On the final day of the 2012 NAELA Annual Conference in Seattle in April, Attorney David A. Cechanowicz, JD, MSFS from Albuquerque, New Mexico, delivered an eye-opening presentation entitled "Maximizing Social Security Income for Dual Income Boomers." His message was so novel and surprising to many of the boomers and other members of the National Academy of Elder Law Attorneys in the audience that this issue of the ElderCounselornewsletter addresses the topic, with permission of Attorney Cechanowicz.
As we all know and statistics confirm, the American population is aging, people in general are living longer than past generations did, and in many cases women outlive men. For these reasons, it is important for people in their sixties to make the best choices in how they elect to claim their Social Security retirement benefits. For some people – particularly for those with diseases that make a relatively early death likely – election to start receiving their Social Security retirement benefits as early as possible may be the best choice. However, for many, starting to receive their Social Security retirements later can result in a large increase in the total amount of benefits received over the rest of their lives. What most of us are unaware of is that married people have the option to receive Social Security benefits under their own work record, their spouse’s work record, or in some circumstances, both their own and their spouse’s work record. If the choices made are not optimal, the result can be less than maximum monthly benefits for two, three or even four decades – a very long time.
Planning Note: Married people have the option to receive Social Security benefits under their own work record, their spouse's work record, or both, in some circumstances.
The members of the baby boom population (defined as those born between 1946-1964) born in 1946 are now 65 years old or have recently turned 66 years old. For the next 17 years, an average of more than 10,000 boomers per month will turn 65. This huge population of people needs to make decisions about when to start receiving their Social Security retirement benefits. Some have already elected to start receiving benefits as early as age 62.
The annual statement entitled "Your Social Security Statement" was mailed to taxpayers automatically for the past several years. The Social Security Administration stopped sending this statement automatically in 2011 due to budget constraints, but announced in February 2012 that it would begin sending the statements again to workers age 60 or older who are not yet receiving benefits.
The 2011 annual statement listed data for the worker's benefits upon retirement or disability, and projected benefit data for the worker's survivors. The 2011 statement also contained the following one-line comment in a list of potential benefits: "*Family - If you get retirement or disability benefits, your spouse or children may also qualify for benefits." This line did not provide any data. The last page of the 2011 statement amplified this point as follows: "Family - If you're eligible for disability or retirement benefits, your current or divorced spouse, minor children or adult children disabled before age 22 also may receive benefits. Each may qualify for up to about 50 percent of your benefit amount." Despite this information, most people are completely unaware that this benefit exists, that they need to elect it in order to get it, and that it can make a huge difference in their benefits received over the rest of their lives.
Attorney Cechanowicz compares the choices people in their 60s face to a three-legged stool. The legs are mortality, election, and taxation, and ignoring any leg will make the stool fall over. Each "leg" is discussed below.
As mentioned above, the population as a whole is aging and individuals are living longer than ever before. Many factors affect how long individuals will live, but key factors are lifestyle, including diet, exercise, stress, sleep, exposure to dangerous conditions at work and at home, exposure to environmental health risks and unpredictable risks such as a car accident caused by someone else, and genetics. Some people now facing decisions about Social Security are already in terminal conditions or have substantial likelihood of not living many years. For these people, getting benefits earlier may be a better decision than waiting to receive more benefits later. But individuals whose health is good and exposure to predictable risks is low, and whose parents and ancestors have tended to live long lives, may choose to plan on a long lifetime.
Despite the fact that people are living longer, according to the SSA's Annual Statistical Supplement for 2011, 74% of Social Security recipients have elected to start receiving benefits early. This can be a huge mistake for a very long time.
Planning Tip: Electing to receive benefits early can be a huge mistake.
Social Security election is often viewed as having to make one of three choices: to take early at a decreased benefit rate, take at the "full retirement age," or take late at a larger benefit level - sort of each man or woman for himself or herself. Although that is true on one level, it ignores the fact that more often than not, women live longer than men, and with a married couple, the surviving spouse is most likely going to be the wife who may live for many years after the husband dies. Dual income and formerly dual income families have more election choices than each spouse for himself or herself.
There are a few defined terms with which the reader needs to be familiar. Primary Insurance Amount (PIA) is the benefit (before rounding down to the next lower whole dollar) a person would receive if electing to begin receiving retirement benefits at Full Retirement Age (FRA, defined below), as calculated when the worker reaches age 62. The benefit a worker would receive if electing to begin receiving benefits at FRA is the PIA plus any cost-of-living increases between age 62 and the FRA.
An individual worker's PIA is calculated from the average of the worker's 35 highest income years, with each past year adjusted for inflation. The PIA formula for 2012 is in three parts:
Optimizing the Social Security retirement benefits that a dual-income family or former dual-income family (due to being divorced or widowed) can obtain depends on the:
A worker with FRA of 66 may elect to receive benefits based on their own work record as early as age 62. However, the benefit is reduced to 75% of their PIA if taken at age 62 (a 25% reduction), 80% if taken at age 63, 86.6% if taken at age 64, or 93.3% of PIA at age 65. (The percentages in these examples apply to individuals who elect to start receiving benefits exactly in the month that their age changes. The numbers actually change each month of worker age, not just each year.) Adding insult to injury, if the worker continues earning wages while receiving Social Security benefits based on their own work record, the Social Security benefits are decreased based on the ongoing earnings.
