Increase in the SSI Federal Benefit Rate for 2020

Jane Fearn Zimmer Elder Law Attorney

The federal government recently released its 2020 Supplemental Security Income (SSI) and Spousal Impoverishment guidelines.  The guidelines, which took effect on January 1, 2020, set the SSI Federal benefit rate at $783.00 for an individual and $1,175 for a couple.

SSI is a monthly cash benefit to blind, disabled or elderly individuals with low income and resources.  Subject to the exclusion of certain sources of income, the SSI monthly income cap is set at $2,349 for an individual.  In order to qualify for the SSI benefit, the applicant must have a disability or diseases severe enough such that the applicant cannot engage in substantial gainful activity.  An applicant who is earning more than a set monthly amount of income is considered to be engaging in substantial gainful activity.  In 2020, the substantial gainful activity monthly limit for an elderly or disabled individual who is not blind, is $1,260 in earned income.

Questions? Let Jane know.

Jane Fearn-Zimmer is a shareholder in the Elder and Disability LawTaxation, and Trusts and Estates Groups. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.

 

SECURE Act May Put A Stop To Most Stretch Individual Retirement Account Planning

SECURE ACT elder law attorney jane fearn zimmer

Good things come when you least expect them, but for wealthy retirees and their children and grandchildren, the Setting Every Community Up for Retirement Enhancement (SECURE) Act (passed in the United States House of Representatives on May 23, 2019) may not be one of them.

Congress presently has until December 20, 2019 to balance the federal budget for fiscal year 2020. The SECURE Act could become law as part of the new budget package.

For most Americans, their home and their retirement accounts are their largest assets. Viewed from the vantage point of retirees with large individual retirement accounts or qualified retirement accounts hoping to transfer much of their wealth to future generations, the SECURE Act is Trojan horse.

The SECURE Act would change the existing IRA and qualified retirement plan distribution rules, derailing many existing estate plans which incorporate stretch-IRA planning.  Stretch-IRA planning is a distribution strategy popular under the current federal income tax law because it facilitates deferred taxation of retirement account income well beyond the lifetime of the original account owner.

Take the example of Mr. Jones.  Supposed Mr. Jones is age 70, has $500,000 in his individual retirement account and has not begun taking any minimum required distributions.  Mr. Jones is married and his wife is five years younger.  If Mr. Jones dies at 70, and has not begun taking any required minimum distributions, his wife can roll the entire $500,000 from her late husband’s IRA into her own IRA and name a new, younger beneficiary. Assume that the wife has enough assets and income outside of the retirement accounts to pay for her care.  Assume also that she dies at age 65 and prior to her death, names her 37 year old daughter as the individual retirement account beneficiary.

The daughter is much younger and has a longer actuarial life expectancy. Now the daughter will be the “measuring life” for the retirement account and under the current tax law, the daughter’s required minimum distribution could be approximately $11,000 per calendar year.  If the daughter chooses, she may leave the remaining funds in the inherited IRA and can expect the funds to grow tax-free within the account for many years.  Let’s assume that the daughter takes only the minimum required distribution with a 4% rate of return until she reaches the age of 56. At that time, her minimum required distribution may be approximately $23,000 annually and she can expect the account value to have increased to over $600,000.  Using the stretch-IRA strategy, the father, mother and daughter in this illustration are able to defer taxable income for many years.

The SECURE Act would curtail stretch retirement account planning for account owners who die before beginning to take their required minimum distributions by forcing their younger, non-spouse beneficiaries to take large distributions of income over a compressed ten year period of time beginning after the death of the original account owner.

If the SECURE Act were passed in its current form, and if the father and mother in the example above died after December 31, 2019, the daughter would have to distribute out the entire $500,000 from the retirement account within a ten year period.  During this period, she could potentially be in her peak earning years and in a higher income tax bracket, than she might expect to be after her own retirement.  This provision of the SECURE Act threatens to dramatically increase the collection of income tax dollars by forcing distributions from retirement accounts over a compressed period of time.  The tradeoff for the repeal of the stretch IRA is the SECURE Act’s deferral of the required beginning date for taking required minimum distributions to age 72. The SECURE Act also facilitates the ownership of annuities within retirement accounts.

For retirees with large IRA’s or retirement accounts wishing to transfer their retirement account proceeds to their children, grandchildren or other non-spouse beneficiaries, it is very important to contact an estate planning attorney to review their options in light of the changes the SECURE Act will probably bring.

The silver lining is that retirees whose intended beneficiaries have special needs or chronic illness will have important planning opportunities under the new law.

