Asset Protection and Estate Planning by Ronald Hudkins - HTML preview
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This book, like everything I’ve ever accomplished to date, is the result of team effort, support and the positive attitudes of those that are near and dear to my heart. I extend the deepest gratitude to the following:My children, Katie, Nikki and Jessie whom, never fail to make me proud on their travels through life and constant efforts to believe and achieve.
Louise Hise and her children Gary, Jim, Steve, Linda and Ginny; An Irish Catholic family that taught me the value of appreciating that inner circle of family and the importance of support, understanding and making time to be there.My fiancé Ginny: Without her support, backing, understanding and positive encouragement, I’d have never made the time to complete this goal.
To the lawyers, their firms and professional guidance upon which I relied to provide a basic framework to inspire you the reader, an understanding of the importance to plan for the untimely arrival of the unforeseen and predictabilities.To the government agencies and U.S. Organizations that allowed me to use their research to inspire look-forward actions needed to care for our loved ones and subsequent heirs.
To you, the reader, who has faced the realities that life so often, ends before we are ready. ASSET PROTECTION AND ESTATE PLANNING FOR ALL AGES™. Copyright © February 2006 by Ronald E. Hudkins. All rights reserved. For information or address go to http://www.AdultWishFoundations.com
ASSET PROTECTION AND ESTATE PLANNING FOR ALL AGES™ Revision one. Copyright © August 2006 by Ronald E. Hudkins. All rights reserved. For information or address go to http://www.AdultWishFoundations.comChapter One
Estate Planning Overview
a. Getting Your Affairs in Order b. Why Planning Should Start Early
1. Life Estate
2. Protecting Assets from Medicaid
3. The Mortgage
4. Protecting Assets from the State
5. Basis of Eligibility
6. Scope of Services
7. Dying in Intestate
8. The Realities of Probate
9. Last Will and Testament
a. Changing a Will
b. Adding a No Contest Clause c. Protecting a Will’s Integrity d. Do You Really Need a Will?
10. Durable Power of Attorney
11. Living Will
a. How Soon Do You Need One? b. How Do You Make One?
12. Health Care Proxy
a. Revocable Trust
b. Irrevocable Trust
14. Living Trusts
a. Rules and Trustees
b. Offshore Trusts
c. Legality of Offshore Trusts
15. Financial Rules for Long-Term Care
16. Financial Protection for Spouse
17. Estate Taxes
18. Protecting Your Spouse
19. Protecting Your Furred Friend
20. Roth IRA’s
21. Insurance Options
22. Considering Life Insurance
b. Whole Life
23. Gender Issues Meet Social Security
24. Second Marriages and Estate Planning
25. Disinherit or Oversight Considerations in Planning
26. Planning for Intangibles
27. Capacity Challenges
28. Undue Influence Considerations
1. Understanding the Legal Practice Areas
2. Checking Credentials and Community Standing
3. Selection Considerations
4. Questions to Ask an Estate Lawyer
5. Financial Consideration
6. Hiring the Attorney
7. Developing a Relationship
8. Preparing for the First Meeting
9. Required Documentation and Information
1. Adult Day Care
2. Telephone Reassurance
3. Senior Centers Overview
4. Transportation Overview
5. Home Health Care
6. Homemaker/Health Aide Overview
7. Hospice Overview
8. Home Repair and Modifications
9. In Law Apartments
10. Housing for the Aging and Disabled
11. Board and Care Homes
12. Assisted Living
13. Nursing Homes
14. Nursing Home Inspection Checklist
1. Determining Who Runs the Website
2. Purpose of the Web pages
3. Understanding Sources of Information
4. Checking Website Documentation
5. Reviewing Data and Credentials
6. How Current is Information
7. Site Links
8. Visitor Information Collections
9. Visitor Interactions
10.Accuracy of Information in E-mails
11.Accuracy of Information in Chat Rooms
1. Doctor Consultations
2. Websites that Protect You
3. Know Your Source of Medications
4. How Online Sales Work
5. Protecting Your Privacy
6. Consumer Safety Alert
7. Frequently Asked Questions
1. What Should You Look For in Medical Care
2. What Type of Doctor is Best
3. Managed Care and Doctor Choices
4. Finding a New Doctor
5. Making An Informed Choice
6. Questions to Consider
7. First Appointment Initiatives
8. Sources for Additional Help
1. Purchase considerations
2. Valid Prescription Data
3. Legal troubles
4. Skipping Regular Check-ups
5. Problems Avoided with check-ups
6. Your actions when problems arise with contact lenses
7. Reporting problems with contact lenses1
Exercise: Getting Fit for Life
1. Why exercise
2. Four types of exercise
3. Who should exercise
4. Safety tips
5. How to find out more
1. U.S. Government Sites
6. Information Centers
1. Personal Records
2. Financial Records
3. Estate Planning Checklist
Estate Planning Overview
Getting Your Affairs in Order
Ben has been married for 50 years. He always managed the family’s money. But since his stroke Ben can’t talk or walk. Shirley, his wife feels overwhelmed. Of course, she’s worried about Ben’s health. But, on top of that, she has no idea what bills should be paid or when they are due.
Eighty-year-old Louise lives alone. One night she fell in the kitchen and broke her hip. She spent one week in the hospital and two months in an assisted living facility. Even though her son lives across the country, he was able to pay her bills and handle her Medicare questions right away. That’s because several years ago, Louise and her son talked about what to do in case of a medical emergency.Plan for the future.
No one ever plans to be sick or disabled. Yet it is just the kind of planning that can make all the difference in an emergency. Long before she fell, Louise had put all her important papers in one place and told her son where to find them. She gave him the name of her lawyer as well as a list of people he could contact at her bank, doctor’s office, investment firm and insurance company. She made sure he had copies of her Medicare and other health insurance cards. She added her son’s name to her checking account, allowing him to write checks on her account. Finally, Louise made sure Medicare and her doctor had written permission to talk to her son about her health or any insurance claims.
On the other hand, because Ben always took care of financial matters, he never talked about the details with Shirley. No one but Ben knew that his life insurance policy was in a box in the closet or that the car title and deed to the house were filed in his desk drawer. Ben never expected his wife would have to take over. His lack of planning has made a tough situation even tougher for Shirley.I truly hope some unforeseen event does not fall upon you or your loved ones any time soon but, especially prior to you getting your estate plans in proper order.Estate Planning Starts Early
Young people just starting out in life may think that estate planning is not a high priority. However, according to a leading expert in the field, it’s never too early to consider how vital this step is to prudent financial planning.
When just starting out, perhaps there are more worries about the immediate needs, Eventually, goals blossom into actually preparing for the future and a comfortable living standard. The idea of immortality is more the thought than any possibility of death. With the longer life spans enjoyed in these modern days, there just may be some benign measure of reality there. However, writing a will is not just a concern for seniors, the young and everyone in between; it is a legal matter, which must be an important part of financial planning.
The state probate process is one solid reason to complete a will. In rough terms, as much as 6% of an individual’s total (gross) assets (or more) go to probate fees and associated costs.
The last thing someone would want to do is lose control of their assets to the court system. Unfortunately, putting off what you know needs to be done now – planning and implementing an estate plan – could result in just that.Asset distribution laws vary from state-to-state, but generally a married person’s possessions go first to the spouse and children, should there be any.
If you are single, then most often your possessions would be passed to your parents, if they are still alive. Should your parents be deceased, then the order of succession is usually to the siblings (brothers, sisters), then to other living family (relatives) and finally, to the state. The state is highly capable of absorbing and liquidating assets.
By no means is it being said that various wills are the answer to a complete estate plan. A will alone, specifically will not control who gets ‘joint property’ (such as a home you and a spouse purchased together), or possibly, bank and brokerage accounts and 401(k)s or IRAs(Individual Retirement Accounts) for which you have designated a beneficiary. Simply put a last will and testament is the main piece of a basic estate plan that does not require a substantial amount of legal fees for its creation.
Putting together a well-thought-out plan that provides for you during incapacity as well as after your death is essential,” Hudkins said. “Talk to an estate planning attorney about other legal documents such as a Medical Power of Attorney (proxy) for Health Care, a Living Will (Health Care Declaration), and a Durable Power of Attorney for Financial Affairs.
You are never too young to need a will. If you end up in a hospital in a coma, you need someone in a position to make personal, medical and financial decisions for you. Should you have an untimely death, the key to planning ahead is to have a written plan so your wishes will be carried out exactly as you so designate. Without a written plan, there is probate, family feuds, extended agonies and other unpleasant possibilities.
Congratulations! You have taken a very important step in the right direction. After reading this book, you will have a much better idea on how to customize your individual estate needs by understanding your legal initiatives, alternatives and obligations that secure the future of your heirs.
The Life Estate
The life estate is something every first year law student learns about when they study the arcane and often bizarre history of property law that harkens back to the days of English knights, lords and serfs, and the transfer of property through the ceremonial throwing of dirt clods with oaths of duty to accompany. The life estate is about as old as they come as instruments of wealth transfer go and students love it, because it is relatively easy to understand. Apart from what students love and what is easy to remember, however, the life estate still has practical value today in your estate planning and assets management schemes.
The basic idea of the life estate is that a person can be left a piece of property for life, and upon their passing, the property in question can go to whoever is designated to receive that property afterward. The individual or group who receives the property after the life-tenant passes is called the remainderman or remaindermen, which is useful only in that it helps
one to remember that the person who remains gets the property. If, for example, one wants to leave a family estate that has been with the family for many generations to their spouse and then have it immediately pass on to their children or another relative who will maintain the estate for the generation to come, then a life estate might be the perfect vehicle to do so. Another example is the same family estate, left to a surviving spouse until the surviving spouse either dies or remarries. Again, the aim is to ensure that the estate stays in family, a contingency which is threatened by the remarriage because that creates a new marital jointtenancy, absent any other provision. Often the life-estate was used to keep assets, like the family home, headed down a single line of familial ownership.
However, the life estate has other uses, for example, it can leave an asset to be owned by one person until the death of third person. If an older relative has become incapacitated, such that it is difficult for them to make decisions for themselves, then the asset can be left in the care of another for the incapacitated person’s lifetime. An example might be, that Blackacre (the fictitious name for a piece of property used in law schools everywhere) is left in the care of cousin Tilly, until great aunt Nelly’s death. Thus, Tilly is allowed to make Nelly comfortable at Blackacre (the family home) until Nelly passes on. In this instance, Nelly’s life is what is called, the measuring life of the life estate, and Tilly’s ownership ends when Nelly is gone.
On the whole, the life estate may be falling out of use for a number of reasons and being replaced by the much more fluid instrument of the trust. But, the life estate still captures, from time to time, our instincts regarding how property is to pass from one generation to another and that is why it is still relevant even for an estate planner who uses it very rarely. It helps us to ask and to get the answer to very difficult questions, which is part of the act of estate planning. Both the client and the attorney must face tough questions, and the life estate (even if it is sometimes regarded as a legal relic of the past) tells us how people used to answer questions of intra-generational wealth transfer and why. We may use different instruments to bring about our legal ends (or we may not), but even if we do, the life-estate still has relevance in helping us think about the questions that underlie the choices to be made in estate planning.Protecting Assets from Medicaid
Having its origins in 1965, Medicaid is a Federal program that offers health care coverage for select low-income families. Title XIX of the Social Security Act is a Federal/State sponsored program that is designed to pay medical costs for certain designated families who happen to have low incomes/resources with which to pay for it themselves. So who is eligible for Medicaid? Eligibility includes people who are aged, blind, or disabled, along with certain people in families with dependent children. Although a Federal program, Medicaid is run by the states, which means that each state determines who is eligible and the range of health services offered.
It is a common misconception that Medicaid is a program that is designed to cover all poor persons. Medicaid DOES NOT offer paid medical assistance to every single poor person. Those eligible to receive medical assistance must be a part of one of the groups designated in the following list:Medicaid - BASIS OF ELIGIBILITY:
Unfortunately, many nursing home residents end up exhausting their assets on long-term care. But it doesn't have to be that way. The best time to plan for the possibility of nursing home care is when you're still healthy. By doing so, you may be able to pay for your long-term care and protect assets for your loved ones.
Medicaid is a joint federal-state program that provides medical assistance to various low-income individuals, including those who are aged (i.e., 65 or older), disabled, or blind. It is the single largest payer of nursing home bills in America and is the last resort for people who have no other way to finance their long-term care. Although Medicaid eligibility rules vary from state to state, federal minimum standards and guidelines must be observed. In addition to you meeting your state's medical and functional criteria for nursing home care, your assets and monthly income must each fall below certain levels if you are to qualify for Medicaid. However, several assets (which may include your family home) and a certain amount of income may be exempt or not counted.
To determine whether you qualify for Medicaid, your state may count only the income and assets that are legally available to you for paying bills. Medicaid planning helps you devise ways of making your assets and income inaccessible. Over the years, attorneys have developed several strategies to rearrange finances and legally shelter assets from the state. These strategies--and the Medicaid rules themselves--can be complicated, so you should consult an experienced elder law attorney if you wish to take steps to protect your assets from the state.
Countable assets are those that are not exempt by state law or otherwise made inaccessible to the state for Medicaid purposes. The total value of your countable assets (together with your countable income) will determine your eligibility for Medicaid. Under federal guidelines, each state compiles a list of exempt assets. Usually, this list includes such items as the family home (regardless of value), prepaid burial plots and contracts, one automobile, and term life insurance.
There are special rules for counting assets and allocating the assets between the spouses. When you or your spouse first enter a medical institution, nursing home, or request a community waiver program, the county/tribal human or social services department will, if requested, conduct an assessment of your total combined assets. The amount of your total combined assets at the first time of institutionalization determines the amount of assets you may keep.
If you have assets of $100,000 or less, you can keep $50,000 for the community spouse and $2,000 for the institutionalized spouse. If your assets are over $100,000 you should contact your local county/tribal social or human services department for help in determining the amount of assets you can keep. The community spouse share can be higher than the standard if a court or administrative hearing officer orders a higher amount.
