PROTECTING THE HOUSE OF A NURSING HOME PATIENT ON MEDICAID (Questions and Answers)
Q: Must you lose your home to get Medicaid for Long Term Nursing Care?
A: As long as you intend to return home, your house is a non-countable asset.
Q: Is there a dollar limit on this benefit?
A: $500,000 in equity. More expensive homes do not qualify for this exemption.
Q: Is there the same $500,000 equity limit if spouse or other dependent lives there?
A: No.
Q: Can a patient on Medicaid transfer ownership of home without losing Medicaid eligibility.
A: Gift of ownership will cause a transfer penalty or loss of Medicaid to most recipients with the following exceptions:
- Transfer to patient’s spouse
- Transfer to a child who is under age 21 or who is blind or disabled
- Transfer to a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
- Transfer to a sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
- Transfer to a “caretaker child,” who is defined as a child of the patient who lived in the house for at least two years prior to the patient’s institutionalization and who during that period provided care that allowed the patient to avoid a nursing home stay.
Q: Can you sell your home while on Medicaid?
A: Cash proceeds of such sale will convert a non-countable asset into a countable one. This will cause loss of Medicaid unless the proceeds are used to fund a Personal Services Contract or other non-countable form like an annuity.
Q: Does State of Florida have right to estate recovery by filing a lien against the home upon patient’s death?
A: No. Florida’s constitution makes homestead exempt from creditors. Having a Circuit Judge determine homestead is exempt will eliminate creditors ‘claims, including state recovery claim for reimbursement of monies paid by Medicaid for nursing home expenses.
Q: Can I obtain a reverse mortgage on my home while on Medicaid?
A: Sometimes. A reverse mortgage is a bank loan which gives the home owner the right to obtain cash to be repaid only upon death or sale of home.
Q: Will the reverse mortgage cause loss of Medicaid?
A: Not necessarily. A mortgage is not an asset. It is a debt. But you must not take cash advances on the reverse mortgage and let those cash advances accumulate from month to month. It is the accumulation of these advances, not spent on necessary expenses of the patient that can cause the patient to exceed the $2,000 asset limit and a cause a loss of Medicaid eligibility.
WHAT IS A SINGLE PREMIUM ANNUITY (SPIA)?
A SPIA is a single premium immediate annuity issued by an insurance company. It permits a person to turn a lump sum of money into a regular payment that is guaranteed for a certain period.
The payout phase of the SPIA could be as short as 2 months or as long as the rest of the annuitant’s life and his spouse’s life, and even for a term of years not dependent on the annuitant’s life. It is exempt from creditors under the Florida law.
Single Premium Immediate Annuities have become more popular over recent years because of the decline of defined benefit plans (or pensions) in the workplace.
Today, however, defined benefit plans are few and far between. Retirees seeking the stability of pension-like guarantees can lean on SPIAs, take some or all of their retirement savings and turn those savings into a private pension plan.
SPIA options are just about as numerous as the companies who offer them. The annuitant can choose a payment for the rest of his life and of his spouse’s life is he chooses. However, if the annuitant wants a payout over a shorter period, a higher payout will be made available because the insurance company is taking less risk. The longer the guarantee, the less the insurance company will pay because the company is taking more of the risk.
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September 01 2010 | General | No Comments »
PROTECTING THE INCOME OF THE MEDICAID APPLICANT’S SPOUSE
John and Debbie Ness can use excess resources to protect income for the Medicaid applicant’s spouse. This pertains to individuals needing to get Medicaid to pay for nursing home or other long term nursing care.
Medicaid laws entitle an applicant’s spouse (called a “community spouse”) to a certain level of monthly income, called the Monthly Maintenance Needs Allowance, or MMNA for short. In Florida, this is $1,822.00 minimum, subject to $2,739.00 maximum. If the family has high mortgage payments and other shelter expenses, this may be increased up to $2,739.
However, the community spouse’s income often falls far short of the MMNA. How does he bridge the gap? The Deficit Reduction Act of 2005 (or “DRA”) provides that a community spouse should look first to the other spouse’s income. But this “income first” rule can leave the community spouse impoverished when the Medicaid recipient dies.
Are there alternatives?
The most viable alternative in most cases is the use of a Medicaid-qualified annuity.
While the DRA imposed the “income first” rule, it also softened that rule’s harsh effects with new guidelines on the use of annuities.
If those guidelines are followed, a community spouse can use the couple’s savings to buy an annuity to generate ongoing income, and the institutionalized spouse can still qualify for Medicaid.
In many cases, the annuity alternative better protects the community spouse from poverty.
Take the case of John and Debbie Ness. John is receiving nursing home care. His monthly Social Security is $2,000. Debbie, whose monthly income is $500, still lives at home. If John were to die, her monthly income would increase to approximate $2,000.00.
The couple has $209,560 in non-exempt assets, such as banks accounts, CD’s, and savings bonds. Medicaid provisions allow Debbie to keep $109,560 as her community spouse resource allowance. Let’s also assume Debbie is entitled to $1,822 a month as her MMNA.
If the couple applies for Medicaid, without any further help, the application will be denied. They will be told that they have too much money to qualify for benefits.
Debbie will not be allowed to keep any money beyond her $109,560.00 resource allowance. Under the income first rule, she must look to John’s income to make up the $1,322 she needs to bridge the gap between her income and her MMNA.
To get benefits, the couple would have to spend down $100,000, by John paying the nursing home. If John dies, Debbie’s Social security income will be only $2,000 a month.
Now let’s assume that for $100,000 Debbie could buy a Medicaid-qualified annuity that would pay her $1,400 a month for her life expectancy. The rules allow her to purchase such an annuity with the couple’s excess resources before applying for Medicaid.
John will then qualify much sooner for benefits. If John dies, Debbie will receive a total of $3,400 a month in income (the total of her monthly Social Security income and her monthly annuity check). Instead of losing $100,000 in value, the couple has been able to use these funds to help protect Debbie from impoverishment.
When is it better to buy the annuity? Making that determination requires making a number of calculations based on shelter costs, income deductions, life expectancy, and annuity rates. Outcomes vary from case to case.
John and Debbie should consider using excess resources to buy an annuity for the community spouse, even if the annuity raises income above the MMNA. Such an annuity can provide immediate monthly income to Debbie and qualify John for Medicaid. Most or all of the monthly annuity income will be tax free.
Bottom line
While the DRA’s income first rule can lead to impoverishment for many community spouses, there are alternatives that can save money and future protect income. To determine which one is best in a specific case, consult this office for a free consultation.
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August 10 2010 | General | No Comments »
SMALL LIFE INSURANCE POLICIES COMPLICATE MEDICAID ELIGIBILITY
Clients of an elder law attorney display common characteristics. They are nervous and somewhat forgetful in many cases. It is sometimes difficult for them to recall each of their assets.
They may well forget to tell the elder law attorney of the existence of life insurance policies. Even if they do remember the existence of such policies, they may well not recall whether they were term or whole life.
Harvey Goldberg was such a client. When the Florida man was admitted to Manor Oaks Nursing Home in Fort Lauderdale in 2010, he owned four small life insurance policies. He had bought the insurance starting in 1953, and the newest policy was already 32 years old.
Mr. Goldberg’s assets were limited, and the monthly cost of nursing home care was eating into his small estate rapidly. His wife Martha Goldberg filed an application for assistance from Florida’s Medicaid program, which subsidizes nursing home care for those who qualify financially for assistance.
Unfortunately for Mr. and Mrs. Goldberg, Medicaid considers the cash surrender value of life insurance policies as an available resource. Upon Mr. Goldberg’s death the four small policies would pay a total of $20,000, but the Medicaid agency decided that the cash surrender value of the policies prevented him from qualifying.
Medicaid eligibility rules are complicated when it comes to life insurance. If the maximum amount payable on death of the policyholder is less than $2,500, the value of the policy can be ignored in calculating eligibility.
If the total “face amount” of insurance exceeds that limit, however, the cash value of life insurance will be a countable asset. Even small life insurance policies frequently must be liquidated or assigned to the community spouse before nursing home residents can qualify for Medicaid.
