What Should I know about Financial Powers of Attorney? – Annapolis and Towson Estate Planning

A financial power of attorney is a document allowing an “attorney-in-fact” or “agent” to act on the principal’s behalf. It usually allows the agent to pay the principal’s bills, access her accounts, pay her taxes and buy and sell investments. This person, in effect, assumes the responsibilities of the principal and can act for the principal in all areas detailed in the document.

Kiplinger’s recent article from April entitled “What Are the Duties for Financial Powers of Attorney?” acknowledges that these responsibilities may sound daunting, and it is only natural to feel a little overwhelmed initially. Here are some facts that will help you understand what you need to do.

Read and do not panic. Review the power of attorney document and know the extent of what the principal has given you power to handle in their stead.

Understand the scope. Make a list of the principal’s assets and liabilities. If the individual for whom you are caring is organized, then that will be simple. Otherwise, you will need to find these items:

  • Brokerage and bank accounts
  • Retirement accounts
  • Mortgage papers
  • Tax bills
  • Utility, phone, cable, and internet bills
  • Insurance premium invoices

Take a look at the principal’s spending patterns to see any recurring expenses. Review their mail for a month to help you to determine where the money comes and goes. If your principal is over age 72 and has granted you the power to manage her retirement plan, do not forget to make any required minimum distributions (RMDs). If your principal manages her finances online, you will need to contact their financial institutions and establish that you have power of attorney, so that you can access these accounts.

Guard the principal’s assets. Make certain that her home is secure. You might make a video inventory of the residence. If it looks like your principal will be incapacitated for a long time, you might stop the phone and newspaper. Watch out for family members taking property and saying that it had been promised to them (or that it belonged to them all along).

Pay bills. Be sure to monitor your principal’s bills and credit card statements for potential fraud. You might temporarily suspend credit cards that you will not be using on the principal’s behalf. Remember that they may have monthly bills paid automatically by credit card.

Pay taxes. Many powers of attorney give the agent the power to pay the principal’s taxes. If so, you will be responsible for filing and paying taxes during the principal’s lifetime. If the principal dies, the executor of the principal’s will is responsible and will prepare the final taxes.

Ask about estate planning. See if there is an estate plan and ask a qualified estate planning attorney for help. If the principal resides in a nursing home paid by Medicaid, talk to an elder law attorney as soon as possible to save the principal’s estate at least some of the costs of their care.

Keep records. Track your expenditures made on your principal’s behalf. This will help you demonstrate that you have upheld your duties and acted in the principal’s best interests, as well as for reimbursement for expenses.

Always act in the principal’s best interest. If you do not precisely know the principal’s expectations, then always act with their best interests in mind. Contact the principal’s attorney who prepared the power of attorney for guidance.

Reference: Kiplinger (April 22, 2020) “What Are the Duties for Financial Powers of Attorney?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How Do I Protect Property If I Need Long-Term Care? – Annapolis and Towson Estate Planning

Nearly 90% of those over age 65 would say they would prefer to stay in their home and live independently as they age. However, even if you are one of those people, you need to make certain that you have a plan in place to ensure your assets can go toward the things you want, rather than unexpected healthcare costs.

The Observer-Reporter’s recent article entitled “Protecting Your Assets is Only Half of Your Long-Term Plan” explains that there are many factors, like chronic conditions and lifestyle choices, that can increase healthcare expenditures as you get older. Understanding and planning for the potential costs now, could be the difference between spending your savings on health care expenses, instead of on the things you want.

You may be concerned about being a burden to family and friends as you age. That is common since nearly three-quarters (72%) of parents expect their children to become their long-term caregivers. However, just 40% of those children are aware they were tapped for that role!

Research shows that when family and friends assume the role of primary caregivers, they have a 60% chance of exhibiting clinical signs of depression—six times more than the general population. Having your family and friends become your caregivers may be best for you financially, but it probably is not in their best interest.

