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Thinking about working during retirement?

In today’s economy, it seems that everything old is new again … albeit with a bit of a twist. Years ago, it was common for older couples – and frequently widows – to rent out rooms for extra income. Offering a room to rent was a viable way to help supplement income.

Well, the idea is back, but with a bit of a twist. As Baby Boomers face the cold, hard facts of retirement, they are increasingly changing the definition of retirement to include at least some form of work. While you may not be ready to hang out a shingle on your front gate advertising, “Rooms for Rent,” you might consider becoming a landlord. In fact, the Wall Street Journal writes that it may be just the ticket, especially given the uncertain prospects for stocks and bonds and the meager interest rates on bank accounts.  

Think about it. Here in Upstate New York it’s a buyer’s market now, so purchasing a multi-family home is more financially feasible than ever. And, the trend toward the renter’s lifestyle is starting to pick up steam.  What does this mean to you? A low cost of entry into a market that is expected to expand. Starting to make investment sense? 

Sure, it’s a career of sorts, but you also need to think of it as an investment. Weigh everything in the short term, including start-up and maintenance costs, as well as the marketability of the location you’re considering. But then also keep your long-term goals in mind, such as potential appreciation and eventual sale. Buying in a depressed market, after all, is only a steal if the real estate market bounces back. Finally, don’t overlook the possible danger of having all your eggs in one basket. This is especially true if you use the property as your primary residence since being a live-in landlord will unite your home, equity, and employment, into one potentially risky asset.

Like any retirement move, don’t make this one too quickly. Discuss your plans with a professional who can help you sort out the details, including how an investment rental property could affect your Social Security benefits. Also you should consider that this type of lifestyle may not suit you. In which case, you would be wise to explore other, more enjoyable options.

If you would like to discuss this more, feel free to contact my office for an appointment.

 

The true cost of not seeking professional advice.

Here’s another important reminder on how much of a stickler Medicare and Medicaid can be when it comes to denying benefits: the Matter of Komanoff Ctr. for Geriatric & Rehabilitative Medicine v Daines (N.Y. Sup. Ct., App. Div., 2nd Dept., No. 2010-05776, June 28, 2011) (here summarized on ElderLawAnswers.com.)

It’s the case of Bernadette Jordan and how she entered a nursing home and filed for Medicaid only to find that the State ruled her ineligible for a period of 14.31 months. Apparently, Mrs. Jordan had transferred funds from a revocable trust to her daughter, to repay expenses that her daughter had shouldered in getting her to the nursing home. States are skeptical of such transfers, and often examine them carefully. In this case they found that the transfers were made at less than fair market value for purposes of Medicaid eligibility, and so denied Mrs. Jordan Medicaid benefits.

On Mrs. Jordan’s behalf, her nursing home called a hearing and later appealed. After all, the expenses the daughter paid were documented and done with the assumption that they would be repaid with assets from the trust. The State still denied benefits. The problem was that there was no written document at the time of the expenditure that specified the agreement to repay the daughter’s expenditures.  

There are two morals of this story. The first is documentation. By documenting your interactions and intentions you can provide hard proof and avoid getting caught on a technicality. In Mrs. Jordan’s case, 14.31 months is a long time to wait for nursing home benefits (especially considering that nursing home costs are around $9,000.00 per month or more in upstate New York). The second is that it pays to use competent advisors. If Mrs. Jordan hired an elder law attorney up front, they likely would have recommended documenting the transfers properly, which might have prevented the 14.31 month penalty period. If you would like to find out how to protect yourself and your loved one’s, visit the Elder Law section of our website or call us for a consultation (607-962-6162).

 

Do you own life insurance?

Life insurance can be a powerful estate planning tool, but paying for it doesn’t guarantee your heirs will receive the benefit – especially if the policy gets lost in the shuffle of life. Remember, your heirs may have to specifically approach the insurance company with their claim in order to receive any benefits. In fact, New York’s Attorney General’s office is investigating nine leading life insurers to see whether they have done enough to identify beneficiaries of life insurance policies. Do your heirs know the particulars of your life insurance, or where to find the paperwork?

As recently explained in Reuters Wealth online, life insurance companies have an inherent business interest in not paying out death benefits – it’s just simple economics. The less they pay out, the more profitable the insurance company.

You should have an inventory of your assets, and make that inventory available to your family. If you are paying on a life insurance policy, or you’ve ever bought one, track it down and give your heirs complete information about it. This should include where the paperwork is now, the policy number, the insurance company, and the name and contact information of the agent who sold it to you.

Learn more about getting your legal and financial affairs in order at our website, or contact us for appointment to discuss your estate plan.

 

Using "Incentive" trusts.

There is an old saying, quite true, that wealth is difficult to amass but easy to squander … especially by those who did not earn it. Many parents – and grandparents – come to us asking how they can leave an inheritance to their loved ones, without “spoiling” them. They want the fruit of their labors – the wealth they pass on – to inspire their loved ones to greater causes, and not cause that dread disease known as “affluenza.”

Incentive trusts offer an opportunity to try and nudge younger generations to solid values, but as explained in a recent issue of Palisades Financial’s “Sentinel,” they don’t always work as planned.

An incentive trust can be a beautiful tool. Using it you can specify certain benchmarks to be accomplished before the trust can be unlocked. For example, you could specify that your child must graduate from college, get a full-time job, and maybe even become a philanthropist before some or all of the trust funds can be paid out. Alternatively, it can be arranged that the trust pays out to match the beneficiary’s annual income, thus offering the incentive to work harder.

The problem is that rigid incentives may defeat your purpose. Some beneficiaries may not learn the intended lessons, but instead learn how to “game the system” and work around the benchmarks either by technically meeting the requirements but not the lessons … or even forge diplomas and pay-stubs to sneak their way in. More worrisome, however, is the beneficiary who does become that “good person” you hoped for, but fails to meet the rigid benchmarks of the trust.

If the trust is too rigid, it may not instill the values you had hoped, but instead force a predetermined life-plan upon the beneficiary. The key to a successful incentive trust is a keen awareness of this problem. Sometimes, the same spirit can be better utilized within a results-oriented trust. These are a less intrusive arrangement without set benchmarks, but rather with guidelines to be pursued, a mission statement to be upheld, and the solid judgments of a trustee to carry out the spirit of the trust. The down side, of course, is that this is a more lax approach that may be easier to undermine.

 It is a difficult line to walk, but if you have come to appreciate the power of using your assets to instill good values then you also appreciate the importance of striking the proper balance. Your best course may be to consult competent counsel and share your unique situation and your goals, and then work together to design a plan with the greatest chance of success for you and your family. If you would like to find out more about incentive or results-oriented trusts, contact us for a consultation.

 

Is it time to give away the house?

The economy is starting to show some life in a number of sectors but, unfortunately for many, the housing market is not one of them. The good news for the crafty estate planner is that the poor housing market coupled with the tax laws that went into effect with last December’s compromise offer a rather unique opportunity, one that may very well rate amongst the smartest estate planning moves one will ever make, according to Forbes columnist Rob Clarfeld.

Now might be time to give away the house (just make sure you file a gift tax return).

The poor housing market remains perhaps the largest unhealed wound of the Great Recession. If you are trying to sell a home right now you are likely a bit frustrated. Homes are not moving quickly, and many sellers are forced to take a relative loss just to move their property. But, if you were considering making a gift of your home, the situation is entirely more cheerful. Depressed prices mean that you won’t have to work to reduce your home’s taxable value, and the gift you make of it will take a much smaller chunk of your lifetime gift tax exemption. This is a serious boon to high net-worth individuals looking to give away property of considerable value.

But wait, there’s more. The tax compromise signed in with the budget deal last December also extends the lifetime gift allowance from $1 million up to a generous $5 million. So, right now, there is an 18-month window of opportunity for you to make a tax-advantaged gift.

Previously, when one wanted to give away real estate the strategy of choice might have been a Qualified Personal Residence Trust (QPRT) because it allowed for considerable discounts given certain risks through a gradual transfer, but with this perfect storm of depressed real estate prices and a generous gift tax exemption – an outright gift in trust may make more sense. Further, if you want to retain post-gift use of the real estate, you may want to consider transferring the home to an Intentionally Defective Grantor Trust (IDGT), with a structured plan that allows you to remove the asset (in this case your home) from your estate for estate and gift tax purposes, but not for income tax purposes. Of course, carefully crafting the trust provisions, including dispositive and potential generation skipping provisions, is of utmost importance.

Again, this window of opportunity could close at any time, so if this is an estate planning strategy you might consider, you are well-advised to discuss your situation with a professional sooner rather than later. If you would like to find out more about this limited time opportunity, contact us for a consultation.

 

Home vs. Nursing Home. When the time comes, will you even have a choice?

When the time comes, as does for most of us, that we need assistance in our daily living, the unfortunate fact is that too many of us end up in nursing homes – not because we need constant nursing care, but because there no other good options. It’s possible that a provision of the new Patient Protection and Affordable Care Act may help change that.

According to a recent article in the LA times, the most ambitious part of the Act, as it relates to long-term care is the Community Living Assistance Services and Supports Act, or CLASS – a voluntary, consumer-financed insurance plan to cover long-term care expenses. CLASS, which is scheduled to go into effect in January of 2014, is an insurance plan, similar to those currently available in the private market, with a few notable distinctions. First, the government would administer the program. Second, any working adult age 18 or older will be able to enroll, regardless of any pre-existing medical condition, and the benefits will be good for as long as someone needs long-term care. Perhaps even more importantly, the plan will offer benefits that could be used for a wide variety of expenses, including hiring a home care provider or used for home modifications to help keep you at home longer. (Please note that this may never come into being because on April 14, 2011 a bill was introduced to repeal the CLASS Entitlement Act because of budget concerns.)

