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What Happens To My Health Insurance During Divorce in Virginia?

If you are covered under your spouse’s health insurance plan during the marriage, the likelihood is that your eligibility to remain covered under that plan will end once you are divorced (i.e. the day the judge signs your final order of divorce). For most, this raises two issues: 1) how to deal with healthcare coverage during the time that the divorce is pending; and 2) healthcare coverage options for when the divorce is final.

Healthcare Coverage While the Divorce is Pending


Virginia Code section 20-103 allows a court to enter orders “at any time” while a suit is “pending.” Among the things that a court can order pursuant to this provision is “an order that the other spouse provide health care coverage for the petitioning spouse… .” Since the separation period for divorce in Virginia is one year (there are exceptions, however), this allows a spouse to maintain healthcare coverage for this period.


Healthcare Coverage After the Divorce


Once a judge enters a divorce, the marital relationship is dissolved and the dependent spouse will likely no longer be eligible for coverage.  There are some exceptions, however.  For example, spouses of federal employees who are covered under the Federal Employees Health Benefits (FEHB) Program may qualify for former spouse coverage if certain conditions are met. Similarly, former spouses of military servicemembers may qualify for military retiree healthcare benefits depending on the servicemembers length of service during the marriage.


Transitional healthcare coverage is also available that is designed to provide coverage once the divorce is final, until new coverage can be obtained. Under a federal law known as COBRA (Consolidated Omnibus Budget Reconciliation Act), most employers are required to make continued coverage available for spouses after a divorce.


If you are considering COBRA coverage, it is important to understand its limitation and important requirements. To begin with, COBRA coverage is not permanent. COBRA coverage is intended to be temporary and ends for the former spouse within 36 months. Further, if a spouse intends to elect for COBRA coverage, the employer’s health plan administrator must be given notice at least 60 days prior to the date of divorce.

Estate Planning and Divorce – What is Elective Share?

Even though you may be in the middle of a divorce, giving some thought to estate planning issues can be important.

Once you have negotiated a settlement in your divorce case, the next step is to put it all together into a formal settlement agreement that each side signs. Typically these agreements (often referred to as PSAs or MSAs for Property Settlement Agreement or Marital Settlement Agreement) contain a fair amount of ‘boilerplate’ language. One standard provision that many lawyers put into PSAs is a provision where each party agrees to waive any interest they might have in the “augmented estate” of the other or waive any right to “an elective share.”

As I read carefully through the agreement with clients prior to signing (which you should always do with your lawyer, by the way) and discuss their questions, many clients will ask what these things are. The answer to that question first requires a little background.In law school, I had a trusts and estates professor who told us that “the one person you can’t truly disown is your spouse.” Turns out, he was absolutely right.


Virginia Code § 64.2-302 describes when and how a spouse may claim an “elective share” in the estate of the other spouse. Specifically, this code section states:


A.     A surviving spouse may claim an elective share regardless of whether (i) any provision for the surviving spouse is made in the decedent’s will or (ii) the decedent dies intestate.


In other words, regardless of whatever the will of the deceased spouse says, the surviving spouse can claim the elective share (even if the will in question doesn’t leave the surviving spouse anything). So what exactly is an elective share, you ask?

Virginia Code § 64.2-304 answers that question for us, and states as follows:
If a claim for an elective share is made, the surviving spouse is entitled to (i) one-third of the decedent’s augmented estate if the decedent left surviving children or their descendants or (ii) one-half of the decedent’s augmented estate if the decedent left no surviving children or their descendants.


The “augmented estate” is simply the actual “probate” estate that is transferred upon the death of the deceased, but may also be “augmented” by including other property that was not included in the probate estate or property that was gifted to others during the time that the spouse was alive.
Now that we know what these terms mean, why are we dealing with them in a settlement agreement as part of a divorce?


The simple answer is that there may be some period of time between the date that you sign the settlement agreement and the date that you are actually divorced (i.e. the date the judge signs your divorce order). For many, this period of time can be as little as a few weeks or months, but for others it can be even longer.