Once the couple’s assets are at or below their asset limit, they have one year in which to assure the institutionalized spouse has no more than $2,000 worth of assets in his/her name. During this time period, the institutionalized spouse usually transfers all but $2,000 of his/her assets to the community spouse.
Examples of countable assets may include, but are not limited to: · Cash.
· Checking Accounts. · Savings Accounts. · Certificates of Deposit. · Life Insurance Policies.
· Your home (as long as the community spouse or other dependent relatives live there).
· One vehicle.
· Burial assets (including insurance, trust funds, and plots).
· Household furnishings.
· Clothing and other personal items.
“Excess" assets (assets which are above the asset limit) can be reduced to allowable limits if they are used to pay for nursing home or home care costs, or for other things such as home repairs or improvements, vehicle repair or replacement, clothing, or other household expenses. If excess assets are not reduced the institutionalized spouse cannot become eligible for Medicaid.
There are special rules for counting income and the amount of income that can be transferred from one spouse to another. Only the institutionalized person’s income is counted in determining eligibility. The community spouse cannot be required to pay for the institutionalized spouse’s care except when there is a court order to do so.
Through Medicaid planning, you can rearrange your finances so that countable assets are exchanged for exempt assets or otherwise made inaccessible to the state. For example, instead of spending your savings solely on nursing home bills, you can pay off the mortgage on your family home, make home improvements and repairs, pay off your debts, purchase a car for your healthy spouse, and prepay burial expenses. There are many other ways to shelter countable assets. Consult an experienced attorney for more information.Along with qualifying you for Medicaid benefits, Medicaid planning seeks to accomplish the following goals:
· Sheltering your countable assets
· Preserving assets for your loved ones
· Providing for your healthy spouse (if you're married)
Individuals who meet the requirements for the Aid to Families with Dependent Children (AFDC) program
· Children under age 6 whose family income is at or below 133 percent of the Federal poverty level
· Pregnant women whose family income is below 133 percent of the FPL
· Supplemental Security Income (SSI) recipients in most States
· Recipients of adoption or foster care assistance
· Special protected groups (typically individuals who lose their cash assistance due to earnings from work or from increased Social Security benefits, but who may keep Medicaid for a period of time)
· All children born after September 30, 1983 under age 19, in families with incomes at or below the FPL
· Inpatient hospital services
· Outpatient hospital services
· Prenatal care
· Vaccines for children
· Physician services
· Nursing facility services for persons aged 21 or older · Family planning services and supplies
· Rural health clinic services
· Home health care for persons eligible for skilled-nursing service · Laboratory and x-ray services
· Pediatric and family nurse practitioner services
· Nurse-midwife services
· Early and periodic screening, diagnostic, and treatment services for children under age 21
Using annuities to protect assets has become very popular. Two recent books on the subject, The Medicaid Planning Handbook by Alexander A. Bove, Jr. and Avoiding the Medicaid Trap by Armond Buddish, specifically discuss the use of annuities to avoid Medicaid seizure.
Generally, if your assets exceed the Medicaid test limits, you may still be eligible for Medicaid by converting the assets to an immediate annuity income stream. Using an income annuity in this manner may be beneficial in the right situation if structured properly.
Keep in mind that states' rules for Medicaid differ greatly and it is important to learn as much as possible about your own state's requirements. The annuity income stream must begin prior to applying for Medicaid. Under the Kennedy Kassebaum and OBRA '93 Acts, an annuity must have life expectancy payout rates that are in accord with the latest social security mortality tables (HCFA Tables). Many insurance companies' payout rates are not in compliance. You should contact an agent with experience in this field.
Using a straight life annuity with no refund or no period certain guarantee will cause the income stream to stop on the death of the annuitant. Additionally, under the Estate Recovery rules passed by OBRA 93, any income that continues to heirs after the Medicaid recipient's death may be subject to recovery by the state.
You must be careful that the combined monthly income from the annuity together with your other social security and pension payments stays under the allowable federal limits. Otherwise, the purchase of too large an annuity income stream could inadvertently take you even slightly over the limit and completely disqualify you from Medicaid.
For example: Say you want to reside in a nursing home that costs $4,500 per month. In order to pass Medicaid qualification tests, you use a significant portion of your assets to purchase an immediate fixed annuity that pays $800 per month for life. Your only other income, from Social Security and pension plans, is $525, making your combined monthly income total $1,325. Be careful that this total remains below the federal guidelines. If the federal limit were $1,315, then you would be $10 over the limit and be ineligible for Medicaid coverage. Better to purchase LESS annuity income to stay well below the threshold than more income.
Like many other people, you may be thinking about giving your home away now that you are older. There may be several reasons why you might consider doing this:· You want to avoid probate,
· You want someone else to take responsibility for the upkeep of the property,
· You want to help a family member,
· You fear you can no longer live alone and want someone to stay in the home with you, or
· You worry that you may have to enter a nursing home someday.
You should never sign away your home ownership without first getting advice from an attorney. There are many risks in transferring home to another. You should talk to an attorney who is certified for or knowledgeable in elder law or estate planning.
What happens if you transfer your home? You will lose control over the use of your home and property. You will have no say in whether the property is sold, mortgaged, taken by creditors or used for a purpose that you don’t like. You will lose the right to live in the home or somewhere on the property. You will lose the right to rent the property or otherwise use or occupy the property.
You may create problems with creditors. You may get in trouble if you have creditors that have a lien on the property or if you file bankruptcy. If you transfer a home or other property, and, as a result, a bank or other creditor is unable to collect a debt, the transfer can be canceled. In some circumstances, such a transfer is considered fraud.
You may lose your Property Tax relief. If you are over age 65 or disabled, you may have the right to some relief in paying property tax under state law. If you add another person’s name as co-owner of the property, that person’s income will be counted along with yours. The increase in income may cause you to lose your eligibility for tax relief. Of course, if you are no longer the homeowner, you would no longer have to pay the taxes. The new homeowner will not have a right to relief from these taxes unless he or she can qualify.
You may lose the chance to get help from certain state or federal programs. You may lose your eligibility to participate in these programs if you add another’s name to the property deed or if you transfer the property.
If you have Medicaid and live in a nursing facility, or if you live in a nursing facility and plan to apply for Medicaid within the next three years, there is a Medicaid penalty for any gift or transfer "for less than fair market value." The state checks to see if transfers of any property (including a home) occurred during the three years prior to entering the nursing home or applying for Medicaid. The time is five years for transfers involving trust property.
A transfer made that is improper for Medicaid purposes may result in the denial of Medicaid for a certain amount of time (depending on the amount of the gift or transfer).
Taking your name or any co-owner’s name off the deed is also considered a transfer that may be penalized under the Medicaid program.
If you give away assets when you are on SSI, there is a penalty similar to the Medicaid penalty. You may lose SSI for a certain amount time depending upon the amount of the gift or transfer.
If you give your home to someone who receives SSI or other government benefits, your gift may cause the other person to lose benefits, if he or she already has a home. (Owning property, other than your home, can affect eligibility for SSI, Medicaid, Families First benefits and food stamps.)
There may be TAX consequences if you give your home away. You may have to pay a gift tax. The gift tax, generally, applies to the transfer of a present interest. Sometimes, the first $10,000 of a gift is exempt from taxation. There may be a $20,000 exemption if a gift is made by married couple. The person who receives the gift may have to pay more capital gains tax if he or she sells the property at a later time. There are many factors which determine whether a capital gains tax is owed and how much the tax will be.
An agreement to exchange your home for in-home care is risky and should always be reviewed by an attorney. This is especially important if you plan to give the caregiver the deed to your home or a promise that the caregiver will inherit your home. These arrangements are dangerous and may cause many problems. The agreement may also affect Medicaid eligibility and tax liability. Never make this type of agreement without the help of an attorney who is knowledgeable in this area of the law.Older adults concerned with providing for their children or other heirs may choose to transfer some or all of their assets:
· gift a maximum $10,000 per year per person with no inheritance tax consequences
· transfer a major portion of (or all) assets to their children or others
· set up a special trust, to benefit their children or others, but continue to receive income produced from the trust
Transfers or trusts may enable you to qualify for Medicaid coverage of long term care while preserving assets for your children or others. But consider these possible problems:· loss of your independence and control over your assets · potential for assets to be used in a way you did not intend or desire
You may give away assets for safekeeping, expecting them to be there if you need them, but they may not be available at that time.
For example, in an attempt to reduce the number of elders who shelter assets to become Medicaid eligible, New York1 has adopted the following Medicaid changes as required by federal law:
· a transfer must have been made at least 36 months before applying for Medicaid.
· if asset transfers were made less than 36 months before you apply for Medicaid, a penalty period may result. The penalty period starts in the month following the month in which you made the transfer. You will be refused Medicaid coverage for certain services for the number of months the assets would have paid for care in a nursing home.
· if transfers were to or from a trust made less than 60 months before you apply for Medicaid, a penalty period may result as described directly above.
The core issues revolving around how you can control your financial, legal and health affairs in the event that you become incapacitated require you to consider drafting some important legal documents with the guidance of a lawyer specialized in family or elder law matters.
By preparing a set of documents, you can decide who will receive your assets when you die, and preserve your nest egg and make decisions if you become incapacitated. These documents form the foundation of good estate planning:1. Last Will and Testament
The Last Will and Testament is the only one of the four documents that you must prepare with the assistance of an attorney. The Last Will and Testament is your last opportunity to decide who gets your property when you pass away.
It should be drawn up by a lawyer and reviewed at least once every five years. When you review it, make sure that the people mentioned in the Last Will and Testament are still alive, available and the people you want to be named. The key people are: your heirs; your executor; your alternate executor; and your two witnesses. You should know where these people are because when you die, they must be located to attest1) that they were physically present when you signed the document and
2) You were competent when you signed it. Witness affidavits should be attached to the Last Will and Testament.
The Last Will and Testament goes into effect when you die. That is, when the physician signs your death certificate. Until you are dead, your executor and heirs have no authority to act on your behalf. While you are alive, you make all of your financial, legal and medical decisions. But if something goes wrong and you are unable to make these decisions – you become incompetent – there are other legal documents that you can prepare to plan ahead.a. Changing A Will
“I am taking you out of the will,” or “I am going to disinherit Gregory and leave all my money to Steven,” are statements that seem far more like they belong in an Agatha
Christie novel than in a serious discussion of estate planning.
Although the world is not filled with conniving relations who maneuver endlessly to gain the favor of a truly despicable older family matron or patron who uses their wealth to control them all until it culminates in murder most foul, this model is instructive regarding how changing a will can cause hard feelings between family members and create legal difficulties. The chief legal difficulty created by changing a will is that sometimes the two wills look like sequels to a movie and are literally called (Will I) and (Will II).
When this happens there will be, just as in the Agatha Christie mysteries, a group of relatives and friends who are favored by the first will (Will I) and not by the second (Will II). These relatives realize that if they can challenge and get rid of Will II, Will I will take its place, and they set out to get rid of Will II after the deceased is gone and can not take further action. Of course there are also the relations or friends that are favored by the revised will (Will II) and fight to keep it valid in the eyes of the law. There are many ways to attempt to invalidate a will that can be the subject of another article. The point of this article is to make it clear that changing a will by substituting it with another will drafted later in time is an exercise fraught with peril.
A better way to go is to expressly change from one will to the other or to expressly repudiate the first will. An express change is a change in writing. For example, if you want to get rid of the first will write that, “I hereby repudiate the first will with this writing and all of its provisions hereby are to be considered void.” It is difficult to get around the fact that you intend to get rid of the first will entirely if you fail to make such a claim in writing. Once that is settled, then you can begin the second will by stating again that you made another will before and that it is entirely void and does not in any way reflect your desires with respect to your property. And finally, include in the second will that it and it alone are a reflection of what you want when you are gone.
Another good way to go is not to let anyone, other than your attorney, know you are making a will or replacing an old will with a new one. People cannot fight over what they have no idea exists or has existed. This is a good way to keep the elements of an Agatha Christie novel regarding wills out of your life and the lives of your heirs. The fictional tyrant who rules the family with their notions of inheritance or disinheritance is the kind of person who has people fighting over their will because they are always blabbing about it. With wills it is best to adopt the policy that loose lips sink ships when it comes to your relatives fighting over what you meant after you are gone. This is not what anyone wants for their families and, with a little discretion and a lot of planning, it is easily avoided.b. Adding a No Contest Clause
There is value in the story of an older client who had seen a very interesting clause employed in a will. There was a great deal of money at stake and the many family members had little reason to love each other, because they had never met and never knew of each other’s existence. It was expected that the will would be heavily contested on several different fronts in every conceivable way. The testator realized that a truly lengthy contest would result with the bulk of his estate in the hands of people he really didn’t care for in the least: Lawyers.
In fact, that is not an unworthy consideration in a heavily contested will or long fought divorce; lawyers may end up with the bulk of the estate or marital property. The move to arbitration is one of the ways that the legal profession is trying to prevent these unseemly outcomes. The clause that this client had seen employed in his grandfather’s will was like the following, “Anyone named in and contesting this will receives the maximum bequest of $1, regardless of the outcome.” This clause meant that regardless of whether the litigant had proven undue influence or diminished capacity or fraud, they would still only receive $1 as a bequest specifically because of having brought and proven their claim. Since none of the family knew or trusted one another a great deal, this effectively eliminated potential contests.
Often testators anticipate their will to be contested and they wish to insert what is called a no-contest clause in their will. The no contest clause is exactly what this elderly client had described, because it was designed to terrorize a would-be contestor of the will into thinking twice about facing the threat of getting just a dollar rather than the sum they had been left. Such clauses are also sometimes called terrorem clauses, because they are designed to scare the beneficiaries into accepting the bequest they are given. The no-contest clause described above was executed correctly in that each relative was wisely given something in the will that was worth the fear of losing.
In drafting a no contest clause, it is important not to entirely disinherit someone or to give them a bequest that is not something that they are afraid to lose. If someone is entirely disinherited, then they risk nothing by contesting the will. If they are successful, they may be able to have the will nullified in whole or in part. That is risked when the testator decides not to give someone who would traditionally receive money nothing at all. That is a mistake, a crucial error in such a clause, where the person who might challenge is given nothing to fear losing and therefore has no reason not to contest the will with every possible means. This situation is made worse when there is a group of people who are “disinherited,” and contesting the will. When this happens, the rest of the family must wait to inherit, which may cause substantial hardship on those who have done nothing wrong and are often those who are nearest and dearest to the testator.
Many jurisdictions refuse to strictly enforce no contest clauses because they discourage valid and invalid contests alike. These states look to “probable cause” to bring the contest and, if there is any, refuse to enforce the penalty against the challenger. Furthermore, no-contest clauses are falling out of vogue legally and are being construed very narrowly by courts. Many enquires into the will are not deemed contests in the eyes of these courts, because they wish to see no contest clauses become a thing of the past.
Before deciding to insert such a clause you should ask your attorney how your state is handling them and what is likely to happen in the future. In addition, you must make sure that those whom you decide not to make a substantial part of your will and attempt to intimidate with a no contest clause are left some amount of money that they would think twice about losing.
However, there may be better ways to leave your assets to those you choose rather than that traditional will. For many reasons the living trust is the superior instrument for most people’s needs. It is important to consult your attorney to find out the best way to protect your assets and whether a will with a no contest clause is a viable option in your state. A will, in many ways, is too encumbered with restrictions that make a trust a much better option if you would like to leave your assets to those that you choose and reduce the chances of your desires being challenged. Again, as always, ask your local attorney for advice about your wishes and find out whether no contest clauses are becoming a thing of the past in your jurisdiction.c. Protecting A Will’s Integrity
In the not overly distant past, the writings of the testator were the only evidence of his or her intentions and mental capacity. Undue influence was harder to defend against when the only evidence was the testator’s writings and the recollection of those around them. Imagine the scene, the packed court room (perhaps I have a flair for the dramatic), the testimony as to the deceased’s mental health and the influence exercised over them by their final caretakers and close family members made the testator’s mental health and the influence of others over them a matter of the testimony of the living and those often involved in contesting or defending the will.
But new options exist today that make it far easier for the testator to present evidence after they have passed away. The first question to be asked in a contest involving mental capacity is that of mental deficiency. Mental deficiency is demonstrated by the testator not being able to comprehend what he/she owns, to whom he/she is giving it, and how it will be transferred in addition to the overall impact such transference will have on their estate as a whole. Previously this could only be done in writing and it was often suspected that the attorney representing the deceased might have helped that writing have all the necessary components, rendering the doctrine more flexible and open to jury or judicial interpretation than a clear matter of fact.
However, today the process can include having the testator explain on video tape what the asset is, how it is to be transferred and to whom, and the overall implications of that transfer to the overall estate. It is easier to see the deceased, to see whether he or she seems to understand all the implications and to see whether or not he/she is the type of person who is weak willed enough to be susceptible to undue influence. In addition, protecting your client by having them explain it in their own handwriting and, on a couple of different occasions, on video tape alters the essential landscape of the court room proceedings by making the deceased a witness.
In addition, it is often useful to send a client to a psychiatrist to verify their mental health and acuity on an ongoing basis. This is evidence that those contesting the testamentary instrument will not easily be able to counter, because they will not have their own psychiatrist who has had access to the testator. This is another excellent card to have in your arsenal as an attorney in order to protect your client’s interests which again alters the landscape of the proceeding if the will is contested. Questions as to whether a client is mentally capable of understanding his/her bequests, the implications of those bequests, and the relation of those bequests to the rest of his/her estate as well as questions regarding to what extent, if any, their own personality was waning and susceptible to undue influence can be answered in different way. The more the judge and jury are able to see the testator, how they behaved, and how lucid and in control of their faculties they appeared to be, the more the trial regarding wills shall depend on a more direct perception of the testator rather than one provided by second hand accounts. The wise estate planner will use video tape in conjunction with psychiatry and standardized psychiatric tests to show that the testator knew exactly what he/she was doing and will not be hamstrung, as in days past, by the perception of others.d. Do You Really Need a Will?
Many people wonder if they really need a will. They may think that they don't have enough assets to bother with a will. Some people erroneously believe that a will causes your heirs to have to go through probate, leading to unnecessary expenses. However, a will is a good idea for just about everyone. Read on for some of the reasons to have a will.
A will is a document in which a person declares what he wants done with his property at the time of his death. A will has no effect until the person who wrote it, known as the testator, dies. The testator can also revoke a will at any time prior to his death.
If you die without a will, the state will distribute your property to your heirs according to the state's intestacy statutes. The statutes might call for a distribution that is similar to what you want. Then again, maybe they won't.
State intestacy laws will provide how the sum total of your property is to be divided among your heirs. It can't provide for who will get certain specific items of your property. This can lead to many problems. Your heirs may not agree on who will get certain items of your personal property. For example, say you have inherited your grandmother's wedding ring and intend to pass it on to your daughter. If you die without a will saying that is what you want, your son may feel very strongly that his wife should have it. So even if you don't have a lot of assets, you may be concerned about making sure that certain items of your property go to the people that you want it to. You can do this with a will.
Another misconception about having a will is the idea that having a will causes your heirs to have to go through probate, and that it will be difficult and expensive. If you die without a will, the court is still going to have to oversee the distribution of your assets to your heirs. There is absolutely no reason to think that this process is made easier or less expensive by your not having a will. In fact, it will probably be more expensive. For one thing, whoever administers your estate will probably have to post a surety bond if you don't have a will. If you do have a will, not only can you choose the person who will administer your estate, you can provide that he or she will not have to post a surety bond.
Do you have minor children? If so, you really need a will. If you don't have one, the probate court will have to set up a conservatorship to manage your children's share of your property. A judge will decide who manages the money. When each child turns 18, he or she will get his share, whether they can handle it or not. If you have a will, you can decide who will manage your children's inheritance on their behalf and you can choose the age at which you want it to be distributed to them.
Even if your estate is small, there are good reasons to have a will. You should see an attorney who practices in the area of estate planning or wills and trusts. This attorney can also help you decide if you need more advanced estate planning techniques and help you implement an estate plan that is best suited to your needs.Durable Power of Attorney
A durable power of attorney (DPA) will allow you to legally appoint a trusted partner, family member or friend to make medical decisions for you, should you become unable. A DPA is especially wise for unmarried couples, single people, or those whose partners are deceased. Laws regarding these documents vary between states, so check with your local lawyer, physician, or healthcare facility to see what documents you can submit for your own protection and peace of mind.
The Last Will and Testament and Durable Power of Attorney documents deal with control over financial and legal matters. But how can you plan for (and help others plan for) your life, healthcare matters and destiny? You may have asked yourself this question: "If the only reason I am being kept alive is by machines, would I wish to continue to live that way?" Your Last Will and Testament and Durable Power of Attorney can not help your loved ones decide that or act on it in the case you become incapacitated by a stroke, accident or Alzheimer’s Disease.3. Living Will
A living will is a document you draft that stipulates what kind of treatment you want or don’t want in the event of an unrecoverable illness or injury that leaves you unable to speak for yourself. It gives you the power to refuse extraordinary measures that would keep your body alive when there is no hope of recovery, and when you would choose, if able, to die a natural death.
People have differing attitudes and beliefs about what constitutes life and quality of life. For some, their religious beliefs dictate that any form of life is sacred and should be preserved as long as is humanly possible. Others believe life ends when the brain ceases to function and that life-support in this state is a form of
dehumanization and a burden on loved ones, emotionally and economically.
A living will allows you to make your desires known on this issue. Without a living will or advance directive, it is incumbent on the hospital or healthcare facility to continue to provide life support, unless a spouse comes forward to relay your (unwritten) wishes and ask that life-support be suspended. If there is no spouse, the closest living relative can speak for you. However, requests to stop life-support without a living will or advance directive in place can be met with resistance by other family members, friends, and even unaffiliated parties with political agendas, including members of government.
A living will only comes into play when multiple conditions have been met. The will must be legal and in the possession of your doctor. Your doctor must further find that your condition precludes you from making a competent decision about the care you wish to receive. Lastly, a second doctor must concur and both physicians must also find you to be terminally ill or permanently unconscious.
Living wills can be drafted by lawyers, via software programs, or by simply writing out your wishes and desires; it’s best to follow an official form as the language will not leave room for ambiguity, and laws that regulate living wills vary from state to state. The document requires a signature and the signing should be witnessed by two people who also lend their signatures as proof. Alternately, you can have it officially notarized. A copy should be given to your doctor to be kept in your file. If at any time you change your mind about the conditions you set forth for yourself, you are free to retrieve and destroy all copies of the existing will, and replace it with a newly drafted and notarized document.
1. Though the task of making a living will may not be a joyous one, it is not only in your best interest but in the best interest of loved ones. An advance directive also allows you to stipulate what kind of medical care you wish to receive, or do not wish to receive, and can be as detailed and specific as you like. Your children: Be aware that your wishes may not necessarily be the same as their wishes – you should try to avoid disagreements among your children by carefully spelling out your wishes in a Living Will;
2. Your physician and HMO (if applicable): Have original copies of your Living Will made a part of your medical record so that it is clear to your health care providers what your wishes are.
But other types of medical issues that do not include life support may arise. For example, you also make decisions on which procedures or surgeries to have. Who will step into those cases if you become incapacitated? A living will does not allocate property rights or estate, which is covered in a standard will, often referred to as the last will and testament.4. Health Care Proxy (or Medical Power of Attorney)
A Health Care Proxy is often called a "Medical Power of Attorney" because it is a way to delegate your health care decision-making to another person in the event you become unable to make those decisions yourself. You should choose someone who you trust and someone who knows your wishes with regard to medical treatment and concerns.
A Health Care Proxy covers all types of medical decisions, including changing medications, experimental treatments, surgical procedures, changing physicians and transferring between facilities. One specific decision is not covered: tube feeding. You must specifically state that you do not want to be kept alive by artificial nutrition or hydration ("tube feeding"), or else your physician will make the decision for you.
Probate is the process by which assets are transferred to your heirs on death. Although the law states that probate can be completed in six months, a more realistic figure is a year to a year and a half. During this time, your assets are not readily available to your heirs, are open to public view, and are subject to creditor claims, whether or not they are valid. The costs of probate can be high, and consist of attorney's fees, appraiser's fees, court fees and fees to an insurance company for an executor's bond. Probate also prolongs the natural grieving process, because the ongoing court proceedings continually remind family members of the death of their loved one.
Why not simply liquidate all of your assets to pay for your nursing home care? After all, Medicaid will eventually kick in (in most states) once you've exhausted your personal resources. The reason is simple: You want to assist your loved ones financially. You want to be able to leave something to them, rather than to strangers.Trusts
There are several different types of trusts that people use for estate planning. While most fall into specific categories, it is important to understand that trusts are highly individual creations – one size does not fit all. Be wary of firms who offer a cookie cutter approach or a "kit" to create your own. Any trust (indeed all estate planning activities) should be designed with careful consideration and thoughtful legal consultation. Be aware that when establishing some trusts, you may limit your options in the future.
A "revocable trust" may be established to set aside certain assets in the event that the individual becomes incapacitated. These assets never technically leave the person's ownership, so the assets are still considered part of one's estate when one applies to Medicaid for benefits. The value of a revocable trust is that you can designate a professional to manage your finances, receive income from the trust, and potentially reduce expenses associated with settling your estate at death. With a revocable trust the individual can change the terms of the trust at any time.
An "irrevocable trust" is also referred to as a "Medicaid Trust." Assets are transferred into a new legal entity that then owns those assets. These assets are then no longer considered part of your taxable estate. By shifting assets into the trust, you may now be eligible for Medicaid benefits, but subject to the specific "look-back" rules of your county (see below). When setting up the trust, you determine who will receive the assets, regular payments, and income from the assets. Irrevocable trusts may also be used as an entity to own one's life insurance policy.
This is a simplification of the process, so keep in mind that estate planning involves a lot of "moving parts" that should all be considered. Some types of transfers may result in tax liabilities and future financial limitations. Irrevocable trusts require that the individual give up some degree of flexibility with the assets and may be expensive to prepare. Once the trust is established, the individual gives up all rights to the assets that are included in the trust. You can not change the terms once it is finalized.
Since most people are concerned about spending down all of their assets to pay for long-term care, they will establish certain types of entities like trusts, give cash gifts to children, spend money on exempt assets, or engage in other legal financial maneuvers. You should make sure that your financial activities are legal as well as the smartest use of your assets. Even with perfectly legal activities, you may compromise or delay some of your potential benefits.Living Trusts
There are many ways to protect assets for your loved ones. One way is to use a living trust. Living Trusts are routinely used by average persons, not just the wealthy, to avoid the high cost, publicity and inconvenience of probate. Property placed in an irrevocable trust will be excluded from your financial picture, for Medicaid purposes. If you name a proper beneficiary, the principal that you deposit into the trust (and possibly any income generated) will be sheltered from the state and can be preserved for your heirs. Typically, though, the trust must be in place and funded for a specific period of time for this strategy to be an effective Medicaid planning tool. For information about Medicaid planning trusts, consult an experienced attorney.
A trust has three parties - a donor, trustee and beneficiary. The donor sets up the trust, the trustee manages the property in the trust, and the beneficiary gets the use and enjoyment of the property. A person who sets up a living trust wears all three hats, donor, trustee, and beneficiary.
After a living trust is set up, it must be "funded". This involves changing the title of your assets, such as your home and your bank accounts, into the name of the trust. You maintain complete control over the money and the property in the trust. You can buy, sell, trade, or do whatever you want with your property, just as if the trust did not exist.
A living trust can be easily changed to meet the needs and goals of you and your family. In addition, the trust can provide for management of your assets in the event you become ill or incapacitated during your life. When used together or with a durable and health care power of attorney, it can help completely avoid expensive guardianship proceedings.
Upon your death, the person you have designated as "successor trustee," usually a child, automatically takes over management of your assets. Your successor trustee settles your affairs, and then distributes your money and property to your heirs.
Although the purpose of a trust, avoiding probate is simple, a trust is a complex legal document. There may be tax issues involved, and the terms of the trust must be thought through and drafted with great care and skill. Therefore, a trust should only be prepared by an attorney who is experienced in the field of estate planning, and who will stand behind his or her work. Those who purchase mail order trust kits advertised in the back of magazines, or who utilize the services of non-attorney door-to-door salesmen, are taking great perils with one of the most important documents of their life. On the other hand, a properly drafted living trust will lighten the burden that death places on your family, and will greatly simplify the process of transferring your assets.a. Recap of the Living Trust
A living trust has many advantages over a simple will or testamentary trust (trust after death). The first advantage is that it keeps the IRS even further out of the process than does either a will or trust that becomes effective after death. The second is that, unlike a testamentary trust, a living trust is not continually supervised by the court. And finally, a living trust is far less likely to be challenged, because creating a trust while you are alive makes contests over what you intended easy to resolve (you are still there to make your wishes known). It is less likely that a relative will come forward and say that they think you are insane or incompetent, while you are still around to challenge the assertion. As instruments go, the living trust has a great deal to offer.
The only downside of the living trust may be that your would-be-heirs (provided you had a will) know what you are giving them. Those who are being extra nice just in case they might get something, and for that reason alone, may stop visiting as often, although that may be a blessing in disguise. That is the great thing about a will -- people only know what you think of them after you’re beyond hearing complaints and insults. However, trusts are by most accounts still vastly superior.Elements of a trust:
· A trust is easy to form and it is a trust’s minimal requirement that makes it such a flexible instrument for asset transfer.
· A trust is created when the settlor (a term denoting the creator of the trust) places property into the care of another person or group (called the trustee) for the benefit of a third party beneficiary.
· The property used to create the trust is traditionally used to generate income for the beneficiary.
· One rule is that the settlor (the creator of the trust) cannot be the sole beneficiary of the trust. This means that you can’t create a trust by placing assets into the care of another person or group solely for your own benefit, but it is okay if you benefit too.
So, unlike a will, you can use a trust to create income for yourself before you die and build your would-be-heirs into the trust as well. The only real problem this creates is that the other beneficiaries (your heirs) may have rights to the trust before you have passed. However, the instrument is flexible enough to allow for a great deal of control over this aspect of the trust, such that if you wish to create a trust whose other beneficiaries’ rights grow greater upon your passing, that is easy to do. This definitely makes a trust something to explore with your lawyer when you do your estate planning.
For example: The creation of a trust begins when you put your assets into the care of a third party, like a bank or an estate planning attorney or a trusted relative or friend. Your attorney may be able to structure the trust so that you get the vast majority of the benefit and allocate a very small portion of the benefits to the other beneficiaries. Your attorney should be able to design the trust so that, upon your passing, your share of the benefits goes to the other beneficiaries in the amounts you see fit.
By bringing your beneficiaries into the trust before your passing you will have greater control over their ability to contest what happens after you are gone. You will also insulate your assets from taxation schemes that affect wills, but do not have any effect on trusts. In most cases the trust is by far the better option for estate planning and you should seriously consider asking your attorney to explain it as an option.b. Rules and Trustees
If you are wisely attempting to put some assets into a trust (inter vivos) in your lifetime, then you have been paying attention to the important differences between wills and trusts. A trust created during your life will be far more secure with respect to its ability to withstand challenges to how your assets are to be distributed during estate planning than a will. Making a trust is a brave thing to do, because it telegraphs, to a certain extent, what you are going to do with your assets while you are still alive. This is what insulates it from attacks on your capacity, because it is unlikely, for example that, one of your relations is going to say you are insane or feeble and unduly influenced by another of your relatives to your face and this makes the trust a far surer bet than a will, in some cases.
However, the trust also may engender hard feels regarding the exclusion of a relative and those feelings will become known to a person creating a trust while they are still alive. This is the advantage of a will -- if people don’t like it, you will never know. The will maker is long gone when those that don’t like what they have done contest the will and those that do like it try to defend it. Although, it should be noted that clever drafting should be able to alleviate the necessity of either a contest or a defense. That is why you need a clever estate planning attorney to create your will rather than just a form. The attorney that creates your will often defends its contents, or in other words, their understanding of your wishes. The trust is a different story, because your trust will be administered by someone (called the trustee) for the purpose of those that the trust benefits (the beneficiaries).
One of the paramount problems of forming a trust is deciding what powers the trustee has and what powers they do not have relative to the assets you have placed in trust. Remember that a trustee is already assumed to have a duty to benefit the trust and that many states have laws regarding what a trustee can and cannot do, if the settlor (the creator of the trust) does not specify otherwise. But, again, you don’t want to leave the financial destiny of your trust up to the state any more than you want the state to decide who gets your assets. Your wills and trusts attorney will be able to give you a list of the traditional powers of a trustee in your state and tell you what they mean. Many of the powers concern what type of assets the trustee can invest in on behalf of the trust. For example, the trustee is sometimes prohibited from buying general securities for the trust because they are considered too risky. But, if you have chosen your trusted stock broker as your trustee and she has agreed, then this might be exactly the restriction you don’t want. Consult with your attorney about the kind of trust you would like to create and what the rules are in your state. Remember, that these rules are there to cover the bases in case you don’t make your own rules. Understanding the rules that are there, and why, will give you a sense of the kinds of rules that might be good and the ones that you would rather not have. In addition, you will be able to give the trustee more freedom than the state rules would allow, or less, depending on how conservatively you want your assets to be managed.
Be prepared to have a candid conversation with your attorney regarding what the rules are and what you would like to see happen. It is good to remember that your estate planning attorney has seen many trusts and understands how they work. Sometimes restrictions that seem good today might be the very restrictions that cripple your trust in a vastly different economic environment. In some cases, a trust may span several decades and the trustee may change along with the climate the trust was created in. When radical economic changes have occurred, a trust with greater flexibility will be beneficial. So you have a lot to think about as you enter the exciting world of forming a trust. Don’t let rules be off-putting, they are there as guides and when you understand them you will have a greater understanding of what you need. Ask your estate planner to give you information about the current rules and some general advice about how to choose a trustee.
Many parents want to give an equal share of the family home or some other sentimental form of real property (actual land usually) to their surviving children in equal shares. As an estate-planning attorney, one often sees the strange problems created by such plans. In particular if there are an even number of children, this may create hardships as voting blocks of family members eventually have to resolve votes that are evenly split in court or at least face the hardship of that choice among their siblings.
Suppose, for example, that well-meaning parents leave the family home to four children who are well intentioned adult human beings who generally wish to treat each other fairly, as family members often endeavor to. The problem is that four children will usually have some important differences in age, lifestyle and financial needs. When four such people own property, they must all pay a fourth of the tax and of the general maintenance and upkeep of the property. Suppose one of the children is unsentimental about the family home and wants to sell the property to finance a business or vacation, and two of the other children want to keep the family home to gather for Christmas (or any other important holiday). The fourth child has a hard time deciding, but is also having financial difficulty paying their share of the taxes, maintenance and upkeep. In order to keep the home and avoid going to court, the two children who wish to keep the home will have to pay the other children what their shares of the property are worth. This can create definite hard feelings even if the children who wish to keep the property have the ability to pay the others for their interest in it. When family Christmas (or any other important holiday) comes around, the children who sold their share of the property will feel badly about using it for the celebration of Christmas around their siblings who had to pay to keep it. By the same token, the children who had to pay to keep it may feel awkwardly about having to share it with their siblings whom they had to pay. This kind of thing can create long standing rifts in a family, difficulty between relatives who formerly got along well together.
The problem, from an estate-planning point of view, is that the property was given in equal shares to prevent any of the children from having their feelings hurt or feeling less loved and important than the other children. If, an estate planner does not help their clients see this possibility, for it is a very likely situation in the real world, it is felt that they (the attorney) have failed. Unless the family is extraordinarily wealthy the possibility that they will have differing financial needs is very common. Anyone who is a middle class American is usually at some point in need of money, particularly if they have children.
It is important for both the client and the attorney to face tough questions and to look toward non-idealized versions of the future when crafting estate planning strategies. The problem of the four children is easy enough to fix, but it illustrates a more important principle. When you are ready to start your estate planning it is important that you answer hard questions for yourself. Clients should be asked questions about how they have seen other families handle wills after their loved ones have passed on. Usually the client is able to tell stories about the greedy children or relations of others, and that helps broach subjects that might otherwise be difficult to bring up. When you prepare to visit your estate planner remember the worst family you ever heard of and imagine that part of the problem that they were having is because bad estate planning forced them to do things they might not otherwise have done. If there is any skill estate planners try to hone, it is the ability to talk to their clients about why they are asking for certain bequests and to help them see that there are several options to reach the goal they are seeking, rather than offering them a cookie cutter version of a will or trust.d. Offshore Trusts
Offshore trusts as part of effective estate planning and the fear that keeps many clients and attorneys from knowing more about how to use them effectively
The creation of offshore trusts and other financial plans is a way of shielding your assets from the laws of the nation in which you reside. It can sometimes be used to remove one of the two certainties of life; taxes. Americans are far less likely than the citizens of other countries to put assets abroad because, although when you receive the benefits of being free of your country’s laws regarding assets (namely taxation) you also lose the aspect of those laws that are designed to protect your assets. Americans are far more likely to just accept taxes, because our country has an enviable financial system that people around the world wish to participate in already. However, many people would like to know more about offshore banking options for a portion of their wealth because they view taxes as an all too unnecessary evil. Whenever we read stories about the government buying a hammer for $500 from a certain large corporation (Name omitted to avoid liability) as part of a no bid contract, we may begin to entertain the idea of placing personal assets offshore.
Another reason many Americans decide not to use offshore asset protection options is that they are advised by their attorneys not to do so. This is because offshore asset protection (while desirable) is a topic that your attorney may be very unfamiliar with and therefore uneasy guiding you through it. Attorneys are as afraid of being sued for malpractice as any other professional person is and while most estate planning attorneys in the United States understand the laws that govern asset protection domestically, they are not as well versed in protecting their clients’ interests abroad. For that reason, many well-intentioned, responsible and highly-able attorneys fear putting their client’s interests into a system where they cannot as easily protect them, and thus, they advise against taking assets abroad. If your own attorney has discouraged you from taking assets abroad in the past, it is a good sign that he/she genuinely cares about serving your needs as a client and is doing his/her level best to look out for you and your family. On the other hand, it is often true that asset protection in another country requires an attorney from that country, so it may be that it is simply a matter of greed and a desire not to lose your business to someone else that motivates some members of the profession to discourage offshore asset protection.
But, in an increasingly global marketplace it will become more and more common for estate planners to be well versed in the finer points of offshore asset management and the rewards that it can bring. Offshore asset management can be a powerful tool in the world of estate planning and it will become the norm for professionals in the field of estate planning to understand this complex field of law or begin to lose business to those who do understand how to take care of their clients needs using every available strategy in a global market.e. Legality of Offshore Trusts
Having an offshore banking account, corporation or trust are common themes in legal thrillers, spy novels and eastern European politics. There is a reason to be concerned about the legality of such accounts, for although many people would like to include them in their estate planning, a legal misstep regarding the use of any of these asset management tools could result in thousands of dollars lost in back tax payments and legal problems with none other than the IRS in addition to the possibility of spending time in prison. With that in mind, it is not surprising that many Americans shy away from offshore banking altogether.
As any good tax attorney will be able to explain to you there is a difference between tax avoidance and tax evasion. Tax avoidance is the use of legally employable strategies to reduce the amount of tax one has to pay. Tax evasion, on the other hand, is the use of illegal means to do the same thing. So the goal of any transaction that you would like to undertake offshore is to make certain that you are a tax avoider and not a tax evader. A lawyer will never be a willing party to tax evasion, if that lawyer is behaving within the cannon of professional ethics as well as the accepted norms of safeguarding their client’s best interest.
To begin with it is illegal to have a secret bank account in another country that you don’t tell the IRS about. It is also illegal to move unreported cash even if it is your money. The penalty for either of these offenses makes bank robbery look like a more attractive option.
However, with our own country continuing to advance the goal of globalization, of course it is legal to invest in, and to interact with, foreign markets and there are some tremendous incentives to do so. The key to taking advantage of these opportunities is to start modestly and remember that if it sounds too good to be true then it probably is too good to be true. Secondly, it is your duty as an American citizen to report your financial activities to the IRS. So divest yourself of notions of secrecy in the absolute and think in terms of tax savings rather than not paying taxes. If someone tells you that they can help you avoid paying any tax whatsoever, they are offering to help you engage in a criminal enterprise. And if you already are a criminal of some sort then perhaps you should look into the matter, but for the vast majority of those reading this article, don’t endanger a life spent being a law abiding citizen by buying into an outrageous scheme.
As I said before, U.S. citizens and permanent residents are required to disclose their banking accounts abroad, where they are located and what the account numbers are, on a form called a TDF 90-22.1. However, there are exceptions to having to file this report and taxpayers are confused about the definition of these exceptions as well as the meaning of key terms within the document. One excellent way to begin to understand what must be reported, and when, is to look to the Jacobs Report. The Jacobs report which can be found at
http://finance.groups.yahoo.com/group/jacobsreport/ and it is an extensive document filled with the applicable law and IRS instructions as well as the accumulated wisdom of many web sites and foreign bank reports.
