Estate Planning

Transferring money to a child can cause a penalty period for a Medicaid applicant if done within the five years prior to the application.  One exception to this rule is a transfer in exchange for fair market value of services.  This exception allows a parent to pay a child for taking care of him or her. 

You may ask “Don’t family members care for each other without expectation of compensation?”  The answer is yes, in most instances, and the law presumes that a child is rendering services for a parent gratuitously.  So how can one overcome this presumption?  The arrangement must be documented in a Caregiver Agreement. The Department of Social Services (“DSS”), the Connecticut agency that administers the state’s Medicaid program, recognizes payment under a Caregiver Agreement as a legitimate expense.  If there is no written contract, DSS may consider such payment a disqualifying gift.

For many people, a Caregiver contract with a parent feels awkward.  I typically hear “My mother raised and cared for me and now it is my turn to care for her.  I shouldn’t turn the care of my mother into a business arrangement”.  This sentiment is understandable.  However, many children who care for parents sacrifice time away from a job and forego earning income they need to support themselves and their own children.  Moreover, the mother would likely need a nursing home if the child did not take care of her.  Additionally, many parents can’t afford the full cost of paying for a stranger to provide homecare.  Finally, many parents would prefer to pay a child and keep the money in the family rather than pay a stranger or nursing home.  In these circumstances, a Caregiver Agreement between the child and the parent makes perfect sense.

A written Caregiver Agreement must contain all of the necessary elements of a binding contract in order to satisfy DSS.  The agreement should set forth the full scope of services and compensation to be provided.  Moreover, it should include all of the family members who are providing any type of compensable service to the parent.  Such services could include paying bills, grocery shopping, transporting the parent to medical appointments or recreational activities, providing companionship, cooking meals, house cleaning, yard work, and doing laundry.  The agreement can specify that the payments are made weekly, monthly, or in a lump sum upon request from the service provider.  If the child is uncomfortable accepting the payments, the child could collect the compensation, then set up a bank account in the child’s name and use the money as a nest egg for the parent’s benefit.  The lump sum method provides the child the option of declining to accept payment if the parent never needs to apply for Medicaid.  If the parent applies for Medicaid, the child can request the lump sum payment and reduce the parent’s countable assets and expedite the parent’s eligibility.  Regardless of the method used, the caregiver should keep good records of all services provided to justify the payments.    

Contact us if you would like to discuss in more detail how a Caregiver Agreement can benefit you and your family.

If your spouse receives a diagnosis from a doctor that she or he has dementia or Alzheimer’s Disease, it is time to consider changing your estate plan.  Why? Because if you die and your spouse needs Title 19 (Medicaid), your family could lose most of its wealth.

Let’s take an example.  Assume you and your wife have a joint investment portfolio of $300,000 and together you own a home without a mortgage.  You have a pension from work.  You have a $100,000 life insurance policy naming your wife as beneficiary. Your current Will leaves everything to your wife and together you own most of your property jointly.

One day, you accompany your wife to the doctor and the doctor informs you that your wife has early onset of dementia.   In the middle of the night you start thinking, “Who will take care of my wife if I am gone?”  Your mind immediately thinks that your children will help.  But then you recall they have their own lives.  You decide that you must set things up so it is easier for them to help your wife after you are gone. 

You set an appointment with your lawyer and ask questions about Title 19 and Medicaid.  Your lawyer tells you that after you die your wife can only have $1,600 in assets if she needs to qualify for Title 19.  Given the average cost of nursing home care in Connecticut is $11,851 per month, after you die your wife may have to spend down all of the family’s funds on her medical care to qualify for Medicaid. 

There is a better way to set up your estate plan.   We recommend that you no longer hold your property jointly and you do not name your wife as beneficiary of your life insurance policy.  Instead, all of your joint assets are retitled in your name.  Your wife signs a deed conveying the home to you.  You meet with your financial advisor to put your investment portfolio in your name.  You talk to your insurance agent to change the beneficiary to your estate, instead of your wife. Your pension will continue to provide some support to your wife after you are gone.

You sign a Will that does not give everything to your wife.  Instead, the Will states that ½ of your property goes to an income-only trust for your wife and the other ½ goes to a trust for the benefit of your descendants (i.e. – your children and the children of a deceased child). We call it a Community Spouse Will. You name your most trusted child as Executor of your Will and Trustee of the trust for your descendants under the Will. If the trust for your wife does not provide enough funds for her living expenses, then the Trustee of the trust for your descendants can distribute those funds to your children and they can tap those funds for her care.  When your wife passes away, any balance remaining in her trust goes to your descendants.  Any balance left in the trust for descendants will go to your children. 

What does a Community Spouse Will accomplish?  If you pass away, your wife will qualify for Title 19 (Medicaid) because she does not own any property and your most trusted child will manage your property for the family’s benefit.  You will rest assured that your wife can receive the care she needs and leave something for your children.

Grandparents play an increasing role in the education of their grandchildren.  With a private college education exceeding $50,000 per year, and grandchildren increasingly attending graduate school, many parents do not have the ability to pay for all of their children’s education. 

What many grandparents do not know is that there is a tax-efficient way they can pay for the higher education of their grandchildren.  It is the 529 Plan.  A 529 plan is a tax-advantaged investment plan designed to encourage saving for the future higher education expenses. The plans are named after Section 529 of the Internal Revenue Code and are administered by state agencies. Grandparents can receive a state income tax deduction for contributing to a 529 Plan.  In Connecticut, we have the Connecticut Higher Education Trust 529 Plan.  Money contributed to the account grows tax free; when the grandchild starts attending college they can use the fund for their higher education without paying any income taxes on the withdrawals. 

There are numerous misconceptions about 529 plans:

          MYTH #1:  A Grandchild Can Only Use a 529 Plan for College.  The reality is that a 529 plan can be used for any eligible post-secondary institution ranging from vocational      school to graduate school.

          MYTH #2:  If the grandchild does not attend college, the fund is lost.  The money in a 529 Plan is never lost. If a grandchild does not go to college and the funds withdrawn, the account owner will pay taxes on the earnings and pay a 10% withdrawal penalty but there will still be funds available for the grandchild to use. Of course, the account owner can always change the beneficiary to someone else who uses the account for higher education.

          MYTH #3:  There is an age limit.  There is no age limit on who can use the money in a 529 plan.  Thus, even if a grandchild does not use the 529 Plan until graduate school, the fund will pay those expenses regardless of the grandchild’s age.

          MYTH #4:  Having a 529 account will disqualify the grandchild for financial aid.   In the financial aid calculation, colleges only take a parent’s and the student’s assets into account.  The treatment of investments in a 529 plan for financial aid purposes varies by school. Assets in a 529 Plan are typically treated as the account owner's and not the student's. Student assets are generally assessed at 20%, whereas, parental assets are generally assessed at 5.6%. Grandparents assets are not included in the financial aid calculation. Thus, if the grandchild will need financial aid, it may be better to have the grandparent remain as the account owner but designate the parent as successor owner.  Even if a school counts the 529 plan for financial aid purposes, the majority of need-based financial aid is in the form of student loans.  So, whatever savings accumulate for your grandchild’s college expenses may help reduce the parent’s or student’s future debt load.

          MYTH #5:  A grandchild can only be enrolled in one 529 plan.  Just because the parent of your grandchild set up a 529 plan, it does not mean you should not set up a 529 plan for your grandchild. There’s no limit on the number of 529 accounts that can be opened for a specific beneficiary.

          MYTH #6:  All 529 Plan are the same.  You can invest in a 529 Plan through a financial institution or through a state agency. The investments available to grow the account can vary greatly depending on where you set up the 529 Plan.  Financial institutions tend to have more investment choices than state agencies.  A 529 Plan provided through a financial institution may not allow you to take a state income tax deduction.  The fees charged for maintenance of the account can vary greatly.  Some plans impose significant annual fees averaging 1% to 1.5%. Some plans also impose significant front-end sales charges on the investments. Fees are generally lower if the investment is made directly with the state plan instead of arranged through a broker.  Thus, it helps to compare 529 Plans.  See www.collegesavings.org to compare plans. 

          MYTH #7:  529 Plans are the only way to provide for your grandchild’s education.  Most financial institutions and every state advertise 529 Plans as the way to provide for a grandchild’s education.  Nevertheless, grandparents have many options besides 529 plans to consider.  Tuition and related expenses paid directly to the college (not reimbursed to the grandchild) are totally exempt from gift or estate taxes.  Sebsequently, a grandparent may wish to simply pay the tuition costs directly instead of creating a 529 plan.  U.S. Savings Bonds may also be a great way to provide for a grandchild’s education if the grandchild is a dependent of the grandparent.  Interest on U.S. savings bonds which are redeemed to provide for the higher education of a dependent is excluded from taxable income. Roth IRAs offer another tax-efficient way to provide for a grandchild’s education.  Roth IRAs grow free of income taxes.    A grandparent can make a withdrawal from a Roth IRA to pay for a grandchild’s education at any level.  Grandparents can also set up a Uniform Trusts for Minors Act account for the grandchild at any financial institution to pay the grandchild’s education expenses.  Finally, a grandparent can set up a Trust for the grandchild with the grandchild’s parent as Trustee.

