Covert Law: Blog Covert Law: Blog

Welcome to Our Blog!

Ways to Hold Title to Property

Ways to Hold Title to Property
For many people, real property, including their home, is a big part of their overall net worth. How the home and other pieces of real property is titled deserves careful consideration. Real estate constitutes the land and any structure, including vegetation, livestock, crops, and other natural resources that sit on the land under the state’s law. Real estate can be commercial or residentially owned. Ultimately how you hold a property title has far-reaching consequences for liability, and when it comes time for sale or the bequeathing of it as an inheritable asset.

The title is a reference to the document that lists the legal owner(s) of a piece of property and can depict ownership of both personal and real property. Real estate titles are regarded as real property as it is a tangible asset. The title for real property, by law, must be transferred if the asset is sold or inherited and must be clear for the title transfer to take place. A clear title is free of liens or any other encumbrance posing a threat to proper ownership. The most common types of real estate titles are joint tenancy, tenancy in common, tenants by the entirety, sole ownership, and community property. Less common property ownership titles are corporate, partnership, and trust ownership.

Individual name or sole ownership allows for a single person to hold title, even if you are married. If the person becomes mentally or physically incapacitated due to injury or illness, a spouse or family member typically will need to conduct business with regards to your property. Your family member will not be able to do business transactions like refinancing or changing lines of credit, and they will be unable to act until a court appoints someone to act on your behalf. Many people assume if they have a will it will address the problem, yet a will does not go into effect until after you die and is not in effect if you become incapacitated. 

Joint tenants (some may have rights of survivorship) occur when two or more people hold the title to real estate jointly. This type of title is widespread among but not exclusive to married couples. Unmarried couples may also hold joint tenant title as can parents and their adult children. It is a fair, uncomplicated, and free way to hold the title. In the case of a couple, the death of one automatically transfers full ownership to the surviving owner without probate. However, probate is more than likely just to be postponed. In the event the surviving owner dies without adding another owner, or if both owners die at the same time, probate is almost certain to occur before the property can go to the heirs. 

Being a co-owner means that to sell, refinance, or take any action to the property, both owners must agree to the business action. If there is disagreement or in the event your co-owner becomes incapacitated, the court will become involved to resolve the disagreement or to protect the interest of the one who has become incapacitated. Court involvement will occur even in the event the incapacitated owner is your spouse. Joint tenants also expose the property to both of the co-owners obligations and debts. If a creditor successfully sues your co-owner, you could lose your home. In the case a co-owner is not a spouse, there can be income tax or gift tax problems. A will does not control any jointly owned assets, and you may mistakenly disinherit your family when your co-owner inherits your share, particularly in the case of second marriages with children from a previous union.

Tenants in common (TIC) allows for two or more people to hold title to real estate with equal rights during their lifetime to enjoy the property. A tenant in common title creates shares of ownership, and those shares will be distributed as directed in a will upon an owner’s death. In the absence of a will, the property goes to the heirs of the owner. As a tenant in common individually holds title for a respective part of the property, they are at liberty to dispose of said owned property or encumber it at will. Owners of their respective shares are permitted to use their portion of the property as collateral or in financial transactions. They may also be sued or have creditors place liens on only their portion of the property.

Tenants by entirety (TBE) are only permissible if the owners are legally married. This title, for purposes of ownership, treats the couple as one person for legal action and interpretation. Upon the death of one person, the TBE title is transferred in its entirety to the other spouse. This is advantageous as no legal action is necessary upon the death of one’s spouse. It does not require a will and probate is unnecessary.   

Community property is only in effect in nine states (AZ, CA, ID, LA, NV, NM, TX, WA, and WI) and is a form of joint ownership between spouses commonly referred to as community property. When you die, your share of the community property is automatically transferred to your surviving spouse unless your will provides otherwise. Both tenants, by the entirety and community property titles, can find the remaining owner with several new co-owners, who, upon their death, can have their heirs inherit the property. Also, issues of incapacity and lawsuits are magnified if several property owners are trying to reach a consensus about the sale of the property or other business actions. 

Corporate ownership allows a legal entity, a company owned by shareholders, to hold title to property. Partnership Owners can own real estate as a partnership. This title constitutes two or more people who transact business for profit as co-owners. There are also limited partnerships where an investor has limited liability because they do not make management decisions regarding business transactions of the property. In the case of limited liability, a singular general partner will typically be responsible for making business decisions on behalf of the identified limited partners.

Trust ownership, most often in the format of a revocable living trust, is a legal entity that owns the real property, which is managed by a founding or designated trustee on behalf of all trust beneficiaries. In the event you become incapacitated, your named successor trustee can seamlessly take control of your trust without court interference. A successor trustee is legally obligated to follow the instructions put forth in your trust. If you recover from incapacitation, you resume control of your trust. If you were to die, the property would be distributed according to your trust instructions and without probate. Holding real estate in trust ownership has challenges regarding benefits that surround financial and legal liability, managerial influence, and tax considerations. A real estate trust document can provide significant advantages to property owners but only if created by competent legal staff who take into account the complexities surrounding the trust and its interaction with the liabilities listed.

Methods of holding and owning title to real estate property are determined by state law and, as such, must be considered when researching and determining the best method to acquire and hold title to real property where you live. Depending on the complexity of your situation, assessing the best way to title your real estate may require professional real estate, legal and tax guidance. We help clients determine the best way to hold title to property, and whether a trust would be beneficial. Give us a call at 1.800.660.7564 or email us at info@covertlaw.com – we would be happy to help.

Why a Living Will is Important

Why a Living Will is Important

A living will lays out your preferences for life-sustaining medical treatment.  It is often accompanied by a health-care proxy or power of attorney, which allows someone to make treatment decisions for you if you are incapacitated and the living will does not have specific instructions for the situation at hand.  “Living will” and “advance directive” are often used synonymously, but a living will legally only applies after a terminal diagnosis, whereas an advance directive is much more comprehensive and includes the health care proxy.

As of 2017, only around one in three American adults had an advance directive for end-of-life care prepared. Those who are older than 65 are more likely to have an advance directive prepared than those who are younger, as are those have chronic illness more likely than those who are not. People may be unwilling to prepare these documents because they fear that they won’t necessarily reflect their wishes at the time they become relevant; sometimes patients become more willing to undergo treatments they rejected when they were younger as they age and develop medical problems. However, the documents can be changed as long as they are witnessed and potentially notarized (depending on current law). And if you continue to communicate your values with your proxy, they can make decisions based on your most recent preferences. 

So why is a living will important? It reduces ambiguity which can prevent family disputes during what is already a difficult time. It may seem like something that can be put off, but life is unpredictable; one never knows when these documents could become relevant. Furthermore, it needn’t be a hassle. A living will is a straightforward document, however it’s important to work with legal counsel to make sure your beliefs are properly stated. Other health care documents should also be prepared at that time, like a health care power of attorney that designates a person to make health care decisions for you if you are unable. Once you have signed any documents make sure you keep them updated, especially if you change states, and be diligent in communicating with whomever you named to act on your behalf.

If you need a living will or health care power of attorney or already have one that you would like reviewed, give us a call at 1.800.660.7564 or email us at info@covertlaw.com. 

 

Read more at:

Understanding Gift Taxes

Understanding Gift Taxes

Now that we have passed into a new year, many people will begin to think about making gifts to children and grandchildren in addition to holiday gifts just given.  These are typically larger gifts of cash or marketable securities.  When we make a gift of something to someone else, that is what is called a “gift taxable transaction” – meaning someone has to pay a tax on the making of that gift.  So who pays the tax, and how much is the tax is the subject of this blog post.

The one who is making the gift is often referred to as the “donor.”  The “donee” is the person receiving the gift.  Any gift taxes that may have to be paid upon making the gift are always paid by the donor, not the donee.

The gift tax is simply a tax on the transfer of assets, cash or property, to another without receiving something of equal value. The asset has to be of a certain value for the tax to apply; otherwise, it falls under the gift tax exclusion, either annual or lifetime. If the gift is above a certain value, you will have to fix out a tax form, but you may still be able to avoid the tax.

The value is based on the IRS definition of “fair market value.” If the asset is cash, then the calculation is straightforward: it is what it is. If the asset is a house, then its value is what someone would pay for it if neither buyer nor seller was under duress to commit. And some things which seem not to be gifts on their face may nonetheless be considered such by the IRS, for example, casual loans to friends and families, or naming someone other than a spouse on a bank account. 

The annual gift tax exclusion in 2019 and 2020 applies to assets up to $15,000 in value. It is counted per recipient, meaning you can give up to $15,000 to however many people you like without having to file a gift tax return. It is also per person, so you and your spouse could give up to $30,000 per year without having to file a gift tax return. Note that gifts between spouses are unlimited and don’t generally trigger a gift tax return and that giving money to a nonprofit is a charitable donation and not a gift. Finally, the person receiving the gift usually doesn’t have to report it. 

The lifetime gift tax exclusion is how you avoid the tax, even if you give more than $15,000 per year and have to fill out the form. The gift tax return keeps track of the amount you have given.  In 2019, the lifetime exclusion was $11.4 million; in 2020, it rises to $11.58 million. As with the annual gift tax exclusion, the lifetime exclusion is per person, so married couples can exclude twice the gifted amount. 

The tax only applies once you use up not only the $15,000 exclusion but also the $11 million-plus exclusion. So if you gift someone $50,000 one year, that counts as $35,000 against the lifetime exclusion. If you do manage to use up your exclusions, the rates range from 18% to 40%, paid by the donor. 

However, there are exceptions and special rules for how to calculate the tax, which can be found on IRS Form 709. These apply to things like college tuition and medical bills by allowing you to spread one-time gifts across multiple years’ worth of gift tax returns, or to pay the institution directly to avoid the gift tax return requirement.

If you have questions or would like to discuss your personal estate plan, please don’t hesitate to reach out by calling us as 1.800.660.7564 or by emailing us at info@covertlaw.com.

 

Read more at:

The SECURE Act of 2020

The SECURE ACT of 2020

Congress has passed a bipartisan appropriations bill. In the contents of this spending bill is a piece of legislation known as the Setting Every Community Up for Retirement Enhancement Act (SECURE), the first significant change in retirement legislation since the Pension Protection Act in 2006. The President signed the Act into law on December 20, and its effective date is January 1, 2020.

The impact of the SECURE Act to some retirees, near-retirees, and their future beneficiaries is profound, and it is imperative to schedule a review of your retirement, estate, and trust plans. Failure to act on the changes brought forward by the SECURE Act can create substantial tax burdens for some beneficiaries and even the possibility that they become locked out of their inheritance for a decade. 

One of the most important provisions of the SECURE Act to understand is the removal of the stretch IRA required minimum distribution (stretch RMD). In essence, the removal will act as a tax revenue generator. This change means many Americans will face a tax increase as non-spouse beneficiaries must spread withdrawals over a maximum of ten years and not the lifetime of the account holder. The removal of the RMD for stretch IRAs is going to create significant problems for certain types of trusts, like the “see-through trust,” that were written before the SECURE Act. Previously, a see-through trust allowed an individual, upon their death, to pass retirement assets of their IRAs via a trust to a chosen beneficiary. If the trust is not updated to match the current SECURE Act language, there could be restrictions in accessing funds to the heirs, which may cause massive tax liabilities down the line.  

Annuities are also affected by the SECURE Act as the legislation will ease restrictions to include them in consumers’ 401(k)s. While this is a positive for lifetime income, the bill also lessens and even removes some of the fiduciary requirements to vet insurance companies and their financial products before allowing them into your 401(k) plan. This change, coupled with a reduction in overall standards the SEC imposed earlier this year, creates an increased likelihood that consumers could experience negative consequences from poorly designed financial products and the possibility of insurance company failure.

According to Forbes, there are eight significant ways the SECURE Act will impact your retirement plans. They include an increase in ability for small employer access to retirement plans, an increase in annuity options inside of retirement plans, an increase in required minimum distribution (RMD) ages, and the removal of age limits on IRA contributions. There is also a tax credit to encourage automatic enrollment into retirement plans through small employers, penalty-free distributions for childbirth or adoption, lifetime income disclosure for defined contribution plans for transparency, and the removal of stretch inherited IRA provisions.

It is imperative as an individual to be responsive to the changes this proposed new law will enact. Currently, estate attorneys, CPAs, and financial advisors are receiving additional training to understand the long-term tax implications of SECURE Act provisions. For those affluent retirees, Kiplinger advises there are five things you can do immediately to respond to the SECURE Act. The first is to delay your IRA distributions if possible, and continue to save but perhaps not in an IRA. Also, consider paying taxes BEFORE your children inherit your IRA. Talk to your financial planner, tax advisor, and revisit your existing estate planning documents to make sure the plans don’t compromise any existing IRAs that will be passed on to your beneficiaries. 

The overall implications of the SECURE Act to your retirement and your estate plan are numerous. Give us a call at 1.800.660.7564 to discuss how we can help make sure your retirement assets pass with as few tax consequences as possible – or email us at info@covertlaw.com.

Gen Xers Retirement Planning and Longevity

Gen Xers Retirement Planning & Longevity

As Gen Xers enter into their 40s and 50s, it is time for them to become active in the creation and execution of their retirement planning. There are many things to consider, including finances, investments, insurance policies, legal documents, living arrangements, and healthcare. It is advisable to make a detailed checklist within these categories and take action on each item. Meeting with an attorney can help you establish overall goals for your retirement and legacy planning while ensuring the steps you take will lead you to retirement success.

With regards to longevity, things may not be what they seem in the United States. While the world is experiencing an increase in life expectancy, Americans have seen a life expectancy decline for three years in a row. The Center for Disease Control and Prevention (CDC) considers this a worrying trend. Assessing life expectancy based on these CDC numbers using their traditional approach is just one part of the equation for Gen X retirement planning because the statistic is derived from birth years while retirement years are calculated from age 65 and beyond. Yes, some Americans are living until the age of 100, and fewer are having heart attacks in their 50s because of prescription medications; however, according to the Smithsonian Magazine, there is “no large extension of adult lifespan in old age.” Making a reasonable estimation of your life expectancy is crucial as it affects planning for how long retirement will likely be and the amount of money needed to cover associated expenses.

MDVIP Health and Longevity Survey reveal that more than half of Gen Xers want to live past 90 years of age, with some wanting to make it to 100, and yet, nearly half have not had a comprehensive medical exam in the past five years. One-third of Generation X avoids going to the doctor at all out of fear of finding something medically wrong. Two-thirds admit they could be doing better when it comes to regular exercise, eating healthy, maintaining a healthy weight, and managing stress levels. There is good news, however. Generation Xers have a reasonable amount of lifespan left to identify changes that need to be made and implement them. Barring an unforeseen accident or illness, time is still on the Gen Xer’s side to make their retirement a success story. 

The face of retirement has changed. The vision for most retirees is a full life bustling with activity and interpersonal relationships. Semi-retired is how many prefer to see their goal. There are many excellent reasons to keep working beyond age 65. Continuing to earn an income from work is great for health reasons and economic reasons. Generation X will further test the solvency of social security benefits after most of the baby boomer generation will have stressed the federal program to its limits. Staying productive and useful are key elements to financial well being, happiness, and long-term health. Entrepreneurial pursuits and consulting are more accessible than ever with the advent of the World Wide Web online community. Try pursuing or inventing a new career, perhaps something you have always dreamed about doing.

Joint life expectancy, whether married or not, is an important consideration when planning for and working toward retirement goals. According to the Vanguard Groupa heterosexual Gen X couple where both partners are age 50, the female partner has a 50 percent chance of reaching 85 years of age while her male counterpart only a 38 percent chance of reaching that same age. Since the couple is most likely to pass away at different times, factoring in the longevity of the surviving partner is crucial to planning. When extending longevity retirement scenarios understand that what is discretionary spending for fun in your 70s and 80s may shift to cover increasingly extensive medical aid and expenses in your 90th decade and possibly beyond. A financial planner can help you to create scenarios that will accommodate repurposing of monies.

We welcome the opportunity to work with you on your retirement goals to help create a legal plan that supports those goals.  Email us at info@covertlaw.com or call us at 1.800.660.7564. 

Many Wealthy Retirees Are Too Scared to Spend

Many Wealthy Retirees are Too Scared to Spend

While the US economy is in a cycle of more than ten years of economic growth, its citizens, even the “wealthy” ones, are worried about running out of cash and are scared to spend. Bloomberg.com is reporting many retirees, and near-retirees are sitting on their wealth in much the same way large corporations are hoarding stockpiles of cash. Even famed investor Warren Buffet and his multinational conglomerate holding company Berkshire Hathaway Inc are side-lining cash in excess of $122 billion.

 

Americans are experiencing a strong economy. The Gross Domestic Product (GDP) is steadily growing. There are low-interest rates, low unemployment, a stable currency, and more than $1 trillion of available investor cash. For those retirees who are financially well off then, why is there anxiety about money and reluctance to enjoy it in retirement years? Yes, many of the wealthy are planning on leaving a legacy to their heirs, but something else is happening.

 

Wealth in the US is becoming more concentrated among fewer households. Consolidating wealth is like consolidating power. Ultimately there is little difference between the two. The Americans who have most benefited from this ten-year boom cycle in the American economy are averse to spending their money. They want to survive an economic downturn and still maintain their elite financial status. This conservative approach will likely guarantee them a very comfortable lifestyle even in the event of bleak financial times. Former Brookings Institution fellow Matt Fellowes states, “It’s trillions and trillions of wealth that is not benefiting anyone except asset managers.” The rich, sitting on their wealth, create stagnant money, which negatively impacts the vitality of the American economy.

 

The Federal Reserve provides a quarterly balance sheet of all individual and charitable monies and America’s combined net worth now stands at $109 trillion. It is a lot of money; however, it has disproportionately flowed to the wealthy. Celebrity and wealth-obsessed culture saturates Americans with images of the rich with expensive real estate, private jets and yachts, and attending posh philanthropic parties. The reality of the average millionaire in America is far more frugal than their Instagram and paparazzi driven counterparts. Retirement experts often disagree as to why these conservative millionaires are unwilling to enjoy the fruits of their lifelong labors. 

 

Being cautious with money is inherently prudent, particularly at the height of an economic boom cycle. Even without market uncertainty, a key characteristic of modern capitalist economies is a boom-bust cycle. A process of economic expansion (boom) will be followed by economic contraction (bust), and the cycle occurs repeatedly. 

