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One of the most important, but most often overlooked estate planning documents, are the Powers of Attorney. Powers of Attorney fall into one of two categories: (1) Powers of Attorney for Property and (2) Powers of Attorney for Health Care. Essentially a Power of Attorney legally authorizes a trusted family member or friend to make decisions on your behalf in the event that you become incapacitated or are unable to make decisions on your own. Powers of Attorney are powerful documents that can protect you and your family from the need for expensive guardianship proceedings.

Although Powers of Attorney for Health Care are regularly accepted by hospitals and doctors, many banks and financial institutions are making it harder and harder to use a legally valid Power of Attorney Document. If a manager at your financial institution believes, in good faith, that your Power of Attorney is no longer valid you may be left with no choice but to petition a court for guardianship.

To avoid this from happening we advise that you review your Powers of Attorney to ensure (1) the your Power of Attorney documents are up to date and include the most recent statutory language; (2) that your Powers of Attorney are no more than 5 years old; and (3) that your Power of Attorney allow sufficient authority for your agent to amend trust documents, make gifts, and designate or change beneficiaries.

In a time when advances in medicine are providing longer, more fulfilling lives for our family members with special needs, it is more important than ever to take advantage of all the financial planning tools available for their specific needs.

The Illinois ABLE Act provides for a new tax-advantaged investment program that allows a blind or disabled person (or their family) to save for disability related expenses without jeopardizing the disabled individuals means tested federal benefits. Unlike the assets of a traditional Special Needs Trust, ABLE account assets can and should be spent on expenses related to the family member’s disability. These expenses include education, housing, transportation, employment training, assistive technology, personal support services, health, prevention and wellness, financial management, legal fees, and funeral/burial expenses.

A properly established ABLE account will allow a disabled individual to save up to $100,000 in their own name. The disabled person or their family may contribute up to $14,000 per year into the ABLE account without effecting eligibility for SSI or other federal means tested programs. Although the Illinois State Treasurer’s Office is responsible for administering the ABLE program, the funds are privately held assets that are totally controlled by the account holder.

The Reverse Mortgage has gotten a bad reputation in the time since it was first created by the Federal Housing Administration in 1988. The mere mention of the Reverse Mortgage usually brings to mind foreclosed homes and declining financial health. In fact a Reverse Mortgage is simply an equity loan secured by someone’s home with a deferred payment plan. Unlike a traditional home equity line of credit, no reverse mortgage interest or principal is due until the loan reaches maturity. As long as the homeowner resides in the property and stays current on property tax and insurance payments, they can reside in the home without making any payments on the money they have borrowed.

In order to qualify for a reverse mortgage, a homeowner must be age 62 or older with substantial equity in their home. There are no income or credit score requirements. Typically, the older the homeowner, the more they can borrow. A homeowner has the option of taking out a lump sum amount or establishing a line of credit that grows over time if money is not withdrawn.

A homeowner does have the option to pay down the balance of a reverse mortgage over time. Interest paid on the loan can be taken as a tax deduction. If no payments are made, the reverse mortgage is still not due until the last surviving borrower passes away or fails to occupy the home as their primary residence. Reverse mortgage lenders will give the heirs of an estate up to 12 months to complete the sale of the home or refinance the balance of the reverse mortgage. It is VERY important that the heirs of a deceased home owner contact the mortgage lender as soon as possible to inform them of the passing and the heirs’ plans for the property.

Natalie Choate, widely recognized as the authority on IRAs and estate planning, turns 70 1/2 this year. This age is key as it is the time when required IRA payouts begin.

At 70 1/2, each year owners typically must withdraw a percentage of their total IRA assets. This percentage increases every year, and IRA owners have until April 1 after the year they turn 70 1/2 to take their first required withdrawal. After that, the annual deadline is December 31.

If you are considering making charitable gifts, a transfer from your IRA may be highly tax-efficient. IRA owners are allowed to give up to $100,000 in cash from an IRA to charity and have the donation count as part of their required withdrawal. The advantage is that Adjusted Gross Income (AGI) is  a trigger for many tax provisions like the 3.8% surtax on net investment income. It is also used to determine payments for some Medicare premiums and taxes on Social Security payments. Lowering Adjusted Gross Income can lower these taxes.

Laura Saunders cites an example in a recent article in the Wall Street Journal: A single IRA owner has AGI of $210,000, including $160,000 of investment income. The person, who has a $50,000 required IRA payout, will write checks for $15,000 to charities this year. Under current law, $10,000 of the investment income would be subject to the 3.8% surtax because the owner’s AGI is above $200,000.

If this IRA owner makes the $15,000 of charitable gifts from his IRA, the result is different. The owner’s taxable portion of his IRA payout drops to $35,000 and the AGI to $195,000 so there is no 3.8% surtax. Continue reading

California recently passed a law allowing a doctor to prescribe a life-ending drug for a terminal patient. It is the California End of Life Option Act, and it comes into effect this June. This law brings to five the number of states allowing end-of-life decisions (California, Oregon, Vermont, Washington and Montana).

Under the California law, an adult with capacity may request a prescription for an aid-in-dying drug if:

  1. The individual’s attending physician has diagnosed the individual with a terminal disease (less than 6 months to live), and a consulting physician confirms this diagnosis;
  2. The individual has voluntarily expressed the wish to receive a prescription for an aid-in-dying drug;
  3. The individual is a resident of California (California driver’s license, voter registration, income tax return or other evidence);
  4. The individual documents his request pursuant to the requirements set forth in the statute, which include at least two separate oral requests at least 15 days apart and a written request; and
  5. The individual has the physical and mental ability to self-administer the aid-in-dying drug.

A request for the prescription may not be made through a power of attorney, agent or other source. The request must be made directly by the individual diagnosed with the terminal disease. The individual may withdraw or rescind his request for the aid-in-dying drug at any time, regardless of the individual’s mental state. In other words, even if the person no longer has capacity, he may decide not to go through with the use of the aid-in-dying drug. Continue reading

Just as we create estate plans for our eventual demise, we also need to plan ahead for the possibility that we will become sick and unable to make our own medical decisions. Medical science has created many miracles, among them the technology to keep patients alive longer, sometimes indefinitely. As a result of many well-publicized “right-to-die” cases, Illinois has made it possible for individuals to give detailed instructions regarding the kind of care they would like to receive should they become terminally ill or are in a permanent unconscious state.

If an individual becomes incapacitated, it is important that someone have the legal authority to communicate that person’s wishes concerning medical treatment. Similar to a power of attorney for property, a power of attorney for health care allows an individual to appoint someone to act as his agent, but for medical, as opposed to financial, decisions. The health care power of attorney is a document executed by a competent person (the principal) giving another person (the agent) the authority to make health care decisions for the principal if he is unable to communicate such decisions. By executing a health care power of attorney, principals ensure that the instructions they have given their agent will be carried out. A health care proxy is especially important to have if an individual and family members may disagree about treatment.

Accompanying a power of attorney for health care should be a medical directive. Such directives provide the agent with instructions regarding what type of care the principal would like. A medical directive can be included in the health care power of attorney. It may contain directions to refuse or remove life support in the event the principal is in a coma or a vegetative state, or it may provide instructions to use all efforts to keep the principal alive, no matter what the circumstances.

Living wills are documents that give instructions regarding treatment if the individual becomes terminally ill or is in a persistent vegetative state and is unable to communicate his or her own instructions. The living will states under what conditions life-sustaining treatment should be terminated. If an individual would like to avoid life-sustaining treatment when it would be hopeless, he needs to execute a living will. Like a health care power of attorney, a living will takes effect only upon a person’s incapacity. Also, a living will is not set in stone; an individual can always revoke it at a later date if he wishes.

A living will, however, is not a substitute for a power of attorney for health care. A living will simply dictates the withdrawal of life support in instances of terminal illness, coma or a vegetative state.

Do not confuse a living will with a “do not resuscitate” order (DNR). A DNR says that if you are having a medical emergency such as a heart attack or stroke, medical professionals may not try to revive you. This is very different from a living will, which only goes into effect if you are in a vegetative state. Everyone can benefit from a living will while DNRs are only for very elderly or frail patients for whom it would not make sense to administer CPR. Continue reading

Gifting assets to your grandchildren can reduce the size of your estate and the tax that will be due upon your death.

You may give each grandchild up to $14,000 a year without having to report the gift. If you are married, both you and your spouse can make such gifts. For example, a married couple with four grandchildren may give away up to $112,000 a year to their grandchildren with no gift tax implications. In addition, the gifts will not count as taxable income to your grandchildren (although the earnings on the gifts if they are invested will be taxed).

You can pay for educational and medical costs for your grandchildren. You must be sure to pay the school or medical provider directly.

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Authority to appoint the property of an original trust to a second trust is commonly referred to as decanting authority. This gives authority to a trustee allowing him to adapt and revise the terms of a trust due to unforeseen circumstances or drafting errors.

Statutory decanting authority allows for modification of undesirable terms of an irrevocable trust when doing so would be in the best interests of the beneficiaries. Some examples of these modifications including changing the situs of a trust to a state with more favorable law; relocating trust assets to a state with no income tax imposed; combining multiple trusts to reduce administrative costs and dividing trusts to resolve conflicts among beneficiaries; correcting errors in drafting; and conforming the distribution provisions of a trust to the requirements of a special needs trust. Continue reading

Hospice Care/Medicare Hospice care is designed for terminally ill persons and is covered by Medicare Part A. Hospice programs will care for patients in a hospice facility or whenever possible in their homes and emphasize relieving pain and managing symptoms rather than undertaking curative procedures. An individual may elect to receive hospice care rather than regular Medicare benefits for the management of his/her illness.

Power of Attorney for Property This is a document in which you select someone, and at least one back-up person, to handle your business and legal affairs for you if you are unable to manage on your own. A property drafted Power of Attorney should include the authority to do long-term care planning.

Power of Attorney for Health Care A document in which you select someone, and a least one back-up person, to handle your health care decision-making if you are unable to make those decisions for yourself.
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Continuing Care Retirement Community This type of housing alternative, sometimes called a life care community, generally requires that an individual be able to live independently upon becoming a resident in the community. As a resident begins to need more assistance, specific additional services are made available. Most CCRCs offer three basic levels of housing on an as-needed basis: fully independent living, assisted living (personal care services) and skilled nursing care.

Living Will This is a document in which you state your wishes about end-of-life care. Many living wills specify that artificial medical intervention be avoided or discontinued where there is no hope of meaningful recovery from a vegetative state or terminal illness.

Nursing Homes There are two types of Nursing Homes: Skilled Nursing Homes and Custodial Nursing Homes. A skilled nursing home provides skilled nursing and rehabilitative care. A custodial nursing home provides assistance with activities of daily living (i.e., bathing, dressing, eating), but do not provide specific or ongoing skilled nursing services or rehabilitative care.
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