The cost of higher education has grown 10 times since grandparents put their own children through college.  Through funding their education, grandparents can make a substantial difference in the lives of their grandchildren.  Grandparents should consider 529 Plans as one of the many vehicles to fund a grandchild’s higher education.

In this day and age, it is not uncommon to remarry after a divorce or the death of a spouse.  Often in these remarriages, one or both spouses have children from a prior marriage.  These blended families can pose some challenging estate planning issues for the newlyweds.  If you die before your new spouse, how do you ensure that both your new spouse and your children from your first marriage receive an inheritance?  Who gets the house – your new spouse or your children?  How will your new spouse get by financially if you choose to provide an immediate inheritance for your children?

In a perfect world, you could leave everything outright to your new spouse and trust your new spouse to eventually leave the balance to your children through a Will.  Unfortunately, your spouse may decide for various possible reasons to disinherit the step-children by simply changing his or her Will.  Don’t think it could happen?  How about this scenario?

Bob and Betty are a married couple with three kids.  Betty tragically passes away at a young age.  Eventually, Bob meets and marries Jane.  Bob and Jane set up reciprocal Wills leaving all of their assets to each other otherwise to Bob’s children.  Bob dies shortly after in a car accident, and Jane inherits all of Bob’s property.

A few years later, Jane marries James who has two children of his own.  James moves into the house that Jane inherited from Bob.  Bob’s children do not get along with the James.  James convinces Jane to revise her will to leave everything to James and his two children upon her death.  James outlives Jane and inherits all of the assets Bob left to Jane.

Do you think Bob ever envisioned James inheriting his assets?  While Jane is taken care of in this scenario, Bob’s children were unintentionally disinherited by Bob.

There are several other ways this scenario could play out with similar results.  Jane could exhaust all of the assets or gift the assets outside of Bob’s family.  Jane could have creditor, bankruptcy or divorce problems and lose all the assets.  Jane may have a falling out with Bob’s children and revise her estate plan to leave them nothing.

The point is Bob’s simple reciprocal Will plan with Jane is fraught with risks that could cause Bob to unintentionally disinherit his children.  The good news is there is an easy solution.  Bob could have his assets pass to a revocable trust agreement that is funded either during his life, through his Will, or through beneficiary designations, or a combination of these methods.  Bob can amend or revoke the Trust at any time so he is free to change his mind.  Upon Bob’s death, the trust would become irrevocable and continue for the benefit of Jane and the benefit of Bob’s children.  The Trustee could invest the assets to make them income producing, and pay all of the income to Jane for the rest of her lifetime while preserving the principal for Bob’s children.  Upon Jane’s death, the remaining principal of the trust would go to Bob’s children either outright or in further trust.  If Bob wants Jane to have access to the trust principal, Bob could name an independent trustee who has the power to pay some of the principal to Jane if she needs the principal.

Some benefits of Bob using a trust in this situation include:
• Adding spendthrift protection
• Bob maintaining post-death control over his assets, and
• Bob ensuring he provides for both Jane and his children.

Spendthrift protection refers to trust language that prevents the trustee from paying any creditors of the beneficiaries.  Thus, if Jane or a child have creditor issues or get divorced, the assets will remain protected inside the trust.

Bob maintains control over his assets because his trust becomes irrevocable at his death.  Jane cannot change the plan to disinherit Bob’s children.  If Bob sees no need to provide for Jane if she remarries, the trust could provide that Jane’s interest in the trust ends upon her remarriage.

Bob can name a trustee or co-trustee to serve with Jane to manage and preserve the assets for the mutual benefit of Jane and for Bob’s children.

There are many options available under a Revocable Trust to suit your individual needs and goals.  The central point is, by proper planning, you can maintain control over your assets to prevent disinheritance of your children while still providing for your second spouse.

On June 12, 2014, in the case of Clark v. Rameker, the U.S. Supreme Court held that inherited IRAs receive no protection from creditors in bankruptcy.  In 2000, Ruth Heffron established a Traditional IRA naming her daugher, Heidi Heffron Clark, as the sole beneficiary of the account.  Ruth died a year later.  At death, the IRA had $450,000 in it.  Heidi didn't cash it in.  Instead, she decided to take monthly distributions from the IRA.  In 2010, Heidi and her husband fell on hard times and filed Chapter 7 bankruptcy in Wisconsin.  The IRA had shrunk in value to $300,000 but Heidi claimed it was an exempt retirement fund under Section 522(b)(3)(C) of the Bankruptcy Code. The bankruptcy trustee claimed that the inherited IRA was not a retirement fund under the Bankruptcy Code and Wisconsin has no exemption for inherited IRAs.

The Supreme Court held that because an inherited IRA does not contain the debtor's retirement funds, an in, an inherited IRA does not qualify for the retirement fund exemption under Section 522(b)(3)(C).  Unlike a traditional IRA, an inherited IRA is not set aside for the day an individual stops working.  The holder of an inherited IRA cannot invest additional funds in the account.  The entire purpose of Traditional and Roth IRAs is to provide tax incentives for workers to contribute regularly to their retirement savings. Holders of inherited IRAs are required to take annual distributions from the accounts no matter how many years the holder may be from retirement.  An inherited IRA naming the estate as beneficiary must be withdrawn within 5 years so it serves no retirement purpose.  Because the tax laws require reduction of the account over time, it is not a retirement fund for the beneficiary.  Finally, the holder of an inherited IRA may withdraw the entire balance of the account at any time without the payment of the 10 percent penalty prior to the age of 59½.  Thus, it is fully available to the inherited IRA beneficiary without penalty.

Would this seminal case apply in Connecticut?  Under Connecticut law, any asset or interest of debtor in, or payments received by a debtor from, a plan or arrangement described in the Connecticut statutes is exempt property.  Under Connecticut law, individual retirement accounts are exempt from claims of creditors of not only the participant but also creditors of the beneficiary.  A Connecticut resident who is a beneficiary of an inherited IRA would just need to claim the State exemptions allowed under Section 522(b)(3)(A) of the Bankruptcy Code to exempt the inherited IRA in bankruptcy.

Limits on creditor exemptions for retirement plans in Connecticut do exist, however.  The rights of spouses and children under a Qualified Domestic Relations Order (QDRO) override Connecticut's exemption.  Nothing impairs the rights of the State of Connecticut to recover the costs of incarceration.  Funds in an inherited IRA do not impair the rights of a victim of a crime to proceed against that IRA.

We are only aware of 6 states that exempt IRAs from creditors of beneficiaries --- Alaska, Arizona, Connecticut, Florida, Missouri or Texas.  Can you still protect your IRA for your child if the child does not live in one of those states?  The answer is yes.  You could leave the IRA in a trust for the benefit of your child with a Trustee who is not your child.  Because the child will not own the inherited IRA, it will not be part of his or her bankruptcy estate. 

Do you remember the first time one of your parents let you drive the family car?  Remember the excitement you felt getting behind the steering wheel, followed quickly by that rush of anxiety as you realized you were accelerating down the road, and the trees appeared to jump out toward the car?  Remember the sound of the engine roaring from you pressing too hard on the accelerator, turning quickly into the sound of a neck jolting screech as you attempted to apply the brakes for the first time?  During my first lesson, my Dad's quick corrections on the wheel saved several unsuspecting joggers.  Fortunately for my Dad, he had a strong neck, and a lot of patience, as I gradually improved with each lesson. 

Over time, our anxieties as new drivers ease, and driving becomes second nature, as we enjoy the new found liberation of being able to come and go as we please.

Driving a car becomes an expectation and a “right” as we age.  Losing that freedom can be difficult for a person to accept.

Unfortunately, our ability to drive may decline due to the effects of aging on our vision, hearing, reaction time, and memory.  So, what should you do if Mom or Dad begins to have difficulty driving safely?

Driving Solutions

First, driving is not necessarily an all-or-nothing activity. Some programs exist to help elderly drivers adjust their driving to changes in their physical condition.

AARP (the American Association of Retired Persons) sponsors a Driver Safety Program, designed especially for drivers age 50 and older, which helps people deal with issues such as:

• How to minimize the effects of dangerous blind spots
• How to maintain the proper following distance behind another car
• The safest ways to change lanes and make turns at busy intersections
• Proper use of safety belts, air bags, antilock brakes and new technology found in cars today
• Ways to monitor your own and others' driving skills and capabilities
• The effects of medications on driving
• The importance of eliminating distractions, such as eating, smoking and using a cellphone
• How to compensate for vision problems associated with aging

These Driver Safety Programs are taught at numerous senior centers and other convenient locations throughout the United States, including Connecticut. Visit www.aarpdriversafety.org or call (877) 846-3299 for locations and dates.  Upon completion of the program, participants may be eligible for insurance discounts.

Additionally, the Association for Driver Rehabilitation offers referrals to specialists who teach people with disabilities, including those associated with aging, how to improve their driving.  Visit www.driver-ed.org or call (866) 672-9466 for more information.

There are many ways for elderly drivers to adjust so they are not a danger to themselves or others. Among them are:

• Avoid driving at night, dawn or dusk
• Drive only to familiar locations
• Avoid driving to places far away from home
• Avoid expressways (freeways)
• Avoid rush hour traffic
• Allow plenty of time to get to their destination
• Don’t drive alone

Other forms of transportation

Encourage your loved one to rely more on public transportation. This will reduce their time behind the wheel and help prepare them for the day when they can no longer drive. Many cities offer special discounts for seniors on buses and trains.  Most town senior centers often provide special transportation for seniors.  Community service agencies also provide transportation. For example, the Eastern Connecticut Transportation Consortium (ECTC) www.ectcinc.com  (860-859-5791) provides free rides for seniors 60 years of age or older who reside in Bozrah and Franklin for medical appointments, shopping and other needs.  Their Resources page list links to other websites for both transportation and social service organizations serving Eastern Connecticut .

How to know when it is time to stop driving

The Connecticut DMV (Department of Motor Vehicles) has a Center for Experienced Drivers with a website containing valuable information for older drivers www.ct.gov/experienced.  According to the website, some signs of diminished capacity for driving safely include:

• Having a series of minor accidents or near crashes
• Having wandering thoughts or being unable to concentrate
• Being unable to read ordinary road signs
• Getting lost on familiar roads
• Having other drivers honk at you frequently
• Being spoken to about your driving by police, family, and friends

How to get them to stop

If your loved one is truly an unsafe driver, it is important for their own safety and the safety of others that you get them to stop driving.   If you are lucky, they will agree without an argument. If not, you have several options:

• Stage an intervention.  Family members, health care workers and anyone else respected by the senior, as a group, confront the elderly driver.  Conduct the intervention firmly but with compassion in order to break through the senior’s denial of the issue.
• Contact the Department of Motor Vehicles and report your concerns.  The DMV may do nothing more than send a letter, but this might help convince your parent or loved one to stop.
• Disable the car.  Take the keys or move the car to a location beyond the elderly person’s control. Leave the headlights on all night or disconnect the battery to disable the car. But, if your loved one is likely to call AAA or a mechanic, you have no choice but to eliminate all access to the car.  While this may seem extreme, it might save the life of your loved one, another driver or a pedestrian.

Our parents led us into the world of driving.  We owe it to them to guide them through their driving challenges as they age.

What responsibilities will I have as an Agent?

The most important thing to remember when you step in as Agent is that the assets you control are not your assets. You are safeguarding them for the principal for whom you are the agent under the power of attorney and for the beneficiaries of the principal’s estate.

As an Agent, you have certain responsibilities. For example:
• You must follow the instructions in the power of attorney document.
• You cannot mix the principal’s assets with your own. You must keep separate checking accounts and investments in the name of the principal but with you as agent. Use the social security number of the principal for the account to assure that any tax documents like Form 1099s bear the name of the principal and not your name.
• You cannot use the principal’s assets for your own benefit (unless the power of attorney authorizes it).
• You must treat the descendants of the principal the same; you cannot favor one over another (unless the power of attorney says you can).
• The principal’s assets must be invested in a prudent (conservative) manner, in a way that will result in reasonable growth with minimum risk.
• You are responsible for keeping accurate records, filing tax returns and reporting to the probate court if a petition is filed requesting an accounting.

Make a preliminary list of the principal’s assets and their estimated values. You'll need exact values later. If the principal has a spouse or dependent children, the Agent may need to do some tax planning right away. Be sure that you have the principal’s social security number and date of birth because you will need them for many transactions.

Collect all checks payable to the principal and put them in an interest bearing account. If a spouse or a dependent child of the principal needs money to live on, you can probably make some partial distributions. But do not make any distributions until after you have determined there is enough money to pay all expenses for the principal, including taxes.

