Should I Have an Advance Directive in the Pandemic?

Advance directive is a term that includes living wills and health care proxies or powers of attorney. These are legal documents we all should have. A living will allows you to tell your family and doctors the types of medical care you want at the end of your life. Health care proxies or powers of attorney let you name someone to make medical decisions for you, if you can’t communicate.

WTOP’s recent article entitled “Advance medical directives vital during COVID-19 pandemic” says that you need both because not all medical situations will trigger a living will. In fact, a living will is only really applicable, if you have an end stage process, a persistent vegetative state, or a terminal illness. People often run into a situation where they have a health event, but it’s not something that’s going to end in their death.

An estate planning attorney can draw up advance directives, when they’re creating your estate plan.

When selecting the individual to grant the power to make decisions for you, consider who would be most capable of advocating for what you want, rather than what they, other family members or a medical provider might want. You should also name a backup in the event your first choice can’t serve and make sure these advocates understand your wishes. Give copies of the documents to them and go through what you want.

Your attorney will follow your state’s rules about how to make these documents valid, such as having witnesses sign or getting the paperwork notarized.

Next, keep the originals in a safe place at home, along with your will, and tell your family where to locate them. Your physician and attorney should also have copies.

Tell your doctor to add the forms in your electronic health record. That way, other medical providers can access it in an emergency. You should also carry a card in your wallet that has your health care agent’s name and contact information, as well as where you keep the originals and copies.

If your choices could cause stress for your family, consider including a note explaining your thinking. Even if they disagree with your decisions, it is more comforting to hear it directly from you, rather than the person you named to act on your behalf.

Reference: WTOP (June 1, 2020) “Advance medical directives vital during COVID-19 pandemic”

How Does a Spendthrift Trust Protect Heirs from Themselves?

This is not an unusual question for most estate planning lawyers—and in most cases, the children aren’t bad. They just lack self-control or have a history of making poor decisions. Fortunately, there are solutions, as described in a recent article titled “Estate Planning: What to do to protect trusts from a spendthrift” from NWI.com.

What needs to happen? Plan to provide for the child’s well-being but keep the actual assets out of their control. The best answer is the use of a trust. By leaving money to an heir in a trust, a responsible party can be in charge of the money. That person is known as the “trustee.”

People sometimes get nervous when they hear the word trust, because they think that a trust is only for wealthy people or that creating a trust must be very expensive. Not necessarily. In many states, a trust can be created to benefit an heir in the last will and testament. The will may be a little longer, but a trust can be created without the expense of an additional document. Your estate planning attorney will know how to create a trust, in accordance with the laws of your state.

In this scenario, the trust is created in the will, known as a testamentary trust. Instead of leaving money to Joe Smith directly, the money (or other asset) is left to the John Smith Testamentary Trust for the benefit of Joe Smith.

The terms of the trust are defined in the appropriate article in the will and can be created to suit your wishes. For instance, you can decide to distribute the money over a three or a thirty-year period. Funds could be distributed monthly, to create an income stream. They could also be distributed only when certain benchmarks are reached, such after a full year of employment has occurred. This is known as an incentive trust.

The opposite can be true: distributions can be withheld, if the heir is engaged in behavior you want to discourage, like gambling or using drugs.

If the funding for the trust will come from proceeds from a life insurance policy, it may be necessary to have your estate planning attorney contact the insurance company to be sure that the insurance company will permit a testamentary trust to be the beneficiary of the life insurance and avoid probate altogether.

Not all insurance companies will permit this. There may be some other changes that need to occur for this to work and be in compliance with your state’s laws. However, your estate planning attorney will be able to resolve the issue for you.

Reference: NWI.com (May 17, 2020) “Estate Planning: What to do to protect trusts from a spendthrift”

Should I Give My Kid the House Now or Leave It to Him in My Will?

Transferring your house to your children while you’re alive may avoid probate, the court process that otherwise follows death. However, gifting a home also can result in a big, unnecessary tax burden and put your house at risk, if your children are sued or file for bankruptcy.

Further, you also could be making a big mistake, if you hope it will help keep the house from being used for your nursing home bills.

