Trump Delays Rule That Retirement Advisers Put Their Client's Interests Ahead of Their Own

Senior couple talking with financial advisorPresident Trump signed an executive order calling for a review of the so-called fiduciary rule, which was intended to prevent financial advisers from steering their clients to bad retirement investments by requiring advisers to act in the best interests of their clients. The order delays the rule, which was scheduled to go into effect in April 2017, and the rule may ultimately be repealed.

Prompted by concern that many financial advisers have a sales incentive to recommend to their clients bad retirement investments with high fees and low returns because they get higher commissions or other incentives, the Department of Labor drew up rules in April 2016 that would require financial advisers to act like fiduciaries.

The rule required all financial professionals who offer advice related to retirement savings to provide recommendations that are in a client’s best interest. Currently, financial advisers only have to recommend suitable investments, which means they can push products that may benefit them more than their clients. The rule would require advisers to not accept compensation or payments that would create a conflict unless they have an enforceable contract agreeing to put the client’s interest first. Advisers also would have to disclose any conflicts and charge reasonable compensation.

Americans likely lose about $17 billion from retirement savings every year because of bad financial advice from advisors with conflicts of interest, according to a 2015 report by the White House Council of Economic Advisors. 

Even though the implementation of the rule is delayed and possibly scrapped for good, financial companies have already spent money and time to comply with the rule. For example, Merrill Lynch said it was going to stop offering commission-based retirement accounts in order to comply with the new rule. Those companies may not change course even if the rule is rescinded.

Regardless of whether the fiduciary rule lives on or not, consumers should use caution when selecting a financial adviser. Ask your financial adviser if he or she is a fiduciary. If not, then be aware that the adviser is not required to act in your best interest. You should also check your financial adviser’s experience and credentials and beware of phony credentials. 

For more information about Trump’s order, click here and here.

Is It Better to Use Joint Ownership or a Trust to Pass Down a Home?

HouseWhen leaving a home to your children, you can avoid probate by using either joint ownership or a revocable trust, but which is the better method? 

If you add your child as a joint tenant on your house, you will each have an equal ownership interest in the property. If one joint tenant dies, his or her interest immediately ceases to exist and the other joint tenant owns the entire property. This has the advantage of avoiding probate.

A disadvantage of joint tenancy is that creditors can attach the tenant’s property to satisfy a debt. So, for example, if a co-tenant defaults on debts, his or her creditors can sue in a “partition proceeding” to have the property interests divided and the property sold, even over the other owners’ objections. In addition, even without an issue with a creditor, one co-owner of the property can sue to partition the property, so one owner can force another owner to move out.

Joint tenancy also has a capital gains impact for the child. When you give property to a child, the tax basis for the property is the same price that you purchased the property for. However, inherited property receives a “step up” in basis, which means the basis is the current value of the property. When you die, your child inherits your half of the property, so half of the property will receive a “step up” in basis. But the tax basis of the gifted half of the property will remain the original purchase price. If your child sells the house after you die, he or she would have to pay capital gains taxes on the difference between the tax basis and the selling price. The only way to avoid the tax is for the child to live in the house for at least two years before selling it. In that case, the child can exclude up to $250,000 ($500,000 for a couple) of capital gains from taxes.

If you put your property in a revocable trust with yourself as beneficiary and your child as beneficiary after you die, the property will go to your child without going through probate. A trust is also beneficial because it can guarantee you the right to live in the house and take into account changes in circumstances, such as your child passing away before you.

Another benefit of a trust is with capital gains taxes. The tax basis of property in a revocable trust is stepped up when you die, which means the basis would be the current value of the property. Therefore, if your child sells the property soon after inheriting it, the value of the property would likely not have changed much and the capital gains taxes would be low.

In general, a trust is more flexible and provides more options to protect you and your child, but circumstances always vary. You should talk to your attorney about how to pass down your property.

Costs of Some New Long-Term Care Insurance Policies Rise in Latest Survey

long-term care insuranceA couple who are both age 60 and who purchase new long-term care insurance coverage can expect to pay between 6 and 9 percent more compared to a year ago according to the 2017 Long Term Care Insurance Price Index, an annual report from the American Association for Long-Term Care Insurance, an industry group. But rates for single men and women remained fairly level or, in some instances, actually declined compared to 2016, reports the association.  

A married couple both age 60 would pay $2,200 a year combined for a total of $328,000 of long-term care insurance coverage. This represents a 9 percent increase from 2016, when the association reported that a couple could expect to pay $2,010. Adding an inflation growth option that builds the couple’s benefit pool to a combined $660,000 at age 85 would cost an average of $3,790 a year, 6 percent higher than last year.

Rates for single men and women remained fairly level or, in some instances, went down compared to 2016. A single man could expect to pay an average of $1,050 a year for $164,000 worth of coverage, a 3 percent increase over last year, although the same policy with inflation protection is now 20 percent cheaper, at $1,665 a year. The same two policies for single women average $1,600 and $2,600 a year, respectively, essentially the same as 2016.

But the association points out that costs for virtually identical policy coverage still varies significantly from one insurer to the next. Its analysis found rates varied by as much as 70 percent for the same coverage. For example, a 55-year-old single woman could pay as little as $1,450 a year or as much as $2,650, depending on which insurer she buys from. “You generally only buy long-term care insurance once, so it’s important to do it correctly the first time,” said Jesse Slome, the association’s director.

As last year, this year’s index compares policies sold in Tennessee, which is viewed as a representative state. The survey was conducted in January 2017.

For the association’s one-page 2017 index showing average prices for common scenarios, including comparisons to 2016 prices, click here.

Watch Out for Mistakes in the List of Doctors Covered by Your Medicare Advantage Plan

doctorMedicare Advantage plans are a popular alternative to regular Medicare because the plans often offer lower out-of-pocket costs, but buyers need to make sure they know what they are paying for. A government review of Medicare Advantage plans revealed that their provider directories were often riddled with errors, causing those plans to face serious fines.

Medicare Advantage plans are provided by private insurers, unlike original Medicare, which is provided by the government. The government pays Medicare Advantage plans a fixed monthly fee to provide services to each Medicare beneficiary under their care. These plans are usually health maintenance organizations (HMOs) or preferred provider organizations (PPOs) that only cover care provided by doctors in their network or charge higher rates for out-of-network care. The plans often look attractive because they offer the same basic coverage as original Medicare plus some additional benefits and services that original Medicare doesn’t offer.

Because Medicare Advantage plans have different coverage rules for out-of-network care, it is important to know which doctors and hospitals are in a plan’s network. However, the Centers for Medicare & Medicaid Services (CMS) conducted a review of online provider directories for Medicare Advantage plans and found that there was incorrect information for half of the 5,832 doctors listed in directories for 54 Medicare Advantage plans that represented a third of all Medicare Advantage providers.

As a result of the review, CMS warned 21 Medicare Advantage insurers to fix the errors by February 6, 2017, or face serious fines. In 2016, CMS enacted a rule requiring plans to contact doctors and providers every three months to update their online directories. A Medicare Advantage plan can face a penalty of up to $25,000 a day per beneficiary if errors aren’t corrected.

Before purchasing a Medicare Advantage plan, you should double check with the doctors and hospitals you use that they are covered by the insurance.

For an article from PBS.org about errors in Medicare Advantage plans, click here.

 

 

Preventing a Will Contest

WillEmotions can run high at the death of a family member. If a family member is unhappy with the amount they received (or didn’t receive) under a will, he or she may contest the will. Will contests can drag out for years, keeping all the heirs from getting what they are entitled to. It may be impossible to prevent relatives from fighting over your will entirely, but there are steps you can take to try to minimize squabbles and ensure your intentions are carried out.

Your will can be contested if a family member believes you did not have the requisite mental capacity to execute the will, someone exerted undue influence over you, someone committed fraud, or the will was not executed properly.

The following are some steps that may make a will contest less likely to succeed:

  • Make sure your will is properly executed. The best way to do this is to have an experienced elder law or estate planning attorney assist you in drafting and executing the will. Wills need to be signed and witnessed, usually by two independent witnesses.
  • Explain your decision. If family members understand the reasoning behind the decisions in your will, they may be less likely to contest the will. It is a good idea to talk to family members at the time you draft the will and explain why someone is getting left out of the will or getting a reduced share. If you don’t discuss it in person, state the reason in the will. You may also want to include a letter with the will.
  • Use a no-contest clause. One of the most effective ways of preventing a challenge to your will is to include a no-contest clause (also called an “in terrorem clause”) in the will. This will only work if you are willing to leave something of value to the potentially disgruntled family member. A no-contest clause provides that if an heir challenges the will and loses, then he or she will get nothing. You must leave the heir enough so that a challenge is not worth the risk of losing the inheritance.
  • Prove competency. One common way of challenging a will is to argue that the deceased family member was not mentally competent at the time he or she signed the will. You can try to avoid this by making sure the attorney drafting the will tests you for competency. This could involve seeing a doctor or answering a series of questions.
  • Video record the will signing. A video recording of the will signing allows your family members and the court to see that you are freely signing the will and makes it more difficult to argue that you did not have the requisite mental capacity to agree to the will.
  • Remove the appearance of undue influence. Another common method of challenging a will is to argue that someone exerted undue influence over the deceased family member. For example, if you are planning on leaving everything to your daughter who is also your primary caregiver, your other children may argue that your daughter took advantage of her position to influence you. To avoid the appearance of undue influence, do not involve any family members who are inheriting under your will in drafting your will. Family members should not be present when you discuss the will with your attorney or when you sign it. To be totally safe, family members shouldn’t even drive you to the attorney.

Bear in mind that some of these strategies may not be advisable in certain states. Talk to your attorney about the best strategy for you.

New Medicare Rule Encourages Doctors to Test for Alzheimer's Disease and Offer Care Planning

Doctor-patient consultationA new Medicare rule will promote earlier diagnosis of Alzheimer’s disease. Medicare will now reimburse primary care doctors who conduct an Alzheimer’s evaluation and offer information about care planning to elderly patients with cognitive impairment.

According to the Alzheimer’s Association, more than 5 million Americans have the disease. In addition, more than 85 percent of Alzheimer’s patients also have another chronic condition. But many are unaware that they have Alzheimer’s disease because they haven’t been diagnosed.

Under the new rule, primary care doctors who test patients for cognitive impairment can bill Medicare for their services. Testing for Alzheimer’s disease can involve taking a thorough medical history, testing a patient’s mental status, doing a comprehensive physical and neurological exam, and conducting blood tests and brain imaging. Previously, there was no specific Medicare reimbursement for dementia testing, so many doctors did not take the time to do it.

In addition, doctors can bill Medicare if they offer help to Alzheimer’s patients with care planning by providing information on treatments and services. Receiving early diagnosis and proper care planning can be critical for Alzheimer’s patients. According to Robert Egge, Alzheimer’s Association Chief Public Policy Officer, “Proper care planning results in fewer hospitalizations, fewer emergency room visits and better management of medication — all of which improves the quality of life for both patients and caregivers, and helps manage overall care costs.”

While Medicare will now pay for dementia testing and care planning, Medicare does not pay for long-term custodial care services for Alzheimer’s patients. Medicare’s nursing home coverage is limited to skilled care provided by a physical therapist, registered nurse, or licensed practical nurse.

For an article about the new rule from the Santa Cruz Sentinel, click here.

 

 

How to Deduct Long-Term Care Premiums From Your Income

long-term care insuranceTaxpayers with long-term care insurance policies can deduct some of their premiums from their income. Whether you can use the deduction requires comparing your medical expenses to your income in a complicated formula.

Premiums for qualified long-term care insurance policies are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 10 percent of the insured’s adjusted gross income. In tax year 2016, taxpayers 65 and older only need medical expenses to exceed 7.5 percent of their income, but in 2017, taxpayers 65 and older will have the same 10 percent rule as everyone else.  

The amount of long-term care insurance premium that is deductible is based on the taxpayer’s age and changes each year. For the 2016 tax year, taxpayers who are 40 or younger can deduct only $390 a year, taxpayers between 40 and 50 can deduct $730, taxpayers between 50 and 60 can deduct $1460, taxpayers between 60 and 70 can deduct $3,900, and taxpayers who are 70 or older can deduct up to $4,870 in premiums.

What this means is that taxpayers must total all of their medical expenses and compare them to their income. For example, suppose 64-year-old Frank has an adjusted gross income of $30,000 and long-term care premiums totaling $5,000 as well $1,000 in other medical expenses. Ten percent of $30,000 is $3,000. Frank can only deduct any medical expenses that exceed $3,000. The 2016 limit for deducting long-term care premiums is $3,900. That means Frank can only count $3,900 of his long-term care premiums. If he adds the $3,900 in long-term care premiums to the $1,000 in other expenses his total medical expenses are $4,900. He can deduct $1,900 in medical expenses from his income.

If Frank is 70 in 2016, the calculation changes because his medical expenses only need to exceed 7.5 percent of his income, which would be $2,250. The amount of premiums he can deduct is also increased because of his age–he can deduct up to $4,870 in premiums. Subtracting the income limit from his medical expenses ($4,870 in long-term care premiums and $1,000 in other expenses), Frank can deduct $3,620 in medical expenses from his income. In 2017, Frank will only be able to deduct medical expenses that exceeded 10 percent of his income, so the amount he can deduct will go down.