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Don’t Plant a Bomb in Your Estate Plan to Blow Up the Future for Your Kids!

Boom"The real reasons to do estate planning are to take care of ourselves and our families the way that we want to."

In a review of their finances for the New Year, many well-meaning parents may unknowing plant a tax bomb for their children in their estate plan. Fox 61 News' recent report, "Tips to avoid an income tax and estate planning time bomb," explains how timing is critical to gain the most from an inheritance. Simply put, the taxes due on the sale of an asset can be drastically different depending on how the asset was inherited by an heir.

For example, parents may decide to deed a home to their son while they are alive to protect it from long-term care costs or to avoid probate. Because the child didn't pay the parents the fair market value of the place, it's considered a gift, and a gift tax return may be required depending on the value of the home. The more the property is worth at the time of its sale, the greater the gain and the larger the tax bill will be.

These parents unknowingly planted an income tax bill bomb for their children by gifting property during their lifetimes instead of allowing the children to inherit the property after their deaths.

However, if the parents had used a revocable trust to own the home, then the residence would be passed on after death. In this scenario, the heir would not owe any income tax, provided the property was sold for what it was worth at the date of death. This works regardless of how much the property is worth at the time of the parents' passing.

Young or old—it doesn't matter—if you don't have an estate plan, have one created now. Start with the basics, and if you need to, do the additional planning as it applies to your situation. Speak with an experienced estate planning attorney. In addition, remember these tips:

  • Review and update your beneficiary designations.
  • Review and update your insurance policies. Check the amount of coverage and make sure it still meets your family's current needs.
  • Consider purchasing long-term care insurance to help pay for the costs of long-term care in case you and/or your spouse ever need it due to illness or injury.

Plus, at a bare minimum, everyone over the age of 18 needs a Power of Attorney for Heath Care, a Living Will, and HIPPA authorizations. Also, a Revocable Living Trust may be better than a will at incapacity because it avoids the court's control over your assets. And while you are at it, review and update the guardian designation for any minor children.

It's critical to work with an estate planning attorney who can keep your estate plan up-to-date with all of the changes in the law, changes in your finances and health, and changes in the health and finances of family members.

Reference: Fox 61 News (January 4, 2016) "Tips to avoid an income tax and estate planning time bomb"

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Helping your Parents Downsize

Bigstock-Downsize-70763308 “People are not relying on the way things used to be.”

Theauthor of aChicago Tribune article titled “Don't want to burden your children? Plan now,” wrote that his parents, who are in their early 60s, moved from their old five-bedroom home to a two-bedroom house. In addition to being way too big, the old house had problems and needed maintenance and repairs. The new place is newly renovated with all new mechanicals and a smaller yard. Plus, it's in a more walkable neighborhood with friends and family nearby.

Downsizing is emotionally and logistically difficult. It is wise to do so while you are young, healthy retirees. In more traditional times, older folks would be cared for until the end of their lives by children and extended family. However, times have changed.

Part of this changing perspective is from "the triple-decker sandwich," where baby boomers are facing retirement themselves and have to also care for their elderly parents—plus manage relationships with their own children.

The number of Americans needing long-term care is expected to double in the next 30 years, and a recent study of Medicare patients found that out-of-pocket costs at the end of life were highest for patients with dementia. These people require help with daily living, often for years—most of whom aren’t covered by public programs.

Here are some ideas on how to address this issue:

Downsizing. If you're in a large, expensive home in a car-dependent neighborhood, downsizing now lets you limit expenses while maintaining independence longer. Proximity to family and friends is also very important. Even though 89% of respondents in the survey said they'd wanted to stay in their current home, they still found the option of a smaller home to be much more preferable to a nursing home or assisted living.

Invest in long-term care insurance. If you want to be cared for in your home, find an insurance policy that covers that type of care as part of your retirement planning. The younger and healthier you are, the cheaper these policies are going to be.

Talk to an estate planning attorney, preferably all together. An experienced elder law or estate planning attorney can sit down with the whole family. They should have expertise in intergenerational wealth transfer, inheritance, and estate planning.

For more information about estate planning, please visit my estate planning website.

