Posts By: Gene Osofsky

Q. My late wife and I set up a trust about 10 years ago, and now I want to change the Successor Trustee and remove a beneficiary. Is that a simple thing to do?

A. Like so many things in life, it depends. Here are some of the considerations:

Is It Amendable?  Not all trusts can be amended, which often comes as a surprise to clients.  If your trust was set up years ago, it is likely that it included tax-saving provisions requiring that, upon your wife’s demise, her share be allocated to an irrevocable sub-trust (often called a “ByPass”, Exemption, Credit Shelter, or just plain “B” Sub-Trust).  By design, and in order to achieve tax-saving objectives under then existing tax law, those sub-trusts could not be amended by the survivor, and could usually be changed only by court order. However, your own share, typically called the “Survivor’s Trust”, could be amended.

Are There Other Provisions That Require Change? When we review older trusts, we often discover other provisions that should also be changed. Examples:  adding provisions to coordinate the trust with a Power of Attorney so as to permit further changes in the event of your later incapacity, as need requires and/or to facilitate Medi-Cal long term care planning; including HIPAA Privacy Waiver provisions to facilitate assumption of responsibility by the named Successor Trustee in the event that the prior trustee becomes incapacitated; adding Special Needs provisions to protect the inheritance of beneficiaries receiving public benefits, such as SSI or Medi-Cal; and, making “no contest” provisions compliant with changes in the law.

Amendment vs. Restatement? If a change can be made, the next consideration is whether to do so by Amendment or by a complete Restatement.  A Restatement is often preferred:  upon your later demise, when it comes time to send out the statutory notices to beneficiaries and heirs in connection with formal trust administration, a Restatement often turns out to have been the better choice.  Reason:  Unlike an Amendment, a Restatement does not require that the prior version of the trust go out with the notices. You can imagine the benefit to family harmony by being able to avoid having to reveal that an originally named trustee or beneficiary was later replaced. Another consideration:  a Restatement may also be preferred if the trust has had multiple amendments, making it now cumbersome to read.

Professional Responsibility: An analogy from the medical field may be helpful:  imagine calling a new physician seeking only a prescription for a persistent stomach ache. It is doubtful that any doctor would accommodate your request without a physical exam and appropriate lab work.  The situation is much the same for members of my profession. When an attorney reviews an existing trust with an eye toward making even the simplest change, he or she then becomes responsible for the entire trust.  Most attorneys take this responsibility very seriously.

That said, much good often comes from requests like yours: if the trust is amendable, we can often amend the trust to make it more suitable to the client’s present circumstances and current tax law. Alternatively, if it is only amendable by court order, we can evaluate the option of petitioning the court for authority to reform the trust. Indeed, these client requests for changes often end up rescuing what might otherwise be a trust badly in need of reform. They also often trigger review of companion documents, such as Powers of Attorney, with similar beneficial results.

Posts By: Gene Osofsky

Q.  My mother named my brother as her agent under her power of attorney to handle her financial affairs, but he seems to be abusing his authority and my mother wants to revoke it. Can she do so, and how would she go about it?

A. The simple answer is, yes, she can revoke her power of attorney, providing that she is mentally competent to do so. While the revocation can be handled either verbally, or in writing, the most effective way is as follows: she would prepare a formal Revocation of Power of Attorney, in writing, and arrange for its hand-delivery to your brother and to any other third parties who may have relied upon it, such as banks, brokerage houses, and the like.

The written revocation should make specific reference to the Power of Attorney (“POA”) in issue, by referring to your mother as the principal, the date it was signed and its designation of agent. It might also help if she can attach a photocopy of the original POA to her written Revocation, and reference that attachment in the text of the Revocation. Here is an example:

“I hereby revoke the Power of Attorney I signed, as Principal, on January 3, 2015, naming my son, John Brown, as my agent.  A true copy of said, now revoked, Power of Attorney is attached.”

If the Power of Attorney (“POA”) has been used for any real property transactions, the original most likely will have been recorded and, in that event, the revocation should likewise be recorded in each county wherein the original was recorded. If it is to be recorded, the Revocation must be notarized and should reference the Book, Page, Image and/or Instrument Number of the previously recorded POA.

Two cautions, however: (1) The Revocation is not effective until your brother receives actual notice of that Revocation. So I would urge that it be hand-delivered  by messenger, who then signs an affidavit as to the date and time of personal delivery.  (2) Third parties, such as banks, may continue to rely upon the validity of the POA until they receive notice of its Revocation, and they would usually be shielded from responsibility for continuing to honor it in good faith.   Therefore, it is important to immediately also deliver a copy of your mother’s revocation to her banks and other financial institutions.