Nonetheless, the CLASS Act highlights a widespread move in the country to shift resources from nursing home care to home-based care as a viable and less expensive option. Right here in our back yard, a not for profit organization – Corning Area Aging In Place – was formed in the hopes of addressing these concerns. The cost of nursing home care ranges from about $40,000.00 to $85,000.00 a year, according to a recent report by John Hancock Financial Services Inc. (Sadly here in upstate New York the cost are usually closer to $100,000.00 or more per year.) The average cost of a home health aide (when family members are able to provide help as well), is about $37,000 a year. (Again, higher in this area, but still less than the cost of skilled nursing home care.) The most precious detail, of course, is that the patient can remain at home. 

One other crucial item is the need to plan ahead. If you don't plan ahead for these types of issues, you may not have a choice when the time actually comes. To learn more about long term care planning visit the New York Elder Law page of our website, or read the May issue of our monthly e-newsletter, Elder Law Elements.

Do you (and your children) know where these 25 documents are?

The financial consequences of failing to keep your legal and financial documents in order can be significant. As pointed out in a recent Wall Street Journal article, state treasurers currently hold $32.9 billion in unclaimed bank accounts and other assets. In fact, New York State alone is holding more than $400 million in unclaimed life-insurance-related payments just since 2000, according to the state comptroller's office. Additionally, some of the country’s largest life insurers are under investigation for failing to pay out unclaimed life policies to beneficiaries. Insurers say they are behaving lawfully and under their policy contracts are required to pay a claim only when beneficiaries come forward.

Will your family members reap the full benefit of your estate planning efforts, or will they miss out simply because they cannot locate all of your important legal and financial documents in a timely manner? Of course, you don’t have to keep every single scrap of paper, but the WSJ offers a pretty comprehensive list of the 25 most important legal and financial documents you should compile, and make sure your heirs can quickly access, to include:

1. Will
2. Letter of instruction
3. Trust documents
4. Housing, land, and cemetery deeds
5. Escrow mortgage accounts
6. Proof of loans made and debts owed
7. Vehicle titles
8. Stock certificates, savings bonds, and brokerage accounts
9. Partnership and corporate operating agreements
10. Tax returns
11. List of bank accounts
12. List of all user names and passwords
13. List of safe-deposit boxes
14. Durable health-care power of attorney
15. Authorization to release health care information
16. Living will
17. Do-not-resuscitate order
18. Personal and family medical history
19. Life insurance policies
20. Individual retirement accounts
21. 401(k) accounts
22. Pension documents
23. Annuity contracts
24. Marriage license
25. Divorce papers

The original article goes into much more detail with each, and whether you have or need each of these documents will depend on your individual situation and the various legal facets of your life, but it is a list that commands a certain attention. By putting this all together you help your loved ones to more quickly and easily pick up the pieces and put your plan into operation. If you would like any help with your planning needs, feel free to contact us at 607-962-6162.

 

When do you turn 70 1/2?

If you will be turning 70½ this year (or if you already did), get ready to start taking those mandatory annual payouts (your “required minimum distributions” or RMD’s) from your IRA accounts. Unfortunately, this is not something you can afford to put off. As SmartMoney pointed out in a recent article, the IRS wants you to take those required distributions, and pay the income taxes on it sooner rather than later, and there are stiff penalties if you don’t take them.

 In fact, if you fail to take at least the required amount each year, the IRS can assess a 50 percent penalty on the shortfall – the difference between what you should have taken and what you actually took. For example, if you fail to take any distribution in a year that you are required to take a $10,000.00 minimum distribution, the penalty will be $5,000.00!

SmartMoney offers a quick run-down on RMD basics, but the requirements are fairly complex, and as you can see the penalties for non-compliance are pretty stiff. You are well-advised to seek qualified counsel on this one. The most important lesson here is – do not delay. If you have reached age 70½ and you have IRA accounts, you have some big decisions to make now. As SmartMoney says, “If you sit on your hands, you will be in the RMD double-dip mode next year, which might result in a higher tax rate that could have been easily avoided.” If you are turning 70½ and would like to discuss this, or anything regarding your estate plan, feel free to contact my office for an appointment.

 

What final instructions do you want to leave for your family?

I am always amazed when I see statistics on how few people have done any estate planning. In fact, if you’re a member of the Baby Boomer generation, there’s a good chance you have not done even the most basic of estate planning. Only 56 percent of you even have a will, according to a 2011 survey by Rocket Lawyer. So, if you have covered that base, give yourself a well-deserved pat on the back … but not too heartily. As SmartMoney recently pointed out, most people overlook another crucial element in their estate plan: a letter of final instruction.

A letter of final instruction is a non-legal document that can help guide your family through important tasks after your death. For example, does your family know where you keep important papers like a deeds to your property or marriage or birth certificates? Do they know your passwords to access accounts on your computer? These are important items that you should document and keep with your estate plan. You also may want to list the contact information for people you would want notified, like friends that your family members may not know well. Trusts & Estates magazine recently ran a list of items you might want to include.  The idea is not so much to set down demands or to solve possible squabbles (although it may help with this), because the document is non-legal, but just to supply the answers to those questions that could otherwise prove troublesome for your family.

Of course, this letter is just a small (and non-legal) part of your estate plan. You still need to cover your legal bases with at least a will, power of attorney, health care proxy, living will, and HIPAA release. Learn more in the Estate Planning area of our website or contact my office for an appointment.