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.

 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.

 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.

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.

 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.

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.

            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.

            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.

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/

 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.

 If you ask anyone turning 65, they’ll tell you they don’t feel like seniors.  They also don’t act like seniors, certainly not like ones of past generations. Growing up with sex, drugs and rock and roll, many of the recently minted seniors, the oldest of the baby boomers, still think of themselves as young and are generally healthier than their parents were at that age. 

65 now is not what it was 20 or 40 years ago.  People are living longer, more active lives and that will have an impact on what services new seniors will require and demand in the marketplace.  For example, traditional senior centers in some areas are closing for lack of funding and lack of participation.   Many are too sedentary.  You are more likely to find younger seniors at a health club than a senior club.  They are more likely to be playing basketball, softball, tennis, golf, even adventure sports, than playing board games, cards and bingo. This change will affect many senior communities, including active adult communities and assisted living facilities.

It usually takes society time to adjust to change.  We’ve heard about how the Social Security and Medicare will run out of money within the next 10 to 20 years.  The retirement age for Social Security has been raised gradually from the traditional 65 and probably will continue to climb. The notion of retirement in 1935, when the Social Security program was created, did not contemplate 20 or 30 years or more of retirement but that has become the norm.  In 1935 people weren’t living with chronic ailments for years like we are now, thanks to advances in modern medical science.  In fact, the average life expectancy in 1935 was less than 65 years of age.  Social Security was designed with the expectation that a large segment of the population would never collect benefits.  That’s generally how insurance works, at least if the insurance company wants to remain in business. 

With people living longer, more active lives does that mean long term care services are no longer necessary?  Of course not.  While we can put off the aging process we can’t avoid it – at least until someone figures out that whole cryogenics thing.  It just means we are more likely to face significant declines in our health later, perhaps at 75 or 85.  Everything is stretched out over a longer time frame and we’d better be prepared for it.  We have to stop thinking about retirement and long term care as it was 75 years ago.  Most people have a plan that fits 1935, as if they are caught in a time warp.  It’s time to replace it with one that works in 2011.

 Mackey was a tight end for the Baltimore Colts in the 1960’s and early 1970’s after having played his college ball with some great Syracuse teams in the early 1960’s.  He later became the first president of the NFL Players’ Association and was instrumental in efforts to secure pensions and other benefits for retired and ailing players.  Football is a violent sport and like many players Mackey began to suffer from dementia.  In his last years he needed to be cared for in an assisted living facility.

 Mackey played in the days before athletes made millions.  His wife, Sylvia, therefore, had to go back to work as a flight attendant to pay their bills and because they needed the health insurance.  As the disease progressed, however, the Mackeys realized what many of our clients come to learn, that traditional health insurance won’t cover long term care.  That’s when Sylvia Mackey and other wives and children of former NFL players pursued the NFL and its Players Association to establish the 88 Plan.

 Named in honor of John Mackey, whose uniform number was 88, the plan provides up to $88,000 a year to cover long term care for former NFL players with dementia.  Much has been written about the connection between football and brain injuries although the NFL still insists there isn’t any higher incidence of dementia in football players than there is in the general population.  Maybe the 88 plan is just the NFL recognizing what I have been saying for a long time, that long term care is a big problem in this country and the owners and players are doing what we all should, implementing a plan to solve the problem.

 The Mackeys’ story is instrumental.  It’s a story of a wife who suffered along with her husband, supporting him physically, financially, emotionally and psychologically the best she could.  It’s also a lesson about being unprepared.  The Mackeys didn’t have a plan, but they were lucky.  They convinced John Mackey’s former employer to come through with the “88 Plan”.  The question then is, “who’s going to provide your 88 Plan?”  Chances are you’ll have to do it yourself so the sooner you get started the better off you’ll be, unless you’re thinking the NFL is going to help us all out – just as soon as they figure out how to solve their lockout and save the coming season.  Yeah, right.

 The latest example is not about long term care but the parallels are there.  The State of New Jersey established a fund to help homeowners  remove rusted and leaking underground storage tanks that contaminate the soil.  5 years ago the fund had $90 million.  Now there is nothing.  But it’s the reason why there is nothing left that gets me.  The fund ran out of money in part because it was spent on other things that had nothing to do with removing underground storage tanks and in part because too many people were made eligible.  As a result, 1300 people seeking grants or loans to help pay for cleanup will have to wait at least a year and no new requests will considered until 2014.  Of course, there is nothing preventing the State from extending either of those timelines, making residents wait even longer.

 Meanwhile, leaky tanks will continue to leak and the State environmental agency can, by law, hold the residents responsible for the spill.  It’s commissioner has said that in some cases, where the homeowner doesn’t have the money to pay for the removal and it can’t wait, then the State will go in and clean it up and then put a lien on the property for the cost of that cleanup.  What does that tell you about whether any funds will be available next year, 2014 or any time?  All the chairman of the Senate environmental committee could say is that they will conduct an investigation as to what happened to all the money and why no one told them sooner.  Great.

 What has this got to do with long term care?    Nothing and everything.  Certainly environmental and long term care issues couldn’t be more different. What is important, however, is to pay attention to what the government is, or in this case, is not, doing for its citizens, especially where it made certain promises.  The State isn’t beyond changing the rules in the middle of the game and breaking its promises.

 And that’s the lesson to be learned here.  Long term care is a huge problem.  The government is a part of the solution.  But, it has in the past, and will most certainly again in the future, change the rules.  If you aren’t prepared for the possibility of needing long term care and expect the government to be the answer, you’d better rethink it.  Look what happened with a small program to remove underground tanks.  Don’t think it won’t happen with a program like Medicaid.  It will.  That’s why it’s so important to get your ducks lined up now, have a plan and a backup plan in place.  Because what the government provides you today may be very different than what is willing to provide you tomorrow.  You’d better know how you will respond.

 Nearly 1 in 4 interviewed said they were concerned about needing to provide long term care for a loved one with Alzheimer’s.  Less than 1 in 5 said they had made any plans for the possibility of getting Alzheimer’s.  Only 2 in 5 people said they have had discussions with their families about Alzheimer’s.  4 in 5 adults admitted that they have made no financial arrangements for the cost of care should they develop the disease.  And here’s one final stat.  63% of those surveyed  acknowledged they know little or nothing about Alzheimer’s Disease.

 One thing is clear.  While the average American is concerned, he/she is not doing anything about it.  The problem isn’t going away and will only continue to intensify.  The government isn’t going to help either if this week’s developments are any indication.  Congress and the President only avoided a government shut down at the 11th hour  when they reached tentative agreement on federal budget cuts.  The message is clear.  You’ve got to look out for yourself and your family.  Others won’t do it for you.  To start taking action, visit our website www.livingstonmemorylawyer.com/

 Mary’s response was, “I guessed wrong the first time, so, although I don’t think she will live to 105, I will plan against that risk.”  Mary was especially concerned because she was an only child, had divorced her husband a number of years ago, and did not have much in the way of assets herself.  “Mom had always planned to leave me enough for me to survive on when she’s gone”, Mary related.

 Well, the rest of the story is that Mom made it to age 103.  We never did apply for Medicaid.  But, looking at it in hindsight, had Mary made the decision the first time we met, Mom would have been on Medicaid at age 100, saving approximately $360,000.

 You might ask “why should Mary get this windfall?  She is cheating the government.”  But, is that really the case?  Mary now has about $250,000, not a whole lot for someone who is on a fixed income and could live another 20 to 30 years.  Mary may well find herself living in poverty, needing government handouts years before she ever might need long term care.

 The lesson to be learned is that planning isn’t about predicting what is going to happen.  It’s like buying insurance.  I buy life insurance to protect my family should I die.  I am buying peace of mind, protection against a scenario that could occur.  I am not “betting” on my mortality.  If I don’t die while the policy is in force I won’t be upset that my family didn’t “collect”. 

It’s the same thing with long term care planning.  If thoughts of nursing home care are keeping you up at night or occupying your thoughts during the day, you ought to manage that risk.  Most 95 year olds don’t make it to 100, especially when they are at a nursing home care level.  Mary thought her mom wouldn’t make it either.   But, in the end, her mom wasn’t like most 95 year olds.

Mary’s mom was already in a nursing facility when she came to see me.  Mom was in spend down mode, paying privately for nursing home care, at the rate of about $100,000 per year.  She had $1.2 million in assets and minimal Social Security of $500 per month.  Oh, and she was 95 years old.

Her situation was pretty simple and straight forward.  She didn’t have long term care insurance.  Her deceased husband wasn’t a veteran.  She didn’t have any disabled children or own a home.  I explained to Mary that Mom had two options, private pay and Medicaid, but all assets would need to be spent first before Medicaid eligibility could be an option, unless we did some very basic long term care planning.

I told Mary that we could move some assets to a trust.  “But what about the Medicaid penalty and look back period”, she asked.  I explained that Mom would need to private pay for her care for 5 years, approximately $500,000, before we could apply for Medicaid.  We discussed the likelihood of Mom living to 100.  I told Mary that while I agreed the odds were not good  she would have to evaluate that risk herself and decide if it was worthwhile to plan for that possibility.  She opted not to do the planning and thanked me.

Well, you know what happened, right? (Otherwise, I wouldn’t be telling you this story.)  Mom did live another 5 years and Mary came back to see me when she reached 100.  I’ll tell you all about that meeting in next week’s post.

 Here in New Jersey the budget deficit worsens.  Governor Christie will be announcing his state budget for the upcoming year and many are bracing for cuts in Medicaid programs, a trend that is occurring across the country.  The economic recession has reduced tax revenues in many states and caused a reduction in federal funding as well.  Remember that the federal and state governments contribute, on approximately a 50/50 basis, towards the cost of Medicaid programs.  What this means is that many states are cutting optional Medicaid programs and reducing the rate at which they reimburse providers.

 The second article talks about the first wave of Baby Boomers who are starting to turn 65 in 2011, and the fact that many are postponing their retirement plans for at least 4 years because of the recession.  In other words, they can’t afford to retire yet.  The article also notes that even before the latest economic downturn, Baby Boomers were unprepared for retirement which now typically lasts decades.  So, what do you think will happen as 77 million people retire over the next 20 years?  Many will enter an overburdened and underfunded long term care system.  More people and less money, a perfect storm.

 Knowing this storm is brewing, what can and should you do?  I am reminded of Aesop’s Fables, those stories we all learned as a child.  The particular one that is relevant here is “The Squirrel and the Grasshopper”.  The squirrel was busy in the summer gathering food and preparing for the coming winter.  Meanwhile the grasshopper was having a good time, not a care in the world.  When winter arrived he was unprepared and died of starvation.

 The same holds true for long term care planning.  Failing to plan while you are healthy may leave you unprepared when a crisis hits.  Ask yourself if you could afford a $125,000 per year additional expense (the average cost of nursing home care in New Jersey), or $250,000 for a married couple, without depleting your assets.  If the answer is “no” then it may be time to talk to your advisors, including a qualified elder law attorney, about putting a plan in place.  Better to be the squirrel rather than the grasshopper.

 Early one morning, while Mary was still asleep, John awoke to use the bathroom.  The progression of the disease had recently caused John to become increasingly unsteady on his feet and he had experienced a few minor falls but he was resistant to using his cane.  When Mary awoke, she noticed the bathroom light on.  When she went to investigate, she discovered John in the bathtub.  He probably lost his balance, fell in the bathtub and died from the blow to his head.  The news was devastating.

 Could this tragedy have been prevented?  Did we, as counselors to John and Mary, do everything we could?  Certainly, a situation like this one calls out for the use of a Personal Emergency Response System (PERS) or Medical Emergency Response System (MERS).  (Life Alert is the one most people know.)  These systems enable seniors, in the event of emergency, to contact a call center which in turns notifies the police, ambulance or fire services. The senior wears the device as a wrist bracelet or necklace pendant.  It is impossible to say whether John would have had time to use it in this instance.

 There is, however, a broader lesson here.  When we talk with clients about planning for long term care, especially with families that are already in crisis mode, their focus is usually on the here and now, which is certainly understandable.  What services or assistance does Mom or Dad need right now?  What most fail to realize, however, is that the level of need is anything but stable.  What Mom or Dad needs now isn’t likely to be what they need 6 months or a year from now.  But there isn’t a set schedule as to when those care needs will increase. It won’t be the same for everyone.  And there won’t be anyone tapping you on the shoulder to say “now is the time to move to a safer environment”.

 We so often talk with families about getting the appropriate level of care.  It might mean in home care.  It could be selling the home and moving to a facility.  It’s never easy to hear, usually frightening to consider, and often the issue of cost is a primary obstacle.  The failure to adapt, however, can have serious consequences, as we saw in John and Mary’s case.  It is best to be “ahead of the curve”, not waiting for something to happen and then reacting to it.  Tragedies can be avoided and financially, a better result is the outcome as well.

 The reasons for MetLife’s decision are twofold, rising number of claims and decreasing interest rates on reinvestment income.  This comes on the heels of recent announcements by John Hancock and Genworth that they are raising premiums, in John Hancock’s case by as much as 40% for individual policies.  On the other hand, companies like Northwestern and New York Life have not raised rates.  Rather, in some cases new products have been introduced.

 So, what conclusion can we draw from all this news?  For one thing, long term care is something that everyone ought to examine very closely, and for many who are approaching senior status, they should put it on the front burner of issues to tackle.  And while I do believe that long term care insurance is an important part of the solution, a well crafted long term care plan shouldn’t rely too heavily on any one thing.  Just as diversity in investment is wise, so is diversity in planning.  One can’t “set it and forget it” because, as we are witnessing, the insurance industry is still wrestling with decisions on how to make long term care insurance “work”. 

MetLife is saying they can’t make it work.  Too many claims and not enough money to cover those claims.  Did MetLife mismanage their business or is this an industry wide problem?   I am certainly not knowledgeable enough about MetLife in particular or the insurance industry in general to be able to answer that question.  I certainly hope it isn’t an indication of more companies pulling out of the market.  More choices are better for the consumer.  But what I do know is that the warning signs are there for anyone paying attention.  Long term care is the greatest threat to financial security in this country.  Ignore that fact and you do so at your own peril.

 That’s because gifts are subject to Medicaid’s transfer for less than fair value penalty.  And as the rules are written, even as little as a $250 gift carries a 1 day penalty.  So does that mean you can’t make gifts?  Not necessarily.  It depends on the amount, frequency, timing, source and recipient of the gifts.  Allow  me to  explain.

 If Mom is in failing health and currently paying for long term care, gifting is going to be an issue for Medicaid, which will review 5 years of financial statements going back in time from the date of application. For example, if Mom made gifts 6 months before applying for Medicaid, the State will probably take issue with that since those gifts could have been used to pay for Mom’s care.

 Small gifts of $100 or so, far enough in advance of the Medicaid application may be OK.  However, if Mom has 20 children, grandchildren and great grandchildren  then the total amount is now $2000, carrying a penalty of approximately 1/3 of a month.  Keep in mind that the State adds all transfers over the 5 year lookback period together before calculating the penalty.  That’s why the frequency of transfers is an issue.

 The recipient of the gifts is important as well. Transfers to certain disabled children may be exempt from the Medicaid penalty rules.  Of course, gifting to a disabled child may not be a wise idea, depending on the nature of the disability, but the gift can be made to a special needs trust.  (See my 11/9/09 blog post)

 Finally, the source of the gifts is also key.  If the gift comes from the Medicaid applicant’s account then it will be subject to the transfer penalty.  However, if it comes from another source, for example, from a trust then it could be permissible.  Why?  Because the assets in certain types of trusts are not counted as owned by the applicant for eligibility purposes.  So when gifts are made from the trust it doesn’t count as a transfer.  It does, however, count as a transfer when the applicant puts the money into the trust.  That’s why long term care planning using trusts must be done well in advance of the possibility of needing Medicaid, not when you are on the doorstep of the nursing home.

 By doing the planning, ideally while you are still healthy, you can “have your cake and eat it too”.  Assets in the trust are there for your benefit, to pay for your long term care needs first, but you also can have the ability to make gifts to your loved ones without worrying that you’ll jeopardize your own care if you run out of money.

             Experts on Alzheimer’s Disease note that one of the first signs of dementia is confusion surrounding money and credit.  This confusion can result in not paying bills on time.  It may also lead to being the victim of a senior scam.  Sometimes it is a “friend”  helping the senior write checks to the “friend” or multiple checks to various charities to which the senior never previously expressed any interest.

            Issues surrounding money and finances are complicated.  Many families never talk about money.  It’s a taboo subject.  Add to that the fact that competency is not a bright line determination.  As I often explain, whether I have a broken leg or not can be determined with certainty.  An x-ray will usually settle the issue.  The brain is a more tricky issue.  Just because you have a diagnosis of dementia does not automatically mean you are incompetent.  It is a gradual decline with ups and downs. But over time it is a downward decline.  That’s what makes it so difficult to know when someone can no longer handle their own affairs.

             Waiting too long, however, has some very real dangers.  Take the case of Dr. Max Gomez.  His case was highlighted in a recent New York Times article.  You may know of his son, Dr. Max Gomez, for many years the medical correspondent for CBS News. Max, the son, lives in New York. His dad was living alone in Miami and over time, began experiencing problems dealing with his finances.  By the time his son learned of the problems his dad had lost everything, including his condominium to foreclosure.

            Unfortunately, Dr. Gomez’ case is all too common.  The lesson to be learned is to have conversations about finances with your senior loved one early on.  If possible, establish a system by which you’ll get notice if Mom or Dad skip paying bills.  Taking a look at the checkbook for money going in and out is also a good idea.  It may be an uncomfortable subject but the pain of losing everything is far greater.  And if you’d like to read more about Dr. Gomez go to http://www.cnbc.com/id/39935545/

 Because Medicaid treats the married couple as one unit, their assets are combined for purposes of determining Bob’s eligibility.  The home is an exempt asset, as long as the healthy spouse continues to live there.  The solution then seems clear.  Transfer Bob’s interest in the home to Mary.  After all, that’s what they had decided upon before Bob’s tragic mishap.  But, hold on a minute.

Bob had agreed to give the house to Mary because he had more earning potential.  This was a way to even things up.  But, that isn’t the case anymore.  Bob can’t work and doctors don’t know if he’ll ever again be able to earn a living.  If not, then can he really afford to give Mary the entire home, leaving him with literally nothing?   If he is able to leave the nursing facility where will he go and how will he pay for it?

There is also the matter of who can make decisions for Bob.  Right now it is not clear whether he has capacity.  He never executed a power of attorney so the only option is a guardianship, but, again, who is going to be the guardian?  We probably would look to the spouse first, but Mary was about to divorce Bob.  That doesn’t automatically eliminate her as an option but a court is certain to question whether she can act in his best interest.  Their only child is in the military overseas and there doesn’t appear to be any other family.  Maybe a court appointed guardian is appropriate here.

So then what happens to the home?  While Mary doesn’t want to abandon Bob in time of need she is also concerned about her future.  There may be a solution.  Bob can qualify for Medicaid if Mary remains in the home but Medicaid rules require that Bob’s name be removed from the deed.  That should be fine for Mary but someone has to protect Bob’s interest. 

Mary still wants to proceed with the divorce and she feels that the agreement they had should remain in place.  The question then is whether Bob wants to change the agreement.  Bob didn’t consult an attorney when he and Mary reached their agreement.  He didn’t think he needed one, nor did he want the expense.  Now that his mental capacity is questionable, however, he needs proper legal advice, especially if he must transfer his interest in the home to Mary.  Will that be permanent or just temporary?  Mary and Bob may disagree on that.  

And that’s what makes this so complicated.  Mary and Bob are still interconnected in so many ways.  They need to work together to reach the best result for both of them.  Not what either of them planned for, but when a medical catastrophe hits long term care issues will radically change anyone’s life.

 Jane’s mom has been living at home with the assistance of Jane and some private aides.  Mom is now in her 90’s, her health is declining and she needs ever more assistance.  Jane called me because she is anticipating Mom’s money running out in a few months and Mom will probably need nursing home care.  As Jane explained, “I want to be prepared.”

 Jane told me that Mom is down to about $50,000 in assets.  I asked about transfers and that’s when she told me that 2 years ago Mom gave her a gift of $50,000.  I asked if she gave her other daughter, Mary, a gift as well .  Jane told me that Mary is well off, doesn’t need the money and that Mom wanted to “compensate” Jane for all the care she would be providing.

 Jane acted surprised when I told her that although she thought she was planning ahead she was actually too late and now, in what we call, “crisis mode”.  That’s because Mom’s gift makes her ineligible for Medicaid.  “But I’ve been providing care for Mom.   She’s really just paying me for care that, if I wasn’t providing, we would have to hire someone to do”, Jane exclaimed.

 I then related to her that the State doesn’t look at it that way.  In fact, I’ve had discussions with the State’s attorneys in which it is clear that, philosophically, they feel that families should provide care without compensation, that it is simply a case of hiding money.  In my view, that’s a simplistic and unrealistic way to look at it.  I see many cases where children stop working to care for aging parents.  They lose income that they need to support themselves.

 But, it doesn’t matter to Jane how things should be, just how they are. Mom could have transferred assets to her, but it had to be for fair value.  In other words, Mom and Jane needed to enter into a caregiver contract in which Mom paid Jane for care that, if not provided, she would have to pay an aide.  And, no, Jane can’t go back retroactively and sign that contract.  The State presumes Mom made a gift to Jane and that carries a Medicaid transfer penalty.  I told Jane that if Mom needs care she’ll either have to give the money back or pay for Mom’s care at the private pay nursing home rate for 7 months, the length of the penalty.

 Jane listened and then told me that she doesn’t have the money to give back, however, her sister, Mary does have the money.  “Shouldn’t she cover it since I have been taking care of Mom?”, she asked.   I told her that this could possibly be a solution but legally, Mary is under no obligation to do that.  

 So, where does that leave Jane?  In a predicament with no great solution.  But, again, one that could have been avoided with proper planning.

