Month: October 2021

Have you gotten an email from a Nigerian prince promising a generous reward if you helped him get his money out of the country? We all have. While those emails have become one of the most well-known examples of financial scams, the truth is financial abuse of the elderly has taken a far more sophisticated and subtle shape. The perpetrator may not be someone in a far-off land; instead, it could be someone much closer to home. Here’s what to know to protect yourself and your loved ones.

How Widespread is Elder Financial Abuse?

The American Bankers Association estimates that elder financial abuse cost victims nearly $3 billion last year. According to other organizations the amount could be as high as $36.5 billion annually. Why the discrepancy? Most of the crimes fly under the radar. In fact, just 1 in 44 cases gets reported. Some seniors don’t realize they’ve been scammed, while others are too ashamed to alert the authorities. Worse, some fear retaliation from their abuser, furthering the heartbreaking cycle of exploitation.

Who are the Perpetrators?

One of the reasons so many cases of financial abuse go undetected is because the perpetrator is someone close to the senior—perhaps a family member, friend or caretaker. In some cases, this is someone who has been entrusted to assist the senior with their finances and may hold a power of attorney. They’ll take advantage of their access to the senior’s accounts and siphon off money or make purchases for their own benefit.

Other times, the abuse begins as a seemingly innocent request. A family member asks to borrow money from the senior promising to pay it back, but they never do. The situation spirals to the point that the senior has lost so much money they no longer have enough to support themselves. Should the senior apply for Medicaid, especially if they need long-term care they no longer can afford, they’ll be in the difficult position of trying to convince the government the money was stolen and not given away, since the latter could be a disqualifying factor in the application process.

Sadly, 90% of abusers are family members or someone the senior trusts. In some cases, the abusers are the last people the senior would expect: pastors, doctors, nurses, and yes, even attorneys. This underscores the importance of staying vigilant.

What are the Signs and Risk Factors?

Some signs pop up and quickly raise suspicion, like:

-Notification of a sweepstakes win

-Contractors requesting to perform unsolicited repairs

-A friendship that develops quickly

Other signs may require investigation to uncover, especially if someone has Alzheimer’s or dementia. Look for:

-Large, frequent, or unusual withdrawals, wires, or transfers from bank accounts

-Unpaid bills or insufficient funds

-Change of mailing address on accounts or missing bank statements

-Altered legal documents, such as a will, a trust, or power of attorney the senior can’t explain

-New friends, caregivers, or nursing home staff suddenly accompanying the senior to the bank or ATM

-Money given as a loan or gift, or checks with a signature that appears forged or different

-Physical injury, threats, or evidence of withheld medical assistance or personal care, which may signal that a caregiver is using harm or neglect to coerce money from the senior

What Can You Do to Protect Yourself or Your Loved Ones?

When it comes to preventing financial abuse before it begins, diligence is the name of the game. Here’s how to stay safe:

-Invest in a good cross-cut shredder (the ribbon kind won’t cut it!) and shred all sensitive documents like credit card offers, bank statements, and anything with your personal identifying information that you no longer need to keep on file.

-For the documents you do need to keep on file, make sure they’re securely locked away.

-Similarly, lock up your check book, especially when you’ll have visitors in your home.

-Order an annual credit report and review it for any strange activity.

-Always check the references and credentials of those you plan to hire.

-Don’t pay money to release winnings or a sweepstakes prize. It’s likely a scam.

-Never rush into a financial transaction and if you have questions or suspicions (no matter how small), ask a trusted third party who isn’t involved to give it a second look.

Finally, there are legal tools that can help prevent financial abuse and protect you if you do become a target. From wills to various trusts, power of attorney, and more, an estate planning or elder law attorney can help you create a strategy that ensures your assets are only accessible to those you trust.

Preventing financial abuse takes a team. It’s one of the reasons we conduct our annual review meetings—to make sure you still have the right protection in place, year after year. When you work with AlerStallings, you can be confident that someone’s looking out for you. To ensure that you and your loved ones are protected, set up a complimentary consultation with one of our caring attorneys.

When it comes to monetary gifts, nearly everyone is worried about the tax man. But actually, the tax man isn’t what should concern you most. Instead, it’s whether gifting is the right strategy for what you want to achieve. Here’s what we mean. 