 

 

www.federalreserve.gov

 

All Americans, even the wealthy ones, are experiencing uncertainty about their economic future. Will their rate of return on investments be able to address increasing medical costs? Will they have enough streams of income to support themselves when taking into account their longevity risk? Collectively, Americans are not saving enough to accomplish a successful retirement. However, individually, wealthy Americans are fearful of losing their financial position in a severe market downturn. These wealthy Americans have already lived through harsh economic times, particularly the Great Recession. This economic bust was triggered by the subprime mortgage crisis and the collapse of the US housing market bubble. Market bubbles present themselves from time to time, and if the free market successfully deleverages them, there is little economic incident. But when the bottom drops out, bleak economic times follow.

Once you achieve wealth, it becomes an inherent part of your identity, and consequently spending your wealth is like spending your own identity’s capital. Additionally, as you age, the tendency is to become more risk-averse, according to the National Institutes of Health (NIH). With the bulk of the wealth of America in older households than in previous decades, it is no surprise that risk-averse strategies are in play. A lifetime spent acquiring wealth and watching accounts and investments mature then morphs into retirement years of asset spending and the dilution of wealth. The majority of wealthy Americans are not keen to adapt to the life cycle of asset accumulation followed by retirement spending. Their preference is to live frugally, retaining as many assets as possible to be able to ride out an economic downturn.

Planning for retirement can be stressful. Having a proper estate plan in place can eliminate much of the stress, especially when it comes to transferring assets to children who may not be ready to handle large sums of money. We can help. Give us a call to discuss your wishes, and how to design a plan that will help carry those wishes out by calling us at 1.800.660.7564 or by emailing us at info@covertlaw.com.

Do I Need a Trust?

Do I Need a Trust?

This is a common question we hear. Read on for information to help figure out whether you need a trust and, if so, what kind fits your specific situation.

For example, maybe you have a disabled child and you want a trust to permit that child to inherit without losing government benefits. Maybe your own or your spouse’s health is heading into difficulties, and you can foresee eventually needing long-term care benefits. Trusts can avoid an expensive, public, and lengthy probate process before your beneficiaries can inherit after you pass. Or, you might be in the classic “trust fund” situation, where you’re concerned that your children won’t be able to manage money wisely.

All these are excellent reasons to consider a trust. But what kind of trust? A quick count shows there are at least thirteen different varieties. Which one is best suited to your needs? Call us. 

Here’s the basic idea behind trusts, to help you understand why you might or might not need one.

 

What is a Trust?

Think of a trust like a treasure chest. You originally bought property or earned money in your own name. You then transfer those assets into the trust’s name – into your treasure chest, in other words. The trust treasure chest becomes a legal entity separate from you, which now holds your property in its, and no longer in your, name.

Then you identify people who will occupy the three roles involved in managing trust property. First, you are the grantor, or settlor, or trustmaker – all those words mean the same thing, the “you” in this case. Second, you appoint a trustee. That person or entity is responsible for managing trust assets and following directions contained in the trust document. Third, you decide whom you want to receive trust assets – your beneficiary or beneficiaries, in other words. 

In legal terms, a trust is a fiduciary agreement among you the original property-owner, your trustee, and your beneficiary. The trust document contains instructions for what you want done with trust property, both for how you want it invested and, also, for how you want trust assets to be distributed when you pass. Trusts are, thus, a highly efficient hybrid between a power of attorney, an asset-management vehicle, and a last will and testament, all rolled into one legal entity and document.

There are two basic kinds of trusts to understand, before they split off into their thirteen-or-more different flavors: revocable or irrevocable trusts.

 

The Revocable Trust

A revocable trust can be thought of like the treasure chest with the open lid. As grantor/settlor/trustmaker of a revocable trust, you can get at trust assets freely.

You yourself can also occupy all three roles in a revocable trust – grantor, trustee, and beneficiary. If need be, you can also tinker with trust terms, by freely amending them to change the directions, beneficiaries, or trustees. Or, you can revoke the whole thing. Before that point, though, the trust document will be there to take care of everything you want it to.

If you should meet with an accident and lose capacity, the terms of your trust will designate a person to step in on your behalf and, thus, avoid the need to go to court to get a guardian for you. The trust will also direct who inherits, thus keeping your affairs private and out of probate court. This feature is especially important if you (formerly) and then the trust (after you created it) owns real property in various states. The savings in court costs in that situation could be significant.

 

The Irrevocable Trust

This is the trust for you if you’re seeing the need for Medicaid long-term care benefits in your future, or you work in a field where suits are common, such as owning a small business or in the construction industry.

The disadvantage to an irrevocable trust, however, is that you will be sacrificing all or almost all control over trust assets, unlike in the revocable-trust situation. Once an irrevocable trust is established, you as grantor/settlor/trustmaker cannot directly alter the terms and, generally speaking, your access to trust money is restricted or entirely precluded – as is required in order to enjoy the potent benefits of this kind of trust.

Think of an irrevocable trust as being like the treasure chest with the locked lid. Your trustee – who generally cannot be you – is the one with the key. You yourself can no longer reach your assets. This relinquishment of control is necessary to shelter your assets from creditors, or to protect your assets when entitlement to government benefits would otherwise require you to spend almost all you own first.

There are ways to draft an irrevocable trust carefully, so you can still exert your will over how assets are to be used. Just as in the revocable situation, you can impose conditions that must be met before a beneficiary can receive funds. You can designate how trust income is to be used for specific purposes like college tuition, business start-up, or travel. You can also authorize a person or entity as “trust protector,” who can alter trust language, correct drafting errors, or create a new similar trust if the law changes.

And there you have the basics. Now you’re ready to decide whether you need a credit shelter trust, or a charitable trust, or a qualified terminable interest trust, or a blind trust, or – just come see us to figure out all the rest!

 

Trust Caveats

Some sophisticated trusts do convey tax benefits, but, for the most part, IRS considers revocable trusts to be invisible. You as grantor/settlor/trustmaker will still pay tax on the revocable-trust income, albeit at your individual rate and not at the prohibitive trust rate.

As for estate taxes, trusts have no effect – but, at least regarding federal estate taxes, those are currently moot for most people. They are not incurred until the value of the estate exceeds $11.4 million as of 2019. Some states do impose estate and/or inheritance taxes; for those states, please consult this website:

https://taxfoundation.org/does-your-state-have-estate-or-inheritance-tax/

Also, keep in mind that revocable trusts provide no protection against creditors. If you lose a legal action, a judge can force you to change the beneficiary of your trust to the winner. Irrevocable trusts are free from that kind of interference.

Still, irrevocable trusts must be established long before you run into that kind of trouble. If you create such a trust while credit problems are looming or have already arrived, you risk that your trust will be undone as a fraudulent conveyance.

 

Trust Your Attorney

Consult lawyers like us, who have experience and expertise in the trusts and estates area. Custom-constructing a treasure chest to fit your specific needs is a job for our specific skills.  Let us know if we can help by calling us at 1.800.660.7564 or by emailing us at info@covertlaw.com.

What to Include in a Letter of Instruction

What to Include in a Letter of Instruction

A letter of instruction can be a beneficial piece in estate planning. It is an informal document that will give your loved ones important information about personal and financial matters after your death. Letters of instruction are not legally binding and do not replace your need for a will or a living trust, however it can be a nice complement to those documents. The informal nature allows you to create the letter on your own and change it whenever necessary. It is important to keep the letter up to date, as life circumstances change over time. Let’s look at some of the information that may be included in a letter of instruction.

1. Funeral and Burial Arrangements

The first thing you may want to include in your letter of intent is information about your funeral and burial arrangements. Be sure to include any plans you’ve already made, or what your wishes are as this can be very beneficial to grieving family members. Information about the type of funeral service you’d like, including who should officiate the service and special things to be included like music selections, can be a part of your letter of instruction. If you prefer to be cremated rather than buried, be sure to include that in your letter.

Another helpful inclusion would be a list of people you want to be contacted when you pass, and contact information if available. You may also include your wishes for donations to specific charities in your memory.

2. Financial Information

Information about your bank accounts, assets you hold title to, and other accounts can greatly help family members when trying to carry out the provisions of your estate plan. Be sure to include names and phone numbers of professionals who can help locate your accounts or who helped you plan. The location of other important documents should also be included with the letter of intent. These could include but are not limited to birth certificates, social security account information or statements, marriage license, divorce documents, and military paperwork. In addition, be sure to leave behind information related to mortgages and other debts.

3. Digital Information

These days, many of our accounts have transitioned to the digital world. Therefore, leaving behind information about your digital assets in your letter of intent becomes more important. This should include usernames and passwords for digital accounts, social media accounts, and the devices themselves. It is important not to leave family members guessing on this information.

4. Personal Items

Personal items can be a source of contention among family members when a loved one dies. A letter of intent can provide details about who will receive personal effects, including collections, important personal items, and other things that may not have monetary value, but do have sentimental value. In this section you can also include information about the care of the pets you may leave behind. This section of your letter may include personal statements about your wishes and hopes for the future and can address specific family members.

A letter of intent can be a very real source of peace and comfort to your family members in their time of grief. It can be difficult to think about getting started on a letter of this nature, as none of us like to think about our own death. However, if you consider the items to include and create a plan, a letter of intent can often write itself. Taking this step can alleviate much stress and many family squabbles about what you leave behind.

A letter of intent is an important piece of your overall estate plan and should be written with the help of an attorney to make sure the letter compliments and does not contradict your estate plan. We also offer to all of our clients their own private, secure Client Portal where they can give their loved ones access to some or all of their important documents.  If you would like help creating your estate plan or a letter of intent, please feel free to contact us by calling us at 1.800.660.7564 or by emailing us at info@covertlaw.com.

Protecting your child’s inheritance

Protecting Your Child’s Inheritance

Estate planning for the future inheritance of your children and grandchildren should include protective measures to keep assets from disappearing or being claimed by a creditor. A simple way to achieve inheritance protection is through a trust. A trust can pass your wealth bypassing probate. This allows specific trust provisions to ensure the money left to a beneficiary is neither squandered or through ill-advised spending or divorce action of the beneficiary.

Divorce is one of the primary obstacles to contend with when trying to minimize issues of wealth transfer and preservation. High divorce rates, especially among aging Americans, can make an inherited trust vulnerable if the property becomes commingled with the marital estate. Single and married children, as well as grandchildren of inherited wealth, should always maintain inherited assets and property as a separate entity whether as a trust or direct individual inheritance. Before any marriage, a pre-nuptial agreement should be signed to protect previously inherited wealth and the potential of future inheritance.

 

weforum.org

Whether your child or grandchild inherits an existing trust or establishes their trust after a direct bequeath, the terms of the trust can limit the potential problem of future loss of inherited monies or assets due to the possibility of lawsuits and creditor claims. A properly drafted trust can protect assets from legal action in the event your child is sued. A trust also protects the trust maker and the beneficiaries from the public process of probate. Anyone can research probate court records and determine how much your estate was worth, what you owned and how you chose to divide it.

If you believe your adult child has limited aptitude to manage money properly and might squander your grandchildren’s inheritance, then draft a will or trust that earmarks a dollar amount or percentage of the estate for those grandchildren explicitly. As an example, the will or trust can also specify that these inherited assets be allocated solely for a grandchild’s college education or wedding. 

Another financial vehicle with some overspending controls is a “stretch IRA.” This inherited individual retirement account (IRA) has a required minimum distribution (RMD) that stretches over a more extended period based on the inheritor’s life expectancy. A monitored minimum distribution will allow the principal to continue growing. In the case a child or grandchild is too young to manage the RMDs it may be in their best interest to name an institutional trustee to direct distributions. 

Whatever your intent is for your grandchildren, be sure to include a discussion with your child, expressing your resolve for your grandchildren to inherit and clearly stating them in your will. Also, speak honestly about your fears that your child may blow through their inheritance and discuss the value of limiting annual distributions to only investment income or a percentage of the trust’s value to preserve the aggregate of assets. In the event your child, who may have an addiction problem like gambling, drugs, or overspending, may require trustee oversight to temporarily end distribution of trust or IRA monies until they demonstrate wellness. At that time, the trustee may opt to restart money distributions.  

