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Trusts can be a vital part of estate planning, as they’re an excellent legal means of managing and distributing assets before and after death. But before setting up a trust, it’s essential to understand the difference between revocable and irrevocable trusts and their pros and cons. Here are things to remember when planning to create and fund a trust.

Revocable Trust

A revocable trust is one that can be changed anytime by the person who created and funded the trust, known as the grantor (as long as they haven’t become mentally incapacitated). That means the grantor can add or remove assets or change beneficiaries at any point.

Pros:

1. Revocable trusts can be modified.
2. They’re easier to set up than irrevocable trusts.

Cons:

1. Assets in a revocable trust are not as protected from creditors as they are in an irrevocable trust.
2. There are few, if any, income or estate tax benefits with this type of trust.

Irrevocable Trust

As you might guess from the name, an irrevocable trust cannot be modified once it’s been created, and the assets transferred. It’s extremely rare for courts to agree to changes in these types of trusts once established. That’s why it’s critically important to be absolutely sure that the terms of the trust are correct and not something that could cause regrets later.

Pros:

1. Irrevocable trusts are not subject to estate taxes.
2. They’re protected from creditors seeking funds from the grantor.

Cons:

1. These types of trusts can very rarely be changed—they’re largely set in stone once completed.
2. They’re more difficult to set up than revocable trusts.

Let Me Advise You

If you or someone you know needs to pursue setting up a trust, call me at 610-718-6368.

 

Understanding Guardianship Laws in Pennsylvania

Guardianship is a serious matter that Pennsylvania courts don’t take lightly. That’s because it involves taking away rights from the person who needs the guardian. Understanding how guardianship works in Pennsylvania can help you determine if that’s the best course of action and what it takes to obtain it.

Who Is Guardianship For?

There are two categories of people for whom guardianship may be necessary: Minors under 18 whose parents are no longer living and adults who are mentally incapacitated in some way, whether temporarily or permanently. The latter could include people with progressing dementia who can no longer safely manage their lives or people who have been in a car accident with temporary cognitive issues. Minors who turn 18 and people whose temporary mental incapacity is resolved can be released from guardianship.

Within Pennsylvania law

Because it is a serious concern for the courts, Pennsylvania guardianship laws provide alternatives to guardianship. The goal of the courts is to see people retain their rights rather than lose them, so guardianship should be a last resort. Families or loved ones should consider the possibility of creating a funding a trust for the incapacitated person, filing for power of attorney (especially helpful to do before someone becomes incapacitated, so once that happens, a power of attorney is already in place and ready to be activated), or discuss whether or not the family can manage with their own resources. Pennsylvania courts will want to know that these have been considered and if they don’t work, why they don’t work. If none of these things are feasible or won’t suffice, it could be time to consider guardianship.

Becoming a Guardian in Pennsylvania

Several different entities can apply for guardianship under Pennsylvania law. Those include qualified individuals, nonprofits, county agencies, guardianship agencies, and corporate fiduciaries.

The courts can reject applications from guardians it deems inappropriate or has conflicts of interest. The court may also appoint a guardianship agency if no one steps up to become a guardian for a person who’s been medically diagnosed as needing one.

The first step is to file a petition in a Pennsylvania county court. That must include a sworn statement from a physician or psychologist who can explain why the incapacitated person needs a guardian. That statement needs to be heavily detailed. The court will issue a preliminary decree and set a hearing date, at which time the court will decide if the person is indeed incapacitated and if a guardian is needed. Then the court will determine who or which agency should become a guardian.

Let Me Advise You

If you or someone you know needs more information and assistance in guardianship matters, call me at 610-718-6368.

Why Should I Consider a Bank as a Trustee of My Trust?

Setting up a trust is an integral part of many people’s estate plans. When setting up the trust, one critical decision is who should be the trustee. That person or organization is responsible for managing the trust and caring for its finances, whether filing taxes, distributing assets to beneficiaries, or keeping detailed records.

Sometimes, having a trustworthy close family member or friend makes sense in the trustee role. But other organizations can also act as the trustee, including banks. Here’s why banks are worth considering for the trustee role.

