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Estate planning implications of winning the lottery

Although winning the lottery can be exciting, it carries enormous estate and gift tax implications. Finances can dwindle away in no time if they are not managed properly.

Lottery winners have the option of taking the prize as a lump sum or an annuity that is divided into 30 annual payments. California exempts lottery winnings from income tax. However, a chunk of winnings are withheld for federal taxes. The annuity payments are also subject to the same federal tax albeit spread over each installment.

Establishing a trust can help lottery winners maintain a degree of anonymity and provide a tool for managing assets and finances. Trusts can also allow the future transfer of wealth to children and other heirs with minimal estate tax exposure. If a prize is assigned to a qualifying revocable living trust, the lottery will make installment payments to the trust.

Lottery winnings present a number of estate planning challenges. If a person with special needs wins the lottery, the winnings are likely to affect eligibility for government benefits such as Medicaid.

If the prize is received in an annuity towards the end of a winner’s expected lifetime, they could die before receiving all the installments. The balance of future payments then become part of the estate, like other assets. In such cases, the estate’s representatives will begin the process of transferring payments to heirs. The process is simpler if the winner has designated beneficiaries.

One of the first things a lottery winner should do is consult a lawyer to prevent making major mistakes. The cost of not taking the necessary estate planning measures can be devastating.

Why young adults should consider estate planning

Under California law, once a child turns 18 years of age they are viewed as an adult. Entering adulthood involves taking steps to prepare for the unexpected, whether it is a sudden illness or a serious accident. No one likes to think of themselves in such terrible circumstances in which they are unable to make their own informed decisions. However, preparing for the future can help provide peace of mind.

Few young adults are aware of the need for at least a basic estate plan. According to a 2015 study by Fidelity Investments, 41 percent of millennials have not discussed wills and estate planning with their parents. Parents tend to assume they are entitled to make legal decisions for their college-aged children. However, once a person turns 18, they have “the legal right to privacy and to govern their own lives” as an adult.

Key estate planning documents a young adult should have are a will, power of attorney, advanced health care directive and HIPAA release. A HIPAA — or Health Insurance Portability and Accountability Act — release gives doctors permission to share medical information with those named on the form in case of an emergency.

While it is not necessary for every 18-year-old to have a will, they should appoint a trusted friend or family member to serve as a health care proxy. This person has the authority to make medical decisions on the young adult’s behalf in the event they are unable to.

Young adults would also benefit from a general power of attorney. In many cases parents are named appointees. However, without the proper documents, they would be unable to access their child’s financial accounts. Not having such estate planning documents could create serious complications in case of an accident or other unforeseen circumstances.

Smartphone app helps nonverbal children communicate through symbols

Predictive typing firm SwiftKey has launched a smartphone app that aims to provide special needs children with an easier way to communicate.

SwiftKey Symbols is described as an assistive symbol-based communication app specially designed for children with autism and other learning difficulties. It can be used by other nonverbal individuals as well. The company’s contextual language prediction technology allows users to communicate with others by selecting images from various categories in order to create sentences.

Children with autism may face difficulties developing language skills and communicating effectively with others. Technological innovations such as this app help to remove communication barriers for special needs children by opening up opportunities for them to express themselves. SwiftKey Symbols includes an audio playback feature where a formed sentence is read aloud for children with verbal impairments. It also allows users to customize the app by adding their own categories and images.

The app gradually adapts to the user through its predictive sentence completion feature. SwiftKey technology suggests symbols based on factors such as time and day. For example, if the user has art lessons on Wednesday afternoons, the icons previously selected at that time will appear.

SwiftKey shared in a blog post that the inspiration for the new app came from the company’s employees whose nonverbal family members have autism. “We wanted to bring an accessible, free app to people with talking and learning difficulties so that they could communicate more easily with their friends and family,” wrote product manager Ryan Barnes.

The app is available for free download on Android devices.

California caregiver law aims to prevent elder abuse

The law seeks to enhance the safety of elderly and disabled people who receive private home care services from a caregiver who assists them with daily tasks. Senior citizens can often be vulnerable to abuse, whether it is physical, sexual, mental or financial. Elder abuse can happen not just in a nursing home or other institutional care facility, but also in one’s own home.

Under the Home Care Services Consumer Protection Act, home care agencies in California are now required to be licensed with the state and provide their staff with mandatory training in first aid, CPR and emergency procedures. In addition, their caregivers must pass a criminal background check and register with the Department of Social Services.

