Workers will soon have a new retirement savings option. In his State of the Union address, President Obama announced the establishment of the new MyRA program, retirement accounts for workers who do not have access to employer-sponsored 401(k)s.
MyRAs can be opened through employers with as little as a $25 minimum deposit and future contributions as low as $5, automatically deducted from employees’ paychecks. The money is invested in a government bond fund, rather than invested in stocks as with many 401(k)s. This means that the principal cannot be lost, but returns will be relatively small. The accounts are portable, meaning that the employee can keep the account when switching jobs.
The plan is open to households making $191,000 or less annually, and the accounts have no fees, which should make them accessible to more low-wage workers. There are no penalties for withdrawing funds at any time, and withdrawals are not considered taxable income. When a MyRA reaches $15,000, it is rolled over into a Roth IRA, so the accounts can provide a starting point for more substantial savings.
There are two different IRS limits that affect how much an individual can give to another without a gift tax being imposed: an annual exclusion and a lifetime exclusion. In 2014, the annual limit is not changing, while the lifetime limit is increasing.
During 2014, one may give up to $14,000 to each recipient before having to file a gift tax return, the same limit as in 2013. Spouses can double the size of a gift by combining their exclusions. This is a per-person exclusion, so a married couple could give $28,000 to an adult child, another $28,000 to the adult child’s spouse, and another $28,000 to each of their grandchildren.
One may still make a payment for someone, for instance tuition or medical expenses, without the amount counting as a gift.
Giving more than the annual limit to an individual does not necessarily mean that one will owe a gift tax. Any amount above the annual exclusion counts toward the lifetime exclusion, which has increased to $5.34 million as of 2014, from $5.25 million in 2013. Any gifts above that amount during one’s lifetime may be subject to a gift tax of up to 40 percent.
Elderly parents often need the assistance of their adult children, and this can be difficult when one lives far from them. Even if one’s parents live in an assisted living facility or a nursing home, or have regular in-home caregivers, there may be times when their adult children will need to step in to make decisions, handle financial matters or help with care-giving. If you are separated geographically from your parents, it pays to plan ahead for how you will handle these matters.
First, it may be wise to consider whether geographic separation is in fact necessary. Depending on your and your parents’ preferences, it may be beneficial for them to move closer to you or another of their adult children. There may be times when it is extremely helpful for a close family member to be on hand to attend to matters personally, and frequent air travel can be expensive and inconvenient.
If circumstances necessitate long-distance care-giving, some matters are easier to handle at a distance than others. Financial matters are one thing that adult children can easily manage from afar, and this can be helpful to ensure that elders are not falling victim to scams, particularly if Alzheimer’s or other dementia is an issue. However, convincing a parent that they need help with financial matters is not always easy. The more you and your parents have an open dialogue about money, the better. This will help immensely with budgeting for whatever type of care may be needed.
Care-giving from a distance, if not ideal, is possible with careful planning.
The college savings plans known as 529 plans are a way for parents to invest money for their children’s college education while taking advantage of significant tax breaks. Now there are also ways for friends and family members to more easily contribute to the savings plans, which is becoming a popular graduation or birthday gift option.
Several companies operate websites that allow you to set up a profile for the beneficiary of a 529 plan and then let friends and family know that they can give through the site. The services deduct a fee of between 2 and 5 percent before the money is made available for parents to transfer to the 529 account.
The College Savings Plans Network has raised the question of whether these companies should register under federal and state securities laws. One site, GiftofCollege.com, has taken the step of registering as a broker-dealer.
Without the use of these services, parents could see whether their 529 plan accepts contributions from third parties, and then give the account information to friends and family.
Another option is available from Upromise Investments Inc., which administers plans in 16 states, including New York. The company’s Ugift program allows parents to send friends and family a digital invitation to contribute. The invitation allows recipients to print out a coupon with a bar code and account number, which they can mail in with a check. There is no fee for the service.
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The Two-Midnight Rule: The Difference Between Inpatient and Outpatient Status and How it Affects Medicare Part A and B Payouts
For recipients of Medicare benefits, the cost of a hospital stay and any subsequent stay in a nursing facility may depend in large part on whether or not the patient was “admitted” to the hospital as an inpatient, or is on observation status as an outpatient. The distinction is crucial, and vexing for patients and doctors alike.
After a patient has spent the night in a hospital bed, been given a gown and wrist bracelet, been seen by doctors and nurses, and been fed and washed by aides, he might reasonably be perplexed by the idea that there is any question about whether he has been “admitted” to the hospital. Yet many patients do find, after the fact, that their entire hospital stay has been on “observation” status and they were never formally admitted. This can greatly increase the out-of-pocket expense for the patient, and can affect Medicare coverage for any nursing home stay after the hospital stay.
The current Medicare policy is known as the “two-midnight rule”: if a doctor expects that a patient’s stay will include two midnights, then the patient is admitted under inpatient status. This means that the stay is covered by Medicare Part A, which covers hospital stays. If the stay doesn’t include two midnights, then Medicare regards the person as an outpatient covered by Medicare Part B, which covers doctors. The distinction can make a huge difference in cost for patients, because under Part B, each procedure, visit and prescription is billed separately, and co-pays can easily mount to hundreds or even thousands of dollars.
Naturally, Medicare patients would prefer to be admitted as inpatients, and hospitals generally feel the same way, since Part A reimburses at a higher rate than Part B. However, hospitals that formally admit patients who do not end up needing two midnights’ care can face audits, payment denials and fraud accusations from Medicare.
Both doctors and patients complain that the two-midnight rule is arbitrary. A patient who arrives at the hospital at 11:55 p.m. on a Wednesday night and is discharged Friday morning may be admitted as an inpatient and covered by Medicare Part A. If he arrived 10 minutes later, he would be an outpatient under observation status and face higher co-pays under Medicare Part B. Another problem with the rule is that doctors are supposed to make the call about whether a patient is expected to stay for two midnights, and this can often be unpredictable.
A further difficulty is caused by the fact that Medicare will pay for up to 100 days of skilled nursing care only if the nursing home stay is preceded by a three-day hospital stay. If a patient is classified as under observation as an outpatient, the nursing home stay is not covered.
One bright spot for residents of New York State is the legislation recently passed and signed into law that requires that hospitals inform Medicare beneficiaries if they are on observation status and allows them to appeal that status. It is crucial for Medicare beneficiaries entering the hospital to be aware of their admission status and be prepared to appeal observation status if necessary. Congressional legislation is also pending – but stalled – to allow any hospital stay, whether inpatient or outpatient, to be applied to the three-day requirement for Medicare to cover care in a skilled nursing facility.
This article first appeared on Poughkeepsie Journal (Dec. 14, 2013)
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Older Americans are often the victims of fraud, whether through fake sweepstakes offers, phony investments or Social Security fraud. Scammers may target older people because they are perceived to be more trusting, or because they are more likely to be available for telephone calls during the day. Alzheimer’s patients are particularly vulnerable, as they may become confused easily. Boredom and loneliness also play a large role in increasing seniors’ vulnerability.
There is no easy antidote to fraud, but if one has elderly parents, it is important to make sure that they are aware of the danger and know the warning signs of common scams. Shaming and blaming seniors is not constructive or effective, while providing practical information can make a real difference. And, now there is one more tool available: a federal fraud hotline.
The hotline was established by the Senate Special Committee on Aging and is available between 9 a.m. and 5 p.m. Eastern time at 1-855-303-9470. Investigators will take information from callers reporting fraud and funnel those complaints to the proper state and federal authorities.
Investigators can also be contacted through the website of the committee, located at www.aging.senate.gov/fraud-hotline.
Everyone wants to pay as little tax as possible, but for that to happen it is necessary to take every deduction one qualifies for. Here are a few deductions that people often overlook.
• Other Charitable Gifts: In addition to money you donate to charity, you can deduct the cost of travel if you use your vehicle to perform charitable work. You can also deduct the cost of supplies you buy for a charitable project, or a uniform you wear as a volunteer.
• Moving Costs: A taxpayer may deduct the cost of moving when relocating for a new job, or a first job, as with a recent college graduate who gets a new job in another city.
• Job Hunting Costs: An already-employed worker may deduct the cost of looking for a new job in the same occupation. This may include costs for preparing a resume or employing an outplacement agency, if the deductions are itemized.
• Child and Dependent Care: The child and dependent care credit can help cover the cost of after-school day care or summer day camp. It can also be used for an adult dependent who needs care while the taxpayer works.
• Mortgage Refinance Points: When purchasing a new house, one can deduct the points paid on the loan. However, one can also deduct the points when refinancing a home loan, as long as the proceeds from the refinanced mortgage are used to improve one’s principal residence.
Visits from loved ones in the hospital can greatly improve the mood of patients and assist in their recovery, but most hospitals restrict visitors to the human kind. Although many hospitals have pet therapy programs that use trained dogs, most do not allow visits by family pets.
A few hospitals are bucking that trend, allowing patients’ own dogs and cats to visit under certain conditions.
Among them is North Shore University Hospital on Long Island, which allows personal pets to stay around the clock with patients in its palliative care unit. Another Long Island facility, the Hospice Inn, also allows pets, and a few other hospitals around the country have adopted similar policies.
The policies vary, but they generally require a doctor’s order and an attestation from a veterinarian that the pet is up to date on shots and otherwise healthy. Most hospitals require dogs to be on a leash and cats to be taken in and out by carrier.
Hospital officials who have studied the issue say that the relatively mild risks, such as that of animals transmitting bacteria, are outweighed by the benefits, such as comfort and reduced stress for patients.
The Care Circles of Westchester is a new program to provide family caregivers with help from a group of volunteers who can assist with caregiving tasks.
A care circle is a group of volunteers who are willing to help a person who needs care – such as an elderly person – with the tasks of daily living, such as doing laundry, walking the dog, or giving the senior a ride to a doctor’s appointment.
The Care Circles are part of Westchester’s Livable Communities Initiative, one of the goals of which is to help seniors age in place, in their homes and communities, rather than in a facility. Having a community of volunteers to help with daily living tasks can advance that goal.
To learn more about the program, contact Colette Phipps at email@example.com or 914-813-6441.
James Gandolfini, the actor who played mafioso Tony Soprano on HBO’s The Sopranos, died on June 19 of a sudden heart attack. Gandolfini had a reported net worth of $70 million. He had executed a new will in December of 2012 and had created at least one trust, for his son Michael. Although the actor clearly put some thought into estate planning, his estate will end up paying millions of dollars in federal and state estate taxes, much of which could have been delayed or reduced through the proper use of trusts and other estate planning tools.
More than 80 percent of Gandolfini’s estate will be subject to federal estate taxes, at a rate of 40 percent for all assets above $5.25 million. The federal tax bill will be more than $20 million. The State of New York will also tax Gandolfini’s estate, at a rate of about 5 percent on the amount over $1 million and 16 percent on the amount over $10 million. State taxes could amount to about $10 million.
Gandolfini’s estate will pay more than was necessary in part because he chose to leave less than 20 percent of his assets to his wife. The estate tax does not apply to assets left to one’s spouse, until the spouse’s death, at which point the spouse can use both spouses’ estate tax exemptions. Gandolfini indicated that he had provided for his wife financially in other ways outside of his estate.
However, Gandolfini also left a will that subjects most of his estate to the probate process, rather than setting up trusts which could have provided more sophisticated estate planning and reduced the estate tax bill. Trusts also would have kept his affairs private and made them easier to administer.
The poor planning of Gandolfini’s estate is a lesson in the additional tax burden and other complications that can arise when someone relies too heavily on a will rather than properly-funded trusts.
For more information about our estate planning services, visit www.littmankrooks.com.