Four Critical Estate Planning Tasks to Complete Before Your Vacation

Four Critical Estate Planning Tasks to Complete Before Your Vacation

Going on vacation involves lots of planning: packing luggage, buying plane tickets, making hotel reservations, and confirming rental vehicles. But one thing many people forget to do is plan for the worst. Traveling, especially in foreign destinations, means you’ll likely be at greater risk than usual for illness, injury, and even death. So you need a solid and updated estate plan in place before taking your next trip.

Without a solid estate plan, your family could face a legal nightmare if something happens to you while you’re away.

#1 Make sure your beneficiary designations are up-to-date

Some of your most valuable assets, like life insurance policies and retirement accounts, do not transfer via a will or trust. Instead, they have beneficiary designations that allow you to name the person (or persons) you’d like to inherit the asset upon your death. It’s important that you name a primary beneficiary and at least one alternate beneficiary in case the primary dies before you. Moreover, these designations must be regularly reviewed and updated, especially following major life events like marriage, divorce, and having children.

#2 Create financial and health power of attorney documents

Unforeseen illness and injury can leave you incapacitated and unable to make critical decisions about your own well-being. Given this, you must grant someone the legal authority to make those decisions on your behalf through power of attorney. You need two such documents: medical power of attorney (in Florida it’s called a Designation of Health Care Surrogate) and financial durable power of attorney. Medical power of attorney gives the person of your choice the authority to make your healthcare decisions for you, while durable financial power of attorney gives someone the authority to manage your finances. As with beneficiary designations, these decision makers can change over time, so before you leave for vacation, be sure both documents are current.

#3 Legally Name guardians for your minor children

If you’re the parent of minor children, your most important planning task is to legally document guardians to care for your kids in case you die or become incapacitated. These are the people whom you trust to care for your children—and potentially raise them to adulthood—if something should happen to you. Given the monumental importance of this decision, we’ve created a comprehensive system called the Kids Protection Plan that guides you step-by-step through the process of creating the legal documents naming these guardians. Do you need help choosing guardians? We can support you with that.

#4 Organize your digital assets

If you’re like most people, you probably have dozens of digital accounts like email, social media, cloud storage, and cryptocurrency. If these assets aren’t properly inventoried and accounted for, they’ll likely be lost forever if something happens to you. At minimum, you should write down the location and passwords for each account, and ensure someone you trust knows what to do with these digital assets in the event of your death or incapacity. To make this process easier, consider using LastPass or a similar service that stores and organizes your passwords.

Complete your vacation planning now


If you have a vacation planned, be sure to add these  items to your to-do list before leaving. And if you need help completing any of these tasks—or would simply like us to double check the plan you have in place, contact us now.

We recommend you complete these tasks at least 8 weeks before you depart. However, if your trip is sooner than that, call and let us know you need a rush Planning Session, and we’ll do our best to fit you in as soon as possible. Contact us today to get started. 

This article is a service of attorney Myrna Serrano Setty. Myrna does MORE than just draft documents. Myrna ensures you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Planning Session, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love.

Call us at (813) 514-2946 to schedule a Planning Session.
Ask how to get this valuable session at no charge.

Seniors and Student Loans

Seniors and Student Loans

The number of older Americans with student loan debt – either theirs or someone else’s — is growing. Sadly, learning how to deal with this debt is now a fact of life for many seniors heading into retirement.

According to by the Consumer Financial Protection Bureau, the number of older borrowers increased by at least 20 percent between 2012 and 2017. Some of these borrowers were borrowing for themselves, but the majority was borrowing for others. The study found that 73 percent of student loan borrowers age 60 and older borrowed for a child’s or grandchild’s education.

Before you co-sign a student loan for a child or grandchild, you need to understand your obligations.

The co-signer not only vouches for the loan recipient’s ability to pay back the loan, but is also personally responsible for repaying the loan if the recipient cannot pay. Because of this, you need to carefully consider the risk before taking on this responsibility. In some circumstances, it is possible to obtain a co-signer release from a loan after the loan recipient has made a few on-time payments. If you are a co-signer on a loan that has not defaulted, check with the lender about getting a release. You can also ask the lender for payment information to make sure the borrower is keeping up with the payments.