 Bob and Mary’s combined income is about $2500 per month from Social Security and a pension.  While they own their own home worth about $400,000, their savings are down to $50,000.  There is no way Mary can afford the cost of Bob’s care, maintaining the home and still have something left to support herself.  They have no long term care insurance policies.  Mary figured there must be a government benefit program to help her.  Sad to say there isn’t one that fits her needs and desires.

 First I asked if Bob was a veteran.  He was, having served during the years between the Korean and Vietnam wars.  “Unfortunately”, I told Mary, “Bob cannot qualify for the $1949 per month of additional income VA Aid and Attendance benefits could provide because he was not a “wartime veteran”.  Even if he could qualify, however, the VA pension is likely to be a mere drop in the bucket and would not solve Mary’s monthly income/expense deficit.

 We then discussed Medicaid.  I explained to her that in New Jersey the home based Medicaid program only covers about 40 hours per week and that is after Mary spends their assets down, in her case to approximately $20,000.  Not very much help if you consider that Mary would have to pay for the rest of care out of her own pocket.  She could take a reverse mortgage and tap into her home equity, but what would she be left with? 

 That’s a real concern because Mary could outlive Bob by 5 or 10 year or more.  She’ll need every dollar of their assets to live in since she’ll lose some of their income when he dies, one Social Security check plus his pension.  This is Mary’s dilemma.  Put Bob in a nursing home and Medicaid will pay for his care there but that’s not what she wants.  Keep him home, on the other hand, and she’ll deplete their remaining assets leaving her without enough for her own care down the road.

 How did Mary end up in this predicament and what could she have done to avoid it?  There are a number of things that Mary and Bob could have done to plan for the possibility of needing long term care.  But, they should have taken those steps when they were both healthy.  A combination of insurance, elder planning with an elder law attorney and realistic spending with an eye towards the future would have put them in a much better position to handle the crisis they now faced and given Mary much more appealing choices.  Too late for this couple but not for future Marys and Bobs in coming years.

 A few years after their wedding Betty began a physical and mental decline that led to her need for assisted living and then nursing home care.  Betty had savings of $200,000, as did Joe, but no long term care insurance.  She lived long enough to spend her entire savings plus much of Joe’s.  When she died Joe had only $75,000 in savings left.  Joe and Betty were completely unprepared for how long term care would affect them.  And Joe was totally unaware that Betty could have qualified Medicaid before she died.

 Now, Joe’s health is declining.  He never before shared his finances with his children so they were shocked to learn that his savings had been depleted.  They are concerned that he will not be able to stay in the retirement community when his remaining funds are exhausted.  I asked Joe, Jr. what his dad’s agreement with the community says about that.  He doesn’t know because he’s never seen the contract.  Dad said he could handle things himself,  signing the 40 page plus contract without getting a second opinion.  Well, he clearly can’t take care of things any longer.  Joe, Jr. and his siblings will now have to make some tough decisions.  But instead of having a plan in place with options to choose from, the family instead is reacting in crisis mode.  Not the best situation to be in and one that could have easily been avoided.

 He tells me that he doesn’t want to sell the business or the building.  He has a will that leaves both to his sons.  “But”, I explain, “if he needs long term care he will have to sell both before he or Mary can qualify for Medicaid.  Joe becomes exasperated.  “My sons support their families through the business, just as I did.  I can’t sell it now.”

 I hear what he is saying.  More than simply an asset, the business is also the income that supports 2 families.  Yet, Medicaid doesn’t look at it that way.  Which is why Joe ought to strongly consider transferring both the business and the building out of his name now.  Careful consideration must be paid to the tax consequences but using some of the strategies we have discussed previously in this blog can protect Joe and his family.

 Medicaid transfers carry a 5 year look back so the time to start transferring is now, while Joe and Mary are still healthy.  There are gift and estate tax consequences to making transfers.  Joe and Mary can make lifetime gifts of up to $1,000,000 each before having to pay gift tax so they should be able to transfer these assets without paying tax.  They may also be able to eliminate the possibility of estate taxes by employing certain tax strategies. 
 
 If Joe wants to continue to receive the income generated by each asset he has some options.  He could transfer ownership to a trust set up so that he receives the income from anything held in the trust.  On the other hand, he can choose to continue to receive a salary from the business and rental income from the building as an employee.  He’ll need to consult with his tax advisor to see which way is best.

 But by putting a plan in place now to protect both he and Mary should they need long term care he is also preserving the financial viability of his company, which is critical to 3 generations of his family.  Just another example of how long term care has the potential to destroy a family unless you are prepared for it.

 The answer to that is yes.  You see, Joe still owns 100% of the business.  He estimates that it is probably worth close to $750,000.  He also owns the building in which his company is housed and that is probably valued at another $500,000.  He receives rental income from the business and 3 other tenants there.  He and Mary have other investments totaling $200,000.  Joe figures that if he or Mary need long term care he’ll use the investments.  When that’s gone he’ll still have the salary plus rental income and his sons will pay for the rest of their care at home through the business.

 But, is this realistic?  What Joe doesn’t realize is that 24/7 long term care averages about $125,000 per year.  If both Joe and Mary need care, that’s a quarter of a million dollars a year.  When I explain this to Joe he quickly tells me that there is no way the business can support that kind of expense.  Quite frankly, what business can?  Joe also tells me that he and Mary don’t have long term care insurance.  If they can still get it, I would strongly urge them to purchase it.  But if they can’t get it, what then?  We’ll look at some of those options in next week’s post.

Mom was 97 years old and in a nursing home.  Daughter entered into a caregiver contract with Mom to provide care and was paid the sum of $56,000.  This amount was based on daughter performing 15 hours a week at a rate of $25 per hour for 2.9 years, the life expectancy of a 97 year old.  The payment was made and within 5 years of that payment Mom applied for Medicaid.  The State denied her application, counting the $56,000 as a transfer for less than fair value, not a payment for fair value received.

We use life care contracts often in the cases in our office.  But, we also know that the State will scrutinize those contracts very closely because when the payments are going to family members the State assumes that these transfers are “for less than fair value”, what most people would call gifts.  They will then impose a penalty period, or period of ineligibility.

For example, the contract can’t be retroactive.  If I have been caring for Mom for the last 2 years and now we decide that it would be a good idea for her to pay me for that care, Medicaid will flag that transfer.  I had no expectation that I would be paid when I performed the services so I can’t change that now.  There must be a contract in place going forward.  I also can’t be paid an outrageous sum of money.  Mom can pay me no more than what are fair market rates for the services I will perform. 

So why didn’t our 97 year old Mom get Medicaid?  We’ll explain that in next week’s post.

 We have a lot of negatives to contend with here in New Jersey.  You can start with the highest property tax and automobile insurance rates in the country and an overall high cost of living and go from there.  However, the Pharmaceutical Assistance to the Aged and Disabled (PAAD) and the Senior Gold programs that we have here are among the most generous programs of their kind that can be found anywhere in the nation.  In fact, fewer than 20 states offer comparable programs.

 What makes these programs so good is the income levels needed to qualify.  For PAAD in 2010 one must have no more than $24,432 per year in income for an individual and $29,956 for a married couple.  Senior Gold income limits go up to $34,432 for an individual and $39,956 for a married couple.  There is no asset limit.  Participants in PAAD pay $6 per generic prescription drug and $7 per name brand drug.  The Senior Gold co-pay is $15 plus 50% of the remaining cost of the prescription or actual drug cost, whichever is less.  But that’s what is going to change.

 Under Governor Christie’s plan, beginning in January 2011, there would be a $310 per year deductible per person.  The co-pay for brand name drugs would also increase from $7 to $15 while the co-pay for generic drugs would drop from $6 to $5.  While there are approximately 165,000 people participating in PAAD, it appears that the 40,000 lowest income participants would be exempt from this increase.

 Nevertheless, this latest news is just another example of the belt tightening that is going on everywhere and is just another reason why, as our population ages and more Americans reach senior status, it is so important to be proactive in planning for long term care rather than simply waiting for something to happen before addressing the need.  You want to get to the front of the line because it is all to easy to get pushed to the back.

 For one thing, the specifics are very sketchy.  The Department of Health and Human Services is supposed to put together regulations that will govern the administration of the program so that CLASS won’t be rolled out for 2 years.  Add to that the 5 year pay in requirement before you can put in a claim for benefits, which means we won’t see any impact from this program until 2017.  And that’s if you believe that the details will all get worked out on that time schedule (I wouldn’t bet on it).

 And how about the benefit amount of $50 to $75 per day, which equates to $1500 to $2250 per month?  Anyone who is dealing with a long term care expense knows how little that is when compared to a minimum $4000 assisted living facility charge and a $10,000 nursing home charge per month in our area.  For those being cared for at home, $50 won’t cover much more than 2 to 3 hours of in home care a day.  That’s without considering that, with inflation, the cost of care will surely be significantly more than it is now.  I haven’t heard anything about cost of living increases being included as part of this program.

 I also have my doubts about the financial soundness of the program.  Will there be enough people paying into the system, for enough time, to cover those collecting lifetime benefits?  We’ve seen how the Social Security system is being stretched because of an aging population, not enough workers contributing to the syste, and people collecting benefits much longer than was ever anticipated.  Will employees in their 40’s and 50’s commit to a payroll deduction that will reduce their take home by $200 a month, when they are already struggling to pay their bills in recessionary times?  Especially if there is no guarantee that the premiums won’t increase on an annual basis?  My experience tells me that the average person’s reluctance to address long term care needs – the “it will never happen to me” mentality – won’t change.  And 5 years doesn’t seem like a long enough time to collect money into the program before starting the pay outs.

 All in all, I don’t expect much from the CLASS program.  By the time it has any impact, in the best case scenario, the oldest babyboomers will be into their 70’s and the already overburdened long term care system will need more than what this program can offer.

 CLASS creates a voluntary government program under which participants will pay a monthly premium, which will then guarantee them a small benefit to cover their long term care needs.  However, they must pay into the program for at least 5 years before claiming the benefit.  The program is not supposed to be funded with any taxpayer dollars but rather through the premiums collected from healthy participants.

 Participants will pay a monthly premium through payroll deduction.  The amount has yet to be determined but reports are that it will be in the $180-240 per month range, although it can be increased on an annual basis to insure the program is actuarially sound.  The benefits are promised for lifetime, to cover long term care needs.  The criteria has yet to be determined as far as what degree of impairment is necessary to qualify for benefits.  The dollar amount of benefit has been reported to be anywhere from $50 to $75 a day.

 Employers who participate in CLASS will have their employees automatically enrolled, although anyone can opt out of the plan.  Self-employed persons and those whose employers choose not to participate will be able to join CLASS through what has been termed a government payment mechanism.  Those are the basics as we know them.   So, is this program going to be a savior or just another ill-conceived government program?  I’ll weigh in on that next week.

 According to statistics cited in the article in 2008 one in six households were multigenerational, up from one in eight 30 years ago.  For one family interviewed, the reasons were health related and financial.  Dad had a stroke and was forced to retire.  Social Security and disability payments aren’t enough to pay the costs of maintaining their home so daughter and son-in-law built an addition to their home.  Although not entirely clear, it appears that the children are paying for the addition and the parents will sell their home and live rent free with the children, providing childcare for the grandchildren.  The article’s author comments that with rising nursing home costs baby boomer children are increasingly providing care for their parents in their own homes.

