By Matthew A. Quick
Living Wills and Medical Orders
Living wills and medical orders communicate a patient’s wishes regarding health care when the patient is unable. If a person does not have a power of attorney for health care, a living will may be used to inform of the care one wishes to receive. Alternatively, a medical order (referred to as a “Do-Not-Resuscitate Order” or “DNR”) is a document that expresses a terminally ill patient’s wish to not be resuscitated if his or her heart or breathing should stop.
In practical terms, a power of attorney may be more flexible because an attorney-in-fact can respond to unexpected circumstances, but a living will or medical order can be honored without the presence of an attorney-in-fact to make the actual decision. If one does not wish to give the power to make decisions regarding care to someone else, living wills and medical orders are ideal estate planning instruments to communicate wishes regarding care—remember: wishes cannot be honored if they are not known.
A reverse mortgage (also referred to as a “lifetime mortgage”) is a way to utilize the equity of a home without having to sell it. Reverse mortgages were created about twenty years ago by the Department of Housing & Urban Development (referred to as “HUD”) as a tool to save seniors from having to sell their homes in order to pay living expenses, which often led to sales at distressed prices.
A reverse mortgage works just as it sounds—the borrower receives payment from the lender instead of making payments to the lender. Payment may be received by the borrower monthly, in one lump sum, or both (e.g. a lump sum at the beginning and monthly payments thereafter). While the borrower receives payments under the reverse mortgage, the borrower is able to stay in the home. Every payment a borrower receives is added to a running balance and charged interest at an agreed-upon rate. To secure the amount of payments made to the borrower, a mortgage is executed between the borrower and the lender against the home. When the borrower permanently leaves the home, the amount lent under the reverse mortgage, plus any interest, is then repaid to the lender.
To qualify for a reverse mortgage, a borrower must be sixty-two years of age, complete financial counseling and meet any additional requirements of the lender. There are no income qualifications or minimum credit requirements for a reverse mortgage. Further, the proceeds of the reverse mortgage may be tax-free (be sure to consult your tax advisor), and there are no limits on how to use the funds.
In order for the borrower to keep a reverse mortgage in good standing, the borrower must, at least, keep current on the property taxes, maintain the home in good repair and carry insurance on the home. In addition, the lender can end a reverse mortgage and require immediate repayment if, among other things, the borrower files for bankruptcy, rents out part of the home, adds an owner to title or takes out a new loan against the property.
According to a recent study by the Employee Benefit Research Institute, seventy-six percent of workers expect to have the same or higher standard of living when they retire, but fifty percent have less than $50,000 in savings and investments. A reverse mortgage is a wonderful way of continuing one’s standard of living, but not the only way. If a reverse mortgage seems beneficial, contact your mortgage consultant to consider all of the options available.
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Brian Rozycki is a Mortgage Loan Specialist and invites questions or comments via phone at 847.721.7699.
In the last issue of The Estate, we reviewed the basics of life insurance and potential uses. Let us now look towards the details of purchasing a policy.
The question of “How much?” is the primary issue to be addressed when purchasing a policy. In answering this question, we speak in terms of the face amount of the insurance policy, which is the amount paid upon the passing of the individual securing the policy. To come to an appropriate face amount, several factors are considered, which include payment of expenses, debts and income. To determine the appropriate face amount of a life insurance policy, the following website may be helpful: http://www.lifehappens.org/life-insurance/life-calculator.
After the face amount is determined, then we must decide who receives the benefit. Typically, the beneficiary of a life insurance policy will be the income earner’s spouse; or, in a dual income family, the spouses will name each other on their respective policies. In the alternative, the beneficiary of a life insurance policy could be a trust for the care and custody of a child or someone with special needs, or anyone else that the policy holder may designate. In certain situations, estate and tax issues may exist, thus it is wise to discuss the topic of life insurance with your estate planning attorney and financial advisor.
Regarding Term Insurance, to figure the length of the term, the policy holder should determine the amount of time he or she would need insurance. For a 40-year-old person that would need to replace his or her income until a retiring age of 60, a 20-year term would be desired. It is recommended that one initially secures the longest period of time that is needed, as premiums will likely increase if one must reapply in the future. If rates go down for any reason, a policy holder can always cancel the old policy and get a new one with the lower rate.
Life insurance policies can be purchased from several sources. Employers or associations can be great sources that can significantly reduce your rates. For example, teachers can purchase through the National Education Association, which provides life insurance in groups, thus reducing costs. The majority of insurance agents are reputable, but they operate on commission— the more insurance they can sell, the more they profit. Keep the amount of life insurance only to the level needed and only the type needed. Consider, insurance agents’ commissions increase significantly once you leave the realm of Term Insurance and move into Permanent Insurance, thus it is always helpful to get the opinion of your estate planning attorney and financial advisor before securing a policy.
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Clint Edgington invites any questions or comments via e-mail at C.Edgington@bhadvisory.com or via phone at 888.614.4625. Clint is the principal and co-founder of Beacon Hill Investment Advisory and is engaged in the practice of investment management and financial planning. Feel free to visit Beacon Hill’s web site at www.beaconhilladvisory.com.
Michigan has enacted the Uniform Trust Code. Other than bringing Michigan into accordance with the trust laws of several other states, the advantage of adopting the Uniform Trust Code is two fold: it allows Michigan judges to easily look to the laws of other states for guidance in resolving cases and makes Michigan an attractive place to domicile trusts, thereby creating jobs of administration. The law goes into effect April, 2010. Please ensure your trust complies.
I hope this issue of The Estate has been helpful. In the event you have any questions or concerns, or would like to schedule a complimentary consultation, I am available by phone at 773.790.8058 or by e-mail at firstname.lastname@example.org. As a service to all current and prospective clients, I travel at no charge to all meetings and consultations throughout Michigan and Illinois. In addition, informational sessions regarding estate planning are provided free to groups of any size. Please let me know if there is any way I can help and feel free to contact me at any time.