Making sure your end-of-life wishes are followed no matter where you happen to be is important. If you move to a different state or split your time between one or more states, you should make sure your advance directive is valid in all the states you frequent.

An advance directive gives instructions on the kind of medical care you would like to receive should you become unable to express your wishes yourself, and it often designates someone to make medical decisions for you. Each state has its own laws setting forth requirements for valid advance directives and health care proxies. For example, some states require two witnesses, other states require one witness, and some states do not require a witness at all.

Most states have provisions accepting an advance care directive that was created in another state. But some states only accept advance care directives from states that have similar requirements and other states do not say anything about out-of-state directives. States can also differ on what the terms in an advance directive mean. For example, some states may require specific authorization for certain life-sustaining procedures such as feeding tubes while other states may allow blanket authorization for all procedures.

To find out if your document will work in all the states where you live, consult with an attorney in the state. 

 

A number of Medicare beneficiaries are spending days in the hospital before being transferred to a nursing home, only to find that Medicare won’t pay for their nursing home stay because they were considered to be under “observation” while in the hospital and not actually “admitted.” Unfortunately, there isn’t much you can do to prevent this from happening initially, but there are some steps you can take once you know it’s an issue.

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 to reduce costly inpatient stays, hospitals often do not admit patients but rather place them on observation to determine whether they should be admitted. Although according to Medicare guidelines it should take no more than 24 to 48 hours to make this determination, in reality hospitals can keep patients under observation for days.

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.

If you are in the hospital for any length of time, ask hospital personnel what your status is. Keep asking because it can be changed from day to day. If you are told you are in the hospital 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. In order to appeal, you must wait for your Medicare Summary Notice (MSN) to arrive. Copy the notice and highlight the disputed charges. The notice should provide information on where to send the notice to request an appeal. You can appeal both the hospital’s denials of hospital admission as well as subsequent the nursing home charges. The appeal process can be very complicated and you may need the help of an attorney to navigate it. For more information about the Medicare appeals process, click here.

For more information about challenges to the observation rule, click here and here.

For more information about Medicare, click here.

 

It may become harder for Medicare beneficiaries to find home health care due to a new rule from the Centers for Medicare and Medicaid Services (CMS). Although the rule changes the way home health care providers are reimbursed, it could affect patient care as well. 

Starting in January 2020, Medicare will reimburse home health agencies at a lower rate when they care for patients who have not been admitted to a hospital first. CMS estimates that it will pay home health agencies approximately 19 percent more for a patient who hires the home health agency directly after leaving a hospital than a patient who was never in the hospital or was only an outpatient.  (The Center for Medicare Advocacy calculates that the disparity could be as high as 25 percent.)

In part due to pressure from Medicare to reduce costly inpatient stays, hospitals often do not admit patients, but rather place them on observation status to determine whether they should be admitted. These patients, if not admitted to the hospital for at least three nights, are not eligible for Medicare reimbursement of a limited amount of skilled nursing care and typically head home instead to continue care with Medicare’s home health care benefit.  

But a home health agency that cares for a patient who was in the hospital under observation will be reimbursed as if the patient had been an outpatient. This lower reimbursement rate means that home health agencies may be reluctant to provide care for patients who were under observation status or who haven't been in a hospital at all. 

If you are hospitalized, it is important to learn whether you are admitted or under observation. Hospitals are required to provide notice to patients if they are under observation for more than 24 hours. 
 
For information on how to protect yourself from observation status, click here.

For more information about the new rule from the Center for Medicare Advocacy, click here. 

Raising a grandchild can be tough financially, but grandparents should be aware that there is a tax credit available that could help them. Working grandparents who are supporting their grandchildren may qualify for the earned income tax credit, which could reduce the amount they pay in taxes by thousands of dollars or allow them to receive a refund. 

