Social Security To End ‘ Clawback Cruelty ’ On Benefit Overpayments
The Social Security Administration announced plans in March to end “ clawback cruelty .” On March 20 , the agency said it would by the end of the month no longer intercept 100 % of a beneficiary ’ s monthly benefits if the person failed to respond to a notice of overpayment . The Commissioner of Social Security , Martin O ’ Malley , made the announcement to the Senate Committee on Aging .
“ We are no longer going to have that clawback cruelty of intercepting 100 % of a payment if people do not respond to our notice ,” O ’ Malley said .
Instead , the agency said it would use a
“ much more reasonable ” withholding rate of 10 % starting on March 25 , O ’ Malley said .
The new 10 % rate would only apply when beneficiaries do not respond to overpayment notices in a timely fashion , he added .
The change is in response to complaints from beneficiaries who received notices from the Social Security Administration demanding repayment of benefits that sometimes totaled tens of thousands of dollars , he said .
At times the overpayments made by the administration are “ no fault ” of beneficiaries , who are then placed in the position of having to make immediate repayment or face a significant reduction in their own benefits , said
Sen . Raphael Warnock , a Georgia Democrat , during the hearing .
One of Warnock ’ s constituents in Savannah , Ga ., received a notice for $ 58,000 from the Social Security Administration . Because she couldn ’ t make a lump sum payment , Social Security reduced her benefits significantly , which led to her defaulting on her rent payments , Warnock said . He added that his office often hears from constituents with benefit clawback problems .
The reduction to 10 % for clawbacks is part of a four-part overhaul in the way the agency handles overpayments . The agency said that by the March 25 date claimants would also no longer have to prove they are not at fault in causing an overpayment .
It ’ s up to the agency “ to produce that reason , not them ,” O ’ Malley said .
As of March 25 , the beneficiaries who established repayment plans with the Social Security Administration will be given a maximum of 60 months to make repayments , up from 36 months before , O ’ Malley said .
The agency said it would also make it easier for beneficiaries to request and obtain a waiver if the overpayment was not their fault and they could prove they didn ’ t have the ability to repay the money .
O ’ Malley said the additional funding for the administration proposed by President Joe Biden would allow the agency to train its 1,200-plus staff and update systems on the new clawback policies .
— Tracey Longo funds to the trust each year to cover the premiums . “ These gifts may be subject to gift tax , but they can be structured to utilize the grantor ’ s annual gift tax exclusion and ... lifetime gift tax exemption ,” Rahill says .
ILITs must also be precisely set up and administered .
“ If a couple sets up the trust jointly , the life insurance policy purchased is usually a second-to-die policy , which can qualify for a lower premium rate or higher coverage , or both , given the couple ’ s longer joint life expectancy ,” Rahill said . Upon the second spouse ’ s death , the ILIT then lends money to or purchases assets from the estate to provide it with liquidity to pay estate taxes .
Borrowing from banks or premium financing companies to fund the policy premiums within the ILIT has become popular . “ For high-premium life insurance policies , borrowing funds to pay the premium allows the policy owner cash to pay for the premiums outright , leaving their assets either untouched — presumably avoiding an unfavorable taxable event — or available for other , higher-yielding investments ,” Rahill said .
Some additional up-front collateral may be needed to cover the initial costs of the
ILIT ; this money can be lent to the trust by the grantor and taken back as the policy cash surrender value grows over time , Rahill adds .
An ILIT , once it ’ s created and funded , can ’ t be changed or revoked without the beneficiaries ’ OK , Resch said . He adds that reverse mortgages can be used to generate annual gifts to the ILIT , which in turn would pay the annual insurance premiums . “ This limits the flexibility and control of the [ grantor ] over their assets and estate plan . It is also a complex legal instrument that requires careful drafting and administration .”
— Jeff Stimpson
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