In a recent article in US News and World Reports, Scott Holsopple sets out questions which everyone should ask when planning for what happens when they are no longer alive and handling their financial affairs.

One important question is: Does my spouse know about all of our accounts and how to access them? Make a list of all of your accounts. For on line accounts, include passwords. Include on the list all of your estate planning documents (Wills, Trusts, Powers of Attorney) and their location. Do not make the mistake of putting these documents in your safe deposit box. In a safe deposit box, the documents can be accessed only by someone on the bank’s signature card. If the Power of Attorney for Health Care is needed immediately, the bank may not be open.

Another important question is: Are our wills and beneficiary designations up to date? If there has been a significant change such as marriage, divorce, death of an executor or birth of a child, the will may need to be updated. You may decide to avoid Probate with the Court and put a revocable trust in place. Also, assets which allow you to name a beneficiary (and avoid Probate) such as 401(k)s, IRAs, Life insurance, Annuities and accounts with a transfer on death (TOD) designation may need to be updated.
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A Power of Attorney allows someone you designate (your agent or attorney in fact) to make decisions for you if you become incapacitated. For this document to be effective, your agent may need to be able to access your medical information. Medical information is private. The Health Insurance Portability and Accountability Act (HIPAA) protects health care privacy and prevents disclosure of health care information to unauthorized people. HIPAA authorizes the release of medical information only to a patient’s personal representative.

HIPAA can be a problem if you have a springing power of attorney. A springing power of attorney does not go into effect until you become incapacitated. This means your agent does not have any authority until you are declared incompetent. Under HIPAA, the agent will not be able to get the medical information necessary to determine incompetence until the agent has authority.

To eliminate this problem, your Power of Attorney should contain a HIPAA clause that indicates that the agent is also the personal representative for purposes of health care disclosures under HIPAA. A HIPAA authorization form should also be signed which explains what medical information can be disclosed, who can make the disclosure and to whom the disclosure can be made.
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Individual Retirement Accounts (IRAs) are an investment tool and need to be taken into account when doing estate planning.

It is important to name a beneficiary of an IRA. A spouse is often a beneficiary. A contingent beneficiary should also be named so that the IRA does not pass to your estate and require the opening of a probate administration with the Court in the event that your spouse dies before you.

When a spouse inherits an IRA, he can roll it over into his own IRA. When a non-spouse inherits an IRA, the heir will need to start taking distributions within a year after the IRA owner dies.

In her article in the Wall Street Journal, Jennifer Hoyt Cummings gives tips regarding setting up a trust so that parents can protect their assets from free-spending or other problem children/ beneficiaries. She advises that a trust should be put in place so that a spendthrift child cannot get title to a home. A trustee can buy real estate on behalf of the child.

She also advises setting up the trust so that the child’s creditors cannot access the inheritance. This is commonly referred to as an asset protection trust.

Ms. Cummings cautions that a trust could go on for a hundred years or more, so language should not be too specific or too narrow. In addition, legal jargon in the trust and the reasons for the trust provisions should be explained with a letter attached to the trust.

And she suggests considering trust distributions for children who want to take on special projects like studying abroad.

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Long-term care can be very expensive, but many long-term care expenses can be deducted from your taxes.

In a decision by the U.S. Tax Court, it ruled that payments to non-medical caregivers are still deductible as medical expenses. In Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian Baral suffered from dementia, and her doctor recommended that she get 24 hour care. Her brother hired caregivers to assist Ms. Baral with daily activities. On her tax return, Ms. Baral included a deduction for medical expenses for the payments of the caregivers. The IRS said the expenses were not deductible and asked for more money. Following Ms. Baral’s death, her estate appealed the matter to the U.S. Tax Court.

Under tax law, expenses for medical care may be claimed as an itemized deduction if they exceed ten percent of adjusted gross income. The definition of medical expenses includes the cost of long-term care if a doctor has determined you are chronically ill. Chronically ill means you need help with activities like eating, using the bathroom and dressing, or you require substantial supervision due to a severe cognitive impairment.

The Tax Court agreed with Ms. Baral that the payments to the caregivers for assisting and supervising Ms. Baral are deductible medical expenses. The expenses qualified as long-term care services even though the caregivers were not medical personal because a doctor had found that the services provided to Ms. Baral were necessary due to her dementia.

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A tremendous breakthrough in Special Needs Planning is the ABLE (Achieving a Better Life Experience) account. In a recent article in Kiplinger’s magazine, Kimberly Lankford points out that a 2014 federal law allows states to create these accounts. Illinois adopted ABLE legislation in 2015.

The law allows individuals of any age who developed a qualifying disability before age 26 to open an ABLE account. Anyone can add to the account, but the total contributions cannot be more than $14,000 each year, and the beneficiary can have only one ABLE account at a time but is allowed to switch plans.

The money may be used for most expenses to benefit the disabled person. It is tax free, and accounts up to $100,000 do not count toward the $2000 limit for Supplemental Security Income benefits.

The ABLE National Resource Center may be contacted at www.ablenrc.com and the Illinois State Treasurer’s office which administers the program may be contacted at 312-814-2677. Continue reading

Most seniors prefer to stay at home as long as possible before moving into a nursing home. For many families, this means eventually hiring a caregiver to look after an aging relative. Caregivers can be hired directly or through a home health agency.

When a caregiver is hired directly, you need to consider all of the tax and liability issues. As an employer, you are responsible for filing payroll taxes, tax forms and verifying that the employee can legally work in the United States. In Illinois, if you pay $2000 or more in wages in 2016 to any one employee, you need to withhold and pay Social Security and Medicare taxes. Unemployment insurance contributions must be made if you paid cash wages of $1000 or more in any calendar quarter during 2016 or 2015. Insurance for an accident which occurs on the job should also be addressed.

The benefit of hiring a caregiver directly is that you have more control over who you hire and can choose someone who you feel is right for your family. In addition, hiring privately is usually cheaper than hiring through a home health agency.

When you hire through a home health agency, the agency is the employer, so you do not need to address the tax and liability issues. The agency takes care of screening the employees, doing background checks and providing insurance. A licensed home care agency must provide ongoing supervision to its employees. It can help the employees deal with difficult family situations or changing needs. The agency may also be able to provide back-up if a regular caregiver is not available.

The downside of going through an agency is not having as much input into the selection of a caregiver. Caregivers may change or alternate, causing a disruption in care and confusion. Continue reading

A trust is a legal arrangement where one person (or an institution such as a bank or law firm), called a “trustee”, holds legal title to property for another person, called a “beneficiary”. If you have been appointed the trustee of a trust, this is a strong vote of confidence in your judgment. It is also a major responsibility.

As a trustee, you stand in a fiduciary role with respect to the beneficiaries of the trust, both the current beneficiaries and any remaindermen named to receive trust assets upon the death of those entitled to income now. As a fiduciary, you will be held to a high standard, meaning that you must pay more attention to the trust investments and disbursements than you would for your own accounts.

Your investments must be prudent, meaning that you cannot place money in speculative or risky investments. In addition, your investments must take into account the interests of both current and future beneficiaries. For instance, you may have a current beneficiary who is entitled to income from the trust. He would be best off if you invested the funds to generate as much income as possible. However, this would not be in the interest of remainder beneficiaries who would be happiest if you invested for growth of the principal. In addition to balancing the interests of the various beneficiaries, you must consider their future financial needs. Does a trust beneficiary anticipate buying a house or going to school? Will he be depending on the trust income for retirement in 15 years? All of those questions need to be considered in determining an investment plan for the trust.

One of your jobs as trustee is to keep track of all income of the trust and expenditures by the trust. You must give a periodic account of this information to the beneficiaries.

Depending on whether the trust is revocable or irrevocable and whether it is considered a grantor trust for tax purposes, the trustee will have to file an annual tax return and may have to pay taxes. In many cases the trust will act as a pass through with the income being taxed to the beneficiary.

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Amy Winehouse’s death at age 27 illustrates the importance of having a Will, at any age. Ms. Winehouse and Blake Fielder-Civil were married briefly. Under English law, marriage negates any Wills made before the marriage, but if a couple divorces and there is no new Will, the ex-spouse is the favored beneficiary. Ms. Winehouse updated her Will to ensure that Fielder-Civil, who is currently in jail for burglary and possession of an imitation fire arm, would not inherit any of her estate. Under Winehouse’s Will, her estate estimated at $16 million, will go to her parents and her brother.

In Illinois, if you die without a Will, state law will determine who will inherit from you. If you are married, your spouse gets one-half of your estate and the rest is divided equally among your children.

If you have young children who will need a guardian, a Will is an important document to put in place to allow you to nominate that guardian. Planning your estate with a Will and a Trust is the best way to ensure that your assets are distributed as you want without the value of your assets and the beneficiaries who receive them made public. Continue reading

When making gifts to charities, keep in mind the following:

  • Give away appreciated stock which you have held for more than a year. You can deduct the market value of the stock, and you do not owe capital gains tax.
  • Get receipts in writing from the donee for gifts over $250.
  • If you are over 70 1/2 years old, transfer up to $100,000 from an IRA to charity and none will be included in your income. It will also count toward the required minimum distribution.
  • If you donate a car, you can deduct only what the charity actually sells it for.

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