Paul O. Dillon, Attorney at Law

Seniors can Protect Health and Financial Security

Even though the calendar says March, winter hasn’t left yet. According to a recent article, “Winter safety for seniors: How to protect yourself from liability,” from News Tribune, an unfortunate event can occur at any time. What can you do to protect yourself?

Start by executing essential estate planning documents. People think “estate planning” is an elaborate way of saying “last will and testament.” However, this isn’t so. They also believe that if there is no will, their children or spouses will inherit everything. That’s not true either.

Accidents and illnesses can strike anytime, so everyone needs to have these estate planning documents in place. At the same time, they can address problems, like incapacity and disability.

Everyone should have a Power of Attorney for Healthcare, a Power of Attorney for Finances, a HIPAA authorization, a Last Will and Testament and a Living Will. Once your estate planning attorney creates Power of Attorney forms, an authorized agent can handle your financial and health matters.

When you grant someone the power to act on your behalf, you don’t lose the ability to act yourself. This differs from guardianship or conservatorship, where the court removes your authority and independence, giving another person power over your life and/or financial matters.

A HIPAA Authorization gives healthcare providers and insurance companies the legal authority to speak with another person about your care. Without this written authorization, properly executed by an estate planning attorney, your family may be shut out of critical decisions.

If you suffer from a terminal condition and cannot explain your preferences for medical treatment, your Living Will provides end-of-life instructions for your healthcare representative (granted through a Power of Attorney for Healthcare or Medical Proxy) and your medical providers.

If you have adult children, ensure that they also have these documents and an estate plan. Having a plan before you need it prevents you from adding further stress and costs to a personal crisis.

Protecting yourself from risk and the unexpected takes a little time and effort. However, when the need for these documents arises, you and your loved ones will be glad they are in place. Talk with an experienced estate planning attorney today to plan.

Reference: News Tribune (March 3, 2025) “Winter safety for seniors: How to protect yourself from liability”

How Does Property Pass to Heirs in Estate Planning?

Not everyone understands how different kinds of property pass to heirs. This becomes problematic when heirs learn they aren’t receiving assets they thought would automatically pass to them — or when taxes or court costs take a big bite out of their inheritance. A recent article from The News-Enterprise, “Understanding how property passes on is crucial to planning,” explains how assets are distributed.

There are four general categories for how property can pass to beneficiaries upon death: joint ownership, POD (Payable on Death) accounts, trusts and wills. Most estates include a combination of these methods. However, every estate plan is different and should be crafted to meet the individual's unique needs.

A primary residence typically passes to a joint owner, usually a spouse or domestic partner. This is why homes are owned by “Joint Tenants with A Right of Survivorship.” Property owned with a JTWRS title passes to the surviving owner when one of the owners dies. This is often how married couples own homes and joint bank accounts. These rules vary by state, so check with your estate planning attorney to be sure you own your home correctly.

Jointly held assets can also be owned without a right of survivorship. Each person owns a separate interest in the property, and ownership continues after death. When one owner dies, several steps must take place to distribute the decedent’s share to their heirs. A case will need to be opened in probate court, and a will needs to be submitted if there is one. Without a will, the decedent’s shares pass to their nearest heirs by kinship.

If you don’t like your relatives, having a will is necessary to prevent your assets from going to the wrong people.

How assets are owned should be clarified during estate planning. Many cases involve surviving spouses going to court against their own children because the ownership of joint property wasn’t established with a right of survivorship.

When accounts are set up as Payable on Death (POD) or Transfer on Death (TOD), the assets go directly to the person named on the account. It sounds simple and speedy. However, there are some risks. The assets may return to the taxable estate if the intended beneficiary dies before the primary owner. If the beneficiary receives means-tested benefits because of a disability, they might become ineligible for benefits like SSI or Medicaid. Even a small distribution could disrupt years of careful planning, if it is directly into their own name.

Trusts are commonly used to pass assets privately and smoothly. The distribution directions follow the trust's language and can be tailored as needed. Assets can be distributed based on meeting certain conditions, like getting married or attaining a college degree. A trust can also distribute specific percentages of the trust at certain ages.

