Wednesday, February 22, 2017

Ultimate Life Insurance Trusts for Estate and Long Term Care Planning

“Your high-net-worth clients who self-fund LTC costs may face the unintended consequences of leaving less of a legacy to their children if out-of-pocket care expenses deplete their estates,” Pailip Herzberg and Jorge Padilla caution their fellow financial planning professionals in the February issue of the Journal of Financial Planning.

What’s more, the authors remind their colleagues, clients wanting to insure their long-term care risk may “seek more flexibility than what is typically offered with the features of traditional LTC policies.” A hybrid, or linked-benefit life insurance policy, the authors suggest, is one alternative solution.

Linked-benefit policies pair the benefits of a life insurance with those of long term care insurance.  Advantages include:

1. Linked-benefit eliminates the risk of clients paying premiums for coverage they hope to never – and in fact may never – actually use.

2. Clients who already have ample savings to cover potential long term care needs (but who have no LTC insurance) can use life insurance to create a “tax-free bucket.”

3. The life insurance can lock in a payout for clients’ spouses, kids, or other designated heirs, even if the long term care benefits are never used.

Herzberg and Padilla issue a caveat concerning these hybrid policies – for high net worth clients close to or above the estate tax exclusion amount (currently $5.49 million), the death benefit proceeds from the life insurance may be subject to inclusion in the estate for tax calculations. The solution? An ultimate life insurance trust.

At Geyer Law, where our attorneys are accustomed to creating sophisticated strategies for our high-net worth clients, we were happy to note the cautions about avoiding the triggering of estate tax which these two authors were careful to insert in this article even while explaining the many potential benefits of ULITS:

How does a ULIT work?
Technically, an ultimate life insurance trust is a “defective trust” that allows the insured to access funds from the trust using collateralized loans that are charged an interest rate. The incurred interest charges may be allowed to accumulate or set to be paid back prior to the death of the insured. Any remaining life insurance death benefit would be paid into the trust, with the estate repaying the loan outstanding before estate tax is calculated. Then, any remaining trust assets could be distributed income tax free to trust beneficiaries or used to pay estate taxes.

No money is ever received by the insured directly, so the clients avoid triggering “incidents of ownership”. The trustees create fully collateralized loans to the insured to help him/her pay long term care expenses, but the insured never actually directs the trustees to do any specific thing. What’s more, the trustee is fully subject to being removed by the grantor. Any LTC benefits are indemnity-based (providers are reimbursed directly with no money going to the insured).

“Handle with care” might be the warning label on every ULIT, so we were relieved to see the following warning included in the article for financial planning professionals: “Engage experienced and qualified estate planning attorneys to draft your clients’ legal documents,” Herzberg and Padilla caution, “and specify provisions in accordance with these relatively new insurance solutions.”

- by Rebecca W. Geyer

Wednesday, February 15, 2017

First Comes Divorce, Then Come New Estate Planning Documents

“Married individuals who are considering divorce should review their estate plans to determine if they remain appropriate,” says, reminding readers that
the law considers you legally married until the judge signs the final dissolution decree ending the marriage. If you were to die or become disabled prior to the divorce becoming final, your spouse might have legal control over you and your estate, and may be entitled to most, if not all, of your assets.

In the months leading up to a divorce, we realize you have a lot on your mind. Still, at Geyer Law, we recommend you pay immediate attention to several areas of your estate plan. Later, once the divorce is final, our attorneys can help you formulate a longer term plan.

Your will: 
If you don’t have a will, you need to create one right away.  If you don’t yet have a will, you will want to name a new executor.  The same holds true for changing the trustee of a trust.

Beneficiary designations:
You may wish to make an immediate change to the beneficiary designations on your life insurance policies and retirement plans. (To change the beneficiary on a qualified retirement plan to someone other than your spouse will require your spouse’s consent until the divorce is final.)

Powers of attorney:
If your spouse was given your Durable Power of Attorney and Healthcare Power of Attorney, you will perhaps want to change that designation to a relative or friend.

Premarital agreements:
Were any premarital or prenuptial agreements put into place before you married?  Time to review those agreements and determine how your future decisions might be impacted by their terms.

Naming a new executor:
If your spouse has been the executor, you’ll need to choose someone else.

Naming a guardian for your minor children.
It is hard to prevent your ex-spouse from becoming guardian of your children f you don’t in the event of your death. Discussions about your concerns should be held with your attorney, and proper planning done after the divorce is final.

Joint bank and brokerage accounts.
One of the biggest questions for a divorcing couple is how to divide and protect assets after separating. With a divorce filing in progress, it’s probably best not to touch the accounts until the settlement is final.

There’s a lot on your mind when you’re involved in a divorce, but at Geyer & Associates, we advise going over all these important matters step by step.

- by Ronnie of the Rebecca W.. Geyer blog team

Wednesday, February 8, 2017

What's a Medicaid Block Grant? Why Are Some Opposed to Block Grants?

Since the attorneys of Rebecca W. Geyer & Associates, PC assist clients with estate planning and elder law needs, including Medicaid, the debate centering around the proposal to give states block grants is very important to us and to our clients.
Medicaid, the nation’s largest health insurer, is a program that covers health benefits for more than 73 million low-income Americans. The money is jointly funded by federal and state tax dollars. Each state determines how it runs its own Medicaid program as long as the state’s rules are not more restrictive than federal Medicaid rules.  For example, states decide:
  • what services will be covered
  • the way health care providers are paid for those services
  • whether a managed care system will be used
  • who qualifies for Medicaid
The term “block grant” refers to a fixed amount of money that the federal government would give each state based on its (the federal government’s) estimate of Medicaid costs. In other words, the federal government would set each state’s Medicaid spending amount in advance.  If, for example, Indiana’s costs exceeded the amount of the block grant, our state would need to use its own funds to make up the difference – OR cut services for low-income residents.

The prospect of funding cuts is of grave concern to us as elder law attorneys, for two crucially important reasons:
  1. the Medicaid program provides medical assistance to low-income individuals, including those who are 65 or older, disabled or blind.
  2. Medicaid is the single largest payer of nursing home bills in America, and serves as the option of last resort for people who have no other way to finance their long term care
The most common Medicaid concern is whether an individual must spend down all of his or her  assets in order to qualify for Medicaid. People have grave fears of losing their homes and their life savings paying for the costs of long-term care.  Medicaid planning, the process of obtaining Medicaid eligibility while preserving assets within the bounds of the law is an important part of the services we offer to Geyer Law clients.

Hopefully, the amount of money Indiana will have to invest in healthcare services will not be reduced due to block grants.
- by Rebecca W. Geyer

Wednesday, February 1, 2017

Wills - For Both Now and Beyond the Grave

“Wills are serious business.  They are supposed to spell out how one would like their assets distributed after their death.  But in some cases they are used to send messages – or settle scores – from beyond the grave,” says Yagana Shah in the Huffington Post.
  • Under a provision in comedian Jack Benny’s will, a single long-stemmed rose was delivered to his widow Mary after his death in 1974.  This continued for nine years until Mary herself died in 1983.
  • Businesswoman Leona Helmsley left the bulk of her $12 million fortune to her dog “Trouble”.
  • German poet Henrich Heine left his assets to his wife with the stipulation that she must remarry.
  • Toronto lawyer and businessman Charles Millar’s will dictated that a cash sum should be given to the Toronto woman who birthed the most children in the decade following his death.  (Four women tied for the award with nine children each.)
  • Just two years ago, property owner Maurice Laboz left his $40 million estate to his two daughters with the stipulation that they would receive the money at age 35.  The only way they could request money earlier is by reaching certain milestones, including graduating from an accredited university, marrying mates who agreed not to touch the inheritance, and haviing had no children out of wedlock.
The Laboz will is an example of a “conditional will”, which depends on the occurrence or nonoccurrence of some uncertain event. Laboz’ will designated the person to be in charge of carrying out his wishes after his death.  A will may also be used to designate guardians for minor children.

Of course, your will is not the only tool with which to accomplish your estate planning goals.  Your plan may include trusts, powers of attorney, living wills, and healthcare powers of attorney.
Whichever tools turn out to be most appropriate in protecting you, your assets, and your loved ones, proper estate planning puts you in charge of your finances and spares your loved ones:
  • expense
  • delay
  • frustration
At Rebecca W. Geyer & Associated, we agree - wills are serious business.  But estate planning is also a way to think about the messages you wish to convey, perhaps both now and beyond the grave.

- by Rebecca W. Geyer