Estate Planning Blog

Can I Give My Half of a House Away to Avoid Taxes When it Sells?
Can I Give My Half of a House Away to Avoid Taxes When it Sells?

Can I Give My Half of a House Away to Avoid Taxes When it Sells?

Can I Give My Half of a House Away to Avoid Taxes When it Sells? A recent article asks: “My sister and I own my father’s home. How can I avoid taxes?”  The article notes that a sibling can give his half of a home they own in joint ownership to a sibling, but there may still be some tax consequences.

If the brother was to deed his share of the home to his sister, he would avoid any capital gains tax when the house is sold.

The sister would then be responsible for the payment of capital gains taxes, if any, upon the sale of the house.

Capital gains tax is defined as a tax imposed on the positive difference between the sale price of an asset (like a home) and its original purchase price. Long-term capital gains tax is a levy on the profits from the sale of assets held for more than a year.

The rates are 0%, 15%, or 20%, based on your tax bracket. Short-term capital gains tax applies to assets held for a year or less. These are taxed as ordinary income.

Capital gains can be decreased, by deducting the capital losses that happen when a taxable asset is sold for less than the original purchase price.

The total of capital gains minus any capital losses is called the “net capital gains.”

Capital gains taxes aren’t assessed until the property is sold, but the sister living in the house will have a $250,000 capital gains exclusion.

In calculating the capital gains tax, the sister would be able to deduct the cost of any capital improvements and the costs of selling the home.

However, if the brother was to die within three years of deeding the home to his sister, she would have to pay an inheritance tax in states like New Jersey. The inheritance tax in that state is determined by the relationship of the deceased to the inheritor.

Can I Give My Half of a House Away to Avoid Taxes When it Sells? As is the answer with many legal issues…Yes but…

Reference: (July 18, 2019) “My sister and I own my father’s home. How can I avoid taxes?”


How Does an Irrevocable Trust Work? 
How Does an Irrevocable Trust Work?

How Does an Irrevocable Trust Work? 

How Does an Irrevocable Trust Work?  There are pros and cons to using a revocable trust, which allows the grantor to make changes or even shut down the trust if they want to, and an irrevocable trust, which doesn’t allow any changes to be made from the creator of the trust once it’s set up, says in the article “How an Irrevocable Life Insurance Trust (ILIT) Works.”

Revocable trusts tend to be used more often, since they allow for flexibility as life brings changes to the person who created the trust. However, an irrevocable life insurance trust may be a good idea in certain situations. Your estate planning attorney will help you determine which one is best suited for you.

This is how an irrevocable trust works. A grantor sets up and funds the trust, while they are living. If there are any gifts or transfers made to the trust, they are permanent and cannot be changed. The trustee—not the grantor—manages the trust and handles how distributions are made to the beneficiaries.

Despite their inflexibilities, there are some good reasons to use an irrevocable trust.

With an Irrevocable life insurance trust, the death benefits of life insurance may not be part of the gross estate, so they are not subject to state or federal estate taxes. They can be used to cover estate tax costs and other debts, as long as the estate is the purchaser and not the grantor. Just bear in mind that the beneficiaries’ estate may be impacted by the inheritance.

Minors may not be prepared to receive large assets. If there is an irrevocable trust, the death proceeds may be placed directly into a trust, so that beneficiaries must reach a certain age or other milestone, before they have access to the assets.

If there are concerns about legal proceedings where assets may be claimed by a creditor, for example, an irrevocable trust may work to protect the family. A high-liability business that faces claims whether you are living or have passed, can add considerable stress to the family. Place assets in the irrevocable trust to protect them from creditors.

The IRS notes that life insurance payouts are typically not included among your gross assets, and in most instances, they do not have to be reported. However, there are exceptions. If interest has been earned, that is taxable. And if a life insurance policy was transferred to you by another person in exchange for a sum of money, only the sum of money is excluded from taxes.

An Irrevocable life insurance trust (ILIT) should shield a life insurance payout and beneficiaries from any legal action against the grantor. The ILIT is not owned by the beneficiary, nor is it owned by the grantor. It makes it tough for courts to label them as assets, and next to impossible for creditors to access the funds.

