Families taking advantage of ABLE savings accounts will have a little more flexibility in planning for special needs as a result of the new Tax Cuts and Jobs Act signed into law by President Trump on December 22, 2017.
As we previously discussed, ABLE accounts, created by Congress via the passage of the Achieving a Better Life Experience (ABLE) Act in 2014, allow people with disabilities and their families to save for disability related expenses, while maintaining eligibility for Medicaid and other means-tested public benefits programs.
Currently, people can contribute up to $15,000.00 annually into qualified ABLE accounts. A provision in the new tax law allows families who have saved money in 529 savings accounts to roll over up to $15,000 each year from a 529 account to an ABLE account. The 529 account must be for the same beneficiary as the ABLE account or for a member of the same family as the ABLE account holder. Many disability advocates had previously pushed for this change via a bill known as the ABLE Financial Planning Act. Also as part of the new tax bill, while 529 accounts could previously only cover costs for college, they can now pay for a child’s K-12 education in a public, private or religious school.
The tax bill also includes changes to benefit ABLE account beneficiaries earning income from employment. These individuals will be able to make ABLE contributions above the $15,000 annual cap from their own income up to the Federal Poverty Level, which is currently $11,770 for a single individual, provided they do not participate in their employer’s retirement plan. This change was previously proposed in legislation known as the ABLE to Work Act.
The Consortium for Citizens with Disabilities previously voiced opposition to this revision, on the basis that if not properly implemented, it could increase the beneficiaries’ vulnerability to losing public benefits and pose major administrative burdens.
To read the text of the final bill, the Tax Cuts and Jobs Act, click here.
Click here to read more about ABLE accounts from with the ABLE National Resource Center.
Included in the new tax bill, signed by President Trump on December 22, is a provision that could provide some temporary relief for families with high medical expenses.
Federal law currently allows families with medical expenses exceeding 10 percent of their adjusted gross incomes to deduct certain medical expenses from their income taxes, provided that they itemize their deductions. For the two months leading up to passage, the entire future of the deduction was in doubt.
The version of the tax bill that the House of Representatives passed November 16, 2017, would have scrapped the deduction altogether, prompting an outcry from disability rights advocates. The Senate version, however, maintained the deduction. The final version, in fact, expands the number of families eligible for the deduction, at least temporarily.
For the current 2017 tax year and 2018, all families whose medical expenses exceed 7.5 percent of their adjusted gross income will have the option of deducting certain medical expenses. The threshold will, however, revert back to 10 percent for the 2019 tax year.
This 7.5 percent benchmark mirrors regulations that existed prior to the Affordable Care Act (ACA), which had raised it to 10 percent for non-elderly families. For the elderly, the 7.5 percent threshold expired in 2016 and also rose to 10 percent.
According to the IRS, 8.8 million households, or almost 6 percent of tax filers, claimed medical deductions in 2015.
Even with the expanded medical expense deduction, many families with high medical expenses could see increased financial burdens from the tax bill. The bill eliminates the ACA’s requirement that people purchase health insurance, likely threatening the future of the ACA’s exchanges and sparking increased medical premiums. It also slashes the corporate tax rate from 35 to 21 percent and will cost the government an estimated $1.5 trillion in revenue over the next 10 years, increasing the likelihood of future cuts to Medicaid, Medicare and other major pieces of the social safety net.
“Each vote in favor of this bill was a vote against constituents with disabilities and sets the wheels in motion to quite possibly go back in time to an era when people with disabilities had little opportunity to live a life of their choosing, in the community,” The Arc, which protects the human rights of people with intellectual and developmental disabilities, said in a statement.
To read the text of the final bill, he Tax Cuts and Jobs Act, click here.
Some people become disabled as the result of a work-related illness or injury. In these cases, the individual may be eligible for both Social Security Disability Insurance (SSDI) and workers’ compensation benefits. Unfortunately, their total benefits may be limited by what is known as the “workers’ compensation offset.”
Key to understanding the interplay between the two programs is to understand their separate purposes. Workers’ comp programs, which are run at the state level, seek to compensate workers who suffer job-related illnesses or injuries. SSDI is a federal program that compensates people with sufficient work histories who are considered unemployable due to their disabilities, regardless of any connection between their work and the disability.
Not all people who qualify for workers’ comp will also be eligible for SSDI, which sets a strict eligibility standard. Specifically, the Social Security Administration (SSA) defines disability for SSDI purposes as “the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.”
Workers' comp eligibility standards are more flexible. In New York State, for example, workers’ comp beneficiaries can be deemed to have total or partial disabilities, and either of these can be classified as permanent or temporary.
Since monthly benefits tend to be significantly higher under workers’ comp, the Social Security Administration (SSA) imposes a cap on SSDI payments when people receive both types of benefits.
Under the “workers’ compensation offset,” created by Congress in 1965, the total amount from SSDI and workers’ comp cannot exceed 80 percent of the person’s “average current earning,” or the total SSDI received by the recipient’s entire family during the first month receiving workers’ comp, whichever is higher. In most cases, the former is higher.
Here’s an example of how the offset works: Before she became disabled, Sally’s average earnings were $4,000 a month. Sally is eligible to receive a total of $2,200 a month in SSDI benefits. Sally also receives $2,000 a month from workers’ compensation. Because the total amount of benefits she would receive ($4,200) is more than 80 percent ($3,200) of her average current earnings ($4,000), her SSDI benefits will be reduced by $1,000 ($4,200 – $3,200).
The SSA calculates “average current earnings” based on the highest monthly earnings under one of three formulas.
Some workers’ compensation claimants receive a lump-sum payment in addition to, or instead of, a monthly benefit. These payments may also reduce the amount of SSDI received, although attorneys will try to draft settlement agreements to minimize the workers’ comp offset.
While in most states, the workers’ compensation offset works to reduce the person’s SSDI, 16 states have adopted a “reverse offset” program. In these states, the person’s workers’ comp, rather than their SSDI benefit, will be reduced to meet the SSA’s prescribed formulas.
A durable power of attorney is an extremely important estate planning tool, even more important than a will in many cases. This crucial document allows a person you appoint — your “attorney-in-fact” or “agent” — to act in place of you — the “principal” — for financial purposes when and if you ever become incapacitated due to dementia or some other reason. The agent under the power of attorney can quickly step in and take care of your affairs.
But in order to execute a power of attorney and name an agent to stand in your shoes, you need to have capacity. Regrettably, many people delay completing this vital estate planning step until it’s too late and they no longer are legally capable of doing it.
What happens then? Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, the representative may have to seek court permission to take planning steps that he or she could have implemented immediately under a simple durable power of attorney.
This is why it’s so important that you have a durable power of attorney in place before the capacity to execute the document is lost. The standard of capacity with respect to durable powers of attorney varies from jurisdiction to jurisdiction. Some courts and practitioners argue that this threshold can be quite low: the client need only know that he trusts the agent to manage his financial affairs. Others argue that since the agent generally has the right to enter into contracts on behalf of the principal, the principal should have the capacity to enter into contracts as well, and the threshold for entering into contracts is fairly high.
If you do not have someone you trust to appoint as your agent, it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable power of attorney that simply nominates the person you want to serve as your conservator or guardian. Most states require the court to respect your nomination “except for good cause or disqualification.”
Because you need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed, it can be risky to prepare and execute legal documents on your own without representation by an attorney. To execute a durable power of attorney before it’s too late, contact your elder law attorney.
In recent years, nursing homes have increasingly asked — or forced — patients and their families to sign arbitration agreements prior to admission. By signing these agreements, patients or family members give up their right to sue if they believe the nursing home was responsible for injuries or the patient’s death.
Now, in an unexpected move, the federal Centers for Medicare and Medicaid Services (CMS) is forbidding nursing homes from entering into binding arbitration agreements with a resident or their representative before a dispute arises. The agency has issued a final rule prohibiting so-called pre-dispute arbitration agreements in facilities that accept Medicare and Medicaid patients, affecting 1.5 million nursing home residents. After a dispute arises, the resident and the long-term care facility could still voluntarily enter into a binding arbitration agreement if both parties agree.
For years, patient advocates have contended that those seeking admission to a nursing home are in no position to make a determination about giving up their right to sue. Families are focused on the quality of care, and forcing them to choose between care quality and forgoing their legal rights is unjust, the advocates said. Courts have sometimes struck down arbitration agreements as unfair, but others have upheld them.
“Clauses embedded in the fine print of nursing home admissions contracts have pushed disputes about safety and the quality of care out of public view,” the New York Times wrote in its coverage. “With its decision, [CMS] has restored a fundamental right of millions of elderly Americans across the country: their day in court.”
The nursing home industry has countered that the new rule will trigger more lawsuits that could increase costs and force some homes to close. Mark Parkinson, the president and chief executive of the American Health Care Association, said that the change “clearly exceeds” CMS’s statutory authority.
Although the rule could be challenged in court, for now it is scheduled to take effect on November 28, 2016, and will affect only future nursing home admissions. Pre-existing arbitration agreements will still be enforceable.
To read the final rule, click here.
Social Security benefits will rise only slightly in 2017. This follows no increase in benefits in 2016 and small increases for many of the previous years. The small bump in 2017 will likely be eaten up by higher Medicare Part B premiums.
The nation’s more than 65 million Social Security recipients will get a 0.3 percent cost of living increase in payments in 2017. This is expected to raise the monthly payment for the typical beneficiary by $4. Cost of living increases are tied to the consumer price index, and low inflation rates and gas prices means smaller increases. The cost of living change also affects the maximum amount of earnings subject to the Social Security tax, which will increase to $127,200 from $118,500.
The small increase in benefits means that some seniors may face a large hike in Medicare premiums. Most elderly and disabled people have their Medicare Part B premiums deducted from their monthly Social Security checks. For these individuals, if Social Security benefits don’t rise, Medicare premiums can’t either. But this “hold harmless” provision does not apply to about 30 percent of Medicare beneficiaries: those enrolled in Medicare but who are not yet receiving Social Security, new Medicare beneficiaries, seniors earning more than $85,000 a year, and “dual eligibles” who get both Medicare and Medicaid benefits.
Medicare premium increases have not been announced yet, but projections point to a 22 percent increase for the monthly Part B premium. The premium increase is so steep because another law says that premiums must cover increases in Medicare costs. With 70 percent of Medicare recipients shielded from any premium increase because Social Security benefits are only rising slightly, the entire obligation of paying for the increased Medicare costs is falling on the other 30 percent who are not protected from premium increases.
Last year Congress stepped in and loaned money to Medicare to help cover the premium increase. Advocacy groups are calling on Congress to do something similar this year. However, Congress is not in session until after the election, which means it will not be able to act quickly.
For 2017, the monthly federal Supplemental Security Income (SSI) payment standard will be $735 for an individual and $1,103 for a couple.
For a complete list of the 2017 Social Security benefit levels, click here.
For more information about the increase, click here.
The phrase “life estate” often comes up in discussions of estate and Medicaid planning, but what exactly does it mean? A life estate is a form of joint ownership that allows one person to remain in a house until his or her death, when it passes to the other owner. Life estates can be used to avoid probate and to give a house to children without giving up the ability to live in it. They also can play an important role in Medicaid planning.
In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate — the life tenant — possesses the property during his or her life. The other owner — the remainderman — has a current ownership interest but cannot take possession until the death of the life estate holder. The life tenant has full control of the property during his or her lifetime and has the legal responsibility to maintain the property as well as the right to use it, rent it out, and make improvements to it.
When the life tenant dies, the house will not go through probate, since at the life tenant’s death the ownership will pass automatically to the holders of the remainder interest. Because the property is not included in the life tenant’s probate estate, it can avoid Medicaid estate recovery in states that have not expanded the definition of estate recovery to include non-probate assets. Even if the state does place a lien on the property to recoup Medicaid costs, the lien will be for the value of the life estate, not the full value of the property.
Although the property will not be included in the probate estate, it will be included in the taxable estate. Depending on the size of the estate and the state’s estate tax threshold, the property may be subject to estate taxation.
The life tenant cannot sell or mortgage the property without the agreement of the remaindermen. If the property is sold, the proceeds are divided up between the life tenant and the remaindermen. The shares are determined based on the life tenant’s age at the time — the older the life tenant, the smaller his or her share and the larger the share of the remaindermen.
Be aware that transferring your property and retaining a life estate can trigger a Medicaid ineligibility period if you apply for Medicaid within five years of the transfer. Purchasing a life estate should not result in a transfer penalty if you buy a life estate in someone else’s home, pay an appropriate amount for the property and live in the house for more than a year.
For example, an elderly man who can no longer live in his home might sell the home and use the proceeds to buy a home for himself and his son and daughter-in-law, with the father holding a life estate and the younger couple as the remaindermen. Alternatively, the father could purchase a life estate interest in the children’s existing home. Assuming the father lives in the home for more than a year and he paid a fair amount for the life estate, the purchase of the life estate should not be a disqualifying transfer for Medicaid. Just be aware that there may be some local variations on how this is applied, so check with your attorney.
To find out if a life estate is the right plan for you, contact your attorney.
One constant thing we see daily in our office when family members are confronted with the task of caring for their loved ones is caregiver burnout. As the population ages and more adults are finding themselves having to juggle their lives while caring for an aging parent, the number of people acting as caregivers for their parents has skyrocketed. Often, these newly-appointed caregivers find themselves overwhelmed with their new role and they begin to neglect their own personal care needs, in order to make sure that the needs of their parent are met. This is not an option. Neglecting your own personal needs in order to meet the needs of the person you are caring for can result in burnout, illness and injury. If you or someone you love are a caregiver be sure to continue reading to find tips to avoid and minimize the effects of caregiver burnout by taking care of yourself so you can take care of your loved one.
A durable power of attorney is an extremely important estate planning tool, even more important than a will in many cases. This crucial document allows a person you appoint — your “attorney-in-fact” or “agent” — to act in place of you — the “principal” — for financial purposes when and if you ever become incapacitated due to dementia or some other reason. The agent under the power of attorney can quickly step in and take care of your affairs.
But in order to execute a power of attorney and name an agent to stand in your shoes, you need to have capacity. Regrettably, many people delay completing this vital estate planning step until it’s too late and they no longer are legally capable of doing it.
What happens then? Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, the representative may have to seek court permission to take planning steps that she could implement immediately under a simple durable power of attorney.
This is why it’s so important that you have a durable power of attorney in place before the capacity to execute the document is lost. The standard of capacity with respect to durable powers of attorney varies from jurisdiction to jurisdiction. Some courts and practitioners argue that this threshold can be quite low: the client need only know that he trusts the agent to manage his financial affairs. Others argue that since the agent generally has the right to enter into contracts on behalf of the principal, the principal should have the capacity to enter into contracts as well, and the threshold for entering into contracts is fairly high.
If you do not have someone you trust to appoint as your agent, it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable power of attorney that simply nominates the person you want to serve as your conservator or guardian. Most states require the court to respect your nomination “except for good cause or disqualification.”
Because you need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed, it can be risky to prepare and execute legal documents on your own without representation by an attorney. To execute a durable power of attorney before it’s too late, contact your elder law attorney.
For more on the durable power of attorney.
For more on the capacity requirements for executing estate planning documents.
Two years after the passage of the Achieving a Better Life Experience (ABLE) Act, four states — Florida, Nebraska, Ohio and Tennessee — have ABLE plans up and running, and all but Florida allow out-of-state beneficiaries to open accounts.
States have been slow to create the appropriate regulations governing ABLE accounts, in part because the IRS and the Social Security Administration took a long time proposing regulations covering them. But now that the federal agencies have finalized their rules, it appears that more states will bring ABLE accounts online.
As you can see in this comparison chart, each state currently offering ABLE accounts differs slightly from the others when it comes to fees and funding minimums, although in most cases the charges are reasonable. All of the accounts have at least four different investment options to choose from, and Nebraska even offers a state tax deduction for contributions into an account.
We will try to keep you updated as more states begin offering plans, but for immediate updates and more information about ABLE’s rollout, you can visit the ABLE Resource Center’s website.