When Should You Update Your Estate Plan?

How Often Do You Update Your Estate Plan? More Often Than Your Resume?

A resume is a “snapshot” of your experience, skill set, and education which provides prospective employers insight into who you are and how you will perform. Imagine not updating that resume for 5, 10, or even 15 years. Would it accurately reflect your professional abilities? Would it do what you want it to do? Likely not. Estate plans are similar in that they need to be updated on a regular basis to reflect changes in your life so they can do what you want them to do.

Outdated estate plans – like outdated resumes – simply don’t work.

Take a Moment to Reflect

Think back for a moment – think of all the changes in your life. What’s changed since you signed your will, trust, and other estate planning documents? If something has changed that affects you, your trusted helpers, or your beneficiaries, your estate plan probably needs to reflect that change.

Here are examples of changes that are significant enough to warrant an estate plan review and, likely, updates:

  • Birth
  • Adoption
  • Marriage
  • Divorce or separation
  • Death
  • Addictions
  • Incapacity/disability
  • Health challenges
  • Financial status changes – good or bad
  • Tax law changes
  • Move to a new state
  • Family circumstances changes – good or bad
  • Business circumstances changes – good or bad

Procrastination

With the end of the year fast approaching, call my office now to get your estate planning review on the calendar. If you’re like most people, if it’s on the calendar, you’ll make it happen. Just as you update your resume on a regular basis and just like you meet with the doctor, dentist, CPA, or financial advisor on a regular basis, you need to meet with me on a regular basis as well. I’ll make sure your estate plan reflects your current needs and those of the people you love. Updating is the best way to make sure your estate plan will actually do what you want it to do.

Warning: Don’t Let Creditors Inherit from You

Shocking to most people, the retirement account you leave for your spouse can be seized in a divorce, lawsuit, or bankruptcy.

3 Options Available To Surviving Spouses

When your surviving spouse inherits your IRA, he or she generally has three options:

  1. Cash out the inherited IRA and pay the income tax.

WARNING! The cashed-out IRA will not have creditor protection and accelerates taxation.

  1. Maintain the IRA as an inherited IRA.

WARNING! The inherited IRA will not have creditor protection.

  1. Roll over the inherited IRA and treat it as his or her own.

WARNING! This may offer some creditor protection; however, not in all cases.

It’s frustrating to many that a stranger can swoop in and take their hard earned money; fortunately, there’s a solution and that solution is a retirement trust.

Standalone Retirement Trusts Provide Protection

A Standalone Retirement Trust (SRT) is a special type of trust designed to be the beneficiary of your retirement accounts after you die. It can protect your assets from your beneficiary’s creditors.  In fact, we can include trust provisions which specifically benefit your spouse in situations such as:

  • Second marriages
  • Divorce
  • Lawsuits from car accidents, malpractice, or tenants
  • Business failure
  • Bankruptcy
  • Medicaid qualification

Want To Know More? 

The bottom line is that a properly drafted SRT is often your best option for protecting your retirement assets (and providing the bonus of tax-deferred growth). Want to know more?  Contact us today to schedule a conversation. We look forward to working with you.

Estate Planning: Benefits Open Enrollment

Estate Planning Considerations for Benefits Open Enrollment

The fall, generally late-October or early-November, is the time when employers send out summaries of employee benefits offered by the company and give employees the option to enroll in these benefits. These can generally include retirement plan options, health care, dental, vision, short and/or long-term disability, and life insurance coverage. Your employer may pay 100 percent of the premiums, split the costs with you, or you may have to pay all of the premiums yourself. Below are several considerations you should keep in mind once open enrollment begins, particularly as it relates to estate planning.

Benefits Explained

When considering any retirement plan offered through your employer such as a 401(k), 403(b), or 457 plan, you will need to consider: what percentage of income you choose to contribute and whether the contribution must be made pre-tax, after-tax, or to a Roth plan (if available). How much you can contribute, and whether pre- or post-tax, depends on your specific financial circumstances. Remember to also consider any “matching” contributions your employer may make since these contributions can help improve your overall retirement savings.

Healthcare benefits may include the ability to enroll in a Health Savings Account (HSA), in addition to enrolling in the usual healthcare, vision, and/or dental coverage. HSAs allow plan participants to set funds aside, tax-free, for health care costs.

