John Baker's Elder Law and Estate Planning Blog
Saturday, April 20, 2013
Umbrella Insurance: What It Is and Why You Need It
Lawsuits are everywhere. What happens when you are found to be at fault in an accident, and a significant judgment is entered against you? A child dives head-first into the shallow end of your swimming pool, becomes paralyzed, and needs in-home medical care for the rest of his or her lifetime. Or, you accidentally rear-end a high-income executive, whose injuries prevent him or her from returning to work. Either of these situations could easily result in judgments or settlements that far exceed the limits of your primary home or auto insurance policies. Without additional coverage, your life savings could be wiped out with the stroke of a judge’s pen.
Typical liability insurance coverage is included as part of your home or auto policy to cover an injured person’s medical expenses, rehabilitation or lost wages due to negligence on your part. The liability coverage contained in your policy also cover expenses associated with your legal defense, should you find yourself on the receiving end of a lawsuit. Once all of these expenses are added together, the total may exceed the liability limits on the home or auto insurance policy. Once insurance coverage is exhausted, your personal assets could be seized to satisfy the judgment.
However, there is an affordable option that provides you with added liability protection. Umbrella insurance is a type of liability insurance policy that provides coverage above and beyond the standard limits of your primary home, auto or other liability insurance policies. The term “umbrella” refers to the manner in which these insurance policies shield your assets more broadly than the primary insurance coverage, by covering liability claims from all policies “underneath” it, such as your primary home or auto coverage.
With an umbrella insurance policy, you can add an addition $1 million to $5 million – or more – in liability coverage to defend you in negligence actions. The umbrella coverage kicks in when the liability limits on your primary policies has been exhausted. This additional liability insurance is often relatively inexpensive in comparison to the cost of the primary insurance policies and potential for loss if the unthinkable happens.
Generally, umbrella insurance is pure liability coverage over and above your regular policies. It is typically sold in million-dollar increments. These types of policies are also broader than traditional auto or home policies, affording coverage for claims typically excluded by primary insurance policies, such as claims for defamation, false arrest or invasion of privacy.
Wednesday, April 10, 2013
Overview of the Ways to Hold Title to Property
You are purchasing a home, and the escrow officer asks, “How do you want to hold title to the property?” In the context of your overall home purchase, this may seem like a small, inconsequential detail; however nothing could be further from the truth. A property can be owned by the same people, yet the manner in which title is held can drastically affect each owner’s rights during their lifetime and upon their death. Below is an overview of the common ways to hold title to real estate:
Tenancy in Common
Tenants in common are two or more owners, who may own equal or unequal percentages of the property as specified on the deed. Any co-owner may transfer his or her interest in the property to another individual. Upon a co-owner’s death, his or her interest in the property passes to the heirs or beneficiaries of that co-owner; the remaining co-owners retain their same percentage of ownership. Transferring property upon the death of a co-tenant requires a probate proceeding.
Tenancy in common is generally appropriate when the co-owners want to leave their share of the property to someone other than the other co-tenants, or want to own the property in unequal shares.
Joint tenants are two or more owners who must own equal shares of the property. Upon a co-owner’s death, the decedent’s share of the property transfers to the surviving joint tenants, not his or her heirs or beneficiaries. Transferring property upon the death of a joint tenant does not require a probate proceeding, but will require certain forms to be filed and a new deed to be recorded.
Joint tenancy is generally favored when owners want the property to transfer automatically to the remaining co-owners upon death, and want to own the property in equal shares.
The above methods of taking title apply to properties with multiple owners. However, even sole owners, for whom the above methods are inapplicable, face an important choice when purchasing property. Whether a sole owner, or multiple co-owners, everyone has the option of holding title through a living trust, which avoids probate upon the property owner’s death. Once your living trust is established, the property can be transferred to you, as trustee of the living trust. The trust document names the successor trustee, who will manage your affairs upon your death, and beneficiaries who will receive the property. With a living trust, the property can be transferred to your beneficiaries quickly and economically, by avoiding the probate courts altogether. Because you remain as trustee of your living trust during your lifetime, you retain sole control of your property.
How you hold title has lasting ramifications on you, your family and the co-owners of the property. Title transfers can affect property taxes, capital gains taxes and estate taxes. If the property is not titled in such a way that probate can be avoided, your heirs will be subject to a lengthy, costly, and very public probate court proceeding. By consulting an experienced real estate attorney, you can ensure your rights – and those of your loved ones – are fully protected.
