2024-04-08 by Sue Hunt
Many people believe that estate planning is only about planning for their death. But planning for what happens after you die is only one piece of the estate-planning puzzle. It is just as important to plan for what happens if you become unable to manage your own financial or medical affairs while you are alive (in other words, if you become incapacitated).
What happens without an incapacity plan?
Without a comprehensive incapacity plan, if you become incapacitated and unable to manage your own affairs, a judge will need to appoint someone to take control of your money and property (known as a guardian of the estate) and to make all personal and medical decisions for you (known as a guardian of the person) under court-supervised guardianship proceedings. The guardian may be the same person, or there may be two different people appointed to these roles. Depending on state requirements, the guardian may have to report all financial transactions to the court annually, or at least every few years. The guardian is also typically required to obtain court permission before entering into certain financial transactions (such as mortgaging or selling real estate). Similarly, the guardian may be required to obtain court permission before making life-sustaining or life-ending medical decisions. Court-supervised guardianship is effective until you either regain the ability to make your own decisions or you pass away.
Who should you choose as your financial agent and healthcare agent?
Guardianship statutes are the state's default plan for appointing the person or people who will make decisions for you if you cannot make them for yourself. This default plan, however, may not align with the plan you would have put into place on your own. Most importantly, state statutes may give priority to someone to act as your guardian who is not the person you would have selected had you engaged in proactive planning.
Rather than having a judge appoint these important decision-makers for you, your incapacity plan allows you to appoint the trusted individuals you want to carry out your wishes. There are two very important decisions you must make when putting together your incapacity plan:
The following factors should be considered when deciding who to name as your financial agent and healthcare agent:
What should you do?
If you do not proactively plan for incapacity before you become incapacitated, your loved ones will likely have to go to probate court to have a guardian appointed. This would be a hassle, taking time and costing money during what is already likely to be a very stressful and emotional time.
Part of creating an effective incapacity plan means carefully considering who you want as your financial and medical agents. You should also discuss your choice with the person you select to confirm that they are willing and able to serve. This would also be a great opportunity to discuss with them your wishes as to the medical and financial issues that are most important to you.
Our firm is ready to answer your questions about incapacity planning and assist you with choosing the right agents for your plan.
2024-04-04 by Sue Hunt
An intrafamily loan is a financial arrangement between family members—one who is lending and another who is borrowing. An intrafamily loan may be used to help a family member who needs money for a number of reasons:
Lending to a child or grandchild can be satisfying. Your loved ones can benefit from flexible repayment terms and interest rates while learning financial responsibility. This can be beneficial if the child or grandchild would otherwise have difficulty obtaining a loan through more traditional methods. It also gives you an opportunity to add to your investment income.
How you give or loan money to family members has potential tax implications. The right method depends on your family circumstances.
An intrafamily loan might be beneficial in estate planning for wealth transfers between generations while minimizing estate tax implications. Further, by using an intrafamily loan to provide money to a family member rather than making a gift, you can maintain control over the principal amount and how it is used.
Intrafamily loans are valuable tools for preserving wealth and offer the following advantages:
Under current tax law, gift and estate taxes are not imposed on gifts up to $13.61 million for individuals and $27.22 million for married couples in 2024. While many people's net worth is not that high, intrafamily loans may be a great option for high-net-worth families.
If the family member receiving the loan invests the money and the investment returns on the borrowed funds exceed the interest rate charged, the excess growth is passed to your family member without being subject to gift or estate taxes. This strategy preserves your lifetime estate tax exemption amount as long as all of the formalities of issuing a loan are observed. However, the initial loan amount (the principal) and interest owed to you will still be included in your taxable estate because the principal and interest are legally required to be paid to you. However, as previously mentioned, the growth in the investment will not be included in your taxable estate.
You might also consider loaning the money to a trust for the benefit of your family member as part of your planning strategy. As opposed to the strategy of loaning funds directly to your family member, the loan would be made to the trust. If the rate of return from investing the loan proceeds exceeds the loan's interest rate, the excess is considered a tax-free transfer to the trust.
With intrafamily loans, you have the flexibility to set the interest rate at a level lower than commercial lenders, as long as the rate is not below the Applicable Federal Rate (AFR) (read below for further discussion on the AFR). The cost savings for the borrower can be significant. Further, if the AFR is high when you initially make the loan, it may be easier to reissue the note from you to take advantage of any future lower interest rates than it would be to refinance a note from a third-party lender.
Intrafamily loans can play a crucial role in transferring a family business from one generation to the next. By providing financing to family members who wish to take over the family business, for example, you can ensure a smoother transition and help sustain the family legacy.
Determining the interest rate for your intrafamily loan is crucial to avoid unnecessary tax consequences. The Internal Revenue Service (IRS) publishes AFRs monthly, broken down into three tiers for short-term, mid-term, and long-term rates. Rates can be fixed or variable and structured to the advantage of both parties. The minimum AFR rate must be charged for loans over $10,000 regardless of a loved one's credit rating, and it is usually lower than most commercial lenders. If the interest rate for your intrafamily loan is below the AFR, the IRS may require you to pay income tax on the income you should have received under the applicable AFR even though the borrower did not pay you that amount (called imputed interest). Also, the amount of interest you did not collect but should have may also be considered a taxable gift to the borrower, potentially reducing the amount of gift and estate tax exemption available to you.
Since the IRS generally assumes that wealth transfers between family members are gifts, it is essential to have the proper documents showing that the transfer is intended to be a loan. You and your family member must sign a promissory note that adheres to the state-specific rules to properly document the loan transaction.
A comprehensive written promissory note is crucial. It helps avoid unnecessary tax consequences and clearly communicates the terms of the loan between family members to avoid misunderstandings and conflicts.
Every financial decision has the power to strain family relationships. When trying to determine if an intrafamily loan is right for your situation, ask the following questions:
You must carefully consider the decision to gift versus use intrafamily loans, including the income, estate, and gift tax implications. The tax rules regarding intrafamily loans are complex and may result in unintended consequences if the loan is not done correctly. If you already have an intrafamily loan in place, it is important to properly document it in your estate plan to ensure that everything will proceed smoothly if you pass away before the loan has been paid back. We are happy to meet with you and your tax advisor to make sure that this strategy is right for you and your family.
2025-04-02 by Sue Hunt
Approximately three-fourths of Americans do not have a basic will.[1] Many of the same people also have children under the age of 18, which underscores a major misunderstanding about estate plans: They can accomplish much more than just handling financial assets (money, accounts, and property).
One of the most important estate plan functions for parents of minor children is the ability to provide specific guidance about how their children will be cared for and who will care for them in case something happens to the parents.
To account for all emergency contingencies concerning you and your children, your estate plan should form a comprehensive safety net that addresses your children's care needs and protects them from the unthinkable.
Three Tools You Need If You Have Minor Children
As parents, we instinctively strive to shield our children from harm and set them up for success, now and in the future.
While we cannot predict the future, we can prepare for it. Estate planning is a crucial step in this preparation, especially when minor children are involved. It is not only about distributing your money and property after your death; it is also about establishing ways to care for your children if you no longer can.
Your death or incapacity (inability to manage your affairs) from a sudden illness or accident is a situation that you would likely rather not think about but must consider in preparing for worst-case scenarios that could lead to a court deciding who cares for your child.
Data on parental mortality is sobering: More than 4 percent of minor children have lost at least one parent.[2] If you wait too long to create your estate plan, it could be too late. More than any other reason, Americans cite procrastination as the reason they do not have an estate plan.[3] Procrastinating on creating your estate plan could mean it will not be there when you—and your children—need it.
To safeguard your children's future, three estate planning tools are particularly important: a will, a power of attorney for minors, and a standalone nomination of guardian.
Last Will and Testament
A last will and testament (also known as a will) is a cornerstone of any estate plan, but it takes on added importance when you have minor children. Your will outlines your wishes regarding the distribution of your money and property after your death. It also allows you to do the following:
Power of Attorney for Minors
A power of attorney for minors, sometimes called a designation of standby guardian or something similar depending on the state, is a legal document that empowers a chosen individual (your agent or attorney-in-fact) to act for your minor child on your behalf. This person steps in to make decisions regarding your child's care if you become incapacitated or unavailable.
The power of attorney can grant the agent broad authority to handle various aspects of your child's life, including the following:
Although the power of attorney grants the agent significant authority, there are limits to what it permits. The agent cannot consent to the child's marriage or adoption. In addition, many state laws impose expiration dates on these documents (e.g., six months, one year), so it is important to review and update them regularly to ensure that they remain valid.
Revocable Living Trust
In addition to a power of attorney, nomination of guardian, and will, the parents of minor children might consider a revocable living trust that holds their accounts and property during their lifetime and distributes them after their death.
You (the parent) maintain control of the accounts and property in the trust while you are alive as the current trustee. You can change the trust's terms as needed because you are the trustmaker, and this type of trust is revocable. A revocable living trust can help avoid probate and give your children faster access to the resources they need. You can also specify how and when your children receive their inheritance, name a successor trustee to continue management of the trust if you suffer incapacity, and provide financial support for the guardian, further synergizing your estate plan.
How These Tools Work Together—and What Can Happen If You Do Not Plan
These three estate planning tools are not interchangeable; they are complementary and designed to work together to address immediate and long-term needs in a range of potential scenarios.
Imagine a scenario where both parents are in a car accident. One parent dies, and the other is severely injured and temporarily incapacitated. The agent named in the temporary power of attorney or delegation of standby guardian immediately steps in to temporarily care for the children.
If the injured parent passes away, the designated guardian (who may be the same person as the agent under the temporary power of attorney) named in the will or standalone document can provide the children with a stable permanent home. The will can be structured so that the children's inheritance is managed through a trust that specifies how and when their inheritances should be spent and distributed.
Failure to have any one of these estate planning tools can lead to complications and unintended consequences for your minor children. For example:
Other Planning Tools and Tips for Parents
Parents should understand that they can only nominate a guardian for their child, not legally appoint one; the court has the final authority to decide, though it gives significant weight to the parents' nomination.
If there is evidence that your chosen guardian is unfit or unable to provide proper care, the court may appoint a different guardian in the child's best interest, even if it goes against your wishes. There is also the chance that a family member could contest your guardianship choice or your first choice of guardian is unavailable.
These outcomes are unlikely, but since they could undermine your wishes, there are additional steps you can take to minimize the risk and strengthen your case.
Fitting Together the Pieces of Your Estate Plan
Each part of an estate plan has a role to play, but they work best when considered as parts of a larger plan that addresses big issues such as the well-being of your minor children.
A will, temporary power of attorney, and standalone guardian document are not interchangeable; they are complementary. Incorporating all three into your plan, alongside other strategies such as a revocable living trust and a letter of intent, addresses the immediate and long-term needs of your minor children in any eventuality.
If you have minor children, estate planning is a necessity. Do not leave your children's future to chance. Consult with us to create a multipoint plan that protects you and your family.
[1] Victoria Lurie, 2025 Wills and Estate Planning Study, Caring (Feb. 18, 2025), https://www.caring.com/caregivers/estate-planning/wills-survey.
[2] George M. Hayward, New 2021 Data Visualization Shows Parent Mortality: 44.2% Had Lost at Least One Parent, U.S. Census Bureau (Mar. 21, 2023), https://www.census.gov/library/stories/2023/03/losing-our-parents.html.
[3] Lurie, supra note 1.
2022-08-19 by Sasha Hartzell
The recent economic rollercoaster has us all nervously checking our investments. Words like "recession," "inflation," and even "war" have slipped into our every day, following us as we talk to friends, read the news, scroll social media. A trip to the grocery store has become an exercise in restraint, carefully navigating increased prices, and last year's low interests rates are long forgotten.
Suffice to say, the future feels a little less certain these days. And when uncertainty reigns, plans bear reassessing. For most of us, there's one plan that we all have in common: growing old. Whether it's retiring to the beach, finding that perfect community home, or moving in with our children, our plans for old age are incomplete without accounting for long-term care. As our economy flirts with recession, however, paying for that long-term care may feel overwhelming. That's where Medicaid comes in.
Let's start at square one: what exactly is Medicaid? Medicaid is a needs-based health care program with extremely low to no deductibles. Every state has their own version of Medicaid, governed by federally mandated minimum benefits. In North Carolina, low-income adults, children, pregnant women, seniors, and people with disabilities are generally eligible for a Medicaid health care plan (those who already receive Supplemental Security Income or State/County Special Assistance for the Aged or Disabled are automatically eligible). Currently, around 2.3 million individuals are enrolled in NC's Medicaid plan — that's almost one out of every four state residents!
The level of care an individual needs is based on their ability to engage in the Activities of Daily Living (walking, bathing, eating, dressing, etc.). For elderly recipients who need assistance with at least three of these activities, Medicaid will pay for long-term care, such as the costs of a nursing home and medications. In NC, there are even Medicaid programs for in-home and community-based services.
Sounds idyllic, right? Of course, there are significant catches. The first is straightforward: Medicaid is exclusively for low-income individuals. Once you start looking into exactly what "low-income" means, however, things can get a little more complicated. In North Carolina, Medicaid eligibility has both an income and an assets cap, and the income limit is based on several factors such as your marriage status and what type of care you need.
Let's say you're 65 years or older and you want to apply for full Medicaid coverage through Medicaid's Aged MAA. As of April 2022, your income cap for eligibility would be $1,133 per month, with an asset limit of $2,000. If you're applying with a spouse, those numbers would increase to $1,526 (joint income) and $3,000 (joint assets).
It's important to note that Medicaid defines income rather loosely — beyond employment wages, income encompasses alimony payments, pension payments, Social Security Disability Income, Social Security Income, IRA withdrawals, and stock dividends. Assets, meanwhile, include cash, stocks, bonds, investments, IRAs, savings, checking accounts, and any real estate that is not a primary residence. Luckily, quite a few assets are exempt from this limit - personal belongings, household furnishings, one car, and the applicant's home aren't counted (*as long as applicant's home equity interest is less than $636,000 and they, or their spouse, actively reside there).
Of course, these stipulations are just broad strokes - there are many additional factors to account for. For example, Medicaid's Institutional / Nursing Home program, which covers the cost of a nursing home, has different income limits. Or maybe you're married, but only your spouse is applying for Medicaid. For Aged MAA, your income would count towards their eligibility, but not for the Nursing Home program. And then there's the huge asterisk — even if you don't meet the specific criteria, you may still be eligible if you can meet the medical deductible or spend down.
Once you've sifted through the maze of eligibility, you should have a general idea of the finances you'll need to benefit from Medicaid's programs. Now it's time for Catch #2: The 5 Year Look-Back. In North Carolina, every financial transaction a Medicaid applicant made within the five years (60 months) prior to their application is thoroughly reviewed.
Remember, Medicaid is a government program. Before the government steps in to foot the bill, they expect applicants to fully exhaust their own funds. During the look-back process, Medicaid ensures an applicant's assets have not been transferred for below market value at any point in the preceding five years. Every financial transaction is categorized as either compensated or uncompensated — to disincentivize applicants from hiding, moving, or giving away assets to qualify for Medicaid, uncompensated transactions are penalized accordingly.
Such uncompensated transactions are common and can be quite unintentional, such as large monetary gifts (even for special events), transfers of real property to family members, or collections or valuables sold under-value. Medicaid counts these gifted, donated, or under-sold asset as funds that could have been used to pay healthcare-related costs, and suspends Medicaid eligibility for applicants who made such transfers within the preceding five years.
The amount of time an applicant is determined ineligible for Medicaid is known as the "penalty period," and corresponds to the total value of uncompensated assets transferred. To calculate the penalty period, this total value is divided by a Penalty Divisor — the average cost of private-pay nursing home care in each state. In North Carolina, this amount (as of June 2022) is $237 per day or $7,110 per month.
So, let's say you gave your $300,000 vacation home to your daughter. Technically, that $300,000 could have paid for about 42 months of nursing home care. If you gifted the house within five years of your Medicaid application, you'd be ineligible for coverage for those full 42 months. As there's no upper limit to this penalty period, it's crucial to plan well in advance for any Medicaid application. And while you'll preplanning, you'll want to start thinking about Catch #3: Medicaid's Estate Recovery Program.
Medicaid's Estate Recovery Program, or MERP is, "a program through which a state's Medicaid agency seeks reimbursement of all long-term care costs for which it paid for a Medicaid beneficiary," according to the American Council on Aging. In other words, the government wants its money back after you die.
Every Medicaid agency tracks how much is spent on every patient's care, and states are required to seek reimbursement for certain care costs, such as nursing facility services, home and community-based services, and related hospital services. To recover these costs, they lay claim to a Medicaid recipient's estate . This means that when a Medicaid recipient passes away, assets they had can be claimed by Medicaid agencies — only what's leftover after Medicaid's reimbursement (and other creditors) is disbursed to the heirs.
Thankfully, North Carolina is what's known as a "Probate Only State." This means that for NC residents, Medicaid's estate recovery is limited to assets that pass through the probate process. This can be a residence, vehicles, bank accounts, or personal possessions — really any assets owned solely by the deceased. Of course, if there are no assets that pass through probate, there's nothing for MERP to claim. Case closed.
Between its five-year look-back and estate recovery, the Medicaid process can feel like a perilous journey. Fortunately, with enough insight and planning, the pitfalls can be avoided and Medicaid's immense benefits enjoyed. Maybe you're above the income and asset limits set for Medicaid long-term care eligibility, but unable to pay for care out-of-pocket. With the right spend-down strategies, you could qualify for Medicaid without abandoning your hard-earned assets. And if you pan ahead to keep your assets out of probate, Medicaid's Estate Recovery Program is toothless.
No matter the situation, preplanning is imperative when it comes to Medicaid. At Susan Hunt Law, we can help you plan for your long-term care, navigating Medicaid eligibility while avoiding its catches. If you or a loved one are considering Medicaid, schedule a consultation at Susan Hunt Law today!
2024-06-24 by Sue Hunt
When most people think about creating an estate plan, they usually focus on what will happen when they die. They typically do not consider what their wishes would be if they were alive but unable to manage their own affairs (in other words, if they are alive but incapacitated). In many cases, failing to plan for incapacity can result in families having to seek court involvement to manage a loved one's affairs. It does not matter who you are, how old you are, or how much you have—having a proper plan in place to address your incapacity or death is necessary for everyone. Recently, comedian and late night talk show host Jay Leno had to seek court involvement to handle his and his wife's estate planning needs due to his wife's incapacity.
A conservator is a court-appointed person who manages the financial affairs for a person who is unable to manage their affairs themselves (also known as the ward). The conservator is responsible for managing the ward's money and property and any other financial or legal matters that may arise. They are also required to periodically file information with the court to prove that they are abiding by their duties. To have a conservator appointed, an interested person must petition the court, attend a hearing, and be appointed by a judge. This can be very time-consuming, and there are court and attorney costs that must be paid along the way.
In January 2024, Jay Leno petitioned the court to be appointed as the conservator of the estate of his wife, Mavis Leno, so that he could have an estate plan prepared on her behalf and for her benefit. Unfortunately, Mrs. Leno has been diagnosed with dementia and has impaired memory.[1] Her impairment has made it impossible for her to create her own estate plan or participate in the couple's joint planning. According to court documents, Mr. Leno wanted to set up a living trust and other estate planning documents to ensure that his wife would have "managed assets sufficient to provide for her care" if he were to die before her.[2] Right now, Mr. Leno is managing the couple's finances, but he wanted to prepare for a time when he is no longer able to do so.
On April 9, 2024, the court granted Mr. Leno's petition. According to the court documents, the judge determined that a conservatorship was necessary and that Mr. Leno was "suitable and qualified" to be appointed as such. During the proceedings, the judge found "clear and convincing evidence that a Conservatorship of the Estate is necessary and appropriate."[3]
Although there was a favorable outcome in this particular case, it still took several months for Mr. Leno to be appointed by the court. In addition to the initial filings and court appearances, there will likely be ongoing court filing requirements to ensure that Mrs. Leno's money is being managed appropriately. Had they prepared an estate plan ahead of time, much of this time and hassle would likely have been avoided.
While many people may dismiss the Lenos' experience as something that applies only to the rich and famous, the truth is that you could find yourself in the same situation (although with a smaller amount of money and property at play) if you are not careful. Let's use this opportunity to learn from their mistakes.
We can help you and your loved ones regardless of where you find yourself in the estate planning process. Whether you are looking to proactively plan to ensure that your wishes are carried out during all phases of your life, or if you need assistance with a loved one who can no longer manage their own affairs, give us a call.
[1] Nardine Saad & Meg James, Jay Leno Clarifies Why He Set Up Conservatorship Amid Wife Mavis' Dementia Battle, L.A. Times (Jan. 30, 2024), https://www.latimes.com/entertainment-arts/tv/story/2024-01-30/jay-leno-conservatorship-mavis-leno-dementia-will.
[2] Id.
[3] Alli Rosenbloom, Jay Leno Granted Conservatorship of Wife Mavis Leno's Estate, CNN (Apr. 10, 2024), https://www.cnn.com/2024/04/09/entertainment/jay-leno-granted-conservatorship-of-wife-mavis-lenos-estate/index.html.
