Life Care Planning – NOT Estate planning is what is needed for those looking at retirement or are already retired.
Meet Mrs. A who comes to my office with her son and daughter to discuss her options in dealing with her husband’s Alzheimer’s diagnosis. Would she lose her assets? Are her legal documents in order? In discussing the options I suggested to her (as I do to all in similar situations) the issue that she is focusing on revolves around a keen understanding of her husband’s prognosis and understanding of his disease trajectory.
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The real problem in America is not the Government – it is us. Why? We are the ones who want the government to cut the deficit without touching Social Security, Medicare or taxes. Who is kidding who? We need to get real. When commentators speak of American ingenuity and resilience they speak of the capacity to intelligently make decisions even in the face of personal sacrifice (I think!). Neither of our two political parties is being honest about the solutions – but we (the voters) can do better. The politicians have their finger in the wind to navigate their actions. If we the voters would be honest and reach out to our legislators with honest opinions they too would change.
Deficit Reduction Proposals being considered and what it should mean to you. There is much being done by bi-partisan commissions and task forces to come up with realistic solutions to address the very real problem that our nation faces. In the words of one study: We believe that America is facing two huge challenges that can only be surmounted if both political parties work together: recovery from the recession and restraining the soaring federal debt. It goes on to say that this alarming prospect was created by the actions of both political parties over many years, with strong public approval. Read the Commission Report that everyone is talking about.
- Deficit report (PDF) calls for Senior Citizens paying more for Medicare: Another solution offered by a bi-partisan group. Worth looking at.
- The Wall Street Journal reports that 70% of Americans uncomfortable with making cuts to programs such as Medicare, Social Security and defense.
- US News is reports that more seniors declaring bankruptcy in retirement.
- Medicaid is a central part of the safety net for middle class Americans.
- Here is an article discussing the Republicans and the deficit.
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Gifting assets to your grandchildren isn’t just a nice thing to do; it can reduce the size of your estate and the tax that will be due upon your death. Grandparents can give their grandchildren up to $13,000 a year (in 2010) without having to report the gifts. While you can make an outright gift, pay health care and school costs directly, or put the money in a custodial account, putting the money into a trust has some major advantages.
With the help of an attorney, you can draft a trust that reflects your express wishes about when the income and principal will be available to the grandchild, and even how the funds will be spent. Transferring funds into such a trust offers the following benefits:
- You can reduce the size of your estate by transferring up to $13,000 (in 2010) into each trust you create for each grandchild. No gift taxes will be due in connection with the transfers.
- Although the trust owns the assets, you control them as trustee and can decide what type of investments to make.
- Income earned by the trust from amounts that you’ve deposited will not be taxed to you; the trust pays the taxes.
- Amounts deposited in trust, and the income earned from those funds, will be used for the benefit of your grandchildren.
- You can provide that the trust terminate at any age you specify.
A common misconception most individuals have is that IRS rules forbid gifts of more than $12,000 per person per year. Though it is true that there is a rule that speaks to gifts needing to be less than $12,000 per person per year, it does not mean that one is unable to make gifts in excess of that sum.
Here is how the gift tax system works. Each of us has a $1,000,000 credit with the IRS. That million dollar credit is the maximum amount of tax free gifts we can make during our lifetime. If we exceed that sum then all excess gifts are subject to gift taxes. The issue then becomes how does one track this sum. Clearly, the IRS does not wish to have every taxpayer send the IRS receipts of every birthday gift, Christmas gift, or other gift – or the IRS would spend more time tracking this information than it would on doing other work.
For that reason Congress passed a law that said that if you make a gift of less than $13,000 per person per year, you do not need to report those gifts to the IRS. But if you exceed that sum then you will need to report the gift to the IRS so that the excess sum can be used to deduct your lifetime million dollar exemption. In your case, clearly there will be no gift tax consequences resulting from the gift. For that reason you will not need to worry about gift taxes.
My wife and I are both 67 yrs. old and have not yet started taking our S.S.I. My reasoning, we do not need the income now but will need all we can get when we do take it. When I turned 65 yrs. old I had an appointment at the S.S. office and was told that I would not receive my full benefit due to Double Dipping rules.
One of my seminar attendees raised the above question; I thought to share the answer with everyone. I am making some assumptions here. The primary assumption is that when a person is looking to apply for social security benefits at age 65 and he or she has not yet reached full retirement age. They will be subject to double dipping rules that would reduce the social security income by the amount of earned income. After full retirement age that reduction does not apply. However, just because you can claim social security income does not mean you should. I am attaching a link to an article that you will want to look at before making a decision. In my personal opinion, if you can delay the payments, do so. Or, take the income and bank it and then return it at a later time and still claim the higher income. You are allowed to keep the interest from the money and only return the principal. The article does clarify this issue.
Volatility returned to global financial markets with a vengeance in the just completed second quarter, sending stock prices plunging and convincing investors to buy defensive investments, especially U.S. Treasuries and gold.
With the Dow Jones Industrial Average closing out the quarter at a new low for the year, many now believe that a 2008 collapse is a possibility. But all may not be lost.
Hulbert Financial Digest, which tracks short-term market timing newsletters, says their exposure to stocks fell to just 4.5%, down from 32.6% just one week.
And just why is that good news? Well, according to Hulbert (who has been tracking newsletters for 30 years) a majority of the newsletters get it wrong. In fact, if you did the opposite of what timing newsletters suggested, you would be much better off than those who followed their advice.
Better yet, try this advice: ignore all of the siren calls, market prognosticators, and financial experts. The fact is, no one knows where the market is headed. You will do best when you build a truly worldwide portfolio, create the correct mix between risky and less risky assets, and re-balance it annually. You will undoubtedly sleep better, worry less, and more than likely, end up with more money.
As you may already know we are in uncertain tax planning times. In 2010 there is no estate tax unless Congress takes steps to finalize some solution. Next year the estate tax exemption is slated to be $1,000,000, the same amount it was in year 2000 with a tax rate that can go up to 55%.
Currently, the Senate is about to introduce a bill seeking a $5,000,000 per person exemption with a maximum estate tax rate of 35%; while thehouse had passed a bill in 2009 with a $3,500,000 exemption amount with a 45% highest tax bracket. In a politically active year it is expected that Congress will do something, but that should not be taken for granted.
For that reason, in my view it would be prudent to plan your estate around the $1M exemption amount. This is done by implicating the use of trusts whereby each of you (married Couples) agree to leave your share of the estate to a credit shelter trust instead to each other. This allows the surviving spouse’s share of the estate to be no more than his or her half of the total community estate, and hopefully less than $1M. This was the planning many of you had undertaken before and that should be continued, but with a twist.
The twist being that the trust should also make provisions to make the assets in the trust invisible to the long term care financing system or Medicaid. This way, if the surviving spouse needs long term care AFTER the death of a spouse, the assets in the trust cannot be required to be spent down to $2,000, thus assuring the surviving spouse that he/she will not be left penniless and some of the assets will end up as an inheritance with your children. The chances are remote that you will need Medicaid, but the provisions are prudent in these uncertain times.
Typical concerns about Powers of Attorney
I’m afraid that the person I appoint won’t manage my affairs properly
giving someone the potential power to manager affairs can be frightening. This is why it is important for you to appoint someone you trust to be your attorney. She must use your finances as you would for your benefit. Giving someone a power of attorney does not limit your own rights in any way. It simply gives the other person the power to act when or where you cannot act.
Does a power of attorney take away my rights?
Absolutely not. Only a court can take away your right to manage her own affairs, through a conservatorship or guardianship proceeding. In attorney simply has the power to act along with you, and as long as you are competent, you can revoke the power of attorney.
I don’t have anyone I trust enough to give them power over my affairs
if you do not have someone you trust to a point, it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship. In that case, you may use a limited durable power of attorney to simply nominate the person you want to serve as your guardian. Most dates require the court to respect your nomination "except for good cause for disqualification."
What if I change my mind?
You may revoke your power of attorney at any time. You need to send a letter to your attorney telling her that her appointment has been revoked. From the moment the attorney received a letter, she can no longer act under the power of attorney. If you have recorded the power of attorney with the land records of your County or at the probate court, you must record the rev
Excuse #1: My estate is too small.
For many individuals, especially those with smaller estates, the most important documents are a durable power of attorney and medical directives. While a will protects your estate after you’re gone, a durable power of attorney and medical directives protect you while you’re still here.
Excuse #2: Joint ownership of accounts with my children is an adequate plan.
No it isn’t. Unless there is only one child. It is impossible to keep separate accounts for more than one child equal. This is especially true if the parent becomes incapacitated and no linger has control over the accounts. Trying to save a few dollars by managing an estate in this fashion runs the serious risk of causing discord in a family for generations to come. Why take the chance?
Excuse #3: I don’t want to pay a lawyer to draw up the plan.
Software is available that produces most of the estate planning documents an attorney will prepare. The chances are good, however, that such "one size fits all" approaches will prove inadequate in any specific case. In fact, few clients just need a simple will. If there’s anything about your situation that’s not plain vanilla, you need to see a lawyer (and only a qualified lawyer can tell you if your situation is indeed plain vanilla). The problems you may create by not getting competent legal advice probably won’t be yours, but may well be your children’s. Don’t risk leaving such a legacy.
Excuse #4: I just haven’t gotten around to it.
Reading this blog is the first step towards getting around to it.