Your mother should also visit her banks to determine whether she has signed their “short form” Limited POA’s authorizing access to her accounts and/or to her safety deposit boxes. If so, she may wish to revoke them, as well, or revise them to name other persons whom she now trusts as her new agent(s).

A revocation can also be effective if your mother were to sign a new Power of Attorney which expressly recites that all prior general POA’s are revoked. Again, if she chooses this manner of revocation, this new POA should be personally delivered to your brother and to her financial institutions, with an appropriate cover letter calling attention to the “revocation” provision of the new POA.

Note:  The Revocation provision in a new POA might exclude from revocation powers of attorney for health care, or any other limited powers that the principal does not intend to revoke.

To make sure all of this is handled properly, it might be wise for your mother to seek legal consultation and arrange for her attorney to prepare the appropriate documentation and handle its delivery in a timely manner to the proper persons.

References:  California Probate Code §’s 4151 — 4153

Posts By: Gene Osofsky

Q. I hear a lot about the new tax law that Congress passed and President Trump just signed, but I am unclear as to how it might affect me and my family. Can you give us a summary?

A.  Sure. While much of the new “Tax Cuts and Jobs Act” was designed to reduce the corporate tax rate from 35% to 21%, here are some of the principal features that affect families:

Standard Deduction and Personal Exemption: the standard deduction increases to $12,000 for Individuals, $18,000 for those filing as Head of Household, and $24,000 for Joint filers, all adjusted for inflation. As an apparent trade-off, miscellaneous itemized deductions are eliminated. The Personal Exemptions, which were $4,050 for each member of the household (subject to phase out at higher levels of income), are also eliminated.

Home Mortgage Interest Deduction: the limit on deducting interest on up to $1 million of a home acquisition loan stays in effect for existing mortgages in effect as of December 15, 2017, at least for the next 8 years. However, the interest deduction on mortgages placed thereafter will be subject to a $750,000 limit, which will also become the new cap on existing mortgages beginning January 1, 2026. So, if you have a mortgage above $750,000, it would be wise to try to pay it down over the next 8 years to an amount below the $750,000 cap, so all of your interest payments made thereafter will continue to be deductible. Interest deduction on Home Equity Loans will be eliminated.

Medical Expense Deduction: after much public concern, the medical expense deduction actually survived. In fact, it was temporarily enhanced: for 2017 and 2018, medical expenses above 7.5% of adjusted gross income (“AGI”) will qualify for the deduction. After 2018, only amounts above 10% of AGI will be deductible, as under existing law.

State and Local Tax Deduction: the combined deductibility of the payment of state income taxes and real property taxes will now be capped at $10,000 per person. This will likely have a big impact on residents of California, with its higher income and property taxes, as compared with residents of other states.

Estate and Gift Taxes: the new law more than doubles the existing exemptions, going from $5.49 million per person for those dying in 2017, up to $11.2 million per person for those dying thereafter, and up to $22.4 million for a married couple (where the survivor makes a timely election on her estate tax return). The new rates will be indexed to inflation, just like the current exemptions.

GST Exemption:  in 2017, an individual could protect up to $5.49 million from the Generation Skipping Transfer Tax (“GST”), which is a tax assessed when an asset bequest skips over a child and passes directly to a grandchild or the equivalent; the logic of the GST is to make up for the loss of a transfer tax which would otherwise be payable to the IRS when the asset transferred from the parent to the child. Beginning in 2018, that GST Exemption increases to $11.2 million per donor.

Tax Rates: individual tax rates will be reduced and the income brackets adjusted upward, with the top income tax bracket dropping from 39.6% to 37%. Example:  under former law, a married couple filing a joint return with taxable income of  $140,000 — $250,000 would be taxed at a marginal rate of 36%, while under the new law a married couple with taxable income of $165,000 — $315,000 will be taxed at a marginal rate of only 24%.

Step-Up In Basis: the new law keeps intact the current rule which permits the recipient of property transferred upon the donor’s death to be adjusted to its date of death value as the new ‘cost basis’. This favors property which has increased in value over the donor’s lifetime by reducing the tax on capital gain that would otherwise by payable when the gift recipient later sells the property.

Individual Mandate Eliminated: the new law eliminates the tax penalty for failure to maintain “minimum essential” health care coverage, which many believe will significantly weaken the Affordable Care Act signed into law by President Obama.

Spousal Support Payments No Longer Deductible.  For divorce decrees or support orders made after 12/31/2018, spousal support payments will no longer be deductible.

California State Income Tax:  Unless California adopts confirming legislation, it will retain existing law for state income tax, and many persons will therefore be obliged to calculate their state and federal taxes using two separate frameworks of deductions.

Special Concern:  Of special concern for seniors and the disabled, is that these tax cuts will add up to $1.5 trillion to the deficit over 10 years, and may then be cited as “justification” for reductions to Medicare, Medicaid, Social Security, or other programs, to pay for the resulting deficit.

Special Note:  Except for the corporate tax rate cut, almost all of the new features ‘sunset’ at the end of year 2025, with the changes reverting back to their current form in 2026 unless Congress acts to extend them. This reversion back creates uncertainty for tax planners, especially in regard to estate planning.  In this respect, Congress expressly deferred to the Secretary of the Treasury to issue “appropriate” regulations to address this concern. [See § 11061 of the Act by scrolling to page 38 using the link of the full text of the Act, below.] Our hope is that the Secretary will issue regulations which provide that the increased estate tax exemption amounts which were in effect when estate plans were signed will control the exemption amount at death, even if death occurs after the Act sunsets. However,  we must await regulations in this regard.

For more on the new law, see the companion article on this website, “How Will The New Tax Law Impact Seniors and Persons With Disabilities?”

References:  (1) Click this link for the full text of the Tax Cuts and Jobs Act (H.R.1) Signed into law by President Trump on 12/22/2017.  (2) See,  IRS News regarding effect of inflation on some tax benefits and deductions for the year 2017, an IRS release which preceded the signing of the new law.  (3) Article by Kathleen Pender in San Francisco Chronicle of January 7, 2018, “How the Federal Tax Overhaul Will (or Won’t) Affect Your State Income Taxes“.

Posts By: Gene Osofsky

Q.  Mom has been receiving care in a nursing home. She is currently covered by Medicare, but soon will switch to Medi-Cal. She would really like to come to our home for a short visit for family celebrations. However, I heard that she might lose her coverage if she does so. Is that true?

A. Not if her visit is handled correctly, including arranging for a “pass” from the nursing home for the visit and making sure that it is included in her Plan of Care. In this regard, the rules for Medicare are different from the rules for Medi-Cal. Here’s the way they work:

Medicare: While the Medicare Benefits Policy Manual recognizes that most beneficiaries needing nursing level care are unable to leave the facility, it recites that

“the fact that a patient is granted an outside pass or short leave of absence for the purpose of attending a special religious service, holiday meal, family occasion, going on a car ride, or for a trial visit home, is not, by itself evidence that the individual no longer needs to be in a [nursing home] for the receipt of required skill care.”

The Manual also states that is not appropriate for the facility to notify the patient that the visit home will result in a denial of coverage. However, it is best if your mom returns before midnight on the same day, as Medicare will only pay for that one day away. If her visit extends out more than the same day, the facility can charge her privately for the bed-hold for each day thereafter, so long as it has advised her, in advance, that it will do so and the cost for same.  So, short visits of one or two days to be with family is entirely appropriate, and will not result in a loss of Medicare coverage, but—after the first day away—the visit may require private payment to hold her bed.

Medi-Cal: The rules for persons on Medi-Cal are more lenient. If your mom’s stay is covered by Medi-Cal at the time of her visit, she could be granted a leave of absence (LOA) of up to 18 days per calendar year, provided that the physician approves the LOA and writes it into her Plan of Care. Further, she could be granted up to an additional 12 days of LOA per year under certain conditions. This is called a “therapeutic leave”. Medi-Cal will cover the first seven (7) days of “bed hold”.  So, again, if your mom were relying upon Medi-Cal for nursing home coverage, her visit home  should not be a problem, but be sure to request that the physician write the planned LOA into her Plan of Care.

Good wishes to your mom and family, and I hope that she enjoys her visit with those she loves.

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References: Medicare Benefit Policy Manual, scroll to §30.7.3, Example. at page 43 ; 

Medi-Cal Rules at 22 CCR 51335 (i)

Center for Medicare Advocacy article “Home for the Holidays: Leaving the Nursing Home During a Medicare-Covered Stay”

California Advocates For Nursing Home Reform article: “Did You Know? Nursing Home Residents Can Go Home for the Holidays”

Medicaid Bed Hold Policies by State (September 2012), compiled by the National Long-Term Care Ombudsman Resource Center.

 

 

Posts By: Gene Osofsky

Q. I have been caring for my wife at home for some time, and I could really use help. In the past I was told that our modest savings and incomes were too high to qualify for a Medi-Cal subsidy to enable me to hire care-givers. However, I just heard that these strict requirements may have recently changed. Is this so?

A.  Yes, indeed! Medi-Cal has recently given a welcome gift to couples struggling with care management at home.

In the past, a couple seeking a Medi-Cal subsidy to help with in-home care for an ill spouse would generally not qualify if their savings were greater than $3,000. Further, even if under that $3,000 threshold, yet if their combined monthly incomes were greater than $1,664 [1] , their resulting “co-pay” (aka, ‘Share of Cost’) would be too high to make hiring care-givers affordable, as the co-pay requirement would leave couples without enough money to pay for their other living expenses.  These resource and income limits forced many spouses into nursing facilities, where the Medi-Cal financial eligibility rules were much more relaxed. This has now all changed.

