Taking Fear Out of
Many times the greatest obstacle that people encounter in Asset/Estate
Protection Planning is wondering what they are getting into. When they
decide they would like to look into meeting with an attorney to start an
asset protection plan, they are reluctant to initially make the call. That's
usually because they don't know what its going to cost in time and money.
Taking the fear and confusion out of estate planing what to ask. That is
also why it is very important to work with an experienced estate planning
advisor when it comes to protecting your life time of savings and choices
so you can maintain the best possible quality of life.
Steps of Estate Planning
Let me start by explaining each step that is involved.
What to Bring to Appointment
I recommend bringing any existing legal papers, wills, trust, deeds,
a list of assets, if possible and also last year’s income tax form.
These documents allow the attorney to assess the exposures and present
tax situation. Sometimes it is difficult to locate all of these documents;
however you should not get overwhelmed. Just bring yourself, even
if you don't have the other information. The attorney will help you.
Who Should Come
For a married couple it is important to have the husband and wife
present. If you feel it necessary, bring any children whom you feel should
know about your financial and legal matters financial and legal matters.
The attorney will ask you important questions about your current
financial situation. By sharing your goals in terms of tax savings and
probate avoidance you help the attorney to understand your needs and special
concerns for your family.
Your Estate Exposures Explained
Next the estate planning attorney will explain your exposures
presently, in the future. “Exposures” are those things that make you or
your estate vulnerable to financial loss or disaster. Next the attorney
will review the options available for you to better protect your financial
security currently and the financial security of your heirs.
Legal Strategies Explained
The attorney will next tell you exactly what legal documents are
needed, and what kind of insurance you should consider. You may wish to
have your insurance representative with you to provide you with a quote
at the same time the attorney is present. Then you can decide if it is
realistic to include such insurance as part of your estate plan. If not,
then the attorney can advise you as to the options which may not protect
you as good, but certainly lead to a more financially secure situation
than you may be in presently.
Legal Fees Discussed
I recommend charging a flat fee for legal documents. This takes
the unknown out of the way so that they can make a better decision for
what they want to do next. Fees relate directly with the family and tax
situation so that way the most appropriate tax and probate avoidance legal
provisions will be part of the legal estate plan. An estate planning attorney
will know right away what legal work will be involved. Then the insurance
agent can meet with the insured again at a later date to review insurability
and start any insurance applications as well. This process should not be
made into a ‘Federal Case’.
Legal Documents Prepared
The attorney should be able to have the legal documents ready
within 1-2 weeks after the initial meeting. It is not wise to delay the
legal document process. It is not comforting to know your exposures and
leave matters undone for any length of time. I believe people want peace
of mind, and that is estate planning is all about. The ultimate goals are
peace of mind, financial security, the pursuit of financial liberty, and
Execution of Legal Documents
Next the couple or individual will meet with the attorney again,
and the legal documents will be executed (signed, and made alive and effective).
Putting Assets in the Trust
The next step is the most important step when trusts are involved.
The assets need to be transferred into the trust. This step is the most
misunderstood, yet easiest of all. While assets are in the Trust, you totally
control them. You can buy and sell anything you want. Anything new that
you buy will be put into the trust. If you sell something and receive cash,
all you need to do is put the money in the bank or money market fund
titled in the name of the trust. The attorney will prepare a new deed to
your home and you simply file it at your county deeds office just as you
filled your current deed. The recording fee is usually $20. A letter of
instruction is prepared for you to mail to your investment and banking
institutions requesting that they transfer and change the ownership of
your assets to the name of your trust. For example: Will assets be listed
under the John and Mary Doe Revocable Living Trust. Those institutions
will than either make the change or send you a letter of confirmation,
or have you sign their form that they will send you in the mail. That's
it. You have completed the transfer process. The whole thing from beginning
to end takes about 6 working hours - less time then it takes to prepare
and eat a Thanksgiving dinner. It is also imperative that if insurance
is to be a part of your individualized estate plan that you follow through
as advised by the attorney as quickly as possible. You never know
if the doctor will diagnose something as common as high blood pressure
or something else, which may cause your insurance to be more expensive,
or cause you to be uninsurable. You are never as young and healthy or insurable
as you are today. Don't risk letting time taking that away from you.
Possible Future Exciting Steps
There are additional steps for some
people which I recommend after they have completed the first stage.
The other steps involve big tax saving strategies for estates over $300,000,
and some enjoyable and creative ways to actually create more retirement
income, and or bail out of IRAs and other tax shelter investments tax free.
Other advanced strategies include protecting your assets from the devastation
of a nursing home stay. This expense is rapidly creating financial devastation
to many senior generation families. I addressed some of those ideas in
the previous two issues of this publication. Remember to take care of first
things first. To wait and procrastinate, or worse, not to plan at all,
could result in totally wiping out even the smallest estate. For these
people estate planning is survival planning.
