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Law Offices of Ronald W. Rutz
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December 10, 1998: Suspicious Advice; Payable on Death Accounts; Long-Term Care Insurance

Q: I am a spunky, single lady in my early 70's with about a million dollar estate. My attorney told me to start giving away assets as fast as possible and to buy about $300,000 of life insurance (from the financial planner who recommended him) in order to pay estate taxes. I am suspicious. What do you think?

A: You have a right to be suspicious. At your age, the insurance premiums can be very high. Nonetheless, if the only reason for the insurance is to pay estate taxes, then $300,000 seems excessive. If death occurred this year and with the $650,000 exemption, actual taxes paid would not be too much above $150,000 and could be a lot less. But given your age expectancy and given the fact that in about six years the tax exemption will rise to $1,000,000, you might want to wait and let the law catch up. Your estate might (or might not) grow in the meantime, but you can control the exposure by gifting as the situation dictates. Given your good health, spunkiness, state of mind, etc., it seems that neither the massive gifting plan nor the recommended insurance purchase matches your present situation.

Q: What do you think about those payable on death accounts?

A: As with any such arrangement, such as joint tenancy, if the property is passing to the desired party, then such an arrangement is fine. However, if you are doing it to avoid probate but have other assets that would have to be administered in court anyway like a house or other assets worth more than $27,000, or doing it to minimize taxes (these assets still have to be included in the taxable estate), or to remove the assets from creditors' claims such as social services or the nursing home (it will not), or to provide authority if you become incapacitated (can not be done this way), then you really have not accomplished anything and might have actually caused problems.

Q: You wrote very persuasive columns against buying annuities and long term care insurance but other columnists disagree. Who should I believe?

A: Now how can I impartially respond to your question? First, I did not write columns against buying either annuities or long term care insurance. I attempted to give guidance so you can make your own decision. Concerning purchasing an annuity to qualify for Medicaid, if the income combined with the other income exceeds $1300, you should not do it. If you are buying the annuity to produce an increased income flow, then that is another issue. Concerning the long term care insurance, if you can predict that you will be the approximately 1 out of 5 who will be in a nursing home for three or more years, then maybe you should purchase long term care insurance. If you will be the 1 out of 5 people who will be there for two or three years, then maybe yes and maybe no. If you are the 1 in 5 who will be in a nursing home for less than a year, purchasing the insurance is questionable. And if you are in the 2 out of 5 who never will be in the nursing home, then you have wasted your money. I would urge you to use the factors I listed in my recent article in the Senior Voice to help you make your independent decision.

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