Should You Sell Your Life Insurance Policy?

February 24, 2021

It is quite common to buy life insurance. It may have been to protect your family financially or as a vehicle to provide liquidity for estate taxes. As we grow older and laws change, it is critical to determine if your policy has outlived its intended purpose. The traditional strategy of “buy and hold” no longer applies to the ever-changing world. Today, it may be a good idea to consider selling your policy. Should you sell your life insurance policy?

Forbes’ recent article entitled “What You Should Know Before Selling Your Old Life Insurance Policy” explains that a lesser-known alternative to abandoning or surrendering a policy is known as a life settlement. This gives the policy owners the chance to get a much bigger cash lump sum, than what is provided by the life insurance carrier’s cash surrender value.

Life settlements are not new. Third-party institutional buyers have now started to acquire ownership of policies, in exchange for paying the owner a lump sum of cash. As a consequence, the policy owner no longer needs to make future premium payments.

The policy buyer then owns the life insurance policy and takes on the responsibility of future premium payments. They also get the full death benefit payable from the life insurance carrier when the insured dies.

Research shows that, on average, the most successful life settlement deals are with policies where the insured is age 65 or older. Those who are younger than 65 usually require a health impairment to receive a life settlement offer.

Knowing what your life insurance policy is worth is important, and its value is based on two primary factors: (i) the future projected premiums of the policy; and (ii) the insured’s current health condition.

Many policy owners don’t have the required experience with technical life expectancies, actuarial tables and medical knowledge to properly evaluate their life settlement value policies. This knowledge gap makes for an imbalance, since inexperienced policy owners may try to negotiate against experienced and sophisticated policy buyers trying to acquire the policy at the lowest possible cost.

To address this imbalance, the policy owner should seek help from an experienced estate planning attorney to help them with the process to sell the policy for the highest possible price.

Should you sell your life insurance policy? If you have an old life insurance policy that’s collecting dust, ask an experienced estate planning attorney to review the policy’s importance and purpose in your portfolio. This may be the right time to turn that unneeded life insurance policy into cash.

If you would like to learn more about life insurance and its usage, please visit our previous posts.

Reference: Forbes (Jan. 26, 2021) “What You Should Know Before Selling Your Old Life Insurance Policy”

Can You Amend a Power of Attorney?

February 23, 2021

The situation facing one family is all too common. An aunt is now incapacitated with severe Alzheimer’s disease. Her brother has been her agent with a durable power of attorney in place for many years. In the course of preparing his own estate plan, he decided it’s time for one of his own children to take on the responsibility for his sister, in addition to naming his son as executor of his estate. The aunt has no spouse or children of her own. So can you amend a power of attorney?

The answers, as explained in a recent article “Changing the agent under a durable power of attorney” from My San Antonio Life, all hinge on the language used in the aunt’s current durable power of attorney. If she used a form from the internet, the document is probably not going to make the transfer of agency easy. If she worked with an experienced estate planning attorney, chances are better the document includes language that addresses this common situation.

If you choose to amend a durable power of attorney, and it includes naming successor agents, then an attorney can prepare a resignation document that is attached to the durable power of attorney. The power of attorney document might read like this: “I appoint my brother Charles as agent. If Charles dies or is incapacitated or resigns, I hereby appoint my nephew, Phillip, to serve as a successor agent.”

If the aunt would make her wishes clear in the actual signed durable power of attorney, the nephew could relatively easily assume authority, when the father resigns the responsibility because the aunt pre-selected him for the role.

If there is a clause that appointed a successor agent, but the successor agent was not the nephew, the nephew does not become the agent and the aunt’s brother can’t transfer the POA. If there is no clause at all, the nephew and the father can’t make any changes.

In September 2017, there was a change to the law that required durable power of attorney documents to specifically grant such power to delegate the role to someone else. The law varies from state to state, so a local estate planning attorney needs to be asked about this issue.

If there is no provision allowing an agent to name a successor agent, the nephew and father cannot make the change.

Another avenue to consider: did the aunt’s estate planning attorney include a provision that allows the durable power of attorney to establish a living trust to benefit the aunt and to transfer assets into the trust? Part of creating a trust is determining who will serve as a trustee, or manager, of the trust. If such a clause exists in the durable power of attorney and the father uses it to establish and fund a trust, he can then name his son, the nephew, as the trustee.

Taking this step would place all of the aunt’s assets under the nephew’s control. He would still not be the aunt’s agent under her power of attorney. Responsibility for certain tasks, like filing the aunt’s income taxes, will still be the responsibility of the durable power of attorney.

If her durable power of attorney does not include establishing a living trust, the most likely course is the father will need to resign as agent and the nephew will need to file in court to become the aunt’s guardian. This is a time-consuming and slow-paced process, where the court will become heavily involved with supervision and regular reporting. It is the worst possible option, but it may also be the only option.

You should take care to amend a power of attorney. If your family is facing this type of situation, begin by speaking with an experienced estate planning attorney to find out what options exist in your state, and it might be resolved.

If you would like to learn more about powers of attorney, please visit our previous posts.

Reference: My San Antonio Life (Jan. 25, 2021) “Changing the agent under a durable power of attorney”

Distinguish between Per Stirpes vs. Per Capita

February 22, 2021

When creating an estate plan, one of the basic documents you need is a will. In estate planning, it’s important to distinguish between per stirpes vs per capita distributions. These are two terms you are likely to come across when creating your estate plan, says Yahoo Finance’s recent article entitled “Per Stirpes vs. Per Capita in Estate Planning.”

Per stirpes is Latin and means “by branch” or “by class.” When this term is used in estate planning, it refers to the equal distribution of assets among the different branches of a family and their surviving descendants. This lets the descendants of a beneficiary keep inherited assets within that branch of their family, even if the original beneficiary passes away. The assets would be equally divided between the survivors. Per stirpes distributions essentially create a “trickle-down” effect: assets can be passed on to future generations if a primary beneficiary passes away.

In contrast, “per capita” is also a Latin term that means “by head.” When you use a per capita distribution method for estate planning, any assets you have would pass equally to the beneficiaries who are still living when you pass. The share portions would adjust accordingly, if one of your children or grandchildren were to die before you.

Whether it makes sense to use a per stirpes or per capita distribution in your estate plan can depend for the most part, the way in which you want your assets to be distributed after you’re gone.

Per stirpes allows you to keep asset distributions within the same branch of the family and eliminates the need to amend or update wills and trusts when a child is born to one of your beneficiaries or a beneficiary passes away. This method can also help to minimize the potential for infighting among beneficiaries, since asset distribution takes a linear approach. However, an unwanted person could take control of your assets.

With per capita, you can state precisely who you want to name as beneficiaries and receive part of your estate. The assets are distributed equally among beneficiaries, based on the value of your estate at the time you pass away.

It’s important to distinguish between per stirpes vs per capita distributions. It can help you determine how your assets are distributed after you die.

Talk with an experienced estate planning attorney to fully understand the implications of each one for your beneficiaries, including how they may be affected from a tax perspective.

If you would like to learn more about distributing assets in your estate plan, please visit our previous posts.

Reference: Yahoo Finance (Jan. 7, 2021) “Per Stirpes vs. Per Capita in Estate Planning”

Understanding the responsibilities of the conservator

February 19, 2021

If you have been named a conservator, or have been approached by a family member about the role, it is vital that you are understanding the responsibilities of the conservator. A conservator is appointed by a judge. This person handles the estate of an incapacitated adult, as well as their finances, their basic affairs and everyday care. Administrative matters such as Medicare, insurance, pensions, and medical coverage are all also managed by the conservator. The conservator must keep meticulous records that are subject to review by the judge.

The Advocate’s recent article entitled “Alzheimer’s Q&A: What is adult guardianship?” explains that a conservatorship typically lasts as long as the individual lives. The conservator may change because of death, relocation, or an inability to manage the conservator duties and responsibilities. A judge also has the power to replace the conservator, if he or she is repeatedly making poor decisions or neglecting required responsibilities.

