Saturday, May 9, 2020

Does the estate of a deceased taxpayer who receives an economic impact payment (i.e., Covid-19 stimulus payment) after the decedent died, have to return the monies?

Does the estate of a deceased taxpayer who receives an economic impact payment (i.e., Covid-19 stimulus payment) after the decedent died, have to return the monies?

                                                                                                                                    May 9, 2020

The link to the IRS web page on stimulus payments is:

Question No. 10 was added on May 6, 2020. It provides:

Q:  Does someone who has died qualify for the payment?

A10. No. A Payment made to someone who died before receipt of the Payment should be returned to the IRS by following the instructions in the Q&A about repayments. Return the entire Payment unless the Payment was made to joint filers and one spouse had not died before receipt of the Payment, in which case, you only need to return the portion of the Payment made on account of the decedent. This amount will be $1,200 unless adjusted gross income exceeded $150,000.

To return an Economic Impact Payment, question and answer number 41 was also added on May 6, 2020:

A41. You should return the payment as described below.

If the payment was a paper check:

    Write "Void" in the endorsement section on the back of the check.
    Mail the voided Treasury check immediately to the appropriate IRS location listed below.
    Don't staple, bend, or paper clip the check.
    Include a note stating the reason for returning the check.

If the payment was a paper check and you have cashed it, or if the payment was a direct deposit:

    Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.
    Write on the check/money order made payable to “U.S. Treasury” and write 2020EIP, and the taxpayer identification number (social security number,  or individual taxpayer identification number) of the recipient of the check.
    Include a brief explanation of the reason for returning the EIP.

For your paper check, here are the IRS mailing addresses to use based on the state:

If you live in New Jersey:    Kansas City Refund Inquiry Unit
          333 W Pershing Rd
          Mail Stop 6800, N-2
          Kansas City, MO 64108

But here is link to an AP article basically stating the law does not specifically say the payment must be refunded, and presenting arguments both ways, i.e., keep it or return it.

I would think someone who died in 2018 or 2019, their estate would be hard pressed to advocate entitlement to the payment as if it is indeed considered to be a rebate on 2020 taxes, then how would a year 2018 or 2019 decedent be entitled as they were not alive in 2020. But the AP article does present arguments, as I said, both ways.

Ultimately, pending further clarification from the IRS and/or corrective legislation by Congress, it would appear to be up to the Executor or Administrator of the Estate, recognizing, however, that if the funds are kept, and if it turns out that the funds may definitively need to be returned, that the Executor or Administrator who distributes those funds may be trying to claw them back under a Receipt and Refunding Bond, hoping that the devisee or heir has not spent the funds or has other funds which they can use to pay back their share to the estate to enable the estate to effectuate the repayment.  Thus, for the moment, based upon the arguments as to whether the estate of a deceased taxpayer can keep the funds or not, the Executor or Administrator is at risk if he or she keeps the funds. 

If the Executor or Administrator returns the funds, and it turns out the IRS would not go after the return, then would a beneficiary complain that the Executor gave back funds that he or she could have kept and would then have been available for distribution? Based upon the IRS Q and A position which was posted on May 6, 2020, however, the answer is the IRS wants the funds returned. Whether the IRS actually has the authority to take and enforce that position appears yet to be resolved.

Barry M. Benson, Esq.
2230 Route 206                                                                                                  
Belle Mead, New Jersey 08502
Tel: (908) 359-8000
Fax: (908) 359-4488                                                                                                   


Wednesday, August 15, 2018

NJ Medicaid Communication 18-06 signals huge increase in lookback penalties

NJ Medicaid Communication 18-06 signals huge increase in lookback penalties

          On August 10, 2018, the State of New Jersey Department of Human Services, Division of Medical Assistance and Health Services (“DMAHS”) issued Medicaid Communication 18-06 which will have a significant impact upon Medicaid applicants who have made gifts within the five year period preceding their date of application.  The penalty divisor has now been reduced from $423.95 per day to $343.85 per day.

