Survey Says! Many High Net Worth Individuals Still Fail to Plan

Although estate planning is vital for high net worth families, a recent survey released by Spectrum’s Millionaire Corner reveals that less than one quarter of millionaires have sought estate planning advice from their financial advisors.

Although estate planning is vital for everybody, it comes as no surprise that it is even more essential for America’s wealthier residents. Estate planning is an important component of financial planning, as it ensures that a person’s assets are managed and distributed according to his or her wishes. Additionally, estate planning allows for a person to provide for the care of any minor children, direct decisions concerning end-of-life care, and select a power of attorney to deal with finances in the case of incapacity.

The younger and least wealthy millionaire investors surveyed indicated that they would seek estate planning advice in the future. However, it is important to remember that the future is not guaranteed. All too often, illness and accidents can cut lives tragically short.

If you do not have an estate plan in place, consider meeting with an estate planning attorney soon. Although it may be difficult to deal with the reality of your own mortality, it is the only way to ensure a smooth transition of your assets and the protection of your family after you are gone.

“Mom, Can You Co-sign?”: Did a Family Member Participate in Your Loan?

Often, young adults ask other family members to participate in a loan to assist the young adult in purchasing his or her first home. As a recent article explains, this can become extraordinarily problematic at the family member’s death.

Even though the family member pays little or nothing towards the home, his or her name will usually be added to the title. This gives him or her an ownership interest in the home. If the family member’s estate leaves the home to those who actually paid for it, no problems will arise.

However, if the family member’s estate does not deal with the title, the homeowners may have a legal battle on their hands. In this situation, the decedent’s beneficiaries may fight to have the decedent’s portion of the home included in the estate. These battles especially arise if there is already animosity or distrust within the family.

To avoid this outcome, be sure to discuss it with the person who participated in your home loan. Ask them how their ownership interest is disposed of in their will. If this never happens and you are worried that you may become the target of such a lawsuit, be sure to keep documentation proving that the third party never paid anything towards the loan.

More “Granny Cams” Used in Nursing Homes

After the story of Eryetha Mayberry – the nursing home patient whose abuse was caught on a hidden camera – became widely known, the type of surveillance used in the case has grown increasingly widespread. However, some have been quick to criticize the practice. A recent article discusses some of the arguments made for and against the use of “granny cams” in nursing homes.

Opponents contend that the secret monitoring raises ethical and legal questions. Not only is the family member being video taped, but whoever passes in and out of the room is caught on camera as well. Although a protective measure, the cameras are also an invasion of privacy. Some argue nursing home staff should be made aware of the cameras.

Proponents of this form of surveillance argue that the technology is incredibly accessible and widespread. For example, ‘nanny cams’ are often used when parents hire a new babysitter for a child. However, there is a difference between secretly filming a babysitter caring for an infant, and secretly filming aides caring for a full grown adult.

Whether you agree or disagree with the use of secret cameras in nursing homes, it is important to remember that the real problem is the abuse that is occurring. Perhaps nursing homes need to work harder to address the deep-seated issues at the many facilities that have had abuse complaints.

What About The Picasso? How to Manage Tangible Assets

As a recent article explains, high net worth families are increasingly turning to tangible assets to hold their wealth. A 2012 report cited in the article explains, “high net worth individuals hold an average of 9 percent of their wealth in tangible assets.” More than half of those surveyed stated that a large reason they purchase rare collectables and memorabilia is for the investment value of the items. Additionally, unlike a bank account, these assets have aesthetic benefits. Despite their many benefits, tangible assets do not come without some form of risk. Therefore, it is important to consider these assets as part of your overall asset protection strategy.

Asset protection for a tangible asset begins with an accurate appraisal. If you need help finding a qualified appraiser, consult an appraisal industry association such as the American Society of Appraisers. After you have gotten an appraisal, the next step is to confirm that you have proper insurance coverage. Most insurance companies offer a valuables policy, which allows a person to declare their valuable items individually and list the value of each piece or collection within the policy. Additionally, for tangible assets subject to price variation, many policies will guard against this by covering the item for its market value at the time of loss up to 50 percent over the value indicated on the policy.

While insurance is important, most people would rather not have to deal with loss of a valuable item in the first place. Therefore, it is also important to meet with a risk consultant with the goal of preventing loss altogether. Through working with a risk consultant, families can assess risk factors and provide more security for their items.


Watch That Step!: Estate Planning Oversights to Avoid

In order to have a solid estate plan, it is important to not only carefully put the plan together but to revise it regularly as well. With all the work involved, it is not surprising that estate planning oversights are common. A recent article discusses several estate planning oversights that can lead to unintended consequences.

  1.       Failing to Plan: The largest estate planning mistake a person can make is failing to create an estate plan. If a person dies without an estate plan, his or her assets are distributed to his or her heirs in accordance with state law. This might provide the outcome the decedent had wanted, but often it does not.
  2.       Failure to Understand the Difference Between Probate and Non-Probate Assets: A probate asset is any asset that is transferred through a will. These assets go through the process of probate. A non-probate asset is transferred by contract, outside of the will. In order to create the most efficient and cost-effective estate plan, it is important to understand the differences between these two types of assets.
  3.       Failing to Pay Attention to Tax Apportionment Clauses: State and federal taxes may be assessed to various assets according to different rules. While some assets may be taxed, others may not. This becomes problematic when two children receive two inheritances of equal value but one has to pay taxes while the other does not.

Using a Trust to Protect Your Legacy

For parents of minor children, passing assets on to their children cannot be the only focal point of estate planning. Rather, parents must have a plan for the management and control of these assets until the children are old enough to handle them responsibly. A recent article discusses how trusts accounts can be used to accomplish this goal.

Even if your children are no longer minors at the time of your death, they still may be unable to responsibly handle an inheritance. There are a number of reasons that this may be the case, such as immaturity, substance abuse, or mental incapacity. Additionally, parents who leave their children particularly large inheritances tend to spread them out until the children reach age 25 or 30.

No matter how you choose to structure the distribution, the simplest way to do so is through a trust. When creating the trust, you can select a person to manage and distribute the assets for your children (a “Trustee”). Additionally, you can leave detailed instructions for the trust to ensure that the assets are distributed the way you would have wanted. For example, you can specify that funds will not be released until a child is 25, unless he or she needs them for college tuition.

Furthermore, a parent can design the trust so that he or she retains access to all assets within the trust during his or her lifetime. That way there is no worry that the assets are being given up too soon. Finally, during the life of the trust, it can provide the added bonus of protection against divorcing parents, creditors, plaintiffs, and business risks.

How to Plan for, or Avoid, Transfer Taxes

As a recent article suggests, estate planning encompasses a lot more than most people would think. Not only does estate planning allow you to structure the final distribution of your assets upon your death, but it also allows you to provide for the management of your assets during life, plan for the care of your children, and make important decisions about what kind of medical care you would like to receive at the end of your life. Although estate planning encompasses all of these things, most people come to the table with an overwhelming goal of avoiding transfer taxes, namely Estate Taxes, Inheritance Taxes and Gift Taxes.

There are plenty of ways that estate planning can be used to minimize the tax liability an estate will face after the owner’s death. In many situations, it is possible to plan for zero estate taxes. Some strategies involve giving up control of certain assets. For example, a person could zero out their tax liability by setting up a charitable trust. Others, such as Family LLCs (FLLCs) and Family Limited Partnerships (FLPs) allow owners to maintain more control..

For the ultra-wealthy, there are many sophisticated asset transfer mechanisms that can be used to avoid transfer taxes. These mechanisms include foreign grantor trusts, dynasty trusts and private placement trusts. Again, these mechanisms often mean that a person has limited or no access to the assets within the trusts.

For those who want to maintain full control of their assets, life insurance is another way to provide money for anticipated taxes. These policies are often used to provide quick cash for a person’s heirs to pay any taxes and fees on the estate.

Planning Now for the Potential of Alzheimer’s Later

More and more senior Americans are forced to deal with the devastating diagnosis of Alzheimer’s. Without planning, an Alzheimer’s diagnosis can be a devastating financial blow to an individual and his or her family. A recent article discusses how individuals can take control of their financial futures by planning now for the potential of an Alzheimer’s diagnosis later.

One potential way through which a person can get funds to pay for medical care is through Medicaid. Medicaid is a need-based program, so a person must meet certain income requirements to apply. If a person is above the threshold to receive Medicaid, he or she must spend-down assets in order to qualify. However, the spend-down of assets must be done carefully,with the oversight of an estate-planning attorney. Importantly, Medicaid employs a look back provision that will disqualify certain distributions of wealth if they occur within five years of a person’s application for Medicaid.

Often, Alzheimer’s patients require more care than Medicaid will cover. One option to fill the gap is through long-term care insurance. These insurance policies provide broad coverage for care received in a patient’s home, assisted living facility or nursing home. It is important to get long-term care insurance early, as rates go up as a person ages. Additionally, it may be difficult to find an insurer after a diagnosis of Alzheimer’s.

