We plan to go on vacation. We plan to have dinner with friends. But when it comes to planning for how we will be taken care of as we advance in age, many of us prefer not to think about it, believing it will somehow all work out. Unfortunately, when it comes to long term care planning, including finding the appropriate care and figuring out how to pay for it, those who fail to plan are clearly the ones who risk losing the most.

Consider the two scenarios below that contrast the different outcomes of planning early and choosing the “wait and see” approach for long term care.

The Facts

Hank is 72 and Ellen is 69. They have been retired for several years and have started traveling a few times a year to visit their children and grandchildren who live in nearby states. During a recent visit, their oldest child asked them whether they had made any plans in the event one of them suddenly got sick. Hank and Ellen had not thought much about this since both of them were in good health. However, they agreed to seek some advice upon returning home to see what their options were.

Hank and Ellen own a home that they have lived in since their marriage 45 years ago, and they have checking, savings and CD accounts that total $325,000. They both worked most of their adult lives, carefully watching their expenses and never spending money on extravagant items they didn’t feel they needed.

Scenario #1 – Hank and Ellen planning ahead. Hank and Ellen spoke with an elder law attorney, as they knew they should update their will and their powers of attorney. While there, they were surprised to learn that they could actually plan now to avoid running out of money in the future should they need long term care either at home or in a facility. With the help of their elder law attorney, they placed $200,000 and their home into an irrevocable trust, and named their children as beneficiaries of the trust. If needed, their children would be able to take a distribution from the irrevocable trust rather than using their own money for Hank and Ellen’s needs.

The remaining $125,000 would be kept in a revocable trust that Hank and Ellen would use for their living and travel expenses. Ellen would apply for a long term care insurance policy to provide further protection for them should her health fail (Hank had applied previously but was denied). The $200,000 placed into the irrevocable trust would not be counted against them after 5 years, should either of them need long term care and the assistance of state benefits to pay for it.

Unfortunately, six years later Hank had a severe stroke and ended up in a nursing home unable to use his right side arm or leg. Ellen tried caring for him at home but was simply unable to. Ellen went back to see the elder law attorney for help. Because they had planned ahead and had set up an irrevocable trust, Ellen was able to keep all of the remaining cash assets in their revocable trust, and Hank was able to qualify immediately for state Medicaid benefits. The irrevocable trust (which had now grown to $215,000) remained in place but did not count against Hank since more than 5 years had passed and neither Hank nor Ellen had any direct access to the trust assets.

Ellen was incredibly relieved to know that she did not have to worry about paying for Hank’s care and could instead focus on visiting him and providing as much support as possible to him. Although Ellen was not able to obtain long term care insurance, she has piece of mind knowing their children continue to manage the irrevocable trust and are ready to help both Ellen and Hank as needed.

Scenario #2 – Hank and Ellen without planning ahead. Let’s assume Hank and Ellen did not plan ahead. When Hank had a stroke at age 78, the couple had $300,000 in checking, savings and CDs. Under the Medicaid regulations in place at the time, Ellen was able to keep $113,640 of the assets, but most of the remaining assets had to be used for Hank’s care, leaving only $90,000 that was transferred to the children (or to an irrevocable trust) and thus protected from Medicaid. While their home would be protected since Ellen was still living there, if she were to become ill the home could be subject to a lien by Medicaid.

It took nearly two years to get Hank qualified for Medicaid, and the process was incredibly stressful for Ellen and her children. Furthermore, no planning has been done for Ellen and if her health fails, their remaining assets are at risk.

What If Hank Was Not Married?

Let’s assume Hank was not married, but had the same assets. If Hank planned early, all of the assets he put into an irrevocable trust (including his home) would be protected. Any assets left outside the trust could be transferred or turned into an income stream to pay for his care, should his health fail and he would need to qualify for Medicaid. Just as above, the Medicaid application process would go smoothly and quickly. In addition, an enhanced power of attorney would avoid the need for a guardianship in the event Hank was unable to make the transfers or sign the Medicaid application himself.

If Hank did not plan ahead, more than half of his liquid assets may have had to be used in order to protect Hank’s home, depending on the Medicaid rules in effect at the time. This would leave only $50,000 to transfer to the children (or to an irrevocable trust). And, if Hank did not have capacity to make any transfers or to establish an irrevocable trust, a guardianship proceeding would have to be initiated before any transfers could be made. Furthermore, the guardianship court would have to grant permission for such transfers to be made.

Conclusion

The scenarios above emphasize the importance of seniors and their loved ones planning early for the possibility of needing long term care. There are not only financial benefits to doing so, but also numerous non-financial benefits, including reduced stress on the family and peace of mind knowing that the family’s needs are taken care of regardless of any health care crisis that may occur.

Our law firm helps families plan for their long term care needs, whether it is years in advance or after a health care crisis has occurred. We would be honored to work with you or the seniors and families you assist.

It is sometimes claimed that reducing the amount of assets an individual can keep while qualifying for Medicaid would increase the purchase of private long-term care insurance (LTCI) coverage.  Recently, for example, Stephen Moses of the Center for Long-Term Care Reform told a House subcommittee that Medicaid’s “very generous basic eligibility rules” are discouraging “most people from planning early to “save, invest or insure for long-term care.”

Now, two professors of economics have estimated that tightening Medicaid asset rules would do little to encourage the purchase of LTCI policies.  In an article published in the Fall 2011 issue of the Journal of Economic Perspectives, Jeffrey R. Brown of the University of Illinois and Amy Finkelstein of the Massachusetts Institute of Technology estimate that a $10,000 decrease in the level of assets an individual (and their spouse) can keep while qualifying for Medicaid would increase private long-term care insurance coverage by 1.1 percentage points.

“To put this in perspective,” they write, “if every state in the country moved from their current Medicaid asset eligibility requirements to the most stringent Medicaid eligibility requirements allowed by federal law, this would decrease average household assets protected from Medicaid by about $25,000. This, in turn, would increase the demand for private long-term care insurance by only 2.7 percentage points. While this represents a large increase in insurance coverage relative to the baseline ownership rate, the vast majority of households would still find it unattractive to purchase private insurance.”

Overall, Brown and Finkelstein are pessimistic about the prospects for encouraging more Americans to buy long-term care insurance unless Medicaid is completely restructured or done away with altogether.  They note that LTCI is a poor deal, particularly for men, who get back only about 33 cents on the premium dollar they spend, and that for a 65-year-old man of average wealth, 60 percent of the private insurance benefits would have been paid by Medicaid.

But the authors say that even if the implicit Medicaid “tax” on LTCI were eliminated, “other factors could still prevent the market for long-term care insurance from developing.”  These factors include the availability of informal insurance provided by family members, the liquid assets in the home serving as a “buffer stock of assets,” and the difficulty many individuals have in “making decisions about long-term, probabilistic outcomes.”

To read the article, “Insuring Long-Term Care in the United States,” click here.

For a summary of the article in Forbes magazine, click here.

It is a reality, in my experience, that most Elder Law attorneys “cut their teeth” in Elder Law by helping clients deal with the crisis of long-term care costs, often by obtaining Medicaid benefits for the client. That certainly is how I got introduced to the topic.

But there is much more to Elder Law than that, and for years now I have been encouraging children of elderly parents to seriously consider long-term care insurance for themselves. This is sort of an application of the Golden Rule, as I first acquired long-term care insurance six or seven years ago.

• Long-term care insurance, particularly Indiana’s innovative “partnership plan,” can totally protect your assets should you outlive the insurance benefits and require Medicaid then.
• Long-term care insurance gives you options other than a nursing home, such as hiring help in your home or helping to fund an assisted-living facility, where Medicaid would not provide funding for such alternatives.
• Long-term care insurance gives you access to some beautiful nursing homes that have no Medicaid beds whatever, including one of Greater Lafayette’s nicest facilities.
• Long-term care insurance may be the only way you or a loved one can get care in a local “memory unit” (specialized care for Alzheimer’s and other dementias), as Medicaid beds in memory unit are particularly limited in Lafayette.
• Long-term care insurance protects you against the fairly high likelihood of tightening Medicaid eligibility rules despite the evidence of studies like the one summarized above.

Conventional long term care insurance is getting harder to obtain. I feel fortunate to have such a product for myself. But the insurance industry makes its money by devising insurance products to meet people’s needs, and they are devising intriguing  alternatives to conventional long-term care insurance, such as life insurance or annuities with long-term care riders.