Thanks to the Affordable Care Act, and a recent lawsuit to compel Medi-Cal to follow its mandate, Medi-Cal will now allow a spouse seeking care at home to take advantage of the same, more relaxed financial eligibility rules formerly only applicable to a spouse receiving care in a nursing facility. These rules are called the “Spousal Impoverishment Rules” (“SI Rules”).  As the name implies, the SI Rules were designed by Congress to avoid impoverishing the At-Home spouse by the high cost of nursing facility care for the Ill Spouse.

Under the SI Rules, a married couple may now have as much as $122,900 [in 2017. See fn 2, below] in savings and still qualify the Ill Spouse for In-Home care, provided a doctor attests on a simple form that the Ill Spouse would otherwise need care in a nursing facility. Likewise, the rules for calculating Share of Cost (“SOC”) are now also more relaxed:  only the income of the Ill Spouse will count toward his/her SOC, and then only after (a) an allocation from the Ill Spouse’s income to the Well Spouse to make sure the latter retains at least $3,023 per month to live on, and (b) a deduction of at least $600 for the needs of the Ill Spouse. [3]. For most seniors on modest, fixed incomes, this calculation will result in only a modest SOC, and in many cases none at all !

To inquire about in-home care options under the SI Rules, contact your county Social Service Agency (Alameda County:  510-383-8523) and ask about “Home and Community Based Services covered under the Spousal Impoverishment Provisions, as outlined in All County Welfare Directors’ Letter 17-25”. If you are already receiving In Home Supportive Services (“IHSS”), ask if you are on the “Community First Choice Option”, which would entitle you to the benefit of the SI Rules discussed above and, if not, inquire about your eligibility for that program or another which applies the SI Rules. Even if you are only placed on a waiting list, you will still be immediately eligible for Medi-Cal and IHSS using the SI Rules, no matter how long the wait.

Note: Couples with resources greater than $122,900 should not despair: there are lawful strategies that may enable them to seek an even larger Medi-Cal resource allowance [4], and/or to convert excess countable resources into exempt non-countable resources, and still qualify the Ill Spouse for a Medi-Cal subsidy.

The SI Rules apply equally, regardless of gender, to couples who are married and to Registered Domestic Partners. They should now enable more couples to remain together in their own homes and avoid, or at least defer, the need for nursing facility placement.  Further, the SI Rules only apply to approved Waiver Programs, which are set forth in ACWDL Letter 17-25, referenced above.

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NOTES:

[1] $1664 is the current monthly income ceiling for a couple in order to qualify for a No Share of Cost Medi-Cal subsidy under the Aged & Disabled Federal Poverty Level Program, as of 04/01/2017. See, ACWDL 17-19 (June 23, 2017). As of 12/01/2020, it has been increased to $1,428 for a single person and $1,983 for a married couple. See, ACWDL 20-24 (11/23/2020).

[2] The Resource Allowance of $120,900 is that permitted to the Well Spouse as of 01/01/2017; it increases every year with the cost of living. In addition, the Ill Spouse is entitled to retain up to $2,000 in his or her own name, effectively allowing the couple to retain $120,900 + $2,000 = $122,900 in combined savings and other non-exempt assets. As of  January 2021, that Resource Allowance for the Well Spouse was increased to $130,380. ACWDL 20-27 (12/09/2020).

[3] This $600 per month is called a Maintenance Needs Allowance for the Ill Spouse, and is deducted from her income before Share of Cost is determined. In addition, that deduction may be as high as $1,428/month if the Ill Spouse also meets the requirements of the Aged & Disabled Federal Poverty Level Program (income permitted for single individual as of 12/01/2020; see above.)

These Resource and Income allowances are the figures for the year 2017. These numbers are indexed to inflation and typically change every year. As of January, 2021, the Resource Allowance for a Married Person living at home increased to $130,380 (i.e., the “Community Spouse Resource Allowance”), and the minimum amount of income (“MMMNA”) that the At-Home spouse was entitled to retain has been increased to $3,260 per month. See, ACWDL 20-27 (12/09/2020).

[4] Legal proceedings to increase the resource allowance may be brought, either by way of an Administrative Fair Hearing under the Medi-Cal program or by way of a Petition  filed in the Superior Court.  Good news:  Our local courts have been generally accommodating in permitting very significant increases in the Medi-Cal Resource Allowance, where the facts warrant.

Resources:  All County Welfare Directors’ Letter 17-25 (7/19/2017);   CANHR Fact Sheet “Using California’s Spousal Impoverishment Rule for Home and Community Based Services” (updated 2/22/2021). ACWDL 18-19 (8/21/2018)[“Supplement to Home & Community Based Services and Spousal Impoverishment”]; ACWDL 20-15 [9/11/2020) [“New Guidance For Individuals Seeking Retroactive Reimbursement”]; ACWDL 14-60 (8/29/2014) [“Implementation of the Community First Choice Option (CFCO) Program”, including eligibility requirements.

Justice in Aging’s Summary of the precipitating Kelly v. Kent class action lawsuit.

Kelley v. Kent Class Action: Petition for Writ of Mandate, Declaratory and Injunctive Relief, filed July 6, 2017

New California Developments as of January 14, 2020.  See article published by Disability Rights California,  “California plaintiffs win case against state for failing to provide federally-mandated In-Home Supportive Services” with the following further explanation:  “State must reimburse or pay Medi-Cal recipients and conduct statewide outreach to thousands of Californians who may be eligible for in-home services”. This is in reference to the Kelly v. Kent Class Action, wherein a Los Angeles Superior Court judge granted plaintiffs’ Petition and ordered preparation of an appropriate Judgment in plaintiffs’ favor.  

Home and Community Based Spousal Impoverishment Provisions Extended to September 30, 2023:

The Consolidated Appropriations Act, which Congress passed on 12/21/2020 and the President signed on 12/27/2020, extended the Spousal Impoverishment Provisions (“SI”) to September 30, 2023, and also extended the Money Follows the Person funding.  The ACT is over 5,000 pages long. The relevant portion regarding the SI extension is found at Title II, § 205 entitled “MEDICAID EXTENDERS AND OTHER POLICIES” and is found at page 4,721 of the ACT. See summary comments in this brief announcement by the Center for Public Representation. Affirmed in ACWDL 21-03 (2/17/2021), at page 5.

The zero Share of Cost rule for a married Beneficiary who would otherwise need a Nursing Home, but who prefers to be cared for at home or in an Assisted Living Facility, is contained in the most recent Assisted Living Waiver Document, submitted by California as the “Application for a 1915(c) HCBS Wavier”, and approved by CMS: https://www.dhcs.ca.gov/services/ltc/Documents/ALW-Renewal-2019-2024-Approved.pdf under Appendix I (found at page 130 in PDF format): Financial Accountability: “All ALW participants have full-scope Medi-Cal eligibility with no share of cost.”

On March 27, 2020, the CARES Act (H.R.748), extended Home and Community Based Services (HCBS) spousal impoverishment rules from May 22, 2020 to November 30, 2020. The provisions expanded by the Affordable Care Act were originally set to sunset five years after the implementation. Spousal Impoverishment gives married applicants seeking HCBS the same financial protections as  institutionalized beneficiaries. Relevant guidance continues to be available in ACWDLs 17-25 and 18-19 and the DHCS SI FLYER.

See CANHR’s factsheet: Using California’s Spousal Impoverishment Rule for Home and Community Based Services

(Prior Developments) Federal Developments as of 12/20/2019:  The Spousal Impoverishment provisions of the “Medicaid Home- and Community-Based Services” (HCBS) and the Medicaid “Money Follows the Person” program, were extended to May 22, 2020, by the end of year federal budget bill (“Further Consolidated Appropriations Act, 2020”, enacted as H.R. 1865  on 12/20/2019, the date signed by the President).  They were previously set to expire on 12/31/2019, and were then set to expire on May 22, 2020.  As of April 1, 2020, they have been extended to to November 30, 2020.  See the CARES Act (J.F. 748), above.

(Prior Developments) More Waiver Updates:  The CA Home & Community-Based Services Waiver may be amended. Public Comment period ends 09/10/2019.

For earlier developments, see the Issue Brief prepared by the Kaiser Family Foundation and incorporated into the website of Justice in Aging.

Prior DEVELOPMENTS as of 04/18/2019, HR 1839, a Bill approving a further extension of the Spousal Impoverishment (“SI”) Provision was signed into law by the President. It now, once again, extends the SI Provisions to September 30, 2019. Advocates for seniors and the disabled are advocating to make this extension permanent.  See Justice in Aging’s Fact Sheet on topic.

Prior history of the “SI” Provisions:  On January 24, 2019, the President signed the Medicaid Extender’s Act, temporarily continuing the Spousal Impoverishment Provisions for Home Care for senior couples.  The Act, however, only extends this provision until March 31, 2019, unless that cut off date is extended by further legislation.  Prior to this Act, the status of the Home Care option was in serious jeopardy. See references, below.  This Act, even though presently only a temporary extension of the Spousal Impoverishment Provisions for Home Care, is good news for seniors and reflects serious advocacy by many organizations supporting seniors and the disabled, including Justice in Aging.

(Prior Developments): As of 12/31/2018, the status of the Spousal Impoverishment Provisions for Home Care were previously in limbo:  See the following articles:

(1) the CMS Informational Bulletin entitled “Sunset of Section 2404 of the Affordable Care Act, Relating to the Spousal Impoverishment Rules for Certain Home and Community-Based Services…”, issued 11/09/2018.

(2) Kaiser Family Foundation Summary of CMS Informational Bulletin referenced above; article in the on line Trusts and Estates Magazine:

https://www.wealthmanagement.com/retirement-planning/will-individuals-disabilities-be-forced-nursing-homes?NL=WM-17a&Issue=WM-17a_20181128_WM-17a_937&sfvc4enews=42&cl=article_4&elqTrack=true

Posts By: Gene Osofsky

Q. A close friend asked me to be the Trustee of his trust in the event of his incapacity or death. While it is an honor to be asked, I wonder what questions I should ask before accepting?

A. It is indeed an honor, as it means that your friend trusts your judgment and is willing to put the welfare of his trust beneficiaries in your hands. But being a trustee is also a great responsibility. You need to consider this request with your eyes wide open. Here are eight questions to ask before saying “yes”:

1) May I Read the Trust? The trust document is your instruction manual. It tells you what you should do with the funds or other property you will be entrusted to manage. Make sure you read it and understand it. Now is the time to ask questions.

2) What Are the Goals of the Trust-Maker? Unfortunately, most trusts give the trustee considerable discretion about how to spend trust funds, but with little or no guidance. Example: often trusts say that the trustee may distribute principal for the benefit of the beneficiaries’ “health, education, maintenance and support.” Is this a limitation, meaning you can’t pay for a yacht (despite arguments from the son that he needs it for his mental health)? Or is it a mandate that you pay for his support even if he has a job and can support himself?   How are you to balance the needs of current against those of future beneficiaries? Ask your friend to put these wishes in writing.

3) How Much Help Will I Receive?  Will you have a Co-Trustee and, if so, how will you divvy up the duties?  Will you be authorized to hire professionals to advise you on investments, accounting, legal issues, and taxes?

4) How Long Will My Responsibilities Last? Are you being asked to take on this duty for a limited time (for example, until your friend’s youngest minor child reaches age 25), or for an indefinite period that could last the rest of your lifetime? In either case, under what terms can you resign? Be sure that the trust names successor Trustees, so that you may resign if it becomes too burdensome for you.

5) What Is My Liability? Generally, trustees are relieved of liability in the trust document unless they are grossly negligent or intentionally violate their responsibilities. Make sure the trust so provides, so that you are not held liable for innocent mistakes made in good faith.

6) Will I Be Compensated? Often family members and friends serve as trustees without compensation. However, if the duties are especially demanding, it is not inappropriate for trustees to be paid.

7) Are Any of the Trust Beneficiaries Special Needs Persons? If any of the beneficiaries are persons with disabilities who receive public benefits, such as SSI or Medi-Cal, make sure that the trust includes Special Needs provisions so that trust distributions do not cause the suspension of those public benefits.  Ask that the trust be reviewed now by an Elder Law or Special Needs attorney to ensure compliance with relevant public benefit laws. Seek further guidance from an attorney specialist when you later begin your duties, as trust distributions must be handled in a special manner that is compliant with the rules of the public benefit programs.

 8) Are There Problem Beneficiaries? Will acting as trustee create conflict between you and any beneficiary?

 If after getting answers to all these questions you feel comfortable serving as trustee, then by all means accept the role. It is an honor to be asked and you will provide a great service to your friend and his beneficiaries.

Posts By: Gene Osofsky

Q. My wife needs care in a nursing home, and we really need a Medi-Cal subsidy to help with the cost, which may run close to $10,000 per month. However, I have a large IRA worth about $650,000. I have received conflicting advice as to whether my IRA would make her ineligible for a Medi-Cal subsidy. I am hoping that you can clarify this for us?

A.  I think I can. Here’s the way Medi-Cal treats IRA accounts, as well as other retirement accounts such as 401K’s and 403(b)’s.

The two threshold questions are: (1) Is the proposed Medi-Cal beneficiary married or single? and (2) Which spouse owns the IRA?

Let’s take married couples first, and for clarity I will use the terms “Ill Spouse” (for the nursing him spouse who needs the Medi-Cal subsidy), and “Well Spouse” (for the spouse living at home).

Married Couple: IRA in the Name of the Ill Spouse: If the IRA is in the name of the Ill Spouse, the IRA can be easily converted into a non-countable asset by the simple act of taking Minimum Required Distributions (“MRD’s”) under IRS rules.  Medi-Cal will then not count the IRA as a resource, although it will count the MRD’s as income. This MRD income then goes toward Share of Cost (“co-pay”), usually increasing it only modestly.  Thus, by taking MRD’s, the IRA is effectively rendered exempt, usually paving the way for the ill spouse to qualify for a Medi-Cal subsidy with only a modest increase in her Share of Cost.

Married Couple: IRA in the Name of the Well Spouse: If the IRA or other retirement account is the name of the Well Spouse, it is not counted it all !  In this situation, there is not even a need for the well spouse to begin taking MRD’s. Thus, in your situation, your $650,000 IRA will not count it all when Medi-Cal considers your wife’s application for a Medi-Cal nursing home subsidy.

Single individual: An IRA in the name of a single individual who needs a Medi-Cal subsidy is treated the same as an IRA in the name of an Ill Spouse. In both situations, the owner must be receiving, or arrange to begin receiving, MRD’s in order for the IRA not to count.

Planning Option For Younger Individuals Not Yet Receiving MRD’s:   For individuals under age 70.5 who have not yet started MRD’s, there is another option:  as an alternative to taking full MRD’s, they may opt to commence only bare-bones withdrawals representing only “periodic distributions of income and principal”. This is technically all that Medi-Cal requires, and the withdrawal of some interest and some principal appears to meet the test. These more modest withdrawals would effectively reduce the IRA income and, correspondingly, the patient’s Share of Cost. This optional approach could continue to age 70.5, when full MRD’s then become mandatory under IRS rules.

In short, ownership of an IRA – whether in your name or your wife’s name — need not be disqualifying. With proper planning, it can be rendered “non-countable” effectively rendering it as exempt. So, if your other countable resources are within Medi-Cal limits, then your wife should qualify for the much-needed Medi-Cal nursing subsidy.  I do hope that this was the good news that you were seeking

Posts By: Gene Osofsky

Q.  My wife and I are being charged extra for Medicare Part B and prescription drug coverage premiums, apparently based upon our higher income in years past. Beginning last year, our income dropped significantly. Is there way to get the surcharges removed?

A.  Yes, if you can link the reduction in income to a “life changing event” as defined by Medicare.

First, a bit of background for our readers. Medicare premiums for 2017 are linked to your “Modified Adjusted Gross Income” (“MAG I”) as shown on your income tax return.  Higher-income Medicare beneficiaries (individuals who earn more than $85,000/year) pay higher Part B and Prescription Drug Benefit Premiums then lower income Medicare beneficiaries. The extra amount increases as the beneficiary’s income increases. The Social Security Administration uses income reported two years previous to determine a beneficiary’s current premiums. Thus, the income reported on a beneficiary’s 2015 tax return is used to determine whether the beneficiary must pay a higher monthly premium in 2017.  Here are the income brackets used by Medicare to add a surcharge:

Standard Bracket: For Individuals with a MAGI under $85,000 annually, or Married Couples with a MAGI under $170,000 annually, the Standard Premium for Part B is $134 per Month, but you may pay less this year if it is taken directly out of your social security benefits.  For Individuals above those numbers, the standard premium increases as follows:

Bracket #1: For individuals with MAGI above $85,000 and married couples with a MAGI above $170,000, the standard premium increases by $53.50 per person;

Bracket #2: For individuals with MAGI above $107,000 and married couples with MAGI above $214,000 the standard premium increases by $133.90;

Bracket # 3:  For individuals with MAGI above $160,000, and married couples with MAGI above $320,000, the standard premium increases by $214.30 per month.

Bracket #4:  For individuals with MAGI above $214,000 and married couples with MAGI above $428,000, the standard premium increases by $294.60 per month.

Likewise, there are corresponding increases in the prescription drug coverage monthly premium amounts, although not as dramatic as the Part B surcharge.

If your income has changed due to a significant event, there is a procedure to demonstrate that to Medicare and seek a reduction in your “add-on” monthly premiums for both Part B and Prescription Drug Coverage. The change must be linked to what Medicare considers a “life changing event”, which includes the following:

1) You married, divorced, or became widowed;

2) You or your spouse stopped working or reduced your work hours;

3) You or your spouse lost income-producing property because of a disaster or other event beyond your control;

4) You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan, or received a settlement because of an employer’s closure, bankruptcy or reorganization.

If any of the above events apply to you, you may be eligible for a reduction in the monthly surcharges for both the Part B and Prescription Drug Coverage Premiums. To assist you, Medicare has a form called Form SSA – 44 [”Medicare Income -Related Monthly Adjustment Amount – Life-Changing Event”]. You can download it on line at www.SSA.gov, or you may request a copy by calling 1-800-772-1213. Your best bet is to complete the form and take it along with appropriate documentation to your local Social Security office. Good luck!

References:  “Medicare Premiums: Rules for Higher-Income Beneficiaries”;

Posts By: Gene Osofsky

Q.  In connection with creating our estate planning documents, my husband and I would like to leave our children and grandchildren something more than just our money and assets. We would like to leave them a sense of our values. A friend mentioned something to us about an “Ethical Will”. Do you have any thoughts on this?

A, Yes. An Ethical Will is a statement in your own words expressing your values, hopes for the future, family history, emotions, and anything else that you would like to pass on to your loved ones.   It deals with values, rather than with assets. It is really a very old concept: one of the earliest references is found in the Book of Genesis, chapter 49, where Jacob gathers his 12 children around him and gives them his charge for their futures.

Initially, Ethical Wills were transmitted orally, but eventually they were written down. Although an ethical will is not a legal document, it can be a valuable complement to legal documents.   It can be an expression of love, a statement of personal or family history, a statement of lessons learned in life, a wish for the future of your loved ones, or anything else that you would like to pass on down as a personal legacy.

It is really a personal statement that carries your “voice” to future generations. It can be as simple as a one-page letter of love, or a novella length memoir detailing your life experiences.

In our family, we actually went a step further and videotaped my grandmother over a number of sittings, a project that ultimately took approximately 2 years to complete. We began with her earliest memories of growing up in Europe and covered all the history forward, all in her own voice. At times she broke into song, especially when our young children toddled into the room. That videotape, since turned into a DVD for preservation, is now a cherished family heirloom and each member of the family has a copy. We view it from time to time at family gatherings.

If you wish, your “Ethical Will” can be shared with your loved ones during your lifetime, and you might even add to it from time to time. It is your spiritual legacy which can live on long after your will or trust has been permanently filed away.

Posts By: Gene Osofsky

Q. I was thinking about naming my minor grandchildren as beneficiaries of my IRA, to inherit in the event of my demise. But I heard something about the “Kiddie Tax” that might apply here. Can you share any thoughts about this?

A. Yes, the so-called “Kiddie Tax” is essentially a special tax that was adopted years ago to limit the ability of parents or grandparents to shift income-generating assets to minor children or grandchildren in order to reduce the family’s overall income tax burden. This rule needs to be considered when leaving IRA’s and other income generating assets to minors, whether they be children or grandchildren.

Here’s the way the Kiddie Tax works: For 2017, the first $1,050 of unearned income to the minor is tax-free, and the next $1,050 is taxed at the child’s own (usually, lower) tax rate.  But here’s the catch: Any additional income is taxed at the parent’s rate, which could be as high as 35 percent.  The Kiddie Tax applies to the following youngsters:  individuals under age 18, individuals who are age 18 and have earned income that is less than or equal to half their support for the year, and individuals who are age 19 to 23 and full-time students.

Grandparents may be tempted to leave an IRA to a grandchild because children have a low tax rate, but the “kiddie tax” could make doing this less beneficial. Before doing so, the grandparent should run the numbers and determine whether the income generated by the IRA, as well as any other unearned investment income of the child, will likely put the youngster over the exemption of $2,100 (for 2017), and thereby — at least partially — defeat the income-shifting plan.  While an IRA can be a great gift, consider the following:

On the “plus” side: A young person who inherits an IRA has to take Required Minimum Distributions (“RMD’s”), but because the distributions are based on the beneficiary’s longer life expectancy, the grandchild’s RMD’s each year from the IRA will likely be small and thus allow the bulk of the IRA to continue to grow, tax deferred, over a longer period. So, if the RMD’s to go to the grand child, combined with any other investment income, would be less than $2,100 per year (2017), naming a grandchild as your beneficiary might be a good plan.

On the “minus” side:  If the grandchild’s unearned income is expected to be greater than $2,100 per year (in 2017), the excess will be taxed at the child’s parent’s rate, which would usually be much higher and could be as high as 35%.  Note:  In addition to income from IRAs, the kiddie tax applies to other investments that generate unearned income to the youngster, such as from cash, stocks, bonds, mutual funds, and real estate.

If grandparents wish to leave investments to their grandchildren, they might be better off leaving investments that appreciate in value, but don’t generate income until the investment is sold. As an alternative, Grandparents could leave grandchildren a Roth IRA, because the distributions are tax-free.

My suggestion is that you meet with your tax advisor and evaluate whether your proposed gift makes sense for you. In the right situation, an IRA can be a great gift to a grandchild.

References: “IRS “Publication 929 (2016), Tax Rules for Children and Dependents”; Wikipedia Article; Internal Revenue Code § 1(g); IRS:  “Topic 553:  Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)”