In part 1 of this article, we explained that you, like everyone else, needs an asset protection plan.   The number of lawsuits being filed grows exponentially each year.  The sooner you plan the more options you have, the more assets you can protect, and the less it will cost you.

Also, in part one we discussed that you may need a comprehensive insurance plan, lifetime trusts for your beneficiaries, and family limited partnerships and limited liability companies (to insulate liability.) If you missed part one, check it out.

We’ll continue with 3 more asset protection secrets:

4.     MediCal Planning

MediCal planning is used to help individuals qualify for MediCal to pay for long term care, without blowing through all of their assets.  The law offers exemptions rules, so MediCal planning makes the most of them.

 5.    Spousal Trusts

Lifetime spousal trusts are used when one spouse has a high level of risk of lawsuit and the other does not.  Assets are transferred from the high-risk spouse to a trust for the benefit of the other spouse.  Spendthrift provisions are included so that the trust assets aren’t subject to seizure by either spouse.

6.    Transmutation Agreement

California is a community property state and community property is subject to seizure by the creditors of either spouse.  A transmutation agreement is a marital agreement that transforms the property into separate property.

Harder to protect assets are assigned to the lower risk spouse and assets that are easier to protect are assigned to the higher risk spouse (i.e. the spouse that is currently being sued.)

Consult with a qualified estate planning attorney to determine which asset protection techniques are the best fit for you individual situation.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

“Asset protection secrets?  Do I need to protect my assets?” you may ask.

Yes, the number of lawsuits being filed grows exponentially each year; however, there is much you can do to protect your assets; if you act now, before you are sued or need nursing home care, you will have more options and can protect more assets than if you wait.

1.    Comprehensive Insurance Plan

Make sure that you are fully covered by life, homeowners/renters, disability, car, umbrella/personal catastrophic, earthquake, malpractice, business, and long term care insurances.  Insurance in the first defense in any asset protection plan.

 2.    Lifetime Trusts for Beneficiaries

Instead of passing inheritances or making lifetime gifts outright, do so in a lifetime trust.  With special language, the trust protects against divorcing spouses, bankruptcy, MediCal spend-down, malpractice suits, car accident claims, and medical crisis.  You money stays with your loved one.

3.    Family Limited Partnerships and Limited Liability Companies

Family limited partnerships and limited liability companies are used to insulate liability.  For example, if you own a rental property in a limited liability company and a tenant sues you for injury, only that particular property is at risk.  Your other assets are insulated.

In part two of this article (6 Insider Asset Protection Secrets You Need to Know Now), we’ll discuss MediCal Planning, Spousal Trusts, and Transmutation Agreements.  Consult with a qualified estate planning attorney to determine which asset protection techniques are the best fit for you individual situation.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

If you are serving as executor or trustee for a loved one’s estate/trust, you have duties, including filing and paying taxes.  This is serious stuff, because if you goof up, you can be held personally liable for the taxes, interest, and penalties.

We are providing an overview of executor and trustee tax duties, but you definitely need to meet with a qualified probate – trust settlement attorney to get good advice, regarding your individual situation.

The 1040

As executor or trustee, you will be responsible for filing the decedent’s final 1040.  If your loved one died anytime in 2011, the final tax return will be for the tax year ending December 31, 2011.  If you loved one dies anytime in 2012, the final tax return will be for the tax year ending December 31, 2012.

As you might expect, the returns are due April 15^th of the year following death and you use the decedent’s social security number.

The 1041

If the trust or estate has any income from that date of death until the trust or estate is closed, a 1041 must be filed.

The 1041 is due April 15^th of the year following death and you use the EIN number assigned to the estate.

The 706

If the estate is large and exceeds any remaining applicable unified credit amount (which was $5 million in 2011, is $5.12 million in 2012, and will be $1 million in 2013) or you want to maintain eligibility for portability, a federal estate tax return (706) must be filed.

The 706 is due 9 months after the date of death (and can be extended for an additional 6 months.)  Use the estate EIN number to file.

As of this writing, California does not have a state inheritance tax or state estate tax, but you would be wise to consult with a qualified probate – trust settlement attorney (estate planning attorney) to determine the current state of the law and how it applies to the trust or estate you’re handling.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

You may (or may not) have heard about “portability” and the ability for both a husband and wife to use their full federal estate tax credits, without trust planning.  Don’t be so sure.

You absolutely still need trust planning and here’s why.

Why You Need Trust Planning

The trust we’re discussing is usually included in a revocable living trust.  (It can be included in a will, but will-based planning has pitfalls and trusts have virtually no pitfalls.)

This planning is called “credit shelter trust” planning or “AB trust” planning.  It’s a good idea for all married couples, who have revocable living trust planning, to include credit shelter/AB trust planning.

Why?

1. To pay the least federal estate and generation-skipping tax possible.

1. To provide asset protect for trust assets, so they can’t be taken by your spouse’s or children’s creditors (bankruptcy, lawsuit, malpractice, divorce, and the like.)

Why You Can NOT Count on Portability

There are four reasons you cannot count on portability and still need credit shelter/AB trust planning.

1.  Portability ends December 31, 2012.  Unless both you and your spouse are going to die before then, portability won’t work for you.

2.  Portability requires that the executor/trustee (of the first spouse to die) file a federal estate tax return; this isn’t typically done unless there is a taxable estate and if the marriage is a second or third marriage, the executor/trustee may not cooperate.

3.  Portability provides absolutely NO asset protection.

4.  Portability is riddled with pitfalls and, likely, to have fallout litigation.

If you’re married and doing trust-based estate planning, be sure to include a credit shelter/AB trust; despite portability rules, you still need a trust.  A qualified estate planning attorney can help you.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

Estate planning documents, including advanced medical directives, only do what you want them to do if your loved ones know they exist and can locate them.

For example, if you don’t want to be hooked up to machines or be subjected to other medical heroics when you are in an end-stage medical condition, you need a legally valid living will.

However, just having the living will is not enough.  Your attending physician must have a copy of the living will in hand in order for it to be honored.

If no copy is available, either because your loved ones don’t know it exists or they know it exists, but can’t find it, it’s as if you don’t have a living will at all.

Then what happens is the burden is on your loved ones to decide whether or not to begin or continue life support.  It will be harder for your loved ones to sleep at night if they have to make the decision whether or not to “pull the plug,” so to speak.

In addition, your loved ones may not agree as to what is the best course to take.  What happens if some loved ones what no life support and no medical heroics and others want life support and all the medical treatment that is available?

Families are torn apart and lawsuits can continue for years.  After all, Terri Schiavo was kept alive for 15 years because her loved ones disagreed as to the discontinuation of life support.

Each adult needs a comprehensive estate plan, including advanced medical directives.  Be sure to tell your loved ones whether you have a living will and, if so, where they can find it, if the need arises.  Any questions?  Consult with a qualified estate planning attorney.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

Hospice provides end-of-live palliative care for those who are in the last year of their lives.  Hospice services are paid by Medicare and the goal is to provide palliative (not curative) care and support for the family.

Palliative Care

The goal of hospice is to keep the ill person comfortable.  There is no reason for anyone to die in pain.

There are no attempts to cure any illness.  Hospice services are available when no curative path is available or no curative path is chosen.

For example, a patient with advanced pancreatic cancer may choose hospice.  All attempts are made to provide medicine and care to eliminate pain.  No chemotherapy or radiation would be provided.

Stay at Home

Often, it’s a goal to keep an ill loved one at home as long as possible; so, hospice provides care at home.

If more support is required, many hospices have facilities where the ill person can stay 24/7, receive palliative care, and family can visit and receive support services such as counseling and social work support.

Examples of Care Provided

Hospice provides nurse evaluation and visits; pain control; wound care; caretakers to provide assistance with bathing, dressing, toileting, and shaving; and social worker sessions.

If you are ill and the doctor has provided a prognosis of one year or less, either the doctor or you can call a hospice for an evaluation to determine what services are appropriate for you and your family.  Most families who use hospice services rave about their experience.

If you have any questions about hospice or other elder care support services consult with a qualified estate planning attorney.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

While the power of attorney document is a powerful tool in many situations, it will NOT be effective in dealing with the Social Security Administration.  They will not accept any power of attorney, no matter what.   Instead, if you need help or need to provide help to a loved one, the “Representative Payee” designation is appropriate.

What is a “Representative Payee”? 

A Representative Payee is an individual or entity, which can communicate with the Social Security Administration and receive your monthly payments on your behalf.  Your payments must be used for the individual entitled to payment, and not for the benefit of the Representative Payee.

When a “Representative Payee” Needed?

