EHDH Estate Planning

Is a Medicaid Annuity a Good Idea?

What happens when one spouse needs nursing home care? Medicare typically does not cover long-term care.  The current median monthly cost of a private room at a nursing home is about $8,000, according to the recent article “A ‘Medicaid annuity’ may be a useful option when your spouse needs nursing home care” from CNBC. For people with limited assets and income, Medicaid will pay.

However, what about families who have some assets but are not wealthy enough to be able to pay for their care without leaving the well spouse impoverished? It is a common situation, which requires advance planning. Elder law attorneys work with families to determine what options are available.

For some families, spending down assets by paying off debt or making purchases to qualify is one way. For others, buying a Medicaid Compliant Immediate Annuity is another. This allows the couple to convert countable assets for Medicaid purposes into an income stream for the well spouse.

Medicaid Compliant Annuities are complex financial instruments and are not for everyone. They are often used in a crisis situation, when there are no other options.

Medicaid has a five-year look-back period in most states. The program reviews all assets and transactions from the prior five years to make sure assets were not transferred out of ownership solely so the person can qualify for Medicaid.

All assets are counted, whether they are owned by the ill spouse or the well spouse. The limits on assets, which include cash, investments and bank accounts, among others, vary slightly by state. However, they can be as low as $2,000. An experienced elder law attorney helps to navigate this process.

For a married couple, in some states, the healthy spouse may have up to $137,400 in total assets. Anything above that is considered available to use for long-term care. Some states have limits on income, while other states do not count the healthy spouse’s income.

If a couple has $100,000 above the state’s asset cap, they can purchase an annuity payable to the well spouse, based on their own life expectancy. For the annuity to be Medicaid compliant, it must meet several requirements. The state has to be named the remainder beneficiary for at least the amount Medicaid paid for the sick spouse’s nursing home care. The annuity must be an immediate annuity, meaning the income stream begins immediately, and it must be irrevocable.

Medicaid programs are run by the state, so each state has its own rules, asset limits, etc. A detailed conversation with a local elder law attorney with experience with Medicaid will be necessary. There are some states that do not allow the use of annuities for Medicaid planning.

Reference: CNBC (Jan. 26, 2022) “A ‘Medicaid annuity’ may be a useful option when your spouse needs nursing home care”

What Is the Social Security Increase for 2022?

The Social Security Administration has announced a record-high COLA (Cost of Living Adjustment) for 2022, and recipients are eager to calculate just what this means for their monthly Social Security benefit. How to estimate the increase is the focus of the article “Social Security cost-of-living adjustment will give average retirees $92 more a month in 2022. How to estimate how much you’ll get” from CNBC.

The COLA for 2022 for Social Security or Supplemental Security Income (SSI) will be 5.9%. More than 64 million Americans will see their benefits increase in January, as will about 8 million recipients of SSI benefits.

The annual adjustment is based on inflation. While this is the highest increase since 1982, consumer prices have gone up as well, so the extra may not go very far. Experts say the average increase will be about $92—from $1,565 in 2021 to $1,657 in 2022. However, every beneficiary will see a different size of increase, mainly due to Medicare Part B premiums.

Payments for Medicare Part B are usually deducted directly from monthly benefits. Not everyone has Medicare Part B coverage, especially if they are still covered under an employer health plan or if they haven’t yet reached Medicare eligibility, age 65 for many.

The standard Medicare Part B premium is projected to be up by ten dollars from $148.50 to $158.60 per month, but rates have not been officially announced.

For those who are not covered by Medicare Part B, multiply the monthly benefit by 1.059 to approximate benefits for next year.

If you are covered by Medicare Part B, subtract $10 from the same calculation to get close to what your monthly payment for 2022 might be.

But—there’s always a “but”—people with incomes above certain levels will pay more for Medicare Part B. This is because of the Income-Related Monthly Adjustment Amount, or IRMAA. A new table for Medicare Part B premiums for 2022 has not yet been released.

Social Security and SSI beneficiaries will be notified by mail in December, and the information will also be available on the My Social Security website.

New benefits for 2022 won’t be calculated for those covered by Medicare until after premiums for next year are announced. Those changes will be available, once they’ve been completed at Medicare.gov.

Reference: CNBC (Oct. 22, 2021) “Social Security cost-of-living adjustment will give average retirees $92 more a month in 2022. How to estimate how much you’ll get”

How Does Medicaid Count Assets?

For seniors and their families, figuring out how Medicaid works usually happens when an emergency occurs, and things have to be done in a hurry. This is when expensive mistakes happen. Understanding how Medicaid counts assets, which determines eligibility, is better done in advance, says the article “It’s important to understand how Medicaid counts your resources” from The News-Enterprise.

Medicaid is available to people with limited income and assets and is used most commonly to pay for long-term care in nursing homes. This is different from Medicare, which pays for some rehabilitation services, but not for long-term care.

Eligibility is based on income and assets. If you are unable to pay for care in full, you will need to pay nearly all of your income towards care and only then will Medicaid cover the rest. Assets are counted to determine whether you have non-income sources to pay for care.

Married people are treated differently than individuals. A married couple’s assets are counted in total, regardless of whether the couple owns assets jointly or individually. The assets are then split, with each spouse considered to own half of the assets for counting purposes only. Married couples have some additional asset exemptions as well.

Not all resources are considered countable. Prepaid funeral expenses, a car used to transport the person in the care family and qualified retirement accounts may be exempt from Medicaid’s countable asset limits.

For married couples, their residence for a “Community Spouse”—the spouse still living at home, and a large sum of liquid assets, are also excluded. Many non-countable assets are very specific to the individual situation or current events. For example, stimulus checks were exempt assets, but only for a limited time.

Medicaid sets a “snapshot” date to determine asset balances because some assets change daily. For unmarried individuals, all asset protections and spend-downs must happen prior to submitting the application to Medicaid. A detailed explanation must be included, especially if any assets were transferred within five years of the application.

For married couples, a Resource Assessment Request should be submitted to Medicaid before any action is taken. This document details all resources Medicaid will count and specifies exactly how much of these resources must be “spent down” by the institutionalized spouse for eligibility.

In many cases, assets are preserved by turning the countable asset into a non-countable income stream to the spouse remaining at home.

Medicaid application is a complicated process and should be started as soon as it becomes clear that a person will need to enter a facility. Understanding options early in the process makes it more likely that property and assets can be preserved, especially for the spouse who remains at home.

Reference: The News-Enterprise (Oct. 5, 2021) “It’s important to understand how Medicaid counts your resources”

Key Dates for Planning Retirement

Just as there are many types of retirement benefits, there are many dates to keep in mind when creating a retirement plan. Some concern when you can make larger contributions to retirement accounts and others have to do with withdrawals. Knowing the dates for each matters to your retirement planning, according to the recent article title “10 Important Ages for Retirement Planning” from U.S. News & World Report.

When should you max out retirement savings contributions? The sooner you start saving for retirement, the more likely you’ll retire with robust tax-deferred accounts. Tax breaks and employer matches add up, as do compounding interest returns. The 401(k) contribution limit in 2021 is $19,500. Wage earners can deposit up to $6,000 in a traditional IRA or Roth IRA. If you’re in your peak earning years, traditional IRAs and 401(k)s may be better, since your tax bracket is likely higher to be higher than when you started out.

Catch-up contributions begin at age 50. Once you’ve turned 50, you can make catch up contributions to 401(k)s—up to $6,500—and up to $7,000 in traditional IRAs. That’s for 2021. If you’re able to take advantage of these contributions, you can put away additional money and qualify for even bigger tax deductions.

401(k) withdrawals could start at 55. If you left your job in the same year you hit the double nickel, you can take 401(k) withdrawals penalty-free from the account associated with your most recent job. The “Rule of 55” lets you avoid a 10% early penalty, but you’ll still have to pay income taxes on any withdrawals from a 401(k) account. However, if you roll a 401(k) account balance into an IRA, you’ll need to wait until age 59½ to take IRA withdrawals without any penalties.

When does the IRA retirement age begin? The magic number is 59½. However, traditional IRA distributions are not required until age 72. All traditional IRA withdrawals are also taxable.

Social Security eligibility begins at age 62. The earlier you start collecting Social Security, the smaller your monthly benefit. Your full retirement age depends upon your date of birth, when the benefit amount will be higher than at age 62. If you work after signing up for Social Security, your benefits could be temporarily withheld if your salary is higher than the annual earnings limit. If you retire before your full retirement age and earn more than $18,960 per year, for every $2 above this amount, your benefits will be reduced by $1. Benefits will be recalculated once you reach full retirement age.

Medicare eligibility begins at age 65. Enrollment in Medicare may take place during a seven-month period that begins three months before the month you turn 65. Signing up on time matters, because Medicare Part B premiums increase by 10% for every 12-month period you were eligible for benefits but failed to enroll. Are you delaying enrollment because you or your spouse is still covered by a group health plan at work? Make sure to sign up within eight months of leaving your job or health plan and avoid the penalty.

Social Security Full Retirement Age is 66 for most Baby Boomers. 67 is the full retirement age for workers born in 1960 or later. Millennials and younger generations qualify after age 67.

If you can wait until 70, you’ll max out on Social Security. Social Security benefits increase by 8% for each year you wait to start payments between Full Retirement Age and age 70. After age 70, the number remains the same.

RMDs begin for 401(k) and IRA retirement accounts at age 72. These mistakes here are expensive! Your first distribution must be taken by April 1 of the year you turn 72. After that, annual withdrawals from 401(k)s and traditional IRAs must be taken by December 31 of each year. Missing a required distribution and you’ll get hit with a nasty 50% of the amount that you should have withdrawn.

Reference: U.S. News & World Report (July 28, 2021) “10 Important Ages for Retirement Planning”

Fraudsters Continue to Target Elderly

The National Council on Aging reports that seniors lose an estimated $3 billion to financial scams, which is the worst possible time in life to lose money. There’s simply no time to replace the money. Why scammers target the elderly is easy to understand, as reported in the article “Scam Alert: 4 Types of Fraud That Target the Elderly (and How to Beat Them)” from Kiplinger. People who are 50 years and older hold 83% of the wealth in America, and households headed by people 70 years and up have the highest median net worth. That is where the money is.

The other factor: seniors were raised to mind their manners. An older American may feel it’s rude to hang up on a fast-talking scammer, who will take advantage of their hesitation. Lonely seniors are also happy to talk with someone. Scammers also target widows or divorced older women, thinking they are more vulnerable.

Here are the most common types of scams today:

Imposter scams. The thief pretends to be someone you can trust to trick you into giving them your personal information like a password, access to a bank account or Social Security number. This category includes phone calls pretending to be from the Social Security Administration or the IRS. They often threaten arrest or legal action. Neither the IRS nor the SSA ever call people to ask for personal information. Hang up!

Medicare representative. A person calls claiming to be a representative from Medicare to get older people to provide personal information. Medicare won’t call to ask for your Social Security number or to obtain bank information to give you new benefits. Phone scammers are able to “spoof” their phone numbers—what may appear on your caller ID as a legitimate office is not actually a call coming from the agency. Before you give any information, hang up. If you have questions, call Medicare yourself.

Lottery and sweepstakes scams. These prey on the fear of running out of money during retirement. These scams happen by phone, email and snail mail, congratulating the recipient with news that they have won a huge lottery or sweepstakes, but the only way to access the prize is by paying a fee. The scammers might even send a paper check to cover the cost of the fee, but that check will bounce. Once you’ve sent the fee money, they’ll pocket it and be gone.

What can you do to protect yourself and your loved ones? Conversations between generations about money become even more important as we age. If an elderly parent talks up a new friend who is going to help them, a red flag should go up. If they are convinced that they are getting a great deal, or a windfall of money from a contest, talk with them about how realistic they are being. Make sure they know that the IRS, Medicare and Social Security does not call to ask for personal information.

For those who have not been able to see elderly parents because of the pandemic, this summer may reveal a lot of what has occurred in the last year. If you are concerned that they have been the victims of a scam, start by filing a report with their state’s attorney general office.

Reference: Kiplinger (June 10, 2021) “Scam Alert: 4 Types of Fraud That Target the Elderly (and How to Beat Them)”

What Does the Executor Do?

The executor of an estate is the person who manages all the decedent’s financial affairs. If the person wants to have more than one person manage their affairs, like naming two children instead of one, then the term “co-executors” is used, as explained in a recent article “Executor of Estate: What Do They Do?” from Forbes

The most important characteristic that the executor should have, is integrity and good judgment. They are legally required to act in the estate’s best interest, which is called acting as a fiduciary. This is important, especially if an heir serves as an executor.

They also need to be wise enough to know when they need help from a skilled professional.

The executor follows the directions that are included in the person’s will, including distributing assets to beneficiaries. They also manage the many tasks associated with wrapping up the decedent’s life, including paying creditors, issuing notices of death, filing tax returns and overseeing the sale of homes and automobiles.

In some states, the executor is called a “personal representative.” The word “executrix” is an old, out-of-date term used when a woman serves as the executor, not commonly used today.

When a proper estate plan is in place, the executor of the estate is named in the decedent’s last will and testament. In cases where the decedent (sometimes referred to as the testator) did not have a will, or the will has been deemed invalid, the probate court judge names someone to serve as executor. This is not always someone who the executor would have named, but when there is no will, the court makes this decision.

If you have been named the executor of an estate and don’t wish to serve, you may decline. If the decedent anticipated that and named an alternative or contingent executor, then the secondary person will serve, or the probate court judge will name someone to serve in this role. The judge can also override the decedent’s choice of an executor, if the person they named has a criminal history, is not of legal age, has a mental disability or a substance abuse problem. The court is not allowed to change the executor simply because the heirs don’t want a person to serve.

The executor has a long list of tasks to accomplish, from obtaining death certificates and securing the home to filing the will with the probate court in the decedent’s county of residence and petitioning the court for probate. Many executors bring in an estate attorney to assist with the legal portion of administering the estate, as an estate and trusts attorney will be familiar with the processes and the deadlines.

The executor must notify the Social Security administration and Medicare, if the person was enrolled in either of these federal programs. The Department of Motor Vehicles, Veterans Affairs and insurance companies must also be notified. The executor is also responsible for filing the person’s final income tax returns and if necessary, filing the state and federal estate tax returns. This is just a partial listing of the many different tasks that must be accomplished. The estate planning attorney may have a checklist to help the executor on track.

Reference: Forbes (May 3, 2021) “Executor of Estate: What Do They Do?”

Ignore Retirement Myths

While you’re busy planning to retire, chances are good you’ll run into more than a few retirement myths, things that people who otherwise seem sincere and sensible are certain of. However, don’t get waylaid because any one of these retirement myths could do real harm to your plans for an enjoyable retirement. That’s the lesson from a recent article titled “Let’s Leave These 3 Retirement Myths in 2020’s Dust” from Auburn.pub.

You can keep working as long as you want. It’s easy to say this when you are healthy and have a secure job but counting on a delayed retirement strategy leaves you open to many pitfalls. Nearly 40% of current retirees report having retired earlier than planned, according to a study from the Aegon Center for Longevity and Retirement. Job losses and health issues are the reasons most people gave for their change of plans. A mere 15% of those surveyed who left the workplace before they had planned on retiring, said they did so because their finances made it possible.

Decades before you plan to retire, you should have a clear understanding of how much of a nest egg you need to retire, while living comfortably during your senior years—which may last for one, two, three or even four decades. If your current plan is far from hitting that target, don’t expect working longer to make up for the shortfall. You might have no control over when you retire, so saving as much as you can right now to prepare is the best defense.

Medicare will cover all of your medical care. Medicare will cover some of costs, but it doesn’t pay for everything. Original Medicare (Parts A and B) covers hospital visits and outpatient care but doesn’t cover vision and dental care. It also doesn’t cover prescription drug costs. Most people do not budget enough in their retirement income plans to cover the costs of medical care, from wellness visits to long-term care. Medicare Advantage plans can provide more extensive coverage, but they often come with higher premiums. The average out-of-pocket healthcare cost for most people is $300,000 throughout retirement.

Social Security is going to disappear. Nearly 90% of Americans depend upon Social Security to fund at least a part of their retirement, according to a Gallup poll, making this federal program a lifeline for Americans. Social Security does have some financial challenges. Since the early 1980s, the program took in more money in payroll taxes than it paid out in benefits, and the surplus went into a trust fund. However, the enormous number of Baby Boomers retiring made 2020, saw the first year the program paid out more money than it took in.

To compensate, it has had to make up the difference with withdrawals from the trust funds. As the number of retirees continues to rise, the surplus may be depleted by 2034. At that point, the Social Security Administration will rely on payroll taxes for retiree benefits. However, that’s if Congress doesn’t figure out a solution before 2034. Benefits may be reduced, but they aren’t going away.

Saving for retirement is challenging but focusing on the facts will help you remain focused on retirement goals, and not ghost stories. Your retirement planning should also include preparing and maintaining your estate plan.

Reference: Auburn.pub (Dec. 13, 2020) “Let’s Leave These 3 Retirement Myths in 2020’s Dust”

How to Lower Your Medicare Premiums

Here’s a generous incentive for older Americans who want to help their favorite charities: by giving generously from the right asset source, they could manage their Medicare premiums for 2022. The details come from the article “Feeling altruistic? This tax strategy can keep Medicare premiums in check” from CNBC.

People who are age 70½ and over are allowed to make qualified charitable distributions from their IRAs. The IRA owner directs the custodian holding the account to transfer up to $100,000 directly to a charity. The transaction must be a direct transfer, and donor-advised funds or private foundations are not eligible for this strategy.

This is a staple of year-end tax planning for many, hitting two targets at once: older savers meet their required minimum distributions without a tax hit and their favorite causes get support. This year, there is no RMD, as a result of the CARES Act, the coronavirus relief measure that went into effect in the spring. However, a qualified charitable distribution still makes sense for people who were planning on making large donations.

Keeping a lid on Medicare premiums for 2022 Medicare Part B (Medical Insurance) and Part D (Prescription Coverage) itself is worth consideration.

Giving via a Qualified Charitable Distribution will not inflate the Modified Adjusted Gross Income (MAGI) for that year, and you also won’t pay taxes on the distribution. Remember, Medicare premiums are based on the MAGI from two (2) previous years.

It’s great to support nonprofit agencies that have meaning to you. However, doing it without taking advantage of tax planning is a lost opportunity.

In 2020, single taxpayers with a 2018 MAGI up to $87,000 (or $174,000 for married and filing jointly) pay $144.60 a month for Medicare Part B. Premiums increase depending on your MAGI, all the way up to $491.60 per month for individual taxpayers with a 2018 MAGI of $500,000 or more.

This is something to work on with your estate planning attorney, as going just one dollar over your income bracket could raise your premiums by thousands. Your estate planning attorney will be able to guide you through the various brackets, which must consider any other sources of taxable income.

Charitable giving is a great tool to shave tax liability, while doing good. Donations of appreciated stock are another strategy. Just remember that for this type of giving, you’ll need to be itemizing deductions on the return, if you want to write them off. With the standard deduction so high, it may be hard to meet that hurdle.

Reference: CNBC (Oct. 23, 2020) “Feeling altruistic? This tax strategy can keep Medicare premiums in check”

Caring for a Loved One from a Distance

Trying to coordinate care from a distance becomes a challenge for many, especially since as many as 80% of caregivers are working. Add COVID-19 into the mix, and the situation becomes even more difficult, reports the article “When your parent is far away and you are trying to care for them” from the Pittsburgh Post-Gazette.

The starting point is to have the person you are caring for give you legal authorization to act on their behalf with a Power of Attorney for financial affairs and a Health Care Directive that gives you authority to receive health information under HIPAA (Health Insurance Portability and Accountability Act). It is HIPAA that addresses the use, disclosure and protection of sensitive patient information.

Next, have a conversation about their finances. Find out where all of their important documents are, including insurance policies (long-term care, health, life, auto, home), Social Security and Medicare cards. You’ll want to know where their tax documents are, which will provide you with information on retirement accounts, bank accounts and investments.

Gather up family documents, including birth, death, and marriage certificates. Make sure your loved one has completed their estate planning, including a last will and testament.

Put all of this information into a binder, so you have access to it easily.

Because you are far from your loved one, you may want to set up a care plan. What kind of care do they have in place right now, and what do you anticipate they may need in the near future? There should also be a contingency plan for emergencies, which seem to occur when they are least expected.

Find a geriatric care manager or a social worker who can do a needs assessment and help coordinate services, including shopping for groceries, medication administration and help with basic activities of daily living, including bathing, toileting, getting in and out of bed, eating and dressing.

If possible, develop a list of neighbors, friends or fellow worshippers who might create a local support system. If you are not able to visit with any degree of frequency, find a way to see your loved ones on a regular basis through video calls. It is impossible to accurately assess a person’s well-being, without being able to see them. In the past, dramatic changes weren’t revealed until family members made a trip. Today, you’ll be able to see your loved one using technology.

You may need to purchase a smartphone or a tablet, but it will be worth the investment. A medical alert system will provide further peace of mind for all concerned. Regular conference calls with caregivers and your loved one will keep everyone in touch.

Caring from a distance is difficult, but a well-thought out plan and preparing for all situations will make your loved one safer.

Reference: Pittsburgh Post-Gazette (Sep. 28, 2020) “When your parent is far away and you are trying to care for them”

Legislation to Prevent Medicare Mistake Penalties Making Progress

More older workers are remaining in the workplace. In 2016, about 60% of 65-year-olds were receiving Social Security benefits, compared to 92% in 2002. Consumer advocates expect that change to result in a growing number of older people making expensive mistakes, when they enroll in basic Medicare, says the article “Bipartisan bill to prevent costly Medicare mistakes advances in the house” from CNBC.com.

The hope is that the bill will make Medicare a little easier to understand. The congressional measure to help prevent costly enrollment mistakes cleared a House committee as part of a group of bipartisan health-care bills. Next up would be a vote by the full chamber.

There’s a companion bill in the Senate, but it’s stuck in the Finance Committee. The House bill, known as the BENES Act, has several goals. One is to eliminate delays between the time that someone signs up and the time that they are covered by Medicare. Another is to offer more outreach and information about Medicare to people, as they get closer to being eligible at 65.

About 62.4 million Americans—most of whom are 65 or older—are enrolled in Medicare. Most people do end up tapping their Social Security benefits before that time, and they are automatically enrolled, but today many more people are delaying their benefits beyond that age. As a result, the expectation is that many more people are going to make expensive mistakes, when they do go to enroll in basic Medicare. That includes Part A, for hospital coverage and Part B, for outpatient care and medical equipment. There are no late-enrollment penalties for Part A but coming late to Part B can lead to a world of trouble.

The penalty for enrolling late to Part B is 10% of the standard premium for each 12-month period that the person should have been enrolled but wasn’t and worse, it can increase each year as the premium adjusts. Sixty-five-year-olds who fit into the exception category—that is, they have group health insurance at work—are allowed to delay enrolling. However, once they leave that group, they face deadlines.

Last year, as many as 764,000 people paid the Part B late-enrollment penalty, which on average pushed their premiums up by 28%. Based on the 2020 standard Part B premium, that would mean an additional $40 per month (although some pay more or less than the standard).

There is also a serious coverage delay for those who sign up during the general enrollment period (that’s January 1 to March 31), if they missed their initial signup window, which means they aren’t covered until July 1. You could sign up on January 2 and not have health coverage until July!

The BENES Act also requires that the Health and Human Services Secretary submit a report on how to most effectively align the early year general enrollment period for Parts A and B with the annual fall open enrollment period, which is for enrollment for different parts of Medicare: Part C Advantage Plans and Part D prescription drug plans.

Reference: CNBC.com (July 16, 2020) “Bipartisan bill to prevent costly Medicare mistakes advances in the house”