How Much Do You Know About Social Security? Check Out These Seven Surprising Statistics – Plus Some Related Advice from Rajiv

Social Security may be the biggest, most important, and least understood government program in America. If you consider the sheer amount of money the program spends and the huge number of Americans who rely on the program for all or part of their livelihood, you’d think we would all have a solid working knowledge of how Social Security actually works.

Social Security is Vital to Millions, Yet Widely Misunderstood

Yet that’s not the case. We just read this interesting article about Social Security on the Motley Fool financial website. “When MassMutual recently surveyed 1,500 people 55 to 65 on their knowledge of Social Security,” the article begins, “more than half failed or barely passed.” The Fool calls that “a jaw-dropping figure,” especially when you take into account how essential Social Security is to most beneficiaries. (If you want to take the 10-question MassMutual quiz for yourself, click here.)

We want to share a few of these Social Security facts and figures from the Motley Fool article with you, but before we do, we think it’s important to get some perspective from Life Point Laws’ Rajiv Nagaich. As always, Rajiv looks behind the numbers and sees some broader implications.

Social Security Bound to be Affected by “Unprecedented Times,” Says Rajiv

“There’s an untold story here,” he states. “We’re in the midst of unprecedented times – people are waiting for stimulus checks related to the coronavirus, and millions are facing layoffs. That combination paints a really bad picture for Social Security.” According to Rajiv, people being laid off means smaller contributions into the Social Security system, while at the same time increasing numbers of workers may start taking benefits prematurely to help bridge the unemployment income gap. All of this is happening against the backdrop of a ballooning federal deficit.

Rajiv suggests now is the time to be especially proactive. “Before you leap to the solution of tapping Social Security early, you need some comprehensive advice,” he says. “If you can start planning now to work longer, that’s a good strategy. Look for ways to cut expenses, and talk to your family about the potential of multi-generational living where you can combine household incomes.  As soon as possible, get a financial dashboard in place so you have the ability to evaluate and adjust your circumstances.” And, he adds, you can still attend a LifePlanning webinar from the comfort of your own home. Read on and we’ll tell you more.

How Much Do You Know About Social Security? Seven Surprising Stats

Here are some numbers compiled by MotleyFool that dramatize just how massive Social Security is and how essential to the fabric of American life.

  • $1 trillion: Social Security pays out roughly $1 trillion annually to approximately 68 million Americans (as of 2018). Since the entire U.S. GDP is about $21.5 trillion, Social Security alone represents around 5 percent.
  • 22 million: That’s the number of Americans Social Security is keeping out of poverty, according to the Center on Budget and Policy Priorities. “That doesn’t mean it’s giving them a comfortable, middle-class existence,” the article reminds us. The federal poverty level for singles is just $12,760 annual income – roughly $17,240 for couples.
  • 8 percent: Even with the good news of those kept out of poverty by Social Security, the bad news is that nearly 9 percent of recipients are living below the poverty line even with Social Security income. “Another 5 percent were ‘near poor,’ meaning their income was between 100 percent and 125 percent of the federal poverty level,” the article reports. “The [poverty] rates were significantly higher for single people and minorities.”
  • $1,507: The average Social Security benefit is about $18,000 per year, or $1,507 per month. That may come as a wake-up call to the people who may be over-estimating how much they’ll receive. The highest allowable benefit this year is $3,790 per month, or about $45,000 annually. Your benefit is a function of several factors including your year-by-year work history and the age at which you start taking benefits.
  • $1,627 vs. $1,297: That average benefit just cited doesn’t tell the whole story, says Motley Fool: there’s a major gender disparity. “Because women tend to earn less over their lives, due to income inequality and also because they often have to leave the workforce for some years to care for children or other family members,” women have a much lower average monthly benefit: $1,297 in 2018 compared with $1,627 for their male counterparts..
  • 24 percent: Most people know that the simplest way to boost Social Security income is to delay starting benefits. We can start collecting benefits as early as age 62 and as late as age 70, even though “full retirement age” is generally between 66 and 67. “For each year earlier than our full retirement age that we start, our benefits will shrink,” says MotleyFool. “And for each year beyond it that we delay, they’ll increase – by about 8 percent annually. So, delay from age 67 to 70 and you’ll enlarge those checks by about 24 percent.”
  • 77 percent: Many people fear that Social Security is going bankrupt and their benefits will disappear. “Social Security is facing some serious challenges ahead,” the article acknowledges, “but the recent worst-case scenario was that around 2035, in about 15 years, it wouldn’t have enough to pay retirees their full benefits – but it would have enough to pay them about 77 percent of those benefits.” A 23 percent haircut is an unhappy prospect but, as the article says, “it’s a whole lot better than zero.” We hope Congress and the President will one day get around to a legislative fix.

(originally reported at www.fool.com)

Guest Article: Three Reasons You Need an Attorney for Your Will

As a service to Life Point Law blog readers, we’re always on the lookout for helpful articles from a variety of sources.  The following column comes from Missouri-based Rudy Beck, Attorney and Founder of Beck and Lenox Estate Planning & Elder Law, LLC.

