Estate Planning Bits

Why women need an estate plan

Women experience unique economic realities. They tend to live longer and move in and out of the workforce due to career interruptions for child birth and elder parent care. This means that women often qualify for much lower pension benefits and receive lower Social Security benefits due to their years employed and salaries attained, which cannot be increased by the husband’s pension or social security if he experiences an untimely death.

Fewer years in the workforce, fewer years with a single employer, and lower pay are all factors that may contribute to a lower average pension for females, and Social Security benefits are calculated based on a person’s highest 35 years of earnings. If a benefit recipient does not have 35 years in the workforce, the Social Security Administration will add zero-earnings years to his or her record to equal 35 years.

Moreover, women often have diminished retirement savings due to the health care costs for the spouse who dies first, (usually the male.) Women most often become the caretaker for their husbands, which reaps immeasurable financial benefits by delaying the significant expense of nursing home care. But, who is there when the widowed wife needs assistance, as the average nursing home cost in Massachusetts is approximately $7,500.00?

Women must work with their husbands to implement a plan to ensure that the total health care and estate planning needs of their family is addressed. They should be guarded against the incapacity and the death of their spouse.

There are certain documents that are regarded as necessities for life in today’s active, uncertain society to protect loved ones:

• Durable Power of Attorney: This document that establishes who will attend to your financial decisions in the unfortunately event of your incapacity.
• Health Care Proxy: This document that ensures that medical decisions are carried out in accordance with your intentions in the event that you become mentally or physically disabled to the extent that you cannot make informed decisions on your own behalf.
• Will: This document provides for an orderly distribution of your assets.

However, the above documents are just the tip of the estate planning spectrum. It is also important that to consider Medicare and Medicaid (MassHealth in Massachusetts) planning, interplay between long-term care and financial planning, use of long-term care insurance and housing options and alternatives to nursing homes, to name a few.

By: Todd C. Ratner, Esquire

Your Medicaid application – a complex and complicated process

Elders are often concerned that the cost of long-term care will deplete their estates. Specifically, the cost of nursing home care in Massachusetts is now estimated at between $90,000.00 and $115,000.00 per year. As such, many elders turn to Medicaid, referred to as MassHealth in Massachusetts, which is a joint federal-state program that pays for nursing home care for individuals that meet their stringent financial eligibility rules.

The Medicaid application is often a difficult and time-consuming to complete. The long look-back period and the ever-changing use of asset protection techniques complicate the application process. The supporting documents necessary for a successful application include a birth certificate, health insurance cards and premium information, 36 months of bank statements, three years of tax returns, investment information and insurance policies, all income checks, expense information and trust documents.

Numerous practitioners compare the Medicaid application process to the complexity of the multi-year tax audit. Therefore, due to the complexity of the Medicaid application process, it is strongly encouraged to utilize an experienced elder law attorney with support staff who are specifically trained in the preparation and submission of Medicaid applications

By: Todd C. Ratner, Esquire

Medicaid: Estate recovery – Is your home in jeopardy after Medicaid Eligibility?

Created in 1965, Medicaid is a Federal Program that is designed to pay for the medical expenses of financially needy people. Individuals over the age of 65 are eligible for Medicaid if they meet certain income and resource tests. However, even if an applicant is approved for Medicaid benefits, that does not necessarily mean that Medicaid can’t recover the benefits previously provided to the Medicaid recipient.

Medicaid has the right to recover the value of the benefits it provided on your behalf after the age of 55 for community benefits, or at any age for long-term care or nursing home benefits. However, recovery is limited to your probate estate. Also, Medicaid can only pursue claims against your probate estate if there is no surviving spouse, no child under the age of 18 and no disabled child of any age.

If you own a home, Medicaid may place a lien on your house for the amount of funds expended on your behalf after you reach the age of 55. Pre-death Medicaid liens are simply notice liens. Medicaid has no claim against the real estate until you die. However, if your house is sold before your death, Medicaid can seek recovery from the proceeds of the sale.

Therefore, if you are planning to qualify for Medicaid, you should not only prepare to meet the Medicaid eligibility requirements, but also protect your assets, especially your home, prior to seeking Medicaid benefits.

By: Todd C. Ratner, Esquire

Earned Income Credit – a sometimes unclaimed benefit for the disabled

There are many disabled people in the United States who are not taking advantage of a credit offered to them by the Internal Revenue Service called the Earned Income Credit. This was originally provided as an anti-poverty program for hard working low income employees aimed at reducing taxes.

Many individuals who are disabled do not file a tax return, as they do not believe that they have made enough money to do so. However, by not filing a return, they may be failing to claim funds that may be due them through a tax credit. Rather than merely a reduction of earned income or an itemized deduction, this Earned Income Credit is a direct credit against the tax, if there is one, and if not, then the tax payer is entitled to receive a refund of this credit.

A qualified person may receive a credit up to $428, with a family of two or more children being able to receive up to $4,716! However, the credit is not going to be paid unless it is claimed on the return.

Many people may not be filing a tax return because they fear they will lose governmental benefits if they receive too much of a refund. Included in this situation are people with disabilities who receive supplemental security income (SSI) or Medicaid, since these people may not have more than $2,000 in assets, or possibly income above a certain level based on where they are living and what programs they are receiving. However, the earned income credit does not count as income in determining eligibility for benefits such as cash assistance, Medicaid, food stamps, SSI or public housing.

Naturally, there are limits for individuals to claim the refund, and for 2007, the calculations are as follows:

1. A person who has no children must have income below $12,590.
2. A person with a child must have income below $33,241.
3. A person with two or more children must have income below $37,783.

It is estimated according to 2000 Census, that there are over 22,000,000 individuals between the ages of 18 and 64 who have a disability. Approximately one-fourth of these individuals have total annual income of less than $15,000, and 83% of the people surveyed stated that they had never claimed an income tax credit.

The government designated January 31, 2008, as Earned Income Tax Credit Day. Each year, the government designates a day to attempt to encourage more people with disabilities to file their taxes and apply for the credit.

In order to claim this credit, a return must be filed, but if there is no availability to claim the credit by a person who may not be able to file their own return, they should attempt to contact their local disability center or senior citizen center, who should have the forms available to file the return online. By filing an online return, the person may have their credit deposited directly into their bank account, and thus be more expeditious than if a manual check has to be issued.

By: Hyman G. Darling, Esq.

Concerns of the Sandwich Generation

An estimated 16 million Americans find themselves sandwiched between two generations, struggling to raise their children while caring for an aging loved one. These Americans are commonly referred to as the “sandwich generation,” and they are especially stressed over the combination of caring for aging parents, raising their children and planning for their own retirement.

When it comes to the topic of inheritances, many Americans of the sandwich generation say that money is not everything. On the contrary, many of them say their parents' personal items are often as or more important to them.

To address this, a Memorandum may be executed in conjunction with your parents' or your own Will. This is a list of personal property, and it can provide for the property's distribution among your family members or other individuals. Although this document does not create a legal or equitable obligation, as it is not offered for probate as part of your parents' Will, it does express their intent. Since desires regarding the transition of personal keepsakes are often not communicated to heirs, a Memorandum can hopefully eliminate disputes between heirs regarding intent as to who should inherit these personal items.

Those within the sandwich generation must also concern themselves with the disposition of their parents' financial matters; however, discussing personal finances is taboo in many families. Perhaps another approach could be to ask your aging parents how they hope to live out the rest of their lives, their dreams and goals, and worries and concerns prior to discussing more sensitive issues like money, estate planning and their health and welfare.

If you are unable to get through to your aging parents, you may suggest that they talk to their legal or financial advisor about their future. Planning to preserve your aging parents' hard earned accumulated assets for the sake of your children and future generations is not improper. Estate planning not only preserves wealth for succeeding generations; it also gives your aging parent satisfaction and peace of mind.

It is also a good idea to work with your parents to prepare a record of essential financial, legal and medical information. Specifically, you want to include information regarding bank accounts, investment holdings, insurance policy numbers, company names, estate planning documents and professional financial advisors.

Additional concerns of the sandwich generation include funding college savings, contributing to a son or daughter's wedding or other life expenses, and paying for nursing home care for an elderly parent, all the while saving for retirement. You may wish to research a 529 Plan for your children or grandchildren. This is an education savings plan operated by a state or educational institution and designed to help families set aside funds for future college costs. As long as the plan satisfies a few basic requirements, you will enjoy special tax benefits.

By: Todd C. Ratner, Esquire

Jointly held assets- beware potentially negative consequences

The addition of someone’s name to an asset held by you can be performed quite easily. However, the implications of this simple action can be profound. It is imperative that you understand the potential issues involved, which include, but are not limited to, estate, gift and capital gain taxation, creditor protection, probate avoidance, long term care and Medicaid (currently known in the Commonwealth of Massachusetts as MassHealth.)

A carefully drafted estate plan can take advantage of placing assets in a jointly held account. Jointly-held property is inherited by the surviving joint-owner(s) and, hence, eliminates the need for that particular asset to go through the probate process. Additionally, any joint owner can write checks on a jointly-held bank account, even after the death or disability of the other owner.

Assets, other than bank accounts, that are held in joint names can sometimes be considered inaccessible by MassHealth, and therefore not subject to the spend-down process. However, a haphazardly drafted estate plan that improperly places assets into a co-owner’s name can have disastrous results.

At the time of death, jointly-held assets are inherited directly by the surviving joint owner(s,) and a Will typically does not take those jointly-held assets into account when the total inheritance is divided amongst the beneficiaries. Therefore, inheritances are often skewed toward the surviving joint-owners.

In addition, on many bank accounts, each joint owner(s) has the right to withdraw everything from the account without the other joint-owner’(s) permission. Furthermore, jointly-held assets are exposed to lawsuits by creditors and divorcing spouses of each joint-owner. On the real estate side, adding another to a deed can have significant capital gain consequences.

Therefore, it is advisable to speak with an experienced estate planning attorney to verify that your assets are owned properly, as the consequences of an improper ownership can be considerable.

By: Todd C. Ratner, Esquire

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

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

Top 3 Medicaid Planning Myths

It’s amazing how many non-legal “estate planning experts” are out there. Perhaps some of them are your friends and relatives. There are a lot of stories about what “they did” to save assets for a family member when that person was about to enter a nursing home. Here are the top 3 myths that I wish to dispel in the hope that I can help present a clearer understanding of the rules:

“I have to sell my house because my husband/wife is in a nursing home.” Even under the Deficit Reduction Act of 2005, which changed the rules dramatically, a house is exempt so long as there is a spouse, disabled child or dependent child living in it.

In some cases and in some states, the state will put a lien on the house that will have to be paid back after the surviving spouse dies or moves out. However, there are exceptions that allow the surviving spouse to sell the house and buy another home or buy into a continuing care retirement community or other, similar situation.

In any event, the state does not take the house, but rather, the house may have to be sold to pay nursing home expenses if the person is single and was living in it. Again, there are exceptions to the rule about the requirements for a single person to sell the house, but the proceeds are used to pay the nursing home, not the state.

Upon the homeowner’s death, if the house is not exempt, it may have to be sold to pay back the state for the amount of care the state paid the nursing home while the resident was on Medicaid.

“My bank account is joint, and therefore, it is protected.” No! This is absolutely not true. The amount of money in a bank account held by a joint owner is deemed to be joint for convenience only. Unless it can be proven that the co-owner, (probably a child,) contributed his or her own money into the account, it will be deemed 100% to be owned by the parent, and all funds have to be used to pay nursing home expenses.

One-half of the account balance is not exempt unless it can be proven that the child’s money actually was deposited into the account. The legal implication of a name added to an account, (even if that happened more than 5 years before the person entered the nursing home,) is that the parent still has the right to withdraw all of the funds from the account, so it is not a gift. The gift does not really occur until the parent dies, at which time the funds are then transferred to the co-owner. Since the parent has not parted irrevocably with the assets in the account, none of the funds are exempt.

“I can give away $10,000.00 free.” Once again, this is not the case. The $10,000.00 threshold was the amount a person could give away tax-free on an annual basis to as many people as he or she desires. This amount is currently $12,000.00, but it has nothing to do with asset protection planning, as any amount gifted now has a 5-year waiting period before the funds are protected for long-term care expenses to be paid by the state. As reported in prior postings, the taxing authorities and Medicaid authorities have different sets of rules, which are mutually independent of each other. Therefore, a gift of $12,000.00 to a child is not protected for Medicaid expenses until 5 years have passed since the date of the gift.

Naturally, there are exceptions and exemptions to all of the general rules, which should be viewed by a professional, not your friend, neighbor or relative. Many techniques successful implemented as planning standards many years ago are no longer protected by the ever-changing rules.

By: Hyman G. Darling, Esquire

Annuities – new Federal restrictions limit their asset protection potential

Annuity can be a wonderful product in some cases. It is important to note however, that they are not right for everyone. Many sellers of annuities including financial advisors, brokers, banks, insurance companies, and sometimes other persons or entities who have licenses to sell products, recommend annuities to their clients.

In the past, an annuity was sold primarily for one of two reasons. One is for the purpose of deferring income. A deferred annuity accumulates earnings tax deferred until the funds are withdrawn either by the owner or the beneficiary. The other type of annuity is sold as an immediate annuity where the owner receives income for either a certain period of years or guaranteed for his or her lifetime. This is beneficial if someone wishes to have a fixed income and sure that they have enough funds to live on for the rest of their life.

In the past, many annuities were sold with the underlying “guarantee” that if the owner became institutionalized, the funds would then be protected for long-term care or to assure that the funds would not have to be paid to the nursing home. The Deficit Reduction Act of 2005, which was passed in February of 2006, and is now more clearly understood with updated regulations and clarification, changes that.

Now, not only will the income interest of a single person have to be paid to the nursing home, but also, the beneficiary of the annuity must be changed to make the beneficiary the State if the owner has received Medicaid benefits. Therefore, the annuity income interest received by the owner during his or her lifetime is construed to be income, and this income must be paid to the nursing home as part of the patient paid amount.

Formerly, when the owner died, the beneficiary would be family, who would receive any remaining balance of the annuity. But now, the Federal government has ruled that the beneficiary must be the State Medicaid agency. Therefore, any funds left as the balance of an annuity must be paid to the State as reimbursement for the amount that the Medicaid agency paid for the recipient’s nursing home care.

While this amount may still be less than the individual would have paid privately, the significant benefit formerly reaped no longer exists. In many cases, however, this may be the only significant opportunity to save money in the unfortunate event of a nursing home institutionalization without any prior proper planning.

It is also very important to make sure that the person selling the annuity has a complete and full understanding of how the annuity must be established in order to qualify for benefits when they are needed. This includes proper ownership and beneficiary, as well as making sure that the annuity is irrevocable and non-assignable. Care should be taken when purchasing the annuity to ensure that not only the advisor has a good working knowledge of annuities, but also that good legal and tax counsel is obtained to cover all other related legal and tax issues, as well as making sure that the Medicaid authorities will approve the annuity when an application is made for benefits.

By: Hyman G. Darling, Esquire