 But, is that realistic in this case?  With 2 toddlers, will daughter be able to care for her dad if he needs nursing home level care?  Probably not.  And is their concern about spending all their money towards a $100,000 plus nursing home bill solved by selling their home?  Not at all.  Actually, they may have to spend down more by selling their home and living rent free with the kids than if they still owned the home.  So does that mean the decision they made is the wrong one?

 Absolutely not.  But what it tells me is that they have started to think about and address a very real problem but haven’t gone far enough and thought it all the way through.  I certainly don’t have all the facts here.  But, it might make sense for the parents to buy into the home, either now or later.   That depends on how much savings they have, who will need long term care, and when and where it will be administered.  The possibility of needing government benefits down the road certainly must be discussed because what choices the family make now could very well impact what is available to them later.

 Maybe this was all discussed.  But, experience tells me it probably wasn’t.  Mom talks in the article about having fewer expenses and being able to go on vacations and enjoy life.  And that is important.  But, what I see so often is that people don’t really look closely at what long term care means, day to day.   It means a downward decline in health and upward trend in expenses.  So you can’t just look at where you are now and come up with a solution that solves today’s problem.  You have to expect your life, in the next 10 to 20 years, to look very different than it does now and plan for that.  That’s what real long term care planning is all about.

 After the sale of their home, Tom’s condition deteriorated rapidly.  He became restless and, at times, physical with Betty, who weighed 100 pounds less than Tom.  She could no longer keep him at home.  Betty came to us for help, thinking she could get Tom on Medicaid.  She didn’t realize that the $300,000 she invested in annuities was now a countable asset and would have to be spent down to $109,560 before Tom could get Medicaid.  Betty was distraught.  “I am only 65.  How can I live on $100,000”, she asked me.  I told her not to worry.  She could cash in the annuities, buy another home with that money and keep it, as an exempt asset.  After Tom qualifies for Medicaid she could then resell the home if she wanted, to reinvest for income again.

 Then we examined the annuities.  That’s when I discovered the surrender charges of 7% that Betty would have to pay.  While they did have a provision that waived the charges if the owner needed to cash them for long term care expenses, the problem was that Betty, and not Tom, was the owner.  Betty told me that Tom had definitely been diagnosed with dementia at the time that these decisions were made but couldn’t recall any conversations about long term care or how to provide for it.  Big mistake.

 We were able to help Betty get Tom into a quality nursing home.  She privately paid for 7 months, cashed in the annuities, paid a surrender charge, and bought a home.  We helped Betty preserve the majority of their savings, money she will need to provide for her own care down the road.  But, there are lessons to be learned here.

 The result could have been much better had Betty come to us before she sold her home and before she bought the annuities.  We might have suggested she wait until Tom entered the nursing home, to sell her home.  We also would have cautioned Betty about purchasing investments that could easily be liquidated if a large expense (ie. nursing home care) became necessary.  Buying the annuities wasn’t the problem.  It was the fact that she couldn’t sell them without paying a penalty.  No one thought to ask what would happen if Tom needed care sooner rather than later.  And that’s why having a team of advisors working together is so important.  All tax, financial and legal aspects of any decision should be analyzed carefully and that’s more than any one advisor is capable of doing.

 CCRCs are communities that provide a full continuum of care for their residents.  They have flexible accommodations designed to meet their resident’s health and housing needs as those needs change over time, offering independent living, assisted living and nursing home care, usually all in one location.  As a requirement for admission, most CCRCs require residents to pay an entrance fee, or lump sum “buy-in”.  In Erickson’s case this can range from $150,000 to $400,000.  And there lies one of the concerns.

 So often I see people consider committing almost their entire savings to the entrance fee.  “The CCRC is going to provide my care no matter what level I need”,  they tell me.  “And the entrance fee is refundable,” (which is true in Erickson’s case).  My reply, however, is that even if it is refundable, there is no guarantee you’ll get it back if the company collapses financially. 

 Erickson is a good illustration of that.  While it appears that there will be some kind of restructuring that will allow it to continue to operate, that is far from certain at this point and if creditors of the company push to get paid back your money is at risk of being used to pay off this debt. There are no certainties in life (other than death and taxes, as the saying goes).  So, you’ve got to have a contingent plan, in the event that the CCRC can’t deliver on its’ promise.  Remember, you could be living in their community for 10 to 15 years or longer.  A lot can change in that amount of time.

 It’s important, therefore, not to put all your eggs in one basket.  If you do invest in the CCRC model, and it certainly can be a good option for some, make sure you do your “due diligence”, as we attorneys are fond of saying, (ie. do a background check on the company) and make sure you’ve got a backup plan.  This means the company shouldn’t be holding all (or substantially all) of your money.  You’ve got to have sufficient money remaining after you’ve paid the entrance fee, to finance a backup plan.  Because without any money, you’ve really got no plan.

 Retirement accounts enjoy tax deferred status.  The tax that one owes on the growth of these accounts is not paid until the money is withdrawn from the account.  The thinking goes that by withdrawing the money after retirement there will be less in taxes because the retiree will be in a lower tax bracket than during working years.  Many also view their accounts as something they want to pass on as an inheritance to children and other loved ones.  This combination results in the “I don’t want to withdraw anything” attitude.

 For so many of our clients, the majority of their investments sit in retirement accounts.  This makes their failure to plan for long term care more acute because if we want to protect assets, by using trusts, for example, we must move those assets out of the retirement accounts.  Doing so, however, can cause a large tax bill, one that most are reluctant to pay, thinking that, they’ll never really need long term care, or they’ll wait till it happens.  Waiting, however, can cause disastrous results.

 Moving through the 21st century as a greater number of people live 20, 30 or even 40 years in retirement, we may need to reconsider how we use our retirement accounts.  Maybe it isn’t best to keep the money in the account as long as possible with the specter of long term care on the horizon.  Perhaps it might be better to start withdrawing funds soon after retirement, rather than gambling that we won’t need long term care.  Guessing wrong will likely result in the loss of more than just the tax on the withdrawals, perhaps even the entire account towards the cost of long term care. 

 As one advisor I know put it, we forget that not all the money in the account is ours.  If we recognize that, roughly one third of the money is Uncle Sam’s it is easier to accept the tax bill that comes with withdrawing funds.  Of course, this is not a one size fits all situation.  Everyone needs to consider the matter individually based on their own set of facts.  But, when our thinking on such an important decision becomes so automatic, we need to go back and examine the wisdom of that approach because times are definitely changing and we need to adjust with them.

 Mary was using the stove and, although no one is really sure how it happened, the fire originated in the kitchen.  The home was destroyed.  Miraculously, Mary escaped serious injury.  The family considered themselves lucky.  They now knew, almost too late, that Mom needed more supervision.  They planned to take the homeowners insurance money and use it to place her in an assisted living facility.  That’s when Mary’s family got a second shock. 

 You see, Mary had never increased the insurance limits on her home.  As its value increased, along with the costs of material and labor to rebuild, her policy limits remained unchanged.  So, all she received from the insurance company was $100,000, even though the fair market value of the now destroyed home was over $500,000.

When Mary sells the now vacant lot, she’ll get a bit more cash to help pay her long term care needs, but it won’t be anywhere near $400,000.  The end result is that Mary lost at least a quarter of a million dollars in that fire along with the rest of her belongings.  There is now a greater chance that she’ll run out of money.  So, while Mary and her family were lucky that she escaped the fire with her health intact she wasn’t so lucky when it comes to her finances.  She now is much worse off than her family could have ever imagined.

There are a couple of lessons to be learned here.  First, make sure you check your insurance coverages and keep them up to date.  But, the broader lesson to be taken from this tragedy is that a failure to act can have catastrophic consequences far worse than the decisions you are trying to avoid making.  As the saying goes, “a failure to plan is a plan for failure”.

Mary’s situation is a typical one. At 72, she’s 6 years younger than Joe. Add the fact that women have a longer life expectancy than men and chances are that the husband will need long term care first. And if the couple haven’t planned for it, they’ll likely spend most of their savings on his care. Mary and Joe have $400,000 of assets plus their house. Without any guidance Mary could be left with as little as $109,000 and the house before the State will help pay for Joe’s care.

What about their income? Mary will lose much of that too, towards Joe’s care. He has Social Security of $1500 and a pension of $2500 while Mary has only Social Security of $500 because she spent many years tending to the needs of her family. She’ll get to keep approximately $1500 of Joe’s income when he qualifies for Medicaid, not enough to meet her expenses. Then, when he dies, she’ll take another hit, because Joe chose the maximum pension for his life. There is no survivor option for Mary. Add to that, the fact that she will only receive one Social Security check (Joe’s because it is the larger of the two) and her income will drop to $1500. It, therefore, is so important for Mary to protect as much of their assets as she can to replace the income she loses.

And when Mary does need care it will likely be more expensive and difficult to administer. Why? Because, she won’t have a healthy spouse living with her to care for her at home. Chances are she’ll need to hire more care and she’ll be more likely to need nursing home care earlier. Her children will need to take on a greater role, to fill the void.

One more thing. Mary’s concern about keeping costs down is causing her to take on more of the caregiver role herself. That can take a physical and emotional toll and may contribute to a more rapid decline in Mary’s health. Had the couple planned for this possibility well in advance, tapping into available sources of payment such as long term care insurance or government benefits Mary would be more inclined to pay for additional help.

When you consider all these factors together, it becomes clear that, for many couples, it is the woman who is at greater risk. Mary now realizes it too. Fortunately, she isn’t too late in reaching out to us. We can still help her protect something. Granted, it would have been better had she called sooner but better late than never.

1. Weight loss
2. Deterioration in personal hygiene
3. Unusually dirty or messy home
4. Unusually loud or quiet, paranoid or agitated behavior
5. Local friends and relatives noticing changes in behavior
6. Self-imposed isolation, stops attending activities
7. Signs of forgetfulness such as unopened mail, piling newspapers, missed appointments, unfilled prescriptions
8. Signs of poorly managed finances, such as not paying bills, losing money, paying bills twice
9. Unusual purchases

So what should you be doing if you see any of the above? A physical and neurological exam should identify any medical issues. A Geriatric Care Manager (GCM) can help assess the options available that will allow your loved one to continue to live a full, fruitful and safe life. Suggestions may include a home health aide, adult day care, and personal organizer to help with money management.

If your loved one can no longer live alone, possible alternative living arrangements include another family member’s home, assisted living, senior housing or nursing home. Each choice has pros and cons and expense is often an issue. Planning should be done as early as possible to determine what government benefits can be tapped to help pay the cost, such as Medicare, Medicaid and Veteran’s benefits.

Because the family is together once again, the holidays are a good time to begin discussing these difficult decisions. For example, if one child lives nearby an aging parent and sees the decline on a daily or weekly basis, and the other child does not, there is often a tendency for that second child to downplay or minimize the decline, often basing his/her opinion on phone calls with the parent. But seeing the parent and visiting their home can alter that perception.

Remember, there are resources available to you. All you need to do is find them or consult with someone knowledgeable, such as an elder care attorney, who can help point you in the right direction. But, don’t put it off till next year. By that time you may be dealing with a full blown crisis.

As the economy remains in a funk and financial markets still struggle to recover from huge losses over the past couple of years, many pension systems have seen their investments take a big hit.  Since the beginning of 2009, for example, New Jersey ‘s pension fund has lost almost 13% in value,  $10 billion to be exact.  It hasn’t helped that the government has taken money from the pension system to plug budget gaps in other areas in past years.

Now, our new governor, Chris Christie, is assessing the situation.  Will he be the one to make some hard decisions?  Our outgoing governor already has signed legislation raising the retirement age and barring retirement payouts for part time employees paid less than $7500 per year.  You can be sure other changes are coming from the new governor.  There have to be.  There isn’t enough money to pay everyone who will be entering the pension system in the next 30 years.  The state has to close the gap somehow.

Now, ask yourself what you would do if the State cut your pension by 10%, 20% or more.  What would you do to replace that income?  And what would you do if you were then faced with rising long term care costs?  The government is dealing with a fiscal crisis.  It is doing the same things we all do when we are faced with a financial crisis ‘ tighten our belts and cut costs.

The signs are there.  You just have to pay attention ‘ and take the opportunity to protect yourself and our families.  Don’t assume the government will be there to protect you.  It’s busy trying to fix it’s own problems.  You’ve got to take care of your own.  And the time to do it is now.

Mary found an aide to care for Dad through an agency she had learned of from a friend.  I know many of the quality licensed agencies in the area but had never heard of this one.  Mary paid a fee to the agency, who sent an aide to her dad’s home but her financial dealings with the agency ended there. She paid the aide directly in cash.  I cautioned Mary that she didn’t really know anything about the agency or the person they were sending but she said she interviewed the woman, who seemed pleasant enough.  And Mary was in a bind because Dad had run out of money so she was paying out of her own pocked.  Now the aide she had found herself and whom had stayed with Dad for 3 years was going back to her native country.  Mary needed to find someone quickly and cost was a real issue.

What happened after one month was Mary’s worst nightmare.  On one of her daily visits to Dad’s home she found him bruised and battered, in a semiconscious state.  He had been beaten by the aide, who claimed not to know what happened.  Mary called the police. They immediately arrested the aide and Dad was transported to the hospital.

Upon further investigation, Mary discovered that the agency was neither licensed nor insured.  The owner disappeared, probably to reappear under another agency name.   And unfortunately Dad’s injuries were of a severity that he could no longer stay at home, but needed nursing home care.  Mary felt terrible, but her predicament is hardly uncommon.  When trying to make ends meet safety was compromised.  Bringing a complete stranger into a home to care for a defenseless senior should not be taken lightly.  Background checks must be done.  Training is important.  There is a reason going through a reputable agency is more expensive.

However, if a long term care plan had been put in place, well before Dad needed care, perhaps Mary would not have been strapped for cash.  Dad would have the money to pay for his own care, maybe government benefits could have been tapped to help out. Mary would then have hired the licensed agency, safety precautions would have been taken, and a tragedy could have been avoided.

We can set up a trust to which Mary transfers assets.  The trust then provides the funds to Jim.  Now, you may be thinking, ‘doesn’t this create the same problem Mary already has by giving Jim money each month or two?’   Yes, but by having Mary transfer the money in one lump sum Medicaid’s 5 year lookback is applied one time so we know when it will expire.  If she transfers a little bit at a time Mary creates a new 5 year lookback for each separate transfer.  But isn’t there a potential Medicaid penalty when the trust gives money to Jim?  No, because Medicaid only looks at Mary’s transfers, not the trust’s.

Some may read this and conclude that this is just a way for Mary to avoid using her money for long term care and have the government pay her bills instead.  But is that really what is going on here?  Cleary not.  Mary isn’t even thinking about long term care (although she clearly needs to).  Through the use of a trust she can accomplish both goals, helping her son get back on his feet and providing for her own needs.  If she gets sick she’ll definitely need to use some of her funds for her own care but when she spends down completely, if done properly, she will be ready for Medicaid.  And that benefits not only Mary, but also the providers of her care who will receive those benefits, whether it be a nursing home, assisted living facility or home health care agency.

The long term care provider will know that after Mary spends down her assets she will qualify for Medicaid without any surprise ineligibility periods imposed by Medicaid. And Mary will know that she can be there for her family and still meet her own needs.  Mission accomplished.

‘Well, Mary, actually, the money you are giving your son may disqualify you for government benefits down the road, should you need them’, I explained.  Mary became exasperated.  ‘Jim has had such a tough time finding a job in this economy.  How can the government tell me I can’t help my family when they are in need?’   The reason for this, if you have been reading my posts over the past number of months, is the Medicaid spend down rules.  The government wants you to spend your money on your own long term care first, before asking for assistance.

Now, not all your money must be spent on long term care.  But it must be spent in such a way that you are getting something of equal value back.  Mary heard this and in an exasperated tone cried, ‘what could provide me greater value and satisfaction than helping to keep a roof over my son, daughter-in-law and grandchildren’s heads and food on the table, until Jim can get back on his feet?  My parents helped us out when my husband lost his job.  In tough times our family has always pulled together and pitched in.  Jim is a good son.  He just needs a break.’

While you and I may view Mary’s help as essential and proper, unfortunately the government does not.  Mary estimates that she has given Jim $50,000 over the last 6 months and intends to continue to do so.  Right now, however, she has a potential Medicaid penalty of about 7 months and that will only increase if she continues to advance funds to Jim.

Mary is really getting agitated now.  ‘So are you telling me I have to stand by and watch Jim lose his house — that I can’t do anything?’  ‘Not at all’, I replied.  ‘You can be there for Jim, but we have to do it in a way that won’t create long term care problems for you down the road.’   In next week’s post I’ll share with you what I told Mary.

 First, let’s run through the major changes.  One of the biggest changes is the creation of a ‘statutory major gifts rider’.  This is a document separate from the power of attorney that specifically authorizes major gifts and other transfers (defined as greater than $500 per person per calendar year).  No longer can the principal (the person executing the power of attorney) authorize gifts in the body of the power of attorney document.  This will impact many long term care plans in which assets are placed in trust, for example.  If the principal can no longer make the transfer and a child, as agent under power of attorney, needs to complete that transaction, New York law now requires this separate rider.

 A second  important change focuses on the execution of the document.  Now the principal and the agent must sign the document in front of a notary and two disinterested witnesses.  The signings need not, however, occur at the same time.  The agent may sign at a later date than the principal.

 A third major change is one that at first might not seem like much.  Any new power of attorney automatically revokes all previous power of attorney unless the principal expressly states otherwise in a special ‘modifications’ section.  This could really wreak havoc upon estate and long term care plans.  Think about it.  How many times have you gone into a bank and executed a limited power of attorney appointing a family member as agent for a particular account?  If that document doesn’t expressly state your wish not to revoke your general power of attorney or any other limited power of attorney that you signed previously then they all are revoked.  What if the bank employee doesn’t point this out to you?  They may not even be aware of this provision. 

It will be interesting to see what impact the new law will have.  Will it correct financial abuses of the elderly?  Will it be too restrictive and hamper families in their ability to care for elderly members?  Will there be any unintended consequences that nobody foresaw?  And will other states follow suit?  One thing should be clear.  Consult your elder or estate planning attorney before you execute any other powers of attorney.

 Well, it depends.  There isn’t a ‘one size fits all’ solution here.  But let’s analyze this a bit.  One consideration is going to be, ‘How long do I think I will live and what is my break even point?’  For example, if I wait until age 65 to take my benefit how long will I need to live before I come out ahead by giving up a lesser benefit at an earlier age?  That may also be impacted by what I do with the money if I take it early.  If I have sufficient other income and I invest the Social Security that will affect the calculation.

But, wait.  That’s not the only consideration.  If I am still working when I take an early benefit I can lose some of that Social Security if my income exceeds a certain level (this changes from year to year).  And, what about my spouse?  When one spouse dies, the surviving spouse is entitled to receive the larger of the two checks.  So that may work into this as well.

 As you can see, there are many things to consider.  There is a certain amount of guesswork involved as well.  The best answer I can give, however, is to consult with your professional advisors ‘ financial, tax and elder law ‘ to run some numbers.  What is best for you will most likely not be best for the person seated next to you.  There are just too many variables for there to be one right answer.  But, one thing I can unequivocally say is that you should ‘run the numbers’ before you reach age 62.  It might be right for you and you wouldn’t want to pass up that opportunity if it makes financial sense.

 I listen patiently and then start by explaining that guardianship isn’t suitable for everyone.  And it isn’t easy to obtain.  Now that can be a good thing, but it also can be a bad thing.  You see, the first step in seeking guardianship is a decision by a court that Mom is incompetent, that she legally cannot make decisions for herself.  We have a long history of individual rights in this country.  Taking away that freedom is not something we take lightly.  So the process of declaring someone incompetent is not an easy one.

 Mom has to be examined by two doctors who must agree that she is incompetent. (The exact process may vary from state to state.)  Then the court appoints an attorney to represent Mom.  The attorney must meet with Mom and report back to the court.  And here is where the problem usually occurs.  If Mom is aware of what is going on, she may object to the process.  She may become angry with her children and tell her attorney to go back to the judge and tell him she doesn’t want to be declared incompetent and that she will fight it. 

She tells the attorney that her decisions are hers to make.  Her children may think she is incompetent but where is the line between bad decisions and mental incompetency?  It is not an easy one to draw.  In many cases I must tell the children that attempting a guardianship will probably fail.  Even worse, it may drive the parent away from seeking or allowing the children to help, actually making the problem worse.  In those cases, then, what other options are there?  More on that in next week’s post.

For so many people care is provided by family members.  As anyone who has provided this level of care for any length of time knows, it is an exhausting task, both mentally and physically.  It is a full time job, but not one typically limited to 9 to 5 hours.  It is often a 24/7 task and the toll, especially if the caregiver is a healthy, but elderly, spouse, can be harsh.  That’s why respite care is so important.

Respite care is a form of short term relief for the primary caregiver.  That caregiver may need time away to ‘recharge the batteries’ or to address his/her own health issues.  There are various programs and services available to provide care to the ill loved one while the caregiver is taking a break.  This can range from home health care to adult day care to overnight care in a licensed facility such as an assisted living facility or nursing home.  The care is temporary, usually a period of days or weeks at a time.

Financial aid for respite care may also be available through the Alzheimer’s Association’s Greater New Jersey chapter.  The program will provide reimbursement of up to $1000 in respite care expenses incurred during the 3 month period beginning on the date of acceptance into the program.  Eligibility is not limited to people with Alzheimer’s but is open to individuals suffering from other related progressive, degenerative, neurological dementia.  While funding for the Caregivers Respite Care Assistance Program is limited it does not require disclosure of financial information.  And there is no downside to applying.  If funds are not available when you apply, your application will be kept on file for 12 months. For more information go to www.alznj.org.  If you live outside the Northern and Central New Jersey area check with your local Alzheimer’s Association chapter to determine if a similar program is available where you live.