As a result, it is still possible for the elective share and augmented estate concepts to apply – because even though you are in the process of getting divorced, you are not actually divorced yet. As a result, this waiver language works to prevent the other from taking advantage of the provisions of the law that allow for a spouse to take advantage of the provisions of the law allowing for an elective share.

Protective Orders in Cases of Family Abuse

Protective Orders are an important tool for circumstances involving physical violence or the threat of violence.

What most people think of as “restraining orders” are called “protective orders” in Virginia. Protective orders can require that a person have no contact with another person (usually a household member or spouse). Protective orders can also:

  • Require that the Respondent stay a minimum distance from the Petitioner at all times.
  • Address temporary custody and visitation of the parties’ children.
  • Grant a Petitioner “exclusive use and possession” of a shared residence.
  • Order temporary child support.
  • Require that the Respondent continue to pay certain utilities.

In addition, once a protective order is entered, the Respondent’s name is put into a statewide electronic database used that will prevent that person from being able to purchase a firearm.

Protective orders can be entered for a period of up to two years. In many situations, such as when police respond to domestic violence calls, an “emergency protective order” will be entered that prohibits contact for up to 72 hours. It is up to the Petitioner to then Petition a court to extend the protective order for a longer period of time.

In order for a court to be able to grant a request for a protective order, a judge must make a finding that the Petitioner has a “reasonable apprehension of bodily harm.” Such apprehension can result from verbal threats made by the Respondent or prior acts of physical abuse.

If a person thinks that he or she may wish to pursue obtaining a protective order, it is important to act quickly. If too much time passes between the conduct that serves as the basis for the protective order request, and the filing of the actual request, this delay could be interpreted to mean that there was not sufficient “apprehension of bodily harm” on the part of the petitioner.

Why Can’t Doctors Recognize this Form of Dementia?

Considerable’s recent article entitled “The second most common type of dementia often goes unrecognized” reports that in one study, nearly 70% of people diagnosed with Lewy body dementia visited three consultants before receiving the diagnosis. For 33% of people with the disease, getting the correct diagnosis took over two years.

The word “dementia” describes a condition affecting a person’s memory and thinking that is a decline from how they used to function. It is severe enough to affect their daily life. Alzheimer’s disease dementia and Lewy body dementia are the two most common types. Lewy body dementia derives its name from the abnormal protein clumps that are seen on autopsies of the brains of people with Lewy body dementia.

A diagnosis of Lewy body dementia comprises two different conditions: dementia with Lewy bodies and Parkinson’s disease dementia. With Lewy body dementia, an individual develops memory and thinking problems before or at the same time as he or she develops movement problems that mirror Parkinson’s disease. In Parkinson’s disease dementia, one who has experienced Parkinson’s disease movement problems for years then also develops trouble with memory and thinking.

The two conditions have many common features. With the memory and thinking problems and movement problems, patients with these conditions can have fluctuations in their alertness and concentration, hallucinations and paranoia, acting out dreams during sleep (known as “REM sleep behavior disorder”), low blood pressure with standing, daytime sleepiness and depression and other symptoms.

The correct diagnosis is vital for patients and families. The diagnosis of Lewy body dementia is frequently missed, because of lack of awareness by physicians, patients, and their families. Research also reveals that the first diagnosis is commonly incorrect. Roughly 26% of people later diagnosed with Lewy body dementia were first diagnosed with Alzheimer’s disease, and 24% were given a psychiatric diagnosis like depression.

With the correct diagnosis, patients and families can seek out resources, such as the Lewy Body Dementia Association, an organization dedicated to helping people living with this disease. This group provides education on Lewy body dementia, helps patients and families know what to expect, connects patients and families to support and resources and helps them find research opportunities.

