By KARL KIM, CFP, CLTC
The most common objective of adult children with aging parents is to have their parents’ finances organized to minimize stress in a health care crisis. Parents want to protect their home and assets from having to be spent down to pay for home care, an assisted living facility, nursing home or the government. They also don’t want to be a burden on their children. Having a comprehensive blueprint like a Retirement Crisis Plan℠ done as soon as possible is very important as parents age.
Here are five of the most common things identified in a Retirement Crisis Plan℠ that need to be done.
1. Account Inventory. The first step is to determine what accounts are open and what are closed. This includes bank and credit union accounts, brokerage and mutual fund accounts, individual stocks held in street name or certificate, life insurance, annuities, IRAs and other retirement accounts. Also included is vacant land, rental property, time shares and business property.
When a health care crisis happens, the account inventory is always the most challenging and difficult task for the well spouse or adult children. Often, if the parent has had Alzheimer’s or dementia for a while, he/she may have thrown away or misplaced this information. This makes the account inventory more challenging.
2. Account Consolidation. On Friday night, March 28, a 5.1-magnitude earthquake hit the Fullerton-La Habra areas very hard. As a resident of Fullerton, being at the epicenter of the quake, it felt more like an 8 magnitude. My home was violently shaking, the shutters flew open and things were flying onto the floor from the medicine cabinets.
I flew out of bed, grabbed the dog and tried to grab my wallet and car keys. I had shorts on with no pockets. I was in a panic, so I just left everything and ran out of the house. In retrospect I should have had everything together to be easily grabbed. Now, I have these things in a Crown Royal sack on my dresser so I can just grab everything with one hand and don’t have to search in a time of panic.
The same idea applies to accounts. In a health care crisis, you don’t want to be dealing with ten or more different companies. If accounts need to be closed and funds moved around, dealing with as few companies and accounts as possible is the goal.
Once again, a Retirement Crisis Plan℠ can help in the consolidation process. Having fewer accounts makes it easier for parents to manage in the near term. In the event of a health care crisis, it is also easier for the children to manage and gather data for.
3. Account Titling. With all of the remaining accounts and assets, if any account needs to be closed, can those proceeds be deposited into a checking account? Because of the Patriot Act, you cannot assume that this will be the case.
The Patriot Act was created to prevent terrorists from freely moving money around from financial institution to financial institution. Now, checks can only be deposited into accounts with “like” titling.
Here’s an example. Mom, a widow, has a joint bank account with her daughter. She also has a joint brokerage account with her daughter. Mom becomes incapacitated. Daughter goes in to the brokerage firm and closes their account. The firm issues her a check made payable to mom and daughter.
Daughter then goes to the bank and deposits the check into the joint account with Mom. The bank will accept this because the titling is “Like to Like” or joint to joint.
Here’s another example. Mom and daughter have a joint account at the bank. But the brokerage account is titled in the name of Mom’s living trust. Mom becomes incapacitated. Daughter goes in to the brokerage firm and closes Mom’s account. The brokerage firm issues a check made payable to Mom’s living trust. Can daughter deposit this into their joint account at the bank?
The answer is no because it is not “like to like.” Improper account titling becomes a major problem when a parent has severe Alzheimer’s or dementia. In order to open a new bank account in the name of the trust, Mom has to have capacity as well as valid California ID. To avoid this dilemma, a review of the account titling is recommended. If an account or asset is closed or sold, can the check be deposited into the checking account?
Often, attorneys will tell their clients to title all of their accounts in the name of the living trust to avoid probate. Often, this only complicates the planning situation. There are ways to title accounts to avoid probate and allow management without being titled in the name of a living trust. It is recommended to consult a knowledgeable financial professional.
4. Account Access. Should the parents become incapacitated, do the children have immediate account access to write checks and other banking matters? Unlike the old days, the presenting of attorney-drafted Durable Powers of Attorney for Asset Management will not allow the children to immediately access the bank accounts. It is the policy of banks today not to accept the attorney-drafted documents.
To make sure that there is access available, the attorney-in-fact needs to be on the bank computers for the parents ahead of time. This applies only to banks. Credit unions, security and insurance companies will accept the attorney-drafted Powers of Attorney.
5. Add Beneficiaries to Your Accounts. To avoid probate, beneficiaries can be added to bank, credit union and securities accounts titled individually or jointly. The account doesn’t have to be titled in the name of the living trust to avoid probate.
The beneficiary should never be the “estate of,” a living trust, or blank. The beneficiary needs be a person. This will avoid recovery by the state after death. Avoid disinheriting grandchildren by using the “Per Stirpes” designation.
It is always a good idea to keep copies of all new account forms showing who the beneficiaries are. Many banks have merged or been bought out over the years. If your IRA was open with a bank that is no longer in business, the current new bank may not have the original paperwork with the beneficiaries on file.
Upon death of the account holder, if there is no paperwork designating a beneficiary, the institution may make the check payable to “The Estate of …” If this happens, then the proceeds of the account may be recovered against by Medi-Cal.
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Karl Kim, CFP, CLTC is the president of Retirement Planning Advisors, Inc. and a Medi-Cal specialist. His office is located in La Mirada. He can be reached at (714) 994-0599 or at www.RetirementCrisisPlanning.com. He has submitted over 1,000 Medi-Cal applications over the past 20 years with a 99.9% success rate. This is meant to be an educational article. His book “Don’t Go Broke Paying the Nursing Home: How Californians Can Protect Their Home, Cash and Retirement Accounts” is available at Amazon.com. Do not make any decisions solely on the information in this article. Consult your tax advisor, financial advisor or attorney before taking any action. We are not responsible for any inaccuracies or misinformation.