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What Are the Basics About Trusts?

Forbes’s recent article, “A Beginner’s Guide To Reading A Trust,” says that as much as attorneys have tried to simplify documents, there’s some legalese that is still hanging around. Let’s look at a few tips in reviewing your trust.

First, familiarize yourself with the terms. There are basic terms of the trust that you’ll need to know. Most of this can be found on its first page, such as the person who created the trust. He or she is frequently referred to as the donor, grantor or settlor. It is also necessary to identify the trustee, who will hold the trust assets and administer them for the benefit of the beneficiaries and any successor trustees.

You should next see who the beneficiaries are and then look at the important provisions. See if the trustee is required to distribute the assets all at once to a specific beneficiary, or if she can give the money out in installments over time.

It is also important to determine if the distributions are completely left to the discretion of the trustee, so the beneficiary doesn’t have a right to withdraw the trust assets.  See if the trustee can distribute both income and principal.

The next step is to see when the trust ends. Trusts will end at the death of a beneficiary.

Other important provisions include whether the beneficiaries can remove and replace a trustee, if the trustee must provide the beneficiaries with accountings and whether the trust is revocable or irrevocable. If the trust is revocable and you’re the donor, you can change it.

If the trust is irrevocable, you won’t be able to make any changes. If your uncle was the donor and he passed away, the trust is most likely now irrevocable.

In addition, you should review the boilerplate language, as well as the tax provisions.

Talk to an estate planning attorney about any questions you may have and to help you interpret the trust terms.

Reference: Forbes (June 17, 2019) “A Beginner’s Guide To Reading A Trust”

Suggested Key Terms: 

What’s Not Covered by Medicare?

Medicare Part A and Part B—also called “Original Medicare” or “Traditional Medicare”—cover a large percentage of medical expenses when you turn 65. Part A is hospital insurance that helps pay for inpatient hospital stays, stays in skilled nursing facilities, surgery, hospice care and specific home health care. Part B is medical insurance that helps to pay for doctor visits, outpatient care, some preventive services and some medical equipment and supplies. You can begin signing up for Medicare three months before the month you reach age 65.

Kiplinger’s article, “7 Things Medicare Doesn’t Cover,” takes a closer look at what isn’t covered by Medicare, plus some information about supplemental insurance policies and strategies that can help cover the additional costs, so you don’t end up with unanticipated medical bills in retirement.

Prescription Drugs. Medicare doesn’t give you any coverage for outpatient prescription drugs. However, to address this, you purchase a separate Part D prescription-drug policy that does. There are also Medicare Advantage plans that cover both medical and drug costs. Some retiree health-care policies also cover prescription drugs. You can re-enroll in Part D or Medicare Advantage coverage, when you enroll in Medicare or when you lose your other drug coverage.

Long-Term Care. Medicare gives you coverage for some skilled nursing services. However, it doesn’t include custodial care, like assistance with bathing, dressing and other daily activities. To address this, you can buy long-term-care insurance or a combination long-term-care and life insurance policy.

Deductibles and Co-Pays. Medicare Part A covers hospital stays, and Part B covers doctors’ services and outpatient care. However, you must pay the deductibles and co-payments. It is important to understand that over your lifetime, Medicare will only help pay for a total of 60 days beyond the 90-day limit, known as “lifetime reserve days.” After that, you’ll pay the full hospital cost.

Most Dental Care. Medicare doesn’t cover your routine dental visits, teeth cleanings, fillings, dentures or most tooth extractions. Some Medicare Advantage plans cover basic cleanings and x-rays, but they generally have an annual coverage cap of around $1,500. Another option is to buy a separate dental insurance policy or a dental discount plan. You can also build up money in a health savings account before enrolling in Medicare. You can use the money tax-free for medical, dental and other out-of-pocket costs at any age.

Routine Vision Care. Medicare generally doesn’t provide insurance coverage for routine eye exams or glasses. However, some Medicare Advantage plans have vision coverage. You may also be able to buy a separate supplemental policy that gives vision care alone or includes both dental and vision care.

Hearing Aids. Medicare doesn’t cover routine hearing exams or hearing aids, but some Medicare Advantage plans do cover hearing aids and fitting exams. There are also some discount programs that provide lower-cost hearing aids.

Medical Care Overseas. Medicare also doesn’t cover the medical care you get when you’re traveling outside of the U.S., except for very limited circumstances (e.g., on a cruise ship within six hours of a U.S. port). However, a Medigap plan C through G, M and N cover 80% of the cost of emergency care abroad, with a lifetime limit of $50,000. Some Medicare Advantage plans also will cover emergency care abroad.

Another option is to purchase a travel insurance policy that covers some medical expenses, while you’re outside of the U.S. This insurance may even cover emergency medical evacuation, which can otherwise cost tens of thousands of dollars to transport you aboard a medical plane or helicopter.

Reference: Kiplinger (May 23, 2019) “7 Things Medicare Doesn’t Cover”

Suggested Key Terms: Elder Law Attorney, Medicare, Medicaid, Nursing Home, Long-Term Care Planning, Retirement Planning, Elder Care

What Do I Need to Know About Trusts?

A trust is a fiduciary arrangement that lets a third party (the “trustee”) hold assets on the behalf of a beneficiary. Trusts can be drafted in a variety of ways and can specify exactly how and when the assets pass to the beneficiaries.

Because trusts usually avoid probate, the beneficiaries can get access to these assets more quickly than they might if the assets were transferred using a will. If it’s an irrevocable trust, it may not be considered part of the taxable estate, which means there will be fewer taxes due at your death.

FedWeek’s recent article, “The Basics of Trusts,” explains some of the benefits of having a trust in your estate plan. Trusts can offer the following:

  • Protection for possible incompetency. You can form a trust and transfer your assets into it. You can be the trustee, and you’ll have control of the trust assets and keep the income. A successor trustee will assume control, if you’re incapacitated.
  • Avoiding probate. The assets held in trust avoid probate, which can be expensive and time-consuming. In the trust documents, you can direct the trust and provide how the trust assets will be distributed at your death.
  • Protection for heirs. After death, a trustee can keep trust assets from being spent all at once or lost in a divorce, with specific instructions in the trust document.

A trust can be revocable or irrevocable. A revocable trust has to be created during your lifetime. If you change your mind, you can cancel the trust and reclaim the assets. With a revocable trust you can enjoy incapacity protection and probate avoidance—but not tax reduction. In contrast, an irrevocable trust can be created while you’re alive or at your death (a revocable trust becomes irrevocable at your death).

Assets transferred to an irrevocable trust during your lifetime may be shielded from creditors and divorce settlements. The same is true for the assets put into an irrevocable trust at your death.

Your heirs can be the beneficiaries of an irrevocable trust. The trustee you’ve designated will be tasked with distributing funds to the beneficiaries. The trustee will be responsible for protecting trust assets.

Contact an experienced trust attorney with your questions about possibly creating a trust for your situation.

Reference: FedWeek (May 9, 2019) “The Basics of Trusts”

Suggested Key Terms: Estate Planning Lawyer, Trustee, Revocable Living Trust, Irrevocable Trust, Asset Protection, Probate Court, Inheritance, Estate Tax

What Should I Look for in a Trustee?

Selecting a trustee to manage your estate after you pass away is an important decision. Depending on the type of trust you’re creating, the trustee will be in charge of overseeing your assets and the assets of your family. It’s common for people to choose either a friend or family member, a professional trustee or a trust company or corporate trustee for this critical role.

Forbes’s recent article, “How To Choose A Trustee,” helps you identify what you should look for in a trustee.

If you go with a family member or friend, she should be financially savvy and good with money. You want someone who is knows something about investing, and preferably someone who has assets of their own that they are investing with an investment advisor.

A good thing about selecting a friend or family member as trustee, is that they’re going to be most familiar with you and your family. They will also understand your family’s dynamics.  Family members also usually don’t charge a trustee fee (although they are entitled to do so).

However, your family may be better off with a professional trustee or trust company that has expertise with trust administration. This may eliminate some potentially hard feelings in the family. Another negative is that your family member may be too close to the family and may get caught up in the drama.They may also have a power trip and like having total control of your beneficiary’s finances.

The advantage of an attorney serving as a trustee, is that they have familiarity with your family, if you’ve worked together for some time. There will, however, be a charge for their time spent serving as trustee.

Trust companies will have more structure and oversight to the trust administration, including a trust department that oversees the administration. This will be more expensive, but it may be money well spent. A trust company can make the tough decisions and tell beneficiaries “no” when needed. It’s common to use a trust company, when the beneficiaries don’t get along, when there is a problem beneficiary or when it’s a large sum of money. A drawback is that a trust company may be difficult to remove or become inflexible. They also may be stingy about distributions, if it will reduce the assets under management that they’re investing. You can solve this by giving a neutral third party, like a trusted family member, the ability to remove and replace the trustee.

Talk to your estate planning attorney and go through your concerns to find a solution that works for you and your family.

Reference: Forbes (May 31, 2019) “How To Choose A Trustee”

Suggested Key Terms: Estate Planning Lawyer, Trusts, Trustee, Asset Protection, Inheritance, Beneficiary Designations

Thinking about Aging? Will You Need Long Term Care?

