With changing tax rates at the federal and state levels, the different types of trusts available, and planning for Medicaid care and Medicaid Estate Recovery, there are many levels to keeping an Estate Plan up to date. 

With families changing so much over the years, it is also important to take a look at who you named as executor of your will, who you have named as heirs, or how heirs will receive their inheritance.

While the new year approaches it is good to take a look at the old and make updates to reflect the new. It is common to review your estate plan with your attorney at a regular interval to make sure your legal instruments are the best fit for your future needs and the future needs of your heirs. 

Does your family have recent changes that include…

• A divorce?
• A family member who suffers with gambling or drug addiction?
• A family member with special needs?
• Likely needs of long-term care in someone’s future?
• A child who is living with and caring for you or your spouse?
• New real estate or inheritances?
• Recent deaths?

Because of legal changes in what is recommended and because of changes in your family life, you must review your estate planning every three to five years or if any major changes occur in your life or the lives of your heirs.

Let’s look at the major changes in the law and the ways that family changes could cause a need for a reevaluation of your estate plan.

Some Issues To Consider

Capital Gains Tax

If you are leaving a house to your child, you must be careful in doing so or they could end up paying capital gains taxes. There are ways to leave a house that allow it to “step up in basis”. This means that the amount the home has increased in value during the time that you owned it will not be counted as income for the child who inherits the home. 

If you bought a home in 1975 for $75,000 and it is now worth $275,000, it has increased in value $200,000. If you leave the home to a child before you die, there is no step-up in basis unless you own the property jointly. The child could end up paying 35% income tax on $200,000 just for inheriting the home and selling it.

Joint Tenancy with Survivorship

It is possible in some situations to benefit from a joint ownership situation with a child. With the law in NC in 2020, if you have a survivorship clause that allows the child to inherit upon your death, they do not pay capital gains taxes. This could save your child many thousands of dollars in taxes.

Special Needs Child

If you have recently had a grandchild who has special needs and may require a lifetime of extra income as they reach adulthood, you may want to consider developing a special needs trust that could help pad the income that Medicaid may payout to the child as an adult with special needs. As a grandparent, you are often in the best position to help a child like this enjoy a lifetime of having a level of care that is acceptable. 

Family Members with Addiction Issues

If someone in your family is struggling with an addiction such as repeated instances of needing to be bailed out of credit card debt, issues with drugs or alcohol, or gambling troubles, it may not be in their best interest to receive a large amount of money at once.

There are trusts that would allow you to name a Trustee who would disperse the income at the times and in the amounts that you desire the heir to receive the monies. A person whose life is out of control could blow a large chunk of money on making their life even worse than it is.

Planning for Medicaid 

If you are hoping to have Medicaid coverage for any long-term care, you will need to keep your asset levels and income low to qualify. The last thing you want to do is inherit $200,000 just to spend the money down to qualify for Medicaid. You also wouldn’t want to spend down $200,000 of your own money that you have faithfully saved over the years just to qualify for Medicaid support of long-term care.

It may be worth developing some type of trust with any additional monies you have at least 5 years before you may need to qualify for Medicaid. Medicaid has a 5 year look-back period for any assets that you transfer to someone else or transfer into a trust. If you move money during that time period, you can become ineligible for Medicaid to help with your long-term care. It is smart to transfer assets into a trust if you anticipate needing to qualify for long-term care in your future.

Avoiding Probate

The probate process in NC can be expensive and time-consuming depending on your family dynamics and how you set up your estate and your will. Often, attorneys can help you set up your estate in such a way that you can avoid probate altogether. Brokerage accounts, stocks, and bonds can have a Transfer on Death (TOD) designation.

Update Beneficiary Designations

It is also of utmost importance to make sure your beneficiary designations are up to date. If there has been a divorce, if someone has become estranged from you, if your desires have changed, it is not enough to update your will. You need to actually go in and update in your accounts who inherits each type of account. If you register an account as being payable on death to your nephew, but his wife has developed a gambling habit, you need to go in and change that designation to reflect your new wishes whatever they may be.

Passing on Real Property in NC

You can pass real property on through joint tenancy with a child or through a trust. If you have a revocable trust, you are maintaining control over your assets and can pass them on without probate. The problem with trusts is that the heirs can still end up paying income, capital gains or dividend taxes. Trusts are a complex topic to look at from all angles with an attorney who understands your unique reasons for considering a trust.

Legal Complexity

Because of the complexity of tax and inheritance laws, probate court issues, inheritance issues, and family dynamics, it is crucial to reevaluate your estate plan every few years to make sure of its relevance to your current situation. There are no hard and fast rules that apply to everyone when it comes to estate planning. What works for your best friend may not necessarily be the best path for you and your family. 

Seek Help

Always consult with a knowledgeable and experienced estate planning attorney before making major changes in your estate plan. Your attorney will know about the newest tax laws and the pros and cons of the possible ways for you to plan your estate for your future health and happiness and that of your heirs.