Life Plans


A Life Plan is a Living Trust that Avoids Probate PLUS…

While it’s important to avoid probate when you die, the truth is you will be dead.  It is noble and honorable to save the family the expense, publicity and time involved in going through that process and we certainly think probate should be avoided at all costs.  We found in our practice that folks were having most of their problems because the miracles of modern medicine are keeping us alive much longer than ever before.

It is estimated that a person is six-times more likely to become disabled this year than they are to die.  Six Times!  In our law firm, we have found that to be true.  Living Trusts were never originally designed to deal with incapacity problems.  They were designed to avoid probate.  But dying is not your problem.  Not yet, anyway.   That’s why we invented a plan that not only deals with the probate, but its main focus is to protect you while you’re alive.

The Life Plan focuses on three main areas: (1) protecting you–which we call Life Plan “A”; (2) protecting your children or beneficiaries–which we call the Life Plan “B”; and (3) protecting your grandchildren–which we call the Life Plan “C.”


Protecting You–Life Plan “A”

The Life Plan is always designed to avoid probate; but, it goes beyond death to protect you during life.  The Life Plan “A” is primarily focused on protecting you (and your spouse if you’re married) while you’re alive.

Incapacity problems happen during “life”; they are not “death” issues. The traditional trust does not address these problems sufficiently. In the “Life PlanTM ” incapacity is determined by a Disability Panel made up of people you trust. Those people named to serve on your Disability Panel will determine when, if ever, you should be removed as a Trustee due to a serious illness or any other cause which results in your inability to effectively manage your assets or financial affairs.
We recommend that Financial Powers of Attorney be a part of every plan. An attorney-in-fact named in a Financial Durable Power of Attorney is a person you choose as an agent to act on your behalf with respect to your financial needs. It is considered ‘durable’ because the authorization remains in force even if you later become disabled. It is an extremely powerful document, the terms of which and person appointed should be given serious consideration with the guidance of your attorney.

In Nevada, we provide our clients with two different powers of attorney.  The first one is the statutory version that the State of Nevada recently enacted.  It only uses checkboxes and is often not accepted by financial institutions.

In order to really protect our clients, we also provide them with a comprehensive power of attorney which provides great detail for the financial institution regarding your desires.  Armed with this document, your attorney-in-fact (your agent) has a much better opportunity to help protect your assets if you lose your mind.

There are four primary documents we use to protect our clients in the event they cannot make their own health care choices due to an incapacity: (1) the Health Care Power of Attorney; (2) Living Will; (3) Declaration; and (4) the stand-alone HIPAA Authorization.

Heath Care Power of Attorney

Our clients appreciate knowing an agent has been appointed to make medical decisions for them in the event of a medical emergency. A Health Care Agent is a person you name in a Health Care Power of Attorney to make health care decisions for you if you subsequently lose the ability to make your own health care decisions. The authority to act extends to such serious decisions as to whether or not heroic efforts should or should not be used to keep you artificially alive. The Health Care Power of Attorney also authorizes your agent to make decisions regarding organ donations and the ultimate disposition of your remains following your death. Guidance for all of these decisions is provided to your agent in the document.

Our documents are not boilerplate language.  We have designed, with the help of a medical doctor, the Seven Life Questions.  These questions must be asked by your agent before they let you die.  They are designed to not only make sure you don’t die prematurely, but also to give peace of mind to your agent that they made the right decision.

Living Will

The Living Will is like a message to your doctors if you are unable to communicate with them.  It is a statement from you that you do not want artificial means used to prolong your life if there’s little or no hope of survival.

Declaration

The Declaration is a message to your doctors that you want your loved one to make decisions about the withholding of treatment that only prolongs the process of dying and is not necessary for the relief of comfort or pain.

Stand-Alone HIPAA Authorization

The HIPAA Authorization gives your agents–those that you appoint to make health care choices for you–access to your medical records for up to two years after you’ve died.  While you may have given a hospital or a doctor the names of your agents on their HIPAA release forms, that is not good enough.  You may need your agents to communicate with other doctors and you may be at a different hospital than the one with the HIPAA release.  Having your own release that can be provided to any health care professional is vital.

The document should not be embedded within another document.  Sometimes there are HIPAA releases buried in the trust or in the Health Care Power of Attorney.  But those authorizations are only valid for those listed on that document.  For example, let’s say your HIPAA authorization is listed in your Health Care Power of Attorney but your Disability Trustee in your trust is trying to assets some medical bills.  While your agent under the Health Care Power of Attorney is authorized to get the records, your Disability Trustee cannot and your health care agent should not be sharing it with your Disability Trustee.  A stand-alone HIPAA Authorization that names all your “helpers” solves this problem.

The trustee is the person who manages the trust.  While you are alive and able, the trustee should be you.  However, if you have a temporary incapacity that renders you unable to serve, such as a hip replacement surgery,  then there could be a problem.  Who is going to pay the bills?

Unfortunately, most folks when faced with this thought will put one of their children on a joint bank account with them.  Because they might need more funds, they put that child on the investment accounts and savings accounts.  Then the child suggests that the real estate also be held jointly.  We do not recommend this type of plan for several reasons.  This type of planning forfeits your independence, your control and possibly your dignity.

First, by placing that child on the accounts you have just made a gift for federal gift tax purposes.  Yes, there is an annual exemption for small gifts but if you go over that amount you will be required to file a gift tax return.

Next, you have just destroyed the planning especially if you have multiple children or beneficiaries.  By placing the ownership jointly with your child that child will now get all the ownership you had in that assets once you die.  So if you intended that the home or account be shared with all your children, you have just disinherited those other children.

By placing your child’s name on the asset, they are now the owner so if they have a lawsuit, bankruptcy, IRS problems or a divorce that assets you placed in their name can now be seized from you.  The person attacking won’t care that it was part of your “plan.”  It’s in the child’s name so now it is fair game for the creditors of that child.

Finally, when you learn about all these problems when you go back to the bank or the title company to remove your child’s name you may feel undignified when you learn you cannot take the child’s name off the assets without the permission of that child.  You’ve lost control in more ways than one.

The simple solution offered by the Life Plan is to appoint that child as a Silent Partner to your Life Plan Trust.  As a Silent Partner, they never have as much control over the assets as you do (because it’s your trust).  But if there is a temporary incapacity where you are not able to pay the bills, your Silent Partner can pay them for you from the trust funds.  If you no longer need or want their help, you can remove them without their permission.

If you are married and one of you loses their incapacity then one that is able can serve with another person as a Co-Trustee.

The Disability Trustee will manage the assets of the trust during the period of time in which you are incapacitated. The Disability Trustee’s primary responsibility is to administer the assets of the trust focusing on your needs and desires. For this reason, it is important that you select people who are willing and able to provide this personal attention.

This position is much different from the traditional “successor” trustee or “death” trustee.  The death trustee is responsible for gathering the assets upon your death, paying any creditors, and then distributing the assets according to the instructions in the trust.

Most trusts we review will have the death trustee also use the assets for you while you’re alive.  The problem is that the more money the death trustee spends on you, the less money there is for the beneficiaries.  Yet, the more money that is preserved for the beneficiaries, the less money is available for you during your incapacity.  This is a classic conflict of interest.

To resolve this conflict, the Disability Trustee should be added to any living trust to ensure that during any incapacity, the money is used to maintain your happiness and lifestyle.

As the surviving spouse, you will have a number of responsibilities as the Trustee, one of which is to preserve the Estate for you as well as for your heirs. Sometimes lawsuits from things like automobile accidents, tenants or simply antagonistic plaintiffs who want to make a point, can jeopardize the family estate. Techniques can be implemented to give the Surviving Spouse greater asset protection.

Even if you don’t think anyone would want to take your assets (such as the hospital collectors), why worry about it?  Get it protected.

Once a spouse dies, they may get remarried.  If you don’t think it would happen to you, remember that’s why we call them “Gold Diggers.”  Predator Protection is a provision that protects the Surviving Spouse during a new marriage when the survivor is most vulnerable. It is becoming increasingly common to want to share the rest of your life with a another spouse once your current spouse dies. The problem is accidental commingling of the estate. If the next marriage results in a divorce, you would lose a large portion of your estate. If the next marriage terminates due to the survivor’s death, your beneficiaries (children) may end up in a contest with the next spouse. If the next marriage terminates due to the death of the next spouse, the survivor may end up in contest with the next spouse’s children. Careful planning (and good drafting) can avoid this problem by protecting the Surviving Spouse and beneficiaries.

