Unlimited Marital Deduction

If a married couple are United States citizens, then the federal government exempts all transfers of wealth between the husband and wife. This means that the federal tax exemption mentioned in the previous paragraph will not be applied, as there is an unlimited exemption on a transfer to a wife. At the same time if one does not plan carefully, the tax burden will be substantially increased at the death of the second spouse.

Unified Gift and Tax Credit

The present unified credit allows one to shelter up to $675,000.00 and will be increasing until the year 2006. With careful planning, a married couple can shelter $675,000.00 for each person, and by the year 2006 a married couple could shelter up to $2,000,000.00. Our tax laws have severe tax penalties on transfers to grandchildren or individuals in what is defined as two generations below the transferor. If one is not careful, a penalty of 55% can be imposed. Tax professionals can guide one to claiming an exemption for all or part of the transfer.

Gift Tax Exclusion

These loans require no income qualification and eligibility is based on age, primary residence and existing mortgage balance. These loans, unlike conventional home loans have no monthly mortgage payments for as long as the borrower lives in the home.
 

Another feature of these loans is that no matter how high your loan balance grows you never owe more than the home's market value when the loan is repaid.

The greatest benefit of a reverse mortgage loan is that it allows seniors to stay in their home and have access to their home's equity for medical, insurance, home repair or monthly income needs, etc.

There are no restrictions on the use of the funds.

Senior homeowners have several options for the equity payout of their reverse mortgage:

• A lump sum

• A line of credit

• Monthly payments

• A combination of these options.

Seniors should review all the options and costs associated with each product and each payment option to determine which best fits their, and their family's needs.

• HECMs are the most popular of the three reverse mortgage products currently available and account for some 95 percent of all reverse mortgages. They are available in every state.
   

• The FHA HECM and Fannie Mae HomeKeeper have loan limits determined by Fannie Mae guidelines
   

• Financial Freedom's™ Cash Account™ loan products are available for homes with a home value of $500,000 and above.

  All products mandate counseling. The FHA HECM and Fannie Mae HomeKeeper require independent counseling prior to application completion. Counselors are approved by the Department of Housing and Urban Development (HUD) and provide "free" counsel regarding the various programs and their options. Upon completion of this counseling requirement the borrower may proceed with the reverse mortgage if they so wish.

  There is no fee to talk with a counselor and no referral fee involved.

Considering a reverse mortgage?

• Contact a reverse mortgage lender.

• Meet with an independent counselor.

• Decide which of the programs might be best for you.

• If you decide to proceed there is an application fee of $350 for an appraisal and pest report.

This fee can be refunded at loan closing if the borrower desires.

Features of most Reverse Mortgages:

• There are no income qualifications.
   

• The loan is due for repayment when the last borrower permanently moves out, dies or sells the property.
   

• Loan proceeds are not taxable* and do not effect Medicare or Social Security payments.
   

• Interest on a reverse mortgage is tax-deductible at the time of full loan repayment which is anticipated to be upon the home sale.

• Seniors can reside in a nursing home for up to a year before the reverse mortgage/loan is due.

• Record popularity of reverse mortgages among older homeowners are reflected by the fiscal year (FY 2004) that ended September 2004 in which there were 27,000 HECMs made nationwide, an increase of 49% from the previous fiscal year.

  • *Please consult your tax advisor.
     

For additional information on Reverse Mortgages:

Investment Strategies

When to Sell Real Estate

Many individuals have done well investing in real estate over the years. Some investments have been in vacant land, others in rental properties. But there often comes a point in time when real estate, particularly residential rentals, is too demanding an investment compared to other assets such as stocks and bonds. So what is the best way to transfer the responsibilities of managing or even totally getting this asset out of your portfolio?

With income properties, you could hire a property manager. But sometimes this isn't cost efficient or perhaps you've had enough and want out.

There are several ways to remove real estate from your portfolio and perhaps increase your income at the same time.

• An outright sale is the simplest. Tax consequences, however, can take up to 20% of your long-term gains (plus State tax, plus recapture tax if it applies).
   

• An installment sale can ease the tax bite, but you will have to wait longer to get your money (yet pay all the tax today).
   

• A 1031 exchange to a less demanding or higher income producing property could simplify your life and defer income taxes. For example, selling your apartment building and using the equity to buy a McDonalds location results in less demanding property as the commercial tenant usually takes care of all property responsibilities.
   