Reference: The Chicago Tribune (November 14, 2015) “Don't want to burden your children? Plan now”

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Helping a Loved with Alzheimer’s Disease

DownloadIt’s important to plan for the future. This is especially true for families who have a loved one with Alzheimer’s disease or another form of dementia. If planning is done early, the person with the disease may be able to participate more in the decision making. Planning early can also reduce future stress for the family of the person with the disease. When someone has Alzheimer’s disease or another dementia, legal plans and financial plans are important to put in place.

The Lincoln (NE) Journal Starrecently contained an article about caring for a loved one with Alzheimer’s disease or another form of dementia. “Planning the future of a loved one with dementia” discussed some helpful information in both financial and legal planning.

You will encounter a number of costs in caring for a person with dementia. Planning for these expenses and costs throughout the course of the disease will involve examining all the costs you could possibly face now and in the future. These can include prescription drugs, personal care supplies, adult day care services, in-home care services, and residential care services.

Discuss financial needs and goals as early as possible. This way the person with the disease will be able to comprehend the issues, take a role in mapping out his or her objectives, and clarify their wishes. An experienced elder law attorney will have worked with financial advisors and will be able to point out potential financial resources, uncover tax deductions, and counsel against imprudent investment decisions. You may have these financial resources available to help you with the costs during the course of the disease:

  • Health care coverage
  • Long-term care insurance
  • Life insurance
  • Medicaid
  • Veterans benefits
  • Other public programs:

In addition, many states have state-funded, long-term care available, such as adult day care and respite care.

Legal capacity is the ability to understand the meaning and importance of a legal document, such as a power of attorney. A person suffering from dementia who has the ability to understand and appreciate the consequences of his or her actions to execute a document needs to be the decision-maker. As long as he or she possesses legal capacity, they should take part in legal planning. The article recommends these documents:

  • Living will
  • Power of Attorney
  • Health Care Directive or Power of Attorney
  • Will
  • Living Trust
  • Guardianship/Conservatorship

Talk to an experienced and qualified estate planning attorney if you have questions about elder care for your loved one.

For more information about estate planning, please visit my estate planning website.

Reference: The Lincoln (NE) Journal Star (July 20, 2015) “Planning the future of a loved one with dementia”

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Long-Term Care Lapse Logistics / York, PA

In the meantime, cases like this demonstrate anew how vigilant families need to be. If your older relative has a long-term care policy, photocopy the page listing the company, policy number and claims contact information. Keep the insurance company updated on new addresses, yours (if you are the third-party designee) and your relative’s. It wouldn’t hurt, if the policyholder is becoming forgetful, to check bank statements or call the company to be sure premiums are paid.

Do your elderly loved ones have a long-term care insurance policy or something similar? If yes, then they likely are relying on it to cover the potentially catastrophic financial risk that is long-term care. If yes, then what happens if they forget to pay the premiums?

Do I have your attention now? If yes, then you will want to read a recent horror story in The New York Times – The New Old Age Blog titled “The Policy Lapsed, but No One Knew.

Generally speaking, any form of “insurance” exists to help minimize various financial risk exposures to the insured. In essence, you pay a premium you can afford (and the insurance company will accept) to cover a risk you cannot afford. Once insured, you really only need to think about the much easier task of remaining insured, which usually means making timely premium payments.

Unfortunately for some families, remaining insured can sometimes present a few challenges uniquely associated with old age itself. What happens when the loved one begins to develop dementia and simply stops making the premium payments on the policy? Dementia is rather subtle before it becomes fairly dramatic. Accordingly, you may need to implement some financial safety precautions.

The terrible lesson coming out of the original article is how the caregiver/son was diligent, but a mistake by his father at the bank snowballed into missed payments and a lapsed policy. The worst part of the horror story is that the cancellation notice from the insurer was never received – and the family was unaware of the policy lapse until they went to claim its benefits.

MP900439295Ultimately, the burden of proof was not on the insurer regarding whether the premium notice had been sent and received.

Will there be a legislative reaction to stories like these? It seems this case will not go anywhere soon, but there may be more like it across the country.

For more information about Long Term Care Lapse Logistics, please visit my estate planning website.

Reference: The New York Times – The New Old Age (January 31, 2014) “The Policy Lapsed, but No One Knew

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