Notify the bank, brokerage firm and others that you are now acting as Agent of the principal under a Durable Power of Attorney. They will probably want to see an original or certified copy of the power of attorney and your personal identification such as a driver’s license.

Keep careful records of medical and household expenses and file medical claims promptly. Keep a ledger of all bills and income received. Contact an accountant to prepare income tax returns, if you will not prepare them yourself. Verify and pay all bills and taxes. Make an accounting of assets and bills paid and give it to the principal at least quarterly if the principal can review them.

Do I have to do all of this myself?

No, of course not. Once you have custody of the principal’s assets, you can have professionals help you.  You can hire an accountant to prepare tax returns and answer income tax questions.  You will also need to consult with an attorney from time to time to help interpret the power of attorney and answer legal questions. You may want investment counsel to provide portfolio management. However, as Agent, you are ultimately responsible to the principal and the beneficiaries of the principal’s estate for prudent management of the principal’s assets.

What do I do when the principal dies?

Your power as Agent ends when the principal dies.  If you know that the principal will die relatively soon make sure all of the paperwork is in order to turn over the finances to the Executor of the principal’s estate.

Inform the family of your position and offer to assist with the funeral. Read the principal’s estate planning documents and look for specific instructions on whom will take over your duties as Agent.  Is there an Executor?  Is a Trustee named as beneficiary of any assets?  Prepare a report of what you have done as well as any final invoice for your services if you were being paid for them.

Once you turn over control of the assets to the Executor, you're finished and your responsibilities end.  As Agent, you have the power to file an accounting in the probate court. The court decree approving the accounting will release you from liability as Agent under the Durable Power of Attorney.

Should I be paid for all this work?

Agents are entitled to reasonable compensation for their services. The power of attorney document may give guidelines on your compensation.  Look at local corporate Agent fee schedules to help determine what you think would be reasonable compensation and make sure that the beneficiaries of the principal’s estate understand how you will charge.  Beneficiaries hate surprises. Remember that you will have to pay income tax on the compensation you receive as Agent.

What if the responsibilities are too much for me?

Consider hiring an attorney, bookkeeper, accountant or corporate Trustee to help you once you have custody of enough assets to pay them. For instance, a corporate Trustee can manage the investments and do all of the recordkeeping for a fee. If you feel you cannot handle any of the responsibilities due to work, family demands or any other reason, you can always resign and let the successor Agent step in. If no other successor Agent has been named, or none is willing or able to serve, a probate court can always appoint a voluntary conservator to succeed you.

Springtime after a long, cold winter means it is time to discard unwanted papers and clutter.  As we age, we tend to hold onto things longer and the piles multiply.  It is difficult to decide what to discard.  Although you may have other reasons for holding onto certain items, in the spirit of spring cleaning, we offer the following guidance on what to keep and what to discard from an estate planning perspective:

1. Tax Records:  Keep income tax returns and backup documentations for at least three years after filing, preferably six years because of the risk of an audit  uncovering a substantial error.  Keep records of contributions to nontaxable traditional IRAs until the assets are sold.  Keep gift tax returns and your parents’ estate tax returns indefinitely because they can be crucial documents in future income and estate tax planning.

2. Cost Information:  For assets subject to capital gains or losses such as your home or your investments, keep cost data until the asset is sold and the income or estate tax return reporting the sale is no longer subject to audit.

3. Vehicle Information:  Keep records of the purchase, registration, title and lien release for as long as you own your vehicle; discard information on cars you have sold or donated.

4. Loan Documents:  Keep the Note, Mortgage or Security Agreement and the last annual statement until the loan is paid off and the mortgage or financing statement is released; if the loan is from a family member, keep the amortization schedule and your record of payments made; keep any copy of liens on your home or business real estate until the lien is released.

5. Warranties:  Keep them as long as the warranty is in effect; discard old warranties and warranties of products you no longer own.

6. Estate Planning Documents:  Keep a copy of your Will, Trusts, Durable Power of Attorney, Appointment of Health Care Representative, and Living Will with a note on where the originals are located.  Discard superseded estate planning documents. Put the original Will and Trusts in your safe deposit box or a fire-proof safe at home.  Put more than one person on the safe deposit box so a court order isn’t needed after you die to get into the box.  Let your attorney know the location of the documents and the safe key or combination to get access to them.

7. Real Estate Documents:  Housing, land and cemetery deeds, time share deeds, easements, and road maintenance agreements should be kept with copies of any title insurance and surveys.  Discard paid off mortgages and liens.  Keep real estate appraisals completed at the time of any gift or any death.

8. Bank and Credit Card Records:  Keep recent bank account statements, credit card statements, safe deposit box inventory and location.  Discard bank statements, credit card statements, pay stubs and receipts after one year unless needed as part of tax records or to resolve a disputed item.

9. Investment Accounts:  Keep brokerage statements, mutual funds, IRA statements for one year.  Discard them after one year unless needed as part of tax records.  Keep savings bonds either in the safe deposit box or at home with your important papers.

10. Health Care:  Keep your personal and family medical history, Appointment of Health Care Representative, authorization to release health care information, Living Will or DNR order. Discard Explanation of Benefits from Medicare or other health insurance providers after filing your income tax return.

11. Life Insurance and Retirement:  Save life insurance policies, annuity contracts, 401(k) accounts and Summary Plan Descriptions, and pension documents.   Discard the policies and account statements for those that have been sold or closed.

12. Marriage and Divorce:  Do not discard your marriage license or, if applicable, divorce decrees or property settlement agreements.  Keep your premarital agreement unless revoked by written agreement.

Springtime is a great time to organize and clean your home.  Make this spring the time you discard what is unnecessary and keep those important documents listed above.

For many people, the decision to prepare a Will is easy, but the motivation to follow through is missing. The thinking goes something like this:

What’s the rush?  I am in good health.  There are more pressing matters.  I’ll get to it eventually.  I plan on being around for a long time.  Right now, I need to focus on supporting my family, saving for college and retirement, and paying for health care.  I’ll prepare a Will at the end of the year when things slow down.

The problem is most people repeat this thinking year after year… Things never seem to slow down.  Juggling time between work, family, and social events is difficult.  Who has time to plan an exit strategy?

As estate planning attorneys, we can’t imagine why people aren’t lined up at our office door every morning like Apple customers waiting for the release of the next iPhone.  Death and taxes – everyone’s favorite topics, right?

All kidding aside, preparing a Will is very important for the future of your family.  If you unexpectedly pass away, your family must deal with the great emotional void created by your absence.  They also must find a way to manage without your financial support.  One can ease this burden by proper planning.  So, why doesn’t everyone prepare an estate plan?

Recent surveys find that only about 50% of American adults have prepared a Will.  According to one Gallup Poll, 71% of respondents aged 50 and older had a Will. That percentage fell to 37% for people under 50.

Why don’t people prepare an estate plan?  Many people just haven’t gotten around to it.  Others don’t believe they own enough assets to worry about estate planning.  Still others believe that state laws mirror the wishes they would express in a Will or Trust.  Are they right?  Let’s take a look.

If you die without a Will in Connecticut, the laws of intestacy become your estate plan and determine who gets your probate property.  If you think you don’t have a Will, think again.  Did you know state law requires if you don’t have a Will and  you are survived by children, your spouse gets the first one hundred thousand dollars, plus one-half of the balance of your estate, and the remainder is divided among your children (regardless of their age)?  If any of your children are from a prior marriage, your spouse only gets one-half of your estate and the remainder is divided among your children.  If you are married but have no children, the first $100,000 goes to your spouse, but after that your spouse gets 3/4 of the remainder and your parent(s) gets the remaining 1/4 . You would be hard pressed to find anyone who has prepared a Will intentionally dividing their assets in that manner, but that is what would happen without a Will. A Will ensures your property goes to the people you choose as you desire, not according to state law.

So, all I need is a simple will, right?  No!  A proper estate plan should address more than just the final distribution of your property.  What about the important question of who will care for  your kids if you die?  Certainly, if you have children under 18, you owe it to them to choose a proper Guardian to take care of them. If you do not make a written nomination of guardians for your children, a judge will choose the guardians.  Do you really want a judge to make that choice without your input?

A comprehensive plan should also cover the potential for physical or mental incapacity.  Who will manage your assets if you become incapable?  Who will make your healthcare decisions if you are unable?  To address these concerns, your plan should include a Durable Power of Attorney to designate a person to manage your assets and an Appointment of Health Care Representative to designate a person to manage your health care.

What about your cherished pet?  Will someone take care of Fluffy or will she spend her final days in an animal shelter waiting to be euthanized?  A thorough estate plan will also cover the care of your pets when you are gone.