Monday, April 1, 2013
Considering Online Estate Planning? Think Twice
The recent proliferation of online estate planning document services has attracted many do-it-yourselfers who are lured in by what appears to be a low-cost solution. However, this focus on price over value could mean your wishes will not be carried out and, unfortunately, nobody will know there is a problem until it is too late and you are no longer around to clean up the mess.
Probate, trusts and intestate succession (when someone dies without leaving a will) are governed by a network of laws which vary from state to state, as well as federal laws pertaining to inheritance and tax issues. Each jurisdiction has its own requirements, and failure to adhere to all of them could invalidate your estate planning documents. Many online document services offer standardized legal forms for common estate planning tools including wills, trusts or powers of attorney. However, it is impossible to draft a legal document that covers all variations from one state to another, and using a form or procedure not specifically designed to comply with the laws in your jurisdiction could invalidate the entire process.
Another risk involves the process by which the documents you purchased online are executed and witnessed or notarized. These requirements vary, and if your state’s signature and witness requirements are not followed exactly at the time the will or other documents are executed, they could be found to be invalid. Of course, this finding would only be made long after you have passed, so you cannot express your wishes or revise the documents to be in compliance.
Additionally, the online document preparation process affords you absolutely no specific advice about what is best for you and your family. An estate planning attorney can help your heirs avoid probate altogether, maximize tax savings, and arrange for seamless transfer of assets through other means, including titling property in joint tenancy or establishing “pay on death” or “transfer on death” beneficiaries for certain assets, such as bank accounts, retirement accounts or vehicles. In many states, living trusts are the recommended vehicle for transferring assets, allowing the estate to avoid probate. Trusts are also advantageous in that they protect the privacy of you and your family; they are not public records, whereas documents filed with the court in a probate proceeding are publicly viewable. There are other factors to consider, as well, which can only be identified and addressed by an attorney; no online resource can flag all potential concerns and provide you with appropriate recommendations.
By implementing the correct plan now, you will save your loved ones time, frustration and potentially a great deal of money. In most cases, proper estate planning that is tailored to your specific situation can avoid probate altogether, and ensure the transfer of your property happens quickly and with a minimum amount of paperwork. If your estate is large, it may be subject to inheritance tax unless the proper estate planning measures are put in place. A qualified estate planning attorney can provide you with recommendations that will preserve as much of your estate as possible, so it can be distributed to your beneficiaries. And that’s something no website can deliver.
Wednesday, March 20, 2013
Planning Pitfall: Probate vs. Non-Probate Property
Transfer of property at death can be rather complex. Many are under the impression that instructions provided in a valid will are sufficient to transfer their assets to the individuals named in the will. However, there are a myriad of rules that affect how different types of assets transfer to heirs and beneficiaries, often in direct contradiction of what may be clearly stated in one’s will.
The legal process of administering property owned by someone who has passed away with a will is called probate. Prior to his passing, a deceased person, or decedent, usually names an executor to oversee the process by which his wishes, outlined in his Will, are to be carried out. Probate property, generally consists of everything in a decedent’s estate that was directly in his name. For example, a house, vehicle, monies, stocks or any other asset in the decedent’s name is probate property. Any real or personal property that was in the decedent’s name can be defined as probate property.
The difference between non-probate property and probate centers around whose name is listed as owner. Non-probate property consists of property that lists both the decedent and another as the joint owner (with right of survivorship) or where someone else has already been designated as a beneficiary, such as life insurance or a retirement account. In these cases, the joint owners and designated beneficiaries supersede conflicting instructions in one’s will. Other examples of non-probate property include property owned by trusts, which also have beneficiaries designated. At the decedent’s passing, the non-probate items pass automatically to whoever is the joint owner or designated beneficiary.
Why do you need to know the difference? Simply put, the categories of probate and non-probate property will have a serious effect on how plan your estate. If you own property jointly with right of survivorship with another individual, that individual will inherit your share, regardless of what it states in your will. Estate and probate law can be different from state-to-state, so it’s best to have an attorney handle your estate plan and property ownership records to ensure that your assets go to the intended beneficiaries.
Sunday, March 10, 2013
Coordinating Property Ownership and Your Estate Plan
When planning your estate, you must consider how you hold title to your real and personal property. The title and your designated beneficiaries will control how your real estate, bank accounts, retirement accounts, vehicles and investments are distributed upon your death, regardless of whether there is a will or trust in place and potentially with a result that you never intended.
