Philadelphia PA Estate Planning Blog

Our blog entry this week focuses on five topics that have been hot button issues for clients over the last few months. Estate planning continues to evolve and therefore, we must continue to “think different."

Estate Planning in General: Estate planning today isn’t what it was 5 or 10 years ago. For most families that I see today, saving estate tax dollars is not an objective, because there are simply no taxes to begin with! But just because the tax problem went away (at least for the time being) doesn’t mean you shouldn’t plan. Our clients come to us to make sure their kids and grandkids will be taken care of properly, and that their estate is setup and optimized properly to achieve those goals. In other words, there are many more reasons to engage in estate planning than simply to save taxes.

Powers of Attorney: To put it bluntly, we are living longer. A Will by itself won’t suffice anymore. A Will is a death document, and only kicks in upon your passing. As we live longer, we have more time where we may be incapacitated or incompetent to make decisions. Therefore, powers of attorney, appointing someone to take over your affairs, continue to become more essential.

Long-Term Care: Long-term care costs are rising. See last week's blog entry on the latest average costs in Pennsylvania for long-term care. It is essential that middle class families plan for long-term care costs. There are strategies that can be employed to save at least part of your estate from costs that could ravage your estate.

Non-Probate Assets: More and more, people are acquiring assets that don’t pass their Will, such as IRA’s, 401(k)’s, life insurance, and annuities. In general, any asset with a beneficiary designation form avoids the Will and avoids probate. But it doesn’t mean you shouldn’t plan or protect those assets with trusts or other devices, and it doesn’t mean you should ignore them when planning your Will and estate.

Gifting: 2011 and 2012 present great opportunities to make large gifts without incurring gift taxes. You can optimize your estate plan and take care of your kids or grandkids with life insurance, pensions for life, and other great tools. Gifting may be more limited come 2013, so now is the time to act.

Fall is typically our busiest time for estate planning. Make your appointment now and reserve some time with me today if you want to optimize your estate plan. Call my office today at (215) 706-0200 or schedule an appointment online on our web site.

Most people know that it’s crucial to plan for retirement. It used to be the case that saving about $1 Million would cover a typical couple, but that number seems to be ticking up rapidly. Retirement planning is a specialty, and you should see a qualified retirement planning professional.

But in addition to retirement, what many people don’t consider is the cost of long-term care, if needed, for you and/or your spouse.

Consider Genworth Financial’s annual facts and figures on the costs of long-term care:

• Assisted Living Facility (One Bedroom) $36,000 per year
• Nursing home – Private room – $97,000 per year
  
• Home Health Aide - $46,000 per year.
  

Note that these are the average costs for 2011. The costs vary depending on the provider and your needs. Also, long-term care costs increase every year, and the increases are usually significant. So not only must you plan for long-term care, you must include inflation when factoring the costs.

You have to consider your family’s health history, your health history, the amount of assets you have, and other factors when planning for long-term care. There are different planning opportunities available to preserve at least a portion of your estate and qualifying for Medicaid sooner. However, these strategies are only available to those that start planning at least five years ahead of time. But it’s hard to predict when you’ll go into a nursing home. There are strategies available for “crisis planning” but the biggest problem with waiting until there is a crisis is that what we can do today, we may not be able to do tomorrow. The laws are constantly changing for Medicaid, especially since it’s a joint federal-state program.

The bottom line is that planning for long-term care costs while you’re still healthy is advantageous for you and your family. 

You must have a financial power of attorney and health care power of attorney in Pennsylvania, and you must make sure these documents are updated every five years or so. It's important to update them because the older the documents are, the less likely an institution or individual will accept the documents as valid.

Why are these documents important? They allow someone to act for you if you become disabled or incompetent, temporarily or permanently.

If you don't have these documents, you are not guaranteed that a loved one or someone else can make decisions for you unless that person goes to court to get guardianship. That is time consuming, expensive, and burdensome. It is, in other words, unnecessary.

There are two types of Financial Powers of Attorney, IMMEDIATE and SPRINGING.

* Immediate Powers of Attorney: This type allow the person you appoint to act without doctors certifying incapacity.

* Springing Powers of Attorney: Here, (usually) two doctors must certify incapacity or incompetency in writing.

