4 Key Concerns on Estate Planning for Disabled Children
A number of articles in The Shark Free Zone address the bad idea of designating a minor as a primary beneficiary. Single parents especially struggle with this issue, which is why “it takes a village,” is more than political rhetoric. Another issue parents and family members struggle with is the unfortunate circumstance of managing the car of a disabled child or loved one. Yet, it is even more critical to plan for unfortunate events when you are the caregiver of a disabled person. As usual, examples often help distinguish bad planning from poor planning but this time we’ll just look at a scenario and the resulting considerations. Twenty years ago, Kelly and Sean’s daughter, Carrie was born mentally and physically disabled. As a result, Kelly and Sean decided that Kelly would remain at home to care for Carrie and the family would depend on Sean’s paycheck and Carrie’s Social Security Disability Income (“SSDI”). About a month ago, Kelly and Carrie were involved in a car accident and ended up with a settlement award of $50,000 after medical expenses were paid. Fortunately, neither Kelly nor Carrie was severely injured but the incident shook Kelly considerably. So she and Sean finally had the “what if” discussion about the possibility of something tragic happening to one or both of them. If one or both of them died, who would care for Carrie and what would that look like? Well, Kelly and Sean have several issues to consider, including: Guardianship v. Powers of Attorney. Carrie is an adult and, in Illinois, obtaining guardianship for a disabled adult is a lengthy and costly process. To avoid that process, powers of attorney for Carrie might be useful. The question of usefulness hinges on the severity of Carrie’s mental disability with respect to legal capacity needed to grant authority provided in powers of attorney. Adverse Implications of Government Assistance. Irrespective of who dies, if sufficient means are not available to ensure Carrie’s basic needs – food, shelter, clothing, and medical care – are met during the remainder of her life, she may need additional government assistance, such as Medicaid. However, when someone on Medicaid receives an inheritance, they may become temporarily ineligible for Medicaid. So particular testamentary planning, such as “special needs trusts,” may be needed. Sufficient Life Insurance. If Sean passes away, the question is then, how much of a death benefit is needed. Also, if Kelly predeceased Sean, who would be the contingent beneficiary able to act on Carrie’s behalf. Appropriate Fiduciaries. If both Kelly and Sean die, the question again is who will be able to financially and compassionately manage Carrie’s estate and how would that estate be structured? Caring for a child with mental or physical challenges has at least one commonality with caring for a child with no challenges: the need for a careful, caring, and protective plan in the event the parent is no longer able to provide needed care because the ability or inability of our loved ones doesn\’t change the fact that they are our loved ones.
If You Have a Facebook, LinkedIn, Twitter Account …
A recent case, Ajemian v. Yahoo!, Inc., came to my attention because it involved access to a dearly departed brother’s Yahoo! email account. A recent change to Yahoo!’s terms of service includes the following: You agree that your Yahoo! account is non-transferable and any rights to your Yahoo! ID or contents within your account terminate upon your death. Upon receipt of a copy of a death certificate, your account may be terminated and all contents therein permanently deleted. (Emphasis added by The Shark Free Zone.) Therefore, siblings, who were administrators of the brother’s estate and despite providing a death certificate, could not even access the content of their brother’s Yahoo! account. This case highlights the fact that, if any information that is useful to an estate’s executor or administrator, e.g., a username change, bank or utility online statements, or the names of online accounts that the user had were provided, upon proof of a loved one’s death, the Yahoo! account may be frozen and the information not transferred but destroyed. That means that the executor or administrator will have to go through the departed’s mail, papers, or even underwear drawers, to contact the institution and perhaps wait days or weeks for final account information to be provided. Ouch! The above is also another reason why I’ve said it before and will keep on saying it: Property powers of attorney should authorize access and control of digital accounts and assets. Equally important, a list of user names and passwords, at least for email and financial accounts, should be provided to your designated executor or one or two loved ones. If you bank and enter into other financial transactions online, such as paying a utility bill, without usernames and passwords your power of attorney agent can\’t properly manage your affairs. Arguably, providing the agent under a power of attorney could be construed as “transferring” the rights, but your agent is acting on your behalf, so the transfer is actually what we call a “legal fiction.” But death is death; no fiction that can undo that. So even if you didn\’t take care of the matter while you were on Twitter, if you didn\’t at least authorize your executor to obtain and use this information, then your family will experience even more emotional angst than necessary after your final tweet. What was the ruling on the case? It was remanded back down to the court from which it came to make the decision from a state law perspective, since the deceased was a Massachusetts resident. The Court decided that the selection of law that Yahoo! tried to impose – California was improper given the decedent user lived in Massachusetts and that state would have a decided interest in the case. Maybe this is also another reason for us to be more careful about what we post; it could end up in the hands of a stranger or a loved one who we unduly and harshly criticized. Double ouch!