Employer-provided life and disability insurance coverage will provide your beneficiary with a stated amount of money if you die while employed by your employer or become disabled. The coverage generally expires when you no longer work for that employer.

Perhaps the most important thing to do during your employer’s open enrollment period is to review the employer-provided benefit package to determine what should remain and what should be changed. If you do not understand the options being provided to you, contact human resources right away for more information.

Beneficiary Designations

While you are reviewing your benefit package, you should consider your beneficiary elections or those who will inherit these assets upon your death or incapacity. A primary beneficiary is the first to inherit. Should he or she pass before you, or with you, assets would then go to any secondary beneficiary you have designated. These are often referred to as contingent beneficiaries.

Even if you have previously enrolled, you must review your beneficiary designations on your employer-provided benefits to ensure they are still how you want them. Benefits that may require a beneficiary designation are life insurance policies, retirement accounts, health savings accounts (HSA), as well as disability insurance.

If there are any new providers for your employer-sponsored benefits, this means that the insurance company has changed. Keep in mind that your previously chosen beneficiaries, and possibly coverage, may not have carried over. It is always better to review these documents, even if you are not planning any changes.

Estate Planning Concerns

 If you are contemplating any changes to your beneficiaries, give me a call so I can ensure your beneficiary designations work as expected with your current estate plan or so I can properly prepare a plan that carries out your ultimate goals for you and your family. Once you have updated your beneficiaries, make sure to obtain written confirmation of this from your employer’s human resources department and share this information with me.  If you have any questions, please feel free to contact me. I am here to help.

How to Make Your Inheritance Last

How to Make Your Inheritance Last

A 2012 study by Ohio State researcher Jay Zagorsky found that about one-third of Americans who receive an inheritance have negative savings within two years of getting their money, and of those who receive $100,000 or more, nearly one in five spend, donate or simply lose it all.  If you are about to receive an inheritance, there are several steps you can take to insure your funds will last longer than a few years.

Don’t Make Any Hasty Decisions.  Once you receive your money, don’t make any hasty decisions about what to do with it.  Instead, park the funds in a safe place such as a savings account, money market, or CD until you have had enough time to put together a long term financial plan.  If you don’t already have one, set up an emergency fund that will cover six months of expenses.  If you already have an emergency fund, consider adding to it to cover one year of expenses.  If you are married, you will need to decide early on if you want to keep your inheritance in your separate name or place the funds in joint names with your spouse.  If you are considering giving some of your inheritance to your children, you could invoke a gift tax or negative income tax consequences and should only proceed with gifting once you understand all of the consequences.

Still Working?  Put Away More Towards Your Retirement.  If you are working and are not contributing the maximum to your 401(k), bump up your withholding, particularly if you are not meeting your employer’s match.  If your employer does not offer a 401(k), start funding an IRA.  Note that if you have inherited a traditional IRA, any withdrawals you make will be included in your taxable income.  You can minimize the income tax consequences by only taking required distributions and leaving the balance invested inside of the inherited IRA.

Hire a Team of Professional Advisors.  You will need a team of professionals to help you develop long term plans for your inheritance.  A financial advisor will help analyze your current finances and build a solid financial foundation to include investment advice, insurance (life, long term care, and liability), credit and debt management, college savings, and retirement planning.  Your advisor can also help you look into the future and plan for long term financial goals, such as purchasing a first or second home or starting a charitable foundation.  An accountant will help you determine cash flow and minimize capital gains and other income taxes.  An estate planning attorney will help you create or update your estate plan (everyone needs a will, revocable trust, advance medical directive and durable power of attorney), decrease or eliminate estate taxes (federal and/or state), set up a gifting strategy, meet your charitable goals, create a family legacy, and protect your inheritance from creditors, predators, and lawsuits.

If your inheritance is large enough, it has the potential to last your lifetime.  Don’t go it alone.  I am here to answer any questions you have about receiving, growing, donating, protecting and ultimately passing on your inheritance to your loved ones.

Inheritor’s Trusts

Introduction

An inheritance is a blessing. It can enable you to start a new business, send your children to college or buy your dream home. Sadly, most families lose their wealth by the second generation. Therefore, it is important to tell your estate planner if you are expecting an inheritance. One way an estate planner can help you protect an inheritance is by using an inheritor’s trust.

What is an Inheritor’s Trust?

