BEWARE: YOUR ESTATE PLAN MAY INCLUDE AN UNNECESSARY BYPASS TRUST

A once-popular estate planning tool may now cost families more in taxes than it saves. Changes in the estate tax have made the "bypass trust" a less appealing option for many families. If your estate plan includes one, you should reconsider its necessity because it could be doing more harm than good.

When the first spouse dies and leaves everything to the surviving spouse, the surviving spouse may have an estate that exceeds the state or federal estate tax exemption. A bypass trust (also called an "A/B trust" or a "credit shelter trust") was designed to prevent the estate of the surviving spouse from having to pay estate tax. The standard in estate tax planning was to split an estate that was over the prevailing state or federal exemption amount between spouses and for each spouse to execute a trust to “shelter” the first exemption amount in the estate of the first spouse to pass away. While the terms of such trusts vary, they generally provide that the trust income will be paid to the surviving spouse and the trust principal will be available at the discretion of the trustee if needed by the surviving spouse. Since the surviving spouse does not control distributions of principal, the trust funds are not included in the surviving spouse's estate at his or her death and will not be subject to tax.

In 2013, estate taxes changed dramatically and now very few people are subject to federal estate taxes. Currently, the first $5.49 million (in 2017) of an estate is exempt from federal estate taxes, so theoretically a husband and wife would have no estate tax if their estate is less than $10.98 million. The estate tax is now also "portable" between spouses, accomplishing the same purpose as a bypass trust. This means that if the first spouse to die does not use all of his or her $5.49 million exemption, the estate of the surviving spouse may use it (provided the surviving spouse makes an “election” on the first spouse’s estate tax return).

One problem with a bypass trust is that the surviving spouse does not have complete control over of the assets in the trust. The surviving spouse's right to use assets in the trust is limited and requires the filing of accountings and separate tax forms. In addition, if the trust generates income that is not passed to the beneficiary, that income can be taxed at a higher tax rate than if it wasn't in a trust. 

Another problem is that a bypass trust can actually cost more in capital gains taxes than it saves in estate taxes. When someone passes away, his or her assets receive a step-up in basis. When an asset is in a bypass trust, it does not receive a step-up in basis because it is passing outside of the spouse's estate. If the assets are sold after the surviving spouse dies, the spouse's heirs will likely have to pay higher capital gains taxes than if the heirs had inherited the asset outright.

A bypass trust can still be useful in some circumstances. If your estate is greater than the current estate tax exemption, a bypass trust is still a good way to protect your assets from the estate tax. In addition, some states tax estates at thresholds much lower than the federal estate tax, and a bypass trust may help in those states. For other people, these trusts have other uses besides avoiding estate taxes. To find out if your estate plan contains an unnecessary bypass trust or if you need one, contact us for a complementary estate planning consultation.

The Demise of Long Term Care Insurance?

John Hancock Financial Stops Selling New Long-Term Care Insurance Policies

John Hancock Financial, which was one of the largest providers of long-term care insurance with well over 1.2 million policyholders in the United States, announced that they would no longer offer new long-term care insurance policies. 

It is no secret that Long-Term Care Insurance has been experiencing a decline due to high rate increases and an increased difficulty in qualifying for the insurance policies. In addition, we are facing an increasing aging population. It is estimated that between 2010 and 2030, the population of senior citizens will increase by 75% to 69 million. Also, by 2050, an estimated 88.6 million people in the United States will be aged 65 and older.

As the U.S. population continues to age, the demand for health-care services will continue to increase. With this increase, and the decrease of availability of traditional long-term care insurance will leave senior citizens and their families with limited options. These options will include private pay of nursing home costs (the annual cost of a private pay individual staying in a nursing home in Texas is between $100,000 and $144,000 per year), or relying on Medicaid to alleviate the cost and burden of being a private pay patient.

Most of the families that I speak with on a daily basis are not in a financial position to private pay a nursing home stay at the rate of $100,000 to $144,000 annually. Most of the families I speak with regarding these concerns will spend through their life savings in just a few short months or even a year of a nursing home stay. Therefore, Medicaid planning is crucial for every family in the United States given these very troubling statistics about the future of the U.S. population, the future of Long-Term Care insurance, and the future of the demand and cost for health-care services.

