WHAT HAPPENS IF YOU DIE WITHOUT A WILL?
We all know we are supposed to do estate planning, but not all of us get around to it. So what happens if you don’t have a will when you die? Your estate will be distributed according to state laws, which may or may not be the way you want it to be distributed.
Dying without a will is called dying “intestate”. Each State has laws that determine what will happen to your estate if you don’t have a will. If you are married, most states award one-third to one-half of your estate to your spouse, with the rest divided among your children or, if you don’t have children, to other living relatives such as your parents or siblings. If you are single, most states provide that your estate will go to your children or to other living relatives if you don’t have children. If you have absolutely no living relatives, then your estate will go to the state.
One purpose of a will is to name a guardian for your young children; if you do not have a will, the court will determine who will act as guardian. The court will also appoint the person who will administer your estate. In addition, if you are unmarried, but have a partner, your partner will not inherit anything from your estate without a will naming him or her as a beneficiary.
The best way to ensure your estate is distributed the way you want it is to plan your estate with a will and/or a trust.
Note that any jointly held assets, such as bank accounts or houses, will go directly to the co-owner. In addition any life insurance policies or retirement accounts will go directly to the beneficiary designated on the account. And if you have a trust, any assets in the trust will go to the beneficiary designated in the trust.
WHAT IS THE PROBATE PROCESS?
Probate is a term that is used in several different ways. Probate can refer to the act of presenting a Will to a court officer for filing — such as, to “probate” a Will. But in a more general sense, probate refers to the method by which your estate is administered and processed through the legal system after you die.
The probate process helps you transfer your estate in an orderly and supervised manner. Your estate must be dispersed in a certain manner (your debts and taxes paid before your beneficiaries receive their inheritance, for example). Many people think that probate applies to you only if you have a will. Wrong! Your estate will be probated whether or not you have a will.
• With a valid will: If you have a valid will, then your will determines how your estate is transferred during probate and to whom.
• Without a valid will: If you don’t have a will, or if you die partially intestate, where only part of your estate is covered by a valid will, the laws where you live specify who gets what parts of your estate.
Even though you will not be around when your estate goes through probate (after all, you’ll be dead), you need to understand how the probate process works. At the most basic levels, the probate process involves two steps:
• Pays debts you owe
• Transfers assets to your beneficiaries
A state court called the probate court oversees the probate process. Because probate courts are state courts and not federal courts, the processes they follow may vary from one state to another. Yet despite their differences, these courts all pretty much follow the same basic processes and steps, which typically include:
• Swearing in your personal representative
• Notifying heirs, creditors, and the public that you are, indeed, dead
• Inventorying your property
• Distributing your estate (including paying bills and any taxes)
One of the greatest fears of older Americans is that they may end up in a nursing home. This not only means a great loss of personal autonomy, but also a tremendous financial price. Depending on location and level of care, nursing homes cost between $40,000 and $180,000 a year.
Most people end up paying for nursing home care out of their savings until they run out. Then they can qualify for Medicaid to pick up the cost. The advantages of paying privately are that you are more likely to gain entrance to a better quality facility and doing so eliminates or postpones dealing with your state’s welfare bureaucracy–an often demeaning and time-consuming process. The disadvantage is that it’s expensive.
Careful planning, whether in advance or in response to an unanticipated need for care, can help protect your estate, whether for your spouse or for your children. Those who are not in immediate need of long-term care may have the luxury of distributing or protecting their assets in advance. This can be done by setting up an Irrevocable Trust or by purchasing long-term care insurance. This way, when they do need long-term care, they will quickly qualify for Medicaid benefits. Giving general rules for so-called “Medicaid planning” is difficult because every client’s case is different. Some have more savings or income than others. Some are married, others are single. Some have family support, others do not. Some own their own homes, some rent. Still, a number of basic strategies and tools are typically used in Medicaid planning.
THE LOOK BACK PERIOD
Congress has established a period of ineligibility for Medicaid for those who transfer assets. For transfers made prior to February 8, 2006, state Medicaid officials would look only at transfers made within the 36 months prior to the Medicaid application (or 60 months if the transfer was made to or from certain kinds of trusts). But for transfers made after February 8, 2006, the so-called “look-back” period for all transfers is 60 months.
While the look-back period determines what transfers will be penalties, 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, 2010, moves to a nursing home on April 1, 2011, and spends down to Medicaid eligibility on April 1, 2012, that is when the 20-month penalty period will begin, and it will not end until December 1, 2013.
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.
WILL YOU LOSE MEDICARE OR MEDICAID IF YOU LEAVE THE NURSING HOME TO VISIT FAMILY?
Reunions, graduations, birthdays, and holidays: Whatever the occasion, nursing home residents don’t want to miss out on family gatherings, but may be afraid that they will lose Medicare or Medicaid coverage if they leave the nursing home. In most cases, Medicare recipients can leave for a day or two, although the nursing home may bill them in order to hold their beds. Medicaid recipients will need to check with their state.
Medicare’s coverage of nursing home care is quite limited and it only covers “skilled care” – i.e., treatment provided by a doctor or nurse. Coverage can stop if a patient is no longer benefitting from this skilled care. However, the Medicare policy manual states that a short leave of absence to attend a family occasion is not, by itself, evidence that the resident no longer needs to be in the nursing home. The manual also states that staff should not tell a resident that leaving the facility will cause coverage to lapse.
If a resident leaves and returns by midnight the same day, the nursing home can bill Medicare for the day. However, if the resident is gone overnight, Medicare will not compensate the nursing home for the time missed. If the resident wants to leave for a few days, he or she should check with the nursing home to make sure the bed can be held. The nursing home may charge the resident a bed-hold fee in order to keep the space available.
If a Medicaid recipient leaves a nursing home to visit family, it is called “therapeutic leave.” State laws regarding therapeutic leave vary widely. Some states will pay to hold a bed for as long as 30 days a year, while others pay nothing at all for such leave. Each nursing home is required to provide residents with information about their bed-hold policy before the resident leaves the facility. In addition, if a Medicaid recipient is absent longer than the nursing home’s policy allows, federal law requires the nursing home to readmit the recipient to the first available room
WHAT IS AN ANNUITY?
In its most general sense, an annuity is an agreement for one person or organization to pay another a stream or series of payments. Usually the term “annuity” relates to a contract between you and a life insurance company, but a charity or a trust can take the place of the insurance company.
There are many categories of annuities. They can be classified by:
Nature of the underlying investment – fixed or variable
Primary purpose – accumulation or pay-out (deferred or immediate)
Nature of pay-out commitment – fixed period, fixed amount, or lifetime
Tax status – qualified or nonqualified
Premium payment arrangement – single premium or flexible premium
An annuity can be classified in several of these categories at once. For example, you might buy a nonqualified single premium deferred variable annuity. For brief definitions of these categories.
In general, annuities have the following attractive features:
Tax deferral on investment earnings
Many investments are taxed year by year, but the investment earnings—capital gains and investment income—in annuities aren’t taxable until you withdraw money. This tax deferral is also true of 401(k)s and IRAs; however, unlike these products, there are no limits on the amount you can put into an annuity. Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs.
Protection from creditors
If you own an immediate annuity (that is, you are receiving money from an insurance company), generally the most that creditors can access is the payments as they’re made, since the money you gave the insurance company now belongs to the company. Some state statutes and court decisions also protect some or all of the payments from those annuities. And your money in tax-favored retirement plans, such as IRAs and 401(k)s, are generally protected, whether invested in an annuity or not.
An array of investment options, including “floors”
Many annuity companies offer a variety of investment options. You can invest in a fixed annuity which would credit a specified interest rate, similar to a bank Certificate of Deposit (CD). If you buy a variable annuity, your money can be invested in stock or bond (or other) mutual funds. In recent years, annuity companies have created various types of “floors” that limit the extent of investment decline from an increasing reference point. For example, the annuity may offer a feature that guarantees your investment will never fall below its value on its most recent policy anniversary.
Tax-free transfers among investment options
In contrast to mutual funds and other investments made with “after-tax money,” with annuities there are no tax consequences if you change how your funds are invested. This can be particularly valuable if you are using a strategy called “rebalancing,” which is recommended by many financial advisors. Under rebalancing, you shift your investments periodically to return them to the proportions that you determine represent the risk/return combination most appropriate for your situation.
A lifetime immediate annuity converts an investment into a stream of payments that last as long as you do. In concept, the payments come from three “pockets”: Your investment, investment earnings and money from a pool of people in your group who do not live as long as actuarial tables forecast. It’s the pooling that’s unique to annuities, and it’s what enables annuity companies to be able to guarantee you a lifetime income.
Benefits to your heirs
There is a common misconception about annuities that goes like this: if you start an immediate lifetime annuity and die soon after that, the insurance company keeps all of your investment in the annuity. That can happen, but it doesn’t have to. To prevent it, buy a “guaranteed period” with the immediate annuity. A guaranteed period commits the insurance company to continue payments after you die to one or more beneficiaries you designate; the payments continue to the end of the stated guaranteed period—usually 10 or 20 years (measured from when you started receiving the annuity payments). Moreover, annuity benefits that pass to beneficiaries don’t go through probate and aren’t governed by your will.
Inheriting a Vehicle
If you inherit a vehicle from a loved one, you’ll need to transfer the title into your name.
