Steps of Estate Planning 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.
Steps To Estate Planning
What to Bring to Appointment
I recommend bringing any existing legal papers, wills, trust, deeds,
a list of assets, if possible and also last years income tax form. These
documents allow the attorney to assess the exposures and present tax situation.
But Don't get overwhelmed. Just bring yourself even if you don't have the
other information. The attorney will help you.
Who Should Come
It is important to have the husband and wife present, if married. If
you feel it necessary, bring any children you might want to also know about
your financial and legal matters.
The attorney will ask you personal questions about your current situation,
your goals in terms of tax savings and probate avoidance and special concerns
for your family, and any personal concerns.
Your Estate Exposures Explained
Next the estate planning attorney will explain your exposures presently,
in the future, and review the options you may want to consider to protect
your financial security presently and plan to protect your heirs in the
Legal Strategies Explained
The attorney will next tell you exactly what legal documents you need,
and what kind of insurance you should consider. You may wish to have your
insurance advisor with you to also give you a quote at the same time with
the attorney present. Then you can respond as to if you feel it is realistic
to consider insurance in your present budget as part of your estate plan.
If not, than the attorney can advise you accordingly as to the options
which may not protect you as well, but certainly lead to a better financially
secure situation than you may be in presently.
Legal Fees Discussed
I recommend charging folks a flat fee for legal documents instead of
by the hour to take the unknown out of the way so that they can make a
better decision then as to what they want to do next. An estate planning
attorney will know right away what legal work will be involved, and it
should not be made into a federal case. Then the insurance agent can meet
with the folks again later to review insurability, and start any insurance
applications as well.
Legal Documents Prepared
The attorney should be able to have the legal documents ready within
1-2 weeks. It is not wise to delay the legal document process, as it is
not comforting to know your exposures, and leave matters undone for any
length of time. I believe folks want peace of mind, and that is what estate
planning is all about. Peace of mind, financial security, and the pursuit
of financial liberty and happiness is the ultimate goal.
Execution of Legal Documents
Next the couple or individual will meet again 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 understood
yet easiest of all. While assets are in the Trust, you totally control
them. You can buy and sell anything you want. Anything new you buy will
be put in the trust. If you sell something and receive cash, 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 your current deed is. The recording fee is usually
under $20. A letter of instruction is prepared for you to mail to your
insurance, investment and banking institutions requesting that they transfer
and change the ownership of your assets to the name of your trust for example
the John and Mary Doe Revocable Living Trust. Those institutions will than
either make the change and 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 5 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 though as advised by the attorney
as quickly as possible. You never know when the doctor can diagnose you
with something as common as high blood pressure or something else which
could cause your insurance to be more expensive, or worse, perhaps uninsurable.
You are never as young and healthy or insurable as you are today. Don't
risk time taking that away from you.
Possible Future Exciting Steps
There are further steps for some folks which I do not recommend they
get overwhelmed with until they have completed the first stage. The other
steps involve tax saving strategies for estates over $300,000, and some
fun and creative ways to actually create more retirement income, bail out
of IRAs and other tax shelter investments tax free utilizing tax deductions
created by these advanced strategies. Other advanced strategies include
protecting your assets from the devastation of a nursing home stay which
is rapidly crippling financially many senior generation families. Remember
first things first and 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 being wiped out by estate
(death) taxes, lawyers fees and probate costs. Be aware of the pitfalls
and traps to properly planning your estate distribution.
The following are some of the biggest pitfalls and solutions on how
to avoid them:
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) causing
thousands of dollars and months if not years lost in 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 but too often ignored legal documents.
Not Protecting BOTH Spouses' $675,000 Exemptions. Most spouses think
they are doing adequate estate planning by simply leaving all their property
to each other. Not so. 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 each spouse can take advantage of their
$675,000 credit with a Credit Shelter Trust. They could pass up to $1,350,000
absolutely estate tax and probate free. The survivor spouse would be entitled
to all the trust income and necessary principal for as long as he or she
Not Adequately Utilizing Life Insurance. Life insurance is an excellent
method for building savings protecting your loved ones. It will also prepare
for the possibility of paying estate taxes and/or equalizing an estate
between 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 specialist, when it come 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 toll on the family financially not to mention 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.
