Jan Neal Law Firm LLC

Alabama Elder and Special Needs Law


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Resources for UNA Social Workers

Last week I spoke to the alumni social workers group at The University of North Alabama in Florence, Alabama, and shared information about authority and capacity issues for seniors.  I promised to post additional information for reference on our web site, so here you have it.

The Alabama Uniform Power of Attorney Act effective January 1, 2012, is found at Alabama Code (1975) Sections 26-1A-101 through 404.  The standard power of attorney form is found at Section 26–1A–301.  This power is presumed durable without specific language being required like previous powers of attorney.

ALA. CODE § 26-1A-120(a)(3) provides that a person may not require an additional or different form of power of attorney for authority granted in the power of attorney presented, and a person who refuses to effect a transaction in reliance upon an acknowledged power of attorney may be subject a court order mandating that the person effect the transaction.  If the document is found to be valid, attorneys fees and costs incurred may be awarded.

The Portable Physician Do Not Attempt Resuscitation Orders regulation  is found at Board of Health 420-5-19-.02.  Different facilities can continue to use their own forms, but for the order to be portable the statutory form provided in the regulation is required.

The capacity assessment materials I discussed produced by the American Bar Association and American Psychological Association can be found here.

What a great group of social workers I met, and I look forward to speaking again to the group in August.

 

 


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Deeding Property with a Reserved Life Estate

agreementThe term “life estate” often comes up in discussions of estate and Medicaid planning, but what exactly does it mean? A life estate is a form of joint ownership that allows one person to remain in a house until his or her death, at which time it passes to the other owner, referred to as the person with the remainder interest. Life estates can be used to avoid probate while giving a house to children without losing the ability to live in the home, remaining responsible for property tax – with the benefit of homestead and age related tax exemptions, remaining responsible for homeowner insurance, yet creating ownership in the children at the death of the parent.   This type of deed can play an important role in Medicaid planning since Medicaid does not assign any value to a life estate when the parent applies for Medicaid to pay for nursing home care.  If the transfer occurred prior to five years before application, there will be no penalty for the transfer.

In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate — the life tenant — possesses the property during his or her life. The other owner — the remainderman — has a current ownership interest but cannot take possession until the death of the life estate holder. The life tenant has full control of the property during his or her lifetime and has the legal responsibility to maintain the property as well as the right to use it, rent it out, and make improvements to it.

Another example of use of life estates is when a spouse who owns property in only his or her name wants to leave that property to his or her children from a former marriage but wants the later in life spouse to be protected and have a place to live.  That person might write a will leaving a life estate to the spouse with the remainder to his or her children on the death of the spouse.  This comes up not infrequently when individuals want to protect property passed to them by family and who want to keep that property in their blood line while protecting the spouse as well.

When the life tenant dies, the house will not go through probate, since at the life tenant’s death the ownership will pass automatically to the holders of the remainder interest. Because the property is not included in the life tenant’s probate estate, it can avoid Medicaid estate recovery in states that have not expanded the definition of estate recovery to include non-probate assets, which includes Alabama at the time this is being written.

Although the property will not be included in the probate estate, it will be included in the taxable estate. Depending on the size of the estate and the state’s estate tax threshold, the property may be subject to estate taxation.  However, the joint federal lifetime estate tax exemption and gift tax exclusion is $5,490,000, so few people are actually subject to estate tax.

The life tenant cannot sell or mortgage the property without the agreement of the remaindermen. If the property is sold, the proceeds are divided up between the life tenant and the remaindermen. The shares are determined based on the life tenant’s age at the time — the older the life tenant, the smaller his or her share and the larger the share of the remaindermen.

Be aware that transferring your property and retaining a life estate can trigger a Medicaid ineligibility period if Medicaid application is made within five years of the transfer. Further, purchasing a life estate should not result in a transfer penalty if you buy a life estate in someone else’s home, pay an appropriate amount for the property and live in the house for more than a year.

For example, an elderly man who can no longer live in his home might sell the home and use the proceeds to buy a home for himself and his son and daughter-in-law, with the father holding a life estate and the younger couple as the remaindermen. Alternatively, the father could purchase a life estate interest in the children’s existing home. Assuming the father lives in the home for more than a year and he paid a fair amount for the life estate, the purchase of the life estate should not be a disqualifying transfer for Medicaid.  Just be aware that there may be some local variations on how this is applied, so get good advice before finalizing arrangements involving a life estate if long term care could be a future concern.


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SSI and Gifting Resources

SSI is the basic federal safety net program for the elderly, blind and disabled, providing them with a minimum guaranteed income. If your resources are above the program’s resource limits of $2,000 for an individual or $3,000 for a married couple, you may be able to “spend down” to qualify for SSI, similar to the process to qualify for the Medicaid program.

If you give away a resource or sell it for less than it is worth in order to get under the SSI resource limit, you may be ineligible for SSI for up to 36 months. The SSA looks at whether or not you have transferred a resource within the previous three years. If you have, it computes a penalty period by dividing the amount of the transfer by your monthly benefit amount.

Thus, if you give your son a $6,000 gift and then apply for a monthly SSI benefit of $600 within three years of the gift, you will not be eligible for SSI for 10 months (6,000/600=10). That 10-month period will begin on the date of the transfer and end 10 months later. In other words, although you can be ineligible for up to 36 months due to a transfer, that is only a cap. The actual period of ineligibility is based on the value of what you transferred divided by the monthly benefit in your state.

You should be aware that transfers may be “cured” by the person to whom you made a gift returning it to you. And, finally, there are certain exceptions to the transfer penalty. These include gifts to:

A spouse (or anyone else for the spouse’s benefit);
A blind or disabled child;
A trust for the benefit of a blind or disabled child;
A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the applicant, under certain circumstances).

In addition, special exceptions apply to the transfer of a home. The SSI applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:

The applicant’s spouse;
A child who is under age 21 or who is blind or disabled;
Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the applicant, under certain circumstances);
A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home; or
A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.


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How to Deduct Long-Term Care Premiums From Your Income

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Taxpayers with long-term care insurance policies can deduct some of their premiums from their income. Whether you can use the deduction requires comparing your medical expenses to your income in a complicated formula.

Premiums for qualified long-term care insurance policies are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 10 percent of the insured’s adjusted gross income. In tax year 2016, taxpayers 65 and older only need medical expenses to exceed 7.5 percent of their income, but in 2017, taxpayers 65 and older will have the same 10 percent rule as everyone else.
The amount of long-term care insurance premium that is deductible is based on the taxpayer’s age and changes each year. For the 2016 tax year, taxpayers who are 40 or younger can deduct only $390 a year, taxpayers between 40 and 50 can deduct $730, taxpayers between 50 and 60 can deduct $1460, taxpayers between 60 and 70 can deduct $3,900, and taxpayers who are 70 or older can deduct up to $4,870 in premiums.

What this means is that taxpayers must total all of their medical expenses and compare them to their income. For example, suppose 64-year-old Frank has an adjusted gross income of $30,000 and long-term care premiums totaling $5,000 as well $1,000 in other medical expenses. Ten percent of $30,000 is $3,000. Frank can only deduct any medical expenses that exceed $3,000. The 2016 limit for deducting long-term care premiums is $3,900. That means Frank can only count $3,900 of his long-term care premiums. If he adds the $3,900 in long-term care premiums to the $1,000 in other expenses his total medical expenses are $4,900. He can deduct $1,900 in medical expenses from his income.

If Frank is 70 in 2016, the calculation changes because his medical expenses only need to exceed 7.5 percent of his income, which would be $2,250. The amount of premiums he can deduct is also increased because of his age–he can deduct up to $4,870 in premiums. Subtracting the income limit from his medical expenses ($4,870 in long-term care premiums and $1,000 in other expenses), Frank can deduct $3,620 in medical expenses from his income. In 2017, Frank will only be able to deduct medical expenses that exceeded 10 percent of his income, so the amount he can deduct will go down.


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Quarterly Newsletter Available

shutterstock_63936919Our quarterly newsletter, Elder Law Bookmarks, was sent today.  Articles included in the newsletter are:

  • People with Disabilities Can Now Create Their Own Special Needs Trusts
  • Is it Better to Remarry or Just Live Together?
  • Repealing Obamacare Will Have Consequences for Medicare
  • For Better or Worse, States Are Turning to Managed Care for Medicaid Long-Term-Care
  • Make Reviewing Your Estate Plan One of Your New Year’s Resolutions

If you want to be added to the mail list, send an email to neal@janneallaw.com.

 


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Case Study: The Value of Medicare Open Enrollment Plan Comparisons

medical technology concepts illustration designThe importance of Medicare plan comparisons during Open Enrollment are published everywhere you look, but sometimes I think that those warnings go unheeded because folks just do not understand how drastically coverage by the same plan can change year to year.

I saw up close and personal how beneficial the SHIP program is and the importance of Open Enrollment this week.  A gentleman we will call Mr. A came to a State Health Insurance Assistance Program (SHIP) Open Enrollment event in the South Central Alabama Development Commission region.  He drove 20 miles to check out his coverage because he was unsure of whether he needed to keep or change his Medicare Part D prescription drug plan (PDP) for 2017.  He opted to do the safe thing and  check it out.  Thank goodness he did.

Mr. A’s prescription drug plan for 2016 had a zero premium and covered his 10 medications prescribed by his doctor.  That all worked out well, and during 2016 Mr. A’s total out of pocket expenses related to his prescription drug plan totaled $542.00.  This was a manageable arrangement for him.

When a comparison of plans was run Mr. A was shocked to learn that his 2016 prescription drug plan would have a premium of $26.80,  a deductible of $400.00, and his 10 medications had been reconfigured on the plan formulary resulting in 2 of his medications no longer being covered and 3 of his medications reclassified as Tier 3 medications, meaning that his copayments would be higher. In all, Mr. A would have had to pay $3276.00 in out of pocket expenses related to his prescription drug plan during 2017 if he made no changes in coverage.

The comparison provided Mr. A with several options, and he selected a plan that would result in $360.00 in total out of pocket expenses for 2017, saving him $2916.00 over what he would have had to pay if he had not had a comparison run.

While Medicare enrollees can run their own comparisons, they will need to use the online plan finder provided by Medicare.  Comparisons are performed free and counseling provided through the SHIP program funded through the Alabama Aging and Disability Resource Centers.  To learn more call 1-800-AGE-LINE.


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Medicare Open Enrollment

Caution - Open Enrollment AheadIt is that time of year to reexamine your Medicare coverage to determine if you like what you have or need to make changes.  Medicare’s Open Enrollment Period (OEP), during which you can enroll in or switch plans, runs from October 15 to December 7 every year, so now is the time to review your options to determine if switching plans could save you money and to determine if your coverage will continue to meet your needs.

During this period Medicare eligible people may enroll in a Medicare Part D (prescription drug) plan or, if you currently have a plan, you may change plans. This is an important consideration since each year insurance plans have the option to change which drugs they cover.  What was covered during the immediate past year may no longer be covered.  Also during the seven-week OEP you can return to traditional Medicare (Parts A and B) from a Medicare Advantage (Part C, managed care) plan, enroll in a Medicare Advantage plan, or change from one to a different  Advantage plans. While beneficiaries can go to http://www.medicare.gov or call 1-800-MEDICARE (1-800-633-4227) to make changes in their Medicare prescription drug and health plan coverage, a terrific resource to determine the available options is the State Health Insurance Program operated by local aging and disability resource centers.  Counselors can provide unbiased assistance in helping you maneuver through the maze of options.

Even beneficiaries who were satisfied with their plans in 2016 need to review their choices for 2017. Be sure to carefully review the plan’s “Annual Notice of Change” letter that you should receive. Prescription drug plans can change their premiums, deductibles, the list of drugs they cover, and their plan rules for covered drugs, exceptions, and appeals. Medicare Advantage plans can change their benefit packages, as well as their provider networks.

As an example of how drastically coverage can change year to year, Avalere Health, a consulting and research firm, reports that premiums for the 10 most popular drug plans will rise an average of 4 percent next year. According to the Centers for Medicare and Medicaid Services, the average Medicare Advantage premium is expected to decrease from $32.59 on average in 2016 to $31.40 in 2017.

This is a time when you will see advertisements all over television offering help with open enrollment.  Understand that these companies are advertising to sell you their product.  While their product may be what you want, it might not be, and you should not make a decision about that coverage without knowing all of the options available to you.  Also remember that people who are perpetrators of fraud will inevitably use the open enrollment period to try to gain access to individuals’ personal financial information. Medicare beneficiaries should never give their personal information out to anyone making unsolicited phone calls selling Medicare-related products or services or showing up on their doorstep uninvited. If you think you’ve been a victim of fraud or identity theft, contact Medicare. For more information on Medicare fraud, click here or here.

Some resources to help you navigate open enrollment include:

The 2017 Medicare & You handbook, which all Medicare beneficiaries should have received. The handbook can also be downloaded online at here.

The Medicare Rights Center provides  good educational materials to help.

You can find the State Health Insurance Assistance Program that serves your area here.

The online Medicare Plan Finder can be located here.