Assets not distributed through the three methods described above pass through a will and the probate process. If there is no will, the laws of the state determine who inherits the property.

An experienced estate planning attorney uses well-formed strategies to help clients consider how assets are best passed to their heirs. Keep in mind that every situation is different, so what your neighbor or best friend may have done may not be suitable for you and your family. A consultation with an estate planning attorney is the best way to be sure that your wishes are followed.

Reference: The News-Enterprise (Oct. 12, 2024) “Understanding how property passes on is crucial to planning”

Can You Protect Property and Qualify for Long-Term Care with Medicaid?

Long-term care costs keep many seniors and their adult children up at night, with good reason. However, with the right long-term care and asset protection plan, you can protect your home and other assets so you can pay for any supplemental needs and protect a well spouse. A recent article from The National Law Review, “Protecting and Preserving Property When Paying for Long-Term Care” provides details.

Your primary residence remains an exempt asset if you plan to return home. An exempt asset is the term used to describe any asset not countable by Medicaid when considering your eligibility. The property is also exempt if your spouse, minor child, or disabled child lives in the home.

If you have a child who has lived at home with you for at least two years and has provided care that allowed you to remain home, as opposed to being in a nursing home, the property may be transferred to the child, who is then considered a “caregiver child.”

Another permitted transfer of the primary home is to a disabled child. This transfer is allowed by Medicaid and doesn’t lead to any penalty period for Medicaid. Check with your estate planning attorney to ensure that this asset's transfer doesn’t conflict with any Special Needs planning or make the child ineligible for any means-tested government benefits.

Medicaid has a five-year look-back period, when any transfers of any property, as noted above, are not allowed and result in your being ineligible for Medicaid benefits. Many people think Medicaid won’t find out about moving assets, including retitling homes or accounts. However, this is not a good idea in this age of data connectivity.

A Medicaid Asset Protection Trust is commonly used if created five years before applying for Medicaid benefits. The family home, investment accounts and other assets are retitled to be transferred into the trust. The assets within the trust are protected and exempt from Medicaid. This allows the well spouse to continue to live in their home and enjoy using the assets saved for retirement or plan for these assets to be passed to the next generation.

Suppose the need for Medicaid benefits arises and no planning has been done. In that case, some home sale proceeds can be protected by using Medicaid Compliant Annuities and creating supplemental needs trusts. An estate planning attorney will review your situation and determine the best options for each situation.

Reference: The National Law Review (June 20, 2024) “Protecting and Preserving Property When Paying for Long-Term Care”

How to Plan for Beneficiaries with Disabilities

When creating an estate plan, it’s important to consider all of the possibilities—including disability, says a recent article, “Beneficiaries with disabilities will impact plans,” from The News-Enterprise. A well-prepared estate plan can protect all heirs.

Disability planning typically includes two types of protections: first, to protect the disabled individual’s inheritance from the loss of government benefits. This includes Medicaid, SSI, food stamps, Section 8 housing and other means-tested assistance programs.

Good planning protects continuity of care. Most disabled individuals who qualify for government benefits live in supportive housing communities and/or are helped by caregivers. Losing access to these support systems could become overwhelming to a disabled person.

If the inherited assets are used in place of these programs because of poor planning, upon their depletion, the disabled individual would have to start the process of applying for government assistance all over again. The possibility of being assigned to the same programs and receiving the exact same support is unlikely. A long wait time for services could also become problematic.

Second, an estate plan that considers a disabled individual must protect them from vulnerabilities and exploitation. Financial scams and outright thefts are not limited to the able-bodied. A disabled person known to have access to an inheritance becomes a target for scammers. The estate plan needs to ensure a responsible and savvy individual serving as the trustee is looking out for their best interests.

Testamentary documents are most helpful in estate planning for people with disabilities. The most common mistakes made are completely disinheriting the beneficiary or putting funds under the control of a caregiver. Disinheritance is common, as most people don’t understand there are ways to prevent the loss of services while keeping inherited assets available for the individual.

Giving funds to a caregiver is almost always a recipe for disaster. The caregiver may not follow the directions or become a victim of scammers, leaving the disabled heir without the benefit of their inheritance.

