This is a short presentation on The Alabama Small Estate Summary Distribution available for estates that include no real property and assets not exceeding $30,245 (in 2020).
Here is a shout out to Alabama Governor Kay Ivey. She issued a proclamation yesterday including the following authorization for witnesses and notaries to perform their duties through videoconferencing:
“III. Notaries and witnesses
Because person-to-person contact increases the risk of transmitting COVID-19, I find that it would promote the safety and protection of the civilian population to adopt measures that reduce the necessity of in-person meetings. To that end:
A. Notaries in Alabama who are licensed attorneys or operating under the supervision of licensed attorneys may notarize signatures through videoconferencing programs and confirm signatures of witnesses who participate virtually through videoconferencing as though they were physically present at signing.
B. Any person who witnesses a document through videoconference technology may be considered an ‘in person’ witness, provided that the presence and identity of such witnesses are validated by the notary at the time of the signing by the same identifications required under current law.
C. The official date and time of the notarization shall be the date and time when the notary witnesses the signature via the videoconference technology. All documents must be returned to the notary for certification and execution.”
New times and new challenges call for new measures. I am glad to see Alabama stepping to the plate to make signing documents safer for the people of Alabama.
Sometimes the only property in an estate that is not jointly titled is a vehicle. To solve the problem of getting the vehicle transferred and to keep from having to open a formal estate administration, if the vehicle is paid off, the next of kin may file an Affidavit for Assignment of Title for a Vehicle from a Deceased Owner Whose Estate Does Not Require Probate(Alabama Department of Revenue MVT 5-6).
Title can be transferred by filing the affidavit at the tag and title office of the local probate court. If the vehicle is not paid off it will likely need to be refinanced, and the lender needs to be put on notice of the death.
You don’t really have to spend down all your resources to qualify for nursing home Medicaid. There are multiple ways to preserve funds. One of those ways is through the use of what I call the Medicaid Spend Down Special Needs Trust.
Usually persons who need nursing home care end up needing Medicaid to pay for that care. Why? Because it is so expensive. Nursing home care can cost between $6000 and $8000 depending on the specific market area in Alabama. At $7000 per month, the average nursing home resident will spend $84,000 in a year. Under these circumstances, most persons will exhaust their resources at a rapid rate rendering them unable to pay for the care they need without the assistance of Medicaid.
There are some funds a married couple can preserve for the spouse who remains at home, but there is still an amount that has to be spent down if a couple has countable assets over $25,000. A single person has to spend all of his or her resources down to $2000 before he or she can qualify for Medicaid. Using up the assets a person saved over a lifetime is known as the dreaded Medicaid “spend down.”
But what many people do not know is that there is a way to qualify for Medicaid to pay for nursing home care in Alabama without the resident having to go through a complete “spend down.” That is through the use of a pooled Special Needs Trust.
There are many types of Special Needs Trusts (SNTs), including trusts for disabled younger persons, disabled children whose parents and grandparents want to provide for their future needs, persons on public benefits who recover money from personal injury lawsuits or who inherit money when a relative dies. Each type of SNT has highly specific requirements. But what they all have in common is the goal of protecting funds for a disabled person without those funds resulting in the loss of public benefits.
With the Medicaid Spend Down SNT, instead of spending down the money required to be spent by Medicaid on nursing home care before eligibility can be established, the money is paid into a SNT and can then be used to pay for special needs not otherwise paid for by Medicaid for the disabled person once he or she becomes eligible. Medicaid eligibility can be immediately established while these funds remain available to pay for special needs for the nursing home resident.
The drawback to this type of trust is the requirement that, on the death of the person for whom the trust was established, Medicaid must be reimbursed from funds remaining in the trust up to the amount Medicaid has paid for the nursing home resident’s care. Still, creating a pool of money to meet the special needs of the nursing home resident after being awarded Medicaid is far better than simply spending down those funds before qualifying for Medicaid and leaving the resident with no resources to pay for special needs. Since Medicaid allows a nursing home resident to keep only $30 of his or her income each month to pay for personal needs, you can see how that is not enough to have needs met without families pitching in to help pay for necessary items.