When it comes to estate planning there are several types of tools you can use, depending on your circumstances. One such estate planning tool is the trust. There are numerous types of trusts aimed at fulfilling different estate planning purposes. If you are anticipating an inheritance, there is a special type of trust designed to help protect it: an inheritor’s trust.

Purpose of an Inheritor’s Trust

An inheritor’s trust is a trust that has been established for the purpose of receiving a beneficiary’s inheritance in a way that is protected legally and financially. In order to fulfill its intended purpose, an inheritor’s trust must be set up in a way that follows numerous tax and legal rules. Virtually every state in the country forbids what is referred to as a “self-settled trust.” A self-settled trust is an irrevocable trust established by an individual, for his or her own benefit, with the intent to protect the trust assets from creditors. Therefore, once you receive an inheritance, it is very challenging to protect the inheritance assets yourself. Luckily, the inheritor’s trust provides an option for people expecting an inheritance.

Inheritor’s Trust Explained

If you are expecting an inheritance from a loved one, and he or she is unwilling or unable to leave your inheritance in a trust, you can protect these new assets with an inheritor’s trust. However, because you cannot set up the trust yourself because of the “self-settled trust” rule discussed earlier, you will need to work with your loved one to establish the trust. Instead of receiving the inheritance outright, the trust will be the recipient of the inheritance. The trust will typically include a spendthrift clause to protect against creditors, a more drawn out distribution schedule, or provisions granting only discretionary distributions to you. Once the trust has been drafted, your loved one will need to sign the instrument as the creator (grantor) but you will be the beneficiary.

There are several benefits to an inheritor’s trust:

  • The inheritance can be excluded from your taxable estate potentially saving your family estate taxes;
  • The trust can be a more cost effective way to protect the assets instead of your loved one revising their existing plans;
  • Upon your death, the inheritance will be distributed outside of your probate estate which can help ensure privacy and lower attorneys fees and administration costs;
  • The inheritance will be protected from creditors, lawsuits, and divorcing spouses;
  • In some circumstances, the inheritance can even be controlled and managed by you, as a trustee; and
  • You can decide how remaining trust assets will be distributed after you pass away if the trust gives you that power.

An inheritor’s trust is a sophisticated, but powerful estate planning tool. It is ideal for anyone who is to receive a substantial, outright inheritance that may need additional asset and tax protection.

Consult with an Estate Planning Professional

Estate planning can be complicated, but it is essential in protecting yourself and your loved one’s financial future. If you expect to receive an outright inheritance and desire to maintain control, gain superb asset protection, and use all possible avenues to avoid estate and transfer taxes, an inheritor’s trust may be right for you. Give me a call today to learn about whether this estate planning tool is an option for you.

FAQs – Expecting an Inheritance

In my previous post, I explained why receiving an inheritance changes your estate plan (read here). Today, I will address some frequently asked questions regarding inheritances.

Frequently Asked Questions

Should I tell my estate planner I’m expecting an inheritance?

Yes. While some people are hesitant to count their chickens before they hatch, looping your estate planner into your full financial picture is the best way to prepare for whatever the future may hold. By planning ahead, you can help ensure that whatever is left to you will be protected and able to be enjoyed for years to come. With all of the emotions that surround the passing of a loved one, you’ll be able to focus on grieving and the administration process, without having the additional worries of how you will handle your finances.

What will happen to my plan if I don’t actually receive the inheritance?

If you expected to a receive an inheritance and ultimately do not, your financial and estate plans can be revised to take the change into account. I like to think of estate planning as a process rather than a one-time event. Your plan must evolve over time to ensure a continued management of the assets you have, not just the ones you had when the plan was originally prepared.

How do I ask my family if I’m getting an inheritance?

Money can be a taboo subject in some families. Broaching this subject with your family may be difficult and uncomfortable, but it is necessary.  Start the conversation during a relatively stress-free time rather than springing it on a family member during the chaotic holiday season or before a big family celebration.

Instead of focusing solely on what you are to receive as your inheritance, you can discuss it as part of a larger conversation regarding your loved ones’ future plans for their health and overall well-being. You can begin by inquiring as to what type of planning they have already done. Have they designated agents under Financial or Medical Powers of Attorney to act on their behalf should they become incapacitated? Do they have a living will in place to assist with end-of-life decisions? While planning for an inheritance may be your main focus, this conversation can help ensure that your loved one is protected as well.

Why Receiving An Inheritance Changes Your Estate Plan

Why Receiving an Inheritance Changes Your Estate Plan

Receiving an inheritance is a huge blessing but, if not handled properly, can also become a curse. Often times, the inheritor does not know what to do with the new asset and runs into financial trouble, squandering most, if not all of it. This could happen due to the inheritor having outstanding creditor issues or tax troubles or being inexperienced with managing the new assets. No matter what the financial obstacles maybe, estate planning can help address or even eliminate these issues. For these reasons, it is vital to update your estate plan – or create one if you have not already – if you have received or are expecting to receive an inheritance.

How Inheritances Affect Estate Plans

An inheritance will likely change your assets in a major way, which may result in a change in your tax and financial planning needs. An inheritance may also increase your exposure to lawsuits since people are more likely to seek out the “deep pockets” in a lawsuit. If your inheritance is the first time you have invested or have had substantial assets, an estate plan can set up safeguards to both manage and protect your wealth. If you already have an estate plan in place, it is critical to update it so that the plan incorporates your recent inheritance. The presence of more assets may require a revision in order to make sure that your intentions are properly carried out. This is particularly true if you have a blended family, have changed from a non-taxable to a taxable estate because the value of your assets is now over $11 million, or if your original estate plans involved utilizing a charitable strategy. Putting your inheritance to work – whether it be for short-term or long-term financial goals – will help you avoid wasting your inheritance.

Preserving Your Family’s Wealth

Another important reason to re-evaluate your estate planning when you receive an inheritance is to preserve your family’s wealth. Unfortunately, statistics on wealth preservation across generations are grim. Studies estimate that 70 percent of wealthy families lose their wealth by the second generation, and 90 percent lose it by the third. One common reason for these surprising statistics is the lack of communication among generations. Needless to say, proactive steps are necessary to preserve wealth for the long-term. Families fail to discuss this important topic because money can be a taboo topic to discuss openly, the older generations fear that the younger generations will become lazy and entitled if they are made aware of their inheritance too soon, or they fear their private financial information will be leaked to those who should not have the information. But, if your family is open, honest, and everyone plans properly, your family does not have to see its collective fortune evaporate within a couple generations. Estate planning can provide the foundation to ensure assets continue to be managed properly and are preserved instead of dissipated. Proper planning can also make wealth a part of the family legacy instead of a burden or societal ill.

Seek Professional Advice

An inheritance can be used up faster than you would think, but proper planning can reduce this risk. If you have received an inheritance – or expect to receive one in the near future – it is vital that you seek out financial and legal advice. Give us a call to schedule an appointment so we can discuss your options to help preserve your family legacy.

Medicaid Asset Protection Trusts

Introduction – The Emerging Field of Elder Law

As an estate planning and elder law attorney, one of my goals is to educate folks on how to get the benefits they are entitled to without wiping out all of their assets. According to the U.S. Department of Health and Human Services, someone who is 65 years old today has nearly a 70% chance of needing long-term care. In Oklahoma last year, the average cost of a semi-private room in a nursing home exceeded $53,000.

Given the above figures, even those with significant means could struggle to pay for a nursing home. Enter Medicaid. Medicaid is a government program designed to help with the costs of long-term care. This is a great tool to have in one’s toolbox. But there is a caveat: Medicaid has strict asset requirements. Although exceptions exist, married couples can generally keep only about half of their money. The situation is even more dire for single individuals, who are limited to $2,000. Fortunately, there is a way to protect assets and at the same time qualify for these vital benefits. It’s called a Medicaid Asset Protection Trust.

What is a Medicaid Asset Protection Trust?

A Medicaid Asset Protection Trust (MAPT) is a special type of irrevocable trust. Unlike a revocable living trust, the grantor cannot terminate or cancel a MAPT. For this reason, some people shy away from it. Nevertheless, a MAPT is more flexible than it might first appear. That’s because the grantor controls the trustee designation. In short, the grantor can appoint a trustee of their choosing, and can change that trustee at any time. What’s more, while the principal of the MAPT is unavailable to the grantor, the grantor and the grantor’s spouse can receive all of the income generated by the MAPT. For example, let’s say the MAPT owns a portfolio of stocks and bonds valued at $200,000. The grantor is prohibited from cashing out the investments, yet can be paid all of the dividends and interest on them.

