If you or a loved one has been diagnosed with Alzheimer’s disease, it is important to start planning immediately. There are several essential documents to help you once you become incapacitated, but if you don’t already have them in place, you need to act quickly after a diagnosis.

Having dementia does not mean an individual is not mentally competent to make planning decisions. The person signing documents must have “testamentary capacity,” which means he or she must understand the implications of what is being signed. Simply having a form of mental illness or disease does not mean that you automatically lack the required mental capacity. As long as you have periods of lucidity, you may still be competent to sign planning documents. For more information on mental capacity, click here.

The following are some essential documents for someone diagnosed with dementia:

• Power of Attorney. A power of attorney is the most important estate planning document for someone who has been diagnosed with Alzheimer’s disease or some other form of dementia. A power of attorney allows you to appoint someone to make decisions on your behalf once you become incapacitated. Without a power of attorney, your family would be unable to pay your bills or manage your household without going to court and getting a guardianship, which can be a time-consuming and expensive process. For more information about powers of attorney, click here. 
• Health Care Proxy. A health care proxy, like a power of attorney, allows you to appoint someone else to act as your agent for medical decisions. It will ensure that your medical treatment instructions are carried out. In general, a health care proxy takes effect only when you require medical treatment and a physician determines that you are unable to communicate your wishes concerning treatment. For more information about health care proxies, click here.
• Medical Directive or Living Will. Medical directives and living wills explain what type of care you would like if you are unable to direct your own care. A medical directive can include a health care proxy or it can be a separate document. It may contain directions to refuse or remove life support in the event you are in a coma or a vegetative state or it may provide instructions to use all efforts to keep you alive, no matter what the circumstances. For more information about medical directives, click here.
• Will and Other Estate Planning Documents. In addition to making sure you have people to act for you and your wishes are clear, you should make sure your estate plan is up to date, or if you don’t have an estate plan, you should draw one up.  Your estate plan directs who will receive your property when you die. Once you are deemed incapacitated, you will no longer be able to create an estate plan. An estate plan usually consists of a will, and often a trust as well. Your will is your legally binding statement on who will receive your property when you die, while a trust is a mechanism for passing on your property outside of probate. For more information about estate planning, click here.

In addition to executing these documents, it is also important to create a plan for long-term care. Long-term care is expensive and draining for family members. Developing a plan now for what type of care you would like and how to pay for it will help your family later on. Your attorney can assist you in developing that plan and drafting any necessary documents.

The Department of Veterans Affairs (VA) has finalized new rules that make it more difficult to qualify for long-term care benefits. The rules establish an asset limit, a look-back period, and asset transfer penalties for claimants applying for VA pension benefits that require a showing of financial need. The principal such benefit for those needing long-term care is Aid and Attendance.

The VA offers Aid and Attendance to low-income veterans (or their spouses) who are in nursing homes or who need help at home with everyday tasks like dressing or bathing. Aid and Attendance provides money to those who need assistance.

Currently, to be eligible for Aid and Attendance a veteran (or the veteran's surviving spouse) must meet certain income and asset limits. The asset limits aren't specified, but $80,000 is the amount usually used. However, unlike with the Medicaid program, there historically have been no penalties if an applicant divests him- or herself of assets before applying. That is, before now you could transfer assets over the VA’s limit before applying for benefits and the transfers would not affect eligibility.

Not so anymore. The new regulations set a net worth limit of $123,600, which is the current maximum amount of assets (in 2018) that a Medicaid applicant's spouse is allowed to retain. But in the case of the VA, this number will include both the applicant's assets and income. It will be indexed to inflation in the same way that Social Security increases. An applicant's house (up to a two-acre lot) will not count as an asset even if the applicant is currently living in a nursing home. Applicants will also be able to deduct medical expenses — now including payments to assisted living facilities, as a result of the new rules — from their income.

