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Based on a column first appearing in the Asheboro Courier-Tribune, January 26, 2018

What a mess.

Nursing home care now runs around $8,500 monthly. Basically, there are three ways to pay for it:  Private, insurance (which often covers just a portion), or Medicaid.

Privately paying isn’t often an option because most folks can’t fork out $100,000 annually for a nursing home.

The long term care insurance (LTCi) industry is a mess. In early marketing frenzies insurers kept premiums low based on assumptions that many folks would eventually drop their policies or not live long enough to make significant claims on their policies.

Shocked older womanSurprise! They kept them, they lived, they collected.

The result? Those companies that committed to level premiums, took a huge hit. Those that made no such commitment have skyrocketed their premiums. The good companies hung in there and took HUGE hits. The weaker players bailed or went belly-up. Twenty years ago, over a hundred insurers sold LTCi policies. Today, perhaps a dozen.

Recently (January 18, 2018) the Wall Street Journal ran an excellent piece by Leslie Scism on this problem.

Scism quotes Thomas McInerney, Genworth Financial’s CEO. Genworth, a big LTCi player that didn’t drop out and booked a multi-billion dollar financial loss (they probably wish they’d dropped out). When it came to their level premiums McInerney said “We should have never done it, and the regulators never should have allowed it.”

What a hoot! That’s like the drunk driver who said. “I shouldn’t have been driving drunk, and if the police had only stopped me I wouldn’t have hit those people.”

That leaves Medicaid.

Around 70% of nursing home costs in the US are covered by Medicaid. Like it or not, Medicaid is a popular financing mechanism (and NOT a ‘type’ of nursing home). Initially, it may have been meant to be a program for the poor (and still is in the eyes of budget hawks), but it has evolved to meet a need.

The debate regarding health benefits had been going on since the 1930s. One school favored a public entitlement, the other favored an insurance-based approach.

In the 1960s the Johnson administration and Congressional leaders hashed out a compromise. Medicare would be an insurance-like product: Pay-in through employment taxes and premiums at retirement. Upon retirement, file claims as with any insurance. Medicaid would be a welfare-type benefit: Medical coverage would be made available to the poor.

As the programs were being finalized, nursing home benefits weren’t a real priority. Cancer, strokes, heart attacks, and such carried folks away much more quickly then, than now. Medicine has vastly improved. Folks are sticking around longer to develop chronic acute conditions that send them to the nursing home.

In any event, Congress tacked nursing home coverage onto Medicaid (with only minor benefits allowed under Medicare).

50 years later, things are strange.

First, there is what I call the “disease lottery.” If one of my clients develops brain cancer, goes through surgery, radiation, chemo, and perhaps rehab, she will rack up hundreds of thousands in medical expenses. If she has Medicare and a decent supplemental policy, or perhaps Medicare Advantage, she will have no worries (well . . . financially). On the other hand, if she develops Parkinson’s or Alzheimer’s and goes to a nursing home she is going to be out of luck (unless, perhaps, I can help her).

Second, the person who lived hand-to-mouth has nothing to worry about. Simply go down to DSS and apply for Medicaid. The person who managed to lock-down and keep an LTCi policy, or who is very wealthy and can afford $8,500 a month, will be fine.

On the other hand, the person who lived frugally, worked hard, skipped vacations and expensive cars, paid the bills and amassed a ‘fortune’ of a few hundred thou and a paid-off ranch in the ‘burbs – the person who ‘did everything right’ – will be plain out of luck (unless, perhaps, I can help her).

I tend to be a fiscal conservative. I believe something must be done with entitlements – intelligently, however (gasp). The way to fix a social problem is not by slashing the budget because that will only exacerbate the problem.

Why not add a long term care component (say, standardized X, Y, and Z LTC plans) to Medicare? When one first signs up for Medicare and has the option to purchase a supplemental policy, add the option to purchase an LTC plan. Retain Medicaid as a draconian safety net for those who were irresponsible enough not to enroll during the open enrollment period.

