How Much Money Do I Need to Put into a Special Needs Trust for my Child?

One of the toughest things about planning for a child with special needs is trying to calculate the amount of money it’s going to take to provide both while the parents are alive and after the parents pass away.

Kiplinger’s recent article asks “How Much Should Go into Your Special Needs Trust?” The article explains that it’s not uncommon for folks to have done some estate planning but not necessarily special needs estate planning, even if it’s something they need for their loved ones. More importantly, they haven’t thought about how much money they should earmark to fund that trust someday or any other plan to provide for their family member and which assets would be the best to use.

Special needs estate planning involves creating a special needs trust (SNT) that allows a person with a disability to continue to receive certain public benefits. Typically, ownership of assets more than $2,000 would make the individual ineligible for certain public benefits. Assets held in a special needs trust don’t count toward this amount.

A child with special needs can generate multiple expenses. The precise amount will be based on the needs and lifestyle of the family and the child’s capabilities. Public program benefits can in many cases offset many of the above-mentioned costs. However, these benefits likely will not cover the entire cost of care.

When the parents die, the budget needed to care for the child often must be increased because the things the parents did must be monetized. For instance, the parents likely managed and coordinated the child’s care holistically. After they pass, a care manager may need to be compensated to do the same thing. There are also legal and trust administration expenses to think about.

An SNT usually isn’t funded until the parents’ death. At that time, the trust would need to file a tax return each year and pay taxes on any income made by the trust assets.

It is vital to conduct a complete analysis of the future costs to provide for a child with special needs so that parents can start saving and making adjustments in their planning. If this is something you are concerned about, speak with an elder law or estate planning attorney about creating a special needs trust.

Reference: Kiplinger (June 10, 2019) “How Much Should Go into Your Special Needs Trust?”

Prior Planning for Catasrophes

None of us know what kind of unexpected surprises will occur in our lives. We’d like to believe they will all be happy events, like winning the big Power Ball jackpot. However, unpleasant things like illness or a flood or fire often occur. We never think it will happen to us, says The Dalles Chronicle’s article “Prepare now for emergencies.” Unfortunately, these things do happen, and when they do, being prepared can make all the difference between a stressful situation and a really awful situation that could have been made, well, less awful.

For starters, have you met with an estate planning attorney to create a comprehensive estate plan that includes a will or trust, a financial power of attorney and a health care power of attorney? The will/trust concerns distribution of your possessions and property, the power of attorney gives a trusted person the ability to take financial and legal actions on your behalf in the event that you become incapacitated, and the medical power of attorney allows someone to make health care decisions for you if you become incapacitated. There are also many other tools that an estate planning attorney can help you with, such as a Special Needs Trust, if your family includes a family member with special needs, or other trusts if they are needed.

Next, your emergency preparations should include having important documents assembled in a notebook, on a memory stick and/or a safe location. Imagine there was an emergency evacuation and you had to leave your home immediately. What documents would you need? Here’s a helpful checklist to look at:

  • Contact information for family members, doctors, attorneys, dentist, insurance broker, financial advisor.
  • Cash, so if ATMs are not working, you will have cash on hand.
  • Identification documents, including originals of your birth certificate, marriage license, divorce papers, passport, Social Security card, health insurance cards (or Medicare or Medicaid cards).
  • A video of your home and all of your possessions on your mobile phone. Consider emailing it to a family member or friend who lives in a different location.
  • Insurance policies for home, auto, disability, long-term care, etc. Include contact information for either 800-numbers or your local agent, if you need to file a claim.
  • A copy of recent financial statements for credit cards, banks, brokerage firms, retirement accounts, car loans, mortgage and similar types of accounts.
  • Copies of the last three years of tax returns. If you work with a CPA, they should have them on a secure portal, but a hard copy will be useful to have.
  • Legal documents for your estate plan, including the will, power of attorney and health care power of attorney, as described above.
  • Other legal documents, including car registration, car title and property deed to your home.

These documents should all be organized in a folder that is placed in your home where you and your spouse know where it is and can grab it on your way out the door.