Many people will end up needing assistance to care for themselves, as they become elderly and that help may not be provided by their children. It might be wise to look into long term care costs now, according to The Detroit News in “What to know about aging and long-term care costs.”

Here’s what often happens:

  • More than a third of seniors will need to stay in a nursing home, where the median annual cost of a private room has skyrocketed to more than $100,000.
  • Four out of 10 people will opt for paid care at home. The median annual cost of a home health aide is more than $50,000.
  • More than 50% of all seniors will incur some kind of long-term care costs, and 15% of those will incur more than $250,000 in costs, according to a study by Vanguard Research and Mercer Health and Benefits.

Medicare doesn’t pay for long-term care. Medicare does not cover what it terms “custodial” care. For most Americans, who have a median of $126,000 in retirement savings, that’s an immediate financial wipeout. They will end up on Medicaid, the government health program that pays for about half of all nursing home and custodial care.

Those who live alone, are in poor health, or have chronic conditions are more likely than others to need long-term care. For women, there are special risks, since statistically women outlive husbands and may not have anyone to provide them with unpaid care.

Everyone approaching retirement needs a plan. The options are:

Long-term care insurance. The average annual premium for a 55-year-old couple was $3,050 in 2019. The older you are, the higher the cost, and if you have chronic conditions, you may not qualify.

Hybrid long-term care insurance. Life insurance or annuities with long-term care benefits now outsell traditional long-term care insurance by a rate of about four to one. This requires committing a large sum of money up front but is a way to obtain long-term care insurance.

Home equity. Selling a home to pay for nursing home care is not the best solution. However, it may be the only solution, particularly if it’s the only asset. Reverse mortgages may be an option.

Contingency reserve. A wealthy family with assets may simply earmark some assets for long-term care, setting aside a certain amount of money in an investment that can be liquidated without penalty.

Spending down to Medicaid. People with little or no retirement savings could end up depending on Medicaid. There are ways to protect assets for spouses, but it requires working with an elder law estate planning attorney in advance.

Reference: The Detroit News (June 10, 2019) “What to know about aging and long-term care costs”

Suggested Key Terms: Medicare, Medicaid, Long-Term Care Insurance, Hybrid Insurance, Nursing Homes, Retirement Savings

Graduation Over? Time to Consider Legal Documents

It is wonderful to bring up the children, make sure they are educated and see that 18th birthday come along. However, it is important to recognize that many things change from a legal standpoint, according to grbj.com in “Give your graduate the gift of legal documents.”

Here are recommended steps to take so parents can still be involved in their children’s lives when they are needed:

Health care proxy/medical power of attorney. Even if you are the person paying for health insurance, you are not legally permitted to make decisions on their behalf. Have your child sign a proxy/POA form designating who has the primary authority to make health decisions, if he or she is unable to do so. This is especially important when parents are divorced: both parents need to have the proper forms. Your estate planning attorney will be able to prepare these for you.

Durable power of attorney. If your child has signed a durable POA, you will be able to handle their financial matters, especially if your child becomes incapacitated.

HIPAA authorization. Medical providers may not disclose a patient’s medical status, unless they have legal permission. Your child should sign a HIPAA authorization with each of their providers, giving the parent access to all their information. This is especially necessary for a child with health or mental issues.

FERPA waivers. This one takes many parents by surprise. Even if you are the one paying for tuition and all college expenses, the college will not provide academic records, including grades and tuition bills, due to the Family Education Rights and Privacy Act. Contact the college and find out exactly what forms they need to be sure you have access to all of your children’s information, including any health and mental health treatment.

Wills and trusts. If a child has assets and no descendants, they need a will or revocable trust to protect the parent’s taxable estate and allow someone to manage these assets, if they die prematurely.

Medical records. Make sure the child has access to their medical records, including medications, allergies, immunizations, etc.

Insurance. See if the family’s medical, homeowner’s and auto insurance coverage extend to a child living away at school and in another state. If the child is renting a house or apartment, make sure they have renter’s insurance.

Proof of identity. Make sure the child has access to their passport, birth certificate or Social Security card so they can get an internship or a job.

Bank accounts and credit cards. If the family’s regular bank does not have a branch where the child is attending school, the parents should consider opening a basic checking account at a local branch. Both parents and child should be on the account.

Registration. It’s time to register to vote and sons will need to register with Selective Service.

An estate planning attorney can advise you on the proper documents needed for your family.

Reference: grb.com (June 7, 2019) “Give your graduate the gift of legal documents.”

Suggested Key Terms: Graduate, Health Care Proxy, Medical Power of Attorney, Durable Power of Attorney, HIPAA Authorization, FERPA Waivers, Wills, Medical Records, Insurance

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