Family Estate Planning Law Group

Get Ready for the 2016 Medicare Mess

As a direct result of the complex relationships between Social Security and Medicare, as well as a number of other unforeseen issues, 2016 will be an expensive year for some seniors, according to Forbes' recent article, "Untangling the Medicare Premium Mess -- And What It Means For You." Medicare laws require it to increase premiums annually to cover increases in per capita costs. This would typically be approximately $16, which most seniors can manage.

But 2016 will not be a normal year. Most retirees have their Medicare premiums deducted from their Social Security benefits, but because inflation was so low this year, there won't be a cost-of-living increase in 2016 for Social Security. And the law says that if Social Security benefits don't rise, neither can the Medicare premiums. At least, not for most people who get Social Security benefits.

About 70% of Medicare beneficiaries won't see the premium hike. However, that leaves the entire burden of this year's Medicare cost increases on the remaining 30%. Those hikes are going to be about 50% increases over the previous year.

The list of those who are unprotected is a bit curious. It includes high income seniors, new enrollees, those enrolled in Medicare but not receiving a Social Security check, and the so-called "dual eligibles" who receive Medicare and Medicaid benefits (as their premiums are paid by state Medicaid programs).

For high-income earners, those premium hikes are hefty: for a single person making more than $214,000, Part B premiums will increase from $335.70 to $509.80. For some, it would be cheaper to buy insurance through Affordable Care Act exchanges than to buy Part B plus Part D drug coverage and a Medigap policy. But they also might be better off with Medicare long term. It's complicated, and guidance from a professional will help you understand what coverage is right for you.

Seniors with more typical incomes also have some tough choices to make. For years, we've heard how the government and many financial experts encouraged seniors to wait to take their Social Security benefits for as long as they could. However, the special circumstances in 2016 may give some the exact opposite message, like those age 67, single, making less than $85,000, and enrolled in Medicare but not yet taking Social Security. The general rule is that you must pay a large increase if your premiums are not being deducted from your Social Security check. If you claim Social Security now and start having premiums deducted, you can save more than $500 in Medicare premiums in 2016, and you start getting Social Security benefits.

But it's a trade-off, because you may also receive less in lifetime Social Security benefits. You'll need to do some math and Consult a professional. The answer will depend on how much money you make, your best guess about how long you will live, and your marital status.

If you are looking for more information, Family Estate Planning Law Group has relationships with many other professionals who may be able to help. Please reach out to us for a discussion on what professionals might be a fit for you.

Reference: Forbes (October 9, 2015) "Untangling the Medicare Premium Mess -- And What It Means For You"

When You'll Never Know the Real Deadline: Estate Planning

Perhaps the biggest reason to have an estate plan is to decide who will raise and care for your children if you and your spouse should both pass away. An experienced estate attorney who is knowledgeable about guardianship laws in your state can help you make a plan, as noted in Houston (MO) Herald's recently published article, "Establish an estate plan before death comes knocking."

It is easy to put off these tough decisions by thinking we have plenty of time, but the truth is that we really don't know how much time we're going to have.

It's also easy for disagreements and misunderstandings to occur when someone passes away, particularly when the ownership of assets isn't clear. A professionally created estate plan where all assets are aligned with the plan can eliminate much of this stress and heartache. The cost of settling an estate may be high, but it's even higher if an estate plan isn't in place.

If you make a plan, let your family know about it and get it in writing. If you do this, you can help avoid a lot of stress and misunderstandings. Here at Family Estate Planning Law Group, we encourage our clients to have a Family Care Meeting™. We sit down with you and your family members who will need to understand the plan to explain what the plan is and why it was created this way. Communication with those who will have to execute your plan can significantly minimize misunderstandings and stress in what will already be a difficult time for your family.

The first step is to take an inventory of everything you own and your debts to create a net worth statement.  At Family Estate Planning Law Group, we try to build this into our process and first meetings with you as much as is possible. That way, when your estate plan is created, it has the larger picture in mind: your assets, your liabilities, and most importantly, your legacy. You should think about estate asset transfer methods, including right of survivorship for title, non-probate transfers, wills, trusts, and gifts. Make an appointment with an estate planning attorney to review all of this.

The main enemy of estate planning is procrastination. Start working on your plan by exploring our website and contacting us to schedule a consultation today!

Reference: Houston (MO) Herald (October 10, 2015) "Establish an estate plan before death comes knocking"

Battle Over Bomber Jacket Shifts Gears When Taxes are Due

Long before America was officially involved in World War II—that is, before the Japanese bombed Pearl Harbor—there were Americans involved in the war. One group was the "Flying Tigers," an elite group of fighter pilots employed by the Chinese government in its fight against Japan. Phillip Epley, Sr., was a member of this group, more formally known as the American Volunteer Group. When Epley passed away in 2008, he left his entire estate, including his Flying Tiger jacket and other belongings, to his wife.

When she passed away in 2013, a dispute began over ownership of the jacket that Epley wore during the war. It's estimated value? $24,000. Penn Live has more on this story and the history of the Flying Tigers in "Rare WWII 'Flying Tigers' flight jacket focus of Pa. court battle."

Most of the memorabilia went to Epley's son, Robert Epley. However, one of the wife's sons, John Stull, removed the jacket from her home. Her other son, Daryl Stull, was named the executor of his mother's estate and repeatedly asked John to return the jacket. John refused.

Daryl, acting as the executor, then reported to the state's Department of Revenue the value of the jacket and that John had possession of it. The government sent an inheritance tax bill to John based on that information. That's when John decided that he did not want the jacket and claimed that he was only holding it for Phillip Epley's son.

John tried to argue in court that he never owned the jacket and thus he owed no tax on it. The court was not convinced as he kept the jacket for more than a year and only gave it to Robert Epley when the tax bill came.

For more information about estate or inheritance taxes, explore our website and contact us for a consultation today!

Reference: Penn Live (September 30, 2015) "Rare WWII 'Flying Tigers' flight jacket focus of Pa. court battle."

Art Collections Call for Careful Consideration of Tax Burdens on Heirs

If your parents collected decades of issues of old magazines, it's likely that they are of no interest whatsoever to you or your siblings, and the magazines will be tossed out after your parents pass. This is often the case when parents accumulate collections that are near and dear to their hearts, but have no market value.

However, an art collection is different because works of art can be extremely valuable.

As the New York Times points out in "Estate Planning Can Get Tricky When Art Is Concerned," art collections require very careful estate planning. The biggest issue is that art is illiquid. If the estate tax is due, then the heirs have to come up with cash to pay it. This requires them to use other estate assets or to sell the art.

Unfortunately, it is not always quick or easy to sell art, and heirs who have little interest in art are often taken advantage of by professional dealers. The good news is that tax authorities will often accept low values for art collections as the true market value is difficult to assess.

If you have an art collection, it is extremely important that you have an estate plan for it. The last thing you want to do is just leave it to your heirs to figure it out. Contact an experienced estate planning attorney to navigate these waters.

For more information, explore our website and contact us to schedule a consultation today!

Reference: New York Times (October 1, 2015) "Estate Planning Can Get Tricky When Art Is Concerned."

“Empire” State of Mind: Estate Planning

Empire’s first season came to a close with rave reviews with its almost modernized King Lear plot. Despite the abundant drama and crazy plot twists, the foundation of the show revolves primarily around estate planning—or rather the lack of a plan.

Some Spoilers Ahead!

The show’s primary plotline revolves around Lucious Lyon, head of Empire Records, and his diagnosis of terminal ALS. As the article points out, those who have created and now maintain thriving businesses often feel as though they are one and the same, which can prevent thoughtful succession planning. And such is the case for Lucious, whose solution is to pit his three sons against one another in a battle for the right to be his successor. The article points out that while Lucious’ solution is certainly inelegant, many other successful business people fail to plan for their successor, as well. In fact, succession planning can be a long process, taking years to establish the designated successor in good standing and familiarity with all points of the business and requiring clear communication with all involved.

Also contributing to Lucious’ struggles is the fact that his family is a blended one. Blended families are increasingly common, but Lucious’ case certainly adds some additional drama—certainly part of the show’s success. Lucious’ ex-wife, Cookie, is mother to his three sons and recently released from prison after serving 17 years. Lucious’ new fiancée, Anika, has little connection to anyone but Lucious, and resents the connection between her fiancée and his ex-wife. The struggle between the two women is the stuff of soap operas with jealousy, revenge, resentment and even racial issues cropping up.

While many of these conflicts are more than a bit over-the-top, they are often rooted in what many blended families experience: struggles to communicate effectively and feelings of inadequacy. When dealing with succession planning and blended family issues have one thing in common: communication. Work with your advisors to open clear lines of communication between family members, and even work with them to minimize possible conflicts. Being clear about your estate plan can minimize conflict down the road and encourage cooperation, but at minimum, can identify people who cannot be trusted to work well together. At that point, clear drafting of the estate plan is often paramount.

Through all the King Lear plotlines and Machiavellian devices used by the various members of the Lyon family, at the core is a blended family trying to make it work and a business succession plan going wrong. These things are common enough, especially if one does not work with an experienced estate planning attorney. An experienced attorney can help you build your succession plan and communicate your estate plan to those involved.

To facilitate clear communication with loved ones, part of our process includes the Family Care Meeting. We at Family Estate Planning Law Group believe that one of the key components of a successful estate plan is effectively communicating it to those who will carry out the plan. For more information, explore our website and contact us to schedule a consultation today or to find out more about how we take care of families.

Reference: WealthManagement.com (September 22, 2015) “Empire: The Best Estate Planning Drama on TV”

Second Time Around, Wedding Plans Should Include Estate Planning

Anytime a blended family includes children from prior marriages, estate planning becomes more challenging, as reported in The Meridian Star, in “Estate planning after a second marriage.” If there are young children, how can you ensure that the surviving spouse will take care of them? And what if you pass away and your surviving spouse remarries? One way to prepare for this possibility is to make a child the primary beneficiary of a life insurance policy, place certain property under joint ownership with the child or set up a trust for your children. But none of these steps are simple, and all require an in-depth conversation with your spouse and with an experienced estate planning attorney.

If you have a written a will, it may require an update. Be extremely specific about which heir gets what and state bequests convincingly. The more convincing your bequest, the less ambiguity and the fewer issues that will arise. Also, update your beneficiary designations for retirement plans, investment accounts, and insurance policies. However, if you’ve been divorced, you may be precluded from changing beneficiaries in certain cases. Talk to a qualified estate planning lawyer. Take a copy of your divorcee decree with you and ask if revising your beneficiary designations will violate it.

You can also take a look at irrevocable trusts, which can be used to provide for your spouse and your kids. Some people establish a separate property trust to provide for their spouse after their death and designate their real property to their children. Parents can also create irrevocable trusts to direct assets to particular children. These can be great estate planning vehicles because: (i) a trust agreement isn’t a public document; (ii) assets within irrevocable trusts are shielded from creditors and from inheritance claims of spouses of the adult children named as heirs; and (iii) an irrevocable trust represents a “finalized” estate planning decision—which guarantees that particular assets transfer to a parent’s biological children. In addition, irrevocable trusts are rarely undone.

Pre-nuptial agreements can also play a role in estate planning, as they let you to designate personal assets for existing rather than future children. Post-nuptial agreements(similar to pre-nups, but drafted after a marriage) can also do this, but some states don’t recognize these types of agreements, and sometimes this is up to a judge.

Be sure to consult with an experienced estate planning attorney. Estates with this level of complexity require professional legal assistance from those with a thorough understanding of estate planning and tax issues.

For more information, explore our website and contact us to schedule a consultation today!

Reference: The Meridian Star (September 27, 2015) “Estate planning after a second marriage”

Turbocharge Estate Planning with Intra-family Loans

The win-win in this scenario, as described in a recent issue of Barron’s, “How Family Loans and Trusts Can Create Big Wins,” doesn’t stop with income and no gift tax. That note has a fixed value, no matter how big the underlying asset grows. So the business owner’s net worth remains frozen. The asset does not have to appreciate much to make this low-cost loan work for all involved. In the meantime, his business, now worth $250 million, is growing estate tax-free inside the trust for the benefit of his heirs. The savings are a mind-boggling $40 million to $60 million in estate taxes today, and, should he lives to his actuarial age, a lifetime savings of more than $100 million.

With low interest rates, families with taxable estates can benefit from structured trusts and intra-family loans. Note that these intra-family loans have their own rates and rules – the rates on intra-family loans allow parents to lend their children cash at rates far lower than a comparable commercial loan. Plus, they can be part of a broader wealth-transfer strategy.

For instance, an aging millionaire can fund a trust for his children’s benefit with a $100,000 gift. He then loans it $900,000 at the allowable 1.82% interest rate for five years, which the trust invests. The trust makes regular payments on the loan and then repays the principal in full at the term’s end. Any investment gains over that extremely low interest rate are tax-free in the trust for the next generation – it’s all legal and great planning.

There are added benefits for using this trust – the oddly named intentionally defective grantor trust. It’s considered an irrevocable complex trust for estate-tax purposes (the assets transferred to it are out of the individual’s estate) and a grantor trust for income-tax purposes. By paying the income taxes on the trust’s income, more is left for the next generation.

