Month: June 2016

Preparing for the Unexpected

Unexpected circumstances can happen, so don't put off writing your will.

6-30-2016 PreparingUS News' May 6 article, "Why You Should Prepare Now for the Death of a Spouse," notes that we've all heard horrible stories where the widow knew nothing about the family finances and was either blindsided by debt or taken advantage of by people who offered to help her manage her finances. So, even though it's not very pleasant, it's prudent for both spouses to be prepared for the other spouse's death—even if both intend to live for a long time.

This is a big job. Here are some of the important steps to take to prepare for the worst.

Make certain your documents are in order. This should include life insurance policies, wills, property deeds, car titles, and bank account and investment details. Both spouses should know the location of these and make sure they are up to date.

Don't neglect a will. Yes, you know you need to have one. No, don't put it off until next month or next year. Here's a cautionary tale that highlights why it's important to get a will written immediately. A 30-ish wife with two young boys saw her husband die unexpectedly. He didn't have a will, and state law said that half of his assets should go to his wife and half to the kids. Okay, that sounds good. However, the kids were young, and the money went into a court-controlled account that she couldn't get to without going to court for appointment as their guardian. As a result, she had to get permission from the court every time she wanted to use the funds.

Organize your passwords. There will be all kinds of headaches if you can't access a bank account because your spouse had a special password you don't know. Spouses should make a list of passwords for all online accounts. This includes 401(k)s, investments, bank accounts, and social media. The list should be stored in a location known by both spouses and their adult children.

Plan now and eliminate headaches later. It's much less costly to work things out now rather than waiting until you're grieving and emotionally drained. The better organized and prepared you are, the more concisely you can communicate your wishes and the faster your estate planning attorney can prepare your documents.

Reference: US News (May 6, 2016) "Why You Should Prepare Now for the Death of a Spouse"

Estate Planning Mistake No. 122: Neglecting Beneficiary Designations

Nerd Wallet, in "Avoid This Estate Planning Mistake," reminds us that many assets have their own beneficiary designations, including retirement plans like 401(k)s, 403(b)s, pensions, IRAs, annuities and life insurance plans.

Many folks don't check them. They think their will or living trust controls their distribution. Classic estate planning mistake. 6-29-16 Beneficiary Designation

Sometimes it's a shock to discover that the deceased spouse didn't update the beneficiary designations. The beneficiary is still the husband's first wife—whom he had designated 25 years ago when he first established the account. As a result, his surviving spouse receives none of the funds associated with his IRA. The ex-wife gets the money.

Under the law, assets like IRAs aren't subject to probate, but instead are passed using a beneficiary designation. They aren't controlled by a will. The only situations in which a will controls a non-probate asset are if there's no designated beneficiary or if the beneficiary is the estate.

The Supreme Court has ruled that your beneficiary designations on insurance policies, IRAs, and other retirement accounts will always trump the beneficiaries of your will if case they are different.

So make certain that updating beneficiaries is a part of your financial planning checklist. Review the beneficiaries of your non-probate assets every few years; and make sure the beneficiaries of your will and living trust are still the individuals or entities that you want. These documents help heirs avoid probating your estate and allow you to establish beneficiaries for assets that don't have specific beneficiary designations.

You've worked hard to create a legacy for your family. Take these actions to avoid a simple but costly mistake that could damage that legacy.

Reference: Nerd Wallet (May 6, 2016) "Avoid This Estate Planning Mistake"

Make Sure the Kids Don’t Blow Their Inheritance

A couple with four children may want to split their estate four ways when they pass away. However, what do they do if two of their children never grew up and would spend their legacy on extravagances and questionably needy friends?

A recent New Jersey 101.5 article, "How to plan for spendthrift children," recommends the use of a trust. Trusts are used in estate planning to restrict the use of assets by the beneficiaries and/or to protect the inherited assets from the creditors of the beneficiaries. Inheritance - Trust Planning 6-28-2016

A trust for children can be established in the parent's will or other testamentary documents—like a revocable trust—which will be effective upon his or her death. Another way to do this is to create a trust in a separate trust document during the parent's lifetime. This is then funded during his or her lifetime and/or by a direction in the will at death.

The parent will have to designate a trustee to administer the trust. This can be an individual or a financial institution or a combination of both. This should be a trusted individual who will make distributions to the child in his or her best interest and in accordance with the terms of the trust.

Trustees are typically entitled to be compensated, but that compensation can be waived or set in a separate agreement.

For example, the trust can set forth the terms of distribution. This language can be very broad—such as "in my trustee's discretion"—or more defined—such as "in my trustee's discretion for the benefit of my child's health, education and welfare after taking into consideration all other income and assets available to my child."

In addition, the distribution of funds can be directed to be made at specific ages (e.g., 21, 30, or 40) or for specific purposes like education or a first home. A spendthrift provision in the trust, which may not be necessary, shows the parent's intention that the beneficiary was not to have the voluntary or involuntary right to assign rights or assets in the trust to third parties, especially his or her creditors.

Whatever you decide to do, be sure you get it done through a qualified estate planning attorney.

Reference: New Jersey 101.5 (May 5, 2016) "How to plan for spendthrift children"

Hedge Your Bets with Long-Term Health Care Planning

Long-term care planning is something most Americans fail to do for themselves or for their loved ones. This can put adult children in a position of feeling helpless and lost when the time comes to make arrangements for their parents' care.

Long-Term Health Care Planning - 6-27-2016WIVB's recent article, "The cost of caring for aging parents: How to plan for long-term care," also notes that saving for retirement isn't a big priority for many Americans, let alone saving for long-term care.

Statistics show that almost 50% of all Americans don't have a retirement savings account. Of those who do, the average amount in the account of a person between 50-55 years old is only $124,831. That hardly covers many years in a nursing home.

Statistics show that 70% of people over 65 will need some type of long-term care. However, it's difficult to do something about it because most people don't want to think about their health deteriorating.

Options for elderly people who need constant medical care include nursing homes and assisted living facilities. These can cost several thousand dollars a month. Another option is a home health aide, which costs about $20/hour. That can add up quickly if your loved one needs eight to twelve hours of care every day and there's no insurance to cover it.

In most instances, Medicare will not cover long-term health care costs. While it might cover up to five or six weeks of home health care after a surgery or hospitalization, further costs would have to go under Medicaid. That program has very low income/asset threshold qualifications.

The other option is purchasing long-term care insurance. Because of the fact that this is a type of care 70% of people will use, the premiums are high. Life insurance is another way you can help cover the cost.

Some insurance companies have a rider to their life insurance contracts for long-term care that allows individuals to use some of the death benefit to help pay for long-term care expenses. There still will be a benefit inside the life insurance contract that could be paid to a beneficiary. But "self-insuring" isn't the best way to go since it's risky, and it can end up costing more in the long run.

Always a great option: talking to an elder law attorney to learn about protecting your loved ones and assets from the costs associated with long-term care.

Reference: WIVB (May 4, 2016) "The cost of caring for aging parents: How to plan for long-term care"