• If you also want to help a charity, you could put the property into a charitable remainder trust that would sell the real estate without paying capital gains tax (and pay you an income as long as you live and even stretched to the next generation)
   

• You could use a private annuity if you desire to transfer the property to heirs and want to immediately remove it from your estate
   

Another alternative is to get a new mortgage to free up cash that you could put in other investments for further portfolio diversification. ( A reverse mortgage can free up cash from real estate, but only if it is taken out on your primary home.)

Before you make any changes though, you might want to take some factors into consideration.

• What does your family think about this?

• Do your children expect to get or stay involved with the real estate?

• Would your spouse have the ability or even want to take care of real estate if you died?

• If not, you might end up leaving your heirs with a bundle of problems and responsibilities.

Coming up with the appropriate strategy to remove real estate from a portfolio needs to be approached with a coordinated effort that addresses your financial, family, legal, and tax situation.

Review options with a financial advisor, a tax or Elder Law attorney to determine what makes sense.

Charities Working to Get Your Gifts

Are you looking to make a gift to your alma mater or other favorite charity? Many non-profits are getting more aggressive in their marketing efforts to attract donors like you. And the help they provide might make your gift giving planning easier and perhaps less costly. However, make sure you understand their motivations before you accept help.

Charities make it easy for you to donate but they often put themselves first before the needs of their donors. For example, many charities promote making gifts now and the charity pays you an income for life. Your gift is deposited in their pooled income fund. These funds can be managed to maximize the return to the charity rather than the return to you. Your alternative is to establish your own trust and manage the assets yourself or with an advisor of your choosing.

Planned giving officers have been hired to help some nonprofits raise money. These professionals have become philanthropic advisors to alumni, donors, and potential donors. They sponsor seminars on money, family dynamics, and philanthropic issues and offer on-site tours to introduce their organizations mission. Typically, a significant portion of their compensation is based on how much money they raise. So you may not get independent advice from these officers.

So before making a gift, educate yourself, or us a financial advisor, a tax or Elder Law attorney to see how to maximize the tax and income benefits to you while also benefiting your favorite charity.

Using A Down Stock Market To Your Income and Estate Tax Advantage

k market and dropping interest rates can sometimes put financial plans on hold. But there also may be an opportunity during a slowdown for investors who expect the economy to recover. If you transfer property during a slow down or market dip, you may be able to reduce the size of your taxable estate and improve your chances of passing on more tax-free funds to your beneficiaries.

First, the income tax advantage:

Any stocks that you want to hold long term yet have a loss currently, could be sold so you can take the deduction on your tax return (limitations apply). You can then repurchase these shares in 31 days (if you repurchase sooner, the IRS does not allow the deduction). Some people are so emotionally tied to never taking a loss, they miss this tax advantage. You must make the sale to capture the tax advantage.

Secondly, if you have an IRA, converting to a Roth IRA is more beneficial when your IRA has dropped in value.

By converting to a Roth, you convert a tax deferred account to tax free, but must pay the accumulated income tax on today's value. What better time to make the conversion then when the value is down and your tax will be lower.

As to estate taxes:
 

In a down market you can transfer more assets and use less of your $1 million exemption. Lets hypothetically assume you have 1000 shares of stock that were worth $1.2 million 2 years ago. You could have transferred those shares out of your estate (e.g. to a trust) but would have had to pay gift taxes on the amount over $1 million. If today, those shares have declined in value to $1 million or less, you can transfer them without tax. Reduced values allow you to transfer more property before estate taxes take effect.

To investigate how to make the most of asset values that have declined, a consultation should be in set up with your financial advisor, or with a tax or Elder Law attorney.

Investment Strategies information was provided through NF Communications, Inc., Marketing Systems for Financial Professionals.

Social Security

The earliest eligible age for filing for social security is 62, with approximately a 20% reduction in benefits. If you are a widow or widower and have not remarried you can be eligible for benefits on your late spouses account. Generally the amount is less than a man would collect on his own, and therefore not often filed for. Widows on the other hand can often receive more funds by filing at 60 on their late husbands benefits than they would collect waiting until 62 or 65 based upon their own earnings. At 65 those who paid into Social Security are eligible to file for full benefits if you were born before 1938. Those born thereafter are subject to an incremental rise in the age until eventually filers will have to be 70 to receive "full" benefits. (Does not apply to widows or widowers who may be eligible to survivor benefits, and to underage survivor dependents.) In order to collect, you must file at your local social security office.