The earned income tax credit is a benefit for working people with low to moderate incomes and dependents, and this includes grandparents.  (Taxpayers without a dependent may also qualify, but it is more difficult.) To be able to claim the tax credit, you must be raising a child who meets the following criteria:

• Is your son, daughter, adopted child, stepchild, foster child, brother, sister, half brother, half sister, step-sister or a descendent of any of them, such as a grandchild or niece or nephew
• Is younger than 19 at the end of the year, younger than 24 and a full-time student at the end of the year, or any age and permanently and totally disabled
• Lives with you for more than half the year

In addition, to qualify for the tax credit your income must be below certain limits, depending on how many dependents you have. The limits for 2019 are as follows:

• One child.  Filing as an individual, your income must be less than $41,094. Filing jointly, your income must be less than $46,884.
• Two children. Filing as an individual, your income must be less than $46,703. Filing jointly, your income must be less than $52,493.
• Three or more children. Filing as an individual, your income must be less than $50,162. Filing jointly, your income must be less than $55,952.

The maximum amount of the tax credit also depends on how many dependents you have. In 2019, the following are the maximum credit amounts:

• $6,557 with three or more qualifying children
• $5,828 with two qualifying children
• $3,526 with one qualifying child

For more information from the IRS about the tax credit, click here.

The Trump administration is officially rolling back a ban on the use of arbitration agreements by nursing homes that was initiated under President Obama. The Centers for Medicare and Medicaid Services (CMS) issued a rule that once again allows nursing facilities to use arbitration to settle disputes with residents. 

Historically, nursing homes increasingly asked — or forced — patients and their families to sign arbitration agreements prior to admission. By signing these agreements, patients or family members gave up their right to sue if they believed the nursing home was responsible for injuries or the patient's death. The dispute had to be settled in private arbitration, and any injury to the patient did not have to be disclosed to the public. 

In 2017, CMS issued a final rule prohibiting nursing homes that accept Medicare and Medicaid from entering into binding arbitration agreements with a resident or their representative before a dispute arises. In doing so, CMS cited abundant evidence that resolving disputes behind closed doors was detrimental to the health and safety of nursing home residents. 

The nursing home industry immediately challenged this rule in court and a U.S. district court issued an injunction prohibiting it from going into effect. The Trump administration then announced it was reviewing the rule. 

The new rule, which takes effect on September 16, 2019, allows nursing homes to enter into pre-dispute arbitration agreements with residents, but prohibits nursing homes from requiring residents to sign an arbitration agreement as a condition for admission. The rule also adds a requirement that facilities give residents a 30-day period to rescind their agreement to arbitrate disputes. And it prohibits language in the arbitration agreement that prevents residents from contacting federal or state authorities. 

Although under the new rule nursing homes will not be able to require residents to sign arbitration agreements as a condition of admission, nursing home resident advocacy groups contend that the effect will in many cases be the same as forcing residents to sign.  

“[T]he circumstances surrounding the admissions process combined with the enormous disparity of bargaining power means that most prospective residents are unaware of the content of what they are signing or the significance of the decision to enter into a pre-dispute arbitration agreement,” the group Justice in Aging said in a statement. “In short, allowing facilities to ask residents to sign pre-dispute arbitration agreements is unfair to residents and their families and will harm their rights, safety, and quality of care.” 

To read the rule, click here.

Thinking about your funeral may not be fun, but planning ahead can be exceedingly helpful for your family. It both lets them know your wishes and assists them during a stressful time. The following are steps you can take to plan ahead:

• Name who is in charge. The first step is to designate someone to make funeral arrangements for you. State law dictates how that appointment is made. In some states, an informal note is enough. Other states require you to designate someone in a formal document, such as a health care power of attorney. If you do not designate someone, your spouse or children are usually given the task. 
• Put your preferences in writing. Write out detailed funeral preferences as well as the requested disposition of your remains. Would you rather be buried or cremated? Do you want a funeral or a memorial service? Where should the funeral or memorial be held? The document can also include information about who should be invited, what you want to wear, who should speak, what music should be played, and who should be pallbearers, among other information. The writing can be a separate document or part of a health care directive. It should not be included in your will because the will may not be opened until long after the funeral. 
• Shop around. It is possible to make arrangements with a funeral home ahead of time, so your family does not have to scramble to set things up while they are grieving. Prices among funeral homes can vary greatly, so it is a good idea to check with a few different ones before settling on the one you want. The Federal Trade Commission's Funeral Rule requires all funeral homes to supply customers with a general price list that details prices for all possible goods or services. The rule also stipulates what kinds of misrepresentations are prohibited and explains what items consumers cannot be required to purchase, among other things. 
• Inform your family members. Make sure you tell your family members about your wishes and let them know where you have written them down. 
• Figure out how to pay for it. Funerals are expensive, so you need to think about how to pay for the one you want. You can pre-pay, but this is risky because the funds can be mismanaged or the funeral home could go out of business. Instead of paying ahead, you can set up a payable-on-death account with your bank. Make the person who will be handling your funeral arrangements the beneficiary (and make sure they know your plans). You will maintain control of your money while you are alive, but when you die it is available immediately, without having to go through probate. Another option is to purchase a life insurance policy that is specifically for funeral arrangements. 

Taking the time to plan ahead will be a big help to your family and give you peace of mind. 

For more information on planning your funeral from Kiplinger, click here. 

Older Americans with a life insurance policy that they no longer need have the option to sell the policy to investors. These transactions, called “life settlements,” can bring in needed cash, but are they a good idea? 

If your children are grown and your mortgage paid off, you may decide that there is no longer a reason to be paying premiums every month for a life insurance policy, or you may reach a time when you can no longer afford to keep up with the premiums. If this happens, you may be tempted to let the policy lapse and get nothing from it or to surrender the policy for its cash value, which usually is a fraction of its death benefit. Another option is a life settlement. This allows you to sell your policy to an investor for an amount that is greater than the cash value, but less than the death benefit. The buyer pays all future premiums and receives the death benefit when you die. 

Life settlements offer seniors a way to get cash to supplement retirement income and help pay for living expenses, health care, or other needed items. They can be a good alternative to surrendering a policy or letting it lapse. But as with any financial transaction, you need to exercise caution. 

The amount you receive from a life settlement depends on your age, your health, and the terms and conditions of the policy. It is hard to determine if you are getting a fair price for the policy because there are no standard guidelines for life settlements. Before selling you should shop around to several life settlement companies. You should also note that the amount you receive will be reduced by transaction fees, which can eat up a good chunk of the proceeds of the sale. In addition, you may have to pay taxes on the lump sum you receive. Finally, the beneficiaries of your policy may not be pleased with the sale, which is why some life settlement companies require beneficiaries to sign off on the transaction.

Before choosing a life settlement, you should consider other options. If you need cash right away, you can borrow against your policy. If the premiums are too much, you may be able to stop premiums and receive a smaller death benefit. In some cases of terminal illness, you can receive an accelerated death benefit (this allows you to receive a portion of your death benefit while you are still alive). If you don't need the cash but no longer want the policy, another possibility is to donate the policy to charity and get a tax write-off. 

To find out the right solution for you, talk to your elder law attorney or a financial advisor. To find an attorney near you, click here. 

For more information from the Financial Industry Regulatory Authority on the pros and cons of life settlements and questions to ask to protect yourself in a sale, click here.

Hospice care is supposed to help terminally ill patients maintain their quality of life at the end of their life, but two new government reports find that serious problems in some hospices may be actually causing harm to hospice patients. The reports propose that additional safeguards are needed. 

Medicare provides a comprehensive hospice benefit that covers any care that is reasonable and necessary for easing the course of a terminal illness. Most hospice care is provided in the home or in a nursing home. State agencies or private contractors survey hospices to make sure they comply with federal regulations. If a hospice fails to meet a standard, the surveyor cites the hospice with a deficiency. 

A pair of reports by the U.S. Department of Health and Human Services’ Office of Inspector General (OIG) found that from 2012 through 2016, more than 80 percent of hospices surveyed had at least one deficiency and one in five had a deficiency serious enough to harm patients. About 300 hospices were identified as “poor performers” and 40 had a history of serious deficiencies.

The reports found that the most common types of deficiencies involved poor care planning, mismanagement of aide services, and inadequate assessments of beneficiaries. Some of the most serious problems that were found included a beneficiary who developed pressure ulcers on both heels, which worsened and developed into gangrene, requiring amputation of one leg. Another beneficiary developed maggots around his feeding tube insertion site. Both of these beneficiaries had to be hospitalized, which hospice is meant to prevent. 

Meanwhile, the OIG found that it is hard for consumers to learn about which hospices are doing a good job. The Centers for Medicare and Medicaid Services (CMS) launched the Hospice Compare website in 2017, but the site does not include information from the surveyors’ reports. Hospices also do not have as strong reporting requirements as nursing homes. In addition, CMS has limited ability to discipline hospices other than to drop the hospice from Medicare. 

The reports provide a number of recommendations to CMS to improve monitoring of hospices, including the following:
•    Expanding the data that surveying organizations report to CMS and using these data to strengthen its oversight of hospices 
•    Taking steps to include the survey reports on Hospice Compare
•    Educating hospices about common deficiencies and those that pose particular risks to beneficiaries
•    Increasing oversight of hospices with a history of serious deficiencies
•    Strengthening requirements for hospices to report abuse, neglect, and other harm 
•    Ensuring that hospices are educating their staff to recognize signs of abuse, neglect, and other harm
•    Improving and making user-friendly the process for beneficiaries and caregivers to make complaints. 

To read the OIG reports, click here and here.

For National Public Radio’s coverage of the reports, click here.

The oldest of the 75 million baby boomers have begun turning 70 in 2016. Becoming a septuagenarian is a milestone in itself, but it also means that soon the IRS will likely be expecting you to start cashing out your tax-deferred retirement savings that you may have spent decades building up.

If you don’t start taking what are called required minimum distributions (RMDs) from your non-Roth individual retirement account (IRA) or 401(k) accounts and pay taxes on the withdrawals, you will face a 50 percent penalty on what should have been withdrawn but wasn’t.  But more than this, how you structure these distributions can have a profound effect on your own retirement and on what you leave your heirs.

Congress created the rules governing the minimum distribution of retirement plan funds to encourage saving for retirement and to allow retirement assets to build up tax-free during the plan owner’s working years. You do not pay tax on income you put into a tax-deferred retirement plan when earned or on investment income or gains on the account itself. However, the funds you withdraw upon retirement are treated as taxable income in the year you take the distribution. And if your children withdraw the funds from a tax-deferred account that they inherit from you, they will be taxed on such distributions at their income tax rates.

Not everyone with a retirement account must take RMDs, however.  Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions, as long as the employee doesn’t own at least five percent of the company.  (You still have to take RMDs from SEP or SIMPLE plans, although you can continue contributing to them as well.) Also, funds up to $125,000 invested in a qualifying longevity annuity contract (QLAC) are not counted in calculating your regular RMDs and distributions are not required until age 85.

When to Start the Withdrawals?

The first decision 70-year-olds have to make is when to begin their RMDs.  Ordinarily, your RMD must be made by December 31 of each year.  But recognizing that people may need some extra time to adjust to this new landscape, the IRS allows you to defer your first RMD until April 1 of the year following the year you turn 70 ½.  Those who will turn 70 in the second half of the year will be 70 ½ in 2017, which means they can wait until April 1 of 2018 to make the withdrawals.  (If you turn 70 in the first half of 2016, you must make the withdrawals by April 1 of next year.)

But waiting as long as possible may not be in your interest.  If you delay until April 1 of the year after you turn 70 ½, you could have a hefty tax bite because you would have to take your second year distribution by December 31 of the same year. This additional income could push you into a higher tax bracket for that year and also affect the tax that might be due on your Social Security benefits and maybe even increase your Medicare tax for the following year if your income rises above $200,000 (for single filers; 2016 figure).

Making the Calculation

You must withdraw a small percentage of your tax-advantaged retirement savings each year after age 70.  The exact amount for a year is determined by dividing the fair market value of your retirement account(s) as of the previous year’s end by the applicable distribution period. A simple chart gives your distribution period in years. If, for example, you had $100,000 in a retirement account on December 31 of last year and you were 73 as of that date, you would have to withdraw $4,049 from the account by the end of this year ($100,000 divided by your distribution period of 24.7 years).

The distribution period is different if the sole beneficiary of your IRA is your spouse and he or she is more than 10 years your junior.  In this case, consult the “Joint Life and Last Survivor Expectancy” table in the Appendix of the IRS’s Publication 590. To see this publication, go to: https://www.irs.gov/pub/irs-pdf/p590b.pdf.

Also, just because you missed a required withdrawal or didn’t withdraw enough doesn’t mean you’ll automatically get hit with the 50 percent penalty.  You can ask the IRS to waive the penalty by filing Form 5329 with your tax return, saying that you were confused or had poor financial advice.

Advance Planning Helps

Planning in advance can help you avoid ending up in a higher tax bracket or paying higher Social Security or Medicare taxes once you start taking your RMDs. One strategy is to convert some of your retirement funds to Roth IRAs in years prior to turning 70. The RMD rules do not apply to the Roth IRA owner, although you will pay taxes when you convert. The ideal time to convert would be after you retire and may be in a lower tax bracket. You can also, of course, start making withdrawals from tax-deferred accounts early, before you are required to do so, as long as you have reached at least age 59 ½.

Another technique is to make a qualified charitable distribution (QCD). Investors aged 70 ½ or older may transfer as much as $100,000 a year from an IRA directly to a charity without having it count as taxable income. A QCD can be used to meet part or all of an RMD obligation (as long as it’s less than $100,000) and no income tax will be due on the withdrawal.

Managing your RMDs can be a tricky proposition, particularly for those with multiple accounts. You want to avoid pushing yourself into a higher tax bracket, but you also don’t want to under-withdraw and face a 50 percent penalty, or miscalculate your year-end account balance because your account custodian wasn’t aware of current year recharacterizations and conversions. For these reasons, it’s a good idea to consult with a financial advisor or your elder law attorney well before crossing the threshold into RMD land.

For ElderLawAnswers’ article on taking money out in retirement, click here.

As referenced by links in the above article, the website Investopedia has many articles on RMDs. Here’s a basic one.

For more on retirement planning, click here.

[This article was originally published on December 18, 2012.  The links were updated on August 16, 2018.]

Inheriting an IRA may seem like a good thing, but there can be tax consequences if you aren't careful. If you inherit an IRA, you should check with an attorney or financial advisor as soon as possible to find out your options.

IRAs are personal savings plans that allow you to set aside money for retirement and get a tax deduction for doing so. Earnings in a traditional IRA generally are not taxed until distributed to you. At age 70 1/2 you have to start taking distributions from a traditional IRA. Earnings in a Roth IRA are not taxed, nor do you have to start taking distributions at any point, but contributions to a Roth IRA are not tax deductible. Any amount remaining in an IRA upon death can be paid to a beneficiary or beneficiaries.

Spouse as beneficiary

If you inherit your spouse's IRA, you can treat the IRA as your own. You can either put the IRA in your name or roll it over into a new IRA. The Internal Revenue Service will treat the IRA as if you have always owned it. If you are not yet 70 ½ years old, you can wait until you reach that age to begin taking minimum withdrawals. If you are over 70 ½ and were 10 or more years younger than your spouse, you can use a longer joint-life expectancy table to calculate withdrawals, which means lower minimum withdrawal amounts. If you inherit a Roth IRA, you do not need to take any distributions.

You can leave the account in your spouse's name, but in that case you will need to begin taking withdrawals when your spouse would have turned 70 ½ or, if your spouse was already 70 ½, then a year after his or her death. If you want to drain the account, you can use the “five-year rule.” This allows you to do whatever you want with the account, but you must completely empty the account (and pay the taxes) by the end of the fifth year after your spouse's death.

Non-spouse as beneficiary

The rules for a child or grandchild (or other non-spouse) who inherits an IRA are somewhat different than those for a spouse. You can choose to take distributions over your lifetime and to pass what is left onto future generations (called the “stretch” option). The required minimum distributions will be calculated based on your life expectancy. This allows the money to grow tax-deferred over the course of your life and to be passed on to your beneficiaries, if you wish. If you want to do this, you must retitle the IRA into an inherited IRA and take your first distribution by December 31 of the calendar year following the year the decedent died. For more on stretching out an IRA, click here. 

If you choose not to stretch the IRA, you will have to withdraw it all within five years of the original IRA owner's death. This can lead to a large tax bill–unless the IRA is a Roth, in which case the distributions are tax-free.

Trust as beneficiary

If the IRA names a trust as the beneficiary, the trust may not be able to take advantage of the opportunity to stretch withdrawals across decades. Stretching an IRA may still be an option, however, if the trust is considered a “see-through” or conduit trust. If you have inherited an IRA in a trust, contact your attorney to find out your options.

Estate tax

If the decedent's estate was subject to an estate tax, the IRA beneficiary may be able to get an income tax deduction for the estate taxes paid on the IRA.

For information on how to include an IRA in your estate plan, click here.