Kansas and Missouri Estate Planning

Are There Any Tax Deductions for Long-Term Care?

Long-term care costs and taxes are financial stressors in retirement.

You are getting older.

Your age says this is true, as confirmed by the increasing number of candles on your birthday cake.

Your body reminds you of this fact, too.

Long-term care costs are coming, if they are not already here.

Great.

One more expense to add to your bills and your tax responsibilities.

There may be some good news.

According to a recent Kiplinger article titled “Deduct Expenses for Long-Term Care on Your Tax Return,” you may be able to receive a tax deduction on some long-term care expenses.

What expenses might you deduct?

You could include medical expenses and eligible expenses for assisted living, in-home, or nursing home care.

To be eligible, certain requirements must be met.

What are these requirements?

A given expense must be medically necessary.

It can include personal care, preventative care, therapeutic treatment, rehabilitative treatment, and other services.

You may be able to include meals and lodging at a live-in facility, if the primary reason for being there is qualified medical care.

You must also be chronically ill and the care must be prescribed by your licensed health care practitioner.

What constitutes chronically ill?

You must require help in two daily living activities for at least 90 days.

Daily activities include tasks like bathing, toileting, transferring, dressing, or eating.

It may include cognitive impairment, if you require supervision for your safety and health.

You will need the condition to be certified in writing within the past twelve months.

What must you do to claim these deductions?

You will need to itemize you tax return.

To qualify, the expenses must exceed 10 percent of your adjusted gross income.

If your adult children are providing care, can they receive a tax deduction?

They can if they are able to claim you as a dependent.

Can you receive a deduction if you have long-term care insurance?

You can receive a limited deduction for certain long-term care insurance premiums.

You will follow the same itemization steps and have the same adjusted gross income requirements as with the qualified expenses.

There are limits regarding the types of insurance and the age of the insured as there is an age cap.

The insurance can only cover long-term care costs.

What does this mean?

Hybrid policies do not qualify.

You must have a traditional policy.

Although these deductions likely will not prove helpful until you reach your 70s, it is important to understand your options and to plan accordingly.

Make sure you consult with your CPA every step of the way.

Reference: Kiplinger (September 4, 2019) “Deduct Expenses for Long-Term Care on Your Tax Return”

How are Baby Boomers Preparing for Long-Term Caregiving?

Caregiving can be both rewarding and costly.

Are you a Baby Boomer?

Do you have aging parents?

As people age, long-term care becomes a reality.

In fact, most over age 70 will require long-term care at some point.

Many Baby Boomers want to provide this help for their aging loved ones.

According to a recent Think Advisor article titled “Long-Term Caregiving Realities Hit Home for Boomers,” serving as a caregiver may require you to make several sacrifices.

How so?

You may need to cut your spending, travel less frequently, move homes, work fewer hours, or even quit your job.

Many who help their parents also need to come to terms with their own future needs.

As a result, they tend to have the conversations about their wishes for care and how to pay for it.

The problem?

Providing care for a loved ones often involves caregivers dipping into their own retirement savings, let alone helping children who may still be in college.

Consequently, those who provide care have a better grasp on the options available to provide for long-term care, to include the insurance options.

As Baby Boomers age, they should understand and come to grips with the fact that their own children may not be viable option for caregiving.

Why?

Older Americans are projected to vastly outnumber younger Americans.

If you have more female family members, your chances of having a loved one help with care may be higher.

The reason?

Most caregivers are women.

As you help your parents and plan for your own future, you should be mindful of your estate planning.

Making these decisions and having these important conversations sooner rather than later benefits everyone involved.

Reference: Think Advisor (August 8, 2019) “Long-Term Caregiving Realities Hit Home for Boomers”

Aging Parents: How do I Have the "Money Talk"?

Talking finances with your parents can protect all of you.

Money.

We all need it to live in society.

Nevertheless, we do not always like talking about it.

Having these conversations with aging parents can be even more uncomfortable.

Kinda like the "birds and the bees" conversation when you where a teenager.

According to a recent Forbes article titled “What You Don’t Know About Your Parents’ Finances Could Ruin Yours,” it is important to have these conversations.

Why?

As your parents age, so do their bodies.

Their minds may not be as sharp.

They may need help with their finances.

They may need you.

Failing to discuss finances with them early on could create an unnecessary financial burden for them and for you.

Medicare does not cover long-term care costs for home help, assisted-living, or nursing home care.

This care can be expensive—exceeding $8,000 per month.

Only 5 percent of Americans ages 55 to 60 have long-term care insurance.

Only 11 percent of those 65 and older have long-term care insurance.

Without insurance, you may become the only option for paying for or providing care.

This will cost you in money as well as in income from lost time at work.

It is important for you to have this discussion so you can either help them prepare financially or help create a plan with your siblings to ensure everyone is prepared for potential financial burdens.

While you are discussing finances, talk with your parents about their estate planning.

Be sure they have an up-to-date last will, general durable power of attorney for financial matters, and advance health care directives.

Knowing your parents have a plan in place and the nature of the plan will give you and your loved ones peace of mind.

Final thought.

Be good to your parents.

Not only is it meet and right so to do, but your children are watching and learning from your example.

Reference: Forbes (July 17, 2019) “What You Don’t Know About Your Parents’ Finances Could Ruin Yours”

How Expensive is Long-Term Care?

Long-term care costs are daunting.

No one likes medical bills.

Even with a job and steady income, they are intimidating.

As you age, your need for health care services will likely increase.

That is a cold, hard fact.

According to a recent MarketWatch article titled “This is how much long-term care could cost you, and don’t expect Medicare to help,” most people over age 65 will eventually need assistance with activities of daily living.

These services are considered long-term care costs and include help with eating, bathing, and dressing.

Most men will require these services for about 2.2 years.

Most women will need them for an average of 3.7 years.

How much can these services cost?

The media yearly cost of a private room in a nursing home is more than $100,000.

About one third of seniors will spend some time in one of these facilities.

About 40 percent of seniors will utilize at-home care.

The median yearly cost of a home health aide is more than $50,000.

About 15 percent of those over age 65 will incur long-term care costs exceeding $250,000.

Yikes!

How does one pay such a bill?

Medicare will be of no help.

Private health insurance also does not typically cover custodial care.

Some may be able to take advantage of free care from family members, but those who are single or have been widowed may find this impossible.

How can you prepare for such costly care?

Long-term care insurance.

Long-term care insurance will help you pay for part of your long-term care costs for a defined time period.

Do not wait too long to apply.

Premiums will rise with age.

The average yearly premium for a couple who are both age 55 averages $3,050 in 2019.

If you are healthy, this is a wise option.

If you have chronic conditions, you may be ineligible and should explore other options.

Hybrid long-term care insurance.

Some life insurance policies or annuities can carry long-term care benefits with them.

Any long-term care benefits remaining unused when you die will pass to your heirs as life insurance death benefit proceeds.

You may be able to have a lifetime payment option, but most are paid in five to 10 year installments.

Home equity.

If you move into a nursing home and will not return to your house, you could sell your home to fund your care.

If you have a spouse, a reverse mortgage could be a good idea.

Reverse mortgages allow you to get a loan on your home equity while still living in the house.

When does the loan come due?

You will be required to pay in full when you move, sell the home, or die.

Contingency reserve.

Saving early and often can help with long-term care costs.

If you have successful investments, the income can be used to make payments.

Medicaid spend-down.

If none of these options is possible, you may need to spend down to be eligible for Medicaid.

Medicaid has specific guidelines so it would be wise to work with an experienced elder law attorney.

Long-term care is costly, but early and careful preparation can weaken the bite.

Reference: MarketWatch (July 19, 2019) “This is how much long-term care could cost you, and don’t expect Medicare to help”

What are My Options for Funding Future Long-Term Care Costs?

Long-term care costs will not pay for themselves.

Each year you are older.

As you age, so does your body.

And so does your mind.

Any aging body and mind means you will eventually need long-term care.

