Many people are surprised to learn that their Social Security benefits can be subject to federal taxation. Whether your benefits are taxed depends on what is known as your “provisional income.” This is your adjusted gross income (not counting Social Security benefits) plus nontaxable interest and half of your Social Security benefits.

For people filing as individuals or heads of households with provisional incomes of less than $25,000, Social Security benefits are not taxed. For couples filing joint returns, the figure is $32,000. Unfortunately, individuals with provisional income of between $25,000 and $34,000, or couples filing jointly with provisional income of between $32,000 and $44,000, up to 50% of Social Security benefits may be taxable. In the case of individual filers with provisional incomes above $34,000 or joint filers whose provisional incomes exceed $44,000, up to 85% of Social Security benefits may be subject to taxation.

The information above concerns federal taxes. 13 states levy their own taxes on Social Security income, although they do so in varying degrees. These states are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, North Dakota, Vermont, Utah, and West Virginia. (Taxation of Social Security benefits is being phased out in West Virginia. Most residents won’t be taxed on their benefits as of the 2021 tax year.)

An article on kiplinger.com offers some strategies to avoid, or at least mitigate, taxes on Social Security benefits.

Withdraw money from your tax-free Roth IRAs

Tax-free withdrawals from a Roth IRA or Roth 401(k) are not included in your adjusted gross income. Rolling over money from your traditional IRA or 401(k) to a Roth IRA years before you start receiving Social Security benefits is an excellent way to avoid taxes later in retirement. Of course, you will have to pay income taxes when you make the conversion, but you can tap the account tax-free after that.

Purchase a Qualified Longevity Annuity Contract

You can invest up to $130,000 from your IRA or 401(k) in a deferred-income annuity called a Qualified Longevity Annuity Contract (QLAC). The money in your QLAC is ignored when figuring your required minimum distribution, so you can reduce the size of your distribution, lower your income and cut your tax bill.

Give your required minimum distribution to charity

If you are 70½ or older, you can give up to $100,000 per year to charity from your IRAs tax-free.

Your gift counts as the required minimum distribution but is not included in your adjusted gross

income.

Be careful with income investments

You can structure your portfolio to minimize the income it generates. This approach makes particular sense if your portfolio’s income is being reinvested.

Save money, use financial strategies, and get help from Washington Elder Law.

Your best option is attending two helpful workshops provided by the Edmonds Elder Law team, at Washington Elder Law. The workshops are online, and they are free. Advice is offered for seniors and their families. We answer your questions about how to refrain from paying taxes on your income. Find out how you can avoid the Washington State long-term care tax.

We tell you how to access the funds provided by the state of Washington. We prepare the documents you require to receive benefits. Then, we follow through with the documents to make sure your information is complete.

Benefits available in King County are over $9,000 a month if you know how to access them. We can access these benefits for most people. Find out how you can maximize your money and pass it down.

We teach families how to access Medicaid benefits to pay for medical and long-term care costs while preserving their wealth.

Washington Elder Law workshops include:

Medicaid – Medicaid planning helps pay for long-term care. It is a federally funded health insurance program based on income. Even if you make more than the exceeded amount, you still may qualify. We can help you understand possible exceptions and discover the aid you require.

Estate Planning – You want to protect the legacy that goes to your family. Without proper estate planning, money is often collected and distributed to the government. We teach you how to maximize the money you have. We make sure you have Power of Attorney to avoid losing control of guardianships. You’ll learn how to protect your assets from the government. We will even show you how to receive a higher quality of long-term care. All of these very important financial choices are available to you. Attend our free workshops to find out more.

Thanks to improvements in medical science and healthier lifestyles, Americans are living longer than ever before. Unfortunately, many of us will require long-term care at some point in our lives, and one in five of us will require long-term care for at least five years.

According to Genworth Financial, the median cost of long-term care nationwide ranged from $51,480 to $102,200 per year in 2019, depending on the type of care needed. (Care costs also vary widely based on where you live. To see the cost of care in your area, visit https://www.genworth.com/about-us/industry-expertise/cost-of-care.html.)

A current study reports that King County residents pay over $10,000 a month in long-term care expenses. 98% of the population are concerned about running out of money when a family member needs extending medical care or services.

Long-Term Care (LTC) Costs

Stay home ($500 – $18,000/month)
Assisted living ($2,500 – $5,500/month)
Nursing Home ($9000 – $14,000/month)

The median cost of in-home care provided by a home health aide was more than $52,000 in 2019, while care in a nursing home can easily top $100,000 per year. Worse, experts predict that the cost of nursing home care will more than double over the next twenty years. Tragically, many families exhaust their life savings within a few years of a family member entering a nursing home.

Ready for some good news? Through proper planning, you can protect your hard-earned assets against the cost of long-term care. You can also receive assistance from Medicaid and other sources to cover the cost of your care, even if you or a loved one is already in a nursing home.

Long Term Care Planning Options

Long-term care insurance

Many families consider purchasing long-term care insurance in advance to help pay for long-term care in the future. However, this type of insurance can be expensive. Typically, the younger you are when you apply for coverage, the cheaper your policy. Of course, the benefits of the lower premium must be factored against the amount of time a younger person will likely continue to pay premiums without requiring long-term care. Similarly, you can reduce the cost of your policy by choosing a longer waiting period. But a longer waiting period means you’ll need to pay the bills yourself before you receive any benefits. Most people interested in purchasing long-term care insurance should consider a 60-day or 90-day waiting period, which keeps premiums manageable but limits out-of-pocket costs. It is important to note that if you wait too long to apply for coverage or until you have developed medical problems, you may not be able to qualify for a policy at all.

Reverse mortgages

A reverse mortgage is a special type of home equity loan that allows you to receive cash against the value of your home without selling it. You can choose to receive a lump-sum payment, a monthly payment, or a line of credit. In the case of monthly payments, as long as you spend the payments you receive in the month that you receive them, the money is not taxable and does not count towards income or affect Social Security or Medicare benefits, nor does it count as income with respect to Medicaid eligibility. There are no restrictions on how you use the money, and you can continue to live in the home while retaining title and ownership of it. The amount of the loan does not become due until the last borrower, usually the last remaining spouse, dies, sells, or permanently moves out of the home. If your heirs want to keep the home, they can repay the reverse mortgage. They can also keep the difference if the home’s sale price is greater than the reverse mortgage loan balance when they repay the loan.

Life insurance

Some insurance companies have begun to offer life insurance policies that can help pay for long-term care services. The options include combination life/long-term care products, accelerated death benefits, life settlements, and viatical settlements. Combination products are relatively new, and the features change constantly as the products evolve.

Annuities

You may choose to enter into an annuity contract with an insurance company to help pay for long-term care services. In exchange for a single payment or a series of payments, the insurance company will send you an annuity, which is a series of regular payments over a specified and defined period of time. There are two types of annuities, Immediate Annuities and Deferred Long-term Care Annuities.

You can learn more about long-term care insurance, reverse mortgages, life insurance, and annuities by visiting the government’s long-term care website, http://longtermcare.gov. If you are thinking about using one or more of these options, please contact us first. They may not be the best approach in your particular situation.

Obtaining Assistance from Medicaid

It is estimated that in the United States 60 percent of nursing home residents rely on Medicaid to finance their nursing home care. Even so, many families do not try to obtain such assistance because they believe they have too many assets or too much income to qualify. Others simply give assets away in the hope of becoming eligible. While you are certainly free to give away anything you want, doing so improperly can make you ineligible to receive Medicaid assistance for months, even years.

Fortunately, it is possible to protect your assets and receive the assistance you need with proper planning. We can use a wide range of tools and strategies to structure your estate in such a way that you will meet the government’s asset and income requirements. These tools and strategies include exemption planning, strategic gifting, irrevocable trust development, and more.

What If You Are Already in a Nursing Home?

Perhaps you or a loved one is already in a nursing home or must enter one very soon, and you have been told that you own too many assets to qualify for assistance from Medicaid. Do not give up. This situation, known as a Medicaid crisis, is more common than you might think. The information provided to you by friends, nursing home intake staff, and even social workers may very well be outdated or simply inaccurate. You are not alone during this difficult time. We may still be able to protect your assets for yourself, your spouse, and your heirs while at the same time obtaining assistance from Medicaid to pay for your nursing home care.

Washington Elder Law helps you manage the high cost of long-term care.

Benefits available in King County are over $9,000 a month if you know how to access them. We can access these benefits for most people. Find out how you can maximize your money and pass it down.

We show you how to protect your money with two online workshops. The workshops are free, and best of all, you learn from home.

Our workshops include:

Medicaid

Medicaid planning helps pay for long-term care. Learn how to access your benefits.

Teach you some easy Medicaid definitions
Help you learn about coverage and eligibility
Let you know the advantages of a Medicaid Trust
Offer ways to get help with your application
Let you know what Washington Elder Law offers

Estate Planning

You want to protect the legacy that goes to your family. Without proper estate planning, money is collected and distributed to the government. We teach you how to maximize the money you have. We make sure you have Power of Attorney to avoid losing control of guardianships. Learn how to protect your assets from the government.

Add significant value to financial benefits by talking about it early
Avoid losing control of guardianships by creating a Power of Attorney
Understand how trusts simplify the administration of your estate
Access higher quality long term care
Maximize money for yourself and your family
Avoid probate
Protect your assets from the government

For more information and to register for workshops:

Medicaid Workshop

Estate Planning Workshop

Perhaps you have considered selling your current home, buying a smaller one, and using the difference to help fund your retirement. A recent article on Investopedia.com explores this approach and details the mistakes you must avoid. Here are some of the highlights.

Overestimating Your Current Home's Value

Many people overestimate how much their current home is actually worth because of what friends and neighbors say they received for the sale of their homes. To get a realistic sense of your home’s value, visit websites like Zillow.com and Realtor.com to learn the prices of recently sold properties in your area. Online “estimators” from banks like JP Morgan Chase and Bank of America will also provide useful information. Bear in mind that prices and estimates shown on these and other sites may not take into account the specific features sought by prospective buyers. Consulting local real estate agents or independent appraisers can address this problem. You should also ask these real estate professionals about inexpensive spruce-ups that will increase your home’s curb appeal and value. Most experts agree that the cost of major renovations will not be recouped unless your home is in extremely poor condition.

Underestimating the Cost of Your New Home

You can use the online tools and real estate professionals mentioned above to get a sense of what you’ll have to pay for the type of home you want to buy. If you plan to move to a new area, such as a place you’ve always enjoyed visiting, it’s important to spend a significant amount of time there. This will give you a feel for what it’s like to actually live in the area. Renting a property for a year or so before buying may be the wisest approach.

Ignoring the Tax Implications of Your Move

Most couples are currently able to exclude up to $500,000 in gains from the sale of their home, while singles can typically exclude up to $250,000. Your tax bracket and the length of time you’ve lived in your current home could impact whether taxes will be due upon its sale. You can find detailed information about this issue in IRS Publication 523.

You should also consider factors beyond income taxes on your home’s sale, particularly if you are moving to a different state. Lower property taxes in your desired destination could be offset by higher sales and income taxes. Similarly, pensions and withdrawals from retirement accounts could be taxed at a higher rate than where you live now. A particular state’s revenue or tax department website is a good source for this important information.

Ignoring Closing Costs

If you haven’t bought or sold a home in quite a while, you may have forgotten about all of the closing costs involved. Title insurance, recording fees, legal fees… the list of miscellaneous charges can seem endless. In addition, if you use a real estate agent, commissions can be as high as 6%, according to Realtor.com. In addition, don’t forget about the cost of moving your belongings to your new home.

The bottom line is this: Do your research and run the numbers carefully before downsizing. You may find ways to save a significant amount of money on your move, or perhaps you’ll realize that you should stay where you are for now.

What to do next…

Now that you or a loved one has chosen to retire, managing your/their finances is mandatory. We help you with retirement, Medicaid, and long-term care planning.

Washington Elder Law, PLLC, is dedicated to providing our clients peace of mind.

There are two easy steps that you need to plan your retirement finances. We will show you the way.

1.) An easy way to start is by downloading our complimentary guide—Understanding Medicaid.

Our FREE Report Reveals the Steps You Should be Taking Right Now to Protect Your Hard-Earned Savings and Provide the Best Possible Care for Your Loved Ones.

2.) Register for our free Medicaid online workshop. Our workshops teach you how to access your Medicaid benefits to pay for medical and long-term care costs.

Washington Elder Law provides the #1 Medicaid services in Snohomish and King Counties.

We create the documents that enable you to receive maximum benefits.
We show you how to decrease your income tax on inherited retirement accounts and other assets.
Provide families with peace of mind.
Design plans that protect you.
We follow through on all items required for families to receive benefits.

One of the first questions many clients ask is whether they need a Revocable Living Trust? It’s a great question, but it leads to another: What do you want your plan to accomplish? Let’s begin with a brief discussion of what trusts are and how they work. Then we’ll explore their benefits, which should give you a better idea of whether a trust is right for you and your family.

What is a Revocable Living Trust?

There are many different types of trusts and they can accomplish a wide range of goals. However, when most people think about trusts, the one they have in mind is a Revocable Living Trust.

A Revocable Living Trust is a legal document that allows the grantor (the person who creates the trust) to take personal assets and transfer them to the ownership of the trust. While the trust technically owns the assets, the grantor can continue to use them as he or she normally would.

When a Revocable Living Trust is established, the grantor names a trustee to manage the assets in the trust during the grantor’s lifetime. Most grantor’s name themselves as trustee, giving them complete control over the trust’s assets. Typically, a successor trustee is also named to take over management of the trust and distribute trust assets after the grantor passes away.

What are the benefits of a Revocable Living Trust?

One of the primary benefits of a Revocable Living Trust is that it enables assets held in the trust to avoid probate after the grantor’s death. This allows trust assets to be distributed to heirs quickly. The costs associated with probating the estate are also avoided. In addition, a Revocable Living Trust protects the privacy of the grantor (and beneficiaries) because the trust’s provisions are confidential. A Last Will and Testament, on the other hand, is a matter of public record. Anyone can access information about the decedent’s assets, creditors, debts, and more.

Another benefit of Revocable Living Trusts is they not only allow the grantor to control trust assets during life but also after he or she passes away. The grantor can stipulate when, how, and under what circumstances the successor trustee is authorized to distribute trust assets to beneficiaries. This is particularly important if the beneficiaries are not yet mature enough to manage an inheritance on their own, or in situations involving blended families. For example, the grantor could stipulate that children from a first marriage receive assets from the trust, not just the children from a more recent marriage.

Revocable Living Trusts can also be used to protect the grantor and the grantor’s family from a stressful and expensive guardianship proceeding if the grantor becomes incapacitated.

As we mentioned earlier, there are many different types of trusts. If one of your primary goals is to protect assets from long-term care costs, creditors, lawsuits, and other threats, an Irrevocable Trust or an Asset Protection Trust may be a much better option then a Revocable Living Trust. If you have a loved one with special needs, a Special Needs Trust can allow you to create a fund for goods and services not provided by Medicaid or Supplemental Security Income while protecting eligibility for these vital programs. A Charitable Trust allows the grantor to set aside money for both a charity and beneficiaries, realize certain tax advantages, and generate an income stream.

These are but a few examples of various trusts and what they can accomplish. If you’re still not sure whether you need a trust, we welcome the opportunity to explain your options in detail and, if appropriate in your particular circumstances, design and implement the trust that’s right for you and your family.

Washington Elder Law provides information about securing your legacy and providing your family with peace of mind.

Washington Elder Law is a caring and trustworthy team of Lynnwood/Edmonds Elder Law professionals who offer the tools to easily and understandably guide you through estate planning. The team is motivated to educate and give clients the tools needed to make the best choices to positively impact their future finances.

We teach you how to build a positive legacy for your loved ones in our Free Estate Planning Workshops. We also include Medicaid workshops to help you claim the benefits that you can use to plan your future financial goals. Registration information is available below.

After a completed workshop, vision meetings are available to you. Ask how you can prepare for your vision meeting.

Workshop Benefits

It is important to us that your current plan meets your goals. We can help you understand what it takes to protect you and your family. Our workshops allow you to maximize your plan and get the most out of your finances.

Included Estate Planning information

Add significant value to financial benefits by talking about it early
Avoid losing control of guardianships by creating a Power of Attorney
Understand how trusts simplify the administration of your estate
Access higher quality long term care
Maximize money for yourself and your family
Avoid probate
Protect your assets from the government

Strong solutions to financial issues.
A structured family committee that keeps members informed
Access to benefits
We prepare and provide the proper documentation to secure your benefits.

We always follow through with your application for your benefits.

For more information see:

Join an Estate Planning Online Workshop scheduled every Tuesday at noon.

Join a MEDICAID Online Workshop every Wednesday at noon.

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