A conservator can be wise in some situations because it lets family members know that someone is making the decisions. It also provides clear legal authority to deal with third parties. There is also a process in which a judge will approve any major decisions. However, appointing a conservator can be expensive. An experienced estate planning or elder law attorney must complete court paperwork and attend court hearings. A conservatorship can also be time-consuming due to the required ongoing paperwork.

A big question is when it is appropriate to seek conservatorship. If the individual has become mentally or physically incapable of making important decisions for himself or herself, then it would be smart to have a court-appointed guardian. Moreover, if the person does not already have legal documents in place, like a living will or power of attorney, then the conservatorship would benefit in covering decisions about personal and financial matters.

Even if the individual has a power of attorney for both health care and finances, he or she might need a conservator to make decisions about his or her personal life. This can include topics, such as living arrangements and who is allowed to visit. It is not always easy to determine if an individual can make decisions, but a judge understands that a conservator is viable for those with advanced Alzheimer’s or other forms of dementia.

Families that want to set up a conservatorship need to file formal legal papers and participate in a court hearing before a judge. Evidence of the physical and mental condition of the individual requiring conservatorship must be clearly presented. The person who is the subject of the conservatorship has the opportunity to contest it. Ask an experienced estate planning or elder law attorney who specializes in conservatorships to provide you a complete understanding of the responsibilities of the conservator.

If you would like to learn more about conservatorship and guardianship, please visit our previous posts.

Reference: The Advocate (Jan. 25, 2021) “Alzheimer’s Q&A: What is adult guardianship?”

Address Finances if Diagnosed with Alzheimer’s

Be an Effective Advocate for Elderly Parents

February 11, 2021

Family caregivers must also understand their loved one’s wishes for care and quality of life. They must also be sure those wishes are respected. Further, it means helping them manage financial and legal matters, and making sure they receive appropriate services and treatments when they need them. It is important to understand how to be an effective advocate for elderly parents.

AARP’s recent article entitled “How to Be an Effective Advocate for Aging Parents” says if the thought of being an advocate for others seems overwhelming, take it easy. You probably already have the skills you need to be effective. You may just need to develop and apply them in new ways. AARP gives us the five most important attributes.

Observation. Caregivers can be too busy or tired, to see small changes, but even slightest shifts in a person’s abilities, health, moods, safety needs, or wants may be a sign of a much more serious medical or mental health issue. You should also monitor the services your family member is getting. You can take notes on your observations about your loved one to track any changes over time.
Organization. It’s hard to keep track of every aspect of a caregiving plan, but as an advocate for your elderly parents, you must manage your loved one’s caregiving team. This includes creating task lists and organizing the paperwork associated with health, legal, and financial matters. You’ll need to have easy access to all legal documents, like powers of attorney for finances and health care. If needed, you might take an organizing course or work with a professional organizer. There are also many caregiving apps. You should also, make digital copies of key documents, such as medication lists, medical history, powers of attorney and living wills, so you can access them from anywhere.
Communication. This may be the most important attribute. You need communication for building relationships with other caregivers, family members, attorneys and healthcare professionals. Be prepared for meetings with lawyers, medical professionals and other providers.
Probing. Caregivers need to gather information, so don’t be shy about it. Educate yourself about your loved one’s health conditions, finances and legal affairs. Create a list of questions for conversations with doctors and other professionals.
Tenacity. Facing a dysfunctional and frustrating health care system can be discouraging. You must be tenacious. Here are a few suggestions on how to do that:

Set clear goals and focus on the end result you want.
Keep company with positive and encouraging people.
Heed the advice of experienced caregivers’ stories, so you understand the triumphs and the challenges.
Be positive and be resilient.

It is a wise idea to work with an Elder Law attorney that can help you be an effective advocate for elderly parents.

If you would like to learn more about being a caregiver, please visit our previous posts.

Reference: AARP (Sep. 24, 2020) “How to Be an Effective Advocate for Aging Parents”

The Difference between Power of Attorney and Guardianship

February 10, 2021

The difference between power of attorney and guardianship is in the level of decision-making power, although there are many intricacies specific to each appointment, explains Presswire’s recent article entitled “Power of Attorney and Guardianship of an Elderly Parent.”