However, there are some quirks about ILITs that may make them unsuitable. For one thing, some of the tax benefits only kick in, if you live three or more years after transferring your life insurance policy to the trust. Otherwise, the proceeds will be included in your estate for tax purposes.

Giving the trust money for the policy may make you subject to gift taxes. However, if you send beneficiaries a letter after each transfer notifying them of their right to claim the gifted funds for a certain period of time (e.g., 30 days), there won’t be gift taxes.

The most glaring irritant about an ILIT is that it is truly irrevocable, so the person who creates the trust must give up control of assets and can’t dissolve the trust.

Speak with your estate planning attorney to learn if an ILIT is suitable for you. It may not be—but your estate planning attorney will know what tools are available to reach your goals and to protect your family.

Reference: (July 19, 2019) “How an Irrevocable Life Insurance Trust (ILIT) Works”


What are the Differences Between Medicare and Medicaid Reimbursement?
What are the Differences Between Medicare and Medicaid Reimbursement?

What are the Differences Between Medicare and Medicaid Reimbursement?

What are the Differences Between Medicare and Medicaid Reimbursement? It can be hard to find a good doctor who accepts Medicare and Medicaid patients, but there are valid reasons for the medical profession’s hesitance in treating patients with these forms of coverage. If you had to change doctors or noticed a change in how you get treated after you enrolled in Medicare or Medicaid, it might help if you saw the issue from the healthcare system’s perspective.

Medicare and Medicaid are government programs, so they force doctors and hospitals to fill out complex paperwork to get paid for the medical services they provide to beneficiaries of these programs. The government then takes its sweet time in paying the medical professionals and facilities for the services rendered. The government calls these payments “reimbursements,” and Medicare and Medicaid do not handle this process the same. What are the differences between Medicare and Medicaid reimbursement?


Medicaid provides medical insurance for people with little or no income. The program receives both state and federal funding. Every state forms its own Medicaid program. Medicaid benefits can vary widely from one state to another. Each Medicaid program sets the amount it will pay for office visits, hospital stays and every kind of medical service you can imagine.

When a doctor treats a patient with Medicaid, the doctor must agree to accept the amount Medicaid says it will pay for the service as full payment. Medicaid pays the doctor, often many months after the doctor saw the patient. The Medicaid rate for a service is often far less than Medicare pays the doctor for the same service, when treating a patient with Medicare. Medicare also usually pays considerably less than private health insurance does.

On average, Medicaid only pays doctors 61 percent of what Medicare pays for the same service. Since this number is a national average, in some states, doctors get far less than 61 percent of the Medicare rate. Therefore, if your employer-provided group health insurance pays a doctor $100 for an office visit and Medicare pays $50 for the same service, Medicaid might pay the doctor only $30.


While Medicare’s rates are higher than Medicaid’s, Medicare does not pay doctors the full amount of the rate for the service. Medicare will pay the doctor 80 percent of the Medicare rate, and the other 20 percent can come from the patient paying a copay, deductible or coinsurance. In the office visit example, Medicare might set a rate of $50 for a service but only pay $40 of that amount.

Getting paid by either Medicare or Medicaid can be a hassle, with the onerous government forms and then having to wait for many months to get a small fraction of the payment the doctor would have received from a patient with standard health insurance.

Many doctors feel they have a duty to see some Medicaid patients. However, they do so as a service to society, since the Medicaid reimbursements are usually less than the doctors’ overhead costs. There is some good news, however. If a person lives in an area where there are very few doctors who accept Medicare or Medicaid, the patient can go to any local doctor and Medicare or Medicaid will have to pay the doctor.


Revcycle Intelligence. “Examining Differences Between Medicare, Medicaid Reimbursement.” (accessed June 19, 2019)


Decedent’s Debts: Who is First?
Decedent’s Debts: Who is First? Probate

Decedent’s Debts: Who is First?

Decedent’s Debts: Who is First? Estate planning attorneys are used to family members who, for some reason, determine that credit card bills need to be paid off first, when a loved one dies. It’s not the first thing to pay, advises The Mercury its article “There is a priority of debts when you die.”

