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Author: torobravo2003 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 4360  
Subject: JT TEN and TOD to avoid probate Date: 11/9/2005 9:12 AM
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I've been following this board for a while but this is my first post. My parent's have been asking me probate questions lately and honestly this is not my financial area of expertise. Their net worth is about $800,000 and consists entirely of their home, stocks, and mutual funds and two annuities. Stocks, etc are about $650,000. Mom is 66 and Dad is 68.

They don't necessarily want to avoid probate but they do want that most assets avoid probate. All of their accounts are listed in both spouses name with JT TEN or JT WROS. They have listed the three children as beneficiaries or Transfer Upon Death (TOD).

So my understanding is that when one spouse dies, the accounts will go to the living spouse. When the last spouse dies, the accounts will go to the three children (TOD). My understanding is that this will avoid probate.

Is this correct or does anyone have a better idea? Yes, I know about revocable trusts but I think they want to avoid the cost, if possible. My parent's give living below your means a new meaning!

ToroBravo2000
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Author: Trini209 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1994 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/9/2005 10:44 AM
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Any assets that have a named beneficiary, such as insurance policies, retirement accounts, or accounts that are held with a TOD stipulation will avoid probate. In fact, they will even bypass wills your parents may have written.

One thing you might mention to them is that some parents give their home to their children, or have them listed as joint owners, thinking that this will make their inheriting the home easier. This is usually a mistake. If the parents keep the home in their own names, when the second of them dies, the basis of the home becomes the value at the date of death of that parent. Then, when the children inherit the home, they can sell it and no capital gains tax will be due.

Trini

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1995 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/9/2005 7:57 PM
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Your parents will still have to have their will probated for any assets owned individually.



buzman


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Author: mranderson One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1996 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/10/2005 9:04 AM
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Trini, you state it is usually a mistake to transfer a parents home to the children.

I've always understood the main reason to do this is to protect the home in case extraordinary expenses come along (medical, long term care, etc.)which exceed the cash and investments owned by the parents.

Paying taxes on the capital gains is a small price to pay when the alternative is to loose the entire home as part of the inheritance.

Mark

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Author: AlisonWonderland Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1997 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/10/2005 9:12 AM
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Paying taxes on the capital gains is a small price to pay

It may not be such a small price to pay if the parents have had the house for many years, having bought it for a small fraction of its current market value.

Sometimes a reverse mortgage can provide funds for those extraordinary expenses you mention.

~~ Alison

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1998 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/10/2005 9:35 AM
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It may not be such a small price to pay if the parents have had the house for many years, having bought it for a small fraction of its current market value.

Sometimes a reverse mortgage can provide funds for those extraordinary expenses you mention.



I think people are talking apples and oranges here. Parents give their homes to their children so that they don't have to sell the house or have it sold after they die with all the proceeds going to pay for their extraordinary medical expenses. In those cases, by transferring the house, the parents become entitled to Medicare and can get their medical paid for under that instead of having to use their own assets. They can pass the house to the children vs. not having anything left of the house to pass along because they needed to spend it for their own care.

In that case, the kids see the capital gain as a small price to pay because otherwise they'd have no inheritance at all. There are taxpayers such as myself, however, who think that a person's assets should be used to pay for their own expenses and care, and that my tax dollars should not be used to fund that care because they'd rather leave an inheritance for future generations. If they want to leave an inheritance, they should be doing that with whatever is left and not using my tax dollars instead of their own assets.

Beyond that, I have not seen anyone point out to the OP that one big reason not to transfer all the liquid assets of the estate via POD accounts that avoid probate is that such a strategy also leaves the estate without any cash to pay any expenses. That would include final expenses, creditors, probate on those assets that must be passed via will [i.e. personal property], etc. We've just gone through one of these in my DH's family, and it has been incredibly ugly. Because the estate had all the bank accounts except the checking accout as POD, something like $750k passed outside the estate to one heir. The estate had just over $7 in the checking account, but still needed to pay final expenses, estate taxes including on that $750k, probate and attorney expenses. To do that, the condo that was not jointly held had to be sold instead of passing on to an heir which had been the intent leaving the heir, believe it or not, in worse condition than if he had not inherited a penny including facing possible homelessness.

I think the OP is being foolish by not seeking competent estate planning advice and looking at putting the assets in trust so that the estate can be settled properly when the time comes, and that all the heirs get their appropriate share with one heir not losing everything because of the way the estate is structured.

I think the OP's situation is not a cut and dried as they'd like it to be.

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Author: AlisonWonderland Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1999 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/10/2005 9:43 AM
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I think people are talking apples and oranges here.

That may be, but that's how threads seem to morph.

Thanks for sharing all your financial knowledge!

~~ Alison

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Author: AlisonWonderland Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2000 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/10/2005 9:45 AM
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I think the OP is being foolish by not seeking competent estate planning advice

But perhaps posting here (and the replies) will help OP figure out the correct questions to ask.

~~ Alison

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Author: Trini209 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2001 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/10/2005 4:06 PM
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Parents give their homes to their children so that they don't have to sell the house or have it sold after they die with all the proceeds going to pay for their extraordinary medical expenses. In those cases, by transferring the house, the parents become entitled to Medicare and can get their medical paid for under that instead of having to use their own assets. They can pass the house to the children vs. not having anything left of the house to pass along because they needed to spend it for their own care.

1. Medicare does not pay for nursing home stay, other than a few days (I think it's 20) of rehab after a hospital stay. I think you ment Medicaid.

2. If you want to gift your home or other assets to your children in order to get them out of your name, so that you would qualify for Medicaid, those assets have to be out of your name for 36 months, or Medicaid can take them back from the person you gave them to.

Trini

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2002 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/10/2005 4:10 PM
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1. Medicare does not pay for nursing home stay, other than a few days (I think it's 20) of rehab after a hospital stay. I think you ment Medicaid.


You are correct. Try as I might, I can never keep those 2 straight.

2. If you want to gift your home or other assets to your children in order to get them out of your name, so that you would qualify for Medicaid, those assets have to be out of your name for 36 months, or Medicaid can take them back from the person you gave them to.


Yes, the lookback period is currently 36 months, and it was changed to make it that long because people were giving away their assets and then looking to Medicaid to pay for their care.

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Author: foolazis Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2003 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/10/2005 4:16 PM
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If you want to gift your home or other assets to your children in order to get them out of your name, so that you would qualify for Medicaid, those assets have to be out of your name for 36 months, or Medicaid can take them back from the person you gave them to

Some states have an even longer lookback period (Ohio is 5 years). My mom wants to give assets to me and my siblings and told us that we need to keep principal preservation in mind, since Medicaid can come for the money if she has to go into a nursing home in the next 5 years.

foolazis

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2004 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/10/2005 10:21 PM
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Have you been to a nursing home that accepts Medicaid?

There are good nursing homes and bad nursing homes-most of the bad nursing homes have a high percentage of Medicaid patients.


We won't even get into gift tax issues.

buzman

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Author: Trini209 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2005 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/11/2005 6:25 AM
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Have you been to a nursing home that accepts Medicaid?

There are good nursing homes and bad nursing homes-most of the bad nursing homes have a high percentage of Medicaid patients.


Very few nursing homes indeed can fill their beds with paying guests. Nursing homes near me charge close to $100k/year, and that would deplete the assets of the vast majority of patients very quickly. Nursing homes would love to have all their patients be able to pay - that would make them extremely profitable. After acquireing as many paying guests as possible, homes must fill their empty beds with Medicaid patients, and that's what makes the fees so high for patients who can pay for their services. Once you're admitted to a home, all patients must get more or less the same care (unless you can afford to pay for extra services.)

It's true that some nursing homes are better than others, but no nursing home is "good." Otherwise we'd all be looking forward to entering one. Bad things happen in the best of them. Attendants are, for the most part, minimum wage employees (which doesn't necessarily make them uncaring.) And there are too few attendants in even the best of homes. Diapering, spoon-feeding, bathing, etc. are done on a schedule - God forbid a patient soils himself soon after his scheduled diaper change.

The way for a caregiver to get the best care possible for his relative is to be present constantly to see that all necessary care is delivered, and who among us has that much time. The best we can do is choose the best home available and monitor the care as best we can with frequent visits.

We won't even get into gift tax issues.

Very, very few people placed in nursing homes have assets large enough to incur gift taxes! The vast majority by far have, at most, a home and some small savings. They've lived frugally all their lives and hope to leave the little they have to their children and grandchildren.

Those of us who are wealthy enough rarely go into nursing homes at all. Qualified help is hired to take care of us in our own homes.

The rest of us can be comforted by the fact that the average nursing home stay is only about 6 months. Hopefully, something will be left for the kids.

The best we can do is to plan ahead by having a carefully worded living will and making our wishes known to our loved ones while we're still able.

Trini
Hoping I croak in my own bed.

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2006 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/11/2005 7:43 PM
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Well I hope to croak in my own bed, but none of us know the time or the day.

But to clear up a few misrepresentations

A. $70,000 is the average annual cost according to METLIFE-not $100,000.

B. The average stay in a nursing home is closer to three years not six months.

C. Impoverishing yourself in order to qualify for Medicaid is an individual's choice but it often means inferior care.

buzman




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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2007 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/12/2005 12:02 AM
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buzman writes,

B. The average stay in a nursing home is closer to three years not six months.

</snip>


Here's some unbiased data from the New England Journal of Medicine on the "Lifetime Use of Nursing Home Care"

http://www.retireearlyhomepage.com/ltcbuy.html

Three quarters of the elderly spend less than 1 year in a nursing home and the first 90 days is probably covered by Medicare. (Not the Medicaid program where you have to be impoverished.)

intercst

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Author: Trini209 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2008 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/12/2005 6:26 AM
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A. $70,000 is the average annual cost according to METLIFE-not $100,000.

Perhaps that's true nationwide. I live on Long Island in NY, and $100k is more like an accurate figure here.

If my home weren't swarming with kids and grandkids all the time, I'd move somewhere cheaper. Everything's expensive here!

Trini

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2009 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/12/2005 10:37 AM
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Three quarters of the elderly spend less than 1 year in a nursing home and the first 90 days is probably covered by Medicare. (Not the Medicaid program where you have to be impoverished.)

intercst


Great point, the article addresses skilled nursing home facilities but does not cover assisted living facilities or in home care. Also, I believe-but I am not sure-Medicare limits are more stringent than 90 days in a skilled nursing facility.

My point is to impoverish yourself to qualify for Medicaid often guarantees the impoverishee inferior care.

In Florida a lot of agents use scare tactics to A. Get people to buy LTC insurance and B. Buy creditor proof Variable annuities and call it Medicaid planning.

buzman

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2014 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/18/2005 11:25 AM
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Trini209,

You wrote, Any assets that have a named beneficiary, such as insurance policies, retirement accounts, or accounts that are held with a TOD stipulation will avoid probate. In fact, they will even bypass wills your parents may have written.

Sorry to post so late; but I've not been keeping up with my TMF boards lately ... and I just saw this thread on HotTopic.

You should know that beneficiary designations don't always have the intended effect. In many states creditors have precedence over beneficiaries. Also, once the executor claims a deceased's asset, the beneficiary designations are generally ignored by the court. What matters at that point are the directions in your Will.

In Texas, this is a fairly grey area of law. Generally whichever party - the beneficiary or executor - presents a claim to the fiduciary holding the asset gains possession of the asset. Once the executor has control of the asset, s/he is generally bound by the need to repay creditors and the explicit terms of your Will. (In the case of insurance, who owns or is titled on the policy determines whether or not the estate has any claim on the proceeds.)

In general, beneficiary designations are only a sure thing if the deceased's estate has no creditors to pay and leaves no Will ... or at least leaves no conflicts in their Will.

- Joel

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2028 of 4360
Subject: Re: JT TEN and TOD to avoid probate Date: 11/27/2005 12:07 AM
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In general, beneficiary designations are only a sure thing if the deceased's estate has no creditors to pay and leaves no Will ... or at least leaves no conflicts in their Will.

Which is why DIY is really stupid.

buzman



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