FINANCIAL ADVISORS CONFUSE FINANCIAL PRODUCTS WITH LEGAL TERMS

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The latest wrinkle of marketing financial products are “Free Seminars”. The focus is on long term care, protection of assets, retirement planning and estate planning. The primary threat is that the cost of long term care in a nursing home can consume your entire life savings. You need a package of financial and legal products. These seminars are often put on by financial advisors and so-called experts in elder law.

Their solution is typically long term care insurance and revocable trusts. All one need to do is go to their free seminar and buy these products. The terms of asset protection and estate planning are intentionally misused. Those terms have a specific meaning to lawyers and are the opposite of what is often conveyed at these seminars.

First, the target population is baby boomers. Baby boomers are transitioning from working and raising kids to retirement and taking care of elderly parents. The hook is fear. The solution is to pay a little more now to avoid potential catastrophe later.

Second, let me debunk a myth. It is an uncontroverted fact that most of us are living longer and healthier. The healthcare system is currently devoted to keeping people out of nursing care. The only data of the chances one might need long term care is contained in the Health and Human Services (HHS) web site at www.longtermcare.gov. As you age your chances of needing long term care increases. Promoters often confuse long term care with catastrophic care which can totally deplete your assets.

Long term care is any care one needs as a result of a chronic problem. Some types of care are covered by Medicare. The cost is determined by a variety of factors. HHS warns that most long term care does not cover all types of care and has limits on what it does cover. There is no data on the actual cost of certain services and the odds of you needing them. The HHS also suggests that you should also explore other private options other than insurance. Everyone is different and one size shoe does not fit all. I suspect the promoters of long term care insurance are promoting fear to solve an ill-defined problem as a way to open the door to gain control of your assets for management.

Third, asset protection is confused with estate planning. Estate planning is the method used to dispose of your assets to your heirs upon death. Often a simple will along with a durable power of attorney and health directive is all the vast majority of people need. The will can be changed any time while you are alive and will not become operative until the moment you die. In other words, it has nothing to do with protecting your assets while you are living.

Another common element of estate planning is a revocable trust. They were originally recommended as a method of avoiding probate. Along with marital deduction trusts, it was also seen as a way of avoiding inheritance taxes.

These reasons are no longer valid. In Missouri probate is relatively cheap and quick. Inheritance taxes were eliminated for estates less than $5.34 million, which translates to more than 99% of all of us. Accordingly, revocable trusts can no longer be recommended for the original reasons.

Revocable trusts on the other hand are lengthy and unwieldy legal documents drafted by lawyers who often charge by the page. After the trust document is signed, you must take the next step of assigning all your assets into the trust entailing additional time and expense. If you omit something, guess what – with respect those assets that were not included in the trust your heirs will have to go through probate anyway.

Fourth, none of the above has anything to do with asset protection while you are living. Proper asset protection, to a lawyer, means transferring your assets to another person or entity. In other words, you must relinquish your control of your assets. It is the difference between a revocable trust and an irrevocable trust. Often it is enough to be married. Long term care insurance is insurance against a specific risk. Each is an individual choice and decision. Are you still employed? Do you have a pension? Do you still have kids in college? Are you married and is your spouse working? How is your health and do you have health insurance? Are you taking care of parents? Each person may be in a different situation and need different advice. Lawyers who specialize in elder law and estate planning and are totally independent of financial advisors is the place to receive objective and unbiased advice.

Finally, the final misleading term is free seminar. These marketing schemes are not seminars and ultimately the promoters hope you more than pay for their cost.