How to Claim and Use Life Insurance

Many people have life insurance, and they have it for a multitude of reasons.  These include funeral costs, liquidity in an estate, help paying off taxes and so on.  Whatever your reason for having it, I wanted to talk about how to make a claim on it, and separately, what to do with it once you have.  You can see more at Kiplinger’s recent article entitled “What Is the Best Way for a Widow to Use Life Insurance Proceeds?”

When making a claim, you’ll need a couple of things.  First and foremost, perhaps blindly obvious, is that your beneficiaries need to know you have it.  If an insurance company becomes aware of a death they might reach out to named beneficiaries, but that is a big assumption.  So, your life insurance beneficiaries or whoever may claim the insurance needs to know it exists.

Holding that aside, the person entitled to the money will start by contacting the insurance company.  The company will send or direct that person on where to download a form to claim the insurance.  Beneficiaries typically need to provide proof of who they are, a death certificate for the insured (which in most places is issued within a few weeks of death) and other information about how to pay the insurance.  For example, some companies ask if you want to turn it into an investment fund at their financial institution, others arrange how to cut the check and so on.

It is worth noting that your executor or trustee won’t have the right to do this unless the estate or the trust is the beneficiary of the life insurance.  All told, the process typically takes something like 30 days.

Now, what to do with the insurance proceeds varies based upon the purpose and need of the life insurance.  I’m also going to assume for now that the insurance isn’t being paid to a trust which is designed to hold assets long term such as a descendant’s trusts.  That might have different concerns.

So, with that said, here are some ideas on how to use the life insurance.

Funeral Costs. Use life insurance money to cover these costs to decrease your financial strain.  Most funeral companies actually have you purchase a small insurance policy in order to prepay a funeral.

Ongoing Expenses. This is especially true when one spouse dies, but living expenses do not stop. Your income is frequently reduced. In fact, after the death of a spouse, household income generally declines by about 40% due to changes in Social Security benefits, spouse’s retirement income and earnings. The death benefit from a life insurance policy can help provide the funds you need to help cover your mortgage, car payment, utilities, food, clothing and health care premiums.

Debts. You are generally not personally responsible for paying off the debts of the decedent. However, when an estate does not have enough funds to pay all the debts, any gifts that were supposed to be paid out to beneficiaries will most likely be reduced. Note that you may be responsible for certain types of debt, such as debt that is jointly owned or a loan that you have co-signed. Talk to an experienced estate attorney to understand the laws of your state, so that you know where you stand concerning all debts.  By way of example, you have very few responsibilities to pay a decedent’s debts in Texas.

Taxes.  As a tie-in to debts, some people use life insurance to give an influx of liquidity to pay estate taxes.  This often helps when an estate is large due to real estate or businesses or other illiquid assets.  The IRS of course wants the tax paid in cash, so life insurance gives you the cash to do so without liquidating other assets.

Create an Emergency Fund. Life insurance can help build a liquid emergency fund, which should cover three to six months of expenses.

Supplement Your Retirement. When one spouse passes, the survivor becomes much more economically vulnerable. To retire, a person typically needs 80% of their preretirement income to live comfortably.  So, insurance provides and extra supplement to cover that need.

Reference: Kiplinger (Dec. 17, 2021) “What Is the Best Way for a Widow to Use Life Insurance Proceeds?”

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Health Mistakes to Avoid after 50

Everyone can improve their health as they age by avoiding key health mistakes people make after age 50.

Many of our clients are concerned with their health as they age.  All of us can improve the odds of a longer, more healthful life simply by avoiding the health mistakes that people tend to make after age 50, published in Money Talks News’ recent article entitled “7 Deadly Health Mistakes People Make After Age 50.”

  1. Loss of Social Connection. COVID-19 taught us many things, among them, people shouldn’t be alone. A 2018 study found that isolation may double a person’s risk of dying of cardiovascular disease. What’s more, social isolation is linked to increased risk of depression, cognitive decline, obesity and a weakened immune system. Men are at greater risk of suffering from social isolation, as a recent survey found just 48% of retired men living alone were very satisfied with the number of friends they had. However, about 71% of retired women living alone were very satisfied with their number of social connections.
  2. High-sodium foods. A very common health mistake is eating too many high-sodium foods.  About 90% of the sodium that we consume comes from salt. 90% of Americans over age two also consume too much sodium, so reduce your sodium intake. Do that and your blood pressure should fall within a couple of weeks, helping to lower your risk of deadly heart disease and stroke, the CDC says.  Several online sources list common high-sodium foods in our diets.
  3. Postponing colorectal cancer screening. Medical experts say that all adults 50 to 75 should have colorectal cancer screening. This test can find precancerous polyps, which are the main source of colorectal cancer, which is treatable when found in its early stages. With the Affordable Care Act of 2010, colorectal screening is among a list of preventive services that generally are free for people who have health insurance and are between the ages of 50 and 75.
  4. Not taking a daily aspirin. Not everyone over 50 should take an aspirin every day, but it can be good for those with certain potentially life-threatening health conditions. The Mayo Clinic says, “The U.S. Preventive Services Task Force recommends daily aspirin therapy if you’re age 50 to 59, you’re not at increased bleeding risk and you have an increased risk of heart attack or stroke of 10 percent or greater over the next 10 years.”

