Paying for Your Grandchildren’s Education

The bond between a grandparent and grandchild is a very special one based on respect, trust and unconditional love. When preparing one’s estate plan, it’s not at all uncommon to find grandparents who want to leave much or all of their fortune to their grandchildren. With college tuition costs on the rise, many seniors are looking to ways to help their grandchildren with these costs long before they pass away. Fortunately, there are ways to “gift” an education with minimal consequences for your estate and your loved ones.

Planning for Your Final Sendoff

Although most people don’t like to think about it, death is inevitable. It’s imperative that you have an estate plan in place that outlines your end of life wishes and how you would like your assets distributed upon your passing. As part of your planning, it’s important that you consider and make arrangements for your funeral. By planning this event before your passing, you can spare your family difficult decisions and ensure that your send off is exactly as you’d like it.

Here are a few things to consider:

Location
Funerals are not limited to churches or temples. If you’re not religious or if you want something different, you might ask that your relatives instead hold a memorial service in your honor at the park or even at the family vacation home.

Burial
Perhaps you hate the idea of being buried at the local cemetery and would prefer to be cremated. There are many options and having your relatives all agree upon one can be challenging. Be sure to make these wishes known as part of your funeral planning.  

Details    
You wouldn’t want someone picking the song for the first dance at your wedding so why would you want someone else deciding all of the details of an event to celebrate your life? As part of your funeral planning, list songs you might want played or poems which should be recited. If your favorite vacation was to Hawaii, you might want to brighten up the event with tropical flowers from Maui.

Obituary
It can be difficult to write about your life but for many writing their own obituary can help them reflect on the important things while giving them a chance to highlight their proudest moments. If you aren’t a writer or find this task daunting, consider writing a few bullet points for your loved ones so the information they share is accurate and provide a list of publications where it should be featured. Sure, your children may know that you belong to the church book group but they may have no idea that that same group has a newsletter which should share this information with fellow members.

Virtual Passwords
Traditionally when a person died, his or her children had the task of going through the old phone book and calling contacts to inform them of the news. Today, many of us connect with friends and relatives online. To help your heirs effectively communicate information about your passing, be sure to store your online passwords in a place where your relatives can find them and access the appropriate accounts accordingly.

Paying in Advance
Funerals can be very expensive and a huge burden for many families dealing with the loss of a loved one. Luckily, with the right planning, you can prepay for your funeral and save your family the expense. Generally an attorney or a funeral director can help you to determine how much money will be needed and help you to establish a trust where it will be stored until your passing.

While planning your funeral may seem to be a depressing thought at first, it is actually empowering—allowing you determine how you will say farewell to your loved ones and leaving you with peace of mind knowing that you’ve taken care of every last detail so your family can celebrate your life without the added stress of planning your funeral.  

Preparing Your Family for an Emergency during School Hours

Every family should establish a clear plan to handle an emergency that occurs during school hours. Unfortunately, many parents mistakenly believe that filling out the school’s emergency card is sufficient. Sadly, this practice falls far short of what is truly necessary to protect your children in the event something tragic happens to you during the school day.

Even with a fully-completed school emergency card, your children could still spend time “in the system.” The emergency card only gives permission for certain named individuals to pick up your children if they are sick, but does not authorize them to take short-term custody if one or both parents are killed or become incapacitated. Without having alternate arrangements in place, children in this situation would likely end up spending at least some time with social services.

Parents should create an emergency plan, to avoid confusion and ensure their children are in the right hands if tragedy strikes. With just a few simple steps, parents can rest easy knowing their children will be cared for in the manner they choose.

Name Temporary Guardians
Parents should name short-term guardians who have legal permission to care for their children until a parent or other long-term guardian is available to take over. This individual should be someone who lives nearby and can aid and comfort your child in an emergency. You can establish this temporary guardianship arrangement by completing a temporary guardianship agreement or authorization, preferably, with the assistance of a qualified attorney.

Make Sure the Temporary Guardians are Also Named on the School Emergency Card
In addition to listing neighbors or friends who are authorized to pick up your children from school, .it is also vital that you list the full contact information for your authorized temporary guardians. In the event of a true emergency, this guardian can step in immediately to care for your children. Otherwise, your kids may wind up in the custody of social services until a parent or other named legal guardian can be located.

Ensure the Babysitter Knows the Plan if You Don’t Return Home
Make sure you give your babysitters detailed instructions regarding who to call or what to do in the event you are unexpectedly absent. Without this information, many babysitters will panic and contact the police. Involving law enforcement will also involve social services who may step in and take temporary custody of your children until a long-term guardian or parent arrives.

These three simple steps will make all the difference for your children and their caregivers in the event the unthinkable happens. In times of tragedy, the last thing you want is for your little ones to end up in the system, rather than the loving arms of a trusted friend or relative.
 

Self-Settled vs. Third-Party Special Needs Trusts

Special needs trusts allow individuals with disabilities to qualify for need-based government assistance while maintaining access to additional assets which can be used to pay for expenses not covered by such government benefits. If the trust is set up correctly, the beneficiary will not risk losing eligibility for government benefits such as Medicaid or Supplemental Security Income (SSI) because of income or asset levels which exceed their eligibility limits.

Special needs trusts generally fall within one of two categories: self-settled or third-party trusts. The difference is based on whose assets were used to fund the trust. A self-settled trust is one that is funded with the disabled person’s own assets, such as an inheritance, a personal injury settlement or accumulated wealth. If the disabled beneficiary ever had the legal right to use the money without restriction, the trust is most likely self-settled.

On the other hand, a third-party trust is established by and funded with assets belonging to someone other than the beneficiary.

Ideally, an inheritance for the benefit of a disabled individual should be left through third-party special needs trust. Otherwise, if the inheritance is left outright to the disabled beneficiary, a trust can often be set up by a court at the request of a conservator or other family member to hold the assets and provide for the beneficiary without affecting his or her eligibility for government benefits.

The treatment and effect of a particular trust will differ according to which category the trust falls under.

A self-settled trust:

• Must include a provision that, upon the beneficiary’s death, the state Medicaid agency will be reimbursed for the cost of benefits received by the beneficiary.
• May significantly limit the kinds of payments the trustee can make, which can vary according to state law.
•  May require an annual accounting of trust expenditures to the state Medicaid agency.
• May cause the beneficiary to be deemed to have access to trust income or assets, if rules are not followed exactly, thereby jeopardizing the beneficiary’s eligibility for SSI or Medicaid benefits.
• Will be taxed as if its assets still belonged to the beneficiary.
• May not be available as an option for disabled individuals over the age of 65.

A third-party settled special needs trust:

• Can pay for shelter and food for the beneficiary, although these expenditures may reduce the beneficiary’s eligibility for SSI payments.
• Can be distributed to charities or other family members upon the disabled beneficiary’s death.
• Can be terminated if the beneficiary’s condition improves and he or she no longer requires the assistance of SSI or Medicaid, and the remaining balance will be distributed to the beneficiary.
   

Medicare vs. Medicaid: Similarities and Differences

With such similar sounding names, many Americans mistake Medicare and Medicaid programs for one another, or presume the programs are as similar as their names. While both are government-run programs, there are many important differences. Medicare provides senior citizens, the disabled and the blind with medical benefits. Medicaid, on the other hand, provides healthcare benefits for those with little to no income.

Overview of Medicare
Medicare is a public health insurance program for Americans who are 65 or older. The program does not cover long-term care, but can cover payments for certain rehabilitation treatments. For example, if a Medicare patient is admitted to a hospital for at least three days and is subsequently admitted to a skilled nursing facility, Medicare may cover some of those payments. However, Medicare payments for such care and treatment will cease after 100 days.

In summary:

• Medicare provides health insurance for those aged 65 and older
• Medicare is regulated under federal law, and is applied uniformly throughout the United States
• Medicare pays for up to 100 days of care in a skilled nursing facility
• Medicare pays for hospital care and medically necessary treatments and services
• Medicare does not pay for long-term care
• To be eligible for Medicare, you generally must have paid into the system

Overview of Medicaid
Medicaid is a state-run program, funded by both the federal and state governments. Because Medicaid is administered by the state, the requirements and procedures vary across state lines and you must look to the law in your area for specific eligibility rules. The federal government issues Medicaid guidelines, but each state gets to determine how the guidelines will be implemented.

In summary:

• Medicaid is a health care program based on financial need
• Medicaid is regulated under state law, which varies from state to state
• Medicaid will cover long-term care
   

Charitable Giving

Many people give to charity during their lives, but unfortunately too few Americans take advantage of the benefits of incorporating charitable giving into their estate plans. By planning ahead, you can save on income and estate taxes, provide a meaningful contribution to the charity of your choice, and even guarantee a steady stream of income throughout your lifetime.

Those who do plan to leave a gift to charity upon their death typically do so by making a simple bequest in a will. However, there are a variety of estate planning tools designed to maximize the benefits of a gift to both the charity and the donor. Donors and their heirs may be better served by incorporating deferred gifts or split-interest gifts, which afford both estate tax and income tax deductions, although for less than the full value of the asset donated.

One of the most common tools is the Charitable Remainder Trust (CRT), which provides the donor or other designated beneficiary the ability to receive income for his or her lifetime, or for a set period of years. At death, or the conclusion of the set period, the “remainder interest” held in the trust is transferred to the charity. The CRT affords the donor a tax deduction based on the calculated remainder interest that will be left to charity. This remainder interest is calculated according to the terms of the trust and the Applicable Federal Rate published monthly by the IRS.

The Charitable Lead Trust (CLT) follows the same basic principle, in reverse. With a CLT, the charity receives the income during the donor’s lifetime, with the remainder interest transferring to the donor’s heirs upon his or her death.

To qualify for tax benefits, both CRTs and CLTs must be established as:

• A Charitable Remainder Annuity Trust (CRAT) or a Charitable Lead Annuity Trust (CLAT), wherein the income is established at the beginning, as a fixed amount, with no option to make further additions to the trust; or
• A unitrust which recalculates income as a pre-set percentage of trust assets on an annual basis; which would be either a Charitable Remainder Unitrust (CRUT) or a Charitable Remainder Annuity Trust (CRAT).

Another variation is the Net Income Charitable Remainder Unitrust, which provides more flexible payment options for the donor. One advantage to this type of trust is that a shortfall in income one year can be made up the following year.

The Charitable Gift Annuity (CGA) enables the donor to buy an annuity, directly from the charity, which provides guaranteed fixed payments over the donor’s lifetime. As with all annuities, the amount of income provided depends on the donor’s age when the annuity is purchased. The CGA gives donors an immediate income tax deduction, the value of which can be carried forward for up to five years to maximize tax savings.

IRA contributions are also an option through 2011 for donors who are at least 70½ years of age. Donors who meet the age requirement can donate funds in an Individual Retirement Account (IRA) to charity via a charitable IRA rollover or qualified charitable distribution. The amount of the donation can include the donors’ required minimum distribution (RMD), but may not exceed $100,000. The contribution must be made directly by the trustee of the IRA.

With several ways to incorporate charitable giving into your estate plan, it’s important that you carefully consider the benefits and consequences, taking into account your assets, income and desired tax benefits. A qualified estate planning attorney and financial advisor can help you determine the best arrangement which will most benefit you and your charity of choice.
 

Life Insurance and Medicaid Planning

Many people purchase a life insurance policy as a way to ensure that their dependents are protected upon their passing. Generally speaking, there are two basic types of life insurance policies: term life and whole life insurance. With a term policy, the holder pays a monthly, or yearly, premium for the policy which will pay out a death benefit to the beneficiaries upon the holder’s death so long as the policy was in effect. A whole life policy is similar to a term, but also has an investment component which builds cash value over time. This cash value can benefit either the policy holder during his or her lifetime or the beneficiaries.

During the Medicaid planning process, many people are surprised to learn that the cash value of life insurance is a countable asset. In most cases, if you have a policy with a cash value, you are able to go to the insurance company and request to withdraw that cash value. Thus, for Medicaid purposes, that cash value will be treated just like a bank account in your name. There may be certain exceptions under your state law where Medicaid will not count the cash value. For example, if the face value (which is normally the death benefit) of the policy is a fairly small amount (such as $10,000 or less) and if your "estate" is named as a beneficiary, or if a "funeral home" is named as a beneficiary, the cash value may not be counted. However, if your estate is the beneficiary then Medicaid likely would have the ability to collect the death proceeds from your estate to reimburse Medicaid for the amounts they have paid out on your behalf while you are living (this is known as estate recovery). Generally, the face value ($10,000 in the example) is an aggregate amount of all life insurance policies you have. It is not a per policy amount.

Each state has different Medicaid laws so it’s absolutely essential that you seek out a good elder law or Medicaid planning attorney in determining whether your life insurance policy is a countable asset.

A Shared Home but Not a Joint Deed

Many people erroneously assume that when one spouse dies, the other spouse receives all of the remaining assets; this is often not true and frequently results in unintentional disinheritance of the surviving spouse.

In cases where a couple shares a home but only one spouse’s name is on it, the home will not automatically pass to the surviving pass, if his or her name is not on the title. Take, for example, a case of a husband and wife where the husband purchased a home prior to his marriage, and consequently only his name is on the title (although both parties resided there, and shared expenses, during the marriage). Should the husband pass away before his wife, the home will not automatically pass to her by “right of survivorship”. Instead, it will become part of his probate estate. This means that there will need to be a court probate case opened and an executor appointed. If the husband had a will, the executor would be the person he nominated in his will who would carry out the testator’s instructions regarding disposition of the assets. If he did not have a will, state statutes, known as intestacy laws, would provide who has priority to inherit the assets.

In our example, if the husband had a will then the house would pass to whomever is to receive his assets pursuant to that will. That may very well be his wife, even if her name is not on the title.

If he dies without a will, state laws will determine who is entitled to the home. Many states have rules that would provide only a portion of the estate to the surviving spouse. If the deceased person has children, even if children of the current marriage, local laws might grant a portion of the estate to those children. If this is a second marriage, children from the prior marriage may be entitled to more of the estate. If this is indeed the case, the surviving spouse may be forced to leave the home, even if she had contributed to home expenses during the course of the marriage.

Laws of inheritance are complex, and without proper planning, surviving loved ones may be subjected to unintended expense, delays and legal hardships. If you share a residence with a significant other or spouse, you should consult with an attorney to determine the best course of action after taking into account your unique personal situation and goals. There may be simple ways to ensure your wishes are carried out and avoid having to probate your partner’s estate at death.

Removal of a Trustee

In creating a trust, the trustmaker must name a trustee who has the legal obligation to administer it in accordance with the trustmaker’s wishes and intentions. In some cases, after the passing of the trustmaker, loved ones or beneficiaries may want to remove the designated trustee.

The process to remove a trustee largely depends on two factors: 1) language contained with the trust and 2) state law. When determining your options, there are a number of issues and key considerations to keep in mind.

First, it is possible that the trust language grants you the specific right to remove the named trustee. If it does, it likely will also outline how you must do so and whether you must provide a reason you want to remove them. Second, if the trust does not grant you the right to remove the trustee, it may grant another person the right to remove. Sometimes that other person may serve in the role of what is known as a "trust protector" or "trust advisor." If that is in the trust document you should speak to that person and let them know why you want the trustee removed. They would need to decide if they should do so or not. Finally, if neither of those is an option, your state law may have provisions that permit you to remove a trustee. However, it may be that you will have to file a petition with a court and seek a court order. You should hire an attorney to research this for you and advise you of the likelihood of success.

