WHAT ESTATE PLANNING TERMINOLOGY DO I NEED TO UNDERSTAND?

Wills

Will

A legally enforceable declaration of how someone wishes their property to be distributed when they die and who they choose to carry out those wishes.

Pour-Over Will

A Pour-Over will is a Will that directs a decedent’s assets into a trust if those assets were not titled in the trust during the decedent’s lifetime.

Living Will

When you sign a Living Will, you tell your doctors your wishes about keeping you alive artificially in specific medical situations and you authorize your Health Care Agent to consent to those procedures necessary to carry out your wishes.

Personal Representative

The person or entity appointed in a Will to carry out the decedent’s wishes and follow the Probate process.

Trusts

Trustee

The person or entity that manages the assets in a trust.

Funding

The process of transferring title of your assets into a trust. This is known as funding a trust.

Revocable Living Trust

A trust in which assets are titled (funded) which contains directions for the use of those assets during the lifetime of the trust maker and the distribution of those assets upon the trust maker’s death. Assets held in the trust transfer to beneficiaries privately and without probate.

Irrevocable Life Insurance Trust

A trust created to own and control a term or permanent life insurance policy or policies while the insured is alive, as well as to manage and distribute the proceeds that are paid out upon the insured’s death. When properly drafted, an irrevocable life insurance trust can be used to shield life insurance cash value and proceeds from being included in the value of a decedent’s estate for estate tax purposes and Medicaid eligibility.

Charitable Remainder Interest Trust

A trust in which donors transfer property to a charitable trust and receive an income stream from the transferred property for the trust’s length. Capital gains taxes are avoided on the transferred property, and the donor receives a charitable income tax deduction.

General Terminology

General Durable Power of Attorney

When you implement Power of Attorney, you are appointing someone else to act on your behalf for matters that do not concern medical decisions. This person is also known as your Agent or your Attorney-in-Fact. A General Durable Power of Attorney sets out the general (as opposed to medical) powers you are granting to your Agent. It authorizes them to act even after you become incapacitated.

Power of Attorney for Health

When you sign a Power of Attorney for Health, you appoint someone else to act on your behalf for medical matters. This person is known as your Health Care Agent. For more information, continue reading about everything you need to know about Power of Attorney.

Probate

Probate is a court procedure used to change a deceased person’s assets to their beneficiaries. Creditors of the deceased may also file claims in the probate proceedings. If you pass away with no Will or estate plan, your estate will go through the probate process. For an in-depth understanding, continue reading about what Probate is.

Annual Gift Tax Exclusion

The amount of money that one person can transfer to another during a calendar year without being required to file a gift tax return or reducing their unified credit for estate taxes.

Federal Estate Tax

A tax imposed by the federal government upon the estate of the deceased person. Specific exclusions and deductions are given, and then everything above a set amount is taxed.

Fiduciary

A person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust.

Generation-Skipping Tax

A tax levied on assets given to someone who is more than one generation away from the donor.

Guardianships/Conservatorships

A court-supervised proceeding to name an individual or entity to manage the affairs and assets of an incapacitated person. In incapacity planning, this is necessary. The person either did not execute a General Durable Power of Attorney before incapacity or when their General Durable Power of Attorney grants sufficient powers to the Agent to accomplish the planning goals.

Joint Tenancy

A way for multiple owners to own an asset in a way that will permit the transfer of a decedent’s share to the other joint owners without probate.

Step-Up in Basis

An adjustment in the value originally paid for an asset-based on that asset’s appreciated worth of the asset at the time of an owner’s death. Property for which someone pays $1,000 to purchase which is worth $10,000 when the owner dies will be “stepped up” to $10,000, eliminating $9,000 of gain that would otherwise be subject to capital gains tax.

What is a Divestment?

A divestment is the transfer of assets either as gifts or at less than their fair market value to reduce the value of an estate to qualify for government benefits like Medicaid.

What is Gifting Language?

This is a special language that can be drafted and included with your Trust and Power of Attorney to authorize the gifting of assets if making the gifts help you qualify for medical assistance or other government programs.

What is a HIPAA Release?

The Health Insurance Portability and Accountability Act of 2003 (HIPAA) creates privacy protections for medical information preventing doctors and hospitals from releasing your personal health information unless you otherwise specify in a HIPAA release. The HIPAA release allows the individuals you name to communicate with medical providers regarding your otherwise protected medical information.

What is Medicaid?

Medicaid is assistance from the federal government run by each state to provide financial help to individuals who need skilled nursing care. In Wisconsin, eligibility for Medicaid is determined by the value of a person’s assets.

What is Medicare?

Medicare is health insurance through the federal government. Medicare covers eligible individuals’ health care needs but does not cover long-term care housing costs if the care is necessary for longer than just rehabilitation after an illness or injury.

What is the Lookback Period?

The lookback period is a duration of time Medicaid can review to determine if you have sold assets at less than their true value or gifted assets to reduce the value of your estate and qualify you for government assistance. The current Lookback period is 60 months from application for benefits.

What is the Penalty Period?

The penalty period is the amount of time Medicaid rules that you are not eligible for benefits due to gifts or reduced value sales that occur during the Lookback Period.

Our firm is dedicated to helping clients make educated, informed decisions about their assets and will work with you and your team of financial advisors and CPAs to implement a highly sophisticated estate plan.

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