In fact, credit card debt is unsecured debt. It is, therefore, on the bottom of a list of priorities in many states. Paying debts is an important part of executor responsibilities, but there is an order to what debts must be paid first. If there are cash flow issues for the estate, this is critical information.

Decedent’s Debts: Who is First? First, the funeral home, nursing home and unreimbursed medical bills should be paid within six months of the death, as well as administrative expenses. Administrative expenses include the cost of probate, which is filing the will and professional fees, including the attorney’s fees, executor’s fees, account fees for final tax returns, etc. Don’t ignore the funeral bill. The Surrogates’ Court will require that the paid funeral bill be presented to the Court in order to file for probate.

Nursing home and medical bills incurred within six months of death are also important to pay. If the executor believes the medical bill is to be paid by health insurance, Medicare or Medicaid, get this in writing. If Medicaid paid for care, there may be a claim under Estate Recovery. In some states, the Department of Human Services; Third Party Recovery, could become a creditor of the estate, when a large asset like the home is sold.

This is a time when an attorney experienced in elder law and trusts and estates can help sort through what needs to be paid and when and where the money should come from.

There are times when an executor pays for administrative expenses or the cost of the funeral from their own pocket. Anyone who does this must maintain careful records and be sure to be repaid by the estate, after an estate account is established. That also applies for any expenses paid from a joint account with the decedent.

The responsibility of the executor is to pull together the assets that will pass through the will and the bills or debts that need to be paid, then to pay the debts, including taxes and expenses of probate, then distribute the remaining funds to beneficiaries, as directed by the will.

Some assets do not pass through the will, like joint bank accounts, payable on death and transfer on death accounts, life insurance and retirement funds. With the exception of life insurance, they may be subject to inheritance taxes, if the decedent’s state of residence has such a tax.

If there are not enough assets to pay the bills, states have lists of the order of distribution. At the top of the list: costs of the administration of the estate and funeral expenses. Medical bills from the most recent six months are given higher priority than older medical bills. Credit card bills are at the bottom of the list.

Secured debt, like the mortgage on the house or a loan on a car need to be addressed. These may be sold to pay off the debt.

Decedent’s Debts: Who is First? Executors or family members who are contacted by creditors demanding payment need to know whether they are responsible or not. An experienced estate planning attorney will be able to help you work your way through the debts and financial responsibilities of the decedent.

Reference: The Mercury (June 18, 2019) “There is a priority of debts when you die”


Outlive Your Retirement Savings?
Outlive Your Retirement Savings? Estate Planning

Outlive Your Retirement Savings?

Outlive Your Retirement Savings? There is a retirement “longevity risk” that’s the possibility of running out of savings over a lengthy life in retirement. Purchasing a deferred annuity can be an effective way to protect against retirement “longevity risk”— That’s according to a study by the Employee Benefit Research Institute.

In addition, Fed Week’s recent article, “Deferred Annuities Can Protect against ‘Longevity Risk,’ Study Says” that the prospect of outliving retirement savings is a very real concern for many Baby Boomers and Gen Xers.

However, just a very small percentage of defined contribution and individual retirement account balances are annuitized. The Employee Benefit Research Institute report notes that a significant percentage of defined benefit accruals have been taken as lump-sum distributions, when the option was available.

A deferred annuity is a kind of annuity contract that delays income—which is paid out either in installments or a lump-sum payment—until the investor chooses to receive them.

This type of annuity has two main phases: (i) the savings phase, when you invest money into the account; and (ii) the income phase, when the plan is converted into an annuity and starts to pay out to the account owner. A deferred annuity can be variable or fixed.

A deferred annuity works like it sounds, it is deferred or delayed. Instead of an immediate payout beginning at retirement, the payout starts much later, such as 20 years after the purchase.

The report said that many people can be hesitant to buy these annuities, because they’re giving up control of part of their retirement savings for a long period. However, the Employee Benefit Research Institute report emphasized that due to the delay in the payout, deferred annuities can cost much less than those annuities designed to pay out immediately.

Based on an analysis involving four age groups, the study found that purchases using less than 20% of retirement savings improved the retirement finances after payouts begin for each, versus keeping them in IRAs or other retirement savings vehicles during that time.