Conclusion – Advance Estate Planning is Best

A MAPT is a great way to ensure one can pass down an inheritance to family and loved ones regardless of whether they require long-term care during their lifetimes. The catch is that to be fully effective, a MAPT must be in place for at least 5 years before the grantor applies for Medicaid. This makes advance planning imperative. Consequently, I encourage anyone who is concerned about dealing with the costs of long-term care to contact an estate planning and elder law attorney today.

Estate Planning: What Makes Me Different?

Doesn’t Every Attorney Do Estate Planning?

Let’s face it: many attorneys do estate planning. At least they claim to. Coupled with the emergence of companies like LegalZoom, there’s no shortage of options for the consumer. However, estate planning is much more than pieces of paper.

Promote Your Values and Increase Family Harmony

At the end of the day, I think we all want to be remembered. I certainly do. How can estate planning help with this?

When done right, estate planning enables clients to promote their personal values. Be it the importance of hard work, entrepreneurship and investment or charitable giving, we can specifically tailor your estate plan to carry on your values long after you are gone. Importantly, your estate plan can encourage your loved ones to do the same.

Estate planning can also increase family harmony. Normally, we think of estates causing discord in families. While this unfortunately happens, it does not always have to be the case. The key is to leave no stone unturned.

Good Estate Planning Requires a Process and System

I work my hardest to provide every client with individualized representation. I do not believe in one-size-fits-all estate plans. I know that all of my clients are human beings. I know that each of my clients has their own unique goals, wishes and fears. However, good estate planning requires a process and a system. What’s mine?

  • I am a member of the WealthCounsel and ElderCounsel, which are nationwide organizations dedicated to excellence in the fields of estate planning and elder law;
  • Comprehensive information gathering;
  • Robust drafting software for top-of-the-line documents;
  • Instructions regarding trust funding; and
  • A closing “Legacy Interview”, in which the client puts the estate plan into their own words

Your Life. Your Legacy. My Passion.

Your Life. Your Legacy. My Passion. Yes, it is a slogan. But I take it to heart. I try to live out my motto every single day. For me, the greatest joy is seeing the sense of relief and peace of mind my clients have in knowing that their family will be taken care of and their legacy will be protected.

Medicaid: Protect Your House

Introduction – Protecting Your Home From Medicaid

Previously, we discussed what Medicaid covers and the financial eligibility requirements. Today, I want to get a bit more specific. In particular, I am going to discuss the largest asset most people own: their home. Depending upon the circumstances, the primary residence can present significant problems as it relates to Medicaid. Fortunately, however, there are planning techniques available to address these issues.

The Home Is Exempt From Medicaid…At Least Initially

Under the Oklahoma Medicaid rules, an applicant’s primary residence up to $572,000 is exempt. This means that so long as a Medicaid applicant’s home is valued at less than that amount, it will not be counted when determining the applicant’s eligibility for long-term care benefits. Consequently, the home is not initially a concern for most people who need Medicaid.

But Medicaid Won’t Let You Have Your Cake And Eat It Too

While the primary residence is exempt for purposes of the initial Medicaid application, a couple different things can happen once the individual is a nursing or assisted living facility. First, the home may lose its exemption. The Oklahoma Medicaid rules provide that the primary residence loses its exemption (and becomes a countable resource) if the individual receiving long-term care cannot return home after a period of 12 months. What happens then? Either the home must be sold and the proceeds spent down or the Oklahoma Health Care Authority places a lien on the property.

How To Protect The Family Home From Medicaid

For many families, the home is worth so much more than its market price. The memories, the history, even the struggle…these are all things that cause a home to have sentimental value. The last thing a family dealing with Alzheimer’s disease or another incapacitating illness needs is to lose their home. What can you do?

The best course of action is to plan in advance. Irrevocable trusts are one option. These are special types of trusts designed to shield the home from the expenses of long-term care. Another possibility is special insurance products that pay a portion of the daily cost of a nursing or assisted living facility.

But what if you do not plan in advance? The techniques mentioned above are either unavailable or have limited effectiveness. In such situations, the use of life estates, annuities and promissory notes or family transfers might be prudent.

Conclusion – Talk To An Elder Law Attorney About Medicaid

By now, you hopefully know that the Medicaid rules are very complex. If you or a loved one are faced with the prospect of needing Medicaid to pay for long-term care, you should consult with an elder law attorney. Elder law attorneys specialize in issues affecting older adults, like Medicaid. While it may seem that nothing can be done and your family is going to lose everything, this does not always have to be the case.

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