DURABLE POWER OF ATTORNEY IN FLORIDA
A power of attorney is a legal document that allows one person to grant to another person the legal authority to make decisions on the first person’s behalf.
The legal authority granted can be significant, including the ability to sell or purchase real estate, transfer money, buy or sell securities, make gifts, and the like. “Durable” means that the document will survive incapacity. It can avoid the high expense and delay of Court appointed guardianship.
An elderly widow living in Hallandale who finds it difficult to manage her financial affairs, wants to give the legal authority to her eldest son to write checks on her bank account in order to pay her monthly bills and expenses, and to liquidate certain of her assets.
A grandfather decides to sell his house in Kendall and move close to his daughter in Aventura, but he does not feel comfortable about going to the closing. He wants to give the legal authority to his daughter to complete the sale on his behalf.
Each of these examples illustrates when a power of attorney will be beneficial. Requiring two co-attorneys-in-fact will reduce chance of fraud.
After delivering numerous lectures on the absolute importance of Durable Power of Attorney, I finally realized that people were reluctant to execute a Durable Power of Attorney for two reasons:
1. They don’t want to give up control of any aspect of their life.
2. They did not trust some or all of their relatives.
For this reason I now suggest two methods to reduce and almost certainly to eliminate these concerns:
a. Springing Power Of Attorney that is a fully executed document; it does not “spring” into existence until after the principal has been determined by his primary care physician to be unable to handle his own financial affairs.
b. Using two parties to act as your attorney-in-fact, with the signature of both agents being required to act on behalf of principal.
These two approaches can drastically reduce the likelihood that the Durable Power of Attorney will be used improperly.
Attorney Mark A. Roseman will advise you on the proper uses of a power of attorney to manage your financial affairs and other matters, and on the particular clauses that should be included in the power of attorney to make it durable, and to make it useful for the purposes required, such as to allow the attorney-in-fact to make necessary decisions for Medicaid planning.
If you already have a durable power of attorney, it should nevertheless be reviewed by an experienced Elder Law attorney to make sure that it has all of the clauses needed for proper Medicaid planning under Florida law.
Contact Attorney Mark A. Roseman to determine the appropriate Power of Attorney to address your needs.
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July 06 2010 | General | No Comments »
Medicaid Planning For Nursing Home Benefits: Using the patient’s Income to Help Support the Stay-At-Home Spouse (Spousal Diversion)
Esther comes into your office having just learned that her husband, Larry, is in the early stages of Alzheimer’s disease. Their neurologist has advised her that, within a year, Larry will need to enter a nursing home. Esther seeks your advice on how to solve the dilemma she’s facing.
She has the following shelter expenses:
Mortgage payment: $650
Taxes: $150
Insurance: $70
Condo maintenance: $90
Utilities: $120_______________
TOTAL: $1,080
Esther’s problem is that her own income is limited to Social Security payments of $700 per month. She understands that when Medicaid pays for Larry’s nursing home expenses, it will require all but $35 of his $1,800 monthly income to go to the nursing home.
She has friends who have taken on the burden caring for a sick husband at home because they need his Social security and other income, and she does not want to undergo the physical and emotional turmoil of such a situation.
How can she lawfully divert some of Larry’s income to pay her own shelter expenses?
Medicaid will permit Esther to divert enough of Larry’s income to bring her up to the $1,822 Minimum Monthly Maintenance Income Allowance (MMMIA) plus her excess shelter cost.
What is the excess shelter cost? This is the amount by which her mortgage and other shelter costs exceed 30% of what the state will permit Esther to have as income. In this case, 30% of the $1,822 monthly maintenance allowance is $546.60.
Esther’s monthly shelter cost is $1,080. By subtracting the Permitted Shelter Cost of $546.60 from that number, we arrive at an Excess Shelter cost of $533.40.
You can calculate the amount of Larry’s income Esther can divert to herself by adding the MMMIA of $1,822 to the Excess Shelter Cost of $533.40 for a total of $2,355.40. Then deduct Esther’s income of $700, which leaves $1,655.40.
