Can I Leave the House to my Children instead of my Spouse?
Sara called because her mom, living at home, needed nursing home care and would need Medicaid after spending down her remaining $20,000 of assets. She told me that her dad had died 3 years earlier. I asked her about what happened since then. Sara explained that Mom’s health had steadily declined after Dad died but they were able to keep her home with aides. She estimated that they had spent about $150,000 during that time. Then she told me that she and her sister actually own the home where Mom lives. That’s because his will left the property to his children and not his wife. I told Sara that Mom may not yet be eligible for Medicaid, even after spending the remaining $20,000 in her bank account. She was puzzled. “How can that be”, she asked. “It’s because of the house”, I told her, “and something called the elective share>” Next week I’ll fill you in on what I told Sara.
Little Known Law May Help Seniors Needing Long Term Care (Part 2)
Last week we were discussing a little known law that can be a boon to seniors. The Pension Protection Act of 2006 contains provisions that allow individuals to use their annuity cash value to purchase long term care coverage. Let’s look at an example of how that can work. Bob is age 70 and recently widowed. His children live out of town and are concerned about what would happen if he needs long term care in the future. Bob has had some health issues and was recently diagnosed with diabetes. He also has a history of heart disease and is not a good candidate for traditional long term care insurance. What Bob was able to do, however, is take advantage of an annuity based long term care strategy that utilizes the benefits of the Pension Protection Act. He was able to take his $140,000 fixed annuity which had a low cost basis of $40,000 (the amount he originally deposited), and using the IRS 1035 tax free exchange, transfer from his existing fixed annuity to a new annuity that complied with the rules set out in the Act. Bob’s annuity could continue to earn interest, but, in addition to that,
Little Known Law May Help Seniors Needing Long Term Care
On August 17, 2006, President George W. Bush signed into law the Pension Protection Act of 2006. The average American probably never heard of the law but some provisions in that law, which became effective in 2010, can be a real boon to Americans struggling to find ways to pay for long term care. Many seniors own annuity contracts. Individuals who own annuities can now add long term care riders with special tax advantages. The Pension Protection Act allows the cash value of annuity contracts to be used to pay premiums on long term care contracts. Money coming out of the annuity in this way is treated as a reduction of the cost basis of the annuity and thus is non-taxable. The cost basis is generally going to be the amount of money originally deposited with the insurance company when the annuity was purchased. In addition, the Act allows annuity contracts without long term care riders to be exchanged for contracts with such a rider in a tax free transfer under Section 1035 of the Internal Revenue tax code. This may be helpful to individuals who own annuities that have a low cost basis and are not in the
Uneven Inheritance – To Tell or Not to Tell
“I want to leave more to one child than another”, the client will tell me. In some cases one child is more financially established than another. Or maybe one child has special needs, whether diagnosed or not. When I ask whether this has been disclosed to either child the answer often is no and I can certainly understand why. It can be an uncomfortable subject and we never know how the other person will take it. But, the alternative – finding out after the parent has passed – can be far worse. What may be obvious to the parent may not be so obvious to the child. And finding out after the parent dies leaves the child with no opportunity to get answers. It can leave longstanding emotional scars. There is a tendency to equate love with money. If my parents leave less to me than to my sibling does it mean they love me less? There may be very logical reasons why an uneven distribution was chosen. But then why didn’t they just tell me? A will leaving 2/3 to Child A and 1/3 to Child B typically does not include an explanation why. Perhaps worse than that is making Child B
Using Your Own Money to Pay for Long Term Care – the Better Way? Part 2
Last week I was talking about the difficulties in funding long term care through long term care insurance or Medicaid. Insurance companies are getting out of the long term care market entirely or drastically raising premiums. Medicaid, the primary government program that covers long term care, is still a fall back for many. But, there are gaps in terms of what it will and will not cover, and it is increasingly difficult for many to navigate the Medicaid system. This is especially so given the 2 objectives most of our clients want to achieve – making sure they have enough money to meet their own needs but also passing on a legacy to their children and grandchildren. Without proper planning for long term care, however, the first objective may overwhelm the second, making it unachievable. That’s where long term care insurance has sometimes helped. It’s also where, what I call the legal solution that we often employ – 5 year planning using trusts - has also helped. But, sometimes there is no long term care insurance, it’s too late to get it and the legal solution can only go so far. Self funding with asset based long term care
Using Your Own Money to Pay for Long Term Care – the Better Way?
As I always explain to people, there are 3 ways to pay for long term care. One way is to use your own money. A second source is long term care insurance and the third is government benefits – primarily Medicaid and the VA Aid and Attendance program. I have written much in this blog about government benefits, especially Medicaid. Because long term care is so expensive and so many people run out of money, Medicaid, as a last resort, must always be considered. But, the economy is still struggling and tax revenues, which provide the funding for Medicaid, are down. State and Federal governments are looking for ways to cut costs and Medicaid is likely to continue to be a target. The VA Aid and Attendance benefit, which has been a help but not a total solution by itself, is also likely to be more restrictive. And, of course, it has never been an option for the non-Veteran senior population. As we see fewer World War II veterans, there are fewer Korean veterans behind them, and still fewer Vietnam veterans coming behind them. Long term care insurance is an important piece as well but, unfortunately, we find that