Remember, the cardinal rule when beginning your inquiry into offshore banking is to find out about these matters in detail. You need to check into things yourself and keep in mind that if a deal sounds too good to be true then it is. In addition, keep in mind the fact that you want to be a tax avoider not a tax evader. Consult your estate planner and a tax specialist because the laws in many of the nations that provide tax havens have changed somewhat since the beginning of the War with Afghanistan and Iraq, because the U.S. is looking for hidden terrorist cash reserves and that has changed the way discretion is handled in many tax haven nations that are friendly with our government.Financial Rules for Long Term Care Recipients
Medicaid pays for medically necessary nursing home care for patients in skilled or intermediate care nursing homes or in intermediate care facilities for the mentally retarded. The patient's income must be less than the cost of care in the facility at the Medicaid rate, and there is a limit on resources. If the patient or his representative gives away assets or sells them for less than market value, he may be ineligible for payment of the cost of care. The sanction period is based upon the value of the assets transferred away.Financial Protection for a Spouse
Medicaid policy specifies that when a legally married individual needs Medicaid to help pay for nursing facility services, a portion of the couple's income and assets may be protected for the spouse at home, the community spouse. The following is a summary of spousal protection rules:
· Medical services: nursing home care, hospital care that exceeds 30 days, or services provided by the Community Alternatives Program (services which enable an individual to remain at home who would otherwise be institutionalized)
· The community spouse is allowed to keep one half of the couple's assets, with a minimum of $19,020 and a maximum of $95,100 (current as of 1/1/2005).
· The protected share is calculated by assessing the value of all assets owned separately or jointly by either spouse at the point the individual becomes institutionalized. The home site is generally not counted in determining the value of assets since the home site is protected for the spouse.
· The nursing facility spouse must spend his half of the assets on his care prior to becoming Medicaid eligible. A nursing home recipient is allowed a maximum of $2,000 in assets.
· The protected assets, including the home site, must be transferred to the name of the community spouse.
· Once assets have been allocated following spousal impoverishment rules, and the spouse in the nursing facility is found eligible for Medicaid, spousal financial responsibility ends and each spouse will be treated separately for Medicaid purposes.
· A portion of a married institutionalized Medicaid recipient's income may also be allocated to the community spouse.
· Income is allocated for the needs of the community spouse if the community spouse's income is less than 150% of the poverty level (currently $1,562). It is also possible to allocate additional income to the community spouse for excessive shelter costs.
· Income may also be allocated for the needs of other dependents.
The first question many people have when considering estate planning is how to protect their spouse in the event that they pass away. Although it is common to offer the advice that a will or trust is the best way to protect a surviving spouse, it is also important to remember to explain what protection a spouse has prior to a will or trust being created in which they are a named as an heir or beneficiary. This will enable both the client and the lawyer involved to see what else may be done to advance the protection of the surviving spouse. In addition, running through such a checklist may help an attorney see avenues for reducing costs for clients and let the clients know that their attorney is attempting to select legal options tailored to their needs rather than choosing a one size fits all approach.
For example it is important for most clients who are married to understand that they probably own most of their major assets in what is called joint tenancy. An asset held in joint tenancy is passed automatically to the surviving spouse in the event that one spouse dies. Most married couples own most of their assets, such as the family home, automobiles, investments and accounts in joint tenancy. So the typical question that an estate planner helps to answer, for those couples, is not how to protect the surviving spouse with respect to the major marital assets. The typical assets in an estate owned by a married couple do not need to be guarded for the surviving spouse, in every instance. The question becomes, where do we want this asset to go after we have both passed away.
However, you may discover, in the state in which you live, that it is helpful to have estate-planning tools, such as wills and trusts, in place in case there is some challenge to the remaining spouse’s ownership. The example above is not meant to suggest that most people don’t need estate planners to guard their spouse’s interest in case of their passing, but rather, that it is important to understand what rights your spouse has before the question of estate planning arises and then to build onto those rights. It is important to have an attorney who will explain what those basic rights are, and how the state in which you live has designed those rights. Then your choices regarding estate planning will make more sense. Remember, that planning an estate is, in part, a creative process. There are many ways to plan an estate and the one that captures your interests in the most thorough way is the best. Your attorney should be working hard to find the right solutions tailored to your needs.
Whether it is because assets have come into the marriage in a way that is not traditional, or because the assets in the marriage have already been altered by law, like a pre-nuptial agreement, there may legal instances where a spouse will need additional legal protections in the form of estate planning. In addition, states will have different laws regarding how they allow assets to be transferred via a will. For example, if the individual who passes away has children, some states require that the children and the surviving spouse split any asset that goes into probate. In other words, the state will require the assets that can go into a will to be split in this way. This system might be great for some clients, but for others it means that an already modest estate be split, leaving the surviving spouse and children in financial trouble. Because wills are more heavily regulated than are trusts, a living trust might be the better strategy in a state that requires this kind of split.
Again, it is important when considering how best to protect your spouse in the event of your passing, to understand what assets need protecting -- in other words, what assets could be taken away from your spouse after you die. Second it is important to understand what your state’s policies are regarding wills and trusts in order to understand what asset protection strategies are right for you. And finally, it is good to understand which assets will only be the subject of asset transfer in the event that both spouses pass away, and to decide, with your spouse, what you want to be done with those assets.Protecting Your Furred Friend
The whole concept of estate planning has a couple of primary aims: 1) making sure that your assets are distributed where and how you want them to be, and 2) ensuring that your loved ones are cared for and able to comfortably live out their lives after you are gone. If you consider your pets as part of your property, to whom do you leave them – and the obvious answer is to someone who won’t immediately haul them to the nearest shelter and drop them off.
Providing for your beloved pets may be more complicated than it sounds. There is much to be considered. For example, who will take your dogs and cats in and provide for them with the same loving care you have shown them? Who will develop the same kind of close relationship that your animals are used to sharing with you? Your son may not want a cat that insists on sleeping on his head or your daughter may abhor a dog that sheds all over her chic apartment.
Choosing an appropriate caregiver requires some careful thought and planning. First, you must make certain that whoever is going to care for Bootsie or Fluffy or Shadow, actually likes them and wants to have them around. Sure, a few thousand dollars to provide for Spot’s care over the next 15 years is a huge incentive – big enough to have all kinds of people professing their love and admiration for your friend in fur. While your next door neighbor may genuinely care for Callie the cat and all of her progeny into perpetuity, what happens when the kitty litter budget runs out? If you leave Fergus the dog to your cousin Harold, along with $10,000 to provide Fergus with the best of everything, what’s to guarantee that Harold won’t buy himself the best of everything and let Fergus eat cheap kibbles? What if there is simply nobody to leave Callie or Fergus to because you have no children and don’t trust the neighbors?
Pet care businesses are springing up and advertising their facilities as havens for pets with money. It sounds good in print, but what happens when the facility is full, Sparky is getting old and there is still a few thousand left in Sparky’s care account. If Sparky were to depart a little early, there’d be room for another wealthy resident and Sparky’s assets would revert to the care facility.
That’s precisely why, over the past few years, estate planning for pets has taken a whole new twist. Many people don’t consider their cat or dog as property, but as their best friend, not to be subjected to the twisted machinations of those bent on exploitation. Rather than leaving the pets to someone to be cared for from their assets, some pet owners are choosing to leave the assets to their surviving pets, or at least to make certain the pets are cared for throughout their lifetimes through the mechanism of a trust.
In fact, a trust may be the only way of insuring that your pet receives the love and care to which he or she is entitled after you are gone, particularly if the trust stipulates that any money left over after the pet dies is inherited by a third party rather than the caregiver. The caregiver then has sufficient incentive to keep the pet in question alive and well as long as possible.
Several states already recognize and enforce pet trusts and others will inevitably follow. If your aim is to make certain your pets are not just cared for, but pampered just as you would pamper them, talk to your estate planner about setting up a trust specifically for that purpose.Estate Taxes
Estate tax, or the death tax as it is sometimes referred to, is an issue often bandied about at election time. If the innuendoes of the sound bites are to be believed, the instant someone dies, the government collects a huge amount of tax from the estate just as a general principle. The specter of estate tax is looming in the corner of every hospital room in America, or so goes the story, waiting to deprive widows of their husbands’ hard-earned pensions and children of their college funds, if Mr. X is not elected to Congress or the White House.
While it is true that a decrease in estate tax benefits the wealthiest two percent of Americans, it is also true that only the wealthiest two percent of Americans are subject to estate tax to begin with—at least under present law.
Estate taxes are taxes assessed on property transferred at the time of death. They are based on the gross estate, including real estate, insurance, trusts, annuities, cash, business interests, securities, and all other assets. The items are not assessed at their value at the time they were purchased, but rather at their fair market value at the time of death. For example, if you purchased a home for $50,000 in 1970 and the value of the property has appreciated in the meantime to be worth $175,000 based on sales of comparable properties in the same neighborhood, estate taxes would be assessed on the present worth of $175,000.
Once the gross estate is calculated, applicable deductions are subtracted from that value. Deductions include property that passes to surviving spouses, mortgages and other debts, and estate administration expenses. In some cases the value of operating business interests or farms may be reduced, according to the IRS, “for estates that qualify.” The value arrived at after deductions is referred to as the “taxable estate”. Lifetime gifts are added back in and an available unified credit is applied before the estate tax is actually assessed. The good news for most of us is that your taxable estate, as an individual, must exceed $1,000,000 for estate tax to apply, as the law currently stands.
The federal Tax Act of 2001 changed several provisions of the law regarding estate taxes. The rate at which estate taxes were assessed in 2001 was 55% of the gross estate less all applicable exemptions. The 2001 Tax Act began stepping estate taxes down gradually in 2002 to the present rate of 46% in 2006 and on down to 0% in 2010.
The premise behind the 2001 Tax Act is that some of the revenue lost to the U.S. Government through reduction and eventual abolishment of the estate tax will be recouped by capital gains taxes that your heirs will have to pay if and when they dispose of the property bequeathed to them. Prior to 2001, heirs automatically received a “full basis step-up” to fair market value on inherited property and did not have to pay capital gains tax when they sold the property. At present, heirs do not enjoy that benefit. If, for example, you paid $60,000 for five acres of land in 1965 and you leave it to your son or daughter when you die. The son or daughter sells the land for $200,000 in 2006 and has to pay capital gains tax on $140,000, or the difference between what you paid for it at the time of purchase and the fair market value at the time it was sold.
Needless to say, estate tax issues are extremely complicated and, if you fall into the category of wealth that would require payment of estate taxes on your demise, be sure to discuss them with your attorney or other estate planner.Insurance Options
Many life insurance policies offer, at extra cost, an Accelerated Death Benefit rider. A portion of your life insurance benefit - usually no more then 80% of the face value of the policy is paid to you under certain circumstances when long term care is needed, rather than to your beneficiary at death. Remember, if you need guaranteed death benefits (for a spouse or dependent child), using a portion for long term care will defeat the purpose of life insurance. Carefully evaluate the additional premium cost vs. the benefits. Be aware of any limitations on using your benefits in relation to the cost of long term care and the amount of assets you wish to protect.
Long-term care insurance is similar to other insurance in that it allows you to pay a known premium that offsets the risk of much larger out-of-pocket expenses. Long-term care insurance may cover care in a nursing home, in the home, or in a community setting (e.g., adult day care) depending on the policy you choose. Most long term care insurance policies are indemnity policies, paying a fixed dollar amount (e.g., $100 per day) for each day you receive specified care either in a nursing home or at home. No policy will cover all expenses fully.
Paying a long term care insurance premium now insures at least partial coverage later for nursing home, home care, and other types of long term care, depending on the policy. This insurance may help if you are unable to pay for long term care yourself but can afford to pay a long term.
Medicaid planning is not without certain risks and drawbacks. In particular, you should be aware of look-back periods, possible disqualification for Medicaid, and estate recoveries.
When you apply for Medicaid, the state has a right to review, or look back, at your finances (and those of your spouse) for a period of months before the date you applied for assistance. In general, a 36-month look-back period exists for transfers of countable assets for less than fair market value, along with a 60-month look-back period for similar transfers into irrevocable trusts. Transfers of countable assets for less than fair market value made during the look-back period will usually result in a waiting period before you can start to collect Medicaid. So, for example, if you give your house to your kids the year before you enter a nursing home, you’ll be ineligible for Medicaid for quite some time. (A mathematical formula is used.)
Also, you should know that Medicaid planning is more effective in some states than in others. In addition, federal law encourages states to seek reimbursement from Medicaid recipients for Medicaid payments made on their behalf. This means that your state may be able to place a lien on your property while you are alive, or seek reimbursement from your estate after you die.
The Omnibus Budget Reconciliation Act of 1993 amended federal Medicaid law to require states to institute estate recovery. This means that after you die, the County Department of Social Services may make a claim against your estate, including your home, for what Medicaid paid after your 55th birthday or while you were an inpatient in a medical facility. However, they cannot "recover" until after the death of your surviving spouse or surviving minor, blind, or disabled child.Life Insurance Options
Not too many years ago life insurance was considered to be the indispensable platform upon which all other estate planning efforts should be based. In fact, for those in the median and lower income ranges, it was often the only recognized method for protecting one’s heirs, particularly in the event of untimely death. However, over the past twenty or so years, the concept of financial planning has changed considerably. The proliferation of varied retirement plans available through work (IRAs, SEPs, SARSEPs, mutual funds, etc) has changed people’s perspectives about the need for life large life insurance policies.
Does that mean that you don’t need life insurance? No. Most people, perhaps with the exception of the very wealthy, do need some sort of life insurance, although even the very wealthy may opt for a life insurance policy (generally whole life) to defray the costs of burial and estate taxes.
In general, the options are whole life (also called permanent insurance) and term life, with variations like universal life or variable life that combine some of the benefits of each. Different companies offer different options, but which you need and how much you need are matters for heated debate. Those who sell one and make most of their commissions from it will vehemently try to convince you that the other is not a good investment. Here are some facts for your consideration.
