Are Your Estate Planning Documents Age-Appropriate (Part 2)

Estate planning documents must be appropriate for your age and situation.
Planning ahead may help to protect your home and other assets should one or both of you need care in the future.

In Part 1, we met Joe and Claire, now age 65, and reviewed their need for age-appropriate health care and decision-making documents. We left off with the question, “What planning can Joe and Claire do now to prevent losing everything in the event their health fails?”

The costs of long-term care can be staggering. According to the Genworth 2018 Cost of Care Survey, Florida home health aides can cost, on average, $46,904 per year, based on care provided 44 hours per week and a median hourly rate of $20.50. Nursing home care in Florida, on average, is nearly double that – $97,820 per year for a semi-private room.

What are Joe and Claire’s chances of needing long-term care? According to the Department of Health and Human Services, someone turning 65 today has a 70% chance of needing some type of long-term care services in their remaining years. This means Joe and Claire should be considering how they will pay for that care in the event one or both of them are part of that 70%.

Joe and Claire’s choices include: 1) paying out of their own pocket for care, 2) purchasing long-term care insurance, 3) qualifying for government assistance programs, or 4) any combination of these choices.

By planning early – before there’s a health care crisis – Joe and Claire can take advantage of all three options, yet protect their home and any other cash or assets they wish. This type of asset protection is done using a specially designed irrevocable trust. Only a portion of Joe and Claire’s assets would be transferred to the irrevocable trust, with the remainder either remaining in Joe and Claire’s name, or held in a revocable trust with special provisions for the surviving spouse.

By transferring assets to an irrevocable trust, those assets would not be counted in the future (in most cases, after 5 years) if Joe or Claire needed to qualify for government assistance to help pay for their long-term care. If Joe or Claire is a wartime Veteran, there are additional cash assistance programs available through the Veterans Administration that should be explored as another means to help pay for their care.

To round out the asset protection package, Joe and Claire would also complete their other estate planning documents, such as financial Powers of Attorney, Health Care Advance Directives, and Living Wills. They would also explore purchasing an appropriate long-term care insurance policy in the event one of them needed care sooner than expected.

By planning early, Joe and Claire have the documents and tools in place to protect their home and other assets should one or both of them need care in the future – and there is a 70% chance they will. Joe and Claire have also lessened the emotional and financial stress placed on a family when a health care crisis does happen. They’ve taken care of the heavy lifting with regard to their assets, so their family can just focus on what really matters – making sure they have the best care possible.

Other articles you may find interesting:

Time to Take Over A Parent’s Finances?

Not Your Grandfather’s Senior Community

 

 

Are Your Estate Planning Documents Age-Appropriate? (Part 1)

Estate planning documents must be appropriate for your age and situation.
Estate planning documents must be appropriate for your age and situation.

Twenty years ago, Joe and Claire, age 45 at the time, went on their first vacation without their kids since they were married. They had no estate planning documents in place, and had to scramble quickly to get a simple Will and Power of Attorney to make sure their kids would be taken care of should something happen to them. They owned a home with a mortgage, and had very little in savings.

The Will named a guardian for their minor children, and named a trustee to hold their children’s money in trust until they reached age 21. The Durable Power of Attorney only addressed basic financial issues, naming an agent to act in their place (paying bills, writing checks for the kids’ various activities) in the event they were unable to.

Joe and Claire did not prepare a Living Will, or any type of estate planning document that named another person to make healthcare decisions for them if needed. Their main focus was their children, and making sure the mortgage and other bills were paid if something happened to them while they were away.

Joe and Claire arrived home from their trip perfectly healthy, and the documents they signed sat in a safe deposit box for the next 20 years. Now age 65, Joe and Claire are nearing retirement and have accumulated a nice “nest egg” and just paid off their home.

However, they recently had a friend suffer a near-fatal heart attack and it was a sharp reminder to them of how precious life is. The topic of their Will from 20 years ago came up, and they both agreed it was time for an update.

