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Legislation to Prevent Medicare Mistakes

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 legislation to prevent costly Medicare 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 legislation 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”

 

digital assets need to be included

What Happens When a Will Is Challenged?

What happens when a will is challenged? A last will and testament is a legally binding contract that determines who will get a person’s assets. However, according to the article “Can you prevent someone from challenging your will?” in the Augusta Free Press, it is possible for someone to bring a legal challenge.

Most will contests are centered around five key reasons:

  • The deceased had a more recent will.
  • The will was not signed voluntarily.
  • The deceased was incapacitated, when she signed the will.
  • The will was not signed in front of the right number of witnesses.
  • The will was signed under some kind of duress or mental impairment.

What is the best way to lessen the chances of someone challenging your will? Take certain steps when the will is created, including:

Be sure your will is created by an estate planning attorney. Just writing your wishes on a piece of paper and signing and dating the paper is not the way to go. Certain qualifications must be met, which they vary by state. In some states, one witness is enough for a will to be properly executed. In others, there must be two and they can’t be beneficiaries.

The will must state the names of the intended beneficiaries. If you want someone specific to be excluded, you’ll have to state their name and that you want them to be excluded. A will should also name a guardian, if your children are minors.  It should also contain the name of an alternate executor, in case the primary executor predeceases you or cannot serve.

What about video wills? First, make a proper paper will. If you feel the need to be creative, make a video. In many states, a video will is not considered to be valid. A video can also become confusing, especially if what you say in the paper will is not exactly the same as what’s in the video. Discrepancies can lead to will contests.

Don’t count on those free templates. Downloading a form from a website seems like a simple solution, but some of the templates online are not up to date. They also might not reflect the laws in your state. If you own property, or your estate is complex, a downloaded form could create confusion and lead to family battles.

Tell your executor where your will is kept. If no one can find your will, people you may have wanted to exclude from your estate will have a better chance of succeeding in a will challenge. You should also tell your executor about any trusts, insurance policies and any assets that are not listed in the will.

Don’t expect that everything will go as you planned. Prepare for things to go sideways, to protect your loved ones. It is costly, time-consuming and stressful to bring an estate challenge, but the same is true on the receiving end. If you want your beneficiaries to receive the assets you intend for them, a good estate planning attorney is the right way to go.

To learn more about wills and how they can be contested, take a look at our previous posts about Probate.

Reference: Augusta Free Press (July 12, 2020) “Can you prevent someone from challenging your will?”

 

digital assets need to be included

Neglecting to Fund a Trust

Neglecting to fund a trust is a surprisingly common mistake, and one that can undo the best estate and tax plans. Many people put it on the back burner, then forget about it, says the article “Don’t Overlook Your Trust Funding” from Forbes.

Done properly, trust funding helps avoid probate, provides for you and your family in the event of incapacity and helps save on estate taxes.

Creating a revocable trust gives you control. With a revocable trust, you can make changes to the trust while you are living, including funding. Think of a trust like an empty box—you can put assets in it now, or after you pass. If you transfer assets to the trust now, however, your executor won’t have to do it when you die.

Note that if you don’t put assets in the trust while you are living, those assets will go through the probate process. While the executor will have the authority to transfer assets, they’ll have to get court approval. That takes time and costs money. It is best to do it while you are living.

A trust helps if you become incapacitated. You may be managing the trust while you are living, but what happens if you die or become too sick to manage your own affairs? If the trust is funded and a successor trustee has been named, the successor trustee will be able to manage your assets and take care of you and your family. If the successor trustee has control of an empty, unfunded trust, a conservatorship may need to be appointed by the court to oversee assets.

There’s a tax benefit to trusts. For married people, trusts are often created that contain provisions for estate tax savings that defer estate taxes until the death of the second spouse. Income is provided to the surviving spouse and access to the principal during their lifetime. The children are usually the ultimate beneficiaries. However, the trust won’t work if it’s empty.

