Estate Planning and Retirement Consideration for Late-in-Life Parents

Older parents are becoming more common, driven in part by changing cultural mores and surrogate motherhood. Comedian and author Steve Martin had his first child at age 67. Singer Billy Joel just welcomed his third daughter. Janet Jackson had a child at age 50. But later-in-life parents have some special estate planning and retirement considerations.

The first consideration is to make sure you have an estate plan and that the estate plan is up to date. One of the most important functions of an estate plan is to name a guardian for your children in your will, and this goes double for a parent having children late in life. If you don’t name someone to act as guardian, the court will choose the guardian. Because the court doesn’t know your kids like you do, the person they choose may not be ideal.

In addition to naming a guardian, you may also want to set up a trust for your children so that your assets are set aside for them when they get older. If the child is the product of a second marriage, a trust may be particularly important. A trust can give your spouse rights, but allow someone else — the trustee — the power to manage the property and protect it for the next generation. If you have older children, a trust could, for example, provide for a younger child’s college education and then divide the remaining amount among all the children.

Another consideration is retirement savings. Financial advisors generally recommend prioritizing saving for your own retirement over saving for college because students have the ability to borrow money for college while it is tougher to borrow for retirement. One advantage of being an older parent is that you may be more financially stable, making it easier to save for both. Also, if you are retired when your children go to college, they may qualify for more financial aid. Older parents should make sure they have a high level of life insurance and extend term policies to last through the college years.

When to take Social Security is another consideration. Children can receive benefits on a parent’s work record if the parent is receiving benefits too. To be eligible, the child must be under age 18, under age 19 but still in elementary school or high school, or over age 18 but have become mentally or physically disabled prior to age 22. Children generally receive an amount equal to one-half of the parent’s primary insurance amount (PIA), up to a “family maximum” benefit. You will need to calculate whether the child’s benefit makes it worth it to collect benefits early rather than wait to collect at your full retirement age or at age 70.

This article was reprinted with the permission of ElderLawAnswers.com.

Pearson Bollman Law is the premier estate planning law firm in Iowa, with offices in Des Moines, Marion and Dubuque. Our clients engage us when planning for the two most important aspects of their lives: Everything they own and everyone they love.  If you have any questions regarding the material in this article and how it applies to you, please contact Pearson Bollman Law at 515-727-0986.

Pearson Bollman Law 2018 Kickoff Meeting

Pearson Bollman Law held their Annual Kickoff Meeting in January.  In this meeting we established goals and identified the strategies that align with our mission:

Providing a service that cares for families, everything they own & everyone they love!”

Thank you Tina Howell with ActionCOACH for facilitating yet another successful planning session!

Can I Convert a Revocable Trust to an Irrevocable Trust When I Apply for Medicaid?

Question:

I recently had my living trust updated after 20 years. Now I regret that I didn’t convert the trust to an irrevocable trust. I recently had a mini stroke and am scheduled for some surgery. Can I convert the trust to an irrevocable trust at the same time that I submit an application for Medicaid?

Answer:

No. The creation and funding of an irrevocable trust, whether creating a brand new trust or amending a revocable trust to make it irrevocable, within five years of applying for Medicaid will result in a Medicaid penalty period. You could end up being ineligible for Medicaid benefits for up to five years. To find out if there is anything you can do, we suggest consulting with an elder law attorney in your state.

This article was reprinted with the permission of ElderLawAnswers.com.

Pearson Bollman Law is the premier estate planning law firm in Iowa, with offices in Des Moines, Marion and Dubuque. Our clients engage us when planning for the two most important aspects of their lives: Everything they own and everyone they love.  If you have any questions regarding the material in this article and how it applies to you, please contact Pearson Bollman Law at 515-727-0986.


Can My Father Cash in a Life Insurance Policy Without Affecting My Mother’s Medicaid?

Question:

My mother is in a nursing home here in California and is on Medi-Cal (Medicaid). My father has almost depleted his bank account and needs money for dental work. He has two life insurance policies (my mom is the beneficiary). One is for $25,000 and the other is for $10,000. He would like to cash in the $10,000 policy (the cash-in value is $5,000). Would the cash-in value be considered my mom’s income? If it is considered her income, would that disqualify her from Medi-Cal?

Answer:

No, the life insurance policy would not be considered income. The cash value of a life insurance policy is an asset that the state looks at when determining Medicaid eligibility. If your father cashes in the policy, it is no different from him moving money from one account to another. It does not increase the level of your father’s assets, and it should not affect your mother’s Medicaid coverage.

This article was reprinted with the permission of ElderLawAnswers.com.  If you have any questions regarding the material in this article and how it applies to you, please contact Pearson Bollman Law at 515-727-0986.

Can the Spouse of a Medicaid Recipient Keep Her Husband’s Income and Spend It As She Pleases?

Q: Suppose a husband who collects disability benefits moves into a nursing home and is approved for Medicaid. Medicaid covers everything and the spouse is not expected to contribute any of their income to his stay there. My question is whether she can use his disability income to live on? Can she pay bills, groceries, etc.? Does she have to keep track of what she spends it on?

A: What you are describing is called “spousal impoverishment” because the idea is to keep the spouse who is not in the nursing homes from becoming impoverished. Whether the so-called “community” spouse may keep the nursing home spouse’s income depends on the level of her income. The Medicaid agency calculates how much she needs to live on under an arcane formula. If her income is less than this amount, she can keep as much of her husband’s income as is necessary to get her income up to this level. For instance, if her income allowance is $2,500 a month and her own income is $1,500 a month, she can keep $1,000 a month of her husband’s income. The rest of his income has to go to the nursing home. But if her own income were $3,000 a month, she could keep it all even though it’s more than her income allowance, but all of her husband’s income would go to the facility. If the wife’s income is low enough that she gets to keep some or all of her husband’s income, she can spend it as she wishes and does not have to account to anyone about her spending.

For more information about the healthy spouse’s income, see: Medicaid’s Attempt to Ensure the Healthy Spouse Has Enough Income: The MMMNA.

This article was reprinted with the permission of ElderLawAnswers.com.  If you have any questions regarding the material in this article and how it applies to you, please contact Pearson Bollman Law at 515-727-0986.

How Will the New Tax Law Affect You?

While most of the new tax law – the Tax Cuts and Jobs Act — has to do with reducing the corporate tax rate from 35 percent to 21 percent, some provisions relate to individual taxpayers. Before we get into the details, be aware that almost everything listed below sunsets after 2025, with the tax structure reverting to its current form in 2026 unless Congress acts between now and then. The corporate tax rate cut, however, does not sunset. Here are the highlights for our readership:

  • Estate Taxes. If you weren’t worried about federal estate taxes before, you really don’t need to worry now. With the federal exemption already scheduled to increase in 2018 to $5.6 million for individuals and $11.2 million for couples, the Republicans in Congress and President Trump have now doubled this to $11.2 million and $22.4 million, respectively, indexed for inflation. The tax rate for those few estates subject to taxation remains at 40 percent.
  • Tax Rates. These are slightly reduced and the brackets adjusted, with the top bracket dropping from 39.6 percent to 37 percent.
  • Standard Deduction and Personal Exemption. The standard deduction increases to $12,000 for individuals, $18,000 for heads of household and $24,000 for joint filers, all adjusted for inflation. Personal exemptions largely disappear.
  • State and Local Tax Deduction. Now referred to as “SALT,” this is now subject to a cap of $10,000,
  • Home Mortgage Interest Deduction. The limit on deducting interest on up to $1 million of mortgage interest stays in effect for existing mortgages. New mortgages taken on after December 15, 2017, are subject to a $750,000 limit. The deduction for interest on home equity loans disappears.
  • Medical Expense Deduction. After much outcry in response to the House version of the tax bill, which would have eliminated the medical expense deduction, it survived. And, in fact, it was enhanced by permitting medical expenses in excess of 7.5 percent of adjusted gross income to be deducted in 2017 and 2018, after which it reverts to the 10 percent under existing law.
  • 529 Plans. These accounts permitting tax-free accumulation of capital gains and dividends to pay college expenses can now be used for private school tuition of up to $10,000 a year.

Depending on your income and the amount of state and local taxes you have been paying, you may get a small tax cut. The bigger question is how the projected reduction in tax revenues of $1.5 trillion over the next five years will be paid for. This amount may simply be added to the deficit, or it may be used as a justification for “entitlement reform,” i.e., cutting Medicare, Medicaid or Social Security. It may also squeeze out other spending, such as investment in infrastructure.

This article was reprinted with the permission of ElderLawAnswers.com.  If you have any questions regarding the material in this article and how it applies to you, please contact Pearson Bollman Law at 515-727-0986.

2018 Spousal Impoverishment and Home Equity Figures Released

The Centers for Medicare and Medicaid Services (CMS) has released its Spousal Impoverishment Standards for 2018, confirming the earlier projections of Pennsylvania ElderLawAnswers member Robert Clofine, who based his estimates on the consumer price index for urban consumers for September.

The official spousal impoverishment allowances for 2018 are as follows (we include Medicaid’s home equity limits, which Clofine did not project):

Minimum Community Spouse Resource Allowance: $24,720

Maximum Community Spouse Resource Allowance: $123,600

Maximum Monthly Maintenance Needs Allowance: $3,090

The minimum monthly maintenance needs allowance for the lower 48 states remains $2,030 ($2,536.25 for Alaska and $2,333.75 for Hawaii) until July 1, 2018.

Home Equity Limits:

Minimum: $572,000

Maximum: $858,000

For CMS’s complete chart of the 2018 SSI and Spousal Impoverishment Standards, click here.

This article was reprinted with the permission of ElderLawAnswers.com.  If you have any questions regarding the material in this article and how it applies to Iowa residents, please contact Pearson Bollman Law at 515-727-0986.

GOP Tax Plan Could Deal Blow to Seniors Paying for Long-Term Care

The tax plan put forward by the Republican-led House of Representatives would eliminate many current deductions, and getting rid of one of them in particular could deal a serious financial blow to seniors and individuals with disabilities. The plan proposes eliminating the medical expense deduction, a change that will especially affect those needing long-term care.

Currently, taxpayers can deduct certain medical expenses from their income taxes if the expenses add up to more than 10 percent of adjusted gross income. These expenses can include health insurance premiums, deductibles, nursing home fees, home health care costs and even assisted living fees, if a doctor certifies that the individual must live in the facility due to health care or cognitive needs.

While most taxpayers don’t have health care expenditures exceeding 10 percent of their income, many seniors and others with disabilities do. According to the IRS, 8.8 million households — almost 6 percent of tax filers — claimed medical deductions in 2015. The AARP estimates that 74 percent of those who take the deduction are age 50 or over and half have incomes of $50,000 or less.

“It tends to be mostly … older people who do not have long-term care insurance, and end up in a nursing home,” Richard Kaplan, a professor who specializes in tax policy and elder law at the University of Illinois College of Law, told CNBC. “For people who are receiving long-term care and are paying for it themselves, this is going to be a huge deal.”

For them, having the deduction can mean that they do not run out of funds and have to rely on Medicaid, or are at least able to postpone applying for Medicaid. Eliminating the medical expense deduction will likely mean that more people will spend down their assets more quickly, requiring them to apply for Medicaid. In addition, adult children who pay for their parents’ care can sometimes use the deduction. For more information about how ending the medical deduction might affect you, click here.

In addition to eliminating the medical expense deduction, the tax bill cuts corporate tax rates. The bill’s proponents argue that the tax changes will unleash huge economic growth that will result in higher tax revenue. However, if the bill’s supporters are wrong and the growth in tax revenues is not as large as hoped, the reduction in tax revenues will likely cause sharp cuts in government spending or an increase in budget deficits, or both. A reduction in spending could affect seniors and individuals with disabilities through cuts to Medicaid, Medicare, Section 8, Meals on Wheels, and food stamps.

The tax proposal would benefit a small number of wealthy seniors by eliminating the estate tax. Under the proposal, the estate tax exemption will be increased from $5.45 million to $10 million for individuals dying in 2018 through 2023. After 2023, the estate tax will be eliminated completely. The Tax Policy Center estimates that only about 0.2 percent of estates pay any federal tax under current rules.

The House’s tax plan is not final, and the Senate plan preserves the medical expense deduction.  The two bills, if passed, must be reconciled.

For an AARP fact sheet on Medicare beneficiaries who spend at least 10 percent of their income on out-of-pocket medical expenses, click here.

This article was reprinted with the permission of ElderLawAnswers.com.  If you have any questions regarding the material in this article and how it applies to Iowa residents, please contact Pearson Bollman Law at 515-727-0986.

Last Modified: 11/10/2017

IRS Issues Long-Term Care Premium Deductibility Limits for 2018

The Internal Revenue Service (IRS) is increasing the amount taxpayers can deduct from their 2018 income as a result of buying long-term care insurance.

Premiums for “qualified” long-term care insurance policies (see explanation below) are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 10 percent of the insured’s adjusted gross income.

These premiums — what the policyholder pays the insurance company to keep the policy in force — are deductible for the taxpayer, his or her spouse and other dependents. (If you are self-employed, the tax-deductibility rules are a little different: You can take the amount of the premium as a deduction as long as you made a net profit; your medical expenses do not have to exceed a certain percentage of your income.)

However, there is a limit on how large a premium can be deducted, depending on the age of the taxpayer at the end of the year. Following are the deductibility limits for 2018. Any premium amounts for the year above these limits are not considered to be a medical expense.

Attained age before the close of the taxable year Maximum deduction for year
40 or less $420
More than 40 but not more than 50 $780
More than 50 but not more than 60 $1,560
More than 60 but not more than 70 $4,160
More than 70 $5,200

Another change announced by the IRS involves benefits from per diem or indemnity policies, which pay a predetermined amount each day.  These benefits are not included in income except amounts that exceed the beneficiary’s total qualified long-term care expenses or $360 per day, whichever is greater.

For these and other inflation adjustments from the IRS, click here.

What Is a “Qualified” Policy?

To be “qualified,” policies issued on or after January 1, 1997, must adhere to certain requirements, among them that the policy must offer the consumer the options of “inflation” and “nonforfeiture” protection, although the consumer can choose not to purchase these features. Policies purchased before January 1, 1997, will be grandfathered and treated as “qualified” as long as they have been approved by the insurance commissioner of the state in which they are sold. For more on the “qualified” definition, click here.

This article was reprinted with the permission of ElderLawAnswers.com.  If you have any questions regarding the material in this article and how it applies to Iowa residents, please contact Pearson Bollman Law at 515-727-0986.