You might be wondering about the topic of this post, I’ve written about estate planning in the therapeutic jurisprudence context before, so what is this one about? It is about . . . the dark side, or fear-based estate planning. Is someone or something – perhaps working together and typically referred to as “they“ – out to get you? Perhaps to rob your heirs of the rightful proceeds of your estate . . . ! Who is this nefarious individual or entity?
If you read some of the newspaper ads, are you surprised to learn about all the bad things that could happen to you that you didn’t know about? “Fear based” estate planning is taking the “nightly news” gloom and doom approach to a very individual and personal situation, creating a problem that may or may not exist, but is something that strikes fear, and offering a solution in a tidy little package with a typically rather large price tag. Estate planning is too individualized, too personalized to an individual or family’s unique circumstances to leave to a fear-based reaction mode of decision making. Perhaps this is where I transition to myth buster mode, so let’s proceed.
Myth #1: You Need to Avoid Probate (as in probating a will) at All Costs
Many people have been trained to fear probate, but if you asked them why, it would often be difficult to get a straight answer. Lawyers, like doctors, must obtain informed consent for their legal services. Informed consent requires that a person’s consent to be competent, voluntary, and informed. Clients need to be informed of alternatives so that they can make their own informed decisions about how they wish their attorney to proceed. Fear-based estate planning often threatens this basic requirement. There may indeed be good reasons for a person or a family to avoid probate, but they ought to be considered in a calm and rational manner.
Since 1973, Colorado has had a version of the Uniform Probate Code. Probate in Colorado is simplified and the vast majority of it requires no judicial involvement. Our financial lives in today’s world are seldom simple. Even those of us who are certain that we have updated and appropriate beneficiary designations on our accounts (like a beneficiary designation for an IRA, or a pay-on-death provision for a bank account) can drop the ball over the course of years.
When a person dies without a will, the law that applies to the disposition of the decedent’s estate is known as the law of intestacy. It is part of our probate code. Intestacy is designed to approximate what most people would provide in their will, but with some important details left out. Intestacy can apply in a fairly straightforward manner where there is a “Leave it to Beaver” style family, which is no longer the “typical” scenario. Modern complications include: married with no children; unmarried committed couple; remarried couple with stepchildren; divorced with minor or adult children; married with assets in a community property state; and a host of other life circumstances that seem to affect the majority of us.
Another option for Colorado probate is to collect an estate via affidavit. This affidavit can be used where there is no real property involved and (for 2013) the assets do not exceed $63,000.
If there is real property or are probate assets which may include “surprise” probate assets (nonprobate assets which they lack an effective beneficiary designation and which exceed $63,000) then a probate will generally need to be opened. If you can’t afford an attorney, many judicial districts have assistance available at “self-help” centers. Many of my colleagues and I assist at these clinics.
At the present time, the statutory filing fee for opening a decedent’s estate is $164.00. Colorado, unlike some other states, does not require judicial supervision of decedent estates (except where there is a will contest or other contested matters which require juridical intervention) and there is no percentage valuation of an estate that goes to either a lawyer probating the estate or the state by virtue of some appraisal of the estate’s value. Colorado has no estate tax. The federal estate tax is currently around $5.25 million, so this is not a concern for most people.
Myth #2: Getting a Trust Will Protect Your Assets from Nursing Home Costs and Medicaid Recovery
Medicaid is a federal program for providing health care coverage to aid to indigent persons including children, pregnant women, people with disabilities and older persons. It is a program for which one must be eligible. For older persons, one must be sick enough and poor enough to qualify for benefits. Medicaid is not Medicare.
In Colorado, Medicaid is administered through the Department of Health Care Policy and Financing (HCPF). This agency really doesn’t care for trusts that some people have created and to which they have transferred title to their residence. For example, if someone puts their house in the trust’s name and then needs to apply for Medicaid within the five year look back period, there will likely be a penalty, a period of ineligibility based on the amount of the gift (the transfer to the trust for less than fair consideration) and the average costs of care in a nursing home. It may be necessary for the trust to convey back the title to the person applying for Medicaid so that they can become eligible. This is not always possible.
A reverse mortgage is another method that some individuals use to tap into equity resources of their home, and these require that the home be titled in an individual’s name, and not in a trust. Bottom line is that trusts don’t generally work for “keeping your assets out of the hands of nursing homes” where it involves a home that is the primary residence.
I will be back soon with another myth-busting installment on this topic. . . . stay tuned.
©Barbara Cashman 2013 www.DenverElderLaw.org