Barnes Lipscomb & Stewart PLLC

Should I Keep My Life Insurance Policies in Place After A Divorce?

Life insurance has as big a role, if not a bigger role, when there is a divorcing family with children. The key idea of life insurance is to protect the well-being of the children, replacing lost income from the main breadwinner. Ideally, this does not change in the face of divorce. The children still need to be protected.

Life insurance is not the first thing that people think of when negotiating a divorce, but it’s something they should keep in mind. Insurance News Net’s article “5 Ways Life Insurance Eases Post-Divorce Estate Planning” explains how life insurance continues to be a useful tool to serve the family, whatever its marital status.

Have money for divorce-related expenses. If the divorce is contested or includes child custody issues, the proceedings be quite long, maybe months or years. As a result, your attorney’s fees could be hefty. Those with an established permanent life insurance policy can take withdrawals or loans from the policy’s cash value to help pay expenses. If the policy is designed effectively, you won’t have to liquidate other assets or take money from your estate designated for beneficiaries.

Protect your income post-divorce. Your income can change significantly after a divorce, especially if one spouse was a stay-at-home parent. They may get alimony payments to help make up the difference, but if the payor unexpectedly dies, the lost income can create a lot of stress and financial hardship for those left behind. Permanent life insurance on the paying spouse can help provide coverage and replace income lost, if they pass away.

Preserve your estate post-divorce. Life insurance can also provide funds to pay off existing debt held by the deceased spouse. This also can eliminate the need to liquidate other assets from the estate that would have gone to the surviving spouse or other heirs. Take withdrawals or loans from the policy–tax-free, if the policy is set up correctly–and you can effectively plan your legacy, even if your ex-spouse hasn’t been financially responsible.

Ensure that children get a fair inheritance. If you have children from a previous marriage, it may make sense to provide for them through life insurance, rather than passing their assets to a new spouse first. In the alternative, you can provide for your new spouse through life insurance and leave the estate to the children outright or in a trust. With either option, dividing how you leave assets to biological children and a new spouse in a blended family, can eliminate stress and bad feelings, especially if the new spouse has children of their own.

Help fund college or other expenses for your child’s children. Protecting the lives of both parents with permanent life insurance allows you to make certain that the expenses for the children are addressed. Therefore, if the former spouse is responsible for paying medical expenses, college expenses, or other costs for the children, life insurance can provide needed funds, if that spouse passes. Permanent life insurance with cash value can also provide funds during the insured spouse’s lifetime (if cash isn’t readily available) to pay college tuition or help adult children repay student loan debt.

Consider permanent or whole life insurance, as well as term insurance. Yes, term insurance is less costly, but it will not accumulate any cash value. With permanent cash and a long-term care rider, the policy owner can accelerate the policy’s benefits to pay for long-term care. For divorced people who can only rely on themselves for care, if and when they can’t care for themselves, this can be invaluable.

Remember that life insurance is used to protect the policyowner, their income and their estate throughout life, regardless of marital status.

Reference: Insurance News Net (November 5, 2019) “5 Ways Life Insurance Eases Post-Divorce Estate Planning”

Can I Protect My Inheritance from Divorce?

Part of the divorce process is deciding how assets are to be divided, and that process often includes an inheritance. For the most part, property received as a gift or an inheritance is exempt from equitable distribution, but if the assets are combined, that may lead to problems.

The exempt status that protects an inheritance from being considered a marital asset, is often at issue in divorce negotiations. If the asset has been mixed into a shared asset, like a joint savings account, or if the title of an inherited property is in both spouse’s names, it may be considered a marital asset. However, it may not. As the article from Trust Advisor asks, “Do I Have To Divide The Inheritance I Received During My Marriage?” this basic rule isn’t iron-clad.

A few courts say that an inheritance was exempt, even when it was left for only a short time in a joint account. This can happen after a parent’s death. The proceeds of a life insurance policy that an adult child beneficiary receives, are put into the family account to save time in a stressful situation. You may be too distraught to deal with this issue when the insurance check arrives, so you or your spouse might deposit it into a joint account. However, in one case, the wife took the check and opened an investment account with the money. That insurance money deposited in the investment account was never touched, but the wife still wanted half of it when the couple divorced a few years later. However, in that case, the judge ruled that the proceeds from the insurance policy were the husband’s separate property.