Whole Life Insurance Advantages:
· Offers a guaranteed death benefit no matter how long you live · Is generally not subject to rising premiums; rates stay the same · Many policies become “paid up” at some point (15 years, age 65,
etc.) after which no more premiums are paid
· Has investment value which can be cashed out after some specified
· Can be borrowed against in case of financial emergency · Can, in many cases, occasionally earn dividends depending on the
company’s solvency and accuracy in predicting actual costs · The income from a whole life policy is tax deferred
· Can be cashed out after age 65 and used for retirement
Whole Life Insurance Disadvantages:
· Costs more than term life insurance
· Generally returns a fairly low rate of interest
· Does not begin to accumulate any real value for the first 10-15 years · If the policy is surrendered within the first few years, money paid
into it is lost
· Does not provide the investment value of a mutual fund or other
Term Life Advantages:
· Premiums are generally very inexpensive
· Lower premiums allow the buyer to purchase more insurance with
higher death benefits
· Can be quite useful if the buyer only needs coverage for a specified
period (while paying off the mortgage or while kids are in college,
· Leaves the buyer with more money to purchase other investment
vehicles like mutual funds, stocks, bonds, etc. that provide higher
rates of return than whole life
· Often beneficial for younger families who can’t afford whole life
rates, but need to insure the primary income earner
· Only pays if and when you die; you can never personally recoup any of the money spent on term life insurance
· While premiums are lower than whole life, they also tend to go up and can become unaffordable
· Term life is only available for a specific term (up to 30 years), and then goes away; if you don’t die within the term, your premiums are lost
Almost everyone needs life insurance of one variety or the other. The type of insurance and the amount to purchase depend entirely upon you, your family and your mutual goals and needs. In any case, make sure the company you purchase insurance from is reputable and financially solvent. Don’t be convinced by a fast-talking sales person without doing your homework first. There are few remedies if your life insurance company dies before you do.Roth IRA’s (Individual Retirement Accounts)
An IRA is an IRA is an IRA, unless it’s a Roth IRA. Roth IRAs, which burst upon the investment scene not so long ago, offers some attractive departures from traditional IRAs, especially if it’s being used as a retirement planning tool.
The Roth is the same as a traditional IRA in that it is not an investment in and of itself, but a vehicle to investing in other instruments such as stocks, bonds, bank certificates of deposit, mutual funds, and even real estate. That’s pretty much where the similarities end and the differences begin.
With an ordinary IRA, the money you contribute is not subject to income taxes first, it comes straight from your gross salary. Taxes are paid when you withdraw the money and traditional IRA monies have to be withdrawn from the account when you turn 70 ½, or they become subject to higher tax rates.
In the case of the Roth IRA, the money you pay in comes from your net salary – in other words, you have already paid the income taxes on it. For many people it makes sense to have paid the income taxes up front when they are making more money, than later on when they need the money for retirement.
In addition, there are no taxes on the growth from your Roth IRA. What you put in, stays in, and earns additional money for you. And, the longer you leave it in, the more it grows.
At the same time, the Roth IRA is a bit more accessible since you can make withdrawals from it, provided you have had it for at least five years and you are at least 591/2 years old. There are no penalties for early withdrawal from a Roth IRA and, because the income taxes were paid up front, there is no tax to pay at the time of withdrawal.
There are some rules that govern contributions to a Roth IRA. For example, you can contribute up to $4,000 per year as an individual, but if you are 50 or older you can make an additional contribution of up to $1,000 as of 2006, in order to “catch up.” As long as you have income – from either work or alimony in most cases, you can make contributions to a Roth and you can keep doing so, no matter how old you are. You don’t qualify for full contributions to a Roth IRA if your modified adjusted gross income (AGI) is over $95,000, but can make partial contributions if you don’t earn more than $110,000. Married couples can make full contributions to a Roth IRA if their joint income doesn’t top $150,000, and partial ones if their income isn’t over $160,000.
There can be retirement advantages to a Roth IRA, primarily that the taxes have already been paid and there are none due upon withdrawal. Many people have converted their traditional IRAs to Roth IRAs as part of their estate planning processes. The transfer rules are somewhat complex, however. In order to withdraw money from the traditional IRA, taxes on it must be paid at the time of withdrawal. If the additional income in the year the money is withdrawn kicks the individual into a higher tax bracket, the tax bite can be more than anticipated.
While there are advantages to the Roth IRA, make sure you consult with your financial planner and estate planner to make sure you are cognizant of and meet all the rules.
Gender Issues Meet Social Security
If Social Security benefits play a significant role in your retirement plan, it may be time to rethink your strategy. The big news on the Social Security front over the past few years has been the fact that, due to an overabundance of encroachments on the system, it will soon be paying out more than it takes in. Opponents argue that the current Administration’s move toward personal retirement accounts will further erode what the American Association of University Women has referred to as “one of the most successful anti-poverty programs in our nation’s history.”
An issue that often goes unnoticed, or at least unsung, is the extent to which the Social Security system extends the inequities against women that are established in the workplace. Despite gains in salary equality reported in the 1990s, which brought women somewhat closer to parity with men in the working world, studies show that those gains have slowed in the first five years of the 21st century. There is still a huge salary gender gap prevalent in the world of corporate America and it is a gap that carries over into retirement plans, and specifically Social Security.
It is estimated that women who work full-time in this country earn 76 cents on the dollar when their salaries are compared with men in the same work categories. The gap gets wider for older women (ages 55-64) who only earn 68 cents on the dollar when compared with men of the same age group. Women’s pensions are correspondingly smaller because they haven’t paid as much in to the company’s pension plan, and women who live alone reputedly have a difficult time making ends meet, much less saving for anything.
Not only do women earn less than men, but married women generally spend less time in the workforce than do men, due to time spent raising families, taking care of elders, and other care issues that confront the typical family. Thus their earning power is diminished, impacting pension plans, specifically Social Security.
Thus, women are more dependent on Social Security, but receive less of it. Of all women aged 65-75 in this country, a quarter of them report Social Security as their primary income, constituting 90% of what they have to live on from month to month. That number goes up among women 85 years of age or older, 40% of whom depend on Social Security for 90% of their income. It is estimated that over half of all older women in the US would be living in poverty without Social Security.
Yet, because of womens’ lower earnings and less years in the workforce, elderly men’s pension incomes are generally twice that of women, who are forced to depend on spousal benefits for survival in their elderly years.
No matter what happens with the political maneuverings surrounding Social Security, it is apparent that it is a critical program that allows people to remain self-sufficient long after their working years. For many people, particularly women, it may be the only estate planning tool available.
Second Marriages and Estate Planning
As the life expectancy of people in the United States increases, the reality of second and third marriages becomes more likely even for those who tend to marry for a long time if not until the death of their first spouse. Widows and widowers are increasingly likely to meet and decide that a second marriage is an excellent way to avoid spending their autumn years alone and that love is not the exclusive province of the young. It is often a surprise to adult children to meet the boyfriend/girlfriend or husband/wife of their elderly parents.
However, remarriage later in life creates a unique set of legal questions that those who are getting married don’t often think through. For example, many older clients take it for granted that their adult children will inherit from them when they pass away, because the majority of their property and life has been spent with their previous spouse who was often a coparent to those children and the one who helped to build or sustain the family assets. But, a new marriage means that the marital property is governed by the laws of the new marriage. Absent any prenuptial agreement, the surviving spouse would, in most jurisdictions, receive at least half of the marital assets, which means that the adult children from the first marriage might be in for a big surprise if they think the family home that their family has owned for years will become theirs. Another problem is that as people get older they often move to places where it is warmer. This means that they move to states where they have not traditionally lived before and these states not only have different (warmer) climates, but different laws as well. If they spend the colder months (or the entire year) in these states, it becomes increasingly likely that they will pass away in these states. But, are the laws of the state in which they pass away the ones that control the transfer of their assets or do the laws of where they have lived most of their lives control that transfer? If they have a will, then this question becomes even more complex. Often the real property (real estate) assets are governed by the laws of the state in which they sit, whereas the personal property (bonds, stocks, money, possessions) are controlled by the laws of the state that is their final residence.
The problems that are created by second marriages should not be taken lightly. It is important to talk these things through with your future spouse because, chances are, they want to make sure that their adult children get their assets upon their passing just as much as you do. If you don’t have a frank discussion with your would-be spouse, you may end up causing all those whom you love a great deal of heart ache and confusion as they struggle to figure out what would be best and what you would have wanted. This happens every day -- earnest people do their best to honor their deceased loved one, but honestly and simply disagree about what he/she would have wanted; a situation further complicated by those who just want to fight for any dollar they can get.
Consult with an attorney who can help you set up an agreement waiving certain marital rights that may be tailored toward married couples who start out together, rather than those who meet later in life’s journey. Be prepared to be honest and up front about what you want and ask your attorney what kinds of problems they commonly see with respect to estate planning and autumn romances and how they think such problems are best avoided. Your attorney will have plenty of good ideas that will ultimately help you safe-guard the important people in your life.
Disinherit or Oversight and Estate Planning
Sometimes family and estate planning begins before the family is complete, particularly in an age where people (generally) are waiting until later to have children. In that case there could be grandchildren named in a will and others not, who are all in the same family. The reason may simply be that the children who were left out were not born when the will was made and it is too late to remake it. Fortunately, most states now have laws that are designed to remedy this situation.
Generally children are protected if they are left out, because they are considered to be overlooked as opposed to specifically disinherited. Some states protect spouses and grandchildren under the theory that they have been omitted rather than excluded. But, states have a couple different ways of handling omitted relatives. Many states assume that if the testator (the will maker) had a chance or had not forgotten to do so, that they would have included the omitted relative. This is important because the suggestion is that naming the individual would have been the testator’s intent had they recognized the omission. Other states make no mention of what the testator’s intentions would have been, because they want a testator who intends to disinherit someone to do it using positive language rather than just not mentioning that person. Both of these approaches can fly in the face of the facts regarding what the testator wanted or intended. But, one thing is clear, if you intend to leave someone out of your will who is a close relative you must do so expressly. That can be done by saying something like, “And, to my wife Sheila I leave nothing,” or “To my son Thomas, I leave the kick in the rear end I should have given him years ago.”
Such a scenario is a nightmare for your estate planner who knows that Shelia and Thomas will challenge your will because they have no reason not to. As was discussed in a previous article, it is better to leave a relative something that they are afraid to lose and use a no-contest clause in many instances. However, sometimes a client is clear in the desire not to leave a thing to one of his/her relatives. This is become increasingly difficult under state laws that protect omitted relatives and disfavor no-contest clauses. It is another case of laws that are designed to protect our interest also protecting us from being free. Why shouldn’t the testator be able to disinherit those they don’t like with ease? Why should the government decide who your assets will go to? Remember that most people die intestate so the state is used to making these decisions, but why should they be able to do so if you make a will? Perhaps it is another legal road paved with good intentions or perhaps it is another instance of big brother deciding for you.
This is another pitfall that your estate planner will be able to help you avoid. If you want to disinherit someone, then let your estate planner clearly know your intention. There is nothing wrong with that. Remember that, as an attorney, your estate planner’s job is not to judge your wishes, but to make them happen and guard you and your estate against what you don’t want. Your estate planner should not, and most likely will not, make you feel judged. They work for you and have taken an oath to faithfully serve your legal wishes to the extent that they have the legal power to refuse to break your confidence even after you pass away. Any estate planner who isn’t ready to fight tooth and nail to see your wishes met is not doing their job.
Just remember that if you intend to leave someone out of your will, you can do that. And conversely, your estate planner can help you provide for extra grandchildren that you may not have been lucky enough to meet, but that you still might help go to college.
Planning for the Intangibles
Every state has statutes and mechanisms in place that deal with disposal of tangible assets whether the deceased had a will or not. Families might fight over who gets the house, the cars, the stocks and the cash, but there is generally no question about where such property is located.
On the other hand, many of the questions surrounding intangible digital assets are just beginning to be asked, much less answered. Estate planning in the information age raises a whole new set of issues that just didn’t exist even as few as ten years ago.
When a person dies, for example, who inherits the computer files, the web pages, blogs and emails? More complicated yet, how are online bank accounts, stock holdings that exist entirely in digital media, or the rights to an exclusively online business to be handled? The proliferation of online businesses and the world’s propensity for doing paperless business means that digital holdings very often have considerable monetary value. What if nobody knows your passwords or your various usernames? Do your digital assets just disappear into the ether? Can your online business be seized and sold to pay your creditors?
The dynamic nature of Internet transactions makes their inclusion in a will eminently impractical. User names and passwords change, new businesses are created, new stocks are e-traded, and new email accounts come into being. Changing a will, or adding a codicil, every time your online dealings change is not at all feasible.
Even though the law governing digital assets is unclear, largely because it hasn’t yet been written, there are ways to protect those assets and make sure your heirs are able to locate and use them.
First, keep a master list of all your online dealings, complete with urls, user names and passwords. The list should include items like domain names, where they are registered, and when they need to be renewed to keep the business name and Internet location. Put this particular information on paper, update it every time something new is added or something old deleted, and keep it in a safe place with your other important business papers, preferably in a safety container.
Make sure your attorney or your estate executor is aware of the list, even if you don’t want it opened until after your death. Instruct your executor or attorney as to when the list is to become available to your heirs – for example in the case of serious illness in the event that someone needs to take care of online business transactions in your stead. Such instructions may or may not be legally binding, but chances are your instructions will be followed, as a matter of moral obligation.
If you have a prosperous online business, online bank accounts, e-trade accounts, or other valuable digital assets, those need to be figured into your estate planning. Otherwise, your heirs may be stuck with a messy situation and many unexpected expenses, or even legal challenges to deal with – problems that your estate planning was initially designed to protect against.
Wills and trusts have an interesting history in a culture as heavily influenced by British common law as our own. The bequests of wills have been the pole star around which a great deal of mystery fiction has been written where furtive and anxious relatives wait around a long imposing table to hear what is to become of the family fortune and thus; what is to become of them. As usual, fiction and the media give one side of what something has been or is, while the other side of the tale exists behind the scenes or on an obscure back page of a newspaper.
