A Family Owned Business Long Term Care Nightmare (Part 1)
January 23, 2012
George built his manufacturing business from scratch. He and his wife, Claire, had raised a family of 2 boys and a girl, but George treated the business like another child, nurturing it from infancy to maturity. It had allowed him to provide for his family, putting all 3 children through college, and it now also supported his boys, John and James, who both joined the business and are raising families of their own. At 70, George still worked full time. He loved it and couldn’t see retiring. But then tragedy struck when George suffered a stroke.
At first, it looked like George would make a complete recovery, but then he suffered a setback, a second stroke resulting in permanent paralysis. It became clear that he would need long term care. Claire didn’t want to place him in a nursing home, thinking she would be able to care for him at home. Very quickly, however, the family realized that they would need home health aides. Providing care is exhausting, physically and emotionally, and Claire, at 70, just couldn’t provide the round the clock care that was needed.
For the first time, George’s family faced the reality of the long term care system and they were shocked. George and Claire never did buy long term care insurance. The health insurance plan that they had for years through the business, they soon learned, didn’t cover the type of custodial care George needed. They were facing $100,000 a year in expenses and no insurance coverage for it.
That’s when John called us, hoping we could help. I went over the financial numbers. George and Claire owned a house and about $800,000 in investments. George also owned the business and the building which houses the business, John estimated the combined value at over $1,000,000 but he wasn’t confident in those numbers since they had never before valued either. Then John asked the $64,000 question. Could they get any help, meaning government benefits?
I explained how Medicaid works, that it’s a needs based program. Claire, as the healthy spouse, could keep the house and just under $110,000 before Medicaid would cover George’s care. “Does that include the business and the building?”, John asked. “Dad always talked about a succession plan to transfer ownership to James and I, but he just never got around to doing it.” Next week I’ll tell you what I told John.
My Name is on Mom’s Checking Account (Part 2)
January 16, 2012
Last week we were discussing Melissa and her mom. Melissa has been handling Mom’s finances for several years as agent under Power of Attorney – or so she thought. We discovered that actually Melissa is a co-owner on the account. She can still write checks, pay Mom’s bills, and access her account so does it really matter that she is co-owner rather than acting as an agent with respect to the account?
Melissa’s co-ownership carries with it certain legal rights and responsibilities. Firstly, if Melissa is a co-owner, the assets in Mom’s account are now subject to Melissa’s creditors being able to reach it. For example, if she is sued and a judgment is obtained against her, the account can be accessed to satisfy that judgment. We can’t say it’s Mom’s money. The same thing applies if Melissa files for bankruptcy. Any account which she is listed as a co-owner may be seized by the bankruptcy court and trustee.
If Melissa is married and goes through a divorce, the joint account might be considered marital property in a divorce proceeding. Melissa’s husband could assert a right to one-half of the account. It doesn’t matter that it was always Mom’s money and that she didn’t intend to give it to Melissa.
Ownership means that Melissa can legally take the money for her own purposes, even though that wasn’t the intention. That may not be a concern in her case but in some instances it could be an issue. It might be tempting for a co-owner to “borrow” some of the money in the account. That could be a real problem if the parent needs the money for his/her care needs.
Co-ownership of a bank account typically means joint with right of survivorship. What most people don’t realize is that this changes how that account passes when an owner dies. Mom’s account will not pass under her will to Melissa and her 2 siblings, but instead, will pass only to Melissa as the surviving co-owner, even though Mom never intended it. Melissa can honor her mother’s wishes and share the proceeds with her brother and sister, but legally she is not required to do so. If she does, it will be considered a gift from Melissa, potentially subject to gift tax payable by Melissa.
This unexpected change could cause bad feelings amongst family. Let’s alter the facts a bit. What if Melissa maintained that Mom really intended to leave her the account in gratitude for the time Melissa spent on Mom’s behalf? If she never communicated that to her other children, Melissa is left to explain it. At worst, her siblings could sue her to try to establish that Mom never intended that result. At best, the bad feelings could linger for years and cause family disharmony.
To the untrained eye, three little letters “POA”, may not seem like much. But as you see, without proper legal guidance, they can add up to a whole lot of heartache for families.
My Name is on Mom’s Checking Account (Part 1)
January 9, 2012
It’s an issue I deal with frequently as an elder law attorney. Melissa tells me she has been handling Mom’s finances for several years. She writes checks from Mom’s checking account and transfers funds from Mom’s other accounts, as needed, to pay the bills. She says she does it because she has power of attorney. Upon further inquiry I learn she is actually co-owner on the account. Does that matter? Is there a difference?
Yes, it matters and yes there is a difference. Let’s look first at the difference. A power of attorney is a document in which the principal designates an agent to act on the principal’s behalf. A financial power of attorney will typically give the agent the power to conduct financial transactions, such as pay bills, access bank and investment accounts, conduct real estate transactions, pay taxes, etc. It can be as all-encompassing or limiting as the principal wishes.
With respect to bank accounts, the power of attorney will give the agent the ability to write checks on the prinicipal’s behalf. The agent will sign his/her name followed by the initials “POA” . If Melissa is Mom’s agent, then she is acting in a fiduciary capacity and must act in Mom’s best interest. The assets in that account are still owned by Mom. However, if Melissa is a co-owner of the account, then those assets become hers or, in some cases, one-half of the assets become hers.
It is very easy to misunderstand the difference and in many cases we have found that people are under the impression they have set up a POA situation when in fact they have made their “agent” a co-owner. A careful review of a monthly bank statement can reveal the answer. If Melissa is an agent under power of attorney, her name would not appear on the bank statement or it would appear with the initials “POA” after it. She produced a recent statement and it listed Mom and Melissa’s names but no “POA”. A call to the bank confirmed that Melissa is a co-owner of the account.
Now that we understand the difference, let’s go back to my first question, “Does it matter?” We’ll delve into that next week.
Mom Has $1,000,000 – She’ll Never Run Out of Money (Part 2)
January 2, 2012
Last week we were discussing Paul’s mom, 88 years old and in need of nursing home care. She has $1,000,000 in assets so first impressions suggest that she won’t ever need Medicaid. But, upon further examination, we might want to reconsider that conclusion. Here’s why.
Paul’s initial statement about never qualifying, or thinking he might need, Medicaid for his mother is a common one. It assumes that there is one sole concern, long term care for Mom. While that is certainly the primary concern, in this case it isn’t the only one. As we learned, Paul’s brother, Bill, is unable to support himself. Although he hasn’t been deemed disabled or been clearly diagnosed as far as Paul knows, Bill will likely need assistance the rest of his life.
Mom attempted to address his needs by leaving a portion of her estate to Paul to help provide for Bill’s needs (as I have written in previous posts, not the optimum way to do this. A trust for Bill’s benefit is a much better way to go). The more she spends for her care, however, the less there will be to support Bill. That’s why Medicaid is important here.
I told Paul I could help but we’d have to act quickly. We could set up a trust and transfer a portion of his mom’s assets to that trust. But we need to keep enough assets in her account to cover 5 years of nursing home care. Why? Because when we apply for Medicaid we’ll need to show, that from the date we apply going back 5 years, that she didn’t make any transfers for less than fair value, which, of course, she would have done.
I know what you may be thinking. Why should the government pay for her care when she has the money to pay for it herself? But is it really that simple? Life rarely is. Bill has no way to support himself. He’ll end up destitute and Paul doesn’t have the means to support him. Mom had always intended to provide for his care. She just didn’t go about it the right way. Luckily, Paul called us with enough time to fix things. Mom will still pay plenty towards her care, probably close to $600,000 if she lives 5 years but there should be enough left for Paul to provide for his brother.
Paul’s scenario is not all that uncommon. Families are often wrestling with more than one problem at a time. Long term care is the most pressing one but there other competing interests. It is, therefore, critical that you take a wider view of the landscape and over a longer time frame. Which means that you might not have enough money as you think you have and it may be time to put a better plan in place.
Mom Has $1,000,000. She’ll Never Run Out of Money (Part 1)
December 26, 2011
Paul called concerning his 88 year old mother who needs nursing home care. “She doesn’t have a power of attorney. I think she needs one”, he said. I concurred but our conversation didn’t stop there. As we always do, I asked him about Mom’s finances. “Her income consists of Social Security of $1000 per month and what she generates in income from investments”, Paul told me. “But I’m not worried because she has $1,000,000 in assets. I don’t think she’ll ever run out of money so Medicaid isn’t possible or necessary.” “Maybe – maybe not”, I replied.
Why did I say that? Doing some quick math, spending approximately $100,000 a year of her assets on nursing care, it will take 10 years before Paul’s mom spends it all. A 10 year stay isn’t all that likely, is it? After all, she would be 98 at that point. Not likely, but it is certainly possible. But let’s say she doesn’t outlive her money. What if, instead, she lives in a facility for 6 years or 8 years and spends $600,000 or $800,000?
I told Paul that whatever is left will be passed on to her heirs in her will. The exact amount will depend on how long she lives and how much she uses for her care. I then asked if she had a will. That’s when he told me that Mom has 3 children, but Paul’s brother Bill has “issues”. “He hasn’t been deemed disabled or even diagnosed with anything”, Paul told me, “but Bill never married, has never held a job for very long and is just ‘off’.”
