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Tallgrass Estate Planning, LLP

A Plan for Everyone. #EstatePlanned

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7813 S Harvard Ave
Tulsa, OK 74136

Fax: 918-703-4701
Last Updated: July 10, 2020

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About Tallgrass Estate Planning, LLP

Tallgrass Estate Planning is a law firm that focuses exclusively on providing estate planning solutions for everyone, such as trusts and wills, special needs planning, asset protection, business succession planning, Medicaid and VA benefits eligibility, probate, and guardianship. We serve clients throughout Oklahoma.

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If you have never created an estate plan, you are probably wondering: Where do I start? If it's been a while since you've looked at your plan, you're probably wondering: How do I know if it's time to make any changes? This post is for you.

Estate Planning Checklist
What everyone needs:
* Working with a knowledgeable estate planning attorney
* Financial power of attorney
* Healthcare power of attorney
* Advance directive
* Disposition of remains
* Protected list or database of assets
* Will and/or Living Trust

What married couples need:
* Asset protection for surviving spouse
* Tax planning to maximize benefits for surviving spouse

What parents need:
* Guardianship for minors
* Asset protection for children's inheritance
* Tax planning to maximize benefits for children

What business owners need:
* Asset protection for business property, accounts, and goodwill
* Agreement between all members, shareholders, or partners
* Succession planning
* Integration of business planning into personal estate planning
* Tax planning to minimize state and federal income taxes

Other potential concerns:
* Specialized planning for loved ones with special needs
* Asset protection from long-term care costs
* Eligibility for veterans’ benefits
* Specialized planning for tax-deferred assets like IRAs and 401ks

Updating Your Trust
Updating a Revocable Living Trust:
* Is your trust properly funded?
Is your real estate titled in trust? Are your non-qualified financial accounts owned in trust? Is your trust named as primary beneficiary of life insurance? Is your trust named as contingent beneficiary of retirement accounts? Does trust have conduit provisions? Is your trust the assignee of LLC or partnership interests? Is the trust the stockholder of S corp stock? Does trust language make trust a qualified shareholder?

* Does your trust appropriately define a grantor's incapacity? If trust requires "two physicians," then consider creating a private disability panel to keep determinations of incapacity private and efficient.

* Does your trust protect assets for a surviving spouse (if any)? Does your trust create an irrevocable portion upon death of a grantor? If so, is the irrevocable portion appropriately funded by some means other than an estate tax formula? Does the irrevocable portion require prenuptial agreement upon a future remarriage? Is there spousal special needs planning for benefits eligibility?

* Does your trust protect assets for your beneficiaries? If beneficiaries receive portion "outright" and "free of trust," consider creating cascading trusts to ensure assets protected from beneficiaries' creditors, divorcing spouses, etc. Does your trust include stand-by special needs provisions for beneficiaries that may receive public benefits?

* If your trust distributes to a charitable beneficiary:
Is there an alternative beneficiary named? Does your trust distribute tax-deferred assets to the charity first? If so, does your trust provide guidance to the trustee to avoid the "five year rule" for designated beneficiaries?

Amending an Irrevocable Living Trust:
* By Consent:
Are all grantors still living, and do they have capacity? Do all beneficiaries consent to the amendment?
* Are their adequate provisions for a Trust Protector?
* Was their a mistake in the original trust agreement?

If you want to know more, we would love to talk with you. Best part, the conversation about how it could benefit you doesn't cost anything. Call us at (918) 770-8940 or send an email to firm@tallgrassestateplanning.com.

Disclaimer: Reading this blog post does not create an attorney-client relationship, and it is not formal legal advice. This is for information purposes only. It is always best to speak with an attorney about your questions, assets, concerns, and needs.

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A common goal in estate planning, especially for people who are retired or who have a chronic illness, is protection of assets in case they need long-term care. It's common knowledge that qualification for Medicaid benefits usually requires the recipient to be impoverished. It is less common knowledge, however, that you can protect many of your assets and still qualify for Medicaid if you plan ahead. 

