Illinois Estate Planning and Elder Law Blog

More and more seniors are living together without getting married. According to U.S. Census date, the number of cohabitating seniors nearly doubled between 1989 and 2000. For some seniors, marriage is not financially worth it or they do not want to lose their former spouses’ military pension or Social Security benefits. Other seniors do not want to have to pay their partner’s medical expenses or deal with the objections of children worried about their inheritance.

If you and your partner plan to live together without getting married, you can take a number of steps to ensure that you are protected and your wishes are followed.

Sign a cohabitation agreement. The agreement can state your intentions not to marry or to make any claims against each other. It can also specify the division of household expenses and what will happen to your house in the case of death or breakup.

Provide access to health care decision making. If you are not married, you have no right to participate in your partner’s health care decisions or even, in some circumstances, to visit your partner at the hospital. To avoid this situation, you need several documents. You can sign a Health Insurance Portability and Accountability Act (HIPAA) medical release to allow each other access to the other’s medical information. In addition, a Power of Attorney for Health Care allowing your partner to make health care decisions will give the partner those health care decision making rights.

Sign a durable power of attorney. A Durable Power of Attorney for Property allows your partner, or whomever you appoint, to make financial decisions for you if you become incapacitated. Without a Durable Power of Attorney for Property, the court will have to appoint a guardian to make those decisions. Annual filings with the court regarding your estate’s assets will be required along with other filings with the court.

Update your will. Your will should be clear about what happens to your possessions when you die, including your house and its contents. It is particularly important to specify what will happen to your house if it is owned by only one partner. Continue reading

Natalie Choate, widely recognized as the authority on IRAs and estate planning, turns 70 1/2 this year. This age is key as it is the time when required IRA payouts begin.

At 70 1/2, each year owners typically must withdraw a percentage of their total IRA assets. This percentage increases every year, and IRA owners have until April 1 after the year they turn 70 1/2 to take their first required withdrawal. After that, the annual deadline is December 31.

If you are considering making charitable gifts, a transfer from your IRA may be highly tax-efficient. IRA owners are allowed to give up to $100,000 in cash from an IRA to charity and have the donation count as part of their required withdrawal. The advantage is that Adjusted Gross Income (AGI) is  a trigger for many tax provisions like the 3.8% surtax on net investment income. It is also used to determine payments for some Medicare premiums and taxes on Social Security payments. Lowering Adjusted Gross Income can lower these taxes.

Laura Saunders cites an example in a recent article in the Wall Street Journal: A single IRA owner has AGI of $210,000, including $160,000 of investment income. The person, who has a $50,000 required IRA payout, will write checks for $15,000 to charities this year. Under current law, $10,000 of the investment income would be subject to the 3.8% surtax because the owner’s AGI is above $200,000.

If this IRA owner makes the $15,000 of charitable gifts from his IRA, the result is different. The owner’s taxable portion of his IRA payout drops to $35,000 and the AGI to $195,000 so there is no 3.8% surtax. Continue reading

  1.  LOSS OF CAPACITY. What if you become incompetent and unable to manage your own affairs? Without a plan, the court will select the person who manages your affairs. With a plan, you pick that person through a power of attorney.
  2. MINOR CHILDREN. Who will raise your children if you die? Without a plan, a court will make that decision. With a plan, you are able to nominate the guardian of your choice.
  3. DYING WITHOUT A WILL. Who will inherit your assets? Without a plan, your assets pass to your heirs according to your state’s laws of intestacy. Your family members will receive your assets without benefit of your direction or of trust protection. With a plan, you decide who gets your assets and when and how they receive them.
  4. BLENDED FAMILIES. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would wish. With a plan, you determine what goes to your current spouse and to the children from a prior marriage.
  5. CHILDREN WITH SPECIAL NEEDS. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or Supplemental Security Income benefits and may have to use his inheritance to pay for care. With a plan, you can set up a Supplemental Needs Trust which will allow the child to remain eligible for government benefits while using trust assets to pay for non-covered expenses.
  6. KEEPING ASSETS IN THE FAMILY. Would you prefer that your assets stay in your own family? Without a plan, your child’s spouse may wind up with your money if your child passes away prematurely. If your child divorces his current spouse, half of your assets could go to the spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and pass to whomever you wish.
  7. FINANCIAL SECURITY. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard. With a plan, life insurance can mean that your family will enjoy financial security.
  8. RETIREMENT ACCOUNTS. Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs. With a plan, you can choose the optimal beneficiary.
  9. BUSINESS OWNERSHIP. Do you own a business? Without a plan, you do not name the successor, thereby risking that your family could lose control of the business. With a plan, you choose who will own and control the business after you are gone.
  10. AVOIDING PROBATE. Without a plan, your estate may be subject to delays and excess fees, and your assets will be a matter of public record. With a plan, you can structure avoidance of probate.

Continue reading

Prenuptial agreements have become an important estate planning tool. Without a prenuptial agreement, a second spouse may be able to invalidate your existing estate plan. Prenuptial agreements are especially helpful if you have children from a previous marriage or important heirlooms which you want to keep on your side of the family.

It is important to make sure that your prenuptial agreement is valid. The following need consideration:

  • IN WRITING. To be valid, a prenuptial agreement must be in writing and signed by both spouses. A court will not enforce a verbal agreement.
  • NO PRESSURE. A prenuptial agreement will be invalid if one spouse is pressured into signing it.
  • REVIEW. Both spouses must read and understand the agreement. Each spouse should seek advise from separate attorneys.
  • FULL DISCLOSURE. Both spouses must fully disclose assets and liabilities. If either spouse lies or omits information about his or her finances, the agreement can be invalidated.

Continue reading

One simple way you can reduce estate taxes is to give some of your assets to your children (or anyone else) during your life. There is no limit on how much you may give during your lifetime, but if you give any individual over $14,000 (in 2016) in one year, you must file an IRS Form 709 reporting the gift to the IRS. The amount over $14,000 will be counted against the $5.45 million lifetime tax exclusion for gifts.

The $14,000 figure is an exclusion from the Form 709 reporting requirement. You may give $14,000 to each of your children, their spouses and your grandchildren (or to anyone else you choose) each year without reporting these gifts to the IRS. In addition, your spouse can duplicate these gifts. For example, a married couple with four children can give away up to $112,000 in 2016 with no gift tax implications and no need to file anything with the IRS. However, if spouses elect to split a gift of $28,000 to one individual, Form 709 must be filed for both spouses to use the $14,000 exemption.

So an individual with $6 million in assets and two children and two grandchildren could gift to them in one year $56,000 (4 times $14,000) without filing anything with the IRS. If that individual made these gifts for ten years, he would have reduced his $6 million in assets to a figure under the current $5.45 million exemption and would owe no Federal Estate Tax at his death. Continue reading

In Illinois, assisted living facility residents covered by Medicaid are not at risk of being evicted if they leave the facility for a temporary hospitalization.

The Illinois Medicaid program pays for services not just in nursing homes but in assisted living facilities which are meant to provide a home-like alternative to nursing homes. The Nursing Home Reform Law authorizes Medicaid to pay a nursing home to hold a room for a Medicaid recipient who is temporarily absent due to hospitalization and entitles the resident to return to the first available room.

Medicaid does not make similar payments on behalf of residents of assisted living facilities and the facilities are not required to give admission priority to returning residents. Illinois is one of only a handful of states which makes retainer payments to assisted living facilities on behalf of residents who are temporarily absent. Because of this law, Illinois assisted living facility residents covered by Medicaid are not at risk of being evicted if they leave the facility for a temporary hospitalization. Continue reading

The Estate Tax was put in place in 1916 to raise revenue to finance World War I. In a recent article in the Wall Street Journal, Laura Saunders explains how this tax started as a levy with a top rate of 10% and an exemption of $50,000 (about $1,000,000 in current dollars) and today has a top rate of 40% and an exemption of $5.45 million.

The Estate Tax has never affected many people, often only affecting 2% of individuals who die each year. Also, the Estate Tax can be reduced or eliminated by putting in place planning techniques, such as gifting up to $14,000 each year to as many relatives and friends as one would like to reduce the estate size at death.

Proponents of the Estate Tax point to the goal it seeks to achieve of limiting concentrations of wealth. Opponents of the tax claim that it damages the nation’s economy by forcing sales of assets at depressed prices.

Continue reading

Oregon has passed a law which allows the appointment of an individual to access the digital assets of someone who has died. This authority must be provided for in a Will, Trust or other estate planning document.

Illinois currently has no laws regarding digital assets after an individual dies.

Google and Microsoft have their own set processes regarding accessing an account when the owner has died. Yahoo and Twitter have no set processes. Facebook allows naming a “legacy contact” who can access your account after you die.

One way around the issue is to use an on line password manager, e.g. LastPass, which allows you to store account information in one place. If you were to die, the individual you had provided the information regarding the master password could use it to access all of your digital accounts. Continue reading

You become eligible for Medicare as soon as you turn 65, and delaying your enrollment can result in penalties, so it is important to act right away.

There are different options to consider when signing up for Medicare. Medicare consists of four major programs: Part A covers hospital stays, Part B covers physician fees, Part C permits Medicare beneficiaries to receive their medical care from among a number of delivery options, and Part D covers prescription medications. In addition, Medigap policies offer additional coverage to individuals enrolled in Parts A and B.

Medicare enrollment begins three months before your 65th birthday and continues for seven months. If you are currently receiving Social Security benefits, you do not need to do anything. You will be automatically enrolled in Medicare Parts A and B effective the month you turn 65. If you do not receive Social Security benefits, then you will need to sign up for Medicare by calling the Social Security Administration at 800-772-1213 or online at It is best to do it as early as possible so your coverage begins as soon as you turn 65.

If you are still working and have an employer or union group health insurance plan or if you are retired and still covered under your employer’s health plan, it is possible you do not need to sign up for Medicare Part B right away. You will need to find out from your employer whether the employer’s plan is the primary insurer. If Medicare, rather than the employer’s plan, is the primary insurer, then you will still need to sign up for Part B. Even if you are not going to sign up for Part B, you should still enroll in Medicare Part A, which may help pay some of the costs not covered by your group health plan.

If you don’t have an employer or union group health insurance plan, or that plan is secondary to Medicare, it is extremely important to sign up for Medicare Part B during your initial enrollment period. Your Medicare Part B premium may go up 10 percent for each 12-month period that you could have had Medicare Part B, but did not take it. In addition, you will have to wait for the general enrollment period to enroll. The general enrollment period usually runs between January 1 and March 31 of each year.

With all the deductibles, copayments and coverage exclusions, Medicare pays for only about half of your medical costs. Much of the balance not covered by Medicare can be covered by purchasing a Medigap insurance policy from a private insurer.

Medicare also offers Medicare Part C (also called Medicare Advantage). You must be enrolled in Medicare Parts A and B to join a Medicare Advantage plan (the name for private health plans that operate under the Medicare program). If you join a Medicare Advantage Plan, the plan will provide all of your Part A and Part B coverage, and it may offer extra coverage, such as vision, hearing, dental and other health and wellness programs. Most plans include Medicare prescription drug coverage.

Finally, Medicare offers prescription drug coverage under Medicare Part D. If you are not going to sign up for a Medicare Advantage plan with prescription drug coverage, then you will want to enroll in a prescription drug plan at the same time you sign up for Parts A and B. For every month you delay enrollment past the initial enrollment period, your Medicare Part D premium will increase at least one percent. You are exempt from these penalties if you did not enroll because you had drug coverage from a private insurer, such as through a retirement plan, at least as good as Medicare’s. This is called creditable coverage. Your insurer should let you know if its coverage will be considered creditable.
Continue reading

The basic concept of a reverse mortgage is that the bank will make payments to the homeowner, rather than the other way around. The payments can be a single lump sum, a line of credit or a stream of monthly payments. The bank does not have to be paid back until the homeowner moves out or passes away.

But the bank must be paid back at that time. For a senior who moves to a nursing home, this means liquidating an asset that is non-countable for Medicaid purposes and turning it into a countable asset that must be spent down before the former homeowner can qualify for Medicaid coverage.

In addition, because the bank is advancing money without knowing for sure when it will be paid back, there are high upfront costs to reverse mortgages. These mortgages are limited to about half of the equity in the home, which may not meet the homeowner’s needs.

There is an alternative that in many instances better meets the needs and goals of older homeowners – the private reverse mortgage. This is a private loan, usually from a family member, to the homeowner secured by a mortgage on the senior’s home.

Advantages for the senior homeowner:

• It is cheaper. The upfront costs of paying an attorney to set up a private reverse mortgage may be a small fraction of the cost of a commercial reverse mortgage.

• Interest rates are lower. The interest rate on a private reverse mortgage is set by the IRS each month and is less than the interest rate on a commercial reverse mortgage.

• There’s no limit on what percentage of the home equity may be borrowed. The ability to tap into more equity in the home can delay the day of reckoning when the senior must move to a nursing home just because there is not enough money to pay for caregivers.

• The loan need not be paid back until the house is sold, so if a senior moves to a nursing home, he can keep his house.

• Once in a nursing home or other facility, the senior can continue to receive payments on the private reverse mortgage if needed to maintain the house or pay for extra care in the nursing home.

Advantages for family members:

• What is good for a parent or grandparent is good for the entire family. To the extent the senior can save money in mortgage costs, the bigger the ultimate estate that will pass to the family.

• The ability to tap into equity in the home can mean that family members who are providing assistance can either alleviate the burden by hiring more paid caregivers or be paid themselves for providing care.

• While current interest rates are very low, the rates set by the IRS are higher than money markets and certificates of deposit are paying these days. This means that the family member or members advancing the funds will earn a little more than they would if the money were sitting in the bank.

• A private reverse mortgage can help protect the equity in the home because it takes precedence over any claim by Medicaid.

The family of any senior who owns a home but who has little in savings should consider the private reverse mortgage as a way to help parents and grandparents.

  Continue reading