That wasn’t necessarily true of using larger percentages, the research noted, because of factors like the higher potential for needing to finance long-term care, before the annuity would begin payouts.

Reference: Fed Week (April 17, 2019) “Deferred Annuities Can Protect against ‘Longevity Risk,’ Study Says”


Life Insurance for Elders?

Life Insurance for Elders?   Should you continue to keep the policy, asks the Milford Beacon in the article “Should you keep your life insurance?”

For term insurance, the answer is fairly straightforward. If the need for the death benefit is done, like paying off a mortgage or being able to pay for the kid’s college educations, then you don’t really need to have the policy. If your health is good and you expect to live well and long, then you could simply let the policy lapse. You won’t need to pay the premiums, but the death benefits will be over, as of the date that the policy lapses.

An alternative is to convert the policy into one with cash accumulations. It isn’t the death benefit that you want, so much as the potential return of the cash value that could accumulate inside the policy. Some insurance companies may allow you to exchange your existing policy for a policy with hybrid features that include long-term care coverage and a death benefit. That may be useful, if you don’t otherwise have a long-term care insurance policy.

When the life insurance is a permanent or whole life insurance policy, things get a little complicated. First, the review should begin with what is called an “inforce illustration.” This is a forecast as to what can be expected to happen with the policy, if you keep it. The insurance company’s actuaries get to sharpen their pencils here. There are many different factors that go into the inforce illustration, including rate of return on cash value, the company’s dividend crediting rate, the number of years the premium has been paid and your expected mortality rate, among them.

What the inforce illustration will not show you is something your financial planner or estate planning attorney will: your policy’s “Internal Rate of Return,” also known as the IRR. The IRR on cash value shows how well your cash accumulates and what it earns inside the policy. You can then compare the IRR to other investments or savings, to see if this makes sense to keep.

Here’s a simplified explanation of the IRR. Let’s say you invest $10,000 per year and have a death benefit far larger than this. The IRR on death benefit will show you the return on your premium dollars that will be returned through the issuance of a death benefit check. If you die early in the life of the policy, the check will be large. If you have the policy for an extended period of time, the IRR declines and the numbers are more like those you’d expect from a fixed income investment.

Life Insurance for Elders? Another angle to consider: how does the life insurance policy fit within your estate plan? Would you want to have the proceeds go to a grandchild, now that your children have children of your own? Does it belong inside a trust? An estate planning attorney should review all your life insurance policies to see if they align with your overall estate plan goals.

Reference: Milford Beacon (April 30, 2019) “Should you keep your life insurance?”


Children Fighting at My Death
Children Fighting at My Death

Children Fighting at My Death

Children Fighting at My Death. There are several actions that a parent can take to decrease the chance of a fight after her death, says in its recent article, “My brothers might start a fight over mom’s will. What can she do about it?”

Trying to decide how to divide property is a common estate planning challenge. Some people decide inheritances should be split among heirs equally, with the same amount left to each heir. Others decided to divide their estate “equitably,” in some other way that is considered fair.

It may not be clear if the parent is looking to leave her only daughter the house and other assets to her sons, or if she plans to distribute her assets unevenly. If the home is valued similarly to whatever other assets the parent is leaving her sons, there may not be a fight.

However, if the house represents most of the parent’s net worth and the sons’ inheritances will be much smaller, it could create hard feelings.

The brothers can’t contest the will simply because they think the inheritance is unfair. In New York, the primary reasons to contest a valid will are either because the decedent lacked testamentary capacity or was subject to undue influence.

An attorney can help draft a will that will prepare in advance for either of these grounds for a will contest. As far as testamentary capacity is concerned, an attorney should test the parent before allowing her to sign the will.

Another option would be for the parent to tape a video that shows her signing the will. This would make it more difficult for her sons to claim she didn’t have mental capacity.

The parent can also include language in the will explaining why the inheritance isn’t equal. If they see the reasoning behind her decision—and it’s rational—they may be less likely to allege undue influence.

She may want to prepare a letter of intent to explain her reasoning. This is not a legal document but may be helpful, if the will is contested. It may prevent her Children Fighting at her Death.