This $1,655.40 is the amount of Larry’s income that Medicaid will permit to be paid to Esther each month.
This is termed the Spousal Diversion or the Community Spouse Income Allowance.
People Who Recognize Stroke Symptoms Should Call 9-1-1
If you notice one or more of these signs, don’t wait. Stroke is a medical emergency. Call 9-1-1. Get to a hospital right away!
The American Stroke Association wants you to learn the warning signs of stroke:
1. Sudden numbness or weakness of the face, arm or leg, especially on one side of the body
2. Sudden confusion, trouble speaking or understanding
3. Sudden trouble seeing in one or both eyes
4. Sudden trouble walking, dizziness, loss of balance or coordination
5. Sudden, severe headache with no known cause
Be prepared for an emergency.
Keep a list of emergency rescue service numbers next to the telephone and in your pocket, wallet or purse.
Find out which area hospitals are primary stroke centers that have 24-hour emergency stroke care.
Know (in advance) which hospital or medical facility is nearest your home or office.
Take action in an emergency.
Not all the warning signs occur in every stroke. Don’t ignore signs of stroke, even if they go away! Check the time. When did the first warning sign or symptom start? You’ll be asked this important question later.
If you have one or more stroke symptoms that last more than a few minutes, don’t delay!
Immediately call 9-1-1 or the emergency medical service (EMS) number so an ambulance (ideally with advanced life support) can quickly be sent for you.
If you’re with someone who may be having stroke symptoms, immediately call 9-1-1. Expect the person to protest — denial is common. Don’t take “no” for an answer. Insist on taking prompt action.
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June 10 2010 | Bankruptcy | No Comments »
MYTHS AND REALITIES: Qualifying for Medicaid to Pay Your Nursing Home Expenses
Elderly people who need nursing home care for themselves have many myths on this important subject. The purpose of this article is to distinguish the realities from the myths.
MYTH: You must be poor to get Medicaid to pay your nursing home monthly expenses.
REALITY: You may keep many assets and still qualify for Medicaid. You can keep a home with equity of $500,000. You can even keep a $500,000 home on the Atlantic Ocean in Miami Beach. This is true so long as you intend to return to that home.
The intent to return to your home needs to be a realistic intent. You can keep a car of any value. It is okay if you own a new Rolls Royce.
You can keep a second car but the second car must be of limited value. You can keep one diamond wedding ring and one engagement ring. You can keep other assets as well.
Your spouse who remains at home can keep $109,560.00 in countable assets in 2010. In addition, the stay-at-home spouse can keep other assets that are not included as “countable”.
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MYTH: You must have little or no income to qualify for Medicaid.
REALITY: You can qualify for Medicaid if your monthly gross income is less than $2,022 per month in 2010. If your income is more than $2,022 you can still qualify. But you need to prepare an income-cap trust.
This requires you to deposit the difference between the patient’s total monthly gross income and the $2,022 Medicaid limit into a separate trust account each month.
The nursing home has to be paid through the Income Trust Account and the regular checking account each month, after the surplus has been deposited into the income-cap account. You can keep $35 for personal needs.
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MYTH: Any gifts I made in past 5 years will prevent me from getting Medicaid for long term nursing care.
REALITY: Return of the gifts can qualify you for Medicaid benefits. In addition, any gifts between spouses are absolutely okay!
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MYTH: Many people believe they can qualify their spouse or parent for Medicaid by simply transferring assets to themselves.
REALITY: This is very dangerous. Many of these transfers will be considered prohibited transfers. Such prohibited transfers can delay the time by which your spouse or parent can become eligible for Medicaid. Transfers between husband and wife are the only permitted gifts.
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MYTH: Sale of your home will cause you to lose Medicaid eligibility.
REALITY: Sale of a home will not cause loss of Medicaid eligibility if you re-invest the sales proceeds, during the month of sale, into another non-countable asset.
For example, you can use the proceeds for a personal service contract in which you can transfer the proceeds to a relative as compensation for future services; or you can buy a Medicaid friendly annuity which “transforms” assets into a stream of income.