The problem with a Springing Power of attorney is that sometimes, people forget they have this type. When it comes time for the appointed person to use the Power of Attorney, they cannot unless they have the doctors certification. In other words, this can hold up important affairs, decisions and transactions. We're not saying that Springing POA's have no place, but often times, Immediate POA's make more sense.

Some people will ask to have a Springing POA because they don't trust the person they appoint to act properly if they have the ability to use the power of attorney right away. A Springing POA won't solve the trust issue though. Therefore, you need to start from scratch and decide who you trust completely to handle your affairs. Once you find someone you trust, then the type of POA will probably matter much less.

Is your attorney thinking about your case or his/her bottom line? How do you know for sure? When it comes to estate planning, and drafting your will, trust, powers of attorney, etc., you want to make sure you’re getting a plan that is based on your best interests.

Here are a few points to consider, red flags, and questions to ask to make sure your hiring an ethical attorney.

1. Are you meeting with the actual attorney who will be drafting your documents? If not, that is a red flag, and the firm/company could be breaking the law.
   
   
2. Ask if the attorney actually drafts the documents or not. Sometimes it is ok for a paralegal to draft part of the document, but some attorneys do not draft at all, which is a problem.
   
   
3. Ask if you’ll get to review the documents or not before you sign them. Also, will the attorney take the time to answer questions you have about the documents?
   
   
4. Has the attorney actually provided reasoning behind why he or she is putting in place a particular plan? If the attorney recommends a trust, why? If a will, why? You should know exactly why you are getting certain documents and plans.
   
   
5. The attorney should learn about your family, the dynamics, unique circumstances, and more. If they don’t inquire about your family and try to learn about you, that’s a red flag.
   
   
6. Don’t be afraid to ask questions. If the attorney doesn’t want to spend the time with you to answer your questions, you should probably see someone else.

Without a Will (or a trust for that matter), your estate will be dealt with according to the state law in place. In Pennsylvania, the estate becomes an “Intestate Estate” and is divided based on who your closest living family members are that survive you. Without a will, you are severely limited with who handles your estate, how it is divided, and more.

The 10 items below are not available to someone without a will.

1. You can name someone to care for your kids or dependents upon your death
    
2. Distributes your assets as you wish, and can establish trusts if you don’t want a beneficiary getting an inheritance all at once
    
3. Puts someone in charge of any pets you have, and provides compensation
    
4. Allows you to name who your Executor will be (very important in avoiding conflicts!)
    
5. Can disinherit someone if you wish
    
6. List who gets what for assets both big and small. Consider large assets like real estate, and smaller assets like jewelry, valuables, etc.
    
7. Expresses your wish for your final arrangements (burial, cremation, etc.)
    
8. Minimize challenges to your estate with proper language and considerations
    
9. Take advantage of any estate or inheritance tax planning possible with current laws
    
10. NOT split your assets evenly among your kids (maybe one is much better off than the other two)

Need a will or know someone who does? Contact our office today at (215) 706-0200. 

What is Medicaid?

Medicaid is a joint state-federal entitlement program that serves several purposes, one of them being paying for the long term care (nursing home, etc.) of elderly who cannot afford such care. In Pennsylvania, Medicaid is called Medical Assistance (MA). Nursing homes cost anywhere from $80,000 to over $100,000 per year depending on the facility.

It is more difficult to qualify for Medicaid today due to the five year look-back period. You cannot make transfers or gift away your estate within five years of applying for Medicaid, otherwise a penalty period will occur that will prevent you from receiving Medicaid for a certain period of time.

Yet still, there are strategies and methods available to middle-class families to effectively qualify for Medicaid without entirely spending down an estate.

What is Estate Recovery?

Estate Recovery is the process of the state attempting to recover the cost of paying for long term care. After a person dies, if there are assets available in that person’s probate estate, the state could potentially seek recovery from those funds.

Pennsylvania has been one of the states that has limited the scope of estate recovery. If you’re married, jointly owned property (i.e., a house) with your spouse was not subject to estate recovery. Yet, federal laws allow Pennsylvania to recover from joint assets like real estate. Pennsylvania resisted putting in place a more expansive estate recovery law with such provisions.

