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Does Your Living Trust Need Fixing?

You may have a living trust and think that you are done with your estate planning. That may or may not be the case. Trusts can take many forms. They could be complete or incomplete, appropriate or inappropriate. Here are some things to think about.

At the most basic level, is it up-to-date? Are there births or deaths in the family that need to be acknowledged? Have you named the correct person as your trustee? Are you still comfortable with those who are to inherit your estate?

Is your trust far too simple or “vanilla?” I have never met a family that is plain vanilla. Everyone has issues and special circumstances.

If your trust planning does not do all of the following, it should be reviewed and upgraded:

  • Does your plan protect inherited assets if your children ever have a divorce?
  • Does your trust maximize asset and litigation protection on behalf of your children?
  • Does your trust avoid estate tax exposure for your children, your grandchildren, and perhaps more?
  • Did you set up a proper protective trust for a child who is a spendthrift or is incredibly naive?
  • Does a child or grandchildren have “special needs?” If so, did you establish a Special Needs Trust?
  • Do you address the possible need for long-term care?
  • Are asset protection planning options built into your plan?

You do not need to have a fortune to benefit from an appropriate, sophisticated, and comprehensive trust and estate plan. Put differently, an appropriately drafted trust can protect assets you built up over a lifetime and it can protect assets you leave your children and not allow them to be exposed or perhaps squandered.

Your trust and estate plan should be reviewed every couple of years. It must be reviewed by an attorney who truly understands trust, tax, and asset protection planning.

Above all, do not use a “one size fits all” trust service, regardless of whether it is offered by an attorney or online software.

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Hiring Caregivers – Guidelines and Caveats

If you hire someone, you are responsible for many payroll, tax, and labor law requirements. Take care of these issues at the time you hire an individual. Do not wait until the last minute when you may expect your accountant to magically and efficiently prepare tax returns and other documentation.

  • 1. Be sure that the worker is properly classified. See IRS guidelines (opens new window)
  • 2. Obtain a Workers’ Compensation insurance policy. Your homeowners’ insurance agent will likely be able to help you with this. This should cover medical expenses and lost wages if a problem arises. It protects you and it protects the caregiver.
  • 3. Be very careful to keep these tax records separate. Do not intermingle them with family records or records maintained for another business you may have.
  • 4. Carefully budget to pay for employer taxes and to take advantage of tax breaks. See the IRS Employer Guide (opens new window) and the 2014 California Employer's Guide (PDF).
  • 5. This person will almost certainly be your employee, not an independent contractor.
  • 6. Most household employees are “non-exempt.” This means that they have a right to overtime pay when they work over 40 hours in a seven day week. There may be exceptions for live-in workers or companion care.

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Protecting the Residence from Medi-Cal Estate Recovery

Very few of us can afford the cost of nursing home care. It can be $7,000 to $12,000 per month. If we have adequate long-term care insurance, the challenge is substantially addressed. If we do not, we can either pay out of our own pockets – until assets are exhausted – or we can look to the California Medi-Cal program.

To qualify for Medi-Cal when an individual is in a skilled nursing facility, she can have no more than $2,000 in “countable” assets. The residence is an “exempt resource,” which means that its value is not counted in determining eligibility. This means that a person can be in a skilled nursing facility, receive Medi-Cal benefits so that Medi-Cal pays the cost of nursing home care, and still retain ownership of the residence. This is a colossal mistake.

When a Medi-Cal recipient dies, the state of California has a right to get its money back. If the Medi-Cal recipient still owns or has any interest in a residence, the state can assert a claim against the property to recover all Medi-Cal benefits that have been paid. This could be $5,000 or it could be $400,000.

In virtually every situation, the residence can be protected. We typically recommend that the residence be transferred into a very sophisticated irrevocable trust. This transfer does not interfere with Medi-Cal eligibility. The house is therefore protected from the Medi-Cal estate recovery claim. There is also a “stepped-up basis” at the time of death so that the property can then be sold without exposure to capital gains tax.

This is a classic case of “having your cake and eating it too.” It is all a matter of good planning.

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When Should an Estate Plan Be Reviewed?

For all adults, creating an estate plan is an important step to take. Many people believe that only the wealthy need an estate plan, or that only people entering their retirement years do. However, the truth is that people of every station or stage of life should take action to make sure that their assets will be handled in accordance with their wishes when they die. And it is just as important to keep an estate plan updated as it is to create one. An estate plan should be reevaluated periodically to ensure that it accurately reflects any life changes or changes in how one wishes assets to be handled.

There is no set schedule to determine how often one's estate plan should be reviewed. In the absence of any major life changes, a review every few years may be adequate. However, there are certain times when a review is definitely necessary.

A change in marital status is one of those times. If one is getting married, then one will likely wish to add a spouse to estate planning documents. And if one is getting divorced, then one will likely wish to remove one's ex-spouse from an estate plan. Either process should be undertaken with the assistance of an estate planning professional. An estate plan may include many different types of documents, and it is important to be sure that the changes are properly recorded.

A growing family is another reason to review an estate plan. In addition to including children as beneficiaries of the estate, it is also important to name a guardian for the child in the event of one's death before the child reaches the age of majority.

Other life changes that may prompt an estate plan change include receiving a large sum of money, making a change in assets and property, and making changes in a business that one owns. It is important to make sure that an estate plan properly reflects one's financial state.

Even in the absence of these types of changes, it is still important to review an estate plan periodically. One should make sure that the person named as an executor or a power of attorney is still available — and still the person one wants to fulfill this role when it becomes necessary. In addition, an estate planning attorney can ensure that your estate plan is up to date with any changes in probate and tax laws.

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Reminder: The Affordable Care Act Does Nothing to the Cost of Long-Term Care

The Affordable Care Act, also known as “Obama Care,” includes no provisions that address the cost of nursing home care or other aspects of long-term care. We have mentioned this before, but it bears emphasis.

The legislation included the CLASS Act, which was designed to address this specific concern. That part of the legislation was ill conceived and actuarially impossible. Critics mentioned this at the outset. Actuaries in the federal government came to the same conclusion shortly after the Act was passed. Accordingly, it was abandoned.

This means that we maintain the status quo as we think about paying and planning for the cost of skilled nursing care, in particular.

As a client of our office, you know that we can take many steps to be certain that assets are protected and that Medi-Cal eligibility can be achieved, when appropriate.

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Ethical Wills

Most of us pay careful attention to passing along our assets – our material goods. We worry about tax, asset management, and preservation of a lifetime’s earnings. We pay precious little time to something that is arguably more important – passing along our values.

Ethical Wills have long been used for just this purpose. The concept has been around for centuries. The concept is firmly imbedded in the Old Testament.

The goal is to pass along the wisdom and maturity of your lifetime. The goal is to pass along the values that you have developed over the decades. While this is primarily achieved by the life you lead and the nature of your relationships, a written legacy can be even more enduring.

What might an Ethical Will address?

It might identify the more formative experiences of your lifetime or the critical lessons that you learned. It might identify the issues or causes that are most important to you – and why. For some, biblical or other such references are appropriate. For others, it may be poetry or chosen words of a favored philosopher.

An Ethical Will is very personal. In addition to global or enduring truths, it might address the very nature of your relationship with your loved ones.

You must prepare your revocable living trust, your Durable Power of Attorney, and your Advance Health Care Directive. You must also think about passing along your values in a meaningful, written way. An Ethical Will – and the thoughtful process of developing the will – is perhaps the best planning tool that you can use.

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Can Google Defeat Aging?

Google recently announced its new company, Calico, to address the “challenge” of aging.

This comes as no surprise, as the billionaires among us are always looking for new challenges, new ways to alter our perceptions of reality.

In the December 1, 2013 New York Times, an op-ed entitled, “On Dying After Your Time,” Hastings Center President Emeritus, Daniel Callahan, questions the wisdom of this initiative. I can only reinforce his reservations and add additional perspective.

We are all interested in the concept of immortality or, at minimum, dramatically extended life expectancies. We fantasize about it. We envision ourselves as vital, intelligent beings with added decades to enjoy our lives. Dr. Callahan raises red flags about this initiative and the possible social and economic implications.

Depending on your perspective (i.e. your age), you may agree or disagree with his observations about extended healthy lifetimes. He worries about the disruption of our economy if older workers continue to work, rather than leave the workforce in their sixties. Unless jobs become vacant on a massive scale, there will be no jobs for younger individuals entering the workforce.

He worries about the cost of medical care. He points out that, according to the Congressional Budget Office, the cost of Medicare expenditures alone will consume 5.8% of GDP in 2038 – compared to 3.5% in 2013. Many would agree that this cost will become “unsustainable.”

Perhaps more interesting from the individual perspective is the focus on quality of life. While we all want to live an enriching, full life, he points out that “adding years to a life doesn’t necessarily make it any fuller.”

Doctor Callahan acknowledges the contribution that medical science makes when it enables younger individuals to enter old age in a healthy condition. He concludes, “We are not, however obliged to help the old become indefinitely older. Indeed, our duty may be just the reverse: to let death have its day.”

We deal with this issue on a daily basis as we help individuals prepare their Advanced Health Care Directives. We talk about quality of life and termination of life. If Calico does its work successfully, these discussions may change markedly in coming years.

So, will Sergey Brin and Larry Page, Google Founders, some day be vibrant octogenarians trekking tirelessly in Nepal? Or will they be living in a luxurious assisted living facility where they need physical assistance every time they want to trek down the hall to dinner?

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