As estate planning attorneys, we know that our practice is a complex one. Estate planning is the nexus of various different areas of the law, including Wills & Trusts, Taxation, Asset Protection, Elder Law, Family Law, etc.
Of course, we must master and keep current on the substance of these various areas of the law. But, at least as importantly, we must learn to extract from our clients their true goals.
For example, if asked how they wish to leave their assets, they may say “outright to my children.” However, if asked if they are concerned about their children being party to a divorce, many will divulge that fear.
When the various options are explained to the client, many will opt for a different solution than they originally thought they wanted.
Of course, this is true when dealing with issues that touch on various different substantive areas. For example, maximizing Tax savings may not be the best way to provide for elder law planning.
Let’s look at this situation in greater detail. The client is 70 and in good health, but has a family history of Alzheimer’s with an expected onset at age 80. He owns his own home, has social security, and a pension, which meet his living needs. He wants to qualify for Medicaid, which he could do in 5 years, if he gifts away his liquid assets. However, his daughter is a successful entrepreneur and is in a high income tax bracket. By giving his liquid assets to his daughter, the family will pay more in income taxes, which he does not want to do.
We must remember, we do not create the options for our clients, we just present and explain the pros and cons to them. It is then up to the client to decide which course of action is best for them.
In this situation, the client must decide whether it is better to give the assets to his daughter, enabling him to qualify for Medicaid in 5 years, and have increased income taxation on the assets. Perhaps you could explore middle ground with the client. Gifting the assets to an income only trust may allow the client to qualify for Medicaid, while having the income taxed to him. However, the income may end up going to share of cost if he goes into the nursing home. Of course, much of this depends on how the particular state administers the Medicaid program.
What is important to remember here is that, sometimes, it is not possible for the client to maximize the results in every area of interest. In the above situation, one client may choose to gift the assets outright, while a different client with different preferences and experiences may choose to do the income only trust. The role of the estate planning attorney is to provide the best information possible to the client for them to make the best decision for them.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555