Should I Cash in My Life Insurance Policy?

Investopedia’s recent article entitled “Cashing in Your Life Insurance Policy” explains that there are some drawbacks to using life insurance to meet your immediate cash needs—one of which is potentially compromising your long-term goals or your family’s financial future. However, if other options aren’t available, life insurance—especially cash-value life insurance—can be a good source of needed income.

Cash-value life insurance, like whole life and universal life, builds reserves in its excess premiums plus earnings. The deposits are held in a cash-accumulation account within the policy. These cash-value life insurance policies offer the chance to access cash savings within the policy through withdrawals, policy loans, or partial or full surrender of the policy. Another option is to sell your policy for cash, which is called a life settlement.

While cash from the policy might be useful during stressful financial times, you could face unwanted consequences, depending on the way you use to access the funds. You can generally withdraw limited amounts of cash from a life insurance policy. The amount you can take differs, based on the type of policy you have and the carrier. The big advantage of cash-value withdrawals is they’re not taxable up to your policy basis, provided your policy isn’t classified as a modified endowment contract (MEC). That’s a term given to a life insurance policy, where the funding exceeds federal tax law limits.

You should also note that cash-value withdrawals can have some unexpected or unrealized consequences. For one, the withdrawals that decrease your cash value could reduce your death benefit, which is a potential source of funds you or your family might need for income replacement, business purposes, or wealth preservation.

Cash-value withdrawals aren’t always tax-free, like when you take a withdrawal during the first 15 years of the policy, and the withdrawal causes a reduction in the policy’s death benefit. If so, some or all of the withdrawn cash could be subject to taxation. The withdrawals that reduce your cash surrender value could also make your premiums go up to maintain the same death benefit. Otherwise, your policy could lapse.

If your policy has been classified as a modified endowment contract, the withdrawals generally are taxed pursuant to the rules applicable to annuities. The cash disbursements are considered to be made from interest first and are subject to income tax and possibly a 10% early-withdrawal penalty, if you’re under the age of age 59½, when you take out the funds.

Most cash-value policies let you borrow money from the issuer, using your cash-accumulation account as collateral. The amount you can borrow depends on the value of the policy’s cash-accumulation account and the contract’s terms. The borrowed amounts from non- modified endowment contract policies are not taxable, and you don’t have to make payments on the loan, even though the outstanding loan balance might be accruing interest. However, loan balances typically decrease your policy’s death benefit. Therefore, your beneficiaries might receive less than you intended. An unpaid loan accruing interest also reduces your cash value. This can cause the policy to lapse, if insufficient premiums are paid to maintain the death benefit. If the loan is still outstanding when the policy lapses or if you later surrender the insurance, the borrowed amount becomes taxable to the extent the cash value (without reduction for the outstanding loan balance) exceeds your basis in the contract.

Policy loans from a policy that’s seen as a MEC are treated as distributions. As a result, the amount of the loan up to the earnings in the policy will be taxable and could also be subject to the pre-59½ early-withdrawal penalty. Note that withdrawing money or borrowing money from your policy can reduce your policy’s death benefit. Surrendering the policy also means that you’re giving up the right to the death benefit altogether.

When you surrender or cancel your policy, you can use the cash any way you want. However, if you surrender the policy during the early years of ownership, there will probably be surrender fees that will drop the cash value. The gain on the surrendered policy is also taxed. If you have an outstanding loan balance against the policy, additional taxes could be incurred.

Look at other options before using your life insurance policy for cash, like borrowing against your 401(k) plan or taking out a home equity loan. Each has its drawbacks, but based on your current financial circumstances, some choices are better than others.

As the policy owner, if you sell your life insurance policy to an individual or a life settlement company in exchange for cash, the new owner will keep the policy in force (and pay the premiums). They’ll also get a return on the investment, by receiving the death benefit when you die. The big advantage to a life settlement is that you may receive more for the policy than by cashing it in (surrendering the policy). While life settlements can be a valuable source of liquidity, remember these issues:

You relinquish control of the death benefit
The new policy owner(s) has access to your past medical records and usually the right to request updates on your health; and
The life settlement industry is very marginally regulated, so it’s hard to determine your policy’s value, which makes it tough to know if you’re getting a fair price for your policy.

Up to 30% of your proceeds may also go to commissions and fees, which reduces the net amount you receive.

