Estate Planning

Death is a costly business. Aside from funeral expenses, legal fees can take a big chunk out of how much is left for your loved ones after you’re gone.
 
But it doesn’t have to be this way. Careful planning can minimize the legal fees your loved ones will pay after you die. Here’s how:
 
1. Make an estate plan – The cost of creating an estate plan will be far less than the legal fees your loved ones will have to pay if you don’t have one. But be careful – don’t try to write your own will or revocable living trust. Do-it-yourself or online plans often fail to include valuable cost, tax, and legal fee saving opportunities. You need the advice and assistance of an experienced estate planning attorney to create an estate plan that will work when it’s needed and minimize legal fees after your death.
 
2. Maintain your estate plan – Once you’ve created your estate plan, don’t stick it in a drawer and forget about it. Instead, fine tune your plan as your life and your finances change. Otherwise, when your plan is needed, it will be stale and out of date and will cost your beneficiaries time and legal fees to fix it. In a worst case scenario, a stale plan could lead to expensive and emotionally draining litigation between your family members. Regular maintenance of your estate plan makes it easier to carry out when needed.
 
3. Have a debt plan – Make a plan for paying off your debts and taxes after you die. This should include setting aside funds that your loved ones will have easy access to (for example, set up a joint bank account or a payable on death account) so that they won’t have to use their own assets to pay your bills until your will can be probated or the successor trustee of your trust can be appointed. If your estate is taxable, then make sure you have enough assets that can be easily liquidated to pay the estate tax bill. Life insurance can be another option for providing easy access to cash and paying estate taxes, but it’s important that you align your life insurance plan with your estate plan to get the maximum benefit.
 
4. Let your loved ones know where your estate plan and other important documents are located – If your loved ones don’t know where to find your health care directive, durable power of attorney, will, or revocable living trust, then their hands will be tied if you become incapacitated or die. While you don’t need to tell your loved ones what your estate plan says, at the very least you should tell someone you trust where your estate plan and other important documents are being stored. You should also make a list of the passwords for your computer and accounts you manage online and a contact list for all of your key advisors (such as your attorney, accountant, life insurance agent, financial advisor, banker, and religious advisor).
 
Following these practical tips will save your family valuable time and money during a difficult time.

When you establish a trust, you name someone to be the trustee. A trustee basically does what you do right now with your financial affairs—collect income, pay bills and taxes, save and invest for the future, buy and sell assets, provide for your loved ones, keep accurate records and generally keep things organized and in good order.
 
The Key Takeaways

• You can be trustee of your revocable living trust. If you are married, your spouse can be co-trustee.
• Most irrevocable trusts do not allow you to be trustee.
• Even though you may be allowed to be your own trustee, you may not be the best choice.
• You can also choose an adult child, trusted friend or a professional or corporate trustee.
• Naming someone else to be co-trustee with you helps them become familiar with your trust, allows them to learn firsthand how you want the trust to operate, and lets you evaluate the co-trustee’s abilities.

 
Who Can Be Your Trustee
If you have a revocable living trust, you can be your own trustee. If you are married, your spouse can be trustee with you. This way, if either of you become incapacitated or die, the other can continue to handle your financial affairs without interruption. Most married couples who own assets together, especially those who have been married for some time, are usually co-trustees.
 
You don’t have to be your own trustee. Some people choose an adult son or daughter, a trusted friend or another relative. Some like having the experience and investment skills of a professional or corporate trustee (e.g., a bank trust department or trust company). Naming someone else as trustee or co-trustee with you does not mean you lose control. The trustee you name must follow the instructions in your trust and report to you. You can even replace your trustee should you change your mind.
 
When to Consider a Professional or Corporate Trustee
You may be elderly, widowed, and/or in declining health and have no children or other trusted relatives living nearby. Or your candidates may not have the time or ability to manage your trust. You may simply not have the time, desire or experience to manage your investments by yourself. Also, certain irrevocable trusts will not allow you to be trustee. In these situations, a professional or corporate trustee may be exactly what you need: they have the experience, time and resources to manage your trust and help you meet your investment goals.
 
What You Need to Know
Professional or corporate trustees will charge a fee to manage your trust, but generally the fee it is quite reasonable, especially when you consider their experience, services provided and investment returns.
 
