April 21, 2014

Chicago Estate Planning & Long Term Care Expenses

Long-tern care can be very expensive, but many long-term care expenses can be deducted from your taxes.

In a decision by the U.S. Tax Court, it ruled that payments to non-medical caregivers are still deductible as medical expenses. In Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian Baral suffered from dementia, and her doctor recommended that she get 24 hour care. Her brother hired caregivers to assist Ms. Baral with daily activities. On her tax return, Ms. Baral included a deduction for medical expenses for the payments of the caregivers. The IRS said the expenses were not deductible and asked for more money. Following Ms. Baral’s death, her estate appealed the matter to the U.S. Tax Court.

Under tax law, expenses for medical care may be claimed as an itemized deduction if they exceed ten percent of adjusted gross income. The definition of medical expenses includes the cost of long-term care if a doctor has determined you are chronically ill. Chronically ill means you need help with activities like eating, using the bathroom, bathing and dressing, or you require substantial supervision due to a severe cognitive impairment.

The Tax Court agreed with Ms. Baral that the payments to the caregivers for assisting and supervising Ms. Baral are deductible medical expenses. The expenses qualified as long-term care services even though the caregivers were not medical personnel because a doctor had found that the services provided to Ms. Baral were necessary due to her dementia.


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April 12, 2014

Illinois Estate Planning and Hiring a Caregiver

Most seniors prefer to stay at home as long as possible before moving into a nursing home. For many families, this means eventually hiring a caregiver to look after an aging relative. Caregivers can be hired directly or through a home health agency.

When a caregiver is hired directly, you need to consider all of the tax and liability issues. As an employer, you are responsible for filing payroll taxes, tax forms and verifying that the employee can legally work in the United States. In Illinois, if you pay $1900 or more in wages in 2014 to any one employee, you need to withhold and pay Social Security and Medicare taxes. Unemployment insurance tax must be paid on up to $12,960 of wages. Insurance for an accident which occurs on the job should also be addressed.

The benefit of hiring a caregiver directly is that you have more control over who you hire and can choose someone who you feel is right for your family. In addition, hiring privately is usually cheaper than hiring through a home health agency.

When you hire through a home health agency, the agency is the employer, so you do not need to address the tax and liability issues. The agency takes care of screening the employees, doing background checks and providing insurance. A licensed home care agency must provide ongoing supervision to its employees. It can help the employees deal with difficult family situations or changing needs. The agency may also be able to provide back-up if a regular caregiver is not available.

The downside of going through an agency is not having as much input into the selection of a caregiver. Caregivers may change or alternate, causing a disruption in care and confusion.

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April 3, 2014

Illinois Estate Planning & Trustee's Duties

A trust is a legal arrangement where one person (or an institution, such as a bank or law firm), called a “trustee”, holds legal title to property for another person, called a “beneficiary”. If you have been appointed the trustee of a trust, this is a strong vote of confidence in your judgment. It is also a major responsibility.

As a trustee, you stand in a fiduciary role with respect to the beneficiaries of the trust, both the current beneficiaries and any remaindermen named to receive trust assets upon the death of those entitled to income and principal now. As a fiduciary, you will be held to a very high standard, meaning that you must pay even more attention to the trust investments and disbursements than you would for your own accounts.

Your investments must be prudent, meaning that you cannot place money in speculative or risky investments. In addition, your investments must take into account the interests of both current and future beneficiaries. For instance, you may have a current beneficiary who is entitled to income from the trust. He would be best off in most cases if you invested the funds to generate as much income as possible. However, this may be detrimental to the interest of later beneficiaries who would be happiest if you invested for growth. In addition to balancing the interests of the various beneficiaries, you must consider their future financial needs. Does a trust beneficiary anticipate buying a house or going to school? Will he be depending on the trust income for retirement in 15 years? All of these questions need to be considered in determining an investment plan for the trust.

One of your jobs as trustee is to keep track of all income to the trust and expenditures by the trust. You must give a periodic account of this information to the beneficiaries.

Depending on whether the trust is revocable or irrevocable and whether it is considered a grantor trust for tax purposes, the trustee will have to file an annual tax return and may have to pay taxes. In many cases the trust will act as a pass through with the income being taxed to the beneficiary.

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March 28, 2014

Importance of a Will in Illinois

Amy Winehouse’s death at age 27 illustrates the importance of having a Will, at any age. Ms. Winehouse and Blake Fielder-Civil were married briefly. Under English law, marriage negates any Wills made before the marriage, but if a couple divorces and there is no new Will, the ex-spouse is the favored beneficiary. Ms. Winehouse updated her Will to ensure that Fielder-Civil, who is currently in jail for burglary and possession of an imitation fire arm, would not inherit any of her estate. Under Winehouse’s Will, her estate, estimated at $16 million, will go to her parents and her brother.

In Illinois, if you die without a Will, the state dictates who will inherit from you as set forth under Illinois law. If you are married, your spouse gets one-half of your estate and the rest is divided among your children.

If you have young children who will need a guardian, a Will is an important document to put in place to allow you to name that guardian. Planning your estate with a Will and a Trust is the best way to ensure your estate is distributed as you want it without your assets being made public.

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March 20, 2014

Estate Planning and Gifts to Charity

When making gifts to charities, keep in mind the following:

Give away appreciated stock which you have held for more than a year. You can deduct the market value of the stock and you don't owe capital gains tax.

Get receipts in writing from the donee for gifts over $250.

If you are over 70 1/2 transfer up to $100,000 from an IRA and none will be included in your income. It will also count toward the required minimum distribution.

If you donate a car, you can deduct only what the charity actually sells it for.


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March 14, 2014

Cohabiting Seniors: Protect Your Rights

More and more seniors are living together without getting married. According to U.S. Census data, 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.


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March 7, 2014

10 Reasons to Create an Illinois Estate Plan

1. LOSS OF CAPACITY. What if you become incompetent and unable to manage your own affairs? Without a plan the courts will select the person to manage 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 your 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 SSI 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 chose the optimal beneficiary.

9. BUSINESS OWNERSHIP. Do you own a business? Without a plan, you do not name a successor, thus 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 entirely.

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February 28, 2014

Illinois Law & Prenuptial Agreements

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 advice 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.

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February 21, 2014

Illinois Estate Planning

One simple way you can reduce estate taxes is to give some or all of your estate to your children (or anyone else) during their lives in the form of gifts. Certain rules apply. There is no limit on how much you may give during your lifetime, but if you give any individual more than $14,000 (in 2014) in one year, you must file a gift tax return reporting the gift to the IRS. Also, the amount above $14,000 will be counted against a $5 million lifetime tax exclusion for gifts.

The $14,000 figure is an exclusion from the gift tax 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, if you are married, your spouse can duplicate these gifts. For example, a married couple with four children can give away up to $104,000 in 2014 with no gift tax implications. In addition, the gifts will not count as taxable income to your children (although the earnings on the gifts if they are invested will be taxed).

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February 14, 2014

Illinois Law Concerning Medicaid and Assisted Living Residents

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.

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February 5, 2014

Signing Up For Medicare

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 http://www.socialsecurity.gov/medicareonly/. 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.

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January 31, 2014

Illinois Medicaid Planning and Private Reverse Mortgages

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 or 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’s 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.

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