Nearly half of American adults over the age of 55 do not have a will, according to a 2019 study by Merrill Lynch. These stories make headlines when a public figure such as Aretha Franklin, Prince or Kurt Cobain passes away without a will — but the truth is that failing to prepare an estate plan can have devastating consequences for any family.

Long ago, a person could handwrite their own will without consulting an attorney, and that will was honored. As taxes and financial tools have continued to evolve, Estate Planning is no longer the “D-I-Y project” it once was. The consequences of drafting a will or trust incorrectly can be disastrous and create long-lasting problems for your heirs.

Stick to basic house projects for your D-I-Y talents, and read three real-life scenarios to help you better understand why Estate Planning is a job best left to will and trust attorneys.

The Top Three Reasons to Consult an Estate Planning Attorney for Your Will

Many people assume they do not need more than a simple will if they do not have a rock star’s massive, wealthy estate. They may even try to save time and money on attorney fees by purchasing a template for a will or buying their will online.

We have learned these individuals usually undervalue the size of their estate, or that their wishes are often more complicated than they realize.

Three of the most important reasons to consult with an attorney for your Estate Planning needs are:

  1. Simple solutions are not always the result of a simple plan.
  2. Attorneys offer an unbiased voice to ask personal, potentially difficult questions.
  3. An Estate Planning attorney can help you plan for the cost of long-term care.

The below lessons are based on real-life scenarios involving clients of our law firm.

Scenario #1: Your Simple Estate Planning Solutions Are Often Not Simple.

Doris came to our firm to discuss her will and how to prepare it for her three children. She owns a home worth approximately $180,000 and has investments totaling approximately $450,000. Doris explained that she wants to leave her house — or really, the proceeds from its sale after her death — to her children equally.

When asked about the plan for her investments, Doris said, “Don’t worry, I’ve taken care of it.”

Doris had her investments in three laddered Certificates of Deposit (CDs), each one Payable on Death (POD) to a different child. By Doris’s calculations, each child would receive $150,000 when she passed away. But we posed several scenarios under which that would not happen.

For example, Doris assumed the amount of money she has and where she has it will remain unchanged, which is very unlikely. When a CD matures, she may roll it over to a new one or decide to invest elsewhere. And if Doris passed away suddenly, the funds intended for one of her children could be stuck in her checking account.

Unfortunately, Doris’s child couldn’t receive that money unless their name was also on the checking account — which is not what Doris wants or what her children expect.

Scenario #2: An Estate Planning Attorney Will Ask Tough, Unbiased Questions.

Jennifer and her husband wanted to set up a trust that would provide income to their adult child, solely through investments in that trust. They were concerned their daughter would spend the principal funds quickly and foolishly, and not have any money left to fund her future retirement.

On the surface, this sounded like a good idea — but when our attorney asked more questions about their objectives for this inheritance, the plan this couple envisioned had some significant shortfalls, including:

  • Changing Interest Rates.
    Their daughter’s inheritance was expected to be around $250,000. If the interest income is 4%, or $10,000 per year, it seems to be a reasonable amount. But what if an economic boom (or recession) caused today’s interest rate to change?
  • Unpredictable Life Circumstances.
    In the future, their daughter could lose her job or face a sudden medical crisis. The way the inheritance was structured, she could not access any part of the principal, even if she needed it to pay her mortgage or medical bills.

Our clients were so focused on the prospect of their daughter purchasing a sports car and a boat, they had not considered other realistic life events — and realized their trust needed to reflect some important changes.

Scenario #3: Asset Protection Strategies Can Help Fund Future Long-Term Care.

Georgia came to see us after her husband, Henry, suffered a stroke. He was in the hospital, and doctors had already told Georgia he was not going to be able to return home. Instead, he would need to live in a skilled nursing facility.

Did You Know: Long-term care is a big concern for many of our clients. Statistics from an AARP report show that 52% of people turning 65 will need long-term care services at some point in their lives, whether at home, or in an assisted living or skilled nursing facility. If they have not planned for the expense, these seniors will need to spend a significant amount of their savings to receive essential care.

Georgia was concerned about how they would pay for the high cost of this facility without spending everything they had — including their home and $500,000 in savings and investments. She was quite healthy and had every reason to expect to live another 20 years or more. They needed to make their hard-earned money last.

With our Estate Planning knowledge and expertise, our attorneys recommended putting their funds into Medicaid-compliant annuities, to pay Georgia as the “community spouse.” After their affairs were sorted, we were able to obtain Medicaid to pay for Henry’s care and preserve funds for Georgia’s future needs.

(originally reported at www.beckelderlaw.com)

The CARES Act Says Retirees Don’t Have to Take RMDs This Year – But What If You Already Did? You Could Get a Do-Over

We’ve been getting a lot of questions here at AgingOptions about the CARES Act and how it affects retirees. “CARES” stands for Coronavirus Aid, Relief, and Economic Security, and this new law’s impact is far-reaching and, in many cases, still being assessed. One of the well-publicized benefits of the new law for retirees is the stipulation that they do not need to take their required minimum distribution (RMD) from their retirement accounts in 2020. Instead they can leave those dollars on deposit to (hopefully) recover from some recent losses.