A worker's benefit based on their own work record can increase above their PIA if receipt of benefits is delayed to as late as age 70. They receive 108% of their PIA if they start receiving benefits at age 67, 116% of PIA if starting at age 68, 124% if starting at age 69, and 132% if starting at age 70. This is an 8% increase for each year the starting date is delayed, up to age 70. (Again, these percentages actually change monthly, although the examples are yearly.) For a worker who is likely to live a long time and has other assets and income to live on while waiting, delaying the start of receiving benefits may be very profitable. If the worker continues earning wages after their FRA, there is NO decrease in the benefit; the worker gets the full benefit.
1) Early receipt of Social Security benefit reduces the worker benefit AND the spousal benefit.
2) The spouse of worker benefit reaches its maximum at the worker's FRA. Delayed retirement credits do not increase the spousal benefit.
3) Early receipt of benefits based on the worker's own work record before their FRA causes "deeming". The worker is deemed to have made all allowable elections as of that date.
4) Deeming does not occur if the worker elects to receive benefits based on their own work record at or after their FRA.
5) Prior to FRA, the worker has an earnings test that may cause repayment of Social Security benefits.
6) The Senior Citizen's Right to Work Act of 2001 eliminates the earnings test at or after the FRA.
Planning Note: There are several ways to maximize benefits for a couple.
When a two-worker couple elects to start receiving Social Security benefits based on their own work records, optional monthly choices over nine years for each worker result in 11,664 possible age combinations. There are four more ways to maximize the benefits for a couple:
When a two-worker couple elects to start receiving Social Security benefits based on their own work records, optional monthly choices over nine years for each worker result in 11,664 possible age combinations. There are four more ways to maximize the benefits for a couple:
Claim and Suspend. A worker who has attained FRA can claim benefit but then suspend the benefit and collect Delayed Retirement Credits (DRCs). This allows the worker's spouse to claim and receive the "spousal benefit," which is one-half of the worker's benefit, based on the suspended worker's record.
Claim Now, Claim More Later. The spouse of a worker who claims, or claims and suspends as described in the preceding paragraph, claims the spousal benefit (one-half of the other worker spouse's benefit), then later claims higher personal benefit at their FRA or later increased by DRCs.
Do Over. A claimant can change their claim election within 12 months after claiming, but claimant must repay the benefits received. Taxes paid may be reclaimed from the IRS and state.
Stop-N-Go. An individual who has started receiving benefits can stop temporarily, and later resume receiving benefits enhanced by DRCs based on a smaller amount.
Articles from the Center for Retirement Research at Boston College go into great detail about this and suggest which scenarios will work best based on relative incomes of the spouses. Seehttp://crr.bc.edu/; and http://fsp.bc.edu/social-security-claiming-guide/.
Another tool for planning is available at https://www.socialsecuritytiming.com/.
As should be evident, the maximum family benefit is not an individual calculation, nor even two individual calculations. It is a lifetime choice, and electing early Social Security benefits based on your own work record is betting against you living a long life.
The way Social Security recipients blend their Social Security benefits with other income can make as much difference in net benefit as the election choice because Social Security is a tax-preferred form of income. That said, for those recipients whose only source of retirement income will be Social Security, very likely all of their retirement income will be income-tax-free. On the other end of the income spectrum, people who make several hundred thousand dollars per year of earned or investment income tend to be less concerned about optimizing the tax treatment of their Social Security. It is the middle income category of seniors who can make the most significant improvement in how their Social Security benefits are taxed by how they make their elections.
Social Security benefits are tax-free below the lower numerical thresholds in the following table:
Taxpayer who is:
Single or Head of Household
Married Filing Jointly
To examine the income tax effect of delayed receipt, compare the following two scenarios.
In scenario #1, a couple receives a blend of 42% Social Security benefits and 58% income from other income including IRA and 401(k) income. Their total income of $72,000 is made up of $30,000 Social Security and $42,000 other income. Adjusted gross income from this scenario (the taxed portion of Social Security plus other income) comes out at $40,050.
In scenario #2, the couple increases to 72% Social Security benefits ($52,000), and decreases other income to 28% ($20,000). Adjusted gross income (the taxed portion of Social Security plus other income) in this scenario is $8,700 due to the greater share of Social Security benefits, which are only partially taxed.
To further illustrate this concept, consider the combined state plus federal income taxes in the following states:
($42k other income/$30k SS)
($20k other income/$52k SS)
The average adjusted gross income for scenario #1 is $5,560. The average adjusted gross income for scenario #2 is $780. Thus, scenario #2 provides a tax savings of $4,780 per year. Over 20 years, such tax savings multiplies to $95,600.*
*Source of calculations for this discussion: David A. Cechanowicz, "Maximizing Social Security Income for Dual Income Boomers", presentation at NAELA Annual Conference, Seattle, Washington, April 28, 2012.
Baby boomers face important choices to make the best elections in their choice of Social Security retirement benefit start dates. Dual income couples have very substantial opportunities to increase their total benefits above the sum of what two single individuals can receive. Dual income couples can plan carefully for the most likely survivor, and take optimum advantage of the spousal benefit available from Social Security in addition to the benefit available to each individual based on their own work record. Former spouses and widows and widowers in their 60s may have similar opportunities to receive additional spousal benefits based on the work record of their former or deceased spouse in addition to the benefits they are entitled to, based on their own work records.
On April 2, the Centers for Medicare & Medicaid Services (CMS) expanded how it defines the “primarily health-related” benefits that insurers are allowed to include in their Medicare Advantage policies. As a result, when these plans roll out their coverage for 2019, new benefits may include air conditioners for people with asthma, healthy groceries, rides to medical appointments, home-delivered meals, and non-skilled home-care services.
In this issue of The ElderCounselor, we will look at how Medicare Advantage Plans work, the benefits they provide, what the expansion means, and how it may impact both seniors and the plan providers.
Medicare is government-sponsored health care for those age 65 years and older. Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care. Part B covers doctors’ services, outpatient care, medical supplies, and preventative services.