However, families benefit the most when they are proactive and engage in Medicaid planning well in advance of a long-term nursing home stay. As the old saying goes, don’t do this yourself! Medicaid Planning is very complicated and there are a number of different rules involved in properly protecting your assets loss due to nursing home costs. One of these rules include planning at least five years in advance as Medicaid has a five-year look back provision regarding any transfers that you make out of your name in an effort to qualify for Medicaid. However, even if you do not have five years, and it appears that a family member is going into the nursing home tomorrow, you still have options! We recently helped a family save $200,000 of their life savings from spending it all down on nursing home costs by engaging in a Crisis Medicaid Planning Strategy.

If you have questions and concerns regarding Medicaid Planning, time is not normally on your side. You Need To Act Immediately To Protect Your Assets, Your Family, and Your Legacy. Please call our office at (817) 258-5908 and speak with Attorney, Leslie Thomas about your options.

 

 

Suing Dad. The Stress of Guardianships.

Suing dad. What happens when you can’t make decisions anymore, when you can’t sign your name, when you can’t request your medical records or do what needs to be done? You may reach a point in your life where you are unable to take care of daily necessities or make effective choices, and under those circumstances, your loved ones may have to sue you to properly take care of you.

Richard has Alzheimer’s disease and lives alone. His children are worried about their dad because his neighbors had called for the second time to let them know that they helped Richard get back home after finding him lost walking around the neighborhood. Richard left the stove on recently and started a small fire that thankfully didn’t harm anyone, but did cause some smoke damage in the house. Richard has also lost a significant amount of money after some phone scammers convinced him to give them his bank account number. Richard’s children are worried about him and are afraid that they can’t be there enough of the time to make sure that he is safe as his condition worsens. The problem is that Richard refuses assistance from the meal delivery and home-care services that the children have tried to set-up and is refusing any further care that the children believe is necessary to protect him.

All Richard’s children want to do is to protect their dad’s health and well-being and keep him from being exploited financially again in the future. Richard did not have anything in place to address this type of situation, and as a result, his children have to sue their dad in the Tarrant County Probate Court to obtain Guardianship over him. Guardianship will give them the same authority that parents have over their minor children and will allow them to take care of Richard, who is now mentally incapacitated due to Alzheimer’s disease.

To obtain Guardianship over their dad, the children will need to sue their dad, have a judge declare that Richard is incompetent and prove to the court that they are the appropriate guardian in this situation. This process can be emotionally draining and expensive depending on the circumstances surrounding the individual with mental incapacity. It may feel like racing against time if they are in danger of being exploited financially or are in physical or other danger as a result of their condition.

Many people would rather avoid the guardianship process altogether as it takes time, can be expensive, and the details of your incapacity may become public knowledge since the process involves court proceedings. One part of effective estate planning includes determining who will have authority to care for you and your finances if you are no longer capable of doing so for yourself. The good news is, that if you plan in advance, a comprehensive estate plan will allow you and your loved ones to avoid the guardianship process altogether.

Effective options that avoid Guardianship include powers of attorney and living trusts. Powers of attorney are legal documents that allow you to give authority to someone to conduct your affairs. It is important to understand that these are only voluntarily accepted in Texas, meaning that a bank or title company may choose not to accept the documents which would could still result in Guardianship proceedings. A living trust is another option that can avoid a guardianship, and does so by allowing you to name a successor trustee to manage your assets should you become incapacitated in the future.

Regardless of what stage of life you are in, unforeseen circumstances can occur, and it’s important to prepare for the unexpected. Effective estate planning allows you to answer the question, what happens when I can’t make decisions anymore? A customized and well-thought out plan made today will keep you and your loved ones from having to consider or experience – suing dad.

Is A Living Will Necessary?

I was recently speaking from one of my clients from the North Richland Hills area, and they asked me whether it was important to have a Living Will and/or an Advanced Healthcare Directive. This client had heard from the news that it might be better not to have this legal document.

I answered an emphatic, YES! It is exteremly important to have an Advanced Health Care Directive / Living Will! An Advanced Healthcare Directive, commonly referred to as a Living Will, is a legal document that states what your final wishes will be when it comes to the withdraw and withholding of life support systems. For example, if you wish to have a feeding tube and artificial breathing machines removed should be in an irreversible medical condition of which you will have zero chance to recover, this is where you would state your wishes. In addition, the Living Will can state your wishes when it comes to organ donation, as well as the authorization of experimental medical treatment.

I explained to this client that without an Advanced Healthcare Directive / Living Will should something happen to you, and you be in this irreversible medical condition, your surviving family would have to make the decision for you. I explained, in my experience, family members have a very difficult time making this decision, and have a hard time letting go, even when that is the right thing to do. I also explained that in addition to the Advanced Healthcare Directive / Living Will, you should also have a Healthcare Power of Attorney, which is a document naming some one to make healthcare decisions for you should you become incapable of doing so yourself.

If you have questions about Advanced Healthcare Directives / Living Wills, Healthcare Power of Attorneys, or Estate Planning in general, please contact our office to schedule an in office consultation. Also, if you are just starting the process of thinking about estate planning, a good place to start would be to attend one of our educational seminars and download one of our special legal reports on estate planning here on the website.

If you have questions, please contact us, we are always here to help!

P.S., if you have not updated your Living Will since 2010, it would be best to do so. Given the law changes since 2010, many Living Wills are out-of-date.

Introduction

Hey there, I’m Leslie Thomas with Thomas Walters.  I’m an estate planning attorney here in Fort Worth and have practiced here in Fort Worth since 1993 and I am the author of an article on Estate Planning in Texas.  I would like to invite you to a free special presentation that our law firm is hosting where we are going to share all of the latest and greatest legal strategies really in layman’s terms.  How to do things like avoid taxes when you pass away, how to keep the government out of the settlement of your estate, how to make sure you don’t lose everything to an unexpected nursing home stay.  So there are many legal strategies that we are going to share with you and it is real important that you attend, because you can’t really take action on these strategies until you first educate yourself about what they are.  So that’s what it is designed to do.  We are going to share a few stories about people and families who planned ahead and really kept things in the family, really kept those family relationships strong.  We are also going to share some stories about families we have had to work with who didn’t plan ahead and things didn’t really work out so well for those families. 
It's a fun, entertaining educational planning event.  It lasts about an hour. All you need to do to register is, on the left there is all the registration information for our upcoming events.  You can register either by telephone or online. And for those of you who do register in advance and attend you are going to receive a free copy of my article about estate planning in Texas.  Which again describes some of these strategies that we are going to be talking about in layman’s terms.  We look forward to seeing you there and have a great day.  

If you die without a will is probate necessary?

The answer is yes and, in fact, it is actually worse if you die without a will because you have to go through a determination of heirship where the judge has to figure out who the relatives of the deceased are. Then you are at the mercy of whoever the state as determined should get your money and how much they should receive.  Dying without a will almost always involves additional lawyers becoming involved and this just makes an already expensive probate procedure more expensive and time consuming as everyone works to figure out who all of the deceased’s relatives are. 

What is Probate?

Probate is probably one of the most misunderstood things in the law.  Probate is where someone has passed away and their name is on an asset and we have to take their name off the asset to transfer it to their heirs.  The problem with probate is that it is fairly complex, time consuming and can be expensive once you have to get attorneys and the courts involved.  In many places wills are placed on the internet, and in many places people are required to file a list of the deceased’s assets and that list gets placed on the internet for everyone to see.  So the biggest problems with probate is cost, delay and loss of privacy. The best alternative to probate is fully funded revocable living trust prepared by a qualified estate planning attorney.  

What is a Revocable Living Trust?

A question I get a lot from clients is what is a revocable living trust.  This is a trust you set up while you are alive, since it is revocable that means you can change it whenever you want to, it is a document that you create that really does two things.  If the person who sets up the trust becomes disabled, it allows someone that you designate, the trustee of the trust, to manage your assets, distribute them to you, and take care of you if you are incapacitated.  And, if done correctly, the revocable living trust can avoid probate.  Assets can be passed to your loved ones without court involvement.  This saves time and money and protects your privacy.  One of the big reasons to avoid probate is to ensure that your assets are kept private when you die.  The Revocable Living Trust is the primary vehicle that we see families using to make things as simple as possible for their loved ones when they die.