ElderLaw Answers Blog

We are sad to report that Gail Koff, one of the leaders of the consumer law firm, Jacoby & Meyers, has passed away from complications in her treatment for leukemia.

Gail joined Jacoby & Meyers when it expanded from its California base, ultimately helping it expand to 150 offices in six states.  It’s purpose was to provide low-cost legal representation to consumers who could not afford standard legal fees.

When the partnership broke up, Gail who continued to lead the New York office, downsized and changed the focus of the firm to personal injury law.  However, she never gave up her dream of a nationwide firm for middle-income clients that would provide quality representation and reasonable fees.

We at ElderLawAnswers got to know Gail as she pursued this dream and had a number of discussions about how we might work together to help bring her dream to reality.  Unfortunately, we never found a financial model that worked. 

It would be a fitting legacy to Gail if her dream of a national consumer law firm could be realized — perhaps through the use of on-line systems that are now available or are being developed.

Click here to read Gail’s obituary on The Wall Street Journal website.

We were saddened to read of the death of Dr. Robert N. Butler at age 83 last week.  A fierce advocate for seniors and the founding director of the National Institute on Aging, Dr. Butler coined the term “ageism.” 

In his Pulitzer Prize-winning book, Why Survive? Being Old in America, Dr. Butler argued against putting anyone over age 65 out to pasture.  Practicing what he preached, Dr. Butler was at work until three days before his death.  At his death, Dr. Butler was director of the International Longevity Center – USA.  Unfortunately, his own old age was much too short.

Last year, I interviewed Dr. Butler for ElderLaw Radio and was struck by two points he made.  The first is not news, that we have too few geriatric medicine specialists for today’s seniors, much less for the vast number of baby boomers who will soon be passing the age 65 threshold.  Medical schools need to revamp to meet the needs to the population as it gets older.

Dr. Butler’s second point was more surprising.  I asked him how baby boomers were going to function as seniors, expecting him to say that they would be healthier than their parents and grandparents due to modern medicine and modern lifestyles. 

Instead, Dr. Butler predicted the opposite result.  Due in large part to obesity in America, he predicted a geriatric health crisis in the next couple of decades.  Coupled with low savings rates, he foresaw a gloomy old age for many baby boomers.

Fortunately, he also saw the possibility of change through exercise, better diets, and continued work and other activities.  Each inidvidual American taking control of his or her own future health, he said, could have huge repercussions on the future financial and physical health of the nation as a whole.

Getting this message out would be a fitting legacy for Dr. Butler and his career.

To read more about Dr. Butler, click here.

To read Dr. Butler’s obituary, click here.

Our most recent home page survey asked the question, “Do you have an elderly family member whose driving is unsafe due to the effects of aging?” We were astonished to learn that almost three-quarters (74 percent) of those who responded answered “Yes.” Extrapolate that to the population at large, and you have an awful lot of people who, in the opinion of at least one relative, shouldn’t be on our roads.

A 2008 report by the Insurance Institute for Highway Safety shows the rate of motor vehicle-related deaths by drivers 70 and older has decreased steadily from 1975 through 2008. The 2008 rate for seniors ages 70 to74 was 14 per 100,000, and the rate for drivers 85 and older was just 17 per 100,000. Compare this to the death rate for drivers between the ages of 16 and 24 of more than 20 per 100,000.

Still, as people age, driving can become more difficult and more dangerous — as our survey results suggest. But in our car-based society, the fight to wrest control of the keys can be fierce and painful. For the past 80 years or so, most U.S. communities have been built around the assumption that adults will drive to obtain the essentials of life, including the proverbial quart of milk. Taking away a driver’s license usually imposes a sentence of immobility or dependency on others. Over the next several decades, as our society ages, millions of Americans will be facing this sentence.

All state Departments of Motor Vehicles, Highway Safety, or Transportation have an office where a family member or doctor can make a referral about an unsafe driver, but succeeding in getting the impaired driver off the road is another matter. Often families will want to sit down with the unsafe driver and see if the individual will voluntarily relinquish the keys or limit driving. In The Driving Dilemma: The Complete Resource Guide for Older Drivers and Their Families, author Elizabeth Dugan devotes a large section of the book to how to discuss the issue of driving with a loved one who may be showing deficits. ElderLawAnswers has also written about confronting an unsafe driver.

