As an asset protection attorney I’m concerned with everything that threatens my client’s wealth, not just lawsuits. One of the issues we are seeing more often is the exposure that is generated by parents, siblings, and even children that fail to plan for their own financial future adequately.
Some elderly people assumed they would never outlive their money which is increasingly not the case due to advances in medical technology and health education. In other cases, especially among first generation immigrants, there is a simple lack of education on options and awareness of expenses.
I increasingly ask my successful clients to address these important financial issues with their families as carefully as they do for themselves. This is especially true in current economic conditions, when many retirees have lost a large portion of their net worth and assets due to market fluctuations and loss of home equity they may have been relying on as part of their income.
For those who already know that they will be responsible for supporting their parents and other family members, I provide some specific instructions:
Make everyone get at least a simple estate plan — the cost of you paying for theirs will be less than the costs of probate, litigation, and disputes. For those with possible dependents who have a net worth above $1 million we also examine possible estate tax exposures based on estimated pending decreases in the current estate tax exemption.
Examine Medicare/Medicaid asset protection planning. In many cases your family member who needs extensive Medicare/Medicaid coverage will lose what assets they do have, potentially including their home itself, to the state before their coverage kicks in. You can help them legally avoid that if you are five years ahead of the exposure.
Consider buying some life insurance for others, including your parents, children, and their spouses, at least during critical earning/child-rearing years. If you have a child or in-law that is left alone as a homemaker how long will they be able to support their current lifestyle and personal overhead? Consider the same for your parents and in-laws for whom your family may need to provide.
Think about buying long-term care coverage on older folks who are likely to need care due to an illness or increasingly, simple advanced age. The costs of high quality long-term care can easily be six figures a year and home care for parents in many modern two-income families is not a realistic option. What would the effect on your family be if you or your spouse had to stop working to provide home care? If they never need it you may even be able to get your money back using a “return of premium” rider option.
Review the health care coverage your potential dependents have in place and if it is realistic in what it provides given current healthcare costs. A variety of supplemental plans are available that can help protect them and your savings from unexpected costs. Consider increasing their coverage out of your own pocket as a hedge, it will almost always be cheaper than paying those costs in cash. Many bankruptcies in this country are classified as “medical bankruptcy” based on exposure to costs.
As mentioned, not all costs are incurred by the elderly. Many young people in mid-level jobs and heavily affected business sectors are facing the prospect of moving back in with their parents or relying on them for help with key expenses. These dependents will have the obvious food and shelter requirements, but more importantly those that did have health and life insurance will either no longer be covered or have COBRA insurance payments that are so high they are unmanageable.
If you have children or other family in this position start thinking about this now and at least have the outline of a plan an understanding of the costs. It’s also beneficial to outline your concerns about these specifics for young people who have thought no further than the availability of their old room. A good understanding of the economic effect of these changes on even affluent families can be dramatic and if fully understood may lead to the young person changing their expenses or taking another job that is less than their “dream job” instead of falling back on you and your savings until they can get on more stable ground.
Additional Reading on This Issue:
When the Budget Calls for a Move Back Homehttp://online.wsj.com/article/SB10001424052970204443404577052111643163408.html
When Cousins Cost Youhttp://online.wsj.com/article/SB10001424052970203710704577054122507578512.html