Depending on where you live, a trust may benefit you with regard to state estate taxes. Putting money in the trust takes it out of your taxable estate. You’ll need to work with an estate planning attorney to ensure that the assets are properly structured. For instance, if your assets are owned jointly with your spouse, they will not pass into a trust at your death and won’t be outside of your taxable estate.

Move the right assets to the right trust. It’s very important that any assets you transfer to the trust are aligned with your estate plan. Taxable brokerage accounts, bank accounts and real estate are usually transferred into a trust. Some tangible assets may be transferred into the trust, as well as any stocks from a family business or interests in a limited liability company. Your estate planning attorney, financial advisor and insurance broker should be consulted to avoid making expensive mistakes.

You’ve worked hard to accumulate assets and protecting them with a trust is a good idea. Just don’t neglect the final step of funding the trust.

Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”

 

digital assets need to be included

Do You Need a DNR in Your Estate Plan?

The rise of COVID 19 has caused many people to consider estate planning, and that is a good thing. When the discussion arrives at end of life decisions, the subject of a DNR comes up. Do you need a DNR in your estate plan? Forbes’s article entitled “Should “Do Not Resuscitate” Be Part Of Your Estate Plan?” explains the difference between a health care proxy and a DNR.

A health care proxy is a legal document that lets you name an agent to make health care decisions for you. It is used if you’re unable to make those decisions for yourself. When you were again able to communicate, you’d go back to making your decisions for yourself. The ability to create a health care proxy is governed by your state’s laws. Every state’s laws are different.

Ask an experienced estate planning attorney about a DNR and how to comply with your state’s law in creating these directives. He or she will know about health care institutions and whether they will give authority to the documents you created. If they won’t, your named agent would have to go to court to enforce them.

You can also supplement your state’s directives with additional guidance.

Some states’ directives require a set series of instructions for your agent in your estate plan regarding your DNR. For instance, it may include questions as to whether you want life sustaining treatment and medically administered nutrition and hydration. Other states contain language that is broader. They allow the agent more latitude to decide end-of-life decisions. This language usually includes the intention that you want to be taken off life support, if you have a terminal illness or injury and your death is imminent.

A DNR is a medical order informing health care workers that they are not to revive you. It is a document that you put in place with your physician. Some states have also adopted MOLST forms (Medical Orders for Life Sustaining Treatment) to address other situations, like intubation, ventilation and dialysis. These documents require a thorough discussion between the patient and the health care provider. They are typically part of end of life care, when a person has an advanced stage terminal illness.

If you’re relatively healthy, you want to be treated – and resuscitated – if you have a heart attack. There may be a time when you need a DNR, but most likely it’s not now. If and when that time comes, you’ll need to have a talk with your doctor and estate planning attorney about a DNR, and whether you should include it in your estate plan.

However, you should speak with your estate planning attorney about your health care proxy, especially if you don’t have one. Whether it’s during the coronavirus pandemic or not, a health care proxy is a critical part of a complete estate plan. To learn more about other important documents to include in your planning, such as a Power of Attorney or Guardianship, please read our previous posts.

Reference: Forbes (May 28, 2020) “Should “Do Not Resuscitate” Be Part Of Your Estate Plan?”

 

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Can I Disinherit Anyone I Want?

Can I disinherit anyone I want? If there’s someone you believe is more deserving or needs more of your help, that may mean someone else in your life may receive little or nothing from you when you die. However, be careful—disinheriting an heir is not as simple as leaving them out of your will, explains the article “How to Disinherit an Heir” from smart asset.

Disinheriting an heir means you’ve prevented them from receiving a portion of your estate, when you die. A local estate planning lawyer will know what your state requires, and every state’s laws are different.

One way is by leaving the person out completely. However, this could also leave your will up for interpretation, as there may be questions raised about your intent. A challenge could be raised that you didn’t mean to leave them out—and that could create stress, expenses and family fights.

You may also disinherit a person, by stating in your will that you do not wish to leave anything to this specific person. You might even provide information about why you are doing this, so your intent is clear. There could still be challenges, even with your providing reasons for cutting the person out of your will.

Disinheriting someone can be a tricky thing to do. It requires professional help. Working with an experienced estate planning attorney who has experience in will contests, may be your best choice for an estate planning attorney.

There are instances where relatives known and unknown to you are entitled to make a claim on your estate. An experienced estate planning attorney may suggest a search for relatives to ensure that no surprises come out of the woodwork, after your passing.

There are some relatives who cannot be disinherited, even in a legally binding last will and testament. In many states, you may not disinherit your spouse or children. Most states protect spouses from being disinherited, and in some states, children are legally entitled to a certain amount of your property. However, in most states, you may disinherit parents, if they outlive you.

There are many reasons you may want to disinherit someone. You may have been estranged from a child or a cousin for many years, or you may believe they have enough financial resources and want someone else to receive an inheritance from you.

Many high-profile individuals have declared that their children will not receive an inheritance, preferring to give their assets to charitable foundations or organizations working for causes they support.

Whatever your reasons for disinheriting someone, make sure you go about it with professional help to ensure that your wishes are followed after you die. To learn more about inherited assets and how they work, please read our previous posts.

Reference: smart asset (June 1, 2020) “How to Disinherit an Heir”

 

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Can You Protect Your Estate with Life Insurance?

Can you protect your estate with life insurance? With proper planning, insurance money can pay expenses, such as estate tax and keep other assets intact, says FedWeek’s article entitled “The Role of Life Insurance in Estate Planning.”

The article provides the story of “Bill” as an example. He dies and leaves a large estate to his daughter Julia. There are significant estate taxes due. However, most of Bill’s assets are tied up in real estate and an IRA. Julia may not want to hurry into a forced sale of the real estate. If she taps the inherited IRA to raise cash, she’ll be forced to pay income tax on the withdrawal and lose a valuable opportunity for extended tax deferral.

A wise move for Bill would be to purchase life insurance on his own life. The policy’s proceeds could be used to pay the estate tax bill. Julia will then be able to keep the real estate, while taking only the Required Minimum Distributions (RMDs) from the inherited IRA. If Julia owns the insurance policy or it’s owned by a trust, the proceeds probably will not be included in Bill’s estate and won’t help with the estate tax obligation.

While you may be able to protect your estate with life insurance, there are a few common life insurance errors that can damage an estate plan:

Designating the estate as beneficiary. If you make this move, you put the policy proceeds in your estate, where the money will be exposed to estate tax and your creditors. Your executor will also have additional paperwork, if your estate is the beneficiary. Instead, be certain to name the appropriate people or charities.

Designating a single beneficiary. Name at least two “backup” or contingency beneficiaries. This will eliminate some confusion in the event the primary beneficiary should predecease you.

Placing your life insurance in the “file and forget” file. Be sure to review your policies at least once every three years. If the beneficiary is an ex-spouse or someone who has passed away, you need to make the appropriate change and get a confirmation, in writing, from your life insurance company.

Inadequate insurance. You may not have enough life insurance. If you have a young child, it may require hundreds of thousands of dollars to pay all of his or her expenses, such as college tuition and expenses, in the event of your untimely death. Skimping on insurance may hurt your surviving family. You also don’t need to be so thrifty, because today’s term insurance costs are very low.

To learn more about estate planning in general, please visit our previous posts here.

Reference: FedWeek (June 11, 2020) “The Role of Life Insurance in Estate Planning”

 

digital assets need to be included

When a Bank Declines a Power of Attorney

It is frustrating when a bank or other financial institution declines a Power of Attorney. It might be that the form is too old, the bank wants their own form to be used, or there seems to be a question about the validity of the form. A recent article titled “What to know if your bank refuses your power of attorney” from The Mercury discusses the best way to prevent this situation, and if it occurs, how to fix it.

The most important thing to know is just downloading a form from the internet and hoping it works is always a bad idea. There are detailed rules and requirements about notices and acknowledgments and other requirements. Specific language is required. It is different from state to state. It’s not a big deal if the person who is giving the power of attorney is alive, well and mentally competent to get another POA created, but if they are physically or legally unable to sign a document, this becomes a problem.

