Fleming & Curti, P.L.C. - Does Recession Affect Your Estate or Long-Term Care Plan?

JANUARY 12, 2009 VOLUME 16, NUMBER 25

Does Recession Affect Your Estate or Long-Term Care Plan?

You may have heard the news: we’re experiencing an economic recession. Predictions are that the economy will recover slowly, and we may not see significant growth again for a few years. In the meantime, we may suffer more economic hardship, see higher rates of unemployment and possibly even experience price deflation.

It may not be the most important item on your personal list of questions about dealing with economic hardship, but you might wonder how the recession affects your own estate and long-term care planning. We’re here to provide some guidance and suggestions.

First of all, your will and trust documents (you have gotten those completed, haven’t you?) are still valid, even though your circumstances may have changed. But “valid” is not “optimal,” and it may be time to revisit your planning.

Just a decade ago an estate of $650,000 could be subjected to federal and Arizona state estate tax liability. It almost seems quaint today to recall those times. Beginning with the new (2009) year, the taxability limit increased to $3.5 million — even as many Americans’ estates lost significant value. But that doesn’t necessarily mean that you need to make changes.

Because estate planning lawyers have been dealing with uncertainty for more than a decade now, many wills and trusts already address uncertainty about the taxability of a given estate. The most common remaining problem: estate plans for married couples, written before 1997 and unchanged since then, which mandate division of the estate into two separate trusts on the first death. That may be the right choice if you are still married and your combined estate exceeds $3.5 million, but it is unlikely to be the best answer for the vast majority of Americans.

What about long-term care planning? The recession has hit state and local governments hard, and they were already reeling from the cost of Medicaid care for nursing home residents. It is almost certain that there will be additional cutbacks in long-term care services from government programs. To the extent that you have assumed that the government will be there to provide your long-term care needs, that assumption may not be as defensible as it once was.

On the other hand, the cost of nursing home and assisted living placements barely increased at all in 2008, according to the index published by MetLife each year. Assisted living costs did increase by 2.1%, but average nursing home costs were only up 1.1% and there was a decrease of .5% in private room rates.

Still, long-term care insurance looks to be increasingly important. This will often be true even though the costs may be a larger share of your disposable income.

So what does this mean for your own estate and long-term care planning? Your circumstances may vary, and there is considerable state-to-state difference (because of state estate tax laws and local long-term care practices and funding, among other factors), but here is our best effort at telling you when you should get an estate and long-term care planning tuneup:

Is your estate plan more than ten years old? It's time to have it updated. Much has changed in your life, in tax law, in state law governing advance directives and powers of attorney, and in financial circumstances since you got this important work done a decade (or more) ago. Most lawyers (including us) will tell you that you should have your estate plan reviewed every five years or so. Most of us hope that by saying five years we can actually get you back into our offices in eight to ten years. We are, of course, delighted to see you every year or two -- but most of us are realists, and most of us are overdue for our dental checkups.
Have you moved, or added a family member, or learned of a family member's disability (or inability to manage money) since your last update? You need to get back to your lawyer's office regardless of how the economic situation has changed.
Did you assume you would be covered by Medicaid if you ever needed long-term care? Think again -- and get in to see about long-term care insurance and how the rules have changed since the last time you asked.
Has your net worth dropped dramatically? That may mean you need to update your estate plan, but probably not if your personal high point was in the range of $1 million or less. Estate tax planning was probably not a big part of your estate planning before, and probably need not be now. On the other hand, if your net worth was more than $1 million, and your estate plan reflected estate tax concerns (like having a married couple's estate divided into two separate trusts on the first death), it wouldn't hurt to have those decisions reviewed in light of the current economic realities and changed tax laws.
Have your children's economic circumstances changed since your last estate plan? If you relied on them to be self-sufficient (so that you could leave substantial inheritances to grandchildren, or charities), is that still true? On the other hand, have they thrived despite economic hard times? If so, perhaps you should now be thinking about grandchildren or charities, even though you did not before.