Should I Create a Life Estate or an Irrevocable Trust?

As you are getting older, Asset protection and Elder Law planning becomes relevant.  As you are researching an optimal estate plan to preserve assets from nursing home bills, a life estate deed transfer may initially sound appealing. After all, a life estate deed is a legal means for transferring home ownership rights. However, there are downsides you must fully understand before making this commitment. Prior to making the decision of adopting a life estate, it is crucial to fully understand the risks.

Creating A Life Estate or Irrevocable Trust

Life estates are characterized by two or more people having ownership over a property for non-overlapping periods of time. These parties are the life tenant and the remainderman. The life tenant owns the life estate and has full control during their life. The remainderman has ownership interest upon the death of the life tenant. 

In many circumstances, executing a life estate makes the most sense. It is useful for those looking to simplify estate planning and avoiding the probate process. The transfer of the property to the remainderman is automatic, providing convenience without the need for a will. For example, parents can easily pass homeownership to their children while possessing their property for their entire lives. This provides transparency to the beneficiaries and affirms the life tenant exactly what will happen to their property when they pass away. 

Additionally, a life estate deed protects the property from a Medicaid lien and increases the tax basis. If eligible for Medicaid, the government may try to recover the costs of care from their estate once they pass away. A life estate protects the home from being included in the Medicaid recovery process.

Although a life estate may seem appealing, some caveats come with them. There are three main unfavorable aspects. If you consider these reasons as dealbreakers, a life estate will not work for your personal estate goals. 

Real Estate Related Challenges 

Upon establishing a life estate, obstacles will arise if you plan to sell or mortgage property. The remainderman must agree if you decide to borrow or sell against the property. Nevertheless, this can be solved with a Testamentary Power of Appointment in the Deed. This allows life tenants to change who receives their property by directing its disposition in their will. While it won’t sell the property, it gives the life tenant more leverage in negotiation over the remainderman. An alternative to this is the Nominee Realty Trust, where one or more children act as Trustees for all so that decisions must be followed on a majority vote.

Another obstacle is that if the property is sold, the remainderman is entitled to a portion of the profits equal to what their interest is determined to be at that time. It is also difficult to remove or change a name once it is on a real estate deed.

Legal Responsibility of Remainderman 

The problems of the remainderman become your problem as well. If this individual is in any legal predicament, such as being sued, getting a divorce, owing taxes, or filing for bankruptcy, the interest in the home is not protected. However, while claims can be made against the property, nobody can kick you out for the duration of your lifespan.

Medicaid and State Assistance Disqualification 

Giving away an interest in the property could result in disqualification from Medicaid assistance, should you need long-term care within five years of the transfer. To add on, that state could file a claim against the income portion of the payments it has made on your behalf. In this case, at least the portion of the proceeds allocated to your child would be protected.

Irrevocable Trust

Irrevocable trust is a much better alternative to protect your property from creditors including Medicaid liens and nursing home costs. For more information on irrevocable trust, please contact the Law Office of Inna Fershteyn at (718) 333-2395.

Handling Bank Account Funds in an Estate

How you handle bank accounts, like any other asset owned by a deceased individual, depends on how they were owned. Here are a few scenarios in which funds are handled and how one may go about handling them under certain circumstances. 

Handling Bank Funds in an Estate

Solely Owned Bank Accounts 

If the deceased individual owned the account in his or her own name and did not identify a payable-on-death beneficiary, the account will certainly be subject to probate. Probate is the legal process that takes place after the death of an individual to make sure that their assets are properly collected and distributed to the appropriate beneficiaries by the appointed executor. If the deceased left behind an estate plan, identifying their beneficiaries is as simple as reading the will; if not, their assets will be distributed according to New York’s intestate succession laws. However, if the total amount of probate assets is low enough to count as a "small estate" under state law, the rightful heirs will be allowed to claim the money using either streamlined probate processes or an affidavit.

Accounts with a Payable-on-death Beneficiary

These are the straightforward ones: because the money is still not part of the deceased person's probate estate, you do not have any control over it as executor. 

The money can be claimed by the beneficiary specified by the deceased individual by visiting the bank with a death certificate and identification. The paperwork in which the account owner chose the POD recipient should be kept with the bank.

Jointly Owned Accounts 

In most situations, if a deceased individual has a joint account with another individual, the surviving co-owner becomes the account's owner immediately. To be transferred to a survivor, the account does not need to go through probate.

The Right of Survivorship

There are, however, exceptions to this general norm. The "right of survivorship" applies to most accounts that are held in the names of two individuals, but not all. In other words, if one of the co-owners dies, the money immediately passes to the surviving co-owner. (It typically works in the same manner with retirement funds.) 

Sometimes it may be obvious that the account has a right of survivorship. Suppose the account is named "Lisa Johnson and William Johnson, JTWROS." (Joint tenants with right of survivorship is the acronym.)

It's likely still a joint tenancy account if the account registration document at the bank only includes two names without mentioning joint tenancy or right of survivorship. In Texas, for example, in order to establish a joint tenancy account, the account owners must sign a separate contract in addition to the bank's registration card.

Disputes About What The Deceased Intended 

When two people—say, a married couple—open a joint account, no one will argue that when one of them dies, the assets in the account go to the survivor. When an elderly person adds someone else's name to an existing bank account, the situation may be different.

