Feeling Squeezed? You Might be a Sandwich

The phrase “sandwich generation” is used to describe people who are caring for their parents and their children at the same time. The number of people who fall into this category is growing, according to an article from The Motley Fool, “How to Help Your Parents Retire Without Derailing Your Own Retirement.” A survey found that about 16% of Americans are currently caring for an elderly relative, and this number is expected to double within the next five years.

What’s worse, very few people are planning for this situation.

Planning is the only way to stop what has been called a self-perpetuating cycle. Without planning, caring for parents could derail your own retirement, making you need the support of your children when you get older, and while your kids are trying to save for their children’s college educations and preparing for their own retirement. Sound familiar?

What can you do to prevent this cycle?

See if your parents qualify for any assistance programs. There are government and private programs to help with housing, food, utilities and healthcare. The programs vary by location and the situation of the people who are seeking help, but there is help, if you know where to find it.

If parents are over 65, there is something called Supplemental Social Security Income, or SSI. This is in addition to the regular Social Security benefits and might be enough to close the finance gap. In 2019, SSI provides up to $771 per month for an individual or $1,157 for a couple, if the requirements are met.

Cost cutting. If your parents don’t have a budget, help them create one so you can all be aware of how much money is coming in and how much is going out of the household. Could they tighten their discretionary spending? They could also consider a reverse mortgage on their home, if they have enough equity. Are you willing or able to have them come live with you?

Selling items could also free up cash for living expenses. If they have a house filled with memorabilia, or valuable antiques, and are willing to do so, they can combine downsizing with making some income.

Creating a plan. Get everyone in the room—parents, siblings and spouses. Discuss the challenges ahead and make sure that everyone is clear on what expenses everyone can help with. Housing and healthcare are necessary. Luxury cars and vacations are not.

If the adult siblings need to adjust their own spending to help the parents, be realistic with each other. How much are you able to contribute, and how much are you willing to contribute? No one sibling should have to shoulder the burden themselves, unless they are wildly wealthy, and it won’t make a dent in their lifestyle.

Along with the financial planning, make sure that your parents have an estate plan. They’ll need a will, a power of attorney for finances and a healthcare power of attorney. The cost of working with an estate planning attorney to ensure that this is in place, is far less than dealing with court proceedings, if you need to pursue guardianship or settle the estate without a will.

Reference: The Motley Fool (Aug. 25, 2019) “How to Help Your Parents Retire Without Derailing Your Own Retirement”

Can I Keep a Loved One’s Inheritance From Their Spouse?

A recent nj.com article asks, “How do I protect my niece’s inheritance from her husband?” The article says that in a scenario where someone plans to leave most of her estate to her niece but doesn’t want her estranged husband to get his hands on the money, she must be proactive to make sure the funds go where she intends them to go.

If this happens in New Jersey, the niece’s inheritance will be subject to the New Jersey inheritance tax. The tax is levied based on the relationship of the deceased to the beneficiary. In this case, the niece’s inheritance would be subject to an inheritance tax of 15 to 16%.

This inheritance tax is assessed, because the aunt is a New Jersey resident. It doesn’t matter where the beneficiary resides.

One option is for the aunt to leave the assets to the niece outright or in trust.

The laws in many states, like Missouri, South Carolina, and New Jersey, say that unless the parties otherwise agree, upon divorce there will be equitable distribution of their marital property. Marital property generally doesn’t include the property received by gift or inheritance, as long as that person didn’t co-mingle it with the marital property.

Therefore, the most economical way to transfer property to the niece, is to leave it to her in the testator’s will, with instructions for her to keep it separate and apart from her marital property.

An outright bequest may not be the best way to leave property to the niece, even though it’s probably the most economical method for the aunt.

However, if the aunt leaves the inheritance in trust, she’ll make certain the property isn’t commingled with marital assets.

Further, if the trust is properly prepared by an experienced estate planning attorney, the income from the trust will likely not be used to decrease any support to which the niece may otherwise be entitled from her spouse, in the event that they divorce down the road. The trust can also protect against other events, by instructing to whom funds should be paid upon the premature death of the niece. That would further prevent her estranged husband from ever being able to make a claim against the funds.

Reference: nj.com (August 21, 2019) “How do I protect my niece’s inheritance from her husband?”

Succession Planning For Business Owners
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Succession Planning For Business Owners

A business owner without an estate plan, is a business owner whose business and personal estate are both in jeopardy, says the Augusta Free Press in an article that asks “Own a business? 5 reasons you need an estate plan.”