While you are well, you remain in control.  If you become incapacitated, a qualified estate planning attorney can guide your loved ones through the process of becoming a Representative Payee.

Keep Good Records

The Representative Payee must keep records of all expenditures and file a report annually.

Do I Still Need a Power of Attorney?

Absolutely, YES!  You need a financial power of attorney (i.e. general durable power of attorney and a health care power of attorney.)  Powers of attorney are a must for avoiding conservatorship and court interference.  They save you money and save your family time, stress, and a great burden.  Update your power of attorneys every three to five years at a minimum.

Where to Get Help?

If you need help with the Social Security Administration, becoming a Representative Payee, or getting financial and health care powers of attorney, consult with a qualified estate planning attorney.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

Were your power of attorney documents signed in another state?  Are your documents more than three to five years old?  Has an agent named in your power of attorneys moved, died, become disabled, or is no longer appropriate?  Have your children grown into adults and are qualified to help you?  Have your views changed?  If any of these questions are answered in the positive, you need new powers of attorney.

Two Types of Powers of Attorney

Although there are specific powers of attorney for many situations (i.e. real estate closing or a business transaction), there are two main types of powers of attorney.

They are the financial power of attorney and the health care power of attorney.

Financial Power of Attorney

The financial power of attorney is also known as a “general durable power of attorney.”  It is usually effective immediately and authorizes a trusted loved one or corporate entity to pay bills, file taxes, manage assets, and deal with financial institutions.

Health Care Power of Attorney

A health care power of attorney is effective only if you cannot provide informed consent for medical care.  If needed, a loved one will step into your shoes and make health care decisions on your behalf.

Examples of decisions your health care agent would make are which treatment you receive, hiring and firing medical staff, and deciding whether you get a specific operation, or not.

Updating Your Power of Attorney

It’s definitely in your best interest to update your financial and health care powers of attorney.  Consult with a qualified estate planning attorney to do so.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

Nearly all of our clients want to have a living will, once they understand what a living will provides.  A living will provides peace of mind that you will be protected from medical heroics such as life support machines, if you are in an end-stage medical condition.

End-Stage Medical Condition

If you are in a persistent vegetative state or irreversible coma, you’re in an end-stage medical condition and that’s when your living will is effective.

Ensure Your Living Will is Available

Be sure your living will is available when needed.  Let your loved ones know that you have a living will and where you keep it (and your other important documents.)  Consider a virtual service such as Docubank that makes sure your living will (and other documents) are always available when you need them 24/7/365.  www.docubank.com.

Relieve a Burden and Staying in Control

When you have a living will, you are making a medical decision in advance.  That’s why it’s called an advanced “medical directive.“  This keeps you in control as you are the one to make this health care decision.

In addition, having a living will greatly relieves the burden on your loved ones’ shoulders.  They don’t have to make the decision to have life support removed or not started in the first place.

Avoid Family Disputes

Having a living will also may avoid family disputes if your loved ones have different views.  For example, Terri Schiavo’s parents conflicted with her husband; thus, she was kept alive for 15 years, while totally brain dead.  While Terri had told her husband she didn’t want to be kept alive, she never put it in writing.

Your wishes must be in writing and the treating doctor must have a copy.

If you have questions or concerns about the living will or any other health care estate planning documents, consult with a qualified estate planning attorney.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

We understand that it can be overwhelming when a loved one is diagnosed with a serious illness.  There are all kind of family, financial, administrative and legal things to do and you may not be sure what to do or how to do it.  That’s why it’s in your best interest to call a qualified estate planning attorney for guidance.

Testamentary Capacity

A qualified estate planning attorney can determine whether your loved one still has legal competence.  If so, estate planning documents can be put into place so that your loved one’s wishes are carried out and your burden is reduced.

Checklist

A qualified estate planning attorney can provide a checklist of things you need to do and things to think about.  This way you won’t overlook anything.

Legal Advice

A qualified estate planning attorney can help you and your loved ones make important decisions.  Be sure not to take the advice of well-meaning neighbors, bank tellers, or loved ones.  Get good legal advice before making decisions.

Referrals

A qualified estate planning attorney can refer you to other professionals such as geriatric care managers, realtors, financial advisors, appraisers, insurance professionals, home care specialists, hospice care suppliers, etc.

Although it’s always in your loved one’s benefit to take care of these matters before serious illness strikes, it may not be too late.  Consult with a qualified estate planning attorney right away.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.