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

Estate Planning: The Problems of Disinheritance and Alternative Solutions (There’s always a better way)

Parents and children each have duties imposed on the other by society, custom and tradition.  After the teen years, the family mobile dynamic often becomes broken, breaking the parent/child bond, and leading to estrangement.  When carried to the extreme, vengeful or unhappy parents may seek retribution by exercising the only remaining power they have left—disinheritance.

Disinheritance may be a parental attempt to save a wayward child from alcohol or substance abuse issues.  Other issues include parental concerns over a child’s spouse, concerns that a child never properly applied him/herself, abuse issues that cut both ways, or which ultimately lead to the denial of access to grandchildren.

I posit that the choice of disinheriting a child is akin to the death penalty—one reserved for only the gravest of circumstances and wrong-doing and then only implemented after a series of appeals.  Otherwise, if there are siblings, they will have to deal with the repercussions the disinherited child will inevitably raise.  These actions will be taken towards and involve the survivors who did inherit.  Those children’s relationships with the disinherited will forever be strained until some compromise is reached or one of them dies.  Moreover, the hurt inflicted by the disinheritance becomes “permanent” in the psychological sense, and there are always more than one side to any story.  And, is that really the legacy any parent wishes to leave—that of being such an old, unforgiving, crotchety cuss that the parting shot with one foot in the grave was the ultimate “gotcha?”

The result of the ultimate “Gotcha!” or disinheritance, is that the surviving children who were received an inheritance is that they may have to buy peace by carving out an appropriate, equitable share to the disinherited child.  In that case, the parent has effectively projected his/her own problems onto another child or grandchild, instead of having the courage and character to appropriately and properly address those issues with the estranged child themselves, during their lifetime.

And, of course, the disinherited child may bring a will or trust court action to invalidate the parent’s estate plan, with the hope of receiving an intestate share equal to the other children’s shares.  Not only will the lawsuit be stressful and upsetting to the other family members, it will be particularly hard on any child who is in charge of administering the estate.  Any court action will also diminish how much is left to distribute.

Reconciliation is possible, but difficult and not a frequent outcome.   A better alternative is for the parent to finish life being as good a parent as he/she can be, and at least try to be better than the child, adult child or not, and leave some incentive there to stop the cycle from passing on to the next generation.  Several alternatives should be considered:

·        Consider reducing the inheritance until such time as when (if ever) the parent and child are reconciled;

·        Put incentives in place in a trust that would reward the desired behavior and work towards normalizing the full inheritance;

·        Leaving some or all of the child’s inheritance to that child’s own children (who may themselves be the objects of neglect or abuse).

Leaving a reduced inheritance demonstrates that the child was once a part of the parent’s life.  It also provides an incentive to the child not to contest the will or trust. The use of incentives in a trust protects the principal, yet simultaneously incentivizes the person to turn away from destructive behaviors.  The last alternative recognizes that the grandchildren are not to blame for their parent’s choices and behavior.  It prevents inadvertent punishment of the grandchildren by allowing them to be recognized in the estate while bypassing the individual who was intended to be punished.  While it is an alternative to outright disinheritance, I view it as the last gasp of an otherwise dysfunctional parent who themselves would rather take bitterness to the grave than to appropriately address their own role in the dysfunctional relationship and make appropriate provision to heal the dysfunction, such as funding psychological assistance or a rehabilitation program.

We will be happy to explore each option with you in confidence in our offices.  Just reach out and contact us to arrange a mutually convenient time to meet.