Estate Planning: Chapter 2 Estate Planning Documents

Medicaid home owning tip for married couples

A nursing home resident can still receive Medicaid while owning their own home, but if married, they should gift their home to the community spouse. That way the donee spouse will have total control over the home and could even sell it. The community spouse might need to amend their will to exclude their spouse as the beneficiary of the home and any other assets. Otherwise, their property at death would pass back to the surviving spouse in the nursing home, and might need to be "spent down" to qualified levels.

Qualified Terminable Interest Property (QTIP)

This trust is used when the decedent wishes to provide the surviving spouse with a stream of income for life, qualify for the marital deduction, yet ultimately control who will receive the trust property upon the death of the surviving spouse.

What are the three types of guardianship?

- Guardianship of the person: provides for the ward's personal care. - Guardianship or conservatorship of the estate: manages the ward's property and financial affairs. - Plenary guardianship: manages both the ward's property and personal affairs.

Most common law states now protect the spouse through "forced share" or "elective share" statutes. These statutes allow the surviving spouse to do what?

- Take control of property per the testator's will, or - Reject the provisions of the will and receive a share prescribed by statute.

The value of any assets transferred to individuals or trusts within _____ months is considered an available resource for institutional and home-based Medicaid services.

60

What are the criteria that are used to determine if an individual is totally disabled according to the "any occ" definition?

- unable to engage in any gainful occupation in which you might reasonably be expected to engage because of education, training, or experience, with due regard to your vocation and earnings at the start of disability - you are under the care of a physician

Why is nondurable power of attorney a disadvantage? a. It does not survive the principal's incapacity. b. It may be revoked at any time by a competent principal. c. It becomes effective as soon as it is executed. d. It is relatively inexpensive and not time-consuming to execute.

A The other answers are advantages.

What are the three things that a witness of a will must do?

1. Sign the will at the request of the testator, 2. Sign in the presence of the testator, and 3. Sign as a witness in the presence of the other witness(es).

Given the manner in which the client's assets are owned, a will may never transfer any property, So, why is a will still the most important estate planning document?

1. it is only within the provisions of the will that the decedent's can appoint the executor of the estate 2. if the decedent's has minor children, it is only with the provisions of the will that the guardians for the minor children may be appointed

What are five typical execution requirements for the maker of a will?

1. maker must be of sound mind 2. maker must be age of majority 3. maker must sign the will 4. will must be declared as the last will and testament of the testator 5. will must be witnessed by at least two competent individuals

What are some of the elements the power of attorney should include?

1. should be very specific as to which aspects of the principal's affairs it covers 2. Should include a provision authorizing the agent to make elections with respect to retirement plan assets 3. Should include a provision dealing with making annual exclusion or lifetime gifts 4. Should give the agent authority to transfer assets into a trust created by the principal

What are the three basic execution requirements of a will, regardless of the state of residence?

1. testator must be 18 years of age 2. testator must have mental capacity 3. will must be in writing, signed by testator and witnessed by at least two witnesses

What are the two disadvantages of a joint will?

1. upon the death of the first spouse, the survivor may not have the ability to change the terms of the will 2. the first spouse's property interests are often construed as being terminable interests and therefor will not qualify for the marital deduction

Mrs. Rich has been diagnosed with a brain tumor. She will need a major operation which may mean a short or long-term incapacity. She is considering the following options. As her financial planner, which would you suggest? 1. A Power of Attorney 2. A Durable Power of Attorney given to a son in another state so he can put her assets in a living trust 3. A living trust 4. It's too late; Mrs. Rich is already incapacitated. 5. I am going to get sued if I answer questions like this.

2, 3 A Durable Power of Attorney by definition survives and continues and is not affected by subsequent incompetency of the principal. A Power of Attorney which is not a "Durable Power of Attorney" terminates upon incompetency.

Estimates for the United States suggest that _____ percent of elderly people will require nursing home care at some point in their lives.

40%

Your mother, age 60, is becoming forgetful. Your father died three years ago. Since then you have been handling her financial affairs. At this time, she owns the house that was purchased 40 years ago and some investable assets. Your father worked for a company that had a defined benefit plan. She gets $2,500 per month in QJSA benefits but lately you have had to sell some of her investments to cover her expenses. What should you do first? a. Take her to an attorney to prepare various legal documents like an advanced medical directive, a durable power of attorney, or a living trust b. Qualify her for Medicaid by gifting her assets away c. Review her budget to see why she cannot live on $2,500 per month d. Have her apply for Social Security benefits

A While your mother still retains some mental capacity, she should execute an incapacity plan through powers of attorney and living trusts. "Review her budget" and "have her apply for Social Security" are not bad answers but the question is asking what should you do first. There is nothing here that indicates she has any of these legal documents. "Qualify her for Medicaid" seems dreadful. You are stripping away her flexibility and it may not work because of the defined benefit pension plan.

pretermitted heir

A child or a spouse not named in a decedent's will is referred to as a "pretermitted heir."