What is not often shown about a will is that it is contested. Perhaps this is because the craving for legal courtroom drama is a relatively new phenomenon, and perhaps because the way the family members behave toward one another over large sums of money is too violent even for television. Wills are contested in long bitter rivalries that often leave no member of the family unscathed. Often there are two opposing camps and each relative must decide which “side” they are going to be on. It is refreshing when the sides earnestly agree that they each wish to bring about what they believe the deceased would have wanted, but it is more often the case in which that is merely the incantation recited to get what each opposing camp thinks is their due.
One means of opposing a will is to suggest that the person making the will was crazy when they made it. That is why even most lay people begin their will with the phrase, “I (so and so) being of sound mind and body….” This legal doctrine is not unique to wills, but affects the right to enter into contracts and agreements of all sorts. In the context of wills, this is called capacity.
Capacity can be broken down into two elements -- first, the will maker must not be mentally deficient. For the most part this means that the will maker must understand what they own, who will get it and the basic arrangements used to get that person whatever it is they are to receive. These elements combine such that the will maker must understand how these elements relate. It seems that video taped sessions where the deceased explains the whole process are changing the applications of this law. There is the deceased on-screen explaining who gets what, why and how and in what way that affects the rest of his/her property. Note that the requirement of mental deficiency is not about what the person understands generally, but what they understand about what they own. It is tempting to wonder if this requirement stems from the fact that the rich are allowed to be ‘eccentric’ to a certain extent in our society.
The second prong of capacity is whether the will maker is operating under an “insane delusion” or “mental derangement.” However, again, this insane delusion or “false belief against reason,” is not about anything other than the assets in the will. Provided that someone has an insane belief against reason, it doesn’t matter unless it affects the property divided up by the will. If someone believes they see dead people, but doesn’t attempt to leave money to any of them, then that is probably all right. Usually, insane delusions come in the form of an irrational belief that someone is not the deceased’s child or that the deceased spouse has been disloyal in the conjugal sense. But, again the deceased can hold a whole host of irrational beliefs about matters other than their property, and that would not invalidate their will.
Undue Influence Considerations
Often during the final years of a dear friend’s or relative’s life some person or persons will take over the task of caring for their sick and elderly friend or relative to a greater degree than the other people in their lives. This is sometimes due to sheer geography where the aged or sick person lives nearer to one set of relatives than to another. In addition, some relatives or friends may be better suited to dealing with the realities of sickness, age and dying than are others. There are some people who do not have the temperament to be care givers for those they love dearly, because they cannot bear to see a parent decay and succumb to age and death, particularly if the process is prolonged.
Those who are elderly, sick and in need often attempt to show their gratitude for the care that they are being given through bequests in their will. It seems only fair that the relative who is actually caring for their loved one should be rewarded by the one who is being cared for. However, there is the potential that the other heirs want an equal share of the bequest regardless of who took care of whom in the final days of a person’s life. Sometimes, for no other reason than that they want to feel that they were loved equally and view an equal share of the will as a demonstration of that.
When this happens, a common means of contesting a will is employed that involves a claim of undue influence. This claim is essentially grounded in the idea that a relative exercised an extreme amount of coercive ability with respect to the deceased. It must be true that the person who is claimed to have undue influence also received an ‘undue benefit.’ Undue Influence is usually combined with a claim of lack of capacity in one form or the other. The less forceful the waning personality of the deceased becomes in the eyes of the courts, the easier it is to establish the dominance that the undue influencer had over that person. After all, it is difficult to say that a strong, healthy, fully cognizant adult was duped by his/her insidious caregiver. To be sure, there are people who try to take advantage of those whom they care for, but there are a great many claims of undue influence raised by those that simply didn’t pay attention to their elderly loved ones, yet expect and equal share of the bequest. Another interesting facet of undue influence claims is that they can involve the degenerated mental state of the will maker without relating that state to the property or to whom it goes. Part of the undue influence claim is showing that the person being influenced was addled and that the person doing the influencing used that to their advantage. This is unfortunate, because the elderly often become more absent minded or less mentally acute than they once were, and yet they may still be attempting to reward a relative who has come to their aid when it mattered to them the most.
Undue Influence is also shown by proving an opportunity to exercise such influence. In one case a test of “psychological domination” was used to prove undue influence. But, the central question is always whether an unwarranted coercive force or ability existed and was exercised. This is problematic, in that there may be one child or relative whose advice really is important to the will maker, but that fact is not attendant to undue influence so much as a general respect for that person’s counsel.Protecting Assets from the State
It isn’t just the US Government waiting out there to grab a chunk of your hard earned estate when you become incapacitated or die. Strangely enough, state coffers are frequently enlarged through the mechanism of Medicaid. When someone requires long-term care in a nursing home, unless he or she has a private long-term care insurance policy, their whole estate may belong to the state when they pass on.
Nursing home care is not free, even in county or state operated facilities. Someone, somewhere, has to foot the bill. If you, or your family, does not have resources to pay for the care, Medicaid steps in. While Medicaid is a federal program, funds are allocated to the states for administrative purposes and are subject to state rules and regulations.
People who apply for Medicare aren’t always aware of exactly how the program works, but even more sadly, most people who are forced to apply for Medicare really have no other choice, so it doesn’t matter how it works. By the same token, Medicaid rules have been revised so that if one half of a married couple requires nursing home care, the other spouse doesn’t have to sell the house and live on the street.
Under the most recent Medicaid rulings, when one spouse has to be in a nursing home for 30 days or more, the couple’s assets are assessed and some assets are excluded by virtue of “spousal impoverishment” rules. The couple’s residence is excluded from the asset evaluation, along with household furnishings and personal effects. In some states, the remaining spouse’s IRAs are exempted, as well. The non-ailing spouse is then entitled to half of any remaining assets, subject to minimum and maximum limits, while the other half must be spent on the nursing home care.
In addition, income like Social Security, some pensions, and some interest dividends are subject to “maintenance allowance,” rules designed to allow the healthy spouse enough money to live on. If, for example, the Social Security Income or other pension income is in the remaining spouse’s name, he or she is entitled to keep it for living expenses. In some cases, the spouse at home can receive more than half of the marital assets, particularly if his/her income falls below minimum levels.
If there is no spouse, in many states the individual requiring nursing home care is required to sign over his or her home to the state to reimburse Medicare. When the nursing home stay is not permanent, the Medicaid recipient is allowed to live in the house until death, but cannot pass it on to children or other heirs, because it actually belongs to the state, not to the individual.
Estate planning, particularly if it involves some sort of long-term care insurance, can alleviate or eliminate some of the worries associated with the potential for requiring nursing home care. Talk to your attorney or other estate planner about what can be done to protect your remaining assets if you have to go to a nursing home.
Where does your home mortgage fit into your financial planning and particularly into your estate planning? In the world of yesteryear, the chief goal was to pay off the mortgage and hold the property free and clear. Higher land prices, higher building costs, and fluctuating interest rates have changed the landscape of the housing market, with instruments available from flexible interest schedules to interest-only mortgages, in which the buyer never actually purchases the property.
There are advantages to paying off your mortgage as quickly as possible and there are disadvantages as well. It just depends on your needs and your aims for the future, which route you should take. Say, for example, that you had just come into a lump sum of money – from a stock market windfall, inheritance from Uncle Joe, or some other pile of cash that gave you the option to pay off your mortgage and be done with it, or not.Some things to consider in contemplating this matter include:
§ Are you still working and intend to be working for 20 more years, or are you nearing retirement age within the next few years?
§ Do you intend to retire in the home, or move to another retirement location altogether?
§ Do you have children who would want to inherit the family home?
§ Are you in a stage where you are actively trying to build a retirement nest egg?
§ Is the interest rate on your mortgage high or relatively low?
§ Do you need extra tax deductions or is that immaterial?
The answers to these questions can help you determine whether you want to use the extra money you have available for paying of your mortgage or put it to other uses.If the following statements describe you, paying off the mortgage is the best option:
§ You are a person who craves personal security and don’t like the worry of having a mortgage hanging over you.
§ The interest rate on your mortgage is higher than that which you are currently earning on your investments.
§ You would like to have money available to begin, or contribute more heavily to, an investment or retirement program.
§ You don’t intend to retire in the home, but want to buy a smaller home by the lake, mountains, river, in the tropics, etc.
§ Your mortgage is near to being paid off (within 10 years) so you are now paying more principle than interest.
§ You have enough money to pay off the mortgage and still have a healthy savings account.
If these statements best fit you, you may want to ignore the mortgage and
use the money for other purposes.
§ The interest rate on your mortgage is lower than the interest rate you are receiving on your investments.
§ You have more than ten years till retirement and are able to comfortably handle the mortgage payments and don’t anticipate any change in that situation.
§ Paying off higher interest credit cards would be more beneficial to your financial situation than paying off a low interest mortgage. § You still have 20 years to pay on the mortgage so there is a significant amount of interest still to be paid before you begin to seriously impact the principle.
Dying in Intestate
If a person passes on without estate planning of any kind, whether that planning is some kind of will or trust, they are said to have died intestate. Intestate law is the law that decides how assets are transferred and creditors satisfied if a person passes on without saying who gets the house, the car or the guarded family apple pie receipt. Intestacy law is a set of fall back provisions or rules that govern where the assets go, so that the state does not have to decide in each individual case what happens. Intestacy laws are like the default settings on computer program; they are there unless you intentionally alter them. Since most people die intestate, state intestacy laws govern how most people’s assets are distributed after their’ passing. Sometimes, even when a person has a valid will, if that will does not cover some portion of their property, then state intestacy laws will be used as gap-fillers or fallback measures so that all assets are covered.
Although state intestacy laws are best seen as a set of state laws that govern what happens to property left by those who did not make a will or trust, they also reflect some of the other needs a state has. First, states seem to make an attempt to ask what the normal person in the deceased place would want done with their assets. This is an important question because the answers given will reflect what state legislators think a “normal” person is and would want. It is easy for the legislature to over look non-traditional relationships, such as non-marital co-inhabitants, lesbian and gay life partners and children born out of wedlock or even stepchildren. This can bring about tremendous animosity among the people you care most about; so the best plan is to get a will or trust to protect those you love if nothing else.
However, your wishes are not the only goal that states keep in mind in drafting intestacy laws. The state may wish to maintain a system where parcels of land are owned by a single person rather than a group of people; because such groups have a tendency to sue each other over property they all have an interest in and this creates a problems and expenses for the state itself. In addition, your state may have an avowed policy of attempting to promote “traditional family” relationships and use its power to craft intestacy laws to give assets to family members that the state deems more worthy. Even if you are someone who normally prefers more traditional family relationships, there is no guarantee that the relationships your state decides are traditional and your understanding of the traditional family will be the same.
Finally, you are in the best position to decide who is to have your assets, because you actually know the people involved; to the state the people involved are people who occupy abstract positions in your life, like spouse, child or parent. You are the one who is in the best position to decide who among your heirs should get something (or anything at all) from your estate, because these people play a greater role in your life than merely occupying some abstract position. They are the people you have laughed with, shared meals with, raised and have had raise you, cuddled with and loved. This is bye no means to suggests that what people mean to you can only be known through your will or even be known through your will at all. It is rather to suggest that you should decide what who gets what asset because you know what those around you value and enjoy. You should decide what happens with your assets, because chances are you earned them and should be the one to decide how they would best be passed on.
The Realities of Probate
The idea of having your will or estate go through “probate” conjures up visions of money that should have gone to your heirs being peeled off and divided up for the state’s administrative services in seeing to your last wishes. In addition, the process of probating a will or estate can be a lengthy one, particularly trying for a spouse or children who have to wait until it is finished to gain clear title to a home or access to bank accounts. Consequently, attorneys and financial planners often encourage people to structure their estates in ways that will avoid probate. That may or may not be beneficial, given that probate court systems in many states have been restructured in recent years and there are only certain types of assets that aren’t required to be probated.
What is probate and how does it work? There are actually two facets to the process commonly referred to as “probate”. When a person dies, his/her will must go through a formal process of being finalized. The probate court, depending on the state, determines that the will is your last statement confirming the disposition of your estate and officially appoints the person or business that you have already chosen to administer the will (your executor). In cases where a person dies intestate (without a will), the state court may appoint an estate executor, generally an attorney or agency that specializes in such matters.
In addition to the formalities, the term probate is also applied to the whole process of gathering and paying any final bills and taxes that are filed against the estate, as well as distributing the remaining assets to the heirs. The executor is supervised, or at least reports to, the court, and may come under close scrutiny by the will’s beneficiaries. Because the executor performs a number of tasks that can be technically difficult and time consuming, he/she is also entitled to be paid a reasonable amount for services rendered. The actual amount of compensation may be provided for in the will, or could be a percentage established by the particular state’s probate laws. In either case, it does constitute a certain portion of a person’s net assets that subtracts from the amount eventually dispensed to the heir(s).
There are certain assets that are exempt from probate. Those include life insurance or retirement plans that pass to a specific, previously named beneficiary and real estate held jointly by the deceased and the beneficiary. In addition, bank accounts or brokerage accounts that are jointly held and which specify the right of survivorship do not have to be probated.
A living trust, which passes property to your heirs prior to your death is often marketed as a way to avoid probate. However, that assertion may not be entirely true. It is only rarely that some part of a living trust does not have to go through probate, despite the original intentions. Any property that has not been transferred to others prior to your death is generally willed to the trust itself, then transferred to the heirs via a trustee who very probably charges fees, after he or she pays any outstanding taxes from the estate. It is the very process of settling those same taxes and administrative details that can delay and extend the process of probate. Thus, depending on the state where the property is being dispersed and the extent of the estate, the actual time frame and cost of probate can potentially be less than those involved in the distribution of a living trust.
