How Can I Plan for Medical Expenses in Retirement? – Annapolis and Towson Estate Planning

Healthcare can be one of the biggest expenses in retirement.

Fidelity Investments found that a 65-year-old newly retired couple will need $285,000 for medical expenses in retirement. That doesn’t include the annual cost of long-term care. In 2018, that expense ran from $18,720 for adult day care services to $100,375 for a private room in a nursing home, according to Investopedia’s recent article, “How to Plan for Medical Expenses in Retirement.”

Despite saving and preparing for retirement their entire lives, many retirees aren’t mentally or financially prepared for these types of expenses. A survey by HSA Bank found that 67% of adults 65 and older thought that they’d need less than $100,000 for healthcare. However, Fidelity calculated that males 65 and older will need $133,000—and females, $147,000—to pay for healthcare in retirement.

There are two important numbers for healthcare expenses in retirement: how much money is coming in and how much is going out. A typical person in their 60s has an estimated median savings of $172,000. On average, those 65 and older spend $3,800 per month, but Social Security only replaces about 40% of their working-life income.

Medicare can pay for some healthcare spending in retirement. However, there are some limitations. If a senior doesn’t have a Part D prescription drug policy, Medicare won’t cover medications. Medicare Parts A and B won’t cover dental and vision care, but Medicare Advantage plans typically do. Medicare also doesn’t offer coverage for long-term care. Medicare Advantage plans are offered through private insurers.

There are two ways pre-retirees can create a safety net for healthcare spending when they retire. One way is with a Health Savings Account (HSA). HSAs are available with high-deductible health plans and offer three tax advantages: (i) deductible contributions; (ii) tax-deferred growth; and (iii) tax-free withdrawals for qualified medical expenses. HSA funds can be used to pay for certain medical premiums, like Medicare premiums and long-term care insurance premiums. If you’re in your 50s, you can still maximize these plans by taking advantage of catch-up contributions and employer contributions. However, those already enrolled in Medicare can’t make new contributions to an HSA.

You can also buy long-term care insurance to fill the gap left by Medicare. This policy can pay a monthly benefit toward long-term care for a two-to three-year period.

Healthcare spending can easily take a big bite out of a retirement budget. Estimate your costs and design a strategy for spending to help preserve more retirement assets for other expenses.

Reference: Investopedia (June 25, 2019) “How to Plan for Medical Expenses in Retirement”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Do You Have to Relocate For Retirement? – Annapolis and Towson Estate Planning

Whether to relocate for retirement is a difficult question for some people and a snap to answer for others. Relocating in retirement, says The Motley Fool in the article “4 Reasons to Relocate in Retirement,” can make for a far more relaxed, financially easier lifestyle.

Take a look at these four reasons and see how they line up with your current and future living situation.

It’s Expensive to Live Where You Are. If you live in a city like New York, San Francisco, Chicago or Los Angeles, you know about the high cost of living. Food, gas, and housing are just more expensive. While living in an expensive city usually means your paycheck is also high, once you stop working, that higher cost may no longer be affordable. If you can’t live without the amenities of a big city, consider a neighborhood nearby where you can easily access the world-class museums, theater, medical care, etc., but costs are a little lower.

Local and state taxes are high. People who live in high tax states know who they are. Taxes take an even bigger bite out of your budget at retirement. You will have income from Social Security and retirement savings or maybe a part-time job or a business. However, the less taxes you have to pay, the more money you’ll keep.

Property taxes can be a problem, even if you enter retirement with a paid-off mortgage. When you are on a fixed income, high property taxes are a problem. Moving somewhere with lower property taxes could help your fixed income stretch further.

You live in a state that taxes your Social Security benefits. Most states do not tax Social Security benefits, but there are 13 that do. The good news is that some of them offer exemptions for low-income to middle-income households, so you may be able to avoid these taxes. Some also offer a far lower cost of living than others, so that should be only one factor in your decision. Here are the states:

Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.

You live in a place where you must have a car. The annual cost of car ownership is estimated at $8,849 on average, according to AAA. If you live in a walkable city, or one with good public transportation, you could save a fair amount of money. Living somewhere walkable will also keep you moving as you age, which is a good thing. At some point, there comes a time when it is necessary to hand over the keys. Losing your independence because there is no public transportation, is a difficult transition.

The idea of packing up and moving from a community where you have friends and family is not an easy one. However, the idea of having more money to enjoy your retirement years may make it worthwhile. Take your time considering how you’ll manage where you are and what you could do in a less expensive location.

