Will Medicare cover the cost of a nursing home?

DEAR GARDEN STATE TRUST COMPANY,
 MY PARENT HAS BEEN RETIRED FOR MANY YEARS AND IS BEGINNING TO HAVE SOME TROUBLE WITH LIVING INDEPENDENTLY.  WILL MEDICARE COVER ALL OR PART OF THE COST OF A NURSING HOME? 
—WORRIED CHILD

Dear “Worried”,

No, neither Medicare nor supplemental medical insurance for retirees covers the cost of long-term care. Most nursing home care is custodial care, which appears to be what your parent needs. Medicare covers very limited and medically necessary skilled care or home health care if needed for an illness or injury and if certain conditions are met.  Long-term care is not one of those conditions.

To help take care of nursing home bills, your parent needs to buy long-term care insurance for that purpose. These policies can be quite expensive, because nursing homes are very expensive.  There can be policy terms that lower the cost, such as longer “elimination periods” before benefits become payable. Just as one can’t buy homeowner’s insurance once one’s house is on fire, your parent shouldn’t wait until the nursing home move is imminent to look into a long-term care policy.

Moving into a nursing home should be a last resort. There may be other, less expensive options that you can explore to help your parent with the chores of daily life.

Sincerely,

Garden State Trust Company

Controlling an Inheritance

DEAR GARDEN STATE TRUST COMPANY,
I EXPECT TO LEAVE GENEROUS INHERITANCES TO MY GRANDCHILDREN. ALL OF THEM EXCEPT “ALAN” HAVE FAMILIES AND CAREERS AND WILL, I BELIEVE, MAKE GOOD USE OF THE MONEY. ALAN, UNFORTUNATELY, LACKS MOTIVATION. LAST YEAR HE QUIT COLLEGE AND MOVED BACK IN WITH HIS PARENTS. HE DOESN’T EXPRESS ANY INTEREST IN A CAREER OR HIS FUTURE. OTHER THAN DISINHERITING ALAN (WHICH I SURELY DON’T WANT TO DO), IS THERE ANY WAY THAT TO MAKE SURE THAT AN INHERITANCE WON’T REINFORCE HIS LACK OF MOTIVATION?
—CONCERNED GRANDMA

Dear “Concerned”,

You might consider establishing an incentive trust for Alan in your will to allow you to attach conditions to his inheritance.

For example, you can specify that the trust distribute only a limited sum to Alan initially, requiring him to achieve certain goals that you believe are important (obtaining a degree, pursuing a professional career) in order to receive more. You can structure Alan’s inheritance so that he receives money from the trust only at certain ages, with the final payout coming at a time when he has reached financial maturity.

An incentive trust can’t guarantee that Alan will achieve the goals that you want him to pursue, if he doesn’t believe in those goals himself. But the trust can provide positive reinforcement, and it can protect the assets from being squandered.

Sincerely,

Garden State Trust Company

Remarriage and Estate Planning

DEAR GARDEN STATE TRUST COMPANY,
MY ADULT CHILDREN ARE UPSET ABOUT MY UPCOMING REMARRIAGE.  I KNOW THAT THEY ARE WORRIED ABOUT THEIR INHERITANCES (AND ALSO WHO’LL GET THE FAMILY HOME, I’M SURE). I WILL PROVIDE FOR THEM, JUST AS I DID IN MY EARLIER WILL, BUT I HAVE TO TAKE CARE OF MY NEW SPOUSE, TOO.  ANY SUGGESTIONS ABOUT WHAT I CAN DO?
—LOOKING TO KEEP EVERYONE HAPPY

Dear “Looking”,

Have you thought about adding a trust to your will? A trust plan will let you provide for both your new spouse and your children.

Your trust could provide your spouse with a regular income from the assets in the trust for life. At the spouse’s death, the trust can distribute the assets among your children. You can make a similar arrangement for the family home. Your spouse can live there for life, and then the house could pass to the children.

If you are worried about conflicts of interest, or that an heir might pressure the trustee to do (or not do) something, you can ask us to serve as trustee or cotrustee. That way, you’ll know that all of your heirs will be treated impartially and fairly.

Of course, there’s no guarantee that a trust will keep peace in the family. But it’s an arrangement that can help implement your wishes for your property.

Sincerely,

Garden State Trust Company

How do I protect my children’s inheritances?

DEAR GARDEN STATE TRUST COMPANY, 
I HAVE TWO GROWN CHILDREN, BOTH MARRIED.  ONE COUPLE IS FINANCIALLY SECURE; THE OTHER IS LESS SO.  CANDIDLY, I DON’T TRUST THE SPOUSE OF MY CHILD WHO IS STRUGGLING.  IS THERE SOMETHING I CAN DO TO KEEP THAT CHILD’S INHERITANCE FROM THE SPOUSE’S HANDS?  HOW DO I TREAT THE CHILDREN DIFFERENTLY WITHOUT PROVOKING A FAMILY FEUD? 
— DISCRIMINATING PARENT

Dear “Discriminating”,

The best way to protect an inheritance is by using a trust, giving the beneficiary a financial resource instead of financial assets.  The trust may distribute income to the beneficiary each year but include restrictions on principal distributions.  For example, the trust might be invaded for medical or education expenses, or to purchase a home, or upon reaching certain milestones.  The trust beneficiaries may be limited to your descendants, excluding sons-in-law and daughters-in-law.

The terms of a trust are not normally made public, but are known only to the creator of the trust, the trustee and the beneficiaries.  Accordingly, if you have two trusts for your two children, you may provide different restrictions for each.  They don’t have to be told about the differences.

Sincerely,

Garden State Trust Company

When do federal estate and gift taxes kick in?

DEAR GARDEN STATE TRUST COMPANY,  
WHAT’S THE STORY WITH ESTATE AND GIFT TAXES?  DO I NEED TO WORRY?
—AWARE OF TRANSFER TAXES

Dear “Aware”, 

Most people don’t need to worry about estate and gift taxes, but for those who do, it can be a very important worry indeed.

First, you have the annual exclusion from the gift tax, which is $14,000. That means you can give up to $14,000 to each of as many people as you wish, and you need not even file a gift tax return. Married couples can “split” their gifts, so that as a couple their annual exclusion is $28,000.

Second, the direct payment of qualified tuition or medical expenses is not considered a taxable gift at all.

Third, the exemption from federal estate taxes is $5.25 million in 2013, $5.34 million in 2014. Married couples can double this number as well.

Fourth, that same exemption is available for gifts that exceed the $14,000 annual exclusion.  Although gifts up to $5.34 million are taxable, no tax will be payable until that threshold is crossed.

Finally, the available estate tax exemption is reduced to the extent that the lifetime gift tax exemption was used.  If a donor made lifetime taxable gifts of, say, $2 million, his or her 2014 federal estate tax exemption is just $3.34 million. This figure is adjusted every year for inflation.

Don’t overlook state death taxes (inheritance tax, estate tax, or both). Although most states have abandoned their death taxes, those that retain them generally impose them at much lower wealth levels.  Even if you live in a state without a death tax, you could be affected if you own real property in a state that continues to impose one.

 

Sincerely,

Garden State Trust Company

What is a Corporate Fiduciary?

DEAR GARDEN STATE TRUST COMPANY,
I UNDERSTAND THAT YOU ARE A “CORPORATE FIDUCIARY.”  WHAT IS THAT EXACTLY?  AREN’T YOU JUST A DIFFERENT FLAVOR OF STOCKBROKER OR FINANCIAL PLANNER?
—SHOPPING FOR ADVICE 

Dear “Shopping”,

“Fiduciary” is a legal term that describes the duties that one party owes to another in a business relationship.  A fiduciary duty is the highest duty of care in the law and has been a standard element of trust practice for decades.  There are many elements to fiduciary duties, but perhaps the most important is the duty of loyalty, to put the interests of the client ahead of one’s own interests.

A “corporate fiduciary” is a business entity, such as ours, that has been granted permission by the state to act in a fiduciary capacity.  We can serve as trustee, and we can settle estates.  In this capacity, we are subject to a wide range of audit controls and government regulatory supervision.

Most stockbrokers are not fiduciaries, and many financial planners have resisted moves to upgrade their client relationships to fiduciary status.  Thus, we are different from these sorts of advisors in a way that can have legal consequences.

One example of this difference: We are compensated for our services with a fee that varies with the size of the account under management.  We do not earn more based upon the transactions that we generate or the type of service that we recommend.  Our interests are, therefore, always aligned with the interests of our clients.  We prosper when they do.

When we act as trustee, our investment decisions must be responsive to the needs of both current and future beneficiaries.  This is not an ordinary perspective to have for portfolio management.  Our approach cannot be risk free, but it does tend to be risk averse.

Sincerely,

Garden State Trust Company

Is there anything I can do to avoid an RMD?

DEAR GARDEN STATE TRUST COMPANY,
I TURNED 70 ½ THIS YEAR, SO I HAVE TO START TAKING REQUIRED MINIMUM DISTRIBUTIONS (RMDS) FROM MY IRAS.  I DON’T WANT OR NEED THESE DISTRIBUTIONS, AND I’M CONCERNED THAT THEY MIGHT PUSH ME INTO A HIGHER TAX BRACKET, OR EVEN AFFECT THE TAXES ON MY SOCIAL SECURITY.  IS THERE ANYTHING I CAN DO TO AVOID AN RMD?
—AFFLUEN T RETIREE

Dear “Affluen T”,

You can’t duck RMDs, but you can give them away, within limits.  Those who are 70 ½ and older are permitted to transfer up to $100,000 from their IRAs to the charity of their choice each year. You can transfer less, of course—for example, you can arrange for your RMD to be paid directly to a charity instead of to you.

You don’t get a tax deduction for doing this, you get something better—the amount transferred is not included in your income at all, even though the RMD rule has been satisfied. Thus, the RMD won’t interact with your tax return in any way.

This popular tax strategy is slated to expire at the end of this year.  Although it’s been renewed with regularity, it remains something of a political football.

Speak your tax advisor before making any final decisions.

Sincerely,

Garden State Trust Company

How much income can I expect from a trust?

DEAR GARDEN STATE TRUST COMPANY,
HOW MUCH INCOME CAN I EXPECT FROM A LIVING TRUST?  WHAT ABOUT A TESTAMENTARY TRUST, WOULD THAT BE DIFFERENT?
—PROSPECTIVE BENEFICIARY

Dear “Prospective”,

The very low interest rates in 2013 have meant that many investors have not been satisfied with their portfolio income.  Everyone would like more income, but without more risk, which leads to the question about trust income.

Using a trust doesn’t necessarily change the amount of income that a portfolio generates.  Should you place a securities portfolio into a revocable living trust, there would be essentially no immediate change in your investment income.

In a traditional testamentary trust, “income” means collected interest and dividend payments.  With that approach, as interest rates and dividend yields rise and fall, income changes with them.  Changes in asset values—growth in stock prices, for example—accrue to the remainder beneficiaries when the trust terminates.

Some testamentary trusts today take alternative approaches, defining income as a percentage of trust assets, or as a fixed dollar amount every year, or as a dollar amount adjusted for inflation—there are many alternatives to consider.   However, if a fixed percentage is used to determine distributions, and the income falls short, the trustee will have to invade the principal to make up the difference.

Sincerely,

Garden State Trust Company