Protection for the Trust and Beneficiaries

Banks have effective systems of checks and balances. It’s less likely that a bank trustee will misuse the funds or outright steal them. On the rare occasion that happens, banks usually have financial security and insurance that can make reimbursement of the trust a strong possibility. That’s in contrast to a trust run by a friend or family member where, if losses occur, it may not be possible to recoup them.

No Conflicts of Interest

Family and friends can easily have conflicts of interest that would make it difficult for them to manage the trust objectively and with everyone’s best interests at heart. Bank trustees don’t have those kinds of conflicts and can keep the trust’s best interests at the forefront.

Professionally Managed

A family member or friend is not likely to be a specialist in managing trusts and will have to learn as they go. That’s a process ripe for mistakes, which can be costly. Banks have entire trust departments that work only on trusts—it’s their job. They stay current on changes in trust laws and regulations, they have extensive experience that can be valuable for the trust, and they’ll understand all the financial implications, including taxes, of the trust.

Unbroken Continuity

If someone selects a family member for a trust that involves minor children, and that trustee passes away before the children become legal adults and are entitled to the trust, a new trustee must step in and take over. If it’s another family member or friend, a second learning curve could be involved. With a bank, the actual person overseeing the trust may change, but the bank will handle it and will appoint another knowledgeable, experienced employee as trustee.

Let me Advise You

If you or someone you know wants to investigate setting up trusts, call me at 610-718-6368.

In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in “countable” assets (the figure may be somewhat higher in some states). Note that Medicaid is a state-run program, so the rules are somewhat different in each state, although there are federal guidelines.

The spouse of a nursing home resident—called the “community spouse”—is limited to one half of the couple’s joint assets up to $130,380 (in 2021) in “countable” assets. This figure changes each year to reflect inflation. Called the “community spouse resource allowance,” this is the most that a state may allow a community spouse to retain without a hearing or a court order. The least that a state may allow a community spouse to retain is $26,076 (in 2021).

Example: If a couple has $100,000 in countable assets on the date the applicant enters a nursing home, he or she will be eligible for Medicaid once the couple’s assets have been reduced to a combined figure of $52,000$2,000 for the applicant and $50,000 for the community spouse.

Some states, however, are more generous toward the community spouse. In these states, the community spouse may keep up to $130,380 (in 2021), regardless of whether or not this represents half the couple’s assets. For example, if the couple had $100,000 in countable assets on the “snapshot” date, the community spouse could keep the entire amount, instead of being limited to half. 

All assets are counted against these limits unless the assets fall within the short list of “noncountable” assets. These include the following:

• Personal possessions, such as clothing, furniture, and jewelry
• One motor vehicle, regardless of value, as long as it is used for transportation of the applicant or a household member. The value of an additional automobile may be excluded if needed for health or self-support reasons (check your state’s rules).
• The applicant’s principal residence, provided it is in the same state in which the individual is applying for coverage. In some states, the home will not be considered a countable asset for Medicaid eligibility purposes as long as the nursing home resident intends to return home; in other states, the nursing home resident must prove a likelihood of returning home. Under the Deficit Reduction Act of 2005 (DRA), principal residences may be deemed noncountable only to the extent their equity is less than $603,000 (in 2021), with the states having the option of raising this limit to $906,000 (in 2021). In all states and under the DRA, the house may be kept with no equity limit if the Medicaid applicant’s spouse or another dependent relative lives there
• Prepaid funeral plans and a small amount of life insurance
• Assets that are considered “inaccessible” for one reason or another

Carefuhttps://pilelaw.com/contact/l planning, whether in advance or in response to an unanticipated need for care, can help protect your estate while still meeting Medicaid’s strict asset limits. Contact our office to learn more.

When most of a couple’s income is in the name of the spouse who is receiving Medicaid, the spouse remaining in the community may wonder what he or she will live on. Medicaid has created some protections for the community spouse.

Although Medicaid limits the assets that the spouse of a Medicaid applicant can retain, the income of the “community spouse” is not counted in determining the Medicaid applicant’s eligibility. Only income in the applicant’s name is counted. Thus, even if the community spouse is still working and earning, say, $5,000 a month, he or she will not have to contribute to the cost of caring for a spouse in a nursing home if the spouse is covered by Medicaid. In some states, however, if the community spouse’s income exceeds certain levels, he or she does have to make a monetary contribution towards the cost of the institutionalized spouse’s care. The community spouse’s income is not considered in determining eligibility, but there is a subsequent contribution requirement.

But what if most of the couple’s income is in the name of the institutionalized spouse and the community spouse’s income is not enough to live on? In such cases, the community spouse is entitled to some or all of the monthly income of the institutionalized spouse. How much the community spouse is entitled to depend on what the local Medicaid agency determines to be a minimum income level for the community spouse. This figure, known as the minimum monthly maintenance needs allowance or MMMNA, is calculated for each community spouse according to a complicated formula based on his or her housing costs. The MMMNA may range from a low of $2,177.50 to a high of $3,259.50 a month (in 2021). If the community spouse’s own income falls below his or her MMMNA, the shortfall is made up from the nursing home spouse’s income.

Example: Joe and Sally Smith have a joint income of $2,600 a month, $1,900 of which is in Mr. Smith’s name and $700 is in Ms. Smith’s name. Mr. Smith enters a nursing home and applies for Medicaid. The Medicaid agency determines that Ms. Smith’s MMMNA is $2,200 (based on her housing costs). Since Ms. Smith’s own income is only $700 a month, the Medicaid agency allocates $1,500 of Mr. Smith’s income to her support. Since Mr. Smith also may keep a $60-a-month personal needs allowance, his obligation to pay the nursing home is only $340 a month ($1,900 – $1,500 – $60 = $340).

In exceptional circumstances, community spouses may seek an increase in their MMMNAs either by appealing to the state Medicaid agency or by obtaining a court order of spousal support. Contact our office to find out about these options.

Medicaid long-term care benefits traditionally pay mainly for nursing home care, but the federal government can grant “waivers” to states allowing them to expand Medicaid to include home and community-based services. The downside is that receiving care in a nursing home is an entitlement while getting care at home is not.  

Medicaid is a joint federal-state program that provides health insurance coverage to low-income children, seniors, and people with disabilities. In addition, it covers care in a nursing home for those who qualify. Each state operates its own Medicaid system, but this system must conform to federal guidelines in order for the state to receive federal money, which pays for about half the state’s Medicaid costs. (The state picks up the rest of the tab.) A Medicaid waiver allows states to waive some of the federal rules with the intention of providing services to individuals who wouldn’t normally be covered by Medicaid. The waiver must be approved by the federal government. 

The most common type of Medicaid waiver expands Medicaid to cover home care to individuals who need a high level of care, but who would like to remain at home rather than enter a nursing home. Care that may be provided by a waiver includes personal attendants, home health aides, medical supplies and equipment, respite care, counseling services, transportation, homemaking services, hot meal delivery, and more. 

Each state sets up its own waiver program, so the rules and requirements vary widely. Usually, to qualify an applicant must need a level of care similar to what is needed to qualify for Medicaid coverage in a nursing home. The point of the waiver is to allow an individual who would normally need nursing home care to remain at home, which is typically a far less costly form of care. States may also target different health conditions, such as HIV, Alzheimer’s disease, diabetes, cystic fibrosis, among others. Each state also sets its own income and asset levels for its waiver programs, which may vary from state to state, and may be different from the income and asset levels used for Medicaid coverage of nursing home care. 

The downside of state waiver programs is that waivers are not an entitlement, meaning that states are allowed to limit the number of people who qualify for services under a waiver. Just because an applicant meets the criteria for eligibility does not mean the applicant will be approved for the services. As a result, waitlists for filled programs can run for months or years. 

To find out your Medicaid home care options, you should check with your elder law attorney. 

To find and apply for a waiver program in your state, contact our office.