A Dramatic Loss of Wealth

Seniors Scramble for Solutions

A recent study suggests that current economic woes affecting the value of real estate will strip most people of wealth, with the hardest hit being those currently poised to retire.

The Center for Economic and Policy Research extrapolated from data from the 2004 Survey of Consumer Finance to project household wealth under three alternative scenarios. The first scenario assumes that real house prices fall no further than their level as of March 2008. The second scenario assumes that real house prices fall an additional 10 percent as a 2009 average. The third scenario assumes that real house prices fall an additional 20 percent for a 2009 average.

The projections show that the vast majority of families between the ages 49-54 will have little or no wealth by 2009 in any of these scenarios and that those persons who just be approaching retirement will have very little to support them-selves in retire-ment other than their Social Security.

The projections also show that a large number of families will have little or no equity in their homes by the end of 2008. Finally, the projections show that the renters within the same wealth categories in 2004 will have more wealth in 2009 than homeowners in all three scenarios.

Seniors and their financial planners are scrambling to develop financial solutions and strategies. You should consider two obvious strategies. First, if you have debt on your home, you should eliminate it quickly. If you need a referral to an agent that will show you how you can within a few years eliminate your mortgage debt without bankruptcy, debt consolidation, or adversely affecting your credit rating, please call the office at 877-816-8670.

If your are likely to need a reverse mortgage in the future, you might consider obtaining a reverse mortgage line of credit now, before the value of your real property is further mpaired. A line of credit does not obligate that you access the funds, but the funds wll be available for the reminder of your life, if you later need them. Moreover, you ensure access to a greater amount, or at least some amount, whereas later, after the value of your home is further reduced by the market, you may not be eligible at all, or eligible for as much.

If you need a referral to a reputable reverse mortgage specialist or financial planner, please call the office at 877-816-8670.

Tax Rules Change Treatment of Gains on Sale of Vacation or Second Home

If you have a vacation or second home, there was a change in the federal income tax law as part of the 2008 Housing Act about which you should be aware.   Most homeowners are familiar with the homesale exclusion, a provision of the tax code which excludes from taxable gain as much as $500,000 of gain if they meet certain conditions. The $500,000 exemption is the maximum exclusion for a married couple filing jointly; taxpayers filing individually get an exemption of up to $250,000. To be eligible for the full exclusion, a taxpayer must have owned the home, and lived in it as his or her principal residence-for at least two of the five years prior to the sale. Because of the "principal residence" requirement, vacation or second homes normally don't qualify for the exclusion. However, in what some saw as a loophole, the law permitted taxpayers to convert their second home to their principal residence, live in it for two years, sell it, and take the full $250,000/$500,000 exclusion available for principal residences, even though portions of their gains were attributable to periods when the property was used as a vacation or second home, not a principal residence.   The new law closes that "loophole" by requiring homeowners to pay taxes on gains made from the sale of a second home to reflect the portion of time the home was not used as a principal residence (e.g, vacation or rental property). The amount taxed will be based on the portion of the time during which the taxpayer owned the home that the house was used as a vacation home or rented out. The rest of the gain remains eligible for the up-to-$500,000 exclusion, as long as the two-out-of-five year usage and ownership tests are met. The new law in effect reduces the exclusion based on the ratio of years of use as a principal residence to the total time of ownership. For example, if a taxpayer owned a vacation home for ten years, but lived in it as a principal residence only for the final two years prior to sale, the maximum available exclusion would be reduced by four-fifths. Accordingly, a $400,000 gain on the sale that would be eligible for the full exclusion under pre-Act law would be reduced by four-fifths, to $80,000. The good news for current owners of second homes is that the new law is not retroactive. The tightening applies only to sales after 2008. Plus, any periods of personal or rental use before 2009 are ignored for purposes of the provision. The new law also does not change the rule that allows homeowners to take advantage of the homesale exclusion every two years. Taxpayers can still move from one home to the other with full tax exclusion if they only own one home at a time. Moreover, the taxpayer still qualifies for capital gain treatment on the amount of gain that cannot be excluded. The tax planning opportunity available to you between now and December 31, 2008, is that if you convert your second residence into your primary residence before January 1, 2009, you will completely avoid the rule above.  You would then have up to three years to sell your old primary residence to claim the full home sale exclusion on the old primary residence. Then two years after the sale of the old primary residence you can sell the second home/ now primary residence and again claim the full home sale exclusion. The decision to move your primary residence involves more than just savings taxes on a later sale. Your primary residence has other income, property and estate tax implications, estate planning and asset protection planning implications, and financial implications that should be fully understood prior to making such an important decision.  Consult an elderlaw  attorney and accountant or tax professional as soon as possible, though; one cannot just "flip a switch" to covert a second home to a primary residence.

