Author Archives: arai

Often, the issue that causes the most hard feelings among family members after a death isn’t how much money everyone received in the will, but who should get the plate on which Grandma served her famous Thanksgiving pie year after year.

Most people don’t think much about items of sentimental value when they do their estate planning. But they should, because doing so can avoid a lot of awkward situations.

For instance, you might plan to leave everything to your children in equal shares, but what about the piece of jewelry that you always promised to your eldest daughter, or the antique vase your cousin loved that no one else in the family liked? Or what if you have a valuable item such as a piano that can’t be divided equally?

It’s definitely a good idea to make provisions for items such as these in your will.

In most (but not all) states, you can write a “personal property memorandum” that’s separate from your will and that covers how personal items will be distributed. It’s valid as long as your will specifically refers to it, and an advantage is that you can change it yourself whenever you want without having to revise the entire will.

Usually, the memorandum can cover items such as furniture, artwork, jewelry, and so on. Some states let you include cars, but you can’t use it for financial instruments such as bank accounts or stocks and bonds.

What happens if someone dies and doesn’t make any plan for personal property, and the children or other heirs can’t agree on how to divide it? Some families have come up with creative solutions.

For instance, they might assemble all the personal items and take turns picking one item each. Or each child might be given an equal amount of Monopoly money, which they can use to “bid” for each item at an auction.

In some cases where the children simply couldn’t agree, the executor or trustee has ended up selling all the items and dividing the cash.

Traditionally, the purpose of life insurance is to replace a person’s income for their family in the event they die before they stop working. For this reason, many people buy “term” insurance that ends when they reach retirement age.

However, there are also some very good uses for life insurance as part of an estate plan. For example:

• You might want to make sure that your heirs won’t  have to sell important assets (a business, real estate, etc.) after you die in order to pay estate taxes or because of a lack of liquidity in the period after your death. Life insurance can provide your heirs with ready cash to cover taxes and other expenses.
• Suppose you have several children and you want to leave them equal inheritances, but your estate consists largely of assets that are hard to divide – such as a business, real estate, or an art collection. You could leave the assets to the children most likely to appreciate them, and use insurance to equalize inheritances for the other children.
• If you leave behind a vacation home for use by multiple family members, they could end up squabbling over who has to pay for upkeep, repairs, and so on. Life insurance could be used to find a trust that pays these expenses.
• Life insurance can also fund a trust to be used for college education or for children with special needs.

You should know that while the beneficiary of a life insurance policy generally doesn’t have to pay income tax on the proceeds, the amount of the proceeds is typically included in your taxable estate. This can be a problem if the value of the proceeds plusyour other assets pushes you into the estate tax bracket.

There are ways to avoid this problem, such as by creating a trust to own the life insurance policy. However, these trusts can have some drawbacks and some very technical requirements, so you’ll want to talk to an attorney to make sure the idea is right for your situation.

When actor Philip Seymour Hoffman died unexpectedly this past February, he hadn’t updated his will in about 10 years, and his estate planning left something to be desired.

Hoffman’s will created a trust for his son Cooper, and left the rest of his roughly $35 million fortune to his longtime companion Mimi O’Donnell.  It’s worth taking a look at what Hoffman might have done differently:

? First of all, apart from the trust for his son, everything passed through probate, which tied up the assets and caused the estate distribution to be made public (which is how we know these details). If Hoffman had used additional trusts, the world wouldn’t know the extent of his wealth or how he planned to distribute it.

? Second, Hoffman never updated his will after his other two children were born. So while Cooper will benefit from a trust, Hoffman’s other children will get nothing.

Presumably, O’Donnell (the mother of all three children) will take care of them. But if O’Donnell remarries and becomes part of another family, she could eventually leave a big chunk of Hoffman’s wealth to complete strangers rather than to his own children. Hoffman could have largely avoided this prospect through the use of trusts.

? Third, although Hoffman and O’Donnell were a couple for 14 years and had three children together, they never formally married. As a result, his estate will probably have to pay about $15 million in federal and state taxes – whereas if the couple had tied the knot at some point, the entire estate would probably have been tax-free.

Of course, the decision to marry is complex and involves many considerations other than estate taxes. Still, one has to wonder whether Hoffman might have felt differently about marriage if he had known that remaining legally single would be so costly to his partner and his children. It’s also worth noting that even if Hoffman had still wanted to remain single, he might have been able to use other techniques to reduce the tax burden for his heirs.

Americans have more than $12 trillion stashed away in IRAs, 401(k) plans, and similar retirement accounts. Yet very few people have given careful thought to what will happen to the assets in those accounts if they should pass away unexpectedly. In a surprising number of cases, what would happen is not at all what they would expect – or want.

Over the next decade, as the Baby Boomers continue to age, we will hear many stories of “inheritance disasters” as heirs are surprised by the laws surrounding these accounts. That’s why it’s important to make sure your retirement accounts have been considered as part of a complete estate plan for your family.

Many people assume that if they’ve written a will, then the people they named as heirs in the will are entitled to the assets in their retirement accounts.

Not true! Generally, a will has no effect whatsoever on a retirement account. Who gets the assets in an IRA or 401(k) is determined by a combination of state and federal laws and the “beneficiary designation” form that the owner filled out when the account was first set up, often many years earlier.

The problem with these beneficiary forms is that most people fill them out in a hurry when they’re starting a new job or rolling over an account. They’re not thinking carefully about estate planning considerations at the time.

Once the form is checked off, people tend to forget to update it when they have a change in their life, such as marriage, divorce, the birth of a child, etc. And even if people think to update the form, the plan provider doesn’t always make it easy to do so.

Plus, the forms themselves often make it difficult for people to accomplish what they want. Many 401(k) forms allow only a single primary and contingent beneficiary. What if you want to divide the funds equally among four children?

If a beneficiary form isn’t updated regularly, there are numerous things that can go wrong. For instance:

• A person gets married (or remarried) and doesn’t update the form to include the new spouse. The assets go to someone else.
• A person names their first child as a beneficiary, but doesn’t change the form when a new child is born. All the funds go to the first child and nothing goes to the sibling.
• A person names a minor child as a beneficiary, and since the child can’t inherit the funds directly, the result is a lengthy and expensive court proceeding.
• A person gets divorced, but forgets to change the form, and his or her ex-spouse collects all the assets.
• A grandfather wants the assets to be split evenly between his son and daughter. But the son dies, and the grandfather doesn’t update the form. All the assets go to the daughter, and nothing at all goes to the son’s children.

Many states have laws that say that if a will hasn’t been updated after someone gets married or divorced or has a child, the will can in effect be modified to provide for the changed circumstances. But often, these laws don’t apply to IRAs.

The situation is even worse with 401(k)s, because these are governed by a federal law called ERISA that trumps state laws.

Under ERISA, if a person was married, then in most cases the assets in a 401(k) plan must go to the person’s spouse,regardless of what it says in the beneficiary designation form – unless the spouse signed a notarized waiver. Most people don’t realize this, and very few beneficiary forms spell it out.

This rule tripped up Leonard Kidder, a widower in Baton Rouge who named his three children on a beneficiary form to inherit his 401(k) plan worth $250,000. Leonard remarried at age 66, and six weeks later he died. Thanks to ERISA, his new wife pocketed the entire $250,000 and his children were left with nothing.

ERISA is strict – generally, even if your spouse signs a prenuptial agreement saying that he or she won’t claim your 401(k) funds, that doesn’t matter unless the spouse also signs a notarized waiver after the wedding.

Divorce frequently leads to problems because, in the stress of a separation, people forget to update their forms. In Washington state, a Boeing employee named David Egelhoff died in a car crash two months after divorcing his wife. Since he hadn’t gotten around to removing her as his beneficiary, she collected his company-provided pension plan and life insurance, and nothing at all went to his children by a previous marriage.

What happens if you simply don’t fill out a beneficiary form? Then the assets will go to a “default” beneficiary. Often, the default beneficiary is spelled out in tiny type somewhere in a massive document from the plan provider that nobody ever reads.

Frequently, the default beneficiary is the account owner’s estate. That’s usually a bad idea, because it forces the assets to go through probate. Also, the family may end up forfeiting a lot of tax advantages that could otherwise be available.

Another option is to have the assets go to a trust. This can be a wise idea in certain circumstances – but you have to be very careful, because there are many obscure legal technicalities that must be observed to prevent problems with the IRS.

In general, retirement plan assets will be a ticking time bomb for many families in the coming years. It’s critical to speak to an estate planner to make sure your retirement accounts are integrated with your will and other documents as part of a complete estate plan.

If an estate plan isn’t kept current, it can become useless. You always want to make sure your will is up-to-date with your wishes, your financial circumstances, and current tax and other laws.

However, it’s important to keep in mind that changing a will is not a “do-it-yourself” process. Generally, any changes to your will must be made with the same formalities as the will itself, including witnesses and signatures.

In the past, some people have tried to make changes to their will by simply crossing out some parts and writing in others. Not only are these changes unlikely to be legally effective, but in some circumstances they can result in the entire will being declared invalid. At the very least, they can result in a lengthy and expensive court proceeding to sort out your wishes.

If you only want to make a simple, specific alteration – such as naming a different executor or updating a child’s name that has changed – a codicil may be appropriate. A codicil is a separate, short document that makes an amendment to a will. The benefit of a codicil is that it is usually cheaper and easier than redoing the entire will.

However, a codicil still has to be formally dated, signed and witnessed. Be sure to always keep the codicil with the will so your personal representative can find it easily.

If you have a significant change to make to your will, such as adding or removing a beneficiary, or if you have more than one change to make, it’s generally better to simply write a new will. The updated will should include the date and a clear statement that all previous wills and codicils are revoked.

As always, before you make any changes to your will, you should consult with an attorney.

An advance medical directive gives instructions on the kind of medical care you would like to receive should you become unable to express your wishes yourself, and it often designates someone to make medical decisions for you. This is an extremely important document – but it won’t be of much value in an emergency if it’s tucked away in a safe deposit box or in a file cabinet where no one can easily find it.

It’s a good idea to carry a card in your wallet or purse saying that you have a directive, and how medical personnel can access it.

For instance, if you routinely carry a cell phone or tablet with you, you could upload your directive as a file on your device.

If you don’t typically carry such a device, but you have a child who does, you could ask the child to upload it to his or her phone or tablet. Your card could instruct medical personnel to contact your child. Your child would then be able to e-mail the directive to the doctors – even if the child is thousands of miles away at the time.

There are a growing number of software programs, apps and cloud-based options that offer to store health care and legal documents and make them available in an emergency. Also, about a dozen states have established online registries for advance directives.

But the most important step is to have an advance directive in the first place. Most Americans still don’t – and that can create agonizing quandaries for loved ones in a crisis.

A lot of health care providers still don’t know that the law has changed, and that Medicare now covers many skilled nursing, home health care and therapy services even if they simply maintain a person’s health and don’t improve their condition.

Although the government launched an educational campaign about the change earlier this year, a large number of providers are still in the dark and are refusing to provide treatment on the grounds that Medicare won’t cover it, according to a report by the Center for Medicare Advocacy.

The change is very important for seniors who suffer from diabetes, heart disease, Alzheimer’s disease, multiple sclerosis, Parkinson’s disease, Lou Gehrig’s disease, arthritis, or the effects of a stroke, among other conditions.

For decades, Medicare had a “rule of thumb” that coverage of skilled nursing, home health care and outpatient therapy services was available only if they were likely to improve the patient’s condition. Other treatments were considered “custodial care” and ineligible for coverage. But thanks to a class action lawsuit, that has now changed.

Seniors who are enrolled in Part A, which covers hospitalizations, are eligible for up to 100 days in a skilled nursing facility (as long as it follows a three-day hospitalization), as well as up to 100 home visits following a hospitalization. Seniors who are enrolled in Part B, which covers doctor visits and other outpatient services, are eligible for potentially unlimited home visits.

Further, anyone who applied for Medicare benefits after January 18, 2011 and was denied due to the “rule of thumb” can now have that denial reviewed.

We’d be happy to help you if you believe that you were denied coverage or treatment incorrectly under the new rules.

Medicare gets a lot of news coverage, but its cousin Medicaid remains something of mystery to most people. The Medicaid program is the largest single source of funding for nursing home care in the U.S., but there are many myths about exactly who qualifies for it and what coverage it provides. Here are five common misperceptions, followed by the real story:

1. I don’t have to worry about Medicaid, because Medicare will cover all my nursing home expenses.

Actually, Medicare’s coverage for nursing homes is quite limited. Medicare covers only up to 100 days of skilled nursing care per illness. That means that after about three months, Medicare’s coverage runs out.

Further, to qualify for Medicare, you must enter a Medicare-approved facility within 30 days after a hospital stay, and the hospital stay must have lasted for at least three days. And the care in the nursing home must be for the exact same condition as the hospital stay.

2. I can’t qualify for Medicaid unless I’m broke.

Medicaid is designed to help needy but deserving people to pay for long-term care, but you don’t have to be completely destitute to qualify. In general, Medicaid applicants can have no more than $2,000 in “countable assets” in order to be eligible, but this figure is higher in some states and there are a number of important assets that simply don’t count toward this limit. For example, your home generally won’t be considered as an asset if your home equity is less than $543,000 – and this year, states have the option of raising that limit to $814,000.

Further, there’s no limit at all on your home equity if your spouse is living in the home, or if you have a child living in the home who is under 21 or disabled.

In addition, your spouse can keep one-half of your joint assets, up to $117,240 in some cases.

3. The best way to qualify for Medicaid is to transfer assets to my children. 

It’s not so simple! Although you could give away a lot of assets in order to try to qualify for Medicaid, the law imposes a penalty on people who transfer assets without receiving fair value in return.

Basically, when you apply for Medicaid, the state will look back at any such transfers you’ve made over the last five years, and impose a penalty in the form of a period of time in which you’re ineligible for benefits. The length of this period is determined by how much you gave away – the more you gave away, the longer you’ll be ineligible.

However, there are exceptions to this rule. For example, you can generally transfer money to your spouse without incurring a penalty.

4. If I signed a prenuptial agreement saying that certain property belongs only to my spouse, then it won’t count as an asset of mine in determining whether I’m eligible for Medicaid.

Not necessarily! A prenuptial agreement only works to keep property separate in the event of a death or a divorce. What property “counts” for Medicaid purposes is determined by Medicaid law, and this law trumps what’s written in a prenuptial agreement.

5. I can give up to $14,000 a year to each of my family members without incurring a Medicaid penalty.

Unfortunately, that’s not true. You can give away up to $14,000 a year to anyone you want without incurring a gift tax or having to file a gift tax return. But under Medicaid law, a gift of $14,000 (or any other significant amount) could still trigger a penalty if it was made within five years of the time that you apply for Medicaid benefits.

As you can see, Medicaid can be an important part of planning for long-term care, but the rules are very difficult to navigate on your own. If you’re considering long-term care options, it’s critical to consult first with an elder law attorney.

The last thing anyone wants after a death in the family is calls from debt collectors. So it’s important to know what a person’s creditors can (and cannot) legally do, and how to protect yourself and your family from improper or deceptive practices.

Generally, after people die, their estate is responsible for paying any debts they may have left. If the estate doesn’t have enough money to pay a debt, then the creditor is out of luck and the debt goes unpaid. The only exceptions are that a spouse may be responsible for a joint debt, and a family member or other person might be responsible if they co-signed or guaranteed a debt.

If you’re unsure, a lawyer can help you determine whether another family member is responsible for a mortgage, a credit card payment, medical bills, and so on.

A debt collector is allowed to contact the executor of an estate to discuss a debt belonging to a deceased person. A debt collector may also contact the deceased person’s spouse to discuss a debt, as well as the person’s parents (but only if the person was a minor).

Generally, debt collectors are legally barred from contacting anyone else. The one exception is that collectors can contact other relatives or friends solely for the purpose of finding out the name of the person’s executor or spouse. If they do so, they can’t tell the relatives or friends anything about the debt, and they can’t even reveal that they’re debt collectors.

Debt collectors are prohibited from misleading family members into believing that they’re responsible for a deceased person’s debts. They’re also forbidden to use abusive or offensive language.

Even if you’re responsible for paying an estate’s debts, you can still request that a debt collector stop contacting you. To do this, you need to send a letter to the debt collector asking him or her not to contact you again. You should send the letter by certified mail and get a receipt, and you should keep a copy of the letter for your records.

Once the collector receives the letter, he or she can contact you again only to (1) tell you that there will be no further contact, or (2) inform you of a lawsuit.

Of course, even if you tell a collector to stop contacting you, you and the estate will still be legally responsible for paying any debts that are legally owed.

Sometimes Medicare will decide that a particular treatment or service isn’t covered, and will deny your claim. The good news is that if you believe you should have been paid, you can appeal.

The federal government makes the general rules for Medicare, but the day-to-day administration is handled by private insurance companies that contract with the government. In addition, the government contracts with committees of physicians who decide the appropriateness of care received by most Medicare beneficiaries in hospitals.

Many of the decisions made by insurance companies and doctors’ committees are highly subjective. For instance, they might involve a judgment call as to whether a given treatment is medically necessary, or whether a service is “custodial care” as opposed to medical care.

If Medicare refuses to pay for a treatment or service, you’ll learn this when you receive your “Medicare Summary Notice” in the mail.

A good first step is to find out whether the denial of coverage is simply the result of a coding mistake. You can ask your doctor to confirm that the correct medical code was used on the Medicare paperwork. If it wasn’t, that might solve the problem right there.

If the code was correct and you still believe Medicare should have paid, you can appeal the decision through Medicare’s internal review process.

If that doesn’t work, you can go to court. This is allowed as long as the amount in dispute is at least $1,000 (or $2,000 for some types of claims). An attorney can represent you in the case.

According to the Medicare Rights Center, only about 2 percent of Medicare beneficiaries appeal denials of care. But 80 percent of those who appeal Part A denials – and 92 percent of those who appeal Part B denials – win more care as a result.

Even if Medicare was correct in denying coverage, beneficiaries can sometimes avoid having to pay for a treatment if they can show that they didn’t know and couldn’t have been expected to know that a particular treatment wouldn’t be covered.