Wednesday, September 20, 2017

"Forgotten" Tahoe Property Results in Probate


Probate is never easy for a family. It comes at a time of loss and grieving. Depending on the complexity of the estate, it can be extremely time-consuming, and it can be expensive. There’s generally also a sense of remorse. If parents or loved ones had only created a Living Trust, funded it and kept it updated, all of this could have been avoided.
Danville resident “Kathleen” recently came in to our Walnut Creek office seeking information and direction. Her Mom had died peacefully in her Walnut Creek home in July and Kathleen was now in charge of settling the estate. Thankfully, at the urging of her daughters, mom had created a Living Trust and Kathleen trusted that all of her assets were titled in the name of the Trust.

A Tahoe vacation property had never been moved into the Trust

In reviewing the paperwork, however, Kathleen realized that her mother’s Tahoe vacation home, which the whole family had enjoyed over the years, had never been moved into the Trust. In order for Kathleen to settle the estate so she could divide the assets with her siblings, she had to sell the Tahoe property, which meant Probate. Kathleen would have to open a Probate case, then be appointed by the court as Executor of her mother’s estate.

A Living Trust must be properly funded and updated

When a Living Trust is set up, it is important that all assets be transferred into the Trust, including vacation property. Note that this also includes timeshares—something that frequently gets overlooked. California Document Preparers can help with Deed transfers anywhere in the United States. Kathleen learned the hard way–having a deed prepared and recorded is a lot simpler and much less expensive than Probate.

Of course we do Probate!

Unfortunately, more than 50% of Americans die without a Living Trust, which means their heirs must go through Probate. If the Probate is uncontested, California Document Preparers can help you—and also help you save a considerable amount of money. Call today for an appointment. We’re helpful, compassionate and affordable.

Wednesday, September 13, 2017

Estate Tax Law Changes Make it Time to Amend Dated AB Trust


Many of our clients are coming in to simplify their old AB Trusts. The AB Trust was originally designed to create estate tax savings by keeping the deceased spouse’s property out of the estate of the surviving spouse. In 2011, however, a dramatic change in the federal estate tax laws exempted most estates from paying any estate taxes. For 2017, for example, the exemption is $5.49 million, which quickly eliminates the vast majority of Americans.

How the AB Trust works

When the first spouse dies, the Trust is divided into two Trusts: Trust A and Trust B. Trust A receives half of the couple’s community property and the surviving spouse’s separate property. Trust B receives the other half of the community property, and the separate property of the deceased spouse, but with the surviving spouse named as life beneficiary of the Trust. The surviving spouse can receive all income from Trust B and may also receive some principal, if Trust A is exhausted.

Results of the estate tax laws changes

The results of the estate tax law changes mean that an estimated 1% of the US population now pays any estate tax at all. This makes the old AB Trusts dated and cumbersome for the vast majority of Americans.

Limitations of the AB Trust

  • Restrictions on what the surviving spouse can do with AB Trust property can make it difficult to sell assts.
  • The surviving spouse cannot make gifts of the AB Trust’s property to anyone.
  • There can be substantial costs involved in managing the AB Trust after the death of the first spouse—preparing taxes and ensuring that this property is kept separate from that of the surviving spouse.
The reality is that the AB Trust is no longer necessary or advisable for estate planning. We are helping many of our clients amend or restate their Trusts to remove the AB Trust provisions.
Do you and your spouse have an AB Trust that you’d like to amend? Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.

Thursday, September 7, 2017

Estate Tax Law Changes Make it Time to Amend Dated AB Trust


Many of our clients are coming in to simplify their old AB Trusts. The AB Trust was originally designed to create estate tax savings by keeping the deceased spouse’s property out of the estate of the surviving spouse. In 2011, however, a dramatic change in the federal estate tax laws exempted most estates from paying any estate taxes. For 2017, for example, the exemption is $5.49 million, which quickly eliminates the vast majority of Americans.

