Compensating Caregivers

One in Seven Americans are Caregivers

There are some serious issues looming on the horizon for baby boomers.  Almost one in seven Americans looks after a disabled person age 50 or older.  Many compensated and many not compensated, but it is a rapidly growing number (the number has jumped 28% since 2004). It’s an emerging situation that needs the compensation element to be formalized for many.

In the recent November issue of Financial Advisor the article “Compensating Caregivers” quoted a  2009 survey found that 14.5% of the U.S. population – about one of every seven of us – is responsible for the care of a disabled person age 50 or over, up 28% since 2004.  Increasingly, the elderly disabled are paying family members to care for them in family home. This raises a number of issues.

This article takes stock of the situation and urges caution and awareness. It may seem odd, unnecessary, or even heartless, but they advise that the arrangement with caregivers be legally formalized, reported, and in some cases even treated as employment. The reason is two-fold.

Firstly, by formalizing and documenting the arrangement, you make it legally acknowledged and transparent for both the care-giver and care-recipient. As the recipient of care, you may be able to claim an income tax deduction all or part of the payments as qualified medical expenses. Additionally, your payments will be well-documented, should Medicaid eligibility ever become an issue. Without this documentation, the unidentified transfer of funds to family members could be seen as an attempt to cheat the system.

Secondly, simply establishing a legal process for payment of care can help open up family dialogue, and raise awareness – especially among non-care-giving family members. Arrangements of this nature are bound to put stress on all parties, but dialogue, contractual understanding, and compensation can help smooth over difficulties for the care-receiver, the care-giver, and other family members. The care-receiver has a vital say in the arrangement, can avoid feeling like a “burden,” and remain a vital part of the family. Family members can discuss who is to administer care or how exactly they can support one another in fairly supporting the care-receiver. For that matter, too, sibling squabbles can be lessened when it comes to inheritance and estate arrangements if the family care arrangement is legally recorded.

I thank my WealthCounsel colleague in Nevada, Lizette Sundvick, for authoring this commentary on “Compensating Caregivers”.

Foresight, solid financial planning, and an awareness of the extent of any care arrangements are vital. I am always available to assist you with long-term care and other legal issues commonly associated with aging. You are welcome to give me a call to schedule a consultation, or leave a comment below this post, and I’ll share the dialogue with all. 

 

Filing for Bankruptcy: What Can You Protect?

With 1.6 million Americans expected to file for Bankruptcy this year, we know that at least these 1.6 million and very likely many more researching the bankruptcy option have been asking the same basic questions.  “What can I protect?”   “What will be left?”

A recent article in the Wall Street Journal Digital Network addressed these very questions.  My colleague in Nevada, Lizette Sundvick, offers a summary commentary on this article.

Some may opine that we are climbing out of the recession, but the effects are still wearing on us. According to estimate by the American Bankruptcy Institute, more than 1.6 million Americans are expected to file for Bankruptcy this year, with 42% of filers citing “job loss” and another 65% citing “income reduction” as the determining factor. Against this backdrop, it’s unfortunate that bankruptcy hits responsible persons the hardest because they likely have the most to lose. If you are filing this year, then you may have a great deal you wish to protect. I thought I’d share some tips from a recent article on SmartMoney about what you can protect.

• A Home: The protection afforded your home depends on your state of residency.  In addition, different states offer different acreage allowances for city and rural properties. Beyond that, the equity you have in your house also can be important to protect, because most states have an exemption allowing a certain amount of that equity to remain with the homeowner in the event that the home is sold by the bankruptcy trustee.
• Tax-Exempt Retirement Funds: These are usually safe, and IRAs usually can be protected up to $1.17 million per person. Don’t, however, try to dump other assets (i.e., from investments that are not protected) into the retirement fund. This is a no-no.
• A Car: Trying to retain the car is similar to retaining the house, since your level of protection depends on the laws of your state of residency. If the value of the car is below the exemption limit, and it is owned by the filer, then it can be kept. Otherwise, equity up to the exemption can go to the filer in the event of sale. Of course, in the 16 states that allow the federal “wild-card” exemption, the rest of the value of the car may be covered and the car itself retained, but this itself depends on state laws and exemptions.
• Life Insurance Policy: If the policy is term-life insurance, then it is generally safe. Whole-life policies are generally regarded as investment vehicles, however, and in that case it will depend on state exemption levels.
• College Savings: If college savings are held in a 529 plan or a Coverdell account, there are a couple of factors you need to know. If the account is only 2 years old, it is only protected up to $5,000. However, if the account is older than 2 years, it will be safe for so long as the beneficiary is not also the filer.

