The Most Important Estate Planning Document

As Attorney Ruthmansdorfer highlighted in her last blog, the Last Will and Testament is an essential estate planning tool and must be used in coordination with other documents, including beneficiary designations, to properly and effectively transfer assets at someone’s death.  It truly is an important estate planning document.  While that person is living, however, it is even more essential that the person has a valid financial power of attorney document.  In my opinion, the financial power of attorney is the most important estate planning document that a person can possess.

What exactly is a financial power of attorney?  A financial power of attorney is a document that appoints someone to act as your financial agent, or to have legal authority over your finances on your behalf.  You can have the person that is nominated to act immediately or upon your incapacitation.  You can allow that person to pay your taxes, pay your bills and other expenses, collect your social security or other government benefits, and, if necessary, that person can even buy and sell real estate on your behalf.  The nominated agent must maintain accurate records and act in your best interests.  If you ever become incapacitated, this document, along with a valid health care power of attorney document, generally avoids the need for any guardianship proceedings.

Because this document is such an important estate planning tool, we recommend that you nominate someone that is close to you, such as a spouse, child, or close relative.  We often see too many abuses from nominated agents who generally do not act in the best interests of the person who created the power of attorney.  That is why, when naming your financial power of attorney, it is imperative that you nominate someone you can trust and someone you can truly depend on.  That nominated agent will have significant control over your finances and will be making financial decisions that will affect your everyday life.

Attorney John P. Zabkowicz

Intent: What Exactly Does That Mean in Estate Planning?

Often, I get initial calls from individuals who want a “will.”  They don’t think they need estate planning, they only want a will.  This begins a journey with the individual of what exactly estate planning is, that they need more than the will (powers of attorney for sure), and that their will and their beneficiary designations need to match.

The proper name for a “Will” is the Last Will and Testament.  Why is this the name?  We have to go back into history to understand the document.  Originally, this was a document for men who died without an heir.  Then, old English and French were put side by side, the term “will and testament” were put together.  This pairing of the words made it clear that both real property and personal property were being distributed.  It is meant to be a person’s last intent about who should receive property at that person’s death.

Intent is synonymous with purpose, objective, goal, wish, desire, plan or design.  A Last Will and Testament should align with an individual’s purpose, goal, etc.  So why is this so difficult to determine?

I request a review of financial assets and beneficiary designations when I am doing an estate plan.  Many times, the individuals who sit in front of me tell me they want certain people named to receive assets in their will, but have brought to me assets with beneficiary designations that are completely different.  I see an insurance policy to one person, a joint bank account with someone else, multiple savings bonds with grandchildren’s names, and an investment account with several charities.  The person in front of me may say everything goes to the children under the will.  We have a clear disconnect in Intent.  What is it that the person really wants?

Good estate planning is not “just a will.”  A good estate planner will discuss intent with the individual in front of him or her.  What is your goal, what are your wishes and desires?  How do you want to leave a legacy?  What do you not want to have happen?  Do you have individuals in your family who are on public benefits or have special needs?  What is most important to you?  With the answers to questions like this, a good estate planner can craft a plan that truly reflects the person’s intent.  The plan will encompass changes to beneficiary designations to accurately reflect that intent.

Without this coordination regarding intent of the Last Will and Testament and the beneficiary designations, trouble is just waiting to happen.  The individual dies and the family brings me the will.  Meanwhile, the assets with beneficiaries on them are being transferred to the named beneficiaries who may or may not be people named in the Will.  The question I am asked is, “How did this happen? This is not what mom/dad/spouse told me they wanted.”  Sometimes I am then asked, “Can I fight the beneficiary designation?”  The short answer, although there are exceptions, is “no.”  The federal laws govern beneficiary designations and the Last Will and Testament is a state document.  Federal law trumps state law.

So, the next time you hear of someone who tells you they need a will, or if you are thinking of getting a will, remember INTENT.  Find someone to work with who will coordinate your wishes while you are alive with your Will and your beneficiary designations.  Make your wishes clear.  Your beneficiaries will thank you.

 

Attorney Elizabeth Ruthmansdorfer

 

Creating a Medicaid Plan

For anyone in the middle class, a long term illness can wipe out all assets in a heartbeat.  Hard earned money and a life time savings can be wiped out quickly when faced with monthly bills that can easily exceed $10,000 per month.

If you do not have long term care insurance to pay for such expenses, the middle class will typically only have Medicaid as an option.  Medicaid planning is critical.  Medicaid planning is a legal process that complies with Medicaid rules and structures assets in a way to preserve them.

