When to Sign Up for Medicare

It's important to know the deadlines for when to sign up for Medicare.
It’s important to know the deadlines for when to sign up for Medicare.

It’s important to know the deadlines for when to sign up for Medicare and the penalties that can be imposed for late enrollment.

Here are the important dates for Medicare enrollment:

  • You can initially enroll in Medicare during the seven-month period that begins three months before you turn 65.
  • If you continue to work past 65, sign up for Medicare within eight months of leaving the job or group health plan or penalties apply.
  • The six-month Medicare Supplement Insurance enrollment period starts when you’re 65 or older and enrolled in Medicare Part B.
  • You can make changes to your Medicare coverage during the annual open enrollment period, from Oct. 15 to Dec. 7.
  • Medicare Advantage Plan participants can move to another plan from January 1 to March 31 each year.

Medicare Parts A and B Deadline. Individuals who are getting Social Security benefits, may be automatically enrolled in Parts A and B, and coverage starts the month they turn 65. However, those who haven’t claimed Social Security must proactively enroll in Medicare. You can first sign up for Medicare Part A hospital insurance and Medicare Part B medical insurance during the seven months that starts three months before the month you turn 65. Your coverage can start as soon as the first day of the month you turn 65, or the first day of the prior month, if your birthday falls on the first of the month. If you fail to enroll in Medicare during the initial enrollment period, you can sign up during the general enrollment period between January 1 and March 31 each year for coverage that will begin July 1. Note that you might be charged a late enrollment penalty when your benefit begins. Monthly Part B premiums increase by 10% for each 12-month period you delay signing up for Medicare, after becoming eligible for benefits.

If you or your spouse are still working after age 65 for an employer that provides group health insurance, you must enroll in Medicare within eight months of leaving the job or the coverage ending to avoid the penalty.

Medicare Part D Deadline. Part D prescription drug coverage has the same initial enrollment period of the seven months around your 65th birthday as Medicare Parts A and B, but the penalty is different. It’s calculated by multiplying 1% of the “national base beneficiary premium” ($32.74 in 2020) by the number of months you didn’t have prescription drug coverage after Medicare eligibility and rounding to the nearest 10 cents. That’s added to the Medicare Part D plan that you choose each year. As the national base beneficiary premium increases, your penalty also goes up.

Medicare Supplement Insurance Plan Deadline. These plans can be used to pay for some of Medicare’s cost-sharing requirements and some services that traditional Medicare doesn’t cover. The enrollment period is different than the other parts of Medicare. It is a six-month period that starts when you’re 65 or older and enrolled in Medicare Part B. During this open enrollment period, private health insurance companies must sell you a Medicare Supplement Insurance plan, regardless of your health conditions. After this enrollment period, insurance companies can use medical underwriting to decide how much to charge for the policy and can even reject you. If you miss the open enrollment period, you’re no longer guaranteed the ability to buy a Medicare Supplement Insurance plan without underwriting, or you could be charged significantly more, if you have any health conditions.

Medicare Open Enrollment Deadline. You can make changes to your Medicare coverage during the annual open enrollment period from October 15 to December 7. During this period, you can move to a new Medicare Part D prescription drug plan, join a Medicare Advantage Plan, or stop a Medicare Advantage Plan and return to original Medicare. Changes take effect on January 1 of the following year.

Medicare Advantage Open Enrollment Deadline. Participants can move to another plan or drop their Medicare Advantage Plan and return to original Medicare, including purchasing a Medicare Part D plan, from January 1 to March 31 each year. You can only make one change each year during this period, and the new plan will begin on the first of the month after your request is received.

Reference: Yahoo News (July 27, 2020) “Medicare Enrollment Deadlines You Shouldn’t Miss”

 

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Can I Protect My Estate with Life Insurance?

Life insurance is a powerful estate planning tool which protects the estate by providing liquidity to preserve assets and to pay estate taxes and expenses.

With proper planning, insurance money can pay expenses, such as estate tax and keep other assets intact, says FedWeek’s article entitled “Protect Your Estate With Life Insurance.”

The article provides the story of “Bill” as an example. He dies and leaves a large estate to his daughter Julia. There are significant estate taxes due. However, most of Bill’s assets are tied up in real estate and an IRA. Julia may not want to hurry into a forced sale of the real estate. If she taps the inherited IRA to raise cash, she’ll be forced to pay income tax on the withdrawal and lose a valuable opportunity for extended tax deferral.

