Estate Planning Bits

A health care proxy and durable power of attorney are critical when your child turns 18

So, your college-aged baby is now back from the fall semester in college, or perhaps just passing through home for the holidays before moving on to a semester abroad or a new job. You might be rushing around packing electronic adapters, passports and visas, and buying all those goodies that your child might need on his/her next adventure.

Stop for a minute. If your child has not yet executed a Durable Power of Attorney, and Health Care Proxy, it is wise to re-think priorities.

From now on, if your over-18-year-old meets with some money problems, or cannot access a bank account or resolve a credit card problem, unless there is a Durable Power of Attorney in place, the US financial institution cannot authorize you to access that bank or credit card account in hopes of managing or reconciling the problem. Sure, you might consider encouraging your child to change his bank account to a "joint account," but the implications from that type of ownership, whether on tax returns, financial aid applications, creditor problems, untimely death, or any number of situations, could have some serious adverse consequences.

I have written this before, and I’ll repeat: It was just good timing when I insisted that my son execute a Durable Power of Attorney shortly after turning 18 and before a college trip with friends. Due to some fluke he couldn’t access his bank account while out of the country. The authority provided in the Durable Power of Attorney allowed me to untangle the knot so that he could get on with his fun. Fast forward some years later to his extended trip alone to Thailand. Yet again, another bank issue came up. Again, we were thankful to have that simple document in place.

How about a Health Care Proxy? Not even debatable. Get it prepared and properly signed right after your child turns 18. Then, as your child enjoys his college fun, goes cavorting through forests, tastes new raw foods in foreign countries, or rides on the back of motorbikes with complete strangers, you will have the peace of mind of knowing that in the unlikely event that something does go wrong, and if your child cannot convey his/her thoughts, you will be authorized to speak for his medical care.
   
Encourage your child to speak with your estate planning attorney. Even if he is not sure about who he wants to appoint to serve as the Attorney in Fact or Health Care Agent, then at least begin the conversation. Inform the preparer if you have a time deadline; however, understand that you can’t instruct your child about who he appoints to serve. You can only encourage smart choices.

More importantly, although this child is your baby, to the rest of the world he is an independent adult whose privacy needs to be respected. Therefore, when a problem arises, although you might run into the bank or medical facility wanting to "help" and make decisions, without certain documentation in place, your child’s privacy must be respected, and you will be on the outside. These documents can help all concerned when information must be accessed, decisions must be made, or actions must be taken in a timely manner.

If your son or daughter is not willing to listen to your thoughts on this topic, print out this blog post and put it on his bed. If he is strong enough to strike out on his own, then hopefully he foresees the potential benefits of signing these documents. Although most attorneys create documents that remain valid without an end date, if your child has concerns about the breadth and scope of either document, encourage him to discuss these concerns with an attorney.

Finally, through experience, I have learned that if your child is headed out of the country, remember to notify his bank and confirm that access to his account will be allowed in the country to be traveled. Certain banks do not acknowledge transactions initiated by certain countries, and if such a bank observes unusual financial activity from any foreign country without prior knowledge, it will likely refuse the transactions.

By: Lisa L. Halbert, Esq.

Home care vs long-term care facility? Evaluating your loved one’s options to help them remain as independent as possible

The process of formal placement in a facility could be slowed down with the use of various alternatives, so it is often important to consider the alternatives. Sometimes your loved one person could remain at home with a support system in place that will attend to his or her care, especially if it is not needed on a 24-hour basis. 

One of the alternatives is to utilize an adult day care program. Many of these programs provide for transportation to and from the facility daily and are subsidized by local charities or non-profit groups, or perhaps even senior centers. During the hours that your loved one is home and needs care, private payment is an option, and there are also governmental programs that may assume a portion of the expense.  

It is also important to note that if your loved is a veteran or the spouse of a deceased veteran, monthly benefits are available to them that could help support their care at home. This would be in additional to Social Security, private pensions, reverse mortgage funds, or other assets and income available.

When it comes to home care, a candidate typically screened to determine what level of care is necessary. It is possible that they just need help getting ready in the morning, i.e., taking a shower, and maybe assistance with light house work. They may be able to dress independently, cook for themselves, and otherwise take care of themselves with some supervision. They may, however, need help taking their medication properly on a daily basis.

A social worker and geriatric care manager will be able to assess your loved one and determine how much care is needed. This may change from time to time as the elder’s physical and mental situation shifts. The care worker can also assess the need for additional services, such as family support, day care options, and respite care.

Many states and even counties have programs available to help an elder person maintain their independence in the community, and in order to maintain the least restrictive situation for your loved one, it is important to consider the option of home care as opposed to institutionalization.

 

By: Hyman G. Darling, Esq.

 

 

 

Life insurance for disabled or special needs children

When a child is born, many people purchase a life insurance policy for him or her. The parent is typically the owner and beneficiary of the policy, and many of these policies are known as industrial or debit policies. There were several purposes for these policies, namely to provide a death benefit, to add cash value, and also to guarantee insurability. There are also family policies issued where everyone in the family has some coverage, even in the unfortunate event of an incapacitated family member.

While it is relatively easy to have a policy issued once the insured has been qualified for coverage, it is very important to consider all of the facets of that policy. There are normally four parties to a policy: the insurance company, the owner, the insured, and the beneficiary.

Care should be taken to ensure that all of the correct parties are named within a policy, as there could be adverse consequences if the policy is not issued properly at its inception. Normally, an insurance agent reviews these options with the applicant when the policy is being issued or applied for.

So how about purchasing a life insurance policy on a disabled child? If your child is disabled to the extent that he or she is not insurable, a policy may not be able to be obtained at a standard rate. However, there are companies who will write policies with a rating based on the health of your child, and there are issues relative to these policies that you should consider.

1. Who should own the policy? In most cases, providing that the parents do not have a significant taxable estate, they should probably be the owners of the policy. However, in the event that a parent predeceases the child, there should be a contingent owner. Without a contingent owner named in the policy, in the event of the death of the parent, this policy will have to be probated, and it will then pass to whomever the parent has left the assets to, family, friends, or charities. In most cases, policy proceeds are intended to remain in the family to cover expenses of the disabled child. Therefore, the contingent owner of the policy should probably be the surviving parent, a sibling, or possibly all siblings.


2. Who is the beneficiary of the policy? Normally, the parents will be the beneficiaries, and the secondary beneficiaries would be the surviving siblings of the disabled child. If there are no siblings, family or perhaps a charity or non-profit organization may be named. In some cases, based on the size of the policy, an irrevocable life insurance trust could be considered as the owner and beneficiary of the policy. However, it is important to not name the disabled child as the owner of a whole life policy that will gain cash values. If the cash values of the policy exceed the threshold for either Medicaid, SSI limitations, or other governmental entitlement programs, the disabled individual could be disqualified from obtaining services or benefits. It is highly unlikely that the child will need the cash value of this policy during lifetime, but if needed, then the owner of the policy could either surrender or borrow against it to provide funds for the beneficiary.

In the event that a policy was issued without proper attention to its owners and beneficiaries, it is important to contact your agent or insurance company to discuss the options available. Perhaps this type of policy is no longer necessary, and it may be more appropriate to utilize the cash value within the policy to purchase life insurance on the parent, which may provide a larger death benefit for the disabled child.

Again, care should be given as to who actually owns the policy as well as the beneficiary. The owner should not be the parent if there is significant cash value, since if the parent becomes incapacitated, the cash value of the policy may have to be used for their long-term care. Also, if the disabled child is the beneficiary, the receipt by this child of the insurance proceeds may disqualify him for government benefits. In the event that the beneficiary is a non-disabled sibling, he may neglect to use the funds for the care of his disabled sibling.

Therefore, a special needs trust with the appropriate provisions will allow these funds to be utilized for the disabled child without having any loss of benefits. But more importantly, it will provide a guarantee that the funds will in fact be used only for your disabled child. Contingent beneficiaries may be listed within the trust after the death of the disabled beneficiary, such as charities, family, and possibly even other providers of services to the disabled child during their lifetime.

By: Hyman G. Darling, Esq.

An insurance checkup

When federal estate tax rates were at 55% and state estate tax rates were as high as 20%, there was often a tremendous need for liquidity in order to pay these taxes. One of the ways people accomplished this was through the purchase of life insurance, most often via a policy known as a second-to-die or joint and survivorship. These policies were designed to pay the proceeds to the family or to an irrevocable trust upon the death of the second spouse.

Since there was no need for the funding or replenishment of funds for the estate tax until the second death, as that was when the taxes were due, (normally nine months from date of death,) these policies were designed by insurance companies to insure two lives.

However, with the exemption for estate taxes now being $3,500,000 ($7,000.000 for husband and wife if the plan was designed properly), the need for these policies is somewhat diminished. So if you haven’t looked at these policies for some time, you may want to consider surrendering yours, reducing it to pay a smaller death benefit, or possibly even selling it in the market for policies which is known as a viatical settlement.

In addition, many of these policies have not been performing as intended, so if you have one you might consider obtaining what is known as an in-force illustration to determine the policy’s viability. The company issuing it should also be reviewed to ensure its strength and health and also to validate that your policy will not be in trouble if the company is not secure enough to pay the claim and fund the anticipated dividend and investment.

It is important to reevaluate your need for the policy. Even if its death benefit is not needed for tax purposes, you may wish to maintain the policy solely to produce additional funds for your beneficiaries.

While you’re reevaluating your insurance options, you might also consider a stretch IRA retirement plan that has your children take distributions over time as opposed to having them inherit a lump sum and pay significant income tax at that time.

This may also be an opportunity to consider leaving funds to a charity and replenishing those funds at a later date with life insurance proceeds that are normally income tax and estate tax free if the policy is structured properly.

When your policy was purchased, there were lots of needs, intended results, and sometimes, promises. All of these should be reviewed to be sure that your goals and intentions will be carried out in the most efficient way for all parties.

by: Hyman G. Darling, Esq.

Tangible personal property: plan well to prevent regrets and family disagreements

People who provide for their beneficiaries in their estate planning documents generally do a good job with their financial assets but are oftentimes remiss in providing detailed instructions regarding their tangible personal property (ie. household furnishings, jewelry, collections etc…). This is usually due to the erroneous belief that these assets don’t hold much value. However, as an estate planner, I regularly see disputes among family members regarding the division of these assets after death, as their sentimental value is oftentimes under-appreciated when one does estate planning.

The holidays are an opportune time to take a sentimental tour with your children and grandchildren. Share stories and explain the significance of your jewelry, artwork, antiques, and other belongings. Sharing the significance behind each item gives the heirlooms meaning and value in the eyes of the recipient. Specifically, you may wish to:

• Identify specific items that you would like someone to have;


• Decide when you would like others to receive their something special; 


• Express your wishes to a family member or the person named as executor of your estate; and


• Follow-up with language in your Will or other estate planning document to provide a roadmap for the ultimate distributions of these assets.

Your assets do not have to wait until your death to be distributed and enjoyed. However, in the event that you wish to retain your tangible personal property until your death, you should provide detailed instructions as to who you wish to receive your most prized possessions. An estate planning attorney can provide you with the best options as to how best to memorialize your wishes in writing.

By: Todd C. Ratner, Esq.