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Medicaid, Whole Life Insurance and a Beneficiary: Who Owns the Proceeds?

In some states, the definition of estate recovery from Medicaid includes everything that belonged to the deceased person at the moment just before they die. nj.com’s recent article on the subject asks “Can Medicaid take this life insurance policy?” Here’s one example.

A person owned a whole life insurance policy with a named beneficiary. The person cashed out the policy with the intention of paying for funeral expenses, but the policy remained in effect because the beneficiary continued to make payments on the policy. The person who was receiving Medicaid passed two months after the policy was cashed out. Does Medicaid get to recover the balance of the policy, or does the beneficiary keep the cash proceeds?

In this situation, it looks like the beneficiary, not Medicaid, would receive the money from the life insurance policy.

Under Federal and state laws, Medicaid is required to recover funds from the estates of certain deceased Medicaid recipients for all payments made by Medicaid for services received on or after age 55.

States are able to apply a narrow probate definition of “estate” in their Medicaid recovery program. They can also define “estate” more broadly to include probate, as well as non-probate assets.

Remember that probate assets are those that pass under a will, and non-probate assets are accounts like joint checking accounts, pensions and other assets that are designated to go to a beneficiary directly and not the estate.

This also includes property, such as the deceased person’s home or share of that residence, other bank or investment accounts (whether solely or jointly held), as well as trusts, annuities, stocks, bonds and any other real or personal property.

Proceeds from whole life insurance policies are subject to estate recovery if they’re not liquidated prior to death as required. The proceeds from any life insurance policy are subject to Medicaid recovery, when the proceeds are paid to the estate.

Since the policy was liquidated, there shouldn’t be any estate recovery against the policy. That’s because there was a designated beneficiary that was not the estate.

Situations like this differ based on the facts and the Medicaid rules of different states. Talk with an estate planning elder law attorney to guide you in your unique situation.

Reference: nj.com (October 29, 2019) “Can Medicaid take this life insurance policy?”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

“Blue Water” Benefits for Vietnam Veterans

After waiting decades for “blue water” disability benefits, there’s a real concern among lawmakers in the House that the VA won’t be able to start distributing these benefits.

Military Times reported in its recent article that asks “Will VA be ready to process new ‘blue water’ Vietnam veterans benefits next year?” VA officials have promised that they will start processing cases in January 2020. However, critics and veterans’ advocates want that to happen more quickly. Advocates have also demanded that the White House speed up the timeline for the benefits.

“These people have waited too long, and we finally have the legislation in place,” said Rep. Mike Bost, R-Ill., ranking member on the House Veterans’ Affairs committee’s panel on disability assistance. “We need to get it done.”

Last summer, President Trump signed into law a bill that finalized presumptive benefits status for “blue water” veterans who served on vessels off the coast of Vietnam during the war.

Under Veterans Administration regulations, vets who served on land in the war are presumed to have toxic exposure related to spraying of the defoliant known as Agent Orange during the Vietnam War. However, sailors on ships off the coast of Vietnam weren’t given the same concession.

However, the new law will see as many as 90,000 veterans become eligible for the new presumptive status, which will mean thousands of dollars in disability benefits each month.

This legislation let VA officials delay processing those cases until the beginning of 2020, even though some cases were already being considered, due to a federal court ruling earlier in this year.

Advocates and some members of Congress have complained that the delay has put another unfortunate burden on veterans, who have suffered from Agent Orange exposure for decades.

In an update hearing before the committee, Veterans Affairs Deputy Under Secretary for Field Operations, Willie Clark emphasized that the delay was required to get department systems prepared for the anticipated onslaught of blue water claims.

Other lawmakers said they were concerned that the VA is not including veterans who were on submarines, despite evidence that sailors on board would also have been susceptible to the same toxic exposures.

Reference: Military Times (October 31, 2019) “Will VA be ready to process new ‘blue water’ Vietnam veterans benefits next year?”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Update on Rapper Nipsey Hussle’s Estate

The late rapper also has a three-year old child named Kross with Lauren London, who was granted guardianship over her child. London filed for guardianship in July, three months after Nipsey’s passing, according to a recent article from BET, “Nipsey Hussle’s Family And Lauren London Granted Joint Guardianship Over His Estate.”

A judge has appointed Nipsey’s immediate family, including his siblings, Smith, Sam “Blacc Sam” Asghedom and his mother, Angelique Smith, as Emani’s guardians. The girl is from a previous relationship between the late rapper and a woman named Tanisha Foster, whom Nipsey’s family felt was “unfit” to properly parent her.

London will now have a legal say in the management of her longtime partner’s estate, as it concerns their son. Both Emani and Kross are expected to inherit $1 million each, when they reach the age of majority.

Because a minor can’t inherit an estate outright, a guardianship is requested or ordered by a probate judge. It’s a legal process put into place to protect those who are unable to care for their own well-being due to infancy, incapacity or disability. A court will appoint a legal guardian to care for an individual, known as a ward, who is in need of special protection. It’s common for a guardianship to be set up in situations, like that of Russell’s children.

The Victory Lap rapper’s older brother, Sam “Blacc Sam” Asghedom, has been overseeing the estate since the Grammy-nominated artist’s death.

Asghedom filed a petition with the court to take control over the estate last summer, so he could handle business dealings and make certain that his brother’s legacy stays intact. His request was granted by the judge, and he was appointed as the executor of his late brother’s estate in August 2019.

Russell’s sibling wrote in his filing, “[Nipsey’s] passing has created significant media attention, which, in turn has presented potential time-sensitive business opportunities based on [Nipsey Hussle]’s likeness, right of publicity, and other intellectual property based on the media attention surrounding [Nipsey Hussle]’s exceptional life story and musical career.”

Reference: BET (October 16, 2019) “Nipsey Hussle’s Family And Lauren London Granted Joint Guardianship Over His Estate”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Are We Less Generous, As We Become Less Religious?

Apparently how people feel about faith has a lot to do with how likely they are to make charitable donations. Studies show that people who are extremely religious, regardless of their faith, are more likely to be generous and make donations to charitable organizations. However, as we have become a less religious country, we are giving less.

MarketWatch’s recent article, “Fewer Americans are giving money to charity (and it’s not just because they’re worried about money),” says that the percentage of U.S. adults who donated to charity dropped drastically between 2000 and 2016. That’s according to a recent study from the Indiana University Lilly Family School of Philanthropy and Vanguard Charitable.

In 2016, 53% of Americans gave money to charity. That was down from 66% in 2000. That was steady until the Great Recession, when it started to drop off and took a nosedive after 2010. The drop amounts to 20 million fewer households donating to charity in 2000, compared to 2016, which is the most recent year for available data.

A factor driving the decline is that Americans are becoming less likely to attend religious services or identify with a specific religion. Attending services is linked with giving to religious organizations.  However, it’s also correlated with giving to secular groups. Very religious people of any faith are more likely to give to charity, according to a Baylor University study. However, there are fewer very religious people now in the U.S. The percentage of the population who describe themselves as atheists, agnostics or “nothing in particular” is now at 26%. That’s an increase from 17% in 2009, according to 2018 and 2019 surveys by the Pew Research Center in Washington, D.C. Roughly 65% of Americans describe themselves as Christians, down 12% since 2009.

Religious organizations have traditionally received most of Americans’ charitable dollars, but that has dropped off in recent years. They still received the largest percentage of charitable dollars in 2018, at 29% of total giving, but it was the first year that giving to religion fell under 30% of overall giving, according to the Giving USA annual report on philanthropy.

America’s unsteady recovery from the Great Recession is a factor. Households led by people with less than a high school education, less than $50,000 in income and/or less than $50,000 in wealth (a household’s total assets) significantly decreased the percentage they donated to charity after the recession.

When boomers and Generation X started working, the percent of donations they gave to charity increased. However, millennials are not following that path. They entered the workforce during the worst economy since the Depression of 1929 and are extremely cautious about their resources.

Reference: MarketWatch (October 28, 2019) “Fewer Americans are giving money to charity (and it’s not just because they’re worried about money)”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Is Change Coming to Student Loans?

There have been many discussions about what to do about America’s enormous student loan debt problem. There have been billionaires paying off people’s loans, and scammers preying on student’s vulnerability. Student loan forgiveness programs have not done well. Forbes’s recent article, “Expect These Student Loan Changes In 2020” reviews some of the issues being considered by Congress.

