The nine things everyone must know

As we begin our New Year, now is a great time to make sure you have your estate planning and long-term care planning affairs in order.

The following are the nine things everyone must know:

1) The 3 Phases of Life

There are 3 phases of life, and each phase requires different kind of planning. First are the Maturing Years. Second are the Senior Years. And finally, are the Post-Death Years.

2) How Health Care Reform Affects You

In 2014, Medicaid will be opened to all people that do not have health insurance and whose income is up to 133 percent of the federal poverty line.

There will also soon be Medicare bundling where physicians, hospitals and providers are paid a flat fee for services rendered for one health occurrence versus separate billing.

There really is no big benefit in Obamacare for seniors.

3) How to Protect You and Your Loved Ones with Good Legal Documents

It is very important that everyone have advance directives in place as they age. Advance directives include powers of attorney for health, powers of attorney for property (with long-term care authorizations), living wills, and DNRs to name a few of the most important.

The greatest threat to the financial security of middle-class and upper middle-class Americans today is the devastating cost of long-term custodial care. A spouse or family member does not have the authority to act on your behalf without powers of attorney for both property and health.

If something should happen without these documents in place, your family will have to obtain guardianship through the court system, and this process could take up to three months. The average cost of custodial care in the Chicago area is $6,000 to $10,000 every month! That’s up to $30,000 out of your pocket.

The bottom line is you can plan ahead and choose who will make decisions on your behalf or you can deal with the consequences and be forced to have the court pick someone else who will make decisions for you!

4) What You Need To Do for Proper Estate Planning

At a minimum, you should have in place wills, trusts, powers of attorney for property and powers of attorney for healthcare. The problem is that there are many different kinds of wills, trusts and powers of attorney. It is not a one-size-fits-all matter.

Depending on your age and your needs, these documents will differ from person-to-person. Do not let someone lead you to believe that as long as you have one of the above documents you are covered. It is more likely than not that the documents that you have are inappropriate for your age and stage of life.

5) How to Pay for Long-Term Care

People are living longer due to medical advances, and this means people are living longer at home with caregivers, both family and professional, and they are living longer in assisted living and nursing facilities.

Long-term care insurance may seem like a great solution but not only is it difficult to obtain, but it is also very expensive. The Medicaid long-term care program is the best option, but you have to be (or become) eligible, and you need advice on how to use this program. There are very strict income and asset eligibility hurdles that have to be crossed.

6) Federal and State Estate Taxes

Most of you do not have to worry about federal and state estate taxes. Earlier in 2013, the federal gift and estate tax exemption was raised to $5,250,000 per person at a 40 percent tax rate, and the portability feature of the federal estate tax law was made permanent. Additionally, Illinois has an estate tax exemption of $4,000,000 per person.

Most of you will however be affected by the 2013 increase in the payroll tax, which funds Social Security. For the two years prior to 2013, the tax was 4.2 percent, but on January 1, 2013, the rate went back up to 6.2 percent on the first $113,700 of wages.

7) How to Plan for Retirement

You need to focus on the whole picture when planning for retirement, especially income tax issues. IRAs and 401(k)s help in retirement, but knowing how to get to “deaccumulate” or take distributions from these types of assets is critical towards living a long and solvent life financially.

8) Social Security Planning and Medicare Traps

For single people, it is simple to figure out when to take your Social Security benefits. But for married people it is a different story when each spouse works. If you are a two-worker couple, you must compute the optimal time and way to take your benefits to ensure you are receiving your benefits the best way.

9) Probate and Guardianship

Probate and guardianship judicial proceedings take place in the probate court and often play a very useful role when necessary and brought on by unfortunate circumstances in our society.

However, to the extent that you can take it upon yourself to avoid judicial intervention in guardianship during your life and probate after death, sometimes it is wise try to do so. Most commonly, guardianship is avoided with adequate powers of attorney, and probate is avoided with reliance on living trusts.

Authors’s note: As you can see, as 2013 wraps up there’s a lot to think about. Every one of the categories described above is a subject of in-depth seminars that I conduct throughout Chicagoland. Obviously there’s not enough time to discuss all of the nine points above in depth, but this is a good time to set up a review meeting to make sure that all of your ducks are in a row.

For more, call 847-292-1220, e-mail abferraro@abferrarolaw.com or visit www.ABFerraroLaw.com.