BOSTON (AP) — Relief to seniors facing high prescription drug costs is one of the first changes to come under the health care overhaul. But that won’t offset the relentless increase in retirees’ medical expenses. A couple retiring this year will need a quarter of a million dollars, on average, to cover medical expenses in retirement, according to a study to be
released Thursday by Fidelity Investments.

The estimate is up 4.2% from Fidelity’s projection last year. The financial services company has updated its estimate annually since 2002 as part of its business helping employers design workplace benefits programs.  The study is based on projections for a couple of 65-year-olds retiring this year with Medicare coverage. The estimate factors in the federal
program’s premiums, co-payments and deductibles, as well as out-of-pocket prescription costs. The study assumes no employer provided insurance in retirement, and a life expectancy of 85 for women and 82 for men.

The estimate has risen 56% from Fidelity’s initial $160,000 projection in 2002. The average annual increase has been 5.7%, so this year’s 4.2% rise — from $240,000 last year to $250,000 — is modest.  But with broader inflation near zero amid a recession, health care costs continue to rise faster than other expenses, said Sunit Patel, a senior vice president at Fidelity.

The findings illustrate the importance of factoring in health care alongside housing, food and other expenses in retirement planning. “It turns out to be a surprise for many, and one of the largest expenses in retirement,” Patel said. The increase in this year’s estimate was relatively small because a surge in patent expirations for brand-name drugs meant many cheaper generic versions reached the market, Patel said. That helped limit out-of-pocket prescription costs.

Fidelity’s estimate doesn’t factor in most dental services, or long-term care, such as costs from living in a nursing home. A 2008 study by Fidelity estimated a 65-year-old couple would need $85,000 on average to cover insurance costs for
long-term care in retirement. Thursday’s study also didn’t account for the health care overhaul that President Obama signed into law Tuesday. Fidelity was updating its 2010 estimate before legislative details were clear, Patel said.

The law’s focus is expanding access to people under age 65. But it also would benefit many retirees by gradually closing what’s known as the “doughnut hole” coverage gap in the Medicare drug benefit. Seniors fall into that hole once they spend $2,830 per year. The legislation would begin narrowing the gap by providing a $250 rebate this year. The gap would be fully closed by 2020, when seniors would still be responsible for 25% of the cost of their medications until Medicare’s catastrophic coverage kicks in.

Patel said the gap’s closure is likely to yield only a “very modest” reduction to Fidelity’s $250,000 number.

Parents typically don’t like to burden their kids with their financial problems. That hesitancy can sometimes lead seniors to choose financial solutions that charge high fees and often don’t deliver what they promise.

Reverse mortgages – advertised so frequently on TV and other media  have become a major attraction for people over the age of 62 who need to pay medical bills or otherwise have a need for cash. They are perfectly legal transactions under the law – they are called “reverse” mortgages because of the way they work. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a lump sum or monthly cash payment, or as a line of credit.

But reverse mortgages can be costly solutions to a senior’s cash crunch. Closing fees on a reverse mortgage can go as high as 7 percent of a home’s value, compared to a typical high of 3 percent for conventional mortgages. If not part of HUD’s HECM program, Interest rates can also be higher than conventional market rates on a reverse mortgage. The lender may also require mortgage insurance and monthly servicing fees.  If the homeowner doesn’t live in the house for long, a reverse mortgage can end up being an extremely expensive short-term loan.

Plus, there is a counseling requirement that adds time to the process.

But if children or other close relatives have the means, they can buy the house outright or essentially create a private reverse mortgage. Either way, the parent gets the benefit of more cash in their pocket and the adult child may receive some attractive tax benefits.  A family reverse mortgage will also avoid the limitations on age 62 and older and type of residence that would be imposed by another lender.

Advice is the first step in this process. A financial planner can team with a tax professional to advise children and parents on these options. A promissory note will need to be written to reflect a revolving credit agreement, and depending on state or county requirements, deeds and other paperwork will need to be filed with local authorities.  A loan must be properly documented so as not to trigger the gift tax, and must be at a fair market rate (the applicable federal rate or higher) so as not to be considered a gift.

It’s a good way to keep an asset in the family. When the owner dies or moves away, the house can be sold, the loan paid off and any leftover equity value can go to the living owner or the designated heirs.  Heirs don’t even have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within a stated time period including extensions.

Also, it’s smart for parents to buy additional life insurance which can pay estate taxes if necessary.

It’s particularly important to structure and record the loan legally so it’s less likely to be challenged by other family members after the parents die, but that’s why it makes sense for all family members to be brought in at the idea stage. It’s also a good idea to do a title search, in case there are any surprise liens on the home.

There is one other possibility – for the adult children to buy their parents’ home outright and allowing them to live in that property. It’s a way to avoid any and all transaction costs and keep one or both parents in the home for as long as they are able, avoiding the whole loan question altogether.

