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Why We Use This Tool for Our Digital Life (And You Should Too!)

Each and every one of your online accounts is a doorway into your life, which is secured and locked only by the password you have chosen to protect your account. Nearly three out of four password protected accounts are guarded by old or reused passwords – which is comparable to using one key to open nearly all of the doors and windows in your home. In a world where a hacking attempt occurs every 39 seconds, it is not only advisable but imperative to update the way in which your passwords are created and managed.

In the first half of 2019 alone, 4.1 billion electronic records were exposed due to hacking data breaches. Eight out of ten of these breaches were caused by poorly constructed or recycled passwords. Even though it is common knowledge that using the same password or password structure for more than one account is a poor practice, this is a frequent strategy used to protect personal information. The human brain is not well-suited to create unique, memorable passwords. So people often use passwords that are easy to recall such as a pet’s name or an anniversary date. These sorts of passwords are as easy to remember as they are for hackers to guess.

Some people try to add to their security by creating different passwords and keeping them either written in a physical notebook or stored in a file on their computer. But these strategies pose their own risks. Passwords could be stolen by a burglar who finds your notebook or a hacker who finds the password file on your computer. You also risk losing your passwords to a house fire, computer failure, or other disaster.  On top of it all, using a notebook or password file just isn’t very convenient, especially as the number of websites you use grows.

Often hackers don’t have to guess a person’s password because they trick the person into giving the password to them using a scam called “phishing”. This scam works by them sending you an email or text message that appears to be from a company you know and trust such as a social networking site, an app, or even your bank. The nature of the message will often cause you concern, claiming that your account has compromised or that a charge (which you of course won’t recognize) has been made to your account, for example. In a rush to secure your account, you click the link in the message and enter your user name and password, payment details, or any other personal information they ask for on the web page the link takes you to.

However, the message is not from the reputable company you trusted. It is actually from hackers who have created the sophisticated ruse to obtain your information. You may not even realize it is a trap, as the link they send you will take you to a website that looks nearly identical to the real website of the company the email claims to be from.

The Password Manager Solution

The most effective and convenient tool that can be used to virtually eliminate the risk of a security breach is a password manager. A password manager is a computer application that stores all of your passwords in one secure location. It remembers all your passwords so that you don’t have to!

To use a password manager, you only need to remember the master password, which is used to gain access to all passwords stored inside. Many password managers can be used across all of your computers, smart phones, and tablets, allowing you to access all of your passwords at any time and on any device. This provides a high degree of security during your lifetime and access to the right people if you are incapacitated or pass away.

Not only does the password manager eliminate the need to memorize all passwords, it allows you to easily create and use more secure passwords. Because they’re easier to remember and type, people often use passwords made up of simple combinations of words and numbers. Someone who brought home their dog Fluffy in 2011 might use “fluffy2011” as their password. But passwords like those are much easier for hackers to crack. Sometimes this information can be pulled off a person’s Facebook profile or other public information.

A password manager can create and store long, complex passwords containing a random combination of letters, numbers, and symbols. An example of a strong password created by the password manager our firm uses (but not for one of our actual accounts!) is: “mMf@ZQqd7EHPkMX4”. That kind of password will be impossible for a hacker to predict.

For an additional layer of security, the password manager can also store answers to security questions in a similar way. Instead of entering a common and easy to guess answer to a security question (such as your mother’s maiden name or the city where you met your significant other, information that may be found on your Facebook profile), you can create and store unique answers to these questions in the password manager.

No one wants to have to type in “mMf@ZQqd7EHPkMX4” each time they log into their email or bank website, but with a password manager, you won’t have to. Most password managers plug into your browser, allowing you to click a button or choose from a menu to enter your password into the login form on the website.

Using a password manager also protects you from “phishing” scams because each password is tied to the specific website it is for (for example, www.yourbank.com). Since the password manager will always offer to fill in your information on legitimate websites, you will then notice that something is not quite right.

A password manager is also the best way to be certain that your accounts can be accessed by the right people if you are ever incapacitated or when you pass away. Upon incapacity, your agent responsible for your finances will need immediate access to your accounts. To successfully manage your finances in your absence, your agent will not only need your passwords, but will need to know of all existing accounts. Without a password manager, your agent would not only have to search for the location of your passwords, but they may not even be aware of the existence of some of your accounts. A password manager would ensure that your agent not only has all necessary passwords but is able to effectively and successfully manage all of your assets and pay your bills in your absence. 

 When someone passes away, their loved ones often scramble to find all of the information needed to access accounts, pay bills, and then close the accounts. This process that occurs after death is significantly lengthened and becomes much more difficult when this information is not readily available to executors and trustees. We have even seen estates where loved ones were unable to identify what banks the decedent had accounts at because the statements were all online and the computer and email passwords were not known. Having a password manager and taking steps to ensure that the master password is available after your death eases the estate administration process and avoids the lengthy detective work that might otherwise be needed.

Getting Started With a Password Manager

While there are many password managers to choose from, they all function in the same basic way. After choosing and installing your password manager, you must then create a master password. This password is the key to all of your passwords, so it should certainly be a unique and hard for anyone else to guess. And it should also be relatively easy to type since you will need to type it whenever you need access to your passwords. 

Your passwords should be at least 8 characters long (10+ is preferable) and include both uppercase letters, lowercase letters, and numbers.  A couple of master password strategies we have seen successfully employed are:

  • Choose a memorable phrase of medium length and create your password from the first letter of each word. For example, your memorable phrase might be, “I really love my husband, 4 kids and 2 dogs.” And then your password would be, “Irlm4ka2d”.
  • Choose a memorable shorter phrase and make an abbreviation with punctuation. For example, your memorable phrase might be “Life is good. Be happy.” And then your password could be, “lf*gd&b*hppy”. Note that the abbreviation is an important part of the security because many password cracking tools are adept at combining words with punctation. So “be.happy”, for example, would not be a secure password for anyone to use.

Your master password is the only password that you will need to remember, but you need to make sure you will remember it. Losing or forgetting your master password will be extremely problematic (if you lose your password, it and everything it protected are gone forever). So it is imperative for to write your master password down and store it in a safe place, such as a safety deposit box or in a fireproof safe. Another method of storage is to place the password in an envelope and place it somewhere in your house where it is unlikely to be stolen. Wherever you keep your master password, you should make sure that your financial helpers upon incapacity (power of attorney agents and trustees) and upon death (executor and trustees) know where to find it.

 Your password manager is only as effective as the passwords stored within, so the final and most important step is to change your passwords using the random password generator tool. This is probably the most daunting and time-consuming aspect of using a password manager due to the number of accounts the average person has. A good strategy is to start by changing the passwords to your most important accounts first, such as your email password and passwords to your bank accounts. The passwords to less important accounts can be changed later, at your convenience. 

Although it may be confusing and time consuming at first, a password manager will practically eliminate the risk of your data being stolen or lost, which is very high if you use recycled or old passwords across all of your accounts. They also make your passwords and accounts easy to access to people who may need them in an emergency situation. One out of three Americans will be hacked each year, and the number is only increasing as the internet is becoming more accessible, and hacking strategies are becoming more advanced. Just as you would take the necessary precautions secure your home from any potential intruders, it is necessary to use a password manager to secure your accounts from hackers. An invasion of your online information is just as costly, if not more costly, than an invasion of your home.

If you have any questions about using a password manager or organizing your estate, please don’t hesitate to reach out to our office. We’re here to help!

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New Lower Fees for Illinois Limited Liability Companies

Illinois has long been one of the most expensive states in which to form a Limited Liability Company (LLC). This week all that changed as Illinois introduced substantially reduced fees for LLCs. The fee changes, which are effective immediately, are as follows:

Original Fee New Fee
LLC Formation $500 $150
LLC Annual Report $250 $75
Series LLC Formation $750 $400
Series LLC Annual Report $250 $75

The cost per designation for a Series LLC (using the Certificate of Designation) remains the same at $50 per designation. Revised forms can be found on the Illinois Secretary of State Business Services site.

Illinois now compares much more favorably with other states’ Limited Liability Company fees. Delaware, a popular state for business formation, costs $150 to register an LLC and $300 for the annual LLC renewal. Wyoming, a popular low cost alternative with good LLC asset protection laws, costs $100 to register an LLC and $50 for the annual renewal. So Illinois may not be the absolute least expensive, but it’s fees are now well within the “reasonable” range.

One potential impact of the revised LLC fees is how it may impact the use of Series LLCs. Previously, a business that had two discrete “parts”, for example a person with two rental properties that are managed separately, would save in registration fees by forming the business as a Series LLC ($750 to register plus two $50 designations for a total of $850) rather than two separate traditional LLCs (two $500 registrations for a total of $1,000).

