While every mentally competent individual over the age of 18 should have an estate plan in place, it is especially important that Baby Boomers without a plan begin to put something together. A recent article offers several estate-planning strategies for baby boomers to begin planning:
1. Create a Will and Trust: No matter what type of estate planning scheme a person employs, he or she should incorporate a will into that scheme. Within a will, a person can designate a guardian for his or her minor children, as well as the distribution of personal items such as heirlooms and valuable items.
2. Designate a Power of Attorney: A power of attorney is a vital document for any estate plan, because it allows you to designate a person to handle your financial and legal affairs should you be involved in an accident.
3. Create a Health-Care Power of Attorney and Living Will: Just as a power of attorney allows an individual to designate the person who will handle his or her financial and legal affairs in the event of an accident or emergency, a health care power of attorney allows an individual to designate the person who will make medical decisions on his or her behalf.
As life expectancy continues to rise, so does the possibility that an individual will require long-term care at the end of his or her life. A recent article states that 7 in 10 Americans will require long-term care at some point in their lives. Unfortunately, as life expectancies rise, so do the costs of long-term care.
Many families do not realize how high the costs of care are until they are trying to place a loved one in a facility. Many studies estimate the cost to range from $8,000 per month to $13,000 per month. At that point, it is too late to utilize any sort of planning or saving and the financial reality can be devastating. Therefore, it is important to have a plan to cover your long-term care costs. Below are three of the most common ways that people plan to pay for their long-term care.
1. Save and pay out of pocket: If you believe that you will be able to pay for your long-term care costs out-of-pocket, be sure to conduct some research to predict how much money you will need to save and account for contingencies.
2. Purchase long-term care insurance: Long-term care insurance is becoming a more popular method through which individuals pay for their long-term care costs. Importantly, be sure to purchase this early for the best rates.
3. Spend down your assets so that you apply for Medicaid: Medicaid is a needs-based program. Therefore, your assets must be below a specific threshold in order to qualify for benefits. If you are above the threshold, you may be able to carefully spend your assets down until you qualify for coverage.
While asset protection is important for many individuals, it is particularly important for high net worth families. Asset protection strategies for these families should account for the fact that there is often much at stake. A recent article discusses how the wealthiest families are protecting their assets.
In order to begin the process of asset protection planning, a family must first consider the range of risks that they may face. Often, wealthy families are threatened by business liability, personal liability, risks to assets, and health care risks. Many become targets because they are perceived to have “deep” pockets.
One common way wealthy families protect themselves is through the creation of business entities to hold valuable assets. Families who own investment properties, for example, often create a separate business entity for each investment property. If a person slips and falls in one of the investment properties held by a limited liability company (LLC), the person would only be able to pursue the assets located in the limited liability company, rather than the individual’s personal assets.
A recent article quoted financial planner Michael Joyce as saying, “There’s nothing magic about reviewing goals […], but it is a good time to refocus people on their financial goals.” Joyce’s statement could not be moretrue. It is good practice to periodically review financial and estate planning goals, and the end of the year or the beginning of a new year is a great time to check this off of the to do list.
Individuals should begin their review by checking the beneficiary designations on their retirement accounts, life insurance policies, 401(k) plans, and any other account with a beneficiary designation. It is important to not only ensure that a beneficiary has been named, but also that the named beneficiary is still appropriate.
Additionally, review the provisions in your will and trust documents. Consider whether any provisions need to be changed, added, or omitted. This is especially important if you have experienced a marriage, divorce, or the birth or death of a loved one since you first signed your will.
Individuals should also consider any tax law changes that will impact their assets. Tax laws are in constant flux, so a periodic review of applicable laws is the best way to plan to reduce anticipated taxes. This review should also include a review of gift tax limits, which may encourage an individual to increase year-end gift-giving in order to achieve a greater tax benefit.
The fear that a person’s adult children will mismanage their inheritance is not uncommon. Luckily, the field of estate planning offers many tools to assist parents in ensuring that this does not happen. As a recent article explains, one of these tools is the trusteed IRA.
A trusteed IRA combines a traditional IRA with the benefits of a trust account. Importantly, the owner of a trusteed IRA can more confidently leave his or her account to his or her heirs, as the trusteed IRA provides a long-term distribution plan for making withdrawals. Chief fiduciary officer of U.S. Bancorp Sally Mullen explains that “for clients who want to control what happens after their death, this is an interesting and attractive vehicle.”
Before selecting any estate planning device, it is important to understand the risks associated with various devices. A trusteed IRA presents two major risks: (1) the trusteed IRA could end up with a higher tax liability than the heirs would have otherwise been responsible for, and (2) the IRS may determine that the trust is not a “see-through” or “conduit” trust, meaning that his or her heirs would not be able to take the stretched-out withdrawals as planned.
Asset protection planning is an important part of any estate plan. Incorporating asset protection strategies into an individual’s estate plan is the best way to ensure that he or she is able to leave the bulk of his or her assets to his or her heirs, rather than his or her creditors. A recent article discusses several rules of asset protection.
First, realize that everything sees the light of day. An individual should craft his asset protection plan with the knowledge that his or her creditors will eventually become aware of the plan and purpose. Typically, the use of secrecy in asset protection planning can only lead to trouble.
Second, it is important to begin such planning before claims arise. An asset protection strategy will work best if it is implemented early and reviewed often. Typically, after a claim arises, it will be too late to take any asset protection measures, as they may be considered fraudulent transfers.
Finally, realize that asset protection planning cannot substitute for purchasing insurance. Having an asset protection plan in place should not deter a person from purchasing liability and professional insurance. Instead, planning should be seen as a supplement to that insurance.
While it is not the first item on everyone’s resolution list, the New Year is a great time to discuss your estate plan with your family. As a recent article explains, the benefits of having the estate planning discussion far outweigh the problems that may otherwise arise out of the desire to avoid a sometimes awkward or difficult conversation.
First, discussing estate planning provides your family with a sense of empowerment because it allows your family members to take control of your family’s collective future. Without this element of control, many aspects of your estate plan are inevitably left to chance.
Additionally, through discussing estate planning, you can pass on your family values. For example, discussing charitable giving is a great way to talk about the causes you are passionate about. Additionally, you can discuss the stories behind sentimental objects and why you are distributing them as you have selected.
Finally, discussing your estate plan with your family helps to prepare the family, should you become incapacitated. Your family will be better able to carry out your wishes and tend to your affairs if they know what your plan for incapacity is and how you would like them to implement it.
An estate plan is not one document. Rather, it is a collection of various documents that deal with a wide variety of assets, and leave instructions for various situations. An important part of any estate plan is a person’s beneficiary accounts. As a recent article explains, one of the most widespread estate planning mistakes occurs when people fail to update their beneficiary designations.
Beneficiary accounts such as IRAs, retirement accounts, insurance policies, mutual funds, bank accounts, brokerage accounts, annuities, and 529 college savings plans are accounts that are transferred to a designated beneficiary immediately at the death of the account holder.
Importantly, a person’s will or trust does not trump his or her beneficiary designations. For example, if a divorced man failed to take his ex-wife’s name off of his retirement account before he died, the proceeds of the account would go to his ex-wife. This would be the outcome even if he clearly stated that the ex-wife was to be disinherited in his will.
It is good practice to update your beneficiary designations once every few years and after important events, such a marriage or divorce.
Probate is a court-supervised process through which the provisions of a person’s will are carried out. Many people choose to avoid probate by employing various estate planning tools that transfer their assets outside of their will. As a recent article explains, an additional benefit of creating non-probate transfers is that they provide a level of asset protection.
If a person’s estate goes through probate, his or her executor will begin the process by collecting the decedent’s assets and giving notice of the death to any potential creditors. After this notice is given, the decedent’s creditors will have a specified amount of time to make any claims against the estate. The executor will have to pay these claims through the estate before distribution to the heirs.
Alternatively, certain non-probate assets such as life insurance policies, beneficiary accounts, and items held in joint tenancy pass immediately to the beneficiary or joint tenant upon the decedent’s death. Therefore, creditors are often unable to reach these assets.
Although non-probate transfers are a great way to incorporate asset protection planning into your estate plan, it is important not to use non-probate transfers specifically to avoid a particular creditor. These transfers can be undone if a court finds that the transfer was made for the sole purpose of avoiding an existing obligation to a creditor.
Although it is important for every individual to have an estate plan, the process of estate planning is often confusing and overwhelming. A recent article addresses several frequently asked questions concerning estate planning.
Those who have drafted a will often wonder where they should keep it. There are a variety of appropriate places to keep a will, including a safety deposit box, your attorney’s office, or even on file with the probate court in the county in which you live. No matter where you decide to store your will, it is important to be sure that your will is safe and that your heirs will be able to locate it.
Another frequently asked question concerns what information should be left out of a person’s will. Since a will must go through probate before it has any legal effect, any document that needs to be viewed immediately upon a person’s incapacity or death should not be included in a person’s will. These documents include advance directives, organ donation information, wishes for the disposition of a person’s remains and funeral instructions.
Finally, many individuals have a hard time understanding whether they need a will, trust, or both. To understand which you need, it is important to understand the difference between the two. A will takes effect only after a person’s death and it distributes non-probate assets. A trust takes effect when it is created and it allows a person to exercise extended management and control over his or her assets. It is good practice for everyone to draft a will and to add a trust if necessary.
Some assets are more difficult to plan for than others. As a recent article explains, timeshares can be the source of an extreme headache when it comes to estate planning.
First, it is important to realize that, after death, the deceased owner’s estate remains responsible for paying any timeshare maintenance fees and property taxes incurred. These fees can quickly add up, especially when the decedent’s heirs are unaware of them.
Most often, the decedent owner’s estate wishes to sell the timeshare. Unfortunately, timeshares are difficult to sell and it is often necessary for the estate to go to the timeshare company itself. The company may assist in selling the timeshare, however it will likely charge a large commission.
If the timeshare is deeded – rather than leased – the decedent owns a real property interest in it. This means that after the owner dies, the transfer of the timeshare will be controlled by the laws of the state where the timeshare is located, regardless of where the owner resides.
Alternatively, if the timeshare is held in a joint tenancy with a right of survivorship, the timeshare will automatically pass to the joint tenant. The surviving joint tenant will need to file an affidavit of death in order to have the deceased joint tenant removed from the deed.
One popular misconception concerning estate planning is that any trust will protect an individual’s assets from creditors. However, as a recent article explains, this is not true. If you are considering incorporating a trust into your estate plan as an asset protection tool, it is important to understand which trusts will actually provide asset protection.
As the title suggests, a revocable living trust will not protect trust assets from creditors. The primary purpose of these trusts is preserve privacy & ease the transfer of wealth by keeping a person’s assets out of probate, which often saves a family time and money. If you have a revocable living trust, it is important to realize that creditors can reach the assets within that trust. This is because you never fully relinquish control of your assets in a revocable trust so you are still considered the legal owner.
If you are interested in incorporating a level of asset protection into your estate plan, consider using an irrevocable trust, or in some cases, as Family Limited Partnership (FLP) or Family Limited Liability Company (FLLC). In contrast to a revocable living trust, an irrevocable trust, FLP and FLLC will protect your assets from creditors. This is because the trust or entity creator is not considered the owner of the assets held in the trust or entity. The trade off, however, is that you may relinquish direct total control of the assets placed in the trust (although, if done right, you may still exercise indirect control.)
Estate planning is often a difficult topic to approach. Not only is it difficult for many people to discuss the reality of their own mortality, but the process of estate planning can quickly become confusing and overwhelming. If you have not prepared your estate plan yet, a recent article offers four steps to take care of most of your planning needs:
1. Prepare a Master Information Document: A master information document should include all of the information your executor will need in order to locate and settle your accounts. This document is simple to create, and will save your executor from the nightmare of an unorganized estate. Importantly, be sure to keep this document in a safe place so that it does not fall into the wrong hands.
2. Consider Purchasing Life Insurance:Life insurance is an important estate-planning tool for anyone who leaves behind dependents. The proceeds can keep a person who relies on your income from financial ruin.
3. Draft a Will that Considers Important Possessions: If you have any items that carry a sentimental or financial value, chances are you will want to dictate who receives that item after your death. Additionally, if you do not account for the distribution of such items, you may trigger a feud among your family members.
4. Designate a Guardian for Any Minor Children: If you have minor children, guardian designation is the single most important part of your estate plan. Carefully select the person you would trust to care for your children should you become unable to do so and discuss your designation with that person before putting it in your will.
A power of attorney is a vital part of any estate plan. Through this document, an individual gives another person the right to act on his or her behalf, should he or she become incapacitated. A recent article discusses why everyone needs a power of attorney.
It is impossible to know when you may become injured, sick, or otherwise incapacitated and unable to tend to your financial and legal affairs or make medical decisions for yourself. By establishing a power of attorney, you give a person of your choosing the ability to pay your bills, manage your assets, and make important decisions concerning the medical care you receive. Parents of young children may also use a Power of Attorney to memorialize guardian wishes for their young children in the event of an incapacity.
Despite the importance of designating a power of attorney, most people have not done so because they believe that, should an accident occur, their family will be able to simply step in and make any necessary decisions. However, this is not always the case. Not only may a person’s loved ones argue about who should manage your affairs and how they should be managed, but they may not have the legal authority to take important actions on your behalf.
There are two types of power of attorney, one to designate the person who should make medical decisions for you, and the other to designate the person who should make financial decisions for you. Every individual should execute both.