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Estate Planning Hazards

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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.

Disability Legal Planning for All Ages

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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.

Medicare vs. Medicaid

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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.

Who Me? A Fiduciary?

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Who Me? A Fiduciary?

Fiduciary: involving trust, especially with regard to the relationship between a trustee and a beneficiary (adjective). A Trustee (noun).

So, has a family member or friend appointed you as a “fiduciary” for his or her estate plan? If yes, then consider it an honor to be considered worthy of such trust and confidence. On the other hand, be mindful of the attending responsibilities you will need to fulfill. In fact, any failure to satisfy these responsibilities could land you in hot water. Those are consequences you want to avoid.

What is a Fiduciary?

For our purposes, the legal titles for a fiduciary in the estate planning, estate administration and estate distribution contexts include executor, personal representative or trustee. The difference between these titles is the specific role played by the fiduciary at a given time. Commonly, the roles of executor, personal representative and trustee are played by the same person.

Executor and personal representative are really different titles for the same role: the person appointed in a will to wrap up an estate in probate. This role lasts only until the probate process is formally closed and the will directs that the estate is either distributed outright to the beneficiary (or beneficiaries) or to a trustee appointed in the will as “beneficiary” for administration and distribution to the actual beneficiaries under the will.

As an alternative to using a will and its eventual probate, a living trust can be created while the estate owner is living. If properly created and funded, this approach may avoid any future probate of the estate whether distributed outright or otherwise.

Why do people choose to leave estate assets in trust for their loved ones instead of simply providing for outright distributions? The reasons are as varied and unique as each family situation. For example, heirs may have special needs, spendthrift tendencies, marital problems, lawsuits or bankruptcy issues. In addition, there may be legacy assets to preserve and retain long-term, such as family businesses, farms, ranches or vacation homes.

All that noted, before you agree now to serve as a fiduciary later, you should get informed, organized, connected and, ultimately, protected.

Get Informed

If you have been appointed as a fiduciary, there are certain steps you should take to help ensure all goes according to plan when the time comes for you to assume your duties.

For example, what is the estate game plan, and how do you fit into it? What better person to educate you regarding the estate plan and the assets involved than the person actually appointing you in his or her estate plan. Schedule time to meet face to face and request copies of all relevant legal documents in advance. Also suggest that the drafting attorney be present to provide an overview of the estate plan and answer any questions you may have after reading the legal documents.

Consider making a list of questions before the meeting. For example, you may want to know who will be guiding you through the process, whether co-fiduciary and successors have been appointed, whether you may hire legal, accounting and/or investment professionals and whether you can appoint a corporate fiduciary if anything gets too complicated. Also, you may want to know whether you will be compensated for your services (or at least reimbursed for out-of-pocket expenses).

Get Organized

One of the essential keys to a successful estate plan is the degree to which it is organized and the level of recordkeeping before you step in as trustee. Why? The person who owned the assets, created the estate plan and appointed you will no longer be among the living when you assume your responsibilities. Without proper organization and recordkeeping, you could spend months (or years) on a very time-consuming and expensive “treasure hunt” that could have been avoided. For example, does the estate owner have a safe-deposit box? If yes, which bank, what is the box number and where is the key kept?

Therefore, in addition to copies of all relevant legal documents, ask the estate owner to provide you with a detailed schedule of his or her assets. This schedule should include what they are and where they are located. The more detail, the better.

Get Connected

While you are at it, after having met with the estate planning attorney, have the estate owner provide the names and contact information for his or her CPA, insurance agent and financial advisor. Follow up with a quick note or email introducing yourself, as communication is a two-way street. Consider meeting with these individuals, as you may be working closely together and having a relationship established beforehand may make working together easier.

Get Protected

Your fundamental duty as a fiduciary is loyalty to the estate owner and his or her beneficiaries while remaining impartial and avoiding conflicts of interest. You also must manage and account for the assets under your stewardship even more carefully than your own. This includes insuring physical assets and taking steps to preserve the value of invested assets.

What about taxes and creditors? If you are less than timely when it comes to filing appropriate tax returns and providing required notice to creditors of the estate, then you may be held personally liable!

Serving as a fiduciary is at once an honor and a serious responsibility. Before you agree to serve, look before you leap.

April 2019 | Estate Planning News

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Understanding Short-Term and Long-Term Disability Insurance

For most of us in the workforce, we keep the thought of disability tucked away into the deepest, darkest recesses of our minds. If we do not think about it, it will not happen, right? The fact is, before 20-year-old workers hit retirement age, about one in four will be out of work for 12 months due to disability. What is worse, fewer than half of all adult Americans have enough in savings to last three months without an income. With a better understanding of your options, and a little planning, you can rest easier, knowing that you have the means to protect your financial security, should you ever become disabled.

Short-Term Disability Insurance

Short-term disability insurance provides an income to employees who are too sick or injured (due to a non-work-related cause) to work. Short-term disability insurance may come from a variety of sources, including some state governments, employers and self-paid.

The federal government does not provide short-term disability insurance. However, five states do (i.e., California, New York, Hawaii, New Jersey and Rhode Island), replacing between 50 and 75 percent of a worker’s income for a specified period of time. Employees in the rest of the country must rely on some form of private short-term disability insurance.

Many employers provide short-term disability insurance plans to their employees in order to attract and reward top talent. Depending on the employer, these plans may come with various requirements, including:

Minimum service requirements,
Full-time status,
Use of sick leave prior to use of insurance, and/or
A doctor’s note confirming eligible illness or injury.

Like the state government funded insurance plans, these employer-paid short-term disability plans offer a percentage of the employee’s salary and last from 10 to 26 weeks.

For those individuals who do not have employer-paid short-term disability insurance benefits, like self-employed individuals, there are options for private, self-pay short-term disability insurance plans. Like the employer-paid plans, there are often varying levels of coverage that you can obtain. Most short-term disability insurance plans begin after a 14-day waiting period, and can last from a few weeks to a year, depending on the coverage you obtain. Like most health-related insurance plans, your age and current health status will be taken into account, when considering your insurability and premium costs. You will likely need to have a medical exam, prior to obtaining short-term disability insurance.

Short-term disability insurance covers employees or self-insured individuals who have a long-term illness, a severe disability or a pregnancy. These plans vary significantly in terms of premiums and benefits, so if you are paying for this insurance out-of-pocket, then you will want to shop around for the best premium-to-benefit plans for your needs and budget. To obtain financial security for injuries or illnesses extending beyond the short-term, long-term disability insurance should be considered.

Long-Term Disability Insurance

Like short-term disability insurance, long-term disability insurance can come from a variety of sources, including: the federal government in the form of Social Security Disability and Supplemental Security Income (SSDI) or Supplemental Security Income (SSI), employers and self-paid.

The federal government provides SSDI for workers who have worked for at least 10 years and paid Social Security taxes, and SSI for those who have not satisfied those work and Social Security tax requirements and have limited resources. If eligible to receive SSDI, you must wait five months from the date your claim is approved for benefits. For Supplemental Security Income (SSI), benefits begin one month from the date you filed your claim, or the date you became eligible for SSI, whichever is later.

SSDI and SSI can be difficult to obtain, with claims often extending years before being approved or denied. Working with an experienced social security disability attorney can help shorten that process and increase the odds of approval of your claim. Given the low odds of approval, it is also wise to obtain your own long-term disability insurance policy, if you have the means to do so, either through an employer-paid policy or a private pay policy.

Employers often offer long-term disability insurance to eligible employees. These private pay plans begin once short-term disability options have expired. These long-term benefits can last anywhere from two years, up until the employee turns 65. Since benefit requirements differ between plans, it is a good idea to review your long-term disability insurance plan to ensure that it fits your needs. For example, some plans pay if you are unable to work in your chosen profession (own occupation plans), while others require that you take any job you are physically able to do. This could mean a significant decrease in income for some people, which defeats the purpose of having a long-term disability insurance policy.

For individuals who are not eligible to receive employer-paid long-term disability insurance, there are private, self-pay plans available for purchase. These insurance plan premiums can cost anywhere from $25 to $75 a month for a $30,000 salary, to $166 to $500 for a $200,000 salary. The cost of LTD insurance will vary, based on other factors as well, including:

Coverage amount,
Benefit period,
Waiting period,
Your age,
Your health status,
Your occupation, and/or
Your geographic location.

With a one-in-four chance of becoming disabled during your working lifetime, it pays to know your options to protect your financial security. By taking some time to review your short-term and long-term disability insurance options, you can help safeguard your income and protect your family, in the event you are unable to work due to illness or injury. Doing so will provide financial peace of mind.

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