DO I WANT A REVOCABLE OR AN IRREVOCABLE TRUST?

Clients are always asking me to explain the difference between an irrevocable and a revocable trust.  After I explain the differences, the next questions is which is the best one for me.  There is no right or wrong answer.  The best trust is the one that accomplshes your goals while allowing you to retain the maximum amount of control. 

If your goal is to avoid probate, establish an organized plan for the management of your assets when you become disabled or to protect the privacy of your property and beneficiares, a revocable trust may be perfect for you.  If you have a disabled child, spouse or relative and you want a vehicle for management of that person's property, a revocable trust may also be perfect.  Putting your assets into a revocable trust allows you to enjoy these many important benefits without giving up control of your assets during your lifetime.

If you goal is to qualify for government benefits such as Mass Health or reduce your estate tax liability by reducing the value of assets in your name, than an irrevocable trust may be your only option.  The benefit is that you and your heirs and beneficiaries can save hunderds of thousands of dollars by protecting your assets from the cost of a nursing home or taxation under the estate tax laws.  An irrevocable trust provides all the benefits of a revocable trust as well as the cost savings benefits unique to an irrevocable trust.  The disadvantage is that you need to give up some measure of control of your assets.  Assets put into an irrevocable trust should be the ones you do not need for daily living.  In order to protect your assets from nursing home costs and/or estate tax, you must give up access to the trust principal.  In other words, if you have property you want your heirs to inherit and you do not need it during your lifetime, but you do not want your heirs to have this property until after you die, you should consider putting the assets into an irrevocable trust.   If you want Mass Health or the taxing authorities to treat the assets as if you do not own them, you cannot act like a complete owner.  It makes sense.

The most important difference between a revocable and an irrevocable trust is that a revocable trust can be amended or changed at any time and an irrevocable trust cannot be changed, or certainly not easily or freely.

This article is not meant to be construed as legal advice and should not be interpreted in such a manner and does not create an attorney client relationship.  If you want legal advice about your specific situation, please contract an attorney with expertise in estate planning, trusts and/or Mass Health eligibility.

CarenSLaw: HOW WILL I EVER PAY FOR NURSING HOME CARE?

CarenSLaw: HOW WILL I EVER PAY FOR NURSING HOME CARE?:      Have you ever wondered how you will pay for a nursing home should the need arise?  All of us have thought about this subject briefly ...

HOW WILL I EVER PAY FOR NURSING HOME CARE?

     Have you ever wondered how you will pay for a nursing home should the need arise?  All of us have thought about this subject briefly at some point.  Some people believe the government will pay.  Many people believe Medicare will pay the cost.  Other people believe their health insurance will pay.  And others believe they will pay for nursing home care from their own pocket.  I will summarize the options and the advantage and disadvantages of each.

      First, it is important to know that Medicare will not pay for custodial long term, nursing home care.  If you or a loved one is discharged from a hospital to a nursing home, Medicare will pay for up to 90 days of care as long as the nursing home is providing essential services and your condition is improving.  Once you cease to improve or the 90 day period expires, Medicare will no longer pay the bill.  As important as it is to have health insurance is, your health insurer will not pay for care at a nursing home.  Once your Medicare benefit has expired you must examine other options.

      One option is to pay for the nursing home yourself.  There are some advantages to this alternative.  Certain nursing homes do not accept residents whose stay is being paid by the government.  The government pays the nursing home much less than an individual pays the nursing home, so in some instances the nursing home does not want to accept a reduced payment and will not accept government pay residents.  This is legal as a nursing home is a private entity.  The advantage of being a private pay is an increased availability of nursing home placements.  In certain situations, a private pay resident might receive better care than a government pay resident.  The disadvantage is the cost.  It costs approximately $100.000.00 per year to be a nursing home resident.  For a married couple, the cost is approximately $200,000.00 per year.  Residents needing more than basic nursing home care can pay as much as $180,000.00 per year per person.  If your total estate is $3,000,000.00 or higher you will probably be a private pay unless you do some sophisticated planning at least 5 years before you are admitted to a nursing home.

    The second option is to have your long term care insurer pay.  Depending on the level of benefit you purchase your long term care insurer can pay a significant if not all of the cost of the nursing home.  The advantage of this option is that you keep your assets and you can pass them along to your hiers when you die.   Another advantage is that if you have long term care insurance at a certain minimum level, the government will not force you to sell your home in the event government benefits are provided.  Additionally, if you have long term care insurance the government will not try to collect from your probate estate any balance due for government benefits provided.  And finally, any long term care premiums you pay will be tax deductible.  The disadvantage of having long term care insurance is that it can be expensive. And of course, like any insurance product, you may never need it.

     The final option is to qualify for government benefits  In Massachusetts this joint federal state program is called Mass Health.  Mass Health provides medical care for low-income aged, blind and disabled persons.   If you own assets worth $2,000.00 or less you qualify.  Your social security or other income will be paid to the nursing home and you will be left with a very small needs allowance.  If the value of your assets total more than $2,000.00 your can gift them and/or put them in a trust, but you must do this at least 5 years before you enter a nursing home.  If you are close to needing nursing home care and your assets exceed $2,000.00 in value, you can convert them from countable assets to non-countable assets.  For example, you can take $10,000.00 in cash and put it into a burial plan or your spouses's home.  If you are married, your spouse can keep at least $115,920.00 of assets.  Excess assets can be put into a special private annuity.  Qualifying for Mass Health can be complicated so you should seek professional advice.  The rules are complicated, they change often and intrepration is not consistent among Mass Health employees.

      I hope my summary helps you or a loved one decide which option is best in his or her unique situation.

    TEN MISCONCEPTIONS ABOUT CHILD SUPPORT AND ALIMONY

1. Your expenses are relevant in a determiantion of the appropriate level of child support.
   Truth:  In general, expenses are not relevant.

2.  Child support must be used on the children, and the receipient must account to the payor.
     Truth:  The recipient can use child support for family expenses and expenses of the recipient.

3.  If the payor loses his or her job, the obligation to pay support ceases.
      Truth:  If the payor loses his or her job that party must file a modification action.

4.  You can't get blood from a stone.
      Truth;  The Court has ways of making deliquent parents pay.  Ask me.

5.  If a party gives up a career to raise the children that party is entitled to alimony.
     Truth:  Only if other factors apply.

6.  If the payor has no realionship with the children there is no obligation to pay support.
      Truth:  The amount and/or duration of support is not related to the quality of the payor's relation-
                  ship with the children

7.  Child support can be determined by a simple mathematcial calculation
      Truth: There are many factors that go into the calculation and often times the calcuation is not
                  simple.

8.  Once the parties agree on a child support amount it cannot be changed.
     Truth: Child support may be increased or deceased upon a change or circumstance.

9.  When one child is emancipated, child support is dramatically changed.
      Truth:  The change is not automatic, you must go to court, and the percentage of the change
                   is not large.

10.  If you are entitled to an alimony termination under the new Alimony Reform Act, you can just
        go into court and terminate alimony.
        Truth:  There are dates before which an alimony termination case may not be filed and the dates
                     are based upon the length of the marriage and the age of the payor.

REAL ESTATE ISSUES IN DIVORCE

            When a couple divorces, frequently the biggest issue is how to handle the real estate.  Most couples own a home which in the divorce court is referred to as the marital home.  In many cases, the divorcing parties also own income property.   How the real estate is handled depends to a large extent on whether or not the real property has equity.  The options can be summarized as follows:  

MARITAL HOME WITH EQUITY

1.     Parties can sell the property and split the equity;

a)     Either the parties agree or the Court orders it;

2.     One party can re-finance and buy-out the other party;

b)     Either the parties agree or the Court orders it

3.     The parties can agree to sell when the children graduate high school;

c)     Generally, the Court will only order this if the children will be graduating in the next few years;

4.     The parties can agree to sell when the children graduate college

d)     Generally, the Court will only order this if the children will be graduating in the next few years.

5.     The parties or the Court can allocate the marital home to one party.

MARITAL HOME WITH NO EQUITY

1.     One party accepts ownership and refinances to remove the other from the deed;

2.     Parties can agree to sell;

3.     The Parties or one party can agree to retain the property and sell at a later time;

MARITAL HOME UNDER WATER

1.     Parties agree to a short sale;

a)     Court may order the sale so property is not foreclosed;

2.     One or both parties agree to pay arrears;

3.     Court can order one or both parties to pay arrears;

4.     One or both parties can apply for a loan modification;

5.     Parties cannot agree and property is foreclosed;

a)     This is not a good option.

INCOME PROPERTY

1.     All the sale, re-finance and buy-out, retention and/or allocation issues are available depending on equity;

2.     Income can be allocated to one party or split;

3.     Expenses can be allocated to one party or split;

4.     Income can be held in escrow by an attorney.

If you have any questions, call or e-mail Caren Z. Schindel at 508-651-1000 ext. 214 or Cschindel@mrmbw.com