One more item that should be noted in this digital age: if you use a laptop or tablet that contains websites that you use frequently for personal finance, investments, etc., be mindful of its location in the house, so you can grab it (along with a charger cable) quickly. If you have passwords for accounts—and most of us do—you should print them out and include them in your file folder for easy access. You can almost always re-set a password, but how much easier will rebuilding your life be if you have them on hand?

If you do ever face a catastrophic emergency, having these materials will save you hours of time and stress.

Reference: The Dalles Chronicle (July 16, 2019) “Prepare now for emergencies”

Social Security Error and Medicare Coverage: This One’s Not a Scam

A “processing error” by the Social Security Administration has caused 250,000 benefit checks to be issued in January without deducting the proper Medicare premiums. As a result, the Social Security Administration is sending all those people a bill for as many as five months of Medicare premiums they thought had already been deducted. It turns out the Social Security Administration did not pay the insurance plans, reports NPR in “Social Security Error Jeopardizes Medicare Coverage for 250,000 Seniors” The problem applies to private drug policies and Medicare Advantage plans that provide medical and drug coverage and are substitutes for traditional government-run Medicare.

Some people will need to find the money to pay the plans, while others may already have their plans cancelled as a result of non-payment and will need to fight to have them reinstated.

Both Medicare and Social Security expect proper deductions and payments to resume either this month or next. Insurers are required to send bills directly to members for unpaid premiums, says Medicare.

Neither Medicare nor Social Security would explain how or why the error occurred or provide the specific names of the plans that were shortchanged. They also didn’t give the amount that the plans were owed. There is a notice to Medicare’s beneficiaries on the website, but it is lacking in detail.  The House Ways and Means Chair, Rep. Richard Neal, hasn’t received any response from either agency.

Organizations that represent seniors are getting some questions from their members who are Medicare beneficiaries. Two women in Louisiana lost drug coverage after their policies were canceled as a direct result of the error. A woman in Ohio was reinstated in fewer than 48 hours, after the state’s insurance information program for seniors got involved.

Some people may not have noticed that their Social Security checks did not include a deduction for their Medicaid Advantage or drug plan premiums. Some people may have thought the extra amount was an expected cost-of-living increase.

Medicare beneficiaries have had the option of paying premiums through a deduction from their Social Security benefit checks for more than a decade. They can also pay directly through a credit card or a checking account instead of from their Social Security benefits.

Insurance companies that have members who were affected by this must allow their members at least two months from the billing date to pay amounts they owe on premiums. In addition, they must also offer a payment plan for those who can’t pay several months of premiums at once. These are the requirements that acting director for the Medicare Plan Payment Group says companies must take to avoid invoking their policy of disenrollment if the member fails to pay a premium while the member is adhering to the payment plan. The federal policy director of the Medicare Rights Center, an advocacy group, is concerned that older adults will view their bills with suspicion, which could lead to further problems.

Reference: NPR (June 6, 2019) “Social Security Error Jeopardizes Medicare Coverage for 250,000 Seniors”

Worried about a Spouse Needing Nursing Home Care?

Worried about a Spouse Needing Nursing Home Care?
couple bored in retirement

The six-figure cost of nursing home care is worrisome for those who are married, when a spouse has to go to a nursing home. In the example above, Tom has had some major health issues in the past year and Louise is no longer able to care for him at home.

In this case, the couple live in Pennsylvania, where nursing home care statewide is $126,420 a year ($342.58 per day). The state has a Medical Assistance program that is a joint state-federal program that will pay for nursing home care, if a person meets both the medical and financial criteria.

Tom has met one of the major Medical Assistance threshold requirements, because he is “nursing home facility clinically eligible,” which means that a doctor has certified that due to illness, injury or disability, Tom requires the level of care and services that can only be provided in a nursing home.

What will happen to their assets?

In 1988, Congress passed the Medicare Catastrophic Coverage Act, which created a process of allocating income and resources between a spouse who needs to live in an institutional setting and the spouse who can continue to remain in a community setting.

