6 Ways to Divide Real Property

6 Ways to Divide Real Property

Many estate plans provide for all assets to be divided equally between the children or other beneficiaries. This is rather simple to do with cash, stock or other fungible items, but what can an Executor do to equally divide real estate such as the home or family farm. Here are six (6) ideas:

  1. The property can be sold – If the property is sold to one of the beneficiaries or to a third party, the proceeds from the sale can then be divided equally.
  2. The property can could be divided – The property could be resurveyed and divided into three separate parcels, one for each of the children.
  3. Joint Tenancy – The entire property could be transferred into all 3 children’s names. Each would have equal right to use and responsibility to maintain the property. During their lifetimes each child could sell his or her interest to someone else. The creditors of each could place a lien on the property. The spouse of each would have dower interests. Upon the death of each, his or her interest would pass to his or her heirs or beneficiaries.
  4. Joint Tenancy with Right of Survivorship – All 3 children would have equal interests, but the spouses would have no dower interest and upon death a child’s interest would pass to the surviving children. Upon the death of the last survivor, the entire property would pass to the heirs or beneficiaries of the last survivor. If any of the children sell his or her interest, the survivorship provision would no longer apply to any of them.
  5. The three children can establish a trust to hold the property – The trustee(s) would be responsible for managing and maintaining the property in accordance with the terms of the trust agreement. Those terms can be very flexible or very specific as to how the property is to be handled. The terms can be changed by agreement among the children or other beneficiaries. The trust terms will dictate how the interest is to be divided upon the death of any one of the children.
  6. The children could establish a Limited Liability Company to hold the property – An LLC is a legal form of company established through the state. Instead of owning the property directly, each child would own an interest in the company. The manager of the LLC would deal with the company operating agreement and file the necessary company tax returns and reports to the state.

The Executrix and her attorney should discuss the various alternatives with the beneficiaries to determine the most appropriate solution for their unique situation.

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Medicaid & Mortgages

MEDICAID & MORTGAGES

How many times have you heard the advice, “Pay off your mortgage before retirement”? Many couples are very proud of the day they finally don’t have a mortgage hanging over their head. There is much to be admired about being debt free. However, debt is not always bad. Surprisingly, when facing long term care, sometimes having a mortgage can even help!

When one spouse becomes ill and must begin receiving long term care, the healthy spouse at home may wonder how they will afford to pay for their spouse’s nursing home without losing everything. The answer for most is Medicaid. Medicaid has complicated rules that must be satisfied in order to qualify, and sometimes navigating them can seem counter intuitive. Sometimes taking out an equity loan on the house can save you thousands of dollars.

This plan only works in a very specific, but not uncommon situation. This plan may most benefit a married couple, where one spouse is ill and needs long term care, but the other spouse is staying in the family home, and the bulk of that couples’ net worth is invested in the house.

SPOUSAL QUALIFYING ASSETS FOR MEDICAID

First a brief review on what happens when one spouse needs to qualify for Medicaid (see article Basics of Medicaid for more detail).

Medicaid is a means tested program, which means when determining eligibility it looks at an individual’s assets. There are two ways of classifying assets for Medicaid; exempt assets and countable assets. Exempt assets mean that Medicaid does not count them when determining eligibility. These assets are; the residential house, one car, all personal items, and prepaid funerals. All other assets are considered countable assets.

In order to see if the countable assets are low enough to qualify, Medicaid looks at the value of the assets on two different dates; the snapshot date, and the date Medicaid is applied for.

The snapshot date is the first day that the ill spouse is institutionalized for more than thirty consecutive days. If this date has not yet occurred, the snapshot date is the first date Medicaid was applied for. There is only one snapshot date. If a snapshot date has not already been established, applying for Medicaid while one is over assets, will immediately establish a snapshot date, even though the first application will get rejected. Once the snapshot date is established, then the couple can reapply in the future once assets have been spent down to a qualifying level.

On the snapshot date a “picture” is taken of the value of the countable assets. It does not matter whose name the assets are titled in. In most instances, the community spouse gets to keep half, and the rest must be spent down to $2,000 in order for the ill spouse to qualify for Medicaid. For example, if a couple has $100,000 on the snapshot date, the community spouse gets to keep $50,000 and the ill spouse must spend $48,000 to spend his side down to $2,000 to qualify for Medicaid.

There are minimum and maximum restrictions on this rule. In 2019, the community spouse is allowed to keep a minimum of $25,284 and a maximum of $126,420. This means, if the couple has only $30,000 in countable assets, the community spouse gets to keep $25,284 and the ill spouse must spend only $2,716 to get below the $2,000. However, if a couple has $300,000 in countable assets, the community spouse only gets to keep the maximum of $126,420 and the institutionalized spouse has to spend down  $171,580 to reach a qualifying level of $2,000 or less.

MORTGAGES, CREDIT AND DEBT

With a better idea of how Medicaid works for couples, we can now look at how debt comes into play. For the most part, Medicaid does not consider debt when looking at eligibility. Debts are not counted against you.

It does not matter if you have a $5,000 bank account and a $3,000 credit card bill, as far as Medicaid is concerned, you do not qualify because you have $5,000 in countable assets, which is too high. However, you are allowed to spend down your assets by paying your debts. So if you paid off your $3,000 credit card bill, leaving $2,000 in the bank, you would qualify for Medicaid. Obviously the nursing home would prefer the money be spent paying for care, which is an option, but an individual applying for Medicaid can pay off any debts he likes so long as they are his debts (cannot pay off student loans for a grandchild, for example).

This means that if a couple is looking to spend down money to qualify for Medicaid, a large loan like a mortgage can be a very quick way to spend down money to get a person qualified for Medicaid. If a person doesn’t have a mortgage, they may even want to take out an equity loan on the home to increase the amount of countable assets before the snapshot date, knowing that when the time comes to spend that money down, they will be able to repay it.

EXAMPLE

Let’s use an example to illustrate how a loan on the house can sometimes be an advantage. There are two couples that live next to each other, and have a similar financial picture.

Dwight and Angela have a house and a bank account with a net worth of $360,000. They have a house worth $300,000 and no mortgage, and have a bank account worth $60,000. Their neighbors Jim and Pam also have a house and a bank account with a net worth of $360,000. They have a house worth $300,000, but have taken out a loan with $150,000 of the equity which they did not spend, but instead added it to their $60,000 bank account. The bank account is now worth $210,000.

Both Dwight and Jim need to go into a nursing home. The wives go to apply for Medicaid for their spouses to help pay for their husbands’ care.

Dwight & Angela

The house is an exempt asset, but on the snapshot date Angela and Dwight had $60,000 in countable assets. Angela gets to keep $30,000 and they need to find a way to spend down $28,000 to get Dwight qualified for Medicaid (he gets to keep $2,000). She spends the money down on Dwight’s nursing home care for three months, and then he qualifies for Medicaid. At the end of the day, the couple has a net worth of $332,000 and Dwight is receiving Medicaid.

Jim & Pam

The house is an exempt asset, and on the snapshot date Jim and Pam had $210,000 in countable assets. Pam gets to keep $105,000 and they need to spend down $103,000 for Jim to be qualified for Medicaid (he gets to keep $2,000). They spend the whole $103,000 on repaying the equity loan they have on the house, bringing it down to just $45,000 owed on the house. Pam may also be able to apply to Medicaid to keep an extra part of Jim’s income to help with the mortgage payment.  The couple still has a net worth of $360,000 and Jim can begin receiving Medicaid immediately.

Obviously Jim & Pam are in a much better situation than Dwight & Angela at the end of the day.

WARNINGS & CAVEATS

This plan does not benefit single people.

This plan does not benefit married couples who already have over $250,000 in countable assets outside of the house.

This plan only works if the mortgage is taken out before the snapshot date. Once the snapshot date is established it cannot be changed. Ideally on the snapshot date, assets are as close to $253,000 as possible, though this is not always within the individual’s control.