How the AB Trust works

When the first spouse dies, the Trust is divided into two Trusts: Trust A and Trust B. Trust A receives half of the couple’s community property and the surviving spouse’s separate property. Trust B receives the other half of the community property, and the separate property of the deceased spouse, but with the surviving spouse named as life beneficiary of the Trust. The surviving spouse can receive all income from Trust B and may also receive some principal, if Trust A is exhausted.

Results of the estate tax laws changes

The results of the estate tax law changes mean that an estimated 1% of the US population now pays any estate tax at all. This makes the old AB Trusts dated and cumbersome for the vast majority of Americans.

Limitations of the AB Trust

  • Restrictions on what the surviving spouse can do with AB Trust property can make it difficult to sell assts.
  • The surviving spouse cannot make gifts of the AB Trust’s property to anyone.
  • There can be substantial costs involved in managing the AB Trust after the death of the first spouse—preparing taxes and ensuring that this property is kept separate from that of the surviving spouse.
The reality is that the AB Trust is no longer necessary or advisable for estate planning. We are helping many of our clients amend or restate their Trusts to remove the AB Trust provisions.
Do you and your spouse have an AB Trust that you’d like to amend? Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.

Wednesday, August 16, 2017

Thinking about Divorce? 7 Ways to Keep it Affordable



Many couples considering divorce may be miserable, but they remain together because of the economic difficulties of splitting their assets and their lives.
Divorce rates dropped during the recession and began to climb again when the economy improved. One of our clients and his wife had purchased a large home in Alamo when times were good; when the recession hit, he lost his great job and they lived on one salary—hers–in a home with a huge mortgage. The economic pressures destroyed what was left of their marriage, yet they couldn’t afford to get divorced, so they lived in separate camps in that huge house that they tried to sell, but no one was buying. Unfortunately, this kind of story is not uncommon. But while the economy is now stronger, couples who come in to our offices for assistance with their Divorces invariably have been thinking about this for a long time, and economics is often the primary obstacle.

Divorce often requires downsizing, including selling the family home.

There are now two households to support, and it may mean downsizing or selling the family home. But Divorce doesn’t have to be financially crippling. There’s another important factor: the emotional toll that highly contested legal battles and their financial aftermath take on the family. No one emerges unscathed from these battles, and it can leave children scarred.

Fortunately, there are alternatives.

1. Counseling

This should be your first consideration. Even if you tried counseling and it had no lasting effect, it might be time to try another therapist. Do some research and to find someone who’s a fit for you; there’s a lot at stake.

2.Agreement on distribution of assets, custody and a parenting plan

If Divorce is inevitable, sit down and try to reach an agreement on how you’re going to split assets and debts, child custody arrangements and how you will share parenting responsibilities. If you can’t reach an agreement, hire an experienced mediator that you both trust. Mediators are results-oriented and will work with you to identify solutions.

3. Quit worrying about what you think is fair

Fair gets very subjective. Forget also about what you’ve learned from other people’s Divorces. Look at the big picture—an equitable division of property and peace and sanity for your family.

4. Don’t expect the judge to resolve your issues and defend your rights

Figuring this out is your responsibility; the legal system is not designed to address personal family issues. Your overriding concern should be your children—putting their needs first to make the transition as smooth and normal as possible is the ideal. Keeping kids in the same schools and neighborhoods creates continuity, but they also adjust to new routines.

5. Figure out when it is time to just let it go

In the interest of time, expense, and emotional fatigue, start to get used to compromise.

6. Make a complete and accurate list of all liquid assets, income and expenses

Don’t rely on your spouse to do this for you. Gather all the information you need and then begin the process of division with your spouse. If necessary, a financial adviser can be an excellent investment. In many cases, a neutral outsider can give expert advice on the best way to decide the long-term value of retirement accounts vs keeping and maintaining the family home, etc.

7. Consider hiring an alternative organization to assist you

If you and your spouse can reach agreement on division of property and custody issues, California Document Preparers can take the sting out of the financial impact of hiring an attorney. We’ve helped more than 2,000 people get divorced, and they never have to set foot in court. We prepare the legal documents and file them. In the rare cases where people still have issues to resolve, they often find that our office environment provides the privacy and neutrality that helps them work through issues.

Are you considering Divorce?

Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. Our dedicated family law specialists are happy to answer your questions about the process, including the timing and how we work with our clients. You can also use our easy-to-use, secure online storefront to jumpstart the process–we’re still available by phone and email if you have questions. We’re helpful, compassionate and affordable.

Tuesday, August 8, 2017

Medi-Cal Recovery Law Changes Emphasize Importance of Living Trust


The year is nearly half over and it’s been a rollercoaster. A fluctuating market, rising interest rates, chaos and scandal in Washington. Here on the homefront, it’s summer, and that means baseball. But for loyal A’s and Giants fans, it seems like our favorite teams just can’t catch a break. The All-Star break has come and gone, and it it didn’t provide that spark that we hoped might occur.

Time for some good news: Important changes to Medi-Cal laws

Prior to January 1, 2017, California laws allowed Medi-Cal, California’s version of the federal Medicaid program, to recover expenses from recipients 55 or older, regardless of when their benefits were received. In the past, the state would send the heirs or survivors a claim requesting payment for the benefits paid on behalf of the deceased. Needless to say, receiving a bill from Medi-Cal while grieving the loss of a loved one was an unwelcome shock to many families.
Now, however, ­­thanks to new amendments to the Medi-Cal regulations SB 33 and SB 833, the agency has reduced the ability to recover from those who died after January 1, 2017.

The following changes to Medi-Cal claims are now in effect:

  • Claims on the estates of surviving spouses and registered domestic partners are prohibited.
  • Claims on the estate are limited to nursing-home care and home, community-based services and hospital or prescription-drug services while receiving these services.
  • The state is required to waive the claim completely when the estate that is subject to recovery is a homestead of modest value—a home whose fair market value is 50% or less of the average price of homes in the decedent’s county.
  • Claims on life insurance with one or more named beneficiaries are prohibited (unless a probatable estate is named as the beneficiary). A probatable estate is one in which assets are held in the decedent’s name alone.
  • Claims on retirement accounts with one or more named beneficiaries are prohibited (unless a probatable estate is named as the beneficiary—an estate is one in which assets are held in the decedent’s name alone.)
  • Recovery is limited to only those assets subject to California Probate. This means that assets transferred through a Living Trustjoint tenancy, right of survivorship and life estates are no longer subject to recovery.

What this means to you: If your assets are held in a Living Trust—not in your name—they’re protected from Medi-Cal

As a Medi-Cal recipient, this meant that when planning your estate, you want to have nothing in your name at the time of your death. Having a Will is not sufficient protection. But holding property and liquid assets in a Living Trust protects these assets from recovery by Medi-Cal and ensures that your estate, for which you worked so hard, will pass to your heirs as you intended.
California Document Preparers helps our clients prepare Living Trusts every day. As part of this process, we assist you in deeding real property into your TrustContact one of our three Bay Area offices for an appointment today, and we can answer your questions. Best of all, there’s no charge for our time, and we charge one flat fee for our complete estate-planning portfolio that includes the Living Trust, a Pour-Over Will, Power of Attorney and Advance Healthcare DirectiveWe’re helpful, compassionate and affordable.

Thursday, August 3, 2017

Alamo Father Researches Specifics of Uncontested Divorce



A young father from Alamo, “Charlie”,  came in to the Walnut Creek office to get more information about our uncontested Divorce process. He wanted to know how we worked with our clients, how much the Divorce would cost and how long it would take. This is something that happens fairly often. When couples have been married for many years, getting divorced is not something they do casually, so we frequently meet with couples in an exploratory capacity to provide an overview of the process. They often go home and begin to think seriously about how they’re going to divide property and develop a parenting plan.

