Attorney & Mediator
Attorney & Mediator

ESTATE PLANNING: Another Important Family Discussion – Long Term Illness and Care

Some families talk and others don’t.  Sometimes, it is the kids who don’t want mom or dad to talk about estate planning issues – they cannot face the fact that some day mom and dad won’t be here.  Other times, it is the parents who cannot discuss the future.

Either way, there are certain issues that need to be addressed. One of them is long term care.

We are living longer.  That is both the good news and the bad.  We all would like to live to a ripe old age and be healthy until we draw our last breath.  Unfortunately, that is not the case for many of us.

What is your plan for getting older?  Where will you live when you can no longer live alone?  What is the plan for a long-term illness?

In many families, the unspoken plan is for one of the family members to care for mom and/or dad until their dying days.  For some families, this is a realistic plan as there are children who are able and willing to care for mom and/or dad in this way.

There are other families in which mom and dad state that they are never going into a nursing home, yet, there is no plan for care.  This must be addressed by the family.

If you do not want to go to an assisted living facility or later to a nursing home, are there family members who will actually care for you?  Have you discussed this with your children?  Or are you assuming that because you cared for your parents, your children will care for you?

Do your children work full-time?  That could impact their ability to care for you.  Caring for aging parents often comes at the same time that families are putting children through college.  Quitting work to care for a parent may not be realistic or possible.

If you do not expect family to care for you, are you acquainted with the costs of assisted care?  Of nursing home care?  Assisted living can cost $3,000 to $4,000 per month.  This is a cost that is not covered by Medicare or Medicaid.  It is direct pay.  Could you afford $36,000 to $48,000 per year for assisted living?

If your health deteriorates, you may need nursing home care.  Medicare pays only for a limited number of days after discharge from a hospital.  Thereafter, it is the patient’s responsibility to cover the costs. If you have long term care insurance, the cost may be covered.  If not, you will quickly spend your accumulated savings.

If you are a couple, there is some ability to save a portion of the marital estate for the benefit of the non-institutionalized spouse.  Currently, in Michigan, that community spouse may keep the marital home, an automobile and approximately $123,000.  The balance must be spent down prior to qualifying for Medicaid.

These financial issues are why it is necessary to have a plan.  Have a conversation with your family to see where everyone stands on this issue.  Then develop a strategy.

ESTATE PLANNING: After a Divorce – The Last Step

While the last thing that an individual who has gone through a divorce wants to do is contact another lawyer, a divorce should trigger a need for new estate planning documents.

First, you do not want your former spouse named as your Personal Representative or Trustee.  Also, you will not want to name him/her as the primary beneficiary of your estate.

Next, your assets are now different from what they were prior to the divorce.  You will need to re-think your gifts to your family and friends.  This means a new Will or Trust.

If you have minor children, it is more important than ever to name a Guardian (who would step in only if your spouse were deceased) and a Conservator to handle the money for your children.  While you cannot eliminate your former spouse from having custody of your children if you die, you do not have to leave him/her in charge of the money for the children.

You will want to name different agents for your Durable Power of Attorney (for financial and legal affairs).  You do not want your former spouse as the individual paying your bills and having access to your checking and savings accounts.  You will need to name someone you trust and you should name a back-up individual, just in case.

Also, you will want to execute a new Patient Advocate Designation (Health Care Directive).  Again, you do not want your former spouse as the individual with the power to direct your medical care or to “pull the plug”.  You will need to name individuals you trust to handle your medical decision making if you are unable to do so.

The last thing a recently divorced individual wants is more legal bills or contact with the legal system.  It is, however, very important as your last step in the divorce process.

ESTATE PLANNING: Revocable Trusts – How Old are your Documents? Review and Revise Now!

For those who have revocable trusts, they often feel that they are all set.  They got them done years ago but haven’t looked at them since.  Should they be reviewed and revised?  Yes.  When? Now.

Years ago, the estate tax was the reason for couples executing revocable trusts.  Each person received credit for $600,000 to pass along during his/her lifetime or at death without any estate tax being due.  The problem was that if your spouse received all the assets upon the death of the first spouse, that $600,000 credit was lost [“use it or lose it”].  The surviving spouse ended up with only his or her $600,000 credit and often larger estates would be taxed when they passed on to the children at the death of the second spouse.

At that time, the revocable trust was used to avoid such a scenario.  With the trust, the first $600,000, or credit amount, was put into a Family Trust.  Since it wasn’t a transfer to a spouse, it could use the $600,000 credit.  The Family Trust or Credit Shelter Trust was available to the surviving spouse in the event that he or she needed it; however, it was usually the amount that ended up being passed along to the children.   The remainder of the estate was passed to the surviving spouse in the Marital Trust.  The Marital Trust was not taxed at the death of the first spouse, but was added to the surviving spouse’ net worth.  Then when the surviving spouse passed away, there was the opportunity to take another $600,000 credit.  Thereby gaining the advantage of both credit amounts, worth $1.2 Million.

Many trusts were written this way over the years and they have remained this way.  The problem today is that with the last tax reform passed in late 2017, we each now receive a $5 Million credit.  Therefore, unless a couple has assets of $10 Million, there is no need for the above complicated tax planning.

Additionally, as written, these Trusts would now require that the first $5 Million be kept in the Family or Credit Shelter Trust.  There would essentially be nothing to fund the Marital Trust and nothing to absolutely pass along to the surviving spouse without restrictions.

For the average individual, these trusts today are unnecessarily complicated and unneeded.  If this is the language of your Trust, it is time to see an estate planning attorney to have your Trust amended.  The complex portions will be deleted and more simplified language inserted.  Additionally, there have been many changes in the laws over the years, including a new Probate Code and a Trust Code in Michigan.

If your trust documents are this old, it is probable that there are additional changes that need to be made.  If you have trust provisions for your minor children and they are now in their 30’s, it is time to have the documents reflect the reality of your circumstances and theirs.  Many of the individuals that you may have named as Successor Trustees may no longer be appropriate (if even alive).

The best practice is to get these Trusts updated at once.  Take advantage of the opportunity to simplify the documents and have them reflect your real-life circumstances and preferences.