Estate Planning Isn’t Just for the Elderly

You don’t need to be rich and famous to need an estate or financial plan.  While some people have the expertise and time to manage their affairs, others are more comfortable with the advice and counsel of professional consultants.  In either case, decisions need to be made ahead of time so you’re not stampeded into making bad choices when things start to go wrong.  First off, decide how comfortable you are with your current financial situation.  Then decide whether you need professional assistance to sort through your options.  One of the earliest questions you need to address is what happens if you are unable to manage your affairs competently down the road.  Besides accidents and acute emergencies, there are chronic and progressive illnesses that prevent people from being able to enforce their wishes and keep on top of their finances.  In either case, do you have a trusted family member, friend, or a professional advisor who can handle your money if you become incapacitated or ill?  Have you made any decisions, and shared them with family members, about the level of care and extraordinary treatments needed should you become seriously ill? 

It’s Not Always about Money

Often, arranging your affairs is more about preserving dignity and control.  Sometimes estate planning is a function of life planning; doing simple things like modifying your residence to accommodate your physical restrictions will make things easier.  For example, many people choose to widen doorways, lower light switches, install rails and bars in bathrooms, or to build ramps or lifts for stairs in order to make the home more comfortable.  Occasionally there are other emotional concerns about losing independence.  Distasteful as it may be, address them now, rather than later.  For example, do you still feel safe driving, even at night?  The problem is that many older drivers deny they have a problem or are so cognitively impaired they fail to recognize the cues that signal problems, e.g., forgetting to turn on headlights at dusk, getting lost in familiar neighborhoods, failing to recognize mechanical problems like low tire pressure, responding too slowly to emergencies, and so on.  Family members and advisors need to step in and offer to help structure or organize things so you can minimize danger to self and others.

Other difficult questions the elderly often avoid include quality of life issues.  Is there adequate health and long-term care insurance?  Is hospice or home care an option with your coverage?  Some of this preparation involves discussions with medical providers about some very personal values.  For instance, when you’re very sick, how much information do you want your physician to relate to you and your family about diagnoses, treatments, and recovery outcomes?  How involved do you want to be in decision making for your health care?  Will you authorize and insist on pain medication if circumstances dictate its need, even if it’s not part of your medical treatment?  Values planning issues involve medical, personal, emotional, and spiritual matters, so you need to discuss this with your family and physician if you expect procedures to be done according to your wishes.  Not only will you want to stipulate how you want to be treated, part of a good estate plan allows you to tell family important things they should know.  Itemize your thoughts in an “ethical will” where you not only tell heirs what you want them to receive, but why you want them to receive it and how your life developed over time.  It’s a great opportunity to leave your family a little something about yourself.

Have you made a list of all the important information that would be useful in case of family health emergencies?  Have you discussed your funeral arrangements?  A little preparation will save a lot of grief and expense; so make your choices now and regain control of your life planning.  There is no time like the present to get started; you’ve put it off too long.