He and his wife, “Allison”, had been married for 15 years

Charlie and “Allison” had two children, an eight-year old daughter and a 12-year old son. Like many area couples, the pressure of working long hours, commuting and raising a family in the expensive Bay Area had taken a toll. They were spending less time together as a family, fighting a lot more, sharing fewer interests and, increasingly, living separate lives. They’d tried counseling, which had helped for a while, but they fell back into their old patterns and the animosity grew. They knew they were creating an unhealthy environment for their kids, and they were both unhappy. They decided it was time to talk about Divorce.

Equal division of property and shared custody of children

Charlie was a successful private banker at Wells Fargo in San Francisco, where he had worked for more than ten years. Allison had worked in the technology sector for many years, but had been laid off during the recession. She was now a project manager at a startup with a lot of potential, but was not currently generating a significant income. The couple’s assets include their Alamo home and a smaller vacation home in Tahoe. Both Charlie and Allison had retirement accounts. They were committed to the equal division of assets and the jointly shared custody and parenting of their two children. They knew they were fortunate to be able to rely on both sets of parents, who lived in the area, to help with the children.

Selling their home and downsizing would likely be necessary

They were still trying to figure out how they would divide their property. They were resigned to having to sell the Tahoe house, and they also realized that they would likely have to sell their Alamo home to consolidate their assets. They knew they would have to downsize, likely move to different neighborhoods and smaller homes. It was important to both of them that they remain in close proximity so they could share parenting responsibilities.
We gave Charlie and Allison our workbook, which they took home, where they would have access to account information. They also needed to work out a detailed custody and parenting plan. Charlie and Allison have agreed to no child or spousal support but are still negotiating the settlement–which well may have to wait until they sell their properties.
Once they complete the workbook, our dedicated family law specialist will prepare the legal documents for the court, from disclosures to the marital settlement agreement. We will continue to help Charlie and Allison through the process until their Divorce is final.

Are you thinking about Divorce and need more information? 

Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. You can also jumpstart the process with our easy-to-use, secure online storefront –we’re still available by phone and email if you have questions. We’re helpful, compassionate and affordable.

Wednesday, July 26, 2017

Mythbusters: 6 Common Misperceptions about Living Trusts

We’ve helped more than 5,000 clients prepare Living Trusts over the years, and if there’s anything we’ve learned, it’s that there’s a lot of confusion when it comes to these documents. Something else we’ve learned: our clients consistently tell us that the process was a whole lot easier than they thought it would be.

Here are a few common myths about Living Trusts:

Myth #1: A Revocable Trust is Always Complicated. FALSE

These days a Revocable Living Trust is the basis of a solid estate plan for the majority of people because the benefits far outweigh those of a Last Will and Testament. A Living Trust protects your privacy, while a Will becomes a public probate record.
We excel at making the process straightforward–our clients really do comment on how easy this is—they credit our team and our workbooks. You just need to be thinking about who should receive your assets and what trusted person should administer your estate.

Myth #2: A Revocable Living Trust Reduces Estate Taxes. FALSE

A Revocable Living Trust has absolutely nothing to do with your estate tax bill. Its primary purposes are to protect your privacy, plan for disability and avoid probate.

Myth #3: A Revocable Living Trust Always Avoids Probate. FALSE

  • A Revocable Living Trust can’t avoid probate by itself; the Trust must be fully funded to avoid probate.
  • There may be quirks in an individual estate that make probate necessary, such as the need to defend or initiate a lawsuit or deal with creditors, but these situations are rare.
Simply creating your Living Trust isn’t enough; it must be funded. If you have property, deeds must be retitled and moved into the Trust. Assets, such as life insurance and brokerage accounts, must also be moved into the Trust. California Document Preparers transfers the deeds for our clients and helps with financial accounts.

Myth #4: A Revocable Trust Protects Your Assets Against Lawsuits. FALSE.

