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Five Estate Planning Challenges

When setting up your estate plan, you should devote a little extra time to the unique things about your family and beneficiaries that could cause problems down the road. After all, who knows the strengths and weaknesses of your family members better than you? Are there any situations that might require special treatment in your legal documents? This article provides five common estate planning challenges to consider, especially to help prevent future “Family Feuds,” as discussed in the three-page article.

You Might Have Memory Issues

As we get up in years, some of us occasionally get a little forgetful. Your loved ones might wonder whether you have memory issues. Nonetheless, if you are in your seventies or older, or you suspect your natural heirs might have questions about your mental capacity, you can be proactive. You can create the strong evidence now to prove your “legal capacity” to engage in estate planning, should that ever be challenged later. This evidence can help ensure that any challenge to your estate plan will fail, on the grounds that you somehow lacked the capacity to make plans.

Where do you start? Schedule a full physical examination and competency evaluation by your regular treating physician. Have him or her provide a letter, near the time you make your estate plan, stating that you are of sound mind. This strategy protects your wishes, in the event of a future potential estate contest.

Special Beneficiary Concerns

Nearly every family has a member who could be vulnerable in the future. This is why careful planning is required. Only you can make those plans. This is especially important in situations where a family member has special needs or issues with addictions.

For any family member with special needs who is receiving any form of means-tested public benefits, you might consider a special needs trust to preserve that family member’s eligibility for such assistance, while having use of trust assets set aside to “supplement” their needs and wants not otherwise provided. If the special needs trust planning is not done properly, the family member may become ineligible for benefits. Even if the family member is allowed to maintain eligibility by the government programs, any assets remaining in the trust at death will not pass along as you may have intended. How? When the beneficiary dies, the government will take the assets remaining in the trust as reimbursement for any public assistance benefits the family member received during his or her lifetime. There is seldom any money left over after that reimbursement for further distribution to other family members.

Drug and alcohol addiction are rampant in our society. If your family has not been touched by this fact of modern life, then consider yourself very fortunate. If you have children or grandchildren who struggle with substance abuse or misuse, you can take steps to avoid providing the financial resources to further “fuel” their addictions. For example, one way to protect an inheritance from and for your heirs with addictions, is through a long-term discretionary trust. This type of trust can be tailored to meet the need to protect the inheritance from being used to fund life threatening “benders” and to protect it from the consequences of bad conduct. In addition, a long-term discretionary trust can provide funds for addiction treatment and even “incentives” to get clean and engage in responsible living.

Acrimonious Heirs

When two siblings have a history of not getting along, it rarely gets better when there is an inheritance between them. How can you avoid creating situations that are likely to trigger litigation over your estate? For example, you might not want to force these two siblings to work together as co-trustees. You might want to give each of them roughly equal inheritance shares and, if you do not, provide an explanation regarding why the shares are not equal.

While these two siblings may never become friends, you should take proactive steps to avoid a preventable legal challenge to your estate plan. These lawsuits could drag out the distribution of assets to all your beneficiaries and deplete the estate financially. When someone files a lawsuit against your estate, the estate must defend your estate planning. Every dollar the estate is required to spend on court costs, experts and legal fees is money that does not go to your heirs. Do you really want to make trial lawyers your heirs by default?

Heirs with Different Financial Needs

It is common for a parent to leave a valuable asset, like the family home, to all of the children equally. What if the local real estate market is down? A sibling who has steady employment at a well-paying job might want to hold onto the house until the market rebounds. Another sibling who has significant debt or uncertain job prospects, might want to sell the home now and split the proceeds.

Selling the house now will mean that all the siblings will receive less money, than if they waited until the market recovered. There might be costs associated with holding on to the home but renting out the house could offset those expenses. Instead, consider giving each heir different assets of equivalent value or using a life insurance policy to provide quick funds for a child who has financial insecurity.

A “Needy” Heir

Sometimes an heir has significantly higher needs than your other similarly situated beneficiaries, such as siblings. For example, a grandchild has cancer. As a result, your adult child has massive medical bills. Perhaps your child had to leave his job to serve as your grandchild’s full-time caregiver. On the other hand, your other adult children are financially secure, with high-paying jobs, retirement accounts, little debt, healthy families and substantial savings. If you want to give one person a significantly larger portion of your estate than other heirs at the same generational level, like siblings, you should call a family meeting. Sit down with all of them and tell them what you want to do and why. You might find that they will endorse your plan whole-heartedly. At worst, the disparity of inheritance shares will not come as a surprise.

