Estate Planning

Q: How will the proposed House tax reform impact seniors, the disabled, and Medicaid?

If the House of Representatives’ proposed tax reform plan passes, critics claim that the elimination of the medical expense deduction would "deliver a serious financial blow to seniors and individuals with disabilities "– – particularly those without long-term care insurance who must self-pay for long-term care.

Many people don't realize that comprehensive estate planning involves more than a simple Last Will and Testament. Trusts and tax planning, providing for your incapacity, and protecting your assets to secure your family's future are common goals in estate planning.
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Q: How can Medicaid planning protect my assets?

Estate planning is something many of us put off because the thought of our own death or disability makes us uncomfortable. But failure to get our legal affairs in order can leave our loved ones unprotected and financially vulnerable—which is even more frightening.

Q: What happens to my digital assets after I die?

A significant portion of the population is actually addicted to their technology. Not only are their cell phones and tablets glued to their hands, but their eyes don't stray from the screen for long either. Texting and driving is now a national crisis.

In Illinois, experienced estate planning attorneys help residents plan for the inevitable. While nobody wants to think about their mortality, virtually everyone reports that the peace of mind that comes from putting your affairs in order and protecting your loved ones through estate planning far outweighs the discomfort and fear about preparing for their death.

In a nutshell, proper estate planning is a very comprehensive and individualized process that provides for the distribution of your property and the payment of your debts after your death.
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A colleague of ours recently assembled a list of the top 10 estate planning issues. This list is a great tool to assure that nothing is overlooked.

All of them can be dealt with a little thoughtful consideration. They can also create major problems if not dealt with in advance.

Probate – Court supervised administration of your estate is never a pleasant journey. Despite the helpful court personnel, there are still filing fees, lack of privacy issues, and long waiting periods before distribution. And that’s if all goes well.

Asset Protection – Many people do not take advantage of the asset protection opportunities that can be achieved with relatively basic estate planning. Creating trusts for spouses and children with the right provisions means your assets can be protected from claims of creditors and predators for years to come. While we hope that our children would not fall victim to divorce, this is one asset protection conversation that must be planned for.

Tax Planning – This is never an easy issue as the various tax systems don’t always line up with each other. Consider the tension between gift planning, (giving away some of your assets) to shelter appreciation by moving them outside of your estate, and loss of basis for capital gains purposes. While not easy, this issue can really cost you money if not properly handled.

Family Disharmony – Estate planning is a way for you to say you care about your loved ones. But choices you make for executor or trustee can bring back lots of bad memories for those not chosen. Giving thought to how to help resolve these conflicts or at least, not make them worse, can help to avoid family conflicts.

Attorney's Fees – The best way to control legal fees is to incur them while you are alive and able to oversee the planning process. Failure to plan is likely to increase the total amount of fees paid. Especially if family members decide that fighting is the best way to resolve disputes after you’re gone.

Successor Fiduciaries – Make sure that you name back up executors and trustees, or provide the beneficiaries with a way to fill a vacant role, so that a court proceeding is not required.

Contingent Beneficiaries – Make plans for your estate in the event that your immediate family members die and are unable to inherit your estate. Pick a charity or a group of more distant relatives or close friends.

Updating Beneficiary Designations - Life insurance and retirement accounts are controlled by the beneficiary designations you make when you purchase the life insurance or open a retirement account. They are most notably the small boxes you checked at the end of your application. Make sure these stay updated. We have seen more than once a policy which still names a client’s first wife or husband many years after a divorce and remarriage.

Joint Accounts – Often used as a convenience during life and a will substitute at death. Because these accounts go to the survivor, make sure that this lines up with your overall plan of passing assets to your heirs. Leaving money in a joint account for one child with the idea that they will spread the wealth around after your death can be a recipe for disaster.

Failing to start - Procrastination is probably the leading cause of problems in estate planning. Once a disability or death occurs, planning becomes very difficult and lots more expensive, if possible at all.

This story is based on a real case involving a man who created a solid plan for his estate that, unfortunately, went completely wrong.

