Michigan Estate Planning Blog

Myths Vs. Reality – Appointing Guardians For Minors

Estate Planning can be a pretty off-putting subject for many people. And, since the subject matter is one’s own death, it’s easy to understand why. Sometimes, however, it may be easier to just think about estate planning in terms of money or assets. Nevertheless, the issues that are worth planning for are often more immediate. For example, every parent has a good reason to nail down the issue of guardianship for their minor children. To that end, Jacoba Urist at the Huffington Post recently put together the four dangerous myths about choosing a guardian: 1. The myth of the perfect match. What would the perfect match look like? Someone just like you, presumably (and you personally, in a perfect world.) Nevertheless, it’s a convenient myth for putting off any decision and getting any planning done. Remember: You can always name a new guardian as your child grows or as circumstances change. 2. The myth that someone will step up and solve the issue anyway. While it may be true that your family members will swoop in, that doesn’t mean they will all agree on who ought to do so (or that the family members you would want to will even be able). It can mean a family fight and, in that case, the one who actually chooses is the judge. 3. The myth that you can just leave a letter hidden somewhere. Many parents write a letter asking a loved one to become guardian and then tuck it away so that it can be found if the need should arise. Although that’s better than nothing, it’s not legally binding. 4. The myth that you don’t have to ask. If you don’t ask you’ll never know how your guardian feels about your decision. Deciding this issue in advance can help your family and your children in a difficult time. Take a look at the original article here, and maybe consider if you’re holding yourself back from making a decision. Often, proper planning begins in one place and spreads out into an entire plan, so perhaps this is how you come to find your plans and your priorities.

Reference:  The Huffington Post (October 24, 2011) “4 Dangerous Myths About Choosing a Guardian”

Old Age Costs Rising

Are you planning for your old age or perhaps the old age of a loved one? If yes, then you know that such planning is all about getting a handle on healthcare. Unfortunately, the most recent study from MetLife indicates that the costs for long-term care and assisted living are rising at an even faster rate than in previous years despite the weak economy. According to the MetLife study: • The national average daily rate for a private room in a nursing home rose 4.4% from $229 in 2010 to $239 in 2011. • The national average monthly base rate in an assisted living community rose 5.6% from $3,293 in 2010 to $3,477 in 2011. • The national average daily rate for adult day services rose 4.5% from $67 in 2010 to $70 in 2011. • The national average hourly rates for home health aides ($21) and homemakers ($19) were unchanged from 2010. Businessweek offers some coverage of the development, along with the words of the director of the MetLife Mature Market Institute, Sandra Timmermann. According to Timmermann, “The state of the economy, combined with rising health-care and energy costs, are having a significant impact on long-term care rates.” Indeed, even though MetLife is the largest life insurer in the U.S., it also has discontinued its long-term care insurance policies for these very reasons. Likewise, the CLASS Act (the first public-option long-term care insurance) recently shut down. In the end, this is rather grim news for those planning for their old age or an elder loved one.

Reference:  Businessweek (October 26, 2011) “Long-Term Care Costs Rise at Faster Pace, Metlife Says”

Pet Trusts Provide Peace of Mind

The four-legged members of a household (or two-legged, or conceivable even eight, as the case may be) are undoubtedly special members in any home. Accordingly, proper planning ought to address them as well. Whatever the size of your pet and whatever the size of your family, it’s simply not always enough to leave these matters for your heirs to figure out. After all, the well-being of your animal (i.e., your friend and companion) is at stake and so it’s worth considering legal devices to provide for them, such as a pet trust. In a way, the idea of a “pet trust” is a natural one and yet it’s also not always common. Deborah Jacobs recently tackled the subject over at Forbes and her article certainly is worth a look. In its basic formula, a pet trust is like any other trust in its formation, however, it is designed to take care of the member of the family that can’t take care of itself (nor speak to which home it will move to upon its owner’s passing). While that can be meaningful for many pet-owners, there also is reason for the elderly to pay special attention to the prospect, as another article over at the New Old Age Blog points out, here. For the elderly, especially, a pet can be an incredibly important family member and one for whom planning can be all the more important. Why? The pet may outlive its owner. In the end, a pet trust may afford important protection and care for the pet, as well as peace of mind to the owner.

Reference: Forbes (February 14, 2012) “If You Love Your Dog (Or Cat Or Gerbil), Read This” and The New York Times – The New Old Age Blog (February 3,2012) “The Pet Problem”

Reasons for Going “Offshore” With Your Accounts

Offshore accounts have been in the news recently and not without reason. For one thing, the IRS has been gunning for foreign accounts for some time. It just doesn’t like them. Likely, you have seen a discussion (or two… or three) of the topic in connection with Mitt Romney and his use of such accounts. The truth is that such accounts are not all illegal or unpatriotic, and indeed, might just be a good idea. If you’re interested, there are a few ideas to be gleaned from a recent article through SmartMoney regarding offshore accounts. Is the real reason tax minimization? Not always. The article suggests that taxes truly aren’t the sole motivation. Although it should be said that there are advantages, even though the U.S. government still thinks it’s owed a piece on everything you own internationally. For one thing, an offshore account has a measure of “jurisdictional safety,” or more simply put, the U.S. courts have a harder time seizing your assets to satisfy litigation against you. Whatever the reason, it’s a growing trend. One more offshore and growing trend: expatriation. As pointed out in a recent Forbes article, the rate of expatriation has soared 16% in 2011 over 2010. In many ways, the use of offshore accounts and some form of expatriation work together. One thing they do share is that neither is easy and both involve further layers of taxation (like the government would allow such an easy out). If it is something worth thinking about – say if there are foreign and golden sands in your retirement future - it’s worth planning now, especially in light of global politics.