Another option is a no-contest clause. A no-contest clause states that if an heir challenges the will and loses, then he or she will get nothing.

Another option would be for the parent to change the deed to her house to a life estate deed.

An estate planning attorney needs to be consulted to prepare the estate plan with the mother, so that she can be sure that her wishes are followed. The attorney will also be able to provide some helpful insight on the family dynamic.

Reference: (May 3, 2019) “My brothers might start a fight over mom’s will. What can she do about it?”


Dementia and Advanced Directive
Dementia and Advanced Directive

Dementia and Advanced Directive

Dementia and Advanced Directive.

The Roanoke Times advises in the recent article “What to do in absence of advance directive” to talk to an experienced elder care attorney to coordinate the necessary legal issues, when dementia may be at issue with a parent or other loved one. Next, ask your physician for a geriatric evaluation consultation for your loved one with a board-certified geriatrician and a referral to a social worker to assist in navigating the medical system.

It’s wise for anyone older than 55 to have advance directives in place, should they become incapacitated, so a trusted agent can fulfill the patient’s wishes in a dignified manner. Think ahead and plan ahead.

As a family’s planning starts, the issue of competence must be defined. A diagnosis of Alzheimer’s disease doesn’t necessarily indicate incompetence or a lack of capacity. At this point, a patient still has the right to make a decision—despite family members disagreeing with it. A patient’s competency should be evaluated after a number of poor choices or an especially serious choice that puts a patient or others at risk.

An evaluation will determine the patient’s factual understanding of concepts, decision-making and cogent expression of choices, the possible consequences of their choices and reasoning of the decision’s pros and cons. Healthcare professionals make the final determination, and these results are provided to the court.

If a patient passes the evaluation, she is deemed to have the mental capacity to make choices on her own. If she cannot demonstrate competency, an attorney can petition the court for a competency hearing, after which a trustee may be appointed to oversee her affairs.

The time to address these types of issues is before the patient becomes incapacitated. The family should clearly define and explore the topics of living wills, health care proxies, estate planning and powers of attorney now with an experienced elder law attorney.

Taking these proactive actions can be one of the greatest gifts a person can bestow upon herself and her loved ones. It can give a family peace of mind. If you put an advance directive in place, it can provide that gift when it’s needed the most.

Reference: Roanoke Times (June 17, 2019) “What to do in absence of advance directive”


Estate Plan for Blended Family
Estate Plan for Blended Family

Estate Plan for Blended Family

Estate Plan for Blended Family. There are several things that blended families need to consider when updating their estate plans, says The University Herald in the article “The Challenges and Complexities of Estate Planning for Blended Families.”

Estate plans should be reviewed and updated, whenever there’s a major life event, like a divorce, marriage or the birth or adoption of a child. If you don’t do this, it can lead to disastrous consequences after your death, like giving all your assets to an ex-spouse.

If you have children from previous marriages, make sure they inherit the assets you desire after your death. When new spouses are named as sole beneficiaries on retirement accounts, life insurance policies, and other accounts, they aren’t legally required to share any assets with the children.

Take time to review and update your estate plan. It will save you and your family a lot of stress in the future.

Your estate planning attorney can help you with this process.

You may need more than a simple will to protect your biological children’s ability to inherit. If you draft a will that leaves everything to your new spouse, he or she can cut out the children from your previous marriage altogether. Ask your attorney about a trust for those children. There are many options.

You can create a trust that will leave assets to your new spouse during his or her lifetime, and then pass those assets to your children, upon your spouse’s death. This is known as an AB trust. There is also a trust known as an ABC trust. Various assets are allocated to each trust, and while this type of trust can be a little complicated, the trusts will ensure that wishes are met, and everyone inherits as you want.

Be sure you that select your trustee wisely. It’s not uncommon to have tension between your spouse and your children. The trustee may need to serve as a referee between them, so name a person who will carry out your wishes as intended and who respects both your children and your spouse.

Another option is to simply leave assets to your biological children upon your death. The only problem here, is if your spouse is depending upon you to provide a means of support after you have passed.

