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The Old and the Frustrated

Written on September 17, 2009 by Thom Cooper in Case Study, Estate Planning, Old and the Frustrated, Planning

Today, I offer you the first in a mini-series of legal soap operas. I hope to present a light-hearted but serious look at some of the problems I see every day in my office: with the best of intentions, trouble follows ill-advised and poor planning. Although the stories are fictitious, the situations are typical of those I see on a daily basis. Your charge is to read and learn. See how many problems and lessons learned you can identify.

Scene 1: The Beauty Shop

When Betty sat down in the chair, she really had a lot on her mind. Mable could not draw Betty into their normal conversation about the Smith twins or the Rader widow. Even tattoos and short skirts seemed lost on Betty that day. All that Betty could think about was what she was going to do about the farm. With her husband, Herman, gone now for a year, and Betty just recently diagnosed with Parkinson’s, it was time to get the farm out to her kids, Sally and Jim. But it wasn’t as simple as it seemed: Herman’s kids were grown-ups when she married him married 5 years ago, nice enough while Herman was well, but they didn’t even visit when he was sick. She did not want her 200-acre farm, that her dad gave her in 1950 to go to his kids. She had to find a way to make sure that Sally and Jim could keep the farm in the family.

Lesson 1: Gifting the farm may result in several needless tax problems, e.g.

(a) federal gift tax & penalties may be imposed depending on the value of the farm

(b) the children will receive the farm at a carry-over tax basis which results in capital gains tax when the kids sell the property after mom’s death.

(c) Betty will lose her $250,000 capital gains exclusion if she sells her home during her lifetime.

She finally told Mable the problem and Mable gave her the best advice that 22 years in the people business had taught her: “You want to give that farm to Sally and Jim right way, just like Esther Wright did years ago with her kids. Esther went to Joe Futz. He’s a great attorney, been in the business for years. My husband knows him from the Elks and he’s really reasonable. He’ll just do you want without asking a lot dumb questions. He’ll just get it done”.

Lesson 2: Betty loses control of her farm when she deeds the property outright to her kids.

It was a hard decision, but Betty decided that Mable was onto something so she set up a meeting with Attorney Futz. Betty told Attorney Futz that she wanted to deed over her farm to her kids now, so he prepared the deed, as Mable had promised, wiithout any fuss. She was so relieved that she was able to keep the farm in her family. She knew that she had done right by her kids.

Lesson 3: The farm is now subject to the children’s problems and liabilities, e.g. divorces & lawsuits.

Scene 2: Stuff Happens

Betty’s son, Jim, dies suddenly in a car accident.

Lesson 4: Jim had no pre-marital agreement with respect to inherited property.

Jim met his wife, Jessica, in high school. Jessica was married to Biff, the all-star, for a few years and they had 2 children. When they broke up, Jim decided that Jessica was for him and they were married. Betty was not sure she was so happy with the “woman with a past” but she was happy when little Jimmy Junior was born. Unfortunately, Jim’s death brought with it a whole new set of worries.

Lesson 5: Betty had no plan to exclude step-children, nor did Jim.

Jim always planned to take care of Betty, nothing more had to be said – no formal contracts or arrangements were necessary; it was safe with him. The problem was that Jim died before Betty leaving all of his worldly possessions to his wife, Jessica. This included Jim’s half interest in the farm his mother, Betty, deeded to him for safe keeping. Jessica also had other plans as time went on, including reuniting with Biff, who was working at the local feed mill. Biff was a great guy but no one had given him a chance to get ahead. Biff helped Jessica see the opportunity to help him fulfill his life-long dream to own a charter boat and be a fishing guide on Lake Erie. All he needed was money for the boat, a small office building, licenses, employees … and if Jessica used the money she was entitled to from Jim’s share of the farm, they wouldn’t even need a loan. Jessica knew that this was the right thing to do.

Lesson 6: Betty never planned for The “Law of Unintended Consequences”: Betty always though she would die before her son. Now her daughter-in-law, and not her son, owns half of the farm.

Jessica called Betty, very excited about Biff’s new company and the fact that he was willing to let her be a junior partner. With her money and his expertise they would be set. All Betty had to do was give her the money from the farm … and this is where the problems really began. Betty didn’t have $650,000 to buy Jessica out, nor did Betty want to sell the farm. The farm was her home and had been in her family for generations and she wanted it to go on with her family.

Lesson 7: Any co-owner of a property (Jessica) can “partition” or force the sale of the property.

