We always encourage our clients to bring their team with them to all meetings. A team can consist of an accountant, a financial advisor, and the family. The reason for this is that we often have to make tough decisions that may negatively impact one of the other members of the team. It is always better to have the whole team present if possible and their opinion accounted for so the client can make an informed decision.
A client was referred to us who had worked with other attorneys previously and was not pleased with the results. A friend of theirs mentioned our workshops and encouraged them to attend. I began by asking the family what had brought them to our office and what they were hoping to accomplish. As I listened, it became apparent that the only reason that the husband and wife were in my office was to make sure that their assets were protected for their children. The husband explained that both his and his wife’s parents ended their lives in nursing homes and totaled together their bills were about $750,000. In both family situations, the parents exhausted their assets and ended up on Medicaid with no assets left to pass on to their children. The husband was adamant and said repeatedly that this would not happen in his situation, and he desperately wanted to find a solution. As we dove into their situation, it became apparent to me that there were approximately $500,000 of assets that were funded in retirement accounts such as 401(k)s, IRAs, and 403(b)s.
At the conclusion of the meeting, I explained to the client that generally, we never liquidate retirement accounts during a person’s lifetime. Not only will it trigger significant tax consequences but could also have unintended consequences such as Medicare premiums and other such things. The client would not accept that as an answer and did not believe that leaving $500,000 exposed was the right decision. After three meetings with the advisor and the accountant, we were able to come up with a plan that was satisfactory to everyone. With the clients in their early 60s, time was definitely on our side. In this situation, we ended up liquidating his retirement account over five years at $100,000 a year and took the remainder of the assets after taxes, funding them in an Asset Protection Trust. The downside of this plan was that in year five, when he liquidated the last $100,000, in order to have it fully protected, they had to stay out of a nursing home for an additional five years. That made it a total of 10 years. In light of their age and circumstances, it was certainly a risk that we were willing to take. Ultimately, this compromise allowed the advisor and the accountant to also be comfortable that it would accomplish their objective, but at the same time, not exacerbate any unintended consequences such as taxes, surcharges, premiums, etc. Although the client wanted the assets to be protected immediately, he understood that at best, it would have to be done over five years, as liquidating 100% of those assets in one year would trigger much higher income tax rates. That was not an avenue that any of us really could support. I was very pleased that we were able to accomplish the client’s objective in this case, while at the same time making the financial professional and accountant happy.
The father then called a family meeting and we had a phone conversation with the entire family to explain to all of the kids why we did what we did and what the rationale was behind the plan. Everyone was onboard and was excited that we were able to come to a compromise that worked for the whole team.
Estate planning and elder law is not a one-size-fits-all approach. Every case is very different, and, done properly, works best with a team approach. We relish working with financial professionals and accountants to accomplish the clients’ goals in a way that is not only acceptable to them but also to their families.
Thank you to this family and the many more whom we have helped over the years to accomplish their estate planning goals.
Jeffrey Bellomo
