Did you Purchase your Trust From a Trust Mill?

Dear Len & Rosie,

Last year my wife and I bought a revocable living trust. We own a modest home, some stocks and bonds, three bank Certificates of Deposit, and two insurance policies that are payable to the trust.

I am the only trustee, because my wife, Gloria, was never all that good with handling money. When I die, my eldest son, Josh, will be the successor trustee. He has promised to take care of his mother after I am gone.

I want to know how it is supposed to work. How does Josh become trustee when I am gone? What if I lose my mind and wind up in a Nursing Home? How do my stock broker and the banks know that Josh is supposed to be the trustee. They might think he was some punk coming in off the street to rip us off.

Reuben

Dear Reuben,

You bought your trust from a trust mill, didn't you? Most of the time when clients who already have a trust come into our office with questions such as yours, we learn that they purchased their trust from a trust mill that didn’t even bother to explain how their trust is supposed to work.

According to your letter, you are the sole trustee and your son is the successor trustee. He will become the trustee upon your death, resignation or incapacity as directed by the language of your trust. Because we do not have a copy of your trust, I cannot tell you exactly how this is supposed to happen. This, however, is the way most revocable living trusts work:

If you die or resign, Josh would become trustee automatically. All he would need to prove he was trustee is your death certificate or your letter of resignation as trustee. There will be other documents needed to transfer specific assets such as your home and accounts to Josh as trustee.

But if you become incapacitated, it can get sticky. The question is this: Who decides whether or not the trustee has become incapacitated? Many trusts are written with provisions that one or two doctors can determine that the trustee is no longer able to handle the job. Other trusts may require the successor trustee to petition the Court for a determination of incapacity. Some trusts have no provision for the removal of a trustee, which means the successor trustee or the beneficiaries of the trust may have to ask the court to intervene. In any event, your son will have to talk to doctors and lawyers if you become incapacitated.

The easiest way to handle the issue of incapacity is to avoid it. Ideally, you should resign as trustee before you become incapacitated. Or, you and your wife could amend your trust to appoint your son as co-trustee and give him the authority to act alone. This way, if anything happens to you, he already has the ability to take care of things for you and Gloria. Of course, you must really trust your son to give him that kind of power over your property while you are still alive.

What you should do is contact the trust mill that wrote the trust for you and request an explanation. If they are not much help, and they probably won’t be, then you should consult with a local elder law attorney to review your trust. 

Len & Rosie

Understanding eligibility rules for Medi-Cal skilled nursing home benefits

Dear Len & Rosie,

My mom is in a nursing home because she needs more care than I can give her at home. After next month, she will only have her IRA to use for payments. She gets $471 in Social Security as her only income. This pays for her telephone, bills, going to dinner or a movie with a friend on the weekend, and other miscellaneous expenses. I was told when her money is under a certain amount, Medi-Cal will pay for her nursing home care. Before this happens, do we have to break her IRA to use to pay for the nursing home, or can Medi-Cal take over before that. Also what happens to her Social Security and any savings she has?

Sandy

Dear Sandy,

It’s good that you wrote us because many people in your mother’s situation would simply cash in their IRA or other retirement accounts when they don’t need to. Under the eligibility rules for Medi-Cal skilled nursing home benefits, your mother, assuming she’s not married, can have only $2,000 in non-exempt assets to qualify for benefits.

The term “non-exempt assets” is important, because there are many assets that don’t count for eligibility, and one of them is retirement accounts, including your mother’s IRA. Any retirement account owned by your doesn’t count against the $2,000 resource limit, as long as your mother is taking annual minimum distributions, which are required after she turns age 70 and 1/2, but can be started earlier if necessary.

Your mother should be eligible now if she has less than $2,000, not counting her IRA, her home, one automobile, her personal possessions, burial plot, and other miscellaneous exempt assets. If she’s a bit over the limit and hasn’t paid for her final expenses yet, she can buy a prepaid cremation or burial plan which won’t count against the $2,000 limit as long as it’s an irrevocable plan that she can’t cash in.

As for your mother’s income, when she qualifies for nursing home benefits, she will have a share of cost equal to all of her monthly income except for $35. Fortunately she’ll be able to use money from her retirement account to pay for the extra things she needs. If her retirement account runs dry, it’ll be up to you and the rest of the family to chip in to supplement the care Medi-Cal provides her.

If she qualifies for Medi-Cal benefits she should act to shelter her remaining exempt assets, because Medi-Cal will assert an estate reimbursement claim against whatever your mother owns upon her death. The IRA will be safe as long as she leaves it to named beneficiaries upon her death. If she owns a car, she should probably sign it over to one of her children sooner or later. If, however, she owns a house, then it’s very important for her to see an elder law attorney to talk about putting the home into an irrevocable trust to protect it from a future Medi-Cal estate claim.

Len & Rosie