Excellent Social Security Strategy Link

As part of the estate planning process, we frequently need to analyze how much a person is likely to have upon death.  As part of an overall wealth analysis, this invariably leads to questions such as:

1. How much are you earning now?
2. When are you expecting to retire?
3. How much should you gift to your children to minimize taxes while still having enough to live on?
4. What do you expect to earn/spend in retirement?
5. How much are you likely to receive from Social Security?

Many clients are concerned with running out of money and have a lot of difficulty calculating the best strategies for how and when to start claiming their Social Security.  After all, the strategy of wait until as late as possible simply doesn't work for everyone.  From a pure return on investment strategy, it might be worthwhile for a low income earner in a marriage to take the benefits early. This is particularly true when there is a big age disparity between spouses.

In looking around online, I found a wonderful website to help you analyze the best strategies.  The site Open Social Security has a great calculator for spouses that let's you know, based upon your ages and the amount Social Security expects you to receive at full retirement, when is the best time for each of you claim your social security. 

We still recommend speaking with your attorney and other advisors to fully flush out all the issues, such as factoring in the health of your and your spouse, discussing when other income should come in, and what type of guaranteed money is otherwise likely to be available.  Nevertheless, this is definitely one of the better calculators I've seen.

Happy holidays!

Can the Trustee of a New Jersey Special Needs Trust Buy Clothing?

Although the federal government clearly changed the rules in 2005 to allow a Trustee of a First Party Special Needs Trust to buy an unlimited amount of clothing for person receiving Medicaid and SSI, there is still a lot of confusion regarding this issue in New Jersey.

New Jersey Administrative Code Section 10:71-4.11, which was enacted in 2001, states that if a Trustee of a Special Needs Trust purchases clothing for someone who has qualified for Medicaid or SSI, it will be considered income to the beneficiary and could reduce the beneficiary's government benefits.  Moreover, if the trust allowed distribution for purchase of clothing, it had the possibility of having the entire trust counted as an asset that may disqualify the beneficiary from benefits.  THIS IS OLD LAW.

To quote from the new law, POMS S.I. 01130.430: "A change in the regulations, effective March 9, 2005, establishes that the resource exclusion for household goods and personal effects no longer has a dollar limit. As a result, beginning with resource determinations for April 2005, SSA no longer counts household goods and personal effects as resources to decide a person’s eligibility to receive Supplemental Security Income (SSI) benefits."  The 2005 law goes on to define "personal effects" to include clothing.

There are several reasons why things are still so confusing:

1. New Jersey has not updated the Administrative Code to reflect the change of law on the federal level by POMS S.I. 01130.430.  The Social Security Regulations clearly override any state rules with respect to eligibility for Medicaid and SSI benefits.  So when Social Security updated its rules in 2005, the NJ rules were automatically updated as well.
2. When looking up the NJ rule online, there is a lot of bad, old information on many websites.
3. When looking up the NJ Administrative Code, which is free on Lexis-Nexis (thank you by the way), unfortunately it has the most recent year next to the Code.  That has the unfortunate side effect of making it look like a new and current law, even if it is not.

So, to be clear - a Trustee of a Special Needs Trust (regardless if it is a first party trust or a third party trust) can buy clothes for the beneficiary and not be concerned that such expenditures will be counted as income or that the beneficiary will lose his or her government benefits.  That being said, if you are spending an excessive amount on clothes, you should probably expect extra scrutiny from the government and potential problems because they could make the argument that the person is just taking the clothes back in exchange for cash, and the fight wouldn't be worth it.

Social Security After Death

One of the first questions we are asked is “do I have to do anything about Social Security”? Here are some important things to know if a decedent was receiving SSA benefits at the time of passing:

Reporting

Normally the funeral director will contact Social Security to report a person’s death if you give them the decedent’s social security number, but family members and personal representatives can also report the information directly to the SSA by calling 1-800-772-1213. The most important thing is to make sure SSA records reflect the correct information. Check out SSA Death Master File and familysearch.org

FYI - Reporting cannot be done online.

Survivor Benefits

Surviving spouses (and in some cases ex-spouses) and children are entitled to different types of survivor benefits:

1) If you are already receiving social security benefits on behalf of decedent, you are eligible for:
     a) A one-time survivor benefit of $255 (surviving spouse or children), which can be automatically processed;
     b) Continuation of benefits – Payments should be automatically be changed to survivor benefits;

No new application is required for benefits and you do not need to go to a local Social Security office.

2) If you are not receiving social security benefits on behalf of decedent AND/OR you are receiving your own benefits, you are eligible for:
     a) A one-time survivor benefit of $255 (surviving spouse or children), which must be applied for within 2 years of death and is NOT retroactive to DOD(*);
     b) New survivor benefits – You need to submit an application to the local SSA office

You will need to go to the local SSA office and take with you a certified copy of the death certificate as well as proof of your relation to the decedent (e.g. your birth certificate, marriage certificate). You might be able to make the application over the phone but this can be a long, slow process; SSA calls are often answered by volunteers who pass along your contact information to a representative for call back later. Whether you apply in person or over the phone, be sure to have your banking information available if you want the benefits direct deposited.See "How to Find Your Local Office" service at www.ssa.gov, or call the SSA, toll-free, at 800-772-1213

FYI – Application for benefits cannot be done online.

IMPORTANT: Don’t wait to apply for benefits! With limited exception, the SSA won’t pay you for the period prior to the date you made the application. i.e. if you waited 6 months after the date of death to apply, you won’t likely be able to recoup the benefits that could have been paid during that 6 month period.

Decedent Benefits and Reclamation

It’s just one week after your mom’s passing - you’re looking at the bank statement for her checking account and notice that her direct deposit social security payment was auto-deducted after she died. Now what?

Social Security payments are:

· Retroactive i.e. a payment made in August represents the benefit due for July

· Paid on specific days of the month according to a person’s birthdate and/or the types of benefits received. Click here to see the Schedule for Social Security Benefit payments

· Not pro-rated. In other words, a person is only entitled the monthly benefit only if she was alive for the full month.
· Subject to automatic reclaim. Monthly benefits that are direct-deposited to a decedent’s bank account will be automatically reclaimed if the Treasury Department determines the decedent was ineligible for the benefit. (Direct deposit is required for all SSA applicants after March 1, 2013, and for anyone receiving benefits as of that date. Direct Express card is another payment option)

Example #1:
Mom died July 15, 2016. Social security payment was deposited August 2, 2016. Mom did not live for the full month of July, so the payment will be auto-reclaimed. (If by chance you’ve acted quickly enough to close the account and withdraw the funds prior to the Treasury reclaiming the benefit, you cannot keep the money; Mom was not entitled to the benefit and the government will absolutely want it back. You will need to reimburse the government via check sent to your local Social Security office. ) 

Example #2:

Mom died August 10, 2016. Social security payment was deposited August 2, 2016. Mom lived for the full month of July so payment can be kept. If a deposit is made in September (representing the August benefit), the September payment will be reclaimed because Mom did not live for the full month of August.

Example #3:

Same scenario as Example #2, Mom died August 10, 2016 and Social security payment was deposited August 2, 2016. However, even though your mom was eligible for the benefit, it is later auto-deducted on August 15, 2016 which you believe to be in error. A family member or personal representative of Mom’s estate can apply for payment using Form SSA-1724

Example #4:

Mom died August 10, 2016 and her checking account was closed on August 20, 2016. Mom lived for the full month of July and is entitled to the July benefit, but the Social security payment which should have been deposited Wednesday, August 23, 2016 (DOB April 27) was not received. A family member or personal representative of Mom’s estate can apply for payment using Form SSA-1724.

Example #5:

Mom died July 15, 2016, a deposit was made August 10, 2016 and it is now December and no reclamation has occurred.

120-day Rule: It’s possible that the bank itself properly contested the reclaim. SSA has 120 days to submit a request for reclaim from the date it receives notification of date of death and sends a “death notification entry”. While this is the rule, it’s best to double-check with the bank directly to confirm that is the case – it could be that the bank simply hasn’t responded to the request and is sitting on money that should be returned.

Written by Elizabeth C. Ketterson, Esq. Elizabeth is a Senior Associate at the Law Office of Kevin A. Pollock LLC and helps to run the Estate and Probate Administration Department at the firm.

Social Security Statements

You may have noticed that you did not receive a Social Security statement recently.  A little more than a year ago, the SSA stopped mailing paper statements out in a cost savings move.  All is not lost however, as you can go online to get your earnings history and information on estimated benefits at:  https://www.socialsecurity.gov/mystatement/

Keeping up to date with what you are entitled to is an important part of your financial plan and your estate plan.  If you haven't done so yet, you should go ahead and create an online account with the Social Security Administration so that you will be able to access your earnings history.

Thank you to Ken Weingarten at Weingarten Associates, L.L.C. for bringing this important information to my attention.

Termination Clause in Special Needs Trust

The Social Security Administration has issued new rules, SI 01120.199, related to the early termination of Self Settled Special Needs Trusts created on or after January 1, 2000. Self Settled Special Needs Trusts, also known as First Party Special Needs Trusts established under Section 1917(d)(4)(A) of the Social Security Act. are designed to avoid being counted as a resource that would affect the trust beneficiary's right to receive Supplemental Security Income (SSI) and Medicaid.

Typically, a Self Settled Special Needs Trust does not terminate until the death of the beneficiary. The new rules provide guidance on how beneficiaries of these trusts can still qualify for government benefits in the event the trusts contain an early termination provision.

An early termination provision is a clause that would allow the trust to terminate before the death of the beneficiary. A termination clause is very important to have in a special needs trust in case the trust beneficiary is no longer disabled, becomes ineligible for SSI and Medicaid, or when the trust fund no longer contains sufficient assets to justify its continued administration.

The most common need for an early termination clause comes when a child wins a very large personal injury settlement. Settlement agreements will routinely require that a special needs trust be established. However, if in twenty years the child is fully functioning and not in need of SSI or Medicaid, a special needs trust will be overly restrictive.

A special needs trust with a termination clause will qualify under the new rules if the trust:

1. has a payback provision on the date of the termination. This means that the trust has to pay to the State all amounts remaining in the trust up to an amount equal to the total medical assistance paid on behalf of the beneficiary by the State;
2. only makes payment of the balance remaining directly to the trust beneficiary (reasonable administration expenses and taxes are allowed to be paid to other parties); and
3. gives the decision on whether or not to terminate the trust to a person other than the trust beneficiary.

In the event you have an existing trust that does not meet the termination standards set forth by this new rule, such trusts will be evaluated under Section 1613(e) of the Social Security Act.

SI 01120.199 also apply to Pooled Trusts established under Section 1917(d)(4)(C) of the Social Security Act. SI 01120.199 will take effect October 1, 2010.

Self Settled Special Needs Trusts

There are generally two types of private special needs trusts:

1. 1) Third Part Special Needs Trusts; and
2. 2) Self Settled Special Needs Trusts (also known as First Party Special Needs Trusts or D-4A Trusts).

A person who is receiving (or about to receive) Medicaid and Supplemental Security Income (SSI) may wish to consider establishing a Special Needs Trust just before he or she is about receive a substantial gift, inheritance or personal injury award. By receiving money outright, the person will no longer be eligible to receive SSI and Medicaid.

The Social Security Act (Section 1396p(d)(4)(A)) specifically allows a Special Needs Trust to be created for a person so that the person can continue to qualify for Medicaid and SSI. This particular trust is called a Self Settled Special Needs Trust because it is being funded with the person's own money (as opposed to money given to a trust by a third party).

The prime difference between the terms of a Self Settled Special Needs Trust and a Third Party Special Needs Trust is that when the beneficiary of a Self Settled Special Needs Trusts dies (or the trust terminates), the balance in the trust must pay off any Medicaid liens that have been built up. If there money left in the trust after that, the balance can be paid to the beneficiary's relatives. With a Third Party Special Needs Trust, there is no payback provision necessary.

The reason why a beneficiary of either a Self Settled Special Needs Trust or a Third Party Special Needs Trust can qualify for SSI and Medicaid is because those trusts are limited in what they can pay for. In general, the trust may not pay for food, shelter, electricity, gas or water and it may not pay for anything that can be converted into food, shelter, electricity, gas or water. So cash should almost never be distributed to a beneficiary from the trust. (Note: there are special rules about a trust owning a home)

A Self Settled Special Needs Trust can be created on behalf of the individual who receives the money by the person's guardian, the person's parent or grandparent, or by a court (as often happens in personal injury settlements). The beneficiary must be under the age of 65 when the trust is created and funded and the trust must be for the sole use of the beneficiary.

The costs of creating a Special Needs Trust vary from attorney to attorney, however, hundreds of thousands can be saved by setting up one properly.

2010 SSI Monthly Payment Amounts

Last year was a difficult economic year for many, including the government. As a result there will not be any cost of living adjustment to anyone's monthly payments this year.

For a detailed lists of New Jersey payout amounts, click here.

For a detailed lists of Pennsylvania payout amounts, click here.

For a detailed lists of New York payout amounts, click here.

For a detailed lists of Florida payout amounts, click here.