Generally speaking, the biggest factors are the state-specific exemption levels and allowances. Be sure you obtain competent professional advice to protect your interests (and stay out of hot water).

If you're worried about the future and how you can guard against economic fallout, we can give you some reassurance.  Give me a call to discuss your options.  If you have a question or two, please submit as a comment to this blog post, and I’ll respond in the comment thread or address in a fresh blog post.   

 

"My Mother took care of me, so I'm going to take care of her."

I’m often asked the question, “What are the options for a baby boomer with aging parents?”  I was pleased to see this posting by my fellow Wealth Counsel member Suzann Beckett practicing in West Hartford, CT .  She offers one answer for the many baby boomers facing aging parents wishing to remain in their homes but lacking the financial means. 

Medicare benefits without Life of Poverty

The New York Times recently ran an outstanding article, detailing the basics of Pooled Trusts. Most American's are not familiar with the term, or the tool – but thanks to the Times, a much larger audience had the opportunity to read about a means of caring for aging family members, while intelligently keeping the wolf away from the door.

The unfortunate reality for many of us is that a time may come when we can no longer manage to personally provide appropriate care for a loved one in our own home, or in their own home for that matter. But at the same time, we may not have the financial capacity to afford private care providers that would be able to fill the gap.

Pooled Trusts are designed to bridge that void.

Rather than reiterate the content of a well written and very informative piece, I will simply recommend that anyone with an elderly family member read this piece, if for no other reason than to gain some basic insight into an option that may be available and viable, in certain circumstances.

You can find the story on the Internet at: http://www.nytimes.com/2010/11/05/business/businessspecial5/05TRUST.html?_r=3&adxnnl=1&src=twrhp&adxnnlx=1289307765-CdcouVKW+F0EwVbdadQHMQ

As a woman who has faced these issues in my personal life, with my own family members, I am intimately aware of the emotional and financial drain that advancing age and health issues can impose on a family. In order to deal with these issues to the best of our ability, we need to be aware of our options, and informed regarding the pros and cons of each of those options. This story is a good step in the right direction on that count.

I am so pleased the New York Times published Tara Siegel Bernard's excellent article on this very important topic.

This is good information on one way that baby boomers can prevent their aging parent(s) from going into a nursing home.  If this topic of “pooled trusts” is something that you would like to know more about, I am available to meet with you.

The Tax "Deal" - the Forecast is Dark Clouds on the Horizon

My fellow member of WealthCounsel, Richard Wohltman of Alexandria, VA,  posted this relevant commentary on the Tax “Deal” currently being ushered through Congress. 

There has been a lot of talk this month about the "deal" to extend the Bush tax cuts. That "deal" also includes a substantial increase in the amount that can pass to your heirs without paying any federal estate tax. The 'exemption amount' will be increased to $5,000,000 per person.

The stated reason for that increased exemption amount is to help 'small' business owners and family farmers pass the business or farm to their heirs without having to pay estate taxes. It also means that all but a very limited number of multi-millionaires will have to file and pay federal estate tax.

Dark Clouds are Forecast.

There really are dark clouds on the horizon even if the "deal" is passed by Congress before the end of the month. The increase in the exemption is going to add billions of dollars to the federal deficit. The Treasury is going to have to borrow that money and we are all going to have to pay taxes or have benefits reduced just to pay the interest on those loans. And the day will come when the loan will have to be paid in full.

There is a more pressing problem, however, for estate planning. The "deal" only lasts two years! At the end of 2012 we will find ourselves right back where we are now -- facing a stupendous increase in the number of estate tax returns and tax payments when the exemption amount falls to just $1,000,000 starting January 1, 2013. The problems from the end of the Bush tax cuts (and the increased exemption amount from the "deal") return in 2o13. The uncertainty of how all of the estate and gift taxes will be interpreted once the large exemption disappears is the big grey cloud on the horizon for estate planners.

Estate planning attorneys have been hoping for some stability in estate tax policy so plans can be designed based on a clear expectation of how estate taxes will be calculated when death occurs. That stability disappeared with the Bush tax cuts. Estate planning attorneys all knew we were faced with the potential return to the 'old rules' with only a $1,000,000 exemption in 2011 and had to plan for the return of the middle class taxable estate. The same lack of stability continues since we can only look at what happens at the end of the next two years.

What does all this mean to you?

Don't think that the "deal" will make your estate planning easier just because you don't have Five or Ten Million Dollars. The vast majority of our clients require extra tax planning if the exemption returns to 1 Million Dollars.

Your estate planning lawyer must assume that the lower exemption will return and is forced to include options to address the substantial estate tax liability that will return in 2013. Your estate plan will continue to require more complication just to protect your family and your business with the automatic termination of the "deal" in 2013.

Where's the silver lining?

Just remember, if there is a silver lining in every grey cloud, that doesn't mean that the grey cloud is gone.  Don't let the proposed silver lining blind you to the limits inherent in any "deal" that lasts only two years!

The Federal Estate Tax Lapsed for 2010

The federal estate tax lapsed for 2010, and barring no action by Congress it was scheduled to return on Jan. 1 with an exemption of $1 million per person and a maximum rate of 55 percent. 

I have good news to share with you.  The long wait for action to address the unknown status of the federal estate tax may be approaching an end.  In a December 6, 2010 online posting by the New York Times, they reported that President Obama announced a tentative deal with Congressional Republicans on Monday.

An excerpt of the article appears below, and a link to the full article is included.  The accompanying photo by Joshua Roberts of Reuters appeared with the article.

Mr. Obama made substantial concessions to Republicans. In addition to dropping his opposition to any extension of the current income tax rates on income above $250,000 for couples and $200,000 for individuals, he agreed to a deal on the federal estate tax that infuriated many Democrats. The deal would ultimately set an exemption of $5 million per person and a maximum rate of 35 percent — a higher exemption and far lower rate than many Democrats wanted.

http://www.nytimes.com/2010/12/07/us/politics/07cong.html?pagewanted=1&_r=1&nl=todaysheadlines&emc=a2

 

But the NY Times article also cautioned that the deal is not supported by all parties.  So resolution may be within sight, but it is not yet a finalized deal. 

“The House Democrats have not signed off on any deal,” Representative Chris Van Hollen of Maryland, who has been representing House Democrats in formal negotiations on the tax issue, said Monday night. “We will thoroughly review and discuss the proposed package in the caucus.”

Some senior Democrats said an agreement by Mr. Obama to accede to Republican demands on the estate tax could lead to a revolt among lawmakers.

With this positive news in the air, it may be time to schedule a meeting to adjust your estate plans to maximize the impact of this likely change in the federal estate tax law.  Call me for an appointment, or leave a comment with a question below.

 

NEWS FLASH: Yankees Beat the Miami Dolphins!

Yes I know, that's impossible. But the heirs of George Steinbrenner, who died recently at the age of 80, certainly came out ahead of the heirs of Joe Robbie, the former owner of the Miami Dolphins who died in 1990.

Steinbrenner's timing couldn't have been better. His heirs will inherit the team without having to pay any estate taxes on a $1.1 billion estate. See “How Steinbrenner Saved His Heirs a $600 Million Tax Bill” from the Wall Street Journal here.

Contrast this with Joe Robbie. When he died in 1990 the heirs had to sell the football team and the stadium at fire-sale prices in order to pay a whopping $47 million estate tax bill.

