Estate Planning Document Essentials

Did you know that several states have investigated some of the country’s largest insurers for failing to pay out unclaimed life policies to beneficiaries? Under policy contracts, they aren’t required to take steps to determine if a policyholder is still alive, but instead pay a claim only when beneficiaries come forward.

The lesson here: It isn’t enough simply to sign a bunch of papers establishing an estate plan and other end-of-life instructions. You also have to make your heirs aware of them and leave the documents where they can find them.

Last Will & Testament

The financial consequences of failing to keep your documents in order can be significant. According to the National Association of Unclaimed Property Administrators, state treasurers currently hold over $30 billion in unclaimed bank accounts and other assets. How do you know if you have unclaimed assets? You can search for unclaimed assets at MissingMoney.com

We recommend that our clients create a comprehensive folder of documents family members can access in case of an emergency, so they aren’t left scrambling to find and organize a mess of disparate bank accounts, insurance policies and brokerage accounts.  You can store the documents with your attorney, a safe-deposit box, online data storage or keep them at home in a fireproof safe that someone else knows the combination to.

The Essentials

• The Will – An original will is the most important document to keep on file.  A will allows you to dictate who inherits your assets and, if your children are underage, their guardians. Dying without a will means losing control of how your assets are distributed, instead, state law will determine what happens. Wills are subject to probate; legal proceedings that take inventory, make appraisals of property, settle outstanding debt and distribute remaining assets. Not having an original document means family members can challenge a copy of a will in court.
• Revocable living trust – Increasingly recommended by estate planners because they are more private and harder to dispute.  A revocable living trust is flexible and can be changed anytime during your lifetime. After you transfer ownership of various assets to the trust, you can serve as the trustee on behalf of beneficiaries you designate.
• “Letter of instruction”  – A useful supplement to a will, though it doesn’t hold legal weight. It is a good way to make sure your executor has the names and contact information of your attorneys, accountants and financial advisers. While the will should be stored with your attorney, the letter of instruction should be more readily accessible.
• Health Care Proxy – Possibly the most important advance directive to complete. This allows your designee to make health-care decisions on your behalf if you are incapacitated. The document should be compliant with federal health-information privacy laws, so that doctors, hospitals and insurance companies can speak with your designee. You may also need to fill out an Authorization to Release Protected Healthcare Information form as well.  If you are incapacitated and your family can’t locate a health-care power of attorney, they will have to go to court to get a guardian appointed.
• Living Will – Sometimes it isn’t enough to establish a health-care proxy unless you have explained to your designee how you would like to be treated in case of incapacity. A living will details your wishes in print.
• DNR or “Do Not Resuscitate” order – Very sick or terminally ill patients may wish to have a document outlining their wishes in the face of long term/indefinite life support assistance, thereby removing the responsibility from their doctor or family members.
• Durable Power of Attorney is critical, allowing a designee to make legal decisions on your behalf in the event that you are incapacitated.

* AARP has a state-by-state listing of advance-directive forms on its website.

* Advance Choice Inc.’s DocuBank electronically stores copies of health-care documents for a fee. In case of an emergency, a hospital will contact DocuBank, which will fax over the information. Subscribers get a wallet sized ID card.

Proof of Ownership

• You should keep documentation of housing and land ownership, cemetery plots, vehicles, stock certificates and savings bonds; any partnership or corporate operating agreements; and a list of brokerage and escrow mortgage accounts. If you don’t tell your family that you own such assets, there is a chance they never will find out. Don’t leave them to perform their own detective work; watching the mail for real-estate tax bills, or combing bank accounts for interest payments.
• File any documents that list loans you have made to others, since they could be included as assets in an estate. Similarly, keep a list of any debts you owe to avoid surprising your family. Wills and living trusts generally are drafted to include provisions for how debts should be settled, and creditors have a stipulated period of time in which to file a claim against the estate.
• Make the most recent three years of tax returns available, too. Looking at prior year’s returns offers a snapshot of what assets heirs should be looking for.  This also will help your personal representative file a final income-tax and estate return and, if necessary, a revocable-trust return.

Bank Accounts & Safe Deposit Boxes

• A list of all accounts and online log-in information with your family so they can notify the bank of your death. Remember that if nobody ever takes any more out or puts money in, the account could become dormant and then becomes the property of the state.
• Any safe-deposit boxes you own – Register your spouse or child’s name with the bank and ask them to sign the registration document so they can have access without securing a court order.

Life Insurance and Retirement Accounts

• Copies of life-insurance policies are among the most important documents for your family to have. Family members need to know the name of the carrier, the policy number and the agent associated with the policy.
• Employer sponsored life-insurance policies, granted by an employer upon your retirement, are most often missed.  New York state alone is holding more than $400 million in life-insurance-related payments that have gone unclaimed since 2000, according to the state comptroller’s office.
• A list of pensions, annuities, IRAs and 401(k)s for your spouse and children. Tens of millions of dollars languish in unclaimed IRAs every year according to the National Association of Unclaimed Property Administrators.

