Texas Estate Planning

Money & Dementia: How the Diagnosis Can Affect Your Finances

Aging is difficult, especially if you have dementia. In a recent story from NPR titled, “An older person's money management errors may be a sign of some sort of dementia,” reporter, Sarah Boden, speaks with people across America who have experienced the effects of dementia on family finances. The conversations are insightful, yet heartbreaking. 

“Dementia specialists say money problems can be one of the first signs of trouble,” NPR reported. Experts spoke of elders being scammed or taken advantage of by financial institutions and family members, but stories also included reckless spending and seniors forgetting to mail out checks. Everyone should be on the lookout for financial predators and missteps as their loved ones begin to age. 

The story continues, citing, “One study of some 81,000 Medicare recipients found that people with Alzheimer's disease and related dementias started to develop poor credit up to six years before their diagnosis.” Dementia comes in many different forms which can impact someone’s ability to handle their money. But one thing is clear: dementia negatively impacts cognition and memory, two functions necessary for taking care of financial duties such as paying bills. 

Many seniors value their independence, making conversations about money and aging emotionally challenging. And although financial institutions are taking steps to protect seniors from scams and thoughtless spending, the responsibility ultimately falls on family and friends who know the aging person and their values. 

It can be hard to see the impact of dementia on a loved one’s finances, especially if you live out of state, but it’s important to check in to avoid catastrophe. This was especially important for one family in the story who needed money to afford their mother’s care, but lost out on selling their home due to foreclosure because her dementia made her unable to pay the mortgage. 

There are private companies that will keep an eye on finances for a monthly fee and certain accounts allow owners to add a trusted contact to be notified in case of any major withdrawals, but these options aren’t available or appropriate for everyone. In estate planning, a Durable Power of Attorney is a document which grants someone you know and trust the authority to access all of your financial accounts. 

It’s a huge act of trust and respect to give someone that much access to your finances, but it’s often vital for estate planning purposes. For instance, if your loved one is in the hospital for an extended period of time, someone will need to go to their residence and pay the bills before they begin to pile up. But banks are built to keep people’s money safe, which is why a legally binding document is necessary to handle someone else’s finances when they are unable to. 

Speak with an estate planning attorney licensed in your state if you begin to notice things are changing with you or your loved one’s cognition and spending habits. Making sure the family home and other assets are protected can be immensely helpful for the next generation – start the process today by giving us a call: 713-429-0218

There are Ways to Transfer Home to Your Children

Kiplinger’s recent article entitled “2 Clever Ways to Gift Your Home to Your Kids” explains that the most common way to transfer a property is for the children to inherit it when the parent passes away. An outright gift of the home to their child may mean higher property taxes in states that treat the gift as a sale. It's also possible to finance the child's purchase of the home or sell the property at a discount, known as a bargain sale.

These last two options might appear to be good solutions because many adult children struggle to buy a home at today's soaring prices. However, crunch the numbers first.

If you sell your home to your child for less than what it's worth, the IRS considers the difference between the fair market value and the sale price a gift. Therefor., if you sell a $1 million house to your child for $600,000, that $400,000 discount is deemed a gift. You won't owe federal gift tax on the $400,000 unless your total lifetime gifts exceed the federal estate and gift tax exemption of $12.06 million in 2022, However, you must still file a federal gift tax return on IRS Form 709.

Using the same example, let’s look at the federal income tax consequences. If the parents are married, bought the home years ago and have a $200,000 tax basis in it, when they sell the house at a bargain price to the child, the tax basis gets split proportionately. Here, 40% of the basis ($80,000) is allocated to the gift and 60% ($120,000) to the sale. To determine the gain or loss from the sale, the sale-allocated tax basis is subtracted from the sale proceeds.

In our illustration, the parent's $480,000 gain ($600,000 minus $120,000) is non-taxable because of the home sale exclusion. Homeowners who owned and used their principal residence for at least two of the five years before the sale can exclude up to $250,000 of the gain ($500,000 if married) from their income.

