JOINT BANK ACCOUNTS: FRIEND OR FOE?
Many children assist their elderly parents with the management of day-to-day financial affairs. As an example, an adult child may review and arrange payment of their parents’ monthly bills. To facilitate this, many elderly people open joint bank accounts with their children.
This help can be indispensable. Senior citizens (particularly older seniors) are at great risk of financial abuse. An adult child can provide effective protection against this risk.
Notwithstanding this, it’s important to recognize that there are significant risks associated with joint accounts. These risks exist even in situations where the joint account owners have each other’s best interests in mind.
Judgments and Debt Issues
If one of the account owners encounters financial hardship, then the account can be vulnerable to judgments, liens, garnishments and other debt-related hazards.
Even responsible people suffer unexpected (and sometimes dramatic) financial crises. Unforeseen medical bills, a job loss, or a divorce may render a person financially insolvent. When that happens, a joint bank account serves as an attractive resource to unpaid creditors. Joint accounts can be accessed (and even emptied!) with no recourse for the joint owner.
If an adult child and elderly parent share an account, and the adult child divorces, the account may be considered as an available asset to be split in the divorce proceedings.
Estate Planning Confusion
Most joint accounts pass automatically to the surviving owner when the other owner(s) dies. When an elderly parent dies, the proceeds of the account will typically pass to the surviving owner(s). This may be in conflict with the wishes described in the parent’s will or trust.
Risks of Joint Access
If two or more people are joint owners on a bank account, the money in the account can be immediately accessed by any one owner. This enables one owner to empty the account without the consent of the co-owner.
This is possible despite the relative contributions of each party. As such, it’s possible that one owner could contribute 100% of the funds in the account, and those funds could all be withdrawn by the owner who did not contribute funds.
Either owner has the right to use the account funds without receiving prior approval from the other owner(s).
If one owner places a large amount of money in a joint account, and another owner removes money in excess of the $14,000 annual IRS exclusion, then there may be a gift-tax filing requirement.
For seniors who need help handling financial affairs: a financial power of attorney can be created. This enables adult children to handle their parents’ financial responsibilities without making their parents’ assets vulnerable to the child’s creditors, spouse, or IRS regulations.
A financial power of attorney can be written so that the adult child has immediate authority to handle affairs, or the authority can spring into existence only upon the parent’s incapacity.
To avoid probate: You can ask your financial institution to create a “payable on death” account. This enables the account to pass directly to your beneficiaries immediately upon your death; OR
You can create a trust. Your trust declaration can be structured so that your assets are well-managed without being susceptible to the creditors of your trustee(s) and/or beneficiaries.
You’ve worked hard to build your nest egg. You should protect it to the fullest extent possible. Attorney Kelly Karczmar can help you to determine which options are best for you.
CAREGIVER SERVICE CONTRACTS
Many people require nursing or other personal care services as they age. While medical science has dramatically increased the average person’s lifespan, living longer often means living for greater periods of time with senior-onset health problems and physical limitations.
Families hesitate to send a loved one to a nursing home. Often, they will care for their loved ones at home for as long as possible. In some cases, this is a full-time job, and the caregiver is on-call 24 hours a day. An incapacitated person living at home may need assistance with very basic activities, including such things as:
· Restroom usage and assistance with incontinence-related tasks
· Getting in and out of bed/chairs
· Taking medications
· Running errands
· Transportation to medical and dental appointments
· Bill paying and financial management
· Contacting medical providers and insurance companies
· Handling correspondence and contacts with friends and relatives
· Applying for government benefits, including Medicaid
These services are valuable. Illinois law acknowledges this value in many situations. As an example, the statutory power of attorney form (which is written into Illinois law) provides reasonable compensation for agents acting under the power of attorney.
As another example of how Illinois law acknowledges the value of caretakers, it is sometimes possible for a long-term, live-in caretaker to make a claim against a disabled person’s estate after the death of the disabled person. This requires, at minimum, that the claimant lived with the disabled person and personally cared for the disabled person for a minimum of three years before the disabled person passed away. There are other requirements as well.
Given that Illinois law recognizes the value of personal care services, and given that many people provide personal care services to disabled seniors, a personal care service contract can be a useful Medicaid planning tool.
To be sure, Medicaid funds are in short supply, and the program is constantly changing. No one is able to predict how the program will operate five years from now, or even one year from now.
Given the sparsity of funds available for the Medicaid program, Medicaid applications are carefully scrutinized. With this in mind, personal care contracts should be constructed and implemented with a great deal of care.
Here are a few tips:
· All contracts should be in writing;
· If the prospective caregiver is also the disabled person’s agent under a power of attorney, and if the agent must execute the contract both as caretaker and as agent for the disabled person, then a third party should review the contract and thereafter monitor its performance;
· Compensation should be reasonable (with consideration given to the average wage paid locally for similar work);
· An accountant should be retained to ensure that all governmental tax obligations are met;
· The caretaker should generate regular invoices based on carefully maintained records; the records should describe the specific services performed, and reference the date and time that the services were performed;
· A provision should be included to provide mileage reimbursement, as permitted, to the caretaker at the current IRS-approved rate, with very detailed records maintained to support the reimbursements;
· Compensation should not be provided for past services (i.e. services rendered prior to the execution of the contract);
· The document should encourage the caregiver to find an alternate service provider if the caregiver is unable to perform under the contract; and
· The parties should recognize that amounts paid under the contract are income to the caretaker, and the payments impose tax liability. Depending on the amount paid to the caretaker, it may be necessary for the disabled person to generate an IRS Form 1099. The caretaker may be required to pay both income and self-employment taxes. It is critical that the parties to the contract discuss all of the relevant implications and obligations with an accountant.
Consult your elder law attorney to obtain up-to-date advice on caretaker service contracts. Your elder law attorney can:
· Prepare a contract that both (1) addresses the specific needs of the disabled person and (2) ensures that the disabled person’s access to Medicaid benefits is maximized under the current legal and regulatory framework;
· Provide counsel on the records required to evidence a caretaker’s time spent and expenses incurred;
· Provide personalized timekeeping forms to ensure that records maintained by a caretaker are sufficiently detailed; and
· Counsel the disabled person’s agent (appointed under a power of attorney) or guardian (appointed by a court) on the legal obligations of agents and guardians in Illinois.
Please contact elder law attorney Kelly Karczmar at (708) 927-1234 or firstname.lastname@example.org to learn more.
Illinois is one of the few states to have a pet trust law. The law enables you to create a trust to ensure that your pets are cared for after you die. The law is powerful because it allows you to appoint both a caretaker for your pets, and a trustee to handle the financial arrangements. These positions may be held by the same person, but it's not a requirement.
Pet trusts allow you to appoint someone to enforce trust provisions. This is important because your pet cannot speak up for himself. He cannot take a trustee or caretaker to court if he is neglected or if funds for his/her care are mishandled.
There are many things to consider when you create a pet trust. They include:
- Who will be the trustee? Who will act as successor trustee if the primary trustee is unable to act? Do you want the trustee and the caretaker to be the same person? A good-hearted animal lover may not be the best money manager.
- What standard of living do you want your pet to enjoy? Your trust should include information on your pet’s diet, level of exercise, level of socialization, as well as his grooming and maintenance routines.
- Who will be the successor caretaker if the primary caretaker is unable to act?
- What are the identifying characteristics of your pet? If your pet has a microchip, the number should be included in the trust. His age should also be identified.
- What are the medical needs of your pet? If your pet has chronic health issues, his medical and prescription requirements should be detailed.
- What property will you use to fund the trust? If the value of the trust assets is excessive, then a court may interfere, causing unnecessary legal expenses. The key is to provide sufficient funds for your pet without going overboard.
- What will happen if your trust funds run out before your pet dies? If there is any money left in your pet trust after your pet dies, who will receive it?
- Have you funded your trust? It is not uncommon for my new clients to show up with a well-crafted trust that was never funded with assets. If you don’t transfer property (e.g. real estate or financial accounts) into your trust, then your property will probably pass through probate at great cost to your beneficiaries.
- Does your trust protect your beneficiaries from lawsuits and divorce? If a creditor sues your child, you probably don’t want your child’s inheritance to go to the creditor. If your child divorces, you probably don’t want your child’s inheritance to be shared with your child’s ex-spouse. A trust can shield you from those risks.
- At what age will your beneficiaries receive their inheritance? You can stagger the distribution of your trust proceeds so that your beneficiaries receive their inheritance incrementally. You can appoint trustees to manage distributions so that financially inexperienced beneficiaries are protected.
- Who is the beneficiary of your retirement plans and other investments? If you choose to list your trust as beneficiary, then distributions should be timed to reduce negative tax consequences.
- Are you comfortable with the successor trustees you appointed? You should review your trust from time to time to ensure that you still want the successor trustee(s) you originally named. Relationships change over the years.
- Does your trust make sense given the current estate tax scheme? Estate tax law changes dramatically from year to year. This is true at both the federal and state levels. You should ensure that your trust makes sense in the current legislative environment.
- Do you have a pet trust? Illinois law allows you to use a trust to make formal provisions for your pets.
Approximately 50% of Americans will spend time in an assisted living facility or nursing home. This is a very difficult experience emotionally, but can also be very damaging financially. The average cost of nursing home care in the greater Chicago area is $77,745 per year. This cost is projected to increase to $82,809 per year in 2017. In most cases these costs must be covered by the resident’s savings and other financial assets. Contrary to popular belief, Medicare does not provide long-term care coverage, and help from Medicaid becomes available only when the resident’s resources are almost completely exhausted. The assets of the spouse of the resident are also considered available to cover these expenses, and Medicaid will not be approved until the spousal assets are similarly depleted.
Because of the large budget deficits faced by the federal and Illinois governments, new laws have been enacted to dramatically reduce Medicaid benefits for long-term care. For most of us, this means that if we enter an assisted living facility or nursing home at some point and have not planned ahead, much of our savings and other assets (and those of our spouse) will be sacrificed. Many people are not aware of the substantial loss of Medicaid benefits over the past nine years. The end result of these changes is that – while your grandmother’s long-term care may have been covered by Medicaid – yours probably will not be covered.
The law provides ways to safeguard your assets when you have health problems so that they remain available to you and your spouse. However, many mechanisms for estate preservation are only available if you plan well in advance, taking steps before any problems occur. This requires careful and judicious planning. Here are some mechanisms that may be useful, depending on your family and financial situation:
- Create an Irrevocable Trust;
- Create an Irrevocable Funeral Prepaid Burial Contract;
- Create a Special Needs Trust;
- Upgrade your home or automobile;
- Purchase personal property within certain value limits;
- Transfer assets (within applicable limits) so that each spouse retains as much in cash and other assets as possible without sacrificing eligibility for Medicaid benefits;
- Time the Medicaid application to take advantage of the substantially lower rates paid by Medicaid to long-term care facilities.
All of these strategies require discussion with your attorney. Strategies will vary tremendously depending on your personal circumstances and those of your spouse and loved ones. If you plan early, you can save thousands (or even hundreds of thousands) of dollars later. This can protect you from unnecessary stress and allow you to concentrate on maximizing your health and happiness, as well as the well-being of your loved ones, should you require long-term care later in life.