According to a recent The Detroit News article titled “What to know about aging and long-term care costs,” the cost of long-term care can be steep.

How steep?

The median annual cost of a private room in a nursing home is more than $100,000 per year.

Home health aid for a year averages $50,000.

Of the more than 50 percent of Americans who will require long-term care, nearly 15 percent will require more than $250,000 in costs.

Yikes!

How can this be?

On average men will require 2.2 years of assistance, while women will require 3.7 years.

You can see how these add up.

Can you simply rely on family to provide care?

Perhaps.

It is not a guarantee, and caregiving can prove costly for the caregiver.

Will Medicare cover these costs?

Nope.

Custodial care is not covered under Medicare.

Most Americans have a median of $126,000 in retirement savings.

This will be wiped out quickly by long-term care needs.

If you qualify for Medicaid, you may be leaving your surviving spouse in a dire financial situation.

What other options do you have?

Long-term care insurance.

If you are in fair health, long-term care insurance is a great option.

If you wait until you are older to get this, the premiums will increase.

What you pay and whether you qualify depends on your health.

On average couples at age 55 paid $3,050 on their policies in 2019.

Hybrid long-term care insurance.

What are these hybrids?

Typically they involve a life insurance policy or annuity with a long-term care benefits rider.

You may pay a significant sum of money upon purchase, but it will serve a similar function to long-term care insurance.

Home equity.

Selling your home should not be the first option.

In some cases, it is unavoidable when paying for nursing home care.

What if you want to remain in the home?

A reverse mortgage could be an option.

Contingency reserve.

If you are a wealthy family, you may be able to simply save and set aside money specifically for long-term care costs.

Medicaid.

For those with few assets and negligible or nonexistent retirement savings, Medicaid may be your best or only option.

This will require you to spend down until you are meet financial eligibility requirements.

If your spouse still needs to survive off what you have, there may be a way to make this happen.

It will require forethought and working with an experienced elder law attorney.

Long-term care costs are daunting.

Planning ahead for this expense will bring peace of mind when the time comes for this type of care.

Reference: The Detroit News (June 10, 2019) “What to know about aging and long-term care costs”

What Retirement Planning Mistakes are Baby Boomers Making?

Poor planning leads to greater stresses in retirement.

We you born between 1946 and 1964?

If yes, then you are a Baby Boomer.

There is a 47 percent chance you are already retired.

If you planned well financially, you will have set yourself up for success in your retirement years.

Congratulations!

According to a recent CNBC article titled “Baby boomers face retirement crisis — little savings, high health costs and unrealistic expectations,” not everyone has done so.

What are the most common planning mistakes?

Not saving enough.

You cannot expect Social Security to supply all of your retirement income.

If your company does not have a pension plan (and very few do, outside of government), you are left with only one other income source—your personal savings.

Nearly 45 percent of Baby Boomers zippo in personal savings for retirement.

Yikes!

This leads us to the second major mistake.

Underestimating health care costs.

As you age, you will have more medical issues.

Many people do not account for these costs in requirement.

Instead, they assume Medicare will cover whatever they need.

Wrong again.

Anticipate and save for health care costs.

Purchase long-term care insurance as well.

In addition to underestimating health care costs, Baby Boomers often make another significant miscalculation.

Underestimating retirement income.

On average Americans ages 65 to 74 spend $55,000 annually.

Most people do not account for this.

The result?

Many must downsize, ask their children for help, or go back to work.

None of these options is ideal.

If you have not yet retired, make like a Boy Scout - and be prepared!

You will be glad you did.

Reference: CNBC (April 9, 2019) “Baby boomers face retirement crisis — little savings, high health costs and unrealistic expectations”

Do I Need a Long-Term Care Plan?

Do not neglect long-term care planning.

Every day you get older.

Each year you celebrate another trip around the sun.

You look back at your life with greater wisdom.

Now look forward and prepare for the future with equal wisdom.

According to a recent The Motley Fool’s article titled “Baby Boomers Are More Prepared for Death Than Life,” about 70 percent of those retiring will need long-term care in the future.

The odds requiring such care are high, even for you.

What should you do?

Take steps now to prepare for the financial demands of such care in your retirement planning.

According to the U.S. Department of Health and Human Services, the average cost for long-term care in retirement is $138,000 per year.

If you do not plan for this expense, your put your savings in jeopardy.

If you believe Social Security or Medicare will be able to handle your long-term care costs, you are mistaken.

Medicare coverage has its limits regarding both what it will cover and the duration of coverage.

It will cover some long-term care expenses such as skilled nursing after a hospital stay, but will not cover custodial home health care.

In short, you cannot rely on Medicare to save you.

You need to make other plans and set aside additional savings.

For many long-term care insurance may be a beneficial option.

If you do not know who trust for advice, seek guidance from a trustworthy insurance professional.

Find an experienced elder law attorney or financial advisor.

He or she will help you create a plan to tackle your long-term care needs.

Do not delay.

Denial is not a wise strategy.

Reference: Motley Fool (March 27, 2019) “Baby Boomers Are More Prepared for Death Than Life”

What do I Need to Know About Long-Term Care Insurance?

Long-Term Care insurance can help you with expenses related to aging.

People have insurance to cover various risks.

You can purchase medical insurance to help pay for doctor visits, procedures, and prescriptions.

You can purchase life insurance to provide an "instant estate" for your family should you die prior to building that estate.

You can purchase disability insurance should you become injured or ill and be unable to work for a time.

Indeed, insurance lessens the financial blows life can bring.

According to a recent nj.com article titled “The benefits of long-term care insurance,” you should consider purchasing this often overlooked form of insurance.

Never heard of it?

Long-term care insurance helps pay for assistance with the fundamental "activities of daily life" for for those who are ill, temporarily incapacitated, or aging.

This involves paying someone to help you eat, dress, bath, transfer, or other daily tasks.

It can be used to pay for nursing home care or home care.

Long-term care insurance is invaluable for seniors as it allows them to receive the care they need without draining their savings or bankrupting a spouse.

Do not wait until you are a senior to get this insurance.

You should have get a policy when you are in your 50s.

Gretchen and I purchased our policies when we were 49.

Why?

Premiums will be lower each month.

It is easier to get coverage if you are healthy and younger.

If certain health issues arise in the future, you may not be able to qualify.

Policies are not all the same.

You should need to take a variety of factors into account.

First, most people require long-term care for an average of three years.

Where you live may impact your daily amount of coverage.

Care in a facility should be the similar to care provided at home and vice versa.

There will be a waiting period between the dates of incapacity to the start of coverage.

If you are married, you can get a discounted combined policy like Gretchen and I did.

An inflation rider is important so coverage will increase with rising costs.

A long-term care policy is a wise choice to consider.

Make it a financial planning priority.

Reference: nj.com (January 6, 2019) “The benefits of long-term care insurance”

Are Caregivers Paying for the Care of Senior Loved Ones?

Many caregivers use their own money to provide for aging loved ones.

Chances are you would do anything for family.

Your parents made sacrifices for you as you grew up.

As your parents age, they will likely need help from you.

In fact, many children serve as caregivers for their senior parents.

According to a recent Think Advisor article titled “Americans Are Spending More but Planning Less for Caregiving: Northwestern Mutual,” this can cost more than time and energy.

Many members of Generation X and the Millennial generation are finding finances to be tight as they care for their parents and for their own families.

According to the 2018 Northwestern Mutual C.A.R.E. Study, 22 percent of survey responders expected to become caregivers soon, while 30 percent were either current or past caregivers.

Nearly half had planned to provide care for their aging parents, but many were unprepared for the financial toll it would take.

Why?

Nearly 70 percent of caregivers use their own finances to support their loved ones.

In fact, 21 to 100 percent of their monthly budget is allocated to caregiving.

For example, the average spending for medical supplies per month is $273 and the average cost of food is $159.

Can you start preparing now?

Yes.

Unfortunately, about 48 percent of those who expect to provide care in the future have not made any plans regarding how they will handle the financial aspects of the role.

How can you help your children if you plan to make them your caregivers?

Plan now.

About one quarter of surveyed Americans have begun planning for their own long-term care needs.

These individuals have taken steps like purchasing a long-term care product, increasing their savings, and including provisions in their financial plan.

Lastly, if you are expecting your loved one to provide care, share your wishes with them.

I do "eat my own cooking," too.

Gretchen and I have had long-term care insurance since 2009.

It is great peace of mind for ourselves, let alone our three adult daughters.

When it comes to how you "honor" your father and mothers, I always remind my clients to be very, very careful.

Why?

Your own children are watching.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Think Advisor (March 15, 2018) “Americans Are Spending More but Planning Less for Caregiving: Northwestern Mutual”

What Should "Gen X" Know About Retirement Planning?

Retirement planning is not just something for Baby Boomers.

According to The Harvard Center, if you were born  anytime from 1965 to 1984, then you are a card carrying member of "Generation X," or "Gen X" for short. 

Did you know researchers at the Insured Retirement Institute (IRI) recently found a possible retirement knowledge gap when they conducted an online survey of 802 of your Gen X peers?

According to Think Advisor recent article titled “These 3 Threats Scare Gen Xers More Than Basic Retirement Costs: IRI,” the survey revealed some troubling news when it comes to Gen X retirement planning. To quote the survey analysists, “They’re (mostly) doing it wrong.”

So, what were some of the salient findings?

First, only 20% of Gen Xers have talked to a financial advisor.

Second, only one-third of Gen Xers have tried to figure out what they’d need to have saved to retire.

Drum roll, please.

And third, only 23% of the Gen Xers who have tried to save for retirement, have more than $250,000 in retirement savings.

Against this backdrop, hoowever, the research shows that roughly 58% of the Gen Xers are somewhat or very confident they will have enough cash to cover basic expenses in retirement.

While the survey did not segment most of the results by income or asset level, it did examine the use and failure to seek the counsel of a financial professional.

Participants with financial professionals appear to have a more comprehensive approach to their financial planning.

Of those working with a financial professional, some 82% of the Gen Xers responding confirmed discussing retirement planning and 61% said the advisors had discussed investing.

What did I find interesting?

Fully 87% of Gen Xers working with a financial advisor reported being confident about having enough income to cover their basic expenses in retirement, but only 58% of the entire group surveyed reported having such confidence.

Nevertheless, even the Gen Xers with advisors said they had grave doubts about their ability to handle other major financial challenges.

Here are some of the other findings of interest:

Covering long-term care (LTC) costs. 

Only 63% of the Gen Xers with advisors reported being "somewhat" or "very confident" about having enough money to pay their long-term care expenses.

Apparently, advisors have yet to address their Gen Xer clients with that concern.

In addition, only 9% had talked about planning for cognitive decline, like dementia or Alzheimer’s.

What about long-term care insurance?

Only 29% had talked to their clients about it.

Addressing LTC needs of Baby Boomer parents.

A little over half of the Gen Xers with advisors reported being "somewhat" or "very confident" when it comes to assisting with the LTC bills of their parents.

The survey did not ask Gen X respondents whether they had talked about this aspect of long-term care planning with their advisors.

Paying college bills for children.

Many experts in the field suggest that Gen Xers should prioritize their retirement planning and leave the college bills of their children second.

However, Gen X parents say the funds for the college education of their children must come from somewhere.

Only 51% of the Gen Xers with advisors said they were "somewhat" or "very confident" they will have enough money to defray the higher education expenses facing their children.

The big takeaway from this survey is that, regardless whether you are a Baby Boomer, Gen Xer, or even a Millennial, it is essential to have the advice and counsel of an experienced financial advisor.

Establish this relationship as soon as you begin participating in the economy.

If you need assistance finding an appropriate "financial advisor" instead of a "financial salesman," then ask your estate planning attorney for a referral. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Think Advisor (March 24, 2018) “These 3 Threats Scare Gen Xers More Than Basic Retirement Costs: IRI”