You need more than a will to plan for incapacity. If you become ill or incapacitated, a will isn’t the estate planning tool that will help you and your family. What you need is a power of attorney (POA). This document names another individual or individuals to manage your finances and your business dealings, while you are unable to do so. Your estate planning attorney can create a power of attorney that limits what the named person, known as an “agent” may do on your behalf, or make it a broad POA so they can do anything they deem necessary.

Your state’s estate plan may not align with your wishes. Every state has its own laws about property distribution in the event a person does not have an estate plan. A popular joke among estate planning attorneys is that if you don’t have an estate plan, your state has one for you—but you may not like it. This is particularly important for business owners. If you have a sibling who you haven’t spoken to in decades, depending upon the laws of your state, that sibling may be first in line for your assets and your business. If that makes you worried, it should.

Caring for a disabled family member. A family that includes individuals with special needs who receive government benefits requires a specific type of estate planning, known as Special Needs Planning. This includes the use of trusts, so a trust owns assets the assets for the benefit of such a family member without putting government benefits at risk.

 

Help yourself and heirs with tax liability. If your future plan includes leaving your business to your children or another family member, there will be taxes due. What if they don’t have the resources to pay taxes on the business and have to sell it in a fire sale just to satisfy the tax bill? An estate plan, worked out with an experienced estate planning attorney who regularly works with family-owned businesses, will include a comprehensive tax plan. Make sure your heirs understand this plan—you may want to bring them with you to a family meeting with the attorney, so everyone is on the same page.

Avoid fracturing your own family. An unhappy truth is that when there is no estate plan, it impacts not just the family business. If some children or family members are involved in the business and others are not, the ones who work in the business may resent having to share any of the business. How to divide your business is up to the business owner. However, making a good plan in advance with the guidance of an experienced advisor and communicating the plan to family members will prevent the family from falling apart.

There’s no way to know how family members will respond when a parent dies. Sometimes death brings out the best in people, and sometimes it brings out the worst. However, by having an estate plan and business plan for the future, you can preclude some of the stresses and strains on the family.

Reference: Augusta Free Press (August 13, 2019) “Own a business? 5 reasons you need an estate plan.”

How Will Baby Boomers Handle “Long-Term Caregiving?

Think Advisor’s article, “Long-Term Caregiving Realities Hit Home for Boomers” says that study participants responded that they’d be willing to do these things to provide care for a loved one:

  • Cut spending: 66%
  • Travel less frequently: 41%
  • Move to a new home: 27%
  • Work less: 27%
  • Stop working: 19%

The study also found that boomers are becoming more aware of the likelihood they’ll require retirement care, and are willing to discuss the issue. This group believed that an adult would start to need physical care or assistance at age 70 or older.

About 45% of study participants thought they’d need long-term care at some point. That number is an increase from 36% in 2013. A total of 66% of them reported that they’d had detailed conversations about how they wanted to receive long-term care. Slightly more than half said they’d had detailed conversations about how to pay for care.

Even so, about 30% of boomers in the study who were caregivers said they still had to use some retirement savings to pay for health care expenses, compared with 19% of those without caregiving responsibilities.

The U.S. Census Bureau says that older Americans are projected to outnumber children for the first time in U.S. history by 2035. This raises the question of who’ll care for the aging population.

It was no surprise that the study found that women were likelier than men to have caregiving experience. 62% of current or former caregivers among study participants were women and 38% were men. A total of 68% of those with caregiving experience said they knew about long-term care insurance, compared with 59% without such experience.

Experienced caregivers were also more likely than inexperienced boomers to have made preparations for their death. This includes communicating funeral preferences (49% vs. 41%), identifying where they wanted to be buried or cremated (51% vs. 37%) and maintaining an up-to-date estate plan (45% vs. 38%).

Reference: Think Advisor (August 8, 2019) “Long-Term Caregiving Realities Hit Home for Boomers”

 

Can You Protect Your Home If You Need Medicaid?

Anyone who owns a home, whether a magnificent mansion or a modest ranch, worries about the possibility of losing the home because of long-term care. How can they keep the home for their spouse or even for their family, if they need to apply to Medicaid for long-term nursing care costs?

The problem, reports The Mercury in a recent article “Protecting your house and Medicaid” is often the strategies that people come up with on their own. They usually don’t work.

The first thought of someone who is confronted with the need to qualify for Medicaid is to immediately transfer ownership of the family home to another person. The idea is to take the home out of their countable assets. But unless the person who receives the house is an adult child, that transfer only leads to problems.

Medicaid’s basic premise is that if you can afford to pay for your own care, you should. Transfer of a home, let’s say one with a value of $400,000, means that a $400,000 gift has been given to someone. There is a five-year lookback period. Any assets given away or transferred in that five-year period means that you had the asset under your control. Medicaid will not pay for your care in that case.

There are some exceptions to the gifting rules, but this is not something to be navigated without the help of an experienced elder law estate planning attorney. Here are the exceptions:

Your spouse. It’s understood that your spouse needs a place to live, and a transfer of the home to your spouse does not result in penalties under Medicaid rules. This usually means transfer from title as joint tenants with rights of survivorship or tenants by the entireties to the healthier wife or husband. It is also understood that a transfer to your spouse at home is not a disqualifying transfer. This is a common practice and part of Medicaid planning.

A disabled child. A parent may transfer a house to their disabled child on the theory that it is needed for self-support. It is not necessary for a child to lose a home, because a parent will be on Medicaid. This is a common mistake, and completely avoidable. Talk with an elder law attorney to learn more.

If a child is a caretaker. An adult child who moves in with the parents for a period of at least two years to care for them so they could stay at home and avoid going to a nursing home, or if the child has lived with their parents for longer than that and they need this care at home, under federal law the home can be transferred to the child without penalty and the parent can go to a nursing home and receive care under Medicaid. This is another very common mistake that causes adult children to be left without a home.

For a person who is single or a widow or widower who will never move home after moving into a Medicaid certified nursing home, the house may be sold, and planning can be done with the proceeds of the sale. Paying bills to maintain a vacant home for no reason and having the government take the home as a creditor through the estate recovery program does not make sense. An elder lawyer estate planning attorney can help navigate this complex and often overwhelming process.

Reference: The Mercury (July 31, 2019) “Protecting your house and Medicaid”

What Happens when Both Spouses Die at the Same Time?

There are any number of ways a person can inherit assets from another person. They may inherit assets from a trust, through a will or as a designated beneficiary of an insurance policy or retirement account. However, in each case, says Lake Country News in the article “Simultaneous and close together deaths,” the person inheriting the asset is living, while the person they inherited from has died.

What happens if spouses die either at the same exact time, or at a time that is very close to each other? The answer, as with so many estate planning questions, is that it depends.

The first question is, did both decedents have estate planning documents in place. If so, what directions do the wills give? Are there trusts, and if so, who are the trustees? If they served as trustees for each other’s trusts, did they name a secondary trustee?

If assets were owned as joint tenancy with right of survivorship, the estate of each deceased tenant receives an equal share of the asset, unless it can be proven that a joint tenant survived the other.

Here’s an example: if a parent dies without a will, is survived by two children, but one of the two children dies only four days after the parent’s death, i.e., fewer than 120 hours, in California, the law presumes that the deceased child did not survive the mother. The sole surviving child’s estate receives the entire parent’s intestate estate.

A beneficiary who survives long enough to inherit, however, might die before receiving complete distribution of his or her inheritance.

A trust may provide for distributions to alternative beneficiaries. This is another reason why it is wise to have primary and secondary beneficiaries on all accounts that permit secondary beneficiaries. Not all accounts permit this.

Similarly, a trust may provide for distribution to alternative beneficiaries. Otherwise, unless there has been advance planning, the undistributed inheritance becomes part of the deceased beneficiary’s estate, where it will be distributed either according to the beneficiary’s will, or according to the laws of intestacy of the decedent’s state of residence.

All of these instances are further reasons why it is so important for everyone to have a will and other estate planning documents prepared.

A probate of the beneficiary’s estate may be required, as a result of an undistributed inheritance.

The legal and factual analysis associated with the distribution of a couple who die at the same time or in close proximity to each other varies from case to case. Speak with an experienced estate planning attorney to have an estate plan prepared to avoid your family having to unravel the knotty mess that is created when there is no will, and no estate planning has been done.

Reference: Lake Country News (Aug. 10, 2019) “Simultaneous and close together deaths”

 

Can a Trust Be Amended?

A son has contacted an elder law estate planning attorney now that mom is in a nursing home and he’s unsure about many of the planning issues, as reported by the Daily Republic. The article, “Amending trust easier if parents can make informed decision,” describes the family’s situation.

