Estate Planning Terms

No one likes to think about one’s own death. However, planning ahead can help your family avoid unnecessary complications, delay, and expense. This may be done through wills, trusts, joint ownership, and life insurance. In addition, modern estate planning also includes “life” planning through powers of attorney and health care proxies. These enable someone else to act for you in the event of your incapacity. Understanding the following terms is the first step toward planning your estate. However, no estate planning steps should be taken without consulting with a qualified professional.

• Probate

This is the name for the process in the Probate Court through which the ownership of your assets passes to your heirs. It includes the collection of your assets, the payment of your bills, and the distribution of your estate. It only covers what you own outright, not joint property, trust property, life insurance proceeds, or any assets that have beneficiaries or payable-on-death terms.

• Will

Your will is a legally binding statement of who will receive your property at your death. It also appoints a legal representative to carry out your wishes. However, the will only covers probate property.

• Estate Tax

The estate tax applies to both the probate and the nonprobate property of the decedent. For federal purposes, the amount free from taxation is $5.6 million as of 2018 per individual, $11.2 million per married couple. For Rhode Island, a person can pass $1,537,656 free from estate taxation.

Reading your Estate Planning documents is critical to understanding your plan

• Marital Deduction

On the federal level, anything passing to the surviving spouse of a decedent is not included in the taxable estate and, consequently, is not subject to taxation. All of the couple’s assets are then taxed upon the death of the surviving spouse, unless an estate tax plan has been executed.

• Trust

A trust is a legal entity under which one person—the “trustee”—holds legal title to property for the benefit of others—the “beneficiaries.” The trustee must follow the rules provided in the trust instrument. An irrevocable trust is one that cannot be changed after it has been created. A revocable trust is one that may be changed or rescinded by the person who created it. Trusts are often used for tax planning, to provide for someone with expertise to manage assets, or to shelter assets to protect them from creditors or for long-term care planning.

• Durable Power of Attorney

Under a power of attorney, you may appoint someone else to act for you when you are unable to do so yourself. The reason may be your mental incapacity or your inability to be somewhere when needed. The person you appoint—your “attorney-in-fact”—must always act in your best interest and try to make choices you would make if you were able to do so.

• Health Care Proxy

Similar to a power of attorney, through a health care proxy you may appoint someone else to act as your agent—but for medical, as opposed to financial, decisions. Unlike a power of attorney, the health care proxy does not take effect until your doctor determines that you are incapable of making decisions yourself. Before that decision, your agent may make no decisions on your behalf. You may include in your proxy a guideline for your agent to use in making decisions. These may include directions to refuse or remove life support in the event you are in a coma or a vegetative state. On the other hand, your instructions may be to use all efforts to keep you alive, no matter the circumstances.

• Community Spouse Resource Allowance (CSRA)

If your spouse has to move to a nursing home, you will have to pay for his or her care out of pocket until he or she qualifies for Medicaid. Under the Medicaid program the nursing home spouse may only have $4,000 in “countable” assets. (Noncountable assets include your home, household belongings, one car, and prepaid funeral plans.) The amount the healthy spouse is permitted to keep under the Medicaid program is known as the “community spouse resource allowance” or “CSRA.” The CSRA is all of the couple’s combined assets up to a cap of $123,600 (in 2018). In some cases, the community spouse is entitled to retain assets above the $123,600 limit when her income is less than the minimum monthly maintenance needs allowance, which is described below.

• Minimum Monthly Maintenance Needs Allowance (MMMNA)

The Medicaid rules also govern the amount of income the community spouse is entitled to once the nursing home spouse qualifies for Medicaid. Normally, the community spouse keeps his or her income and the nursing home spouse pays his or her income to the nursing home, keeping only a $50.00-a-month “personal needs allowance.” However, if the healthy spouse’s income is low, he or she may be entitled to a share of the nursing home spouse’s income. In each case where a married nursing home resident qualifies for Medicaid, the Department of Human Resources calculates a “minimum monthly maintenance needs allowance” or “MMMNA” for the community spouse based on his or her housing costs. This will range from a low of $2,057.50 to a high of $3,090.00 a month (in 2018). If the community spouse’s own income is below his or her MMMNA, he or she will be entitled to a share of the nursing home spouse’s income to make up the difference.

Want to learn more? Contact Attorney Matthew J. Leonard, Esq. at 401-274-0300 or at mleonard@smsllaw.com to arrange for a free consultation.