IRS Issues Long-Term Care Premium Deductibility Limits for 2012

The Internal Revenue Service (IRS) is increasing the amount taxpayers can deduct from their 2012 taxes as a result of buying long-term care insurance.

Premiums for "qualified" long-term care insurance policies (see explanation below) are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 7.5 percent of the insured's adjusted gross income.

These premiums -- what the policyholder pays the insurance company to keep the policy in force -- are deductible for the taxpayer, his or her spouse and other dependents. (If you are self-employed, the tax-deductibility rules are a little different: You can take the amount of the premium as a deduction as long as you made a net profit; your medical expenses do not have to exceed 7.5 percent of your income.)

However, there is a limit on how large a premium can be deducted, depending on the age of the taxpayer at the end of the year. Following are the deductibility limits for 2012. Any premium amounts for the year above these limits are not considered to be a medical expense.

Attained age before the close of the taxable year	Maximum deduction for year
40 or less	$350
More than 40 but not more than 50	$660
More than 50 but not more than 60	$1,310
More than 60 but not more than 70	$3,500
More than 70	$4,370

What Is a "Qualified" Policy?
To be "qualified," policies issued on or after January 1, 1997, must adhere to certain requirements, among them that the policy must offer the consumer the options of "inflation" and "nonforfeiture" protection, although the consumer can choose not to purchase these features. Policies purchased before January 1, 1997, will be grandfathered and treated as "qualified" as long as they have been approved by the insurance commissioner of the state in which they are sold. For more on the "qualified" definition, click here.

The Georgetown University Long-Term Care Financing Project has a two-page fact sheet, "Tax Code Treatment of Long-Term Care and Long-Term Care Insurance."

To download it in PDF format, go to: http://ltc.georgetown.edu/pdfs/taxcode.pdf

This article is reprinted with the permission of ElderLawAnswers.com.

The Five Phases of Retirement Planning

Retirement has changed radically over the last several decades in America. Years ago, you expected to work most of your life for a single, large employer and you then count on a pension. "Retirement planning" meant figuring out how to use your free time. Today, in all likelihood you will be living in retirement on money you, yourself, saved. "Planning" means calculating rates of return and deciphering tax rules. 

This change from institution-funded to self-funded retirement constitutes a dramatic shift of responsibility. In recognition of this shift, ElderLawAnswers has significantly expanded its ElderLaw 101 section on Retirement Planning, providing you with information you can use no matter where you are in the continuum of retirement planning. 

The section begins with an explanation of the stages along that continuum -- the five phases of retirement planning and the key aspects of good planning to be carried out during each phase. Below is a summary.

PHASE I: Accumulation
This period begins when you enter the workforce and begin setting aside funds for later in your life, and ends when you actually retire. If your employer offers 401(k), 403(b), or 457(b) plans, have you signed up and are you contributing the maximum allowed? Did you know that the "new normal" requires retirement savings rates for most Americans to exceed 10 percent? If self-employed, are you shortchanging yourself on Social Security in order to reap tax deductions? 

PHASE II: Pre-Retirement
This phase occurs during the final years of the accumulation phase and should begin when you reach 50 years old or are 15 years away from retiring, whichever happens first. Now is the time to get your plan in place, making sure your finances are lined up correctly for retirement day so nothing will be left to chance. If you work for a company with a benefits specialist, arrange an appointment to become informed about the various ways you can convert your employer retirement savings into a stream of income or an IRA. Consider using a tool known as "scenario planning." Start learning about Social Security and your options for beginning to receive retirement benefits. Familiarize yourself with the basics of Medicare. 

PHASE III: Early-Retirement
This phase lasts from the day you retire until you are 70 years old. (For those who do not plan to retire until well into their 70s, some tasks in this phase may occur later.) A key purpose of this phase is to create a clear communication channel with your family so information can be shared, questions asked and answered, and decisions made in a calm, supportive way. It's also the time to assess how well your finances are working now that you are using your retirement savings. Fine-tune your income and expense projections, taking into consideration how you will meet minimum distribution requirements from your tax-deferred accounts. 

PHASE IV: Mid-Retirement
This phase begins at age 70 and lasts as long as you are able-bodied and high-functioning. Despite your good health, begin looking at what steps you would like your family to take should your condition decline significantly. In most cases your ability to make all your own decisions, care for yourself, engage with the world on your terms, and manage your affairs does not vanish in a split second. It takes courage to dive into a conversation about giving up and transferring control. 

PHASE V: Late-Retirement
This phase begins when your health has taken a turn for the worse and there is little likelihood of it being fully restored. You require significant help to function day to day. The hope is that by this point all the planning done in prior years makes this transition as manageable and life-affirming as possible.

What Is Estate Planning?

The definition of Estate Planning is easy: it is a plan for your estate.  Your estate is what you own; it is your stuff. 

If you become mentally incapacitated, perhaps by accident or illness, you can no longer manage your stuff.  You can't buy or sell what you need, pay you bills, or file your taxes.  Someone will have to do this for you.  If you plan for this with Powers of Attoney or Trusts, you get to choose who helps you manage your stuff.  If you don't, a judge will choose someone for you after an expensive court proceeding.  You may not agree with the judges choice and it may be a stranger who is charging you hourly.