Protecting Your Children (or other beneficiaries)–Life Plan “B”

The Life Plan “B” always includes all the planning in a Death Plan and a Life Plan “A” but it goes beyond protecting you to also protect your children (or other beneficiaries) from having their inheritance lost due to a divorce, bankruptcy, IRS issue or a lawsuit.

With the divorce rate exceeding 50%, it is necessary to wonder whether our children will enjoy their inheritance or lose it to an ex-spouse. Gone are the days when this problem can be ignored and just hope the children will be protected.

If you live in a community property state, like Nevada or California, technically the assets your child inherit are the separate property of your child–for a nano second.  In the vast majority of cases, when your child comes home from the “reading of the will” their spouse will want to know “what did we get?”  It’s just too much strain on a marriage to try to protect the assists that they inherit from their spouse in a divorce.

So, most folks accidentally disinherit their children because they don’t know how to properly use a Living Trust to protect their children.  They don’t know how easy it is to accidentally disinherit their children with a will or a Living Trust.  They also may not know how easy it is to use the trust to prevent their spouse from ever getting the assets–ever.

Gone are the days when this problem can be ignored and just hope the children will be protected.  As financial stresses are placed on our children and the lure of credit is so easy and tempting, bankruptcy often appears as a solution to the money game. It’s also easy these days to get in inadvertent trouble with the IRS.  If this happens to your children, it would be a waist to have their inheritance seized for their own IRS issues.  You can protect their inheritance from these invaders.
Unfortunately, anybody can end up on the wrong side of a lawsuit. This could be the result of an automobile accident, an unreasonable renter or simply a guest in your home. Every day thousands of lawsuits are filed in the United States.  If your child has a lawsuit or creditor issues, without the protection of the Life Plan “B”, their inheritance will be seized.
If you have a child with special needs, their inheritance can prevent that child from receiving government benefits.  To prevent this, a Special Needs Trust should be created to hold their inheritance once you die.  That way, the child can have the government benefits and still receive funds from their trust.
If a child has an addition to alcohol or drugs that may prevent them from properly managing their inheritance, then the Life Plan “B” can create a trust that ensures the money is not squandered.  We believe you have a stewardship over your money.  If you know of a situation that could be financially disastrous to your child, it is easy to fix with this type of trust.

Protecting Your Grandchildren–Life Plan “C”

The ultimate plan, the Life Plan “C,” always includes the protection of a Death Plan and the Life Plan “A” and “B.”  It goes beyond, those plans, however, by protecting your grandchildren.  This is also known as a Dynasty Trust.

One of the goals that most clients with grandchildren have is to make certain the Estate eventually gets to the grandchildren. However, it rarely gets to them. Here’s one reason why.

If your child is married when he or she dies who gets the inheritance? Your son or daughter-in-law. If your son or daughter-in-law re-marries the inheritance is now commingled in that new marriage. Your grandchildren receive nothing.

Let’s say you have a son and he’s married to a woman, we’ll call her Hottie.  Now, when you die your son’s gets the money and co-mingles it with his wife, Hottie.  Statistically, who dies first: your son or Hottie?  Your son.  After your son dies, Hottie gets remarried to a man named Hunk.  Your grandchildren were accidentally disinherited and received nothing.

The Life Plan “C” prevents this nightmare and others like it.

Here’s another reason grandchildren rarely get an inheritance.

Let’s say you have a daughter and she has children but she dies before you.  In most planning that folks do, her children will receive her inheritance.  But if her children are minors, their father will now be in charge of the money.  Whose going to make sure that the funds are used for the benefit of your grandchildren?  Whose going to stop their father from spending it unwisely?

The Life Plan “C” appoints a person you trust to make sure the funds going to grandchildren are spent in ways you would want.

If you have assets that trigger an estate tax, you may be facing another high tax called the Generation Skipping Transfer Tax.  This is typically a tax that reduces the inheritance for grandchildren.  There are solutions to help reduce or eliminate this type of tax simply by doing the right type of planning.

Living Trust Protection Levels

Death Plan
30%
Life Plan ``A``
75%
Life Plan ``B``
90%
Life Plan ``C``
100%

``A``...``B``...``C``...Death Plans...

If you feel a little confused, we can clear it all up in a matter of minutes by applying your specific situation to the available plans.