Month: October 2015

Nursing Home Trusts

Our senior clients frequently express their concern about losing their estate to the cost of nursing home care. Clients usually want to pass some of their legacy out to their children. With nursing home care costing over $80,000 per year, most people end up paying for care out of their savings until it is gone. Once the assets run out, they are entitled to receive some assistance from the government in the form of Medicaid, but by then, it’s too late.

As the possibility of nursing home care becomes reality, people often do their own planning, which can be more of a detriment than no plan at all.  Do-it-yourself planning is often based on a misunderstanding of the rules or is based on the rules as they existed decades ago.  Careful advance planning can help protect your estate.

Generally, Medicaid funds are not available until a person enters a nursing home and their assets are under $2,000.  As most people are aware, Medicaid will look at transfers made within 5 years prior to the application for Medicaid.  This is what is generally referred to as the “look-back period”.  If the need for long term care is not immediate, your house and other real estate can be transferred into a nursing home trust.  While you and your spouse are in good health, the 5-year look back period runs.  Even though the house and other real estate are in the nursing home trust, you will live in the house and use the property as usual.  You will even get to continue to deduct your property taxes.  At the end of the 5 years, the property will be out of your estate and not susceptible to liens from the nursing home, collection from the State, and will not count against you for Medicaid coverage.

This is an important difference from transferring real estate to your kids. We see many people simply transfer their house and other property outright to their children. While this can work to shield assets from nursing home liens and attachments, it does not provide for your future care. As you are relinquishing control of your property if assets are simply transferred to your children, you run the risk of your home or assets being lost to mismanagement, lawsuits, creditors, or divorce.  Often, the loss of funds is not due to any type of wrong-doing by the children, but rather to events happening in their lives that are out of their control. Furthermore, the nursing home trust may have the added benefit of helping your children avoid many of the unforeseen consequences of having assets transferred into their names.   For example, if your children hold your assets in their name, they may run into problems getting eligibility for their children’s educational financial aid.  Furthermore, because the property was gifted to them, your children may also have to pay capital gains on the sale of the real estate when the property is sold.

If nursing home care is a concern, consider a nursing home trust as part of your estate planning. We will be happy to discuss your options with you.

Yours Truly,

Epiphany Law Estate Planning Team


Almost everyone can turn a modest IRA into MILLIONS of dollars for later generations. Take, for example, a typical couple that has a $100,000 IRA during their lifetime and have named their 20-year old son as the sole beneficiary of the IRA. At their deaths, the son will inherit the IRA. Assuming a reasonable rate of return, if he inherits the IRA at age 20, he may receive over $1,700,000 of income over his lifetime – the result of a concept called “IRA stretch”. The “stretch” occurs when IRA payments are prolonged over the longest possible period of time (taking into account the beneficiary’s age), thus reducing taxes and preserving wealth for future generations. In most cases, however, the IRA that is inherited by the son will produce $0.00. Why? Because 90% of all IRAs left to the next generation are cashed out or squandered within one year of receipt. Therefore, more likely than not, the son will have lost this potential million dollar IRA within 12 months.

In most estates, the IRA is one of the largest assets. The benefits of tax deferral and creditor protection, which we have not yet discussed, can be lost at your death without the proper planning. Generally, IRAs are exempt from the IRA owner’s creditors during his or her’s lifetime. However, once the IRA owner passes away, the IRA is available for the beneficiaries’ creditors because it is no longer a creditor exempt asset according to the United States Supreme Court. For example, if mom left an IRA to her son outright, and the son was going through bankruptcy, the bankruptcy court could satisfy the son’s debts with mom’s IRA.

Another risk is second marriages. An IRA can be “rolled over” to a surviving spouse upon the death of the first spouse, and the surviving spouse becomes the owner of the IRA. The surviving spouse is free, then, to change the beneficiaries of the IRA. Upon remarriage, the surviving spouse may name the new spouse as a beneficiary of the IRA. Upon death, the new spouse then becomes the new owner of the IRA and is free to name their own new beneficiaries. If the original owner of the IRA had planned on the IRA going to their children, they are out of luck. Understanding and planning could have ensured this result.

A standalone retirement trust (commonly referred to as an “SRT”) is an under-utilized tool used to overcome these issues. The IRA will, upon death, flow into the third-party trust instead of passing directly to the beneficiary. The beneficiary can access funds, but creditors cannot. Nor can the beneficiary control who ultimately gets the trust funds upon their death. It will continue to grow, thus preserving the potential for that million dollar IRA.

Yours Truly,

Epiphany Law Estate Planning Team

Healthcare POA and Living Will

At Epiphany Law, estate planning is about “peace of mind.” Yes, it is important to ensure that your “stuff” goes where you want it to go and that you pay the minimum amount to Uncle Sam.  But peace of mind also means that you have planned for incapacity and determined who will take care of you if you cannot do so.

The death of Terri Schiavo ten years ago was widely publicized at the time, but today there is a whole new generation of adults who may not appreciate the lessons taught by her unfortunate story.  At the age of 27, Terri Schiavo suffered a cardiac arrest. She was resuscitated, but was diagnosed as being in a persistent vegetative state. A feud ensued between her husband and her parents as to whether to remove Mrs. Schiavo from life support. Her husband insisted Terri would not want to be kept alive under the circumstances, but her parents vehemently disagreed. Mrs. Schiavo remained on life support as her husband and parents battled for 15 years in the court system through 5 federal lawsuits and 14 appeals. Ultimately, the federal court system sided with Ms. Schiavo’s husband, and her feeding tube was removed.

In yesterday’s blog, we covered the importance of a power of attorney for your financial affairs. Today, we talk about a power of attorney in the context of YOU—your body and your health.  Every good estate plan must include a Power of Attorney for health care decisions. Quite simply, in such a document, you name an agent to make decisions for you about your health and medical care if you are unable to. This document should include important considerations such as withholding life support, decisions while you are pregnant, and placing you in a nursing home. Who you should name is obviously a personal decision. Consider someone local in the event of an accident or emergency, who can make decisions under pressure, and can act based on your wishes, not their own.

After you determine who will act on your behalf, the other equally important part of the equation is telling your agent what those decisions should be. The actions of your agent will have real “life and death” implications—for you and for them. If you don’t clearly articulate your wishes and desires, they will make decisions based on their own values, which might not line up with yours. A clear statement of your intentions about life support, for example, can bring a great deal of peace to a tough choice.

Now that you have the pieces, let’s look back at Schiavo story. Terri had taken the first step and designated her husband as her Power of Attorney, giving him the ability to make decisions for her. She did not, however, have a Living Will, and the courts were left to figure out what she wanted, presented through the eyes of her parents and husband. A clear statement of her intentions would have probably stopped the fight before it started.

“Stuff” is important, and having a plan in place ensures accumulated wealth will pass down to the next generation. Health care documents are arguably the most essential piece of the plan. If you don’t have a plan yet, you should.  At a minimum, you should name an agent and let them know how you feel about your medical decisions. If you don’t, a court will do it for you.

Yours Truly,

Epiphany Law Estate Planning Team

Power of Attorney and Marital Property

The financial durable power of attorney and the marital property agreement are often forgotten pieces of estate planning. Frequently overlooked, both of these documents are necessary to a good plan.

The financial power of attorney is simply a legal document that gives someone authority to conduct financial transactions for you if you are unable to do so. The powers granted under the financial power of attorney can include simple transactions, such as paying your cell phone bill, to more complicated transactions, such as running a business.

An often mistaken belief is that a spouse will automatically have the power to deal with the finances of the other. Meet a hypothetical couple named Dick and Jane, who probably have all of their assets titled jointly, including their house. If Dick is involved in an accident and is left incompetent, can Jane act on his behalf? Without a financial durable power of attorney, Jane can still access joint accounts that they own together; however, Jane is unable to transact any acts involving Dick’s IRA, 401K, pensions, life insurance- even things as simple as a cable bill if Jane is not on the account! Jane would have to be named guardian by a court to make any changes to or withdrawals from these accounts, or even to receive information!

Therefore, it is important to have a properly drafted financial durable power of attorney to take care of your affairs if anything happens to you. This is true even if your spouse is listed on all of your accounts, and even truer if you are unmarried! With a durable financial power of attorney, the acting spouse (or other agent) will have full access to all of the family accounts and will avoid court involvement in the middle of a crisis.

Similarly, the marital property agreement is also frequently overlooked. Wisconsin is a marital property state. Generally, the Marital Property Act presumes that almost all property is owned equally between the spouses.  However, certain assets are individual, such as inheritances. Under the Marital Property Act, Dick’s paycheck would be considered marital property, as would their house. However, Jane’s inheritance from her grandmother is Jane’s individual property. Dick has no automatic right to share in the inheritance. This seems simple enough; however, the Marital Property Act can get confusing.  If any marital property is mixed in with individual property, all of the individual property can become marital property. If Jane mistakenly deposits Dick’s paycheck into the account where she holds her inheritance, the whole account may very well be considered marital property. This could really be a problem if Dick and Jane ever divorce.

How does all of this pertain to an estate plan?  We use the marital property agreement to classify assets of spouses. By defining all of the assets as marital property, we are able to equalize the marital assets for estate tax planning, or to make certain that a spouse receives more favorable tax treatment after death. If a couple is on their second marriage with children from previous marriages, the marital property agreement can allow each spouse to leave individual property to their own children at death.

Dick and Jane’s story, while hypothetical, can and does happen. Ensure these important financial documents are part of your estate plan so a court isn’t in control of your family’s financial future.

Yours Truly,

Epiphany Law Estate Planning Team

Wills vs. Trusts

We all know about “Wills” and “Trusts”, right?  Well, at least we’ve all heard of a “Will” and a “Trust.” Do you really know what they are or what they do? Do you know how they differ, or the advantages of one versus the advantages of the other? Both are very useful, but serve different purposes. Sometimes just one is used in an estate plan, and sometimes both are used. The key is to know the purpose of each document and use them to fulfill your goals.

Wills and Trusts differ in countless ways. One primary difference is when they take effect.  A Will, for example, only takes effect upon death. Prior to death, a Will is nothing more than a list of directions waiting to take control. Upon death, however, a Will directs who will receive your property and appoints a person to carry out your wishes. Trusts, on the other hand, take effect immediately upon execution. A Trust doesn’t have to wait until death to be effective.  In fact, a Trust can manage and distribute profit at any time, before or after death.

Another primary difference between a Will and a Trust is any property owned by a Trust avoids probate. A Will, on the other hand, does not avoid probate. That means when a Will is used, a court will oversee the administration of the Will and ensure the property goes to the proper beneficiary. The probate process typically lasts 9 to 18 months, and can cost thousands of dollars. Because property owned by a Trust avoids probate, that property is transferred to beneficiaries cheaper and more efficiently.

Sometimes it’s best to use a Will and a Trust together. For example, a Will allows you to appoint guardians for minor children. A Trust can help plan for disability or estate taxes.  Because of these reasons, and countless others, the best option may include the use of a Will and a Trust. Under this scenario, we can use the benefits of each document to our advantage, while minimizing the effect of each document’s disadvantages.

As you can see, there is no textbook answer to the age old question, “Should I have a Will or a Trust?” The answer to that question is based entirely upon each person’s facts and circumstances. We at Epiphany Law know not every situation calls for a Will, and not every situation calls for a Trust; we are an excellent resource to consult when preparing an estate plan. Our goal, after all, is to create an estate plan specifically tailored to each client, and to help execute the plan.

Yours Truly,

Epiphany Law Estate Planning Team

Extra Extra: Read All About It

Next Sunday, October 18, 2015, is the official start of the 2015 National Estate Planning Awareness Week (“EP Week”). No, EP Week is not a creation of Epiphany Law, LLC (“Epiphany Law”). In fact, we can’t take any credit for EP Week. EP Week is a Congressional creation. Yes, Congress created EP Week because estate planning is that important. In conjunction with the National Association of Estate Planners & Councils, in 2008 Congress declared the third week of each October as National Estate Planning Awareness Week. That means for a full week, from October 18 – October 24, we, as Americans, are to promote estate planning awareness. This year Epiphany Law is doing its part by, among other things, publishing a series of articles. You will be receiving a copy of each of those articles, this being the first of six. Yup, you will be receiving six articles from Epiphany Law over the next week. We can only imagine your excitement! In all seriousness, though, it is estimated that over 120 million Americans do not have an up-to-date estate plan. Without question, this makes estate planning one of the most overlooked items on an individual’s to-do list. Whether a person has $50,000 or $50,000,000, they will benefit from a well drafted estate plan. After all, estate planning is more than Wills and Trusts. As one can easily see, estate planning is a necessity for nearly every American. If done right, estate planning should make life easier on the planner and the planner’s family, plus save thousands of dollars. Who wouldn’t want to ease their family’s burden and likely save money along the way? The purpose of this article is to inform you of what’s coming, while providing some useful content. It’s our first step to promote estate planning awareness. Beginning next Monday, October 19, we will post daily articles about estate planning. Each article will focus on a specific aspect of estate planning, and the articles will increase with complexity as the week progresses. We will explain Wills and Trusts, discuss the benefits of the Power of Attorney documents, and even take a look at special trust vehicles used for Medicaid planning and IRA inheritance planning. Our goal is education. It really is that simple. If we can teach everyone a few things about estate planning, and share information about some amazing tools, we believe we have done our part to promote EP Week. Of course, if something along the way triggers your interest, or you simply have more questions, do not hesitate to contact us at your convenience. We hope you find Epiphany Law’s participation in National Estate Planning Awareness Week beneficial and informational.

Yours Truly,

Epiphany Law Estate Planning Team