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At our office we are frequently approached by elderly clients who are considering a second marriage later in life. A new romantic relationship can mean new friends, new experiences, increased happiness and an overall better quality of life. That being said, older couples do have some important issues to consider when deciding whether or not to take the plunge. Adult children, retirement plans, long-term care consideration and government benefits are all topics that should be discussed thoroughly before an elderly couple decides to marry.

A particularly sensitive issue is what happens to the family home. Whether the couple decides to remarry, or decides that they would prefer to just live together, it is important to plan for what will happen to the home they decide to cohabit. Seniors in this situation are faced with the competing goals of wanting to keep the equity of the home in their family, while wanting to provide a place for their significant other to live should the owner predecease. Through the use of proper estate planning such as a life estate or properly drafted land trust, this can be achieved. Care should be taken to ensure that assets are available to maintain the home and that the owner’s family understands their wishes.

Another sticky topic, is how to pay for long-term care and what happens if one spouse requires Medicaid benefits. Long-term care can be very expensive and the Illinois Department of Human Services will require that a spouse’s assets be taken into consideration even in the face of trust and prenuptial agreements when reviewing an application for Medicaid benefits. One spouse’s refusal to make their assets available for the care of another can have a significant negative impact on Medicaid eligibility. We strongly advise against later in life marriages when the need for Medicaid benefits to pay for long-term care is relatively foreseeable.

No area of our practice causes more confusion and angst for seniors and their families as the question of how to pay for nursing home care. Within that practice area, no topic causes more problems for seniors as asset protection planning. Myths abound about how to protect assets prior to applying for Medicaid. Some of the most common are: 1) that a Medicaid applicant can transfer $14,000 per child per year; 2) that the kids can be added to financial accounts to shield assets; or 3) that investing in annuities will solve all their problems. In fact all of these theories about asset protection are wrong. Worst of all, engaging in these activities can leave the senior in an incredibly precarious position.

The $14,000 per child myth is based on IRS gifting rules which have no relationship to Medicaid eligibility or planning; adding your children to your account will have no effect on how Medicaid counts the assets when determining your eligibility for benefits; and the rules concerning Medicaid and annuities has changed dramatically over the years to that point that only one, very specific type of annuity will help a Medicaid applicant qualify for benefits while preserving assets.

Even playing by all the rules can created problems. For example, current Medicaid rules will not take into account any transaction that occurred more than five years before the application for benefits. This leads many seniors to transfer their assets to children well in advance of applying for Medicaid benefits.  Unfortunately this creates a whole new set of problems. Assets transferred to children are now vulnerable to the creditors and spouses of the kids. There can also be serious capital gains and real estate tax implications for transferring property to children that must be taken into account.

We discussed in our last entry that a CCRC is an acronym for a Continuing Care Retirement Community.  It is a facility that allows residents to move from independent living to assisted living to skilled nursing care as their mental and physical states change.

The issue we will discuss today concerns the timetable for the return of the buy-in price when the resident dies or moves from the facility.

Many CCRCs return up to 90% of the buy-in price within 30-60 days of the resident’s death or transfer to another location. This is the optimum mode of distribution for the resident or families of the resident .

Recent natural disasters have highlighted the need for more comprehensive emergency and evacuation plans for nursing home facilities. Hurricanes Harvey, Irma and Marie each caused significant property damage, resulted in loss of life, and left many seniors stranded for days without electricity, air conditioning, sufficient access to medications and doctors, no way to contact family members, and rapidly dwindling food and water reserves.

Federal regulations on nursing home emergency preparedness were issued in September of 2016 and should be fully implemented by November of this year. The new regulations sound fairly comprehensive. They address things such as an emergency plan & procedures, communications, training and back-up power systems. The problem is that the new regulations are vague and give no specific guidance or standards by which these new procedures should be evaluated. Critics of the new regulations fear that the lack of specificity in Federal guidelines will lead to inconsistencies in planning and implementation.

Luckily for those of us that live in the Midwest, we have little to fear from hurricanes. However, severe snow storms, summer heat waves and tornadoes have all been known to effectively trap seniors in nursing facilities or in their homes. As we head into winter we urge our clients to check in with elderly clients often. If the senior lives in a nursing home, we suggest the family inquire after emergency procedures and to establish a reliable means of communication with the senior such as a personal cell phone. For those seniors living at home, we suggest families procure sufficient water and non-perishable foods to meet the senior’s needs during extender periods of extreme cold or heavy snows. We also suggest making advanced arrangements for snow removal.

A CCRC (Continuing Care Retirement Community) is a facility that allows residents to move from independent living to assisted living to skilled care as their mental and physical states change.  They are usually a facility where a person can buy in to the community, pay a monthly sum and receive a portion of the buy-in price when they move out, die or when the resident’s quarters have been resold.  There are some CCRCs that are on a straight rental basis.

One issue that has received much attention lately is the ability of the CCRC to dictate when a person must transfer to a higher standard of care within the facility.  The CCRC contract usually states that if a resident can no longer be cared for at a certain level then the facility can move that resident to a higher level of care.  The disagreements and then the subsequent lawsuits appear when the management of the facility gives notice to a resident that she can no longer remain at a certain level of care, but the resident- and even the resident’s physician- argue that the current level of care is adequate for her condition.  The issue becomes whether the facility can force the resident to a higher and probably more expensive care level notwithstanding the protests to the contrary.

