But Mom Won’t Live to 100 – or Will She? (Part 2)
March 28, 2011
Last week we were discussing Mary and her mom. Mary opted not to do long term care planning for her mom at age 95. At age 100 she called me again. We met and Mary asked me, again about long term care planning. I told her that Mom would need to live 5 years, now to 105, and spend about another $600,000 (costs had gone up) before we could apply for Medicaid. Mom was now down to $800,000.
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.
“But Mom Won’t Live to 100 – Or Will She?”
March 21, 2011
Quite often when explaining long term care planning to the family member of an aging senior, specifically when I mention the 5 year Medicaid look back, the person will tell me that “Mom won’t live that long”. Of course, no one can predict the future with any certainty so, logically, that statement is opinion and not fact. But, it reminds me of a client I first saw a few years ago. I now retell her story frequently.
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.
The Long Term Care Perfect Storm
February 21, 2011
Two articles in the local paper last week reminded me again of how a number of forces are combining in the coming months and years to really make the long term care issue an acute problem for many Americans, creating a “perfect storm” to use a popular phrase of recent years.
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.
When is it Too Late to Plan?
December 6, 2010
Last month we lost one of our clients to an unfortunate accident. John was suffering from the early stages of Alzheimer’s Disease and living at home with his wife, Mary (not their real names). Mary was 20 years younger than John and still working to support the couple. We had begun to long term care plan and recommended a part time home health aide for John while Mary worked.
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.
MetLife Dropping Long Term Care Insurance – What Does it Mean for You and Me?
November 29, 2010
I have been saying it for years now. Long term care is a growing problem in this country, one that won’t go away. Not with the population continuing to age as 77 million baby boomers start to turn 65 in a little more than a month. The sheer number of people entering the long term care system is something no one knows whether we are prepared to handle. Perhaps the recent announcement by MetLife that it is pulling out of the long term care insurance market is an indication that we need to pay closer attention to this growing problem.
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.
Can I Make Gifts this Holiday Season? (Part 2)
November 22, 2010
Last week we were talking about gift giving. Most people assume an elderly family member can make gifts without any tax consequences as long as it doesn’t exceed $13,000 per person per year. That’s true. However, it may very well cause a problem if you run out of money and are expecting to then qualify for Medicaid.
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.
One of the Clearest Warning Signs of Dementia
November 7, 2010
More often than not, the first call we receive about a prospective client who is facing long term care concerns comes from a child or other family member, rather than the senior client. And so often the caller expresses surprise at recently discovering that Mom or Dad is slipping. It is how that discovery is made that shows there are telltale signs of dementia and Alzheimer’s that families should look for. And new research backs up my anecdotal evidence.
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/
Mary and Bob – Almost Divorce and Then Tragedy Strikes (Part 2)
November 1, 2010
Last week we were discussing Mary and Bob, in the process of getting divorced and then Bob was seriously injured in a car accident. He survived but now faces a long recovery road ahead, one which will result in his need for long term care. Mary, since she is still married to Bob, is being looked upon as the decision maker. But can she really serve in that role? Does she even have the legal authority to do so?
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.
But Mom Wanted Me to Have the Money
October 4, 2010
In the last few years readers of my blog know that many of my posts are real stories that highlight the pitfalls and dangers of not putting together a plan for long term care until you are on the doorstep of the nursing home. Here’s another one, with names changed of course.
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.
Mary’s Dilemma – Don’t Let it Be Yours
August 16, 2010
Mary called me in desperation. Her husband Bob had recently been hospitalized with heart problems. He is also struggling with the onset of Alzheimer’s Disease. Mary has been able to administer care to this point but it has taken its toll on her physically and mentally and her children are concerned about her health. Mary made a commitment to keep Bob at home. With the encouragement of her kids she called to inquire about benefits available to help pay for in home care which she expected to be nearly round the clock.
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.