The law generally says that assets exempt from equitable distribution (like insurance proceeds) may become subject to equitable distribution, if the recipient intends them to become marital assets. The comingling of these assets with marital assets may make them subject to a division in a divorce. However, if there’s no intent for the assets to become martial property, the assets may remain the recipient spouse’s property.

Courts will look at “donative intent,” which asks if the spouse had the intent to gift the inheritance to the marriage, making it a marital asset. Courts may look at a commingled inheritance for donative intent, but also examine other factors. This can include the proximity in time between the inheritance and the divorce. Therefore, if a spouse deposited an inheritance into a joint account a year before the divorce, she could argue that there should be a disproportionate distribution in her favor or that she should get back the whole amount. Of course, the longer amount of time between the inheritance and the divorce, the more difficult this argument becomes.

When an inheritance is in your future, consider a conversation with an estate planning attorney about what to do with it. It may be wiser to open a new account for the inheritance that is kept separate from joint assets. Depending upon the law in your state, and the state of your marriage, a small amount of caution may be advised.

Reference: Trust Advisor (October 29, 2019) “Do I Have To Divide The Inheritance I Received During My Marriage?”

Medicaid, Whole Life Insurance and a Beneficiary: Who Owns the Proceeds?

Estate recovery from Medicaid varies by state and the rules are complicated. Sometimes even the best of intentions go awry and a professional is needed to help understand how the rules apply.

In some states, the definition of estate recovery from Medicaid includes everything that belonged to the deceased person at the moment just before they die. nj.com’s recent article on the subject asks “Can Medicaid take this life insurance policy?” Here’s one example.

A person owned a whole life insurance policy with a named beneficiary. The person cashed out the policy with the intention of paying for funeral expenses, but the policy remained in effect because the beneficiary continued to make payments on the policy. The person who was receiving Medicaid passed two months after the policy was cashed out. Does Medicaid get to recover the balance of the policy, or does the beneficiary keep the cash proceeds?

In this situation, it looks like the beneficiary, not Medicaid, would receive the money from the life insurance policy.

Under Federal and state laws, Medicaid is required to recover funds from the estates of certain deceased Medicaid recipients for all payments made by Medicaid for services received on or after age 55.

States are able to apply a narrow probate definition of “estate” in their Medicaid recovery program. They can also define “estate” more broadly to include probate, as well as non-probate assets.

Remember that probate assets are those that pass under a will, and non-probate assets are accounts like joint checking accounts, pensions and other assets that are designated to go to a beneficiary directly and not the estate.

This also includes property, such as the deceased person’s home or share of that residence, other bank or investment accounts (whether solely or jointly held), as well as trusts, annuities, stocks, bonds and any other real or personal property.

Proceeds from whole life insurance policies are subject to estate recovery if they’re not liquidated prior to death as required. The proceeds from any life insurance policy are subject to Medicaid recovery, when the proceeds are paid to the estate.

Since the policy was liquidated, there shouldn’t be any estate recovery against the policy. That’s because there was a designated beneficiary that was not the estate.

Situations like this differ based on the facts and the Medicaid rules of different states. Talk with an estate planning elder law attorney to guide you in your unique situation.

Reference: nj.com (October 29, 2019) “Can Medicaid take this life insurance policy?”

“Blue Water” Benefits for Vietnam Veterans

Processing “blue water” disability claims for Vietnam veterans is on a tight timeline. The VA has to get training and technology aligned. The goal is to start processing cases in 2020. Will this happen?

After waiting decades for “blue water” disability benefits, there’s a real concern among lawmakers in the House that the VA won’t be able to start distributing these benefits.

Military Times reported in its recent article that asks “Will VA be ready to process new ‘blue water’ Vietnam veterans benefits next year?” VA officials have promised that they will start processing cases in January 2020. However, critics and veterans’ advocates want that to happen more quickly. Advocates have also demanded that the White House speed up the timeline for the benefits.

“These people have waited too long, and we finally have the legislation in place,” said Rep. Mike Bost, R-Ill., ranking member on the House Veterans’ Affairs committee’s panel on disability assistance. “We need to get it done.”

Last summer, President Trump signed into law a bill that finalized presumptive benefits status for “blue water” veterans who served on vessels off the coast of Vietnam during the war.

Under Veterans Administration regulations, vets who served on land in the war are presumed to have toxic exposure related to spraying of the defoliant known as Agent Orange during the Vietnam War. However, sailors on ships off the coast of Vietnam weren’t given the same concession.

