Estate Planning Bits

Disabled adult children – do they lose benefits when their parents die or retire?

In many cases, a child receives Medicaid benefits if he/she is disabled before the age of 22. These benefits are normally based on the work record of the parents, who are otherwise disabled, retired or deceased. The amount of the benefit is generally calculated based on the parents’ social security records, as the child will receive a percentage of their social security benefits. This is referred to as the Social Security Disabled Adult Children’s Benefit (DAC.)

If the child is receiving Supplemental Security Income (SSI,) this is generally based on the fact that he or she has nominal assets and also nominal income. But the child may lose these benefits when DAC benefits are approved, since these are usually significantly higher.

It should be noted that if a person has been receiving SSI payments, they probably also are receiving some type of Medicaid benefits, and if they are otherwise disabled, they may also be receiving Medicare benefits that cover a significant portion of their medical expenses. Once SSI is lost, Medicaid benefits may also be lost in some cases, which is significant since in many instances the child needs medical benefits more than cash benefits.

However, many advocates for the disabled pushed Congress to make a change to address this dilemma. As a result, if a person is receiving “too much” DAC benefit and loses SSI benefits, he/she may still be entitled to receive Medicaid benefits if the following requirements are still met:

• The child is unmarried or married to another beneficiary who is receiving DAC benefits
• The child lost benefits for SSI after July 1, 1987 because of the increase in DAC benefits
• The child was disabled before the age of 22
• The child would be currently eligible for SSI benefits except for the DAC benefit that caused the SSI benefits plus subsequent increases to be lost.

With most government programs, a person must qualify for benefits based on need and financial status. The above cites a good example of the interrelation between different governmental programs within a single agency and their exceptions. Attention must always be paid to changes in the programs, and either a review with the official from Social Security or competent counsel should be made frequently to ensure that all benefits of all programs are available to the individual.

By: Hyman G. Darling, Esquire

Will contests – it’s just not fair!

When my children were little, one of their favorite expressions was, “But it’s just not fair.” And I often hear the same protest from a potential client who wishes to object to a loved one’s will on the grounds that they were either promised something, the will was supposed to have been rewritten, or the terms are not fair.

Unfortunately, in most cases, the message that I have to give in response is, “You are right, but the law in will contests is such that you don’t have a case.”

In will contests in most states, it is fairly clear that a will may be objected to only on certain grounds. The first is undue influence. This is proven when (1) the person who wrote the will was susceptible to being unduly influenced, (2) the person who exerted undue influence had the opportunity to do so, and (3) the person exerting this undue influence had enough control over the will signer to cause the will to be drafted in accordance with provisions that were not intended.

Normally the opponent or contestant of the will has the obligation to prove that the will should be overturned, but in some cases, when the person who exerted the influence had a relationship with the will signer that was of a nature and relationship that could be construed to be a fiduciary or more than special relationship, the burden may shift to the proponent of the will to prove that they did not in fact exert undue influence.

An example could be somebody who was living with the decedent, such as a child, caregiver, or a close neighbor who had control and the opportunity to speak with the decedent sufficiently enough to be able to coerce the person to change their will. It could also be a person who is acting as health care proxy and power of attorney, or someone upon whom the decedent relied sufficiently to either feel dependent or otherwise controlled.

A second opportunity to contest a will is one in which the testator/testatrix was not of sound mind. In this situation, it would have to be proven that at the time the will was signed, the testator/testatrix was not able to make decisions with a total soundness of mind such that the will signed changed prior provisions, changed asset distribution proportions or created an unnatural distribution of assets to people who shouldn’t be included.

The evidence required to establish this mental incapacity is normally determined by a physician who knew the testator/testatrix and can produce medical testimony to conclusively establish capacity or incapacity of the decedent. This is often very difficult, since it is highly unlikely that the will was signed on the same day that the physician saw the decedent. Nevertheless, this is the best evidence that may be brought to the court. All medical records, physicians, nurses and other medical personnel who may have known or had any interaction with the decedent will certainly be required to testify as witnesses for either the opponent or the proponent of the will.

Another opportunity to contest a will is the allegation that fraud upon the decedent was exercised. Examples of this are that the person did not know they were signing a will, or that the document they were asked to sign was purported to be other papers or documents.

Fraud would also be exercised by telling the decedent something that was not true about a potential beneficiary, which in turn caused the decedent to reduce an inheritance left to that person or possibly to eliminate them. Examples of this would be saying that a child was merely sticking around to gain their inheritance, or a potential beneficiary had intentions of giving money to their spouse, who the decedent may dislike, which may then cause the testator/testatrix to eliminate that person from their will.