MarketWatch’s recent article entitled “Why you shouldn’t give your house to your adult children” advises that there are better ways to transfer a house to your children, as well as a little-known potential fix that may help even if the giver has since passed away.

If you bequeath a house to your children so that they get it after your death, they get a “step-up in tax basis.” All the appreciation that occurred while the parent owned the house is never taxed. However, when a parent gives an adult child a house, it can be a tax nightmare for the recipient. For example, if the mother paid $16,000 for her home in 1976, and the current market value is $200,000, none of that gain would be taxable, if the son inherited the house.

Families who see this mistake in time can undo the damage, by gifting the house back to the parent.

Sometimes people transfer a home to try to qualify for Medicaid, the government program that pays health care and nursing home bills for the poor. However, any gifts or transfers made within five years of applying for the program can result in a penalty period, when seniors are disqualified from receiving benefits.

In addition, giving your home to someone else also can expose you to their financial problems. Their creditors could file liens on your home and, depending on state law, get some or most of its value. In a divorce, the house could become an asset that must be sold and divided in a property settlement.

However, Tax Code says that if the parent retains a “life interest” or “life estate” in the property, which includes the right to continue living there, the home would remain in her estate rather than be considered a completed gift.

There are specific rules for what qualifies as a life interest, including the power to determine what happens to the property and liability for its bills. To make certain, a child, as executor of his mother’s estate, could file a gift tax return on her behalf to show that he was given a “remainder interest,” or the right to inherit when his mother’s life interest expired at her death.

There are smarter ways to transfer a house. There are other ways around probate. Many states and DC permit “transfer on death” deeds that let people leave their homes to beneficiaries without having to go through probate. Another option is a living trust.

Reference: MarketWatch (April 16, 2020) “Why you shouldn’t give your house to your adult children”

What I Need to Know about Caring for a Loved One with Dementia

Family caregivers of dementia patients must be more prepared for immediate changes in temperament. They need more support and respite care, and they need a better idea of what to expect in the days and months ahead.

Forbes’s recent article entitled “When Your Loved One Has Dementia: 3 Questions For Family Caregivers” provided three important questions to ask if your aging parent or family member has been diagnosed with a form of dementia.

What training must I have? When a parent, friend, or other loved one in your care is has dementia, you should look to local healthcare resources for education and training.

The temperament of people suffering from a form of dementia can change swiftly. It can rapidly turn hurtful or even violent. However, there are things a caregiver can do to interact with them to help keep them calm. Ask their healthcare provider for suggestions or referrals.

As a caregiver, do I have the legal standing to take care of this person? You should determine if your loved one has a will or living will in place, along with a healthcare power of attorney. These are documents that must be drafted and signed, before their dementia progresses to the point where it totally distorts your loved one’s thought process.

The documents provide instructions as how to care for them, according to their original wishes and avoid stress in the family, if disagreements arise. Contact an elder law attorney as soon as possible to create these documents.

How do I get help when I need it? Caring for an aging loved one can be a very tiring task. Tending to the needs of an aging loved one with a form of dementia is an even greater challenge. Begin planning now for self-care.

You can’t take care of a loved one with dementia, if your physical and mental health is wiped out and you are exhausted. Look at respite care options to give yourself the rest you’re going to need.

Getting these measures ready now can ensure that you are prepared for the tough future.

Reference:  Forbes (March 23, 2020) “When Your Loved One Has Dementia: 3 Questions For Family Caregivers”

The Coronavirus and Estate Planning

As Americans adjust to a changing public health landscape and historical changes to the economy, certain opportunities in wealth planning are becoming more valuable, according to the article “Impact of COVID-19 on Estate Planning” from The National Law Review. Here is a look at some strategies for estate plans:

Basic estate planning. Now is the time to review current estate planning documents to be sure they are all up to date. That includes wills, trusts, revocable trusts, powers of attorney, beneficiary designations and health care directives. Also be sure that you and family members know where they are located.