Independent caregivers are also required to be licensed before providing any type of home care services. Elderly individuals or their families can then check the state's database to ensure the caregivers are registered. Prior to this law, only those providing medical services at home were subjected to certification requirements and background checks.

Agencies that are not licensed may incur fines of up to $900 per day. The legislation comes after reports of senior citizens in California suffering embezzlement, fraud and abuse at the hands of home caregivers. The hope is that the Act will help usher in stricter standards to the state’s home care industry, which has lacked oversight and regulation.

Robin Williams’ family battles over estate

Robin Williams’ widow Susan Williams settled out of court a lawsuit over the late actor’s estate last year. The highly publicized dispute with his children revolved around an estate worth an estimated $100 million.

Disagreements over trusts and wills between family members tend to be fraught with strong emotions and can quickly escalate. Although a loved one may have left instructions regarding the division of assets upon their death, beneficiaries may question their legitimacy and accuracy. Upon a family member’s death, challenges to a trust or will can be asserted by any interested party — whether it is a spouse, children or other heirs and possible claimants — when there is a perceived unequal division of assets. In such circumstances, a resolution may have to be sought in court.

In this case, much of the dispute concerned what items constituted celebrity memorabilia and what counted as personal keepsakes. Susan Williams was unhappy with trustees claiming many possessions as memorabilia for the estate. She also said she was not receiving enough money from the actor’s estate to maintain their home in Tiburon, California.

Robin Williams’ trust had established guidelines about how his assets were to be distributed among his family members. The actor left the majority of his estate to his three adult children from his first two wives. The children’s attorney said they had been “following both the letter and the spirit of Robin’s instructions” and could not understand why Susan Williams “acted against his wishes by challenging the plans he so carefully made for his estate.”

In the settlement, Susan Williams received just a fraction of the overall estate — enough for the lifetime upkeep of the home. She was also able to keep some sentimental objects such as wedding gifts and clothing. The children received the bulk of the items, including bikes, watches and their father’s Academy Awards statue.

Celebrity divorce highlights importance of updating advance directives

No one likes to think about themselves in a life-threatening medical situation. However, it is essential to establish what your wishes would be in case of an emergency. Living wills and other advance directives can provide you and your family with the peace of mind that important end-of-life and medical decisions will be made by someone you trust.

Last year, media outlets reported that former NBA player Lamar Odom was hospitalized in a Nevada hospital in a comatose condition. What surprised many was that his ex-wife Khloe Kardashian was responsible for making medical decisions about his treatment. Although the couple signed divorce papers several months before the incident, their divorce was not yet finalized due to the backlog of paperwork in California courts.

In the absence of a living will or other legal documents specifying Odom’s wishes in such a situation, as his legal spouse Kardashian found herself in the awkward position of having to make medical decisions on his behalf. Some couples end their marriages even though they still care about each other very much. As a result, they would not hesitate to entrust medical and end-of-life decisions to their former spouse. However, more commonly an ex-spouse may not be the person of choice for such important decision-making.

In preparation for any potential emergency that may arise, one should remember to update these planning documents as soon as possible whenever a major life change occurs. Consult with an experienced attorney to draft appropriate medical directives, powers of attorney, living wills and health-care proxies. Medical directives will specify a person of your choice to assume responsibility for medical decisions on your behalf should the need arise.

Ouch! Avoiding unnecessary blood tests

By Myra Gerson Gilfix

Who likes to have their blood drawn? Dr. Chris Moriates writes, “There are few worse ways to awake a person than with a needle stick in the arm to draw blood. If you have ever spent the night in a hospital, chances are the first thing that happened in the morning was a vampiric nurse or lab technician, following doctor’s orders, standing over your bed and greeting you with a needle and a set of vials.”

Years ago, when I had a blood clot, I had frequent blood draws to determine when I could safely be sent home on an oral blood thinner. A day and a half into my stay, a nurse from the vascular center came to check on me. While she was there, a phlebotomist came in for yet another blood draw. I saw the expression on her face when she told him we could avoid this one. Subsequently, the draws were much less frequent. Clearly, the order to reduce the number just hadn’t happened. Last year I had a brief stay in the hospital. Blood was drawn when I first entered the ER. I was told that another draw was not needed till the next morning. Luckily I remembered when a phlebotomist entered my room at 11:30 that night. I was able to turn him away. But many would have just endured the unnecessary stick.

Apparently the problem is much more common than I realized.

According to Dr. Moriartes as many as half of labs ordered may not be necessary. And there are a lot of good reasons to avoid unnecessary sticks other than the excellent one of avoiding pain for patients.

