Hybrid Long Term Care Insurance

Category: Elder Law, Financial Planning

The appeal of a hybrid car is more than greater bang for your buck - it is about making an investment you feel good about. When it comes to Long Term Care insurance, the only people who seem to feel good about the investment are those who have been caregivers, and have seen the devastating costs of spending every single penny of a person's savings (or at least down to the few last pennies) and it still not being enough to cover the costs of care. However, with the US's aging population, many more families are going to find themselves in the position of caring for loved ones, and asking the question of: Where does the money come from?

Long Term Care Insurance may be a solution, but in many ways it has a bad reputation. The premiums seem very expensive, especially as the people looking at it tend to have just retired and are on a fixed income. Unscrupulous people have taken advantage of seniors with the product, tarring all long term care insurance professionals with the same suspicious brush. Another common thought is that if you never get sick, you just threw a lot of money down the drain.

A possible solution I was recently introduced to? Hybrid Long Term Care Insurance. The basic idea is that you take a lump sum of dollars and purchase Long Term Care Insurance. The dollars buy several things:

  1. A total pot of greater dollars available to pay for long term care (a $100k investment might buy you $250k of long term care, depending on your age)
  2. A death benefit greater then what you paid in that is "returned" to you heirs if you die and don't use the policy (A $100k investment might buy $200k in death benefity, depending on your age)
  3. The ability to withdraw the lump sum you paid in at some point in the future if you need it (you get your $100k back)
  4. A lump sum payment is a fixed investment - no need to pay ongoing premiums from your fixed income (you pay and "forget" it)

The cost? The loss of use of the lump sum and the growth on the lump sum unless you use the long term care benefits or the life insurance benefits.

The Street.com examined these hybrid polices in Hybrid Long-Term Care Might Be Right for You and highlighted some points to consider:

  • You have significant liquid assets available. With a single premium payment ranging from $50,000 to $100,000, a hybrid policy is only for those with significant cash available that can be reallocated.
  • You understand the risk to your portfolio. Once you have accepted that you may need care someday and that this care may be very expensive, the next step is to take a good look at what that will mean to your retirement portfolio.
  • A stand-alone, long-term care policy is not an option. If you are not interested in paying premiums indefinitely on a policy you may never use, then the hybrid product -- with a death benefit built in -- may be an option.
  • You have been planning to self-insure. If you haven't already recognized the financial risk of the cost of long-term care, you are not ready for this product.
  • The ability to get something back for your premiums and retaining control of your money is important to you. You will, at minimum, get the use of your full premium either through long-term care benefits, a death benefit or by requesting a return of premium.
  • Simplicity is important. While the long-term care portion of the policy contains the same framework of coverage as a stand-alone policy, there are fewer bells and whistles to add -- or to complicate the deal.

How Long Should you be keeping Financial Documents

Category:Tax Law and Planning, Financial Planning

I met with a client yesterday to go through decades of files to answer the question of "what papers do I still need to keep?" This seems to come up often around tax time, so much so that the question was posted on Yahoo Answers today. Yahoo's answers with my comments are below:

Dear Yahoo!:
How long should you keep personal financial records like bank statements, receipts, tax statements, etc.?

Our first stop was a web page from Bankrate.com with the perfect title: "What financial records to keep and how long to keep them." The information is laid out in an easy-to-read table format. Here's a quick overview -- for details, check out the web page.

Taxes -- Seven years. The IRS has three years from your filing date to audit your return if it suspects good faith errors, and six years if it thinks you underreported your gross income by 25 percent or more. DWL adds - Keep your returns and all the supporting information (W-2, 1099, etc.) that you relied on to fill out the return.

IRA contributions -- Permanently. DWL adds - To "keep" does not mean you need paper files - an annual scanning program, with a copy back-up'ed elsewhere, is encouraged.

Retirement/Savings plan statements -- From one year to permanently. Keep the quarterly statements until you receive your annual summary; keep the annual summaries until you retire or close the account. DWL adds - Make sure the summaries are correct before you toss the interim. And remember that scanning is your friend.

Bank records -- From one year to permanently. Throw away checks that have no long-term importance, but keep checks related to your taxes, business expenses, and housing and mortgage payments. DWL adds - If you can get on-line statements and save electronically, you can back those up separately and rid yourself of the statements and checks.

Brokerage statements -- Until you sell your securities. DWL adds - If you can get on-line statements and save electronically, you can back those up separately and rid yourself of the statements and checks.

