The Focus - Our Tax E-Newsletter

Elder Tax Considerations

Elder Tax Considerations

As we age there are many new things to experience, assess, and keep our eye on. Among these, it is especially important to be aware of new tax considerations that may become applicable and warrant an in-depth discussion with your tax advisor.

The following are some preliminary items to consider for discussion with your tax advisor:

  1. Power of Attorney
  2. Gifting
  3. Long-Term Care Expenses
  4. Last Will and Testament

In many cases the Power of Attorney (POA) can be the most important planning document. A POA is a legal document that allows someone else to make both legal and financial decisions on behalf of an individual. This document is especially important due to the potential consequences of not having it in place. If an individual were to become incapacitated without a valid POA, their family may find themselves in a position where they need to petition the court to appoint a guardian or conservator. The process of petitioning the court to do so may be both time-consuming and costly, not to mention emotionally taxing, in an already difficult time.

Another important item to consider is gifting. Gifting is a very common component of ongoing estate planning. Yearly gifting, whether to an individual or an irrevocable trust, is an effective way to both ensure assets are going where intended and to remove assets from an individual’s name. This can be a crucial component of Medicaid planning or can be beneficial if the individual needs to qualify for another means-tested government benefit. The current annual federal gift tax exclusion is $17,000 per done.

It is also important to take into account, and plan for, potential long-term care expenses. Many may have a long-term care insurance policy, whether with an employer or independently. These policies should be reviewed annually - there have been cases in which an individual has a long-term care policy; however, the daily coverage provided by the policy did not meet the real time daily expenses for the required care. Being prepared includes knowing the coverage provided by your policy, having a supplemental plan in place for any additional long-term care expenses, and being aware of possible tax credits associated with the aforementioned.

A Last Will and Testament can be executed even in the event of serious diagnosis. Many people might worry that if they are diagnosed with Alzheimer’s or dementia, it would be too late to execute or alter a will. This is not necessarily the case, though each state does have different legal standards for determining an individual’s capacity to execute a Last Will and Testament. In New York the statute requires that the testator be at least 18 years of age and be “of sound mind and memory.” The courts have provided further guidance, indicating that an individual has capacity to execute a Will if they 1) understand what will result from the Will, 2) understand what their property is, and 3) understand who their family members are.

An increasing number of people are suffering from serious diagnoses. It is important for everyone, but especially those impacted by chronic illnesses, to have a tight grasp on their financial situation and incorporate future planning as early as feasible.

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.


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