November Asset Protection Newsletter

Whether your estate is large or small, you should designate someone to manage your assets and make health care and personal care decisions for you, just in case you become unable to do so for yourself.

If your estate is small, you may simply focus on how your assets are titled, who will receive your assets after your death and who should manage your estate, pay your last debts and handle the distribution of your assets. If your estate is large, your estate planning lawyer will also discuss various ways of preserving your assets for your beneficiaries and of reducing or postponing the amount of estate tax which otherwise might be payable after your death.

If you fail to plan ahead, a judge will simply appoint a special representative, at a high fee or percentage of your asset value, to handle your assets and personal care. Then, your assets will be distributed to your heirs according to a set of your state’s laws and rules for distribution known as intestate succession. Contrary to popular myth, everything does not automatically go to the state if you die without a will. Your relatives, no matter how distant, and, in some cases, the relatives of your spouse will have priority in inheritance ahead of the state. Still, they may not be your choice of heirs; an estate plan gives you much greater control over who will inherit your assets after your death.

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Somehow over the years the terms Medicaid Friendly Annuity and Medicaid Compliant Annuity have entered the planning lexicon. Most advisors without much background in this work use them interchangeably – but they really have different meanings. If you are not aware of the difference or why you should never use the term Medicaid Friendly Annuity, I encourage you to read on.

Annuities have been used as a valuable planning tool to help many families convert excess resources into an income stream and qualify for long-term care Medicaid benefits. The original doctrine on annuities came down in the form of HCFA Transmittal 64. These rules were in conjunction with the implementation of a 3-year look back period contained in OBRA 93. It laid down a set of things an annuity stream must include in order to not be considered a transfer for less than fair-market value – which would cause a transfer penalty.

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China has implemented several real estate price stabilization measures over the past few years, but they seem to have had little impact on the ever- expanding property bubble. Tax revenues from stamp tax duties are producing more income in top-tier cities than anticipated, but then, there is still a housing frenzy. Prices have not dropped in Hong Kong, where in the last year the government introduced three stamp taxes on property sales, and the mentality of housing commodity traders seems to be that prices may never go up but they will not go down either. Residential property prices in Beijing, Shanghai, and Guangzhou — China’s three biggest cities — jumped 20 percent in August in spite of current restrictions on speculative buyers, according to a September 18 article in the Financial Times.

When real estate transactions are restricted in first- tier cities, speculators turn to fourth- and fifth-tier cities for short-term investment. There is no question that developers are turning to lower-priced mass-market homes instead of high-end properties, and that speculators have created a bubble for those mass-market properties. Well, who is going to stop them? There is no method of tracking who is buying what, negating policies that restrict the number of homes one can buy. Real estate, including land and resources, housing, urban-rural development, and agriculture and forestry, is registered through a multitude of national and municipal departments with absolutely no coordinated control. 

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November | 2013