An experienced estate planning attorney will be able to help you map out a plan so that no one is left behind. The earlier in your second (or subsequent) married life you start this process, the better.

Reference: University Herald (June 29, 2019) “The Challenges and Complexities of Estate Planning for Blended Families”


Long-Term Care Costs and Your Estate Plan
Long-Term Care Costs and Your Estate Plan.

Long-Term Care Costs and Your Estate Plan

Long-Term Care Costs and Your Estate Plan.

There are many misunderstandings about long-term or nursing home care and how to plan from a financial and legal standpoint. The article “Five myths about nursing home costs and estate planning” from The Sentinel seeks to clarify the facts and dispel the myths. Some of the truths may be a little hard to hear, but they are important to know.

Long-Term Care Costs and Your Estate Plan.  Myth One: Before any benefits can be received for nursing home care, a married couple must have spent at least half of their assets and everything but $120,000. If the person receiving nursing home care is single, they must spend almost all assets on the cost of care, before they qualify for aid.

Fact: Nursing homes have no legal duty to advise anyone before or after they are admitted about this myth.

Several opportunities to spend money on items other than a nursing home, include home improvements, debt retirement, a new car and funeral prepayment. An elder law attorney will know how to use a Medicaid-compliant annuity to preserve assets, without spending them on the cost of care, depending on state law.

There are people who say that an attorney should not help a client take advantage of legally permitted methods to save their money. If they don’t like the laws, let them lobby to change them. Experienced elder law and estate planning attorneys help middle-class clients preserve their life savings, much like millionaires use CPAs to minimize annual federal income taxes.

Long-Term Care Costs and Your Estate Plan. Myth Two: The nursing home will take our family’s home, if we cannot pay for the cost of care.

Fact: Nursing homes do not want and will not take your home. They just want to be paid. If you can’t afford to pay, the state will use Medicaid money to pay, as long as the family meets the eligibility requirements. The state may eventually attach a collection lien against the estate of the last surviving homeowner to recover funds that the state has used for care.

A good elder law attorney will know how to help the family meet those requirements, so that the adult children are not sued by the nursing home for filial responsibility collection rights, if applicable under state law. The attorney will also know what exceptions and legal loopholes can be used to preserve the family home and avoid estate recovery liens.

Long-Term Care Costs and Your Estate Plan. Myth Three. We’ve promised our parents that they’ll never go to a nursing home.

Fact: There is a good chance that an aging parent, because of dementia or the various frailties of aging, will need to go to a nursing home at some point, because the care that is provided is better than what the family can do at home.

What our loved ones really want is to know that they won’t be cast off and abandoned, and that they will get the best care possible. When home care is provided by a spouse over an extended period of time, often both spouses end up needing care.

Long-Term Care Costs and Your Estate Plan. Myth Four: I love my children equally, so I am going to make all of them my legal agent.

Fact: It’s far better for one child to be appointed as the legal agent, so that disagreements between siblings don’t impact decisions. If health care decisions are delayed because of differing opinions, the doctor will often make the decision for the patient. If children don’t get along in the best of circumstances, don’t expect that to change with an aging parent is facing medical, financial and legal issues in a nursing home.

Long-Term Care Costs and Your Estate Plan. Myth Five. We did our last will and testament years ago, and nothing’s changed, so we don’t need to update anything.

Fact: The most common will leaves everything to a spouse, and thereafter everything goes to the children. That’s fine, until someone has dementia or is in a nursing home. If one spouse is in the nursing home and receiving government benefits, eligibility for the benefits will be lost, if the other spouse dies and leaves assets to the spouse who is receiving care in the nursing home.

A fundamental asset preservation strategy is to make changes to the will. It is not necessary to cut the spouse out of the will, but a well-prepared will can provide for the spouse, preserve assets and comply with state laws about minimal spousal election.

When there has been a diagnosis of early stage dementia, it is critical that an estate planning attorney’s help be obtained as soon as possible, while the person still has legal capacity to make changes to important documents.

The important lesson for all the myths and facts above: see an experienced estate planning elder law attorney to make sure you are prepared for the best care and to preserve assets.

Reference: The Sentinel (May 10, 2019) “Five myths about nursing home costs and estate planning”