Robert M. Slutsky Associates
Elder Law Newsletter
Newsletter 8: August 2006
We hope that you are enjoying your summer and have some time for family and relaxation. Read on. . . .
BeeLong Banquet
FYI: BeeLong Adult Day Services, a non-profit provider of adult day services in Montgomery and Bucks Counties (disclosure: I am on the Board) is having their fundraising banquet on September 21 at the Spring Mill Manor Country Club in Ivyland, PA. Tickets are $75.00 per person. Tables of 10 are $650.00. Call our office for tickets and please join us in supporting this fine organization.
Choosing Life Insurance
Deciding which type of life insurance to purchase can be a confusing process. Term life? Variable life? Whole life? Universal life? What do these terms mean and which option is right for your situation? Here's an introduction to the basic choices.
There are two main types of insurance: term and permanent. These two main alternatives differ on how long you are covered and whether or not the policy includes a cash value.
Term Life Insurance. Term life insurance is the simplest type of insurance. You buy a policy for a set number of years and you have coverage for those years. In general, your premiums will remain level for the term. If you die within the term, your beneficiaries will receive a death benefit. However, once the term ends, your coverage ends. Some policies are "guaranteed renewable." This means that you can renew the policy for another term without having another medical exam, but your premiums will probably increase. Some term policies also allow you to convert a term policy into permanent insurance.
Term insurance is usually purchased to cover a short- to medium-term need, such as a mortgage or a child's education. You can purchase level term insurance where the premiums and death benefit remain the same, but there are other options. If your need for insurance will decrease over time, you can purchase decreasing term insurance in which your death benefit is reduced over the term. Conversely, if your need for insurance will increase over time, you can purchase increasing term insurance in which your premiums and death benefit rise over the term.
Permanent Life Insurance. There are many different types of permanent life insurance (also called cash value insurance), but the four main types are whole life, universal life, variable life, and universal variable life. All permanent life insurance policies provide coverage for life (or for as long as you pay premiums). The other feature of permanent insurance is that in addition to paying a death benefit, the policy builds a cash value, which can be used as collateral for a loan or withdrawn from the account. A portion of your premium payments goes into a separate cash account that grows over time. Keep in mind, however, that loans or withdrawals will reduce your death benefit. You may have the option to add your cash value to your death benefit when you die, although you will probably have to pay more for this type of policy. In addition to the above, each of the following main types of permanent life insurance has its own specific features and variations:
Whole Life Insurance. With whole life insurance, you pay a set premium and receive a set death benefit. In addition, the cash value is guaranteed. Whole life insurance is a good option if you are looking for stability in premium payments, cash value, and death benefit.
Universal Life Insurance. Universal life insurance gives you the option of flexible premiums, cash value, and death benefit. The main feature of universal life insurance is that you can use any accumulated cash value to pay your premiums. You need to be careful, however, that you have enough cash value to skip premium payments or your policy will lapse. In addition, you can change the death benefit, although you may have to go through the insurability process again. Universal life insurance is a good option if you are worried about the ability to pay premiums in the future and want the ability to change your premiums and your death benefit.
Variable Life Insurance. Variable life insurance gives you the ability to invest your cash value. Your premium payments are level, but you can direct your cash value payments into subaccounts that are similar to mutual funds. Your cash value and your death benefit will vary depending on the performance of the accounts, although some policies may contain a guaranteed minimum for each. Variable life insurance is appropriate if you are using the policy as an investment and want to control your investment options. It is usually better for younger buyers who can afford to take more risks.
Variable Universal Life Insurance. As the name suggests, variable universal life insurance combines the flexible premiums of universal life insurance with the investment choices of variable life insurance. There is no guaranteed minimum cash value, but most policies have a minimum guaranteed death benefit provided you pay the premiums for a set number of years. Like universal life insurance, you may be able to change your death benefit, but you will have to go through the insurability process again. Variable universal life insurance is a good option for young purchasers who want an investment option and flexibility with premium payments.