Actions to Consider
*    Honestly evaluate if you are the best choice to be your own trustee. Someone else may truly do a better job than you, especially in managing your assets.
*    Name someone to be co-trustee with you now. This would eliminate the time a successor would need to become knowledgeable about your trust, your assets, and the needs and personalities of your beneficiaries. It would also let you evaluate if the co-trustee is the right choice to manage the trust in your absence.
*    Evaluate your trustee candidates carefully and realistically.
*    If you are considering a professional or corporate trustee, talk to several. Compare their services, investment returns and fees.
 
For more information about choosing a trustee, please call our office.

The Key Takeaways
• Long-term care is not covered by health insurance, disability insurance or Medicare.
• You have limited options when considering how these expenses could be paid.
• The best way to plan for the possible expense of long-term care is to accept it as a central requirement in your overall financial planning and seek professional assistance.
 
Who Pays for Long-Term Care?
Many people are surprised to learn that long-term care is not covered by health insurance, disability income insurance or Medicare. Health insurance plans cover nursing home expenses only for a short period of time while you are recovering from an illness or injury. Disability income insurance will replace part of your income if you are not able to work after a specified time, but does not pay for long-term care. Medicare, which covers most people over age 65, provides limited coverage for skilled care for up to 100 days immediately following hospitalization. After that, you’re on your own.
 
How Will You Pay for Long-Term Care if Needed?
1. Use your own assets. This is called self-insuring. If you need long-term care, you will pay for it from your own assets. If you don’t need the care, then you will not have spent money on insurance premiums. You can set aside a certain amount of your assets for this specific purpose or have the expenses paid from a general investment fund. Your financial advisor will be able to help you make that decision, determine how much you might need, and help you attain your goal through investments.
 
2. Buy long-term care insurance. This has traditionally been a good option, especially if you have assets and income you want to protect, you want to avoid being a financial burden on others, and you want to have some choice in the care you receive. Most policies give you the option of receiving care in your own home or in a private-pay facility. As with any insurance, the premiums are lower when you are younger and in good health; if you wait too long, the cost could be prohibitive and you might not qualify. In recent years, the premiums have gone up on these policies because the insurance companies under-estimated the actual costs. Your insurance advisor will be able to help you evaluate current policies and determine if one is right for you.
 
3. Purchase life insurance and annuities with long-term care benefits. Some life insurance policies have accelerated death benefits that will pay benefits if the insured has a care issue, as do some annuity products. The premiums for these will be higher, but they may be worth exploring. Your insurance advisor will be able to help you evaluate these options.
 
4. Qualify for Medicaid. Medicaid pays the bills for a large number of people in nursing homes today. But because the program is designed to provide services for those who cannot support themselves (children, the disabled, the poor), you will have to “spend down” your assets and be practically penniless in order to qualify for benefits. Your spouse will also be limited to the amount of assets and income he or she can have, and you will only be able to receive care from a facility that accepts Medicaid. (Most people would prefer to receive care at home or in a private-pay facility.)
 
If you have minimal assets, this may be an option for you. However, before you do anything, speak with a local elder law attorney who has experience with Medicaid planning. Medicaid, while a federal program, is administered by the states, so the rules vary from state to state. An innocent error could disqualify you from receiving benefits for many months.
 
Explore a Medicaid Trust. When properly prepared, these irrevocable trusts can help some people qualify for Medicaid without impoverishing the well spouse or spending the children’s inheritance. Five years must pass between the time assets are transferred to the trust and when the person is deemed eligible for Medicaid. This is known as the “look-back period.” Long-term care insurance is often used to cover the look-back period if care is needed before qualifying for Medicaid. Assistance from a local elder law attorney who has extensive experience with these trusts is absolutely essential.
 
What You Need to Know: The benefit of planning for the possible costs of long-term care is the peace of mind that comes from knowing that this care can be provided if needed without destroying the financial well-being of the entire family.
 
If you would like more information about long-term care planning, please call our office.

The Key Takeaways
• The cost of long-term care is the greatest threat to your financial health.
• Most of us will need long-term care for at least some time before we die.
• It is better to assume you will need long-term care and plan for it than to just hope it doesn’t happen to you or a family member.
 
The Expense of Long-Term Care
Long-term care can be provided in your home, in an assisted living facility or in a nursing home. All can become very expensive over time.
 
Costs for long-term care are hard to estimate. The average stay in a nursing home is three years. Patients with Alzheimer’s usually need care longer, often in specialized facilities. The actual costs will depend on the kind of care you need, how long you require it and where you live. Expect these costs to increase as the cost of medical care continues to rise.
 
What You Need to Know: Long-term care expenses are not covered by health insurance, disability income insurance or Medicare. If you do not plan for these costs, and you or another family member requires long-term care, the results can be financially devastating for your family.
 
If you would like more information about long-term care planning, please call our office.

Oscar-winning actor Philip Seymour Hoffman died at age 46 from a drug overdose in February 2014. He left behind three young children and a fortune estimated to be worth $35 million. After his death, Mr. Hoffman’s Last Will and Testament was filed for probate. The Will was signed on October 7, 2004, about a year and a half after the actor’s first child was born. The Will leaves his entire estate to Marianne “Mimi” O’Donnell, the mother of all three of Mr. Hoffman’s children. The couple never married and had separated in 2013 (due to Mr. Hoffman’s recurring drug problems).
 
Estate Planning Mistake #1 – Using a Will
Shortly after Mr. Hoffman’s Will was filed, The New York Post published it online and his final wishes instantly became public information.
• We know his request to have his son (the only child living when the Will was signed) raised in Manhattan, Chicago, or San Francisco so that he “will be exposed to the culture, arts and architecture that such cities offer.”
• There is another way – a private way. A Revocable Living Trust (as used by Elizabeth Taylor and Paul Walker) would have kept Mr. Hoffman’s final wishes a private matter.
 
Estate Planning Mistake #2 – Failing to Update His Estate Plan
Mr. Hoffman signed his Will in October 2004.
• During the next nine years, he had two daughters, won an Oscar for best actor for his performance in Capote, and amassed the majority of his fortune.
• Considering Mr. Hoffman’s well-documented, long-term struggle with drug addiction as well as the significant changes in his life and net worth during those nine years, it is surprising that he failed to update his estate plan.
• At the very least, your estate plan should be reviewed every few years to insure that it still does what you want it to do and takes into consideration changes in your finances, your family, and the law.
 
Estate Planning Mistake #3 – Ignoring a Trusted Advisor
In probate court documents filed in July, it was revealed that Mr. Hoffman’s accountant repeatedly advised him to protect his children with a trust fund. But the actor ignored this good advice.
• With the terms of the old 2004 Will left unchanged, the estate will pass to Mr. Hoffman’s estranged girlfriend, outright and without any protections.
• Nothing will go directly to his children.
• Had Mr. Hoffman listened to his accountant and worked with an estate planning attorney, he could have established a lasting legacy for his children, protecting them and their inheritances.
 
You can avoid mistakes like Mr. Hoffman’s. Please contact our office with any questions about estate planning.

Have you explained your planning to your family? Will they understand how your plan will work and what they may need to do if you become ill or when you die? Will they wonder why you made certain decisions?
 
The Key Takeaways
• Having a well-run family meeting in which your plans are explained will help prevent misunderstandings and confusion in the future. This is an important benefit of executing a comprehensive plan in the first place.
• Ask your estate planning attorney and financial advisor to participate. They will be able to explain how your plan works and why key decisions were made. They will be able to answer family members’ questions on the spot. Also, it helps to introduce your advisory team to family members now so they will be more comfortable working together in your absence.
• Open discussion is important, but having an agenda will help keep the meeting on track.
 
Setting the Agenda
The agenda for the meeting should cover your objectives, purposes, plans and expected outcomes. Make a list of the topics you want to cover. Otherwise, you may forget something important if the meeting becomes emotional. No specific financial information or values of assets needs to be disclosed at this time. This meeting should be a general explanation of what you have planned and why. The purpose is to prepare family members for what they can expect and may need to do if you become disabled or die. Allow for and encourage questions and discussion.
 
What You Need to Know
Expect there to be some anxiety as the meeting begins, because these are often sensitive issues. You may find additional challenges if you have a blended family. Or there may be a child that you do not feel is financially ready to handle an inheritance. Putting these issues out in the open can be difficult at first, but it often leads to greater understanding and acceptance.
 
If you would like more information about estate planning, please call our office.