Initial Glimpses Into Trump’s “Repeal & Replace”

Last week, the House and Senate committees that oversee health policy and GOP leadership released a white paper detailing initial structure of the replacement of large sections of the Affordable Care Act (“ACA” or “Obamacare”). Importantly politically, the plan allows its most critical provisions to be passed through a special budget process that requires only 50 Senate votes. These procedural mechanisms will allow fulfillment of Trump’s promise that repeal and replacement would occur “simultaneously.”

Currently, it appears that the major changes will be to expand the number of Americans who could benefit from federal assistance in buying health insurance coverage. But, the plan will change who benefits most from that federal assistance.

The ACA extended health coverage to 20 million Americans by expanding Medicaid for low income and needy in participating states, and by offering income-based tax credits for middle-income people so they could buy their own insurance. Effectively, Obamacare redistributed wealth from the rich to the poor.

This new GOP plan would alter both those two existing mechanisms. First, it will drastically cut funding for states in providing free insurance through Medicaid to the low income and needy. Secondly, it will change how tax credits are distributed by giving all American not covered through their employment a flat credit. But there’s the sticker: the credit will be determined by age, not income levels, the latter being entirely disregarded in the calculus.

So, the larges financial benefits will go to older Americans. For example, Warren Buffett will get the same amount of financial assistance as someone his age, living in poverty. Likewise, a Trump Cabinet member, 64 year-old multi-millionaire Secretary of State Rex Tillerson, if he didn’t have access to government coverage, will get substantially more money than a poor, young person, but the same amount of financial assistance as any given 64 year-old American living in poverty.

To be sure, older people tend to have higher medical bills and so are charged more by insurers even under the ACA. So, matching tax credits to age has a rational basis–to a degree. And the new plan would simplify the current system in that verification of applicant income to optimize just the right amount of financial assistance would be eliminated. And, it would also eliminate incentives for low-income people to avoid earning more to avoid facing a reduction in benefits. But the GOP plan will result in more low-income people losing coverage if they can’t find the money to pay the difference between their tax credit and the actual cost of their health insurance. The ACA is set up to ensure low and middle-income Americans can afford the premiums charged for healthcare insurance.

Moreover, older people without employer-based insurance typically earn more than young people starting out their careers. Independent estimates of similar tax credit plans from Speaker Paul Ryan and Secretary of HHS Tom Price show changes based on tax credits will result in millions losing coverage.

Now, in moving resources from the poor to the rich, limits to deposits in Health Savings Accounts (“HSAs”) will increase. Generally, those with higher incomes paying more in taxes tend to benefit more from HSAs and recent studies show that HSAs are disproportionately held by families with higher earnings. The new program will also eliminate a number of taxes on the health care industry at large.

Curiously, the new plan omits changes to any of the Obamacare regulations the GOP have argued drive up costs of health insurance: the rules including mandates that every plan cover a standard package of benefits, and those requiring companies to charge the same prices to healthy and sick Americans (removal of pre-existing condition penalties). These rules can’t be changed through the budget process and so will require 60 votes in the Senate. It is yet unclear how these proposals will affect Aged, Blind & Disabled Medicaid assistance programs, if at all.

The new plan will undoubtedly change as it moves through committee hearings. But the above seems to set forth the outline of the discussion. So, against this backdrop essentially approved by every major committee working on health care in Congress, it seems that President Trump’s promises to provide a beautiful plan of health insurance for “everybody” are truly speculative.

Some Thoughts on Asset Protection and Liability Limitation Strategies: What OJ & Lance Armstrong Did

Retirement plans offer some long-term protection even in the event of a Black-Swan event such as a bankruptcy. While the discussion of 401(k) plans and Roth IRAs generally revolve around tax-deferred growth benefits, these devices, along with insurance-based vehicles, really show their true potential in terms of their respectively available asset protection features–even in the event of a bankruptcy.

OJ Simpson has had a judgment of $33 million plus against him since 1997. Yet, Simpson’s NFL defined benefit plan still holds over $4 million that is sheltered under ERISA law from his creditors on that judgment: the Ronald Goldman and Nicole Brown-Simpson families.

Similarly, Lance Armstrong has faced several lawsuits from entities seeking to recoup their payments to him after Lance admitted to doping while winning seven Tour de France races. These creditors even include the US Government and the US Postal Service! Yet, because Armstrong did a lot of asset protection planning in the form of trusts to help shield his assets, his retirement assets will likely stay away from the reach of creditors.

Currently, 401(k) plan assets are protected in an unlimited dollar amount against creditors in bankruptcy proceedings. Upon retirement, if the employee/investor transfers the 401(k) balance into a rollover IRA, and doesn’t commingle those same funds with personal contributions to the same IRA, the protection from creditors remains unlimited. But, IRAs comprised only of traditional IRA contributions and IRAs comprised of rollovers from an employer plan commingled with personal IRA contributions are capped at a maximum of $1.245 million (continues to be inflation-adjusted from 2005 basis).

