LETTING THIRD PARTIES TAKE ADVANTAGE OF YOUR BENEFICIARIES

In the last chapter, we talked about protecting beneficiaries from themselves. But maybe you don’t have to worry about such protections. Maybe none of your heirs are young and foolish. Perhaps none are mentally incapacitated. All might be gainfully employed and out of prison. Maybe you can rely on them to handle even a large bequest.

You may even have the perfect family.

Unfortunately, however, it’s a rough world out there, and lots of third parties can prey on even the most responsible heir. You should protect your legacy as best you can from such persons.

Who are these third parties? In this chapter, we’ll discuss both creditors and professional estate predators. But let’s start with the most common of dangerous third parties: divorced spouses.

DIVORCE

No matter how much we all wish it were not true, about 50 percent of marriages end in divorce. And in 100 percent of divorce cases, the structure of marital property matters. So does the structure of any inheritance either spouse may receive.

How are the marriages of your beneficiaries?

Suppose, when you die, your estate generously gifts $500,000 to your wonderful niece, Sandra. After your funeral, when your will is read, Sandra loves you all the more. During payout by the executor, the money passes quickly into Sandra’s joint bank account with her husband.

So far, so good.

But what if, a short month later, Sandra’s husband files for divorce? Has that $500,000 suddenly become marital property and fair game in the divorce proceeding? Maybe, and maybe not. What if Sandra and her husband put that money directly into paying off the mortgage on their house—but the house goes to the husband in the eventual divorce settlement? Has Sandra lost most or all benefit from the $500,000 you left her? Very possibly, yes.

Even worse, the receipt of that $500,000 may trigger the divorce itself. Why? Because suddenly, a frustrated spouse sees a financial path out of the marriage. He or she makes the move.

Honestly, it happens all the time.

I recently had a case in which a client was owed a sum of exactly $500,000 from a bequest. Even though he had set up a separate account in his own name, the money was mistakenly wired to his joint bank account. That same week, his wife filed for divorce and succeeded in taking half the money.

Indeed, it’s a sad fact that statistically, when there’s more money floating around, people are more likely to get divorced. When the economy went down in 2008, we saw a period with fewer divorces, simply because people could not afford to get divorced. When the economy went back up, so did the divorce rate.

In another case, I was called as a witness on a case involving a client who was inheriting a big chunk of money. The judge wanted to know how much he was inheriting, and he wanted to delve into the precise nature of the estate documents, because the court might want to impose a higher order of spousal support on my client. In this case, the living trust documents proved bulletproof, and the inheritance could not be counted in my client’s assets.

Nevertheless, the ex-wife gave it her best shot.

Laws vary by state, but in general, if (and only if) an inheritance has been properly structured through a trust, it does not become part of marital property, and it can be protected from loss during a divorce.

CREDITORS AND PREDATORS

You should consider creating a trust in a manner that will protect your heirs from unworthy creditors and professional predators.

I’m not talking about people or businesses to whom your heirs have stopped paying bills. I firmly believe in paying money that is owed. I’m talking about the many ways in which your heirs may become responsible for something not their fault at all.

Thanks to the way we’ve set up our society and our legal system, this also happens all the time. America comprises about 5 percent of the world’s population, yet we file 95 percent of the world’s lawsuits.

Maybe your heir cosigns for a student loan for his child— and when the kid turns forty, your long-suffering heir is still responsible for the money. Maybe another heir becomes a business partner in a venture that goes under, thanks to crazy debts created by her partner.

Maybe, as in the example in Mistake #9, your heir runs an apartment building in which a bad manager sparks a lawsuit by a protected class of tenant.

Maybe your heir is a surgeon and a patient’s lawyer finds a way to go beyond her malpractice insurance to attack her personal assets.

Many times, people are held liable for things which are not what any normal person would consider their responsibility. But creditors, predators, and courts do. Indeed, people are often pulled into lawsuits which honestly baffle them.

A physician works as part of a team in an operating room, and hours after she’s done her part of the job and left the hospital, something completely unrelated goes wrong. Usually, the patient’s attorney will sue her along with everyone else, including the anesthesiologist, the hospital, everyone—figuring someone will be nailed for the money. The same may be true if you are a part owner of a business that you do not manage personally.

As lawyers, we are taught to split “causation” between the people who actually cause the harm and the people who don’t necessarily cause the harm but can still be held legally responsible for the harm. One employee punches another employee? The employer may be held liable.

In my noble profession, legal strategies often revolve not around who did the deed, but who has money to pay for the consequences. Unless you do your estate planning right, you can make your heirs into targets, just by giving them your hard-earned stash.