Joe and Claire now need estate planning documents that address their current age and status – near retirement with substantial savings. The Durable Power of Attorney that worked for their purposes 20 years ago needs a major makeover. Joe and Claire need to consider who will step in and make financials decisions on all of their matters if they are unable to act due to incapacity.

Incapacity can be the result of a disease, like Alzheimer’s, or it could come from a more sudden health event, like a heart attack or stroke. As Joe and Claire grow older, the possibility of a debilitating health event increases. They have more assets than they did 20 years ago, including a number of online accounts that would need to be managed. A generic form is usually not enough to cover the complex issues that arise as we get older, and as we acquire more possessions.

This increasing possibility of a health crisis also sheds light on the need to have their medical wishes properly documented through a health care directive. What type of life-sustaining measures should be undertaken for them? Who will make health care decisions if they are unable to? The natural choice is to choose the other spouse as agent, but what if the other spouse is unable or unwilling to act?

If Joe and Claire haven’t designated their agent through proper legal estate planning documents, then a court may be left to decide for them – an expensive and sometimes lengthy process that can be very stressful on the family.

Another issue that is important to discuss is what type of care should be provided if Joe or Claire need it? Does Joe wish to stay home and receive care there? If so, who should provide that care? Do both of them want to transition to independent living at some point when keeping up a home and yard becomes too much? If the conversation isn’t held while Joe and Claire are healthy, then other family members and friends are left to guess what they would have wanted.

As shown above, age-appropriate estate planning documents that address health care and financial decision-making are critical. The other critical planning concern is what will happen to all of Joe and Claire’s possessions if one or both of them get sick and need substantial care on a long-term basis?

In our next article: What steps can Joe and Claire take to prevent losing everything in the event their health fails?

Other articles you may find interesting:

Are No-Contest Clauses Valid In Florida?

Do I Need to Update My Estate Plan if I Relocate?

Having the “Someday” Talk with Parents

Daughter talking with her parent
Don’t wait too long to have these important conversations with your parents.

The cause of sleepless nights for many baby boomers now comes from worrying about their aging parents instead of their young children. As parents age, it becomes more important to talk with them about a number of “someday” issues, advises Kanawha Metro in the article “Preparing for someday.” As their lives move into the elder years, your discussions will need to address housing, finances, and end-of-life wishes.

Where do your parents want to spend their later years? It may be that they want to move to an active retirement community not far from where they live now, or they may want a complete change of scenery, perhaps in a warmer climate.

One family made arrangements for their mother to take a tour of a nearby senior-living community after their father passed. By showing their mother the senior-living community, they made an unknown, slightly intimidating thing into a familiar and attractive possibility. Because she saw the facility with no pressure, just a tour and lunch, she knew what kind of options it presented. The building was clean and pretty, and the staff was friendly. Therefore, it was a positive experience. She was able to picture herself living there.

Money becomes an issue as parents age. If the person who always handled the family finances passes away, often the surviving spouse is left trying to figure out what has been done for the last five decades. A professional can help, especially if they have had a long-standing relationship.

However, when illness or an injury takes the surviving spouse out of the picture, even for a little while, things can get out of control fast. It only takes a few weeks of not being able to write checks or manage finances to demonstrate the wisdom of having children or a trusted person named with a power of attorney to be able to pay bills and manage the household.

As parents age and their health becomes fragile, they need help with doctor appointments. Having a child or trusted adult go with them to speak up on their behalf, or to explain any confusing matters, is very important.

Having an estate plan in place is another part of the business of aging that needs to be accomplished. It may be helpful to go with your parents to meet with an estate planning attorney to create documents that include a Last Will and Testament, Durable Power of Attorney and advanced health care directive. Without these documents, executing their estate or helping them if they become incapacitated will be more complex, and more costly.

Eliminate a scavenger hunt by making sure that at least two siblings know where the originals of these documents are.

One of the more difficult conversations has to do with end-of-life and funeral arrangements. Where do your parents want to be buried, or do they want to be cremated? What should be done with their remains? What do they want done with their personal belongings? Are there certain items that they want to be given to certain members of the family, or other people they care for?

Finally, who do they want to care for their pets? If there is a family member who says they will take their parent’s pet, can that person be trusted to follow through? There needs to be a Plan A, Plan B, and Plan C so that the beloved pet can be assured a long and comfortable life after their owner has passed.

Yes, these are difficult conversations. However, not having them can lead to far more difficult issues. Knowing what your loved ones wish to happen, and making it enforceable with an estate plan, provides everyone in the family with peace of mind.

Reference: Kanawha Metro (May 29, 2019) “Preparing for someday”

Other articles you may find interesting:

Widowed? What Happens Next?

Pet Trust FAQs: For the Love of Fluffy

A Basic Form Doesn’t Work for Estate Planning

A basic form Will
A basic form Will or Trust may not protect your family or properly document your wishes.

It’s true that an effective estate plan should be simple and straightforward, if your life is simple and straightforward. However, few of us have those kinds of lives. For many families, the discovery that a Will that was created using a basic form is invalid leads to all kinds of expenses and problems, says The Daily Sentinel in an article that asks “What is wrong with using a form for my will or trust?”

If the cost of an estate plan is measured only by the cost of a document, a basic form will, of course, be the least expensive option — on the front end. On the surface, it seems simple enough. What would be wrong with using a form?

Actually, a lot is wrong. The same things that make a do-it-yourself, basic form seem attractive are also the things that can make it very dangerous for your family. A form does not take into account the special circumstances of your life. If your estate is worth several hundreds of thousands of dollars, that form could end up putting your estate in the wrong hands. That’s not what you had intended.

Another issue: any form that is valid in all 50 states is probably not going to serve your purposes. If it works in all 50 states (and that’s highly unlikely), then it is extremely general – so much so that it won’t reflect your personal situation. It’s a great sales strategy, but it’s not good for an estate plan.

If you take into consideration the amount of money to be spent on the back end after you’ve passed, that $100 basic form Will becomes a lot more expensive than what you would have invested in having a proper estate plan created by an estate planning attorney.

What you can’t put into dollars and cents is the peace of mind that comes with knowing that your estate plan – including a Will or Trust, power of attorney, and health care power of attorney – has been properly prepared.  As such, your assets will go to the individuals or charities that you want them to go to, and your family will be protected from the stress, cost, and litigation that can result when Wills or Trusts are deemed invalid.

Here’s one of many examples of how a basic, inexpensive form created chaos for one family. The father had decided to forego seeing an attorney and executed a do-it-yourself Will. After he died, chaos ensued because his intentions weren’t clear. The father had properly filled in the blanks but used language that one of his sons felt left him the right to significant assets. The family became embroiled in expensive litigation, and became divided. The litigation has ended, but the family is still fractured. This was not what their father had intended.

Other issues that may not be properly addressed when basic forms are used: naming the proper executor, guardians and conservators, caring for companion animals, dealing with blended families, addressing Payable-on-Death (POD) accounts and end-of-life instructions, to name just a few.

Avoid the “repair” costs and meet with an experienced estate planning attorney in your state to create an estate plan that will suit your needs.

Reference: The Daily Sentinel (May 25, 2019) “What is wrong with using a form for my will or trust?”

Are No-Contest Clauses Valid In Florida?

No-contest clause in a will.
No-contest clauses threaten troublemaking heirs with disinheritance.

A Brief History of No-Contest Clauses

No-contest, or in terrorem, clauses have been used in Wills for centuries. These clauses usually state that if a beneficiary under the document contests the validity of the document and loses, that beneficiary receives nothing. Of course, if the beneficiary wins, the document is invalid and so is the clause. These clauses were almost always upheld because, under the common law (non-statutory law created by custom and courts), there was no legal right to inherit anything. A bequest was a gift made by the deceased person, who had complete discretion as to how and when to leave that gift. So any action taken by a beneficiary that was detrimental to the probate of a Will violated the no-contest clause and the beneficiary’s bequest was forfeited.