Marriage and Divorce

• Ensure someone knows where you have stored your marriage license. If the document cannot be located, application may have to be made to prove the marriage validity before anything could be claimed.
• For those that are divorced, it is important to leave behind the divorce judgment and decree or, if the case was settled without going to court, the stipulation agreement. These documents lay out child support, alimony and property settlements, and also may list the division of investment and retirement accounts.
• Include the distribution sheet listing bank-account numbers that accompanied the settlement to avoid disputes about ownership or payments due. Also include a copy of the most recent child-support payment order. In the majority of states, the obligation to pay child support still exists after death.
• You also should include a copy of the “qualified domestic-relations order,” which can prove your spouse received a share of your retirement accounts.

No matter what your net worth is, it’s important to have these basic elements of an estate plan in place to ensure that your family and financial goals are met after you die. Let your legacy be good planning for your loved ones!

The information herein contained does not constitute legal advice. Any decisions or actions should not be made without first consulting an attorney.

For more information contact us at 845.563.0537 or Contact@CompassAMG.com

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliate, Spire Securities, LLC. Member FINRA/SIPC.

Long-term Care Policies – The Straight Truth

Ask someone why he or she bought a long term care insurance policy and you will probably hear a story about family.

Joyce Smith, 68, saw her mother develop Alzheimer’s and go into a nursing home, where she’s been for nine years. Her mom’s savings are completely drained, and she’s on Medicaid, the medical safety net for the poor. Joyce and her husband Harry, 62, were shocked to see how much good care costs, so eight years ago they bought a policy that should pay for all or most of their care should they ever need it.

Cost of Long Term Care

The cost of insurance can be less expensive than the monetary, emotional & physical toll of home health or nursing home care.  The risk that you will need nursing-home care or a home health aide is certainly real.  About 70% of seniors eventually need help, and nursing homes (the most intensive kind of care) can cost $200 to $300 or more a day.  But that also means long-term-care premiums can take a bite out of your retirement savings.  The policies can be confusing, with countless combinations of options and limitations which affect premiums.  Whether or not you buy coverage, long-term care needs to be a crucial part of your overall retirement strategy.

The subject is a sensitive one: This is, after all, a time when you’ll be dependent on others for help with basic tasks like eating or getting in and out of bed. That causes some people to avoid thinking about the problem until it’s too late.  The best approach:  Answer the 11 important questions about the toughest dilemma you’ll face in planning for retirement.

The first decision: Whether to buy

How likely is it that I’ll need expensive care?

Wrenching stories like that of Joyce Smith’s mom are just one end of the spectrum. Most care happens outside costly nursing homes — people get help from family, hire home aides, use adult day-care centers, or move into apartments in assisted-living facilities. It all adds up to a financial risk worth planning for but not panicking over. Some have more to worry about than others.

“Long-term-care insurance is a much better buy for women,” says Howard Gleckman of the Urban Institute, because they tend to outlive their husbands. People like Smith with a family history of Alzheimer’s are at greater risk because that and other forms of dementia are more likely to lead to long stays in a home.

If I decide not to buy insurance, how would my care be paid for?

Out of your pocket, for as long as the money is there.

Medicare won’t cover most long-term care.  Unfortunately, you may have to spend down your assets until they are low enough for you to qualify for Medicaid.  As an individual, you have to be down to your last $2,000, not counting the house and a few other assets.

Spouses can usually hang on to only half of their joint assets up to about $110,000, rules vary by state.  Some people shift assets to their children to get onto Medicaid faster while keeping money in the family, but new laws have made that harder. The government now does a “look back” at assets transferred in the previous five years and will delay your Medicaid eligibility for nursing-home care accordingly.

For those whose chief concern is simply getting quality care, ending up on Medicaid isn’t the worst outcome — but you want to put it off for as long as possible.

A nursing home that takes Medicaid won’t kick you out when you switch, but since the program pays less than private rates, a good facility might not let you in the door unless you show you can pay for at least some of your care yourself.  Some expensive facilities don’t accept Medicaid at all and Medicaid generally won’t get you a private room.  Depending on your state, it’s also more difficult to get home-based care or assisted living via Medicaid.

Having more money, from whatever source, means more options. So at the very least you’ll need significant savings to act as a buffer between you and the Medicaid safety net.

Who needs insurance most?

Insurance adds a buffer, which can be emotionally reassuring for people without kids who can help.  For many purchasers, the point is less to guarantee care than it is to preserve assets to pass on, or to protect a spouse’s lifestyle.  Everyone should at least consider the use of insurance as it presents a viable alternative in the protection process but more importantly preserves the dignity and choice for the individual requiring care.

Is the insurance affordable?

This is the deal breaker. If you aren’t yet sure you’ll have enough money to fund even a healthy retirement, long-term-care insurance isn’t a cost you’ll want to carry.  For a couple in their mid-fifties, coverage can easily cost from $2,000 to $6,000 a year, depending on the benefit they choose. If you find you can’t afford your premium, you’ll lose your coverage unless you paid extra for a “non-forfeiture” benefit.

The National Association of Insurance Commissioners recommends you spend no more than 7% of your income — including the income you’ll have in retirement — in premiums. When you do the math, leave wiggle room: Your premium is likely to rise, perhaps by 10% or more every 10 years. Insurers can’t single you out, but they can raise rates for everyone in your class of policy.

When should I buy?

It’s a complicated trade off, but the sweet spot is in your late fifties. The longer you wait, the higher your premium will be: A lifetime Genworth policy that costs a 55-year-old couple $4,800 would cost $6,400 for 60-year-olds.

Your risk of being turned down also goes up as you age. In your fifties, you have a 1-in-7 chance of not qualifying, says the American Association for Long-Term Care Insurance, a trade group. In your sixties there’s a 1-in-4 chance.

Why not buy as early as possible? A lot can change over the life of a contract: the insurer’s financial health, its premiums, your financial position, and even the technology used to deliver care, which could make it cheaper or more expensive. Buying too early extends the uncertainty. Also, in your late forties you may have more pressing priorities, such as college tuitions and building up your nest egg.

Would health-care reform change any of this?

President Obama has now signed health reform into law, and the new law includes a voluntary, public long-term-care insurance plan. If you are near 60 or older, this probably wouldn’t change your decision, says Gleckman of the Urban Institute.  The coverage would be partial, and the premiums might not be a better deal. Also, you’d have to pay in for five years before benefits kicked in.

The second decision: What to buy

What must my policy cover?

Long-term-care insurance isn’t like health insurance. Instead of covering a portion of whatever care you need, it pays you up to whatever benefit level you choose in advance, often referred to as a “pool” of money.

Most policies are written in terms of maximum daily benefits — say, $200 — for a set number of years.  Benefits are triggered when you can no longer perform two “activities of daily living” or become cognitively impaired.  You should base your daily benefit on the cost of care where you plan to retire — or where your kids live, if you think you might move near them should you become ill.

At a minimum, make sure that the policy can be applied not just to nursing homes but also to licensed home care and assisted living, and that it includes an “alternative plan of care” provision. That last item gives you wiggle room in case medical advances change how long-term care is delivered, or merely as a matter of choice if possible.

Some policies will let you pay anybody including friends or neighbors — as long as they’re not family — for informal home care.

Do I need inflation protection?

Absolutely!  This particular benefit is invaluable when you consider that the annual cost of health care increases possibly only second to the cost of education.

Most analysts of the long-term-care industry expect costs to rise significantly in the coming years. Unfortunately, plans don’t offer a benefit that rises with an index of nursing-home costs — instead you have to choose an annual rate of growth for your benefit.

Most prices at assisted-living facilities and other care centers have increased a bit over 4% a year since 1996. But be mindful of a peculiar industry practice: You can sometimes choose a “simple” or “compounded” growth rate. Compounded is how you usually think of a growth rate, and it’s how inflation works.  A simple 5% means a smaller benefit. It will also have a lower premium, but for younger applicants that could be a dangerous trade off, since there’s more time for inflation to do its damage.

How long should my coverage last?

If you’re forced to choose between flexible benefits and the length of coverage, trim back length before cutting key options like inflation protection and home care. Also, a plan that covers three years can actually last longer: Exhausting even a three-year policy is pretty uncommon.

Note that if you start care at home or in an assisted-living facility, you’re likely to be spending less than your maximum daily benefit. The extra money goes into a pool for use later, extending the amount of time you’re covered. Another time trade off you might consider is to extend your “elimination period” up to 90 days. That’s the period at the start of your care when you aren’t covered.

A “partnership” plan is a good idea if it’s offered in your state. After you exhaust your benefits, you’ll be allowed to go on Medicaid while keeping more of your assets.  This should only be considered if you plan on maintaining a residency in that state to the end of your life.  While the benefits are payable anywhere, when the plan runs out, you would need to return to that state as you’ve “pre-signed” for Medicaid, which is a state run program.

What should I know about the insurer?

Some holders of older policies have been socked with enormous rate increases or have complained of hassles getting claims paid. This is even more likely with financially weaker firms that priced their products too low early on in an effort to get market share. So buy only from insurers with a strong financial rating.

Also look for companies with decades of experience in long-term care.  That tells you they are committed to the product and have a history of claims experience. Finally, it can’t hurt to check complaint records with your insurance regulator.

My agent wants to tack long-term care onto my life insurance or annuity. Does that make sense?

It depends.  If your health precludes you from qualifying for long-term-care insurance, some annuity “hybrid” policies have less extensive medical underwriting.  There are some hybrid policies that allow you to make a single lump sum contribution which will guarantee both life insurance, long term care benefits and provide money back.  They can do this because the lump sum premium earns a reasonable rate of interest in the contract while cost of the insurance are deducted.  These type of contracts tend to be more complicated, involve market risk and may not be appropriate for all investors depending on risk tolerance and time horizon.

This blog explores the various considerations relative to long term care insurance.  The insurance is usually used as a compliment to a good estate plan.  Before you make your decision, consult with a certified long term care specialist, financial planner or an elder law attorney.

For more information contact us at 845.563.0537 or Contact@CompassAMG.com

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm.  Securities offered through an affilliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.