Reference: Investopedia (Aug. 11, 2019) “Cashing in Your Life Insurance Policy”

Can Senior Care Facilities Use ‘Granny Cams’?

A bill in Georgia that would permit residents in assisted living communities and personal care homes to install electronic monitoring equipment in their rooms has been met with resistance. There are some members of the long-term care industry the oppose HB 849, so-called “granny cam” legislation due to privacy issues. The legislation—which also covers nursing homes—was introduced by state representative Demetrius Douglas (D-Stockbridge). Douglas contends that the technology is needed now more than ever.

Several states have similar laws.

McKnight’s Senior Living’s recent article entitled “Georgia Legislature blocks ‘granny cam’ legislation; industry reps raised concerns” reports that Tony Marshall, president and CEO of the Georgia Health Care Association, says he previously spoke with Douglas and other legislators about the granny cam bill and his concerns. He said concerns were also shared by the state ombudsman and various advocacy groups.

“Surveillance cameras observe — they do not protect — and the use of such cameras in a healthcare setting significantly increases the risk of violating HIPAA [Health Insurance Portability and Accountability Act], federal and state privacy regulations,” Marshall told McKnight’s Senior Living. “We also have concerns related to several other technical aspects of the bill.”

Marshall also noted that the Georgia Health Care Association supports “transparency and measures to ensure that the highest quality of care is being provided to elderly Georgians,” while also “valuing a home-like setting and honoring each resident’s dignity and right to privacy.”

He said his association believes that true quality improvement happens by collaborative efforts with legislators and other players to bolster the ability of nursing centers to recruit and retain a skilled, competent workforce. This also will “further programs designed to educate healthcare professionals, consumers and communities-at-large on abuse prevention and identification,” Marshall said.

The bill allows electronic monitoring equipment to be put in a resident’s rooms in assisted living communities, personal care homes, skilled nursing facilities and intermediate care homes. The resident would be required to provide written consent from any roommate and notify the facility before installing a device. A sign must also to be posted to let visitors and staff members know about the granny cam. The facility also wouldn’t be permitted to access any video or audio recording from the resident’s device.

Douglas said the pandemic has shown the need for cameras and noted that other states have adopted similar measures, according to the Atlanta Journal-Constitution. The state legislator remarked that he introduced the legislation after being contacted during the lockdown by family members, who said they weren’t told about outbreaks or immediately told when an elderly family member died.

There are six states—Minnesota, Missouri, North Dakota, Oklahoma, South Dakota, Texas, and Utah—that have laws requiring assisted living communities to accommodate resident requests to install electronic monitoring equipment in their rooms.

New Jersey also has a “Safe Care Cam” program that loans such equipment to healthcare consumers, including families of assisted living and nursing home residents.

Reference: McKnight’s Senior Living (Sep. 15, 2020) “Georgia Legislature blocks ‘granny cam’ legislation; industry reps raised concerns”

How to Keep Track of Mom’s Healthcare Information if She Gets Sick or Injured

It’s common for seniors to have several chronic medical conditions that must be closely monitored and for which they take any number of prescription medications. Family caregivers usually are given a crash course in nursing and managing medical care, when they start helping an aging loved one. The greatest lesson is that organization is key, which is especially true when a senior requires urgent medical care.

Physicians encounter countless patients and families who struggle to convey important medical details to health care staff, according to The (Battle Ground, WA ) Reflector’s recent article titled “The emergency medical file every caregiver should create.”

A great solution is to create a packet that contains information that caregivers should have. Here’s what should be in this emergency file:

Medications. Make a list of all your senior’s prescription and over-the-counter medications, with dosages and how frequently they’re taken.

Allergies. Note if your loved one is allergic to any medications, additives, preservatives, or materials, like latex or adhesives. You should also note the severity of their reaction to each of these.

Physicians. Put down the name and contact info for the patient’s primary care physician, as well as any regularly seen specialists, like a cardiologist or a neurologist.

Medical Conditions. Provide the basics about your senior’s serious physical and mental conditions, along with their medical history. This can include diabetes, a pacemaker, dementia, falls and any heart attacks or strokes. You should also list pertinent dates.