Bills -- From one year to permanently. In most cases, when you receive the canceled check, the bill can be tossed. However, you should keep bills for big purchases (e.g., jewelry, appliances, cars, collectibles, etc.) for proof of their value in the event of loss or damage. DWL adds - Again, to "keep" does not mean you need paper files - an annual scanning program, with a copy back-up'ed elsewhere, is encouraged.

Credit card receipts and statements -- From 45 days to seven years. Keep the statements seven years if they document tax-related expenses. DWL adds - Again, if you can get on-line statements and save electronically, you can back those up separately and rid yourself of the statements and checks.

Paycheck stubs -- One year. If your W-2 form matches your stubs, you can toss your stubs.

House/Condominium records and receipts -- From six years to permanently. DWL adds - Again, to "keep" does not mean you need paper files - an annual scanning program, with a copy back-up'ed elsewhere, is encouraged.

We found a couple of other helpful articles in the search results -- one from Kiplinger.com and another from BlueSuitMom.com. Kiplinger.com suggests you keep your tax returns forever, while the blue-clad mother says it's a good idea to routinely purge and file your receipts on a monthly or quarterly basis.

All the sites offer the same piece of advice -- whether you use a filing cabinet, shoebox, or desk drawer, find a system that works for you and stick with it.

Tax Changes in Stimulus Bill that may Impact You

Well, the behemoth stimulus package has passed - what now? And how will it affect you? A summary of the tax law changes in the bill courtesy of JH Cohn.

Economic Stimulus Bill Contains Numerous Tax Changes

On February 17, 2009 President Obama signed The American Recovery and Reinstatement Act of 2009 into law. The legislation commonly referred to as the economic stimulus bill is a close to $800 billion stimulus package that includes nearly $300 billion in tax relief. The major tax provisions are as follows:

  • Making Work Pay Credit - a tax credit calculated at a rate of 6.2% of earned income up to $400 for individuals and $800 for joint filers applied retroactively to the start of 2009 continuing through 2010. The credit will be claimed either through a reduction in wage withholding or in a lump sum when filing one's tax return. The credit is phased out at a rate of 2% above adjusted gross income (AGI) of $75,000 ($150,000 in the case of joint filers). Employer FICA taxes are not changed.
  • Economic Recovery Payment - a one-time payment of $250 to Social Security recipients, railroad retirees and disabled veterans (reduces any Making Work Pay credit that the individual is entitled to).
  • AMT Patch - what has become an annual legislative exercise in recent years; the 2009 AMT exemption amounts have been raised slightly above their 2008 levels to insulate approximately 26 million middle-income taxpayers from the grasp of the AMT.
  • First-Time Homebuyer Credit - for purchases of a principal residence between January 1, 2009 and November 30, 2009, the credit has been increased from $7,500 to $8,000 and does not need to be repaid unless the house is sold within three years of the purchase. The credit phase-out remains for taxpayers with AGI in excess of $75,000 ($150,000 for joint filers).
  • New Car Deduction - individuals purchasing new vehicles in 2009 on or after the date of enactment can deduct sales taxes and excise taxes "above-the-line" attributable to the first $49,500 of the purchase price of any one vehicle. This deduction will be phased out once AGI reaches $125,000 ($250,000 for joint filers). Sales taxes paid on a lease agreement are not included.
  • Unemployment Compensation - in addition to increasing and extending unemployment compensation benefits for various workers, the first $2,400 of unemployment compensation is excluded from income for 2009.
  • Bonus Depreciation - extended through December 31, 2009 allowing for 50% first-year depreciation.
  • Sec. 179 Expensing - the increased 2008 limits have been extended to 2009. The maximum Sec. 179 expense will continue at $250,000 and the phase-out will not begin until fixed asset additions exceed $800,000.
  • Net Operating Loss (NOL) Carryback - this measure was scaled back significantly from earlier proposals. A 2008 NOL can be carried back up to five years (current law permits a two-year carryback) but only for qualified small businesses with average gross receipts of $15 million or less.
  • Transit Benefits Parity - the current $120 per month income exclusion for transit passes and van pooling is increased to $230 per month starting in March 2009, thus equalizing it with the $230 per month permitted for parking.
  • Qualified Tuition Programs - for 2009 and 2010 distributions from Sec. 529 plans will be tax-free when used to pay for computers and computer technology, including internet access.
  • Residential Energy Property Credit - the new law increases the credit from 10% to 30%, raises the maximum cap to a $1,500 aggregate amount for 2009 and 2010 installations, and eliminates the $500 lifetime cap. There are other energy incentives including credits for electricity produced from renewable sources such as wind and for plug-in electric vehicles.
  • COBRA Benefits - an individual who is involuntarily separated from employment between September 1, 2008 and January 1, 2010 can elect to pay 35 percent of his/her COBRA coverage with the former employer paying the remaining 65 percent. The former employer will receive a credit against income tax withholding and payroll taxes it is otherwise required to remit to the federal government.