Ultimately it is best to find a trusted estate planning attorney that is well versed in the laws of your state to help you craft a comprehensive approach to the dispersion of your estate that will protect your intentions from the mal-intent of others. Whether you need a lifetime “dynasty” trust, individual trust or direct inheritance, institutional trustee, inheritable stretch IRA, or a combination of inheritance vehicles, is all dependent on your unique financial position and personal desires for your legacy’s distribution. There is great latitude when drafting the structure for the distribution of your estate, so look to creative inspiration to open up possibilities. Contact our office today and schedule an appointment to discuss how we can help you with your planning by calling us at 1.800.660.7564 or by emailing us at info@covertlaw.com.

A Closer Look at Retirement Savings Statistics

A Closer Look at Retirement Savings Statistics

It is all over the media that nearly half of Americans aged 55 and older have no retirement savings in an individual retirement account (IRA) or 401(k) according to the federal Government Accountability Office (GAO). Also, while two out of five households do have a defined benefit plan (traditional pension), a full 29 percent of older Americans have nothing saved for retirement in any of these financial retirement tools. Retirement statistics have wide-ranging implications for the economic well being of aging baby boomers. But are the numbers being interpreted accurately? Contributing Forbes Magazine writer Andrew Biggs, who works on retirement policy, public sector pay and other economic issues facing Americans, says that the claim is factually incorrect. Furthermore, he feels how the media will cover the statistics and interpreted by politicians will continue to distort the facts. 

According to FactCheck.org, the statistic the GAO uses is derived from the Federals Reserve’s Survey of Consumer Finances. This survey excludes those Americans who only have a traditional pension. While that may seem a small exclusion, it significantly changes the retirement savings statistic and forward trends for aging Americans’ retirement economic health. When both traditional pensions and retirement accounts are included, a full 72 percent of households aged 55 or more have retirement savings. In 1989 the same analysis criteria indicated only 64 percent of households had retirement income set aside. Therefore there is a net gain over time of 8 percent since 1989 and about 24 percent better than when looking at current statistics that only include an IRA and 401(k) as retirement savings.

If the statistics look much better when traditional pensions are included, why does the Federal Reserve exclude projected pension income in retirement forecast data? Traditional employer-sponsored pensions have fallen off dramatically for several decades. More often, employers are likely to contribute to a personal employee retirement plan like a 401(k). This makes good business sense for private corporations that only have to match or contribute half of an employee’s contribution and avoids the long term financial planning for employee pensions; in particular indexed pensions which progressively increase in value in an attempt to address inflation and the cost of living. The private sector has been bailing out of the responsibility of individual retired workers pensions for some time and for viable economic reasons.

Meanwhile, America’s public sector job pensions are at risk of becoming too expensive for municipalities, states, and even the federal government to guarantee. Cuts in future public sector pension benefits have become common for civil servants, and the reason is the same as for the private sector, cost. Underfunded and unfunded pensions are becoming the norm, which calls into question the reliability of pension plans themselves.

Retirement security is a serious and significant national issue that typically does not get enough thoughtful analysis. Attention-grabbing headlines can distort truths, but even in its best light, many retiring Americans are at significant risk for economic hardship as people are living longer than ever before. It is widely recommended that a retirement plan make provisions for 30 years and with dementia cases on the rise many of those 30 years for a retiree may become very expensive if it includes dementia care. Many retirees plan to rely heavily on their social security benefits check. The notion that social security benefits will be the social safety net promised is also at risk. Much like pensions, the promise of full benefit payment is now at risk to individuals and many retirees are projected to receive only 77 percent of their promised social security benefit payments according to the Social Security Administration’s (SSA) own admission. 

The truth about retirement savings is as individual as you are. These overall projections can be both frightening and distorted with regards to your personal retirement experience. If you are 55 or older and still working, you have the control to make different and better decisions. Any proactive planning for your future retirement is better than abdicating responsibility to private firms and public employment sectors who may have mismanaged your retirement savings. 

If we can be of assistance, please don’t hesitate to contact us by calling us at 1.800.660.7564 or be emailing us at info@covertlaw.com.

Make Sure Your Wishes Are Carried Out

Make Sure Your Wishes are Carried Out

The importance of making end of life preparations cannot be stressed enough. Many put off making these plans thinking there is always time. The sad reality is that none of us are guaranteed time. Others may be bothered by the thought of death itself and allow this to paralyze them when it comes to making plans and getting their affairs in order for the end of life. However, most of these same people have wishes and thoughts about where and to whom their assets are distributed. Many of them also have ideas about what they do and do not wish to have happen when their life ends. Lack of preparation and planning means that these wishes likely will not be honored. In addition, it causes additional strain and stress on the people who are left to sort out the affairs. An example of this is the story of Debbie.

Debbie was a teacher who had been retired for several years. She was aging alone. She never married and had no family around. She did have a small circle of friends. After retirement, Debbie’s health progressively declined and she had more and more difficulty caring for herself. After a few years, Debbie passed away in her home.

Previously, she had conversations with a handful of her friends telling them her wishes for the possessions and assets she had. Because of these conversations, these friends each thought she had made the proper preparations to ensure these wishes would be followed. Unfortunately, Debbie had none of the necessary end of life documents that would allow her wishes to be followed. Her friends were left to try to piece together a puzzle that only many missing pieces. Her burial was prolonged and what she did have after paying expenses to settle the estate and bury her will not end up where Debbie wanted. This scenario can, however, be avoided.

If you or your elderly loved one have not made end of life preparations, make time to do so as quickly as possible. An elder law attorney can help guide you in what you should be doing, and can make sure the proper documents are in place to carry out your wishes regarding your health, care you want (or don’t want) to receive, and who should receive your money and possessions.

The first key document to be sure you have is a will or a living trust. A will allows you to specify where your money and possessions should go upon your passing. It also allows you to choose an executor of the estate. The executor will take care of managing the estate, paying debts, and distributing property as specified. A will only takes effect upon your death.

A living trust does everything a will can do, but also allows for you to choose someone to manage your assets if you become incapacitated because it is effective during your lifetime. A living trust also provides privacy, as it is not subject to court proceedings that become open to the public like a will is. There are numerous other advantages to a living trust that can be explored with the help of an attorney.

A living will and health care power of attorney are two additional documents that take effect while you are alive. A living will specifies your wishes for end-of-life medical care. For example, you can specify whether you want to be kept alive by artificial means if you are in a terminal state. A health care power of attorney provides for someone to make health care decisions for you, in case you aren’t able to make decisions yourself. Both of these documents outline your wishes about medical treatment and care when you can’t make them for yourself, so it’s important to seek legal guidance to make sure these documents are drafted properly.