An example of what the SNT funds can pay for is a private room in a nursing home since Medicaid will only cover a semi-private room. Other special needs might be items and services that can improve the quality of life for the nursing home resident such as hair salon charges, manicures, telephone, newspaper subscriptions, audiobooks, movies, recreation, medical and dental expenses not otherwise covered, special equipment like wheelchairs or specially-equipped vans; therapy or rehabilitation services; training and education, travel, electronic equipment including computers and mobile devices.
With a little planning the quality of life for a nursing home resident can be improved, and the burden for a family’s out of pocket expenses decreased.
Do not be confused with an internet search. The rules are different from state to state. Most states allow a person 65 and older to create a pooled SNT but still penalize transfers into that trust. That is not the case in Alabama.
Contact us for more information about establishing a Medicaid Spend Down SNT.
Some benefits paid by Medicaid, including expenses for long-term care after age 55, can be recouped from the recipient’s estate upon death. The federal government makes estate recovery mandatory, and each state has enacted its own rules to comply with that requirement. A new publication is available to help you understand how Alabama Medicaid Estate Recovery works and what property is at risk for being lost upon death and repayment to Medicaid. This document can be read online or downloaded and printed. It will remain available in the Publications at this web site.
No one wants to plan for it, but death is inevitable. To be sure your loved ones are protected and your assets pass as you wish, you need to understand asset titling and the probate process. This publication is Alabama specific and provides an overview of the ways property can be passed at death. This document can be read online or downloaded and printed. It will remain available in the Publications at this web site.
At the top of this page you will see a link to our Publications. There you will find an e-book recently published, Guide to Alabama Advance Directives. It can be downloaded and printed or read online. It explains the different ways a person can become an agent for another in Alabama and how to evaluate which document you may need. This e-book will remain available at Publications but is being posted here.
A recent case involving basketball star Caldwell Jones demonstrates the danger in having only one spouse’s name on a reverse mortgage. A federal appeals court has ruled that an insurance company may foreclose on a reverse mortgage after the death of the borrower, Mr. Jones, even though Mr. Jones’ widow is still living in the house. While there are protections in place for non-borrowing spouses, many spouses are still facing foreclosure and eviction.
A reverse mortgage allows homeowners to use the equity in their home to take out a loan, but borrowers must be 62 years or older to qualify for this type of mortgage. If one spouse is under age 62, the younger spouse has to be left off the loan in order for the couple to qualify for a reverse mortgage. Some lenders have actually encouraged couples to put only the older spouse on the mortgage because the couple could borrow more money that way. But couples often did this without realizing the potentially catastrophic implications. If only one spouse’s name was on the mortgage and that spouse died, the surviving spouse would be required to either repay the loan in full or face eviction.
In order to protect non-borrowing spouses, the federal government revised its guidelines for reverse mortgages taken out after August 4, 2014 to allow spouses to stay in the house as long as they meet certain criteria, including proving ownership within 90 days of the borrowers death. In 2015, the federal government allowed lenders to defer foreclosure on a widow or widower and assign the mortgage to the federal government. Advocacy groups looking at reverse mortgage foreclosures have found that despite these new regulations, lenders are still foreclosing on non-borrowing spouses. Of the 591 non-borrowing spouses who have sought help to avoid foreclosure, only 317 received assistance.
These regulations did not help Mr. Jones’ wife, Vanessa. Mr. Jones obtained a reverse mortgage in 2014 on the Georgia home he lived in with his wife. The contract defined the “borrower” to be “Caldwell Jones, Jr., a married man.” Ms. Jones did not put his wife’s name on the reverse mortgage because she was under age 62 at the time of the mortgage. Mr. Jones died later that year, and when Ms. Jones did not repay the loan, the insurer began foreclosure proceedings.
Ms. Jones sued the insurer in federal court to prevent the foreclosure, arguing that federal law prohibited the insurer from foreclosing on the house while she lived in it. Under a provision in federal law, the federal government “may not insure” a reverse mortgage unless the “homeowner” does not have to repay the loan until the homeowner either dies or sells the mortgaged property and defines “homeowner” to include the borrower’s spouse.
