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Philadelphia PA Estate Planning Blog
Friday, February 10, 2012
Is Long-Term Care Insurance a Good Bet?
Economists argue that even if Medicaid spend-down rules were tightened significantly, Long-Term Care insurance would still be unfavored by consumers.
It is sometimes claimed that reducing the amount of assets an individual can keep while qualifying for Medicaid would increase the purchase of long-term care insurance.
Now, two professors of economics have estimated that tightening Medicaid spend-down rules would do little to encourage the purchase of LTC insurance.
While Medicaid recipients may keep only about $2,000 in assets in most states, their spouses may retain over $100,000 in Pennsylvania. In the Fall 2011 issue of the Journal of Economic Perspectives, the authors estimate that a $10,000 decrease in the level of assets an individual and their spouse can keep while qualifying for Medicaid would increase private LTC insurance coverage by 1.1 percentage points.
"To put this in perspective," they write, "if every statein the country moved from their current Medicaid asset eligibility requirements to the most stringent Medicaid eligibility requirements allowed by federal law, this would decrease average household assets protected from Medicaid by about $25,000. This, in turn, would increase the demand for private LTC insurance by only 2.7 percentage points. While this represents a large increase in insurance coverage relative to the baseline ownership rate, the vast majority of households would still find it unattractive to purchase private insurance."
Overall, the authors are pessimistic about the prospects for encouraging more Americans to buy LTC insurance unless Medicaid is completely restructured or done away with altogether. They note that LTC insurance is a poor deal, particularly for men, who get back only about 33 cents on the premium dollar they spend, and that for a 65-year-old man of average wealth, 60 percent of the private insurance benefits would have been paid by Medicaid. However, life insurance policies with long-term care riders may be a better bet, and our office can provide more information on these products if you are interested.
The authors say that even if the implicit Medicaid "tax" on LTC insurance were eliminated, "other factors could still prevent the market for LTC insurance from developing." These factors include the availability of informal insurance provided by family members, the liquid assets in the home serving as a "buffer stock of assets," and the difficulty many individuals have in "making decisions about long-term, probabilistic outcomes."
Monday, January 30, 2012
Many people ask us if it is a good idea to give their home to their children. While it is relatively easy to do, giving away your house can have major tax consequences, among other negative results.
GIFT TAX ISSUES: When you give anyone property valued at more than $13,000 in any one year, you have to file a gift tax form. Also, under current law you can gift a total of $5.12 million over your lifetime without incurring a gift tax. If your residence is worth less than $5.12 million, you likely won't have to pay any gift taxes, but you will still have to file a gift tax form. Congress may change the gift tax exemption, which is now scheduled to revert to $1 million in 2013 unless Congress acts.
CAPITAL GAINS TAX ISSUES: While you may not have to pay gift taxes on the gift, if your children sell the house right away, they may be facing steep taxes. The reason is that when you give away your property, the tax basis (or the original cost) of the property for the giver becomes the tax basis for the recipient. For example, suppose you bought the house years ago for $150,000 and it is now worth $350,000. If you give your house to your children, the tax basis will be $150,000. If the children sell the house, they will have to pay capital gains taxes on the difference between $150,000 and the selling price. The only way for your children to avoid the taxes is for them to live in the house for at least two years before selling it. In that case, they can exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes.
Inherited property does not face the same taxes as gifted property. If the children were to inherit the property, the property's tax basis would be "stepped up," which means the basis would be the current value of the property. However, the home will remain in your estate, which may have estate tax consequences.
PA INHERITANCE TAX ISSUES: In Pennsylvania, there is no gift tax. However, to avoid PA Inheritance Taxes (the rate is 4.5% for assets passed to children or grandchildren), you must live at least one year from the time the gift was made. Often times, 4.5% of inheritance tax is worth paying rather than gifting the house in this manner, due to the risks involved.