When a Medicaid application is submitted, the applicant is required to disclose gratuitous transfers made during the 60 months (5 years) prior to the application.  Should there be such transfers, (excluding certain transfers which are exempted), they are aggregated and then divided by the penalty rate (now $343.85\day) and the result is the number of days that the applicant will be ineligible for Medicaid on account of the captured transfers. An example:  Assume Mr. Smith is in a nursing home and applies for Medicaid on August 15, 2018, seeking a September 1, 2018 effective date. On his application he discloses that in January 2015 he made transfers to his children in the aggregate amount of $200,000.00.  Those gifts are caught in the 5 year lookback and when divided by the new $343.85/day penalty rate produces a penalty of 581.65 days. Thus, he would be ineligible for Medicaid in the nursing home for 581.65 days (which is 1.5935 years or 19.122 months).  During that penalty period Mr. Smith would have to private pay the facility. The rate in effect from April 1, 2017 through March 31, 2018 was $423.95 per day. Thus, had Mr. Smith applied for Medicaid, say in March 2018, rather than on August 15, 2018, prior to the decrease in the penalty rate, the penalty in connection with the captured $200,000.00 of gifts would have only been 471.75 days (or 1.2924 years or 15.51 months). Thus, assuming a facility cost of $10,000.00 per month, the decrease in the penalty divisor has cost Mr. Smith an additional $36,120.00 (3.612 months x $10,000.00/month = $36,120.00 in private pay).

To be particularly noted, not only is the new penalty rate effective going forward from August 1, 2018, but it is also retroactive to applications that had penalty periods calculated between April 1, 2018 and August 1, 2018 – so that, “All cases that have had penalty periods calculated between April 1, 2018 and August 1, 2018, must be recalculated if the penalty is reduced as a result of the penalty divisor decrease.”  

As a result of the decrease in the penalty divisor we are seeing a huge increase in the number of months that a Medicaid applicant would have to private pay on account of gifts caught in the lookback.  Thus, this points to the greater need for Medicaid planning in advance of the application in order to try to deal with transfers that would be caught in the lookback or in connection with converting assets into an income stream.  To be recalled, the penalty in connection with transfers caught in the lookback does not begin to run until the applicant has applied for, and would have been eligible for, Medicaid but for the gifts.

Please do not hesitate to contact the office at (908) 359-8000 to discuss your family’s long term care planning issues and the Medicaid application process.

                                                                        Barry M. Benson, Esq.
                                                                        August 15, 2018

Wednesday, March 21, 2018

New More Secure Medicare Cards to Start Issuing in April, 2018

New More Secure Medicare Cards to Start Issuing in April, 2018

The Medicare Access and CHIP Authorization Act (“MACRA”) of 2015 requires the Centers for Medicare & Medicaid Services (“CMS”) to remove Social Security Numbers (“SSNs”) from all Medicare cards by April 2019. Pursuant to that mandate, the CMS announced (Press Release dated May 30, 2017) that newly designed Medicare cards will start issuing in April, 2018. Whereas the old or existing cards use a Social Security number based Health Insurance Claim Number (HICN), the new cards will instead contain a unique, randomly-assigned number called a Medicare Beneficiary Identifier (“MBI”).

The new Medicare Beneficiary Identifier will be 11 characters long and consist randomly of numbers and upper case letters; the characters are “non-intelligent” which means they do not have any hidden or special meaning. Specifically the 1st, 4th, 7th, 10th, and 11th characters will always be numbers; the 2nd, 5th, 8th, and 9th characters will always be letters. The 3rd and 6th characters can be either numbers or letters.  The reason for the change is to fight medical identity theft for people with Medicare, and more generally, concern over identity theft owing to the prior use of social security numbers. To avoid confusion, the letters S, L, O, I, B and Z are never to be used on the new cards owing to their possible similarity to the numbers 5,1,0,1,8, and 2.  A sample of the new card is set out below. 

          Issuance of the cards will be in 7 geographic waves. A list of the planned wave strategy is set out at  To be noted, here in New Jersey, a specific date is not stated other than after June 2018.

Under the new system, for each person enrolled in Medicare, CMS will assign a new Medicare Beneficiary Identifier and mail out a new Medicare card to them. Thus, you will not need to request a new card be issued. But it would be prudent to make sure that CMS has your correct address, which may be as simple as checking the most recent correspondence you have received from them.  Note that the Medicare Beneficiary Identifier is confidential like your Social Security Number and should be protected as Personally Identifiable Information.

CMS plans to have a transition period where you can use either the Social Security number based Health Insurance Claim Number or the new Medicare Beneficiary Identifier to exchange data with them. The transition period will begin no earlier than April 1, 2018 and run through December 31, 2019. Starting January 1, 2020, however, you will have to submit claims using MBIs (with a few exceptions).  Your Medicare benefits are not affected by the new cards, nor is your eligibility. 

