Article on Why Women Need to Do Estate Planning

More and more of the clients coming to me to consult about estate planning are women, which I think is a good sign. Whether it's to plan after a divorce, to protect from the credit problems of a spouse, or just to make sure that minor children are protected in the event of something tragic, it is extremely important that women explore their options and take action. This article in Forbes is a good explanation of the importance of estate planning.

The 25 Documents You Need Before You Die

The 25 Documents You Need Before You Die

Rethinking Living Trusts

Personally, I tend to think living trusts are oversold. Some attorneys, looking for fees, try to talk all sorts of clients into creating a living trust when the trusts may not be necessary or even appropriate.

The main purpose of a living trust is to avoid probate. Probate is the court proceeding to make sure a person's debts are paid, and then the remaining property distributed to heirs and legatees.

But, it may not always be advisable to avoid probate.

For example, in Virginia, when the only probate asset a person has is real estate, a living trust may not be the right answer. That is because the real estate passes automatically upon filing the will. There will be a probate tax of $1 per every $1000 of value. But, even if you have a $600,000 house, that amounts to $600 in probate tax, as opposed to a few thousand dollars to set up a living trust.

On the other hand, if a person has any appreciable amount of assets other than real estate, a trust may actually make sense and save the estate some money. That is due to the exorbitant filing fees due as the probate process progresses.

Probate starts with the filing of the will and qualification of the executor. There are fees associated with this, as well as the probate tax. But, then, the executor will be required to file an inventory, setting forth the assets of the estate. On an estate worth less than $100,000, the filing fee in Fairfax County for the inventory is $166.

After the inventory, the estate is well advised to request a debts and demands hearing, which involves a newspaper notice. This process can add a cost of about $300.

Then, the executor must file accountings. In Fairfax County,a first accounting of an estate worth between $50,000 and $100,000 will incur a filing fee of $416.

When you add fees for a lawyer and an accountant to all of this, you could easily find that probate will cost over $6,000 even if the assets are worth less than $100,000. Given this analysis, a living trust to avoid probate may make sense.

Long Term Care Insurance

With modern medical science, the good news is that more people are living longer. The down side is that more people are requiring long-term care, such as nursing homes, for chronic illnesses. With the average nursing home cost in Northern Virginia at over $5,000 per month, those who find themselves in the need for long-term care are scrambling to find a way to pay for it.

One common solution is for the person to apply for Medicaid. This is a government-sponsored health insurance program for the needy. To qualify, a person’s medical expenses must be greater than his or her monthly income, and the person’s countable resources must be below $2,000 for a single person and $3,000 for a married couple.

However, the increased costs of medical services to the elderly has become a larger burden on the Government. The Government’s response has been to encourage more and more people to buy long-term care insurance. That is, an insurance policy to provide benefits when a person finds himself or herself in need of long-term care. Unfortunately, with some premiums reaching over $300 per month, people have been resistant to buy long-term care insurance.

In 2005, the Federal Government tried the “stick” approach to encouraging people to buy long-term care insurance. Congress passed the Deficit Reduction Act (“DRA”), which had a huge impact on Medicaid applicants. In order to qualify for Medicaid, a person cannot give resources away for nothing. The 2005 DRA changed the way that the period of ineligibility is calculated for those who do try to give assets away. It increased the look-back period to five years before the Medicaid application. Plus, the period of ineligibility ran from the date of the application, no matter when the uncompensated transfer took place in that five year look-back period.

In 2007, Virginia took a “carrot” approach, instituting the Long-Term Care Insurance Partnership. Now, in Virginia, if a person buys a qualified long-term care insurance policy, that person will be able to protect additional resources when qualifying for Medicaid. That is, for every dollar paid out under a qualifying insurance policy, the countable resource limit is increased by a dollar. For example, if a person receives $100,000 in insurance proceeds, then that person can protect an additional $100,000 as a non-countable resource when applying for Medicaid.

