implementing succession plans before the year ends

Keeping Your Medicare Premiums Low

November 18, 2020

Here’s a generous incentive for older Americans who want to help their favorite charities: by giving generously from the right asset source, you could be keeping your Medicare premiums low 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 your Medicare premiums low 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 and keep your Medicare premiums low, while still 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.

If you would like to learn more about Medicare costs and planning, please visit our previous posts.

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

Different Types of Special Needs Trusts

November 17, 2020

The most frequently used tool to protect and care for children with special needs after both parents has passed is a special needs trust, says Forbes in its article entitled “Making Trusts for Special Needs Children.” A special needs trust is a legal instrument used to provide benefits to an individual with special needs, while also maintaining that person’s ability to receive state or federal benefits assistance. The trust is usually created by a parent or guardian, with the special needs child as the beneficiary. It is important to understand the different types of special needs trusts.

A third-party trustee is often appointed. That person or institution has authority to make disbursements from the assets in the trust on behalf of the beneficiary. This trust lets parents make sure that their child with special needs has his or her needs met after the parents pass away.

Some government benefits used by a person with special needs—such as Supplemental Security Income (SSI) and Medicaid are “means tested.” That means they are only available to those who themselves have limited income or assets. If a parent wants to provide support to a child with special needs after the parent’s death, those assets must pass correctly to ensure that the assets don’t cause that child to directly own the assets and thereby lose their government eligibility for the benefits.

Again, any assets left directly to the beneficiary without use of a trust could disrupt the beneficiary’s receipt of benefits, taking money and support away from the beneficiary.

What are the differnt types of special needs trusts? The most common special needs trust is a third-party special needs trust. This trust is funded by family members of the beneficiary to make certain that there are specific assets set aside for the beneficiary’s utility bills, education, entertainment, or most other regular expenses.

There are also first-party trusts, where the trust is established with the assets owned directly by the child with special needs. This can result when the child with special needs receives an inheritance, life insurance payout, or personal injury settlement directly, which may impact their existing benefits.

There are also pooled trusts, which are trusts that are managed by a nonprofit organization. With a pooled trust, the grantor doesn’t have to name a trustee, especially one who may not have experience in managing trust assets. Consequently, the assets are held for the benefit of the child with special needs, but they are managed by an organization with expertise in doing just that.

An ABLE account is another option. They’re not trusts, but they allow up to $15,000 a year to be earmarked for the benefit of a person with special needs. The distribution rules are similar to those of a special needs trust.

It can be difficult to understand the different types of special needs trusts. There is significant complexity with the laws surrounding special needs trusts, so you should work with an experienced estate planning attorney or elder law attorney.

To learn more about special needs planning, please visit our previous posts.

Reference: Forbes (Sep. 10, 2020) “Making Trusts for Special Needs Children”

What Medicare Doesn’t Cover

November 2, 2020

Medicare Part A and Part B, also known as Original Medicare or Traditional Medicare, cover a big part of your medical expenses after you turn age 65. It is important to understand what Medicare doesn’t cover. Kiplinger’s recent article entitled “7 Things Medicare Doesn’t Cover” reviews what isn’t covered by Medicare, plus information about supplemental insurance policies and strategies that can help cover the additional costs, so you don’t end up with unexpected medical bills in retirement.

Prescription Drugs. Medicare doesn’t provide coverage for outpatient prescription drugs. However, you can buy a separate Part D prescription-drug policy that does, or a Medicare Advantage plan that covers both medical and drug costs.

Long-Term Care. One of the biggest possible expenses in retirement is the cost of long-term care. However, you can purchase long-term-care insurance or a combination long-term-care and life insurance policy to cover these costs.

Deductibles and Co-Pays. Medicare Part A covers hospital stays, and Part B covers doctors’ services and outpatient care. However, you’re on the hook for deductibles and co-payments. In 2020, you’ll have to pay a Part A deductible of $1,408 before coverage begins, and you’ll also have to pay some of the cost of long hospital stays – $352 per day for days 61-90 in the hospital and $704 per day after that. Over your lifetime, Medicare will only help pay for a total of 60 days beyond the 90-day limit, called “lifetime reserve days,” and thereafter you’ll pay the full hospital cost.

