Estate Planning When Faced with a Serious Illness

More young and middle-aged workers find themselves in the role of family caregiver.
Everyone needs estate planning documents, but a serious illness makes that need more urgent. 

More than 130 million Americans are living with chronic illness. Forbes’ recent article, “Estate Planning Musts When You Or A Or A Loved One Has A Chronic Illness,” says that if you (or a loved one) are living with a chronic illness, you’ll likely need the same estate planning documents most people should have.

The article discusses these key estate planning documents, along with some suggestions that might help you customize them to your unique challenges because of chronic illness. These documents need to be tailored to your specific needs, so you should consult your estate planning and elder law attorney about what works best for you.  It’s also best to put your estate planning documents in place soon after your diagnosis, so that you can return your focus to your health, family and well-being.

HIPAA Release. The Health Insurance Portability and Accountability Act of 1996 governs the requirements for maintaining the confidentiality of protected or personal health information (PHI). A HIPAA Release lets someone you trust access your protected health information.  This is an important estate planning document because it provides your decision makers with information about your condition so they can best serve your needs.

Living Will. This is a statement of your health care wishes and can address end of life decisions, as well as many other matters. If you’re living with a chronic illness, there are special considerations you might want to make in having a living will prepared. For example, you might explain your specific disease while continuing to address other health issues.  You can address the disease you have, at what stage and with what anticipated disease course, and how if at all these matters should be reflected. It is also critically important to discuss these wishes with your loved ones before the issue arises so they understand what you want.

Medical Power of Attorney. This is sometimes known as a medical proxy. It is an estate planning document in which you designate a trusted person to make medical decisions for you if you’re unable to do so. You can give guidance to your medical agent about your preferences, goals and concerns in your medical care.

Financial Power of Attorney. This estate planning document lets you designate a trusted person to handle your legal, tax, and financial matters if you can’t or if it becomes difficult to do so. There are some unique considerations for those living with chronic illnesses to consider. One is the amount of control that should be given up now or at what stage. Another key issue in a power of attorney is if you should sign a special power that restricts the agent’s authority to certain specified items or sign a general power that provides broad and almost unlimited powers to the agent.  It is especially importantly that your power of attorney include authority to handle Medicaid and other long term care benefits if you are facing a serious illness.

Appointment for the Disposition of Remains.  This is a basic estate planning document by which you choose a person to execute your burial wishes and let them know what those wishes are.

Declaration of Guardians.  This is an estate planning document in which you name a person to serve as a court appointed guardian should you need one.  If you have the other documents in place you’ll likely never need this, but it is important to have as a safety net naming someone you trust to be guardian instead of a court appointed agency or lawyer if the need ever arises.

Will and Revocable Trust. Finally, Wills and  Revocable Trusts are estate planning documents which control the flow of assets at your passing.  You should speak with your attorney about which is right for you, but if you or a family member has a chronic illness, using a revocable trust may be a good way to provide for succession of your financial management.  A revocable trust allows the successor trustee to act quickly to manage the finances if you cannot do so yourself and under the guidelines you create.  This way, the trustee can pay for the care you need.

Everyone should have these estate planning documents as part of a well-crafted legacy plan, but if you or a loved one is facing a serious or chronic illness, you may be facing additional challenges that make this planning more critical.

Reference: Forbes (July 5, 2019) “Estate Planning Musts When You Or A Or A Loved One Has A Chronic Illness”

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Long Term Care: What’s it all About?

Long term care costs have a heavy impact and most people don’t know how to pay them. Long term care insurance and a well crafted estate plan can help.

Many people are scared about the prospect of needing help in a long term care setting, and they are right to be worried. For many people, a spouse or adult children will become the go-to caregivers, but not everyone will have that option, says Market Watch’s article “This is how much long-term care could cost you, and don’t expect Medicare to help.”

If that’s not worrisome enough, here are facts to consider:

  • More than a third of people will spend some time in a nursing home, where the median annual cost of a private room is well over $100,000, says Genworth’s 2018 Cost of Care Survey. Don’t expect those numbers to go down.
  • Four of ten people will opt for paid care at home, and the median annual cost of a home health aide is more than $50,000.
  • Half of people over 65 will eventually need some kind of long term care costs, and about 15% of those will incur more than $250,000 in costs, according to a joint study conducted by Vanguard Research and Mercer Health and Benefits.

Medicare and even private health insurance don’t cover what are considered “custodial” expenses. That’s going to quickly wipe out the median retirement savings of most people: $126,000. With savings completely exhausted, people will find themselves qualifying for Medicaid, a government health program for the indigent that pays for about half of all nursing home and custodial care.  See our website for more information https://galligan-law.com/practice-areas/elder-law/.

