Elder LawEstate PlanningMedicaidRevocable Living Trust

Top 20 Myths and Misunderstandings of Estate Planning

By January 28, 2019 April 21st, 2021 No Comments

Myth #1:  I don’t need an attorney, I can 1) find documents on the internet; 2) use a group legal service provided by my employer; or 3) find a software program.   There is a great deal of truth in the old adage, “you get what you pay for.”  If a stranger offered to give you something of value, like a refrigerator or car, would you be worried about its reliability?  Of course you would, and with good reason!  No one “gives away” something that has value “for free”.

Did you know LegalZoom was sued over flawed estate planning documents?   One of the attorneys who filed the lawsuit, San Francisco attorney Robert Arns, says that “LegalZoom advertises that you don’t need a real attorney because its work is legally binding and reliable. That’s misleading. Improperly prepared estate planning documents are a ticking time bomb that can result in improper tax consequences and other items that could cost the estate and heirs huge sums.”  Group legal services provided by employers may be “inexpensive” to obtain, but again, if they don’t work, it may end up costing you a lot more money in the end.

Many do-it-yourself software programs or forms allow you to create “your own legal documents”.  However, estate planning for a senior is much more than “legal documents”.  Documents are a part of the plan, but you cannot create an effective document without understanding how it works.  Legal documents obtained on the internet or through home software programs, are the leading cause of trust and probate litigation.  Investing in professional legal advice, analysis, documents and planning will save your loved ones a significant amount of money, stress and time in the future.  The goal of estate planning is to develop a PLAN, not just documents, that will give you the best legal, financial and care plan possible to assure your quality of life.

Myth #2:  Estate planning is only for the wealthy.  Many factors other than wealth affect the need for estate planning, such as (1) caring for a surviving spouse; (2) caring for a minor or disabled child; (3) transferring ownership of property in accordance with your wishes; (4) transferring a business; (5) transferring property in another state; (6) giving to a charity; (7) avoiding probate; (8) avoiding or minimizing taxes; and (9) planning for pets.

Myth #3:  I am not old enough for an estate plan.  The fact is everyone over the age of 18 needs to have (1) a Health Care Durable Power of Attorney to give someone the authority to make health care decisions for them in the event of an illness or accident.  This is especially true if you do not wish to be kept alive by artificial means; (2) HIPAA Releases so medical professionals know who you want your private medical information shared with; and (3) a Durable Power of Attorney for Finances to allow someone to pay your bills and handle your finances in the event of an accident or illness.

Myth #4:  I don’t need a Durable Power of Attorney, I have added my children to my checking account and other assets so they can handle things.  We do not recommend this for several reasons.  An example would be if your child should have creditor issues or a car accident and is sued, because their name is on your money, your money could be at risk.

Myth #5:  I have done an estate plan.  I don’t need to look at it again.  Once an estate plan is developed, the individual can forget about it.  It is necessary to periodically review and update an estate plan.  As we age, our financial needs, medical needs and legal needs change.  Changes in one’s family situation, the economy or tax codes can also be reasons to update your estate plan.

Myth #6:  Having a Will avoids probate.  Wills must be filed with, and administered by, the Probate Court.  The advantage of having a Will is that you decide who will handle your affairs, who will receive your assets, avoid an expensive probate bond, and determine the amount of control the Probate Court has over the administration of your estate.

Myth #7:  I have a Will, I don’t need a Trust.  A Will only goes into effect upon your death.  A Trust and Durable Power of Attorney manages your assets if you become incapacitated by age, illness or accident.  A Trust is also helpful for second marriages, families who wish to provide for minor children or a child with a disability.

Myth #8:  I have a Revocable Living Trust, so my assets are protected from a nursing home or the state.  A Revocable Living Trust has many benefits, but it does not protect your assets from the draining cost of skilled nursing care.

Myth #9:  Transferring property into a Revocable Living Trusts prevents creditors from accessing those assets.  Because a Revocable Living Trust is controlled by the person setting up the Trust (the Grantor), a creditor or lawsuit can normally reach the property in a Revocable Living Trust.  Only Asset Protection Trusts provide assets creditor, predator or lawsuit protection.

Myth #10:  My spouse will still have the value of the house to live off if I have to go into a nursing home.  If the spouse in the nursing goes on Medicaid, the State keeps track of every dollar they spend on you.  Upon your passing, a lien is attached to the house, and when the house is sold, the State gets paid back first, before the at- home spouse receives a penny.