The child isn't taxed on the gift portion. However, unlike inherited property, gifted property doesn't get a stepped-up tax basis. In a bargain sale, the child gets a lower tax basis in the home, in this case $680,000 ($600,000 plus $80,000). If the child were to buy the home at its full $1 million value, the child's tax basis would be $1 million.

Another option is to combine your bargain sale with a loan to your child, by issuing an installment note for the sale portion. This helps a child who can't otherwise get third-party financing and allows the parents to charge lower interest rates than a lender, while generating some monthly income.

Be sure that the note is written, signed by the parents and child, includes the amounts and dates of monthly payments along with a maturity date and charges an interest rate that equals or exceeds the IRS's set interest rate for the month in which the loan is made. Go through the legal steps of securing the note with the home, so your child can deduct interest payments made to you on Schedule A of Form 1040. You'll have to pay tax on the interest income you receive from your child.

You can also make annual gifts by taking advantage of your annual $16,000 per person gift tax exclusion. If you do this, keep the gifts to your child separate from the note payments you get. With the annual per-person limit, you won't have to file a gift tax return for these gifts.

Reference: Kiplinger (Dec. 23, 2021) “2 Clever Ways to Gift Your Home to Your Kids”

What Do I Need in My Estate Plan?

“An effective estate plan uses a collection of documents and teamwork to protect one’s assets and personal property. An effective estate plan also explains and carries intentions of how to pass control down to successors in the event of your absence.”
Digital Journal’s recent article entitled “What is an Estate Plan and What are its Benefits?” explains that an estate plan usually includes the following:
A will;
A financial power of attorney and a medical power of attorney (with consent);
A living will; and perhaps
A living trust.
You also need an experienced estate planning attorney who understands the possible strategies that are available to you for your family.
There are many significant benefits to establishing an effective estate plan, including deciding who will inherit specific assets, possessions, or valuables; and designating guardians for minor children; and avoid or minimizing taxes.
Without an estate plan, heirs must go through a very stressful probate process, which can take years. It can also be expensive. With a will, you can protect your young children and ensure that they are cared for by designating a guardian. Without a will, the court decides who will care for your children.
You can also stop fights before they start with an estate plan. One sibling—for whatever reason—may think he or she deserves more than the others. Such disagreements can easily wind up in court, with family members fighting each other and costing thousands in legal fees.
With an effective estate plan, you can make certain your assets are handled the way you intended if you were to become mentally incapacitated or pass away. You can choose who will be in charge of your medical affairs, financial affairs, and even specific assets such as a small business. If a business owner doesn’t have an estate plan, state law would determine who would be in control of the business.
A big question for a small business owner is who will oversee the business if he or she becomes incapacitated or dies. A key is determining the best strategy after the death of the owner. A business succession plan is critical.
Reference: Digital Journal (Sep. 2, 2021) “What is an Estate Plan and What are its Benefits?”

What are the Estate Planning Basics?

Estate planning is an all-encompassing term that refers to the process of organizing, inventorying and making plans for the proper handling of your affairs after you die, including your dependents as well as your assets, valuables and heirlooms. This typically involves writing a will, setting up a power of attorney and detailing funeral arrangements with the help of an experienced estate planning attorney.
CNET’s article entitled “Estate planning 101: Your guide to wills, trusts and all your end-of-life documents” provides us with some of the key steps in getting started with estate planning.
Create an Inventory. Your estate includes all of the things you own, such as your car and other valuable possessions, plus "intangible assets" like investments and savings. If you own a company, that's also part of your estate. Everything you own should be given a valuation. Have your home and other valuables appraised.
Evaluate your family's needs. A big reason for estate planning is to make certain that your family is cared for, in the case of your death or incapacitation. If you're a breadwinner for your family, the loss of your income could be devastating financially. Consider a life insurance policy to help provide a financial cushion that can be used to cover living expenses, college tuition cost, and mortgage payments. You may also need to designate a guardian, if you have children under the age of 18.
Make job assignments. Dividing up a person’s property can be a tough and emotional task. Make it easier by ensuring that all of your assets have been assigned a beneficiary. You'll also name a few people to coordinate the process of dividing up your belongings. List your beneficiaries, so they know who gets what.
Create a Will. You should have a legally binding document setting everything out in as much detail as possible. A will is a legal document that directs the way in which you want your assets and affairs handled after you die. This includes naming an executor, who is someone to manage how your will is executed and take care of the distribution of your assets.
Help your family if you’re incapacitated. A living will (also known as a medical care or health care directive) states your healthcare preferences, in case you're unable to communicate or make those decisions on your own. If you need life support, a living will states your preferences.
Start estate planning sooner rather than later. Talk to an experienced estate planning attorney today.
Reference: CNET (June 8, 2020) “Estate planning 101: Your guide to wills, trusts and all your end-of-life documents”

So, You Have to Manage Someone Else’s Money – Now What?

This sounds like a disaster in the making. A durable power of attorney document must follow the statutory requirements, must delegate proper authority, must consider the timing of when the agent may act and a host of other issues that must be addressed, warns My San Antonio in the article “Guide to managing someone else’s money.” A durable power of attorney document can be so far reaching that a form downloaded from the Internet is asking for major trouble.

Start by speaking with an experienced estate planning attorney to provide proper advice and draft a legally valid document that is appropriate for your situation.

Once a proper durable power of attorney has been drafted, talk with the agent you have selected and with the successor agents you want to name, about their roles and responsibilities. For instance:

When will the agent’s power commence? Depending on the document, it may start immediately, or it may not become active, until the person becomes incapacitated.

If the power is postponed, how will the agent prove that the person has become incapacitated? Will he or she need to go to court?

What is the extent of the agent’s authority? This is very important. Do you want the agent to be able to talk with the IRS about your taxes? With your investment advisor? Will the agent have the power to make gifts on your behalf, and to what extent? May the agent set up a trust for your benefit? Can the agent change beneficiary designations? What about caring for your pets? Can they talk with your lawyer or accountant?

When does the agent’s authority end? Unless the document sets an earlier date, it ends when you revoke it, when you die, when a court appoints a guardian for you, or, if your agent is your spouse, when you divorce.

What does the agent need to report to you? What are your expectations for the agent’s role? Do you want immediate assistance from the agent, or will you continue to sign documents for yourself?

Does the agent know how to avoid personal exposure? If the agent signs a contract for you by signing his or her own name, that contract may be performed by the agent. Legally, that means that the cost of the services provided could be taken out of the agent’s wallet. Does the agent understand how to sign a contract to avoid liability?

All of these questions need to be addressed long before any power of attorney papers are signed. Both you and the agent need to understand the role of a power of attorney. An experienced estate planning attorney will be able to explore all the issues inherent in a durable power of attorney, and make sure that it is the correct document.

Reference: My San Antonio Life (Aug. 26, 2019) “Guide to managing someone else’s money”

Why A Living Trust and a Living Will Might Be Part of Your Estate Plan

There are several different legal documents that your estate planning attorney can prepare for you to direct how you want health care to be provided. The Medical Advance Directive often refers to a Living Will, but the category also includes medical durable powers of attorney, cardiopulmonary resuscitation (CPR) directives, Do Not Resuscitate (DNR) orders, Medical Orders for Scope of Treatment (MOST) and other directives regarding your medical care in the event you have a medical crisis, a terminal medical condition and just before or after your passing. The article “About the Law” from The Villager describes these important issues in detail.

In some states, a Living Will is known as an Advanced Directive for Medical/Surgical Treatment. This document tells medical professionals how you want to be treated, if you are suffering from a terminal condition that is neither curable nor reversible, or if you are in a coma, also known as a “persistent vegetative state” and cannot speak for yourself. It’s referred to more commonly as a Living Will and is signed with the same type of formality as a Last Will and Testament. Like your will, it must be signed in front of two witnesses and it must be notarized.

The Living Will is used for two situations. One is a terminal condition, where the use of life-saving procedures will only postpone death, but not promote any healing that would lead to a recovery. The second is in a persistent vegetative state, which must be determined by medical professionals. There are three choices for the family: one is to forgo life-sustaining treatment and let the person die. The second is to accept life-sustaining treatment, but only for a limited period of time. Often this is to allow family members to gather to say their farewells. The third is to continue life-sustaining treatment.

A person may express their wishes for their care and also give permission to certain persons to talk with their doctor. This is made necessary, due to the HIPAA act. Otherwise, the doctor would legally not be permitted to discuss the patient’s care with unauthorized people.

As long as you are able to make your own medical decisions, you can determine what treatments to receive, or which treatments you do not wish to receive. The goal of the Living Will is to allow you to express your wishes, if you have lost the ability to communicate.

Other estate planning documents that you’ll need are a will, to distribute your property, a financial or general power of attorney, so that someone you name can make decisions and take actions on your financial affairs and, depending upon your situation, a trust.

Because the laws governing living wills and estate planning are set by your state, you’ll want to speak with an estate planning attorney in your community. They’ll help you determine how you want your medical care to proceed, guide you in clarifying your wishes for your family and create the necessary legal documents to fulfill your wishes.

Reference: The Village (July 3, 2019) “About the Law”

Beverly Hills 90210 Star Luke Perry Did Have an Estate Plan

Luke Perry’s death at age 52 from a condition that we think of as something that happens to older people, has made many people thinks differently about strokes. As reported in the Forbes article “Luke Perry Protected His Family With Estate Planning” Perry was savvy enough to do the proper estate planning, which made a difficult situation easier for his family.

Perry was heavily sedated following the first stroke and five days later, his family made the difficult decision to remove life support. It had become obvious that he was not going to recover, following a second stroke. He was surrounded by his children, 18-year-old Sophie, 21-year-old Jack, Perry’s fiancé, ex-wife, mother, siblings and others.

The decision to allow Luke Perry to die, when only a week earlier he had been alive and vibrant, could not have been easy. It appears that he had the correct legal documents in place, since the hospital allowed his family to make the decision to end life support. In California, those wishes are made in writing, using an Advance Directive or Power of Attorney. Without those documents, his family would have needed to obtain an order from a probate court to permit the hospital to terminate life support, especially if there was any disagreement about this decision from family members.

That would have been a public and painful experience, making things harder for his family.

Perry reportedly had a will created in 2015 leaving everything to his two children. Earlier that year, he had become a spokesperson for screening for colorectal cancer. He had undergone a colonoscopy and learned that he had precancerous growths, which led him to advise others to do the same testing. According to friends, it was after this experience that Perry had a will created to protect his children.

It is thought (but not yet verified) that Perry had a reported net worth of around $10 million, so it’s likely that he created a revocable living trust, in addition to a simple will. If he had only a will, then his estate would have to go through probate court. It’s more likely that he had a trust, and if it was properly funded, then his assets could pass onto his children without any court involvement.

The only question at this time, is whether he made any provisions for his fiancé, Wendy Madison Bauer. Since the will was done in 2015, it’s unlikely that he included her in his estate plan. If they had married, she would have received rights that would not have been automatic but would have depended upon the wording of his will or trust, as well as whether the couple had signed any prenuptial agreements. If they had married and documents did not include an intent to exclude Bauer, she would have been entitled to one-third of his estate.

Luke Perry’s tragic death provides an important lesson for all of us. No one should wait until they are old enough to do estate planning. Perry’s cancer scare, in 2015, gave him the understanding of how quickly life can change, and by having an estate plan in place, he helped his family through a difficult time.  

Reference: Forbes (March 8, 2019) “Luke Perry Protected His Family With Estate Planning”

Who Would You Trust with Your Life?

Selecting someone to make health care decisions for you when you are unable, requires a great deal of trust and is considered by many to be the most important estate planning tool, according to The Daily News in “Choose Health Care Power of Attorney Carefully.”

The Durable Health Care Power of Attorney—H-POA—is similar to the general POA in that both can be used to provide your representative with either very broad or very limited acting authority.  However, they are also very different. The H-POA can be drafted to retain its effectiveness, while you are alive and after you pass away.

