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April 27, 2017 admin

Funding Fundamentals

You have just signed your Revocable Living Trust (RLT). Congratulations. You are finished and your assets are free and clear of probate should you become disabled or die. Right? Wrong!

Like a fine automobile without fuel in the tank, a RLT is not going to perform as designed without “fueling” (i.e., “funding”) it. Is this a “one and done” event? No, you must title some assets in the RLT without delay and others by beneficiary designation upon your passing. Remember: assets that are not titled in your trust may be subject to probate. Consider this an introduction to the three steps to successful trust funding and a look at the two unique assets requiring additional consideration.

Identify

The first step is to determine what you currently own, its location and how title is presently held. Make a list of your various holdings. The greater the detail, the more successful your funding. The list you make will also serve double-duty. If you become disabled or die, then your successor trustee will know exactly what assets are in the RLT or outside the RLT. This can avoid an unpleasant “treasure hunt” that can be expensive and time consuming.

Transfer

Once your assets have been identified, notify the various financial institutions that you have created a RLT. They will want to know the name of the trustee, the trust name and the trust date. Do not be surprised if an institution wants a copy of the whole trust or just certain pages to ensure accurate retitling. It is also important to request written confirmation from each institution that the requested retitling has formally occurred. Note: Some assets should be directly titled in the trust and others by a “beneficiary designation” for postmortem funding. For example, life insurance may be owned outright by the insured with his or her RLT as the primary beneficiary.

Maintain

Buying and selling, selling and buying. Life goes on after you sign and complete the initial funding of your RLT. You should make sure that you take title to assets in the name of your RLT as you acquire them, or carefully establish the appropriate beneficiary designations for them to fund the trust at death. While you are at it, update the initial list used to begin the funding process. This “inventory” will be essential when your successor trustee is necessary.

Special Consideration Assets

Two types of assets require careful attention when funding your RLT: real estate and retirement funds. A misstep in either instance can be very costly.

Real Estate: For your own primary personal residence secured by a mortgage, chances are good that you may retitle it to your RLT without written permission from the lender in advance. Nevertheless, if you want to be sure that no “due on transfer” clause will be triggered, a “belt and suspenders” approach would be to get prior approval. Before retitling any real estate that is not your own primary personal residence, make sure you obtain written prior approval.
Retirement Funds: These are some of the trickiest of all assets, especially when it comes to designating a contingent beneficiary after the surviving spouse. No designations should be made without legal and tax advice.

March 29, 2017 admin

Choosing Guardians for Minors

It makes for an interesting movie storyline. The parents of a minor child tragically perish in an accident. They had no estate plan. A judge awards guardianship of the child and responsibility to oversee the sizeable inheritance to the incredibly immature adult sibling of one of the parents. The crass humor blended with a few predictable, heartwarming moments, make for entertaining fare at the box office. However, the stakes are much higher in real life, when real lives and real inheritances are at stake.

As in the movie plot, a legal guardian is an adult who is legally appointed to rear an orphaned minor child to adulthood (i.e., age 18 in most states). Every parent of a minor child needs to designate a guardian through proper estate planning. Otherwise, a judge may appoint the “wrong” guardian by default.

Picking the Guardian

Deciding who to designate as guardian can be an extremely difficult and emotional decision. It is one of the main reasons why parents of minor children procrastinate on their estate planning. Therefore, where do you start?

You should make a list of all of the possible candidates. Then discuss the list with the other parent to consider the pros and cons of each individual. Here are some things to evaluate as you work your way through the list of potential guardians:

Parenting style;
Values and religious beliefs;
Your child’s relationship with each of them;
Location, location, location and the effect of a move;
Whether there are other children in the home, and if so, how your child would fit into that family;
Their realistic ability to take on the responsibility of caring for a child, emotionally, financially, and physically; and
Whether the potential guardian has the time and energy to devote to your child now and later on.

Many couples will choose grandparents for guardianship as their first, natural inclination. However, you should look at their ages and health. You would not want your child to lose his or her parents, then turn around and lose grandparents a few years later.