However, there are deductibles and copayments for Medicare that can add up quickly. Also, there is no limit on annual out-of-pocket expenses. Most people buy a supplemental insurance policy, called Medigap insurance. It “fills in the gaps” of Medicare and pays deductibles and copayments. These policies are sold through private insurance companies approved by Medicare. Prescription drug coverage is also sold separately as Part D through private insurance companies.
Many seniors like the flexibility this combination provides because they can go to any health care provider or facility that accepts Medicare. Medicare pays its share of the approved amount for covered health care costs first, and then Medigap pays its share. However, Medicare can and does deny coverage for a procedure or treatment that it rules is medically unnecessary, and Medigap will only pay its share if Medicare pays first.
Also, there are some expenses that Medicare does not cover that are important to seniors, including hearing aids, vision care and dental care.
What Are Medicare Advantage Plans and How Do They Work?
Medicare Advantage Plans, sometimes called Part C, are sold by private insurance companies as an alternative to Original Medicare. If you join a Medicare Advantage Plan, you still have Medicare, but you receive Part A (hospital insurance) and Part B (medical insurance) coverage from the Medicare Advantage Plan, not from Original Medicare. However, Original Medicare will still cover the costs for hospice care, some new Medicare benefits, and some costs for clinical research studies.
Medicare pays a fixed amount for care each month to the companies offering Medicare Advantage Plans. These companies must follow rules set by Medicare and they must cover all of the services that Original Medicare covers. However, if one chooses a Medicare Advantage Plan, they cannot use a Medigap policy. In fact, it is against the law for someone to sell a senior on a Medicare Advantage Plan a Medigap policy unless that person is switching back to Original Medicare. (Changing plans is allowed once each year, during open enrollment in the fall.)
Medicare Advantage Plans work like HMOs and PPOs. Generally, a Medicare recipient must use facilities, physicians, and pharmacies that participate in the plan’s network. Some allow for non-network coverage. Emergency and urgently needed care are covered both in- and out-of-network.
One of the draws for seniors is that Medicare Advantage Plans offer benefits that Medicare does not, including vision, hearing, dental, gym memberships, and health/wellness programs. There are also cost savings. The monthly premium usually includes Medicare prescription drug coverage (Part D). And, while there may be a copayment for covered services, there is an annual limit on out-of-pocket costs. So, once a senior reaches a certain limit, they will pay nothing for covered services for the rest of the year.
Some Shortcomings of Medicare Advantage Plans
There is a multitude of Medicare Advantage Plans, even within one service area. This can be confusing to consumers who must re-evaluate them each year. Each plan can charge different out-of-pocket costs. They can also have different rules for how services are received, such as whether a referral is needed to see a specialist. And they usually have different networks of facilities and providers.
Each year, plans set the amounts they charge for premiums, copays, deductibles, and services. The plan (rather than Medicare) decides how much someone pays for the covered services, and it is allowed to change how much the insured would pay only once a year, on January 1. (This is the effective date of coverage for each fall’s open enrollment.) However, they can change their network providers and facilities at any time during the year.
When considering a Medicare Advantage Plan, consumers must be diligent about understanding which facilities and physicians are included in its network, where they are located, and how to use the plan for routine and emergency care.
A plan can also choose not to cover the costs of services that are not medically necessary under Medicare, so it is advisable for a patient to check before they have the service or procedure done. If someone needs a service that the plan says is not medically necessary, they may have to pay all the costs of the service. But that patient would have a right to appeal the decision. They can also ask for a written advance coverage decision to make sure a service is medically necessary and will be covered.
Still, of the 61 million people enrolled in Medicare last year, 20 million have opted for a Medicare Advantage Plan. One reason may be that, in recent years, many families have become accustomed to HMOs and PPOs for their health insurance as lower-cost alternatives to traditional health care.
What the CMS Ruling Means
According to the CMS, the new rules will expand benefits to items and services that may not be directly considered medical treatment but will provide care and devices that prevent or treat illness or injuries, compensate for physical impairments, address the psychological effects of illness or injuries, or reduce emergency medical care. The goal is to keep people healthy and well, making it easier for them to live longer and more independently. A physician’s order or prescription will not be required, but the new benefits must be “medically appropriate” and recommended by a licensed health care provider.
Details of the Medicare Advantage Plan benefit packages for 2019 must first be approved by CMS and will be released in the fall when the annual open enrollment begins. But plan providers already have ideas of what they could include.
In addition to transportation to doctors’ offices or better food options, some health insurance experts said additional benefits could include simple modifications in beneficiaries’ homes, such as installing grab bars in the bathroom, or aides to help with daily activities, including dressing, eating, and other personal care needs. The goal is to focus on avoiding injuries or exacerbating existing health conditions.
Non-skilled in-home care services will also be allowed for the first time as a supplemental benefit, providing they compensate for physical impairments, diminish the impact of injuries or health conditions, and/or reduce avoidable emergency room use.
Home health care providers have already partnered with Medicare Advantage Plans, and many believe the plans will be willing to pay for non-skilled in-home care with an eye on saving money over the long-term. Medicare Advantage Plans have greater flexibility than the fee-for-service providers have, and in many cases do not have a homebound requirement. Because they receive a set amount per patient from Medicare, they would be more inclined to provide any services, including private duty nursing, to ensure the patient doesn’t cost them more money than necessary.
What to Watch
Seniors on Medicare have said that when considering Medicare Advantage Plans, access to certain hospitals and doctors is a top priority for them. Original Medicare includes the vast majority of providers and the broadest possible provider network.
But Medicare Advantage Plans are gaining in popularity. According to CMS, in 2015, 35% of Medicare beneficiaries were participants in Medicare Advantage Plans. That number is expected to grow quickly over the next several years. New, attractive benefits coming in 2019 (especially non-skilled in-home care) will likely persuade even more seniors to join Medicare Advantage Plans.
That’s certainly good news for the Medicare Advantage Plan industry. And it will be good for seniors if it lets them stay in their homes longer and lead healthier, more independent lives.
If your child has special needs, a standard estate plan -- will, trust, power of attorney, and health care proxy -- may not be adequate for your family. If your child will not be able to support herself or live independently as an adult, you need to make special provision for her in your estate plan. Here are three must-have documents:
Special Needs Trust. Instead of leaving your estate directly to a disabled child, the funds should be left in a specially-drafted trust for the child's benefit. This will ensure that the funds are properly managed for the child's lifetime. And provided that the trust is properly administered, the trust funds will not be countable, which helps to preserve your child's eligibility for public benefits such as SSI and Medicaid.
Guardianship Nomination. Your will should include a guardianship nomination for all of your minor children. But when your child turns 18, she is considered to be an adult by law, even if her disabilities are very severe. Taking the time to select a guardian for your disabled child reduces stress and uncertainty for other family members after your death: the person you nominate as guardian will typically be given preference by the court.
Letter of Intent. This is a non-binding document that captures vital information about your child for future caregivers and trustees. It can include information about your child's routines, preferences, medical history, allergies, and so on. As parents, you have gathered a lifetime's worth of information about your child, information that will be invaluable to your child's future caregivers. You can ask your attorney to keep a copy of the Letter of Intent with your other estate planning documents.
Whether as a friendly companion or a fully-fledged family member, pets have become an intrinsic component to many households. According to the American Pet Products Association, 67% of American families own a pet today. Not only is pet ownership up from 56% in 1988, but Americans are also spending significantly more on their pets. In 2016, the pet industry raked in roughly $66 billion in pet-loving profits, a 74% increase from 2006. An explanation for this spending increase could be because most pet owners﹘about 95%﹘consider their pets to be part of the family.
It’s a wonder then, why the estate planning field often overlooks pets. While pet trusts can claim a small fraction of the pet industry profits, only about 12% of cat and dog owners make financial stipulations for their pets in their estate plans. This underutilized market has significant business potential for estate planning attorneys and provides an opportunity to serve clients better.
Pet Trusts: What are they and how to introduce them to your clients
Planning for animal care is similar to planning for dependent children. As such, trusts are seen to be superior to wills as they can bypass the lengthy probate process, which can significantly delay financial support for the animal. In addition, a will cannot protect and care for a pet in the event of their owner’s incapacity.
Breaking it down: how a pet trust worksAt its most basic, a pet trust lays out instructions on how a pet should be cared for after its owner passes away. A caretaker is usually chosen to be responsible for the pet’s day-to-day care. Funds are allocated to the trust to pay for various expenses such as food, veterinary care, and recreation.
A trustee is chosen to manage the trust’s funds and oversees the caretaker’s compensation for caring for the animal. As another level of protection, a client can also choose to appoint an enforcer, who oversees the trustee. Once the animal passes away, the remaining funds can then redistribute to the living beneficiaries or a charity of the client’s choosing.
Educating clients on pet trusts
As many people are unaware of the benefits of a pet trust, an attorney’s primary goal is first awareness and then education. Attorneys can utilize email campaigns to educate current clients on the importance of pet trusts, providing awareness and a call to action to add animal care provisions to their existing trusts.
For prospective clients, attorneys may want to consider adding pet ownership questions to their new client intake forms. Statistically, more than half of your clients will indicate “yes,” which will give you the opportunity to educate them about this service.
Important factors to consider when drafting a client’s pet trust
Pet trusts may be suitable for couples who don’t share the same affinity or level of care for the pet. For clients who have brought previously owned pets into their marriage, or if one spouse simply doesn’t share the same affinity for a pet, a pet trust might be in order. In the event that one spouse passes away and is concerned their surviving spouse may be unable or unwilling to care for the animal adequately, a pet trust can ensure the deceased owner’s wishes. This option also provides financial and logistical relief for the living spouse, as they will not have to worry about their spouse’s pet after they are gone.
Animals with special medical needs, longer lifespans or defined as “exotic” may need more money allocated for their care.
There are a few different factors to consider when determining the number of funds to allocate for a pet’s care. Species, length of lifespan and whether or not the animal has, or may need, special medical care, are usually the biggest defining factors. For example, animals such as macaws, parrots, and snakes may require more significant funds due to longer lifespans, than say dogs or cats. Also, certain types of dog breeds like American bulldogs and German shepherds may need more funding due to their predisposition to health issues like hip dysplasia and respiratory problems.
Caretaker suitability should depend on lifestyle and personal regard for the animal.
It’s essential that a pet owner choose a caretaker for their animal wisely, to minimize disruption of care. Make sure to help your client by clarifying that their choice for caretaker has adequate housing, time and experience to look after the animal. To avoid trouble down the road, ask the client if they think the caretaker would want the job, or better yet if they have already discussed this responsibility with them.
Elder abuse is real and needs to be taken seriously. An estate and trust can help from preventing that. In this article that was published in the Los Angeles Times, there have been recent reports that Marvel Comics founder and creator Stan Lee has been a victim and is placing suit against those responsible.
Article by Tracy Brown
Marvel comics icon Stan Lee has filed a lawsuit against former manager Jerardo Olivarez, alleging fraud, financial abuse of an elder, conversion and misappropriation of his name and likeness.
In a complaint filed in Los Angeles County Superior Court on Friday, Olivarez is accused of being one of many “unscrupulous businessmen, sycophants and opportunists” who sought to take advantage of Lee following the July death of his wife, Joan.
The lawsuit alleges that Olivarez — a former business associate of Lee’s daughter Joan “J.C.” Lee — manipulated Lee into ousting his “banker of 26 years” and his longtime lawyer, signing power of attorney over to Olivarez, loaning $300,000 to a fake nonprofit and buying an $850,000 West Hollywood condo. Olivarez is also accused in the lawsuit of taking nearly $1.4 million from Lee’s accounts “through a series of complicated wire-transfers all initiated” by him and orchestrating a scheme to steal Lee’s blood for use as a “merchandising item.”
The lawsuit follows a report published last week by the Hollywood Reporter detailing the battle over the 95-year-old Lee’s estate. The story revealed Lee’s situation, which also involves Olivarez, as “increasingly toxic and combative … involving broken alliances, abrupt expulsions and allegations of elder abuse.”
Medicaid and Work Requirements
On January 11, the Centers for Medicare and Medicaid Services (CMS) issued a State Medicaid Director Letter providing new guidance for Section 1115 waiver proposals that would impose work requirements in Medicaid as a condition of eligibility.
As of press time, CMS has approved work requirement waivers for Kentucky, Indiana and Arkansas. As many as 13 other states have pending waiver requests and/or have stated they plan to apply. These include Alabama, Alaska, Arizona, Kansas, Louisiana, Maine, Mississippi, New Hampshire, North Carolina, South Carolina, South Dakota, Utah and Wisconsin.
The CMS guidance describes the potential scope of requirements that could be approved and asserts that such provisions would promote program objectives by helping states “in their efforts to improve Medicaid enrollee health and well-being through incentivizing work and community engagement.” It invites proposals that are designed to promote better mental, physical and emotional health or help individuals and families rise out of poverty and attain independence.
Medicaid work requirement proposals generally would require beneficiaries to verify their participation in approved activities, such as employment, job search or job training programs, for a certain number of hours per week in order to receive health coverage. Certain populations, including children, the elderly, disabled, medically frail, pregnant women, caregivers and students would be exempt.
CMS Administrator Seema Verma has stated that she hopes the work requirements will improve enrollees’ health while reducing Medicaid rolls, and that requiring people to work would encourage them to find jobs that offer health coverage or make enough money to afford private plans.
Kentucky was the first state to receive approval to impose work requirements as part of a broader overhaul of the state’s Medicaid program. It is set to go into effect in June. State officials have made it clear that the work requirements are aimed at the newly eligible Medicaid enrollees who gained coverage only after the state’s previous Democratic governor expanded Medicaid. The current Republican governor, Matt Bevin, has said that many of the newly eligible are able-bodied and that they have a moral responsibility to work for their benefits.
Under Kentucky’s plan, able-bodied adults will be required to complete 80 hours a month of community engagement to qualify for coverage. This would include work, education, volunteering/community service or job training. Drug treatment is considered a work activity, not an exemption.
Enrollees can seek “good cause” exemptions if they can verify one of the following in their month of noncompliance: disability, hospitalization or serious illness of the enrollee or immediate family member in the home; birth or death of family member living with the enrollee; severe inclement weather including natural disaster; family emergency or other life-changing event such as divorce or domestic violence. In addition, one primary caregiver of a dependent minor child or adult with disabilities per household is exempt, and caregiving for a non-dependent relative or another person with a disabling medical condition is considered a work activity.
State officials estimate that up to 95,000 people would no longer have Medicaid at the end of five years. While they do expect people to lose coverage, they predict that most would transition off Medicaid by entering the workforce and gaining access to employer-sponsored insurance or private insurance.
While other states may use Kentucky’s Medicaid program as a model, CMS officials said it was not meant to be a template.
Arkansas became the third state to receive permission to compel some residents on Medicaid to work or prepare for a job, but the federal government denied the state’s request to shrink its Medicaid expansion. Instead of including people with incomes up to 138% of the federal poverty line, as designed in the ACA, Arkansas wanted to set its expansion limit at 100% of poverty, a move that would immediately cast out up to 60,000 people from the program.
State legislators required that “shrinking the expansion” be included in the state’s application for the work requirements. Now, with the federal government’s rejection, the state Senate may not have enough votes to approve a budget for the agency that runs the program. (The proposed budget for the coming year does not include any extra money to help people train and look for a job.)
Arkansas’ plan compels people to have a job, be in school or volunteer at least 80 hours per month. The requirements will apply to able-bodied adults unless they qualify for an exemption, which include caring for a young child, being pregnant, being medically or mentally unable to work, or are being treated for addiction.
Requirements will begin in June for people ages 30 to 49, with estimates that nearly 40,000 of the 98,000 Medicaid expansion recipients will need to start complying. (The program will expand to include those starting at age 19 in 2019.) Individuals will need to document every month that they are fulfilling the rules. A person who fails to do so for three months will be removed from the program and locked out until the next year.
Those opposed to the work requirements are voicing some concerns that will need to be addressed and monitored. These include:
Potential loss of health coverage. Many people working full time are still eligible for Medicaid, especially in Medicaid expansion states, because they are working low-wage jobs. For example, an individual working full-time (40 hours/week) for the full year (52 weeks) at the federal minimum wage ($7.25/hour) would earn an annual salary of just over $15,000 a year, or about 125% of poverty. That is still below the 138% federal poverty level maximum targeted by Medicaid expansion.
In non-expansion states with low eligibility levels, meeting Medicaid work requirements through 20 hours of work per week at minimum wage could lead to loss of Medicaid eligibility. For example, in Alabama, adults without children are not eligible for the program, and parents can only qualify if they earn not more than 18% of the federal poverty level, or less than $3,800 a year for a family of three.
Also, low-wage jobs are unlikely to have health benefits. According to the Kaiser Family Foundation, in 2017 less than a third of workers who worked at or below their state’s minimum wage had an offer of health coverage through their employer.
Increased administrative costs. Those who are working will need to successfully document and verify their compliance. And those who qualify for an exemption must also successfully document and verify their exempt status, as often as monthly. States would need to pay for the staff and systems to track work verification and exemptions.
Some states have already decided to not implement waiver authority they have received due to administrative costs. For example, Kentucky amended its waiver application to move from a tiered-hour work requirement to a flat hourly requirement, citing administrative concerns.
Additionally, the CMS guidance states that federal Medicaid funds may not be used for supportive services. This means the states must address and pay for ways to overcome multiple barriers (childcare, transportation, education, training, etc.) that interfere with the ability to work.
Complicated processes can cause eligible individuals to lose coverage. Some eligible people may lose coverage due to their inability to navigate the processes, miscommunication or other breakdowns in the administrative process. This could be especially true of people with disabilities who may not obtain an exemption for which they qualify and end up losing coverage.
Additionally, some people may have trouble getting the documentation to prove they aren’t healthy enough to work. According to a Kaiser study, roughly one-third of non-elderly adults with Medicaid report having a disability, but nearly 60% of those do not receive Supplemental Security Income (SSI).
The impact of work requirements on people with disabilities will depend, in part, on whether states will correctly identify and exempt people who can’t work and what types of support services they provide to help them.
What to Watch
Expect lawsuits. Democrats are expected to argue the Trump administration is trying to undermine ObamaCare’s Medicaid expansion on its own after Congress failed to repeal the health care law. Lawyers for advocacy groups are likely to argue that work requirements don’t promote the objectives of the Medicaid program because they would be a barrier to coverage. The administration is hoping to show a correlation between work and improved health outcomes/independence.
Expect more states to come on board, especially Red states. Requiring work for benefits is a GOP policy staple and most of the states who have applied for work waivers have Republican governors.
Expect ongoing evaluations. CMS is requiring follow ups to determine if the work requirements lead to improved health, well-being and independence. Individuals who experience a lapse in eligibility or coverage because they failed to meet the program requirements or because they gained employer-sponsored insurance will also be surveyed.
Expect refinements. Participating states will be in the spotlight. We should see ongoing efforts to improve their programs as they strive to make them successful and fair.
Public Perception: A new poll from Kaiser shows the public is split on whether work requirements are more to cut spending or lift people up. If people do not see positive results, there will likely be a backlash.
To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer's particular circumstances.
The federal government is issuing new Medicare cards to all Medicare beneficiaries. To prevent fraud and fight identity theft, the new cards will no longer have the beneficiaries' Social Security numbers on them.
The Centers for Medicare and Medicaid Services (CMS) is replacing each beneficiary's Social Security number with a unique identification number, called a Medicare Beneficiary Identifier (MBI). Each MBI will consist of a combination of 11 randomly generated numbers and upper case letters. The characters are "non-intelligent," which means they don't have any hidden or special meaning. The MBI is confidential like the Social Security number and should be kept similarly private.
The CMS will begin mailing the cards in April 2018 in phases based on the state the beneficiary lives in. The new cards should be completely distributed by April 2019. If your mailing address is not up to date, call 800-772-1213, visit www.ssa.gov, or go to a local Social Security office to update it.
The changeover is attracting scammers who are using the introduction of the new cards as a fresh opportunity to separate Medicare beneficiaries from their money. According to Kaiser Health News, the scams to look out for include phone calls with callers:
For more information about the new cards, click here and here.
For more information about Medicare, click here.
A recent report from the Alzheimer’s Association states that one in nine Americans age 65 or older currently have Alzheimer’s. With the baby boomer generation aging and people living longer, that number may nearly triple by 2050. Alzheimer’s, of course, is just one cause of dementia—mini-strokes (TIAs) are also to blame—so the number of those with dementia may actually be higher.
Caring for someone with dementia is more expensive—and care is often needed longer—than for someone who does not have dementia. Because the cost of care in a facility is out of reach for many families, caregivers are often family members who risk their own financial security and health to care for a loved one.
Cost of Care for the Patient with Dementia—And How to Pay for It
As the disease progresses, so does the level of care the person requires—and so do the costs of that care. Options range from in-home care (starting at $46,332 per year) to adult daycare (starting at $17,676 per year) to assisted living facilities ($43,536 per year) to nursing homes ($82,128 per year for a semi-private room). These are the national average costs in 2016 as provided by Genworth in its most recent study. Costs have risen steadily over the past 13 years since Genworth began tracking them.
Care for a person with dementia can last years, and there are few outside resources to help pay for this kind of care. Health insurance does not cover assisted living or nursing home facilities, or help with activities of daily living (ADL), which include eating, bathing and dressing. Medicare covers some in-home health care and a limited number of days of skilled nursing home care, but not long-term care. Medicaid, which does cover long-term care, was designed for the indigent; the person’s assets must be spent down to almost nothing to qualify. VA benefits for Aid & Attendance will help pay for some care, including assisted living and nursing home facilities, for veterans and their spouses who qualify.
Those who have significant assets can pay as they go. Home equity and retirement savings can also be a source of funds. Long-term care insurance may also be an option, but many people wait until they are not eligible or the cost is prohibitive. However, for the most part, families are not prepared to pay these extraordinary costs, especially if they go on for years. As a result, family members are often required to provide the care for as long as possible.
Financial Costs for the Family
Women routinely serve as caregivers for spouses, parents, in-laws and friends. While some men do serve as caregivers, women spend approximately 50% more time caregiving than men.
The financial impact on women caregivers is substantial. In another Genworth study, Beyond Dollars 2015, more than 60% of the women surveyed reported they pay for care with their own savings and retirement funds. These expenses include household expenses, personal items, transportation services, informal caregivers and long-term care facilities. Almost half report having to reduce their own quality of living in order to pay for the care.
In addition, absences, reduced hours and chronic tardiness can mean a significant reduction in a caregiver’s pay. 77% of those surveyed missed time from work in order to provide care for a loved one, with an average of seven hours missed per week. About one-third of caregivers provide 30 or more hours of care per week, and half of those estimate they lost around one-third of their income. More than half had to work fewer hours, felt their career was negatively affected and had to leave their job as the result of a long-term care situation.
Caregivers who lose income also lose retirement benefits and social security benefits. They may be sacrificing their children’s college funds and their own retirement. Other family members who contribute to the costs of care may also see their standard of living and savings reduced.
Emotional and Physical Costs to Caregivers
In addition to the financial costs, caregivers report increased stress, anxiety and depression. The Genworth study found that while a high percentage of caregivers have some positive feelings about providing care for their loved one, almost half also experienced depression, mood swings and resentment, and admitted the event negatively affected their personal health and well-being. About a third reported an extremely high level of stress and said their relationships with their family and spouse were affected. More than half did not feel qualified to provide physical care and worried about the lack of time for themselves and their families.
Providing care to someone with dementia increases the levels of distress and depression higher than caring for someone without dementia. People with dementia may wander, become aggressive and often no longer recognize family members, even those caring for them. Caregivers can become exhausted physically and emotionally, and the patient may simply become too much for them to handle, especially when the caregiver is an older person providing care for his/her ill spouse. This can lead to feelings of failure and guilt. In addition, these caregivers often have high blood pressure, an increased risk of developing hypertension, spend less time on preventative care and have a higher risk of developing coronary heart disease.
What can be done?
Planning is important. Challenges that caregivers face include finding relief from the emotional stress associated with providing care for a loved one, planning to cover the responsibilities that could jeopardize the caregiver’s job or career, and easing financial pressures that strain a family’s budget. Having options—additional caregivers, alternate sources of funds, respite care for the caregiver—can help relieve many of these stresses. In addition, there are a number of legal options to help families protect hard-earned assets from the rising costs of long term care, and to access funds to help pay for that care.
The best way to have those options when they are needed is to plan ahead, but most people don’t. According to the Genworth survey, the top reasons people fail to plan are they didn’t want to admit care was needed; the timing of the long-term care need was unforeseen or unexpected; they didn’t want to talk about it; they thought they had more time; and they hoped the issue would resolve itself.
Waiting too late to plan for the need for long-term care, especially for dementia, can throw a family into confusion about what Mom or Dad would want, what options are available, what resources can help pay for care and who is best-suited to help provide hands-on care, if needed. Having the courage to discuss the possibility of incapacity and/or dementia before it happens can go a long way toward being prepared should that time come.
Watch for early signs of dementia. The Alzheimer’s Association (www.alz.org) has prepared a list of signs and symptoms that can help individuals and family members recognize the beginnings of dementia. Early diagnosis provides the best opportunities for treatment, support and planning for the future. Some medications can slow the progress of the disease, and new discoveries are being made every year.
Take good care of the caregiver. Caregivers need support and time off to take care of themselves. Arrange for relief from outside caregivers or other family members. All will benefit from joining a caregiver support group to share questions and frustrations, and learn how other caregivers are coping. Caregivers need to determine what they need to maintain their stamina, energy and positive outlook. That may include regular exercise (a yoga class, golf, walk or run), a weekly Bible study, an outing with friends, or time to read or simply watch TV.
If the main caregiver currently works outside the home, they can inquire about resources that might be available. Depending on how long they expect to be caring for the person, they may be able to work on a flex time schedule or from home. Consider whether other family members can provide compensation to the one who will be the main caregiver.
Seek assistance. Find out what resources might be available. A local Elder Law attorney can prepare necessary legal documents, help maximize income, retirement savings and long-time care insurance, and apply for VA or Medicaid benefits. He or she will also be familiar with various living communities in the area and in-home care agencies.
Caring for a loved one with dementia is more demanding and more expensive for a longer time than caring for a loved one without dementia. It requires the entire family to come together to discuss and explore all options so that the burden of providing care is shared by all.
We help families who may need long term care by creating an asset protection plan that will provide peace of mind to all. If we can be of assistance, please don’t hesitate to call.
Do you have an estate plan? If not, you are not alone. Fewer than half of Americans have an estate plan—the percentage varies between 55 percent and 70 percent, depending on which survey you rely upon. For those of you with an estate plan, there are mistakes that can be easily avoided. In this article, I will specifically address the issue of retirement plans and beneficiary designation forms.
Most people think that a will is the only document you need for an estate plan—not true! A will directs how your “probate assets” are distributed. Probate assets are assets that are owned solely by you (i.e., no joint owners) and have no beneficiaries named on the account. A retirement plan, such as a 401(k) or IRA, is not a probate asset. Your retirement plan is to be distributed in accordance with the beneficiary designation forms that you complete. It is possible for your will to direct your assets to be distributed to one person, and your beneficiary designation form to direct your retirement plan assets to a different person. Sometimes, this is intentional, and if so, generally done for purposes of minimizing tax consequences. However, many other times, this is a mistake that is overlooked and has unintended consequences.
Why is it important to complete the beneficiary designation form?
Control Who Inherits
Without a properly completed beneficiary designation form, the contractual provisions of your retirement plan will control who inherits your retirement assets. In most cases, the default beneficiary is your estate. However, other retirement plans may state that other persons directly inherit your retirement plan.
You have worked hard during your lifetime to save this money. You should be the one to decide who inherits the funds.
Protect the Funds From Your Creditors
If you intend for the same people to inherit both your probate assets and your retirement assets, it might seem easier simply to name your estate as the beneficiary of your retirement assets and allow all of the assets to be distributed in the same manner. Be warned—by doing so, you are putting your retirement assets at risk of your creditors.
Assume that you die with $100,000 of probate assets (bank accounts, equity in a house, vehicle) and $200,000 of retirement assets. Also assume that, upon your death, you have creditors (credit card companies, a nursing home and medical providers, or even a plaintiff in a lawsuit who obtained a judgment against you). Generally, those creditors can be paid only from your estate. So, if you owe more than $100,000, and if you properly completed your beneficiary designation forms for your retirement assets, those creditors can take only the $100,000 from your estate while your beneficiaries receive all $200,000 of your retirement assets. However, if your retirement assets are distributed to your estate, either because you named your estate on your beneficiary designation form, or your estate is considered the default beneficiary, then your creditors can also be paid from the retirement assets that become part of your estate, and your beneficiaries will not benefit from your hard work.
Protect the Funds From Your Beneficiary’s Creditors
Many people are concerned about protecting beneficiaries from themselves and their creditors. For this reason, many people set up a trust to manage the funds for the benefit of the intended beneficiaries. For example, you could name a local trust company to manage the funds for the benefit of your children until each child reaches the age of 35.
A common mistake with this plan is to name the children instead of the trust on the beneficiary designation forms for the retirement plans. What is the result? Assume the previous situation where you have $100,000 of probate assets and $200,000 of retirement assets. If you establish a trust for your children under the age of 35, but name the children (rather than the trust) as beneficiary, you end up having $100,000 held in trust until they turn 35, and the other $200,000 going to them directly as early as age 18.
Having a will in place is a great start for an estate plan, but the planning should not stop there. Reach out to your lawyer to discuss the next steps, and make sure all of your beneficiary designation forms are completed properly.
Written by Liz Weston
Estate planning mistakes can be expensive to fix — that is, when they can be fixed at all.
That’s the thought that haunts New York attorney Mari Galvin whether she’s creating an estate plan for a client or confronting the aftermath when people didn’t properly plan.
“People think, ‘Oh, I have a simple life,’ but you have to understand [that if] you make a mistake and you have unintended results, you can’t bring the person back to sign a new will,” says Galvin, a partner at Cassin & Cassin law firm.
Galvin is currently sorting out the $12 million estate of a man who thought his situation was straightforward enough to plan with do-it-yourself software. His mistakes left his executors without enough cash to pay the estate’s taxes, which has led to conflicts among the heirs, delays and considerable lawyer fees.
“It’s an absolute mess,” she says.
For many, though, do-it-yourself options may be better than not having any plan. A 2016 Gallup Poll survey found that only 44 percent of Americans have a will, which means most don’t have a plan to guide their families or determine who will take care of minor children. People who don’t have estate plans are stuck in denial, sure, but many are also intimidated by the perceived complexity and cost.
“There’s so many people out there who are just too afraid of the process, don’t understand it, don’t know where to start, don’t know where to go, that they’re doing nothing,” says Chas Rampenthal, general counsel for the self-help site LegalZoom. “That right there is a real tragedy, in my view.”
Fortunately, there’s middle ground between doing it all yourself and paying thousands of dollars for a lawyer.
LegalZoom, for example, offers users the option to consult with an independent attorney while using its software. A basic will without legal advice costs $69, while a bundle that includes advice is $149. At Rocket Lawyer, another self-help service that runs on a subscription model, users pay $40 a month for planning software and unlimited access to attorneys.
Prepaid legal plans, often offered by employers, may be another alternative. (Quicken Willmaker, among the best-known software products, doesn’t offer advice as part of its $70 cost, but its publisher, Nolo, offers a directory of lawyers that users can hire to review their wills.)
Going straight to an attorney will be costlier, but prices vary. A basic will might be $300 to $1,000. The cost for a living trust, which is an alternative to wills designed to avoid probate, starts at about $1,500 and goes up from there, depending on an estate’s complexity.
Jennifer Sawday, an estate planning attorney with TLD Law in Long Beach, California, says people can save money by asking CPAs or other tax professionals for referrals and looking for attorneys who advertise, since they may still be building their practices.
“Understand that most estate plans are actually drafted by software programs so what you are paying for is the advice on the documents you need, having the documents prepared correctly and having the deeds for your real estate recorded for you,” Sawday says.
One of the most valuable services an estate planning attorney can provide, Galvin says, is the opportunity to discuss your situation with an expert who has seen many estate plans in action and who knows what can go wrong.
“With an online form, you have choices, but what you lack is this consultation of being able to say to someone… ‘Walk me through this. Let me get this comfort level of how this would play out for me really for my family,’” Galvin says.
Even those advocating self-help options warn that some situations aren’t appropriate for DIY. These cases can include people with multimillion-dollar estates, disabled children who require special needs trusts, blended families (especially where there may be animosity between the kids and the new spouse), property in foreign countries and complex family businesses, Rampenthal says.
Other people can use software to at least get started on the process, with the idea that they can hand it off to an attorney, if necessary. What’s most important is to get it done.
“One of the most loving things you can do,” Rampenthal says, “is not make people guess at what you wanted.”