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Why is an Advance Directive so Important with Dementia?

The Roanoke Times advises in the recent article “What to do in absence of advance directive” to talk to an experienced elder care attorney to coordinate the necessary legal issues, when dementia may be at issue with a parent or other loved one. Next, ask your physician for a geriatric evaluation consultation for your loved one with a board-certified geriatrician and a referral to a social worker to assist in navigating the medical system.

It’s wise for anyone older than 55 to have an advance directive in place, should they become incapacitated, so a trusted agent can fulfill the patient’s wishes in a dignified manner. Think ahead and plan ahead.

As a family’s planning starts, the issue of competence must be defined. A diagnosis of Alzheimer’s disease doesn’t necessarily indicate incompetence or a lack of capacity. At this point, a patient still has the right to make a decision—despite family members disagreeing with it. A patient’s competency should be evaluated after a number of poor choices or an especially serious choice that puts a patient or others at risk.

An evaluation will determine the patient’s factual understanding of concepts, decision-making and cogent expression of choices, the possible consequences of their choices and reasoning of the decision’s pros and cons. Healthcare professionals make the final determination, and these results are provided to the court.

If a patient passes the evaluation, she is deemed to have the mental capacity to make choices on her own. If she cannot demonstrate competency, an attorney can petition the court for a competency hearing, after which a trustee may be appointed to oversee her affairs.

The time to address these types of issues is before the patient becomes incapacitated. The family should clearly define and explore the topics of living wills, advanced directive, estate planning and powers of attorney now with an experienced elder law attorney.

Taking these proactive actions can be one of the greatest gifts a person can bestow upon herself and her loved ones. It can give a family peace of mind. If you put an advance directive in place, it can provide that gift when it’s needed the most.

Reference: Roanoke Times (June 17, 2019) “What to do in absence of advance directive”

 

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The Decedent’s Debts: Who’s on First?

Estate planning attorneys are used to family members who, for some reason, determine that credit card bills need to be paid off first, when a loved one dies. It’s not the first of the Decedent’s debts to pay, advises The Mercury its article “There is a priority of debts when you die.”

In fact, credit card debt is unsecured debt. It is, therefore, on the bottom of a list of priorities in many states. Paying the Decedent’s debts is an important part of executor responsibilities, but there is an order to what debts must be paid first. If there are cash flow issues for the estate, this is critical information.

First, the funeral home, nursing home and unreimbursed medical bills should be paid within six months of the death, as well as administrative expenses. Administrative expenses include the cost of probate, which is filing the will and professional fees, including the attorney’s fees, executor’s fees, account fees for final tax returns, etc. Don’t ignore the funeral bill.

Nursing home and medical bills incurred within six months of death are also important to pay. If the executor believes the medical bill is to be paid by health insurance, Medicare or Medicaid, get this in writing. If Medicaid paid for care, there may be a claim under Estate Recovery. In Pennsylvania, the Department of Human Services; Third Party Recovery, could become a creditor of the estate, when a large asset like the home is sold.

This is a time when an attorney experienced in elder law and trusts and estates can help sort through what needs to be paid and when and where the money should come from.

There are times when an executor pays for administrative expenses or the cost of the funeral from their own pocket. Anyone who does this must maintain careful records and be sure to be repaid by the estate, after an estate account is established. That also applies for any expenses paid from a joint account with the decedent.

The responsibility of the executor is to pull together the assets that will pass through the will and the bills or Decedent’s debts that need to be paid, then to pay the Decedent’s debts, including taxes and expenses of probate, then distribute the remaining funds to beneficiaries, as directed by the will.

Some assets do not pass through the will, like joint bank accounts, payable on death and transfer on death accounts, life insurance and retirement funds. With the exception of life insurance, they may be subject to inheritance taxes, if the decedent’s state of residence has such a tax.

If there are not enough assets to pay the bills, states have lists of the order of distribution to pay Decedent’s debts. At the top of the list: costs of the administration of the estate and funeral expenses. Medical bills from the most recent six months are given higher priority than older medical bills. Credit card bills are at the bottom of the list.

Secured debt, like the mortgage on the house or a loan on a car need to be addressed. These may be sold to pay off the debt.

