HUD Makes Reverse Mortgages a Little Less Attractive

The Department of Housing and Urban Development (HUD) has announced changes to the federal reverse mortgage program. Citing the need to put the program on better financial footing, HUD will raise reverse mortgage fees for some borrowers and lower the amount homeowners can borrow.

A reverse mortgage allows a homeowner who is at least 62 years old to use the equity in his or her home to obtain a loan that does not have to be repaid until the homeowner moves, sells, or dies. In a reverse mortgage, the homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the age of the borrower, and current interest rates. Seniors sometimes use the loans to pay for long-term care.

To start, HUD is changing the mortgage insurance premium fees that homeowners pay in order to obtain a loan. Currently, homeowners pay 0.5 percent of the value of their home as an upfront mortgage insurance premium on smaller loans, but homeowners who take out a loan that is more than 60 percent of their home's value pay a 2.5 percent premium. The new rule will require homeowners to pay a standard 2 percent upfront mortgage insurance premium. Homeowners considering a large reverse mortgage may want to wait until after the new rules go into effect. To offset the upfront costs, the annual mortgage insurance premium rate will be dropped from 1.25 percent to 0.5 percent.

In addition, HUD is lowering the amount that homeowners can borrow. The average borrower at current interest rates will be able to borrow only around 58 percent of the value of their home, down from 64 percent.

The changes are set to go into effect on October 2, 2017. The changes will only affect borrowers who take out new loans; they will not affect existing loans.

For more on the new requirements, click here.

 

You Can Pay Your Medicare Premiums Online

Online bill paying has become a popular way to make paying bills easier, and now you can pay your Medicare premiums online too. If your bank allows customers to pay bills online, you can use that service to pay your Medicare premiums.

To set up online bill paying, contact your bank. To make sure your bank processes your premium payments correctly, you’ll need to give the bank this information:

  1. The amount of your Medicare premium
  2. Your account number, which is your Medicare number without dashes (this number is on your red, white, and blue Medicare card)
  3. The biller's name: CMS Medicare Insurance
  4. The biller's address: Medicare Premium Collection Center, P.O. Box 790355, St. Louis, MO 63179-0355

The charges will appear on your bank statement as CMS Medicare. Remember that when your premium changes — usually in January — you will need to update the bank with the new premium amount.

Medicare does not charge a fee for paying bills online, but some banks do charge for online bill paying.

For more information, visit Medicare’s online bill payment page.

 

 

Be Aware of the Kiddie Tax Before Leaving an IRA to Children

Grandparents may be tempted to leave an IRA to a grandchild because children have a low tax rate, but the “kiddie tax” could make doing this less beneficial.

An IRA can be a great gift for a grandchild. A young person who inherits an IRA has to take minimum distributions, but because the distributions are based on the beneficiary's life expectancy, grandchildren's distributions will be small and allow the IRA to continue to grow. In addition, children are taxed at a lower rate than adults—usually 10 percent.

However, the lower tax rate does not apply to all unearned income. Enacted to prevent parents from lowering their tax burden by shifting investment (unearned) income to children, the so-called “kiddie tax” allows some of a child's investment income to be taxed at the parent's rate. For 2017, the first $1,050 of unearned income is tax-free, and the next $1,050 is taxed at the child’s rate. Any additional income is taxed at the parent's rate, which could be as high as 35 percent. The kiddie tax applies to individuals under age 18, individuals who are age 18 and have earned income that is less than or equal to half their support for the year, and individuals who are age 19 to 23 and full-time students.

If a grandparent leaves an IRA to a grandchild, the grandchild must begin taking required minimum distributions within a year after the grandparent dies. These distributions are unearned income that will be taxed at the parent's rate if the child receives more than $2,100 of income (in 2017). In addition to IRAs, the kiddie tax applies to other investments that supply income, such as cash, stocks, bonds, mutual funds, and real estate.

If grandparents want to leave investments to their grandchildren, they are better off leaving investments that appreciate in value, but don't supply income until the investment is sold. Grandparents can also leave grandchildren a Roth IRA because the distributions are tax-free.

For more information about leaving an IRA to grandchildren from Kiplinger, click here.

