Fong Law Group

Should you omit your children’s names in your trust if you don’t want to leave anything to them?

 

如果不想留財產給子女，應否在信託剔除子女的名字?

如果不想留財產給子女，應否在信託剔除子女的名字

Pros and Cons of a Medicaid Asset Protection Trust

A Medicaid Asset Protection Trust (MAPT) is one option a person may consider to protect their assets from Medicaid and nursing homes or long-term care.

A MAPT is an irrevocable trust created during your lifetime. The primary goal of a MAPT is to transfer assets to it so that Medicaid will not count these assets toward your resource limit when determining whether you qualify for Medicaid benefits.

However, creating an irrevocable trust comes with a certain lack of control over the assets you transfer to this trust. Before making such a significant decision, consider some pros and cons to see if this long-term care strategy is right for you.

Benefits of a MAPT

1. You Can Still Benefit From the Assets of a MAPT

Although transfers of assets to a MAPT cause you to relinquish your ownership and control of them, the finality of the arrangement is not as harsh as it sounds.

In creating a MAPT, you select a person (trustee) who manages the trust assets for your benefit. So, if you transfer investment accounts to the MAPT, you can still receive the income generated from these investments. If you transfer your home, you can still live there. In exchange for giving up control of your assets to a MAPT, your assets no longer count against you for Medicaid eligibility purposes.

2. Your Assets Are Safe From Medicaid and Other Long-Term Care Creditors

Once your assets are in a MAPT and other criteria are met, Medicaid can’t seize them or ask you to spend them down to pay for your nursing home or long-term care costs. These assets also are not subject to Medicaid’s estate recovery program.

As a result, your heirs can benefit from the assets without the interference of Medicaid or liens it could otherwise file against your estate after you pass.

3. You Can Choose Your Beneficiaries

A MAPT also functions as an estate planning tool. This is because you can designate who receives what remains of the trust upon your passing. The beneficiaries you choose will receive the assets per the terms of the trust agreement, and the chances of a probate court getting involved are diminished.

In addition, you may be able to retain what is called a “limited power of appointment.” This allows you to change who the beneficiaries of the MAPT will be, should your wishes or family circumstances change.

4. Assets Are Protected From Your Beneficiaries’ Creditors

Even though you can designate a MAPT’s beneficiaries now, those beneficiaries do not have full access to the trust’s assets because of how it is structured. This also means their creditors do not have access to it. And, if your child is a beneficiary and is going through a messy divorce, neither does their spouse. You can also designate how bequests to beneficiaries can be used.

5. Protection From Capital Gains Taxes

A properly drafted MAPT preserves the full capital gains tax exclusion on the primary residence (currently $250,000 per spouse). Later, when a person’s beneficiaries sell the home, it would be valued at the market price at the date of gifting and not at the original purchase price. This can avoid or significantly minimize the capital gains tax that your heirs may owe.

Drawbacks of MAPTS

1. Timing Is Everything

For a MAPT to function as intended, it needs to be created in advance to avoid the Medicaid lookback period. In most states, this is five years for nursing home or institutional care. In some states, there may also be a lookback period for community Medicaid care (home aides, local programs, etc.).

If less than five years have elapsed since you created your MAPT, you may still be responsible for some or all of your long-term care costs until sufficient time has passed.

2. Income From MAPT Is Countable by Medicaid

Although assets in a MAPT may not be “countable” by Medicaid toward your resource limit, these assets may still generate income. If this income is payable to you, it may cause you to exceed the income limit permitted in your state.

If this happens to you, you may have other options, such as utilizing a pooled income trust, or may decide you will contribute partially toward your care.

3. Giving Up Control Is Non-Negotiable

A trust will not qualify as a MAPT if you retain control other than the limited power of appointment that may be permitted in your situation. You must accept that a person you select to act as trustee will manage the trust, distribute funds and income from the trust, and also be the effective owner of the assets.

In addition, creating a MAPT but not transferring assets to it is ineffective. You need to fully commit to the concept for it to benefit you.

4. Setting Up a MAPT Is Costly

Creating and implementing a MAPT is a complex legal task requiring many hours of work and expenditures made on your behalf. In addition, because MAPTs are tied to individual state and federal laws, the expertise of a qualified Medicaid attorney is essential.

You should expect that this expertise comes at the cost of several thousand dollars or more. However, your potential savings could be exponentially greater for you and your family. For this reason, the price is often well worth it.

