Why You Need to Consider Elder Law, Marital Estate Planning, Insurance, and Social Security in Divorce Cases
Jan L. Warner
SOME AREAS OF CONCERN FOR YOUR FAMILY
If you think you need not consider elder law, marital estate planning, and social security in divorce cases, think again!
As you get older, have older parents, or disabled children, you should become aware of the significant financial exposures associated with long-term care, the shifting of health care expenses to spouses -- and even children, estate tax issues, Social Security, Medicaid, and other benefits.
In addition, you should learn about the need for new and updated wills, durable powers of attorney for financial purposes, and advance health care directives (Declarations of a Desire for a Natural Death -- living wills -- and durable health care powers of attorney).
Long-term health care expenses -- especially for middle-income people. Wealthy people can afford long-term care in a nursing facility; the very poor will receive Medicaid assistance. Middle-income families, however, will continue to be financially stretched to cover the costs of long-term care, particularly since people are living longer, governmental benefits are shrinking, and investment and retirement portfolios are being hammered.
Escalation of medical expenses – which, compared to inflation of 3% to 4% annually, have been increasing at approximately 12%. Spouses are responsible for each other’s expenses and, in 29 states, children can be held responsible for their indigent parents’ care under what is known as “Family Responsibility.”
Joining HMO’s instead of relying on Medicare. Each week, tens of thousands of Americans over age 65 choose to join Medicare HMO’s without appropriate investigation. In some instances, this can cause less coverage and greater financial exposure.
Not understanding what Medicare and Medicaid Cover. Medicare does not pay for long-term nursing home care except for a very short time and then on a limited basis. For the one in four Americans who enter nursing homes without a plan, this can be a shock.
MARITAL ESTATE PLANNING AND INSURANCE
Check into who owns the life insurance policies. If you own a policy of insurance on your life, regardless of the beneficiary, at death, the value of the policy proceeds will be included in your estate. This means that an otherwise non-taxable estate can become taxable very quickly – and unexpectedly – even though the proceeds pass free of taxation to the named beneficiary. Similarly, if you make your estate the beneficiary, an otherwise non-taxable distribution will be subject to estate tax.
Check into who pays for disability policies. If you pay for your disability policy and becomes disabled, the monthly distributions are not taxable; however, if your employer pays the premiums, the monthly distributions are taxable to you when you receive them.
Check into required withdrawals from qualified monies and beneficiaries of these accounts. Since there are different rules about withdrawing funds from IRA’s and other qualified funds, you should understand the penalties and taxes that may be imposed. For the next three years, the 15% penalty for under-withdrawing has been waived; however, the income averaging provisions have been increased from five years to ten.
Check into long term care coverage. Under the new law, long-term care premiums are tax deductible to the extent they exceed 7.5% of the your adjusted gross income, and proceeds are not taxable. The younger your are, the less the premiums are.
SOCIAL SECURITY FOR SPOUSE'S AND EX-SPOUSE'S BENEFIT
Spouses and ex-spouses may qualify for Social Security benefits if they are 62 years of age or older and, in some instances, if they are under age 62.
At age 62, the spouse of a living worker who is drawing benefits may be entitled to draw a benefit if married for at least 12 months.
At age 62, a divorced spouse of a worker who is drawing benefits may be entitled to draw a benefit if the marriage lasted 10 full years before the divorce and the spouse is not married at the time of application.
At age 62, a divorced spouse of a worker who is eligible for, but is not drawing benefits, may be entitled to draw a benefit if the marriage lasted 10 full years before the divorce, the spouse is not married at the time of application, and the divorce took place at least two years before the application.
In each instance, the benefit -- based on 1/2 of the worker's unreduced benefit -- is reduced if taken before the spouse's nearest retirement age (NRA). If your client draws this benefit, the worker’s benefit is not reduced.
Before age 62, a spouse of a worker who is drawing who has a young or disabled child also drawing may be entitled to a benefit that is limited by the family maximum. Drawing this benefit does not reduce the worker's benefit.
SOCIAL SECURITY FOR SURVIVING SPOUSE AND EX-SPOUSE
There are 4 categories of surviving spouses: Two kinds of older spouses and two kinds of younger spouses. And the rules are different.
1) The older legal spouse must have been legally married to the worker for at least 9 months at the time of the worker's death. The 9 month marriage duration rule is waived if the death was accidental.
2) The older divorced spouse must have been legally married to the deceased worker for at least 10 full years before divorce.
- In both cases, the older spouse is eligible to draw benefits on the deceased worker's work record at age 60. If, however, the older spouse is disabled, eligibility may begin at age 50.
- In both cases, the older spouse must not be remarried unless the remarriage occurs after age 60 (after age 50 if disabled).
- This means that marriage after age 60 (50) does not affect entitlement to the benefit.
3) The younger legal spouse was married to the deceased worker at death.
4) The younger divorced spouse was divorced at the time of the worker's death.
In both cases, the surviving spouse must be caring for a child who is either younger than 16 or was disabled before age 22 young and who is also entitled to benefits on the deceased worker's record.
In both cases, the child in care must be the natural or adopted child of both the deceased worker and the applicant spouse.
In both cases, the younger spouse is entitled to benefits until the youngest child reaches 16 or so long as the disabled child remains disabled.
In both cases, there is no minimum age and no minimum marriage duration required for the younger spouse to draw.
How are the benefits figured for older surviving spouses?
The older spouse's benefit is a percentage of the deceased worker's unreduced benefit, depending on the surviving spouse's age when benefits are drawn. This benefit will not be less than 71.5% of the worker's unreduced amount, and it generally will not be more than the entitled deceased worker was drawing at death.
Things to remember if you are an older surviving spouse:
If you are age 65 or older when your spouse dies and your spouse was drawing at the time of death, you will receive the same amount as the deceased was drawing. If you are entitled to another benefit, such as retirement on your own work record, you may draw the higher of the two, but not the full amount of both.
If the deceased worker was entitled to higher benefits because he or she received delayed retirement credits, the surviving spouse will get a higher benefit as well. The amount of the younger spouse's benefit depends on how many others are also drawing benefits on the same record. Your benefit amount as a younger surviving spouse can never exceed 75% of the deceased worker's unreduced benefit. It will generally be a share of the family maximum.
SUMMARY: While spouses and ex-spouses of living workers must wait until age 62 to begin drawing benefits, older surviving spouses and ex-spouses of deceased workers can begin to draw at age 60 (age 50 if they are disabled) and there is no age minimum for younger surviving spouses or ex-spouses.
Plan in advance of catastrophic circumstances. Before a long-term or chronic illness takes away your options, make sure you understand state laws and requirements.
Create contingency plans through documents. Because disability often causes the same problems that face incapacitated elderly persons, everyone needs a durable power of attorney for financial purposes and advance health care directives such as a living will.
Discuss your plans with their family. You should call a family meeting about all of these issues because they are family decisions. Adult children in their 40’s and 50’s have a big stake in these “elder” decisions since this “sandwich generation” is trying to raise and educate their children, plan for their retirement, and care for elderly parents and relatives. In many states, children can be held financially responsible for their parents’ medical bills.
Check into Social Security and Medicare before divorce. If you -- or your spouse -- dies prematurely or becomes disabled, you needs to know about Social Security. If you -- or your spouse -- is to pay or receive alimony, you need to know about Social Security. And if there is a disabled child, you need to know about the potential Social Security benefits before the divorce is granted.
© 2002 Jan L. Warner
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