-Mistakes Retirees Make—Gifts

- Deducting Long Term Care Expenses

- Governor Proposes Consolidation of Long Term Care Management

-Attorney Kevin R. Grebas Receives Coveted Certified Elder Law Attorney (CELA) Status

- Marshall, Parker & Associates’ Attorneys to Appear on WYOU’s Interactive News this Friday

-Learn How to Protect Your Family from Long Term Care Costs at our FREE Consumer Workshops in Williamsport, Scranton & Wilkes-Barre

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Mistakes Retirees Make—Gifts

Written By: Attorney Jeffrey A. Marshall , CELA*

[ Pennsylvania retirees often make legal and estate planning mistakes because of a lack of accurate information and guidance. These mistakes can impact the retirees’ financial security and prevent them from achieving important goals.  This is another in our continuing series of articles that discuss some of the most common mistakes.]

The Bible tells us that “it is more blessed to give than to receive.”  Certainly this is true. But in our secular society, when making gifts to family members or others, another phrase comes to mind – “the devil is in the details.”

From a legal perspective, a gift is made when you transfer your money or property without receiving something of equivalent value in return.  If you sell a property worth $100,000 to your child for $20,000, you have made a partial gift worth $80,000.  For a gift to be complete, several legal requirements must be met: (1) you must intend to make a gift; (2) you must give up dominion and control over the gifted asset, and (3) the gift must be accepted by the recipient. 

There are lots of ways to make gifts.  They can be structured to take effect immediately with no strings attached, or they can be made to take effect at some point in the future or be made with restrictions.  

People make gifts for many reasons including love and affection and the desire to assist another family member, people in need, or a charity. But be careful - making gifts may have unintended consequences. There are many things you need to consider before making any substantial gift.

Here is an example.

When he dies, John wants his home to go to his favored son, Junior.  He is concerned that Junior will have to pay inheritance tax.  John is also worried that if he gets sick and needs expensive care, he may lose the home to nursing home costs.  He also wants to avoid probate, although, in truth, he isn’t sure what that is, or why it is a worry.

John goes to an elder law lawyer and tells him he wants to deed the home to Junior now. The lawyer says that he will be happy to prepare the deed, but asks if John has considered all the consequences.  The lawyer explains that the house could be lost if Junior ever runs into financial or marital difficulties.  And he asks what will happen to the home if Junior predeceases his father.  In addition, the lawyer explains that if the home is given to Junior and then sold, Junior will have to pay capital gains taxes that would have been avoided if John had remained the owner of the home.  While inheritance taxes might be lessened, income taxes might be increased.

After talking with his lawyer and considering a number of options, John decides not to deed the home to Junior but to put it into a trust that will protect it from nursing home costs, capital gains taxes, and Junior’s future divorce or creditors.

Gifts often involve income, estate, inheritance, and gift tax issues that should be reviewed in advance. And while gifting a property away may someday protect it from nursing home costs, making the gift can negatively impact the donor’s current eligibility for important Medicaid benefits for a period of five years.  (If you think you or your spouse may need long term care within the next five years, consult a Medicaid expert (like a certified elder law attorney) before making the gift).  You should also think about the consequences the gift may have on the recipient.  For example, will the gift impact the eligibility of a child or grandchild for college financial aid?

Here are some tips.  Before you make a large gift, look carefully at your own personal situation. Are you in financial position to make the gift without jeopardizing your financial security? How does it affect your estate planning goals – for example, how will it impact your desire to treat your children with equality? Will you need to update your Will and beneficiary designations to compensate?  And how will you feel if the recipient of your gift does something with it you didn’t contemplate?  

After you have thought about these issues, get some expert advice.  Talk with your lawyer, financial planner, and accountant.  They can help you decide whether a gift, and what kind of a gift, makes the most sense for you. Gifts are simple to make but have complicated consequences.  Seniors should take their time and get expert advice before making any substantial gifts. 

Attorney Marshall can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Attorney Marshall is available on our website at www.paelderlaw.com/staff.html  

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Deducting Long Term Care Expenses

Written By: Attorney Jeffrey A. Marshall , CELA*

Many families fail to take advantage of tax deductions that can provide economic relief for people who are paying long term care costs.

The Internal Revenue Code (IRC) allows a taxpayer to deduct non-reimbursed medical expenses incurred for medical care of the taxpayer, his spouse, or a dependent to the extent that such expenses exceed 7.5 percent of adjusted gross income.[1] The cost of qualified long term care services are deductible as medical expenses[2] under special rules set out in IRC Section 7702B.

The Tax law defines deductible “qualified long-term care services” rather broadly as “necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, rehabilitative services and maintenance and personal care services” which are:

1. required by a chronically ill individual and
2. provided pursuant to a plan of care prescribed by a licensed health care practitioner.[3]   

This means that the costs incurred for a wide range of long term care services, including maintenance and personal care services, are potentially deductible.[4] 

Congress did establish some limits on this favorable tax treatment by requiring that deductibility is only available to a person who has been classified as being a “chronically ill individual.” To qualify as chronically ill, an individual must be certified by a licensed health care practitioner within the previous 12 months as meeting one of the following two tests:

(1)   The individual is unable, for at least 90 days, to perform at least two activities of daily living (ADLs) without substantial assistance from another individual, due to loss of functional capacity. (Activities of daily living are eating, toileting, transferring, bathing, dressing and continence.[5]) OR

(2)   The individual requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

Note that the law requires that a licensed health care practitioner certify that the care recipient meets one or the other of these tests. The certification can be made by a physician, registered professional nurse, or a licensed social worker and this can be the same professional who has prescribed the plan of care. The certification is only good for the preceding 12 month period[6] and thus must be reissued at least each year.  The licensed health care practitioner who signs the certification is frequently the taxpayer’s physician or a nurse or social worker who is on the staff of a home care agency, assisted living facility, or other provider. 

If these requirements are met, the taxpayer should be able to deduct the cost of unreimbursed qualified long term care services whether they are received at home, in a personal care or assisted living facility, or in a nursing home.  The federal income tax savings can be dramatic. 

Here is an example:

John is a resident of Green Valley Assisted Living.  He needs substantial help with bathing and dressing, and an RN on the staff of the facility has helped develop his care plan and has certified that he is a chronically ill individual.  The cost of the assisted living services John paid for last year, including room and board, was $40,000.  He had $6,000 in other medical expenses.   His adjusted gross income for the year was $50,000. 

John figures his deduction using lines 1 through 4 of Schedule A, Form 1040 as follows:

Line 1: $46,000 (amount paid for medical expenses)

Line 2: $50,000 (adjusted gross income)

Line 3: $  3,750 (7.5% of $50,000)

Line 4: $42,250 (Line 1-Line 3 provides John with his medical deduction of $42,250)

Marshall, Parker & Associations has developed a form that our clients can use to obtain the certification required to claim this deduction.  For the information of readers of the Elder Care Alert, we have posted this form on our website at www.paelderlaw.com/pdf/cert_chronically_ill.pdf   

[Note: this form is provided for information purposes only and is not intended as legal advice.  Please consult an experienced elder law attorney, your tax specialist, and your medical professionals to assist you with your personal situation].  

For more information see IRS Publication 502, Medical and Dental Expenses; IRS Publication 17, Your Federal Income Tax, and April 16, 2004 issue of The Elder Care Law Alert, Deducting the Cost of Qualified Long Term Care Services for a Dependent.

Attorney Marshall can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Attorney Marshall is available on our website at www.paelderlaw.com/staff.html

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Governor Proposes Consolidation of Long Term Care Agencies

Written By: Jeffrey A. Marshall, CELA*

Governor Rendell is moving to consolidate all Pennsylvania’s long term care programs into a single state agency to be known as the “Department of Aging and Long Term Living.”  This integrated Department will have authority to manage long term care programs that serve both senior citizens and adults with disabilities. 

The Governor’s Executive Budget, which was released on February 4^th, 2009,  “proposes to reorganize the commonwealth’s long-term living system to improve the efficiency of service delivery and the coordination of services for persons with disabilities and older Pennsylvanians through the integration of programs managed by the Department of Aging and the Department of Public Welfare into a new Department of Aging and Long Term Living.”

The Department of Aging and Long Term Living will coordinate the services and supports that enable individuals with disabilities and seniors to remain in their homes and communities and provide nursing facility services for those with higher level needs. The Department will also manage the Pharmaceutical Assistance Contract for the Elderly (PACE) program, which provides assistance for older Pennsylvanians to meet the cost of prescription drugs.

The reorganization is intended to improve Pennsylvania’s currently fragmented long term care system. The Department of Aging-funded Area Agencies on Aging serves as the single gatekeeper for both the aging and disability service systems, but many providers (e.g., home health agencies and under-60 disability providers) have a funding and service relationship exclusively with the DPW system. Waiver providers may have to contend with multiple rate-setting entities and rates and contracting standards that vary from county to county. Consumers turning 60 encounter significant disparities in the services they receive under the Aging waiver compared to other Home and Community Based (HCBS) waivers.

It is hoped that a single state department will be able to better coordinate and operate budgeting, policymaking and information technology, simplify the system for providers, reduce duplication, waste, and delays in service, and create a single point of contact, for consumers and providers.

The authorizing legislation is not intended to make any changes to the legal requirement stating that lottery funds are limited to programs that serve the needs of Pennsylvania’s senior citizens.

The Governor’s office released the following list of people currently being served by the Department of Aging’s and the Office of Long Term Living’s long term care support programs:

Unduplicated Persons Served By Program (November 2008)

Nursing Homes: 63,839

Aging Waiver: 15,820

Aging Options: 28,640

Attendant Care Waiver: 5,183

Independence Waiver: 2,641

Act 150 Under 60: 2,343

OBRA Waiver: 1,401

Attendant Care Over 60: 725

Michael Dallas Waiver: 79

AIDS Waiver: 129

COMMCARE Waiver: 506

Elwyn Waiver: 38

Total Unduplicated Persons Served* 121,344

* MA Billed UPS July 2008 through November 2008 – Does not include PACE and Rent/Tax Rebate participants

Aging services professionals seem to be cautiously optimistic about the Governor’s proposal.  It’s not clear at this writing what concerns the Legislature may have.

Attorney Marshall can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Attorney Marshall is available on our website at www.paelderlaw.com/staff.html

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Attorney Kevin R. Grebas Receives Coveted Certified Elder Law Attorney (CELA) Status

Written By: Melissa Bottorf, Director of Education & Business Development

Attorney Kevin R. Grebas of Marshall, Parker & Associates' has been awarded the status of Certified Elder Law Attorney (CELA) by the National Elder Law Foundation.  Attorney Grebas joins an elite group of approximately 450 lawyers across the entire United States who have received this designation.

To become certified in elder law, a lawyer must demonstrate special training, experience and knowledge about the unique legal, financial, and social concerns of people age 50 and older.  In addition to meeting these experience requirements, a CELA must receive the recommendation of other elder law attorneys and pass a difficult day-long written exam.

The CELA professional designation provides a measure of assurance to the public that the attorney has an in-depth working knowledge of the legal issues impacting the elderly.  Marshall, Parker & Associates’ managing attorney, Jeffrey Marshall, was awarded CELA status nine years ago.  Firm member Matthew Parker achieved the status in 2005.  Now, with the addition of Attorney Grebas, the Elder Law Firm of Marshall, Parker & Associates is believed to be the only law firm in the United States with three board Certified Elder Law Attorneys. 

More information about the certification process is available online at http://www.naela.org/CELA_certification.aspx.

Melissa can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Melissa is available on our website at www.paelderlaw.com/staff.html

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Marshall, Parker & Associates’ Attorneys to Appear on WYOU’s Interactive News this Friday

Written By: Melissa Bottorf, Director of Education & Business Development

Attorneys Kevin R. Grebas and Brenda D. Colbert will appear on WYOU TV’s Interactive News on Friday, February 13^th during the 6:00 PM and 7:00 PM newscasts. The CBS affiliate features local experts and topics of interest each night during their Interactive News segments. 

Attorneys Grebas and Colbert will discuss ways to protect a family’s home and assets from long term care costs by using specialized trusts.  Interactive News host, Eric Scheiner will moderate the sessions which will allow for an overview of how these trusts work and then take e-mail and phone questions from viewers.

Check out our website article on Asset Protection Trusts if you would like some additional information before Friday’s newscasts.

Melissa can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Melissa is available on our website at www.paelderlaw.com/staff.html

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Learn How To Protect Your Family from Long Term Care Costs

at our FREE Consumer Workshops

-Saturday, February 14, 2009 from 10:00 AM until 12:00 PM at The Holiday Inn Downtown, 100 Pine Street in Williamsport

-Saturday, February 14, 2009 from 10:00 AM until 12:00 PM at The Hilton Hotel, 100 Adams Avenue Scranton

-Saturday, February 21, 2009 from 10:00 AM until 12:00 PM at the Waterfront Banquet Facility, 670 North River Street in Plains 

 More information available on our website at www.paelderlaw.com/workshops.html  

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[1] I.R.C. § 213. The provisions allowing the deduction as qualified long term care services as a medical expense was added to the law by the Health Insurance Portability & Accountability Act of 1996 (HIPAA). By classifying long-term care costs as a medical expense Congress attempted to provide some financial relief to taxpayers burdened with these expenses. HIPAA also attempted to provide incentives for the purchase of long term care insurance by providing limited medical expense deductibility for premiums and clarifying the tax treatment of benefits.

[2] I.R.C. § 213(d)(1)(c).

[3] I.R.C. § 7702B(c)(1).

[4] The term ''maintenance or personal care services'' means any care the primary purpose of which is the provision of needed assistance with any of the disabilities as a result of which the individual is a chronically ill individual (including the protection from threats to health and safety due to severe cognitive impairment). [4] I.R.C. § 7702B(c)(3).

[5] See IRS Notice 97-31 (May 6, 1997) for the definitions of the ADLs.

[6] I.R.C. § 7702B(c)(2).

 Contacting Marshall, Parker & Associates for Assistance

Marshall, Parker & Associates is a nationally recognized law firm which provides long-term care planning, estate planning & estate administration services to Pennsylvania clients from our offices in Jersey Shore, Williamsport, Wilkes-Barre and Scranton.

If you or someone you know needs assistance with estate planning or with qualification for Medicaid benefits for nursing home or home care, please call us toll free at 1-800-401-4552.

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*Attorneys Marshall, Parker & Grebas are certified as Elder Law Attorneys by the National Elder Law Foundation under authorization from the Pennsylvania Supreme Court

**In addition to her law degree, Attorney Colbert holds an advanced legal degree (LLM) in Estate Planning from the University of Miami School of Law.

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