President Biden has introduced a plan to spend $400 billion over eight years on home and community-based care for the elderly and people with disabilities. The money would go to expand access to care and support higher-paying caregiving jobs.

As the elderly population grows, our long-term care system is becoming increasingly strained. The AARP found that in 2020, more than one out of every five Americans — 21.3 percent — were acting as caregivers, either caring for a relative or a close friend. Many women have had to drop out of the workforce to care for aging family members. In the meantime, paid caregivers are typically underpaid and overworked, with one in six paid caregivers living in poverty. And our elderly population is only expected to grow: By 2030, one in five Americans is projected to be over 65.

Recognizing that the United States is “in the midst of a caregiving crisis,” President Biden has proposed boosting funding for home and community based long-term care as part of his $2 trillion American Jobs Plan. While the plan does not have specifics, it proposes to expand access to long-term care services under Medicaid that help people stay at home and avoid care in an institution. Currently, only nursing home care is mandated under Medicaid, with states providing care at home or in the community at their discretion. Waiting lists for home and community-based services under state Medicaid programs can stretch on for years, and only a small fraction of those who need care receive these services, according to Kaiser Health News.

Among other things, President Biden wants to extend the Money Follows the Person program, which is a federal initiative designed to move people out of nursing homes and into home-based care. The program provides grants to states to create innovative home and community-based programs.

President Biden is also proposing that money be put toward creating well-paying caregiving jobs and that home health care workers be able to join a union and engage in collective bargaining. The White House states that this “will improve wages and quality of life for essential home health workers and yield significant economic benefits for low-income communities and communities of color.”

President Biden’s plan does not provide details, leaving It up to Congress to fill in the particulars when drafting its legislation. It is unclear how much of Biden’s proposed funding will make it into a final bill.

To read about the American Jobs Plan, click here.

For more about the home health care proposal, click here and here.

Or reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

A recent court case involving a power of attorney demonstrates the problem with using online estate planning forms instead of hiring an attorney who can make sure your documents are tailored to your needs.

Mercedes Goosley owned a home in Pennsylvania. In 2013, she named one of her six children, Joseph, as her agent under a power of attorney using a boilerplate form that Joseph downloaded from the internet. Unbeknownst to Joseph, the power of attorney required Mercedes to be declared incompetent for Joseph to act as her agent.

Powers of attorney can be either immediate or springing. An “immediate” power of attorney takes effect as soon as it is signed, while a “springing” power of attorney only takes effect when the principal becomes incapacitated. The problem is that springing powers of attorney create a hurdle in order for the agent to use the document. When presented with a springing power of attorney, a financial institution will require proof that the incapacity has occurred, often in the form of a letter from a doctor.

In this case, Joseph began acting for Mercedes without getting a declaration of her incompetency. After she moved into a nursing home, Joseph listed her home for sale and accepted a purchase offer as agent for his mother under the power of attorney. At the time, Joseph’s brother, William, was living in the home, and Joseph instructed William to move out. This resulted in a dispute that ended up in court, with William arguing that Joseph did not have authority to act as his mother’s agent. A Pennsylvania appeals court eventually determined that Mercedes had intended to execute an immediate power of attorney as evidenced by the fact that Joseph had held himself out as Mercedes’ agent since 2013 and routinely conducted affairs on her behalf without Mercedes restricting or objecting to his agency.

While the court ultimately ruled in Joseph’s favor, Joseph and Mercedes could have saved time and money by consulting with an attorney before signing the power of attorney. An attorney would have been able to explain the difference between an immediate and springing power of attorney and tailor the power of attorney to Mercedes’ needs. Talk with your attorney before creating any estate planning documents.

To read the court’s decision in the case Stecker, et al v. v. Goosley, et al (Pa. Super. Ct., No. 1266 EDA 2020, April 15, 2021), click here.

To learn more, contact Amy Stratton or Kristen Prull Moonan.

The estate tax gets all the press, but if you are leaving property to a grandchild, there is an additional tax you should know about. The generation-skipping transfer (GST) tax is a tax on property that is passed from a grandparent to a grandchild (or great-grandchild) in a will or trust. The tax is also assessed on property passed to unrelated individuals more than 37.5 years younger.

The GST tax was designed to close a loophole in the estate tax. Normally, grandparents would leave their estates to their children, incurring estate taxes. Then the children would pass on the estates to the grandchildren, incurring estate taxes again. Wealthy individuals realized they could leave their estates to their grandchildren directly and avoid one set of estate taxes. Congress established the GST tax to prevent this by taxing transfers to related individuals more than one generation away and to unrelated individuals more than 37.5 years younger.

A GST tax is imposed even when property is left in trust for a grandchild. For example, suppose a grandparent sets up a trust that leaves income to her children for life and then the remainder to her grandchildren. The part of the trust left to the grandchildren will be subject to a GST tax.

The GST tax has tracked the estate tax rate and exemption amounts, so the current GST exemption amount is $11.7 million (in 2021). If you transfer more than that, the tax rate is 40 percent.

To learn more, contact Amy Stratton or Kristen Prull Moonan.

When applying for Medicaid many people often forget about life insurance. But depending on the type of life insurance and the value of the policy, it can count as an asset.

In order to qualify for Medicaid, you can’t have more than $2,000 in assets (in most states). Life insurance policies are usually either “term” life insurance or “whole” life insurance. If a Medicaid applicant has term life insurance, it doesn’t count as an asset and won’t affect Medicaid eligibility because this form of life insurance does not have an accumulated cash value. On the other hand, whole life insurance accumulates a cash value that the owner can access, so it can be counted as an asset.

That said, Medicaid law exempts small whole life insurance policies from the calculation of assets. If the policy’s face value is less than $1,500, then it won’t count as an asset for Medicaid eligibility purposes. However, if the policy’s face value is more than $1,500, the cash surrender value becomes an available asset.

For example, suppose a Medicaid applicant has a whole life insurance policy with a $1,500 death benefit and a $700 cash surrender value (the amount you would get if you cash in the policy before death). The policy is exempt and won’t be used to determine the applicant’s eligibility for Medicaid. However, if the death benefit is $1,750 and the cash value is $700, the cash surrender value will be counted toward the $2,000 asset limit.

If you have a life insurance policy that may disqualify you from Medicaid, you have a few options:

• Surrender the policy and spend down the cash value.
• Transfer ownership of the policy to your spouse or to a special needs trust. If you transfer the policy to your spouse, the cash value would then be part of the spouse’s community resource allowance.
• Transfer ownership of the policy to a funeral home. The policy can be used to pay for your funeral expenses, which is an exempt asset.
• Take out a loan on the cash value. This reduces the cash value and the death benefit, but keeps the policy in place.

Before taking any actions with a life insurance policy, you should talk to your attorney to find out what is the best strategy for you. To learn more, contact Amy Stratton or Kristen Prull Moonan.

The one-year deadline for nursing home residents on Medicaid to spend down their first round of stimulus checks is here, but they may have a little extra time.

In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act authorized $1,200 stimulus checks to most Americans, including Medicaid recipients. Another round of $600 checks was authorized in December 2020, and $1,400 checks were ordered in February 2021. The stimulus checks are not considered income for Medicaid recipients, and the payments have been excluded from Medicaid’s strict resource limits for 12 months.

While the one-year deadline for spending down the first round of checks is here, another COVID-19 bill gives beneficiaries more time. The Families First Coronavirus Response Act passed in March 2020 provides that if you were enrolled in Medicaid as of March 18, 2020, the state cannot terminate a recipient’s benefits even if there is a change in circumstances that would normally cause the benefits to be stopped. The law states that the recipient’s Medicaid coverage must continue through the end of the month in which the Secretary of Health and Human Services declares that the public health emergency has ended. The public health emergency is set to end April 20, 2021, but it will likely be extended.

While Medicaid recipients may have a little extra time, they shouldn’t delay too long in spending down the money if it has pushed them over the resource limit, which is $2,000 in most states. The following are examples of what a Medicaid recipient may be able to spend the money on without affecting their eligibility:

• Make a payment toward paying off debt.
• Make small repairs around the house.
• Update personal effects. Buy household goods or personal comfort items. Buy a new wardrobe, electronics, or furniture.
• Buy needed medical equipment, see a dentist or get eyes checked if those items aren’t covered by insurance.

While Medicaid recipients usually cannot gift money or assets and remain eligible for benefits, recipients in at least some states should be able to make gifts from the stimulus money during the first 12 months following receipt. If you have questions about how you or a family member in a nursing home can spend the money, contact Amy Stratton or Kristen Prull Moonan.

The IRS has announced that the tax deduction for medical expenses includes amounts spent on face masks, sanitizer and other products purchased to prevent the spread of the coronavirus.

If you have significant medical expenses, you may be able to deduct them from your taxes. Many types of medical expenses are deductible, from long-term care to hospital stays to hearing aids. This year, the IRS has made clear that “medical expenses” also includes amounts paid for personal protective equipment, such as masks, hand sanitizer, and sanitizing wipes, as long as they were used for the primary purpose of preventing the spread of COVID-19.

However, this deduction will be irrelevant to most taxpayers. To claim the deduction, your medical expenses have to be more than 7.5 percent of your adjusted gross income and your other deductions have to be sufficient to justify itemizing rather than taking the standard deduction. This may be the case if you have large home care, nursing home or assisted living expenses (the latter only deductible if you’re there for medical reasons), in which case the cost of your face masks, etc., is going to be a drop in the bucket. In addition, you can only deduct medical expenses you paid during the year, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance.

Due to the ongoing coronavirus pandemic, the deadline for filling 2020 taxes has been extended to May 17, 2021.

For the IRS’s press release on deducting personal protective equipment, click here.

For more information on what you can and cannot deduct, see Publication 502 on the IRS Web site. To learn more, contact Amy Stratton or Kristen Prull Moonan.

Vermont senator Bernie Sanders (D) has introduced legislation that would require more estates to pay estate tax and that raises the amounts they would pay. Another proposed law would eliminate the step-up in basis that inherited assets currently enjoy.

Taken together, the changes would “rock” the estate planning world, according to a leading attorney.

Under Sanders’ For the 99.5 Percent Act, the estate tax exemption would be reduced from $11.7 million for individuals and $23.4 million for couples to $3.5 million for individuals and $7 million for couples. Any estate that is valued at under the exemption amount will not pay any federal estate taxes, while those exceeding the exemption threshold would be subject to a progressively increasing tax rate. Estates valued between $3.5 million and $10 million would be taxed at 45 percent, estates valued between $10 million and $50 million at 50 percent, estates valued at $50 million to $1 billion at 55 percent, and estates over $1 billion at 65 percent. This would be a significant increase from the current tax rate of 40 percent for all estates over the exemption.

The Act would also slash the lifetime gift tax exemption from $11.7 million to $1 million, although individuals would still be able to give away $15,000 a year without the gift counting toward the lifetime limit.

A group of senators, including Sen. Sanders, Sen. Elizabeth Warren (D-Mass.), and Sen. Cory Booker (D-N.J.), has also introduced the Sensible Tax and Equity Promotion (STEP) Act that would eliminate the step-up in basis that beneficiaries receive when they inherit property. Currently, if someone inherits property, that property’s cost basis is “stepped up” in value to the property’s current value. This means that if the property is sold right away, no capital gains are due on the sale. If instead the property is held onto for a few years before it is sold and it rises in value, capital gains will be owed on the difference between the sale value and the stepped-up basis.

The STEP Act changes all this. The proposal would require an estate to pay tax on all previously untaxed gains. This means that if an estate includes property that has increased in value, the estate would have to pay taxes on that increase. However, the Act would allow the first $1 million of appreciated assets to pass without taxation. In addition, families that inherit a farm or business would be able to pay the tax in installments over a 15-year period. Any taxes paid under the bill would be deductible from the estate tax.

Although many view the basis step-up at death as a tax law “loophole,” its elimination would create paperwork headaches for estate administrators trying to locate cost basis information on assets that have been held for decades. “The change in the basis (or income tax treatment) of inherited property will be extraordinary for estate planners and their advisors,” commented estate planning attorney Jonathan Blattmachr to WeathManagement.com. “Such a change, especially if coupled with proposed dramatic changes in the U.S. estate tax system, would rock the world of every estate planner.”

It is unclear whether either proposed law has the support to pass the full Senate in their current forms. It is unlikely that any Republicans will support the legislation, so the Democrats would have to pass the bills through reconciliation, which would require all 50 Democratic senators to agree. To learn more, contact Amy Stratton or Kristen Prull Moonan.

Inheriting a vacation home with your siblings can be a great thing or it can cause huge problems within the family. Planning ahead can help prevent sibling disagreements.

When siblings co-own property and one sibling wants to sell, that sibling can demand to be bought out. If the other siblings can’t come up with the money to buy out the sibling, the sibling who wants out can force the sale of the house. This situation is not at all unusual and, unfortunately, can create a lot of hurt feelings. One owner has no interest in the property, while another has strong ties to it but can’t afford to buy out the other owner or owners.

What different family members want can depend on many circumstances, such as whether they live near the vacation house or across the country from it, whether they have another vacation home of their own, whether or not they need the money, and even whether they have fond childhood memories of spending summers at the house.

The question for owners of vacation homes in planning their estates is the vision they have for the property. Do they see the property as binding their family together for generations to come as they continue to vacation together? Or are they more concerned about the issue of equity in that some children are unlikely to ever use the property while others may use it heavily? There is no right or wrong answer–just a question of the parents’ values and goals.

The following are two estate planning solutions that are commonly used with regard to vacation homes:

• Direct that the property be sold. Parents can direct that the property be sold within a certain amount of time — often a year — after the surviving parent’s death. Often, the children are given a right to purchase the property at a bit less than fair market value, called a ‘right of first refusal.’ If none of the children exercises this right by the deadline, the property is put on the market. This solution has the advantage of finality and equity. Each child gets his or her share and is not tied to the other children for years to come.
• Put the property in a trust. Usually, one or two family members are named trustees to manage the property for the benefit of all children and grandchildren. They can assess appropriate charges for use to cover the cost of upkeep and repairs (or the parent can leave money in trust for this purpose). This preserves the house for future generations. It also avoids probate. An irrevocable trust can also protect the property if the parents require nursing home care and must apply for Medicaid coverage.

In short, there is no right or wrong answer. But a plan is almost always better than no plan. Contact your attorney to create a plan that works for your family. There is no guarantee that all heirs will be happy with whatever decision is made. But in most cases, they will accept what their parents or grandparents decided to do with their property. And in terms of family harmony, it’s often better that any anger be directed towards the parents who are no longer there than towards siblings who are still around.

To learn more, contact Amy Stratton or Kristen Prull Moonan.

For most people, the durable power of attorney is the most important estate planning instrument available — even more useful than a will. A power of attorney allows a person you appoint — your “attorney-in-fact” or “agent” — to act in place of you – the “principal” — for financial purposes when and if you ever become incapacitated.

In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that she could implement immediately under a simple durable power of attorney.

A power of attorney may be limited or general. A limited power of attorney may give someone the right to sign a deed to property on a day when you are out of town. Or it may allow someone to sign checks for you. A general power is comprehensive and gives your attorney-in-fact all the powers and rights that you have yourself.

A power of attorney may also be either current or “springing.” Most powers of attorney take effect immediately upon their execution, even if the understanding is that they will not be used until and unless the grantor becomes incapacitated. However, the document can also be written so that it does not become effective until such incapacity occurs. In such cases, it is very important that the standard for determining incapacity and triggering the power of attorney be clearly laid out in the document itself.

However, attorneys report that their clients are experiencing increasing difficulty in getting banks or other financial institutions to recognize the authority of an agent under a durable power of attorney. A certain amount of caution on the part of financial institutions is understandable: When someone steps forward claiming to represent the account holder, the financial institution wants to verify that the attorney-in-fact indeed has the authority to act for the principal. Still, some institutions go overboard, for example requiring that the attorney-in-fact indemnify them against any loss. Many banks or other financial institutions have their own standard power of attorney forms. To avoid problems, you may want to execute such forms offered by the institutions with which you have accounts. In addition, many attorneys counsel their clients to create living trusts in part to avoid this sort of problem with powers of attorney.

While you should seriously consider executing a durable power of attorney, if you do not have someone you trust to appoint it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable power of attorney simply nominating the person you want to serve as your conservator or guardian. Most states require the court to respect your nomination “except for good cause or disqualification.”

To learn more, contact Amy Stratton or Kristen Prull Moonan.