Reference: The Motley Fool (Sep. 1, 2019) “4 Reasons to Relocate in Retirement”

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Ignoring Beneficiary Designations Is a Risky Business – Annapolis and Towson Estate Planning

Ignore beneficiary forms at your and your heirs’ own peril, especially when there are minor children, is the message from TAPintoChatham.com’s recent article “Are You Read to Deal with Your Beneficiary Forms?” The knee-jerk reaction is to name the spouse as a primary beneficiary and then name the minor children as contingent beneficiaries.

However, this is not always the best way to deal with retirement assets.

Remember that retirement assets are different from taxable accounts. When distributions are made from retirement accounts, they are treated as Ordinary Income (OI) and are subject to the OI tax rate. Retirement plans have beneficiary forms, which overrule whatever your will documents may state. Because they have beneficiary forms, these accounts pass outside of your estate and are governed by their own rules and regulations.

Here are a few options for beneficiary designations when there are minors:

Name your spouse as the primary beneficiary and minor children as the contingent beneficiaries. This is the usual response (see above), but there is a problem. If the minor children inherit a retirement asset, they will need a guardian for that asset. The guardian named for their care and well-being in the will does not apply, because this asset passes outside of the estate. Therefore, the court may appoint a Guardian Ad Litem to represent the child’s interest for this asset. That could be a paid stranger appointed by the court, until the child reaches the age of majority, usually 18 in most states.

Elect a guardian in the retirement plan beneficiary form. Some custodians have a section of their beneficiary form to choose a guardian for minor. Most forms, unfortunately, do not provide this option.

Make your estate the contingent beneficiary of the retirement account. While this would solve the problem of not having a guardian for the minor children, because it would kick the retirement plan into the estate, it may lead to adverse tax consequences. An estate does not have a measuring life, so the retirement asset would need to be fully distributed in five years.

Leave the assets to the minor children in a trust. This is the most effective means of leaving retirement assets to minor children without terrible tax consequences or needing to have the court appoint a stranger to oversee the child’s funds. Your attorney would either create a separate trust for the minor child or build a conduit trust under your will or a revocable trust to hold this specific asset. You would then change your beneficiary form to make said trust or sub-trusts for each minor child the contingent beneficiary of your retirement plan. This way you control who the guardian is for this asset for your minor child and are tax efficient.

Whichever way you decide to go, speak with an experienced estate planning attorney to determine which is the best plan for your family.

Reference: TAPintoChatham.com (Sep. 8, 2109) “Are You Read to Deal with Your Beneficiary Forms?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Does a Beneficiary of an Estate Need to Live in the U.S.? – Annapolis and Towson Estate Planning

When a person dies without a will, the distribution of his or her estate assets is governed by the state’s intestacy statute.

All states have laws that instruct the court on how to disburse the intestate decedent’s property, usually according to how close in relationship they are to the person who passed away.

A recent nj.com article responded to the following question: “My ex’s new wife isn’t a citizen. Does she get an inheritance?” The article explains that under the intestacy laws of New Jersey, for example, if the deceased had children who aren’t the children of the surviving spouse, the surviving spouse is entitled to the first 25% of the estate but not less than $50,000 nor more than $200,000, plus one-half of the balance of the estate.

Also, under New Jersey law, aliens or those who are not citizens of the United States are eligible to inherit assets.

In California, if you die with children but no spouse, the children inherit everything. If you have a spouse but no children, parents, siblings, or nieces or nephews, the spouse inherits everything. If you have parents but no children, spouse, or siblings, your parents inherit everything. If you have siblings but no children, spouse, or parents, those siblings inherit everything.

Also in California, if you’re married and you die without a will, what property your spouse will receive is based in part on how the two of you owned your property. Was it separate property or community property? California is a community property state, so your spouse will inherit your half of the community property.

In that case, an ex-husband’s wife who lives in and is a citizen of the Philippines doesn’t need to be physically present in the state to inherit assets from her husband.

If the deceased owned property in the Philippines, the distribution of those assets would be according to the laws of that country.

Reference: nj.com (August 28, 2019) “My ex’s new wife isn’t a citizen. Does she get an inheritance?”

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Don’t Forget to Update Your Estate Plan – Annapolis and Towson Estate Planning

There are some people who sign their will once in their life and never change it. They may have executed their estate plan late in life or after they were diagnosed with a serious disease.

However, even if your family life and finances are pretty basic, there are still changes in the law that you may need to incorporate into your estate plan.  Some of the people that you named in your will could also have died or moved away.

