Knowing When it is Time to Hand Over the Car Keys

There are no state laws that deal directly with elderly drivers when they begin to pose a risk to other drivers. Therefore, family members are often left to step in. A recent article discusses how you can determine when your loved one should hang up the keys. 

Pressing a button on the key unlocks all of th...
(Photo credit: Wikipedia)

The record for the highest rate of fatal crashes per mile driven belongs not to teens, but to seniors over the age of 80. This is because many seniors continue driving after it becomes obvious that it is no longer safe for them to do so. The most common ailments among seniors that increase their risk factor on the roads are vision problems, slower reaction times, and various other effects of aging.

If you believe that an older member of your family is no longer fit to drive, test your assertion by taking a short car ride with him or her. Look for telltale signs of hindered driving, such as a failure to be able to judge gaps in traffic, follow traffic signals, remember directions, or maneuver and park the car.

If you believe, after riding with your loved one, that he or she can no longer drive safely, it is important to address the matter head on. Select the person in your family that your loved one is most likely to listen to, and have him or her express that your loved one may not be safe on the road. Prior to this conversation, research alternative transportation options available in your loved one’s area, and the cost of each. This will help create a smoother transition for your loved one when they stop driving.

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Pass on the Bypass? Is a Bypass Trust Necessary?

Many people wonder whether bypass trusts are still necessary for asset protection. Even after the 2013 unified credit changes have been implemented for estate planning, making the transfer of assets between spouses easier, a recent article explains why bypass trusts may still be a good idea for certain estate plans.

One benefit of a bypass trust is that it protects assets from creditors and lawsuits. The provisions of a bypass trust that offer this protection depend on the state that the trust was created in and the state that the surviving spouse currently resides in.

Bypass trusts are also a good tool because they can transfer assets to more than one generation. A bypass trust can be set up to benefit the surviving spouse for the remainder of his or her life, then provide assets for his or her children and grandchildren. Bypass trusts can be written to include various other special benefits. These benefits can include professional management, provisions to limit spending, and provisions to avoid probate.

Finally, bypass trusts are helpful in avoiding estate taxes on appreciating assets. For example, imagine that a person put $5.25 million worth of assets in a bypass trust. Further, imagine that the $5.25 million grows to a value of over $10 million while in the trust. In this scenario, the entire $10 million will avoid estate taxes. As a result, bypass trusts may still be essential for particular estate plans.

Long-Term Care for Your Cat

All too often, cats are surrendered to animal shelters because their owner either died or had to enter a long-term care facility where the cat was not allowed. In order to avoid this fate, a recent article argues that cat owners need to have a long-term care plan in place for their pet. Importantly, this care plan can be simple and easy to create.

The first step in creating a long-term care plan for your cat is selecting a trusted friend or relative who may be willing to care for the cat in your absence. Discuss your designation with that person to make sure that he or she is up for the task. If you have an estate plan, you can insert a clause that gives your cat, and some money for its care, to the designated caregiver. If you do not have an estate plan, you can simply make a care arrangement with that person.

English: Portrait of a female feral cat (Felis...
(Photo credit: Wikipedia)

In your will or care arrangement, be sure to outline your cat’s routine. This may include feeding and exercise habits. Also include all medical information, including your cat’s veterinarian, where his or her medical records are located and any current medications.

Importantly, provide the designated caregiver with a spare key to your home or apartment. This will allow the person to enter your home if you suddenly become incapacitated. Finally, be sure to set some money aside for your cat’s care. When determining how much money to provide, consider that your friend will need to pay for food, veterinarian bills and any other necessary care expenses.

Avoiding the Financial Crisis of Long Term Care

Many elder Americans are not prepared for the high costs of long-term care. This is causing a financial crisis, as too many Americans are relying on the federal and state governments in order to provide for this care. As a recent article explains, one way to avoid this crisis is by purchasing long-term care insurance.

According to the article, the two biggest fears of the baby boomer generation are (1) outliving the finances they have saved for retirement, and (2) being forced to depend on another person for care. Unfortunately, many seniors do not understand how the Medicare/Medicaid systems work, and believe that the federal programs will pay for any long-term care that becomes necessary.