But things changed over time and U.S. courts, including those in Florida, began to construe those clauses very strictly. For example, in 1959 in Kolb v. Levy, a Florida appeals court ruled that a contractual claim filed by one beneficiary against her mother’s estate – a claim so large that if she succeeded in a lawsuit it would have consumed most of her mother’s estate – did not violate the non-contest clause because it didn’t directly challenge the validity of the Will.

That’s where Florida law stood until the 1990s, as ideas about an individual’s right to have access to the courts to redress grievances changed. The Florida state legislature declared that no-contest clauses violated such public policies and passed two statutes prohibiting the enforcement of no-contest clauses in Will and Trusts.

Florida’s No-Contest Statutes

Florida Statute §732.517 states that a “provision in a will purporting to penalize any interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable.” Its sister statute, Florida Statute §736.1108, applies to Trusts created on or after October 1, 1993, and states that a “provision in a trust instrument purporting to penalize any interested person for contesting the trust instrument or instituting other proceedings relating to a trust estate or trust assets is unenforceable.”

Currently, Florida is the only state that absolutely prohibit the enforcement of no-contest clauses in Wills and Trusts. A couple of states still enforce them most of the time, but the majority of states consider them on a case-by-case basis. If your Will or Trust was drafted in another state and includes a no-contest clause, it won’t be enforced in a Florida probate court.

Why Are No-Contest Clauses Sometimes Still Used in Florida?

So why do some Florida attorneys still put no-contest clauses in Wills and Trusts if they know they’re not enforceable? Mainly to try to prevent frivolous litigation. Many clients want these clauses in their documents – even though they understand that a Florida court won’t enforce them – because they hope that it shows their beneficiaries, and potentially a judge, their intent as to how they wanted their assets distributed. Does it work? I don’t know. Maybe it does sometimes, but a truly litigious person certainly won’t be stopped by it.

Many Floridians now use a Trust as their primary estate-planning tool. With a Trust-based estate plan, there’s virtually no risk of a Will contest since a Pour-Over Will essentially says nothing. But Trust litigation is always a possibility. Occasionally, the contest relates to the validity of the trust, but, more often, trust litigation involves disputes between a beneficiary and the trustee regarding trust interpretation and asset distributions.

Alternatives to No-Contest Clauses

Depending on the client’s specific situation, there may be other ways – other than using unenforceable no-contest clauses – to prevent or minimize potential litigation risks when a Trust is involved. Creating and funding separate Trusts for problem beneficiaries, adding Trust Protector provisions, or adding a mediation clause may help keep a disgruntled beneficiary from depleting trust assets in a drawn-out court battle.

So, while Florida courts won’t enforce a no-contest clause in a Will or trust, there may be other ways to minimize – although not completely eliminate – the possibility of litigation. Greed, jealously, family dynamics, and money problems are great motivators for litigation, and a few words on a piece of paper are unlikely to stop all.

If you’re worried about preventing potential litigation, or if you think you may have a legitimate reason to contest a Will or Trust, contact an attorney for guidance.

Yes, You Should Have a Will

Death comes whether you have a Will or not.
Don’t lie to yourself. Death comes for all of us, whether we have a Will or not. Make it easier for the ones you leave behind.

To avoid estate planning, people tell themselves all kinds of lies.

Forbes’s recent article, “3 Lies People Tell Themselves About Estate Planning,” discusses three lies people tell themselves to delay or avoid estate planning.

1. There’s No Need for a Will Because I Don’t Have Much Money.

This isn’t true. A typical Will covers more than just finances. Your Will can be used to protect your family by naming who should become the guardian for your minor children if you pass away. Your Will can also be used to state the way in which you’d like your body to be handled after your death. A Will provides details so your final wishes are carried out. Your family won’t be left guessing what you wanted.

2. There’s No Need to Update My Estate Plan Because Nothing’s Changed.

People say this all the time, but the law may have changed without your knowledge, necessitating modifications to your estate plan. For instance, many of the estate plans that were created years ago with the objective of minimizing federal estate tax are now out of date. You should also consider updating your estate plan to name younger adults to serve in critical fiduciary roles, because your original choices may no longer be able to serve.

3. There’s No Need to Update My Beneficiary Forms Because I Have a Will.

A Will doesn’t control the disposition of all of your assets; it only controls assets that pass through the probate estate. For example, married couples typically own their homes in joint tenancy, so the home automatically passes to the surviving spouse, no matter what the first-to-die spouse’s Will says. In addition, retirement accounts don’t pass via a Will. These accounts, such as IRAs, Roth IRAs, 401(k)s, 403(b)s and similar accounts, pass by beneficiary designations. It’s important to understand that your beneficiary forms generally supersede your Will.

Talk to an experienced estate planning attorney today.

Reference: Forbes (May 9, 2019) “3 Lies People Tell Themselves About Estate Planning”

Do I Need to Update My Estate Plan if I Relocate?

Relocate to Florida
Be sure to review your estate plan after you relocate to Florida.

Anyone who relocates to another state – for retirement, a new job or to be closer to family – needs to have a look at their estate plan to make sure it’s valid in their new state, advises the Boca Newspaper in the recent article “I’ve Relocated To Florida…Should I Update My Estate Plan?”

If an estate plan hasn’t been created, a relocation is the perfect opportunity to get this important task done. Think of it as preparation for your new life in your new home.

Because so many retirees do relocate to Florida, there are some general rules that make this easier. For one thing, most Wills that are valid in another state are recognized in Florida. There’s a specific law in the Florida statutes that confirms that a Will “other than a holographic or nuncupative will, executed by a nonresident of Florida… is valid as a will in this state if valid under the laws of the state or country where the will was executed.”

In other words, if the estate plan was prepared by an estate planning attorney and is legally valid in the prior state, it’ll be valid in Florida. Exceptions are a holographic Will, which is a handwritten Will that is signed by the person with no witnesses, or a nuncupative Will, which is a verbal statement made in front of witnesses.

However, just because your Will is recognized in Florida doesn’t mean it doesn’t need a review after you relocate.

There are distinctions in Florida law that may make certain provisions invalid or change their meaning. In one well-known case, a do-it-yourself Will was missing one sentence—known as a “residual clause,” a catch-all provision that distributes assets that are otherwise not specified. The maker of the Will wanted everything to go to her brother. However, without that one clause, property acquired after the Will was created was not included. The court determined that the property that was acquired after the Will was created would go to other relatives – despite the wishes of the decedent.

Little details mean a lot when it comes to estate plans. Just because an estate planning document is legally valid doesn’t mean it’ll be effective in carrying out your wishes.

It’s important to ensure that your Last Will and Testament properly expresses intentions under the laws of your new home state. After you relocate, it might be the time to speak with your estate planning attorney about whether any trusts are applicable to your estate. A revocable living trust, for example, would prevent the assets placed in the trust from having to go through probate.

It’s also a great time to review your Durable Power of Attorney, Designation of Health Care Surrogate, Living Will, and nomination of a Pre-need Guardian.

Estate planning gives you peace of mind, knowing that the legal side of your life is all taken care of. It also avoids stress and unnecessary costs and delays to your family. To keep it current, it should be reviewed – and updated, if needed – at big events in your life, including when you relocate, when you sell or buy a home, or when you retire.

Reference: Boca Newspaper (May 1, 2019) “I’ve Relocated To Florida…Should I Update My Estate Plan?”

Other articles you may find interesting:

Your Executor Doesn’t Want to Serve?

Is Your Beneficiary Ready to Handle an Inheritance?

A Solo 401(k) Works for Self-Employed

A Solo 401(k) benefits small business owners
A Solo 401(k) benefits small business owners.

Have you heard about the Solo 401(k)?

Freelancers, gig-workers or solo entrepreneurs have always had a hard time saving for retirement. It takes a tremendous amount of self-discipline to take money that would otherwise go to run a household or pay quarterly taxes and set it aside in a retirement account. Without an automatic withdrawal from a regular pay check, it’s tough. However, there is an option, says Next Avenue in the article “A Retirement Plan for the Self-Employed: The Single 401(k).”

Known as the Solo 401(k), the Self-Employed 401(k), Individual 401(k), or the Single 401(k), this is a retirement plan designed for self-employed people or sole proprietors, and if applicable, also for their spouses. With a Solo 401(k), 100% employee salary deferral of up to $19,000 is permitted in 2019, if you are under 50. If you’re over 50, that number can go up to $25,000. It also allows an employer profit-sharing contribution of up to $56,000 per year, which lets you save even more by being both the employer and an employee of your business.

Using the Solo 401(k) can save you more than $14,000 in taxes per year (that is, assuming a $56,000 contribution and a 25.7% corporate tax rate), while simultaneously offering a loan provision, just in case you need to tap your savings.

Who qualifies for a Solo 401(k)? You have to be truly self-employed, either in your own full-time small business or a part time gig. Your business can be a sole proprietorship, partnership, or corporation, but it can only have no other employees or employees who aren’t eligible to participate in a traditional 401(k). Examples of people who aren’t eligible would be people who are under age 21 or who work fewer than 1,000 hours per year.

The Solo 401(k) works well for a husband/wife partnership or a small business with only part-time employees.

It provides flexibility so that when times are good, you can put away a lot. When times are lean, you can save less. Additional benefits:

  • Reduced taxable income for pre-salary contributions.
  • Built-in profit sharing for maximum savings deductible against business income.
  • The cost of the plan is a deductible expense.
  • Investments grow tax deferred.
  • Higher contribution limits than SEPs and SIMPLE IRAs.

Small business owners don’t have an HR department to rely on, so it’s a good idea to talk with your financial advisor or estate planning attorney about how a Solo 401(k) may work for your long-term retirement and estate plan.

Reference: Next Avenue (May 3, 2019) “A Retirement Plan for the Self-Employed: The Single 401(k).”

Your Executor Doesn’t Want to Serve?

Your Executor may decline to serve.
Your Executor (Personal Representative) may decline to serve if you don’t prepare ahead.

When you’ve finally decided who you trust enough to serve as your Executor (called a Personal Representative in Florida), you’ll need to take the next step. It involves having a conversation with the person about what you’re asking her to do. You’ll need to ask if she is willing, says the Pocono Record in the article “Don’t assume person is willing to be your executor.” People are often flattered at first when they are asked about this role, but if they don’t fully understand the responsibilities they may decide not to serve just when you need them the most.

Once your Executor has agreed to act on your behalf and you have a Last Will and Testament prepared by an estate planning attorney, tell your Executor where your original Will is located. Remember that in addition to knowing where the document is, she’ll also need to have access. If the original Will is kept at home in a fire-proof box or a locked document box, be sure to tell her where the key is located.

If you feel that the Will would be safer in a bank’s safe deposit vault, make sure that your Executor will be able to access the safe deposit box. That may mean adding her to the list of people who have access. After your death, she may be permitted to enter the box with a bank representative solely for the purpose of obtaining the Last Will and Testament – nothing else.  However, you should check with your branch first.

After you die, your Executor (Personal Representative) and your estate’s attorney will file your original Last Will and Testament with the probate court. The judge then issues Letters of Administration (called Letters Testamentary in other states), which says that your Executor has the authority to open the safe deposit box to inventory its contents. The Executor must complete an inventory form and have any personal property found in the safe deposit box appraised at its fair market value as of the date of your death.

To make your Executor’s job easier, create a list of your assets and debts and include information she’ll need to complete her task, such as account numbers, titling, etc. She’ll also need contact information and account numbers for insurance policies (homeowners, car, Medicare supplements, life), veterans’ benefits, pensions, retirement accounts and any other assets.

Some people store their information on their computer. But if your Executor can’t access your computer due to distance, or can’t get into your computer because she doesn’t have your password, you may want to create a hard copy document in addition to keeping the information on your computer.

Taking on the role of an Executor (Personal Representative) is a big job. You can show your appreciation, even after you are gone, by making it easy for your Executor to find all the information she’ll need.

Reference: Pocono Record (May 1, 2019) “Don’t assume person is willing to be your executor”