But, state budgets are still hurting, and states across the nation are looking at ways to make cuts. One possible way to bring in more money is to expand estate recovery. In fact, the Pennsylvania legislature recently passed a law allowing the Department of Public Welfare, the agency that oversees the PA Medical Assistance program, to impose new regulations such as more stringent estate recovery rules without any oversight. If new regulations such as expanded estate recovery were to be imposed, it could cause problems for many people. We will keep you updated on the matter. Right now, there are many attorneys across the state working together to urge the governor and legislature to repeal the law granting the agency expansive powers.

How Should You Plan For Long Term Care?

It is important that you speak with a qualified attorney who can help you plan for long term care costs. There are many strategies and techniques an attorney can employ, depending on you situation and your goals. The earlier you begin planning, the better.

One question we will always ask prospective clients: Do you have special needs beneficiaries, either for financial, medical or educational issues?

Not surprisingly, most families say yes.

When engaging in estate planning, you must protect these beneficiaries, especially if they are currently on or could go on public benefits such as SSI or Medicaid.

An individual is not eligible for Medicaid until his or her total assets are approximately less than $2,000. Yes, TWO THOUSAND DOLLARS. Almost nothing!

So what if, in your estate plan, you leave a beneficiary on Medicaid or going on Medicaid a sizeable inheritance outright? The answer is one way or another, that inheritance will likely get into the hands of the government.

A special needs trust (SNT) is a type of trust that can be used to avoid this from happening, particularly if you are leaving an inheritance for someone you know is special needs and on public benefits. We call these types of SNT’s Third Party Special Needs Trusts, because the funds from that trust are yours, managed by a trustee of your choice, and NEVER touch the hands of the special needs beneficiary. If we do our job correctly, the government won’t be able to touch those funds either.

There are also First Party SNT’s that a special needs beneficiary can establish with his or her own assets while staying on Medicaid. But any unspent assets from these trusts are subject to estate recovery, meaning the government can recover funds it used to pay for that beneficiary’s benefits. As you can see, it is more advantageous for your family to create a Third Party SNT while you can, to protect the beneficiary and also contingent beneficiaries, such as grandkids, etc.

Here are a few key ideas I’ve learned in doing special needs planning:

• Get it right the first time!
• Have a plan for where your assets will go and ensure that the beneficiary does NOT receive anything outright! It happens more than you think
• Make sure the attorney knows the special needs beneficiary’s every issue, big and small, as well as the diagnosis, etc.
• An attorney CANNOT be successful setting up an SNT without working together with a financial advisor and sometimes a CPA.

We're back on the air, broadcasting every Wednesday at 11:00 AM on AM 1180 WFYL. 

We hope you'll tune in for great information about retirement and estate planning. Just like our former show, this one is sure to be informative but also entertaining.

Your hosts, Jeremy A. Wechsler, Your Estate Planning Attorney and Peter R. Wechsler, Your Retirement Quarterback, bring you pertinent news and discussion about the thorniest issues in estate and retirement planning. We'll be discussing topics such as the latest economic news, how to protect your nest egg, various estate planning techniques and issues, and more. 

Join us for the hour every Wednesday at 11 AM. Tune to 1180 on your AM dial or listen online at https://www.1180wfyl.com.

• Hire only someone who consents to a background check
• Hire a professional to keep tabs on the individual caregiver
• Stay in touch with your parent regularly if possible, even if you are not local

The question is, when you engage in estate planning, are you thinking carefully enough about protecting the inheritance you'll be leaving to your heirs?

If you leave your assets outright in a will to a beneficiary, the asset is owned by the beneficiary upon death. That means that the beneficiary can spend the asset however he or she would like. It also means that if the beneficiary is in debt, or suddenly becomes mired in debt, the creditor can come after that asset. 

How about if your beneficiary is married? 50% of marriages in the U.S. still end in divorce. You better believe your son or daughter in law will be pushing for equitable division of that inheritance.

No one wants to be involved in a law suit, but accidents happen, and we live in a litigious society. Insurance may cover up to a certain amount, but what happens after that? You can be sure that if there is a large inheritance available, an attorney will find it and come after it.

Bankruptcy, high risk professions, and other risk factors are always present as well.

You can protect against these predators and creditors for your heirs if you plan properly. Using trusts, for both non-IRA assets and IRA assets, we can potentially protect your heirs from themselves and others. 

Have you considered how to ensure your heirs don't squander their inheritance? 

If we can be of assistance, call our firm today at (215) 706-0200.