Family Contracts to Make Siblings Get Along for the Care of Aging Parents

Category: Elder Law

One of the biggest issues an Elder Law attorney faces is not how to plan for their elderly clients to reach their goals, but how to implement the plan with the dynamics of the family. Gender equalization not-withstanding, daughters (and daughters-in-law) bear most of the brunt of caregiving. Often times there are large financial differences between children, and accompanying differences in financial outlook and responsibility. And all of this occurs in the context of families - where resentments from years past have lingered or even festered.

What's an Elder Law attorney to do? Many times asset protection planning for seniors involves a transfer of assets. How can assets be transferred if children, or their spouses, do not appear trustworthy to the other siblings involved? Or, if one child feels he or she "deserves" more?

One solution that I commonly employ is for a transfer to be made to a trust, not to any one or more children outright. A group of the children, or a third party, can then act as a Trustee to safeguard the assets from waste, greed, etc. during the seniors lifetime, and then distribute them evenly at death.

Another creative solution I have been reading about is a "Sibling Contract". This came to my attention through the Louisiana Estate Planning and Elder Law Blog. In her post she cites a well done article "Caring for Pops: Put it in writing - Lawyer suggests sibling contract to avoid court case over aging parents" out of the Dallas Morning News, where Dallas lawyer Walter Hofheinz discusses how Sibling Contracts have evolved in his practice to avoid costly guardianship and probate disputes.
First came divorce agreements. Then there were prenuptial agreements. Now get ready for sibling agreements.

Dallas lawyer Walter Hofheinz knows from specializing in estate planning and probate law for 23 years that conflicts can erupt in even the most loving families when it's time to figure out how to care for an aging parent. Issues that should have been decided around the kitchen table escalate into disputes fought out in lawyers' offices and court. To manage that familial strife, Mr. Hofheinz has come up with what he calls a "memorandum of understanding" between siblings. The contract spells out each adult child's responsibilities and holds that person accountable for them.

"Ideally, an older person tells his children how he wants to be cared for, but that rarely happens," he said. Instead, the topic never gets discussed, and often something bad happens - the parent has a stroke, or his mind starts to fail. Suddenly, brothers and sisters argue over where Dad will live, how his savings will be spent and even how he will die.

"A little planning can avoid a lot of animosity and a lot of money in attorney fees on the back end," Mr. Hofheinz said.

Elder-law experts say the time is ripe for ideas like the Dallas lawyer's, because they're seeing more sibling disagreements grow into bitterly fought guardianship battles that land in probate courts and decimate families.

Read Entire Article Here

A Sibling Contract looks to be a necessary tool to get all the parties on the same page and focused on the real issue - how to best help the people who brought them into this world and raised them, instead of how to better themselves or get even for the slight that occurred 30 years ago. (guilt intended)

A Practical Approach to a Power of Attorney

I always tell clients that just having a General Durable Power of Attorney is not enough - you need to have a broad and flexible General Durable Power of Attorney that will aid your attorney in fact, not hinder them. Remember that this will need to be used to make financial decisions for you, when you cannot otherwise make them for yourself. This is not the time to be entering into a debate about what limitations you might have been intending - make limitations clear, or not at all.

In a recent blog posting Make Your Durable Power of Attorney Work, Elder Law Answers echos this point in discussing the practical elements of a General Durable Power of Attorney. Some key points below:

An essential part of any estate plan is the durable power of attorney, through which you appoint someone else to handle your financial and legal issues in the event you are unable to do so because of illness, disability or incapacity. The problem with these documents is that not all financial institutions accept them all the time, and it's hard to predict which will and which won't ahead of time.

Why won't your bank or investment house accept your validly executed power of attorney? Because they are worried about liability in the event:

* The document in fact was forged.
* You had revoked the power of attorney before its use.
* The person you appoint exceeds the powers you gave him in the power of attorney.

In any of these cases, the financial institution may be held liable for any losses you incur. On the other hand, it may also be held liable for losses you incur if it unreasonably refuses to honor your power of attorney.

So, what can you and your estate planning attorney do to make it more likely that your appointment of an agent will be accepted? This question is answered by Daniel A. Wentworth, Esq., Senior Legal Counsel with Fidelity Investments in the November/December 2003 issue of the American Bar Association's Probate & Property journal. Attorney Wentworth recommends taking the following steps:
* Grant general powers in the document so that there is no risk the agent exceeds her authority.
* Also include specific powers clearly authorizing the actions the agent is likely going to need to take.
* Don't use "springing" powers of attorney that don't go into effect until you are incapacitated or, if you do, be very clear about what triggers their effectiveness.
* If you're appointing more than one person, clearly permit them to act separately (unless you really don't want them to).
* Sign several originals so that they are available for different financial
institutions to review.
* Sign a new power of attorney every few years so that there's less likelihood that it may have been revoked and there's a long-term record of your desire to appoint your particular agent.
* If available, also sign any powers of attorney form offered by the financial institutions in which you have funds.

To read the Probate & Property article, go to: http://www.abanet.org/rppt/publications/magazine/2003/nd/wentworth.html

Prevent Identity Theft

"How To Prevent Identity Theft, courtesy of Valeria and Carolyn Messina.

What is Identity Theft?

Identity theft is the unlawful use of another person's identification, and may take many forms. Common methods of identity theft include credit card or other financial institution fraud, phone or utility services theft, and the taking of government documents or benefits.

Unfortunately, every day thieves are finding new ways of using the identities of their victims. Identity thieves typically get this information from:

  • Stolen wallets and purses
  • Stolen mail
  • Unauthorized access to computers
  • Telemarketing scams
  • Sharing of passwords
  • Fraudulent e-mails
  • Dumpster diving (searching through your trash can)

How can I keep my identity safe?

  • Check your credit reports and scores on a regular basis.
  • Shred any documents and mail that contain your Social Security Number (SSN), account numbers and other personal information.
  • Don't carry your Social Security card in your wallet or purse. Memorize your SSN.
  • Check financial statements and bills as soon as they arrive. Report any unauthorized transactions to the companies immediately.
  • Lock your mailbox. Deposit outgoing mail containing checks in a postal box--don't leave it sitting in your unlocked mailbox or apartment lobby.
  • At home, secure sensitive information like bank and credit card statements, insurance records, etc., where they can't be seen by visitors or workers.
  • At teller machines (ATMs), shield the PIN keypad while entering credit and debit card passwords.
  • Try to keep an eye on your credit card when you give it to a merchant or waiter.
  • When you order new checks, look out for them. Make sure they are delivered to a locked mailbox.
  • Change your passwords regularly and do not share them with anyone.
  • Nver respond to requests by phone or e-mail for personal information, no matter how urgent the request seems. Find the number of the company online and call to ask if the request is legitimate.
  • Don't give out personal information on the phone, through the mail, or on the Internet unless you've initiated the call or you are absolutely sure you know the company or person you're dealing with.
  • Read your bank's privacy notice so that you understand how it uses your information for marketing. If you don't want to get preapproved credit offers, call 888-5OPT-OUT (567-8688) to stop them.
  • Be careful about giving away information about yourself. Question why a business needs your SSN, mother's maiden name or other information.
  • Monitor your mail for missed bills, credit card statements and other mail that you expected. A missing bill might mean that a thief has taken over your account and changed your billing address.
  • Investigate mysterious purchases, charges, bills or collection calls immediately. If you receive a credit card you didn't apply for, find a strange charge on your credit card or get calls or letters from debt collectors about bills you don't recognize, call the companies immediately to address the problem.
  • Question credit offers. If you know you have good credit but your application for a new credit card is denied, it could signal identity theft. When you are denied credit, you can get a free copy of your credit report from the credit bureau used by the lender.

Silver Alert Legislation Making its Way Through Trenton

A good and reasonable new law to help families of those suffering from dementia and other diseases is making its way through Trenton.

Baroni Silver Alert Legislation Approved by Committee New Jersey Senator Bill Baroni NJ District 14:

"The Senate Law and Public Safety Committee approved bill S1551/S1844, establishing a "Silver Alert System" for missing people who are believed to be suffering from dementia or other cognitive impairments."

"This emergency alert plan is based on the "Amber Alert" used by State Police to locate missing children. The alerts will include a description of the missing person and other information deemed appropriate by the State and local law enforcement agencies."