You can watch a video of Riley and Laurel discussing these issues HERE.

Before we discuss how planning ahead helps you qualify for Medicaid without losing everything you have, let's first clarify how eligibility for Medicaid is typically determined.

Asset Test:

If you are single, you can only have $2,000 dollars in assets, including the value of your home.

If you are married, you can have $3,000 dollars in assets. This does not include the value of your home (up to $595,000 in equity for 2020), so long as one spouse continues to live there. 

If you are married and one spouse does not need long-term care, that spouse can keep half of your assets, or $25,728 at minimum and up to a maximum of $128,640 (for 2020). 

The value of your IRAs, and your spouse's IRAs, count against you.

Income Test:

You can't have more than $2,349 in income.

If you are married, your spouse can have at least $3,216 in income, even if they need to "borrow" some from you to help them get to that number. 

If you fail to meet either test, then you won't qualify for Medicaid until you "spend down" your assets to those numbers. 

What about the "look back" period?

Yes, there's a potential trap. If you give away any of your assets - like money, real estate, or business interests - within 60 months (5 years) of applying for Medicaid, then you will be penalized for that transfer. How is this penalty calculated? For 2020, the penalty divisor is $178.18 per day. 

What does that mean? Here's an example. Let's say thought transferring your home to your children was a good way to protect it from a spend down. At that time of transfer, the home was worth $120,000. A year later, you need to move into a nursing home. You penalty is $120,000 divided by $178.18, which is 673. That means you have a penalty period of 673 days (or 1 year, 11 months, and 4 days) during which you must self-pay for long-term care before you are eligible to receive Medicaid. 

The Wrong Solution

Many people ask why they can't just transfer their assets to their children, assuming they can do so outside of the 5 year look-back period. It's a great question, but this solution comes with a couple of risks that people usually want to avoid.

First, transferring certain types of property, such as real estate or other assets that increase in value over time, can subject your children to an unintended capital gains tax liability. If your children are given your assets, or if they purchase them for less than fair market value, that will eventually pay taxes on the increase in value since the time that you acquired those assets. If your children inherit those assets at your death, however, they avoid the capital gains issues. 

Second, transferring your assets to your children risks losing your assets through your children's bad choices or bad luck. If one of them experiences a divorce, a crisis in their own health, a bankruptcy, a lawsuit, a creditor claim, or any number of other financial problems, you could lose your savings, your home, your business, or other assets you have transferred to your children thinking you were protecting them. 

Okay, so now you have a little bit of a grasp on qualifying without a plan. What if you want to plan ahead for Medicaid eligibility without losing your savings, hour real estate, your business interest, your IRAs, and other valuable assets?

Medicaid Asset Protection Trust

The Medicaid eligibility requirements stay the same. We can't change the asset test or the income test, but we can be smart about how we meet those tests. Instead of spending down your assets or transferring them to family 5 years ahead of time, which creates the tax and asset protection problems described above, we create a specific type of trust that we call a Medicaid Asset Protection Trust or MAPT. 

An MAPT is an irrevocable trust that owns your protected assets in a way that is countable by Medicaid. The assets held in the MAPT are not considered when determining your eligibility, which means your non-qualified savings, your real estate, the family farm, your business interests, and other assets stay with you and your family during your incapacity. 

Transfers to the MAPT are still subject to the 5 year look-back rules, so it's important to create this trust ahead of time, before you need long-term care. 

An important final note: A revocable living trust does ineffective at protecting assets for Medicaid eligibility purposes. There are many great reasons to create a revocable living trust, but Medicaid qualification isn't one of them. If you have been told that your revocable living trust will protect your assets if you or your spouse need long-term care, you have been misled, and you need to solve that problem quickly. 

If you want to know more, we would love to talk with you. Best part, the conversation about how it could benefit you doesn't cost anything. Call us at (918) 770-8940 or send an email to firm@tallgrassestateplanning.com.