The interactions with adult protective services, the probate court, elder law attorneys and healthcare providers can create a huge task for an agent under a power of attorney or court-appointed guardian. Children acting as agents or guardians are surprised about the degree of interference by family members who disagree with decisions.

Doctors and healthcare providers don’t always recognize the decision-making power of an agent or guardian. Guardians or agents may find themselves fighting the healthcare system because of the difference between legal capacity and medical or clinical capacity.

A family caregiver accepts a legal appointment to provide or oversee care. An agent under power of attorney isn’t appointed to do what he or she wishes. The agent must fulfill the wishes of the principal. In addition, court-appointed guardians are required to deliver regular reports to the court detailing the activities they have completed for elderly parents. Both roles must work in the best interest of the parent.

Some popular misperceptions about power of attorney and guardianship of a parent include:

An agent under power of attorney can make decisions that go against the wishes of the principal
An agent can’t be removed or fired by the principal for abuse
Adult protective services assumes control of family matters and gives power to the government; and
Guardians have a responsibility to save money for care, so family members can receive an inheritance.

Those who have a financial interest in inheritance can be upset when an agent under a power of attorney or a court-appointed guardian is appointed. Agents and guardians must make sure of the proper care for an elderly parent. A potential inheritance may be totally spent over time on care.

In truth, the objective isn’t to conserve money for family inheritances, if saving money means that a parent’s care will be in jeopardy.

Adult protective services workers will also look into cases to make certain that vulnerable elderly persons are protected—including being protected from irresponsible family members. In addition, a family member serving as an agent or family court-appointed guardian can be removed, if actions are harmful.

Agents under a medical power of attorney and court-appointed guardians have a duty to go beyond normal efforts in caring for an elderly parent or adult. They must understand the aspects of the health conditions and daily needs of the parent, as well as learning advocacy and other skills to ensure that the care provided is appropriate.

Ask an experienced elder law attorney for help understanding the difference between power of attorney and guardianship. Explain your family’s situation and your need for power of attorney documents with a provision for guardianship. If you would like to learn more about guardianship, please visit our previous posts.

Reference: Presswire (Jan. 14, 2021) “Power of Attorney and Guardianship of an Elderly Parent”

A Trust Must Be Funded to Work

February 9, 2021

Thinking you have divided assets equally between children by creating a trust that names all as equal heirs, while placing only one child’s name on other assets is not an equally divided estate plan. A trust must be funded to work. Instead, as described in the article “Estate Planning: Fund the trust” from nwi.com, this arrangement is likely to lead to an estate battle.

One father did just that. He set up a trust with explicit instructions to divide everything equally among his heirs. However, only one brother was made a joint owner on his savings and checking accounts and the title of the family home.

Upon his death, ownership of the savings and checking accounts and the home would go directly to the brother. Assets in the trust, if there are any, will be divided equally between the children. That’s probably not what the father had in mind, but legally the other siblings will have no right to the non-trust assets.

This is an example of why creating a trust is only one part of an estate plan. A trust must be funded to work. If it is not funded, that is if assets are not retitled, it will not work.

Many estate plans include what is called a “pour-over will” usually executed just after the trust is executed. It is a safety net that “catches” any assets not funded into the trust and transfers them into it. However, this transfer requires probate, and since probate avoidance is a goal of having a trust, it is not the best solution.

The situation as described above is confusing. Why would one brother be a joint owner of assets, if the father means for all of the children to share equally in the inheritance? When the father passes, the brother will own the assets. If the matter went to court, the court would very likely decide that the father’s intention was for the brother to inherit them. Whatever language is in the trust will be immaterial.

If the father’s intention is for the siblings to share the estate equally, the changes need to be made while he is living. The brother’s name needs to come off the accounts and the title to the home, and they all need to be re-titled in the name of the trust. The brother will need to sign off on removing his name. If he does not wish to do so, it’s going to be a legal challenge.

The family needs to address the situation as soon as possible with an experienced estate planning attorney. Even if the brother won’t sign off on changing the names of the assets, as long as the father is living there are options. Once he has passed, the family’s options will be limited. A trust must be funded to work. Estate battles can consume a fair amount of the estate’s value and destroy the family’s relationships. If you would like to learn more about funding a trust, please visit our previous posts.

Reference: nwi.com (Jan. 17, 2021) “Estate Planning: Fund the trust”

Protect Your Estate from Nursing Home Costs

February 8, 2021

Nursing home care is expensive, costing between $12,000 to $20,000 per month, so you need to protect your estate from nursing home costs. Most seniors should do all they can to prepare for this possibility. According to a recent article from the Times Herald-Record, “Elder Law Power of Attorney can save assets that would go to nursing home costs,” this is something that can be done even when entering a nursing home is imminent.

A Power of Attorney is used to name people, referred to as “agents,” to conduct legal and financial affairs, if we are incapacitated. Having this document is an important part of an estate plan, since it reduces or completely avoids the risk of your family having to go through guardianship proceedings, where a judge names a legal guardian to take over your affairs.

The guardian likely will be someone you have never met, who does not know you or your family. It’s always better to plan in advance, so you know who is going to be taking charge of your affairs.

Then there’s the Elder Law Power of Attorney, a stronger form of a Power of Attorney that includes unlimited gifting powers. Having this unlimited gifting power lets a single person who applies for Medicaid in a nursing home to protect their assets, by using a gift and loan strategy.

Here’s an example: Amy, who is single, can’t live on her own and even having home health care aides is not enough care anymore. She has $500,000 in assets and does not qualify for Medicaid to pay for her care. Medicaid will allow her to keep only $15,900.

One option is for Amy to spend down all of her money on nursing home costs, until all she has is $15,900. All of her savings will go to the nursing home, with very little left for her daughter, Ellen.

However, if Amy has an Elder Law Power of Attorney, a gift and loan strategy can protect her assets. Half of the money, $250,000, can go to Ellen as a gift under the unlimited gifting powers. The other half goes to Ellen as a loan, under a promissory note with a set rate of interest.

Any gifts made in the past five years, known as a “five year look back,” cause a penalty period. Amy will have to pay the nursing home costs for about twenty months. Every month during that period, Ellen will pay Amy a monthly payment that, with her income, is used to pay the nursing home bill. At the end of the 20 months, Amy qualifies for Medicaid to pay for her care for the rest of her life, and Amy may keep the $250,000. Saving half of her assets by using the gift and loan strategy is sometimes called the “half a loaf is better than none” strategy.

With a Standard Power of Attorney, there are no unlimited gifting powers.

A Medicaid Asset Protection Trust (MAPT) created five or more years before Amy needed a nursing home could have saved her entire nest egg for Ellen.

Preplanning is always the better way to go. An elder law estate planning attorney is the best resource for determining what the best tools are to protect a nest egg if and when a person needs the care of a nursing home.

Many people make the mistake of thinking that it “won’t happen to me.” However, injuries and illnesses often accompany aging, and it is far better to protect your estate from nursing home costs in advance than waiting and hoping for the best.

DISCLAIMER: Medicaid planning is complex and the case hypothetical above with “Amy and Ellen” is provided for purposes of illustration. Whether this strategy would work for you or your loved ones depends on the laws of your state of residence given your unique circumstances. Consult with an experienced elder law attorney admitted to practice law in your state of residence before engaging in any Medicaid planning!

If you would like to learn more about nursing home care and Medicaid, please visit our previous posts.

Reference: Times Herald-Record (Jan. 8, 2021) “Elder Law Power of Attorney can save assets that would go to nursing home costs”

You Must Plan for Your Spouse’s Medicaid

February 4, 2021

Medicaid eligibility is based on income. This means that there are restrictions on the resources—both income and assets—that you can have when you apply. So you must plan for your spouse’s Medicaid.

The Times Herald’s recent article entitled “Elder law planning for Medicaid” says that one of the toughest requirements for Medicaid to grasp is the financial eligibility. These rules for the cost of long-term care are tricky, especially when the Medicaid applicant is married.

To be eligible for Medicaid for long-term care, an applicant generally cannot have more than $2,400 in countable assets in their name, if their gross monthly income is $2,382 (which is the 2021 income limit) or more. An applicant may have no more than $8,000 in countable assets, if their gross monthly income is less than $2,382 (2021 income limit).

However, federal law says that certain protections are designed to prevent a spouse from becoming impoverished when their spouse goes into a nursing home and applies for Medicaid. In 2021, the spouse of a Medicaid recipient living in a nursing home—known as “the community spouse”—can keep up to $126,420 (which is the maximum Community Spouse Resource Allowance “CSRA”) and a minimum of $26,076 (the minimum CSRA) without placing the Medicaid eligibility of the spouse who is receiving long-term care in jeopardy.

The calculation to determine the amount of the CSRA, the countable assets of both the community spouse and the spouse in the nursing home are totaled on the date of the nursing home admission. That is known as the “snapshot” date. The community spouse is entitled to retain 50% of the couple’s total countable assets up to a max. The rest must be “spent-down” to qualify for the program.

In addition to the CSRA, there are also federal rules concerning income for the spouse. In many states, the community spouse can keep all of his or her own income no matter how much it is. If the community spouse’s income is less than the amount set by the state as the minimum needed to live on (“the Minimum Monthly Maintenance Needs Allowance” or “MMMNA”), then some of the applicant spouse’s income can also be allocated to the community spouse to make up the difference (called “the Spousal Allowance”). Planning for your spouse’s Medicaid is pretty complex, so speak with an experienced elder law attorney.

If you are interested in learning more about Medicaid and nursing home planning, please visit our previous posts.

Reference: The Times Herald (Jan. 8, 2021) “Elder law planning for Medicaid”

What to Do First when Your Spouse Dies

February 3, 2021

Forbes’ recent article entitled ‘Checklist for Handling the Death of a Spouse” tells us what to do first when your spouse dies:

Get Organized. Create a list of what you need to do. That way, you can tick off the things you have done and see what still needs to be done. Spending the time to get organized is critical.

Do an Inventory. Review your spouse’s will and estate plan, and then collect the documents you will need. Use a tax return to locate various types of financial assets.

Identify the Executor. The executor is the individual tasked with carrying out the terms of deceased’s will.

Get a Death Certificate. Request multiple copies of the death certificate, maybe at least a dozen because every entity will need that document.

Contact Your Professional Advisors. You will need to tell some professionals that your spouse has passed away. This may be your CPA, your estate planning attorney, financial advisors and perhaps bankers. These contacts will probably know nearly everything that is required to be done. You will also need to contact the Social Security Administration and report the death.

Take a Step Back. Take a breath. You should take the time to process your emotions and grieve with the other members of your family. Check on everyone and make sure the loved ones remaining are doing all right.

Avoid Making Any Major Decisions. Do not make any major financial decisions for a year. This includes things such as selling a house or making a lump sum investment. After the death of a spouse, you are emotional and looking for advice. It is easy to be pressured into making a decision that might not be in your best interests. Allow yourself permission to be emotional and not make any decision because you recognize you are grieving.

Make Certain Your Spouse’s Wishes Are Carried Out. The best way to honor your spouse is to make sure their requests and wishes are carried out. You are the only individual who can do that. So take the time to consider what to do first when your spouse dies. Your spouse expects you to take care of their last wishes the way they had intended.

If you are interested in learning more about planning after your loved one passes away, please visit our previous posts.

Reference: Forbes (Aug. 28, 2020) ‘Checklist for Handling the Death of a Spouse”

Blog Articles

Should You Sell Your Life Insurance Policy?

Can You Amend a Power of Attorney?

Distinguish between Per Stirpes vs. Per Capita

Be an Effective Advocate for Elderly Parents

The Difference between Power of Attorney and Guardianship

A Trust Must Be Funded to Work

Protect Your Estate from Nursing Home Costs

You Must Plan for Your Spouse’s Medicaid

What to Do First when Your Spouse Dies

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