What’s not to like? Takes care of a pressing problem and gets private enterprise involved.

Only one problem: Trump, Ryan and McConnell don’t know me and probably aren’t interested in hearing from me. In the meantime, I’ll take care of my clients.

 

Filed Under: Reader Favorites, Uncategorized

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Can Social Security be garnished?

Can a debt collector take your Social Security benefits?Protect Social Security Benefits

The collector from the credit card company just keeps calling. “Look . . . pay these bills of your husband’s or we’ll sue. We’ll get a court order taking part of your Social Security and your bank accounts.”

Can they do that? Nope! At least not with respect to your Social Security benefits . . . and as for the rest of your bank accounts, it depends. In any event, be careful.

The usual way for a creditor to collect on a debt, short of simply bullying you or shaming you into paying up, is to sue. Once the creditor obtains a judgment for the debt, the usual strategy for collecting is to either garnish a part of income or levy on the bank accounts of the debtor.

What if the debt is just one spouse’s?

Often older couples come to a late marriage with their own debts, and they agree to keep their finances separate. If each spouse truly keeps his or her affairs separate and does not contract a debt along with the other spouse, or in some way guarantees the debt, the nondebtor spouse is not responsible. Usually.

Some states use the old English “Doctrine of Necessaries.” North Carolina is one of them. Under that doctrine, a spouse can be responsible for the debts incurred for goods and services that were necessary for the health or well-being of the debtor spouse. Medical expenses are chief among those.

Social Security Benefits Are Armor-plated . . . Sort Of

Even if the Doctrine of Necessaries applies, though, Social Security benefits rate a high level of protection. Generally, under federal law creditors may not touch Social Security benefits. Two notable exceptions apply. The benefits remain subject to alimony and support payments, and, of course, to federal tax liabilities. But other than those: Hands off!

That’s not the end of the story. It has to be handled right. While Social Security benefits are always exempt from general creditors as they are paid, whether the payments that are not spent and that are deposited into an account remain protected after deposit depends on a number of factors.

If the funds have been commingled with other funds (maybe general savings from company pension plan payments) they’ll lose their protected status.

If the funds are “pure” Social Security payments that have accumulated in an account the funds theoretically are protected. I say “theoretically” because you will need to prove to a bank that there are no other funds at all in the account. That may be difficult. The best time to make that proof is in front of a judge when you or a spouse is getting sued . . . but that doesn’t always happen.

If the issue has you concerned, one of two approaches may work:

  • Talk to the bank and ask them ahead of time. Of course, you may feel a bit funny doing that. Stuff like that makes some bankers nervous.
  • Change from automatic electronic deposit to Social Security’s Direct Express® debit card. This is a debit card issued by Social Security . . . and you don’t even need a bank account.  Go to the Social Security website for more information and how to sign-up for, or switch to, Direct Express® debit card. If you don’t want to bother with that, call 800-722-1213.

 



Filed Under: Banking, General, Reader Favorites, Social Security Tagged With: , ,

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Originally published Asheboro, North Carolina, Courier-Tribune, Sept. 8, 2017

“Well, she’s some sorta cousin or somethin’.”

I’ve spent hours as an attorney, a cousin, and an inlaw explaining how family trees work.

Let’s clear all that up and in the process poke a little fun at the tendency of our cultural manipulators to use optics and spin to emphasize a point they seek to make.

A couple of weeks ago the VMA Awards decided to use the forum to condemn white supremacist violence. Fine. I’m for that.

A few weeks before, a recently minted Duke Divinity School grad from Statesville had been giving interviews about his condemnation of Confederate statutes. His name, Robert Wright Lee IV (“Rev. Bob”).

I think a wee part of him enjoys the whiff of notoriety. His family sure does because they like those Roman numerals! In interviews he describes the check-out counter and the moment he thinks, “uh-oh, here it comes.” According to him it is at that time (probably with a tone of infinite patience) he must explain that, yes, he IS descended from THEE General Lee. Sigh.

So, some VMA producer thought: What better optic than to get this guy, young and in his tortoiseshell glasses and wearing a clerical collar to introduce Susan Bro, the mother of Heather Heyer, the young woman murdered by car in Charlottesville?

Lees AncestorFirst thing the next morning, the online news outlets breathlessly ran stories of an “ancestor of Robert E. Lee” introducing Bro.

Point No. 1.  Ancestors and Descendants

If an ancestor of Robert E. Lee had introduced Bro it would have made Jesus’ resurrection of Lazarus child’s play. Imagine the skeletal remains of Revolutionary War hero General Henry “Light Horse” Lee IV (died 1818) clacking up to stage to introduce Bro. You see, as R. E. Lee’s father, he IS an ancestor of his more famous son. And my, those Lee’s like the Roman numerals in their names.

By 9:00 AM the grownup editors came into work and the story received a major edit. FOX changed its headline to “DESCENDENT” of General Lee introduces Bro.Headline

Well, no. First, the correct spelling is “descendant” (no “e” in “Descendant”). Also, by Rev. Lee’s admission R. E. Lee was some sort of uncle. So, no, Rev. Bob is NOT a descendant. He is a very distant relation. There is, in fact, a Robert E. Lee V who IS a descendant of the general. He lives near DC.

A descendant is someone “descended from” an ancestor.  I am descended from my great granddad, but not his brother or sister.

I’ll just bet you Rev. Bob is descended from General Harry Lee, but not General R. E. Lee.

Point No. 2. Cousin countin’.

People who are descended from the same parents are siblings. People descended from common grandparents are first cousins. People descended from common great grandparents are second cousins. And so forth.

My cousin’s kid and I are first cousins once removed. My cousin’s grandkid is my cousin twice removed. And so forth.

My guess is Rev. Bob’s great, great, great granddad was one of R. E.’s brothers. That would make Rev. Bob one of Robert E. Lee the Fifth’s fifth cousins or fourth-cousins-once removed. Have you EVER met a fourth or fifth cousin? Bob Lee of DC was probably thinking the other day “Who IS this guy?”

My grandparents Mason have 30 or so descendants, last time I counted. My great grandparents probably hundreds, one of whom was a CEO of UPS several decades ago (alas —  not my ancestor). R. E. Lee’s siblings might have hundreds of descendants.

Incidentally, Bob Lee V recently told a reporter all the statues belonged in museums. Optics weren’t as good, however, so Bob didn’t make the major news cycles.

By noon that day, the news outlets saw the optics fading away as they tried to come to grips with young Rev. Bob’s numerically tenuous relationship to his distant kin. Sensibly, the story didn’t survive a complete news cycle.

My wife’s great grandfather was John Henry Haslam. Went by Harry. So did his son, grandson, and great grandson. His great, great grandson, my wife’s nephew is also a namesake, but he goes by John. Meaning to intentionally confuse me, I am certain, my father-in-law used “Sr.” after his name and my brother-in-law “Jr.” My wife’s nephew is just plain “John.” Actually he is John Henry Haslam V. It’s easier to keep track that way. But I love them anyway.

There is also something to be said for ditching the numerals, especially past about III.

 

Filed Under: Nonlegal Ramblings, Uncategorized

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Princess Anderson

Chelsea Finkmeister

This is the most advanced topic I have written for my public readers. But it can be an important topic, so hang in there.

According to conventional wisdom you should always name your spouse as beneficiary of an IRA. But if you are at all interested in asset protection that may not be a great idea. Read on to understand why it might be a better idea to name a trust as the beneficiary of an IRA and what some of the trade-offs of doing so are.

I’ll give you some specific examples (with numbers). That’s good if you are interested in learning about this . . . but then you shouldn’t attempt to read this if you are under the influence of anything!

Standing on Tradition: Naming The Spouse As IRA Beneficiary

There really is a good reason for naming the spouse as IRA beneficiary . . . much of the time. But not always.

As I have written, the beauty of an IRA is that the longer money can be allowed to languish in an IRA, the more it will grow without being burdened by taxes. Because of that, the usual thinking is to try and take out as little as possible.

On the other hand, there are all sorts of tax rules about when someone MUST take distributions and how much those distributions must be. Remember the rule:

SOMEDAY, SOMEHOW, SOMEONE WILL PAY TAXES ON THE IRA.

Meet the Finkmeisters

For purpose of illustrating some concepts, let’s look at Alfred and Betty Finkmeister.

Alfred is 81 and Betty is 75. Alfred owns a $100,000 traditional (not Roth) IRA. He has taken his required distribution for the year.

They have one child, Chelsea, who is 50.

Why Naming A Spouse As The IRA Beneficiary Is So Slick (Usually)

If a spouse “inherits” an IRA, she can treat it as her own. This means she does not have to begin distributions until she is 70 ½. When she does begin taking distributions she can use a special table that assumes she has a husband 10 years younger (heh, heh, heh) even though she may have just become a widow. That means MUCH smaller mandatory distributions because they are being spread out over her life and the life of Mister-Make-Believe-Ten-Years-Younger-Romeo. The spouse can also go back to the tables each year and get a new factor to divide by (it doesn’t go down by “1” each year . . . which stretches out payments even more).

The special spousal rules for inherited IRAs also say that she can name the kids as beneficiaries and upon her death they will have separate IRAs they can take out over their life expectancies (although I have found – quite nonscientifically – that most IRAs inherited by adult children quickly become new cars or tuition payments!).

Example #1

Alfred dies at age 81. We will not look at special rules that pertain to what they must do for the year of his death. We’ll look to what Betty will need to do the year after his death.

He named Betty as the beneficiary. Betty can treat the IRA as her IRA for all purposes (only surviving spouses can do that).

The next year she will be 76 and will be required to take 1/22nd of the IRA as a minimum distribution (the correct chart says Betty has a 22 year life expectancy). The next year the factor will be 21.2, the year after that 20.3, and so on. Note that it doesn’t go down by a whole number “1” each year). The initial year Betty will be required to take a $4,545.45 distribution.

Later, Betty dies with $85,000 remaining in the IRA. Chelsea, now 53, is the sole beneficiary and may elect to take the IRA over her life (or to take the immediate tax hit and to use it as a down payment on a Maserati). If she takes life distributions, her first installment will be 1/43.6th or $1,949.54. However, because Chelsea is not a surviving spouse (like Betty was) the next year her factor will be 42.6, the following year 41.6, and so on. The factor is reduced by “1” each year, which results in a bit faster payout.

On The Other Hand . . .

Sometimes naming a spouse as IRA beneficiary is a bad idea. There may be reasons that outweigh the usual good tax reasons for naming a spouse. For example, I often encounter couples concerned about protecting assets for a surviving spouse in case he or she ever needs to go into a nursing home. An IRA left directly to a spouse will be a countable asset for Medicaid purposes. There may be other good asset protection motives involved, as well.

In the example above, if Betty went into a nursing home the IRA would be entirely countable for Medicaid purposes.

The solution may be to name a trust as the beneficiary of the IRA. That way, IRA assets may be protected while remaining available to benefit the surviving spouse.

There are a number of ways a trust can be designed, depending upon what the client and I are trying to accomplish. Much of how a trust will be treated depends upon whether it is something the IRS calls a “designated beneficiary.”

Is A Trust A Designated Beneficiary?

If Real Live People and Certain Trusts Benefit

If a trust benefits only real live (as in “beating hearts living”) people then the trust will be a “designated beneficiary.” If a trust says “Betty is the primary beneficiary and must receive all required IRA distributions, then upon her death to distribute whatever is left to Chelsea” . . . that will suffice. Of course, if Betty is in a nursing home, everything distributed will go straight to the nursing home. But in this case, the trust would receive an IRA distribution of $4,545.45 and pay it directly out to Betty (based on her age of 76 and a factor of 22.0). Later years would be calculated the same as under Example # 1, above.

If the trust says “Betty may receive all, some, or none of the IRA benefits, then when Betty dies Chelsea may continue to receive distributions.” In this case, the IRA must distribute to the trust $4,545.45 (which if Betty is age 76 is based on a factor of 22.0). But in later years the factor goes down by “1” for each year. The advantage is, the trustee doesn’t have to distribute to Betty a dime, which comes in handy if asset protection is important. The trade-off is that under this scenario the distributions come out of the IRA a bit faster and if they aren’t distributed to Betty they’re taxed inside the trustee at a steeper tax rate.

Compare this to what happens if Betty inherited the IRA directly: The distributions from the IRA come out a bit faster to the trust than if they had come directly to her. Further, once the timing is set-up, the distributions keep coming out to Chelsea at the same rate as if her mother was still alive. Of course, the trust could be drafted simply to give Chelsea all the cash upon Betty’s death and let Chelsea pony up the tax!

You’ll need to ask: “Is asset protection more important than tax efficiency?”

If “Non-people” and Certain Other Trusts Benefit

If the trust says “Betty may receive some, but not necessarily all benefits, then when Betty dies the North Carolina Zoo takes” the trust will not be a designated beneficiary. If a trust is NOT a “designated beneficiary” of an IRA, then the IRA must be distributed to the trust within five years if the owner dies before 70 ½ (you can wait until 4 years and 11 months if you want). If an IRA is not huge, being forced to completely distribute it within five years is not necessarily bad.

If the owner dies after age 70 ½ (which Alfred did) then the trust can take distributions over what would have been the deceased owner’s life expectancy had he been alive each year. That actually will be a bit faster than if he had been alive and married because the rules use different tables that calculate distributions as if the deceased owner were still alive and single. On the other hand, for older spouses about the same age, there may not be too much difference. The difference is if Betty had inherited directly she would have used a table that pretended there was the “Ten Year Younger Romeo” (slower distributions to account for the younger Romeo’s added life expectancy) but the trust is stuck with using a single person’s table (faster).

In this case, the IRA would have been required to distribute $5,847 to the trust the year after Alfred’s death

Betty Finkmeister

Betty Finkmeister

(when he would have been 82 with a factor of 17.1), the following year a factor of 16.1 would be applied to the IRA balance as of the previous December 31, the next year 15.1, and so on.

Bottom line: If a trust fails the “designated beneficiary” rule it means the IRA must be distributed within five years if the owner died before age 70 ½ and over the owner’s life expectancy (pretending he is alive and single) if he dies after age 70 ½.

Should Everything Be Distributed To Betty?

To summarize (this stuff is hard!):

If we set up a trust to qualify as a “designated beneficiary” we must decide whether to make the trustee pay out to Betty all of the distributions the IRS says the trust MUST take from the IRA (this is called a “conduit trust”), or to let those IRA distributions accumulate inside the trust (where they are protected).

If the trust is a conduit trust, Betty gets all IRA distributions and she pays all income taxes (probably at her low tax rate). Also, if a trust is a conduit trust the IRA distributions can be stretched out a little bit more than if the trust was an accumulation trust. It also means that if Betty goes to the nursing home on Medicaid, all of those IRA distributions will be paid to the nursing home before Medicaid kicks in.

If the trust gives the trustee the right to accumulate IRA distributions and to decide whether to pay some, all, or none of the IRA distributions through to Betty, the IRA will be distributed to the trust slightly faster, but the assets will be safe from nursing home expenses. To the extent the trustee decides not to distribute to Betty (maybe she is in a nursing home on Medicaid) the IRA distributions being held in the trust will be subject to income taxation at much higher rates than Betty would have paid had the trustee passed the IRA distributions on to Betty. On the other had, if they were paid out to Betty, everything might shortly be gone!

Get Help!

This is a complex topic. The purpose of this article was to give an overview of the possible advantages of naming a trust as IRA beneficiary. Sometimes it is a great idea, and other times it may be a really bad idea. Bring it up with your attorney or financial advisor and see what she says.