Most likely, not.  Living trusts are usually revocable, meaning that when a grantor or settlor (the person establishing the trust) transfers assets to it he/she has the ability to take the assets back out at any point in time.  People believe that when they make transfers to the trust, these assets are not counted as theirs for purposes of qualifying for Medicaid or VA Aid and Attendance benefits.  That is just plain wrong.  If the trust gives you the ability to take the asset back out of the trust, the government will say ‘go ahead and take it back, spend it all down and then when it is gone come back to us.’   The trust has to be irrevocable, meaning assets transferred to the trust cannot be taken back out by the grantor.

A second reason living trusts (or other trusts, such as testamentary credit shelter or bypass trusts, won’t work for long term care planning purposes is that they usually contain a clause providing that the trustee can use the assets for the ‘health support and maintenance’ of the beneficiary.  Again, if the beneficiary needs long term care the government will look at the trust and point to that language.  ‘Long term care needs are health, support and maintenance,’ they’ll say, ‘so spend it down and then come back to us when it’s gone.’

So, what’s the solution?  If you have read previous posts on this blog you know that first of all, the trust must be irrevocable.  Now, that makes people uncomfortable.  ‘Does that mean I am giving away my assets and losing control over them?’   The answer of course, is no.  What I tell people is that the purpose of this transfer is not to give away assets because you may very well need some (or all) of them, depending on what your health needs are.  But you can qualify for government benefits that can help pay for care.  Not knowing how long you will live, the challenge is to protect your assets so you don’t run out of money.  Tapping into other sources helps accomplish that goal because you are spending down your own assets less rapidly. 

 Additionally, the trust language allowing distribution of assets by the trustee to the beneficiary has to be tailored very carefully so as not to jeopardize eligibility for government benefits.  It all adds up to a trust that avoids probate and addresses long term care planning needs.
 
 The bottom line when it comes to living trusts is to get proper advice before jumping into one or if you already have one.  Seek the advice of a qualified elder law attorney who can discuss every option with you.  A living trust may meet your particular needs.  But then again, it may not.

 When we prepare a power of attorney for a client we draft it with the client’s needs in mind as well as the mindset that we may not have another opportunity to redo it later so it must be as broad as necessary to cover all possible scenarios in which it may be used by the agent.  We also tell clients that when their agent presents the document to a bank or other financial institution the first reaction may be that the bank will want our client (the ‘principal’, that is, the person signing the power of attorney in favor of the ‘agent’) to execute another power of attorney on their own form.

The bank’s reason is usually a concern about liability ‘ being sued for honoring an invalid power of attorney.  However, the law provides a measure of protection for both the principal and the bank.  New Jersey law states that a bank must accept a power of attorney that conforms to the law unless the principal’s signature is not genuine or the bank has actual notice that the principal has died, the power of attorney has been revoked or the principal was under a disability when the document was signed, meaning he/she wasn’t competent to sign it.

The problem presented to clients is that the bank employee is usually following bank policy set by their legal department that they want the principal to sign their own document, typically in front of one of their own employees.  Obviously, this makes it easier for them to be sure the document is valid but it  frustrates the purpose and benefit of the law, that the principal can sign one document to cover all scenarios.  Persistence with the bank employee and sometimes intervention by the elder law attorney will usually overcome this resistance and convince the bank to honor a valid power of attorney. 

It helps to know a little bit about the law because the person you are dealing with at the bank probably doesn’t and will tell you they are simply ‘following bank policy’.  But this policy is not at all helpful to the client, especially in situations in which physical frailties prevent him/her from physically appearing at each bank to execute a separate power of attorney.  That’s not to say that there aren’t legitimate concerns about agents abusing their power.  It’s just that a ‘one size fits all’ approach is the easy way out, instead of a careful examination of the facts of each case.

 I was reading a recent post on the New York Times New Old Age blog (www.newoldage.blogs.nytimes.com) which highlighted two cases in which elderly parents were living at home in declining health.  One was a 95 year old woman living in her own home with a team of aides and other assistance, all coordinated by her overwhelmed daughter.  The other was an elderly man suffering from Alzheimer’s Disease, living in the basement of his son’s home.  The woman had visitors and activity in her home every day.  The man did not, spending most of the day alone watching television.

 The two cases raise some interesting questions.  Would the elderly man be better served in an assisted living facility or at least, adult day care?  He is not getting any mental stimulation through most of the day, which, if received, could slow down the progression of his disease.  There is the safety issue as well.  He remains at home in the basement for long hours unsupervised.  What if there is an emergency?   Will help arrive in time?

 The elderly woman would seem to be better cared for.  She has visitors in and out of her home throughout the day.  But, her daughter is coordinating all this care.  It sure sounds like a full time job.  And then we learn that the daughter, herself, is 74 years old.  How is this affecting her health and what happens if she needs care?  Finally, I wonder what Mom’s finances are?  All this assistance can approach and exceed the cost of care in a facility.  Will she run out of money and if so, what happens then?

 As 77 million babyboomers begin turning 65 in 18 months, long term care will continue to be a major issue families will have to wrestle with.  And, I am not saying that remaining at home shouldn’t be the goal for many.  However, as with most complex problems a one size solution does not fit all.  Assisted living facilities and nursing homes will always have a place in the continuum of care and may just be the right fit for some.  Food for thought and a different perspective to consider.

            As a requirement for admission to most CCRCs, residents are required to pay an entrance fee or a lump sum ‘buy-in’ which, in addition to other things, guarantees the resident’s right to live in the facility for the remainder of his/her lifetime.  In addition to the entrance fee, residents pay a monthly service fee. 

            The entrance fee is often, but not always, reimbursable (at least partially) if the individual moves from the facility, passes away while a resident at the facility, or otherwise terminates the contract.  Many contracts also contain a provision wherein an individual is able to use a portion of the entrance fee towards monthly resident charges if the resident exhausts his resources and becomes otherwise unable to pay.

            The concept is a very appealing one.  The resident knows that as he or she ages and needs increased care it will all be provided by the same organization, usually in the same location.  There are certain risks, however, that make it unsuitable for many. 

The CCRC is promising to provide care over a potentially long time frame without knowing exactly how much it will cost or when it will be needed.  The concept is something akin to insurance.  The company must make projections as to how many of its residents will need what level of care at any one time.  But so many things can go awry.  What happens if too many people need nursing home care at one time?  What about the rising cost of long term care?  What happens if residents run out of money?  Or the CCRC runs out of funding?  Certainly possible in today’s world, where not even big financial companies like Prudential or AIG are safe.

            Because of all these contingencies the CCRC contracts have many so called ‘out’ clauses.   When you buy into the community there isn’t an iron clad guaranty that no matter what you’ll be able to stay.   Under some scenarios you may run out of money and be asked to leave.  This risk is especially present when husband and wife move to the community together.  If one spouse needs nursing home care for an extended period the couple may spend down their assets towards that care, leaving the health spouse with not enough to cover his/her care.  In some cases the entrance fee can be used for that care but then what?  Is Medicaid a possibility?  Maybe, but usually the resident must satisfy certain conditions imposed by the CCRC in addition to Medicaid eligibility rules.  It depends on the terms of the contract.

            It is, therefore, very important to review the contract (which can be 40 pages or more) with an elder law attorney before signing and go through these different scenarios.  If you put all your financial eggs into the CCRC basket, what happens if that basket springs a leak?  It is a good idea to have an emergency plan in place.

 That’s where the long-term acute care hospital or LTACH, comes in.  General hospitals are typically paid a standard fee for a diagnosis so they earn more for a quicker patient discharge.  At the same time, the patient may not quite be ready for a subacute facility in a nursing home, which focuses primarily on rehabilitation but can’t provide the medical care of a hospital.  The LTACH can bridge that gap.  Patients receive the benefit of physicians on duty around the clock as well as nurses, respiratory therapists, case managers, physical and occupational therapists, dieticians and pharmacists, all on staff.  LTACHs provide more nursing care than on a medical-surgical floor of a hospital but less than is provided in an intensive care unit.

 Many LTACH patients use ventilators to breath and are recovering from multiple medical conditions such as heart failure, major surgery, etc.  They may have developed complications such as bed sores.  The specialty hospital can concentrate on weaning the patient off of the ventilator or providing wound care, for example, that can require weeks of care, that the general hospital won’t receive payment for.  For those on Medicare, LTACHs are covered under Part A.  The average stay in an LTACH is 25 days.

 There are over 400 LTACHs nationwide and 8 in New Jersey.  Most are housed in general hospitals, however, some are freestanding, such as Select Specialty Hospital in Rochelle Park, New Jersey which is owned by the same company that also owns Kessler Institute, the facility that specializes in the treatment of spinal cord injuries.  The long term acute care hospital is definitely an option families should explore for their critically ill or catastrophically injured loved one.  It may very well improve the recovery process and increase the chance that a loved one can ultimately return home, the end result that we all want to achieve.

 Very simply, no one considered how long term care costs can completely destroy an estate plan.  As I have explained in previous posts, when one spouse needs nursing home care and the other does not a spend down must occur.  The healthy spouse gets to keep one half of the couple’s assets up to a maximum of $109,540 and a home, if he/she is living there.  The ill spouse can then get Medicaid.  But, what happens if the healthy spouse dies first?

 Well, in most cases the will provides that everything is left to the surviving spouse and then to the children after the second spouse dies.  Or, perhaps, the will establishes a bypass trust for the surviving spouse, to save on estate taxes.  In either case the assets will now be accessible to the surviving spouse who is on Medicaid.  One of two things will happen.  Either the assets must be given to the State to pay back Medicaid benefits received and the surviving spouse can continue to receive benefits. The alternative is to terminate Medicaid and begin private paying for care until all the assets are spent and then reapply for Medicaid.

 Neither scenario is very appealing and need not happen if we modify the will.  Instead of leaving everything to the surviving spouse we leave the assets to a trust for that spouse, but, and here is the key, a trust that will not be counted for Medicaid eligibility purposes.  Now, those assets are available to be used for other needs not covered by Medicaid.  And when the surviving spouse passes away, there will likely be something left to pass on to the next generation, an important goal for many families.

 Does this mean that everyone should set up their will in this manner and that leaving everything to your spouse is the wrong thing to do?  Not necessarily.  What I am saying is that you do need to sit down with an elder law attorney who is well versed in the long term care system.  You may have a will that was suitable for your needs at the time it was created but things change and your plan may need to be changed too.  You may be leaving yourself vulnerable.  The State says you have to spend down most of your assets towards long term care.  With a poorly drafted estate plan you may end up spending all of your assets towards care, something even the State doesn’t require you to do.  

Right there is the dilemma.  What to do?  Capital gains tax, at worst, will never consume the entire proceeds of sale.  Long term care, however, could easily exceed the home value if it is needed for several years.  But do I have to really choose between the two?  Well, maybe there is another way.

 Putting the home in a trust, if set up properly, can accomplish both goals.  The home is removed from the parent’s name and, if done 5 years or more before needing long term care, will be outside the Medicaid lookback, that time frame within which Medicaid looks to confirm that you have in fact spent all your money and haven’t given it away.  At the same time, the trust can be set up in such a way that the assets it holds will be part of Mom’s estate and she will be able to take advantage of both the capital gains tax exclusion and the step up in basis that I discussed in my last post.

