Firms Must Offer Retired Persons Health Insurance
QUESTION: I am employed by a large company with far more than 20 employees. I will be eligible to retire on Social Security as a widow at age 60, but I cannot get Medicare until I reach age 65. That leaves me with five years without medical coverage. Can I receive medical insurance coverage from my employer even after I retire?--G. M. R.
ANSWER: Yes, you can be covered immediately after retirement by your employer’s medical insurance plan. Under the Consolidated Omnibus Budget Reconciliation Act of 1986, better known as COBRA, companies employing at least 20 workers are required to offer health insurance to former employees for 18 months after retirement. The law specifies that the employer may not charge the retiree more than 2% above the group insurance rate paid by the company.
You have a few choices for the three years remaining until you qualify for Medicare. However, none are likely to be as financially advantageous as the extended coverage under COBRA.
For starters, COBRA allows you to apply for an individual health insurance policy from your company’s insurance carrier without providing proof of insurability--that is, a health examination or other suitability test. You must apply for an individual policy in the final six months of your extended coverage from your former employer. But, the cost of your policy is likely to be higher than what you would pay under COBRA.
Another choice is simply to shop for an individual policy. However, you will no doubt be required to submit to a health examination. And the cost of such a policy could be significantly higher than what you have been used to paying through your employer.
Q: My sister and I purchased a condo in Mission Viejo last year. The price was $118,000. I contributed $22,000 to the down payment, while my sister contributed $10,000. She lives there and makes the house payment and pays the association dues and the taxes. I wonder if our 50-50 ownership is fair. The deed to the house lists us as tenants in common. Is it necessary to have anything else formally written up? We are both content at this time. However, I wonder if it appears that I have the better end of the arrangement.--C. B.
A: We took your question to a few certified public accountants in Southern California for a more educated assessment. In their unanimous opinions, the arrangement with your sister seems pretty fair to both of you.
Here’s how they evaluated it. In exchange for your $22,000 contribution to the down payment, you are able to deduct half of the interest payments and half of the property taxes from your income taxes. You also stand to reap half of any profits when the condo is sold.
Our experts say that even though you are not actually paying the mortgage and property taxes, you are entitled to half the deduction for these items because they are your obligations, not your sister’s. “You can’t pay someone else’s bills and get a writeoff for it,” says Robert Sullivan, a partner with the Los Angeles accounting firm of Stonefield & Josephson. Sullivan says the fact that your sister is making your half of the payment can be construed as a “gift” to you. It can also be viewed as her repaying you the $12,000 difference between the amounts each of you contributed to the down payment on the condo.
For her part, our experts say your sister has gotten a home as well as a chance to share any profit on the sale of the condo. And because the condo is your sister’s home, if she uses the profit to purchase another principal residence, she shouldn’t have to pay any income taxes on the profit. (You, however, will have to report your share of the net profit as income.)
When the condo is sold, our experts suggest that the following method of distributing the proceeds would be most fair. First, each of you should be repaid your respective down payments. Then, your sister should be given whatever amount she has repaid on the loan principal. The remainder should then be split evenly. Finally, our experts strongly urge you to put your agreement into a formally written contract. There is no reason for ambiguity over your arrangement to sour both your business and family relationships.
Q: My son inherited some stocks when his father died. When he sells these, what cost should he use in calculating the capital gain or loss he must report to the Internal Revenue Service?--J. L.
A: Most probably your son would use the “fair market value”--the closing price on the stock exchange--on the date of his father’s death. This method of valuation typically suffices for small- and medium-size estates. However, in the case of an estate of more than $600,000, where the IRS requires the filing of an estate tax return, the executor may choose to value the securities either as of the date of death or the “alternate valuation date,” which is generally six months after the death of the donor. For more information, consult IRS Publication 559, “Tax Information for Survivors, Executors and Administrators.”
Unfortunately, the answer in last week’s column about reporting gifts to the Internal Revenue Service was more confusing than clarifying. Let’s try again.
A reader wanted to know if he had to report a $20,000 gift that his wife made to their daughter if they considered the gift to be made “jointly,” not just by his wife. We responded correctly that the IRS would allow this couple to treat the $20,000 as a joint gift even though it came from the wife’s separate funds.
However, an IRS spokesman was in error when he told us that this couple would be required to report the gift on their tax forms. The correct answer is that this couple is not required to file a Form 709A with the IRS because the gift does not exceed the $10,000 that each taxpayer is allowed to give tax-free to another individual each year.