WHO ARE THE PREDATORS?

Beyond creditors and lawyers, we see professional predators who actively seek out money from estates, especially if those estates go to probate. Remember that once in probate, the names of all estate beneficiaries and all the details of the finances are made public—right down to the date each person inherits and the specific amount of that inheritance, (see Mistake #10: Letting Your Family Go to Probate).

Professional predators gather probate information, and then show up with scams of all kinds, from land deals to bogus lawsuits. They might appear right at the probate hearing, with some surprise debt you yourself might not have remembered if you had been alive and standing there in front of the judge.

Then there’s the government. Governmental agencies and their lawyers are just like everyone else: they look for significant piles of money and go after them. Their tactics may include everything from estate “death” taxes to collecting income taxes on inherited IRA distributions (see Mistake #5: Assuming Your Living Trust Covers Things Like IRAs, 401(k)s, 403(b)s, 457s, Annuities, and Insurance). I’m a patriotic guy, but as a lawyer protecting my clients, I have to list the IRS under “predators,” too.

This has been an excerpt from the book  Savvy Estate Planning by Jim Cunningham. For more information on how an attorney can help you, attend one of our FREE seminars.

 

PROTECTING HEIRS WITH DISABILITIES

More and more Americans find themselves with long-term responsibility for adults with disabilities or diminished capacity. These might be dependents who had special needs from birth, or they might be elderly relatives suffering from Alzheimer’s or other mentally disabling conditions.

Indeed, these days, many estate plans consider the deceased’s parents as well as their children.

You must, of course, create plans which will ensure that the right people maintain control of both the property and the “persons” of disabled dependents. This is true whether the person is mentally capable of handling their own finances or merely suffers from a serious physical disability.

In all cases, the financial issues related to caring for disabled dependents are complex, and must be handled by an experienced attorney. (See Mistake #8 for more about planning for your own disability.)

For example, even a very modest inheritance may threaten the continuation of certain needs-based public assistance benefits, with potentially catastrophic results. Your attorney must know, for example, that SSDI (Social Security Disability Income) allows for the inheritance of monies without any problem. But SSI (Supplemental Security Income) does not, because it is a needs-based benefit.

In short, you and your attorney must not simply give someone with a disability $100,000 without doing some serious homework. First, they may not be able to handle that money properly. But second, you may actually be doing them harm.

A good estate attorney can structure a “special needs trust” or a “supplemental needs trust” to help a disabled beneficiary, depending on the state in which the beneficiary resides—not the state in which you reside. The state is crucial, as laws vary. When properly constructed, such a trust will not be “owned” by the beneficiary, and hence will not threaten their benefits, but can still pay them a supplemental income, administered by a trustee.

In such situations, the supplemental income can usually be used only for needs other than food, clothing, and shelter. If it is used for food, clothing or shelter, it can reduce the monthly benefit check amount.

THE ROLE OF THE TRUST PROTECTOR

Any time you are providing for a beneficiary with disabilities, I think it’s vital to include a “trust protector” in your estate plan. This role can be played by anyone, though most often, it’s played by a legal professional or law firm.

The idea of the trust protector came from the English. It became a popular part of American law during the 1990s, because it solved a vital problem in estate planning: what if your trust must be changed after your death?

In many cases, it would be completely inappropriate for either the beneficiary or the trustee to be given the power to make such changes. Indeed, most trusts are written so they are irrevocable and unamendable following the grantor’s (creator’s) death. In most states, modification of an irrevocable trust requires a court order.

But guess what? Under current law, a trust protector can be named within the trust document to modify some of the terms, even of an irrevocable trust. Trust protectors have become a common feature of many trusts created by up-to-date attorneys.

What may trigger the intervention of a trust protector?

First, someone involved must step forward and request that the trust protector take action. The trust protector is not omniscient and will not be checking in from time to time. But someone, such as a guardian, may see, for example, that a beneficiary who is disabled or has special needs will be moving to another state with very different laws and public benefits systems. This guardian may ask the trust protector to amend the trust to take into account the new system. In another case, a trustee will realize that he or she can no longer serve, and appeal to the trust protector to name a new trustee. Or, important tax changes must be made to account for new tax laws.

If a trust protector has been named in the trust, it is as simple for the trust protector to make these limited technical changes as it is for a mechanic to adjust a piece of machinery by turning a screw. Without a trust protector in place, everyone has to go to court. The power of the trust protector does not extend to major changes, such as changing the beneficiary to an inheritance.