Wealth Transfer Strategies. The extreme volatility of financial markets, depressed asset values,and historically low interest rates present opportunities to transfer wealth to intended beneficiaries. Here are a few to consider:

Intra-Family Transactions. In a low interest rate environment, planning techniques involve intra-family transactions where the senior members of the family lend or sell assets to younger family members. The loaned or sold assets only need to appreciate at a rate greater than the interest rate charged. In these cases, the value of the assets remaining in senior family member’s estate will be frozen at the loan/purchase price. The value of the loaned or sold assets will be based on a fair market value valuation, which may include discounts for certain factors. The fair market value of many assets will be extremely depressed and discounted. When asset values rebound, all that appreciation will be outside of the taxable estate and will be held by or for the benefit of your intended beneficiaries, tax free.

Grantor Retained Annuity Trusts (GRATS). The use of a GRAT allows the Grantor to contribute assets into a trust while retaining a right to receive, over a term of years, an annuity steam from the Trust. When the term of years expires, the balance of the Trust’s assets passes to the beneficiaries. The IRS values the ultimate transfer of assets to your intended beneficiaries, based on the value of the annuity stream you retain and an assumed rate of return. The assumed rate of return, known as the 7520 rate comes from the IRS and is currently 1.8%. So, if you retain the right to receive an annuity stream from the trust equal to the value of the assets plus a 1.8% rate of return, assets left in the trust at the end of the term pass to your beneficiaries transfer-tax free.

Charitable Lead Annuity Trusts. Known as “CLATs,” they are similar to a GRAT, where the Grantor transfers assets to a trust and a named charity gets an annuity stream for a set term of years. At the end of that term, the assets in the trust pass to the beneficiaries. You can structure this so the balance of the assets passes to heirs transfer-tax free.

Speak with your estate planning attorney about these and other wealth transfer strategies to learn if they are right for you and your family. And stay well!

Reference: The National Law Journal (March 13, 2020) “Impact of COVID-19 on Estate Planning”

 

What Is So Important About Powers Of Attorney?

Powers of attorney can provide significant authority to another person, if you are unable to do so. These powers can include the right to access your bank accounts and to make decisions for you.

AARP’s article from last October entitled, “Powers of Attorney: Crucial Documents for Caregiving,” describes the different types of powers of attorney.

Just like it sounds, a specific power of attorney restricts your agent to taking care of only certain tasks, such as paying bills or selling a house. This power is typically only on a temporary basis.

A general power of attorney provides your agent with sweeping authority. The agent has the authority to step into your shoes and handle all of your legal and financial affairs.

The authority of these powers of attorney can stop at the time you become incapacitated. Durable powers of attorney may be specific or general. However, the “durable” part means your agent retains the authority, even if you become physically or mentally incapacitated. In effect, your family probably won’t need to petition a court to intervene, if you have a medical crisis or have severe cognitive decline like late stage dementia.

In some instances, medical decision-making is part of a durable power of attorney for health care. This can also be addressed in a separate document that is just for health care, like a health care surrogate designation.

There are a few states that recognize “springing” durable powers of attorney. With these, the agent can begin using her authority, only after you become incapacitated. Other states don’t have these, which means your agent can use the document the day you sign the durable power of attorney.

A well-drafted power of attorney helps your agent help you, because she can keep the details of your life addressed, if you cannot. That can be things like applying for financial assistance or a public benefit, such as Medicaid, or verifying that your utilities stay on and your taxes get paid. Attempting to take care of any of these things without the proper document can be almost impossible.

In the absence of proper incapacity legal planning, your loved ones will need to initiate a court procedure known as a guardianship or conservatorship. However, these hearings can be expensive, time-consuming and contested by family members who don’t agree with moving forward.

Don’t wait to do this. Every person who’s at least age 18 should have a power of attorney in place. If you do have a power of attorney, be sure that it’s up to date. Ask an experienced elder law or estate planning attorney to help you create these documents.

Reference: AARP (October 31, 2019) “Powers of Attorney: Crucial Documents for Caregiving”

What Do We Know about Early-Onset Dementia?

Rita Benezra Obeiter, 59, is a former pediatrician who was diagnosed several years ago with early-onset dementia, a rare form of the disease. When this occurs in people under age 65, the conditions cause additional and unique issues because they are so unexpected and because most of the potentially helpful programs and services are designed for and targeted to older people.

One issue is that doctors typically don’t look for the disease in younger patients. As a result, it can be months or even years before the right diagnosis is made and proper treatment can start.