However, the new law will see as many as 90,000 veterans become eligible for the new presumptive status, which will mean thousands of dollars in disability benefits each month.

This legislation let VA officials delay processing those cases until the beginning of 2020, even though some cases were already being considered, due to a federal court ruling earlier in this year.

Advocates and some members of Congress have complained that the delay has put another unfortunate burden on veterans, who have suffered from Agent Orange exposure for decades.

In an update hearing before the committee, Veterans Affairs Deputy Under Secretary for Field Operations, Willie Clark emphasized that the delay was required to get department systems prepared for the anticipated onslaught of blue water claims.

Other lawmakers said they were concerned that the VA is not including veterans who were on submarines, despite evidence that sailors on board would also have been susceptible to the same toxic exposures.

Reference: Military Times (October 31, 2019) “Will VA be ready to process new ‘blue water’ Vietnam veterans benefits next year?”

Update on Rapper Nipsey Hussle’s Estate

Seven months after rapper Nipsey Hussle was shot, his family has been awarded sole custody of his daughter, Emani. His sister tried to obtain guardianship of the ten-year-old earlier this spring.

The late rapper also has a three-year old child named Kross with Lauren London, who was granted guardianship over her child. London filed for guardianship in July, three months after Nipsey’s passing, according to a recent article from BET, “Nipsey Hussle’s Family And Lauren London Granted Joint Guardianship Over His Estate.”

A judge has appointed Nipsey’s immediate family, including his siblings, Smith, Sam “Blacc Sam” Asghedom and his mother, Angelique Smith, as Emani’s guardians. The girl is from a previous relationship between the late rapper and a woman named Tanisha Foster, whom Nipsey’s family felt was “unfit” to properly parent her.

London will now have a legal say in the management of her longtime partner’s estate, as it concerns their son. Both Emani and Kross are expected to inherit $1 million each, when they reach the age of majority.

Because a minor can’t inherit an estate outright, a guardianship is requested or ordered by a probate judge. It’s a legal process put into place to protect those who are unable to care for their own well-being due to infancy, incapacity or disability. A court will appoint a legal guardian to care for an individual, known as a ward, who is in need of special protection. It’s common for a guardianship to be set up in situations, like that of Russell’s children.

The Victory Lap rapper’s older brother, Sam “Blacc Sam” Asghedom, has been overseeing the estate since the Grammy-nominated artist’s death.

Asghedom filed a petition with the court to take control over the estate last summer, so he could handle business dealings and make certain that his brother’s legacy stays intact. His request was granted by the judge, and he was appointed as the executor of his late brother’s estate in August 2019.

Russell’s sibling wrote in his filing, “[Nipsey’s] passing has created significant media attention, which, in turn has presented potential time-sensitive business opportunities based on [Nipsey Hussle]’s likeness, right of publicity, and other intellectual property based on the media attention surrounding [Nipsey Hussle]’s exceptional life story and musical career.”

Reference: BET (October 16, 2019) “Nipsey Hussle’s Family And Lauren London Granted Joint Guardianship Over His Estate”

How Does Medicare Advantage Work?

Medicare can be daunting to many people, and once you’ve made a decision (or a mistake), you have to live with it for a year, until the next Medicare open enrollment season. Depending on where you live, there may be different Medicare Advantage options to sort through.

For starters, Medicare Advantage is also known as Medicare Part C. It’s a private insurance alternative to original Medicare. In 2020, the monthly premiums for Medicare Advantage (MA) plans are expected to actually decrease to an estimated $23. That’s a 14% decrease, which seems like a lot but is actually only an average of $3.87.

AARP’s recent article, “Medicare Advantage Premiums to Decrease in 2020,” explains that these plans include Medicare Part A. That covers hospital care, hospice, and some nursing home and rehabilitative services. These plans also include Part B, which helps pay for physician visits and other outpatient services, including lab testing, scans and other diagnostic services. Most Medicare Advantage plans also include prescription drug coverage.

The recently announced premiums represent a nationwide average. Actual monthly charges for Medicare Advantage plans will vary, depending on what the plan covers and where beneficiaries reside. CMS announced that premiums for Part D prescription drug coverage were also trending down by about 13.5% to a projected $30 a month.

Many Medicare Advantage plans also cover some dental, vision, and hearing care. Over the past two years, CMS has also added other benefits that will hopefully improve the health of seniors. These services include in-home meals, transportation, adult day care services, and improvements to beneficiaries’ homes. That may look like wheelchair ramps and shower grips. However, not all Medicare Advantage plans have these extra benefits.