Separate Accounts From Your Spouse? Avoid This Asset Protection Pitfall!

It is becoming more commonplace for spouses and cohabitating unmarried couples to keep their financial accounts separate. While this strategy has many advantages, it comes with at least one (avoidable) asset protection pitfall. A recent article discusses what this pitfall is, and how you can avoid it.

As the article explains, tangible property that is jointly held between two spouses has an automatic layer of protection against plaintiffs and bankruptcy creditors in most states. This protection comes from the fact that plaintiffs and creditors often will not pursue tangible assets that they can only gain a half interest in. Most often, tangible assets must be liquidated in order to be of any benefit to a creditor or plaintiff. However, this would be impossible if, for example, a creditor and your spouse are half owners of your home.

Alternatively, tangible assets that are owned separately are considered fair game because the creditor or plaintiff can pursue the entire interest. However, this problem can be easily solved through the use of trust accounts. If spouses would like to keep their assets separate, they can each create a trust account to hold the assets. This will not only protect the assets from creditors and plaintiffs, but it can also facilitate the transfer of the assets upon either spouse’s death.

Incorporate Your Prenup into Your Estate Plan

Later in life marriages, as well as second and third marriages that produce Blended Families, are increasingly common. Spouses entering into these marriages usually have more assets and, often, previous children that they would like to provide for in their will. For these couples, a recent article explains why it is important to incorporate your prenuptial agreement into your estate plan.

Importantly, if a married couple without a prenuptial agreement divorces, the surviving spouse is guaranteed a portion of the deceased spouse’s estate. This portion is known as the ‘elective share,’ and is different in every state. If the deceased spouse attempted to disinherit the surviving spouse or left him or her less than the elective share amount, the surviving spouse can elect to take the ‘elective share’ amount instead.

There are many reasons why the deceased spouse may not have wanted this. For example, the surviving spouse may be financially solid without the deceased spouse, and the deceased spouse would rather the assets go to children from a previous relationship. One of the few ways to block the surviving spouse from taking the elective share amount is to put it in a prenuptial agreement. If you have a prenuptial agreement and plan to do this, be sure that the estate plan and prenuptial agreement are coordinated with each other so that there is no confusion as to your intentions.  Another option is to gift assets into trust during lifetime with specific instructions as to what can/should happen upon death.

Considering Gifting Your Home? Read This Before You Give Away The Castle.

Many parents want to believe that their children would never kick them out of their own home. However, the sad reality is that this has been the subject of more than one lawsuit. As a recent article explains, if you are considering gifting your home to your child or children, it is important to consider that possibility and other consequences.

First, the gift of a home is often a taxable gift. If a parent signs a deed gifting the house to their children, he or she should file a gift tax return as well. If this gift tax return is not filed, the parent may lose the ability to claim an exemption from the gift tax and may owe taxes on the transaction.

Additionally, gifting a house to children allows them to sell the house out from under the parent. The children can attempt to send the parent to a nursing home or simply evict the parent altogether.

Finally, gifting a home can have serious implications as far as Medicaid is concerned. Medicaid is a need-based program that employs a look-back provision of five years. Therefore, if a home is gifted within the five year period before a parent applies for Medicaid, the value of the home is considered in the parent’s assets. Therefore, depending on the value of the home, the gift could make the parent ineligible for Medicaid benefits.

Often, the ideal scenario involves a system whereby the value of the home is gifted, but the parent is permitted to live in the home for as long as they like or for a certain period of time.  Parents should consider using a combination of life estates and proper trusts to achieve these goals.

Put It In Inc.: Using Corporate Formation to Shield Assets

Without the proper protection, a single claim against a person’s business can cause financial ruin for the owner. Importantly, a person’s business extends to more activities than you may think. If you have a partnership, small business, or even a hobby that earns you money, consider following the asset protection strategies offered in this recent article.

First, if you have a partnership, consider incorporating it. As the article explains, “business partnerships are ticking time bombs.” This is because a partnership is akin to a joint account, in that actions taken independently by your partner may affect you as well.

If your partner faces a personal liability lawsuit, the plaintiff could seek to collect against all of your assets as well. Conversely, the owners and managers of other business forms such as LLCs and corporations do not face personal liability for claims against the entity or each other.

Similarly, if you have a small business, hobby, or part time job for which you are self-employed, consider incorporating that as well. Again, the incorporation will shield the business assets from claims against you personally. It will also shield you personally from claims made against your business.