Student Loan Forgiveness. 2020 presidential candidates Senator Bernie Sanders and Senator Elizabeth Warren both are in favor of loan forgiveness. However, the U.S. Secretary of Education, Betsy De Vos, is against wide-scale student loan forgiveness and said it would be “crazy.” Her big concern is who will pay for student loan forgiveness. DeVos believes that, ultimately, federal taxpayers will pay.

Free College. While many Democratic presidential candidates are in favor of “free” community college, others are divided on tuition-free public colleges, which would need federal funding and state cooperation.

No Origination Fees on Student Loans. House Democrats have proposed The College Affordability Act, which would update the Higher Education Act of 1965. The bill would get rid of origination fees, when taking out student loans.

Income-Driven Repayment. An income-driven repayment plan, like PAYE and REPAYE, limits your monthly student loan payment, based on your discretionary income and then allows for student loan forgiveness after 20 to 25 years of on-time payments.

Former Vice President Joe Biden wants to simplify income-based repayment for federal student loans. He proposes that if you make less than $25,000 per year, you’d owe no payment on your undergraduate student loans and also no interest would accrue. If you make more than $25,000 per year, you’d pay only 5% of your discretionary income over $25,000 toward federal student loan payments.

After 20 years of student loan repayment, the rest of your federal student loans balance would be forgiven. That amount wouldn’t be subject to income tax.

Public Service Loan Forgiveness. President Trump proposed to eliminate this program, and instead wants a single income-driven repayment plan that would limit monthly student loan payments to 12.5% of discretionary income and forgive federal student loans after 15 years. Biden says this is broken, and he’d create a new program that offers $10,000 of undergraduate or graduate student loan debt relief for each year of national or community service (up to five years). If you work at a school, in the government, or for a non-profit, you’d be enrolled automatically in this program.

Discharge of Student Loans in Bankruptcy. There’s a bipartisan proposal to let borrowers discharge their student loans in bankruptcy.

Refinancing Student Loans. One proposal, The College Affordability Act, would give student borrowers the option of refinancing their current student loans to today’s low interest rates.

The federal government does not refinance student loans. To do so, borrowers need to work with a private lender to lower interest rates, shrink monthly payments and pay off the loans faster.

Reference: Forbes (October 28, 2019) “Expect These Student Loan Changes In 2020”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

How Does a Special Needs Trust Work?

Special needs or disabled people count on government-funded programs, like Supplemental Security Income and Medicaid, to provide financial support and services. However, there are restrictive income and resource limitations to ensure that those in need, are the ones receiving these benefits.

That’s why many families ask elder law and estate planning attorneys about the two types of special needs trusts.

Moberly Monitor’s recent article, “Things to know, things to do when considering a special needs trust,” explains that with planning and opening a special needs trust, family members can hold assets for the benefit of a family member, without risking critical benefits and services.

If properly thought out, families can continue to support their loved one with a disability long after they’ve passed away.

After meeting the needs of their disabled family member, the resources are kept for further distribution within the family. Distributions from a special needs trust can be made to help with living and health care needs.

To establish a special needs trust, meet with an attorney with experience in this area of law. They work with clients to set up individualized special needs trusts frequently.

Pooled trust organizations can provide another option, especially in serving lower to more moderate-income families, where assets may be less and yet still affect eligibility for vital governmental benefits and services.

An elder law attorney who has experience working with Special Needs families will be able to review your family member’s situation and determine what the best way is to protect your family members and ensure that he or she receives the benefits and serves they need, in conjunction with a Special Needs Trust. There may be other options for your family, depending on your situation.

Reference: Moberly Monitor (October 27, 2019) “Things to know, things to do when considering a special needs trust”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Four Changes Coming to Social Security in 2020 You Need to Know About

For millions of aging Americans, Social Security is the only retirement income they have. The same is true for people who are disabled and unable to work.

