Elder Law
spring 2022

What you can’t
do with a will

While a will is one of the most important estate planning documents you can have, there are things that it won’t cover. It’s just one part of a comprehensive estate plan. 

A will is a legally-binding statement directing who will receive your property at your death.

It is also the way that you appoint a legal representative to carry out your bequests and name a guardian for your children.

Without a will, your estate is distributed according to state law, rather than your wishes.

Without a will, your estate is distributed according to state law, rather than your wishes.

Property distributed via a will goes through probate, which is the formal process through which a court determines how to dispense your property. 

Property distributed via a will goes through probate, which is the formal process through which a court determines how to dispense your property. 

Although a will is one main way to transfer property on death, it does not cover all property.

Here are examples of property that you can’t distribute through a will: 

  • Jointly held property. Property that is co-owned with another person is not distributed through the will. Joint tenants each have an equal ownership interest in the property. If one joint tenant dies, his or her interest immediately ceases to exist and the other joint tenant owns the entire property. 
  • Property in trust. If you place property into a trust, the property passes to the beneficiaries of the trust, not according to your will. 
  • Pay on death accounts. With these types of accounts, the account owner names a beneficiary (or beneficiaries) to whom the account assets will pass automatically when the owner dies.  
  • Life insurance. Life insurance passes to the beneficiary you name in the life insurance policy and isn’t affected by a will. 
  • Retirement plans. Similar to life insurance, money in a retirement account (e.g., an IRA or 401(k)) passes to the named beneficiary. Under federal law, a surviving spouse is usually the automatic beneficiary of a 401(k), although there are some exceptions. With an IRA, you can name your preferred beneficiary. 
  • Investments in transfer on death accounts. Some stocks and bonds are held in accounts that transfer on death to a named beneficiary. These accounts will bypass probate and go directly to the beneficiary. 

In addition to not being able to transfer certain types of property with a will, there are other things that should not be included in a will.

In addition to not being able to transfer certain types of property with a will, there are other things that should not be included in a will: 

  • Funeral instructions. Wills are often not found until days or weeks after death. It is better to leave a separate letter of instruction that is located in an easy-to-find place. 
  • A provision for a child with special needs. Receiving an inheritance directly can make the child ineligible for government benefits like Medicaid or Supplemental Security Income. It is usually better to set up a special needs trust to provide for the child. 
  • A provision for a pet. You cannot leave money directly to a pet in a will. You can name a caregiver for the pet and provide money to them to care for it, but the caregiver is not legally obligated to use the money on the pet. A pet trust is the most secure way to provide for a pet. 
  • Certain conditions on gifts. You may be tempted to make gifts conditional on the recipient’s behavior or actions. However, there are certain conditions that are not allowed. The condition cannot be illegal, and the gift cannot be contingent on the marriage, divorce, or change of religion of the heir.

You may be tempted to make gifts conditional on the recipient’s behavior or actions. However, there are certain conditions that are not allowed.

A will is not the only component of an estate plan. To make sure your plan covers all your needs, talk to your attorney.

We welcome
your referrals

We value all our clients. And while we’re a busy firm, we welcome all referrals. If you refer someone to us, we promise to answer their questions and provide them with first-rate, attentive service. And if you’ve already referred someone to our firm, thank you!

You may be overestimating your Social Security benefits

A pair of studies have found that workers overestimate how much they will receive in Social Security benefits when they retire.

Researchers from the University of Michigan found that half of the workers surveyed did not know their benefit amount. The average overestimation of the benefit was $307 a month, more than one-quarter of the average forecasted benefit. However, the study found that as workers got older, they were more likely to understand their benefits and less likely to overestimate benefit amounts. 

Nationwide Retirement Institute’s annual Social Security survey also found that future retirees over age 50 expect to receive a higher payment than what actual retirees receive.  In this survey, respondents were off by nearly $200 a month.

Not understanding how much they will get from Social Security could lead individuals to save less money for retirement while working. The University of Michigan study found that spending and saving choices based on incorrect expectations lead to less ability to spend in retirement. 

Confusion about benefits could also cause people to start taking benefits before they should. Both the University of Michigan study and the Nationwide survey found that workers have misconceptions about claiming Social Security benefits early. Many people do not understand that taking Social Security benefits early permanently reduces benefits. 

Individuals who file for Social Security benefits at age 62 — before their full retirement age — will receive around 72 percent of their full benefit. Benefits increase by 8 percent for every year beyond full retirement age that beneficiaries delay receiving them, in addition to any cost-of-living increases, up to age 70.

For those retiring in 2022 at their full retirement age, the average monthly Social Security benefit is $1,657 for an individual and $2,753 for a couple who both receive benefits. The maximum monthly Social Security benefit that an individual can receive in 2022 based on their earnings history is $4,194, if they wait until age 70 to collect.  

Appealing a
switch to ‘hospital
observation status’

A federal court has ruled that hospitalized Medicare beneficiaries who were switched from inpatient to observation status can appeal the decision, making it easier for them to receive coverage for subsequent nursing home care. The ruling appears to bring to an end more than a decade of litigation on behalf of Medicare recipients.

