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The Ethical Will When financial advisor Brian Ursu was helping his wife go through her father’s belongings after her mother had passed away, he came upon a letter from the priest in his father-inlaw’s parish in Ireland testifying to his character. A similar letter from the haberdasher who employed the father-in-law likewise made a case for the upstanding gentleman. The endorsements were key to a successful passage through United States immigration and to landing a job once he arrived. “To me, everything else we discovered was much less interesting than that,” Ursu recalls. Though Ursu, of International Wealth Advisors, in Traverse City, has helped people map out their financial futures and legacies for years, he has recently begun helping clients with helping them pass along their legacies in a bigger sense, helping people convey their values to future generations as well. His experience with his father-in-law’s documents affirmed his belief in the value of that kind of assistance. How does that fit with a financial counselor’s role? “We see ourselves as a family’s chief financial officer,” Ursu says. “And values shape how assets will be handled after a person is gone.”
Unfortunately, Ursu has seen it happen during his years in practice. Due to poor planning and assumptions, families end up fighting, splitting up, and doing all kinds of things that would make the deceased person really upset if they were still alive. “Rather than leaving those important things to chance, we see it as taking a more proactive role in facilitating those discussions,” he says. Dealing with those broader issues can take the individual and their family into a couple of different arenas. An advance directive is one common realm. These documents establish how a person wants end of life health care to be administered, including issues like how long an individual would choose to remain on life support and giving direction on balancing quality of life with extreme measures to sustain life. The widely used and respected Five Wishes document is an easy and effective tool in this regard. But Ursu is also encouraging his clients to write what he calls an ethical will. “It is actually an ancient type of document, going back thousands of years,” Ursu says. “A regular will is about who gets what. An ethical will is more like your story, what you’d want your kids to know about you when you are gone. How did you arrive at your opinions and positions that you hold so dear? What is important to you?” Randy Pausch’s book The Last Lecture is a fine example of what Ursu advocates. Pausch was a professor who was diagnosed with terminal cancer in his late 40’s. While he was still strong, he worked with a writer to create a book that laid out a life philosophy based on optimism and pursuing your dreams. The book was ostensibly a long letter to his students and his world, but even more important it was a book to his children, who were still very young. Your ethical will, however, doesn’t have to be a book-length work to be effective. “You can think of it as a letter to your children to be read after you are gone,” Ursu says. After you are gone only? “You don’t want people challenging you on key points of your letter. I just don’t think this is the place for that,” Ursu says.—J.S.
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The Role of Chronic Care Insurance Most people are aware of disability insurance— insurance that pays some percent of your income if you become injured and are unable to work— and of course there’s medical insurance. But what many are not quite as familiar with is a related insurance generally referred to as “chronic care” insurance, that can also help blunt the financial impact of debilitating disease.
To help us understand how chronic care insurance might fit into a family’s overall financial and insurance picture, we checked in with Laverna Witkop, of Ford Insurance. She’s a registered employee benefit consultant who is also certified in health care reform studies.
What is the central value of a chronic care policy? A chronic care policy can help pay for the many miscellaneous expenses that come with being debilitated because the payment comes with no strings attached—often a lump sum payment that you can use in any way you choose. So you can, say, use it to pay for travel expenses for a companion if you have to travel to a hospital and have somebody with you. Or if you need extra things around your house, or extra services, like say, lawn care, when you are sick.
What are some of the important limitations to know about with a chronic care policy? They tend to be illness-specific. For example, let’s say heart disease runs in your family, you might want to take out a policy to cover heart attack. Or say your grandma and your mother both had breast cancer, you might take out a policy to cover breast cancer. You can even get a policy for maternity because having a baby is considered a temporary disability.
So is family health history a key driver in people choosing this type of policy? Yes, it often is.
Give us a sense of the cost. The price depends on many things of course, but just for example, a $5,000 cancer policy for a 50-year-old nonsmoker would be $9.90 a month, and a $30,000 benefit would be $48.80 a month.
Is there anything with the evolving health care situation that affects the role of chronic care insurance? Some Health Savings Account (HSA) plans—which are becoming more and more common—have very high deductibles, like $10,000, and if someone in a family had a heart attack, that could be a very difficult thing to cover. So some people are taking out a chronic care policy to help cover the deductible. We carry a policy that offers a $10,000 benefit for a whole family for $51 a month.
Anything else we should know about chronic care plans? In some cases they can pay for themselves. Say it’s a cancer policy, well, the policy might pay for preventive cancer screenings, so if you are having annual screenings, the cost of those screenings might be equal to the annual cost of the policy.—J.S.
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What’s on YOUR horizon? Holly Gallagher CFP®
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Horizon Financial Independent • Fee based Since 1992
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Double Check Those Beneficiary Forms It happens much more often than you’d imagine. An individual works closely with his or her attorney to carefully map out an estate plan, deciding whom will receive what upon the person’s passing, and then, will in hand, the client leaves assuming the job is done. But there’s a key piece that can be overlooked, and that is the client generally has the responsibility of making sure the beneficiary forms on all policies and investments (like 401K’s, IRA’s, or any other assets) conform with the estate plan. “The beneficiary form on an account trumps the will,” cautions financial consultant Holly Gallagher of Horizon Financial in Traverse City. Failure to update a beneficiary form can lead to situations where, say, an ex-spouse ends up inheriting a 401K despite the deceased person’s will stipulating that it go to a current spouse or children instead.
Gallagher thinks the problem is a somewhat natural outgrowth of the estate planning process. An attorney makes the estate plan and explains to the clients that they need to get all of the beneficiary documents to align. But there’s a lot for the client to think about in that situation, and the attorney might be using language and terms the client isn’t entirely familiar with, and maybe the client is uncomfortable asking for clarification, and then … the final important steps are not taken. “The best situation I’ve seen is where the estate planning is being done as a team,” Gallagher says—a client’s attorney, CPA and financial planner. For example, CPA’s are good at spotting when a client names a trust as a beneficiary, which can have unintended—and often unwanted—tax consequences. For her part, when Gallagher learns that a client is creating or updating their estate planning, she asks permission to contact the attorney and provide the attorney with a list of policies and accounts and the beneficiaries listed for each. “I ask the attorney to compare the beneficiaries on file with me to the current estate planning document to see if any changes are needed,” she says. —J.S.
Property Owners Benefit From Tax Change “Beginning December 31, 2013 a transfer of residential real property (will not uncap the property value) if the transferee (new owner) is related to the transferor (previous owner) by blood or affinity to the first degree and the use of the residential real property does not change following the transfer.” This classic bit of tax law legalese—part of legislation that Michigan Governor Richard Snyder signed on December 28, 2012—should be of great interest to anybody considering transferring property to family on or after December 31, 2013. In layman’s terms, it means that the tax rate currently paid on the property will remain unchanged following the transfer so long as the relationship of the inheritor meets the requirements of the law. So, for example, if an individual owned a cottage on Lake Michigan that was purchased in 1972, the tax rate upon inheritance by a daughter would remain at the level the parent paid. As written, the new law applies only to transfers between parents and their children while both are alive. Some important aspects of the law remain to be clarified. For example, if the property is inherited from Mom or Dad, or is owned in Mom or Dad’s trust, does a distribution from the trust to the next generation count as a transfer from Mom and Dad? What if the property is in a limited liability company owned by Mom and Dad—are transfers of ownership of the LLC the same as transfers of real property? How about property owned by a family corporation or limited partnership? If the answer is “no” to property owned by one of these entities, may the property be removed and put back in Mom or Dad’s name individually without uncapping so that it may be transferred to the next generation without uncapping? Stay tuned to this issue and check with your advisors to see if you need to make changes that would ensure you qualify to receive this tax benefit—the tax implications for your family are potentially very valuable.—David Fry, cottagelaw.com
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Thinking about your vacation property should conjure up thoughts of happy summers, running children, good food, and relaxation. And hopefully, it does. But there comes a time when we turn our thoughts to the future. What thoughts and memories will the next generation hold when they think about your cottage? For too many, the passage of time brings cottage problems. Increasing values will make the property taxes jump, sometimes catastrophically. One of your children may want to keep the property in the family, while another may expect that it’ll be sold upon your death. Whatever the problem, too often these assumptions are unspoken, and unaddressed until it’s too late. The result is a family dispute… exactly the opposite of what the vacation property is supposed to engender.
How do we keep the family cottage? Good planning can often be the key. In some cases, letting the next generation deal with its own problems is wise. However, the first generation can only meet its goals by planning. With no plan, when property is left to the next generation, some will see it as a family heirloom, a place to go to relive old memories and create new ones. Others will see its dollar value, and mwant it sold. Sometimes siblings may have conflicting plans making it difficult to share the property. The specifics will vary, but stress, anger, and bickering become all too common. Planning eliminates uncertainty, minimizes stress, and accomplishes the first generation’s goals. Heritage, money, family, taxes... planning and structuring... brainstorming and counseling. Get some help. Call Jason Rop at Blakeslee Rop, PLC, cottage planning specialists.
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