In fact, Medicare has many limitations. For example, Medicare will only cover a stay in a skilled nursing facility if the stay is 100 days or less and is medically necessary. Of course, determining whether a stay is medically necessary will depend on Medicare standards that may be confusing.

Long-term care insurance, therefore, can fill in where Medicare leaves off. Long-term care insurance allows policy-holders to select which types of care they would like to receive. And what if long-term care insurance is not an option? Then it may be time to consult with an Elder Law attorney to discuss options, such as Medicaid “spend-down”, that can help with payment of long-term care.

Protecting the Nest Egg: Asset Protection for Retirement

By the time a person retires, he or she should have created an asset base that is sufficient to allow him or her to retire without dramatically reducing his or her standard of living. Moreover, most individuals would also like to pass down assets to the next generation. As a recent article explains, those who succeed in creating a sufficient asset base for retirement need to be careful to protect it from any liability that may arise down the road.

Asset protection strategies cannot fully protect all assets from all claims. However, a good asset protection strategy can effectively reduce threats to many assets, such as real property, investments, businesses, and various other assets.

Nest egg
Nest egg (Photo credit: Gemma Garner)

One common asset protection strategy is holding property under Tenancy by the Entirety. This is a type of co-ownership that is available exclusively to married couples. Couples who own asset(s) through Tenancy by the Entirety each have a right of survivorship, meaning that the surviving spouse automatically takes the deceased spouse’s share. In certain states, assets held in this form are protected from lawsuits that fail to name both spouses as defendants.

Another common asset protection strategy is transferring the ownership of assets to a limited partnership. Limited partnerships are popular for holding investments and liquid assets. In order to form a limited partnership, you need one or more general partners, and one or more limited partners. These particular strategies will allow for the effective protection of assets for retirement. 

Make Sure Your “S” Is Covered: Estate Planning Considerations for S Corporations

It is important for those who hold shares in an S Corporation to carefully plan for the distribution of those shares. The stakes for these transfers are high, as a faulty transfer may result in the inadvertent termination of the corporation’s S status. A recent article discusses several considerations to make when planning for the transfer of S Corporation shares.

Individuals or entities such as estates or certain types of trusts may hold shares in an S Corporation. The types of trusts that are qualified to hold S Corporation shares include grantor trusts, qualified Subchapter S trusts, electing small business trusts, testamentary trusts, and voting trusts. All other trusts are considered to be non-qualifying shareholders.

If a shareholder’s estate plan inadvertently transfers his or her S Corporation shares to a non-qualifying shareholder, not only will the S Corporation be inadvertently terminated, but corporate level taxes may be triggered on the other shareholders. To avoid this fate, it is important to review your estate plan to ensure that your plan does not transfer S Corporation shares to a non-qualifying trust. On the other hand, the right kind of trust can be a powerful tool to achieving Estate Planning, Asset Protection & Business Succession Planning goals.

S Corporations can also work to avoid costly missteps by employing shareholder agreements, which provide that the shares may only be transferred to qualified shareholders. Additionally, S Corporation shareholders should carefully monitor shareholder trusts to ensure that the trusts remain eligible to hold S Corporation shares.

When You Aren’t Sure Where to Start: Having an Estate Planning Discussion with an Elderly Parent

A majority of adults find it difficult to discuss financial issues with their aging family members. Although these are often difficult and uncomfortable conversations to have, they are often necessary. Moreover, it is important to have these conversations with your parents early, before they become unable to handle their financial lives. A recent article discusses how to start this conversation, and what topics to cover.

One way to ensure that you bring up this topic is to make an appointment with yourself to do so. A good idea is to plan the discussion for after a family gathering such as a birthday party. This way, other family members can join in the conversation. If you believe that your parents and family members will be receptive to the idea, select a date and time and then invite them to join in on the conversation.

During the conversation, it is important to discuss several different aspects of your parent’s estate. The first aspect is legal. Determine whether your parent has done any estate planning. If yes, ask where the legal documents are and what estate planning tools are employed, such as wills or trusts. Your parent may also wish to explain any distributions.