Medicare covers nursing home stays entirely for the first 20 days, but only if the patient was first admitted to a hospital as an inpatient for at least three days. In part due to pressure from Medicare officials to reduce costly inpatient stays, hospitals often do not admit patients but rather place them on observation to determine whether they should be admitted. Even if a hospital originally admits a patient, a hospital review board can switch the patient from inpatient to observation status, before or after the patient’s stay. If the patient does not have a full three days as an inpatient, Medicare will not cover a subsequent nursing home stay — potentially costing the Medicare recipient thousands of dollars. 

There are other consequences to being considered “under observation.” Instead of billing you under Medicare Part A, which covers inpatient services, the hospital will bill you under Medicare Part B. This means that you will owe a co-payment for every service offered. Your total co-payment could be much larger than the one-time deductible you have to pay under Part A.

In 2011, a group of Medicare beneficiaries sued the federal government in a class action lawsuit, arguing that they should have the right to appeal when their status is switched from inpatient to observation status. After more than a decade of litigation, in January a federal appeals court affirmed a lower court’s ruling in favor of the beneficiaries, noting that Medicare allows appeals of other decisions. According to the court, “the decision to reclassify a hospital patient from an inpatient to one receiving observation services may have significant and detrimental impacts on plaintiffs’ financial, psychological, and physical well-being.” The court ordered Medicare to set up an appeals process and notify beneficiaries of their appeal rights.

If you are in the hospital and told you that you are under observation status, you can ask the hospital doctor to be admitted as an inpatient. You should also contact your primary care physician to ask if he or she can call the hospital and explain the medical reasons that you need to be admitted.

If you are kept in observation status and transferred to a nursing home and denied coverage by Medicare, you can appeal both the hospital’s denials of hospital admission as well as subsequent nursing home charges. The appeal process can be very complicated, and you may need the help of an attorney to navigate it.

What it means
to need ‘nursing
home level of care’

When applying for Medicaid’s long-term care coverage, in addition to the strict income and asset limits, you must demonstrate that you need a level of care typically provided in a nursing home.  

Whether you are applying for nursing home coverage or through a Medicaid waiver program for coverage at home, you must meet the level-of-care requirement set by the state. Each state has its own criteria for determining if you meet the mandated standard.

Each state has its own criteria for determining if you meet the mandated standard.

The state looks at an applicant’s functional, medical, and cognitive abilities to determine if care in a nursing home is called for. In general, you must be unable to care for yourself or pose a danger to yourself without outside help. The following are the factors usually considered when making a level-of-care determination: 

  • You need help with two or more “activities of daily living” (such as bathing, dressing, eating or going to the bathroom).
  • You need frequent medical care, such as assistance with medication, injections, IVs, or other medical treatment. 
  • Your cognitive ability is impaired by Alzheimer’s disease or another form of dementia, you have trouble making decisions on your own, or you are unable to process information. 
  • You have behavior problems, such as wandering away from home or aggressiveness. 

When assessing a Medicaid applicant, the state will conduct an evaluation. The state may require a doctor’s diagnosis, but it will also likely require the applicant to answer a series of questions about his or her ability to perform activities of daily living, his or her mental abilities and behavior problems and the applicant’s family’s ability to provide support. 

Passing assets through a generation-skipping trust

Passing assets to your grandchildren can be a great way to ensure their future is provided for, and a generation-skipping trust can help you accomplish this goal while reducing estate taxes and also providing for your children.  

A generation-skipping trust allows you to “skip” over the generation directly below you and pass your assets to the succeeding generation. While this type of trust is most commonly used for family members, you can designate anyone who is at least 37.5 years younger than you as the beneficiary (except a spouse or ex-spouse).  

One purpose of a generation-skipping trust is to minimize estate taxes. Estates worth more than $12.06 million (in 2022) have to pay a federal estate tax. Twelve states also impose their own estate tax, which in some states applies to smaller estates. Also, keep in mind that the current estate tax threshold is set to sunset in 2026 to half of its then-current level. Unless Congress acts in the interim, for those dying in 2026 or later the threshold will be $6.03 million, adjusted for inflation between now and then. 

When someone passes on an estate to their child and the child then passes the estate to their children, the estate taxes would be assessed twice — each time the estate is passed down. The generation-skipping trust avoids one of these transfers and estate tax assessments. 

While your children cannot touch the assets in the trust, they can receive any income the trust generates. The trust can also be set up to allow them to have some say in the rights and interests of future beneficiaries. Once your children pass on, the beneficiaries will have access to the assets. 

Note however, that a generation-skipping trust is subject to the generation-skipping transfer (GST) tax. This tax applies to transfers from grandparents to grandchildren, even in a trust. The GST tax has tracked the estate tax rate and exemption amounts, so the current GST exemption amount is $12.06 million (in 2022). If you transfer more than that, the tax rate is 40 percent.

The trust can be structured to take advantage of the GST tax exemption by transferring assets to the trust that fall under the exemption amount. If the assets increase in value, the proceeds can be allocated to the beneficiaries of the trust. Because the trust is irrevocable, your estate won’t have to pay the GST tax even if the value of the assets increases over the exemption amount. 

Generation-skipping trusts are complicated documents. Consult with your attorney to determine if one would be right for your family.

This newsletter is designed to keep you up-to-date with changes in the law. For help with these or any other legal issues, please call today. The information in this newsletter is intended solely for your information. It does not constitute legal advice, and it should not be relied on without a discussion of your specific situation with an attorney.