The regulations also establish a three-year look-back provision. Applicants will have to disclose all financial transactions they were involved in for three years before the application. Applicants who transferred assets to put themselves below the net worth limit within three years of applying for benefits will be subject to a penalty period that can last as long as five years. This penalty is a period of time during which the person who transferred assets is not eligible for VA benefits. There are exceptions to the penalty period for fraudulent transfers and for transfers to a trust for a child who is unable to “self-support.”

Under the new rules, the VA will determine a penalty period in months by dividing the amount transferred that would have put the applicant over the net worth limit by the maximum annual pension rate (MAPR) for a veteran with one dependent in need of aid and attendance. For example, assume the net worth limit is $123,600 and an applicant has a net worth of $115,000. The applicant transferred $30,000 to a friend during the look-back period. If the applicant had not transferred the $30,000, his net worth would have been $145,000, which exceeds the net worth limit by $21,400. The penalty period will be calculated based on $21,400, the amount the applicant transferred that put his assets over the net worth limit (145,000-123,600).

The new rules go into effect on October 18, 2018. The VA will disregard asset transfers made before that date. Applicants may still have time to get through the process before the rules are in place.

Veterans or their spouses who think they may be affected by the new rules should contact their attorney immediately. To find an attorney near you, click here. 

To read the new regulations, click here.

For more information about veterans benefits, click here. 

Many types of property and investments pass outside of probate and allow you to designate who will receive them after your death. It is important that these designations are kept up to date and are consistent with the rest of your estate plan. 

When you open up an investment account or retirement plan or buy life insurance, the company encourages you to name beneficiaries who will inherit the property on your death. The choice you made at the time may not have taken your estate plan into consideration. To review your beneficiaries, get a copy of all of your beneficiary designation forms. Check to make sure that your beneficiaries are consistent with the rest of your estate plan or, if they are different, that the difference is intentional. If you made these designations online, print a copy of the page so that you also have a paper record. Once you have collected all of these forms, put them in a folder with your other estate-planning documents so that you and your heirs can quickly and easily find them in the future. 

In determining how to make your beneficiary designations, the following are the considerations for each type of account:

• Bank and investment accounts. If you have a revocable trust as part of your estate plan, you can make the trust the owner of all of your bank and investment accounts. This way you avoid the need to name anyone as beneficiary and you still avoid probate. Then, all of the protections provided in the trust–for instance, that children do not receive their inheritance until a certain age or provisions for who receives the funds if a beneficiary predeceases you–will apply to the accounts. If you’re not using a revocable trust, simply name those who will receive your estate under the terms of your will. Or you have the option to name no one. If you do not designate a beneficiary, the account will pass according to the terms of your will and, while you won’t avoid probate, you’ll make sure that the people you want will receive the assets, that your personal representative will be in charge, and that any changes you make in the future–such as disinheriting your wayward nephew– will apply to the accounts. 
• Life insurance. Unlike bank and investment accounts, the ownership of many life insurance policies–especially those that come as an employment benefit–cannot be transferred to your revocable trust. And there is really no benefit to doing so in any case (although there might be some tax and long-term care planning reasons to transfer property to irrevocable trusts). Instead, the beneficiary designation is the most important decision. If you have a revocable trust, you may name it as the beneficiary for the reasons mentioned above. Or you can name particular individuals. The beneficiary designation form will permit you to name alternates in the event that the first person or people you name predecease you. 
• Retirement plans. First, don’t transfer your retirement plans to your revocable trust. The only way to do so is to liquidate the plan first, which would be a taxable event. Second, don’t name your revocable trust as a beneficiary of your retirement funds without consulting your lawyer. In most instances, if your spouse is not the beneficiary, the retirement plan will have to be liquidated and the taxes paid within 10 years of your death. On the other hand, if you have a relatively small amount of funds in retirement accounts, this might not be a big problem. It is much more important with retirement plans than with life insurance or other investments that you designate a beneficiary, because there are different rules for different beneficiaries. If your spouse inherits your IRA, your spouse can treat the IRA as his or her own. Your spouse can either put the IRA in his or her name or roll it over into a new IRA. The rules for a child or grandchild (or other non-spouse) who inherits an IRA are somewhat different than those for a spouse. The beneficiary must withdraw all of the assets in the inherited account within 10 years. There are no required distributions during those 10 years, but it must all be distributed by the 10th year.