Bob worried

Bob Tired

 

Filed Under: Banking, General, IRAs & Retirement Plans, Medicaid, Nursing Homes, Reader Favorites, Special Needs Planning, Tax Issues, Trusts generally Tagged With: , , , ,

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Originally published Asheboro, North Carolina, Courier-Tribune August 25, 2017

What to do with a Confederate Statue

Hugo standing guard

Hugo standing guard

Struggling to support her family working two menial jobs, she prays her kids stay out of trouble. There is no father to help.

The other woman has been laid off and worries about her high school drop-out daughter and opioid-addicted son.

One of them is black, the other white.

They both need our help and a strong community offering safety, opportunity, and jobs.

A statue torn down will not help one, nor will a statue staying up help the other.

An understanding of our history, where we got it right and where we got it wrong, just might help.

History is our story. It’s complicated. A human endeavor, it is a mix of triumph and failure.

Imperfect people (is there any other kind?) set out the conditions that would enable continuous improvement.

A slave owner declined to be king and insisted on two terms only. A brilliant rebel general spent the rest of his life trying to reconcile two sides. An emancipator-president had personal racial views that would be shocking by 21st century standards.

Rarely can we measure people or social contributions with a simple good-evil either/or. The usual for us mortals: “and.” Both good and evil.

Firebrands fed-up with being treated as second-class citizens by an arrogant English parliament instigated the First Civil War. Not all colonials were enthused. Many fought back and died. Many fled (or were driven) to Canada. North Carolina was a bloody mixture.

The founders tabled the slavery issue. Delicate balances assured smaller population states they wouldn’t be swallowed up in an overwhelming federal scheme. Suspicion of centralized authority ran high.

Those issues festered for a later generation. The Second Civil War.

The causes were complicated. Certainly slavery, but also the role of the federal government, the unity of the states, and tariffs.

My nonhistorian suspicion is that the planter elites depended upon a slavery-and-cotton based economy to maintain wealth, but they also needed muscle to fill out an army. How many Randolph County farm boys, if told “you probably won’t come back alive, but the Beauregard’s of Carteret County need you to fight and die to maintain their lifestyle” would jump into the volunteer line? Better to rally with, “Protect your homes and farms from northern invasion!”

I also suspect that Lincoln’s main aim was preservation of the union; abolition was an added, worthwhile, and specific cause to rally the population, as opposed to a rather gauzy “we must preserve the union.”

On either side, which framing of the issues made laying down youthful treasure more palatable?

The final tab: 650,000 or so dead, as many as 1 in 3 young men gone. In just one battle (Gettysburg) 50,000 dead.

Would we tolerate that now?

I believe there are those in our midst who would. Left or right, statue up or statue down, there are bat-and-gun wielding thugs out there that need each other for the fight they crave. These are not people interested in moving heads and hearts as much as breaking them.

I pray that we aren’t in the early stages (say, comparable to the late 1850s) of the Third Civil War. The common ground of consensus, where rest those universal concepts that constitute good and evil, virtue and sin, shrinks daily.

We think less of a big social compact and building a better society, and more of “what is in it for me and mine, here and now.”

Meanwhile neo-Nazis and neo-Marxists lust for blood.

So here’s a modest proposal that might work for Randolph County.

A bronze Confederate (he’s no general) guards the front of the fine old Randolph County courthouse. Many call him Hugo after that storm failed to knock him down.

Perhaps the proposed history museum next door to the courthouse, and expanded Randolph Room, can be set aside for learning. We have some fine local historians in our midst (both Democrat and Republican).

There are things we should know, things to learn from. Were there African slaves in Randolph County? If so, how many and what was life like for them? Was there an abolitionist/dissenting element in the county? Did it get violent? What was Reconstruction like in Randolph County? Occupying troops?

Let’s look, honestly, at the Jim Crow era. And the Civil Rights era. I want to know. And learn. How about a Quaker pacifist to keep Hugo company?

But let’s let Hugo continue his watch. He can remind us of how far we’ve come and of the dangers at hand, that history is complicated – and often replicated.

 

Filed Under: Nonlegal Ramblings