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Family Estate Planning

How Can Estate Planning Address the Troubled Child?

How Can Estate Planning Address the Troubled Child?

Every family has unique challenges when planning for the future, and every family needs to consider its individual beneficiaries in an honest light, even when the view isn’t pretty. Concerns may range from adults with substance abuse problems, an inability to make good decisions, or siblings with worrisome marriages. These situations can be addressed through estate planning documents, says the article “Estate Planning for ‘Black Sheep’ Beneficiaries” from Kiplinger.

How can you prepare your estate, when a problem child has grown into an adult with problems?

You have the option of not dividing your estate equally to beneficiaries.

Disinheriting a beneficiary occurs for a variety of reasons and is more common than you might think. If you have already given one child a down payment on a home, while another has gone through two divorces, you may want to make plans for one child to receive their share of the inheritance through a trust to protect them.

A family member who is disabled may benefit from a more generous inheritance than a successful sibling—although that inheritance must be structured properly, if the disabled person is to continue receiving support from government programs.

No matter the reason for unequal distributions, discuss the reasons for the difference in your estate plan with your family, or if your estate planning attorney advises it, include a discussion of your reasons in a document. This buttresses your plan against any claims against the estate and may prevent hard feelings between siblings.

You can change your mind about your estate plan if your ‘wild child’ gets his life together.

A regular evaluation of your estate plan—every three or four years, or whenever big life events occur—is always recommended. If your wayward child finds his footing and you want to change how he is treated in your estate plan, you can do that.

Your estate plan can include incentives, even after you are gone.

Specific provisions in a trust can be used to reward behavior. An incentive trust sets certain goals that must be met before funds are distributed, from completing college to maintaining employment or even to going through rehabilitation. Many estate plans stagger the distribution of funds, so heirs receive distributions over time, rather than all at once. An example: 1/3 at age 25, 1/2 at age 30 and the balance at age 40. This prevents the beneficiary from squandering all of his inheritance at once. Ideally, his financial skills grow, so he is better equipped to preserve a large sum at age 40.

Trusts are not that complicated, and their administration is not overly difficult.

People think trusts are for the wealthy only or are complicated and expensive. None of that is true. Trusts are excellent tools, considered the “Swiss Army Knife” of estate planning. Your estate planning attorney can craft trusts that will help you control how money flows to heirs, protect a special needs individual, minimize taxes and create a legacy. For families who have one or more “black sheep,” the trust is a perfect tool to protect your loved ones from themselves and their life choices.

Reference: Kiplinger (Dec. 8, 2020) “Estate Planning for ‘Black Sheep’ Beneficiaries”

Read more related articles at:

The Dilemma of Troubled Adult Child Beneficiaries

Estate planning for an Irresponsible Child & Why it is important?

Also, read one of our previous Blogs at:

5 Strategies to Keep Your Heirs From Blowing Their Inheritance

Click here to check out our On Demand Video about Estate Planning.

 

Dementia-finanaces

Do Seniors with Dementia Show Signs of Financial ‘Symptoms’ Years before a Diagnosis?

Do Seniors with Dementia Show Signs of Financial ‘Symptoms’ Years before a Diagnosis?

A study at Johns Hopkins University found that beneficiaries diagnosed with dementia who had a lower educational status missed payments on bills starting as early as seven years before a clinical diagnosis, as compared to 2½ years prior to a diagnosis for beneficiaries with higher educational status.

Medical Express’s recent article entitled “Older adults with dementia exhibit financial ‘symptoms’ up to six years before diagnosis” explains that the study included researchers from the University of Michigan Medical School. They found that the missed payments and other adverse financial outcomes lead to increased risk of developing subprime credit scores starting 2½ years before a dementia diagnosis (credit scores fall in the fair and lower range).

The findings, published online in JAMA Internal Medicine, say that financial symptoms, like missing payments on routine bills could be used as early predictors of dementia and emphasizes the benefits of earlier detection.

“Currently there are no effective treatments to delay or reverse symptoms of dementia,” says lead author Lauren Hersch Nicholas, Ph.D., associate professor in the Department of Health Policy and Management at the Bloomberg School. “However, earlier screening and detection, combined with information about the risk of irreversible financial events, like foreclosure and repossession, are important to protect the financial well-being of the patient and their families.”

The study found that the elevated risk of payment delinquency with dementia accounted for 5.2% of delinquencies among those six years prior to diagnosis—reaching a maximum of 17.9% nine months after diagnosis. The rates of elevated payment delinquency and subprime credit risk persisted for up to 3½ years after beneficiaries got a dementia diagnoses, suggesting an ongoing need for assistance managing money.

Dementia is a progressive brain disorder that slowly diminishes memory and cognitive skills and restricts the ability to carry out basic daily activities, such as managing personal finances. About 14.7% of American adults over the age of 70 are diagnosed with the disease. The onset of dementia can lead to costly financial errors, irregular bill payments and increased susceptibility to financial abuse.

For their study, the researchers compared financial outcomes from 1999 to 2018 of those with and without a clinical diagnosis of dementia for up to seven years prior to a diagnosis and four years following a diagnosis. They looked at missing payments for one or more credit accounts that were at least 30 days past due, and subprime credit scores, indicative of a person’s risk of defaulting on loans based on credit history.

To determine whether the financial symptoms observed were unique to dementia, they also looked at the financial outcomes of missed payments and subprime credit scores to other health outcomes including arthritis, glaucoma, heart attacks and hip fractures. The team saw no association of increased missed payments or subprime credit scores prior to a diagnosis for arthritis, glaucoma, or a hip fracture. No long-term issues were linked to heart attacks.

“We don’t see the same pattern with other health conditions,” says Nicholas. “Dementia was the only medical condition where we saw consistent financial symptoms, especially the long period of deteriorating outcomes before clinical recognition. Our study is the first to provide large-scale quantitative evidence of the medical adage that the first place to look for dementia is in the checkbook.”

Reference: Medical Express (Nov. 30, 2020) “Older adults with dementia exhibit financial ‘symptoms’ up to six years before diagnosis”

Read more related articles at:

Dementia may cause major financial problems long before diagnosis, making early detection critical

Step aside, biomarkers. Look to the bank account for early signs of dementia

Also read one of our previous Blogs at:

Retirement Planning and Declining Abilities

Click here to check out our Master Class!

Difference between Executor and Trustee

Do You Know Your Job as Executor, Agent or Trustee?

Do You Know Your Job as Executor, Agent or Trustee?

It’s not uncommon for a named executor or trustee to have some anxiety when they discover that they were named in a family member’s estate planning documents.

With the testator or grantor dead or incapacitated, the named individual is often desperate to learn what their responsibilities are.

It may seem like they’re asked to put together pieces in a puzzle without a picture, especially when there is limited information to start with, says The Sentinel-Record’s recent article entitled “You’re an executor or trustee … Now what?”

Here’s a quick run-down of the responsibilities of each of these types of agents:

An executor of an estate. This is a court-appointed person (or corporate executor) who administers the estate of a deceased person, after having been nominated for the role in the decedent’s last will and testament.

A trustee. This is an individual (or corporate trustee) who maintains and administers property or assets for the benefit of a beneficiary under a trust.

An agent named under a power of attorney. This person (or corporate agent) has the legal authority to act for the benefit of another person during that person’s disability or incapacity.

Each of these roles has different duties and responsibilities. For example, an executor, in most cases, is responsible for filing the original last will and testament of the testator with the probate court and then to be formally appointed by the court as the executor.

A trustee and executor both must provide notice to the beneficiaries of their role and a copy of the documents.

An agent named under a power of attorney may have authority to act immediately or only when the creator of the documents becomes disabled or incapacitated. This is often referred to as a “springing” power of attorney.

Each of these individuals is responsible for managing and preserving assets for the benefit of the beneficiary.

They also must pay bills out of the assets of the estate or trust, such as burial and funeral expenses.

Finally, they settle the estate or trust and make distributions.

Reference: The Sentinel-Record (Nov. 24, 2020) “You’re an executor or trustee … Now what?”

Read more related articles at: 

Personal Representative, Executor and a Trustee

Things to Know About Being an Executor of Estate

Also, read one of our previous Blogs at:

What Does a Successor Trustee Do?

Click here to check out our Master Class!

Nursing homes vs Assisted Living

What’s the Difference Between Nursing Homes and Assisted Living?

What’s the Difference Between Nursing Homes and Assisted Living?

US News & World Report’s recent article entitled “Nursing Homes vs. Assisted Living” explains that a big question is determining what type of facility is the best fit. According to the National Institute on Aging (NIA), long-term care residences include:

  • Assisted Living Facilities
  • Nursing Homes
  • Board and Care Homes; and
  • Continuing Care Retirement Communities.

We will look at the major differences among these options.

Assisted Living. Assisted living and nursing home facilities are different in many ways. One big difference is in how to pay for them. Some assisted living facilities do not accept Medicaid and are private pay only. Medicaid does cover nursing home care because states must do so under federal law. That’s the only way some can cover the cost in many instances.

Otherwise, the primary difference is in the level of care each can provide. Assisted living is for those who need some help with daily care, but not as much as what a nursing home has to offer. These facilities are for those who can still take care of themselves, but could use a bit of help with daily activities such as:

  • Housecleaning and laundry
  • Household chores and cooking
  • Bathing
  • Medication management; and/or
  • Transportation to medical appointments or stores.

The residents use any or all of the services offered and pay for the level of care they are receive. However, the more care, the higher the cost. Assisted living residents typically have their own private apartments and share common areas, like the dining room and community rooms. Most offer three meals a day for those who don’t want to cook, 24-hour supervision and security and socializing and recreational events with other residents. Many assisted living communities even permit pets.

Nursing Homes. Nursing homes are also called “skilled nursing facilities” and provide a higher level of daily care—especially medical care that assisted living facilities aren’t equipped to handle. Along with the same help for daily living that assisted living communities provide, a nursing home can offer:

  • Nursing care
  • Rehabilitation services, such as physical, occupational and speech therapy
  • Help getting dressed or in and out of bed
  • Frequent or daily medical management for chronic conditions; and
  • Some facilities specialize in memory care for patients suffering from Alzheimer’s disease or other forms of dementia.

Board and Care Homes. Also called “residential care facilities” or “group homes,” these are small homes of 20 or fewer residents living in private or shared rooms. Similar to assisted living facilities, these places can provide personal care and meals but no nursing or medical care.

Continuing Care Retirement Communities. Also called “life care communities,” they offer different levels of service in one location, like independent housing, assisted living, and a skilled nursing facility all in one place. Residents can begin at one level of care and transition into higher care, as needed.

How to pay for care is another common misunderstanding, because unless you have long-term care insurance, assisted living is paid out of pocket. For a skilled nursing facility, if you are hospitalized and discharged to a care facility, Medicare will pay a set amount for a certain time. The responsibility for payment then goes back to the resident.

Only when a senior is legally destitute, can you use Medicaid. Talk to an elder law attorney about the details.

Reference: US News & World Report (November 52, 2020) “Nursing Homes vs. Assisted Living”

Read more related articles at:

Assisted Living vs. Nursing Homes: What’s the difference?

Residential Facilities, Assisted Living, and Nursing Homes

Also, read one of our previous Blogs at:

Use This Checklist When Visiting Assisted Living Facilities

Visiting Grandma at the Nursing Home

Click here to check out our Master Class!

Medicaid House

Homeownership and Medicaid Can Be Problem

Homeownership and Medicaid Can Be Problem

The challenges begin when homeowners don’t do any Medicaid planning and decide the best answer is simply to gift their home to their children. It doesn’t always work out well for the homeowners or their children, warns the article “Owning real estate without jeopardizing Medicaid paying for nursing home” from limaohio.com.

A key tax avoidance opportunity is usually missed, when real property is gifted outright. The IRS says that if someone owns real estate, when that person passes, the heirs may eliminate a large portion of the taxable gains, if the real estate ends up being sold by an heir for more than the original owner paid for the property.

Let’s walk through an example of how this works. Let’s say Terry buys a farm for $1,000. The cost to buy the farm is referred to as a “tax basis.”

If the family is planning for the possibility of nursing home costs, Terry might want to give that farm away to her children Ted and Zach. She needs to do it at least five years before she thinks she’ll need Medicaid to pay for long-term nursing care, because of a five-year lookback.

When Terry gifts the farm to Ted and Zach, the two children acquire Terry’s tax basis of $1,000. Ted gets $500 of the tax basic credit, and so does Zach.

The years go by and Ted wants to buy out Zach’s half of the farm. The farm is now worth $5,000. So, Ted pays Zach $2,500 for Zach’s half of the farm. Zach now has a tax basis of $500, which is not subject to tax. And Ted receives $2,000 more than his $500 tax basis, and Ted will need to pay capital gains on that $2,000 gain.

It could be handled smarter from a tax perspective. If Terry owns the farm when she dies, then Ted and Zach get the farm through her will, trust or whatever estate planning method is used. If the farm is worth $3,000 when Terry dies, then Ted and Zach will get a higher tax basis: $3,000 in total, or $1,500 each. By owning the farm when Terry dies, she gives them the opportunity to have their tax basis (and amount that won’t be taxed if they sell to each other or to anyone else) adjusted to the value of the property when Terry dies. In most cases, the value of real estate property is higher at the time of death than when it was purchased initially.

There’s another way to transfer ownership of the farm that works even better for everyone concerned. In this method, Terry continues to own the farm, helping Zach and Ted avoid taxes, and keeps the property out of her countable assets for Medicaid. The solution is for Terry to keep a specific type of life estate in the farm. This needs to be prepared by an experienced estate planning attorney, so that Terry won’t have to sell the farm if she eventually needs to apply for Medicaid for long term care.

Your estate planning attorney will be able to help you and your family navigate protecting your home and other assets, while benefiting from smart tax strategies.

Reference: limaohio.com (Nov. 7, 2020) “Owning real estate without jeopardizing Medicaid paying for nursing home”

Read more related articles at:

Protecting Your House from Medicaid Estate Recovery

Assets You Can Have and Still Qualify for Medicaid

Also, read one of our previous Blogs at:

Dark Side of Medicaid Means You Need Estate Planning

Click here to check out our Master Class!

Estate Planning Terms

What Key Estate Planning Terms Should I Know?

What Key Estate Planning Terms Should I Know?

Estate planning can help you accomplish several objectives, including naming guardians for minor children, choosing healthcare agents to make decisions for you should you become ill, minimizing taxes so you can give more wealth to your heirs and saying how and to whom you would like to pass your estate at death.

Emmett Messenger Index’s recent article entitled “13 Estate Planning Terms You Need to Know” provides some important terms to understand as you consider your own estate plan.

Assets: This is anything a person owns. It can include a home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, collectibles, art, and clothing.

Beneficiary: This is an individual or entity (like a charity) that gets a beneficial interest in an asset, such as an estate, trust, account, or insurance policy.

Distribution: A payment in cash or asset(s) to the beneficiary who’s designated to receive it.

Estate: All of the assets and debts left by a person at death.

Fiduciary: An individual with a legal obligation or duty to act primarily for another person’s benefit, such as a trustee or agent under a power of attorney.

Funding: The process of transferring or retitling assets to a trust. Note that a living trust will only avoid probate at the trustmaker’s death if it’s fully funded. A trustmaker also may be known as a grantor, settlor, or trustor.

Incapacitated or Incompetent: The situation when a person is unable to manage her own affairs, either temporarily or permanently, and often involves a lack of mental capacity.

Inheritance: These are assets received from someone who has died.

Probate: This is the orderly court-supervised process of distributing the assets of a person who has died.

Trust: This is a fiduciary relationship where a trustmaker gives a trustee the right to hold property or assets for the benefit of another party, known as the beneficiary. The trust is a written trust agreement that directs how the trust assets will be distributed to the beneficiary.

Will: A written document with directions for disposing of a person’s assets after their death. A will is enforced by a probate court. A will can provide for the nomination of a guardian for minor children.

Reference: Emmett Messenger Index (Oct. 28, 2020) “13 Estate Planning Terms You Need to Know”

Read more related articles at:

Estate Planning Glossary

Glossary of Estate Planning Terms ABA

Also, read one of our previous Blogs at:

Estate Planning Is a Gift and a Legacy for Loved Ones

Click here to check out our Master Class!

Guardianship family

Do I Need to Name a Guardian for My Children in the Will?

Do I Need to Name a Guardian for My Children in the Will?

Many young couples with children and bills to pay may look at you askance, when asked about estate planning and say, “what estate?”

However, a critical part of having a will—one frequently overlooked—is naming a guardian. If you don’t name a guardian, it could result in issues for your children after your death. Your child might even be placed in a foster home.

For a young family, designating a guardian is another good reason to draft a will. If you and your spouse die together with no guardian specified in a will, the guardian will be chosen by the court.

In a worst-case scenario, if you have no close family or no one in your family who can take your child, the court will send them to foster care, until a permanent guardian can be named.

The judge will collect as much information as possible about your children and family circumstances to make a good decision.

However, the judge won’t have any intimate knowledge of who you know or which of your relatives would be good guardians. This could result in a choice of one of the last people you might pick to take care of your child.

Try to find common ground, by agreeing to a set of criteria you want in a guardian. This could include the following:

  • The potential guardian’s willingness to be a guardian
  • The potential guardian’s financial situation
  • Where the child might live with that person
  • The potential guardian’s values, religion, or political beliefs
  • The potential guardian’s parenting skills; and
  • The potential guardian’s age and health.

Next, make a decision, get the chosen guardian’s consent, write it all down, and then set out to create a will.

Ask an experienced estate planning attorney to help you do it correctly.

Reference: Lifehacker (Oct. 27, 2020) “Why You Should Name a Guardian for Your Kids Right Away”

Read more related articles here:

Naming a Guardian for Minor Children in Your Will: How and Why

Also, read one of our previous Blogs at:

How is a Guardianship Determined?

Click here to check out our Master Class!

Retirement Planning

Why Planning Tasks Don’t Stop Because You’ve Retired

Why Planning Tasks Don’t Stop Because You’ve Retired

How you handle money and legal matters during retirement is more important than during your working years. It’s harder to bounce back from financial setbacks when you aren’t getting a regular paycheck. Managing finances and legal affairs to keep your savings intact and your estate plan current is part of your new responsibility as a retiree, says a recent article “7 Money Moves You Should Make After Retiring” from MoneyTalksNews.

  1. Review estate planning documents. One of the most important documents is your will, but you also need to review any power of attorney and trust documents. A will is used to specify what you want done with your property after you die. What happens if you die without a will? The state will step in and make those decisions for you.

If you marry, divorce, inherit or buy property, you should update your will to reflect your changed circumstances. The arrival of a new grandchild may make you want to change your beneficiaries.

Reviewing your will after retirement and then periodically afterwards can put your mind at ease. If you don’t have a will, now is the time to have one created with an experienced estate planning attorney. You may also need a living will, power of attorney and letter of intent.

  1. Review named beneficiaries. Beneficiary designations require updating anytime there is a change in your life. When you purchase life insurance, enroll in a pension plan or open an individual retirement account, you are often asked to name a beneficiary–the person who will inherit the proceeds when you die. These instructions take precedence over instructions in a will.
  2. Prepare for your funeral. No one wants to consider their own mortality, but helping your loved ones be financially prepared for your funeral is a gift. By planning your own funeral, including making arrangements for funds to be available to pay for it, you save your family of the burden of having to plan and pay for a funeral while they are grieving your loss. Planning in advance also gives you an opportunity to decide what type of funeral you want.
  3. Consider trimming transportation costs. If your household has two cars, but you could manage with one, consider paring down this expense. Seniors tend to pay higher rates than young people, so this is one way to trim your monthly expenses.
  4. Review emergency fund status. Having money set aside for unexpected expenses is more important now than when you were working. An emergency fund can help you avoid taking money out of retirement accounts, which costs you not only the funds themselves, but the potential growth of the funds and any taxes that might be due on withdrawals.
  5. Plan for Required Minimum Distributions (RMDs) and taxes. Once you celebrate your 72nd birthday, you’ll need to start taking RMDs from tax-deferred retirement accounts. If you miss an RMD deadline or don’t take out enough, you may have to pay a 50% tax penalty on the amount of money you did not withdraw. RMDs are treated as taxable income, so they may impact your federal income tax rate, as well as the “combined income” formula used to determine the extent to which your Social Security benefits are taxable.
  6. Do you still need life insurance? If your family is not dependent upon your income, now might be the time to drop life insurance policies. The main purpose of life insurance is to provide an income stream for loved ones, if you should die unexpectedly when you are working and raising a family. However, if you are retired, your children are grown and your spouse is not relying on your income, it may be time to let the policies lapse. On the other hand, if you can afford the premiums and wish to leave the proceeds to a spouse or your children, by all means keep the policy. However, check the beneficiary designation.

Reference: MoneyTalksNews (Oct. 9, 2020) “7 Money Moves You Should Make After Retiring”

Read more related articles at:

Retirement Planning Doesn’t Stop When You Retire-Investopedia

Retirement Planning Doesn’t Stop When You Retire-Forbes

16 Retirement Mistakes You Will Regret Forever-Kiplinger

Also, read one of our previous Blogs at:

How Do I Include Retirement Accounts in Estate Planning?

Click here to check out our Master Class!

Guardianship

How Does Guardianship Work?

How Does Guardianship Work?

For the most part, we are free to make our own decisions regarding how we live, where we live, how we spend our money and even with whom we socialize. However, when we are no longer capable of caring for ourselves, most commonly due to advancing age or dementia, or if an accident or illness occurs and we can’t manage our affairs, it may be necessary to seek a guardianship, as explained in the recent article “Legal Corner: A guardian can be a helpful tool in cases of incapacity” from The Westerly Sun. A guardianship is also necessary for the care of a child or adult with special needs.

If no proper estate planning has been done and no one has been given power of attorney or health care power of attorney, a guardianship may be necessary. This is a legal relationship where one person, ideally a responsible, capable and caring person known as a guardian, is given the legal power to manage the needs of a ward, the person who cannot manage their own affairs. This is usually supported through a court process, requires a medical assessment and comes before the probate court for a hearing.

Once the guardian is qualified and appointed by the court, they have the authority to oversee everything about the ward’s life. They have power over the ward’s money and how it is spent, health care decisions, residential issues and even with whom the ward spends time. At its essence, a guardianship is akin to a parent-child relationship.

Guardianships can be tailored by the court to meet the specific needs of the ward in each case, with the guardian’s powers either limited or expanded, as needed and as appropriate.

The guardian must report to the court on a yearly basis about the ward’s health and health care and file an annual accounting of what has been done with the ward’s money and how much money remains. The court supervision is intended to protect the ward from mismanagement of their finances and ensure that the guardianship is still needed and maintained on an annual basis.

The relationship between the ward and the guardian is often a close one and can continue for many years. The guardianship ends upon the death of the ward, the resignation or removal of the guardian, or in cases of temporary illness or incapacity, when the ward recovers and is once again able to handle their own affairs and make health care decisions on their own.

If and when an elderly family member can no longer manage their own lives, guardianship is a way to step in and care for them, if no prior estate planning has been done. It is preferable for an estate plan to be created and for powers of attorney be created, but in its absence, this is an option.

Reference: The Westerly Sun (Sep. 19, 2020) “Legal Corner: A guardian can be a helpful tool in cases of incapacity”

Read more related articles at:

Guardianship

Also read one of our previous Blogs at:

What Should I Know about Guardianship?

Click here to check out our Master Class!