Aug 20, 2016

Ensure your long-term care insurance doesn't lapse because of an oversight

If you have a long-term care insurance policy, you've made a significant financial investment that can help preserve your assets, prevent your family from going broke, and provide you and your loved ones with a sense of security about the future. You certainly don't want to lose coverage because you forget to pay a premium. A 2015 study from Boston College's Center for Retirement Research reveals that of the 25% of policyholders whose policies lapse, those who forget to pay premiums, a common occurrence among the cognitively impaired, are precisely those individuals most likely to need the long-term care going forward.

Most people buy long-term care insurance when they are in their 60s, anticipating they will need it when they are in their 80s or beyond. The underwriting for traditional long-term care policies is very restrictive. When a policy lapses, it may be difficult or impossible to find replacement coverage.

If you have a long-term care policy, my recommendation is that you contact your insurance company and request that a second party - your spouse, adult child, trusted friend - receive duplicate premium notices. This way, if you suffer any cognitive impairment, or the bill does not get delivered or is inadvertently tossed as junk mail, your back-up individual will be able to remind you, or pay the bill.

Read the Center for Retirement Research study brief and download the full study here.

Aug 12, 2016

Annual gift tax exclusion: who does it impact?

The annual gift tax exclusion is widely misunderstood. Many people believe that for tax purposes they must stay under the exclusion limit. In fact, for the vast majority of people, the annual exclusion - currently $14,000 - effectively has no impact.

I can best explain by first examining a related concept: The lifetime unified gift tax and estate tax exemption. This is the maximum amount the federal government permits you to pass, free of federal gift tax (for gifts you make during your lifetime) and free of federal estate tax (for money you pass at your death). The current lifetime exemption is $5,450,000.

The annual gift tax exclusion permits you to give away, free of gift tax, up to $14,000 to any one individual within any calendar year, to as many individuals as you wish. (If married, each spouse may pass that amount.) A gift of less than $14,000 is not deducted (i.e., "excluded") from your lifetime exemption of $5,450,000. A gift under $14,000 does not need to be reported to the IRS.

But what happens if you give a gift to or more individuals in a calendar year in excess of $14,000? In this case, you have to report the amount over $14,000 to the IRS, which will deduct that amount from your lifetime exemption of $5,450,000. However, until you have given away $5,450,000, you actually owe no tax. Here are two examples to clarify this point:
  • Ann has made no gifts during her lifetime and has her full $5,450,000 lifetime exemption. She has three children. She gave $14,000 to each of them in 2015. She was not required to file a gift tax return since none of the gifts exceeded the annual exclusion. She owed no gift tax. Her lifetime exemption remained untouched. She still has the right to pass on $5,450,000, free of estate tax and gift tax.
  • John has two children. He has not used up any of his lifetime exemption and has $5,450,000 to give away over the course of his lifetime, tax-free. In 2015 he gave $54,000 to his daughter to help her purchase a home. He also gave $14,000 to his son. Since the gift to his daughter exceeded the annual exclusion, John had to file a gift tax return. The IRS deducted the amount over $14,000 he gave to his daughter ($40,000) from his lifetime exemption. John is now left with $5,410,000 to pass tax-free for the rest of his life (and/or at death). He did not actually owe any tax on the $40,000.

In short, any gift over $14,000 to any one individual in any one calendar year requires you to file a gift tax return. But you owe no taxes until such time as you've used up your $5,450,000 lifetime exemption. This is why, for the average American with more modest assets, the $14,000 annual exclusion is effectively meaningless. 

But let us not give short shrift to those who do have assets in excess of $5,450,000 and want to pass as much tax-free money as possible to their heirs. If this describes your situation, you have several methods at your disposal that can allow you to pass more than $14,000 tax-free per year to one or more individuals. You may, for example, pay for someone's school tuition in any amount, so long as you pay the educational institution directly. This is what many of my wealthier clients do for their grandchildren. You get a similar tax break for any amount you pay for an individual's medical care, provided the funds go directly to the medical provider. Talk to our attorneys about these and other tax-savings strategies.

Last, a word to everyone, regardless of net worth: Laws are always changing as economic and political winds shift. Fifteen years ago the lifetime exemption was $675,000. Two years ago the annual exclusion was $13,000. Depending on where the tax laws head, you may need to do some tweaking of your estate plan, as well as revisit your plans to make gifts to your loved ones. As far as taxes go, nothing is ever set in stone, so for your and your family's benefit, it's wise to stay informed.

Aug 6, 2016

Downsizing and in debt? FL Supreme Court says sale proceeds protected from some creditors



Under Florida law, homestead property is protected from creditors (except for creditors secured to the property such as mortgagors, mechanic's liens, property taxes, homeowners associations, etc.). If you sell homestead property, are the sale proceeds protected from non-secured creditors? That is often the crucial issue for near-retirees and retirees who are in debt but cannot downsize to a less expensive home to save money, fearful that the sale proceeds will be vulnerable to creditors.

If this describes your situation, here is some good news  from a recent Florida Supreme Court case. In JBK Associates Inc. V. Sill Bros, the court ruled that the proceeds from the sale of homestead property are protected, just as the homestead itself is protected prior to sale, so long as these conditions are met: 

  • You hold the monies from the sale separately and do not co-mingle them with any of your other funds.
  • You designate that the sale proceeds are solely for the purpose of buying a new homestead.
  • You purchase new homestead property within a reasonable period of time.  (Unfortunately, the court did not clearly define "reasonable.")

The ruling makes downsizing a more viable option for retirees and near-retirees with credit problems.Read the Florida Supreme Court ruling, JBK Associates Inc. v. Sill Bros. Inc., here

Aug 3, 2016

Medicare releases new star-based ratings for hospitals

The Center for Medicare and Medicaid Services (CMS) has just released its new rankings for 3,617 hospitals nationwide. Originally scheduled for earlier this year, the release was postponed due to objections from the American Hospital Association, the Federation of American Hospitals and other industry groups. The groups allege that the evaluation measures are too crude and do not adequately account for differences in hospitals with respect to communities served, the fact that large teaching hospitals disproportionately serve patients with the most complex medical problems, etc. "The star rating system is an irresponsible slap in the face to America's most essential hospitals, those hospitals that take in the sickest patients, that can never turn people away," said Dr. Eric Dickson, Chief Executive of UMass Memorial Health Care. 

CMS has fired back, saying that its rankings provide the public with a valuable tool, and that any flaws in the ratings system will be addressed going forward. The CMS ratings are based on a scale of one to five stars, similar to the system the government uses to evaluate nursing homes and home health agencies. Stars are awarded based on a variety of factors, including readmission, mortality and infection rates, and overall patient experience.

Only two Florida hospitals, the Mayo Clinic in Jacksonville and Sarasota Memorial Hospital, received 5 stars. Eighteen Florida hospitals received 4 stars; 76 earned 3; 61 earned 2; and 13 earned 1.

Nationwide, only 102 hospitals (3%) received 5 stars. Forty-eight percent received 3 stars. Four percent received 1 star. Surprisingly, some well-known teaching hospitals, rated highly by other sources like U.S. News and World Report, did not score in the top tier. 

Click here to access the Medicare Hospital Compare tool.

Jul 22, 2016

Is your durable power of attorney powerless?

Just about everyone knows the importance of having a Durable Power of Attorney (DPOA). This key legal document allows you to name someone other than yourself to handle your financial affairs.  If you become incapacitated, having a DPOA can make the difference between having your attorney-in-fact smoothly handle your affairs, or your becoming the subject of a guardianship.

Unfortunately, "smoothly" is not how things always go in the real world, even if your DPOA has been drawn up by a competent estate planning attorney and every "t" has been crossed and "i" dotted.  The reason: Financial institutions subject the document to rigorous scrutiny and are notoriously reluctant to honor them. Astonishing as it may seem, in Florida there is no one, universally accepted, statutory DPOA form. Therefore, banks and other financial institutions can be as picky as they want. They may tell an agent that the DPOA was signed too long ago and is "stale"; that the bank has its own form that also needs to be signed; that the form you are presenting to them lacks certain language, etc.

A recent article in The New York Times, "Finding Out Your Power of Attorney is Powerless," catalogs the frustrations some have experienced when trying to use a power of attorney at their financial institutions. In one instance, college professor Claire Ullman approached a bank in order to manage the accounts of an elderly relative who had named Ullman as her agent three years prior. The bank rejected the DPOA, and requested that a new one be signed - an impossible task because Ullman's relative was no longer mentally competent. "People sign these anticipating incapacity. Once incapacity arrives, it's too late to sign another one," Ullman says.

It is easy to conclude that making an attorney-in-fact jump through all sorts of hoops is madness. But from the banks' point of view, there is a method to the madness, given the widespread incidence of financial elder abuse. Statistics show that it is not uncommon for an older person to be victimized by his attorney-in-fact - the very person who is authorized to handle his finances. Therefore, banks increasingly err on the side of caution, hoping it will protect themselves from liability as well as their customers from fraud.

This is not to say that the durable power of attorney is useless. It is not. It is vital. Everyone needs one. But in this day and age, you have to take some additional steps after the ink is dry, in order to ensure that when the time comes your agent will be able to use the document as you intend:
  • Once you've signed your DPOA, take it to your financial institution(s). Request that the legal department review it and provide you with written assurance that your agent will be allowed to use it in the future. If it is not acceptable to the bank, find out why and check back with your attorney. Your financial institution has the right to not accept it, but it is obligated to tell you why.
  • Be cautious about any bank-generated form you are asked to sign. Some of those forms contain arbitration clauses and other language that may not be favorable to you.
  • If you are a client of The Karp Law Firm, call us. We can engage with the bank's legal department and often, work it out for you. If the bank insists it will not accept your DPOA, withdraw your funds and take them to a more cooperative institution. In fact, just saying you're going to do this will frequently encourage a balky bank to acquiesce.
Another route many of our clients choose is setting up a living trust. In contrast to your attorney-in-fact whose authority stems from your Durable Power of Attorney, a co-trustee or successor trustee under your trust is far less likely to encounter roadblocks when managing your trust assets.

You can read the original New York Times article on this subject here

Jul 16, 2016

Chronically ill seniors, others await Florida Medical Marijuana vote (updated 8-11-16)

Practicing elder law and estate planning in Florida, I naturally meet a good number of seniors with serious physical ailments. Many who endure chronic pain are closely watching this November's election: Not just for the outcome of this highly unusual presidential contest, but for the fate of medical marijuana in our state.

This year's ballot includes Amendment 2, the "Florida Right to Medical Marijuana Initiative." The constitutional amendment, which must be approved by 60% of voters, would expand the use of medical marijuana, giving 450,000 residents with certain debilitating illnesses access to full-strength cannabis. Proponents argue that the plant can help alleviate symptoms of certain illnesses more effectively than opioids and other classes of drugs. That's a viewpoint with which many of my clients seem to agree, as do most Floridians: A Quinnipiac poll conducted in May shows that 80% of Florida voters support the legalization of medical marijuana. Opponents of the amendment argue that medical legalization is a slippery slope that will lead to more widespread recreational use.

Currently, under Florida's Compassionate Medical Cannabis Act of 2014, the use of medical marijuana is very limited. First, the patient must be a permanent Florida resident. The physician must be state-approved to prescribe and must have been treating the patient for at least 90 days. Low-THC (non-euphoric) cannabis may be prescribed for a medical condition that cause seizures or muscle spasms, provided all other treatment methods have been exhausted. Full-strength cannabis is permitted only for those with terminal conditions who are experiencing pain and/or nausea. Read more at the website of the Florida Department of Health Office of Compassionate Use.

Medical concerns and compassion for the ill will surely be the paramount factors determining the fate of Amendment 2. However, there is an interesting economic factor at play here, too. A study by Health Affairs has discovered that from 2010 to 2013, where medical marijuana was legalized, Medicare Part D costs declined, presumably because patients' use of more conventional painkillers decreased. Moreover, if the Drug Enforcement Agency decides to reclassify cannabis as a Schedule II drug, as is currently under consideration, insurance will pick up more of the costs for patients who rely on it. Update 8-11-16: Today the Drug Enforcement Agency announced that it will keep marijuana as a Schedule 1 drug, stating, "The known risks of marijuana use have not been shown to be outweighed by specific benefits in well-controlled clinical trials that scientifically evaluate safety and efficacy."

Without a doubt, this election season has enormous ramifications for Florida, as well as for the nation. 

Jul 15, 2016

Felines and homebound seniors: A perfect match

My family and I have a serious soft spot for animals, so in this post I depart from the "legal stuff" to tell you about a lovely program that pairs seniors with furry feline companions. Consider it - ahem - a "fluff piece."

The humane society of Bay County, Michigan recently launched the Cats for Companionship program, which identifies homebound seniors who can benefit from having a pet and are capable of caring for it. The program provides the cat and everything else - food, toys, veterinary care - free of charge. For the adopter, the benefits of having a furry companion are well-documented: it eases stress and loneliness, reduces blood pressure, etc. And the cats, all hard-to-place older animals, get a loving home. A win-win situation.

I think this would be a wonderful program for our area, too. Of course the senior would have to reside in a place that allows pets, and not be allergic to cats. (My wife is, but we have one anyway - go figure!) Is anyone willing to take on creating such a program here?

If you have any doubt about the deep bonds that can exist between human and feline companion, check out this story of a cat that miraculously found its "missing" owner after the owner moved into a nursing home. 


Lastly, if you have a beloved pet and want to ensure its welfare if it outlives you, remember that Florida law permits your pet to be included in your estate plan. Contact our firm for more information.

Jul 12, 2016

Florida ABLE Accounts now available

Florida's ABLE program is now operational. Effective July 1 (with certain restrictions which I discuss below), an individual with a qualifying disability may preserve his/her eligibility for means-tested federal government benefits while retaining more than $2,000 in assets. Assets must be held in an ABLE account, a special type of tax-advantaged savings account authorized under the Achieving a Better Life Experience Act of 2014 (which I discussed previously here and here). A person who has established an ABLE account and who depends on vital government benefits such as Medicaid, SSI or SSDI will no longer be forced to remain impoverished to qualify for benefits, resulting in greater independence and better quality of life. Individuals who are able to join the workforce will be able to do so without fear of losing benefits. 

An ABLE account is a savings vehicle modeled on college savings plans. The disabled individual (or his/her parent, attorney in fact or other authorized individual) may open, contribute to and manage the account. The disabled individual is the owner and beneficiary. Growth is tax-free, and up to $100,000 of the account is considered a "non-countable resource" for Florida Medicaid eligibility purposes. Funds may be withdrawn tax-free for qualified disability expenses such as employment training, assistive technologies, transportation, special therapies, medical expenses, housing, education, etc. 

Visit ABLE United to learn more about eligibility requirements, how to open an account, types of investments available and more. Investment options may be chosen from pre-selected portfolios, or a custom portfolio may be put together from the options offered. 

As I noted above, there are some significant program restrictions:
  • The individual must have developed the qualifying disability by his/her 26th birthday. (Advocates are hopeful that the age limit can be raised or eliminated in the future.)
  • If the account owner has been receiving Medicaid benefits, the state must be paid back from any funds remaining in the account when the account-holder passes away. 
  • No more than $14,000 per year may be contributed by any individual to the account. 
  • Once the account reaches $418,000, no additional contributions can be made.
For these and additional reasons, families and individuals may still find a Special Needs Trust or a Pooled Trust a better choice, either in lieu of or in addition to an ABLE account. Unlike the ABLE account, there is no upper limit on contributions or total amount accumulated in a Special Needs Trust or Pooled Trust

Contact The Karp Law Firm if you wish to explore which option is best for your or your loved one's circumstances.

Jul 9, 2016

Surprise, it's ancillary probate

People who ask my firm to handle the Florida probate of a loved one's estate often have an inkling of what's ahead: just about everyone has heard horror stories about the probate courts, particularly the courts in Florida. This negative reputation is overblown in some respects, especially for simple estates. Still, it is fair to say that the probate process can be glacially slow, require mountains of paperwork, and incur significant administrative and legal expenses. Probate can be a tedious and frustrating process for a family trying to deal with its grief, resolve family turmoil, wrap things up and move on.

So you can imagine what happens when I have to tell a family that they face more than one probate. That there will be two. Or in some cases, three. Here's why: When a Florida resident owns real property in a state outside Florida, and that property is devised in a will (or if the decedent has died intestate), the out-of-state property must be probated in the state where it is located. This is called an ancillary probate. Ancillary probate is necessary because the Florida courts have no authority to transfer the title of real property to beneficiaries for property outside this state.  Ancillary probate entails retaining a lawyer in the other state and, of course, incurs additional fees and delays. 

This brings me to two related points. The first is that it is vital to be be forthright and thorough when discussing your assets with your estate planning attorney. This is not intended to be an infringement on your privacy. A competent attorney requires all this information to provide you with intelligent advice, including advice about possible ancillary probate. 

The second point is the danger of do-it-yourself estate planning. Many cases of unexpected ancillary probate I've encountered have their roots in the decedent's decision to create a plan using software or pre-printed forms, foregoing legal counsel. In my experience, more often than not this approach turns out to be a  penny-wise and pound-foolish. And, of course, once the will-maker has passed away, there is no going back to revise documents. 

So how can you spare your family the inconvenience of an ancillary, out-of-state probate? If you're married you may wish to co-own the out-of-state property jointly with right of survivorship with your spouse, so it can pass without the need for probate when the first spouse dies. You can also co-own property jointly with right of survivorship with an adult child, but that presents its own problems, exposing the property to your child's potential creditors.

For the vast majority of Florida residents who own out-of-state property, the simplest and most effective solution is to create a revocable living trust and to title the out-of-state property in the name of the trust. Properly done, this approach will allow your family to avoid an ancillary out-of-state probate, as well as avoid Florida probate. 

Jun 19, 2016

Medicare observation status notices, set to begin August 7, causing concern

Hospital patients on observation status are considered too sick to go home, but not sick enough to be formally admitted. Beginning August 7, Medicare beneficiaries in the hospital on observation status must be notified of that status within 24 hours, both in writing in "plain language," and verbally. Hospital staff must also be available to answer questions. 

The purpose of the NOTICE Act (short for Notice of Observation Treatment and Implication for Care Eligibility) is to inform Medicare patients of the costs they may incur when not formally admitted to the hospital. From the perspective of someone in a hospital bed, observation and formal admission may be indistinguishable, but there could be a huge difference when it comes to Medicare coverage. Patients under observation may not be covered for certain hospital services and doctors' fees, and their stay in the hospital does not count toward the three-day minimum required for Medicare to cover 20 days of subsequent skilled nursing care. 

June 17 was the last day for comments on the draft notice hospitals are required to give observation patients. Critics claim that because the notice is written on a twelfth-grade level, not the eight grade level that is standard for consumer materials, some patients may not understand it. And Rep. Lloyd Dogett of Texas, bill co-sponsor, finds the draft notice inadequate for several reasons: it does not document the actual reasons a patient is on observation status; it fails to clearly distinguish between Medicare Part A and Part B; and it does not address the fact that observation days do not count toward the three-day minimum stay required for Medicare to pick up a portion of any subsequent skilled nursing home costs. Others have expressed concern about the wording regarding drug coverage. "Self-administered drugs" - for example, blood pressure and cholesterol medications that patients usually take at home - are not covered by Medicare when administered in-hospital to an observation status patient. 

These concerns are prompting the American Hospital Association to ask for an extension of six months before they begin notifying patients. But YOU need not wait for Medicare and the hospitals to get their act together. As I noted in my prior post on this topic, Medicare patients and their loved ones must be proactive whenever a patient goes to the hospital. Find out - do not wait to be told - if you or your loved one are on observation status. If you are, you may be able to persuade your physician to reclassify your stay.That could make a huge difference in your ultimate financial responsibility.
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