Remember, this has to be an equity loan, not just a line of credit.

In order for the plan to work, it’s important to keep the money safe once the equity is pulled out of the house. This means, you should NOT:

  • Invest in high risk options, like the stock market. (choose something risk free)
  • Gift the money. (NEVER gift money when considering Medicaid without consulting an attorney)
  • Loan the money out.
  • Go on a spending spree. (Just because the money can be accessed does not mean it should.)
  • Tie the money up by purchasing an annuity, or a long term cd or something else you can’t access when you need it.

This is just one of many strategies that can help a couple facing long term care. Everyone’s situation is unique and therefore everyone’s estate plan is different. The laws change and are often nuanced. Consult with a specialist attorney who can help you find the right plan for you.

Veterans Pension

Veterans Pension

The Department of Veterans Affairs provides monthly income assistance to disabled Veterans and their spouses or widows through their Veterans Pension program. To qualify for pension benefits, the Veteran must have served no less than 90 days (one of which must have been during a designated “wartime”) have received an honorable discharge and meet qualifying income and asset standards.

Disability Requirements

To qualify for pension, a veteran must be “permanently and totally disabled,” meaning “any impairment of the mind or body which is sufficient to render it impossible for the average person to follow a substantially gainful occupation.”  The VA has a schedule of specific injuries that constitute permanent and total disability, but will consider other factors including a veteran’s age.  Veterans age 65 and older are presumed to be permanently and totally disabled for the purpose of determining eligibility for pension.  Evidence of disability, such as a statement from a private physician should be included with the application.  If this evidence is sufficient for rating purposes, further medical evaluation may be unnecessary.

Income Standards

The VA income standards are set based on need, with monthly benefit amounts (changed annually) for single Veterans, married Veterans, and widows of Veterans.

A pension will supplement the individual’s regular monthly income up to the level for which they qualify. Thus if the Veteran meets a standard of $1,000 in monthly VA pension and has income of $600 per month, he/she will be entitled to receive a pension payment of $400 per month.

Certain medical expenses are deducted from regular monthly income to determine the Veteran’s need. If the Veteran meets a standard for $1,000 in monthly pension and has an income of $1,600 per month, he could still qualify for the full $1,000 in VA pension if his qualified monthly medical expenses amounted to $1,600 or more.

Medical expenses are payments for items or services that are medically necessary, improve the disabled persons functioning, or prevent slow or ease the individual’s functional decline. These might include expenses for doctors, hospital, homecare, assisted living, nursing home, medications, medical or adaptive equipment, health insurance premiums, etc.

Asset Standards

An applicant for VA pension must have a net worth equal to or less than the prevailing Medicaid maximum community spouse resource allowance ($123,600 in 2018). The VA defines “net worth” as assets (not including the home) plus annual income (as adjusted by monthly medical expenses).

Thus an individual who owned $100,000, and has an annual income of $30,000 would have a net worth of $130,000 and would not meet the asset standard. The same individual would meet the standard, however, if his regular monthly income was offset by qualified medical expenses of $2,000 per month, ($24,000 per year). His net worth would then be only $106,000 ($100,000 + $30,000 – $24,000 = $106,000).

Transfer Penalty

The VA has established a 36 month look back period and a penalty period of up to five years for individuals who reduce their net worth by giving assets away or transferring them for less than they are worth. The VA looks back from the date it receives a claim either initially or after a period of non-entitlement.

The penalty is determined based on all assets transferred during the look back period which would have put the applicant over the net worth limit at the time. For example, if the net worth limit was $123,600 and the applicant now has a net worth of $100,000, but gave $50,000 to his children within the past 36 months, the penalized amount would be $26,400 ($100,000 + $50,000 – $123,600 = $26,400).

The penalty is measured in months of disqualification. The penalty period is calculated based on the maximum monthly pension rate for a veteran who needs aide and attendance and has one dependent ($2,169 in 2018). Thus, the individual in the example above (with a penalized amount of $26,400) would have a penalty period of 12 months ($26,400 ÷ $2,169 = $12.17).

