A long life is a great gift, but with the joys come some financial and legal challenges. The earlier you act to address them, the better off you and your heirs will be.
Did you know that a non-smoking 65-year-old woman today has a 50% chance of living until 88? A non-smoking 65-year-old man has a 50% chance of living until 85. That’s how life expectancy works – the longer you live, the more likely you will live longer!
Given that you could be well on your way to becoming a nonagenarian, here are four smart moves to help keep you and your family protected as you age:
1. Consider long-term care
For a married couple, on average, it's likely that one spouse will end up in a nursing home. The time to think about how to pay for long-term care is well before you ever need it. Consider purchasing long-term care insurance while you’re still healthy enough to qualify, so you don’t have to use your own money to pay for your care. Long-term care insurance typically pays for both skilled nursing home care and in-home health care aides.
Traditional long-term care policies can be expensive and difficult to obtain, but there are hybrid policies that combine long-term care benefits with life insurance. If you don’t use the long-term care benefits during your life, your loved ones can receive the life insurance proceeds upon your death. The death benefits take away the worry that you’ll pay premiums and never receive benefits. It’s also possible that married couples can be covered under one policy, providing a pool of benefits available to the spouse who needs them, while at the same time helping protect the inheritance of your loved ones.
2. Plan for incapacity
Many people believe that their spouse has the automatic ability to make medical and financial decisions for them in the event they become incapacitated. Many times, however, this is not case. Not preparing for this possibility can take a financial and emotional toll on your family. Medical advance directives, such as health care proxies and health care powers of attorney, allow you to name another person to make your medical decisions when you are no longer able.
If you become incompetent and do not have a medical advance directive, your family may need to go to court to get authority to make these decisions for you – this is known as a guardianship proceeding, which is expensive and invasive of your privacy.
The same is true for financial decisions. You need a durable power of attorney for financial and legal decisions so that someone else can sign on your behalf and access your accounts if you are not able to.
3. Avoid probate
When you die if you have assets in your sole name (without a joint owner or beneficiary), your loved ones will need to go to court to get access. This is known as probate, and it can be a very costly and timely process. Probate can cost between a few thousand and many thousands of dollars depending on where you live. In probate it can also take anywhere from a few weeks to many months to access assets.
Revocable trusts can help avoid probate by owning assets in the name of the Trust. The Trust can own many of your assets during your life and say what you want to happen to your assets after you pass. In this manner, the Trust helps avoid probate and essentially acts like your will. (Note that you should also have a will in case you miss putting some of your assets into your Trust.)
Using a revocable trust can help you and your family save time and money.
4. Minimize taxes
Under the Tax Cuts and Jobs Act passed at the end of 2017, federal estate taxes no longer apply if you own assets totaling less than $11.2M. (Note, this amount is scheduled to decrease to about half that amount after 2025.) Even though the vast majority of people no longer need to be concerned about federal estate taxes, there are other taxes that you should worry about – namely state estate and inheritance taxes and capital gains taxes.
An attorney experienced in estate planning can help you minimize, or possibly avoid, these state estate taxes. Estate planning techniques such as credit shelter trusts, giving assets away during your life, or even changing the state in which you live, can help minimize the impact of these taxes.
In addition, if you have highly appreciated assets, it may be best to avoid giving those away during your life. If you give those appreciated assets to your children while you’re alive, and your children sell them later, they will have to pay the capital gains taxes. You children will receive your tax-basis, under “carry-over basis” rule.
If, however, you own those same assets when you die, the basis will become the fair market value (under the “step-up in basis” rule), and your children will not pay capital gains taxes. Again, these rules and planning techniques can be complicated, so it’s always best to consult a professional.
Oftentimes people put off planning for their golden years because no one likes to think about dying or the possibility that their quality of life in their final years will not be the same as it is in the present. But planning for longevity is important. It will give you peace of mind and give your family a sense of security so that you can spend your time doing the things you enjoy and not worrying about the future.
At Tacoma Elder Care, we are always working on ways to help you. If you are just beginning to think about your planning, we highly recommend attending one of our FREE workshops to learn more about how to start, and the most important documents everyone needs to have in place. Contact us today to register, or to schedule a FREE consultation.