Do Not Resuscitate (DNR) Order. If a senior doesn’t want to receive CPR or intubation if they go into cardiac or respiratory arrest, include a copy of their state-sponsored and physician-signed DNR order or Physician Orders for Life-Sustaining Treatment (POLST) form.

Medical Power of Attorney. Keep a copy of a medical power of attorney (POA) in the packet. This is important for communicating with medical staff and making health care decisions. You should also check that the contact information is included on or with the form.

Recent Lab Results. Include copies of your senior’s most recent lab tests, which can be very helpful for physicians who are trying to make a diagnosis and decide on a course of treatment without a complete medical history. This can include the most recent EKGs, complete blood counts and kidney function and liver function tests.

Insurance Info. Provide copies of both sides of all current insurance cards. Include the Medicare Supplement Insurance (Medigap) and Medicare Prescription Drug Plan (Part D) cards (if applicable). This will help ensure that the billing is done correctly.

Photo ID. Emergency rooms must treat patients, even if they don’t have identification or insurance information However, many urgent care centers require a picture ID to see patients. You should also include a copy of their driver’s license in the folder.

Once you have all the records, assemble the folder and put it in an easily accessible location. Give the packet to paramedics responding to 911 calls. It should also be brought to any visits at an urgent care clinic.

Reference: The (Battle Ground, WA ) Reflector (Sep. 14, 2020) “The emergency medical file every caregiver should create”

New Survey Conducted on Keeping the Elderly Safe in the Pandemic

Those in our oldest generations, who were recently surveyed, were found to be more distrustful of senior living and care operators than younger generations.

Nearly half (49.5%) of baby boomers said they don’t trust senior living and care providers to keep residents safe, while 43.9% of the Silent Generation reported the same distrust.

Younger people are more trusting: 42.3% of Generation X reported distrust, 31.8% of millennials and 38.2% of Generation Z.

McKnight Senior Living’s recent article entitled “41% don’t trust assisted living, nursing homes to keep residents safe during pandemic: survey” notes that 43.1% of baby boomers responded that they trust facilities “somewhat,” as did 51.4% of the Silent Generation respondents.

Some of this mistrust may come from the extensive media coverage of coronavirus deaths in nursing homes because senior residents are especially vulnerable to the illness.

Some say that it goes further than that: the quarantine and social distancing has added to families’ stress and anxiety over the safety and mental well-being of the seniors who live in these facilities because they aren’t able to visit as often as they want.

An online survey from ValuePenguin.com and LendingTree of more than 1,100 Americans recently found that COVID-19 has generated a rush of loneliness and worry among older adults.

According to the results, 36% of older adults feel lonelier than ever. In addition, more than 70% of seniors said that they have worries about the virus’ effects on their younger relatives. Those concerns were equally expressed by younger generations for their older relatives. Almost 50% of both age groups are worried that their relatives will catch the virus.

However, the pandemic looks to have a silver lining for family communications. An overriding sense of concern for the mental and physical health of elderly loved ones has led to more contact since the pandemic began.

Nearly 44% of the younger survey-takers stated they’ve spoken to their older relatives more frequently during the pandemic, about 25% of young people reported visiting their older relatives in person more frequently.

The top request from respondents aged 75 and older to their loved ones, is to call more frequently.

Reference: McKnight Senior Living (Sep. 11, 2020) “41% don’t trust assisted living, nursing homes to keep residents safe during pandemic: survey”

How Do I Keep My Assets from the Nursing Home?

If you don’t have a plan for your assets when it comes time for nursing home care, they can be at risk. Begin planning now for the expenses of senior living. The first step is to consider the role of Medicaid in paying for nursing home services.

WRCB’s recent article entitled “How to Protect Your Assets from Nursing Homes” describes the way in which Medicaid helps pay for nursing homes and what you can do to shield your assets.

One issue is confusing nursing homes and skilled nursing facilities. Medicare does cover a stay in a skilled nursing facility for convalescence. However, it doesn’t pay for full-time residence in a nursing home. For people who can’t afford to pay and don’t have long-term care insurance, they can apply for Medicaid. That’s a government program that can pay nursing home costs for those with a low income. People who don’t have the savings to pay for nursing home care and then require that level of care, may be able to use Medicaid.