Practical Pointers

Both parents should ultimately agree on the same person as guardian, as well as successor guardians, if the primary is unwilling or unable when the time comes. Before executing the legal documents that make the designation official, ask the guardian if he or she would be willing and able to serve. While it is a matter of common courtesy, from a practical perspective, it is better to know now rather than risk leaving your minor child in a lurch later.

Once signed, legal documents require “legal formalities” to make changes. Therefore, how do you provide guidance to your guardian regarding your wishes for how your children should be reared? Consider writing a letter to cover such practical matters as educational priorities, religious instruction, access to family members, and travel opportunities.

While this letter is not legally binding, it will provide your guardian with some additional guidance on your thoughts when parenting your child. You should update the letter as needed, as well as your estate plan.

February 28, 2017 admin

Long-Distance Caregiving Concerns

Being a caregiver to a senior loved one can be difficult, even when you are next door or across town. But what if you are several time zones away? Trying to provide (or monitor) care from a distance can seem almost impossible. When you are far away, it is difficult to know what to do and where to turn when your parent or loved one starts showing signs of aging and needs some type of ongoing assistance.

Minimizing Risks

Most seniors do not want to admit that they are slipping. Who would? Even if they do, most do not want to ask for help. Understandably, seniors do not want to give up control of their lives, do not want to give up their car keys and do want to manage their own money. Unfortunately, with increasing birthdays, come increasing risks.

Take driving, for example. As we age, our reflexes slow. A car accident can injure your senior loved one. It can even wipe out their life savings, if the accident injures or kills another person. Many scammers also prey on seniors and devise schemes to get their money.

Take Action Now

There are things that you can do to minimize these risks to your loved ones, protect them and allow them to remain in control as long as possible. First, have “the conversation.” Sit down and talk with them about these risks. This can be the most difficult part of all.

When you have this talk, you should discuss things that can happen to take away their independence and security. Discuss the importance of putting a plan in place so everyone is on the same page. The talk should include:

Their wishes for emergency or end-of-life medical care (i.e., life support, feeding tubes, blood transfusions, organ donation, etc.);
Who they want to make these medical decisions, if they are unable to speak for themselves;
Their thoughts on long-term care, to include preferences for the location of that care and how to pay for it; and
Their estate plan (or lack thereof), the location of relevant legal documents and the attorney who prepared them.

Any existing legal documents should be reviewed to ensure that they are current. [Anecdotally, the average age of an estate plan is roughly the age of one’s eldest child because the estate planning documents were created to appoint a guardian for the then-minor child in the event he or she were orphaned.] There is no time like the present to make sure the legal plans are ship-shape. Do you really want unpleasant surprises later?

Are there other family members who also share a stake in the well-being of your senior loved one? If yes, then it is mission-critical that you communicate as well. All of you should be involved in “the conversation” and each of you should bear responsibility for some aspect of their care. The “failure to communicate” has led many a family into unnecessary (and unpleasant) drama, when expectations are not articulated and addressed upfront.

Ultimately, when the “time comes to act,” there must be some agreed method of accountability to ensure that everything is being done in the best interests of your senior loved one. Remember that your own children will most likely model the caregiving you give to your senior loved ones.

January 30, 2017 admin

Alternatives to JTWROS

Although many people plan their estates by design or default using joint tenancy with rights of survivorship (JTWROS), just as many look for ways to avoid probate without the drawbacks of JTWROS. Here is a quick review of several commonly used alternatives to JTWROS.

Pay on Death, Transfer on Death, Beneficiary Deeds

Many states have non-probate transfer statutes that provide for the disposition of many types of assets at death, without requiring potentially time-consuming and expensive probate proceedings. These laws have also eliminated some of the disadvantages of joint tenancies.

It is recommended that you determine whether a simple pay-on-death (POD) designation is available under your state laws for your savings and checking accounts, as well as on certificates of deposit. Unlike JTWROS, you remain in control of the money in the account (to spend as you wish) and the POD beneficiary has no rights to the money. However, upon your death, the beneficiary can claim the money directly from the bank without waiting for it to pass though probate.