A financial power of attorney should be in the plan as well. A financial power of attorney names an agent to handle your finances in the event you are no longer able to.  An agent can open and close bank accounts, write checks, and sell property if you choose to allow them the authority to do so. Like the health care power of attorney, the financial power of attorney should be created with legal advice to make sure your wishes regarding your finances are properly documented.

Having an estate plan is necessary for you to have a say in what happens if you become sick and cannot make decisions for yourself, and to determine what happens with your money and your belongings after death. An estate plan also helps those who are left to deal with the estate to do so in a more simple and straightforward manner.

If you have any questions about something you have read or would like additional information, please feel free to contact us by calling 1.800.660.7564 or by emailing us at info@covertlaw.com.

The Changing Landscape of Memory Care

The Changing Landscape of Memory Care

 Projected demographics indicate that memory care is about to become a booming market of opportunity for facilities and their construction that tend to developing specialized memory care needs. While some facilities are stand-alone solutions for memory care patients, others will offer care that is already integrated into existing facilities that cover more than just the memory care sector. Lisa McCracken, senior vice president of senior living research and development at Ziegler says “With the projected increases in individuals who have cognitive impairments, and the decreasing number of caregivers, we do not expect that this pattern will go away anytime soon.”

 Some of the fundamental changes include inventive care settings that are vastly different than existing dementia support floors and secure units. Some of the care settings have not yet been realized as research and understanding of cognitive impairment continues forward. The fact is there will be a broader array of options to choose from in the near future. The “small house” model is becoming increasingly popular. The small house model is an intimate setting within existing nursing communities consisting of 10 enclosed, secure units and is designed for couples facing memory challenges. A small scale affordable housing model partially funded by the Department of Housing and Urban Development (HUD) is typically available to low-income seniors.

 Those seniors who can afford private pay for their memory care are being aided by assisted living facilities that design dementia care units like a neighborhood from an earlier time in the patient’s life. Often, dementia patients readily recall memories from long ago and these centers, designed to look like a community, are replete with porches, rocking chairs, carpet that mimics grass, and a fiber optic ceiling that allows transitional lighting creating a sense of the day and night sky. Other elements like aromatherapy can aide in calming residents or stimulating appetite depending on the selection of oils integrated into the therapy. All of these elements help reduce anger, anxiety, and depression which are hallmarks of seniors who suffer from dementia illnesses.

 

lanternprimary.png

 

https://www.facebook.com/lanternofmadison/

 

Full continuum care is improving as it meets the increasing numbers of its resident base with memory care issues. Many facilities are tapping into the expertise of geriatric psychiatry“  … also known as geropsychiatry, psychogeriatrics or psychiatry of old age is a subspecialty of psychiatry dealing with the study, prevention, and treatment of mental disorders in humans with old age.”  This field of study can enhance a memory care facility and improve the problems of anger, depression, and anxiety with medical components that address dementia. The techniques include a person-centered approach focusing on fostering autonomy, developing empathy with residents and even focusing on humor to help alleviate stress and increase the quality of life.  

 Professional caregivers will receive specialization in treating resident with dementia. Formal memory care education will become a more commonplace accreditation as the numbers of patients in need continue to increase. Rather than a certified nursing assistant (CNA) dementia patients will be tended to more frequently by certified dementia care nursing assistants (CDNAs). This change in credentialing will be driven by rising consumer expectation as well as tighter regulations that govern memory care. 

 Dementia illness is more prevalent than ever before, and so is the understanding that the disease has a long preclinical phase. Intervention and healthy lifestyle modification can continue to delay the onset of dementia in its clinical phase. Physical activity, social engagement, and brain fitness through smart devices and computer applications are wonderful cognitive compensation strategies that protect executive brain function, particularly in the preclinical phase of the disease. Beyond the known technology that already aides in the staving off of dementia, new cutting edge work can also help seniors compensate for memory loss allowing them to remain at home longer as well as enable senior facility operators to refine their services.

 Wearable cameras that have artificial intelligence (AI) facial recognition capabilities can provide a patient with the name of the person who is approaching them. AI can also help a senior’s cognitive load; helping them stay informed regarding day to day decisions. Newly developed website interfaces are making it easier for memory care patients to use and video, audio and sensor technologies can help detect depression or alert, through predictive analytics, a patient having a bad day or an increased risk of falling due to a change in gait. The potential for technology applications in memory care is seemingly endless and there is more research and development in the works. 

 Do you or your loved one have a plan in place in the event you become a memory care patient? Are you aware of the changing options available for living arrangements? Contact our office today and schedule an appointment to discuss how we can help you with your planning.  Simply email us at info@covertlaw.com. or call us at 1.800.660.7564.

Memory Care and the Epidemic of Alzheimer’s

Memory Care and the Epidemic of Alzheimer’s

Alzheimer’s is a chronic neurodegenerative disease typically with a long pre-clinical phase which gradually worsens. Initial symptoms are often mistaken for normal aging and include problems with language, mood swings, disorientation, loss of motivation, poor self-care and behavioral issues. There are no treatments to stop or reverse the disease progression. Alzheimer’s accounts for 60 to 70 percent of dementia cases and is one of the most financially costly diseases. Usually, the disease onset occurs in seniors over the age of 65, and the average life expectancy is 3 to 9 years though the speed of the disease’s progression can vary. 

Estimates are that more than 14 million Americans will be diagnosed with Alzheimer’s disease by the year 2050 and the financial cost to the United States will total more than 1.1 trillion dollars. Memory and medical care for those who have Alzheimer’s will also create challenges for their families starting with the most basic of questions about memory care, understanding what it is, and what it entails. 

Currently, memory care for seniors with advanced Alzheimer’s is best provided in state-licensed assisted living residences or nursing homes with a secure unit designed specifically for memory patients. The unit may be a floor or separate building with security and other cueing devices to help prevent a patient from wandering. Memory care facilities offer programs that are designed to keep executive brain function active and engaged and also offer cognitive behavioral therapies designed specifically for those with memory challenges. However, these facilities are expensive, and with the Alzheimer’s survival rate of 3 to 9 years post diagnosis, many families are not able to pay the associated costs of memory care.

Because of these costs, many families become unpaid caregivers to their loved ones. In the earlier stages of the disease progression it is a workable situation, but before long this selfless act and huge undertaking can take a toll on the caregiver leading to inadequate care for the patient. It is during this family caregiver stage that exploring the longer term options for memory care becomes critical as there will come a time professional memory care will become necessary. There are several options to consider regarding paying for memory care which on average costs nearly 5 times more than seniors who do not require memory care.  

Is your loved one a US Veteran? Research about the Aid & Attendance benefits available to them. Not a veteran? Then explore options for long term care health insurance. Another option is to learn how to spend down assets to qualify for Medicaid. However this must be done very carefully and with the understanding that even with Medicaid there are, and will continue to be, long waiting lists to get into memory care facilities. If you are fortunate enough to be able to private pay for memory care, it is still important to investigate options to identify the right facility for your loved one.

How will you know when professional memory care is needed? Some of the more common indicators are when someone who has Alzheimer’s forgets to take their medication or forgets the codes to alarms or neglects to lock doors. When a person living with dementia forgets their basic house chores or forgets to eat meals, shower, change clothes or groom themselves that is a sign that memory care may be in order. Finally, psychological changes occur such as consistent feelings of anger or confusion, withdrawal or depression, even personality changes such as mistrusting others are indicators that professional memory care is needed.

All people living with dementia should make plans with their family and attorney in the early stages of disease progression as to how they want to be handled medically in the advanced stages of Alzheimer’s. It is much better to have this discussion very early on as it can provide a sense of relief to the patient knowing things will proceed as documented. 

In the absence of a cure for Alzheimer’s all seniors should proactively plan with their family and a trusted elder law attorney to create a plan in the event memory care becomes necessary. Contact our office today and schedule an appointment to discuss how we can help you with your planning by calling us at 1.800.660.7564 or by emailing us at info@covertlaw.com.

Creative Financial Approaches to Long Term Care Services

Creative Financial Approaches to Long Term Care Services

Long term care insurance was sold aggressively in the 1980s, 90s and thereafter to offset the costs of seniors needing to live in a nursing home, assisted living or needing at home health care. Now, however, the business of long term care insurance has dramatically changed. What was once over 100 insurers providing LTC policy for sale has shrunk to a pool of less than twenty insurers who continue to sell the health care product. The big financial problem was that the majority of insurers had badly underestimated the longevity of these long term care policy holders and how many claims would be filed during their lifetime. The model became unsustainable from a business perspective. 

As reported by the Wall Street Journal (https://www.wsj.com/articles/millions-bought-insurance-to-cover-retirement-health-costs-now-they-face-an-awful-choice-1516206708) the industry is now in financial turmoil and has turned to the old adage of privatize the gains and socialize the losses; the translation being that millions of people age sixty-five or older with long term care policies are facing steep rate increases. It is not uncommon for a policy holder to face a fifty percent increase in their premium while some of the worst cases are upwards of ninety percent. Because the industry itself used such poor benchmarks and miscalculated projections, policy holders are seemingly left with two choices: Pay the money or leave your coverage after paying into it for years, and sometimes decades.

What if you want a different choice? Everyone would agree that being priced gouged for premiums as you age is inherently unconscionable but if the policy is discontinued what then will happen to the peace of mind long term care brings? What was once the safety net of senior aging care (without becoming a burden to family members) is rapidly disappearing.

CNBC has recently reported about this very issue and suggests getting financially creative for long term care. (https://www.cnbc.com/2018/02/27/heres-a-surprise-source-you-can-tap-for-long-term-care-services.html) There is a surprising source that you can tap in order to maintain protection for yourself but it requires planning, professional help and time. Do not delay. 

The financially creative premise is to become asset poor, impoverished, and qualify for Medicaid which pays for nursing home care and services. This does not mean the legacy you built during your lifetime will not go to your selected inheritors. On the contrary the assets you own must move out of your name to qualify for Medicaid. The assets will then shift to your designated beneficiary since to qualify you as an individual cannot have over $2,000 in assets.

To begin you will need to retain the services of a qualified elder law attorney, who may also bring in an accountant and a financial advisor. Ideally, you will be able to wait five years before needing long term care and the help of Medicaid. If there are assets transferred during the “five year lookback” it may be subject to penalties or make the applicant ineligible for some period of time requiring them to pay out of pocket.

Now with time on your side it becomes critical to select the right vehicle for transfer. These can be annuities but more often tend to be irrevocable trusts. The assets in the irrevocable trust are no longer under the control of the older person and can provide protection from certain creditors. The vehicle chosen for transfer of assets is very important not only for the older individual but the recipient as well. In the case of an outright gift of appreciated assets (i.e. stocks or real property) there would be no stepped up cost basis which could lead to crushing capital gains taxes when it is time to sell. An elder law attorney with input from your accountant and financial planner can help you choose the right transfer of wealth plan.

Elder law attorneys are closely watching changes in Medicaid,, as Congress is often proposing legislation to change the program.. Be certain your elder law attorney is up to speed on the current requirements, as the eligibility requirements can change very quickly in each state, and sometimes each county.

Though you may never have thought you would find yourself creatively trying to qualify for Medicaid while protecting assets, the current long term care premium prices preclude a large portion of seniors from being able to pay the cost of the policy. Genworth Financial reports the national median cost of a private nursing home room to be $97,455 a year. It doesn’t take long to be wiped out at that cost without long term care. Medicaid may be your solution and time is of the essence for planning. 

Contact our office today and schedule an appointment to discuss how we can help you with your planning.

Welcome to Our Blog!

This is our new Blog!  Welcome.

We hope you enjoy this content.

We will be updating this Blog content with relevant and timely estate and elder law planning materials.  Feel free to check back periodically!

Contact Us:

Auto Reply
Thank you for your recent inquiry. Someone will get back to you within 24 hours.

Signature (Supports HTML)
Kind Regards
Covert | Law
Stacks Image p2_n19

Covert | Law

Your Plan. Your Family. Their Future.

- - We Take Care of Families: Today - Tomorrow - Forever - -

NEIL R. COVERT, Attorney at Law

Clearwater - Sarasota - Fort Myers - Naples

1.800.660.7564

email: info@covertlaw.com

© 2019 Neil R. Covert, P.A. - - All Rights Reserved.

____________________________________________