Putnam County Estate Planning & Medicaid

Protect Your Business with Estate Planning

Between taxes and ex-spouses, you'll want to do an estate plan to protect your business or it may pass soon after you do.

It's amazing how quickly a business can get picked to pieces after the death of an owner. With the use of good estate planning, according to The Huffington Post article, "5 Things Estate Planning Can Do for You and Your Business," you can protect your business and your legacy. Otherwise, your business is at the mercy of government taxes, co-owners and even family members who will stake their claims.

Use estate planning to avoid unfortunate events and to prevent seizure and depreciation of the business assets. This can decrease the stress and hassles that occur immediately after you die. Here are some good estate planning ideas to help protect your business.

1. More options for your business. Solid estate planning gives you the option of buy-sell agreement. If your business has one or more co-owners, this agreement ensures that upon the death of any owner, the interest of the deceased is automatically purchased by the other owner(s). The beneficiaries of the deceased owner, such as the spouse, children, or other family member won't unintentionally become owners. This strategy can alleviate some stress in an already stressful situation, immediately after the death of an owner or part owner of a business.
2. Guarantee the longevity of your business. Sole proprietors, small businesses, and big companies all want to pass their enterprises to future generations to keep their legacies alive. Estate planning can ensure the longevity of your business with a business transition plan.
3. Minimize taxes. A business owner can transfer business assets to his or her children and retain a source of income by establishing a grantor retained annuity trust (GRAT). This will help make sure that when business assets grow over time, the appreciation in equity and value of your business will not be hit with huge tax bills.
4. Succession planning for your business. Good estate planning will ensure that your business is preserved and operating the way you'd want it to run. Any issues in the transfer of management and ownership when you're gone are conducted effectively with wise estate planning.
5. Start your planning now. Yes, now. It can take years to develop a succession plan. While doing so, you will develop a long-range view for your business, which may yield valuable information for the business's continued growth. It will also provide you with peace of mind if legacy planning has always been a goal for your business.

Reference: Huffington Post (March 31, 2016) "5 Things Estate Planning Can Do for You and Your Business"

Survey Shows Wealthy Clients Want More Communication in Estate Planning

This survey reveals that wealthy people will not move forward with estate plans unless they have a clear understanding of the plans and feel that their attorneys understand their goals.

More times than one would think, the very wealthy start the process of working with an estate planning attorney, discussing the plan and figuring out how to achieve specific goals. But many stop short of actually executing the plan. What leads this to happen?

In an attempt to understand why some affluent clients choose not to take action, Forbes' article, "Why The Wealthy Do Not Implement Their Estate Plans," describes a survey conducted of 288 wealthy families (defined as those with a net worth of U.S. $10 million or more) who had engaged trusts and estates lawyers to design their estate plans but did not follow through. These folks cited a number of reasons why they didn't act on their estate plan.

Almost 90% said that the estate plan didn't deal with their goals, wants, and objectives. About half think that their estate plan was too complicated. Well, estate planning for the wealthy often requires complex strategies to achieve goals. But this shows that they needed an experienced trusts and estates lawyer to do more than simply create an estate plan. They needed a professional who was equally skilled at gauging the affluent clients' ability to cope with the complexity of the planning and to be comfortable with the plan.

Highly successful people are accustomed to being in charge and in control and the survey reports that these individuals often felt uncomfortable, even nervous, because they did not understand the plans that were created for them. A number of them also shared the plans with trusted advisors, who were not in favor of the plans, making them even more uncomfortable.

The takeaway: an estate planning attorney needs to do more than simply create a plan. They need to understand the client and their goals, wishes and dreams, create a plan to implement those goals, and communicate in plain English how the plan will achieve the client's wishes.

Reference: Forbes (March 22, 2016) "Why the Wealthy Do Not Implement Their Estate Plans"

Your Life Changes – Your Life Insurance Needs Change Too

Most people clean out their closet more often than they review their life insurance policies. You don't wear the same clothes now as you did in your 20s, consider whether your insurance needs should be updated as well.

In "3 ways to choose the right life insurance plan," the New York Daily News invites readers to consider how their lives have changed over the decades, and how their insurance should change too.

