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How Do I Avoid Probate?

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Successful Probate Avoidance Strategies

If saving time, money, and court supervision is right for your family, then avoiding probate is right for your estate plan.  There is a common misconception that having a will avoids probate. This is completely false.  Having a will does NOT avoid probate.  There are however many simple ways to avoid probate and some strategies that even offer asset protection.   But regardless of what estate planning method you choose, avoiding probate will avoid costly fees for your children and time consuming court proceedings. Here are a few helpful methods to consider.

Joint Ownership

Joint ownership is the most common method of probate avoidance and does not require the help of an attorney or other professional.  Assets owned by more than one person result in the survivor taking ownership.  Joint ownership examples might include a joint bank account or marital home.   This is significantly beneficial when avoiding probate for a residence because the transfer of assets is immediate and does not require a court approved transfer.   If you have a joint bank account, most banks require a simple death certificate and identification to transfer the account to the remaining account holder.  In lieu of a trust, the downside of joint ownership is that it does not offer asset protection.  Creditors may still attach their interest in a residence or asset of a jointly held account.

Beneficiary Designations

If you ever received life insurance or engaged with a financial planner, you’ve probably filled out a beneficiary designation.  These are very common with retirement accounts (401(k), 403(b), IRA, etc), life insurance, annuities, and other assets.  Here you simply designate the names of those you wish to receive the assets after your death.  Beneficiary designations are a great way to avoid probate and keep your estate private.  The transfer of assets is swift and does not require court approval.  If you name your minor children as beneficiaries, it is recommended that you appoint a guardian because a minor cannot take control such an account.  Once again however, the downside to beneficiary designations is that these assets are not protected against divorce, creditors, or litigation.  For example, if your children inherit an IRA but then get divorced, the ex-spouse is will receive half of the retirement assets.  (See trusts below for asset protection)

Transfer-on-Death

A transfer on death affidavit works just like a beneficiary designation.  Here the “TOD” allows you to designate the person or entity to receive your assets upon your death.  Just like a beneficiary designation, the TOD avoids probate while transferring assets swiftly and without court approval.  This method saves time and cost for commonly titled assets like a home, automobile, boat, and more.

Payable on Death

Similar to Transfer on Death Accounts, POD’s also transfer assets seamlessly through naming a beneficiary. Here the difference is that POD’s usually refer to checking accounts, savings, and certificates of deposit while TOD’s refer to brokerage accounts, stocks, securities, and mutual funds. Both TOD’s and POD’s do not offer asset protection.

Trusts

The single best way to avoid probate while also providing asset protection is by creating a trust.  A properly drafted trust is completely private, avoids probate, provides asset protection, and is advantageous for tax purposes (for larger estates).  There are numerous trust planning strategies available for all different types of estates.  For example, some trusts may be changed or modified during your lifetime (called revocable living trusts) or may not be changed (called irrevocable living trusts).  Other trusts may pay taxes themselves while others allow the trust beneficiary to pay taxes.  Regardless of what trust strategy is used, a properly drafted trust will ensure that your children and/or beneficiaries receive asset protection, favorable tax considerations, and probate avoidance.

To learn more about probate avoidance or trust planning strategies, contact an attorney at Baron Law LLC at 216-573-3723 or dan@baronlawcleveland.com  Baron Law LLC is a Cleveland area law firm providing legal services in the areas of estate planning, probate, wills and trusts, Medicaid planning, and more.

Cleveland Probate Attorney

Is Probate Necessary?

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As an estate planning attorney, many people ask me if probate is really necessary. The short answer is no, and I often advise my Cleveland, Ohio estate planning clients to avoid probate if at all possible. But what is probate? And, why should it be avoided? Here’s a quick synopsis to answer these questions.

What is Probate?

Probate is the legal process required to transfer certain assets at a person’s death. Probate becomes mandatory and necessary when a person dies owning assets in his or her name that do not pass to a survivor or beneficiary by operation of law or contract. An example of one of these ‘contracts’ might be a payable on death account (“POD”) or beneficiary designation. Through probate, claims, expenses and taxes are paid and property is distributed.

The assets subject to probate administration are referred to as “probate assets” while assets that pass outside probate to a survivor or beneficiary by operation of law or contract are called “non-probate assets.”

Probate is not the same as tax. Both Probate and non-probate assets may be subject to income and/or wealth transfer tax at a person’s death.

A will enables a person to choose how his or her probate assets are to be distributed following death. Without a will, the Ohio Statute on Descent and Distribution (Ohio Rev. Code § 2105.06) dictates how a decedent’s assets will be distributed.

Reasons to Avoid Probate
I often tell my Cleveland, Ohio clients to avoid probate for several reasons. First, probate is public. For a number of reasons, you may not want others to now the value of your assets being transferred to your decedents. The creation of a trust or other instrument is private and can avoid the public display of your assets. Second, the probate process is often time consuming.   When dealing with the loss of a loved one, you don’t want to be caught up in court which is costly and often ends up prolonging the grieving process.  Next, there may reason for wanting to control your assets through a trust; moreover, creating asset protection.  Finally, there may also be certain tax advantages for avoiding probate by placing your assets in trust.

For most clients, I will often weight the pros and cons of creating a will versus a trust and explaining the benefits of avoiding probate.  Often it comes down to the cost versus the value of avoiding probate.  If you would like more information regarding probate, trusts, wills, or other estate planning tools, please contact my office at 216-276-4282.    Baron Law LLC provides estate planning advice for the Cleveland, Ohio area.    Call estate planning attorney Dan Baron today for a free consultation.

Is Annuity-Based Long-Term Care Right for You?

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Annuity-Based Long-Term Care and the Pension Protection Act of 2006

Medicaid and long-term care are unquestionably a hot topic.  Estate planning and Medicaid planning attorneys have long been waiting for an opportunity that would allow those wishing to enroll in Medicaid to shelter all or a portion of their savings – legally!  Cleveland, Ohio estate planning attorney Dan Baron offers the following information on long-term care and how the Pension Protection Act of 2006 has created one of these sought after opportunities.

In 2006, the President signed into law The Pension Protection Act of 2006 (the “Act”).  The act changed certain tax laws and allows for those owning annuity contracts to take advantage of certain tax savings.  In sum, the Act allows the cash value of annuity contracts to be used to pay premiums on long-term care contracts.  The payment of premiums in this way will reduce the cost basis of the annuity contract.  In addition, the Act allow annuity contracts without long-term care riders to be exchanged for contracts with such a rider in a tax-free transfer under Section 1035 of the Internal Revenue Code of 1986, as amended (IRC).

Here’s an example of how the Act’s changes might benefit someone considering long-term care insurance.   Let’s say that Kathy, age 70, lives in Cleveland.  Her children live out of state but are concerned with a recent diagnosis of diabetes, along with a history of heart disease.   Because of these illnesses, she was not a good candidate for traditional long-term care insurance.  However, by taking advantage of an annuity based long-term care strategy that takes advantage of the Pension Protection Act, Kathy could likely be insured.

Look at the illustration below.  Kathy can take her $140,000 fixed annuity with a cost basis of only $40,000 (i.e. the amount she actually deposited) and using the tax-free exchange from his existing fixed annuity to a new annuity that complied with the Act’s rules, Kathy’s $140,000 fixed annuity could continue to earn interest.  However, if she needed long-term care to pay for home care, assisted living, or skilled care, she now had a long-term care pool of money equal to $420,000.

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  • Kathy retains her $140,000 in cash value plus an additional $280,000 for a total of $420,000 for long-term care.
  • Her benefits may be used for home care, assisted living, and skilled care.
  • She pays no annual premiums
  • As her annuity grows, so does her LTC. (assuming she does not use her LTC benefits)

There are many annuity based long-term care packages available.  It’s best to consult with an attorney or Medicaid specialist who can help you choose the right plan.  For more information, or to speak with Cleveland estate planning and Medicaid planning attorney Dan Baron, contact our office at Baron Law LLC.  Baron Law LLC is a Cleveland, Ohio law firm dedicated to helping those in need of elder care, estate planning, and Medicaid planning.  Contact attorney Dan Baron today at 216-276-4282.