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Blended Family Estate Planning

In 1960, nearly three-quarters of children lived with two parents who were in their first marriage. The children in the household were all full siblings. Now, only 46 percent of children live as full siblings with both first-marriage parents.

Blended Family Reality

“Blended families” are now the norm and not the exception. Whether formed after the death of a spouse or following a divorce, blended families themselves are not limited to any particular age demographic. With increased life expectancies, many more seniors tie the knot even into their 90s. While the divorce rate in America is declining slightly, so-called “gray” divorce is on the rise for those age 50 and older.

Unique Estate Planning Challenges

Just as the American family has changed over the last 60 years, so has the need for careful attention to estate planning. For the traditional nuclear family, inheritance planning can be straightforward. Typically, after one spouse dies, all assets pass to the surviving spouse. Thereafter, when the surviving spouse dies, everything passes to the children. However, what if that surviving parent remarries? That is when things can get interesting.

For starters, before that widowed parent in this illustration remarries, a valid and binding prenuptial agreement should be signed by both future spouses. In the absence of a prenuptial agreement, the new spouses have rights under state law to one another’s assets, if the marriage does not work out. In addition, if the marriage does last and one spouse predeceases the other, then the surviving spouse has rights under state law to the assets of the deceased spouse. Note: even with a prenuptial agreement, the assets of both spouses are considered for purposes of Medicaid qualification should one spouse need long-term care.

Title and Beneficiary Designation Traps

It is not uncommon in a blended family for children to be unintentionally disinherited, when their parent is the first spouse to die. How does that happen? It is due to a failure to understand and appreciate the deadly traps set by how assets are titled and how beneficiary designations work. Here is how it works: even if the first deceased spouse has a last will that leaves everything to his own children, everything owned jointly with the surviving spouse with “rights of survivorship” (or as “tenants by the entirety” in some states) will pass automatically to the surviving spouse. By “operation of law” title can “trump” a last will. This also applies to any asset that is designated to pass at death to the surviving spouse. For example, if a surviving spouse did not formally “waive” her interest in his 401(k)retirement plan after the marriage was official, then she inherits the retirement plan. This is the case, even if his children are the designated beneficiaries.

Disinheritance Alternatives

If you want to provide for your new spouse and your own children, then it takes open communication and careful estate planning. For example, assuming that you enter into a valid and binding prenuptial agreement, you may set aside certain assets in trust to provide for your new spouse, with the balance of the assets passing to your own children. Later, following the death of your new spouse, those assets set aside in trust can pass to your own children. In the end, you want to create clear-eyed legal plans, so you can enjoy your new marriage and avoid unintended consequences.

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Trust Funding Fundamentals

Creating a revocable living trust (RLT) can be an essential foundation of your estate planning. Nevertheless, your RLT is nothing but a stack of paper until it holds title to your assets now or in the future. Either way, this process is commonly known as “funding” an RLT.

An Overview of Transferring Assets to a Trust

Until you fund your RLT, it has no assets to manage should you become incapacitated or to distribute upon your passing. If you are married, likely you own some assets individually and some jointly with your spouse. You and your spouse set up either one joint RLT or each of you has your own RLT. Either way, you need to transfer the title, assign ownership rights, or change the beneficiaries of all the assets you want to be held in trust.

If you do not complete these steps, your trustee cannot manage your assets when you become disabled or die. Your assets that were not retitled will be subject to probate and “probate avoidance” is one of the fundamental purposes of estate planning with an RLT. With regard to those assets, you will lose all of the benefits of having an RLT. Your intended beneficiaries might not inherit the assets you intended in the way you intended.

How to Fund Your Trust

The procedure for funding your trust will depend on the type of asset. Some assets need to be titled in the RLT now, while other assets should be transferred to your RLT at death through beneficiary designations.

Assets You Need to Retitle

Generally speaking, investments, bank accounts, and real estate should be formally retitled without delay. For example, you might change the title from “Pat Smith,” “Robin Smith,” or “Pat and Robin Smith” to “Pat and Robin Smith, Trustees, or their successors in trust, under the Smith Family Living Trust, dated June 1, 2020, and any amendments thereto.”

You can transfer these assets into your trust using this method:

• Checking and savings accounts
• Investment and brokerage accounts that are not IRAs or 401(k) accounts
• Stocks or bonds in certificate form
• Your home and other real estate

You can change the ownership of these accounts because they already have legal titles.

Changing the Beneficiary

Sometimes you simply need to re-designate the primary or secondary beneficiary on certain assets to your RLT. For example, on your life insurance, 401(k), 403(b), or IRA, all you need to do is change the beneficiary to the trust. You still directly own the asset until your death. Changing the beneficiary also works for some medical savings accounts (MSAs), health savings accounts (HSAs) and pension benefits.

Certain federal or state laws might restrict your right to change beneficiaries. The specific language that you must use to retitle assets to your trust can also differ from one state to the next. Before designating an RLT as a designated beneficiary of a retirement fund, be sure to seek legal and tax counsel.

Assets Without Legal Titles

Remember to “assign” your ownership rights in assets that may not have legal titles. The kinds of assets in this category may include:

• Items of “tangible personal property” (e.g., antiques, artwork, musical instruments, collections and jewelry)
• Money owed to you for personal loans
• Copyrights and patents
• Royalties
• Some mineral, gas and oil rights
• Interests in partnerships and other business ventures

After the assignment, your RLT will own your rights, title and interests with regard to these assets.

Final Thoughts

Like estate planning itself, the “funding” process is a “process,” not a set-it-and-forget-it event. Consequently, as you buy, sell, and trade assets of whatever nature or kind, be mindful of the need to ensure proper title and beneficiary “alignment” with your estate plan.

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Crucial Coordination

Sometimes we are most vulnerable in life when we do not know what we do not know. So it is with estate planning. Have you coordinated your estate planning to provide smooth sailing ahead for you, your loved ones, and your assets? In this article we will consider a few areas you may need to shore up to ensure that your estate plan is truly ship-shape.

Estate Plan Essentials

Most people mistakenly think of “estate planning” as merely a distribution plan for assets after death. While that is an important aspect of estate planning, the process really begins with life planning. With life expectancies on the increase there is a corresponding increase in the likelihood that our mental and physical abilities will not keep up with our birthdays. Consequently, future falls, strokes, or Alzheimer’s can leave us legally incapacitated. What then?

What legal arrangements have you made for your own care in the event you become incapacitated? Have you legally appointed trusted family members or friends to make your personal, health care, and financial decisions? If no, then a judge who does not know you will appoint someone for you through an expensive court process that will invade your privacy, too.

Do you still have minor children in the home? If yes, have you legally appointed guardians (i.e., backup parents) to rear them to adulthood should they be orphaned? This is one of the most fundamental responsibilities of parenthood. In the absence of proper legal planning on your part a judge may make this decision for you. Who knows the needs of your children and the best guardians for them, you, or that judge?

When it comes to the distribution of your assets, have you taken steps to protect the inheritance “from” and “for” your loved ones depending on their unique needs and circumstances? Squandering, divorces, lawsuits, or bankruptcies can quickly consume a lifetime of work represented in an inheritance. Do you have any family members with special needs or potential problems with addictions? When it comes to inheritance protection planning, remember the words of famous jurist Oliver Wendell Holmes who advised “Put not your trust in money, but put your money in trust.”

Retirement Plan Requirements

Speaking of protecting the inheritance, do you have any retirement funds? For many Americans retirement funds are a large part of their estates. Until a unanimous decision by the U.S. Supreme Court in June of 2014, the conventional estate (and income tax) planning wisdom was to designate adult children as the direct, contingent beneficiaries after one’s own spouse rather than a trust for the benefit of those adult children. This approach avoided the complexities of designating a trust as beneficiary for the adult children when seeking to maximize the opportunity to “stretch” retirement fund distributions over their respective life expectancies.

In the case of Clark v. Rameker, however, the high court ruled that, unless otherwise exempted under applicable state law, “retirement funds” are not entitled to any special asset protection treatment and would be subject to the creditors of direct beneficiaries who are individuals. (Note: If the surviving spouse rolls the inherited retirement funds into his or her own IRA, then such funds would be protected for him or her.) Consequently, if you want to protect retirement fund distributions from the potential creditors of your loved ones, then special alternative arrangements should be evaluated sooner rather than later. If you want to protect and maximize the “stretch” option for non-spousal beneficiaries, then you may want to consider creating a stand-alone IRA trust to serve as the designated beneficiary of your retirement funds.

Long-Term Care Logistics

Fortunately, you can make sure all of your “estate essentials” are in place and that you have secured protection for retirement fund distributions for your loved ones, but unless you make plans to fund your potential long-term care expenses all of your planning may be for naught. In short, there may be no “inheritance” to leave. Why?

If you or your spouse need long-term care, expect some sticker shock. According to the latest figures from 2018*, the average annual cost of a private room in a skilled nursing facility is $100,375, and $48,000 for a one-room unit in an assisted living facility. When someone first enters a long-term care facility most of their initial expenses are paid out of cash and savings. Next, their investments are liquidated and, finally, retirement funds are drawn down.