1. It saves money to avoid unnecessary testing. At University of Utah Health, a program led by hospital medicine physicians that reduced labs is estimated to be saving more than $250,000 annually in that system. Patients themselves should also save money since hospitals typically charge for each draw.

2.  False positives are less likely. As Dr. Moriartes explains, “One of the problems with over-testing is that when the probability of a specific disease is low, then the likelihood of a false-positive test is much higher than the likelihood of a true-positive result — a phenomenon known as the ‘false-positive paradox.’” In addition to creating undue worry, false positives frequently lead to further testing and procedures, some of which are increasingly invasive.

3. Every procedure carries a risk of complications — even a seemingly innocuous blood draw. Since many hospitals have no more than 50 percent compliance with hand hygiene, there is an increased risk of infection as well.

Of course, this issue needs to be addressed systemically. And at UCSF, the resident physicians launched a multi-pronged program called “Think Twice, Stick Once.” [For more information, see Tired of getting stuck with needles? Ask your doctor to just say ‘once.’ Oct 09, 2016 11:30 pm | Jordan Harmon]

But we are not helpless to stop unnecessary testing. With every test, including but not limited to blood draws, we urge you as patient or family member to ask, “Would the results of this test change how you treat or manage my condition?” If the outcome would have no impact on treatment, then it should not be done. Dr. Moriartes points out that many blood tests can be added on to prior samples taken during the hospital stay rather than requiring a new draw. Dr. Moriartes also notes that there is over-testing in the outpatient setting as well. Unnecessary lab draws are commonly done prior to minor surgical procedures, such as cataract surgery or outpatient plastic surgery procedures. “Multiple studies have shown routine preoperative medical testing for many low-risk procedures does not improve outcomes nor decrease the incidence of adverse events, yet the practice remains common.”

He himself urges, “If you happen to find yourself in a hospital, unless you are critically ill, perhaps kindly suggest to your physicians that when they order your lab tests they could think twice, and stick once.” A provision could also be made in your Advance Health Care Directive in this regard.

And if you’re a friend or family member of a patient, you might suggest that on the patient’s behalf.

Dr. Moriates is a hospitalist, the assistant Dean for Healthcare Value and an Associate Professor of Internal Medicine at Dell Medical School at University of Texas, Austin. He is also Director of Implementation Initiatives at Costs of Care.

Michael Gilfix, National Experts Form Trump Policy Analysis Group

THE TRUMP POLICY ANALYSIS GROUP (TPAG) – FOCUSING ON OLDER AMERICANS AND THOSE WITH SPECIAL NEEDS

The Trump Policy Analysis Group (TPAG)1 has convened to consider probable changes in law that will affect older Americans and those with special needs. Initial TPAG focus is on entitlements, public benefits, tax, special needs planning, and veterans’ benefits.

DOWNLOAD THIS ARTICLE AS A PDF

We used a three-fold analysis:

  • Stated policy (declared Trump policies and those of the Republican Congressional Leadership);
  • “Realpolitik” (circumstances and factors rather than explicit ideology, often considered “pragmatism”); and
  • Educated speculation (based largely on experience and knowledge of TPAG members who have been leaders in these fields for decades).

STATEMENT OF PURPOSE

On January 20, 2017 both the White House and both houses of Congress will be in Republican hands, not seen since 2006. As president Obama said shortly after being elected in 2008, elections have consequences. We acknowledge this reality.

During the long and divisive campaign, differences in priorities and agendas between the major parties, particularly in social and health policy, were greater than in any recent election. In our opinion, the uncertainty and challenges now facing seniors, disabled, and medically needy Americans are unequaled and unsettling.

Our goals are twofold. First, to objectively analyze real and probable changes in government policies that directly impact older Americans and Americans with disabilities. Second, to identify planning and other steps these populations should take to preserve or, ideally, to increase quality of health care and quality of life.

SOCIAL SECURITY AND MEDICARE

President-elect Trump has consistently stated that the Social Security and Medicare programs are to remain intact and (presumably) solvent. How solvency would be achieved in light of impending bankruptcy of both programs (Medicare long before Social Security) remains to be seen.  Government and non-government economists only disagree about when insolvency will occur, not if it will occur. As one of their proposals to counter insolvency, Trump and Congressman Ryan (Speaker of the House) are promoting Social Security and Medicare privatization.

The Affordable Care Act took some steps designed to extend the solvency of Medicare. Trump, as President-elect, announced that he would keep parts of the Affordable Care Act but did not explain how he would pay for it. With so many members of younger generations convinced that Social Security will not be there for them, preservation of the fiscal health of both Social Security and Medicare is one of the main challenges facing this Administration.

