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.
Estate Planning Tools to Keep Lex-the-Ex Away
Outside of food and clothing, 2 of the most critical matters parents manage for their children are education and housing. Single parents are typically even more concerned with managing these issues because ultimately the responsibility falls on the primary custodial parent. Divorcees may breathe a little easier because of settlement and child custody agreements, but not necessarily. Family courts around the country are filled with defendants and plaintiffs arguing over alleged breaches of such agreements. Consequently, as a single parent, the burden is heavier. Managing housing and educational issues can be made easier with proper estate planning tools. An earlier blog post addresses basic estate planning instruments parents should have in place. This post discusses some of those instruments in more detail. Property Power of Attorney. As mentioned here, this authority, which you to give to another person, allows that person to make and carry out financial decisions for you when you are physically incapacitated. Thus, if you’re ill for a long time and need someone to pay the rent, mortgage or any other expenses associated with your family’s home, you should designate a trusted agent under a property power of attorney. Guardian of the Estate. A will allows parents to designate who should care for their children in the event of a parent’s death – a guardian. This is critical to single parents. However, in Illinois, there are 2 types of guardians: a “guardian of the estate” and a “guardian of the person.” A guardian of the estate status allows the guardian to manage the financial affairs of the minor, e.g., gifts received under a will or trust. This makes sense because sometimes the person you would trust to raise your children may not be as financially well informed as needed to manage large sums of money. So I typically advise clients to consider guardianship from both “personal values” and “financial expertise” perspectives. Trustee. In a vein similar to a guardian of the estate, a trustee is the person, or entity, you authorize to administer, preserve, protect, and grow trust assets. Note: Many people think they’re not personally wealthy enough to require a trust; many are mistaken in this thinking. Example: Sharon is the single mom of a 14 year-old daughter and has a home valued at $150,000 with a mortgage balance of $30,000. She has about $100,000 in a retirement account, and $500,000 in life insurance. Additionally, Sharon keeps approximately $1,000 in her checking account and $2,000 in her savings. She doesn’t feel like she’s wealthy, but if Sharon were to pass away today, her estate would be valued at $723,000. She would have died almost a millionaire! An important and related consideration is that unless other designations are made, life insurance and retirement account proceeds may be paid out to a very young adult, e.g., an 18 year old. How many 18 year olds do you know who are mature enough to manage receiving a lump sum of $600,000? Returning to Sharon’s scenario, where her daughter is a minor: If Sharon didn’t designate a guardian or trustee, but Sharon’s ex-husband, Lex, is lurking around, guess who would likely obtain control over the $600,000 – yep, Lex the ex. Life Insurance. Typically, life insurance is a death benefit and can be used to pay off mortgages and for other housing expenses. An Irrevocable Life Insurance Trust (“ILIT”) is a time-honored estate planning tool and excellent for providing for education and housing costs, especially if one does not intend to benefit from a policy otherwise. Transfer the policy in a trust where someone other than yourself is trustee and your child’s education is relatively secure. Securing the hearth and educational future of children is critical, so review your policies and plans today and get a good night’s sleep going into the New Year. Well…after midnight anyway. Your comments are welcomed as always!
Consider the Sushi: 3 Critical Plans for Small Business Owners
One of the most critical tools a small business owner should use is a business plan. Having drafted an untold number of these for businesses over the course of many years, I know how time-consuming and arduous creating a solid, comprehensive business plan is. However, small business owners who don’t undertake and complete such an effort are playing a dangerous game. Most business plans involve a forecast of at least 3-5 years, anticipating profit, loss, and resource growth. However, what if the business owner falls temporarily ill at the end of year 2 or year 4 or wants to retire? Who will see the business succeed and what financial interests will the original owner be able to sustain for herself and her family? Small family-owned businesses typically operate under the assumption that “someone” in the family will take over. But that “someone” isn’t always the best person or even a competent person with respect to business management. Granted, who is best to manage the business other than the original business owner may not be the person in the forecast, either. This is why a business plan is a “working” document. Another critical step that should be discussed in your business plan is the reason underlying your business entity selection or lack thereof. If you’re a small business owner, it’s unlikely that you will have selected a c-corporation and more likely that you decided to operate as a sole proprietor or partnership. Hopefully, your reasons included liability protection, asset protection, and minimizing taxes. Let’s look at an example: Craig and Andre established a catering business as equal partners. Craig was the creative genius and Andre was the financial guru. In Illinois, they will be taxed individually and the partnership may be subject to unlimited liability for any debts or claims, e.g., if someone was poisoned by blowfish. If the partnership cannot pay the claim, then the liability will flow to Craig and Andre together and separately. Now, let’s say that Andre quit the partnership as an owner before the blowfish incident but retained a financial interest in the business, which he bequeathed to his son who was a great beneficiary but a lousy business manager. That interest, because Craig and Andre established a plain partnership entity, may become worthless. However, let’s say that after Andre quit but before the blowfish incident, Craig hired a competent accountant. He structured the hiring according to the business succession plan, and then converted the partnership into a Limited Liability Company (LLC) because he didn’t want the business to be subject to unlimited liability. Now, the business and the bequest to Andre’s son are probably safe. An LLC is a very popular tool among small business owners right now because of the safety nets it provides for owners and for their interests. So if you’re a small business owner, revisit your plan to ensure you’ve selected the right entity. You should also determine who should succeed you as manager and at least how and when to replace other critical functions if and when they become vacant. Finally, be sure to place information regarding family successors and financial business interests in your estate plan – the third critical plan. If you choose the right entity and the right successors, you don’t have to risk your business, your financial interests, or your non-business-minded progeny’s esteem.
Christmas in August & Legacy Planning for Families
My mom is one of the amazing sort who finishes holiday shopping in August. It always fascinated me, so of course I tried emulating her. The closest I got was finishing in October. So what does this have to do with wills, trusts, and estate planning? Well, 2 parallels exist between holiday shopping in August and legacy planning. The first is obvious – planning ahead for yourself and your family is fiscally prudent. The second parallel is a little less obvious because it’s less about shopping and more about August, the summer vacation season, and family harmony in particular. Many families go on holiday in the summer and while doing so often select a favorite family get-away spot. This spot ultimately becomes either a retirement or vacation property loved by all. As such, parents decide to keep the cherished corner of the universe in the family for the benefit of future generations. Typically, if there is more than one child, parents will leave the property to siblings to “share and share alike.” But what if the siblings can’t share alike? What if they are geographically spread out over the 4 corners and the property is closer to one than the others? What if they don’t want to share and share alike, i.e., they don’t want to perform the same responsibilities, such as property maintenance and financial maintenance? One answer would be to place the property in trust and draft terms delegating certain duties to the respective siblings. However, times change and people change, so what we might think our sons and daughters are good at today may not be what they become expert in tomorrow. Consequently, it might be more harmonious and advantageous if parents let their children decide how to manage the property and place the property in an entity with a structured agreement that supplements the trust. Instead of supplementing a trust, parents may also create a trust that owns such an entity, such as a Limited Liability Company (LLC), which in turn would own the property. As their lives and circumstances dictate, various family members could hold and move into member positions of the LLC, performing the duties directed by the LLC’s operating agreement, which is similar to a corporation’s by-laws. Forming an LLC and placing it inside of a trust requires legal assistance. Additionally, estate and income tax considerations should be addressed. However, by placing the property in an entity similar to an LLC, generations can continue to enjoy the favorite family getaway without the fear of an ensuing feud. Well…there may be a feud brewing, but at least it won\’t be about the one family member who always has to clean the pool, shovel the snow, or rake the leaves. Plan ahead and consider the abilities and desires unique to each kid – it\’s a great way to shop and a great way to create a legacy. *Author’s note: Yes, I know “plan ahead” is redundant, but it just sounds so darn good!
Caution: Fund-Raising Spoiler
Tis the season to be giving … and we all have our favorite causes. Yet, many of us would likely become impoverished if we tried to contribute financially to each one. But those tax deductions are so darned attractive. So, if you want your deduction, then get out the checkbook or, better yet, \”go green\” and donate online. Still, you might want to recall that old axiom, “charity begins at home.” Then, before you start writing in those zeroes or clicking the bright green “Donate” button, consider whether you’ve been sufficiently charitable to yourself and your family: Has \”life happened\” to or around you? Has a significant event occurred in your life that you should consider, and, accordingly, recalculate your retirement projections? If a life event hasn’t happened to you, has it happened to a member of your immediate family? Perhaps your son or daughter married or became civil union partners. If that’s the case, might a trip to whatever popular children\’s fantasy world developed in Florida 10 years from now be on your retirement travel list? Has the likelihood of these little people been considered in your estate plan? Were your investments negatively affected by the Great Recession? If so, have you recovered your losses and is there enough room for you to take aggressive steps, if you can tolerate the risk, to place you back on track? Or do you need to revise your retirement and estate plan? If your retirement planning is on track and in sound shape, have you ensured that the education of your children and their descendants is reasonably secure? Are you relying on 529 plans and, if so, are you confident about the state’s (such as Illinois’) fiscal outlook in 10 or 20 years? My late grandmother’s words always ring true for me and may make sense to you, “Home and family come first.” Keeping that in mind, I have advised clients, “Before you write the check to the institution that will educate the next generation of alumni, be sure that your estate and retirement plan is solid so that you can help educate the next generation of your descendants.” They may not want to attend your alma mater. Money-Saving Tip: When travelling to children\’s destinations, stay away from nearby golf resorts for accommodations, unless you or a travel companion is a golf enthusiast, because the amenities, e.g., greens maintenance, that you will not use will be added to the price of your stay. Now, other than family, what is your favorite cause? Send me your responses and comments below.
Life Insurance and 90210 Accessories
Most of us know that life insurance is the most basic and essential of estate planning tools. It serves 2 fundamental purposes we face with end of life issues: (1) not leaving our loved ones with hefty funeral or memorial service bills and (2) replacing income if we were the primary wage earner or part of an even wage-earning team. So, most individuals who are employed have some type of life insurance. As discussed in a former blog post, it is further understood that life insurance can not only afford relatives a certain solace during their grieving period, but it also affords benefits before the end of life, i.e., during retirement. However, when using life insurance for its additional benefits, individuals should be careful not to overdo it or you might end up losing money instead of earning a return on your investment. Let’s visit the Petry’s, a small family of 3. Robbie is in her mid-30s and works as a middle manager for a high end office furniture sales company. Jerri is in her early 30s and works at a lucrative nail salon. Robbie and Jerri have one son, Ritchie, who is in his terrible twos. Robbie and Jerri each bought life insurance policies providing $500,000 of death benefits in the event one dies. That would provide about 7 years of replacement income. They also bought another $500,000 as retirement income, which will begin to earn value in about 10 years. Ritchie is so cute they thought he might one day be in movies, perhaps another McCaulay Culkin. So Robbie and Jerri also took out a $200,000 policy on Ritchie. Other investments include their home, which was left to Jerri by Aunt Sally, and is now paid for and valued at $200,000; and about $400,000 in other retirement planning instruments. By now you have probably identified a number of issues involving Robbie and Jerri’s insurance decisions but I’ll point out a few basic points: If your family can move to 90210 or 60043 after you’ve departed, when before they lived in an area that didn\’t consider dogs as purse accessories, that’s not a good sign. If you’re empty nesters, plan to stay that way. If the kid hasn’t been discovered by e-Trade yet, don’t put your money on it. Millions of really cute kids never make it to either screen – the big one or the little one. BUT what you need to do is talk to your team – your estate planner, your financial planner, and your CPA. Talking shouldn’t cost, initially, and this discussion should give you a good idea of how much insurance you need to purchase in the event of premature loss. You’ll also know how much will be needed to keep the nest strong, sans the birdies in the event your retirement years are lengthy. Money saver tip: Bundle your insurance like your family cell phone plans.
Pumpkinheads Afoot in Estate Planning
Wills, trusts and estate planning is a great subject for Halloween because of the trick or treat nature of the area. The treats are significant: peace of mind, retirement, healthcare, education, and family harmony. However, the tricks can quickly eliminate all or almost all of the treats for most parties involved. Because so many people know someone who has a will and have at least heard of trusts and estate planning, many people know just enough to sound knowledgeable. Yet, many individuals also lack just enough knowledge to cause schisms if their advice is actually heeded. So how can we be tricked? Let me count the ways: A living will is just as good as a healthcare power of attorney. Trick: A living will is subordinate to a healthcare power of attorney, unless the person holding the living will has a terminal illness or is in a basically vegetative state. My dad’s house is only worth $50,000, so I can file a small estate affidavit and skip probate. Trick: Sure. You can skip probate, if the house is in an Illinois land trust and let’s hope that Dad didn’t take out a second mortgage that the house is still subject to. If the house is still subject to a mortgage, you may have problems trying to sell it. Estate planning is only for the rich. Trick: I\’m not sure who invented this one…maybe the Boyz on Wall Street. Nevertheless, please read this. After 7 years of living with my man, I can finally be put into his will as his wife and our child can inherit, too. Trick: Someone has put something in your water. Illinois hasn’t recognized common law marriages for decades, and your child…the inheritance issue is an even bigger trick in this regard. A trust will keep my creditors and the repo man away from my door. Trick: Not really. The repo man is coming and a trust will generally keep creditors away only if you don\’t own anything, i.e., you are not the trustee nor are you the beneficiary of the trust assets. I won’t have to pay taxes if I put my assets in a trust. Trick or treat: If your assets are instruments that appreciate in a tax-deferred manner, then you may not have to pay estate taxes but you may have to pay income taxes. Trick: Depending on how the trust is structured and the relationships of the beneficiaries to you and each other, your beneficiaries may have to pay estate taxes. A will is less expensive than a trust. Trick or treat: If litigation is involved because of a will contest or claims are placed on the estate that need to be answered, that statement could be the costliest trick of all of the above, except maybe number 4. Money saver tip: Be patient; your debt wasn’t created in a day so unless you win the lottery, it’s not going to go away in a day either.
Money-Saving Tips with Estate Planning
This may sound counterintuitive coming from a lawyer, but my practice is purposely designed around protecting families and loving interests and saving my clients money. Yes, and I am a lawyer and said, “I want to save folks money.” So for the next few months, the focal point of my blog posts will be how you can save money through estate planning. Of course, I’ll digress occasionally, but I’ll return to the course in due time. Sometimes the discussion will be about how certain estate planning processes clients experience may be costly or inexpensive depending on the approach. Other times, the discussion will address decisions that may be costly or may save you a bundle depending on various considerations and scenarios. So let’s get started and today’s piece will cover very basic ways to save with wills or, more accurately, the lack of one or keeping the cost of probate down if the estate requires one. Money Saver Tips: In Illinois, if the estate is less than or equal to $100,000.00, probate and its accompanying court costs may not be necessary. If at any time your estate grows to more than $100,000.00, a valid will that is kept current may save your heirs thousands in having to open a significant estate where there is no will or the will is invalid. A valid will has 2 witnesses and is not handwritten. Save some money and don’t get it notarized. Wills in Illinois do not require notarization. When calculating the size of your estate for probate purposes, do not include life insurance; life insurance and retirement plans are not part of the probate estate. So if all you have is a $50,000 home and no creditors, see Money Saver Tip #1. If your estate is more than $100,000.00 and you aren’t completely sure about how to distribute your assets, don’t use a DIY program or a Big Box Store will-in-a-box. Refer to Money Saver Tip #2 for the possible consequences. Tune in next week for money-saving tips with estate planning.
