What is the similarity between the characters in the musical “Fiddler on the Roof” and attorneys? Tradition!
All of my clients deal with estate planning issues: The majority of my clients who have planned their estates have done so under the traditional notions of estate planning which, unfortunately, leaves them largely exposed to the threat of uncovered long-term care costs.
My father, in his late 80s, is considering marrying a lady who is not in the best physical health. I own property with him together, what implications are there when you place property into a safe harbor trust?
My husband died and I have two adult married daughters. I was wondering if they could be put on the house title with me now. If I suddenly need a nursing home or something, the state couldn’t take my home. Or should I turn the title over to them now, and how long of a period do I have until they cannot come after the home, though I may have to give up the reduced property taxes.
If protecting the assets from uncovered long-term care costs is the primary motive, you cannot add their name and hope it is protected, you must give up the ownership of the home. I am always suspect of that because what happens if they are sued or have a divorce? It must be done very carefully. If you do not need long-term care assistance for the next 5 years, transferring the house out may trigger a 5 year penalty period in which you will not qualify for Medicaid assistance. You should check your other assets as well, because they may trigger other 5 year penalties if not handled at the same time. Once the children receive the assets, they may wish to place it in a safe harbor trust. This way if the kids are sued or get a divorce, at least your house assets may not come into play for their creditors.
I heard something about converting a traditional IRA to a Roth IRA and how it would be a better way to pass an IRA on to one’s children?
Traditional IRAs are taxable instruments of which when you pass to your children, you are passing the tax ramifications as well to them. In other words, if you have a traditional IRA with $400,000, when you turn 70, you have to start taking out a minimum required distribution. All that is considered taxable income.
The issue then becomes, what are my opportunities? We now have something called a Roth IRA, in 2010, there is an opportunity for people to roll their money from a traditional IRA to a Roth IRA. The difference is that with a Roth IRA, the withdrawals are totally tax free. Once you have transferred it out of a traditional IRA to a Roth IRA, your children can inherit this without any tax consequences.
What is the difference between a safe harbor trust and other trusts?
That is one of the basic fundamental things we discuss. A typical trust is a revocable living trust. One of the ways to plan your affairs is to use a revocable living trust. What this trust does is, it allows you to put away the assets you own from your name into the name of the trust, for the purposes of avoiding probate.
The second type of a trust is called a tax trust, or a credit shelter trust. This says that in any community property state, like Washington, between a married couple, the husband and wife will generally own 50% of the assets each. This type of trust basically says, that when the first spouse dies, instead of leaving the money down for the surviving spouse, their one half, or a portion of it, will go into the credit shelter trust, allowing avoidance of estate sales taxes. This is also a type of a safe harbor trust.
The safe harbor trust that I talk about is much like the credit shelter trust, but it has a different code, title 19. This basically follows the same husband and wife scheme. This money will no longer will be visible for programs such as Medicaid, VA, housing, and food.
My sister-in-law has power of attorney over her mom, who has advanced Alzheimer’s disease. She wants to move some stocks out of a mutual fund into a different one because it is doing poorly, and the investment company does not recognize power of attorney. How can this be?
It cannot be. This is also not the first time I have heard about it. If the power of attorney was written over three or four years ago, they do not know if it has been changed or revised, and they consider it a big risk for them. But the fact of the matter is, even if a person creates a power of attorney in 1901, it would still be valid today. The way to overcome that is two things. First, whoever is trying to use the power of attorney, can prepare something called an affidavit in support of power of attorney, whereby, under penalty of perjury, you swear that this is the power of attorney that was created and no other power of attorney to your knowledge has been created since, and I am in good faith using my power of attorney to further the benefits of the person who gave me this power. If you can present that document to the financial company and they still refuse to honor it, you will have to go to court and get an order from a judge requiring the institution to accept the power of attorney, and the penalty is they may have to pay all the fees and costs associated with obtaining this order.
So generally, what we do is to write the letter to the institution telling them that this is the valid power of attorney, based on the specific rules and requirements, and attached they will find a copy of the affidavit in support of power of attorney. If they still choose not to honor it, we will take them to court.
How often can banks inspect your property to check the condition and could this be a problem for seniors? Especially considering the maintenance of the grounds?
Generally this is not a problem. The contract does state that you have to maintain your house. They will usually send somebody on an annual or bi-annual basis to do a drive-by or come by and take a look at your house. This frequency is established when you take the loan and depending on how the old house is. When the loan is taken, they will do an initial inspection where someone will come and inspect the house rather thoroughly. Many times I will see loans subject to conditions that the person who is making the loan made these improvements. At that point they may schedule someone to do follow up and a walk-in. The downside is that they are in the drivers seat as to how frequently to schedule inspections or what repairs must be made. But it has not been a problem. I have yet to come across a case of absurd requirements.
In terms of the grounds, it usually does need to be kept in good order, and many times this involves mowing the lawns and people frequently hire others to mow the lawn and do repairs of the grounds.
I do think reverse mortgages are generally a good idea. However, the caution I tend to give people is that they make sure they want and have the means to age in place. It is not something you should be doing if you are considering moving within the next 3-5 years.
I heard the inheritance tax rates are going to increase taxes by as much as 45%, is this true and when will this happen?
The rates are going down to 45%. Under the old regime, tax rates used to be up to 55% at the federal level. The state and estate taxes reach between 10% and 19% in addition to the federal taxes. For estate tax purposes, the exemption for 2009 is 3.5 million. In 2010, if congress does not take any action, estate taxes will be no more, but then in 2011, if congress again does not take any action, estate taxes will be back down to 1 million dollars. For the state of
What can be done when both parents are in declining health, and do not want to leave their house?
If power of attorney has not been prepared, a guardianship is something to consider. A guardianship is where an attorney will go to court, and have the parents declared incompetent. However, this can be considered by the parents to be a slap on their face. And in this case, the court may not impose a guardianship due to the fact that the parents likely have enough mental capacity to understand the decisions they are making and the risks they are taking. And so, in my opinion, a guardianship is a poor solution.
Even with power of attorney, children may not be in a position to enforce their decision to move the parents to an assisted living facility, due to the fact that the power of attorney can be revoked.
Another solution would be to try to talk to the parents, and convince them to move. But this may end up alienating the relationship between the children and the parents. The children may need to try to understand that the parents may not consider their advice in the same manner that they would consider advice from someone in the professional field. This is one situation where the care and management aspect is so appropriate, such as a care manager or social worker, because the parents do not want to leave their home although the children do not consider it a safe situation.
Care managers or social workers help to create a plan that can work to provide things such as a personal emergency response system that allows them to continue to live safely at home. This may be a solution that both parties can agree with.
*
We would like to help pay off our children’s houses. Both owe approximately $100,000 each. Is there any way to do this considering the gift taxes and other obstacles?
You can do it. The limit, which is $13,000 per year, per person, has nothing to do with estate gift taxes. According to the law, any American can gift up to $1,000,000 in their lifetimes without worrying about any gift taxes. The IRS holds a ledger with the amount of $1,000,000. Only when the amount exceeds $13,000 does a person needs to contact the IRS.
So a gift of $100,000 can be done without worrying about gift taxes or income taxes. The only thing that would need to be done is to file a gift tax return(pdf), in which case the IRS will reduce your $1,000,000 lifetime exemption accordingly. In this specific case the IRS will reduce the $1,000,000 by $87,000 each.
The other impacts that this gift may have is that if either parents requires medicaid within the next five years it may become complicated. However, if done properly, this would not be a problem either. Since this will be done without medicaid in mind, medicaid cannot count this as a penalizing transfer.
But the problem is that medicaid presumes that no one ever makes a gift for reasons other than qualifying for medicaid. Therefore, some documentation will need to be secured before making the gift in order to stop this from coming back to haunt you.