Tuesday, 21 May 2024

Estate planning: Building flexibility into your estate plan to handle contingencies

Life is dynamic. That said, your estate planning documents should not be entirely static.

They need to be adaptable to deal with life’s changed circumstance – some of which may be foreseeable and others unpredictable. Specifically, flexibility is desirable in regards to (1) who steps-in to manage your affairs during periods of disability and death; (2) whether to allow for Medi-Cal/SSI gifting; (3) whether assets may either be held in trust and otherwise distributed/used (rather than outright cash distributions); and (4) what say your beneficiaries are allowed over their shares of your estate. Let us now examine each area.

Over time, or with later events, it is possible that the person(s) whom you named to manage your financial and personal affairs may not then be either able or willing to carry out these responsibilities. Hopefully, you named worthy alternatives. In addition, however, it may also be desirable to authorize these selected persons themselves to name their own replacements should none of your other named alternatives be available.

If desired, Medi-Cal gifting powers need to be incorporated into your trust and/or power of attorney. For married couples their community property (so-called marital assets) presents a planning opportunity in regards to eligibility for long-term nursing home Medi-Cal benefits. That is, specifically allowing for (e.g., enabling) the “transmutation” of community property assets into the separate property of the well-spouse would facilitate matters while protecting both, in the event that one needs to qualify for Medi-Cal (e.g., for long-term nursing home care) and the other stay at home.

Furthermore, for those who desire that their assets be transferred to their children (not spouse), prior to death, in order to become eligible for Medi-Cal sooner and to preserve their children’s inheritances against later estate recovery by the State (in regards to Medi-Cal and/or SSI benefits received) it is even more important to express these wishes in an enforceable manner — such as by authorizing an agent to make gifts from your estate to desired persons.

Gifting implicates both the welfare of the person making the gifts and the children (usually) receiving the gift (as an advance on their inheritances). As Medi-Cal law is in a state of flux, your trust and/or power of attorney needs to be carefully crafted. Naturally, the person(s) whom you entrust to make these gifting decisions needs to have the good judgment, understanding and integrity to use this gifting authority wisely.

Another area is flexibility in the distribution/use of your estate. That is, whether your estate “may be held in further trust” (e.g., such as a special needs trusts or an asset protection trusts), or “may be used to purchase a single premium annuity”, or “may be used in some other specified manner(s).” These considerations may become important should your beneficiaries later-on develop creditor problems, or become disabled (especially if needs based government benefits are involved). Having “no flexibility” to deal with changed circumstances may mean that the plan will proceed regardless and with undesirable results.

Next, consider giving your surviving spouse, or your other beneficiaries, a so-called “special power of appointment” so they can redirect inheritances amongst a “limited class of beneficiaries.” Why? If circumstances significantly change, then they can reallocate the estate distribution scheme in a more appropriate way. One example, amongst many, involves your surviving spouse reallocating your trust estate amongst your children, so that if any child becomes more needy, then they receive a greater share than other more fortunate children.

Lastly, if circumstances change while you are still alive and competent it is better that you carefully review your estate planning documents and amend them as needed. But, otherwise, if this does not happen, hopefully your existing documents are drafted so as to allow an appropriate response to the changed circumstances.

Dennis Fordham is an attorney who practices in Lakeport. He welcomes your calls to reserve a seat to attend the next free public educational seminar on the topics of wills, trusts and estate planning, and special needs trusts. Call him at 263-3235.

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