Top 3 Retiree Tax Mistakes

Many things change when you retire. Don’t let taxes spoil your retirement.

Tax planning is different after retirement. You might think that a lower income level and fewer deductions will lead to a care-free tax season. Unfortunately, taxes are just as unforgiving in retirement as they are pre-retirement.

You need to understand how retirement benefits and investment returns are impacted by federal and state laws. 

Prevent Top 3 Retiree Tax Mistakes
According an article in Kiplinger, “3 Tax-Planning Mistakes Retirees Too Often Make,” these are the three most common mistakes:

Tax Loss Harvesting
Tax loss selling means selling a capital asset, like a stock, for a loss to offset a gain realized by the sale of other investments. The result is that the investor avoids paying capital gains on recently sold investments. Retirees with stock holdings should review their holdings every year to determine their market exposure and any tax consequences of selling stocks with substantial capital gains.

Unfortunately, the tax code isn’t very beneficial to stock losses. Stock losses can be used to offset gains.  However, if you have excess losses over gains, you can only take an extra $3,000 annually to offset other income. If your loss is more than $3,000, you can carry it forward into future years. If your loss is big, you could be waiting some time to realize the full advantage of this. Work with a CPA or a tax professional on a fully maximized tax strategy.

As Kenny Rogers says, “you’ve got to know when to hold ‘em”

Too Small Income Distributions
While many experts work on how to limit required minimum distributions (RMDs), there are some good reasons for taking larger distributions. With a lower income, retirees may discover they’re in a lower tax bracket and they want to minimize their tax burden. However, they don’t see what can happen when they die: the money in their IRAs get passed on to their beneficiaries as an inherited IRA. Alternatively, the recipients can elect to take a complete distribution of the IRA and get hit with income tax on the whole thing! New tax laws may get rid of some of this burden, so stay tuned for updates from us!

Taxes on Social Security
It’s not uncommon for people to think that Social Security isn’t taxable. Unfortunately, the IRS is out to get retirees as well. Here’s how it works:

  • Retirees with minimal income won’t pay federal taxes on their benefits, but if they have additional income, there will be a percentage that’s taxable. Minimal usually means under $25,000.00 in a year.
  • If the income is less than $25,000 for single filers or $32,000 for joint filers, your benefits are all tax-free.
  • If the provisional income is between $25,000 and $34,000 as a single filer or between $32,000 and $44,000 as a joint filer, you’re taxed on up to 50% of your Social Security benefits. But if your provisional income exceeds $34,000 as a single filer or $44,000 as a joint filer, you’ll be taxed on up to 85% of your benefits.
  • To protect your retirement income and savings, every year should begin with a review of taxable income to see how it will impact your Social Security benefits. That includes evaluating your tax bracket. 

Talk With an Expert
As a good start for 2019, we recommend you talk with a financial planner or CPA about your retirement tax outlook.

If we can help you with creating trusts, updating your will, or other legal tools to better plan for your retirement and take care of your loved ones, give us a call at 817-638-9016 to schedule an appointment. Happy New Year! 

Travis Weaver, Attorney
Weaver Firm – Attorneys Serving Wise County, Tarrant County, Denton County, & Surrounding Area

Travis Weaver, Attorney

Guardianship & Other Solutions for Helping Those Who Cannot Help Themselves

Are you considering a guardianship for someone who may be having trouble caring for their own needs? In certain situations, alternatives to guardianship are the best and most cost-effective solutions to help someone who cannot help themselves. These alternatives include power of attorney, supported decision king agreements, management trusts, and non-legal solutions involving psychological help and family care.

Even if someone is being abused, neglected or exploited, they may not need a guardian. A complaint can be made to Adult Protective Services at 1-800-252-5400.

If the person is in a nursing home or other facility, a complaint can be made to the Texas Department of Health and Human Services at 1-800-458-9858. If the person is in a facility and their rights are not being respected, a complaint can be made to the Texas Long-Term Care Ombudsman at 1-800-252-2412.

Guardianship Process

If the alternatives don’t work, even with supports and services, it may be necessary for someone to be placed under a guardianship.

Every guardianship application must be accompanied by a Physician’s Certificate of Medical Examination. This should be completed by neurologist or psychiatrist and, ideally, by someone who knows the person well. If the person will not agree to see a doctor, the Approved Guardianship Attorney can apply for an Independent Medical Examination.

If you do not want to be the guardian but think that a guardian is needed, you can ask the probate court to look into the matter by sending a Court-Initiated Guardianship Information Letter.

Guardianship Attorney
If the person does need a guardian, the application must be brought by an Approved Guardianship Attorney. Some probate and county courts have lists. There is also a list on the State Bar of Texas website.

While an Approved Guardianship Attorney may only be registered in one county, many practice in surrounding counties as well. Texas also requires a JBCC registration which can be found here. (http://www.txcourts.gov/jbcc)

We’re glad to help you better understand your options for guardianship or a different solution for someone who cannot care for themselves. We have deep experience in these matters and can help you navigate these legal waters. Give us a call to schedule an appointment today at 817-638-9016.