The RMD Do-Over Let’s You Put That Withdrawal Back Where It Came From

But between January 1st and March 27th, the date the CARES Act was signed into law, many retirees, unaware that a rules change was in the offing, may have already taken their RMD for this year. If you were one of them, this article from the Money website has some potential good news: you just might be able to claim a do-over.

Here’s how Money’s Carla Fried explained it. “The coronavirus stimulus bill that became law in late March suspended the RMD requirement for this year. But what if you already took your required minimum distribution for 2020, and now you wish you hadn’t? You may be able to put the money back into your retirement account.”

The RMD Do-Over Means Uncle Sam Has to Wait a Bit Longer for His Share

The RMD law is, according to the article, “Uncle Sam’s way of finally getting his hands on some of the money that’s grown tax-deferred for decades in your traditional 401(k) or IRA.” The rule, which affects everyone 72 and older, requires account holders to withdraw a minimum amount from their account each year and pay income taxes on it, whether they need the money to live on or not.  But IRS rules also allow what’s called a roll-over, where the entire withdrawal is re-deposited in a qualifying account within 60 days, generally with no tax consequences.

“In the case of an RMD,” says Money, “you could do the rollover back into the account you withdrew it from, or move the money into another retirement account.”  This may be the simplest and best idea for those who want to undo an early withdrawal. “If you don’t need that money to pay your bills, you might as well put it back,” reporter Carla Fried advises. “Extra income could push you into a higher tax bracket for the year and a higher income bracket for Medicare premiums down the line.”

The RMD Do-Over: Some of the New Rules Are Still Under Consideration

Under the CARES Act, Money explains, if you’re already past the 60-day window, you’ll still have some options “that allow early-bird RMD takers to reverse their decision.” However, some of those options haven’t yet been made clear. “The expectation is that the Internal Revenue Service will soon release guidelines that may make it possible for anyone to return an RMD taken out in January or February, regardless of whether they’ve been affected by the coronavirus or not,” the article explains.

Financial experts echo this wait-and-see approach. “Caution and patience are the name of the game,” CPA Hayden Adams from the Schwab Center for Financial Research told Money.  “The IRS is definitely going to be coming out with guidance,” possibly within weeks as the agency works through the particulars of the CARES Act. “Until there is 100 percent clarity,” the article says, “it’s ‘best to hold off’ on any moves right now.”

Some Important Rules About the RMD Do-Over

Even though some of the rules have yet to be released, there are some that are expected to remain in force. Here are a few things Money magazine wants early-bird RMD-takers to know:

  • Directly Impacted by COVID-19: According to Money, “The 60-day limit on a rollover doesn’t apply if you have been directly impacted by the coronavirus.” You can put the money back into the same account it came from if you, your spouse, or your dependent have been diagnosed with COVID-19. You’re also exempt from the 60-day rule if you or a spouse have experienced “adverse financial consequences” from quarantine, furlough, or lay-off.
  • One Do-Over Per Year: Under most circumstances, you can only “undo” one IRA transaction per 365-day period. That means one withdrawal, not one account. There are some detailed provisions you need to know about, so make sure you get good advice from a qualified planner.
  • The Entire Distribution: “If you already took a 2020 distribution, you likely had some taxes withheld,” says Money. “If you intend to return the money to a retirement account, you need to repay the entire amount, not just what landed in your pocket. For example, if you took a $20,000 RMD and had 10 percent withheld for federal taxes, the net that landed in your account was $18,000. But to repay you must rollover (recontribute) the entire $20,000 into a retirement account.”

As stated above, there will be more to this story, so it’s best to sit tight. The CARES Act gives the government wide latitude in allowing retirees to reverse an RMD distribution, regardless of when it was taken in 2020. “Translation: Stay tuned,” says Money. The best short-term strategy will be “a virtual huddle with your tax advisor to start working through under what conditions you may be able to roll an early RMD back into a retirement account.”

Will Each of Your Kids Get an Equal Inheritance? How You Handle That Question Can Cause Family Strife – or Prevent It

As you plan ahead for the end of your life, one of the decisions you’ll want to think carefully about is the eventual disposition of your estate. If you plan to leave your assets and possessions to your children – and if you have more than one heir – you’ll have a potentially tough choice to make: do you divide your estate equally, or do you give a different amount to each of your kids?

Equal or Unequal, Your Estate Plan Sends a Message

This recent article from NerdWallet helps us think through that question. “Your estate plan may be your last words to those you leave behind,” writes reporter Liz Weston. “If you’re a parent, you should think carefully about the message you’ll be sending.” The biggest problem is that, unless you make your motives crystal clear, you may be creating a deep divide between your offspring, no matter how noble your intentions.

