Student Loan Debt Implications for Older Adults

Many older adults are subject to student loan debt. Some con-sign or guarantee the debt of a student family member without understanding the implications.

The following article was written by Margaret Stockdale, an attorney with my law firm Marshall, Parker and Weber.

Unfortunately, as the cost of higher education rises, the number of individuals with student load debt is increasing exponentially. As these debts increase, many individuals are forced to factor them in to their estate plan. According to the Consumer Finance Protection Bureau, between 2012 and 2017, the number of individuals, over the age of 60, borrowing money for education increased by at least 20 percent. While some of these borrowers were doing so for their own benefit, almost 73% of them were taking out student loans for the education of a child or grandchild.

The first step in incorporating these student loan debts in to your estate plan is to determine what type of loans you have. Student loans are characterized as either federal or private. What happens to your student loans at your death depends on the type of loan. It is important to determine the character of your student loans so that you can reduce the chance of your estate being on the hook for the remaining balance at the time of your death.

For example, if you die with federal student loan debt it will be discharged. Therefore, federal student loan debt will not pass on to anyone else. The federal student loans in your name at the time of your death will be discharged after presenting a certified death certificate to the company.

In addition to the generic federal student loans, there is something known as Parent PLUS Loans. Parent PLUS Loans are signed and taken on by the parents of a student. Therefore, when either the parent or student dies, the loan will be discharged in the same nature as discussed above. However, if the student should pre-decease the parent, he or she may experience a negative consequence of the debt discharge. Following the death of the student, the parent will receive a 1099-C form from the IRS notifying them of the discharge, and that amount will be treated as taxable income.

Private loans, on the other hand, are not as easy to incorporate in to your basic estate plan. Certain loan companies will offer discharge of student loan debt upon the death of the borrower, but others will not. More often than not, private student loan debt will be treated as any other type of debt, and the lender can make a claim against your estate at the time of your death. A caveat to this situation is that if the loan is in the name of the decedent alone, then the family will generally not be considered liable for the amount.

In many situations, a parent or grandparent will become a cosigner on a student’s loans. Unlike a family member who is not involved, a cosigner will be liable to continue paying the student loan debt after the student is deceased, regardless of whether or not the loan is federal or private. Not only will a cosigner be liable for the debt, but upon the death of a cosigner the company can place the loan in default and the entire balance may be due immediately.

           Due to the potential outcomes of signing on as a cosigner, you should carefully consider this decision before moving forward. Defaulting on a student loan can lead to many negative consequences for each individual who cosigned. Defaulting cannot only mean having to work longer or delaying retirement plans, but it can even affect your Social Security benefits. If you default on a federal loan, the government is able to take up to 15% of your social security check, each month, as long as that does not bring the amount below $750. This will occur until the debt is paid off, as there is no statute of limitations on student loan debt.

          While it may seem intimidating, it is important to remember that having student loan debt does not make planning for your future impossible. Rather, it may function as motivation to sort out your estate plan a head of time to make retirement age, and your eventual passing, easier to navigate. For more information on how to deal with your particular student loans and the potential complications, please visit the Consumer Financial Protection Bureau at https://www.consumerfinance.gov/about-us/blog/four-tips-help-older-student-loan-borrowers-navigate-common-problems-their-student-loans/. 

Staying Out of Trouble when you are Power of Attorney, Trustee or Guardian

At various times during my life I have had the responsibility of helping an aging relative pay their bills and handle their investments. I have been authorized to perform this financial caregiving either as a trustee or as an agent acting under a power of attorney. I can testify from personal experience that helping another person with their financial affairs can be very complicated and time-consuming.

Managing someone else’s money is difficult even for an experienced elder law attorney who understands the laws governing powers of attorney and fiduciary duties. The complications and risks mount for family members who don’t have this kind of knowledge and experience.

Millions of Americans find themselves in circumstances that require them to help a loved-one with finances. They may be authorized to act pursuant to a power of attorney signed by the care recipient. The Consumer Financial Protection Bureau (CFPB) reports that about 22 million people age 60 or older have named someone in a power of attorney to make financial decisions for them. Other older adults receive financial caregiving from guardians, representative payees, trustees, joint account owners and others. Sometimes the support is provided by family members acting without any legal authority at all.  Many younger disabled adults also receive financial caregiving help.

These situations are fraught with peril for the person providing the help. The laws are complicated and strict and the helper can be held both financially and criminally liable for mis-steps. 