Plenary Guardian

A person, or agency, designated by the court to exercise control over the person and assets of an individual determined to be incompetent to do so. In this context, plenary means full, entire, complete, absolute, unqualified.

Testamentary Trust

A trust that is created by will and therefore does not take effect until the death of the testator.

Estate Trust

A trust which grants the surviving spouse a testamentary general power of appointment over the trust assets. Because of the spouse's general power of appointment over the trust's assets, the fair market value of the trust will be eligible for the unlimited marital deduction at the death of the first-to-die spouse.

Intermediate care

is similar to skilled nursing care except that the patient neither receives nor needs 24 hr. attention. Thus, it is effectively non-continuous skilled nursing care.

Springing durable POA

Agent has no authority to act on behalf of the principal until the principal becomes incompetent as certified by physicians. It stays into effect until it is revoked, or when the mentally incapacitated person dies.

What are the major types of trusts in estate planning for married couples? 1. QTIP/QPRT 2. Marital trust 3. Power of appointment 4. non-marital trust 5. estate trust

All All the choices are major types of trusts used in estate planning for married couples. Remember, marital trust includes the power of appointment, QTIP, QPRT and estate trust

Bypass Trust

An estate planning device whereby a deceased spouse's estate passes to a trust as a life estate for the surviving spouse rather than entirely to the surviving spouse, thereby reducing the likelihood that the surviving spouse's estate will be subject to federal estate tax.

Qualified Domestic Trust (QDOT)

At least one U.S. trustee. Must prohibit distribution unless U.S. trustee has right to withhold taxes. Trustee must keep sufficient assets to pay taxes. Executor must elect marital deduction.

What would be the main advantage of a springing durable power of attorney over a durable power of attorney? a. A competent principal may revoke the instrument at any time. b. It becomes effective when the principal becomes incapacitated. c. It can enable the attorney-in-fact to act only with regard to one or more specific tasks. d. It remains in effect throughout the principal's incapacity.

B "It remains in effect throughout the principal's incapacity" and "a competent principal may revoke the instrument at any time" are true for both instruments. "It can enable the attorney-in-fact to act only with regard to one or more specific tasks" is spelling out the terms of a special power of attorney.

Gloria is in her second marriage. When she married Ralph, she signed a prenuptial agreement waiving all her rights to elective share of Ralph's estate. He signed nothing. Which of the following is true? a. If he dies, she can claim elective share. b. If she dies, he can elect elective share. c. If he dies, she can claim homestead and exempt property award.

B She signed the prenuptial agreement; he didn't. Not enough is known about the homestead or exempt property If the property was held in his name only, she waived her rights. If it was held in joint tenancy, she would get the property.

Which of the following is not an advantage of a durable power of attorney? a. It does not survive the principal's incapacity. b. The power ceases at death. c. It may be revoked at any time by a competent principal. d. Assets do not have to be re-titled or transferred.

B Some may view the power ceases at death as an advantage. The question doesn't indicate that any additional documents exist. Therefore, this is a disadvantage. The durable power ceases when the principal dies.

Mrs. Todd recently had a minor stroke. Mr. and Mrs. Todd are in their late 80's. What should they do first? a. Buy an LTC policy b. Place all their assets in an irrevocable family trust with their children/grandchildren as beneficiaries c. Execute a durable power of attorney and a durable power of attorney for health care d. Transfer all assets to their children so that they will not count as resources if they have to go into a nursing home using Medicaid

C

Ted is legally incompetent. What type of documents can be drawn up by his attorney to help take care of him and his assets? 1. A durable power of attorney 2. A living will 3. A revocable trust 4. A durable power of attorney for health care

None To be valid, the documents must be executed prior to the principal's incapacity.

Custodial care

is the most basic level of nursing care, typically taking the form of assistance with ADLs. Individuals providing non-medical care usually are not medical personnel.

A codicil is used to revoke all or a portion of a will. State true or false. A. True B. False

Correct Answer: A. True. Explanation: A will is a revocable instrument. Therefore, it can be amended, altered, or revoked a number of times prior to the testator's death. Many wills are revised by using codicils, which may make changes to all or a portion of the existing will.