Disclaimer: Reading this blog post does not create an attorney-client relationship, and it is not formal legal advice. This is for information purposes only. It is always best to speak with an attorney about your questions, assets, concerns, and needs.

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One of the more frequently asked questions we get is about the difference between revocable and irrevocable trusts. In this post, I answer that question as simply as I know how and suggest why someone might choose one over the other. As always, let us know if you have any questions. 

Common Misunderstanding

People assume that the difference between a revocable trust and an irrevocable trust is that a revocable trust can be changed while an irrevocable trust cannot. This isn't quite right.

Both types of trusts can be changed. The question isn't whether the trust can be changed, but rather who can do the changing. 

Revocable Trust

With a revocable trust, the grantor (a person who creates a trust and funds it with their own assets) can revoke, amend, and restate the trust as long as they are alive and have capacity. 

Revocable trusts are used to avoid court-controlled processes, like guardianship and probate, and, if drafted properly, they can do a great job of providing ongoing asset protection for the grantor's beneficiaries, such as surviving spouses and children. To a lesser degree, revocable trusts can be useful in planning for tax efficiencies down the road. 

Irrevocable Trust

With an irrevocable trust, the grantor cannot revoke, amend, or restate the trust once it is executed. That does not mean that it can't be changed. It just means the grantor isn't the one who can change it. 

In Oklahoma, irrevocable trusts may be modified by the consent of all the parties, including the grantor. Irrevocable trusts can also be modified by a court, so long as the party petitioning for the modification can prove that the trust contains and error that misrepresents the grantor's intentions. There are other options, such as a procedure called "decanting," which allows for certain modifications of irrevocable trusts. 

But by far our favorite way to modify an irrevocable trust is by appointing a trust protector. Trust protectors are independent parties named in a trust who have specifically delineated authorities to modify the trust for limited purposes - such as filling trustee vacancies, directing trust investments, modifying certain beneficial interests, and even amending the trust for tax purposes or other changes in the law. The great thing about trust protectors is that they may act even if the grantor is incapacitated or deceased (at which time modification by consent would be impossible), they do not have to rely on a mistake in order to modify the trust (the way a court would), and they don't have to change the situs of the trust and create a new trust (as in decanting). 

Why Would Anyone Create an Irrevocable Trust?

Irrevocable trusts are used for asset protection, which can take several forms. Maybe you are trying to reduce the size of your taxable estate to save assets from federal and state estate and inheritance taxes. Maybe you are in a high liability industry and want to protect your assets from lawsuits and judgment creditors. Maybe you appreciate your privacy and want to protect your assets in other ways. And maybe you are trying to qualify for certain benefits, such as Medicaid or VA Aid & Attendance, and you want to protect certain assets from being spent-down for eligibility purposes. 

A revocable trust cannot provide this kind of asset protection for the grantor. In order to get this type of benefit, your trust must be irrevocable. 

Important Note

Not all irrevocable trusts are the same. There is no "one size fits all" with this type of planning. Different types of trusts protect different types of assets. It is important not only to create an irrevocable trust, but also the right type of irrevocable trust. 

If you want to know more, we would love to talk with you about it. Best part, the conversation about how it could benefit you doesn't cost anything. Call us at (918) 770-8940 or send an email to firm@tallgrassestateplanning.com to set up a free consultation.

Disclaimer: Reading this blog post does not create an attorney-client relationship, and it is not formal legal advice. This is for information purposes only. It is always best to speak with an attorney about your questions, assets, concerns, and needs.

Photos

Videos

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Attorney Riley Kern of Tallgrass Estate Planning gives a brief explanation of what a Grantor Retained Annuity Trust is and why right now (Spri…

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This conversation was recorded on May 13, 2020, as a Facebook Live video at FB.com/TallgrassEstatePlanning. We explain the income and asset te…

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Attorney Riley Kern gave this presentation to the Oklahoma Bar Association Estate Planning, Probate, and Trust Section. What is a Stand-Alone …