Betty called Attorney Futz. He would know what to do, surely. Attorney Futz listened carefully and was very polite but had to explain to Betty that Jim’s share of the farm now belonged to Jessica. Jessica had the right to force the sale of the entire property in order to get her one-half share, even if Betty’s daughter Sally, the other half-owner, did not want to do so.

Lesson 8: Betty can be forced to move from her home and be “on the street”.

What should Betty do? Where could she turn for a friendly, and reliable opinion? She found herself back in the chair, seeking advice once again from her best friend and hairdresser, Mable.

Lesson 9: A good friend and advisor is hard to find.

There are ways not to end up like Betty. Every problem described above could have been avoided with proper legal planning and advice. If you have a home or a farm and would like to find out some of the possible solutions, call Lisa Nelson at our office. Lisa is one of our legal assistants. She will call you back, at no cost, and give you some general suggestions about how you might proceed, either with your existing attorney or with our office.

Monopoly and the Game of Life

Written on September 9, 2009 by Thom Cooper in Estate Planning, Medicaid, Nursing Home Planning

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In 1934, Charles B. Darrow of Germantown, Pennsylvania, presented a game called MONOPOLY to the executives at Parker Brothers. Like many American at the time of the “Great Depression,” Mr. Darrow was unemployed, and simply created the game as an escape to amuse himself and pass the time. With the help of a friend who was a printer Mr. Darrow sold 5,000 sets of the game at a Philadelphia department store before he gained the attention of Parker Brothers in 1935. The game is now the leading proprietary game in the United States, sold in 80 countries, and published in 26 different languages.

The game is so popular because it is catches the American spirit of hard work and Capitalism, and allows folks from all different walks of life to prove that in the right circumstance and with a little luck they can be a champion of industry. The object of the game as defined by Parker Brothers is “to become the wealthiest player through buying, renting and selling property.” At the beginning of the game each player visits the Banker and the Banker gives them $1500.00 divided through various denominations. The challenge is to then grow that $1500.00 into a small fortune.

One of the reasons that I enjoy playing Monopoly is that it presents you with realistic challenges similar to what I now face as a working parent. As a youngster I was always convinced that if I could win the game of Monopoly I would also be successful as an adult. For me, the tensest time of the game is the beginning because you basically start with nothing. The $1500.00 that the banker gives you is seed money and your early decisions are critical because there is no room for error.

In a recent family game I was the banker and began by giving each player their $1500.00. It was my 70 year old mother who immediately complained that I had not given her enough money. I was forced to consult the rule book and proved my mom wrong. Her response was “how in the world do you expect me to survive, or have any fun with just $1500.00.” It then struck me that she was saying the same thing that thousands of other seniors in Ohio are saying who are not playing the game of Monopoly but embattled in a medical crisis.

In Monopoly you start with $1500.00 and in the State of Ohio if you unfortunately get the wrong illness and go to a Nursing Home for care you will end up only $1500.00. I always felt Monopoly dealt with most challenges I would face prior to my retirement. You can buy things, sell things, pay rent, charge rent, pay income taxes, mortgage property, open businesses, get free parking, and even go to jail. But the one glairing exception is that even the game of Monopoly doesn’t deal with illness or the catastrophic cost associated with a long term care situation.

Each day seniors in Ohio are forced to spend down their entire life savings including their home before the State of Ohio will lend any financial assistance. The worst part is that the rules of Monopoly are clear but the rules associated with Medicaid are not. The need to spend down before receiving assistance is not the complete story. In most cases a complete spend down can be avoided. The problem is that you must get good competent advice from your advisors. There is one law for the informed and another law for the uninformed. The more you understand the rules of Monopoly the better you will become at playing the game. Ohio is well informed how the rules work to their advantage and the public needs to do the same. A good advisor will asses the entire situation which includes the benefit of a healthy spouse, the children who are disabled or who serve as care givers, the types of savings accumulated, as well as the types of income generated through work history or savings. I would encourage every senior or person close to retirement to visit with an attorney who practices in the area of Nursing Home planning and who is familiar with the continuing care benefit programs available, whether they are available through the State of Ohio or the Veterans Association.

The game of Monopoly ends when you are declared bankrupt which means you owe more than you can pay to another player or the bank. Ohio has adopted the rules of Monopoly and will only assist you when you owe more than you can pay to the Nursing Home. Dealing with the unexpected high cost of Nursing Home care is often viewed as a loser’s game, but like Monopoly not every situation has to end in bankruptcy. Get advice and know the rules. We can help you protect yourself and your loved ones.