To make sure that your beneficiary designations align with your estate plan and are as beneficial to your intended heirs as possible, talk to your attorney. 

Do you want to use your IRA to help a charity, but also benefit your heirs? Instead of leaving your IRA directly to your children, you can leave it to a charitable remainder unitrust (CRUT) while still benefiting your children. With the SECURE Act making changes to rules about inherited IRAs, this may be an attractive estate planning option.

Under the SECURE Act, when a non-spouse inherits an IRA, the beneficiary must withdraw all of the assets in the inherited account within 10 years (with some exceptions, such as if the beneficiary is disabled or chronically ill). There are no required distributions during those 10 years, but it must all be distributed by the 10th year. 

Instead of leaving an IRA directly to your heirs, an alternative is to leave the IRA to a CRUT. A CRUT is an irrevocable trust that provides the beneficiaries with income for a set number of years or for life. The beneficiaries receive a set percentage from the trust during their lifetime. When they die, the remainder in the trust goes to the charity (or charities) of your choice.

To name a CRUT as the beneficiary of an IRA, you must first put a provision in your will creating the CRUT. This needs to be done by an attorney. Then you can change the beneficiary on the IRA to the CRUT. While your heirs may receive less money overall than if they had stretched out the IRA, they should receive more money than if they were required to cash out the IRA after five years. Naming a CRUT as a beneficiary on an IRA also has positive estate tax implications. The estate will receive a deduction based on the remainder interest of the CRUT.

If you are interested in creating a CRUT, contact your attorney. 

Transferring assets to qualify for Medicaid can make you ineligible for benefits for a period of time. Before making any transfers, you need to be aware of the consequences. 

Congress has established a period of ineligibility for Medicaid for those who transfer assets. The so-called “look-back” period for all transfers is 60 months, which means state Medicaid officials look at transfers made within the 60 months prior to the Medicaid application. 

While the look-back period determines what transfers will be penalized, the length of the penalty depends on the amount transferred. The penalty period is determined by dividing the amount transferred by the average monthly cost of nursing home care in the state. For instance, if the nursing home resident transferred $100,000 in a state where the average monthly cost of care was $5,000, the penalty period would be 20 months ($100,000/$5,000 = 20). The 20-month period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer. Therefore, if an individual transfers $100,000 on April 1, 2017, moves to a nursing home on April 1, 2018 and spends down to Medicaid eligibility on April 1, 2019, that is when the 20-month penalty period will begin, and it will not end until December 1, 2020.

Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year look-back period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.

Be very, very careful before making transfers. Any transfer strategy must take into account the nursing home resident's income and all of his or her expenses, including the cost of the nursing home. Bear in mind that if you give money to your children, it belongs to them and you should not rely on them to hold the money for your benefit. However well-intentioned they may be, your children could lose the funds due to bankruptcy, divorce, or lawsuit. Any of these occurrences would jeopardize the savings you spent a lifetime accumulating. Do not give away your savings unless you are ready for these risks.

In addition, be aware that the fact that your children are holding your funds in their names could jeopardize your grandchildren's eligibility for financial aid in college. Transfers can also have bad tax consequences for your children. This is especially true of assets that have appreciated in value, such as real estate and stocks. If you give these to your children, they will not get the tax advantages they would get if they were to receive them through your estate. The result is that when they sell the property they will have to pay a much higher tax on capital gains than they would have if they had inherited it.

