Tax Deductibility of Long Term Care Expenses (Part 2)
In last week’s post I was talking about the tax deductibility of long term care expenses. Some medical expenses can be deducted from gross income before calculating any tax due and owing. Long term care expenses can be deductible if within the definition set out by the IRS. (See last week’s post) Let’s now look at how this can positively impact a senior who is spending $100,000 to $150,000 per year or more for long term care. In most cases that senior will not have enough income to pay the entire cost. He or she will need to spend some of any accumulated nest egg. That’s where the opportunity lies. Suppose that senior has a retirement account, a nonretirement account invested in stocks and a savings account. One may be better to liquidate than another because of the income tax implications. Retirement accounts are tax deferred accounts. Most or all of the growth in these accounts has never been taxed. The owner pays the tax when money is withdrawn from the retirement account. The stock held in the nonretirement account may have appreciated if the stock’s price is higher than when the owner purchased the stock. This capital gains in “unrealized”, meaning
Tax Deductibility of Long Term Care Expenses – Part 1
When clients seek out our advice on preserving assets while being able to pay for long term care, we spend much time discussing government benefits such as Medicaid and the VA Aid and Attendance programs and ways to qualify for them. There is, however, another important aspect to consider. When using your own funds to pay for care, there are some assets that are better than others to spend on care – which can stretch out a nest egg. That’s because of the issue of income taxes. At an average cost of $150,000 or more per year for nursing home level care most of our clients do not have enough income to cover the entire cost. Most need to liquidate different accounts and investments to meet this expense. This of course can have significant income tax implications if stocks, annuities or retirement accounts are being liquidated. First, let’s run through some basic income tax concepts. When calculating income taxes, certain deductions are permitted to be taken against income before calculating the tax owed. Many people take a standard deduction but sometimes it is beneficial to itemize the deductions if they turn out to be greater than the amount of the standard deduction.
Protecting the Home – Part 2
A continuation of last week’s topic concerns protecting the home when applying for Medicaid. I explained that John’s daughter, Amy should not have to sell her Dad’s home and spend down the proceeds before qualifying for Medicaid if Amy is living in the home and she intends to bring him back home from the nursing facility where he currently is staying after she graduates from college. But, I also said that because John and Amy did not seek advice before filing the application they missed an opportunity to protect the home completely. Even if Amy does not sell the home now, it must remain in John’s name. If he ever does sell it he will have to spend down the entire proceeds before requalifying for Medicaid. If he doesn’t sell it and owns the home when he dies, Medicaid will assert a lien on the home to secure repayment of all the benefits it paid out on his behalf during his life. What they missed out on was the option to transfer the home to Amy under a Medicaid exception that does not cause a Medicaid penalty – an ineligibility period – to result from the transfer. Medicaid regulations provide that a
Protecting the Home – Part 1
I received a call last week which again highlights the risk of handling a Medicaid application on your own. As I often say, the application may appear to be easy but you never know when you’ll run into an issue or problem. When that happens it is important to have someone who has knowledge of the ins and outs of Medicaid on your side. Mary called me to ask a question concerning her friend, John. John is in his 60’s and has a daughter, Amy, 21, who is attends college in Pennsylvania. John has MS and cannot live at home any longer on his own with Amy away at school most of the year. He moved to a nursing home and she applied for Medicaid on his behalf. Amy ran into a snag with Medicaid and Mary was trying to help her out. The caseworker informed Amy that John would need to sell his home and spend down the proceeds in order to qualify. She said Amy had just listed it for sale but Mary wasn’t sure if what the caseworker said is correct. I asked Mary what Amy’s plans are after she graduates college. She told me that Amy would like to
Changing Demographics – Part 3
In last week’s post I explained the differences between domestic partnership, civil union and marriage when talking about the rights of same sex couples. So how does this impact the issues faced by aging LGBT seniors? Married vs. single has an impact on taxes. Different thresholds and rates apply to married couples and single individuals with regard to income taxes. Additionally, we must look at estate, inheritance and gift taxes. Transfers between spouses are not subject to estate or gift tax. Domestic partnership and civil union provide the same rights as married couples – at least as to New Jersey taxes. Only marriage, however, would give the couple the same rights with respect to federal taxes. New Jersey no longer has an estate tax. The federal estate tax exemption is now $11.4 million so most couples wouldn’t be affected by this regardless of whether they are married or not. There remains, however, an inheritance tax which is based on the relationship of the heirs to the person who died. It is this tax that penalizes same sex (or opposite sex) couples who are not married because non related (Class D) beneficiaries pay a tax of 15 to 16% on assets inherited whereas
Changing Demographics – Part 2
In last week’s post I began discussing some of the unique issues faced by seniors who are part of the LGBT community. Only within the past 20 years or so has marriage been an option for same sex couples. It is still an evolving area of the law as various states address or decline to address the issue. New Jersey has been in forefront in the sense that same sex couples have as many as 3 options to choose from, marriage, domestic partnership and civil union. The New Jersey Domestic Partnership Act is a law that grants couples certain basic rights that married couples have such as the right to make health care decisions and to receive tax exemptions. Before either a civil union or marriage were possible, this was the only option for same sex couples. It remains an option now only for same sex and opposite sex couples who are 62 years of age or older, although it still applies to anyone who entered into a domestic partnership before the civil union law was passed or who entered into such a partnership in another state. The law provides some of the same protections, rights and benefits that married couples have