Tom and Louise’s resources are divided into two buckets: one that is exempt and the second that is non-exempt.

The family home, care, and cost of a pre-paid funeral, if that has been done, are exempt or non-countable assets.

Everything else, whether they own it together or individually, is considered non-exempt. In Pennsylvania, Louise’s IRA is the exception. However, that is not the same in every state.

Louise is entitled to keep one half of what they own, with a maximum of $126,420, as of January 1, 2019. This is her “community spouse resource allowance.”

Anything else they own, is used to pay for Tom’s nursing home care or purchase a very select group of “exempt” assets, like a replacement car or the cost of a prepaid burial.

They would have needed to give away their resources, at least five years preceding an application for Medical Assistance. If they have given money away in an attempt to preserve some of their assets, that would have changed the timeline for Tom’s being eligible for care.

Louise needs income to live on, so that she is not impoverished. She is entitled to a monthly minimum maintenance needs allowance of $2,058 and a maximum needs allowance of $3,150.50. These numbers are federally adjusted and based on inflation.

The numbers that must be examined for Louise’s income are her Social Security benefits, Tom’s Social Security benefits, any pension either of the two may have and any other income sources. She can keep her income, as long as she does not go over a certain level.

Sounds scary? It is. This is why it is so important to do advance planning for nursing home care, and have an ongoing working relationship with an attorney with experience in estate planning and elder law. There are changes over time to address the changing circumstances that life and aging present.

Reference: Pittsburgh Post-Gazette (April 29, 2019) “Married and concerned about one of you going to a nursing home?”

How to Pay for Assisted Living or a Nursing Home

Senior living can be costly, but with a little creativity, you can find multiple options to help you pay for the Assisted Living or a Nursing Home expense. You might also not need as much money as you think as Senior housing developments include some costs that you have to pay for out of pocket, while you still live in your own home.

For example, if you pay $100 a month to have your grass cut, you will most likely not have this item as a separate expense at the facility. If your monthly bill at the senior housing development includes some meals, that service will replace some of your current costs as well. Nonetheless, you will need to figure out how to pay for assisted living or a nursing home. Here are some options:

Current Income

Some people have enough money from their current income to pay for living in a senior community. For example, a person who receives $2,000 a month from Social Security, $4,000 a month from an annuity, and $1,000 a month in interest, dividends and investment income can use current income to pay for a facility that charges up to $7,000 a month.

Savings

For many people, current income is insufficient to cover the entire cost of a senior housing development. Let’s say that your current income is $3,000 a month and the assisted living center charges $5,000 a month. If you have enough savings, you can supplement your income to make up the difference. At $2,000 a month, you will have to spend $24,000 a year of your savings to live in senior housing.

Proceeds from Sale of the Home

Quite a few people plan to sell the large family home and downsize into a senior apartment or other development, when they retire. Proceeds from the sale of your home can go a long way toward helping to pay for senior housing, depending on the amount of equity in your house.

Reverse Mortgage

Reverse mortgages are not for everyone. There have been shocking scandals, in which unscrupulous lenders heartlessly took the entire nest eggs of older adults who did not understand all the terms and conditions of reverse mortgages. Be sure to check with multiple sources, like your state’s attorney general office and a trusted financial advisor who has nothing to gain from you getting a reverse mortgage, before agreeing to one of these arrangements. Read every word of all the documents and do not sign until you understand every detail. But these tools can be incredibly effective for the right situation and with the right advisor.

Bridge Loan

If you find yourself in urgent need of assisted living, you might get a bridge loan to cover the costs of senior housing until your house sells. Compare the interest rate and terms of a bridge loan to a home equity line of credit.

Military Benefits

If you or your spouse served in the military, you might be eligible for Veterans Administration (VA) programs like Aid and Attendance. This program can help pay for nursing home care, assisted living, in-home care and memory care.

Long-term Care Insurance

Although fewer than three percent of Americans buy long-term care insurance, those who do can use the benefits to pay for assisted living, memory care, or a nursing home, depending on the coverage. Be sure to read the terms of the policy with great care, particularly about how long you can receive benefits and for what services.