If you create a Medicaid Plan while you are still healthy there is no need to give away all of your assets to preserve them.

The key is to plan while you are healthy and to not wait until the crisis hits.  Unfortunately, the crisis is usually overwhelming and waiting until the crisis occurs will often deplete your remaining assets and resources.

The rules are confusing and there is much that is misunderstood regarding the Medicaid rules.  For anyone in the middle class, a retirement plan should include a Medicaid Plan that will be in place in your time of need to protect your hard earned assets.

Attorney Terry L. Campbell

Income Tax Deduction for Medical Expenses

If you are under the age of 65, you can claim deductions for medical expenses not covered by your health insurance only if these expenses exceed 10% of your adjusted gross income.  A temporary exemption was in place through December 31, 2016 for individuals age 65 and older and their spouses that allowed these taxpayers to deduct unreimbursed medical care expenses that exceed 7.5% of adjusted gross income.  Now that we are in the 2017 tax year, however, folks age 65 and older fall under the same 10% of AGI rule as everyone else.

Therefore, if you are older than 65 and have been itemizing your medical expenses on your income tax returns, now is a good time to check with your tax professional to determine whether the sunset of this exemption will impact your projected income tax liability this year.

Attorney Stephen A. Lasky

Promissory Notes Are Back!

Attorney Terry Campbell signified the importance of Medicaid annuities in our blog a few weeks back.  In order to preserve assets, a couple or a single person could purchase a Medicaid annuity and essentially become qualified for Medicaid benefits.  This specific and complicated Medicaid annuity was really one of the only ways to preserve assets in the State of Wisconsin for the past couple of years, because promissory notes were invalidated by the Wisconsin Department of Health Services in 2015.

Not anymore.  On July 21, 2017, the federal Centers for Medicare and Medicaid Services (CMS) informed the Department of Health Services that their invalidation of promissory notes under the 2015 Wisconsin Act 55 was contrary to federal law and the Department must update their policy immediately.  Accordingly, effective August 1, 2017, the Wisconsin Department of Health Services terminated this policy in order to comply with federal law.

How does this work?  Medicaid applicants can now use promissory notes to convert countable resources, such as assets in a checking or savings account, into unavailable assets, thus assisting the applicant to become available for Medicaid.  For example, let’s say the applicant is married and they (the couple) have around $300,000 in countable assets.  In order to become qualified for Medicaid benefits, the couple needs to be under $120,000 in countable assets by the end of the month.  The applicant (or their spouse) loans a sum of money (in this case, around $180,000) to a relative or another person in exchange for a promissory note.  The note is an unconditional agreement to pay back the applicant (or the spouse) over a specified period of time.  As long as the note meets certain requirements, the applicant can quickly become qualified for Medicaid services, and the spouse will be able to keep all of the payments from the note.

If you, your spouse or someone you know is in need of nursing home or assisted living care, please let them know of this updated policy.  Moertl, Wilkins & Campbell, S.C. can assist with long term care planning.

Attorney John P. Zabkowicz

Land Contracts and Medicaid: Yay or Nay?

I have seen a marked increase in interest from individuals asking about land contracts lately.  In one case, an individual who is already in assisted living could not sell her house.  The only buyer interested wants to do a land contract.  In another case, Dad needs income and he wants to give his house to his daughter who lives with him.  They want to do a land contract to meet both needs.  In a third case, an individual decided she is ready to downsize and wants to land contract her condo to her grandson who can’t qualify for a mortgage due to his poor credit.

Land contracts are used a lot when there is an inability to get a mortgage or when family is involved.  For Medicaid purposes, however, what is the risk?  Is there a downside?

First, what is a land contract?  It is a contract for purchase of real estate.  There is no deed issued until the end of the contract term.  This means the seller has a lot of control.  Similar to a bank, the contract can be called due for lack of payment and the buyer can be foreclosed upon.  Depending on the contract, it may be able to be prepaid without fee, with a fee or no prepayment could be allowed.  The contract determines who is responsible for the taxes, assessments and insurance premiums.  The contract outlines whether or not title evidence must be provided and whose responsibility that will be.  The contract determines when possession of the property may be given.  The contract survives death, so each party’s heirs or beneficiaries can continue the contract.