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MYTH: If the community spouse, who has substantial assets, refuses to support his institutionalized spouse, the patient can never get Medicaid.
REALITY: The community spouse may file a notice of refusal to support his spouse with Florida’s Department of Children and Families. The patient will get Medicaid, but the patient must assign to the State of Florida her right to sue the community spouse for support.
Under present Florida law, there is no requirement to support your spouse for necessities. For this reason, it is safe to use what is known as the “Just Say No” doctrine. To date, no couple who has used this approach has been unsuccessful.
That is, these patients have gotten Medicaid for nursing home expenses. There has never been a case where the State of Florida has filed suit against the community spouse who refused to support his wife living in a nursing home.
Even though the community spouse has countable assets more than $109,560, his wife can still qualify for Medicaid!
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MYTH: If assets are in a living trust, this preserves your right to get Medicaid.
REALITY: Such a trust does not guarantee you can qualify for Medicaid.
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MYTH: You must sell your home to get Medicaid.
REALITY: You can retain your homestead if the value of its equity is below $500,000 and you intend to return once you leave the nursing home.
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MYTH: Many believe that an elder law attorney is too expensive, even for the first consultation.
REALITIES: This office offers a free initial telephone consultation to determine the nature of the case and to give an idea of expected future attorney fees and costs. THERE IS NO NEED TO PAY FOR THE INITIAL CONSULTATION.
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May 10 2010 | Bankruptcy | No Comments »
HOW MARVIN AND HELEN MARGOLIS OF TAMARAC, FLORIDA CAN QUALIFY FOR MEDICAID FOR LONG TERM NURSING CARE
Marvin and Helen Margolis are both 70 years old. Marvin just entered Manor Oaks Nursing Home. He has Parkinson’s disease. Helen still lives at home. They are privately paying Manor Oaks Nursing Home $6,500.00 a month; they pay for all their prescriptions. They own a house which is their residence and it is paid for. The home is worth $265,000.
They own a new car, for which they paid in cash. They also have an irrevocable prepaid final expense plan and $299,540 in C.D.’s. Marvin also has a life insurance policy with a cash surrender value of $1,500.
They both have a Medicaid supplement policy plan “F” which offers comprehensive benefits except for prescriptions. They pay $192 each per month for the policies. Marvin has monthly socials security of $1,000; Helen has monthly income of $1,000.
Helen comes to your office to get help. She has been told that it dramatically limits the options for obtaining Medicaid when a family has assets similar to what they own.
The home is a non-countable asset. Marvin intends to return once he regains his health. The car, the irrevocable final expense plan are also non-countable assets. Marvin, the patient, can own no more than $2,000 in countable assets. Helen must own no more than $109,560 in countable assets. Because the life insurance policy has a cash surrender value of less than $2,500, it is also a non-countable asset.
The problem here is that the $299,540 in C.D.’s is $189,980 more than the couple can own and still get Medicaid to pay for Marvin’s care at Manor Oaks. What should this couple do?
Marvin and Helen have these choices for Medicaid planning:
- Spend the $189,980 for care, and then apply for Medicaid.
- Purchase a larger home, pay off debt, and pre-pay funeral expenses.
- Buy a single premium immediate annuity with the extra $189,980 and put it into the name of Helen, the community spouse in this example. This will generate a significant monthly income for Helen!
Marvin and Helen, with the guidance and advice of their son, Keith Margolis, elect to buy the annuity. Keith convinces his parents to transfer all joint assets to Helen, the community spouse. This is okay because there is no prohibition to transfer of assets between spouses from one spouse to another against gifting.
It is imperative that the annuity does not offend Medicaid rules followed in Florida. The annuity must not extend for a term beyond the expected life of Helen as determined by social security tables. It must be irrevocable. It is considered by Florida’s Department of Children and Families to be a stream of income, not an asset.
What will Marvin and Helen have to pay to the Manor Oaks Nursing Home as their “patient responsibility amount”? They will need to pay as follows:
Marvin’s gross monthly social security check ($1,000) less Marvin’s personal needs allowance ($35) less Marvin’s premium credit for his Medigap policy Premium ($192) yields $773. The Margolis’ will have to pay $773 to Manor Oaks Nursing Home.
The scenario described here will enable Helen to live at home. She will have her own Social Security income and a monthly check from the Medicaid friendly annuity.
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March 29 2010 | Bankruptcy | No Comments »
12 TRAPS TO AVOID WHEN CONVERTING TO A ROTH IRA
Although the government is encouraging tax payers to convert their IRA’s to non-taxable Roth IRA’s, you should be very cautious before doing this. Note that the advantage of a Roth IRA, unlike a traditional IRA, is that qualified distributions are tax-free.
1. Taxpayers who convert in 2010 will include half the income from the conversion on their 2011 return and half the income on their 2012 return. This splits the income, but may not split the tax.
The total tax bill is going to depend on a number of factors, some totally outside a person’s control, including tax rates and overall income.
2.60-day rollover mistakes
The best way to move money from an IRA to a Roth IRA is by trustee-to-trustee transfer — a direct rollover. But some company plans or IRA custodians don’t offer this type of transfer. Instead, the firms will simply write a check to you, the account owner, and require you to effect the rollover.
In such cases to avoid tax you have 60 days to place these funds into another qualifying retirement account, including a Roth IRA.
3. Medicare costs and Social Security taxation
You might have to pay higher Medicare premiums or have your Social Security payments taxed if you do a Roth IRA conversion. That can happen if you are receiving these benefits and do a Roth conversion.
Higher income from a Roth conversion can affect your Medicare Part B premium.
Medicare Part B premiums are based on income. For 2010, joint taxpayers will remain at the lowest premium levels as long as they have income of $170,000.
4. Financial aid loss
Most schools exclude a parent’s retirement assets when considering a college student’s eligibility for financial aid. Income, on the other hand, is one item schools tend to look at intensely.
A Roth conversion will cause a spike in income for the year or years where the income and it can cause a loss of valuable financial aid.
5. New Roth accounts need new beneficiary forms
The beneficiary form controls who ultimately gets the money in the account when you, the account owner, dies. Each new account you open will need to have the beneficiary forms completed properly and submitted.
6. Partial conversions involving after-tax money
When you have after-tax money in an IRA, you can’t isolate the after-tax amounts and convert them tax-free while keeping the remaining pre-tax dollars in the traditional IRA.
The formula for calculating this amount is this: Total basis in all IRAs divided by the total value of all IRA’s times the amount converted.
7. Rolling to an IRA mid-year
If you plan to roll your 401(k) into an IRA in the same year that you do the conversion, be sure to avoid this trap. When an IRA is converted, only IRA assets are taken into consideration for the pro-rata rule. Plan assets have no effect.
8. Required Minimum Distribution (RMDs) must be taken first
In their haste to convert, some IRA owners might convert their entire account balance not knowing that their RMDs cannot be converted to a Roth IRA.
Individuals who are 70 ½ or older in 2010 must first take their 2010 RMDs if they plan to convert all their IRAs to Roth IRAs.
The first dollars withdrawn from the IRA are deemed to be the RMD until that amount is satisfied. Once the RMD is withdrawn, then the remaining IRA balance can be converted.
9. Some funds are not eligible for conversion or contribution
You might think you can convert anything into a Roth IRA, but you’d be wrong.
The tax code allows only eligible rollover distributions to be converted to Roth IRA. Besides RMDs, there are a number of other items that can’t be converted, including 72(t) payments, hardship distributions, corrective distributions of excess deferrals, deemed distributions, and dividends from employer securities.
10. Non-spouse beneficiaries can’t convert inherited IRAs
Any non-spouse beneficiary who inherits a qualified plan is eligible to convert that plan to an inherited Roth IRA, and the plan must allow this transfer.
This conversion must be done by a direct transfer as non-spouse beneficiaries can never do a 60-day rollover. But, while a non-spouse beneficiary who inherits a qualified plan can convert to an inherited Roth IRA, if the same beneficiary inherits an IRA they cannot convert it to an inherited Roth IRA.
11. The SIMPLE IRA 25% penalty
Simple IRAs have a two-year holding period. The two-year clock is unique to each participant and starts once they have made their first contribution. Funds that leave a SIMPLE in the first two years are treated as a taxable distribution that is not eligible for rollover other than to another Simple IRA. They cannot be converted to a Roth IRA.
12. The 10% penalty trap
There’s a 10% early withdrawal penalty when funds are withdrawn from an IRA before age 591/2, but the Roth conversion is an exception. IRA or plan funds withdrawn at any age are not subject to the 10% penalty if those funds are converted to a Roth IRA.
However, two tax traps can still trigger the 10% penalty, he said. One of these traps is if some of the funds withdrawn are used to pay the conversion tax. Since funds used to pay the conversion tax are not actually converted to the Roth, they are subject to the 10% penalty and income tax.
The second trap occurs when funds converted to the Roth are withdrawn within the first five years and the Roth IRA owner is still under age 591/2. You can’t avoid the 10% penalty by first converting to a Roth IRA and then withdrawing converted Roth funds to pay the tax.
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March 11 2010 | Bankruptcy | No Comments »
Guaranteed Income For Life. Stretch Your Retirement Savings with An Annuity
Retirees are facing now a new challenge: How to generate enough income to pay their bills?
A study by the University of Pensnsylvenia found that by purchasing an immediate annuity, you could create a stream of secure lifetime income for 25% to 45% less than it would take to generate the same income from a traditional portofolio of stacks, bonds and cash using 4% withdrawl rule.
Immediate annuities are not liquid investments and it’s important not to tie up too much of your retirement savings.
IMMEDIATE ANNUITIES ARE EXEMPT FROM CREDITORS AND TRUSTEES IN BANKRUPTCY.
With an immediate annuity you give up control of the money. Although you get the maximum monthly income with a single-life annuity, it stops paying out when you die. If you die prematurely, you forfeit a chunk of your initial investment. This protects you from your creditors.
Most couples choose a joint annuity that continues to pay out as long as either of them is alive. Although the annual payout amount is smaller than the pay from a single-life annuity, it ensures continued income for the surviving spouse.
If you are concerned that you may both die before you have recovered your investment, you can choose an annuity that promises to refund any unused premium or to continue to pay out to your heirs for a certain number of years.
Another way to adjust for future inflation is to “ladder” annuities by buying additional fixed-rate annuities every few years.
This can help in two ways:
- The older you are when you buy the annuity, the higher the payout.
- Future interest rates may be higher than today’s near-record low rates.
Marvin and Diana Stubb of Plantation, Florida, both in their mid sixties, bought an immediate annuity this year to supplement their monthly Social Security benefits. Because neither of them has a pension, they wanted to lock in additional guaranteed income to cover their bills.
They selected an annuity without inflation protection so they could benefit from higher payout immediately. But Stubbs plan to buy additional annuities every few years to build up their guaranteed income and maintain their purchasing power.
The annuity-ladder strategy gives them a lot more flexibility. They can invest rest of the money in the interim and end up with enough left over to leave something to their two children and five grandchildren.
A ladder annuity also lets them increase their annuity income as their monthly expenses rise. “No matter what happens with my money, I don’t have to worry”, says Marvin.
Although most retirees like the idea of guaranteed income, many don’t want to give up control of their money with an immediate annuity.
As a result, an increasing number of retirees have been turning to another type of insurance product, called a deferred variable annuity that allows you to invest in the stock market through mutual-fund-like accounts.
Deferred variable annuities offer two types of guarantees:
- With a guaranteed minimum withdrawal benefit, you can take out up to a certain amount every year – 5% of your initial investment. Some annuities let you boost the annual guaranteed withdrawal amount if your account value increases.
- With a guaranteed minimum income benefit, it allows you to withdraw up to certain amount each year. You always have the right to convert to a lifetime income stream.
Both of these options provide a lot more flexibility than immediate annuities. You don’t give up control of your money, and you can cash out the annuity if your investments perform well and your account balance is worth more than the guarantees.