As a rule, never transfer assets for Medicaid planning unless you keep enough funds in your name to (1) pay for any care needs you may have during the resulting period of ineligibility for Medicaid and (2) feel comfortable and have sufficient resources to maintain your present lifestyle.

Remember: You do not have to save your estate for your children. The bumper sticker that reads “I'm spending my children's inheritance” is a perfectly appropriate approach to estate and Medicaid planning.

Even though a nursing home resident may receive Medicaid while owning a home, if the resident is married he or she should transfer the home to the community spouse (assuming the nursing home resident is both willing and competent). This gives the community spouse control over the asset and allows the spouse to sell it after the nursing home spouse becomes eligible for Medicaid. In addition, the community spouse should change his or her will to bypass the nursing home spouse. Otherwise, at the community spouse's death, the home and other assets of the community spouse will go to the nursing home spouse and have to be spent down.

Permitted transfers

While most transfers are penalized with a period of Medicaid ineligibility of up to five years, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:

• Your spouse (but this may not help you become eligible since the same limit on both spouse's assets will apply)
• A trust for the sole benefit of your child who is blind or permanently disabled.
• Into trust for the sole benefit of anyone under age 65 and permanently disabled.

In addition, you may transfer your home to the following individuals (as well as to those listed above):

• A child who is under age 21
• A child who is blind or disabled (the house does not have to be in a trust)
• A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home
• A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

You may be afraid of losing your home if you have to enter a nursing home and apply for Medicaid. While this fear is well-founded, transferring the home to your children is usually not the best way to protect it.

Although you generally do not have to sell your home in order to qualify for Medicaid coverage of nursing home care, the state could file a claim against the house after you die. If you get help from Medicaid to pay for the nursing home, the state must attempt to recoup from your estate whatever benefits it paid for your care. This is called “estate recovery.” If you want to protect your home from this recovery, you may be tempted to give it to your children. Here are three reasons not to:

1. Medicaid ineligibility. Transferring your house to your children (or someone else) may make you ineligible for Medicaid for a period of time. The state Medicaid agency looks at any transfers made within five years of the Medicaid application. If you made a transfer for less than market value within that time period, the state will impose a penalty period during which you will not be eligible for benefits. Depending on the house’s value, the period of Medicaid ineligibility could stretch on for years, and it would not start until the Medicaid applicant is almost completely out of money.

There are circumstances under which you can transfer a home without penalty, however, so consult a qualified elder law attorney before making any transfers. You may freely transfer your home to the following individuals without incurring a transfer penalty:

• Your spouse
• A child who is under age 21 or who is blind or disabled
• Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
• A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home
• A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

2. Loss of control. By transferring your house to your children, you will no longer own the house, which means you will not have control of it. Your children can do what they want with it. In addition, if your children are sued or get divorced, the house will be vulnerable to their creditors.

3. Adverse tax consequences. Inherited property receives a “step up” in basis when you die, which means the basis is the current value of the property. However, when you give property to a child, the tax basis for the property is the same price that you purchased the property for. If your child sells the house after you die, he or she would have to pay capital gains taxes on the difference between the tax basis and the selling price. The only way to avoid some or all of the tax is for the child to live in the house for at least two years before selling it. In that case, the child can exclude up to $250,000 ($500,000 for a couple) of capital gains from taxes.

There are other ways to protect a house from Medicaid estate recovery, including putting the home in a trust. To find out the best option in your circumstances, consult with your elder law attorney. To find one near you, go here: https://www.elderlawanswers.com/USA-elder-law-attorneys.

Many people, especially seniors, see joint ownership as an easy way to avoid probate and plan for incapacity, but there are major drawbacks to joint accounts.