If the borrower defaulted and you are obliged to pay the loan back or you are the borrower yourself, you will need to manage your finances. Having to pay back student loan debt can lead to working longer, fewer retirement savings, delayed health care, and credit issues, among other things. If you are struggling to make payments, you can request a new repayment plan that has lower monthly payments. With a federal student loan, you have the option to make payments based on your income. To request an “income-driven repayment plan,” go to: https://studentloans.gov/myDirectLoan/index.action.

Defaulting on a student loan may affect your Social Security benefits.

If you have a private student loan, a debt collector cannot garnish your Social Security benefits to pay back the loan. In the case of federal student loans, the government can take 15 percent of your Social Security check as long as the remaining balance doesn’t drop below $750. There is no statute of limitations on student loan debt, so it doesn’t matter how long ago the debt occurred. If you do default on a federal loan, contact the U.S. Department of Education right away to see if you can arrange a new repayment plan.

What Happens After You Die?

If you die still owing debt on a federal student loan, the debt will be discharged and your spouse or other heirs will not have to repay the loan. If you have a private student loan, whether your spouse or estate will be liable to pay back the debt will depend on the individual loan. You should check with your lender to find out the discharge policies. Depending on the loan, the lender may try to collect from the estate or any co-signers. In a community property state (where all assets acquired during a marriage are considered owned by both spouses equally), the spouse may be liable for the debt (some community property states have exceptions for student loan debt).

For tips from the Consumer Financial Protection Bureau to help navigate problems with student loans, click here.

Attorney Myrna Serrano Setty doesn’t just draft documents, she helps you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why our firm offers a Planning Session. The Planning Session helps you get more financially organized than ever and helps you make the best choices for the people you love.  Start by calling us today to schedule a Planning Session and mention this article to learn how to get this valuable session at no cost to you.

Contact us at (813) 514-2946 or info@serranosetty.com

Part 2: Questions to Consider When Choosing Life Insurance Beneficiaries

Part 2: Questions to Consider When Choosing Life Insurance Beneficiaries

In the first part of this series, we discussed the first three set of questions you should ask yourself when selecting a life insurance beneficiary. Here we cover the final part.

Choosing a life insurance policy beneficiary sounds pretty easy. Because there’s so much that can go wrong, it can actually be more complicated thank you think!

For example, when buying a life insurance policy, your primary goal is most likely to make the named beneficiary’s life better or easier in some way in the aftermath of your death.  But if you don’t consider all of the unique circumstances involved with your choice, you might actually end up creating additional problems for your loved ones.

Last time, we discussed the first set of questions you should ask yourself when choosing a life insurance beneficiary. Here we cover the remaining three:

Are any of your beneficiaries minors?

Technically you can list a minor child as a life insurance policy beneficiary. But it’s a bad idea!  Insurance carriers will not allow a minor child to receive the insurance benefits directly until they reach the age of majority—which can be as old as 21 depending on the state.

If you have a minor named as your beneficiary when you die, then the proceeds would be distributed to a court-appointed custodian tasked with managing the funds, often at a financial cost to your beneficiary. And this is true even if the minor has a living parent. This means that even the child’s other living birth parent would have to go to court to be appointed as custodian if he or she wanted to manage the funds. And, in some cases, that parent would not be able to be appointed (for example, if they have poor credit), and the court would appoint a paid fiduciary to hold the funds.

Rather than naming a minor child as beneficiary, it’s better to set up a trust for your child to receive the insurance proceeds. That way, you get to choose who would manage your child’s inheritance, and how and when the insurance proceeds would be used and distributed.

Would the money negatively affect a beneficiary?

When considering how your insurance funds might help a beneficiary in your absence, you also need to consider how it might potentially cause harm. This is particularly true in the case of young adults.

For example, think about what could go wrong if an 18 year old suddenly receives a huge windfall of cash. At best, the 18 year old might blow through the money in a short period of time. At worst, getting all that money at once could lead to actual physical harm (even death), as could be the case for someone with substance-abuse issues.

To help mitigate these potential complications, some life insurance companies allow your death benefit to be paid out in installments over a period of time, giving you some control over when your beneficiary receives the money. However, as discussed earlier, if you set up a trust to receive the insurance payment, you would have total control over the conditions that must be met for proceeds to be used or distributed. For example, you could build the trust so that the insurance proceeds would be kept in trust for beneficiary’s use inside the trust, yet still keep the funds totally protected from future creditors, lawsuits, and/or divorce.