ASSET PROTECTION ISSUES: By transferring your house to your children, you are making all of their future financial and family problems YOUR problems. That means the house could end up being taken away due to creditor problems, bankruptcy, litigation, or divorce. Would you want your son-in-law to get part of your house while you're still living?
MEDICAID/LONG-TERM CARE ISSUES: Beyond the tax consequences, gifting a house to children can affect your eligibility for Medicaid coverage of long-term care. There are other options for giving your house to your children, including putting it in a trust or selling it to them. Before you give away your home, consult with an elder law firm such as our law firm, where we can advise you on the best method for passing on your home.
CONCLUSION: "Gifting the house for $1" is a phrase that's tossed around quite a bit, and several families go ahead with this planning. As you can see, casual planning like this is fraught with potential landmines. Be careful. There are options out there to transfer the house properly. Speak with an estate planning or elder law attorney about this type of planning.
Sunday, January 22, 2012
Is it a good idea to write your own will? I can’t answer that question without being somewhat biased, because as an attorney, I know that there are complex and unique issues that each family and individual faces. Therefore, it does concern me when I hear of someone writing his or her own will without an attorney’s help.
My mission as an attorney is to build a long-term relationship with each client and provide superior service to him or her. The stack of paper in a binder or folder that I eventually hand to my clients is not what they find valuable. They just find it heavy! So the question is, where is the value in working with an attorney on my estate plan? My clients tell me that they find value knowing that they have a trusted legal advisor that has taken the time to learn about their needs, their goals, and the unique aspects of their lives. Unique lives translate into unique estate plans.
When I hear about do-it-yourself estate planning, I can’t help but get nervous for the folks that use those products. Here’s what concerns me about folks writing their own will:
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Failure to protect your assets: As an attorney, I always talk to my clients about their kids and grandkids, and I make sure that an asset protection plan is put in place. I want to make sure the client’s kids or grandkids are protected from themselves and others, including their creditors, spouses (or ex-spouses), business partners, legal judgments, etc. I can assure you that you cannot design a one-size fits all form for an asset protection plan, which is more important than ever today.
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Failure to create an asset preservation plan: A will and power of attorney is important but only the start for many estate plans. A major concern for retirees and people close to retiring is making sure an asset preservation plan is crafted, so that if you go into a nursing home, the house will be safe and some assets will also be safe from Medicaid spend down.
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False sense of protection: Doing it yourself and convincing yourself you only need the “simple will” may give you a false sense of protection, when in fact your situation is more complex. By complex, I mean things like second marriages, kids with financial issues, real estate under water, uncertain financial future, family conflicts, etc. I can assure you that these types of issues won’t go away when you pass on—in fact, our experience shows they only magnify if they’re not dealt with while you’re still here.
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Legal issues and problems with the documents: Let’s be honest, you don’t know what you don’t know when it comes to estate planning. Work with a trusted advisor that knows what you need. Would you pull your own tooth? Do surgery on yourself? Estate planning and asset preservation is best done with the help of a professional.
Are you going to spend more money on an estate plan with an attorney? Yes. But do you really want the “cheapest” plan? Worse, are you making matters more complex by doing it yourself and saving a few bucks?
I make my living by being passionate about helping families deal with their estate planning goals, fears and hopes to ensure they leave a legacy they can be proud of, no matter what happens and when it happens. Think about estate planning as saving your family time, money, aggravation, conflict, and from your estate being unnecessarily spent down on long-term care. Then, the real value of working with a professional will be realized.
Monday, January 16, 2012
Social Security benefits can be complex, and our article this week shows you why. If you need assistance with planning for Social Security, please contact our office.
Social Security doesn't just pay retirement benefits to retired workers; in some circumstances, it also provides benefits to a worker's spouse or ex-spouse and to a deceased worker's surviving spouse. Here are the ins and outs of spouse and survivor benefits.
SPOUSAL BENEFITS
Spouses are entitled to benefits if the marriage lasted at least 10 years. A spouse is entitled to an amount equal to one-half of the worker's full retirement benefit. To receive this benefit, you must be at your full retirement age or caring for a child who is under 16 years old. In addition, your spouse must have filed for Social Security retirement benefits even if he or she isn't receiving them.
If you could receive more from Social Security based on your own earnings record than through the spousal benefit, the Social Security Administration will automatically provide you with the larger benefit. If you have reached your full retirement age, you may also elect to receive spousal benefits and delay taking your benefits, allowing your own delayed retirement credits to accrue, and switch to your own benefit at a later date. However, you cannot elect to receive spousal benefits below your retirement age and later switch to your own benefits.
If you begin collecting your spousal benefit before your full retirement age, your spousal benefit will be permanently reduced. But if your spouse retires early, but you wait until your full retirement age, you will still receive benefits based on one-half of his or her full retirement benefit.
DIVORCED SPOUSES
An ex-spouse is also entitled to receive one half of the worker's full retirement benefit as long as the marriage lasted at least 10 years. Unlike a current spouse, a divorced spouse can begin receiving benefits even before the worker has applied for benefits. The worker must be at least 62 years old and the divorce must have been final for at least two years.
SURVIVOR BENEFITS
If you are a surviving spouse at full retirement age, you are entitled to the worker's full retirement benefits. If the worker delayed retirement, the survivor's benefit will be higher. Survivors are entitled to benefits even if they are divorced as long as they had been married for at least 10 years. If you file for benefits before you are over age 60, but below full retirement age, you will receive a reduced percentage of the worker's benefits. Surviving spouses who are younger than 60 receive benefits only in limited circumstances, such as cases of disability or caring for a disabled child.
Monday, January 9, 2012
What will happen to your digital assets if you pass away? Read more . . .
Monday, December 12, 2011
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Q&A: Four Commonly Asked Estate Planning Questions
1. Most of my assets are jointly titled, or they are qualified accounts with beneficiaries named. So do I still need a Will? Having a Will is still a necessity, but it can be more or less important to you depending on your estate. A Will is always needed to make sure an Executor is named, and take care of assets that are not titled jointly or with beneficiaries. It always makes sense to have a Will no matter what your circumstances.
2. How can I plan for avoiding Pennsylvania Inheritance Taxes? Most assets are subject to PA Inheritance Tax. However, one asset that's typically not subject to PA Inheritance Tax is life insurance. Life insurance also provides liquidity upon death to pay taxes, fees, etc. The inheritance tax rates are 0% between spouses, and 4.5% to kids and grandkids.
3. I have two kids, can't I just name both of them as Co-Executors? That may seem harmless, but could cause big problems for your estate later on. Putting two or more people in charge of one task is a recipe for conflict. Would it make sense to have two CEO's in charge of a company? Both children can be treated equally under the Will while one serves as Executor. Bottom line: Choose one primary, and two backup Executors.
4. What is the "Five Year Lookback Period"? When a client is in a nursing home or will be heading there and wants to qualify for Medicaid, federal law requires that any gifts made within the five previous years be accounted for. A gift made within five years could cause a penalty (based on a formula) that will prevent one from receiving benefits for a certain period of time. Qualifying for Medicaid is become increasingly complicated, and the best advice is to plan early while you're still healthy.
Have more questions? Email us at info@jawatlaw.com.
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Latest News on the Federal Estate Tax
What's happening with the federal estate tax? Recently, a Democratic Congressman proposed a bill in the House of Representatives to lower the federal estate tax to a $1 Million exemption per person. Currently, the exemption is $5 Million. If the bill passed, many more people would be hit by the tax.
The bill has no chance of passing, and the estate tax exemption will remain at approximately $5 Million for 2012. However, we will be watching 2013 closely, when the current law expires. Congress and the President will need to act at some point in 2012 to avoid the estate tax going back to $1 Million in 2013. Who knows what Congress will do... or when they will do it. We'll keep a watch and keep you updated.
Article Link: McDermott Tries To Rewrite Estate Tax
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Tuesday, December 6, 2011
Preserving your assets is possible even if you are about to enter into a nursing home. But the worst thing you can do is wait until you're no longer healthy to start planning. Instead, start planning while you are healthy!
Like most people, if you own a home, typically that's your greatest concern when you sit down to consider what assets are most in need of protection.
Consider an example: Jon and Mary, both 68, own a $250,000 home. They have two children. Neither has long-term care insurance. Jon's health is a source of concern, but his doctors are confident that based on current information, he will not need long-term care for at least another 7-10 years. This presents a great opportunity to plan in advance.
With our customized Nursing Home Protection+ Account solution, we can protect Jon and Mary's home from ever being taken if Jon goes into a nursing home. Even better, when Jon and Mary both pass on, the house won't be subject to estate recovery. In other words, their two children will be able to inherit the house, even if Medicaid wants to re-coup their costs by taking the house.
This type of asset preservation requires special skills and must be done carefully after considering many factors.
If you're interested in this type of planning, please contact our office today.
Saturday, December 3, 2011
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Estate Planning in the News: A $400 Million Estate
Who is Huguette Clark? She died earlier this year at 104, and left a $400 Million estate. She was definitely not part of the "99%"! In any case, Ms. Clark's estate is currently being litigated. Seems as though she had two wills. In one of them, she cut out her family and gave money to her attorney and accountant. Ms. Clark was a reclusive figure, and the most recent picture of her was taken in 1930. Learn more about this fascinating case here.
Link: $400 Million Estate Being Litigated
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Monday, November 28, 2011
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2012 is quickly approaching, and there is no better time than now to re-evaluate your estate planning goals.
Estate planning can be broken down into three distinct areas: tax planning, legacy planning, and long-term care planning. Which area is the most important to you? Once you determine that, you can update your plan based on your goals.
Tax Planning
Tax planning has not been at the forefront in the last few years for most families. The federal estate tax exemption is $5 Million per person, and $10 Million per married couple, so only a small percentage of individuals are affected. However, you should be aware that in 2013, the estate tax exemption will revert to $1 Million per person unless Congress acts. 2013 will come sooner than we think, and while both political parties have an incentive to come together on taxes, all bets are off. Keep reading our newsletter to keep posted on federal estate taxes.
Legacy Planning
Legacy Planning is an important component of estate planning for many families today. Legacy planning ensures that your plan is crafted carefully so that any conflicts in the family are avoided, and that your children, grandchildren or other beneficiaries are protected against themselves and others.
Long-Term Care Planning
Excessive long-term care costs are a concern for many families today. As people live longer and long-term care costs rise (much faster than inflation), the question becomes how you protect your estate from being spent down completely on health care costs. There are proven asset protection strategies that help to preserve part of your estate. The earlier you plan (i.e., while you're still healthy), the better.
Your Next Steps
I recommend that you sit down with your family and review your estate plan every year. You may find that minor or major changes need to be made. Perhaps you were more interested in tax planning a few years ago, but now realize you need to focus on long-term care costs and how to protect assets against those costs. Once you decide changes need to be made, make sure to implement those changes as soon as possible.
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Monday, November 21, 2011
THE ROLE OF THE EXECUTOR... The Executor is the CEO of an estate. The individual or institution filling that role is, in essence, the owner of your estate when you pass on, and has a “fiduciary duty” to do what is in the best interests of your beneficiaries, the people you leave your stuff to.
Executors and trustees (if you have a living trust instead of a Will) need to be careful and diligent about their work, and consider hiring outside assistance (attorney, CPA, etc.) as needed to ensure accountings are filed correctly, and inheritance tax and estate tax returns are prepared properly.
Transparency is key when you are an Executor. For instance, sharing a full accounting and a copy of the Will with the beneficiaries goes a long way.
Also, if an estate has creditors, you must be diligent in ensuring they receive proper notice. If an Executor fails to give proper notice to creditors and the Executor distributes the estate, there is a possibility that the creditor could later appear, make a demand, and hold the Executor personally liable.