Medicaid

After you spend down most of your assets, you might qualify for Medicaid. No organization pays for more people to live in senior housing than Medicaid does. Every state has a different Medicaid program, and each one has its own eligibility requirements. It is a good idea to talk with an elder law attorney in your area about how your state’s regulations differ from the general law of this article. But of course, before spending it all down, research your options to be sure that you are making informed decisions to pay for Assisted Living or a Nursing Home.

If you are assisting a loved one with their planning, be sure to research all options.

References:

A Place for Mom. “How to Finance.” (accessed April 14, 2019) https://www.aplaceformom.com/planning-and-advice/articles/financial-assistance

Stolen Social Security Scam Reaches Epic Proportions

The volume of calls being made by scammers and the sheer audacity of their demands, seems to have reached record highs. This past December, the Federal Trade Commission issued a warning about the Social Security scam, noting that they have received more than 35,000 complaints. The calls keep coming in, as reported by AARP Bulletin in the article “How Social Security Scammers Tried to Swindle a Fraud Expert.”

The typical scam starts with a robocall that says that an enforcement action has been executed by the U.S. Treasury against your Social Security number, and that ignoring this would be an intentional attempt to avoid appearances before a judge for a federal criminal offense. The tone is very serious, and it’s a convincing script. A phone number is provided so that people can call someone to help avoid being arrested.

One security expert put the scammers through their paces, calling the number and going through the process, with false names and account information, to learn first-hand how the scam operates.

The sophistication and calm demeanor of the scammer works well. The security pro gave a fake name, and his “file” was found immediately on the scammer’s system. He also provided a fake address and a fake Society Security number. Somehow the scammer confirmed all this information.

The scammer told the security expert that law enforcement agencies had found fraudulent bank accounts and crimes including money laundering, drug trafficking, and IRS scams linked to them. The expert was asked to confirm ownership of the 25 bank accounts, with a stern question: “Do you own these accounts, yes or no?”

The question is meant to cause fear and confusion. It works. When the security expert pretended to be flustered by the question, the scammer’s tone became helpful and kindly. He just needed to know exactly how much money his victim had and the numbers for the bank accounts. In that way, he would be able to help identify which of the accounts were real, and which were fake.

Once the supposed victim gave phony account numbers and told the scammer he had more than $85,000 in one of his bank accounts, the tone changed to attack mode. They told the security expert how many crimes there had been and how many federal counts there were against him. The possibility of 30 years of prison time was emphasized. There was another stern question, asking “Do you accept all of these allegations under your name?” The tactic makes an unsophisticated or frightened person feel, as if they are being scolded by an authority figure.  It works many times.

The social security scammer’s tone then shifts to that of a kindly friend, offering an opportunity to make things right. Part of that is the request for the caller to give the scammer the phone number for Social Security and the authority for the scammer to “clear his name.” The scammer even told his alleged victim that there are a lot of scams out there, and he didn’t want him to be a victim!

The alleged victim was told to go to the bank, withdraw all his money, and convert it to “government-certified bonds.” This was followed by a discussion of “government-certified stores” like Apple, Walmart, Target, CVS, as the source for gift cards. The “bonds” would never leave the victims hands. He just had to give the scammer the serial numbers on the cards, so they could “update your file.”

That’s where the money goes. The balances on the cards are transferred by number to the scammer’s accounts. The victim goes to the bank to “deposit” the cards, as they have been directed to do by the scammer, only to learn that they are worthless.

At this point, the security expert hung up, only to be called back more than a dozen times. He had learned what he needed to know, and now you do too.

When a robocall comes in, hang up. The government never demands payment in gift cards. If there was a warrant out for your arrest, there would be a police officer or federal marshal at your door, not on the phone. Unfortunately, many people, particularly seniors, do fall prey to this social security scam and many other scams. This is why they continue. Be on guard, because even smart people are taken by these Social Security scam artists.

Reference: AARP Bulletin (March 22, 2019) “How Social Security Scammers Tried to Swindle a Fraud Expert.”