Take 5: Planning for Parents with Jazz
Today, I was listening to one of my mother’s favorite tunes, “Lake Shore Drive,” by the late Art Porter, Jr. Enjoying the fact that she so loves this great sax melody reminded me of a client who recently came into my office. As we talked I was struck again by the fact that if it were not for the sacrifices made by parents, many of us would not have the good fortunes that we have today. Occasionally, individuals who understand this honour the sentiment by taking it to the next level with action. So listening today, I decided I’d pay it forward by providing 5 pieces of information you should have as you plan for your parents. The difficult conversation should, of course, have taken place. After that, you should determine the following: What the estimated amount of need-based government benefits your parents will receive by the time your plan is scheduled to start providing for you or them. This amount will determine how much you can provide for them if their assets plus their benefits is insufficient. Who are their primary physician(s), life insurance agents, and other key contact persons. If you don’t know them already, schedule time to have a small chat with each of these persons and put them on notice that your loved ones are protected not only by their services and products but also by you. Where your parents want to live in the event one or both become infirm and unable to tend to each others\’ basic needs, e.g., proper hygiene, nutritional maintenance, and medical treatments. Most folks say “my home,” unlike my mother, who sent me a link to her favourite cruise line. What their retirement and estate plans entail and if these plans reflect their current family and financial statuses. CAUTION! Sometimes parents don’t provide equally for siblings. This isn’t a smart parental move irrespective of the motivation, but it happens. So if you’re getting pushback, this may be the reason and may be a good time to try to avert a potential family feud. The nuances of how they handle finances. This may change over time but generally people are consistent in the way they manage their personal finances. For example, some folks are uncomfortable with less than $200 in their wallet; some withdraw cash from the bank at the beginning of the week that’s to last them until the next week; and some older individuals go a few times a week just because it gets them moving and, if it’s a local community branch, they get to see familiar faces. If you plan to provide for your parents and discuss these matters now, all parties will be more comfortable and less stressed-out when the time comes for you to supplement or provide them with income. Even if you aren’t sure that you’ll be able to assist your parents, this information is still valuable in case they just need your help.* Just like us, our elders generally relish their independence, so to lose some or all of that freedom can be kinda earth-shattering. If a loved one could make a possibly traumatizing situation for you less stressful, wouldn’t you want them to take the necessary steps to do so? I would. So take 5, play a little Art Porter – or The Stones – and sit down and listen, so you can pay it forward in the right key, when the time comes. As always, your thoughts and comments are welcome… *As seen in Crain\’s Chicago Business.
Team Estrogen Needs to Plan Now for Now … and Then
For my male readers, I’m shouting one out for the estrogen team, today. You\’re more than welcomed to stay and share this post with the hub of your life, but I’ll return to the neutral zone with the next post. Recently, I shared a number of articles via Twitter and LinkedIn about the supposed trepidation women have when it comes to estate planning, particularly managing their financial affairs. As a female lawyer in a practice area traditionally held by men, I must admit those articles ruffled my feathers. I contend that women are not afraid of talking about money or estate planning matters, we often just don’t think we have the time. The role of the female is still that of the family hub– mother, daughter, spouse, partner, sister. Being the family hub requires a great deal of time and effort. Add to that our occupational responsibilities and community obligations and it’s perfectly understandable why we focus on the “now” and not the “then.” Yes, we are fully aware of the fact that if we take some time now, we could make “then” better. However, as a single parent when: a presentation to a major client is due on Monday, the kids have to be taken to gymnastics and birthday parties and Sunday school, Mom needs help with her new ottoman, Sis wants a review of the web site of your annual “sisterhood vacation” hotel, as chair of the silent auction committee you have to complete the donations list by Friday night, and you still have to exercise, cook, and pick up the cleaning (housekeeper not in the budget), “converting my 401(k) into …” doesn’t really make it to the top of the list. Next, is the fact that we know we’re the hub and the emotional gravity accompanying that realization. I don’t know too many women who readily give thought to when they won’t be around to see their grandchildren, nieces’ weddings, or best friend’s daughter’s college graduation. It is a very painful and counterintuitive thought for women. Fear has little to do with it. We simply love our families and friends and cannot fathom not being there for them. Nevertheless, Ladies, as painful, counterintuitive, and time consuming as it may be, we owe it to our families and ourselves to sacrifice a manicure, to miss a committee meeting, to reschedule a conference call, to say a prayer and let Sis choose the hotel, so we can take care of “now” and “then” now. The list of reasons for doing this is not exhaustive and are compelling: Your retirement savings may be dwindling unnecessarily; Your widowed father living a few states away may have a new BFF with less than charitable thoughts about Dad’s annuity; An in-state college may not afford your son the best educational opportunity for his mechanical engineering career; You might be able to withdraw income now from grandma’s IRA (progressive grandma!); Your current income may be beneficial for a retirement vehicle that may not be as readily available when your income rises past a certain point; You may want to go on sabbatical but, who’s going to mind the store, literally; Instead of a place where Mom will be bored silly playing checkers, you may want to send her cruising 6 months a year; and You want your partner to be able to visit you immediately after major surgery. Minding our retirement and estate matters now actually makes us, the family hub, stronger. If you want, I’ll take notes at your next committee meeting, so you can meet with a reputable CFP.