Dental Care. Medicare doesn’t provide coverage for routine dental visits, teeth cleanings, fillings, dentures or most tooth extractions. There are some Medicare Advantage plans that cover basic cleanings and X-rays, but they generally have an annual coverage cap of about $1,500. Look at coverage from a separate dental insurance policy or a dental discount plan.

Routine Vision Care. Medicare doesn’t cover routine eye exams or glasses (exceptions include an annual eye exam, if you have diabetes or eyeglasses after having certain kinds of cataract surgery). However, there are Medicare Advantage plans that have vision coverage, or you may be able to buy a separate supplemental policy that provides vision care alone or includes both dental and vision care.

Hearing Aids. Medicare doesn’t provide coverage for routine hearing exams or hearing aids, which can cost as much as $3,250 per ear. However, a few Medicare Advantage plans cover hearing aids and fitting exams, and some discount programs provide lower-cost hearing aids.

Medical Care Overseas. Medicare doesn’t cover care you get while outside of the U.S., except for very limited circumstances (such as on a cruise ship within six hours of a U.S. port). Medigap plans C through G, M and N, however, cover 80% of the cost of emergency care abroad, with a lifetime limit of $50,000. Some Medicare Advantage plans cover emergency care abroad.

If you would like to learn more about Medicare, please visit our previous posts.

Reference: Kiplinger (Oct. 1, 2020) “7 Things Medicare Doesn’t Cover”

Do You Need a Medigap Policy?

August 13, 2020

Do You need a Medigap policy? Medigap supplemental policies are sold by private insurance companies and either fully or partially cover cost-sharing aspects of Medicare Part A (hospital coverage) and Part B (outpatient care). However, one thing that feeds into the premium cost is how the insurer “rates” its Medigap policies, explains CNBC’s recent article entitled “A ‘Medigap’ policy picks up some costs that Medicare won’t. Here are tips for choosing one.”

In fact, some insurers will provide discounts for two Medigap policies in the same household. Therefore, you would want to understand a carrier’s premium rating system, its claims history and the caliber of its customer service department. Don’t buy a policy just based on the cost.

About 62.3 million people, most of whom are 65 or older, are enrolled in Medicare. About a third of beneficiaries opt to get their Part A (hospital coverage) and Part B (outpatient care) benefits through an Advantage Plan (Part C). Those plans offer out-of-pocket limits and frequently will have dental and vision coverage or other benefits. They also typically provide Part D prescription drug coverage. The rest use original Medicare — Parts A and B — and, typically, add a standalone Part D prescription plan. In that scenario, unless you have some other type of coverage (i.e., employer-sponsored insurance or you get extra coverage from Medicaid), the option for lowering your out-of-pocket costs is a Medigap policy.

When you initially enroll in Part B, you have six months to buy a Medigap policy without an insurance company reviewing your health history and deciding whether to insure you. After this period ends, depending on the specifics of your situation and the state in which you reside, you may have to go through underwriting.

The reasons to buy a Medigap policy are different for each individual. A big difference in premiums can come from how they are “rated.” If you know this, it may help you to appreciate what may happen to your premium in the future. There are some insurers’ Medigap policies that are “community-rated.” This means everyone who buys a particular policy pays the same rate, no matter what their age. Other plans are based on “attained age.” That means the rate you receive at purchase, is based upon your age and will go up as you get older. A few others use “issue age,” where the rate will stay the same as you age, but it’s based on your age at the time you purchase the policy.

Your premiums also may jump from year to year due to other factors, like inflation and insurer increases.

Remember to see if there’s a household discount. Many insurers have this, and it can save 3% to 14%.

If you would like to learn more about obtaining other policies, like life insurance, please read some of our previous posts.

Reference: CNBC (June 15, 2020) “A ‘Medigap’ policy picks up some costs that Medicare won’t. Here are tips for choosing one”

Legislation to Prevent Medicare Mistakes

August 12, 2020

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”

Category: Medicare

Keeping Your Medicare Premiums Low

What Medicare Doesn’t Cover

Do You Need a Medigap Policy?

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