Ohio Partnership for Long-Term Care Insurance Offers Asset Protection

The new Ohio Partnership for Long-Term Care Insurance is an initiative between the State and private insurance com panies to encourage Ohioans to plan for their long-term care needs. The partnership established "partnership policies" which provide coverage for long-term care needs and also allows Ohioans the ability to obtain "Medicaid Asset Protection" - a benefit not available with traditional pre-existing policies sold in Ohio.

This benefit is only available to those who purchase "qualified partnership policies." Pre-existing policies, meaning those you may have now, do not qualify. Medicaid asset protection simply allows Medicaid applicants to keep more assets and still potentially qualify for Medicaid coverage. Upon application for Medicaid, the total assets a person may keep is the combined total of the Medicaid asset limit and the total amount paid by a partnership policy. In other words, the policy payments serve to protect other assets, such as your family home, even if the insurance benefits do not prove sufficient to pay the full cost of the nursing home care.

Partnership policyholders who need Medicaid to help pay for long-term care can apply at any time. Ohio's Medicaid program can help pay the difference between what the policy covers and what is owed, or provide assistance once the policy is exhausted. In both cases, the benefit of Medicaid asset protection will be provided. The more the partnership policy pays, the higher the asset protection.

A Dramatic Loss of Wealth: Seniors Scramble for Solutions

A recent study suggests that current economic woes affecting the value of real estate will strip most people of wealth, with the hardest hit being those currently poised to retire.

The Center for Economic and Policy Research extrapolated from data from the 2004 Survey of Consumer Finance to project household wealth under three alternative scenarios. The first scenario assumes that real house prices fall no further than their level as of March 2008. The second scenario assumes that real house prices fall an additional 10 percent as a 2009 average. The third scenario assumes that real house prices fall an additional 20 percent for a 2009 average.

The projections show that the vast majority of families between the ages 49-54 will have little or no wealth by 2009 in any of these scenarios and that those persons who just be approaching retirement will have very little to support them-selves in retire-ment other than their Social Security.

The projections also show that a large number of families will have little or no equity in their homes by the end of 2008. Finally, the projections show that the renters within the same wealth categories in 2004 will have more wealth in 2009 than homeowners in all three scenarios.

Bankruptcy Rising Among Elderly

Bankruptcy filings among the elderly are reaching an all-time high according to a story published by Christine Dugas, in USA TODAY. Swamped by debt and rising medical bills, elderly Americans have been seeking bankruptcy-court protection at sharply faster rates than other adults, according to a study to be released. From 1991 to 2007, the rate of personal bankruptcy filings among those ages 65 or older jumped by 150%, according to AARP, which will release the new research from the Consumer Bankruptcy Project. The most startling rise occurred among those ages 75 to 84, whose rate soared 433%.

According to the article, the study does not address the specific reasons behind the trend. But experts say medical bills have played a major role in the debt that has forced many elderly Americans into bankruptcy proceedings. "Health care is a big issue for the elderly," says George Gaberlavage, director of consumer and state affairs at the AARP Public Policy Institute, “and out-of-pocket expenses have been going up,” the article reports. During the same 1991-2007 period, bankruptcy filings by younger Americans actually declined.