On appeal, the 11th Circuit Court of Appeals (Estate of Caldwell Jones, Jr. v. Live Well Financial (U.S. Ct. App., 11th Cir., No. 17-14677, Sept. 5, 2018)) ruled that the federal law in question only covers what the federal government can insure and does not govern the insurer’s right to foreclose. The court agrees with Ms. Jones that the law is intended to safeguard widows and implies that the federal government should not have insured the loan in the first place, but finds that federal law does not cover the insurer’s private right to demand immediate payment and pursue foreclosure.
When purchasing a reverse mortgage, it is always safer to put both spouse’s names on the mortgage. If one spouse is underage when the mortgage is originally taken out, that spouse can be added to the mortgage when he or she reaches age 62.
While a will is an important document to have in any estate plan, the reality is that most property passes to heirs through other, less formal means. Failure to recognize this fact can result in some unintended consequences in estate distributions.
Many bank and investment accounts, as well as real estate, can be titled to joint owners who take ownership automatically at your death. Other banks and investment companies offer “payable on death” accounts that permit owners to name the person or people who will receive the account funds when the owner dies. Life insurance, of course, permits the owner to name beneficiaries. Some real property is titled to joint owners with rights of survivorship so that when one owner dies, the other takes full ownership of the property. A future interest in property can be transferred during a person’s life, subject to a life estate held by the transferor, so that when the life estate holder dies, the property is owned by the person/s to whom the future interest was given. No probate would be necessary.
All of these types of ownership and beneficiary designations permit these accounts and types of property to avoid probate, meaning that they will not be governed by the terms of a will. When taking advantage of these simplified procedures, owners need to be sure that the decisions they make are consistent with their overall estate plan. It is not unusual for a will to direct that an estate be equally divided among the decedent’s children, only to find that because of joint accounts or beneficiary designations, the estate is distributed unequally, or even to non-family members, such as new or old boyfriends and girlfriends.
It is also important to review beneficiary designations every few years to make sure that they still reflect your wishes. An out-of-date designation may leave property to an ex-spouse, to children who disappeared from you life while other children provided care, to ex-girlfriends or ex-boyfriends, to relatives who are on means tested public benefits who will lose those benefits by inheriting, and to people who died before the owner. All of these failures to make proper designations can thoroughly undermine an estate plan and leave a legacy of resentment that most people would prefer to avoid.
These concerns are heightened when dealing with retirement plans, whether IRAs, SEPs or 401(k) plans, because the choice of beneficiary can have significant tax implications. These types of retirement plans benefit from deferred taxation in that the income deposited into them, as well as the earnings on the investments, are not taxed until the funds are withdrawn. In addition, owners may withdraw funds based more or less on their life expectancy, so the younger the owner, the smaller the annual required distribution. Further, in most cases, withdrawals do not have to begin until after the owner reaches age 70 1/2. However, this is not always the case for inherited IRAs. To further complicate matters, the spouse has a right to funds in a 401(k) that must be disclaimed by waiver after marriage to prevent their having rights to those funds even if you named someone else as your 401(k) beneficiary.
Following are some of the rules and concerns when designating retirement account beneficiaries:
- Name your spouse, usually. Surviving husbands and wives may roll over retirement plans inherited from their spouses into their own plans. This means that they can defer withdrawals until after they reach age 70 1/2 and take minimum distributions based on their age. Non-spouses of retirement plans must begin taking distributions immediately, but they can base them on their own presumably younger ages.
- But not always. There are a few reasons you might not want to name your spouse, including the following:
- He or she is incapacitated and can’t manage the account
- Doing so would add to his or her taxable estate
- You are in a second marriage and want the investments to benefit your first family
- Your children need the money more than your spouse
- Consider a trust. In some circumstances, a trust would be appropriate, providing for management in the case of an incapacitated spouse, permitting assets to benefit a surviving spouse while being preserved for the next generation. Those in first marriages may want to name their spouse as the primary beneficiary and a trust as the secondary, or contingent, beneficiary. Transferring assets to a trust can also be used to plan for long-term care expenses if planning is done early enough (five years before you or your spouse need nursing home care).
- But check the trust. Most trusts are not designed to accept retirement fund assets. If they are missing key provisions, they might not be treated as “designated beneficiaries” for retirement plan purposes. In such cases, rather than being able to stretch out distributions during the beneficiary’s lifetime, the IRA or 401(k) will have to be liquidated within five years of the decedent’s death, resulting in accelerated taxation.
- Be careful with charities. While there are some tax benefits to naming charities as beneficiaries of retirement plans, if a charity is a partial beneficiary of an account or of a trust, the other beneficiaries may not be able to stretch the distributions during their life expectancies and will have to withdraw the funds and pay the taxes within five years of the owner’s death. One solution is to dedicate some retirement plans exclusively to charities and others to family members.
- Consider special needs planning. It can be unfortunate if retirement plans pass to individuals with special needs who cannot manage the accounts or who may lose vital public benefits as a result of receiving the funds. This can be resolved by naming a special needs trust as the beneficiary of the funds, although this gets a bit more complicated than most trusts designed to receive retirement funds. Another alternative is not to name the individual with special needs or his trust as beneficiary, but to make up the difference with other assets of the estate or through life insurance.
- If probate will be necessary, leave an account jointly titled with your personal representative to provide expenses during probate. If your home needs to be sold, funds will need to be available to pay property tax, insurance, utilities, etc.
- Keep copies of your beneficiary designation forms. Don’t count on your retirement plan administrator to maintain records of your beneficiary designations, especially if the plan is connected with a company you worked for in the past, which may or may not still exist upon your death. Keep copies of all of your forms and provide your estate planning attorney with a copy to keep with your estate plan.
- But do name beneficiaries! The biggest mistake many people make is not to name beneficiaries at all, or they end up in this position by not updating their plan after the originally-named beneficiary passes away. This means that the plan will have to go through probate at some expense and delay and that the funds will have to be withdrawn and taxes paid within five years of the owner’s death.
In short, while wills are important, in large part because they name a personal representative to take charge of your estate and they name guardians for minor children and disabled spouses, they are only a small part of the picture. A comprehensive plan needs to include consideration of beneficiary designations, especially those for retirement plans.
Planning for long-term care is an important issue to tackle, and the latest forecast shows that the associated costs of care are reaching well beyond the average person’s means. This makes planning to save an estate an important proposition, and the earlier the planning, the greater the options.
The median cost of a private nursing home room in the United States has increased to $97,455 a year, up 5.5 percent from 2016, according to Genworth’s 2017 Cost of Care Survey. Genworth, an insurer, surveys and publishes long-term care prices across the country annually and provides a benchmark for what caregivers will need to finance long-term care. The company reports that the median cost of a semi-private room in a nursing home is $85,775, up 4.44 percent from 2016.
The price rise was slightly less for assisted living facilities, where the median rate rose 3.36 percent, to $3,750 a month. The national median rate for the services of a home health aide was $22 an hour, up from $20 in 2016, and the cost of adult day care, which provides support services in a protective setting during part of the day, rose from $68 to $70 a day.
For Alabama, the Genworth survey reports that the average semi-private nursing home room in 2017 was $72,996 per year/$6,083 per month (up from $71,172 per year/$5931 per month from 2016), and the average private nursing home room was $77,568 per year /$6,464 per month (up from $75,192 per year/$6,266 per month in 2016). The average assisted living facility was $36,684 per year/$3,057 per month (up from $34,800 per year/$2,900 per month in 2016).
Alaska continues to be the costliest state for nursing home care, with the median annual cost of a private nursing home room totaling $292,000. Oklahoma again was found to be the most affordable state, with a median annual cost of a private room of $63,510.
The 2017 survey was based on responses from more than 15,000 nursing homes, assisted living facilities, adult day health facilities and home care providers. The survey was conducted by phone during May and June of 2017.