Will You Pay the Gift Tax? Only if You’re Really Generous 

The number to remember is $15,000. That’s the amount you can give annually to any number of loved ones without needing to report the gifts to the IRS. And remember, that amount is per person, so you and your spouse can each give $15,000 per recipient, for a total of $30,000. 

Now, here’s where people tend to get confused. That $15,000 figure is not the total limit on what you can give tax-free per recipient. It’s simply the limit for what you can give without disclosing it to the IRS.  

There is also a lifetime gifting limit of $11.7 million before the gift tax kicks in. The first $15,000 of each gift is exempted. So, for example, if you were to gift $16,000 to each of your 3 children this year, $3,000 would count toward your lifetime limit (that’s 3 x $1,000, which is the amount over the $15,000 limit on each gift). The $3,000 will also count toward your estate tax exemption (more on that below). As you can see, you’d have to be really generous for the gift tax to affect you. 

Now, it’s important to note that gifts to charity, your spouse, or a political organization are always exempt from the gift tax no matter the amount. So too are gifts to cover someone’s medical expenses, if paid directly to the provider. Gifts to cover someone’s tuition are also exempted so long as the funds are paid directly to the school. Room, board, and books aren’t included. 

What About Gifting After Death? 

It depends on what you’re gifting, because now you have both the estate tax and tax basis to consider. Any gifts less than $15,000 you give during your lifetime won’t count toward your estate tax exemption, which for tax year 2021, is also $11.7 million.  

But let’s say you decide to wait until your passing to distribute your wealth via your will. In that case, the entirety of what you gift after you die will count toward your exemption. However, could it cause some tax headaches for your recipients? Absolutely. This is where the kiddo’s penalty becomes a problem. That’s when your heirs—likely in their peak earning years and therefore in the highest tax bracket of their lives—end up paying taxes on their inheritance at a higher rate than the one you enjoyed during retirement. 

There can be some advantages to gifting after death, however. Take for example, leaving real estate like your home or vacation property to a loved one. This is where something called a stepped-up basis comes into play. If your loved one were to sell the inherited property at some point in the future, their tax bill would be calculated on the property’s appreciation since the date of your death, not since you purchased it. That could yield substantial savings, especially if you’d held the property for quite some time. 

Should You Get Gifting or Get a Trust? 

You might be thinking, “Oh, the kiddos tax sounds bad. I’m going to give away my money while I’m still alive.” There are a couple reasons why that might work against you. 

First, it’s hard to know whether you might need long-term care, and if you do, for how long. LongTermCare.gov estimates a 70% chance you’ll need long-term care if you’re 65 or older. If you do, you’ll want to have a decent cushion to protect you from the cost. The national average for a private room in a nursing home is $7,698 per month. 

So, if you have enough money to give freely and still have a comfortable cushion left over to self-fund long-term care if the need arises, then by all means gift away! But that’s a small percentage of the population. For most of us, large gifts aren’t the norm, and long-term care costs are a source of anxiety. 

Further, most of us (over 60%) go on Medicaid to cover the cost of long-term care. Which brings us to our second point on why gifting may not be the best strategy to reduce your wealth: because Medicaid has a five-year lookback period. If it’s found that you gave away wealth during that period to reduce the value of your estate to become Medicaid eligible, you may not qualify for coverage.  

You do, however, have one other choice to consider: an irrevocable trust. For this situation, one of the most popular is an asset protection trust. An asset protection trust is a vehicle that holds your assets (including real estate) and effectively shields them from the nursing home and other creditors. While it can help you qualify for Medicaid should you need it, it’s not something that can be hastily put together. It requires forethought. Remember, the five-year lookback period still applies.  

When an asset protection trust is formed, you appoint a trustee to manage the assets for you. Relatives and adult children are often utilized as trustees. After your passing, any assets that remain in the trust after settling debts will go to your beneficiaries. From a gifting perspective, an asset protection trust offers the advantage of helping your heirs avoid probate, saving them time and money. 

An asset protection trust may enable you to ensure that a surviving spouse is cared for, or that you’re able to financially support loved ones after you’re gone without putting you at risk of losing everything to a nursing home while you’re still alive. That said, this is just one type of trust, and certainly not a one-size-fits-all solution. When it comes to gifting and planning for long-term care, the best strategy for your circumstance is the one you develop with a caring elder care or estate planning attorney. If you’re looking for someone with heart who can help you and your family, set up a complimentary consultation with one of our attorneys today.