What is a Medicaid Annuity?

A common situation happens to many elderly people—needing long-term nursing home or assisted living care—without having the money to pay for it. These people may think about applying for Medicaid, the joint federal-state program that offers health coverage to eligible low-income seniors, but because they have a little too much money to qualify, they try to do a Medicaid “spend down.”

U.S. News and World Report’s recent article asks “What Is a Medicaid Annuity?”.  While many people have heard “spend down” as a strategy for qualifying, Medicaid spend downs are often as bad as they sound. If you have a situation where your father needs Medicaid to pay for a nursing home but your mother’s health is OK. You can drain their savings to make your father poorer and eligible, but then your mom will have even less on which to live.

That’s why some people use a Medicaid-compliant annuity.

A regular annuity is a fixed sum of money that’s usually paid every year indefinitely for the rest of a person’s life. When people purchase a typical annuity, it’s frequently deferred. That means the payout doesn’t happen for some time.

However, Medicaid-compliant annuities are immediate annuities—paid out immediately. A Medicaid-compliant annuity gives you a lump sum of cash, in exchange for a guaranteed income stream that will help your spouse who isn’t moving into a nursing home maintain his or her quality of life.

Medicaid-compliant annuities aren’t a do-it-yourself project or an investment strategy. Talk to an elder law attorney. He or she will educate you on how it works for Medicaid planning. There are tax issues and life expectancies to consider.

Also, you should be careful: don’t confuse a Medicaid-compliant annuity with what an insurance agent may call a “Medicaid-friendly” annuity.

A Medicaid-compliant annuity can be a good solution, especially for couples when one of them requires nursing home care, and the other doesn’t.

Reference: U.S. News and World Report (May 29, 2019) “What Is a Medicaid Annuity?”

Comments Off on What is a Medicaid Annuity?

What Debts Must Be Paid Before and After Probate?

Everything that must be addressed in settling an estate becomes more complicated when there is no will and no estate planning has taken place before the person dies. Debts are a particular area of concern for the estate and the Personal Representative or Executor. What has to be paid, and who gets paid first? These are explained in the article “Dealing with Debts and Mortgages in Probate” from The Balance.

Probate is the process of gaining court approval to manage the estate and pay bills and expenses before property can be transferred to beneficiaries. Dealing with the debts of a deceased person can usually be started before probate officially begins.

Start by making a list of all of the decedent’s liabilities and look for the following bills or statements:

  • Mortgages
  • Reverse mortgages
  • Home equity loans
  • Lines of credit
  • Condo fees
  • Property taxes
  • Federal and state income taxes
  • Car and boat loans
  • Personal loans
  • Loans against life insurance policies
  • Loans against retirement accounts
  • Credit card bills
  • Utility bills
  • Cell phone bills

Next, divide those items into two categories: those that will be ongoing during probate—consider these administrative expenses—and those that can be paid off after the probate estate is opened. These are considered “final bills.” Administrative bills include things like mortgages, condo fees, property taxes and utility bills. They must be kept current. Final bills include income taxes, personal loans, credit card bills, cell phone bills and loans against retirement accounts and/or life insurance policies.

The Personal Representative, Executor, or heirs should not pay any bills out of their own pockets. The Personal Representative or Executor deals with all of these liabilities in the process of settling the estate.

For some of the liabilities, heirs may have a decision to make about whether to keep the assets with loans attached. If the beneficiary wants to keep the house or a car, they may have to also obtain the debt. Otherwise, these payments should be made only by the estate.

The Personal Representative or Executor decides what bills to pay and which assets may be liquidated to pay final bills.

A far better plan for your beneficiaries is to create a comprehensive estate plan that includes a Will or Trust that details how you want your assets distributed and addresses what your wishes are. If you want to leave a house to a loved one, your estate planning attorney will be able to explain how to make that happen, while minimizing taxes on your estate and avoiding a lot of the uncertainty that results from not having a plan in place.

Reference: The Balance (March 21, 2019) “Dealing with Debts and Mortgages in Probate”

Comments Off on What Debts Must Be Paid Before and After Probate?

Summer is Here: Should Your Small Business Have a Vacation Policy?

There is no legal requirement for businesses to offer paid or unpaid vacation time to employees, but it is common knowledge (and common sense) that employees who occasionally take time off are more productive and engaged when they return to work. If you decide to offer vacation time to your employees, a well-drafted vacation policy will help to ensure that it works well for both your small business and your employees. Here are some important tips to consider.

