Estate & Wills

Are You Poorly Misguided About Estate Planning?

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 As we approach the 21st century, more people are purchasing services and items on the Internet that they can put together themselves. Although the idea of saving money is attractive at first, many of us find that either the instructions don’t exactly work, or a piece may be missing, leaving the object unstable at best, and subject to rapid deterioration. With the advent of online legal services, some people compromise themselves and risk the loss of their family’s financial security by utilizing services that offer a cheap alternative to professional legal counseling and proper legal documentation. If you’re considering a do-it yourself estate-planning kit, it’s a bad idea for you and the people you love.

Most married couples who prepare their estate plans typically leave everything they have to their surviving spouse. If the couple has minor children, they rely on the survivor to provide and care for their young ones. Although it’s not easy, planning for the possibility of both parents passing away simultaneously, or one shortly after the other, is a very important component of planning, particularly when the couple has minor children.

A comprehensive estate plan can protect the things that matter most. When we say “what matters most,” we’re talking about the ones we love most – our family. Not only is planning about passing things on, but it also can provide protection. One of the most important protections involves planning for minor children and providing for legal guardianship just in case tragedy strikes. Knowing this is taken care of can provide tremendous peace of mind.

If you’ve read some of my articles, you have found that for most of you the best way to plan is to use trust-based planning. A will is vital to express your needs, but if that is all the planning you do, your family will have to go to court to distribute your belonging to your loved ones. That can be expensive, your information is public for all to see, and is often very time-consuming. A trust, on the other hand, allows for your belongings to be immediately and privately distributed by the trustee you choose according to the terms of the trust.

Many people, especially seniors, see joint ownership of investment and bank accounts as a cheap and easy way to avoid probate since joint property passes automatically to the joint owner at death. Joint ownership can also be an easy way to plan for incapacity since the joint owner of accounts can pay bills and manage investments if the primary owner falls ill or suffers from dementia. These are all true benefits of joint ownership, but potential drawbacks exist as well:

Risk. Joint owners of accounts have complete access and the ability to use the funds for their own purposes. Many elder law attorneys have seen children who are caring for their parents take money out of the joint account for their own expenses without first making sure the amount is acceptable to all the children. In addition, the funds are available to the creditors of all joint owners.

Inequity. If a senior has one or more children named on certain accounts, but not all children, some children may end up inheriting more than the others upon his/her death. While the senior may expect that all of the children will share equally, and they often do in such circumstances, there’s no guarantee. People with several children can maintain accounts with each, but they will have to constantly work to make sure the accounts are all at the same level, and there are no guarantees that this constant attention will work, especially if funds need to be drawn down to pay for care.

The Unexpected. A system based on joint accounts can really fail if a child passes away before the parent. In such circumstances, it may be necessary to seek guardianship over the parent to manage the funds, or the funds may ultimately pass to the surviving siblings with nothing, or only a small portion, going to the deceased child’s family. An example would be a mother who put her house in joint ownership with her son to avoid probate and Medicaid’s estate recovery claim. If the son were to die unexpectedly, the daughter-in-law would be left high and dry despite having devoted the prior six years to caring for her husband’s mother.

Medicaid Availability. Joint bank accounts are typically considered available assets for Medicaid eligibility purposes. For example, a joint bank account held by a mother and daughter would be presumed by Medicaid to be owned entirely by the mother.  A better option would be to have assets held in a Medicaid Irrevocable Asset Protection Trust which, if drafted properly, would not only avoid probate, but would ensure that the assets not be considered the senior’s assets for Medicaid eligibility purposes.

Estate Planning. Joint accounts will typically be considered a part of the senior’s taxable estate. If there is a taxable estate, more sophisticated planning options should be considered.

Joint accounts do work well in two situations. First, when a senior has just one child and wants everything to go to him or her, joint accounts can be a simple way to provide for succession and asset management. There are some of the risks described above, but for many clients the risks are outweighed by the convenience of joint accounts.

Second, it can be useful to put one or more children on one’s checking account to pay customary bills and to have access to funds in the event of incapacity or death. Since these working accounts usually do not consist of the bulk of a client’s estate, the risks listed above are mitigated.

For the rest of a senior’s assets, trusts (revocable and/or irrevocable), wills, and powers of attorney are much better planning tools. They will usually not put the senior’s assets at risk. They provide that the estate will be distributed as the senior wishes without constantly rejiggering account values, or in the event of a child’s incapacity or death. Further, such documents should provide for asset management in the event of the senior’s incapacity, estate planning and long-term care issues that may arise in the future.

Ronald A. Fatoullah, Esq. is the founder of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. The law firm can be reached at 718-261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES.  Mr. Fatoullah is also a partner of Advice Period, a wealth management firm, and he can be reached at 424-256-7273. 

I’ve written a few articles about what to look for with regard to aging parents to make sure parents are protected, and how to speak to them about very sensitive subjects, including long-term-care planning. Many of the inquiries I receive about Medicaid and long-term-care planning come from children who struggle with having to stretch themselves between caring for their parents while also taking care of their own family.

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