The penalty period would begin on the first day of the month following the last asset transfer. The maximum penalty can be no more than 5 years regardless of the amount penalized.

 

The Four Biggest Trust Mistakes

The Four Biggest Trust Mistakes

Trusts can be wonderful estate planning tools used to address a myriad of issues. These four common mistakes, however, can cause a trust to create more problems than it solves.

Mistake #1: Choosing the Wrong Type of Trust

Trusts can be used for tax planning, Medicaid planning, estate planning, protecting vulnerable beneficiaries such as minor children, disabled individuals or even future unborn generations. No trust can do everything; however. It is important that your trust be carefully crafted to meet your particular goals and needs.

Mistake #2: Choosing the Wrong Trustee

The job of the trustee can be a difficult one. The trustee should manage the assets in accordance with the settlor’s wishes. He must invest prudently, keep orderly accounts, file taxes and treat beneficiaries fairly. Choosing an inept or worse, a dishonest, trustee can prove disastrous.

Mistake #3: Not Funding the Trust Properly

A trust is like a basket which holds assets. If property is not titled to the trust, you have an empty basket. Assets can be titled to the trust either during the settlor’s lifetime or at his death. Generally an attorney who draws a trust will also draw a will that “pours over” assets into the trust through the probate estate. This is somewhat inefficient. Assets titled jointly with survivorship to another person or name someone other than the trust as a designated beneficiary will not be governed by the trust provisions. Some assets should not be titled to the trust. Titling assets such as IRA’s, 401 K’s, 403 B’s and qualified annuities to the trust may cause major tax ramifications.

Mistake #4: Not Keeping Your Trust Up To Date

As your life circumstances change, your trust should evolve to meet your needs, just as your personal and financial situations change, so do the laws surrounding trusts. Plan to review your trust every 2 to 5 years or when you have a major, life changing event such as the birth of a child, death of a spouse, marriage or major change in fortune. Be sure to have all of your asset information as well as all prior trust amendments when you meet with your attorney.

Your trust is an important part of your estate plan. Avoid these costly mistakes by working with an experienced and knowledgeable attorney.

Medicaid for Your Spouse Issues and Traps

Medicaid for Your Spouse Issues and Traps

You pledged “for better or worse”, “for richer or poorer”, and “in sickness and in health”. What do you do now that things are worse, your spouse is so sick he needs round the clock care that you cannot provide at home and you are facing the prospect of becoming poorer and poorer?

As families seek Medicaid to help with the cost of long term care, they should be aware of some commonly overlooked obstacles.

Place your loved one in a facility that accepts Medicaid

Independent living and many assisted living facilities do not accept Medicaid especially in their “Memory Care” sections. Some facilities will accept Medicaid, but only after the patient has paid privately for some period of time.

It is especially important to know the facility accepts Medicaid in the case of married couples. The assets that the healthy spouse is able to keep are based on the total assets that the couple has on the date of institutionalization (the “Snapshot Date”). Paying for care in a non-qualified facility may reduce the amount of funds that the healthy spouse eventually gets to keep.

Title Assets Appropriately

To qualify for Medicaid, the ill spouse can have only $2,000 in countable assets. The healthy spouse (the spouse living at home) can keep much more. In addition to the “exempt” assets (the house, one car, household goods, funeral plots, and irrevocable funeral plans), the healthy spouse can keep half of the couple’s countable assets with a minimum of ($24,720 in 2018) and a maximum of ($123,600 in 2018). It is important to retitle assets properly to maintain Medicaid eligibility and to avoid Medicaid Recovery upon the death of the healthy spouse if possible.