Forming that same two part business will now be less expensive using traditional LLCs (two $150 registrations for a total of $300) instead of using a Series LLC ($400 to register plus two $50 designations for a total of $500). People with three or four separate business (or “parts” of a single business) are now much more empowered to choose a traditional LLC or a Series LLC based on the their business needs rather than allowing the LLC registration costs to drive the decision, as often happened previously.

If you have any questions about forming your small business entity, please call our office and ask to schedule a consultation.

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Understanding Illinois estate taxes

Federal estate taxes get all the press.  But don’t forget that Illinois has an estate tax too.

And, to be honest, the Illinois estate tax is one of the most misunderstood things in estate planning.  We frequently get questions about how it works…even from other Illinois estate planning attorneys.

Calculating Federal Estate Taxes

The federal estate tax is pretty straightforward.  You can gift or pass on up to the exemption amount (currently $5.12 million but scheduled to go down to $1 million in 2013) without paying any taxes.  If your estate is larger than the exemption amount, you pay taxes only on the excess.

Calculating federal estate taxes is a simple matter of subtracting the exemption amount ($5.12 million) and multiplying the remainder by the tax rate (currently 35%).

Calculating Illinois Estate Taxes

We prepared an Illinois estate tax chart to highlight how the exclusion works for different estate sizes.  A good picture can often make a point much more clearly than paragraphs of the best explanation.

The blue line shows the estate taxes due (these figures were obtained from the Illinois Attorney General estate tax calculator).  As you can see, no Illinois estate taxes are due until an estate exceeds $3.5 million (the amount of the 2012 Illinois estate tax exclusion).  But once an estate hits that mark, Illinois taxes shoot up like a rocket.  Then, around $4.8 million, the taxes level off.

The red line is a continuation of that part of the blue line above $4.8 million. It is there to show what the taxes would have been in the absence of the exclusion.  The straight line starting at zero and continuing on through the blue line tells us that the taxes at and above $4.8 million is a flat percentage of the entire estate, not just the amount of the estate over $3.5 million.

Illinois Estate Tax Example

Let’s see how that works in practice.  In 2011, the Illinois exclusion amount was $2 million.  In 2012, that amount was raised to $3.5 million.

So that means a person can pass on an additional $1.5 million to their heirs tax free in 2013, right?

Not necessarily!

It’s easiest to see by looking at an example.  We’ll use an estate size of $5 million because that is the amount of the federal exemption from 2011.

  • Illinois Estate taxes owed in 2011 (exclusion $2.0 million):  $352,158
  • Illinois Estate taxes owed in 2012 (exclusion $3.5 million):  $352,158

Yes, you read those numbers correctly!  The taxes owed on a $5 million estate are exactly the same regardless of whether the exclusion amount is $2.0 million or $3.5 million.

The convergence point seems to be around $4.8 million.  Below that amount, an estate will owe less taxes under the 2012 rules than under the 2011 rules.  But for any estates over that amount, the Illinois estate taxes didn’t change with the increase in the exclusion.

What It Means For You

If your estate is between $2 million and $3.5 million (or from $4 to 7 million for a couple with the proper estate planning to take advantage of both spouse’s exclusion amounts), you can rest easy.  The increase in the exclusion amount saved your future heirs lots of money in Illinois estate taxes.

But if your estate is above $4.8 million (or $9.6 million for a couple with the proper estate planning) the increase in the exclusion amount didn’t reduce your estate taxes by even a single penny.

The good news for everyone with an estate over (or even close to) $3.5 million (or $7 million for couples) is that estate tax reducing strategies are available.

The best medicine for treating estate taxes is a good strategy + time to make it work.

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Illinois shifts course on long-term care Medicaid rules again

We were all set to deliver part II of our series on the January 1, 2012 Illinois Medicaid rules changes for nursing homes.  But the Illinois legislature apparently wasn’t done overhauling the Medicaid system.  Last week, Governor Quinn signed Senate bill 2840, which became Public Act 97-0689. It’s been given a friendly name:  the Save Medicaid Access and Resources Together (SMART) Act.  But its impact is anything but friendly to Illinois seniors.

Unlike the January 1st rules changes, which were driven by federal laws, these new rules changes are almost entirely due to the well-known Illinois budget problems.  The new law cuts $1.6 billion from the Medicaid budget, primarily by modifying eligibility requirements and benefits.

The biggest change made by SMART is the elimination of Pooled Payback trusts (also called OBRA d(4)(c) special needs trusts) in Medicaid planning for those over the age of 65 (in other words, almost everyone who needs it).