Another important aspect to discuss is healthcare. Determine what types of health coverage your parent has aside from Medicare. This may include long term care insurance, or simply some money set aside for anticipated health care costs. Finally, determine whether your parent has executed a health care power of attorney. If he or she has not, encourage him or her to do so. This will be an essential step should the time come when your parent is unable to make their own decisions on their healthcare.

Applying the K.I.S.S. Principle: – Simplifying Estate Planning

For members of the baby boomer generation, estate planning is about more than organizing their financial affairs. Many Boomers wish to create estate plans that leave a legacy and make a difference in the world. However, when considering these estate planning goals, Boomers might quickly become overwhelmed with the task at hand. A recent article offers simple tips for Boomers to get started on their estate plan and create their legacy.

The first step in creating an estate plan is making a list of all of your assets. This list should include all real estate, valuable personal property, insurance accounts, retirement accounts, the value of any trusts, and any amounts you expect to receive before you pass on. When making this list, be sure to note if any of these assets are tied to debt, such as a mortgage or lien on a home. After you list your assets, consider how you would like to distribute them, and who you would like your beneficiaries to be.

Next, consider who you would like to serve as your financial power of attorney. This is the person who is tasked with managing your financial affairs should you become incapacitated. Remember that incapacity can take many forms, such as mild dementia or an intensive hospitalization after an accident. You may limit this power if you wish. For example, you could provide a limited power of attorney to only handle your small business. With these important decisions, creating an estate plan will be essential in detailing your wishes should you become incapacitated.

Planning for Blended Families: Part I – Intake Process

The “blended family” comprises a fast-growing segment of U.S. households. Whether you arean attorney or investment advisor, there is an advantage in taking some time to fine-tune your intake or initial interview process to determine the desirability of representing a blended-family client.Once you assess the accepted client to determine your counseling strategy, you canbegin strategy planning with your newly acquired information.

As noted, attorneys face different client engagement issues than advisors and CPAs.  This content seeks to illuminate the client-discussion topics but not to precisely define the boundaries between the planning perspectives.

Takeaways:
*  Blended families have unique and complex planning needs
*  Planning for blended families may be an important growth area for your business
   –  Blended families continue to grow in number
   –  Blended families often require advanced planning strategies
*  Extending an engagement letter to a blended-family couple warrants careful consideration
*  Your intake interview is an important professional relationship tool

How a “Blended Family” Is Different from a “Traditional Family”
A “traditional” family is one in which any child is a child of both spouses. A “blended family” includes at least one child for whom only one of the spouses is the parent. Money-related discussions for any family can be challenging, but the dynamics of a blended family can make these discussions even more difficult and more critical.

Disparity in Age
Age differences between spouses may be more significant in a remarriage. As a result, age differences between children in a blended family may also be more significant.

These wider age differences mean guardianship issues and planning issues will be unique to each child. In some family situations, older stepsiblings may be willing to be named as guardian for their younger stepsiblings.

In addition to contributing to the potential for conflict, age similarity between the spouse and a stepchild must be considered in a planning strategy.

Disparity in Wealth
Any significant disparity in net worth between the spouses can make estate planning more critical early in the remarriage.

Conflict and Animosity
Bringing two families together can lead to animosity between spouse and stepchildren, between stepchildren, and between parent and children—this animosity can damage or destroy the relationship between the spouses. Aside from contributing to unpleasant living situations or family gatherings, the conflict and animosity that can exist in a blended family can prevent communication. However, effective communication is key to identifying potential issues and creating a sound financial and estate plan for the unique needs of a blended family.

Because of the increased potential volatility and the different legal status afforded blended families, advanced planning strategies may be important tools to implement.

What you need to know
Review your intake interview to ensure it’s designed to fully explore these unique aspects of a blended family so you’ve got an excellent starting point to begin strategizing with your client.

Important Information You Need but Don’t Ask Outright.
The intake process will provide you with a lot of information. With this information, you should determine:
* whether you want to represent a client;
* whether you can represent both spouses;
* your counseling strategy; and
* planning strategy.

Your powers of observation are critical both to deciding whether to offer an engagement letter to a blended-family prospect and to planning your counseling strategy for them.