A final challenge to a will could be based on the fact that it was not signed properly. In most states, witnesses must be present at the same time of the execution of the will and actually see the decedent sign their will or designate another person to sign it for them. If the formalities of the signing do not complied with the law, the will may fail as a valid document. In these situations, it is necessary to investigate the will signing by deposing the witnesses and possibly the lawyer or delegated staff who attended to the will execution to conclusively establish whether all parties were in the room and paying attention to the signer when the document was executed.

In many states, a probate judge will hear a will contest as opposed to having a jury determine the validity of a will. In addition, it must be noted that the standard of proof with evidence may also vary in a will contest. In a typical civil suit, the test would normally be a fair preponderance of the evidence. In a criminal case, the determining test is beyond a reasonable doubt. In a will contest, the standard of proof is clear and convincing evidence. Therefore, this will be a greater test than the civil standard, but less than a criminal standard. The scales of justice will have to be tilted more than just a fraction to nullify a will based on the clear and convincing evidence test.

Of course, there are always exceptions to the evidence rules, standard of proof and other factors which may vary from court to court or state to state. However, before attempting to challenge a will, it should be reviewed to determine whether it contains a so-called “no contest clause,” which may also eliminate a person’s right to inherit merely by making a challenge against it. In some states, this has been determined to be non-enforceable, but it should be reviewed. Also, hopefully anyone who now reads this post will realize that just because a promise was made, or somebody else got more or less, it does not mean that your challenge to a will is going to be successful, even if the will is “not fair.”

By: Hyman G. Darling, Esquire

Viatical Settlements and Living Benefits - little known life insurance cash-out options

Viatical Settlement

Although life insurance is usually bought for need, there is an interesting and relatively new option for disposing of life insurance before the death benefit is paid called the viatical settlement.

This is basically the sale of a life insurance policy to someone who is purchasing it as an investment. The buyer considers the mortality of the insured and bets that that person will die sooner rather than later.

Normally, the buyer will have the insured examined to determine his or her potential life expectancy and then “bid” on the policy. Please note that the seller need not be the insured, but could be the spouse, an irrevocable trust, the children, etc., who may be in financial need and not wish to wait for the death benefit to be paid, or possibly do not have the funds to pay the ongoing premium.

Rather than having the policy merely lapse, or cash the policy out for the current value, or borrow against the cash value, it may be preferable to sell the policy and receive more funds in return than what is otherwise available from the insurance company. In some states, viatical settlement dealers must be licensed or meet other legal requirements or at least comply with insurance commissioner regulations.

When a person sells his or her policy, the proceeds are first treated as a return of the investment, which is the cost basis in the contract. To the extent that any additional funds are received over the basis of the property paid into the policy, these are construed to be capital gains.

Living Benefit

There are also companies that are now allowing a person to have an additional benefit called an accelerated death benefit. This is a “living” benefit that allows a person to receive their benefits before death, which may allow them to remain home, obtain additional care and focus on living rather than dying.

There is usually an additional rider or premium that has to be paid for this benefit on the policy. Some policies, however, provide this at no additional cost, as it is merely built into the cost of the insurance itself.

If a person is determined to be chronically or terminally ill, then the physician must determine that they have an illness or physical condition that usually predicts that the person will pass away within 24-months of the date of certification. Once this occurs, the company will then consider providing for the benefits to the insured, which are normally not considered to be taxable income.

However, if the insured is not the owner of the policy, then his or her receipt of funds will be construed to be taxable income. To be excluded from income, the payment must be used for costs that are incurred for qualified medical/long-term care services and also made on a periodic basis without regard to the costs of care.

These two options are relatively new, and they may take some time to process after the insured determines that one is a viable alternative and then proceeds with the underwriting, medical examinations and give and take with the purchaser of the policy. In the event that it is taking longer to deal with a viatical settlement than anticipated, the policy could always be borrowed against, and the purchase of the policy could be renegotiated based on the lesser value in the policy in the future.

By: Hyman G. Darling, Esquire

Insurance policy check-up – do you have what you need?

It is important to review all of your insurance periodically to assure that they are in place and up-to-date. Honestly, reading this post will not be tortuous.

Homeowner’s Insurance: You should review your policy to determine if it has enough coverage to rebuild your property and replace its contents. Guaranteed replacement cost is not terribly expensive, and it should be considered in this type of situation. If you simply buy coverage equal to what you paid for your home or current market value, then your insurance coverage might be significantly less than it should be. In the event of a total or catastrophic loss, you will not receive what you need to rebuild your home.

In addition, be sure that you have at least $300,000 of liability insurance in case somebody slips and falls on your property. And if you have any domestic animals, you should check with your carrier to be sure that a dog bite or similar issue will be covered by your policy.

Life Insurance: Life insurance is purchased to fulfill a need, such as paying off a mortgage, educating children, creating funds to pay taxes, etc. Often businesses with multiple owners buy life insurance so that if one dies, his or her partner will not have to be forced to sell the business or obtain a loan to buy-out the other owner’s heirs.

Term Life Insurance: There are many types of life insurance, but the most popular for a younger person is a term insurance policy, which produces no cash value. It is straight insurance that provides only a death benefit. It is estimated that over 95% of these policies never pay off, as a person either cancels the policy prior to his family receiving the death benefit, or an increasing premium becomes too high, or the policy merely lapses.

Whole Life Insurance: Whole life insurance provides for a cash value to be built up in the policy and is usually more expensive than term. This permanent insurance policy provides a death benefit as long as the insured has paid the premium. Usually, this policy’s premium remains constant.

Long-term Care Insurance (nursing home insurance): You may wish to remain home and never be institutionalized, or if you are institutionalized, you may not wish to have your own funds spent on your care. This type of insurance policy will provide for in-home as well as nursing home care, and if you are over the age of 50, you should consider buying it.

At the time that this is being written, I would suggest you own nothing less than a five-year policy, since there is a five-year waiting period to qualify for Medicaid benefits if any gifts are transferred. This means that you will have a 5-year timeframe, from the time of the institutionalization or illness, to transfer your assets to family, friends, etc. Then, when the policy stops paying at the end of five years, you will be impoverished, and Medicaid will cover the cost of your care.

Naturally, if yours is a husband/wife situation, or you’re part of an unmarried or same-sex couple, a policy should be taken out on each party to cover the cost of care so that the other person will not have to spend their money for long-term care expenses.

Disability Insurance: Unfortunately, there is a fairly high possibility that you may be disabled and be unable to work. In this case, your ability to provide for your family and pay your mortgage, health insurance premiums and other necessities might be quite difficult. In order to alleviate this situation, you should consider disability insurance to cover a portion of your lost wages. Many companies provide a short-term disability benefit, but may not provide a long-term benefit.

Auto Insurance: You should review your auto insurance policy to determine if your accident coverage is sufficient, especially if the other driver is an uninsured motorist. Also, the other driver may not have good limits of liability, so you may want to have your policy provide supplemental coverage. There are lots of “bells and whistles” in all insurances, especially in car insurance, so it is important to have your agent explain the exact amount of coverage that you have so you can make a decision if it’s enough. In order to try and save money by increasing the coverage in other areas on your policy, also consider increasing the deductible, you may offset the additional premium caused by increasing coverage by also increasing your deductible.

Umbrella Policy: An umbrella policy, usually within a minimum coverage of $1 million, will cover you in the event of a significant claim. This is in addition to all other policies. This will provide enough assurance that if you are sued, (and liable,) you will have enough coverage to take care of the claim. This is relatively inexpensive for what you receive, but you may have to obtain minimum thresholds on your other policies before obtaining an umbrella policy.

By: Hyman G. Darling, Esquire

Long Term Care Insurance Update

Now that the Deficit Reduction Act has been in existence for over a year, most states have enacted regulations or laws that define the extended waiting period for long-term care benefits paid by the State. Regardless of the value or intention of gifts, in many cases, a five-year waiting period for eligibility for Federal and State long-term care benefits remains a concern for most individuals who have assets that must be used for their care, even if the assets have been gifted within the previous five years.

In order to protect your assets without having to give them away, one option is to purchase long-term care insurance. This covers the cost of nursing home or in-home care in the unfortunate event that you require services.

One of the benefits of long-term care insurance is that you don’t have to give away your assets until you need services or become incapacitated. Then, presuming you have a policy that provided at least five years of coverage, you may gift your assets. Your care will be covered by your insurance company for the 5-year look-back/waiting period, and upon termination of that coverage, you will then potentially qualify for Medicaid.

In the event that you’re not able to make the gift yourself at the time of institutionalization, your attorney-in-fact, who is the person named under your durable power of attorney, will hopefully have the authority to make gifts and transfers on your behalf.

The benefits that you should consider when purchasing your long-term care insurance policy will be determined by your income, tolerance for paying premiums, and the value of the assets you want to preserve. In several states, there is a so-called “partnership” plan, which means if you have minimum coverage, such as $200,000, then you will be able to maintain $200,000 worth of assets without any penalty or waiting period.

In Massachusetts, for example, if a certain minimum coverage is maintained at the time of institutionalization, then assets such as your home may be protected regardless of their value, providing that the coverage at the time of institutionalization meets the requirements of the State Medicaid office.

While long-term care insurance is touted as a significant benefit, many people should consider it a requirement similar to life, homeowner’s and disability insurance. This includes singles, married couples and individuals in same sex marriages or unions, since, in many cases, your assets will have to be used to pay for care prior to the government stepping up to the plate to provide any coverage. It is very important that the proper amount of coverage be purchased.

By: Hyman G. Darling, Esquire