THE GRAHAM LAW OFFICE, P.A.

Boise, Idaho

Three Steps to plan an independent retirement covering periods of good health, incapacity and death.

Speaker: Susan M. Graham, Certified Elder Law Attorney

Date: October 17, 2007

Hello I am Susan Graham. Welcome to the first of a series of Virtual Lunches. Today we're going to be talking about estate planning; The Three Steps to Plan an Independent Retirement covering periods of good health, incapacity, and death.

Today's estate planning topic is the Three Steps To Plan an Independent Retirement covering periods of good health, incapacity, and death. Why bother to plan? Well if you're out of money you're out of options. We work to make sure that our clients are never out of money so they're never out of options.

Before we get started I will address a few housekeeping issues with you.

First, if you would like to make an appointment with me to review your circumstances, and see what steps may be taken to improve your position, call my office, 208 344-0375 to setup an appointment. If we are the right attorney for you we will make an appointment. There is no charge for that first hour. At the end of that meeting you will understand what plans work best for you to accomplish your goals. The one exception, is if you require advice about the Medicaid Program, you will be charged at my hourly rate.

Second, go to our website http://www.graham-lawoffice.com/ to download and print this Transcript, an Action Sheet to get you started on your planning and other forms that may be of interest to you.

Now, let's talk about today's estate planning topic, The Three Steps to Planning an Independent Retirement. The three steps are simple: first, assess your current situation, and determine your goals. The second step is create a plan that helps you accomplish your goals, and the third step is implement and monitor your plan.

Traditionalist say "planning is death oriented," but a more important aspect of estate planning is life planning. Life planning means you will plan for those days when everything is going fine, and also plan for the days when you become unable to take care of yourself and your finances. Becoming unable to handle your own affairs is the scary part that most people ignore.

Do you know that if you are over age 65 there is a 70% chance that you will need help with your daily living activities before you die. Daily activities include dressing, walking, bathing and other basic daily tasks. This means that you'll need help, and possibly care in your home, an assisted living facility, or a nursing home facility. The cost for that care can be modest, such as paying for a bath aid who comes into your home a few times each week. It can also be very expensive if you end up in a nursing home. Those cost $6,000 to $8,000 a month.

Why bother to plan? If you are out of money, you are out of options. We work to make sure that our clients are never out of money, so they are never out of options.

Planning Step #1: Assess your current situation and develope a powerful vision for your future.

How do you assess your current situation? Well there are a number of areas we consider. First, who is your family? Ho do you enjoy spending time with, who do you rely upon, who relies upon you. Identify these people. Who is your current family? Most people do not limit this list to just blood relatives, they also include friends, neighbors, co-woerkers, professions such as their CPA, attorney, finance and insurance professionals.

And then what's going on with those people? Do you have family members that are involved in bankruptcy? If so, we need to handle the money that they might ultimately receive differently than the others. Do you have people who are in bad marriages? That you're worried about the son-in-law receiving property? Do you have family that you care about who has drug or alcohol problems, who are currently in school, who are very successful? Or are they in the State Penitentiary?

Do you have people that you truly can trust? That you know if you called them up at two in the morning they would show up on your doorstep as fast as they could get there? That actually helps you out. Or do you have family members who are troublemakers, or dishonest, or they never follow through with what you're asking?

It's important to take a few minutes to assess who the people are. Who these people are that you regard as your family that you want to ultimately receive property when you pass. And also who are people that you feel you can rely on in emergencies to help handle your finances, or to help with your health issues.

The next area that you need to asses in your current situation is your estate, your finances. What is it that you actually own, and what debts do you have outstanding? So this is another brief exercise you can do at the kitchen table where you list everything that you own. Your house, your bank accounts, any retirement moneys such as IRA's, 401K's, deferred comp programs, any mutual funds that you might have, the annuities, the stocks, bonds, brokerage accounts, life insurance death benefits. So when you die, even though you may never see that $50,000 from the life insurance policy, the death benefit needs to be included on that list. And any gifts you've made in excess of $12,000 to people in the last few years. That also needs to be listed.

When you make this list you need to put down the current fair market value. Not what you paid for it, not the replacement value, but what it's actually worth. So if you own a vacation lot up in Valley County, then you need to put down what's the fair market value of that if you took a little time to sell it. Not the $2,000 or $20,000 you paid for that 20 years ago.

The third area that you need to assess for your current situation is what is your current stack of legal documents? You need to dig around and pullout a copy of the deed to your home, and look at whose names are on that deed. In addition, you need to look for any Last Will and Testament that you might have, your health power of attorney, and the new Living Will that you might have, or the old Living Will. The law has changed in these areas so you need to be certain that they're current. Do you have a financial power of attorney that allows someone to do modest business on your behalf? Do you have contracts for sale of real property? Do you have a trust in place? Those are the type of documents you need to gather up and look at them.

When you've dealt with assessing your current situations in those three areas, your family, your finances, and what type of documents you have, then you need to decide where are you going? What is your vision for your future? What is your goal? Do you want to live independently in your home as long as possible? If so you might want to write that down as one of your goals. Do you want to provide your grandchildren's education? Do you want to go on a trip of lifetime and take your entire family on a cruise? I had one client who took his family and their spouses, and the grandchildren on a cruise to Hawaii and Tahiti to create a wonderful time for the family to be together, and get reacquainted with another, and also to have this family memory for forever.

Do you want to leave a legacy? Do you want to leave a charitable gift that will continually provide funds to a charity for years to come? Such as the Idaho Humane Society, one of the Idaho universities such as Boise State University, the University of Idaho, Idaho State University. Do you want to give money to the Idaho Community Foundation to be used in a special manner that would please you, or the WMCA, or your church? If so, those are part of the goals that you would set for your future.

If you don't plan there are three areas of shrinkage that will reduce your estate. The first one is the government and taxes. There's a tax on income, such as the Federal Income Tax and the Idaho State Income Tax. There's a tax on profits, that's a capital gains tax that means that if you purchased an asset, let's say a share of stock for $10 a share and you sell it for a $100 a share, you will have to pay a tax on the gain, or the increase in value of $90. The capital gains tax between the federal and the state of Idaho tax is approximately 23%. So you'd pay about $20 of tax on that $90.

There's also a death tax. The federal death tax is called an "estate tax." The Idaho death tax is called an "inheritance tax." The current death tax rates are for estates that are $2 million dollars and above there's a death tax, but what will happen in the year 2011 and beyond, the tax free estate will drop back to a million dollars. Anything over a million dollars there will be death tax. The death tax rates start at 42% and go up to 55%, so this is a substantial tax.

There's a new tax, it's a recovery type of tax, and this is if someone receives nursing home benefits under the Medicaid Program which is a federal and state program that pays for the long-term residential care for someone in a nursing home, as well as their heath expenses. But when someone passes under the Medicaid Program, it's treated as a loan program. The government wants to be paid back by either the assets of the Medicaid recipient, or from the family members. So this is a new tax that's out there.

A second area of shrinkage is the probate costs. That means when someone goes to court, the Probate Court, paying all the fees that are associated with that transaction. It's necessary to go to the Probate Court when someone dies. The reason for that is we have a dead person's name on the titled assets, and it's necessary to go to court through a process to remove the dead person's name from those titled assets. This is called a "death probate." Normally what happens is someone files a petition with the court to be appointed as the "personal representative." That's what we call those individuals here in Idaho. They're also called "executors," or "administrator." That individual then asks the judge to be able to handle the affairs of the deceased person. They in fact end up being appointed, and then they have the responsibility of gathering up the assets, paying the bills, and distributing the assets out where they need to go.

So there's a cost of going through that process. There's a cost of the court costs that are paid to the courthouse. There are also costs for the attorney representing the personal representative. And there are many other costs associated with that process. So that's another area of shrinkage.

Should someone become incompetent it's also necessary to go to court to have someone appointed to be able to handle the affairs of the incapacitated person. When I talk about incompetent or incapacitated, I mean someone is unable to handle their affairs due to illness. Mentally they can't handle things, or physically they're unable to handle their affairs. This process is also very expensive. The incapacitated person will have an attorney. The person requesting to assist that incapacitated person will have a separate attorney. There is a visitor appointed by the court, this is another professional, and then there's a doctor involved. So that can be quite expensive.

These proceedings are also usually available to the public. These are public proceedings and public information on file with the courthouse. Multiple probates are required when someone dies if that deceased person owns real property; a house, an apartment, a condo, a vacation timeshare. Outside the state of Idaho their estate will need to probate in that state as well as the state of Idaho. Every one of the 50 states controls the land within their boundaries, and so that local court will need to issue an order saying where that real property will be distributed.

A third area of shrinkage besides the probate process and all of the various taxes, is how to deal with a catastrophic, the cost of catastrophic illness if someone ends up in a nursing home that cost averages $6 to $8,000 a month here in the Boise Valley. In assisted living, if they need assisted living care in a facility that usually runs about half of what a nursing home is, or $2 to $4,000 a month. You can have care in your home which could be a few dollars a month for a bath aid, to substantial costs. These expenses are breathtaking, so it's necessary to pay attention when we do planning to these three areas of shrinkage, as well as other issues.

So let's review the first step that is involved in planning, and that's assessing your current situation, and developing a powerful vision for your future. What do you want to be doing, not only today, but what about five, or 10, 20 years from now?

Planning Step #2: Create a Plan. The second step to setting up an estate plan is actually creating that plan to accomplish your goals. When we create these legal plans we also are watching at the same time for those three areas of shrinkage. We try to make sure that we minimize the shrinkage from the taxes, the probate process, and the costs of long-term care.

There are numerous documents you can use to do this. You can do that with a Last Will and Testament, a Revocable Trust, an Asset Protection Trust, power's of attorney, the health documents. You can go through the probate process, or avoid the probate process. You can setup Heritage Trusts which are a wonderful mechanism to protect your children's inheritances. We will talk about that in greater detail in future programs. But let's stick to the basics today of what do we do in terms of creating a plan to accomplish your goal, the second step of estate planning.

Before we get to the legal documents, let's also talk about your personal plans. How do you want to spend your time and talents? If you're going to continue to work, or do you want to volunteer, and if so which charities are of interest to you?

In addition you should address your end of life decisions. What kind of healthcare do you want? Do you want to be on artificial life support systems or someother version such as keeping you comfortable and letting you go? Do you want to arrange your funeral ahead of time? You can make those arrangements in detail with a mortuary ahead of time, and pay for that. That usually saves money. Or if you don't choose to pay for it at least you leave it on file so it's easy for the family still to know what you want.

Then you need to make decisions about any pets that you have. If you fail to do that, then often the pets are euthanized which most people do not want. You need to decide who's going to care for those pets, and how much money you want to give them to help pay for those vet bills and the food costs.

Another area of planning is your finances. How are you going to manage your assets to accomplish your goals? You may want to sit down with your financial planner to address those specific goals that you have, the current resources that you have, and how you can get to the end result, or the goals you want to accomplish.

We will address each of these in detail in the future, but today I'm going to concentrate on some basic legal plans. When we do the planning, as I mentioned, we watch the areas of shrinkage because they are part of the planning process. If we ignore them then they may come back to haunt us in the future.

The commonsense approach planning, estate planning is the one that most people take, which is "don't do any planning at all." Statistics say that approximately 30% of the people in this country actually have an estate plan in place.

First let em talk about a Last Will and Testament. A Last Will and Testament is a document that goes into place when someone dies. It says in there who's going to be the personal representative, or who's going to handle the affairs when someone dies. The Will also says who gets the ring and the china. After those distributions are made, then perhaps everything goes to the surviving spouse, or it goes to the children in equal shares. When a Will is signed usually we also address what if someone predeceases you. That means they die first, so we have backup alternatives.

If money is distributed to a young person, usually we manage the money for that person until they're age 30. There are studies that show young people don't become responsible until their late 20s, so we manage the money and protect it for them, to be used for their education, or down payment of house, until they're age 30, and then the money's distributed out to them.

The nice part about a Will is that it says what you want to have happen when you die, but when someone dies it will be necessary to probate their estate. That means we have to go to court to get the dead person's name off the titled asset and get them where they're supposed to go. An uncontested probate usually takes six to nine months to finish, and usually costs 1% to 3% of the value of the estate.

Another way that an estate plan can be setup is to do beneficiary designations on assets. So that means on life insurance, on retirement moneys, on annuities, it's possible to name a beneficiary. So you say, "Okay, I name my spouse as the beneficiary, and if my spouse fails to survive, then the contingent beneficiary is going to be my children." This works great as a way to avoid the probate process, or the probate shrinkage, but it does not deal with complex distributions. And it does not deal with handling money for young people.

Another way to avoid the probate process is to give the assets during your lifetime. That may create serious problems with capital gains tax issues, and also it can create problems if you give assets to someone who's irresponsible.

Another way to avoid the probate process is to have assets titled as Joint Tenants with Rights of Survivorship. This works fine for husbands and wives on a brokerage account. All that you do is show a death certificate on the death of the first spouse to the brokerage account, and then the broker will turn the account into the name of the survivor. Idaho has funny laws for non-married persons, so that does not work affectively if it's not a married spouse who's the joint tenant with rights of survivorship.

Another way to avoid the death probate is to have a revocable trust. What the trust says is during your lifetime you manage all the assets for yourself, but it also says should you become incapacitated, or unable to do it, or the day you pass on, someone else is going to step-in and manage the Trust for you. That person is called a "trustee." So if you're a married couple, usually the two of you manage your assets during your lifetime. If one of you becomes ill the healthy one takes over with no court proceeding. And should one of you die, the survivor continues to handle things. Should the survivor become ill, a child or some other person you designate as a successor trustee (i.e. the money manager) steps in with no court proceeding. And then when you both die, that successor trustee will show two death certificates, and the trust instrument, and take over, manage your affairs, and pay the bills, and distribute the assets out the way you've designated.

When you do a trust, we don't have to go to court to go through a probate process because all of the titled assets that are owned by you, are transferred into the trust, and are now owned by the trust. So for instance the deed on the house would have "your name, trustee of your trust" as the titled owner. So if you're too ill to sign on the deed, then your successor trustee can sign, or should you pass, then your successor trustee can sign on that deed and transfer the assets without the need of going to court.

The nice part about this being part of your plan is that you avoid the area of shrinkage in terms of paying for the expenses of going through the probate process. One nice additional aspect of doing a trust is you avoid the probate process should you become incapacitated. If you have only a will, and someone becomes incapacitated or incompetent, it is still necessary to petition the probate court to be appointed as the guardian and conservator for the incapacitated person, because the will only deals with death. It does not deal with incapacity during your life.

Planning Step #3: Implement and Monitor your Plan. The third area of planning is actually implementing the plan and monitoring your plan. Implementing your plan means don't just talk about it, but actually seek out the help of a professional to create the legal documents that you need to have a proper plan in place. Don't just talk about it, because even if you've talked about it with your attorney if you have not signed the proper documents and you die with no documents in place, we have to distribute your assets according to the plan setout by the Idaho legislature.

The other aspect that you need to do is monitor your plan. That means we recommend every three years that you review your plan with the professionals who are assisting you to be certain that it's up-to-date. This will allow you to take into account any changes in your person health, your preferences, the people in your family that you care about, your finances, and the law. Those things keep changeing so it's necessary to keep your plan up-to-date. You only want this plan to be there for you in the bad days. The day that someone becomes incapacitated, or the day someone dies.

As I mentioned, I encourage you to go to our website to look at the documents, the Living Will in particular, because the Idaho and federal law has changed, and you may want to download that document to be sure you have the current form available. We will be talking about how to complete a Living Will, and the Health Power of Attorney in more detailed in a future program.

If you would like to take advantage of the opportunity to visit with me, again there's no charge for that first meeting unless you want to talk about Medicaid planning. So just call our office at 208 344-0375 to setup a convenient time for you, or go to our website http://www.graham-lawoffice.com/ to contact us through that resource.

Thank you for taking the time to participate in this program, and I look forward to sharing information with you in future programs. Thank you, goodbye.

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