When people own property as joint tenants each person has an equal ownership interest in the property. If one joint tenant dies, his or her interest immediately ceases to exist and the other joint tenant owns the entire property. Joint ownership of investment and bank accounts can be a cheap and easy way to avoid probate since joint property passes automatically to the joint owner at death. In addition, joint ownership can also be an easy way to plan for incapacity since the joint owner of accounts can pay bills and manage investments if the primary owner falls ill or suffers from dementia. These are all true benefits of joint ownership, but three potential problems with joint ownership:

1. Risk. Joint owners of accounts have complete access and the ability to use the funds for their own purposes. Many children who are caring for their parents take money in payment without first making sure the amount is accepted by all the children. In addition, the funds are available to the creditors of all joint owners, so if the child got divorced or was sued, the money could be available to the child's creditors. Similarly, if a joint owner applied for public benefits or financial aid, the money would be considered as belonging to all the joint owners.
2. Inequity. If a senior has one or more children on certain accounts, but not all children, at her death some children may end up inheriting more than the others. While the senior may expect that all of the children will share equally, and often they do in such circumstances, there's no guarantee. People with several children can maintain accounts with each, but they will have to constantly work to make sure the accounts are all at the same level, and there are no guarantees that this constant attention will work, especially if funds need to be drawn down to pay for care.
3. The Unexpected. A system based on joint accounts can really fail if a child passes away before the parent. Then it may be necessary to seek conservatorship to manage the funds or they may ultimately pass to the surviving siblings with nothing or only a small portion going to the deceased child's family. For example, a mother put her house in joint ownership with her son to avoid probate and Medicaid’s estate recovery claim. When the son died unexpectedly, the daughter-in-law was left high and dry despite having devoted the prior six years to caring for her husband's mother.

Joint accounts do work well in two situations. First, when a senior has just one child and wants everything to go to him or her, joint accounts can be a simple way to provide for succession and asset management. It has some of the risks described above, but for many clients the risks are outweighed by the convenience of joint accounts.

Second, it can be useful to put one or more children on one's checking account to pay customary bills and to have access to funds in the event of incapacity or death. Since these working accounts usually do not consist of the bulk of a client's estate, the risks listed above are relatively minor.

For the rest of a senior's assets, wills, trusts and durable powers of attorney are much better planning tools. They do not put the senior's assets at risk. They provide that the estate will be distributed as the senior wishes without constantly rejiggering account values or in the event of a child's incapacity or death. And they provide for asset management in the event of the senior's incapacity.

Social Security survivor's benefits provide a safety net to widows and widowers. But to get the most out of the benefit, you need to know the right time to claim. 

While you can claim survivor's benefits as early as age 60, if you claim benefits before your full retirement age, your benefits will be permanently reduced. If you claim benefits at your full retirement age, you will receive 100 percent of your spouse's benefit or, if your spouse died before collecting benefits, 100 percent of what your spouse's benefit would have been at full retirement age. Unlike with retirement benefits, delaying survivor's benefits longer than your full retirement age will not increase the benefit. If you delay taking retirement benefits past your full retirement age, depending on when you were born your benefit will increase by 6 to 8 percent for every year that you delay up to age 70, in addition to any cost of living increases.

You cannot take both retirement benefits and survivor's benefits at the same time. When deciding which one to take, you need to compare the two benefits to see which is higher. In some cases, the decision is easy—one benefit is clearly much higher than the other. In other situations, the decision can be a little more complicated and you may want to take your survivor's benefit before switching to your retirement benefit. 

To determine the best strategy, you will need to look at your retirement benefit at your full retirement age as well as at age 70 and compare that to your survivor's benefit. If your retirement benefit at age 70 will be larger than your survivor's benefit, it may make sense to claim your survivor's benefit at your full retirement age. You can then let your retirement benefit continue to grow and switch to the retirement benefit at age 70. 

Example: A widow has the option of taking full retirement benefits of $2,000/month or survivor's benefits of $2,100/month. She can take the survivor's benefits and let her retirement benefits continue to grow. When she reaches age 70, her retirement benefit will be approximately $2,480/month, and she can switch to retirement benefits. Depending on the widow's life expectancy, this strategy may make sense even if the survivor's benefit is smaller than the retirement benefit to begin with. 

