For many, passing along religious beliefs and values to the next generation is just as important as passing along financial wealth and tangible assets. Estate planning creates many opportunities to do this, including:
* End-of-Life Care. A health care power of attorney (Advance Directive in some states) lets you name someone to make medical decisions for you in the event you cannot make them yourself. This can be someone who shares your faith and values about end-of-life issues or someone who will honor your wishes. In either case, it is a good idea to provide written instructions about things like organ donation, pain medication (some may want to remain conscious at the end of life), hospice arrangements, even avoiding care in a specific facility. A visit by a priest, rabbi or other member of clergy may be desired. Pregnant women may want to include their preference on medical decisions that would impact the mother and her unborn child.
* Funeral and Burial Arrangements. Faith can influence views on burial, cremation, autopsy, even embalming. Faith may also influence certain details in a funeral or memorial service. Some people pre-plan their services and include a list of people to notify (which can be helpful for a grieving family). Some even pre-pay for the funeral and burial plots to prevent their loved ones from overspending out of grief and/or guilt. Wisconsin allows the selection of an agent to handle funeral arrangements after death.
* Charitable Giving. Giving to others who are less fortunate is common among people of all faiths. Making final distributions to a church or synagogue, university, hospital and other favorite causes will convey the value of charitable giving to family members.
* Distributions to Children and Grandchildren. Taking the time to plan how assets are left to family members lets them know how much they are loved, and is another way to convey faith values. For example, providing for the religious education of children and/or grandchildren speaks volumes. Parents of young children can select someone who shares their religious views to manage the inheritance. A letter of instruction to the guardian can include views on the care and upbringing of young children, which are often influenced by faith.
If the children are older and a son- or daughter-in-law is not fully trusted, an attorney can assist with providing for a son or daughter in a way that will prevent an inheritance from falling into the wrong hands. However, making an inheritance conditional or disinheriting a child or grandchild who marries outside the faith or doesn’t share their parent’s faith can backfire. We cannot really force someone to believe as we do, and trying to do so by withholding an inheritance will only create discord in the family and may not be recognized by law. The emotional scars on the family, especially if a bitter legal fight results, are probably not what parents want for their family.
Transferring faith and values to family members is best done over time, by letting them see your faith at work in your life, taking them to religious services, and letting them see you being charitable. But it’s never too late. Talk to your family while you can. Explain what your faith means to you and how it has helped you through difficult moments in your life. You can also write personal letters or make a video that they can keep and review long after you are gone.
Before any trip, most of us create a “to-do list” of things we have put off and want to take care of before we leave. Here is a checklist of estate planning things to do before you take your next trip. Taking care of these will help you travel with peace of mind, knowing that if you don’t return due to serious illness or death, you have made things much easier for those you love.
1. Have your estate planning done. If you have been procrastinating about your estate planning, use your next trip as your deadline to finally get this done. Be sure to allow adequate time to get your estate plan completed in advance of your trip.
2. Review and update your existing estate plan. Revisions should be made any time there are changes in family (birth, death, marriage, divorce, remarriage), finances, tax laws, or if a trustee or executor can no longer serve. Again, be sure to allow enough time to have the changes made.
3. Review titles and beneficiary designations. If you have a living trust and did not finish changing titles and/or beneficiary designations, now is the time to do so. If a beneficiary has died or if you are divorced, change these immediately. If a beneficiary is incapacitated or a minor, set up a trust for this person and name the trust as beneficiary to prevent the court from taking control of the proceeds.
4. Review your plan for minor children. If you haven’t named a guardian who is able and willing to serve and something happens to you, the court will decide who will raise your kids without your input. If you have named a guardian, consider if this person is still the best choice. Name a back-up in case your first choice cannot serve. Select someone responsible to manage the inheritance.
5. Secure or review incapacity documents. Everyone over the age of 18 needs to have these: 1) Durable Power of Attorney for Heath Care, which gives another person legal authority to make health care decisions (including life and death decisions) for you if you are unable to make them for yourself; and 2) HIPPA Authorizations, which give written consent for doctors to discuss your medical situation with others, including family members.
6. Review your insurance. Check the amount of your life insurance coverage and see if it still meets your family’s needs. Consider getting long-term care insurance to help pay for the costs of long-term care (and preserve your assets for your family) in the event you and/or your spouse should need it due to illness or injury.