This is frequently done to avoid probate in the event of the original owner's death. However, the second name is often added only for the sake of convenience—that is, so that the other person may write checks on the account and assist the original owner. Alternatively, the arrangement is meant to provide simple access to the assets to the second person following the original owner's death, so that the funds may be utilized for the burial or other expenditures.

When the original account owner dies, the person whose name was added to the account legally becomes the outright owner of the money. Unless it’s in writing, any previous agreement about how the money should be spent is unenforceable. The money belongs to the new owner, who can spend it on anything he or she wants. If family members are certain that the deceased individual desired a different outcome, they will have a hard time getting the money back from the surviving joint account owner if they go to court.

Bank Accounts Held In Trusts 

Many people put their significant assets in a living trust to avoid having to go through probate later. You'll be able to tell if the deceased individual had a bank account in trust based on the account statements, which will reveal who the account was owned by for example, "Lisa Johnson, trustee of the Lisa Johnson Revocable Living Trust dated September 9, 2003.”. The account, like other trust assets, is managed by the successor trustee, who takes over once the original trustee passes away. The funds will be transferred to whoever inherits them under the provisions of the trust deed by the successor trustee.

The Law Office of Inna Fershteyn can assist you in handling bank account funds in an estate. Please contact us at (718) 333-2395 for an experienced and diligent estate attorney who is familiar with the probate and trusts process.

How Will a Personal Injury Settlement Impact My Social Security and Medicaid Benefits?

Dealing with an injury that hinders your ability to work is hard enough. Many seek Social Security benefits to help ease the difficulty in times where they are injured but the process is intricate and can come with many hardships in order to receive these benefits. If you were injured in an accident, you are now also able to file a personal injury lawsuit against the party responsible for the accident. This can hinder your benefits that were already difficult to receive and though a settlement may seem nice in a situation like this, you depend on your social security benefits more. Situations like these may seem troublesome but you can seek out the help of a personal injury attorney as well as an elder law attorney as this overlap of your benefits and injury can be complicated. The personal injury attorney can help with a lawsuit for the accident but an elder law attorney has in-depth knowledge of the Social Security benefits and what will affect these benefits so you are not put at risk of losing them.

How Will a Personal Injury Settlement Impact My Social Security and Medicaid Benefits?

How much liquid assets can you have for Medicaid and for SSI?

You may be worried about how much liquid assets you can have to be eligible for Medicaid and SSI which include cash, stocks, bonds, and CDs. In New York, In order to be eligible for Medicaid and SSI benefits, you can have up to $2,000 in liquid assets. If you have more, you won’t meet the requirements to receive these benefits, and if you are already receiving benefits, they may be compromised.This is something to keep in mind if you have Medicaid or SSI benefits and want to file for a personal injury lawsuit. Social Security doesn’t depend on work credits and is need-based so it depends on assets. If you receive a settlement for an accident, it can potentially put you over the asset threshold hindering your eligibility for your SSI benefits. It may seem unfair that your benefits may be suspended for receiving a no-fault settlement for your injury, but this is how the system works. These are a few things you should be aware of when deciding between a personal injury settlement or the benefits you need to meet ends meet.

2 Ways To Protect Your Settlement:

  1. A “spend down”: This option is when you spend a good amount of the settlement on resources that are exempt and needed for the benefit of the disabled recipient to ensure you are not over that asset threshold. This is a good option for those who want a simple way of using the settlement money but also helps them while ensuring they are still eligible for the benefits. Some exempt resources include household goods, personal effects, paying off your home mortgage, and paying off any existing debts. These are just a few items that are exempt from being counted as assets and your settlement fund can be used towards them to keep you under the asset threshold. 
  2. Set up a Special Needs Trust (SNT): This option is for those who don’t want to go through the trouble of spending the settlement fund but rather just set up a special needs trust. A special needs trust is a trust that is created for you to put your settlement money in and can be used for transportation, certain therapies, and nursing care without hindering your SSI or Medicaid benefits. This is good for those who want to use the funds to help recover from the accident without having to worry about their SSI benefits and Medicaid benefits being suspended, compromised or revoked. This trust can be set up with the help of an Elder Care attorney and will help make the process of protecting your settlement trouble-free. 

Both these options are great for those who are considering filing for a personal injury lawsuit, but do not want to risk losing their SSI and Medicaid benefits. You should make sure you proceed with either option that best fits your situation after obtaining a settlement for an accident when you are receiving these benefits. This will help reduce the risk of your benefits being suspended and protect your settlement. 

Speak with an Elder Law Attorney

An Elder Law attorney is informed of all current updates to the laws on Medicaid eligibility and SSI benefits eligibility. Unfortunately, Medicaid and SSI requirements can differ from state to state so it makes the process of applying and keeping your benefits even harder. An Elder Law attorney in your area will help simplify this process for you and advise you of all updates to the law and eligibility requirements creating fewer problems on this journey of Medicaid planning and other aspects surrounding Elder Law. Hiring an Elder Law attorney will also ensure that you're still eligible for your SSI and Medicaid benefits even if you plan on filing a personal injury lawsuit. Protecting your settlement will be a priority and an attorney will help you choose the right option to ensure you can still receive your settlement fund without hindering your benefit eligibility.

For further information on how a personal injury settlement may affect your Medicaid and SSI benefits please contact the Law Office of Inna Fershteyn at 718-333-2395 to obtain aid in options to protect your settlement fund and help with any of your Elder law needs.