Several states like California have become increasingly aggressive in pursuing traditional IRA assets in liability cases. So, investors should seek to keep as much as possible in segregated ERISA-sponsored retirement investments, as they still provide unlimited protection for the assets in the plan, even against these aggressive states.

Bottom line:  good asset protection planning can start with such a simple move as keeping proper form in your retirement plan assets.

Nobody Wants Your Parents’ Stuff

For the first time in history, two generations are downsizing simultaneously: Boomers and their parents. And millennials don’t want “heavy” assets tying them down in case they need to relocate for a job opportunity. So, it’s best to start facing the inevitable and address the disappointments and sentimentality early on, so you can make appropriate arrangements ahead of the time you’re going to have to take action. Here’s a great article that provides some tips, insights, and solutions:  http://www.forbes.com/sites/nextavenue/2017/02/12/sorry-nobody-wants-your-parents-stuff/#1c10cd5f3afe

Reason #5 Families Fight Over Estates

5. Lack of Planning:  What To Do?

The most important first step is planning, but not necessarily estate planning. By the time one of these situations has begun, it’s too late for thorough estate planning. Indeed, many of these situations occur despite good estate planning. Instead, your client needs to prepare for battle. That does not mean racing to the courthouse to sue everyone in sight. It does mean thinking through your options and taking initial steps to prepare for a potential fight.

The second step is to remember that the loved one’s will is not the only issue. In fact, for most people, the will is much less important than other documents. A last will and testament controls only assets belonging to the deceased’s estate. Most people, however, do not have significant assets in their estate. Instead, most people’s sizable assets pass outside the estate, probate and are not controlled by the will.

For example, most retirement accounts, investment accounts, and life insurance policies use payable-on-death beneficiary forms which designate who gets the particular asset at issue. The will does not override these forms.

So, as an estate dispute is simmering, it is vitally important to make sure that these non-probate assets are considered. Otherwise, there is a great risk of winning the battle over the will, but losing the war over the real assets.

Reason #3 Why Families Fight Over Estates

3. Blended Families

 

Despite good intentions, this can lead to problems. For example, the husband may predecease the wife who eventually loses touch or becomes estranged from her stepchildren. If the husband’s will left assets to her with the expectation that her will would pass the assets along according to their long-term wishes, all certainty is lost. She can then make a new estate plan based on her own wishes. Depending on her relationship with her stepchildren, she might decide to leave everything to her own kids.

Reason #2 Families Fight Over Estates

2. Late-in-Life Spouse

For lack of a better term, “gold diggers” exist—there are individuals who seek close personal relationships with elderly persons for their own financial gain. This was the case with J. Howard Marshall and Anna Nicole Smith and John Seward Johnson (of Johnson & Johnson) and his third wife (though, despite what these high-profile cases may indicate, gold diggers aren’t limited to one sex).

Sometimes, a late-in-life spouse has no ill intentions and simply can’t get along with the preexisting children, be it over matters of inheritance or just not being welcomed (or making an effort to fit) into the existing family paradigm.

Such scenarios often result in estate disputes between the late-in-life spouse and adult children or other persons who once stood to inherit. The spouse claims true love, the children claim undue influence, and the disputes almost always are fueled by personal animus and resentment between the parties.

Reason #4 Why Families Fight Over Estates

4. The Trusted Caregiver or Confidant

When there are no family members to take care of an elderly client, he is often forced to rely on caregivers and other professionals for care. Unfortunately, these paid professionals can, likewise, be opportunists, preying on the weakened faculties and necessary dependency of their charges. In such a case, a client’s children and grandchildren may be disinherited (or have their inheritances significantly reduced) in favor of the nurse, attorney or other caregiver.

By way of example, a number of parties are currently litigating the estate of Ernie Banks, the famous Chicago Cub and baseball hall of famer, who made substantial estate planning changes late in his life in favor of a personal nurse and to the detriment of adult family members.

Reason #1 of the 5 Reasons Families Fight Over Estates

1. Local/Distant Siblings

Disputes often arise when a “local” sibling provides care and support for a parent at the end of life, while the other sibling is “distant,” either physically, psychologically or otherwise. In this scenario, the local sibling typically “helps” with (i.e., controls) most aspects of the elderly parent’s life—including bank accounts, doctor appointments and care providers. Thus, the local sibling often feels entitled to more from the parent, regardless of the parent’s wishes.

Over time, the local sibling may use proximity to the parent to begin a “money grab.” For example, the local sibling is added as a signatory to the parent’s checking account, ostensibly for convenience. Sometimes the local sibling exercises such control over the parent that he or she orchestrates an entire new estate plan or arranges to be added as a joint tenant on the parent’s house. Very often it is not until the parent’s death that a distant sibling learns about what has happened. The distant sibling suspects undue influence on the part of the local sibling, and a dispute arises, often creating contentious litigation.