It's been all about the investments, particularly during the last couple of recession-laden years. However, investors need to be aware that there are plenty of other issues lurking in the background that, if not addressed properly, can come back to haunt them.

Truth be told, those other issues may play an even bigger role in one's financial future.

The good news is that today there are numerous planning opportunities that people should be taking advantage of to maximize their assets. Some, like the ability to convert traditional IRAs to Roth IRAs, have been covered by the mainstream media. Here are some others that need to be considered as well.


On Jan. 1, 2010, the unthinkable happened: The federal estate tax was repealed. People dying in 2010 may pass an unlimited amount of money to heirs without paying a federal estate tax. Prior to this year, individuals could pass unlimited amounts of money to their spouse and $3.5 million dollars to non-spouses before there was an estate tax. There has been much controversy surrounding both the imposition and the repeal of the tax.

However, hidden in all this is something that may affect those with much smaller estates. Depending on how one's will is written, the repeal of the federal estate tax can have several consequences. Many people have wills providing for the funding of a trust at the first spouse's death in order to reduce the amount of estate taxes owed when the second spouse dies. The language used may have directed that the amount funded into this trust should be the maximum amount that can pass free of federal estate tax. This was, at the time, correct.

This could lead to several problems, however, now that the federal estate tax has been repealed for 2010. A literal reading of the clause could cause one's entire estate to go into trust. While many times the trust is for the benefit of the surviving spouse, it does not have to be. Therefore, in certain cases, the surviving spouse can, in effect, be disinherited. At a minimum, it may create administrative difficulties needlessly with trust accounts needing to be opened and tax returns filed. Many trusts were written so that beneficiaries need to ask the trustees for distributions other than those specifically mandated by the trust account.

Another bad consequence involves the state estate tax. While several states follow the federal estate tax laws and have repealed their taxes as well, there are many others that still levy an estate tax. These states still allow spouses to pass unlimited assets to each other without a state estate tax. However, if all the assets go into trust, then an unlimited amount of assets cannot pass the state estate-tax-free. In this case, there may be a tax on the first spouse's death.

At a minimum, individuals need to make sure that their estate plans have been reviewed to ensure that these unintended consequences do not happen to them. Unfortunately, relying on an advisor to do this, when many advisors are not yet aware of these consequences, may not be prudent.


The repeal of the estate tax is for one year only. In 2011, the dreaded tax returns. However, as discussed above, in 2009 the amount of assets that could pass tax-free to a non-spouse was $3.5 million. In 2011, the amount will only be $1 million.

It is likely that many individuals whose estates were not subject to estate taxes over the past 10 years may in 2011 have estates that are above the amount subject to estate taxes. This could be due to the reduction of the exclusion amount, or to the accumulation of more wealth over the past 10 years.

Wills that do not anticipate a federal estate tax, or wills that pass a specific amount into a trust in order to save estate taxes, may now result in undue taxes being paid.

Finally, the likelihood that reinstatement may come prior to Jan. 1, 2011, through a new bill passed by Congress and signed into law by the president, increases the urgency to review all documents and provide flexibility during an uncertain time.


The current economic environment also lends itself to other estate planning techniques to transfer wealth. These strategies should always be considered, and may make even more sense today due to depressed asset values and low interest rates.

The use of grantor retained annuity trusts (more commonly known as GRATs), charitable lead and remainder trusts, and qualified personal residence trusts all allow people to pass assets to beneficiaries at values less than what they would have been valued at if passed directly to the beneficiaries. Even outright gifting of assets, especially those temporarily at depressed values, may make sense.


The destruction that long-term health care costs can wreak on people's financial futures is only now finally showing itself. More attention is finally being paid to this type of expense now that the Baby Boomers are starting to retire.

These costs are also misunderstood by many people. While long-term health care costs certainly include medical expenses incurred by older people, the greater exposure may be the portion of long-term health care costs that represent non-medical costs. These generally are custodial in nature; i.e., activities of daily living, such as helping someone get dressed, bathed or showered, feeding oneself, etc.

While medical insurance or Medicare provide for the medical nature of this type of care, none or only a very limited amount of the non-medical care is covered.

Most people pay for non-medical care from income and savings or through the purchase of an insurance policy. However, both of these methods come with limitations, as the cost of care could outlast the savings and the insurance.

An extended need for care can severely deplete a family's assets. Non-medical costs for this type of care average $72,000 a year nationally, and can be much more depending on where you live.

In the past, planning could be done to transfer assets directly to heirs or into trusts to help people qualify for Medicaid. The Deficit Reduction Act of 2005 severely curtailed this strategy. It did, however, provide a different way people could preserve their assets while transferring the risk of paying for the cost of care to an insurance company.

The DRA extended to all states the ability to participate in a Medicaid Partnership program whereby people could purchase long-term-care insurance policies that extended benefits for a certain period of time. In exchange for using the benefits of the policy, the policyholder is able to keep assets that would otherwise not be allowed if they needed to apply and qualify for Medicaid. This created an incentive for people to purchase the insurance and protect some of their assets. In the past, buying an insufficient amount of insurance would have exposed all their assets to further depletion.

Many states have implemented these partnership programs and many more will do so in the near future. Now is a good time to discuss these plans with clients, particularly when it comes to preserving assets for heirs and not burdening loved ones with the cost of care.

Howard Hook, CPA, is a certified financial planner with EKS Associates in Princeton N.J.

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