Where can the average American get information about their duties and responsibilities and how to stay out of trouble when managing someone else’s money? One good starting point is to look at the free guides published by the Consumer Financial Protection Bureau (CFPB)

The guides are for agents under a power of attorney, court-appointed guardians of property, trustees, and government benefit fiduciaries (Social Security representative payees and VA fiduciaries). The guides help financial caregivers by walking them through their duties, providing tips on protecting their loved ones from financial exploitation and scams, and offering helpful resources.

The guides are described as being tailored to the needs of people in four different fiduciary roles as follows:

Power of Attorney

Guides for those who have been named in a power of attorney to make decisions about money and property for someone else. 

View the power of attorney guides here

Trustees

Guides for those who have been named as trustees under revocable living trusts.

View the guides for trustees here

Guardians

Guides for those who have been appointed by a court to be guardians of property or conservators, giving them the duty and the power to make financial decisions on someone’s behalf. 

View the guides for court-appointed guardians here

Government Fiduciaries

Guides for those who have been appointed by a government agency (e.g. Social Security or the VA) to manage another person's income benefits, such as Social Security or Veterans Affairs benefit checks. 

View the guides for government-appointed fiduciaries here

Older adults who are suffering from declining cognitive abilities are at greater risk of falling for scams. The guides contain tips on how to spot financial exploitation and avoid scams.

In addition to reading the guides, it makes sense to talk with an elder law attorney before you start to act as someone’s power of attorney or trustee. The services of an accountant may also be useful in setting up proper accounting and tax procedures.

The CFPB prepared the guides with the assistance of the American Bar Association’s Commission on Law and Aging.

Your Will can do much more than just Dispose of your Property

A Will is commonly defined as a document which disposes of a person’s property after their death. But   it can be much more than that, or sometimes less. A Will is also known as a “Last Will and Testament”.  

It is helpful to think of a Will as being a document that gives your instructions regarding things you want to happen after your death.

IIn addition to saying who gets the things you own, here are some examples of the kinds of instructions you can provide in your Will:

-         Name the person you want to be in charge of carrying out the instructions in your Wil (your Executor). This person will be responsible for wrapping up your affairs and making sure your instructions are followed.  Your Executor will be responsible for all sorts of tasks such as collecting the things you own or are owed, filing tax returns, paying your debts, closing credit cards and other accounts, accounting to your heirs, and ultimately distributing your estate in conformity with your directions.

-         Specify the people (Guardians) who will care for and raise your minor children.

-         Protect an heir’s eligibility for Medicaid, SSI and other public benefit programs.

-         Protect your child or other heir from losing their inheritance due to a bad marriage or financial problems.

-         Encourage heirs to engage in desired behavior (e.g. get a college education).

-         Maximize the use of tax exemptions and credits and give directions regarding the payment of taxes.

-         Create protective trusts for family members who are young, or spendthrift, or otherwise unable to manage an inheritance.

-         Protect your estate in the event that your surviving spouse remarries.

-         Make inheritance tax deductible gifts to charities.

-         Provide information and directions regarding your social media and other online accounts.

-         Resolve family disputes before they arise.

-         Put conditions or restrictions on inheritances.

-         Waive costly bonding requirements to save money.

-         Authorize the creation of custodial accounts for younger beneficiaries.

-         Disinherit someone.

-         Limit the term of a gift (e.g. for the life of the heir)

-         Empower your executor, trustee, and guardian to take certain actions without having to seek court approval.

-         Give someone the power to determine how to distribute money or items after your death.

-         Provide care for pets.

-         Give instructions for continuation of your business.

-         Specify who will receive a gift if the primary beneficiary is deceased.

-         Provide information about family heirlooms.

And more.  So, you see that a Will can involve a lot more than just saying who gets what.

In Pennsylvania a Will has to be in writing and be signed by the testator (the person whose Will it is) at the end thereof. See: 20 PA.C.S.A. §2502.  For historical reasons a Will is often referred to as a Last Will and Testament.  The term Will applied to dispositions of real property (e.g. the castle) and Testaments applied to the disposition of personal property (e.g. your sword). But the terms have now become inter-changeable.

Some documents that are called “Wills” are not.  For example, some people create so-called “Ethical Wills” to provide a statement of their values. But that is not a legal document. The poorly-named “Living Will” is a statement of a person’s desires for end-of-life care and has nothing to do with a Last Will and Testament.   

There are some post-death instructions that you should probably put somewhere other than in your Will. These include funeral and burial instructions because your Will may not be read until those tasks are complete. The same goes for anatomical gifts of body parts. And it is probably best not to defame someone in your Will. You may just expose your estate to liability.

Having a well drafted Will is not going to help you directly. You are going to be dead when its instructions become operative, but it can help your family immensely. You are doing a great kindness for your family and other heirs.   It can be a great loving gift to them. It can protect them, save them time and money, help them avoid destructive disputes, and be a way you can continue to care for them after you are gone.

A poorly drafted Will can create all sorts of problems.  See our earlier article: Don’t Try This at Home: Do-It-Yourself Wills are Dangerous for more on this topic.  Unless you are a lawyer with experience in estate planning and Will drafting, you should not do your own Will.

It is often said that your Will governs the ultimate distribution of the things you own after your death. But, if you are like many people, you own assets that are not initially controlled by the terms of your Will. These assets may include things you own jointly with other people and assets like life insurance, retirement plans, and annuities that have beneficiary designations. Your Will needs to be coordinated with these non-testamentary assets so that your overall estate plan meets your desires. Your elder law and estate planning lawyer can help you fit the pieces of the puzzle together.   

Being Mortal - A Book Review

One major benefit of being semi-retired is that I have more time to “read” audio books each day while I walk and exercise.  This is given me the opportunity to catch up on books I have long wanted to read (e.g. Steinbeck’s East of Eden) as well as more current titles.

I recently read a book that I’d like to recommend to other elder law attorneys as well as Physicians and anyone who is interested in aging and mortality.  The book is

Being Mortal: Medicine and What Matters in the End by Atul Gawande.

In this book Dr. Gawande explores the attitude of physicians and patients toward aging and death. If this sounds like a dreary reading experience, it is not. Dr. Gawande is a storyteller. His narrative of his experiences and the evolution of his views on what is important at the end of life is illustrated by stories drawn from the lives of his patients and his own family. Their stories turn this serious discussion into a compelling read.

The book recounts the development of Dr. Gawande’s attitude toward medical interventions at the end of life. He begins as a young surgeon who follows an informational approach to advising his patients about end of life treatment options. He would give them all the medical information he could, including discussion of aggressive treatment options that had virtually no realistic potential for success.  He would then ask the patient to choose. Without further guidance patients tend to choose to keep fighting for a chance at a cure (10 more years) through aggressive but futile treatment rather than choosing to accept the reality of mortality. Over time Dr. Gawande came to realize that his unguided informational approach overwhelmed his patients and led to the infliction of treatments that increased suffering and loss while having virtually no hope of improving or extending the patient’s life.

Through his experiences with his patients and family members, Dr. Gawande evolved to a more realistic and compassionate approach to counseling and treating patients with terminal conditions. He now focuses on listening to his patients to try to appreciate their priorities and figure out how medicine can help them attain their goals.

In his view, society and medicine do not have a good track record at helping people through the end of their lives. Dr Gawande overviews the history of the way our society has treated our frail elderly and dying – from the poor houses of a century past to more recent institutional oriented care in hospitals and nursing homes that he feels are too focused on patient safety rather than a meaningful existence. He tells the stories of pioneers who have sought to change the model in nursing home care (the Eden Alternative), assisted living, palliative care and hospice.  

These innovators asked a fundamental question: How do we give meaning to the last round of life for our   dying and their families. Dr. Gawande suggest that our emphasis on a medical-curative approach often robs our frail and dying of the opportunity to find meaning in their remaining days.   

 According to Gawande the Medical profession often makes the mistake of fighting for a longer life rather than for a better life – a life that has meaning and richness for the terminally ill. An overly medical approach can impoverish the end of life and cause useless suffering. It can even shorten the patient’s remaining time.

We teach our physicians how to treat their end of life patients by providing drugs and procedures rather than how to care for them. Caring involves listening and observing and determining the patient’s priorities. What makes the patient’s life worth living?  How important is it for the patient to avoid suffering, spend time in valued activities, or attend that daughter’s wedding? Will a potential intervention interfere with the patient’s priorities or lead to avoidable suffering? Our medical orientation is to do everything possible to extend life, not to ask what can we do to help the patient have their best possible day now given the limitations of their aging bodies and the waning of their lives.

Change is coming, but only slowly. It is true that more people are dying in hospice care. But Geriatrics is relatively low paid and lacking in prestige. And political polarization stands in the way of changing our approach to end of life. It was incredibly difficult just to get doctor/patient discussions about end of life authorized by Medicare. It was caught up in an irrational political controversy about “death panels” And in Pennsylvania we have struggled to pass legislation to provide education and training about Physician Orders regarding Life Sustaining Treatment (POLST). We are afraid of death and it shows. But death is part of being mortal.

It is hard to disagree with Gawande’s conclusion that we have over-medicalized and stripped meaning from aging and dying.  As care providers, aging professionals and advocates we need to do a better job of listening to our patients and allowing them to write their own story’s last chapter. Gawande’s Being Mortal provides a strong argument for change