A Revocable Living Trust does nothing to protect your assets against lawsuits for two reasons.
  1. You can change the terms of the Trust at any time and put assets in and take them back out.
  2. You still personally own the assets titled in the name of the Trust.
Unfortunately, a Revocable Living Trust can’t shield your assets from the claims of creditors. For this, you would need to create an asset protection plan in addition to your Trust. The time to do this is long before a lawsuit is filed against you, and despite the widespread fear of lawsuits, most people will never be involved in one and do not need to plan for such a situation.

Myth #5: A Revocable Living Trust Eliminates All of the Work after the Trustmaker Dies. FALSE.

Sadly, when a loved one dies, there are still many details that will need to be resolved. Your heirs won’t have to go through the agony of probate, but your Successor Trustee will likely need to deal with a number of tasks before the beneficiaries can collect their checks.
Consider the matter of selling the family home and other articles of value, consolidating total assets and items of sentimental value and distributing them among the beneficiaries. If a loved one had been undergoing medical care or was in a nursing facility, there’s a good chance that outstanding bills will continue to trickle in from a variety of healthcare providers that will need to be paid. With a Living Trust, the process is streamlined, but there is a considerable amount of unavoidable administrative work involved in finalizing an estate and, depending on the complexity, this can drag on for quite some time.

Myth #6: Revocable Trusts are Only for Wealthy People. A great big FALSE!

People often underestimate their net worth. Do you own your own home? Have a life insurance policy, savings account, brokerage account and/or a 401K? Expensive jewelry/antiques/cars/artwork? What if you just have very few assets, but you do have life insurance and young children? These are all considered assets. Many people, naïve about their net worth, think they don’t need a Living Trust. The truth is that if you have assets and a family, a Living Trust will save your loved ones the agony of probate at an already difficult time filled with grief and loss. You will also be saving a big chunk of their inheritance—probate is always expensive.
If creating a Living Trust is on your to-do list, we encourage you to come in to one of our California Document Preparers offices to get started. Our comprehensive Trust package includes a Power of Attorney and Advance Healthcare Directive.

Tuesday, July 11, 2017

What We Can Learn About Estate Planning from Yogi Berra


It’s baseball season. In the Bay Area, both the A’s and the Giants are struggling. There are moments of brilliance, an occasional little winning streak when we hold our collective breath and hope our luck is changing, but we end up disappointed once again. We’ve learned to love our Giants for their ability to play killer ball when it really matters, but this year may be the exception. And the A’s? Well, there’s still a lot of baseball to play.


But let’s take a look at Yogi Berra

Yogi Berra, who made an extraordinary contribution to baseball, died last fall at the age of 90. Every baseball fan has his or her heroes, but Yogi Berra was extraordinary, a little guy who earned a big spot in the pantheon of stars. Yogi was voted into the Baseball Hall of Fame in 1972 on the first ballot and had a historic baseball career: a .285 lifetime batting average, 358 home runs and 1,430 runs batted in. Not only was he a catcher for both the New York Yankees and the Mets, but he also managed and coached both teams. Yogi appeared in 21 World Series as player, coach or manager–and won 13 of them. No other player can touch this kind of record.

Another contribution: Yogi was a financial planner and adviser

But Yogi was also insightful, thoughtful and a savvy financial planner. We’re left with many of Yogi’s pearls of wisdom which we can apply to investing, managing money and planning for the future.
  • It ain’t over till it’s over. You’re investing for the long term, so stay focused on your long-term goal—college planning for your kids or retirement.
  • It’s déjà vu all over again. The fact that stock prices have been down much of this year isn’t unusual. We’ve seen declines before, and we’ll see them again. We’re enjoying a robust economy right now, but we all remember the recession. Economic cycles repeat themselves, so we should never get too comfortable.
  • When you come to a fork in the road, take it. You don’t need to choose between owning stocks or bonds; your portfolio should be diverse and should probably include both.
  • I usually take a two-hour nap from 1 till 4. If you’re wondering about investing in the latest hot stock, sleep on it. Do some research and talk to a financial advisor.
  • Pair up in threes. You should rely on a financial planner, a tax advisor and create a Living Trust.
  • It gets late early out here. If you haven’t started preparing for retirement, start today. If you’re waiting until you get old to create a Living Trust, “old” may have arrived. Yogi knew that you don’t have to be old or have an estate to need an estate plan, and that a Living Trust is an important component of this.
  • If the world were perfect, it wouldn’t be. It’s impossible to be completely correct with every financial decision or preparation for end-of-life care. We live in a world of constant change, and there are too many variables over which we have no control. In the words of Warren Buffet, another sage who can afford to build his very own pantheon, “It’s better to be approximately right than precisely wrong.” This is the time to get started.