Information Checklist

1. Birth certificates, marriage certificates, passports and other important identification documents, any court documents dealing with a name change or adoption proceedings
2. Marriage contracts (pre-nuptial and post-nuptial, divorce or separation agreements)
3. Life insurance policies (have you checked to see if beneficiary designations current and accurate?)
4. Identify other insurance policies (disability, affinity programs, health, property & casualty, and annuity contracts), insurance agent contact information
5. Stock and bond holdings, consolidated investment account statements, broker contact information
6. Powers of attorney for health care and property, living will or advance directive documents, while not helpful after death, they are extremely important if there is a disability or incompetence.
7. Your will and codicils (have you identified guardians for minors and elderly parents?).  A list of personal items and the intended recipients, as it is often the family heirlooms that cause family rifts.  If any mementos are given away early, mark them off the list so they will not be reported missing or stolen.
8. Trust documents and amendments (properly titled property in the name of the trust)
9. Trustee, and successor trustee contact information if any, and contact information for your lawyer
10. Mortgage documents, due date and amount of mortgage payment or rent, location of deeds and property titles, including cemetery plots, any lease information
11. Contact information for service people.  Identifyautomatic debits or deposits and which accounts are involved (electric utilities, gas, pension payments, etc.), automatic deliveries or pick ups that need to be modified (trash, fuel oil or propane, mail, newspaper)
12. Bank account information, checkbooks, passbook savings, account statements and PIN numbers, contact information for bankers or brokers, inventory of contents and location of safety deposit box and the key, credit card and ATM account numbers and their expiration dates; if there is a safe, who will have the combination
13. Airline mileage points and phone numbers, life insurance provided by affinity groups, travel or credit card companies
14. Partnership agreements, recent appraisals, corporate or partnership buy-sell arrangements, business continuity planning documents
15. Pension, profit-sharing, IRA and other retirement plans (are beneficiary designations current now that new rules apply to changing required distributions), retirement plan administrator contact information.  If there’s a desire to support a charity with a bequest, these retirement plans make great, tax efficient ways to fund philanthropic interests with simple beneficiary designations.
16. Contact information for your medical providers, current medications and dosages, Medicare claim number and Medigap policy number
17. Employment contracts, deferred compensation or “golden parachutes/handcuffs” type agreements
18. Any life income arrangements (commercial immediate annuities, charitable trusts, life estates)
19. Social Security card
20. Veteran’s benefits updated and military discharge paperwork, e.g., DD-214
21. Organ donation instructions, funeral arrangements and burial instructions
22. Directions for pet care
23. Recent income and gift tax returns, contact information for your accountant, current 1099’s and W-2’s, expense and income worksheets for this tax year
24. Inventory of capital assets (real estate, stock, investments, collectibles, etc.) with purchase price, history of acquisition, improvements and tax basis (which will be extremely important if the tax laws continue unchanged)
25. Driver’s license number and expiration date, vehicle registration information, inventory of any items in storage and storage company phone number
26. Any post office rental box, contact information for neighbors and friends, a list of names and phone numbers of those who should be notified during a serious illness or death
27. Web site or e-mail accounts and passwords
28. It is not too early to write an obituary while the person can contribute to it

am a nurse working in head injury research.  Someone mentioned that they didn’t know the statistics for

equestrian related head injuries.  Well, have a few sources here and will provide some of them for you.

Sports Medicine 9(1):36-47, 1009

Synopsis:  The most common location of horse-related injuries is:

         upper extremity 24-61% (reported in different studies)

         lower extremity 36-40%

         head and face 20%

The most common type of injury is:

         soft tissue injury 92%

         fractures 57%

         concussion 15%

The most frequent consequence of injury is:

         hospitalization 5%

         residual impairment 2% (i.e. seizures, paralysis, cognitive impairments, etc)

         death 1%

JAMA, April 10, 1996, vol 275, no 14, p. 1072

Synopsis:   During 1992-93 in Oklahoma, horseback riding was the leading cause of sports-related head injury, (109 of 9409 injuries or 1.2% associated with riding and 23 additional injuries attributable to horses)  Of the 109, there were 3 deaths (3%).  The injury statistics were:

         males 55, female 54

         age range 3 yr to 71 yrs, median 30 yrs

         most commonly seen in spring and summer

         48% occurred on Saturday or Sunday

         95% involved riders who struck their heads on the ground or a nearby object after falling from the horse

         4% were kicked or rolled on after falling from the horse

         1% hit head on a pole while riding and fell to the ground

         90% were associated with recreational activities

         10% were work-related

         107 were hospitalized with a median LOS of 2 days

         79% had one or more indicators of a severe brain injury, including

1.        loss of consciousness 63%

2.        posttraumatic amnesia 46%

3.        persistent neurologicsequelae 13% (seizures, cognitive/vision/speech deficits, motor impairment)

Among the 23 injuries not riding related, 21 (91%) resulted from a direct kick to the head by the horse, where died immediately and 2 required CPR.  13 of these injuries occurred in children less that 13 yrs old.

Journal of Trauma 1997 July; 43(1):97-99

Synopsis:   Thirty million Americans ride horses and 50,000 are treated in Emergency Departments annually. Neurologic injuries constitute the majority of severe injuries and fatalities.  A prospective study of all patients admitted to the University of Kentucky Medical Center with equine-related trauma

from July 1992 – January 1996 showed the following:

         18 of 30 (60%) patients were male

         11 (37%) were professional riders

         24 (80%) were head injuries and 9 (30%) were spinal injuries (4 with both)

         age ranged from 3 to 64 yrs

         patients died (17%)

         2 suffered permanent paralysis (7)

         60% were caused by “ejection or fall from horse”

         40% were kicked by the horse, with 4 of these sustaining crush injuries

         6 patients (20%) required craniotomy (i.e. brain surgery)

         24 patients (80%) were not wearing helmets, including all fatalities and craniotomy patients

“Experience is not protective; helmets are.”

This last line is a direct quote from this article.  hope you find these statistics helpful.

Back to Horse Farm Management

Things You Need to Know

Creating a planned gift is a great and noble act.  However, as more charities, commercial advisors, and prospective donors jump onto the planned giving wagon,there are going to be dissatisfied clients and unhappy charities.  Why is that?  Simply said, too few advisors and planned giving officers do a good job disclosing all of the restrictions and the potential downside of these irrevocable gifts.  Then add in all of the client-donors who do their research on the web and think they can go down to the local super-store and get a ready to use trust off the shelf, there is bound to be disappointment.  One of the biggest problems with charitable remainder trusts is that invalid assumptions abound.

1. A Charitable Remainder Trust (§664 CRUT or CRAT) is a charitable giving vehicle, not a tax avoidance scam  While there are tax advantages, it still requires that the trustmaker have some charitable intent.
2. Generally, a CRT is transactionally driven.  Donors create them to minimize an immediate capital gains tax liability and keep more value at work.  Since some assets are unsuitable inside a CRT, double-check early in the research process with advisors on how to best fund the CRT.
3. Treat the income tax deduction like icing on the cake.  Because it is a deduction, and not a credit, it offsets the adjusted gross income (AGI) on the taxpayer’s annual return.  The problem is that the deduction is only a present value of the future gift and if the remainder charity is a public 501(c)3, it is limited to 50% of the donor’s AGI for cash contributions and 30% for contributions of selected appreciated assets.  Other contributions either will not generate a tax deduction or may be limited to tax basis, so knowing what works and what does not is an important skill competent advisors bring to the planning table.
4. The income tax deduction may be wasted unless the donor makes significant income, even over the six tax years it is available, as it may not be completely used up.  For example, a 75 year-old donor of appreciated farmland valued at $600,000, lives poor but may die “rich”.  Although “rich”, this donor has never made more than $45,000 in a year and is going to be hard- pressed to use the $360,000 deduction a 5% CRUT produces.
5. Trustmakerswho act as trustees have to wear two hats.  They must prudently manage the trust assets for the benefit of the charitable remainder as well as to produce tax efficient income.  This is one reason charities acting as trustee may leave themselves open to hard feelings, dissatisfied donors and possible liability issues that show up years in the future if the trust does not perform as predicted.
6. An annuity trust can run out of money and implode.  A CRT stands on its own merits, so investment performance can make or break a charitable trust.  If it falls apart, the charity is not going to make up the shortfall.
7. A CRT created to pay lifetime income for one or two beneficiaries bases its projections on IRS actuarial tables.  Life expectancies are a median number, so 50% of people will live longer than expected and planners need to factor in the possibility that the trust will last long enough for a beneficiary who reaches age 100 to continue receiving an income stream.
8. Donors who try to create a CRT with less than $150,000 of assets may have the equivalent of a jet engine on a jeep.  They have selected a vehicle that usually requires document drafting, appraisals, and ongoing administration expense; there is a minimum threshold for a CRT to stand on its own.
9. A CRT can be set up to benefit more than one charity.  Properly drafted trusts will allow for changes or additions to the list of charitable beneficiaries.  A CRT can even allow for current distributions directly to a charity if the donor builds in that flexibility.
10. If a CRT trustmaker has more than one income beneficiary (other than himself/herself), there may be an estate or gift tax liability for that gift of an income interest.  If there are more than two income beneficiaries or if there is a large spread in ages, there is a likelihood that the CRT will not pass the 10% remainder test
11. Managing investments inside a CRT, or a CLT for that matter, is not the same as managing a 401(k) or IRA.  Retirement accounts always produce ordinary income; a well-managed CRT should do better than that.