Charlotte had several grown children, and from time to time she would give the children money. Sometimes she called it a gift, but sometimes she called it a loan. A few of the “loans” were small, but sometimes they were $25,000 or more, such as when a child was starting a business.

Sometimes the children promised to pay the money back, but they didn’t say when. Sometimes Charlotte called something a “loan,” but it was clear she didn’t really expect repayment.

That all sounds innocent enough…but the fact is that gifts and loans like these can have important tax implications. Anyone who provides significant amounts of money to children or other family members should be sure to discuss the matter with an estate planner.

For example: If you give more than $14,000 in a calendar year to anyone other than a spouse, the excess might be subject to gift tax. While you might (or might not) owe anything that year to the IRS, the excess gift could affect your estate tax planning. So it matters whether something is a gift or a loan. If you want the IRS to treat it as a loan, you’ll probably want to be able toprove it was a loan…such as by signing a loan agreement with a repayment schedule.

You should also be aware that if you loan someone more than $10,000 and don’t ask for interest, the IRS can “impute” interest. It can then treat this imputed interest as taxable income.

Even with low interest rates, interest can be significant. Suppose a child borrows $40,000 at 4 percent simple interest. Over 15 years, that’s $24,000 in interest.

Now suppose that Charlotte dies, and one child discovers that another child received a $50,000 loan and never paid it back. The first child might demand that the second child repay the loan, or that the amount of the second child’s inheritance be reduced by $50,000. This could lead to family bitterness, and possibly even a lawsuit.

The bottom line: If you’re going to offer money to children or other family members, it’s wise to be clear about whether it’s a gift or a loan…and if it’s a loan, when you expect repayment and whether you expect interest.

Also, you should say in your will what happens if a loan hasn’t been repaid when you die. You can decide that the loan doesn’t have to be repaid, or that the loan amount will be deducted from the inheritance the person would otherwise receive, or some combination of the two. But the important thing is to be clear, so your heirs won’t be left wondering and won’t be inclined to squabble.

Congress has temporarily revived a law that lets you make charitable donations directly from your IRA, which might provide some significant tax advantages.

But the “IRA charitable rollover” will be allowed only until the end of 2013, so if you think this might benefit you, you should take advantage of it this year.

If you’re over the age of 70½, you’re required to take minimum distributions each year from your IRA, and you have to pay income tax on those distributions. But the “rollover” law lets you transfer assets from your IRA to a charity, and whatever amount you transfer reduces the amount you’re required to withdraw. So if you’re required to withdraw $20,000 in 2013, but you instead donate $20,000 to charity, you don’t have to withdraw any funds for yourself, and you don’t have to pay any income tax.

Note that you will not get a charitable deduction on your taxes for the amount you donate in this way. However, you might still come out ahead, because you won’t be subject to the “phase-out” of charitable deductions for higher-income taxpayers or the alternative minimum tax.

Also, donating to charity directly from an IRA results in a lower adjusted gross income than taking an IRA distribution and then donating the money to charity. A lower adjusted gross income can have a number of advantages, such as reduced Medicare premiums and possible avoidance of the 3.8% surtax on investment income.

To qualify, you must contact the plan custodian and have the custodian transfer the assets directly to the charity. If the custodian sends you the funds and then you give them to the charity, you’ll have to pay income tax on the distribution.

For 2013, you can give up to $100,000 to charity from an IRA. You can donate to any traditional charity, except for a donor-advised fund.

(Roth IRAs are different because they aren’t subject to the minimum distribution rules. So this technique is best used with a standard IRA.)

Three big changes in the way that trusts are taxed starting in 2013 are making it far more important to be careful about trust distributions.

A trust’s income and capital gains will now be taxed very differently – and much more heavily – than income and capital gains for individuals. As a result, you’ll want to think very carefully about how you arrange distributions. And you might also want to have any existing trusts reviewed to see if changes can be made that would make it easier to save taxes.

The big changes are:

• Starting in 2013, the top income tax rate is 39.6%, and the top rate for short-term capital gains is also 39.6%. Those rates apply to income over $450,000 for married couples and $400,000 for singles. But for trusts, those rates apply to all income over $11,950! So even though the new 39.6% rates are meant to apply only to people with very high incomes, they will also apply to trusts even at very small incomes.
• The top long-term capital gains tax rate has been raised from 15% to 20%. Again, the new rate applies to income over $450,000 for married couples and $400,000 for singles. But for trusts, the new rate applies if the trust’s taxable income is more than $11,950.
• The new 3.8% surtax on investment income, which kicks in this year as part of the Obamacare law, applies to people with income over $250,000 for married couples and $200,000 for singles. But – you guessed it – it applies to trusts with taxable income over $11,950.

