Year End Estate Planning Tip #1 – Check Your Estate Tax Planning

With the end of the year fast approaching, now is the time to fine tune your estate plan before you get caught up in the chaos of the holiday season. One area that married couples should revisit is their estate tax planning.

Do You Still Have “AB Trust” Planning in Your Estate Plan?

If you’re married and you haven’t had your estate plan reviewed since before January 2, 2013, by an experienced estate planning lawyer, then pull your documents out of the drawer, dust them off, and take a closer look at their trust provisions. Do they contain terms such as “Marital Trust,” “QTIP Trust,” “Spousal Trust,” “A Trust,” “Family Trust,” “Credit Shelter Trust,” or “B Trust”?

If so, then your revocable trust contains estate tax planning provisions that were required in most estate plans before January 2, 2013. Now, you may not need this type of planning since the federal estate tax exemption has been fixed at $5 million per person adjusted for inflation (the exemption is $5.34 million in 2014 and expected to increase to $5.42 million in 2015).

Aside from this, the federal estate tax exemption is also “portable” between married couples (including legally married same-sex couples), meaning that when one of a married couple dies, the survivor may be able to get the right to use their deceased spouse’s unused estate tax exemption and so, without any complicated estate tax planning, pass $10 million+ to the deceased spouse’s heirs and the survivor’s heirs federal estate-tax free.

Do You Still Need “AB Trust” Planning in Your Estate Plan?

With that said, do you still need to include “AB Trust” estate tax planning in your estate plan? The answer to this question depends on several factors, including:

• Are the combined estates of you and your spouse under $5 million? If the combined value of the estates of you and your spouse is under $5 million, then you will not need to worry about federal estate taxes (at least for now). Nonetheless, there may be other reasons to keep your “AB Trust” planning in place as discussed below.

• Do you and your spouse have different final beneficiaries of your estates? If you and your spouse have different final beneficiaries of your estates (for example, you want your estate to ultimately pass to your children while your spouse wants their estate to ultimately pass to their siblings or their children), then “AB Trust” planning may be necessary to insure that the final estate planning goals of each spouse are met.

• Do you and your spouse want to create a dynasty trust that will continue for many generations? Even if the combined value of the estates of you and your spouse is under $10 million, if you want to take advantage of both spouses’ generation-skipping transfer tax (“GSTT”) exemptions to create a lasting legacy for future generations, then “AB Trust” planning may be appropriate because the GSTT exemption is not portable between married spouses. In other words, if the combined values of the estates of you and your spouse is $10 million or less, then you may want to keep “AB Trust” planning in your estate plan so that you can fully use each spouse’s GSTT exemption for a dynasty trust for the benefit of your children, their children, and their children’s children.

In addition, there are many other factors and options to consider that an experienced estate planning attorney can explain.

What Should You Do?

If you’re married and your current estate plan includes “AB Trust” planning but you’re not sure if you should keep it in your plan, then make an appointment with an experienced estate planning attorney to discuss all of your options.

Celebrity Wills – Philip Seymour Hoffman’s Will: 3 Critical Mistakes

Oscar-winning actor Philip Seymour Hoffman died from a drug overdose in February 2014. Sadly, he left behind three young children – and a fortune estimated to be worth $35 million.

He was only 46.

After his death, Mr. Hoffman’s Last Will and Testament was filed for probate.

  • The Will is short – only 15 pages – and, it was signed on October 7, 2004, about a year and a half after the actor’s first child was born.
  • The Will leaves his entire estate to Marianne “Mimi” O’Donnell, a costume designer and the mother of all three of Mr. Hoffman’s children.
  • The couple never married and had separated in 2013 (due to Mr. Hoffman’s recurring drug problems).

Estate Planning Mistake #1 – Using a Will

Shortly after Mr. Hoffman’s Will was filed, The New York Post published it online and his final wishes instantly became public information.