When you pass away, the ownership of you stuff must pass to someone else (sorry).  If you plan in advance for this, you get to choose who gets what, when they get it and how they get it.  You even get to avoid taxes that will be due if no planning is done.  You can do this by getting a Will or Revocable Living Trust.  You can also control who gets what with beneficiary designations such as with life insurance and retirement accounts.  Bank accounts can be designated Payable on Death (POD) to your beneficiary.  You can also own an asset jointly with someone else so that they become the sole owner if you die.  If you do not plan in advance, the law sets forth who gets what.

A typical Estate Plan may have a Will, Trust, Financial Power of Attorney, Healthcare Power of Attorney and a Living Will.  This planning is really not so much for you but for your loved ones.  If you have an Estate Plan, check to see if it needs an update.  If you don't have a plan, get one.  Your loved one's will thank you someday.

Last Will and Testament

If you own assets in your name alone, they may pass from you to the people you love, as long as you leave a Will. Without a Will, your assets pass according to the State’s rules, also known as intestacy. The State may not pass your assets to the people you care about. You should be sure.

Also, you should know that...

• Assets will pass through your Will to your loved ones if the Will is written properly.

• You can reduce your estate tax liability by using a trust in a Will.

• You can protect the ones you love by creating a trust in your Will which can protect that person from creditors.

• You can protect you.

• It is important that you give your family the tools to help you if you cannot help yourself, your children from divorce or, you may protect your children who are not good with money, or those who have other problems, such as addiction or mental illness.

• You can protect disabled beneficiaries by creating a Supplemental Needs Trust for them, which preserves assets for the family, while keeping their eligibility for public benefits.

• Your Will must go through probate - using the courts to divide your property.

Revocable Living Trusts

A trust is a contract between the Grantor (the person who creates the trust), the Trustee (one who controls the trust) and the beneficiaries (those entitled to benefit from the trust). You, as Grantor, determine how the trust will be operated by the Trustee and who benefits, how and when. You can create a trust that permits you to be Trustee and give you the right to receive full benefits from it. This type of trust is typically referred to as a Revocable Living Trust and is often used as a substitute to your Will. It permits you to keep total control and access to all your assets during your life, and provides for the distribution of your assets to your beneficiaries at your death. We often refer to a revocable living trust as your ABook of Instructions. A well established advantage to Revocable Living Trusts is the avoidance of probate, which is required if you use a will to distribute your assets after death. Other advantages of Revocable Trusts, when property drafted, can include:

• Asset protection for your spouse after your death.

• Special needs planning for disabled beneficiaries.

• Asset management and protection for children who are not proficient with handling money.

• Protection of assets from a spouse=s subsequent marriage after your death.

• Disability planning in case you become disabled prior to death.

• Asset protection for your children if in bad marriages or to ensure your assets don’t go to the in-laws.

• Keeping your affairs private (as opposed to open for public review in probate).

• No court intervention required (handled entirely by Trustee you name in accordance with your detailed instructions).

• Plan for proper management of your business in your absence.

Very few revocable living trusts provide these benefits. Only a qualified estate planning attorney will know how to incorporate these protections into your plan. While a Revocable Living Trust has many advantages, it does not protect your assets from a nursing home, lawsuits, divorce bankruptcy or other creditors.

What is Probate?

It is the legal process of presenting your Will to the Court, after your death to authenticate it, and appoint your Executor. Your Executor must be appointed by the Court in order to collect and distribute your assets as stated in your Will. However, because it is a legal process, there are many steps that must be followed before your Executor can be appointed.


• The attorneys must obtain signatures from your heirs signifying they agree the Will is yours, and they will not contest it. Your heirs are your spouse and children and all must agree not to contest your Will before your Executor can be appointed. If you don't have a spouse or child, probate becomes even more complicated. Even if your heir is not a beneficiary, his waiver is still required. This can be very different in second-marriage situations, if you have minor children or if you have a child you lost contact with. If a child dies before you, then, all of your deceased child’s children will have to agree not to contest your Will, but if they are under 18, the Court will need to appoint a separate attorney to represent them. The same is true if any of your heirs are legally incapacitated, such as a retarded child or spouse with Alzheimers.

• The Executor will have to submit a family tree, filing fees, a petition, a death certificate and affidavits from the individuals who witnessed your Will. Upon receipt of all of the appropriate information (if no heirs contest it), the Court will appoint the Executor.

• After your Executor is appointed, estate administration begins. It is a period of time the law permits the Executor to accumulate the assets and report to the Court how he/she intends to distribute them. This period is a minimum of seven months after the Executor is appointed. However, in most cases, it takes a year or more. If you die without a will, the process is similar, but the State decides who gets your assets, not you.

• Unfortunately, probate is unpredictable. That's why many people chose to avoid it, but if all of your heirs agree and your assets are centralized, it can go smoothly.

Who Needs Estate Planning?

Estate planning isn’t about how much money you have, it's about protecting what you have for you, during your life and for those you love, after you’re gone. It ensures what you have gets to the people you love, the way you want, when you want.

If you were to die today, are you comfortable everything will be taken care of the way you wanted? Estate planning is legally ensuring things will be handled the way you want by providing sufficient instructions.

Estate Planning really is for everyone. It doesn’t matter if you have $40,000 or $400,000. You still have to plan for the future. Whether it’s to name a guardian for your minor children or ensure your children don’t blow through your assets if you unexpectedly die or become disabled (Terri Schiavo case).

Estate planning can only be done by attorneys, and it can be as simple as a Will, Health Care Proxy, Living Will and Power of Attorney. It can also include a revocable, probate-avoidance trust, asset protection trusts, multi-generational tax-saving trusts, tax-saving charitable trusts, private family foundations, and many other fact-specific strategies.


Keeping your Estate Plan Current...

Once completed, your estate plan should be reviewed and kept current with life events such as birth, death, marriage or divorce of anyone included in your plan. In addition, you should review your plan if there is a significant increase or decrease in your finances or if the laws related to your estate plan change.

10 Good Reasons to have an Estate Plan

No matter your net worth, it's important to have a basic estate plan in place.
An estate plan ensures that your family and financial goals are met after you die. It is a process. It involves people—your family, other individuals and, in some cases, charitable organizations of your choice. It also involves your assets (your property) and the various forms of ownership and title that those assets may take. Overall, it addresses your future needs in case you ever become unable to care for yourself. It is not only for the elderly – even young people are faced with unfortunate circumstances: health related, automobile accidents and so forth.

An estate plan has several elements and considerations.

1)A General Power of attorney or Living Trust can determine:
a)How and by whom your assets will be managed for your benefit during your lifetime if you ever become unable to manage them yourself.
b)When and under what circumstances it makes sense to distribute your assets during your lifetime.

2)A Will or Living Trust can determine:
a)How and to whom your assets will be distributed after your death.

3)A Living Will or Health Care Power of Attorney can determine how and by whom your personal care will be managed and how health care decisions will be made during your lifetime if you become unable to care for yourself.

4)For some, the establishment of a Trust may also be suitable.

What is involved in estate planning?
Taking inventory of your assets is a good place to start.
Your assets include your investments, retirement savings, insurance policies, and real estate or business interests. A good place to start is to ask yourself the following questions:
1)What are my assets and what is their approximate value?
2)Whom do I want to receive those assets—and when?
3)Who should manage those assets if I cannot—either during my lifetime or after my death?
4)Who should be responsible for taking care of my minor children if I become unable to care for them myself?
5)Who should make decisions on my behalf concerning my care and welfare if I become unable to care for myself?
6)What do I want done with my remains after I die and where would I want them buried, scattered or otherwise laid to rest?

Once you have some answers to these questions, our office can help you create an estate plan, and advise you on such issues as taxes, title to assets and the management of your estate.

Everybody needs a will.
A will tells the world exactly where you want your assets distributed when you die. It's also the best place to name guardians for your children. Dying without a will - also known as dying "intestate" - can be costly to your heirs and leaves you no say over who gets your assets. Even if you have a trust, you still need a will to take care of any holdings outside of that trust when you die.

Trusts are not only for wealthy people.
Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death. They also allow you to reduce your estate and gift taxes and to distribute assets to your heirs with less cost, delay and publicity. Some also offer greater protection of your assets from creditors and lawsuits.

Don’t I only have to discuss my estate plans with my family (heirs) to prevent disputes or confusion?
That would be nice, but upon death emotions rise and there are often hard feelings among those you loved. Inheritance can be a loaded issue and at times full of mixed emotions and even greed. By being clear about your intentions with your loved ones, you may help dispel potential conflicts after you're gone, however, there may be issues you do not wish to speak of. Discussing your true wishes in confidence with your attorney can help provide you with peace of mind.

The federal estate tax exemption
The amount you may leave to heirs free of federal tax - has hit $3.5 million in 2009.
The estate tax is scheduled to phase out completely by 2010, but only for a year. Unless Congress passes new laws between now and then, the tax will be reinstated in 2011 and you will only be allowed to leave your heirs $1 million tax-free at that time.

You may leave an unlimited amount of money to your spouse tax-free, but this isn't always the best tactic.
By leaving all your assets to your spouse, you don't use your estate tax exemption and instead increase your surviving spouse's taxable estate. That means your children are likely to pay more in estate taxes if your spouse leaves them the money when he or she dies. Plus, it defers the tough decisions about the distribution of your assets until your spouse's death.

There are two easy ways to give gifts tax-free and reduce your estate.
You may give up to $13,000 a year to an individual (or $26,000 if you're married and giving the gift with your spouse). You may also pay an unlimited amount of medical and education bills for someone if you pay the expenses directly to the institutions where they were incurred.

There are ways to give charitable gifts that keep on giving.
If you donate to a charitable gift fund or community foundation, your investment grows tax-free and you can select the charities to which contributions are given both before and after you die.