Estate Planning Bits

Long term care insurance - getting your dollars and sense worth

As baby boomers are now approaching the pre-retirement and retirement years, they should be considering the purchase of long-term care insurance.

Long-term care insurance is a significant benefit where an insurance company will assume the risk and pay the facility instead the insured having to spend up to five years’ worth of costs at a nursing home for their own care or that of their spouse. In addition, it provides your elder law attorney with a window of opportunity to preserve assets so that when the five-year period is expired and the policy benefits are extinguished, no further payments will have to be made once.

This planning opportunity prevents you from having to spend or transferred your funds prior to institutionalization, giving you the comfort and security of knowing that you will have sufficient funds to spend, gift, use as assets in your retirement years or spend down on non-essential medical expenses or any other purpose.

Another benefit of long term care insurance is its ability to pay for home care. Most policies provide for the same benefit per day at an assisted-living facility or at home, thus alleviating the need for you to become institutionalized. Some policies require a licensed caregiver to make a claim on the policy, while other policies permit a family member to be reimbursed as long as he/she attends a course on caregiving.

It is important to review the terms of the policy to be sure that the plan actually is what you intend. Pay attention to how the insurance company determines how the policy is sprung. This is related to your inability to independently perform specific activities of daily living. How many of them must be met in order to make a claim on the policy? These activities include toileting, transferring, eating, dressing and bathing. If you can’t independently perform two of these activities, then most policies will permit payment to be made, but some policies may require three or four of these activities to be met in order to qualify. It is important that you thoroughly understand your policy’s parameters.

There are also some “bells and whistles” that may be available to purchase for additional premium dollars, but for which you will also reap benefits. These include reimbursement of premiums if a claim is not made for a period such as ten years after making premium payments. Also, there may be a discount available for two policies to be issued simultaneously. Good health may also qualify you for a discount as a preferred insured, but very often, if you have significant disabilities, the rating will not merely increase your premium but will also prevent you from obtaining the insurance at all.

Most policies also provide that a nominated family member or good friend will receive notice if you are unable to make payments due to incapacity. This occurs when the insured becomes incapacitated by reason of Alzheimer’s or some other mental disorder and does not understand the nature of receiving a bill and making payment. In these situations, the insurance company will provide notice to a third party that the premium has not been paid so that care may be taken to determine the cause of non-payment and prevent the policy’s lapse. In the event that you are nominated in this capacity, you should make sure that the insurance company always has your current address.

While no one likes to pay for it, long term care insurance is one that should not be overlooked. While there may not be any right time to purchase it, you should make sure that the policy is purchased during working years, when there will be sufficient income and assets to pay for it. In addition, you should review the potential cost of this policy over a significant number of years and also calculate the potential benefit if a claim had to be made against it.

There are additional issues to consider when purchasing or reviewing the purchase of this type of insurance, and a good source to review all your options is a Consumer’s Guide to Long Term Care Insurance. It may be obtained through any agent who is recommending the purchase of insurance or the Insurance Commissioner in your state.

By: Hyman G. Darling, Esq.

Reverend King’s kids - sibling squabble – a primer on fiduciary duties

Two of Reverend Martin Luther King Jr.’s children have commenced a lawsuit against their brother for wrongfully taking money out of the estate of their late mother without authorization and without providing information as to how that brother is managing the estate.

Specifically, both Bernice King and Martin Luther King III allege that their brother, Dexter King, took “substantial funds” out of the Coretta King Estate and “wrongfully appropriated” money from their father’s estate. Moreover, the two siblings say that Dexter King has “refused to provide [them] with information and documentation concerning the operations, actions and financial affairs of the [MLK estate] to which they are entitled” as shareholders.

Dexter King, as president and CEO of King, Inc., has the fiduciary duty to the shareholders of the corporation, Bernice and Martin III. As such, the fiduciary, Dexter, must act at all times in the best interest of the shareholders and shall not profit at the expense of the shareholders. A fiduciary is required to communicate to the shareholders all material facts known, or that the shareholder should know, in connection with the fiduciary relationship.

Fiduciaries often get sued because they do not understand their fiduciary duties and the laws and regulations that affect them. Disclosure oftentimes reduces litigation risk. Regular communication with shareholders and beneficiaries may eliminate a sense of mistrust that oftentimes festers and that can create otherwise avoidable conflicts.

It appears that the crux of the King litigation is whether or not Dexter both refused to call a meeting with his siblings to discuss King, Inc. and whether or not a transfer in the amount of $535,000.00 compromised Dexter’s fiduciary duties.

Regardless of how this is ultimately resolved, it is a warning to all fiduciaries of assets large and small to know your duties. You may wish to seek assistance from a legal professional to avoid these potentially risky situations.

By: Todd C. Ratner, Esquire

How to handle affairs upon the death of a loved one

When a person close to you dies, there are several issues that need to be attended to. Sometimes there might not be any tax or probate requirements, but nevertheless, it is important to review the situation to ensure that all matters are being handled properly. The following is a relatively short checklist that is not inclusive of all matters to take care of, but certainly, should be on the top of your list:

• Obtain a certified copy of the death certificate and request an extra one. Although these documents are not difficult to obtain from town hall or the city clerk’s office, it is easier to get an extra one now that may be used in the future, which will save time.
• Check benefits with Social Security. If a person who dies has a spouse, minor children, or was already receiving benefits or possibly had filed for benefits but not yet received them, it is important to notify Social Security to determine what the new benefit will be for the spouse or children or possibly a disabled child.
• Life insurance must be claimed, which in most cases is not income taxable to the recipient. Be sure to check with the decedent’s employer to determine whether there may have been any term life insurance death benefit. All prior employers should also be contacted even if there is no obvious benefit, to verify that a death benefit is not missed.
• Review the income tax return of the decedent to determine where all assets listed on the return may have been owned, such as income, gains or potential losses. Be sure to check 1099’s for other income which may not be listed specifically on a tax return such as dividends from reinvestment shares, life insurance dividends and municipal bonds.
• Take charge of the Real Estate to secure it and be sure that no one has access to the property. Inventory the contents of this property and if necessary, change the locks and alarm code of the residence.
• Take charge of the vehicle and determine whether it is insured for others to drive if other family members continue to use it. If not, inform the drivers of the situation, secure the car and possibly take away all keys.
• Verify ownership of bank accounts, stock, bonds, etc. If they are held jointly, determine if that is for convenience of if they are to be held truly for joint ownership and that the surviving joint owner or beneficiary of the account is entitled to retain ownership of the asset.
• Determine if any assets are in the decedent’s name alone which require a probate proceeding. This may also include a cause of action against a company or individual for causing the death or potentially to pursue a continuing action that may have been filed by the decedent prior to his/her death. If the will needs to be probated, be sure to obtain good legal advice as well as tax advice when proceeding.
• When distributing any tangible property to any individuals or charities, be sure to obtain a receipt in case there is any opportunity to obtain a charitable deduction. Possibly, the person receiving the property or their family may not be aware of the terms of the distribution, and in the absence of a memorandum signed by the decedent, some family members may be in disharmony about the ultimate distribution.

Before proceeding hastily, always obtain good advice to determine whether or not the estate must be probated, whether a tax return must be filed for the decedent’s final year of receiving income and whether an estate tax return needs to be completed and filed. Without obtaining advice, a person serving in the capacity of the named executor and person in possession may find himself answering to other beneficiaries in a court later if the settlement was not attended to properly.

By: Hyman G. Darling, Esq.

The advantages of owning a second or retirement home

Many people wish to own a second home at the beach, in the mountains or possibly a condominium or house where they plan to retire. In these situations, a vacation home can prove to be very tax efficient.

In your lifetime you can own the property and hopefully rent it if it is favorably geographically located. It need not be rented twelve months a year, but hopefully with interest rates low, and a significant down payment, the rental income will pay for most of the carrying charges including the mortgage, taxes, insurance, etc. In this manner, when you’re ready to retire, hopefully a significant portion, if not all of the mortgage, will be paid off.

Now may be an appropriate time to consider refinancing your property in order to take advantage of lower interest rates and possibly reduce the term so that when retirement is attained, you will be mortgage free. That will result in relatively inexpensive property ownership in retirement.

In the meantime, when you sell your principal residence, you will take advantage of the benefit available to you of the exclusion of up to $500,000 of capital gain on your principal residence if married. If you’re single, you will only be entitled to $250,000 of exclusion of gain. In any event, at that time, you will be able to take these proceeds after paying off any mortgage on the first property and bank the money or invest it. This will provide you with up to $500,000 (or $250,000 if single) of tax free money above and beyond the basis in the property. So long as you owned the property and used it as your principal residence for at least two of the last five years, you will be able to take these exclusions.

After retirement, you may then move into the rental property and convert it to your principal residence. After living in it for at least two years, you will again be able to sell that property and obtain the same tax benefits as you would have if you had lived in it all along. In the meantime, the rental income has helped pay the mortgage and you don’t have to dip into retirement funds as soon as otherwise anticipated, since you will have little or no mortgage on your new home as well as a significant amount of money that you will have received tax-free from the sale of your former primary residence. You may then wish to consider transferring the property to your children or taking other steps to protect the asset from being taxed or available for long term care expenses.

In the meantime, if you don’t mind being a landlord and can find relatively good tenants to live in the property, and if you don’t mind renting out what will be your future home, you will be in a good position for retirement. You will own a residence with relatively small debt.

By: Hyman G. Darling, Esq.

What is involved when you are asked to be a Trustee?

Is it really an honor to be a trustee? When a friend or family member requests that you serve as trustee for them, you should never answer “yes” immediately. You will need to know specifically what your duties, responsibilities and potential liability may be as well as the time commitment being asked of you.

There are many types of trusts. Though it may be flattering and an honor to be asked, since you presumably are considered to be responsible, trustworthy and mature enough to handle the job, you must understand the terms of the trust, its length and specifically what judgment you must exercise in your capacity as the fiduciary. You will then have to exercise this responsibility to carry out the terms of the Trust as it is written. This may include the requirement to file a tax return, make discretionary distributions of income or principal among various family members, invest the funds in the Trust under the required standards set by the State and the Trust, and also balance the requirements being assigned to you in terms of carrying out your fiduciary duties.

You may be asked to make payments to or for the benefit of minor children, grandchildren or other beneficiaries. In some situations, you will have the discretion to make distributions unequally among these beneficiaries and will have to choose who shall receive or not receive funds from time to time. You must understand all family relations, get to know the beneficiaries and their needs, wants and concerns. The family may not be in agreement in many cases and may challenge your decisions, and you may need to seek legal assistance to make sure you are carrying out the terms of the trust. When a beneficiary does not like a decision you made, they may challenge your decision by filing a petition in court, possibly seeking your removal as trustee or challenging your fees.

Often investments are challenged if they lose money even in a down market. If the “Monday Morning Quarterback” beneficiary decides after the fact that the trustee should have known that the market was not going to increase, they may allege that the asset should have been switched to less risky/more conservative type of investments. If the market is on the upswing, the beneficiary may also challenge the trustee, stating that the assets did not compare favorably with a benchmark standard such as the S&P 500, Dow Jones Index, etc. Very often, it is better to delegate the task of investment advisor to a professional so that the beneficiary will be less apt to have any legitimate case against the Trustee for underperforming assets.

If you are named as the Trustee, you should read the entire document and have the attorney who drafted it explain it to you prior to accepting your duties as Trustee. In the event that there is any question as to the terms of the Trust, then possibly, you should seek a letter of opinion from the drafter of the document to explain and interpret the legal language within the Trust in case that drafter is not around when the Trust is administered. You may also wish to obtain a letter of instructions from the creator of the Trust so that he or she may identify exactly what was intended within the investment, distribution or administrative provisions of the Trust. Also, you should be certain that you have the right to resign from the Trust at any time without having to petition a court, which may be costly to pursue and possibly without the benefit of being reimbursed from the Trust.

By: Hyman G. Darling, Esq.