For those who don’t qualify for Medicaid when they need nursing home care, they may become eligible when their savings are depleted. With less money in the bank and minimal income, Medicaid can pay for nursing home care. It is also important to remember that when a Medicaid recipient dies, the government may recoup the benefits provided for nursing home care from the estate. Family members may discover that this will impact their inheritance. To avoid this, look at these ways to protect assets from nursing home expenses.

Give Away Assets. Giving loved ones your assets as gifts can help keep them from being taken by the government when you die. However, there may be tax consequences and could render you Medicaid ineligible.

Create an Irrevocable Trust. When assets are placed in an irrevocable trust, they can no longer belong to you because you name an independent trustee. The only exception is that Medicaid can take assets that were yours five years before you died. Therefore, you need to do this as soon as you know you’re going into a nursing home.

Contact an experienced estate planning, elder law, or Medicaid planning attorney to help you protect your assets. The more you delay, the less likely you’ll be able to protect them.

Reference: WRCB (Dayton) (Sep. 4, 2020) “How to Protect Your Assets from Nursing Homes”

How Do I Find a Great Elder Law Attorney?

Elder law attorneys specialize in legal affairs that uniquely concern seniors and their adult children, says Explosion’s recent article entitled “The Complete Guide on How to Find an Elder Law Attorney.”

Finding the right elder law attorney can be a big task. However, with the right tips, you can find an experienced elder law attorney who is knowledgeable, has the right connections and fits your budget.

While, technically, a general practice attorney will be able to handle your retirement, Medicaid and even your estate planning, an elder law lawyer is deeply entrenched in elder law. This means he or she will have extensive knowledge and experience to handle any case within the scope of elder law, like the following:

Retirement planning
Long-term care planning and insurance
Medicaid
Estate planning
Social Security
Veterans’ benefits; and
Other related areas of law.

While a general practice lawyer may be able to help you with one or two of these areas, a competent elder law lawyer knows that there’s no single formula in elder law that applies across the board. That’s why you’ll need a lawyer with a high level of specialization and understanding to handle your specific circumstances. An elder law attorney is best suited for your specific needs.

A referral from someone you trust is a great place to start. When conducting your elder law lawyer search, stay away from attorneys who charge for their services by the hour. For example, if you need an elder law attorney to work on a Medicaid issue, they should be able to give you an estimate of the charges after reviewing your case. That one-time flat fee will cover everything, including any legal costs, phone calls, meetings and court fees.

When it comes to elder law attorneys, nothing says more than experience. An experienced elder law lawyer has handled many cases similar to yours and understands how to proceed. Reviewing the lawyer’s credentials at the state bar website is a great place to start to make sure the lawyer in question is licensed. The website also has information on any previous ethical violations.

In your search for an elder law attorney, look for a good fit and a high level of comfort. Elder law is a complex area of law that requires knowledge and experience.

Reference: Explosion (Aug. 19, 2020) “The Complete Guide on How to Find an Elder Law Attorney”

How Do I Keep My Spendthrift Son-in-Law from Getting the Money I Give my Daughter in My Estate?

Say that you were to name your daughter as the beneficiary on your Roth IRA and 401(k) accounts, as well as your house and other investments. Her husband would not be a beneficiary.

His only source of income is a monthly stipend that he receives from a trust and earned income from being a rideshare driver. He has at least $5,000 in credit card debt.

Can Mom use a “bloodline trusts” to prevent her son-in-law from inheriting or getting her money when she dies?

Nj.com’s recent article entitled “Can I protect my daughter’s inheritance from her husband?” explains that “bloodline trusts” were created for this very reason.

Note first that retirement assets can’t be re-titled to a trust. However, a home can be, and investments can be, if they’re not tax deferred.

For assets that can’t be re-titled to the bloodline trust during your lifetime, you can name the trust as the payable-on-death (POD) beneficiary of those assets.

You also should take care in deciding on who you choose as a trustee.

In the situation above, depending on applicable law for your state of residence, the daughter may not be the sole trustee and the sole beneficiary under this form of trust arrangement. However, in all instances, a bank or attorney can be a co-trustee.

This trust arrangement ensures that assets distributed to the daughter aren’t commingled with the assets of her husband with extravagant tastes and an open checkbook. In addition, those assets would not be subject to equitable distribution in the event of a divorce.

If the daughter is the sole trustee over a bloodline trust, then all the planning will be out the window, if the daughter does not agree to this set-up.

For example, if she takes distributions from the trust and deposits them in a joint account with her husband, the money is available for equitable distribution.

This means the daughter arguably has indicated that she does not think of her inheritance as a non-marital asset.

A divorce court would see it the same way and award a portion to the husband in a break-up.

Reference: nj.com (July 21, 2020) “Can I protect my daughter’s inheritance from her husband?”

What Should I Know about a ‘Green’ Burial?

Right now, only about 5% of today’s burials are green. However, roughly 72% of cemeteries are reporting an increased demand for the practice, according to a survey from the National Funeral Directors Association (NFDA).

Considerable’s article entitled “More Americans are skipping traditional funerals in favor of green burials” says that in the same survey, about 54% of Americans said they’d consider green burial options.

A green burial doesn’t put anything into the ground that doesn’t decompose. As a result, there’s no steel, concrete, copper, and bronze used for coffins and vaults. Instead of a traditional coffin, a biodegradable option, such as a shroud or plain pine or cardboard box is used.

Most green burials also don’t do embalming, which is done mainly for cosmetic reasons. Embalming puts gallons of toxic chemicals into the earth each year with each burial.

Green burials also are now an alternative to cremation, which totals 50% of the funeral business. However, cremation has its own environmental hazards. They include using an outsized amount of energy and potentially releasing toxins when ashes are spread.

Green burials have an advantage over traditional ones as far as cost. The price is significantly less for a natural burial than the $8,500 median cost of a funeral. That’s because there’s no vaults and coffins, or embalming, viewing and other funeral service fees. However, the one exception is the cemetery plot itself. Real estate is real estate.

Because green burials are still a small part of the business, it’s important to search for providers and cemeteries yourself, instead of leaving the job to loved ones during a difficult time.

With this growing interest, an increasing number of conventional cemeteries are offering green burial areas within their parameters. They charge the same or lower fees for individual plots, as they do for traditional burials.

For more information about green burials and a list of certified providers in your area, look at the Green Burial Council’s website.

A natural burial can also be an opportunity for your loved ones to create new, meaningful rituals around death.

Reference: Considerable (July 25, 2020) “More Americans are skipping traditional funerals in favor of green burials”

Will Medicare Cover Everything?

Actually, far from covering all your healthcare needs, Medicare may leave you with thousands of dollars in expenses for which you’ll be responsible.

The recent article in The Mooresville Tribune entitled “3 Reasons Medicare Coverage Isn’t as Comprehensive as You Think” provides three reasons why:

Medicare has expensive deductibles and coinsurance. There are different parts to Medicare. Part A covers hospital care. Part B pays for outpatient care. Each one has deductibles and some coinsurance expenses. Let’s look at these examples:

Medicare Part A has a $1,408 deductible per benefit period this year. If you are in the hospital more than 60 days during a benefit period, you’ll owe coinsurance costs starting at $352 per day, based on how long you remain in care.
Part B has a $198 deductible in 2020, and you’ll pay coinsurance costs of 20% of the Medicare-approved amount for medical services after you meet the deductible. You’ll also owe monthly premiums.
Part C (Medicare Advantage) takes the place of traditional Medicare (Parts A and B) with private insurance. Coinsurance, copay and premium costs vary by plan.
Part D (prescription drug coverage) has several plans with varying premiums and coverage rules.

As a result, with only Parts A and B, you could wind up paying thousands of dollars out of pocket. That’s especially true, if you’re hospitalized for a long time during the year or if you need extensive outpatient care.

Coverage exclusions. In addition, there are some items of care that Medicare doesn’t cover at all. For example, Medicare doesn’t cover routine dental care, eye exams, contacts, hearing aids or glasses.
Medicare doesn’t cover long-term care in most circumstances. A major Medicare exclusion is long-term care insurance. Medicare covers care in a skilled nursing facility under a few circumstances, such as after a long hospital stay when you need assistance from a medical professional to recover. However, the program doesn’t pay for “custodial care,” either at home or in a nursing home. Thus, if you require someone to help you with routine aspects of daily living, like getting dressed, eating, or using the bathroom, you’ll have out-of-pocket costs.

It’s important to know that long-term care can be very costly. The median monthly costs of home health aides are roughly $4,300, and a semi-private room in a nursing home costs about $7,500 in 2019, according to Genworth. Since Medicare won’t pay for any of this in most circumstances, you’ll need another way to pay for it.