Motley Fool’s recent article, “4 Must-Know Facts About Social Security for 2020,” says that to get as much as you can from Social Security, you need to understand how each year's changes will impact you. With benefit checks, retirement age, maximum benefit calculations and Social Security payroll taxes, there's quite a bit for people to monitor with Social Security in 2020. Let’s look at few big changes:

1. Next year’s cost-of-living adjustment. Every year, Social Security gives those receiving benefits a cost-of-living increase in their monthly checks. The amount varies from year to year, based on inflation figures. The SSA recently announced that it would increase benefit checks by 1.6% at the start of 2020. This bump will impact seniors in different ways. The typical retired worker will see monthly benefits rise from $1,479 to $1,503. For couples receiving two benefit checks, the typical total will rise by $40 to $2,531 per month. If you're receiving Social Security benefits based on a family member's work history, you'll also see increases. Widowed parents with two children will see $46 more per month ($2,934). Surviving spouses without eligible children will receive a $22 per month increase to $1,422, while the typical disabled worker will see checks go up $20 to $1,258 per month.

2. Early retirees in 2020 will see a higher full retirement age. The SSA figures your benefits using a formula that anticipates that you'll claim Social Security when you reach full retirement age. If you claim earlier, then you'll receive less than if you had waited. However, for those turning 62 in 2020, full retirement age will be slightly higher than it was for those turning 62 in 2019. Those born in 1958 will have a full retirement age of 66 and eight months—two months older than it was for people who were born in 1957 and reached 62 in 2019. Thus, 2020's 62-year-olds will take a 28.33% reduction in their monthly payment, compared to what they'd get at full retirement age. That's a little more than the 27.5% reduction that applied to 2019's 62-year-olds.

3. High earners can anticipate a larger maximum Social Security benefit. If you retire in 2020 and qualify for the maximum benefit, you'll see a bigger check than those who retired this year. If you work to full retirement age before collecting benefits, your maximum amount for Social Security benefits will be $3,011. That’s an increase of $150 from 2019.

However, not every increase will be that large, because receiving the maximum depends significantly on exactly when you elect to retire and take benefits. For those claiming Social Security at 62, the maximum monthly benefit will go up $56 to $2,265. Those retiring at 65 will see a $100 increase to $2,857 per month. However, for those retiring at age 70, the increase will be minimal, increasing only $20 to $3,790 per month. Even if you end up short of the absolute maximum, those earning higher incomes can generally expect to see a boost to what they'll receive.

4. High-income workers can plan on paying more in Social Security taxes. Payroll taxes are the main source of revenue for Social Security, and the maximum Social Security payroll tax is going up. In 2020, $4,800 more in earnings will be subject to payroll tax, maxing out at $137,700. Between the 6.2% employee portion and the matching 6.2% employers have to pay, a total of 12.4% of your earnings will be taken by federal government.

Most workers won’t see any change in their withholding, because the average American earns less than $137,700. Their rate will continue to be 6.2% on total earnings. However, for high earners, who take home more than $137,700, withholding will increase by $297.60. People who are self-employed will also see an increase: their maximum takes will increase by twice that, or $595.20. It’s best to know in advance, so you can plan accordingly if you are among those whose withholding will increase.

Reference: Motley Fool (October 27, 2019) “4 Must-Know Facts About Social Security for 2020”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

A Rare Chance to Increase Retirement Income By Doing Nothing

In most cases, more money requires more action, but not with Social Security, according to Motley Fool’s article, “2 Passive Ways to Boost Your Social Security Benefits.”

1. Do not FILE early. The Social Security Administration (SSA) lets you start collecting benefits at age 62. However, you won't receive the full monthly benefit you're due, until you reach your full retirement age, or FRA. Your FRA is determined based on your year of birth.

Filing early for benefits will usually mean that you’ll see a permanent reduction in benefits. You'll forfeit about 6.67% a year for the first 36 months you claim benefits ahead of FRA, and then 5% a year for each 12-month period after that. Therefore, filing for Social Security three years early will decrease your benefits by 20%. Filing four years early will mean a 25% reduction and filing five years early will mean a 30% cut. However, if you sit back and do nothing—delaying until your FRA to file—you'll get more money than you would by filing sooner. If you wait on your benefits past your FRA, you'll permanently increase them by 8% a year in the process, up to age 70.