One answer is a third-party trust. This is created by one person—the grantor—for the benefit of another person—the beneficiary. It is funded with assets that never belonged to the beneficiary, so any funds in the trust aren’t subject to a payback provision to the state when the beneficiary dies. Third-party trusts are an excellent tool for estate planning and can also pass funds along to contingent beneficiaries when the original beneficiary passes.

An experienced estate planning attorney will know the nuances of planning for disabled individuals. Your estate plan deserves to be created by a professional to protect those you love.

Reference: The News-Enterprise (April 27, 2024) “Beneficiaries with disabilities will impact plans”

Does Your Estate Plan and IRA Align with the SECURE Act?

It’s known as the SECURE Act—“Setting Every Community Up for Retirement Enhancement” Act of 2019. Some consider it more unsettling than secure, since this law changed withdrawal and tax rules for inherited IRAs for non-spouse beneficiaries. However, as reported by Think Advisor’s article, “9 Things to Know About IRA Beneficiaries Under the Secure Act,” the law led to other significant changes in estate planning.

The biggest headline is the end of the lifetime stretch for IRAs. Beneficiaries who are not spouses and don’t fall into specific categories and inherit a traditional IRA in 2020 or later must empty the account within ten years.

There’s a little bit of a wrinkle in the ten-year distribution rule. The experts initially said that heirs could take out as much or as little as they wished within ten years, including waiting until the very end of the ten years; the proposed regulations used the phrase “during,” meaning throughout the ten years. The IRS did not issue regulations until 2022, so the IRS waived Required Minimum Distributions (RMDs) for 2021, 2022, and 2023. This includes accounts inherited in 2022.

There’s a separate set of rules for nonqualified trusts and charitable entities—not people—to be aware of. If a traditional IRA owner or plan participant dies before the original owner would have been required to take their RMDs, the account must be emptied within five years. If the original owner dies on or after their RMD date, the rules require RMDs to be taken over the decedent’s single life expectancy. An estate planning attorney can guide you in avoiding paying unexpected taxes or penalties in these cases.

For a surviving spouse, there are numerous choices. They can take withdrawals as per the solo beneficiary framework, elect to take a spousal rollover, use the life expectancy numbers, or take a lump-sum distribution. Every situation is different and needs to be evaluated to determine which is best for the spouse.

A spouse who inherits a traditional IRA can do a spousal rollover, transferring funds into a new or existing IRA. You can only do this if the spouse is the only beneficiary. This method lets the IRA continue to grow, which is an attractive option if the surviving spouse is younger than the deceased spouse. If the spouse is under 59 ½, they’ll be subject to the regular IRA distribution rules.

There's a separate rule for spouses who are more than ten years younger. They’ll have to use the IRS joint and last survivor table. There’s no 10% early distribution penalty if they withdraw funds. One fine point: the account name must include the deceased owner's name to be sure it’s an “inherited” or “beneficiary” IRA.

If a minor inherits the IRA, they are considered a minor until they turn 21. They must also be the minor child of the original owner—not a nephew, niece, or family friend. The ten-year rule kicks in once they become a legal adult at age 21.

Disabled and chronically ill IRA beneficiaries are subject to separate rules. However, there are nuances to be aware of. They must have a condition and are unable to live a “normal” life (working, two activities of daily life, etc.). Their condition or disability must be one expected to result in death or long continued and indefinite duration.

Speak with an estate planning attorney before putting IRA assets into a trust. In most cases, trusts are not permitted to own IRAs if the original IRA owner is living. Certain trusts don’t qualify as eligible or non-eligible designated beneficiaries.

Reference: Think Advisor (March 11, 2024) “9 Things to Know About IRA Beneficiaries Under the Secure Act”

Wendy Williams’ Guardianship

Former talk show host Wendy Williams is the subject of a docuseries about her ongoing health and financial battles, which focuses on the months following the start of her guardianship in May 2022. Williams is far from the only celebrity ever placed under guardianship. As an NPR article reported, “Wendy Williams’ guardianship is the subject of a new documentary. Here’s how it works.”

