Changing Distributions After Death – Part 1
Often when we have an estate administration matter, the will being probated is an old one. In some cases the person never actually executed a will although he or she may have communicated to family members his/her wishes with regard to the distribution of assets. In other cases the family members agree after death how they wish to split assets, which may be different than what the Last Will stated or what the intestacy laws provide when there is no Last Will. While it may seem like no big deal if all the parties agree to the changes, there are potential tax ramifications to making changes after death. That’s because the method of distribution set forth by the Last Will or by the intestacy law is basically set in stone once the person has died. It can’t be changed, even by agreement between all interested parties. Now, that’s not to say if I am to receive something from Mom’s estate, that I must accept it. I can certainly choose to transfer it to someone else. It’s just that this transfer comes from me and not because Mom instructed it that way. In other words, it is potentially a gift from me to the person I transfer it to and
Happily Married or Something Else? Part 3
In this third post of 3, I continue the discussion about second marriages and Medicaid and more specifically how to handle a fraudulent marriage. Last week I explained that if we make every effort to get the documentation from an ex-spouse for the Medicaid application process, regulations provide that the application can be approved. In the case where the refusal to cooperate comes not from an ex-spouse but instead a current spouse, the State is not likely to accept that we have done everything we could. Divorce is one option at this point but we still have to contend with the 5 year lookback and getting documents concerning the ex-spouse’s accounts. This is also problematic if the ex-spouse took funds of the Medicaid spouse without authorization and, for example, sent to other family members. These transfers would cause a Medicaid penalty. If the marriage is fraudulent, however, a better option may be an annulment. An annulment is different than a divorce although the outcome is the same. The legal effect of an annulment is that the marriage never existed. It never happened. If one of the parties did not have the legal capacity to enter into the marriage, which could be the case where a caregiver marries an elderly client,
Happily Married or Something Else? Part 2
In last week’s post I went back to the topic of Medicaid and more specifically how the need for long term care might affect both spouses. The assets of both spouses are counted for eligibility purposes even if only one spouse is applying for benefits. I always remind people that a second marriage can dramatically change the eligibility process and I recommend, where possible, planning for the possibility of needing long term care before entering into a second marriage. But, what if the marriage is a fraud? We have had a handful of calls to our office that I would categorize as just that. A younger, healthier partner marries an older less healthy and more dependent (physically, mentally or both) partner who then begins spending the older spouse’s money. Once the money runs out the younger spouse sometimes disappears, sometimes remains, in the home. The family, however, is left with the task of figuring out long term care and how to pay for it. The spend down of these assets, if done within Medicaid’s 5 year look back period, must be documented. All asset owned by both spouses must be disclosed but an uncooperative spouse makes it difficult if not impossible to meet this requirement. Failure to produce the necessary
Happily Married or Something Else? Part 1
Through the years we have had many clients who have been happily married for the second or third time. When it comes time to address a long term care crisis, however, navigating the long term care system and determining how to get the best care for the ill spouse while not impoverishing the healthy spouse can be challenging. As I have written about in the past, the Medicaid rules for married couples differ from those that apply to a single applicant. When I am asked whether, from a Medicaid asset protection perspective, it is better to be married or stay single, my answer is “it depends on the particular circumstances of each case”. There are scenarios where it would be financially beneficial to be married. With a different fact pattern a better outcome might be achieved if the applicant was single. Additionally, the answer for each spouse may be different. In other words, it may better for one spouse under the Medicaid rules to be married but not so for the other spouse. That’s why when we talk to clients considering a marriage later in life, we discuss how it can impact long term care but we never can say it is “good or bad”. We have, however, come
New IRS Regulations Applicable to SECURE Act – Part 4
In this last post on the new SECURE Act regulations we’ll cover how naming a trust as a beneficiary of a retirement account is affected by this new law. First, however, lets look at the problem of naming a trust as beneficiary and how the law before SECURE Act treated trusts. Before SECURE, leaving IRAs and other tax deferred retirement accounts to a trust had to be handled carefully because beneficiaries that are trusts did not automatically qualify for continued tax deferred status. In order to be able to rollover and stretch out payments to the death beneficiary, a trust had to be considered a “see through”trust, meaning the trust itself would not be considered the beneficiary but rather we must see through the trust to the beneficiaries. The term “see through trust” was not an official term. Under the SECURE Act it is now clearly defined by a 4 part test. The trust must be valid under state law, irrevocable at death (or earlier), a copy of the trust given to the plan administrator and the trust beneficiaries must be identifiable. This means we must be able to identify who is entitled to receive benefits from the trust. If the trust meets these requirements then we can
New IRS Regulations Applicable to SECURE Act – Part 3
In this third post on new proposed IRS regulations applicable to the SECURE Act, I cover cases where a disabled individual is the beneficiary of a retirement account. Before I do, however, let’s briefly review the changes made by the SECURE Act. The law, which became effective for 2020 tax year, raised the minimum required distribution age from 70 and 1/2 to 72. At the same time, however, Congress severely limited the ability to stretch out payments from tax deferred retirement accounts by death beneficiaries when the account owner dies. With limited exceptions, an inherited retirement account must be emptied within an outer limit of 10 years instead of over the life expectancy of the beneficiary. Last week we discussed exceptions to this outer limit year in the case of a surviving spouse and minor child as death beneficiaries. This week I cover disabled and chronically ill death beneficiaries. First let’s define these terms. A death beneficiary is considered disabled if, at the death of the retirement account owner, he/she is unable to engage in any substantial gainful activity because of any medically determinable physical or mental impairment that is expected to result in death or be of long continued and indefinite duration. This definition is almost identical