Add to Your Estate Plan with Life Insurance

Add to Your Estate Plan with Life Insurance

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Grieving loved ones should not need to inherit assets only to find they are not accessible for cash expenditures they will be responsible for after you pass away. Most retirees’ assets are in homeownership and retirement accounts, requiring a sale to get cash. Life insurance can provide the liquidity needed when managing and distributing your estate assets. Your policies can address final expenses, estate taxes, business ownership, estate equalization, probate, and special purposes depending on your circumstances and the number of assets at hand.

Final Expenses

The average funeral cost in the US is nearly $8000 and somewhat less with cremation. The price becomes even greater when adding a burial plot, vault, or headstone. Even without a funeral service, cremation ranges between $1,000 and $10,000, depending on location, with the average around $4,000.

Some debts of the decedent will become part of the estate’s responsibility. These debts can reduce the remaining assets for your heirs, requiring a cash payout. Creditors may present the estate with outstanding bills and even litigate for payment.

State and federal final income taxes are a requirement. The government will seek payment of any back taxes in addition to those taxes owed in the year in which you die. Life insurance death benefits can help address these final expenses, helping meet the estate’s obligations.

Estate Taxes

The size of the estate affects the state and federal inheritance taxes that may be due. How much and at what rate is a shifting target of late. As thresholds change, so too should efficient tax planning for your legacy. Beneficiaries receive life insurance death benefits tax-free. With the right guidance, these proceeds can be used to offset inheritance taxes and avoid selling estate assets to cover tax obligations.

Business Ownership

If you own a business or are a co-owner, your passing may present substantial challenges for continuing the business, affecting family or business partners. Many start-ups and partnerships establish plans to address these eventualities, often in a buy-sell agreement. This contract outlines how a departing partner or founder’s business shares will be reassigned to other stakeholders or sold. Life insurance is often the financial product employed to fund such an agreement.

Estate Equalization

In the case of multiple heirs, assets often do not divide up easily or equally. For example, a vacation home worth $600,000 may be local and desirable to one heir, while the other two heirs live far away and have no interest in the property. To compensate those heirs who do not want to co-own the property, the heir wishing to retain the property must cash them out $200,000 each. This situation can quickly create a family rift.

As part of an estate plan, life insurance can fill the gap and equalize inheritance among heirs. In this case, one heir would get the property outright, while the other two would receive death benefit proceeds to compensate for their portion of the property value.

Probate Avoidance

Probate court oversees the settlement and distribution of a decedent’s assets. It can be a lengthy, involved, and expensive process even when a general estate plan and will are in place. Life insurance proceeds bypass probate when going to the named beneficiary.

Unlike a public probate process, the payment remains private and tax-free to the beneficiary. Be aware that life insurance death benefits may still be subject to estate tax if the insured had “incidents of ownership” when they died.

Special Purposes: Child Support, Divorce, and More

A life insurance policy earmarked for special purposes can address divorce obligations like child or spousal support. Death benefit proceeds may go to the continuation of support of a loved one like a minor child with special needs or an elderly family member.

Mainly these types of direct purpose policies are part of an established trust. Assets like life insurance policies are held in the trust on behalf of a beneficiary and under the supervision of a trustee to meet obligations providing long-range monetary support in a substantially funded trust.

Your estate planning attorney can identify which trust type will suit your needs. Personal circumstances and goals help define which trust will work best regarding probate, taxes, and more.

Life insurance death benefits can solve many liquidity problems that arise in the dissolution of an estate. These proceeds are typically not subject to income taxes and have uses as wide and varied as the circumstances and goals of the individual creating their estate plan. We can advise how to use life insurance properly to serve your beneficiaries. Please contact our Ruston, LA office by calling us at (318) 255-1760.

April: Parkinson's Awareness Month

April: Parkinson’s Awareness Month

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Importance of the Month of April

In the month of April each year, the global Parkinson’s community engages to support awareness of Parkinson’s disease (PD), a disease whose cause remains largely unknown although treatment options exist. The goal of raising awareness can help make lives better for people with Parkinson’s disease. It  generates ideas to improve care, educate, and fundraise to help advance research toward finding a cure.

Effectively, Parkinson’s is a disease where nerve cells that normally deliver the neurotransmitter dopamine to other cells experience a reduction in numbers. The more cell death spreads to larger areas of the brain, the greater the body is affected. Symptoms of Parkinson’s typically develop slowly throughout the years. With symptom progressions varying from person to person because of the diversity of the disease. The neurodegenerative disorder can manifest itself through tremors, bradykinesia (slowness of movement), limb rigidity, and gait and balance problems. Dopamine reduction can also produce nonmotor symptoms, often preceding a PD diagnosis. These symptoms can include REM sleep behavioral disorder, automatic dysfunction, depressions, visual impairment, and attention deficit. Even reduced sense of smell, and difficulties planning and acting on ordinary tasks. Parkinson’s disease is not in itself fatal; however, disease complications can be serious.

