The following considerations are among the most misunderstood by our clients—before they talk to us, that is.
My Children will be Excited to Inherit my House
Maybe, maybe not. Adult children are not as sentimental about the house they grew up in as parents like to believe. More likely, the asset value of the house is of interest. Depending on the language in your Will, the house may “drop like a rock” to the beneficiaries, who, after a limited time when the estate can pay the bills, will then have to use their own money for maintenance, upkeep, taxes, and insurance on the home. This is even more problematic if a minor inherits an interest in real estate.
Only Wealthy People Need Trusts
Although wealthy people may use trusts, trusts are not only for wealthy people. A trust can provide the following benefits for people of any means:
- Asset management during one’s lifetime, not only after death
- Better management by successors during periods of disability
- Protection to beneficiaries (children, etc.) from their creditors, predators, their own possible poor decision-making
- Providing asset protection to a spouse who receives long-term care Medicaid
- Enhancing the quality of life for individuals with disabilities
- Providing for a surviving spouse while protecting assets for one’s children, especially in a blended family context
- Quicker succession and management after death
- Possible lower cost of administration after death
- Provide care for a pet after the owner’s death
Trusts may be living trusts that are created during one’s lifetime or testamentary trusts that are created only after death and in accordance with provisions in a Last Will & Testament. One size does not fit all when it comes to a trust and some benefits may require a specific type of trust, but do not automatically rule out a trust when considering your goals.
I Don’t Have to Leave any Assets to My Spouse
It is technically true that you can write a Will or a Trust and disinherit your spouse. However, you cannot effectively disinherit your spouse without your spouse’s consent.
You and your spouse can agree to disinherit each other by signing a pre-nuptial agreement or a post-nuptial marital agreement. The agreements must be in writing. Any modifications or revocations must also be written. The agreement doesn’t prevent each spouse from leaving an inheritance to the other; instead, it prevents the disinherited spouse from making inheritance and other claims and allowances that Virginia law allows a surviving spouse to make. Federal law requires your spouse to consent if you do not name him or her as the 100% beneficiary of certain retirement plans.
Tax Planning Gifting is all that is Necessary in a Power of Attorney (POA)
If authorized in the POA, the Agent may make gifts of the Principal’s (the person who signed the POA) property. Many POAs, limit gift amounts to the “annual exclusion amount,” which is the maximum value of gifts (currently $15,000) a person can give each year to another person without reporting the gift to the IRS.
Virginia law does not allow gifting if the POA does not containing gifting authority. Gifting authority is limited to the annual exclusion amount unless other limits are provided. Although annual exclusion limits may cover most gifting circumstances, they almost never cover gifting that may be necessary for asset protection purposes if long term care assistance is needed.
For example, if an elderly spouse is unable to live safely at home, nursing home care may be necessary. If Medicaid assistance will pay for some of the care, some of the couple’s assets can be protected for the use of the spouse who remains at home. But shifting assets from the ill spouse’s name to the well spouse’s name is a gift. If the combined value of these gifts is greater than $15,000, and the ill spouse is unable to make the gifts himself, then a POA’s gifting authority that is limited to the annual exclusion amount is insufficient and Court permission will be necessary to make the gifts.
To gift, the gift giver must be competent, must have given sufficient legal authority in the POA, or the Court must approve the gifts.
Special Needs Children Must Be Disinherited to Protect their Benefits
Disinheriting a child (or grandchild) with special needs is not necessary to protect her access to needs-based benefits. Nor is it necessary (or wise!) to trust another beneficiary to “do the right thing” and use part of a now-larger inheritance to care for a disinherited sibling with special needs. Even if the sibling intends to do the right thing, “life happens” events can upend the best laid plans and leave the individual with the disability without the expected additional assistance.
With proper planning, an inheritance can be left for the benefit of a beneficiary with special needs in a way that will enhance the beneficiary’s quality of life and provide enrichment that would otherwise be limited or unavailable if the individual must depend on government benefits alone.
Contact the attorneys of Promise Law at (757) 690-2470 or click here to discuss a plan that will accomplish your estate planning goals.