A wise man once said that “Experience is something that you get just after you need it.” Clearly, we learn from our mistakes, but these can be hard-won lessons.
With this in mind, we are going to look at some of the commonly made estate planning errors in this post so you can learn from the mistakes that others have made.
False Assumption About Medicare
Most people are aware of the fact that they have to pay some out-of-pocket Medicare expenses. At the same time, they assume that Medicare will pick up the tab for most of the health care related expenses that beneficiaries will typically incur.
This makes sense on the surface, but it can lull you into a false sense of security when it comes to long-term care. Medicare does not cover the custodial care that nursing homes deliver, and it does not pay for in-home care that is provided by a professional home health aide.
The median annual cost for a private room in a nursing home in the Hartford area is about $180,000, and the average length of stay is 12 months. That’s bad enough, but you can double the number if you are married.
Depending on the extent of your resources, long-term care costs could put a significant dent in your legacy if you have to pay them out-of-pocket. Fortunately, there is a solution in the form of the Medicaid program.
It will pay for a stay in a nursing home, but it is a need-based program, so there is a low asset limit. With all of this in mind, you could convey assets into a Medicaid trust.
The trust would be irrevocable, so you would not have access to the principal. You would be able to receive income that is generated by assets in the trust until and unless you qualify for Medicaid.
Timing is the key to effectively implementing this strategy, because there is a five-year look back period. You have to fund the trust at least five years before you submit your application for Medicaid coverage.
Your eligibility is delayed if you violate this rule. To sum it up simply, if you gave away enough to pay for a year in a nursing home, your eligibility would be delayed by one year.
DIY Estate Planning
Some people buy into the do-it-yourself estate planning downloads and worksheets that are out there. Three prominent legal professors that were engaged by the highly respected, totally objective publication Consumer Reports evaluated these products several years ago.
They examined documents that were created using tools that were provided by three of the most well-known websites. They found flaws, and they stated that negative consequences can come about when inexperienced people embrace these DIY solutions.
Failure to Address the Estate Administration Process
If you want your loved ones to receive their inheritances in a timely and efficient manner, you should understand the estate administration process. When a will is used, it is admitted to probate, and a costly, time-consuming, and public proceeding ensues.
On the other hand, if you utilize a living trust instead of a will as the centerpiece of your plan, the assets would be neatly consolidated. After your passing, the trustee would distribute assets to the beneficiaries in accordance with your wishes, and probate would not be a factor.
Unawareness of Estate Tax Parameters
There is a federal estate tax in the United States, and we have a state-level estate tax here in Connecticut. The exclusion is the amount that can be transferred before an estate tax would be imposed on the remainder.
In 2023, the federal estate tax exclusion is $12.92 million, and the Connecticut state-level exclusion is now equal to the federal exclusion.
Your original estate plan is going to be constructed based on your financial position and the exclusions that exist at that time. Things can change, and you may become exposed to the estate tax at some point along the way.
We can help you implement an estate tax efficiency strategy if it becomes necessary, so you should schedule an estate plan review periodically to stay up to date.
Schedule a Consultation Today!
We are here to help if you are ready to consult with a Glastonbury, Connecticut estate planning lawyer to put a plan in place. We can be reached by phone at 860-548-1000, and you can use our contact form if you would like to send us a message.
Mr. McCann is licensed to practice before the courts of the State of Connecticut. He is a member of the American Academy of Estate Planning Attorneys.
Mr. McCann provides to his clients, trust and estate planning, and trust and estate administration services. Formerly, Mr. McCann was an adjunct professor of economics in the State of Connecticut Community College system, and a Commissioner of the Town of Simsbury Zoning Board of Appeals.