WLNY’s recent article entitled “Some Health Care Facilities Say They’re Seeing More Cases Of Early-Onset Dementia Than Ever Before” reports that her husband Robert Obeiter left his job two years ago to care for her. She attends an adult day care, and aides help at home at night.

If Dementia is a generic term for diseases characterized by a decline in memory, language, and other thinking skills required to perform everyday activities, Alzheimer’s is the most common. The National Institute of Health reports that there’s approximately 200,000 Americans in their 40s, 50s, and early 60s with early onset Alzheimer’s.

One conference discussed a rise in early dementia because of the processed foods and fertilizers or the other environmental hazards, and there are definitely some genes more associated with Alzheimer’s—more so with early onset.”

There is no clear answer, and most of the treatments help to slow down the progression.

There is some research showing the Mediterranean diet can be protective, as well as doing cognitive exercises like crossword puzzles and Sudoku.

It’s true that no one can predict the future of their health, but there are ways financially that families can prepare. It can cost $150,000 a year or more. That’s why you should think about purchasing long term care insurance starting at the age of 40.

Long-term health insurance can pay for an aide to come into your home, and it can pay for the cost of assisted living. And, remember that health insurance doesn’t cover long-term care, nor does Medicare. Plus, everyone over the age of 18 needs a healthcare power of attorney and a financial POA.

Reference: WLNY (Feb. 12, 2020) “Some Health Care Facilities Say They’re Seeing More Cases Of Early-Onset Dementia Than Ever Before”

When Do I Need an Elder Law Attorney?

Elder law is different from estate law, but they frequently address many of the same issues. Estate planning contemplates your finances and property to best provide for you and your family while you’re still alive but incapacitated. It also concerns itself with the estate you leave to your loved ones when you die, minimizing probate complications and potential estate tax bills. Elder law contemplates these same issues but also the scenario when you may need some form of long-term care, even your eligibility for Medicaid should you need it.

A recent article from The Balance’s asks “Do You or a Family Member Need to Hire an Elder Law Attorney?” According to the article there are a variety of options to adjust as economically and efficiently as possible to plan for all eventualities. An elder law attorney can discuss these options with you.

Medicaid is a complicated subject, and really requires the assistance of an expert. The program has rigid eligibility guidelines in the event you require long-term care. The program’s benefits are income- and asset-based. However, you can’t simply give everything away to qualify, if you think you might need this type of care in the near future. There are strategies that should be implemented because the “spend down” rules and five-year “look back” period reverts assets or money to your ownership for qualifying purposes, if you try to transfer them to others. An elder law attorney will know these rules well and can guide you.

You’ll need the help and advice of an experienced elder law attorney to assist with your future plans, if one or more of these situations apply to you:

  • You’re in a second (or later) marriage;
  • You’re recently divorced;
  • You’ve recently lost a spouse or another family member;
  • Your spouse is incapacitated and requires long-term care;
  • You own one or more businesses;
  • You have real estate in more than one state;
  • You have a disabled family member;
  • You’re disabled;
  • You have minor children or an adult “problem” child;
  • You don’t have children;
  • You’d like to give a portion of your estate to charity;
  • You have significant assets in 401(k)s and/or IRAs; or
  • You have a taxable estate for estate tax purposes.

If you have any of these situations, you should seek the help of an elder law attorney.

If you fail to do so, you’ll most likely give a sizeable percentage of your estate to the state, an ex-spouse, or the IRS.

State probate laws are very detailed as to what can and can’t be included in a will, trust, advance medical directive, or financial power of attorney. These laws control who can and can’t serve as a personal representative, trustee, health care surrogate, or attorney-in-fact under a power of attorney.

Hiring an experienced elder law attorney can help you and your family avoid simple but expensive mistakes, if you or your family attempt this on your own.

Reference: The Balance (Jan. 21, 2020) “Do You or a Family Member Need to Hire an Elder Law Attorney?”

Business Owners Should Start End-Game Planning Now
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Business Owners Should Start End-Game Planning Now

Most parents understand that the ultimate goal of child-rearing is to help a child become an independent adult. For the business owner, this means building a business that would continue after they have retired or passed away. However, when it comes to estate planning, says the article “Why Business Owners Should Think About Estate Planning Sooner Than Later,” from Forbes, many business owners think only about their personal assets and their children.

