By Mark Albertson
One of the greatest fears of older Americans is that they may end up in a nursing home. This not only means a great loss of personal autonomy, but also a tremendous financial price. Depending on location and level of care, nursing homes cost between $35,000 and $150,000 a year. Most people end up paying for nursing home care out of their savings until they run out. Then they can qualify for Medicaid to pick up the cost.
The advantages of paying privately are that you are more likely to gain entrance to a better quality facility and doing so eliminates or postpones dealing with your state's welfare bureaucracy–an often demeaning and time-consuming process. The disadvantage is that it's expensive.
Careful planning, whether in advance or in response to an unanticipated need for care, can help protect your estate, whether for your spouse or for your children. This can be done by purchasing long-term care insurance or by making sure you receive the benefits to which you are entitled under the Medicare and Medicaid programs.
Veterans may also seek benefits from the Veterans Administration. Medicare Medicare Part A covers up to 100 days of "skilled nursing" care per spell of illness. However, the definition of "skilled nursing" and the other conditions for obtaining this coverage are quite stringent, meaning that few nursing home residents receive the full 100 days of coverage. As a result, Medicare pays for only about 9 percent of nursing home care in the United States. Medicaid for all practical purposes, in the United States the only "insurance" plan for long-term institutional care is Medicaid. lacking access to alternatives such as paying privately or being covered by a long-term care insurance policy, most people pay out of their own pockets for long-term care until they become eligible for Medicaid.
Although their names are confusingly alike, Medicaid and Medicare are quite different programs. For one thing, all retirees who receive Social Security benefits also receive Medicare as their health insurance. Medicare is an "entitlement" program. Medicaid, on the other hand, is a form of welfare — or at least that's how it began. So to be eligible for Medicaid, you must become "impoverished" under the program's guidelines. Also, unlike Medicare, which is totally federal, Medicaid is a joint federal-state program.
Each state operates its own Medicaid system, but this system must conform to federal guidelines in order for the state to receive federal money, which pays for about half the state's Medicaid costs. This complicates matters, since the Medicaid eligibility rules are somewhat different from state to state, and they keep changing. (The states also sometimes have their own names for the program, such as "MediCal" in California and "MassHealth" in Massachusetts.) Both the federal government and most state governments seem to be continually tinkering with the eligibility requirements and restrictions. This has most recently occurred with the passage of the Deficit Reduction Act of 2005 (the DRA) which significantly changed rules governing the treatment of asset transfers and homes of nursing home residents. The implementation of these changes will proceed state-by-state over the next few years.
The rules for gaining eligibility to the program are explained in detail in the Medicaid section of this site. But to be certain of your rights, consult an expert. He or she can guide you through the complicated rules of the different programs and help you plan ahead. Those who are not in immediate need of long-term care may have the luxury of distributing or protecting their assets in advance. This way, when they do need long-term care, they will quickly qualify for Medicaid benefits.
Giving general rules for so-called "Medicaid planning" is difficult because every client's case is different. Some have more savings or income than others. Some are married, others are single. Some have family support, others do not. Some own their own homes, some rent. Still, a number of basic strategies and tools are typically used in Medicaid planning. These are described below.
Congress has established a period of ineligibility for Medicaid for those who transfer assets. The DRA significantly changed rules governing the treatment of asset transfers. For transfers made prior to enactment of the DRA on February 8, 2006, state Medicaid officials will look only at transfers made within the 36 months prior to the Medicaid application (or 60 months if the transfer was made to or from certain kinds of trusts). But for transfers made after passage of the DRA the so-called "look back" period for all transfers is 60 months. While the look back period determines what transfers will be penalties, the length of the penalty depends on the amount transferred. The penalty period is determined by dividing the amount transferred by the average monthly cost of nursing home care in the state. For instance, if the nursing home resident transferred $100,00 in a state where the average monthly cost of care was $5,000, the penalty period would be 20 months ($100,000/$5,000 = 20). Another significant change in the treatment of transfers made by the DRA has to do with when the penalty period created by the transfer begins. Under the prior law, the 20-month penalty period created by a transfer of $100,000 in the example described above would begin either on the first day of the month during which the transfer occurred, or on the first day of the following month, depending on the state. Under the DRA, the 20-month period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer. For instance, if an individual transfers $100,000 on April 1, 2006, moves to a nursing home on April 1, 2007, and spends down to Medicaid eligibility on April 1, 2008, that is when the 20-month penalty period will begin, and it will not end until December 1, 2009.
