True or false? Your will controls who inherits all of your assets upon your death.

You may be surprised to learn the correct answer is false when it comes to certain assets that have a beneficiary designation. In those cases, the beneficiary designation takes precedence.

A primary beneficiary is an individual or entity that you assign to receive the proceeds from a financial account or arrangement upon your death. A contingent beneficiary is the next person to receive the assets should the primary beneficiary pass away. A beneficiary designation is considered a contractual agreement that even a will cannot override.

For life insurance policies, retirement accounts (i.e., 401ks/403bs, IRAs, etc.), Health Savings Accounts (HSAs), and trusts, the beneficiary you name inherits the account assets, generally regardless of what your will states.

For checking or savings accounts, or CDs, you may name a payable on death (POD) beneficiary. For an investment account, you may name a transfer on death (TOD) beneficiary. When you pass away, the beneficiary can simply access the money (to make it easier to cover funeral expenses and such) and bypass probate.

What if you don’t name a beneficiary when one may be named, or one is named but passes away before you do? For a life insurance policy or an IRA – Roth or traditional, the account balance becomes part of your estate and is subject to probate. Similarly, when a beneficiary is named for a POD or TOD account and that individual passes away before you, assets will revert to your estate, negating the primary purpose of such accounts – to bypass probate.

The situation becomes more complex if the beneficiary of your estate is a minor (who can’t claim assets until age 18) or an individual with special needs (who may lose eligibility for government benefits after receiving an inheritance). In such situations, trust may be a solution.

Just as it’s important to review your estate plan annually to ensure your financial legacy is carried out according to your wishes, it’s also important to regularly review beneficiary designations. Situations that may warrant a change in beneficiaries include major life events such as marriage, divorce, the birth of a child, the death of a previously named beneficiary, or a significant change in financial status.

If you overlook this responsibility, assets may not get distributed according to your wishes at the time of your passing. There are numerous stories about ex-spouses being life insurance beneficiaries or the youngest child being the only child not named on an account because beneficiary designations were never updated. If you don’t have children or a spouse, failing to name beneficiaries or not having a will means that state laws govern to whom your assets go.

To ensure your financial legacy is carried out the way you want, be sure to review your beneficiary designations – and overall estate plan – annually. If you need assistance, have questions, or want to schedule an estate planning consultation with RBT CPAs, email irahilly@rbtcpas.com or call 845-567-9000 and ask for Ita. You’ll see why you and RBT CPAs can be Remarkably Better Together. RBT CPAs is also available to handle your accounting, tax, audit, and business advisory needs. Give us a call today.

RBT CPAs is proud to say 100% of its work is prepared in America. Our company does not offshore work, so you always know who is handling your confidential financial data.

In truth, none of us know what type of medical care we’re going to need in the future. Some may need none and some may need care for years. We just don’t know. What we do know is that future healthcare costs can wipe out lifetime savings, assets, and financial legacies, unless you plan in advance.

According to the NYS Partnership for Long-Term Care, the average cost of a nursing home in the Northern Metropolitan area (covering Dutchess, Orange, Putnam, Rockland, Sullivan, Ulster and Westchester counties) is $466 daily, $14,165 monthly, or $169,980 annually! People with significant assets (over $6 million) may be in a position to cover those costs, even for a long period of time. People with low to no assets will likely be eligible for Medicaid. What about those in between?

For those 65 and up, Medicare does not cover long-term care (LTC); it does cover short-term nursing home expenses for rehab for eligible individuals. Medicaid does cover LTC, if you’re eligible. Eligibility is based on income and total assets, with limits varying by state. For example, in New York, for Medicaid LTC coverage to kick in, the following limits apply:

• Single: a maximum of $1,732/monthly income and $31,175/total assets.
• Married with both spouses requiring LTC: a maximum of $2,351/monthly income and $42,312/total assets.

(The American Council on Aging provides a free test to determine Medicaid eligibility for the elderly. To learn more, click here.)

There is a way to protect your assets and still benefit from Medicaid – a Medicaid Asset Protect Trust or MAPT.  A MAPT is an irrevocable trust. You’ll basically shift assets to a trustee. This allows you to protect a portion of your assets for loved ones while still allowing you to qualify for Medicaid. There are a couple of caveats that are important to know.

First, states have a lookback period for Medicaid eligibility. In most states, including New York, the current lookback period is 5 years  If money or assets are transferred to a trust inside of the lookback period or simply given away, gifted, or sold for below market value, it will delay Medicaid benefits. The delay or penalty period equals the value of the funds transferred/gifted/given away/sold by Medicaid’s regional rate for nursing home care. (The regional rate varies by county and is updated annually.  Click here to see the 2024 New York regional rates.)

In basic terms, if you transfer $100,000 to an irrevocable trust two years before needing a nursing home and assume the regional rate is $10,000/month (just for simplicity’s sake), you would not be eligible for Medicaid assistance for 10 months ($100,000/$10,000) and you’d end up spending the full $100,000 you put in the trust.

On the other hand, if you establish the trust early enough and the lookback period has passed by the time you need LTC, the assets in your MAPT will not count toward your Medicaid eligibility. So, you can get LTC and protect your assets.

Second, there is a trade-off. When you establish an irrevocable trust, you designate someone else as trustee, giving them full control of your assets. You cannot change or cancel the trust in any manner. While the trustee can distribute income to you if authorized by the trust agreement, he/she will not distribute principal to you. That means you are putting 100% trust in that person.

Those are the biggest considerations. There are others. For example, when you die, Medicaid can recover funds paid on your behalf by going after assets like a house. On the other hand, assets placed in an irrevocable trust will not be included in your estate for the calculation of estate taxes or probate.

Interested in learning more about how to protect your assets and ensure you can get the medical care you may need in the future?  RBT CPAs professionals in our Estate, Trust, and Gift Practice can help.

While RBT is not a law firm, RBT CPA professionals in our Estate, Trust and Gift Practice can help you plan for future healthcare needs as part of an overall estate plan. We can help you understand your options and define a course of action; refer you to an attorney who can create related legal documents (or work with your attorney if you already have one); review legal documents to ensure they accurately reflect your wishes; and review and update your plan annually so they continue to reflect your wishes and are adapted due to any tax law changes.

Please don’t hesitate to give us a call and find out how we can be Remarkably Better Together.

RBT CPAs is proud to say 100% of its work is prepared in America. Our company does not offshore work, so you always know who is handling your confidential financial data.

Jack and Jill decided it was time to get an estate plan in place. They met with their advisor and started a gifting plan to their children, grandchildren, and great-grandchildren. Unfortunately, both Jack and Jill passed away before the plan was complete. Had they started the gifting plan just a few years earlier they could have saved estate taxes and an additional $1 million could have gone to their beneficiaries rather than to taxes. Now it’s too late.

Alexis and Skylar had been together for 30 years, built a successful manufacturing business, and had plans to travel the world when they retired. That changed when Alexis suddenly passed away at age 54. Without an estate plan and a marriage license, Alexis’ parents were named executors of her estate – not Skylar.

Trevor spent his life building a successful business with 60 employees and total annual revenue of $40 million. He never married or had children. While a niece joined his business after college, she didn’t seem to have the skillset to keep it going long-term. So, he just kept working thinking he had time to figure it all out. At 68, he passed away. A short time later, his business shut down. Now, years later, his estate is still tied up in court, lawyers’ fees are immense, and his siblings, nieces, and nephews are fighting about who gets what.

It’s never too early to put an estate plan in place, but there is a time when it’s too late. Failing to create, review, and update a plan at least once a year can have a significant impact on the people you want to take care of, the value of your estate, your tax obligations, and the legacy you leave behind. With major changes to Federal laws scheduled to take effect in just over 22 months plus the impact of New York laws, it’s even more important that you make time to create and update your estate plan now.

Estate planning is a comprehensive process to manage and protect assets during your lifetime, define how your personal affairs should be managed while you are alive, and confirm what will happen upon your death. It can include setting up trusts, arranging for powers of attorney, establishing healthcare directives, planning for potential long-term care needs, tax planning, and more.

When it comes to your business, an estate plan can foster a smooth transition of leadership and operations by including a succession plan. Estate planning allows business owners to decide who inherits their business, whether it’s family, partners, employees, or a trust. This can help prevent disputes among heirs and ensure that the business endures.

Plus, estate planning helps maximize the value of your assets that go to your beneficiaries, while minimizing tax obligations. By setting up trusts, gifting shares, or establishing buy-sell agreements, you can significantly reduce the tax burden on your heirs. This can be crucial in ensuring that your business remains viable and doesn’t need to be sold to cover taxes. What’s more, estate planning can protect a business from creditors. By strategically structuring business assets and personal assets, an estate plan can shield the business from being used to settle personal debts.

In essence, estate planning is not an option, but a necessity for every business owner. Business owners should consider estate planning as an integral part of their business strategy and seek expert advice to ensure their plans are comprehensive and legally sound.

RBT CPAs professionals in our Estate, Trust and Gift Practice can help you create and update an estate plan that gives you peace of mind in knowing you, your loved ones, and your business will be taken care of according to your wishes during your lifetime and after.

While RBT is not a law firm, we can help you create a succession plan, refer you to an attorney who can create related legal documents (or work with your attorney if you already have one), review legal documents to ensure they accurately reflect your wishes, and review and update your plan annually so they continue to reflect your wishes and are adapted due to any tax law changes.

If you’re interested in learning more, getting started, or reviewing plans you may already have in place, please don’t hesitate to give us a call and find out how we can be Remarkably Better Together.

RBT CPAs is proud to say 100% of its work is prepared in America. Our company does not offshore work, so you always know who is handling your confidential financial data.