Our comprehensive Living Trust package includes a Power of Attorney and Advanced Healthcare Directive. Call the California Document Preparers team today to make an appointment to get started on your Trust.

Wednesday, June 28, 2017

Retire Early—And Get Cheap Health Insurance!

Americans are redefining the retirement model

They aren’t just retiring, but starting second careers, volunteering, becoming entrepreneurs. Others may be looking forward to a well-deserved retirement, but it’s busy with travel, hobbies or helping raise their grandchildren.

And for those who didn’t lose it all in the 2008 recession and want to retire early, congratulations!

But to enjoy that retirement, a lot depends on good health and resources, and these days it’s hard to plan when Congress is rewriting healthcare, and Medicare doesn’t kick in until you’re 65. Healthcare is a major and growing expense, and it can take a big bite out of fixed incomes.
A recent Kiplinger’s article by Michael Yoder, CFP, CRPS, How Early Retirees Can Get Cheap Health Insurance, provides some excellent advice on managing your income, taking advantage of  tax credits and cost-sharing reductions. Yoder admits that “Although there is political uncertainty surrounding health insurance, with health care reform stalling out, the likelihood is growing that the status quo will largely prevail.” That’s good news for those who are contemplating early retirement.

Read Michael’s article below

Early retirees might qualify for thousands of dollars of subsidies if they can keep their incomes between certain limits

If you’re retiring before age 65, you’ll want to take a second look before turning on any sources of taxable income, including pensions or IRA withdrawals. That’s because you might jeopardize your ability to qualify for incredibly cheap health insurance, as well as generous out-of-pocket cost subsidies.
I have seen early retirees squander untold sums by not knowing about this, money that could have been used to support their retirement.
Although there is political uncertainty surrounding health insurance — including a legal challenge on cost-sharing reductions by the House of Representatives that’s still up in the air — the subsidies are slated to survive for at least a few more years under the House plan, as I will explain below. In addition, with health care reform stalling out, the likelihood is growing that the status quo will largely prevail.

The basics

Under current law, when you sign up for health insurance on the exchanges (assuming you make too much to be on Medicaid), you may qualify for two forms of subsidies:
  1. A tax credit on your health insurance premiums if your household income is under 400% of the Federal Poverty Level (FPL).
  2. Cost-Sharing Reductions (CSRs) if your household income is under 250% of the FPL, and you sign up for a Silver plan.
According to 2017 HHS guidelines, 400% of the FPL is $64,960 for a married couple and $48,240 for singles, however the figures are a little higher for residents of Alaska and Hawaii. Even if you have a high level of assets, you’ll most likely have enough levers at your disposal to keep your income under the limit. After all, you can choose when to commence pension and Social Security benefits, when to trigger capital gains, whether to take IRA withdrawals, etc. The more you’ve saved outside of tax-deferred accounts, the easier this will be.

The Premium Tax Credit

The premium tax credit applies to those whose incomes are between 100% and 400% of the FPL, which would be from $12,060 to $48,240 for singles and $16,240 to $64,960 for married couples. (Note: The lower boundary is 138% if you live in a state that expanded Medicaid, because essentially you’d qualify for Medicaid below that and therefore would not be eligible for subsidies.) This credit can be applied against your premiums, reducing your monthly health insurance bill.
The credits are targeted to keep your premiums below a certain percentage of your income. For a couple at 150% of the FPL (which would be $24,360), for example, a basic Silver plan would cost roughly 4% of their income. In dollar terms, this works out to combined premiums of about $82 per month.
There is a number of free online tools to help estimate your credits, including the Kaiser Family Foundation calculator (available at kff.org/interactive/subsidy-calculator/).

