Estate Planning Dictionary
I understand that Estate Planning legalese can be challenging. So to help you out, I regularly add to this dictionary of commonly used Estate Planning terms:
Commissions: statutorily established payment to an estate Executor for properly completing their Executor duties.
Double-billing: the act by most other law firms of billing for Commissions and Legal Fees for the same work.
Elder Law: at the Maki Law Firm we handle a wide range of legal matters affecting older and/or disabled people, including issues related to long term care planning, Medicaid eligibility financial planning, guardianship and other related matters.
Estate Plan: a collection of documents which will accomplish all of your Estate Planning goals. Common documents include: Will, Trust documents, Durable Power of Attorney for Finances, Minnesota Healthcare Directive, Living Will and Final Disposition (Burial) Instructions.
Estate Planning: getting your assets to whom you want, when you want, the way you want, with the least amount of taxes and legal fees possible.
Irrevocable Trust: a Trust that cannot be modified or terminated without the permission of the beneficiary(ies). The Grantor, having transferred assets into the Trust, effectively removes all of his/her rights of ownership to the assets and the Trust. This is the opposite of a Revocable Trust.
Joint Revocable Trust: (for couples – married or not) 1 Trust for both spouses. Either spouse has full unrestricted access to all assets in the Trust, as well as the power to change or revoke the Trust, while both spouses are alive.
However, after one spouse dies, your Joint Revocable Trust will have a provision to either: 1) make the Trust irrevocable (nothing within the Trust can be changed by the surviving spouse), or 2) surviving spouse will continue to have full unrestricted access to all assets in the trust – including the power to change or revoke the Trust. Both provisions have pros and cons – depending on your unique situation. This is NOT the same as a Reciprocal Trust.
Life Insurance Trust: an Irrevocable Trust (typically cannot be changed after its creation) you will create the Trust and name a Trustee. The Trustee then purchases a Life Insurance policy, with you as the insured, and the Life Insurance Trust as owner and beneficiary. When the insurance benefit is paid after your death, the trustee will collect the payment, make those funds available to pay your estate’s final expenses (including estate taxes – if any, debts, legal fees, probate costs, and income taxes that may be due on IRAs and other retirement benefits), and then distribute them to the trust beneficiaries as you have instructed.
The key to a Life Insurance Trust is that any amount the policy pays will NOT be counted as your estate’s assets – preferred by most for tax and/or privacy purposes. Additionally, your Trustee will ensure the insurance proceeds will be managed according to your wishes.
Medicaid 5-year Look-back Period: the designated period of time prior to a request for MA payment of long-term care services during which transfers made by a person or the person’s spouse are evaluated. Namely, assets transferred for less than fair market value, and assets transferred with the intent of lowering overall asset value for the purpose of qualifying for Medicaid.
Medicaid Crisis Plan: your LAST option to save at least some your assets if you are in need of long-term healthcare and failed to plan for it. A properly drafted Medicaid Crisis Plan will make you eligible for Medicaid coverage by using a combination of gifts and loans that meet federal guidelines while saving 40-50% of your assets from being used to pay for your long-term healthcare.
Medicaid Penalty Period the length of time you will be ineligible for Medicaid due to inappropriate transfers during the Medicaid 5-year look-back period. In Minnesota, the penalty period is calculated by dividing the amount of the inappropriate transfer by $6,280. For example, you enter a long-term care facility, apply for Medicaid, and Medicaid determines you made $50,000 of inappropriate transfers during the 5-year look-back period. They would use the following calculation: $50,000/$6,280 =7.96. You would be ineligible to receive Minnesota Medicaid long-term benefits for 8 months after entering such a long-term care facility.
QDOT Trust: (FOR US CITIZENS WITH A FOREIGN SPOUSE) A type of trust that allows taxpayers who are not U.S. citizens to claim the marital deduction for estate-tax purposes. Spouses without citizenship are not eligible for the marital deduction without a qualifying domestic trust. QDOTs are similar to QTIP trusts in that the marital deduction is conditional upon the inclusion of assets inside the trust.
QTIP Trust: (for married couples) this type of trust is VERY popular among individuals who have children from another marriage. QTIP Trusts enable the grantor to look after his/her current spouse and ensure that the assets from the QTIP Trust are then passed on to beneficiaries of his/her choice – such as the children from a previous relationship.
Additionally, as the surviving spouse never assumes power of appointment over the QTIP Trust assets, the Trust will protect those assets from transferring to the surviving spouse’s new spouse – should he/she remarry.
Reciprocal Trust: (for couples – married or not) mirror-image revocable Trusts set up by a couple for the benefit of each other (2 Trusts). There are significant advantages of using Reciprocal Trusts over a Joint Revocable Trust (namely protection from creditors and any potential future spouses of the surviving spouse).
Revocable Trust: (also known as an “Inter vivos” Trust) the Grantor can modify or terminate the Trust at any time. This is the opposite of an Irrevocable Trust.
Single-billing: the Maki Law Firm’s practice of billing for Commissions OR Attorneys Fees – NOT both (aka Double-billing) – for Executor and Trustee Services. Work is billed for what it is – only once.