There has been much news in recent days about the need for Long Term Care (LTC) Insurance and the recent reports of large increases in premiums and big insurance companies announcing that they will not sell any new policies.

The subject deserves more time and space than one blog article, so today I will touch on the need. I will follow this blog next week with interviews with Long Term Care Insurance Brokers and Financial Planners discussing the problems the LTC insurance industry is going through.

People are living longer these days, but the human body still continues to break down.  As such, more and more seniors – an estimated 9 million in 2008 – need long-term care.  But do you need long-term care insurance?  It’s a smart way to defray the enormous costs of care, but really, it depends.

Premiums this year cost individuals an annual average of $2,180, but the average rate this year for a private nursing home room is $229 per night, or $83,585 a year, and the average rate for a home healthcare aide is $21 per hour.  The New York Times had an article last week (“Ignore Long-Term Care Planning at Your Peril”) reporting that some major long-term care insurance companies are looking to raise premiums by as much as 40 percent.  And, the longer you wait the more likely rates will rise, and the older you get, more likely you’ll develop a so-called pre-existing condition that affects plan availability and premiums.

There is a misconception that Medicare will cover long-term care costs.  While Medicare may pay for short-term nursing home stays in certain circumstances (for example, while you are convalescing after surgery or undergoing rehabilitation after a qualified hospital stay), it will not pay for long-term care.  And, Medicaid will cover nursing home costs, but only after you’ve expended most of your own finances, and then your access and options in care providers becomes severely limited.

The new Class Act, passed under the health care bill, provides long-term care insurance through the government, but enrollment doesn’t start until 2012 and benefits aren’t likely to exceed $100 a day and then only after you’ve paid premiums for 5 years prior.  However, it may be easier to qualify under the Class Act, as some private plans won’t cover care for certain pre-existing conditions.

One up-side is that there are tax breaks available for qualified long-term care insurance premiums where benefits received under such policies are tax-free.

So, how likely are you to need care to make purchasing an insurance plan worth it?  It largely depends on your family’s health history and your financial situation.  If you’re at risk for a serious illness that requires regular care, and you want to leave something to your children or grandchildren upon your death, it’s probably smart to at least investigate the specifics of a LTC policy.

Next time, update on the Long Term Care Policies and Insurance Companies.

James D. Perry

We never read about a perfect celebrity estate plan. An estate plan that can smoothly transfer assets is not newsworthy, and happy relatives rarely sue.

From what I have read, esteemed film actor Dennis Hopper made every attempt to create a solid estate plan. Unfortunately, his name and estate plan have been in the papers because of a singular unforeseen problem: one angry widow.

Early this year, Hopper filed for divorce from his wife of 18 years, Victoria Duffy. She responded by filing a complaint in court claiming Hopper had cut her out of his will at the behest of other family members. She claimed he lacked the mental capacity to change his will, a charge his doctors emphatically denied despite his declining health due to inoperable and terminal prostate cancer.

Because Duffy and Hopper were still married at his death, she stands to inherit a quarter of his sizeable estate and a $250,000 life insurance property, but a clause in their prenuptial agreement may strip her of all inheritance. According to the document, the couple must have been “married and living together” on the date of Hopper’s death.

The prenuptial agreement categorized any property purchased or acquired by Hopper during the marriage as separate property. Just prior to his death in May, Hopper signed an affidavit under oath accusing Duffy of stealing more than $1.5 million in valuable artwork from him – artwork that was considered his separate property.

Hopper had created a revocable living trust and funded it with assets including works from his art collection. Now his trust is suing Duffy, asking a court to compel her to return the property so it can be properly distributed to his named beneficiaries.

Hopper took the responsible steps executing a will, creating a trust and funding his trust. But, all the planning in the world won’t deter a person with enough money for a lawyer and a nasty grudge.

James D. Perry

The law is full of old rituals that today we would consider ridiculous.

For example, in early Bavaria, to convey real property by sale, by gift, or by will, one had to box the ears of young boys to seal the deal. The idea was that by creating a memory of pain in the child, he would be a good witness later in life if a dispute over the transfer ever arose. Without this formality, the conveyance was ineffective, even where the intended recipient took possession of the land and even if no dispute ever arose.

