Apr 16, 2014

New hybrid policies may be good alternative to traditional long-term care insurance

In March I gave tips for preventing or resolving the difficulties that may arise when trying to collect benefits from older, traditional long-term care insurance policies. In this post I describe the new "hybrid" long-term care policies that have come to the market as the industry has matured. These new policies overcome many of the issues that beset holders of the older policies.

Among the attractive features of the new policies is their greater affordability. In fact, if you have an existing annuity or life insurance policy, you may be able to convert it to a new policy with a long-term care rider without any additional expense.


Why do you need long-term care protection?

The 2014 Genworth Cost of Care survey reveals that the median annual cost for a private room in a nursing home in Florida is now a staggering $91,615.00; a semi-private room, $83,950.00. If you have worked hard to build a nest egg and want to make sure your family isn't wiped out by long-term care costs, long-term care insurance may be the answer.

While there is no way to know if any one individual will need long-term care, statistics show that it is a significant risk. According to the U.S. Department of Health and Human Services, someone turning 65 today has an almost 70% chance of needing some type of long-term care services and supports in their remaining years. Women need care longer (3.7 years) than men (2.3 years). One-third of today's 65-year-olds may never need long-term care support, but one fifth will need it for longer than five years.   
Features of the traditional policies

Before discussing the new hybrid policies, let's list the main features of the older policies, so we have a basis for comparison. With the traditional policy:


  • You pay an annual premium, either in a lump sum or in installments.
  • You continue to pay the premiums to keep the policy in force until you either file a claim (assuming you have a waiver of premium clause in the policy), or until you pass away.
  • If you fail to pay premiums, the policy is forfeited. There are no refunds. You derive no benefit from the premiums you  paid to date.
  • The insurance company has the right to raise premiums at any time by seeking approval from the State Insurance Commissioner.
Features of  hybrid policies

The new hybrid policies fall into two types: annuity-type policies, and life insurance policies with a long-term care rider.

All of the annuity-type policies, and most of the life insurance-type policies, provide for a single lump sum payment at the inception of the policy. You do not have to pay anything beyond that, ever. The premium and benefits are fixed and can never be altered by the insurance company. 

If you never file a claim, depending on the policy, you may be entitled to a return of most of the premium on an annuity-type policy, or a death benefit greater than the premium on a life insurance-type policy.

If you wish to cancel a policy of either type, you may be entitled to a substantial return. 

Also, if you have an existing life insurance policy or annuity, you may be able to exchange it for a hybrid policy tax-free, and without having to pay anything for an additional benefit. You will, of course, have to pass a physical exam. The life insurance policy may offer a lower death benefit than the existing policy, but a substantial long-term care benefit.


Traditional Long-Term Care Insurance Policy 
vs. Hybrid Policy



Traditional Policy
Hybrid Policy
Premiums
You pay the premium annually or in periodic installments.
Annuities and most life insurance policies: you pay a lump sum at the inception of the policy. No additional premiums thereafter. Some life insurance policies may offer annual premiums.
Policy Lapse
Policy will lapse if you fail to keep up with the premiums. No refunds. No benefits from premiums paid to date.
Policy remains in force after initial payment, except life insurance policies with annual premiums, which must be paid.
Premium Increases
Premium increases may occur if company gets approval for increase from State Insurance Commissioner.
No increases.
Filing a Claim
When you file a claim and if your policy has a waiver of premium clause, you will not have to continue to pay premiums.
With a lump sum annuity or life insurance policy, you may owe no additional premiums. With the life insurance policies that have additional premiums, you will have to make payments even after you have filed a claim, unless you have a waiver of premium clause in your policy.
If You Never File a Claim
No return on what you’ve paid in.
On an annuity type policy, you will be entitled to a lump-sum payment when you cash in the policy, or upon your death. With a life insurance policy, you will be entitled to a death benefits as scheduled.

Want to know more?

If you do not have a working relationship with an insurance agent knowledgeable in this area and want to explore the possibility of securing a long-term care policy, review your existing policy, or find out if it can be converted into a hybrid, feel free to contact Steve Levine, President of Karp Financial Services. He can be reached at (561) 626-1130 or toll-free at (877) 319-1130. Note that Karp Financial Services is separate and distinct from The Karp Law Firm. Karp Financial Services can be reached only through the number above, not through the law firm phone number.

Apr 15, 2014

V.A. Aid and Attendance lookback fails in Senate

Senate Bill 1982, which among other measures would have created a three-year asset look-back for veterans applying for Veterans Aid and Attendance benefits, has failed in the Senate.  

Veterans Aid and Attendance is a type of improved pension. Elderly and disabled veterans who have served during wartime periods, and their widows, may be eligible for the benefits to help pay for at-home, nursing home, or assisted living care. You can find out more about Aid and Attendance and download a booklet about it from our website's V.A. benefits page.

For now, the current asset rules remains in place: An applicant may have no more than $80,000 in assets, and the V.A. will not penalize for any asset transfers that occurred prior to the date of application. 

A note of caution: Although Congress has failed to act, the Veterans Administration itself has the power to change its regulations - including establishing a look-back period. We will keep an eye on developments.

Apr 9, 2014

L'Wren Scott leaves it all to Rolling Stone frontman

Ex-model and fashion designer L'Wren Scott committed suicide in New York City on March 17, at age 49. Her will, admitted to Manhattan probate court, leaves her entire $9 million estate  to longtime boyfriend, Rolling Stones lead singer Mick Jagger. 

It's unlikely Jagger needs the money. He is estimated to be worth $350 million. And although he was her partner at the time she executed her will, he reportedly terminated their relationship before she ended her life. Did Scott forget to revise her will? Did she want Jagger to get the money regardless? There is no way to know.

Scott cut out of her will her two living relatives: sister Jan Shane with whom she had reportedly had not spoken for six years; and also her brother, the co-director of her company at the time of her death, with whom she evidently had a satisfactory relationship.

Scott is entitled to leave her assets to anyone she wishes, of course. But no one will be shocked if one or more of her siblings challenge the will, which was prepared by a California attorney despite the fact that Scott was a New York resident. Since she committed suicide less than a year after she signed it, they may allege she did not have the capacity to execute it.

If a challenge is brought and if it is successful, Scott will be considered as having died intestate, in other words, without a will, and her heirs at law will get the assets, not Jagger.  We don't know how this will play out. All we know right now is that because Scott used a will to dispose of her assets, it will play out publicly.

Apr 7, 2014

Presentation on IRA Stretchout Trusts April 30



Interested in giving your child a financial safety net? Then please attend our free presentation! 

Even our hardworking children may face an uncertain financial future these days. If you have an IRA valued at $150,000 or more, an IRA Stretchout Trust can provide your child with a financial safety net that  can:

Provide your child with an income stream for the rest of his life expectancy.

Assure that your child takes advantage of the maximum income tax stretchout, allowing your IRA to compound income tax free for years.

Make sure the money won’t be lost to divorce, lawsuits, creditors or government claims.

Make sure your IRA goes to your children and grandchildren, and to no one else. 

Prevent a child with poor money management skills from blowing it all!


Wednesday, April 30, 2014
1:30 p.m. to 2:30 p.m.
North Palm Beach Library
303 Anchorage Drive
North Palm Beach, FL 33408

No reservations are required, but seating is limited and first come, first serve.

Presented by:
Attorney T.J. Heinemann
LL.M., Estate Planning
-----
The Karp Law Firm, P.A.
Trusts, Estates and Elder Law
Palm Beach Gardens, FL
Boynton Beach, FL
Port St. Lucie, FL

More information: 561-625-1100

Mar 27, 2014

Older long-term care policies: tips on collecting the benefits your loved one deserves



Stay healthy: That's the best way to protect your assets, your family and your independence. Except for one  problem: we live in the real world. Even for those who diligently take care of their health, time marches on. There's a good chance that at some point we - or our parents or other loved ones - will require long-term care, whether at home, in an assisted living arrangement, or in a nursing home. Long-term care considerations must be part of any conversation I have with clients about asset preservation, because the costs are so great and can quickly devastate a middle class family's finances. According to a 2013 Genworth survey, the average national cost of a private room in a nursing home is now upwards of $83,000 annually.

Securing long-term care insurance is always a good idea. However, not everyone can pass the physical. And although tax deductions are available for premiums on qualified policies, long-term care insurance doesn't come cheap. So if you've been paying all along and the time arrives to file a claim, you shouldn't have to go into battle to collect benefits. But sadly, with some older policies, that can happen. Some policies were written ambiguously when the industry was in its infancy, when carriers really didn't know what to expect. Now, it's coming back to haunt some policyholders.

A recent Forbes article by Richard Eisenberg pinpoints problems families may face when trying to collect benefits, and offers tips to deal with insurers who may be reluctant to pay up. Below are some of his main recommendations, and mine, if you are filing a claim now for a loved one, or just want to be in the best position possible if and when you do:

  • Read the policy VERY carefully, to make sure that you document the claim in a manner that is consistent with the policy's criteria. If you don't have a copy of the policy, ask the carrier for it and read it thoroughly before submitting the claim. Even if you are currently in good health and not in need of benefits, I recommend that you review your policy immediately and meet with a qualified insurance agent familiar with long-term care insurance, to see if the policy meets all your needs, and if additional long-term care options exist. (In my next post I will tell you about other types of policies, known as "hybrid policies," that may be available to you.) 
  • Some insurance companies have specific requirements for the type of care provider they will cover. For example, some older policies will not pay a spouse for caregiving services. Others will only pay benefits if the caregiving facility has a certain type of license. Again, read the policy carefully to make sure the caregiver meets the stated coverage criteria. And of possible, research this before your loved one enters a  facility. Contact the insurance carrier and verify that your understanding is correct, because the wording on older policies can be vague. It's vital that you and the carrier are on the same page. 
  • If a policy has lapsed because your parent or other loved one failed to pay the premiums due to cognitive impairment, you may be able to get the policy reinstated within a limited time frame, assuming you can provide the proper medical documentation. In Florida, the grace period is five months. Here is an excerpt of the Florida Statute 627.94073 that deals with reinstatement due to cognitive impairment:
If a policy is canceled due to nonpayment of premium, the policyholder is entitled to have the policy reinstated if, within a period of not less than 5 months after the date of cancellation, the policyholder or any secondary addressee designated pursuant to subsection (2) demonstrates that the failure to pay the premium when due was unintentional and due to the policyholder’s cognitive impairment, loss of functional capacity, or continuous confinement in a hospital, skilled nursing facility, or assisted living facility for a period in excess of 60 days. Policy reinstatement shall be subject to payment of overdue premiums. The standard of proof of cognitive impairment or loss of functional capacity shall not be more stringent than the benefit eligibility criteria for cognitive impairment or the loss of functional capacity, if any, contained in the policy and certificate. The insurer may require payment of an interest charge not in excess of 8 percent per year for the number of days elapsing before the payment of the premium, during which period the policy shall continue in force if the demonstration of cognitive impairment is made. If the policy becomes a claim during the 180-day period before the overdue premium is paid, the amount of the premium or premiums with interest not in excess of 8 percent per year may be deducted in any settlement under the policy.
  • If a policy has lapsed and you have a dispute with the insurance company, contact the Florida State Insurance Commissioner to investigate your claim at 1-877-693-5236. To prevent this kind of situation from occurring in the first place, it's a good idea for one or more adult children to be copied on any lapse notices and other communications from the carrier.
  • Think ahead: If you are healthy now, create a durable property power of attorney to authorize an adult child or another trusted individual to handle your financial affairs, so that he/she can deal with the insurance company on your behalf. At a minimum, the policyholder should have a signed statement authorizing another party to handle insurance-related claims. To avoid future problems, submit your power of attorney or the signed statement to the insurance company to make sure it will be honored. Don't wait. Once you are incapacitated, it's too late to give someone else the authorization to handle these matters for you.
  • If you hire a home health aide for mom or dad, make sure the employee maintains a daily log, referred to as "daily care notes." Many insurance companies require this documentation. Contact the insurance company before you hire an aide, or as soon after as is practical, to determine what type of information the carrier requires, and if there is a specific form that needs to be completed.
  • When you file a claim for your loved one, the insurance carrier will send a representative to asses the health of the insured. It is possible that mom or dad will be too embarrassed, too proud or just too forgetful to accurately report his/her limitations. An adult child or someone else familiar with the insured should be present at the assessment, to make sure the representative gets a true picture of the situation.
 You can read the original Forbes article here.

In my next post, I will tell you about several new types of "hybrid" policies that the insurance industry is offering. Whether you currently have no insurance or have a traditional long-term care insurance policy, these new products are worth a look.


Mar 17, 2014

What's in the works for the estate tax, 2015 version



Last week the Administration presented its  budget proposal for 2015, adhering to the spending limits already set by Congress. From an estate planning point a view, here are some of the budget's most relevant proposals:

First, a proposal to return to federal estate tax levels of 2009. This would bring the federal estate tax exemption back down to $3.5 million per individual, from today's level of $5.34 per individual indexed to inflation. In addition, the top federal estate tax rate would rise from 40% to 45%. However, portability - the ability of a surviving spouse to use any portion of the exemption not used by the deceased spouse - would remain in effect.

Second, a proposal requiring non-spouse beneficiaries of an IRA or other qualified plan to take distributions within a five-year period. Certain classes of beneficiaries would be exempted from the rule, for example, disabled individuals or minor children. 

You can access the entire proposed budget in the Department of the Treasury Green Book here. (The item dealing with estate tax issues is page 158: IRAs, page 253.) 

No one knows how all this will actually play out. Besides the usual political tug of war, there surely are events none of us can foresee that will affect the outcome. Stay tuned.

Mar 15, 2014

Another head-scratcher of an estate plan


Clients frequently ask if they are legally obligated to leave assets to certain people. The question usually involves an estranged child. Here's the answer: Under Florida law, a spouse and minor children are entitled to a percentage of a decedent's estate. The government is also entitled to its due if your estate is taxable. Creditors get their piece of the pie, too. But after those obligations, you decide who to name as a beneficiary. After all, it's your money.

Unusual beneficiary choices make headlines. My late client, Maria Woods, a German immigrant, left the bulk of her estate to the U.S. government out of appreciation for the opportunities this country provided her. A more recent example is the late Robert Gerin of Buffalo, New York, who died in 2010. The Buffalo News reports that Gerin, a New York-born truck driver and cab driver, never married and had no children. He had a girlfriend and some distant relatives, including an uncle in Florida. His will directed that his assets, about half a million dollars mostly in mutual funds, were to be split between the U.S. Treasury and Consumer Reports. Unlike Maria Woods, who made the reasons for her choices quite clear to me, no one seems to know the logic behind Gerin's choices. According to Consumer Reports, Gerin was not even a consistent subscriber over the years. Even the attorney who drafted his will could not tell the New York Surrogate Court precisely why Gerin insisted on doing what he did... only that he was emphatic about it.

While gifts like Woods' and Gerin's are unusual, they are not unheard of. Brad Benson of the Treasury Department told the Buffalo News that in 2013 the Treasury received $1.76 million in bequests. The Treasury also maintains a "conscience fund," to which people contribute when they feel guilty about having defrauded the government and gotten away with it. 

No way is this a trend, though! Blood is thicker than water and people are always going to want to take care of their own families as priority number one. But it is interesting!

Mar 11, 2014

Actor Seth Rogen on Capitol Hill, urges more Alzheimer's funding

Actor and comedian Seth Rogen recently addressed a serious subject with his usual wit, testifying before the Senate Subcommittee on Labor, Health and Human Services. Rogen, whose mother-in-law has early-onset Alzheimer's Disease, was on the Hill to advocate for more funding for Alzheimer's research. He surely hit the nail on the head when he said he cannot imagine how the average family of average means manages to take care of a loved one with the disease. Rogen has also established Hilarity for Charity, which raises money for medical research by staging comedy shows on college campuses. Good going, Seth.

Click below to watch his testimony. It's about six minutes long.


Mar 10, 2014

Uncompensated transfer penalty, look-back period for V.A. Aid and Attendance benefits could be around the corner



Veterans Aid and Attendance is a type of improved pension, It is not service-connected. It can help elderly and disabled veterans and their widows pay for at-home, nursing home, or assisted living care. You can find out more about Aid and Attendance and download a booklet about it from our website's V.A. benefits page.

At present the Veterans Administration does not examine uncompensated asset transfers made by applicants for V.A. Aid and Attendance benefits.   Applicants may not have assets greater than $80,000, but unlike Florida Medicaid, there is no look-back period for asset transfers and therefore, no associated penalty periods. But that may be changing. As I reported before on this blog and in other V.A. news, the push to impose a look-back period and penalty period for V.A. Aid and Attendance benefits has been gathering steam for some time. In June 2012 the General Accounting Office urged Congress to pass legislation to impose look-back rules. A bill was introduced in Congress but never went anywhere.

The tide may turn this year. In 2013 Rep. Jeff Miller (R-FL) introduced HR 2189, a bill that includes a look-back provision for Aid and Attendance applicants. The bill was passed and sent to the Senate, where it is now under review. The bill proposes a look-back period of three years.  Section 202 reads as follows:

Provides that if a veteran eligible for a pension for service or for a non-service-connected disability, or the spouse of such a veteran, disposes of a resource that was part of such veteran's estate for less than its fair market value within three years before applying for such pension, the Secretary shall deny or discontinue the pension paymnet for months beginning on the date of such disposition and ending when the uncompensated value of such resource is reached...

We do not know whether the look-back will become law, but experts seem to think there is a good chance that it will. You can read the bill in its entirety here.

The takeaway from the news: Do not delay if you are thinking about applying for benefits. Contact the V.A. - accredited attorneys of The Karp Law Firm for assistance

Feb 19, 2014

Philip Seymour Hoffman's will goes public

What a loss. Philip Seymour Hoffman, the amazingly talented Oscar-winning actor, died of an apparent heroin overdose on February 2. He had accumulated considerable wealth, with an estate rumored at $35 million. He was father to three young children. And according to reports, Hoffman anticipated his life might be cut short by the longtime drug addiction he battled, not fully successfully.

Hoffman's will went public this week when it was filed in New York surrogate court. His estate plan reveals something of his values and personality, requesting that his son - the only one of his three children born when the will was drafted in 2004 - be raised in Manhattan, or if not possible, in Chicago or San Francisco. "It is my strong desire that my son, Cooper Hoffman, be raised and reside in or near the borough of Manhattan... so that my son will be exposed to the culture, arts and architecture that such cities offer," the will states.

From a legal point of view, Hoffman's estate plan is somewhat confounding. He never revised his will in the ten years during which his two other children were born. His will does not reference his "children," instead referencing by name just his one son, Cooper. Although estate laws in New York will undoubtedly protect the two daughters born since the signing of the will, that is going to add additional complexity, delays and cost to the probate process. I always urge clients to revisit their estate plan whenever any significant life event occurs. Death, illness, a change in financial fortune - certainly a birth - fall into that category. 


Hoffman left most of his estate to Mimi O'Donnell, the mother of his three children. They were not married, so federal estate taxes will significantly erode what the family gets. Since Hoffman was a resident of New York, which unlike Florida has its own estate tax, Hoffman's estate will also pay out a hefty chunk of change to the state.

The other question that begs to be asked is this: Why would someone with such a public profile rely on a will as the crux of his estate plan? The probate process is a public one. Had Hoffman been my client, I would have steered him away from that approach, and suggest he use a revocable trust in order to protect his family's privacy. Moreover, probate can tie up an estate for some time. It is said that O'Donnell has requested that the will be probated in an expedited fashion, which could signal that the family cannot wait and needs the cash now.


We also now know that Hoffman's will establishes a trust with his son as the beneficiary, to pay for his son's "education, support, health and maintenance." Hoffman directed that half be distributed to his son at age 25, and the remainder at age 30. There's no question that this is preferable to releasing all the money when a beneficiary attains the age of legal majority. Still, as readers of my blog know, my experience has been that many of today's youngsters are far slower to mature than the prior generation was, at least as far as money management is concerned. Not every child becomes financially savvy at 25, or even 30. Had I been advising Hoffman, I would have suggested that he consider putting more thoughtful strings on the timing and method of distributing the funds Cooper will receive, which will probably amount to the millions.

Moviegoers and theater-lovers will surely miss Hoffman. Estate planning aside, he leaves behind an extraordinary artistic legacy.

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