  If you’re in a Medicare Advantage Plan (like an HMO or PPO), your Medicare Advantage Plan ID card is your main card for Medicare—you should still keep and use it whenever you need care. However, you also may be asked to show your new Medicare card, so you should carry this card too.

       As often is the case with something new, there are persons out there trying to scam innocent seniors. Be aware if you get calls or emails about the new cards.  Don’t give out your personal information or financial information to strangers or those claiming to represent the CMS, and don’t pay fees for person telling you that they will get you the new card. As indicated above the new card will be sent to you by CMS. When in doubt, get help from someone you trust.  Also, if you have access to the internet, you can go to for information, and to .

From the medicare website,, CMS sets out the following admonition:  

"Watch out for scams

Medicare will never call you uninvited and ask you to give us personal or private information to get your new Medicare Number and card. Scam artists may try to get personal information (like your current Medicare Number) by contacting you about your new card. If someone asks you for your information, for money, or threatens to cancel your health benefits if you don’t share your personal information, hang up and call us at 1-800-MEDICARE (1-800-633-4227).  Learn more about the limited situations in which Medicare can call you."

A sample of the new card:

New Medicare Card Banner Image

      If you have any questions about the new cards, please do not hesitate to call the office at (908) 359-8000.

March 21, 2018                                                            Barry M. Benson, Esq.

Special Needs Trusts vs. Supplemental Needs Trusts: “First Party” vs. “Third Party” Funds

Special Needs Trusts vs. Supplemental Needs Trusts: “First Party” vs. “Third Party” Funds

          When it comes to planning for persons with a disability, and eligibility for governmental benefits, it is important to distinguish between “first party” money and “third party” money.  That is, “first party” money is money or funds that belongs to the disabled person himself or herself. So that, for example, if there was an accident and a tort recovery on behalf of a child or adult, and the monetary award belonged to the child or adult who had been disabled as a result of the accident, or if a person in question inherited funds from a decedent’s estate, that would be “first party” money.  It is owned by the disabled person.  “Third party” money on the other hand is money or funds that a parent or grandparent or other third person wishes to provide for the disabled person. These funds do not belong to the disabled person.  If, however, for example, a parent dies and under his or her Will leaves his/her disabled child the funds in question, then the funds become those of the disabled child and would be transformed into “first party” money.

          The distinction between the two types of funds is important as it effects the planning that would be done for the disabled child or adult, and that person’s eligibility (or continued eligibility) for governmental benefits.  If the disabled person owns the funds in question, then eligibility for needs based programs, such as SSI and Medicaid, are going to be impacted, in that eligibility for such programs is typically based upon the applicant or recipient’s income and assets.  One way to plan around the requirements would be for an ABLE account to be set up for the disabled person (if the ABLE requirements are met, and typically if we are talking about a relatively small amount of money), or for a Disability Trust under Section 1396 p(d)(4)(a) to be set up with the first party money. One critical feature of the 1396 (p)(d)(4)(a) or Disability Trust, is that there must be a refund feature to the trust whereby Medicaid is going to be repaid out of the funds left in the trust at its termination (assume death of the disabled individual). Also, the use or distribution of the income and principal of the trust is going to be restricted so that it can not be used for purposes which would cause the loss of the disabled person’s governmental benefits. This type of Trust is frequently called a “Special Needs Trust.

          By contrast, with “third party” money, a “Supplemental Needs Trust” should be created.  I use this latter term so that a distinction may be drawn in the source of the funds. Here we are talking about third party money, not first party money. And on that account, the Supplemental Needs Trust does not have to have, nor is it customarily going to have, a refund provision discussed above which is required in the case of a Special Needs Trust as to first party money. Thus, there is no provision for the repayment of Medicaid on the termination of a Supplemental Needs Trust (again think in terms of the death of the disabled person).  I have seen on numerous occasions where third party money has incorrectly been placed into a Special Needs Trust, and thereby needlessly subjecting the third party funds to Medicaid recoupment at the back end of the Trust on the disabled person’s death as if it was first party money.  In the Supplemental Needs Trust, the funds should go on to the remainder persons without Medicaid repayment.  This is a huge distinction between the two types of Trusts and between first party and third party money. Also, the Supplemental Needs Trust with third party money is going to be purely discretionary in its terms and provisions as to distribution and use of the net income and/or principal of the trust for the benefit of the disabled person, though it will restrict the usage and distributions so that the child or adult does not lose his or her governmental benefits.   

          Also to be noted, the Special Needs Trust with first party money is going to contain numerous restrictions to satisfy State requirements. For example, the trust might include a requirement that the Trustee notify the State first before any large distributions are to be made, something that would not be contained in the Supplemental Needs Trust holding third party money.  In New Jersey there is basically a whole checklist of provisions the State requires to be included if the Trust is not going to be treated as an available resource for benefit eligibility or transfers to the trust as not causing eligibility penalties. 

          For a parent with a disabled child, he or she is going to want to either set up an inter vivos (lifetime) Supplemental Needs Trust (if it is desired to transfer funds for the disabled child during the parent’s lifetime), or is going to want to set up a Supplemental Needs Trust under his or her Will so that the funds for that disabled child pass under the Will to the testamentary trust on the death of the parent, and not to the child himself or herself.[1]  Note that this applies even if the disabled child is now an adult. 

When a disabled person, adult or child, is to receive a monetary award from a lawsuit, it is imperative that a Special Needs Trust (i.e., Disability Trust under 1396 p(d)(4)(a)) be created for the benefit of the disabled individual, if he or she is not yet age 65.  That trust may be created by a parent, grandparent or guardian of the disabled individual, or by the Court itself, or if the disabled person has mental capacity and is of age (18+), then by the disabled person himself or herself.

          The purpose of this blog post was to alert the reader as to the distinction in planning for a disabled person’s own money and funds (“first party”) versus the money and funds of third persons (“third party”), and the distinction I draw in use of my terminology as to “Special Needs Trusts” vs. “Supplemental Needs Trusts”. Generically it will all come under the umbrella or rubric of special needs planning, but the distinction is important on account of the difference in the documents which would be drafted and the planning opportunities available for the two types of funds.

          Please do not hesitate to call the office (908-359-8000) to speak with me should you have any questions as regards special needs planning.

March 21, 2018                                                                                                    Barry M. Benson, Esq.

[1] Note that it is also important for the parent to plan the beneficiary designation on life insurance or retirement plans for the benefit of the disabled child/adult, so that these proceeds or retirement benefits pay to the Supplemental Needs Trust as third party money and not directly to the disabled child/adult as first party money.

Saturday, January 27, 2018

Side Effect of TCJA 2017 Temporary Suspension of Miscellaneous Itemized Deductions under IRC Section 67(g):
 so much for making use of estate or trust excess deductions

          Prior to the enactment of HR 1 signed into law on December 22, 2017, (which I will refer to as the “Tax Cuts and Jobs Act of 2017” or as “TCJA 2017”), under IRC Section 642(g), the excess of deductions over income of an estate or trust in its final tax year, (commonly referred to as an “excess deduction”), could flow out to the residuary beneficiaries of an estate, or to the remaindermen of a trust in question, as the case may be, basically in the same % as to which they were beneficiaries.  Further, pursuant to IRC Section 67, for those individual taxpayers who itemize deductions, they could take their excess deduction (which would be reported to them on a Form K-1 from the estate or trust for its final tax year) as a miscellaneous itemized deduction on Schedule A, line 23[1] of their federal income tax return for their tax year in which the year of the estate or trust ended. For example, if the estate had excess deductions for its final fiscal tax year 2016, which tax year lets say ran from July 1, 2016 through June 30, 2017, then the excess deduction passed out to the residuary beneficiaries in connection with the wrap up of the estate administration, could be picked up by the residuary beneficiaries on Schedule A, line 23 of their personal federal income tax return (US Form 1040) for calendar year 2017 (as that is the beneficiary’s tax year in which the tax year of the estate ended even though the tax year of the estate was 2016).  An excess deduction was, however, one of the miscellaneous itemized deductions subject to the 2% of AGI floor.  That is, it was only the amount of the miscellaneous itemized deductions above 2% of the Taxpayer’s (i.e., beneficiary’s) AGI that wound up being deductible. Nonetheless, the excess deduction did afford beneficiaries a potential income tax savings in connection with, for example, the wrap up expenses of the estate to the extent they exceeded income, (in addition to their share of a capital loss carryover or a NOL carryover that also might separately pass through to them). 

          Under Section 11045 of the TCJA 2017, however, it is provided that,

          “(a)  IN GENERAL.—Section 67 is amended by adding at the end the following new subsection:

          “(g) SUSPENSION FOR TAXABALE YEARS 2018 THROUGH 2025.—Notwithstanding subsection (a), no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017, and before January 1, 2026.”

          The effective date of the above suspension is stated to apply to taxable years beginning after December 31, 2017.

          Thus, for any taxable year of an estate or trust that ends in 2018 through 2025, the excess deduction which the individual beneficiary would have previously been entitled to use if they itemized deductions, will be disallowed.  Therefore, if, for example, an estate with a fiscal tax year starting date of February 1, 2017 terminates on January 31, 2018, then the excess deduction would flow out to the residuary beneficiary for his or her tax year 2018 (as that is his/her tax year in which the estate’s tax year ends), but because of the change in the tax law, the residuary beneficiary would be unable to use the excess deduction as a miscellaneous itemized deduction on his or her Schedule A for tax year 2018. If the tax year of the estate had ended say on December 31, 2017, then the excess deduction would have flowed out to the individual taxpayer for his or her tax year 2017 and thus been allowed.

          Typically in the final tax year of an estate or trust there is not going to be any income taxes owing by the estate or trust as all of the income, and assets, will have been distributed out to the beneficiaries.  With that said, unless the income of the estate or trust is above the filing requirement, the Executor or Trustee may face the question of whether the fiduciary needs to file a final tax year federal fiduciary income tax return for that year particularly if no excess deductions are going to be allowed to be taken by the beneficiary (and assuming no capital loss carryover or NOL carryover to be passed out to the beneficiaries). Before the JCTA 2017 changes, the Executor or Trustee would surely have filed in order to pass out the excess deduction in that final tax year. Note though that the filing or not of the final federal fiduciary income tax return where the excess deduction will not be allowed to used by the beneficiary under IRC 67(g), must also consider what the state impact would be for that beneficiary.  To be noted, the New Jersey fiduciary gross income tax does not allow a flow through of excess deductions or capital losses in the final tax year of the estate. 

          Further to be noted is Section 11046 of the TCJA 2017, which is referred to as the repeal of the Pease limitation.  This Section of the Act provides, as to the SUSPENSION OF OVERALL LIMITATION ON ITEMIZED DEDUCTIONS, that,

          “(a) IN GENERAL—Section 68 is amended by adding at the end the following new subsection:

          “(f)  SECTION NOT TO APPLY.—This section shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026.”

          The effective date of this new provision is stated as applying to taxable years beginning after December 31, 2017.  As to excess deductions for the years in question, 2018 – 2025, it won’t matter in the sense that the excess deductions are not being allowed at all under amended Section 67, so the Pease limitation under Section 68 would not apply to limit them during the suspension years 2018 – 2015, even if Section 68 had not been amended.

Barry M. Benson, Esq.

[1] For tax years 2016 and 2017, an individual taxpayer’s miscellaneous itemized deductions were to be reported on Form 1040, Schedule A, line, 23.  The line in future years (at least in future years when allowed), would of course depend upon the layout of the Schedule A form itself for that year.

Sunday, January 7, 2018

Important Medicaid Eligibility Figures for 2018

Saturday, December 9, 2017

Additional State Income Tax Exemption for New Jersey Veterans

Additional State Income Tax Exemption for New Jersey Veterans

Welcome news: the State of New Jersey, Department of the Treasury, Division of Taxation has announced that veterans honorably discharged or released under honorable circumstances from active duty in the Armed Forces of the United States by the last day of the tax year will be able to claim an additional $3,000.00 exemption on their New Jersey Gross Income Tax returns commencing with tax year 2017.  The exemption applies to all such veterans not just those separating from service in 2017, and applies for tax years going forward, not just for 2017.  A copy of Form DD-214, Certificate of Release or Discharge from Active Duty, must be filed the first time the exemption is being claimed. The form does not need to be provided each year.  The United States National Archives and Records Administration can assist with obtaining a copy of the DD-214.  You can certify for the exemption by sending a copy of your DD-214 and Veteran Exemption Submission Form before you file, which may help process your return faster.  A spouse (or civil union partner) is also eligible for an exemption if he/she is a veteran who was honorably discharged or released under honorable circumstances and a joint return is being filed. This exemption is in addition to any other exemptions the veteran taxpayer is entitled to claim and is available on both resident and nonresident returns. The exemption, however, can not be claimed for a domestic partner or for dependents.

To read Division of Taxation announcement see:

For copy of Veteran Exemption Submission Form:

For obtaining copy of your Form DD-214: