Don’t Keep it a Secret! – The Truth About Estate Planning Conversations

Recently, BMO Management conducted a survey concerning communication of estate plans. Although 90% of American adults surveyed stated that estate planning is “an important topic to discuss,” only 19% of those adults reported actually having detailed estate planning discussions with their parents. A recent article discusses why these results are problematic.

Family Discussion
Family Discussion (Photo credit: LRJ53)

The absence of an estate planning discussion can cause trouble down the road. This trouble often leads to fighting among heirs, and a long, drawn out process of estate distribution. Through estate planning conversations, parents can discuss the reasoning behind their estate planning maneuvers and ensure that their children understand the intent behind the estate plan.

The sooner such conversations can take place, the better. As BMO vice-president of financial planning Stephen Williams explains, “Your personal legacy depends more on the effective communication of your values, plans and beliefs than on the items that can be neatly summarized in the paragraphs in your will and trust.” If you are a parent, begin this conversation on a positive note. Inform your children of what estate planning documents you have put in place and then begin a deeper discussion of your plans. If possible, have this conversation as a family.

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“Safe at Home: New Programs Aim at Helping Senior Citizens to ‘Age in Place’”

The vast majority of senior citizens aspire to “age in place,” or remain in their home for as long as possible. This desire can often be problematic, however, as most homes are not equipped to safely house an aging senior citizen. A recent article discusses a study currently being conducted to determine how to assist seniors in their goal of aging in place.

85 years
85 years (Photo credit: jaded one)

The purpose of the study, which is being conducted by researchers at the Johns Hopkins University, is to show that older Americans can delay an impending nursing home stay for at least a year. The delay is effectuated through assisting the seniors with inexpensive housing modifications and customized strategies for daily living.

Known as the Capable Project, the project will send handymen, occupational therapists, and nurses to 800 senior citizens. These professionals will implement minor safety improvements on the homes, as well as provide the seniors with individualized strategies for daily living. Each senior participant will receive approximately $1,100 in home improvements, which may include new banisters, grab bars in bathrooms, wider doorways, and better lighting. Seniors will also be given tools to address common challenges such as managing medications and cooking for themselves.

If senior citizens are successfully kept independent longer, taxpayers will save millions that would have been spent for nursing home care. In addition, senior citizens will have more personalized care and attention while enjoying their familiar lifestyle and home environment.

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“It’s For Your Own Good! – Protecting Your IRA For & From Your Children”

One important asset that many people pass on to their beneficiaries is their Individual Retirement Account (“IRA”). For many people, it is important to protect their beneficiaries from immediately draining the IRA. A recent article discusses the new option of a Trusteed IRA, which helps to prevent this outcome.

A relatively new financial product, the Trusteed IRA is offered by several financial firms. Trusteed IRAs are marketed towards affluent investors who might otherwise put their IRA in a trust. Through a Trusteed IRA, the bank becomes trustee over the IRA assets. The bank then works with the beneficiary’s financial advisor in order to manage and distribute the assets.

If you are interested in a Trusteed IRA, be sure to discuss it with your CPA, financial advisor, and estate planning attorney. These members of your professional team should review the plan thoroughly and be comfortable with how the Trusteed IRA will be managed. A carelessly set up Trusteed IRA may impact an individual’s ability to utilize his or her estate tax marital deduction. The marital deduction, which is vital to many high net worth married couples, allows the estate of a deceased spouse to pass, tax free, to the surviving spouse.

“Non-Tax Issues Within Estate Planning that Impact Everyone”

Estate planning is not solely about tax avoidance. A recent article discusses several other issues that render estate planning paramount, despite the value of your estate.

Medical Care
Every estate plan should include details as to how your medical needs should be addressed. A medical power of attorney designates who will make medical decisions for you, should you become unable to make these decisions for yourself. A living will designates what type of care you would like to receive. If you do not want life-saving medical treatments to be performed on you in the event of an emergency, consider a do-not-resuscitate order.

Avoiding Disputes
Poorly thought out estate plans often lead to chaos and disputes among a person’s heirs. Adult children often fight about the management and distribution of assets. Moreover, disputes become more common as a person’s family becomes more complicated. Do not assume that your children will work everything out after your death. Consider what disputes are likely and plan for them accordingly.

Care of Others
If you are caring for or anticipate caring for a relative, it is important to ensure that the person receives the appropriate care after you are gone. This person may be a child, elderly parent, grandchild or special needs family member.

Two Strategies for Medicaid Planning

Many individuals who require a nursing home stay at the end of their life deplete their assets in order to pay for the care. As a recent article explains, when people fail to protect their assets, it is because they failed to plan properly. The article urges readers to take steps towards Medicaid planning while they are still young and healthy.

One way to protect your assets is to exchange non-exempt assets for exempt ones. When determining whether you are eligible for Medicaid benefits, Medicaid representatives include all of your countable assets, those not exempted by State law, or that are otherwise inaccessible to Medicaid. Exempt assets vary from state to state, but typically include the family home, burial plots, one automobile, and term life insurance. Check with your state for an exact list of exempt assets.

Many people do not realize that Medicaid will count one’s spouse’s assets as well when determining Medicaid eligibility. If your spouse is still healthy, consider purchasing an appropriate single premium annuity benefit for them. This will provide your spouse with an additional income stream, while keeping the cost out of the countable assets for you, as well as your spouse.

Can’t Touch This: Asset Protection is Important for Everyone

Asset protection strategies are vital in protecting a person’s ability to retire comfortably. Without these strategies, a person’s assets could easily be put at risk based on unexpected personal liability. As a recent article explains, when implementing asset protection strategies, it is best to err on the side of caution.

As the number of lawsuits filed in the United States continues to grow, so does the potential liability of every American citizen. No line of work or business is unexposed. Unfortunately, most people do not realize that they are exposed to liability. Moreover, even if a person understands that he or she is exposed to significant liability, it is next to impossible to estimate the value of damages that may be awarded against them in a lawsuit. For example, a person awarded one dollar in actual damages may be awarded millions of dollars in punitive damages.

Asset protection allows a person to protect his or her home, business, and various other assets from unexpected claims or lawsuits. Although a person can never fully protect his or her assets, they can take steps to minimize potential lawsuits, their financial impact, as well as possibly negotiate a better settlement.

Are the Kids Alright? – Your Children Need an Independent Estate Plan

Middle-aged Americans are constantly reminded that they need to create estate plans in order to protect their family from the unexpected. As a recent article explains, however, it is just as important for your adult children to create an estate plan as well, even if it’s a simple one.

Once your child turns 18, you lose any authority you had to view his or her medical records or make decisions about his or her medical treatment. The only way to avoid this is to encourage your child to participate in some simple estate planning maneuvers.

The Cool Kids
(Photo credit: TheMarque)

This planning is especially important as your child heads off to college. If your child suffers a major accident and is left unable to communicate, you would have to go through the daunting process of petitioning a court to appoint you the legal guardian of your child before you could make any medical decisions for him or her.

For less serious medical incidents, the Health Information Portability and Accountability Act (“HIPAA”) makes it difficult, or sometimes impossible, for a parent to receive critical medical information, including whether or not your child was admitted to a hospital, and to which one. If you and your child wish to avoid this, ask your adult child to complete a health care proxy and HIPAA release, which allows you to receive medical information concerning your child and to make medical decisions should he or she become incapacitated.

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Consider a Care Contract When Caring for Your Parents

Many adult children are living with and caring for their elderly parents. As a recent article explains, it would be beneficial for both parties to create a care contract for these services. Through a care contract, the parties can agree that the caregiver will assume responsibility for, and accept a specified payment from the loved one.

A care contract is especially important if the person receiving the care anticipates eventually requiring a nursing home stay. When a person applies for Medicaid coverage, representatives for Medicaid will consider all of the money that he or she has available to pay for his or her care. A person will not be provided with coverage unless he or she has depleted all of his or her financial resources. If that person has a care contract in place, all the money that he or she spent on care will count towards his or her “Medicaid spend down.”

Without a care contract in place, Medicaid representatives may consider the money given to the caregiver to be a “gift” or “transfer of assets.” If this happens, the money will be factored back into a person’s assets and he or she could be denied coverage.

It is also important to have a care contract from a caregiver’s perspective. Without a care contract, other heirs may think that the caregiver offered his or her services for free and may attempt to reduce the caregiver’s inheritance accordingly.

How’s This for GRAT-itude? – Basics of the GRAT

As a recent article explains, a Grantor Retained Annuity Trust (“GRAT”) is a great estate-planning tool for high-net-worth individuals.  This type of irrevocable trust permits you to make a lifetime gift of assets to an irrevocable trust in exchange for a fixed payment stream for a specified term of years.

Often, individuals making large transfers to their beneficiaries choose to utilize GRATs because of associated tax benefits.

A key aspect of GRAT transfers is that they minimize or even eliminate estate and gift tax liability on the transferred assets. Moreover, the creator of a GRAT may receive fixed annual payments for the life of the trust. Through receiving this annuity, the creator is paid back his or her principal, as well as interest. After the trust term has concluded, the remainder of the trust passes to the trust beneficiaries.

When setting up a GRAT, it is important to carefully select a trust term. If the trust term ends while the creator is still alive, the remaining assets will be included as part of his or her gross estate for purposes of determining estate tax liability. Those who anticipate outliving the trust term of their GRAT should consider employing a life insurance strategy to offset any additional tax liabilities.