Don’t assume that Medicare will cover all your needs as a retiree. So, prior to retirement, examine what Medicare will actually cover. That will help you determine the amount you’ll need to save for healthcare costs. You can also consider Medigap or Medicare Advantage Plans or look into long-term care insurance.

Reference: Mooresville Tribune (Aug. 10, 2020) “3 Reasons Medicare Coverage Isn’t as Comprehensive as You Think”

Visiting Grandma at the Nursing Home

In spots where visits have resumed, they’re much changed from those before the pandemic. Nursing homes must take steps to minimize the chance of further transmission of COVID-19. The virus has been found in about 11,600 long-term care facilities, causing more than 56,000 deaths, according to data from the Kaiser Family Foundation.

AARP’s recent article entitled “When Can Visitors Return to Nursing Homes?” explains that the federal Centers for Medicare and Medicaid Services (CMS) has provided benchmarks for state and local officials to use, in deciding when visitors can return and how to safeguard against new outbreaks of COVID-19 when they do. The CMS guidelines are broad and nonbinding, and there will be differences, from state to state and nursing home to nursing home, regarding when visits resume and how they are handled. Here are some details about the next steps toward reuniting with family members in long-term care.

When will visits resume? As of mid-July, 30 states permitted nursing homes to proceed with outdoor visits with strict rules for distancing, monitoring and hygiene. The CMS guidelines suggest that nursing homes continue prohibiting any visitation, until they have gone at least 28 days without a new COVID-19 case originating on-site (as opposed to a facility admitting a coronavirus patient from a hospital). CMS says that these facilities should also meet several additional benchmarks, which include:

a decline in cases in the surrounding community
the ability to provide all residents with a baseline COVID-19 test and weekly tests for staff
enough supplies of personal protective equipment (PPE) and cleaning and disinfecting products; and
no staff shortages.

Where visits are permitted, it should be only by appointment and in specified hours. In some states, only one or two people can visit a particular resident at a time. Even those states allowing indoor visits are suggesting that families meet loved ones outdoors. Research has shown that the virus spreads less in open air.

Health checks on visitors. The federal guidelines call for everyone entering a facility to undergo 100% screening. However, the CMS recommendations don’t address testing visitors for COVID-19.

Masks. The federal guidelines say visitors should be required to “wear a cloth face covering or face mask for the duration of their visit,” and states that allow visitation are doing so. The guidelines also ask nursing homes to make certain that visitors practice hand hygiene. However, it doesn’t say whether facilities should provide masks or sanitizer.

Social distancing. The CMS guidelines call on nursing homes that allow visitors to ensure social distancing, but they don’t provide details. States that have permitted visits, state that facilities enforce the 6-foot rule.

Virtual visits. Another option is to make some visits virtual. Videoconferencing and chat platforms have become lifelines for residents and families during the pandemic. Continued use after the lockdowns can minimize opportunities for illness to spread.

Reference: AARP (July 22, 2020) “When Can Visitors Return to Nursing Homes?”

Estate Planning Blog Articles

Estate & Business Planning Law Firm Serving the Providence & Cranston, RI Areas

Should I Cash in My Life Insurance Policy?

Can Senior Care Facilities Use ‘Granny Cams’?

How to Keep Track of Mom’s Healthcare Information if She Gets Sick or Injured

New Survey Conducted on Keeping the Elderly Safe in the Pandemic

How Do I Keep My Assets from the Nursing Home?

How Do I Keep My Spendthrift Son-in-Law from Getting the Money I Give my Daughter in My Estate?

What Should I Know about a ‘Green’ Burial?

Will Medicare Cover Everything?

Visiting Grandma at the Nursing Home

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Should I Cash in My Life Insurance Policy?

Can Senior Care Facilities Use ‘Granny Cams’?

How to Keep Track of Mom’s Healthcare Information if She Gets Sick or Injured

New Survey Conducted on Keeping the Elderly Safe in the Pandemic

How Do I Keep My Assets from the Nursing Home?

How Do I Keep My Spendthrift Son-in-Law from Getting the Money I Give my Daughter in My Estate?

What Should I Know about a ‘Green’ Burial?

Will Medicare Cover Everything?

Visiting Grandma at the Nursing Home

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