Grandparents Raising Grandchildren May Qualify for the Earned Income Tax Credit

Raising a grandchild can be tough financially, but grandparents should be aware that there is a tax credit available that could help them. Working grandparents who are supporting their grandchildren may qualify for the earned income tax credit, which could reduce the amount they pay in taxes by thousands of dollars or allow them to receive a refund. 

The earned income tax credit is a benefit for working people with low to moderate incomes and dependents, and this includes grandparents.  (Taxpayers without a dependent may also qualify, but it is more difficult.) To be able to claim the tax credit, you must be raising a child who meets the following criteria:

  • Is your son, daughter, adopted child, stepchild, foster child, brother, sister, half brother, half sister, step-sister or a descendent of any of them, such as a grandchild or niece or nephew
  • Is younger than 19 at the end of the year, younger than 24 and a full-time student at the end of the year, or any age and permanently and totally disabled
  • Lives with you for more than half the year

In addition, to qualify for the tax credit your income must be below certain limits, depending on how many dependents you have. The limits for 2019 are as follows:

  • One child.  Filing as an individual, your income must be less than $41,094. Filing jointly, your income must be less than $46,884.
  • Two children. Filing as an individual, your income must be less than $46,703. Filing jointly, your income must be less than $52,493.
  • Three or more children. Filing as an individual, your income must be less than $50,162. Filing jointly, your income must be less than $55,952.

The maximum amount of the tax credit also depends on how many dependents you have. In 2019, the following are the maximum credit amounts:

  • $6,557 with three or more qualifying children
  • $5,828 with two qualifying children
  • $3,526 with one qualifying child

For more information from the IRS about the tax credit, click here.

Providing for Your Pet with a Trust

Beezer the cat can be a member of the family, but what happens to Beezer or [insert your pet's name] after you are gone? How can you ensure your pet will be cared for? One option is to create a pet trust. While you can give directions in your will to leave your pet to a caretaker, there is no guarantee that the caretaker will continue to care for your pet. A pet trust can provide a little more security for the pet because a third party — the trustee — is obligated to ensure the pet is cared for.

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” With a pet trust, the trustee makes payments on a regular basis to your pet's caregiver and pays for your pet's needs as they come up.

The federal tax code does not recognize a pet as a beneficiary of a trust. However, all 50 states and the District of Columbia have laws allowing pet trusts. Another option is to set up a traditional trust and place the pet in the trust along with the funds. The pet's caregiver can be named the beneficiary.

The first step is to contact your attorney. Regardless of what type of trust you use, the following are some elements the trust should include:

  • Caretaker. The trust will need to name a caretaker who will be willing and able to care for your pet. The caretaker should be someone who is comfortable with your animal.
  • Care Instructions. The trust should include specific instructions on all aspects of the pet's care, including the brand of food, activities the pet enjoys, and the preferred veterinarian.
  • Funds. The amount of money necessary to fund the trust depends on the individual animal. Typically, you can leave the money to the trust in your will. Be warned that under most pet trust laws, the court can reduce the amount of caretaking funds to what it deems is reasonable for the care of the pet. 

 

What Is a Trust Protector and When Might You Need One?

Trust protectors — long popular in offshore trusts set up by high rollers — are growing more common in trusts established here in the U.S. by less affluent folks. A trust protector is someone who is appointed to watch over a trust that will be in effect for a long time and ensure that it is not adversely affected by any changes in the law or circumstances.

There are a number of reasons for appointing a trust protector. Having a protector allows a long-term trust to be more flexible and adapt to factual and legal changes. For example, beneficiaries may get divorced or die prematurely or the law may change. A protector can also be helpful if you believe there may be conflict among the beneficiaries and the trustee or if you don't fully trust the trustee to fulfill your wishes.

You can name a trust protector in your trust document, which will also dictate the trust protector's powers. Here are some powers that a trust protector may be given:

  • Remove and replace a trustee
  • Allow the trust to be amended due to changes in the law
  • Resolve disputes between trustees (if there is more than one) or between beneficiaries and the trustee(s)
  • Change distributions from the trust based on changes in the beneficiaries' lives
  • Allow new beneficiaries to be added if there are additional descendents
  • Veto investment decisions

Whatever powers the trust protector has, you should be as specific as possible in the trust document. The more specific you are, the more likely your wishes will be carried out. An attorney can help you ensure that the trust protector does not have too much power.

Technically, anyone can serve as a trust protector; however, it is a good idea to appoint an independent third party rather than a family member or a beneficiary. A lawyer or accountant may be a good choice. There are also companies that provide trust protector services.

Why Plan Your Estate?

The knowledge that we will eventually die is one of the things that seems to distinguish humans from other living beings. At the same time, no one likes to dwell on the prospect of his or her own death. But if you postpone planning for your demise until it is too late, you run the risk that your intended beneficiaries — those you love the most — may not receive what you would want them to receive whether due to extra administration costs, unnecessary taxes or squabbling among your heirs.

This is why estate planning is so important, no matter how small your estate may be. It allows you, while you are still living, to ensure that your property will go to the people you want, in the way you want, and when you want. It permits you to save as much as possible on taxes, court costs and attorneys' fees; and it affords the comfort that your loved ones can mourn your loss without being simultaneously burdened with unnecessary red tape and financial confusion.

All estate plans should include, at minimum, two important estate planning instruments: a durable power of attorney and a will. The first is for managing your property during your life, in case you are ever unable to do so yourself. The second is for the management and distribution of your property after death. In addition, more and more, Americans also are using revocable (or “living”) trusts to avoid probate and to manage their estates both during their lives and after they're gone.

Who Can Serve as Executor?

One important reason to have a will is to be able to name your executor (also called a personal representative). An executor is the person responsible for managing the administration of your estate after you die. If you don't choose an executor, the court will choose one for you.

The first decision is whether to choose a person or an institution to act as executor. A bank, trust company, or other institution can serve.

Next, you need to make sure the person or institution will be allowed to serve. States often have qualifications that a person must meet in order to act as executor. For example, minors and convicted felons may not serve in this capacity. In addition, some states don't allow executors who live in another state unless they are family members. Your attorney can tell you who is qualified to serve in your state.

If you die without a will or the person named in the will can't serve as executor, the probate court will choose an executor. State law dictates who has priority to serve. The surviving spouse usually has first priority, followed by children. If there is no spouse or children, then other family members may be chosen. If more than one person is has priority and the heirs can't agree on who should serve, then the court will choose. 

 

Will My Advance Directive Work in Another State?

Making sure your end-of-life wishes are followed no matter where you happen to be is important. If you move to a different state or split your time between one or more states, you should make sure your advance directive is valid in all the states you frequent.

An advance directive gives instructions on the kind of medical care you would like to receive should you become unable to express your wishes yourself, and it often designates someone to make medical decisions for you. Each state has its own laws setting forth requirements for valid advance directives and health care proxies. For example, some states require two witnesses, other states require one witness, and some states do not require a witness at all.

Most states have provisions accepting an advance care directive that was created in another state. But some states only accept advance care directives from states that have similar requirements and other states do not say anything about out-of-state directives. States can also differ on what the terms in an advance directive mean. For example, some states may require specific authorization for certain life-sustaining procedures such as feeding tubes while other states may allow blanket authorization for all procedures.

To find out if your document will work in all the states where you live, consult with an attorney in the state. 

 

New Rule May Make It Harder for Medicare Beneficiaries to Receive Home Care

It may become harder for Medicare beneficiaries to find home health care due to a new rule from the Centers for Medicare and Medicaid Services (CMS). Although the rule changes the way home health care providers are reimbursed, it could affect patient care as well. 

Starting in January 2020, Medicare will reimburse home health agencies at a lower rate when they care for patients who have not been admitted to a hospital first. CMS estimates that it will pay home health agencies approximately 19 percent more for a patient who hires the home health agency directly after leaving a hospital than a patient who was never in the hospital or was only an outpatient.  (The Center for Medicare Advocacy calculates that the disparity could be as high as 25 percent.)

In part due to pressure from Medicare to reduce costly inpatient stays, hospitals often do not admit patients, but rather place them on observation status to determine whether they should be admitted. These patients, if not admitted to the hospital for at least three nights, are not eligible for Medicare reimbursement of a limited amount of skilled nursing care and typically head home instead to continue care with Medicare’s home health care benefit.  

But a home health agency that cares for a patient who was in the hospital under observation will be reimbursed as if the patient had been an outpatient. This lower reimbursement rate means that home health agencies may be reluctant to provide care for patients who were under observation status or who haven't been in a hospital at all. 

If you are hospitalized, it is important to learn whether you are admitted or under observation. Hospitals are required to provide notice to patients if they are under observation for more than 24 hours. 

For more information about the new rule from the Center for Medicare Advocacy, click here

Medicaid's Asset Transfer Rules

In order to be eligible for Medicaid, you cannot have recently transferred assets. Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return.

This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state.

Example: If you live in a state where the average monthly cost of care has been determined to be $5,000, and you give away property worth $100,000, you will be ineligible for benefits for 20 months ($100,000 / $5,000 = 20).

Another way to look at the above example is that for every $5,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month. In theory, there is no limit on the number of months a person can be ineligible.

Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 / $5,000 = 80).

A person applying for Medicaid must disclose all financial transactions he or she was involved in during a set period of time — frequently called the “look-back period.” The state Medicaid agency then determines whether the Medicaid applicant transferred any assets for less than fair market value during this period.  The look-back period for all transfers is 60 months (except in California, where it is 30 months).  Also, keep in mind that because the Medicaid program is administered by the states, your state's transfer rules may diverge from the national norm.  To take just one important example, New York State does not apply the transfer rules to recipients of home care (also called community care).

The penalty period created by a transfer within the look-back period does not begin until (1) the person making the transfer has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer. 

For instance, if an individual transfers $100,000 on April 1, 2017, moves to a nursing home on April 1, 2018, and spends down to Medicaid eligibility on April 1, 2019, that is when the 20-month penalty period will begin, and it will not end until December 1, 2020.

In other words, the penalty period would not begin until the nursing home resident was out of funds, meaning there would be no money to pay the nursing home for however long the penalty period lasts.  In states that have so-called “filial responsibility laws,” nursing homes may seek reimbursement from the residents' children. These rarely-enforced laws, which are on the books in 29 states, hold adult children responsible for financial support of indigent parents and, in some cases, medical and nursing home costs.  In 2012, a Pennsylvania appeals court found a son liable for his mother's $93,000 nursing home bill under the state's filial responsibility law.

Exceptions

Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility. These exempt recipients include the following:

  • A spouse (or a transfer to anyone else as long as it is for the spouse's benefit)
  • A blind or disabled child
  • A trust for the benefit of a blind or disabled child
  • 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).

In addition, special exceptions apply to the transfer of a home. The Medicaid applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:

  • 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.

Congress has created a very important escape hatch from the transfer penalty: the penalty will be “cured” if the transferred asset is returned in its entirety, or it will be reduced if the transferred asset is partially returned. However, some states are not permitting partial returns. Check with your elder law attorney.

 

Does Your Will Name an Alternate Beneficiary?

What will happen to your estate if your primary beneficiary does not survive you? If your will does not name an alternate beneficiary, your estate will be divided according to state law. The way the state divides your estate may not agree with your wishes. Your money may go to someone you don’t like or to someone who is unable to handle it.

For example, suppose your will divides your estate among your spouse and three children. If one child dies before you, do you want his or her portion of your estate to go to your grandchildren? To your other children? To your spouse? Or perhaps to a charitable organization or institution? Another issue to consider is whether the person who would inherit under the law is too young or has special needs. In that case, you may need a trust to protect the assets.

Double check your will to make sure it names an alternate beneficiary. And if you don’t already have a will, being able to name an alternate beneficiary is an important reason to create one.

Naming an alternate is a good idea for other provisions in your will as well. If you have young children, you should also consider naming an alternate guardian for your children in the event your first choice is unable to fulfill his or her obligation. In addition, you may want to appoint an alternate executor in case the first one cannot serve.

Contact Kristen Prull Moonan or Amy Stratton to help you ensure you have considered all the possibilities.

 

Powers of Attorney Come in Different Flavors

A power of attorney is a very important estate planning tool, but in fact there are several different kinds of powers of attorney that can be used for different purposes. Before executing this crucial document, it is important to understand what your options are.

A power of attorney allows a person you appoint — your “attorney-in-fact” or agent — to act in your place for financial or other purposes when and if you ever become incapacitated or if you can’t act on your own behalf. There are four main types of powers of attorney.

  • Limited. A limited power of attorney gives someone else the power to act in your stead for a very limited purpose. For example, a limited power of attorney could give someone the right to sign a deed to property for you on a day when you are out of town. It usually ends at a time specified in the document.
  • General. A general power of attorney is comprehensive and gives your attorney-in-fact all the powers and rights that you have yourself. For example, a general power of attorney may give your attorney-in-fact the right to sign documents for you, pay your bills, and conduct financial transactions on your behalf. You could use a general power of attorney if you were not incapacitated, but still needed someone to help you with financial matters. A general power of attorney ends on your death or incapacitation unless you rescind it before then.
  • Durable. A durable power of attorney can be general or limited in scope, but it remains in effect after you become incapacitated. Without a durable power of attorney, if you become incapacitated, no one can represent you unless a court appoints a conservator or guardian. A durable power of attorney will remain in effect until your death unless you rescind it while you are not incapacitated.
  • Springing. Like a durable power of attorney, a springing power of attorney can allow your attorney-in-fact to act for you if you become incapacitated, but it does not become effective until you are incapacitated. If you are using a springing power of attorney, it is very important that the standard for determining incapacity and triggering the power of attorney be clearly laid out in the document itself.

Regardless of what type of power of attorney you use, it is important to think carefully about who will be your attorney-in-fact. Your attorney-in-fact will have a lot of control over your finances, and it is crucial that you trust him or her completely.

While many pre-packaged do-it-yourself power of attorney forms are available, it is a good idea to have an attorney draft the form specifically for you. There are many issues to consider and one size does not fit all. Contact  Kristen Prull Moonan or Amy Stratton to learn more.