Compensating Caregivers

One in Seven Americans are Caregivers

There are some serious issues looming on the horizon for baby boomers.  Almost one in seven Americans looks after a disabled person age 50 or older.  Many compensated and many not compensated, but it is a rapidly growing number (the number has jumped 28% since 2004). It’s an emerging situation that needs the compensation element to be formalized for many.

In the recent November issue of Financial Advisor the article “Compensating Caregivers” quoted a  2009 survey found that 14.5% of the U.S. population – about one of every seven of us – is responsible for the care of a disabled person age 50 or over, up 28% since 2004.  Increasingly, the elderly disabled are paying family members to care for them in family home. This raises a number of issues.

This article takes stock of the situation and urges caution and awareness. It may seem odd, unnecessary, or even heartless, but they advise that the arrangement with caregivers be legally formalized, reported, and in some cases even treated as employment. The reason is two-fold.

Firstly, by formalizing and documenting the arrangement, you make it legally acknowledged and transparent for both the care-giver and care-recipient. As the recipient of care, you may be able to claim an income tax deduction all or part of the payments as qualified medical expenses. Additionally, your payments will be well-documented, should Medicaid eligibility ever become an issue. Without this documentation, the unidentified transfer of funds to family members could be seen as an attempt to cheat the system.

Secondly, simply establishing a legal process for payment of care can help open up family dialogue, and raise awareness – especially among non-care-giving family members. Arrangements of this nature are bound to put stress on all parties, but dialogue, contractual understanding, and compensation can help smooth over difficulties for the care-receiver, the care-giver, and other family members. The care-receiver has a vital say in the arrangement, can avoid feeling like a “burden,” and remain a vital part of the family. Family members can discuss who is to administer care or how exactly they can support one another in fairly supporting the care-receiver. For that matter, too, sibling squabbles can be lessened when it comes to inheritance and estate arrangements if the family care arrangement is legally recorded.

I thank my WealthCounsel colleague in Nevada, Lizette Sundvick, for authoring this commentary on “Compensating Caregivers”.

Foresight, solid financial planning, and an awareness of the extent of any care arrangements are vital. I am always available to assist you with long-term care and other legal issues commonly associated with aging. You are welcome to give me a call to schedule a consultation, or leave a comment below this post, and I’ll share the dialogue with all. 

 

Estate Planning Traps

Here is a list of Common Pitfalls and Traps I've had in my basic estate planning handout for clients:

1.      “I’m too young to worry.”  Reality: If you die young with a spouse and/or children you need to protect your loved ones.  Also, by planning early you have the power of leverage/appreciation.

2.      “My estate is too small.”  Reality:  If not planned, a smaller estate can suffer greater percentage shrinkage than a large estate due to increased administration costs necessary in a non-planned estate.

3.       “I’m leaving everything to my spouse, so estate tax doesn’t matter.”  Reality: Leaving everything to a spouse just postpones tax and wastes the dead spouse's estate tax “coupon”:  Wasting a coupon means wasting $1,575,000 in tax savings in 2009.

4.      Believing one size fits all.  Corollary: You get what you pay for.

5.      Not paying attention to who you have on what and how: Beneficiaries of life insurance, annuities and retirement accounts.  Wrong people get the wrong property.

6.      Failing to consider trusts as vehicles to pass wealth during life or at death.  Convenience trusts, irrevocable life insurance trusts, “Crummey” power trusts, intentionally defective grantor trusts, GRATs, QPRTs (for cabins or vacation homes).

7.      Not planning for your disability; not avoiding a “living probate”.

8.      Not having any will or trust, handwriting it yourself, or having them prepared without proper analysis for your situation.

9.      Too much in joint tenancy with right of survivorship; disproportionate ownership by husband & wife.  Joint tenancy is convenient but it can ruin an estate plan if not used correctly.

10.  Failing to name guardian of minor children.

11.  Failing to prepare business succession plan.

12.  Failing to plan for estate liquidity and/or tax payment alternatives.

13.  Having too little life insurance.  If you, the money maker dies, what is your family going to live on?  Often life insurance is the only affordable way to solve the problem.

14. Not realizing life insurance you own on your own life is included in taxable estate for federal estate tax. While the proceeds may be income tax free, they are not necessarily estate tax free if you own a policy on your life.

15.  Not considering lifetime gifting program:  Children, grandchildren, charitable techniques.

16.  Not considering alternative operating entities.

17.  Procrastination:  Letting indecision lead to inaction.  Usually, doing something is better than doing nothing.  See my post below on How to Avoid Vapor Lock

18.  Lack of Communication.  While your estate is private, you should discuss matters with those you intend to have care for you or handle your affairs after your death.  Often better planning happens when the younger generation is included and aware of what's going to happen.

19.  Not keeping estate plan up to date.  You should review your estate plan at least every few years. 

20.  Believing a magic bullet exists or “This won’t happen to us.” 

21.  BEWARE of “constitutional,” “pure,” or “common law” trust schemes. 

Remember:  If it sounds too good to be true, it is.