Is Transferring the House to Children a Good Idea?

Clients frequently ask this question, especially as mom or dad is aging and perhaps living in assisted living or some other senior care arrangement.  Many try to do so using online forms, and find later that it was a mistake.  Transferring your house to your children while you’re alive may avoid probate, but gifting a home also can mean a rather large and unnecessary tax bill or could effect eligibility for long term care benefits. It also may place your house at risk, if your children get sued or file for bankruptcy

You also could be making a mistake, if you hope it will help keep the house from being consumed by nursing home bills.

There are better ways to transfer a house to your children, as well as a little-known potential fix that may help even if the giver has since died, says Considerable’s recent article entitled “Should you transfer your house to your adult kids?”

If a parent signs a quitclaim to give her son the house and then dies, it can potentially mean a tax bill of thousands of dollars for the son.

Families who see this error in time can undo the damage, by gifting the house back to the parent.

People will also transfer a home to try to qualify for Medicaid, but any gifts or transfers made within five years of applying for Medicaid can result in a penalty period when seniors are disqualified from receiving benefits.  A capable elder law attorney can advise you on better ways to address this, as well as potential corrections if necessary.

In addition, transferring your home to another person can expose you to their financial problems because their creditors could file liens on your home and, depending on state law, take some or most of its value. If the child divorces, the house could become an asset that must be divided as part of the marital estate.

Section 2036 of the Internal Revenue Code says that if the parent were to retain a “life interest” in the property, which includes the right to continue living there, the home would remain in her estate rather than be considered a completed gift. However, there are rules for what constitutes a life interest, including the power to determine what happens to the property and liability for its bills.

There are other ways to avoid probate. Many states and DC permit “transfer on death” deeds that let homeowners transfer their homes at death without probate.  Texas has both transfer on death deeds and “Lady Bird Deeds,” and an attorney can advise you on the differences and the best way to utilize them with your estate plan.  An excellent solution is to use a living trust which allows assets it owns or receives at death to avoid probate.  Having the trust own the property, or possibly using a deed to convey the property to the the trust at death, are excellent solutions.

If you are interested in learning more, please see this article for various ways to own and hold real estate.  https://www.galliganmanning.com/how-to-own-your-real-estate/  

In sum, there are many unexpected consequences to transferring your home to your children, so it is important to discuss the best way to convey the home to your loved ones with an attorney.

Reference: Considerable (Sep. 18) “Should you transfer your house to your adult kids?”

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When to Take Social Security?

Kiplinger’s recent article entitled “Waiting to File for Social Security Benefits Is Hard, but Payoff Is Sweet” asks you to imagine if, when you were a child, your mom baked your favorite pie and made you an offer. She could serve you a piece of pie right then and let you eat it. Alternatively, if you waited until after dinner, you’d get a bigger slice. Or, if you could wait until bedtime, your piece would be even larger. And not just that day, but for the rest of your life.

Every time you had pie for dessert, the size of your piece would be based on the decision you made that one day.

There are many justifications for taking the smaller piece of pie right away, when offered. Many people want to begin their retirement as soon as possible, and they want or need the Social Security income to do so. Some want to claim their benefits and invest the money to further grow their nest egg. Many people are concerned that the Social Security trust fund will be depleted before they get their share.  Others are concerned about health and whether they will receive Social Security for very long. Finally, there are some who just aren’t aware of how much bigger their monthly payment could be if they waited.

While you can get your benefits as early as 62, that choice, can mean a permanent reduction in benefits of up to 30% less than what you could receive by filing at your full retirement age (FRA). Retirees who file after their FRA receive a delayed retirement credit of 8% per year until they turn 70.

Admittedly, eight years (from 62 to 70) is a long time to wait to tap into this significant income stream. Most seniors would jump at the chance for more money, particularly as many baby boomers face these challenges that could put even the best-laid income plans to the test in retirement:

Longevity. The longer you live, the greater the chance that your savings will have to endure multiple financial storms, such as increased taxes, inflation and costly health care issues as you get older. The Social Security Administration estimates that the average 62-year-old woman born in 1958 can expect to live another 23½ years, and a man with the same birthdate can expect to live another 20⅔ years. That’s a long time to have to make your money last. However, if you maximize your Social Security benefits by earning delayed retirement credits, you’ll always have that guaranteed income.

Low interest rates. In the current low-interest environment, the return on “safe” investments, such as CDs, bonds, and money market accounts, won’t protect you from inflation. Thus, one of the best investments that retirees can make right now isn’t really an investment at all, but rather it’s growing their Social Security payments by delaying to take them.

Continuing to work.  Many seniors are continuing to work  well past traditional retirement ages to make ends meet.  Taking Social Security while still working may result in devastating tax losses.  It may make sense to delay Social Security until completely retired.

Decline in employer pensions. The retirement savings system in the United States traditionally has been built on three pillars: Social Security, a workplace pension and individual savings. However, over the past two decades, many employers have stopped offering pensions. As a result, the full responsibility for retirement investing has been shifting to employees with defined contribution plans. However, 40.2% of older Americans now depend on Social Security alone for income in retirement. Only 6.8% receive income from a defined benefit pension, a defined contribution plan, and Social Security. Fidelity Investments also reports that the median 401(k) balance in the first half of 2019 was $62,000 for savers in the 60 to 69 age group.

Ask an elder law attorney who practices in Social Security matters to help you make some calculations to determine your “break-even” age, which is when you’d come out ahead by waiting instead of claiming early. If you haven’t already, sign up with the Social Security Administration to get an estimate of your retirement benefits at 62, 67, and 70, using their online benefits calculator.  You may also consider speaking with a financial advisor who can evaluate opportunities to earn greater income with money in hand with earlier Social Security.

If your objective is to land the biggest possible piece of pie — and you can manage it — waiting is the name of the game.

Reference: Kiplinger (Oct. 21, 2020) “Waiting to File for Social Security Benefits Is Hard, but Payoff Is Sweet”

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Can I Afford In-Home Elderly Care?

Most clients prefer to age at home. However, in-home elder care costs add up quickly, so be aware of other affordable housing options.

Staying at home isn’t always affordable, according to a recent US News and World Report article. The article, entitled “Can You Afford In-Home Elderly Care?”, says about 80% of seniors are concerned about being able to afford home health care costs, based on a 2019 SCAN Health Plan survey. Paying for personalized in-home senior care can add up quickly and isn’t always easy on a senior’s tight income.

If you’re thinking about in-home elderly care, review these criteria to determine what costs to expect and the different payment options available for this type of care.

Find Out the Services Included in Home Care for the Elderly. In-home care can vary a lot, depending on your health conditions and needs. You might get helpers if you’re recovering at home from an illness or injury, and you could also have home care workers help you with daily activities, such as preparing meals and personal hygiene. Home care services often include rides to and from appointments, monitoring heart rate and blood pressure and in-home physical and cognitive therapy sessions.

Think about the Level of Care Needed. If you can do most daily activities on your own, but could use help with certain activities, such as cooking or cleaning, home care might be a wise option. Home care is focused on the service, and it’s supposed to help those who are living on their own as long as possible. When more care is required, moving to a place with more health support may be necessary. People who have significant needs may often look to assisted living as an alternative. Assisted living facilities offer more services, like 24-hour emergency care and ongoing supervision for seniors with Alzheimer’s, dementia, or other disabilities, although funding options may be limited.

Check Out the Cost of In-Home Senior Care. Homemaker services cost about $22.50 per hour on average and include tasks to help a person with daily duties like laundry, grocery shopping and light housework. A home health aide charges an average of $23 per hour, and may help with administering medicine at scheduled times, supervising and monitoring chronic illnesses and helping with walking aids. Of course, the exact cost of these services depends on where you live and the amount of help you need. The monthly cost for in-home care ranges from $4,290 for homemaker services to $4,385 for home health aide care. This typically costs more than the monthly median cost for an assisted living facility—but less than the median cost per month for a room at a nursing home facility.

Know Your Insurance Coverage. If you’re on Medicare, you may be able to get coverage for some short-term home services. To do so, a doctor will need to indicate that skilled nursing care is needed for a short period of time. Medicare will cover speech therapy, occupational therapy, or physical therapy. You can also use it to help with the purchase of durable medical equipment and safety additions to your home. However, Medicare won’t typically cover long-term home care services.

Medicaid will cover some health services at home, like cleaning and meal preparation, rides to and from medical visits and personal care if you are financially eligible.  Depending on the program, it provides some care and services in the home to those who need it medically. If you have long-term care insurance, some in-home services may be covered by your policy.

Look at Other Payment Methods. If your insurance won’t cover in-home care, you might have to pay out-of-pocket. One way to lower costs, is by asking family members to help. If you need to hire more help over time, the cost for services will increase accordingly. If that doesn’t work, they may help pay for in-home elderly care.

Additionally, people often overlook government benefit options, such as Medicaid or Veterans’ benefits such as Aid & Assistance.  People wrongly assume they aren’t eligible for the benefits, and miss out on funds available to them.  See here for a fuller description of this issue.  https://www.galliganmanning.com/medicare-basics-what-to-know/

Reference: US News and World Report (June 10, 2020) “Can You Afford In-Home Elderly Care?”

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