“Parents who leave their children unequal inheritances risk fueling family feuds,” the article states. “But strictly equal bequests also can cause resentment if the heirs don’t see the distribution as fair.” As wealth planner and author Colleen Carcone told NerdWallet, “Money can cause family discord, and you want to make sure that you are thinking through this and keeping sibling relationships intact.”

“Equal Inheritance” versus “Fair Inheritance” – It Comes Down t0 Perception

Instead of focusing on “equal” or “unequal” division, the NerdWallet article recommends you concentrate on the idea of “fairness.” As Weston writes, “For some people, fair means an equal dollar amount. Others may want to adjust the distribution to deduct financial help they’ve already given, for example, or to leave more to heirs with greater need.” Sometimes an heir who has provided in-home care for a parent receives a larger share. In other families, the offspring who has worked harder in the family business may be entitled to receive more equity than his siblings.

“Each approach has its merits — and problems,” says the NerdWallet article. “With an equal-dollar distribution, heirs may resent their wealthier siblings for getting money they don’t ‘need.’ Similarly, children who received less financial help during the parent’s life may resent those who got more if the estate distribution doesn’t reflect that imbalance.” On the other hand, unequal distributions can also cause hard feelings, as well. “The person getting less than others may view it as a punishment, especially if the amount was docked to reflect past financial help or to account for personal wealth,” writes Weston. “One inheritor I know refers to this as ‘the success tax.’”

The Unique Dynamics of Your Family Should Guide Your Decision

“What matters is how your decision is likely to play out given your family’s dynamics, and that may be differently than you expect,” writes Weston. For example, one family had a son whose wealth far exceed that of his siblings, or even his parents. In spite of this, the parents had planned to divide their estate equally. But when the parents discussed this with their son, according to wealth manager Colleen Carcone, they discovered he didn’t want what they thought. “He said, ‘I would rather have the money go to my siblings, but what I’d really like is that watch collection that Grandpa left you.’”

But in other families, if it’s not an equal distribution, there will be discord. “Leaving one child more than another would ignite those ‘Mom (or Dad) always liked you best’ rivalries that can destroy sibling relationships,” says Weston. As hard as it might be to let your children know your plans ahead of time, it’s an essential step. Otherwise, one planner told NerdWallet, the parents are “just sowing seeds of discord for when they are gone.”

Equal Inheritance or Not, Parents Should Leave Behind a Detailed Letter

Whether or not you have a family meeting while you’re living – and we strongly recommend that you do – NerdWallet also urges you to leave behind “a detailed letter explaining the thinking behind your decisions. Such letters can head off disagreements about what you said and what you meant.” This will make your wishes unambiguous, and it will also help children grasp your reasoning. “Make sure that [your children] understand why you did what you did,” Colleen Carcone told NerdWallet. “Nobody wants to leave a legacy of family disharmony.”

At Life Point Law, we want to offer our services in facilitating a family conference where some of these vital issues can be aired under the guidance of an experienced attorney. These conferences can take place in person, with appropriate social distancing precautions in place, or electronically. Please contact our offices for information.

Beware of These Five Social Security Myths – They Could End Up Costing You Plenty

Here at Life Point Law we are constantly being reminded that there is a vast amount of misinformation out there about Social Security. This program, so important to senior Americans, is widely misunderstood – so much so that thousands of retirees are making decisions every year that can end up costing them a lot of money over the course of their retirement.

Correct These Social Security Myths and Clear Away the Retirement Fog

To help counter all the erroneous assumptions and bogus “facts” people cling to about Social Security, we are always on the lookout for articles for the AgingOptions blog that can help clear away the fog and provide reliable information. After all, our goal is to help men and women make the right decisions for their retirement so that they can protect their assets, avoid becoming a burden to their loved ones, and escape the trap of being forced against their will into a nursing home.

With that goal in mind, we want to bring back to your attention this helpful article that was published last year on the NerdWallet financial website. Written by frequent contributor Liz Weston, the column lists five common myths about Social Security and then sets the record straight about each one. These may not be “new news” to you, but if you have someone in your life who frequently spouts misinformation about Social Security, Liz Weston’s column may be a good place to refer them.

The Number of People Filing Early Shows the Power of Social Security Myths

The NerdWallet article starts with one of the leading indicators of Social Security misinformation: the age at which people file for monthly payments. “Researchers tell us that most people would be better off waiting to claim Social Security benefits,” writes Weston. “Yet most people file early.” Indeed, about one-third start taking benefits at the earliest allowable age, 62, even though they are permanently locking in a significantly lower monthly payment for the rest of their lives. According to the article, barely 4 percent of applicants hold out to receive maximum benefits at age 70.

Why do people grab their benefits at the first opportunity and leave so much money on the table? “Some people have little choice, of course,” Weston acknowledges. “They may have no savings and no job.” However, she adds, the irony is that many retirees “have better options than applying early, but don’t realize it. That’s due in part to the many, many myths surrounding Social Security.” As one example, Weston cites a 2013 financial survey in which more than three-fourths of pre-retirees said they felt confident about their Social Security knowledge – but when asked eight questions about how the program works, 95 percent answered at least some questions incorrectly.

Social Security Myths: People Don’t Understand the Benefits of Waiting

Here are Liz Weston’s five myths about Social Security – the ones, as she puts it, that are “most likely to cost you money.”

  • “It doesn’t matter when I take Social Security.” This is a surprisingly common misperception. “Social Security benefits increase by about 7 percent each year between 62 and your full retirement age, and by 8 percent each year between full retirement age and 70,” says Weston. While it may be tempting to start collecting early, “longer life expectancies, current low interest rates and rules regarding survivor benefits mean that most people are better off delaying.” It’s also generally true that many retirees outlive their savings, making it even more critical that they max out their Social Security benefits which will last a lifetime.
  • “If I have a shorter-than-average life expectancy, I should claim benefits early.” Research shows that most people underestimate their life expectancy. The Social Security Administration estimates that a 65-year-old man today can expect to live to 84, and a woman who is 65 today can expect to live to 86 ½. For couples who are 65 today, the odds are at least 50 percent that one spouse will live to 92. Weston adds, “Even if you’re right about having a shorter life expectancy, claiming early could shortchange your mate.” That’s because, when one spouse dies, “the survivor will get the larger of the two checks the couple was receiving.” If you’re the higher earner in your household, you’re ensuring your surviving spouse a larger benefit for his or her life if you delay.

Social Security Myths: People Worry About the Future

  • “If I claim benefits early and invest them, I’ll come out ahead.” This is a common fallacy. “No investment offers a guaranteed return as high as what you can get from delaying your Social Security application,” says Weston. “To match that return, you’d have to take a lot of risk. Even the most prudent investor can get shellacked by a bear market or real estate downturn.” Delaying Social Security offers a risk-free return.
  • “I have to claim Social Security as soon as I quit working.” You don’t have to start Social Security when you stop working, says Weston, and you don’t have to quit work to draw benefits. If you decide to retire but want to delay filing, your adviser may suggest other strategies to fund your retirement for a few years until you reach the optimum age.
  • “I need to apply before Social Security goes bankrupt.” We hear this a lot, but it’s a myth. “Social Security is not ‘going bankrupt,’” says Weston. It’s true that, if Congress doesn’t act, the system will have to reduce benefits by an estimated 20 percent in 2035, but “80 percent clearly is not the same as zero.” Odds are that Congress will get around to fixing Social Security, making adjustments that will probably affect future retirees and not current ones. Don’t lock in your benefit prematurely; if you do, says the NerdWallet article, “[it] just means settling for smaller checks for life.”

Creating an Ethical Will: How a “Legacy Letter” Can Help Communicate Love, Lessons, and Values to Those You Leave Behind

As we age, many of us begin to think about the concept of “leaving a legacy.” Too frequently, however, the focus turns to money, as if the only legacy that truly matters when we die is a pile of cash, a portfolio of real estate, or a healthy business. But as this recent Kiplinger article point out, when we consider the things of value that we bequeath to our heirs, it’s important to consider the elements of our legacy that are intangible. This kind of inheritance, often spelled out in a document called an Ethical Will, can impact your family far more than money.

Ethical Will: An Ancient Practice with a Modern Application

The definition of an ethical will – sometimes referred to as a legacy letter – is simple, according to Abby Schneiderman who co-founded a company called Everplans.  It’s a document that you have prepared to “communicate values, experiences and life lessons to your family.”  Wikipedia traces the concept to Old Testament times, and calls an ethical will “a document that passes ethical values from one generation to the next.” The practice, says Wikipedia, has become more widespread in recent years, used as an aid to estate planning, as a way of ensuring appropriate end-of-life care, and as a means toward a spiritual healing tool.

The Kiplinger article spotlights Minneapolis hospice director Barry Baines who says he first came upon the concept of an ethical will in the 1990s. “He and his colleagues were working on a project about existential pain at the end of life. A dying young man told them his nonphysical pain was a 10 out of 10. Even though this patient was a husband and father, ‘he told us, “I feel like I’m going to die and there won’t be any trace that I was ever on the Earth.”’” After Baines suggested that the man work with a chaplain to create an ethical will, the man said “his spiritual suffering had dropped to zero.”

Ethical Wills: Do-It-Yourself or Professional Assistance

Baines since has written a book called Ethical Wills: Putting Your Values on Paper, and has co-founded a company that, according to Kiplinger, “offers both guidance for creating ethical wills and trains facilitators — such as financial planners, hospice workers and those who work in faith communities — about how to help people fashion their own legacy letters.” Baines acknowledges that people can write a legacy letter or ethical will by themselves, but sometimes professional help can provide necessary support and encouragement.

“While the task may seem daunting,” says Kiplinger, “most people’s ethical wills aren’t long, perhaps only a page or two.” Professionals suggest that a good starting place can include “personal history, favorite things, academic and professional life, religious and political views, and hopes for the future.” Some people get creative and include a PowerPoint slide show depicting things they love. You can attach favorite recipes, photos, or keepsakes. It’s up to you what you choose to include.

Ethical Wills Can Be Intentional – or Accidental

“Legacy letters can even be accidental,” Kiplinger states. One woman “discovered a two-page typewritten letter from her uncle that was saved by his brother —her father — while clearing out her parents’ house in the early 2000s. Her uncle had written the letter in 1963 on the back of a church bulletin shortly after his only child had died in an airplane crash. Although the family sent hundreds of letters back and forth between Iowa and Michigan, this was the only one saved.”

This cherished letter, which contains simple advice about doing things that matter – taking walks, staying mentally healthy, keeping an open mind, and practicing tolerance – was never intended as a “legacy letter.” But that’s precisely what it turned out to be.

No Life is “Too Ordinary” for an Ethical Will

If you think you have little of value to leave as an ethical or moral legacy for your family, says the Kiplinger article, think again. “For many, leaving an ethical will seems like a grandiose idea, that their lives are too ordinary or unsuccessful for them to have valuable insights to share. But the struggles are where life lessons come from.” One idea is to write your letter when you reach a milestone in life, such as becoming an empty-nester, retiring, or reaching a significant birthday. These life events can prompt times of personal introspection.

Finally, your ethical will can provide benefits for you as well as for your loved ones. “The document can also be one of self-reflection for how you want to live the rest of your life,” the article concludes. The process of putting down on paper can trigger some healthy questions, including “What do I stand for?” and “What matters most?”

If the Nursing Home is Trying to Take Away a Medicaid Patient’s Stimulus Check, They’re Breaking the Law, Uncle Sam Warns

If you or a loved one live in a nursing home and receive Medicaid benefits, watch out. Some nursing homes and assisted living facilities around the country have snatched up their Medicaid residents’ stimulus checks, claiming that the facility owns that money.  But according to this Michelle Singletary column in the Washington Post, they’re wrong. That money belongs to the resident, and both the IRS and the Federal Trade Commission have recently issued strongly-worded statements putting violators on notice.

That Stimulus Check Belongs to You, Even If You’re on Medicaid

“The IRS issued an advisory last week to clarify that the economic impact payments distributed as part of the latest stimulus package belong to recipients, not a nursing home or assisted-living facility,” writes Singletary. This action by the IRS and other federal agencies comes in response to reports that “nursing homes and other elderly care organizations have seized the payments, arguing that because the residents are receiving Medicaid, the facilities are entitled to the money.”

(We’re reprinting portions of the IRS and FTC statements at the end of this article.)

As the Washington Post reports, The CARES Act (Coronavirus Aid, Relief, and Economic Security) provides a $1,200 refundable tax credit for individuals and $2,400 for joint taxpayers. “What many have not realized is that the stimulus payment is an advanced tax credit, and as such, it is not considered income, which is why it’s not taxed,” Singletary explains. “As a result, for the purpose of qualifying for federal benefits, such as Medicaid, the stimulus payment is not counted as a resource.”  This ruling also applies to other federal benefit programs.

You’re Free to Spend Your Stimulus Check as You See Fit

The National Center on Law and Elder Rights has determined that the stimulus payment cannot be used to affect a resident’s monthly payment or “share of cost,” according to the Post. Residents are free to spend their stimulus money however they please.

CMS has also weighed in on this issue, Singletary reports. The Centers for Medicare and Medicaid Services issued a warning which you can read here that “commandeering stimulus payments from residents could subject facilities to federal enforcement actions, including the possibility that they cannot participate in the Medicare and Medicaid programs.”  One IRS spokesman couldn’t have been more blunt. “The law is clear, and we want you to know that,” he said. “If you’re in a nursing home or other care facility, your economic impact payment belongs to you, not the home.”

According to the Washington Post, if a nursing home or assisted-living facility has taken your payment and won’t return it, you should contact your state attorney general. Since many AgingOptions blog readers live in Washington State, we’re including  this link to the website of the Washington State Attorney General.

The following comes from the IRS statement, which you can read in its entirety here:

The Internal Revenue Service today alerted nursing home and other care facilities that Economic Impact Payments (EIPs) generally belong to the recipients, not the organizations providing the care.

The IRS issued this reminder following concerns that people and businesses may be taking advantage of vulnerable populations who received the Economic Impact Payments.

The payments are intended for the recipients, even if a nursing home or other facility or provider receives the person’s payment, either directly or indirectly by direct deposit or check. These payments do not count as a resource for purposes of determining eligibility for Medicaid and other federal programs for a period of 12 months from receipt. They also do not count as income in determining eligibility for these programs.

Here’s a Link to the Statement by Lois Greisman of the FTC:

Do you or a loved one live in a nursing home or assisted living facility? Are you (or they) on Medicaid? If you said “yes” to both, please read on and prepare to get mad. We’ve been hearing that some facilities are trying to take the stimulus payments intended for their residents on Medicaid. Then they’re requiring those people to sign over those funds to the facility. Why? Well, they’re claiming that, because the person is on Medicaid, the facility gets to keep the stimulus payment.

But here’s the deal: those economic impact payments are, according to the CARES Act, a tax credit. And tax law says that tax credits don’t count as “resources” for federal benefits programs, like Medicaid. So: when Congress calls these payments “tax credits” in the CARES Act, that means the government can’t seize them. Which means nursing homes and assisted living facilities can’t take that money from their residents just because they’re on Medicaid. And, if they took it already, get in touch with your state attorney general and ask them to help you get it back.

This is not just a horror story making the rounds. These are actual reports that our friends in the Iowa Attorney General’s Office have been getting – and handling. Other states have seen the same.

If you’ve experienced this already, tell your state attorney general’s office first, and then tell the FTC: http://www.ftc.gov/complaint. If a loved one lives in a nursing facility and you’re not sure what happened to their payment, talk with them soon. And consider having a chat with the facility’s management to make sure they know which side of the law to be on.

(Note that the FTC statement includes other helpful links should you need them.)

Millions of Future Retirees are Asking a Big Financial Question: Will Social Security Be Enough? Experts Say, “Probably Not.”

As Americans plan for retirement, one of the pillars of their financial plan is typically Social Security. Since the 1930s this program has been the social safety net ensuring that millions of retirees would not have to live in poverty but instead would have at least some level of steady income, adjusted for inflation. But as this article from Motley Fool warns, many approaching retirement are over-estimating how much “security” Social Security will provide, and their complacency could derail their dreams of a secure retirement.

Is Social Security Enough? You’ll Likely Need Other Sources of Retirement Income

In the article, reporter Christy Bieber writes, “Over one-third of current workers today believe Social Security will be a major source of income during retirement. Unfortunately, those who believe their primary income will come from this benefits program could be setting themselves up for financial disaster.” Her Motley Fool article cites a study from the National Institute on Retirement Security (NIRS) which found that those households where most of the income comes from Social Security are much more likely to be poor compared with those who have multiple sources of retirement income.

We took a look at the study which was done earlier in 2020, titled “Examining the Nest Egg: The Sources of Retirement Income for Older Americans.” It’s long, at 45 pages, and filled with data, but the authors’ thoughts on Social Security were clear. “Social Security has a very important and powerful role to play in preventing elder poverty,” they wrote, “but Social Security alone is not enough to provide a secure retirement, even though the largest share of older households only receive income from Social Security.”  In the view of these experts, one of the top policy priorities for helping retirees should be “protecting, strengthening, and expanding Social Security.”

Is Social Security Enough? A “Three-Legged” Income Stool is Far Better

The NIRS survey strongly cautioned against over-reliance on Social Security. “The findings of this report support the argument for a three-legged stool of retirement savings: the more sources of retirement income a household has, the more total retirement income they are likely to have.”  For the authors, the “three legs of the stool” are Social Security, a defined benefit pension plan, and income from individual savings. The Motley Fool article makes the same point: “If Social Security makes up the bulk of your income, you’re much more likely to not have enough,” Bieber writes.

In examining the NIRS study, Motley Fool determined that the degree to which a retiree is reliant on Social Security plays a significant role in how financially stressed someone turns to be. “While the vast majority of senior retirees get at least some income from Social Security,” the article points out, “there are striking differences between the percentages of income these benefits account for when comparing high- and low-income households.”

Is Social Security Enough? The Answer May Lie in How Much You Rely On It

Motley Fool compared retired men with incomes of $80,000 or more against men with incomes at the other end of the scale – under $20,000. For the average upper income man, roughly one-quarter of his income came from Social Security, versus nearly two-thirds for the retirees in low income households. The figures for women were similar, except that low-income women received an even higher percentage of their income from Social Security – 75 percent.

What about folks at other income levels? “For those in the middle,” the article explains, “there was still a clear correlation between relying more on Social Security and having a lower income.” The figures quoted by Motley Fool look like this:

  • Retirees with incomes of $60,000 to $79,999 relied on Social Security for between 40 and 42 percent of their retirement funds;
  • Those in the $40,000 to $59,999 income bracket counted on Social Security for 54 to 57 percent of household income;
  • Retired people with incomes of $20,000 to $39,999 got roughly 70 percent of household income from Social Security.

Is Social Security Enough? There May Be More to the Answer

The Motley Fool article mentions that, with the average Social Security benefit in 2020 at barely over $1,500, it’s no surprise that over-reliance on this program can leave retirees in the lurch. “Even for those who get more than the average, Social Security benefits are only designed to replace around 40 percent of pre-retirement income. They simply aren’t designed to provide you with enough to live a comfortable life in your later years without additional funds.” The piece concludes with the traditional prescription: save more, start planning earlier, and (we would add) look for ways to generate income with part-time work or other gigs.

But another tool at the disposal of future retirees is to delay taking Social Security as long as possible. With benefits rising roughly 8 percent per year from age 62 to 70, the strategy of delaying benefits can make the difference between financial scarcity and relative security. This is one of many reasons why the sooner you sit down with a qualified, objective financial planner and prepare a financial dashboard to guide your decisions, the better off you’ll be. Contact us at Life Point Law to get any of your Social Security questions answered.