7. Organize your accounts and documents. It used to be that we could just point to a file cabinet and say everything was “in there.” But now so much is done online that there may not even be a paper trail. Make a list of ALL of your accounts, where they are located, and the user names and passwords, then review and update it before each trip. Print a hard copy in case your computer is stolen or crashes and let someone you trust know where to find it. Clean up your computer desktop and put your financial and other important files where they can be easily found. Make a back-up copy in case your computer is stolen or crashes, and let someone know where to find it. Be sure to include on your master list any passwords that might be needed to access your computer and files.
8. Talk to your children about your plan. You don’t have to show them financial statements, but you can discuss in general terms what you are planning and why, especially when any changes are made. The more they understand your plan, the more likely they are to accept it—and that will help to avoid discord after you are gone.
Many wartime veterans and their surviving spouses are currently receiving long-term care or will need some type of long-term care in the near future. The Veterans Administration has funds that are available to help pay for this care, yet many families are not even aware that these benefits exist.
Pension with Aid and Attendance pays the highest amount and benefits a veteran or surviving spouse who requires assistance in activities of daily living (dressing, undressing, eating, toileting, etc.), is blind, or is a patient in a nursing home. Assisted care in an assisted living facility also qualifies.
Pension with Housebound Allowance is for those who need regular assistance but would not meet the more stringent requirements for Aid and Attendance, and wish to remain in their own home or the home of a family member. Care can be provided by family members or outside caregiver agencies.
Basic Pension is for veterans and surviving spouses who are age 65 or older or are disabled, and who have limited income and assets.
Qualifying for Benefits
A veteran does not need to have service-related injuries to qualify for these pension benefits, but must meet certain wartime service and discharge requirements. A surviving spouse must also meet marriage requirements to the qualified veteran. Certain requirements must be met for a disability claim if the claimant (the veteran or surviving spouse filing for benefits) is less than age 65.
When determining eligibility, the VA looks at a claimant’s total net worth, life expectancy, income and medical expenses. A married veteran and spouse should have no more than $80,000 in “countable assets,” which includes retirement assets but does not include a home and vehicle. This amount is a guideline and not a rule.
Income for VA Purposes (called IVAP) must be less than the benefit for which the claimant is applying. IVAP is calculated by subtracting “countable medical expenses” (recurring out-of-pocket medical expenses that can be expected to continue through the claimant’s lifetime) from the claimant’s gross income from all sources.
Note: It is possible to reduce assets and income to a level that will be acceptable to the VA. For example, excess liquid assets (such as cash or stocks) could be converted to an income stream through the use of an annuity or promissory note. However, because the claimant may need to qualify for Medicaid in the future, it is critical that any restructuring or gifting of assets be done in a way that will not jeopardize or delay Medicaid benefits. An attorney who has experience with Elder Law will be able to provide valuable assistance with this.
Applying for Benefits
It often takes the VA more than a year to make a decision, but once approved, benefits are paid retroactively to the month after the application is submitted. Having proper documentation (discharge papers, medical evidence, proof of medical expenses, death certificate, marriage certificate and a properly completed application) when the application is submitted can greatly reduce the processing time.
Because time is critical for these aging veterans and their surviving spouses, application should be made as soon as possible. For more information, visit http://www.va.gov.
Not many parents like to talk to their children about their wealth. How much money people have is usually considered a private matter, something it’s not polite to talk about, but not talking to children about how much they may inherit can leave them unprepared to handle even a modest amount.
This is becoming especially important because children of baby boomers are due to inherit more wealth than ever before. It has been estimated that baby boomers will inherit $12 trillion from their parents and they will leave an additional $30 trillion to their own children over the next 30 to 40 years.
Many who have substantial wealth are concerned that letting their children know how much they have will take away any motivation for the children to be productive and involved citizens. They often want their children to learn how to live in the world as “normal” people, and to be productive and successful in their own right.
Even those who are not as wealthy may not want their children to know how much they have. They may be concerned that all of their savings will be needed for retirement, medical expenses and end-of-life expenses. If that turns out to be the case, their kids would not receive an inheritance they may have been counting on.
But not knowing what they may inherit leaves children in the dark and can actually hinder their ability to handle money wisely. Those who inherit a substantial amount may be unprepared for what to do with that much money. Many find they suddenly feel separated from their friends, isolated, even confused about how to handle relationships; some will be wasteful and lazy. Those who inherit even a modest amount are likely to be just as irresponsible; stories of inheritances being squandered on an expensive sports car, lavish vacations and fast living are all too common.
Experts agree it is important to talk to children about money and wealth, at least in generalities. There is no need to show them bank and financial statements. Instead of concentrating on money and material things, talk to them about your values, the opportunities money can provide and what you want to accomplish with it. Most parents want their children to think about others and many want to encourage entrepreneurship. Some give their children a small amount of money at a young age, and teach them how to save and invest, give a certain amount to charity and spend wisely.
Of course, the most effective way to teach children about money is to be an example; let them see you using your money in ways that reinforce your values. Many parents show how they value family relationships by spending their money on family vacations or buying a second home where the entire family can gather for summers and holidays. If your children see you being charitable and helping others, chances are they will become charitable, too.
With people living longer due to advances in medicine and changes in lifestyle, odds are that most of us will become disabled for some time before we die and may need long-term care. Unfortunately, too few plan for an event that is more likely to be a probability than a possibility—and the consequences of not planning can be disastrous for all involved.
When someone owns assets in his/her name and becomes unable to manage financial affairs due to mental or physical incapacity, only a court appointee can sign for the disabled person. This is true even if the person has a will, because a will can only go into effect after death. With some assets, especially real estate, all owners must sign to sell or refinance. So, for example, if a married couple owns their assets jointly, one of them becomes disabled and an asset needs to be sold or refinanced, the well spouse will have to go through the probate court in order for that to happen. In Wisconsin, this is a guardianship.
A guardianship is like a “living probate” because it is similar to the probate process at death but the person is still alive. It can be costly, time consuming and cumbersome with annual accountings, bonds, reports, ongoing determinations of incapacity/incompetency, and fees for attorneys, accountants, doctors and guardians. All costs are paid from the disabled person’s assets and all assets and proceedings become part of the public probate record. It usually lasts until the person recovers or dies which, depending on his/her age when the disability begins, can be years.
A fully funded revocable living trust avoids this problem. When a living trust is established, the titles of assets are changed from the individual’s name to the name of the trustee. This is called “funding” the trust. If the trust has been fully funded (all titles changed) and the person becomes unable to conduct business, there is no reason for a guardianship because the disabled person does not own any assets in his/her name. The successor trustee, hand-picked when the trust is created, can automatically step in without court interference and manage the disabled person’s financial affairs—selling or refinancing assets to help pay for his/her care and the care of loved ones, or keeping the owner’s business going—for as long as needed.
Other necessary documents include:
* Durable Power of Attorney, which allows the successor trustee to transfer to the trust assets that may have been overlooked, and to manage assets like IRAs and annuities that cannot be put into a living trust;
* Durable Healthcare Power of Attorney, which gives another person legal authority to make health care decisions (including life and death decisions) if you are unable to make them for yourself.
* HIPPA Releases, which give written consent for doctors to discuss your medical situation with others, including family members, loved ones and your successor trustee(s).
Planning for disability may also include disability income insurance (to help replace lost income), and long term care insurance (to help cover the costs of care that are not covered by medical insurance). Business owners may want to consider business or professional overhead insurance that will pay monthly operating expenses until they recover or the business can be sold or transferred, and buy-sell agreements in the event a co-owner becomes permanently disabled.
Disability before death is not always expected and it does not always happen, but it must be planned for.
Life insurance can be an affordable way to provide for our children, spouse, a sibling, aging parents and others if we should die while they are depending on us. Life insurance proceeds can provide extra income to help pay ongoing household bills and child care; pay off a mortgage, credit cards and other debt; pay for college; and pay funeral costs and other final expenses. Life insurance also plays a vital role in business succession planning and it has numerous applications in estate planning.
A simple way to determine the amount of life insurance needed for income replacement purposes is to multiply the annual income to be replaced by the number of years it will be needed. If the insured earns an income, use the amount actually contributed to the household (after personal expenses and taxes). If the insured is a stay-at-home parent and does not earn an income, determine how much will be needed to pay someone to take over those responsibilities. As an example, a dad who wants enough life insurance to replace his income for 20 years (until his children have completed college) would take the amount of annual income he wants to replace and multiply that by 20. He may want to add enough to pay for college and other expenses. The total amount is how much life insurance he needs. This is called the “face value” or “death benefit.”
Basically, there are two kinds of life insurance: term and permanent.
Term life insurance provides coverage for a set number of years, or term. It can be a good choice when coverage is needed for a certain number of years; for example, until the kids are out of college or the mortgage is paid off. It is also less expensive than permanent life insurance, and is least expensive when the insured is young and healthy. For these reasons, term life insurance is a popular choice for young families.
Permanent life insurance, on the other hand, does not expire at the end of a specified term (assuming the premiums are paid). Generally, the coverage stays in effect during the insured’s lifetime and the premium, depending upon the type of policy, can either stay the same or fluctuate based upon the financial performance of the policy. Permanent policies also build cash value over time that can be borrowed from the policy (reducing the proceeds paid at death), can be used to help pay the premiums, or can be refunded if the policy is cancelled.
The amount a family pays for life insurance must be a reasonable and manageable expense. The cost will depend on the amount, kind (term vs. permanent), and the age and health of the person to be insured. If the cost to replace income for 20 or 30 years is too much for the family budget, one option is to cover five to seven years of expenses, which will give the family time to cope and adjust after the loss.
Parents with minor children need to name someone to raise them (a guardian) in the event both parents should die before the child becomes an adult. While the likelihood of that actually happening is slim, the consequences of not naming a guardian are great.
If no guardian is named in the parent’s will, a judge—a stranger who does not know the parents, the child, or their relatives—will decide who will raise the child without knowing whom the parent would have preferred. Anyone can ask to be considered, and the judge will select the person he/she deems most appropriate. On the other hand, if the parent names a guardian (typically via the parent’s will), the judge will usually go along with the parent’s choice.
Choosing a Guardian
The guardian does not have to be a relative, so parents should consider and evaluate all candidates:
* Parenting style, values and religious beliefs should be similar to their own.
* Location could be important. If the guardian lives far away, the child would have to move from a familiar school, friends and neighborhood.
* How comfortable with the candidates is the child now?
* Consider the child’s age and that of the guardian-candidates. Grandparents may have the time, but they may not have the energy to keep up with a toddler or teenager. An older guardian may become ill and/or even die before the child is grown. A younger guardian, especially an adult sibling, may be concentrating on finishing college or starting a career. If the child is older and more mature, he/she should have some input into this decision.
* How prepared emotionally are the candidates to take on this added responsibility? Someone who is single may resent having to care for someone else’s children. Someone with a houseful of their own children may not want more around.
* Ask the top candidates if they would be willing to serve, and name alternates in case the first choice becomes unable to serve.
Raising the child should not be a financial burden for the guardian, and a candidate’s lack of finances should not be the deciding factor. The parent will need to provide enough money (from assets and/or life insurance) to provide for the child. Some parents also earmark funds to help the guardian buy a larger car or add onto their existing home or to buy a larger home, if needed.
Naming someone else to handle this money can be a good idea. Having the same person raise the child and handle the money can make things simpler because the guardian would not have to ask someone else for money, but the best person to raise the child may not be the best person to handle the money. It may be tempting for them to use this money for their own purposes.
Naming a guardian can be a difficult decision for many parents. Keep in mind that this person will probably not raise the child because odds are that at least one parent will survive until the child is grown. By naming a guardian, however, the parent is being responsible and planning ahead for an unlikely, yet possible, situation. Parents must realize that no one else will be the perfect parent for their child, so typically this means making compromises in some areas. Finally, parents should remember that they can change their mind. In fact, parents should review and change the guardian as their child grows and if the guardian’s situation changes.
While estate planning is important for everyone, women especially need to understand estate planning and have a plan of their own in place. Here are some issues that are of particular interest to women and their estate planning.
Incapacity. Because women, on average, live longer than men, there is an increased need to plan for physical and/or mental incapacity that can occur in later years. Long-term care insurance, purchased in advance, can help cover these costs and can even help women remain in their homes for as long as possible. It is also important to plan now to prevent the court from taking control of finances and of personal care at incapacity. At a minimum, durable powers of attorney (for both assets and health care decisions) are needed. A revocable living trust provides excellent protection for assets at incapacity and contains distribution instructions at death.
Children, Grandchildren, Parents and Pets. Those raising minor children need to name a guardian in their will. Otherwise, a judge will decide who will raise them without your input. Provisions need to be included for aging parents, a child or relative with special needs, pets and other dependents. Special planning can provide needed care without jeopardizing valuable government benefits. Additional life insurance may be needed to provide for these loved ones. A gifting program or trust can provide for the education of grandchildren and future generations.