  • Consider offering paid vacation time. Although offering paid vacation time will be an expense for your business, it is likely to be a benefit over the long term. Employees who are able to take a break tend to come back refreshed and rejuvenated–and ready to work productively for your company. In addition, it is a benefit that will help your business attract and retain stellar employees. According to the Bureau of Labor Statistics, three-quarters of workers had access to paid vacations in 2018, so offering this benefit will help your business compete with others seeking the same well-qualified employees.

Note: There is no legal requirement for employers to offer paid or unpaid vacation (though some states require paid family, parental, or sick leave for certain employees), but when paid vacation is offered, some states have applicable statutes regulating, for example, whether an employer can establish a “use-it-or-lose-it” policy or whether an employer must provide compensation for unused accrued vacation time upon the termination of employment. Check with a well-qualified business law attorney to make sure your policy complies with applicable legal requirements.

  • Make sure your policy is clear. If you offer paid vacation time (or paid time off, which includes vacation time, personal days, and sick days), make sure your employees understand how it works. Some businesses offer a fixed number of vacation days per year that roll over if they are unused, and others provide a specific number of days that are forfeited if the employee fails to use them (although, as mentioned above, a few states prohibit this policy). Additionally, there are a number of states that require employers to pay employees for unused paid vacation time. Include a clear explanation of your vacation policy in your employee handbook and require your employees to sign a statement that they have read the policy. This will help prevent disputes that could lead to litigation.
  • Require notice in advance. Many employees want to take a vacation in the summertime, and for small businesses with only a few employees, this can create a problem if several of them request time off during the same period. While you can still be flexible about when your employees take their vacation, requiring notice gives you the opportunity to plan for those absences by arranging for and training other employees or temporary workers to cover their essential duties.
  • Consider a “rota” system. Karen Dillon, in an article for the Harvard Business Review, suggests creating a rotating list of employees and allowing the employees at the top of the list to choose their vacation days first. The next year, those employees move to the bottom of the list, and other employees move to the top so that all employees eventually have their first choice of vacation days. This suggestion is especially helpful for small businesses that are unable to function when multiple employees are away at the same time or those that have difficulty finding temporary employees to fill in.

Give Us a Call

If you are considering offering vacation time to your employees, we can help you draft a clear, well-thought-out vacation policy that will accomplish your goals and comply with the law, as well as provide answers to any other benefit-related questions you may have. Please call us today at 605-275-5665 to set up a meeting.



Comments Off on Summer is Here: Should Your Small Business Have a Vacation Policy?

What’s the Difference Between Capital Gains and a Dividend?

Investopedia published an article that asks “Capital Gains vs. Dividend Income: What’s the Difference?” The article looks at the differences between capital gains and dividend income, and their tax implications.

Capital is the initial sum invested. A capital gain is a profit you get when an investment is sold for a higher price than the original purchase price. An investor doesn’t realize a capital gain, until an investment is sold for a profit.

On the other hand, dividends are assets paid out of the profits of a corporation to the stockholders. The dividends an investor receives aren’t capital gains. This is treated as income for that tax year.

A capital gain is the increase in the value of a capital asset—either an investment or real estate—that gives it a higher value than the purchase price. A capital loss happens, when there’s a decrease in the capital asset value as compared to the asset’s purchase price. There is no capital loss until the asset is sold at a discount.

A dividend is a “reward” or “bonus” that’s given to shareholders who’ve invested in a company’s equity. It is usually from the company’s net profits. Most profits are kept within the company as retained earnings, representing money to be used for ongoing and future business activities. However, the rest is often disbursed to shareholders as a dividend.

Taxes. Capital gains and dividends are taxed differently. Dividends are going to be either ordinary or qualified and taxed accordingly. However, capital gains are taxed based on whether they are seen as short-term or long-term holdings. A capital gains is deemed short-term, if the asset that was sold after being held for less than a year. Short-term capital gains are taxed as ordinary income for the year. Assets held for more than a year before being sold, are considered long-term capital gains upon sale. The tax is on the net capital gains for the year. Net capital gains are calculated, by subtracting capital losses from capital gains for the year. For many, the tax rate for capital gains will be less than 15%.