April  2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V. Higgins, CFP, CLU, AEP, a local member of FPA.

As the holidays approach, plenty of couples think about marriage. That includes older couples with kids, accumulated assets and debts and previous marriages behind them.

That’s why marriages for older individuals require a specific sort of planning. For couples making another effort at marriage, a prenuptial agreement can either set the groundwork for a new and trusting relationship or reveal that money issues may prevent the marriage from working well.

It’s actually not the agreement by itself that makes the difference – it’s the way the couple gets the agreement down on paper. When two parties sit down to formalize a prenuptial agreement with their respective mediators or attorneys, it requires both sides to make full disclosure of their current financial situation and long-term money goals.

Prenuptial agreements can be considerably more complex for couples making a repeat trip down the aisle. Money issues are not just a matter of full disclosure between two people – in remarriage, they can affect a much wider audience including aging parents, siblings and children and ex-spouses from previous marriages. In some cases, there are sizable business and personal assets gathered before the upcoming wedding day that must be protected.

It is always wise to consult a financial advisor such as a CERTIFIED FINANCIAL PLANNER ™ professional to set the ground rules for this process, though legal documents that hold up in court generally need review by respective family law and estate attorneys.

Here are the primary issues any remarrying couple should discuss ahead of a formal engagement:

Families first: Blended families bring their own financial complications. Indeed, if couples are bringing children from previous marriages into a blended family, it’s necessary to establish not only how they will be supported and educated, but also what percentage of the family assets they will be entitled to in case their biological parent dies. There may be alimony and other support arrangements already in place for ex-spouses and children from earlier marriages as well as elderly parents to support. All of these financial requirements need to be understood and spelled out beforehand.

Is there debt? And if so, how much?

The first money conversation should take place at a table with both sides showing their credit reports, savings, investments and debt figures – every dime. Both should start the process of talking about how that debt should be paid off – by the person who accrued it, or by both potential spouses. Couples also need to decide how they will handle debt going forward – jointly or separately.

What about investments?

If so, how will they be handled once the couple is married? Will these investments be held after the marriage is in joint tenancy? Are some of the investments promised to children, ex-spouses or other family members? From a tax or estate perspective, does it make sense to do anything specific with those assets before the wedding? And after the wedding – assuming debt is being dealt with – how will you maximize those investments?

What about company assets?

If one or both spouses run their own companies or partnerships, it’s a huge planning priority. That’s particularly true if other family members work for their respective companies. Depending on the size and complexity of the operation, some advisors might encourage couples to go through a formal valuation process of those assets to establish a base of wealth going into the marriage. A prenup could spell out who will get future percentages of those assets if the couple splits – this is particularly necessary if the goal is to keep the company in the hands of the founding family.

Handling daily expenses:

This is a universal question in any marriage, the first or the sixth. Couples need to agree on how they’ll share accounts and pay bills. The most common option is to create one joint account. Others work with three accounts – one joint and then one for each individual.

What about insurance?

Life, health, home, and disability – all coverage that singles hold separately needs to be reviewed and consolidated to make sure the couples and their families have adequate coverage after the wedding.

What about our estates?

Blended families with means produce a surprisingly complex estate picture. Engaged couples need to begin addressing this need before the wedding. A qualified estate attorney who understands the variety of estate issues affecting the assets, business issues and philanthropic commitments of blended families is a particularly good investment and can work with financial planners, tax attorneys and accountants to create an estate plan for the couple that makes sense and minimizes conflict among heirs.

What about retirement?

Retirement discussions go beyond money. Couples should decide how they want to live in retirement, whether they’ll continue to work and what will happen if one or both get sick. This is a particularly important discussion if one spouse is significantly older than the other and may retire years ahead. There needs to be a close look at what retirement assets have been accumulated by both parties and how they’ll be shared during the marriage and after the death of one or both of the spouses.

What about our tax status?

It makes sense for couples to consider their tax status before they marry, particularly if there are sizable business or personal assets being brought into the marriage or past tax liabilities. In any event, remarrying couples should involve a tax expert in all pre-marital financial planning.

March  2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V. Higgins, CFP, CLU, AEP, a local member of FPA.

By Srikumar Rao

We drove upstate from Manhattan for a while, parked, and headed out into the forest. The first two hours were just fine.

We had an enjoyable late lunch. I didn’t want to litter, so I put the empty root beer bottles back in my pack, and we set out again. It was not so fine after that. My shoulders ached. My arms felt as if they were dropping off.

Finally, I discarded my inhibitions about littering along with the root beer bottles. I found out “who did it” in the thriller because I finished it after lunch, but I never discovered why the upright, aristocratic family disintegrated after two generations. I paid a fine for both “lost” books. And somewhere in the Adirondacks, a four-hour hike from I-95, nestled in the hollow of an evergreen’s roots, is a white casserole dish with a bright blue flower motif.

I understand why experienced hikers pay hundreds of dollars for super-strong, lightweight rope and a tent that weighs a pound less than another brand. You don’t want to carry any extra stuff on a long journey when you’re on your own. The manager of the space shuttle program cheerfully forks out tens of thousands of dollars to lop a few ounces off the payload and considers it money well spent.

You too are on a long journey and are on your own. It is called life. You came into it alone, you will depart it alone, and in between — even though you may be surrounded by others — you are essentially alone.

The mental detritus that you insist on carrying around on this journey is every bit as enervating and debilitating as the physical stuff that slows you down on a long hike.

A marriage counselor I know was speaking about the reasons couples split up. “The number-one reason they are unable to come to terms is that they never let go,” he explained. The wife remembers in startling detail, including dates and times, all the sarcastic remarks her mother-in-law has made. She cites all the times her husband has forgotten birthdays, spoken slightingly of her friends, disparaged her efforts to beautify their home.

The husband recalls, equally accurately, the number of times she has prevented him from going to a game he really wanted to see, the friends she froze out of his life, and the numerous occasions she “had a headache.” “Crap happens in every relationship,” the counselor went on. “The ones who survive are the ones who can drop it, clean up, and move on.”

You also are carrying heavy burdens, and the odds are quite good that you don’t even recognize it. Is there a colleague at work whose presence fills you with distaste and a feeling of dread? Do you find yourself reacting viscerally to a relative? Do you “know” that a meeting your boss has called is going to be a total waste of time? Are there people who rub you the wrong way, social situations that make you uneasy, tasks that bore you to death?

If you answered “yes” to any of these questions, then you’re bowing under the weight of your load.

“Whoa!” I hear you say. “This is just knowledge. I didn’t create this stuff. I merely recognized it.” This is a common reaction. A jerk is a jerk. When you have had many experiences of the “jerkiness” of an individual at work, it is easy to label him a jerk and treat him as such.

But I am not really concerned with that individual. I don’t even care whether he is or is not a jerk. What matters is the feeling you have toward him. The groaning expectation when you meet him that the interaction will be distasteful. The dread you feel beforehand. That is the burden you carry. That is the sum total of the experience that you have not let go.

It is possible that at least some of that person’s “jerkiness” comes from the prison in which you’re holding him — and yourself. The Pygmalion effect has been well documented. In one study, teachers who were told that randomly selected students were “very bright” developed expectations that those students would perform at high levels. Lo and behold, they did far better than their peers. Other researchers have found similar effects in a variety of settings. Your expectations do affect the outcome you observe.

Watch a baby gurgling happily and chugging milk from his bottle. Now take the bottle away. He screws up his face and bawls. He turns red. There is no doubt at all that he is really angry. Now give his bottle back. In seconds, he is back to a state of contentment as he drains the bottle.

Babies know how to let things go. When they are angry, they are angry. When they are sad, they are sad. When they are finished playing with a toy, they are done with it. They don’t carry anything around. Each thing that happens to them is something new to be experienced in the moment.

Your problem is that you carry stuff around. Over time, the accumulation becomes burdensome indeed. Drop it.

Drop the Useless Baggage You Carry Around

Are there troublesome people in your life? The next time you meet one, forget the history. Don’t expect that the interaction will be unpleasant. Expect that it will be delightful, and if it isn’t, then let it go. Don’t carry it over to the next time you meet.

Do the same with unpleasant situations. Note how many times your existing expectations sour your experience. Consciously drop the past. It’s hard, but with practice, you will get the hang of it.

[Ed. Note: This essay is an excerpt from Dr. Srikumar S. Rao new book, Happiness at Work — Be Resilient, Motivated, and Successful, No Matter What. Visit www.srikumarsrao.com for more of Dr. Rao’s articles and to buy the book. You can also follow him on Twitter: @srikumarsrao.

And for more practical – but life-changing – strategies like the one you just learned, check out Dr. Rao’s Personal Mastery Program. Dr. Rao can help you tap into your hidden potential to achieve personal and professional success and boost your spiritual well-being.

As people move into their 50s and 60s, priorities change. The hours spent on home improvements and the sheer time necessary to maintain a full-sized home seem to be a little more of a burden. As kids move on, there’s all that unneeded space.

Men and women tend to turn on the gas in the last 15-20 years of their working lives to make sure their retirement savings will be adequate to their needs. That’s why the idea of downsizing is a good one to start early. It’s also a good time for a financial check-up as well.

A CERTIFIED FINANCIAL PLANNER™ professional may not be able to help you sort out what dishes and furniture to sell or give away, but he or she would make a good first stop in developing a complete downsizing strategy involving assets, investments, career and overall financial lifestyle planning. With life expectancies lengthening, many people 50-55 years of age could conceivably be at only the midpoint of their lives.

What is the chief advantage to downsizing? Handled correctly, it can save a lot of money. Selling a larger home – possibly one that still has a mortgage – in favor of a smaller house or condo that’s completely paid off can save potentially tens of thousands of dollars in interest payments over time while still building equity. The earlier the process starts, the better.

Here’s a checklist of considerations in downsizing your life:

Get advice first: As mentioned, downsizing should be a holistic process, a chance for a check-up of your overall finances while identifying things, expenses and habits in your life that you can jettison. A CFP^® professional can give you a push by asking important questions that will get you to a better place financially. It’s helpful to set up a plan to extinguish debt in all of its forms and move on to a check-up of savings, investments and estate matters.

Downsize potential health issues: No matter what the final effect of health reform on pocketbook issues, your out-of-pocket and premium-based health costs over time will be cheaper if you take steps to better maintain your health. Make weight and other personal health maintenance issues a new priority as you move into your pre-retirement years.

Plan for a retire-career: You might be working for a company or organization that has a mandatory retirement age or you have a year in mind when it might finally be time to pack up and go. And there’s nothing wrong with a retirement devoted to travel and leisure activities. But if you think you won’t be able to afford to quit working completely or if doing nothing will eventually drive you nuts, consider getting some career counseling, personality testing and do some research now that will help you train for a new full- or part-time career for after you retire from your present job.

Start thinking about real estate and new places to live: Today’s retirees don’t necessarily have to move to predictable retirement destinations. Telecommuting allows many people to continue working lives and education from anywhere. For many people, the magic combination might involve cheaper real estate, desired weather and activities, travel options and access to good doctors and quality health care facilities. Decide what kind of home you could see yourself living comfortably in at age 70 or 80. This combination of factors might happen in a surprisingly large number of places based on individual preference. To get you thinking and hone your expectations, start with resources like U.S. News & World Report’s online “Best Places to Retire” selection tools.

Talk to your family: It’s really important to discuss not only your expectations for later in life with your family members, but it’s important to get their feedback on what they consider good ideas for you. There may come a day when you need to rely on others for help, and it would be a good idea to identify how realistic that is. Also, if you’re talking about downsizing certain assets or property that might have been in your family a long time, it’s important to discuss that with others who might be affected by that decision.

Start weeding: Physical downsizing isn’t something that’s done in a month. Give yourself a year to go through each room in your home and prioritize what you’re really going to need if you move to a smaller place. Make a list of what you hope to give to friends and family members and what you’ll donate or trash. Time will give you more opportunities to put good, usable items in the hands of people who could really use them. Develop a recordkeeping system that fits you so you won’t forget any decisions you’ve made along the way. Also, you might want to set up a separate area for family photos and other keepsakes that have high emotional value and set up a hopefully egalitarian system for who will get what either when you move or when you die.

Don’t start upsizing later: When you do move, chances are you will need to invest in some new household items or possibly furniture to match new surroundings. Try to avoid going overboard with this – that’s why thoughtful downsizing should prevent a lot of spending for stuff you’ve already chucked. Oh, and make a permanent life decision if possible not to start re-using credit cards or mortgage debt if you can possibly avoid it in your later years.

March  2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V. Higgins, CFP, CLU, AEP, a local member of FPA.

By Mark Colgan, CFP

By definition taxes are a fee charged by the government on a product, income, or activity to support public prosperity. This is assuming you are talking about monetary taxes. There is, however, an even heavier burden people often contend with. It is the devastation of personal legacy taxes. By definition personal legacy taxes are the negative consequences survivors face as a result of an individual dying without having properly documented her/her values, life lessons, memories and final wishes. If you have ever experienced the loss of a loved one you would likely agree that the absence of this vital information is emotionally taxing.

Before I expand on my concept of personal legacy planning, let me first let me clarify that I am not talking about common estate planning. As you know, estate planning traditionally addresses your material assets and possessions of financial value, and your wishes for how they will be disbursed in the event you should pass away or cannot communicate for yourself. Estate planning is accomplished with tools such as a legal will, trusts, powers of attorney, health care proxies, etc.

Your true wealth, however, is not measured in just dollars and material assets ― and that is where legacy planning comes in. Personal legacy planning addresses your non-material assets, possessions of emotional value. This includes your values, life lessons, memories, and final wishes ― information that is too valuable to risk being lost. It is a perfect complement to your estate plan.

Let’s get more specific. A couple of years ago Bob, a client of mine, called and told me that he had terminal cancer. He wanted to proactively document everything he could think of (both personal and practical) that would be beneficial to his wife. He had already taken care of his estate plan and made sure she was okay financially ― but he was more concerned about her emotional well-being and her ability to move forward after he died.

When I told him about our legacy planning solution, he was relieved. He was able to document practical information about things such as his funeral arrangements, maintaining the household, his plans for the kids, and the location of important documents. He was also delighted to share important personal messages such as thoughts about how and why he loved his wife, favorite memories about their family vacations to Florida, his views on religion, and other philosophical thoughts that he felt could positively impact future generations. The legacy planning process helped Bob gain clarity and confidence that everything that mattered to him would be passed on to those he loved.

Imagine the peace of mind Bob had, knowing that instead of a tangled web of unanswered questions, his loved ones would have all the information they would need and long for.

The absence of a carefully planned legacy leaves loved ones with an impending tax that will burden their soul. Recently, I had a heartfelt discussion on this topic with a professional acquaintance of mine Russell Friedman. Russell is the Executive Director of The Grief Recovery Institute frequently cited grief expert and author of several books related to grief recovery. According to Russell, “Grief is difficult enough without complications, but having interacted with thousands of grievers, I have learned that the absence of a carefully planned legacy leaves them with financial and emotional distress which compounds their grief

exponentially. The real tragedy here, beyond the loss of a loved one, is that these issues are totally avoidable. All you need to do is take the time and energy to prepare a well thought‐out legacy plan.”

Don’t let your fear stop you from doing what you need to do. Here’s what happens if you don’t plan your legacy.

1) Those you leave behind, when burdened by financial challenges and unanswered questions, will often bury their grief in an attempt to survive.

2) Distracted from their natural need to deal with their grief, the grief stays hidden, and since time can’t heal emotional wounds, it gets worse, not better.

3) The loved ones you leave behind won’t know how you really felt about them – I know, you tell them every day, but it is not the same thing.

4) Your loved ones won’t know where to find the vital documents they need to carry out your wishes – you’ll unintentionally leave behind a mess.

5) It can potentially cause incredible rifts between family members leaving emotional holes that can never be filled.

6) You won’t have the opportunity to have these discussions now, while you are still able to see what a powerful impact they can have on the people you love the most.

7) Your legacy will die with you. Your great-grandchildren and other future descendents will only have empty photographs and presumptions about who you were.

Don’t leave your loved ones with a legacy of pain because you didn’t take the time to put together your legacy plan. And don’t put it off because you are young, in good health or have a crazy schedule. It doesn’t matter how old you are, or how healthy you are. Every day the news is filled with tragic stories of young and healthy people whose lives ended suddenly. And while we would all like to believe “it will never happen to me,” the only way to ensure your loved ones are protected is to act now and plan your legacy.

A June 2009 article in the American Journal of Medicine reported that medical bills are behind more than 60 percent of U.S. personal bankruptcies, adding that more than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts.

The article, based on research from Harvard Law School, Harvard Medical School and Ohio University, underscores how a single health crisis can financially destroy both individuals and families. It is information that underscores the need for adequate planning ahead of any health crisis, particularly when known risk factors exist in a family. A financial expert such as a CERTIFIED FINANCIAL PLANNER™ professional can help individuals determine if their insurance and savings options are adequate to handle the possibility of any future health crisis.

If you have time to prepare, most financial planners will advise:

• Creation of an adequate emergency fund to cover several months (usually a minimum of three months and, even better, up to a year) of family expenses if a patient can’t work during their treatment;
• Purchase of separate disability insurance to pay everyday expenses since company-bought disability coverage will likely be limited – the benefits on any individual policy need to be coordinated with the group policy;
• Creation of health care advance directives, health care powers of attorney and financial powers of attorney, health care proxies (each state has a “preferred” document that is accepted; clients need to execute the form for their state of residence) and DNR forms among the examples.
• Building lists of critical phone numbers, major assets and where information on each can be found on investment accounts and other key information in case the person is incapacitated;
• Communicate funeral plans to family members in writing so that wishes can be implemented in the event of death. Even better, complete a personal death awareness document that covers both the practical aspects of death and the interior emotional aspects of death.

But if you’re suddenly faced with a frightening, expensive and potentially life-threatening diagnosis without such preparation, here are some basic steps to take:

Start by realizing it’s not all about the money: If you or someone you love is sick, obtain the best care possible, not what your bank account and health insurance can buy.  A CFP^® professional with experience in dealing with healthcare issues can help you assess your financial situation against various goals for retirement, your expenses, your children’s education and other matters.

Grill the patient’s insurance agent or HR person: If you or family members have bought health insurance through an agent or your employer, insist that they explain exactly what the plan covers and where your deductibles do and don’t apply. Generally, a serious illness will quickly use up the deductible (this is where your emergency fund is important). Pay attention to how much the insurance will pay and how much you’ll pay out of pocket once the deductible is exhausted.

Check on experimental treatment and see how it will affect coverage: If the diagnosis is cancer or some other potentially life-threatening illness, in addition to tried and true treatments, research medical centers offering clinical trials. And, keep in mind that some insurance plans might look askance at certain treatments that could potentially lead to other health issues. Err toward caution in these matters, but if the insurer approves, see if such experimental treatment can get you a break on costs.

Get those directives in order: A health care advance directive is a formal, preferably notarized instruction sheet for doctors to follow in case you or family members are incapacitated. The most commonly known health care directive is a do-not-resuscitate (DNR) order. A health care power of attorney designates a particular individual — a spouse, a friend, an adult child — to carry out your medical wishes if you are incapacitated. Meanwhile, financial powers of attorney designate an individual to handle financial affairs if the sick or deceased are single or did not designate joint tenants for certain assets. Again, each state follows a particular set of documents.

If there isn’t a will or a complete estate plan, make one: A will doesn’t have to be enormously detailed to relieve problems for survivors, but it can create enormous problems if it doesn’t exist. If there is no executed will, the estate is intestate, which means that property is distributed by state laws. Yet it makes even more sense to review all of a patient’s assets to determine if more detailed directives are necessary and most important, to make sure beneficiaries on insurance, retirement accounts and other investments are up to date.

Consider whether you can make monetary support a gift: It’s good to get tax and financial advice on making a one-time gift to support the patient. Would the potential loss of money injure you, and worse, will it injure the relationship? If you don’t think you will be repaid would you be willing to consider it a gift?

Ask for generics and samples: Many physicians are willing to recommend a generic substitute or at least supply you with a few samples of the drug they’re already prescribing. While doctors can’t get away with passing sample drugs to all their patients, always ask. As long as they are prescribing the medication, samples with the proper dosage can provide cost savings to patients.

Begin negotiations before there’s a financial problem: The best time to speak with hospital bean counters isn’t when you’re behind on your payments. Once a diagnosis is made, either you or someone you designate as your agent needs to contact the hospital business office to check on payment schedules and possible discount plans if you are uninsured or fear your insurance may not cover a significant portion of costs. Any creditor appreciates a customer who’s willing to come to the table first.

February 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V Higgins, CFP , a local member of FPA.

Why is estate planning important when you have a child with special needs?

Preparing for the day when you won’t be around to care for your family is a challenge that all parents face. But as a parent of a child with special needs, your estate planning needs are especially complex. Your will, and other estate planning documents you prepare, must address your unique concerns. These concerns may include:

• Providing for adequate lifetime care or assistance
• Appointing someone to manage your adult child’s finances
• Maintaining your child’s eligibility for government benefits
• Avoiding family conflicts

An attorney and other financial professionals experienced in planning for children with special needs can help you draft a comprehensive estate plan to ensure that your child is well-provided for after your death. If you already have an estate plan in place, you should have all existing legal documents reviewed (and revised, if necessary) to make sure they address your family’s needs.

Wills

A will is the cornerstone of any estate plan. It ensures that your money and property is distributed according to your wishes upon your death, and allows you to select a guardian for your child. Without a will, probate assets will pass according to the laws of intestacy, which generally assign a portion of the assets to the surviving spouse and a portion to the children. If your disabled child requires more financial resources than other beneficiaries, it’s especially important to prepare a will that reflects your wishes.

Trusts

A trust is a legal entity that enables you to leave assets to your disabled child (and others) outside of your will. You can create a trust during your lifetime (a living trust) or in your will (a testamentary trust). As the creator of a trust, you can decide what assets will be transferred to the trust, who the beneficiaries will be, what the terms and conditions of the trust will be, and who will manage the trust. Trusts are typically used to:

• Avoid probate
• Manage assets
• Provide for minor children
• Avoid estate taxes
• Protect assets from creditors

One type of trust, called a special needs trust, can play an important role in your estate plan. Specifically designed for the benefit of disabled individuals, a special needs trust can allow you to provide for your child without jeopardizing his or her eligibility for government benefits, an advantage not offered by traditional trusts.

Why use a special needs trust?

Government benefits, such as Medicaid and Supplemental Security Income (SSI) can be vital sources of support for your disabled child, especially if he or she is unable to buy, or afford, private health insurance. But because these government programs are needs based, your child will become ineligible for benefits if his or her countable assets (e.g., cash and other liquid assets) exceed $2,000, the limit that applies in most states. An inheritance, a gift from a relative, or a personal injury award may push your child’s assets over the limit, resulting in the loss of government support.

Unfortunately, government benefits generally provide only basic support. The portion of assets your child is allowed to keep and the small allowance for personal care he or she receives under government benefit eligibility rules may not be enough to pay for necessary items and services, such as eyeglasses and dental care. It is almost certainly not enough to allow the child any “luxuries” such as vacations or gifts for others.

