Medicare Part B recipients must satisfy an annual deductible. Once the deductible has been met, Medicare pays 80 percent of what Medicare considers a “reasonable charge” for the item or service. The beneficiary is responsible for the other 20 percent.

However, in most cases what Medicare calls a “reasonable charge” is less than what a doctor or other medical provider normally charges for a service. Whether a Medicare beneficiary must pay part of the difference between the Medicare-approved charge and the provider’s normal charge depends on whether or not the provider has agreed to participate in the Medicare program.

If your doctor participates in Medicare it means that the doctor “accepts assignment.” In other words, the doctor agrees that the total charge for the covered service will be the amount approved by Medicare. Medicare then pays the provider 80 percent of its approved amount, after subtracting any part of your annual deductible that has not already been met. The provider then charges you the remaining 20 percent of the approved “reasonable” charge, plus any part of the deductible that has not been satisfied.

If your doctor does not participate in Medicare and does not accept assignment, the rules are different. Non-participating doctors can charge 20 percent of the approved amount plus up to an additional 15 percent more than the Medicare-approved amount. Non-participating doctors can also charge you for the care upfront and request that you bill Medicare, while doctors who accept assignment cannot.

For more information about Medicare, click here.

A letter of instruction is a legally non-binding document that gives your heirs information crucial to helping them tie up your affairs. Without such a letter, it can be easy for heirs to miss important items or become overwhelmed trying to sort through all the documents you left behind. The following are some items that can be included in a letter:

• 1. A list of people to contact when you die and a list of beneficiaries of your estate plan
• 2. The location of important documents, such as your will, insurance policies, financial statements, deeds, and birth certificate
• 3. A list of assets, such as bank accounts, investment accounts, insurance policies, real estate holdings, and military benefits
• 4. Passwords and PIN numbers for online accounts
• 5. The location of any safe deposit boxes
• 6. A list of contact information for lawyers, financial planners, brokers, tax preparers, and insurance agents
• 7. A list of credit card accounts and other debts
• 8. A list of organizations that you belong to that should be notified in the event of your death (for example, professional organizations or boards)
• 9. Instructions for a funeral or memorial service
• 10. Instructions for distribution of sentimental personal items
• 11. A personal message to family members

Once the letter is written, be sure to store it in an easily accessible place and to tell your family about it. You should check it once a year to make sure it stays up-to-date.

Spousal Benefits

Spouses are entitled to benefits if the marriage lasted at least 10 years. A spouse is entitled to an amount equal to one-half of the worker’s full retirement benefit. To receive this benefit, you must be at your full retirement age or caring for a child who is under 16 years old. In addition, your spouse must have filed for Social Security retirement benefits even if he or she isn’t receiving them.

If you could receive more from Social Security based on your own earnings record than through the spousal benefit, the Social Security Administration will automatically provide you with the larger benefit. If you have reached your full retirement age, you may also elect to receive spousal benefits and delay taking your benefits, allowing your own delayed retirement credits to accrue, and switch to your own benefit at a later date. However, you cannot elect to receive spousal benefits below your retirement age and later switch to your own benefits.

If you begin collecting your spousal benefit before your full retirement age, your spousal benefit will be permanently reduced.  But if your spouse retires early, but you wait until your full retirement age, you will still receive benefits based on one-half of his or her full retirement benefit.  For more from the Social Security Administration on spousal benefits, click here.

Divorced spouses

An ex-spouse is also entitled to receive one half of the worker’s full retirement benefit as long as the marriage lasted at least 10 years. Unlike a current spouse, a divorced spouse can begin receiving benefits even before the worker has applied for benefits. The worker must be at least 62 years old and the divorce must have been final for at least two years.  For more from the Social Security Administration on qualifying for divorced spouse benefits, click here.

Survivor Benefits

If you are a surviving spouse at full retirement age, you are entitled to the worker’s full retirement benefits. If the worker delayed retirement, the survivor’s benefit will be higher. Survivors are entitled to benefits even if they are divorced as long as they had been married for at least 10 years. If you file for benefits before you are over age 60, but below full retirement age, you will receive a reduced percentage of the worker’s benefits. Surviving spouses who are younger than 60 receive benefits only in limited circumstances, such as cases of disability or caring for a disabled child.

For more from the Social Security Administration on the requirements for survivor benefits, click here. 

Winehouse and Blake Fielder-Civil were married briefly. Under English law, marriage negates any wills made before the marriage, but if a couple divorces and there is no new will, the ex-spouse is the favored beneficiary. Fortunately, Winehouse reportedly updated her will to ensure that Fielder-Civil, who is currently in jail for burglary and possession of an imitation firearm, would not inherit any of her estate. Under Winehouse’s will her fortune, estimated at $16 million, will go to her divorced parents and her brother.

