Elder Law Horror Stories
4/05
No matter how much planning individuals do, sometimes things can go wrong through no fault of their own. Take for instance, the recent true case of a senior who was looking to protect her home in the event she ever had to go into a nursing home. She originally paid about $40,000.00 for her home and it is now worth in excess of $600,000.00. She went to a real estate attorney with no experience in elder law and asked him to transfer her property to her children. The real estate attorney prepared and filed a deed without considering that the family would eventually be looking at about $540,000.00 in capital gains and would have to pay the applicable capital gains tax on this transfer. The proper and simple solution to this problem would have been to include a life estate for the senior which would have not only guaranteed that she could live in her house forever but would have also provided her children with a stepped-up tax basis and no capital gains tax issues.
Another true story involved a wealthy gentleman is his fifties who had a solid Estate Plan drawn up by his attorneys and who had structured his assets with his wife so that when one of them died a portion of the assets would have been placed into a credit shelter trust thereby savings tens of thousands in Estate Taxes. The man was diagnosed with cancer and believing, due to his age, that he could spend years in a nursing home, he decided to transfer all of his assets into his wife’s name for asset protection purposes. Unfortunately, he died two weeks after his diagnosis. Since he had already transferred his assets, he could no longer fund his credit shelter trust and the solid Estate Plan which would have helped save on Estate Taxes, was no longer effective. Fortunately, not all was lost because of the Wife’s age and life expectancy, other Estate Planning techniques can be used to help this family.
Unlike this gentleman who originally had a solid plan and followed through by restructuring his assets so that the credit shelter trusts could be funded, many people spend lots of money on Estate Plans but fail to follow through on the necessary steps to make sure the Estate Plan will be effective and meet their objectives. In many cases it is poor advice by the attorney drafting the plan and in some cases it is simply a failure to follow the attorney’s instructions. The failure to fund trusts is one of the most common mistakes in Estate Planning. People spend thousands of dollars having Trusts drafted but then do not change the deed to their home or re-title their bank accounts or brokerage accounts to reflect that the assets are held in trust. After their death, it is discovered that the Trusts were rendered useless and that the Estate must pass by Will or the laws of intestate succession. Another common mistake in this area is where a house is properly placed in Trust name, but the homeowner’s policy on the house remains in the individual owners names. This can be cause to deny coverage in the event of a fire or other catastrophe. When undertaking any type of Estate Plan it is imperative that you get good advice and then follow through on it.
A recent Elder Law horror story case that we handled occurred when an older brother who received power of attorney from his mother decided to transfer all of the assets to himself to the exclusion of his younger brother. This was not the mother’s intent and the younger brother came to our firm after this mother’s death to see if he could recoup some of the fraudulent transfers. Fortunately, the Power of Attorney drafted by a New Jersey law firm was so poorly drafted that it did not authorize any of the transfers. The case was easily settled and the younger brother received his one-half share of his mother’s estate.
The lesson to be learned from these horror stories is that you must do your homework. Make sure that the attorneys, accountants, insurance planners and investment advisors you are using are professional and competent. When meeting with your advisors, ask lots of questions. The more educated you become on a subject, the less likely it is that you will end up with your own horror story.