Dividends are usually paid as cash. However, they can also be in the form of property or stock. Dividends can be ordinary or qualified. Ordinary dividends are taxable and must be declared as income, but qualified dividends are taxed at a lower capital gains rate. When a corporation returns capital to a shareholder, it’s not considered a dividend. It reduces the shareholder’s stock in the company. When a stock basis is reduced to zero through the return of capital, any non-dividend distribution is considered capital gains and will be taxed as such.

Reference: Investopedia (April 11, 2019) “Capital Gains vs. Dividend Income: What’s the Difference?”

Comments Off on What’s the Difference Between Capital Gains and a Dividend?

What Does the Research Show for Retiree IRAs?

The study by the Employee Benefit Research Institute examined what happened to 7.5 million IRA accounts owned by those age 60 or older in 2012.

Of those, 81% were still open in 2015, and of those open, 68% had higher balances at the end of that period than at the start.

FedWeek’s recent article, “Study Finds Encouraging Pattern among Retiree IRAs” reported that aside from the smallest accounts, those with fewer than $1,000, the pattern was consistent across all of the different account sizes.

The median increase–the point where half are above and half are below–was 12%.

Even among account holders past age 70½—when certain distributions are required—49% of the IRA accounts grew over the three year period.

An account holder is typically required to withdraw a minimum distribution known as a “Required Minimum Distribution” or “RMD,” which is the minimum amount you must withdraw from your account each year. You generally have to start taking withdrawals from an IRA account, when you reach age 70½. You have to take your first RMD for the year in which you turn age 70½. However, the first payment can be delayed until April 1st of the year following the year in which you turn 70½.

The study found that those individuals making annual withdrawals before age 71 had bigger balance declines, than those who recently reached the required minimum distribution age of 70½.

Those large balance declines are thought to be because the second group was more likely to be making a withdrawal primarily because they’re required to do so.  Therefore, they took the minimum required, the research said.

“Only when owners reached ages 85 or older, did a significantly higher percentage of accounts fail to have a positive balance after three years, either due to depletion or account closure,” it added.

Reference: FedWeek (June 6, 2019) “Study Finds Encouraging Pattern among Retiree IRAs”

Comments Off on What Does the Research Show for Retiree IRAs?

Should Retirement Include a Small Bit of Work, on Your Terms?

A college student who worked as a seasonal employee for a tax preparation company was surprised to learn that most of his co-workers were older people, mainly older than 60 and one older than 70. As a young person, he thought they were working because they were desperate for an income, says the Napa Valley Register in the article “Consider a Retirement Job.” As he got to know his fellow workers, he learned that he was very wrong.

Most of them had retired from bigger and far better jobs. They took the seasonal tax work just to stay active and earn a little extra cash. The young man never thought much beyond that, until he began his own career as a financial planner and learned just how valuable a retirement job could be.

Retirees with a side job have more success in retirement, and it’s not just because they have some extra spending money. They have regular interactions with people of all generations, and they have a structure to their days that makes most senior’s lives more productive and fulfilling.

When we think of retirement jobs, most people think of a big-box store greeter. That’s not a bad deal, but it’s far from the only option to retirees. Some people decide to drive for a company like Uber or Lyft, which gives them a great deal of control over their schedules.

Did you know that there are driving services that don’t require you to drive people? You can drive as a courier, run errands or bring people food from restaurants, like DoorDash and Grubhub or, if you are fit enough for heavy bags, from grocery stores, like Peapod.

Other service jobs include house sitting or pet sitting. Online vacation rentals have led to an increase in home maintenance and housekeeping services needed.

Another option is to continue in your present job, but do it less, and on your own terms. For a teacher, that might mean substitute teaching. For professionals, becoming a consultant, often for the same people you worked with in the past, but on your terms, is also a part time option.

Retirement is when many people turn to their hobbies and make them into businesses. That could be crafts, painting, photography or woodworking. If you’ve always wanted to pursue a creative life, this is the time.

There are many different opportunities for retirement jobs. The important thing is to find something you love to do, that brings in some money and that works with your retirement lifestyle. Do what you love, and don’t settle for anything less.

Reference: Napa Valley Register (June 2, 2019) “Consider a Retirement Job.”

Comments Off on Should Retirement Include a Small Bit of Work, on Your Terms?

What Should I Look for in a Trustee?

Selecting a trustee to manage your estate after you pass away is an important decision. Depending on the type of trust you’re creating, the trustee will be in charge of overseeing your assets and the assets of your family. It’s common for people to choose either a friend or family member, a professional trustee or a trust company or corporate trustee for this critical role.

Forbes’s recent article, “How To Choose A Trustee,” helps you identify what you should look for in a trustee.

If you go with a family member or friend, she should be financially savvy and good with money. You want someone who is knows something about investing, and preferably someone who has assets of their own that they are investing with an investment advisor.

A good thing about selecting a friend or family member as trustee, is that they’re going to be most familiar with you and your family. They will also understand your family’s dynamics.  Family members also usually don’t charge a trustee fee (although they are entitled to do so).

However, your family may be better off with a professional trustee or trust company that has expertise with trust administration. This may eliminate some potentially hard feelings in the family. Another negative is that your family member may be too close to the family and may get caught up in the drama.They may also have a power trip and like having total control of your beneficiary’s finances.

Trust companies will have more structure and oversight to the trust administration, including a trust department that oversees the administration. This will be more expensive, but it may be money well spent. A trust company can make the tough decisions and tell beneficiaries “no” when needed. It’s common to use a trust company, when the beneficiaries don’t get along, when there is a problem beneficiary or when it’s a large sum of money. A drawback is that a trust company may be difficult to remove or become inflexible. They also may be stingy about distributions, if it will reduce the assets under management that they’re investing. You can solve this by giving a neutral third party, like a trusted family member, the ability to remove and replace the trustee.

Talk to your estate planning attorney and go through your concerns to find a solution that works for you and your family.

Reference: Forbes (May 31, 2019) “How To Choose A Trustee”

Comments Off on What Should I Look for in a Trustee?

What are the “Six L’s” of Small Business Planning?

Failing to conduct long-term personal planning can create a reality, where a business owner under-insures and underinvests outside her own companies.

Think Advisor’s recent article, “The 6 L’s of Small-Business Planning” says that a successful business essentially becomes a security blanket. That’s because business owners don’t adequately prepare for events that could change the course of their financial well-being. It’s critical to address the important events that can disrupt everything personal and business.

Liquidity: If a business owner has to write a big check for some unexpected repairs after a storm, the money must come from somewhere. Small businesses rarely have substantial liquidity, because so much of their capital is tied up in the company. Therefore, a line of credit is the most frequent solution for owners with this situation.  You should instead try to ensure that you have access to cash in the short term, if necessary.

Long-term disability: In many instances, business owners are the main contributors to their small company’s success. If they can’t work, the whole company can suffer. She should have a plan to protect against this scenario. First, it is important to identify who can step into a leadership role for a short time. If the disability is long term, examine the ways in which it might affect the company’s value and succession plan. You can purchase business overhead insurance or policies that offer income replacement. You can also create buy-out agreements, so key employees can buy out the disabled business owner.

Loss of life: In the event that an owner suddenly dies, you should have life insurance to fund a buy/sell plan. Without a plan, you may become forced to work with your deceased business partner’s spouse.

Long-term care: Baby boomers with business wealth may wonder what will happen if they need significant medical care, which is a legitimate concern. There’s an additional consideration: the elderly parents of business owners. If an owner steps away to help provide care for an ailing parent, the potential disruption to the company may be significant. Look at where the capital is going to come from, to offset the cost of long-term care for family members, because you don’t want a forced liquidation of business assets.

Longevity: Consider the impact to the company, if the owner has an unusually long life. This should include an examination of how that person’s role will change and who will succeed them through phases of potentially decreasing interest and capacity.

Legacy/legal: Look at what the business owner envisions as her legacy for the future. There are numerous types of trusts, gifts and legal vehicles can be used to help make certain that the business won’t be ruined by taxes, when ownership is passed to the next generation. Talk to an estate planning attorney about doing this the right way.

At each annual business review, review your plans to see if they can still be effective responses to the six Ls of small business planning.

Reference: Think Advisor (May 28, 2019) “The 6 L’s of Small-Business Planning”

Comments Off on What are the “Six L’s” of Small Business Planning?

How Do I Avoid Probate for a CD?

There are three categories of property, but just one requires probate to access it when the owner dies.

nj.com recently published an article that asked “When I die, how can I avoid probate for this account?” The article explains that there is property that passes by operation of law. This type of property is anything owned jointly with right of survivorship.

