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Estate Planning

 

Estate planning: it’s the primary topic of most clients’ first session with their New York elder law attorney. Many clients spend a lifetime amassing funds and assets and don’t concern themselves with planning the management of those assets until retirement is in sight.

But a truly diligent NY elder law attorney understands that proper estate planning defies being pigeonholed as strictly an “elder law” endeavor. In fact, estate planning is a lifelong task for responsible families. In the early years, estate planning provides the peace of mind that comes with knowing a plan is already in place to protect your family and the motivation that comes with knowing exactly why you’re going to work each morning.

Effective estate planning isn’t static or mass-produced. It is a process that is unique to each individual and influenced by the entire family’s evolving needs. Each home purchase, new family member, educational endeavor—every life change that affects your family’s structure, balance sheet, or future needs—should be integrated into a dynamic, holistic estate plan.

The most basic of estate plans drafted by your New York elder law attorney should include a Last Will and Testament, designed to ensure that the estate you’ve worked so hard to build stays in the hands of those you’ve loved and designated to enjoy it, rather than being chipped away by taxes or family litigation. A Last Will should also address guardianship and future care of any minor children.

Additionally, a proper estate plan establishes a durable power of attorney (POA). The individual named as “attorney-in-fact” by this document receives the authority to act in your best interests in the event that you become incapacitated. Again, it can’t be overstated that this is something that isn’t age-specific. A durable power of attorney can prevent unnecessary pain or conflict in your family, which is something you’re interested in, regardless of your age.

In addition to the POA, a properly planned estate includes a health care proxy, which is a designation of someone to make general medical decisions on your behalf in the event that you cannot speak for yourself, as well as a Living Will to address specific medical situations. Medical problems are often fraught with uncertainty; taking the time now, while all parties can assess their options objectively, can ensure that your wishes are honored.

The establishment and management of Trusts should also be addressed by a comprehensive estate plan. Trusts are complex legal / financial instruments, generally used to protect assets, minimize tax burdens, and keep your estate out of probate (which can delay your family’s access to funds). Trusts are, essentially, documents that establish who is responsible for disbursement of your funds and how you’d like them managed. Trusts are commonly set aside for spouses, children, other family members, and charitable organizations; however, the quality New York elder law attorneys at Littman Krooks can establish a trust tailored to meet your specific needs.

Each issue that falls under the umbrella of estate planning is rife with complexity, but solutions can be customized to fit your unique story with a small investment of time and effort. Take the time now to ensure that your story gets written the way you’ve dreamed it, rather than leaving it to chance and other people, who may not know your heart.

Income-Only Trusts & Post-ATRA Elder Planning: An Interview with Attorney Bernard A. Krooks

(This article was featured in February 2013 issue of The Estate Analyst)

Q: How are you feeling about Elder Law in the wake of ATRA? Is Elder Law any different as a result of ATRA in reality, or is this just a matter of perception?

A: ATRA didn’t really change elder law. The types of trusts drafted are affected, and the health tax and income tax planning have been affected. With the new law, planners need to make sure trusts are grantor trusts to avoid the top tax at $11,950. By comparison, the top tax rate affects a married couple for annual income exceeding $450,000. We’ve always done grantor trusts anyway, but now there is greater importance on it.

Q: Is there a standard capital gains approach for elder law planning?

A: With the new capital gains tax at 23.8% for many clients, that represents slightly more than a 50% increase in applicable rates. But, in the elder law context, many clients don’t have taxable estates. Whenever that is the case, it often makes sense to have the capital assets included in the elderly client’s estate so that the assets subsequently will pass to heirs with a stepped-up basis.

Q: Are certain jurisdictions especially favorable or detrimental for elder law purposes? For example, are some jurisdictions worth seeking out or avoiding based on their probate recovery posture for Medicaid or for other elder law policies?

A: Medicaid enforcement varies from state to state. Forum shopping is possible but tends to be rare. Forum shopping can be relevant when better care is available in one state versus another and people live close to the state line. People need to be near families. The tail doesn’t wag the dog. People don’t generally move to states for care the way they do for asset protection issues.

Q: What is the tipping point for having someone make their estate Medicaid-ready? Should this be based on a particular estate value, such as falling under the $400,000 estate level?  Or should most of the emphasis for such decisions be placed on health, family, and other nonfinancial issues?

A: This depends on many factors…age, health, prognosis, cost of care. The national average is $90,000 in annual nursing home costs, but in states like New York, the cost can be more than $250,000 annually. So there is no general rule of thumb for making an estate prequalified for Medicaid. In general, though, qualifying for Medicaid should be a last resort.

Q: Is there a suitable time for gifting a home into a family member’s name instead of a senior citizen?

A: Only if you have a working crystal ball. If you move a house at the wrong time, the family member gets a carryover basis that results in high capital gains when the home is sold.

Q: In your analysis and drafting of income-only trusts, when is the best time to set up such a trust? Who makes the best candidate for such a trust?

A: The best candidate is anyone with money to protect. About 70% of Americans will need some form of long-term care, and many of those will need a nursing home at some point. So almost any aging grantor should consider an income-only trust as a potential option.

Q:  Is an income-only trust advisable for a taxpayer who resides and owns real estate in a jurisdiction that applies an aggressive probate recovery for Medicaid purposes?

A: Each state is required to have an estate recovery program under OBRA-1993 and has the option to go beyond the probate estate and seek assets passing by operation of law. Not every state goes that far. In addition, many of the states are not sophisticated in recovering assets out of state—they go for the low-hanging fruit and sometimes overlook out-of-state assets that are inconvenient to secure. It is critical to work with someone local who is familiar with the probate recovery policies.

Q: What if a taxpayer wants to use an income-only trust but also retains something comparable to “life rights?”

A: If a state only recovers against probate assets, then life estates are protected. If it has a non-probate collection effort, then it may attach only what the life interest is worth at the time of death.

 

Q: The 60-month look-back rule can present grave difficulties to families. Some seniors who might otherwise remain independent may feel compelled to divest themselves of assets prematurely. What can you advise these people or Congress about this issue?

A: One of the biggest misconceptions is that if you don’t act there is nothing you can do. Yes, it is preferable to act earlier, but it is never too late to plan. It is possible to save 40% to 50% of what is left in many cases, even without advance planning. The outcome varies from state to state, based on applicable rules. In some estates, there have been exempt transfers that were overlooked. Promissory notes and annuities can also provide relief, depending on the state laws involved.

Note: Many thanks to renowned attorney Richard Oshins for setting up the interview with Bernard Krooks.

Bernard A. Krooks, JD LLM CPA CELA AEP, is nationally recognized as a preeminent authority on elder law, special needs planning, and estate planning. He has testified before Congress; appeared on CNN, CBS, NBC, PBS, Sirius, etc.; and is regularly quoted in The New York Times, The Wall Street Journal, Forbes, and numerous other print outlets. Mr. Krooks served as President of the National Academy of Elder Law Attorneys (NAELA), as well as the Special Needs Alliance. He continues to serve extensively on editorial boards and committees, and he authors many articles and book chapters that professionals rely on. At the 46th Annual Heckerling Institute on Estate Planning, Mr. Krooks presented a general session titled “The Use of Irrevocable Income-Only Trusts in Elder Law Planning;” at this year’s 47th Annual Heckerling, he presented an elder law update. Bernard Krooks is a founding partner of the law firm Littman Krooks LLP, 655 Third Avenue, New York, New York 10017, (212) 490-2020.

Littman Krooks LLP is located in New York City, White Plains and Fishkill, NY and serves clients in and around White Plains, New Rochelle, Purchase, Hartsdale, Armonk, Scarsdale, Chappaqua, Hawthorne, Briarcliff Manor, Ardsley, Elmsford, Larchmont, Valhalla, Harrison, Port Chester, Dobbs Ferry, Irvington, Hastings on Hudson, Rye, Tuckahoe, Fishkill, Poughkeepsie, Bronx County, Nassau County, New York County, Queens County, Rockland County, Westchester County and Dutchess County.