Thankfully today, the law has done away with such silly rituals. There are, however, three formalities you must follow too ensure that your property transfers upon your death in the manner and to the person your intend.

1) You must create a will. Write down all the property you own and to whom it should go upon your death. Without this basic document, all your property will be sent through the probate court and distributed to your heirs through the rigid state laws of intestacy.

2) You must sign your will. In California, this requirement can be filled one of three ways: you may sign the will yourself; your name may be affixed to the will by some other person at your direction and in your presence; or your name may be affixed by a conservator acting under court order.

3) Your will must be witnessed by at least two people. During your lifetime, at least two people who do not stand to inherit must sign your will as disinterested. Furthermore, they must be present and physically watching as you sign the will and they must be competent of the fact that they are signing your will.

If any one of these requirements is not met, the probate court can determine that you died without a valid will and the land that you wanted to go to your grandchildren may instead go to your son with a nasty gambling habit. Of course, there are some exceptions to these rules, but they too throw your intentions to the scrutiny of the court, which costs your estate time and money.

If you have any questions about the validity of your will, I urge you to talk to your estate planning lawyer.

James D. Perry

Late-in-life second marriages are becoming commonplace in American society, and with it, anxiety has been rising among stepchildren. Estate planning lawyers have had to pay greater attention to the particular concerns and needs of blended families because also becoming more common is the courtroom brawls between stepparents and stepchildren and stepsiblings.

The first concern I hear from clients is often related to the financial security of the parents. If Mom moved into Stepdad’s home, what’s to keep Stepdad’s kids from kicking her out of the house if Stepdad were to die first?

The second concern is for the adult children’s prospective inheritance from their natural parent. Many state elective share laws dictate that when a person dies, the spouse naturally inherits a certain share of the estate, which will certainly cut into how much, if any, is left to the decedent’s natural children after the spouse dies.

In California, community property laws can be both a blessing and a nightmare for the adult children of a blended family. On one hand, generally, a surviving spouse doesn’t have a claim over to any property or account kept separately and in the deceased’s name.

However, any property that was held jointly (i.e., homes, common bank accounts) is presumed to be community property and, unless that presumption is rebutted in court, it passes entirely to the surviving spouse. And, even separate property may pass in whole or in part to the surviving spouse if the deceased partner leaves no will.

Older adults bring a greater amount of personal wealth into new relationships and, experts say, they are more practical about the financial realities their late-in-life marriage presents.

A prenuptial or postnuptial agreement can keep Mom in the house owned by Stepdad until her death at which point it passes solely to his children. Keeping property separate in trust accounts can prevent it from being transmuted into community property. And a clause inserted into Dad’s will can ensure that the separate property in his name passes to his children, not his spouse upon his death.

After you die, you could either be rolling in your grave because of the nasty legal battle you left your blended family or resting in peace.

James D. Perry

My wife and I are off to Vermont, New Hampshire and Maine for vacation before the summer days slip away.    I’ve left instructions with my capable staff on when and how to contact me if needed, with any luck they will be able to get by just fine without me for a couple of weeks.  It would be horribly irresponsible of me to not just show up on Monday morning without telling them or my clients that I will be away.

But what if I don’t come back?   What if I choke on a lobster tail or have the big one whilst trolling for trout on Lake Winamasake?   Well, all of you that were counting on me to help you with your estate plan are just going to have find help or a referral from my staff.   And let’s be clear:  you, like me and everyone else, are going to die.

You really have to come to grips with this concept before you make out your estate plan because death is not the last thing you will ever do.   Distribution of assets is the true final act, and since you’re not going to be around to do it, you need your own capable staff to carry out your business.

That staff is your estate plan.  Your will covers the “what” and “to whom” of asset allocation, and any trusts you create handle the “when” and “how.”

Once death occurs, planning pays off for your heirs if done right.  Other than state law, your estate plan is the only roadmap a probate judge, or your trust attorney can use to settle your estate.  And state laws don’t discriminate based on your spendthrift kids, your no-good brother, or your favorite niece.

Hopefully, I will eventually return safe and sound to my office in September and be available to settle any unresolved issues that came up during my vacation.

If I don’t come back, at least I know my own estate plan is complete.  If yours isn’t, get to it before that banana peel trips you up!

James D. Perry

One of my clients is an avid stamp collector. He has decided that upon his death, his modest collection will go to his granddaughter who grew up learning about and loving his hobby during their summers together.

Individuals pass more to their heirs than just real estate and money – a significant portion of wealth that is inherited comes in the form of art, jewelry, heirlooms and collections.

The difficulty in determining the value of these items and the fluctuations in tax law between this year and next are proving to be tricky for estate planning and estate settlement.

If an inherited asset that is appreciated in value is sold, the profits likely are subject to the capital gains tax. In previous years, capital gains taxes were measured based on the value of the item at the time of the of the original owner’s death under a step up in cost basis.

But, because the step up in cost basis has been suspended this year along with the estate tax, the capital gains tax against 2010 heirs will be measured based on the original owner’s purchase price – not the item’s current value – unless the estate’s executor includes that item as part of the $1.3 million step up that all estates get.

This could be a valuation and tax nightmare for my client’s granddaughter should my client die in 2010. The capital gains tax for collectibles is 28 percent. And many rare objects will require evidence of provenance and proof that taxes were paid on previous sales.

If you have rare collectibles or heirlooms that you intend to pass on, have the items appraised (every five years is recommended) and keep any papers of provenance and purchase in an accessible file. With the return of the estate tax in 2011, you might also consider donating rare collectibles to a museum or other charity, which would allow you to deduct a portion of their value from your estate leaving more to your heirs.

My client’s collection likely holds more sentimental value for his granddaughter than economic, but her grandfather’s pride in his stamps and meticulous record-keeping will protect her from terrible tax confusion when his collection finally becomes hers.

James D. Perry

I blogged a few months ago about the change in California law that permits probate courts to rule in on the validity of a statement in your will that threatens to disinherit any person who files a lawsuit contesting the validity of your will.

Under current law, the courts will allow good faith challenges that allege some sort of wrong-doing in the creation of the will, including an allegation that the testator was under some undue influence in writing out the terms of his estate distribution.

So what is undue influence? One example was in the infamous Marshall v. Marshall battle where Anna Nicole Smith alleged that her late husband’s son engaged in malicious and willful behavior to prevent his father from leaving Anna Nicole a substantial gift in his will.

Many times the elderly are easy targets for manipulation and unscrupulous individuals, often family members, who try to manipulate them into signing a last will and testament to their advantage.

The court will look at all the circumstances to determine whether an individual asserted undue influence and it may void a gift under a will.

The court may look at the relationship between the donee and the testator (drafter of the will). Why is this person getting the money? Is the donee a family member or a normally expected heir?

The court may also look to the level of involvement in the donor’s affairs or the involvement in the gift itself. The greater involvement, the less questionable it might be that the person would inherit. For example if the donee drove the testator to the attorney’s office, sat in on the meeting with the attorney, and paid the attorney fee, the court would presume that the testator was subjected to undue influence.

It’s also worth noting the circumstances under which the property was promised in the will, such as if and when the will was changed from a longstanding estate plan, and whether the change was made in secret or if the testator’s intentions were shared with others. Also, what was the physical and mental state of the testator at the time the will was written or changed?

These aren’t exclusive factors in determining whether there was undue influence or not, but they are questions worth asking in the interests of protecting yourself and your loved ones.

On a final note, there is no law against asking someone to leave you something in a will. You and your sister might both ask your 96-year-old grandma to leave you her 5-karat Harry Winston diamond ring. But if your grandma is in a fragile mental or physical state, and you lie to her and tell her that your sister is a drug addict who will surely pawn any jewelry for cash – that’s undue influence. You usually know it when you see it…it doesn’t pass the smell test.

James D. Perry

Recently, a client of mine died and his family could not find a signed copy of the trust he had created. People lose things; it’s a fact of life. But, what do you do if you lose the documents detailing your estate plan?

If you lose your original will, and there is no copy on file with your estate-planning attorney, the state considers the will revoked. There are exceptions to this, and the presumption can be overcome in probate court by a preponderance of evidence showing that the will was not destroyed or intentionally revoked. Probate court is an expensive hassle, though, and if you do not have the evidence to over come that presumption, you will die intestate leaving the probate court to distribute your assets according to state law rather than according to your express wishes.

Unlike a will, though, a trust is not necessarily deemed “revoked” if you lose the papers. If you have transferred assets – like your house – into the trust, the transfer will be reflected in the deed or title.