Once the monthly long-term care bills are being paid from retirement funds, the fund balance can disappear rather quickly. Every dollar withdrawn is subject to income taxation at ordinary income rates because the funds were created with pre-tax dollars and have grown tax-deferred until withdrawal.

Fortunately, you can make plans now to protect and preserve your assets from long-term care liquidation later.

One alternative is to engage an elder law attorney who can help you with legal strategies designed to help you qualify for Medicaid eligibility, if needed.

Another alternative is to acquire long-term care insurance to provide the dollars should you need them. This insurance is now available in a variety of forms that can coordinate nicely with your budget and estate planning objectives.

For example, one popular version allows you access to the cash value of the policy, pays for your long-term care if needed, and pays a life insurance death benefit to your loved ones if you do not need long-term care.

In the end the only way to protect yourself, your loved ones, and your assets is through a well-designed strategy that coordinates your estate essentials, retirement funds, and long-term care planning. Be sure to work with experienced legal counsel who can coordinate a seaworthy strategy with your financial advisor and insurance professional. This is not a DIY project.

*Genworth “Cost of Care Survey 2018”

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Trust Administration Matters

If you have never served as a fiduciary before, it might feel somewhat daunting to be appointed to serve as the trustee of a trust. This is true whether the trust is created under a will (i.e., a “testamentary trust”) or is an irrevocable trust created under a revocable living trust, only after the maker of that trust dies.

It is preferable it the person establishing the trust notified you in advance of your appointment. If they did, then you should ask for a copy of the legal document appointing you and ask to have the preparing attorney provide you with an overview and address your questions. It is far better to know the responsibilities you will be taking on and politely refuse the appointment now, than it is to bail out when the appointment takes effect later. But first, what are some of those responsibilities?

Trustee 101

A trustee may be a person or a financial institution, or both. The trustee holds legal title to property for the benefit of another and acts according to the terms of the trust. The trust document will identify who the trustee is. If the person who set up the trust was the initial trustee (as in a revocable living trust), then you might be named as successor trustee to administer the trust, when the original trustee becomes incapacitated or dies. For example, John might set up a living trust and put all his assets into the trust. He is the initial trustee. John handles all the administrative matters of the trust during his lifetime. When John dies, the person and/or institution appointed as his successor trustee assumes complete control.

If a trust appoints you as the successor trustee, you do not have to do all the work yourself. Handling the assets of another can monopolize your time, so many people hire and supervise specific professionals to do some or all the work. For example, you may have an accountant take care of the taxes. Alternatively, the trust may authorize you to appoint an institutional trustee to handle all the “heavy lifting” responsibilities, with you overseeing that trustee.

Trust Administration

The specific actions that a trustee must take require the utmost integrity and care, including the following responsibilities:

• Read the trust agreement. Make sure you understand what the trust directs you to do. Get professional advice, if you have questions. You need to know who the beneficiaries are, what they are supposed to receive and when you must make distributions to the beneficiaries.
• Marshal the assets. In other words, you need to find, secure and value all trust assets as soon as possible. You may be required to file a claim to collect certain assets, like the proceeds of life insurance policies. You may need to hire a professional appraiser to value some assets, like the contents of the home, jewelry and vehicles.
• Identify and pay all final expenses, personal and trust taxes and legitimate debts of the decedent. Some bills must be paid promptly. You also must provide proper notice to known and likely creditors.
• Distribute assets. Follow the trust agreement carefully, when making distributions to beneficiaries. Be prepared to say “no” to beneficiaries, when they demand distributions that are not authorized by the trust.
• Terminate the trust. After paying all expenses, debts, taxes and distributing all trust assets (if the trust so permits), you can terminate the trust and conclude your duties as trustee.

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends and favorite charities. For more information be sure to visit our web site where you will have access to our blog, events schedule and a complimentary newsletter subscription!

Estate Planning for Cohabitants

Cohabitation is not a new concept. Many couples decide to live together, buy property and rear children together before they get married, or instead of getting married. For some couples, it makes more financial sense to remain unmarried. For others, the decision not to marry may be more personal. Regardless of the reason, the important point is to ensure that you are each protected in the event one or the other of you becomes incapacitated or passes away.

Too often, we hear about couples who have lived together for years, amassing assets, rearing children and becoming financially and emotionally dependent on each other, only to have one partner die. This leaves the other partner with no legal rights to any of their deceased partner’s assets. Ever heard of “The Girl with the Dragon Tattoo”? Author Stieg Larsson passed away without a will, leaving his partner of 32-years without any legal rights to any of the book profits or the literary estate. Swedish law, like American law, grants estates left without a will to the next of kin.

With a little planning, you can avoid this type of negative outcome and take care of your partner, in the event you pass away. Let’s review some of the important financial and medical documents you should have, if you are cohabiting.

Wills & Trusts

A will enables you to designate how your assets will be distributed upon your death. Trusts can do the same thing, although there are certain assets that cannot be held in trust. Trusts are beneficial, because they allow assets to pass to your beneficiaries, without having to go through probate. Each situation is unique, so great care should be taken when evaluating whether a will, a trust, or both, is appropriate for you and your partner.

Without a will, your estate will be distributed, according to your state’s intestate laws. This generally means that your children, siblings, or parents will receive your assets when you die — not your cohabitation partner. For cohabiting couples with minor children, remember to designate your partner as guardian (i.e., backup parent) of your children in your will.

Beneficiary Designations

Bank accounts, investment accounts, and retirement accounts allow you to designate one or more beneficiaries to receive those assets when you die. You will want to check these designations annually and whenever you have a major life event, such as a birth, death or change in marital/relationship status — just to make sure that each asset is designated to pass where you intend.

Life Insurance

If you have minor children or if one partner relies heavily on the other for financial support, then adequate life insurance is essential. Life insurance can help defray the costs of your funeral, help your partner pay off debts, fund college educations and meet day-to-day living expenses. Life insurance proceeds can give your partner some breathing room during a difficult time.

Financial & Health Decisions

A durable power of attorney for financial matters gives your partner (or other trusted agent) the power to sign documents and manage your financial affairs, in the event that you become incapacitated.

Like a financial power of attorney, the healthcare power of attorney gives your partner/agent the power to make healthcare decisions on your behalf, should you become incapacitated.

Living Will/Advance Directive

This document enables you to document how you would like to be treated, if you are rendered unconscious for an extended period of time or suffer from catastrophic injuries. It is also a good idea to discuss your wishes with your partner, before either of you becomes incapacitated, to ensure that you are on the same page.

Funeral Wishes

Writing down your funeral wishes can help take a load off of your partner, as well as take any guesswork out of the process. This also can avoid arguments with family members, who may have a different idea as to how to memorialize your partner’s death.

Cohabitation Agreement

Every relationship deserves to have its terms set down in advance. Like a prenuptial agreement, a cohabitation agreement outlines how income and assets will be treated during the course of the relationship and how assets will be distributed, when the relationship ends.

Property Title

In general, when two people buy property jointly, whether married or unmarried, they often do so as joint tenants with right of survivorship. This means the property automatically passes to the surviving owner, without going through probate. For unmarried couples, this may have unwanted tax and non-tax consequences. Accordingly, be sure to get legal and tax advice, before changing title to assets in this form of ownership.

Child Custody

When it comes to children, non-biological parents can often run into trouble when the biological parent dies. Second-parent adoptions are an option in some states, but it is always a good idea to spell out who will have custody of your children, when you die. In most, but not all states, a will is the appropriate legal document to nominate the guardian (backup parent) for your minor children. If the other biological parent is deceased or legally unfit, then you may nominate your partner as guardian in place of other family members.  Non-biological parents may also need to have documentation giving them the right to authorize medical treatment for their non-biological children.

The Takeaway

The decision to marry is a personal one. If you choose not to, be sure to protect yourself, your partner and any minor children you may have by taking the time to ensure that your financial, medical, and legal documents are in order. There is no better way to show that you love and care for your partner than by reducing his or her stress, if life gets complicated.

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends and favorite charities. For more information be sure to visit our web site where you will have access to our blog, events schedule and a complimentary newsletter subscription!

A Long-Term Care (insurance) Primer

Good news. The longer you live, the longer you live. Bad news. With each birthday you may lose the ability to take care of yourself physically, mentally, or both. Physically speaking, you may not be able to perform one or more of the “activities of daily living” (ADLs) like bathing, dressing, eating, toileting, or getting in and out of bed. Before that you may lose the ability to perform “instrumentalities of daily living” (IADLs) such as household chores, meal preparation, or managing your finances. Mentally, beyond common everyday forgetfulness, Alzheimer’s and dementia can rob you of the ability to recognize even your closest loved ones. Whoever said “growing older is not for sissies” was right.

Long-Term Care Challenges

If you cannot perform various ADLs or IADLs, then you will lose a bit of your personal independence. Take heart, however, as you are in good company. Some 70 percent of Americans who reach age 65 will require long-term care assistance, but many have no idea how to pay for it. And, yes, it is expensive. According to the latest figures from 2018*, the average annual cost of a private room in a skilled nursing facility is $100,375, and $48,000 for a one-room unit in an assisted living facility.

What is your plan regarding who will help you and where you will receive that help? How will you pay for it? In the end, will the only thing your children “inherit” be you? There are five options when it comes to paying for long-term care.

Some Payment Options

• Personal and Retirement Savings frequently are depleted when one spouse requires long-term nursing care.
• Medicare may pay for a limited amount of short-term skilled nursing for patients who qualify.
• Medicaid is a means-tested benefit that may pay long-term care costs for those who meet strict financial eligibility requirements.
• Family members, historically, have been the primary source of caregiving, but for many, this may not be a realistic option. Nevertheless, some states have laws that hold adult children financially responsible for the long-term care needs of their parents.
• Insurance is a proven option. In fact, we already buy various types of insurance with premium payments we can afford to cover catastrophic financial losses we cannot afford. We insure our homes, our automobiles, and even the economic value of our lives. Long-term care insurance (LTCi) is an option that can help maintain your independence later in life and financial peace of mind for you and your loved ones.

LTCi Features and Benefits

Traditional LTCi functions much like automobile insurance. You pay premiums, get nothing out of the policy unless you have some sort of damage to your automobile. Alternatively, in response to consumer demand, some LTCi policies are actually “riders” to life insurance policies. Eventually the policy will either be there for your long-term care needs or it will pay an income tax free death benefit to your loved ones. This death benefit can even be used to compensate a loved one who took time out of the work force to care for you before you needed full-time professional care.

Most LTCi policies share some common features and benefits. Here are a few you should know:

• Benefit Amount: How much and how long will the policy pay? Look to your family history regarding the long-term care experiences of your parents and grandparents. It is, after all, hard to fool the gene pool.
• Benefit Triggers: When will the policy pay benefits? Which and how many ADLs must you be unable to perform without assistance?
• Inflation Protection: The senior population with retiring Baby Boomers is set to explode. Remember the law of supply and demand? Will your Benefit Amount purchasing power keep up with inflation?
• Level of Care: Are Home, Custodial, and Intermediate Care covered, along with Skilled Nursing Care? About 80 percent of all long-term care is provided at home, whether in one’s own home or the home of a loved one.

Buyer Beware!

Have you heard of the legal doctrine Caveat Emptor? Translated from Latin it means let the buyer beware. Perhaps look before you leap is another maxim expressing the same sentiment. When it comes to LTCi, the policy is only as good as the underwriting company. Accordingly, do your due diligence homework on the financial strength and reputation of any LTCi company under consideration.

Insurer Ratings

The Internet is an excellent source for information and, when it comes to insurance company ratings, it will not disappoint. Several of the established insurer rating companies are A.M. Best (www.ambest.com), Fitch Ratings, Inc. (www.fitchratings.com), Moody’s Investors Service, Inc. (www.moodys.com), Standard & Poor’s Rating Services (www.standardandpoors.com), and Weiss Ratings (www.weissratings.com). In addition, a treasure trove of information and resources about LTCi and insurers can be found at the National Association of Insurance Commissioners website (www.naic.org).

*Genworth “Cost of Care Survey 2018”

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Estate Planning Hazards

Figuratively speaking, life is chock full of road hazards. If we know where they are, then we can avoid them. It is the unknown hazards that are the problem. Just like when you’re traveling on an unfamiliar road, it is best to learn from the experiences of those who have been down that road before. For example, if that automobile in front of you swerves to miss a crater in the road, then you may want to do the same. So it is with your estate plan. We can learn a lot by the failures and near misses of others. In that spirit, consider two commons sources of dangerous estate planning hazards: beneficiary designations and joint tenancy ownership.

Beneficiary Designations

Depending on the state in which you live, virtually any titled asset may pass directly upon death simply by adding a beneficiary designation. Likely, many of your assets will pass by a beneficiary designation, to include life insurance, annuities, and retirement funds. In addition, the non-probate transfer laws of many states provide for “pay on death” or “transfer on death” designations that work in much the same manner. Consequently, you may even designate beneficiaries for bank accounts, CDs, stocks, and other assets. Some states provide for the transfer of real estate through use of a special transfer on death deed.

Arranging for the transfer of your assets at death by beneficiary designations is attractive for several reasons, to include its simplicity and the fact that little to no attorney work is required. While all of this looks smooth on the surface, beneficiary designations can become serious hazards when it comes to your estate planning objectives.

Beneficiary Designation Hazards

For example, did you know that any assets designated to pass directly to your beneficiaries are not subject to the terms of your estate planning legal documents like your will or trust? Consequently, you may be disinheriting some of your heirs in whole or in part. In addition, any asset protection or special needs planning you created in your will or trust may not take effect as intended. Keeping your beneficiary designations current is vital to the success of your estate plan. You cannot simply take a “set it and forget it” approach.

Joint Tenancy Ownership

If you own any assets jointly with others, then you are in good company. Joint tenancy is one of the most common forms of asset ownership. In fact, if you own a bank account, brokerage account or perhaps real estate with one or more persons, then chances are quite good that you and they may be joint tenants. The full legal expression for this form of ownership is joint tenants with rights of survivorship (JTWROS).

Although JTWROS is most often found on the title to assets owned by married couples in common law states, residents of community property states also should understand JTWROS given the mobile nature of our society. In some states a special form of joint ownership called tenancy by the entirety is available to assets held solely between spouses. There are special “asset protection” aspects to tenancy by the entirety ownership that can be very beneficial.

When one or more persons hold title to an asset as joint tenants, each of them owns the asset. In most cases, if one joint tenant becomes incapacitated, then the other joint tenant may continue to fully control their JTWROS assets without interference because of their concurrent ownership rights. When one joint tenant dies, the remaining joint tenants continue to own the asset without the need for probate. Ultimately, the sole surviving joint tenant owns the entire asset. This “right of survivorship” is one of the attractive legal features of JTWROS.

Not surprisingly, many JTWROS relationships are between family members. It just seems like the natural thing to do and, especially between spouses in a long-term marriage, it reflects the financial partnership of their commitment.

For this reason many widows, widowers, and other single adults may add trusted family members or friends as JTWROS to their assets. Nevertheless, as with most things in life, there are hidden hazards when it comes to this form of asset ownership.

Joint Ownership Hazards

While it is true that JTWROS may avoid probate at death, this is true only if there is at least one living joint tenant who is not also incapacitated. To ensure this, however, most people add non-spouses as joint tenants.

Whether it is children, siblings, or friends, resist the temptation! Once you add a joint tenant to a given asset, he or she also owns the given asset just as you do. What you may have intended merely as a convenience has instead subjected the control, use, and enjoyment of such asset to the potential liabilities of each joint tenant. These liabilities may come in many forms through your joint tenant, to include divorces, lawsuits, or creditors.

To make matters worse, your plans for the eventual distribution of your assets may be lost through JTWROS ownership. For example, your will or trust may not control assets held in JTWROS. Quite often assets passing to a surviving spouse later end up in JTWROS with a new spouse. That new spouse (and stepchildren) ultimately may receive assets from the previous marriage instead of the children for whom they were originally intended. Disinheritance risks must be carefully considered in every blended family situation.

Closing Thoughts

As with any decisions affecting beneficiary designations and asset titling, be sure to consult with an experienced estate planning attorney. Otherwise, you may fall victim to some extremely unpleasant legal hazards.

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends and favorite charities. For more information be sure to visit our web site where you will have access to our blog, events schedule and a complimentary newsletter subscription!

Disability Legal Planning for All Ages

A life-altering disability can strike at any time, regardless of your age. From a complicated pregnancy to a serious automobile accident to a cancer diagnosis, these situations can have a significant impact on your life and the lives of your loved ones. Because one-in-four working-age adults may become disabled before they retire, there is a chance you may become disabled. Prior legal planning is essential to reduce the legal hardships caused by a debilitating illness or injury. Here are a few tips to help you make proper disability legal plans.

Create Powers of Attorney

If you were disabled due to an injury or illness, who would make your personal, health care, and financial decisions? Would you rather it be someone you know and trust, perhaps a family member or friend, or would you prefer someone appointed for you by a judge who likely knows nothing about you, your family and your circumstances? If you are like most people, you would choose the former alternative over the latter. Unfortunately, without proper advance legal planning, the latter is the default and more common result.

Since none of us knows when to expect the unexpected, you need to create a durable power of attorney for health care decisions and a durable power of attorney for financial decisions. The word “durable” means the authority that you give the person appointed in your power of attorney, will continue in force should you become disabled. After all, that is when you would need them to act for you, right? This is an important point to remember.

Health Care Matters

Creating a durable power of attorney for health care decisions is truly a matter of life and death. Who better to advocate your health care needs than someone selected by you, who knows you better than the doctors and nurses treating you? As a result, you should share with your agent the nature of treatments you would want (or not want) under a variety of scenarios.

A health care treatment directive is a document commonly completed with the durable power of attorney for health care decisions. Its purpose is to provide written evidence and guidance regarding your end-of-life medical care. Be as general or specific as you wish. While you are at it, do not forget to include a HIPAA authorization as part of your health care disability planning. Such an authorization is necessary under federal law to allow your health care providers to disclose otherwise confidential and protected information to your agent.

Financial Matters

If the durable power of attorney for financial matters is “general,” then your agent (also known as an “attorney in fact”) may have very broad authority to act on your behalf. For example, the agent may be able to sell your home, sign and file your tax returns and pay ongoing bills from your account. On the other hand, if the durable power of attorney is “special or limited,” then your agent will have authority restricted to the acts you specify in the document. The scope of the authority you authorize is worthy of careful reflection. There have been cases where agents have exceeded the intended authority.

In addition to controlling the extent of authority you are authorizing under your general durable power of attorney, you may control when it becomes activated. If you want the authority to begin only when you become disabled, then you will want to create a “springing” power of attorney requiring some specific proof of your disability defined in the document itself. Otherwise, the authority of your agent may become effective immediately.

Trust Planning

One of the advantages of a revocable living trust is that it isn’t limited to after-death planning, but can also plan for disability. It can provide far more detailed instructions than a standard power of attorney including such things as:

• Determination of disability by a panel that includes your spouse or family members instead of just a physician or two
• Instructions on your personal care during disability, whether at home or in a medical facility
• Instructions on the management of your financial and business affairs
• And much more

Of course, the instructions in a trust will only pertain to those assets that are managed by the trust, which is why proper asset titling is so important in estate planning.

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends and favorite charities. For more information be sure to visit our web site where you will have access to our blog, events schedule and a complimentary newsletter subscription!

Medicare vs. Medicaid

People often confuse Medicare with Medicaid, which is understandable. The names are similar, and they are both government programs that help people with medical care. Some people are eligible for Medicare only. Others might be eligible for Medicaid only, and still others might be eligible for both programs.

Medicaid vs. Medicare

There are significant differences between the two programs.
Medicaid is a hybrid program that receives some of its funding from the federal government and some from each state. Since each state runs its own Medicaid program, every state’s variation of Medicaid is unique. It is important to understand the nuances of how Medicaid works in your own state. Medicare is a federal program and its benefits are fairly uniform across the country.

Source of Funding

States and the federal government pay for the Medicaid programs out of their annual budgets. Taxes and other sources of revenue provide the funds that the state and federal governments use to pay for Medicaid.

Medicare’s funding comes from withholding from your paychecks, while you are employed. That withheld money is deposited into a trust fund that provides insurance to help pay the medical bills of eligible individuals.

Type of Program

Medicaid is an assistance program that helps people with low income, regardless of age and whether you have paid into the system. Depending on your income, you might have to pay a small co-pay, but there are no monthly premiums.

Medicare is an insurance program, not an assistance program. You are only eligible for Medicare, if you paid enough money into the program from the withholdings your employer took out of your paychecks for Social Security and Medicare taxes. Think of Medicare as health insurance that you pay for throughout your entire working life, but you do not start to access the benefits until you are 65. However, even then you continue paying monthly premiums, co-pays and deductibles.

Eligibility

Medicaid covers the elderly, people with disabilities, pregnant women, families and children who meet the low-income guidelines. Eligibility differs from state to state, so you might qualify in one state but not another.

To be eligible for Medicare, you must be at least 65 years old, (unless you have a disability), or have End Stage Renal Disease. Either you or your spouse must have worked for at least 10 years at a job that paid Medicare taxes to get Part A (hospital coverage), without having to pay a monthly premium. If the time worked was fewer than 10 years, you will pay a monthly premium for inpatient coverage (Part A).

There are some ways around having to pay the monthly premium for Medicare Part A. People with certain disabilities are exempted. If you are receiving or are eligible for Social Security or Railroad retirement benefits, you can also receive Part A premium-free.

Medicare does not care how much money you make for purposes of eligibility. Having a high income can affect the premiums you pay for Part A or Part B (outpatient care), but there is no limit to the amount of income you can have and still be eligible for Medicare. After all, you earned the right to get Medicare by paying Medicare taxes out of your paychecks for all those years.

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