Is the beneficiary eligible for government benefits?

Considering how your life insurance money might negatively affect a beneficiary is absolutely critical when it comes to those with special needs. If you leave the money directly to someone with special needs, an insurance payout could disqualify your beneficiary from receiving government benefits.

Under federal law, if someone with special needs receives a gift or inheritance of more than $2,000, they can be disqualified for Supplemental Security Income and Medicaid. Since life insurance proceeds are considered inheritance under the law, an individual with special needs SHOULD NEVER be named as beneficiary

To avoid disqualifying an individual with special needs from receiving government benefits, you would create a “special needs” trust to receive the proceeds. In this way, the money will not go directly to the beneficiary upon your death, but be managed by the trustee you name and dispersed per the trust’s terms without affecting benefit eligibility.

The rules governing special needs trusts are quite complicated and can vary greatly from state to state, so if you have a child who has special needs, meet with us to ensure you have the proper planning in place, not just for your insurance proceeds, but for the lifetime of care your child may need.

Make sure you’ve considered all potential circumstances.

These are just a few of the questions you should consider when choosing a life insurance beneficiary. Consult with us as  to be sure you’ve thought through all possible circumstances.

And if you think you may need to create a trust—special needs or otherwise—to receive the proceeds of your life insurance, meet with us, so we can properly review all of your assets and consider how to best leave behind what you have in a way that will create the most benefit—and the least challenges—for the people you love. Schedule your  Planning Session today.

This article is a service of attorney Myrna Serrano Setty. Myrna doesn’t just draft documents. Myrna ensures you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why our firm offers Planning Session, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love.

Call us today at (813) 514-2946 to schedule a  Planning Session. Ask how you can get this valuable session at no charge.

Part 1: Questions to Consider When Choosing Life Insurance Beneficiaries

Part 1: Questions to Consider When Choosing Life Insurance Beneficiaries

Choosing a beneficiary for your life insurance policy sounds pretty straightforward. You’re just deciding who will receive the policy’s proceeds when you die, right?

But it’s a bit more complicated than that. Keep in mind that naming someone as your life insurance beneficiary really has nothing to do with you. Why? Because you should consider how that money will affect your beneficiary’s life once you’re gone.

It’s very likely that if you’ve purchased life insurance, you did so to make someone’s  life better or easier in some way. But unless you consider all of the unique circumstances involved with your choice, you might actually end up creating additional problems for your loved ones.

Here are a few important questions you should ask yourself when choosing your life insurance beneficiary:

What are your goals? 

The first thing to consider is the “real” reason you’re buying life insurance. On the surface, the reason may simply be because it’s the responsible thing for adults to do. But we recommend you dig deeper to discover what you ultimately intend to accomplish with your life insurance.

Are you married and looking to replace your income for your spouse and kids after death? Are you single without kids and just trying to cover the costs of your funeral? Are you leaving behind money for your grand-kids’ college fund? Are you intending to make sure your business continues after you’re gone? Or will your life insurance cover a future estate-tax burden?

The real reason you’re investing in life insurance is something only you can answer. The answer is critical, because it is what determines how much and what kind of life insurance you should have in the first place. And by first clearly understanding what you’re actually intending  to accomplish with the policy, you’ll be in a much better position to make your ultimate decision—who to choose as beneficiary.

What are your beneficiary options?

Your insurance company will ask you to name your top choice to get the money after your death. This is the primary beneficiary. If you fail to name a beneficiary, the insurance company will distribute the proceeds to your estate upon your death. If your estate is the beneficiary of your life insurance, that means a probate court judge will direct where your insurance money goes at the completion of the probate process.

And this process can tie your life insurance proceeds up in court for months or even years. To keep this from happening to your loved ones, be sure to name at least one primary beneficiary.

In case your primary beneficiary dies before you, you should also name at least one contingent (alternate) beneficiary. For maximum protection, you should probably name more than one contingent beneficiary in case both your primary and secondary choices have died before you. Yet, even these seemingly straightforward choices are often more complicated than they appear due to the options available.

For example, you can name multiple primary beneficiaries, like your children, and have the proceeds divided among them in whatever way you wish. Also, the beneficiary doesn’t necessarily have to be a person. You can name a charity, nonprofit, or business as the primary (or contingent) beneficiary.

When choosing your beneficiaries, you should ultimately base your decision on which person(s) or organization(s) you think would most benefit from the money. In general, you can designate one or more of the following examples as beneficiaries:

  • One person
  • Two or more people (you decide how money is split among them)
  • A trust you’ve created
  • Your estate
  • A charity, nonprofit, or business

Do you have minor children?

If you name a minor child as a primary or contingent beneficiary (and he or she ends up receiving the policy proceeds), a legal guardian must be appointed to manage the funds until the child comes of age. This can lead to numerous complications (which we’ll discuss in detail next week in Part Two), so you should definitely consult with an experienced estate planning attorney if you’re considering this option.

Does your state have community-property laws?

If you’re married, you’ll likely choose your spouse as the primary beneficiary. But unless you live in a state with community-property laws, you can technically choose anyone: a close friend, your favorite charity, or simply the person you think needs the money most.

That said, if you do live in a community-property state, your spouse is entitled to the policy proceeds and will have to sign a form waiving his or her rights to the insurance money  if you want to name someone else as beneficiary. Currently, community-property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Next week, we’ll continue with Part Two in this series discussing the remaining three questions to consider when naming beneficiaries for your life insurance policy.

 

The Law Firm of Myrna Serrano Setty, P.A. can guide you to make informed, educated, and empowered choices to plan for yourself and the ones you love most. Contact us today to get started with a Planning Session.

Myrna doesn’t just draft documents, she ensures you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Planning Session,  during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Planning Session and mention this article to find out how to get this valuable session at no charge.

A Trust Just for Your Retirement Account. Is it right for you?

Unlike most of your assets, individual retirement accounts (IRAs) do not pass to your family through a will. Instead, upon your death, your IRA will pass directly to the people you named via your IRA beneficiary designation form.

Unless you take extra steps, the named beneficiary can do whatever he or she wants with the account’s funds once you’re gone. The beneficiary could cash out some or all of the IRA and spend it, invest the funds in other securities, or leave the money in the IRA for as long as possible.

So that’s why you might not want your heirs to receive your retirement savings all at once. One way to prevent this is to designate your IRA into a trust.

But you can’t just use any trust to hold an IRA. You’ll need to set up a special type of revocable trust specifically designed to act as the beneficiary of your IRA upon your death. Such a trust is referred to by different names—Standalone Retirement Trust, IRA Living Trust, IRA Inheritor’s Trust, IRA Stretch Trust—but for this article, we’re simply going to call it an IRA Trust.

IRA Trusts offer a number of valuable benefits to both you and your beneficiaries. If you have significant assets invested through one or more IRA accounts, you might want to consider the following advantages of adding an IRA Trust to your estate plan.

Protection from creditors, lawsuits, & divorce

While IRAs are typically protected from creditors while you’re alive, once you die and the funds pass to your beneficiaries, the IRA can lose its protected status when your beneficiary distributes the funds to him or herself. One way to counteract this is to leave your retirement assets through an IRA Trust, in which case your IRA funds will be shielded from creditors as long as they remain in the trust.

IRA Trusts are also useful if you’re in a second (or more) marriage and want your IRA assets to be used for the benefit of your surviving spouse while he or she is living, and then to distributed or be held for the benefit of your children from a prior marriage after your surviving spouse passes. This would ensure that your surviving spouse cannot divert retirement assets to a new spouse, to his or her children from a prior marriage, or lose them to a creditor before the funds ultimately get to your children.

Protection from the beneficiary’s own bad decisions

An IRA Trust can also help protect the beneficiary from his or her own poor money-management skills and spending habits. If the IRA passes to your beneficiary directly, there’s nothing stopping him or her from quickly blowing through the wealth you’ve worked your whole life to build.

When you create an IRA Trust, however, you can add restrictions to the trust’s terms that control when the money is distributed as well as how it is to be spent. For example, you might stipulate that the beneficiary can only access the funds at a certain age or upon the completion of college. Or you might stipulate that the assets can only be used for healthcare needs or a home purchase. With our support,  you can get as creative as you want with the trust’s terms.