  • We know his request to have his son (the only child living when the Will was signed) raised in Manhattan, Chicago, or San Francisco so that he “will be exposed to the culture, arts and architecture that such cities offer.”
  • There is another way – a private way. A Revocable Living Trust (as used by Elizabeth Taylor and Paul Walker) would have kept Mr. Hoffman’s final wishes a private matter.

Estate Planning Mistake #2 – Failing to Update His Estate Plan

Mr. Hoffman signed his Will in October 2004.

  • During the next nine years, he had two daughters, won an Oscar for best actor for his performance in Capote, and amassed the majority of his fortune.
  • Considering Mr. Hoffman’s well-documented, long-term struggle with drug addiction as well as the significant changes in his life and net worth during those nine years, it is surprising that he failed to update his estate plan.
  • At the very least, your estate plan should be reviewed every few years to insure that it still does what you want it to do and takes into consideration changes in your finances, your family, and the law.

Estate Planning Mistake #3 – Ignoring a Trusted Advisor

In probate court documents filed in July, it was revealed that Mr. Hoffman’s accountant repeatedly advised him to protect his children with a trust fund. But the actor ignored this good advice.

  • With the terms of the old 2004 Will left unchanged, the estate will pass to Mr. Hoffman’s estranged girlfriend, outright and without any protections.
  • Nothing will go directly to his children.
  • Had Mr. Hoffman listened to his accountant and worked with an estate planning attorney, he could have established a lasting legacy for his children, protecting them and their inheritances.

With the counseling and advice of an experienced estate planning attorney, you can avoid mistakes like Mr. Hoffman’s.

3 Asset Protection Tips You Can Use Now

A common misconception is that only wealthy families and people in high risk professions need to put together an asset protection plan. But in reality, anyone can be sued. A car accident, foreclosure, unpaid medical bills, or an injured tenant can result in a monetary judgment that will decimate your finances. Below are three tips that you can use right now to protect your assets from creditors, predators and lawsuits.

What Exactly is Asset Protection Planning?
Before getting to the tips, you need to understand what asset protection planning is all about. In basic terms, asset protection planning is the use of legal structures and strategies to transform property that creditors might snatch away into property that is completely, or, at the very least, partially, protected.

Unfortunately, this type of planning cannot be done as a quick fix for your existing legal problems. Instead, you must put an asset protection plan in place before a lawsuit is imminent, let alone filed at the courthouse. So, now is the time to consider implementing one or more of these tips.

Now, on to the three tips.

Asset Protection Tip #1 – Load Up on Liability Insurance
The first line of defense against liability is insurance, including homeowner’s, automobile, business, professional, malpractice, long-term care and umbrella policies. Liability insurance not only provides a means to pay money damages, it often also includes payment of all or part of the legal fees associated with a lawsuit. If you do not have an umbrella policy, then now is the time to get one since it is relatively inexpensive when compared with more advanced ways to protect your assets. You should also check all of your current insurance policies to determine if your policy limits are in line with your net worth and make adjustments as appropriate. You should then review all of your policies on an annual basis to confirm that the coverage is still adequate and benefits have not been stripped to keep premiums the same.

Asset Protection Tip #2 – Maximize Contributions to Your 401(k) or IRA
Under federal law, tax-favored retirement accounts, including 401(k)s and IRAs (but excluding inherited IRAs) are protected from creditors in bankruptcy (with certain limitations). Therefore, maximizing contributions to your company’s 401(k) plan is not only a smart way to increase your retirement savings, but it will also keep the investments away from creditors, predators and lawsuits. On the other hand, if your company does not offer a 401(k) plan, then start investing in an IRA for the same reasons.

Asset Protection Tip #3 – Move Rental or Investment Real Estate into an LLC
If you are a landlord or a real estate flipper or investor, then aside from having good liability insurance, moving your real estate into a limited liability company (LLC) can be a great way to help protect your assets from creditors, predators and lawsuits.

There are two types of liability that you should be concerned about with rental or investment property: (1) inside liability (where the rental or investment property is the source of the liability, like a slip and fall on the property, and the creditor wants to seize an LLC owner’s personal assets) and (2) outside liability (where the creditor of an LLC owner wants to seize LLC assets to satisfy the owner’s debt).

An LLC will limit your inside liability related to the real estate, such as a slip and fall accident on the front stairs of the property or a fire caused by faulty wiring located at the property, to the value of the property. In addition, in many states the outside creditor of the member of an LLC cannot get their hands on the member’s ownership interest in the company (in some states this will only work for multi-member LLCs, while in others it will also work for a single member LLC). This type of outside creditor protection is often referred to as “charging order” protection. This means that a creditor will have to look to your liability insurance and any unprotected assets to collect on their claim.

If you are interested in asset protection planning for your investment real estate using an LLC, then you will need to work with an attorney who understands the LLC laws of the state where your property is located to insure that your LLC will protect you from both inside and outside liability.

Discretionary Trusts – How to Protect Your Beneficiaries From Bad Decisions and Outside Influences

Leaving your hard-earned assets outright to your children, grandchildren or other beneficiaries after you die will make their inheritance easy prey for creditors, predators, and divorcing spouses. Instead, consider using discretionary trusts for the benefit of each of your beneficiaries.

What is a Discretionary Trust?

A discretionary trust is a type of irrevocable trust that is set up to protect the assets funded into the trust for the benefit of the trust’s beneficiary. This can mean protection from the beneficiary’s poor money-management skills, extravagant spending habits, personal or professional judgment creditors, or divorcing spouse.

Under the terms of a typical discretionary trust, the trustee is limited in how much can be distributed to the beneficiary and when the distributions can be made. You can make the terms and time frames as limited or as broad as you want. For example, you can provide that distributions of income can only be made for health care needs after the beneficiary reaches the age of 21, or you can provide that distributions of income and principal can be made for health care needs and educational expenses at any age.

An added bonus of incorporating discretionary trusts into your estate plan is that the trusts can be designed to minimize estate taxes as the trust assets pass down from your children to your grandchildren (this is referred to as “generation-skipping planning”). In addition, you can dictate who will inherit what is left in each beneficiary’s trust when the beneficiary dies, which will allow you to keep the trust assets in the family.

While the distribution choices that can be included in a discretionary trust are virtually endless (within certain parameters established under bankruptcy and creditor protection laws), the bottom line is that a properly drafted discretionary trust will protect a beneficiary’s inheritance from creditors, predators, and divorcing spouses, avoid estate taxes when the beneficiary dies, and ultimately pass to the beneficiaries of your choice.

Where Should You Include Discretionary Trusts in Your Estate Plan?

Discretionary trusts should be included in all of the trusts you have created that will ultimately be distributed to your heirs, including:

• Your Revocable Living Trust
• Your Irrevocable Life Insurance Trust
• Your Standalone Retirement Trust

What Should You Do?

If you are concerned that your children, grandchildren, or other beneficiaries will not have the skills required to manage and invest their inheritance or will lose their inheritance in a lawsuit or divorce, then talk to your estate planning attorney about how to incorporate discretionary trusts into your estate plan.

Why Does Probate Take So Long?

Probate can be easily avoided, but most estates are dragged through the process. Why? Many people fail to create an estate plan, so probate is required. And – others plan with just a Will, so probate is required. As a result, assets end up at the mercy of the court system, open to public scrutiny, and delayed passing to beneficiaries.

Frustratingly, probate can drag on for months – or even years. Here are some of the most common reasons why probate takes so long:

1. Many Beneficiaries. In general, estates with many beneficiaries take longer to probate than estates with just a few beneficiaries.

Why? It takes time to communicate with each and every beneficiary and, if documents need to be signed, there are always beneficiaries who fail to return their signed documents in a timely manner. Regardless of advances in modern technology and communications, it simply takes a long time to reach multiple beneficiaries, spread out across the United States or in a foreign country.

2. Estate & Inheritance Tax Returns. Estates are required to file an inheritance tax return in the Commonwealth of Pennsylvania. And, Estates required to file an estate tax return at the federal level are usually complicated. The personal representative can’t make a final asset distribution until she is absolutely sure that the state inheritance tax return and the federal estate tax return have been accepted and the inheritance/estate tax bill(s) has/have been paid in full. At the federal level, it can take up to a year before the IRS gets around to reviewing and accepting an estate tax return.

3. Angry Beneficiaries. Nothing can drag out the probate process like a family feud. When beneficiaries don’t get along or won’t speak to each other, the personal representative may be forced to go to court to get permission to do just about everything. That takes time.

4. Incompetent Personal Representative. A personal representative, who is not good with money, irresponsible, disorganized, or busy with his job or family, will drag probate on and on. Why? Because a personal representative must efficiently and effectively handle the responsibilities and duties that go along with serving. It’s a lot of work.

What Can Be Done to Speed Up Probate?
The best way to speed up probate is to avoid it altogether. Avoidance is the only way to eliminate probate delays. If properly drafted and funded, a Revocable Living Trust will avoid probate perils, stresses, and delays.

Aligning Insurance Products within a Planning Structure

We use a variety of insurance products to manage risk in different areas of our lives in order to protect our wealth from losses that can come from property damage, businesses we own, disability, retirement and death. Instead of considering these products as separate items, make them part of an integrated, overall risk management plan.

The Key Takeaways
• A variety of insurance products are used to help manage risk and protect wealth.
• The best results occur when separate insurance products are part of an integrated plan.

Different Kinds of Insurance for Different Risks
Most insurance can be grouped in these general categories.

Property: This would include insurance on automobiles and other vehicles; home, furnishings, jewelry and artwork, and personal liability insurance.

Business: Business owners need insurance on a building they own, office equipment and computers, as well as liability, worker compensation, errors and omissions insurance, and so on.

Health and Disability: Disability income insurance replaces part of your income for a certain length of time if you should become ill or injured and unable to work. Health insurance helps to pay for medical services received. Long-term care insurance helps to pay for extended care that is not covered by most health insurance or Medicare.

Retirement: Annuities and other insurance products can help replace income after retirement.

Estate Planning: Life insurance is often used to replace an earner’s income; to pay funeral expenses, debts and taxes; to fund family and charitable trusts; to fund a business buyout and compensate the surviving owner’s family; and to provide an inheritance to family members who do not work in a family business.

What You Need to Know
Remember, insurance is for risk management—to protect your wealth from potential areas of loss. If a risk is no longer there (the exposure ends or you are able to self-insure and cover the risk yourself), then the insurance coverage for that risk can be eliminated.

Actions to Consider
• Trying to coordinate your insurance and manage your risk yourself is a daunting task. Instead, work with a team of advisors who have the knowledge and experience to help you make sure your risks are covered at the appropriate levels, without duplication and unnecessary costs.
• An advisory team will usually include your financial investment advisor, estate planning attorney, and life, health and property/casualty insurance agent(s). Other members may be added to this team as needed. You will probably find that your advisors will welcome the opportunity to work on your team, because they want to provide you and your family with the best possible service and solutions.

U.S. Supreme Court Rules Inherited IRAs are Not Protected from Creditors

On June 12, 2014, the U.S. Supreme Court—in a unanimous decision—ruled that Individual Retirement Accounts (IRAs) inherited by anyone other than a spouse are not retirement funds and therefore are not protected from the beneficiary’s creditors in bankruptcy.

The reasoning is, because the beneficiary cannot make additional contributions or delay distributions until retirement, it is not a retirement account. There is, in fact, nothing to prevent a beneficiary from withdrawing funds, or even clearing out the account, at any time. As a result, these funds must also be available to satisfy the beneficiary’s creditors during bankruptcy. Following the same logic, an inherited IRA is also subject to divorce proceedings.

This is not great news for parents who have planned to leave large IRA accounts to their children or grandchildren, with the desire to continue the tax-deferred earnings for many more years over their lives.

Fortunately, there is a solution. By using a trust as the beneficiary of the IRA, you can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect your hard-earned savings from the beneficiary’s creditors.

The Key Takeaways
• Inherited IRAs are not protected from the beneficiary’s creditors in bankruptcy.
• Using a trust as beneficiary can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect these savings from the beneficiary’s creditors.

Using a Trust as Beneficiary of an IRA
Using a trust as beneficiary of an IRA or retirement plan account will let you use the oldest beneficiary’s life expectancy to stretch out the tax-deferred growth. It will let you keep control over when the beneficiary receives distributions, and can protect the asset from the beneficiary’s creditors (including bankruptcy), predators (those who may have undue influence on the beneficiary), irresponsible spending, and divorce proceedings. You can even provide for a beneficiary with special needs without jeopardizing government benefits.

In order for the trust to qualify, it must meet certain requirements, including that a) it must be valid under state law; b) it must be irrevocable not later than the death of the owner; c) all beneficiaries of the trust must be individuals (no charities or other non-persons) and they must be identifiable from the trust document; and d) a copy of the trust document must be provided to the account custodian by a certain date.

Because the trust’s oldest beneficiary’s life expectancy must be used to determine the distributions, many people opt for a separate share for each beneficiary or even a separate trust for each beneficiary. These are called “stand alone retirement trusts” because they are created solely for retirement plan and IRA assets. (A revocable living trust would still be used for other general estate planning purposes.)

What You Need to Know
Planning for IRAs and other tax-deferred savings plans is not something to be taken lightly and not a task to try to master yourself. The laws are complicated, and a simple mistake can be disastrous and irreversible. Because there is often a lot of money involved with these plans, it pays to work with an estate planning attorney who has considerable experience in this area.

Important Notes
• A conduit trust requires that all distributions from the IRA or retirement plan must be distributed to the trust’s beneficiary(ies). (The trust is simply a “conduit” from the plan to the beneficiary.) These distributions are not protected from a beneficiary’s creditors and have no asset protection.
• With an accumulation trust, the distributions may be kept within the trust instead of being distributed to the beneficiary. Assets that remain in the trust are protected from the beneficiary’s creditors, but any undistributed income kept in the trust will be subject to higher income tax rates than what an individual would pay on the same amount.
• A “trust protector” can be given the power to change the trust from a conduit to an accumulation trust. This can be valuable if there is a change in the beneficiary’s circumstances (due to disability, drug problems, etc.), making it advantageous to keep the distributions in the trust.
• Your attorney will be able to suggest the best combination of beneficiary designations for both the IRA or retirement plan and your Trust(s). Having these options will let your beneficiaries make good decisions based on the circumstances at that time. For example, if your spouse is in ill health when you die, it may make sense for your spouse to disclaim an IRA so that your children can inherit it and have distributions paid over their longer life expectancies.

Take Action
It is essential that you take action to ensure that your IRA can’t be seized by your beneficiaries’ creditors. Call our office now to schedule an appointment. We’ll get you in as soon as possible and analyze whether a Standalone Retirement Trust is appropriate to protect both your beneficiaries and your assets.

How to Leave Assets to Minor Children

Every parent wants to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles and other relatives often want to leave some of their assets to young children, too. But good intentions and poor planning often have unintended results.

For example, many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens. When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents. But the court, not the guardian, will control the inheritance until the child reaches legal age (18 or 21). At that time, the child will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once the child reaches the age of majority, the court must distribute the entire inheritance in one lump sum.

A court guardianship for a minor child is very similar to one for an incompetent adult. Things move slowly and can become very expensive. Every expense must be documented, audited and approved by the court, and an attorney will need to represent the child. All of these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs.

Quite often children inherit money, real estate, stocks, CDs and other investments from grandparents and other relatives. If the child is still a minor when this person dies, the court will usually get involved, especially if the inheritance is significant. That’s because minor children can be on a title, but they cannot conduct business in their own names. So as soon as the owner’s signature is required to sell, refinance or transact other business, the court will have to get involved to protect the child’s interests.

Sometimes a custodial account is established for a minor child under the Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). These are usually established through a bank and a custodian is named to manage the funds. But if the amount is significant (say, $10,000 or more), court approval may be required. In any event, the child will still receive the full amount at legal age.

A better option is to set up a children’s trust in a will. This would let you name someone to manage the inheritance instead of the court. You can also decide when the children will inherit. But the trust cannot be funded until the will has been probated, and that can take precious time and could reduce the assets. If you become incapacitated, this trust does not go into effect…because your will cannot go into effect until after you die.

Another option is a revocable living trust, the preferred option for many parents and grandparents. The person(s) you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do. And assets that remain in the trust are protected from the courts, irresponsible spending and creditors (even divorce proceedings).

How to Leave Assets to Adult Children

When considering how to leave assets to adult children, the first step is to decide how much each one should receive. Most parents want to treat their children fairly, but this doesn’t necessarily mean they should receive equal shares of the estate. For example, it may be desirable to give more to a child who is a teacher than to one who has a successful business, or to compensate a child who has been a primary caregiver.

Some parents worry about leaving too much money to their children. They want their children to have enough to do whatever they wish, but not so much that they will be lazy and unproductive. So, instead of giving everything to their children, some parents leave more to grandchildren and future generations through a trust, and/or make a generous charitable contribution.

When deciding how or when adult children are to receive their inheritances, consider these options.

Option 1: Give Some Now

Those who can afford to give their children or grandchildren some of their inheritance now will experience the joy of seeing the results. Money given now can help a child buy a house, start a business, be a stay-at-home parent, or send the grandchildren to college—milestones that may not have happened without this help. It also provides insight into how a child might handle a larger inheritance.

Option 2: Lump Sum

If the children are responsible adults, a lump sum distribution may seem like a good choice—especially if they are older and may not have many years left to enjoy the inheritance. However, once a beneficiary has possession of the assets, he or she could lose them to creditors, a lawsuit, or a divorce settlement. Even a current spouse can have access to assets that are placed in a joint account or if the recipient adds the spouse as a co-owner. For parents who are concerned that a son-or daughter-in law could end up with their assets, or that a creditor could seize them, or that a child might spend irresponsibly, a lump sum distribution may not be the right choice.

Option 3: Installments

Many parents like to give their children more than one opportunity to invest or use the inheritance wisely, which doesn’t always happen the first time around. Installments can be made at certain intervals (say, one-third upon the parent’s death, one-third five years later, and the final third five years after that) or when the heir reaches certain ages (say, age 25, age 30 and age 35). In either case, it is important to review the instructions from time to time and make changes as needed. For example, if the parent lives a very long time, the children might not live long enough to receive the full inheritance—or, they may have passed the distribution ages and, by default, will receive the entire inheritance in a lump sum.

Option 4: Keep Assets in a Trust

Assets can be kept in a trust and provide for children and grandchildren, but not actually be given to them. Assets that remain in a trust are protected from a beneficiary’s creditors, lawsuits, irresponsible spending, and ex- and current spouses. The trust can provide for a special needs dependent, or a child who might become incapacitated later, without jeopardizing valuable government benefits. If a child needs some incentive to earn a living, the trust can match the income he/she earns. (Be sure to allow for the possibility that this child might become unable to work or retires.) If a child is financially secure, assets can be kept in a trust for grandchildren and future generations, yet still provide a safety net should this child’s financial situation change.

Long-Term Care Planning, Part 2 – Your Funding Options

The first part of planning for long-term care is realizing that, a) most of us will need this kind of care for at least some time before we die and b) the cost of this care can be financially devastating for a family if it is not planned for in advance. This was covered in Long-Term Care Planning, Part 1.