Another option may be to simply ask the named trustee to resign. They may do so voluntarily.

Assuming the trustee is removed, whether by you, a trust protector, or by court order, or if the trustee resigns, the next issue is who is to serve as the successor trustee. Again, looking at the terms of the trust should answer that question. Perhaps a successor is specifically named or perhaps the trust provides the procedure to appoint the successor. Before proceeding, you will want to make certain you know who will step-in as the new trustee.

What is Estate Recovery?

Medicaid is a federal health program for individuals with low income and financial resources that is administered by each state. Each state may call this program by a different name. In California, for example, it is referred to as Medi-Cal. This program is intended to help individuals and couples pay for the cost of health care and nursing home care.

Most people are surprised to learn that Medicare (the health insurance available to all people over the age of 65) does not cover nursing home care. The average cost of nursing home care, also called "skilled nursing" or "convalescent care," can be $8,000 to $10,000 per month. Most people do not have the resources to cover these steep costs over an extended period of time without some form of assistance.

Qualifying for Medicaid can be complicated; each state has its own rules and guidelines for eligibility. Once qualified for a Medicaid subsidy, Medicaid will assign you a co-pay (your Share of Cost) for the nursing home care, based on your monthly income and ability to pay.

At the end of the Medicaid recipient's life (and the spouse's life, if applicable), Medicaid will begin "estate recovery" for the total cost spent during the recipient's lifetime. Medicaid will issue a bill to the estate, and will place a lien on the recipient's home in order to satisfy the debt. Many estate beneficiaries discover this debt only upon the death of a parent or loved one. In many cases, the Medicaid debt can consume most, if not all, estate assets.

There are estate planning strategies available that can help you accelerate qualification for a Medicaid subsidy, and also eliminate the possibility of a Medicaid lien at death. However, each state's laws are very specific, and this process is very complicated. It is very important to consult with an experienced elder law attorney in your jurisdiction.

Young and Ill, without Advance Directives

When you are a child, your parents serve as your decision makers. They have ultimate say in where you go to school, what extracurricular activities you partake in and where, and how, you should be treated in the event of a medical emergency. While most parents continue to play a huge role in their children’s lives long after they reach adulthood, they lose legal decision-making authority on that 18th birthday. Most young adults don't contemplate who can act on their behalf once this transfer of power occurs, and consequently they fail to prepare advance directives.

In the event of a medical emergency, if a young adult is conscious and competent to make decisions, the doctors will ask the patient about his or her preferred course of treatment. Even if the individual is unable to speak, he or she may still be able to communicate by using hand signals or even blinking one’s eyes in response to questions.

But what happens in instances where the young adult is incapacitated and unable to make decisions? Who will decide on the best course of treatment? Without advance directives, the answer to this question can be unclear, often causing the family of the incapacitated person emotional stress and financial hardship.

In instances of life threatening injury or an illness that requires immediate care, the doctors will likely do all they can to treat the patient as aggressively as possible, relying on the standards of care to decide on the best course of treatment. However, if there is no "urgent" need to treat they will look to someone else who has authority to make those decisions on behalf of the young individual. Most states have specific statutes that list who has priority to make decisions on behalf of an incapacitated individual, when there are no advance directives in place. Many states favor a spouse, adult children, and parents in a list of priority. Doctors will generally try to get in touch with the patient’s "next of kin" to provide the direction necessary for treatment.

A number of recent high-profile court cases remind us of the dangers of relying on state statues to determine who has the authority to make healthcare decisions on behalf of the ill. What happens if the parents of the incapacitated disagree on the best course of treatment? Or what happens if the patient is estranged from her spouse but technically still married- will he have ultimate say? For most, the thought is unsettling.

To avoid the unknown, it’s highly recommended that all adults, regardless of age, work with an estate planning attorney to prepare advance directives including a health care power of attorney (or health care proxy) as well as a living will which outline their wishes and ensure compliance with all applicable state statutes.