MEDICAID

1. Rising Fears of Significant Restrictions

A significant majority of Americans are seriously worried about the cost of health care and long term care, in particular. Restrictions on benefits and legislative changes that restrict or limit access to government programs such as Medicaid can only heighten such fears.

2. The Trump and Ryan Block Grant Proposal

Currently, Medicaid is administered at the federal level by the Center for Medicare and Medicaid Services (CMS). While each state has its own state Medicaid Plan, there are mandates and there are constraints.

Block grants, which were first proposed by then Speaker of the House Newt Gingrich in 1995, presumably mean that each state would receive a certain number of Medicaid dollars. Each state would then decide how to utilize and spend those dollars.  In some states, little would change. In other states, changes could be profound. For individuals who may rely on Medicaid, this is a time of uncertainty and concern.  This means, in turn, that planning needs will vary from state to state.

TPAG is aware of some details and elements of proposed plans. Some are designed to restrict protective planning – to make it much more difficult for older Americans to protect their homes and other assets while qualifying for Medicaid, particularly in a long-term care setting. Planning challenges could therefore become dramatically more difficult. Increasingly, older Americans and their families will need up-to-date information and advice to understand and qualify for needed services. This will be particularly true for the majority of older Americans who will need home care services and who need to reside in skilled nursing facilities.

Americans with special needs and their families face as many worries, including concerns about possible reductions in protections and services.

TPAG believes that planning will increasingly involve multiple generations to enhance quality of life, quality of care, and asset protection.

3. Protection of Family Assets: Focus on Protecting the Family Residence

The vast majority of older homeowners will view protection of the residence as a core value, a legacy for future generations. Appropriate legislation must be preserved. Appropriate planning steps must be taken, particularly in light of possible changes in Medicaid, the only federal program that can subsidize or pay for the cost of skilled nursing care. No specific proposals to threaten existing tax and Medicaid protections for the residents have yet emerged.

TAX PROPOSALS – GIFT, ESTATE, INCOME, AND CAPITAL GAINS

1. Gift and Estate Tax

President-elect Trump calls for the elimination of gift and estate tax, perhaps replaced by a “mark to market” tax of capital gains at death. Perhaps a compromise package will not eliminate the tax but will significantly increase the level of estate and gift tax protection. Note that the current level of federal protection is historically high at $5,450,000 per person. If any estate tax remains, it would likely be reduced from the current 40% tax rate.

2. Capital Gains Tax

Different proposals have been proffered by President-Elect Trump, Speaker Ryan and others regarding limitations on “stepped up basis” upon an individual’s passing. For some families, this could result in net tax increases.

For high-end practitioners, those who focus on avoiding estate tax, the challenges are obvious. The number of individuals requiring such sophisticated planning will, at best, dramatically diminish. For most older Americans, the avoidance of estate taxes will have little or no impact from a tax planning perspective and the focus will shift to income taxation. Further, the impacts on entitlements and family financial security could be profound.

3. Corporate and Individual Income Tax

Corporate and individual tax rates for higher earners, in particular, would be substantially reduced. The long-term impact – beyond the obvious increase in after tax income, is impossible to predict. As with most modeling and forecasting, projected outcomes depend on presumptions.

AMERICANS WITH SPECIAL NEEDS

No proposals have yet been made that would directly affect services for special needs children and adults.  Medicaid block grants could adversely affect special needs residents of states that decide – at the state level – to reallocate or otherwise restrict funding for both governmental and non-governmental providers. The reach of Medicaid block grants could significantly reduce or even eliminate the benefit of special needs trusts which maximize assets for the person with a disability.

Additionally, it is possible that support for expanded charter schools and school choice could expand options. This has become more probable than just possible what with Trump’s appointment of Betsy DeVos, as Secretary of Education, an outspoken advocate for charter schools and the dismantling of publicly funded schools. Many special education advocates fear these expanded options could come at a price of diminishing procedural and substantive protections of the Individual with Disabilities Education Act (IDEA), and even reduce or remove the funding formula that follows eligible individual students with special needs under IDEA).

VETERANS’ BENEFITS

President-elect Trump is presumably supportive of maintaining and perhaps expanding services for veterans. At the same time, proposals that predate the election have been introduced that could restrict access to needed programs, such as Aid and Attendance, which provides financial assistance for veterans and spouses of veterans who need higher levels of home care assistance. While new legislative and perhaps regulatory restrictions could make it more difficult for veterans and their spouses to obtain benefits, proactive planning will be an inevitable need across the nation.

LGBTQ PROTECTIONS

President-elect Trump has said that he accepts the United States Supreme Court decision effectively legalizing gay marriage. (His Vice President, Mike Pence, may have a different viewpoint.) The Supreme Court ruled that the U.S. Constitution guarantees the right for same-sex couples to marry in all 50 states creating uniformity across the nation in recognition of the rights of same-sex couples.

IN TIMES OF UNCERTAINTY, FAMILIES WILL PROTECT THEMSELVES

A core conclusion of TPAG is that families will become more insular, more protective of themselves, their assets, and future generations. They will be more focused on what they can control and truly value – their families – and less on public policies that are difficult to influence. This has myriad implications for attorneys, financial planners, and other professionals who work directly with America’s elders, those with special needs and their families. A premium will be placed on advance planning. Inevitably, this will increase involvement of younger generations.  The demand for multi-generational planning – planning that involves and relies on involvement of children and grandchildren – will expand dramatically.

WHAT SHOULD YOU DO?

TPAG thoroughly understands that most Americans, and older Americans in particular, are fearful at this point in time. Above all, do not panic. The stock market panicked at the end of Election Day but soon resolved and moved higher than ever. TPAG believes that the stock market’s response to the election is a lesson for everyone: Learn, watch, be advised, and protect yourself and your family. The changes in store will take time.

TPAG’s goal and its purpose is to turn fear into hope. This is what good planning does.

TPAG will continue to be a source of balanced, objective information about developments at the national level. TPAG is working hard to track initiatives by President-elect Trump, Republicans and responsive proposals of Democrats.

TPAG will work hard to be “one step ahead.”

**Members of the TPAG group include Michael Gilfix of Palo Alto, California, Vincent J. Russo of Garden City, New York, Harry S. Margolis of Boston, Massachusetts, Frank Johns of Greensboro, North Carolina, and Tim Nay of Portland, Oregon.

mike gilfix vincent russo harry margolis
frank johns timnay

Three mistakes parents of special needs children should avoid

Parents of special needs children hope to provide their offspring with financial security and the care they need. However, even with the best of intentions they risk making mistakes that could have costly, long-term consequences for their child.

One such estate planning mistake involves disinheriting the child to ensure their eligibility for key government benefits such as Medi-Cal and Supplemental Security Income. A more valuable option is for parents to set up a special needs trust. The trust can hold assets for their child without jeopardizing eligibility for federal programs. Parents can use special needs trusts to provide their child a higher quality of life that goes beyond the basic needs delivered by government benefits.

Procrastinating is another mistake parents might make. Some parents might choose to wait until their child is between the ages of 18 to 21 in order to have a better sense of their long-term prospects, mental capacity and degree of financial independence. However, failure to plan in a timely manner can mean that the special needs child is left without financial security or a guardian in the event the parents become incapacitated. As a result, it is better to engage in special needs planning sooner rather than later.

Choosing a trustee to oversee a special needs trust when parents can no longer do so is an important decision. When the responsibility falls into the wrong hands, the child may see their wishes overlooked and the special needs plan fall apart. Parents must choose someone who is trustworthy, knows the child and who will act in their best interests. They must also be able to follow trust administration rules and manage the resources available to the beneficiary.

National Gilfix & La Poll Article on Multigeneration Strategies and “New Economy” Services

At Gilfix & La Poll, we take pride in innovating new ways to serve our estate planning clients. We recently published an article in Estate Planning magazine covering two ways in which we build beneficial relationships with our clients that address modern, timely issues.

The first is helping clients take advantage of “new economy” services. These are online-based businesses that are exploding in popularity. Many are very well suited to seniors and retirees, but awareness of these services among these groups remains low.

We divide new economy businesses into two categories: “getting help” and “providing help.” The first group comprises businesses that help seniors live productive, fulfilling lives even as their mobility may be decreasing. These include home health and safety monitoring services, transportation services and grocery delivery. The second group allows retirees to earn supplemental income by providing services such as rooms for rent, dog-sitting and transportation using their own vehicles.

We also cover in our article the importance of multigenerational estate planning. Some firms, in an effort to stay competitive, resort to churning out as many wills and trusts as possible, as quickly as possible. They may pay little regard to either the big picture that includes older generations’ estate plans, or the critical details that can make or break a plan.

We take the opposite approach. When possible, we consider a client’s estate plan and that of their living parents together as one comprehensive, carefully crafted strategy. This brings families together and allows us to avoid surprises down the road, giving clients greater peace of mind and allowing them to better care for their parents and/or their heirs.