The PD Foundation website has offerings by state. Local impact, education, and support are hallmarks of the foundation’s work. Individuals can plug in their zip code on the website Parkinson’s Foundation in your area for their closest PD chapter to become involved. Whether your interest is in exercise classes, therapy services, research trials, or caregiving support, visiting a local PD website in any state can point you in the direction you need.

Important Research

California’s large and diverse population makes it an ideal state to study and expand our understanding of Parkinson’s disease. The state’s Department of Health has a chronic disease surveillance and research branch (CDSRB) that collects data to measure PD’s incidence and prevalence. This research brings awareness to the disease through the California Parkinson’s Disease Registry. Statistics about how the disease is distributed among different population groups and whether the disease patterns are changing over time may lead to insights about PD about which we know surprisingly little.

In 2021, about one million people live with Parkinson’s disease, with approximately 600,000 receiving a PD diagnosis each year, with men 1.5 times more likely to have Parkinson’s than women. Estimates are that direct and indirect costs of Parkinson’s include treatment, lost income, and social security payments accounts.  For nearly 52 billion in US expenditure annually. Just the medication averages about 2,500 dollars per year. The cost of therapeutic surgery can be upwards of 100,000 dollars per individual.

The terms incidence (new cases arising in a population over a given time) and prevalence (a measure of all individuals affected by the disease at a particular time) are often cited when discussing who suffers from Parkinson’s disease. Does prevalence vary by study, population group, and geography? Statistics generated by studying larger and more diverse populations can address these questions. Considering the last major prevalence study was in 1978, Parkinson’s disease studies are long overdue.

The statistics matter as the Parkinson’s Foundation continues to attract state and federal government and the pharmaceutical industry. To address the urgent, growing need to understand and hopefully prevent PD. As a nation, we need to understand better who develops Parkinson’s and why. Much of the research focuses on ways to identify PD biomarkers, leading to earlier diagnosis and tailored treatments to slow down the disease process. While all current therapies can slow the process and improve symptoms, they do not slow or halt the disease progression. Idiopathic Parkinson’s disease progression tends to be variable and slow, making research all the more difficult, particularly when comorbidities are present.

Bringing Awareness and Help

On social media platforms and other online forums such as Facebook, Twitter, YouTube, Instagram, Reddit, Linkedin, WhatsApp, and more, use #KnowMorePD for this April’s Parkinson’s Awareness theme. Help to promote the foundation’s campaign cross-platform. The goal is to have conversations among loved ones, family, friends, neighbors, care teams, and the community. It will lead to more education, action, funding, and understanding of Parkinson’s disease.

If you or a loved one has been diagnosed with Parkinsons’ disease there are a number of ways we can help. For example, we can create a comprehensive legal plan. To make sure you or your loved one has the proper documents in place. To cover care decisions, financial decisions, and what to do in the event of a disability. We welcome the opportunity to speak with you in a confidential setting to determine how we might help. Please contact our Ruston, LA office at (318) 255-1760 to schedule an appointment.

The Financial Toll of Elder Care in America

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To age well and securely in America is expensive on every level. The financial toll for millions of the elderly and those families who do their best to care for and support them. Long-term care facilities and retirement communities cost staggering amounts of money, as do the high costs of premiums to maintain a long-term care insurance policy. The truth is the US long-term care system is both underfunded and not well matched to the expectations of the older adults trying to thrive within it. There exists a crisis in care and a crisis in conscience within this country’s social safety net.

What is the Causes of the High-Cost of Elder Care?

The reasons are many and create a confluence that spells financial disaster for many in America.

  • The aging baby boomers who increasingly require more care
  • Workforce shortages or limitations (COVID-19) in healthcare or Long Term Services and Supports (LTSS) systems
  • Federal and state efforts to segue responsibilities to home and community-based services and family rather than improving social safety net policies
  • Increasing numbers of Americans identifying themselves as caregivers
  • The insurance projections that underfunded the costs of long-term care decades ago
  • Fewer workers paying into the system

More than three in four people, or seventy-seven percent, according to the American Association of Retired Persons (AARP), agree with the following statement “I’d really like to remain in my community for as long as possible.” Indeed, the majority of aging Americans want to do so in their own homes.

Studies show much of the caregiving provided is family-driven. Like paid caregivers, their work is often unnoticed, under-discussed, and unappreciated. It can have devastating consequences on their retirement planning, affecting the next generations of their family and perpetuate this problem cycle. Vox reports the most recent data from AARP, which constitutes 41.8 million people or 16.8 percent of the US population, are currently caregiving for an adult of 50 years or more. A full 28 percent of these care providers have stopped saving money, 23 percent are accumulating more debt, 22 percent have depleted their short-term savings, and 11 percent report being unable to fund basic needs, including food.