Those who wish to set up a GRAT should act quickly because the Obama administration may soon eliminate the tax benefits that a GRAT strategy would reap as proposed in the President’s latest Green book proposals.

Back to Some Basics: Estate Planning for a Family

The fact that estate planning is of paramount importance to every American is nothing new. Although it may be uncomfortable to consider your eventual death, a good, updated estate plan is the only way to make sure that your loved ones are cared for after you are gone. As a recent article emphasizes, estate planning is vital no matter how big or small your estate is.

One important part of estate planning is integrating your bank accounts into your estate plan. As business integration executive Ally Bank explains, “Many people often overlook the importance of incorporating their bank accounts into their estate planning strategy.” One way to achieve this integration is to set up an account for trust.

There are several benefits of establishing an account for trust. First, the trust account helps a person to ensure that their beneficiaries are cared for in the future through the assets in the trust. Second, a trust account may reduce a person’s estate tax liability. Third, trusts do not go through the process of probate. Finally, if your account is at a Member FDIC bank, it is insured up to a minimum of $250,000.

If you are considering a bank account for trust, consider accounts that offer competitive interest rates and do not have minimum fees or minimum balances. Visit several financial institutions to determine which institution and type of account is best for you.


When You Lose Trust in the Trustee: How A Beneficiary Can Enforce A Trust

As a recent article explains, sometimes trustees do not do what they are supposed to. Sometimes trustees make mistakes in carrying out their duties while other times, they knowingly fail to comply with the terms of the trust. If you are the beneficiary of a trust, there may be some things you can do to ensure that the trustee follows the terms of the trust.

Because a trust is created by a legal document, each trust contains rights and duties that are legally enforceable. If a trustee has not followed the terms of the trust, he or she is considered to be in breach of his or her duties. There are several steps a beneficiary should take when he or she believes that the trustee of his or her trust is in breach.

The first step that a beneficiary should take is to review the trust documents. The beneficiary should be certain of what the terms of the trust are before he or she confronts the trustee concerning an alleged breach. Often, discrepancies over the behavior of a trustee are based on misunderstandings about what the trust documents actually say.

If you have consulted the trust documents and still believe that your trustee is in breach of his or her duties, speak with the trustee first. A majority of trust issues can be resolved through proper communication. If communication does not solve your problem, review the trust document to determine what the procedure for replacing trustees is. Although each trust is different, many trusts contain a provision that allows for the relatively easy replacement of a trustee.

Even the Wiseguys: Gandolfini’s Disastrous Estate Plan

After “Sopranos” actor James Gandolfini’s unexpected death at the age of 51, a recent article has described his estate plan as disastrous. Americans should take this opportunity to learn from the mistakes in Gandolfini’s estate plan in order to avoid making the same mistakes themselves.

James Gandolfini
James Gandolfini (Photo credit: Wikipedia)

According to the report, an estimated $30 million of Gandolfini’s $70 million estate will be paid out in taxes. There are many methods through which Americans can avoid a similar fate. These methods are all rooted in proper estate planning, which can dramatically reduce, or even eliminate, the tax burden on your estate.

One way to avoid a large tax bill is through the establishment of trust vehicles. Current federal law allows individuals to transfer $5.25 million into an irrevocable trust without having to pay gift tax on that amount. Married couples can combine their tax-free amounts to make a total of $10.5 million. The different types of trust accounts you may choose include marital trusts, life insurance trusts, and special needs trusts.

It is also important to update your estate plan as the size and characteristics of your estate and family change. Constant updates will also allow your estate to stay current with tax laws.

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For Better or Worse: Estate Planning for Same-Sex Spouses

As a recent article explains, the United States Supreme Court’s recent ruling on same-sex marriage will radically alter estate planning for same-sex married couples.

taking their first steps as a legally married ...
(Photo credit: ehoyer)

Prior to the decision, thousands of federal laws available to married couples were not available to same-sex married couples due to the Federal Defense of Marriage Act (“DOMA”), which defined marriage as between a man and a woman. By striking down DOMA, the United States Supreme Court suddenly made thousands of federal estate planning tools available to same-sex married couples.

One of these tools is portability. Portability allows a surviving spouse to utilize the unused portion of his or her deceased spouse’s estate tax exclusion. Portability was made permanent in the new 2012 tax law. In order to use the unused portion of your spouse’s estate tax exemption, the surviving spouse needs to have the executor of the deceased spouse’s estate transfer the unused exclusion, as this is not automatic.

Another estate planning maneuver that will now be available to same-sex married couples is gift-splitting. Every year, federal law allows each individual to gift $14,000 per year, per recipient, to as many recipients as they wish. Any amount gifted over the yearly gift-tax exclusion counts against a person’s lifetime gift tax exclusion. Married spouses, however, can combine their gift amount in order to jointly gift $28,000 to a single recipient.

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