This FEDZONE column is the second of three FEDZONE columns presenting the financial considerations of owning two residences in retirement. The first column discussed choosing owning versus renting a second residence and determining legal domicile. This column discusses health care issues and estate planning considerations.
Health Care Issues
For many retirees, health care issues during retirement are a major concern. This is always the case when a retiree lives in one residence throughout the year. But owing two residences in retirement and living in each resident at various times of the year raises additional health care issues.
The first health care issue when owning two residences in retirement is assuring the availability of adequate health care in the geographical area in which each residence is located. If a retiree is in need of specialized medical care, the retiree should make sure that both geographical areas have adequate specialists and facilities to treat the retiree. A related issue is coordination of care between the specialists at the two retirement residence locations.
If a retiree has a medical condition that necessitates ongoing care, it is important that care providers at both resident locations are in communication. This can be a challenge. While most consumers and businesses have long since moved past the use of FAX machines, it is estimated that at least 70 percent of health care providers still exchange information via FAX machines. In short, the retiree has to provide sufficient advance notice to assure that care providers at both locations are sharing information via FAX and coordinating their health care services to the retiree. This includes following up with providers to confirm ongoing communications.
For many retirees who live in two residences, a challenging and complex health care related issue is health insurance. For federal retirees, a key health insurance decision revolves around Medicare. Significant decisions need to be made when a federal retiree first enrolls in Medicare, usually at age 65. For a federal retiree who lives in two residences, the decisions regarding Medicare enrollment are more complex, particularly if the retiree is enrolled in a Medicare Advantage Plan.
Medicare Advantage Plans utilizing PPOs and HMOs that are geographically concentrated present a concern. Seniors cannot always choose when in the year and in which location they are living they will need doctor and hospital care. Any out-of-network doctor and hospital care at the second retirement residence location could wipe out the cost savings associated with a Medicare Advantage Plan.
Federal retirees enrolled in the Federal Employees Health Benefit (FEHB) program and who live in two residences are advised to enroll in Medicare Parts A and B only (the “original” Medicare), together with enrollment in an FEHB program health insurance plan (the Medicare Supplement Plan). In particular, a preferred provider organization (PPO) plan. This gives the retiree more choices and better access to medical services in both locations, without unexpected costs beyond their premium.
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Estate Planning Considerations
Federal retirees who have two residences are advised to review their estate planning documents. If they plan to change their legal domicile, their estate planning documents will need to be updated.
The first FEDZONE column discussed financial considerations of owning two residences in retirement discussed and presented some suggestions of establishing legal domicile. One way a retiree can prove a change in legal domicile for tax purposes is to create a will in the county and state in which the retiree plans to declare primary residency. The following example illustrate:
Howard, age 68, recently retired from federal service. He has lived in Maryland for the past 40 years. He owns a condominium in Maryland which he plans to keep but is moving to Florida. In addition to changing his car registration, voter registration and other indications of intent to establish residency in Florida, Howard intends to destroy his Maryland will and create a new will in his Florida county of residence. Upon Howard’s death, his will be filed for probate in his Florida county of residence. This is the case no matter where Howard dies, in Florida in Maryland.
Other estate planning documents call for different treatment, including a financial and a medical power of attorney (POA), living will, and a health care directive. In the example above, Howard is advised to have a financial and medical power of attorney, health care directives and a living will in both states. These documents would be physically located in both states.
The writing of the financial and medical powers of attorney, a living will, and a health care directive requires the services of an estate attorney in each state in which the retiree plans to be living during retirement. It makes no difference which state is the retiree’s legal domicile. This is because each state has different requirements and rules when it comes to these estate planning documents.
There are other estate planning issues to consider when two residences are involved, especially when it comes to married individuals. A married couple are allowed different options as to how to hold title to their personal residences. For example, holding title as joint tenancy with rights of survivorship or as tenancy by the entireties. Some states allow married couples to make a timely filing for the state’s homestead exemption. A homestead exemption provides not only property tax savings, but also protection from creditors.
Some states are community property states. These states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Community property means that spouses who acquire property during marriage own property equally. A retired married couple establishing a second residence in a community property state needs to carefully determine how they want their newly acquired common property to be titled going forward after they establish legal domicile in that state.
Another consideration is the tax issues when a retiree dies. States may not only want to tax the resident retiree’s income while the retiree was living but may also want to tax the estate. Legal domicile may be challenged by one of the residence states upon the retiree’s death.
Needless to say, these estate planning and tax issues affecting retirees having two residences in different states require retirees to seek the services of competent estate attorneys and tax professionals in these states.
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Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.