Power Imbalance
Especially if your intake questionnaire indicates a large disparity in age, net worth, education, or health, carefully observe how a couple—and the whole blended family if children are present—interacts during the interview to identify and explore potential power imbalances.
* Is one spouse doing all the talking?
* What does their body language tell you?
* Does one spouse look to the other for consensus?

Denial
“They’re all our children.” Estate planning attorney and WealthCounsel member Jeff Sydney identifies this statement as a bright red flag. In his experience, couples in denial about the important and unique needs of a blended family are extremely hard to counsel. A blended-family couple must be willing to acknowledge that their situation is a breeding ground for conflict. The more access you have to the family’s dynamics, the better strategy you can create for its specific needs. Without that access, you can at least plan for the “worst case scenario”, but even that kind of planning requires the couple to acknowledge that effective planning must contemplate conflict. The more complex a family’s situation, the more specific and detailed the planning strategy must be.

Confidential Information
Requested private conversations—one spouse requests a conversation with you without the other spouse present—are another flaming red flag. Sydney indicates that the request typically starts like this:  “I didn’t want to say this in front of my [spouse], but . . . ” and, if you don’t stop it, sometimes concludes with disclosure of a secret child or hidden asset.  For an attorney, this attempted or achieved disclosure of non-shared information raises critical and perhaps insurmountable issues concerning representing the couple as joint clients. For that reason, attorneys must have the “no secrets among us” conversation at the very earliest opportunity and refuse any proffer of secret information from one spouse.

What you need to know
If your intake interview is designed for blended families, the answers it prompts will be a strong indicator of whether you want to or can engage a client. But make sure to read between the lines of how a blended-family couple interacts so that you have the whole picture. Make sure your intake process includes counseling strategy assessments so that you can effectively facilitate open, honest communication essential to effective client meetings.

Your Ethical Obligations as They Relate to Blended Families
Turning away a client may seem counterintuitive to your business plan, but carefully screening potential clients keeps you in the driver’s seat. For an attorney, declining a potential client at the outset is easier than resigning from an existing relationship. After a thorough intake interview, you will be able to determine if you are qualified to handle the client’s needs, if any conflicts exist, and if you want to proceed to the next step. Carefully assess the prospective clients’ direct responses to the interview questions and their observed behaviors. Be sure that the clients are forthright with each other and with you about the information needed to provide an effective and realistic financial plan for their family situation. A professional relationship founded on incomplete information and poor communication will keep you up at night and may lead to ethics issues. A positive professional relationship will be a more positive experience for you and will generate new leads for your business.

For the attorney or advisor:

  • Should you represent both spouses?
  • Should you represent parents or children of existing clients?

Ethics questions for the attorney:

  • Will you represent both of the spouses as a couple, or will you represent only one of the spouses?
  • If you represent the couple, does your engagement agreement contain necessary conflict-of-interest disclosures and waivers of attorney-client privilege as to each spouse?
  • If you represent only one of the spouses and have met with both of them, have you informed the other spouse in writing of his or her need to retain independent counsel?
  • If the other spouse has retained separate counsel, have you informed your client and your staff and instructed them in writing to deal only with the spouse’s counsel in matters related to the planning engagement?
  • If the other spouse has waived the right to independent counsel, did you get that waiver in writing?
  • When should you resign from an existing engagement?
  • When must you resign from an existing engagement?

Attorneys must know state requirements specific to representing blended families. Some state statutes address:

  • Duty to enter into written contract
  • Duty to avoid actual conflict of interest
  • Duty to avoid potential conflict of interest
  • Duty to maintain client’s confidence

What you need to know
Your observations during the intake interview may raise some ethics questions in your mind about representation. Know your state’s laws and ethics rules.

Actions to Consider:
* Market your professional services to blended families.
Blended families represent a growing share of the market, and they often afford the opportunity to implement advanced planning strategies. They can represent an excellent client base for your planning practice.
* Make an informed decision to represent a blended family.
Recalibrate your intake process to screen potential blended-family clients for some of the known landmines.
* Maximize your time together, fostering a productive and efficient professional relationship.
Collect the information you need to formulate your counseling strategy.

Our thanks and acknowledgement to WealthCounsel member Jeff Sydney for his contributions to this article.

 

Next in the Blended Family series:  Part II – Counseling Strategy

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

 

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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.