For a successful business owner who wants to see their business continue long after they have moved on to the next chapter in their lives, the best time to start succession planning is now.

Succession and estate planning should not be something you wait to do until the end of your life. Most people make this mistake. They don’t want to think about their own mortality or what will happen after they’ve died. Very rarely do people realize the value of estate planning and succession planning when they are engaged in a start-up or when their companies are just getting solid footing. They are too busy with the day-to-day concerns of running a business than they are with developing a succession plan.

However, any estate planning attorney who has been practicing for more than a few years knows that this is a big mistake. Securing assets and business planning sooner, not later, is a far better way to go.

Business continuity is the first concern for entrepreneurs. It’s not an easy topic. It’s far better to have this addressed when the owner is well and the business is flourishing. Therefore, the business owner is making decisions and not others, who may be emotionally invested but not knowledgeable about the business.

A living trust and will can put in place certain parameters that a trustee can carry out. This should include naming the individuals who are trusted to make decisions. Having those names and decisions made will minimize the amount of arguing between recipients of assets. Let them be mad at you for your choices, rather than squabbling between each other.

Create a business succession plan that designates successor trustees who will be in charge of managing the business, in the event of the owner’s incapacity or death. A power of attorney document is used to nominate a fiduciary agent to act on your behalf if you should become incapacitated, but a trust should be considered to provide for a smoother transition of the business to successor trustees.

By transferring a business to a trust, the inconvenience and costs of probate may be avoided and assets will be passed along to chosen beneficiaries. Timely planning also preserves business assets, since they can take advantage of advanced tax planning strategies.

Estate and succession planning is usually not top-of-mind for young business owners, but it is essential planning. Talk with an experienced estate planning attorney to get yourself and your business ahead of the game.

Reference: Forbes (Dec. 30, 2019) “Why Business Owners Should Think About Estate Planning Sooner Than Later”

Retirement and Estate Planning Work Better Together

So, you’ve been married for a while, and you’re both comfortable with which bank accounts, credit cards and investment accounts are shared and which other accounts are kept separate. However, where the big picture is concerned—like coordinating retirement plans, health coverage and tax planning—you both need to take an active role in planning and making good decisions. In fact, says the article “Couples and Money: When Together is Better” from Kiplinger, the decisions that work well for you as individuals may not be so hot, when they are looked at from a couple’s perspective.

Here’s an example. A man is working at a firm that doesn’t offer a match for his 401(k) contributions, but his wife’s employer does. Instead of contributing to his 401(k) plan, he uses the money to pay off a HELOC (Home Equity Line of Credit) that the couple had taken together to do some upgrades on their home. She contributes enough to her own 401(k) to get her company’s match every year. The goal is to cut their debt and save as much as possible. This worked at that time in the couple’s life.

Ten years later, they are both maxing out their 401(k) savings and working to build short-term savings to send kids to college through the use of 529 College Savings Accounts.

Retirement accounts can never be jointly owned. However, some couples fall into a trap of saving for themselves without considering the overall household. Dual earning couples often run into trouble, when one has a workplace plan and the other does not. The spouse with the workplace plan isn’t thinking that he or she needs to save enough for two people to retire. With two incomes, you might think that both are making retirement a savings priority, but without a 401(k) plan, it’s possible that only one person is saving and only saving enough for themselves.

A general recommendation is that both members of a couple save between 10-15% of their household earnings, rather than their personal earnings, in retirement accounts. Couples should review their respective retirement plans together and plan together. If one has a more generous match, access to a Roth option, or better investment opportunities, they should consider how much the person with the better plan should save.

Couples also need to examine other financial aspects of their lives. Coordinating retirement benefits, reviewing life insurance policies, planning a coordinated strategy for taking Social Security and making informed choices about health care coverage can make a big difference in the family’s financial well-being.

Equally important: making sure that an estate plan is in place. That includes a will that names a guardian for any minor children, a health care proxy and a financial power of attorney. Depending upon the family’s circumstances, that may include trusts or other wealth transfer strategies.

Reference: Kiplinger (Dec. 23, 2019) “Couples and Money: When Together is Better”