 

 

Why You Should Use a Lawyer for Medicaid Planning

Many seniors and their families don't use a lawyer to plan for long-term care or Medicaid, often because they're afraid of the cost. But an attorney can help you save money in the long run as well as make sure you are getting the best care for your loved one.

Instead of taking steps based on what you've heard from others, doing nothing, or enlisting a non-lawyer referred by a nursing home, you can hire an elder law attorney. Here are a few reasons why you should at least consider this option:

  • No conflict of interest. When nursing homes refer the families of residents to non-lawyers to assist in preparing the Medicaid application, the preparer has dual loyalties, both to the facility that provides the referrals and to the client applying for benefits. To the extent everyone wants the Medicaid application to be successful, there's no conflict of interest. But it's in the nursing home's interest that the resident pay privately for as long as possible before going on Medicaid, while it's in the nursing home resident's interest to protect assets for the resident's care or for the resident's spouse or family. An attorney hired to assist with Medicaid planning and the application has a duty of loyalty only to the client and will do his or her best to achieve the client's goals.
  • Saving money. Nursing homes can cost as much as $15,000 a month in some areas, so it is unusual for legal fees to equal the cost of even one month in the facility. It is not difficult to save this much in long-term care and probate costs. And most attorneys will consult with new clients at little or no cost to determine what might be achieved before the client pays a larger fee.
  • Deep knowledge and experience. Professionals who work in any field on a daily basis over many years develop both the depth and breadth of experience and expertise to advise clients on how they might achieve their goals, whether those are maintaining independence and dignity, preserving funds for children and grandchildren, or staying home rather than moving to assisted living or a nursing home. Less experienced advisers, however well intentioned, can't know what they don't know.
  • Malpractice insurance. While we should expect that every professional we work with will provide outstanding service and representation, sometimes things don't work out. Fortunately there is a remedy if an attorney makes a mistake because almost all attorneys carry malpractice insurance. This is probably not the case with other advisers in the Medicaid arena.
  • Peace of mind. While it's possible that when you consult with an elder law attorney, the attorney will advise you that in your situation there is not much you can do to preserve assets or achieve Medicaid eligibility more quickly, the consultation will provide peace of mind that you have not missed an important opportunity. In addition, if obstacles arise during the process, the attorney will be there to work with you to find the optimal solution.

Medicaid rules provide multiple opportunities for nursing home residents to preserve assets for themselves, their spouses and children and grandchildren, especially those with special needs. There are more opportunities for those who plan ahead, but even at the last minute there are almost always still steps available to preserve some assets. It's always worth checking out whether these are steps you would like to take.

MSW Business Launch Program

Are you ready to launch a new product or service business? Moonan, Stratton & Waldman, LLLP is pleased to announce the new MSW Business Launch Program, a business advisory program especially dedicated to the new entrepreneur!  Our attorneys can provide you with the legal advice and business know-how necessary to get your new business up and running for an affordable, flat fee with no surprises.  Call us today at (401) 272-6300 for a consultation.

Take These Three Steps When Your Child Turns 18

If your child has reached the teenage years, you may already feel as though you are losing control of her life. This is legally true once your child reaches the age of 18 because then the state considers your child to be an adult with the legal right to govern his or her own life.

Up until your child reaches 18, you are absolutely entitled to access your child’s medical records and to make decisions regarding the course of his treatment. And, your child’s financial affairs are your financial affairs. This changes once your child reaches the age of 18 because your now-adult child is legally entitled to his privacy and you no longer have the same level of access to or authority over his financial, educational and medical information. As long as all is well, this can be fine. However, it’s important to plan for the unexpected and for your child to set up an estate plan that at least includes the following three crucial components:

1. Health Care Proxy with HIPAA Release

Under the Health Insurance Portability and Accountability Act, or HIPAA, once your child turns 18, the child's health records are now between the child and his or her health care provider. The HIPAA laws prevent you from even getting medical updates in the event your child is unable to communicate his or her wishes to have you involved. Without a HIPAA release, you may have many obstacles before receiving critically needed information, including whether your adult child has even been admitted to a particular medical facility.