Forbes’ recent article, “Why You Should Change Your Will Now,” warns us that if you’ve taken the “one and done” approach to your estate plan, think again. In addition to the reasons already mentioned, your assets may have changed dramatically since you signed your will. The plan you put in place years ago may not have considered new federal and state estate taxes. Now that you’ve accumulated significant wealth that will be passed on to your children, you might need to review your plans for that wealth for your children.

You may want to include grandchildren to help pay for their college education.

It is also not uncommon for parents to want to protect their children from themselves. This can be because of addiction issues or a lack of financial literacy. If that’s an issue, some parents elect to hold monies in trust for adult children as a way to ensure that the funds will be there throughout the child’s lifetime.

A person’s estate plan should grow with them over time. An estate plan for a twenty-something may be very basic, but a newly-married couple will want to include provisions for their spouse. Parents need to think about providing for and protecting their children. Adult children have another set of concerns and you need prepare for the possibility of divorcing spouses, poor life choices, addiction issues and just poor money management. There are many stages in life when you may need to readjust the provisions for your children in your estate planning documents.

If you haven’t looked at your will in a while, do it now.

Reference: Forbes (August 27, 2019) “Why You Should Change Your Will Now”

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So, You Have to Manage Someone Else’s Money – Now What? – Annapolis and Towson Estate Planning

This sounds like a disaster in the making. A durable power of attorney document must follow the statutory requirements, must delegate proper authority, must consider the timing of when the agent may act and a host of other issues that must be addressed, warns My San Antonio in the article “Guide to managing someone else’s money.”

A durable power of attorney document can be so far reaching that a form downloaded from the Internet is asking for major trouble.

Start by speaking with an experienced estate planning attorney to provide proper advice and draft a legally valid document that is appropriate for your situation.

Once a proper durable power of attorney has been drafted, talk with the agent you have selected and with the successor agents you want to name about their roles and responsibilities. For instance:

When will the agent’s power commence? Depending on the document, it may start immediately, or it may not become active until the person becomes incapacitated.

If the power is postponed, how will the agent prove that the person has become incapacitated? Will he or she need to go to court?

What is the extent of the agent’s authority? This is very important. Do you want the agent to be able to talk with the IRS about your taxes? With your investment advisor? Will the agent have the power to make gifts on your behalf and to what extent? May the agent set up a trust for your benefit? Can the agent change beneficiary designations? What about caring for your pets? Can they talk with your lawyer or accountant?

When does the agent’s authority end? Unless the document sets an earlier date, it ends when you revoke it, when you die, when a court appoints a guardian for you, or, if your agent is your spouse, when you divorce.

What does the agent need to report to you? What are your expectations for the agent’s role? Do you want immediate assistance from the agent, or will you continue to sign documents for yourself?

Does the agent know how to avoid personal exposure? If the agent signs a contract for you by signing his or her own name, that contract may be performed by the agent. Legally, that means that the cost of the services provided could be taken out of the agent’s wallet. Does the agent understand how to sign a contract to avoid liability?

All of these questions need to be addressed long before any power of attorney papers are signed. Both you and the agent need to understand the role of a power of attorney. An experienced estate planning attorney will be able to explore all the issues inherent in a durable power of attorney and make sure that it is the correct document.

Reference: My San Antonio Life (Aug. 26, 2019) “Guide to managing someone else’s money”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Are You Prepared to Age in Place? – Annapolis and Towson Estate Planning

If aging in place is your goal, then long-term planning needs to be considered, including how the house will function as you age, accommodations for the people who will care for you and how to pay for care, says the Record Online in the article “Start planning now so you can ‘age in place.’”

Many homes will need to be remodeled for aging in place and those changes may be big or small. Typical changes include installing ramps and adding a bathroom and bedroom on the first floor. Smaller changes include installing properly anchored grab bars in the shower, improving lighting and changing floor covering to avoid problems with walkers, wheelchairs or unsteady seniors.

Choosing a caregiver and paying for care are intertwined issues. Many adult children become caregivers for aging parents and for the most part they are unpaid. Family caregivers suffer enormous losses, including lost work, career advancement, income and savings. Stress and neglect of their own health and family is a common byproduct.

You’ll want to speak with an estate planning elder care attorney about how or if the parent may compensate the child for their caregiving. If the payment is deemed to be a gift, it will cause a penalty period when Medicaid won’t pay for care. A caregiver agreement drafted by an elder law estate planning attorney will allow the parents to pay without a penalty period. The child will need to report this income on their tax returns.

The best way to plan ahead for aging in place is with the purchase of a long-term care insurance policy. If you qualify for a policy and can afford to pay for it, it is good way to protect assets and income from going towards caregiver costs. You can also relieve the family caregiver from duties or pay them for caregiving out of the insurance proceeds.

Without long-term care insurance, the next option is to apply for community Medicaid to pay for care in the home if available in your state. To qualify, a single applicant can keep $15,450 in assets plus the house, up to an equity limit of $878,000 and only $878 per month of income. For a married couple, when one spouse applies for community Medicaid, the couple may keep $22,800 in assets plus the house and $1,287 per month of income. If the applicant or spouse are on a managed care plan, the couple may keep more assets and income.

Another option is spousal refusal, which may allow the couple to keep more assets and income. When an applicant has too much income, a pooled income trust may be used to shelter income from going towards the cost of care. This is a complicated process that requires working with an estate planning attorney to ensure that it is set up correctly.

Self-paying for home care is another option, but it is expensive. The average cost of home health care in some areas is $25 per hour, or $600 per day. When you get to these costs, they are the same as an expensive nursing home.

Planning in advance with careful analysis of the different choices will give the individual and the family the best picture of what may come with aging in place. A better decision can be made once all the information is clearly assessed.

Reference: Record Online (Aug. 31, 2019) “Start planning now so you can ‘age in place’”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How to Live a Full Life throughout Retirement – Annapolis and Towson Estate Planning

If you don’t have a personal plan for yourself, you may wish you had given it some thought if you come to an age and stage where other people want to make decisions on your behalf.

There are many choices to be made before, during and after retirement, but without a clear picture of what you want, it’s easy to get sidetracked. This message from The Press-Enterprise is very clear in the article “Aging seniors: Make decisions before someone makes them for you.”

Here are some of the choices you’ll face:

Where to live. Waiting to move to a location you want to live in early on could make it difficult or impossible for you to move there. Do you want to stay in an area where you have friends and belong to social and civic circles?

Do you want to relocate to live closer to family members? What will you do if you move and then learn that your family’s life is busy and you don’t see them very often? Be prepared for that scenario.

What do you like to do? If you visited Arizona or Texas and loved those places, do you want to move there for recreational activities or climate? If you have more time for hobbies and interests, you may be able to fulfill those dreams.

Moving also needs to take into account taxes, sales taxes, inheritance taxes and property taxes.

What kind of living space do you want? If you prefer to live in your own home, that raises questions. Will the house be safe as you age? Does the home have stairs? Are the hallways wide enough for a wheelchair? Do you have enough assets to support the house’s upkeep, make repairs and any major fixes? Will you take care of the house, or have to hire someone to maintain it? Finally, if you live with a spouse or a partner and that person dies, will you be able to manage the house on your own?

If a personal plan isn’t made now, you might regret it when other people are making choices for you.

Do you have a transportation plan? At some point, you will likely have to give up the keys to the car. How will you get around? If you live in a place with adequate buses, subways or taxis, you’ll be able to remain independent.

Taking care of yourself. The idea of not being able to take care of ourselves is not a happy one. At some point in life, we have to accept the fact that we’ll need care. As we age, it takes effort to enjoy socialization and meals and planned activities become very important. Does that include adult day care, a Continuing Care Retirement Community or assisted living?

Don’t be afraid to look into the future. By thinking about what you want and planning in advance, you are more likely to enjoy your retirement life.

Reference: The Press Enterprise (Aug. 31, 2019) “Aging seniors: Make decisions before someone makes them for you.”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Design Strategies for Memory Care Centers to Meet the Needs of Dementia Patients – Annapolis and Towson Estate Planning

If your loved one has Alzheimer’s disease or another form of dementia, you should try to find a quality memory care facility that incorporates the best elements of design tailored to people with dementia.

When a long-term care facility designates part of an existing center to memory care, they often try to retrofit the space for people with dementia care. Unless the memory care center employs design concepts that address common aspects of dementia, the facility itself can actually increase the residents’ anxiety, sleep disturbances, wandering, falls, injuries and need for medications.

A well-designed memory care facility can make residents less anxious by its mindful design, reducing the amount of prescription drugs the residents need. Here are some design strategies for memory care centers to meet the needs of dementia patients.

Ground Floor Is Problematic

Every winter, there are tragic news stories of dementia patients who wander outside and succumb to the elements. Despite this fact, many facilities have their memory care rooms on the first floor. A better plan is to have the Alzheimer’s portion of the center on the third floor, with multiple security points, locked doors and keypads between the memory care residents and the great outdoors.

Speaking of the Great Outdoors

Having ready access to safe, peaceful spaces outside can reduce anxiety for people with dementia. One facility uses the roof of an adjacent building for the memory care garden. The space has lovely plants, seating for individuals and small groups and discreet fencing to keep the residents safe. There is even a non-functional classic Cadillac for residents to sit in and reminisce. You would not realize that venue is a rooftop garden.

Circular Walking Paths Indoors and Out

When an older person moves away from her home, she might get confused and feel lost. She might walk around, trying to find her home. She might simply feel restless and have a need to walk. An accessible circular walking path in the garden can satisfy her need.

The interior layout of the facility should not have long hallways that end with doors. When an exit door is the destination of the hall, it is logical the resident will try to open the door. Instead, the layout should have a social room, kitchen, restroom, or other room at the end of a hallway.

Design Principles for Memory Care Facilities

Savvy design will camouflage exit doors, place them to the left or right of hallways and use keypad locks that do not look as if they guard Fort Knox. By nature, human beings do not thrive in an institutional setting. The more the memory care facility looks like a home and less like an institution, the happier and healthier the residents will be.

Since memory loss is central to memory care centers, the residents should not have to remember their room numbers. Well-placed personal objects next to the door should readily identify the room for the resident.

Another tailored design feature is to do away with nursing stations and staff uniforms. Having the staff dress in regular clothing and eliminating the nursing stations makes the facility feel more residential. When people feel at home, their anxiety levels go down and they need fewer medications.

References: A Place for Mom. “Alzheimer’s Care Facilities Design.” (accessed August 21, 2019) https://www.aplaceformom.com/planning-and-advice/articles/alzheimers-care-facilities

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What You Need to Know About Continuing Care Retirement Communities – Annapolis and Towson Estate Planning

With all the different types of residential options for seniors today, it is easy to get confused by the terminology. If you are trying to decide which choice is right for you or your loved one, you need to evaluate several kinds of arrangements. Here is what you need to know about continuing care retirement communities.

A continuing care retirement community offers a continuum of care, from independent living for people who need no assistance, to assisted living that offers some services, to nursing home care that provides skilled nursing care. A person or couple usually move into the level they need with the option to move to either more independence or more services as their needs change.

The benefit of a continuing care retirement community (CCRC) is you do not have to move to a different facility when you need more medical attention or if your health improves. You would have to move to a different part of the community that is usually in a separate building. However, all levels of care are at one campus or physical location.

The drawbacks of CCRC include:

  • These facilities tend to be more expensive than stand-alone centers. There is usually a sizeable entrance fee, ranging from $10,000 to $500,000.
  • The monthly expenses of living in a CCRC make these facilities out of range for low-income and most middle-income seniors. On top of the rent, there is a monthly maintenance fee that can range from $200 to more than $2,000.
  • There might not be a vacancy in the section to which you want to move, so you might have to go on a waiting list or move out of the CCRC to get the level of care you need. If you move out, you can lose the entrance fee you paid.
  • Usually, you do not own the place where you live, even though you might pay more than the market value of the building.

On the other hand, CCRCs have advantages, like:

  • A broader range of activities and services than stand-alone facilities.
  • Getting to stay close to the friends you have at the CCRC when your needs change.
  • More options for independent living, like apartments, houses, duplexes and townhomes.
  • The CCRC arrangement creates a social network and helps residents get through grief when a spouse passes. Residents of CCRCs tend to have less social isolation and higher activity levels as widows or widowers than people who live in single-family homes that are not part of a CCRC.
  • Because CCRCs have so many ongoing activities and the facilities include a range of opportunities for physical exercise, like swimming, yoga, tennis, golf, walking and dance, seniors in these communities tend to stay healthy and socially engaged.
  • Many CCRCs have barbers, hairdressers, grocery stores, coffee shops and retail shops onsite for the convenience of residents.
  • You can tailor your services to your desires. One resident might only want lawn care and snow removal. Another person might want housekeeping, meal preparation and transportation.

Make sure that you get detailed written information about all the costs for each service the CCRC offers and for all levels of care. Get the facility to tell you in writing what happens to your entrance fee, if you move from the facility. Compare at least three CCRC developments if you decide that a CCRC is the option you prefer and can afford.

Reference: A Place for Mom. “Continuing Care Retirement Communities.” (accessed August 21, 2019) https://www.aplaceformom.com/planning-and-advice/articles/continuing-care-retirement-communities

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys