Are your hard-earned assets safe? You may think they are; however, once you recognize some of the numerous hidden threats to you assets you might not be as certain that yours are safe. In an effort to encourage everyone to protect their assets through comprehensive estate planning, we at the Northern California Center for Estate Planning & Elder Law will point out several common, yet less obvious, threats to your assets.
- Nursing home/long-term care expenses – nursing home/LTC expenses average over $100,000 in California. Although Medi-Cal can provide some assistance with covering your LTC costs, you must first qualify. Because Medi-Cal is a needs based federal/state program, the program uses both income and asset limits when determining eligibility. The asset limit is very low as a general rule. An unmarried individual cannot have “countable resources” valued at over $2,000 or their application will be denied. There are different limits for married couples. Some assets, such as a home, are exempt from your countable resources; however, after spending a lifetime building up your assets, you likely have considerable assets totaling more than $2,000. If that is the case, when you apply your application will be denied and you will be expected to “spend-down” your resources before applying again. It is this requirement that potentially puts your assets at risk. The key to losing assets when you suddenly need to qualify for Medi-Cal is to include Medi-Cal in your estate plan now.
- Your divorce–a divorce could seriously threaten your assets if you do not make a conscious effort to protect them. All states acknowledge separate property in some form, usually defined as assets owned prior to marriage or inherited during the marriage. What many people do not realize, however, is that co-mingling separate property can convert it to marital property. In addition, income derived from separate property is often considered marital property. Anything considered marital property is fair game for division during a divorce unless you took steps to protect it before the marriage.
- Re-marriage of your spouse after your death — many couples create reciprocal estate plans, meaning that both individual plans call for all assets to be gifted to the surviving spouse upon death. If you have children, the agreement is that the surviving spouse will then pass down those assets to the children upon his/her death. A reciprocal estate planning approach makes sense, as long as both parties stick to the agreement. What happens though, if your spouse ends up remarrying after your death? Remember, if your assets all passed to your spouse at the time of your death, that means that when your spouse remarries he/she brings your combined assets into that new marriage. The new spouse now has a potential claim to those assets in the event of a divorce and is an heir to your spouse’s estate.
- Gift and estate taxes— the federal gift and estate tax is essentially a tax on the transfer of wealth that is collected upon the death of a taxpayer. The tax applies to both gifts made during a taxpayer’s lifetime and to assets gifted to a beneficiary at the time of the taxpayer’s death. Historically, the federal gift and estate tax rate fluctuated on a regular basis; however, under the current tax law the rate is set at 40 percent. This means that if you have a very large estate, and you do nothing to limit the impact of federal gift and estate taxes on your estate, your estate could lose almost half of its value when you die because of estate taxes.
- Incapacity — what might happen if you were seriously injured in a car accident tomorrow? If those injuries prevented you from managing your assets, who would do so for you? If you failed to plan ahead by giving someone the necessary legal authority to manage your assets, and more than one person wants to take over for you, a bitter and divisive legal battle could ensue that might create a rift in the family for many years to come as well as result in someone untrustworthy managing your assets.
- In-laws — one of the biggest potential threats to your hard-earned assets is one that most people don’t even recognize as a threat – your in-laws. The damage your daughter or son-in-law could do to the value of your estate, however, is potentially devastating. When you make an outright gift to an adult child, the assets gifted become the property of your child… and potentially his/her spouse once the gift is made. Those assets are then subject to division in a later divorce or being squandered by a spendthrift spouse.
Contact Sacramento Asset Protection Planning Attorneys
Please download our FREE estate planning checklist. If you have additional questions regarding how your estate assets might be at risk, contact us at the Northern California Center for Estate Planning & Elder Law today by calling (916)-437-3500 or by filling out our online contact form.
Timothy P. Murphy
Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.
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