Executors or family members who are contacted by creditors demanding payment need to know whether they are responsible or not. An experienced estate planning attorney will be able to help you work your way through the Decedent’s debts and financial responsibilities of the decedent.

Reference: The Mercury (June 18, 2019) “There is a priority of debts when you die”

Decedent, Estate Planning, Creditors, Decedent’s Debts, Executor, Medicaid, Medicare, Funeral Expenses

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A Will, Power of Attorney and Health Care Power of Attorney: Three Documents Everyone Should Have

These three documents combined allow you to designate who you want to be responsible for your well- being, if you are unable to communicate to others on your own behalf and name who you want to receive your property. Having a will, power of attorney and health care power of attorney are the foundation of an estate plan and peace of mind, says the article “Simple steps to peace of mind” from the Traverse City Record Eagle.

If you die without a will, your state has a plan in place for you. However, you, or more correctly, your family, probably won’t like it. Your assets will be distributed according to the laws of inheritance, and people who you may not know or haven’t spoken to in years may end up inheriting your estate.

If your fate is to become incapacitated and you don’t have an estate plan, your family faces an entirely new set of challenges. Here’s what happened to one family:

A son contacted the financial advisor who had worked with the family for many years. He asked if the advisor had a power of attorney for his father. His mother had passed away two years ago, and his father had Alzheimer’s and wasn’t able to communicate or make decisions on his own behalf.

Five years ago, the financial advisor had recommended an estate planning attorney to the couple. The son called the attorney’s office and learned that his parents did make an appointment and met with the attorney about having these three documents created. However, they never moved forward with an estate plan.

The son had tried to talk with his parents over the years, but his father refused to discuss anything.

The son now had to hire that very same attorney to represent him in front of the probate court to be appointed as his father’s guardian and conservator. The son was appointed, but the court could just have easily appointed a complete stranger to these roles.

The son now has the power to help his father, but he will also have to report to the probate court every year to prove that his father’s well-being and finances are being handled properly. Having a will, power of attorney and medical power of attorney would have made this situation much easier for the family.

Guardianship is concerned with the person and his or her well-being. Conservatorship means a person has control over an individual’s financial matters and can make all decisions about property and assets.

There is a key difference between powers of attorney and conservatorship and guardianship. The person gets to name who they wish to have power of attorney. It’s someone who knows them, who they trust and they make the decision. With conservator and guardianship, it’s possible that someone you don’t know and who doesn’t know your family, holds all your legal rights.

A far better alternative is simply to meet with an estate planning attorney and have him create these three documents and whatever planning tools your situation calls for. Start by giving some thought to who you would want to be in charge of your life and your money, if you should become unable to manage your life by yourself. Then consider who you would want to have your various assets when you die. Take your notes with you to a meeting with an estate planning attorney, who will know what documents you need. Make sure to complete the process: signing all the completed documents, funding any trusts, retitling any accounts and finally, making sure your family knows where your documents are. This is a road to peace of mind, for you and your family.

Reference: Traverse City Record Eagle (June 23, 2019) “Simple steps to peace of mind

Will, Power of Attorney, Health Care Power of Attorney, Patient Advocate Designation, Incapacitated, Estate Plan, Intestacy

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Hard Talk from Suze Orman About ( LTC Policy ) Long-Term Care Insurance

Suze Orman offers unapologetically blunt advice about why you and your family might want to consider long-term care (LTC) insurance. Suze learned the hard way how much years of long-term care can cost through an experience in her family. She is convinced that, even with the problems the LTC policy industry has experienced over the years, you should take a look at this type of coverage. Here is a summary of some hard talk from Suze Orman about long-term care insurance.

A Two Million Dollar Mistake

Suze tried to get her mom to sign up for an LTC policy, when her mom was young enough to qualify. Suze offered to pay the premiums, but her mother refused to sign the application. For the last seven of her mom’s 97 years, Suze shelled out more than $20,000 a month for her mother’s assisted living and specialized aides. Thankfully, Suze could afford to drop more than $2 million on her mother’s care. Not many of the rest of us could afford this astronomical expense.

