How To Give An Inheritance To A Child Who Might Squander Or Abuse It

Estate PlanningNo Comments

Giving your children an inheritance can be one of the most generous, most loving things a parent can do… Unfortunately, under certain circumstances it can also be the most dangerous. A recent article in the New York Times addresses a question asked by many parents in estate planning offices all over the country: How to give an inheritance to a problem child who might squander or abuse it?

It is not unusual for estate planners to hear concerns from parents or families about one child or sibling who is not quite as mature, not quite as responsible as the others. In some cases the concern is not with a child or sibling, but with an untrustworthy spouse of a child or sibling. In both cases the estate planning challenge is the same—how to provide for the one you love without feeding any dangerous habits or predatory relationships.

There are actually a great number of ways parents can use estate planning to either protect or motivate an irresponsible child. The one your family chooses will depend on your unique circumstances. The article mentions a few of these strategies, including:

Eliminate temptation by restricting access to large sums of money. “Money does not cause problems, but it can sure accelerate them. The simplest strategy is to choke off that fuel.” Parents can do this through annuities, through specific instructions in trusts, or through a trusted and like-minded trustee. What is not recommended is putting another sibling in charge of the estate and asking that sibling to “parent” the less responsible one. This is a recipe for disaster.

Use your estate plan to give your child incentives to improve. “Incentive trusts can set hurdles for children to receive money or make payments only for set reasons. Pretty much anything can be a trigger, from being admitted to a certain college or matching money children earn on their own to being clean from drugs for a certain number of years.” Your estate planner can tell you how to best set this up.

Keep something in reserve for future years and generations. If your goal is to encourage children and grandchildren to lead productive lives and contribute to future generations then your estate planner can help you design a plan that will last for decades or generations. Recent tax developments have made this an especially good time to create a lasting legacy. “People with substantial wealth may want to take advantage of the $5 million exemption from taxes and 35 percent tax rate over that amount.”

IRS Announces Another Extension for Estate Tax Filing Deadline

Current Events, Estate PlanningNo Comments

Just a few weeks ago the IRS announced the November 15, 2011 estate tax filing deadline for large estates of decedents who passed away in 2010; but some executors might be relieved to know that the IRS recently extended the deadline to January 17, 2012.

This extension gives executors of large estates more time to determine whether or not its in the best interests of the heirs to take advantage of the 2010 estate tax repeal. The decision facing executors of the 2010 estates is this:

* Choose not to pay estate taxes, but subject the assets of the estate to carryover basis rules (meaning heirs will pay capital gains taxes based on the price of an asset when it was initially acquired by the decedent); or

* Pay estate taxes under the 2011 rules, with a $5 million per-person exemption and a 35 percent top rate, but with a stepped-up income tax basis (meaning heirs will pay capital gains taxes on the price of an asset when it was inherited.)

For any executors who haven’t already made the decision, they can now take more time to weigh the pros and cons, and maybe even enlist the advice of an estate planner, tax planner, or probate attorney to help walk them through any possible unexpected consequences. If you are an executor or an heir faced with this particular and time-sensetive issue, please don’t hesitate to contact our office for assistance.

The Dangers of Joint Ownership As An Estate Planning Strategy

Estate PlanningNo Comments

Estate planning does not consist of a single, uniform goal or strategy. Instead, estate planning exists on a spectrum, with a simple will on one end and a comprehensive and interconnected series of documents and/or entities on the other. But as this recent article in Forbes points out, joint ownership by itself does not constitute an estate planning strategy.

All too often we see parents in their later years choose to simply add the name of one of their adult children to their bank account, instead of creating a will. “This is often done to help with bill paying, as a will-substitute to avoid probate court (often called a “poor-man’s will”), or simply to help an elderly loved one who needs assistance managing his or her assets. This is a big no-no!”

While adding a child’s name to a bank account can seem like an easy way to give that child power of attorney, it is simply too risky as an estate planning or a financial planning strategy. As the Forbes article points out, there are too many things that can go wrong. For example, even if you trust your adult child completely, adding another person as a joint owner on a bank account not only gives that person access to your money, but also gives other (perhaps less trustworthy) people such as creditors, litigants, or ex-spouses access to your money as well.

Family fighting is another tragic and common result of using joint ownership as an estate planning strategy, because it leaves the parent’s true intentions for the distribution of wealth in doubt. Mom may have wanted her account to be shared equally between many siblings, but “if Johnny won’t share, his siblings can sue him and claim that Mom’s actual intent was not for him to keep the money, but she only added his name as a convenience. The siblings have to prove what her actual intent was, and that’s not very easy to do.”

The bottom line is that joint ownership, while it may seem like a quick and easy estate planning strategy, is just too ambiguous, too exposed, and too dangerous to be practical. For other estate planning strategies that will provide your family with strong and lasting protection please contact our office today.

How Does Your State Rank on the Long-Term Care Scorecard?

Current Events, Elder Law, Health Care, Retirement PlanningNo Comments

One of the primary concerns of the aging population is long-term care. As the life expectancy of Americans goes up so does the expectation that they will someday need some form of long-term care. You may not know whether that care will happen in a hospital, a nursing home, or in your own home, but you can be sure that it will be expensive.

How expensive will long term care be? It turns out the answer to this question depends a great deal on where you live. The AARP, The Commonwealth Fund, and The SCAN Foundation recently released a report which they call “The Long Term Scorecard,” which compares states and ranks them according to categories. The website Web MD has an article explaining how to use the scorecard and what it means.

The article in Web MD states that “Long-term care is unaffordable for middle income families, according to [The Long Term Scorecard report.] Even in states where nursing home care is most affordable, such care averages 171% of an older person’s household income. The national average is 241%.”

Some states, however, have been making the issue of long-term care a priority, and have been wrestling with questions such as how to make it more affordable to residents and how to provide support to family caregivers. According to the article in Web MD, they’ve broken down the information in “The Scorecard” to help readers understand which states provide the best support (either financial, social, emotional or legal) for the elderly and their caregivers.

The article “ranks states’ performance according to four categories: 1. Affordability and access, 2. Patient choice of both provider and setting, 3. Quality of life and care, and 4. Support for family caregivers.” The states ranked highest overall were Minnesota, Washington, Oregon, Hawaii and Wisconsin; while the lowest ranking states turned out to be Mississippi, Alabama, West Virginia, Oklahoma and Indiana. (For more information on how the states were ranked and what each ranking means please read the article here.)

Perhaps the most important lesson to take from all this is that no matter where you live, or what your health is like right now, it is very likely that you will need some kind of long-term care in the future, and that that care will be expensive. Burying your head in the sand or choosing to “think about it when the time comes” will only make things worse for you and for your family. Call our office and let us help you prepare now for whatever the future may bring.

Leaving an Inheritance to a Special Needs Child

Estate Planning, Special Needs PlanningNo Comments

If you have a child with special needs, planning your estate takes on a whole new dimension; especially, as this article in Forbes points out, now that “state and local governments are tightening income restrictions for medical benefits and supportive services, which are typically paid for by Social Security and Medicaid. Those services are tough to find—or afford—in the private sector for many adults with disabilities so severe that they can’t live alone… As a result, it’s increasingly important to structure an inheritance in a way that won’t disqualify a child for such benefits down the road.”

Structuring an estate plan with a special needs child as a beneficiary takes special consideration. Because a direct inheritance could disrupt that child’s public benefits, “some parents simply leave another child all their assets in their will. If there are three children, they might leave two-thirds to the child who lives closest to the one with special needs.”

Unfortunately this particular strategy is rife with possible dangers. The heir may be tempted to use his special needs sibling’s money for his own purposes, or could decide he’s simply tired of being a caretaker. Even worse, the heir could pass away unexpectedly, in which case the entire inheritance would go to the heir’s spouse or children, with nothing left for the special needs child.

The article gives a number of suggestions for safe and reliable ways to leave your special needs child an inheritance, including leaving property to your child in a Qualified Personal Residence Trust, setting up a housing collective, and the tried-and-true option of a Special Needs Trust. But we know that each family is going to have different needs and goals, and there isn’t one solution that will work across the board.

If you have a special needs child your very best course of action is to contact a knowledgeable and experienced attorney to help you understand your options and choose the one that will best protect your child.

Make Your Estate Plan a Masterpiece

Estate PlanningNo Comments

A recent article in Forbes has shed light on a fact that estate planners have always known: There is far more to creating a good estate plan than just drafting the documents. In fact, according to the article, there is a fine art to putting together a good estate plan. “Estates are often shrouded in some mystery even for the people who plan and manage them. It is logical that an estate plan should offer a clear map of what a person owns, but this isn’t always the case.”