Assume that the married couple has a home – owned jointly with right of survivorship, joint checking, savings and investment accounts as well as IRA’s and life insurance policies naming each other as beneficiaries. The healthy spouse, using a power of attorney or guardianship if necessary, should retitle the couples assets as follows:

  • Keep the joint checking account with no more than the ill spouse’s $2,000. Deposit the ill spouse’s Social Security and other income to that account.
  • Open a new account in the healthy spouse’s name alone “payable on death” to children. Have the healthy spouse’s income deposited into the new account. Transfer excess from the joint account to this new account each month to keep the joint account at $2,000 or below. Pay the household bills from the new account.
  • Title the savings account and investment accounts in the healthy spouse’s name alone “payable on death” to the children.
  • Name the children as beneficiaries on the healthy spouse’s IRA and life insurance policy.
  • Cash out or change ownership of the ill spouse’s life insurance.
  • Cash out or annuitize the ill spouse’s IRA.
  • Title any vehicles in the name of the healthy spouse alone “transfer on death” to another family member.
  • Title the house in the healthy spouse’s name alone.
  • The healthy spouse should change her will to name children as beneficiaries.

Set up a Qualifying Income Trust for High Income Individuals

Once on Medicaid, the ill spouse’s monthly income will be used for his personal spending ($50 per month), a monthly income allowance (MIA) for the spouse at home to help meet her needs and a patient liability payment to the facility. However, if the ill spouse’s gross income is above the Special Income Limit ($2,250 in 2018) he will not qualify for Medicaid regardless of his need.

High income individuals must establish a special “Qualified Income Trust” (QIT) to filter the excess income in order to qualify. This QIT must be established and funded in the month the Medicaid Application is made. If it is not, the application will be denied. This problem is compounded by the fact that a Medicaid application can take months to process. If the QIT is not in place during those months, Medicaid will not pay.

Seeking and paying for long term care for your spouse is complex and stressful. A qualified Elder Law Attorney can help you understand the process and make a plan to protect assets and secure the best care possible for your loved one.

Is Your Power of Attorney Right For You?

Is Your Power of Attorney Right For You?

In my opinion, a power of attorney (POA) is a more important document than a will. While a will may control what happens to my family and my possessions when I die; a POA controls what happens to ME while I’m still alive. Because the POA is needed most when I am incapacitated, it’s good to get things right.

Do I have the right POA?

Ohio has two types of POA. The healthcare POA directs who will make your medical decisions when you are unable. The financial POA gives your agent the authority to handle certain financial matters as described in the document. Both documents are important and one cannot substitute for the other.

Have I named the right agents?

The person you choose as your agent will be making important life decisions for you. Consider a person’s character and abilities to handle the duties assigned rather than their proximity to you or birth order. Remember, too, to name one or more backup agents in case your chosen agent is unable to help you when needed.

Did I give my agent the right amount of power?

Your agent can only do those acts specifically described in the document. Thus, if the POA does not say that your agent can open accounts in your name or establish a trust for you he cannot. Similarly, if the POA says that the agent can change the beneficiaries on your life insurance or transfer your house to himself he can.

Is the POA executed in the right way?

A healthcare POA requires a notary or two witnesses to observe and verify the signature. The witnesses cannot be the signer’s physician, medical caregiver or the named agent. Financial POA’s must be notarized if the agents are to be able to deal with real estate in Ohio.

Do the right people have the document?

A POA does no good unless it is used. Be sure that your agent and backup agents know they have been named and what is expected of them. Be sure that they have or know how to locate the document, itself. Although Ohio laws may recognize a photocopy, many financial institutions will demand to see an original before allowing the agent to act.

Powers of Attorney are important to your overall estate plan and should be carefully drafted to fully meet your needs and goals. Consult with your attorney to be sure that your legal documents are right for you!

Steps to Take In Fighting Financial Neglect & Exploitation

Steps to Take In Fighting Financial Neglect & Exploitation

Physical and cognitive impairments of aging can rob people of the ability to manage their finances. It can also make them more susceptible to being robbed by others. Many instances of financial neglect and exploitation go unreported because of shame, guilt, fear that the victim may lose independence or concern that the perpetrator (who may be a close friend or family member) will retaliate.