The Dilemmas of the Caregiver System in America

The more significant belief that caregiving is a “family responsibility” permeates the US consciousness. And politicians and policymakers who promote this mindset remain unable to redress the shocking costs of eldercare, thus imposing the caregiver reality upon family systems. By extension, many family caregivers’ labor is characterized as something done out of instinct or love, devaluing the complex, primarily unpaid work.

This devaluation of caregiver labor exists for paid caregivers in institutional settings, leading to paychecks that do not constitute a living wage and shortages of caregivers, often women, particularly women of color. Low and stagnant wages continue even as demand skyrockets because many home health workers were not designated as “essential” during the pandemic. Also, the moment a more lucrative opportunity presents itself, and the worker is gone. With new COVID-19 variants on the horizon, the need for caregivers will remain high while their valuation remains low.

Outside of those people providing this elder care, the difficulties remain largely invisible. There are fewer resources than ever chasing the needs of millions. Impoverished Americans with less than 2,000 dollars qualifying them for Medicaid find that with 80 million documented low-income Americans, waiting lists for home care assistance has an average wait time of more than three years. What happens if they have no family to rely on during this waiting period?

As demand for care continues to rise for the increasingly older and infirmed population, the supply of private institutional care is prohibitively expensive, and care within families is substantially contracting with smaller and more widespread family systems overall. Existing social policies are not meeting the needs. Aging in the American landscape needs political reimagining to protect families and stop subverting grievances and social responsibilities to those caregiving workers (paid and unpaid) least likely to thrive providing this care. It is essential to preserve the dignity and care of our older generations and those providing this care. It is incumbent upon the US government to identify the ways to do so affordably.

Please call our Ruston office at 318-255-1760 if you need assistance in planning for yourself or a loved one.

Living Alone in Your 50’s and 60’s Means a Greater Risk of Dementia

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Living situations for aging Americans are decidedly leaning towards aging in place. Nearly all older adults prefer to age in the comfort of their long time homes and familiar community surroundings. Aging in place often means living alone. Pew Research findings show that older people are more likely to live alone in the United States than in any other country worldwide. This preference of living solo, however, comes with hidden danger. Research from Science Times reports that living alone in your fifties and sixties increases the likelihood of dementia by thirty percent.

The conclusion drawn is based on a report from sciencedirect.com, a website replete with large databases of scientific, academic, and medical research. Findings indicate that social isolation is a more important risk factor for dementia than previously identified. In this age of gray divorce (also grey divorce) and social distancing due to the coronavirus pandemic, adults living alone in their fifties, sixties and beyond, are at greater risk than ever for cognitive decline, leading to dementia.

Understanding the Causes of Dementia Cases

The lead author of the study, Dr. Roopal Desai, says that overall increases in dementia cases worldwide can be due to loneliness, stress, and the lack of cognitive stimulation that living alone brings. Biologically, cognitive stimulation is necessary to maintain neural connections, which in turn healthily keep a brain functioning. Staying socially interactive is as important to cognitive health as staying physically and mentally active.

Strategies for Seniors Living Alone

Health care professionals in the U.S. are implementing a “social prescribing” strategy to improve the connection of a patient who lives alone to a prescribed range of services like community groups, personal training, art classes, counseling, and more. Unfortunately, in the days of COVID-19 social prescribing is limited to virtual connections between people. However, virtual social engagement is better than no social engagement at all.

Why can’t an adult, choosing to age alone, maintain their health with physical exercise, crossword puzzles, and other activities that stimulate their brains without the input of human socialization? It turns out that social isolation presents a greater risk for dementia than physical inactivity, diabetes, hypertension, and obesity. Brain stimulation is vastly different when a person engages in a conversation rather than in repetitive games and puzzles. Carrying on a conversation, whether in person or virtually, is far more stimulating and challenging to the brain’s regions.

Conversation with other people chemically evokes neurotransmitters and hormones, which translates into increased feelings of happiness and reduced stress through purpose, belonging, improved self-worth, and confidence. It turns out that being human is undeniably an experience at its most healthy when shared, and a mentally healthy person is prone to stay more cognitively capable.

The Importance of Human Connection to Decrease Dementia

Maintaining this human connection can be challenging, particularly if you are one of the many Americans who are opting to age in place. In the first place, aging is replete with reasons to reduce activity and become isolated when facing particular types of stressful events common to later life years. Role changes associated with spousal bereavement through death or divorce, household management, social planning, driving, and flexibility all fall prey to functional and cognitive limitations. Without the benefit of an involved family or social prescription, it is easy for an aging adult to spiral into social isolation, loneliness, and depression, all of which are causally linked to cognitive decline.

