Role of Insurance in Estate Planning

Insurance in estate planning addresses liquidity, tax concerns and is even a vehicle for affordable long term care coverage.

I often discuss life insurance when working with a client on their estate plan and the role of insurance in estate planning in general.  Some have term life insurance policies from when they are young, others whole life policies promoted to them as money available into late retirement, and even a few solely because of the tax benefits to life insurance.  It’s possible that life insurance may play a much bigger role in your estate planning than you might have thought, says a recent article in Kiplinger titled “Other Uses for Life Insurance You May Not Know About.”

If you own a life insurance policy, you’re in good company—just over 50% of Americans own a life insurance policy and more say they are interested in buying one. When the children have grown up and it feels like your retirement nest egg is big enough, you may feel like you don’t need the policy. However, don’t do anything fast—the policy may have far more utility than you think.

Tax benefits. The tax benefits of life insurance policies are even more valuable now than when you first made your purchase. Now that the SECURE Act has eliminated the Stretch IRA, most non-spouse beneficiaries must empty tax-deferred retirement accounts within ten years of the original owner’s death unless some other exception applies. Depending on how much is in the account and the beneficiary’s tax bracket, they could face an unexpected tax burden and quick demise to the benefits of the inherited account.

Life insurance proceeds are usually income tax free, making a life insurance policy an ideal way to transfer wealth to the next generation. For business owners, life insurance can be used to pay off business debt, fund a buy-sell agreement related to a business or an estate, or fund retirement plans.

Even more, life insurance is often a very good tool to pay estate taxes.  This is true for two reasons.  First, the tax has to be paid in dollars, so an infusion of cash from a life insurance policy provides funds to pay it without selling off other assets such as real estate or business interests.  Second, life insurance is an easy asset to include an irrevocable trust.  It would be held outside of your estate (thus doesn’t make your estate tax bill go up) and for most insurance you don’t need immediate access to it.  See here for more information:  https://www.galliganmanning.com/the-irrevocable-life-insurance-trust-why-should-you-have-one/

What about funding Long Term Care? Most Americans do not have long-term care insurance, which is potentially the most dangerous threat to their or their spouse’s retirement. The median annual cost for an assisted living facility is $51,600, and the median cost of a private room in a nursing home is more than $100,000. Long-term care insurance is not inexpensive, but long-term care is definitely expensive. Traditional LTC care insurance is not popular because of its cost, but long-term care is more costly. Some insurance companies offer life insurance with long-term care benefits. They can still provide a death benefit if the owner passes without having needed long-term care, but if the owner needs LTC, a certain amount of money or time in care is allotted.

Financial needs change over time, but the need to protect yourself and your loved ones as you age does not change. Speak with an estate planning attorney about the role of insurance in estate planning for you.

Reference: Kiplinger (July 21, 2021) “Other Uses for Life Insurance You May Not Know About”

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Protect Assets from Medicaid Recovery

Medicaid is a government program used by Americans to pay long-term care, typically for nursing homes or in-home care.   What some people don’t realize is that Medicaid seeks reimbursement for money spent on someone’s behalf after they pass away.  The Medicaid Estate Recovery Program (MERP) is used to recoup costs paid toward long term care, so that the program can be more affordable for the government, says the article “What is Medicaid Estate Recovery?” from kake.com. Beneficiaries of Medicaid recipients are often surprised to learn that this impacts them directly, and are even more surprised that you can protect assets from Medicaid recovery with some planning.

Medicare was created to help pay for healthcare costs of Americans once they reach age 65. It covers many different aspects of healthcare expenses, but not costs for long-term or nursing home care. That is the role of Medicaid.

Medicaid helps pay the costs of long-term care for aging seniors. It is used when a person has not purchased long-term health care insurance or does not have enough money to pay for long-term care out of their own funds.  Medicaid is sometimes used by individuals who have taken steps to protect their assets in advance by using trusts or other estate planning tools.  See here for more detail.  https://www.galliganmanning.com/can-i-afford-in-home-elderly-care/

The Medicaid Estate Recovery program allows Medicaid to be reimbursed for costs that include the costs of staying in a nursing home or other long-term care facility, home and community-based services, medical services received through a hospital when the person is a long-term care patient and prescription drug services for long-term care recipients.

When the recipient passes away, Medicaid is allowed to pursue assets from the estate. In fact, Federal law requires the states to have such a program.  Now, this is critical to recognize, but the scope of Medicaid varies widely between what state provided the benefits.  For the most part it means any assets that would be subject to the probate process after the recipient passes. That may include bank accounts, real estate, vehicles, or other real property.  Texas Medicaid recovery is happily limited to the estate.  So, there are many options to protect assets from Medicaid recovery in Texas.

In some states, recovery may be made from assets that are not subject to probate: jointly owned bank accounts between spouses, payable on death bank accounts, real estate owned in joint tenancy with right of survivorship, living trusts and any assets a Medicaid recipient has an interest in.