In late February, Williams’ care team announced she had been diagnosed with primary progressive aphasia and frontotemporal dementia. Aphasia affects the ability to speak and understand speech, while frontotemporal dementia leads to a loss of function in the frontal and temporal lobes of the brain.

A guardianship, also known as a conservatorship, is a legal process when an individual can no longer manage their own affairs because of an illness, injury, or disability. In some states, there are different types of legal guardianships:

• Article 17-A Guardianship is for adults 18 or older with an intellectual or developmental disability, whose guardians can make the most decisions for them.
• Guardianship of a Child is requested by a parent or individual to be granted when there is concern that one or both parents cannot care for the child.
• Article 81 Guardianship is a type of guardianship where a judge gives a guardian the power only to meet the needs of the person deemed incapacitated, including managing their finances, property, personal needs, or both.

Guardianship cases vary depending on the person’s circumstances and what a judge orders the guardian to do. In many states, they are reviewed on an annual basis. Guardians must keep detailed records of everything they do, from financial transactions to health care decisions.

While individuals don’t always have the choice to choose their guardian, they can sometimes recommend a person they would like to be appointed to the role. A family member is often named. However, there can be an institutional guardian, including a banker or a professional guardian.

There are other ways a person can give someone else decision-making power, including Power of Attorney, typically appointed by the person and made legal with an estate planning attorney. No court involvement is needed.

Supported decision-making agreements are community designations for specific individuals in a person’s life to help make major decisions.

A person or organization approved by the Social Security Administration can manage a person’s Social Security or Supplemental Security Income benefits is known as a Representative Payee.

The ideal situation is when the person and their spouse or family meet with an estate planning attorney before or shortly after a diagnosis to create a plan and the accompanying legal documents so they can be part of the decision-making process for their future, whatever it may bring.

Reference: NPR (March 1, 2024) “Wendy Williams’ guardianship is the subject of a new documentary. Here’s how it works”

Common Questions Concerning SECURE Act 2.0

A webinar from Trusts & Estates presented a discussion on SECURE Act 2.0 and the many planning opportunities it made possible, as well as proposed IRA regulations, which was reviewed in Wealth Management’s article, “SECURE Act 2.0: Q&A,” covered a number of commonly asked questions about SECURE Act 2.0.

Charitable Remainder Trusts (CRT)

In the case of a trust for a disabled or chronically ill beneficiary, a charity permitted to receive qualified charitable distributions (a registered charity other than a donor-advised fund), which is a remainder beneficiary, will be treated as a designated beneficiary. This allows an IRA owner to create a trust for a disabled or chronically ill beneficiary and name a charity as a remainder beneficiary while qualifying for the life expectancy stretch.

For a disabled beneficiary of an IRA, are CRTs and Special Needs Trusts Eligible for Stretch Distributions?

Because a CRT is tax-exempt, it can take the IRA benefits all at once and then make annual or more frequent payments to one or more individuals, usually for their lifetime. Payments are treated as first-in, first-out. They are considered ordinary income until the payments cumulatively equal the amount of the IRA benefits considered. After that, the nature of the payments depends upon the nature of the trust’s investment income. This effectively replicates the stretch that had previously been available. A disabled or chronically ill beneficiary or (if there’s no beneficiary who isn’t disabled) a trust for the beneficiary or a disabled or chronically ill person may stretch distributions over the life expectancy of the disabled or chronically ill person.

Can a Minor Child be Named as a Beneficiary of the CRT to Get the Stretch Benefit?

No. The actuarial value of the CRT has to be at least 10% of the value of the trust, and the payments to the beneficiaries must be at least 5% of the trust each year. Both of these requirements cannot be satisfied if the individual beneficiary is a minor. An estate planning attorney will need to run the numbers on any beneficiary under age 30 or so who might start payments. The solution is to do a term-of-years CRT for the maximum 20-year period. This will likely be less than the young beneficiary’s life expectancy, but it’s double the ten-year stretch maximum.

What about a non-spouse who inherits an IRA from an owner who had been taking Required Minimum Distributions (RMDs), and the IRA owner died before the rule changes under the SECURE Act of 2019?