If you or your aging loved one actively chooses to live alone, it is imperative to maintain a vibrant social life. Staying cognitively healthy is associated to satisfying social engagement as well as physical activity. If you live alone, reducing the risk of developing dementia will allow you to continue living out your years as imagined, with independence and control, thanks to your continued human interactions.

If you have concerns about your current living arrangements (or those of a loved one who needs care), please reach out. We help families create comprehensive legal plans that cover care and financial concerns. We’d be honored to speak with you. Please contact our Ruston, LA office at (318) 255-1760. We are happy to help.

 

Are You Considering Having Your Loved One Needing Care Live With You?

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Aging in place continues to increase in popularity, but what should you do when you notice an older loved one is having trouble living safely at home? Troublesome signs like a dirty home in poor repair, unpaid bills, piles of mail, and food out of date or spoiled in the kitchen, poor personal hygiene, and trouble managing medications are all warning signs that your senior is struggling. When visiting, you may notice a loss of weight, disoriented behavior, or lonely and depressive behaviors. When these signs reveal themselves to you, it is time for your older relative to move in with you or into some senior living community where the situation is safer.

Even before the pandemic, polls began showing a shift to the living trend of a century ago, when most seniors lived with their adult children in a multi-generational house. The American Association of Retired Persons (AARP) reports that older parents are moving in with their adult children and comprising a larger component of shared living than a generation ago. AARP states, “Today, 14 percent of adults living in someone else’s household are a parent of the household head, up from 7 percent in 1995.” And with many Americans now working from home, keeping a watchful eye over a parent is easier than ever.

If you consider moving your loved one into your home, there are several things to consider before making a move. For example, you might think the idea is fantastic, but how will it affect other current household members, spouses, or children? Does everyone get along, or will you be importing conflict? Are your lifestyles compatible regarding quiet hours, entertaining guests? Is smoking a habit of someones that needs consideration? Is your home big enough, or will someone have to give up their room?

Is your home suitable for the needs of your loved one? Can they be housed on a single floor without having to use stairs? Can your parent bring their familiar belongings and furniture with them? Perhaps it is feasible to create a “mother-in-law” apartment with a separate entrance or invest in a backyard cottage, the so-called granny pod. If they reside in your active home, what modifications can you make to create a safer environment? Things like night lights, the removal of area rugs, or adding grab bars in the shower or an additional handrail on the stairs can make big safety differences.

Who will be tasked to help your parent? The fact that your parent now lives with you should not mean you are at their service all of the time. Many well-meaning adult children make this mistake. At the outset of living together, a parent is usually fairly self-sufficient. Still, in time they will require more, and if you do not begin your living experiment employing outside help, you will fall into a trap where your time is no longer your own. Share tasks with other family members and make them do their part. Find local senior support services and check out professional in-home care to ensure your loved one becomes accustomed to others providing support to them.

If not in your home, where will your loved one go? Living in a family multi-generational home isn’t for everyone. Your parent might prefer “shared-living” adults living under the same roof but not romantically involved, a sort of roommate experience. Or perhaps a retirement community with defined living stages, from independent to assisted, and full-time care. Many families find living together can save money but not necessarily sanity and look to house their parents out of direct living contact. Talk it out as a family. Even if the conversation is difficult to have, it is better than responding to a catastrophic fall or illness, forcing a change of housing for your parent.

Find out how your aging loved one feels about the next step when they will no longer be able to live alone. Your parent’s thoughts may surprise you. It can help to speak with an elder attorney to address issues that invariably present themselves. If your parent sells their home, how will they handle the profit? Should you want a monthly living expense contribution? Can you claim your parent as a dependent on your tax return? Your parent may no longer have to pay bills but may have other assets and policies to manage; who will handle asset management and premium payments? Goodwill goes a long way to a successful living arrangement but so does preparedness. Having pre-set a structure to address issues will allow you to focus on enjoying your time with your loved one.

If you have questions or would like to discuss your personal situation, please contact our Ruston, LA office by calling us at (318) 255-1760.

Obtaining Guardianship (Interdiction) of an Elderly Parent

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Frequently, guardianship brings to mind images of a minor child in the care of a designated adult family member or friend. However, you can employ the process to obtain legal rights over elderly or aging adults, usually parents, who are losing their physical and mental health capacities. While the process is similar, there are some distinct differences when considering guardianship of an elder parent. Very careful consideration is necessary to determine if guardianship in all of its complexities is the route to take to best protect your aging loved one. In Louisiana, a guardianship is called an interdiction. The guardian is called either the Curator or Curatrix. For the purposes of this blog post, the terms will be used interchangeably.

In the absence of a power of medical attorney and power of attorney previously put in place by your parent, guardianship begins with obtaining a physician’s certificate or doctor’s letter. This letter will state the elder parent cannot care for themselves, perform activities of daily living, or make rational decisions. These letters are form, statewide documents that a doctor completes attesting to the patient’s physical ability and mental acuity.

If your parent already struggles with cognitive decline, be prepared that they may not willingly submit to this type of evaluation. Alzheimer’s, other forms of dementia, and paranoia usually create resistance for patients to agree to evaluation. To keep the process moving forward may require a court to order the aging parent to get the examination. This is very stressful and should only be attempted as a last resort.

This moment in time is difficult for an aging parent who may not see their decline. Often, a trigger for adult children to begin guardianship consideration is an aging parent’s determination to continue driving when they are in no condition to operate a vehicle safely. There are other determiners, but all of them point to a parent’s loss of control and independence over their lives. Be prepared that many will fight to retain their independence. Because the interdiction strips the parent of his or her rights, it is very difficult to obtain, as Louisiana law sets a very high burden on the person pushing for the interdiction. The court is bound by law to make any interdiction judgment as least restrictive as possible.

The court proceedings will determine whether you are fit to become a guardian.  Certain things, such as a felony conviction,  may disqualify you.

Notifications to the proposed interdict and certain members of their family relatives are required. Certain family members and other interested parties with the legal right to know about the petition for guardianship must receive notification of the application filing.

Less restrictive alternatives to guardianships do exist.

  • Power of Attorney – grants a person the right to make financial decisions if you become incapacitated. This legal document is usually done by the elderly parent when they put together their estate planning documents.
  • Medical Power of Attorney – grants a person responsible for all health and medical-related decisions of the incapacitated person.

Naming these power of attorney representatives is a personal decision that does not require court involvement. They are more cost-effective than the interdiction process and permit your aging parent a bit more control over who takes care of them. Other less restrictive alternatives to guardianship exist and are situational dependent upon your loved one. In the absence of feasible alternatives, it may well be guardianship is the best solution for your loved one.

When you file for an interdiction, the court usually appoints an attorney to represent the proposed interdict, your loved one. They will represent the proposed interdict as though hired to do so even though they are court-appointed. The attorney’s job is to do what their client, the proposed interdict, wants and to report to the court his or her findings.

Elderly interdiction / guardianship can be a very effective tool to protect your aging parent who is no longer physically or mentally up to the job of self-care. Whether  guardianship is right for your family system requires consultation with an experienced guardianship / interdiction attorney. There may be more cost-effective methods for you to achieve similar goals of elderly parent protection. When parents create their estate plan, proactive family involvement can often lead to simplified solutions. Still, there are times when interdiction is necessary and appropriate for the welfare of your aging parent.  For assistance,  contact our Ruston, LA office by calling us at (318) 255-1760.

Tools for Special Needs Planning

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Third-party special needs trusts (sometimes referred to as supplemental needs trusts) are planning tools for those parents of children with mental/physical disabilities and the elderly. This type of trust will receive assets from you or another benefactor expressly for that person with a disability.

Goals include:

  • leaving funds for your child’s or elderly family member’s benefit without causing the loss of the public benefits
  • ensuring these funds are well managed
  • ensuring other family members are not overburdened caring for a disabled sibling or older adult and that the task falls relatively evenly among siblings or family members
  • fair asset distribution of your estate among your disabled child or older adults and your other children
  • ensuring there is enough money to meet the needs of your disabled child or adult

Often parents will leave additional assets to siblings and nothing to the disabled child or older adult in the hope that the sibling will adequately manage the money while retaining government benefits and providing overall care and decision making for the special needs person. This tactic is not the wisest of approaches for several reasons. Government programs are often more supplemental aid to a disabled person than a complete solution. Without monies set up correctly in a trust, public benefits programs are most often inadequate. Also, what is working well today, may change tomorrow as public benefits programs and individual circumstances change. Finally, relying on other children to care for the special needs family member puts an undue burden on them, potentially straining family relations. Resentments can build, and sometimes decision-making is not in the best interest of the special needs family member.

Understanding the SECURE Act for Special Needs Planning

The Setting Every Community Up for Retirement Enhancement (SECURE) Act became effective as of January 1, 2020. This Act affects special needs planning both to third-party supplemental needs trusts and first-party special needs trusts.

SECURE Act does not change the goal or general planning method related to children or adults with a disability and planning with retirement assets. The preferred method is a properly drafted third-party special needs trust with a qualified designated beneficiary (particularly an accumulation trust). This trust provides asset management that retains public benefits and provides a lifetime stretch of a traditional retirement account or IRA benefits for the trust beneficiary.