Reference: Considerable (Aug. 14, 2020) “The second most common type of dementia often goes unrecognized”

 

The One Part of Biden’s Tax Plan That Could Impact Estate Planning for Most Regular Folks

The tax plan proposed by Vice President Biden would likely have two main effects on estate planning if it is enacted. The first would be a change in the value of an estate that is exempt from federal estate tax. Under President Trump’s 2017 change to the estate tax, the first $11.58 million of any estate (in 2020) is exempt from estate tax. Biden’s plan would potentially reduce this exemption back to the level that existed prior to President Trump’s presidency, which is around $5 million or so. For many Americans, this change probably will not require much, if any, change to their estate plan.

However there is one potential change that has the potential to impact a much larger number of Americans: the change to the rules regarding a ‘step up’ in basis.

Essentially the issue is this. Currently, there are rules in place that give families favorable tax treatment when an asset is inherited that is potentially subject to capital gains tax. This would include assets like a home or stock. Capital gains are the ‘profit’ that you make when you sell such an asset. You then pay tax on those gains. For the most part, we calculate these gains by looking at what it cost to buy the asset, then subtracting that from the sales price. This gives us the ‘gain’ for which we then pay a tax.

But presently the rules are slightly different when you inherit an asset. In that case, we subtract the fair market value on the date of death of the owner from the sales price. This potentially makes the taxable ‘gain’ much smaller, meaning less tax to be paid for the person that inherits it.

Consider the following example. Your grandmother buys 100 shares of stock in 1980 for $5 per share. When you inherit that stock now, the value is $75 per share. If your grandmother were to sell those stocks before she passed, the capital gain would be the sale price minus the purchase price.  ($7500 – $500 = a gain of $7,000). That $500 value is her “basis” in the stock.

However, if you inherit the stock, then under the current rules, your basis wouldn’t be the $500 that she paid for it back in 1980. Rather, it would be the value of the stock on the date she passed (which would be higher than the $500 purchase price). As a result, because your basis is now higher (or ‘stepped up’), the taxable ‘gain’ is much less.

Most regular folks may not have an estate in excess of $11.58 million, or even $5 million. However, the change in the ‘step up in basis’ rule has the potential to impact most Americans right in the assets where they typically hold most of their wealth: their homes and stock holdings.

What Does Pandemic Estate Planning Look Like?

In the pandemic, it’s a good idea to know your affairs are in order. If you already have an estate plan, it may be time to review it with an experienced estate planning attorney, especially if your family’s had a marriage, divorce, remarriage, new children or grandchildren, or other changes in personal or financial circumstances. The Pointe Vedra Recorder’s article entitled “Estate planning during a pandemic: steps to take” explains some of the most commonly used documents in an estate plan:

Will. This basic estate planning document is what you use to state how you want your assets to be distributed after your death. You name an executor to coordinate the distribution and name a guardian to take care of minor children.

Financial power of attorney: This legal document allows you to name an agent with the authority to conduct your financial affairs, if you’re unable. You let them pay your bills, write checks, make deposits and sell or purchase assets.

Living trust: This lets you leave assets to your heirs, without going the probate process. A living trust also gives you considerable flexibility in dispersing your estate. You can instruct your trustee to pass your assets to your beneficiaries immediately upon your death or set up more elaborate directions to distribute the assets over time and in amounts you specify.

Health care proxy: This is also called a health care power of attorney. It is a legal document that designates an individual to act for you, if you become incapacitated. Similar to the financial power of attorney, your agent has the power to speak with your doctors, manage your medical care and make medical decisions for you, if you can’t.

Living will: This is also known as an advance health care directive. It provides information about the types of end-of-life treatment you do or don’t want, if you become terminally ill or permanently unconscious.

These are the basics. However, there may be other things to look at, based on your specific circumstances. Consult with an experienced estate planning attorney about tax issues, titling property correctly and a host of other things that may need to be addressed to take care of your family. Pandemic estate planning may sound morbid in these tough times, but it’s a good time to get this accomplished.

Reference: Pointe Vedra (Beach, FL) Recorder (July 16, 2020) “Estate planning during a pandemic: steps to take”

 

Different Trusts for Different Estate Planning Purposes

There are a few things all trusts have in common, explains the article “All trusts are not alike,” from the Times Herald-Record. They all have a “grantor,” the person who creates the trust, a “trustee,” the person who is in charge of the trust, and “beneficiaries,” the people who receive trust income or assets. After that, they are all different. Here’s an overview of the different types of trusts and how they are used in estate planning.

Revocable Living Trust” is a trust created while the grantor is still alive, when assets are transferred into the trust. The trustee transfers assets to beneficiaries, when the grantor dies. The trustee does not have to be appointed by the court, so there’s no need for the assets in the trust to go through probate. Living trusts are used to save time and money, when settling estates and to avoid will contests.

A “Medicaid Asset Protection Trust” (MAPT) is an irrevocable trust created during the lifetime of the grantor. It is used to shield assets from the grantor’s nursing home costs but is only effective five years after assets have been placed in the trust. The assets are also shielded from home care costs after assets are in the trust for two and a half years. Assets in the MAPT trust do not go through probate.

The Supplemental or Special Needs Trust (SNT) is used to hold assets for a disabled person who receives means-tested government benefits, like Supplemental Security Income and Medicaid. The trustee is permitted to use the trust assets to benefit the individual but may not give trust assets directly to the individual. The SNT lets the beneficiary have access to assets, without jeopardizing their government benefits.

An “Inheritance Trust” is created by the grantor for a beneficiary and leaves the inheritance in trust for the beneficiary on the death of the trust’s creator. Assets do not go directly to the beneficiary. If the beneficiary dies, the remaining assets in the trust go to the beneficiary’s children, and not to the spouse. This is a means of keeping assets in the bloodline and protected from the beneficiary’s divorces, creditors and lawsuits.

An “Irrevocable Life Insurance Trust” (ILIT) owns life insurance to pay for the grantor’s estate taxes and keeps the value of the life insurance policy out of the grantor’s estate, minimizing estate taxes. As of this writing, the federal estate tax exemption is $11.58 million per person.

A “Pet Trust” holds assets to be used to care for the grantor’s surviving pets. There is a trustee who is charge of the assets, and usually a caretaker is tasked to care for the pets. There are instances where the same person serves as the trustee and the caretaker. When the pets die, remaining trust assets go to named contingent beneficiaries.

A “Testamentary Trust” is created by a will, and assets held in a Testamentary Trust do not avoid probate and do not help to minimize estate taxes.

An estate planning attorney in your area will know which of these trusts will best benefit your situation.

Reference: Times Herald-Record (August 1,2020) “All trusts are not alike”

 

August 31 – The Deadline for Rolling Back RMDs into Retirement Accounts

President Trump officially signed the CARES Act on March 27, 2020. The Act allows retirement plan owners to skip taking their Required Minimum Distributions (RMDs) in 2020, if they so choose. This is intended to benefit those who are in a good financial position and do not need to take their RMDs during these unsettling times. What about those who already had taken their RMDs for 2020?

This is the subject of a recent article titled “Don’t Miss the August 31 Deadline to Return 2020 Required Minimum Distributions” from The Street.

First, the IRS announced that anyone who had already taken RMDs before the CARES Act became law could return the funds to their retirement accounts. However, the window of time to return the withdrawn funds was pretty short—only 60 days.

On June 23, the IRS extended the time period to Aug. 31, 2020. That seemed like a long time ago, back in late June. But now the clock is ticking, and Aug. 31 is just around the corner!

Note: the repayment is not subject to the singular 12-month rollover limitation, also known as the “once-per-year rollover rule.” And the same repayment applies to beneficiary, or inherited, IRAs.

The ability to rollover funds back into tax-deferred accounts is a help on several different levels. One, the account owner does not have to pay income taxes on RMDs for the year (unless they were Roth accounts, which pay taxes on contributions and not withdrawals). Also, this spring was a rocky one for markets, and returning money into tax-deferred accounts gives the accounts a chance to recover from some significant market swings.

Speak with your estate planning attorney and financial advisor about your RMDs for 2020, and how the CARES Act RMD waiver may apply to your situation.

Reference: The Street (July 29, 2020) “Don’t Miss the August 31 Deadline to Return 2020 Required Minimum Distributions”

 

Social Security Administration Announces Advance Designation for Representative Payees

In April 2020, the Social Security Administration announced that individuals are now able to designate “preferred individual(s) to serve as payee should the need arise.” This designation can be made online though the Administrations “my Social Security” website.

If you are not familiar with Social Security’s “representative payee” program, a ‘rep payee’ is a person or organization who receives social security or SSI benefits for a recipient who is unable to manage benefits on his or her own. Once the rep payee is chosen, benefit payments will be sent to that person. The benefits must be used for the benefit of the person unable to manage the funds and Social Security requires regular reporting on how the benefits are used.

Up to three persons may be designated as a potential representative payee. Contact information for each designation must also be provided.

It is important to note that while this new program permits Social Security to take into account the preference of the person receiving benefits, Social Security still has its own criteria for selective who may actually serve – considering things like the potential rep payee’s criminal record and the nature of his or her relationship to the person receiving benefits. Even so, this new program will allow beneficiaries to have a greater input into management of their affairs, in a way not possible before. It also makes advance designation of a potential representative payee another component of a solid estate plan.

 

 

 

Do You Need a Revocable Trust?

A will lets you determine how your property will be distributed when you die, and a revocable living trust also accomplishes that task. However, the owner of the trust can make strict stipulations about how specific assets should be distributed, says Barron’s in the article “Revocable Living Trusts Can Help Your Heirs Avoid Probate. Here’s How They Work.” Another advantage of a revocable trust—avoiding probate, which gives the trust owner far more control over asset distribution.

Remember, probate is a process that takes place under the supervision of a judge in a court. Things don’t always happen the way the decedent may have wanted.

It’s best for individuals or couples with complex estate planning needs to meet with an estate planning lawyer, who will discuss whether a living trust is the right option. One question couples should ask: does it make sense for them to have a living will, and should it be a joint trust, or should it be two separate ones?

When a trust is created, it needs to be funded. Assets such as real estate, bank accounts, taxable non-retirement investment accounts all need to be retitled so they are owned by the trust. The person who creates the trust has no restrictions as to how the assets within the trust are used while they are alive. The trust can also be revoked during the owner’s lifetime, but it’s more common for owners to make tweaks to the trust.

Trusts are very popular in states like California and Massachusetts, which have more restrictive probate laws than other states. Trusts are very good for people who own property in multiple states and would otherwise have to deal with probate in multiple states. Trusts are also excellent for people who wish to maintain privacy about their assets, since the trust’s contents remain private. A will, once it enters the probate process, becomes a public document.

Someone who does not own his or her own home and has limited assets may prefer to use a will, which is less expensive and simpler than a trust. Once they do own a home and have more extensive assets, they can always have a trust created.

A living trust is part of a larger estate plan. Other estate planning documents are still needed, including a durable power of attorney for finances, an advance health care directive, a nomination of guardianship for families with minor children and a living will.

People who have revocable trusts should ask their estate planning attorney about something called a “pour-over” will. This is a will that ensures that any assets accidentally left out of the trust are added to the trust after the death of the owner. If the majority of assets are in the trust, the probate of the pour-over will should be much simpler and there may even be a “fast-track” option for assets under a certain dollar level.

Reference: Barron’s (February 22, 2020) “Revocable Living Trusts Can Help Your Heirs Avoid Probate. Here’s How They Work”

Suggested Key Terms: Irrevocable Living Trust, Estate Planning, Probate, Heirs, Pour-Over Will, Health Care Directive, Power of Attorney, Assets, Joint Revocable Trust

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