Many people think that estate plans are for someone else, not them. But as the following list makes clear, estate planning is for everyone, regardless of age or net worth.
1. Loss of capacity. What if you become incompetent and unable to manage your own affairs? Without a plan the courts will select the person to manage your affairs.
2. Minor children. Who will raise your children if you die? Without a plan, a court will make that decision.
3. Dying without a will. Who will inherit your assets? Without a plan, your assets pass to your heirs according to your state's laws of intestacy (dying without a will). Your family members (and perhaps not the ones you would choose) will receive your assets without benefit of your direction or of trust protection.
4. Blended families. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would wish.
5. Children with special needs. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or SSI benefits, and may have to use his or her inheritance to pay for care.
6. Keeping assets in the family. Would you prefer that your assets stay in your own family? Without a plan, your child's spouse may wind up with your money if your child passes away prematurely. If your child divorces his or her current spouse, half of your assets could go to the spouse.
7. Financial security. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard.
8. Retirement accounts. Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs (there are even new vehicles such as Inheritance IRAs and IRA Trusts to consider).
9. Business ownership. Do you own a business? Without a plan, you don't name a successor, thus risking that your family could lose control of the business.
10. Avoiding probate. Without a plan, your estate may be subject to delays and excess fees (depending on the state), and your assets will be a matter of public record.
The Staggering Costs of Dementia
Most of us know of someone who has been diagnosed with dementia. It is a costly and heart-breaking condition that is nearly doubling in numbers every 20 years. Dementia has affected the likes of Norman Rockwell, E.B. White, Rita Hayworth, Charlton Heston, Ronald Reagan, Charles Bronson, Margaret Thatcher and many others.
What is Dementia?
Dementia is a general term for a decline in mental ability, severe enough to interfere with daily life. Memory loss is an example. Alzheimer’s is the most common type of dementia. Symptoms can vary, but there are usually two core mental functions significantly impaired: memory, communication and language, ability to focus and pay attention, reasoning and judgment, and visual perception. These symptoms can be displayed when the person with dementia has problems with short-term memory, keeping track of his/her purse or wallet, paying bills, planning and preparing meals, remembering appointments, or travelling out of the neighborhood. These often progressive symptoms will likely eventually require assistance with daily activities, resulting in increased expense and stress on the individual and their family members.
The RAND Study
The RAND Corporation recently concluded a nearly decade-long study on close to 11,000 people. The study sheds light on dementia statistics including rates of diagnosis and costs to society.
The Cost of Dementia to Society
According to the RAND Corporation’s study, the cost of caring for those with dementia is projected to double by 2040 and is currently higher than caring for those with heart disease or cancer. The direct costs of dementia, including the cost of medicine and nursing homes, was $109 billion a year in 2010 compared to $102 billion for heart disease and $77 billion for cancer. This cost is pushed even higher, to $215 billion, when support from family members or other loved ones is given a cost value. This figure will rise to $511 billion by 2040. Information from the RAND study and from the Centers for Medicare & Medicaid Services indicates that, by 2020, dementia patients will ac-count for about 10% of the elderly population.
The Cost of Dementia to the Family
While the cost to society is great, the costs to individuals diagnosed with dementia and their loved ones is even more significant. As evidenced by the RAND study, each individual case of dementia costs between $41,000 and $56,000 a year. In addition to the financial drain on families, dementia increases the stress on the caregiver. In fact, caregivers have been found to be at increased risk for depression and anxiety and long term medical problems, which impose a further financial burden on the family.
Conclusion
Dementia poses higher costs to society and individuals than heart disease or cancer. With help from an Elder Law attorney, the family of those afflicted with dementia can obtain the support they need to care properly for their loved one. We can help clients prepare or deal with an immediate need to find appropriate resources in dealing with dementia, as well as handle all your general estate planning needs. We can support the loved one in making sure the dementia patient has access to the care and medical attention they need. We would be honored to help.
http://www.rand.org/news/press/2013/04/03.html
The Wall Street Journal, Dementia Will Take Toll on Health-Care Spending, April 8, 2013 Care Spending, April 8, 2013
Estate Planning For The Real Estate Investor
As with most businesses, estate planning for those in the real estate investment business presents a unique set of challenges. Lender concerns, tax considerations, asset protection and family business dynamics can all play a role and there can often be tension between these areas of concern.
Who Owns the Property?
One of the first questions to address is who owns the real property? The answer to this question will determine liability exposure and how the real property will pass upon death. When it comes to real estate, title is king. If real property is held solely in a person’s individual name; that property will likely be subject to probate on death. It also means that the owner is personally liable for the debts and liabilities associated with that property. If there are two or more owners, the question becomes whether that property is held as joint tenants with rights of survivorship or tenants-in-common. In some states there are additional options for married couples, such as tenancy by the entireties or community property.
If the property is held in a joint tenancy (or in some other form that allows for rights of survivorship), then upon the death of one joint owner, the remaining joint owners will inherit the deceased owner’s share automatically and without the requirement of probate. If the property is instead held as tenants-in-common, then the deceased owner’s share will likely require a probate. While joint tenancy may appear to be an appealing way to avoid probate, it is important to understand that property owned by multiple owners is potentially at risk, in whole or in part, for the debts and liabilities of each individual owner.
Should You Use a Trust?
Holding real property in a trust can be an excellent way of avoiding probate. Holding real property in a trust can also reduce the likelihood that a guardianship or conservatorship will be necessary in the event of incapacity. This can be crucial if a timely decision is needed on whether to sell or rent a parcel of land. But remember, unless the trust is an irrevocable trust, you may not have the asset protection that you may desire. Instead it may be advisable to hold the land in an entity, such as a limited liability company (LLC) that is in turn owned by a trust.
Why Should You Consider an Entity?
Owning your real estate investment properties in an entity or multi-ple entities can limit your personal vulnerability to potential lawsuits related to the property. It can also protect the property from lawsuits against individual owners of the entity. Another benefit to owning land in an entity, such as an LLC, is avoiding fractionalization of the real property upon transfer to heirs. Fractionalized real estate is vulnerable to forfeiture in the event of partition. Many states allow the owner of a fractional interest in land to sue for the partition or sale of the land without regard to how small the fractional interest may be. Giving interests in entities governed by ownership agreements can prevent the possibility of partition. Entity interests also provide a way for the owner to gift or sell an interest during the owner’s life without losing control.
In determining what type of entity to use, a careful analysis of the income tax consequences is important. A general rule is that you should never hold real estate in a corporation. The reason is that while real estate can go into a corporation tax free, it is almost impossible to get it back out without tax consequences. The preferred way of holding real estate will most often be an LLC taxed as a partnership or a limited partnership. If you invest in farm or ranch land, additional consideration should be given to government program limitations.
The Stepped-Up Basis
In all planning it is important not to lose sight of the income tax basis rules on death. Subject to certain limitations and exceptions, when an owner of assets dies, assets passing to heirs obtain a new tax basis equal to the assets’ fair market value as of the date of death. Because of the built in gain of many real estate investments, careful consideration must be given to the consequences of gifting or selling during life and gifting at death. Planning with certain entities can result in a loss of the stepped-up basis. While this may sometimes make sense, it should always be done with caution.
Conclusion
Investors are savvy of the many income tax benefits that come with investing in real estate. Investors should be equally savvy about the benefits of a well-planned estate. It is often stated that a person reaps what they sow. When it comes to estate planning for the real estate investor that holds true. Taking time to invest in the planning process can reap great benefits for generations to come.
Estate Planning for People with Minor Children; Guardianship
For most young parents, writing a will is less about leaving their assets than it is about naming guardians for the kids. The guardian you name in your will is the person who would take over if both you and the other parent were unavailable to raise your children. That’s very unlikely, but worth addressing just in case.
If your children ever needed a guardian, the local court would appoint the person you nominated in your will, absent a serious problem with that person. You can name different guardians for different children if you wish.
If you haven’t made your wishes clear in your will, however, the court would have to choose someone without any guidance from you. The common choice is a family member. But what if you really wouldn’t want certain family members to raise your children? Or if you would prefer that a close friend, who has a good relationship with your kids, step in as guardian? The court wouldn’t have any way of knowing.
Many, many parents get stuck when they go to choose a guardian—after all, no one likes even thinking about someone else raising their children. And parents sometimes discover that they disagree about who would be best.
CONCERNS WHEN NAMING A GUARDIAN…
1) Your First Choice Is Older Than You Are: The best solution is to forget about what might happen in 10 years, and just pick someone now who could take care of your children in the next three to five years, knowing that you can change their guardian choices as the children, and their nominated guardians, grow older.
2) Your Family Won't Like Your Choices: Your first loyalty is to your children, and you should always make the choices that you think will serve them best. You should also know that a court challenge to your choice of guardian is unlikely -- and unlikely to succeed. A family member who wanted to overturn your choice of guardian would have to prove to a judge that there was a very good reason to set your choice aside. To prevent conflict as best you can, leave a written explanation of your choices. It can calm tension, and if necessary it could be used in court.
3) You Worry That Your Children Won't Like Your Choices: So talk it over with them. If you think your children won't like your nominations for guardians, you might want to discuss it with them, especially if they're already in their teens. In Missouri, a child 11 years or older may ask the court for a different guardian than the one nominated by their parents. The judge will take their wishes into account along with other factors.
4) Your First Choice Is Not a Good Money Manager: If the person you want to raise your children is not good with finances, that is easily fixed. Just name someone else to manage your children's money, and leave the guardian with only the job of making sure your child grows up well cared for and as happy as possible.
5) You Don't Like Your First Choice's Spouse: What if only one person in a couple is your choice for guardian? Just name the person you want -- not both of them -- as guardians. That way, if the couple divorces, your kids could stay with the person you feel closest to.
6) Your First Choice Lives Far Away: There's no requirement that a guardian live where you live, but having an out-of-state guardian complicates things. A nonresident may have to post a bond (a sum of money or an insurance policy) as insurance that they will faithfully perform their duties as a guardian. Also, an out-of-state guardian would have to get the guardianship proceeding moved to the state where they live. If you want to name someone far away as a guardian, also nominate someone local who could serve as a temporary guardian. This person could take care of your children until your permanent guardians could get to them.
7) You Have Children From Previous Marriages: Blended families are common these days, making guardianship choices even more complicated. Some parents name different guardians for the children of different marriages. Others make a plan that would keep all the children together. Remember that guardianship doesn't come into play at all if a child has a surviving parent, and that's more likely when their parents are not living or traveling together.
8) You Don't Want Your Ex-Spouse to Get Custody: If you're divorced, you may not like the idea that should you die first, your ex-spouse would get custody of your children. That is what would happen, unless the parent is clearly unfit. If you really don't want your ex-spouse to take custody of your children, explain why in your will or in a letter. Include court records, police reports, or any other evidence of your ex's unsuitability as a custodial parent. Give that letter to your first choice for a guardian, to be used as evidence of your wishes in the case of a court proceeding.
Do I Still Need Estate Planning if I have TOD's on All My Accounts?
We often get this question from many clients who think or have been told by financial advisors that they do not have to have any estate planning if they have TOD designations (Transfer On Death) on their bank and financial accounts. So let’s talk about the benefits and detriments of TODs.
The principal advantage of TOD designations is avoiding probate:
- Because you name a beneficiary for your Transfer on Death account (TOD), the account passes to the beneficiary at your death, without the need for probating your will with respect to that account. Your Will will still have to be filed with the Probate office.
- After you pass away, your beneficiary will simply bring a certified copy of your death certificate to the appropriate financial institution, show identification and fill out some simple forms. Once this is done, the funds in the account are transferred to your beneficiary.
The disadvantages of TOD designations vary depending on your goals or special family circumstances. While we can’t name them all here, some considerations include:
- First, if you do not have a will at all, you die intestate, regardless of whether you have TOD designations. In this case, the probate court will be in charge of probating your estate, appointing someone to be in charge, determining the heirs, making sure debts are paid, etc.
- Because a Transfer on Death Account (TOD) is a non-probate asset, it is not controlled by your will. Even if you intend for the beneficiary on that account to distribute it evenly to all children, they do not have any obligation to do that.
- If you update your estate plan to change beneficiaries, you'll need to do more than just change your will. You will need to fill out the appropriate change of beneficiary form for each of your transfer on death accounts.
- Assets that pass by TOD, are often not responsible for their portion of any estate taxes or administration expenses. If beneficiary A gets $200,000 via TOD and beneficiary B gets a $200,000 lake property via the will, B will have to pay all the funeral expenses, administration expenses and estate taxes.
- If all cash and financial accounts pass by TOD and the primary assets in the estate are illiquid assets such as a residence, real estate or business, there may be no funds to pay administration or ongoing carrying costs. The executor may need to seek funds from TOD beneficiaries who may be unwilling to contribute to pay expenses.
- If you do not do any estate planning, you may not have your disability documents in place in the event that you become incapacitated and need someone to access accounts before your death so that they can assist in managing your affairs, or even apply for needed benefits. A customized estate plan should include all Powers of Attorney (financial and health care) and a customized Health Care Directive to assist your family should you no longer be able to act on your behalf.
- AND….If you do have a Power of Attorney in place, your agent under a power of attorney may need to use assets to pay various expenses, including assets earmarked to pass TOD to certain beneficiaries. Use of one account over another may unwittingly, but unfairly, benefit certain beneficiaries to the detriment of others causing disputes that would have been avoided had the executor of a will or a trustee of a trust been able to access and control the assets.
- Additionally, TOD’s do not allow you to account for those special family circumstances if necessary. If you have the need to provide for a special needs child, or for children that may have financial or credit difficulties, substance abuse issues, for children or grandchildren who are minors, or for any other special family circumstances that may cause difficulties (divorce, the kids don’t get along, blended families), then TOD’s simply cannot account for those situations like a properly drafted Trust can.
Finally, TOD’s do not assist if you have any long term medical or nursing home concerns. TOD accounts are countable assets that will likely cause you to be ineligible for certain benefits in the event that a family member needs ongoing care.Transfer on Death Accounts may be effective on a selective basis or in smaller estates, but can often cause more problems than they are worth in many estate plans. Talk to an experienced estate planning attorney to help decide on the best estate plan for your family.