The ten-year rule does not apply to this specific instance. However, if the primary beneficiary was taking life expectancy distributions and dies after 2019, their beneficiary (the successor beneficiary) will be subject to the ten-year rule. Under this ten-year rule, the successor beneficiary must continue taking life expectancy distribution (using the life expectancy that the primary beneficiary was using) and must fully distribute the account no later than ten years after the primary beneficiary’s death.

The changes created by SECURE Act 2.0 have a wide range of impacts on IRAs, certain types of charitable gifts, and estate plans. Your estate planning attorney will be able to address your unique situation, making the SECURE Act 2.0 regulations work for your own family’s distribution of assets.

Reference: Wealth Management (Feb. 13, 2024) “SECURE Act 2.0: Q&A”

What’s the Age Cut-Off for a Roth IRA?

Roth IRAs aren’t just for young people, as long as you meet the criteria regarding income, how much you may contribute and when you’re eligible for penalty-free withdrawals. A recent article, “Are You Too Old to Benefit From a Roth IRA?” from U.S. News & World Report, explains the benefits and requirements for older workers considering a Roth IRA.

Requirements for a Roth IRA

Once you meet the qualifications, you can add funds to a Roth IRA at any age. In 2024, the contribution limit Is $7,000 or $8,000 if you’re 50 or older. The account must be open for at least five years to take penalty-free withdrawals in retirement. If you take funds out early, you could face penalties, and contributions to a Roth IRA may only be made from earned income.

A single person may add funds to a Roth IRA if they earn up to $146,000. After that, the amount you may contribute is phased out until income reaches $161,000, after which you can’t add funds directly to the account. For married couples, the income threshold is less than $230,000.

Roth IRA Tax Benefits

Funds are taxed before they go into a Roth IRA account, giving the advantage of the account the tax-free distributions of contributions and earnings. In addition to the five-year rule, you’ll need to meet these eligibility requirements:

• The original owner dies, and you inherit the Roth IRA.
• The owner is at least 59 ½ years old.
• The owner meets disability requirements.
• The distribution is used for first-time homeowner expenses of up to $10,000.

Age Considerations

If you’re in your 70s and still working, there are some facts to consider before opening a Roth IRA. The tax-free growth of Roth IRAs works best as the holding period increases. The up-front tax costs may be very high if you’re in your highest income level and a higher tax bracket. This makes a Roth IRA more advantageous for younger contributors. However, if you work part-time, your lower taxable income might make the Roth IRA an excellent way to save.

Passing Funds to Heirs

With traditional IRAs or 401(k)s, Required Minimum Distributions start at a certain age, usually after celebrating your 73^rd birthday. However, there are no RMDs for Roth IRAs, and the funds remaining in the account after you die could be passed on tax-free. Beneficiaries may inherit the Roth IRA while allowing it to grow tax-deferred for up to ten years, then take the money without paying taxes.

Opening a Roth IRA later in life should be coordinated with your overall retirement and estate plan to be sure it works in concert with your overall estate plan. When reviewing your estate plan, it’s something to discuss with your estate planning attorney.

Reference: U.S. News & World Report (Dec. 29, 2023) “Are You Too Old to Benefit From a Roth IRA?”

Should You Have a Revocable Trust?

Trusts are part of many estate plans and with good reason. Trusts are an excellent way to minimize or avoid having an estate go through probate, according to a recent article, “Is your trust revocable? Should it be?” from Coeur d’Alene/Post Falls Press.

Let’s start with the basics. A trust is a contract between the creator of the trust, known as the “grantor,” “trustor,” or “settlor,” and the person who will carry out the instructions within the trust document, known as the “trustee.” Those instructions include what to do or not to do with the assets in the trust if the grantor becomes incapacitated and what to do with the assets when the grantor is deceased.

Once you’ve decided to set up a trust, you’ll become the trust's grantor and, in most cases, will serve as your own trustee. The trust must include language naming secondary and, in some cases, tertiary trustees who will serve if you are incapacitated or upon your death. The trustee who steps up to serve once you cannot serve as your own trustee is known as the “successor trustee” although the term “successor” isn’t always used.