In the past, there were often advantages to accumulating income and capital gains within a trust rather than distributing the funds to beneficiaries. But now, the opposite will often be the case – there will be a tax advantage in distributing income and gains, because the beneficiaries will be taxed on them at a much lower rate than the trust would be.

In many cases, it will be wise to make “strategic” distributions, particularly when a beneficiary has losses during the year against which a capital gain can be offset.

Sometimes, trust distributions can be made in the first two months of a calendar year and have them count tax-wise for the previous year, so it may be possible to “run the numbers” at the end of each year and figure out how to make year-end distributions with the best possible tax result.

In some cases, rather than having a trust sell shares of stock and then distribute the proceeds, it might be smarter to distribute the shares directly to the beneficiaries, and have the beneficiaries sell the shares.

On the other hand, if a trust is set up to protect children, making large distributions to them purely for tax reasons might defeat the point of the trust. There might also be a problem if a trust is set up to benefit someone with special needs, because of the interplay between trust distributions and various government programs designed to help such individuals.

And there might be other reasons not to distribute income or gains in a trust. For instance, the trust might have been set up to benefit a person who isn’t able to handle large sums of money. Or leaving assets in a trust might protect those assets during a divorce or from a beneficiary’s creditors.

In situations such as these, where there’s a good reason to accumulate income in a trust, there might be some techniques that could reduce the tax bite. These include:

Different investments. Trusts that are currently set up to produce a lot of income could be reoriented with more of a buy-and-hold, growth-oriented strategy.

Tax-free options. The 3.8% surtax on investment income doesn’t apply to certain types of investments, such as Treasury bonds, municipal bonds, and life insurance.

Charitable donations. Trusts can reduce the 3.8% surtax by making direct gifts to charity, something that’s not true of individuals who receive trust distributions and then make charitable donations.

One problem is that trusts created in the past, before the new tax law came along, may have been set up in such a way that these options aren’t allowed. For instance, a trust might not permit the trustee to make charitable gifts or to invest for growth instead of income. So if you’re in such a situation, it might be wise to have your trust documents reviewed to see if the terms can be changed in a way that will minimize the tax burden.

People typically buy long-term care insurance years before they need it. As a result, they’re taking a gamble that the company will still be around when it’s time to pay out. What happens if the company goes out of business?

Usually, insurance companies don’t just suddenly shut their doors. Most commonly, another insurance company will buy out or absorb a company that’s in trouble, and the new company will honor the old company’s policies.

But in cases where an insurance company simply fails, every state has an insurance guaranty association that protects consumers. The purpose of this association is to take over the policies of an insurance company that’s experiencing financial difficulties and ensure that claims are paid. The guaranty association may provide insurance coverage directly to consumers, or it may facilitate the sale of the policies to another insurance company. It’s also possible that policyholders will be given the opportunity to cash in their policies.

The downside of the state guaranty association is that it provides coverage only up to a certain limit. Each state caps the maximum amount its association will pay out, and the figure is typically between $100,000 and $500,000 per policy, with most states offering about $300,000.

If your policy is purchased by another company or is taken over by a guaranty association, be sure to continue paying your premiums, because failing to do so could result in the policy’s termination.

A nursing home agreement is a binding contract that typically involves a large amount of money. Just as with a real estate contract, it’s wise to have an attorney review the agreement before you sign it, so you can understand exactly what your rights and responsibilities will be.

That can be especially true if you’re signing a contract for an aging relative. For instance, you’ll want to know to what extent you might become personally responsible to pay for your relative’s care.

In one recent case, Judy Andrien signed an admission agreement with a nursing home in Connecticut on behalf of her mother. Judy signed the contract as a “responsible relative,” and she agreed to pay the nursing home out of her mother’s assets and assist in arranging for Medicaid coverage.

The contract didn’t require Judy to personally guarantee payment to the nursing home out of her own pocket. However, it did say that Judy could become personally liable if she did anything that interfered with her mother’s Medicaid eligibility, or if she failed to arrange payment to the home from her mother’s assets.

Eventually a dispute arose, and the nursing home sued Judy personally for payment. Judy argued that she was protected by a state law that says a nursing home can’t require a third party to guarantee payment as a condition of admission.

But the Connecticut Superior Court refused to throw the suit out. According to the court, the agreement was valid because it didn’t directly require Judy to guarantee payment. The court said Judy could still be sued personally for “breach of contract” if she failed to live up to her promises to pay the home out of her mother’s assets and to assist in obtaining Medicaid benefits.

Before you sign any contract with a nursing home, be sure you fully understand what your obligations are and what might happen to you if something goes wrong.

Here’s some good news for people who live in – or are thinking of entering – a “continuing care retirement community.” These are communities for older people that provide an entire continuum of care, from independent living to nursing home, so that residents can “age in place” and not have to move elsewhere if their faculties start to diminish.

These communities are an appealing option, but they can be very expensive. The good news is that there is a tax break that could help defray the costs.

When moving into a community, residents typically sign a contract that includes a hefty entrance fee, which might or might not be refundable. Residents pay a monthly fee as well. Entry fees can run from $20,000 to more than $500,000, with monthly charges ranging from $200 to $3,500 or more.

The tax break stems from the fact that if your medical expenses are more than 7.5 percent of your adjusted gross income (or 10 percent if you’re under age 65), you may be able to deduct some health care costs on your taxes.

Because continuing-care communities provide a full range of health services, when you enter a long-term contract with one, the IRS considers that part of your fee is a prepayment of future health care expenses. Therefore, it’s possible that you can deduct at least part of your entrance fee and your monthly fees.

The key is that it doesn’t matter how much health care you actually receive in a given year. The percentage of your fees that is considered a prepayment of health care expenses depends on the overall, aggregate percentage of the community’s expenses that goes toward health care. This percentage varies from community to community, but is often in the 30 to 40 percent range. (Your community should be able to provide you with its exact figure.)

The deduction generally works with regard to the entrance fee only if the fee is non-refundable. However, if the entrance fee is only partially non-refundable, you might be able to take a deduction based on the non-refundable portion.

You should also know that if children or other family members help a resident to pay the entrance fee or monthly expenses, they might also be eligible for the tax break.

Long-term care insurance may soon be getting more expensive for women. That’s because two of the country’s biggest long-term care insurance providers have announced plans to introduce “gender-based” pricing.

The simple fact is that, on average, women live longer than men. Life insurance has long recognized this fact, and life insurance premiums typically vary based on gender.  However, long-term care insurance has always been gender-neutral.

This started changing recently when Genworth Financial decided to charge more for policies purchased by single women. John Hancock quickly followed suit, and other insurers are likely to fall in line.

Genworth hasn’t said how much it will raise rates for women, but according to the American Association for Long-Term Care Insurance, women will likely end up paying 20 to 40 percent more than men.

Women not only tend to live longer than men, but they also file more long-term insurance claims, and their claims are for longer periods. About two-thirds of all long-term care insurance payouts are made to women, according to the Association.

Genworth’s new rates won’t apply to existing policyholders or to married couples who apply for joint insurance. (Insurance companies usually give married couples a discount on rates.)

Several other companies also have gender-specific pricing requests on file with state regulators, and some of them plan to charge more to a married woman who outlives her spouse.

The gender-based increases will be on top of recent rate hikes for long-term care insurance in general. Over the past five years, premiums have risen between 30 and 50 percent.

The Affordable Care Act requires gender-neutral pricing for health insurance, but it doesn’t apply to long-term care insurance. However, Colorado and Montana have specific laws requiring unisex insurance rates, so the long-term care rate changes presumably won’t take effect there.

Applying for Social Security can seem easy, but there are actually a great many options and choices, and figuring out which one works best for you often requires a lot of strategizing.

For instance, the longer you wait to apply for Social Security, the higher the monthly benefit you’ll receive.

Depending on what year you were born, Social Security calculates what it considers your “full” retirement age. If you claim benefits before that age, Social Security penalizes you by reducing your benefit. If you claim benefits after that age, Social Security rewards you with “delayed retirement credits” and a significantly larger benefit.

So you’ll need to decide if it makes sense to apply sooner, and receive a smaller monthly check for the rest of your life, or wait and apply later, when you’ll be eligible for a larger amount.

If you’re married, things get much more complicated. That’s because spouses can choose to receive benefits based on their own work history or based on their spouse’s work history, or both at different times. Plus, spouses usually are of slightly different ages, so they reach “full” retirement age at different points.

Here are two popular strategies that spouses sometimes use to maximize their payments:

•  “Free spousal benefits.” If you’ve been married for at least 10 years, you’ve reached full retirement age, and your spouse has applied for benefits, you’re entitled to collect a “free spousal” benefit equal to 50% of the amount your spouse receives. You can collect this amount without applying for your own benefit, which means that you can build up “delayed retirement credits.” At some point, you can switch from the free spousal benefit to your own benefit, at which time your monthly amount will be considerably larger than it would have been if you’d applied for your own benefit earlier.

Example: Bob and Mary have both reached their full retirement age of 66. Bob files for his monthly benefit of $2,000. Mary could file for her own monthly benefit of $900. Instead, she claims “free spousal” benefits of $1,000/month (half of Bob’s benefit). She builds up delayed retirement credits, and when she finally applies for her own benefit at age 70, she could receive hundreds of dollars extra per month for the rest of her life.

