New York City Estate Planning Council. Estate Planners Day Planning for an Aging Population

Transcription

1 New York City Estate Planning Council Estate Planners Day 2017 Planning for an Aging Population

2 Graying of America 40 million Americans over age 65 13% of the population By 2030, expected to increase to 88.5 million 20% of the population Age 85 and older is fastest growing segment Clients will need more help and advice re: long-term care issues

3 Client Concerns Cost of health care may impact ability to gift or create family legacy Estate taxes not a concern for many $5.49M exemption H.R. 631 Shift in focus to state estate taxes and income tax planning Retirement planning Advance directives

4 Power of Attorney Durable Springing Capacity Accountability of agent Abuse Monitor Revocable trust

5 Power of Attorney Who should serve as agent Multiple agents Act separately Act together Compensation Gift giving provisions Financial institution acceptance Snowbird clients

6 Health Care Decision Making Health Care Proxy Living Will Capacity Choice of agents Discuss wishes with agent Requires thought to select right person Second marriage issues Is cost a factor? Quality of life 6

7 Guardianship Need for reform Courts often ignore advance directives Cronyism Self-dealing by guardian Guardian s relationship with ward s family Depletion of ward s assets Decision-making standards Unintended uses 7

8 Government Benefits Social Security retirement SSDI Unable to do any substantial gainful activity due to disability Medicare Means tested Medicaid SSI

9 Retirement Planning Length of retirement Longevity Low interest rate environment Stock market volatility Decrease in defined benefit pension plans (less than half receive) Social Security 9

10 Social Security Benefits Retirement Survivor Disability Different from SSI Not means-tested Based on past earnings of person with disability Unable to work for at least one year 10

11 Social Security Retirement 65% of recipients receive half or more of their income from Social Security 36% receive 90% or more of their income from Social Security Benefits based on average earnings of highest 35 years of earnings Benefit is reduced if you take before full retirement age and increased if you wait until after full retirement age to take (up until 70) 11

12 Social Security Most people claim early Concern about fiscal soundness Maximum benefit is $2,687 in 2017 if you retire at full retirement age (66) $2,153 if age 62 $3,538 if age 70 12

13 Social Security Full retirement age is 67 for those born 1960 and later Age 66 if born Otherwise age 65 Future status unclear People living longer Baby boomers are retiring Politics 13

14 When to claim Social Security 25% reduction if claimed at age 62 compared to full retirement age (66) Will be 30% reduction when full benefit age is 67 8% annual increase if client waits until age 70 No reason to delay further Cost of living increases 14

15 Social Security Factors to consider Need money now Life expectancy If primary earner, spousal survivor benefits increase if you defer Monthly benefits are higher for life if you defer Opportunity cost Taxes 15

16 Taxation of SS Benefits Modified Adjusted Gross Income Tax-exempt interest Half of Social Security benefits Not taxable Under $25,000 $32,000 for married filing jointly 16

17 Taxation of SS Benefits 50% taxable MAGI between $25,000 and $34,000 $32,000 - $44,000 for married filing jointly 85% taxable MAGI over $34,000 MAGI over $44,000 for married filing jointly Some states do not tax SS benefits 17

18 Long-Term Care Acute v. chronic illness Heart attack v. Alzheimer s disease No expectation of recovery Custodial v. skilled care Who is affected by this? Seniors People with special needs

19 Long-Term Care Most Americans are in for sticker shock if they or a loved one ever requires long-term care

20 The Problem The United States has no health insurance system for long-term care

21 Long-Term Care 70 percent of Americans age 65 and older will need long-term care Average duration is almost 4 years Medicare does not pay Common misconception Spousal responsibility

22 Long-Term Care Where? Home Preference for most Costly Risk of abuse Assisted living Nursing home CCRC Who decides? Does client have capacity?

23 Paying for Long-Term Care Who pays? Is cost a factor in deciding where? Review admissions agreement Third party guaranty Security deposit Tax issues Medicare Medicaid Long-term care insurance

24 Long-Term Care Insurance Fewer choices Fewer products Fewer companies Only pays for 7% of all long-term care costs 7 million policy holders Relatively flat past 10 years New policy sales are way down from

25 Long-Term Care Insurance Prices continue to rise Low interest rates Lapse rate Life expectancies Heath care costs High capital requirement 25

26 Long-Term Care Insurance More conservative underwriting Tougher approval process More scrutiny re: existing medications Tougher to qualify for best rates Higher costs for women Historically gender neutral Women live longer No caregiver at home Premiums are 50% or more higher 26

27 Long-Term Care Insurance Hybrid products Hedge your bet Annuities/life insurance Premiums are guaranteed Many are single premium 10-pay policies Return of premium rider Cash surrender option Partnership policies

28 Deductibility of LTCI Premiums Bernard A. Krooks Age 40 or less $410 Over $770 Over $1,530 Over $4,090 Over age 70 $5,110 State tax credit or deduction 10% medical expense threshold 7.5% if 65 or older for 2017

29 Deductibility of LTCI Premiums Bernard A. Krooks C corporation Executive benefit Fully deductible as a business expense Not imputed income Not subject to ERISA Receipt of LTCI benefits are tax-free to the executive

30 Tax Treatment of Benefits Benefits received under a qualified LTC policy are not considered taxable income Tax-free cap of $360/day applies to indemnity policies

31 Long-Term Care Insurance Evaluate existing policies Premiums can increase Uncertainty regarding future claims Suggest healthy clients/family consider Is LTCI really insurance? Risk management strategy

32 Long-Term Care Insurance Determine need When to buy Some is better than none Asset level Elimination period Inflation rider Home care v. nursing home Avoid family disputes

33 Long-Term Care Insurance Work with reputable agents Determine payment source Third party lapse notification

34 Medicare Federal program Administered by CMS Short-term rehabilitation Prior hospital stay required Deductibles and co-pays Does not cover custodial care Improvement standard Observation status 34

35 Medicare Secondary payer if still employed and covered by health insurance Should apply for Part A No cost Part B covers doctors Part D covers prescription drugs Monthly premiums for both Medicare Advantage 35

36 Medicare Medigap policy Pays for the gaps in Medicare Does not cover long-term care Not available for those who have Medicare Advantage plans Regulated by federal government Does not include prescription drug coverage 36

37 Medicaid Jointly funded federal/state program Strict asset and income requirements Rules vary by state Look-back period Penalty period Joint accounts Estate planning gifts

38 Residence Medicaid Home equity exemption Exempt transfers Retirement accounts Crisis planning Non-crisis planning Home care Quality of care Estate recovery

39 Married Persons Community spouse resource allowance Spousal transfers Right of election Pre-nuptial agreement Divorce Disclaimer wills Portability 39

40 LTC Strategies Bernard A. Krooks Self insure Insure part of the cost/medicaid planning Create an income stream Purchase LTCI for parents Reverse mortgage Second to die life insurance Life settlement

41 Thank You! Bernard A. Krooks JD, CPA, LL.M,, AEP (Distinguished) 41