On the evening of Thursday, August 6, nine Republican candidates took the stage at the Quicken Loans Arena in Cleveland, Ohio, for one of the first debates of the 2016 Presidential Election. Now, I’ll admit that I stayed up a bit later than I’m used to so that I could watch the entire program, and boy am I glad I did. I realize that although Donald Trump made a few polarizing remarks, he did something that no other candidate has done for quite some time: he made the debate watchable. Whether you support him or not, whether you think his comments were substantive or not, it’s hard to deny that a lot of interesting things came out of that debate.
One of those interesting tidbits occurred right in the first few minutes of the actual debate, when Donald Trump stated that he would absolutely run an independent campaign against the GOP candidate if he was not chosen or treated fairly. He was the only candidate on stage to make this statement, as the others pledged that they would not run an independent campaign if not selected by the GOP. This idea, however, brings up an important point about choices: What if, in life, we only had two choices? What if each time you went to the store, you could only choose between two brands of whatever product you needed? How would that be fair?
It wouldn’t be, which is why when we talk about seniors and healthcare, having choices in that matter is as American as being able to choose between a Chevy, Ford, Toyota, and whatever other brand of car you desire.
So what I’d like to do in this post is take a cue from the GOP debates and address some of the points that was made that evening in relation to seniors, healthcare, and what you can do to beat the odds and maintain control of what is rightfully yours.
Fortunately, seniors had a big focus during the debate, specifically in regard to Social Security. In looking at Social Security and the numbers that are being published, people over 50 are growing concerned, and rightfully so. Candidate Mike Huckabee noted 60 million Americans receive Social Security, and of that 60 million, one third of them – which totals 20 million Americans – are dependent on their Social Security for 90% of their income. At the rate we’re moving, Social Security is scheduled to be bankrupt in 20 years. And the question was asked of the candidates was, how are we going to protect it? Any ideas?
One of the options that was proposed was raising the retirement age. So I suppose that means we’re all just going to have to bite the bullet and work until we’re 95. I don’t know about you, but I don’t want to work forever. I want to enjoy my golden years, as I’m sure you all do.
Another option is means testing. Essentially, means testing is a component of benefits programs to assess how much you actually need that benefit. In order to assess your need of Social Security, a means test would more than likely ask you the following questions:
• What means do you have?
• Have you accumulated any assets?
• What asset level are you at?
• Do you have a house? If so, what is it worth?
• Do you have any money that you’ve saved for retirement? If so, how much?
Based on your answers to those questions, you level of need would be quantified, and you’d receive your Social Security amount that way. They’re even talking about means testing for VA benefits, and as many of you know, I’m a veteran. I received a letter last year asking me about my household income, assets, and other things of value that I own. Under this system, you can guarantee that the more means you have, assets and otherwise, the lower the benefits you’d receive. To me, that seems fundamentally unfair, to have someone work hard their entire life, and just when they’re about to enjoy their retirement years, they are told, “Sorry! Your means do not qualify you for the money that you have earned.”
Why is Social Security Bankrupt?
Many of you might remember back in 2000 during one of the presidential debates, Democratic candidate Al Gore started using the term “lock box” to describe how he would keep Social Security funds protected. Although the nation was never able to discover if the lock box would work for us or not, the logistics behind his idea were not far off. Social Security funds must be protected, but from whom? And how did they get to this state of emergency?
It is my personal opinion that the politicians have robbed us of Social Security. You work hard and receive a pay check every month, or maybe twice a month. There is a percentage that is taken out from each pay period that goes toward Social Security. But can you touch that? Can you prevent the money from being taken out from your checks? No, you can’t, and it is the politicians that have been presiding over that money, not you. In the end, the seniors suffer, which is why I have made it a fundamental driving force for my practice to stand up for seniors and make sure that their assets are protected. I want them to have the best healthcare and strong protection of their assets, with as many options and choices as possible for their retirement years and beyond.
Through McIntyre Elder Law, I’m going to put the lock on your box, the box that holds your assets and income. I’m going to build the lock because I’ve got tools for the job that can help lock up those assets.
Giving Away the House
Another issue I’d like to address involves a topic that many of us are unwilling to talk about: age. Sure, we’re all getting older even though we like to think that we are still in our 20s. Heck, in my mind, I’m barely 25! But the reality is that we are growing closer and closer each day to our elder years, and we need to take the proper steps and precautions as we venture on that path.
Age is really nothing but a number. Yet I have found that one of the most common questions I get from clients is, “Greg, should I give my house to my children?” When did the prevailing “wisdom” become that at a certain age, we give everything away? Many of my clients believe that this is a smart move so that they can avoid some of the means testing the government has set in place for Social Security. I can guarantee you that in the next few years, McIntyre Elder Law is going to have a means testing wing as part of the practice, with the way the trends are going now.
So let me give you one piece of advice: hold on to your leverage. As a mother or a father, you might want to put your house and/or your assets in the hands of your children, but I have found that as long as you are in control of your assets, your children will have more respect for you. I’ve always said that son and daughter are nicer people – whether they want to admit it or not – when Mommy and Daddy have control over all the assets. We all want people we can trust to give our property to, but you want to keep control of that property and only let go of it when the last one of you passes away, the last one of the husband and wife. Although this is not the case for every family, I have seen on many occasions that when there is a bit of blood in the water, the sharks start to draw near.
Enhanced Life Estate Deeds
The bottom line is that there is never a good age, an expected age where you are to give away all of your property. If that is the answer, then we need to change the question and we need to change the rules. That, in my opinion, is a ridiculous scenario.
You are free to choose and use the tools that are available to you, and one of those – aside from utilizing a trust and other planning tools – is an Enhanced Life Estate Deed. These are also known as Lady Bird Deeds, which I’ve spoken about in depth in previous blog posts. With a traditional life estate deed, I might put my children down as a grantee, and I reserve a life interest for my wife and myself, as well as for our home. The problem is we give away our power of appointment. So in order to convey that property, the kids have to come in and sign that deed for me to sell it or for me to grant a deed of trust to the bank to mortgage it.
With an Enhanced Life Estate or a Lady Bird Deed, you don’t. You reserve the right to still mortgage the property 100% yourself, without your kids coming in and signing off on that deed of trust or sell it. You retain total control, even when under the Medicaid rules for assisted living Medicaid (which is a 3-year look back period) and long-term care Medicaid (which is a 5-year look back period) you are assisted with that long-term care and payments. A Lady Bird Deed or an Enhanced Life Estate Deed is not looked at under that 5-year look back period. It’s not taken into account. So what I say is it builds a brick wall of protection around your property right now. It’s the tool for the job around your home. It’s the lock for your lock box, and it allows you to control what happens to it 100%.
Under this deed, you are still free to sell your home, mortgage it, do whatever you want to with it. You can rest assured that it’s not going to go back to the government no matter what your healthcare needs are, and that you’re going to keep it in the family. I’d like to think that’s because North Carolina is shifting to a more retirement friendly and senior-friendly state. That’s my hope, and those are allowable right now under the rules. If you get one right now under the rules, and the rules change in the future – which, if there’s one thing I can promise you, is change is constant depending on the political party in control and the pendulum swings to the Left and to the Right. It’s always going to happen. So if you’ve got one now, it would be grandfathered in under the rules because it’s legal right now. So that’s essentially in a nutshell what a Lady Bird Deed is, it protects the property and keeps it in your family. And the best part is, you don’t have to be married to guarantee protection of your house under this deed. You can be a single man or woman; you’ll still be protected.
So before I leave this virtual stage I want to remind readers that I will meet with you at McIntyre Elder Law for as long as it takes to ensure that you have what you need in place, and to put that lock on your box and protect your hard earned money and property.
Ask yourself this question: what do you, your financial adviser, and your attorney have in common with Olympic basketball? Allow me give a little context. In 1992, the United States assembled a dream team of basketball players that included Magic Johnson, Michael Jordan, and Larry Bird. The aptly named Dream Team of that year was able to win the gold medal in Barcelona, and landed themselves a spot in the minds and hearts of sports fans forever. So, I ask again: what do you, your financial advisor, and your attorney have in common with those three men? The answer is teamwork. All of you are working toward a goal, and will stop at nothing until that end is met. Each person on the team contributes something different, each person brings with them a new talent, but all parts are necessary to achieve what you want. For this reason, I called upon the people that I know and trust to craft the 3 Important Questions for your Financial & Legal Dream Team.
1. When should I take my Social Security?
As you head into your senior years, and helps protect your assets and legacies. What I mean by this is you need to protect your home, your real estate, and the money that you saved for retirement. Protecting all of this also means that you need a financial adviser and planner who can answer the difficult questions for you, such as: when should I take my Social Security?
The short answer is between the ages of 62 to 70. While you can take it anywhere along that timeline, there are advantages and disadvantages given your situation as to when you should take it. According to my friend Jamie Richard, who is a financial advisor and wealth planner over at Edward Jones Investment in Shelby, North Carolina, there are a few factors that determine the right time for you to take Social Security. They include:
• Life expectancy. This might be grim to think about, but consider your health. If you have very poor health, you probably want to go ahead and start taking it early on.
• Work status. Do you know when you plan to stop working? This will affect how much you can collect.
• Benefits. What will be the benefit if you wait until retirement age?
• Marital status. Single or married can have an effect on when you begin taking the Social Security, and how much you receive.
Remember that the longer you wait to take it, the greater your monthly checks will be. So if you start taking it at 62, you might get $1,000 a month. If you wait until 65, it might be $1,400 a month. If you want until you’re 70, you may get $1,800 a month. Consider these factors with your financial advisor to determine when and if you should start taking Social Security.
2. How can I protect my assets in the event of a healthcare incident?
When meeting with a client, I always ask the following questions:
• What kind of retirement assets do you have, and who is managing them?
• Do you have a long-term care piece in place like insurance or a hybrid product?
I ask these questions to determine the risks involved in your financial life should a healthcare incident occur in your life. If your assets are sound, then you will not have to worry about a lien being placed on your house or having your money taken away that you worked hard for.
According to my friend Jamie again, you need to assess what would happen if you ended up in a nursing home, for instance, or if you went into retirement with a big healthcare cost. Those are events that can derail your secure financial situation in retirement. Consider the following: Depending on where you look, nursing homes carry a price tag of tens of thousands of dollars. Assisted living homes are not far behind. Do you know how much of that bill Medicare is going to pay for? Will long-term care be included in the coverage?
One other thing to keep in mind: in working with your Dream Team, you want to discuss how to protect part of your nest egg from a Medicaid spend down. In that case, you would rely on an irrevocable trust, which we establish as a Medicaid asset protection trust. Those funds can still be managed and the trustee that you name has a fiduciary duty to provide the same monthly income for you. The money is therefore locked and safe, and cannot be touched if you find yourself in a dire healthcare situation. This will also protect your spouse and your family, for if they were relying on you for income, they can now rest easy knowing that your funds are safe.
In working with your Dream Team, you want to get qualified for Medicaid while also trying to protect as much of your hard-earned money and property as possible. At Elder Law, we work with financial experts like Jamie on a regular basis in order to do that.
3. What can I do to manage my beneficiary products?
Let’s first define what beneficiary products include:
• Life insurance
• Roth accounts
If you pass away, do you know who the designated beneficiary is of those products? I will clue you in: if you have “estate” listed as the beneficiary, then your assets are going to go through probate, which is something that you, your family, and your Dream Team do not want for you.
The whole point of having transferable-upon-death assets like insurance products with beneficiaries or 401Ks or IRAs is so you can pass it outside of the will. This will ensure that assets go directly to the person you designate in the form of a check.
One other step that Jamie and I recommend to clients is what we call a stretch IRA. You will be able to stretch out the IRA over the lifetime of whoever it is that’s inherited your IRA or your 401K. For instance, if you have an IRA worth $100,000 in it and you pass away without a beneficiary, then it’s going to be left to your estate. Taxes are thus going to have to be paid on that particular asset. However, if you name your child, your church, your local charity or what have you, there are other ways that money can go directly to the beneficiary. We therefore avoid having taxes take a chunk out of that money all in one year.
Here are some other steps to consider when it comes to beneficiary products:
• Name a contingent beneficiary. Also known as an alternate beneficiary, this is someone else that you select to receive the money on your behalf if, for whatever reason, the first person you name cannot receive that money. If your first beneficiary is a spouse, then your contingent beneficiary might be one of your children. This ensures that your money at least stays in your family.
• Consider the ages of your children. Do you have any children that are around the age of 18 at the time you are considering naming them a beneficiary? Though you might trust your kids, there are some risks involved in naming them so young. You’d want a name in the will which would provide for another adult to act as guardian or parent for the child. After you name that person, a trust document is created to bestow fiduciary duties on that adult, making them the trustee and thus responsible for managing the funds for your child. Think about it: what would you have done with $100,000 as a teenager? Instead of one lump sum, perhaps you want them to receive an annual payout of 10% over a 10-year period? That is much more manageable.
• Set up milestones for children or grandchildren. What an incredible legacy to bestow upon your children or your grandchildren, than ensuring that they are somewhat financially sound when you are no longer alive and well? What you can do with your money is create milestones that will trigger the release of a certain amount of cash upon completion. Say, for instance, you set up a milestone of college for your first grandchild. Once he/she gets into college, your grandchild will get a sum of money. The second milestone can be graduation, upon which he/she will get another sum of money four years later. This guarantees that your family will be secure, but will have to still strive a bit in your name to access that money.
I therefore leave you with this: August is Leave-a-Legacy month, so you want to begin thinking about the legacy that you are going to leave to your spouse, your children, your grandchildren, and any other loved one that you have in your life. Do not leave them in a dire situation if, in the future, you cannot provide for them. Think about not only your future, but the future of your family. It is thus crucial for you to ask these questions of your Dream Team.
Call me if you have any questions:
Elder Law Attorney
McIntyre Elder Law
123 W. Marion Street, Shelby