There have been many laws and court cases that defined the specific language that must be used, how the document must be witnessed before it can be executed, etc. In one case in Pennsylvania, a state employee was given a power of attorney to sign by her husband. She was incapacitated at the time after a car accident and a stroke. He used the POA to change her retirement options and then filed for divorce.

At issue was whether she could present evidence that the POA was void when she signed it, invalidating her estranged husband’s option and his filing for her benefits.

The Pennsylvania Supreme Court found that a third party (the bank) could not rely on a void power of attorney submitted by an agent, even when the institution did not know that it was void at the time it was accepted. For banks, this was a clear sign that any POAs had to be vetted very carefully to avoid liability. There was a subsequent fix to the law that provided immunity to a bank or anyone who accepts a POA in good faith and without actual knowledge that it may be invalid. However, it includes the ability for a bank or other institution or person to request an agent’s certification or get an affidavit to ensure that the agent is acting with proper authority.

It may be better to have both a POA from a person and one that uses the bank or financial institution’s own form. It’s not required by law, but the person from the bank may be far more comfortable accepting both forms, because they know one has been through their legal department and won’t create a problem for the bank or for them as an employee.

There are occasions when it is necessary to fight the bank or financial institution’s decision. This is especially the case, if the person is incapacitated and your POA is valid.

If there is any doubt about whether the POA would be accepted by the bank, now is the time to check and review the language and formatting with your estate planning or elder law attorney to be sure that the form is valid and will be acceptable. To learn more about how POAs work, please read our previous post, What is so important about Powers of Attorney?

Reference: The Mercury (July 7, 2020) “What to know if your bank refuses your power of attorney”

 

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Balancing Retirement with Special Needs Planning

Balancing retirement with special needs planning can be difficult for a family with a special needs child. Many government benefits are “means tested,” which can put financial restrictions on how much money the individual can have in their name. Careful estate and financial planning is important, advises the article “How Having A Child With Special Needs Impacts Your Retirement Planning” from Forbes.

In most instances, providing financially for children ends a year or two after college. However, for the family with a special needs family member, the financial assistance does not end. It’s also likely that the child will live with their parents well into the parent’s retirement. The family will need more money during retirement to provide for their child’s needs, including therapies, transportation and hobbies.

The family may choose to have the child live in a group home setting, but those costs are substantially higher, depending on the home and the level of care required.

Parents are often more focused on planning to care for their disabled family member and overlook their own retirement planning. It is important to find the balance between both.

Social Security planning is a bigger factor for the family with a special needs family member. If parents decide to collect their Social Security benefits, they need to map out what different scenarios could mean, including delaying when to take benefits and spend down assets.

If the disability of a child with special needs began before age 22, the child may be eligible for Social Security Disability Insurance, generally half of the last surviving parent’s Social Security payment in retirement (in addition to what the parent receives). When that parent dies, the amount increases to three-quarters of the parent’s benefits. This must be calculated in terms of income now for the child while the parents are living and after the parents pass.

It’s critical for the parents of an individual with special needs to do a careful budget analysis of their own retirement income and what they will need to care for their child. Once they understand these numbers, they can figure out what assets and income streams will make the most sense. A professional financial advisor can be very helpful for this process.

The family may need to set up a special needs trust (SNT), which is best done with an experienced estate planning elder law attorney. Life insurance may be purchased to fund a child’s lifetime needs and be placed in the SNT.

The family will also need to address tax planning. Traditional 401(k) plans and IRA accounts are not taxed until withdrawals are taken. There have been a number of changes to the law in recent months, not the least of which is the CARES Act, which allows withdrawals to be made from retirement accounts with no extra penalties. For additional information, please read our previous post on special needs planning.

Reference: Forbes (July 1, 2020) “How Having A Child With Special Needs Impacts Your Retirement Planning”

 

digital assets need to be included

Understanding The Role Of An Executor

Have you been named an executor of an estate? Like many people, you may not have any idea what you are supposed to do. An estate executor or executrix is the person who has been named to administer the estate of a deceased person. Understanding the role of an executor is vital to ensuring an estate is properly managed and distributed.

