AgingOptions Life Plan: Finance

“Will I have enough assets in order to not run out of money before I run out of life?” is top of mind for all of us in the final third of our lives. In answering this, preservation, positioning and passing of accumulated wealth goes beyond traditional estate planning. It calls for all affected family members to be participants in a model that integrates health, housing and elder law considerations.

Student loans may go into default if co-signer dies or declares bankruptcy

Financial planners recommend that if you have to choose between financing your retirement and financing your child’s (or grandchild’s) education—choose your retirement.  That’s usually because it’s difficult for most people to do both and their retirement savings take a hit as a result.  But, if you are only thinking about co-signing a loan rather than paying for college outright, financial professionals are urging caution there as well.

According to the Federal Reserve Bank of New York, Americans 60 and over still owe about 36 billion in student loans.  About 10 percent of those loans are delinquent.  Some of those loans were for their own education and some were co-signs.  Unlike most loans, student loans aren’t discharged with a bankruptcy.  This leaves some older Americans at risk of having student loan payments withheld from Social Security payments.  Now, there’s a more compelling reason not to co-sign a loan.  Some financial institutions are demanding that borrowers immediately repay the loan if the co-signer dies or files for bankruptcy.  Even if the borrower keeps up with payments, the loans may go into auto-default, thereby damaging the borrower’s credit and potentially impacting not just credit but also employment and housing options. Some borrowers have complained that debt collectors have tried to get the co-signer’s estate to pay off the debt.

About 90 percent of student loans have a co-signer because unlike federal loans, private lenders usually require a college student with little to no credit history to have a cosigner.  However, they’re not always transparent about how to remove co-signers from the loan.  Anyone obtaining a student loan should get clarification as to when it’s possible to remove a co-signer from a loan and any steps necessary to make that happen.  The Consumer Financial Credit Bureau has made additional information including sample letters for those seeking a release from a co-sign here.


Nursing home rates jump over 4 percent from last year’s price: have you planned?

We’re getting rained on this week in the Pacific Northwest so we’re likely to miss some important news about rain.  Mainly that California hasn’t had enough rain in three years to sustain it’s role as the breadbasket of the nation.  The result is that the cost of produce is expected to jump in the next few months.  Federal forecasters estimate that the impact to American budgets will be a jump of 3.5 percent in food costs.  But, food makes up only about 13 percent of our average budgets.  What hasn’t received nearly as much notice is an echoing jump in nursing home prices.  That’s a much more substantial budget item and that price is up 4.35 percent over last year’s prices.

The average private room in a nursing home costs $87,600 a year according to an annual Genworth Financial survey.  The longest most people stay in a nursing home runs about three years.  At the current rate that equates to a $262,800 bill as long as the price stays steady, (don’t bet on it).  So, maybe you won’t check into a nursing home.  Here’s a list of your current options.

  • Hospitals and other medically related services jumped 4.9 percent.
  • The cost of a room in an assisted living facility rose 1.45 percent to an average $42,000 a year.
  • The cost of a home-health aide rose 1.59 percent to $45,188 a year.
  • The cost to have someone cook, shop, clean and provide transportation to doctor appointments rose 4.11 percent to $43,472.

Why should you care about the costs associated with long-term care?  Currently 9 out of 10 people who need assistance with long-term care needs receive that assistance from family members, friends or other loved ones.  But, those people providing that care are largely the Baby Boomers.  As they age into the spots left behind by the Silent Generation, the ratio of young people to older people shrinks drastically, so do the number of people filling the jobs listed in the bullet points above.  That means that just as the Baby Boomers reach an age that requires assistance with activities of daily living, that assistance may either be tremendously expensive or unavailable.

Isn’t it time you took steps to plan for your care?  Here are some planning tools to get you started:

Safe Harbor Trust—this is a form of special needs trust that shields your assets from disqualifying you from receiving government benefits that are needs based.  Why are we likely to need some form of financial assistance from the government?  For the majority of us, death will not come quickly.  Instead we will gradually experience more and more debilitating conditions that will make us dependent on others for activities such as bathing, toileting, walking, eating etc.  In addition, according to the Alzheimer’s Association, by the time we reach 85, one out of every two Americans will deal with dementia-related disabilities.

The need for this extra care is expensive, as you’ve already seen.  It’s the kind of expense that can drain a family’s resources in very little time unless you legally plan to protect those assets in a manner that will allow you to access Medicaid/VA benefits and then use your assets to maximize your quality of life under those programs.  More about Safe Harbor Trusts.

Housing—One housing option that recognizes that you may need care later on is a Continuing Care Retirement Community.  This housing option, often referred to as a CCRC, provides a level of care from independent living to assisted living to skilled nursing or memory care in one fell swoop.  They just increase the level of care as you reach each new level.  This prevents you from having to move from one housing option to the next and the next.   It’s also a level of guarantee that simply doesn’t exist elsewhere.   Read our white paper on CCRCs.

Family meeting—Family meetings provide an opportunity for the parents to have a conversation with their children about their hopes and plans for long term care prior to the need for those plans to be put into place.  Family members often put off those things that make them uncomfortable or sad but by having the meeting before any plans have to be put in place, all of the involved members have the opportunity to spend time gathering information and identifying resources to make transitions easier.  Additional information about family meetings can be found here.

A free LifePlanning seminar covers these topics and more and makes an excellent starting point.

Should parent’s transfer their home to a child?

Are you considering transferring your home to your child while you are still alive?  Sometimes parents go this route because they want to reduce the taxable value of their estate; because they want to help their child out; because they want to qualify for Medicaid, or because they want to make sure the home stays in the family.  However, here are some reasons transferring that asset may not be the best option for either you or your child.

Tax-avoidance—If you’re thinking that estate taxes will take a giant bite out of your child’s inheritance, consider this.  In Washington state, estate taxes don’t kick in until the estate is worth more than $2.012 million (for 2014).  For a couple, that value doubles.  The federal estate tax exemption is $5.34 million (for 2014).  Again, that number doubles for a couple.   On the other hand, should federal or state gift taxes apply, the tax rate can be as high as 40 percent.

If the property changes hands as part of an inheritance (rather than a transfer), the child receives the benefit of a step-up in basis to the market value of the property at the time of the parent’s death.  If the beneficiary then needs to sell the property immediately, there is no income or capital gains tax on the sale.

Helping your child out—Some parents transfer their property to their children while they themselves continue to live in the house.  However doing so places the property and your ability to continue to live in it at risk of a divorce, bankruptcy and even the idiosyncrasies of a child who evicts you.   It also eliminates the possibility of using a reverse mortgage at some future date.

Qualifying for Medicaid—The cost of long-term care can far exceed the ability of most families to pay for it (a skilled nursing facility can cost as much as $100,000 a year or more).  One option is to qualify for government benefits such as Medicaid.  However, Medicaid is a need-based benefit and requires that the beneficiary spend down assets.  People hoping to meet eligibility requirements often look at gifting their resources but there’s a cost to doing so.  Medicaid rules disallow transfers of any assets within five-years of applying for benefits.  If a transfer has been made during that five-year period, that transfer for less than the fair market value generates a penalty period that could potentially cost far more than the intended savings.

In addition, Medicaid allows assets including a home and other property for the benefit of a spouse so transferring the home may result in turning an allowable (and therefore exempt) asset into a liability that may disqualify you from receiving Medicaid anyway.

If a child provided care for two years or longer that prevented you from entering a nursing home, Medicaid allows the transfer of the house.  So, if this is an option for you, make sure you do it correctly.  Please read our white paper on Medicaid Transfers.

Keeping the property in the family—For many people, their home is the only real asset they own.  Protecting the home then becomes the most important issue for the parents.  Selling your home to your child can result in fees and taxes so many people mistakenly believe they can gift their home to their child by either gifting it outright or by adding the  child’s name to the title.  But any transfer of ownership triggers the “due on sale” clause of a home loan unless your home loan is assumable or more happily already paid off.

Transferring a home to a child can be disastrous but as with most things there may be good reasons to move forward with doing so.  If you’re looking for a workable solution, consider hiring an Elder Law Attorney.  He or she can help you navigate through the reasons you want to transfer the property and create a workable solution so you won’t be in over your head.





7 reasons you may still need life insurance after age 65

Three-quarters of American workers expect to continue working through their retirement years.  Of those that do, 39 percent say they will because they like to work, a third say they have to work because they need the money and some unsurprisingly say that both reasons factor into their decision to continue working after retirement age.  If those individuals continue to work, it will be a huge shift from today where about 15 percent of retirees choose to continue working.  Whatever the reason, if you continue to work, you should consider purchasing life insurance.

  1. To protect against loss of income. Typically it is younger people who choose to purchase life insurance to protect their family against the loss of income but as more and more of us consider working past retirement age in order to continue paying bills, retirees might consider life insurance to protect against a serious loss of income for however much longer they expected to work.
  2. To protect against loss of retirement benefits.  Another reason to consider life insurance is if you and your spouse depend upon Social Security to make ends meet.  When one of you dies, the Social Security and other retirement benefits will most likely take a hit so it might be a good idea to purchase protection against that loss.
  3. If you have children or other dependents (including aging parents) at home who will continue to need to be cared for.   A life insurance policy can continue to provide for people who depend upon you once you are gone. Adult children moving back to live with mom or dad because of a lack of a job or high educational bills will continue to need some support immediately after a parent’s death.  Aging parents may suddenly need to hire someone to provide care that they currently receive at little or no cost.  You may want to consider a life insurance policy as a means to provide your beneficiaries with an inheritance.
  4. If you have outstanding debts.   It used to be that by the time people retired their mortgages were paid off.  That’s no longer necessarily the case.  You may also want a policy if you have estate taxes or other significant debts you expect to need to pay off.
  5. If you own or co-own a business or have substantial joint financial obligations.  If your passing would result in leaving someone else legally responsible for that debt or you have an essential employee who would need short-term support, insurance could protect against an unexpected loss.
  6. To cover expenses you racked up while dying.  Funeral or cremation expenses or the expenses related to end-of-life medical care might otherwise require a surviving spouse to dip into savings that are already likely to take a hit from loss of revenue or additional expenditures.
  7. To replace you.  Car care, lawn care or accounting services are just some of the services a spouse may provide as part of being a couple.  Those things will continue to need to be covered but will now likely have a charge where there was none before.

How do you determine how much life insurance you are likely to need?  This article recommends that you determine how much longer you’ll need to work and multiply that by how much money you expect to earn to come up with a death benefit amount.  So, for instance if you earn $50,000 annually and expect to work for an additional 5 years, you’ll need $250,000 in insurance.

If you are currently working and that place of business provides life insurance coverage, keep in mind that your employer-based plan may have reduced benefits after you reach 65.

There are a lot of variables for determining whether or not a life insurance policy is in your best interest.  Your best option is to talk to a financial advisor or Elder Law Attorney to find out if a policy will provide you with the benefits you are looking for or if some other product (or no product at all) might be more useful.  Please contact our office if you have any questions or would like to be put in touch with either expert.

Marriage impacts the financial and medical health of retirees

Married people lead overwhelmingly healthier lives than their single counterparts.  Studies have shown they have  50 percent less risk of Alzheimer’s than their single counterparts, are three times more likely to survive heart surgery, are less likely to get the flu, and more likely to survive cancer.  The poverty rate for seniors rises from 4.6 percent for married couples to 13.5 percent for widows and widowers but is at almost 20 percent for those who never married.  Other benefits for being married include that married couples often prevent or at least hold off the need for outside assistance when one or both begin to experience disability.  While the health benefits are numerous for married individuals, they also experience healthier retirement benefits, which is good because they’ll need those better retirement benefits since on average they live 5 years longer than single people.

Here is a list of ways that being married benefits you in retirement that was put together by US News.

Social Security: There are a lot of Social Security claiming options for married couples, or divorced or widowed individuals.  Those that have been married have their choice of a variety of strategies to maximize their benefits.  If you are single, your options are essentially limited to claiming early, claiming at full retirement age or claiming at 70.

Fewer couples are choosing to use spousal benefits (down to 9 percent in 2011 from a high of 62 percent in 1960) thanks to the fact that most women can now claim higher benefits from their own worker benefit than they can from their spouse’s benefit.  Still, it may be beneficial to look to that option so I recommend you either request our white paper on Social Security benefits or you set up an appointment with Julie Price to look at your Social Security options.

Traditional pension: Married couples have the option to opt for a spousal benefit.  This may have been more important a decade or so ago but the number of individuals that work for companies offering pension plans has dropped from about 40 percent in the early 90s to only about 22 percent in 2012.  Of those individuals that have a pension, more than a third of them choose not to provide payments to a surviving spouse.

401(k)s: If both parties in a marriage work for companies that match their 401(k) contributions, the additional contributions can really add up.  Spouses also have the option of choosing to focus their efforts on the employer matches that are better.

IRAs: Investors who don’t have a workplace retirement benefit but are married to someone who does can still claim tax deductions for their IRA.  Surviving spouses can inherit an IRA and roll it over into their own account and wait to begin minimum distributions until age 70 1/2, an option not available to other beneficiaries.

If all this moves you to consider remarrying, I’d like to caution you that any second marriage considerations should include a talk with an Elder Law Attorney.  Please read our white paper of Second Marriages first.  Contact us at