Preventing Long Term Care Policy Lapses in California

Long term care in a nursing home is extremely expensive. One way to mitigate that expense is to purchase a long term care insurance policy. Unfortunately, many of the people most in need of long term care insurance let their policies lapse before they need them.

Planning for end-of-life medical care often goes hand-in-hand with estate planning. An estate plan is useless if nursing home costs eat up all of your savings as there will be no assets left for your heirs to inherit through the estate plan.

For this reason it is important to decide how you will pay for nursing home care should you ever need it.

Long term care insurance policies are a popular and effective solution. However, more than a third of the people who purchase long term care policies let them lapse before they need them to pay for nursing home expenses.

Most of the time people do not intentionally let the policies lapse. Instead, they simply forget to pay the premiums.

This may not happen out of ordinary forgetfulness but may happen because as we age we often start to suffer from cognitive impairments.

Unfortunately, the people who suffer from the cognitive impairments that would make them forget to pay the insurance premiums are the very same people who are most likely to need long term care in a nursing home.

Next Avenue reported on this problem in "How Long-Term Care Insurance Policies Backfire."

The article does point out a potential solution to this problem. It is possible to have the insurance policy statements sent to a trusted third party who can make sure that the premiums are paid.

However, if this is going to work as an anti-lapse strategy, it needs to be done when the policy is first purchased rather than risking forgetfulness later in life. Call OC Elder Law at 714-525-4600 for any questions about Long Term Care and Long Term Planning in Orange County, CA, or visit our website at www.OCElderLaw.com for more information.

Reference: Next Avenue (Nov. 6, 2015) "How Long-Term Care Insurance Policies Backfire."

What Do The Uber-Wealthy Do with Their Money?

Art makes up 2.5 percent of the biggest estates and just 0.6 percent of those who had between $10 million and $20 million. A Picasso fetched more than $95 million in 2006. The superrich are different from the very, very rich. For one thing, they own more art. Estate tax data recently released by the Internal Revenue Service show what the wealthiest Americans possess when they die—and where the money goes.

In The Wall Street Journal's "When the Superrich Die, Here's What's in Their Wallets," reported that the estate tax returns in the data sample were all filed in 2014, so they came from the estates of people who died in 2013 (the estate tax applied to estates of individuals over $5.25 million and a top rate of 40%). Estates can deduct charitable contributions and bequests to surviving spouses, who then pay when they pass away.

The most important thing to remember about the estate tax is that it really doesn't apply to most folks, just to a few of the very rich. Congress increased the exemption and indexed it to inflation, ensuring that almost all of the 2.6 million people a year who die in the U.S. need not worry about estate tax. That leaves just the very wealthiest in the country.

Fewer than 12,000 estate tax returns were filed in 2014—more than 50% of those didn't yield any tax for the federal government.

The data showed that the uber-wealthy don't provide much information about the ways they shift assets out of their ownership or the planning maneuvers that can decrease the size of estates prior to death. Those who died with more than $50 million (the top tier) were heavily invested in stock and closely held businesses.

Those who were rich enough to file an estate tax return–but not at the very top–relied much more heavily on retirement accounts like 401k's and real estate. The types of assets change as people get wealthier. The merely rich have houses, cash, farms and retirement accounts. The very rich have bonds and real estate. But the very, very rich own art and stocks of businesses which they often want to pass to future generations.

The richest people pass on smaller shares of their estates to their heirs and it's not merely due to the fact that more of their wealth is subject to taxation. They tend to have bigger debts and make bigger charitable contributions. Charities collected $18.4 billion from bequests from the returns filed in 2014, with 58% of that coming from just 1.4% of estate tax returns.

Whether you're "uber-rich" or just getting by, you can truly benefit from a discussion with a qualified tax and estate planning attorney in Orange County.  Call 714-525-4600 for a confidential consultation about your specific tax and estate planning needs.

Reference: Wall Street Journal (October 30, 2015) "When the Superrich Die, Here's What's in Their Wallets"

California Court Upholds Trust that Gives Millions to Lady's Gardener

A Sonoma County bank overseeing the trust of a wealthy Kentfield divorcee who left a large chunk of her $8.5 million estate to her gardener and other non-family members will be allowed to dip into the fund to defend challenges from the woman's daughter. That's the published opinion of the state Court of Appeals in a decision that upholds parental rights to bequeath their money to anyone they choose. In the case, Santa Rosa-based Exchange Bank was sued by Susan Doolittle of San Francisco, who alleges her mother was manipulated into giving a quarter of her estate to the gardener, Juan Ramon Amador of San Rafael. She argued payments to the bank's lawyers must be stopped until she has a chance to prove allegations of elder financial abuse.

The Press Democrat in Santa Rosa, CA says that a three-judge panel rejected a daughter's argument against her mother's leaving a large sum to her gardener, holding that there wasn't a legal basis for halting payments of bank lawyer fees. Without ruling on the merits of her elder abuse claims, the Court of Appeals ordered that the mother's written instructions to defend her trust must be carried out.

"If a parent truly wants to leave something to someone who is not their natural heir, they can provide for the defense of that gift in the event the heirs attack it," Santa Rosa attorney Lewis Warren told the paper in its article, "Big legal fight after Kentfield woman leaves part of $8.5M estate to gardener." Warren represents the bank.

Doolittle is suing the gardener and Exchange Bank, claiming that her mother, Constance Doolittle, was suffering dementia when she hired Amador in 2004 to maintain her landscaping. In the lawsuit, the daughter says that he tricked Constance into thinking he had affections for her and convinced her to add him to her will, as well as to spend tens of thousands of dollars investing in coffee plantations in his home country of Nicaragua. If the trust is carried out, the gardener will get about $3 million.

Constance decreased the inheritances of her two daughters to $500,000 each and made Exchange Bank her trustee. The daughters were estranged from their mother, and Constance envisioned attacks on her competence, so she had herself examined by a psychologist. That doctor determined she had sufficient mental capacity to make financial decisions, and she had signed documents from an estate planning attorney who confirmed her decisions were not the product of fraud.

She died in February 2014, and her daughter sued a few months later.

"Connie obviously anticipated the possibility of a challenge after her death and there is no logical reason why she would have wanted her representatives to be compensated less generously," than before she died, the judge wrote.

That was super smart, and something you should discuss with a qualified estate planning attorney.

Reference: The (Santa Rosa, CA) Press Democrat (October 23, 2015) "Big legal fight after Kentfield woman leaves part of $8.5M estate to gardener"