The point is made in the article that very few estate plans contain an accurate accounting of what the estate entails. There may be any number of reasons for this; in some cases a person “doesn’t have an accurate balance sheet to start with, and chooses not to update it or to share every detail.” In other cases “people may withhold information because they do not entirely trust an adviser, or because they are embarrassed to talk about money.”

The job of an estate planner is to draft a plan solid enough to offer security, but flexible enough to hold up to unexpected surprises—and how to achieve this will be different for every client. “A big part of the job is to value assets properly, and that task is an art, not a science.”

Of course, the clients who come back every few years for an update and review have a much better chance of their estate plan remaining accurate and secure, but not every client will be willing or able to do this, and estate planners do take this into account. However, “even a plan that starts out based on a complete accounting will be thrown out of whack if the estate owner doesn’t come in to update it after a big life event like marriage or the sale of a business.”

Whether you are considering creating a new estate plan, or looking for someone to help you update an existing one, contact our office for help. We can help you make sure your plan is a masterpiece.

An Inside Look at Retirement and Long-Term Care

Retirement PlanningNo Comments

What can we expect from our retirement years? We have financial advisors to help us look ahead and plan, but sometimes financial advisors can only take us so far; how does retirement look to someone who has been there?

The author of this article in Reuters writes that she learned quite a bit about retirement from her 91 year old mother, the first lesson being that “Retirement spending is a roller coaster, not a flat line.” According to the article the author’s mother chose to spend a lot of money on golf, travel and fun in the first few years of her retirement, but was later happy to settle down into a calmer, less expensive lifestyle later on. Her expenses didn’t go up again until near the end of her life when “her health deteriorated and she ended up spending thousands of dollars every month to cover her care.”

Preparing for long-term care can be essential to having a pleasant and affordable retirement; whether this means finding the right long-term care insurance or setting money aside in another vehicle and earmarking it for long-term care needs. “In the last year of my mother’s life, we were spending almost $7,000 a month of her money so that she could live in a nice place and get good care. If she had annuitized too much of her money or was living simply on pension checks, she wouldn’t have had the cash to do that. On the other hand, if she had a good long-term care policy, that might have helped.”

The last thing the author mentions in her article is that “The right paperwork really is helpful.” Having an updated will or trust, power of attorney, and healthcare directive or living will may not make it any less painful for you or your loved ones if you are diagnosed with Alzheimer’s or dementia, but it can make it easier for the people who care about you to spend quality time with you rather than with lawyers or accountants. The author’s mother had all her paperwork in order, which “made it very easy for me to manage her care and pay her bills when I had to. It was emotionally difficult to watch my mother give up her health and her spirit and her life, but I didn’t have to waste any of my time and worry on those bureaucratic details.”

Should Beneficiaries Also Serve as Executor or Trustee?

Estate Planning, Probate, Trust AdministrationNo Comments

When someone creates a will or a trust of course they want to choose a dependable and trustworthy person as executor or trustee. For most people this means someone close to them—a family member or friend, or often the most responsible of their adult children. However, this often means that the person they’ve chosen as executor or trustee is also a beneficiary. The question that occurs is this: Is it a conflict of interest to be both executor/trustee and beneficiary?

As executor or trustee a person has a legal duty to manage the property in the decedent’s estate for the benefit of the trust or estate beneficiaries. This means that while the executor/trustee should be compassionate, he or she must act in an equal and unemotional manner toward ALL the beneficiaries.

A beneficiary, on the other hand, is often by definition emotional. Even those beneficiaries who are not concerned with the monetary aspect of their inheritance (and let’s be honest, many heirs are more concerned with the dollar amount than they might let on) will likely be emotionally invested in the heirlooms of the estate. Many family feuds are sparked when siblings can’t agree on who gets the family silver or great grandma’s engagement ring. And the potential for conflict only increases when real estate is involved.

If you are creating your will or trust, the best way to avoid this conflict is to be as specific as possible in your instructions to your executor and beneficiaries. Spelling out in no uncertain terms who gets the family silver will decrease the chances that the executor will be tempted to take advantage of his or her position. You may also want to consider naming a disinterested party as a trust advisor or co-executor to provide checks and balances throughout the administration process.