In a revocable trust, the grantor almost always has the right to change the trust document if they are living and not incapacitated. They can change who will get what from the trust upon their death, who will serve as the secondary trustee and what powers the secondary trustee will have. This flexibility is very useful as life circumstances and relationships change over time. As the name implies, the revocable trust can also be revoked altogether.

An irrevocable trust is very different. Once an irrevocable trust is established, the trust cannot be revoked, and no changes can be made. There are exceptions. However, none of them make it easy to make changes to the trust. The grantor usually must go to court to get permission to make changes.

Why would someone choose an irrevocable trust over a revocable trust? There are instances where an irrevocable trust makes more sense. Some examples include trusts designed to protect assets that would otherwise make someone ineligible for certain programs, like Medicaid. An estate planning attorney would create an irrevocable trust to establish a Special Needs or Supplemental Needs Trust for beneficiaries with disabilities.

It is also possible to have trusts created for married couples with children from prior relationships to protect the children from being disinherited.

Revocable trusts usually become irrevocable once the trust's grantor dies. This makes sense, since the grantor doesn’t want anyone to change the trust once they have passed.

There’s much to consider when setting up a trust, which is not a one-size-fits-all strategy. Talk with your estate planning attorney to discuss your unique situation and learn what type of trust would best protect yourself, your estate and your family.

Reference: Coeur d’Alene/Post Falls Press (Dec. 3, 2023) “Is your trust revocable? Should it be?”

Don’t Miss Out on Estate Planning Opportunities

The recent article, “Rooting Out Estate Planning Opportunities,” from Financial Advisor offers a number of frequently missed opportunities in estate planning. Chief among them are failing to update estate plans, as changes to tax laws could mean that strategies used when your estate plan was initially created may no longer be relevant.

Before these opportunities can be discovered, it’s important to have a clear accounting of all of your assets, including a balance sheet of each “bucket” of resources: personal assets, trust assets, qualified plan assets, etc. The secret to success: meeting with your estate planning attorney every few years to review this entire picture to identify potential opportunities.

Once you have a sense of the whole picture, it’s easier to spot opportunities. For instance:

A Spousal Lifetime Access Trust, or SLAT, is an irrevocable trust used when a grantor wants to transfer part of their spousal exclusion into a SLAT to provide for their spouse and descendants. The SLAT keeps assets out of the donor’s estate and authorizes the trustee to make distributions to the grantor’s spouse, while at the same time it allows children or other heirs to be named as beneficiaries. Many couples use these trusts to protect assets from lawsuits.

There are some drawbacks to keep in mind. If one spouse is the beneficiary of the other spouse, all is well while both are living. However, if one spouse dies or becomes incapacitated and all assets are in the trust, the other may lose access to the trust created for the now deceased spouse.

The loss of access and the restrictions on SLAT distribution could be addressed by having both spouses purchase life insurance policies to fill the gap. At the same time, the couple would be well advised to look into disability and long-term care insurance.

Another situation is the use of a credit shelter trust, often called a bypass trust because it bypasses the surviving spouse’s estate. They are not as advantageous as they used to be because of today’s high estate tax exemption. They were also popular when the surviving spouse wasn’t able to use their deceased spouse’s estate tax exemption.

With the federal estate tax exemption up to more than $12 million, many who still have credit shelter trusts may find they don’t make sense in the short term. However, for now the federal estate exemption is set to drop down to $6 million when the Jobs and Tax Act sunsets. Depending upon your circumstances, it may be worthwhile to maintain this trust. Your estate planning attorney will be able to guide you.

Merging old trusts into new ones, or “decanting” them, makes sense in some situations. A new trust can be better crafted to align with the latest in tax laws and serve the same beneficiaries for as long as your state’s laws permit.

The two important takeaways here:

• Estate planning requires a complete look at all of your assets and liabilities to make the best decisions on how to structure any estate and tax strategies; and
• Estate plans need to be reviewed on a regular basis—every three to five years at a minimum—to ensure the strategies still work, despite any changes in tax laws and your situation.

Reference: Financial Advisor (Nov. 1, 2022) “Rooting Out Estate Planning Opportunities”