It sounds like a great deal for moving property along, right?  Here is the kicker.  For Medicaid purposes, the seller’s interest is considered an asset.  The contract can be mortgaged or sold.  Therefore, it still acts as if the seller owns the whole property.  There is a difference between real estate asset and the land contract as an asset.  Medicaid considers the land contract as personal property, not real estate.  The value of the contract is determined by identifying the value of the contract on the day it was signed and subtracting payments made on the contract, loans on the contract and valuation discounts.  This is the value of the contract.  The contract is an available asset unless: 1) the contract prohibits its sale (which could cause a divestment issue if it is to family) or 2) no one is willing to purchase the contract.  If the claim is that no one will buy it, evidence must be produced by obtaining a letter from at least one individual or organization that is in the business of buying land contracts to say they won’t buy it.  This makes it difficult to say it isn’t available.

Selling the contract might not be terrible.  The contract stays in existence and the buyer just shifts who the payments are made to.  The seller then has cash which can be used for cost of care, other items, or placed into another exempt Medicaid category like another home he or she is living in or into a special needs trust.

What about the payments?  The Medicaid handbook advises the workers to count the interest from land contract payments as unearned income.  The principal is not counted because that is a conversion of one asset to another (land to cash).  Expenses are allowed to be deducted.

What about estate recovery?  The department of health and human services will not place a lien on a property owned with a land contract.  However, they may have a claim for the payments being made from the contract or if the contract is sold.  Collection could be difficult if there is no probate, but nevertheless, there may be an assertion for the right to receive payment.

In the right circumstance, a land contract can be very helpful to transfer property when buyers are having a hard time obtaining financing or when there is some other difficulty in selling the property.  If Medicaid is a concern, hopefully this information has clarified whether or not the contract should be used as a tool for sale of real estate.

 

Attorney Elizabeth Ruthmansdorfer

Divorce: Use Problem-Solving Approach Rather Than a Court Battle

Divorce: Use Problem-Solving Approach Rather Than A Court Battle

By: Attorney Susan A. Hansen
Hansen & Hildebrand S.C.
126 N. Jefferson St.  #401
Milwaukee, WI 53202
(414) 273-2422

The most common view of divorce is that it is inevitably adversarial and high conflict with damaging emotional and financial costs for the family.  It doesn’t have to be that way.

Though 98% of all divorces end in an agreement, this often occurs only after each has spent excessive time and money in traditional posturing and court conflict.  Divorce does not have to be an emotionally and financially devastating court battle.  The adversarial court process and over-crowded courts are ill-equipped to address the layers of issues involved in restructuring families and finances inherent in a divorce.

I have been practicing family law for over 30 years and have seen many changes.  Today, couples have numerous options to navigate their separation and divorce.  Those options include:

 do-it-yourself – mediation – collaborative practice – traditional litigation 

Choosing the option and professionals that are right for you and your family is one of the most important decisions you will make.

At Hansen & Hildebrand, S.C. we provide expertise that focuses on the unique needs of each client and their family.  Our goal is to provide education and advice with a minimum of conflict and cost.  Though popular, the DIY approach can too often result in imbalanced or poorly informed decisions that can result in years of anger. Professional guidance is essential when making decisions that affect families, finances, businesses and essentially every aspect of a person’s future.

Emotions can run high in any divorce, but that does not have to mean high legal conflict.  There are two key alternatives for couples to consider:

Collaborative Practice is an out-of court settlement process to assist clients in creating their own outcomes instead of turning to the courts to make family decisions.  Each party hires a lawyer and all four commit to working together to reach an agreement on all issues.

Mediation is an alternative for couples who have the desire and ability to proceed jointly.  It is a confidential, voluntary process that utilizes a jointly-retained neutral lawyer mediator who works with the couple together to facilitate gathering and understanding information, support problem-solving and constructive negotiations, and draft and file all necessary legal documents. In mediation, as in collaborative practice, the parties make all decisions themselves in a private setting.

My partner, Greg Hildebrand, and I recently opened the Family Mediation Center (www.familymediationcenter.org) to provide a reduced cost mediation resource for couples at sites throughout southeastern Wisconsin.

Susan A. Hansen practices family law at Hansen & Hildebrand, S.C. with an emphasis on collaborative divorce and mediation. She has extensive experience in complex financial and business issues as well as child-related concerns.  Hansen & Hildebrand family lawyers, Susan, Gregory Hildebrand, and Paul Stenzel,  practice a client-centered, problem-solving approach to family law issues and support working in an interdisciplinary process to provide the greatest value and long-term benefits to clients.

Susan has consistently been named among Milwaukee’s best divorce attorneys by Milwaukee Magazine, Super Lawyers, Best Lawyers and Best Law Firms in America, Best Mediators in America by US News and World Reports, and an AV Preeminent Peer Rating by Martindale Hubbell.

For more information about Hansen & Hildebrand, S.C., visit www.h-hlaw.com.

Annuities and Medicaid – The Misunderstood Child

There has often been confusion about the role or purpose of annuities in Medicaid planning.  Is there a place for annuities or is this planning tool obsolete?

Annuities are not appropriate for every situation.  In fact, annuities are inappropriate in some Medicaid cases.  However, annuities are an extremely valuable planning tool for many individuals facing the high costs of long term care.

As an example, assume a single person has $400,000.00, is entering a nursing home facility and anticipates a lengthy stay (over three years).  With the proper use of an annuity, this person can often save $200,000.00 from the costs of nursing home care.  This planning option is available immediately before entry or after entry into a nursing home facility.  This planning tool is also often appropriate for situations involving married individuals.

If you are facing a possible entry into a long term care facility, you should seek appropriate legal advice so that you understand the options that may be available to you.

 

Attorney Terry L. Campbell

Revocable and Irrevocable Trusts – What is the Difference?

A trust is “revocable” if the terms of the governing instrument allow the trust settlor to amend the trust’s terms, or cancel (revoke) the trust or remove property from the trust without the approval or consent of a third party (e.g., trust beneficiary, a court).  Conversely, a trust is “irrevocable” if the terms of the governing instrument DO NOT allow the trust settlor to amend the trust’s terms, or cancel (revoke) the trust or remove property from the trust without the approval or consent of a third party.

If the terms of the trust instrument do not specify whether the trust is revocable or irrevocable, the law of the jurisdiction governing the creation / administration of the trust may specify a “default.”  Note that trusts can often be revocable for a period of time and then become irrevocable upon the occurrence of a particular event (such as the death of the settlor).

Revocable trusts can achieve some goals (such as a flexible alternative to Will-based estate planning), but not others.  Likewise, irrevocable trusts can achieve some goals (such as Medicaid planning), but not others.  Therefore, if you are considering setting up a trust, make sure you are working with an attorney familiar with not only your goals and objectives but also the purposes and functions of revocable vs. irrevocable trusts so that the trust you create is appropriate to your circumstances.

Attorney Stephen A. Lasky

Communication and Planning

Even the best of families have problems.  Also, the best planning can fail when the family fails.  So what do you do?

Recently, I was called to the home of a lady who wanted to change her estate planning documents.  Two of her children lived with her and one did not.  The one that did not was the financial agent and felt that the children living with mom were manipulating her.  Financial agent daughter sued for guardianship.  Mom proved her competence.  Now she is understandably angry at the financial agent daughter.  But, from my perspective, there is some manipulation going on by the children living at home.  In mom’s case, her trust document does not allow for many changes.  She does not want any of her children as the financial agent any longer.  So what are her choices?

I had another situation recently where a caregiver child just couldn’t do it anymore.  She brought mom to a memory facility.  Another sibling was angry that caregiver child “gave up.”  This sibling took mom out of the facility and into his own home.  Three days later, he brought mom back to the facility.  But, the damage to the family relationship was already done.  Now that guardianship is necessary due to a defective financial power of attorney, these children are already at odds.  What can be done?

Although it won’t solve everything, good communication at the start of estate planning is necessary.  I often encourage my clients to talk with their family about their wishes.  I ask them to write letters to children, if necessary, regarding why they chose to do something in a plan that could cause problems later.  I ask them to make sure there are enough backups to cover situations where the first agents cannot act.

When communication fails, the law begins.  For the first lady, she is competent.  We are able to change some of her documents.  We can change agents and change trustees.  She needs a third party.  Some attorneys will act in this capacity.  Some banks, with the right deposit amount, will act in this capacity.  There are also agencies such as Fiduciary Partners that will act as an independent agent.  For the second lady, she does not have capacity.  But, I have a good guardian ad litem.  This means we can construct a guardianship solution to best protect mom and make sure the children feel heard.  We can get the authority we are missing in the power of attorney through the guardianship and remove some of the financial difficulties that had been exacerbating the situation.

The bottom line is communication and having an expert attorney available.  Plans that have included communication fail far less and the individuals involved have higher satisfaction with the process.  Beware the attorney who practices a different kind of law but says he or she can draft a will.  A “simple” will cannot cover the health care issues, the financial power of attorney issues, the elder law or guardianship issues, the tax issues, etc.  Each person’s situation needs to be examined carefully.  Hopefully, with good planning and a good attorney at one’s side, if the family fails, the plan will not.

Attorney Elizabeth Ruthmansdorfer