Taking aspirin makes blood platelets less “sticky,” helping to prevent the clots that lead to heart attacks and strokes, explains Harvard Medical School. Talk to your doctor before starting a daily aspirin regimen.

  1. Failing to lift weights. As we get older, the risk of the bone disease osteoporosis increases. About 10 million people have osteoporosis, and 44 million more have low bone density, which puts them at risk for the disease, according to the National Osteoporosis Foundation. Women are especially at risk for osteoporosis, since one in two women will break a bone due to osteoporosis. This happens more often in women than a heart attack, stroke and breast cancer combined. Getting sufficient calcium and vitamin D is critical to preventing osteoporosis. Weight-bearing exercise is also a great way to strengthen bones.
  2. Not drinking enough water. Anytime my kids tell me they have an upset stomach, don’t feel well or have a headache,  I respond the same way.  Drink some water.  Hydration is key for health, and the Mayo Clinic says that older adults carry a lower volume of water in their bodies. In addition, they are more likely to take medications that boost the risk of dehydration. Their sense of thirst is less acute, making it easy for them to forget the need to drink. Severe dehydration can lead to:
  • Seizures
  • Life-threatening heatstroke
  • Urinary and kidney issues; and
  • Hypovolemic shock (low blood volume shock).

As a general rule, men should drink 15.5 cups (3.7 liters) of fluids and 11.5 cups (2.7 liters) of fluids a day for women. 20% of daily fluid intake also typically comes from food.

  1. Continuing to smoke. Quitting smoker is easier said then done, but kicking the nicotine habit pays dividends at any age. The improvements accumulate over the next nine months, and by one year after quitting, your heart attack risk drops dramatically. However, improvements can be fast. For example:
  • Your heart rate and blood pressure drop 20 minutes after quitting:
  • The carbon monoxide level in your blood drops to normal a few days after quitting; and
  • Circulation improves and your lung function increases two weeks to three months after quitting.

Reference: Money Talks News (May 24, 2021) “7 Deadly Health Mistakes People Make After Age 50”

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Retaining Assets While Being Medicaid Eligible

Medicaid is a program with strict income and wealth limits to qualify, explains Kiplinger’s recent article entitled “You Can Keep Some Assets While Qualifying for Medicaid. Here’s How.” This is a different program from Medicare, the national health insurance program for people 65 and over that largely doesn’t cover long-term care. In this system, clients often have a goal of retaining assets while being Medicaid eligible.

If you can afford your own care, you’ll have more options because all facilities (depending on the level of medical care) don’t take Medicaid. Even so, couples with ample savings may deplete all their wealth for the other spouse to pay for a long stay in a nursing home. However, you can save some assets for a spouse and qualify for Medicaid using strategies from an Elder Law or Medicaid Planning Attorney.

You can allocate as much as $3,259.50 of your monthly income to a spouse, whose income isn’t considered, and still satisfy the Medicaid limit. Your countable assets must be $2,000 or less, with a spouse allowed to keep half of what you both own up to $130,380. Countable assets include things like cash, bank accounts, real estate other than a primary residence, and investments.  However, you can keep a personal residence, personal belongings (like clothes and home appliances), one vehicle (2 for married couple), engagement and wedding rings and a prepaid burial plot.  There are more detailed rules for countable and exempt assets, but suffice it to say most things count.

If you have too much income over the $2,382 income per month for the application, you can use a Miller Trust aka Qualified Income Trust for yourself, which is an irrevocable trust that’s used exclusively to satisfy Medicaid’s income threshold. If your income from Social Security, pensions and other sources is higher than Medicaid’s limit but not enough to pay for nursing home care, the excess income can go into a Miller Trust. This allows you to qualify for Medicaid, while keeping some extra money in the trust for your own care. The funds can be used for items that Medicare doesn’t cover.

However, your spouse may not have enough to live on. You could boost a spouse’s income with a Medicaid-compliant annuity. These turn your savings into a stream of future retirement income for you and your spouse and don’t count as an asset. You can purchase an annuity at any time, but to be Medicaid compliant, the annuity payments must begin right away with the state named as the beneficiary after you and your spouse pass away.

These strategies are designed for retaining assets while being Medicaid eligible for married couples; leaving an asset to other heirs is more difficult. Once you and your spouse pass away, the state government must recover Medicaid costs from your estate, when possible. This may be through a a claim on your probate estate (usually means the house) before assets go to heirs, reimbursement from a Miller Trust or other items.  That is a topic unto itself, albeit an important one, so see here for more information on Medicaid recovery.  https://www.galliganmanning.com/protect-assets-from-medicaid-recovery/

Note that any assets given away within five years of a Medicaid application date still count toward eligibility. Property transferred to heirs earlier than that is okay. One strategy is to create an irrevocable trust on behalf of your children and transfer property that way. You will lose control of the trust’s assets, so your heirs should be willing to help you out financially, if you need it.

Reference: Kiplinger (May 24, 2021) “You Can Keep Some Assets While Qualifying for Medicaid. Here’s How”

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