If you want to provide funds that can be used for expenses not covered by government benefits while preserving your child’s eligibility for those benefits, consider establishing a special needs trust. Because assets deposited into, and income generated by, a properly drafted special needs trust will not be considered “available” to your child, they won’t jeopardize his or her eligibility for Medicaid and SSI.

In addition, establishing a special needs trust is often the best way to guarantee that funds you leave are used for your child’s benefit. Although disinheriting your child or leaving money to other family members on his or her behalf may initially preserve your child’s eligibility for government benefits, your child may someday be left without adequate support if these benefits are reduced or eliminated. Another concern is that creditors may attach money left to a family member if, for instance, that family member is held liable for an auto accident or declares bankruptcy.

If you are interested in establishing a special needs trust, consult an attorney who is experienced in special needs issues (including Medicaid planning), and the laws governing special needs trusts in your state.

Letter of intent

A letter of intent is a document that describes how you want your child to be cared for after you’re gone. Although it’s not a legal document, it can provide important information to guardians, trustees, family members, and others involved in the care of your child. The letter may address such issues as your child’s medical needs, daily routine, interests, likes and dislikes, religious practices, living arrangements, social activities, behavior management, and degree of self-sufficiency. Such a letter can prove invaluable to your child’s caregivers after you’re gone, and can also make the transition to a new living situation as smooth as possible for your child.

Beneficiary designations

With certain assets (such as life insurance policies, retirement plans, and annuities) you must designate beneficiaries and/or contingent beneficiaries. You’ll also name beneficiaries under your will. Although your first inclination might be to name your child with special needs outright as your beneficiary, such a designation could jeopardize his or her entitlement to government benefits. Instead, consider establishing a special needs trust for your child and designating the trust as your beneficiary.

Guardianship issues

Although you are the natural guardian of your disabled child during your lifetime, who will care for your child after your death? Selecting a guardian who can act on your child’s behalf after you die is one of the most important decisions you face. The person you choose must be able to handle the complex financial, legal, and personal needs your child may have.

Depending on the extent of your child’s disability, you may also need to choose a person who is committed to serving as guardian even after your child reaches adulthood. The law doesn’t assume that a special needs adult is incapable of handling his or her affairs. After reaching the age of majority (generally age 18), your child is a legal adult. He or she will be judged capable of handling his or her own affairs unless declared incapable by a court. If such a determination is necessary, the guardian you choose now may need to serve as guardian throughout your child’s life.

Guardian defined

A guardian is someone with the legal power to care for another person and manage that person’s personal and/or financial affairs. A guardian can advise your child, manage assets, and oversee your child’s care after your death. Generally, you’ll nominate a guardian, along with several contingent guardians, in your will. The court has final approval, but it will usually approve whomever you nominate, unless there are compelling reasons not to do so.

Types of guardians

There are two basic types of guardians: a guardian of the person, and a guardian of the estate. A guardian of the person is someone authorized by a court to make only personal and medical decisions about your child. Any medical procedure performed on a child requires consent from the parent or guardian. A guardian of the person is empowered to give such consent for medical procedures and also decide where your child will live. Usually, the court clearly specifies the scope of the guardian’s power. (The guardian will also have to report to the court on a regular basis.)

• A guardian of the estate (also called a conservator) protects and manages your child’s money and other assets. The guardian has the following legal duties:
• To take possession of real and personal property and manage it for the benefit of his or her charge
• To spend the estate for the necessary care and support of his or her charge
• To productively invest estate assets

You can nominate different people as guardian of the person and guardian of the estate, or you can nominate one person to handle both functions.

Caution: Each state has its own laws regarding guardianship. Consult an estate planning attorney before choosing a guardian.

Full guardianship

A full guardianship is also called a plenary guardianship. In this case, the guardian has control over both the personal issues and the estate of your child. This is the most common type of guardianship. Typically, you will choose a full guardianship if your child’s problems are so severe that he or she cannot make any informed decisions at all.

Limited guardianship

In a limited guardianship, the guardian has authority over his or her ward only in specifically defined matters. Otherwise, the special needs child retains some control over his or her own life. The court has to pay careful attention to this type of arrangement to be sure it remains appropriate for the child.

Caution: One problem with limited guardianships is that your child may encounter a legal situation you haven’t considered. You have to anticipate the future when you set up a limited guardianship.

Temporary guardianship

If the court appoints a temporary guardian, it specifies the limited problem or limited time of the guardian’s power. Usually a temporary guardian is appointed only in a situation caused by drugs or momentary illness or in a special medical case.

What to consider when choosing a guardian

You may want to select a relative, friend, or trusted legal professional as the guardian for your child. Here are some points to consider as you make your decision:

• Does the potential guardian live close to your child?
• Does he or she have enough time to devote to your child?
• Does he or she have the interpersonal skills necessary to be an effective advocate for your child?
• Is he or she willing to take on the responsibility?
• Do you trust him or her to keep your child’s best interests in mind?
• Does he or she already have a relationship with your child?
• Is he or she willing to keep up with new programs and opportunities for your child?
• Will he or she adapt to your child’s changing circumstances?
• Does he or she have the financial ability to manage your child’s estate?

Caution: Make sure to periodically review your choice of guardian. Your child’s needs may change, or the person you initially chose may become unable or unwilling to serve as guardian.

What if you die before nominating a guardian for your child?

If you fail to nominate a guardian in your will, or otherwise die before making arrangements for a caregiver, the court may appoint a guardian for your child. If a relative does not wish to serve or does not qualify, the court may appoint a professional guardian who is a stranger to your family. The guardianship process can be expensive, time consuming, emotionally draining, and open to public view. In some cases, though, there are advantages to having a guardian with professional expertise.

Public guardian

If a child with special needs has no individual guardian, the court will appoint a public guardian for the child. Usually, this guardian has many other clients as well so he or she may not have time to watch your child’s affairs as closely as you wish. A public guardian is paid out of public funds, but since the guardian also often negotiates with public agencies, he or she may experience a conflict of interest. Public or nonprofit agencies may also be public guardians.

Caution: A public guardian is usually considered a guardian of last resort.

Corporate guardian

A corporate guardian is part of a company that sells guardianship services. A professional staff or a volunteer manages your child’s care. Usually this type of guardianship is funded by advance payment from parents, life insurance policies, or bequests. The United Way and other charities also support corporate guardians.

What if your child does not need a guardian?

Even if your child does not need a guardian (if, for instance, he or she is already a legally competent adult), he or she may continue to need care, advice, and support throughout adulthood. You may want to ask a family member, friend, or other individual to act as a caregiver or mentor for your child. Make sure, though, that the caregiver you’ve chosen has the power to act on behalf of your child should he or she become incapacitated. This can be accomplished by having your child execute certain legal documents, including a durable power of attorney and advanced medical directives. For more information see Planning for Incapacity.

Perhaps the first question should be, “What does a will do?” Your will determines how any property you own at death will be distributed to your heirs – provided you have not made other arrangements.

What other arrangements would you have made? In some cases, you bought property that the deed states who gets it at death. For example, the deed to your home probably lists you and your spouse as joint tenant with right of survivorship – which simply means that if either of you die, the survivor owns it all. Ownership transferred by deed is not affected by the will. Contracts you have made usually state who the subsequent owner will be if the owner dies. An example of this type of contract is a life insurance policy. Also, a business owner may have agreed to a “Buy and Sell Agreement” with a partner or co-owner. If the contract provides for the successor owner, then it is not affected by the will.

Your will expresses how you want your remaining property to pass. But did you know that if you have not written a will, your state government has done it for you? If you die without a valid will, your assets will pass to your heirs according to state law. Each state writes its own intestacy laws that serve as a “generic will” for its residents. Without even knowing what the state will (intestacy law) says, you probably find it offensive to think the state will decide who gets your properties. Creating your own will allows you to express how you want your remaining properties to pass.

Law—Their Way

Lawmakers design the intestacy laws based on what they think you would want to happen. These laws vary from state to state.

Usually, the distributions occur as follows:

• If your spouse survives you, and you have no children, your spouse inherits the estate. However, in some states, your parents and your spouse split the estate or any real estate.
• If your spouse and children survive you, each inherits a portion of the estate, even if the children are minors.
• If only your children survive you, they inherit the estate, and if they are minors, the court appoints a guardian for them.
• If you have no surviving spouse or descendants, your parents inherit the estate. If your parents are deceased, your siblings inherit the estate. If you have no surviving siblings, your next of kin inherits the estate.
• If you have no next of kin, your state of residence takes over possession of your estate.

Will—Your Way

Creating a will allows you to express how you want your probate property to pass. Probate property consists of any assets not contractually promised or jointly owned.

Advantages of a Will:

• You choose who gets your remaining property.
• You designate an executor of your choice to carry out your intentions.
• You can design your will so that you actually reduce estate taxes.
• You can appoint a trustee and/or guardian to manage your assets for your minor children.
• You can amend or revoke the will at any time.

Why create a will? A will allows you to distribute the property you worked a lifetime to accumulate to whomever you choose. A will must meet certain requirements to be valid in your state. Always seek legal advice in creating or changing your will. To be sure your will works as you intend, always consult your legal counsel before signing any contracts or deeds, as they can undermine or contradict your will.

Why create a will? It’s as simple as making distributions at death your way, or their way.

By Maxey Sanderson

Reprinted with permission: PlanLab News