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Medicaid Planning – Important Considerations When Choosing a Long-Term Care Plan

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Medicaid Planning – Important Considerations When Choosing a Long-Term Care Plan

It’s no surprise that Medicaid planning has been a widely discussed topic considering the overwhelming cost of nursing home care.  For example, the average daily cost of care in the Midwest is approximately $135 per-day.   In Ohio, this same care is around $203.00 per-day. Put another way, your long term care plan must account for $6090.00 per-month.

As an estate planning attorney, I’m often asked whether it’s worth purchasing long-term care insurance. Unfortunately, the answer is specific to each individual’s goals, needs, assets, and more.   However, there are several important considerations everyone should know.   Medicaid planning and elder law are key to estate planning.  At a minimum, those planning for their financial and physical health, should consider the following when choosing a long-term care plan.

Ratings

The financial ratings of a long-term care plan are important when considering purchasing the insurance.  Every company is different and each have different ratings.  The recommendation is to choose a company with an AM BEST rating of A+ or better.  In addition, the assets of the insurance company should be in the billions.  In essence, you want the insurance company to have a high rating and be financially sound.  For more information on ratings, visit:http://www.ambest.com/home/default.aspx

Discounts

There are a number of discounts available when considering your insurance plan.  Some long-term care insurers will allow for group discounts through employers.  Senior clubs and other organizations can also offer discounts from 5%-10% on long-term care.  In addition, some companies will actually allow for a 30%-50% discount when both spouses purchase long-term care.  Good health discounts may also be given when the applicant is in excellent health which range from 10%-15%.  It’s important to realize that not all companies permit these types of discounts and its best to consult with an estate planning or Medicaid planning attorney.   Moreover, each company has its own underwriting guidelines which may change the above mentioned averages.

Tax Considerations

There are several tax considerations when thinking about long-term care insurance.  At the federal level, premiums for long-term care insurance fall into the ‘medical expense’ category.  So, if the premium (or the premium plus other medical expense) is over 7.5% of the adjusted gross income, part of that premium is tax deductible.   Additionally, business owners can deduct the full cost of long-term care insurance protection for themselves and designate individuals, including spouses.

From a national perspective, 26 states offer  some form of deduction or tax credit for long-term care insurance premiums.  In Ohio, there is a deduction for polity premiums.  However, it is absolutely paramount to consult with a Medicaid planning attorney, tax advisor, or financial planner when making these tax considerations.  The tax laws change constantly and the it’s important to understand your options fully.

Tax Qualified Plans vs. Non-Tax Qualified Plans

There are two types of long-term care insurance plans: (1) Tax qualified plans and (2) Non-tax qualified plans.  Tax qualified plans follow the federal HIPAA law (Health Insurance Portability and Accountability Act).   Under this plan, the insured must need assistance with two of the six daily activities necessary for daily living.  These activities include:

  • Bathing
  • Dressing
  • Eating
  • Toileting
  • Continence
  • Transferring

In order to be eligible, the individual must need assistance for a period of 90 days or greater.   These criteria help protect consumers by designating long-term care for those who truly need it.  However, the benefits received are not considered taxable income.   Tax qualified plans are guaranteed renewable.  This means that your coverage can never be cancelled, as long as you pay your premiums.

Non-tax qualified plans allow the consumer to access benefits more quickly.   Here, the insured only needs to fall under one of the above mentioned activities of daily living.  If you speak with a Medicaid planning attorney, you’ll find that these plans are a bit more expensive than tax qualified plans.   (Side note: Cleveland, Ohio Medicaid planning attorneys have been in great debate on the pros and cons of each plan but sticking with a tax-qualified plan is currently my recommendation).

There are numerous other considerations to discuss with your estate planning or Medicaid Planning attorney when thinking about long-term care insurance.  For more information, or to speak with a Cleveland, Ohio Medicaid planning attorney, contact Dan Baron at Baron Law LLC.   Contact Dan at 216-573-3723 today to set up a free consultation.  Dan is a Cleveland, Ohio attorney practicing in the areas of estate planning, Medicaid planning, and business law.

 

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Client Review
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Daniel Baron reviewed our Trust, Wills and HPOA. He provided good feedback as to what needed updating and any necessary additions to the documents. We didn’t have a FPOA which thanks to him we now have. He was able answer any questions we had and proved to be very flexible to accommodate our schedules when it came time to meet. I would recommend him to anyone looking to do Estate Planning

– Tom