2. Do not RETIRE early. Your Social Security benefits are calculated based on your 35 highest-paid years of wages. However, most people earn more at the end of their career than they do at the start, so if you wait to retire and keep working later in life, you might up your benefits, by replacing some lower-earning years with higher earnings.

If you began working full-time at age 22, and you're thinking of retiring at age 57, you'll still have a full 35 years of work under your belt. You won't risk having any zero income years calculated into your benefits formula. That’s what happens to those who don't have a full 35 years in the workforce. However, if you earned $25,000 a year at age 22, and you're earning $125,000 a year now, by not retiring, you'll have the chance to replace some of those $25,000 years with a higher income. (Note that in calculating your benefits, the SSA will adjust earlier earnings for inflation. Even so, a $25,000 salary earned 35 years ago still can't match a $125,000 salary).

There’s a good chance that even if you have a nice healthy nest egg, your Social Security benefits will help pay for some additional or unexpected costs. The very idea of increasing benefits by doing nothing is very appealing. Remember that by remaining in the workplace, your Social Security benefits keep growing.

Reference: Motley Fool (October 28, 2019) “2 Passive Ways to Boost Your Social Security Benefits”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Will A Trust Be Enough to Protect Our Children’s Inheritance?

There are a number of different types of trusts that can be used to protect assets. Which one should be used? That depends upon the family’s situation.

nj.com’s recent article answers this question: “We have $1.5 million. Should we get a trust for our children’s inheritance?” According to the article, parents could create lifetime trusts or trusts in their wills for the benefit of the surviving spouse during the spouse’s lifetime.

After that, they can have the remainder of the assets pass in trusts for each of the children, until they reach a certain age or ages.

A lifetime trust is a type of trust that’s created during an individual's lifetime. This is different from a testamentary trust, which is a trust created after a person's lifetime through the operation of that person's will.

Usually the individual who settles the trust (the "Grantor") will retain control over the assets in the trust, including the right to revoke the assets during his or her lifetime. These forms of lifetime trusts are known as grantor trusts.

Another option is to have these types of trusts continue for the benefit of the grandchildren.

The children’s trusts can have instructions that the assets and income are to be used for the health, maintenance, education and support of the child.

The parents would need to name a trustee or co-trustee. This is the person who’s responsible for investing the assets, filing tax returns and paying taxes (if necessary). He or she will also distribute the assets, according to the terms of the trust.

Trusts are too complicated to do without the guidance of a qualified estate planning attorney. Make an appointment to meet with an attorney and learn what trust is most appropriate for your family.

Reference: nj.com (October 16, 2019) “We have $1.5 million. Should we get a trust for our children’s inheritance?”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

SECURE Act or RESA Act Will End the Stretch IRA

Congress is considering two different acts, SECURE and RESA, both of which eliminate the ability for heirs, who are not spouses, to keep funds in an IRA account and take minimal distributions over the course of their lifetime. Losing this tax-deferred growth option will upset many wealth distribution plans.

If a parent doesn’t need her Required Minimum Distributions, does it make sense to do a gradual Roth IRA conversion and use the RMDs to pay taxes on the conversion? Or should the parent invest the RMDs in a brokerage account?

There are several options in this situation, according to nj.com’s ecent article, “With Stretch IRAs on the way out, how can I plan for my children’s inheritance?”

Congress is considering legislation with the SECURE and RESA Acts, that would eliminate the ability of children to create a stretch IRA, one that would let them to stretch distributions from the inherited IRA over their lifetimes.

Under the proposed SECURE and RESA Acts under consideration, the maximum deferral period will be 10 years. If the beneficiary is a minor, the period would be 10 years or age 21.

The best planning strategy for a parent would depend on her overall finances and what she wants for her children’s inheritance.

The conversion to a Roth may be a good planning move, depending on her tax bracket. Putting the money in a brokerage account is also an option.

A parent may also want to think about using the RMD proceeds to purchase a life insurance policy held by an irrevocable trust for the benefit of her children.

Because every family’s situation is different, it is recommended that a concerned parent contact an experienced estate planning attorney, who will be able to create a plan for the taxes and for the transfer of assets to the next generation.

Reference: nj.com (October 15, 2019) “With Stretch IRAs on the way out, how can I plan for my children’s inheritance?”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899