Suze knew how expensive long-term care can be, which is why she pleaded with her mother every year to let Suze buy LTC coverage for her. She saw people lose their life savings paying for home health care or the nursing home. It is particularly sad, when the expenses for one spouse gobble up the retirement savings, leaving the surviving spouse broke.

Do the Math

The premiums for LTC coverage have increased dramatically. A policy that initially cost $2,000 a year, might cost $4,000 a year now. Before you walk away from LTC coverage, think about what you get for that increase in premium.

Home health care will cost, on the average, $4,000 a month. Nursing homes can cost $8,000 a month or more. An entire year’s LTC premium costs only one month of home health care or two weeks of nursing home costs. The expense of living in a nursing home for one year is more than the total of all the premiums a person will ever pay for LTC coverage.

There is no logical reason to believe the cost of home health care or long-term care will decline over the coming decades, when you or your loved one might need these services. If you decide not to buy LTC insurance and just cross your fingers and hope for the best, you need to realize the costs you might have to pay out of your retirement savings could be significantly higher than the current average costs of home health care and nursing homes.

Of course, if the trends continue, the premiums will continue to increase. Suze recommends people only buy an LTC policy today, if they can easily continue to pay the premium if it increases by 40 percent over the coming years.

You should not buy an LTC policy if paying those premiums will mean you cannot afford to save money in your retirement accounts. LTC coverage only pays a benefit to people who need home health care, nursing home, or another form of covered long-term care. Your odds of living to retirement age are far greater than your odds of needing long-term care.

The general law of this article might differ from the regulations of this article. You should talk to an elder law attorney in your area about whether LTC insurance would be a wise addition to your estate planning. This article is not an attempt to sell LTC insurance or any other type of insurance.

References:

AARP. “Plan for Long-Term Care.” (accessed June 12, 2019) https://www.aarp.org/retirement/planning-for-retirement/info-2018/longterm-care-suze-orman.html

 

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What’s the Difference Between Capital Gains and a Dividend?
A shot of dollar bills hanging on clothesline

What’s the Difference Between Capital Gains and a Dividend?

Investopedia published an article that asks “Capital Gains vs. Dividend Income: What’s the Difference?” The article looks at the differences between capital gains and dividend income, and their tax implications.

Capital is the initial sum invested. A capital gain is a profit you get when an investment is sold for a higher price than the original purchase price. An investor doesn’t realize a gain, until an investment is sold for a profit.

On the other hand, dividends are assets paid out of the profits of a corporation to the stockholders. The dividends an investor receives aren’t gains. This is treated as income for that tax year.

A capital gain is the increase in the value of a capital asset—either an investment or real estate—that gives it a higher value than the purchase price. A capital loss happens, when there’s a decrease in the capital asset value as compared to the asset’s purchase price. There is no capital loss until the asset is sold at a discount.

A dividend is a “reward” or “bonus” that’s given to shareholders who’ve invested in a company’s equity. It is usually from the company’s net profits. Most profits are kept within the company as retained earnings, representing money to be used for ongoing and future business activities. However, the rest is often disbursed to shareholders as a dividend.

Taxes. Capital gains and dividends are taxed differently. Dividends are going to be either ordinary or qualified and taxed accordingly. However, gains are taxed based on whether they are seen as short-term or long-term holdings. A gains is deemed short-term, if the asset that was sold after being held for less than a year. Short-term capital-gains are taxed as ordinary income for the year. Assets held for more than a year before being sold, are considered long-term gains upon sale. The tax is on the net gains for the year. Net capital gains are calculated, by subtracting capital losses from capital gains for the year. For many, the tax rate for gains will be less than 15%.

Dividends are usually paid as cash. However, they can also be in the form of property or stock. Dividends can be ordinary or qualified. Ordinary dividends are taxable and must be declared as income, but qualified dividends are taxed at a lower capital gains rate. When a corporation returns capital to a shareholder, it’s not considered a dividend. It reduces the shareholder’s stock in the company. When a stock basis is reduced to zero through the return of capital, any non-dividend distribution is considered a gain and will be taxed as such.

Reference: Investopedia (April 11, 2019) “Capital Gains vs. Dividend Income: What’s the Difference?”

 

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What are the “Six L’s” of Small Business Planning?

Failing to conduct long-term personal planning can create a reality, where a business owner under-insures and underinvests outside her own companies.

Think Advisor’s recent article, “The 6 L’s of Small-Business Planning” says that a successful business essentially becomes a security blanket. That’s because business owners don’t adequately prepare for events that could change the course of their financial well-being. It’s critical to address the important events that can disrupt everything personal and business.

Liquidity: If a business owner has to write a big check for some unexpected repairs after a storm, the money must come from somewhere. Small businesses rarely have substantial liquidity, because so much of their capital is tied up in the company. Therefore, a line of credit is the most frequent solution for owners with this situation.  You should instead try to ensure that you have access to cash in the short term, if necessary.

Long-term disability: In many instances, business owners are the main contributors to their small company’s success. If they can’t work, the whole company can suffer. She should have a plan to protect against this scenario. First, it is important to identify who can step into a leadership role for a short time. If the disability is long term, examine the ways in which it might affect the company’s value and succession plan. You can purchase business overhead insurance or policies that offer income replacement. You can also create buy-out agreements, so key employees can buy out the disabled business owner.

Loss of life: In the event that an owner suddenly dies, you should have life insurance to fund a buy/sell plan. Without a plan, you may become forced to work with your deceased business partner’s spouse.

Long-term care: Baby boomers with business wealth may wonder what will happen if they need significant medical care, which is a legitimate concern. There’s an additional consideration: the elderly parents of business owners. If an owner steps away to help provide care for an ailing parent, the potential disruption to the company may be significant. Look at where the capital is going to come from, to offset the cost of long-term care for family members, because you don’t want a forced liquidation of business assets.

Longevity: Consider the impact to the company, if the owner has an unusually long life. This should include an examination of how that person’s role will change and who will succeed them through phases of potentially decreasing interest and capacity.

Legacy/legal: Look at what the business owner envisions as her legacy for the future. There are numerous types of trusts, gifts and legal vehicles can be used to help make certain that the business won’t be ruined by taxes, when ownership is passed to the next generation. Talk to an estate planning attorney about doing this the right way.

At each annual business review, review your plans to see if they can still be effective responses to the six Ls of small business planning.

Reference: Think Advisor (May 28, 2019) “The 6 L’s of Small-Business Planning”

 

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Will You Need Long-Term Care? Will Medicare Pay?

Many people will end up needing assistance to care for themselves, as they become elderly and that help may not be provided by their children. It might be wise to look into long-term care costs now, according to The Detroit News in “What to know about aging and long-term care costs.”

Here’s what often happens:

  • More than a third of seniors will need to stay in a nursing home, where the median annual cost of a private room has skyrocketed to more than $100,000.
  • Four out of 10 people will opt for paid care at home. The median annual cost of a home health aide is more than $50,000.
  • More than 50% of all seniors will incur some kind of long-term care costs, and 15% of those will incur more than $250,000 in costs, according to a study by Vanguard Research and Mercer Health and Benefits.

Medicare doesn’t pay for long-term care. Medicare does not cover what it terms “custodial” care. For most Americans, who have a median of $126,000 in retirement savings, that’s an immediate financial wipeout. They will end up on Medicaid, the government health program that pays for about half of all nursing home and custodial care.

Those who live alone, are in poor health, or have chronic conditions are more likely than others to need long term care. For women, there are special risks, since statistically women outlive husbands and may not have anyone to provide them with unpaid care.

Everyone approaching retirement needs a plan. The options are:

Long-term care insurance. The average annual premium for a 55-year-old couple was $3,050 in 2019. The older you are, the higher the cost, and if you have chronic conditions, you may not qualify.

Hybrid long-term care insurance. Life insurance or annuities with long-term care benefits now outsell traditional long-term care insurance by a rate of about four to one. This requires committing a large sum of money up front but is a way to obtain long-term care insurance.

Home equity. Selling a home to pay for nursing home care is not the best solution. However, it may be the only solution, particularly if it’s the only asset. Reverse mortgages may be an option.

Contingency reserve. A wealthy family with assets may simply earmark some assets for long-term care, setting aside a certain amount of money in an investment that can be liquidated without penalty.

Spending down to Medicaid. People with little or no retirement savings could end up depending on Medicaid. There are ways to protect assets for spouses, but it requires working with an elder law estate planning attorney in advance.

Reference: The Detroit News (June 10, 2019) “What to know about aging and long-term care costs”

 

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Graduation Over? Time to Consider Legal Documents for College

It is wonderful to bring up the children, make sure they are educated and see that 18th birthday come along. However, it is important to recognize that many things change from a legal standpoint and you may need legal documents for college, according to grbj.com in “Give your graduate the gift of legal documents.”

Here are recommended steps to take so parents can still be involved in their children’s lives when they are needed:

Health care proxy/medical power of attorney. Even if you are the person paying for health insurance, you are not legally permitted to make decisions on their behalf. Have your child sign a proxy/POA form designating who has the primary authority to make health decisions, if he or she is unable to do so. This is especially important when parents are divorced: both parents need to have the proper forms. Your estate planning attorney will be able to prepare these for you.

Durable power of attorney. If your child has signed a durable POA, you will be able to handle their financial matters, especially if your child becomes incapacitated.

HIPAA authorization. Medical providers may not disclose a patient’s medical status, unless they have legal permission. Your child should sign a HIPAA authorization with each of their providers, giving the parent access to all their information. This is especially necessary for a child with health or mental issues.

FERPA waivers. This one takes many parents by surprise. Even if you are the one paying for tuition and all college expenses, the college will not provide academic records, including grades and tuition bills, due to the Family Education Rights and Privacy Act. Contact the college and find out exactly what forms they need to be sure you have access to all of your children’s information, including any health and mental health treatment.

Wills and trusts. If a child has assets and no descendants, they need a will or revocable trust to protect the parent’s taxable estate and allow someone to manage these assets, if they die prematurely.

Medical records. Make sure the child has access to their medical records, including medications, allergies, immunizations, etc.

Insurance. See if the family’s medical, homeowner’s and auto insurance coverage extend to a child living away at school and in another state. If the child is renting a house or apartment, make sure they have renter’s insurance.

Proof of identity. Make sure the child has access to their passport, birth certificate or Social Security card so they can get an internship or a job.

Bank accounts and credit cards. If the family’s regular bank does not have a branch where the child is attending school, the parents should consider opening a basic checking account at a local branch. Both parents and child should be on the account.

Registration. It’s time to register to vote and sons will need to register with Selective Service.

Contact us to get these important documents before your child goes back to school.

Reference: grb.com (June 7, 2019) “Give your graduate the gift of legal documents.”

 

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Is My Spouse Responsible for My Car Lease When I Die?

A recent nj.com article asks “What happens to my car lease when I die?” According to the article, in New Jersey the laws are not on the side of the wife. She may be at the mercy of the car dealership and its financing company.

Remember that a vehicle lease is a contract, so if you’re the executor who’s managing the deceased person’s affairs, you should review the terms of the vehicle lease. In some instances, death may be classified as an “early termination” of the lease, and payment obligations may continue.

If there is a co-signer on the lease, such as the deceased’s spouse, he or she may be liable for future payments. If not, typically they’re likely to be the responsibility of the deceased’s estate.

In 2017, the New Jersey Assembly passed a bill that would permit early termination of an car lease upon the death of the lessee and prohibit the imposition of fees as a result. However, that piece of legislation didn’t make it out of the state Senate. There are plans to reintroduce the bill this session, but nothing has been done as of this date.

As a result, there is no law in New Jersey that keeps a car company from charging fees for early termination upon the death of the lessor.

While some car companies have policies allowing for early termination upon death, in many instances, because a lease is a contract, it continues. The deceased lessee’s estate is liable for making the payments. Therefore, if the written lease doesn’t have a clause dealing with early termination without fees, the lessee’s estate may be required to continue making the payments.

California and New York laws say the same thing: leasing companies can legally claim unpaid obligations from the estate of the deceased.

The car dealer isn’t required to, but it’s not unheard of for a sympathetic car company to be compassionate and just put the car up for sale, so actual losses would be minimal.

The executor should speak to an experienced estate planning attorney to see what options they might have in their specific situation.

Reference: nj.com (May 24, 2019) “What happens to my car lease when I die?”

 

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