Putnam County Estate Planning & Medicaid

Does Your Loved One Have an Eldercare Plan for Daily Care and Wishes?

Spelling out intentions in basic estate planning documents is good, but adding a plan that addresses preferences regarding care is even better.

There is an expression among elder law attorneys called being "elderproofed," according to the Huffington Post in "Writing an Eldercare Plan." This takes planning to the next level, and includes things like how the person wises to be cared for, medical treatment preferences, whether they want to be cared for at home or in a facility, and more. These cover the day-to-day decisions to ensure that desires are followed once a person is unable to make those decisions known.

It's very important for seniors and their loved ones to discuss a care plan for the future before disease or dementia come into play, or a crisis causes eldercare services to become urgently needed. Get the plan drafted while the senior is still fully cognizant and rational. They can be signed when other end-of-life documents are put in place.

In truth, everyone wins with early discussions. When the patient is involved in the decisions for his or her potential care, the family has a better understanding of their preferences and are prepared for tough questions.

A good eldercare plan designates the roles and responsibilities for the care of the senior to specific individuals in writing. In addition, healthcare preferences and treatments can be detailed.

If your loved one has been diagnosed with Alzheimer's or Parkinson's disease, families should begin their elder and estate planning soon after the diagnosis, so that the patient can be an active participant. As part of your end-of-life documents make sure your elder law attorney drafts a health care proxy so that your loved one can designate a trust person to make decisions if he or she becomes incapacitated.

Planning for eldercare begins with a conversation with an elder law attorney, who will be able to guide the process. Include all of the family members who will be involved with care. This may also include good neighbors who have been involved with your loved one. Planning in advance will help as the years go by and care needs change.

Reference: Huffington Post (March 30, 2016) "Writing an Eldercare Plan"

Second Marriage Makes Estate Planning Critical to Protect All Parties' Interests

The time to discuss inheritance issues when there has been a second marriage is while family members are alive and well.

When a parent passes away and there is a second spouse, children from the first marriage have certain concerns, according to a thoughtful description of property ownership in New Jersey 101.5's post, "What to know about a second marriage and an inheritance."

There are two types of property at death, and understanding the difference will be helpful with understanding the distribution of assets. These are probate assets and non-probate assets.

Probate assets are those that a person owns alone without a named beneficiary. The probate assets will pass in accordance with the terms of a person's will. However, if there's no will, the assets pass according to the state's laws of intestacy. Non-probate assets include assets that a person owns jointly with another person, like a home or a joint checking account, and assets which designate a beneficiary. These are things like life insurance and retirement assets. Non-probate assets pass to the joint survivor or the named beneficiary by operation of law. These aren't governed by the person's will or the laws of intestacy (unless the named beneficiary is the estate).

In one example, if the father died with probate assets, his estate would be required to be administered through the probate court in the county of his residence at the time of his death. If the father had a will, it's presented for probate. The person named in the will as the executor can qualify and obtain Letters Testamentary—these authorize him or her to act on behalf of the estate. If there isn't a will, an administrator is appointed. Generally, the spouse and then the children will have the first right to such an appointment. In either situation, everyone named in the will and all heirs at law (which include children) must be given notice of probate. They can also request and get a copy of the will.

A person can choose to leave nothing to a spouse; a spouse is typically entitled to claim an elective share. In many states, this is one third of a decedent's estate.

If the father died with no will and no premarital agreement, then the estate's assets pass in intestacy. In many states, the surviving spouse receives the first 25% and the rest passes to the children. If any of the children are deceased, their share passes to the deceased children's children.

Reference: New Jersey 101.5 (March 29, 2016) "What to know about a second marriage and an inheritance"

Discovering Additional Assets After Estate Taxes Have Been Filed

Whether you are filing tax returns for the living or the dead, you need to follow the rules. Penalties for failing to amend an estate tax return can include criminal and civil penalties.

Here's an ethical dilemma. You learn that your late mother had a safe with $100,000 cash in it after the estate has been finalized. Do you pocket the cash and tell no one, or add it to her assets? The temptation is obvious, but the right and legal thing to do is correct the error.

New Jersey 101.5 says in its recent article, "Why it's important for executors to report all estate assets," that the executor of an estate must prepare and file the necessary returns. In doing this, he or she has to collect, value and report all of the assets of the estate.

If a failure to include the cash in the inventory of the estate assets keeps the estate below the reporting threshold and no return was filed, the unpaid tax on the cash will accrue interest. Plus, the estate and executor may be subject to penalties for nonpayment, as well as facing civil and criminal penalties if this failure to file is deemed fraudulent.

Unlike cases where a return is filed, there's no statute of limitations where assets are not reported; the assets haven't been disclosed, and the tax authorities haven't been given an opportunity to review and evaluate reported information.

Even if the failure to file is an honest mistake, if the estate is audited, the executor can be personally liable for the unpaid tax, interest and penalties because he has distributed the estate's assets.

If you properly prepared but filed the return late, if one was never filed or if one was filed but the cash not reported, taking care of this should give a person peace of mind that it's likely to be a pretty small tax cost.

An experienced estate attorney will be able to help you fix this error before it becomes a serious problem for you and your family.

Reference: New Jersey 101.5 (April 5, 2016) "Why it's important for executors to report all estate assets"

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"