Not planning for Other 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 to your home. Any of these
causes could wipe out a small to medium size estate. Make sure you have
adequate insurance coverage for these other life crisis possibilities.
Planning For Long Term Care Financing
Thinking that Estate Planning is Only for the Rich. This is the
worst mistake of them all. Not adequately planning for a middle to large
estate will cause 37-55%+ of an estate to be lost. The entire - 100%-
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 is not done.
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 various for different families... I don't
suggest Savings or Medicaid. There are much better solutions through proper
planning with Family Support, Home Health Care and Nursing Home 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. Not even enough
to pay one year for care. Financial experts indicate that 1/3 of the middle
class would have their existing savings wiped out in 13 weeks and 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 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 the
senior parents requiring expensive care are themselves squeezed between
their needy elderly parents and their college age own children whose cost
of education runs from $25,000 and up per student per year and their own
inability to save adequately up to now for their own retirement. Further,
the 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 - 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, walking and
toileting, none of which is paid for by Medicare or the related Medicare
Supplement policies. The fastest growing cause of nursing home stays are
due to Alzheimer Disease which requires uncovered custodial care which
again Medicare does not cover.
The rules to qualify for Medicaid - the medical program for the poor
- has become extremely stricter over the past few years because of the
staggering cost of nursing home care on the government. Medicaid pays for
a little more than 40% of nursing home care, the rest from private paying
patients. The waiting list is very long for Medicaid funding care and the
is a very strong likelihood that the care will have to be provided is a
facility far away from the original home or visiting family. A middle class
person has to spend their assets down to about $2,000 to qualify. Married
couples can have somewhat more to try to protect the spouse still living
at home but its financially ruinous for both single and married persons
of the middle class. Further what assets they do have is subject to be
recaptured later to compensate for the Medicaid payments by the state.
It is so emotionally devastating for a hard working middle class family
to have to spend down and become poor to qualify or worse and more tragic,
some are even getting divorced to protect themselves financially.
As of January 1997 a new law makes it a federal crime to attempt to
transfer assets to qualify and apply for Medicaid. BEWARE.... this is a
very serious crime with a penalty of up to 5 years in prison and up to
$25,000 dollars for fines. This encompasses any persons that advised professionally
such a plan to qualify for Medicaid. ... Thus be careful to seek proper
legal counsel with an asset protection, estate planning expert before you
decide to make large gifts to family members or otherwise.
With the above concerns there are legal strategies to protect a family's
assets against a nursing home stay. They are very strict and complicated.
As I mentioned above.... You should only work an attorney who is very knowledgeable
and experienced in elder law, estate planning and nursing home asset protection.
The strategies involve unique strategies that are not an option for everyone.
Proper use of these few legal strategies can protect a family's assets.
Further, because the requirements are so strict with long waiting periods,
it is highly advised that strategies be used in conjunction with long term
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, 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 specialist
that is knowledgeable in long term care.
You need to work with legal and insurance advisors for many reasons,
because while some lawyers are regrettably opposed to insurance, as an
estate planning attorney and former Virginia Deputy Commissioner of Insurance,
I strongly believe that insurance and estate planning go together like
America and Apple Pie.
When a person age 75 tells me the premium is to high and they just can't
save for it, I advise them of the very high risk and cost of having to
go to a nursing home and that even if they paid LTC premiums for 15 years
until age 90 for a total $45,000 in premiums, it is still less than guessing
wrong having to pay just one year's cost for a nursing home stay and that
the average stay is double that with two years.
Ball park figures for Nursing Home Insurance
Premiums of course vary as stated above but annual premium ball park
estimates for basic long term care policies are as follows:
Rates should not increase once the policy is bought. It is also advisable
to have the daily coverage benefits increase with inflation (inflation
$1500 at age 60
$2500 at age 65
$3200 at age 70 and
$4000 at age 75
A Better Choice for Long Term Care Financing
The best solution is to plan early. At least start a program by the
early to mid age 60s by combining legal and insurance strategies. For example
at age 60 the LTC premium can be capped at less than a $1,500 a year and
the balance be used to purchase permanent life insurance that can also
build towards a cash value savings each year. Meanwhile, the life insurance
policy has built up a sizable cash value that could also be used for other
estate planning goals and a retirement emergency fund. 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 is clearly A Better Choice.
©2000 Stephen J. Kaufmann All rights