You may notice signs of financial neglect or exploitation such as confusion or fearfulness, unpaid bills, lack of medical care, unnecessary services, goods or subscriptions, missing items or cash, large or frequent withdrawals from bank accounts, or suspicious changes in property titles or legal documents. Stepping in to help can be problematic. Overstepping can cause resentment and distrust, but stepping back could mean financial ruin for the victim. So what steps should you take?

  1. Stepping Forward Without Stepping on Toes

Assuming that the victim recognizes that there is a problem, there are a number of ways you can help him to help himself.

  • Simplify – Reducing the number of transactions can make things much more manageable. Consolidate accounts, set up automatic payments of bills, limit purchases to one credit card.
  • Reduce – Get off of junk mail lists, sign up for the do not call registry, clear out and shred extraneous paperwork.
  • Organize – Sort and store important legal and financial papers and tax records, itemize and safeguard valuables and collectibles, set up a system to collect and review bills and monthly statements.
  • Monitor – Request and review credit reports annually, check references of caregivers and other service providers, work with an accountant, attorney and financial advisor, etc.
  1. Stepping It Up to Keep A Step Ahead

If your loved one’s impairments are too severe, you may need to step forward to handle things yourself. If you are named agent under a durable financial power of attorney, you are able to handle any matters listed in the document. With the “immediate” POA, either you or the principal can act. If yours is a “springing” POA, you cannot act until a certain event – usually that a doctor has certified that the principal is too ill to handle things himself.

You must present your POA to any bank or other financial institution that you deal with, have it registered or recorded and your signature accepted. Whenever you sign, be sure to write the principal’s name, sign your name and indicate that you are acting as agent under POA.

If property is in a trust, the trustee manages the assets rather than the agent under POA. Co-Trustees can both manage assets. A successor trustee can take over when the initial trustee resigns or becomes incapacitated.

  1. Stepping In

Since the POA is given by the principal, he can also take it away. And he can continue to handle his own finances as well. If your loved one’s judgement is severely impaired and he is at risk of self-neglect or exploitation, it may be necessary to bring a guardianship action through the Probate Court. This is an adversarial action in which you would need to prove to the court that the principal is incompetent and that you are an appropriate person to manage his affairs. You would need to post a bond insuring your good management and account to the court annually for your transactions. In bringing a guardianship action, you will want to have an attorney with you every step of the way.

To manage social security or VA income, you must apply directly to the agency to become a payee. Keep careful records as annual accounting’s will be required.

  1. Stepping Aside

If you find that your loved one is in severe danger or needs more help than you are able to give, you should report the neglect or exploitation to your county Adult Protective Services (APS). Anyone can make a confidential report and the APS will investigate and seek to help. Many professionals who work with seniors are “Mandatory Reporters”. Mandatory Reporters are required to report suspected abuse to the APS.

Mandatory Reporters Include:

Psychologists                                                                 Social Workers
Nurses                                                                            Counsellors
Peace Officers                                                               Clergymen
Coroners
Marriage & Family Therapists
Attorneys                                                                         Employees of:
Physicians                                                                         Ambulatory Health Facilities Osteopaths                                                                        Home Health Agencies
Podiatrists                                                                         Residential Facilities
Chiropractors                                                                   Nursing Homes
Dentists                                                                              Hospitals

As of September 29, 2018, more professionals will be added as mandatory reporters. These are marked with a star below:

Firefighters                                                                     Real Estate Brokers
Ambulance Drivers                                                            or Salesmen
Notary Public                                                                 Financial Planners
Paramedics                                                                     Investment Advisors
Pharmacists                                                                    CPA’s
Dialysis Technicians

Employees of:
Mental Health Agencies
Banks or Credit Unions

Any person who has reasonable cause to suspect elder abuse, financial or otherwise, may make a confidential report, if the report is made in good faith, the reporter will be immune from criminal or civil liability and protected from employment discrimination or retaliation.

TO REPORT ELDER ABUSE IN OHIO CONTACT YOUR COUNTY DEPARTMENT OF JOB AND FAMILY SERVICES

OR CALL 1-855-OHIO-APS (1-855-644-6277) TOLL-FREE 24/7