Putting Financial Affairs in Order a Part of Transitioning to Assisted Living

Wednesday, 31 January 2018 20:21
Rate this item
(0 votes)

living wills and legal trustsIt’s important, when seniors put their legal affairs in order, to consider what is in their best interest when transitioning to an Assisted Living community.

It is important that a trusted person is given the authority to make decisions regarding the financial matters of the senior before something happens to incapacitate the resident. When left in question, families may split apart and battle within the probate court system over who has the legal right to make important decisions for the senior.

It’s not easy discussing the inevitability of death with an aging parent, but it happens to everyone eventually, so there are advantages to having a conversation about their wishes on such things as:

  • Who they want to handle their financial and legal affairs if they become incapacitated, along with managing healthcare decisions.
  • The final wishes of the senior and who is appointed to carry them out.
  • How assets are to be transferred to beneficiaries after death.
  • Decisions about advance directives for life support and organ donation.

Having a clear idea, in writing, of what happens next often avoids future disputes.

While an aging or disabled person still has the capacity to make decisions about who to trust with such authority, a legal document called “Power of Attorney” is drafted to give the designated party the power to act on his or her behalf. It may be limited to certain activities, such as filing taxes. If no such document has been drafted and the senior loses the capacity to manage his or her own affairs, the courts may grant what’s called a “Conservatorship” to a responsible party seeking to handle such matters on behalf of the senior.

A person is considered incapacitated if, for reasons other than being a minor, he or she is unable to make decisions and cannot adequately take care of their own health care, nutritional needs and the like. Incapacitation may be as a result of mental illness or injury that resulted in brain damage. There may, of course, be instances where the senior can mostly function independently but needs assistance with finances. A failure to properly manage bills can often be the impetus for a family transitioning a senior to Assisted Living.

Martin L. Pierce, an attorney with the Pierce Law Firm, PLLC in Chattanooga, Tenn., is a Certified Estate Planning Specialist through the ABA-accredited National Association of Estate Planners & Councils. An AV Preeminent-rated lawyer with Martindale-Hubbell, he is also a Mid-South Super Lawyer® in the areas of Estate Planning and Elder Law, was selected to Best Lawyers in America for Trusts and Estates, and is an AVVO Top-Rated Lawyer. He is also a member of the National Academy of Elder Law Attorneys, and he is an Accredited Attorney with the Department of Veterans Affairs. He is an Accredited Estate Planner® by the National Association of Estate Planners & Councils. These credentials make him an authority on estate planning and elder law.

“There are definitely big differences between Power of Attorney, Conservatorship, Irrevocable Trust, etc.,” Pierce said. “There are slight differences, particularly in terminology, in different states or localities. ‘Conservatorship’ and ‘guardianship’ are basically interchangeable, for example.”

Pierce said the bottom line is that seniors and their families need to have plans in place to cover things like insurance and personal finances. In some cases, a senior may have a designated person with Power of Attorney, yet another family member may challenge this role and petition with the court for a conservatorship if the POA agent is not properly managing the senior’s assets or the senior needs additional help with something the POA agent is not equipped to provide.

It can be tragic when families take sides over a dispute about money or health care decisions after Alzheimer’s or another debilitating condition has robbed the aging parent of his or her ability to make important decisions. Grown children may express differences of opinion over what degree of retirement living or medical care is appropriate for the parent with its attendant impact on spending “their future inheritance.”

“We each have to consider what may become of our finances, belongings, and even ourselves if we become incapacitated or when we pass away,” Pierce said. “As uncomfortable as these ideas are, they are critical to see through so that our loved ones are not left with unnecessary burdens they may be unprepared or ill-suited to handling. These matters can be difficult and complicated. A good place to start is understanding the different types of legal documents every senior should have.”

He said a Durable Financial Power of Attorney can avoid a legal Conservatorship or Guardianship, which is an expensive and time-consuming process accomplished through the Probate Court. A Conservatorship requires Court approval of expenditures, investments and sales of assets, and it requires annual accountings filed with the Court of every item of income and expense. It can be effective immediately or upon proof of incapacity.

Another term discussed is a “Revocable Trust”, which may be referred to as a “Living Trust” because it contains instructions on the management of property during the lifetime.

“In my experience, I have found that relatively few people, including a very high percentage of non-estate planning attorneys, actually know how such a trust works,” Pierce said. “Asking a trial lawyer if they know how a Revocable Trust works is sort of like asking the average person if they know how an automobile works. And the answer you may get is: ‘Sure, you just get in, start the car and drive it where you want to go.’ To which you might reply, ‘No. That’s not what I mean. I mean, can you take a car apart and put it back together again?’ So, if you are going to use a Revocable Trust as the basic document of your estate plan, you at least need to know how to get in, start it up and steer it where you want it to go.”

“You have to actually change the legal title and ownership of each and every asset you want subject to the terms of the trust by giving those assets to the Trustee. This point is made over and over again to clients when they sign their Revocable Trusts,” Pierce said.

A Revocable Trust is important for two very good reasons. “The first, which is obvious, is that you can make any changes when you like to the trust -- or do away with the trust -- as long as you are alive and competent,” Pierce said. “This comes in handy if you were to change spouses or decide you want to disinherit your children and leave your estate to a charity. The second reason is that, because you retain the power to completely revoke or change the trust, Uncle Sam ignores it for income and gift tax purposes. In other words, you file an income tax return (Form 1040) as if the trust did not exist and you do not have to report the transfer of any property to the trust on a gift tax return.”

Tax implications are a key consideration in determining the best choice.

“Because the funding of a Revocable Trust is in effect simply a retitling of your assets without giving up any control over them, such assets are includable in your estate for estate and inheritance tax purposes. This does not mean that you will necessarily have to pay these taxes, it simply means that the assets in a Revocable Trust must be reported. A surprising number of people have acquired the mistaken notion that a Revocable Trust somehow avoids taxes, possibly confusing it with an ‘Irrevocable Insurance Trust’, which is designed to avoid these taxes.”

Let’s say you have created and actually funded a Revocable Trust with absolutely every asset you own. Why do you still need a Will?

“Remember, everybody needs a Will because you cannot completely control whether you will die without property subject to probate,” Pierce said. “So, when you create a Revocable Trust, you should also make a Will which says, in effect, that any property which you may own at the time of your death which is subject to probate (that is, not titled in the Trust) should be distributed to the Trustee of your Revocable Trust and added to it so that the Trustee can distribute it as you have directed in the trust. This type of Will is known as a ‘Pourover Will’ because it pours any unanticipated assets in your name alone at the time of your death over to your trust.”

Seniors and their families looking at options should explore the various options when planning for elder care. Pierce suggests discussing the tax consequences of any distributions with him or an accountant before distributions are made. To learn more about elder law, call Martin Pierce at (423) 648-4303. To learn more about Regency Senior Living, call (615) 598-0245.

Written by Steven Stiefel

Photo Copyright: ammentorp / 123RF Stock Photo

Read 104 times Last modified on Wednesday, 31 January 2018 22:06