One of the most important steps in establishing your estate plan is transferring title to your assets. If you have created a living trust, it is absolutely useless if you fail to transfer the title on your accounts, real estate or other property into the trust. Unless the assets are formally transferred into your living trust, they will not be subject to the terms of the trust and will be subject to probate.
Even if you don’t have a living trust, how you hold title to your property can still help your heirs avoid probate altogether. This ensures that your assets can be quickly transferred to the beneficiaries, and saves them the time and expense of a probate proceeding. Listed below are three of the most common ways to hold title to property; each has its advantages and drawbacks, depending on your personal situation.
Tenants in Common: When two or more individuals each own an undivided share of the property, it is known as a tenancy in common. Each co-tenant can transfer or sell his or her interest in the property without the consent of the co-tenants. In a tenancy in common, a deceased owner’s interest in the property continues after death and is distributed to the decedent’s heirs. Property titled in this manner is subject to probate, unless it is held in a living trust, but it enables you to leave your interest in the property to your own heirs rather than the property’s co-owners.
Joint Tenants: In joint tenancy, two or more owners share a whole, undivided interest with right of survivorship. Upon the death of a joint tenant, the surviving joint tenants immediately become the owners of the entire property. The decedent’s interest in the property does not pass to his or her beneficiaries, regardless of any provisions in a living trust or will. A major advantage of joint tenancy is that a deceased joint tenant’s interest in the property passes to the surviving joint tenants without the asset going through probate. Joint tenancy has its disadvantages, too. Property owned in this manner can be attached by the creditors of any joint tenant, which could result in significant losses to the other joint tenants. Additionally, a joint tenant’s interest in the property cannot be sold or transferred without the consent of the other joint tenants.
Community Property with Right of Survivorship: Some states allow married couples to take title in this manner. When property is held this way, a surviving spouse automatically inherits the decedent’s interest in the property, without probate.
Make sure your estate planning attorney has a list of all of your property and exactly how you hold title to each asset, as this will directly affect how your property is distributed after you pass on. Automatic rules governing survivorship will control how property is distributed, regardless of what is stated in your will or living trust.
Friday, March 1, 2013
Top 5 Overlooked Issues in Estate Planning
In planning your estate, you most likely have concerned yourself with “big picture” issues. Who inherits what? Do I need a living trust? However, there are numerous details that are often overlooked, and which can drastically impact the distribution of your estate to your intended beneficiaries. Listed below are some of the most common overlooked estate planning issues.
Liquid Cash: Is there enough available cash to cover the estate’s operating expenses until it is settled? The estate may have to pay attorneys’ fees, court costs, probate expenses, debts of the decedent, or living expenses for a surviving spouse or other dependents. Your estate plan should estimate the cash needs and ensure there are adequate cash resources to cover these expenses.
Tax Planning: Even if your estate is exempt from federal estate tax, there are other possible taxes that should be anticipated by your estate plan. There may be estate or death taxes at the state level. The estate may have to pay income taxes on investment income earned before the estate is settled. Income taxes can be paid out of the liquid assets held in the estate. Death taxes may be paid by the estate from the amount inherited by each beneficiary.
Executor’s Access to Documents: The executor or estate administrator must be able to access the decedent’s important papers in order to locate assets and close up the decedent’s affairs. Also, creditors must be identified and paid before an estate can be settled. It is important to leave a notebook or other instructions listing significant assets, where they are located, identifying information such as serial numbers, account numbers or passwords. If the executor is not left with this information, it may require unnecessary expenditures of time and money to locate all of the assets. This notebook should also include a comprehensive list of creditors, to help the executor verify or refute any creditor claims.
Beneficiary Designations: Many assets can be transferred outside of a will or trust, by simply designating a beneficiary to receive the asset upon your death. Life insurance policies, annuities, retirement accounts, and motor vehicles are some of the assets that can be transferred directly to a beneficiary. To make these arrangements, submit a beneficiary designation form to the financial institution, retirement plan or motor vehicle department. Be sure to keep the beneficiary designations current, and provide instructions to the executor listing which assets are to be transferred in this manner.
Fund the Living Trust: Unfortunately, many people establish living trusts, but fail to fully implement them, thereby reducing or eliminating the trust’s potential benefits. To be subject to the trust, as opposed to the probate court, an asset’s ownership must be legally transferred into the trust. If legal title to homes, vehicles or financial accounts is not transferred into the trust, the trust is of no effect and the assets must be probated.
Wednesday, February 20, 2013
Filial Responsibility Laws
Filial responsibility laws impose a legal obligation on adult children to take care of their parents’ basic needs and medical care. Although most people are not aware of them, 30 states in the U.S. have some type of filial responsibility laws in place. The states that have such laws on the books are Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia and West Virginia.
Filial responsibility laws and their enforcement vary greatly from state to state. Eleven states have never enforced their laws, and most other states rarely enforce the laws. Currently, Pennsylvania is the only state to aggressively enforce its filial responsibility laws.
One of the main reasons why filial responsibility laws are not widely enforced is due to the fact that in the context of needs-based government programs such as Medicaid, federal law has prohibited states from considering the financial responsibility of any person other than a spouse in determining whether an applicant is eligible. However, as many local programs aimed at helping the elderly continue to struggle with insolvency, many states may consider more aggressive enforcement of their filial responsibility laws.
Twenty-one states allow lawsuits to recover financial support. Parties who are allowed to bring such a lawsuit vary state by state. In some states, only the parents themselves can file a claim. In other states, the county, state public agencies or the parent’s creditors can file the lawsuit. In 12 states, criminal penalties may be imposed upon the adult children who fail to support their parents. Three states allow both civil and criminal penalties.
In some states, children are excused from their filial responsibility if they don’t have enough income to help out, or if they were abandoned as children by the parent. However, the abandonment defense can be difficult to prove, especially if the parent had a good reason to abandon the child, like serious financial difficulties. Sometimes, children’s filial responsibility can be reduced if prior bad behavior on the part of the parent can be proven.
Sunday, February 10, 2013
Do I Really Need Advance Directives for Health Care?
Many people are confused by advance directives. They are unsure what type of directives are out there, and whether they even need directives at all, especially if they are young. There are several types of advance directives. One is a living will, which communicates what type of life support and medical treatments, such as ventilators or a feeding tube, you wish to receive. Another type is called a health care power of attorney. In a health care power of attorney, you give someone the power to make health care decisions for you in the event are unable to do so for yourself. A third type of advance directive for health care is a do not resuscitate order. A DNR order is a request that you not receive CPR if your heart stops beating or you stop breathing. Depending on the laws in your state, the health care form you execute could include all three types of health care directives, or you may do each individually.
If you are 18 or over, it’s time to establish your health care directives. Although no one thinks they will be in a medical situation requiring a directive at such a young age, it happens every day in the United States. People of all ages are involved in tragic accidents that couldn’t be foreseen and could result in life support being used. If you plan in advance, you can make sure you receive the type of medical care you wish, and you can avoid a lot of heartache to your family, who may be forced to guess what you would want done.
Many people do not want to do health care directives because they may believe some of the common misperceptions that exist about them. People are often frightened to name someone to make health care decisions for them, because they fear they will give up the right to make decisions for themselves. However, an individual always has the right, if he or she is competent, to revoke the directive or make his or her own decisions. Some also fear they will not be treated if they have a health care directive. This is also a common myth – the directive simply informs caregivers of the person you designate to make health care decisions and the type of treatment you’d like to receive in various situations. Planning ahead can ensure that your treatment preferences are carried out while providing some peace of mind to your loved ones who are in a position to direct them.
Friday, February 1, 2013
Veterans’ Non-Service Connected Pension Benefits
The Veterans’ Administration’s non-service connected pension program can help supplement the income of elderly or disabled veterans. The VA deems any veteran age 65 or older to be permanently and totally disabled. This “disabled” classification entitles senior citizens who are veterans, or their widows, to tax-free pension payments regardless of their actual physical condition, provided they meet the needs-based criteria.
One significant advantage of this program is that, unlike a traditional service-connected pension, there is no requirement that your injury or disability be tied to your time in service. On the other hand, this is a needs-based assistance program, so many veterans may not qualify for benefits.
To qualify for benefits under the program, you must have served on active duty for at least 90 days, and at least one of those days must have been during a time of war. Additionally, you must not have had a dishonorable discharge from the military.
Periods of war time are determined by the U.S. Congress as follows:
Mexican Border Period: May 9, 1916 through April 5, 1917, only if you served in Mexico, on its borders or in adjacent waters
World War I: April 6th, 1917 through November 11, 1918, or through April 1, 1920 if you served in Russia
World War II: December 7, 1941 through December 31, 1946
Korean Conflict: June 27, 1950 through January 31, 1955
Vietnam Era: August 5, 1964 through May 7, 1965, or beginning February 28, 1961 you served in Vietnam
Persian Gulf War: August 2, 1990 through the present
Once qualifying military service is established, you must also pass the income and asset tests. The VA must determine that your net worth is not enough to adequately support you during your lifetime. Your vehicle and primary residence are not counted when determining your net worth. The VA generally caps net worth, exclusive of your car and primary residence, at $80,000 for a married veteran, or $40,000 for a single person.
Additionally, your countable income must be lower than the available pension amount. Fortunately, countable income is offset by your unreimbursed, recurring health care costs, including prescriptions, insurance premiums or assisted living expenses.
Sunday, January 20, 2013
Many people give to charity during their lives, but unfortunately too few Americans take advantage of the benefits of incorporating charitable giving into their estate plans. By planning ahead, you can save on income and estate taxes, provide a meaningful contribution to the charity of your choice, and even guarantee a steady stream of income throughout your lifetime.
Those who do plan to leave a gift to charity upon their death typically do so by making a simple bequest in a will. However, there are a variety of estate planning tools designed to maximize the benefits of a gift to both the charity and the donor. Donors and their heirs may be better served by incorporating deferred gifts or split-interest gifts, which afford both estate tax and income tax deductions, although for less than the full value of the asset donated.
One of the most common tools is the Charitable Remainder Trust (CRT), which provides the donor or other designated beneficiary the ability to receive income for his or her lifetime, or for a set period of years. At death, or the conclusion of the set period, the “remainder interest” held in the trust is transferred to the charity. The CRT affords the donor a tax deduction based on the calculated remainder interest that will be left to charity. This remainder interest is calculated according to the terms of the trust and the Applicable Federal Rate published monthly by the IRS.
The Charitable Lead Trust (CLT) follows the same basic principle, in reverse. With a CLT, the charity receives the income during the donor’s lifetime, with the remainder interest transferring to the donor’s heirs upon his or her death.
To qualify for tax benefits, both CRTs and CLTs must be established as:
A Charitable Remainder Annuity Trust (CRAT) or a Charitable Lead Annuity Trust (CLAT), wherein the income is established at the beginning, as a fixed amount, with no option to make further additions to the trust; or
A unitrust which recalculates income as a pre-set percentage of trust assets on an annual basis; which would be either a Charitable Remainder Unitrust (CRUT) or a Charitable Remainder Annuity Trust (CRAT).
Another variation is the Net Income Charitable Remainder Unitrust, which provides more flexible payment options for the donor. One advantage to this type of trust is that a shortfall in income one year can be made up the following year.
The Charitable Gift Annuity (CGA) enables the donor to buy an annuity, directly from the charity, which provides guaranteed fixed payments over the donor’s lifetime. As with all annuities, the amount of income provided depends on the donor’s age when the annuity is purchased. The CGA gives donors an immediate income tax deduction, the value of which can be carried forward for up to five years to maximize tax savings.
IRA contributions are also an option through 2011 for donors who are at least 70½ years of age. Donors who meet the age requirement can donate funds in an Individual Retirement Account (IRA) to charity via a charitable IRA rollover or qualified charitable distribution. The amount of the donation can include the donors’ required minimum distribution (RMD), but may not exceed $100,000. The contribution must be made directly by the trustee of the IRA.
With several ways to incorporate charitable giving into your estate plan, it’s important that you carefully consider the benefits and consequences, taking into account your assets, income and desired tax benefits. A qualified estate planning attorney and financial advisor can help you determine the best arrangement which will most benefit you and your charity of choice.
Thursday, January 10, 2013
Joint Bank Accounts and Medicaid Eligibility
Like most governmental benefit programs, there are many myths surrounding Medicaid and eligibility for benefits. One of the most common myths is the belief that only 50% of the funds in a jointly-owned bank account will be considered an asset for the purposes of calculating Medicaid eligibility.
Medicaid is a needs-based program that is administered by the state. Therefore, many of its eligibility requirements and procedures vary across state lines. Generally, when an applicant is an owner of a joint bank account the full amount in the account is presumed to belong to the applicant. Regardless of how many other names are listed on the account, 100% of the account balance is typically included when calculating the applicant’s eligibility for Medicaid benefits.
Why would the state do this? Often, these jointly held bank accounts consist solely of funds contributed by the Medicaid applicant, with the second person added to the account for administrative or convenience purposes, such as writing checks or discussing matters with bank representatives. If a joint owner can document that both parties have contributed funds and the account is truly a “joint” account, the state may value the account differently. Absent clear and convincing evidence, however, the full balance of the joint bank account will be deemed to belong to the applicant.