The next part is determining how you will pay for long-term care that may be needed for you, your spouse or another family member.

The Key Takeaways
• Long-term care is not covered by health insurance, disability insurance or Medicare.
• You have limited options when considering how these expenses could be paid.
• The best way to plan for the possible expense of long-term care is to accept it as a central requirement in your overall financial planning and seek professional assistance.

Who Pays for Long-Term Care?
Many people are surprised to learn that long-term care is not covered by health insurance, disability income insurance or Medicare. Health insurance plans cover nursing home expenses only for a short period of time while you are recovering from an illness or injury. Disability income insurance will replace part of your income if you are not able to work after a specified time, but does not pay for long-term care. Medicare, which covers most people over age 65, provides limited coverage for skilled care for up to 100 days immediately following hospitalization. After that, you’re on your own.

How Will You Pay for Long-Term Care if Needed?
1. Use your own assets. This is called self-insuring. If you need long-term care, you will pay for it from your own assets. If you don’t need the care, then you will not have spent money on insurance premiums. You can set aside a certain amount of your assets for this specific purpose or have the expenses paid from a general investment fund. Your financial advisor will be able to help you make that decision, determine how much you might need, and help you attain your goal through investments.

2. Buy long-term care insurance. This has traditionally been a good option, especially if you have assets and income you want to protect, you want to avoid being a financial burden on others, and you want to have some choice in the care you receive. Most policies give you the option of receiving care in your own home or in a private-pay facility. As with any insurance, the premiums are lower when you are younger and in good health; if you wait too long, the cost could be prohibitive and you might not qualify. In recent years, the premiums have gone up on these policies because the insurance companies under-estimated the actual costs. Your insurance advisor will be able to help you evaluate current policies and determine if one is right for you.

3. Purchase life insurance and annuities with long-term care benefits. Some life insurance policies have accelerated death benefits that will pay benefits if the insured has a care issue, as do some annuity products. The premiums for these will be higher, but they may be worth exploring. Your insurance advisor will be able to help you evaluate these options.

4. Qualify for Medicaid. Medicaid pays the bills for a large number of people in nursing homes today. But because the program is designed to provide services for those who cannot support themselves (children, the disabled, the poor), you will have to “spend down” your assets and be practically penniless in order to qualify for benefits. Your spouse will also be limited to the amount of assets and income he or she can have, and you will only be able to receive care from a facility that accepts Medicaid. (Most people would prefer to receive care at home or in a private-pay facility.)

If you have minimal assets, this may be an option for you. However, before you do anything, speak with a local elder law attorney who has experience with Medicaid planning. Medicaid, while a federal program, is administered by the states, so the rules vary from state to state. An innocent error could disqualify you from receiving benefits for many months.

Explore a Medicaid Trust. When properly prepared, these irrevocable trusts can help some people qualify for Medicaid without impoverishing the well spouse or spending the children’s inheritance. Five years must pass between the time assets are transferred to the trust and when the person is deemed eligible for Medicaid. This is known as the “look-back period.” Long-term care insurance is often used to cover the look-back period if care is needed before qualifying for Medicaid. Assistance from a local elder law attorney who has extensive experience with these trusts is absolutely essential.

What You Need to Know: The benefit of planning for the possible costs of long-term care is the peace of mind that comes from knowing that this care can be provided if needed without destroying the financial well-being of the entire family.

Actions to Consider
• Find out the costs for long-term care in your area. Your professional advisors (financial, attorney, insurance) will be able to give you some parameters.
• Talk with your spouse about the kind of long-term care you would each like to receive if that time comes. Do you want to stay in your home? Do you want to be in an assisted-living facility together for as long as possible?
• Talk with your advisors (financial, attorney, insurance) about your options and make an educated decision that is right for you.
• Let other family members know about your decisions and your plans. This will let them know your wishes, what they will need to do, and whom to contact. It will also give them peace of mind.