Adult Children and Elderly Parents: Caring for Each Other
December 24, 2010
The idea of adult children caring for aging parents or grandparents is not a new one. In fact, with the aging Baby-Boomer population, adult children giving up free time or extra hours at work to care for relatives is a growing trend. But recently families have begun creating “caregiver compensation agreements,” something which can end up benefiting both parties in a number of ways.
According to a recent article in the Wall Street Journal, “the high unemployment rate, the rising cost of nursing-home care, an aging population, and a 2006 change in Medicaid law that makes it harder for people who wish to qualify to give away assets” are all contributing factors to the growing trend of these compensation agreements among family members. Note: Medicaid is called “Medi-Cal” in California.
How can it help you?
If you’re a caregiver the benefits of a caregiver compensation agreement are fairly self explanatory. “Some 37% of caregivers surveyed by the NAC in 2007 said they had quit a job or reduced their hours to accommodate their responsibilities,” some kind of compensation seems only fair. And if you feel uncomfortable taking “wages” from your parents, there are other ways to arrange for compensation. “Attorneys say many families pay an hourly wage. As an estate-planning tactic, others opt for annual gifts or a lump-sum payment designed to cover services over an extended period. Some arrange for the caregiver to receive a larger inheritance.” It will all depend on what works best for your family.
If you’re the one receiving the care, compensation agreements can benefit you as well. Paying a family caregiver can help you deplete your savings and qualify for Medi-Cal, which might then help if you later need a nursing home subsidy. Doing so can also help you reduce your taxable estate, as well as give a gift of sorts to younger family members who may be in need. Remember the Medi-Cal rules are tricky, so best to enlist the help of an Elder Law attorney before creating any care contracts.
However you may decide to structure your compensation agreement, disclosure can be of the utmost importance. Make other family members aware of the agreement up front to avoid suspicion or hurt feelings later on.
What to Expect from Estate Taxes in 2011
December 22, 2010
It has been a long and uncertain year for anybody interested in the future of the estate tax, filled with a few ups, a few downs, and a lot of speculation. But after the recent passage of the new bipartisan tax bill all of the confusion and speculation is finally at an end, and it’s very close to what we anticipated early last week. The bill is good news for most taxpayers; the Wall Street Journal says there are “many winners, a few losers,” and according to the New York Times “Almost no one will have to worry about paying the estate tax under the tax legislation just approved by Congress.”
Here is a brief overview of what you can expect in 2011:
New Estate Tax Exemptions and Rates: The new bill sets the estate tax exemption at $5 million per individual ($10 million per married couple), with amounts over the exemption taxed at a 35% rate. This is opposed to the $3.5 million exemption and 45% rate some lawmakers were hoping for.
Tax Election Option for 2010 Estates: As mentioned in a previous post, this is one of the biggest parts of the new bill. There may have been no estate tax in 2010, but there was also no “step up in basis,” meaning that heirs selling inherited assets were taxed based on the original acquisition cost of the assets, not on their value as of the date of the taxpayer’s death, as is usually the case. This led to a higher tax paid on the assets if and when they were sold, in spite of the lack of estate tax. Tax election gives 2010 estates the choice of whether to use 2010 or 2011 tax rules—a happy option for 2010 heirs.
Estate, Gift, and Generation-Skipping Taxes: In recent years these three levies have had varying exemption levels, making gift giving and succession planning a challenging exercise at best. The unification of all three makes tax planning and giving gifts to grandchildren much easier than it used to be.
Individual Income and Payroll Taxes: The new bill wasn’t just about estate taxes; it also extends the Bush-era income tax rates; this is good news as it prevents a rise for nearly all taxpayers.
How Long Will It Last? We’re all glad that the waiting is over and we finally know what to expect, but the new law is only effective through 2012, at which point the provisions will “sunset.” So we have a two year reprieve, but the estate tax issue is far from over and we will have to revisit the issue again toward the end of 2012.
With the threat of high estate taxes out of the way does any reason remain to create (or update) your estate plan? Absolutely!
Estate planning is about more than just planning for taxes, it’s about taking control of your assets and choosing how your estate will be distributed. Divorce, second marriages, planning for college, charitable gifts—these are just a few of the reasons why estate planning is essential regardless of the state of the estate tax.
At the very least, the recent fluctuation of the law means that you’ll want to have your existing plan professionally reviewed and updated to ensure you don’t have any outdated clauses that could negatively affect your heirs.
Estate Tax Update: “Clarity” is Here
December 20, 2010
It looks as if the long and weary road to estate tax clarity ended on 12/17/2010 when President Obama signed the compromise tax package negotiated with Republican leaders.
Here are some quick highlights:
Tax Election for 2010 Estates: This is one of the biggest parts of the deal. The bill gives 2010 estates the choice of whether to use 2010 or 2011 tax rules. This is good news because it gives the estates of persons who died in 2010 a choice whether to be reated under the “old law” (with less favorable capital gains features but an unlimited estate tax exemption) or under “new law” (with more favorable capital gains features and a generous $5 Million/person estate tax exemption).
Unification of the Estate, Gift, and Generation-Skipping Taxes: In recent years the gift tax and estate tax exemptions have been different, complicating succession planning for family businesses and other matters. With the new deal, however, there will be a simple $5 million per-individual exemption for both gift tax and estate tax. The unused gift tax exemption could later be used upon death.
And of course we can’t have a conversation about estate taxes without discussing Effective Date and Duration: The effective date of the new provisions is set to be January 1, 2011. However, the new law only has a two (2) year term and then sunsets as of 12/31/2012. What this means is that the new tax package may be only a temporary reprieve, and we could be going through all of this again in 2012-2013.
Stay tuned. We will be writing more on this topic very soon.
Talking to Siblings About Caring for Mom and Dad
December 13, 2010
Many modern families have members living all over the country—and all over the world. Which means that the holiday season provides one of the only times to all get together in person, celebrate, catch up… and talk about caregiving strategies for aging parents. Unfortunately, this kind of conversation can be a difficult one, especially if not all siblings agree about mom or dad’s needs, or if one sibling feels that he or she shoulders an unfair amount of responsibility. In spite of the difficulty, having the conversation can be of the utmost importance.
In this article in Time Magazine author Francine Russo describes the consequences that can follow when lines of communication break down. “It wasn’t until my mom’s funeral, watching my dad and sister cling to each other and weep, that I got a hint of their long ordeal — and how badly I’d screwed up.”
Russo makes the point in her article that much of the tension and disagreement among siblings can come from inaccurate or conflicting information. “Friction often stems from parents giving their children different information about how they’re doing. Mom may put on a good show for the out-of-towner, who then discounts what the local sibling says.” This is all the more reason for siblings to communicate with each other, not just through mom or dad.
If you aren’t sure how to get the conversation started, Paula Spencer, senior editor for Caring.com wrote this article for Third Age which gives some helpful strategies on how to ease into the difficult topic of caring for aging parents this holiday season.
Make This Year Memorable: A 2010 Gift-Giving Guide
December 8, 2010
Fruit baskets, kitchen gadgets, and Kindles aren’t the only gifts you can give loved ones this year (although you’ll see below that video game systems still make the cut.) Instead, why not give something unique that will leave a lasting impression and help protect your loved one? Here are a few non-traditional ideas for friends and family of every age.
Young Adults: What do you get the kid who already has all the video games he could want? How about a meeting with a financial planner? It may not sound exciting, but young adults are leaving home with less financial experience than ever, making it difficult for them to know how to budget for their own household, plan to eventually buy a house, or even stick to a strategy to pay off credit debt or student loans.
Parents of Young Children: A nomination of guardians drafted by a qualified estate planning attorney is an excellent gift for young parents. So also are advanced healthcare directives and a last will and testament. All of these will help protect the young family as well as provide peace of mind.
Baby-Boomer Friends and Family: The big concern among Baby-Boomers right now may be planning for their own long-term care. After seeing their own elderly parents deal with the dramatic cost of long term care, Boomers may now be turning a concerned eye to their own futures. What about arranging a consultation with an Elder Law attorney to help them review and update their own estate planning?
Elderly Parents and Grandparents: Forget your teenage nephew; your elderly grandparent is the person who could benefit from having a video game. According to this story in the New York Times game systems such as the Xbox Kinect and Nintendo Wii Fit help get the elderly up and moving and can significantly improve their balance.
This year, forget about the impersonal gift cards or scented candles; instead give a gift that will leave a legacy.
Estate Planning Through the Ages
December 5, 2010
Can you remember what you were doing in your early 20s? Can you imagine what kind of life you’ll be living in your 70s or 80s? We experience incredible changes as the decades roll by—not just to ourselves, but in the world at large. With our lives changing so much, our estate planning documents and strategies should hardly remain static. Here is a guide to how your estate plan may or may not evolve through the decades.
In Your 20s: You’re young, just finishing school and starting in your career, unlikely to be married yet… the last thing you’re thinking about is estate planning! At this time of life, who gets your “stuff” may not be as important as who will make your decisions. Choosing your financial and healthcare agents and creating your power of attorney and healthcare directive are the important things to do at this time.
In Your 30s: Marriage, children, home ownership—most of these things happen in your 30s, and your estate plan should reflect that. Now is the time to choose guardians for your young children, decide with your spouse how your joint property will be distributed, and get serious about life insurance.
In Your 40s: This is when your strategy may switch from simple direction of inheritance to more serious asset protection. You’ve worked hard and saved, and you’ll want to think about the best way to maximize your assets with trusts and tax planning. Consider investing in long-term care insurance.
In Your 50s: As your children start to become independent you may have more freedom with your income. Some people choose to create charitable trusts, some prefer to invest for retirement, and still others decide it’s time to take a risk and start over with a second career. Your estate planner can advise and help with all of these.
In Your 60s: Ah retirement! Making the big change from work to retirement means making changes to your estate plan as well. If you’ve been keeping up with your planning through the decades all that is required now will be some basic maintenance; changes to account for marriages of your children, the birth of grandchildren, and your own relocation to someplace warm and sunny. But beyond the basic maintenance, you may want to start doing some basic planning for long-term care —just in case.
In your 70s and Beyond: Health is the key word now. Our life-spans are getting longer, but so are our illnesses. You need to be ready. Tighten up your estate plan, and although it may sound morbid, talk to your doctors and family about your end-of-life decisions. Consult with an Elder Law Attorney about options for funding long term care expenses, and seek assistance in revising your estate plan to coordinate with those options. You may be surprised to learn that you may be able to qualify for a government subsidy under the Medi-Cal program while still preserving your assets for your loved ones, providing that appropriate authorizations are in place.
The life alterations that come over a span of decades are difficult enough; you don’t want to have to find a new lawyer every time your circumstances change. Our firm makes it our business to keep up with you at every stage.
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