One major function of a trust protector is to remove a bad trustee. A beneficiary may complain to the trust protector that a trustee has become dangerously irresponsible and then appeal to the protector for a change of trustee. Without a trust protector in place, such a change may easily require a year to complete through the courts.

PLANNING FOR CHANGE

Trust and probate law goes through major shifts pretty much every year. Sometimes every day. In fact, each new probate case published in the State Court of Appeals or State Supreme Court could potentially affect probate law.

As discussed elsewhere, an “irrevocable trust” will be absolutely necessary to create certain legal mechanisms (see for example the case of Kevin, in Mistake #6). But, if a trust has been written in stone as irrevocable and unamendable, it’s very expensive and time consuming to change it if you don’t have a trust protector. The trustee or beneficiary will have to go through a lengthy court proceeding, which is exactly what you wanted to avoid by creating an estate plan in the first place.

It’s very common in our practice to see adult disabled children relocate to another state when their parents die. Relatives often live across the country, or the right kind of facility may be available only across state lines. In such cases, we have to look at modifying a special needs or supplemental needs trust. Courts are a hassle. When you use a Trust Protector it takes the place of a court and saves time, minimizes hassles and saves money. We’re talking about a couple hundred dollars instead of $10,000 or more to modify the terms of the trust. Without a trust protector, the trustee may have to go to court to modify the trust, which is a big hassle and costs money and time. With a trust protector, the result is no court, no wasted money, and no wasted time.

Make sure to discuss the possible need for a trust protector with your attorney. We’ll learn about the trust protector’s role in Mistake #6: Letting Third Parties Take Advantage of Your Beneficiaries.

LOOKING AHEAD TO CONSEQUENCES

In this chapter, we’ve seen how a living trust can function twenty, thirty, fifty years or more after your death. Indeed, your living trust truly has a life of its own, and may survive well beyond the second or third generation.

Some states have laws which say, in essence, “A trust can’t go on forever.” In other states, a trust can literally continue in perpetuity—in fact, it can continue so long that the language in the trust may become obsolete. Grammar may have significantly evolved since it was first written.

But, we’ve also seen how trusts, no matter how well intentioned, can have both negative and positive impacts for your heirs as their mechanisms play out through the years. In the next chapter, we’ll look at more ways to protect your legacy—and how you can make sure your estate plan always does more good than harm.

This has been an excerpt from the book Savvy Estate Planning by Jim Cunningham. For more information on how a CunninghamLegal attorney can help you, attend one of our FREE seminars.

 

Why DIY and Online Wills Are Not Enough

In our vast experience as estate planning attorneys, we have heard horror stories over the years about those that have tried to create estate plans online or on their own, and their loved ones pay the price. Missing critical documents, misinformation about laws, tax codes, and probate court – these are all issues that can cause upheaval and confusion as your family members struggle to carry out your wishes with limited or incorrect documentation.

Worth the Money

We realize that estate planning can seem like an unnecessary or extravagant financial expense compared to some of the DIY or online packaged Wills that are available. However, would you rather have your loved ones paying the costly fees of probate court because you missed steps or didn’t take into account the legal complexities of estate administration that occur after you pass away? Failure to assign rights correctly, properly fill out documents with names or dates, or missing critical pieces of your plan that specify how your estate needs to be handled can land your loved ones in the public and expensive process of probate court. This can take months, if not longer, and often costs families the very inheritance you were trying to protect in the first place.

Planning for Disability

Your estate planning is so much more than a Will. Creating from an online template or packaged DIY option leaves you without documents you may not know you need. Planning for disability or incapacity is another way we protect you with a customized estate plan created for your individual needs.

Talk to an Expert

We want to help you create a living trust that leaves you and your loved ones secure. We are experts not only in how to create a customized Living Trust but also what you should pay for a well-created plan. Don’t skimp and see a lawyer who specializes in another field such as divorce or even a paralegal. Without the expertise of an estate planning lawyer who is well versed in your state laws, tax codes, and components of a living trust, you are just as much at risk as if you try to build an estate plan on your own. We have years of experience and knowledge that will benefit you and your family for years down the road.

For more information on how our team can help you create an estate plan, attend one of our FREE seminars for a consultation.

The Importance of Estate Planning If You Don’t Have Kids

Not everyone walks down the path of marriage and parenting in this life, but at the end of the day, whether you are single or married with children, everyone can benefit from the creation of an estate plan.

An estate plan isn’t just about deciding who is going to inherit your property or your assets after you pass on. A quality estate plan takes into account who you want to execute your Will for you, what happens to your pets, and most importantly what healthcare decisions will be made on your behalf should you become incapacitated.

If you are married or have children, most people assume difficult and often emotional decisions made about their life and/or healthcare will be carried out by their significant other or closest family members if they become incapacitated, and in some cases that is correct.

What if you don’t have a spouse or child to make those decisions for you? It’s even more important to draft the necessary legal documents and choose who you trust to make critical choices for you before it’s an issue. Otherwise, you could find a long-lost relative or the courts making those choices.

Planning for Incapacity

Incapacity can come in the form of physical or mental disability, and while it is never something we want to contemplate, the alternatives of being unprepared are often public and grueling court proceedings that can divide family members and may not result in your chosen executor. It is better to make your decisions while you still have all your mental and physical faculties present to ensure your assets, property, and healthcare wishes are carried out in the manner you desire. This can be a complex set of decisions, and we want to help you avoid a conservatorship and understand what it means to choose a Power of Attorney instead.

A Complex Process

Aside from important healthcare decisions, estate planning assists with the distribution of your assets and estate. Just because you do not have children who will inherit your estate doesn’t mean you don’t have family members, organizations, or friends you would like to pass your wealth on to. You also may have furry friends that you want to consider, for some people their pets are just as important to them as human family members. Who will care for them should you become incapacitated? Better to decide now and make sure they are taken care of.

Estate Planning in regards to incapacity is a complicated process – it is not just one document that covers all your bases. A licensed and knowledgeable estate attorney can help you create a Living Will, assign a Power of Attorney for your assets and healthcare decisions as well as fill out your critical documents such as an advanced healthcare directive.

For more information on how our team can help you create an estate plan, attend one of our FREE seminars.

Alzheimer’s & Brain Awareness Month – Estate Planning for Incapacity

 

Over 5.8 million Americans are living with Alzheimer’s, according to the Alzheimer’s Association, and that number is predicted to rise to 14 million by 2050. Worldwide, over 50 million people are living with Alzheimer’s and other dementias. June is Alzheimer’s and Brain Awareness Month, and it’s important not only to know the early signs and symptoms but to get involved if you can.

There are ten important early signs and symptoms of Alzheimer’s to be aware of for your loved ones:

  1. Challenges in Planning or Problem Solving
  2. Difficulty Completing Familiar Tasks
  3. Memory Loss that Disrupts Daily Life
  4. Confusion with Time or Place
  5. Trouble Understanding Visual Images or Spatial Relationships
  6. New Problems with Words in Speaking or Writing
  7. Misplacing Things and Losing the Ability to Retrace Steps
  8. Decreased or Poor Judgment
  9. Withdrawal from Work or Social Activities
  10. Changes in Mood or Personality

If you notice any of these symptoms as a caregiver or in your aging family members, don’t hesitate to schedule a doctor visit and get them checked out.

Estate Planning & Mental Incapacity

If you are concerned about the mental health of loved ones in your life it is important to discuss your options for estate planning. Not only should you appoint a Power of Attorney for all estate and healthcare decisions, but you also need to consider transferring assets or creating a living trust before a state of mental incapacitation as by then it may be too late and you run the risk of having to go to court. If that happens a conservator may be appointed for you and you lose the option of selecting someone you trust to make critical decisions. Taking the time to select a Power of Attorney and get your documents in order such as your HIPPA, Living Will, and advanced health directive helps you avoid a conservatorship and sets you or your loved ones up to be well cared for in the future. If you would like a consultation with one of our knowledgeable attorneys, attend one of our FREE seminars.

June 21st, 2019 – Get Involved

If you would like to get involved on June 21st, the longest day of the year and summer solstice, you can join thousands participating in fundraisers for “The Longest Day” to raise money for Alzheimer’s and recognize those individuals and families that are affected by the disease. To learn more about participating you can visit the Alzheimer’s Association for more information.

 

Money Managing With Children

There’s no question that being a parent is one of the most rewarding jobs there is. There is also no question it’s one of the most expensive. Many may think that providing financially for your children ends when they turn eighteen but for most parents that is just not the case. In fact, a new study by Merrill Lynch and Age Wave reports that parents in the U.S. continue to spend $500 billion annually on their adult children, ages 18-34.

So how do you manage your money with your children, through their young lives and beyond?

Start With Savings

Your emergency fund should have anywhere from three to six months worth of expenses saved. Let go of saving for retirement or your children’s college fund until you have that safely socked away. Then you can begin to plan for the future knowing you are secure.

Don’t Ditch the Retirement Fund

It’s easy for parents to put their own future on hold as they help their children with education funds, wedding planning, even rent or bills later on in life. This can mean you are putting yourself in a dangerous place. Consider what will happen if you are not adequately prepared for retirement – your children may end up bearing the burden you were trying to avoid. We can help you plan for retirement while still maintaining balance as a parent and provider.

Consider a College Fund

Paying for college can be daunting to parents, especially if you have more than one child. Starting early can help alleviate stress and financial burden later as you break down the cost into more manageable amounts. One of the best ways to invest for your child is through a 529 college fund. A 529 savings plan is one, “in which any investment earnings are free of taxation, though the original contributions are not deductible. The money isn’t taxed when taken out of the plan, as long as it used for qualified education expenses.” Other options besides a 529 are also available so it’s important to take into account your financial situation and which plan works best for your family.

Talk to Your Kids About Money

Not only is it important to set examples of saving, budgeting, and spending for your children when they are young, but you also need to have clear boundaries and expectations as they get older. Whether you are loaning them money for an emergency, for living expenses, or giving them a gift – be clear on what your expectations are for repayment and/or if you are planning on providing any additional help later.

Estate Plans for Optimal Financial Planning

Estate planning can help you set up a living trust that takes into account your financial situation, your goals, and the administration of your assets to your heirs after you pass on. Not only can you set up accounts that are clearly earmarked for your goals in life such as retirement, college funds, or inheritance for your children, but you also have the peace of mind knowing that your assets are protected from creditors, life events such as divorce or remarriage, and that your children are financially provided for in the way you think best.

If you have questions about how an estate plan can help you manage your money and your family’s legacy, attend one of our FREE seminars for a consultation with an attorney.

 

FAILING TO PROTECT BENEFICIARIES FROM THEMSELVES

Do you care if your beneficiaries screw up their lives after you are gone? What if your legacy enables them to screw up their lives? Earlier I explained that in the absence of other arrangements in a properly constructed trust, a child will fully inherit their portion of your estate at age eighteen in most states. I mentioned how that might not be such a great idea (see Mistake #10).

Let me repeat my opinion: very few eighteen-year-olds know how to handle money, including that $100,000 college fund you left in your will.

Do you remember the fund you described with beautiful words about “helping light their bright future?”

You and I are aware that $100,000 in today’s dollars will provide a great boon to any student, but may not be enough to cover even two years at a private university. To a kid, however, it may seem like the proverbial pot of gold at the end of the rainbow. It may seem like $100 million. A kid with that kind of money may think they can go out and party, or run up credit card bills like an NFL star (another group not famous for financial management).

I remember how one day I got a call from a car dealership about an almost-eighteen-year-old I’ll call Johnny. The manager of the place got on the line. He said, “I’ve got a kid named Johnny standing here, and he tells me he’s going to inherit a hundred grand in two days. You’re his attorney, right?”

I take a deep breath and confirm that I am, indeed, his attorney.

“Well, can you confirm that he’s going to get all that money in two days? If so, we’ll let him drive this new convertible off the lot right now.”

“Put Johnny on the phone,” I replied.

“Hey, Mr. Cunningham!” said Johnny, all bright and eager.

“Johnny,” I said. “What the hell are you doing? You haven’t even inherited the money yet and you’re already blowing it? Do you understand that you have to live on that money? That you have to go to school on that money? You are not rich, Johnny. It is not that much money. Get your butt out of there.”

I know that folks can have two points of view about their legacy. The first says, “I can’t worry so much about my children once I’m dead. They’ll be adults. I’ll be gone. I won’t care.” The second says, “I’ve worked too long and too hard for what I’ve accumulated. I don’t want it blown.”

In my experience, about half the people who inherit blow their inheritance pretty much right away. Poof, it’s gone.

In the case of Johnny, he’d technically inherited the money when he was only ten years old, but it had been sitting in a bank account collecting interest. During those eight years, the bequest no doubt provided a delightful obsession for his teenage imagination. A ten-year-old cannot, by law, control his or her own money. If no financial guardian has been nominated by a will or living trust, the court will provide one at great expense to the estate. But when the child reaches eighteen, they get access to whatever is left.

Unless you have made other arrangements, there’s nothing that anyone—including a judge—can do to stop a kid from walking into the bank on his or her eighteenth birthday with a photo ID, taking out the money, and buying a Porsche.

And believe me, it happens every day.

TRUST YOUR TRUST, NOT THE PERSON

In my opinion, you should not trust your young or irresponsible beneficiary. You should trust your trust.

When you sit down to discuss a living trust with your estate planning attorney, you need to talk through the personalities and outcomes for each of your beneficiaries. I provide examples of such conversations in Mistake #6.

We have talked about living trusts as “buckets” into which you put your assets, in order to pass them on in an orderly way. If you have dependents who cannot handle their own affairs, you need to think about creating a bucket with a little spigot attached.

The spigot will be controlled by the responsible adult you name as trustee until your beneficiary turns twenty-two, twenty-five, thirty, fifty, or never, depending on what you know about that beneficiary.

Such a bucket, properly constructed by a reliable attorney, cannot be dumped out on the ground and wasted all at once. Instead, the spigot pays out $500 a month, $1,000 a month, or whatever makes sense to you. Importantly, those amounts may be easier for your financially inexperienced heirs to visualize, hence, manage. A hundred thousand dollars can be a mere abstraction, hard to comprehend. Everyone understands a thousand a month.

Of course, it’s crucial that you assign a trustee who can handle the responsibility of controlling your little spigot. You must also anticipate such issues as a trustee who can no longer serve. We look more deeply into these issues in Mistake #3: Assuming Your Trustee Will Know What to Do.

Earlier I talked about the remarkable freedom that Americans have to control what happens to their stuff after they die. One of these freedoms allows us to protect our irresponsible heirs from themselves. Each trust can be highly tailored to individual circumstances.

It’s your money, and you get to decide.

For example, you can say that an heir will get no access to their funds until they hit, say, forty. Along the way, prior to age forty, the money can be dripped out to them on an as-needed basis, in a controlled manner by the assigned trustee. I’ve seen trusts structured so that a child receives a third at age twenty-five, a third at age thirty, and a third at age thirty-five (which for technical reasons must be written as “a third, a half, and a whole”).

What does such an arrangement accomplish? Well, for the under-motivated child, it might force them to work, while giving them really useful boosts at key moments in their careers. Like our friend with the troubled child in Mistake #9, you may be asking yourself, “If my son gets the money right away, will he just sit around smoking dope and playing video games all day?”

I have plenty of clients who tell me their kids have reached fifty, but they still can’t be trusted to handle large amounts of cash. And to be frank: if someone has reached fifty without achieving financial responsibility, it’s unlikely they ever will.

HEIRS MIGHT BETTER APPRECIATE A STIPEND

In the above examples, you may worry that there’s something mean-spirited in structuring a trust to provide a stipend instead of a lump sum. But in my experience, such a legacy often creates a far more positive memory—even for an older heir.

It’s all in how you phrase it.

Suppose you and your husband are eighty-five. You sit down with your daughter who is fifty-nine. She has worked hard her whole life, but she’s never been that great with money, and hasn’t put much away. She’s tired out and doesn’t want to work forever, but she’s worried about her retirement. Suppose you tell her, “Listen, honey, we’re setting up a trust. After we’re gone, this trust will pay you $1,000 a month, hopefully for the rest of your life.”

Think what joy that would give her. “Wow, $1,000 a month for the rest of my life? That’s awesome! Thanks, Mom and Dad!”

Then every single month, when that payment rolls in from your living trust to her bank account, your daughter thinks of Mom and Dad with fondness. You are remembered every month. And you can rest easier, knowing that no matter what happens, she will have something to live on.

On the other hand, if you just gave her $200,000 in a lump sum, it’s a one-time event. She may make a foolish investment, or worse. Ten years later, both you and the lump sum will be just a memory.

Such arrangements can be set up with a properly drafted, continuing trust that names a responsible successor trustee—a person, private professional fiduciary, or bank. Or, you could simply buy an annuity that pays her a monthly dividend. Discuss these options with your attorney and financial planner.

The same positive attitude should be taken with other heirs for whom you create a bucket with a “spigot.” You can create a tremendous investment advantage by keeping money in a trust fund which is properly managed to grow over time. So, if you think it’s wise to withhold monies from an heir until twenty-five, thirty, thirty-five or beyond, you can and should frame this arrangement in a positive light. “In order to provide Johnny with more substantial means, we have created a trust invested with Acme Investments to grow over the next twenty years. Increasing payments will be made to Johnny when he turns twenty five, thirty, and thirty-five.” You need say nothing about any lack of confidence in Johnny’s judgment.

Think about a trust with delayed distribution as a caterpillar that becomes a butterfly over time.

Focus on the butterfly.

This has been an excerpt from the book Savvy Estate Planning by Jim Cunningham. For more information on how a CunninghamLegal attorney can help you, attend one of our FREE seminars.

 

MONETARY FALLBACKS FOR DISABILITY


When you talk to estate planning attorneys, they will tell you plenty of stories in which a frazzled man or woman has come into their office and said, “I’m done. I can’t handle it anymore. I’ve been taking care of my spouse for four years, and I’m physically worn out. I’m emotionally drained. What can I do?”

Like my grandma, these folks have been the primary caregivers for people who cannot bathe themselves. Cannot use the toilet. Cannot feed themselves. People who may stay up all night and sleep all day. Who have numerous doctors’ appointments which require difficult trips in wheelchairs and special transportation.

Even a strong, young person would find it difficult to provide this care. But often, these heroic caregivers are in their seventies, eighties, or even nineties. They come in to an estate planning office to find out how they can institutionalize their spouse. “I have to do this today,” they say. “It’s over. Help me figure this out.”

Most people cannot afford $3,000 to $30,000 or more a month for board and care or skilled nursing facilities. When they try, they often end up impoverishing themselves in the process. Just because one spouse moves into an institution, it doesn’t mean that the basic expenses of the other spouse are greatly reduced. And what if both spouses become disabled?

Many people assume that the government will step in to help with long-term care. But most government programs provide help only when you become truly impoverished— generally defined as having less than $2,000 to just under $15,000 in total assets depending on which state you live in. Programs may also be available for veterans and surviving spouses of wartime veterans. This is called “aid and attendance.

HOW ESTATE PLANNING CAN HELP

It’s beyond the scope of this book to explore all the options for long-term care. Every situation is different, and you need to do a lot of research. But proper estate planning using a qualified attorney who understands such issues can open up important options.

For example, using a durable power of attorney for property, we can sometimes move assets completely out of a sick spouse’s name into the spouse’s name who is not sick, so that the sick spouse can qualify for public assistance benefits and move into a nursing facility. Meanwhile, the well spouse can stay at home, often with much or all income and assets intact. As noted above, however, these powers of attorney must include gifting rights, which are not commonly included in such documents.

The government generally does not object to these transfers of assets or punish you for making them, because they really do not want the surviving spouse to be impoverished by paying for long-term care. Once impoverished, he or she becomes an additional burden on the public good.

But there are very low limitations on what can be transferred without triggering a period of disqualification for public assistance benefits. If either spouse has more assets, then the transfers may result in a period of ineligibility.

Again, an irrevocable trust will often be used as part of this planning strategy.

If such instruments are already in place before the disabled spouse loses mental competence, such an action may be fairly simple. Wait too long, and you will have to go through a court proceeding to get these powers, with less predictable results. In fact, many judges will not grant orders transferring assets of someone who has lost mental capacity.

Please do not make the common mistake of assuming spouses have the power to make these significant legal moves just because they have joint bank accounts or joint tenancy in a house. To actually move titles to real property, change the form of assets, and alter the character of ownership, requires advanced legal planning and specific documents—or a court order.

For example, if a wife wanted to take full ownership of a rental house to protect it from being counted as an asset for her husband, she might have to go to court and apply for the appropriate court order transferring the rental house to her. If her husband had simply signed a durable power of attorney with gifting authority for her in advance, no such court action would likely be necessary.

Of course, different states may offer greatly differing legal opportunities, definitions of indigence, and public benefits. And you absolutely need an expert attorney with specific training in such issues. To move assets around to protect spouses, you cannot use a “general purpose lawyer.” Even most estate planning attorneys have little to no competence in this realm, sometimes called “elder law.” It’s a specialty within a specialty.

For more advice on choosing an attorney, please see the Introduction.

WHAT ABOUT LONG-TERM CARE INSURANCE?

You will find two schools of thought about long-term care insurance. One school says that everyone should buy a policy. The other says that your premium money would be better invested elsewhere.

You should certainly investigate any long-term insurance policy closely, as it must be considered in relation to your particular circumstances. I recommend clients discuss the subject with their financial advisor and other appropriate stakeholders before taking any action.

Long-term care insurance will cover you if you can’t take care of yourself in very specific ways. Unfortunately, most policies do not cover 100 percent of the costs, and they generally have significant limitations. For example, policies often require a waiting period in which you have to be sick for perhaps ninety days before they kick in. Complications on this provision often arise related to dates of discharge from one facility to another, from rehab to board and care, or from Medicare to private insurance, etc.

These technicalities often delay the start of your long-term care benefit—making it impossible to access your policy when you need it most.

In addition, these policies often include a lifetime cap, meaning they may only cover “long-term care” for three or four years.

Usually, they also include daily maximums which may not allow for the kind of care or facility you require. Even worse, your daily maximum may not be tied to an inflation index which increases over time. The maximum may be a flat rate, meaning that if you bought a policy twenty years ago that paid a flat $100 a day, it won’t cover a contemporary facility charging $300 a day plus extras (and there are always extras). You will have to make up the difference.

Bottom line: just because you buy a long-term care policy does not mean you are covered for long-term care. Do plenty of homework and get professional advice before you sign on the dotted line.

This has been an excerpt from the book Savvy Estate Planning by Jim Cunningham. For more information on how a CunninghamLegal attorney can help you, attend one of our FREE seminars.

Elder Abuse is On the Rise – How to Protect Your Loved Ones

Approximately 1 in 10 Americans, aged 60 or older, have experienced some form of elder abuse. As seen in the news, even Stan Lee, the well known and affluent face of the popular Marvel comics, is the possible victim of abuse at the hands of his former business manager.

Elder abuse can come in many forms. Physical, emotional, financial, neglect, and more. Families who hire private caregivers can often be at a higher risk for abuse because no one is monitoring the caregiver the way an agency or employer would. Additionally, while a private caregiver may be less expensive than an agency, you are responsible for the entire vetting and background check process, whereas hiring from a reputable agency will do the vetting for you.

We know that selecting the right caregiver can be a difficult decision both financially and emotionally. If you are in the process of hiring, make sure you get referrals, ask for training records, do proper background checks, and conduct face to face interviews.

In order to further protect our aging loved ones, it can be valuable to have a conversation regarding estate planning. Financial abuse from predatory caregivers can affect our elderly loved ones if they have no asset protection or are entrusting someone to help them make financial decisions.

A customized estate plan and living trust protect you during your life, and after you have passed your assets to your heirs. You have the power to decide who you trust to make financial, healthcare, and estate administration decisions to make sure you are not taken advantage of, especially if your elderly loved ones are incapacitated either mentally or physically. Setting the proper documents and protections up early keep your loved ones safe and their assets protected so you can focus on getting them the highest standards of care.

While a grim reality, “Elders who have been abused have a 300% higher risk of death when compared to those who have not been mistreated. While likely under-reported, estimates of elder financial abuse and fraud costs to older Americans range from $2.9 billion to $36.5 billion annually. Yet, financial exploitation is self-reported at rates higher than emotional, physical, and sexual abuse or neglect.”

Everyone should be aware of the warning signs of elder abuse including a sudden change in the person’s financial situation, withdrawal, bruising, unusual depression, and more. The National Council on Aging is a good resource for warning signs and where to report elder abuse.

At CunninghamLegal, our job is to make sure our clients and their loved ones are protected. For more information on setting up a custom estate plan, contact our team today.

Estate Planning & Divorce – Protecting Your Assets & Heirs

No one has divorce in mind when they step up to the altar and say the words, “I do.” However, 40-50% of marriages still end in divorce. Your estate plan changes drastically after you divorce from potential custody implications to splitting up assets and the impact of complicated tax laws. This change in status necessitates an update in your documents.

A major relationship change, such as a divorce, may not only threaten your assets, but may impact your future healthcare decisions or the assets you pass on to your heirs. By customizing your estate plan and living trust, you can rest in the confidence that your wishes, during your life and after, will be honored.

Following the next steps can help protect you and your family after your divorce:

Retain a copy of your Divorce Agreement. Ensure your estate planning attorney has a copy of your Divorce Agreement. Your attorney should be aware of all obligations you and your ex-spouse have to one another and what happens in the event of death. Your estate plan should be updated for the correct distribution of assets as well as protecting the inheritance and plans you have for your children.

Consider a plan for remarrying. Your estate planning attorney can also help you in the event of remarriage. While a prenuptial agreement may also be something to consider for the future, your updated estate plan will take into account your new spouse, any children, etc.

Update your Power of Attorney & Executor/Trustee. In the event you are incapacitated or pass away, make sure you have designated the correct executor of your estate as well as power of attorney for your healthcare decisions.

Create a plan and trust for your children. If you and your ex have divorced, do your children have a plan in place should you pass away? It’s time to consider who serve as guardian to your child(ren), as well as managing their finances until they turn eighteen.

Double-check your beneficiaries. After a divorce, it is imperative you assign the correct beneficiary to your retirement accounts such as your life insurance plan, 401k, and IRA. You can avoid unnecessary litigation and complication by making sure you have the correct person in place before the need for them arises.

A savvy estate planning attorney will take into account your individual situation and ask questions to customize your trust to your wishes. Not all trusts are created equal, and a good trust protects you against creditors, predators and yes, divorce too. For more information, contact our team today or attend one of our FREE seminars for a FREE consultation with an attorney.