Those who live alone, have a chronic condition or are in poor health have a greater chance of needing long term care. Women in particular are at risk, as they tend to outlive their husbands, may not have anyone available to provide them with unpaid care and the burden of caring for their spouses affects their own health. If a husband’s illness wipes out the couple’s savings, the surviving spouse is at even greater risk with fewer options.

The best hedge against long term care costs is to purchase a long term care insurance policy, if you are eligible to purchase one and it is cost effective. Wait too long, and you may not be able. One woman persuaded her parents to purchase a long term insurance policy when her father was 68 and her mother was 54. Five years into the policy, her father was diagnosed with Parkinson’s disease. The policy covered almost the entire cost of his 24-hour care in the final months of his life. Her mother lived to 94, so the investment in the policy was well worth it.

Everyone approaching retirement needs a plan for long term care costs. That may be purchasing long term care insurance or purchasing a hybrid life insurance product with long term care benefits.  If such products aren’t available, we can craft an estate plan which facilitates using government benefits in the future, like Medicaid, so that you and your loved ones get appropriate care while preserving as much of your legacy as possible.

Reference: Market Watch (July 19, 2019) “This is how much long-term care could cost you, and don’t expect Medicare to help.”

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Proposed IRA Rules and Their Effect on Stretch IRAs.

New IRA rules make retirement funds better for retirees, but not necessarily for their beneficiaries.

The SECURE (Setting Every Community Up for Retirement Enhancement) Act proposes a number of changes to IRA rules and other retirement rules.  The Act passed in the House of Representatives by a 417-3 vote and is expected to be passed in some form by the Senate. Some of the changes appear to be common sense, like broadening access to IRAs and 401(k)s, changing the required minimum distribution (RMD) age from 70½ to 72 and providing different investment options for these programs. However, with these changes come potential limitations with Stretch IRAs.

Forbes asks in its recent article “Are Concerns Over Stretch IRAs And The SECURE Act Justified?” An IRA shelters investments from tax which leaves investors with more money for the same investment performance because usually no tax is usually paid as it grows. Your distributions can also be tax-free if you use a Roth IRA. That’s a good thing if you have an option between paying taxes on your investment income and not paying taxes on it. The SECURE act isn’t changing this fundamental process, but the issue is when you still have an IRA balance at death.

A Stretch IRA can be a great estate planning tool. Here’s how it works: you give the IRA to a young beneficiary in your family. The tax shield of the IRA is then “stretched,” for what can be decades, based on the principle that an IRA is used over the life expectancy of the beneficiary. This is important because the longer the IRA lasts, the more investment gains and income can be protected from taxes which allows the investment to grow tremendously.

Even better, current estate planning techniques allow an investor to leave an IRA to a trust and still get “stretch” treatment.  For more information, see our website.  https://galligan-law.com/life-stages/planning-for-retirement/   Current Treasury Rules permit trusts to receive “stretch” treatment if the beneficiary of the trust is readily identifiable. This enables investors to leave their retirement assets to trusts for their individual beneficiaries and receive the investment advantage of the “stretch” as well as the benefit of the trust, such as tax planning and divorce or creditor protection for the beneficiaries.  One such trust is called a “conduit trust” where only RMD’s are paid out to the identifiable beneficiary based upon his or her life expectancy.

However, the SECURE Act could change that.  The proposed IRA rules and other retirement rules instead require funds to be distributed over a 10 year period instead of the beneficiary’s lifetime. That’s a big change for estate planning and the value of assets passed to the next generation.

There are some exceptions to the 10 year time period, including retirement left to a surviving spouse, minor children and some persons with disabilities or chronic illnesses.  However, aside from the spouse, these beneficiary groups are limited and will be most harmed by this change.  For example, a disabled beneficiary would likely not receive the retirement funds directly because receiving the retirement funds would affect their government benefits.  Instead, the retirement will pay to a special kind of trust, called a Supplemental Needs Trust, that will receive the retirement funds and accumulate them for the beneficiary’s use.  However, that form of a trust will presumably not qualify for the 10 year exception because remainder beneficiaries (those who survive the disabled beneficiary) will be brought into the analysis and likely won’t be minors or disabled beneficiaries to make the trust eligible for a 10 year exception.  For someone in that case, a 10 year payout will accelerate tax and greatly reduce the legacy left to the beneficiary with a disability, and he or she is the one who needs it most.

For a person who uses their own IRA in retirement and uses it up or passes it to their spouse as an inheritance—the  proposed IRA rules and retirement rules under the SECURE Act change almost nothing. For those looking to use their own IRA in retirement, IRAs are slightly improved due to the new ability to continue to contribute after age 70½ and other small improvements. Therefore, most typical IRA holders will be unaffected or benefit to some degree during their lifetimes.  However, for investors with large investment funds to pass to beneficiaries, the proposed IRA rules may greatly reduce the legacy left to their loved ones.

Reference: Forbes (July 16, 2019) “Are Concerns Over Stretch IRAs And The SECURE Act Justified?”

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