Young adults have some pretty straightforward insurance needs like obtaining insurance for their first car, a ring for that special someone, and their first apartment. As we get older, our needs in life and in insurance change. Saving for a down payment on the first house, college tuition for the kids, and then down the road, retirement become new priorities. And many of us will be faced with unexpected events, like illness or death of a loved one, divorce or a spouse who is forced to retire prematurely.

Make adjustments. Life insurance is an important financial tool that should never be a "set it and forget it" plan. For example, a couple has life insurance policies on which they're continuing to pay premium payments and then the husband passes away. Depending on the death benefit and her level of concern for their children's financial state, it is possible that the wife does not need to keep her life insurance policy. She could put the dollars she was paying for insurance premiums in her pocket for her desired benefit. Also, many companies have employer-sponsored life insurance plans for their employees that cover about three years of salary. Depending on the level of coverage, you might consider purchasing additional insurance outside of your employer.

Know when to cancel. Don't be afraid to cancel your policy if it makes sense for your financial outlook. By the time many people retire, hanging on to insurance policies and continuing to make premium payments may not make sense. If you have a total estate value that may exceed the federal estate tax exemption amount at your death ($5.45 million), high net worth individuals may use life insurance to help offset estate taxes more than the exemption amount.

Select the correct plan for your stage of life. Consider premium costs when you are making decisions about what kind of coverage you need. Typically, the amount of coverage available to an individual is capped at ten times the annual salary. There are strict guidelines used by insurance companies to determine coverage, based in part on health and financial guidelines. Your medical records will be reviewed and you will likely be asked to undergo a medical exam before your rates are set.

Reference: New York Daily News (March 22, 2016) "3 ways to choose the right life insurance plan"

Inheriting an IRA for Surviving Spouses 101

When it comes to inheriting assets, few are as complicated as an IRA. The rules for surviving spouses are different than for non-spouses, but rules for both are complex and mistakes are costly.

Perhaps the most important thing to do when you inherit an IRA is your homework. Start by finding out exactly the type of IRA you have inherited, and then find out what kind of beneficiary you are. USA Today's article, "If you inherit an IRA, make a plan before doing a thing," starts with the premise that the person inheriting the IRA is a surviving spouse, and outlines four options.

1. Roll the inherited IRA assets into your own IRA. This has several advantages. The beneficiary can postpone required minimum distributions (RMDs) until age 70 ½, and beneficiaries can use their own life expectancy to calculate RMDs. Plus it's pretty easy. You don't have to keep both an inherited IRA and your own IRA, they can be combined, but the disadvantage is that the beneficiary will (with a few exceptions) have to pay a 10% penalty tax on pre-59 ½ distributions, and RMDs could be accelerated if the deceased spouse was younger than the surviving spouse.
2. Transfer assets into a properly-titled inherited IRA. There are a few advantages to this. For starters, the spouse beneficiary won't have to pay the 10% penalty tax when taking withdrawals from an inherited IRA prior to age 59 ½. Also, you may be able to delay RMDs if the deceased spouse was younger. However, this is pretty complex. The beneficiary will have to keep their own retirement accounts separate from their inherited IRA.
3. Convert the decedent's IRA to the survivor's Roth IRA. This can be done, but you'll want to work with an experienced estate planning attorney to avoid expensive surprises in the future. The surviving spouse might choose this option if they expect to be in a higher tax bracket later in life, but they should also consider the tax brackets of those who might inherit their Roth IRA.
4. Disclaim all or part of the assets. Again, this involves a meeting with an experienced estate planning attorney. The advantages are that you might be able to have assets pass to younger beneficiaries, using their own life expectancies for RMDs, and keep assets out of the surviving spouse's estate. You'd likely choose this option if the estate wasn't set up properly, or if the surviving spouse doesn't need the money. One drawback is it's irrevocable, and there's no control over where the money goes.

The rules are different for a non-spouse beneficiary. You may not roll over the inherited IRA assets into an IRA in your name. You have two options: (i) transfer assets into an inherited IRA—you'll have to take RMDs from the inherited IRA, but they'll be based on your age and life expectancy rather than that of the original account owner; or you can (ii) disclaim all or part of the assets. Remember these points:

• Funds have to be transferred to an inherited IRA by December 31^st following the year of death for non-spouse beneficiaries to "stretch" the plan assets over their life expectancies;
• Custodians or plan administrators don't have to offer to calculate RMDs for inherited IRAs—beneficiaries may be on their own; and
• Non-spouse beneficiaries must usually take RMDs from their inherited IRAs yearly starting the year after the death of the owner.

This is not a do-it-yourself, figure it out and get help later matter. Without the guidance of an experienced estate attorney and great care, the possibility exists for the inherited IRA to be consumed by taxes.

Reference: USA Today (March 15, 2016) "If you inherit an IRA, make a plan before doing a thing"

Family Owned Businesses Need Special Planning to Protect Both the Family and the Business

No one can control their business from the great beyond, but with good planning and communication, the chances of the family business continuing are greatly improved.

Estate planning for the owner of a family business is more complex and requires more thought than estate planning for an employee who owns a home and investment accounts. In "Five things you should know about estate planning for a family-owned business," Smart Business points out, in five broad strokes, key aspects that need to be considered when making an estate plan for the business owner that include protecting the business and family members.

Identify and prepare your successors. Smaller businesses may need someone to oversee a sale or liquidation. Communication with and buy-in by your team is critical. The group should have a clear understanding of your goals, what's intended and how to achieve it, way before the time comes.

Look at your liquidity needs. Business owners are often highly illiquid because of business value compared to other assets. Liquidity in your estate is important to provide for your family and replace your earnings. If estate tax is owed, your estate will need liquidity to pay those taxes or else face a forced sale of the business. Life insurance may be a good solution, with the structuring of life insurance policies through irrevocable trusts. The business itself could have a policy on you to help pay down debt, provide working capital, or replace your on-going contributions.

Structure company ownership to separate control from value. If you own a controlling interest in the company, issuing voting and non-voting stock (or managing and non-managing interests in a partnership or LLC) gives a lot of flexibility for your estate. One person or group can run the business and legally control it by owning the voting stock, and another group still can receive the economic benefits of ownership through non-voting stock without being involved in business operations. Having a trust to own both voting and non-voting stock is frequently better than outright ownership.

Reduce your estate tax liability. Federal estate tax of 40% applies to estates over $5.45 million and $10.9 million for married couples. Consider decreasing that liability with some wealth-transfer planning. An owner of a profitable, cash-flowing business could transfer wealth out of the owner's taxable estate and into trusts for family at little to no gift tax costs through installment sales of stock to irrevocable "defective" grantor trusts (IDGTs) and funding grantor retained annuity trusts (GRATs.). These reduce the need to purchase life insurance or set aside liquid assets in your estate to pay the tax. Talk with a qualified estate planning attorney to properly implement them.

An estate planning attorney with experience helping family business owners as they plan for the future is a valuable part of your family's business team. Developing a plan and checking it on a regular basis to ensure that it remains relevant will give you peace of mind of knowing that you have prepared for the future and protected your family.

Reference: Smart Business (March 18, 2016) "Five things you should know about estate planning for a family-owned business"

When Was the Last Time You Reviewed Your Estate Plan?

The first quarter of the year is a good time to review your estate plan. It may not need any changes – but chances are good something in your life has changed and your plan may be outdated.
Over the course of time, things change that have an impact on your estate plan. Your children may have married or welcomed a new baby into the family. Perhaps you moved, or maybe you were widowed. Life is filled with changes, at every stage, and your estate plan needs to reflect those changes.
Dairy Herd published a valuable article, "Legal: Review and update your estate plan now," which advised that you should at least have the basic estate planning documents in place. This includes a will, a power of attorney, a medical power of attorney and an advanced healthcare directive (often called a living will). Also, some should look into trusts, depending on individual situations.
Taking the time to prepare these documents now can help avoid fighting and stress for loved ones left behind.
Create a "Death File." After you have your basic estate planning documents in place, gather them in one place and inform two responsible people of the file's existence and location. It can be placed in a home safe, a bank deposit box or on file with an attorney. The person(s) named as your power-of-attorney and executor need to know the location of these documents and have the ability to access them if needed.
Review Documents for Updates. As mentioned above, it's important to review these drafted documents periodically to see if any changes are needed. Also, when you review a will or a trust, look to see if any of the property listed has been sold, transferred, or purchased. If it has, update the documents to reflect the change in ownership.
Check and Update Beneficiary Designations. Not all property passes in the estate by a will. Some assets, like a 401(K), are passed to the beneficiary of the account regardless of what a will says. This is also common with life insurance, pensions, transfer on death accounts, and accounts held as joint tenants with right of survivorship.
Look at Potential Estate Tax Liability. The federal estate tax exemption for 2016 is $5.45 million per person and $10.9 million per couple. To see if tax liability might be an issue, the estimated fair market value of assets needs to be calculated. Talk to an estate planning attorney if your estate may be close to the exemption limit. An experienced attorney will be able to discuss options to avoid the federal estate tax—a whopping 40% on any amount over the $5.45 million exemption.
Think of your estate plan as needing regular maintenance in the same way that your house or car needs to be checked and serviced from time to time. Keeping your estate plan up to date will protect your wishes and allow you to avoid unnecessary headaches and expenses for loved ones.
Reference: Dairy Herd (February 9, 2016) "Legal: Review and update your estate plan now"

Use a Checklist to Guide a Discussion About End-of-Life Care

Sometimes it's easier to have a conversation on a difficult topic when you focus on the non-emotional aspects of the subject being discussed and have a checklist in hand.
For a generation that is proud of their ability to ignore all kinds of taboos, millennials are no different than any other generation when it comes to discussing end-of-life care and estate planning with their parents. It's up to you, Baby Boomers, to initiate the conversation with your millennial children and make sure that they – and you – understand the basic documents needed for estate planning and end-of-life care.
Benzinga's recent article, "Millennials and Estate Planning: How to Get Started," says that when you do begin discussing end-of-life care, you need to understand the documents involved.
Here is a list:
Wills: A will describes who will be in charge of your estate at the time of your death and to whom you want your assets to be given. You can also use a will to nominate a guardian for your minor children.
Living Trust: This is a common way to transfer assets upon your death and without probate. Typically, a trust will have property titled in it and will document what should happen to the assets upon your death.
Durable Power Of Attorney: This ensures that an individual you select has the authority to make decisions regarding your financial life in the event that you are incapacitated or unable to make decisions on your own, such as financial and legal matters.
Health-Care Proxy: Like a durable power of attorney, a medical power of attorney give a person you designate the authority to make medical decisions on your behalf if you can't make those decisions yourself.
Advanced Health Care Directive: This allows you to list your healthcare preferences and can be used, along with your health-care proxy, to make certain that your medical wishes are carried out.
HIPPA Release Form: This allows those listed on your advanced health care directive and your health-care proxy to access your healthcare information so they can handle issues on your behalf if you are unable to do so.
Tax Documents: Can you believe that death does not stop taxes? Most taxpayers don't have to worry about federal estate taxes, but some must be aware that an estate over $5.45 million is liable for estate taxes, with some exceptions. Some states also have a state death tax in addition to federal estate taxes.
An estate planning lawyer can help you properly prepare these documents in advance. The attorney can also facilitate the tough discussions with family members.
Reference: Benzinga (February 08, 2016) "Millennials and Estate Planning: How to Get Started"

Planning: Retirement, Estate and Vacation

We'd all rather plan a vacation than confront our own mortality. But planning for retirement, estate planning and vacation planning are all necessary to achieve your goals.
The same people who put off estate planning have no problem finding the time to plan their vacations. And far too many people think the only plan they need for retirement concerns being able to pay bills.
Retirement planning is for that time when you change direction and stop the grind of working full-time. Estate planning is what Federal News Radio's article, "Estate vs. retirement planning: You bet your life, literally!" says is an after-you've-gone shopping list.
Think of estate planning as how you would like things to be, and to be divided, to minimize stress on your loved ones and avoid nasty family fights that can occur after the funeral. You can minimize problems and decide some of the tough issues before you pass away. Estate planning is a thoughtful gift for your family and friends.
Retirement planning is much broader—and your estate plan should be included as an important piece of your retirement plan. An estate plan has three basic goals:
• To give you control over your assets as long as you are able to do so.
• To protect you and your loved ones in case you become incapacitated.
• To distribute your assets in accordance with your intentions after your death.
Again, a retirement plan has broader goals such as:
• Ensuring that you have enough assets to support your retirement lifestyle.
• Ensuring that potential health care issues can be met in the location where you retire.
• Proximity to friends and family.
• Deciding what to do with the time you previously devoted to your job.
• Creating an estate plan that is consistent with your goals.
No one says you have to have an estate plan once you graduate from high school, but once you start working, that's the time to open an IRA account, start saving and begin planning for your future. Early planning generally ensures that you have more options, both for retirement and estate planning.
An experienced estate planning attorney can help you begin your planning.
Reference: Federal News Radio (February 3, 2016) "Estate vs. retirement planning: You bet your life, literally!"

Necessary Conversations for Adults Children and Aging Parents

Don't wait until your family is grappling with a crisis to discuss these four important subjects. Candid conversations will help the decision-making process when the tough calls must be made.
The challenges facing seniors and their adult children can be placed into four main categories, according to the article "Talk to aging parents about finances, health care, living arrangements," appearing in The Ventura County Star. They are: finances, living arrangements, medical coverage and estate planning.
Understand your parents' ideas about their future living arrangements when and if they become unable to care for themselves. If they want to stay in their own home, familiarize yourself with the available community resources for support and research alternative living arrangements in the event that remaining at home is no longer a viable option.
Analyze the type of medical coverage your parents have and its coverage. Get the name and telephone number of their primary care physician and any specialist they are seeing. Have a sense of their medical history and condition.
Estate planning includes legal, financial, and end-of-life issues. See if your parents have an advance health care directive, a will and/or trust, and a general power of attorney for finances. Find out who has copies of these documents or where they're kept. Also, get the contact information for their estate planning attorney.
Talk to your parents about their financial resources, both income and assets—this is critical if you need to place them in a long-term care facility or apply for government programs. Also, find out if they have long-term care insurance and what it covers.
Last, the hardest conversation may be about their final needs. See if your parents have made funeral arrangements and have prepaid them. If they don't have these plans, encourage them to tell you what they want.
Your parents know they need to have these conversations. You can help by taking a proactive role and fostering these conversations while they are still able to participate and tell you what they want. If you have siblings, include them in these discussions as well.
Reference: Ventura County Star (February 9, 2016) "Talk to aging parents about finances, health care, living arrangements"

Set It and Forget It Approach to Estate Planning Is Never a Good Idea

Your estate plan needs to be refreshed every so often because life's circumstances are always changing. You might be unaware of how much the changes will impact your estate.
From Forbes, we learn that 51% of Americans age 55 – 64 don't have a Will. That's bad news for their families, who will have to deal with the estate plan default: whatever the rules are for their state. But for those who are smart enough to have an estate plan in place, there are still some maintenance issues that need to be addressed with a review every now and then. Everything changes over time, including your personal and financial situations and tax and estate planning laws.
Even if your estate plan was crafted by a skilled and experienced estate planning attorney, you'll want to talk to him or her if any of these things occur:
Marriage or Re-marriage. This doesn't automatically change the provisions of your will or trust and won't necessarily provide for your new spouse. Talk with your attorney to ensure your plan reflects your new goals, both individually and as a couple.
Divorce. After a divorce your goals will probably change and so should your estate plan. When your divorce is finalized, revise your plan as quickly as possible to reflect your new goals and intentions.
Children. When you have a child or adopt, you'll probably want your son or daughter to be the recipient of your estate, and you need to appoint a legal guardian for your child in the event you and your spouse die or are incapacitated.
Injury or Illness. If you (or one of the members of your family) become seriously ill, you may want to consider changing your estate plan to reflect their increased needs. For example, a special needs trust lets you leave assets in a trust that will not disqualify him or her from receiving government benefits.
Change of Plans. With time your goals and intentions naturally change, and your estate plan should reflect your current intentions, not the goals you had five years ago.
You inherit. If you or your spouse expect to get a sizeable inheritance, there may be new opportunities to reduce taxes or provide creditor protection. The increased value of your estate may also mean you change how your assets will be distributed when you die.
Buy or sell a business. If you purchase a business, you may want to create a succession plan. If you sell your business, the capital you receive may require a different plan for asset distribution and reducing the tax burden for your heirs.
Moving to another state. Estate planning documents are generally legal from one jurisdiction to another, but each state has its own laws. If you move from a separate property state (like Virginia) to a community property state (like California), you might want to convert your separate property to community property to take advantage of favorable income tax treatment.
Your best bet? Review your plan with your estate planning attorney every few years to keep up with changes in federal and state laws. If your life experiences any kind of major change as described above, make that appointment today!
Reference: Forbes (January 28, 2016) "8 Reasons to Revise Your Estate Plan Today"