Keep in mind that divorced spouses are also entitled to survivor's benefits if they were married for at least 10 years. If you remarry before age 60, you are not entitled to survivor's benefits, but remarriage after age 60 does not affect benefits. In the case of remarriage, you may need to factor in the new spouse's spousal benefit when figuring out the best way to maximize benefits. 

The calculations are very complicated and there are literally thousands of possible strategies if one considers that for each month between ages 62 and 70, either spouse could file a claim for retirement benefits, resulting in a different cumulative benefit amount for each strategy.   It is usually not possible to know what claiming strategy is most advantageous without the aid of benefit claiming software. To find out the strategy that would work best for you, consult with a financial professional and consider using a software program like Maximize my Social Security or Social Security Timing. 

For more information about when to take Social Security benefits, click here. 

For more information about Social Security benefits for spouses, click here.  

Immediate annuities can be a useful tool to protect the spouse of a nursing home resident who applies for Medicaid. These types of annuities allow the nursing home resident to spend down assets and give the spouse a guaranteed income. But immediate annuities may not work in every state, so be sure to check with your attorney.

Medicaid is the primary source of payment for long-term care services in the United States. To qualify for Medicaid, a nursing home resident must become impoverished under Medicaid's complicated asset rules. In most states, this means the applicant can have only $2,000 in “countable” assets. Virtually everything is countable except for the home (with some limitations) and personal belongings. The spouse of a nursing home resident–called the “community spouse” — is limited to one half of the couple's joint assets up to $128,640 (in 2020) in “countable” assets. The least that a state may allow a community spouse to retain is $25,728 (in 2020). While a nursing home resident must pay his or her excess income to the nursing home, there is no limit on the amount of income a spouse can have.

An immediate annuity is a contract with an insurance company under which the annuitant pays the insurance company a sum of money in exchange for a stream of income. This income stream may be payable for life or for a specific number of years, or a combination of both — i.e., for life with a certain number of years of payment guaranteed. In the Medicaid planning context, most annuities are for a specific number of years.

The spouse of a nursing home resident may spend down his or her excess assets by using them to purchase an immediate annuity. But if Medicaid applicants or their spouses transfer assets within five years of applying for Medicaid, the applicants may be subject to a period of ineligibility, also called a transfer penalty. To avoid a transfer penalty, the annuity must meet the following criteria:

• The annuity must pay back the entire investment. When interest rates were higher, it was possible to purchase annuities for as short as two years, but now short annuities usually don't pay back the full purchase price.
• The payment period must be shorter than the owner's actuarial life expectancy. For instance, if the spouse's life expectancy is only four years, the purchase of an annuity with a five-year payback period would be deemed a transfer of assets.
• The annuity must be irrevocable and nontransferrable, meaning that the owner may not have the option of cashing it out and selling it to a third party.
• The annuity has to name the state as the beneficiary if the annuitant dies before all the payments have been made.

Here’s an example of how an immediate annuity might work: John and Jane live in a state that allows the community spouse to keep $128,640 of the couple’s assets.  If John moves to a nursing home and John and Jane have $320,000 in countable assets (savings, investments, and retirement accounts), Jane can take $200,000 in excess assets and purchase an immediate annuity for her own benefit. After reducing their countable assets to $120,000, John will be eligible for Medicaid. If the annuity pays her $3,500 a month for five years, by the end of that time, Jane will have received back her investment plus $10,000 of income. If she accumulates these funds, at the end of five years she will be right back where she started before John needed nursing home care.

Given this planning opportunity, many spouses of nursing home residents use immediate annuities to preserve their own financial security. But it's not a slam-dunk for a number of reasons, including:

• Some states either do not allow spousal annuities or put additional restrictions on them.
• Other planning options may be preferable, such as spending down assets in a way that preserves them, transferring assets to exempt beneficiaries or into trust for their benefit, seeking an increased resource allowance, purchasing non-countable assets, using spousal refusal, or bringing the nursing home spouse home and qualifying for community Medicaid.
• The purchase of an annuity might require the liquidation of IRAs owned by the nursing home spouse, causing a large tax liability.
• The non-nursing home spouse may be ill herself, meaning that she may need nursing home care soon, in which case the annuity payments would simply go to her nursing home.
• The savings may be small due to a high income or the short life expectancy of the nursing home spouse, and the process of liquidating assets and applying for Medicaid might not be worth the considerable trouble.

In short, the use of this powerful planning strategy depends on each couple's particular circumstances and should be undertaken only after consultation with a qualified elder law attorney. To find an attorney near you, go here: https://www.elderlawanswers.com/elder-law-attorneys. In addition, those who do purchase immediate annuities need to shop around to make sure they are purchasing them from reliable companies paying the best return.

Finally, couples need to beware of deferred annuities. Some brokers will attempt to sell deferred annuities for Medicaid planning purposes, but these can cause problems. While a deferred annuity can be “annuitized” (meaning it can be turned into an immediate annuity), if the nursing home resident owns the annuity, the income stream will be payable to the nursing home instead of to the healthy spouse. Often, the annuity will charge a penalty for early withdrawal, so it is difficult to transfer it to the healthy spouse. In short, while immediate annuities can be great tools for Medicaid planning, deferred annuities should be avoided by anyone contemplating the need for care in the near future.

The $2 trillion economic relief package that Congress passed to help Americans deal with the devastating financial impact of the coronavirus pandemic contains some provisions that affect seniors. In addition to authorizing direct payments to most Americans, including seniors, the law also changes required retirement plan distributions for this year and includes Medicare-related provisions. 

Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a one-time direct payment of $1,200 to individuals earning less than $75,000 per year ($150,000 for couples who file jointly), including Social Security beneficiaries. Payments are based on either 2018 or 2019 tax returns. The IRS has issued guidance, stating that anyone who did not file a 2018 tax return will need to file a simple tax return in order to receive the payment. After getting complaints that the requirement to file a tax return would be burdensome on seniors, the IRS announced that it would automatically send Social Security beneficiaries their stimulus check without their having to file a tax return. Social Security beneficiaries who receive direct deposit will get their checks directly in their bank accounts. The IRS will mail other beneficiaries a check, which may take longer than the direct deposit. 

The CARES Act also affects retirement plans. Recognizing that the stock market crash has depleted many retirement plan accounts, the Act waives the requirement that individuals over a certain age take required minimum distributions from their non-Roth IRAs and 401(k)s in 2020. This includes any 2019 distributions that would otherwise have to be taken in 2020. Required minimum distributions for this year would be based on the value of the account at the end of 2019, when the account likely had more money in it. Waiving required minimum distributions will allow retirees to retain more of their savings. 

In addition, the CARES Act allows individuals adversely affected by the pandemic to make hardship withdrawals of up to $100,000 from retirement plans this year without paying the 10 percent penalty that individuals under age 59 ½ are usually required to pay. Individuals who use this option will still have to pay income taxes on the withdrawals, although the tax burden can be spread out over three years.  The dollar limit on loans from retirement plans is also increased until the end of the year. 

Finally, the Act includes small but potentially important provisions for Medicare beneficiaries.  While the Centers for Disease Control has been advising people to have a three-month's supply of needed medications on hand during the coronavirus crisis, many Medicare Part D plans limit the amount beneficiaries may order.  The CARES Act requires that during the crisis Part D plans must lift these restrictions.  Also, when a vaccine against COVID-19 is finally developed, it will be available to Medicare beneficiaries as part of Medicare, not Part D, and there will be no cost to beneficiaries.

For more information about what is in the CARES Act, click here and chere.

For information from the IRS about coronavirus tax relief, click here.

For an IRS warning about scams related to the relief payments, click here.