Let’s say your father owns two homes and now must go into a nursing care facility, where it’s anticipated he will have to stay. Let’s say the one home was his primary residence, but the second home he built for his disabled daughter. Unfortunately, the financial burden of his care has now fallen to you and you’re trying to apply for Medicaid, but based on this second home, he’s been denied. What can you do?

There are some ways you can protect the homes and receive the Medicaid he needs, but chances are you will need an elder law attorney.

For example, let’s assume the daughter is under the age of 65 and meets the Social Security definition of disability, meaning she is either receiving SSI or SSD or is eligible for such benefits. With the aid of an attorney, your father can transfer the second home to her without incurring a Medicaid penalty for the transfer.

The transfer of the house should not adversely affect any means-tested benefits such as SSI or Medicaid that the disabled daughter might receive if that house is used as her principal place of residence. The primary home could also be transferred to the disabled daughter in a trust or it could be sold, and the proceeds would be transferred to the trust, without incurring a Medicaid penalty.

The primary home could also be sold to pay the nursing home privately, with a portion of the proceeds transferred into a trust for the benefit of the disabled daughter.

However, to get these transfers done properly, your dad needs the help of an elder care attorney. Bob Michaels of Tacoma Elder Care can help.  Contact Bob today by calling his office at 253-627-1091 to set up a free consultation. Or attend one of his FREE Workshops. 

What happens if you believe someone (say a sibling) used undue influence on an aging parent to get them to amend their trust? Let’s say the trust originally split everything evenly between you and your sibling, but now your parent is experiencing dementia and your sibling has hired an attorney and coerced your parent to change the trust so that everything now goes only to them.

You can certainly challenge the new estate plan. The question is whether it is easier to do it now or after your parent’s death. To do it now, you would probably need to seek a conservatorship over your parent. This would likely be very expensive, but it would help you preserve the evidence of your parent’s weakened cognitive ability and your sibling’s influence over them. The other approach is to wait until after your parent passes away and then challenge the trust through your parent’s estate by asking to be appointed as their personal representative. While the trust is not a probate asset, as personal representative you would have standing to question the recent change. You may also have standing as a beneficiary of the original trust. This also is likely to be an expensive and could include litigation. However, one potential advantage of pursuing the case after your parent’s death is that it would be easier to find a lawyer who would take the case on a contingency basis, assuming there is enough at stake to make it worth the lawyer’s effort.

Saying that there has been "undue influence" is often used as a reason to contest a will or estate plan, but what does it mean?

Undue influence occurs when someone exerts pressure on an individual, causing that individual to act contrary to his or her wishes and to the benefit of the influencer or the influencer's friends. The pressure can take the form of deception, harassment, threats, or isolation. Often the influencer separates the individual from their loved ones in order to coerce. The elderly and infirm are usually more susceptible to undue influence.

If you are in a similar situation, or know someone who is, Robert L. Michaels of Smith Alling in Tacoma can help. Bob is a shareholder at Smith Alling, P.S. and focuses his practice on elder law, estate planning, business and real estate matters. He has practiced law in the State of Washington since 1984 and has earned a solid reputation in the community for ethical and professional legal services. Bob’s friendly and engaging personality assists clients in working through complex and difficult matters. Contact Bob today for a free consultation.

We understand that using a DIY website to draft a will can save money and time, and in a pinch it’s better than nothing, but often they can lead to expensive and unpleasant estate planning mistakes and disastrous results!!

One of the biggest reasons you should avoid online wills is that the forms do not always say what you think they do, and the form cannot be tailored to your specific needs. In other words, unless you are an attorney and can understand what the form says, how do you know if it’s accurate? If there are mistakes, your loved ones could end up in court, spending thousands of dollars to contest the will.

Keep in mind DIY estate-planning websites are not specific to you or your unique situation. They typically offer “packages” with the same document labeled with three different names, often containing typos. Worse, the packages are often missing key estate planning documents. This is a bulk product offered to make make money on a large scale - not a local person who knows you and your situation.

Sometimes the sites claim to have attorneys on staff, but access to specific help for your personal documents is rarely available. If personal advice is offered, it will typically cost a great deal more than the “package” and is done through emails or online chats. For this to be even somewhat helpful, you will need to know the exact questions to ask.

Online DIY Wills Vs. Hiring a Professional
For some people with complicated personal and financial lives, today’s complexities may not be fully addressed with a do-it-yourself service for wills and trusts. While many of us would prefer to fill in the blanks in silence than having to talk to someone about our doubts or concerns, it’s highly advised you seek professional advice.

If you prepare your taxes yourself and they end up incorrect, you and the Internal Revenue Service may end up working things out. If you decide to do your estate planning by yourself, you may never know the consequences of your mistakes… but your loved ones will.

According to the AARP article, Haven’t Done a Will Yet? “Only 4 in 10 American adults have a will or living trust.”

Considering that these simple documents can avoid financial disasters, protect your family and loved ones, assure you can afford care if you become disabled or incapacitated, and leave behind your assets so that your loved ones can benefit from them after your death – Why do we wait?

What Good Estate Planning is About?
Our power to express our preferences is what good estate planning (or life planning) is all about. The documents which provide detailed instructions are critical to avoid probate and court involvement, reduce administrative confusion and provide clear instructions in the event of your death.

The four basic estate planning documents are a will, a trust, power of attorney for financial matters and an advance health care directive. If you plan to use any or all of them through a DIY site, expect to be offered a fill-in-the-blank approach. Keep in mind that each state has its own probate code (the body of law governing estate planning and implementation). The software package you use may have different names for the same documents I have listed above.

Some of the DIY sites provide these documents, but only if you purchase the higher-end packages. Some offer limited attorney consultation, and in many cases that means a drop-down of questions with pre-written responses, not an actual conversation with an attorney or any type of advice based on your specific situation.

Pros and Cons of DIY Estate Planning
The advantage of using a DIY service is that you will have a plan, as quickly and cheaply as possible, and that may be better than having no plan at all. This is especially true regarding getting a will, power of attorney and advance health care directive. Those handle most emergencies for people who don’t own real estate or much else.

Most presume that you already know what you want, but the reality is that many people have no idea what they want or need. Once you get into the complexities of family dynamics and perhaps trust language specific to your state and situation, DIY estate planning can cause more challenges than working with a local professional who will walk you through each step and draft your documents specific to you.

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.

Based on tax treatment and required minimum distribution rules, these are the three best and four worst beneficiaries to name for your individual retirement accounts.

Individual retirement accounts are some of the most sensible investment vehicles. They are tax deferred, protected from most creditors and can easily be transferred to a beneficiary outside of probate. In addition, they do not have a true maturity date: For traditional IRAs, you have to take required minimum distributions (RMDs), mandatory withdrawals of a certain percentage of the account every year, starting the year after you reach age 70 and increase as you age.

The major sticking point is what happens to these accounts upon your death: How can your beneficiaries optimize tax deferral and continue creditor protection? Who you leave these accounts to and how you leave them can either make or break these objectives?

The following beneficiaries are the best options when it comes to passing on your IRA:

Your Spouse. When you die your IRA typically turns into an inherited IRA. This creates different RMD treatment than when you take the distributions as the owner of the account. The main exception to the inherited IRA issue is transferring IRAs to your spouse.

Your spouse is the only individual who has the option of transferring your retirement plans to his or her name at the time of your demise. If the surviving spouse is younger than the deceased spouse, the receiving spouse now uses their longer life expectancy, and the commensurate smaller required withdrawal percentage, for RMD purposes. This allows for smaller distributions, which means less taxable income and more funds to continue growing tax deferred.

Younger Individuals. The concept of stretching RMDs is somewhat misrepresented to the public and is contingent on whether you live past April 1st of the year following the year you reached age 70. This is the actual time you must start taking RMDs or face a penalty. If you die before this time, meaning no one has ever taken an RMD from your IRA, your beneficiaries can stretch RMD distributions based on their life expectancies.

This is a great benefit to younger individuals: Though they have to take RMDs even if they are younger than 70 years old (inherited IRAs must begin distributing by December 31st of the year after your death, no matter how old the beneficiary is), the percentages to withdraw are quite small based on the beneficiaries' long life expectancies. If you die after the required begin date, RMDs are based on the longer of either your life expectancy or your beneficiary's life expectancy.

A See-Through Trust. Leaving funds to an entity that is not an actual human, such as an estate or charity, completely ruins RMD optimization: The beneficiary must withdraw all funds within five years. This can lead to an income tax burden that you would have wanted your beneficiaries to avoid.

A see-through trust can receive RMDs based on the beneficiary's stretching abilities noted above (thus it "sees through" to their life expectancy) yet protect the proceeds by holding the funds in trust. This is particularly useful when a minor is the beneficiary of a trust, since a minor cannot receive these distributions outright because they cannot individually own property. A see-through provision is often just one component of a trust, meaning it is often just one part of a larger document.
 
The following beneficiaries are the worst options when it comes to passing on your IRA:
Your Estate. Naming "my estate" as beneficiary to your IRA is the absolute worst thing you can do: You potentially lose creditor protection of the IRA, ensure the five-year withdrawal rule for your beneficiaries, increase court and accounting costs and increase the time and complexity of your probate estate.

Both A Person and a Non-Person. All beneficiaries to a trust must have a life expectancy (i.e. be human beings) or else the five-year rule for distributions applies. This mistake is usually made when an IRA owner leaves a large amount of the plan to family members and a small amount to a charity, such as 90% to children and 10% to a church. Remember that all the IRA funds must go to natural beneficiaries for stretch RMD purposes: Even leaving just 1% to a non-person invokes the five-year rule.

One way around this shortfall is to move some funds to a separate IRA and leave that IRA solely to charity. This will benefit all parties: The charity receives all the funds in its IRA tax-free, and your beneficiaries receive inherited IRAs with stretch RMD treatments available to them.

An Older Person. Leaving IRAs to an older individual is clearly bad for RMD purposes since the distributions are withdrawn at a higher rate. Of course, if you want to leave some funds to an older person and have no other assets to transfer, then RMD treatment might not really be a major concern for you. However, if there is a choice to transfer non-retirement assets instead, then those would be preferable.

A Spendthrift or Person with Creditor Issues. Spendthrift beneficiaries who receive IRA funds are disasters waiting to happen. Remember that every penny taken out of an IRA, inherited or otherwise, is taxable income. Therefore, a person in financial straits would not only deplete an inherited IRA quickly but would also have to pay income taxes for every withdrawal. In addition, in 2014, the Supreme Court decided an inherited IRA is fair game for creditors during bankruptcy judgments.

Instead of making your spendthrift relative the outright beneficiary of your IRA, consider naming a see-through trust and have another family member act as its trustee.

As is often the case in estate planning, knowing the nature of the asset itself is usually not enough: You should know the future nature of the asset and the individual who shall be receiving it.

​At Tacoma Elder Care we help you understand the importance of estate planning, paying for long term care without going broke, asset protection, and life planning.

Having a life care plan is essential in protecting you or your loved ones’ future!

Consider attending one of our FREE Workshops to begin planning today! Contact us to register or to schedule your FREE consultation.

It is always critical to plan ahead and to have a support system in place.

Aging seniors face all sorts of uncertainties, but older, childless singles and couples are missing the fallback that many other seniors take for granted. Without adult children who can monitor an aging parent or help navigate a complex system of health care, housing, transportation and social services, who do you turn to?

As baby boomers age, the number of childless seniors, both couples and singles, is rising. Close to 19% of all women ages 80 to 84 will fall into that category in 2050, up from 16% in 2030, according to a study by the AARP Public Policy Institute. Recent research by a geriatrician at the North Shore-LIJ Health System in New York coined a name for these seniors: "elder orphans."

People without children "need to start thinking early about their future housing and future caregiving," says Lynn Feinberg, senior strategic policy adviser with the AARP institute and a co-author of the study. She suggests that they consider "what life will be like when they can't live without assistance."

To be sure, aging parents can't always count on their adult children to lend a hand. For those parents, and for childless seniors, it's essential to start weaving a safety net that could last for years. The support system could include a network of friends and relatives who can keep tabs on you, advocates to help negotiate the health care system, a team of legal and financial professionals, and senior-friendly housing.

One of the first steps childless seniors should take is to draft legal documents that will protect them if they become incapacitated. On the financial front, you should create a durable power of attorney and choose an agent who will manage your financial, legal and tax affairs should you become unable to handle these tasks yourself. Childless seniors often pick a niece or nephew to whom they are close -- or a trusted friend, cousin, sibling or clergy.

If you do not have someone reliable who can take on the job, you could set up a revocable trust and assign a bank or trust company as trustee. You would move your assets to the trust, and the company would eventually take on financial tasks you assign to it, including paying bills and caregivers, processing medical claims, and overseeing your home if you're hospitalized or in a nursing facility.

You can even tailor the trust's provisions to ensure that your physical and mental health is monitored. The document, for instance, could advise the trust company to hire a geriatric care manager to conduct periodic evaluations in the future, and to send a copy of the assessment to the person you choose as your health care agent.
 
A big plus for going this route is that the chances of elder abuse are negated. Unfortunately, the majority of elder abuse is committed by family members.

Whether you use an institution or a power of attorney, it's essential to build in checks and balances. You could direct the trustee or agent to send monthly statements to your accountant. If you create a revocable trust, you can appoint a co-trustee who may be given the power to monitor, and perhaps override, a trustee's decisions.

You will also need to draw up health care directives. One is a living will, which will define your health care wishes under certain medical conditions. You'll also need to name a health care proxy, who will make decisions on your medical care if you become incapacitated.

As you age, the proxy's role could intensify. He or she must keep an eye on your mental and physical state, hire caregivers, and arrange for you to move to new housing if necessary. Your proxy should be someone you have ultimate faith in and a strong connection with.

If you do not have someone who can pick up the role, you may be able to hire a professional. Some elder law attorneys can become a health care proxy, or you may choose to hire a professional fiduciary to oversee your affairs.

It's a good idea for a childless senior to widen the circle of potential helpers -- people and organizations that can keep an eye on you and pitch in if need be. Your network could include friends, volunteer organizations you work with, neighborhood groups and senior centers.

Turn to a Team of Experts
A cornerstone of your support system should be a professional advisory team. The team would include a certified public accountant, a financial planner, an estate-planning lawyer or elder law attorney, and perhaps a geriatric care manager.

The financial planner would develop a blueprint to pay for long-term care and other services. A care manager could look for signs of dementia and arrange for services, such as home care.

You could direct team members to exchange information, especially if your mental capacities decline. They can also watch out for financial elder abuse.

Your safety net should include an array of aging-related community services. While you may not need resources now, you can start investigating what's available.

At Tacoma Elder Care, we are always working on ways to help you! We have put together a list of local resources and contacts we highly recommend who may be able to assist.

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, the most important documents everyone needs to have in place, and meet some of these folks who can help you begin building that support system.

Contact us today to register, or to schedule a FREE consultation.
 

Love may be sweeter the second (or third) time around, but for a growing number of baby boomers, love and marriage don’t go hand in hand.

The number of adults older than 50 who were living together outside of marriage more than doubled between 2000 and 2010, from 1.2 million to 2.75 million, according to the Journal of Marriage and Family. It’s not fear of commitment that keeps older couples from making their unions official, but the fear that marriage will saddle them with higher health care costs, wipe out retirement benefits, raise their taxes and disrupt estate plans.

Despite all that, marriage conveys 1,138 tax breaks, benefits and protections (such as guaranteed medical leave to care for a family member), according to the Human Rights Campaign.

Regardless of whether you are contemplating marriage or just moving in together, put romance aside long enough to consider these issues later in life.

Sharing costs and assets
Living together means either you start fresh in a new place or one of you moves into a partner’s home. The latter isn’t unusual for older couples, but unmarried couples need to take extra steps to protect their interests. For example, if one partner isn’t on the deed, their property may not be protected by the homeowner’s insurance.

You may also be ineligible to deduct a share of the mortgage interest on your taxes. This isn’t an issue for married couples who file jointly, even if only one spouse is on the deed, and if the relationship ends you will still have legal rights. That’s why for older, unmarried couples, making a cohabitation agreement isn’t just a good idea, it’s a necessity. Older partners often own homes and have investment portfolios and other assets; they may also have adult children who aren’t thrilled about their parents’ living arrangements. If the relationship fizzles or one partner dies, what seemed like an uncomplicated partnership could turn into a messy legal nightmare.

An attorney with experience in counseling unmarried couples can help come up with an agreement that will govern the arrangement and address potential conflicts. For instance, if one member of the couple owns the house, the agreement would spell out whether the nonowner will contribute to the mortgage (if there is one) and other home-related costs. If the nonowner doesn’t contribute, the couple might include language that states that he or she isn’t obligated to reimburse the heirs for those costs after the owner dies. The agreement can also state that if the owner moves into a nursing home, the partner can remain in the home.

If you and your partner decide to buy a home together, a cohabitation agreement should spell out the amount each will contribute to the cost of buying and owning the home. Think of it as a business investment, in which the more you invest, the more you own. You can also use the cohabitation agreement to spell out how you’ll split other expenses, such as groceries and household goods, utilities and travel costs.
 
Your cohabitation agreement should address what will happen to the home if you break up. Will one partner have the right to buy the other out? Will you sell it? Similarly, if one partner dies, does the survivor have the right to buy out the deceased partner’s share from the estate? The agreement also lets you address what should happen to other property in the event of a breakup—particularly property you owned before you got together.

To reduce conflicts, it’s recommended that both partners hire their own lawyer to draft the cohabitation agreement. That way, in the event of a contentious breakup, one partner can’t claim that he or she didn’t understand the terms of the agreement. Whenever possible, the children should be involved, too. Including adult children will reduce the likelihood that they’ll challenge the terms of the agreement.
If children refuse to participate, partners should consider videotaping a statement in which they outline the terms of the agreement. This can be used to demonstrate that they were competent when they signed it.

Sorting out estate plans
How marriage affects estate plans is a common concern among older couples, who are likely to bring property and other valuables into the relationship and want them to go to children from previous marriages. Once you get married it becomes very difficult to separate your assets.
For unmarried couples, making a will is paramount, especially if they are sharing a home owned by just one member of the couple. If the homeowner dies without an estate plan, the other member of the couple could be out on the street.

For partners who want to leave their homes to their children, one way to deal with this problem is to create a life estate for the surviving partner. This contract typically gives the survivor the right to live in the home until he or she dies or moves into a nursing home, at which time the house passes on to children or other heirs. In some cases, the agreement will set aside money to cover maintenance and other expenses.

Although some couples remain unmarried to protect their estates, that strategy backfires if you end up paying estate taxes. If you’re married, you can inherit an unlimited amount of assets from your spouse without paying state or federal estate taxes. You can also give an unlimited amount of assets to your spouse while you’re alive without filing a gift-tax return.

The tax code also favors married couples when it comes to inherited IRAs. A spouse who inherits an IRA can roll the account into his or her own IRA. The surviving spouse can postpone taking required minimum distributions until age 70½. In the meantime, the account will continue to grow tax-deferred.
The same option isn’t available to unmarried partners. However, an unmarried partner who is named as an IRA beneficiary can minimize taxes by rolling the account into an inherited IRA and taking distributions based on his or her life expectancy.

Preserving your benefits
Many older couples decide not to get married because they don’t want to lose spousal Social Security benefits or a former spouse’s pension.
 
Divorced spouses are eligible for Social Security benefits based on their ex-spouse’s earnings record as long as the marriage lasted for at least 10. That’s a valuable benefit for women who left the workforce to care for children or aging parents and have limited benefits of their own. They’ll lose that benefit, though, if they remarry.

Widows or widowers who remarry before age 60 lose survivor benefits based on their deceased spouse’s earnings. Most widows receive a higher benefit by claiming their husband’s monthly benefit instead of their own. If your second marriage ends in divorce or your spouse dies, you have the right to reapply for benefits based on your first spouse’s earnings.

Unless the divorce decree says other­wise remarriage will end alimony payments from a former spouse.
Remarriage could also mean losing a deceased spouse’s pension benefits or other types of survivor benefits, such as annuities paid to spouses of police officers and firefighters.

Weighing the tax bite
In recent years, Congress has tried to make marriage less taxing for couples. Many young couples who tie the knot pay less in federal income tax than they would if they had stayed single. If both spouses are in the 28% or higher tax bracket, however, their combined income could trigger a marriage penalty.

The marriage penalty is particularly punishing at the top, 36.9% bracket. That bracket kicks in for single taxpayers once their income exceeds $413,200; for a married couple, the top rate is triggered once taxable income tops $464,850. A couple (or individual) in the top bracket must also pay a 23.8% tax rate on dividends and long-term capital gains instead of the 15% that most taxpayers pay.

Married couples, including those with relatively modest incomes, could end up paying higher taxes on Social Security benefits than their unmarried counterparts. Taxes on Social Security benefits are based on what’s known as your provisional income: your adjusted gross income (including pension payouts and retirement-account withdrawals but not counting Social Security benefits) plus any tax-free interest and 50% of your benefits. For singles, taxes don’t kick in as long as the total is below $25,000. That means an unmarried couple could have combined provisional income of up to $50,000 without paying taxes on their Social Security benefits.

For married couples, however, the hammer comes down once their combined provisional income tops $32,000. The disparity continues up the income ladder. Married couples with provisional income of more than $44,000 will pay taxes on 85% of their benefits; two unmarried partners could have combined provisional income of up to $68,000 before paying tax on 85% of benefits.

Singles who live together have another advantage over married couples when it comes to taxes: flexibility. Say one member of the couple makes a lot more than the other. In that case, the high-earning member of the couple could pay the mortgage and deduct the interest (assuming he or she is liable for the debt and has an ownership interest in the home), and the other could take the standard deduction. Or the low earner may fall below the income limit for contributing to a Roth IRA, in which case he or she could fuel the account even if the high-earning partner couldn’t.
 
But unmarried couples could pay higher taxes when they sell a home. Married couples can exclude up to $500,000 in capital gains on the sale of a home as long as at least one spouse has owned the home and both have lived in it for two out of the five years before the sale. For an unmarried couple to qualify for up to $500,000 of tax-free profit, both individuals must be on the deed and have owned and lived in the home for two of the five years before the sale. If only one meets that standard, the exclusion is capped at $250,000.

College costs. Another drawback to marriage is that it could affect your college-age children’s eligibility for financial aid. The Free Application for Federal Student Aid (FAFSA), which is used to determine how much financial aid a child will receive, counts the income and assets of both spouses, even if only one is the child’s parent. As long as they were married on the date the parent files the FAFSA, the government will count the stepparent’s financial resources (even if he or she declines to contribute to college costs).

If the couple is unmarried, the live-in partner’s assets and income aren’t counted, as long as the partner isn’t the child’s biological or adoptive parent. However, any financial support provided by the partner—which includes living expenses, gifts and loans—must be reported on the FAFSA as untaxed income to the student. If both parents live together but aren’t married, they must report their income and assets on the FAFSA.  Marriage isn’t always a negative where financial aid is concerned. If both partners have children, marriage could increase the size of the household and the number of children in college, which could increase eligibility for financial aid.

In sickness and in health
The high cost of health care—particularly long-term care—can create one big disincentive for older couples to get married. Once you wed, you are responsible for your spouse’s medical debts. If your spouse ends up in a nursing home, the cost could deplete your estate.

Medicare doesn't cover most nursing home care, and married couples’ combined assets are counted when determining eligibility for Medicaid. The spouse who remains at home is generally allowed to keep a certain amount of “countable assets” along with certain exempt assets, such as a car. An unmarried partner’s investments, savings and other assets usually aren’t counted at all unless they’re jointly owned.
At Tacoma Elder Care, we are always working on ways to help you. If you are remarrying or newly single, and you are over the age of 50, it’s highly recommended you get some advice on all the pros and cons for your specific situation.

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.