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Be Aware of Where You’re Getting Estate Planning Advice

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Learn as much as you can, but always be aware of who is giving the estate planning advice.

The title of this recent Forbes article How to Fix an Expensive Estate Planning Mistake caught my eye. I love to pass on articles that may help my clients, so I read this one. Hmm.

The author is primarily discussing the tax disadvantages of giving your home to your children during your lifetime (I tend to agree with him on that), but then he goes on to assert that probate is a relatively inexpensive non-event, and that gifting assets for Medicaid planning purposes is a “poor financial planning approach.” He suggests putting the home into a living trust or using a life estate or enhanced life estate (lady bird) deed instead – for better tax consequences and to avoid probate, if that’s a concern for you. He did close the article with a recommendation to see qualified estate planning advice.

Not awful advice, but certainly over-simplified and not appropriate for lots of people.

I sighed, and scrolled down to the bottom of the article to see who the author was. Oh, now I understood. He’s the CEO and Chief Investment Strategist of a financial firm. I’m certainly not knocking his creds when it comes to financial advice; I’m a Certified Financial Planner, so I’ve traveled in his world. And financial planning and estate planning go hand in hand – you can’t do one without the other. But his focus, as a financial professional, isn’t always in line with my focus, as a legal professional, or your focus, as a regular human being just trying to figure things out.

Estate planning and elder law is very complex – we have to look at many areas of your life, including financial, health, taxes, and, most complicated of all, family. What’s appropriate for one family isn’t right for another. For example, while it’s true that, in general, it’s not tax-efficient to give your home to your kids while you’re alive, maybe there are other personal reasons that outweigh that.

Same with probate – many of my clients have a deep aversion to having the government sticking its head into their private business. And as for claiming that the probate fees are “only” a certain percentage of the assets going through probate…sort of. Lawyers have to charge a minimum fee for even the simplest probate because they’re extremely time-consuming for the law firm. Probate is also very time-consuming and aggravating for the family; I tell clients that they’re essentially giving whoever they name as their Personal Representative a second job for 6-9 months. The dollar signs aren’t always the deciding factor.

His advice about putting the home in a revocable living trust is generally a good idea in most cases. But, it depends on what else is going on in the estate plan and in the family. Life estate deeds and enhanced life estate deeds (lady bird deeds) aren’t actually estate “planning.” They actually bypass planning, just as TOD (transfer on death) and POD (payable on death) accounts do. They all present their own issues, which I won’t go into here.

As for gifting for Medicaid planning reasons…I’m afraid many financial professionals don’t understand this concept at all. They confuse the typical irrevocable trusts used by the ultra-wealthy to remove assets from their taxable estate with the much more relaxed irrevocable trusts used for Medicaid asset protection. There are so many different legal strategies available for the middle class to keep their money invested for their spouse and their children, instead of losing a good chunk of it to nursing home costs, but few financial professionals discuss this with their clients.

Medicaid planning is really not ethically different from using certain legal tax strategies to reduce income, gift, capital gain, or estate taxes. No one writes a check to the IRS based on their gross income, foregoing all deductions, credits, and exemptions – but they certainly could. Why not use the legal deductions and exemptions available under Medicaid law to keep your hard-earned money where it belongs – in the hands of your spouse, children, and grandchildren?

The trick, of course, is to start Medicaid planning sooner than later. The closer you are to needing nursing home care, the fewer the strategies available to you and the more expensive the legal fees will be to implement those strategies. You can pay a few thousand dollars now to potentially save everything, or tens of thousands of dollars later to save a small portion.

Anyway, read as much as you can about estate planning and elder law, but always be aware of who is giving the advice. We all look at things through our own lenses, judging what’s important and what’s not. A financial professional, consumer agency, self-help guru, divorce lawyer, and elder law attorney all have different points of view.

But when you’re ready to do or re-do your own estate plan, sit down with a lawyer who only does estate planning and elder law. Find someone who will educate you (workshops are a great no-pressure way to get education without incurring any financial obligation!), spend time with you, answer your questions, and present you with options. That way, you won’t make any expensive estate planning mistakes that will need to be fixed. 🙂

Other articles you may find interesting:

Have an IRA? The CARES Act of 2020 Impacts You

To Probate or Not to Probate?

***Want to learn more about how to protect your family from the government, lawsuits, accidental disinheritance, or nursing homes? Click THIS LINK to book a seat at one of our upcoming fun and educational workshops.***