Seniors & Aging

Real Life | Review estate plan to protect loved ones’ inheritance

Seems like we’re pretty good at diminishing, or even obliterating, the inheritances that we think we’re passing on, and we have no idea that we’re wreaking the destruction. Some of you have caught on and graciously ’fessed up to some brilliantly successful blunders.

Reader H, calculator in hand, laments his lifelong overfeeding of bank and credit union accounts. “Lazy money!” Sure, H, you’re right on when you observe that everyone needs some guaranteed, federally insured, immediately liquid cash for emergencies and final expenses. But not six figures’ worth, when secured bank and securities account loans are available at relatively cheap interest rates when and if such emergencies ever happen, and when permanent (not term) life insurance is the cheapest way to cover final expenses and preserve the rest of the estate for the loved ones.

Now H implores his children and grandchildren to diversify their long-term investments with conservative equities and bonds securities or mutual funds, variable life insurance, REITs, IRAs, some tax-sheltered. You just can picture him saying:

“Hey, kids, our savings accounts and money market accounts have been earning less than 1 percent interest for years now, and, over decades, may be averaging 2 percent after taxes. Besides, they’re fixed dollars, losers during inflation.

The $2,500 a year that I’ve struggled to save up over 40 years now is worth almost $169,000, on top of my basic liquid emergency cash account. Sounds like a lot of money, but geez, if I’d a spread it around among those other long-run, fairly safe investments that have averaged over 5 percent net, reinvesting the dividends and gains, you’d be inheriting way over $317,000. Sorry, kids!”

Of course, it’s too late for dismayed H to remedy this reality, but he surely is a champ for alerting the kids to the astonishing multiplying power of long-run compound interest and of reinvested yields in their financial plans.

Similarly, the reciprocal about interest expense, as in our mortgages, car financing and personal loans, also is true. That’s where high-compound interest rates dramatically multiply the cost when we can find cheaper terms elsewhere, or even liquidate non-essential, low-yield assets to pay off or avoid high-interest debt. That’s good-sense leverage.

Proactively seeking and implementing tax-saving strategies is good-sense leverage, too. Don’t we just acquiesce to our taxes as billed or added to our purchase invoices, when we could invest some effort into pursuing tax-saving opportunities? Examples:

▪ Own some income-tax-free or deferred municipal bond investments, 529 college savings plans and IRAs

▪ Itemize deductions on 1040s instead of filing on the easy-way-out 1040EZ

▪ Lease for the long run, instead of own

▪ Stop making interest-free loans to the government by electing to have too much paycheck withholding and over-funding our estimated payments

▪ Retire to communities that offer tax breaks for seniors

▪ Quit bungling our do-it-ourselves income tax returns when a professional preparer can save us more that he/she costs us.

Then create more leverage wonders by investing the savings in compound-growth assets and tax-sheltered “qualified” retirement plans.

Spotted the bumper sticker that says, “Be nice to your kids, they choose your nursing home!”? As prosperous living and advancing medical science add years to our life expectancies, long-term care, whether at home or in an institution, looms overwhelmingly in our futures – and at a cost of $70,000 to a half-million per year! Well, beloved and kids, there goes your inheritances. Sorry!

If we wait to begin to fund long-term care late in life, we can help a little, at least, via pre-payments and pre-need deals and state/insurer partnership insurance plans. But, at least while H is sharing investment advice with his progeny, he (and you) also can focus them on the vital need to begin funding their future long-term care, as well as retirement, early in life, when LTC insurance is available, and it’s at an affordable premium cost.

Reader A graciously contributes her learned-the-hard-way hindsights about estate underplanning. After two years of constant delays and dueling with the state probate office following her husband’s death, she’s now permitted to begin distributing to his legatees. On top of all the time, heartache, hard work and energy that full probate demanded, Hubby’s estate suffered two years’ worth of filing fees, estate income taxes and professional fees. The assets faced the risk of shrinkage because of market value declines over the two years, a long time in the world of investment markets.

Worse, if Grandchild had to borrow and incur interest expense for tuition, or daughter and son-in-law missed an opportunity to buy their dream home at a bargain, distress-sale price, all because the estate was tied up in endless probate processing, those incur grievous big-bucks costs. If A and Hubby only had built an estate plan that avoided full probate!

About 99.9 percent of my neighbors are transplants from out of state. Yours, too? And, of course, they’ve also transplanted their estate plan documents. Yes, neighbors, those docs are OK here if they were valid back home. Remember, the U.S. Constitution requires all states to recognize the laws of the other states.

But, guess, what? Each state imposes its own marital property rights laws on its legal residents. And so it is that M’s children and grandchildren were denied a third of his estate, even though his property will and personal trust clearly bequeathed it to them, and he thought that all was well.

How could that happen? “M” was into his second marriage, as so many of us are. And dutifully and sensibly, he and “Mrs. M 2” restructured their estate plans back home when they married, consenting to the idea of each leaving their assets entirely to their own progeny, also as many of us do, right? Well, for whatever reason, “Ms M 2” later changed her mind about that idea, and when “M” departed for the hereafter, she invoked the South Carolina “Elective Option,” allowing surviving spouses to elect a third of the estate, overriding “M’s” allegedly “bulletproof” mandates.

Didn’t know that could happen, did you? Fortunately, there are very fair and legitimate ways to avoid such disasters, as well as the perils of intestacy, dower rights and claims by ex-spouses and stepchildren.

Further, the smarties among us who think our homemade estate plan documents, that we cleverly drafted mirroring the legalities in our obsolete ones and with the help of the masterful samples on the Internet, are “bulletproof” – Well, you and your loved ones are in for some expensive surprises. For example:

▪ The costs of delaying pulling the plug and the resulting legal processes, all because the physicians and hospitals (urged by their malpractice insurance companies) reject the medical directive (living will) that isn’t drafted on the statutorily-preferred format, even though it’s perfectly legitimate.

▪ Or, the durable general and financial power of attorney – it’s invalid unless it’s registered with the Recorder of Deeds, and its fiduciary can’t legally move any money until it is, even though the time is crucial and urgent.

Sounds like an estate-plan review with the right attorney is highly advisable, right?

Like to see some more? Keep them coming!

Contact GARY NEWMAN at gary@gnewman.org. Your ideas and comments are always welcome.

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