The dangers of joint bank accounts

Connect-20333_640 (1)We are not talking here about joint accounts on which spouses are the joint owners; virtually all married couples hold many of their assets jointly. Rather, we are talking about accounts where one person adds another to the account for “estate planning” purposes. Many people believe that joint accounts are a good way to avoid probate and transfer money to loved ones. 

However, although joint accounts can be useful in certain circumstances, they can have dire consequences if not used properly. Adding a loved one to a bank account can expose your account to the loved one’s creditors as well as affect Medicaid planning. 

Once money is deposited in a joint account, it belongs to both account holders equally, regardless of who deposited the money. Account holders can withdraw, spend, or transfer money in the account without the consent of the other person on the account.

Before putting anyone on a joint account with you, you need to be sure you can trust that person because he or she will have full access to the account. When one account holder dies, the money in the account automatically goes to the other account holder without passing through probate.

One problem with joint accounts is that it makes the account vulnerable to the creditors of ALL the account owners. For example, suppose you add your daughter to your bank account. If she falls behind on credit card debt and gets sued, the credit card company can use the money in the joint account to pay off your daughter’s debt. Or if she gets divorced, some or all of the money in the account could be considered her assets and be divided up in the divorce.

Joint accounts can also affect Medicaid eligibility. When a person applies for Medicaid long-term care coverage, the state looks at the applicant’s assets to see if the applicant qualifies for assistance. Although a joint account may have two names on it, most states assume the applicant owns the entire amount in the account regardless of who contributed money to the account.

If your name is on a joint account and you enter a nursing home, the state will assume the assets in the account belong to you unless you can clearly prove that you did not contribute to it.

In addition, if you are a joint owner of a bank account and you or the other owner transfers assets out of the account, this can be considered an improper transfer of assets for Medicaid purposes. This means that either one of you could be ineligible for Medicaid for a period of time, depending on the amount of money in the account. The same thing happens if a joint owner is removed from a bank account. 

There is a better way to conduct estate planning and plan for disability. A power of attorney will ensure family members have access to your finances in the case of your disability. If you are seeking to transfer assets and avoid probate, a trust may make better sense. To learn more, talk to your attorney.  And consider joining us for one of our upcoming workshops.  Just click here to find out more.


Choosing a Medigap Policy

Question-mark-1872665_640Once you become eligible for Medicare at age 65, you will be inundated with offers from insurance companies for Medigap (supplemental insurance) policies. Sorting through these offers can be confusing; there are 12 standardized plans, with HUGE differences in premiums between companies.

Medicare plans A and B cover only a portion of medical costs. Medigap policies fill in the “gaps” in coverage. The first step is to figure out what coverage you will need. The government currently has 10 standardized plans, each represented by a letter. Medicare publishes a guide, Choosing a Medigap Policywww.medicare.gov/sites/default/files/2018-07/02110-medicare-medigap.guide_.pdf that explains the differences in plan coverage. 

Consider these things when looking at plans:

  • If you regularly see doctors who charge above what Medicare pays, Plans F and G, which cover excess charges, may be your best bet.
  • Plans C, D, F, G, M, and N include coverage for travel outside the United States.
  • If you have a chronic condition with high medical bills, Plan K or L may work best. Both pay only a portion of covered expenses, but have a yearly out-of-pocket cap. Once you reach the cap, the policy pays 100% of all medical services.

Plans that cover the Medicare Part B deductible (Plans C and F in most states) will no longer be sold to most people who become eligible for Medicare after January 1, 2020. If you buy a Medigap Plan C or F before January 1, 2020, you can keep that plan and your benefits won’t change. 

Once you’ve decided what type of coverage you need, you next need to decide which company from which to buy. Medigap Policy Finder, www.medicare.gov/find-a-plan/questions/medigap-home.aspx provides a list of companies in your state.

Each plan covers the same medical services, but premiums can vary significantly. The companies use three different methods to set premiums:

  • Attained-age policy premiums are based on your age, so the premium automatically increases as you get older. Before buying an attained age policy, ask the insurance company for premium costs for the next age increments, so you’ll know what increases to expect each year.
  • Issue-age policy premiums are based on the age you first buy the policy. The premium will never be higher than the amount the company is charging new buyers at the same age. For example, if you buy the policy at age 65, in five years, the premium will be what the company is charging new 65-year-old buyers. While your premiums may increase, the increases may not be large because the company will keep premiums lower to attract new buyers.
  • Community policy premiums charge the same price to everyone in your area regardless of age. The premiums go up only when the insurance company raises premiums on all policies of the same type; increases are regulated by state insurance departments.

Although the premiums on an attained-age policy may be lower at first, issue-age or community policies are generally better buys; although more expensive at first, they doesn’t increase as much over time.

Some other things to keep in mind when choosing a policy:

  • Look for a company that files Medigap claims automatically, which can save time and effort.
  • Purchase from a financially sound company. Make certain that the insurer is rated in the top two categories by one of the services that rates insurance companies, such as A.M. Best or Weiss.
  • Contact your state insurance department to find out if the insurance company has any complaints filed against it.

Although finding the right Medigap policy can be daunting, these tips can help remove some of the confusion.  We also offer a free educational workshop to help with your estate and asset protection planning.  Just click here to RSVP for the day and time that works for you


Guns and Dementia

Art-artsy-background-1056555Researchers estimate that nearly half of people over 65 either own a gun or live in a household with someone who does. Thus, it is important for family members of those with dementia to recognize the importance of gun safety, and to deal with that issue as early as possible.

At the more advanced stages of dementia, when the person might not recognize a loved one, including a spouse, that person can become frightened and threaten or do harm to the loved one out of confusion or the perceived need to protect him/herself from this stranger in the house. The risk of suicide or accidental self-harm also increases as the dementia becomes more pronounced. Here are some legal and practical steps to stay safe. 

What can families do ahead of time?

Talk to your loved one early on about how to safely transfer ownership of, or store, his/her guns if he/she should become incapacitated. At a minimum, consider writing a firearms agreement, in which the owner would authorize a designated family member to determine when it is time to remove access by the owner to her/his guns.

At the very least, family members should make arrangements to store the guns unloaded in a locked cabinet or safe, with the ammunition stored separately. Doctors are legally allowed to inquire about access to firearms when a person is diagnosed with dementia, but, experts say, they often don’t. Therefore, families should discuss with the doctor gun safety along with other concerns, such as driving and use of kitchen appliances and power tools. 

What if a person with dementia wants to transfer his/her guns?

In Pennsylvania, there are strict rules on the sale or transfer of guns by unlicensed sellers; typically they may only sell a handgun or short-barreled rifle or shotgun to an unlicensed purchaser at the place of business of a licensed importer, manufacturer, dealer or county sheriff’s office, which sale or transfer must comply with all of Pennsylvania’s dealer regulations, including a background check on the purchaser. However, these requirements do not apply to transfers between spouses, parents and children, or grandparents and grandchildren, or generally to transfers of long guns; thus, such transfers can be fairly easily accomplished. For gun laws of other states, see the websites NRA Institute for Legislative Action or Giffords Law Center to Prevent Gun Violence.

What if the gun owner doesn’t want to give them up?

By federal law, a person loses the right to buy or own a gun if a judge deems that person mentally incompetent to make decisions. In such a case, family members likely would have to go to court and obtain a guardianship of the person, so that the guardian can take control of the guns.

What about veterans?

Veterans who have been deemed mentally incompetent to manage their finances also lose their right, under federal law, to buy or own guns. As of March 2018 nearly 109,000 veterans were barred from gun ownership because of their enrollment in the Veterans Affairs fiduciary program.

What if they’re making threats?

Police can take guns away from someone who threatens a specific crime. Pennsylvania does not have a “red flag” gun law permitting the removal of guns from a person who exhibits dangerous behavior. However, Pennsylvania recently passed a law requiring those subject to a final protection from abuse order or convicted of misdemeanor domestic violence to turn over their weapons to law enforcement within 24 hours after the order or conviction. 

The possession or control of firearms is an important topic of discussion and planning with those who show signs of dementia, and sooner rather than later.  And it’s important to get your planning done sooner rather than later.  Take the first step today and register for one of our upcoming workshops.


Life Insurance, IRAs, and Wills

Board-2084777_640Many people are confused about the way that life insurance, IRAs and other qualified retirement plans operate under their Wills. The short answer is, they don’t!  Life insurance, IRAs and other retirement plans which are qualified for special tax deferment by the IRS (thus called qualified retirement plans) are beneficiary-driven. 

This simply means that upon the owner’s death they will go directly to the person you have named as the beneficiary. A probate estate is what is passed on through your Will, and consists of property owned in your name only. A beneficiary designated asset essentially goes around your Will directly to the person or entity that you name as the beneficiary.

Beneficiary designated accounts are commonly referred to as non-probate assets.  Assets that are required to pass through your Will are referred to as probate assets.  There are many examples of non-probate and probate assets: Your IRA, 401(k), 403(b) and life insurance policies are non-probate assets, while a car titled in just your individual name is a probate asset.

Some assets could be either non-probate or probate, depending on how many people own the account.  For example, a bank account that you own with your spouse is a non-probate asset because your spouse assumes full ownership upon your death.

However, a bank account that you own in just your name is a probate asset because you own it as an individual. A certificate of deposit (CD) is another example of an asset that could be either probate or non—probate.  It would depend on whether you have named a beneficiary for the CD (not probate), or not (probate).  

Understanding the distinction between probate versus non-probate assets is critical for proper estate planning.  People often mistakenly believe that when they make a Will, they are disposing of all of their property according to the instructions in the Will.  This would only be the case if the beneficiary designations on their non probate assets match the instructions contained in the Will. Remember, the Will is not going to have anything to do with who receives that beneficiary driven account, or any other account that is a non-probate asset. 

Take for example the case of John, the Widower. John has two children: a daughter, Jane, who is quite successful; and a son, Tom, who is not. Jane has told her father that she does not need his estate assets as much as Tom, and encourages him to do more to help Tom after his death. Accordingly, John creates a brand new Will in which he leaves 80% of his estate to Tom and only 20% to his more successful daughter Jane. John is happy that he can help Tom more after his death, and he assumes he has created an effective estate plan to accomplish his wishes. 

Unfortunately, when John set up his 401(k) retirement plan at work decades ago, he naturally named his wife as his primary beneficiary and his then-young children, Jane and Tom, as equal (50% each) secondary beneficiaries. He did the same thing for his $200,000 life insurance policy he purchased not long after he started working. Because John’s wife has already passed away, Jane and Tom are now equal beneficiaries of his retirement plan and the life insurance policy. 

Other than his 1985 Buick, these are really the only assets that John owns when he dies not long after creating his new Will. Unfortunately, because he failed to match his beneficiary designations with his new Will, when John passed away, Tom only received 50% of the 401(k) and Life Insurance policy; a far cry from the 80% John wanted his son to receive. The only asset left to divide 80%-20% was that faithful old 1985 Buick.

You can see how important it is to be mindful of the impact of non-probate assets when planning your estate!  To find out more about this and all things estate planning and/or asset protection planning, join us for one of our upcoming workshops.  Just click here for more information.


1 2