A Living Will is often executed by an individual at the same time he executes a Power of Attorney for Health Care. A Living Will can provide a clear indication of the individual’s wishes to family members who are reluctant to withhold or withdraw medical procedures. In the case where the provisions of a Living Will conflict with a Power of Attorney for Health Care, the Power of Attorney supersedes the Living Will.

After 2009, any kind of IRA (Individual Retirement Account) can be converted to a Roth IRA, including traditional deductible, nondeductible, rollover and inherited IRAs.

A Roth IRA rollover in 2010 is subject to income tax (payable over two years in 2011 and 2012) because it has not been previously taxed. The distributions are not subject to income tax. The minimum required distribution rules do not apply.

A power of attorney for healthcare allows an individual (Principal) to give another individual (Agent) authority to act on the Principal’s behalf as far as healthcare decisions. The Principal may specify when the Agent has authority to act on his behalf and when this authority ends; the rights, powers, duties, limitations and immunities applicable to the Agent and to all persons dealing with the Agent; and other terms applicable to the Agent.

There is no authority for euthanasia, assisted suicide or any course of action which violates state or federal law. A Principal can impose limitations on the Agent as far as when to withdraw life sustaining treatment, whether certain treatments should be denied based on religious beliefs or an instruction to continue foods and fluids in all circumstances.

Once a court enters a judgment of dissolution of marriage or legal separation between the principal and his or her spouse following the signing of the agency, the spouse is treated as dead for purposes of the Power of Attorney agency at the time of judgment.

The standard categories of powers that a principal can give his agent are:

1) Real Estate Transactions – allowing the agent to buy, sell, exchange, rent and lease real estate

2) Financial Institution Transactions – allowing the agent to open, close, continue and control all accounts and deposits in any type of financial institution including banks, trust companies, saving and loan associations, credit unions and brokerage firms

3) Stock and Bond Transactions – allowing the agent to buy and sell all types of securities including stocks, bonds, mutual funds and all other types of investment securities and financial instruments

4) Tangible Personal Property Transactions – allowing the agent to buy and sell, lease, exchange, collect, possess and take title to all tangible personal property

5) Safe Deposit Transactions – allowing the agent to open, continue and have access to all safe deposit boxes

6) Insurance and Annuity Transactions – allowing the agent to procure, acquire, continue, renew, terminate or deal with any type of insurance or annuity contract

7) Retirement Plan Transactions – allowing the agent to continue to withdraw from and deposit funds in any type of retirement plan

8) Social Security, Unemployment and Military Service Benefits – allowing the agent to prepare, sign and file a claim or application for Social Security, unemployment or military service benefits

9) Tax Matters – allowing the agent to sign, verify and file all of the principal’s federal, state and local income, gift, estate, property and other tax returns

10) Claims and Litigation – allows the agent to institute, prosecute, defend, abandon, compromise, arbitrate, settle and dispose of any claim in favor of or against the principal or any property interest of the principal

11) Commodity and Option Transactions – allows the agent to buy, sell, exchange, assign, convey, settle and exercise commodities futures contracts and call and put options

12) Business Operations – allows the agent to organize or continue and conduct any business in any form

13) Borrowing Transactions – allows the agent to borrow money, mortgage or pledge any real estate or tangible or intangible personal property

14) Estate Transactions – allows the agent to accept, receipt for, exercise, release, reject, renounce, assign, disclaim, demand, sue for, claim and recover any legacy, bequest, devise, give or other property interest

15) All Other Property Powers and Transactions – allows the agent to exercise any powers of the principal regarding any types of property and interests in property except to the extent limited by the principal by striking out a category on the power of attorney document or including a specific limitation in the power of attorney document

Only number 5, establishing a third-party created and funded special needs trust, is recommended because it will not disqualify the child from receiving means-tested government benefits, it is legally enforceable and it does not subject the assets to creditors of family members.

If you inherit a Roth from your spouse, the taxable period ends either five years after the account was opened by your spouse or five years after the surviving spouse opened his own Roth, whichever is earlier.

A surviving suppose can name his children as equal beneficiaries of the same Roth. It is in the children’s interest to do so. Any heir other than a spouse who treats the Roth account as his own must take the required distributions from the Roth beginning by December 31st of the year after the year of the previous owner’s death. If the children keep the account intact and they want to stretch the withdrawals as long as possible, they are restricted to using the oldest child’s age. However, if they split the account, each sibling can stretch the distributions across his own lifetime. This means younger siblings can spread withdrawals over more years, leaving more assets in the account for a longer time and most likely realizing more tax-free earnings.

1) Part A, mainly hospital coverage;
2) Part B, outpatient coverage; and
3) Part D, drug coverage.

Medigap coverage pays the uncovered portions of most Medicare bills.

There is also Medicare Advantage coverage which provides most of the coverages in items 1), 2), 3) and Medigap coverage combined in one package. When creating your estate plan, medical bills and their coverage by insurance needs to be addressed.

Medigap coverage is important because Medicare is not enough coverage for people with average to above-average medical costs.

There are three options for paying income taxes throughout the year and thereby avoiding penalty and interest for underpayment of income tax when the conversion is made:

1) Pay 100% of last year’s tax (110% if your Adjusted Gross Income was over $150,000). Then pay any income tax for a 2010 Roth conversion as part of the 2010 tax return.

2) Pay 90% of the current year’s tax. If a large amount is being converted to a Roth in 2010, this is a way to have less to pay quarterly or have withheld from your paycheck in 2011.

3) Estimate your income each quarter and pay tax on it for that quarter. You can have the tax withheld from your paycheck, make quarterly payments or a combination of both.

Roth IRA conversion will also affect your Illinois Income Tax Return.

The Trustee has wide discretion in making distributions to or for the benefit of the special needs child. For this reason, the Trustee should be familiar with and responsive to the particular needs of the special needs child, should have knowledge of the government benefit programs and the effect the trust may have on eligibility for these programs, and should be in good health, reliable and financially astute.

If a special needs child has received an inheritance, gift, bequest, lawsuit award or settlement, child support, alimony or divorce property settlement, the receipt of these assets can disqualify a child for means tested benefits such as Medicaid and Supplemental Security Income. In cases like these, a First Party Special Needs Trust should be established to preserve the child’s eligibility for the government benefits.

Unlike Flexible Savings Accounts, Health Savings Account holders can carry over balances from year to year until the account holder’s death, and if planned properly, until the account holder’s spouse’s death.

All contributions to, distributions from and income earned in the account are free from federal income tax as long as the assets are used to pay for qualified medical expenses. Depending on the amount contributed and distributed from the account and how long the account has been established, Health Savings Account balances have the potential to be substantial.

One can qualify for a tax credit up to 10% of the purchase price of a new home (maximum credit $6500) if one has lived in one residence for five consecutive years of the last eight years.

Income limits apply. For single filers the credits phase out between $125,000 and $145,000 of modified adjusted gross income. For married couples, the phase out is between $225,000 and $245,000.

Other limits apply. The credit cannot be taken if the home is purchased from a spouse or the spouse’s lineal relatives. The person claiming the credit must use the home as a principal residence.

The new law is unclear as to whether one must sell one’s previous home to qualify for the credit.

The person who opens a Roth and makes periodic contributions can withdraw those original contributions at anytime without penalty and with no tax owed. The rules are spelled out in IRS Publication 590, “Individual Retirement Arrangements”.

As for earnings, a Roth contributor must wait five years (calculated by the IRS as beginning January 1st of the year for which the first Roth contribution was made) before earnings can be withdrawn tax free. And the Roth contributor must be 59 1/2 years old to avoid the 10% penalty for early withdrawal on the earnings and avoid income tax on the earnings.

The Roth contributor who converts to a Roth (as opposed to opening a Roth as in the preceding paragraph) must hold the assets in the Roth for five years or until he turns 59 1/2, whichever comes first, to make penalty-free withdrawals of the converted amount. The earnings on that converted Roth are treated differently. The converter must hold the Roth for five years to withdraw any earnings tax free. The age 59 1/2 category does not come into play. Fortunately, the withdrawal rules for Roth IRAs provide that any distributions come first from contributions, then from conversions, then from earnings so there is no need to keep separate the conversion amounts from the earnings.

The rates offered by lenders for Home Equity Lines of Credit are not as attractive as they used to be. Earlier, the rates were the prime rate (the interest rate banks offered to their best corporate customers) minus one percent. Today, the rates charged are often the prime rate plus two percent.

Home equity is a consideration for estate planning. It is a major asset and in many cases the largest assets in an estate. Careful consideration needs to be given before a decision is made which will affect home equity in the short term and the long term.

If you take assets from an inherited IRA and deposited them in your own IRA, all of those inherited IRA assets will be taxable. In addition, you will have to remove any assets you deposited from the inherited IRA which are above your allowed IRA contribution for the year ($5000 if you are under age 50 or $6000 if you are 50 or older) or you will incur further penalties.

It is important to get the titling correct not only on your statements from the IRA custodian, but also on the records your IRA custodian provides to the IRS.

The advantage to retitling the inherited IRA is that you can extend withdrawals from the IRA the length of your lifetime instead of having to withdraw the assets sooner. With an inherited IRA you must make withdrawals every year beginning by December 31 of the year after the original owner’s death.

If you are not happy with the original custodian or investment, you can use a trustee-to-trustee transfer to move the IRA account to another financial institution provided the current IRA custodian allows it.

With older children, consideration of their wishes comes into play when choosing a guardian. Choices about where they want to live and personality conflicts are taken into account.

There are also the financial aspects of the guardian’s role which often include the position of trustee of a trust for the benefit of the children. With a testamentary trust, parents can stipulate an age when each child can receive the assets of the trust. Age 25 or 30 is typical. It is also common to see a staggered distribution of one-third at ages 25, 30 and 35.