Forbes (February 14, 2012) “Celebrity Leavings: Bidding Stars Adieu”

IRS Changes Its “Power Of Attorney” Rule for Spouses

The IRS makes little changes all the time and while not all such changes are life threatening (or estate plan threatening, as is more likely) the devil is often in the details. In the interest of tracking changes, then, it’s worth noting that the IRS is changing its filing practices for power of attorney. As pointed out here in the Journal of Accountancy, the IRS will no longer be accepting the old version of form 2848 and will only be accepting the new version that has been available since October 2011. What’s interesting is that while the old form allowed a husband and wife who filed a joint tax return to also jointly file for power of attorney, the new procedure doesn’t allow this. Now, such couples will have to file their power of attorney documents “separately,” even if they file for the same individual and even if they file taxes jointly. This won’t affect couples who have already filed, and only marks a turning point in a certain kind of filing; that is to say that it seems minor at best. Nevertheless, this change means that the IRS is working to acknowledge spouses separately (at least to a certain extent). For estate planners it has to mean the opposite; that couples will have to work ever more intently together as a partnership. Is this a trend that will continue in all aspects? Further, it may also be worth thinking about whether this is how you and your spouse plan (or ought to plan).

Reference: The Journal of Accountancy (February 6, 2012) “Couples who filed joint returns must now file separate powers of attorney”

“Stretch IRAs” in The Taxman’s Crosshairs

For all the bills, budget proposals, and political fury raging over Capitol Hill these days, it’s strange to think that one of the more far-reaching changes may come from a funding proposal for a transportation bill. That’s right, but it’s a big transportation bill. As Reuters reported here, the Senate Finance Committee has been considering action that would severely limit inherited IRA’s. A lot of people stash fairly large sums into their nest-egg accounts and work to keep that money safe. They do this rather than spend it because, in the worst case, tax-advantaged dollars would be nice in a pinch. In the best case it offers a fairly convenient way of giving excess assets to your heirs at a tax advantage. There are a number of rules in that regard that I’ve discussed here in the past, but in short, heirs generally have the choice between taking a lump sum or stretching out the withdrawal in a pattern similar to required minimum withdrawals (RMDs). The latter alternative, called a “stretch” IRA, is on the chopping block. The proposal would limit the life of such “stretch” IRAs by placing a five year limit on liquidations of such accounts. It’s “financing” to the Senate because that forces an awful lot of money to be taken out and taxed within a short time span. It’s financial security for the inheriting taxpayer, on the other hand, but this proposal would limit the ultimate potential of these accounts to accrue over time and then limit the leeway of the inheritor to have even withdrawals over a longer period. It might not go anywhere. Regardless, keep your eyes on this because it’s made its way to the table and therefore we might see it reappear into any number of budget discussions. Unfortunately, too, in order to make it work Congress would grandfather old IRAs into it, so that means an awful lot of inheritors have something to think about for the future. Read more in the original article, and others like it.

Reference: Reuters (February 14, 2012) “ ‘Stretch’ IRA tax shelter on the chopping block”

Obama Budget… And Estate Planning Consequences

As you are likely to have heard, President Obama unveiled his budget proposal not too long ago and it packs a wallop. We are living an era of fierce partisanship, and election season hasn’t exactly put a damper on that. As a result, the media and the critics have been quick to pounce on a number of points, to include accusations that the President’s proposal is mere election-season partisanship. That media din aside, it truly is an important proposal to understand, especially when you are planning your estate. Why? Because you can at least attempt to hedge your bets against political tides, if not also plan for what may become law. Fortunately, there are a few straightforward analyses of the proposal from an estate planning perspective, like this one from the Wills, Trusts & Estates Professor (and the second part, here). Here are a few topics to whet your appetite: Wealth Transfer Taxes: The proposed budget would permanently roll back the Estate, Gift, and Generation-Skipping Transfer (GST) taxes to their 2009 levels. The exemptions and rates would remain unified and “portability” between spouses of unused exemptions would also become permanent. However, that means going back to an exemption amount of $3.5 million and a taxation rate of 45%, thereby saving us from the possible default of falling to 2001 levels (a $1 million exemption at a 55% rate), but still representing a serious hike from the current exemptions and rate (at $5 million and 35%, respectively). Grantor Trusts: Grantor trusts, and grantor retained annuity trusts (GRATs) in particular, get some special attention. For GRATs, the proposal calls for longer “minimum” terms, with 10 years as the minimum. For those of you familiar with the device, you know this makes the prospect inherently more risky, since you have to “outlive” the term of the GRAT before transfer of the trust assets. There’s more to GRATs, but even with Grantor trusts in general the proposal is intended to beef up transfer taxes. Why? Because, as a class of trusts, they have been so useful for disseminating wealth. Those are two of the bigger – and to a certain extent, less nuanced topics – but it ought be clear that there are myriad changes in the works (also see the changes regarding “valuation”) and you are well-advised to stay tuned and keep informed. It is politics, of course, and not yet actual law. On the other hand, it can help you understand the evolving debate and your own estate plans. If these changes were to become law, the impact would expansive.

Reference: Wills, Trusts & Estates Prof Blog (February 15, 2012) “Obama’s Budget Proposal Part 1” and “Obama’s Budget Proposal Part 2”

Checking Out Charities

Giving charitably can be a tough thing. You want to make sure your money goes as far as it can. A lot of donors choose smaller charities with less overhead to help ensure their money is used as intended and to the fullest extent. However, if you’re thinking small, it’s worth ‘digging deeper’, and not just into your pockets. No, dig deep into the charity and make sure it is as you want it to be. The good thing about a large charity is that it’s fairly well established. For example, it has the power to complete its goals and likely it has a history that is readily examinable. The reason not to give to a big charity is that your money also will go towards funding all the bureaucracy and red-tape that have made the charity big in the first place. This can mean few dollars actually advance the charitable cause. Conversely, smaller charities can be more efficient, but may lack those same assurances, unless you’ve done your research. Depending on your charity of choice, the local history might indicate the effectiveness of the charity. As to its value, you always can check its progress against its mission statement. What are they trying to accomplish? Do they know? How do they do so? In addition, don’t be too bashful to ask “who’s in charge” and what they do with the donations? To help guide you through the process, try various services like the Charity Navigator ratings system, or GuideStar to determine how charities use their funds. In the end, giving to a smaller charity may be that much more rewarding, and with all your research you might end up giving your time, too. Indeed, work first-hand can be a good way of learning and for giving back as well. Heading into the Holiday season, with Thanksgiving at our doorstep and carolers not far behind, it’s as good a time as any to start your research and your charitable donations.

Medicaid Misunderstandings Costly

When an elderly person is ready for the nursing home, some families are entirely understanding, in agreement, and financially able. As a result, the transition happens smoothly. Unfortunately, for a far larger number of families and elderly persons, some trip to the hospital will happen in between and may even immediately precipitate the transition to nursing home care. If that’s the case, then there are important hospital and Medicare policies of which you should be forewarned. Enter “observation care” which can make for a big bill upfront and even far bigger ones down the line. According to a recent article in the Wall Street Journal, and their sources at the Medicare Rights Foundation, the number of “observation hours” has been steadily growing for years. Tragically, such observation hours count as “outpatient services,” even if the service lasts for several days (as it sometimes does with the elderly) and Medicare pays for inpatient and outpatients services in entirely different ways. As you likely know, Medicare Part A pays for inpatient bills, so those are usually taken care of, but Medicare part B is what takes care of outpatient services. And those services can add up to a far greater cost. It’s often vital to know the distinction between the two types of services from the hospital, and yet it’s also fairly difficult. Medicare advises to simply ask, but then there are certain documents such as the “Important Message from Medicare” which accompanies inpatient care, but not outpatient. Still, the hospital can switch with little to no notice. It’s actually even more important than the size of the immediate bill. Medicare will only pay for nursing home expenses if the person was admitted inpatient at a hospital for at least three days, excluding the discharge day. For so many families that’s the sole reason why it takes a hospital visit to arrange for the transition to nursing home care in the first place, but if you are put under observation or other so-called “outpatient” care, and without your notice, it can literally mean thousands of dollars out-of-pocket down the line. Bottom line: It all hinges on hospital practice and Medicare definitions.

Reference: The Wall Street Journal (February 5, 2012) “Check Hospital Tab”

Trusts – Better Robust Than Bust

Trusts are like pocket knives, in a way. Even a fairly basic pocket knife can make your life immensely easier, especially in a pinch, but a particularly well built and expansive pocket knife is an actual survival tool. When it comes to trusts, however, why settle for a basic trust when a robust trust can provide essential protection for your loved ones? While surfing my news sources I discovered yet another, renewed, lesson in the robust set of provisions that can be crafted into a single trust, here. In addition, this article illustrates the difficult space between divorce and the trust, and that’s one more area where a robust trust can make all the difference. Depending on how you’ve structured it, a trust can last for varying lengths of time and offer the beneficiary/child various ways of accessing those funds. You might use this to teach lessons, for example, but don’t forget that you’re not always planning for the budding child but also the future adult. Unfortunately, that future adult may have creditors who could attempt an attack on the trust funds. More likely, however, is that a divorce and an ex-spouse will come into play, perhaps also children and child-support. How the courts treat your trust depends on numerous factors best considered at the formation and worthy of your consideration at that time. For more ideas (and at least one promising court case) read the original article. In the end, as with so many planning devices, everything hinges entirely on you, your family, and your unique circumstances.

Reference: Financial Planning Magazine (February 1, 2012) “Trust, But Verify”

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