The bad news about the SECURE Act is the new ten-year payout of retirement assets after the account owner’s death resulting in accelerating income tax taxation on the retirement assets. Only a qualified EDB, eligible designated beneficiary, can take advantage of a longer than ten-year payout rule. Therefore unless an exception applies, traditional accounts or IRAs are to be paid out within ten years to the designated beneficiary or within five years if there is no designated beneficiary.

The EDB is a new class of beneficiaries and is an exception category for individuals still permitted to use a lifetime payout. Qualifying EDBs under SECURE are:

  • Surviving spouse
  • Minor children of the participant
  • Disabled beneficiaries
  • Chronically ill individuals
  • A beneficiary less than ten years younger than the participant

These exceptions permit the lifetime payout, resulting in less income tax realized by the distributions of retirement assets, as long as the beneficiary’s life expectancy is no longer than the default ten-year rule under SECURE.

There are still unanswered questions about SECURE. Can remainder beneficiaries of an adequately drafted third party special needs trust be disregarded when determining the applicable distribution period for an EDB during the EDBs lifetime? If an EDB is a minor, can proof of an additional EDB category such as disability or chronic illness be provided before the expiration of the rules related to minors so that the EDB status can continue past minor status?  Said another way, can a trust for minors as a beneficiary continue without losing EDB status and requiring the ten-year payout? Finally, is it permissible to certify disability by eligibility for Supplemental Security Income (SSI), Social Security Disability Benefits (SSDI), or long-term care Medicaid, or separate disability certification process such as exists for ABLE accounts?

The Value of Working with an Elder Law Attorney When Engaging in Special Needs Planning

To understand the answers to these questions and more, contact your elder law estate planning attorney with expertise in special needs. They can help you map out benefits that can include SSDI, Medicare, Medicaid, food stamps, and more, taking into account the needs of your particular child and the services they may require throughout their life and the associated costs.

Your attorney can also help you identify a circle of support that is available to your child. Are siblings able to help? Who is the best choice as trustee for a special needs trust? This individual will have sole discretion to disburse funds for the well-being of your special needs child and is a critical designation. Your attorney should have strong ties with therapists, care managers, and other service providers in your community that can address upcoming issues that may be unknown to you. Taking the first steps towards long-term special needs planning is the best way to ensure your loved one with disabilities can remain socially and financially secure. Contact our Ruston, LA office at (318) 255-1760 for assistance.

There are Recent Tax Law Changes That May Impact Your Estate Plan

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Tax law change proposals may have significant impacts on estate transfer strategies if they are enacted into law. While it is too early to know what will become law, the House Ways & Means Committee tax plan draft indicates that change is coming soon. While new details emerge and changes are made to the proposals over the coming weeks, it is critical to understand how these possible tax changes may affect your estate planning.

What are the Major Proposed Changes that Impact Estate Planning?

One of the most significant changes to affect estate planning is that as of January 1, 2022, the federal estate and gift tax exemption is facing a reduction from $11.7 million to approximately $6 million. Ambitious budget and spending proposals require additional sources of revenue. While technically not yet a law, there is little doubt, per the Congressional Budget Office, that this particular estate and gift exemptions will become law. This near certainty provides a small window for individuals to make full use of their 2021 permissible exemption.

Other major change proposals include grantor trusts which may not have until December 31, 2021, to take full advantage of existing planning opportunities. For decades grantor trusts permitted the grantor to be individually liable for income taxes on earned income, yet the grantor trust remained excluded from the grantor’s taxable estate. If the proposed changes take effect, there will be an elimination of grantor’s trusts in estate gift planning.

Under the current rules, existing grantor trusts are exempt from the law change proposal (grandfathered) with one significant limitation. A gift pre-existing proposed grantor trust law change will be exempt; however, the portion attributable post-act contribution is under the new rules. Therefore that new rule portion is included in the grantor’s taxable estate. Grantor trusts include life insurance trusts. Therefore, pre-funding this trust type with enough cash to pay premiums for several years to ensure its exemption status is required to remain outside the taxable estate. Execution and funding must happen before enacting the proposal to take full advantage of existing grantor trust laws.

Finally, the proposal regulations upend rules regarding the sale of appreciated assets by a grantor to their grantor trust. Today, this action is not an income tax recognition event. The proposal act, however, would deem such a sale as being between unrelated parties. This change means the sale to a grantor trust becomes an income tax recognition event to the grantor. Typically, assets sold to grantor trusts have substantial gains already built-in. Therefore the strategy to sell to a grantor trust largely disappears with the change proposal enactment, and not even losses could have recognition upon such a sale.