Should your child suffer a medical crisis resulting in the child's inability to communicate for him or herself, doctors and other medical professionals may refuse to speak with you and allow you to make medical decisions for your child. You may be forced to hire an attorney to petition to have you appointed as your child’s legal guardian by a court. At this time of crisis, your primary concern is to ensure your child is taken care of and you do not need the additional burden of court proceedings and associated legal costs. A health care proxy with a HIPAA release would enable your child to designate you or another trusted person to make medical decisions in the event your child is unable to convey his or her wishes.

2. Durable Power of Attorney

Like medical information, your 18-year-old child’s finances are also private.  If your child becomes incapacitated, without a durable power of attorney you cannot access the child's bank accounts or credit cards to make sure bills are being paid. If you needed to access financial accounts in order to manage or resolve any problem, you may be forced to seek the court’s appointment as conservator of your child.

Absent a crisis, a power of attorney can also be helpful in issues that may arise when your child is away at college or traveling. For example, if your son is traveling and an issue comes up where he cannot access his accounts, a durable power of attorney would give you or another trusted person the authority to manage the issue. An alternative may be to encourage your child to consider a joint account with you.  However, this is rarely recommended because of the unintended consequences for taxes, financial aid applications, creditor issues, etc.

3. Will

Your child owns any funds given to him or her as a minor or that he or she may have earned. In the catastrophic event that your child predeceases you, these assets may have to be probated and will pass to your child’s heirs at law, which in most states would be the parents. If you have created an estate plan that reduces your estate for estate tax or asset protections purposes, the receipt of those assets could frustrate your estate planning goals. In addition, your child may wish to leave some tangible property and financial assets to other family members or to charity.

While a will may be less important then the health care proxy, HIPAA release or durable power of attorney, ensuring that your child has all three components of an estate plan can prevent you, as a parent, from having to go to court to obtain legal authority to make time-sensitive medical or financial decisions for your child.

If you have a child (or grandchild) who is approaching adulthood, talk to your elder law attorney about having the child execute these three crucial documents. 

Don't Let Health Care Providers Use the Improvement Standard to Deny Medicare Coverage

Have you or a loved one been denied Medicare-covered services because you’re “not improving”? Many health care providers are still not aware that Medicare is required to cover skilled nursing and home care even if a patient is not showing improvement. If you are denied coverage based on this outdated standard, you have the right to appeal.

For decades Medicare, skilled nursing facilities, and visiting nurse associations applied the so-called “improvement” standard to determine whether residents were entitled to Medicare coverage of the care. The standard, which is not in Medicare law, only permitted coverage if the skilled treatment was deemed to contribute to improving the patient's condition, which can be difficult to achieve for many ill seniors.

Three years ago in the case of Jimmo v. Sebelius the Centers for Medicare & Medicaid Services (CMS) agreed to a settlement in which it acknowledged that there's no legal basis to the “improvement” standard and that both inpatient skilled nursing care and outpatient home care and therapy may be covered under Medicare as long as the treatment helps the patient maintain her current status or simply delays or slows her decline. In other words, as long as the patient benefits from the skilled care, which can include nursing care or physical, occupational, or speech therapy, then the patient is entitled to Medicare coverage.

Medicare will cover up to 100 days of care in a skilled nursing facility following an inpatient hospital stay of at least three days and will cover home-based care indefinitely if the patient is homebound.

Unfortunately, despite the Jimmo settlement, the word hasn't gotten out entirely to the hospitals, visiting nursing associations, skilled nursing facilities, and insurance intermediaries that actually apply the rules. As a result, the Jimmo plaintiffs and CMS have now agreed to a court-ordered corrective action plan, which includes the following statement:

 

The Centers for Medicare & Medicaid Services (CMS) reminds the Medicare community of the Jimmo Settlement Agreement (January 2014), which clarified that the Medicare program covers skilled nursing care and skilled therapy services under Medicare’s skilled nursing facility, home health, and outpatient therapy benefits when a beneficiary needs skilled care in order to maintain function or to prevent or slow decline or deterioration (provided all other coverage criteria are met). Specifically, the Jimmo Settlement required manual revisions to restate a “maintenance coverage standard” for both skilled nursing and therapy services under these benefits:

Skilled nursing services would be covered where such skilled nursing services are necessary to maintain the patient's current condition or prevent or slow further deterioration so long as the beneficiary requires skilled care for the services to be safely and effectively provided.

Skilled therapy services are covered when an individualized assessment of the patient's clinical condition demonstrates that the specialized judgment, knowledge, and skills of a qualified therapist (“skilled care”) are necessary for the performance of a safe and effective maintenance program. Such a maintenance program to maintain the patient's current condition or to prevent or slow further deterioration is covered so long as the beneficiary requires skilled care for the safe and effective performance of the program.

The Jimmo Settlement may reflect a change in practice for those providers, adjudicators, and contractors who may have erroneously believed that the Medicare program covers nursing and therapy services under these benefits only when a beneficiary is expected to improve. The Settlement is consistent with the Medicare program's regulations governing maintenance nursing and therapy in skilled nursing facilities, home health services, and outpatient therapy (physical, occupational, and speech) and nursing and therapy in inpatient rehabilitation hospitals for beneficiaries who need the level of care that such hospitals provide

“The CMS Corrective Statement is intended to make it absolutely clear that Medicare coverage can be available for skilled therapy and nursing that is needed to maintain an individual’s condition or slow deterioration,” says Judith Stein, Executive Director of the Center for Medicare Advocacy and a counsel for the plaintiffs. “We are hopeful this will truly advance access to Medicare and necessary care for people with long-term and debilitating conditions.”

While this doesn't change the rights Medicare patients have always had, it should make it somewhat easier to enforce them. If you or a loved one gets denied coverage because the patient is not “improving,” then appeal.

To read the court order implementing the new corrective action plan, click here

Using a Prepaid Funeral Contract to Spend Down Assets for Medicaid

No one wants to think about his or her death, but a little preparation in the form of a prepaid funeral contract can be useful. In addition to helping your family after your death, a prepaid funeral contract can be a good way to spend down assets in order to qualify for Medicaid.

A prepaid or pre-need funeral contract allows you to purchase funeral goods and services before you die. The contract can be entered into with a funeral home or cemetery. Prepaid funeral contracts can include payments for: embalming and restoration, room for the funeral service, casket, vault or grave liner, cremation, transportation, permits, headstones, death certificates, and obituaries, among other things.

One benefit of a prepaid funeral contract is that you are paying now for a service that may increase in price—possibly saving your family money. You are also saving your family from having to make arrangements after you die, which can be difficult and time-consuming. And, if you are planning on applying for Medicaid, a prepaid funeral contract can be a way to spend down your assets.

Medicaid applicants must spend down their available assets until they reach the qualifying level (usually around $2,000, depending on the state). By purchasing a prepaid funeral contract, you can turn available assets into an exempt asset that won't affect your eligibility. In order for a prepaid funeral contract to be exempt from Medicaid asset rules, the contract must be irrevocable. That means you can't change it or cancel it once it is signed.

Before purchasing a contract, you should shop around and compare prices to make sure it is the right contract for you. Buyers need to be careful that they are buying from a reputable company and need to ask for a price list to make sure they are not overpaying. 

For information from the Federal Trade Commission on shopping for funeral services, click here.

 

 

Long-Term Care Scorecard Finds States Have Room for Improvement

A new report finds that states have made incremental improvements in providing long-term care, but need to make more improvements in order to meet the needs of the growing number of people who require long-term care services. According to the 2017 Long-Term Services and Supports State Scorecard, while long-term care remains unaffordable for middle class families, there has been some progress in other areas.

The scorecard, a collaboration between the AARP, The Commonwealth Fund, and The SCAN Foundation, measures states' long-term care system performance in five areas: affordability and access, choice of setting and provider, quality of life and quality of care, support for family caregivers, and effective transitions between care settings.

The 2017 scorecard found that states showed progress since the previous scorecard in 2014 in reducing inappropriate antipsychotic drug use for nursing home residents, helping family caregivers, reducing long-term nursing home stays, increasing the number of Medicaid recipients receiving care at home or in the community rather than in an institution, and reducing potentially burdensome hospitalizations for people who die in a nursing home. However, the scorecard concludes that overall improvements are not keeping up with the demand. For example, there are not enough home care workers to meet the needs of individuals with disabilities living in the community. In addition, while states have made improvements in providing home health care, progress is moving too slowly to keep up with growing needs.

According to the scorecard, the top five states for long-term care are Washington, Minnesota, Vermont, Oregon, and Alaska. The bottom five states are Tennessee, Mississippi, Alabama, Kentucky, and Indiana. Tennessee and New York made the most progress since the previous scorecard in 2014.

To see where your state ranks, go here: http://www.longtermscorecard.org/2017-scorecard

Owe Back Taxes? The IRS May Grant You Uncollectible Status

Sometimes seniors find themselves owing past-due federal taxes they cannot afford to pay.  Although notices from the IRS can be especially frightening, there are solutions. 

If the sum owed is less than $50,000, the IRS will accept monthly payments over five years. For example, if $6,000 is owed to the IRS, monthly payments of around $100 can be made. There are also laws in place that provide that persons unable to pay their taxes can be placed on Currently Not Collectible (CNC) status with the IRS and not have to pay their past-due income taxes. The IRS is generally very understanding and helpful towards seniors with lower incomes applying for currently not collectible status.

Seniors with especially low incomes can often obtain CNC status by simply phoning the IRS at the number on an IRS collection notice. You can ask the collector to file “53” on your case, which means filing IRS form 53 (only a collector or IRS official can do this). You will not need to file detailed financial paperwork. For example, a senior with a monthly income of $1,200 and rent of $600 obviously will have no extra income to pay any past-due taxes. 

However, you may be asked to complete a financial form that shows you do not have any surplus income after paying necessary monthly living expenses. This form, IRS 433-A, can be found here

Although it is rarely done, the IRS can garnish 15 percent of a senior’s Social Security for past-due income taxes. However, this garnishment will never happen without the senior being first notified.  The IRS will almost never garnish pensions and other retirement income. 

Tips on Applying for Uncollectible Status

Here are some guidelines and requirements for applying for CNC status:

  • The financial information supplied must prove to the IRS that the individual does not have any surplus income after paying their necessary monthly living expenses and that they have no significant additional assets.
  • Individuals may need to submit their bank statements along with this IRS financial statement and any other relevant financial documentation for review.
  • Look carefully at this web page http://www.taxdebthelp.com/hardship/requirements-uncollectible. At the bottom of the page are links to budget standards the IRS uses in determining whether a person qualifies for uncollectible status.
  • If you are going to apply by phone, carefully prepare a budget ahead of time that shows expenses within those budget standards that consume all your money so it is clear there is no extra money with which to pay taxes.
  • If applying by phone, the IRS collector might try to get you to say that you can pay something when you can’t.  Review on the IRS website the suggested budget numbers and national standards for where you live. Do not underestimate your expenses, which many people do.  If you fit within the criteria, you qualify for CNC status.

Once taxpayers are placed on CNC status, they will maintain this status for at least a year.  In the case of retirees, the status will likely be indefinite since retirement income and Social Security are constant and most retirees will not be working in the future. If an individual’s account keeps its CNC status until after the statute of limitations on the debt runs out, usually around ten years, the IRS will be permanently prevented from collecting the debt.

If you are unable to work something out with the IRS over the phone, you can contact the Taxpayer Advocate Service (TAS). This free government service ensures that every taxpayer is treated fairly and understands his or her rights. The TAS is an independent organization within the IRS, headed by the National Taxpayer Advocate. Each state has at least one Local Taxpayer Advocate who is independent of the local IRS office and reports directly to the National Taxpayer Advocate. 

To contact TAS, call (877) 777-4778 or see its website for a list of local TAS offices.

What About State Income Taxes?

 Not all states have procedures in place to put persons on uncollectible status for past-due state taxes owed. Federal law protects Social Security, pension, disability and VA benefits from garnishment by states for taxes owed. Unfortunately, not all state taxing agencies will tell seniors that their income is protected from garnishment; instead, they continue collection efforts. (Click here for information on a law Oregon enacted in 2015 to put an end to this practice.) 

If a senior’s bank account is garnished by a state tax collector, twice the amount of monthly Social Security deposited into the bank account is automatically protected from garnishment, no matter the source of funds in the account at that time. Federal banking regulations require a bank to determine an account into which Social Security is deposited and disregard any garnishment, including for past-due state taxes owed. If there are excess funds from exempt sources in the account, a claim of exemption would need to be filed with the state before the money could be released.

For more information, visit HELPS, a non-profit law firm formed to educate seniors and persons working with them about seniors' financial rights and to resolve tax, student loan and housing issues.