order to get Medicaid for him, Paul’s wife, Sally, had to transfer Paul’s assets to herself. However because a proper power of attorney was not in place, Sally had to commence a guardianship proceeding to complete the transfer. In other words, she had to go before a judge to become Paul’s Guardian. This proceeding cost the family thousands of dollars and resulted in a delay in obtaining Medicaid for Paul. If Paul had had a proper power of attorney, this expense and delay could have been avoided.
In addition to a good power of attorney, one should also have a health care proxy and living will. One should also consider the advantages of a living trust.
Thinking Having a Trust is Enough
Sometimes people create trusts so that the trust will pass their property to their loved ones without the necessity of probating their will. A probate proceeding is a court proceeding whereby the validity of the will is proved to the satisfaction of the court. A trust does not have to be probated. However, a trust only controls property that is transferred to it. To put it another way, your property must be in the name of your trust to avoid probate and to pass the property to your beneficiaries.
Bill had a trust but he did not have a will. The good news is that Bill won $1 million in the lottery. The bad news is that he was hit by a truck the very same day and died. Thus, the lottery winnings were never transferred to his trust. Because Bill did not have a will, his wife, Susie, had to share the lottery monies with the couples’ two children.
Not Reviewing Their Plans Periodically
Bob and Kelly dutifully went to their attorney and had a complete estate plan drawn up, including wills, powers of attorney, health care proxies and living wills. Unfortunately, their son, Rich, became disabled and required SSI and Medicaid. Because Bob and Kelly did not have supplemental needs trusts in their wills, Rich lost his SSI and Medicaid when he became the beneficiary of his inheritance. If Bob and Kelly had reviewed their estate plan, a supplemental needs trust could have been drawn up and Rich would not have lost his benefits.
Taking Action without Proper Advice
Greg and John’s mother developed Alzheimer’s disease and needed nursing home care. Greg and John decided to file the Medicaid application themselves. Before filing the Medicaid application, they transferred their mother’s house to themselves. Unfortunately, because they transferred their mother’s house to themselves, the Medicaid agency determined that she would not be eligible for Medicaid for 32 months. The house was the only asset that Greg and John’s mother had to pay for her nursing home care. Even worse, when Greg and John went to sell their mother’s house, they discovered that they had to pay $75,000 in capital gains taxes.
If Greg and John had gone to a competent elder law attorney, they could have avoided most if not all of the capital gains taxes. Furthermore, some of the value of the house could have been preserved for the family.
Are you making any of the above mistakes?