Scott Makuakane, Attorney at Law, CFP
Founding Partner, Est8Planning Counsel LLLC
Honolulu, Hawaii 96813
Member of the national ElderCare Matters Alliance, Hawaii chapter, State Coordinator
The Perils of Joint Tenancy
One day Dad and Mom hear about this great idea called “joint tenancy” and put their sons Moe, Larry, and Curly on title to their house. Joint tenancy appeals to Mom and Dad because it provides a way for title to the house to pass more or less automatically to the next generation without the headaches of probate. It’s cheap. It’s easy. What’s the worst that could happen?
All goes well for about 20 years, but then one day Moe announces, “My wife is leaving me and she says she is going to take me for everything I’ve got, including my 20% of your house. She can’t touch that, can she?” Not to be outdone, Larry chimes in with, “Remember that car crash I was in three years ago after my insurance had lapsed? Well, the people in the other car got a judgment against me and their lawyer is asking questions about what I own. I don’t have to tell them that I own a fifth of your house, do I?”
To make a long story short, if Dad and Mom are not able to buy off Moe’s ex-wife and Larry’s judgment creditors, then their house could get sold out from under them. They would get 40% of the net proceeds, but that probably would not be enough to replace their home with a comparable place to live. A “cheap” and “easy” estate planning strategy ends up being neither. If Dad and Mom had invested a little money in having a comprehensive estate plan prepared, they could have held on to their house during their lifetimes and given Moe and Larry their shares of the house in trusts that would protect the house from the boys’ ex-spouses and creditors.
Even if Dad and Mom were to dodge the bullet with Moe’s ex-wife and Larry’s creditors, another way joint tenancy could bite them in the behind is by losing the opportunity to provide some adult supervision for Curly’s share of the inheritance. If Curly is characterized by bad judgment, bad habits, and hanging out with bad people, Dad and Mom would be foolish to give Curly anything. What they might want to do instead is have Curly’s share of the house held in trust for Curly’s benefit. Dad and Mom could place a range of restrictions on when distributions could be made to Curly, from proving to the trustee that he is gainfully employed, to passing a drug test.
While joint tenancy is not necessarily to be avoided at all times and at all costs, it is very important to understand its ramifications. He (or she) who puts other people on title to assets for probate avoidance/estate planning purposes may be making a huge mistake. Joint tenancy costs very little at the front end, but it exposes your back end to some very unpleasant possibilities.
Ronald Zack, Esq.
Ronald Zack, PLC
Tucson, Arizona 85701
Member of the national ElderCare Matters Alliance, Arizona chapter
Last Will and Testament (Yours and the one the state has for you)
Without a will, or some other form of estate planning, your property will pass by intestate succession. In other words, if you don’t have a will, the state has one for you. The problem is that the state may not do things the way you would have done them yourself. Also, any property not provided for in your will or through other planning, will follow the state’s intestate succession laws, so even if you have a will, the state may decide where some of your property goes.
Here is what Arizona has planned:
1. If you are married, all of your separate property and your half of the community property will pass to your spouse, as long as you have no children (or no descendants – grandchildren, great grandchildren, etc.). If all of your children are also the children of the surviving spouse – the kids you’ve had together – then all of your separate property and your share of community property still passes to your spouse. The idea is that the kids will eventually get it. (A.R.S. 14-2102 (1)).
2. If you have children who are not also the children of your spouse, your spouse will get half of your separate property and none of your half of community property. (A.R.S. 14-2102 (2)).
3. If there is no surviving spouse (or any property that does not pass to the surviving spouse under number 2, above), property flows, in this order, to:
a. Your descendants – children, children’s children, etc., through the generations.
b. If no descendants, your parents.
c. If no descendant or parent, to the descendants of your parents (your siblings, nieces and nephews, etc.)
d. If no descendant, parent or descendant of a parent, then grandparents or descendants of grandparents (your uncles, aunts and their kids, etc.).
4. Then to the state. (A.R.S. 14-2105).
It is very rare that property would pass to the state – usually, there is somebody among parents or grandparents and their descendants – all your siblings, nieces, nephews, cousins, etc. Still, your property is likely to pass to people you hardly know, don’t know, or even worse, people you were not particularly fond of. The law also defines how shares are to be distributed and requires that relatives of half blood (step-relatives) inherit the same as if they were whole blood relatives. (A.R.S. 14-2107).
Some people say they are not concerned with distribution because they do not have much money, property or other material assets. Keep in mind that this situation can change after death. The younger you are, the more likely the death will be accidental. If so, there may be someone else liable, in an automobile accident for example, and such liability could result in a large payment to your estate. There are cases of medical malpractice or product liability that cause serious illness or death and result in large awards to estates of deceased people. In that event, your will or the state’s will control distribution.
Another problem with not having a will involves minor children. In a will, a parent can appoint a guardian of an unmarried minor. If both parents are dead, or one is dead and the other incapacitated, the appointment will become effective upon filing the named guardian’s acceptance with the court. A minor over the age of 13 can object to the appointment of the guardian. (A.R.S. 14-5202 and 14-5203).
Without a will naming a guardian, it is possible that Child Protective Services would become involved, or that relatives and friends could become involved in a contested guardianship proceeding in court.
It is important to note that the naming of a guardian in a will is only effective if both parents are dead or one is dead and the other incapacitated. This raises additional issues for single parents and divorced parents of minor children. It is not unusual that the custodial parent feels the surviving parent is not an appropriate person to gain custody. In such a situation, it is important to seek legal counsel to try to avoid that result.
Wills can be simple or complex. It is possible to build trusts into wills (testamentary trusts), to do tax planning and to provide for distributions to be made over time. Even a simple will, however, can be fraught with perils. For example, courts will follow the statutes very carefully as to how a will must be drafted and executed. If formalities are not followed, the court is unlikely to consider a will valid, especially if someone contests it. Formalities include things like how the will is signed and witnessed. Issues such as the capacity of the person making the will or undue influence by others may arise. And Arizona law contains some exceptions, exemptions and allowances that cannot be avoided by writing a will. This is not a do-it-yourself project. Your estate plan deals with everything you own and everyone you care about. It makes sense to do it right to make sure you get the result you expect. An attorney, knowledgeable of Arizona statutes, should be consulted to make sure that what you want can and will happen after your death.
Paul T. Czepiga, Esq., CELA
Czepiga Daly Dillman, LLC
Newington, CT 06111
Member of the national ElderCare Matters Alliance, Connecticut chapter
THE ‘POWER’ IN A POWER OF ATTORNEY
Lawyers are continually asked by clients whether they need a Power of Attorney. There is no universal answer to this question, as everyone’s financial situation and relationship with others is different. A meaningful response requires that the client understand what a Power of Attorney (commonly referred to as a “POA”) is and what it can and cannot do.
In general, we recommend that our clients execute Powers of Attorney, but only after discussion of several considerations, outlined below. The utility of a POA can be best described by the old saying, “Never has so little done so much for so many.” We will explore the benefits of a POA later in this article, but we will begin with a basic understanding of what a POA is.
A POA creates an agency relationship between the person who signs the POA, known as the principal, and the person who is appointed as POA, known as the agent. Only the principal is required to sign the POA. The agent has authority under the POA only for so long as the principal is alive or at any time before the principal revokes the POA.
A POA can allow the agent to perform an unlimited number and range of functions on behalf of the principal. A POA can also limit the functions an agent can perform.
A POA should be durable – meaning that the principal intends to allow his agent to (continue to) act on his behalf in the event of the principal’s incapacity. A POA is durable if it contains language that expressly states that the POA will remain in effect regardless of the principal’s subsequent incapacity. Without such a statement, the POA lapses if the principal later becomes incapacitated – something almost always not intended when drafting POA’s for estate planning purposes.
Springing Power of Attorney
Once a durable POA is signed by the principal, the agent is allowed to act on the principal’s behalf – the agent can perform any of the functions allowed under the POA immediately. However, some people want to execute a POA so that in the event of their incapacity at some point in the future, someone will be able to pay bills, write checks, etc. on their behalf. As a result of changes in Connecticut law made in 1993, a principal can execute a Springing Power of Attorney. A Springing Power of Attorney can grant the same authority that a (non-Springing) Power of attorney allows, but does not go into effect until some later triggering event.
For instance, Mrs. Smith may be perfectly capable of managing her own affairs now, but may be concerned that as she ages her abilities may decline. She may want to ensure that someone she trusts will be able to help her out in the future should she need it. With a Springing POA, Mrs. Smith can name someone as her agent, but her agent will not have authority to act on her behalf (access bank accounts, etc.) until some point in the future when Mrs. Smith is no longer capable of managing her affairs on her own.
A Springing POA will only marginally protect Mrs. Smith, though. Under Connecticut law, the agent, before he can act under the Springing POA, must sign an affidavit in front of two witnesses and a notary attesting to the facts that (1) Mrs. Smith named him as agent in a POA, (2) his authority does not take effect until Mrs. Smith becomes incapable of managing her affairs, and (3) this contingency has occurred. The agent does not need to produce independent medical evidence that Mrs. Smith is really incapable of managing her affairs (unless Mrs. Smith required it as a condition to the agent’s authority).
Choosing an Agent
This scenario leads to a discussion on choosing an appropriate agent. Whether a person should grant a POA to another depends entirely on whether the person has full, total, and complete trust in another person. If there is no one in whom a person has such trust, then she should not execute a POA – Springing or otherwise.
Using our example above, if Mrs. Smith required her agent to sign an affidavit and attach a certification by a Connecticut-licensed physician attesting to her incapacity, she clearly does not have full, total, and complete trust in her agent. We have found in our practice that roughly 60% of our clients use the Springing POA and the rest opt for a non-Springing POA.
Limitations and Other Express Powers
In financial planning and Medicaid planning contexts, it is best to give a POA that conveys the broadest possible authority, limited only by the principal’s concerns. Connecticut’s statutory POA and Springing POA forms convey thirteen separate powers, including “all other matters.” Although this sounds fairly inclusive, it is not.
The most harmful limitation is that the Connecticut statutory forms do not expressly give an agent the ability to make gifts of the principal’s assets. One’s incapacity does not lessen the need to reduce the gross taxable estate for estate tax reduction purposes or to remove assets out of one’s name for Medicaid eligibility purposes. Without an express gift-making provision, it will be very difficult to transfer the principal’s assets to her beneficiaries even though this is what the principal would have wanted. Even so, gift-making provisions should not be automatically included in all POA’s without first considering the need and ramifications of such a power. If gift-making is to be included, then the principal should also address to whom and to what extent gifts may be made. To her spouse only? Unlimited gifts? To children? Must gifts to children be of equal value?
Other powers that we expressly add to our POA forms after discussion with our clients include dealing with the State of Connecticut, the I.R.S. and D.R.S. on all tax matters (income and gift, including gift splitting, sales and use tax), accessing safe deposit boxes, changing domicile, creating/funding/requesting distributions from trusts, and changing beneficiary designations on life insurance, annuities and retirement plans. Although some of these powers are arguably included in the statutory form, it is wise to explicitly express them in the POA for enforceability purpose.
Acceptability of a Power of Attorney by Third Parties
You may take all the appropriate steps to execute your POA, but your agent may encounter difficulty trying to use the POA at some point in the future. Although the POA you sign is effective until you revoke it ands o long as you are alive, some financial institutions and banks have internal policies whereby employees are instructed to only honor POA’s that are dated recently (in some cases, within six months). Some companies may request that the principal sign a statement that the POA has not been revoked – but what if the principal is now incapable of signing such a statement? These internal policies will frustrate your agent’s ability to act on your behalf.
Your advisor can add language to the POA stating that unless the third party (bank, life insurance company, etc.) has actual notice of revocation, they may rely on the agent’s authority. Your advisor can also include hold harmless or indemnification language to assuage the third party’s concerns. Whatever the method, your advisor should add whatever language possible to make the POA acceptable to the outside world.
An alternative or additional protection to a POA is creating a living or revocable trust. A living trust typically names the principal (client) as trustee and also names at least one successor trustee. The successor trustee will step in to manage the trust if the original trustee becomes incapable or passes away. If the principal transfers or re-titles his assets into the trust, then if he should become incapable, his successor trustee would be able to manage the assets – including paying bills, writing checks, etc. Financial institutions seem to be more accepting of a successor trustee’s authority than the authority of what they deem to be an out-dated POA.
In summary, a POA is a powerful and useful tool for a variety of estate planning needs, both foreseen and unforeseen. Once you sufficiently identify your estate planning or Medicaid planning needs, you should execute a POA as soon as possible to ensure a seamless transition in the management of your finances from you to your agent if you should become incapable of managing your own affairs.
Dagmar M. Pollex, Esq.
Law Offices of Dagmar M. Pollex, P.C.
Braintree, Massachusetts 02184
Member of the national ElderCare Matters Alliance, Massachusetts chapter
Planning for Your Adult Children With Special Needs Can Also Protect Your Assets From Nursing Home Costs
Parents and grandparents of an adult disabled child often ask what’s the best way to make provisions for that member of the family who will not be able to be self-sufficient. Parents generally try to consider the future non-financial needs of the child after the parents are gone. With whom or where will the child live? What housing options or assistance are available? What activities does the child enjoy? Next, there is a need to estimate the future financial needs of the child, taking into account projected government assistance.
When the parents of disabled children think about a financial and estate plan, they plan for their own future, as well as the child’s. Parents with disabled children understand the need to protect their own savings from risks during their lives. Nursing home costs pose a threat to every estate.
Luckily, the Medicaid rules offer important special protections for parents of disabled children by allowing gifts to be made to supplemental needs trusts for the benefit of adult children with disabilities. These gifts do not create a disqualification or penalty period for the parents if they will need nursing home care for themselves in the future.
Another important question is this. How will the parents’ estate be allocated to reach the goals they have for themselves and their child? They may consider leaving a larger share for the disabled child who has greater need than the other children.
However, this is generally not a good option if government benefits may be needed, since most government assistance requires the recipient to have very low income, very low assets, or both. An outright bequest to the child or a trust which gives the child too much ownership over the money will disqualify the child from government assistance until the child spends down the trust assets.
As part of their overall estate planning, parents of special needs children can have a portion (or all) of their estate stay in a trust for the benefit of their disabled child after they die.
The assets will be managed by a Trustee chosen by the parents. In some situations, a brother or sister of the child with special needs is a good choice. Other times, it would be better to name a professional trustee with experience in managing special needs trusts and providing services to the beneficiary.
The trust should be drafted so as to not disqualify the child from government assistance. This kind of a trust is called a supplemental or special needs trust. The parents can include guidance or legally binding directives about how the money is to be used for the child.
Even small amounts in a special needs trust can make a huge difference in the quality of life of a disabled child. For example, while the child’s basic needs could be met with government assistance, the trust could be used to provide “extras” like a television, a trip to visit relatives or tickets for relatives to visit the child, a special van, or computer with voice-recognition technology.
Russell Hodges, Esq., Managing Partner
Hodges Law Firm, LLC
Atlanta, Georgia 30040
Member of the national ElderCare Matters Alliance, Georgia chapter
Personal Care Contract Payment to Family Members: ANOTHER MEANS OF ASSET PROTECTION
Can I help preserve my assets by paying a family member for my care?
Medicaid clearly allows care contract payments for caring for loved ones living at home. The question is will it allow personal care contracts for providing care services for those residing in nursing homes? States differ in their laws and Georgia is a bit unclear. Yet there is no downside to having your elder law attorney prepare one for you, if you are a significant care giver for a family member. If money exists to pay for the care and it isn’t spent on you, then Medicaid will force your aged loved one to deplete his or her assets before it will declare them Medicaid eligible. Even if Medicaid challenges you in court and you spend some of your aged loved one’s money on litigation costs, nothing is lost, even if you lose. Medicaid would force your loved one to pay the money you spend on an attorney’s defense in court on health care before he or she would be Medicaid eligible anyway, and, you will probably win in court and save thousands.
When should a personal care contract be written?
You should have it prepared as soon ahead of time as possible. Without a proper contract in place ahead of time, Medicaid will consider the money paid to you to be a “gift” or a “transfer of assets without value” This means that every dollar paid for services without a properly prepared contract will be added together to determine the Medicaid penalty. Ignorance can be costly.
What should be in a personal care contract?
As to what should be in the contract, look at a winning case in Missouri, the Reed case. One month after Mrs. Reed entered a nursing home, she and her daughter Sandra entered into a lifetime “Personal Care Contract” wherein Sandra agreed to perform a number of services for her mother, including but not limited to preparing meals, cleaning, laundry, assistance with grooming, bathing, personal shopping, monitoring her mother’s physical and mental conditional and nutritional needs in cooperation with health care providers, arranging for transportation, visiting weekly and encouraging social interaction, interacting with and/or assisting in interacting with health care professionals, etc. for her mother during her lifetime.
Even though Mrs. Reed was receiving the care of a nursing home, the court ruled that the $11,000 dollar payment was fair compensation and that the services provided by Sandra under the contract were not duplicative in that Sandra provided a communication link between Reed (who suffered from Parkinson’s, had a stroke and had difficulty communicating with staff and facility personnel). The court noted that the services “enhanced Reed’s life in ways that the facility does not, and are above and beyond the care provided by the facility”.
If you are caring for your loved one either at home or in a nursing home, a personal care contract is something you might want to discuss with your elder law attorney, who can carefully craft it to preserve assets.
James J. Ruggiero, Jr., Esq., AEP
Ruggiero Law Offices
Paoli, Pennsylvania 19301
“ARE YOU HAVING A BAD HEIR DAY?”
As Benjamin Franklin once said, “You may delay, but time may not.” No truer are these words than in the case of estate planning. The average person allows 10-to-15 years to elapse before revising his or her estate plan. Life’s ups and downs, and the impending estate tax law changes, present the opportunity to protect your legacy.
Beginning in 2011, the tax rates in effect prior to 2010 return in force. Although in 2009, the rate was a flat 45 percent on taxable estates in excess of $3.5 million, in 2011, the top marginal rate will be 55 percent, and the exemption rate will decrease to $1 million. For example, if your estate were worth $1.5 million, in 2009, you would not have paid federal estate tax; whereas, in 2011, you will pay federal estate tax because of the decreased exemption. With the potential impact of this in mind, don’t let the heir day of your loved one turn out to be a bad heir day.
How could that happen, you ask? Well, in 2006, 46 percent of the general public had a will; however, in 2007, that percentage dropped to 37.
Actually, estate planning is about more than having a will. Four basic documents encompass a good estate plan: a Last Will and Testament, a General Durable Power of Attorney, a Healthcare Power of Attorney, and a Living Will.
Each of us needs an updated Living Will
The recent celebrity case involving Gary Coleman provides a clear example of the ills that can occur without an updated estate plan. In 2006, Coleman created a healthcare directive that gave his then-wife power to make medical decisions if he became incapacitated. It apparently included a statement to prolong his life for as long as possible. After divorcing and failing to revise his healthcare directive, Coleman suffered a head injury and was admitted to the hospital, diagnosed with a brain hemorrhage. Coleman’s ex-wife decided to take Coleman off life support only one day after he was admitted.
In some states, divorce fails to nullify a healthcare directive. If you have been through a divorce, it is wise to review your estate documents to ensure they continue to reflect your wishes.
Form your own dynasty
Although problems can arise due to neglecting to update healthcare directives, preserving wealth is perhaps the greatest concern. Too often, we underestimate the size of our estate, not realizing the problems this can cause after we have gone. Trusts provide a viable option for ensuring that your heirs do not pay excessive estate taxes upon your death. Different types of trusts are available to meet your needs and the needs of your loved ones.
A dynasty trust is one way wealth preservation can be achieved. Despite its name, the term has nothing to do with aristocracy. With a dynasty trust, you transfer the assets of a business, real estate, or other income-producing property to the trust. Depending on the exact terms, the income accumulates or is paid out on behalf of the trust’s beneficiaries: children, grandchildren, or even remote descendants. Assuming the assets remain in the dynasty trust, they will not be included in a beneficiary’s estate when he or she dies. Thus, the asset values can continue to compound over several generations without any erosion due to estate taxes. Further, because the beneficiaries do not own the assets, there is protection against loss from creditors or divorce proceedings. Wealth is preserved and remains in the hands of family–with little or no tax consequences.
Create a “heir” style that works for you
When is a good time to update your estate plan? While it is always good to maintain a current estate plan, significant life events mandate a revision. If you’ve recently started a business, you may need to update your estate plan. Crucial aspects, such as business succession planning, guarantee that the wealth you’ve worked so hard to build is passed on to those you love or designate. Additionally, our changing economy can result in loss of a job or early retirement, both invoking the need for a review. Similarly, a spouse that is re-entering the work force or changing from full- to part-time status, necessitates re-evaluating your assets.
Changes in family may dictate a change in your estate plan. If a son or daughter should marry someone you would prefer not to include as an heir, inevitably, you would want to take a second look at your estate planning. You would find it important to avoid the risk that your wealth could end up in the hands of a former son- or daughter-in-law.
Indeed, even if you like your in-laws, other life events can trigger an update to your estate plan. Have you recently moved into Pennsylvania? Or, are you planning a move to another state? If so, it is good advice to learn about the laws of your new locale to make sure that your plans are protected. Even marriages, births, and other happy events in our lives should awaken the notion that our estate plans need to be re-examined.
Perhaps you have a domestic partner who you would wish to one day become your heir. Pennsylvania does not recognize same sex or common law marriages. Thus, in this Commonwealth, a same sex or opposite sex non-related individual inheriting from you will be taxed at a rate of 15 percent. Don’t let him or her experience a bad heir day. Trusts and other estate planning, such as beneficiary designations on financial accounts, can play an important role in preserving the assets of your domestic partnership.
Most of us put estate planning on the back burner. It’s easier to choose to wait for tomorrow. By contrast, we go to the barber or beauty salon on a regular basis because we defy being caught having a bad hair day! Applying mousse, gel and spray guarantees we will have a good hair day. Similar protection in the form of a good estate plan can be applied so that a bad heir day is likewise avoided.
Have your estate plan updated today, and do wonders for your heir!
Michael A. Jensen, Attorney at Law
JENSEN LAW FIRM, PLLC
P.O. Box 571708
Salt Lake City, Utah 84107
If You Don’t Have a Will, What Happens to Your Estate?
I often get asked: “What happens if I don’t have a Will?”
Depending on the size of your estate and the number of your children or other heirs, you may not need a will. I generally recommend a will, since most of the time it makes sense to have one.
But, if you don’t have a will or if you procrastinate and put off preparing or signing a will, there is still hope that your estate passes to your heirs as you intend.
If you die without a valid will, you are said to have died intestate. Since the majority of persons die without a will (it is estimated that only 25% of the population has a will), laws have been developed to deal with these situations. They are known as intestate laws.
Most states have enacted the Uniform Probate Code. Utah is one of those states. If you die without a valid will, there is a predetermined method for the distribution of your estate. Title 75 of the Utah Code contains the Uniform Probate Code.
Chapter 2 of Title 75 contains the code for Intestate Succession and Wills; Part 1 of Chapter 2 deals with Intestate Succession. This Part sets forth the rules on how your estate would be distributed if you die having no valid will.
In the preceding two paragraphs, I used the word “valid” to qualify a will. That is, not all wills are valid. Simply because you have a will, it may not conform to the formalities required by law. If your will is not valid, then it is as though you had no will at all. In that case, your estate follows the rules in Part 1, entitled Intestate Succession, and which states at its beginning:
“Any part of a decedent’s estate not effectively disposed of by will passes by intestate succession to the decedent’s heirs as provided in this title, . . .”
In the limited space allowed for this article, I am not able to fully treat the issue of how your estate would be distributed under intestate succession. However, I will attempt to provide a few highlights.
If you rely on the Probate Code for the distribution of your estate, you should first obtain a copy of it and study it carefully. The Probate Code is amended from time to time, and your understanding of it must be updated when changes are enacted.
First, if your spouse survives you and you have no children from any other spouse, other than the one that survives you, your entire estate goes to your surviving spouse.
Second, if you have children from a previous spouse, then your surviving spouse receives the first $50,000 of your estate plus ½ of your remaining estate. Your children then share equally in that part of your estate not passing to your surviving spouse.
However, the rules on distribution become a bit more complicated if two or more of your children fail to survive you. Distribution is made on the basis of “per capita at each generation.” What this means is that your grandchildren will be treated equally.
An example may help. Suppose that your spouse predeceases you. That is, she dies before you. Further suppose that you have four children, two of whom predecease you. Prior to their death, however, suppose that one of them had three children and the other had five children, representing eight grandchildren.
In this example, ½ of your estate would go to the two surviving children and ½ would go to the eight children of the predeceased children. Under the new “per capita” concept, all eight of your grandchildren would be treated equally. Under the old rule, replaced in 1998 and called “per stirpes,” your eight grandchildren would not have been treated equally.
If you don’t have a Will, you have no control over who takes charge of your estate. In contrast, if you have a Will, you can nominate the person you want to act as your Personal Representative and administer your estate.
Does this sound confusing? Well, it may seem so, but it generally works the way mostpeople would want their estate to be distributed. The better approach in planning your estate, however, is to rely on solid legal advice by contacting an Elder Law Attorney.
Gregory D. Roberts, CFP, CLU, ChFC, CLTC, EA
Aiken, South Carolina 39803
Member of the South Carolina chapter, national ElderCare Matters Alliance
Asset-Based Solutions for Long Term Care Coverage are Gaining Favor
I recently came across some very enlightening statistics: The odds of a person in the U.S. being involved in a serious automobile accident are only 3 in 900 or 0.33%. The odds of having a residential fire in your home are 7 in 900, or 0.77%. The odds of ever being admitted to a critical care unit are 21 in 900, or 2.3%. Virtually every working American has insurance coverage to protect against these catastrophic occurrences, but only 5% of Americans has actually purchased long-term care insurance. What are the odds that we would ever need some sort of long-term care benefits? Would you believe that 70% of Americans who are currently age 65 or older will need some sort of custodial medical care before they exit this globe?
The question then becomes why only 5%, when the need is so apparent? In my view, there are two reasons. The first is the cost of long term care coverage. For example, a married couple, both age 55 in good health, would together pay about $2500 annually to provide enough policy benefits to cover home health/long term-care expenses in Aiken and in the CSRA. That required premium may be deductible as a medical expense, depending on the magnitude of other medical expenses you have in a given calendar year, since only those medical expenses in excess of 7.5% of your adjusted gross income are deductible.
If you have self-employed income that is greater than your long term care premium, the good news is that the entire premium is generally deductible for you.
The other reason why so few persons have actually purchased long-term care coverage is that if you don’t use it, you lose it. In other words, there are typically no refund options in older policies. Current long-term care policies do offer a return of premium option, but for an additional cost, which may make the overall cost prohibitive.
As a result of these two factors, most Americans have chosen to self-insure their future long- term care expenses. Actually, that approach is not that bad an idea, if you and your spouse have sufficient assets set aside to pay for future home health/long term care expenses. How much should you set aside? Well, the average stay in a facility or the average length of time one would require in-home care is about 3 years. In Aiken that length of care would cost in the neighborhood of $125,000-$150,000 in current dollars. But what if you or your spouse were to contract Alzheimer’s or dementia? Then, the period of confinement could be as long as 7-10 years, at $45,000 to $50,000 per year.
An interesting product solution is now available as an alternative for those who wish to self-insure against the costs of long-term care. That solution is an asset-based one, and it operates like this example: for a 65 year old female, who is able to reposition $100,000 of her assets, she could purchase a single premium life insurance policy that would provide her heirs a death benefit of $166,000. But this policy has two other great features: while she is alive, should she ever require home health care or long term care benefits, the policy would provide up to $500,000 for those expenses, provided that she could not perform at least 2 of 6 specified activities of daily living, such as bathing, toileting, dressing, eating and others. And the best part is that if this lady were ever to change her mind, this product provides an unconditional money back guarantee at any time. Sounds too good to be true, right?
Perhaps, but in order to qualify, this person must be relatively healthy; she must have the assets to re-position; and finally, she must actually purchase this policy. Believe it or not, there are several highly rated life insurance companies who offer products such as the one I am describing.
Check with your financial advisor and find out if he or she is acquainted with this dynamite method for providing long term care benefits.
Dennis B. Sullivan, Esq., CPA, LLM
Estate Planning & Asset Protection Law Center of Dennis Sullivan & Associates
888 Worcester Street, Suite 260
Wellesley, MA 02482
Member of the national ElderCare Matters Alliance
6 Mistakes Your Trustee Can Make That Can Spoil Your Trust
One may feel honored to be appointed as a trustee, but there are several legal duties and responsibilities the job carries with it. There are several ways a trustee can ruin a trust and destroy a beneficiary’s inheritance. This article will discuss some of the most common errors we see.
Error #1: Not Properly Accounting for Trust Records
Most states, including Massachusetts, require trustees to provide regular accountings to the trust beneficiaries; current, future, and potential future beneficiaries. These accountings must contain detailed records of all income received by the trust as well as all distributions the trust makes. While this task may seem simple, if the trustee mucks this up, even once, they leave themselves open to a potential law suit by beneficiaries, which they will be forced to pay for out of their own pockets.
To avoid this potential pitfall the trustee should consider hiring a professional CPA and/or attorney with experience in the field of trust administration. The trust records will likely be sufficient and the trustee, by hiring a professional, limits their personal liability for errors.
Error # 2: Failing to Diversify Investments
Many trustees decide not to reinvest trust assets, such as stock, that have served the trust well and earned a lot of money over the years. In cases where the trust holds stock in a company owned or run by the dearly departed the decision to reinvest assets can be even more difficult.
It is the duty of the trustee however to make sure that the trust’s assets are diversified and invested in such a way as to create income for the trust.
Investment management is the most litigated area of trust administration. The process can be long and difficult and lead to significant trust assets being spent on legal fees rather than being paid to beneficiaries. Following the Prudent Investor Standards set forth by the Center for Fiduciary Studies will help aid trustees in meeting their fiduciary investing responsibilities.
Error #3: Making Biased Distributions
Trustees owe a fiduciary duty to current beneficiaries as well as remaindermen (future beneficiaries). Many times, the interests of the current and future beneficiaries are not the same. Current beneficiaries may want to see the trustee invest in high yield securities while the future beneficiaries would like to see a safer investment with a lower yield. How does the trustee balance the interests of both parties? A a trustee, especially if they are a family member, may, knowingly or unknowingly make distributions in favor one beneficiary over the others. It can be especially difficult for a family member trustee to set aside their biases, but the trustee owes the same duty to all beneficiaries.
Error #4: Expecting a Pay Day
Some trustees believe that their role as trustee will lead to a quick payday. This is generally not the case however. It can take a lot of time and effort for the trustee to be paid because the process gives all beneficiaries the opportunity to voice their complaints about the job the trustee has done.
To avoid long arduous litigation, it is advisable that the trustee set up a schedule of fees, signed off on by all the beneficiaries.
Error 5: Having a False Sense of Security
The role of trustee carries with it unlimited liability. Anything that the trustee does improperly, whether it be on purpose or by accident or by simply not knowing their responsibilities, can lead to the trustee being sued and forced to pay damages out of their own pocket. The trustee can be liable not only for money lost due to their actions but also money that could have been earned had they acted correctly.
Many assume that because the beneficiaries are family members they will be insulated from being sued. The reality is however, that, many family member trustees end up in court. A trustee should never assume they will not be held liable for their actions simply because the beneficiaries are family.
Error 6: Not Knowing When to Go to Court
Trusts are often used to avoid the necessity of having to go to court to distribute an estate. There are situations when a trip to court can save the trustee a lot of trouble. If the trust documents are ambiguous and one course of action will benefit one group of people and another course of action will benefit another group of people, the trustee should not make a decision, because they are likely to end up in court explaining their decision. The trustee should file appropriate documents with the court and let a judge decide how to proceed.
Selecting a trustee who is experienced and financially savvy is important when considering who you should appoint.
Bart Delsing, Owner & Chief Operating Officer
FirstLantic Healthcare, Inc.
Delray Beach, Florida 33445
Member of the national ElderCare Matters Alliance
The Top Five Things to Consider When Choosing
Your Home Healthcare Provider
When faced with choosing a home healthcare provider, more often than not, it is a topic you have not discussed with your family and loved ones prior to the need for one. While one’s initial instinct might be to choose the first name that appears when you Google “home healthcare,” like all other good decisions, it is best to do your homework. All home healthcare companies are certainly not alike.
Home healthcare is typically skilled nursing and therapy services and often includes the need for other non-medical services that address functional needs of everyday living such as meals and grooming. This personalized care eases the anxiety and stress associated with most forms of healthcare and allows a maximum amount of freedom for the individual.
Given how critical it is to feel safe, confident and comfortable in your decision, look for these important factors prior to choosing.
Is the agency licensed and accredited?
Home healthcare providers that are licensed need to be so with at least one of the following accreditation organizations: Accreditation Commission for Health Care (ACHC), Community Health Accreditation Program (CHAP) or Joint Commission on the Accreditation of Healthcare (JCAHO). For hourly and live-in care, the agency must have a registered license in home health care with the State of Florida. Keep in mind that prior to July 1, 2010 not all home healthcare agencies were required to be accredited, but FirstLantic Healthcare chose to be accredited at the highest level with ACHC.
How long has the company been in business?
Well-established providers generally have higher staff retention rates than upstart companies and thus offer more experienced, trained caregivers. New home healthcare companies are popping up everywhere, everyday so it is highly important to make sure they have the proper accreditations and procedures in place.
Do they offer the types of services required?
Whether it is professional nursing or supportive services, a comprehensive home healthcare provider will deliver a wide variety of services, ranging from professional nursing to physical, occupational, respiratory, and speech therapies. They also may provide hourly and live-in home care services either at your home, assisted living facility, nursing home or even at the hospital. In addition, some home healthcare agencies, such as FirstLantic Healthcare, offer professional care management whereby care managers work privately and individually with each client and their families or loved ones to create a short or long term plan of care that meets the unique needs of each client. An individual may receive a single type of care or a combination of services, depending on the complexity of his or her needs.
What do others have to say about the company?
If a home healthcare provider has been around awhile, you should have no problem researching their reputation through the Better Business Bureau, local healthcare providers, and from friends and family. Check out their website for testimonials and/or call the agency to see if they offer a referral contact. It is important to hear that the company is reliable, and that the services they offer are delivered with professional, compassionate care that you deserve and demand.
Do they offer quality caregivers?
Proper screening of caregivers is critical to ensuring your safety. Make sure they have the appropriate, and most up-to-date, certifications and licenses for the particular care you require. There is no substitution for a professional, dedicated, and compassionate caregiver.
Once you have done your homework, you can feel confident moving forward on choosing the provider that aptly suits your needs and offers the most complete and personalized care for you or your loved one.