Myth #11:  My spouse will have the death benefit from my life insurance to live on.  In Missouri, if the life insurance policy has a cash value of more than $1,500, it is a countable asset for nursing home care.  If you have a prepaid funeral, you cannot have a life insurance policy with any cash value.  Before being able to apply for Medicaid, you will be forced to cash in the policy.  Consider this example:  Mary has a prepaid funeral and a life insurance policy with a death benefit of $75,000.  There is a cash value of $25,000; meaning Mary can cash in the policy and receive $25,000.  Because Mary already has a prepaid funeral, before qualifying for Medicaid, Mary must cash in the policy and spend down the $25,000 on her cost of care in a nursing home.  This means Mary loses $50,000 in benefits of her life insurance policy.

Myth #12:  I will just give my money to my kids, avoid the investment in a Trust, and then I will qualify for Medicaid.  Giving your assets to your children “to hold on to for you” means you no longer have any say or control over this money.  This is NOT a good idea for the following reasons:

  • Medicaid Penalty: If you give the money away within five years of needing to apply for Medicaid, there is a very harsh penalty that will be applied.  For every $6,122 (2019) you give away within five years of applying for Medicaid, the State imposes a one month penalty.  The penalty begins when you have spent down to the maximum amount of allowable asset, $2,999 (2019).  This means for every multiple of $6,122 you have given away or protected within five years of needing to apply for Medicaid, the state will not pay for your monthly nursing home cost (approximately $8,000 in 2019), even though you do not have any money left.

Example:  Mary and John gave $10,000 to their daughter to help get her out of debt.  Three years later, John had a severe stroke and needed nursing home care.  $10,000 divided by $6,122 is approximately a 1.63 month penalty.  At $8,000 a month for nursing home care, Mary will have to pay over $13,000 out of the money she needs to live on for the rest of her life before Medicaid will pay for John’s care.

  • Debt: The money is now in your child’s name, it is subject to be used for their debts or if they are sued for any reason.
  • Divorce: Should your child and their spouse divorce, because the money is in your child’s name, it is subject to be divided in the divorce.
  • Disability: Should your child become disabled due to illness or accident, your money would be subject to their spend down before they could apply for government benefits.
  • Disagreement: Should you and your child have a falling out, will your child still be willing to “hold on to the money” for your care?  Your child has no legal obligation to do so.
  • Death: Should your child die, their spouse or children will inherit the money.  Will they be willing to “hold on to the money” for you?  They do not have a legal obligation to do so.

Myth #13:  My father is already in the nursing home so there’s nothing we can do now.  Often a family waits longer than they should to contact an Elder Law Firm, but it’s rarely too late to establish a good plan.  A good rule of thumb is, the earlier a plan is put in place, the more assets can be protected.

Myth #14:  Our pre-nuptial agreement says that my assets are mine and my husband’s are his.  The State does not honor pre-nuptial agreements when determining Medicaid eligibility.  All assets owned by either spouse are considered jointly owned and must be divided and spent-down exactly as they would if there was no pre-nuptial agreement in place.  Proper estate planning and expert legal advice from an Elder Care Attorney, can ensure that the wishes of both spouses are honored regardless of which one needs nursing home care.

Myth #15:  Medicare and my Medicare supplement will pay for nursing home care.  Neither Medicare or your Medicare supplement will pay for more than 100 days in a nursing home.  If you must permanently stay in a nursing home, 100 days can be a drop in the bucket.  The average cost of nursing home care is currently $8,000 or more a month.

Myth #16:  Not knowing the State can take your house after you pass if you have been on Medicaid.  It’s called “Estate Recovery” and it is mandated by the Federal government.  The State WILL confiscate your home to recoup nursing home costs they have paid on your behalf.

Myth #17:  Not seeking the advice of an Elder Law attorney.  Elder law, Medicaid, and other government benefits programs area a highly complex area of law.  Very few estate planning and general practioners have the training, knowledge and experience to understand the laws and rules that apply.  A common misunderstanding is “attorneys cost a lot of money”.  The truth is Elder Law firms SAVE people a LOT of money.

Myth #18:  I have appointed my daughter in a Durable Power of Attorney.  She can do anything she wants or needs.  Many people believe a Durable Power of Attorney gives someone the ability “to do whatever they want”.  The fact is, the person can ONLY do what the document gives them the ability to do.  Seniors have a unique set of legal needs that an estate planning or general practitioner are not typically aware.

Myth #19:  You have to spend ALL our money before the government will help pay for the cost of nursing home care.   “The very nice and helpful lady at the nursing home explained how after Mom is out of money, she would apply for Medicaid for us for FREE!”  Of course they will!  After you’ve paid them $8,000, $10,000, (or more!) a month for what seems like forever….they will do you the FAVOR of allowing your loved one to live in a semi-private room with a complete stranger, on $50 a month for the rest of their life.  We have a MUCH BETTER plan for your loved one.

Myth #20:  Doing nothing.  Unless you have no assets to protect or you don’t care how decisions will be made if you become mentally incapacitated (e.g. dementia, Alzheimer’s, etc.) you should take steps to protect yourself, your family and your assets NOW.

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