The critical thing about an H-POA is the ability to tell the person you chose of your wishes about many different types of health and medical decisions. You can tell him or her exactly what medical treatments are acceptable to you or which you do not want to be used. That includes surgical intervention, autopsies, resuscitation, life support, organ donations and even whether to donate your body or specific portions of your body to science, medicine or education.

A less dramatic part of your H-POA concerns your representative’s right to access and disclose medical records. 

The H-POA is a critical document that may make a life-or-death impact for you. In addition to selecting a person who you trust and count on to act as you wish, even if it is against their values, you’ll want to select an estate planning attorney who can create the document to achieve your health and medical wishes.

You do retain the right to revoke or change your H-POA at any time. You can do so verbally, by notifying your agent or your healthcare provider. It may be better to do this in writing. You can also draft a new H-POA, which revokes any previously written documents. 

 However you chose to revoke the H-POA, make sure that your representative and estate planning attorney know that you wish to do this. This should be done in writing to avoid any misunderstandings or confusion.

If you use an H-POA, remember that it supersedes the directions and wishes of anyone except you: that includes your wife, your children, your next of kin and your healthcare provider. 

If you chose to have lifesaving care, your agent cannot tell your doctor to withhold care.

 You should also tell your spouse, next of kin and any children that you have named someone to the position of H-POA. Make sure to also tell that person, so it is not a surprise to them. They may choose not to take on the responsibility, so be prepared with a contingent person. 

Talk with an estate planning attorney to make sure these documents are drafted carefully and correctly.

Resource: The Daily News (Memphis) July 25, 2018 “Choose Health Care Power of Attorney Carefully”

The Costs of Dementia

Most everyone knows about the cognitive effects of Alzheimer's Disease. The science regarding how the disease works may not be well understood, but its impact on the mental abilities of patients are easy to see.

Older Americans rightfully worry about getting Alzheimer's and what it will mean for their cognitive abilities. However, what many often overlook are the effects the disease can have on patients' finances.

The Washington Post explains this "Facing financial reality when early dementia is diagnosed."

The financial costs of Alzheimer's can go far beyond health care and assisted living expenses, which can be astronomical. Because the disease impairs patients' mental abilities, even in its early stages it can have a negative impact on a person's ability to manage finances. Patients often forget to pay their bills. They give more money than they should to charities. And, in many cases they fall victim to scams.

The net effect is that patients can easily lose all of their money just when they need it more than ever.

Planning ahead can help guard against this problem.

By getting a General Durable Power of Attorney now, you will be granting someone else the ability to manage your finances when you are no longer able to do so for yourself.

Talk to an elder law attorney about how to get one.

Reference: Washington Post (Oct. 28, 2016) "Facing financial reality when early dementia is diagnosed."

Understanding Alzheimer's Disease

Everyone knows what the end stage of Alzheimer's disease is like. Thinking about getting it can give anyone the chills. What are not as well known are the early stages of the disease and the current state of scientific understanding about them.

Recently, the New York Times attempted to explain that in "What Is Alzheimer's Disease?"

Anyone who has ever lost her car keys and wondered if she was getting Alzheimer's can rest easy. Minor lapses of memory are common and often increase with age. They are not necessarily a sign Alzheimer's is present.

Alzheimer's is diagnosed by assessing memory loss that regularly impedes basic life functions. Beyond that, however, the current scientific knowledge about the disease is somewhat lacking. It is uncertain what causes the disease in the majority of cases.

A genetic marker that has been shown to increase the likelihood of Alzheimer's is only present in a minority of patients. Medications are available to treat Alzheimer's, but they only slow its rate of progress for a little while. There is currently no cure.

Even though there is still a lot to learn about Alzheimer's disease there is something that everyone can do about it. Everyone should get a health care power of attorney and a durable general power of attorney so that if they are unfortunate enough to get Alzheimer's a trusted person can have legal authority to handle their affairs.

Reference: New York Times (April 30, 2016) "What Is Alzheimer's Disease?"