In December of 2014, the federal government enacted the Achieving a Better Life Experience Act (“ABLE Act”). The ABLE Act allows states to establish tax-free savings accounts for individuals with disabilities to pay expenses not covered by government benefit programs. The funds in an ABLE account can provide a source of assistance for disabled individuals beyond that provided Supplemental Security Income (SSI) or Medicaid.
Ohio has become one of the first states to implement the ABLE act with the authorization of accounts referred to in the state as STABLE accounts. To be eligible for a STABLE account, an individual must have become blind or disabled prior to their 26th birthday. Anyone may contribute to the disabled person’s STABLE account, but the total of all contributions is limited to $14,000 per year. Earning on the funds in the STABLE account accumulate on a tax-deferred basis, and withdrawals are tax free if made for “Qualified Disability Expenses” Qualified Disability Expenses include expenditures for basic living expenses, housing, transportation, education, and assistive technology.
Disabled individuals who qualify for SSI or Medicaid are generally not permitted to own more than $2,000 of total assets. However, a disabled individual may have up to $100,000 in a STABLE account without losing their SSI eligibility. Moreover, the funds in a STABLE account will not disqualify an individual from Medicaid regardless of the amount. Any amounts remaining in a STABLE account at the individual’s death must be used to reimburse the state for Medicaid expenses paid on that person’s behalf.
If a disabled individual is not capable of managing his or her own account, an authorized legal representation such as a Guardian or Agent under a Power of Attorney may administer the account.
For information on STABLE accounts contact Joe Motta at 440-930-2826.
Happy milestone birthday, Baby! 2016 is the year the first baby boomers will reach age 70. It is also the year for some critical decisions that will affect your retirement years. Here are some deadlines you won’t want to miss.
Sign up for Social Security. If you have delayed taking Social Security so you can receive the maximum benefit, now is the time. There is no advantage to waiting beyond age 70.
Start taking required minimum distributions from your tax-deferred plans. Uncle Sam says you must start taking distributions from your IRAs and other tax-deferred plans after you reach age 70 ½. If you miss this deadline or you don’t take out enough, there is a 50% penalty. (Exception: If you have money in an employer plan, you continue working beyond age 70 ½ and you own less than 5% of the company, you can delay your required beginning date on that employer’s plan until your actual retirement date.)
To determine the amount you must withdraw each year, divide the year-end value of your account by a life expectancy divisor found on a table provided by the IRS. (Most people will use the Uniform Lifetime Table, but if your spouse is more than 10 years younger than you, you will use a different one.) For example, the divisor for age 72 is 25.6. If your year-end account balance is $100,000, divide $100,000 by 25.6. The amount you are required to withdraw that year, then, is $3,906.25. You can withdraw more at any time, but this is the amount you must take out for that year’s required minimum distribution.
Minimum distributions are required for each tax-deferred account you own. Consolidating your accounts will make calculating and withdrawing distributions much easier.
Avoid taking two distributions in the same year. Generally, distributions must be taken by December 31 each year. However, you can delay your first required distribution until April 1 following the year in which you reach age 70 ½. But this would cause you to take two distributions in one year…April 1 for the previous year and December 31 for the current year…and that will increase your income, causing you to pay more in taxes. Remember, you have not paid income taxes on this money, so all withdrawals are taxed as ordinary income.
Review your estate plan and plan for long term care. Now is the time to review your plan with your professional advisors. You may need to revise your will or trust, beneficiary designations, powers of attorney, and healthcare documents. Be sure to plan for the possibility of long term care—consider options for how, where and by whom care would be provided, and how to pay for the costs. If you want to conserve assets for your family, consider purchasing long term care insurance to offset some of the expenses. Finally, have that difficult but absolutely critical conversation with your family about your wishes and the plans you have put in place.
The Unpopular Topic of Discussion Every Family Needs to Have
Just bringing up the possibility of someone in your family becoming mentally or physically incapacitated is often difficult. We tend to think of only the very elderly needing long-term, hands-on care, but a recent report by the Alzheimer’s Association found that one in nine Americans age 65 or older currently have Alzheimer’s. With the baby boom generation aging and people living longer, that number may nearly triple by 2050. Dementia isn’t the only reason for long-term care, of course, but almost everyone knows someone already affected by it.
