Most people would like to control how their money gets used as they get old and where they would like it to go after they pass away. Those wishes form an individual’s legacy intentions. It’s good to put them down in writing. This is Estate Planning. It’s Step 2 in planning for your long-term care.
You’ll recall from my last post the story of Dean, the father of a friend. Dean, age 84, got caught with the air conditioning turned off on a 100-degree day. He was hospitalized and then spent several weeks in rehab before moving into a retirement community with assisted care services.
Due to good planning, Dean’s investment portfolio had grown, and he was in a position to care for the extra expenses associated with assisted living. It was also good that Dean had created some important legal documents.
Thorough estate planning
In 2001, Dean and his wife executed wills and created a revokable living trust. They named their four children as equal beneficiaries of the trust, insurance policies and tax-deferred retirement accounts.
When his wife died in 2017, Dean’s son and oldest child became his power of attorney. In the event of Dean’s death, his son is the named trustee, and his eldest daughter the backup trustee. His son was able to help with banking and other financial matters, which proved invaluable to Dean’s making a relatively smooth transition to assisted living.
I’m not an estate planning attorney, nor a tax specialist. But, in working with specialists in those fields, I’ve learned a few things about trusts that you should know:
- Unlike wills, trusts are private documents. They keep one’s personal financial affairs out of public view, while providing for the fulfillment of one’s specific intentions for beneficiaries.
- Revocable living trusts offer smart estate planning measures. Every individual is different. Consult an estate planning attorney to determine what’s best for you. But you may find that setting up a revocable living trust is the way to go.
- Trusts need to be “funded.” That is, assets, such as property and individual stock holdings need to be assigned to the trust. Not doing so with even a single asset item could put the distribution of the rest of the trust’s assets in the public domain for the courts to decide. Don’t let that happen.
- Visit a tax-planning expert. Tax-qualified accounts — IRAs, Roth IRAs, 401(k)s, e.g. — are generally best left outside of a trust. When properly designated, beneficiaries who are individuals can likely continue to receive tax benefits and creditor protection from these accounts, whereas leaving it to the estate likely makes the amounts taxable.
- Review your beneficiary designations annually. Individuals named in a will normally take second place to individuals and trusts named as beneficiaries of tax-qualified accounts. Update beneficiary forms for IRAs, life insurance policies, etc., following any marriages, divorces, births or deaths of immediate family members. If you don’t, for example, ex-spouses could receive money instead of current spouses (if the former spouse is still on file as the beneficiary).
- Review your plan regularly. Certain legacy intentions may need to be reviewed after the estate documents have been created. Assets can grow significantly over time, and you may not want beneficiaries to inherit large lump sums of money. Also, be sure that named trustees are still in a position to discharge their duties. And, make sure your advanced healthcare directives and guardianship designations are kept up to date.
Be definitive about the future
In Part 3: Choosing Senior Care, we’ll take a look at how to choose an assisted care or nursing facility. Tough choices have to be made. And I don’t think the senior living industry does a good job at helping individuals to make these choices. Look for the next article soon.