Charitable Causes. Those who want some or all of their assets to go to a favorite charitable, religious or educational organization must include this in their estate planning. Without a valid plan in place, assets will be distributed by state law—and a charity will not be among the heirs. Proceeds from a life insurance policy also can be used to fund various types of charitable giving at your death.
Protecting a Business and Other Assets. Professional women in medicine, dentistry, veterinary science, law and real estate must be concerned about protecting their assets from lawsuits. Many women are also business owners and they need to plan for what will happen to their business when they are no longer involved due to incapacity, retirement or death. Asset protection planning and business succession planning can and should be included in the estate planning process.
Married Women. Women who marry tend to choose husbands who are older, which means they are likely to become widowed. Without proper estate planning while married, many will see their standard of living reduced during their retirement years. Those in second marriages need estate planning that provides for the surviving spouse, but does not disinherit children from a previous marriage. Since most married women survive their husbands, they often have final say over who will ultimately receive the couple’s assets. Women must take an active role in the couple’s estate planning. Knowledge is key—an unknowledgeable widow will likely be confused and uncertain. On the other hand, one who has participated in the planning process will more easily understand it and even feel empowered.
Unmarried Women (Never Married, Divorced and Widowed). Without valid instructions, state law will apply and that means friends, charities and unmarried partners will not be among your heirs. On the flip side, if you are divorced or separated, you need to update documents (including beneficiary designations) as soon as possible to prevent your ex from making life and death decisions for you or inheriting your assets.
One area that is often overlooked in the divorce process is the need to update estate planning. Most people would agree that their ex-spouse is the last person they want to inherit their assets when they die—or to make life and death decisions for them. But that is exactly what can happen – and often does – when these documents are not updated.
Assets that have beneficiary designations (e.g., life insurance policies, employer retirement plans, IRAs, annuities, health savings accounts, investment accounts and some bank accounts) are not controlled by a will or trust. Instead they will be paid directly to the person listed as beneficiary. Since most married people name their spouse as their beneficiary, these should be changed right away.
However, naming the right beneficiary is critical. This is especially true for tax-deferred plans because of possible estate and income tax issues and the potential for long-term tax-deferred growth. Be sure to seek expert assistance before naming a beneficiary on these accounts.
Children and Other Beneficiaries
If you name children as beneficiaries and they are minors when you die, a court guardianship must be established for them until they become age 18—at which time they will receive the entire inheritance. Until then, the other parent (your ex-spouse) could be named by the court to manage the funds. Naming another individual (for example, your parent or sibling) as beneficiary with the understanding they will use the money to care for your children until they are older is also risky. You have no guarantee they will follow your instructions, they may be tempted to use the money for their own needs, and the money would be exposed to their creditors.
Naming a trust as the beneficiary instead and selecting your own trustee (which may still be your parent or sibling) is a much better choice. A trustee can be held liable if he/she misuses the trust assets. An ex-spouse can be prevented from having access to the money, and you can control when your children will inherit. Money that stays in the trust is protected from irresponsible spending, creditors, and even spouses. For all these reasons, a trust is an excellent choice as beneficiary instead of an individual, regardless of his/her age.
Your Will and/or Living Trust
If you do not update your will or trust, your ex-spouse may inherit your assets. If he/she remarries, then on his/her later death, their new spouse and their children could inherit your assets, leaving your children and family with nothing. If you provide support to your parents or others, be sure to include them in your estate plan.
If you have minor children, you need to name a guardian for them in your will. Even if you have a living trust, a simple will is required to name a guardian and to direct any forgotten assets into your trust. Upon the death of one parent, usually the surviving parent will become the sole guardian, but if your ex-spouse has also died, had his/her parental rights terminated, or becomes an unfit parent, the court would have to appoint a guardian and would appreciate knowing your choice.
Powers of Attorney
Most married couples give each other the power to make health care decisions, including those regarding life and death. Financial powers are also usually given to each other so that one can manage the other’s financial affairs without interruption. These are often quite broad, including the ability to buy and sell real estate, open and close financial accounts, change beneficiary designations, collect government benefits, etc. Instead of your ex-spouse, you can name a parent, sibling, close friend or adult child to have these powers and act for you when you cannot.
You Need Professional Guidance and Assistance
You probably need an experienced attorney more now to help you with updating your estate plan than you did when you were married. Don’t procrastinate on this. Make sure you protect yourself, your children and others who depend on you.