Tax savings

One of the primary benefits of traditional IRAs is that they offer a period of tax-deferred growth, or tax-free growth in the case of a Roth IRA. Yet if the IRA passes directly to your beneficiary at your death and is immediately cashed out, the beneficiary can lose out on potentially massive tax savings.

Not only will the beneficiary have to pay taxes on the total amount of the IRA in the year it was withdrawn, but he or she will also lose the ability to “stretch out” the required minimum distributions (RMDs) over their life expectancy.

A properly drafted IRA Trust can ensure the IRA funds are not all withdrawn at once and the RMDs are stretched out over the beneficiary’s lifetime. Depending on the age of the beneficiary, this gives the IRA years—potentially even decades—of additional tax-deferred or tax-free growth.

Minors

If you want to name a minor child as the beneficiary of your IRA, they can’t inherit the account until they reach the age of majority. So without a trust, you’ll have to name a guardian or conservator to manage the IRA until the child comes of age.

When the beneficiary reaches the age of majority, he or she can withdraw all of the IRA funds at once—and as we’ve seen, this can have serious disadvantages. With an IRA Trust, however, you name a trustee to handle the IRA management until the child comes of age. At that point, the IRA Trust’s terms can stipulate how and when the funds are distributed. Or the terms can even ensure the funds are held for the lifetime of your beneficiary, to be invested by your beneficiary through the trust.

See if an IRA Trust is right for you.

While IRA Trusts can have major benefits, they’re not the best option for everyone. Laws regarding IRA Trusts vary widely from state to state, so in some places, they’ll be more effective than others. Plus, the value of IRA Trusts also varies greatly depending on your specific family situation, so not everyone will want to put these trusts in place.

Consult with us to find out if an IRA Trust is the most suitable option for passing on your retirement savings to benefit your family. But of course, if what you need is your foundational estate planning documents (like your Will, Power of Attorney, Health Care Directives), we can help you with that first!

Attorney Myrna Serrano Setty doesn’t just draft documents, she helps you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why our firm offers a Planning Session. The Planning Session helps you get more financially organized than ever and helps you make the best choices for the people you love.  Start by calling us today to schedule a Planning Session and mention this article to learn how to get this $500 session for free.

Contact us at (813) 514-2946 or info@serranosetty.com.

 

Can An Adult Child Be Liable for a Parent’s Nursing Home Bill?

Although a nursing home cannot require a child to be personally liable for their parent’s nursing home bill, there are circumstances in which children can end up having to pay.

This is a major reason why it is important to read any admission agreements carefully before signing.

Federal regulations prevent a nursing home from requiring a third party to be personally liable as a condition of admission. However, children of nursing home residents often sign the nursing home admission agreement as the “responsible party.” This is a confusing term and it isn’t always clear from the contract what it means.

Typically, the responsible party is agreeing to do everything in his or her power to make sure that the resident pays the nursing home from the resident’s funds.

If the resident runs out of funds, the responsible party may be required to apply for Medicaid on the resident’s behalf. If the responsible party doesn’t follow through on applying for Medicaid or provide the state with all the information needed to determine Medicaid eligibility, the nursing home may sue the responsible party for breach of contract. In addition, if a responsible party misuses a resident’s funds instead of paying the resident’s bill, the nursing home may also sue the responsible party. In both these circumstances, the responsible party may end up having to pay the nursing home out of his or her own funds.

In a case in New York, a son signed an admission agreement for his mother as the responsible party. After the mother died, the nursing home sued the son for breach of contract, arguing that he failed to apply for Medicaid or use his mother’s money to pay the nursing home and that he fraudulently transferred her money to himself. The court ruled that the son could be liable for breach of contract even though the admission agreement did not require the son to use his own funds to pay the nursing home. (Jewish Home Lifecare v. Ast, N.Y. Sup. Ct., New York Cty., No. 161001/14, July 17,2015).

Although it is against the law to require a child to sign an admission agreement as the person who guarantees payment, it is important to read the contract carefully because some nursing homes still have language in their contracts that violates the regulations. If possible, consult with your attorney before signing an admission agreement.