Estate Planning Traps to Avoid
The stakes are too high! 37-55%+ of an estate can be wiped out by estate
(death) taxes, lawyers fees and probate costs. Be aware of the pitfalls
and traps that keep you from properly planning your estate distribution.
The following are some of the biggest pitfalls and solutions on how
to avoid them:
1. A Will Alone is NOT Estate Planning.
A will is an invitation and a guarantee that an estate will have to be
probated (if over $10,000). This can cause thousands of dollars and may
require months if not years to settling the estate. A Revocable Living
Trust, in my opinion, is a far better estate planning document than simply
a Will. Also, a Will only takes effect at death. It does nothing to protect
your legal or health care affairs while you are alive. A Durable Power
of Attorney, Health Care Power of Attorney and Living Wills are also essential.
2. Not Protecting BOTH Spouses' $675,000 (year
2000 and 2001) Exemptions. Most spouses think they are doing adequate
estate planning by simply leaving all their property to each other. This
is not the case. This mistaken strategy could result in up to $300,000
of totally unnecessary estate taxes and probate costs. If the couple would
set up a Revocable Living Trust, then each spouse can take advantage of
the Credit Shelter for their ($675,000 in assets allowance and $220,550
tax saving) credit Trust. They could pass up to $1,350,000 absolutely estate
tax and probate free. The surviving spouse would be entitled to all of
the trust income and necessary principal for as long as he or she lives.
3. Not Adequately Utilizing Life Insurance.
Life insurance is an excellent method for building savings that will protect
your loved ones. It will also prepare for the possibility of paying estate
taxes and/or equalize an estate among family members all in one product.
A properly written permanent life insurance policy can also protect you
for possible long term care as well. Again, you need to work with a very
knowledgeable and experienced estate planning professional, when it comes
to these matters. The other methods of trying to obtain funds such as depleting
cash from the estate, loans, forced liquidation of assets and equity loans
extract too heavy a financed toll on the family and the estate. I know
of no better product or way to protect your family's present and future
financial security, liberty and peace of mind than with life insurance.
You are essentially buying discounted dollars at a fraction of its benefit
face amount. Again you need to work with a team of professionals. It is
also very important that the life insurance be written properly and also
placed in an irrevocable trust to avoid the proceeds being included in
the value of your gross estate for tax purposes. How do you think the rich
and famous do it? You can take advantage of the very same strategies and
tools they do. Remember not to make a decision is a decision. There is
A Better Choice. That is to develop your estate plan and act on it right
away. Procrastination and inaction is hazardous to your wealth. We all
need to realize that no longer can we count on the government or others
to take care of us. We have to have a plan.
4. Not planning for Lifetime Catastrophes.
An estate will not be worth much if a major loss occurs such as an uninsured
disability, nursing home stay, automobile accident or serious damage your
home. Any of these events could wipe out a small to medium size estate.
Make sure you have adequate insurance coverage for these life crisis possibilities.
5. Thinking that Estate Planning is only for the
Rich. This is the worst mistake of all. Not adequately planning for
a middle-to-large estate will cause 37-55%+ of an estate to be lost. 100%
of the entire smaller estate can be totally wiped out by not planning.
I call estate planning for the smaller estate- less than $200,000 -survival
planning because of the devastation to a life's work if proper planning
Planning For Long Term Care Financing
With nursing home costs ranging from $35,000 - $90,000 and more a year,
families are looking for financing solutions that won't result in the economic
devastation of years of hard work. With the average nursing home stay now
exceeding two years and the risk of a nursing home stay for people over
age 65 and especially after age 75 over 40%, people must plan and plan
quickly and soundly. The risk and cost stakes are too high not to do adequate
The solutions for covering a potentially very expensive home health
care or nursing home stay are (1) Savings, (2) Family Support, (3) Medicare,
(4) Medicaid, (5) Legal Strategies and (6) Long Term Care Insurance.
Long Term Care and Savings
Based on the average stay and costs, a family must be ready to
come up with $75,000 -100,000 to cover this high risk, high cost occurrence.
If a person using an IRA or other tax deferred savings vehicle saved $2,000
a year starting at age 60 and earned 8% a year, he would have $ 28,973
and at age 70, all of the distribution taxable income. That is not even
enough to pay for one year of care. Financial experts indicate that
1/3 of the middle class would have their existing savings wiped out in
13 weeks. Over 80% would be wiped out in one year You cannot save for this
catastrophe; you must find other solutions.
Can your Family Support You?
The days of being able to depend on family support have gone into American
folklore along with the old Leave it to Beaver and The Walton TV shows.