Probate, therefore, is generally a necessary court procedure through which a person’s final will is confirmed and the proceeds from it are distributed. Because states have been working toward simplifying the procedures involved in probate, it is not something that must necessarily be avoided at all costs.Conclusion
If you intend to give away assets to loved ones, don't wait until you are ill and need a nursing home. Medicaid looks back 36 to 60 months (for some trusts) into your finances and will penalize you by delaying Medicaid eligibility, if you have given away assets during that period. If you intend to apply for Medicaid for long-term care, keep good financial records. Medicaid will require bank and brokerage statements and other relevant papers for three years preceding the Medicaid application, or 5 years if you have transferred assets into certain trusts.
This article is not intended to be legal advice. It provides an educational and informational background to the issues and documents involved in basic estate planning. As with all sensitive matters, you should consult your legal, financial and medical advisors whenever you make important decisions. Also be aware that laws may vary, sometimes considerably, from state to state and you should plan accordingly. 21 The laws of each state vary, and this example is for illustrative purposes only.Chapter Two Finding an Attorney
Finding a lawyer may be easier than you think. Creditable and trustworthy resources are already available to you on the Internet. For instance, www.lawyers.com offers a complete database of lawyers sorted geographically and by expertise. It is by the professionalism and honesty presented by the Website of LexisNexis® and the law firm of Martindale-Hubbell that this chapter is made available as the majority of invaluable information is displayed upon their site for consumer review.Finding a lawyer may seem like an overwhelming task.
You’re already anxious because you have a legal problem. A creditor may have sued you or you may have been injured in an auto accident. Perhaps you want to start a business, adopt a child or finally tackle your estate planning needs. In these situations, you need a lawyer to protect you rights, but each situation requires very different skills. Yet many people don’t know how to find a lawyer that is right for them, which only raises their anxiety level.
Not surprisingly, recent studies suggest that the vast majority of consumers (81%) wish there was a resource to help them find competent lawyers. The study also suggests that 62% would like to have access to legal resources on the Internet. This chapter outlines the basic steps to finding and hiring a lawyer, using Internet resources already available to you, and explains how to make that relationship as productive as possible.Learn about different legal practice areas.
You can easily become familiar with the different practice areas to determine the type of lawyer who will work best on your legal matter. For the purpose of asset protection and estate planning you will need a lawyer well versed in Trusts and Estates.Check out the database of lawyers in your community.
You can use www.lawyers.com. Other Internet resources can help as well. Lawyer referral services, operated by your local bar association, can assist in finding a lawyer who is right for you. Visit www.abanet.org/referral/ to find a referral service close to home. If you qualify financially, consider contacting your local legal aid service by clicking on www,abanet.org/legalservices/probono.html. You can also contact a legal professional association or the American College of Trust and Estate to find the best attorneys in your area.
Yet some things can not be done on the Internet! In all cases, be sure to interview the lawyer to assure yourself that he or she has the expertise and experience you need, and that you have a comfort level that will allow you to be honest and open with him or her. Usually, you will not be charged (or charged very little) for this initial consultation.Considerations when selecting a lawyer
Ask yourself the following questions to determine what lawyer is best for your situation:
· Before selecting a lawyer, think about what skills he or she must have to assist you. Is your matter a business matter or have you been sued? Do you need estate planning advice or are you getting a divorce? What expertise is required is an important first question when looking for a lawyer.
· Next think about the lawyer’s level of experience. Is this a complicated business transaction, or a large estate and asset portfolio? If so, you may want a more experienced lawyer to assist you; mindful that with experience may come higher fees. Or perhaps all you need is to incorporate a business, a relatively easy task that a less experienced lawyer can handle at a considerably lower cost.· Is the lawyer in good standing with the bar? Does he or she have a good reputation in the legal community?
· How much experience does the lawyer have with cases like yours?
· If there are other lawyers in the firm, who will have the ultimate responsibility for handling your situation, will it be the lawyer you consult or someone else in the firm? (If it is another attorney you should consider all of these questions as they relate to the other attorney).
· Is the lawyer’s office accessible to you? Is it on a bus line? Is there adequate parking? Can your needs be accommodated if you are a person with a disability?· Does the lawyer have adequate office staff who can respond to you if the lawyer is temporarily unavailable?
· Is the lawyer willing to offer you a free initial consultation and an estimate of what more extensive services may cost should you require them?· Does the lawyer carry malpractice insurance?
· Does the lawyer provide a written agreement that is easy for you to understand?
· Does the lawyer provide itemized bills? What payment methods are available to you?
· How does the lawyer handle client complaints or other disagreements?
Specific questions for an Estate Planning attorney
Selecting the right estate planning attorney is as important as choosing the right doctor or other professional. You need to look for the right combination of experience and sophistication to deal with your particular situation. In identifying an attorney with the proper credentials, you should ask the following questions:· Is the attorney’s practice concentrated in estate planning and business succession issues?
· How long has the attorney practiced in the estate planning and business succession area?
· What type of clients has the attorney served? Has the attorney worked with clients whose circumstances are similar to yours?
· To what professional organizations does the attorney belong? Is he attorney a member of professional organizations for estate planning and business succession attorneys?· Is the attorney active in the Probate and Trust Law Section of the Bar Association or any of its committees?
· Does the attorney do outside speaking to both professional and public groups? Does the attorney teach graduate school or law school courses?· Has the attorney written any articles for continuing legal education courses or professional publications?
· Does the attorney regularly attend continuing education courses in estate planning, business succession and taxation areas?· How does the attorney charge for services provided in this area of expertise?
After obtaining answers to these questions, you can determine whether the attorney’s level of sophistication is commensurate with the complexity of your estate. For a simpler estate plan, the attorney’s participation in professional organizations, publishing, or speaking is less important. As the size and complexity of the estate increases, the attorney’s sophistication and experience with similar situations should also increase.Selecting a Good Trusts and Estate Lawyer
Trust and Estates is a rapidly growing area of practice in the law that includes estate planning, managing your estate during life and disposing of your estate at your death through the use of trusts, wills and other planning documents.
You’ll want to hire an attorney who regularly handles matters in the areas of concern in your particular situation, and who will know enough about other fields to question whether the action being taken might be affected by the laws in other areas of law. For example, if you’re going to rewrite your will and your spouse is ill, the estate planner needs to know enough about Medicaid to advise you about whether it’s an issue with regard to your spouse’s inheritance.
Unfortunately, there are some attorneys who hold themselves out as experts in trusts and estates, but who have little or no experience in this area of practice. They recognize that the aging America represents a business opportunity for them and they hope to “cash in”. So you’ll want to be particularly careful in narrowing down your selection of a trust and estate planning attorney.
Once you have a list of lawyers, use the following guidelines to do some initial screening and narrow your list down to three or four prospective candidates:
· Look at biographical information, including whatever you can find on the Websites for the lawyers and their law firms. Do they appear to have expertise in the area of trusts and estates, or estate planning? Do they have any information on the Web that is helpful to you?
· Use search engines to surf the web. Do searches under the name of the lawyer and his or her law firm. Can you find any articles, FAQ’s or other informational pieces that the lawyer has done that give you a level of comfort?· Ask other people if they have heard of the attorneys and what they think about them.
· Contact your state bar association or visit the bar association’s Website to find out if the lawyer is in good standing.
· Is the lawyer certified as a specialist in your state? Not every state certifies specialists in trusts and estates, or estate planning, but if your state does, your lawyer should be certified as a specialist in the estate panning area.
· Check the membership directory of local, state or national associations. Is the lawyer listed? One example would be the American College of Trust and Estate Counsel.
· Check out the yellow pages of your telephone directory. Does the lawyer advertise? If so, do you find it compelling? Helpful? Tasteful?
· You should anticipate that whomever you hire might have to delegate a lot of the responsibility to his or her staff. In turn, an important consideration should be to access the way the lawyer’s staff treats you since they are a reflection of how the lawyer practices. At a minimum, you should expect to be treated courteously and professionally both by the staff and by the lawyer.
· You will probably want to hire a lawyer with at least a few years of experience. However, experience does not a good lawyer make. Every practicing attorney knows other lawyers that he or she would not hire.· Unless there are special circumstances, you’ll want to hire a lawyer with a local office.
Before you hire a lawyer:
· Ask for references. You want to talk to people who could comment on the lawyer’s skills and trustworthiness. Ask if it’s okay to talk to some of the lawyer’s representative clients.· The Law Directory, which can be found at most libraries, discloses peer ratings of hundreds of attorneys.
· Ask for a copy of a firm brochure and promotional materials. Crosscheck these materials against other sources and references.
· Ask to be provided with a copy of the lawyer’s retainer agreement and have it explained to you before you decide on retaining the lawyer or the lawyer’s law firm. You may end up paying a lot of money to the lawyer you hire, so make sure you understand what you are signing up for.
Consider any special needs you have. For example, could you benefit from an attorney who speaks a language other than English?
You shouldn’t necessarily cross a lawyer off your list just because she or he didn’t have the time to meet with you on short notice. Nor should you expect to be able to discuss your matter on the telephone with the lawyer. Good lawyers are busy, so they may not be able to spend as much time as they would like with prospective clients. But if it takes a lawyer too long to meet with you, it may be a sign that he or she is too busy to give your situation sufficient attention.
You should be prepared to pay a fee to meet the lawyer. Trust and Estate lawyers seldom take cases on contingency fee or fail to charge for the first meeting. When you make the appointment, you should ask what the fee for the first meeting will be.
Use your common sense and gut instincts to evaluate the remaining lawyers on your list. You’ll want to be comfortable with the lawyer you hire. You want to choose the most efficient lawyer who you think will do the best job for you.How much can you afford to pay?
All lawyers charge different fees, and some don’t charge at all unless you win your case (called a “contingent fee” arrangement). Before looking for a lawyer, decide what you can afford, and be sure to ask the lawyer, in advance, if he or she can give you the assistance you need at a cost within your means.A personal relationship with your lawyer
It’s important to take some time to consider how important your relationship with your lawyer will be. Because you must be completely honest and forthcoming with him or her, a rapport must be developed so that you will be comfortable giving your lawyer all of the facts that he or she will need to pursue your matter diligently. This doesn’t mean giving your lawyer only those facts that you believe will help your cause, but all the facts, even if you believe them to be embarrassing or detrimental to your position.
Remember that you lawyer must maintain the attorney/client privilege, protecting your confidences in all respects. This privilege prevents a lawyer from divulging your secrets, and should allow you to feel comfortable giving your lawyer all facts pertaining to your matter so that the best result can be obtained.Making the relationship as productive as possible
To keep your fees to a minimum and to allow your lawyer to work as efficiently and effectively as possible, try to give the lawyer all of the information he or she might need to assist you at the time you hire the lawyer, and if you aren’t sure what to bring, ask the lawyer before your visit. For example:
· If you have been sued or are considering filing a lawsuit, come to the lawyer’s office with the name of witnesses, with all the pertinent papers (such as court papers, contracts, or deeds), and with specific facts or dates that might be important to your matter.· If you are setting up an estate plan, bring a list of assets and an explanation of how you want to distribute your assets.
· If you are starting a business, have the names and addresses of shareholders, officers and directors ready for the lawyer.
In addition, be sure to keep the lawyer informed of changes that may affect the legal advice you are receiving. Nothing is more frustrating for a lawyer than to do a great deal of work only to learn that the client’s situation has changed, thereby altering or negating work that has already been completed.Preparing to meet with your Trusts and Estate Lawyer
It can be a big waste of time for both you and the lawyer if you aren’t prepared for your first meeting. Being unprepared may also end up costing you money, because it will take longer for the lawyer you hire to get up to speed on your legal matter.
First of all, the lawyer will want to know who you are and how you can be contacted. The lawyer will also want to know whom you represent and whether other persons may be present for the meeting. For example, in many estate planning matters, a child visits the lawyer to seek help for his or her parent. The lawyer will want to clearly understand your relationship, why you are seeking help for the person and why the person is unable to seek the lawyer’s help personally. You should be prepared to bring with you any documents that will “prove” your authority, such as a durable power of attorney.
Many times, a trust or estate planning lawyer will try to speed the information-gathering process by sending you a questionnaire to fill out in advance. If this happens, be sure to follow the lawyer’s instructions for completing the questionnaire. Information typically requested would include:
1. Personal information.
2. Marital status
3. Family information, including children and grandchildren
4. A list of your professional advisors
5. A detailed list of assets and liabilities
6. Banking and financial account information
7. Choice of guardian(s) for minor children (name and address)
8. Choice of executors, trustees and other personal representative
You may also be asked to send information to the lawyer’s office before the meeting. Regardless, make sure you bring it with you for the meeting. Also send along or bring copies of any available documents that may be requested in the questionnaire. These documents would typically include:
1. Copies of any current wills or trusts
2. Copies of deeds to all real property
3. Copies of life insurance policies
4. Copies of prior gift tax returns, if any
5. Copies of trust agreements in which husband and/or wife are a donor or beneficiary
6. If you have applied for public benefits (such as Medicaid or Social Security), you should bring copies of documents having to do with the applications
Even if the lawyer doesn’t ask for documentation beforehand, it’s still a good idea to bring a copy of all documents relevant to your situation to the meeting. Spend some time thinking about what you may have on hand. Try to organize the documents in a logical manner before you meet with the lawyer.
Prepare a list of questions to take with you to your first meeting. You have to feel comfortable with your attorney. Remember that your lawyer is working for you. You want someone who is skilled, but you also have to get along with your lawyer. In theory, no question is too silly to ask. Keep in mind, though, that you don’t want to scare a lawyer out of representing you. Questions you might ask a lawyer would include:§ What would the lawyer like to see in order to evaluate your situation?
§ What might your other options be?
§ How many similar matters have he or she handled?
§ What percent of his or her practice is in the area of expertise that you need?
§ What problems does the lawyer foresee with your situation?
§ How would the lawyer go about handling your situation?
§ How long will it take to bring the matter to conclusion?
§ How would the lawyer charge for his or her services?
§ Would the lawyer handle the case personally or would it be passed onto some other lawyer in the firm? If other lawyers are on staff will they do some of the work, could you meet them?3Chapter Three