How to Plan for Long-Term Care Costs

The odds are that most of us will need long-term care. At least 52% of those over age 65 will need some type of long-term care at some point in our lives, according to a study conducted by AARP. As most of us are living longer, we’ll probably need that care for a longer period of time, as reported in the article “It’s best to plan for long-term care” from the Times Herald-Record.

Here’s the problem: ignore this issue, and it won’t go away. This is a fairly common response for people 55 and older. The size of the problem makes it a bit overwhelming, and the cost to tackle it seems unsolvable. However, not addressing it becomes even more expensive. How can we possibly pay for long-term care insurance?

Here’s a simple example: a 64-year-old woman who broke her ankle in three places. She was healthy and mobile. However, a badly broken ankle required extensive rehabilitation and she was not able to stay in her home. She has been living at a rehabilitation center and the costs are mounting. What could she have done?

There are two basic ways (with a number of variations) to pay for long-term care.

The first and most obvious: purchase a long-term care insurance policy. Only 2.7 million Americans own these policies. They are wise to protect themselves and their families.

Most families put off buying this kind of insurance, because it’s expensive at any age and stage. The average cost is about $2,170, according to the Kiplinger Retirement Report, for about $328,000 worth of insurance. That rate varies, and it should be noted that if you have a chronic condition, you may not be able to purchase a policy at all.

If a local nursing home costs $216,000 per year and you have $328,000 of coverage, you’ll run out of coverage. The average nursing home stay is about two years. As boomers age, the cost of long-term care insurance is rising, while benefits are becoming skimpier, says Kiplinger.

There are some alternatives: a hybrid life insurance plan that includes long-term care coverage.  However, those can be more expensive than regular long-term care insurance. Try about $8,000 a year for a 55-year-old, about $13,000 for a 65-year-old.

Another choice: a Medicaid Asset Protection Trust. You’ll need to work with an estate planning attorney to create and fund this trust long before you actually need it. Your assets must be placed in the trust five years before an application to Medicaid, which will then pay for your care. You don’t have to live in poverty to do this. If the care is for one person, the applicant is permitted to keep about $15,450 of assets. The spouse may also keep a home worth up to $878,000 and assets up to about $120,000. In New York State, you can keep the principle of retirement funds like an IRA or 401(k), as long as you are taking the required distribution withdrawals.

However, what if you have money to pay or need long-term care before you put assets in trust? If you live in New York, Florida and Connecticut, you have what is called “spousal refusal.” The spouse of the person in long-term care can choose not to pay for their cost of care. This can get complicated, and Medicaid will try to get funds for the care. However, an estate planning elder law attorney can negotiate the amount of payment, which may leave the bulk of your estate intact.

These are complicated matters that become very costly, often at a time when you are least able to deal with yet another issue. Speak with an estate planning attorney before you need the care and learn how they can help you protect your spouse and your assets.

Reference: Times Herald-Record (July 22, 2019) “It’s best to plan for long-term care”

Advance Planning Key for Alzheimer’s Patients

A retired physician and his wife have allowed a local television station to report their family’s journey with Alzheimer’s over the course of the last four years. The series continues with WCCO CBS Minnesota’s article “’All Lined Up Before You Need It’: Alzheimer’s Association Shares Steps for Estate Planning,” with four steps to take, if you notice that a family member is having memory lapses or trouble with simple tasks.

The Quinn family—Dr. Paul Quinn and his wife Peg—had some tough conversations years ago, when Paul’s memory was better, and when he was able to be completely honest with his wife about his wishes and what the couple would need to do moving forward.

Peg Quinn said that getting everything lined up long before it’s needed, is very important.

If there’s any sign of cognitive decline, there are legal and financial steps that must be pursued. Start with addressing the family budget and projected medical costs for long term care. If possible, gather all family members together for a planning session.

If they live in different parts of the state, or of the country, ask the family members to travel for a weekend family meeting. This is the kind of planning that is better when everyone is physically present.

Start by naming a power of attorney. It needs to be someone who is aware of the situation and will be able to make decisions on your behalf. An estate planning attorney can assist with making this decision.

Next, establish an advance directive with a focus on medical decisions. This may be the toughest part, since it is impossible to know how long someone will live with Alzheimer’s. The average patient lives four to eight years, according to the Alzheimer’s Association. The cost of care can add up fast—as much as $5,000 to $7,000 a month in some cases.

That’s why the next step—selecting an elder law estate planning attorney is so important. Planning for long-term care, qualifying for Medicaid and other benefits, is a complex challenge.

Dr. Quinn expressed his wishes to stay in his home as long as possible. However, his wife admits that he can’t stay focused on any projects for very long. The familiarity of their home makes life much easier for both of them, so they agreed early on to have in-home care, if it’s ever needed.

An estate planning attorney will help the family, by drafting estate planning documents and creating a plan as early as possible. A last will and testament must be created and executed before the person is legally incompetent. The same goes for a power of attorney and any health care power of attorney documents. Medicaid planning should be done as soon as possible, since there is a five-year look back period concerning transferring any assets.

Reference: WCCO CBS Minnesota (July 23, 2019) “’All Lined Up Before You Need It’ : Alzheimer’s Association Shares Steps for Estate Planning”

Estate Planning Smooths Life’s Bumpy Road

It’s too bad that this happened to the Franklin family, but it happens often. A family member dies unexpectedly or becomes incapacitated at a young age and they never did the right planning.  Sometimes worse, they did the right planning, but the documents are decades old, out of step with current laws and the power of attorney is so old, that no financial institution will recognize it.

The problems that these scenarios create for loved ones are stressful, expensive and take a fair amount of everyone’s time. Solutions are offered in the article “Planning for the unexpected–4 Steps to get your affairs in order” from the Post Independent.

These four steps will help make the unexpected events of life a little less challenging.

Have a will and other estate planning documents prepared.

A will is a list of instructions to the court that details how you want your possessions to be distributed after you die. It should be drafted by an estate planning attorney who is licensed to practice law in your home state. The will goes through the probate process, which takes care of your legal and financial matters. In some states, the probate process is a simple process. In others, it can be problematic. Your estate planning attorney will be able to advise you about the probate process in your area.

A revocable living trust is a useful estate planning document that is used to establish more control over your assets, while you are alive. It should also be created by an experienced estate planning attorney. At your death, assets held in your trust then pass to heirs and avoid the probate process.

Make sure you title your assets properly.

Save, Piggy Bank, Money, Coins, Finance

Once you have a will and any trusts in place, any assets you wish to have placed in the trust need to be titled correctly. If you own a property with someone else and want to be sure your share of that property goes to the other owner, you’ll need to title it jointly.

Don’t forget to review the beneficiary designations that are usually a part of your bank and investment accounts, retirement accounts and insurance policies. Any beneficiary designation will override the will. If you haven’t reviewed beneficiary designations in a long time, now is the time to do so. There is no way to undo a beneficiary designation, once you have died.

Have power of attorney agreements created.

These documents give another person, the “agent,” the power to act on your business, financial and legal affairs, if you are incapacitated. The laws vary from state to state, which is another reason to work with an estate planning attorney licensed in your state. You’ll need these documents:

  • A durable power of attorney
  • A medical durable power of attorney
  • A living will

Prepare a letter of instruction.

This is not a legally binding document, but it can provide loved ones with a great deal of clarity when you have passed. Consider including this information:

  • A list of financial accounts and account numbers and any online usernames and passwords.
  • A list of important documents and where they can be found.
  • The names and contact information for the legal and financial professionals with whom you work.
  • Your final burial and/or funeral wishes.

Once you’re done, review the documents every few years and when there are major events in your life, including births, marriages, divorces, deaths and other “trigger” events. Remember that the laws change, so don’t let too much time go by without a thorough review of your estate plan.

Reference: Post Independent (July 22, 2019) “Planning for the unexpected–4 Steps to get your affairs in order”

What Do I Need to Know Before Becoming an Estate Executor?

An executor steps in for the person who wrote the will and makes sure that all the final arrangements are carried out. When you agree to be named the executor or personal representative of an estate, it’s a big decision. It is far more significant than most people realize. There are many responsibilities to think about, before agreeing to take on the role. Investopedia’s recent article, “5 Things to Consider Before Becoming an Estate Executor” lists five things to consider before saying yes.

Last Will

  1. Complexity of the Estate. Typically, the larger the estate—which can be in terms of property, possessions, assets or the number of beneficiaries—the harder and more time consuming it will be. The best way to see how difficult the job will be, is to request to see a copy of the current will. If there are obvious red flags, like unequal distributions to children or trusts or annuities, it may be best to say no.
  2. Time Commitment. This job takes time and energy, and requires a lot of attention to detail. Truth be told, almost all has to do with the details. Before you agree to execute a will, you should be sure that you have the time to do the job. It’s also important to review your decision to serve as an executor every time your situation changes, like when you get married, have children or change locations. It’s not unusual for a testator to change executors throughout a lifetime.
  3. Immediate Responsibilities. You may agree to be an executor, thinking that it’ll be years before you have to do any work. However, that’s not always the case. You should be sure the testator is keeping a list of assets and debts and knows where the original will, and the asset list are being held and how to access them. You should also have a list of the contact info for attorneys or agents named by the testator. You can also discuss the testator’s wishes for a funeral or memorial service, including instructions for burial or cremation.
  4. Duties After the Testator Dies. This is when the executor must make funeral arrangements, locate the will, initiate probate, manage assets, pay all debts, submit tax returns and more. This can be a snap, if you’re organized and detail oriented.
  5. How You’ll Be Paid. Each state has laws on how an executor is paid. An executor is also entitled to be compensated for expenses incurred, as they carry out their responsibilities. Executors can also refuse compensation, which is common if you’re doing this for a member of your family.

It’s an honor to be asked to be an executor. It means the testator trusts you to carry out their final wishes and to see to their legacy. However, be sure that you’re up to the task.

Reference: Investopedia (June 25, 2019) “5 Things to Consider Before Becoming an Estate Executor” 

Dissolving the Mystery of Probate

Probate can be avoided with proper estate planning, or certain assets can be placed outside of the probate process.

The Street’s recent article on this subject asks “What Is Probate and How Can You Avoid It?” The article looks at the probate process and tries to put it in real-life terms.

Probate is an estate planning process that works within a probate court with a probate judge presiding over the proceedings. Usually, surviving families and other interested parties initiate a probate process, to address issues relating to the deceased individual’s estate settlement. These include:

  • The handling of the deceased’s valid will;
  • Properly citing and categorizing the deceased’s assets;
  • Appraising the deceased’s estate and property;
  • Paying off any of the deceased’s existing debts; and
  • Distributing the deceased’s property to those directed by the will (or, if there’s no will, the probate court will direct the distribution of estate assets, according to the laws of intestacy).

The executor handling the deceased’s estate will typically start the process. Here are the basic steps:

File a Petition. The estate’s executor will file a request for probate where the deceased resided.  The court will then assign a date to confirm the executor and, once that is done, the probate judge will officially open the probate case.

Notice. The executor must send a notice that the deceased’s estate is officially in probate to all applicable beneficiaries, heirs, debtors and creditors.

Inventory Assets. The executor will then collect, list and present a value for all of the deceased’s assets and supply this to the probate court.

Pay the Bills. The executor will need to pay all outstanding debts owed by the estate.

Complete Any Tax Returns. The estate may also have existing tax returns that need to be filed. An accountant can be hired by the estate to work on this, or the executor may choose to file the taxes on his or her own.

Pay the Heirs. The executor can now distribute the remainder of the estate to any heirs, according to the will’s instructions.

Close the Estate. Finally, the executor will file paperwork with the court and file to close the estate.

An experienced estate planning attorney licensed to practice in your state will be able to explain what strategies are used to avoid probate, how to remove certain assets from the process, or whether it needs to be avoided at all. In some regions, probate is swift, while in others it is long and tiresome. A local estate planning attorney is your best resource.

Reference: The Street (July 29, 2019) “What Is Probate and How Can You Avoid It?”

What Are the Biggest Estate Planning Questions I Need to Answer?

However, if you have a family, you can probably benefit from estate planning, regardless of your asset level. The Montrose Press published an article, “Estate plans can help you answer questions about the future,” that answers some of the big questions:

What will happen to my children? As part of your estate planning, you should name a guardian to take care of your children, if you pass away. You can also name a conservator–sometimes called a “guardian of the estate”–to manage the assets that your minor children inherit.

Will there be a battle over my assets? If you fail to put a solid estate plan in place, your assets could be subject to the time-consuming, expensive and public probate process. During probate, your relatives and creditors can get access to your records. They may even challenge your will. However, with proper planning, you can maintain your privacy.

Who will control my finances and my living situation, if I’m incapacitated? You can sign a durable power of attorney. This permits you to name someone to manage your financial affairs, if you’re incapacitated. A medical power of attorney lets the person you choose handle health care decisions for you, if you’re not able to do so yourself.

Will my family feel cheated if I leave significant assets to charities? As part of your estate plan, you have options. You could establish a charitable lead trust. This will provide financial support to your chosen charities for a set period. The remaining assets will then go to your family members. On the other hand, a charitable remainder trust will provide a stream of income for family members for the term of the trust. The remaining assets will then be transferred to one or more charitable organizations.

Careful estate planning with the help of an experienced estate planning attorney can answer many of the questions that may concern you.

Once you have your plans in place, you can face the future with greater clarity, peace of mind and confidence.

Reference: Montrose Press (July 7, 2019) “Estate plans can help you answer questions about the future”

Suggested Key Terms: Estate Planning Lawyer, Wills, Guardian of the Estate, Guardianship, Conservatorship, Incapacity, Charitable Lead Trust, Charitable Remainder Trust, Asset Protection, Probate Court, Inheritance, Power of Attorney, Planning, Financial Planning, Charitable Donations

Protecting Your Family’s Inheritance

The name sounds like you might be trying to keep children and grandchildren from being irresponsible with the assets you’ve amassed through a lifetime’s work, but irrevocable trusts offer a flexible solution. They are also helpful in cases of divorce, substance abuse and other situations, reports The Chattanoogan in an article titled “Keeping Your Family from Losing Its Inheritance.”

If we are lucky, we are able to leave a generous inheritance for our children. However, that doesn’t necessarily mean we should give them easy access to all or some of the assets. Some people, particularly younger adults who haven’t yet developed money management skills, or others with problems like a troubled marriage or a special needs family member, aren’t ready or able to handle an inheritance.

In some cases, like when there is a substance abuse problem, handing over a large sum of money at once could have disastrous results.

Many people are not educated or experienced enough to handle a large sum of money. Consider the stories about lottery winners who end up filing for bankruptcy. Without experience, knowledge or good advisors, a large inheritance can disappear quickly.

An irrevocable trust provides protection. A trustee is given the authority to control how funds are used, when they are given to beneficiaries and when they are not. Depending on how the trust is created, the trustee can have as much control over distributions as is necessary.

An irrevocable trust also protects assets from creditors. This is because the assets are owned by the trust and not by the beneficiary. An irrevocable trust can also protect the funds from divorces, lawsuits and bankruptcies, as well as manipulative family members and friends.

Once the money leaves the trust and is disbursed to the beneficiary, that money becomes available to creditors, just as any other asset owned by the person. However, there is a remedy for that, if things go bad.  Instead of distributing funds directly to the beneficiary, the trustee can pay bills directly. That can include payments to a school, a mortgage company, medical bills or any other costs.

The trustee and not the beneficiary, is in control of the assets and their distributions.

The person establishing the trust (the “grantor”) determines how much power to give to the trustee. The grantor determines whether the trustee is to distribute funds on a regular basis, or whether the trustee is to use their discretion, as to when and how much to give to the beneficiary.

Here’s an example. If you’ve given full control of the trust to the trustee, and the trustee decides that some of the money should go to pay a child’s college tuition, the trustee can send a check every semester directly to the college. The trustee, if the trust is written this way, can also put conditions on the college tuition payments, mandating that a certain grade level be maintained or that the student must graduate by a certain date.

Appointing the trustee is a critical piece of the success of any trust. If no family members are suitable, then a corporate trustee can be hired to manage the trust. Speak with a qualified estate planning attorney, to learn if an irrevocable trust is a good idea for your situation and also to determine whether or not a family member should be named the trustee.

Reference: The Chattanoogan (July 5, 23019) “Keeping Your Family from Losing Its Inheritance.”

Suggested Key Terms: Trust, Irrevocable, Trustee, Beneficiary, Estate Planning Attorney, Grantor, Assets, Distribution

What Estate Planning Documents Do I Need, When I’m Diagnosed with a Serious Illness?