If you are a beneficiary who is also serving as executor/trustee there are a few things you can do to ensure you keep your executor and beneficiary roles separate:

* You may want to consider contacting a probate or estate planning attorney to mediate or oversee the process.

* Rely on random but fair methods (such as flipping a coin, drawing straws, or organizing a round robin) to distribute unassigned personal property with emotional value.

* Be sure to involve an impartial appraiser if real property is involved.

* If all else fails, an executor or trustee is always permitted to step down and hand the role over to a qualified and disinterested party.

Are You Hurting Your Own Chances At Retirement?

Current Events, Elder Law, Retirement PlanningNo Comments

According to a recent article in the Wall Street Journal, many Baby Boomers are no longer worried about when they will be able to retire, but if they will be able to retire at all. In many cases the reason for this worry stems not so much from any kind of selfish inability to save, but from a tendency to be too generous.

In addition to a growing trend (hinted at in the WSJ article above) of Baby Boomers tapping their own retirement funds to help pay for the care of their elderly parents, this article in USA Today warns of the all-too-common danger of Boomers shorting their own retirements to pay for their children’s college educations.

“People are willing to go to extreme measures because they value a college education so highly… Among parents who are planning for their children’s college, 24% say that they tap their retirement accounts. And that doesn’t reflect people who reduce or halt retirement contributions [to make tuition payments.]”

One thing that both of these articles agree on is that when it comes to saving money, Boomers need to put their own needs first. While the immediate financial needs of an elderly parent or college-bound child may feel more pressing, it’s a very bad idea to short your own retirement account (and your future) to cover their costs. If you have an elderly parent in need, before you dip into your own savings contact a good elder law attorney who can help you review your (and your parent’s) options, and help navigate the VA Benefits or Medicaid system if applicable.

As far as college tuition goes, by neglecting your own retirement to pay for your children’s college education you may simply be perpetuating a dangerous cycle, putting your children in the position of having to pay for your expenses when your savings runs out in the future. Financial advisors, college admissions counselors, and the school’s financial services center may be able to help you explore your options for paying for tuition.

Some Tax Saving Strategies from the Wall Street Journal

Current Events, Estate Planning, Tax PlanningNo Comments

Income, estate, and other federal tax levies have commonly been a bone of contention between those with different political ideologies; but the current conflict has reached unusual heights, with various million- and billionaires publicly expressing their views (pro or against) about current tax laws. Of course, million- or billionaires aren’t the only ones with strong opinions about taxes.

If you feel that you pay too much in taxes, Brett Arends of the Wall Street Journal has some tips to help you save on taxes in the future. Much of his article is tongue-in-cheek, but the suggestions are valuable ones. Of special interest to our firm and our clients are four of the tips nestled in the middle of the article:

Give to your family. “Until the end of 2012 you can give $5 million, tax-free… In addition you can give $13,000 a year to each recipient — each child or grandchild — and a spouse can do the same. So a married couple with, say, three children and eight grandchildren can give another $286,000 a year, on top of that one-off $10 million. Over ten or twenty years that really adds up.”

Put your grandkids—and great grandkids—through college. “Money paid directly to schools or colleges escapes estate taxes.” Furthermore, if you contribute to a 529 educational savings account that money can be tucked away—and eventually used by the student for whom it is intended—tax free (so long as it is used for educational purposes.)

Buy life insurance. Proceeds from a life insurance policy can go to your beneficiaries tax-free upon your death, although you may have to make some arrangements ahead of time.  The article states that “Typically you put the policy in an Irrevocable Life Insurance Trust… The premiums that you pay annually are gifts to the beneficiaries… And when you die, the proceeds of the policy go to the trust, for the beneficiaries, free of estate tax.”

Talk to an estate planner. “There are other moves that can cut your estate tax, too. A Qualified Personal Residence Trust can slash the estate taxes on a residence. A Grantor Retained Annuity Trust, or GRAT, can slash them on an investment portfolio. So, too, can setting up a Family Limited Partnership. Financial planners say this is a great time to put investments — like stock — into a GRAT.”

If you have questions about these tax-saving strategies, or other strategies that can help you preserve your estate for your heirs, please contact our office. We can help you determine what your best options are to help protect your assets—and your family—in the years to come.

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