Please continue to explore our website for information regarding one of our monthly informational workshops, or call our office to schedule an appointment for a complimentary consultation with one of our attorneys in regards to your personal situation.

Texas Adult Protective Services Kidnaped Elderly Couple

Written on September 8, 2009 by Thom Cooper in Estate Planning, Health, Nursing Home Planning, Video

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It’s Your Funeral: Pay Now or Later?

Written on August 26, 2009 by Thom Cooper in Estate Planning, Planning

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It seems that we hear this question more and more from our existing clients and seminar attendees. Whether for themselves or their parents who have retired, people have noticed that funeral costs are increasing. While the sky is the limit for the expense of being laid to rest, the average cost of a moderate funeral service is around $7,500, although it often exceeds $10,000. You or a loved one may be faced with “how are we going to pay for the funeral and the other bills?”

The main reason funeral expense life insurance policies are more popular today is the need for immediate cash at death to pay for the funeral. Almost anyone can qualify, even those with health problems. While the insurance amount is usually relatively small, the intent is to pay only for the funeral and related expenses – exactly what your family needs.

Smart buyers are buying permanent life insurance with death benefit amounts from a few thousand dollars up to $10,000 or $20,000. A permanent life insurance policy is, as the name implies, permanent. You can’t outlive it and the rates stay the same for your entire life. On the other hand, term insurance is less of a bargain because you can outlive it; it expires after a certain period of years or at a certain age. The permanent policy is designed to be in effect when you need it most.

Also available for funeral expenses are pre-paid funeral plans that can be purchased directly from the funeral home. Usually the funeral home will make certain guarantees as to what goods and services will be provided. Either the permanent insurance or pre-paid plans work, depending on your specific needs and wishes. One advantage that most people like about permanent insurance is that it is portable: you can change your mind about where the service will be held.

Either way, make sure you know what you are getting. You are better off dealing with an experienced professional in person, rather than a mail-order company or a phone solicitor. For instance, some life insurance policies pay less if the early years if you are in poor health. On the other hand, final expense policies generally offer full protection as soon as your policy has been issued.

Planning your funeral is just one part of your overall estate plan. Make sure you work with a qualified professional that understands your concerns and your plan!

A Lesson Learned: Plan Now to Avoid Probate and Reduce Estate Tax

Written on August 25, 2009 by Thom Cooper in Case Study, Estate Planning, Important Documents, Planning

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Today was a big day for my family as my son took his first steps into elementary school. Sure it was just kindergarten… but you would have thought by the reactions of my wife, myself, and about 40 other parents, that we were sending our kids off to college or boot camp! We watched as kids piled into their new classroom with backpacks busting with pencils, rulers, glue sticks, craft paper, lunchboxes, band-aids, paper towels, crayons and more! The kids looked prepared for anything and ready to take on new challenges. And, we parents were just as excited, wondering if we had done enough to get them ready for a new life stage where we would no longer be the sole influence in their rearing.

While I realize this was all probably more traumatic for me than my son, I spent a good portion of my ride into work today thinking about Jacob’s backpack, its contents, and how the most exciting thing my wife and I did all weekend was make sure that everything on the “supply list” made its way into the bag. We had to rush to find things on the school supply list, but in the end I know that we have given him all the tools he needs to be a successful kindergartner!  While much of the weekend was spent finding the best deal on glue sticks (Target) and the best deal on a bouncy ball (Walmart), a portion of my weekend was spent working on office matters that found their way home with me.

Last Thursday, I met with the “Smith” family and they were dealing with a crisis much larger than the first day kindergarten. Their crisis consisted of a combination of lung cancer, heart trouble, and a 35% chance of Mrs. Smith not making it out of a serious surgery that was taking place within the week. From what I could tell, the Smiths seemed to be a great Ohio family… they were hard workers and through that hard work they had accumulated significant wealth that included property in two states and over $1.3 million dollars in liquid assets. They came to our office to figure out what would happen if Mrs. Smith did not make it through the surgery.

Due to the fact that they had always had good health, the Smiths had put off doing any type of planning for life’s final stages, and had no plan in place for minimizing taxes, probate avoidance, or the distribution of their assets. They were in a state of high anxiety and stress over the heal situation, but the fact that they had no estate plan was sending the Smiths into a total panic.   The Smith’s lacked even the basic documents—there were no financial powers of attorney, no Last Will and Testament, and no healthcare directives. They knew nothing about the benefits of creating and funding a living trust. They were admittedly unprepared, but by having the hardest working trust and estate planning department in Ohio (in our humble opinion), we were able to get a great plan in line for them in a very short time. Mrs. Smith was extremely relieved that we could help reduce some of her anxiety before her surgery. Being “prepared” and knowing that the right tools were in place to take care of her ill husband and disabled son, meant that more of her energy could be focused on her own health concerns.

My wife and I had a deadline to have our son’s school supplies that we knew about all summer … and yet we procrastinated. The Smith’s had their entire lives to think about making an estate plan to avoided probate, and minimize taxes for their heirs and set up an orderly distribution of their assets … and they procrastinated. Rushing to accomplish things is never the best scenario, but fortunately it worked out for both of our families – this time.

Even though we were able to accomplish the Smith’s goals at the last moment, we encourage you to plan early – don’t wait for a crisis! Not having their plan in place could have cost the family even more hours of stress, days of frustration with the court system, and thousands of dollars.

I challenge the readers of this blog to keep from procrastinating, get educated, and get prepared by having AT LEAST the minimum estate plan in order before the unthinkable happens.

While it is never too early to be prepared, putting things off can have very unintended results that can cause serious anxiety, family feuds, and significant monetary losses. Seek out advice today and make sure your goals and your plan are in sync so you can rest assured that you are prepared!

Newsflash: Federal Estate Tax Repeal Next Year – No Way!

Written on August 20, 2009 by Thom Cooper in Elder Law, Estate Planning, Planning

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Congress is working hard to continue collecting death taxes next year and into the future. Right now, the Federal Death Tax is scheduled for repeal in 2010. However, our congressional representatives are feeling the heat of the economic crisis, making it nearly impossible to stay the course: they feel compelled to continue the tax.

A recent Forbes article explores the current debate on death taxes and discusses the additional impact of state death taxes that have made planning a lot more difficult. For instance, you will pay death tax in New Jersey if your estate is over $675,000, in New York if it’s over $1 million and in Connecticut if it’s over $2 million. It does not mention that you will pay death tax in Ohio if your estate is over $338,333!

Have you checked with your elder law attorney lately? Estate Tax Planning is more important than ever.

Elder Law Attorneys Discuss Veterans’ Benefits, Nursing Homes and Estate Tax at AATEELA meeting in Chicago

Written on August 11, 2009 by Thom Cooper in Elder Law, Estate Planning, Nursing Home Planning, Taxes, Veterans

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Attorneys from across the country gathered this past weekend to discuss issues that affect their clients: seniors and their families facing the legal and financial concerns of aging. Among the topics discussed were:

· the latest news on Veteran’s benefits

· unique niche planning techniques such as the Family Cabin Trust

· how to set up Foundations for the charitably-inclined

· breaking legal decisions regarding nursing home cases

· how to communicate more effectively with clients using technology

· thoughts about changes in the estate tax and capital gains laws next year

The American Association of Trusts, Estates and Elder Law Attorneys (AATEELA) is an invitation-only, professional association of estate planning and elder law attorneys from across the United States. Members are selected on the basis of their professional reputation, ability and creativity in the fields of trusts, estates and elder law. Each has made substantial contributions to these fields through lecturing, writing, and continuing education instruction.

Attorneys Thom Cooper, Chris Lavin and Mitch Adel represented the Thom L. Cooper Company. Thom Cooper is a past president of AATEELA.

Check back, we will discuss many of these issues over the next few weeks in our Blog.

Enjoy your IRA so Ohio doesn’t!

Written on July 31, 2009 by Thom Cooper in Aging, Case Study, Estate Planning, IRA, Medicaid, Nursing Home Planning

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A family recently visited our office to find out how to pay for home health care.

George and Sarah* have been married for 55 years. Sarah suffers severe rheumatoid arthritis that is so severe she must use a walker. To make matters worse, she recently fell and broke two ribs. George is doing his best to keep Sarah at home, but at age 79, Sarah’s care is beginning to take its toll on him. George is trying to find home health care aides to assist him with her care. He does not want to put Sarah, the love of his life, in a nursing home.

At wits end, George visited a local County Agency to inquire about benefits for Sarah. They informed George that although Sarah qualified for care medically, he had too much money to qualify. The county suggested that George spend down his retirement account to $20,000 and buy a new car to replace his 5-year-old car and he should qualify.

George asked what we could do to help. He told us that it would be very difficult to maintain his quality of life if he only had $20,000, and perhaps the thought of a new car would be appealing if he were sixteen years old, but his Buick only had 37,000 miles on it – he liked it just fine.

We began with a review of their assets using the same criteria the County used. They have a nice home, the 5-year-old Buick Century, a few CDs, and a large retirement account from George’s former employer.

In reviewing George’s dilemma, we determined that if we would create income, or a pension, with his retirement account – one he could not outlive – he would qualify for benefits and keep his Buick. We knew that if George turned his lump sum IRA into a guaranteed income stream, the State of Ohio would look at this as income, not as an asset; this income would be George’s and therefore not counted in determining Sarah’s eligibility for benefits.

We converted George’s IRA to income so that he could maintain his lifestyle while qualifying Sarah qualified for Home Health Care benefits the following month. We are happy to report that George is able to keep Sarah at home, right where they want her to be.

*(not their real names)

How Mr Campbell Disinherited his Son While Trying to Avoid Probate

Written on July 29, 2009 by Thom Cooper in Aging, Case Study, Elder Law, Estate Planning, Probate

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A common goal among the elderly is to save their children from going to probate when they die. On this blog we talk about several techniques to “probate protect” assets. Depending on the type of asset, probate protection can be as easy as filling out the proper paperwork to add a beneficiary to an account at the institution holding or managing the assets. However, what comes of this common practice is often an unintended result.   Consider the following recent scenario:  Mr. Campbell (not his real name), a widower, passed away owning the following assets at his death: A $1500 checking account, $26,000 Money Market, $142,000 Annuity, and an Investment Account holding $125,000 in assets.His Last Will and Testament named his son, John, as the Executor of his Estate. It also specified John and his sister, Lisa, as the sole beneficiaries with all assets to be divided equally between them. Mr. Campbell told John, in no uncertain terms, that the assets were to be split 50/50 between John and his sister. When Mr. Campbell passed away, John, as Executor, sought our advice when he suspected that a long, drawn out probate administration would be required to distribute his dad’s assets.  After some initial research on the accounts, I had the opportunity to explain to John that his father had done a great job in “probate protecting” his assets and that no administration would be required… however, I also had to explain that in the process, he ended up disinheriting John. Mr. Campbell had listed Lisa as a beneficiary on every account he had and the sole beneficiary of the Annuity contract. John was stunned.

Luckily, there was a happy ending for this family. Because the family was very close, Lisa did end up giving John his 50% of the estate, as her father intended, but she certainly was under no obligation to do so.

While things worked out in the end for the Campbell Family, all too often this type of Probate Avoidance ends up causing family battles and sibling rivalries. When planning for the distribution of your own Estate, it is important to understand that your “Last Will and Testament” does not control distribution for Joint Accounts, Payable on Death Accounts, or any asset with a beneficiary. When working towards your goal of Probate Avoidance, make sure you work with a professional elder law team to make sure you understand the implications of your beneficiary choices.

Keeping the Family Farm …

Written on July 27, 2009 by Thom Cooper in Aging, Elder Law, Estate Planning, Estate Recovery, Liens, Medicaid, Nursing Home Planning

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By Attorney Thom L. Cooper

In our practice we have a number of farm clients. A consistently high priority for these clients is making sure that the farm stays in the family. Typical characteristics of our farm clients: (1) They have worked hard all of their lives and plowed most of the profits from the farming operation back into improvements, equipment and purchasing additional ground. (2) They tend to be asset rich and cash poor. (3) They are good businessmen with respect to their farming operations. (4) They have also given a great deal of thought about how the farm should be passed to their heirs.
HOWEVER, one of the things many farmers rarely consider is the impact to the farm of a catastrophic health situation, like a nursing home stay. Many times our farmers have heard that the farm is “an exempt asset” and therefore not subject “sale” or “spend down”.
While it is true that the farm is an exempt asset if it is associated with the home, the farm is not protected from Ohio Estate Recovery Liens. Estate Recovery Liens are placed on a farm for the amount the government pays for any nursing home care or in-home medical care and related services. For example, if the farmer’s wife would go into a nursing home and the government pays $6,000 per month for four years for her care, a $288,000 lien is attached to the farmer’s property.
There are ways to avoid these liens but preplanning is essential now more than ever. If you are interested in learning more about how to make sure your farm is not subject to one of these liens and stays in your family, you are invited to come in for a free consultation where we will discuss the techniques available to save your farm.