Famous people are like us in many ways. They are born, they pay taxes, they make estate planning blunders, and they die. A recent article discussed several of the more common estate planning mistakes and the famous people who committed them.
Failing to Plan
Perhaps the worst estate planning blunder is failing to create an estate plan. When entertainer and Congressmen “Sonny” Bono died unexpectedly in a 1998 skiing accident, he left no estate plan. Therefore, his wife had to petition the court to administer his estate and continue his business ventures.
Failing to Seek a Professional
If anyone should be able to draft his own will without incident, it would be a former Chief Justice of the United States Supreme Court. However, even United States Supreme Court Justice Warren E. Burger couldn’t get it right. Burger drafted his own will, which contained simple errors, failed to address important things, and cost his family $450,000 in taxes.
Failure to Update
Importantly, a person’s estate plan should grow and change with him or her. Sometimes an out-of-date estate plan is worse than having no estate plan at all. When Actor Heath Ledger died at a young age, he had a will prepared. However, the will was drafted before the birth of his daughter, Matilda, and therefore left nothing to her.
For some elderly citizens, remaining at home is no longer an option. Either physical or mental deterioration makes it impossible for them to carry out daily tasks, even with assistance from loved ones. Other seniors, however, may be able to live at home longer than they think. A recent article discusses considerations a person should make before committing to provide in-home care for a loved one.
First, consider what limitations your loved one faces. Are these limitations that a family member or in-home care worker can assist with? If your loved one requires regular doctor visits, could you arrange a doctor or nurse to make house calls? Finally, consider whether you can afford a personal-care assistant to assist with non-medical tasks such as meal-preparation, cooking and cleaning. Even hiring a person on a part-time basis will save you from the responsibility of 24/7 care.
If you plan on providing care to your loved one yourself, consider the toll the care may take on you. Often, family members undertake such tasks before realizing that they are ill equipped to deal with the unique tasks that aging individuals face. Additionally, if your loved one is unable to carry out simple tasks such as bathing, toileting, and dressing, a long term care facility may be the best and safest option.
There is no one-size-fits-all asset protection strategy. Rather, asset protection needs to be completed for each individual or family and is based on particular needs. A recent article discusses different investment structures that may be part of your asset protection scheme.
Personal Ownership: Personal ownership of assets may work for individuals and families who have a low marginal tax rate. Additionally, personal ownership is important for those who require unrestricted access to their assets. However, personal ownership cannot protect assets from creditors. Therefore, if one anticipates facing personal liability in a lawsuit or divorce, one should consider implementing some level of asset protection planning.
Company Ownership: Individuals or families can also own assets through various business forms. These are common for families in high marginal tax rates, and those with large family trusts. Through company ownership (typically an LLC, a Corporation or a Partnership), a family can protect important assets from creditors, and pass them on through the generations.
Trust Ownership: Placing assets in a trust is popular for its ability to protect assets against creditors, maximize tax-effectiveness, and ultimately be used as an estate planning vehicle. When putting assets into a trust, it is important to carefully select the terms of the trust based on your use of the assets.
One major part of estate planning is determining what kind of care, if any, you would like to receive at the end of your life. Although most people would rather not think about the end of their life, a recent article explains the importance of giving serious consideration to end-of-life care.
If you have thought about what type of care, if any, you would like to receive at the end of your life, it is important to complete an advanced medical directive and a medical power of attorney. These documents will allow you to put these desires in writing so that medical staff will be aware of your wishes when you cannot otherwise communicate with them. Additionally, they allow you to select the person who you trust to make medical decisions on your behalf.
One common type of advanced directive is a do not resuscitate order (“DNR”). A DNR advises medical staff not to take life-saving measures in the event that death is imminent. If you have a DNR, it is important to keep it in an easily accessible location, and inform your family and doctors of its existence. Importantly, an advanced directive that directs medical staff not to prolong the dying process does not withhold medicine and other procedures meant to keep you comfortable during the dying process.
Conversely, you could also complete a prolonging procedure declaration. This document instructs medical staff to do everything they can to delay death, even when it is imminent.
With the changing field of health coverage and insurance thanks to the Affordable Healthcare Act, senior citizens who receive or are anticipating receiving Medicare may be understandably confused as to what the changes mean for them. A recent article discusses what seniors need to know about Medicare.
Primarily, senior citizens have faced confusion over whether the changes implemented by the Affordable Care Act will cause their Medicare or Medicaid benefits to be reduced or changed. This confusion partially stems from the fact that the open enrollment period for Medicare overlaps with that for Obamacare.
However, seniors should have no cause for concern. As Associate Vice President of the USF Health Jay Wolfson explains, “Medicare is a separate [from the healthcare exchange] qualified plan. They [seniors] do not need to worry about these Obamacare provisions for the exchanges. The exchanges are for people who don’t have Medicare, Medicaid, child health insurance coverage, veteran’s benefits, [or] Department of Defense Tri Care Benefits.”
If you are receiving Medicare, the open marketplace does not affect you. If you have a loved one who is receiving Medicare benefits, be sure they understand this as well. There is concern that once open enrollment opens, scam artists will target seniors, preying on this confusion.
Asset protection planning does not happen all at once. Rather, an individual’s or family’s asset protection strategies should grow and evolve with them. A recent article discusses several life events that should prompt an individual or family to revisit their asset protection strategies.
A Run-In With The Law: As wealth advisory manager Heather J. Swob explains, “If you’re in a potential liability situation, the advisor should be kept aware. While there are look-back provisions that might keep you from moving assets, the advisor can still provide some valuable advice.” In addition to advice, it may not be too late to plan.
Engaging in a Business Transaction: Business owners and investors get sued. Whether it’s a Partnership dispute, a lender’s claim, an employee lawsuit or some other claim, it’s wise to protect your assets before the onset of such a liability.
A Struggle With Addiction: Although it may be embarrassing or difficult to discuss that you or a family member is struggling with addiction, it is important for your advisor to know what to look out for. According to Swob, “estate documents should be reviewed to keep assets out of the [addicted family member’s] control in the event of a sudden death.”
You Are Experiencing Dementia or Other Deterioration of Mental Condition: If you are experiencing the early stages of dementia or other mental illness, time is of the essence. Once your mental capacity is affected, you may no longer be able to sign off on important documents that you have been putting off, such as a financial power of attorney.
One of the most important estate planning decisions a person can make is deciding who will serve as the executor of the estate. This is a vital decision, because the executor will be in charge of overseeing the distribution of the estate in accordance with the decedent’s stated wishes. A recent article discusses several frequently asked questions when it comes to selecting an executor.
Does My Executor Need a Financial or Legal Background?
State law does not require individuals to have any sort of specialized background in order to serve as the executor of an estate. However, these skill sets are clearly beneficial when settling an estate. Although the executor can hire an attorney to assist with the estate administration, it is the executor who must make all final decisions.
Should I Select More Than One Executor?
Most commonly, people select a single executor. However, in some situations, it may be beneficial to select two executors. For example, where the deceased left behind an elderly spouse who is being assisted by an adult child, it may be beneficial if he or she named the spouse and child as joint executors, rather than the spouse alone. Note that this may increase complexities in settling the estate.
Can My Named Executor Refuse to Serve?
The selection of an executor is not legally binding. Although the chosen executor will be given the opportunity to serve as such, he or she may renounce the appointment. If the decedent named a contingent executor, he or she will take over, if not, the court will appoint one.
For those engaged in the process of Long Term Care Planning, perhaps the most intimidating proposition is Medicaid’s look-back provision. This provision provides that certain assets that a person no longer owns will still count toward the calculation of his or her total assets to determine whether he or she qualifies for Medicaid coverage. A recent article discusses the look-back rules.
The Medicaid look-back period is the five years prior to that date upon which an individual applies for Medicaid benefits. All transfers made during this period are subject to scrutiny by Medicaid officials. For the purposes of calculating benefits, it is as though all gifts made during this period never occurred. For example, if an individual gave his or her child $20,000 the year before he or she applied for Medicaid coverage, the government would likely count that $20,000 towards the person’s assets to determine whether he or she qualifies for Medicaid.
Some individuals try to avoid the look-back provision by setting up a trust. Although Medicaid officials do not consider a trust to be a part of a person’s assets, assets moved into a trust are considered. Therefore, if assets are transferred to a trust during the five-year look-back period, Medicaid officials will take them into account.
Individuals often mistakenly believe that Medicaid has an annual gift-giving exclusion similar to that of the IRS. However, this is not true. Although the IRS allows taxpayers to give gifts up to a certain amount without invoking tax consequences, there is no parallel in the Medicaid determination.
One of the greatest threats to an individual’s wealth is divorce. With the chance of a successful marriage hovering at or below 50% in the United States, it is important that individuals consider asset protection strategies before marriage. A recent article discusses how one man used a “Collapsing Bridge Trust” to protect his assets against a messy divorce.
The man, let’s call him Fred, who was worth $150 million and facing divorce, contacted his father’s attorney in an attempt to shield his assets from his soon to be ex-wife, let’s call her Wilma. The attorney quickly created a “Collapsing Bridge Trust,” which proved successful in protecting Fred’s assets from the divorce.
In order to do this, Fred’s attorney first created an offshore asset protection trust. These trusts are often set up in places such as the Cook Islands or Belize. Next, the advisor created a Domestic Limited Liability Company owned entirely by the new offshore trust. Fred’s attorney then moved half of Fred’s assets into the LLC, and named the man as the manager. Although this meant that Fred no longer owned the assets, Fred was able to oversee their management and investment.
If Wilma attempts to access the assets within the trust, the collapsing bridge provision would come into play. Essentially, the offshore trust would collapse the LLC, which would revert the assets in the LLC to the trust. In the trust, the assets would have been unreachable by Wilma.
As with any Asset Planning, timing is everything. Be careful to consult with your attorney to ensure that any such plans do not run afoul of Fraudulent Conveyance rules.
Estate planning is a field fraught with pitfalls. All too often, estate planning mistakes are discovered after the person who created the estate plan has passed on, so he or she cannot fix the problem or explain his or her intentions. A recent article discusses several estate planning mistakes to avoid.
Naming Special Needs Minors or Adults as Beneficiaries
This is often problematic because special needs individuals often receive benefits from the government. However, most of these benefits are needs based, and may cease if the individual receives a large inheritance. Therefore, gifts to special needs individuals must be structured in a way – such as a trust – that keeps them out of the immediate control of the individual.
Failing to Name a Contingent Beneficiary
Failing to name a contingent beneficiary becomes problematic when the primary beneficiary either predeceases the person who created the estate plan, or disclaims his or her share. In either situation, if a contingent beneficiary is not named, the share would pass in accordance with the intestacy statute under state law.
Naming Your Estate As The Beneficiary on a Retirement Plan
When an individual receives the proceeds of a retirement plan after the death of the plan owner, he or she can take advantage of special IRA “stretch out” provisions. Using these provisions, the beneficiary can structure the inherited IRA to receive distributions throughout his or her life. These provisions do not apply when the beneficiary on the plan is an estate.
Too many of our nation’s senior citizens have suffered financial abuse from strangers, caregivers, and even their own family members. As a recent article explains, federal regulators at the Consumer Financial Protection Bureau have told banks that they can report suspected financial elder abuse to the authorities without violating privacy laws.
The announcement was intended to assist with a crackdown on financial elder abuse, which has reached epidemic proportions. The Government Accountability Office has recently reported that in 2010, financial elder abuse had cost America’s senior citizens $2.9 billion.
As director of the Consumer Financial Protection Bureau, Richard Cordray explains that those who work at banks and credit unions “may be able to spot irregular transactions, abnormal account activity, or unusual behavior that signals financial abuse sooner than anyone else can.” Before the announcement, however, bank and credit union employees were afraid to report suspicious activity due to the Gramm-Leach-Bliley Act.
Not only should the new guidance encourage bank and credit union tellers to report suspicious activity, but it will also make it easier for those investigating possible cases of financial elder abuse to access the suspicious accounts.
Those who have substantial assets are often the targets of lawsuits. It is therefore vital that high net worth individuals and families practice asset protection strategies. A recent article discusses several of these strategies:
Increase Your Liability Insurance: Liability insurance is often an individual’s first line of defense against litigation. Check with your insurance broker periodically to ensure that you have the correct amount and types of coverage.
Consider Separate Assets: Imagine that you receive a windfall inheritance. In many states, if you deposit the money in a separate account, it remains 100% yours. However, if you put the money in a joint account, half of it instantly belongs to your spouse. It is strongly recommended that you consult with your advisor as to state law, separating assets may also have the counter effect of destroying asset protection for marital assets.
Protect Yourself From Renters: If you own any rental property, it is vital to shield your personal assets against the claims of a disgruntled tenant. Consider creating an LLC or corporation to hold the rental property, with a trust to own the LLC or corporate interests.
Review all Joint Accounts: Money in a joint account may be at risk because it is subject to the risks associated with the other people on the account. Periodically review all joint accounts to ensure that it is still a wise decision. When reviewing these accounts, remember that divorce, a tax lien, or a lawsuit judgment may wipe out the entire account.