Another way children may be liable for a nursing home bill is through filial responsibility laws.

These laws obligate adult children to provide necessities like food, clothing, housing, and medical attention for their indigent parents. Filial responsibility laws have been rarely enforced, but as it has become more difficult to qualify for Medicaid, states are more likely to use them. Pennsylvania is one state that has used filial responsibility laws aggressively.

We recommend that your Health Care Directives explicitly lay down a financial liability shield for your agents.

This one provision can save great grief and money.

Attorney Myrna Serrano Setty doesn’t just draft documents, she helps you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why our firm offers a Planning Session. The Planning Session helps you get more financially organized than ever and helps you make the best choices for the people you love.  Start by calling us today to schedule a Planning Session. Mention this article to learn how to get this $500 session for free.

Call us at (813) 514-2946 or email us at info@serranosetty.com.

Fear of Losing Home to Medicaid Contributed to Elder Abuse Case

A California daughter and granddaughter’s fear of losing their home to Medicaid may have contributed to a severe case of elder abuse.

If they had consulted with an elder law attorney, they might have figured out a way to get their mother the care she needed and also protect their house.

Amanda Havens was sentenced to 17 years in prison for elder abuse after her grandmother, Dorothy Havens, was found neglected, with bedsores and open wounds, in the home they shared.  The grandmother died the day after being discovered by authorities.  Amanda’s mother, Kathryn Havens, who also lived with Dorothy, is awaiting trial for second-degree murder. According to an article in the Record Searchlight, a local publication, Amanda and Kathryn knew Dorothy needed full-time care, but they did not apply for Medicaid on her behalf due to a fear that Medicaid would “take” the house.

It is a common misconception that the state will immediately take a Medicaid recipient’s home.

Nursing home residents do not automatically have to sell their homes in order to qualify for Medicaid. In some states, the home will not be considered a countable asset for Medicaid eligibility purposes as long as the nursing home resident intends to return home. In other states, the nursing home resident must prove a likelihood of returning home. The state may place a lien on the home, which means that if the home is sold, the Medicaid recipient would have to pay back the state for the amount of the lien.

After a Medicaid recipient dies, the state may attempt to recover Medicaid payments from the recipient’s estate, which means the house would likely need to be sold.

But there are things Medicaid recipients and their families can do to protect the home.

A Medicaid applicant can transfer the house to the following individuals and still be eligible for Medicaid:

  • The applicant’s spouse
  • A child who is under age 21 or who is blind or disabled
  • Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
  • A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
  • A  “caretaker child” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

With advance planning, there are other ways to protect a house.

A life estate can let a Medicaid applicant continue to live in the home, but allows the property to pass outside of probate to the applicant’s beneficiaries. Certain trusts can also protect a house from estate recovery.

Don’t let a fear of Medicaid prevent you from getting your loved one the care they need. While the thought of losing a home is scary, there are things you can do to protect the house.

Attorney Myrna Serrano Setty doesn’t just draft documents, she helps you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why our firm offers a Planning Session. The Planning Session helps you get more financially organized than ever and helps you make the best choices for the people you love.  Start by calling us today to schedule a Planning Session and mention this article to learn how to get this $500 session for free.

Call us at (813) 514-2946 or email us at info@serranosetty.com.

A Tax Break to Help Working Caregivers Pay for Day Care

Paying for day care is one of the biggest expenses faced by working adults with young children, a dependent parent, or a child with a disability. But there is a tax credit available to help working caregivers defray the costs of day care (for seniors it’s called “adult day care”).

In order to qualify for the tax credit, you must have a dependent who cannot be left alone and who has lived with you for more than half the year.

Qualifying dependents may be the following:

  • A child who is under age 13 when the care is provided
  • A spouse who is physically or mentally incapable of self-care
  • An individual who is physically or mentally incapable of self-care and either is your dependent or could have been your dependent except that his or her income is too high ($4,150 or more) or he or she files a joint return.

Even though you can no longer receive a deduction for claiming a parent (or child) as a dependent, you can still receive this tax credit if your parent (or other relative) qualifies as a dependent.

This means you must provide more than half of their support for the year. Support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Even if you do not pay more than half your parent’s total support for the year, you may still be able to claim your parent as a dependent if you pay more than 10 percent of your parent’s support for the year, and, with others, collectively contribute to more than half of your parent’s support.

The total expenses you can use to calculate the credit is $3,000 for one child or dependent or up to $6,000 for two or more children or dependents. So if you spent $10,000 on care, you can only use $3,000 of it toward the credit. Once you know your work-related day care expenses, to calculate the credit, you need to multiply the expenses by a percentage of between 20 and 35, depending on your income. (A chart giving the percentage rates is in IRS Publication 503.)

For example, if you earn $15,000 or less and have the maximum $3,000 eligible for the credit, to figure out your credit you multiply $3,000 by 35 percent. If you earn $43,000 or more, you multiply $3,000 by 20 percent. (A tax credit is directly subtracted from the tax you owe, in contrast to a tax deduction, which decreases your taxable income.)

The care can be provided in or out of the home, by an individual or by a licensed care center, but the care provider cannot be a spouse, dependent, or the child’s parent. The main purpose of the care must be the dependent’s well-being and protection, and expenses for care should not include amounts you pay for food, lodging, clothing, education, and entertainment.

To get the credit, you must report the name, address, and either the care provider’s Social Security number or employer identification number on the tax return. To find out if you are eligible to claim the credit, click here.
For more information about the credit from the IRS, click here and here.

Are you worried about taking care of a loved one who has long-term care or special needs? We can help you put plans in place so that your family isn’t left with a mess if you become incapacitated or die.

This article is a service of attorney Myrna Serrano Setty. Myrna doesn’t just draft documents, she helps you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why our firm offers a Planning Session. The Planning Session helps you get more financially organized than ever and helps you make the best choices for the people you love.  Start by calling us today to schedule a Planning Session. Mention this article to learn how to get this $500 session for free.

Getting Paid to Take Care of a Sick Family Member

Caring for a sick family member is difficult work, but it doesn’t necessarily have to be unpaid work. There are programs available that allow Medicaid recipients to hire family members as caregivers.

All 50 states have programs that provide pay to family caregivers. The programs vary by state, but are generally available to Medicaid recipients, although there are also some non-Medicaid-related programs.

Medicaid’s program began as “cash and counseling,” but is now often called “self-directed,” “consumer-directed,” or “participant-directed” care. The first step is to apply for Medicaid through a home-based Medicaid program. Medicaid is available only to low-income seniors, and each state has different eligibility requirements. Medicaid application approval can take months, and there also may be a waiting list to receive benefits under the program.

The state Medicaid agency usually conducts an assessment to determine the recipient’s care needs—e.g., how much help the Medicaid recipient needs with activities of daily living such as bathing, dressing, eating, and moving. Once the assessment is complete, the state draws up a budget, and the recipient can use the allotted funds to pay for goods or services related to care, including paying a caregiver. Each state offers different benefits coverage.

Recipients can choose to pay a family member as a caregiver, but states vary on which family members are allowed.

For example, most states prevent caregivers from hiring a spouse, and some states do not allow recipients to hire a caregiver who lives with them. Most programs allow ex-spouses, in-laws, children, and grandchildren to serve as paid caregivers, but states typically require that family caregivers be paid less than the market rate in order to prevent fraud.

In addition to Medicaid programs, some states have non-Medicaid programs that also allow for self-directed care. These programs may have different eligibility requirements than Medicaid and are different in each state. Family caregivers can also be paid using a “caregiver contract,” increasingly used as part of Medicaid planning.

In some states, veterans who need long-term care also have the option to pay family caregivers. In 37 states, veterans who receive the standard medical benefits package from the Veterans Administration and require nursing home-level care may apply for Veteran-Directed Care. The program provides veterans with a flexible budget for at-home services that can be managed by the veteran or the family caregiver. In addition, if a veteran or surviving spouse of a veteran qualifies for Aid & Attendance benefits, they can receive a supplement to their pension to help pay for a caregiver, who can be a family member. All of these programs vary by state.

This article is a service of attorney Myrna Serrano Setty. Myrna doesn’t just draft documents. She helps you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Planning Session, which will help you get more financially organized than ever before and help you make the best choices for the people you love. Call us today to schedule a Planning Session. Mention this article and learn how to get this valuable session for free.