You should have a sound understanding of the cost and burden that long-term care can put on your family and friends. This is the first step to preparing your long-term plan. It is important to understand that there are a few different long-term planning options available, with varying levels of care coverage. One is Medicaid, which is a means-tested government health insurance plan that can cover some or all of the care you may need in a skilled nursing facility. However, what it covers is income- and asset-based. Medicare may cover some limited long- term care for rehabilitation but typically not custodial care.

There is also long-term care insurance which can fill many of the gaps that Medicare and Medicaid may leave. Most plans are customizable and have options for full or partial coverage for all of the types of long-term care. However, there may still be gaps in your coverage.

Ask an elder law attorney about other options and resources.

Reference: (Washington, PA) Observer-Reporter (Feb. 17, 2020) “Protecting Your Assets is Only Half of Your Long-Term Plan”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Medicare Mistakes can Ruin Retirement? – Annapolis and Towson Estate Planning

Healthcare expenses can loom large in retirement. Therefore, failing to totally understand Medicare could be a costly mistake. The Motley Fool’s recent article entitled “3 Medicare Mistakes That Could Wreck Your Retirement” warns that these three mistakes could throw a wrench in your retirement plan.

  1. Thinking that Medicare will cover all your healthcare costs. It is critical that you understand that Medicare will help cover some of your medical expenses in retirement—but it does not cover everything. You will still be liable to pay all your premiums, deductibles, co-insurance, and co-pays. Medicare Part A usually does not have a premium, but you will have a deductible of $1,408 per benefit period. Part B’s standard premium is $144.60 per month with a deductible of $198 per year. Note that Medicare Parts A and B do not cover prescription drugs or routine vision and dental care. For those things, you will have to purchase Medicare Part D or a Medicare Advantage plan at an additional cost.

It is also important that you understand that Medicare typically does not cover long-term care, a major expense. Prior to retirement, it is a good idea to add these costs into your plan.

  1. Failing to research your plan options each year during open enrollment. Medicare open enrollment is from October 15th until December 7th each year. In this period, retirees can make changes to their plans, such as switching from Original Medicare (Parts A and B) to a Medicare Advantage plan or vice versa. You can also change from one Advantage plan to another or add Part D coverage. After you have been on Medicare, you should look into options available to you and shop around to save money.
  2. Failing to enroll in Medicare when first eligible. When you become eligible for Medicare, you must enroll during your initial enrollment period (IEP). This begins three months prior to the month you turn 65 and ends three months after the month you turn 65. Failure to enroll could mean a penalty of 10% of your Part B premium. The longer you go without enrolling, the higher your penalty will be, and you usually must continue paying the penalty for as long as you have Part B coverage.

Note that if you are not ready to enroll in Medicare at 65, you may qualify for a special enrollment period. Say, for example, if you (or your spouse) are still working at age 65 and are covered by insurance through your employer, you can delay your Medicare enrollment until after you quit your job.

Medicare can be confusing. The better educated you are about the program, the wiser decisions you will be able to make sure your retirement fund lasts longer.

By avoiding these common mistakes, you can save money and prepare for your senior years.

Reference:  The Motley Fool (March 20, 2020) “3 Medicare Mistakes That Could Wreck Your Retirement”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Protecting the Financial Future of Children with Special Needs – Annapolis and Towson Estate Planning

Experts say that learning about the special needs of a child early allows parents to have the chance to begin planning immediately, which can give parents peace of mind.

Fox 25 in Oklahoma City’s recent article entitled “How a document could protect the financial future of a child with special needs” recommends that you become knowledgeable about your health insurance coverage.

Note that your child will probably need to apply for government assistance at some point, because at age 26 he will age out of his parent’s insurance.

Securing the future of a child with special needs all the way to adulthood can be very difficult.

Leaving a child with special needs money you have saved could be helpful— but it could place their benefits at risk. Instead, a supplemental trust, called a special needs trust, is the way to plan, so they have everything they need.

With a trust in place, the child would need to pay for expenses in the areas not covered by the government programs.

With a special needs trust, the child has no way to access the income or these assets unless they have a need.