Here is what happened.

In 2005, Tim Donovan, owner of Optimum Manufacturing, created a will leaving everything except his business to his second wife, Cathy Carter.

Tim left instructions in his will, which was part of his overall estate plan, that his business should go to the trustee of his living trust after his death. One would wonder why he left his business in his will, exposing his business to the general public upon his death instead of a more private document, such as a trust. Tim also left specific instructions on what the trustee was to do with the business in the event of Tim's death.

Thinking that it might be difficult to keep the business running without him, Tim instructed his trustee to sell the business. After the sale, all of the proceeds were to be divided as follows:

45% to his wife Cathy

25% to his mother

20% to his brothers and a niece and nephew

The remaining 10% was to be held in a trust for his wife, Cathy Carter.

Tim had no children from either of his marriages.

The good news was that in 2008, Tim sold his business for a substantial sum.

The bad news was that he died unexpectedly in a plane crash in 2009.

You would think that this should not be a big deal. Tim made his wishes clear. The money he received from the sale of the business should be divided as set out in his trust.

Tim’s mom and other close relatives sued the estate claiming that Tim had intended that they get a portion of the sale proceeds, even though the business was sold before Tim’s death rather than after.

Cathy, his wife, argued that Tim did not own the business at the time of his death and so therefore, there was nothing to leave to the trust and nothing to divide.

What did the court decide? The Court said that since the business stock was a specific gift or property that did not exist at the time of death and since no changes were made to the will or trust, Tim must have decided not to share the proceeds as he had previously outlined.

For some, this outcome may seem to be lacking in fairness. On the other hand, it may have been exactly the result Tim would have wanted. We will never know.

The lesson for us all is that if changes in your life happen, as they always do, it makes sense to visit with counsel to make sure that there are no negative impacts that result from the change and to assure that your intentions are clearly documented.

Some examples of changes that may impact your planning and suggest the need to seek counsel include:

Death of a spouse or child Disability

Divorce (including divorces your children may go through)

Birth of a child

Significant change in health for you, your spouse or your children

Entry into a nursing home

Loss of a job

Lawsuit

Retirement

Sale of a business or sale of another significant asset

Estate planning includes planning for events during your lifetime. Request a meeting today.

Some of our clients are young parents. Often times as they start out in life they have a small home or condominium and a large mortgage to go with it. They have not yet had time to accumulate a large pool of assets. But most have life insurance in place to create an instant estate in case they die. The insurance can be used to pay down debt (like a mortgage) and to provide a pool of money to pay ongoing lifestyle expenses, educational expenses or for other legitimate reasons.

Often, these clients ask whether they should use a living trust, even though life insurance is their only major asset.

Most think the answer is no when in fact it may more correctly be yes. Here is why.

A life insurance policy will pass to a designated beneficiary without going through the probate process. 

However, if you have minor children who are the beneficiaries of that life insurance policy, the life insurance company will generally not distribute those policy proceeds to a minor. 

Instead, someone usually has to go to court and set up a guardianship on behalf of that minor.  If you fail to plan properly, you may end up with a guardian appointed by the court, and that guardian may be someone you would rather not have controlling that minor’s money. 

Once the guardianship is set up, the court will often try to protect the money in a closed account that can only be accessed by court order.  Whenever that minor needs that money for things like braces or medical care or education, the Guardian must petition the court to access the money.  Plus, there is a cost for ongoing attorney’s fees and court costs.  Then when the minor reaches the age of majority (18 in most states), the law goes to the other extreme.  The money is then given outright to the minor with no instructions and no control. 

When you have a living trust, you can name the trust as the beneficiary of the insurance policy.  The trustee then uses the money to provide for the beneficiaries of the trust according to your instructions.  No guardianship or court intervention is required. And if there is money left over when the child turns 18, it can be released to the child or held in trust to pay for things like college, weddings, etc, all as per your wishes and instructions.

In most cases, a living trust will be the best way to plan for your minor children. It also will serve as a great foundational estate planning vehicle as you start to build your other estate assets.