Estate Planning that Keeps the Caregiver Out of Jail
Recent news stories abound about individuals who were caregivers for aging loved ones, and found themselves in court because they cared too much…about the loved ones’ bank accounts. But we really don’t need to go online or read the papers to hear about Aunt Abby’s favorite nephew, Jonathan, who changed the beneficiary designations on all of his aunt\’s retirement accounts and life insurance policies, naming Jonathan as the single beneficiary. Sometimes family members who spend significant time as the sole or primary caregiver are resentful and feel entitled to the funds because they sacrificed their careers or lifestyles to ensure the dearly departed’s final years or months were comfortable. On other occasions, family members are just plain old everyday crooks. Then on rare occasions, we have the family murderer. To prevent family members who were or will be primary caregivers from feeling resentful and taking nefarious steps toward their “fair share,” perhaps a family meeting should be held once the loved one at issue passes a golden or silver milestone. The meeting should cover 3 primary stages: (1) current living, (2) future living, and (3) postmortem needs. The agenda should also review needed resources and arrangements and pre-existing arrangements: money, physical assistance, companionship, time, estate planning documents, government benefits, and insurance, for example. Once the family determines the relevant needs for the appropriate stages, family could decide together who among its members is willing, able, and competent to manage the tasks and which resources could make tasks more manageable. Furthermore, if one person becomes a primary caregiver, the family should also determine how much that person should expect as compensation from the family and/or the loved one for his or her efforts. Maybe the loved one is disabled too, requiring even more assistance from the family caregiver. Individuals hear this and often say, “But this is family. You shouldn’t have to be paid to take care of your elders. After all…” Well, that is typically said before those individuals have helped elders out of bed, into the bathtub, driven them to and from, prepared their meals, and cleaned their homes. Example: Uncle Teddy is 78 years old. He lives in a 2 bedroom apartment he adores. The building has all of the amenities one really needs – cleaners, laundry, small supermarket, parking, doorman, and even a “wellness checker.” Uncle Frank has 2 children: a daughter who is a single parent with a high school teenager and another child in college, and a son who’s married, without children, and lives in a nearby state. Uncle Teddy’s siblings and parents are dead. However, he has a favorite niece, Martha, who visits him monthly and phones weekly. Uncle Teddy is fiercely independent but his health is declining. Currently, he performs most of his errands, cooks, and drives himself to the doctor. A cleaning person comes in once weekly. He also has life insurance, a will, and Martha as an authorized user on his primary checking account. In a year or 2, Uncle Frank’s mobility will dramatically decrease. However, will still need bills paid, meals prepared, personal grooming, and doctor visits. When he passes away, memorial services will need planning and implementing, his estate will need administering, and before that, his apartment will need cleaning and inventorying. There’s something for every family member to do to help Uncle Teddy now and then. Powers of attorney could also help currently and in the near future. Now, for family members who want to skip stage 2 and help the loved one to the post-mortem stage, like many states, Illinois has a “slayer statute” where family murderers can’t inherit the family home.
Which Trust to Trust the House to?
Continuing with the series on tools to transfer property outside of probate and without using a trust, this piece discusses the land trust. In Illinois, a land trust is commonly referred to as an “Illinois land trust” or a “land title trust.” A person may transfer title of his or her property into a land trust so the trustee, typically a bank and/or a title company, becomes the owner of the property and of the property title. The former property owner becomes the “beneficial owner” and the interest in the property changes to interest in personal property not real property. However, the beneficial owner is also the person holding the “power of direction” over the trustee, which means that the trustee will act with respect to the property as directed by the beneficial owner. The difference between a land trust and a revocable living trust is that generally the trustee of a revocable living trust is responsible for the management and maintenance of the trust assets. With land trusts, the beneficial owner has the more active role. Because a land trust is created by a private transaction between the beneficial owner and the trustee, and the beneficial owner no longer holds title, it may provide a certain amount of asset protection. However, a simple title search will allow a creditor to deduce who the beneficial owner is and, using the appropriate court action, attach a lien to the beneficial interest. Also, although the land trust removes the property out of the probate estate, it is still considered a part of the estate for estate tax purposes. Furthermore, a co-beneficiary cannot force the sale of the property. Nevertheless, a land trust will allow a person to transfer property to a loved one without requiring them to go through probate. Individuals who are interested in using this tool should take care to ensure that they name a successor beneficiary or probate will, in fact, be required. Beneficiaries who want to remove the property from trust typically have to pay the trustee fees, but these fees are not as high as the fees that accompany probate.
Dodge Probate and Keep the Car…No Pun Intended
A popular reason people use trusts as estate planning tools instead of wills is because a properly constructed trust will typically avoid probate. As mentioned on my web site, probate can be lengthy, costly, and just plain unpleasant. Still, having a trust prepared, for some individuals, is like taking a bath when all they need to do is wash their hands. So over the next few weeks, I’ll add to last week’s commentary about how to avoid probate using tools other than a trust, which can also be costly. All of us don’t have Warren Buffett’s money and keeping up with the Joneses is getting difficult even for the Joneses. In addition to the Illinois Transfer on Death Instrument, or TODI, another tool that may allow heirs to avoid probate is the Illinois Small Estate Affidavit, established by Article XXV (25) of the Illinois Probate Act. The Small Estate Affidavit allows a decedent’s personal estate to be distributed if certain criteria are met: The estate is no more than $100,000 in total value. No real property is included in the estate. No contested claims exist on the estate. The person filing and completing the affidavit is called an “affiant,” and upon signing the document swears under penalty of perjury that the statements made, boxes checked, or information provided in the affidavit is true. One may still use a small estate affidavit if there is a will; the will simply must be valid. Additionally, the affidavit cannot be used to bypass the terms of the will. It is inadvisable to use a small estate affidavit if one or more of the heirs is a minor or disabled. However, if a person simply needs to retitle Aunt Bee’s Coronado, the Small Estate Affidavit will probably do the trick.
Can a TODI Keep You Out of Probate…Good Question
I’ve been asked a few times recently about the simplest way a person can transfer property, when they pass away, to loved ones. Undoubtedly, the probate horror stories reached a few ears. My response has generally been, “Glad you asked and good timing!” Then I start sharing the following information. On January 1, 2012, the Illinois Transfer on Death Instrument Act became public law. Under this law, the Illinois Transfer on Death Instrument (TODI) became available for Illinois residents who want to transfer property in a relatively efficient and inexpensive manner. The TODI only applies to residential property, primarily defined as 1-4 units or 40 acres or less of a single tract of land on which a family home was built. The TODI cannot be cast in stone, meaning, its creator can change it; and it is only effective when the owner dies. Furthermore, only a natural person, not a corporation or similar entity, may create a TODI. However, a corporation, trust, or other legal entity may be a designated beneficiary of a TODI. Another important point is although the TODI owner must have the same mental faculties to create a TODI that are required to create a will and a TODI allows for beneficiary designations, it is not a will. A valid TODI must Contain the identical aspects of a recordable deed; Expressly state that the property will transfer to the designated beneficiary when the owner dies; Be recorded before the owner’s death in the appropriate county; and Be prepared by a lawyer. Admittedly, I like that part. A few other items should also be noted about the TODI: It’s not a deed, even though it must be recorded. Beneficiaries have no legal interests in the TODI until death. A TODI beneficiary will not lose his or her needs assistance eligibility just because he or she is a beneficiary. Finally, because this instrument is based on new law, it hasn’t been tested. And no, I don’t like that part. As a result, the outcome of the “right to challenge,” which is provided by the law and the ineffective acceptance of beneficiaries is unknown. Thus, a TODI may be very beneficial for individuals of modest means with a small piece of property they want to keep in the family. However, the unanswered questions about challenges and invalid acceptance might create a Pandora\’s box for some. Do you have questions or comments? Feel free to drop me a line here or by e-mail.
A Living Will? Think Again…
In a recent newsletter, I briefly tried to take readers through the legalese maze used to discuss documents that give a person authority to make healthcare decisions for someone else. Because these documents are typically – and should be – signed before the need to make the decision arises, they’re often called, “advanced directives,” “healthcare directives,” or “healthcare proxies.” No such terms are used to identify these documents in Illinois. Confused yet? Here in the Land of Lincoln, the 2 main “healthcare directives” are a “Living Will,” which is based on the Illinois Living Will Act, and the Healthcare Power of Attorney (“HCPOA”), which falls under the Illinois power of Attorney Act. 755 ILCS 35 et seq., 45/4 et seq. (2011). People often confuse a Living Will with a Living Trust because we hear the term “will” and automatically assume the term has something to do with property. However, a Living Will has nothing to do with property, unless you consider your life property. Then again, our organs, tissues, blood, and so forth are defined as property under certain legal circumstances, but that’s not relevant here. A Living Will is a document that can authorize one person to make the decision for another person to prohibit or stop death-delaying procedures when the decision involves terminal illness. 755 ILCS 35/3(d). A Living Will requires the principal (person providing the authority) to be of “sound mind” and “willfully and voluntarily” execute the document. This means they have to know what they’re signing and be doing it of their own accord. Additionally, the document only applies where the principal has an “incurable and irreversible injury, disease, or illness judged to be a terminal condition … by an attending physician.” 35/3. A Living Will is primarily a “do not resuscitate” or “don’t keep alive by artificial means” declaration and requires not only the principal’s signature but also the signature of 2 witnesses. The other primary healthcare directive is the Illinois Healthcare Power of Attorney,which gives much broader authority than a Living Will and, ironically, only requires one witness. The HCPOA, like a Living Will, allows a person to delegate decision making about healthcare matters to another person (an “agent”). Those decisions can be not only about basic healthcare treatments, but also can “include, without limitation, all powers … to consent to or refuse or withdraw [from] any type of healthcare.” 755 ILCS 45/4-3. The law defines healthcare as including “any care, treatment, service, or procedure” used to sustain or cease a death-delaying measure. 45/4-10. Therefore, the HCPOA provides the same powers – and more – as a Living Will. So why have a Living Will? Good question. Often, the legislature passes a law that gives more authority and flexibility to those who will use it but doesn’t repeal the old law. This happens to be one of those cases: the Living Will as written in the law did not have a space for the name of the authorized agent or successor agent. It’s also why, if you reside in Illinois, you might want to execute an HCPOA instead of a Living Will.
JD, CPA, CFP – What\’s with the Estate Planning Alphabet Soup
When designing an estate plan for a new client, I usually ask if the client has a financial “team.” “A team?” you may wonder or say to yourself, “I don’t need a team because I don’t even have an estate! I just need a will, if that.” On the contrary, as mentioned in a previous post, you probably do have an estate and it’s likely larger than you think. So yes, you probably need a team. Consider this analogy: To maintain overall good physical health, you need a primary doctor, a dentist, and, if you’re female, a gynecologist. Now these providers may only consult with each other once, if then, but they are certainly aware of the other\’s existence because your good health requires it. An estate planning team works in a similar way, albeit a little closer, and is essential, especially if you have loved ones you want to protect. So here\’s the line-up: Estate planning attorney: Does more than draw up a will or a trust, and while online DIY services offer estate planning, if you use one, be sure there\’s a review by an attorney who understands the probate, trust, and tax laws in your state. In addition to the many laws, an estate planning attorney must also have a good command of the various, related documents needed to protect you and your family now and in the future. He or she should also possess, at least, a basic understanding of the federal and state tax implications of the distributions and powers designated within the documents, near-term financial planning, and retirement planning. Certified Public Accountant (CPA): Must take a licensing exam, work for as an accountant for about 5 years, and take continuing education courses to retain certification. Accordingly, a CPA’s knowledge base is deeper than a non-certified accountant. A CPA whose specialty is estate and income taxation typically consults with your estate planning attorney to ensure that the tax implications for you and your beneficiaries are minimized. Certified Financial Planner (CFP): While not required for CFAs, a CFP must take extensive exams in financial planning, taxes, insurance, estate planning, and retirement. He or she must also take continual financial planning courses to maintain their certification. A CFP performs the research needed to help determine how best to allocate funds to reach your personal goals and the goals of your family and consults with the estate planning attorney to ensure beneficiary designations are accurate and that allocations and distributions are aligned with your goals and unique investment style. In a nutshell, your estate planning team is a group of capable and highly qualified individuals who, together, help to ensure that: The intentions underlying your financial and personal interests are legal and accomplished during and after your lifetime; The tax implications of those interests are minimized; and The financial interests are secured and grown if possible. *Note: Different states have different rules on fee-splitting arrangements, but typically attorneys cannot accept fees from non-attorneys, at least in Illinois, which is a healthy check-and-balance on your team.
Saving Parents\’ Precious Resources
Occasionally, I’m stunned by how little current clients\’ or customers\’ needs are considered by service providers. As an estate planning attorney for “non-traditional families,” one of my key concerns for my clients is providing them with services that are not only excellent, but also efficient. Nontraditional families include women who are heads of households with children and, as the primary wage earner, they have 3 issues to continually manage: Financial resources Time Parenting While The Law Offices of Max Elliott may not be able to assist in quality parenting, we do provide services and use tools that bring efficiency to the first 2 issues. In plain English, we help our clients by saving them money and time. Estate planning, as is said so often now, is not just for the very wealthy. So our services allow you to determine the scope of estate planning protection that fits within your financial framework. Are you a median wage earner who rents with a teenager living at home but working his or her way through college? If so, then an estate plan that encompasses education planning and a Qualified Personal Residence Trust, or “QPRT,” may be unnecessary AND we won’t turn you away. We will simply recognize that more than likely, to protect your family and yourself, you will and should want to start with simpler vehicles, which is what you can obtain for probably less than 1-2 months’ rent. BUT… “It’s not money, but time,” you say. Well let’s look at Joan: Joan is an HR executive at a Fortune 500 company and earns more than the median. Plus, she’s up by 5 AM to workout, get the kids off to school and daycare, is working her smartphone by 7:30 at the office by train by 9ish, eats lunch at her desk, is on the 5:15 and cooking or ordering in by 6:30 but answers her email until 10:00 PM. Weekends are for catching up on the latest SHRM reports she missed while taking the train during the week. Joan came up along the ranks in HR, so it would be unwise for us to waste her time talking about 401(k) planning and HSAs. She’s a tech wizard who lives in the ‘burbs and works downtown, so I’d also never think to ask her to commit to only in-person meetings when a teleconference or an exchange on our secure client directory will suffice. Speaking of that directory, if you are the mom, renting, and with the teenager or a parent with kids and no time like Joan, or someone who just wants to save time and money, our secure online portal that is available for clients makes it easy to engage in substantive, secure conversations, exchange documents, and pay fees all in one place. It’s not an open e-mail or even e-mail on our website. It’s a secure, designed specifically for lawyers and used strictly by us and our clients. So, in concluding this shameless “use our service” self-promotional piece, I’ll just say that whoever you choose as your legal services team, make sure that your precious resources are considered and used wisely.
Free Anti-Human Trafficking Program Tuesday, Jan. 10
JOIN the American Bar Association International Human Rights Committee in Chicago live or via teleconference, on January 10, 2012, 10 a.m. – noon CT, as we present “Sex Trafficking from the Boardroom to the Classroom: Prevention, Intervention & Prosecution” This third program in our human trafficking series focuses on sex trafficking. The program will provide a comprehensive depiction of the issue by highlighting the transnational criminal framework that fuels sex-trafficking; innovative prevention and intervention efforts to end sex-trafficking; and the human rights gender issues that lie at the core of the continued proliferation of sex-trafficking worldwide. REGISTER for the program TODAY with the ABA
Heading to the Mall for a Gift and a … Will
An interesting concept that has already been established abroad is the ability to purchase testamentary documents at malls. Capitalizing on the concept and holiday traffic, during this past festive season, a couple of attorneys in Florida set up a legal services kiosk offering various legal services including \”basic estate planning.\” This set up involves dynamics that are both troubling and admirable. Estate planning is a complex practice, especially if you\’re approaching it from the perspective where your main focus is individuals with relatively large estates who want to protect their families but also seek to minimize taxes. Plus, considering the newer comprehensive approach, which incorporates using other financial professionals, estate planning is a relatively complex practice. This approach requires a more than basic familiarity with a number of disciplines because this approach uses a \”team\” of advisors, with the attorney at the top of a pyramid, with a financial planner and an independent CPA at the base. Finally, needless to say but I\’ll say it anyway – the tax laws are always changing. Still, it\’s doubtful that individuals with large estates who are mindful about the fees they pay will consider a kiosk; that\’s just not how they do business. On the other hand, a demographic does exist that needs testamentary documents to just protect family members in the event of a death or incapacity. The \”basic\” will and power of attorney would likely be applicable in this situation. Yet, I am troubled by lawyers who don\’t use these documents regularly and understand how they intersect with other law and regulations, especially powers of attorney and health care directives but offer them with a little counseling as a holiday special. If a gay or cohabiting couple approach these attorneys for wills or estate planning, there\’s no 15 minute answer. Finally, the middle class is struggling as it is; it cannot afford planning mistakes with the small amount of resources it has managed to maintain during the financial crisis. I absolutely agree that trying to help the middle class is admirable, but this setup may cause more harm than good. If the motive is helping the middle class, they could offer documents and a free review without the 15-minute time constraint? But the question then becomes do the attorneys have the requisite experience to know what to look for during the review.
Long Term Care – the Shark in Estate Planning
Long term care insurance (LTCI) is often on the minds of those entering or considering retirement. This is also an important issue to consider when thinking estate and financial planning. The reasons are plentiful, petrifying, and probably why thinking about the topic is not on anyone’s top 10 list of fun things to do. If long term care insurance isn’t purchased but is needed, life and retirement savings can evaporate, leaving huge bills and burdens for loved ones, including taking a hefty bite out of your estate assets. If long term care insurance is purchased but is not needed, money that could have been used as retirement income is gone. Those are just 2 key quandaries. Yet, despite the quandaries and the upset stomach this issue causes, we believe in \”eating frogs first\” and with sufficient information to make the best decision possible under the circumstances. The following are a few critical points to mull over regarding LTCI: In the U.S., people are living longer, which means that the cost of living is higher for us than for our parents and grandparents. However, while we are living longer are we living better? Well, that depends on your family medical history, which is the first step in considering whether you should invest in LTCI. If you’re in your 40’s with a family history indicating folks living well into their 80s laughing and without major illnesses or dementia, you might consider an alternative to manage any long term care issues that you might surprisingly experience. Conversely, if you’re in your late 50’s with a family history rife with Alzheimer’s or strokes, it may be more probable than not that you need LTCI. So not only do you need a physical, but your family’s medical history also needs examining…and the history of your spouse or partner’s family. After considering the family medical history, the next issue is family finances. LTCI isn’t getting any cheaper; quite the contrary. Over the last several years premiums have skyrocketed, which is in part a result of the increased cost of long term care. This website provides the average cost of long term care for all of the states, including Illinois. In Illinois, the average monthly cost of long term care can be more than $5,000/month. Annual premiums to cover this are thousands of dollars. Add to these factors the time value of money premise and inflation, and you have an expense that is unlikely to decrease. So how’s your financial situation faring? Well, let’s say that your health is good, but your family history is a little questionable and your finances are better than most – you were on the rare winning side during the Great Recession. Therefore, you’ve decided to hedge your bet and buy LTCI. The next issue you’ll confront is that most reputable insurance companies no longer carry LTCI. It became too costly for them. A few do, but the field has narrowed considerably over the last decade.* What if none of this sounds particularly palatable to you? Are any alternatives available? Yes and generally with caveats: Other investment vehicles. An instrument that provides supplemental retirement income may be set aside strictly for long term care needs. However, unless you’re purchasing something such as a fixed return annuity and purchase it at a young enough age, the risk of not having enough funds is genuine because most investments carry with them the downside of losing money. Medicaid. Illinois has a Medicaid provision that will pay for long term care. However, the state will want its money back at the end and will take it out of deduct it from your estate if necessary. See Illinois Long-Term Care Partnership Program Act. Family and Friends. Seriously? Social Security. Really? It is doubtful that SS benefits will be sufficient to cover long term care needs. Consequently, the decision to buy LTCI should be given serious deliberation by you, your partner/spouse, and your estate and financial planning team. A strategy that combines insurance with alternatives may be the most efficient way for you to manage this issue. However, what is most important is that you recognize you need a strategy and devise one, sooner rather than later. Please don\’t wait until a loved one is on the other end of our phone line listening to us say it\’s too late to do anything that isn\’t costly. *The sites listed here are not indicative of any kind of endorsement. They are provided strictly for information purposes.