Fact v. Fiction about Echo-Birdies
As couples mature and children grow less dependent, we start considering life without “the little birdies.” Often, at this stage, if a couple hasn’t created an estate plan or revisited it in years, they decide to continue postponing the initial visit or revisit. Especially if the children are in their late teens, near or in college, a couple or parent postpones this work thinking that planning with the children in mind is nearly over. However, articles and commercials abound about the return of the little birdies…indefinitely. What’s worse is that upon the return, the little birdies sometimes don’t contribute financially to the household maintenance but instead use resources without replenishing them. So I caution people who say to themselves, “Ahhh, she’s in grad school now; we can relax,” to think again, long and hard. Once the children are relatively independent, i.e., still maturing financially and emotionally, parents should revisit the following questions: What are our goals in 10 years and are we on track? What do we want to protect? How should we protect it? Revisiting the Goals If you own a home, you probably want to protect it. Yes, you may consider downsizing or changing geographic locales, but you’re still likely to want to protect ownership of your primary residence. Also, if your child has been accepted or is in the college application process, you’ll probably to want to protect the college education. You’ve saved and worked smartly with a CFP and CPA, and you don’t want to blow your child’s opportunity. Still, what if your child is brilliant or extremely talented and ears a full scholarship? Finally, how’s that retirement planning going? If you, your spouse, partner, or child experience a long-term illness, would you be able to manage financially without sacrificing retirement income? The Fiction v. Fact about Protecting Those Goals Place your home in trust. Fiction: It protects homes from creditors. Fact: Not necessarily. If a homeowner is Trustee of the house placed in trust, that homeowner’s creditors can place a lien on that trust. Even land trusts are permeable. Place education savings in a 529 account. Fiction: 529s are the only way to pay for your child’s education other than traditional savings. Fact: 529s are beneficial under certain circumstances. Other considerations are balancing the funding of this college savings account with saving for retirement. Again, what is your primary financial goal? Place retirement proceeds in a trust. Fiction: Naming a trust as beneficiary for retirement proceeds will reduce or eliminate tax burdens. Fact: Naming a trust as beneficiary for retirement proceeds may actually create undesired tax burdens depending on the retirement account requirements and the trust involved. It may also create problems when required distributions must be made. So putting off a visit or a revisit to an estate plan because the birdies have flown or are about to fly the coop, could be detrimental to future life stages for you and the birdies. Furthermore, if they come back, well, consider learning about landlord and tenant rights. That’s what my grandmother did!
5 Key Blocks for the Build-A-Baby Life Stage
Helping new families through my practice is one of the great benefits of my job. It soothes my soul because I know the family will be protected sooner rather than later and we will all sleep better, though the infants rarely have a tough time sleeping soundly. However, becoming a new parent isn’t always easy. The gamete meeting sometimes just doesn’t take place as soon as we want it to; sometimes our gametes just don’t want to meet at all. On these occasions, Artificial Reproductive Technology (ART) can play a very important role. However, ART can be costly, financially and emotionally. I was on a panel with Lambda Legal a few months ago and an audience member referred to the financial program designed by his company to help parents with this issue as the “Build-A-Baby” program. This particular department helped couples design their financial planning so they could afford ART, which can cost thousands of dollars per month and when you factor in particular types of adoptions, the final costs can be hundreds of thousands of dollars. And, as mentioned, that’s just the financial burden. The emotional burden of waiting and hoping is equally heavy, if not heavier. As opposed to ART, either parent or both parents can take an alternative route and adopt. Still, just as with ART and as above sometimes including ART, adoption can be costly and is always emotionally burdensome. Consequently, it is critical that parents understand how they can protect each other and their families at the very beginning, even, sometimes, before the birth occurs. Another panel I was on recently described it as “Building Your Family Fortress.” The following are the cornerstones for today\’s family, whether you use ART, adopt, or your gametes meet the old-fashioned way: Obtain life insurance that will at least replace the primary wage-earner’s salary for 3-5 years. Have powers of attorney – healthcare and property (what some states refer to as including “advanced directives”) prepared for both parents. Free drafts of Illinois powers of attorney are available here. If you’re a same-sex couple, be sure if one of you is the biological parent, then the other adopts the child. The U.S. is still a patchwork of states, some recognizing your legal rights in a Civil Union or same-sex marriage, and others not. The same applies for straight couples who are not married and one parent is the biological parent. If you’re using ART with an unknown donor, the parent carrying the child should designate the other parent as a short-term guardian to go into effect at some point in time until the adoption is complete. Obtain valid wills, irrespective of the gender-orientation of your relationship because you need to ensure that the guardian of your child is who you want the guardian to be in the case of your death. For straight couples, it is critical that you name a successor guardian. Other blocks can also be used, but these 5 bricks represent the cornerstones of a solid fortress that will protect your family now and in the future.
Crashes, Collapses & Conflagrations, Oh My!
Living in Chicago, the second largest legal community in the U.S., has its benefits: I meet great colleagues who have a wealth of information valuable not only to their clients but also to the general public. So occasionally, The Shark Free Zone will feature a colleague who is willing to share his or her insights. This week, I welcome friend and colleague, Stephen L. Hoffman, discussing injuries, accidents, and insurance to help us protect our loved ones and property… Many of us try to avoid planning for our future. Much as we defer creation of estate planning documents, we are also unprepared when it comes to some basic, everyday requirements such as what to do in the event of an accident. Each year in Illinois, nearly 500,000 auto collisions occur and over 100,000 work injuries or illnesses are sustained. Auto collisions, work accidents, and home fires occur. Odds are that you, a family member, or contact will be involved in one of those events at some point. Personally, I have experienced a fire in my condominium building and an automobile collision, all within the last 5 years. And I\’m careful, cautious, and none were my fault. If you fail to verify that you have adequate insurance coverage, your life could be altered permanently, with no opportunity to undo the damage. If you ARE involved in an accident, then you should be prepared to do or have available a few basic things: Have your automobile insurance information with you and exchange it with the other driver and police. Take photographs of the scene, while you are still there, if possible. Get photos of all vehicles and persons involved, the cause of your fall, any visible injuries, or debris. This preserves evidence. Get medical treatment immediately. Insurance companies WILL use any delay in treatment against you! Contact the police, fill out an incident report, or write about the accident in some way. DO NOT SPEAK to anyone about this. DO NOT give a statement to an insurance adjuster! Contact an attorney immediately. More cases go south early on than at any other point. With respect to insurance, consider the following: Whether you are a driver, owner of a home, or the owner of a business, make sure you understand what your insurance covers and that your coverage is adequate. Get the most coverage from the best-rated company you can afford. Check your liability limits on your car policy. If you have any assets and your limits are below $500,000.00, you probably need to reexamine them. All it takes is a moment of inattention by a driver, including you, who may be uninsured or grievously underinsured, to lose your house, savings, and well-being. If you have substantial assets, a personal liability umbrella policy is likely well within your reach financially, and definitely worthwhile. Know what your homeowner\’s policy provides for in certain events, e.g., a fire in an adjoining condo unit. Can you move into a temporary residence if yours is uninhabitable and for how long? What is the damages limit? Tidbits Auto Insurance Illinois is a mandatory auto insurance state. However, this means that many people only have the BARE MINIMUM in coverage. If YOUR coverage (Uninsured Motorist and Underinsured Motorist) is not robust, you could conceivably be involved in a collision that is not your fault, with virtually no coverage available. Condominium/Homeowner\’s Insurance If you live in a condo, make sure your governing documents require other unit owners to maintain insurance on their units. All it takes is one accidental fire in one unit or a leak that causes a ceiling collapse to leave you and the rest of the association liable. Workers\’ Compensation The Illinois Workers\’ Compensation Act provides for payment of medical benefits, lost wages, and permanency for those injured while performing their job functions. This includes injuries occurring outside of an office and while in transit to or from a job usually. Plan ahead and be ready for the inevitable! Stephen L. Hoffman is the founder of Law Office of Stephen L. Hoffman LLC, a Boutique Personal Injury and Workers\’ Compensation law firm located in Chicago. Stephen is now in his 23rd year of practice representing injured people and fighting for their rights with dignity. Contact Stephen by phone (773-944-9737) or email stephen@hofflawyer.com. Information about Stephen and ways to further access him are through his blog and website, LinkedIn, Twitter (@hofflaw), and AVVO.
Debunking Estate Planning Myths & Developing Wealth, Pt 2
As mentioned in Part 1 of this series, powers of attorney last until death, so they protect you and your loved ones now. The other tool that can protect your loved ones immediately upon death is life insurance. From a very basic perspective, life insurance is used to replace the income of a loved one. If you’re a single parent, I need not tell you how absolutely critical it is to have life insurance, because for single parents, life insurance can provide a lot more, which involves the intermediate techniques I will discuss in Part 3. However, before I continue, another myth needs debunking: Life insurance IS considered part of your estate for estate tax purposes. Most people think it is not but that is because typically life insurance proceeds aren’t considered taxable for income tax purposes. However, income taxes and estate taxes are two separate issues. So what does this mean? If you currently have or are close to having a taxable estate when considering the value of your home, retirement accounts, investment accounts, and other assets, then if you include a sizable life insurance policy with those assets, you will likely pass the taxable estate threshold. Right now, few individuals come close to having a taxable estate because the federal tax exemption is high right now – $5.12M, and the marginal tax rate is relatively low – 35%.* Additionally, Illinois, which is not linked (or “coupled”) with the federal tax system is also relatively high – $3.5M and our marginal tax rate is 16%.* Now, I’m going to save the bulk of what this means in terms of planning for the next blog entry, but know that if Congress doesn’t do anything by December 31 of this year, the federal exemption is going to be reduced to $1M and the tax rate increased to 55%. That means that if someone dies in 2013 with $1.8M or more in assets, their beneficiaries may likely face a federal tax bill on the $800,000 excess! Let’s look at this example: Single Parent Sheila owns a 6 flat that’s worth about $700,000, has about $250,000 in retirement benefits, and then has $500,000 worth of life insurance and, unfortunately dies next year, those life insurance proceeds and part of those retirement benefits will be needed to pay taxes if Congress or Sheila doesn’t do anything. Lesson: Parents should be careful when purchasing life insurance because life insurance is necessary but it is not always ignored by Uncle Sam. * 2013 update: The federal estate tax exemption is $5.25M indexed for inflation with a marginal rate of 40%; and the Illinois estate tax exemption is $4M. Part 1 | 2 | 3 | 4 | 5
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.
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.
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.
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.