You Forgot to Protect Yourself and Your Spouse; Asset Protection Trusts; Tenants by The Entireties, Retirement Plans and Life Insurance; Estate Planning Mistake Number 7
April 14, 2016
You were so careful to swerve your car to avoid hitting the mother duck and her seven small furry cutest-ever ducklings crossing the road that you smashed into the SUV coming from the opposite direction.
You put the oxygen mask on your son first, but you passed out before you could put on your own mask.
You worried so much about protecting your children in your estate plan against divorces, creditors, and taxes that you forgot to protect yourself and your spouse.
It’s a classic “Can’t see the forest for the trees” problem. You focus so intently on one issue, that you miss the bigger problem.
The biggest problem of not having an estate plan is not dying without one —but living without one. You have failed to protect yourself, your spouse or partner from the many landmines of getting older.
Clare goes to the hospital. She was hit by a drunk driver, severely injured, and arrived unconscious. Her husband passed away two years ago and her loving daughter Susie takes care of her. When Susie arrives at the hospital, she asks how her mother is doing and the hospital staff goes ballistic legal, demanding to see documents waiving her mother’s privacy rights under the federal HIPAA law and granting Susie access to Clare’s healthcare information. The legal wrangling continues for days and Susie can’t get critical information. Susie has no documents giving her the power to make healthcare decisions for Clare. Clare dies and Susie blames herself for not being able to make sure that Clare got the best care.
Mary loses control over everything. Mary has a simple Will. But, the nosy neighbors think she is losing it when she leaves her trash cans out all day. Mary is getting forgetful, loses her keys often, and is exploited by shysters that prey on the elderly with phony private lottery schemes and home-repair rip offs. Sadly, Mary has not set up a team of people to take care of her as her mind fades. The County, tipped off by the neighbor, sues and is able to impose a guardianship on her. The County appoints a stranger—an attorney who knows how to run up big bills–who decides to move Mary out of her well-kept house into a smelly, second-class institution. He also takes over all of Mary’s healthcare decisions and financial investments, which will now be handled by one of his buddies. Mary loses her financial adviser who had successfully grown her estate and her friends have to go through the attorney to even visit Mary.
Bill and Betty get wiped out. Bill is a partner in a growing architectural firm. The firm decides to build an office building to have space for future growth. Along with his business partners, Bill has to personally guarantee the loan. The bank makes Betty cosign the loan, too, because Bill and Betty own everything together. The market goes south and the firm cannot pay the mortgage on the building. The bank forecloses then comes after Bill and Betty for the difference between the loan balance and what the building sold for in foreclosure. Bill and Betty lose their home and life savings. Bill is 65, having a hard time finding a job, and Betty is trying to get a part time job at Walmart. They have to move in with their daughter and live in her basement.
Nancy has a home and modest savings totaling $400,000, but she has no long-term care insurance. Nancy has to go into a nursing home, but can’t qualify for Medicaid because she has too much money. She exhausts her $400,000 to pay for her care and her children inherit nothing.
Could Clare, Mary, Bill, Betty and Nancy have protected themselves with good estate plans? Yes, but only if they took action to focus on their needs, not just the needs of their children and heirs.
Sarah goes to the hospital. Sarah is severely injured by a drunk driver and arrives at the hospital in a coma. Her daughter Roberta appears with a HIPPA and health care power of attorney in hand that Roberta was able to download quickly from a website that stores these documents for Sarah. Roberta takes charge of the care of Sarah, making sure that Sarah gets the best doctors, nurses, treatments, and medicines. Sarah survives, and after her convalescence, returns to an almost normal life.
Harry and Harriet survive. Harry is a partner in an engineering firm whose practice is growing. Harry and his partners decide to build an office building to house the growing firm and be a good investment. Harry and Harriet have separate living trusts. Harriet’s trust owns 100% of their home and all investments that are not in Harry’s protected retirement accounts. Together with his partners, Harry has to guarantee the bank loan to build the building. Because their assets are separate, the bank does not require Harriet to sign the loan. The office building goes bust and the bank is left with a big deficit on the loan. The bank calls Harry in and finds out that it cannot get Harry’s home, his investments or his 401(K). The bank lets Harry off after he pays them $50,000. Harry and Harriet have saved their home and most of their life savings.
Denise is protected. Denise is in her eighties and getting forgetful. She loses her keys, does not keep up her yard like she used to and does not balance her checking account. Nosy neighbors who never liked her politics, the purple wall on one side of her house or her bright red polka dot dresses, call the County to have a guardianship imposed on her. The County gets one of their employees to opine that Denise no longer can take care of herself and files a guardianship proceeding to take away all of her liberties. However, Denise has a team already in place to step in where necessary to manage her house, assets, healthcare, and daily life as her mind melts away. Denise’s team is able to defeat the County’s lawsuit and allow Denise to stay in her well-kept house with the purple wall.
Eleanor qualifies. Eleanor has $400,000 and may need nursing home care in the future. She works with an elder care team to allow her to receive care in her home and if she has to go to a nursing home, she will qualify for Medicaid to pay most of her expenses.
While there is no absolutely foolproof way to predict what you will need in the future, there are many ways you can protect yourself, depending upon your anticipated circumstances and geographic location.
Some states allow state asset protection trusts. You may can get even more protection with a trust you can move offshore in the event of trouble.
Check your retirement accounts to see what protections you have there as many retirement plans do offer certain protections under federal law.
Many people think that the cash value of their life insurance is protected. But, state law varies on the protection of cash value and although the death benefit may be protected, state law may allow your creditors to seize the cash value of your life insurance policy.
Many states have strong laws that protect marital property owned as tenants by the entireties from the debts of just one spouse. But be aware that the federal tax man can seize assets owned as tenants by the entirety because federal law can trump state law protections.
Does your estate plan protect you as well as it should? Contact us for a review of your plan to make sure you take care of yourself while you are alive as well as your beneficiaries later. email@example.com