Due to the sputtering economy, the baby boomer generation approaching retirement age, and the ever increasing life expectancy, multi-generational households are becoming more common than they have been in decades.  Due to the need to combine family incomes or in order to take care of an elderly or ill relative, grandparents, parents and children are sharing living space in increasing numbers.  According to the Pew Research Center in Washington, D.C., in 2008, 49 million Americans or 16 percent of the population lived in households with at least two adult generations, an increase of 17 percent from 2000.  This trend comes with numerous legal implications and issues, some of which are discussed below.

When a parent and adult child choose to live together, numerous elder law and estate planning issues arise. First, Medicaid issues need to be considered.  What if a parent contributes money for the child to add an addition to the child’s home for the parent to live in?  This could be construed as a gift that might affect parent’s eligibility for Medicaid if this becomes necessary within the next five years.  What if parent and child purchase a home together?  If parent is on the deed, parent’s ownership is an asset which would have to be liquidated and spent before Medicaid eligibility is attained.  If parent is not on the deed, once again, a gift has been made that could affect Medicaid eligibility.  The likelihood of running out of money and having to apply for Medicaid must be considered and discussed before entering into any of these arrangements. Also, a written lease should be executed if there is to be any exchange of monies, so that valid proof exists of expenditures of reasonable rents being paid as opposed to gifts being exchanged.

Estate planning issues also must be considered.  If parent and child own a home together, when parent dies, will the home have to be sold to pay decedent’s debts or an existing mortgage on the home?  If child is not the only beneficiary, will the house have to be sold so that the estate can be divided among all of the beneficiaries?  Should a survivorship deed be used, resulting in the ownership in the house transferring solely to the surviving owner, or are there other children to consider?  How will the parent’s financial contribution to the house affect parent’s possible desire to treat all of the children equally after death?  Would a trust help?  Possibly, depending on whether Medicaid assistance is likely to be needed in the near future.  Appropriate power of attorney designations also become more critical when an elderly relative is living with other family members.

All of these issues, as well as all possible future financial and health scenarios, must be evaluated thoroughly when entering into such a living arrangement.  Discussing these issues with an elder law and estate planning professional prior to entering into a home sharing arrangement can help prevent possible unfortunate repercussions in the future.

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, signed into law December 2010, finally brought some certainty to estate tax, gift and generation skipping tax, at least temporarily.  Although estate planning attorneys now have a better idea as to advising clients in wealth management opportunities, the new law only applies through December 31, 2012. Thus, we may find ourselves back in this position of uncertainty in two years.  Some of the major aspects of the Act are summarized below:

• Estate tax exemptions and estate tax rates: Under President Bush’s Tax Relief Act of 2001, the federal estate tax exemption had increased to $3.5 million dollars in 2009, was unlimited in 2010, and was set to fall all the way back down to $1.0 million dollars in 2011.  This problem was solved for the short term by setting the exemption at $5.0 million dollars for 2011 and 2012.  Thus the first $5.0 million dollars of any estate is exempt from federal estate taxes.  The maximum federal estate tax rate on those estates over $5.0 million dollars was capped at 35%.  This will greatly decrease the number of estates subject to federal estate taxes.  However, once again, this issue will need to be addressed again before January 1, 2013.
• Gift taxes: One of the less discussed aspects of the Tax Relief Act of 2010 is the increase in the gift tax exemption.   Under the Bush Tax Relief Act of 2001, although the federal estate tax exemption kept increasing every year or two, the gift tax exemption was capped at $1.0 million dollars. Thus, individuals were limited to $1.0 million dollars in lifetime gifts before gift taxes were imposed.  Now, the gift tax exemption mirrors the estate tax exemption, and for 2011 and 2012, is $5.0 million dollars. The excess is also taxed at a top rate of 35%. For families with large estates, this will provide a unique short-term opportunity to pass on wealth to one’s children during one’s lifetime without either gift or estate taxes imposed. However, the use of lifetime gifts reduces the individual’s estate tax exemption by the amount of the lifetime gifts. Generation skipping gifts (those passing to grandchildren, great-grandchildren, etc.) was also increased to $5.0 million dollars.
• Portability of unused estate tax exemption: This is a significant development allowing couples to achieve estate tax savings that before usually required an “A-B” trust or “marital” trust to accomplish. Under the new law, an executor may elect to transfer a decedent’s unused tax exemption amount to the decedent’s spouse to combine with the spouse’s own estate tax exemption amount.  Thus, without the use of a trust, a couple can still shelter up to $10.0 million dollars from federal estate taxes.