Sometimes you’ll see these types of accounts labeled with “JTWROS”—joint tenancy with right of survivorship.

With joint tenancy with right of survivorship, when one co-owner dies, the property automatically passes by law to the surviving co-owner. There’s no probate involved. This is the type of set up that married couples usually have for most of their accounts and property, such as the family home.

A second type of property is assets that are controlled by a contract. This includes life insurance, retirement accounts, and any non-retirement accounts that have beneficiaries designated upon death.

These designations trump the decedent’s will. Therefore, it doesn’t matter if the will says to give the life insurance proceeds to someone else. The beneficiary designated on the policy will receive the proceeds. Those proceeds also pass outside of probate directly to the named beneficiary. These types of accounts are often known as as “POD” (payable on death) or “TOD” (transfer on death) accounts.

The third type of property is the catch-all: everything else. This will include accounts that are owned solely by the person who died, with no POD or TOD designation.

In order to avoid the probate process to access a CD or any other account in only a spouse’s name, you can either make the account jointly owned by husband and wife with right of survivorship, or have your spouse designate you as a beneficiary upon death. Both options avoid the need to probate the will to access that CD account.

Talk to an experienced estate planning attorney about getting the titles to your property straight, as well as any other questions you have about your estate plan.

Reference: nj.com (June 6, 2019) “When I die, how can I avoid probate for this account?”

Comments Off on How Do I Avoid Probate for a CD?

What Does ‘Getting Your Affairs in Order’ Really Mean?

the time is now

That “something” that happens that no one wants to come out and say is that you are either incapacitated by a serious illness or injury or the ultimate ‘something,’ which is death. There are steps you can take that will help your family and loved ones, so they have the information they need and can help you, says Catching Health’s article “Getting your affairs in order.”

Start with the concept of incapacity, which is an important part of estate planning. Who would you want to speak on your behalf? Would that person be the same one you would want to make important financial decisions, pay bills and handle your personal affairs? Does your family know what your wishes are, or do you know what your parent’s wishes are?

Financial Power of Attorney. Someone needs to be able to pay your bills and handle financial matters. That person is named in a Financial Power of Attorney, and they become your agent. Without an agent, your family will have to go to court and get a conservatorship. This takes time and money. It also brings in court involvement into your life and adds another layer of stress and expense.

It’s important to name someone who you trust implicitly and whose financial savvy you trust. Talk with the person you have in mind first and make sure they are comfortable taking on this responsibility. There may be other family members who will not agree with your decisions, or your agent’s decisions. They’ll have to be able to stick to the course in the face of disagreements.

Medical Power of Attorney. The Medical Power of Attorney is used when end-of-life care decisions must be made. This is usually when someone is in a persistent vegetative state, has a terminal illness or is in an irreversible coma. Be cautious: sometimes people want to appoint all their children to make health care decisions. When there are disputes, the doctor ends up having to make the decision. The doctor does not want to be a mediator. One person needs to be the spokesperson for you.

Health Care Directive or Living Will. The name of these documents and what they serve to accomplish does vary from state to state, so speak with an estate planning attorney in your state to determine exactly what it is that you need.

Health Care Proxy. This is the health care agent who makes medical decisions on your behalf, when you can no longer do so. In Maine, that’s a health care advance directive. The document should be given to the named person for easy access. It should also be given to doctors and medical providers.

DNR, or Do Not Resuscitate Order. This is a document that says that if your heart has stopped working or if you stop breathing, not to bring you back to life. When an ambulance arrives and the EMT asked for this document, it’s because they need to know what your wishes are. Some folks put them on the fridge or in a folder where an aide or family member can find them easily. If you are in cardiac arrest and the DNR is with a family member who is driving from another state to get to you, the EMT is bound by law to revive you. You need to have that on hand, if that is your wish.

How Much Should You Tell Your Kids? While it’s really up to you as to how much you want to share with your kids, the more they know, the more they can help in an emergency. Some seniors bring their kids with them to the estate planning attorney’s office, but some prefer to keep everything under wraps. At the very least, the children need to know where the important documents are, and have contact information for the estate planning attorney, the accountant and the financial advisor. Many people create a binder with all of their important documents, so there are no delays caused in healthcare decisions.

Reference: Catching Health (May 28, 2019) “Getting your affairs in order.”

Comments Off on What Does ‘Getting Your Affairs in Order’ Really Mean?