You should also consider the benefits of a trust.  If you have children who haven’t reached 22, or adult children who are either disabled, owe a lot of debt, or are in the middle of divorce, including a trust in your estate plan gives you an opportunity to choose a person who will manage your child’s funds and assure the funds are not squandered or distributed outside the family to creditors or an ex-spouse.  You can name a trusted friend, family member or professional to serve as trustee and oversee the trust investments and distributions.  You can also avoid the need to probate the assets held in the trust at your death, which is desirable for out-of-state real estate.

Most conversations about estate planning begin with a client’s desire for a “simple Will.”  However, a will is only one of many important documents that should be part of every estate plan.  A proper estate plan addresses all of these issues and often more.  Will 2014 be the year you finally prepare a thoughtful estate plan?

1. Failure to Plan for Incapacity. This mistake can cause your family great stress and acrimony, and leave your finances in disarray. You should have a financial Durable Power Of Attorney, an Appointment of Health Care Representative and a Living Will. You should not solely rely on joint bank accounts with children to manage incapacity.
2. Failure to Plan for Long-Term Care Expenses. If you can afford it, you should purchase and maintain a long-term care insurance policy. Long-term care costs pose a great threat to your financial future. If you are not financially able to pay for long-term care insurance, you should make sure you will qualify for Medicaid. Only those most fortunate with over $1,000,000 in liquid, non-retirement assets need not be concerned about long-term care expenses.
3. Outdated Wills, Trusts and Beneficiary Designations. You should review your wills, Trusts and beneficiary designations at least every five years and whenever there is a major change in your family circumstances (e.g., onset of dementia, death of a parent, marriage, divorce, birth of first child, moving to another state) or financial circumstances (e.g. – purchase or sale of a business or real estate, theft by family members).  Laws can change and people can change.
4. Poor Choice of Agent, Trustee or Personal Representative. Appointing a family member or the child who lives closest is not always best. It is important to pick a person respected by other family members who has the time, ability, and willingness to serve. Often, appointing co-fiduciaries makes sense. In cases where members of the family seldom agree with each other, are scattered geographically, or the assets are complex, appointing a professional trustee may be best.
5. Lack of Adequate Records. You should keep good records. If you don’t, it can lead to missed assets, unpaid bills, and extra work for your Executor or Trustee.  It can also mean that your probate attorney has to spend more time on your estate which leads to greater expenses for your family.
6. Overuse of Wills. Probate can be expensive. Your executor is required to file an Inventory of assets, and account for funds that came into, and went out of, the estate.  For a married couple of modest means, other devices such as life insurance beneficiary designations, joint ownership, and payable on death arrangements can often avoid probate at considerably less expense than using a Will for those purposes. A Revocable Trust can also avoid probate while saving taxes and keeping assets in the family.
7. Failing to Use Trusts to Keep Assets in the Family.  Most people who have children and grandchildren want to keep their inheritance in the family. Yet, they often just give their property outright to children and grandchildren.  It is simple and clean.  But it also means that your child can spend it unwisely, his or her spouse could take it all in a divorce or at your child’s death, or creditors could seize it.  Your child’s spouse could remarry and all of the inheritance you left to your child goes to the spouse’s new mate. With an outright distribution to your children, your grandchildren may never receive anything from your estate.  By using a trust, you can control who receives it and when.  You can protect it for your grandchildren.
8. Failure to Communicate. Although you may wish to keep your estate plan confidential, disclosure is often wise. Named executors and trustees are more likely to accept the office and family disputes can be avoided or minimized by discussing your estate plan with your children.
9. Inadequate Financial Planning. Estate planning involves more than the preparation of a will and trust. Cash flow is so important after someone dies.  How will your heirs pay for the funeral, administration expenses, and estate or income taxes? You may own residential real estate or a retirement plan with designated beneficiaries. But the real estate cannot pay bills and the retirement plan distributions are subject to income taxes upon distribution.  A small joint account with a trusted family member who knows the purpose of the account can help ease the early administration expenses of an estate. Life insurance can provide needed liquidity to pay larger administration expenses, court costs, and taxes.
10. Using Attorneys with Little Experience in Estate Planning or Elder Law.  Estate planning can be quite complex. It involves understanding estate and gift tax laws, income tax laws, probate procedure, financial planning, and long-term care planning. The strategies taken can lead to vastly different results.  Seeing experienced estate planning attorneys with substantial experience can make a difference.