Being Executor is not impossible to handle without a lot of outside help, especially for simple estates. But where there are complexities, beneficiaries with some conflict, creditors, etc., it makes good sense for your estate for the Executor to consider outside assistance. Remember, the Executor has a legal obligation and a fiduciary obligation.
FEDERAL TRANSFER TAX UPDATE... The so-called “super-committee” had apparently floated the ideas of changing the gift tax and federal estate tax before the year is out. Fun rumor, but not going to happen, as we have heard over the weekend that Congress is... surprise, surprise… deadlocked!
The gift tax exclusion stays basically the same in 2012. You can make $13,000 annual gifts to as many people as you want, no tax due and no filing needed. Over $13k, you have a $5.12 million lifetime gifting exemption. Anything above $13k, you need to file a Gift Tax Return (IRS Form 709). Any gift over $5.12 Million in 2012 is taxable at a 35% rate. This will potentially change again in 2013. Now is the time to make large gifts.
The federal estate tax remains at a $5.12 Million exemption in 2012, affecting very few people. Anything above $5.12 Million, or $10.24 Million for a married couple, is taxed at 35%. Again, 2013 could see major changes in this scheme.
The Pennsylvania Inheritance Tax rates will remain the same in 2012.
Of course, we’ll keep you updated on any changes.
Have a Happy Thanksgiving! Best wishes to you and your family.
Monday, November 14, 2011
This week, we have selected five common estate planning misconceptions that we often hear from our clients.
1. Gifting the house for $1 to my kids is always good idea
Gifting your house to your kids may save some inheritance tax dollars, but there will be no “step up in basis” if the kids try to sell the house after you pass on. To put it simply, there may be more taxes due than if you just left the house in your name. Additionally, once the kids own the house, you’re on the hook if they get into any sort of creditor or marriage trouble.
2. I only need a simple will, or no will at all
Every provision in your will is important. You want your will to be perfect, otherwise it could spell trouble for your family later on. You need to speak with an attorney about what type of estate planning tool you need.
3. I don’t need a will because all of my assets have beneficiaries on them
It always makes sense to have a will, regardless if anything will pass through the will. Inevitably, we find the will always disposes of some assets.
4. A power of attorney is just a form and is the same for everyone
Powers of attorney are subject to the most lawsuits because of this assumption. Your power of attorney needs to be carefully tailored so there aren’t too many powers.
5. I can’t gift more than $13,000 per year
As it stands now, you have a $5 Million lifetime gifting exemption through 2013. You can make the $13k gifts each year without paying taxes or filing gift tax returns. Anything over $13k is not taxed, but must be accounted for. Anything above $5 Million is taxed at 35%. For years, the lifetime exemption was $1 Million, so the $5 Million jump presents a great opportunity for wealthy individuals and families to make transfers.
Estate planning should be undertaken with a qualified estate planning attorney. Everyone needs to engage in estate planning to ensure they leave a legacy that's free of conflict and confusion. For a complimentary estate planning consultation, please call our office at (215) 706-0200.
Was this week’s blog entry helpful to you? If so, we encourage you to forward it on to friends and family members who you think may find it informative as well.
Have a great week!
The Law Offices of Jeremy A. Wechsler assist clients with Estate Planning matters in Willow Grove, PA as well as Abington, Hatboro, Dresher, Horsham, Bryn Athyn, Huntingdon Valley, Fort Washington, Jenkintown, Glenside, Oreland, Warminister, Wyncote, Ambler, Elkins Park, Flourtown, Philadelphia, Warrington, Cheltenham, Gwynedd Valley, Jamison, Feasterville Trevose, Richboro, North Wales, Blue Bell, Lafayette Hill, King of Prussia, Collegeville, Oaks, Phoenixville, Oxford Valley, Langhorne, Penndel, Bristol, Fairless Hills, Bensalem, Plymouth Meeting, Furlong, Philadelphia County, Bucks County and Montgomery County.
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