There is one point to consider from the start. If the son been involved in the planning from the start, in a family meeting with the attorney and discussions with his parents, he might have less uncertainty about the plan and the details.

As for the details: the parents are in their 90s, with some savings, a few annuities, a CD and a checking account. They also have five acres of land, which has their home and a duplex on it and 12 additional acres, with a rental property on it. Everything they own has been placed in a family trust. The son wants to be able to pay her bills and was told that he needs to have a power of attorney and to be named trustee to their trust.

He reports that his parents are good with this idea, but he has a number of concerns. If they are sued, will he be personally liable? Would the power of attorney give him the ability to handle their finances and the real estate in the trust?

If his parents have a revocable or living trust, there are provisions that allow one or more persons to become the successor trustees, in the event that the parent becomes incapacitated or dies.

What happens when they die, as they each leave each other their share of the assets? The son would become the trustee, when the last parent passes.

Usually the power of attorney is created when the trust is created, so that someone has the ability to take control of finances for the person. See if the trust has any of these provisions—the son may already be legally positioned to act on his parents’ behalf. The trust should also show whether the successor trustee would be empowered to sell the real estate.

Trusts can be drafted in any way the client wants it written, and the successor trustee receives only the powers that are given in the document.

As for the liability, the trustee is not liable to a buyer during the sale of a property. There are exceptions, so he would need to speak with an estate planning attorney to help with the sale.

More specifically, assuming the trust does not name the son as a successor trustee and also does not give the son power of attorney, the bigger question is are the parents mentally competent to make important decisions about these documents?

Given the age of these parents, an attorney will be concerned, rightfully so, about their competency and if they can freely make an informed decision, or if the son might be exercising improper influence on them to turn over their assets to him.

There are a few different steps that can be taken. One is for the son, if he believes that his parents are mentally competent, to make an appointment for them with an estate planning attorney, without the son being present in the meeting, in order to determine their capacity and wishes. If the attorney is not sure about the influence of the son, he or she may want to refer the parents for a second opinion with another attorney.

If the parents are found not competent, then the son may need to become their conservator, which requires a court proceeding.

Planning in advance and discussing these issues are best done with an experienced estate planning attorney, long before the issues become more complicated and expensive to deal with.

Reference: Daily Republic (Aug. 10, 2019) “Amending trust easier if parents can make informed decision”

Second Time Down the Aisle? Make Sure Estate Plan Is Ready

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It’s always a good idea to review your estate plan, especially when a major life event, like a second marriage, is taking place. The use of a pre-nuptial agreements gives prospective spouses the opportunity to discuss one another’s rights of inheritance, and clarify a great many issues, says nwi.com in the article “Estate Planning: Planning for second marriages.”

There’s a second opportunity to sign an agreement detailing inheritance rights after the wedding takes place, called a “post-nuptial agreement.” The problem is that once the wedding has occurred and you are both legally married, you might get stuck with some surprises and, well, you’re married. For most people, it’s better to set things out before the wedding, rather than after.

There also may have been dissolution decrees in one or both of the couple’s prior divorces that have requirements which must be satisfied. A spouse may be required to maintain life insurance with the ex-spouse as a beneficiary. This can have an impact on the couple’s estate plan. It is recommended thay you have everything discussed up front in the pre-nup.

The rest of the steps are those that should be followed for any estate review.

Make sure that the last will and testament reflects your new spouse. If there are any mentions of the prior spouse, you probably want to remove them.

Verify how all of the assets are owned. Will they continue to be owned by just one spouse, or converted to jointly owned? Does your estate plan have a trust, and if so, are assets owned by the trust? Does there need to be a change made to your trustees?

Many people don’t remember how their bank accounts are titled. Fewer still can tell you who their beneficiaries are on their retirement accounts, life insurance policies and bank accounts. Remember: the beneficiary designations are going to determine who receives these assets, regardless of any language in your last will and testament. Once you die, there is no way to contest that distribution. Review your accounts and make sure that the beneficiaries are up to date.

Part of your pre-nup and estate plan review will be to discuss inheritance rights for any children in the blended family. Do you want to leave assets only for your children, or do you want to leave assets for all the children? It’s not an easy conversation to have, especially at the start of the blending process.

Remember also that blended family dynamics can change over the years. When you review your estate plan next—in three to four years—you’ll have the opportunity to make changes that hopefully will reflect deepening bonds between all of the family members. Your estate planning attorney will help create and revise estate plans, as your life circumstances evolve.

