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Who Do You Trust?

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Who Do You Trust?

A common theme that permeates estate planning is the need to have a clear idea of who you unconditionally trust. When you create a will, you must appoint an executor; when you create a trust, you must appoint a trustee; and when you create a power of attorney, you must appoint an attorney in fact. It is important to give thought to whom you think can ethically carry out their fiduciary duty in the manner that closely mirrors your wishes.

The Who

Trust is only one of the considerations that must be weighed in choosing a fiduciary. Another important consideration is capability, namely whether the person appointed has the skills to effectively carryout their responsibilities. This is especially poignant if you have a complex estate plan, a large estate, a large amount of debt, or a large number of heirs.

Many of us would automatically defer to appointing our spouses. This is a reasonable approach, considering they have intimate knowledge of your wishes, and have likely intertwined their estate plan with yours. But you must consider that many of the fiduciary duties that spring from an estate plan arise from the death of the planner. Thus, the process of acting as a fiduciary can be made extremely difficult for those who were close to the decedent.

That is not to say that you should avoid appointing a spouse or loved one. Many times, they can more than adequately fulfill the role. You simply must consider the gravity of what you are asking these individuals to do. Before appointing a fiduciary, you should speak with your loved ones to determine whether they are up for the task.

The What

            What are these fiduciary powers that you are granting? How do they affect your estate plan?

  • Executor: this individual carries out or executes the wishes set forth in your will. This process starts by filing the will at the courthouse, which begins the probate process. They will then pay off debts of the estate, distribute property of the estate, and provide an inventory and accounting of the estate.
  • Trustee: trusts can have many different functions; however, the role of the trustee remains essentially the same. It is the person who is trusted to manage the assets in the trust, to make decisions in the best interest of the trust, and to ensure that the directions set forth in the trust instrument are carried out.
  • Attorney-in-fact: this could either be your fiduciary for financial and legal purposes or for medical purposes. This individual will act as youand carry out your wishes when you are unable or incapable of doing so on your own accord.

 

These individuals could all be the same or separate people. However you chose, the appointed fiduciaries play a critical role in ensuring that your wishes come to fruition.

The How

Not only should you consider who you will appoint as your fiduciary, you need to consider how. Specifically, you should consider who will be the primary and who will be the backup.

There are many reasons why you should consider appointing a backup or secondary. It may be that the primary is unable to carry out their duties because of death, incompetency, or physical inability. It also may be that the primary is in a compromising emotional state resulting from the death of a loved one. Either way, it is important to have someone that can step into their shoes and fulfill the role.

The Conclusion        

You should take some time to consider who you want to be your fiduciary. They should be trusted and capable individuals who are up for the task. You should also consider who you would like to appoint as an alternate, they should know that there is a significant likelihood that they may be called upon to fulfill the role as fiduciary, for whatever reason.

If you would like to appoint a primary or secondary fiduciary, you should contact a qualified Estate Planning Attorney to assist you in drafting or updating your estate plan

Brenton S. Begley, JD, LLM Taxation

                                                                    Attorney with McIntyre Elder Law

What Happens if You Die Without a Will?

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What Happens if You Die Without a Will?

 “The responsible thing to do is to make sure you have a will in place before you pass.” I am sure just about every adult in the US has been told that statement. But why is it important to have a will? What happens if you do not have a will executed before your death?

Testate vs Intestate

If you have spent enough time around attorneys, you have probably heard these terms before. But these terms are not frequently thrown around in common parlance and can be confusing those without the letters “JD” by their name. If a person dies testate, it simply means that a valid will has been executed. Of course, dying intestate—as the prefix would suggest—is the inverse, meaning that the person has died without executing a valid will. Either way, when a person passes the assets and belongings left behind becomes their “estate”.

Testacy

An individual who executes a will is called a “testator”. If an individual or testator dies testate, their property will pass according to the provisions set forth in their will. This will allow individuals to preplan and make general and specific devises of their assets to their heirs upon their death. The will, if validly executed, will be recognized by the jurisdiction in which the testator resided before their passing.

After the testator has passed away, the executor of the estate—which the testator named in the will—will file the will with the clerk of court. This will begin the legal process of fulfilling the testator’s wishes as set forth in his or her will, called “probate”.

During the probate process, the executor will distribute the assets of the estate to the beneficiaries named in the will. They also have fiduciary duties to pay debts of the estate and to provide an accounting of the expenses, income, distribution, and payments of the estate.

The defining characteristic of dying testate is having a say in where your property goes, having a trusted individual execute your wishes, and having the ability to protect your heirs.

Intestacy

The estate of a decedent who passes away without a will passes through “intestate succession”. Intestate succession is determined by the intestacy statutes of the applicable jurisdiction. The statutes will pass a percentage of the estate to lineal descendants based on their position in the family tree.

In North Carolina, property that passes through intestate succession goes “per capita at each generation”. This means that the property goes in equal shares to each surviving descendant in the nearest degree of kinship. Depending on the structure of the family tree, the estate can pass to one or two descendants or splinter into many fractional shares. If there are no takers of the decedent’s assets, the property will “escheat” or pass to the state.

Upon the passing of the decedent an estate administrator will be named. Just about anyone can apply to be the estate administrator. The administrator will act in a fiduciary capacity and will distribute the property in the estate based on the intestacy statutes.

The defining characteristic of intestate succession is that the decedent has no say in who will carry out his or her wishes, has no say in where his or her property goes after their death, and has no ability to insulate their heirs from the possible legal downsides of inheritance.

What does this mean for you?

The biggest factor for individuals determining whether to execute a will is whether they want to dictate how their property will pass after they are gone. If you have any desire to have a say in who gets your property after your death, then you should consider creating a will.

It is also important to review your will if you have one to make sure it is valid and covers all the property you own. In North Carolina, if you have property that is not covered by your will it will pass through the intestate succession statutes. A common mistake among individuals is thinking that a fillable will, that they print from the internet, will be a sufficient means of passing their property and protecting their heirs. There are legal requirements that are necessary to executing a will and there is no guarantee that a pre-filled form will satisfy those requirements.

Lastly, it is important to have a detailed and comprehensive will with provisions that anticipate future events. Here at McIntyre Elder Law, we do our best to put safeguards in place to protect whomever may be taking under the will. That’s why all of our wills include protections for heirs who qualify for means tested benefits from the government. We want to make sure that those heirs can receive their inheritance without it disqualifying them from their benefits.

In Conclusion

A will is important because it gives you control over your assets and property and allows you to adequately plan for the future of your loved ones. Not only does it give you the opportunity to plan ahead, it also relieves your loved ones of most of the stress and frustration of settling your affairs after your passing.

If you are thinking about creating or modifying a will, find a qualified Estate Planning or Elder Law attorney to assist you.

 

Brenton S. Begley, JD, LLM Taxation

Attorney with McIntyre Elder Law

Look Back Period

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Elder Law Report

Look Back Periods

     Medicaid can be a scary time for families. If someone needs Medicaid it’s likely they’re searching for help with Long Term Care, Nursing Home or Assisted Living Care and how to save their hard-earned money and property while doing so. They are hoping Medicaid will step in and help pay for these things.

There are a lot of rules surrounding this process. One area of concern is look back periods.

What are look back periods?

      Let’s say you are applying for benefits today.

A look back period is the area of time Medicaid will examine all your financial history. For VA and Assisted Living Facilities they’re going to look back three years into your financial history. For Nursing Homes, Skilled Nursing Facilities or Long-Term Care Medicaid it will be a five year look back.

If we put in a Medicaid application today, Medicaid will look back at all your bank statements, all property (real estate) transfers (for the three to five year period) and make sure all the transactions were done correctly under the spend down rules.

Let’s say, (within a three year look back), you put a Ladybird Deed on your home one year ago, that would be acceptable because under Medicaid policy they allow you to do that. It is also okay under VA Pension Benefits because they allow you to have a home and two acres before they start to count value.

They are going to see this and say, we’re okay with that because that’s our policy. So, you can protect that home, get the benefit and they know they cannot back collect that home. (Ladybird Deeds protect the home and surrounding property up to about $550,000).

If you had transferred out-right (that is deeded your house to another person or a trust) three and half years ago, (and we were going for Assisted Living Medicaid with a three look back period), you would also be okay because it’s outside the look back period. This could also have been a money or wealth transfer.

However, Nursing Home Care has a five year look back period. If we stick with the above example and you transferred your house within the five year look back period, it must conform with the spend down rules, otherwise it will be flagged.

Remember, if you don’t transfer things correctly according to the spend down rules, you can find yourself in a lot of trouble and heartache. The penalty for working outside the rules can be either a penalty period, so within that time frame you would need to put the money back, or sacrifice the home when that person passes away because of the Medicaid lien, or you would have the person in need denied the benefits altogether.

We can help you in this process using Medicaid Planning and Asset Protection, Medicaid Activation and also Veteran’s Pension Benefits and Disability.

If you have questions about Spend Downs, call me, Greg McIntyre and schedule a consult at 704-998-5800 for Charlotte, or 704-259-7040 for Shelby, or visit our website mcelderlaw.com and we will do what we can to help you.

 

Greg Mcintyre

Elder Law Attorney

In-Home Care with Helping Hands

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Elder Law Report

In-Home Care with Helping Hands

 

In the Limelight: Sarah Callahan Dixon from the Gastonia branch of Helping Hands.

Can you tell me about Helping Hands?

SDHelping Hands Nursing Referral Service has a main office in Shelby and we opened the Gastonia location this past July. The company was started in 1975 and Ruth Huffstetler has owned it for the past twenty-four years. Most people don’t realize how long we’ve been around. I have worked in the senior industry for about thirteen years, mostly in communities and I found myself convincing seniors to stay at home, which wasn’t my job.

You were caring for seniors but thinking, it would be great if you could stay in the comfort of your own home andreceive amazing care, right?

SDExactly. Communities are perfect for some people, but I think staying home is a better option for most. So, I found myself convincing families to instead of moving into a community to stay home and call companies like Helping Hands.

When I give seminars, I often ask the audience, ‘please raise your hand if, when you need care, you want to go into institutional care?’ Nobody raises their hand.  If it came to it, most would prefer to stay at home and have in-home care.

SDWhere Helping Hands stand apart, is we’re a little different from most in-home care companies. Most in-home care companies charge from anywhere between nineteen to twenty-five ($19 – $25) dollars an hour or more, but because we are a referral service we offer our services at a much lower cost for families. Our starting rate here in Gastonia is thirteen ($13) dollars an hour. The only time we have an increase is when someone needs total assistance or we’re driving long distance, maybe to Charlotte. Otherwise it’s thirteen dollars across the board, so we’re saving families approximately ten dollars an hour to care for their loved ones.

So, over the course of a forty-hour work week, that’s a savings of four hundred dollars, every week. That’s sixteen hundred dollars a month.

SDYes. One of the biggest questions I get from families is, how can we get it at that cost? This relates directly to our referral service. We have over one hundred and fifty caregivers that are contractors with us. They are screened, reference checked and interviewed. They are professional caregivers. Some are CNA’s (Certified Nursing Assistants), or PCA’s (Personal Care Assistants), and some are people who have cared for their parents and then want to help care for seniors and be their companion.

Let’s talk about the screening process because that’s an important part of bringing people you trust into your home. Helping Hands takes care of that?

SDRight. Most people when they have a private caregiver, they’re paying them between ten and fifteen dollars an hour. They choose that because it’s cheaper than an agency. We can provide both a lower cost and a screened individual.

So, you go through background checks?

SDYes, we go through background checks. If a person is going into a community, for instance we have several caregivers who are in assisted living and skilled nursing facilities, they then must have a TB skin test because that’s a requirement for those facilities, and possibly a drug screening for those facilities as well. We try to abide by any state regulations. We also sit with people in the hospital, so whatever the hospital requires, we then require for the caregiver as well.

Who would benefit the most from Helping Hands? Who would be a good client in your experience?

SDAnyone who needs assistance at home, Helping Hands would be a great fit for them. We have people in their forties and fifties who have a disability that requires a caregiver. There’s not an age criterion, we’ve taken care of children. Some of the best referrals for us is a person who is lonely at home and maybe cannot monitor their own medications or is out of rehab but isn’t quite ready to be on their own. We can place someone within twenty-four hours. If someone calls me, I can make sure they have a caregiver sometimes on the same day, but it will be within twenty-four hours.

How do people reach you in the Gastonia area?

SDThey can reach us through referrals from the hospital system, that is our biggest referral source right now, and from skilled nursing facilities. Our number is 704-874-1804 and we’re off Remount Rd in Gastonia. Most of the time I’ll go to the client’s home to meet them and get information.

People are so concerned with cost and how they’re going to pay for care. There are always different ways of paying. You can pay cash of course, but what other ways are there to pay for Helping Hands?

SDThere is Long Term Care Insurance and Veteran’s benefits.

That’s Veteran’s Aid and Attendance benefits?

SDYes. With our company, the families pay the caregivers themselves, so they can pay using cash, long term care insurance or veteran’s aid and attendance. Long term care reaches out to us, that’s how they get reimbursed.

You work with the insurance company to help make that happen?

SDYes.

I think the whole idea of staying at home is less final, in comparison to moving to a facility. Being at home equals longevity because you are more comfortable and happier.

SDI read an article that said approximately eighty six percent of people would prefer to stay at home, and sixty percent lived longer by staying at home. I would like to see the numbers on isolation because I think it would be very different being at home on your own and being at home with someone. When people are isolated they tend to get very depressed. Having someone there whether a caregiver or family is huge.

Do the caregivers in-home stay with the same people?

SDYes, and this is one of the biggest benefits. We strive to have the same caregiver stay with the client. It’s important to build that relationship. With twenty-four-hour needs, we do need several caregivers to rotate but it is the same two or three caregivers. It is especially important for the elderly and those with dementia to have a familiar face and someone you trust. It also gives comfort to the children of clients because they know their loved one is not alone, and someone is there caring for them and helping them with medications and cooking. That’s one of the biggest reasons to get a caregiver in-home is to cook, clean and help with care. This is something that comes up in the interview process, that the caregiver is capable of cooking, really cooking for a client.

I wanted to touch on one other thing because I think it’s important and impactful. I looked at the statistical data on the life span of family caregivers, like a wife caring for her husband or husband caring for his wife. I work with seniors and know from experience that a spouse feels the obligation to be the caregiver. They do it out of love and respect, but they do it to their own detriment. They don’t take vacations or get respite care, which is having someone come in so the caregiver (the spouse) can take a rest. Do you provide that also?

SDWe do provide respite care. Many times, it turns from respite care to full or part-time care because the spouse suddenly realizes the stress they were under and the break they needed, and they want to continue that on.

If you look at the numbers for what it does to a family member who gives care, the stress takes a huge toll. Having a professional to come in and take some of that stress away, it lengthens the live of the family caregiver as well as the person needing the care.

SDEven in facilities, I have seen the spouse pass away before the patient.

Many times, the family caregiver will pre-decease the patient because of that huge burden of stress.

SDIt is something that all professionals in this line of work know about, but when we try to explain this to the family caregiver it doesn’t sink in until its too late.

I’m Greg McIntyre of McIntyre Elder Law. To contact Helping Hands call 704-874-1804.

Greg McIntyre

Elder Law Attorney

 

Do You Need to Worry about Estate Taxes?

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Do You Need to Worry About Estate Taxes?

 

Here at McIntyre Elder Law we handle a lot of testamentary gifts, be it through a will or trust. And, a question we get all the time is “will I or my heirs have to pay estate or gift taxes?” The answer is usually “no”. To be honest, there are currently very few individuals who walk through the door who will have to worry about estate or gift taxes. But that will likely change in the near future.

The Estate Tax

The estate tax has deep and ancient roots. The concept of taxing the transfer of property at death can date itself back to ancient Egypt. Thus, our American forefathers were not creating anything new when they enacted the first estate tax in the US through the Stamp Act of 1797.

Since that time, the estate tax has had a tumultuous history. After the repeal of the Stamp Act in 1802, the US did not see an estate tax until 1862, when Congress enacted the 1862 Tax Act to help fund the Civil War. But, the estate tax provision of the act was soon repealed after the war. Finally, the modern estate tax was enacted in 1916. Since then, the estate tax base—the amount subject to tax—and rates—the amount of the tax itself—have fluctuated widely.

Fast forward to the new millennium, Congress enacts the Economic Growth and Tax Relief Reconciliation Act of 2001. This bill phased out the estate tax over the period of 10 years and included a provision that would end the estate tax after that 10-year period. However, this provision was subject to a one-year sunset. Congress did not renew the provision in 2011 and the estate tax came back.

Who is Subject to the Estate Tax?

Today the estate tax is still alive and kicking. But, the 2016 Tax Cuts and Jobs Act (TCJA) significantly altered who will be affected by the tax. Before the TCJA, estates valued above $ 5.6 million would be subject to the tax. The TCJA raised that rate to $11.18 million for individuals and $22.36 million for married couples. Thus, under the current law, if an estate is valued less than the threshold amount, they will not owe federal estate taxes.

While the new threshold amount seems out of reach for most, that amount is set to sunset Jan 1, 2026. After that it will revert back to the $5.56 million amount. Although, there has been a push among some politicians to lower the threshold amount even further. Thus, there is a significant likelihood that we could see the estate tax creep into the lives of the middle class before the 2026 sunset date.

What About Gift Taxes?

Estate and gift taxes work in tandem, meaning that the threshold amount includes both gifts during life and the value of the estate (less applicable deductions and exclusions). This means that an individual will not be taxed on the transfer of a gift during their lives unless the gift puts them over the threshold amount. In other words, an individual can give away up to the threshold amount during their lives and not be subject to the gift tax.

But, What About the Gift Exclusion Amount?

This is the issue that confuses most people. The best answer is that the exclusion amount (currently $15,000 per person, per year) determines whether or not the gifts given should be reported to the IRS. The IRS keeps a running tally of how much is given during a person’s life time. If at the end of that person’s life they have gifted above the threshold amount, they will be subject to estate taxes. But, if an individual does not make gifts above the exclusion amount, those gifts are not required to be reported and they do not count toward the threshold amount.

What Does This Mean for You?

Fortunately for individuals who want to preserve their assets and protect from depletion of their estate after their passing, we are in a short period of relief from the estate tax. Unless your reportable lifetime gifts exceed the threshold, the value of your estate exceeds the threshold, or both your reportable lifetime gifts and your estate exceed the threshold amount, your estate will not be subject to the federal estate tax.

However, it is important to remember the history of the estate tax, namely the frequency at which it has changed. It is important because the estate tax may currently be favorable for most, but history is doomed to repeat itself. That means that the estate tax can once again become a factor for a large percentage of the population.

With the recent midterm elections and the upcoming presidential election, there is a significant likelihood that the estate tax can, once again, come knocking at the door of middle-class Americans. If that is the case, there are options out there.

Putting assets in trust now, such as a credit shelter trust, will help insulate your assets from a change in the tax laws. Also, making lifetime gifts—under the exclusion amount—can help to spend down your estate below the applicable threshold level.

Planning ahead is especially important for seniors because of the three-year rule for gifts. For gifts, there is a three year look back period that begins at the date of death back three years. The three-year rule says that property gratuitously transferred within three years of the decedent’s death is included in the value of the decedent’s estate. Thus, in a quickly changing political climate it is imperative to plan ahead for the inevitable fluctuation in the estate tax threshold level.

If you have questions about your estate plan, or how you may be affected by federal or local estate taxes, contact a qualified Estate Planning Attorney to assist you.

Brenton S. Begley, JD, LLM Taxation

Attorney with McIntyre Elder Law

Stop Using a Power of Attorney Once Someone Has Passed Away

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Stop Using a Power of Attorney Once Someone Has Passed Away

     I’m talking about using a power of attorney after the person passes away. STOP DOING IT!

A power of attorney is a document where you appoint someone as your agent, called an attorney in-fact, to act as you.

A General Durable POA is for financial and legal purposes.

If it’s a Healthcare POA it’s to make healthcare decisions.

They are fantastic documents while the person in question is alive, BUT,

Stop using the Power of Attorney to access a bank account or do anything AFTER that person has passed away.

You cannot do it.

Plus, you make the Clerk of Court really mad. They are trying to make sure the estate is probated properly.

So, what document should you use after someone has passed away?

You should use The Will.

The Will is where someone qualifies to be the executor of the estate, this gives them the ability to access accounts, property and titles after the person has passed away.

The Power of Attorney however, ceases to exist after the person dies. You should stop using it at that time.

If there is no Will, you can qualify as the administrator of the estate, and do an estate administration.

I’m Greg McIntyre of McIntyre Elder Law. Call me if you have any concerns about Powers of Attorney or Wills and the use of them at 704-259-7040.