Deferred annuities with guaranteed benefits have been popular with people who retire in their fifties and sixties and who need to tap their savings right away, but also want to benefit from long-term stock-market growth.
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February 05 2010 | Bankruptcy | No Comments »
FLORIDA MEDICAID RESOURCE AND INCOME ALLOWANCES FOR 2010
The Medicaid qualification numbers for 2010 will not increase. This is because the Medicaid allowances are tied to the cost of living increases generally given for Social Security income.
Social Security payments will mot increase for 2010, so Medicaid is not increasing its allowances for individuals or couples.
Gross Monthly Income Limit For Medicaid Applicant: $2,022.00
Monthly Personal Need Allowance: $35.00
Asset Limit (Individual): $2,000.00
Asset Limit (Couple): $3,000.00
Medicare Part B Premium: $96.40
Community Spouse Resource Allowance: $109,560.00
Minimum Monthly Maintenance Income Allowance: $1,822.00
Maximum Monthly Maintenance Needs Allowance: $2,739.00
Excess Shelter Cost: $547.00
Standard Utility Allowance: $198.00
Divestment Penalty Divisor: $5,000.00
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January 14 2010 | Bankruptcy | No Comments »
ALTERNATIVES TO MEDICARE FOR LONG-TERM CARE EXPENSES
Creative products and riders (an optional feature that can be added to a life insurance or annuity policy) have been developed in the past six to 12 months, and these new creations meet the definition of tax-qualified long-term care contracts.
One of the most common misconceptions among seniors is that Medicare will pay for long-term care expenses. Medicare covers acute care, in which you are expected to recover, but it does not pay for chronic custodial care, which means you are not expected to get better.
Custodial care usually means helping with the activities of daily living, and this “unskilled” care constitutes the lion’s share of long-term care services.
Medicare will help pay for a limited skilled nursing facility stay, hospice care or home health care, if certain conditions are met:
* you have had a recent hospital stay of at least three days,
* you are admitted to a Medicare-certified nursing facility within 30 days of your prior hospital stay, and
* you need skilled care such as skilled nursing services and/or physical or other types of therapy.
If all these conditions are met, Medicare pays a portion of your costs for up to 100 days. For the first 20 days, Medicare pays 100 percent of your skilled nursing facility costs.
For days 21-100, you pay your own expenses up to $133.50 a day (as of 2009) and Medicare pays the balance, if any. You pay 100 percent of costs for each day of a skilled nursing facility stay after day 100.
Medicare payments for home health care are limited to medically necessary part-time or intermittent skilled nursing care and home health aide services as well as physical therapy, occupational therapy and speech-language pathology that are ordered by your doctor and provided by a Medicare-certified home health agency.
Medicaid is available for those individuals who are financially disadvantaged. Moreover, the long-term care program would provide only $50 a day for home-based care. The end result will be that the only covered persons will be the infirm, and the program will become financially untenable.
Here is how a fixed annuity contract with a long-term care rider works: The purchaser makes a single premium payment of, for example, $100,000, which establishes the annuity value.
Each year, the annuity is typically credited with not less than a guaranteed rate of interest, say 3 percent. The annuity value builds up over the first two years, and at the beginning of the third year, long-term care benefits can be accessed if the annuitant cannot, at that time, perform two of the six activities of daily living.
For a 65-year-old male, the pool of long-term care benefits would be $317,900 and would continue to grow each year, and the annuity’s accumulation value would always be credited with at least 3 percent interest each year.
The long-term care benefits are first paid out of the annuity value, and after those monies have been exhausted, the company would continue to pay for qualified long-term care expenses until the pool of long-term care benefit dollars is depleted.
The maximum daily benefit in this example would be $137 per day. Remember, too, that the dollars coming out of the annuity that are used to cover long-term care expenses are non-taxable.
This type of product offers a purchaser a low-cost “out” in the event of a long-term care event because you are repositioning a portion of your investments into a conservative annuity with a guaranteed return each year. The pool of benefits is significant, large enough to provide care for upward of five to seven years.
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January 14 2010 | Bankruptcy | No Comments »
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