Women & Obamacare: It Hurts Not to Know
Recently, I attended a great program on women’s healthcare. The discussion included how the Affordable Care Act would affect our healthcare and the decisions we made. So please read this article and share it with all the women you know. Thank you, Affinity Community Services for hosting, Kathy Waligora of the Illinois Maternal and Child Health Coalition, the Chicago Women’s Health Center (CWHC), and Dr. Theresa Jones for sharing such valuable information. Resources to the topics are at the end of this article. Because estate planning and financial planning are closely related, health insurance is a key component to successful estate planning. Without appropriate health insurance, everything you own is at risk of loss … to a hospital bill or to long-term care. So no estate planning involving asset distribution will matter because the hospital bill or caregiving expenses will have created a gaping doughnut of an estate for you. The exponential increase of healthcare costs over the last couple of decades is one reason why fewer and fewer individuals and families considered estate planning: with little or no insurance, planning for the transfer of assets would be an exercise in futility. However, that risk for millions has been and is being mitigated by the Affordable Care Act (“ACA” or “Obamacare”). Before the ACA, 40 million Americans had no health insurance and millions of children would never be able to obtain it because of pre-existing conditions. In 2010, when the ACA passed, the number of uninsured Americans were reduced by 10%. And though the ACA has come under intense fire, by 2014, millions more of Americans and small businesses will receive 50% of credits to help offset the cost of coverage. Additionally, the cost of coverage for women will be fair. Until the ACA was passed, women were made to pay more for healthcare insurance than men and, unlike what most individuals thought, it was not because most women could become pregnant. So why were women paying more for health insurance? That’s a good question that insurance companies have yet to provide an answer for. But they won’t have to because on January 1, 2014, gender will be eliminated as a criteria for determining health insurance costs. Moreover, preventive and wellness services, especially for women, that were not available in many insurance plans will be available to women at no cost through the ACA. The critical need for these services is highlighted by the recent news about celebrity Angelina Jolie’s healthcare decisions. Included in the free preventive and wellness services mandated by the ACA are: BRCA counseling about genetic testing for women who at high risk, Anemia screening for pregnant women, Cervical cancer screening, Domestic and interpersonal violence screening and counselling, Folic acid supplements for women who could become pregnant, Osteoporosis screening for women over 60, and Well-woman visits. The ACA mandates these services included in 22 preventive services because legislators and the current administration recognizes that preventive maintenance and reformed and regulated healthcare for all Americans ultimately reduces healthcare costs across the board for our country, community, and loved ones. Another important feature of the ACA is Medicaid reform. However, states must agree to take advantage of the new Medicaid rules. If Illinois agreed to embrace the rules, it could man billions of dollars and thousands of jobs. However, the 3.8% surtax on families with household incomes of $200,000 or more has fueled the uproar mentioned earlier. This could result in these households being taxed at a marginal rate of near 45-50% and nobody likes to pay taxes. Still, Illinois Senate Bill 26 (SB 26) is pending with regard to this question. As of 5/21 the bill was passed, after several notes, to the House Committee. As I said at the top, information about our healthcare and how to use that information is too important – not just to us but also to our families – not to share, so please pay this forward and let women (and men) know that \”affordable healthcare is available to you.\” Helpful Resources Illinois Congressional Representatives, http://www.ilga.gov/house/ Health Insurance 101, http://101.communitycatalyst.org/aca_provisions/ Illinois Maternal and Child Health Coalition, http://www.ilmaternal.org/
Infants, Stairwells & Burning a Million Dollars
Wealth preservation aka “asset protection” is slowly rising to the top of the mainstream American lexicon, much like estate planning did a couple of decades ago. However, though related, the 2 activities are quite different. A solid estate plan’s end goal is to ensure that your intended beneficiaries obtain what you intend for them in the most efficient and least adverse manner possible. Retirement and tax planning are a substantial part of the estate planning process but the primary beneficiary at the end of the game is someone else, not you. Conversely, a solid wealth preservation plan will ensure that you don’t go broke before, during, or after retirement and fulfill your intentions toward your beneficiaries, tying it into estate planning. But the primary beneficiary of wealth preservation is not someone else; the primary beneficiary is you. Estate planning and wealth preservation are technically linked because the core documents and the fiduciary roles are primarily the same. Both include trusts and, consequently, trustees. Both might even include a LLC. The fundamental distinction is jurisdictional, i.e., what law governs the trust. Typically the laws in states that have asset protection statutes and are referred to as Domestic Asset Protection Trusts (DAPTs) govern wealth preservation instruments whose jurisdiction is in the U.S. Instruments whose jurisdiction is outside the U.S. are governed by the laws, or lack thereof, in those particular countries and are known as “offshore” trusts. Now before you start getting all antsy with thoughts of tax evasion, let me squash that thought like a bug. The only way to ensure that one doesn’t incur Uncle Sam’s penalties is by being completely compliant with the U.S. tax code. Now before going too far into the different schools of thought surrounding DAPTs and offshore trusts, you may be thinking, “I don’t have a gazillion dollars, so this doesn’t apply to me.” But before I lose you to Facebook or an incoming text message – wait. If you live in America, you live in one of the most lawsuit crazed countries in the world. So while you may not have a gazillion dollars, consider the following stats: 99% of doctors in high risk specialties will be sued; 75% of doctors in low-risk practice areas will be sued; Every 6 minutes a child under the age of 5 is treated for an injury sustained on a residential stairwell; In 2012, a woman was awarded about $833,000 for an injury sustained on her landlord\’s property ; Over a 10-year period, 15-21 lawsuits were filed per 100 architect firms; I won’t mention lawyers, it’s a given, people hate us, think we have deep pockets, so they sue us. So if you know your liability insurance won’t cover a potential lawsuit or the cost of litigation in successfully defending an unscrupulous claimant, how comfortable are you holding a “fire sale”? If you’re not thrilled about selling your home and liquidating all of your assets, including your retirement portfolio, to settle a claim, then wealth preservation may be needed sooner rather than later. Then again, maybe you have a million dollars to burn…
3 Lessons about Grapes and Taxes
As Baby Boomers start retiring, thoughts of mortality and legacy planning begin to dance in their heads. While most boomers don’t have taxable estates…for now…the future is still a question mark for many. While enjoying retirement – golf course, cruises, mountain climbing, museum walks, wine tasting, and theatre galas – plans should be made for a time when the retirement funds must be transferred to someone else. It is critical to know how to transfer retirement proceeds properly so the distributions won\’t be literally and figuratively taxing: Claire and Cliff are in their mid 60’s. They’ve a modest estate – home valued at about $250K with most of its equity remaining, life insurance, and retirement benefits at about $2 million. Half of the retirement proceeds is in a 401(k), 25% is in an IRA, and 25% is in an annuity. They also have 2 kids: Lenny and Lisa. Lisa’s a starving artist, who is barely in the 15% tax bracket but who also has a vivacious and smart teenager. Lenny is 10 years older than Lisa and a savvy professional about to move into the highest tax bracket and has no intention of marrying or ever having children. Claire and Cliff want to distribute their estate to Lisa and Lenny equally and have been told to give the retirement proceeds to Lenny and Lisa outright. Before doing that, however, I would ask them to consider the following in a simultaneous death situation, where Claire and Cliff went down with the Titanic III: An outright gift from a 401(k) or a traditional IRA will be taxed and if the beneficiary is over 59 ½, the 10% penalty may also apply. For Lenny, who’s Mr. Money Bags, that doesn’t present too much of a problem, though no one wants to pay taxes. For Lisa, that would be a boon indeed. But an outright distribution to Lisa would yield less than what she would receive were the proceeds titled to a trust because of income tax consequences. Pick the fruit too young and the wine will be bitter; too old and you may taste too much oak. Claire and Cliff could have the proceeds placed in a trust for Lenny and Lisa. Here, part of Lisa’s benefit would be driven by Lenny’s life expectancy because he is the oldest, which would provide her with fewer years of income. Additionally, Lenny and Lisa must be sure to withdraw at least as much as the minimum required distribution annually or face a hefty penalty. Different varietals require different soils. In a qualified (retirement) annuity, the entire amount of the contract must be withdrawn over the 5-year period following Claire and Cliff’s death. Again, okay for Lenny, but not so okay for Lisa. Tax consequences also apply to this issue. Cabernets are as good as zinfandels; it\’s the consumer\’s tolerance that is key. Just like no 2 families are alike, no 2 children are alike. So make sure that your children know how to make decisions about the different types of distributions they can choose, after you enjoy your fruits. That way, the remaining fruit will, in fact, go to your children and not the community jelly jar.
1 Question to Ask Before Saying You Will
A cardinal rule of estate planning is that the “intent of the testator” governs terms of the will or trust. The testator is the person who initially “writes” the will; the name for the person who writes the trust is a “grantor” or “settlor.” Lawyers draw the documents up but testators or grantors are the original writer – our clients. The terms of a will or trust are carried out by a fiduciary – an executor or a trustee. Fiduciaries are held to a higher legal standard of integrity because their roles are considered so important. So they can be sued if they do not follow the “intent of the writer,” so to speak. Yet, though I try to remind them, folks tend to forget about the other fiduciary roles that also carry a kind of “intent of the writer” rule. Let’s consider a brother-best friend story. Carrie was a single 35 year-old woman who, as a young teenager, witnessed her father die an agonizing death when he was stricken with a slowly debilitating and malignant brain tumor. So when Carrie got the bad news about her condition, she got her affairs in order and instead of designating her brother Don as the agent under her healthcare power of attorney, she named her best buddy, Tim. Carrie and Tim were just as close as Carrie and Don but they talked more openly about end-of-life issues ever since Carrie’s father passed. Carrie told Tim that she would never want to die in a hospital like her father and said she knew that she could count on him to fulfill her wishes. Well, Carrie’s days started dwindling and Don pleaded with Carrie to go into the hospital or into a hospice facility. Carrie refused. From her spacious apartment, she could hear birds chirp and children laugh outside. The pain was tolerable and she could move around a little with a cane. Daily care was difficult and speaking was getting even more difficult, but she was staying put. Then one day, Carrie couldn’t talk. Don pleaded with Tim now. Tim looked at his dear friend who had no appetite, occasionally winced at the pain, but smiled at the children\’s laughter underneath her bedroom window. Don wanted Carrie in a facility to be watched 24/7 because he couldn’t do it and Tim could only be with her a few hours a day. Tim agonized because he understood Don’s concerns and really wanted the same thing. But Tim saw Carrie’s smile at the sound of the birds, recalled her horrific struggles with her father’s death, and when Carrie passed on, in her home wearing a slight grin, Tim was also at peace. Healthcare decisions under a power of attorney include end-of-life decisions, and it\’s not just about medicine. But the agent’s role, as a fiduciary, is to step inside the shoes of the principal and make the decisions the principal would make. Doing anything less, even if it means what we would perceive as more and a better quality at the end of life is going against one’s fiduciary duty, ignoring the cardinal rule. So when you’re asked to be a fiduciary, think long and hard and then think again. How well do you know the principal’s shoes and can you stand to completely take yours off to walk in someone else’s?
3 E-commerce Tips for Smallbiz Owners
Today\’s article was generously contributed by Deanna Wharwood, a lifetime member of the U.S. military. Thanks, Deanna, for serving our country in more ways than one! As a consumer, when you check out of your local convenience store, you may swipe your credit card through a point-of-sale device and your gas, coffee, and donuts are paid for. What if you are the retailer and your business is online? How do you as the retailer process their credit card information? Essentially, that is the job that the payment gateway. What\’s a Payment Gateway? Payment gateways allow online merchants such as electronic store owners or auction sellers to accept credit card payments over the Internet. They authorize the cardholder’s credit, i.e, they check to ensure that the customer has enough money on their credit card to cover the charges. Then they place a hold on that amount so the buyer can’t turn around and spend that same money elsewhere before it gets transferred to the retailer’s merchant account. A Payment Gateway is NOT a Merchant AccountMany people confuse merchant accounts with payment gateways but they are not the same. Merchant account services act, for the most part, as a liaison between your business bank account and the payment gateway. When a customer orders a product from your online business their card is processed via the payment gateway. The money is then moved over to the merchant account service. The merchant account service then moves those newly captured funds to your business bank account. 3 Tips for Choosing a Payment Gateway Is it PCI-compliant? If it is compliant, then the company’s security has been audited by a third party and met the industry standards. Since payment gateways store all your customers’ credit card information, your customers’ valuable information is secure. Does it provide good customer support? Clearly good customer support is essential, especially when your account receivables are involved. You will want to be able to reach a person on the telephone when there are challenges. And, you also want to make sure that you have back-ups to your invoices. Is it compatible? Finally, it is important that the payment gateway you choose be integrated to the third-party solutions you are planning to use. That means things like store front platforms and shopping carts work with your gateway. Many payment gateways offer an array of security features, some of which will help you avoid becoming a victim of fraudulent orders! In the end, they will make your e-commerce business a less-stressful, more pleasant experience for you and your customers.
5 Mentoring Tips from the Grave
As a wills and trusts attorney, frequently, clients or friends ask me how they or their parents can prevent young, adult beneficiaries from wasting their “hard-earned” inheritance. I explain that this can be managed in at least 5 ways: Use hard cold facts and an iron club. Tell them that the money was hard-earned by you and don’t leave them anything but a videotape of the family history. Leave all the money and possessions to charity. Bribe the youngsters and hope for the best. Of course, these are 2 actions that make most lawyers’ skin crawl. Educate the little people from the time they get their first piggy bank from Grandpa. Use conditional provisions that don’t “offend public policy.” This means that, while you can’t disinherit your child from marrying outside his ethnicity and can’t tell him he won’t get a dime unless he divorces his current spouse, you can cut the cord if he becomes a lifetime criminal. You can shorten the cord if she becomes a lifetime substance abuser. And you can make the cord’s length dependent on grades and gainful employment. “Staggered mentoring,” which I’ve mentioned before, is another tool. With a “staggered mentoring” provision, Grandpa leaves Hermoine 30% of her pot of gold when she turns 25, another 30% when she turns 30, and the balance at the age of 35. My favorite is a combination of 3 through 5, but as my favorite contracts professor said, “If it walks like a duck and squawks like a duck, it ain’t a beagle.” So, if Hermoine’s been in and out of jail since the age of 16 and she’s 25 now, education, at least of the financial planning kind, isn’t probably going to work.
The Money Talk – to Prevent Relationship Cardiac Arrest
April is National Financial Literacy Month and, thus, this week\’s column discusses something that needs to happen between committed couples before the number crunching begins: “The Money Talk.” Ideally, this talk should occur before you consider cohabiting, marriage, entering into a Civil Union, or having children. Why? Because money is one of the leading causes of relationship stress and is the bane of most family feuds in estate planning. So, if you and your honey can get this straight before you tie the knot or start playing with grandkids, then your relationship monitor will probably hum right along, at least with respect to finances. Ergo, make a “date,” collect your documents – which are alluded to below – and after a good meal and a nice walk, have a seat and start talking. The following issues and questions provide a good start: Credit score. Here’s what the agencies have to report. OK, so I’ve had a few bumps in the road. What’s your score? Net worth. This is what I earn; this is what I’ve saved; this is what I owe. What’s your net worth? Financial planning. These are my current financial obligations. What are yours? Family obligations. Once a month, quarter, or year, I give Aunt Sue a couple of hundred dollars to help her out. Do you assist any family members financially? Charitable giving and gifting in general. Annually, I give approximately $______ to these charities? What about you? For holiday and birthday gifts, I generally spend $______. What about you? But you don’t have to tell me how much you spend on me. Baby Planning. Build. Feed. Clothe. Shelter. Educate: $200,000 for 4-year college tuition is the current projection for the year 2030. \’Nuf said. Retirement planning. Presuming you’ve met with a financial advisor: This is what I’d like my retirement to look like and so this is what I’d like to have saved for retirement in 5 years, 10 years, 15… What do you want your retirement to look like and what are your plans? Of course, this is just a suggested list that should be toggled so it’s not always starting with you and could actually start off with something akin to, “I’ve been thinking about going on vacation, but I also am thinking about retiring or starting my own business…” How start The Money Talk is important because admitting one\’s financial boo-boos or bankruptcies is difficult; sometimes admitting that one is a trust fund baby who can probably feed the world three times over, build an international space station that would house China\’s population, and that you have more cars than GM built last year can also be scary. But what is most important is that you start. I know a couple who had it before marrying and still has it at least quarterly…
Second Marriages, Drunken Debauchery, & Children Left Behind
Often couples with no children think that they don’t need a will because their spouse will fulfill their wishes with respect to extended family. Sometimes it works; often it doesn’t. Though we can hope, we simply cannot predict what the future will hold for us or our loved ones, which is why planning is critical. Incapacity can strike in more ways than one leaving our extended family members or favorite charities empty: Gina and Lisle were in their second marriage. Gina was a widow when she and Lisle met. Her first husband was a generous man, with no extended family, so he left Gina the bulk of his estate. Lisle’s ex-wife retained a very good divorce attorney, so she ended up with nearly everything he owned, including the shirt off his back. Fortunately for Lisle, his ex found a wealthier second husband and Lisle was eventually able to buy a new shirt. Neither Gina nor Lisle had children but both had siblings and Gina had nieces and nephews who captured her heart. Lisle only had one brother, Jake, a scoundrel and leech, living off relatives and women who took pity on his substance abuse and inability to stay employed for longer than a couple of weeks.* One day, Lisle received a call from a hospital. Gina had been admitted after slipping and falling on an icy intersection crosswalk. She broke her ankle as a result of the fall. Lisle arrived at the hospital and the doctor told him that while treating Gina, they noticed she had an irregular heartbeat. They wanted to examine the cause and decided to keep Gina for a few days and run tests during that time. After running the tests, doctors determined that Gina had severe blockage but before the hospital could treat the blockage, Gina developed a bacterial infection. And this bacteria was very resistant. The bacteria was so resistant and Gina’s immune system so compromised by the blockage that she never recovered and died in the hospital. Gina left no will or trust but had a verbal understanding with Lisle that part of their combined estate was to go to Gina’s nieces and nephew to assist with their college education. However, as Lisle floundered in grief after Gina’s passing and became gravely ill himself a little more than a year after Gina\’s death, he fell victim to Jake’s undue influence and the nieces and nephews never got a dime. Sometimes it’s not your incapacity but the disability of others that may undermine your wishes if you haven’t a solid plan in place. *Whether he realizes it or not, Jake is incapacitated with respect to Illinois law, whose definition of incapacity includes, “because of gambling, idleness, debauchery or excessive use of intoxicants or drugs, so spends or wastes his or her estate as to expose the person with disability or dependents to want or suffering.”