Reference: nwi.com (May 5, 2019) “Estate Planning: Planning for second marriages”

 

How Do I Title My Property Correctly for My Estate Plan?

The way by which you title your real and personal property and who you name as your beneficiaries is just as important in your estate planning as your will or trust, says The Black Hills Pioneer’s recent article, “Titling of property is just as important as your Will or Trust.”

There are some kinds of property that, depending on how they are titled or who’s the named beneficiary, will flow outside your will or trust.

For instance, if you designate a beneficiary to your life insurance policy or on your retirement account, that money goes directly to the named beneficiary at your death—not in accordance with your will or trust (provided you haven’t named your estate or trust as the beneficiary).

In addition, you could designate another person as payable on death (POD) designee or transfer on death (TOD) designee on your investment account or your bank account. These types of accounts also transfer automatically to the named designee and not with any regard to your will or trust (unless you named your estate or trust as the beneficiary).

Any jointly owned real estate will typically flow to the surviving joint owner, not pursuant to your will or trust. However, the fact that two people own one piece of real estate doesn’t mean the property will flow automatically to the survivor. It depends on how the property is titled. For example, in South Dakota, language needs to be included in the deed conveying that real estate to both individuals as “joint tenants with rights of survivorship.”

You can, therefore, see how critical it is that you discuss these issues with your estate planning attorney. In addition to questions about wills and trusts, you should also be discussing the titling of your property and the beneficiaries you’ve named on your life insurance and retirement accounts, along with any POD and TOD designees you’ve named on your investment accounts or bank accounts.

If you don’t, you create problems for you family and loved ones.

Reference: Black Hills Pioneer (August 5, 2019) “Titling of property is just as important as your Will or Trust”

Why Estate Planning is Essential for Small Business Owners

For the entrepreneurial-minded person, nothing beats the excitement of having a vision for a business, and then making that dream come true. However, have you ever wondered what will happen to that business after you are gone?

A comprehensive estate plan, says Bakersfield.com, in the recent article “Estate planning tips for small business owners,” provides a plan that can protect your life’s work.

It makes sense. You’ve likely spent decades building your business throughout your working life. You’re proud of what you have accomplished, and you should be. You should then protect it with a well-thought-out plan. Your estate planning attorney will be able to help you design a two-pronged plan for your business and your personal life. For business owners, these two are intertwined.

Can you avoid taxes? Reviewing your personal and business assets, as part of an estate plan, is the best way to minimize the tax exposure of your estate and facilitate an organized sale or succession plan for your business. You can’t completely avoid taxes, but good planning will help them from being excessive.

There are a number of IRS sections that can help, and your estate planning attorney will know them. For example, Section 6166 gives your loved ones more time to pay the tax, by paying in ten annual installments. Another Section, 303, lets your family redeem stock with few tax penalties. Talk with your attorney and CPA to find out if your business is eligible for either of these strategies. Create a plan and talk about it in detail with survivors to help them navigate the transition.

Do you have a buy-sell agreement in place? This is critical, if more than one person owns the business. The buy-sell agreement dictates how the partnership or LLC is distributed upon the death or incapacity of one of the owners. Without one, family members may be stuck owning a company they don’t want or don’t know anything about. Alternatively, your former partners may find themselves partnered with people with whom they never intended to go into business.

The buy-sell agreement creates a plan so, when an owner passes, the shares of the company must be bought out by the other owners at a fair market price. The agreement can even establish a sale price, so family members will know exactly what they can expect to receive from the sale. In addition, a buy-sell agreement can be used to block certain individuals from taking a role in the business. For many family businesses, that’s enough of a reason to make sure to have a buy-sell agreement.

How are life insurance policies used by small business owners? Maybe you want the business to die with you. Some small businesses provide a stable income for the owner, but there’s no plan for the business to be passed to another family member or to survive the passing of the owner. If that is your situation, and you want your family to have income, you’ll need a life insurance policy.

A life insurance policy can also be used to help partners with the capital they’ll need to purchase your shares, if that is how your buy-sell agreement has been set up.

As a small business owner and a family breadwinner, you want to be sure your family and your business are prepared for your passing. Talk with your estate planning attorney to make sure both are protected, in the event of your passing.

Reference: Bakersfield.com (July 15, 2019) “Estate planning tips for small business owners”

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