An estate planning attorney will know what assets Medicaid can use for recovery and how to protect the family from being financially devastated.

While it is true that Medicaid can’t take your home or assets before the recipient passes, it is legal for Medicaid to have a claim to assets before the beneficiaries, similar to the way other creditors of a decedent must be satisfied before beneficiaries receive property.  Let’s say your mother needs to move into a nursing home. If she dies, you’ll have to satisfy Medicaid’s claim before you can take possession or will pay the claim as part of a sale.

Strategic planning can be done in advance by the individual who may need Medicaid in the future. One way to do this is to purchase long-term care insurance, which is the strategy of personal responsibility. Another is removing assets from the probate process. Married couples can make that sure all assets are owned jointly with right of survivorship, or to purchase an annuity that transfers to the surviving spouse, when the other spouse passes away.

In most cases we can advance clients on how to change the the titling of their accounts to protect assets from Medicaid recovery before the person passes away.  We may also be able to create a Medicaid Asset Protection Trust, which may remove assets from being counted for eligibility.

As a final point, clients often encounter the medicaid claim in the estate, which is the first time an attorney is involved in the process.  Now, you may not have the same options to protect assets from Medicaid recovery because you’ll have lost prospective planning, but their are exceptions to recovery and ways to defend against the claim.  They are all very time sensitive however, so you should reach out to an attorney immediately upon encountering them.

Speak with an estate planning attorney to learn how to prepare for yourself or your parent’s future needs. The earlier the planning begins, the better chances of successfully protecting the family.

Reference: kake.com (Feb. 6, 2021) “What is Medicaid Estate Recovery?”

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How Can Caregivers Find Time for Self-Care?

Family caregivers need to take time out for self care.
Family caregivers need to take time out for self care.

It’s not uncommon for a caregiver to start their journey in a crisis when a family member gets a devastating diagnosis—like Alzheimer’s, cancer, or heart disease—that causes physical or cognitive restrictions on independent daily living.

Considerable’s recent article entitled “How family caregivers can use a Monday routine to reinvent self-care” reports that more than 34 million Americans are caring for a loved one over the age of 50.

Although many caregivers take on their role willingly, they may be forfeiting much needed time for self-care. These sacrifices can accumulate over time, since most caregivers spend an average of four years and 80-160 hours a month in their caregiving role. For individuals taking care of a person with dementia or Alzheimer’s, it can be double that with additional stress.

Creating a routine can give calm to caregivers. A program that is based on a healthy weekly routine is Caregiver Monday, part of The Monday Campaign’s nonprofit public health initiative.

Most caregivers have their regular routines drastically changed, when caring for a family member, This gives caregivers a feeling of a loss of control. When added to the inability to control the disease or disability that impacts loved ones, caregivers can suddenly feel overwhelmed with increased anxiety and chronic stress. This psychological state is called loss of locus of control and has two paths: (i) internal locus of control; and (ii) external locus of control. Caregivers can’t gain external locus of control over the situation or disease, but they can increase internal locus of control—that’s the response they have to these situations. Creating a new routine is part of reestablishing internal locus of control.

A routine can help caregivers cope with change, focus on healthy habits and decrease their stress. It can also help restore balance in a caregiver’s life. Monday gives us a natural refresh point, because it’s part of our cultural DNA. Monday is the start of the work week and the school week, so it makes sense that caregivers can use Monday as the start of a sustainable effort towards improved self-care.

Caregiver Monday provides self-care practices and promotion, and focuses on physical, emotional and social health behavioral change, by helping caregivers commit to weekly efforts. A 2019 survey of 1,000 adult Americans conducted by Data Decisions Group for The Monday Campaigns found that 64% of respondents said if they begin on Monday with a positive frame of mind, they’re more apt to remain positive for the rest of the week. Those surveyed reported they were also more likely to start exercise routines, eat healthier and make doctor’s appointments on Mondays.

Here are three ideas to begin a Caregiver Monday routine. Instead of the Monday blues, caregivers can use Monday as their personal “Fun Day,” to focus on themselves. Caregivers can:

  • Follow Caregiver Monday on Facebook, Twitter, or Instagram for ideas every week on finding self-care practices.
  • Get involved with the caregiving community on these social sites to feel less alone.
  • Ask friends and family to assist with respite care to get a self-care break.

Even with the disruption and the distress, caregivers can use Monday to have a little fun. You can don your favorite color on Mondays or watch YouTube videos of baby animals (a scientific study shows that this can have a positive effect on mood and productivity). Most importantly, thank yourself with little self-care activities and be grateful you can be there for your family member every day.

For more information on issues of concern for the elderly see  https://www.galliganmanning.com/elder-financial-abuse-is-increasing/.

Reference: Considerable (May 11, 2020) “How family caregivers can use a Monday routine to reinvent self-care”

 

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