People, including the elderly, sometimes throw out or shred files and papers that they think are of no more use. Or, they might go overboard with their ideas about “security” making it very difficult to find the papers they need when they need them. Estate planning documents have been found in freezers, lampshades, mattresses, or behind pictures. Conditions and diseases like dementia and Alzheimer’s can exasperate these problems.

It’s important to safeguard your estate plan documents. Leave copies with your estate planning attorney, your trustee, or another person so there is evidence of your wishes readily available.

James D. Perry

You may be willing to trust your teenage grandchildren to house sit for you while you’re away for the weekend, but would you trust them to properly manage your entire bank account after you die?

Paris and Nicky Hilton, heiresses to the Hilton Hotel fortune, are notorious for their party-girl ways. DUI charges and driving violations landed Paris in jail at the age of 25, and Nicky has a reputation for drifting in and out of relationships with potentially opportunistic suitors. Neither has yet shown the maturity necessary to manage the Hilton’s billions should they take over any substantial part of estate today – much less so had they inherited at the age of 18.

Generally, if you decide to leave an inheritance in trust, the account can provide for the minor’s health, education and maintenance through a custodian (living parent or appointed conservator) until he or she becomes an adult. However, once he or she reaches majority, the remainder of the account is discharged to them outright.

You also have the option to hold a minor beneficiary’s inheritance in a trust to be paid out in stages or based on milestones. For example, you could pay a beneficiary 50 percent of his inheritance when he reaches the age of 25 and the remainder at 30; or, 50 percent when he gets his bachelor’s degree and 50 percent when he gets his master’s degree. Again, though, once the beneficiary receives a lump sum free of trust, that property is vulnerable to bad decisions, lawsuits, and divorcing spouses (only if transformed into community property in California).

There is also the option of leaving the minor’s inheritance in a lifetime trust. The assets are managed indefinitely by a trustee or until a designated time when the beneficiary may take full control. The inheritance is protected from divorcing spouses, lawsuits, and if a third-party trustee is used, from the beneficiary’s own bad decisions. If there is anything left in the trust when the beneficiary dies, you can control who will receive the remainder.

There are added costs that come with the administration of a lifetime trust, including accounting and legal fees. And the trustee may be entitled to receive a fee for services rendered while administering the trust. These costs must be weighed against the amount of inheritance and your own long-term estate planning goals when drawing up your will.

Keep in mind, though that some people will never be able to handle money properly, due to disability or character flaw. Some clients struggle with how much control they can or should have from beyond the grave, but only you can determine how much weight, if any, to give such considerations.

You may not be a Hilton, but careful planning in advance can make for a smooth transfer of property.

James D. Perry

Over their lives, people tend to accumulate a lot of “stuff”: furniture, clothing, knick-knacks, books, personal collections, etc. And when they die, that stuff gets passed on to their loved ones, taking up space in their garages, looking oddly out of place in their dining rooms, or sitting in storage simply because the heirs can’t bear to part with it.

It’s not uncommon as an estate planning and probate lawyer to see how people who inherit furniture and other material wealth tend to unnecessarily cling to those physical items. Even I have been dealing with this in the wake of my father’s death: I just do not want to let some things go.

A recent New York Times article highlights the power we give these material objects over our lives, and points to the problem of hoarding, which has become fodder for reality television shows. Hoarding is a serious compulsion, and most people don’t accumulate stuff to that extreme.

But seeing that extreme can force us to look at how we may be hanging on to unnecessary material things when all we really want is the memory that thing evokes.

The trinkets we’ve been given or that we’ve picked up somewhere special become the physical manifestation of the memory of the giver or the context in which it was gained. But “your mother or grandmother didn’t plan for you to become overwhelmed by them,” says Jamie Novak, a professional organizer and author of “Stop Throwing Money Away.”

Organizing experts suggest that you pass on the memories instead of the goods. And, if you already have Aunt Sally’s armoire taking up space in your living room, take a picture of it before donating it to charity.

You don’t have to hold on to the stuff letting it clutter up you life, when you can more easily hold on to the memories.

James D. Perry

See Jim’s review of Jamie Novak’s book “Stop Throwing Money Away” (John Wiley & Sons) in the Summer edition of the Perry Estate Planning Newsletter.