Q&A Library
Accounting
Amended Returns & Form 1040X
Q: What should I do if I made a mistake on my federal return that I have already filed?
A: It depends on the type of mistake that you made.
- Many mathematical errors are caught in the processing of the tax return itself.
- If you did not attach a required schedule the service will contact you and ask for the missing information.
- If you did not report all your income or did not claim a credit, you are entitled to file an amended or corrected return using Form 1040X , Amended U.S. Individual Income Tax Return.
Education Expenses
Q: Last year, my parents took out a student loan for me in their name and I also took out a student loan. My parents received Form 1098-E for their loan and I also received Form1098-E for my loan. Can we both claim the interest from the loans on our tax returns? Last year, I was not their dependent.
A: Since you were not your parents’ dependent when they took out the student loan, the interest they paid on the loan does not qualify for deduction.
- The student loan interest payments you made on the student loan you took out on your behalf are eligible for deduction, provided all the other requirements are met
- In order for a taxpayer to claim a deduction for student loan interest, the loan must be incurred for the taxpayer, the taxpayer’s spouse, or a person who was the taxpayer’s dependent when the taxpayer took out the loan.
Medical, Nursing Home, Special Care Expenses
Q: My father is in a nursing home and I pay for the entire cost. Can I deduct the expenses on my tax return?
A: Nursing home expenses are allowable as medical expenses in certain instances.
- If you, your spouse, or your dependent is in a nursing home, and the primary reason for being there is for medical care, the entire cost, including meals and lodging, is a medical expense.
- If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is a medical expense, and the cost of the meals and lodging is not deductible.
Dependents & Exemptions
Q: If I claim my daughter as a dependent because she is a full-time college student, can she claim herself as a dependent when she files her return?
A: If you claim your daughter as a dependent on your income tax return, she cannot claim herself on her income tax return.
Education & Work-Related Expenses
Q: My employer is including my graduate school tuition reimbursements on my W-2 as wages. Where do I claim these education expenses on my Form 1040?
A: If your graduate school tuition is deductible and the reimbursements are included in your income as wages, you may take the expense as a miscellaneous itemized deduction on Form 1040 Schedule A, Itemized Deductions.
Q: My husband died this year and I received his life insurance payment. Do I need to pay taxes on it? Do I need to fill out any special forms?
A: You do not need to report as income the life insurance proceeds you received on your husband’s policy. You may file a joint tax return with your deceased husband for the year of death. Put his name, the word deceased and the date of death across the top of the tax form and sign "filing as surviving spouse" in his signature area.
Q: Do I pay taxes on child support?
A: Child support payments are not taxable. Receipt of alimony payments is taxable.
Q: My Company paid my travel expenses. When I received my form W-2 the company had combined my wages and travel expenses. How do I separate these on my return so I won’t have to pay taxes?
A: If by "combined" you mean your employer added the amount of reimbursed travel expense to Box 1 (Wages) then you can not separate the two. An employer should only be adding reimbursed travel to Wages if the employer’s plan is a non-accountable plan. If this is the case, then you are allowed to deduct those expenses added to Wages using Form 1040 Schedule A, Miscellaneous Itemized Deductions.
Q: I received a workers comp settlement of $37,000. Is this taxable income?
A: Workers compensation benefits are almost always not taxable. However, your workers compensation may be indirectly subject to tax on your tax return. The part of your workers compensation that reduces your social security benefits or equivalent railroad retirement benefits is considered social security benefits and may be taxable on your tax return under rules for those types of income.
Q: If I received a state tax refund last year, do I have to claim it this year on my federal?
A: If you receive a state or local income tax refund (or credit or offset), you generally must include it in income if you deducted the tax in an earlier year.
You must report the refund or recovery only if you got some tax benefit from it in a previous year. You only have to report recoveries of items to the extent that they helped your itemized deductions to exceed the standard deduction for the year in question.
Q: My mother who is deceased left savings bonds to go to her children and grandchildren. Hers was the only name on the bonds. My dad cashed the bonds and passed out the cash and interest to the children. Does my dad have to pay tax on the interest from those bonds or can the cash be declared "gifts"? No one person got over $3,000.
A: Assuming that these were the type of savings bonds that has had the interest accruing and your mother did not elect to declare the interest in every tax year, then the owner of the bonds at the time they are cashed must declare the interest income as taxable income.
If your mother’s will specifically bequeathed these bonds to the children and grandchildren, then each of them would have to declare the interest income (they do not include in income any principal). The fact that your dad was the one who actually cashed them has no relevance for reporting of interest income as he was merely acting as their agent.
If on the other hand, the will did not explicitly state that the children inherited the bonds and the bonds were part of her estate that went to your dad, then your dad reports and pays tax on the interest from the bonds. The distributions to the children are "gifts" with no tax consequences for the children.
Q: I am a teacher on disability retirement. I have heard that disability income may be fully or partially exempt from paying Federal Income Tax. Is that correct?
A: Generally, if you retire on disability, you must report your pension or annuity as income. The rule is that disability insurance is not taxable only to the extent that you paid the premiums yourself out of after-tax money or you are receiving it for physical injury.
Q: I received a gift of $5,000 form my grandfather. Is it reportable?
A: A bona fide gift from another individual to you is not taxable income. There is nothing for you to report.
Q: Can I claim an exemption for my 52 year old sister who lives with me and my wife? She only collects $650 month in social security.
A: Assuming your sister is a US citizen or US, Mexican or Canadian resident and does not file a joint return with her spouse other than to obtain a full refund, you could claim her as a dependent if you provide over one-half of her total support for the calendar year. Total support includes her share of the entire household expenses, such as lodging, food, utilities, repairs, plus her clothing, medical, dental, recreation, etc. In determining the value of lodging, if you own your home, use its fair rental value, not mortgage interest & taxes.
Whatever is spent from her Social Security benefits toward her own support is considered contributed by her.
Q: If I can’t withdraw funds penalty free from my 401(k) plan to purchase my first home, can I roll it over into an IRA and then withdraw that money to use as my down payment?
A: You can roll funds from a 401(k) to an IRA to be able to take a penalty free distribution to purchase your first home if:
- You are receiving a distribution from a 401(k) that is eligible to roll over into an IRA
- You meet all of the qualifications for an IRA distribution for a first –time homebuyer.
Document Organization
Q: What is an Estate Organizer?
A: A professional organizer who focuses on helping individuals with their paperwork, i.e. sorting the mail, setting up filing systems, setting up Quicken or QuickBooks, paying bills, checkbook balancing, insurance paperwork, etc.
Q: My parents have documents all over the house. What should I look for, what type of papers are important and how can you help me?
A: Looking thru piles of papers that look like they just need to go into the trash can be frustrating and time consuming, but it’s very important to look at each piece. Most common information to look for are: bank accounts (there may be several), investments (including brokerage accounts, stock, bonds annuities) , credit cards, bills, insurance info (home, auto, life, long term care); information about Doctors. Set up a good clear filing system for these documents. If this still seems overwhelming we can help by either working with you or taking care of it all and follow up with reports on our findings.
Q: My family and business takes all my time and I don’t know where to start.
A: The first thing to do is to sit down with your parents/parent and talk to them about what they have i.e. bank accounts, investments, insurances (home, auto, life, long term care) credit cards, bills, doctors, medical history, medications. If they are unable or reluctant simply start taking notes about what you do know from previous conversations you or your siblings may have had or what you’ve seen. If you don’t have the time or patients we can help by either sitting down with your parents or going thru their documents get a clear filing system set up and put together a "Life Book" which will document all their assets, etc.
Q: What steps should I take to get things in order? The basic steps to take are:
A:
- Find all important documents – birth & death certificates, wills, power of attorney, property records (auto and real estate), financial accounts (banking, investments, credit cards), insurances (home, auto, life, long term care)
- Make clearly marked file for each
- Keep these files in a good sturdy filing cabinet or a strong portable file box – something that will make it easy for you to find the documents you need within 5 minutes and to make it easy and pleasurable to file documents as they come in.
- Make a list with contact information of:
- advisors - Dr., Attorney, Accountant, Insurance agent, Financial Advisor, etc.
- financials – bank accounts, investment accounts, stocks, bonds, annuities, credit cards
- insurances – home, auto, life, long term care
- medical history – procedures, surgeries, medications
- bills – all bills that get paid monthly, quarterly, yearly and how they get paid – by check, or EFT from checking/savings or credit card.
Q: My father’s bills are overdue and his electricity is about to be turned off. I need a system to know how I can go about getting his bills paid, monitor his spending and know how much money he has every month. Do you provide something that can help put this process in order?
A: The following are some options I’ve found very helpful:
- Have the bills set up on "auto pay" from a checking/saving or credit card. Along with this make a very detailed list of the bills on auto pay and where they are coming from to insure the proper amount is coming out.
- Have the bills sent to your house
- To monitor spending – the best way is using a money software like Quicken on a computer. This way credit cards and bank accounts can be downloaded and reports run to see where the money is going. If your father doesn’t have a computer using a hand written spread sheet will work. We can help with this as well.
- We could come to your Dad’s home on a regular bases to help pay bills, file paperwork, download financial accounts, create reports, etc. We make clear notes of all work done as well as setting up a good clear filing system for the family to find all important documents.
Elder Law Services
Q: Will I have to sell my house to pay for my wife’s nursing home care?
A: No. As a community spouse you have the right to retain your home. The titling of real property is important and should be discussed in detail depending on your future goals and the legacy you may want to leave your family. How a property is titled may offer options to secure your home from potential liens or the threat of anyone taking your home from you.
Q: Can my mother give her granddaughter $2,000 for a wedding present?
A: Part of everyday life is giving to our family. However, if an older member of the family needs long term care or may need to apply for Medicaid benefits in the future, the giving away of assets may cause a penalty. The State of Maryland Medicaid program will assess a penalty of one month of ineligibility to receive Medicaid benefits for each $6,800 given away. Be cautious when giving assets away and consider that there are appropriate options in which to achieve gifting without the negative impact.
Q: Does Medicare pay for the nursing home?
A: Medicare will pay a portion of your nursing home stay. If you are admitted to a nursing home and discharged 3 or more days later to a nursing facility, Medicare will pay for the first 20 days at 100% coverage. Should you need to remain in the nursing home beyond 20 days, Medicare will pay days 21 through 100 at 80% coverage. The remaining 20% not covered will need to be paid by you privately or billed through a secondary insurance provider if you have one. Medicare’s coverage of your nursing home stay is predicated on your need for skilled nursing services. The nursing home will advise you when Medicare will stop these services and you will need to pay the facility privately. Please note that each patient is not automatically guaranteed to receive a full 100 days per each incident.
Q: Can I pay bills for my mother?
A: If you are the Power of Attorney for your mother you can establish yourself on her bank accounts as such and have authority to write and sign checks as needed from her account. However, you should never transfer funds from your mother’s account into your checking account and then pay her bills. This will be viewed as a transfer of assets or gift by the State of Maryland Medical Assistance program and can result in a penalty at a later date if she should need Medical Assistance.
Q: What is a level of care?
A: Level of care as defined by the Maryland Health Care Commission is "the range of treatment or procedure a patient receives." This includes the medical level of expertise available." In the State of Maryland a persons level of care is assessed by an organization called KePRO (Utilization Control Agent). A representative of KePRO will assess a patient’s medical needs and assign them a level: light, moderate, heavy or heavy special. Obtaining a level of care is one of the necessary criteria for Medical Assistance eligibility and proper placement in a facility.
Q: Does my Last Will and Testament protect my assets?
A: A Last Will and Testament is basically your written "wishes" as to how you would like your assets distributed after death. Your will has no bearing on the distribution of assets during your lifetime and it will not protect your assets when qualifying for Medical Assistance benefits.
Q: Is the look-back period five (5) years?
A: This longer look-back period will be gradually phased in because this change only affects transfers on or after February 8, 2006. Beginning March 1, 2009, applicants will have to submit 37 months of financial records. The look-back period will increase by one month increments until February 2011 when the look-back period will be 60 months for all transfers.
Q: My mother has just been admitted to a nursing facility so I am no longer able to protect her assets.
A: Although your mother has already been admitted to the facility, there are still options available to protect a portion of her assets. You should consult an Elder Law professional as soon as possible to explore your options.
Q: Will the nursing home automatically receive all of my father’s income when he qualifies for Medical Assistance benefits?
A: Each Medical Assistance recipient is entitled to pay for their Medicare premium, supplemental health/dental/prescription insurance premiums and personal needs allowance prior to paying the nursing home their monthly income. Other expenses may be permissible. An Attorney-in-Fact or representative payee can retain a bank account on behalf of the applicant to pay these expenses and then forward a check to the nursing home for the difference. It is not required that the nursing home directly receives the applicant’s income and pay their expenses. However, the nursing will offer this as a convenience to the family members.
Q: My name has been on my mother’s account for years. Am I able to withdraw half of the proceeds for myself?
A: If an asset is jointly held between an applicant and non-applicant, the full value of the asset will be considered to be the applicant’s. There are exceptions to this regulation. However, you should contact an Elder Law professional to discuss the exceptions.
Q: What happens if I add my children’s names to the title on my property?
A: This action can have adverse affects at a later date. It is possible that an older person may need long term care in the future and assuming this, it is also possible that Medicaid benefits would be needed to pay cost of care. When adding names to a property deed the State of Maryland Medicaid program will treat this as a transfer of assets and penalize the person applying for benefits. Additionally, when adding names to a property deed the children that are added will inherit the original owner’s cost basis, which could create capital gains taxes for the newly added owners when the property is sold.
Q: I’m ready to retire and still active. Are there certain steps I can take now without having to give up control of my assets?
A: Getting your estate planning documents in order is a start and evaluating how your assets are titled in an effort to protect them should you need long term care in the future. Long term Care insurance is certainly an excellent tool to help bridge the gap between your savings and the expenses of long term care services whether in the home or in a facility.
Q: I have been gifting the annual gift exclusion according to the IRS regulations to help reduce my estate. Will this be a problem later?
A: Should you need long term care services in the future and need to apply for Maryland Medicaid benefits, the annual gifts will be cumulative and penalized at the time the application is made for benefits.
Q: Should I start planning now or wait until something happens?
A: There are many options available whether its prior to a crisis or even after a crisis occurs. The tools and strategies to achieve protecting your assets and securing quality care for your family members becomes more challenging the longer you wait. When a crisis occurs there are still many choices available to achieve the balance of asset protection and quality care. Consulting with an Elder Law professional can help determine your best options.
Q: My aunts are both in their 80’s and have lived together for 50 years. They share everything. They pay their bills from the same account and they share investments. How does this affect either of them if one needs long term care benefits?
A: If one aunt needs Medicaid long term care benefits, there are choices as to how we can proportion the assets based on each of their contributions to individual accounts. Certain changes to titling would need to take place and the title to the home property would be evaluated for re-titling depending on the family goals.
Estate Planning Services
Q: What is a Will?
A: A will is a written (typed or handwritten) document that directs the disposition of a person's property after death. A Will is prepared for one person, called the testator, which sets forth what is to happen after death to his or her property, called the estate, and if applicable, who is to be named as guardian to care for any minor children. The Will appoints a person called the personal representative (sometimes called the "executor"), who carries out the instructions in the will. A person receiving a gift from your estate is called a "beneficiary."
Q: Does a Will Dispose of All Assets?
A: A will is effective only with regard to certain types of assets, often called "probate" assets. Generally, these are assets that belong solely to you or are titled only in your name.
A will does not affect the disposition of property that is titled in the names of two or more persons as "joint owners with right of survivorship." Property titled in this manner will automatically belong to the surviving joint owner(s) upon the death of the first joint owner, regardless of the provisions of the deceased's will. Similarly, property owned by you and your spouse as "tenants by the entirety" will immediately become the sole property of the surviving spouse when the other spouse dies. However, your interest in property that you own with someone else as "tenants in common" is a probate asset, which will be disposed of by your will when you die.
As a general rule, a will does not dispose of insurance proceeds. These proceeds will be paid to the beneficiary designated with the insurance company. A will may only dispose of insurance proceeds if your estate, or trust created under your will, is named as beneficiary (or there is no designated beneficiary). Pension benefits or annuities are not affected by a will unless the estate or trust created under the will is designated as the beneficiary (or there is no designated beneficiary).
It is important to note that you fully retain the right to do whatever you choose with your property during your lifetime, even if you have left the property to someone in your will. A bequest to someone in your will only means that they receive the property if you own it upon your death.
Q: Are there Formal Requirements for a Valid Will?
A: You must be at least 18 years of age and of sound mind can make a will. In Maryland, you must sign your will, and two or more witnesses (the witnesses should not be beneficiaries under your Will) must sign the will in your presence. Each witness must be at least 18 years of age. Wills do not have to be notarized in Maryland.
Q: Should I make a copy of my Will?
A: Do not make more than one signed and witnessed original of your Will. You may, however, give an unsigned copy to your proposed personal representative and your spouse, friends or children. Most attorneys will keep what is called a "Conformed Copy" on file which is an unsigned copy that notes when it was signed, where signatures where placed and who were the witnesses.
Q: Is a Will that has been Executed in Another State Valid in Maryland?
A: A will that is valid in the state where it was executed will be valid in Maryland. However, if your will was prepared in another state it should be reviewed to ensure that the language used in the other state will be given the same interpretation under Maryland law. In addition, death taxes and probate laws vary from state to state; therefore, your will should reflect the laws that would apply to your estate when you die. If you move to another state, your Maryland will should be reviewed by a lawyer in the new state in order to determine if any changes are necessary or desirable under that state's laws.
Q: Where Should I Store My Will?
A: A will should be kept in a safe place to avoid accidental loss or destruction; however, it should be easy to locate after your death. Store your Will in a fireproof box or put it on file for safekeeping with the Register of Wills in the county where you reside. If filing with the Register of Wills, the cost is a nominal $5. A safe deposit box is not a good place to store your Will because your bank may limit access to the box after your death. Make sure your personal representative and at least one other person you trust know where to find your Will. A will that cannot be found is of no effect.
Q: Are there Any Restrictions on who I do or do not name as a Beneficiary in my Will?
A: A surviving spouse has the right to "elect against the will." This means that regardless of the provisions of the deceased spouse's will, the surviving spouse may claim up to one-half of the probate assets if the deceased spouse had no descendants, or one-third of the probate assets if there are descendants. This prevents a spouse from being disinherited. Children have no similar rights in Maryland and may be disinherited.
Q: When Should a Will be Changed?
A: Although the general rule of thumb is that you should review your will every 3 – 5 years, a significant change in personal or financial circumstances may mean that your will should be revised or replaced. Additionally, changes in federal or state tax laws may necessitate revisions in your will. Below is a list of examples of when your will should be reviewed and updated:
- Change in marital status;
- Birth or adoption of children;
- Death of a child or spouse;
- Move to a different state;
- Death a beneficiary named in your will;
- Inability to serve of the named guardian and/or custodian of your minor children;
- Inability to serve of your named personal representative (executor);
- Change your mind about the provisions in your will;
- If you will is destroyed it is deemed revoked. Therefore a new will is necessary.
Q: How is a Will Affected by a Subsequent Marriage or Divorce?
A: In Maryland, a will is not affected simply by a subsequent marriage. But if a child born following that marriage survives you, your will is revoked. A divorce automatically revokes the provisions of the will that pertain to your former spouse, but does not affect other provisions of the will. Thus, provisions benefiting family members of your former spouse will remain in force.
Q: What if I Die Without a Will?
A: If you die without a will ("intestate"), state law will determine how your probate assets will be distributed. In Maryland, if you are survived by a spouse and at least one minor child (under the age of 18), your spouse will receive only one-half of the probate assets, and your children will receive the other one-half (a deceased child's share will pass on to that child's own children).
If you are married and all of your surviving children are over the age of 18, or if you have no descendants, and a parent survives you, your spouse will receive the first $15,000 of the probate assets, plus one-half of the balance of those assets. The remaining probate assets will pass to your surviving descendants or parents.
Your surviving spouse will receive the entire probate estate only if you have no descendants or parents who survive you. If you have no surviving spouse, your descendants will receive all probate assets. Your siblings or more remote relatives will receive a portion of your probate estate if a spouse, parent or descendant does not survive you. Under Maryland law, probate assets will pass to the county board of education only if there are no surviving blood relatives.
These laws may not reflect your wishes. For example, if you do not have a will, an unmarried partner would not receive any property unless the property was jointly titled. Additionally, if you have minor children, state succession laws do not deal with the question of who will take care of your minor children if both parents die or if the surviving parent is unavailable, leaving it up to the courts and social service agencies to appoint a guardian. Even though the court has the ultimate authority to appoint a guardian, a Will is the only way to let the court know who you want to raise and educate your children.
Q: Can a Will Provide for Anatomical Gifts?
A: A will may include specific directions for the disposition of your body and funeral. Because your will may not be reviewed immediately after death, such directions should be communicated to family members so they are aware of your wishes at the time of your death. If you wish to donate your body for research or transplantation, you should also notify family members and carry an organ donor card or note your wishes on your Maryland driver's license.
An Advance Directive for Heath Care can also include your wishes regarding your body after death. Because this document will be reviewed leading up to your death, it makes all medical providers and relatives aware of your wishes.
Q: When are the Contents of a Will Made Known to Relatives?
A: You do not have to reveal the contents of your will to anyone while you are alive. After your death, the person who has custody of the will may disclose its contents to family members. The original will must be filed with the appropriate Register of Wills, where it will be recorded as public record. All beneficiaries named in the will and family members who would receive the probate assets if no will existed will be notified of the opening of the estate upon your death.
Governments impose taxes upon the property of a decedent. A federal estate tax with graduated rates is imposed on all property interests that the decedent owned at the time of death. The federal estate tax applies not only to probate assets, but also to such non-probate assets as joint property and insurance proceeds. An estate may be subject to federal estate tax if the value of these assets exceeds $ $3,500,000 in 2009. In 2010 the federal estate tax would be repealed, but only for one year. In 2011, the tax would reappear with an exemption of $1,000,000. Between now and 2011, it is likely that Congress will change the federal estate tax again. Due to this uncertainty, it is especially important to have proper estate planning.
An estate may be subject to Maryland estate tax if the value of the assets exceeds $1,000,000. A properly drawn will can reduce federal and Maryland estate tax substantially.
Maryland imposes an inheritance tax on probate property, joint property, and certain other property. There is no inheritance tax on assets passing to exempt charities, a spouse, child (which includes a stepchild or former stepchild), other lineal descendant (grandchild, great grandchild, etc.), parent, stepparent, brother, sister, son-in-law, daughter-in-law, or the spouse of other lineal descendants. Inheritance tax at the rate of ten percent (10%) will be assessed if the recipient is a niece or nephew, a more distant relative or a non-relative.
Q: How Should My Will Provide for My Children?
A: In your will, you may name the person who will serve as guardian if you and your spouse both die while one or more of your children are a minor (under the age of 18). A will also gives you the opportunity to create trusts that will control how, when and under what circumstances your assets will be turned over to your children. In this way, you can prevent funds from being distributed to children before they are mature enough to handle them responsibly.
Q: What decisions can I make about my own health care?
A: Competent adults have the right to make all decisions about their own medical care. This means that you have the right to know what your diagnosis is, what your prognosis is, and what the risks and benefits of any specific course of treatment are. You can make all decisions about the provision, withholding, or withdrawal of any specific medical treatment or any course of treatment. This means that you have the right to choose to have a type of medical treatment that is different than your doctor recommends, or to refuse treatment even if the doctor says you will become sicker or die without the treatment. The right to choose withdrawal of treatment includes decisions such as removing feeding tubes or ventilators.
A "competent adult" is one who 1) Can understand the nature, extent, or probable consequences of the proposed treatment or course of treatment; 2) Can make a rational evaluation of the burdens, risks, and benefits of the treatment or course of treatment; and 3) Is able to communicate a decision. The ability to communicate a decision is broader than the ability to talk. Someone who is able to write, or only to indicate "yes" or "no" to questions, is able to communicate a decision.
Q: What is an Advance Directive for Health Care?
A: An Advance Directive for Health Care (also known as a Health Care Power of Attorney and/or Living Will) allows a designated individual known as a "heath care agent" to make health care decisions for you, such as the selection of hospitals, doctors or type of medical treatment, if you are unable to make those decisions for yourself. Additionally, this document allows you to set forth your "end stage" wishes regarding medical treatment such as feeding tubes, resuscitation, respirators, medication, surgeries, etc.
Q: What is a Durable Power of Attorney?
A: A Durable Power of Attorney allows a designated individual known as an "attorney-in-fact" to manage financial affairs on your behalf if you are unable to do so. Your attorney-in-fact may be given broad powers to do everything or limited powers to perform specific acts. This document is called "Durable" because it provides for the proper management of your financial affairs even if you become incapacitated or incompetent, i.e. the powers you grant in the document are still in full force and effect regardless of your physical or mental state.
Q: What is a Guardianship?
A: If there is no Power of Attorney or Advance Directive for Health Care or you have the documents but they are very poorly drafted, and you are unable to manage your financial affairs and/or health care decisions, someone would need to seek the appointment of a guardian of either your person (for health care) and/or property (for financial) through the court. This procedure requires two doctors to certify you’re your inability to make appropriate decisions accompanying a petition which is filed in the Circuit Court for the county in which you reside. Interested parties which include various governmental agencies and family members are notified of the proceeding followed by a court hearing to determine if in fact a guardian is needed and if so, who should be named guardian. It can take up to 9 months to have a guardian appointed depending on the county and if the guardianship proceedings are contested. Guardians must file a report with the court annually and for certain decisions need to petition to court for approval.
Q: What is a Life Estate Deed?
A: A life estate is created when an owner ("Granter") of real property conveys the property to another ("Remainderman") while reserving certain rights to the property, typically for the remainder of his or her life ("Life Tenant"). The Grantor may reserve only the right to live in the property for his or her life and have no other powers ("Life Estate without Powers"), or the Grantor may retain control and have the right to sell, lien or otherwise deal or dispose of the property, including undoing the deed that created the life estate interest ("Life Estate with Powers"). Life estate deeds can be effective to avoid probate, the claims of creditors, capital gains and generally to preserve the property for one’s family.
Q: What is a Trust?
A: There are many types of trusts used in the estate planning process, some of the most common include Revocable Trusts, Special Needs Trusts ("SNT"), Irrevocable Life Insurance Trusts ("ILIT"), and Marital Trusts/Credit Shelter Trusts. Trusts may be testamentary, meaning the trust provisions are built into a Will and only come into existence upon the death of the creator of such Will. Other trusts are separate "living" trusts that are created while an individual is alive and may be revocable or irrevocable by the trust creator. Often a combination of estate planning techniques is used along with a trust to gain the maximum benefit.
Financial Services
Q: Should I convert my IRA to a Roth IRA?
A: That question depends on a number of factors, including the time frame of the investment, your income now, and your income after retirement. Generally, the longer the time frame (a younger investor) the better a Roth IRA could be for you. That is due to the fact that you paid taxes up front, and to outweigh that “cost,” you want compound interest (your investment inside the Roth IRA) to have as much time as possible to outweigh that cost. You need to be careful contributing to a Roth, since your income needs to be under a certain amount. Also, be mindful of the maximum contribution amounts. For more, visit the IRS website and the section on Roth IRA’s at http://www.irs.gov/pub/irs-pdf/p590.pdf.
In addition, in 2010 you may be able to convert an IRA to a Roth regardless of your income. Feel free to click on the following link to read more about this (article date is 10/5/09): http://www.financialcouncil.com/Articles_Archive.aspx.
Q: How do I know if I’m ready to retire?
A: The simple answer is that you need to start your planning now. You should start making a list of what you want to do (for a great start, see the link to our resources on this website, which list activities in retirement). Once you have an idea of what you want to do, you should estimate how much that could cost you, as well as your basic needs to live.
Then, start to take an inventory of the regular monthly payments that will be coming in (as an example, Social Security, pension income from your current or previous job, part-time income, etc). Lastly, you will need to determine a reasonable and reliable amount of income that you can draw from your investments such as your 403(b) or other investment accounts.
If your needs can be met from all income sources, you are on the right track! We would highly recommend that you find a professional to go over all aspects of your plan, including inflation, investment risk and returns, taxes, etc. The best way to do that is to ask people you know and trust that they work with, or feel free to contact us through our resources section from this website.
To view a brief movie on this topic titled “Retirement Income Planning,” feel free to click on the following link http://www.financialcouncil.com/Educational_Seminars.aspx .
Q: How do I know if my investments are safe, and that I’m not getting scammed?
A: That is a great question. Although not foolproof, the best recommendation we could make is to ask questions of your current investment advisor/broker/planner. You will also want to make sure that your actual assets are “held” in safekeeping by a separate custodian (and that you are not writing checks to any one person). The custodians are responsible for holding your money separate from your professional, to do accurate, regular reporting (statements) to you so you know what is going on, and typically have SIPC protection. For more information, click on the following link and read our article from 5/20/09: http://www.financialcouncil.com/Articles_Archive.aspx.
Q: I just received an inheritance, which includes IRA money. How do I know what to take from it each year?
A: The IRS guidelines changed a few years back to allow you to “stretch” this inherited IRA over your lifetime, if the investments support it. You may be required to take a minimum amount each year which generally is determined by your
- prior end-of-year balance in this account, and
- a factor relating to your life expectancy.
As an example, someone age 70 ∏ has a factor of 27.4, which is the number they would divide into the prior year’s end of year account balance, to determine the minimum you are required to take out.
We would need to know more about you and the source of the IRA before giving more specifics, so feel free to contact us for more help. Also, the following site page from the IRS explains these distributions in more detail: http://www.irs.gov/retirement/participant/article/0,,id=188023,00.html.
Lastly, be cautious if this is an employer-related plan (a 401k, as an example). You will want to make sure that you are not forced to take distributions sooner!
Q: How much should I be contributing to my 403b?
A: This answer is different for everyone, since each person’s retirement goals and timelines are different, but generally we try to encourage that you put away 10-20% of your gross pay. This might be a big number and difficult to do at first, but this seems to be the greatest formula for financial independence later in life, in our experience.
Q: What do you think about the rule where you should subtract your age from the number 100, to determine the amount of stocks investments I own?
A: While that is a popular rule of thumb, we do not suggest using it solely due to the fact that each investor is different and has varying degrees of needs and wants. As an example, certain clients who are older (70+) may have a retirement plan that works well and they prefer to have 80% stocks in their portfolio (rather than the 20% that the rule of thumb would conclude). Of course, this person has a much higher comfort level with market volatility than most, and could afford the ups and downs of the market while still maintaining a steady income stream.
On the other hand, a thirty year-old investor may want to have fewer bonds in their portfolio than 30%.
We think the best way to determine the allocation of stocks, bonds, and cash is to look at your entire financial picture, including your long and short-term goals. Once you have identified that then the best answer we could give you is to meet with a financial planner who can walk you through the pros and cons of more stocks versus less and what effect that would have on your financial future.
Q: What is an annuity, and how do I know if it is right for me?
A: This is a very common question, since there is a lot of confusion with annuities and how they work. Many annuity companies are offered through non-profit organizations such as Universities, so we see a lot of them.
An annuity is an investment that grows tax-deferred (similar to an IRA). If it is outside of work, then you can contribute as much or as little as you want to. When you are ready to take some or all of it out then the growth is taxable.
An annuity can be either “fixed” or “variable”. The unique option with an annuity is how you take distributions in retirement (or before, if applicable). That is, you can choose to annuitize your account. By doing so, you exchange your investment for a guaranteed income stream for the rest of your life — even if you live to 120! However, if you don’t live very long at all then your family may not receive anything either. It is important to note that in most cases, you don’t have to annuitize your account. You can choose to leave it alone, grow, or take distributions from it as you please. There are many more flavors and varieties of annuities, whether fixed or variable. You want to make sure that you understand the costs and benefits associated with them — you could do that by reading the contract or speaking to an investment professional that you trust.
Funeral Services
Q: Why should I preplan my funeral?
A: Every detail is arranged according to your wishes. Personal records are organized. Your family is saved any additional burden at a time of emotional stress. Your loved ones are spared financial worry at a time of need.
Q: Isn’t funeral planning just for older people?
A: No, we believe that funeral planning is a smart decision for anyone. Younger people often carry ordinary life and health insurance to protect their families in the event something happens and that is a wise choice. It is equally sensible for them to take the next step is to pr arrange and pre fund their own funerals. By doing so, they help relieve their loved ones of emotional and financial burdens when the needs arise.
Q: Wouldn’t I be better off to invest the money myself?
A: No, invested money earns interest upon which income taxes must be paid. Pre funding your funeral with the funeral home is through a life insurance policy which is designed to keep pace with the rising cost of funerals and is tax free. Most funeral homes will offer some kind of cost guarantee when the funeral is pre funded through their program opposed to investing on your own.
Q: What if I change my mind?
A: The policy is fully portable and can be used at any funeral home.
Q:If I preplan and pre fund my funeral and the funeral home goes out of business will I lose my money?
A:No, if the money is placed in a pre funded insurance policy you are the owner of the policy and have full control over the policy. The funeral home has no rights to the money unless they provide the services and merchandise. The mortuary laws of Maryland provide protection for the consumer in this matter.
Q: Will my Veterans benefits take care of my funeral expense?
A: Most likely, no. The amount of Veteran’s benefits depends on the circumstances your death occurred. For most Veterans there are no financial benefits available. Every Veteran is entitled to a flag and a grave marker.
Q: Are there payment plans available?
A: Yes, there are 12 months same as cash or 3, 5, 10 year term to fit everyone’s budget.
Q: Can I use my own Life Insurance policy to pre fund my funeral?
A: No, Maryland Mortuary Law prohibits the funeral home from being a beneficiary or owner of a life insurance on an individual.
Q: Will my pre funded funeral be counted as an asset if I need nursing home care?
A: Your pre funded funeral funds can be placed in an irrevocable trust, which reduces your net assets and enables you to become eligible for Medicaid/SSI.
Q: Can I pre arrange and pre fund cremation?
A: Yes, You can pre arrange and pre fund traditional funerals and cremation.
Q: How do I know what type of service and merchandise I want?
A: Every funeral service is a true reflection of the individual, and for that reason it should be well planned and thought out. There are many choices and decisions that can be made and no two funerals are the same. For this reason you should sit down and discuss your options with your funeral director to cover the many choices you have.
Q: What cost are typically involved in a funeral?
A: The cost would include the following:
- Funeral Home professional services
- Embalming
- Dressing and casketing
- General Use of Facilities
- Facilities and equipment
- Automotive equipment Casket
- Vault
- Memorial Package
- News Paper Notice
- Clergy
- Certified Copies of Death Certificates
- Grave opening and closing fee
Q: What is the average cost of a funeral today?
A: The average cost of a funeral is over $8,000.00.
LTC Insurance
Q: What is long-term care (LTC)?
A: Care received for an injury or a chronic long term illness, resulting from a cognitive (mental) or functional (physical) impairment. Care settings include home health care, adult day care, assisted living, nursing home and hospice care.
Q: Why is LTC a problem?
A: Living a long life is a near certainty due to modern medicine and hygiene. Advanced aging often results in frailty and the need for care and assistance. For example, in 1980 there were 15,000 centenarians and by 2000, there were 77,000.
Q: How much does LTC cost?
A: In the Baltimore region, home health care ranges from $15K - $100K, depending on hours needed. Assisted living runs $3500 - $6000/month and nursing homes run $6K-8K/month. Alzheimer’s care is easily $100k/year.
Q: What are the risks?
A: After age 65, 1 in 2 women and 1 in 3 men will need some form of long term care. An even greater consideration is the negative impact on families and their financial security if they need care.
Q: Isn’t LTC planning for when I get older or retire?
A: No, LTC insurance premiums are much lower at younger ages during working years and therefore much more affordable. Postponing this issue not only makes it more expensive but also jeopardizes qualifying for coverage, since good health typically declines over time.
Q: Why not self-insure?
A: Most of us will need our retirement portfolio to produce retirement income. Paying for both LTC expenses and the income needs of a spouse simultaneously is usually much too difficult. It may cause the unintentional invasion of principal, the untimely liquidation of assets, and jeopardize the financial viability of the surviving spouse.
Q: My family should take care of me, right?
A: There is a large difference between providing care and supervising care. When we stop to really think about what we are asking, it’s obvious what is preferable. Providing care to chronically ill people makes healthy people chronically ill. A compelling reason to buy LTC insurance is to prevent being a burden to the family.
Q: When I am on Medicare, doesn’t it pay for LTC?
A: Medicare pays for skilled services such as rehabilitation if there is expectation of recovery and measured improvement. LTC by nature requires unskilled services to provide care for chronic conditions. If pre-ceded by 3 nights in a hospital, Medicare will pay for a skilled nursing facility at 100% for days 1-20 and all but $133.50/day in 2009 for days 21-100.
Q: Doesn’t Medicaid pay if I run out of money?
A: Medicaid exists as a safety net for the poor, primarily in nursing homes, if they qualify under the stringent rules regarding assets, income, and medical need.
Q: Why consider buying LTC insurance?
A: Owning LTC insurance provides financial control and peace of mind. It’s about protecting one’s family, friends and future financial security. It utilizes the services, cash, and resources of an insurance company so that loved ones are not negatively affected.
Q: What determines the cost of the insurance?
A: Rates are determined by age at application, spouse participation (2 policies can result in 30-40% discount), amount of coverage purchased, and health qualification.
Q: What are the options in a LTC insurance plan?
A: There are 4 basic selections:
- monthly benefit (e.g. $3000, $4500, $6000)
- benefit duration, which determines the pool of money to draw from
- elimination period, the days you pay for care before the insurance begins to pay
- inflation – an annual automatic increase in benefit levels (e.g. 3%, 5% or CPI compound).
Working with a professional insurance advisor will help you make the choice that’s right for you in selecting the appropriate insurance company and level of coverage.
Q: What triggers the insurance to pay?
A:
- needing assistance with 2 of 6 activities of daily living (bathing, continence, dressing, eating, toileting and transferring from bed or chair) with the expectation that the need will persist for 90 days or more, OR
- a cognitive impairment such as senility or Alzheimer’s.
Q: What if I never use the insurance?
A: You will have the peace of mind that comes from knowing that you are protected, like auto, homeowner’s and health insurance. The consequences of paying premiums and never needing the coverage are far less than going without the coverage, depleting a lifetime of savings, and negatively affecting a family or charitable legacy.
Q: How strong are the insurance companies who offer LTC protection?
A: We work with a handful of companies who have earned strong financial ratings, have a breadth of experience in underwriting and paying claims, and have significant reserves to pay current and future claims.
Medical & Non-Medical Care
Real Estate
Q: Why should I consider an auction for the sale of my home or my family's home?
A:
- We can sell the home quickly (3-4 weeks) at true Market Value
- The home is sold in "As Is" condition with no contingencies. The auction does not depend on home inspections, financing, the sale of the purchaser’s home, appraisals, etc.
- The purchaser pays all settlement and transfer costs saving you 1-1.5% (Typically, the recording costs are split between the purchaser and seller which is 2-1/2% in Baltimore County and 3% in Baltimore City).
- A. J. Billig & Co. Auctioneers will take care of the transaction from beginning to end.
- Typical settlement time is within 45 days. Some properties close within one week.
- There are minimal interruptions due to buyer showings.
Q: Why not just use a Realtor?
A: We are Realtors, we just market at auction. We will multiple list your house, market the property in newspapers, prepare a detailed description with pictures on our web site and promote your auction to over 15,000 real estate buyers on our mailing lists.
Q: Will an auction generate a better price for my property than listing it with a Realtor?
A: There is no perfect formula for whether a property is better off listed with a Realtor or offered at public auction. A.J. Billig & Co., Auctioneers will evaluate each property on a case-by-case basis and will provide you with an honest opinion on how to generate the best possible price for your property and whether an auction is appropriate for your situation.
Q: The house is a mess, who is responsible for cleaning it up?
A: A. J. Billig & Co., Auctioneers can arrange to have properties cleaned, debris hauled away and will make suggestions to further enhance the property’s value.
Q: What do we do with all of the personal property in the home?
A: A.J. Billig & Co., Auctioneers can arrange to have personal property sold and/or moved.
Q: Can we set a minimum price if we put the property up for auction?
A: Yes. Before auctioning your home, a principal of A.J. Billig & Co., Auctioneers will speak with you, do market research and provide you with the likely range for which your property would sell. If agreeable, we would then set up an appointment to meet at the property. We will go over the auction procedure in detail and suggest a baseline minimum reserve price. Our goal is to obtain the highest price possible. We will give you a realistic opinion of what to expect.
Q: What if I put the home up for auction and it doesn’t reach the "Reserve Price"?
A: If the home does not meet the reserve price, you would have two options. First, the property can be withdrawn from sale. Your only expense will be the actual advertising costs. Second, you can accept the offer and still sell the home.
Q: Where will the auction take place?
A: The auction will take place at the home.
Q: Will I have to advance any money?
A: The advertising fee is usually paid before marketing the home. Alternative payment arrangements may be able to be worked out on a property-by-property basis.
Q: Do only investors buy at auction?
A: Investors do typically attend auctions, as well as home buyers. People like buying at auction because they know they are buying the property at market value. People are generally very comfortable with the sales price because they know that someone has placed a bid just below them.
Q: Can you sell properties with tenants in them?
A: Yes, properties can be sold with tenants and subject to existing leases.
Q: Can you sell properties in bad or poor condition?
A: We often sell homes in less than perfect condition. Some homes have lead paint, structural issues, mold, etc. All homes that we auction are sold in "As Is" condition. However, if we know of any of these defects, they are disclosed to the potential purchasers. We are proud of our direct approach and honest reputation.
Q: Do we need to pay off the real estate taxes, mortgages, water bills, housing violations, etc.?
A: Often all of these expenses can be paid off at settlement with no outlay from the seller prior to the auction. The auctioneer will provide you with the best options.
Reverse Mortgage FAQQ: What does HECM stand for?
A: HECM is an acronym for Home Equity Conversion Mortgage. A reverse mortgage that is insured by FHA.
Q: How long has the program been around?
A: The first FHA insured HECM loan was made in 1989 to Marjorie Mason of Fairway Kansas. The first known reverse mortgage in the United States was made by Deering Savings & Loan of Portland Maine to Nellie Young in 1961.
Q: Who are FHA and HUD?
A: The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA approved lenders throughout the United States. It is the largest insurer of mortgages in the United States having insured more than 34 million mortgages since its creation in 1934. In 1965 FHA became part of the United States Department of Housing and Urban Development (HUD). HUD's mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination.
Q: With a HECM Reverse Mortgage am I giving up ownership in my home?
A: A common misconception about this program is that you are "signing your house over to the bank". This is simply not true. The HECM is a government insured mortgage program where full control and ownership of your home remains with you just as it would with a traditional mortgage. You are free to refinance or sell your home at any time. The bank or lender will not own your home, as with any other mortgage or home equity loan, the lender will have a secured lien position.
Q: If there are no monthly payments, when and how is the loan have to be paid back?
A: The HECM loan does not require that any monthly payments are made. The entire loan is required to be paid back when at least one of the borrowers moves out, passes away or for any other reason no longer occupies the home as his/her primary residence.
Q: What happens when I die?
A: If another borrower survives you, they may continue under the terms of the reverse mortgage and remain in the house as long as they wish. If you are the last surviving borrower, your heirs will have up to one year to pay off the reverse mortgage, typically through the sale of the house. All remaining equity in the house will pass to your heirs as it normally would.
Q: Are there restrictions on what the money can be used for?
A: There are no restrictions on the use of funds from a reverse mortgage.
Q: How do I qualify?
A: The youngest borrower must be 62 or older and the home must be your primary residence. The amount you will qualify for varies based on current interest rates, your age, and the value of your home.
Q: What are the income and credit requirements?
A: Since the HECM loan does not require borrowers to make monthly payments, there are no minimum or maximum income levels to qualify or minimum credit or credit score requirements.
Q: Is it possible I make too much money or have too many assets to qualify?
A: At the present time, there are no limits on income or assets to qualify for the HECM program.
Q: How long does the process take?
A: Typically the process takes between 30 and 45 from beginning to end but can vary by lender and depending on your particular situation.
Q: How much money can get?
A: The amount you will have access too will vary depending on which program you choose, the age of the youngest borrower, the current interest rate and the value of your home. Typically you can borrow about 50% of your home's value or more.
Q: What are my options for accessing the money?
A: There are three basic options for accessing funds with a reverse mortgage. Funds can be drawn using any one or any combination of these three methods.
- Cash up front: all available funds are drawn at the time of closing
- Line of Credit: funds are drawn by the borrower as needed.
- Monthly Payment: Lender sends regular monthly installments to the borrower.
Q: Can I use a reverse mortgage to buy a home?
A: Yes. HUD authorized the use of the HECM program for purchasing a home on or after January 1, 2009. Qualified homebuyers 62 years or older can use the program to purchase a new or existing home.
Q: Do I have to pay taxes on the money from a Reverse Mortgage?
A: No, a Reverse Mortgage is a loan. Loan proceeds are not taxed as income by the Internal Revenue Service.