 

Greg McIntyre

Elder Law Attorney

WHY would you trust your life to a fill-in-the-blanks Document?

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I know I’m going to make some people mad about this but let me tell you why I think fill-in-the-blank         documents are absolutely horrible.

A Living Will for example, is a document that decides if you live or die. Whether you are terminal, incurable or brain death has occurred and you are being maintained by respirators, a Living Will determines whether you live or die. Why would you use a fill-in-the-blanks document for this? This document is about your life.

Anyone can fill in those blanks. What happens if you leave one or two of those blanks unfilled? Anyone can fill in those blank spaces. I would hate to think there would be foul play involved, but I feel there is a really good reason why you should draft sound legal documents, especially the ones that determine whether you live or die.

Why in the world would anyone trust their life to a haphazard fill-in-the-blanks document?

It makes no sense to me.

I think people and organizations who hand out fill-in-the-legal-blanks documents, including hospitals, are opening themselves up to so much liability, it’s ridiculous.

I have seriously thought about this and arrived at a conclusion: There is no common sense in using a fill-in-the-blanks document that decides life or death and how it happens, and it is a terrible legal decision to do so. Hospitals hand these out like candy. It’s a bad decision for the patient andfor the hospital.

As said earlier, some people will not agree with me, but I do this for a living and I have seen a multitude of problems with fill-in-the-blanks documents.

I’m Greg McIntyre of McIntyre Elder Law and we draft documents such as Living Wills. If you wish to have a professionally drafted document that may decide whether you live or die, give us a call at 704-259-7040 for the Shelby area and 704-998-5800 for Charlotte.

 Greg McIntyre

Elder Law Attorney

RE: New Rules Issued by the Department of Veterans Affairs

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Dear _____,

Effective October 18, 2018, the Department of Veterans Affairs (VA) has new rules regarding the eligibility of applicants applying for pension. These benefits are available to wartime Veterans and surviving spouses of wartime Veterans who are disabled and/or have additional medical needs. There are also financial limitations, which are discussed in more detail below.

Why Did the VA Change the Rules?

Before these new rules were made, the VA offered little guidance on how they determined if an applicant was “in need.”  There were vague definitions and limited explanations of who would qualify for these benefits, which led to confusion among applicants and inconsistent determinations of eligibility.  Now that the VA has issued clear and bright-line rules, attorneys can better advise their clients and their families, and the integrity and consistency of the pension program is upheld.

Summary of the New Rules

In addition to the minimum active duty, wartime service, and age or disability requirements for these programs, the VA has new rules to determine if an applicant is “in need.”

There is now a bright-line rule regarding the net worth of an applicant.  This amount is currently set at $123,600.00, and will increase annually. When calculating the net worth amount, assets are combined with annual income (assets + annual gross income = net worth). Out-of-pocket medical expenses can reduce income, and can help applicants qualify for the highest benefit.

The home of an applicant is generally not included in this calculation. If the Veteran or other claimant has a net worth over the threshold and thus does not qualify for benefits, there are legal strategies available to get the calculation within the allowed range, including making qualified purchases and accounting for certain medical expenses.

In addition, there is now a look-back period of 36 months when applying for needs-based pension. Any asset that was transferred for less than fair market value during the 36-month period immediately preceding the pension benefits application will result in a penalty period, not to exceed five years.  Of course, there are exceptions to this rule, and there are ways to cure or avoid the penalty.

There are other provisions of the new rules that apply to annuities and other financial instruments. Before investing in an annuity or other asset that produces income, be sure to contact our office to discuss the possible ramifications of that investment on VA pension benefits.

These new rules provide more certainty when applying to the VA for needs-based benefits.  Give us a call at 704-998-5800 if you would like to talk further about the changes, or to explore whether you or a loved one may qualify.

Greg McIntyre
Elder Law Attorney

Summary of Changes to the VA Pension Eligibility Rules

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     On October 18, 2018, new rules regarding eligibility for VA pension were implemented by the Department of Veterans Affairs (VA).  The new rules are quite comprehensive, however, they also provide more opportunities to qualify for these important benefits.

The major changes are outlined below.

  1. Lookback and penalty period.There is now a look-back period of 36 months when applying for needs-based pension benefits.Any asset that was transferred for less than fair market value during the 36-month period immediately preceding the pension application will result in a penalty period, not to exceed five years.
    • There are a few exceptions to the new transfer penalty rule. 1) No penalty will be assessed if the transfer was to a trust established for a child who was incapable of self-support prior to age 18.  2) There is no transfer penalty imposed if the claimant’s net worth would have been below the net worth limit already, regardless of the transfer.  3) A claimant will not be subject to a penalty period if the transfer was the result of fraud, misrepresentation, or unfair business practices related to the sale of financial products.  4) Only transfers that occur on or after October 18, 2018, will be subject to the lookback and transfer penalty rules.
    • Annuities may be penalized. If the annuity can be liquidated, then it is counted as an asset. If the annuity cannot be liquidated, then distributions from the annuity are considered income.  If the annuity was purchased during the look-back period, then a penalty will be imposed.
    • Calculating the penalty period. The divisor used to calculate the penalty is the Maximum Annual Pension Rate in effect as of the pension application date, at the rate of the aid and attendance level for a Veteran with one dependent. In 2018 this number is $2,169, and is applicable to all claimants, regardless of marital status. The penalty period will be recalculated if all or part of the gifted money is returned (also referred to as a partial or total cure).
  2. Net worth. There is now a bright-line rule regarding the net worth of a Veteran. This amount is currently set at $123,600.00, which is also the maximum Community Spouse Resource Allowance amount allowed by Medicaid. This number will increase annually with the increase in Social Security benefits.  If the Veteran or other claimant has net worth over the threshold and thus does not qualify for benefits, he or she can spend-down assets by purchasing goods or services for fair market value for any household relative.
    1. A homestead owned by the Veteran is not included in the net worth calculation. However, there is a two-acre limit imposed on the homestead.  If the claimant’s homestead is over two acres, then other rules apply and the value of the property in excess of two acres may be included in the net worth calculation.
    2. The value of “personal effects suitable to and consistent with a reasonable mode of life” is not included in the asset calculation. This would include personal transportation vehicles and most household goods.
    3. The annual income of the claimant and certain dependents is included in the calculation of net worth. However, reasonable and predictable unreimbursed medical expenses can be deducted from income.
  3. More medical expense deductions. The new rules provided an additional Activity of Daily Living (ADL) to include assistance with ambulating within the home. The rules also define Instrumental Activities of Daily Living (IADLs) and set out specific instances when expenses for care that include ADLs and IADLs may be deducted from income. The rules also specific when room and board at a care facility other than a nursing home may be deducted from income as a medical expense.

 

Please contact us if you have questions about these new rules, or if you would like to discuss whether you or a loved one could qualify for VA pension benefits.

 

 

 

Greg McIntyre
Elder Law Attorney

Traditional vs Roth IRA: Planning for Seniors

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Traditional vs Roth IRA: Planning for Seniors

      I received a lot of unsolicited advice throughout college and law school. Professors seem to love to lament the naïve mistakes of their past selves and to try and convince their students to take a better path in life. Some of the rants I sat through in class involved preparing for retirement. Between complaining about wage stagnation and the impending fall of the Social Security safety net, one theme that stood out was that we youngsters needed to invest in retirement account—early and often. This was, no doubt, good advice. However, in not one of those rants did anyone explain to me or my classmates what typeof retirement account we should consider.

The lack of specificity in my professors’ advice inspired me to learn the ins and outs of retirement accounts, so that I may provide some guidance to those who have hobbies that don’t involve reading the tax code.

This article is titled Traditional vs Roth IRA: Planning for Seniors, but it likewise applies to anyone who is gainfully employed. Everyone, if they’re lucky, will age and eventually reach the point where they are planning for the possibility of a health crisis or the need for long-term care. Thus, the following is to help you, the reader, understand your options in planning for lifebeyond the nine-to-five grind.

What is an IRA?

     Individual Retirement Plans or IRAs are quite aptly named. They are a vehicle used by an individual to save for retirement. IRAs are many times confused with 401(k) accounts. I won’t delve too far into it, but the principal difference between the two is that a 401(k) must be established by an employer. IRAs, on the other hand, may be established by an employer or by an individual. IRAs were created by Congress in the early 70’s as a response to public disdain for the current retirement savings options in the country. Over the years, they have been modified and expanded in scope by almost every administration. Nowadays, we have a dynamic set of options regarding IRAs, among them being the traditional and the Roth IRA.

The Roth IRA

            The Roth IRA is named after Senator William Roth who sponsored its creation in the Taxpayer Relief Act of 1997. At the time, the Traditional IRA had been repealed for about ten years and Senator Roth wanted to restore. Through legislative compromise, we the people received the Roth IRA. Some of the key attributes are as follows:

  • Roth IRAs have income limits andcontribution limits.
    • The contribution limit is currently $5500 ($6500 for age 50 or older).
    • The income limit is based on your modified adjusted gross income (MAGI). The income limit is two-part. The initial limit kicks in at a MAGI of $120,000 for a single individual and a $189,000 for a married couple. Once an individual’s MAGI reaches $130,000, or $199,000 for married couples, no amount may be contributed to a Roth IRA.
  • Roth IRAs hold non-qualified funds, meaning they are taxed at the front end. This means that the money you contribute is pre-taxed so that they money taken out for retirement will be available with no tax liability.
  • Roth IRAs allows the account holder to withdraw funds after five years anytime tax free and penalty free.

 

The Traditional IRA

            The traditional IRA was created as a solution to the lack of uniform retirement options in the United States. The IRA has evolved over the years and it has had its share of supporters and detractors in that time. The traditional IRA seems to be the tried and true retirement option. However, there are some downsides that may not be obvious at first glance. But first, here are the key attributes:

  • Traditional IRAs have no income limit
  • There is a contribution limit—the same as Roth IRA (currently $5500 or $6500 for age 50 or older).
  • Tax must be paid on any distributions from the traditional IRA
  • They contain already taxed money (qualified funds) and allow for an above the line tax deduction per IRC section 219. Note, there is an income limit for contribution deductions (see IRS Publication 590-A).
  • If you pull any money out of a traditional IRA before you turn 59 ½, you will face a penalty in addition to the income tax from the distribution.
  • You will be required to start taking distributions from the traditional IRA after age 75 ½. These are called minimum required distributions (RMDs).

 

Roth vs Traditional

      Traditional IRAs have potential benefits beyond the tax deduction for contributions. They are not taxed on the front end. Thus, you can put in a pretax gross amount up to $5500 per year and receive the same compounding interest as if you contributed an after-tax amount up to $5500. In other words, you can grow your money in a traditional IRA at the same rate as a Roth IRA but with less of a contribution (assuming your contributing up to the limit).

This point is especially poignant if you are not going to contribute up to the limit. If you are just putting in what you can, you may benefit from a traditional IRA, since it will allow you to put in a larger amount—and benefit from the compounding interest—than you would be able to if the money was pre-taxed. Thus, you may potentially be able to grow your retirement at a higher rate with a traditional IRA. But, that money is locked up and can’t be withdrawn without a possible penalty and a definite tax bill.

Roth IRAs are much more flexible. Money in the Roth can be pulled out in a short period of time with no significant penalty. Also, there are no RMDs associated with Roth IRAs. Thus, the money can be left in the interest-bearing account until it is ready to be pulled out.

Roth IRAs are also much more flexible than traditional IRAs in terms of planning for long term care. IRAs, in general, are counted as an asset for under the Medicaid rules. Consequently, the money in the IRA must be spent down to qualify for Medicaid benefits. If the money is in a traditional IRA, you would be required to pull that money out of the IRA, which would result in a significant tax burden. However, if the money is in a Roth IRA, that money can be taken out of the IRA and spent down or put in trust with no penalty or tax hit.

Which is Best for You?

            There are many “street lawyers” out there who love to give advice but determining the best route to take is a case by case basis. What may be good for your neighbor may not be good for you. The two biggest considerations are whether you are depending on the IRA as your main retirement plan and whether you anticipate needing long term care in the future.

         It is important to remember that you are not limited to one type of account.

You can have a traditional and a Roth IRA if you so wished. Also, if your employer provides a solid retirement plan with matching, it may be in your best interest to narrow your focus to the employer created account to help you grow your assets as much as possible.

If you have already chosen a plan and have been contributing for some time, you should speak to an attorney to determine how your IRA will affect the plan for your estate.

 

Brenton S. Begley, JD, LLM Taxation
Attorney with McIntyre Elder Law

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