How this change is implemented from state-to-state will be worked out over the next few years. Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year look back period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer. One of the prime planning techniques used prior to the enactment of the DRA, often referred to as "half a loaf," was for the Medicaid applicant to give away approximately half of his or her assets. It worked this way: before applying for Medicaid, the prospective applicant would transfer half of his or her resources, thus creating a Medicaid penalty period. The applicant, who was often already in a nursing home, then used the other half of his or her resources to pay for care while waiting out the ensuing penalty period. After the penalty period had expired, the individual could apply for Medicaid coverage.
Example: Mrs. Jones had savings of $72,000. The average private-pay nursing home rate in her state is $6,000 a month. When she entered a nursing home, she transferred $36,000 of her savings to her son. This created a six-month period of Medicaid ineligibility ($36,000/$6,000 = 6). During these six months, she used the remaining $36,000 plus her income to pay privately for her nursing home care. After the six-month Medicaid penalty period had elapsed, Mrs. Jones would have spent down her remaining assets and be able to qualify for Medicaid coverage. While you could generally give away approximately half your assets, the exact amount depended on a variety of factors, including the cost of care, the transfer penalty in your state, income, and possible other expenses.
One of the main goals of the DRA was to eliminate this kind of planning. To determine whether it is still an available strategy in your state as it implements the DRA, you will have to consult with a local elder law attorney. Any transfer strategy must take into account the nursing home resident's income and all of her expenses, including the cost of the nursing home. Also, be very, very careful before making transfers. Also, bear in mind that if you give money to your children, it belongs to them and you should not rely on them to hold the money for your benefit. However well-intentioned they may be, your children could lose the funds due to bankruptcy, divorce or lawsuit. Any of these occurrences would jeopardize the savings you spent a lifetime accumulating. Do not give away your savings unless you are ready for these risks. In addition, be aware that the fact that your children are holding your funds in their names could jeopardize your grandchildren's eligibility for financial aid in college. Transfers can also have bad tax consequences for your children. This is especially true of assets that have appreciated in value, such as real estate and stocks. If you give these to your children, they will not get the tax advantages they would get if they were to receive them through your estate. The result is that when they sell the property they will have to pay a much higher tax on capital gains than they would have if they had inherited it. Transfers should be made carefully, with an understanding of all the consequences. In any case, as a rule, never transfer assets for Medicaid planning unless you keep enough funds in your name to (1) pay for any care needs you may have during the resulting period of ineligibility for Medicaid; and (2) feel comfortable and have sufficient resources to maintain your present lifestyle.
Remember: You do not have to save your estate for your children. The bumper sticker that reads "I'm spending my children's inheritance" is a perfectly appropriate approach to estate and Medicaid planning. Even though a nursing home resident may receive Medicaid while owning a home (the DRA has restricted Medicaid eligibility for some homes, if she is married she should transfer the home to the community spouse (assuming the nursing home resident is both willing and competent). This gives the community spouse control over the asset and allows him or her to sell it after the nursing home spouse becomes eligible for Medicaid. In addition, the community spouse should change his or her will to bypass the nursing home spouse. Otherwise, at his or her death, the home and other assets of the community spouse will go to the nursing home spouse and have to be spent down.
While most transfers are penalized with a period of Medicaid ineligibility of up to five years, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:
The problem with transferring assets is that you have given them away. You no longer control them, and even a trusted child or other relative may lose them. A safer approach is to put them in an irrevocable trust. A trust is a legal entity under which one person — the "trustee" — holds legal title to property for the benefit of others — the "beneficiaries." The trustee must follow the rules provided in the trust instrument. Whether trust assets are counted against Medicaid's resource limits depends on the terms of the trust and who created it.
A "revocable" trust is one that may be changed or rescinded by the person who created it. Medicaid considers the principal of such trusts (that is, the funds that make up the trust) to be assets that are countable in determining Medicaid eligibility. Thus, revocable trusts are of no use in Medicaid planning.
An "irrevocable" trust, on the other hand, is one that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the "grantor") for life, and the principal cannot be applied to benefit your or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses.
For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for either of your benefits. However, if you do move to a nursing home, the trust income will have to go to the nursing home. You should be aware of the drawbacks to such an arrangement. It is very rigid, so you cannot gain access to the trust funds even if you need them for some other purpose. For this reason, you should always leave an ample cushion of ready funds outside the trust. You may also choose to place property in a trust from which even payments of income to you or your spouse cannot be made. Instead, the trust may be set up for the benefit of your children, or others. These beneficiaries may, at their discretion, return the favor by using the property for your benefit if necessary. However, there is no legal requirement that they do so. One advantage of these trusts is that if they contain property that has increased in value, such as real estate or stock, you (the grantor) can retain a "special testamentary power of appointment" so that the beneficiaries receive the property with a step-up in basis at your death. This will also prevent the need to file a gift tax return upon the funding of the trust. Remember, funding an irrevocable trust can cause you to be ineligible for Medicaid for the following five years.
Testamentary trusts are trusts created under a will. The Medicaid rules provide a special "safe harbor" for testamentary trusts created by a deceased spouse for the benefit of a surviving spouse. The assets of these trusts are treated as available to the Medicaid applicant only to the extent that the trustee has an obligation to pay for the applicant's support. If payments are solely at the trustee's discretion, they are considered unavailable. Therefore, these testamentary trusts can provide an important mechanism for community spouses to leave funds for their surviving institutionalized husband or wife that can be used to pay for services that are not covered by Medicaid. These may include extra therapy, special equipment, evaluation by medical specialists or others, legal fees, visits by family members, or transfers to another nursing home if that became necessary. But remember that if you create a trust for yourself or your spouse during life (i.e., not a testamentary trust), the trust funds are considered available if the trustee has the ability to use them for you or your spouse.
Supplemental Needs Trusts
The Medicaid rules also have certain exceptions for transfers for the sole benefit of disabled people under age 65. Even after moving to a nursing home, if you have a child, other relative, or even a friend who is under age 65 and disabled, you can transfer assets into a trust for his or her benefit without incurring any period of ineligibility. If these trusts are properly structured, the funds in them will not be considered to belong to the beneficiary in determining his or her own Medicaid eligibility. The only drawback to supplemental needs trusts (also called "special needs trusts") is that after the disabled individual dies, the state must be reimbursed for any Medicaid funds spent on behalf of the disabled person.
Protection of the House
After a Medicaid recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient's care. This is called "estate recovery."
For many people, setting up a "life estate" is the most simple and appropriate alternative for protecting the home from estate recovery. A life estate is a form of joint ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner has a current ownership interest but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder. As with a transfer to a trust, the deed into a life estate can trigger a Medicaid ineligibility period of up to five years.
Example: Jane gives a remainder interest in her house to her children, George and Mary, while retaining a life interest for herself. She carries this out through a simple deed. Thereafter, Jane, the life estate holder, has the right to live in the property or rent it out, collecting the rents for herself. On the other hand, she is responsible for the costs of maintenance and taxes on the property. In addition, the property cannot be sold to a third party without the cooperation of George and Mary, the remainder interest holders. When Jane dies, the house will not go through probate, since at her death the ownership will pass automatically to the holders of the remainder interest, George and Mary. Although the property will not be included in Jane's probate estate, it will be included in her taxable estate. The downside of this is that depending on the size of the estate and the state's estate tax threshold, the property may be subject to estate taxation. The upside is that this can mean a significant reduction in the tax on capital gains when George and Mary sell the property because they will receive a "step up" in the property's basis.
Life estates are created simply by executing a deed conveying the remainder interest to another while retaining a life interest, as Jane did in this example. In many states, once the house passes to George and Mary, the state cannot recover against it for any Medicaid expenses Jane may have incurred.
Another method of protecting the home from estate recovery is to transfer it to an irrevocable trust. Trusts provide more flexibility than life estates but are somewhat more complicated. Once the house is in the irrevocable trust, it cannot be taken out again. Although it can be sold, the proceeds must remain in the trust. This can protect more of the value of the house if it is sold. Further, if properly drafted, the later sale of the home while in this trust might allow the settlor, if he or she had met the residency requirements, to exclude up to $250,000 in taxable gain, an exclusion that would not be available if the owner had transferred the home outside of trust to a non-resident child or other third party before sale.
Applicants for Medicaid and their spouses may protect savings by spending them on noncountable assets. These expenditures may include:
In the case of married couples, it is often important that any spend-down steps be taken only after the unhealthy spouse moves to a nursing home if this would affect the community spouse's resource allowance.
Immediate annuities can be ideal planning tools for spouses of nursing home residents. For single individuals, they are usually less useful.
An immediate annuity, in its simplest form, is a contract with an insurance company under which the consumer pays a certain amount of money to the company and the company sends the consumer a monthly check for the rest of his or her life. In most states the purchase of an annuity is not considered to be a transfer for purposes of eligibility for Medicaid, but is instead the purchase of an investment. It transforms otherwise countable assets into a non-countable income stream. As long as the income is in the name of the community spouse, it's not a problem. In order for the annuity purchase not to be considered a transfer, it must meet three basic requirements:
(1) It must be irrevocable–you cannot have the right to take the funds out of the annuity except through the monthly payments.
(2) You must receive back at least what you paid into the annuity during your actuarial life expectancy. For instance, if you have an actuarial life expectancy of 10 years, and you pay $60,000 for an annuity, you must receive annuity payments of at least $500 a month ($500 x 12 x 10 = $60,000).
(3) If you purchase an annuity with a term certain (see below), it must be shorter than your actuarial life expectancy.
(4) Under the DRA, the state must be named the remainder beneficiary up to the amount of Medicaid paid on the annuitant's behalf.
Example: Mrs. Jones, the community spouse, lives in a state where the most money she can keep for herself and still have Mr. Jones, who is in a nursing home, qualify for Medicaid (her maximum resource allowance) is $109,560 (in 2010). However, Mrs. Jones has $219,560 in countable assets. She can take the difference of $110,000 and purchase an annuity, making her husband in the nursing home immediately eligible for Medicaid. She would continue to receive the annuity check each month for the rest of her life. In most instances, the purchase of an annuity should wait until the unhealthy spouse moves to a nursing home. In addition, if the annuity has a term certain — a guaranteed number of payments no matter the lifespan of the annuitant — the term must be shorter than the life expectancy of the healthy spouse. Further, if the community spouse does die with guaranteed payments remaining on the annuity, they must be payable to the state for reimbursement up to the amount of the Medicaid paid for either spouse.
Annuities are of less benefit for a single individual in a nursing home because he or she would have to pay the monthly income from the annuity to the nursing home. In short, immediate annuities are a very powerful tool in the right circumstances. They must also be distinguished from deferred annuities, which have no Medicaid planning purpose. (The use of immediate annuities as a Medicaid planning tool is under attack in some states. Be sure to consult with a qualified elder law attorney in your state before pursuing the strategy described above.)
Before passage of the Deficit Reduction Act of 2005 (DRA) community spouses in some states whose own income was less than their MMMNA (see discussion under Medicaid section of site) had an alternative to receiving the shortfall from the income of the nursing home spouse. These community spouses could petition the state Medicaid agency for an increase in their standard resource allowances (called the community spouse resource allowance, or CSRA) so that the additional funds could be invested in order to generate income to make up the shortfall in the MMMNA. The DRA will put an end to this practice. Under the new law, an increased resource allowance may only be granted to community spouses whose income is still not enough to reach the MMMNA after first receiving the income of the nursing home spouse. Spousal Refusal Federal Medicaid law states that the community spouse can keep all of his or her assets by simply refusing to support the institutionalized spouse. This portion of the law, known as "just say no" or "spousal refusal," is generally not used extensively except in New York.
Under the law, if a spouse refuses to contribute his or her income or resources toward the cost of care of a Medicaid applicant, the Medicaid agency is required to determine the eligibility of the nursing home spouse based solely on his income and resources, as if the community spouse did not exist. In addition, in 2005 a federal appeals court upheld the right of the wife of a Connecticut nursing home resident to refuse to support her husband. The husband was able to qualify for Medicaid coverage, and assets that he had transferred to his wife were not counted in determining his eligibility. After awarding Medicaid benefits to the institutionalized spouse, the Medicaid agency then has the option of beginning a legal proceeding to force the community spouse to support the institutionalized spouse. However, this is not always done, and when such cases do go to court, courts in New York generally allow the community spouse to keep enough resources to maintain her former standard of living. If the Medicaid agency chooses not to sue the community spouse for support, it can file a claim for reimbursement against the community spouse's estate following his or her death. The "just say no" strategy sometimes is used in states other than New York in second-marriage situations, where the healthy spouse truly refuses to support the nursing home spouse.
The Attorney's Role
Do you need an attorney for even "simple" Medicaid planning? This depends on your situation, but in most cases, the prudent answer would be "yes." The social worker at your mother's nursing home assigned to assist in preparing a Medicaid application for your mother knows a lot about the program, but maybe not the particular rule that applies in your case or the newest changes in the law. In addition, by the time you're applying for Medicaid, you may have missed out on significant planning opportunities.
The best bet is to consult with a qualified professional who can advise you on the entire situation. At the very least, the price of the consultation should purchase some peace of mind. And what you learn can mean significant financial savings or better care for you or your loved one. As described above, this may involve the use of trusts, transfers of assets, purchase of annuities or increased income and resource allowances for the healthy spouse. If you are going to consult with a qualified professional, the sooner the better. If you wait, it may be too late to take some steps available to preserve your assets.
Under our "system" of paying for long-term care, you may be able to qualify for Medicaid to pay for nursing home care, but in most states there's little public assistance for home care. Most people want to stay at home as long as possible, but few can afford the high cost of home care for very long. One solution is to tap into the equity built up in your home. If you own a home and are at least 62 years old, you may be able to quickly get money to pay for long-term care (or anything else) by taking out a reverse mortgage. Reverse mortgages, financial arrangements designed specifically for older homeowners, are a way of borrowing that transforms the equity in a home into liquid cash without having to either move or make regular loan repayments. They permit house-rich but cash-poor elders to use their housing equity to, for example, pay for home care while they remain in the home, or for nursing home care later on. The loans do not have to be repaid until the last surviving borrower dies, sells the home or permanently moves out.
In a reverse mortgage, the homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the age of the borrower, and current interest rates. For example, a 70-year-old borrower with a $200,000 house in Westchester County, New York, would be able to receive a maximum loan of $110,723 (based on 2009 figures). The lower the interest rate and the older the borrower, the more that can be borrowed. To find out how much you can get for your house, use the AARP's reverse mortgage loan calculator. Homeowners can get the money in one of three ways (or in any combination of the three): in a lump sum, as a line of credit that can be drawn on at the borrower's option, or in a series of regular payments, called a "reverse annuity mortgage."
The most popular choice is the line of credit because it allows a borrower to decide when he or she needs the money and how much. Moreover, no interest is charged on the untapped balance of the loan. Although it is often assumed that an elderly person would want to use the funds from a reverse mortgage loan for health care, there are no restrictions–the funds can be used in any way. For instance, the loan could be used to pay back taxes, for house repairs, or to retrofit a home to make it handicapped-accessible. Borrowers who take out a reverse mortgage still own their home. What is owed to the lender — and usually paid by the borrower's estate — is the money ultimately received over the course of the loan, plus interest. In addition, the repayment amount cannot exceed the value of the borrower's home at the time the loan is repaid. All borrowers must be at least 62 years of age to qualify for most reverse mortgages. In addition, a reverse mortgage cannot be taken out if there is prior debt against the home. Thus, either the old mortgage must be paid off before taking out a reverse mortgage or some of the proceeds from the reverse mortgage used to retire the old debt.
Reverse mortgages are somewhat underutilized now, but financial institutions, sensing an opportunity as the population ages and people live longer lives, are expanding their reverse mortgage programs. The most widely available reverse mortgage product — and the source of the largest cash advances — is the Home Equity Conversion Mortgage (HECM), the only reverse mortgage program insured by the Federal Housing Administration (FHA). However, the FHA sets a ceiling on the amount that can be borrowed against a single-family house, which is determined on a county-by-county basis. High-end borrowers must look to the proprietary reverse mortgage market, which imposes no loan limits.
On October 1, 2008, as part of the Housing and Economic Recovery Act of 2008, the borrowing level on reverse mortgages increased. The national limit on the amount a homeowner can borrow is $417,000. The limit can be increased to $625,000 in areas with high housing costs. Is a Reverse Mortgage Right for You? While reverse mortgages look like no-lose propositions on the surface, they also have some significant downsides. First, the closing costs for these loans are about double those for conventional mortgages. Closing costs on a reverse mortgage for the $200,000 home described above would be more than $10,000. These costs can be financed by the loan itself, but that reduces the money available to you. Reverse mortgage payments also may affect your eligibility for government benefits, including Medicaid. Generally, these payments will not be counted as income as long as they are spent within the same month that they are received. If the funds are not spent, however, they could accumulate and push your resources over the allowable limits for Medicaid or SSI eligibility. In addition, payments from reverse annuity mortgages may be counted as income for purposes of Medicaid and SSI whether or not they are spent within the month they are received. This shouldn't be treated as income, since it simply involves withdrawing equity from one's home, but the state may view it differently since the funds come in a regular monthly check. In any case, you should consult with an elder lawyer in your state if you have any concern about how a reverse mortgage will affect your eligibility for federal benefits. Also, bear in mind that if your major objective is to safeguard an inheritance for your children, a reverse mortgage may not be a good idea.
As soon as the elderly person (or the survivor of an elderly couple) dies, it will be necessary to sell the home and much — if not all — of the sales proceeds will have to be paid to the lender. But if you have a pressing need for additional income and have no close heirs, or if you do not intend to benefit your children or your children don't particularly want to inherit the house, a reverse mortgage can be a way to supplement income, perhaps without jeopardizing Medicaid eligibility. Reverse mortgages are complex products and borrowers are advised to acquaint themselves with the different options available and then carefully compare competing loan offerings. Following are two outstanding Web sites to get you started in that process: • You can learn the basics about reverse mortgages from the AARP's excellent reverse mortgage Web site. The site includes a calculator for estimating the loan for which a borrower would be eligible. Go to: www.aarp.org/revmort • For more details, background information, and supplementary materials, visit the National Center for Home Equity Conversion's site at http://www.reverse.org
By Stephen Waltar
Many families today are torn apart and stressed over a multitude of questions when it comes to caring for a senior parent. When care is needed for an elderly or disabled loved one, we are faced with difficult decisions. Should we provide that care ourselves, or do we hire someone to do it? Maybe it's a combination of both.
Given today's economical times, family and financial demands and overwhelming responsibilities that families face today, one of the most important is finances. If you hire someone, do your senior parents being cared for have a benefit such as long-term care insurance or is he or she eligible for some form of government benefit?
Families need to come together and understand that there are many factors in caring for a senior parent. If one sibling or family member becomes the caregiver, families need to understand that there are personal sacrifices and costs involved in them providing the care for their parent. Even if Mom or Dad go to a care facility, there are still costs associated with loss of work in times of caring for your parent over a multitude of situations. There are also personal sacrifices that will be made. The caregiver will be faced with life changing decisions and in finding their voice, they will become the primary advocate for their parent.
Families must face difficult decisions, but for the most part, the majority of them will have to be made by the caregiver. Recent statistics show that the number of American adults who have become caregivers for an older family member has increased from 30 percent in 2010 to close to 40 percent today.
What is the cost of caregiving?
Two of the most common effects are poor health from the stress of being a caregiver and poor financial health. These include overwhelming statistics that show that caregivers experience high blood pressure, heart disease, depression, chemical dependency and obesity at more than twice the national average. Their health issues are probably a given when you consider the physical and emotional challenges of providing services that even professional caregivers find stressful.
But the financial effects can have an even longer-lasting effect. While there are some laws that are designed to protect caregivers who are trying to assist a family member such as the Family and Medical Leave Act, they don't necessarily apply to all employers. Most of these Acts require the employer to have a certain number of employees so a smaller business may not offer that benefit to its workers. And, an employee will usually have to work for the employer for a minimum period of time before taking advantage of the benefits provided by the Acts, and may only take a limited number of days each year.
Statistics show that these issues apply mostly to women. But even more surprising is that the women who are in the role of caregiver also have a job, even while spending an average of 20 hours a week forgive years as a caregiver. If the caregiver eventually leaves her job, statistics from a 2011 study show that she will lose about $325,000 over that period, as well as benefits from her employer. And with the average age of these women being 49 years old, the chances of reentering the workforce at the same level may be slim. In addition to losing income, the caregiver's family may end up footing the bill for many of the expenses required to care for the loved one.
There are things that can be done with previous planning that can help. Prevention is key. Have you sought out whether your parent has access to veteran's benefits, long-term care insurance an arrangement through a special needs trust? There may be other remedies that may be proposed by an estate planning or elder care attorney. Also, Mom and Dad's financial resources are gone because they have to be spent before being eligible for help like Medicaid, if there is a spouse of the loved one, that leaves little for him or her to have for living expenses going forward.
When considering options like Medicare, Medicaid and long-term care insurance, it is important to be aware of what these options cover and, more importantly, what they don't. For example, Medicare generally does not cover in-home care. Medicaid does, but only in limited circumstances involving very low income or other financial resources. Most long-term care policies do cover in-hone care, but choosing that option can be more expensive than policies that do not.
It is critical to seek out what the long-term care plan is for your senior parent. Yes, it is an important part of our culture to care for them, and it should be, but planning is key to eliminate many of the issues that face the caregiver.
Consulting an Elder Law attorney with experience in estate planning or Medicaid planning may be beneficial in helping identify possible solutions, preferably before they are needed. Even if you haven't done so and the need arises, there are solutions.
No matter what your role is in taking care of your parent, strive to work together as a family. Don't leave the caregiver alone to bear the burden on her own. Take the time to do your part, and see that the financial plan is in place, not only for your parent, but for your family caregiver as well.
By Greg Lawrence
Financial Advisors can learn quite a bit from Caregivers; at least the Caregivers I have had the pleasure of meeting. Each of these wonderful people sacrifice of themselves and, too often, their spouses and children to ensure that their family member (usually Mom or Dad) receives the care they need and deserve. Not adequate care, but the best possible care available. They utilize a fiduciary responsibility on a daily basis putting the healthcare interests of their family member first.
When it comes to this trusted financial relationship, this is a question that every person considering the services of a Financial Advisor should ask. It is a question that should be discussed thoroughly with an Advisor before starting the relationship. In fact, it is a discussion you should have with your Advisor if you are already working together.
I enjoy my clients and my clients like me. What is the point in working with someone you do not like or whose actions do not constantly reinforce the faith you have placed in them? I realize the last question seems ridiculous; "Working with someone you do not like". Almost every new potential client to whom I am introduced has an existing Advisory relationship. Yet, there they are sitting at the table with me searching for something. That something is different for each of them as we all have different challenges we face in our lives. Yes, at the core is a financial concern but there is always more to their story. The families I work with have multiple concerns, goals, and, often, unrecognized risks.
My approach when working with a client, whether an individual or a multi-generational family, encompasses a three-tiered approach. I liken it to a three-legged stool, as I find concepts easier to comprehend when you can build a story around an image. The three legs to a bullet-proof financial strategy include: financial planning, healthcare risk mitigation and the lifestyle choices forced upon us due to healthcare requirements, and legal/estate planning. If any one of these legs is not properly addressed what happens? The stool falls over from the weight of the occupant.
This brings me back to the title of this article:
What is the professional and legal responsibility an Advisor has to their client? We would all like to believe that the professional with whom you are working will always put your best interest first. And I remember a time that a man's word was all you needed when conducting a transaction (my Grandfather taught me that). Unfortunately, that rarely is the case in today's world.
A little publicized item in the financial reform bill moving through Congress would require anyone who offers investment advice to act in the best interests of the client. That there is a need to actually legislate this says a lot about the state of the investment business today.
Over the past 10 to 15 years, many brokers have co-opted the title of "Investment Advisor" or "Financial Advisor" without accepting the fiduciary duty of a Registered Investment Advisor as described in the Securities Act of 1940. Rather, they adhere to the "suitability" doctrine. In fact, some very large, household-name brokerages have been lobbying Congress hard to avoid having a fiduciary level of accountability imposed on their stock brokers. Not surprisingly, it is not uncommon to find the "suitable" investments at large brokerages to be those that pay the broker and his employer the highest fee.
Financial firms continue to blur the line between broker-dealer and investment advisor by inventing and bundling new products. Because of the diversity of these products and services, investors sometimes fail to distinguish between brokers and investment advisors along the lines that federal regulators define. A large part of the problems in late 2008 have been because of this disregard for a fiduciary premise and a drive to maximize profits.
What is a Fiduciary Responsibility?
Black's Law Dictionary describes a fiduciary relationship as "one founded on trust or confidence reposed by one person in the integrity and fidelity of another."
Some estimates claim that only 15% of advisers have a fiduciary responsibility. The Paladin Registry puts the number even lower, estimating that just one in 12 advisors have fiduciary responsibility.
Fiduciary advisors are usually Registered Investment Advisors (RIA's) or Investment Advisor Representatives. These advisors are registered with the SEC or the state security division, and they are acknowledged fiduciaries that provide ongoing financial advice and services. An advisor with fiduciary responsibilities is held to a higher ethical standard, must declare any conflicts of interest that may arise, and should have the knowledge to provide appropriate wealth management services and advice.
What about Non-Fiduciary Advisors?
Industry estimates show that approximately 85% of financial advisors do not have fiduciary responsibility. This includes stockbrokers, insurance agents or simple sales representatives. They may hold various licenses, but since they are not fiduciaries, they are often more interested in selling insurance and investment products than managing your portfolio.
Non-fiduciary advisors are compensated through commissions, which are often equivalent to management fees over several years. In the end, stepping away from one of these products usually involves a hefty surrender fee--no matter how bad the service or the results.
Titles for non-fiduciary advisors are unregulated, which means they can adopt any title they like: financial advisor, vice president, financial consultant, financial planner or whatever else sounds good. Of course, this does not change the fact that they are really insurance agents or brokers. It also does not change the fact that they typically do not have a fiduciary responsibility to put an investor's interests ahead of their own, which means they are generally more interested in selling financial products with the largest commissions.
These sales reps have limited disclosure requirements and are not allowed to have account discretion. Most of them receive a large commission up front on the initial sale, which means they have very little incentive to continue helping the client.
My recommendation for you is to have the tough conversations, ask the hard and, sometimes, uncomfortable questions, take control of your financial future. Seek out that Advisor you like and with whom you are comfortable having those difficult conversations. Your Advisor should not make you feel like you are being sold something. A pure Financial Advisory relationship is built on trust. Financial Planning is a mix of science and art. It is an educational journey where different options are explored, some are discarded while others are implemented. The ultimate decision is yours, the client. These are, after all, decisions that will have the greatest impact on your and your family's financial future.
By Gale Allison
When you die, what you leave behind goes to your heirs, the people who inherit your estate. This can cause a positive result or it can cause difficulties. Therefore, it's a good idea to consider your heirs' situations before leaving their inheritances in traditional ways.
There are many reasons why a person might prefer to receive his or her inheritance through a lifetime Trust rather than by outright gift.
Designed properly, the Trust can give an heir all the feeling of outright ownership with none or very few of the risks associated with outright ownership.
Maybe you think the only reason to set up a Trust is to protect the heir from his or her own financial foolishness. "Spendthrift" protection can still be a function of a Trust, but it has not been the major reason for inheriting by Trust in the USA for at least the last fifty years.
The beneficiary of a Trust can also be the trustee or co-trustee of the Trust depending on how the Trust is designed. The Trust can be written so broadly as to enable it to provide the heir with anything the he might desire without proving need. It could also be so narrowly drawn that the beneficiary cannot receive anything from the Trust without proving need
The key to a positive outcome is the design of the Trust document. With the right words, inheriting by Trust can be a gift to the heir that cannot be accomplished any other way.
For example, with proper Trust design an heir may gain:
1. Asset Protection from Creditors.
If a Trust beneficiary gets sued and has a judgment against him, the heir could lose whatever is owns outside of the Trust, but the Trust assets cannot be touched.
The trustee can pay the bills of the heir directly and never subject any Trust assets to risk of being lost in this manner.
This kind of asset protection is a popular feature of Trusts for most U.S. citizens. Asset protection is a complex subject, subject to all kinds of risks including the possibility of not holding up to legal scrutiny. However, the cost to put a Trust in place is minimal compared to trying to protect the assets after having been inherited. Often, when inherited without a Trust, it is simply not even possible to achieve creditor protection in any cost efficient manner.
2. Death Tax Planning
Leaving property to an heir in Trust is often the only way to do a wide variety of death tax planning. This complex subject depends on many factors of a specific individual or situation.
For example, millions of dollars can be inherited through a Trust and over time, that Trust principle could grow to a billion dollars (why think small?). When the original heir passes away, the next person in line could inherit the Trust estate totally free of death taxes. Another example is that the property could continue in Trust forever and never be subject to federal death taxation - ever.
3. Built-In Prenuptial Contract.
Quite apart from typical creditor protection is the protection from the economics of marriage. For instance, let's say that a widower inherits from his wife through a Trust. Not only was the wife assured that her assets won't go to the husband's next spouse, but also her husband is under no pressure from his next spouse to share what was inherited before they even married. Both spouses are free from such worries without actually doing a separate prenuptial contract.
4. Certainty of the Future Heirs.
A Trust says who is next in line to inherit when the original heir passes away. Not only that, but with the right design, it can even give the first heir the opportunity to fine-tune who inherits at his or her death.
Take it from a probate attorney who has had to straighten out some sad and expensive messes in probate court! Looking at what can happen after you are gone is the best way to plan your estate so that it benefits the people you leave behind in ways you would prefer.
Courtesy of FirstLight Home Care
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