Life Insurance Is a Good Estate Planning Tool but Needs to Be Done Carefully
Estate Planning is for Everyone

Life Insurance Is a Good Estate Planning Tool but Needs to Be Done Carefully

With proper planning and the help of a seasoned estate planning or probate attorney, insurance money can pay expenses, like estate tax and avoid the need to liquidate other assets, says FEDweek’s recent article entitled “Errors to Avoid in Using Life Insurance for Estate Planning.”

As an example, let’s say that Reggie passes away and leaves a large estate to his daughter Veronica. There’s a big estate tax that’s due. However, the majority of Reggie’s assets are tied up in real estate and an IRA. In light of this, Veronica might not want to proceed directly into a forced sale of the real estate. However, if she taps the inherited IRA to raise cash, she’ll be required to pay income tax on the withdrawal and forfeit a very worthwhile opportunity for extended tax deferral.

If Reggie plans ahead, he could purchase insurance on his own life. The proceeds could be used to pay the estate tax bill. As a result, Veronica can retain the real estate, while taking only minimum required distributions (RMDs) from the inherited IRA.

If the insurance policy is owned by Veronica or by a trust, the proceeds probably won’t be included in Reggie’s estate and won’t increase her estate taxes.

Along these same lines, here are some common life insurance errors to avoid:

Designating your estate as beneficiary. When you make this move, it puts the insurance policy proceeds into your estate, exposing it to estate tax and your creditors. Your executor will also have to deal with more paperwork, if your estate is the beneficiary. Instead, name the appropriate people or charities.

Designating just a single beneficiary. You should name at least two “backup” beneficiaries. This will decrease any confusion, if the primary beneficiary predeceases you.

Throwing the copy of your life insurance policy in the “file and forget” drawer. You should review your policies at least once every few years. If the beneficiary is an ex-spouse or someone who’s passed away, make the appropriate changes and get a confirmation from the insurance company in writing.

Failing to carry adequate insurance. If you have a youngster, it undoubtedly requires hundreds of thousands of dollars to pay all her expenses, such as college bills, in the event of your untimely death.

Talk to a qualified and experienced estate planning attorney about the particulars of your situation.

Reference: FEDweek (Dec. 12, 2019) “Errors to Avoid in Using Life Insurance for Estate Planning”

How to Avoid Taxation on Life Insurance Proceeds

Read one of our previous blogs about How Life Insurance can Help your Estate Plan

 

How Do I Plan for My Incapacity?
Good incapacity planning can make certain that your health-care wishes will be carried out, and that your finances will continue to be competently managed.

How Do I Plan for My Incapacity?

The Post-Searchlight’s recent article, “How to go about planning for incapacity,” advises that planning ahead can make certain that your health-care wishes will be carried out, and that your finances will continue to be competently managed.

Incapacity can strike at any time. Advancing age can bring dementia and Alzheimer’s disease, and a serious illness or accident can happen suddenly. Therefore, it’s a real possibility that you or your spouse could become unable to handle your own medical or financial affairs.

If you become incapacitated without the proper plans and documentation in place, a relative or friend will have to petition the court to appoint a guardian for you. This is a public procedure that can be stressful, time consuming and costly. In addition, without your directions, a guardian might not make the decisions you would have made.

Advance medical directives. Without any legal documents that state your wishes, healthcare providers are obligated to prolong your life using artificial means, if necessary, even if you really don’t want this. To avoid this happening to you, sign an advance medical directive. There are three types of advance medical directives: a living will, a durable power of attorney for health care (or health-care proxy) and a Do Not Resuscitate order (DNR). Each of these documents has its own purpose, benefits and drawbacks, and may not be effective in some states. Employ an experienced estate planning attorney to prepare your medical directives to make certain that you have the ones you’ll need and that all documents are consistent.

Living will. This document lets you stipulate the types of medical care you want to receive, despite the fact that you will die as a result of the choice. Check with an estate planning attorney about how living wills are used in your state.

Durable power of attorney for health care. Also called a “health-care proxy,” this document lets you designate a representative to make medical decisions on your behalf.

Do Not Resuscitate order (DNR). This is a physician’s order that tells all other medical staff not to perform CPR, if you go into cardiac arrest. There are two types of DNRs: (i) a DNR that’s only effective while you are hospitalized; and (ii) and DNR that’s used while you’re outside the hospital.

Durable power of attorney (DPOA). This document lets you to name an individual to act on your behalf. There are two types of DPOA: (i) an immediate DPOA. This document is effective immediately; and (ii) a springing DPOA, which isn’t effective until you’ve become incapacitated. Both types end at your death. Note that a springing DPOA isn’t legal in some states, so check with an estate planning attorney.

Incapacity can be determined by (i) physician certification where you can include a provision in a durable power of attorney naming one or more doctors to make the determination, or you can state that your incapacity will be determined by your attending physician at the relevant time; and (ii) judicial finding where a judge is petitioned to determine incapacity where a hearing is held where medical and other testimony will be heard.

Incapacity planning basics.

Reference: The Post-Searchlight (December 13, 2019) “How to go about planning for incapacity”

How Do I Tell If Dad Needs Caregiving Support?
Be Cognizant of Parents Who Need Caregiving Support

How Do I Tell If Dad Needs Caregiving Support?

When you’re visiting older family members, you have a chance to judge how they’re doing in terms of health, safety, and quality of life. AARP’s recent article, “5 Signs Your Loved One May Need Caregiving Support,” advises us that any of the following five red flags may indicate that your parent needs help.

  1. Falls and safety. Look for things like unsafe indoor or outdoor stairs, especially without railings or poor lighting, along with loose rugs, clutter, or a laundry room that makes your mom or dad carry laundry baskets up and down stairs. You should evaluate fall hazards with a certified aging in place specialist (CAPS), an aging life care specialist, or a physical or occupational therapist. They can help evaluate your parent’s needs, abilities and the home environment. Consider installing safety measures, such as ramps, handrails on both sides of stairs, grab bars in the bathroom, or a walk-in shower.
  2. Unfinished business. If you see a lot of unopened mail and unpaid bills, or key financial, home or legal documents that haven’t been addressed, your mom may be cognitively, physically, or emotionally unable to handle them. You may want to help your parent simplify her affairs or engage a financial manager. You can also volunteer to assist with the more complicated matters, while she continues handling day-to-day household and personal finances. You should also be sure your parent has advanced directives and other legal documents in place, so you are able to help manage her affairs in an emergency.
  3. Auto accidents and moving violations. When you see multiple accidents—even minor fender benders—or several warnings or citations, scrapes, or dents on the car, it’s time to discuss driving. You can ride along and observe any health issues causing problems like vision, hearing or cognitive changes. You can suggest that he refresh his driving skills by taking a driver safety course, or if it’s time to stop driving, give him other viable transportation options.
  4. Isolation. Does your mom appear to be disconnected from friends, family and community? If her support system seems to be deteriorating, her physical and mental well-being are at risk. Discover with whom she regularly interacts. Ask if she feels lonely. Look for some activities she’d enjoy and help make arrangements for ongoing participation and transportation. Regular phone calls can help her connect, as well as using technology, including video chat, online communities and social media.
  5. A change in appearance. If you notice a change in your mom’s appearance, like a big gain or loss of weight, wearing the same clothes every day, or lack of personal hygiene, or if she appears sad, anxious, and distressed or has sleep issues—something is not right. Propose a complete medical and psychological evaluation to determine what’s normal for her, because there may be several reasons for these changes. Depression or anxiety may call for treatment.

Review her medications with a pharmacist and set up a pill organizer for her. Find out how she’s making or receiving meals. If appropriate, arrange for caregiving support such as home-delivered meals, housekeeping, medication management and laundry assistance.

Tackle these conversations with love, concern, and a supportive attitude. Your objective is to help her remain as independent as possible, for as long as possible.

Is aging in place a reality or a dream?

Reference: AARP (December 12, 2019) “5 Signs Your Loved One May Need Caregiving Support”