Most families today are either single parent or blended multi-marriage
families scattered all over the country. Baby Boomers who are the children
of senior parents requiring expensive health care are squeezed between
the financial needs of their parents, their children and themselves.
Their needy elderly parents maybe facing serious health concerns; their
children in college add an annual tuition bill up to $25,000; plus the
Baby Boomers have a need to save and plan for their own retirement. Further,
most Baby Boomer children do not have the time with their own incredibly
busy working lifestyle to actually provide the health care for their parents
at home. Seniors are on their own.
Contrary to an apparent widespread belief, Medicare does not pay for
nursing home costs other than on a very limited basis of up to 100 days
for approved skilled care only. Over 98% of care needed in a nursing home
is only for custodial care bathing, dressing, eating, washing and toileting.
None of those needs is paid for by Medicare or the related Medicare Supplement
policies. The fastest growing cause of nursing home stays is due to Alzheimer
Disease, which requires uncovered custodial care, which again is not covered
The rules to qualify for Medicaid - the medical program for the
poor - has become extremely strict over the past few years because of the
staggering cost of nursing home care on the government. Medicaid only pays
for a little more than 40% of those receiving nursing home care. The rest
comes from private paying patients. The waiting list is very long for Medicaid
funding care and there is a very strong likelihood that the care will have
to be provided a facility distant from the original home or visiting family.
A middle class person must spend their assets down to $2,000 to qualify.
Married couples can have somewhat more to protect the spouse still living
at home but it’s financially ruinous for both single and married persons
of the middle class. Further what assets they do have are subject to be
recaptured later to compensate for the Medicaid payments by the state.
It is so emotionally devastating for hard working middle class family to
have to spend down and become poor to qualify for Medicaid. What
is worse and more tragic is, some people are even getting divorced to protect
There are still legal and financial strategies to protect a family's
assets against a nursing home stay. They are very strict and complicated.
You should only work an attorney who is very knowledgeable in elderly law,
estate planning and nursing home asset protection. I do not recommend
just giving assets away to your family – then try to qualify for family
Medicaid. It is extremely important to work with an attorney very experienced
and knowledgeable in elder law, long term care and estate planning
Long Term Care Insurance
The only way a family can absolutely protect itself from the staggering
cost of nursing home care is with Long Term Care (LTC) insurance. You can
purchase home health care and/or nursing home care. The policies
will pay the daily benefit selected to cover the cost you select. Premiums
are based on age, health, daily benefit, and type of coverage (nursing
home, home health care or both), waiting period and benefit period. These
are essential, but highly complex products. You need to work with a professional
knowledgeable and experienced with long term care insurance.
There are many good reasons why you need to work with a specialist for
estate planning. While some lawyers are regrettably opposed insurance,
as an estate planning attorney and former Virginia Deputy Commissioner
of Insurance, I strongly believe that insurance and estate planning go
together hand in hand.
When a person age 75 tells me the premium is too high and that they
just can't save for it, I advise them of the very high risk they are taking
and the cost of having to go to a nursing home. Even if they paid LTC premiums
for 15 years until age 90 for a total of $45,000 in premiums, it
is still less than guessing wrong and having to pay just one year's cost
for a nursing home stay. That is because the average stay is two years.
Ball park figures for Nursing and Home Health Care
Premiums, of course, vary as stated above but annual premium ballpark
estimates are as follows:
$1,500 at age 60
$2,500 at age 65
$3,200 at age 70 and
$4,000 at age 75
Rates should not increase once the policy is purchased. It is also advisable
to have the daily coverage benefits increase with inflation as with an
inflation guard protection.
A Better Choice for
Long Term Care Financing
If you have assets in savings or investments, or a life insurance policy
that you have intended to cancel or cash in those assets could be re-allocated
to provide a combination of tax deferred savings as well as to provide
long term care coverage. The earlier you can start, ideally in your 40’s
the less expensive long term care insurance will be. For example
at age 40 the LTC premium can be capped at less than a $500 a year.
At age 60 you can cap long term care around $3,000 a year. Waiting
until a person reaches their 70s increases the cost of any insurance and
risks the possibility that the long legal waiting requirements to qualify
for Medicaid asset protection won't be met, and again you can lose your
insurability. It is never to early or late to start planning, however just
trying to save for the un-savable cost of long term care could be the worse
approach. Legal strategies with Long Term Care Insurance are clearly A
I find that the greatest obstacle that people encounter is wondering
what they are getting into when they decide they would like to look into
meeting with an attorney to start an estate plan. They are reluctant to
initially make the call because they don't know what its going to cost
in time and money. Taking the fear and confusion out of estate planing
involves educating folks to know what to ask. That is also why it is also
very important to always work with Legal and Insurance Advisors when it
comes to estate planning.
©2000 Stephen J. Kaufmann All rights