The Centers for Medicare and Medicare Services projects that about 250 plans in 2020 will offer access to these supplemental services, impacting about 1.2 million enrollees.

Enrollment in MA plans has been steadily climbing. The Centers for Medicare and Medicare Services projects that more than 24 million people will be in a Medicare Advantage plan in 2020.

There has been a big increase in the number of Medicare Advantage plans being sold in 2020, compared to 2019: 1,200 more Medicare Advantage plans will be available in 2020.

Reference: AARP (September 24, 2019) “Medicare Advantage Premiums to Decrease in 2020”

How To Determine Executor Fees When Both Parent Die Within a Short Period of Time?

It’s hard enough to manage the death of one parent, but when both parents die within a relatively short period of time, the executor has double work. Does that mean they are eligible for a double executor fee?

An individual who has been named as the executor or personal representative is permitted, in many states, to be paid an executor fee for the work they do to handle all of the tasks of settling an estate. Depending upon the size of the estate, the number of assets and heirs, the task can become a full-time job.

The fee could be based upon a variety of factors, which may be dependent upon the law in your state, says nj.com’s recent article, “Both of my parents died. How do I calculate the executor fee?”

In most states, the executor fee is set by statute. For example, in New Jersey, it is 5% of the first $200,000 of assets taken in by the executor, 3.5% of the next $800,000 of assets, and 2% on anything in excess of $1 million. Likewise, California has a sliding scale based on the amount of the estate.

However, in Minnesota and Nebraska, the law states that the fee should be “reasonable.”

The amount of work involved is determined by the specific estate. The executor is generally responsible for collecting the estate assets, paying the debts and taxes (if any) and then giving what’s remaining to the heirs.

If you elect to take the commission, it’s taxable income which must be shown on your personal income tax return.

In New Jersey, if there are co-executors, the statute says that an additional 1% can be included to the commission. However, any one executor cannot receive more than the amount to which a sole executor is entitled.

Note that the executor only receives a commission on what he or she takes control of as executor.

This means that the executor doesn’t get a commission on assets that have beneficiary designations on death or that are jointly owned with right of survivorship. These assets pass outside of the will and the executor doesn’t take possession of these assets.

If the probate estate of the first spouse to die is less than the second (because many assets were owned JWROS (Joint With Right Of Survivorship), they are not subject to probate and, therefore, are not subject to commission. The commission on the first spouses’ estate would be less than the commission on the second estate. This may sound counterintuitive, but it is correct.

An estate planning attorney may be able to help the executor determine what is a fair amount for an executor fee, and also help speak with family members, if there are any disagreements about the fee.

Reference: nj.com (October 10, 2019) “Both of my parents died. How do I calculate the executor fee?”

How Does an Irrevocable Life Insurance Trust Work?

An irrevocable life insurance trust (ILIT) can provide tax benefits, protect assets and ensure that asset distribution takes place as the benefactor wanted. It may sound formal, but it’s a useful tool in estate planning and may be worth considering.

Any irrevocable trust is just that: irrevocable, meaning that it cannot be changed. An irrevocable life insurance trust (ILIT) is a trust that owns a life insurance policy. And once this trust is created and the life insurance policy is placed in the trust, no changes can be made.

As an alternative to designating an individual beneficiary, ILITs offer several legal and financial advantages to heirs. This includes favorable tax treatment, asset protection and the assurance that the benefits will be used in a manner concurrent with the benefactor's wishes.

Investopedia’s recent article, “When Is It a Good Idea to Use ILIT Trust?” says that there are several advantages to ILITs, including state tax considerations, the protection of fiscally-careless beneficiaries from squandering their payouts and the prevention of courts and creditors from accessing the assets.

An ILIT is often used to set aside assets for certain purposes, like paying estate taxes, because these assets themselves aren’t taxable. To do this, the selected assets must be moved into the life insurance trust at least three years before they’re used. If you use a qualified estate planning attorney to create this, the death benefits paid to the ILIT won’t be included in the gross estate of the insured. This is different than when life insurance death benefits are paid to an individual, because the proceeds are included in the taxable estate of the decedent.

The ILIT also has asset protection for the beneficiaries, if they are involved in a lawsuit. That’s because ILITs aren’t considered to be owned by the beneficiaries. This makes it hard for courts to connect the assets to the beneficiary, making them nearly impossible for creditors to access.

There are some drawbacks to using an ILIT, so carefully consider the pros and cons of creating one. Changes to an ILIT can only be made by the beneficiaries. As a result, the benefactor loses control of the assets prior to death. ILIT assets are also not taxed as part of the estate, but they are taxed as part of the beneficiaries' estates, leaving a bigger tax burden to their descendants.

An ILIT is not a simple legal matter. There are strict rules from the IRS that must be followed to ensure that the ILIT is done correctly. Otherwise, it may create problems for heirs. An estate planning lawyer in your state who is experienced with ILITs will be able to determine if this is the right tool for your estate plan, and then work with you to put one into place.

Reference: Investopedia (August 5, 2019) “When Is It a Good Idea to Use ILIT Trust?”

Making Changes to a Will

One of the many reasons to have wills reviewed and, if needed, revised, every few years, is if someone wants to give something to an heir, but it wasn’t mentioned in the will.

Changes to a will can be done easily and simply with a visit to an estate planning attorney’s office. Someone can also try to take the do-it-yourself route and hope that the family isn’t left with an invalid will, which means the entire estate needs to go through probate. That is not to mention the family discord that can follow when heirs expect to inherit personal property or financial assets and things have changed. This is where estate battles begin.

Dad can keep it simple, says nj.com’s recent article, “Does my dad need to pay money to get a new will?” However, doing so will likely cause more trouble for the executor and possibly, the entire family.

The father can create a written list that disposes of tangible personal property, not otherwise identified and disposed of by the will.

The list must either be in the testator’s handwriting or be signed by the testator. This list also must describe the item and the recipient clearly. This list can be created before or after the will is signed.

This list can be amended or revoked. It should be kept with the will or given to the executor, so he or she knows about it and can ensure it is followed.

This list isn’t legally enforceable. The executor may elect to honor such a distribution, assuming the beneficiaries of the other tangible personal property and/or residuary estate agree. That’s so, even if the will doesn’t reference the written list but the testator nevertheless leaves the list.

However, it would not be in the interest of the executor and may be perceived as a breach of fiduciary duty to honor such a list and make such a distribution, if the beneficiaries named in the will object. No one wants to cause a fight over the items on the list, after the parent is gone.

A revised will that is created properly by an estate planning attorney is always the better option. Protect the family from squabbles over property that could turn into estate litigation. Make an appointment with an experienced estate planning lawyer and do the right thing for the family.

Reference: nj.com (October 14, 2019) “Does my dad need to pay money to get a new will?”

Long-Term Care Insurance and Your Retirement

At some point in your life, it is likely that you’ll need long-term care. It’s something we don’t like to think about, but the cost of not preparing for this expense can wreck retirement finances.

The U.S. Health and Human Services Department estimates that more than half of Americans turning 65 will need some kind of long-term care. It may be care provided in a facility or at home, but however the care is delivered, it will be costly.

CNBC’s recent article, “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan,” reports that over 8 million Americans have long-term care insurance. However, the cost of that insurance is rising. This increase is because of several factors, including the fact that companies underpriced their policies for years and misjudged how many would drop coverage.

Because of those rising premiums, some individuals may choose self-insurance. That means saving a pool of money to earmark for long-term care. Coverage is also available through Medicaid, which has eligibility requirements.

Even with these increases, you should purchase some form of coverage. This is because not being insured can be the biggest devastator of a financial plan.

The rule of thumb has been to buy LTC coverage at age 55. However, it really depends on your situation. The big unknown is health, and the odds of being able to qualify for coverage at age 60 compared to age 30 or 40 is vastly different.

A traditional LTC policy will cover the costs of care for a certain period of time, generally up to six years. The amount of coverage is based on the average cost of care for your location. Most insurers offer it in the form of a monthly benefit, and possibly with some inflation protection.

There’s also a hybrid policy that covers long-term care costs but becomes life insurance paid to heirs, if it’s not used. Of the 350,000 Americans who purchased long-term care protection in 2018, 85% chose the hybrid coverage. It’s also called combo or linked-benefit. The big difference is price: you’ll pay more for the hybrid policy.

For people who have no assets, Medicaid is the solution, but the choices for care are not often ideal. For those who seek to protect their assets, an elder law attorney will be needed to use legal strategies for protecting the healthy spouse and assets. Applying for Medicaid while protecting assets requires advance planning, since there is a five-year look back period. Talk with an attorney beforehand.

Reference: CNBC (October 14, 2019) “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan”