Serving Indiana Since 1975

June 2020 Newsletter

| Jun 18, 2020 | Firm News

JUNE 2020


     The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.

     Avoiding Guardianship.  A guardianship is a legal process through which a guardian is appointed over the person or property, or both, of a minor or incapacitated beneficiary. There are various ways of avoiding a guardianship. In the case of a child who receives an inheritance or other money or property, there are ways of structuring the receipt and control of those assets without the necessity of a formal guardianship. In many instances, however, it will be necessary to appoint a guardian. The guardianship over a minor will continue until the minor attains the age of 18, although it is possible to implement estate planning arrangements before the minor attains age 18 so that the minor does not receive full control of the property immediately upon reaching the age of majority. A guardianship may be necessary over an incapacitated person during the entire remaining lifetime of the incapacitated person unless he is restored to capacity prior to death.

     A power of attorney, particularly in the case of incapacity, is the best way of avoiding the need for a guardianship. It occurs frequently in my practice that one spouse will require a nursing home level of care and the other spouse does not have power of attorney authority to do what needs to be done to qualify the institutionalized spouse for Medicaid. A guardianship then becomes necessary, which invokes the need to file a petition with the court, set it for hearing, give notice to children and possibly others, and then subsequent to the imposition of the guardianship, the guardian is subject to regular court reporting and must receive court approval for many acts and transactions that will be necessary for the guardian to undertake. If it is necessary to transfer assets to the spouse who is the guardian, doing so requires court approval.

     Health care advance directives, particularly a power of attorney for health care and the designation of a health care representative, can also be important to avoiding a guardianship. This is particularly true if there are no family members who have the legal ability to consent to health care under Indiana’s Health Care Consent Act.

     While there are instances when a guardianship is desirable, or possibly unavoidable, in many instances a guardianship can be avoided. It has been said that a power of attorney is perhaps the most important legal document for people to execute. While I believe that statement to be true, it is very important to note that a power of attorney should be tailored to a specific person’s circumstances and it should not be a generic document that is identical to the same document that may be signed by many other people. Great consideration should be given to the person to be named under the power of attorney to have authority to act, and consideration should also be given to the designation of an appropriate successor. Particularly in an asset protection scenario involving planning for Medicaid eligibility, the power of attorney should include very specific provisions authorizing particular actions to be undertaken.

     Long Term Care Options.  It is estimated that 70% of people who are of retirement age today will need long term care in the future, the cost of which is very high (generally approximately $8,000 per month in the Evansville – Vanderburgh County area). Many people are able to qualify for Medicaid, but until that occurs, payment options other than paying privately with their existing resources include traditional long term care insurance and hybrid plans that are combined with life insurance or annuity products. Traditional long term care insurance is increasingly becoming expensive when the policy is designed to cover virtually all of the costs of long term care. The cost of traditional insurance can be reduced considerably by extending the elimination period, reducing the benefit amount so that more of the cost of long term care is paid privately, and by shortening the benefit period so that the policy will pay out for a more limited period of time. With traditional long term care insurance, the carrier can raise the premiums, and this has occurred more commonly in recent years in the case of older policies. Hybrid policies today do not typically require substantial up-front funding as was the case with earlier hybrid policies. Options today include payments that can be stretched over a lifetime. With hybrid policies, a portion of the death benefit or cash or investment value can be used during lifetime to pay toward the cost of long term care, and in the case of an annuity-based contract, the use of the money for long term care will reduce the amount of the annuity investment that ultimately will be available for payout. Hybrid policies will not typically cover all of the cost of long term care for an extended period of time. It should be noted that including inflation protection will substantially increase the cost of coverage for all forms of coverage.

     It is possible to purchase a qualified long term care insurance policy under the Indiana Long Term Care Partnership Program. Such a policy offers asset protection by providing a disregard of assets to the extent of the long term care insurance payout. In Indiana, a Long Term Care Partnership Program policy that pays out at a minimum State-set dollar amount will provide 100% asset protection and still allow Medicaid eligibility after the policy has paid out. However, it should be noted that such policies are relatively expensive compared to other long term care insurance policies. My recommendation to clients is that when they are considering long term care options, they should talk to at least two (and preferably three) vendors, and they should obtain two (and preferably three) proposals from each. While the proposals do not need to be identical, they should be sufficiently similar to allow an “apples to apples” comparison of the various arrangements. I also suggest that they not make a selection until they have checked with me. I may be able to offer insights regarding the proposal that they are favoring before they actually commit to a particular option. I also recommend that my clients obtain a specimen policy or contract so that they can actually review the detailed terms and conditions of the contract before committing to the particular investment.

     Additional Information.  Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.