Paul told me that Mom’s will leaves 2/3 of her estate to him to look after his brother. I then asked about Bill’s situation, his financial needs. Not surprisingly, he has nothing to his name. As we were talking, Paul had an “aha” moment. He realized that there just might not be all that much left for Bill and that the financial burden would fall to him. Suddenly, Medicaid seemed to be more relevant. Paul grew concerned and asked, “Is there anything you can do to help me?” “Actually, there just might be”, I told him.
Next week I’ll share with you what I told Paul.
The Best Laid Plans of Mice and Men
December 12, 2011
It was a call I received a number of years ago but one I’ll always remember. Don called regarding his mother’s need for long term care. Her health had been slowly declining but she was still living at home. Her investments were dwindling and she needed increase care. It was a pretty typical situation we’ve seen over and over again. I knew where he was headed – or so I thought.
When we sit down with new clients to explain how we can move assets out of their name in order to qualify for government benefits, they so often think in terms of gifting outright to their children. Well, that’s what happened in this case. Don told me that his mother gifted the home to Don’s deceased brother’s son, Clyde, a year and a half ago. He lived in the home with his grandmother and was supposed to provide some care – or at least that was the plan – until Clyde decided that he wanted to sell and move to California to pursue a new career. I figured out what was coming.
Don told me that Mom was essentially being kicked out of her house. Clyde reneged on his agreement and was taking the proceeds from the sale with him. Don wanted to know what his options were. We talked about the possibility of suing Clyde to recover some of the money. The problem was that no written agreement existed. It sure looked a gift from Grandmom to Grandson, no strings attached.
He then asked me about assisted living care for his mom who, he felt, really needed supervision. She had approximately $50,000 in savings and $2200 in income from Social Security and pension. At a cost of $5000 per month it would take her about 18 months to run out of money, leaving her unable to pay the assisted living facility expenses beyond that and with nothing to get her into a nursing home later on if she needed it.
“It all sounded reasonable when she transferred the house”, he told me. “Clyde needed a place to live and Mom wanted to help him get on his feet.” I understood, but at the same time, I know that life doesn’t always go according to plans. It reminds me of the quote from a Robert Burns poem, that “the best laid plans of mice and men often go awry”.
That’s why we never advise our clients to transfer assets outright to other family members, but instead we use trusts. Even when someone tells me that “everyone is on the same page – we all get along”, that is hardly a guarantee. Life is too complicated, with so many twists and turns. What Don’s mother should have done is work with an elder care attorney to put a plan in place to help her grandson, as she desired, but first to be sure to provide for her care needs for the present and the future. Only when she no longer needed the funds should they have been given over to Clyde.
So what did Don do? I told him that he’d have to make that $50,000 stretch another 3 and ½ years before Mom could hope to qualify for Medicaid. He considered moving her to his home, not an ideal situation, but the least costly option. He took the name of an attorney to talk with about suing his nephew and he thanked me.
End of the World? Fat Chance
October 24, 2011
I was talking to Warren the other day about long term care and he said – jokingly, I think – that he didn’t need to plan because the end of the world was coming, October 21 to be specific. Usually, I hear people say that the government will bail them out. This was a slightly different version of a common theme. Don’t deal with the problem because, somehow, it will take care of itself.
Warren was referring to the latest prediction by Harold Camping, an American Christian radio broadcaster. Camping claimed the world would end on October 21, 2011 after incorrectly predicting disaster would occur on May 21, 2011. It always amazes me that so much media attention attaches to apocalyptic predictions. Camping claimed he had examined the Bible and using numerology, a form of mathematics of sorts, was able to calculate the exact date.
So, October 21 came and went. The world as we know it is still here, and we’re still wrestling with the same problems we had on October 20. While Warren was being facetious, his comment expresses the sentiment of many. They just don’t want to deal with the unpleasant subject of aging and dying. I am not sure why talk of the end of the world is any easier or more comforting to think about, but I’ll have to ask him when I see him next.
It really just allows us to push the topic into the back of our minds, but time marches on and we all get older. We can ignore it for a while but eventually the subject will rear its ugly head. If Harold Camping wants to increase his batting average as far as predictions go, he might want to focus on the future of the long term care system in this country. Because it doesn’t look pretty. We are headed towards a real catastrophe and our government doesn’t seem to have a clue how to solve it (See my post last week about the death of CLASS). As always, those who are ill prepared will suffer most. The message is clear. If you were “hoping” the end of the world would bail you out, sorry to disappoint you. Maybe it’s time to buckle down and put your long term care plan in place.
The Death of CLASS
October 17, 2011
I’m not talking about a loss of manners or style or discretion in a world in which technology has helped push the doors open wide to reveal everything that used to be private or personal. That’s a whole other subject. I’m referring to CLASS, President Obama’s attempt to establish a national long term care insurance plan.
CLASS, which stands for Community Living Assistance Services and Support was the part of President Obama’s 2010 health care reform bill that addressed long term care. There weren’t many specifics in the bill, just a general outline. The plan was to be a voluntary government program under which participants pay a monthly premium, which would then guarantee them a small benefit to cover their long term care needs. However, they would be required to pay into the program for at least 5 years before claiming the benefit.
Participants would pay a monthly premium through payroll deduction. The program was not intended to be another government funded one. How much of a benefit would be paid and for what types of care weren’t clearly defined in the bill which became law. The plan called for a committee to be formed to develop all the details over the next 2 years with the goal of beginning enrollment in 2012 and payouts in 2017. Now, you may notice that I keep referring to the plan in the past tense. That’s because only 19 months after the law was passed the President scrapped the CLASS program.
Last April, in this blog, I pointed out the many flaws in the plan. It didn’t take an actuary to look at the numbers and figure out very quickly that there would be serious problems collecting enough premium dollars from a shrinking workforce to be able to pay out the mountain of claims that are sure to come as our population continues to age. There was also the matter of the benefit amount which, although never finalized, was rumored to be in the $50 to $75 range. The whole plan just didn’t seem to be well thought out, and perhaps that’s why the Obama Administration chose to announce its death on Friday. (If you have bad or embarrassing news to release the PR trick is to release it on Fridays so it hits the papers Saturday when readership is at its lowest.)
So, where does that leave us? I said last year that I wasn’t expecting much from CLASS and that proved correct. But, I am also sure that this isn’t the last we will hear from this president or the next administration on the subject. We can’t continue to ignore the problem of long term care in this country and we can’t hope and pray that the government will come to our rescue. Each of us needs to ask some hard questions. “Do I have a plan and is it adequate to meet my needs?” If you don’t or it isn’t, then you’ve got to talk to the right people, such as your financial advisor, accountant, insurance agent and elder law attorney and get help now. The clock is ticking and time is most definitely not on our side.
Be Nice to Me – I Pick Your Nursing Home!
October 10, 2011
For several years now, many regular readers of this blog have offered me kind words and feedback on my weekly stories and interesting posts, suggesting that I write a book. Well, I have finally taken their advice and am pleased to announce the publication of my first book, titled “Be Nice to Me – I Pick Your Nursing Home”. Some might be puzzled, others amused, by the title. It was intended to be humorous and head turning. The book is a compilation of many of my posts over the years, updated in some cases. My goal is not simply to be thought provoking, but for the reader to take action to address what is a growing problem in this country, the cost of long term care and how best to administer it.
For more information and to purchase your copy go to www.elderlawtodaypodcast.com/services/
Don’t Put Long Term Care Planning on the Backburner
August 8, 2011
Laura called us in a panic because her husband, George, was in a nursing home, about to have his Medicare coverage terminated. George had no long term care insurance and Laura was totally unprepared for how Medicaid works and how much she would have to spend down. I explained that we could help her preserve more than what Medicaid said she could keep, but we needed to work quickly. She was onboard and we rolled up our sleeves and got working on it. Then George died.
In Laura’s mind, the crisis for which she hired us had now subsided. She could put long term care issues on the backburner. She had other things to deal with, among them the psychological, emotional and financial toll of the loss of her longtime spouse and what changes to her lifestyle that would cause. I can certainly understand her thinking, but that is absolutely the wrong response.
You see, when a married couple becomes our client in what we call “crisis mode”, the family is focused on one problem only. In Laura’s case it is how to afford George’s long term care without losing everything. While that is my primary focus too, I am also looking at the care needs of the healthy spouse, Laura. How can we best protect Laura so that, down the road, she doesn’t find herself in the same situation as George.
Laura is healthy. Now is the time to take action so that if and when she is faced with the spector of long term car – and that might be 3, 5 or 10 years from now – we won’t be trying to put out fires, so to speak. We will have a plan in place and the ability to tap into all available sources of payment. That will make it so much easier for Laura’s children to manage their mom’s care without worries that she will run out of money and it will decrease the chance that Laura will need to enter a nursing home.
This is critical to Laura, but also to her children. While Laura devoted the last several years to caring for George, it won’t be so easy for her children to do the same for her. While they want to be there for their mom, they have young children and careers too. They can’t simply drop everything on a moment’s notice.
When I explained this to Laura she understood. It took her a little time to adjust to the loss of her life companion, George but we also didn’t need to work quite as quickly. Over the next several months we put the pieces of a plan in place. Laura and her family have the peace of mind of knowing that they’ll be much better prepared if a long term care crisis hits a second time.