•  “File and suspend.” You’re eligible for free spousal benefits only if your spouse has applied for his or her own benefits. But what if your spouse doesn’t want to apply for benefits now – because he or she wants to keep working and building up his or her own delayed retirement credits?

The solution is called “file and suspend.” Your spouse files for benefits now, but “suspends” them until some point in the future. The result is that your spouse continues to build up delayed retirement credits, but he or she has “filed,” which means that you can now receive free spousal benefits.

Example: Bill and Sue have both reached their full retirement age of 66. If they applied for benefits now, Sue would get $2,200/month, and Bill would get $800. Sue wants to keep working. So Sue applies for benefits now and immediately suspends them. Bill can then receive free spousal benefits of $1,100/month, and both spouses can build up delayed retirement credits until they eventually apply for their own benefits.

While it may sound complicated to file for one spouse’s benefits, apply for free spousal benefits for the other spouse, and then suspend the first spouse’s benefits, it can be done in one visit to your Social Security office.

Here’s a wrinkle, though: If you apply for free spousal benefits before you reach your own full retirement age, Social Security will give you those benefits or benefits based on your own work record, whichever is more. And if you receive benefits based on your own work record, you can’t continue to build up delayed retirement credits.

So this strategy works best if (1) you wait until full retirement age, or (2) your free spousal benefits are larger than your benefits based on your own work history.

As you can see, choosing the best way to apply for Social Security can be very complicated. That’s why it’s smart to talk to an attorney who can advise you on the best possible strategy for your specific situation.

A growing number of websites now allow people to plug in information about themselves and write their own will. But doing so can be very dangerous and can lead to big problems, according to an independent review by Consumer Reports.

The magazine analyzed three such sites – LegalZoom, Rocket Lawyer, and Quicken WillMaker Plus – and ran the results by a law professor who specializes in tax and estate law. All three websites had a variety of problems, according to the study.

The problems included:

Outdated information. Two sites applied federal tax rules that were already months out-of-date.

Not state-specific. The law of wills varies from state to state, but the programs didn’t take into account variations in state law.

No tax advice. None of the programs offered tailored advice on how to reduce taxes – a critical flaw.
Incomplete. The websites often lacked provisions on how to handle business interests, electronic assets, trusts for children with special needs, trusts for pet care, domestic partnerships, multiple trustees, etc.

No flexibility. The websites frequently made arbitrary choices and didn’t allow bequests to be handled differently. And some added additional provisions to trusts without any warning.

The professor described one will produced by Rocket Lawyer as “primitive,” and another as “a mess.”

The magazine noted that LegalZoom allows you to pay extra money to receive attorney “support,” but when it contacted the company, it was told to type questions about arbitrary or missing provisions into a box and that these would be handled later in a hard copy of the will. According to the magazine, even though it paid the extra fee, this never happened.

Using a do-it-yourself website to write a will can be “like removing your own appendix,” according to the Consumer Reportsarticle. There’s simply no substitute for a lawyer who can understand your wishes and goals, and provide legal and tax advice that’s suited to your specific needs.

Many people incorrectly believe that once seniors enter a nursing home, their freedom is over. In fact, nursing home residents have many rights, and it is important to know those rights and to be able to enforce them.

Nursing home residents’ rights are protected under federal law. In broad terms, nursing homes are required to ensure that every resident be given whatever services are necessary to function at the highest level possible. Here are some of the specific protections that residents have:

• Residents have a right to privacy in all aspects of their care. This means that phone calls and mail should be private, and residents should be able to close doors and windows.
• Residents may bring belongings from home, and nursing home staff members are required to assist residents in protecting those belongings.
• Residents have the right to go to bed and get up when they choose, eat a variety of snacks outside meal times, decide what to wear, choose activities, and decide how to spend their time. The nursing home must offer a choice at main meals, because individual tastes and needs vary.
• Residents have the right to leave the nursing home and belong to any church or social group they choose.
• Residents must be allowed to participate in planning their care.
• Residents have a right to manage their own financial affairs.
• Residents may not be moved to a different room, a different nursing home, a hospital, back home, or anywhere else without advance notice and an opportunity for appeal.

If a disagreement with the nursing home does arise, there are a number of steps you can take to enforce the resident’s rights. The first step is to talk to the nursing home staff directly. This may be all it takes to solve the problem. If that doesn’t work, then you may need to talk to a supervisor or administrator.

If you’re still unable to resolve the issue, the next step is to contact the ombudsperson assigned to the nursing home. He or she may be able to intervene and get an appropriate result. You can find contact information for the Ombudsman Program in your state at: www.ltcombudsman.org/ombudsman.

Additional steps include reporting the nursing home to its licensing agency and hiring a geriatric care manager to intervene. If the direct approach isn’t working, you may need to hire a lawyer to resolve the issue. The last resort is to move the resident to a different facility.