What to Look for When Buying an Annuity

An annuity can be a useful tool for long-term care planning, but annuities are also complex financial products that are hard to understand. If purchasing an annuity, you need to consider your options carefully. 

An annuity is a contract with an insurance company under which the consumer pays the company a certain amount of money and the company sends the consumer a monthly check for the rest of his or her life, or for a certain term. Annuities come in many flavors. They can be deferred (begin paying out at a later date) or immediate (begin paying out right away). They can pay a fixed amount each month or pay out a variable amount based on how the money is invested. While a fixed immediate annuity can be a good Medicaid planning option for a married couple, other annuity products can be quite complex and confusing and are not right for everyone. 

If you have decided an annuity is the right choice for your long-term care or retirement plan, you need to shop around to find the right product. The following are some purchasing tips:

• Check the terms. Be sure to read the annuity contract carefully. Annuities often have surrender charges that penalize you for withdrawing your money too early. You need to understand for how long you won’t be able to access your money and when payouts begin. There may also be other fees associated with the annuity as well as optional riders. Understanding the fees will allow you to shop around to find the best product. 
• Choose your salesperson. Insurance companies often pay generous commissions to the brokers who sell their particular annuities, payments that many of the brokers don't disclose. They also generally don't disclose whether they are paid more or less by one insurance company than another or whether the annuity being sold is the best option for the consumer. Ask your broker questions to determine how they are paid. You may want to seek a second opinion to make sure your salesperson isn't steering you into a product that isn't right for you. 
• Select a sound insurance company. Annuity payments are often supposed to last a lifetime, so you want an insurance company that will stick around. Make certain that the insurer is rated in the top two categories by one of the services that rates insurance companies, such as A.M. Best, Moody’s, Standard & Poor's, or Weiss.  

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Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Attorney at Law

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: 818-905-0601

Email:elise@elampertlaw.com

http://www.eliselampert.com

How to Use a Trust in Medi-Cal Planning

With careful Medi-Cal planning, you may be able to preserve some of your estate for your children or other heirs while meeting Medi-Cal's low asset limit.

The problem with transferring assets is that you have given them away. You no longer control them, and even a trusted child or other relative may lose them. A safer approach is to put them in an irrevocable trust. A trust is a legal entity under which one person -- the "trustee" -- holds legal title to property for the benefit of others -- the "beneficiaries." The trustee must follow the rules provided in the trust instrument. Whether trust assets are counted against Medi-Cal's resource limits depends on the terms of the trust and who created it.

A "revocable" trust is one that may be changed or rescinded by the person who created it. Medi-Cal considers the principal of such trusts (that is, the funds that make up the trust) to be assets that are countable in determining Medi-Cal eligibility. Thus, revocable trusts are of no use in Medi-Cal planning.

Income-only trusts

An "irrevocable" trust is one that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the "grantor") for life, and the principal cannot be applied to benefit your or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. For Medi-Cal purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for either of your benefits. However, if you do move to a nursing home, the trust income will have to go to the nursing home.

You should be aware of the drawbacks to such an arrangement. It is very rigid, so you cannot gain access to the trust funds even if you need them for some other purpose. For this reason, you should always leave an ample cushion of ready funds outside the trust.

You may also choose to place property in a trust from which even payments of income to you or your spouse cannot be made. Instead, the trust may be set up for the benefit of your children, or others. These beneficiaries may, at their discretion, return the favor by using the property for your benefit if necessary. However, there is no legal requirement that they do so.

One advantage of these trusts is that if they contain property that has increased in value, such as real estate or stock, you (the grantor) can retain a "special testamentary power of appointment" so that the beneficiaries receive the property with a step-up in basis at your death. This will also prevent the need to file a gift tax return upon the funding of the trust.

Remember, funding an irrevocable trust within the five years prior to applying for Medi-Cal (the "look-back period") may result in a period of ineligibility. The actual period of ineligibility depends on the amount transferred to the trust.

Testamentary trusts

Testamentary trusts are trusts created under a will. The Medicaid rules provide a special "safe harbor" for testamentary trusts created by a deceased spouse for the benefit of a surviving spouse. The assets of these trusts are treated as available to the Medi-Cal applicant only to the extent that the trustee has an obligation to pay for the applicant's support. If payments are solely at the trustee's discretion, they are considered unavailable.

Therefore, these testamentary trusts can provide an important mechanism for community spouses to leave funds for their surviving institutionalized husband or wife that can be used to pay for services that are not covered by Medi-Cal. These may include extra therapy, special equipment, evaluation by medical specialists or others, legal fees, visits by family members, or transfers to another nursing home if that became necessary. But remember that if you create a trust for yourself or your spouse during life (i.e., not a testamentary trust), the trust funds are considered available if the trustee has the ability to use them for you or your spouse.