The primary characteristic of which of the following trusts is the accumulation of income? A. Marital trust B. Estate trust C. Q-TIP trust D. Nonmarital trust

Correct Answer: B. Estate trust Explanation: Incorrect. An estate trust is a trust established by the decedent which accumulates its income rather than distributing it to the spouse. The other trusts mentioned here provide the surviving spouse with a stream of income. They do not accumulate income.

The term "irrevocable" is applied only to trusts that are established during the lifetime of the Grantor. A. True B. False

Correct Answer: B. False Explanation: Since all testamentary trusts are, by nature, irrevocable (since the Grantor has passed away when the trust takes effect and cannot be changed), the term "irrevocable" can be applied to trusts that are established at the Grantor's death or during the lifetime of the Grantor. Contrast that with a revocable trust which must be established only during the Grantor's lifetime. A revocable trust becomes irrevocable upon the Grantor's death.

Disability contracts typically define disability in three ways. Choose the best definition to have in a disability policy. A. Any gainful occupation definition B. Own occupation definition C. Modified own occupation with a time limit

Correct Answer: B. Own occupation definition Explanation: An own occupation clause deems the insured to be totally disabled when they cannot perform the duties of their regular occupations. The insured can be at work in some other capacity and still be entitled to benefits. Any gainful occupation definition means that insureds are totally disabled when they cannot perform the duties of any gainful occupation for which they are reasonably suited because of education, training or experience.

Matt suffers from schizophrenia and thinks that his wife Dona is out to kill him. Therefore, in his will he bequeaths all property to his two sons and a daughter, leaving very little to Dona. Dona wants to contest the will. Under what basis should she contest the will? A. That the maker of the will was not of sound mind at the time the will was drafted. B. That the maker suffered from an insane delusion at the time the will was drafted.

Correct Answer: B. That the maker suffered from an insane delusion at the time the will was drafted. Explanation: An insane delusion differs from an unsound state of mind. To be of unsound mind, the Testator must not know who he or she is, or the extent of his or her property ownership, or who the natural objects of his or her affection are, or that he or she is making a will and giving away his or her property. In the case of Matt, he is fully aware of his identity that he is making a will, and giving away his property. He knows that Dona is his wife but disinherits her because he suffers from an insane delusion (delusional schizophrenia) that she is trying to kill him.

Thomas was a rich landowner. Upon his death, Thomas's will failed to comply with all of the state's execution requirements. What will happen to the assets owned by Thomas at his death? A. The refusal must be in writing. B. the property will be distributed among the immediate surviving family members. C. the property will be distributed according to the laws of intestate succession. D. the property is claimed by the state.

Correct Answer: C. the property will be distributed according to the laws of intestate succession. Explanation: Failure to comply with all of the execution requirements causes the will to be treated as an invalid instrument. Therefore, the property distributions contained within the will are null and void. As a result, the state's laws of intestacy will determine how and to whom Thomas's property will be distributed.

Social Security Disability defines disability as: A. The inability to perform an individual's customary employment due to a medical or mental impairment that is expected to last for 12 months B. An inability to engage in any strenuous work activity by reason of a medically determinable impairment that is expected to last for a period of 12 months or end in death C. An inability to engage in any substantial gainful activity by reason of a physical impairment that has lasted for 12 consecutive months D. An inability to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that has lasted or can be expected to last for a continuous period of 12 months, or result in death.

Correct Answer: D. An inability to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that has lasted or can be expected to last for a continuous period of 12 months, or result in death. Explanation: Social Security Disability defines disability as an inability to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that has lasted or can be expected to last for a continuous period of 12 months, or result in death.

Some Activities of Daily Living (ADLs) found in LTC policies include: 1. Bathing 2. Walking 3. Toileting 4. Lifting 5. Writing

Correct Answers: 1, 2, 3 Explanation: LTC insurance policies are not standardized, but most contain ADLs such as eating, bathing, dressing, walking, toileting, continence, transferring and taking medicine.

Health care agents can confer with medical professionals to make decisions concerning: 1. the extent of medical treatment that should be provided 2. where an individual should receive treatment 3. whether surgery should be performed 4. what if any medications should be administered

Correct Answers: 1, 2, 3, 4 Explanation: Health care agents can confer with medical professionals to make decisions concerning the extent of medical treatment that should be provided, where an individual should receive treatment, whether surgery should be performed and what, if any, medications should be administered.

Disadvantages of a power of attorney are: 1. Lending institutions may not recognize the authority of an agent under a durable power of attorney. 2. The agent may only exercise those powers expressly contained in the power of attorney document. 3. Durable powers of attorney cannot be used after death to dispose of property omitted from a will. 4. A durable power of attorney cannot be revoked in the event the principal becomes incapacitated.

Correct Answers: 1, 3 Explanation: Durable powers of attorney have limitations, such as having third parties recognize an agent's authority, and that the power ends at the principal's death. It is a safeguard for the principal that the agent cannot exceed the powers contained in the power of attorney document, and is an advantage that the power cannot be revoked if the principal becomes incapacitated.

Suppose Ralph wants to provide his wife Clara with a stream of income (after his death) that terminates upon her death. Ralph also wants to determine who the ultimate beneficiaries of the property will be upon the death of his wife. Which type of trust will be appropriate in order for Ralph to fulfill his wishes? 1. Marital trust 2. Q-TIP trust 3. Nonmarital trust 4. Estate trust

Correct Answers: 2, 3 Explanation: A nonmarital trust or Q-Tip trust is appropriate when the decedent (in this case, Ralph) wants to provide the surviving spouse (Clara) with a stream of income that terminates upon the survivor's death and if the decedent wants to determine who the ultimate beneficiaries of the property will be upon the death of the surviving spouse.

On what form is the estate tax filed? a. Form 712 b. Form 709-A c. Schedule E d. Form 706 e. Form 709

D The 709 is for gift tax and GSTT.

What procedure is used to contest a holographic will under the Estates and Protected Individuals Code (EPIC)?

EPIC has not changed the method of contesting a holographic will. EPIC does, however, liberalize what may be considered a will by recognizing certain documents intended as will which do not otherwise meet the formal requirements of statute

A standby trust

is usually structured to take effect when the owner is no longer capable of managing his assets. Frequently, this occurs in situations where the grantor has become incapacitated or where the grantor has left the country for a period of time (for example, three-year leave of absence to develop a business enterprise in a foreign country).

The Social Security Administration (SSA) determines if an individual has insured status based on his earnings record and the covered credits earned. What is the minimum covered credits earned?

In general, a person must be under age 65, and have at least 20 credits during a 40-quarter period, ending with the quarter in which the individual is found disabled.

laws of intestacy

In the absence of a will, it is the laws of intestacy in the decedent's state of domicile that will determine how and to whom separately owned assets would transfer. Real property is distributed according to the laws of the state where the land is located, which is known as its situs, and personal property is distributed according to the laws of the state of the decedent's domicile.

incapacitated person

In the eyes of the law, an incapacitated person is unable to make or communicate responsible decisions regarding their health, medical or personal care, their property, or their legal and financial affairs. Some reasons for this lack of capacity may be due to advanced age, unconsciousness or coma, physical illness, mental deficiency or mental illness.

general power of appointment marital trust (GPA)

the surviving spouse has either a lifetime or testamentary general power of appointment over this property. As a result, he or she has the ability to either use all of the assets during lifetime, or transfer the assets to anyone he or she chooses, either during lifetime or after death.

Discretionary Trusts

Parents can eliminate potential court involvement and public scrutiny by creating testamentary or inter vivos trusts for their children. They can name institutional trustees and/or financially astute individuals to manage the trust assets for their children, and decide how long the trust should last. Parents can also give trustees discretionary sprinkle or spray powers to determine which beneficiaries will receive trust income and corpus, what amounts will be distributed, and when these distributions will occur. These trusts provide trustees with great flexibility in managing assets for children, in the event of one or both parent's incapacity or death.

Presumptive Disability

Permanent disability due to total loss of sight, hearing, speech or use of 2 + limbs; benefits paid even while continuing to work.

How does SSA define disability?

SSA defines disability as an inability to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that has lasted or can be expected to last for a continuous period of 12 months, or result in death.

Non-durable POA

The agent's authority is limited to terms dictated in the POA document and ceases when the principal becomes incapacitated or dies.

Difference between living will & health care power of attorney?

The purpose of the health care power of attorney, also known as a health care proxy, is to grant an agent the power to make health care decisions for the principal in the event of incapacity. In contrast to the living will, which simply indicates the creator's intent with respect to utilizing heroic measures to be kept alive, the health care power of attorney allows the principal to more fully specify his or her health care wishes than a living will.

Tax-Efficient Wills

This is a will in which the estate tax exemption equivalent and/or the marital deduction and/or the charitable deduction are utilized. These techniques are incorporated within the will in order to minimize or eliminate the decedent's estate tax liability.

A fiduciary appointment clause

in a will appoints primary and contingent executors, guardians, and trustees for testamentary trusts.

Financial Guardians

When parents die, their children may inherit substantial amounts of property from life insurance policies, IRAs, investments, and real property interests. The probate courts appoint financial guardians for children with expertise in financial management. Financial guardians may not be the same parental guardian selected by the court. Financial guardians are usually required to file a formal accounting with the court every one to two years, to file a bond, and to obtain permission from the court to engage in any substantial financial transactions.

Durable POA

When the POA is created, the agent has authority to represent the principal before and after incapacity occurs. Therefore, it is not revoked when the principal becomes incapacitated. Any degree of legal power may be transferred to the agent to make business, financial or legal decisions for the principal .

codicil

is a legal instrument which allows the testator to revoke and/or change all or part of an existing will. As a result, in order for a codicil to be valid, it must be executed with the same execution requirements as a will.

Noncupative will

is a verbal (oral) will that bequeaths the decedent's personal property.

A holographic will

is a will handwritten by the testator. A few states allow such documents to be admitted to probate, but most courts are very reluctant to accept them.

A simple will

is a will in which the maker or testator leaves all separately owned assets outright to his or her heirs.

A pour-over will

is a will that has a previously established trust as its primary beneficiary, and is funded through the probate process. Therefore, assets transferring from the pour-over will into the trust are subject to probate.

A divorce or annulment statute

addresses how property in the will should be handled if it was bequeathed to a spouse, but the couple is no longer married at the time of an ex-spouse's death.

What are the most common types of wills? 1. joint wills 2. pour-over wills 3. holographic wills 4. tax-effective wills 5. simple wills

all of them

The Uniform Probate Code (UPC)

approach awards the surviving spouse an increasing percentage of the estate based upon the number of years that the decedent and the surviving spouse were married to each other, up to a maximum of one-half of the estate for marriages lasting fifteen years or more. If the surviving spouse elects to take the forced share, the estate is not rendered intestate. The shares of property left to other heirs would be reduced, since the surviving spouse, by election, generally receives more than is provided in the will.

Special Needs Trusts, or Supplemental Needs Trusts

are designed to use trust assets to enhance the quality of a disabled person's life, while preserving their eligibility for public assistance programs, and insulating the trust assets from government claims.

What is the maximum percentage of income that an insurer will cover so that the total of all monthly indemnity is not exceeded? a. 85% b. 65% c. 50% d. 70%

d. 70% Insurers limit the amount of disability income coverage they will sell to an applicant so that the total of all monthly indemnity does not exceed about 70% of earned income for disabled individuals with low annual incomes, grading downward to about 50-60 percent or less for those in the highest income brackets

A tax apportionment clause

designates the source for payment of death taxes. Some states have tax apportionment statutes that direct that taxes will be paid from specific portions of the estate in an established order, unless otherwise stated in the will.

A residuary clause

directs the testator's property that was not disposed of through other will clauses, to pass outright to others or to an existing trust. Property acquired after the will was executed is subject to intestacy if not disposed of through a residuary clause. Therefore, residuary clauses prevent partial intestacy of property after payment of debts, taxes, expenses and specific bequests are addressed.

Skilled nursing care

highest level of nursing care 24 hr. care ordered by an MD & provided by an RN, licensed practical nurse or licensed therapist.

A simultaneous death statute

is adopted in some version by all states to determine the order of death, if it cannot be determined which spouse actually survived the other. The testator can direct in his will that some or all beneficiaries will survive the testator by a certain period of time. This avoids having two probate processes and death taxes levied on the same property, if the other spouse does not live long enough to enjoy the property.

A joint will

is one document that serves as the last will and testament for two individuals. Married couples typically use it.

A dispositive clause

may name a class of beneficiaries to receive property, such as the testator's "descendants" or "issue" who are lineal family members. Property that is given to his or her issue "per capita" means that all living family members would receive an equal share of the property at the testator's death. For example, a father has three children A, B and C, and child C has two children D and E. Distributions made "per capita" means that all five family members would receive equal shares. Property that is given to a class of beneficiaries "per stirpes" or "by representation" means that property is distributed differently if one or more of the testator's children have died. In the previous example if child C died, then A and B will each receive 1/3 of their father's property, and grandchildren D and E will receive their parent's (C's) 1/3 share of property, so that D and E will each receive 1/6.

Can a durable power of attorney make personal care decisions?

no