Before retirement, you should be receiving every an annual Personal Benefits and Earnings Statement from the Social Security Administration. If you are not, request one or several statements with different ages for retirement as long as they are each submitted on a separate form. Do this by calling 1.800.772.1213 or by downloading the form. If you dispute their record of earnings it can be dealt with well ahead of filing for benefits.

The social security office claims that they send out statements before your birthday on some regular schedule, but do not depend upon that. No one in our office has received one un-requested!

If you file for early social security between age 62 and 65, your earnings test exemption is $11,520 per year (2003 figure). That means you may be able to earn up to that amount in a calendar year without forfeiting any of your social security check amount. Special rules apply in the initial year you retire that may affect that number. If you continue to work after you file for social security, social security will continue to be deducted from your wages, or owing from 1099 income earned as an independent consulate. These additional social security payments made into the system may make you eligible for higher payments from social security in subsequent years.

How to Own Your Life Now and Later

Who owns your life? This is not asked to distinguish Body from Soul, Body form Mind, Body from Spirit. “Who” decides “What” for your body if you cannot decide what should or should not be done? What if you could not express your decision? Who has the right to decide for you? Your husband? Your former wife? Your minor grandchild? Your physician-brother? Your clergyman?

Do you want to be kept alive on a respirator? Would you want to live in unconsciousness, hooked up perpetually to tubes? How many consultants should be called to determine whether a coma is temporary or permanent?

Who should pay for such care? Family? The state? Is money a fair factor in this decision? Whose money? Whose decision?

Painful decisions are painful no matter who makes them. But on the intensely personal subject of your body, you have an important interest in deciding who shall make critical decisions you would make if you could, once you cannot.

You could appoint a member of your family or a friend or professional practitioner to act as your Medical Surrogate.

Contrary to what most people think, however, a Surrogate is not a Surrogate forever. In fact, in most states a Surrogate is only a temporary appointment. If a document for a Medical Surrogate is recorded, it generally serves only for one course of illness, or one hospital stay. Most states have no statutory surrogacy.

If you do not appoint a Surrogate how is one selected?

Remarkably, though states have clear mandates as to who can act for the dead who have not made their will known, there is no such provision for knowing the will of a person alive, but incapacitated. Every state has what is called a “statute for intestate succession” which provides who shall inherit what, from a person who died without writing a will. Only a few states regulate Medical Surrogacy. Everywhere else, a Surrogate, if not appointed by the patient, must be appointed by a Probate Court.

Going to court on medical decisions usually is emotionally painful for the family. But Probate Court can be deadly for the incapacitated patient whose treatment must be delayed or inappropriately continued until the Court rules. And the court is simply a judge. No matter how intelligent and no matter how compassionate, that judge has never met the patient, never learned what the patient personally decided and can only rule on what seems reasonable and fair. Is that what you want?

More permanent and more certain than the temporary Medical Surrogate, is a Durable Power of Attorney for Health Care or Advanced Health Care Directive. To establish such a Power you first must creatively contemplate the most horrible of horribles. Then you must act with courage and decorum to write your judgments about what you wish done and not done if that horrible event occurs. Finally, in great relief, knowing you have taken necessary precautions, you can forget about the problems and enjoy life.

Fortunately several states have compassionate laws protecting the seriously disabled and incapacitated. No matter how strong and healthy you are today, and no matter where you live, you need to know what your state does or does not require. Your state no doubt has some law relating to Health Care Decisions and creating Powers of Attorney for Health Care.

For this writing, California’s Health Care Decisions Law (technically, Chapter 658 of the California Statutes) passed in 1999 and effective as of July 1, 2000 will be cited, because it is intelligent, benefits from the excellence of other state laws, and sets an example for other states to enable citizens to retain personal autonomy even in disasters. California’s law combines the Probate Code’s Durable Power of Attorney with the Natural Death Act’s Living Will to Physicians and goes beyond the best of each. It avoids ambiguity and clarifies many contradictions. It protects most, although not all individual choices and bodily rights.

It gives Californians two new rights:

To appoint a Durable Power of Attorney for Health Care
To create an Advance Health Care Directive.
 

Durable Power of Attorney for Health Care.

If you reside in California you can appoint a friend or relative as “Attorney-in-fact”. The person need not be an attorney to be called that. They become your agent for decisions and actions for your body if you cannot give your own permission or veto. Expressly built into this Power is a Durable Provision. If you, the grantor of the Power, become disabled or incompetent, then the Attorney-in-fact takes over as your spokesperson.

The Attorney for Health Care is supposed to act as you would act for yourself if you could.

• “Yes, please operate”.

• “No please do not use X anesthesia”.

• “Yes, please be sure to try ABC because my sight is more important to me than my hearing.”

• “No, do not keep me alive on a respirator if I never again will be able to....”

Those are the tough decisions the Attorney-in-fact must make. Therefore, you must select that person carefully. He or she will have to act in the best possible way for your benefit, not theirs.

Legally, this Attorney-in-fact replaces your Informed Consent. Appointing an Attorney-in-fact requires you to write what becomes a legal document. You can get preprinted forms from your local hospital, elder law attorney, or stationary store, and simply fill in the blanks, or you can create your own document. Since the Power itself is a legal appointment avoiding Probate Court, it must be created with dignified formalities. The purpose is to be scrupulously clear and fair. Therefore, in California, as in many states, the document appointing the Power-of-Attorney must be signed in front of 2 qualified adult witnesses or a Notary Public. The witnesses or Notary must attest to your, the grantor’s, sound mind, and that you are under no known duress, no fraud and no undue influence. The Attorney-in-fact must sign they agree to take on the responsibility. To be appointed a friend’s Attorney-in-fact is a high honor and a terrifying responsibility.

However does that Attorney-in-fact know what you would do if you could?

Advance Health Care Directive

If you are a Californian, you can create an Advance Health Care Directive which is a set of specific instructions (originally under CA Probate Code S.4701). Most are for End of Life Decisions.

1. There is the choice NOT to prolong life vs choice to prolong life under certain terrible circumstances (unconsciousness, total paralysis, literally whatever scares you to death).

2. There are Do Not Resuscitate Orders (DNR) which give particular scenarios. “If X horror occurs, than DNR.”

3. There are Relief from Pain Orders. Some physicians and some HMOs will refuse strong narcotics for relieving excruciating pain for fear of creating addiction. If you need the medication, do you want it or do you not want the risk of becoming a junky if you survive?

4. There are instructions for Organ Donation after Death. You can specifically provide for your organs to be used for transplant, for therapy, for research and for education. Or you can restrict organ donating for one or two purposes and exclude the others. Or you can say No to all.

5. You can appoint a so-called Responsible Physician. That doctor designation probably will not be valid if you belong to a medical program that assigns physicians to patients and patients to doctors. But the law makes a valid attempt at integrity.

Some people so stress and fret over the Advance Health Care Directive that they fail to write one. Do not procrastinate. No matter how awkward or how painful writing one is, to not write one is more terrible.

Here is an example of how one person dealt with an ADVANCE HEALTH CARE DIRECTIVE

If my body slowly dies by degree (total disability, paralysis), it is the expendable but magnificent vessel of my mind. Thus I want to live to continue thinking and working whatever way I can get ideas out of my head. If no speak, then write. If no write, then tap and blink. If no tap and blink (or computer-aided equivalent) then pull the plug and let my mind follow my body to death. If my mind goes, it is the essential, non-expendable, magnificent center of my being. Short term memory loss is OK if long term memory and reason still exist and function. If all memory and reason cease, then pull the plug and let me die. My body is wonderful but not worth preserving. Give any and all my organs, tissues or body parts to grateful recipients for transplant, therapy, research or education.

Handy tips:

• Discuss your wishes with family, doctors and caregivers

• Complete and update your documents with doctors' input

• Pick a health-care agent who will act aggressively to carry out your wishes

• The best agent may not be the one closest and dearest to you

• Have a witness for each directive you sign and date

• Copies of directives should be in your medical records and let family know

• Choose a new doctor if yours is not willing to abide by your wishes

Helpful Estate Planning Information, Resources and Links

Elder Law is a new area of legal specialization focusing on health, legal and financial issues of seniors and their families. Areas covered by this specialty are:
Preservation/transfer of assets to avoid spousal impoverishment
Social security and disability claims and appeals
Medicaid
Medicare claims and appeals
Supplemental and long term health insurance issues
Disability planning, durable powers of attorney, health care decisions and instruments for preservation/inheritance of assets
(From a printing by the National Academy of Elder Law Attorneys, Inc. 520.881.4005)
 

National Fraud Information Center provides information on fraud and other pitfalls. They cover on-line fraud, as well as other forms. Also reachable at 800.876.7060.