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Long Term Care Insurance

Should I Purchase Long-Term Care Insurance?

According to Covering Katy’s recent article entitled “How to Protect Yourself From Long-term Care Cost,” to answer the question of long-term care, think about two variables: your likelihood of needing long-term care and the cost of the care.

Government statistics show that a person who’s 65 today has nearly a 70% chance of eventually needing some kind of long-term care. The average cost for a private room in a nursing home is about $100,000 per year, and a home health aide costs about $50,000 per year. When you do the math, your chances of needing long-term care are good and it’s expensive. If you needed several years of long-term care, it could seriously deplete your savings.

Since Medicare typically pays only a small part of long-term care costs, you should consider the following options for meeting these expenses:

You could “self-insure” against long-term care expenses, by setting aside some of your investment portfolio for this. However, it looks like you’d have to save a lot of money before you felt you were truly protected. This could be especially tough with the need to save and invest for the other expenses associated with retirement.

When you buy long-term care insurance, you’re moving the risk of paying for long-term care from yourself to an insurance carrier. Some LTC policies pay costs for a set number of years, while others cover you for life. Shop around for a policy that offers the combination of features you think best meet your needs. Long-term care gets more expensive as you get older. Therefore, if you’re interested in this type of coverage, don’t delay in your search.

A “hybrid” policy, like life insurance with a long-term care/chronic illness rider, combines long-term care benefits with those offered by a traditional life insurance policy. As a result, if you were to purchase a hybrid policy, and you never needed long-term care, your policy would pay a death benefit to your beneficiary. Conversely, if you ever do require long-term care, your policy will pay benefits for those expenses. The amount of money available for LTC can exceed the death benefit dramatically. There are quite a few different types of hybrid policies, so do your research before choosing a policy.

While you may decide you’re willing to take the chance of never requiring any type of long-term care, if you think that’s a risk you’d rather not take, look into all your coverage options thoroughly.

Reference: Covering Katy (Jan. 13, 2020) “How to Protect Yourself From Long-term Care Costs”

Key Terms: Elder Law Attorney, Medicare, Medicaid, Paying for a Nursing Home, Long-Term Care Planning, Long-Term Care Insurance, Assisted Living, Nursing Home Care, Elder Care

Do I need an elder law attorney?

When Do I Need an Elder Law Attorney?

Elder law is different from estate law, but they frequently address many of the same issues. Estate planning contemplates your finances and property to best provide for you and your family while you’re still alive but incapacitated. It also concerns itself with the estate you leave to your loved ones when you die, minimizing probate complications and potential estate tax bills. Elder law contemplates these same issues but also the scenario when you may need some form of long-term care, even your eligibility for Medicaid should you need it.

A recent article from The Balance’s asks “Do You or a Family Member Need to Hire an Elder Law Attorney?” According to the article there are a variety of options to adjust as economically and efficiently as possible to plan for all eventualities. An elder law attorney can discuss these options with you.

Medicaid is a complicated subject, and really requires the assistance of an expert. The program has rigid eligibility guidelines in the event you require long-term care. The program’s benefits are income- and asset-based. However, you can’t simply give everything away to qualify, if you think you might need this type of care in the near future. There are strategies that should be implemented because the “spend down” rules and five-year “look back” period reverts assets or money to your ownership for qualifying purposes, if you try to transfer them to others. An elder law attorney will know these rules well and can guide you.

You’ll need the help and advice of an experienced elder law attorney to assist with your future plans, if one or more of these situations apply to you:

  • You’re in a second (or later) marriage;
  • You’re recently divorced;
  • You’ve recently lost a spouse or another family member;
  • Your spouse is incapacitated and requires long-term care;
  • You own one or more businesses;
  • You have real estate in more than one state;
  • You have a disabled family member;
  • You’re disabled;
  • You have minor children or an adult “problem” child;
  • You don’t have children;
  • You’d like to give a portion of your estate to charity;
  • You have significant assets in 401(k)s and/or IRAs; or
  • You have a taxable estate for estate tax purposes.

If you have any of these situations, you should seek the help of an elder law attorney.

If you fail to do so, you’ll most likely give a sizeable percentage of your estate to the state, an ex-spouse, or the IRS.

State probate laws are very detailed as to what can and can’t be included in a will, trust, advance medical directive, or financial power of attorney. These laws control who can and can’t serve as a personal representative, trustee, health care surrogate, or attorney-in-fact under a power of attorney.

Hiring an experienced elder law attorney can help you and your family avoid simple but expensive mistakes, if you or your family attempt this on your own.

Reference: The Balance (Jan. 21, 2020) “Do You or a Family Member Need to Hire an Elder Law Attorney?”

Key Terms: Elder Law Attorney, Medicaid, Long-Term Care Planning, Special Needs Trust, Assisted Living, Nursing Home Care, Medicaid Planning Lawyer, Disability, Elder Care, Estate Planning, Wills, Probate Court, Will, Trust, Advance Medical Directive, Power of Attorney, Estate Tax, Divorce, Capacity, Guardianship, Business Succession Planning, Charitable Donation, IRA, 401(k)

Do I need a will?

Seriously, Why Do I Need a Will?

The Times Herald-Record’s article “55 Plus: Four Reasons to Create a Will” provides some tips and important reasons for why you should make a will.

When you create a will with the help of an estate planning attorney, you are able to decide who will execute your estate.

Creating a will and appointing a trusted executor will help make certain that your estate is managed in accordance with your wishes and instructions. If you have a will, you help the people you leave behind. A legally valid will can avoid added costs of legal dealings. If you pass away without a will, the state will decide how your estate is divided.

Creating a will allows you to determine who inherits your estate. Your estate will include your home, motor vehicles, financial accounts and any other personal property you want to pass on to your loved ones. The great thing about a will is that it clearly states the persons or organizations that will receive all or part of your estate after your death.

Consulting with an experienced estate planning attorney to help understand your state laws and probate procedures is a wise move.

In your will, you can also decide and designate the person(s) who will care for your minor children. Creating a will gives you the opportunity to appoint a guardian for your minor children, in the event of your death. If you don’t have a will stating a guardianship, a court can make the issue its own and appoint a guardian in your absence. It could be someone you don’t like or someone you hardly know.

By creating a will, you provide several benefits for yourself and your family. A will offers peace of mind that your loved ones will be cared for as you intend, after you’re no longer around.

Finally, a reminder for those with wills and estate plans: review these documents every year or three to be certain that everything is up to date. You want to be sure that your estate plan includes any new spouse, birth or adoption of a child or grandchild, death of a relative and change in your financial situation.

Reference: Times Herald-Record (Jan. 6, 2020) “55 Plus: Four Reasons to Create a Will”

Suggested Key Terms: Estate Planning Attorney, Will, Guardianship, Trust

Adding a child to the title on your home

Can I Add an Adult Daughter to the Title of a Home?

It’s surprising that the lender wouldn’t allow this 77-year-old widowed woman to add her daughter to the title of her your home, says The Ledger’s recent article “Leaving your home to a family member? Consider these options.” Typically, the mortgage lender likes to make sure that the borrower on the loan is the same as the owners on the title to the property. However, if a senior wanted to add her daughter, it’s not uncommon for a lender to allow a non-borrower spouse or child to be on the title but not on the loan. When the lender permits this, all the loan documents are signed by the borrower and a few documents would also be signed by the non-borrowing owner of the home.

In this situation where the mother closed on the loan, and the lender refused to put the daughter on the title to the home, there are a few options. One option is to do nothing but be certain sure that there’s a valid will in place with instructions that the home is to go to the daughter. When the mother passes away, the daughter would have to wait while the will is probated, then transfer the title to her name or sell the place. The probate process will increase some costs and can be a little stressful, especially if someone is grieving the loss of a family member.

A second option is for the mother to create a living trust and transfer the title of the home to the trust—she would be the owner and trustee. The mother would name her daughter as the successor beneficiary and trustee of the trust. Upon the mother’s death, the daughter would assume the role of trustee.

The next option is a transfer on death (or “TOD”) instrument. Some real estate professionals don’t like to use this document. It may not be acceptable depending on state law, but the TOD would allow the mother to record a document now that would state that upon her death the home would go to her daughter.

Finally, the mother could transfer ownership of the home to her daughter and herself with a quitclaim deed to hold the home as joint tenants with rights of survivorship. Upon mother’s death, the home would automatically become the daughter’s home. However, this type of transfer of the home might trigger the lender’s “due on sale” requirement in the mortgage. Thus, if the lender wanted to be a stickler, they could argue that the mother violated the terms of that loan and is in default.

It is also worth mentioning that there may be tax consequences for the daughter. If the mother goes with the last option and puts her daughter on the title to the property, she’s in effect gifting her half of the value of the home. This may cause tax issues in the future, because the daughter will forfeit her ability to get a stepped-up basis. However, if the daughter gets title to the home through a will, the living trust or the transfer on death instrument, she’ll inherit the home at the home’s value at or around the time of the mother’s death (the stepped-up basis). You should work with an experienced estate planning attorney to get the best advice.

Reference: The Ledger (Jan. 11, 2020) “Leaving your home to a family member? Consider these options”

Suggested Key Terms: Estate Planning Lawyer, Wills, Probate Court, Inheritance, Trustee, Revocable Living Trust, Probate Attorney, Tax Planning, Joint Tenancy with Right of Survivorship, Transfer on Death (TOD)

Inheriting a House

Inheriting a House? What You Need to Know

There are choices when someone inherits a house. However, they depend on several factors. Are there other siblings who also have inherited portions of the ownership of the house? Is there another owner who needs to be bought out? Can the heir afford to take on the responsibilities and expenses of a home? These are all questions presented in the article “What to do when inheriting a house” from The Mercury.

There’s a tax issue to consider, for starters. Property that was titled in the name of the decedent at the time of death and then inherited, receives what is called a “step-up” in basis. This means that there is no federal tax due on the appreciation in value from the time the person purchased the home to the time that the person died.

Let’s say the person bought the home for $100,000 and it’s now worth $300,000. The federal government will not tax the $200,000 difference between the original value and the DOD (Day of Death) value of the home. If the heir obtains an appraisal shortly after the death of the home owner and then moves in or if you already live there and the house is transferred into your name, the “clock” starts running again for another tax break, which is an additional $250,000 exclusion from capital gains on resale after you have lived there for two years.

This all assumes that any other beneficiaries have been satisfied as to the ownership of the house. A good elder law estate attorney will be able to help with the details, including the transfer of title.

Another issue: is there a mortgage on the house? If so, the new owner may need to satisfy the lender and refinance. If the heir has enough money to meet monthly payments, a strong credit rating to be able to get a mortgage and enough income to maintain the home, then it should be a relatively simple transaction.

Have the home inspected before moving in. Is the house in good shape? If repairs need to be done, are they budget-friendly, or will they make the inheritance too expensive to be financially viable?

Property maintenance is another consideration. If the estate can carry costs associated with the property until the property is sold and if the estate can pay for repairs, upgrades and maintenance so the house can be sold for a good price, then that is a reasonable approach to take. If there are other beneficiaries, they should all part of a discussion about how much money is worth investing in the house and what the return on investment will be.

Finally, if the language of the will says “equally to my three children” or language similar to that and one sibling wants to buy out the other two, then an agreement on the value of the house and a plan for working out timing of the sale will need to be created. An estate planning elder law attorney will be able to help create a family settlement agreement that will include an informal accounting, whereby all of the heirs receive their fair share of the inheritance and all sign off that they have agreed to the transaction.

Reference: The Mercury (Jan. 15, 2020) “What to do when inheriting a house”

Suggested Key Terms: Inheritance, Step-Up in Basis, Family Settlement Agreement, Estate Planning Attorney, Elder Lawyer, Mortgage, Valuation, Appraisal

Cognitive Decline and Retirement

Planning Retirement with a Cognitive Decline

The Director of Volunteer Programs at the Alzheimer’s Association, Stephanie Rohlfs-Young, explains that families shouldn’t let a diagnosis disrupt proper financial, estate and retirement planning. She recommends several proactive and tactical steps that individuals and families can undertake to address issues related to cognitive decline.

Barron’s recent article entitled “Cognitive Decline Shouldn’t Derail Retirement Planning. Here Are Some Tips to Prepare Your Finances” provides some tips on navigating the financial aspects of cognitive decline. Let’s look at some of them:

Inventory. For budgeting and estate planning purposes, families should conduct a thorough inventory of the individual’s property and debts to create a list of those who have access to each account. Ask about and include online checking, savings, credit-card and investment accounts. These can be neglected, if they aren’t in paper form. Try to work with the individual in cognitive decline to ascertain this information, when they can still be helpful. You don’t want to lose all those assets. This task can be challenging, when children aren’t aware of their parents’ financial dealings. This can include savings, insurance, retirement benefits, government assistance, veterans’ benefits and more. Families should also pick a lead person to be in charge of financial or legal matters.

Calculating future costs. A diagnosis of this nature is the time to figure out and plan for care costs that may include adult day care, in-home care and full-time medical care. These can costs vary widely, and many times families underestimate the amount they’ll spend on care. Families often fail to factor in out-of-pocket expenses that can add up, like prescriptions not covered by insurance. When budgeting, families should see what insurance may be available and if they might add or amend coverage.

Leverage the skills of an elder-law attorney. Partner with an experienced elder law attorney to help get the family’s financial and legal affairs together. Issues can include the titling of assets, trusts, powers of attorney, advance health care directive and more. For some, there’s also Medicaid planning.

Automate finances. Families should devise a plan for routine financial tasks, like bill paying. These are things that will eventually become too difficult for the loved one experiencing cognitive decline. Consider signing up for online banking. That way, an adult child can have easy access to monitor the parent’s account. Monthly bills, including insurance premiums, can be set up for automatic payment to help minimize the possibility of errors.

Organize your important documents. It’s critical after a diagnosis of cognitive decline to name a health-care representative to allow healthcare decisions to be made by someone of the person’s choosing. You should also have a general durable power of attorney for finances in place. This allows the appointed agent to make financial and legal decisions in the individuals’ stead.

Reference: Barron’s (Jan. 11, 2020) “Cognitive Decline Shouldn’t Derail Retirement Planning. Here Are Some Tips to Prepare Your Finances.”

Suggested Key Terms: Elder Law Attorney, Estate Planning Attorney, Medicare, Long-Term Care Planning, Long-Term Care Insurance, Medicaid Trust Planning, Medicaid Nursing Home Planning, Assisted Living, Nursing Home Care, Medicaid Planning Lawyer, Disability, Social Security, Elder Care, Financial Planning, Veterans’ Benefits, Caregiving, Dementia, Alzheimer’s Disease, Trust, Powers of Attorney, Advance Health Care Directive

3 Things to Include in Your Will

Include These Three Items in Your Will

MSN’s recent article entitled “3 surprising things you might not think to include your will” tells about three things to include in your will that you may not have thought about before.

Guardianship and funds for your pet. If you have a pet, you’ll want to make certain that it has care when you’re not around. You can name a guardian to take ownership of your pet, in the event your pet outlives you. You can also set up a pet trust in some states.

An executor for your digital assets. You probably have accounts with data on Facebook, Twitter, Instagram, YouTube and other social media accounts. You may have an account for online gaming, operate an online small business, or own other important digital assets. If so, you should appoint someone to manage your digital afterlife.

A digital executor should be able to access your online accounts and manage closing them down or moving them to a new strategy.

Charitable donations. If you have given to a religious organization, school, or other nonprofit, you can include these charities in your estate plan. Another option is to instruct a family member to make a donation with a part of an inheritance. It’s not legally binding, but could it pass on a tax benefit to the ultimate donor.

In addition, remember to keep your beneficiaries updated on all life insurance policies and retirement accounts, because the listed beneficiary on these accounts supersedes anything you put in your will.

If you get divorced and remarried, update your will and also make certain that your life insurance beneficiary is updated.

Don’t procrastinate. Make sure that all of your estate planning documents are up to date.

Meet with your estate planning attorney every year or two, to also be sure your plan reflects any changes in the law or changes in your circumstances.

Reference: MSN (Jan. 10, 2020) “3 surprising things you might not think to include your will”

Suggested Key Terms: Estate Planning Lawyer, Wills, Inheritance, Asset Protection, Will Changes, Pet Trust, Trustee, Charitable Donation, Beneficiary Designations, Life Insurance, IRA, 401(k), Roth IRA, Pension

Review Your Estate Plan

Some Estate Planning To-Do’s for 2020

Many of us set New Year’s resolutions to improve our quality of life. While it’s often a goal to exercise more or eat more healthily, you can also resolve to improve your financial well-being. It’s a great time to review your estate plan to make sure your legacy is protected.

The Tennessean’s recent article entitled “Five estate-planning steps to take in the new year” gives us some common updates for your estate planning.

Schedule a meeting with your estate planning attorney to discuss your situation and to help the attorney create your estate plan.

You should also regularly review and update all your estate planning documents.

Goals and priorities change, so review your estate documents annually to make certain that your plan continues to reflect your present circumstances and intent. You may have changes to family or friendship dynamics or a change in assets that may impact your estate plan. It could be a divorce or remarriage; a family member or a loved one with a disability diagnosis, mental illness, or addiction; a move to a new state; or a change in a family business. If there’s a change in your circumstances, get in touch with your estate planning attorney to update your documents as soon as possible.

Federal and state tax and estate laws change, so ask your attorney to look at your estate planning documents every few years in light of any new legislation.

Review retirement, investment, and trust accounts to make certain that they achieve your long-term financial goals.

A frequent estate planning error is forgetting to update the beneficiary designations on your retirement and investment accounts. Thoroughly review your accounts every year to ensure everything is up to snuff in your estate plan.

Communicate your intent to your heirs, who may include family, friends, and charities. It is important to engage in a frank discussion with your heirs about your legacy and estate plan. Because this can be an emotional conversation, begin with the basics.

Having this type of conversation now, can prevent conflict and hard feelings later.

Reference: Tennessean (Jan. 3, 2020) “Five estate-planning steps to take in the new year”

Suggested Key Terms: Estate Planning Lawyer, Wills, Inheritance, Asset Protection, Will Changes, Probate Attorney, Life Insurance, IRA, 401(k), Roth Conversion, Pension

Role of a Successor Trustee

What Does a Successor Trustee Do?

This is a common concern of people when they learn they have been named as a successor trustee, says nwi.com in the article “Estate Planning: The role of a successor trustee.” The first thing to do? Verify that you are a successor trustee and what authority and powers you have. If the settler is disabled, rather than deceased, you’ll need to be sure that you have complied with any requirements to take the position.

The trust that names you as a successor trustee is likely where you will find details of what you must obtain to assume the authority. For example, you may need to have a letter from a physician stating that the settler is incapacitated and can no longer manage his own affairs.

If the settlor is deceased, establishing your authority as successor trustee is easier. Usually, all you’ll need is a death certificate.

Once this has been established, you’ll need to be able to prove that you have this role. Usually this is done through the use of an Affidavit of Trust and Acceptance and Oath. An estate planning attorney will be able to help you with these documents. Some affidavits affirm until the “pain and penalty of perjury that the affiant is the successor trustee” and that you are accepting the designation and agree to serve under the terms of the trust and the laws of your state.

Different estate planning attorneys may approach this differently. Some may use a “certificate of trust,” while others will simply rely on the trust agreement. The important thing is that the successor trustee’s authority is demonstrable.

Once the successor trustee has established that he is appointed properly, he can start administering the trust.

What about selling the family home? Real estate transfers are handled through the local government. To sell a home, you’ll need to transfer the deed, so you will need the deed to the home.

When a successor trustee transfers real estate, a copy of the affidavit of his appointment as the successor trustee and relevant documents could be recorded with the transfer documents. The transfer needs to be approved by a title examiner, and the examiner will want proof that the person in charge of the transaction has the legal authority to do so.

Other assets are transferred in a similar fashion. The asset holder is contacted, a copy of the affidavit and proof of designation as a successor trustee will be needed.

Some estate planning attorneys will add a letter of instruction to the successor trustee providing them with helpful information and tips about estate administration.

Reference: nwi.com (Jan. 12, 2020) “Estate Planning: The role of a successor trustee”

Suggested Key Terms: Successor Trustee, Trust, Death Certificate, Affidavit of Trust and Acceptance and Oath, Deed, Estate Planning Attorney

Retirement Distributions

What’s Your Retirement Distribution Plan?

If you were supposed to take out an RMD of $4,000 from your retirement accounts and somehow forgot to do this, you’ll be writing the IRS a check for $2,000. Ouch! This is something you can easily avoid, says Yahoo Finance’s article “Know These 3 Facts to Avoid Paying Half Your Retirement Income to the IRS.”

Most investors spend a lot of time building their retirement income accounts—their entire working life. However, there’s a second phase of retirement finances that doesn’t get quite as much attention. That’s the “distribution” phase, when the money that you put into accounts for decades needs to be taken out and used for what is ideally an enjoyable retirement.

Preparations for this phase are usually focused on where to live, how much travel you can afford, what interests you may pursue and the choices that are made regarding retirement spending.

With those choices come some fixed payments that you need to keep in mind as you budget. The IRS has rules about Required Minimum Distributions, or RMDs, that are strict. While some of the rules changed as of January 1, 2020, the penalties have not. Starting at age 72, you have to take your RMDs, or pay a steep price.

Here are the main types of accounts that have RMDs: IRAs, 401(k)s, 457 plans, SEPs, SIMPLE IRAs, TSP, 403(b)s, and TSAs. They all require RMDs in retirement.

The first distribution must be taken by April 1 of the year following the calendar year that you turn 72. If you retire after age 72, you have to take your first RMD from your 401(k), profit-sharing 403(b) or other defined contribution plan by April 1 of the year after the calendar year in which you retire.

For subsequent years after your required beginning date, you have to take your RMD by December 31.

You don’t have to take any RMDs for Roth IRA accounts, since those accounts are funded by post-tax dollars. There are Roth retirement accounts that do have RMDs, like a Roth 401(k). Some people roll their Roth 401(k) into a Roth IRA and pay the taxes at the time of the rollover, anticipating high taxes in the near future.

If you don’t take your RMD, or don’t take a large enough distribution, the IRS penalty is 50% of the amount that was not withdrawn.

To calculate your RMD for 2020, divide your retirement account balance on December 31, 2019, by a “distribution period” factor based on your age. For example, Lisa Sue is 71 and must take her first distribution at age 72. Her year-end IRA balance for the prior year was $100,000. Her distribution factor is 27.4. Divide $100,000 by 27.4 and the amount of the RMD is $3,649.63. That’s her RMD.

Understanding the distribution phase of your retirement is as important as the savings phase. While you’re planning, don’t neglect the estate plan that needs to be updated or prepared. That includes a will, power of attorney, medical power of attorney and other documents. Talk with an experienced estate planning attorney to create a plan to protect yourself and your loved ones.

Reference: Yahoo Finance (Jan. 9, 2020) “Know These 3 Facts to Avoid Paying Half Your Retirement Income to the IRS”

Suggested Key Terms: Retirement Accounts, IRA, Roth, 401(k), Required Minimum Distribution, RMD, SEP, SIMPLE IRA, 403(b), Estate Planning Attorney, Will, Power of Attorney, IRS, Penalty

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