Questions? Let Jane know.

Jane Fearn-Zimmer is a shareholder in the Elder and Disability LawTaxation, and Trusts and Estates Groups. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.

Changes to Social Security in 2020

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The year 2020 will bring important changes to the Social Security program, including a 1.6 percent Social Security benefit increase and an increased annual earnings cap for the Old Age, Survivors and Disability Insurance (OASDI) tax, which is a component of the Federal Insurance Contributions Act (FICA) tax.  Beginning in 2020, the maximum annual amount of earnings subject to the OASDI will increase to $137,700 from the current limit of $132,900 applicable in 2019.

Also beginning in 2020, the maximum retirement earnings test exempt amounts will be $18,240 annually (or approximately $1,520 monthly) for individuals under full retirement age.  That means that for every two dollars earned in excess of that limit, one dollar in Social Security benefits will be withheld.

In addition, starting in 2020, the SSI federal payment standard will increase to $783 monthly for an individual and to $1,175 per couple. Here is a helpful fact sheet summarizing these and other important 2020 Social Security numbers.

Questions? Let Jane know.

Jane Fearn-Zimmer is a shareholder in the Elder and Disability LawTaxation, and Trusts and Estates Groups. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.

Minimizing Elder Financial Abuse

Sad senior woman after quarrel

It seems like every month, there is a news broadcast of a new form of elder financial abuse.  Statistically, it is very prevalent, especially among individuals with dementia who are residing alone in the community.

Unfortunately, elder financial abuse comes in many forms. One version is where a trusted advisor, family member or caregiver with whom the senior has a relationship takes the senior to an attorney to execute a new Last Will and Testament, changing the existing estate plan in favor of the trusted individual.  These are difficult cases to enforce because by the time the fraud is discovered the victim is deceased.

Another variety of elder financial fraud is tech support fraud, where there is a pop up on the senior’s computer screen that routes the victim to a bogus website to input information. Someone calls the senior and asks the person to send in money for software that doesn’t exist. The perpetrator remotes into the computer and tells the senior to log into the bank account. Then the perpetrator minimizes the window and withdraws funds without permission from the senior’s account. Some con artists may pose as representatives of well-known industry giants such as Microsoft and Google.

There are romance scams where someone pretends to be in a relationship and convinces the senior to send money. There are lottery scams and prize scams where a senior is asked to pay money to get the winnings.  But the majority of elder financial abuse the SEC sees is theft.  These cases are hard to put together due to the challenges of gathering the evidence.

In many cases, the victims may not even realize they have been victimized, or they may have had a long term relationship with their trusted advisor or family member and just convincing the senior to speak with an investigator or another attorney is problematic.  It may be easier for seniors to talk about financial abuse by emphasizing that this also happens to younger people and to focus on protecting yourself. Reassure them that their fear of compromising their appearance of competency and independence if they complain will likely not materialize.  Do not hesitate to report the incidents to the authorities. This is an area of enforcement which the Securities Exchange Commission and other federal agencies are currently focusing on and there are a lot of resources at both the state and local levels.

Questions? Let Jane know.

Jane Fearn-Zimmer is a shareholder in the Elder and Disability LawTaxation, and Trusts and Estates Groups. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.

Top Tips For A Successful Medicaid Spend Down

Finding the best long-term care, and a way to pay for that care with public benefits, is of critical importance to the elderly, the disabled and their families.  The national median cost of long term care in a private room in a skilled nursing facility is over $9,000 per month, with the average statewide median cost ranging from over $10,000 to well more than $12,000 in other states, including New Jersey, New York, and as high as $24,000 monthly for a private room in Alaska.

Many seniors do not realize that Medicare will cover limited skilled care for a short period of time, and will not be an option to pay for the care they may need for the rest of their lives.  Fortunately, Medicaid and the Veteran’s Administration Improved Pension (or the Dependency Indemnity Compensation benefit for a surviving spouse), combined with the applicant’s income, are means-tested public benefits programs that can often pay for a lifetime of long term care facility and other medical care costs.

Benefit through these programs are limited to applicants with low assets and low income.  The rules for Medicaid eligibility are quite complex and vary somewhat from state to state based on the provisions of each state’s Medicaid plan.  For instance, in my home state of New Jersey, in order for a single individual to qualify for Medicaid, that individual’s countable assets must not be even one penny over the sum of $2,000.  In general, one cannot give away one’s money and receive institutional or waiver service Medicaid benefits within five years of the date of the gift without incurring a Medicaid penalty period.  (A Medicaid penalty period is the period of time during which Medicaid benefits will not be available to pay for custodial care. The length of the penalty period corresponds to the value of the total uncompensated gifts made during the five year Medicaid look back period. The Medicaid penalty period will not begin to run until the last of the following events to occur: there is a filed Medicaid application for the applicant, the applicant is clinically eligible for Medicaid, and the application is either already in a long-term care facility or other care setting permitted under any Medicaid waiver program in his or her state, such as the home or an adult medical day care facility.)

Elder lawyers refer to the process of legally reducing assets to a level below the Medicaid threshold as “spend down and conversion.”  Where one member of a married couple will apply for Medicaid, the spend down and conversion process must be carefully timed and for best results, should be started only after the prospective Medicaid applicant has entered into a nursing home or has a filed application for a Medicaid waiver program and has already been determined clinically eligible for Medicaid.  In order to avoid a Medicaid penalty period as a result of the spend down process, all payments should be for fair market value for the Medicaid applicant or his spouse.  A typical Medicaid spend down may include the repayment of debt for the Medicaid applicant or his or her spouse (but not for another adult, which would be an uncompensated transfer), the payment of legal fees for crisis Medicaid planning and a Medicaid application, payments for other services to the Medicaid applicant and his spouse, the payment of real estate taxes and other costs of home ownership, the purchase of irrevocable prepaid burial arrangements for the Medicaid applicant and his spouse, the payment of “key money” to facilitate the admission of the Medicaid applicant to the best long-term care facility available. (This can frequently require private payment for several months of long term care).  Where the applicant owns a home, he may consider repairs and deferred maintenance to the home, especially where there is a healthy spouse who will remain at home or if the home needs repairs and maintenance to facilitate its sale.  Many seniors may also consider buying a new car, or new household furnishing or personal goods.

The purchase of a life estate in a child’s home may be a suitable spend down strategy for an elderly parent who is presently independent but may need Medicaid in the next few years, the parent wishes to reside in the child’s home and the child is amenable.  A life estate is an undivided ownership interest in the real property and gives the holder the right to reside in the home during his lifetime as well as favorable capital gains income tax consequences and responsibilities for the home’s financial upkeep.  If the parent reside in the child’s home for a period of at least one year and the value of the life estate is properly computed and both parent and child execute a deed memorializing the life estate purchase, the parent’s payment to the child for the life estate will not result in a Medicaid penalty period.

One of the most powerful spend down strategies is the purchase of a Medicaid compliant annuity. This is an annuity which meets strict criteria in the federal Medicaid statute.  The annuity can be funded with either non-qualified or qualified retirement funds. If the annuity is non-qualified, the annuity contract must provide for equal monthly payments (with no balloon payments), be irrevocable, non-assignable and the annuity term must be for a period longer than the actuarial life expectancy of the annuitant, as calculated according to actuarial life expectancy tables promulgated by the Social Security Administration or the state of residence of the Medicaid applicant. The annuity contract must name the state from which Medicaid benefits are sought as either the first remainder beneficiary to the extent of any Medicaid lien, or the state is named in the second position after the community spouse. If these requirements are satisfied, and assuming that the Medicaid applicant is otherwise eligible for Medicaid, the annuity contract cannot be treated as a countable asset and the annuity purchase cannot result in the imposition of any Medicaid penalty period.  See 42 U.S.C. 1396p(c)(1)(G); Carlini v. Velez, 947 F.Supp.2d 842 (D.N.J. 2013).

Similar rules apply for a qualified Medicaid-compliant annuity contract.

Here is an illustration of why the Medicaid compliant annuity purchase can be a powerful strategy to retitle a couple’s assets and preserve funds for the healthy spouse to remain for years in the family home.

Example.  Mary and James are ages 80 and 85, respectively. James needs nursing home care and Mary needs assisted living care. Mary’s only income is an estimated $600 monthly from her Social Security benefit. James’ income is comprised of $1,200 from Social Security, and he is not a veteran.  After their home is sold, the couple has $438,000 in liquid assets and James is ineligible for Medicaid due to the couple’s excess funds.  Without Medicaid planning, due to their home states’ maximum community spouse reserve allowance, Mary would have to spend down approximately $310,000, in order for James to become eligible for Medicaid.  Fortunately, she can spend the sum of $310,000 on a Medicaid annuity, which will enable James to become eligible for Medicaid in the following month and will provide her with sufficient monthly income to pay for her assisted living.  If the term of the annuity is for three years and for 36 equal monthly payments to Mary in the sum of over $8,600.  Mary is now able to pay for at least four years of assisted living care and can remain comfortably in the community. After the annuity term expires, Mary will likely be financially eligible for Medicaid herself.

Spend down is also important for United States military veterans and their spouses who are seeking the Veteran’s improved pension or the Dependency Indemnity Compensation for a surviving spouse or child.  In computing the applicant’s net worth for this means-tested benefit, federal law allows a deduction for unreimbursed medical expenses.

Medical expenses can include costs paid for services from health care providers, custodial care and must constitute a payment for an item or service that is medically necessary; improves the disabled individual’s functioning; or prevents, slows, or eases an individual’s functional decline.

Medical expenses may include care by a health care provider, i.e., someone who can only be an individual appropriately licensed by the state or country in which the service is provided to provide health care in that state or country.  In-home care providers are not always subject to licensure.

The definition of “health care provider” in the final rule incorporates a licensure requirement and the term may include, but is not limited to, a doctor, physician’s assistant, psychologist, chiropractor, registered nurse, licensed vocational nurse, and a physical or occupational therapist. Other categories of deductible medical expenses (to the extent not reimbursed) include medications, medical supplies, medical equipment and medical food, vitamins, and supplements if prescribed or directed by a health care provider authorized to write prescriptions, adaptive equipment, or service animals, including the cost of any veterinary care, used to assist a person with an ongoing disability; the cost of transportation for medical purposes, i.e., to and from a health care provider’s office, health insurance premiums, smoking cessation products; and institutional forms of care and in home care, including hospitals, nursing homes, medical foster homes, and inpatient treatment centers.

Questions? Let Jane know.

Jane Fearn-Zimmer is a shareholder in the Elder and Disability LawTaxation, and Trusts and Estates Groups. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.

 

 

Do I Need A Physician Orders for Life- Sustaining Treatment?

POLST.jpgA POLST (physician’s orders for life sustaining treatment) is a portable medical order, signed by a doctor, which contains the treatment wishes of an individual who is either seriously ill, or medically frail. The physician’s orders help the individual exert some degree of control over their end of life care.

Some individuals nearing the end of their life do not want to receive emergency medical treatment.  If the individual is residing in a long-term care facility, the current standard of care during an emergency is that the facility must call 9-1-1 in an emergency and the emergency medical personnel must to take every reasonable means to safe a life.  In an emergency, the decisions makers under a health care power of attorney may not be able to be reached immediately, and emergency medical personnel will not have time to read a legal document.  If your loved one nearing the end of life wishes not to receive emergency medical services (such as intubation, cardiopulmonary rescuscitation, antibiotics, and other treatments), a POLST should be prepared and provided to the long-term care facility.

Questions? Let Jane know.

Jane Fearn-Zimmer is a shareholder in the Elder and Disability LawTaxation, and Trusts and Estates Groups. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.

Restoration of Capacity?

Restoration of Capacity

If an individual is determined unable to make her own decisions, a judgment of incapacitation and awarding guardianship may issue.

Sometimes, the conditions which led to a judgment of incapacitation are not permanent. In this case, the subject of the guardianship order may seek an order restoring her to legal capacity, which would allow her to resume making decisions for herself.

In the Matter of the Guardianship and Conservatorship of Lois Crist, No. 118-973 (Ct. App. Kansas, February 1, 2019)(per curiam), an 82 year old widow residing in a rural home requested an order restoring her to capacity.   At the time of the original impairment order, the ward’s home was uninhabitable due to mold and clutter, and she was dirty and unkempt, and suffering from a gait dysfunction, a vitamin B-12 deficiency, and a urinary tract infection.  She was removed from her home, adjudicated impaired, hospitalized, discharged to a nursing home, and then to assisted living, where she thrived. The total value of her estate was over $1.4 million.

Nearly two years after the original hearing, the ward had a falling out with her family and filed a petition for restoration. She argued that her impairment was temporary and attributable to an altered mental state from a urinary tract infection. She was evaluated several times, with disparate results, but two tests determined that she was unable to drive or to manage her housekeeping independently.

The trial court declined to restore her legal capacity for decision-making in part because her answers to the court’s questions regarding how she would live independently in a rural setting were unrealistic.

While we will never know all the facts, it is quite possible that with effective representation and thorough preparation, the petitioner might have been better prepared to anticipate and effectively answer the court’s questions and she might have successfully obtained a restoration of capacity order.

Questions? Let Jane know.

Jane Fearn-Zimmer is a shareholder in the Elder and Disability LawTaxation, and Trusts and Estates Groups. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.