Conclusion: The new Act brings short-term certainty and increased estate tax relief for everyone for at least the next two years.  It also provides some unique estate tax planning opportunities for those families with very large estates.  However, we may be back to the same uncertainty at the end of 2012 that we were at the end of last year. Thus, it is important to try to stay current as to new developments over the next two years and discuss any questions or proposed estate planning actions with your estate planning attorney, estate planning advisor and/or CPA.

Many happily married seniors are facing a previously unthinkable proposition:  terminate their marriage or risk losing a majority of their savings to medical expenses, leaving both of them with little savings to enjoy their twilight years, regardless of how well they planned in advance.  How can this happen?  With medical technology ever improving, allowing us to live longer, most individuals will spend at least a few years in a nursing or retirement facility during our lifetimes.  With the baby boomer generation approaching retirement age, more and more of us will fall into this category.  How will these long-term care expenses be paid?  The choices are private savings, long-term health care insurance, Medicaid or a combination.  This is where the dilemma occurs.

For example, consider a devoted husband and wife living financially comfortable in retirement.  Husband has a series of strokes and reaches the point physically where wife can no longer care for him.  He must move indefinitely into a retirement facility where staff is available to care for him on a full-time basis.  How will his care be paid?  The couple can pay for his care but at $6,000 per month or more the money can be depleted quickly.  The couple may have long-term care insurance; but most people don’t, and unless you purchase it at a fairly young age, it may be cost-prohibitive for older individuals.  The couple doesn’t want to deplete all of their savings leaving wife destitute.  So what then?  This is when Medicaid enters the picture.

Medicaid is the safety net available to pay for medical and long-term care expenses for individuals after they have exhausted their available funds.  What about for husband and wife?  This is where our dilemma becomes clearer.  Medicaid looks at the assets of both a husband and wife if either of them needs to apply for Medicaid.  This is so that the applicant spouse cannot transfer all assets to the community spouse and then plead poverty.  The problem is that the community spouse’s assets are put in jeopardy.  Medicaid’s answer is to allow the community spouse to keep the house, a car and half of all the liquid assets, but there is a cap of about $110,000 ($109,560 for 2010), adjusted yearly for inflation.  Assets can be given away, but this must be done at least 5 years prior to Medicaid application.  For example, our hypothetical couple has a house worth $150,000 and $850,000 in savings.  Medicaid allows wife to keep the house as long as she is living there and $110,000 of the liquid assets.  She also gets to keep her income and possibly keep some of husband’s income.  Will this be enough for her to comfortably maintain her standard of living?  What other options are there?

Long-term care insurance not only provides money to pay for long-term care but provided your state, like Ohio, participates in a long-term care partnership program, may allow wife to shelter an additional amount of the couple’s assets equal to the value of the long-term care policy.  What if long-term care insurance is unavailable or unaffordable?  Divorce is a viable option that needs to at least be considered.  Consider our couple with the $150,000 house and $850,000 in investments.  If they stay married, she can keep the house if she resides there; but if she sells it, she may have to use the proceeds for husband’s care.  She can keep $110,000 of the $850,000 in investments.  How would she fare if they terminate the marriage?  Assuming the assets are divided equitably, she would receive $500,000 in assets, much more than if they had stayed married!

What is the solution?  Obviously long-term care insurance is the best solution, but this is not always an option.  Another is transferring assets out of husband and wife’s names at least 5 years before either of them have to apply for Medicaid.  However, most people don’t want to give up ownership and control of their assets.  A final option is divorce.  However, unpleasant as it may seem, under certain situations, it may be in the best interest of both husband and wife to consider this option in order to ensure that the community spouse is taken care of and can maintain financial stability.

Here is a link to an interesting video of a segment from the TODAY SHOW televised on March 13, 2010, on this very topic. http://dld.bz/3WKV or watch the video below.

I generally begin my articles for our Family Blog Web Site with a definition of the topic or subject that I am addressing, and this month’s article will not deviate from that practice.  Finance is defined by Webster’s New World Dictionary as being “the science of managing money”.  And, Financial Planner is defined by Wikipedia as “a practicing professional who helps people deal with various personal financial issues through proper planning, which includes but is not limited to these major areas: cash flow management, education planning, estate planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).  The work engaged in by this professional is commonly known as personal financial planning.  In carrying out the planning function, he or she is guided by the financial planning process to create a financial plan – a detailed strategy tailored to a client’s specific situation, for meeting a client’s specific goals.”

Jay Buckingham, CFP, of Buckingham Financial Group has been my personal Financial Planner for over ten (10) years.  In order to assist me with the preparation of this article, I recently met with Jay to discuss his role as a Financial Planner.  I learned that Financial Planners must have an educational background associated with being or having an MBA (“Masters in Business Administration”), a CPA (“Certified Public Accountant”) and/or a CFA (“Certified Financial Analyst”).  A person who wants to become a “Financial Planner” generally obtains the necessary degree(s) and then typically works for another certified Financial Planner to obtain experience in the field. He stated to me that the majority of his clients are females and the average age of his clients is in the early to mid-sixties range.  While I, as a divorce attorney, may see my client(s) through his or her divorce, Jay’s goal is to maintain a relationship with his client(s) through the end of the client’s life span, with a focus upon appropriate strategies about managing assets to pay for present and future living expenses, including planning for retirement.

My Motives for Seeking a Financial Planner:

I was in the midst of post-Decree marital turmoil and was very concerned about my financial well-being.  I had been in a long-term 30 plus year marriage; and, I had been married to a man who had always handled the finances, who had always done the income tax returns, and who had always made all the financial decisions in the marriage.  When two parties divorce, unless both parties are independently wealthy, there will be serious economic consequences for each!  In a marriage there is one set of living expenses (including mortgage or rental payment, utilities, taxes, automobile insurance, groceries, etc). But, when there is a divorce or dissolution, there are two persons having separate living expenses and often not enough money to go around.  While a Husband and Wife earning a total of $100,000 may be comfortable with payment for all of the expenses outlined above, each party individually having income of $40,000 to $50,000 may indeed struggle to meet their monthly living expenses. And, if you have individuals having a combined income of $30,000 to $40,000 who are facing a termination of marriage, the economic consequences are certainly magnified. Quite frankly, one or both parties may have to seek financial assistance from family members or state or county agencies to meet monthly housing and living expenses.  In our present economy, I have seen both Husbands and Wives working a full-time job and then trying to get a part-time job just to attempt to “make ends meet” ! Cutting expenses and creating a “leaner” budget is not easy.

Some Ways to Utilize the Services of a Financial Planner:

Income Tax Services

My income tax returns are prepared by experts in the field and I am advised of ways that income taxes can be saved. For example, in recent years, Jay advised me about how to maximize savings and contributions to a 401-K Account and, later, to a Roth IRA Account in order to accomplish financial goals.  While I wanted to continue paying a mortgage and real estate taxes in order to earn income tax deductions, Jay counseled me that it would be more beneficial to “pay off” the mortgage in full and then to contribute the former mortgage payment to a retirement account.

Although Divorce Decrees and Final Decrees of Dissolution contain the “standard language” that spousal support shall be tax deductible to the Obligor (usually the Husband) and tax includable to the Obligee (usually the Wife), most Wives/Obligees do not know that they must pay quarterly income taxes on the spousal support they receive.  Without prior planning for payment of quarterly income taxes (federal and state), the Wives/Obligees could be unpleasantly surprised to find they owe more monies to the IRS and/or to the Treasurer of the State than they had imagined.

Financial Management Services

I do not have the time or the inclination to learn more about the stock market, the Dow Jones Average, and/or NASDAC and/or how they work.  I know that at the present time our stock market has been very volatile.  My Financial Planner and his staff undertake the study and analysis of the stock market as their daily/weekly function.  This is what financial planners “do”! A good financial planner will advise the client about good investment opportunities and as to investment opportunities to avoid.

Cash Flow Management

My financial planner and I frequently discuss my monthly income versus my monthly expenses. Are there any expenses that can be reduced in order to provide for increased savings?  Are there any monthly expenses that can be eliminated entirely?  Adhering to a monthly budget is necessary to keep savings and retirement accounts intact and growing for later years.

Estate Planning

Share your estate planning wishes with your planner. My Financial Planner knows that I have a recently revised and updated Last Will and Testament in place and that I have a General Durable Power of Attorney (for business decisions), a Durable Power of Attorney for Health Care (for end-of-life health care decisions), and a Living Will in place.  We have discussed my present financial goals and my retirement goals and there is a plan “in place” that is working for me and my immediate family.  The knowledge that I have the involvement of a Certified Financial Planner to assist me with all of the foregoing services is indeed a “comfort” to me! Also, be sure to take note that all people who hold themselves out as “financial planners” are not the same. Be sure to look at their education and certification. A “Certified Financial Planner ™” is an individual who has met CFP Board’s education, examination and experience requirements, has agreed to adhere to high standards of ethical conduct and who completes CFP Board’s biennial certification requirements, including continuing education.

Our firm works regularly with many financial planners, accountants, psychologists and other professionals to aid our clients who are going through a divorce or dissolution. We believe a “holistic” and “multi-disciplinary” team approach is often essential to properly assist our clients in transitioning to becoming single.

For more information about Certified Financial Planners ™, click here. If you wish to learn more about Jay Buckingham, CFP, or Buckingham Financial Group, click here.

To the surprise of everyone in the estate planning community, Congress failed to address a critical estate and generation-skipping tax matter before the end of 2009, resulting in the repeal of the federal estate tax.  However, this repeal is for 2010 only.  In 2011, the exclusion for federal estate tax reverts back to $1,000,000.  How is this possible, and what effect does it have on couples’ estate plans, particularly second marriages?

Since 2001, the federal estate tax has been gradually phasing out, with an increasing exclusion from federal estate tax each year.  In 2009, the exclusion increased to $3,500,000. In 2010 however, the federal estate tax disappears, only to return in 2011 with only a $1,000,000 exclusion.  To further complicate things, although the federal estate tax disappears in 2010, the unlimited step-up in basis for inherited assets also disappears; and a decedent’s estate is permitted to increase the basis of assets by only up to a total of $1.3 million with an additional $3 million if there is a surviving spouse.  How does this affect estate planning?

Many couples’ estate plans were written to shelter the exclusion at the death of the first spouse by using a “by-pass” or “shelter credit” trust, and having the balance pass to a spouse (in trust or outright)  or possibly to the children of a first marriage.  Under the current law, the credit shelter trust may be either underfunded or overfunded or, in 2010, not funded at all because no exclusion amount applies.  With estate plans for second marriages where often an individual wants to provide for both a spouse and children from a first marriage, if nothing is allocated to the credit shelter trust (for the benefit of one group of beneficiaries) then everything will go to the remaining group of beneficiaries, and the result may certainly be something other than what was intended.  In 2011, when the exclusion is no longer unlimited but reverts back to $1,000,000, a completely different but equally problematic group of issues arise, also possibly resulting in an estate plan other than what was initially desired.

If you have a trust or trust language in your will, you need to be aware of these issues.  You should have your estate plan reviewed by your estate planning attorney, particularly if your immediate health is an issue, to make sure that it effectuates your intentions and wishes.  It also does not hurt to try to follow this topic in the news.  Congress will eventually address these issues, probably either this year or next.  We just don’t know when or what will be the end result. Stay tuned to our blog and we will report any new developments!

Fans of football in general, but more particularly fans of the West Virginia University Mountaineers and the Cincinnati Bengals, mourn the untimely loss of Chris Henry on December 17, 2009.  He was just twenty-six (26) years of age.  Henry had a stellar career as a wide receiver at West Virginia University and was drafted by the Cincinnati Bengals in the third (3rd) round of the 2005 draft.  He had some notable off-the-field problems and at least five (5) legal-related incidents but was seemingly back on track with both his football career and life when he sustained an injury to his forearm in mid-season of 2009.  During the Cincinnati-Baltimore game, Chris sustained a fracture to his left forearm and was thereafter placed on the “injured reserve” list.

On the evening of Wednesday, December 16, 2009, there was an incident described as a “domestic dispute” involving Henry and his fiancé, Loleini Tonga. Reports say that Ms. Tonga was attempting to leave a residence in North Carolina when Henry jumped into the bed of the pick-up truck she was driving.  Henry was later thrown from the bed of the truck.  He sustained massive head injuries and died the next morning.

Many legal questions remain.  I shall address them in chronological order:

• It will be most important to determine if Chris Henry had a Last Will and Testament or any other estate planning documents to protect Loleini Tonga and their children. Most persons at the age of twenty-six (26) believe they are invincible and do not need to have estate planning documents in place.
• His fiancé, Loleini Tonga, has no legal rights to anything in his estate, absent a Will, as she was not married to Chris Henry at the time of his death.  As a fiancé of Chris Henry, she has no rights to inherit from his estate unless he provided for her in a Will or a Living Trust document.
• There are reported to be three (3) children that Chris Henry and his fiancé were raising; some news articles indicate that he was the father of only two of them.  If Chris Henry is the biological Father of the children, had paternity been established?  Loleini Tonga would not be eligible to receive Social Security benefits on behalf of the children until or unless paternity is established.  And, now that Chris Henry is deceased, his fiancé may have to try to establish paternity of the three (3) children through the appropriate Juvenile Court in order to seek Social Security benefits on their behalf.  If the children are not born as issue of Chris Henry and Ms. Tonga’s relationship, his estate would not be responsible for them unless Henry had estate planning documents in place to address that issue. More specifically, his will could have specified who he would designate to serve as guardian of the person and/or estate of any minor children he might leave at the time of his death.  His will or trust could also have named a trustee to manage assets on his children’s behalf until they attained an appropriate age to take control themselves over the funds.

Recommendations:

1. If children are born out of wedlock, take immediate steps to establish paternity.  Parents cannot expect to receive child support benefits or Social Security benefits unless paternity is established and the biological father of the child or children has been identified and verified by Court Order.  Just signing the Birth Certificate is not enough to establish paternity in the State of Ohio.
2. If you are a man living in Ohio and believe that you may have impregnated a woman to whom you are not married, then you should consider registering with the Ohio Putative Father Registry.  This is an important step toward establishing paternity and protecting your rights if the mother should decide to put the child up for adoption.  Be sure to register before the child is a month old. Click here to learn more about the Registry and to link to the form that would need to be completed.
3. Regardless of your age, have a Last Will and Testament prepared to establish who shall inherit from you and to establish who shall be responsible for your minor children in the event of your premature demise.  In Ohio, anyone who is mentally competent over the age of eighteen (18) years old can execute a Will.
4. These recommendations are especially important if the fiancé/father is wealthy.  Loleini Tonga and the three (3) children she and Chris Henry were raising may now be in legal “limbo” until it is determined whether or not Chris provided for them in a Last Will and Testament (or other Trust documents) and if the paternity of the children in question had been legally established.

As a graduate of West Virginia University and a Bengal fan, I was personally saddened by his death. Coach Bill Stewart said, “Once a Mountaineer, always a Mountaineer … Chris was a big part of our success during his time here.  For me, he was a real joy to be around on a daily basis.  He came to work and loved to play football.” Bengal teammate Chad Ochocinco said, “My grandma always says you never question the man upstairs on decisions he makes. Everyone makes mistakes, but I don’t see how Chris was supposed to go already, especially when he was on the right path.”

His family shared last week that Chris is helping save the lives of others through organ donation. Life Center, a group that encourages and facilitates organ donation, said that Henry was an organ and cornea donor and that his organs were donated to at least five people. "When it’s a high-profile person or high-profile case, this really brings awareness that, wow, lives were saved as a result of something so tragic," said Andi Johnson, a representative of Life Center. If you are interested in more information on tissue and organ donation in Ohio, click here and you will be directed to the Donate Life Ohio website.

Remember, that each of us needs to have a plan and properly drawn estate planning documents which include how our assets should be distributed and whom we would want to raise our minor children in the event we were not able to do so.  Regardless of our age or physical prowess, none of us are “bullet proof.” It is very important to take all the appropriate steps to protect our loved ones and family members!

As the end of the year approaches, the following simple tax tips can keep taxes as low as possible.

1. Charitable gifting. Charitable donations may be used as deductions against your taxable income.  However, all charitable donations must be supported with written receipts unless under $250 in which case a bank record is sufficient.  Also, donations of services or your time are not tax deductible.
2. Gifting in general. Each individual may gift up to $13,000 per year to an unlimited number of individuals without filing a gift tax return.  Any gifts over $13,000 per year reduce the lifetime gift tax exclusion of $1,000,000.  Once the lifetime exclusion is exhausted, gift taxes must be paid.
3. Pay property taxes early. Real estate taxes are deductible.  For taxes due early next year, if you pay them this year, you can use them as a deduction.
4. Sell poor performing securities. Losses can be offset against gains reducing any capital gains.  Excess losses can be deducted, but only up to $3,000 per year.
5. Increase retirement plan contributions. Retirement plan contributions reduce taxable income.
6. Increase business expense purchases. Purchases of business equipment, supplies, etc., can be used as taxable deductions.
7. Maximize necessary medical expenses. The purchase of prescription drugs in bulk, eyeglasses, health insurance premiums, and doctor bill payments can be used as deductions.  However, medical expense deductions are limited to the amount exceeding 7-1/2% of your adjusted gross income and only can be used if you itemize your deductions.

Following any of the above-described recommendations should help reduce your tax liability or increase your refund next spring.

As we all know, the typical family from the 1950’s television shows such as “Leave it to Beaver” have become a rarity over the years.  A couple celebrating their golden wedding anniversary is not so commonplace.  Today, approximately fifty percent of all marriages end in divorce.  In the traditional family, estates usually involve wills and the use of “joint and survivorship” ownership between husband and wife or “beneficiary designations” to ensure that upon the death of a spouse everything would pass to the surviving spouse.  However, in today’s modern family, there may be a second or even third spouse and children from prior marriages.  How does an individual take care of his or her current spouse yet protect his/her children from a prior marriage?

The problem with leaving everything outright to one’s spouse in such a family is that the spouse may presumably leave everything to a new spouse or to their own children upon their death, leaving the children from one’s prior marriage with nothing.  Even providing for one’s children in one’s will may not solve the problem because in Ohio a surviving spouse has certain statutory rights.  These include:  (1) the first $40,000 of the deceased spouse’s estate; (2) the right to live in the residence one year rent free; (3) the first two vehicles up to a value of $40,000; and (4) the right to take or elect against the will and receive one-half of the net estate, unless two or more of decedent’s children or their lineal descendants survive, in which case it would be one-third.  One solution to this problem is to execute a prenuptial agreement before marriage.  Each party can waive those statutory rights allowing each spouse to pass on his or her assets upon death as he or she wishes.  Another tool is the use of what is called a QTIP Trust (Qualified Terminal Interest Property Trust).  A properly drafted QTIP Trust also allows deferral of estate taxes until after the death of the surviving spouse.

A QTIP Trust allows an individual to make provisions for a surviving spouse, yet control the ultimate disposition of property upon the death of the surviving spouse.  The income stream from the trust shall be paid to the surviving spouse, but the surviving spouse cannot control the ultimate disposition of the trust assets.  The trust may also provide that principal may be used for the needs of the surviving spouse.  A QTIP Trust is also an exception to the general rule, that to qualify for the marital deduction (exemption from estate taxes) an asset must be given outright to a surviving spouse or put in a trust in which the spouse may withdraw all of the principal.  To qualify for the marital deduction, the trust income must be paid to the surviving spouse on no less than a yearly basis and during the spouse’s lifetime.  No person, including the spouse, is permitted to transfer or appoint any trust property to anyone other than the surviving spouse.  The creator of the trust may choose to also allow the trustee to distribute principal of the trust to the surviving spouse, if necessary, for his or her health, maintenance and support.

The advantages of a QTIP Trust are that the surviving spouse is provided for, the deceased spouse controls the ultimate disposition of the property, and the marital deduction can be utilized resulting in the deferral of estate taxes until after the death of the surviving spouse.  Although complex, a QTIP Trust can be an important part of an estate plan where the primary objectives are to have flexibility in the timing of estate tax payments, along with an assurance that the remaining trust assets will pass to your children or family.  One important caveat is that for a QTIP Trust to qualify for the marital deduction, the surviving spouse must be a U.S. citizen.  If not, other estate planning tools are required.  If you are considering utilizing this type of a trust, discuss its appropriateness with your financial planner, accountant and estate planning lawyer.

Attorney Joseph E. Balmer is head of the estate planning and probate department at Holzfaster, Cecil, McKnight & Mues and is one of only 17 attorneys in the Dayton, Ohio area to be certified specialist in estate planning and probate administration.

Many individuals first think about estate planning when they get married. They realize that, at a minimum, they should have a will, general power of attorney and power of attorney for health care. They may later amend these documents due to life changes or changes in their financial position. However, one might be surprised to know that a recent survey by PNC Wealth Management disclosed that 30% of adults with financial assets of $500,000 or more did not have a will! A recent Harris Interactive survey of the general population found that 58% of all adults had no will. One might be even more surprised that if he or she had a will and became divorced, he or she may be no better off than if he or she had no will.

Fortunately, under Ohio law, if one is divorced, unless the will specifies otherwise, one’s ex-spouse is deemed to have predeceased the individual; and thus, will not inherit under the individual’s will even if named a beneficiary. The ex-spouse is also deemed to have predeceased the individual for purposes of serving as an executor, trustee or power of attorney. However, what if a couple had simple wills leaving everything to each other with no contingency naming back-up beneficiaries if the spouse is deceased, and named the other spouse as the executor without an alternate? Post-divorce, such a will would be basically useless, and no different than if the individual had no will.

What happens if a divorced person dies without a will? The laws of intestacy in the state where the decedent last resided would apply. If one had no children, all assets would go to one’s parents. If the parents were receiving Medicaid assistance or had limited assets, the funds may eventually all have to be depleted for the parents’ medical or nursing home care. If one had minor children, the assets would have to be placed in a guardianship for the children. Court approval would be required prior to using the funds for the childrens’ needs, and they would have to be distributed to the children at the age of 18. The decedent would also have no control over the choice of the guardian. If one had no children or parents, the assets would be distributed to the decedent’s closest blood relatives.

Usually, these are not the outcomes that the decedent would have wanted. So then, what is a person to do? First, in initially preparing estate planning documents,one should always address in the documents the possibility of his or her spouse predeceasing him or her and how assets should be distributed under such a situation. They should designate an alternate executor; and if they have young children, designate a guardian and alternate guardian. These inclusions would help protect the individual if a later divorce occurs. However, it is just as crucial, if one’s marriage unfortunately ends, to remember to include as a priority item on the “to do” list, a comprehensive review of his or her estate planning documents. This will eliminate the possibility of an undesired and unfortunate distribution of one’s assets upon one’s death.

Source: “Why You Need A Will” – Forbes Magazine, January 19, 2009

While not directly on the topic of family law per se, Attorney Joe Balmer, head of the estate planning and probate department at Holzfaster, Cecil, McKnight & Mues, has written an important article on Medicaid planning that warrants reading.

Thanks to Ohio’s Long-term Care Partnership Program, which became effective in September of 2007, it is now possible to protect more of one’s assets from Medicaid spend down through the use of certain long-term health insurance policies. However, certain criteria must be followed and it is important to purchase any such policy from an experienced long-term health care insurance professional.

Long-term health care services include help with activities of daily living, home health care, respite care, hospice care, adult day care, nursing home care and assisted living facility care. Neither Medicare nor most traditional health care insurance plans cover most costs of long-term care.  Statistics show that the current life expectancy of a 65 year old is 18 additional years and in 2005, 5 percent of all people 65 years or older resided in a nursing home.  Therefore, if affordable, long-term, health care insurance should be a consideration in anyone’s estate planning. Due to Ohio’s Long-term Care Partnership Program, additional consideration should be given to acquiring long-term health care insurance. Now, if certain criteria are met, an individual can protect one additional dollar of assets from Medicaid for every dollar used in long-term care insurance benefits. For example, if an individual receives $200,000 in long-term care insurance benefits before he or she exhausts his or her benefits and has to look to Medicaid, he or she can shelter an additional $200,000 of other assets from the Medicaid spend down process. To be eligible, the insurance must meet the following criteria:

1. Must be issued after September 10, 2007;
2. The insured must be a resident of Ohio when coverage first becomes effective;
3. The policy must be a federally tax qualified plan base on IRS Code;
4. The policy must meet strict consumer protection standards and
5. The policy must include certain protections against inflation.

As one can see from the criteria listed above, a policy should only be acquired after discussions with a long-term care insurance professional and only acquired through such a professional. However, if appropriate and economically feasible to an individual,a long-term care insurance policy through the Ohio Long-term Care Partnership Program may provide tremendous savings and asset protection against future health care needs. If interested, you should discuss this further with your estate planning and elder law attorney and financial advisor. To read the Ohio Administrative Regulation pertaining to the Ohio Long-term Care Partnership Program, click here.