Other than a complete failure to plan, which is the biggest mistake of all, the three biggest mistakes in estate planning are:
1. Failing to consider planning options to cover long term care costs so there is an estate to leave to loved ones.
2. Failing to title assets optimally and failure to coordinate beneficiary designations on IRA’s, life insurance and annuities.
3. Failing to consider leaving assets to loved ones “in trust” so the assets stay in the family and are protected from most lawsuits.
Relative to No. 1 above, the prospect of substantial long term care costs, the tools you need to have are a general durable power of attorney that authorizes your agent to do such advance planning (to qualify you for benefits) and, perhaps, taking steps to make sure your home, if paid for, will go to loved ones and not the state to reimburse it for care it might have provided.
There are other strategies that can be employed, but advance planning in this area is critical, as there is a five-year look-back period for transfers. If transfers have been made to loved ones within five years of seeking Medicaid, there is a penalty period where you do not get coverage for the amount of time the transfers from you would have paid for.
So, if you gave away $100,000 and average nursing home cost was $100,000, you would not get benefits for that one year.
Relative to No. 2 and No. 3 above, to achieve maximum asset protection for loved ones, leaving assets in trust for loved ones and making sure assets go there by designating beneficiaries properly is necessary.
If you leave assets to a loved one in trust, they can be the trustee and the beneficiary. They can have access to income and principal. If the trust is drawn properly, most creditors will not be able to pierce the trust.
The exceptions are if the beneficiary owes child support or money to the IRS. Otherwise assets left in trust will be protected from lawsuits, if drawn properly.
As you can imagine, this is quite a nice objective to accomplish considering the litigious nature of our society. It also allows you to direct the remainder of the estate to keep it in your blood line – or not, as you might wish.
Many people use revocable trusts to maximize family privacy and avoid the delay and extra cost associated with probate. If assets are not re-titled properly into the name of their trust, then the purpose of avoiding probate might not be accomplished.
The moral of this story is that it is a good idea to review your asset titling and beneficiary designations with a professional. Avoiding unnecessary negatives is at the heart of any good estate plan.
Professional advice is always advisable. The rules are sometimes counter-intuitive and a little bit of advice and counsel can go a long way.
Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwinnesq.com