Estate Planning Dictionary
Estate Planning legalese can be challenging. So to help you out, I regularly add to this dictionary of commonly used Estate Planning terms:
Beneficiary: a person, entity, or animal that gains a benefit from a Will, Trust, or Life Insurance policy.
Commissions: statutorily established payment to an estate Executor, Administrator and/or Trustee for properly completing their duties.
Elder Law: statutory law affecting senior citizens.
The Maki Law Firm handles a range of legal matters affecting senior citizens and/or disabled people.
Estate Plan: a collection of documents which will accomplish all of your Estate Planning goals.
Common documents include: Last Will & Testament, 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 possible amount of taxes, legal fees, and hassle.
Grantor: the person who sets-up/establishes a Trust.
Joint Revocable Trust: (for couples – married or not) One Revocable Trust for two people.
Either party has full unrestricted access to all assets in the Trust, as well as the power to change or revoke the Trust, while both parties are alive.
However, after one party dies the Joint Revocable Trust will have a provision to either: 1) make the Trust 'irrevocable' (nothing within the Trust can be changed by the surviving party); or 2) the surviving party 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 created to accept the proceeds of a Life Insurance policy.
Typically, the LI Trust will be created and a Trustee named (someone other than the Grantor).
The Trustee then purchases a Life Insurance policy, naming the Grantor as the insured, and the Life Insurance Trust/Trustee as owner and beneficiary.
When the insurance benefit is paid after the Grantor's death, the Trustee will collect the payment and add it to the Trust account and use those funds as the Trust dictates.
A key benefit of a Life Insurance Trust is that any amount the policy pays will not be counted as your estate’s assets – ideal 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 Medicaid 5-year look-back starts from the date of any Minnesota Medicaid application and “looks-back” 5 years (60 months).
All asset transfers and gifts by the person-in-need during that time-period are subject to review by Minnesota Medicaid to determine Medicaid eligibility.
Medicaid is looking for “improper” transfers of assets (basically any transfer that may have been made to preserve assets “in contemplation of” applying for Medicaid benefits).
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 can 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 improper 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 a 'Divestment Penalty Divisor' of $7,228 (updated June 1, 2018).
For example: you enter a long-term health care facility, apply for Medicaid, and Medicaid determines you made $50,000 of inappropriate transfers during the 5-year look-back period.
Medicaid could use the following calculation: $50,000/$7,228 =6.9 to determine a 'Penalty Period' of 6.9 months were you could be ineligible to receive Minnesota Medicaid long-term inpatient health care benefits.
QDOT Trust: (FOR US CITIZENS WITH A FOREIGN SPOUSE) a type of trust that allows non-citizen spouses who are not U.S. citizens to claim the marital deduction for U.S. estate-tax purposes.
Such non-citizen spouses would otherwise not be eligible for the marital deduction without a QDOT Trust.
QTIP Trust: (for married couples) enables 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.
This type of Trust can be of great to benefit individuals who have 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) two separate, but mirror-image, Revocable Trusts set up by a couple for the benefit of each other.
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).
Still have questions? Ready to start your Estate Plan?