Crisis Corner: 5 Myths of Medicaid

By: Aaron Paker

Welcome to the first installment of Crisis Corner.  Since this is the first article in this series, I should introduce what Crisis Corner is.  This is a monthly article to help aging Americans understand the options that they have when things go wrong.  I specialize in helping folks who are dealing with a sudden illness or diagnosis that turns their world upside down and they have not made all of the arrangements necessary to flow with the change.  This month, I will take on the five most common myths that prevent people from seeking Medicaid help.

The Big 5.

  I often get calls from adult children seeking help for their parents.  The children want the parents to get Medicaid to help pay for increasing care costs, but the parents will not listen to them.  I sit down with one or both parents to talk and I almost always hear between 1 and 5 of these myths: 

1) I make too much money
2) I have to be broke
3) I have to spend the money on care first 
4) I’ll lose my house when my spouse dies

5) I’ll have to move to a nursing home

This is the absolute, no contest, most common objection I hear.  In over 5 years and hundreds of Medicaid plans, I have run into three (3) people whose income was too high for Medicaid to approve them, though there have been a handful of single applicants whose income was high enough that remaining on benefits, once approved, would be impractical at best.  Generally speaking, the “ill spouse” can have an income of $7-10,000 per month and still be approved for Medicaid benefits and the “well spouse” can have unlimited income.  A high income for the ill spouse just means that they will pay for more of their care before Medicaid kicks in to pay the rest.  Sometimes this even means that they pay everything and Medicaid pays nothing, but they pay the Medicaid rate and not the private rate, which could be a savings of $2-3,000 per month or more.

Where this really becomes an issue is when a single person has a high income.  One situation that I have seen a few times involves a single person with an income of about $5,000 per month.  They are living in a care facility that charges $7-9,000 per month and so they are losing $24-48,000 per year from savings that may not have been very robust to begin with.  They use various methods to bring their savings to less than $2,000 so that they can apply for benefits and they are approved.  So far, so good.  Then the Medicaid rate for their care is set at $4,000 per month.  They pay the care providers $4,000 and add $1,000 to their savings, putting them over $2,000 and costing them their benefits.  This means that they have to find other things to spend $1,000 per month on, without gifting.  This can be done with companion services, messages, field trips, etc. but it is very difficult to continuously find appropriate expenses every month.

This one takes less words to explain away.  A single applicant can have one house with up to $595,000 in equity, a car of any value, and $2,000 in other resources.  If they want to protect the house from being liened, then they are essentially limited to a car and $2,000.  A married couple can have a house of any value, a car of any value, either $60,075 or up to $130,640 (in a nursing home scenario) in other countable resources, AND the well spouse can have unlimited income.  This means that, in most situations, a couple with one ill spouse and one healthy spouse can come to me with a great house, a nice car, and $1,000,000 or more and I can protect most or all of those resources and get them help.  There are times that it makes more sense to avoid Medicaid when you have that many resources, but that comes down to a case-by-case analysis of the situation.  I will clarify, because I am often asked “why would someone with that much need Medicaid?”  Here is a brief scenario where it might make sense: Couple has been very frugal with relatively large incomes while younger and made strong investments; retirement income is a combined $4,000 per month plus any interest being made from the investments; husband becomes very ill and has to move to a nursing home or have 24 hour care at home that is costing $12,000 per month.  This means that the $1M in savings is dropping by more than $96,000 per year ($96,000 is just his care costs and ignores all of her expenses), and they will be out of money in less than 10 years if he lives that long.

Here is my shortest answer of the day.  NO!  There are many ways to protect resources for a married couple and a few for single people.  Talk to an expert and we can help.

It is true that, if your spouse is on Medicaid AND their name is on the Title of your house WHEN THEY DIE, then the State will place a lien on the house for the amount paid in benefits. There are a few important things to note here; in most cases we can take the ill spouse off of the Title before the application or before they die.  In rare cases, usually where there is not a valid Power of Attorney and a Guardianship would be too costly or time consuming, we cannot get the ill spouse off of the Title.  In those cases the lien is placed.  The lien cannot be enforced during the surviving spouse’s life time, so they never have to pay the lien.  Oddly enough, if the surviving spouse sells or give away the property before their death, the State’s lien just goes away and is not paid by anyone.  The only time the lien can be enforced is if it was a single person who died with their name on the Title or a situation where the ill spouse was on the Title at his/her death and the surviving spouse never took steps to cancel the lien before passing.  This can be as simple as giving the house to a child or selling it to move to a smaller house.

Medicaid benefits are available in most nursing homes, many adult family homes or assisted living facilities, and in your own home.  There are times that one setting or another makes the planning easier, or provides more appropriate care, but there is no truth to the myth that Medicaid will only pay for a nursing home.


Take Away.  
There are many myths floating around that make Medicaid planning seem like a pipe dream.  If you or a loved one is facing current or expected costs of care that threatens to destroy a lifetime of savings, call and talk to an expert.  You may just learn that you have a relatively easy road to travel and a willing guide to make it even easier.  

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