Waiting too late to plan can throw a family into confusion about what the Mom or Dad would want, what options are available, and what resources can help pay for care. Rushed decisions are often the most costly. Having the courage to discuss the possibility of incapacity now can go a long way toward being prepared should that time come. By the way, because anyone can become incapacitated at any time due to illness or accident, the entire family would benefit from planning for every family member.
Care Options: Depending on the type and expected duration of care needed, options range from in-home care to adult daycare to assisted living facilities to nursing homes. Assistance with activities of daily living (ADL), which include eating, bathing and dressing, are generally not covered by health insurance. Professional care can be expensive; the national average for basic assisted living services is now about $42,000 per year. Care for those with dementia can last longer and cost more. Family caregivers, who provide the bulk of in-home care, are often unpaid, and the emotional and financial tolls can be considerable. Your discussions need to realistically consider family finances and circumstances.
Finances: Where will the money come from to pay these expenses? What resources will be available? Health insurance does not cover assisted living/nursing home facilities or help with ADLs. Medicare covers some in-home health care and a limited number of days of skilled nursing home care, but not long-term care. Medicaid, which does cover long-term care, was designed for the indigent; to qualify, the person’s assets must be spent down to almost nothing. VA benefits for Aid & Attendance may be available for veterans and their spouses. If there are significant assets, you can self-insure and pay the costs as you go. Home equity and retirement savings can also be a source of funds. If you want to protect these assets for your family, long-term health insurance may be an option. (Premiums are much lower when you are younger.)
Documents: Everyone over the age of 18 needs basic legal documents. These include an advance health directive or healthcare power of attorney (legally appointing another person to make healthcare decisions for you if you cannot make them yourself); a durable financial power of attorney (legally appointing another person to make financial decisions for you if you cannot make them yourself); and a trust and/or will.
Having the Discussion: Your parents may be harboring secret fears about what will happen to them if they need long-term care. Talking about this honestly, listening to their fears and desires, and putting a plan in place before it is needed can help reassure them (and you). If you want to talk to your children, reassure them that you are just being realistic. Starting with a story about someone you know or an article you read can be a good way to break the ice.
Researchers in Australia have been experimenting with a non-invasive ultrasound technology that is showing great promise in the treatment of Alzheimer’s disease.
It has been estimated that Alzheimer’s affects 50 million people worldwide, and those numbers are expected to rise dramatically in the near future. With no vaccine or preventative treatment, researchers have been trying to find ways to treat it, starting with how to remove plaques from the brain.
If a person has Alzheimer’s disease, it’s usually because of a buildup of two types of lesions in the brain—amyloid plaques and neurofibrillary tangles.
Enter a team of researchers at the Queensland Brain Institute in Australia who may have just figured out how to remove the amyloid plaques. Using a focused therapeutic ultrasound, they beam non-invasive sound waves into the brain tissue at a super-fast speed. The sound waves gently open the blood-brain barrier (a layer that protects the brain against bacteria) and stimulate cells in the brain that remove waste. These microglial cells are then able to clear out the toxic beta-amyloid clumps that are responsible for the worst symptoms of Alzheimer’s.
The team reports that 75% of the mice that were treated had their memory function fully restored, with zero damage to surrounding brain tissue. The mice had improved performance in three memory tasks—a maze, a test to get them to recognize new objects, and one to get them to remember the places they should avoid.
Trials are planned on animals with larger brains, such as sheep, and the team is hoping to start human trials in 2017. Watch for more information on this promising treatment.
The recent budget deal reached by Congress and President Obama will eliminate two popular strategies used by married couples to maximize Social Security benefits.
Currently a spouse who has reached full retirement age (66 for those born between 1943 and 1954) and who has earned sufficient work credits to qualify for their own retirement benefit can elect to receive only a spousal benefit. The spousal benefit is worth half of their mate's full retirement age benefit amount. Delaying their own retirement benefit allows it to increase at a rate of 8% per year up to age 70. Upon attaining age 70, the individual would discontinue the spousal benefit and switch to their own increased retirement benefit. This strategy permits an individual to maximize their retirement benefit while still collecting a spousal benefit between the ages of 66 and 70. However, under the new Social Security rules included in the Bipartisan Budget Act of 2015, the ability to temporarily claim just spousal benefits is being phased out. By the end of 2015, married individuals will no longer be able to elect only spousal benefits while delaying their own retirement benefit. When a married person files a claim for Social Security, they will be entitled only to their own retirement benefit.
Another major rule change involves the strategy known as “file and suspend.” This strategy is used when one spouse has reached full retirement age but is still working. The working individual would claim his or her full Social Security retirement benefit and then immediately suspend the receipt of the benefit. The individual’s spouse would then be able to collect the spousal benefit while the worker's own benefit continues to grow by 8% per year up to age 70. Requests to file and suspend on or after May 1, 2016 will be subject to new rules that prohibit any benefits being paid to a spouse while a worker's benefit is suspended.
Veterans who served during a period of wartime and are age 65 or older may receive a “pension” to help offset the costs of long term care. In order to qualify, however, a veteran’s income and assets may not exceed certain limitations. Currently, there is no penalty assessed against a veteran who transfers a substantial portion of his assets to family members or others in order to meet the asset limitation. However, in January of 2015, the VA issued proposed regulations that substantially change the way the VA will review asset transfers.
The VA is proposing the imposition of a penalty for any assets transferred “for less than fair market value” in the 36 months preceding the submission of an application for pension benefits. As a result of this penalty, the veteran will be disqualified from receiving pension benefits for a period of time that is determined by the value of the assets transferred. Accordingly, the greater the value of the assets transferred, the longer the veteran have to wait before qualifying for a pension. The maximum penalty period that may be imposed by the VA is ten years.
When evaluating a veteran’s net worth for pension purposes, the VA considers the assets of the veteran and the veteran’s spouse. While there is currently no specific limit on the amount of assets that a veteran and his spouse may own and still qualify for benefits, it has traditionally been assumed that a married veteran should have less than $80,000 in assets, while a single veteran may own no more than $40,000. The proposed regulations, however, establish a fixed net worth limit of $119,220. In addition, the veteran’s annual income is added to the value assets owned in calculating net worth.
There is currently a great deal of uncertainty as to if and when these new regulations may become effective. What is certain, however, is that advanced planning is becoming more important for seniors who are concerned about the costs of long term care. To learn more about how you can protect your hard earned savings from the costs of long term care, call Joseph Motta at 440-930-2826 or email Joseph@JosephLMotta.com
On December 19, 2014, the Achieving a Better Life Experience Act (“ABLE Act”) became federal law. The ABLE Act allows the use of tax-free savings accounts for individuals with disabilities to cover expenses not covered by government sponsored programs. The ABLE Act permits disabled persons to have a supplemental source of income beyond that provided by programs such as Medicaid and SSI.
Under the ABLE Act, individuals with disabilities may establish a private savings account (“ABLE Account”) modeled after 529 College Savings Accounts. Although contributions to the account are not tax deductible, income earned by the account will not be subject to tax. In addition, withdrawals made for qualified disability expenses will not be taxable. Like 529 plans, each state will administer its own ABLE Account program and determine the maximum amount that may be held in such accounts. In Ohio the limit for a 529 account is $394,000. Under the Act, the first $100,000 held in an ABLE Account will be exempted from the SSI individual resource limit of $2,000. If an ABLE Account exceeds $100,000, the beneficiary will be suspended from SSI benefits until the account value drops back to $100,000. Funds held in an ABLE Account are not countable assets for Medicaid purposes. However, upon a Medicaid recipient’s death, the state’s Medicaid program is entitled to recover from the remaining balance of the account the amount of medical assistance provided from the time the account was opened.
Contributions to an ABLE Account may be made by anyone. Accordingly contributions to a disabled person’s account may be made by parents, grandparents, sibling, or friends. However the aggregate amount of all contributions made in any one year may not exceed $14,000.
To be eligible for an ABLE Account, an individual must be severely disabled before the age of 26. If an individual is over 26, it will be necessary to establish the onset of the disability prior to that age. An individual meeting this requirement who is receiving SSI or SSDI will automatically be eligible for an ABLE Account. If the disabled person is not receiving SSI or SSDI, they may still obtain eligibility under a certification process to be established by the state.
Specific regulations governing the implementation of the ABLE Act have not yet been written. Once the federal regulations are in place, each state will be responsible for adopting its own program to administer the ABLE Act.
For more information, please contact Joseph L. Motta of The O’Brien Law Firm LLC.