But this is easier said than done. The bulk of the baby boom generation will become senior citizen drivers over the next 15 years. What we need are more communities that are navigable on foot, by bicycle and by public transportation. There appears to be a trend in this direction as our fascination with sprawl fades and gas prices climb. Witness, for example, the rise of the New Urbanism movement. But whether we will locate the off-ramp from our car-centered culture in time for the coming tidal wave of elderly ex-drivers is another question.

Our new home page survey asks, in light of the news that Al and Tipper Gore are calling it quits after 40 years of marriage, whether 40 years is too long for any marriage.

There’s an old saying about the weather that everyone complains about it, but no one does anything about it.  Applied to taxes, it could be everyone complains about them, but few actually pay them. 

According to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, with new tax credits introduced by the Obama administration nearly 47 percent of Americans paid no federal income tax in 2009.   That’s a lot of people not paying taxes when we’re facing a $1.6 trillion budget deficit this fiscal year.

But who are those people who don’t have to pay federal income tax, and how much do they pay in other taxes, such as sales, Social Security and state taxes?  According to the Tax Policy Center report, most of them aren’t making much money, most under $50,000 a year.  Virtually no one making under $10,000 paid any federal income tax.  Less than 17% of those making between $10,000 and $20,000 owed tax.  The percentage owing federal income tax increased as follows:

$20,000 – $30,000       38%

$30,000 – $40,000       53%

$40,000 – $50,000       64%

$50,000 – $75,000       79%

$75,000 – $100,000     91%

$100,000 – $200,000   97%

$200,000 – $1 million    98%

More than $1 million        99%

As mentioned above, these figures only reflect the incidence of federal income tax liability in 2009, not the cumulative taxes paid on puchases, through employment, or to states and municipalities.  It’s worth noting as well that neither ExxonMobil nor General Electric paid any federal income tax in 2009 despite earning billions of dollars in profits.

The federal government keeps searching for ways to encourage people to buy long-term care insurance, which has not been widely adopted for a variety of reasons. A law that took effect January 1 makes the purchase of products that combine annuities or insurance policies with long-term care insurance more attractive. Basically, owners of annuities or life insurance policies can exchange their old policies for long-term care insurance or hybrid policies without being taxed.

Read more about this development here.

As reported in an earlier blog entry, our recent survey on the ElderLawAnswers Web site asking whether site visitors favor job creation or deficit reduction revealed that almost 60 percent consider it more important to reduce the deficit than to create jobs at this time. But a provocative new article by noted economist James K. Galbraith in a recent issue of The Nation makes a compelling case that deficits are necessary, are nothing to be feared, and that in fact “deficit phobia,” rather than deficits, “is one of the deepest dangers we face.”

Galbraith maintains that “a big deficit-reduction program would destroy the economy, or what remains of it, two years into the Great Crisis.” He explains that there are two ways to spur economic growth. One is for government to spend and the other is for banks to lend. Government spending has an advantage over private lending because it puts money in private pockets. Private households get more cash and own that cash free and clear. “Bankers don’t like budget deficits because they compete with bank loans as a source of growth,” Galbraith writes.

But aren’t deficits bad? Shouldn’t we be concerned about our government failing to live within its means just as we would for our own families? “In these matters,” Galbraith says, “the public and private sectors differ on a very basic point. Your family needs income in order to pay its debts. Your government does not.”

“With government,” Galbraith continues, “the risk of nonpayment does not exist. Government spends money (and pays interest) simply by typing numbers into a computer. Since it is the source of money, government can’t run out. Too much spending, net of taxes, may lead to inflation, often via currency depreciation — though with the world in recession, that’s not an immediate risk.”

Galbraith goes on to dispel the myths that public debt is a burden on future generations and that we should be concerned about indebtedness to foreigners, China in particular. He also notes that just as the government cannot go bankrupt, neither can government programs like Social Security and Medicare. Fears about the solvency of these programs are “part of one of the great misinformation campaigns of all time.”

Galbraith, by the way, is not some wild-eyed radical. The son of renowned economist John Kenneth Galbraith, he is a professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. His article, “In Defense of Deficits,” offers, at the least, a refreshing counterbalance to the deficit fears that have been driving much of the policy debate over social programs lately.

To read Galbraith’s article, click here.

After a year of legislative wrangling and premature forecasts of death, historic legislation overhauling the nation’s health care system has passed the Congress and been signed into law by President Obama. Among the provisions of interest to seniors and the disabled is the nation’s first publicly funded national long-term care insurance program, the Community Living Assistance Services and Supports (CLASS) Act.

To read ElderLawAnswers’ article on the new law, click here.

We recently received an e-mail from a reader complaining that even though her mother is continuing to work past age 70 1/2, her mother is still required to take the required minimum distribution from her retirement plan.  The reader’s thought is that if her mother is not retired, why shouldn’t she be able to postpone these withdrawals and postpone paying taxes on them?

This is a question that an increasing number of seniors are likely to ask as they continue to work, either due to financial necessity or a desire to stay busy and useful.

The answer has to do with the purpose of the tax benefits offered by retirement plans.  Whether through an employer-based 401(k) plan or an IRA, workers are permitted to defer paying taxes on their income to the extent they set aside such income for their retirement.   In addition, taxes on the earnings on savings in these plans are deferred as well.  There are limits to how much may be set aside each year, since the tax benefit is for retirement savings only.  In short, the aim is that the funds should not be overfunded with more money than the worker needs for retirement.

Since the funds are set aside for retirement, the law requires that they be withdrawn beginning in the year after the taxpayer turns 70 1/2, with a minimum amount taken out each year based on the taxpayer’s life expectancy.  As the reader’s mother is older and has a lower life expectancy, she must withdraw a greater percentage of the fund.  Withdrawals are taxed as income when they are withdrawn.

Those continuing to work after age 70 1/2 can still contribute to their retirement plans, but they also must take out their age-based minimum distributions.  This helps protect the plans from being overfunded with substantially more than they will need when they retire.

Of course, as with most laws, they are designed for the majority, not for the individual.  The individual who is still working because she does not have enough funds for her retirement might well benefit from a waiver of the minimum distribution rules.  The problem is devising a system that can distinguish between those who need more retirement funds and those who are saving tax-free to pass on more to their children and grandchildren.

Our most recent survey on the ElderLawAnswers website asks whether users favor job creation or deficit reduction.  Almost 60 percent favor deficit reduction.

Of course, the survey question by necessity over-simplifies a complex issue.  Most everyone would like to have both job creation and deficit reduction.  And, in the long run, deficit reduction may improve the health of our economy and contribute to greater employment.

Most economists argue that it makes sense to run deficits in times of recession in order to boost the economy, but that the long-term commitments facing our government are unsustainable.

Finally, where agreement generally falls apart has to do with the question of how deficit reduction should be accomplished, whether through budget cuts or tax increases.  And even if we agree on a mixture of the two, there’s little hope for agreement on which items to cut and whose taxes to raise.  No wonder there’s gridlock in Washington!

On Thursday, December 3rd, the House of Representatives voted 225 to 200 to fix the estate tax at this year’s level with a $3.5 million exemption and a 45 percent maximum rate. This is far from becoming law, but it’s the strongest indication that we have so far of where Congress is heading.

As readers of this blog undoubtedly know, if Congress fails to act, under current law the estates of those dying in 2010 will not be subject to tax no matter their size and then the exemption will ratchet back to $1 million for those dying on or after January 1, 2011.

Since this law was enacted early in the Bush administration, everyone has expected Congress to act long before now to enact a permanent policy, whether repeal of the estate tax or fixing the exemption somewhere between $1 million and $5 million. (I’ve long predicted a $2 million exemption.) One theory as to why Congress has not acted is that members have collected 100s of millions of dollars they’ve collected in campaign contributions over the years, primarily from the very rich families hoping for an outright repeal.

In any event, the House bill is a long way from becoming law. The Senate has to vote as well and if its bill doesn’t match the House bill, both houses of Congress will have to vote on a compromise bill.

So why do I think the House bill needs to be fixed? Primarily because the exemption is too high. Fewer than 1 percent of estates exceed $3.5 million, which works out to $7 million for a married couple who do basic estate tax planning. The federal government is running an unsustainable deficit.

While estate tax revenues are not a large part of the federal revenue, they’re not insignificant. If they are reduced they will have to be made up by increasing income taxes or increased borrowing to be paid by future generations. Neither approach is equitable.

To argue that those who accumulate more than $2 million during their lives ($4 million for a married couple) should not contribute to the nation that provided the environment in which they could be so succesful is difficult to countenance. But politics can bring strange results.

We’ll have to wait and see what Congress decides. While one would expect an answer before January 1st, when even the largest estates can avoid all taxes, there has been some talk recently that Congress will not act until sometime in 2010, but make the law apply retroactively to all estates of those dying on or after January 1st.