Courts, however, have been reticent to disturb the CCRC Agreement in these cases.  Favoring the language and the sanctity of the Agreement, they have almost always sided with the facility.  Their logic is that the contract left the final decision with the facility, so the facility has the final word on whether the resident moves to a more intensive care level.

One of the most important, but most often overlooked estate planning documents, are the Powers of Attorney. Powers of Attorney fall into one of two categories: (1) Powers of Attorney for Property and (2) Powers of Attorney for Health Care. Essentially a Power of Attorney legally authorizes a trusted family member or friend to make decisions on your behalf in the event that you become incapacitated or are unable to make decisions on your own. Powers of Attorney are powerful documents that can protect you and your family from the need for expensive guardianship proceedings.

Although Powers of Attorney for Health Care are regularly accepted by hospitals and doctors, many banks and financial institutions are making it harder and harder to use a legally valid Power of Attorney Document. If a manager at your financial institution believes, in good faith, that your Power of Attorney is no longer valid you may be left with no choice but to petition a court for guardianship.

To avoid this from happening we advise that you review your Powers of Attorney to ensure (1) the your Power of Attorney documents are up to date and include the most recent statutory language; (2) that your Powers of Attorney are no more than 5 years old; and (3) that your Power of Attorney allow sufficient authority for your agent to amend trust documents, make gifts, and designate or change beneficiaries.

In a time when advances in medicine are providing longer, more fulfilling lives for our family members with special needs, it is more important than ever to take advantage of all the financial planning tools available for their specific needs.

The Illinois ABLE Act provides for a new tax-advantaged investment program that allows a blind or disabled person (or their family) to save for disability related expenses without jeopardizing the disabled individuals means tested federal benefits. Unlike the assets of a traditional Special Needs Trust, ABLE account assets can and should be spent on expenses related to the family member’s disability. These expenses include education, housing, transportation, employment training, assistive technology, personal support services, health, prevention and wellness, financial management, legal fees, and funeral/burial expenses.

A properly established ABLE account will allow a disabled individual to save up to $100,000 in their own name. The disabled person or their family may contribute up to $14,000 per year into the ABLE account without effecting eligibility for SSI or other federal means tested programs. Although the Illinois State Treasurer’s Office is responsible for administering the ABLE program, the funds are privately held assets that are totally controlled by the account holder.

The Reverse Mortgage has gotten a bad reputation in the time since it was first created by the Federal Housing Administration in 1988. The mere mention of the Reverse Mortgage usually brings to mind foreclosed homes and declining financial health. In fact a Reverse Mortgage is simply an equity loan secured by someone’s home with a deferred payment plan. Unlike a traditional home equity line of credit, no reverse mortgage interest or principal is due until the loan reaches maturity. As long as the homeowner resides in the property and stays current on property tax and insurance payments, they can reside in the home without making any payments on the money they have borrowed.

In order to qualify for a reverse mortgage, a homeowner must be age 62 or older with substantial equity in their home. There are no income or credit score requirements. Typically, the older the homeowner, the more they can borrow. A homeowner has the option of taking out a lump sum amount or establishing a line of credit that grows over time if money is not withdrawn.

A homeowner does have the option to pay down the balance of a reverse mortgage over time. Interest paid on the loan can be taken as a tax deduction. If no payments are made, the reverse mortgage is still not due until the last surviving borrower passes away or fails to occupy the home as their primary residence. Reverse mortgage lenders will give the heirs of an estate up to 12 months to complete the sale of the home or refinance the balance of the reverse mortgage. It is VERY important that the heirs of a deceased home owner contact the mortgage lender as soon as possible to inform them of the passing and the heirs’ plans for the property.

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

California recently passed a law allowing a doctor to prescribe a life-ending drug for a terminal patient. It is the California End of Life Option Act, and it comes into effect this June. This law brings to five the number of states allowing end-of-life decisions (California, Oregon, Vermont, Washington and Montana).

Under the California law, an adult with capacity may request a prescription for an aid-in-dying drug if:

  1. The individual’s attending physician has diagnosed the individual with a terminal disease (less than 6 months to live), and a consulting physician confirms this diagnosis;
  2. The individual has voluntarily expressed the wish to receive a prescription for an aid-in-dying drug;
  3. The individual is a resident of California (California driver’s license, voter registration, income tax return or other evidence);
  4. The individual documents his request pursuant to the requirements set forth in the statute, which include at least two separate oral requests at least 15 days apart and a written request; and
  5. The individual has the physical and mental ability to self-administer the aid-in-dying drug.

A request for the prescription may not be made through a power of attorney, agent or other source. The request must be made directly by the individual diagnosed with the terminal disease. The individual may withdraw or rescind his request for the aid-in-dying drug at any time, regardless of the individual’s mental state. In other words, even if the person no longer has capacity, he may decide not to go through with the use of the aid-in-dying drug. Continue reading

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