Do Name Changes Need to Be Reflected in Estate Planning Documents?

When names change, executing documents with the person’s prior name can become problematic. For example, what about a daughter who was named as a health care representative by her parents several years ago, who marries and changes her name? Then, to make matters more complicated, add the fact that the couple’s daughter-in-law has the same first name, but a different middle name. That’s the situation presented in the article “Estate Planning: Name changes and the estate plan” from nwi.com.

When a person’s name changes, many documents need to be changed, including items like driver’s licenses, passports, insurance policies, etc. The change of a name isn’t just about the person who created the estate plan but also to their executors, heirs, beneficiaries and those who have been named with certain legal powers through power of attorney (POA) and health care power of attorney.

It’s not an unusual situation, but it does have to be addressed. It’s pretty common to include additional identifiers in the documents. For example, let’s say the will says I leave my house to my daughter Samantha Roberts. If Samantha gets married and changes her last name, it can be reasonably assumed that she can be identified. In some cases, the document may be able to stay the same.

In other instances, the difference will be incorporated through the use of the acronym AKA—Also Known As. That is used when a person’s name is different for some reason. If the deed to a home says Mary Green, but the person’s real name is Mary G. Jones, the term used will be Mary Green A/K/A Mary G. Jones.

Sometimes when a person’s name has changed completely, another acronym is use: N/K/A, or Now Known As. For example, if Jessica A. Gordon marries or divorces and changes her name to Jessica A. Jones, the phrase Jessica A. Gordon N/K/A Jessica A. Jones would be used.

However, in the situation noted above, most attorneys to want to have the documents changed to reflect the name change. First, there are two people in the family with similar names. It is possible that someone could claim that the person wished to name the other person. It may not be a strong case, but challenges have been made over smaller matters.

Second is that the document being discussed is a healthcare designation. Usually when a health care power of attorney form is being used, it’s in an emergency. Would a doctor make a daughter prove that she is who she says she is? It seems unlikely, but the risk of something like that happening is too great. It is much easier to simply have the document updated.

In most matters, when there is a name change, it’s not a big deal. However, in estate planning documents, where there are risks about being able to make decisions in a timely manner or to mitigate the possibility of an estate challenge, a name change to update documents is an ounce of prevention worth a pound of trouble in the future.

Reference: nwi.com (October 20, 2019) “Estate Planning: Name changes and the estate plan”

 

How Joint Tenancy Creates Problem for Seniors

Parents putting children or other family members as joint owners of their assets. is another example of a simple solution for a complex problem. It doesn’t work, even though it seems as if it should.

As explained in the article “Beware the joint tenancy trap” from Monterey Herald, putting another person on an account, even a trusted child or life-long friend, can create serious problems for the individual, their estate and their heirs. Before going down that path, there are several issues to consider.

When another individual is placed as an owner on an account or on the title to real property, they have a legal ownership in that property equal to that of the original owner. This is called joint tenancy. If a child is made a joint tenant on a parent’s accounts, they would be entirely within their rights to withdraw every single asset from those accounts and do whatever they wanted with them. They would not need the original owner’s consent, counsel, or knowledge.

Giving anyone that power is a serious decision.

Making a child a joint owner of assets also exposes those assets to claims by the child’s creditors. If they file for bankruptcy, the original asset owner may have to buy back one-half of the asset at its current market value. Another example: if the child is in an accident and a judgment is recorded against the child, you may have to buy back one-half of your joint tenant property at its current market value to settle the claims.

There are other complications. If one joint owner of the asset dies, joint tenancy provides for the right of survivorship. The property transfers to the surviving joint tenant without going through probate and with no reference to a will. That’s what people focus on when they try this method as an end-run around estate planning. What they don’t realize, is that if the parent dies and the asset transfers directly to the joint tenant—let’s say a daughter—but the will says the assets are to be split between all of the children, her claim on the asset is “senior” to the rest of the children. That means she gets the assets and the four siblings split the remaining assets.

If there is any friction between siblings, not having equal inheritances could create a fracture in the family that can’t easily be resolved.

Tax exposure is another risk of joint tenancy. When someone is named a joint owner, they have an equal ownership interest in those assets, as the original owner’s cost basis. When one owner dies, the remaining owner gets a step up in basis on the proportion of the assets the deceased person owned at death.

Let’s say a son and father are joint owners on an account. When the father dies, the son gets a step up in basis on one-half of the assets—the assets that the father owned. His half of the assets retains the original basis. But if that account was owned solely by the father, all the heirs will get the full step up in basis on the father’s death.

Given the complexities that joint tenancy creates, parents need to think very carefully before putting children’s names on their assets and real property. A better plan is to make an appointment to speak with an estate planning attorney and find out how to protect the parent’s assets through other means, which may include trusts and other estate planning tools.

Reference: Monterey Herald (Sep. 11, 2019) “Beware the joint tenancy trap”

 

Dark Side of Medicaid Means You Need Estate Planning

A woman in Massachusetts, age 62, is living in her family’s home on borrowed time. Her late father did all the right things: saving to buy a home and then buying a life-insurance policy to satisfy the mortgage on his passing, with the expectation that he had secured the family’s future. However, as reported in the article “Medicaid’s Dark Secret” in The Atlantic, after the father died and the mother needed to live in a nursing home as a consequence of Alzheimer’s, the legacy began to unravel.

Just weeks after her mother entered the nursing home, her daughter received a notice that MassHealth, the state’s Medicaid program, had placed a lien on the house. She called MassHealth; her mother had been a longtime employee of Boston Public Schools and there were alternatives. She wanted her mother taken off Medicaid. The person she spoke to at MassHealth said not to worry. If her mother came out of the nursing home, the lien would be removed, and her mother could continue to receive benefits from Medicaid.

The daughter and her husband moved to Massachusetts, took their mother out of the nursing home and cared for her full-time. They also fixed up the dilapidated house. To do so, they cashed in all of their savings bonds, about $100,000. They refinished the house and paid off the two mortgages their mother had on the house.

Her husband then began to show signs of dementia. Now, the daughter spent her days and nights caring for both her mother and her husband.

After her mother died, she received a letter from the Massachusetts Office of Health and Human Services, which oversees MassHealth, notifying her that the state was seeking reimbursement from the estate for $198,660. She had six months to pay the debt in full, and after that time, she would be accruing interest at 12%. The state could legally force her to sell the house and take its care of proceeds to settle the debt. Her husband had entered the final stages of Alzheimer’s.

Despite all her calls to officials, none of whom would help, and her own research that found that there were in fact exceptions for adult child caregivers, the state rejected all of her requests for help. She had no assets, little income, and no hope.

State recovery for Medicaid expenditures became mandatory, as part of a deficit reduction law signed by President Bill Clinton. Many states resisted instituting the process, even going to court to defend their citizens. The federal government took a position that federal funds for Medicaid would be cut if the states did not comply. However, other states took a harder line, some even allowing pre-death liens, taking interest on past-due debts or limiting the number of hardship waivers. The law gave the states the option to expand recovery efforts, including medical expenses, and many did, collecting for every doctor’s visit, drug, and surgery covered by Medicaid.

Few people are aware of estate recovery. It’s disclosed in the Medicaid enrollment forms but buried in the fine print. It’s hard for a non-lawyer to know what it means. When it makes headlines, people are shocked and dismayed. During the rollout of the Obama administration’s Medicaid expansion, more people became aware of the fine print. At least three states passed legislation to scale back recovery policies after public outcry.

The Medicaid Recovery program is a strong reason for families to meet with an elder law attorney and make a plan. Assets can be placed in irrevocable trusts, or deeds can be transferred to family members. There are many strategies to protect families from estate recovery. This issue should be on the front burner of anyone who owns a home, or other assets, who may need to apply for Medicaid at some point in the future. Avoiding probate is one part of estate planning, avoiding Medicaid recovery is another.

Since the laws are state-specific, consult an elder law attorney in your state.

Reference: The Atlantic (October 2019) “Medicaid’s Dark Secret”