I am not licensed to sell insurance products and I have no intention ever of obtaining a license, but I have a number of contacts with qualified agents, with whom I am quite comfortable, who are familiar with both conventional products and the emerging alternatives. One of the most gratifying things I can do is to help people who are not in a crisis, but are planning “proactively.” Insurance frequently plays an important role in such planning.

Ultimately, whether by crisis planning or proactive planning, I help people daily in dealing with the challenges of obtaining funding for long-term care while meeting obligations to their spouses and families.

We have long had the firm slogan – Your Success is Our Success.   One of the parts of our website that we are most excited about also makes this slogan tangible is the Representative Clients portion of our website.  We hope this section of our website serves to highlight how proud we are of the companies we’re privileged to represent and gives prospective clients a better understanding of our capabilities. 

Please contact us if there is a way we can be of assistance.  We do work in a broad array of practices areas including: business law, mergers and acquisitions, real estate, estate planning and administration, and litigation.

Roger is accredited by the Veterans Administration to assist claimants in preparing, presenting, and prosecuting claims for benefits as part of his Elder Law practice.

It reads in full as follows:

The Centers for Medicare and Medicaid Services: Consumer Alert – October 9, 2011

Website Warned on Suggesting Linkage to Government Agency – Could Mislead Consumers

The Centers for Medicare and Medicaid Services (CMS) has recently become aware of a website that has the appearance of being an official government website for the Pre-Existing Condition Insurance Plan.

This new website - http://preexistingconditioninsuranceplan.com - is not maintained by any government programs and consumers are strongly urged not to submit any personal information requested by this website under the assumption that it is a government website.

CMS is taking the appropriate steps to protect consumers from being misled.

The Pre-Existing Condition Insurance Plan made available through the Affordable Care Act makes health insurance available to people who have had a problem getting insurance due to a pre-existing condition.

The Pre-Existing Condition Insurance Plan:

• Covers a broad range of health benefits, including primary and specialty care, hospital care, and prescription drugs.
• Does not charge you a higher premium just because of your medical condition.
• Does not base eligibility on income.

Individuals interested in this new federally backed program should visit: www.pcip.gov or call 866-717-5826.

###

 I have visited the questionable website, and I do believe it is misleading. Although it looks “commercial,” it says:

The “Pre-existing Condition Insurance Plan” known as PCIP, provides comprehensive health insurance to Americans unable to obtain medical benefits. Those having been turned down by private major medical carriers due to a Pre-existing condition may qualify for PCIP Insurance. The PCIP Plan is expected to insure as many as three hundred and fifty thousand (350,000) individuals until the Affordable Care Act through insurance exchanges goes into effect Jan 1, 2014.

They may not have said anything outright false, but it certainly has the potential to mislead. I concur in recommending that you not submit any personal information requested by this website under the assumption that it is a government website.

• Excellence in community involvement. We aim to give back to our community with our time and knowledge. Our people serve in a number of government, nonprofit and other community organizations.

 One of the community organizations we support is Lafayette Christian School.  LCS recently had a golf outing to raise money for its technology fund.  BB&C was excited to be one of the many sponsors at this great event. 

It’s available here as a PDF download.

In my Elder Law and Estate Planning practice, at Bennett Boehning & Clary, I represent clients regularly with in obtaining VA Benefits for spouses of wartime veterans.  If you need assistance, please contact me.

Case 1

One target – and I use “target” on purpose – who became my client was an aging veteran with substantial assets, earned through hard work and extreme frugality. He was hustled at his assisted living facility by a planner who diligently offered the facility something they wanted: a way, without hassle for them, to get residents money to pay for care.

I had to admire the slick presentation to my client. I didn’t see the initial presentation, but the “planner” put on a heck of a good show on paper. I wish I had nice spreadsheets like that – very professional looking. I was dazzled – and I was looking at it specifically to find any problem.

It was a great shell game, but I had the advantage of being able to turn on slow motion, so to speak, and watch for where the switch was made.

I found the pea pretty quickly: All the razzle-dazzle magic, which would net the planner $15,000+ in commissions on more than $150,000 in annuities, had nothing to do with the annuity. The plan would have worked (although badly) because of an irrevocable trust that would own the annuity. The annuity added nothing to the plan.

I also admire this first planner’s honesty. My client asked him “what does the annuity do?,” and he  answered “it’s the only way I can get paid for the advice I’ve provided.” This is not a guy I’d turn in for fraud. He’s a guy whose “only tool is a hammer” – insurance products – so “every problem looked like a nail.”

So just what was wrong?

• The annuity was deferred. It’s rare for a deferred annuity (as opposed to an immediate annuity) to be suitable for someone his age. He would have paid a penalty to take out more than 10% per year – and that’s a generous deferred annuity. Many deferred annuities penalize any transfer during the first 6 year or more. The client’s commitment to leave funds alone a while is how the agent gets paid a nice commission.
• The client could have paid for assisted living with Social Security, pension, VA benefits and 10% of the annuity, but he would not have been able to pay for nursing home care during the 5 year Medicaid penalty period resulting from the transfer of funds to the irrevocable trust, without very substantial penalties for raiding the annuity prematurely. And his health problems make nursing home likely in a few years.

We’re preparing a plan that will use an irrevocable trust but that will have no penalty for the family withdrawing funds to pay for Nursing Home, if it comes to that.

Case 2

The second client, a Vet’s surviving spouse, was in a worse situation.

The presentation to her wasn’t slick. It wasn’t even adequate. The agent in this case stood to make more than $20,000 in commissions on more than $250,000 of annuities. But again, the client didn’t bite.

So what’s the problem? Why is she worse off?

The attorney the agent was working with to write the irrevocable trust (once again, the trust would have performed any magic; the annuities added nothing) filed an informal request for VA benefits when the client still had too much money to qualify.

This likely cost the client $12,681 for one year of needlessly lost VA benefits. I had to break the news.

The trust the attorney then drafted, which has not been signed and probably won’t be, was unlike any I’ve ever seen in VA practice; it appeared to be an obsolete trust for Medicaid planning. It might have worked for VA, but it invited scrutiny from the VA that a well-conceived trust would not invite.

Lesson

AARP a year ago published Taking Aim at Old Soldiers, a brief expose of the kind of planning I’ve described. Their conclusions (paraphrased slightly so I’m a little more comfortable with all aspects):

• Don’t be fooled by official-sounding names. Some sales agents operate as, or work with, “front” organizations, pretending to have a veteran affiliation and nonprofit status.
• Don’t depend on nursing homes, community centers and assisted living facilities to protect you. The law is complicated, and they may be unaware of the shady nature of the seminars they co-sponsor.
• Get credible information on how to qualify for veterans benefits by contacting your state veterans affairs agency at nasdva.net.
• Before investing, check the agent’s record at your state regulatory office. For a list, visit nasaa.org/QuickLinks/ContactYourRegulator.cfm.

To that, I would add that some lawyer is going to be involved to create the trust that works the real magic, so it might as well be a qualified and experienced Elder Law attorney with VA accreditation. An Elder Law attorney can prepare a trust tailored to your needs, not just cranking out a “cookie-cutter trust.”

Trusts are not like soybeans and pork bellies; one is not “just as good” as another. In my practice, I’ve invested dozens of days, thousands of dollars, and many nights away from home at national seminars to become a justifiably trusted advisor in the area of Elder Law.

I not only steer people away from annuities that accomplish nothing, but from complicated trusts that I could write when trusts clearly add nothing to accomplishing an objective. This is part of what lawyers are supposed to do automatically, and I also am in touch with financial professionals who follow the same ethical path. I can be your first stop for long-term planning needs.

But Indiana’s wastewater treatment systems can’t remove all the medications you and I flush down the drain or toilet. Please help us protect our aquatic environment by bringing your expired or unwanted prescription and over-the-counter medications to Operation: Medicine Cabinet.

Collection will be supervised by the Lafayette Police Department’s D.A.R.E.Officer, and properly incinerated by Pets Remembered Cremation Services, a division of the Hippensteel Family of Services.

Operation Medicine Cabinet is Saturday September 24, 10:00 am to 1 pm, in the parking lot of Home Instead Senior Care, 976 Mezzanine Drive Suite A, Lafayette, Indiana. (That’s on Lafayette’s east side, East of Creasy Lane, North of McCarty Lane, and South of State Road 26. Off 26, turn South past WalMart, Mike’s Car Wash, Gordon’s Foods and other almost all the way to McCarty Lane.)

For more information, call 447-8800 or download this PDF file.