Previously, a senior could place their assets into a pooled payback trust and qualify for Medicaid immediately.  In exchange, when the senior passed away, their trust would be required to reimburse the State of Illinois for whatever Medicaid had spent on the senior (the “payback” part of the trust name).

One significant benefit of the pooled payback trusts to seniors was that payback happened at the Medicaid rates (what the State of Illinois pays nursing homes), which usually offered a substantial discount over the nursing home’s private pay rates.

While we still have many tools in the Medicaid planning toolbox, the loss of the pooled payback trust is a major blow to Illinois seniors.

The law pinches the finances of seniors in other ways too:

  • Retroactive Eligibility.  A Medicaid application can request long term care coverage for the three months prior to the month of application. For example, an application file in June can request coverage for expenses in March, April, and May.  Previously, an applicant could get coverage for the entire month simply by meeting eligibility requirements at any time during the month (usually the last day of the month).  Under those rules, Medicaid would cover all expenses in March as long as the requirements were met by March 31st.  Under the new rules, the applicant will have to meet eligibility requirements at the time of receiving services.  This change makes it even more critical to consult with an elder law attorney as soon as you believe that a nursing home stay is likely.
  • Community Spouse Resource Allowance (CSRA).  The amount of a couple’s assets that the community spouse (the spouse not in the nursing home) can keep is reduced from $113,640 to $109,560.  The CSRA had risen automatically this year, but SMART rolled it back and fixed it permanently at the 2011 level.  Please note that certain assets are exempt and not included in the $109,560 limit.
  • Monthly Maintenance Allowance (MMA).  The amount of a couple’s income that the community spouse can keep is reduced from $2,841 to $2,739 per month (although that figure is subject to federal approval of the change).  If a couple earns more than $2,739 per month, most (or in many cases all) of the excess must be paid toward the nursing home spouse’s care.
  • Homestead in Trust.  The primary residence of a couple is normally an exempt asset, meaning the value of the home doesn’t count against the $109,560 CSRA limit.  SMART eliminates that exemption for homes owned in a trust (either a revocable living trust or a bank land trust). Traditionally, the State of Illinois has placed a lien on homes owned by a Medicaid recipient.  But having the house in trust complicates that. While this change does make planning the estate of a community spouse a little more complicated, it’s more of an administrative change than one that directly hurts Illinois seniors.
  • Spousal Refusal.  The law means that spouses will have to pool their resources to pay for one spouse’s care, regardless of whether they have been keeping their finances separate previously.

We’re still digesting the full impact of the SMART Act.  It weighs in at 450 pages (you can read it on the Illinois General Assembly website if you’re interested) and revamps the requirements for many of the Medicaid programs.

One thing SMART doesn’t change is that planning for possible long term care needs to be done early to be the most effective.  So if you, or someone you love, are concerned about the possibility of long term care (even if many years in the future), it is crucial to get educated and begin planning.

Many asset protection options take years to mature.  And it is essential to learn how to avoid the common mistakes in handling the finances of a spouse, sibling, or parent — mistakes that could cost them thousands of dollars in Medicaid penalties and countless sleepless nights.

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Long-Term Care Medicaid Changes for 2012 (Part I)

Most seniors who spend significant time (months or years) in a long-term care facility end up relying on Medicaid at some point during their stay. Nursing home costs can be a crushing burden, one that most seniors can’t shoulder alone for long.

Medicaid qualification has always been tough.  But seniors have usually been able to protect a few assets for their spouse or children, or to supplement their own care, on their way to getting Medicaid assistance.

Now, though, Illinois has implemented harsh new rules required by the Deficit Reduction Act of 2005 (DRA), a federal law that governs the state Medicaid programs.  These new rules apply to any Medicaid long-term care applications filed in Illinois after January 1, 2012.

If you’re close to retirement age, or have a parent or loved-one close to retirement age, knowing how these new rules work is critically important.

The changes are so big that we’ll need to cover them in several parts.  This first part deals with two concepts that our clients usually encounter first when researching Medicaid — “look back” and “penalty periods“.  The rules for both have changed dramatically.  And the changes could cost unprepared Illinois seniors tens of thousands of dollars in lost Medicaid long-term care benefits.

5-Year Disclosure Period (“Look Back”)

The old Medicaid rules required applications to be filed with three years of the applicant’s financial history, including bank records, tax returns, and information about sales or gifts of assets.  Anything that occurred more than three years prior to filing did not have to be disclosed for the most part.

Applications filed on January 1, 2012 or later must include five years of financial history.  That’s a big change (66% more), and when combined with the penalty period changes below, it makes planning for Medicaid much more complicated than under the old rules.

Penalty Periods

The primary purpose behind reviewing five years of financial history is to determine whether the applicant made any disallowed transfers.   Gifts, of course, are considered transfers.  But so are many other things that people often do, such as reimbursing family members for groceries or paying them for helping around the house.

When disallowed transfers are found, a penalty period is imposed.  While under a penalty, a senior is denied Medicaid benefits — even though they might otherwise qualify.  The senior must find another way to pay for the care until the penalty is over.  That can be difficult when the assets gifted or transfered can’t be recovered.

The new Medicaid rules made significant changes to the way penalty periods are calculated and applied.

Transfers Accumulated

The old rules treated every month with a disallowed transfer independently.  So the penalty for a $6,000 transfer in January was separate from the penalty for a $500 transfer in February.  This generally worked out in favor of the senior because of how the other penalty rules worked.  Small transfers spread among many months often didn’t even create a penalty at all.

Under the new rules, all disallowed transfers from the past five years are added together to calculate the penalty.  So very small transfers (even just a few hundred dollars) — if they are made regularly — can result in a huge penalty when added together.

No Rounding of Penalties

The length of the penalty period for a disallowed transfer is equal to the value of the transfer divided by the monthly private pay rate for the nursing home the senior resides in at the time of the application.  For example, a $9,000 transfer with a private pay rate of $5,000 results in a 1.8 month penalty.

The one month penalty is pretty easy to understand.  But happens to that fractional 0.8 months?

Penalties under the old Medicaid rules were calculated in whole months.  And fractional months weren’t rounded using the rules we were all taught in grammar school (round up 0.5 and above and round down anything lower).  Instead, fractions were simply dropped.  So a 1.8 month (or 1.9 month) penalty was applied as a 1.0 month penalty.

This obviously left open up all sorts of doors for creative asset protection.  But those doors have now been closed.

Fractions are no longer rounded down.  Penalties are calculated and applied to the half of a day.  A penalty of 1.8 months will be applied as a 1 month and 24 day penalty.

Penalty Periods Applied After Qualification

Applications under the old rules were often simplified by the fact that penalties were applied in the month of the transfer.

Imagine that a $15,000 transfer was made 24 months before applying and that the nursing home private pay rate is $5,000 per month.

  • Under the old rules, a three month penalty would have been applied beginning in the month of the transfer.  That means the penalty ended 21 months ago — in other words, long before Medicaid coverage was actually needed!
  • Under the new rules, the penalty starts only after the senior applies for Medicaid and meets all of the other qualification requirements.

As you can see, even fairly large transfers made many months (or years) before applying weren’t likely to cause problems under the old Medicaid rules.

Combining the Penalty Period Rules — An Example

Taken individually, the changes to penalty periods sound quite harsh.  But you really need to see an example to fully understand just how much the new rules will affect seniors.

Mary has been in good health and financially secure for years.  And she has been generous with her money.  Every year at Christmas, Mary gives $100 to each of her seven grandchildren.  A couple of years ago, Mary also gave $4,500 to her daughter, Susan, to help Susan through a period of prolonged unemployment.

Recently, though, Mary’s health has declined and she is now residing in a nursing home that costs $5,000 per month.  The rest of Mary’s assets have been spent, and she is now looking to Medicaid for her long-term care needs.

Everything Mary did is what many other grandparents would do — and have done — in the same situations.  But the Department of Healthcare and Family Services won’t look at what Mary did in the same light.

Under the new Medicaid rules, Mary made $700 worth of disallowed transfers each year (the Christmas gifts) plus a single disallowed transfer of $4,500 (the gift to Susan).  Adding up five years worth of transfers (remember, there is now a five year look back period) brings the total to $8,000.

The Department of Healthcare and Family Services will apply a 1.6 month penalty to Mary ($8,000 in transfers divided by the $5,000 private pay rate).  Mary’s nursing home will be looking to someone else to pay for Mary’s care during the penalty period.

What it All Means for Your Family

The new Medicaid rules have been described by some as “harsh”.  But that may be an understatement.  Completely ordinary behavior will now be penalized.  As a result, it is imperative that Illinois seniors suffering from declining health get counsel from an elder law attorney to make sure that they aren’t damaging their Medicaid eligibility.

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