A wise move for Bill would be to purchase life insurance on his own life. The policy’s proceeds could be used to pay the estate tax bill. Julia will then be able to keep the real estate, while taking only the Required Minimum Distributions (RMDs) from the inherited IRA. It might make sense if Julia owns the insurance policy or it’s owned by a trust as well.  See here for more details on how that might work for you.  https://www.galliganmanning.com/trust-owned-life-insurance-in-your-estate-plan/

However, there are a few common life insurance errors that can damage an estate plan:

Designating the estate as beneficiary. If you make this move, you put the policy proceeds in your estate, where the money will be exposed to estate tax and your creditors. Your executor will also have additional paperwork, if your estate is the beneficiary. Instead, be certain to name the appropriate beneficiaries.

Designating a single beneficiary. Name at least two “backup” or contingency beneficiaries. This will eliminate some confusion in the event the primary beneficiary should predecease you.

Designating your revocable trust.  If estate taxes aren’t a concern and you use a trust-based estate plan, sometimes designating your trust as a beneficiary is a great idea as it provides liquidity to your family for estate expenses.

Placing your life insurance in the “file and forget” file. Be sure to review your policies at least once every three years. If the beneficiary is an ex-spouse or someone who has passed away, you need to make the appropriate change and get a confirmation, in writing, from your life insurance company.

Inadequate insurance. You may not have enough life insurance. If you have a young child, it may require hundreds of thousands of dollars to pay all of his or her expenses, such as college tuition and expenses, in the event of your untimely death. Skimping on insurance may hurt your surviving family. You also don’t need to be so thrifty, because today’s term insurance costs are very low.

As you can see, life insurance may be a powerful estate tool.  Speak with your advisor and your estate planning attorney on how best to incorporate life insurance in your estate plan.

Reference: FedWeek (June 11, 2020) “Protect Your Estate With Life Insurance”

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That Last Step: Trust Funding

A trust only controls the assets it owns, so don’t forget the critical last step in a trust estate plan: properly funding the trust.

Neglecting to fund trusts is a surprisingly common mistake, and one that can undo the best estate plans. Many people put it on the back burner, then forget about it, says the article “Don’t Overlook Your Trust Funding” from Forbes.

If you read our blogs routinely, you’ll know we are fans of trust planning.  Done properly with appropriate trust funding, a trust helps avoid probate, provides for you and your family in the event of incapacity and streamlines the estate process.

Creating a revocable trust gives you control. With a revocable trust, you can make changes to the trust while you are living, including funding. Think of a trust like an empty box—you can put assets in it now, or after you pass. If you transfer assets to the trust now, however, your executor won’t have to do it when you die.

Note that if you don’t put assets in the trust while you are living, those assets may go through the probate process. While the executor will have the authority to transfer assets, they’ll have to get court to appoint them as executor first. That takes time and costs money. It is much better if you do it yourself while you are living.

A trust helps if you become incapacitated. You may be managing the trust while you are living, but what happens if you die or become too sick to manage your own affairs? If the trust is funded and a successor trustee has been named, the successor trustee will be able to manage your assets and take care of you and your family. If the successor trustee has control of an empty, unfunded trust, it may not do very much good.  Instead, an agent under a power of attorney, or if none, a court-appointed guardian may have to be appointed.

Move the right assets to the right trust. It’s very important that any assets you transfer to the trust are aligned with your estate plan. I cannot stress this enough, but you should speak with an attorney regarding how to fund your specific trust.  Not all plans and assets are the same, and different plans call for different trust funding.   That said, taxable brokerage accounts, bank accounts and real estate are usually transferred into a trust either immediately during lifetime or upon death via a beneficiary designation. Some tangible assets may be transferred into the trust, as well as business interests.  Some assets, such as life insurance and retirement funds may designate the trust in some manner by beneficiary designation, but in light of the Secure Act changes you’ll definitely want to discuss that with your attorney.   See here for more:  https://www.galliganmanning.com/how-the-secure-act-impacts-your-estate-plan/

Your estate planning attorney, financial advisor and insurance broker should be consulted to avoid making expensive mistakes. You should also consider trust funding when you review your estate plan to ensure it is updated with new assets.

You’ve worked hard to accumulate assets and protecting them with a trust is a good idea. Just don’t forget the final step of funding the trust.

Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”

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