Posts By : Darcy

Life Insurance and Revocable Living Trusts

Life Insurance and Revocable Living Trusts

Illinois exempts from creditors all proceeds payable because of the death of the insured and the aggregate cash value of any and all life insurance and endowment policies and annuity contracts payable to a spouse of the Insured or to a child, parent, or other person dependent upon the Insured, whether the Insured reserves the right to change beneficiary or whether Insured’s estate is a contingent beneficiary.

Until recently, this protection was not available if proceeds were payable to a revocable living trust.  This was at cross purposes with conventional estate planning using trusts where the revocable living trust is often named as the primary beneficiary on life insurance.   Effective August 17, 2012, proceeds payable to a revocable living trust under which the spouse, child, parent or other dependent of the Insured is the trust beneficiary are now exempt.

Nevertheless, the payment of a premium by insolvent insured would create presumption of fraudulent intent once a claim for liability is clear so purchasing a huge single premium annuity would not likely be protected from creditors.

Proposed Settlement Could Expand Medicare Coverage

Proposed Settlement Could Expand Medicare Coverage

 A proposed class-action settlement may help tens of thousands of people with chronic conditions and disabilities qualify for Medicare coverage.

 Presently, Medicare guidelines indicate that coverage should be denied if a patient reaches a plateau and is not improving.  As a result, if a patient suffering from a chronic condition could not demonstrate a likelihood of medical or functional improvement, Medicare would not pay for home health care, skilled nursing home stays, or outpatient therapy.  Since many families could not afford these services out-of-pocket, many patients ultimately did not receive the recommended treatment.

 Under the proposed settlement, Medicare will pay for those services needed to “maintain the patient’s current condition or prevent or slow further deterioration,” regardless of whether the patient’s condition is likely to improve.  The focus would be on the patient’s need for skilled care, rather than his or her potential for improvement. 

 The proposed settlement was submitted on October 16, 2012 to the Federal District Court in Vermont.  If approved, it is expected that the court will takes several months to finalize the settlement, and that Medicare will take an additional year to formally implement the policy change.



On July 19, 2012, from 10am to 5pm at Navy Pier-Festival Hall A, Chicago, the Mayor’s Office for People with Disabilities will bring together more than 100 of Chicagoland’s disability related service providers, product merchandisers, assistive technology suppliers and recreational exhibits for a free exposition for people with disabilities, their families and friends.  To learn more, visit

Court finds that Assets transferred to an Alaska Asset Protection Trust are reachable in Bankruptcy

Court finds that Assets transferred to an Alaska Asset Protection Trust are reachable in Bankruptcy Creditor Protection

In Battley v. Mortensen, Adv. D. Alaska, No. A09-90036-DMD, the Court focused whether the grantor of the trust, Mortensen, intended to hinder, delay or defraud his creditors by establishing the Alaska Domestic Asset Protection Trust and transferring land to it.  The court applied Section 548(e) of the Bankruptcy Abuse Protection and Consumer Protection Act of 2005, which voids transfers if made within 10 years of the bankruptcy filing. 

Mortensen created the Alaska asset protection trust in 2005, naming himself and his children as the trust beneficiaries.  Mortensen expressly stated that the purpose of the trust was to “maximize the protection of the trust estate or estates from creditors’ claims of the Grantor or any beneficiary and to minimize all wealth transfer taxes.”  Mortensen transferred land to the trust and four years later filed for bankruptcy.  The court easily found that the Mortensen trust was a self-settled asset protection trust created to defraud creditors.

Withdrawals from Qualified Plans for Those under Age 59 ½

Withdrawals from Qualified Plans for Those under Age 59 ½

Retirement plans often represent the largest asset an individual may own.   In these unsettling economic times, an individual may want to access this asset to pay bills or for other needs.   Typically, if an individual under age 59 ½ wants to withdraw monies from a qualified plan, the IRS will impose a 10 percent penalty.

There are a series of exceptions to the 10 percent penalty, but the exceptions can vary depending on whether the retirement plan is an IRA or 401(k) plan or other qualified plans.

The following rules for a penalty free withdrawal are the same whether the withdrawal is from an IRA or from a 401(k) plan, if the account owner: 

  1. Becomes totally disabled;
  2. Is required by court order to give money to a spouse as part of Divorce or legal separation (i.e. a QDRO);
  3. Has medical expense that exceed 7.5% of adjusted gross income;
  4. Is separated from service (through termination, permanent layoff, quitting or early retirement) in a year when the account owner turned 55 or later; or
  5. Subject to certain conditions, takes withdrawals in substantially equal amounts over owner’s life expectancy.

There are other means of penalty free withdrawals from IRAs, (but not 401(k)s): 

  1. To pay health insurance premiums during a period of unemployment lasting 12 consecutive weeks;
  2. To pay for tuition, room and board and books (net of scholarship) for spouse, child or grandchild;
  3. To pay up to $10,000 to purchase first home.

There are also hardship withdrawals from 401(k)s which would include costs  (subject to certain condition) related to purchase of principal residence not to exceed $10,000, payment of tuition, funeral expenses and the like.

Interestingly, an owner can take a loan from a 401(k) plan (but not from an IRA).  There are many conditions that must be met, but there are certain advantages; particularly, no credit checks, low interest rates, no financial hardship requisites, and interest paid on the account is paid to the account owner’s account, not to a bank or credit card company.  

Potential job loss poses the biggest disadvantage.  The loan must be immediately paid back (within 60 days) if account owner loses his or her job or changes employers.

For more information, refer to the IRS website, “Retirement Plans FAQs Regarding Hardship Distributions,”,,id=162416,00.html  and “Retirement Plans FAQs Regarding IRA Distributions,”,,id=111413,00.html.



For the first time since 2008, the Department of Veterans Affairs has announced an increase in the maximum Aid and Attendance, an enhanced pension benefit for eligible veterans.   These new figures for 2012 are:

 $20,447 per year ($1,074 per month) for a qualified veteran

$24,239 per year ($2,020 per month) for a qualified veteran who is married

$13,138 per year ($1,095 per month) for an eligible surviving spouse of a qualified veteran

$31,578 per year ($2,631 per month) if both eligible spouses are qualified veterans

 VA Aid and Attendance enhanced pension benefits are intended to provide a monthly stipend to meet care needs of veterans or their surviving spouses.     The veteran or spouse must be in need of assistance with activities such as: dressing or undressing; hygiene; frequent need of adjustment of special prosthetic or orthopedic appliances which due to the claimant’s disability, he or she cannot adjust on own; feeding; inability to attend to wants of nature; or as a result of a mental or physical impairment, the veteran or his spouse requires daily assistance to protect the claimant from harm.

 The claimant need not meet all conditions above or need 24-hour care. The threshold is that the veteran or spouse needs regular and ongoing assistance from someone else.

 To apply for the enhanced pension benefit, the veteran must have served on active duty for at least 90 days, at least one day of which occurred during a period designated as wartime (see below).  The veteran must have received an honorable discharge.  Single surviving spouse of such veterans are also eligible to apply.

 Periods of Wartime Service:

World War II – December 7, 1941 through December 31, 1946

Korean Conflict – June 27, 1950 through January 31, 1955

Vietnam Era – August 5, 1964 through May 7, 1975; for veterans who served “in country” before August 5, 1964, then February 28, 1961 through May 7, 1975

Gulf War – August 2, 1990 through a date to be set by law or Presidential Proclamation.

Illinois Implements changes to the Medicaid eligibility rules for long-term care as directed under the Deficit Reduction Act of 2005 (DRA)

Illinois Implements changes to the Medicaid eligibility rules for long-term care as directed under the Deficit Reduction Act of 2005 (DRA)

For Medicaid applications for long-term care nursing care filed on or after January 1, 2012, Illinois will apply its new rules that incorporate changes required by the DRA.  The rules increase the look-back period from 36 months to 60 months and significantly alter the methodology for determining the penalty periods imposed on family gifting plans.  Other common planning strategies to accelerate eligibility for Medicaid to cover the cost of long term care have also been impacted, including among other changes: the exemption for transferring the home to a child who has resided in a home with a parent for at least two years (“the caretaker child exception”), personal care agreements, prepaid burial plans, and imposing a limit of $750,000 on the equity in an applicant’s home.

 With Illinois’ implementation of the DRA, clients who have incorporated planning strategies to accelerate eligibility for Medicaid to cover long term care or who may need to do so in the future, should contact our office to understand how the post-DRA rules may affect them.

2012 Increases in the Community Spouse Asset Allowance (CSAA) and Community Spouse Maintenance Needs Allowance (CSMNA)

2012 Increases in the Community Spouse Asset Allowance (CSAA) and Community Spouse Maintenance Needs Allowance (CSMNA)

Effective January 1, 2012, the Community Spouse Asset Allowance (CSAA) and the Community Spouse Maintenance Needs Allowance (CSMNA) will increase.  The CSAA standard will increase from $109,560 to $113,640.   This is the maximum amount a nursing home resident may transfer to a community spouse.  The actual amount a resident may transfer is determined by deducting non-exempt assets of the community spouse from the $113,640.   The CSAA applies with the Community Spouse is seeking the exempt transfer of non-exempt assets from the spouse residing in a long- term care facility.

The CSMNA standard will increase from $2,739 to $2,841.  This is the maximum amount of monthly income a resident may give to a community spouse.  The actual amount is determined by deducting any gross income of the community spouse from the standard of $2,841.

Autism NOW

Autism NOW

The Arc, through a grant from the Administration on Developmental Disabilities, has created a national resource and information center called Autsim Now, ,for people who identify as having an autism spectrum disorder or other developmental disability. This new resource provides high-quality information about issues important to people on the autism spectrum or with other developmental disabilities, their families, and professionals through a unique Web site with searchable resources, a free Webinar series and more.