Parents (and grandparents) of an adult disabled child often wonder what’s the best way to make provisions for that member of the family who will not be able to be self-sufficient. Parents generally try to consider the future non-financial needs of the child after the parents are gone. With whom or where will the child live? What housing options or assistance are available? What activities does the child enjoy? Next, there is a need to estimate the future financial needs of the child, taking into account projected government assistance.
When the parents of disabled children think about a financial and estate plan, they plan for their future, as well as the child’s. How will the parents’ estate be allocated to reach the goals they have for themselves and their child? They may consider leaving a larger share for the disabled child who has greater need than the other children. However, this is generally not a good option if government benefits may be needed, since most government assistance requires the recipient to have very low income, very low assets, or both. An outright bequest to the child or a trust which gives the child too much ownership over the money will disqualify the child from government assistance until the child spends down the trust assets.
Parents with disabled children understand the need to protect their own savings from risks during their lives. Nursing home costs pose a threat to every estate. Luckily, the Medicaid rules offer important special protections for parents of disabled children by allowing gifts to be made to supplemental needs trusts for the benefit of adult children with disabilities. These gifts do not create a disqualification or penalty period for the parents if they will need nursing home care for themselves in the future.
As part of their overall estate planning, parents of special needs children can have a portion (or all) of their estate stay in a trust for the benefit of their disabled child after they die. This can have several benefits. First, if done as part of a revocable living trust, the assets bypass probate.
Second, the assets will be managed by someone the parents choose, not by the guardian the court chooses, or by the child. Third, the parents can control what happens to the money when the child dies. Fourth, the parents can include guidance or legally binding directives about how the money is to be used for the child.
Finally, and sometimes of most importance, the trust can be drafted so as to not disqualify the child from government assistance. This is called a supplemental or special needs trust.
Even small amounts in a special needs trust can make a huge difference in the quality of life of a disabled child. For example, while the child’s basic needs could be met with government assistance, the trust could be used to provide “extras” like a television, a trip to visit relatives in California, (or tickets for relatives to visit the child), a special van, or computer with voice-recognition technology.
True to their "live to work" reputation, some baby boomers are resisting retiring. While the average age at which U.S. retirees say they retired has risen steadily from 57 to 61 in the past two decades, boomers — the youngest of whom will turn 50 this year — will likely extend it even further.
Concerns about money likely play a significant role in explaining why so many baby boomers see themselves working longer. Even before the 2008-2009 recession, financial advisers were warning that some baby boomers were carrying too much debt, saving too little, and relying too heavily on Social Security to retire comfortably. And then came the economic collapse — a perfect storm of layoffs, pension and stock losses, and plummeting home values — which was particularly ill-timed for boomers who might otherwise have been in financial shape to retire on schedule with the start of their Social Security benefits.
Gallup finds that baby boomers who strongly agree that they currently "have enough money to do everything [they] want to do" expect to retire at age 66. Boomers who strongly disagree with this statement predict they will retire significantly later, at age 73.
Aside from financial considerations, boomers' notoriously hard-charging work ethic and drive to get ahead may make it difficult for them to envision downshifting into the slower pace of retired life. But being wired for work doesn't necessarily guarantee that all baby boomers are engaged employees who are involved in, enthusiastic about, and committed to their jobs. About one in three (31%) employed boomers are engaged at work, compared with 38% of traditionalists (those born before 1946), 30% of Generation X workers, and 28% of millennials. However, baby boomers who expect to retire after age 65 are slightly more engaged (34%) in their jobs than boomers overall.
Calculating your gains sounds deceptively simple: Figure out the price at which you sold your stock or mutual fund (including commissions) and then subtract your cost basis of the stocks. But if you haven’t been keeping good records of all of your transactions, then here’s some good tips on how to catch up at tax time.
Begin by getting a record of past transactions from your broker. Frequently this will include your cost basis right there — but if not, it will at the very least give you the date of your transactions.
Next, always double-check your broker's statement to ensure accuracy or to fill in missing info if you only have the date but no price to go on. This is a simple task thanks to the Internet; just visit finance.yahoo.com and enter the ticker of your stock and click on "historical prices" to search. Yahoo Finance provides an automatically adjusted price for dividends and stock splits in its data, saving you a step if any of these events apply to the holdings you sold last year.
So what happens if your investments don't have a clear buy date, either because you performed multiple purchases or because the shares were a gift or inheritance? Well, special cost basis rules then apply:
• Multiple purchase prices for a single stock or fund. If you invested piecemeal over the years, the default method used by the IRS is called "first in, first out." Like the phrase implies, the first shares you bought and the accompanying price get reported first. If that lot isn't big enough to fulfill the entire sale, move to the next oldest transaction and average them together. In other words, no cherry-picking the when and what you paid to suit your interests in 2012. That's a big no-no with the IRS.
• Inheritance investments. If rich Uncle Vinny left you 100 shares of McDonald's, you aren't just lucky because of the generous gift. You're lucky because your tax basis is determined based on the date of death — so no detective work is necessary. Simply take the average of the high and low on that day (or the previous trading session if it's a weekend). Also a plus: You default to long-term capital gains status, so even if you sold the investments immediately you fall into the lowest tax bracket.
• A gift of stock. If someone bought you stock in 2012, you logically have to peg your price to the date of that transaction. But if for some reason they gifted you existing shares long held in their portfolio, you are beholden to their original cost basis unless shares are lower on the date of the gift. This can involve some homework, then, to find out which is better for you. Or worse, this can involve a lot of sleuthing if the generous person in question hasn't kept good records.
You can find other helpful hints at IRS.gov in Publication 550 focuses on investment income and has tips on how to calculate cost basis.
These days, millions of Baby Boomers are caring for an aging parent, whether helping with grocery shopping and paying bills or being day-to-day primary caregivers.
They are providing companionship and emotional support as well as personal care, such as bathing and dressing. They are hiring and supervising direct care workers and communicating with health professionals. All of this while they may be working a full-time job and managing their own families. They are stressed and have a difficult time juggling all of these responsibilities. Their own lives are now on the back burner. They don’t remember the last time they spent time with their own friends. They put their own health on hold until they have their own health scare.
It is a difficult situation and is only getting worse.
Family caregivers have always been the most important source of ensuring that loved ones receive the care they need as they age. While most family caregivers do it willingly and find it to be deeply satisfying, the trend is that the supply of family caregivers is unlikely to keep pace with future demand.
A recent AARP study shows that in 2010, the ratio of potential caregivers for every person in the high-risk years of 80-plus was 7 to 1. By 2030, that ratio is projected to drop significantly to 4 to 1 and down to 3 to 1 by 2050. The reasons for this are many: smaller families, longer life spans and rising rates of disability. Moreover, families are spread apart due to job responsibilities. Therefore, relying on friends and family members to take care of you may be unrealistic in the future. This contradicts a study published in the New York Times that 68 percent of Americans 40 and older are counting on family members to provide long-term care when its needed.
To complicate issues further, Baby Boomers are more likely to have a disability late in life than previous generations, according to the Population Reference Bureau. Boomers also are more likely to be obese, have high blood pressure or have diabetes than previous generations, says a study published in JAMA Internal Medicine.
Managing such conditions are daily necessities. Family members can make sure medical and dietary needs are met — but only if they are there on a daily basis. Caregiving is a huge financial responsibility. If projections are correct, increasingly baby boomers will need to look outside the family for help.
One of the most misunderstood planning tools for protecting assets from the enormous cost of long term illnesses such as Parkinson's disease and Alzheimer's is the use of Medicaid annuities. As a Massachusetts elder law attorney, I am often asked to explain how and when annuities can help a family protect assets for the spouse who is counting on her life's savings to provide the basics for her lifetime.
Annuities can be an important planning tool for people who are facing the immediate prospect of paying hundreds of thousands of dollars for nursing home care. But not all annuities qualify as Medicaid annuities. The Medicaid regulations have very specific requirements that must be met in order for an annuity to be effective to protect assets.
This is one of the most common area of confusion. Federal law (The Deficit Reduction Act of 2005) authorizes the use of specialized annuities to gain immediate eligibility for Medicaid provided the annuity complies with the provisions of the law.
In effect, people with too many resources to qualify for Medicaid can convert those excess resources to income through the purchase of the right annuity investment and qualify for assistance.
At the same time that the DRA gave favored treatment to annuities, that law placed tough restrictions on asset transfers and other planning options.
There are many types of annuities. The type of annuity that is useful in asset protection planning is a form of “immediate annuity” An immediate annuity is purchased from an insurance company. In return for the payment of a lump sum of money, the company agrees to provide payments over a chosen period of time.
Through the purchase of an annuity that conforms to the requirements of the DRA, (a “DRA compliant annuity”) individuals and couples who would otherwise have too many resources can qualify for Medicaid benefits. This is currently an approved method to reduce excess resources without incurring any disqualifying penalties.
The purchase of an immediate annuity can be a particularly valuable investment for the spouse of an individual who needs long-term care. In determining eligibility for Medicaid benefits, a married couple’s countable resources are pooled and excess resources are at risk. But the spouse still at home can keep all of her income and this does not affect the Medicaid eligibility of her husband who is in a nursing home.
An immediate annuity converts a cash sum into a guaranteed stream of payments. Such payments are treated as income under Medicaid law. The payments made to the spouse at home may be more than she needs for living expenses and can be added to a savings account or investment account, without affecting her husband's eligibility for Medicaid benefits.
Timing is a critical factor in using Medicaid annuities. This planning option is a "crisis" planning technique and usually implemented at the point of time that a spouse will be entering a nursing home.
However Medicaid planning depends very much on particular facts and this is an area of law that is frequently changing. As a result, planning ahead and learning your options by meeting with a qualified elder law attorney is crucial.