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);