Cost-Sharing Reductions (CSRs)

If you can keep your income to between 100% and 250% of the FPL — which would be from $12,060 to $30,015 for singles and from $16,240 to $40,600 for couples — you can also qualify for reductions in your deductible, coinsurance and out-of-pocket maximum, known as Cost-Sharing Reductions (CSRs). Again, just like with premium tax credits, the lower boundary is 138% in states that expanded Medicaid. But unlike the premium credits, which apply to all plans, the CSRs apply only to Silver plans.
These CSRs can amount to substantial savings annually. For example, a couple at 150% of the FPL (or $24,360) could see their out-of-pocket maximum drop from $14,300 to $4,700. The reductions in deductibles and coinsurance vary by plan.

How to make it work

To maximize your subsidies, if you are retiring before age 65, when Medicare kicks in, evaluate whether you can defer any sources of income. In the meantime, you’ll need to tap other assets, such as Roth IRAs or nonretirement accounts.

An example

Consider a 62-year-old couple with $35,000 of household income (216% of the FPL). The husband just retired and can begin receiving a $30,000 pension. If he defers the pension to age 65, the benefit increases to $35,000 per year.
  • In this case, he would be better off deferring the pension, since their current income level allows them to qualify for the following subsidies (assuming they live in an average cost area)
  • A credit of $16,982 toward their health insurance premiums each year until Medicare begins at age 65.
Cost-Sharing Reductions (CSRs), if they choose a Silver plan, which could reduce their out-of-pocket costs by thousands of dollars.
Had the husband commenced his pension at age 62, he would have lost roughly $17,000 in premium credits, plus the CSRs. Including the taxes on the pension benefits, turning on the pension at 62 would have cost them nearly as much as the pension was worth!
From age 62 to 65, the couple would need to tap nontaxable assets to cover their living expenses. Upon reaching age 65, their coverage would switch to Medicare, at which point they could safely turn on his (now increased) pension benefits.

Important details

“Household income” is defined as your Adjusted Gross Income plus municipal bond income, untaxed Social Security benefits and foreign income. This means you won’t be able to reduce includable income simply by moving your portfolio into tax-free municipal bonds.

A few other important points

  • The premium tax credit is a rare example of a “cliff” benefit, where exceeding the limit by $1 would cost you the entire credit. If your income is close to the 400% cutoff, be sure to plan very carefully in order to avoid losing thousands of dollars in subsidies.
  • If your income is below 100% of the FPL (138% in certain states), you will go on Medicaid, which for many is not a desirable outcome because of potentially longer wait times for patients and fewer participating doctors from which to choose.
  • If you retire and have COBRA or a retiree health plan available to you, you can still qualify for the subsidies if you decline the coverage and buy your own instead (see the IRS website for details).

What about health care reform?

  • Finally, how will theAmerican Health Care Act (H.R. 1628) affect all of this? First of all, it’s unknown how the Senate’s version of the bill will look, but it appears they are treading more cautiously than the House when it comes to rolling back benefits.
  • Even if the House bill passes in its current form, the tax credits and Cost-Sharing Reductions are available until 2020, although the tax credit in 2019 will be slightly reduced for some people by up to 2% of their MAGI (see sections 131 and 202 of the Act).
You’ll want to keep an eye on political developments, but for now it appears the subsidies will exist for at least a few more years, and potentially longer. You would be wise to plan accordingly.
If you’re working on an estate plan, a Living Trust is an important part of the overall plan. Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. You can also jumpstart the process with our easy-to-use, secure online storefront. We’re still available by phone and email if you have questions. We’re helpful, compassionate and affordable.