Valuation rules such as discounts on ownership interests in passive assets face elimination. Any individual wishing to claim a valuation discount on a gift of interest of an entity must complete the gift before enacting the proposed legislation. Again, the window of opportunity for claiming these types of valuation discounts may close, even long before December 31, 2021.

Understanding Proposed Changes to Tax income Rules

Tax income rules are also under scrutiny and ripe for change. A new surcharge proposal of three percent of a trust’s modified adjusted gross income or an estate above $100,000 is likely to enact into law. Realizing income gains in 2021 rather than 2022 can help to preserve your wealth.

Also, expect individual and capital gains and dividends tax rate increases. Individual tax rates may increase from 37 to 39.6 percent, and the income level threshold for these higher rates will decrease. The current level for higher-income taxpayers’ capital gains will change from 23.8 percent to as high as 31.8 percent. Part of these taxes includes a three percent surtax applying to high-income individuals, estates, and trusts.

The current draft legislation does not propose eliminating the step-up in basis at death or implement a carryover basis at death, nor transfers of lifetime gifts (other than sales to a grantor trust, see above) or upon the death of an income tax realization event. The legislation does not propose setting a minimum term for grantor retained annuity trusts or eliminating zeroed out grantor retained annuity trusts. Nor does the draft legislation increase the estate tax rate from forty percent or create a progressive estate tax rate structure, limit the annual exclusion to trusts or gifts, and finally will not create new limitations on the use of dynasty trusts.

The recently unveiled Build Back Better Act has the possibility of implementing wide-sweeping changes to the US tax code and has drastic impacts on commonly used estate planning techniques. Whether you have an existing estate plan or need to create one, speak with an elder law estate attorney today to understand how these proposed changes may affect your existing or future estate plans. For assistance,  contact our Ruston, LA office by calling us at (318) 255-1760.

Five Mistakes You May be Making in Your Estate Planning

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You spend the first half of your adult life trying to achieve financial security and the second half of your life trying to keep that security. This adage is why many people spend substantial time and effort maximizing their legacy goals in their estate plan, ensuring their wishes come to pass. Your life’s work and ability to provide for your family provide a gratifying feeling for you and your heirs. However, your careful planning can go awry when last-minute changes become part of the mix, often guided by advice from well-meaning family and friends but not a professional estate planning attorney.

There are five common errors that people make that will upend your estate planning:

 

Leaving money to someone while you are alive but not changing your will. Frequently people include cash gifts in their will. For instance, a favorite nephew may inherit $50,000, a childhood friend $100,000, even a housekeeper may receive $10,000 for loyal service. It is quite common when family members meet after a loved one has passed to hear that the deceased has already gifted these particular cash amounts.

The mistake is that the gift is given, yet your will continues to reflect the named individual should be given what has already been received. In the absence of an updated will reflecting the gift, the probate process will still award the individual named the cash amount or, in essence, an additional gift. While some recipients will approach the gift during their lifetime as an advancement on inheritance, others may not agree, and the argument may wind up in court.

Insufficient assets are funding your trust. You may have created your trust years ago, and its assets may have decreased in value and be insufficient to cover the costs of all the gifts associated with your trust. Your good intentions in creating the trust can evaporate, leaving some inheritors short-changed or receiving nothing at all without proper management and preservation of the trust’s assets.

It is good to remember the rule that cash gifts get paid first. For example, if you leave your sister one million dollars and the rest in trust to your children, and you die with assets totaling $1,100,000, your sister will receive her cash outright while only $100,000 will remain in trust for your children. If there is no cash to fund the trust, the trust provisions are zero-sum, and the unlucky heir will have to learn of the unfortunate circumstances.

All assets do not pass through your will. Your estate division is primarily likely to be probate and non-probate assets. Just because you believe your assets’ aggregate is enough to satisfy your gifting, not all assets will pass through the will. You must understand the difference between probate and non-probate assets. Non-probate assets often pass as a beneficiary designation outside of a will. Also, consider the need to deduct any outstanding debts, expenses, and taxes in the valuation of your assets.

You are adding a joint owner of accounts or real estate. Joint ownership seems a simple solution bypassing excessive planning; however, adding a joint owner can create serious problems in Louisiana.  Louisiana is not a joint tenancy state, so the other person on the account does not necessarily gain ownership. Adding a “joint owner” will often lead to will contests and even prolonged court battles, so be sure your estate planning attorney agrees that the option of joint ownership is a sound one in your particular situation.

Changes to your beneficiary designations. If you make changes to your beneficiaries without speaking to your estate planning attorney, you can create all sorts of unintended results. This situation is particularly true in the case of life insurance. For instance, the policy can pay your trust in order to meet bequests, shelter money from estate taxes, or pay those taxes. However, if you change the beneficiary, you will have to designate the money elsewhere to cover the existing bequests and estate taxes. In another case, if you have a retirement account payable to an individual inheritor but you change the beneficiary to your trust, you may create adverse income tax consequences.

These are just five of the more commonplace mistakes that can occur in your estate plan. Sadly, there are many others, and so caution and professional legal advice are crucial. While it is essential to review your estate planning documents regularly and perhaps make changes, it is imperative to do so under the advice of your attorney. What may seem like a harmless amendment or change may create unintended tax consequences, cut someone out of receiving an inheritance, or worse yet, set into motion a lengthy court battle that harms family relationships. Reviewing your estate planning documents with your attorney will ensure that your desired changes will address your new need without negatively impacting your overall intentions. Contact our Ruston, LA office by calling us at (318) 255-1760 or schedule an appointment to discuss how we can help with estate planning for you or your loved ones.

Understanding Medicaid Gifts and Penalties

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Medicaid is a federal/state program which assists low-income seniors with limited income and assets afford healthcare and long-term care. Many seniors believe their only option to qualify for the program is to “spend down” their assets. While this is true in some cases, proactive Medicaid planning can protect a substantial portion of your assets if done correctly.  The program’s eligibility rules are complicated, as is the application process, so it is best to navigate the process with a specialized Medicaid planning elder law attorney well before you need to tap the benefits.

The general rule is that anyone gifting assets within five years of applying for Medicaid is likely subject to a penalty, making them ineligible for this funded care. This review of past financial history is called the look-back period. The imposition of this penalty is to stop those who transfer their assets without receiving fair value in return. In essence, you cannot gift most of your assets to your children on Wednesday to qualify for Medicaid long-term care on Thursday.

A Medicaid penalty period addresses those individuals who would otherwise be Medicaid eligible but do not pass the five-year look-back rule. Medicaid arrives at the penalty period by dividing the transferred amount by the average private pay cost of a nursing home in your state. The penalty period begins when the person making the transfer either moves into a nursing home, spends down to asset limits for Medicaid eligibility, applies for Medicaid coverage, or has coverage approval excepting for the transfer. There is no limit to the length of a penalty period.

Congress created a significant loophole regarding the transfer penalty for those individuals planning for future Medicaid to help fund their long-term care. Medicaid may revoke the penalty if the transferred asset is returned in full, or the penalty will receive a reduction if the transferred asset is partially returned. This situation is dependent on your resident state as some do not permit partial returns, only giving credit for the total return of assets transferred.

Although it is preferable to address your long-term care planning far in advance of your care requirement, there are still some strategies to employ that avoid spending all of your assets. If you are in a state that permits partial asset return, your elder law attorney can leverage this rule to preserve some of your assets using “half a loaf” strategies. If a Medicaid applicant has excess assets and must spend down to reach the typical $2,000 asset limit, they may be able to preserve some assets as follows:

Gift and cure: If you live in a state that participates in Medicaid partial refunds, this strategy sees the nursing home resident transfer all of their funds to their children or other family members and applies for Medicaid and receives a long period of ineligibility. After the application submission, the children, or whomever, return half of the assets transferred in effect, “curing” half of the ineligibility period. This strategy provides the nursing home resident with the needed funding for care until the remaining penalty period expires, thus receiving Medicaid funding.

Annuity: Using this strategy, depending on the circumstances,  nursing home resident gives roughly half of their assets to their children or other family members and uses the remaining money to purchase a special type of annuity. The majority of states do not consider an annuity purchase as a transfer that makes the buyer ineligible for Medicaid. However, there are many restrictions on this strategy, so it should be done through an elder law attorney.

Remember, not all gifts will trigger Medicaid penalties. For instance, there is never a penalty for gifts given between spouses. This exemption exists because Medicaid combines both spouses’ assets when counting the assets of a spouse who applies for Medicaid long-term care. The law states there is no reason to impose a penalty on such a transfer as a gift between spouses.

There is a child caregiver exemption where an adult child enables you to delay moving into a nursing home, thus allowing the transfer of your home into their name for less than fair market value (essentially free) without resulting in a penalty. This exemption is permissible even when a senior applies for Medicaid within the five-year look-back period.

Another exception to the general rules of eligibility is the creation and funding of a trust for a child who is disabled under the rules of the Social Security Administration. No matter how large the gift, no penalty will ever be attached.

Always seek professional legal advice when creating your long-term care strategy using Medicaid. Applications are rarely successful as a do-it-yourself project, and mistakes can have devastating long-term consequences on a family and their finances. Begin early, well before you anticipate needing long-term care. Become well-informed as best you can and contact a Medicaid specialist elder law attorney to guide you through the application process.  For assistance with your Medicaid planning needs,  contact our Ruston, LA office by calling us at (318) 255-1760.