The executor is appointed by the testator of the will (the person who makes the will) or by a court, when there was no prior appointment (and the individual dies intestate).

As the executor, you take a chance in distributing the estate before everyone has approved a final accounting and signed a Refunding Bond and Release.

This means that the heirs accept their distribution and release the executor from any claims concerning his or her administration of the estate.

Nj.com’s recent article entitled “Can I distribute inheritances now or do I have to wait?” says that if one of the beneficiaries doesn’t accept the executor’s form of accounting and his or her purported share, the executor will need to bring an action in court seeking its approval of a formal accounting and release as executor.

This process can be very expensive and, if there is no misfeasance by the executor found by the court, the expenses are usually paid for from estate funds. This reduces the total pay-out to heirs. As a result, it reduces all the beneficiaries’ distributive shares.

An executor has a fiduciary duty to the beneficiaries of the estate, which means he or she must manage the estate as if it were their own and manage the assets prudently. Thus, an executor can’t do anything that intentionally harms the interests of the beneficiaries.

If the executor decides to pay some beneficiaries before all of the named beneficiaries agree to the distributions, he or she may not have the funds to bring the formal accounting action in court.

It’s usually a best practice to wait until everyone approves the accounting and provides the necessary paperwork, before making any distributions to any heirs. To learn more about drafting a will, consider our previous post, What You Need To Know About Drafting Your Will.

Reference:nj.com (May 8, 2020) “Can I distribute inheritances now or do I have to wait?”

 

digital assets need to be included

How Do I Protect an Inheritance from Taxes?

How do I protect an inheritance from taxes? Inheritances aren’t income for federal tax purposes, whether you inherit cash, investments or property. However, any subsequent earnings on the inherited assets are taxable, unless it comes from a tax-free source. Therefore, you must include the interest income in your reported income.

The Street’s recent article entitled “4 Ways to Protect Your Inheritance from Taxes” explains that any gains when you sell inherited investments or property are usually taxable. However, you can also claim losses on these sales. State taxes on inheritances vary, so ask a qualified estate planning attorney about how it works in your state.

The basis of property in a decedent’s estate is usually the fair market value (FMV) of the property on the date of death. In some cases, however, the executor might choose the alternate valuation date, which is six months after the date of death—this is only available if it will decrease both the gross amount of the estate and the estate tax liability. It may mean a larger inheritance to the beneficiaries.

Any property disposed of or sold within that six-month period is valued on the date of the sale. If the estate isn’t subject to estate tax, the valuation date is the date of death.

If you are concerned about protecting your inheritance from taxes, you might create a trust to deal with your assets. A trust lets you pass assets to beneficiaries after death without probate. With a revocable trust, the grantor can remove the assets from the trust, if necessary. However, in an irrevocable trust, the assets are commonly tied up until the grantor dies.

Let’s look at some other ideas on the subject of inheritance:

You should also try to minimize retirement account distributions. Inherited retirement assets aren’t taxable, until they’re distributed. Some rules may apply to when the distributions must occur, if the beneficiary isn’t the surviving spouse. Therefore, if one spouse dies, the surviving spouse usually can take over the IRA as their own. RMDs would start at age 72, just as they would for the surviving spouse’s own IRA. However, if you inherit a retirement account from a person other than your spouse, you can transfer the funds to an inherited IRA in your name. You then have to start taking RMDs the year of or the year after the inheritance, even if you’re not age 72.

You can also give away some of the money. Another way to protect an inheritance from taxes is give some of it away. Sometimes it’s wise to give some of your inheritance to others. It can assist those in need, and you may offset the taxable gains on your inheritance with the tax deduction you get for donating to a charitable organization. You can also give annual gifts to your beneficiaries, while you’re still living. The limit is $15,000 without being subject to gift taxes. This will provide an immediate benefit to your recipients and also reduce the size of your estate. Speak with an estate planning attorney to be sure that you’re up to date with the frequent changes to estate tax laws.

Reference: The Street (May 11, 2020) “4 Ways to Protect Your Inheritance from Taxes”