If your state law permits, other assets can pass in the same manner as POD. For example, you may be able to arrange for titled assets such as securities and even your motor vehicles to transfer-on-death (TOD) to your chosen beneficiary. Without subjecting these assets to the risks of JTWROS during your lifetime and probate at your death, TOD arrangements are a popular option. The beneficiary works directly with the brokerage or DMV to transfer the account or motor vehicle upon presentation of your death certificate.

What about real estate? More than half of all states have laws authorizing beneficiary deeds to transfer real estate. It is similar to a POD or TOD, except it is for real estate. You only need to sign and record the beneficiary deed (while you are alive) for the transfer to be effective upon your death. The beneficiary deed is revocable and the property may be sold at any time. A different beneficiary may be designated and that beneficiary has no rights until your death.

Another benefit of POD, TOD and beneficiary deed arrangements is that no present interest is transferred, so no potential gift tax liability is triggered.

Although these alternatives may be preferable to JTWROS, they are still not fool-proof substitutes for a will. What happens if your beneficiaries die before you can revise your non-probate transfer arrangements?

Revocable Living Trusts

Another popular alternative to joint tenancy is to create a revocable living trust to hold title to your assets during your lifetime and then distribute them according to your instructions at your death, without probate.

The key to any successful revocable living trust is to properly “fund” it. Similar to a fine automobile without fuel in the tank, a revocable living trust is not going anywhere if it does not directly hold title to your assets now or by beneficiary designation later. However, great care must be taken when planning beneficiary designations, especially when it comes to distributions from retirement plans.

As with the other alternatives, a will should always be created as part of revocable living trust planning, in case any assets are unintentionally left out of the trust.

December 27, 2016 admin

Practical Pointers: Estate Organization

When your children were young, you were constantly cleaning up after them, right?

You would ask them to clean their rooms, pick up their socks and put their dinner plates in the dishwasher (or maybe even get them to wash the dishes!). As they grew older, they started to assume greater responsibilities and learned that not helping out meant more work for you. As your children married and had children of their own, they likely started to think about the future and how to help you and their children. As it stands now, there may be very few “messes” to clean up, but life circumstances can change without warning. Do not leave a mess for your loved ones if you become incapacitated and when you pass away.

Have you organized all of your financial and legal documents? Would your children be able to pick right up where you left off when something happens to you? If yes, then congratulations, but keep everything up-to-date. If no, then there is no time like the present.

Where’s Your Stuff?

Even if you are a model of personal organization, you still need to let your loved ones know where all of your important documents are located. That includes estate planning documents like your will and any trusts; financial documents (like investment statements, insurance policies, bank accounts, pensions and retirement accounts), and legal documents (such as the title to your home, vehicles and any other property).

Make a List

Make a detailed record of your important documents and assets. Make sure your loved ones know where you keep the list … and keep it current. Also, consider including these practical matters:

A list of your important professional contacts including your doctor, banker, financial advisor, insurance agent, clergy and estate planning attorney;
The type of funeral arrangements you have made or would like made;
A list of the items in safe deposit boxes, in safes and in any other locked or hidden away places;
The combinations and location of keys to any of your secure storage spaces;
A family history; and
The location of photographs, heirlooms, and other irreplaceable items.

The more details here, the better.

Practical Pointers

When you are ready to thoroughly organize all of your affairs, you must first have a clear and easily accessible system to guide your family and friends. This can be as simple as a spiral notebook or an inventory program on your computer. Regardless the storage medium you choose, store it in a safe place. For example, if you go the notebook route, consider keeping it and all of the important documents in a fireproof metal box or home safe. The second part of this task is to be sure you tell key individuals about your new records. This list should include your estate planning attorney, your designated executor or trustee and your loved ones.

Closing Thoughts

You taught your children to pick up after themselves starting at a very early age. Continue to lead by example: get (and keep) your personal financial and legal affairs organized now to avoid messes later. After all, your family members are the most important people in your life. Do not delay!

November 29, 2016 admin

How Gifts Can Affect Medicaid Eligibility

We have all heard that it is better to give than to receive. However, if you think you might someday want (or need) to apply for Medicaid long-term care benefits, then you need to be careful. Why? Because giving away money or property now can interfere with your eligibility later.

Under federal Medicaid law, if you transfer assets within five years before applying for Medicaid, you will be ineligible for a period of time (called a transfer penalty), depending on the value of the assets you transferred. Even small transfers can affect eligibility.

Warning: While federal law allows individuals to gift up to $14,000 a year (in 2016) without having to pay a gift tax, Medicaid law still treats that gift as a transfer subject to penalty.

In fact, any transfer you make, however innocent, will come under scrutiny. For example, Medicaid does not have an exception for gifts to charities. If you give money to a charity, it could affect your Medicaid eligibility down the road.

Similarly, gifts for holidays, weddings, birthdays and graduations can all cause a transfer penalty. If you buy something for a friend or relative, this could also result in a transfer penalty.

Spending a lot of cash all at once or over time could prompt the state to request documentation showing how the money was spent. If you do not have documentation showing that you received fair market value in return for a transferred asset, you could be subject to a transfer penalty.

While most transfers are penalized, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:

your spouse;
your child who is blind or permanently disabled; or
a trust for the sole benefit of anyone under age 65 who is permanently disabled.

In addition, you may transfer your home to the following individuals (as well as to those listed above):

your child who is under age 21;
your child who has lived in your home for at least two years prior to your moving to a nursing home and who provided you with care that allowed you to stay at home during that time; or
a sibling who already has an equity interest in the house and who lived there for at least a year before you moved to a nursing home.

Everyone needs a long-term care plan. How will you pay for it? Can you afford to give assets away out of generosity or do you need to salt them away in case they are needed to pay for your care?

An elder law consultation can help you learn the Medicaid rules and make plans now through lawfully authorized asset transfers. In addition or alternatively, long-term care insurance is a proven option to pursue. However, the longer you wait to investigate this insurance option, the greater the likelihood you will develop a physical or mental condition that renders you uninsurable.

Do not delay. Now is the time to evaluate your options and plan accordingly.

October 31, 2016 admin

Business Succession Considerations

Do you have a family business? Chances are it is a major (if not the major) asset in your estate. If yes, then it is like the goose that keeps laying eggs of gold for your family. So, do you have a plan to keep the “goose” alive after you are no longer caring for it?

Here are a few practical considerations for you to think through when developing your business succession strategy.

Family First?

If you are married, is your spouse actively involved in the day to day operations of your business? If yes, then does your spouse want to continue running it without you? An affirmative answer to these two questions would seem to resolve the business succession at least in the short term. Then again, do you and your spouse ever travel together? Cars do crash and airplanes do fall.

If your spouse is not active in your business or does not want to be active without you, then do you have any other family members who are involved … and could run it? Be honest now. Just because a family member works in the business does not mean he or she could run the business.

Key Employees?

If your spouse and other family members are not realistic successors when it comes to continuing your business, what about those who already run the business when you are away for business travel or pleasure travel? This key employee (or these key employees) may be an ideal purchaser when you are ready to make the transition. If you trust them, other employees respect them and critical customers, suppliers and vendors like them, then what are you waiting for?

Friendly Competitors?

On the other hand, maybe there is no one in the family or “in-house” who could assume the reigns and keep the golden eggs coming. Have you ever thought about approaching one of your friendly competitors? If the relationship is “friendly,” then such a competitor may be very keen to purchase your customer relationships, equipment, know-how and goodwill in the marketplace.

Arrangements could be negotiated to keep your own people in place and employed, too. Be prepared, however, for the new owner to require that you stay on for period of time to ensure a smooth transition. This could range from months to years. When you put yourself in the new buyer’s shoes, it only makes sense and most likely benefits all parties in the long run.

Shut It Down?

I know this would seem to be a strange consideration in the context of “business succession,” but it can be a very prudent option. With no spouse, family member or friendly competitor realistically available, this may be the best approach for all concerned. Why? It would be far better for you to close down your business on your own terms and timing than to have it crash and burn without you. For example, you can sell equipment, furnishings, buildings, customer lists and other tangible and intangible business assets for much better prices than forced fire sale prices would bring.

Protect the Golden Eggs.

Whatever strategy you elect for the future of your business, do not forget to make proper estate plans. Unless you carefully plan for the smooth transition of your accumulated wealth, then you may unwittingly make the IRS one of the biggest beneficiaries of your hard-earned golden eggs!

September 29, 2016 admin

The Pros and Cons of an ABLE Account

Do you or someone you love have physical or mental special needs? Do you or they receive any government assistance? If yes, then you need to know about ABLE Accounts.

The ABLE Act

ABLE Accounts are tax-advantaged savings accounts under Section 529 of the federal tax code and are available to individuals with disabilities and their families. The law creating ABLE Accounts is formally known as the Achieving a Better Life Experience Act of 2014.

The Act permits “qualified individuals” to have tax-free savings accounts allowing them to save up to $100,000 without affecting their eligibility for Supplemental Security Income (SSI) and other means-tested government programs, such as Medicaid. If an ABLE Account balance exceeds $100,000, SSI benefits are suspended but Medicaid benefits continue.

Upsides and Downsides

This is definitely good news, and the upsides outweigh the downsides for many eligible to take advantage of this opportunity.

Let’s look at the upsides first:

A qualified individual can create his or her own ABLE Account with his or her own money rather than depending on relatives or the court system to set up a “first-party” special needs trust.
A person with disabilities can oversee the funds in the ABLE Account, giving them more independence and affording easier access to the funds.
The ABLE Account funds grow tax-free with no gift tax liabilities.
Regardless of where you live and whether your state has enacted its own ABLE program, you can enroll in any state’s program.

All told, the ABLE Act is groundbreaking legislation: it’s the first time any public policy has acknowledged the substantial expense of living with a disability or caring for a loved one who is disabled. Under the Act, a “qualified disability expense” is any expense related to the designated beneficiary due to living with disabilities. This includes those costs related to rearing a child with significant disabilities or a working age adult with disabilities. These costs include accessible housing and transportation, personal assistance services, assistive technology and healthcare expenses that are not covered under an insurance policy, Medicaid or Medicare.

In practical terms, an ABLE Account supplements—rather than supplants—the benefits of private insurance, Medicaid, SSI, the beneficiary’s employment and other sources.

Okay, now let’s look at the downsides of ABLE Accounts:

To qualify, a person must have a disability that occurred before age 26.
A person can only have one ABLE account.
Annual contributions are capped at the federal annual gift tax exclusion, now at $14,000.
Any funds leftover in the account after the beneficiary passes away are required to be first applied to repay Medicaid expenses incurred on his or her behalf.
With the exception of Ohio, all other states are still in the process of setting up rules for financial institutions to offer ABLE Accounts (but anyone can open an account in the Buckeye State!).

Final Thoughts

While the ABLE Act gives those with special needs another means of assistance, not everyone will qualify. Accordingly, first- and third-party special needs trusts should still be considered when contributions exceed the Act’s limits or to avoid a Medicaid payback.

September 1, 2016 admin

One Size Does Not Fit All

One of the great attributes of “Americans” is our “can do” spirit. We accept challenges and give it the “old college try” as we try to figure things out for ourselves. Sure we can ask for help, but we want to see if we can do it on our own first.

Reality TV Meets Real Life

We love watching those reality television shows about fixing up old homes. It strikes such a resonant chord with viewers and advertisers alike. We all want to see the finished product, and we expect it to be bigger and better that anything before. Who cannot wait to see the happy homeowners as they tour their remodeled home? These home shows give us the confidence and the knowledge to try things for ourselves, like re-tiling the kitchen floor or putting together a bookshelf.

Leave DIY to Home Improvements

While this Do-It-Yourself (DIY) approach may work in many situations, like home improvements, there are other situations best left to experts. Sure, you jump online and learn about hip replacement surgery or vacationing in Switzerland, but you probably should not do your own hip replacement surgery or pilot an airliner to Geneva unless you are specifically trained and qualified to do so. So it is with estate planning. It can be hazardous to you, your loved ones and your wealth to DIY your own estate plan.

Penny Wise and Dollar Foolish

If you DIY your estate plan, there is no 24-hour service your family can call when a mistake is discovered. There is no on-call tradesman who can bail them out if you missed something in your will or trust after you die. Botched estate planning documents cannot be fixed by making a call or watching a video. Once you pass away there are no “will make-overs” or “trust emergencies.” Your family and loved ones will be stuck with whatever you have written.

Costly Consequences

If there are any problems with your DIY estate plan, likely a probate judge will decide how it will play out and it is rarely what you would have wanted. Here are just a few of the mistakes DIY estate planners make when trying to create their own estate plans without the counsel of an experienced estate planning attorney.

Failure to list out assets and online accounts and passwords;
Failure to identify the location of estate planning documents;
Failure to designate a guardian for minor children;
Failure to designate the recipients of family heirlooms;
Failure to update the estate plan with life changes, like a child’s birth or divorce;
Failure to properly designate beneficiaries for retirement, insurance and other financial accounts;
Failure to designate secondary beneficiaries;
Failure to designate an alternative trustee or executor;
Failure to properly “fund” trusts with assets while living or by beneficiary designations at death, and last, but certainly not least,
NO ESTATE PLAN!

So, for your benefit and that of your loved ones, do not DIY your estate plan.

July 29, 2016 admin

Probate & Estate Administration

Probate and estate administration procedures are never described with any of the following terms: speedy, quick, fast or fun. The adjectives most commonly used are slow, tedious, time-consuming … well, you get the picture.

The entire process could take as long as six months to even years. Remember, patience is critical for all concerned. Having some expectation of the snail-like pace usually gives folks a better tolerance for the creakingly slow turning of the wheels of justice.

Getting Started

With that in mind, here are some of the duties an executor has throughout the probate and estate administration process. Generally speaking, the executor is tasked with collecting and managing the estate assets, filing tax returns and paying taxes and debts, as well as distributing assets and making the distributions of any bequests detailed in the will.

Initially, the executor must:

search the decedent’s personal files and papers for any evidence of potential creditors;
look at the decedent’s checking account for recurring payments which may indicate an existing debt;
contact the decedent’s credit card companies; and
contact the decedent’s healthcare providers for medical bills.

Probate the Will

Next, the executor must “probate” the will. If the court declares the will validly executed under state law, then the court gives the executor authority to perform his or her duties under the provisions of the will.

The executor must pay any claims of the estate’s creditors and all estate administration expenses. He or she must also collect all of the estate assets, then file and pay all required tax returns. These may include federal and state income taxes, in addition to estate and inheritance taxes.

Duties and Responsibilities

The executor may need to engage the services of an appraiser to ascertain the value of certain assets of the estate. This could be a business, a work of art, a pension or real estate. It is important and necessary because estate taxes are based on the fair market value of the assets. After the executor files the required returns and makes payment of any taxes owed, the IRS typically notifies the executor by an estate “closing letter” that the agency has accepted the return. But it is not unheard of that a return is subject to an audit.

After everyone has been paid for debts, taxes and expenses, the executor will distribute the assets. Beneficiaries may sometimes even receive a partial distribution of their inheritance without having to wait for the closing of the estate. Although a simple estate may take just a few months to make its way through probate, a more complex estate may find the executor working for several years before the estate is closed.

Experience Matters

A key characteristic of a good executor is some experience with this process. On-the-job training is possible, but only makes the process that much longer. An experienced executor can get the job done without unnecessary expense and delay, and without causing additional hardship and stress for the beneficiaries of the estate.

Hopefully, the executor will have a firm grasp of the many problems involved and a method with which to settle the estate.

Estate Planning Updates