 We accomplish the best of both worlds.  The home can be protected and tax advantages will not be lost.  But, there are even more potential benefits.  Since the home is not in the child’s name but in the trust, it is not subject to the child’s creditors, or to being split with the child’s spouse in a divorce.  Additionally, if Mom needs care within 5 years of the transfer, the home can be sold or borrowed against to help pay the cost of care.  In other words, some of the asset can be used for care but not all of it need be consumed.

 As you can see, a simple question, or so you thought.  Is home transfer right for you and your family?  Well, that depends on many factors, including the health of the parent, what other assets exist to pay for long term care and what goals the parent and child want to accomplish.  One thing is for sure.  Planning early makes things easier and the outcome so much better than waiting until a crisis hits.

 The home is typically the largest asset people have and they are frequently and understandably emotionally attached to it.  The primary residence also enjoys special tax treatment and that is what most people fail to consider when they make the decision.  Let’s run through the basics.

 Real estate, like stocks, bonds and other investments, is subject to capital gains tax.  If Mom bought her home for $100,000 and sells it for $500,000 she has what is called a "realized gain" and Uncle Sam will want to tax her on that gain.  The gain is calculated by taking the amount she sold the home for and subtracting the ‘cost basis’.  The cost basis is her purchase price plus capital improvements (eg. addition, new roof, windows, siding) and closing costs.

 In my example, if Mom made no improvements her gain is $400,000.  The capital gains tax she must pay is based on her tax bracket. The higher the bracket the higher the tax, although capital gains tax rates are lower than for regular income.  Let’s say her tax rate is 20% so her potential capital gains tax is $80,000.  I say ‘potential’ because, if the home was her primary residence in 2 of the 5 years before she sold it then she can exclude up to $250,000 of gain.  Married couples can exclude $500,000 of gain.

 If Mom transfers her home to me and I don’t make it my primary residence then when I sell I won’t be able to exclude any capital gains from tax.  But, Mom still intends to live in the home.  I don’t want to sell it until after she passes away.  Is there a way to avoid the capital gains tax, entirely? 

Yes, by invoking something called the ‘step up in basis’.  If Mom owns the home when she dies and passes it to me upon her death my cost basis when I sell is not what she paid for it, but rather what it was worth at the time of her death (or, alternatively, 6 months after her death).  If I  sell it immediately after she dies my capital gains is zero, and thus, there is no tax.  If I sell after Mom dies, but she transferred it to me during her lifetime, then I owe Uncle Sam capital gains tax. 

So, then that’s it, right?  Mom shouldn’t transfer the home to me.  Well, not so fast.  What if Mom gets sick and needs long term care?  We’ll tackle that one in next week’s post.

            Verne Gagne was a prominent professional wrestler in his day with the American Wrestling Association, in the 1960′s and 70′s.  He eventually lost his big stars, such as Hulk Hogan and Jesse Ventura, to the World Wrestling Federation. He is now 82, and suffers from Alzheimer’s disease, residing in a nursing home.  That is where he had an altercation with a 97 year old resident and put a wrestling move on the resident, slamming his body to the ground.  The other man broke his hip and died several weeks later.  The police are investigating the incident but there is a consensus of opinion that Mr. Gagne should not be charged with a crime because he didn’t know what he was doing.  A tragic story but with similarities that are all too familiar to families who have loved ones with Alzheimer’s.  It is the uncertain, sometimes violent and erratic, behavior that can be most frustrating and frightening. 

Although no one can be sure what caused Verne Gagne to act in the way he did, we know that Alzheimer’s patients very often lose their short term memory but are able to conjure memories of events and people 40 or 50 years ago or more.  Gagne’s skill as a wrestler made him more dangerous than the average resident.  Firstly, he was more physically fit than the average resident.  Secondly,  while he was losing his short term memory, he was prone to recalling events from his past, such as his days wrestling.  Perhaps it is that memory, programmed into his brain, that caused him to perform a wrestling move on his co-resident.

            It is the unpredictability that often turns a family’s world upside down,.  Dad can be living comfortably in a facility one day and the next he can become extremely agitated and aggressive, causing the facility to ask the family to move him because they can’t accommodate his needs, or because of concern for the safety of other residents.

            It is just another reason why families cannot wait and react to a loved one’s long term care needs.  When possible, preventative measures need to be taken.  So often, we see families plan as if Mom or Dad’s current condition, while tragic and upsetting, will remain static, unchanging.   That is usually far from the case and misjudging the situation can be worse than anyone imagined.

Who knows what could have been done to prevent Verne Gagne from acting out, although, there was at least one previous altercation between the two residents.  The lesson to be learned on a broader level, however, is to recognize the unpredictability of Alzheimer’s, and dementia in general.  Take action before, not after, it becomes necessary.  I am sure everyone involved in Verne Gagne’s case is reexamining what they could have done differently.   

 One possibility is for Jim to buy the home at a price that he can afford but that may be below fair market value.  If, for example, he purchases the home for $200,000 and it is worth $450,000, then $250,000 is considered a gift subject to the Medicaid transfer penalty.  Jim can spend down the $200,000 for his care but if he runs out of money then Jim may need to cover the cost of care until the 5 year time frame expires.

 Now that Joe lives in Jim’s home, they could enter into an agreement for Joe to pay rent.  If Jim or his wife is providing care that Joe otherwise would need to hire an aide to do, then Joe could pay Jim to do it.  This is what is called a personal services contract.  Food, utilities, and other goods and services that Jim may be providing, can and should be paid for by Joe.  Perhaps the home needs to be modified to allow Joe to live there.  Jim could spend money to make those improvements when they become necessary, borrowing against the home. 

Some or all of these strategies may be ways for Jim to, in essence, pay Joe for some of the remaining uncompensated value of Joe’s home, over time, in a way that may be more affordable for Jim.  However, each of these financial arrangements must be in writing.  That’s because Medicaid presumes that any transfers of money or services is a gift, subject to a transfer penalty, unless it is in writing and at fair value.

But, a word of caution.  The Medicaid rules are complicated.  What will work in one state may not work in another.  What may suitable for one family may be entirely the wrong solution for another.  If you try to do it yourself and get it wrong, you may find yourself with a lengthy period of Medicaid ineligibility and no money to pay for care.  You need a knowledgeable and trusted elder law advisor to guide you through the maze of laws and regulations that leave hidden traps for the unwary.

There is, however, a big difference between the households of the 20th century and those of the 21st century, which generation owns the home.  The parent homeowner of the 20th century now is the grandparent homeowner of the 21st century. 
 
 So now that homeowner, we’ll call him Joe, is in his 70′s.  His son Jim and Jim’s wife and kids live with Joe.  They are concerned that as Joe ages and needs long term care they may lose the house.  Jim wants to buy a house but can’t afford it, even in today’s depressed real estate market.  So they come upon a solution.  Joe will transfer his house to Jim or perhaps sell to Jim at a reduced price, maybe enough to pay off Joe’s mortgage.  Jim will have a home of his own to raise his family and Joe will have the support of family should he need it.  A win ‘ win scenario for everyone.  Right?

 Well, not so fast.  If Jim doesn’t pay fair market value for the home then the uncompensated amount is treated as a transfer for less than fair value should Joe need Medicaid benefits in the next five years to pay for long term care. 
 
What to do?  Joe and Jim must understand that if Joe needs care there must be a plan in place to cover the cost of that care.  That plan could involve VA benefits if Joe is a veteran.  It could also include using Joe’s funds to pay for his care and long term care insurance benefits.  But, if these sources of payment still leave a gap then Jim will need to borrow against the home to pay for Joe’s care, which may mean putting off tapping into the equity to pay for renovations or other expenses. 

Provided these contingencies are covered, however, the home transfer can work well.  What happens, however, if Joe is not healthy when contemplating a transfer, but instead has dementia and already needs some care.  In that case, the home transfer is a little more complicated but I’ll address that in the next week’s post.

An option that has worked well in the past is to take a home equity line of credit and use it to pay the monthly assisted living fee and real estate taxes, insurance and maintenance until the home is sold.  Except, in today’s economy  with the financial industry itself being bailed out, banks are no longer approving these loans, concerned about the creditworthiness of borrowers and the risk of default.  So what now?

It may be time to look at a reverse mortgage.  Increasingly, this is the only option for seniors.  The concern about defaulting loans is not an issue because, by its terms, a reverse mortgage won’t be repaid until the borrower dies or sells the home.  The ability of the borrower to repay isn’t a factor because he/she makes no monthly payments.  Hence the term ‘reverse’.

Over the years I have seen many cases where reverse mortgages have enabled seniors to stay in homes they really couldn’t afford any longer and probably should have sold.  If they outlive the funds borrowed, typically they are in poor health and now have exhausted their assets completely.   It is also true that these loans carry higher transactional fees than traditional mortgages.

However, here, the plan is to sell the home as soon as possible to pay for the next level of care, not hang on too long.   And, if a traditional mortgage isn’t an option any longer, the higher fees become acceptable given the alternative of the children taking money from their own savings to pay the cost of Mom and Dad’s care.  With an economy in recession and unemployment rates at their highest in a generation many children don’t have the funds to pay for their parents’ long term care. 

That’s why for many, it may be time to take a closer look at the reverse mortgage.

 Let me give an example.  Mom is 85 years old and living alone.  While she clearly shows the signs of aging and should have put in place a plan in case she needs long term care, like most people, she hasn’t considered it at all.  She receives a $100,000 inheritance from her brother.  She has always considered her family first, ahead of her own needs, and wants to transfer this inheritance to her son, who is struggling to make ends meet and just lost his job.  She believes she has everything she needs financially and her maternal instincts are to help her child.  You may or may not believe she is being foolish in her thinking but it is her genuine belief.

 Times are tough.  Families do what they always do.  They pitch in and help each other out.  Except that if Mom gives this money to her son and needs nursing home care in the next 5 years she won’t qualify for Medicaid because of the transfer.  So, is Mom trying to beat the system, transferring assets to qualify for Medicaid?  No, I think we all would agree that this is not what is motivating her.  But it’s not that simple.  It never is in the real world.  Mom ought to be thinking about her long term care needs but she isn’t. 

 Had she consulted with an elder law attorney she could have set up a plan that would allow her son to receive the inheritance (or she and her son could share the inheritance)  by setting up a trust.  And when I sat down with Mom and explained to her what would happen if she needs long term care, she very quickly agreed that it was not a good idea to simply transfer the inheritance to her son.  She just had never had that conversation before and no one ever explained it to her in that way.

 So, instead of having that conversation after she received the money, if we had it before the inheritance had been received, my advice to Mom would have been to keep the money in a trust, in case she needs it for long term care, but that it would be possible to transfer some of it to her son, should he need it.  We would have to manage the trust very carefully but it is clearly doable.  I wouldn’t call this beating the system. It is a case of families pulling together in times of need.  Isn’t that what families are supposed to do?

 I received a call from Jane, her daughter.  Mom can’t work and has no income.  The home is a mess and falling into disrepair because she can no longer take care of it.  She is temporarily living with her father who is in his late 70′s.  He pays the mortgage, taxes and upkeep on her home, although he is getting on in years and his health is failing.  The family has no direction and is just living day by day with no idea when the nightmare will end.

 Jane asked if we could help save the home.  Could the home be transferred out of Mom’s name?  My answer, unfortunately, was no.  ‘How long ago was Mom diagnosed’, I asked.  Jane told me it was about 3 years ago.  Mom refused to consider moving and Jane and her grandfather have been supporting Mom to this point but now they have reached a point where that is no longer possible.

  So now the home is on the market.  But after closing costs and paying off the mortgage there isn’t much left.  She was also hoping to recoup for herself and her grandfather the money they spent supporting Mom.  Most importantly, there is the matter of providing care for Mom, hopefully in an assisted living facility at a cost of $4500 per month.  When Mom’s condition worsens the next step is a nursing home and that costs $9000 per month.

 I sympathized with her but didn’t have any magic solution.  She simply waited too long before making what no doubt are tough decisions.  So what should she have done?

 3 years ago when the diagnosis was made is when the family needed to act.  Selling the home and/or moving assets into a trust and out of Mom’s name would have made sense.  Because there is a 5 year lookback for Medicaid benefits the family would need to manage Mom’s care and costs during that time period.  But, managed correctly, they could have had assets left after 5 years, in trust, that could be used together with available government benefits to get the best care possible for Mom.  They would have had options.

Now, they are selling a home falling into disrepair, in a down market.  Not the best scenario for Mom who needs as much money as she can squeeze out of the sale to provide for her future care.  A lesson for us all.  If we delay making tough decisions they only get tougher.

 I felt the despair in Jane’s voice.  ‘How can our country let this happen?’, she asked.  I didn’t have an answer for that one either.

 2 years later Joe’s health starts to deteriorate.  It’s looking like he will need long term care.  Mary comes to see me.  ‘I love Joe but I am concerned for myself as well’, she says.  ‘Will his long term care needs eat up our assets?  We entered into a prenuptial agreement before we married.  I had much more financially then he did.  So please review it and tell me my assets are protected.’

I first explain to Mary that before the prenuptial agreement can protect her assets she must first get divorced.  A prenuptial agreement basically is a contract that predetermines, in the event of divorce, how assets are to be split.  In most cases the parties take back what was theirs and split what they acquired jointly during the marriage.

 Let’s go back to our couple.  Joe doesn’t have much and very quickly will run out of funds and need to apply for Medicaid.  But, the only way Mary can preserve her assets is to divorce Joe and you can be sure that the State is going to look very closely at that prenuptial agreement before they approve Joe for Medicaid.

 I explain all this to Mary.  This isn’t much of a choice.  She loves Joe and emotionally can’t reconcile divorcing him in his time of greatest need.  ‘Is there any alternative?’, she asks.

 Actually, there is.  She can move her assets to a trust and after 5 years Joe can qualify for Medicaid.  In this way she can spend as much of her assets for his care as she wants but not be forced to spend it all, leaving nothing for herself to live on or to provide for her own long term care needs.

When is the ideal time to do that? Really, she should have consulted an elder law attorney before or shortly after the marriage. In her case, it still isn’t too late since it doesn’t appear that Joe is close to needing long term care yet. However, the longer she waits the smaller that window of opportunity becomes.  A little preventative medicine can go a long, long way.

Each center has a staff of trained health care professionals, including registered nurses and therapists, to help those members with complex physical or psychological problems and needs.  Adult Day Care centers provide a structured program that includes a variety of health, social and supportive services in a safe, protective environment.

Services are provided during daytime hours allowing caregivers the peace of mind they need to continue working or simply providing them with a much needed respite so they’re able to face the challenges of day to day care giving.

            Members of Adult Day Care centers can look forward to a variety of challenging, interesting and entertaining activities each day.  Their caregivers can feel confident that excellent medical and therapeutic care will be provided by an experienced staff of healthcare professionals.  Most centers provide a light breakfast or morning snack, lunch and an afternoon snack.  Operating hours can vary but most centers operate during standard working hours, Monday through Friday 8 am to 5 pm.  Some centers have extended hours are open on weekends and holidays.

            For those individuals who meet the requirements, Medicaid, Veterans Administration and other funded programs cover adult day care services.  Long term care insurance policies may also cover the cost of adult day care centers so it is important to examine your policy carefully.

The panel first discusses preplanning options and Greg shares his advice on long term care insurance products and services. Learn why there is no such thing as one size fits all when considering the amount of insurance coverage for long term care, what pitfalls to avoid when purchasing long term care insurance, what additional services besides nursing home care are covered and the difference between disability insurance and long term care insurance.

If you or your loved one is already in the midst of a long term care crisis, then you’ll want to hear Heidi and Lisa discuss with Yale the types of services their elder care consulting firm provides. You’ll learn how elder care mediation can help families stay out of a public and expensive legal battle. Heidi explains what geriatric care managers do and how they can help families separated by long distances. Lisa shares with the audience what daily money management services are and how essential they can be for the elderly.

Yale then takes listener emailed and live call in questions as he and his guests discuss the goal that each of us wants to accomplish when we face the aging process, that is, to age in place and remain in our
homes as long as possible.

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Heidi Schnapp Lisa Bayer Life Management Resources
Life Management Resources 973-533-0839

Greg Bushwell B & W Brokerage Services
bushwellorg@yahoo.com 973-716-7594

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As the oldest of the 79 million baby boomers turn 62 this year the long term care system is going to be overwhelmed in the next 20 years.  Nursing homes will always be a necessary and important part of that system but if given a choice most people would prefer in home or assisted living care as an alternative.  The numbers bear that out. 

But what most people don’t realize is that unless you have enough money to cover the cost of nursing home level care out of income then you run the risk of running out of money.  So, here’s what happens.  You spend your money and when it is all gone you’ll get government benefits.  If you want that care at home or in an assisted living facility, however, government benefits will not pay for the entire cost.  You’ll need to pay for the part that the government benefits won’t cover.  But, of course, you don’t have the money because you spent it all in order to qualify for the benefit program.  A classic Catch 22.  The only place where the government benefits will pay for 100% of your care is in a nursing home.

So, how can you avoid this dilemma?  By planning ahead and moving your assets, out of your name, to a trust for your benefit.  This way your assets are available to pay for some of your care at home or in an assisted living facility but you can qualify for whatever government benefits are available and you are able to stay out of the nursing home.  But you can’t wait until you need the care because transferring assets may cause you to be ineligible for government benefits. So you have to do it well in advance of when you might need the care.

Who can help you put this type of plan in place?  A qualified elder law attorney.  If done properly you are actually maintaining control of your future, exactly at a time when most people who didn’t plan ahead lose control because their health no longer allows them to manage their own affairs and they haven’t set down a plan of action.  And as you can see, the system drives you into a nursing home, unless you plan for the alternatives.

Employees who are caring for a newborn or a newly adopted child are eligible.  In addition, however, employees caring for a sick family member can take the leave, which can be as much as 6 weeks.  Companies are concerned about the impact the law will have on their businesses if key employees exercise this option.

The law highlights what has become increasingly obvious, that as our population ages more people are caring for elderly loved ones than ever before.  77 million baby boomers will be reaching senior status in the next 20 years.  While the paid leave bill, attempts to, in some way, address the crisis, it is clearly not the best approach.  Employees who must take time off from work  are dealing at that point with a full blown long term care crisis.  It often begins with a call that Mom or Dad is in the hospital, then leads to the need for nursing home care, home based care or assisted living care.  It is never best to deal with a problem when it has reached the critical stage.

The better approach is to address long term care issues before they arise, in what we call the preplanning stage.  Usually, the signs of aging can be seen long before the crisis hits.  If families can sit down and, with the assistance of an elder care attorney and other elder care professionals, prepare a plan before the need arises, chances are the employee will not need to take leave, or perhaps may need to take less time off.  Preplanning also reduces stress levels for all involved and leads to better care. 

Yale also reviews for listeners an unknown Veterans Administration benefit for eligible Veterans that can provide as much as $1800 per month in additional income to cover the cost of home aides and assisted living care. The Veterans Aid and Attendance program can help qualified seniors preserve their much needed assets. But Yale cautions that one must keep an eye on the next level of care so as not to jeopardize eligibility for other benefit programs down the road. This requires the coordination of a long term care plan to meet all levels of care, not just the current one.

In the second segment Yale interviews Angie Hicks of Angie’s List, a website offering reviews by consumers of local home improvement contractors. Yale and Angie talk about how Angie’s List is seeing more inquiries in recent years by children who need help finding services for their parents who live long distances away. Seeing the aging of America, Angie tells Yale that Angie’s List now offers ratings of various elder care services to assist families who are faced with the task of caring for the elderly members of the family unit from a distance.

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A common scenario that we see is a parent living at home with round the clock home health aides.  The parent has run out of funds, maybe even has tapped into as much equity as can be had from the home.  The children then pay the cost with no end in sight.  Sometimes they take out mortgages on their own home.  Eventually, their spending will have an impact on their own retirement savings and ability to pay for their own long term care needs.  The financial toll can be devastating, causing them to turn to their children for help when they run out of funds, a never ending cycle.   

So, how can it be avoided?  By the parent planning before long term care is needed.  There are various government benefits that can be tapped to help pay for care.  However, each program has its own set of rules that easily trip up the average person.  With some careful planning, eligibilty for much needed benefits can be achieved.  You never want to run out of money, especially before you reach the highest level of care, nursing home care.  If the parent is home and runs out of money then getting into a quality nursing home, should it be needed, can be difficult.  The only way to insure that will happen is to private pay to get in the door.  But if you’ve spent all the money before you get there that’s where the children are faced with a dilemma.  Do we let the state send mom somewhere or do we pay privately to get her into the facility we want her to be in.

Proper planning can also increase the likelihood that the parent can stay out of the nursing home.  If you need round the clock care and have no money the government will pay for it if you go to a nursing home.  However, in many states, if you want that same care at home, the government won’t pay for it all.  Of course, if you’ve spent down everything to get the government benefits you don’t have anything left to pay for what the government won’t.  That’s where the planning helps.

The lesson to be learned is that the earlier you plan the better prepared you’ll be.  Because so much of the long term care system of benefits and laws is state specific it is important to consult with an experienced elder law attorney in the state where you live.

1.  Believing Medicare covers long term custodial nursing home care (it does not);

2.  Thinking that a transfer of $12,000 per person per year will not cause Medicaid ineligibility (there is no gift tax but there is a Medicaid transfer penalty);

3.  Failing to account for transfer penalties and loss of control of assets when trying to protect assets (I’ve seen disastrous outcomes because of it);

4.  Failing to consider negative tax consequences and disruption of estate plan when transferring assets;

5.  Transferring assets without providing a plan for where sources of funds will come from should long term care be necessary within the next 5 years after the transfer;

6.  Confusing the Medicaid lookback and transfer penalty (they are not the same);

7.  Believing that it is too late to plan (it rarely is);

8.  Failing to recognize the sense of urgency in doing long term care planning by telling yourself "I’ll wait till it looks like I will need long term care" (the earlier the planning the more that can be protected);

9.  Believing that long term care planning means I will lose control of my assets and my decision making (in fact the opposite is true);

10. Hearing what other family members, friends or acquaintances have done and do exactly the same because it sounds like your situation is identical to theirs (it never is, every situation is unique, just as every person is unique);