A special needs trust is usually drafted by an estate planning attorney or elder law attorney. This type of trust allows you to leave money or property to a loved one with a disability. These assets are placed in the trust. If you gift them outright, you could risk your loved one’s ability to receive Supplemental Security Income (SSI) and Medicaid benefits. By creating a special needs trust, you can avoid some of these problems.

Naming a guardian for your child with special needs is also very important. A guardian could help make life decisions, if the parent passes away. Therefore, make certain that it’s someone you trust. This may include a legal professional.

Reference: Fox 25 (Oklahoma City) (Jan. 27, 2020) “How a document could protect the financial future of a child with special needs”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Tax Planning in Your Retirement Planning – Annapolis and Towson Estate Planning

Once you are retired, the only tax you will not have to pay will be—can you guess? Yes, payroll taxes. However, there are plenty of other taxes to be paid, advises Forbes in the article that answers the question “What Taxes Will I Owe In Retirement?”

People who are accustomed to having employers handle income taxes throughout their working lives, are often surprised when they learn that not working does not mean you are not paying taxes. Income is taxable, whether you are working or not. You will not have to pay into Social Security when you retire, and Medicare becomes a premium, not a deduction from your paycheck. However, there are still taxes to be paid.

Federal income taxes range from 10 to 37 percent, depending on your income bracket and marital status. Pensions, annuities, IRA withdrawals, defined benefit plans, 457 or any other pre-tax retirement accounts will generate tax liabilities.

Is any income tax-free in retirement? Withdrawals from Roth IRAs are tax free, since you paid tax on the money before it went into these accounts. The same goes for the Roth 401(k)s.

Are there taxes on Social Security? Approximately 60% of retirees will not owe federal income taxes on Social Security benefits. However, your Social Security benefits might be taxed, depending upon your retirement income. This tax also varies depending upon where you live. Some states tax Social Security benefits, others do not. Rental income and royalties are also counted as income.

Consumer taxes. Sales tax and property taxes will still need to be paid. For many people, property taxes are their highest tax expenses.

Is there a tax on Medicare? The Medicare Surtax, also known as the Unearned Income Medicare Contribution Surtax or NIIT, is a 3.8% Medicare tax that applies to income from investments and regular income above specific thresholds. For 2020, if you have MAGI (Modified Adjusted Gross Income) above $200,000 ($250,000 for married couples filing jointly), you will have to pay NIIT. This is one that most people do not know about, and can add up quickly, especially if you have great market returns and realized gains.

With good planning, you may be able to replace 100% or more of your pre-retirement income. In many cases, it may mean paying about the same amount in taxes as you did while working. If you do a good job of saving and have a large income during retirement, you will most likely end up paying at least some taxes on retirement income. It is a good problem to have, but still a problem.

All of these retirement taxes add up to quite a nice tax bite, if you are not prepared for them. This is another example of how advance tax planning can make a big difference in the quality of your retirement.

Reference: Forbes (Feb. 23, 2020) “What Taxes Will I Owe In Retirement?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How Can I Fund A Special Needs Trust? – Annapolis and Towson Estate Planning

TapInto’s recent article entitled “Ways to Fund Special Needs Trusts” says that when sitting down to plan a special needs trust, one of the most urgent questions is, “When it comes to funding the trust, what are my options?”

There are four main ways to build up a third-party special needs trust. One way is to contribute personal assets, which in many cases come from immediate or extended family members. Another possible way to fund a special needs trust, is with permanent life insurance. In addition, the proceeds from a settlement or lawsuit can also make up the foundation of the trust assets. Finally, an inheritance can provide the financial bulwark to start and fund the special needs trust.

Families choosing the personal asset route may put a few thousand dollars of cash or other assets into the trust to start, with the intention that the initial investment will be augmented by later contributions from grandparents, siblings, or other relatives. Those subsequent contributions can be willed to the trust, or the trust may be named as a beneficiary of a retirement or investment account. It is vital that families use the services of an elder law or special trusts lawyer. Special needs trusts are very complicated, and if set up incorrectly, it can mean the loss of government program benefits.

If a special needs trust is started with life insurance, the trustor will name the trust as the beneficiary of the policy. When the trustor passes away, the policy’s death benefit is left, tax free, to the trust. When a lump-sum settlement or inheritance is invested within the trust, this can allow for the possibility of growth and compounding. With a worthy trustee in place, there is less chance of mismanagement, and the money may come out of the trust to support the beneficiary in a wise manner that does not risk threatening government benefits.

In addition, a special needs trust can be funded with tangible, non-cash assets, such as real estate, securities, art or antiques. These assets (and others like them) can be left to the trustee of the special needs trust through a revocable living trust or will. Note that the objective of the trust is to provide the trust beneficiary with non-disqualifying cash and assets owned by the trust. As a result, these tangible assets will have to be sold or liquidated to meet that goal.

As mentioned above, you need to take care in the creation and administration of a special needs trust, which will entail the use of an experienced attorney who practices in this area and a trustee well-versed in the rules and regulations governing public assistance. Consequently, the resulting trust will be a product of close collaboration.

Reference: TapInto (February 2, 2020) “Ways to Fund Special Needs Trusts”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How Do I Decide to Retire or Keep Working? – Annapolis and Towson Estate Planning

Fed Week’s article, “Many Factors Affect Choice of Retiring or Continuing to Work,” says that the Congressional Budget Office found that after declining for decades, the share of those ages 55 to 79 who were employed began to go up in the mid-1990s. In 1995, 33% of those in that age range worked, but by 2018, 44% did. The Congressional Budget Office pinpointed some factors that are motivating people to work longer. Let’s look at some of these:

  • Those with a college degree are more apt to be employed at any age than those without one. The percentage of individuals with degrees has been increasing over time, especially among women.
  • From the mid-1990s to 2018, the health of people ages 55 to 79 improved significantly. This shows the gains in self-reported measures and longevity. Improvements in health impact employment, both because healthier people are physically able to work longer and because increased life expectancy may motivate people to spend more years working, in order to pay for their retirement.
  • Job Characteristics. Over time, fewer people worked in blue-collar jobs. Due to the fact that blue-collar jobs typically have greater physical demands than other jobs—and workers in those jobs tend to retire earlier—that decrease impacts some of the rise in employment of people 55 to 79.
  • Increased Employment of Women. Research has shown that the increased employment and delayed retirement of married women over the period, might have contributed to the increased employment of married men because many couples retire at the same time.
  • Employer Policies. The move from defined benefit to defined contribution retirement plans lowers the incentive to retire at a particular age. The added burden for workers to save on their own also creates more motivation to work longer. Private sector companies have also cut back on health insurance coverage for their retirees. Only 37% of workers now have employer-based health insurance that covers retirees between 55 and 64, compared with 69% in 1992. As a result, workers have an incentive to work at least until 65, when they become eligible for Medicare.

Reference: Fed Week (November 7, 2019) “Many Factors Affect Choice of Retiring or Continuing to Work”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Q & A – Medicaid for Nursing Home Care – Annapolis and Towson Estate Planning

As we approach our third act, new terminology comes into our daily lives that we may have heard before, but maybe never gave much thought to. Terms like Medicare, Medicaid, Social Security, Long-Term Care, and so on, can become sources of anxiety, if we don’t truly understand them. Therefore, today we’re answering some of the fundamental questions about Medicaid for nursing home care, in the hopes that we can alleviate at least one source of anxiety for you.

Question #1 – What is Medicaid?

Medicaid is a state and federal government-funded program that provides medical services to financially eligible individuals. Unlike Medicare, you do not have to be elderly to qualify for Medicaid, and many elderly individuals receive Medicaid benefits, including nursing home care. Every state administers its own version of Medicaid. For more information on Medicaid programs in your state, visit the Medicaid website, and select your state.

Question #2 – What are Medicaid’s basic financial eligibility requirements for nursing home care?

To determine your eligibility for nursing home benefits under Medicaid, the government will look at your income and resources in a given month to ensure you are within the legal limits for Medicaid benefits. To qualify for Medicaid, your monthly income must be less than the Medicaid rate for nursing home care, plus your typical monthly healthcare expenses. If you are eligible, you are allowed to keep $70 of your income for personal use. The rest is taken to pay for your care.

Question #3 – What is the Medically Needy Program under Medicaid?

For individuals that may exceed the financial limits to receive Medicaid, they may still qualify to receive Medicaid benefits under the medically needy program. This program allows individuals with medical needs to “spend down” their income to acceptable rates, by paying for medical care for which they have no insurance. For individuals over the age of 65, states are required to allow you to spend down your income regardless of medical necessity.

Question #4 – What resources can we have if my spouse is applying for Medicaid?

When a married couple applies for Medicaid, both spouses’ income and resources are included in the qualifying calculations. You may have all of the “exempt” resources, like an automobile and a house, along with one non-exempt item that does not exceed a set value (currently just over $58,000), such as cash or investments. Once your spouse qualifies for Medicaid, after one year, all excess income and resources must be transferred to the non-Medicaid-benefitted individual. That spouse may also accrue income and resources over and above the limits that Medicaid imposes on the benefitted spouse.

More information can be found on the Medicaid website, including requirements and benefits information for the state in which you reside.

References:

Medicaid.gov. (Accessed November 28, 2019) https://www.medicaid.gov/medicaid/index.html

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

The Medicaid Medically Needy “Spend-Down Program” – What You Need to Know – Annapolis and Towson Estate Planning

If you’ve been denied Medicaid benefits because you have too many assets or too high an income, don’t give up. There are available programs that may enable you to qualify for Medicaid benefits, despite this setback. Each state may offer different programs, and the Affordable Care Act (ACA) has added new ways to obtain coverage. This article addresses the “spend down program” offered in every state.

Medicaid Spend-Down Program – The Basics

To qualify for Medicaid benefits, your income and assets may not exceed a certain amount set by law. If these items do exceed the legal limits, you may still qualify after a spend-down period. The medically needy spend-down program helps individuals over the age of 65, and some younger individuals with disabilities. To be eligible for this program, you must not be receiving public financial assistance.

Exempt & Non-Exempt Assets

It is not necessary to sell off everything you own to qualify for the spend-down program. You may keep a certain amount of “exempt assets,” such as the home you live in, your car (used for transportation), household furniture, clothes, jewelry and other personal items. None of these assets affect your eligibility, regardless of their value (unless you have high equity, say $1 million in an asset, in which case you may need to spend that down).

Non-exempt assets, on the other hand, do affect your eligibility for the spend-down program. These assets include bank accounts, stocks, investments, and cash over $2,000 for an individual or $3,000 for a married couple.

Amount of Income You Can Have to Apply

It does not matter how much income you have when you apply. The more income you have, though, the more medical expenses you must incur before your coverage can start. The way you spend down this income is by spending it on medical expenses, until you reach the income requirements for Medicaid. Interestingly, you just need to incur medical costs. You don’t have to actually pay them.

In addition, you can pay down accrued debt to spend down your income. Therefore, paying down credit card bills, car payments, or mortgage debt can count towards your spend down. Another tactic you can use, is to pay excess monthly amounts on old medical bills.

Seeking Professional Assistance

Medicaid programs are different in each state, and the laws change frequently. If done wrong, you could end up incurring penalties instead of obtaining benefits. It may be a good idea to enlist the help of a Medicaid specialist or elder law attorney to walk you through the process in a way that will avoid these types of penalties.

Resources:

National Council on Aging. “Benefits Checkup” (Accessed November 28, 2019) https://www.benefitscheckup.org/fact-sheets/factsheet_medicaid_la_medicaid_spend_down/#/

U.S. News and World Report. “How a Medicaid Spend Down Works.” (Accessed 28, 2019) https://money.usnews.com/money/retirement/baby-boomers/articles/how-a-medicaid-spend-down-works

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys