HUD makes reverse mortgages less attractive

The Department of Housing and Urban Development (HUD) has made changes to the federal reverse mortgage program. Citing the need to put the program on better financial footing, HUD has raised reverse mortgage fees for some borrowers and lowered the amount homeowners can borrow. The changes took effect on October 2, 2017. They affect borrowers who take out new loans, but not existing loans.

A reverse mortgage allows a homeowner who is at least 62 years old to use the equity in his or her home to obtain a loan that does not have to be repaid until the homeowner moves, sells, or dies. In a reverse mortgage, the homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the age of the borrower, and current interest rates. Seniors sometimes use the loans to pay for long-term care.

HUD has changed the mortgage insurance premium fees that homeowners pay in order to obtain a loan. Formerly, homeowners paid 0.5 percent of the value of their home as an upfront mortgage insurance premium on smaller loans, but homeowners who took out a loan that was more than 60 percent of their home’s value paid a 2.5 percent premium. The new rule requires homeowners to pay a standard 2 percent upfront mortgage insurance premium. To offset the upfront costs, the annual mortgage insurance premium rate has been dropped from 1.25 percent to 0.5 percent.

In addition, HUD lowered the amount that homeowners can borrow. The average that a borrower at current interest rates can now borrow is only around 58 percent of the value of his or her home, down from 64 percent.

One of our seasoned attorneys can assist you. Click here to let us know how we can help you!

Should you enroll in two popular Medigap plans while you can?

If you will soon turn 65 and be applying for Medicare, you should carefully consider which “Medigap” policy to enroll in because two of the most popular plans will be ending soon.

Between copayments, deductibles, and coverage exclusions, Medicare does not cover all medical expenses. Medigap (or “supplemental”) plans offered by private insurers are designed to supplement and fill in the “gaps” in Medicare coverage. There are 10 Medigap plans currently being sold, identified by letters. Each plan package offers a different combination of benefits.

Plans F and C are popular Medigap plans in part because they both offer coverage of the Medicare Part B deductible. According to the Kaiser Family Foundation, 53 percent of Medigap enrollees have either plan F or plan C.

But as a result of legislation passed by Congress in 2015, starting in 2020 Medigap insurers will no longer be allowed to offer plans that cover the Medicare Part B deductible — in other words, Plans F and C. The reasoning is that both plans encourage people not to think about the cost of going to the doctor.  However, people currently enrolled in Plans F and C, as well as those who buy policies before 2020, may keep their coverage for the rest of their lives.

Although this appears to offer an incentive to “lock in” these two comprehensive plans while you still can, new Medicare beneficiaries should think carefully before enrolling in Plans F or C.  While the plans are comprehensive, without new enrollees after 2020 experts warn that premiums may go up as the enrollees in Plans F and C age and get sicker. An alternative is Plan G, another comprehensive plan that does not cover the Part B deductible.  But some experts believe that premiums will rise for this plan too, as more beneficiaries in poor health enroll in it.

The choice of Medigap plan is important because once you choose one, it is difficult to switch. Medigap plans cannot consider pre-existing conditions when you enroll during the open enrollment period, which is a six-month period that begins on the first day of the month in which you are 65 or older and enrolled in Medicare Part B. But if you don’t enroll during the open enrollment period, there is no guarantee that the insurance company won’t charge you more for a pre-existing condition.

For questions, contact our seasoned attorneys today.

What happens when a nursing home closes?

The expansion of alternatives to nursing homes, such as assisted living and community care, has been financially challenging for the nursing home industry, and every year a small percentage of facilities close their doors. The state or federal government may also shutter a facility for safety issues.

Moving into a nursing home can be a stressful experience by itself. If that nursing home closes, residents can experience symptoms that include depression, agitation, and withdrawn behavior, according to The Consumer Voice, a long-term care consumer advocacy group. While there may not be much that can be done to prevent a closure, residents do have some rights.

When a nursing home is closing, it must provide notice to the state and any residents at least 60 days before the closure.

The notice must include the following:

  • The date of the closure and the reason for closing.
  • Information on the plan to relocate residents, including assurances that the nursing home will transfer residents to the most appropriate facility in terms of quality, services, and location, taking into consideration the needs, choice, and best interests of each resident.
  • Information about the residents’ appeal rights.
  • The name and address of the state’s long-term care ombudsman.

In addition, the nursing home must provide information to the receiving facility, including:

  • Contact information for the doctor responsible for each resident.
  • Information on each resident’s representative.
  • Information about any advance directives.
  • Any special instructions or precautions for ongoing care and any care plan goals.

Once a nursing home announces it is closing, it cannot admit any new patients. The facility must also provide orientation to residents to ensure a safe and orderly transfer.

For more information from The Consumer Voice on what is required when a nursing home closes, see: http://theconsumervoice.org/uploads/files/issues/1_-_Nursing_Home_Closure_Issue_Brief_5-15-2017.pdf and please feel free to contact us at your earliest convenience.

How to reverse Medicare surcharges when your income changes

Are you a high-income Medicare beneficiary who is paying a surcharge on your premiums but who has experienced a drop in income or is anticipating one? If your circumstances change, you can reverse those surcharges.

Higher-income Medicare beneficiaries (individuals who earn more than $85,000) pay higher Part B and prescription drug benefit premiums than do Medicare beneficiaries with lower incomes. The extra amount the beneficiary owes increases in stages as the beneficiary’s income increases. The Social Security Administration uses income reported two years ago to determine a beneficiary’s premiums. So the income reported on a beneficiary’s 2016 tax return is used to determine whether the beneficiary must pay a higher monthly premium in 2018.

But a lot can happen in two years. If your income decreases significantly due to certain circumstances, you can request that the Social Security Administration recalculate your benefits. For example, if you earned $90,000 in 2016 but your income dropped to $50,000 in 2017, you can request an income review and your premium surcharges for 2018 could be eliminated. Income is calculated by taking a beneficiary’s adjusted gross income and adding back in some normally excluded income, such as tax-exempt interest, U.S. savings bond interest used to pay tuition, and certain income from foreign sources.

You can request a review of your income if any of the following circumstances occurred:

  • You married, divorced, or became widowed.
  • You or your spouse stopped working or reduced your work hours.
  • You or your spouse lost income-producing property because of a disaster or other event beyond your control.
  • You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan.
  • You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.

If your income changed due to any of the above reasons, you can submit documentation verifying the change in income — including tax documents, a letter from your employer, or a death certificate — to the Social Security Administration. If the change is approved, it will be retroactive to January of the year you made the request.  Here is a link to the SSA’s Life-Changing Event form: https://www.ssa.gov/forms/ssa-44.pdf For questions, contact our seasoned attorneys today.

 

Three reasons why giving your house to your kids isn’t the best way to protect it from Medicaid

Are you afraid of losing your home if you have to enter a nursing home and apply for Medicaid? While this fear is well-founded, transferring the home to your children is usually not the best way to protect it.

Although a home generally does not have to be sold in order to qualify for Medicaid coverage of nursing home care, the state could file a claim against the house after you die. If you get help from Medicaid to pay for the nursing home, the state must attempt to recoup from your estate whatever benefits it paid for your care. This is called “estate recovery.” If you want to protect your home from this recovery, you may be tempted to give it to your children. Here are three reasons not to:

  1. Medicaid ineligibility.Transferring your house to your children (or someone else) may make you ineligible for Medicaid for a period of time. The state Medicaid agency looks at any transfers made within five years of the Medicaid application. If you made a transfer for less than market value within that time period, the state will impose a penalty period during which you will not be eligible for benefits. Depending on the house’s value, the period of Medicaid ineligibility could stretch on for years and not end until the Medicaid applicant is almost completely out of money.

There are circumstances under which you can transfer a home without penalty, however, so consult with your attorney before making any transfers. You may freely transfer your home to the following individuals without incurring a transfer penalty:

  • Your spouse
  • A child who is under age 21 or who is blind or disabled
  • A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
  • A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
  • A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
  1. Loss of control.Transferring your house to your children means that you will no longer own the house, which means you will not have control of it. Your children can do what they want with it. In addition, if your children are sued or get divorced, the house will be at risk.
  2. Adverse tax consequences.Inherited property receives a “step up” in basis when you die, which means the basis is the current value of the property. However, when you give property to a child, the tax basis  is the same price that you purchased the property for. If your child sells the house after you die, he or she would have to pay capital gains taxes on the difference between the tax basis and the selling price. The only way to avoid some or all of the tax is for the child to live in the house for at least two years before selling it. In that case, the child can exclude up to $250,000 ($500,000 for a couple) of capital gains from taxes.

There are other ways to protect a house from Medicaid estate recovery, including putting the home in a trust. To find out the best option in your circumstances, consult with your attorney.

Tax reform may impact charitable giving

As the tax reform measures were unveiled, members of the charitable community expressed alarm that the new rules could create a disincentive to donate.With the larger standard income tax deduction ($12,000 for an individual filer and $24,000 for a married couple), fewer people will realize the benefits of itemizing. Some charities fear that, absent the tax write-off, fewer people will give. Yet others argue a household’s higher net income will be a boon to non-profits.How the tax reform changes will actually impact giving remains to be seen. Here’s a summary of some ways the law might impact annual giving, as well as long-term planned gifts:

Higher AGI limits: The new law retains the income tax charitable deduction, but the limits are higher. In any given year, you may deduct charitable contributions worth up to 60% of your adjusted gross income (up from 50 percent). However, AGI limits on certain gifts of appreciated property remain at 30 percent. You will still be able to carry forward contributions that exceed your AGI limits for up to five years.

Athletic seating: The law repeals the 80 percent charitable deduction for gifts made in exchange for athletic event seating.

Itemizing threshold: Some would-be donors may use charitable giving to boost them over the new itemizing threshold. That could be particularly relevant for donors with larger mortgages (and therefore higher mortgage interest deductions) or in high-tax states. The $10,000 cap on state and local mortgages, combined with $10,000 of mortgage interest, for example, could spur some households to make a $4,000 charitable gift to put them over the new standard deduction.

Unlimited estate tax deduction: The unlimited estate tax deduction for charitable gifts remains. In a sense, that makes paying the federal estate tax voluntary, as you may elect to allocate anything above your estate exemption limits to charity. Higher exemption limits under the new law (roughly $11.2 million per individual or $22.4 million for a married couple) may encourage more families to give away the excess to causes they care about rather than letting funds go to government coffers.

New tax on certain college endowments: The tax law imposes a new 1.4 percent excise tax on the investment income of private colleges with at least 500 students and assets valued at $500,000 or more per student. Endowment funds may be excluded if they are used to carry out a college’s tax-exempt purpose, but the bill does not define which funds are subject to that exclusion. Some donors may reevaluate gifts until the interpretation becomes clear.

New excise tax on highly compensated nonprofit employees. The tax reform bill now levies a 21 percent excise tax on nonprofit employers for salaries over $1 million. Analysis by the Wall Street Journal suggests that 2,700 nonprofit employees were paid more than $1 million in 2014, mainly at hospitals and universities (think presidents, football coaches and endowment managers). Again, this may cause donors to reconsider their gifts.

There are more tax-advantaged ways to give to charity beyond those listed above. Given the tax benefits, consider whether it would make sense to increase the amount you give or to make gifts sooner than anticipated. Don’t learn these lessons the hard way, contact one of our seasoned attorneys to discuss your estate planning needs.

Evaluating generation-skipping tax transfers

Your current financial plan may include wealth transfers to grandchildren, great-grandchildren or other descendants, and these gifts may be subject to a generation-skipping tax (GST). The GST was created to prevent families from essentially “skipping” a generation’s worth of estate taxes as wealth is passed down.

In 2017, the GST exemption (the amount that can be transferred to grandchildren without incurring a federal GST tax) was $5.45 million adjusted for inflation. Now, under the new tax reform law, the GST exemption is doubled to roughly $11.2 million. In 2026, however, the exemptions revert back to pre-2018 levels.

Doubling the exemption presents an opportunity for families to increase wealth transfer plans without incurring taxes. Individuals may want to take advantage of the increased GST exemption to create GST-exempt trusts. Meanwhile, those with existing trusts subject to the GST tax may want to consider early distributions to take advantage of the higher exemption.

Check for unintended consequences

The higher exemption may create complications for individuals with plans funded according to the exemption limits effective on the date of their death. Those plans should be reviewed quickly, as the changes could have a significant, and unintended, impact.

Assume, for example, your plan is written to max out your GST exemption. Under the old law, your grandchildren would have gotten about $5.6 million. Under the new law, they’d get roughly $11.2 million — possibly leaving your surviving spouse without sufficient resources.

Other considerations:

  • If your children have a sizable estate, it might make sense to put some or all of your estate into a GST trust to be given to the grandchildren. That avoids increasing your children’s taxable estate.
  • Some wills and trusts contain a clause that states that amounts exceeding the available GST exemptions are to be allocated to charity. Given the changes in the law, you may need to reevaluate your giving plans accordingly.

Don’t learn these lessons the hard way, contact one of our seasoned attorneys to discuss your estate planning needs.

‘Clawback’ concerns linger under new tax law

The new tax reform package increases an individual’s lifetime exemption from roughly $5.5 million to $11.2 million, with an expiration date of December 31, 2025. For individuals who don’t expect to die in the next eight years, your gift strategy could include protecting assets from future estate taxes while still maintaining adequate resources for your lifetime. You may, for example, choose to max out your lifetime exemption now, while you are still alive, to minimize the tax burden on your heirs when you die. Let’s assume you are a high-net worth individual with no surviving spouse. If you give your kids $11.2 million now, they receive those funds completely tax free. If you give them $5.5 million now, and they receive another $5.7 million when you die in 2026, your heirs would have to pay a 40% estate tax on that $5.7 million.

However, making a gift of the $11.2 million now does create a “clawback” concern if you die in 2026, when the gift tax exemption is lower. It’s unclear if the IRS will apply the gift tax exemption amount applicable at the time of the gift or at the time of your death. Congress attempted to address this issue, but analysts disagree over how the relevant language should be interpreted. Some advisers feel confident that the new law directs the Treasury to issue regulations clarifying that gifts made prior to 2026 will not be clawed back and rendered taxable. Others suggest that the language is ambiguous enough to leave room for interpretation. What’s more, high-net worth individuals should be aware that the new lifetime exemption limit could change if political power shifts. If President Donald Trump loses the 2020 election and the Democrats gain control of Congress, the law could be changed and limits lowered before the 2025 expiration date.

It’s important to discuss the implications of this uncertainty for your estate plan and contact your estate
planning lawyer.

Estate planning still essential, despite increased exemptions

The Tax Cuts and Jobs Act (TCJA) reduces individual and corporate tax rates, eliminates a bevy of deductions and makes a host of changes to how Americans can preserve their wealth. Although the act falls short of repealing the death tax, it doubles the amount an individual may transfer tax free, either in his or her lifetime or at death.

Effective January 1, 2018 (and expiring December 31, 2025), the combined gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption amounts double from an inflation-adjusted $5 million to $10 million.

Taking into account inflationary adjustments, the actual amount for these exemptions is expected to be $11.2 million for an individual or $22.4 million for a married couple in 2018. Both exemptions will continue to increase with inflation. Both will also revert back to their current levels at the start of 2026. (Congress could also lower the exemptions before then.)

 

The increases present several opportunities for high-net worth individuals to consider:

  • The higher exemptions may shield many families from estate taxes entirely, allowing them to simplify their planning strategies.
  • Individuals who have already made gifts using the full lifetime exemption now have an opportunity to make additional gifts.
  • Individuals may want to take advantage of the increased GST exemption to create GST-exempt trusts. Those with existing trusts subject to the GST tax may want to consider early distributions.
  • It makes sense to review old life insurance trusts intended to pay an estate tax, and determine if the plan still makes sense or if it should be modified for other asset protection.
  • If you don’t want to adjust your gifts now, consider updating your durable powers of attorney to include a gift provision. If you became incapacitated, that would allow your agent to leverage the new exemptions.

Other elements of the changes 

Here are some other important planning-related factors:

Dated formulas: Estate plans should be reviewed immediately if trusts are funded using a formula linked to the estate tax or GST exemptions. For someone who dies before 2026, these trusts may be funded more than intended, to the detriment of the surviving spouse.

Conflicts with state law: There’s a growing difference between the federal tax exemptions and similar exemptions afforded under the laws of 15 states and the District of Columbia. It’s unknown how states will respond to the tax changes, so existing estate planning strategies may still be relevant.

Special situations: Don’t get complacent and ignore estate planning because of the higher exemptions. Estate planning isn’t just about taxes. You want a plan that’s flexible enough to protect surviving spouses, minor children and special needs beneficiaries. Other planning nuances may include profligate beneficiaries, asset protection from beneficiaries’ creditors or ex-spouses, family business succession, and more. Contact one of our seasoned attorneys for guidance

Thinking About a Pre-Need Funeral Plan? Here’s What You Need to Know

While it’s not a subject most of us want to think about, the question of to take care of our end-of-life expenses  often sits in the background and nags at us. Yet realizing that our loved ones could get stuck with huge bills after we’re gone, pre-need funeral plans are growing in popularity—especially as the “baby-boomer” generation ages. Pre-need plans become a way for people to cover their funeral expenses (and even plan services), so their families won’t be burdened with these costs. If you’re wondering whether a pre-need funeral plan is right for you, let’s look at a few important details you should consider.

What Is a Pre-Need Funeral Plan?

Specifically, a pre-need funeral plan is an arrangement you make with a specific funeral company to cover details relating to your death. As this article in the New York Times points out, pre-need does not mean prepaid-in-full.

Pre-need simply refers to making plans regarding end-of-life decisions. While it can include prepaying for items—such as your coffin, dressing/embalming, chapel fees, headstone, cemetery plot, etc.—more typically, it involves making payments into an interest-bearing third-party account (a trust, insurance policy or escrow account).

Therefore, prepaying may lock in these costs; however, prices are not automatically locked in. That only happens with a guaranteed plan. Some plans are non-guaranteed. With these plans, the money you paid will go toward costs of those services at the time of death, but your family will pay any remaining costs—those that exceed the amount you had in the pre-need account.

That said, both guaranteed and non-guaranteed plans should be interest-bearing accounts so, in the end, your family could get more out than you paid in.

What If Circumstances Change?

Pre-need funeral plans are made with a specific funeral home in mind—but what if the funeral home goes out of business? Or what if you move to another state? What happens to your money when circumstances change?

If your plan is a good one, it will have the flexibility to deal with these changes. Remember, the funeral home itself isn’t keeping your money—it’s going into a third-party account, so the money remains yours, regardless of what happens to the funeral home.

You’re Entering into a Contract

As with any agreement, always know exactly what it covers—what you are obligated to do, and everything that the other party has agreed to, as well. The whole idea is that your planning ahead, and understanding that plan, is absolutely essential. But once you’ve done so, you and your family may find a new peace of mind.

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