Unlike most owners Joe Robbie built his own stadium entirely with private capital. The stadium had to be sold along with the team and it no longer bears Joe Robbie’s name. For more details see “Yankees vs. Dolphins: Steinbrenner’s Final Victory”

You could say, "Yeah, but his heirs are still wealthy." True. But it really isn’t just about money. Robbie's intentions were defeated; his family was removed from the success he worked so hard to build from his very modest depression-era beginnings. Estate planning affects the heart as well as the pocket book.

(What happens to the ultra-wealthy can happen to any small business owner…often with more devastating results. I’m always available to share my experience and knowledge to create a better estate plan.)

 

My thanks to my associate Greg Turza who practices in the state of Illinois for this clever commentary on estate planning. 

 

Benjamin Franklin does estate Planning

Benjamin Franklin is largely known today for his key roles in the American Revolution, the formation of the United States, and his diplomacy with France.  But Franklin was also a very successful businessman.  Starting with absolutely nothing, he built a substantial fortune.  And he capped it off by demonstrating keen skills developing his estate plan.  His approach to estate planning is addressed in a posting by my WealthCounsel colleague, Suzann Beckett who practices in Connecticut.  I hope you enjoy this quasi history experience while admiring Ben Franklin’s adroit estate planning skills.

Estate planning, the Franklin way

The subject of Ben Franklin came up the other day in conversation. More specifically, the subject of Ben Franklin's visionary approach to estate planning, came up during a discussion of how the average person can make the most of their wealth for posterity.

Benjamin Franklin was many things. Born into humble circumstances, Mr. Franklin very literally ran away from home, then followed up his running away by working, innovating, persevering, and struggling to ultimately become one of young America's wealthiest and most respected citizens. He knew a thing or two about math and the compounding of interest, too.

For those who are truly curious, a version of Benjamin Franklin's Last Will and Testament is available online, from the Franklin Institute. Included is a codicil to the original Will, that should give anyone pause. Franklin's significant wealth is apparent, as is evidenced by the extraordinary number of homes, land, and valuables he details in his Will. But the relatively minor sum of one-thousand pounds sterling mentioned in the codicil, which would be equivalent to roughly $4,000 at the time – is particularly impressive for those of us who would like to make an impact on the generations to follow, even if we do not have the financial capacity to astound the neighbors at the moment.

Franklin specified that the money should be held in trust. Two trusts, actually. One-thousand pounds sterling was provided to the city of Boston, where Franklin was born, and one-thousand pounds sterling was given to Philadelphia, the city that is most commonly associated with Franklin as his home. Both funds were specified to be held and invested, in a specific manner, and maintained for two-hundred years. A significant amount of time, certainly. But Franklin wasn't looking for returns that could be looked down on as small potatoes. He was looking to shake the world. And he did. He has. He continues to, and will for years to come.

You see, Franklin's $4,000 investment has grown to millions of dollars in the interim. The funds he put away for posterity have done exactly what he hoped they would do. And through careful management, they have continued to grow, and expand in value through good times and bad.

Now admittedly, most of us don't think two-hundred years into the future – and most of us don't have massive estates like Mr. Franklin had. But almost all of us can find a way over the course of our working lives to put away a few dollars in the hopes that we can make the lives of our children and grandchildren more comfortable and satisfying than ours may have been.

If Franklin's Will proves anything, it is a tangible demonstration of how a well intentioned gift, well managed, well planned, and well executed, can change the lives of generations to follow.

It's something to think about, isn't it?

 

Benjamin Franklin exercised far more farsightedness in his estate plan than most of us feel the need for.  But Franklin did reveal the powerful benefits to be gained from well thought out plans.  His clever employment of the principal of compounding into his estate plan is admired to this day.  Bravo to Benjamin Franklin – for executing an estate plan that has spanned several centuries.  I am available to assist you with an estate plan to span a decade or two, and I would enjoy the challenge of assisting you with an estate plan for several centuries……if you wished to follow the lead of Benjamin Franklin.