5. Potential Effects on Care

It’s important to realize that while the MAPT strategy is designed to preserve assets and wealth, it assumes that a person will rely on Medicaid to pay for a portion of their care. However, Medicaid does not cover all facilities. For example, many assisted living facilities are not licensed as assisted living programs and only accept private pay residents. Thus, relying on Medicaid could affect the choice and quality of care a person may receive.

The pros and cons discussed above are not exhaustive, and there may be other ones that apply to your situation. Investing in a MAPT is a highly fact-specific process, and MAPTs are not suitable for everyone.

You should speak with your attorney to discuss how a MAPT may affect other benefits you receive, your overall estate plan, its tax consequences, and whether it is right for you.

The Powers and Responsibilities of Representative Payees

Do you have a friend or loved one who receives Social Security and is unable to manage her payments? If so, you can request that the Social Security Administration (SSA), the government agency that disburses Social Security, name you as the representative payee for that person.

Being a representative payee gives you the power and the responsibility to manage that money for your friend or loved one. (The Office of Personnel Management and the Railroad Retirement Agency also appoint representative payees, and the responsibilities are basically the same.)

As a representative payee, you only have the power to handle the Social Security benefit for your friend or loved one (the beneficiary) and not any other money or property for that person unless some other document or government agency appoints you to do so. 

It is important to remember that the check from the SSA is not yours; it belongs to the beneficiary. The beneficiary is supposed to get the benefit of the money. Your role includes performing four very important duties:

1. You must act only in the beneficiary’s best interest, which means the beneficiary’s money belongs only to them. You cannot pay yourself for managing their money, and you cannot borrow it or lend it to anyone else; those would be conflicts of interest, which you must avoid. You should also do your best to make sure the beneficiary does not get scammed or mistreated.
    
2. You must manage the beneficiary’s Social Security check carefully, which means you should make sure the beneficiary’s daily needs and any other foreseeable needs are met, bills are paid on time, and all taxes are paid.
    
3. You must keep the money from the Social Security check separate from your own money, which means you cannot keep the money in any kind of joint account or sign any contracts or leases for the beneficiary. If you have to open an account or sign anything for the beneficiary, sign “(beneficiary's name) by (your name), representative payee” so everyone knows you are acting on the beneficiary’s behalf.
    
4. You must keep good records of everything you do with the beneficiary’s money, which means keeping track of all money you spend for the beneficiary and keeping all receipts. Representative payees also have to file annual reports unless they are exempt. The following types of payees are now exempt from the annual accounting requirements: 

• Natural or adoptive parents or legal guardians of a minor child beneficiary who primarily reside in the same household as the child
• Natural or adoptive parents of a disabled adult beneficiary who primarily reside in the same household with the beneficiary
• Spouse of a beneficiary

Remember, there may be other people appointed to help the same beneficiary with other things. They have the same general four duties as you, and all of you must work together if that is in the beneficiary's best interest.

If you are not a family member and the beneficiary has family, you must keep family members informed about what you are doing for the beneficiary. This will reduce the chance that they will have problems with your actions. In the end, however, the decisions about the Social Security check are yours to make because you are responsible. You are the one who will get in trouble if something goes wrong. For example, if someone thinks you violated one of your four important duties, they can report you to the SSA. The SSA will investigate, and if it decides that you misused the beneficiary's money, it will make you replace what was lost out of your own pocket.

The SSA has created a Representative Payee Portal as a central gateway for individual representative payees with a my Social Security account to conduct their own business or manage direct deposit, wage reporting, and annual reporting for their beneficiaries.

If you have more questions about what it means to be a representative payee, check out www.ssa.gov/payee.

For more information, visit the SSA’s online guide for representative payees. 

The Myth of Prop 19

A Modest Social Security Increase for 2021

The Social Security Administration has announced a 1.3 percent rise in benefits in 2021, an increase even smaller than last year’s. 

Cost-of-living increases are tied to the consumer price index, and a modest upturn in inflation rates and gas prices means Social Security recipients will get only a slight boost in 2021. The 1.3 percent increase is similar to last year’s 1.6 percent increase, but much smaller than the 2.8 percent rise in 2019. The average monthly benefit of $1,523 in 2020 will go up by $20 a month to $1,543 a month for an individual beneficiary, or $240 yearly. 

The cost-of-living change also affects the maximum amount of earnings subject to the Social Security tax, which will grow from $137,700 to $142,800.

For 2021, the monthly federal Supplemental Security Income (SSI) payment standard will be $794 for an individual and $1,191 for a couple.

Some years a small increase means that additional income will be entirely eaten up by higher Medicare Part B premiums. But this year, that shouldn’t be the case. The standard monthly premium for Medicare Part B enrollees is forecast to rise $8.70 a month to $153.30. However, due to the coronavirus pandemic, under the terms of the short-term spending bill the increase for 2021 will be limited to 25 percent of what it would otherwise have been.

Most beneficiaries will be able to find out their specific cost-of-living adjustment online by logging on to my Social Security in December 2020. While you can still receive your increase notice by mail, you have the option to choose whether to receive your notice online instead of on paper.

For more on the 2021 Social Security benefit levels, click here.

Medicare Premiums to Increase By Almost $10 a Month in 2020

After small or no increases the past couple of years, Medicare’s Part B premium will rise sharply in 2020. The basic monthly premium will increase $9.10, from $135.50 a month to $144.60. 

The Centers for Medicare and Medicaid Services (CMS) announced the premium increase on November 8, 2019. Not everyone will pay the whole increase, however. Due to a "hold harmless" rule around 70 percent of Medicare recipients' premiums will not increase more than Social Security benefits, and Social Security benefits are increasing only 1.6 percent in 2020. This “hold harmless” provision does not apply to about 30 percent of Medicare beneficiaries: those enrolled in Medicare but who are not yet receiving Social Security, new Medicare beneficiaries, seniors earning more than $87,000 a year, and "dual eligibles" who get both Medicare and Medicaid benefits.

Meanwhile, the Part B deductible will go from $185 to $198 in 2020, while the Part A deductible will go up by $44, to $1,408. For beneficiaries receiving skilled care in a nursing home, Medicare's coinsurance for days 21-100 will increase from $170.50 to $176. Medicare coverage ends after day 100. (For more information about Medicare's nursing home coverage, click here.) CMS attributed the sudden steep rise in Part B premiums and deductibles on the increased costs of physician-administered drugs.

Here are all the new Medicare payment figures:

• Part B premium: $144.60 (was $135.50)
• Part B deductible: $198 (was $185)
• Part A deductible: $1,408 (was $1,364)
• Co-payment for hospital stay days 61-90: $352/day (was $341)
• Co-payment for hospital stay days 91 and beyond: $704/day (was $682)
• Skilled nursing facility co-payment, days 21-100: $176/day (was $170.50)

So-called "Medigap" policies can cover some of these costs. For more information about Medigap, click here.

Premiums for higher-income beneficiaries ($87,000 and above) are as follows: 

• Individuals with annual incomes between $87,000 and $109,000 and married couples with annual incomes between $174,000 and $218,000 will pay a monthly premium of $202.40.
• Individuals with annual incomes between $109,000 and $136,000 and married couples with annual incomes between $218,000 and $272,000 will pay a monthly premium of $289.20.
• Individuals with annual incomes between $136,000 and $163,000 and married couples with annual incomes between $272,000 and $326,000 will pay a monthly premium of $376.00.
• Individuals with annual incomes above $163,000 and less than $500,000 and married couples with annual incomes above $326,000 and less than $750,000 will pay a monthly premium of $462.70.
• Individuals with annual incomes above $500,000 and married couples with annual incomes above $750,000 will pay a monthly premium of $491.60.

Rates differ for beneficiaries who are married but file a separate tax return from their spouse. Those with incomes greater than $87,000 and less than $413,000 will pay a monthly premium of $462.70. Those with incomes greater than $413,000 will pay a monthly premium of $491.60.

The Social Security Administration uses the income reported two years ago to determine a Part B beneficiary's premiums. So the income reported on a beneficiary's 2018 tax return is used to determine whether the beneficiary must pay a higher monthly Part B premium in 2020. Income is calculated by taking a beneficiary's adjusted gross income and adding back in some normally excluded income, such as tax-exempt interest, U.S. savings bond interest used to pay tuition, and certain income from foreign sources. This is called modified adjusted gross income (MAGI). If a beneficiary's MAGI decreased significantly in the past two years, she may request that information from more recent years be used to calculate the premium. You can also request to reverse a surcharge if your income changes.

Those who enroll in Medicare Advantage plans may have different cost-sharing arrangements. CMS estimates that the Medicare Advantage average monthly premium will decrease by 14 percent in 2020, from an average of $26.87 in 2019 to $23 in 2020.

For Medicare’s press release announcing the new premium and deductible amounts, click here.  

For more about Medicare, click here.  

The New Tax Law Means It's Time to Review Your Estate Plan

While the new tax law doubled the federal estate tax exemption, meaning the vast majority of estates will not have to pay any federal estate tax, it doesn't mean you should ignore its impact on your estate plan.

In December 2017, Republicans in Congress and President Trump increased the federal estate tax exemption to $11.18 million for individuals and $22.36 million for couples, indexed for inflation. (For 2019, the figures are $11.4 million and $22.8 million, respectively.) The tax rate for those few estates subject to taxation is 40 percent.

While most estates won't be subject to the federal estate tax, you should review your estate plan to make sure the changes won't have other negative consequences or to see if there is a better way to pass on your assets. One common estate planning technique when the estate tax exemption was smaller was to leave everything that could pass free of the estate tax to the decedent's children and the rest to the spouse. If you still have that provision in your will, your kids could inherit your entire estate while your spouse would be disinherited.

For example, as recently as 2001 the federal estate tax exemption was a mere $675,000. Someone with, say, an $800,000 estate who hasn’t changed their estate plan since then could see the entire estate go to their children and none to their spouse.

Another consideration is how the new tax law might affect capital gains taxes. When someone inherits property, such as a house or stocks, the property is usually worth more than it was when the original owner purchased it. If the beneficiary were to sell the property, there could be huge capital gains taxes. Fortunately, when someone inherits property, the property’s tax basis is "stepped up," which means the tax basis would be the current value of the property. If the same property is gifted, there is no "step up" in basis, so the gift recipient would have to pay capital gains taxes. Previously, in order to avoid the estate tax you might have given property to your children or to a trust, even though there would be capital gains consequences. Now, it might be better for your beneficiaries to inherit the property.

In addition, many states have their own estate tax laws with much lower exemptions, so it is important to consult with your attorney to make sure your estate plan still works for you.

Transfer on Death Deeds in California-What You Need To Know 加州的死亡契約轉讓 – 有什麼需要知道 (中英對照)

A new law that became effective January 1, 2016 creates a Revocable Transfer on Death Deed (“TOD”) as a way for California residents to transfer residential property to name beneficiaries, effective upon death.  Only the following types of property are covered by a TOD deed:

1. A single-family home or condominium unit
2. A single-family residence on agricultural property of 40 acres or less or
3. A residence with no more than four residential dwelling units.

The biggest advantage of a TOD Deed is that it can avoid probate.  Also, the preparation and recording of the TOD deed is relatively fast and simple.  A TOD Deed can be revoked at any time during the lifetime of the grantor.  A TOD Deed should simplify the transfer process at death, as long as the deed is not voided by a drafting error.  

The TOD Deed is not suitable for everyone because it has many limitations.  First, even if you have a TOD Deed, your property will still be subject to probate if your beneficiary predeceases you and you do not have an alternate estate plan. However, if you have a trust, your trust can specify that if the beneficiary predecease you, the property will go to the beneficiary’s children or other people whom you designated.  Second, If your beneficiary is a minor when you die, the court will appoint a custodian to take over the control and management of the property until the child reaches legal age and only then will the child own the property outright.  This process many incur legal and court fees.  However, if you have a trust , your trust can designate a custodian, making court’s involvement unnecessary, thereby saving of a lot of money.  Third, if you have more than one beneficiaries and if one of them die, the deceased beneficiary’s interest will automatically pass to the other named beneficiary.  If you have a trust, you can specify if a beneficiary dies, the beneficiary’s interest will pass to his children, not to the beneficiaries.  Fourth, if you have more than one beneficiaries and if you want uneven distribution of property to your beneficiaries, then you should not use a TOD deed because a TOD deed cannot achieve it.  The beneficiaries on the TOD deed will split the property evenly. 

A big disadvantage of a TOD Deed is that a TOD Deed is void if at the time of death, the property is held as joint tenancy.  If a married couple own a house as joint tenants, if both the husband and the wife executes a TOD deed, both TOD deeds are void.  That will create a big problem.  If the wife executes a TOD deed and name her son as the beneficiary.  If the wife dies first, the TOD deed is void because the property is held in joint tenancy.  After the wife dies, the husband will own the entire property through joint tenancy.  If the husband remarries, he add the new spouse’s name to the property and can even transfer the house to the new spouse.  If the marriage is a second marriage and each spouse has children from a previous marriage, the issue is even more complicated.  Assuming each spouse execute a TOD deed designating their own children as the beneficiaries.  If one spouse dies first, the other spouse will own the entire property.  That spouse can give away to his or her own children and entirely cut off the deceased spouse’s children. 

Furthermore, the TOD Deed offers no protection from the Grantor’s creditors including Medi-Cal Estate Recovery.  Because the TOD Deed offers no protection from creditors, the beneficiary may end up with nothing if the debts of the Grantor are larger than the worth of the property.  Because there are unsatisfied creditor’s claims against the property transferred via TOD Deed, some title companies are not willing to issue title issuance to the beneficiary until three years after the Grantor’s death.  Although the TOD law was written to minimize the use of attorneys, because of the specificity of the form, a consumer may unwittingly void the transfer because of an error in the completion of the form. 

There is a sunset date on the TOD Deed.  As stated above, the use of TOD deeds is relatively new, and they are not allowed in all states. California has undertaken a five-year trial period for TOD deeds. According to the California legislation, the use of TOD deeds will expire on December 31, 2020.

Because of the disadvantages outlined above, particularly concerns regarding joint tenancy, community property, transfers to minors, and capacity to revoke, some estate planners believe that transfer on death deeds should only be used as a last resort unless there is insufficient time to prepare proper estate documents.  You should consult an estate planning attorney whether the use of the TOD Deed is suitable for your family.

一個在2016年1月1日生效的新法規制定了可撤銷的死亡契約轉讓 Transfer on Death Deed (TOD) 。這是一種加州居民把物業轉移給指定受益人的一種方式，轉讓在去世時便生效。 TOD契約僅涵蓋以下類型的物業：

1.單戶住宅或公寓單位

2.單戶住宅在佔地40英畝或以下的農業地

3.不超過四個單位的住宅。

TOD契約的最大優點是可以避免遺囑認證。此外，TOD契約所需的準備和記錄相對快速和簡單。 TOD契約可於成立人有生之年隨時撤銷。 TOD契約應可簡化去世時的轉移過程，只要契約沒有因草擬錯誤而失效。

TOD 契約並不適合所有人，因為它有很多限制。首先，即使您有TOD契約，如果您的受益人比您先去世而您並沒有後備資產計劃，您的財產仍將要通過遺囑認證。但是，如果您有信託，您的信託可以指定如果如果您的受益人比您先去世，財產將將由受益人的子女或您指定的其他人來繼承。第二，如果您的受益人在您去世時未成年，法院將指定一名監護人來控制和管理該財產，直至您的受益人達到法定年齡才能完全擁有該財產。這個過程產生許多法律和法庭費用。但是, 如果您有一個信託, 您的信託可以指定一個監護人而不需法院的介入, 從而省掉大筆費用。第三，如果您有超過一位受益人並且如果其中一人去世，則已故受益人的利益將自動轉移給另一個指定的受益人。如果您有信託，您可以指定把去世受益人的利益轉移給他的子女，而不是另一位受益人。第四，如果您有超過一個受益人，並且您希望把財產不均地分配給您的受益人，那麼您不應該使用TOD契約，因為TOD契約無法做到。 TOD契約只能將財產平均分配給您的受益人。

TOD契約的一大缺點是如果在去世時, 財產以聯權共有 (Joint Tenancy) 方式持有, 那麼, TOD契約便無效。如果已婚夫婦聯權共有房子，而如果丈夫和妻子都執行了TOD契約，兩份TOD契約均屬無效。這將產生一個大問題。如果妻子執行TOD契約並將其兒子命名為受益人。如果妻子先去世，TOD便契約無效，因為該房子是聯權共有的。妻子去世後，丈夫將通過聯權共有擁有整個房子。如果丈夫再婚的話，他可以將新配偶的名字加入物業中，甚至可以將房子轉讓給新配偶。如果這是第二次婚姻，而夫婦各人都有跟前配偶所生的子女，那麼這個問題就更加複雜了。假設夫婦各自執行TOD契約，指定了他們自己的子女為受益人。如果其中一方先去世，在生配偶將擁有整個房子。在生配偶可以把房產送給自己的子女，並完全把已故配偶的子女排除。

此外，TOD契約不會為成立人提供債權人的保護，包括白卡資產追討。由於TOD契約不提供債權人的保護，如果成立人的債務比房子的價值大，受益人可能最終什麼也得不到。如果通過TOD契約轉移的物業有未曾償還的債務，一些產權保險公司會不願意向受益人發放產權証明書，要等到成立人去世後三年才發放。雖然TOD法是為了盡量減少使用律師而編寫的，但由於表格的特性，消費者可能會因為表格填寫錯誤而無意中使轉讓失效。

TOD契約有一個日落條款。如上所述，TOD契約的使用相對較新，並且不是所有州都能使用。加州為TOD契約進行為期五年的試用期。根據加州的法律，TOD契約的使用將於2020年12月31日到期。

因上述缺點，尤其是關於聯權共有，共同財產，轉移到未成年人和撤銷能力的問題，一些資產規劃律師認為，除非沒有足夠時間準備適當的資產文件，死亡契約的轉移只應作為最後一招。您應該向資產規劃律師諮詢TOD契約是否適合您的家庭使用。