The Livens Law Firm

Dallas Estate Planning Law Blog

Handling new found wealth in an inheritance

Those who receive considerable assets from generous loved ones who passed away are usually appreciative but sometimes don't know what to do with their new-found wealth. Such situations can be overwhelming to beneficiaries, and concerns quickly surface about how much will be owed to the IRS. Residents of Texas and elsewhere may have mixed emotions about an inheritance and the tax burdens associated with it.

Beneficiaries are responsible for taxes on any income they receive in an inheritance. There are different tax rules for annuities, investment accounts, IRAs and real estate. Tax burdens are usually minimal or can be reduced depending on the type of assets. It may be in the beneficiary's best interest to have a plan in place and consult with a professional to discuss taxes before taking control of the inheritance.

Plan carefully to cover long-term care costs

Recent statistics show healthy, retired couples over the age of 65 could pay $275,000 for healthcare during their retirement years. Residents of Texas and elsewhere can expect to pay an additional $97,000 a year for long-term care services in a private room in a nursing home. Studies show the cost of long-term care has increased three times faster than inflation since 2004.

The cost of long-term care spending since 1980 has gone from $30 billion to a staggering $225 billion in 2015. Most Americans over age 65 rely on Medicare to cover routine medical care and hospital procedures. However, Medicare does not cover long-term care. Medicaid will pay for a significant portion of expenses, but if a person has more than $2000 in assets, chances are he or she will not qualify.

Could long-term care options expand to include foster homes?

Foster homes may be an alternative to nursing homes for seniors who need daily living help but not medical care. These homes, also known as adult care homes or board-and-care homes, provide a home-like setting for clients with round-the-clock supervision, social interaction and independence. In Texas and other states, these homes blend into local neighborhoods and are an affordable housing option for seniors who need long-term care without the need for nursing homes.

For most seniors, housing is a primary concern after hospital discharge. Families may be faced with a sudden dilemma when an elder loved one can no longer live alone. Foster homes for adults help seniors who do not require medical care avoid costly institutional care and maintain their independent living status. Older adults thrive in these home-like communities where they receive meals, transportation to a medical appointments and medication management.

Important financial talks to have about estate planning

Family dynamics have changed with adult children reversing roles with their parents and having sit-down talks about finances. In a recent survey, parents in Texas over age 60 admit they have never discussed estate planning with family members. Adult children worry that conversations about money, wills and designating personal representatives could cause conflict or even sour relationships with their parents.

Studies show that 90 percent of family members wait until something tragic happens before talking about finances and important legal issues. Experts recommend approaching the conversation by encouraging parents to discuss their end-of-life goals, including topics about declining health and funeral arrangements. Parties should be prepared to shut down conversations, however, if talks become strained or stressful for them.

Relatives may be responsible for long-term care costs

Recent studies show that over 70 percent of seniors will require extensive healthcare services after age 65. The Employee Benefit Research Institute has determined that only 13 percent of elders have secured long-term care insurance to avoid the high out-of-pocket costs associated with long-term care. Many residents in Texas and other states will face high medical costs without the protection of LTCI.

The burden of long-term care often falls on family members, and there is a growing number of lawsuits trying to recover money from families. States have been allowed to sue families to recover Medicaid dollars since 1993 when The Omnibus Budget Reconciliation Act was established. Since then, Medicaid has recovered hundreds of millions from families. The Office of the Inspector General expects more aggressive recovery actions as state budget pressures increase.

ABLE accounts may be a better option than inheritance trusts

Making long-term financial arrangements for a disabled family member may get easier. Until recently, people with disabilities could only own $2000 in assets to continue to receive state and federal assistance. The Achieving a Better Life Experience Act was created in 2015 to allow states, such as Texas, to launch tax-advantaged savings programs for disabled individuals. An ABLE Savings Account differs from a Special Needs Trust, which has a minimum contribution of $10,000. In most states, ABLE accounts can be started with just $25 and may be a better option than inheritance trusts.

State and federal benefits such as Supplemental Nutrition Assistance Program, Medicaid and Supplemental Security Income would be jeopardized if assets exceeded $2,000. No longer will disabled people be forced to live poor to keep their benefits. Under the new ABLE Act, individuals with disabilities can have assets up to $100,000 before it affects their resource limit for SSI.

Skyrocketing healthcare and long-term care costs in retirement

Retirement should be a time to look forward to. However, many will worry about the transition from paycheck to Social Security check and from company insurance to Medicare. The latest study from Nationwide Retirement Institute shows that 73 percent of well-to-do seniors say their retirement-related fears are centered on the rising cost of healthcare. In Texas and elsewhere, 70 percent of seniors age 65 and over will need long-term care over the course of their lifetime.

According to the Bureau of Labor Statistics, a typical retirement period spans about 18-years. Studies show that a 65-year-old man will spend upwards of about $189,000 and a woman of the same age will spend $214,000 on healthcare during retirement. These figures do not include costs for long-term care, which can be astronomical.

Making the most of an IRA inheritance

An increasingly tough economy has left many people in difficult financial situations. Recent studies show one in three people in the United States are counting on an inheritance from family members to reach financial security. In Texas and elsewhere, one of the most common ways for younger generations to receive an inheritance is through unspent IRA balances.

Most retirees wait to take distributions from IRAs because of tax consequences. Those lucky enough to inherit an unspent IRA should know the special rules that can add a lifetime of benefits that some people miss out on. The most common choice for a beneficiary is the spouse of the deceased, and the rules are simple for that person to inherit an existing IRA account. The surviving spouse can roll the existing IRA over into his or her name or a created account, but penalty-free withdrawals and minimum distributions depend on the spouse's age.

Separation versus divorce in estate planning

When a person dies estranged from his or her spouse but the couple is not legally divorced, it can lead to a host of issues with an estate. More couples are opting for long-term separation instead of divorce and, in some situations, a separation does not extinguish spousal rights and privileges. In Texas and elsewhere, problems can erupt in estate planning without a final divorce decree.

In the case of the recent deaths of Kate Spade and Anthony Bourdain, both were amicably separated from their spouses, but not divorced. After their untimely deaths, each of their respective estranges spouse remained as beneficiaries of their estates. As the legal next of kin, they control all immediate legal decisions as well as control over funeral and interment decisions.

Long-term care challenges for aging parents

One of the greatest challenges for any child is making decisions about an elderly parent's healthcare. Studies show that children are often sandwiched between raising their families and caring for elderly parents. They are known as the Sandwich Generation. Families in Texas and other states are often faced with the daunting task of securing long-term care for aging parents.

Without proper planning, the process of finding quality care for a loved one can be complicated and discouraging. Healthcare coverage and a person's income play a major role in determining what facilities will accept someone's dad or mom. For many, their income is not sufficient enough to cover the steep monthly cost of over $7K for quality long-term care, and it is often too high to qualify for Medicaid.


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