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Just as we create estate plans for our eventual demise, we also need to plan ahead for the possibility that we will become sick and unable to make our own medical decisions. Medical science has created many miracles, among them the technology to keep patients alive longer, sometimes indefinitely. As a result of many well-publicized “right-to-die” cases, Illinois has made it possible for individuals to give detailed instructions regarding the kind of care they would like to receive should they become terminally ill or are in a permanent unconscious state.

If an individual becomes incapacitated, it is important that someone have the legal authority to communicate that person’s wishes concerning medical treatment. Similar to a power of attorney for property, a power of attorney for health care allows an individual to appoint someone to act as his agent, but for medical, as opposed to financial, decisions. The health care power of attorney is a document executed by a competent person (the principal) giving another person (the agent) the authority to make health care decisions for the principal if he is unable to communicate such decisions. By executing a health care power of attorney, principals ensure that the instructions they have given their agent will be carried out. A health care proxy is especially important to have if an individual and family members may disagree about treatment.

Accompanying a power of attorney for health care should be a medical directive. Such directives provide the agent with instructions regarding what type of care the principal would like. A medical directive can be included in the health care power of attorney. It may contain directions to refuse or remove life support in the event the principal is in a coma or a vegetative state, or it may provide instructions to use all efforts to keep the principal alive, no matter what the circumstances.

Living wills are documents that give instructions regarding treatment if the individual becomes terminally ill or is in a persistent vegetative state and is unable to communicate his or her own instructions. The living will states under what conditions life-sustaining treatment should be terminated. If an individual would like to avoid life-sustaining treatment when it would be hopeless, he needs to execute a living will. Like a health care power of attorney, a living will takes effect only upon a person’s incapacity. Also, a living will is not set in stone; an individual can always revoke it at a later date if he wishes.

A living will, however, is not a substitute for a power of attorney for health care. A living will simply dictates the withdrawal of life support in instances of terminal illness, coma or a vegetative state.

Do not confuse a living will with a “do not resuscitate” order (DNR). A DNR says that if you are having a medical emergency such as a heart attack or stroke, medical professionals may not try to revive you. This is very different from a living will, which only goes into effect if you are in a vegetative state. Everyone can benefit from a living will while DNRs are only for very elderly or frail patients for whom it would not make sense to administer CPR. Continue Reading

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Learning what not to do can be just as instructive as learning what to do. That is the premises of The 101 Biggest Estate Planning Mistakes.

Author Herbert Nass, an estate planning attorney for 25 years who has represented several celebrities, uses examples from celebrity estate plans as well as his own practice to illustrate what not to do when conducting estate planning. According to Nass, the biggest mistake is not planning at all. Nass points out the problems caused when Sonny Bono, Tupac Shakur and Bob Marley all died intestate. He also documents, among other things, blunders involving personal property, real estate, executors, minors, prior marriages, taxes, disgruntled friends and family, and funerals and burials. While some mistakes are specific to celebrities or the super wealthy, most of the errors could be made by anyone.

Nass intersperses actual excerpts from celebrity wills and stories about celebrity estate plans throughout the book. For example, he cautions against leaving too much money to a pet, as Leona Hemsley did, or selling valuable property too soon after a death, something Jackie Onassis’s family did. Nass’ 101 mistakes range from the legal (e.g., not confirming how property is held before drafting an estate plan) to the practical (e.g., not draining water pipes in vacant houses) to the personal ( e.g., disinheriting your children or grandchildren out of anger).

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Once someone enters a nursing home it is not always easy to leave. While some residents may prefer nursing home care to living on their own, others would rather be independent. Residents who have been in a nursing home for a long time may have to start all over again when they move out. They may need help finding a place to live, establishing a bank account, making a home accessible and locating home care.

For residents who want to move out but need some assistance to live on their own, there may be help available. A federal program is trying to help nursing home residents regain their independence.

In 2005, Congress established a program called Money Follows the Person which is designed to make it easier for nursing home residents to move out. Illinois participates in the program which provides personal financial support to help eligible nursing home residents live on their own or in group settings. The amount of time an individual must reside in a nursing facility to qualify for the program is 90 days. Continue Reading

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There are many Estate Planning issues to consider if you are thinking about purchasing a vacation home or now own a vacation home and are contemplating passing it on to your children. One of the most important is how title to the home is held.

You can hold title in your name, or you can hold it jointly with your spouse or other relatives. You can hold title as joint tenants with rights of survivorship so that the property will pass to whomever remains alive, or you can hold title as tenants on common so that all owners can decide for themselves who receives their interest in the vacation home when they die.

An advantage to holding title as joint tenants with your spouse is that upon the death of the first spouse, the property passes to the survivor without having to go through probate with the court. However a disadvantage is that the deceased spouse cannot use this property to take advantage of any unused estate tax exemption amounts.

You will want to consider if the owners all get along so specific rules do not need to be put in place addressing possible conflicts, and you will want to consider if each owner paid an amount equal to his proportionate fractional interest in the property (if not equal, gift tax issues may arise). Continue Reading

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The recent changes to Social Security brought about by the 2015 Federal Budget Bill have removed two little understood, yet very powerful, benefit maximizing strategies that have been available to Social Security claimants since 2000.

To better understand this recent change it is important to understand how Social Security benefit levels are determined. Social Security benefits are paid monthly to those that qualify based on an individual’s primary insurance amount (PIA). An individual’s PIA is in term determined by the 35 years in which that individual earned the highest level of income.

Currently, an individual can begin to receive a reduced Social Security benefit at age 62. An individual who delays receiving Social Security benefits can realize an increase in benefits all the way to age 70. Waiting until age 70 can result in as much as a 32% increase in Social Security benefits.

The major financial incentive to delay claiming Social Security benefits led to two strategies for married seniors to maximize their Social Security benefits. These are known as File and Suspend and Restricted Applications.

  1. File and Suspend, allowed the spouse who had earned more over their lifetime to claim Social Security benefits and immediately suspend their benefits. This gave the higher income earning spouse the flexibility to maximize Social Security benefits by delaying taking his benefit while the lower wage earning spouse received a spousal award. This also allowed the high earner to claim retroactive benefits if the need arose.
  2.  Restricted Applications, gave a married couple the option to allow one spouse to receive a spousal benefit based on his spouse’s Social Security application while delaying his own application to maximize their PIA.

Both of these strategies will be phased out by the most recent changes to Social Security.

The loss of these powerful Social Security planning tools has led many individuals nearing retirement age to rethink their strategies for wealth management and an increasing number have opted to delay retirement entirely in order to maximize their available retirement plan assets.

With growing uncertainty in the market, devaluation of core assets such as real estate, and the loss of key Social Security planning tools, the need for an effective wealth management strategy and comprehensive estate plan have never been higher.

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When choosing a beneficiary for a retirement plan, it is important to understand how your spouse will be treated under the plan. Surviving spouses are treated differently under 401(k)s and individual retirement accounts (IRAs). While a 401(k) provides protections for a surviving spouse, an IRA does not.

Because the 401(k) is an employee based retirement system, it is governed by a federal law, the Employee Retirement Income Security Act of 1974 (ERISA). Under ERISA, a surviving spouse is usually the automatic beneficiary of a retirement plan (There may be some exceptions. For example, the spouse may have to be married to the employee for a certain amount of time). The spouse must consent in writing if the employee wishes to name someone else as the beneficiary.

IRAs, on the other hand, are not governed by ERISA, so they do not include the same protections for spouses. This is true even if a 401(k) is rolled into an IRA. In Charles Schwab v. Debickero (U.S. Ct. App. 9th Cir., No. 07-15261, Jan. 22, 2010), a husband rolled his 401(k) into an IRA with Charles Schwab & Company after he retired. He named his children as the IRA’s beneficiaries. After he died, his wife claimed that she was entitled to the account funds as his surviving spouse. She argued that because her husband rolled his 401(k) into the IRA, she should receive the same protections that the 401(k) gave her. The court disagreed, finding that the IRAs are excluded from ERISA coverage even if the funds originated in a 401(k).

If you have an IRA and want your spouse to be its beneficiary, you have to specifically name the spouse as a beneficiary. If you have a 401(k) and want your spouse to be the beneficiary, you should still fill out a beneficiary designation form, naming your spouse. And if you roll a 401(k) into an IRA, make sure you fill out a new beneficiary designation form. If you want someone other than your spouse to be the 401(k)’s beneficiary, you will need the spouse’s consent in writing, as noted above.

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Your 401(k) may not be the best place to put your money. In a recent article in the Wall Street Journal, Anne Tergesen points out that Health Savings Accounts (HSAs) come with more tax advantages than 401(k)s and individual retirement accounts (IRAs) when used to cover medical costs, a large expense for retirees.

Money in HSAs grows tax-free and, if used for medical expenses, also can be withdrawn tax-free. And if you fund your HSA with a pretax payroll deduction, you also save 7.65% in FICA tax (which finances Social Security and Medicare).

For individuals with a high deductible health plan (at least $1300 for individuals and $2600 for a family), an HSA should be the place to save. Individuals can contribute up to $3350 annually and families up to $6750 with those over 55 years old allowed an additional $1000. The biggest payoff with an HSA comes when the funds in the HSA are not used for current medical bills but are invested and allowed to compound over time, before being used for medical expenses.

It may be the best strategy to contribute enough to your 401(k) to get the company match and then direct the next dollars of savings to your HSA. Continue Reading

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If you die without a Will or Trust, your assets will be divided up based on the intestacy laws of the state where you live at the time of your death and the intestacy laws of any other state where you own assets.

Many times the intestacy laws will give different results from what you would have wanted had you taken the time to make a Will or Trust. If you own assets located outside of your home state, you could have two different sets of beneficiaries of your assets.

For example, in Florida and in Virginia, if you are survived by a spouse and children from the marriage, your spouse will inherit 100% and your children will receive nothing.

Use the same set of facts, except that your children are from a different spouse. In Florida, your current spouse will inherit one-half and your children will share equally in the remaining one-half, while in Virginia your current spouse will inherit one-third and you children will share equally in the remaining two-thirds.

Take that same set of facts in Illinois, and if you are survived by a spouse and children, no matter which spouse (current or former) the children are from, your current spouse will inherit one-half of your assets and your child (or children) will inherit the other half.

The examples illustrate what a difference state intestacy laws can make. The only way to insure that after your death your assets will go to the beneficiaries of your choice and will be distributed by the person you want making the distributions at the time you want your beneficiaries to receive them is to make an estate plan which includes a Will or a Trust.

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Gifting assets to your grandchildren can reduce the size of your estate and the tax that will be due upon your death.

You may give each grandchild up to $14,000 a year without having to report the gift. If you are married, both you and your spouse can make such gifts. For example, a married couple with four grandchildren may give away up to $112,000 a year to their grandchildren with no gift tax implications. In addition, the gifts will not count as taxable income to your grandchildren (although the earnings on the gifts if they are invested will be taxed).

You can pay for educational and medical costs for your grandchildren. You must be sure to pay the school or medical provider directly.

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In Illinois, estates can be administered under an Independent Administration or a Supervised Administration.

Unless an interested party requests a supervised administration, an estate is opened as an independent administration. Unlike a supervised administration, an independent administration does not require filing an inventory and accounting with the Court for the Judge to review. This keeps the inventory and accounting from becoming public record. However, the inventory and accounting are sent to the beneficiaries for approval.

No Court authority is needed to sell real estate when there is an independent administration. An independent administration may be converted to a supervised administration at any time by any interested party upon request to the Court. If the will specifies that the administration is to be independent, the party requesting the change to supervised administration must provide the Court with good cause for changing to supervised.

With a supervised administration, the inventory and accounting are filed with the court and become public record available for anyone to see. The accounting is subject to approval by the judge, including the attorney and executor/administrator fees. Also with a supervised administration, the executor/administrator needs court approval to sell real estate. Continue Reading