More than 130 million Americans are living with chronic illness. Forbes’ recent article, “Estate Planning Musts When You Or A Or A Loved One Has A Chronic Illness,” says that if you (or a loved one) are living with a chronic illness, you’ll likely need the same estate planning documents most people should have.

The article discusses these key estate planning documents, along with some suggestions that might help you customize them to your unique challenges because of chronic illness. These documents might need to be altered to better serve your needs or address your challenges. It’s best to get your estate planning documents in place, soon after your diagnosis.

HIPAA Release. The Health Insurance Portability and Accountability Act of 1996 governs the requirements for maintaining the confidentiality of protected or personal health information (PHI). A HIPAA Release lets someone you trust access your protected health information.

Living Will. This is a statement of your health care wishes and can address end of life decisions, as well as many other matters. If you’re living with a chronic illness, there are special considerations you might want to make in having a living will prepared. You might alter the general language to explain your specific disease. The fact that you’re living with disease doesn’t mean you might not face another health issue. Therefore, if you make modifications, set them out as examples of specific changes but retain the broad language that might be more typically used. You can address the disease you have, at what stage and with what anticipated disease course, and how if at all these matters should be reflected. You might wish to also speak to experimental treatments.

Health Care Proxy. This is also known as a medical power of attorney. It is a legal document in which you designate a trusted person to make medical decisions for you, if you’re unable to do so. If your health challenges might result in your becoming incapacitated, you can say that the agent appointed under your health proxy is also to be named as your guardian of the person, should a guardianship proceeding ever happen. Although this may not be binding on the court, it may be persuasive.

Physician Order for Life-Sustaining Treatment (POLST). This is a document that may be included as part of your medical records. A POLST is meant for the end of life medical decisions and may not be as broad as what you might accomplish with a health proxy or living will.

Financial Power of Attorney. This legal document lets you designate a trusted person to handle your legal, tax, and financial matters, if you can’t. There are some unique considerations for those living with chronic illnesses to consider. One is the amount of control that should be given up now or at what stage. Relinquish enough control, so you can be assisted to the degree necessary, but not more than you need at any point in time. Another characteristic for your powers of attorney, is if you should sign a special power that restricts the agent’s authority to certain specified items or sign a general power that provides broad and almost unlimited powers to the agent.

A Revocable Trust. A frequent goal of a revocable trust is to avoid the publicity, costs and difficulties of probate. However, if you or a family member has a chronic illness, using a revocable trust may be a good way to provide for succession of management for your finances.

Reference: Forbes (July 5, 2019) “Estate Planning Musts When You Or A Or A Loved One Has A Chronic Illness”

Suggested Key Terms: Estate Planning Lawyer, Wills, Capacity, Revocable Living Trust, Power of Attorney, Healthcare Directive, Living Will, Physician Order for Life-Sustaining Treatment (POLST), HIPAA Release, Guardianship

Avoiding a Family Feud When Choosing a Power of Attorney

The challenge in tasking a family member or trusted friend is not just making sure they have the necessary skills, but to navigate family dynamics so that no fights occur says Considerable.com in the article “How to assign power of attorney without sparking a family feud.” Every family situation is different, but in almost all cases, transparency is the best bet.

Start by understanding exactly what is meant by power of attorney, how it functions within the estate plan, and how siblings can all be involved to some degree with the family’s decision-making process.

Power of attorney is a term that gives an individual, or sometimes, individuals, the legal authority to act on behalf of someone else. It is usually used when a person, usually a parent or a spouse, is unable to make decisions for themselves because of illness or injury. It must be noted that power of attorney relates to financial and legal decisions. There are methods to address making decisions for another person for their health care or end-of-life decisions, but they are not accomplished by the power of attorney (POA).

It should be noted that there is a distinct difference between power of attorney and executor of the estate. Power of attorney is in effect while the person who has granted the authority is alive, but unable to act on their own behalf. The executor of the estate assumes responsibility for managing the estate through the probate process. While they are two different roles, they are often held by the same person, usually an adult child who is responsible and has good decision-making skills.

There are different types of power of attorney roles. The most common is the general power of attorney, followed by the health care or medical power of attorney. The general power of attorney refers to the person who has the authority to handle financial, business or private affairs. If a parent grants power of attorney to one of their children, that child then has the authority to act on behalf of the parent.

Trouble starts if the relationship between siblings is rocky, or if major decisions are made without discussions with siblings.

It’s not easy for siblings when one of them has been granted the power of attorney. That means they must accept the inherent authority of the chosen sibling to make all decisions for their parent. The sibling with the power of authority will have a smoother path if they can be sensitive to how this makes the others feel.

“Mom always liked you best,” is not a sentence that should come from a 50 year old, but often childhood dynamics can reappear during these times.

Remember that the power of attorney is also a fiduciary obligation, meaning that the person who holds it is required to act in the best interest of the parent and not their own. If the relationship between siblings is not good, or there’s no transparency when decisions are made, things can get bumpy.

Here are some tips for parents to bear in mind when deciding who should be their power of attorney:

  • Understand the great power that is being given to another person.
  • Make sure the person who is to be named POA understands the entire range of responsibilities they will have.
  • The siblings who have not been named will need to understand and respect the arrangement. They should also be aware of the potential for problems, keeping their eyes open and being watchful without being suspicious.

Some families appoint two siblings as a means of creating a “checks and balances” solution. This can be set up so the agents need to act jointly, where both agree on an action, or independently, where each has the full authority to act alone. In some cases, this will lesson the chances for jealousy and mistrust, but it can also prolong the decision-making process. It also creates the potential for situations where the family is engaged in a deadlock and important decisions don’t get made.

Parents should discuss these appointments with their estate planning attorney. Their years of experience in navigating family issues and dynamics give the attorneys insights that will be helpful with assigning these important tasks.

Reference: Considerable.com (July 10, 2019) “How to assign power of attorney without sparking a family feud”

Suggested Key Terms: Power of Attorney, Estate Planning, Health Care Power of Attorney, POA, Fiduciary Obligation, Probate, Agent

What is Portability and How Does It Impact Estate Planning?

Let’s address the elephant in the room: the word “estate” in planning doesn’t have anything to do with the size of your home. It simply refers to a person’s assets: their home, bank accounts, a second home, investment accounts, cars, etc.

The federal estate tax, says The Times Herald in the article “Federal estate tax and portability considerations,” impacts very few people today, as a person would have to have assets that total more than $11.4 million (or $22.8 for a couple) before they have to worry about the federal estate tax.

Individuals and couples with significant assets are advised to have an estate plan created by an estate planning attorney with experience working with people with large assets There are numerous tools used to minimize the federal tax liability.

However, when one spouse dies, it is generally recommended that the surviving spouse file a Federal Estate Tax return for reasons of portability. That is because when the first spouse dies, they use a portion of the Federal Estate Tax exemption, but there’s usually a portion available for the surviving spouse.

If IRS Form 706 is filed in a timely manner, the surviving spouse can “port over” or protect the remaining amount of Federal Estate Tax exemption that the deceased spouse has not used. This return needs to be filed within nine months of the date of death, although the surviving spouse can obtain an extension.

No tax will be owed, since the return is filed merely for reporting purposes. The assets in the entire estate must be reported, including everything the person owned. That may be cash, securities, real estate, insurance, trusts, annuities, business interests, and other assets. It should be noted that this will likely include probate as well as non-probate property. Appraisals and significant documentation are not usually required on a return just for portability purposes.

Why does a return need to be filed to claim the unused exemption, if no taxes are going to be paid? For one thing, the law may change and if the Federal Estate Tax exemption amount is reduced in the future, the surviving spouse will have protected their additional exemption amounts for his or her heirs. If the surviving spouse remarries and acquires significant assets, they will need proof of their exemption. The surviving spouse might own land or other property that increases dramatically in value. Or, the surviving spouse may inherit a large amount of assets.

Completing an IRS Form 706 for portability is not a complex task, but it should be done in conjunction with settling the estate, which should be done with the help of an estate planning attorney to be sure any tax issues are dealt with properly. In addition, when one spouse has passed, it is time for the surviving spouse to review their estate plan to make any necessary changes.

Reference: The Times Herald (July 7, 2019) “Federal estate tax and portability considerations”

Suggested Key Terms: Estate Planning, Portability, Exemptions, Federal Estate Tax, Inheritance, IRS Form 706, Surviving Spouse

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