In the United States, if you die without a will, the state dictates who will inherit from you. 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.

If you have accumulated some assets (it doesn’t have to be Winehouse’s millions) or have young children that will need a guardian, then it is time to start thinking about an estate plan. Planning your estate with a will or trust is the best way to ensure your estate is distributed the way you want it to.

Although “Estate Recovery” was first mandated by the federal government in 1993.  Michigan became the last state to enact an estate recovery law, which occurred in 2007.  Despite the passage of the law, implementation of an estate recovery program was delayed until July 1, 2011. 

At present, the state is only allowed to seek recovery against a person’s assets that pass through probate.  Many assets do not pass through such as assets held in a living  trust, certain jointly held assets and certain assets that pass by way of beneficiary designation.  As such, the current “Estate Recovery” allow for people who plan ahead to avoid the impact of this program.  In addition, there are other limitations on what the state can seek recovery against, including a certain value of a person’s homestead.

The existence of an estate recovery program does not alter the fact that for eligibility purposes a homestead, a motor vehicle and personal property remain exempt assets.   In fact, estate recovery has nothing to do with eligibility.  Estate recovery only comes into play when a person who was eligible for Medicaid assistance and who received long term care Medicaid benefits, dies. 

In late July, early August, clients who had family members who received Medicaid benefits and have since died, began receiving notices that estate recovery claims would be made against the estates of these deceased family members.

Since Michigan’s estate recovery law is new, it is not exactly clear how it will be implemented.  However, the following is known about this program:

1. Michigan’s estate recovery law began operating July 1, 2011.

2. It will seek recovery for care costs for allowable Medicaid expenses going back to July 1, 2010.

3. Estate recovery claims will be asserted for all expenses paid to a Medicaid beneficiary receiving assistance for nursing home expenses, or benefits provided through the MI Choice Waiver Program, the Home Help program, the Home Health Program, Medicaid covered hospital expenses, Medicaid covered prescription drugs and/or PACE programs.

4. The program is being operated by Health Management Systems, Inc. (”HMS”), a private entity that operates estate recovery programs in several states.  HMS is compensated by receiving a percentage (13.9%) of all funds collected through the estate recovery program.  HMS is operating from offices in East Lansing where it has a staff attorney and several caseworkers.

5. The Michigan Department of Community Health also provides general information about Michigan’s estate recovery program at www.michigan.gov/estaterecovery.

6. When a long term care Medicaid beneficiary dies, HMS generates various documents, including:  The Notice of Intent to File Claim Against Estate and the Michigan Estate Recovery Questionnaire.  These two documents are mailed to an individual, or law firm, identified by HMS as the “primary contact” for the decedent within 30 days of the death of the Medicaid beneficiary.

7. This Notice of Intent to File Claim Against Estate asserts that the Michigan Estate Recovery Questionnaire must be completed and returned within 14 days, and further asserts that the state is a “known creditor” under Michigan’s probate law.  The Notice of Intent to File Claim Against Estate offers the recipient the opportunity to receive an Application for Hardship Waiver.  The Application for Hardship Waiver is not provided unless requested, and according to the Notice of Intent, once requested and sent, the Application for Hardship Waiver must be completed and returned within 60 days in order to avoid denial of the requested hardship exemption(s).

Our firm is suggesting that our clients who receive a Notice of Intent to File Claim Against Estate to contact our office immediately upon receipt to request assistance if desired.

Lastly, new legislation has been recently introduced which eliminate the modest protections that now exist in the current estate recovery laws, and impose a more far reaching estate recovery system in Michigan, which could include recovery against jointly owned property, proceeds from life insurance paid to a beneficiary, etc.  As these matters develop, we will certainly keep you apprised.

In the first case, Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian Baral suffered from dementia and her doctor recommended that she get 24-hour-a-day care. Her brother hired caregivers to assist Ms. Baral with daily activities. On her tax return, Ms. Baral included a deduction for medical expenses for the payments to the caregivers. The IRS said the expenses were not deductible and asked for more money. Following Ms. Baral’s death, her estate appealed the matter to the U.S. Tax Court.

Under tax law, expenses for medical care may be claimed as an itemized deduction if they exceed 7.5 percent of adjusted gross income. (Note that this threshold will rise to 10 percent of adjusted gross income in 2012.) The definition of medical expenses includes the cost of long-term care if a doctor has determined you are chronically ill. “Chronically ill” means you need help with activities like eating, going to the bathroom, bathing, and dressing, or you require substantial supervision due to a severe cognitive impairment.

The Tax Court agreed with Ms. Baral that the payments to the caregivers for assisting and supervising Ms. Baral are deductible medical expenses. The expenses qualified as long-term care services even though the caregivers were not medical personnel because a doctor had found that the services provided to Ms. Baral were necessary due to her dementia.

In the second case, Estate of Olivo v. Commissioner (U.S. Tax Ct., No. 15428-07, July 11, 2011), New Jersey resident Anthony Olivo provided nearly full-time care to his mother from 1994 to 2003, during which time he largely abandoned his practice as an attorney. After his mother died, Mr. Olivo became administrator of her estate.

Mr. Olivo filed a tax return for the estate and claimed a deduction of $1.24 million as a debt he said the estate owed him for the care he had provided his mother over the years. He claimed he had an oral agreement with his mother that after she died she would compensate him for his services. The IRS disallowed the deduction and Mr. Olivo filed a petition with the Tax Court.

The U.S. Tax Court agreed with the IRS that the estate is not entitled to the deduction. Applying the law in New Jersey, which presumes that services to a family member living in the same household are given for free (many states - including Michigan - have similar laws), the court ruled that without a written agreement between Ms. Olivo and her son, it must assume that Mr. Olivo provided the services without any expectation he would be repaid (e.g. - out of love and affection).

There are some big changes to the open-enrollment schedule for Medicare Advantage and Medicare Part D this year, so you’ll need to make key decisions about your 2012 coverage several weeks earlier than in the past.

Starting this year, you’ll have from October 15 to December 7 to pick a Medicare Advantage plan (a private plan that provides medical and prescription-drug coverage) or a Medicare Part D prescription-drug plan for the coming year. (The open-enrollment period used to run from November 15 to December 31.)

As a result of the new timeline, you’ll start receiving information about changes to your coverage and your plan options much sooner, too. In late September, your current plan must send you its Annual Notice of Change, which advises you of any alterations to plan benefits or premiums, or if the plan is being discontinued. This is one piece of mail that you don’t want to throw away. 

If you are currently enrolled in a Medicare Advantage plan, you need to be especially vigilant. Some smaller plans may consolidate and others may leave the business altogether because of changes in government subsidies and network rules. If your plan does close, you must pick a new Medicare Advantage plan by December 7 or your coverage will shift automatically to traditional Medicare on January 1, 2012. If that happens, you’ll need a separate Part D plan to provide prescription-drug coverage and a Medigap policy to provide extra coverage for deductibles and co-payments. If, however, your Medicare Advantage plan continues to operate, you’ll be re-enrolled automatically in your current plan. 

Even if you are satisfied with your current plan, it’s a good idea to review all of your options for next year’s coverage. Some plans will no doubt increase premiums and co-payments and make changes to their drug coverage. For example, your plan may switch some of the drugs you use to a more-expensive pricing tier. That potentially costly change may not be obvious unless you look up the drugs you use on the plan’s list, known as a “formulary.” Consequently, the plan that worked well for you in 2011 may not be the best deal in 2012, and some new plans may provide even better coverage. 

Medicare Advantage and Part D plans can start marketing their 2012 plans on October 1. After that, you can use the Plan Finder tool at Medicare.gov to compare prices, co-pays, deductibles, coverage and drug tiers for all of the Part D and Medicare Advantage plans available in your area. (If you try to use the Plan Finder tool before October 1, it will not include 2012 information.) 

Don’t just look at premiums; a plan with low premiums may have higher co-pays and cost you more in the long run. Instead, compare potential out-of-pocket costs of a Part D plan for the drugs you currently take. If you are considering an all-inclusive Medicare Advantage plan, look at the coverage, exclusions and out-of-pocket expenses for the type of medical care you tend to receive. 

See A Step-by-Step Guide to Comparing Your Medicare Options for more information about using the Plan Finder tool to pick the best plan for you. Or, you can get personalized assistance with your Medicare decisions through your local State Health Insurance Assistance Program (SHIP). To find local contact information, go to ShipTalk.org or call 800-Medicare (800-633-4227).

Finally, be sure to sign up for your 2012 plan by the new, December 7 deadline. Be smart and don’t procrastinate. 

What Is an IRA?

IRAs are personal savings plans that allow you to set aside money for retirement and create tax savings. The advantage of IRAs is that you may be able to deduct some or all of your contributions to an IRA from your taxes and also be eligible for a tax credit equal to a percentage of your contribution. Earnings in a traditional IRA are 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 your IRA upon your death can be paid to your beneficiary or beneficiaries.

Rule Number One: Name Beneficiaries

From an estate planning perspective, the most important thing to remember with an IRA is to name a beneficiary. While a spouse is usually the logical choice for a beneficiary, you should be sure to name contingent beneficiaries as well. If you and your spouse died at the same time and there was no contingent beneficiary, then the IRA would go to your estate and be subject to probate (the legal process of administering the estate of a deceased person).

Rule Number Two: Stretching an IRA

If you don’t need the funds in your IRA for retirement and want to use them to provide for your beneficiaries instead, you may be interested in “stretching out” your IRA. To do this, when you reach 70 1/2, take only the required minimum distributions, leaving more assets in your IRA. When you die, your beneficiary can also stretch distributions out over his or her lifetime and then designate a second-generation beneficiary. It makes sense to name a young beneficiary because the younger the beneficiary, the smaller each distribution must be, which gives the funds in the IRA extra tax-deferred years to grow.

Rule Number Three: Trusts as Beneficiaries

In some cases, it may make sense to name a trust as a beneficiary. This is particularly true if you have minor children, children with special needs, or a beneficiary with poor spending habits. But the trust must be properly drafted to avoid negative tax consequences. If the trust is a “see-through” trust or “conduit” trust, then the distributions from the IRA to the trust after the participant’s death can be stretched out over the life expectancy of the oldest trust beneficiary. If you are planning to leave your IRA to a trust, you must consult with your attorney to ensure that the trust is properly drafted.

An IRA can be a valuable part of an estate plan, but the rules can be complicated. Please contact or firm if you have any questions about your options.

Hiring Directly

When you hire a caregiver directly, you need to consider all the tax and liability issues. As an employer, you are responsible for filing payroll taxes, tax forms, and verifying that the employee can legally work in the United States. If you pay $1,700 or more in wages in 2011 to any one employee, you need to withhold and pay Social Security and Medicare taxes. If you pay more than $1,000 in wages in 2011, you need to pay unemployment taxes. In addition, a private caregiver may not carry his or her own liability insurance or workers’ compensation. If an accident occurs on the job, you could be responsible.

One potential benefit of hiring a caregiver directly is that you have more control over who you hire and can choose someone who you feel is right for your family. In addition, hiring privately is usually cheaper than hiring through a home health agency.

Hiring Through An Agency

When you hire through a home health agency, the agency is the employer, so you don’t need to worry about tax and liability issues. The agency takes care of screening the employees, doing background checks, and providing insurance. In addition a licensed home care agency must provide ongoing supervision to its employees. It can help the employees deal with difficult family situations or changing needs. The agency may also be able to provide back-up if a regular caregiver is not available. 

The downside of going through an agency is not having as much input into the selection of the caregiver. In addition, caregivers may change or alternate, causing a disruption in care and confusion.

Please contact our firm if you need a referral  to a competent home health care agency.

A prenuptial agreement can be used in a second marriage when both parties have children. For example, suppose you get remarried and both you and your spouse have children from a prior marriage. You want your house to pass to your children, but without proper planning and an agreement in place, your spouse could inherit the house and then pass the house to her children when he or she dies.

It is important to make sure your prenuptial agreement is valid. Following are the major factors needed to ensure this:

In writing. To be valid, a prenuptial agreement must be in writing and signed by both spouses. A court will not enforce a verbal agreement.

No pressure. A prenuptial agreement will be invalid if one spouse is pressured into signing it by the other spouse.

Reading. Both spouses must read and understand the agreement. If a stack of papers is put in front of one spouse and he or she is asked to sign quickly without reading, the agreement can be invalidated. The spouse must be given time to read the document and consider it before signing it.

Truthful. Both spouses must fully disclose assets and liabilities. If either spouse lies or omits information about his or her finances, the agreement can be invalidated.

No invalid provisions. While the spouses can agree to most financial arrangements, a prenuptial agreement that modifies child support obligations is illegal. If an agreement contains an invalid provision, the court can either throw out the entire agreement or strike the invalid provision. Similarly, if the terms of the agreement are grossly unfair to one spouse, the agreement may be invalid.

Independent counsel. Some states require spouses to seek advice from separate attorneys before signing a prenuptial agreement. Regardless of whether it is required by state law, it is the best way to make sure each spouse’s interest is protected by having it reviewed by independent counsel for each spouse.

Though a prenuptial agreement is an agreement that is signed before marriage, sometimes similar agreements can be made after the wedding (called a post-nuptial agreement). To find out if a pre-nuptial or post-nuptial agreement is right for you, contact our firm.