Medicaid Requires Proof of Citizenship
Beginning July 1, 2006, Medicaid applicants in most states will have to show proof of citizenship or nationality in order to be eligible for the program. The new requirement is part of the Deficit Reduction Act of 2005, which Congress passed in February 2006. It also applies to Medicaid recipients who are renewing their Medicaid eligibility. Applicants have 45 days to supply the documentation. Applicants with disabilities have 90 days. Some states, including California and Ohio, are delaying implementation of the citizenship requirement.
For a complete list of acceptable proof of citizenship, click here.
Estate Tax Cut Tied To Minimum Wage Increase
Prior to its summer recess the House passed a bill tying the increase in the minimum wage (not changed in many years) to increasing the exemption from estate taxes to $5,000,000.00 per person. The Democrats accused the Republicans of using this as a ploy to show support to their rich constituents knowing that such a bill would never make it through the Senate.
Many say that George Bush (a huge supporter of repealing the Federal Estate Tax) found a way to a back door reduction of the estate tax. Mr. Bush has cut in half the number of audit attorneys in the estate tax unit of the IRS. By reducing the number of attorneys to audit estate tax returns, only the returns from the largest estates are likely to be audited. Planners will be more aggressive knowing that the likelihood of an audit is smaller and enforcement will be harder.
Interest Rates and the Housing Market - How Rates Are Set
Rates have dropped a bit over the last month as the Federal Reserve Bank has paused in raising short term interest rates.
Contrary to what most people believe the Fed does NOT set mortgage interest rates. Mortgage rates are set in the bond markets by traders. The pricing of the 10 year Treasury Bond is the best indicator of where rates on mortgages are going. If the 10 year is going up, so are mortgage rates. Rates on mortgages (and the 10 year Bond) go up when bond traders anticipate that inflation is likely to increase in the future. They then require a higher rate of return believing that the bonds they trade may be worth less in the future.
The Fed only controls short term rates (which typically affect money market accounts, CDs, credit cards and the Prime Rate a bank may give to its best commercial customers). The Fed has raised short term rates in 18 of 19 meetings in the last few years hoping that by increasing rates they will slow the economy enough to slow inflation. Typically when rates are low, it spurs consumers and business to buy more goods and services, increasing economic growth. When the economy grows too fast, hiring increases (and production often cannot keep up with purchases causing bottlenecks) and people ask for higher wages and costs increase. All of this causes inflation which destabilizes the economy. Recent economic figures indicate that the economy may be slowing putting less pressure on the Fed to keep raising rates. Bond traders have taken this positively and rates have dropped a bit in the last few weeks. Many still see structural inflation problems because we import a great deal from other countries and the dollar is dropping in value making imports more expensive. Those people see the Fed having to tighten further in the coming months and mortgage rates resuming their climb. 0 point 30 year fixed rates are currently in the lower mid 6% range.
People who have seen their adjustable rate and negative amortization loans adjust upwards should consider refinancing NOW.
In addition to Elder Law, our firm practices real estate law and originates mortgages. Please call us at (610) 940-0650 with any questions or for rate quotes.
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Robert Slutsky, Esq. has been practicing Elder Law for 14 years. He helps families in Montgomery, Delaware, Philadelphia, Chester and Bucks Counties. Mr. Slutsky has represented local Area Agencies on Aging, long term care facilities and was a member and officer on the CAPS Board of Directors for over 10 years. Home visits are available. You may reach him at (610) 940-0650, robslutsky@comcast.net or the website at www.slutskyelderlaw1.com.
DISCLAIMER: The content of this Newsletter is for general information only. It is not intended to be legal, tax, financial, medical or other advice. The reader should obtain legal, tax, medical or other advice from a competent professional to address his or her specific needs. We do not endorse any particular service provider. If a service provider is mentioned in an article it is simply because we may have come across them in our travels and cannot speak to their quality of service or integrity.