Types of Guardianship

Guardianship of the Person
Guardianship of the person is often sought when a person with an intellectual or developmental disability turns 18 or when a person with dementia refuses to stay in a memory care facility or nursing home. In the case of a person with intellectual or developmental disabilities “aging out” or turning 18, Texas law requires evidence of a need for guardianship. A small bond is required.

This solution may allow the guardian to decide:

  • where the person lives or works
  • who they marry
  • application for a mental health detention (with immediate notice to the probate court)
  • the right to vote is usually preserved, but not the right to carry a gun

Guardianship of the Estate
Guardianship of the estate (also called, “conservatorship”) may be needed when the person has more than Social Security in income or a lot of assets but can no longer manage their finances and does not have an agent under a Durable Power of Attorney or has an untrustworthy agent.

If the person only receives Social Security benefits, someone may be appointed their representative payee, avoiding the expense and trouble of guardianship. A bond is required based on the person’s yearly income and total assets. Every year a guardian of the estate must present a sworn accounting, complete with receipts.

 

Travis Weaver, Attorney

Travis Weaver, Attorney

2018 Year-End Tips for Financial Planning

If you haven’t looked at year-end financial breaks, I have news for you–the time is NOW!
Here’s a quick list of important tax-cutting or planning actions to take before Dec. 31, 2018! 
–Update your will to find tax breaks or fix tax consequences before year-end
–If you’re a veteran, talk to a lawyer before giving away money or property–especially if you need assisted living care
–Donate gifts of cash or stocks to your favorite charities now
–Assess business changes to cut taxes now or push taxable decisions to 2019

Read more below for explanations on actions needed before Dec. 31, 2018.

Why update your will before Dec. 31?
Reveal tax breaks or deal with tax problems before year-end deadline

New baby or grandbabies? You now have another potential tax deduction. But, remember– anyone under the age of 18 cannot inherit property in Texas. We recommend you place any inheritance for minors in a testamentary trust in your will. This helps you avoid guardianship issues and allows you to specify the age of inheritance (age 25, age 30, or older).

Happily married again? Congratulations! Divorce? It happens. Your tax status can change with with either of these life events. As far as your will–make sure the new spouse is the beneficiary on all your documents. Or, name someone else as beneficiary if you’re now free of a spouse. Too often we see estate plans where an ex-spouse is still a primary beneficiary. Staying friends is one thing . . .but inheritance?

Move to Texas recently or move away? Different states mean different tax and probate rules. State income tax factors into your tax return. You may need to file separate returns for different states. Your will should reflect your new place of residence to avoid costly probate. For example, California probate is difficult and expensive. Texas probate is straightforward and cost-effective by comparison. While Texas allows valid wills from other states to be presented in a probate case, we always recommend new Texas wills for clarity and to cover any issues which may have arisen in the last few years.

Inherit property or purchase a home in another state? This change almost always affects your tax situation and likely has probate consequences for your will. No one ever said, “I want to probate a will in two states.” If you have valid Texas estate planning, these documents cover any and all property you own in Texas. If you own property outside of Texas, especially real estate, we recommend placing this property in a simple revocable trust. This avoids multi-state probates and allows you to transfer the property seamlessly without further court involvement.

Buy or sell a big item? Maybe you finally bought that boat you’ve always wanted. Don’t forget to invite us on your next trip! Just kidding–kinda. If this is for personal use, it probably won’t qualify as a tax deduction. But, maybe the boat can be used in part to entertain clients? Let’s talk. This asset definitely should be added to your will along with designating what happens to it if you’re not around.

Is your will’s executor still a good choice? This decision may affect your taxes and far more–your entire family’s inheritance or anyone else designated to benefit from your will.

Let me give a good example. Let’s say you are an elderly gentleman and you have a nice new friend named Anna Nicole Pith. This friend is quite a bit younger than you and is kind enough to offer to serve as your executor. Now let’s say this friend starts borrowing money from you and maybe even steals a car or boat from you. We recommend finding a new executor. If you don’t trust the people named in your documents, find new people. Don’t have ideas? Ask us to brainstorm for you.

Why should I care about the VA’s rule changes for long-term care?

You should care because your decision to give away money or property before Dec. 31 could mean you or your spouse won’t qualify for long-term nursing home care or assisted living benefits. This year VA long-term care benefits changed to require a three-year look-back period for aid and attendance to veterans or their spouses who are in nursing homes or assisted living facilities. The rule change also affects those who need help at home with everyday tasks like dressing or bathing. This means that moving assets during the three years prior to applying for these benefits could affect your eligibility. 

In addition, a new net worth maximum of $123,600 has been established.

The new rules are similar to Medicaid in their requirements and similar types of financial planning using trusts and other property transfer tools are still available.

You may benefit from meeting with an attorney to discuss the ways to transfer your property or money and still qualify for VA long-term care or assisted living benefits.

Here are the basics:

  • Applicants are required to disclose all financial transactions within the three years prior to submission of the application.
  • Applicants who transfer assets to put themselves below the net worth limit within three years of applying for benefits will now be subject to a penalty period. During this penalty period, the applicant will not be eligible for VA benefits. This can last as long as five years.
  • There are limited exceptions to the penalty period for fraudulent transfers and for transfers to a trust for a disabled child.
  • Gifts count towards this penalty period. 
  • Taking your name off of bank accounts also counts as a gift or unqualified transfer of assets for VA and Medicaid purposes. 

Basically, if you think you have a new trick for getting rid of assets, the VA and Medicaid case workers have seen it before. To learn more, check out our detailed article on this subject or call 817-638-9016 to schedule an appointment

Do I have to give a charitable gift before Dec. 31?
Yes, you do–if you want a tax deduction. Here’s the IRS break down:

How charitable giving tax deductions work
You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2018. This is true even if you don’t pay the credit card bill until 2019. Also, a check will count for 2018 as long as you mail it in 2018.

Wait! There’s more! Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift.

Gifts of stock require more detailed planning. Let us know if you want to give away stock as you need to understand the most beneficial way to handle this transaction—for your own tax consequences and to best benefit the charity. If you need help in planning stock or property sales for maximum tax benefits, call us at 817-638-9016 for an appointment with an estate planning attorney. 

Why Do Business Changes Matter?
Assess Before Dec. 31 & Avoid Unexpected Tax Outcomes

Ask yourself the questions below to do a quick assessment of your business changes over the past 12 months. If “YES!” is the answer to any of them, you may need to talk with us or your CPA about tax consequences. And, you may need to update your will:
• Buy or sell a business?
• Get a new partner or dissolve a partnership?
• Buy or sell business assets including property, buildings, equipment, cars, etc.?
• Declare bankruptcy?
• Make tons of money with your new business idea?
• Added new staff—possibly some relatives?

Make sure your estate plan matches the current state of your business. We want your wills, trusts, power of attorneys, and more to match your business plan in a seamless transition plan.

Need help? Call our office at 817-638-9016 to schedule an appointment.  

Wishing you peaceful and relaxing holidays,

Travis Weaver, Attorney
tweaver@WeaverLegal.net

Veteran’s Affairs (VA) Major Rule Change Affects Long-term Care

Photo of battered combat boots

VA’s Major Rule Change Affects Qualifying for Long-term Care Benefits

This year, the Department of Veterans Affairs (VA) finalized its long-threatened new rules making it more difficult to qualify for long-term care benefits.  The VA offers aid and attendance to veterans or their spouses who are in nursing homes or assisted living facilities or who need help at home with everyday tasks like dressing or bathing.

The rules establish an asset limit, a look-back period, and asset transfer penalties for claimants applying for VA pension benefits, including the Aid and Attendance benefit, that require a showing of financial need. This new rules are similar to Medicaid in their requirements and similar types of planning are still available.

Currently, to be eligible for the Aid and Attendance benefit, a veteran (or the veteran’s surviving spouse) must meet certain income and asset limits that are dependent on his or her healthcare costs and life expectancy.

 

The new regulations set a net worth limit of $123,600, which is the current maximum amount of assets (in 2018) that a Medicaid applicant’s spouse is allowed to retain, and will be indexed to inflation in the same way that Social Security increases.

But, in the case of the VA, this net worth number will include both the applicant’s assets and income. The income for a veteran or a veteran’s spouse includes social security, pension, and certain other types of income. An applicant’s house (up to a two-acre lot) will not count as an asset even if the applicant is currently living in a nursing home or assisted living facility. Additionally, applicants will also be able to deduct medical expenses — including payments to nursing homes and assisted living facilities — from their income. This is a crucial point. You need to keep track of your medical expenses and money you’ve spent on care recently.

The regulations also establish a three-year look-back provision. This is a significant penalty period, but is still two years less than the Medicaid look-back period. Applicants will have to disclose all financial transactions within the three years prior to submission of the application. Applicants who transfer assets to put themselves below the net worth limit within three years of applying for benefits will now be subject to a penalty period, during which they are not eligible for VA benefits, that can last as long as five years. There are limited exceptions to the penalty period for fraudulent transfers and for transfers to a trust for a disabled child. Gifts count towards this penalty period. Taking your name off of bank accounts also counts as a gift or unqualified transfer of assets for VA and Medicaid purposes. Basically, if you think you have a new trick for getting rid of assets, the VA and Medicaid case workers have seen it before. To learn more, check out our detailed article on this subject or call 817-638-9016 to schedule an appointment

Under the new rules, the VA’s penalty period will be determined by dividing the amount transferred that would have put the applicant over the net worth limit by the maximum annual pension rate (MAPR) for a veteran with one dependent in need of aid and attendance.

For example, assume the net worth limit is $123,600 and an applicant has a net worth of $115,000. The applicant transferred $30,000 to a friend during the look-back period. If the applicant had not transferred the $30,000, his net worth would have been $145,000, which exceeds the net worth limit by $21,400. The penalty period will be calculated based on $21,400, the amount the applicant transferred that put his assets over the net worth limit (145,000-123,600).

The new rules went into effect on October 18, 2018. The VA will disregard asset transfers made before that date.

Veterans or their spouses who think they may be affected by the new rules should contact the attorneys at the Weaver Firm at 817.638.9016.