Purchasing long-term care insurance also has income tax advantages. If the policy is employer-provided, then any amount paid by the employer is not included in the employee’s income. Moreover, qualifying amounts paid by the employee will count toward the employee’s medical expense deduction. In 2009, for people under the age of 40, that amount was $320. For people between 41 and 50, the amount was $600. For people between the age of 51 and 60, the amount was $1190. For people between the age of 61 and 70, the amount was $3180. For people 71 and over, the amount was $3980.

Thus, there are advantages to purchasing long-term care insurance. You should discuss long-term care insurance as part of your estate plan, to protect your wealth from medical expenses. To find a plan that is right for you, talk with a qualified long-term insurance agent.

Lost Will Can Cause Evidentiary Problems

In Virginia, when the executor is ready to open an estate, he or she makes an appointment with the probate division of the circuit court, and, among other things, brings the will. The probate division will require an original signed copy. But what if the will is lost? What do you do then?

The probate division will not accept a photocopy of the will. To admit a photocopy of the will, the executor will have to file an action in the circuit court requesting an order that the photocopy be admitted to probate.

But, proving that the court should issue the order is not always an easy task. The reason is that a person who writes a will has the right to revoke it. One way he or she can revoke it is by destroying the will. So, when you do not have the original will, you have to satisfy the court that the testator did not revoke it by destroying it.

Virginia law creates two presumptions. The first is that when the will was in the possession of the testator, if the will cannot be found, the will is presumed to have been revoked. The second is that when the will was not in the testator's possession and cannot be found, the will is presumed lost and not revoked. Either presumption can be overcome, but only with clear and convincing evidence.

The best practice is not to rely on presumptions. For example, assume the testator gave the original copy of the will to his or her lawyer for safe-keeping. After the testator's death, the lawyer cannot find the will. The executor should present testimony from the lawyer, not only that he or she cannot find the will, but also on the surrounding circumstances. Why was it lost? Did the law firm move? Did the lawyer have any communication with the testator after signing the will?

The executor should try to present other evidence as well. What kind of person was the testator? Did he or she talk with anyone about the will? Was there any family discord that would show that the testator had reason to revoke the will? Is there any reason to suspect undue influence?

The executor should be prepare to make this motion before going to the probate division. Without an order, the probate division will not admit the photocopy of will to probate. A qualified estate administration lawyer can help.

Making a Difference

On this Fourth of July weekend, what better way to honor the brave act of independence than by celebrating a story of our self-government.

A few years ago, my parents retired, moved form their home in suburban Philadelphia and into a retirement community near Dover, Delaware. The set-up I thought was a little strange. In this retirement community, the residents owned their homes, but leased the land from the retirement community.

My parents certainly enjoyed meeting their neighbors, and taking advantage of the social life that the community gave them. But, inevitably, some issues started to come up. They had issues with the township's property laws. They had issues with the local police, who seemed to lie in wait for anyone who wen one mile over the almost intolerable 25 mile per hour speed limit, especially if you had out of state license plates. They had issues with the management of the community. They had tax issues.

Many of the residents of this community had the same issues. They would gather to play poker at the club house and complain. They all seemed to complain about the same issues.

Well, being retired, and having time on their hands, they started to do something about their complaints. First, they took many of their complaints to the management. This was to no avail. Then, they went to the local government. The mayor pretended to listen to their complaints, particularly the local speed limit issue. That is, until it was discovered that the mayor was actually planning how to spend the additional revenue generated by the strict speeding enforcement.

So, the residents took matters into their own hands. One resident dared put his name into the hat, and started a campaign to run for mayor. Next thing you know, the residents organized around their friend. Then, against all odds, this man found himself mayor of the local township.

Not satisfied with simply having a say in local government, the residents are now organizing a candidate to run for state assembly. My mother, who her whole life avoided political talk, now finds herself invited to join high level strategy meetings for the state assembly candidate.

The moral of this story is that this is the land of free. Laws, at times, may seem oppressive and unjust. But, there is a solution. We are still a government of the people, by the people and for the people. Just as my parents' neighbors joined together and were able to make a difference in the politics of small town, Delaware, so too other retirees can organize and make sure that their voices are heard by their elected officials. By organizing, and participating in our wonderful democracy, laws can change.

Planning for Adults with No Children

Recently in my practice, I have noticed something of a trend. That trend is the growing number of older adults who are single, childless and seeking estate planning advice. There are a host of reasons why they are single and childless. Some may have gone through a divorce and never remarried. Some may have been widowed. Some may have focused so much on their careers that they simply never married and had children.

Planning for this set of the population presents some special challenges. The first of such challenges is determining who to choose to serve in various positions of trust, called fiduciaries. Often, when you have a married couple with mature adult children, the couple will look first to the adult children to serve in such positions as executor, trustee or health care agent. When you have an older adult who does not have any children, however, the choice of who shall serve in these positions is not as obvious.

When the single older adult has siblings, often they will think first of appointing a sibling to serve in a position of trust. This, however, can present some special considerations. First, siblings tend to be relatively close in age. Thus, there is a question of whether the sibling will actually pass away first. This could leave the older adult in need of appointing new fiduciaries when their siblings pass away. There is also the risk that once the older adult passes away, the sibling will be unable to take on the role of fiduciary because of factors such as dementia or other health conditions. These problems can be avoided by having the older adult appoint alternative fiduciaries to serve in the event that their first choice either passes away first, or cannot serve for other reasons.

Another potential problem is that siblings may live in different areas of the country. If the sibling must travel a long distance in order to accept an appointment, that may serve as a disincentive to act. In this regard, the older adult should understand that accepting a fiduciary role is voluntary. Even if a person is named in a legal document, that person can still turn down the role.

In some cases, there may be a niece or nephew who is close, in an emotional sense, to the older adult. Such a person may be a better choice, simply because a niece or nephew is likely younger, and thus more likely to outlive the older adult. But, in some cases nieces and nephews may also live quite a distance away from the older adult. Moreover, if the niece or nephew is appointed as an agent to make health care decisions, there could be question of whether that niece of nephew truly knows what the older person would have wanted.

An older adult could look to friends and co-workers. Again, because people tend to associate with others who are close to them in age, this may not alleviate the concern of who will be the first to pass away. Plus, despite friendship, some people may be hesitant to ask someone who is not a relative to take on the burden of administering their estate, or making health care decisions for them.

There may be no simple solution to the dilemma of appointing fiduciaries. At the very least, there should be alternatives named in case the primary choices are unwilling or unable to serve. But, identifying the people who will serve may take some additional time and consideration.

The next issue is exactly what to do with the older adult’s wealth after death. If the older adult has no children, then there will be no obvious choice to inherit that person’s estate. In some situations, the older adult may have done a great job in planning for retirement. He or she may have valuable retirement accounts and investments. He or she may also own real property.

To whom the estate should be left is a very personal question. This may an opportunity for the older adult to leave a legacy, and thus give much of the estate to charity. Perhaps there is a favorite sibling or nephew to whom the older adult would like to leave a gift. Perhaps the older adult has simply not thought about their distribution plan.

What is certain is that if the older adult does not create an estate plan, the state government will create one for them. When a person has not left a will, or placed his or her property in trust, then that is called intestacy. The intestacy laws will then determine who inherits the person’s property. Intestacy laws vary by jurisdiction. But, they tend to favor relatives. Usually, spouse and/or children are the first choice to inherit the estate. If the older adult has no spouse or children, intestacy laws usually look first to see if there is a surviving parent, then brother or sister. In the end, if there is no one to take the estate, then the property will escheat. That means it will belong to the state. If the older adult is not happy with this plan, then it is imperative that he or she think long and hard about how he or she would want his or her property distributed.

The unique challenges presented by single, older adults without children require greater attention and consideration. Consulting with a professional may be helpful, but it may not answer all of the questions. In the end, the choices in creating an estate plan are very personal, and should match a person’s own goals and values.