1. The legal heir(s) must sign the title over to you. If you are the legal heir, sign the title in the seller’s section.
2. Sign and date the title in the buyer’s section.
3. Complete, sign, and notarize an Application for Registration and Title Certificate.
4. If a will exists and names you the inheritor of the vehicle, make a copy of the will. If no will exists, have the legal heirs complete an Affidavit & Assignment of Title. The form must be notarized.
5. Remove the license plates from the car.
6. Take the plates, signed title, will (or affidavit), and application to the DMV.
7. Pay a title fee.
You’ll be registering the car at the same time of the transfer, so check out the additional fees and requirements in our section on Car Registration. Also, insure the vehicle before attempting to register it. You can compare quotes online at our Insurance Center
Social Security Disability Benefits (SSDI)
Disability benefits are available to qualified recipients under two programs, Supplemental Security Income (SSI) and Social Security Disability Income (SSDI). SSI is a means-tested program for people with disabilities who have very limited means, but SSDI is an insurance program that is available to qualified workers with disabilities regardless of their resources. As of February 2013, some 10.9 million disabled workers and their dependents were receiving SSDI benefits from Social Security.
SSDI pays cash benefits to people who are unable to work for a year or more because of a disability. Benefits continue until you are able to work again on a regular basis, or until you reach retirement age. At that point, the disability benefits automatically convert to retirement benefits, but the amount remains the same. After receiving SSDI benefits for two years, you also become eligible for health insurance coverage under Medicare. The disability program also includes a number of work incentives to ease your transition back to work.
Who is eligible?
As with retirement benefits, you must have accumulated a certain number of work credits before you can qualify for SSDI disability benefits. However, fewer credits are required to qualify for the disability program than for retirement. You can earn up to four credits per year of employment. How many credits you need to qualify for disability depends on the age you become disabled.
Who is “disabled”?
The Social Security Administration uses a strict definition of disability. The program does not pay for partial disability or short-term disability. To qualify for benefits under SSDI, your disability must prevent you from doing any substantial gainful work, and it must last or be expected to last a year or to result in death.
Despite the rule that the disability must be expected to last a year, you should apply for benefits as soon as the condition becomes disabling and your doctor is willing to state in writing that it is expected to last at least a year. If it turns out that you recover sooner than expected, the SSA will not ask for its money back.
Older workers who become disabled tend to have an easier time having their claims approved. The SSA recognizes that it is more difficult for older workers to be retrained or to find new employment. In addition, the agency knows that a disabled worker who is, say, 60 years old and will be receiving retirement benefits in a few years anyway will cost it less in benefit outlays than a younger worker would.
What is the amount of disability payments?
As with other Social Security benefits, the amount of your disability payments is based on your age and your earnings record. The calculations are the same as those for retirement benefits, although fewer work credits are needed to qualify for benefits. You can obtain the SSA’s estimate of what your disability benefits would be by requesting Social Security Statement SSA-7004 (formerly known as the Personal Earnings and Benefit Estimate Statement) from the SSA. You can request a copy by mail or online by visiting the SSA Web site.
Your spouse and minor or disabled children are also eligible for benefits. The most that you and your family can receive, however, is either 85 percent of your salary before you became disabled or 150 percent of your own disability benefit, whichever is less.
In most cases, the SSA allows you to supplement your benefits with a small amount of income (in 2013, up to $1,040 a month or $1,740 for the blind).
Beneficiaries who are eligible for more than one Social Security program — say, disability and retirement benefits — cannot collect more than one Social Security benefit simultaneously. If you are eligible for two benefit programs, you will receive the higher of the two benefit amounts, but not both. The exception is Supplemental Security Income, which you can receive while collecting benefits from another Social Security program. However, you are permitted to collect disability payments from a private insurer, the Veterans Administration, or other source at the same time that you are receiving Social Security disability benefits. This holds true for workers’ compensation benefits as well, although your Social Security disability benefits will be reduced if the total of your workers’ compensation and disability benefits exceeds 80 percent of your average wages before you became disabled.
How do I apply for benefits?
Unlike applying for retirement benefits, the application process for disability benefits is complicated and time-consuming. Before you can collect benefits, you have to have been disabled for at least six months. However, since the application process itself can take up to six months, do not wait for the six-month period of disability to elapse before applying for benefits; do it as soon as you become disabled.
The initial application is made at your local Social Security Office. If the office determines that you have sufficient work credits to collect disability benefits, it will forward your application to a Disability Determination Services office in your state, which will make the decision about whether you meet the Social Security Administration’s criteria for disability. This decision is made by a doctor and a disability evaluation specialist. They may request additional medical records and/or request a medical evaluation or test. This exam will be paid for by the SSA.