Be sure that the loans are just that: they are loans. If they’re determined to be gifts by the IRS, you could owe gift tax at 40% (but the annual gift-tax exclusion is $14,000, and the lifetime gift-tax exemption is $5.43 million). Make sure it’s a loan with the proper documents, terms and interest rate. Payments must be made on time. When you’re planning your wealth transfer, consider a loan and a trust, but do it right with the help of a qualified estate planning attorney.

For more information, explore our website and contact us to schedule a consultation today!

Reference: Barron’s (September 26, 2015) “How Family Loans and Trusts Can Create Big Wins”

Long-Term Health Care: Do You Know the Costs?

Several key points about long-term care were clarified in a recent article from The Arizona Daily Star, “Costs pile up fast for dementia care.”

#1: Don’t count on Medicare. The median annual cost for a private room in a skilled nursing facility in Tucson last year was more than $90,896. Assisted living costs about $45,000. In a 2015 annual Cost of Care survey, results showed that Americans paid approximately $16,060 more per year in 2015 for a nursing home than they paid in 2010.

Remember that Medicare doesn’t pay for long-term care, including home care, aside from 100 days of skilled services or rehabilitative care. After that, it’s up to the family to figure out how to pay. The options include long-term care insurance, public assistance through Medicaid programs for people over 65, Veterans Aid, or private pay. On average, an American turning 65 today will incur $138,000 in future long-term services. This cost could be financed by setting aside money today.

A loved one with dementia will increase the costs for round-the-clock care and a secure place to live, with the disease lasting up to 20 years. Caregiver costs, including hospitalizations, skilled nursing facilities, home-health services, day-care services for adults and assisted living add up, and the cost is enormous. One way to ease the emotional cost is to create a plan and provide relief to your family.

When it comes to paying for care, many people incorrectly assume they have too much money to qualify for Medicaid. Talk with an elder law attorney and see whether you or your loved one qualifies because Medicaid can help pay for both in-home and out-of-home care. The individual must be medically eligible—cognitively impaired or unable to perform at least two activities of daily living on their own (like bathing and eating). Single applicants are not allowed to have resources of more than $2,000. Applicants who do have more than $2,000 should talk to an attorney about additional planning techniques.

It’s important to remember that Congress set a five-year look-back period on gifts. So someone who gives money and other assets to children and other family members in order to be eligible has to do this five years before they apply. An elder law attorney can help a single person with too many assets to qualify to spend down those resources on long-term care or on any legitimate expense that benefits either the applicant or the spouse, and then apply.

#2: Long-Term Insurance. People whose assets are too high to qualify can consider long-term insurance or self-pay. With long-term insurance, typically the buyer defines a monthly amount they’d like to get for a set number of years. However, buyers may have to supplement with their own money.

The best time to buy long-term care insurance is when buyers are in their mid-50s to early 60s. If you wait, you might have a medical condition arise and fail the underwriting. Expect the premiums to go up every five years, and note that they are not fixed like level term life. Some are surprised by big premium hikes and cancel the coverage. If you buy long-term care, read the policy carefully.

For more information, explore our website and contact us to schedule a consultation today!

Reference: Arizona Daily Star (September 26, 2015) “Costs pile up fast for dementia care”

Medicaid Planning Requires Both Estate Planning and Elder Law Skill Sets

The Huffington Post published a worthwhile article on the ethical and legal issues posed by two related legal practice areas, “Some Legal Issues at the Intersection of Elder Law and Estate Planning.” There are certainly legal and ethical issues that arise when determining courses of action in both areas.

One is whether to dispose of assets through pre-need planning to qualify for means-tested government programs such as Medicaid that might pay, for example, the cost of long term nursing home care. This is very complicated, and you should work with a qualified elder law attorney.

If you want to maximize eligibility for means-tested governmental benefits, a common technique is to transfer assets to an irrevocable grantor trust. There are also other types of "special needs trusts" that can be created without reducing government benefits. Again, this is a highly complex area that requires help from an elder law attorney.

Remember the five-year look-back on transfers. Medicaid eligibility usually examines the transfer of assets (like gifts) to third parties that happen in the 60 months prior to the Medicaid application. There are exceptions, however. A child who lived in the parent's home and cared for the parent—and delaying institutional care in a physician's opinion—may be able to get assets as a gift without a Medicaid penalty under the "two-year caretaker rule." This is also extremely complex and requires consultation with an experienced elder law attorney.

For your family and yourself, do as much elder law and estate planning as far in advance as possible. For more information, explore our website and contact us to schedule a consultation today!

Reference: Huffington Post (September 22, 2015) “Some Legal Issues at the Intersection of Elder Law and Estate Planning”