Supplemental needs trusts

The Medi-Cal rules also have certain exceptions for transfers for the sole benefit of disabled people under age 65. Even after moving to a nursing home, if you have a child, other relative, or even a friend who is under age 65 and disabled, you can transfer assets into a trust for his or her benefit without incurring any period of ineligibility. If these trusts are properly structured, the funds in them will not be considered to belong to the beneficiary in determining his or her own Medi-Cal eligibility. The only drawback to supplemental needs trusts (also called "special needs trusts") is that after the disabled individual dies, the state must be reimbursed for any Medi-Cal funds spent on behalf of the disabled person.

To find out whether a trust is the right Medi-Cal planning strategy for you, talk to your elder law attorney.

Contact us

Elise Lampert, Attorney at Law

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: 818-905-0601

elise@elampertlaw.com

http://www.eliselampert.com

Most Are Taking Social Security at the Wrong Time

A new report finds that almost no retirees are making financially optimal decisions about when to take Social Security and are losing out on more than $100,000 per household in the process. The average Social Security recipient would receive 9 percent more income in retirement if they made the financially optimal decision.

When claiming Social Security, you have three options: You may begin taking benefits between age 62 and your full retirement age, you can wait until your full retirement age, or you can delay benefits and take them anytime up until you reach age 70. If you take Social Security between age 62 and your full retirement age, your benefits will be reduced to account for the longer period you will be paid. If you delay taking retirement, depending on when you were born, your eventual benefit will increase by 6 to 8 percent for every year that you delay, in addition to any cost-of-living increases. 

The new report, conducted by United Income, an online investment management and financial planning firm, found that only 4 percent of retirees make the financially optimal decision about when to claim Social Security. Nearly all of the retirees not optimizing their benefits are claiming benefits too early. The study found that 57 percent of retirees would build more wealth if they waited to claim until age 70. However, currently more than 70 percent of retirees claim benefits before their full retirement age. Claiming before full retirement is the financially best option for only 6.5 percent of retirees, according to United Income. 

The consequences of claiming Social Security too early can be big. The report found that collecting benefits at the wrong time causes retirees to collectively lose $3.4 trillion in potential income (an average of $111,000 per household). The report also estimates that elderly poverty could be cut in half if retirees claimed benefits at the financially optimal time. 

One reason most people do not optimize Social Security is because waiting to collect benefits means their overall wealth may fall during their 60s and 70s. They also may not be aware that collecting benefits before full retirement age means that their benefits will be permanently reduced. According to the report’s authors, policy changes are necessary to get retirees to wait to claim benefits. The report recommends that early claiming be made the exception and reserved for those who have a demonstrable need to collect early. Another recommendation is to change the label on early retirement and call it the "minimum benefit age."  

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Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Attorney at Law

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: 818-905-0601

Email:elise@elampertlaw.com

http://www.eliselampert.com

Tips for Preventing, Detecting, and Reporting Financial Abuse of the Elderly

Reports of elder financial abuse continue to increase, and the elderly are particularly vulnerable to scams or to financial abuse by family members in need of money.

It is hard to ascertain the exact numbers of people affected by elder abuse because studies show that elder abuse is underreported. However, one study found that financial loss from financial elder abuse could be close to $3 billion a year. 

While it is impossible to guarantee that an elderly loved one is not the victim of financial abuse, there are some steps you can take to reduce the chances. One option is to have more than one family member involved in caring for the loved one. You can also encourage the elder to get involved in community activities to ensure that he or she has a wide range of support. Using direct deposit as much as possible is also helpful. And of course you should always screen caregivers carefully and verify references.

Financial abuse can be very difficult to detect. The following are some signs that a loved one may be the victim of this kind of abuse:

• The disappearance of valuable objects
• Withdrawals of large amounts of money, checks made out to cash, or low bank balances
• A new "best friend" and isolation from other friends and family
• Large credit card transactions
• Signatures on checks that look different
• A name added to a bank account or newly formed joint accounts
• Indications of fear of caregivers

If you suspect someone of being financially abused, there are several actions you can take:

• Report the possible crime by calling your local Adult Protective Services and state attorney general's office. File a police report.
• Explore options at your local probate court if your state has such courts. The court can intervene if someone in the family is misusing a power of attorney or their role as guardian or conservator.
• Contact advocacy organizations. The National Center on Elder Abuse offers guidance on how to investigate and seek justice for elder abuse. State laws vary, but some have elder abuse statutes and may be able to get restitution for breach of fiduciary duties.
• Try to get a temporary restraining order from a court while building your case.

Another valuable resource is Aging in Place's guide to recognizing elder abuse.

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Attorney at Law

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: 818-905-0601

Email:elise@elampertlaw.com

http://www.eliselampert.com