Topic – Elder Law – Guide to Paying for Long-Term Care Costs
In our last blog we discussed the rising costs of Long Term Care Insurance (LTCI). In this article, we would like to point out the importance of this insurance to drive home the point that if you are in the age bracket where the premiums make economic sense for you, then you should definitely consider adding this insurance into your portfolio.
Did you know that people spend on?
- Home Insurance where there is a 1:1200 chance of the home being destroyed
- Car Insurance where there is a 5:1200 chance of the car being totaled
- Health Insurance where there is a 105:1200 chance of ever needing hospitalization;
BUT, they don’t purchase LTCI early enough when the premiums are affordable even though there is a 720:1200 chance that a person will need long term care during his or her life? There are significant benefits that are available when an individual already has LTCI:
- The ill spouse can delay or avoid getting institutionalized since he or she has the ability to remain at home and pay for additional care at home
- The ill spouse can receive 14 more hours per week of care that would have otherwise been available to him or her
- Depending on the length of coverage for the LTCI, the ill spouse has time to spend down assets thereby protecting these assets for the ultimate beneficiaries
- LTCI saves the average nursing home resident an additional $100k per year thereby reducing the out of pocket expenses since the average claimant spends approximately $11250 in premiums or 15%-20% of the total amount of expected benefits
- Finally, there is less stress on the family and less time off from work taken by the family members to provide for care
BEST TIME TO BUY, WHO SHOULD BUY LTCI AND WHAT SHOULD YOU LOOK FOR
The best time to buy is between the ages of 65 & 69 for those with assets between $200k & $1.5 million. If you have fewer than $200k in assets, then you probably don’t need LTCI and if you have more than $1.5million, you can probably afford to pay for care privately. A policy that will cover 4 or 5 years is ideal and look for those that have a 30 day elimination period as well as which premiums are below 20% of your disposable income after all the essential bills have been paid. Also watch out for hidden provisions that increase your rates. Federal laws protect against rates being increased on an individual basis – rather the rate must increase for a class of people as a whole.
 longer the elimination period, lower will be your premiums and so a 100 day elimination period may be okay for you if you have Medicare and/or Medi-gap to cover the first 100 days
 Summary taken from Representing the Elderly Client by Thomas D Begley, Jr. and Jo-Anne Herina Jeffreys
A recent article in Yahoo Finance covered the stories of two families with senior parents confronted with the rising costs of long term care. One family spent nearly $300k even with long term care insurance (LTCI) which wiped out the parent’s savings in two years instead of the expected ten years. The other family chose to move the elderly parent back into their own home and used LTCI to pay for home health aides.
Both decisions were not easy ones to make. Although the family that moved the parent back to their home had a relatively “happier ending’ than the family that did not, in that the parent was far happier at home and her health progressed instead of getting worse as the other’s family’s parent did, these decisions are being made every day by middle class families who have to choose between relocating a parent to an assisted living facility or nursing home; or either move in with them or have the parent move into their own homes. These parents have too much money to apply for Medicaid but not enough to cover the typical 3 years of care that most of these facilities require as a condition for entry.
LTCI premiums are out of reach for a lot of people. Premiums average $1k-$4k per year depending on the age and health. And even those with LTCI have been grappling with the annual increase of payments by as much as 25% in some states. Due to the increase in the life expectancies of many of our seniors, the insurance companies are finding that they are losing money by paying out more.
It is more important now than ever before to establish a plan on how to pay for long term care costs. Consult an elder planning attorney to discuss ways on how to effectively use both private and public resources to pay for such care in the event you or your loved one may need it. With proper planning, you may be able to minimize the devastating impact of these long term care costs.
 Yahoo Finance July 2015 – “Families Face tough decisions as cost of elder care soars”
When 529 Plans are established by a parent or a grandparent for a disabled child or grandchild, it is not considered a countable resource for the child receiving government benefits. However, be careful, because it is a countable resource to the parent or grandparent.
This means that if a parent or grandparent has established this plan for his or her children or grandchildren and then applies for Medicaid, Medicaid will treat this as a countable resource when determining the resource limit.
And as far as the income eligibility goes, the child for whom the 529 Plan was established for only has a beneficial interest in the account but no access to it. Therefore, distributions from the plan directly to the institution for tuition would not be considered income to the child. However, if the money in the plan was used for payment of room & board for the child, then that would be considered In-Kind Support and Maintenance (or ISM) which is countable income to the child.
Finally, if a child under 19 is living with a parent who has established a 529 Plan for that child and the child needs to apply for government benefits, then the money in the 529 plan will be deemed income of the parent to the child.
NJ has adopted the Uniform Probate Code Section 2-701 which allows for spouses to contract to make a will.
This is especially helpful in situations where there may be some concern that the surviving spouse might change his or her Last Will and Testament after the death of the first spouse. This is typically seen in second marriage situations where both spouses have children from previous marriages. In those cases, if the spouses had initially agreed to create reciprocal Wills leaving everything to each other (surviving spouse) but after the second death, the assets would pass to their respective children, it is very possible that the wishes may never be fulfilled. The surviving spouse could change the Will after the first death and leave everything to his or her own children instead. There is no guarantee that the surviving spouse will honor the decedent’s wishes and follow through with the initial testamentary dispositions. The surviving spouse could change the Will to eliminate the children of the surviving spouse.
A way around this problem is to have the couples execute a contract that provides that each spouse agrees not to change or revoke the Will after the death of the first spouse. This binding contract will be upheld in a court of law and at a minimum, offer evidentiary proof as to the initial motives of the testators.
 Summarized from Representing the Elderly Client, by Thomas Begley and Jo-Anne Herina Jeffreys
There are five principal federal government benefit programs:
- Medicare – this is a program that provides health insurance for Americans aged 65 and older who have worked and paid into the system. Medicare Part A pays for hospital, limited home health and skilled nursing facilities and Hospice care for the aged and disabled; Supplemental Medical Insurance consists of Medicare Part B and Part D. Part B helps pay for physicians and outpatient hospital, home health and other services for the aged and disabled who have voluntarily enrolled. Part D provides subsidized access to prescription drug coverage on a voluntary basis.
- Medicaid – is a health insurance program for qualified individuals who meet a strict income and resource limitations. This program is funded by federal and state tax funds and is a means tested program.
- Social Security Disability Income – this programs provides monthly payments to eligible disabled individuals and their dependents; a person who has been determined to be disabled and entitled to receive SSDI benefits is also entitled to receive Medicare after two years.
- Supplemental Security Income (SSI) – is a welfare program which provides income to certain aged, blind and disabled. It is designed to provide recipients with 75% of the Federal Benefit Rate. There are also requirements for eligibility which include nonfinancial criteria (i.e. must be over 65, blind or disabled, residence requirements, income and resource threshold, must have filed applications for other benefits and cannot be a resident of a public institution (like a mental institution or prison).
- Federally Assisted Housing – is made up of two types – the Section 202 program and Section 8 Rental Assistance. Occupancy is open to low-income households with at least one person 62 years or older, as well as the disabled. Under section 202, the government subsidizes the construction and operation of housing built by public housing authorities or private groups; Section 8 provides rental assistance for low income families and individuals.
Generally a prenuptial agreement states that what each spouse brings to the marriage remains their separate property. While there is some question of the enforceability of these agreements in New Jersey, it is always a good idea for parties to contractually agree to work out the details in advance.
This becomes especially significant when one spouse becomes sick and needs long term care assistance. The assets of the other spouse become available to pay the medical expenses of the sick spouse regardless of the intent clearly expressed in the prenup agreement. Medicaid will just ignore the prenup and consider all of the joint property as available. Therefore, to avoid such problematic situations, it may be a good idea to include a provision in the prenup that states that each spouse is required to carry long-term care insurance. This way, the penalty period may be covered by this insurance and help alleviate some if not all of the financial burden in paying for such costs.
 Excerpt summarized from Representing the Elderly Client, by Thomas Begley and Jo-Anne Herina Jeffreys
Do you have a special needs individual in your immediate or extended family? If so, consider setting up a third party Supplemental Needs Trust for the benefit of this individual so that any money coming to him or her can be deposited into this trust. The trust money can then supplement government benefits without jeopardizing or impacting the same. Important as they are, special needs trusts are also complicated to administer and it is extremely important that the Trustee or Trustees you have appointed have the following characteristics:
- They are willing to commit to the long term
- They have a special sensitivity to the beneficiary-individual’s disabilities
- They are actively involved in monitoring the individual’s services being received
- They have the ability to be an advocate for medical and financial entitlements
- They have the ability to be a prudent investor and distributor of trust funds
Having one or more of the above traits can be invaluable for those serving as Trustees even if they are not professional or corporate trustees.
And finally, on a related note, make sure you establish these trusts as soon as possible especially before the individual turns 65 as his or her planning options for receipt of monies in his or her name become extremely limited after turning age 65. Give us a call if you would like to set up a special needs trust for one or more of your family members.
 Excerpt summarized from Representing the Elderly Client by Thomas D Begley, Jr. and Joanne Herina Jeffries.
A general durable power of attorney is a legal document authorizing someone (called your Agent or Attorney-in-Fact) to manage your financial affairs on your behalf. This individual can perform any actions that you could do for yourself, such as signing checks, buying or selling real estate, depositing or withdrawing funds, even run a business! The bonus of a properly drafted general durable power of attorney as opposed to a regular power of attorney is that the authorization to act continues even upon incapacity. That way, the person to whom you have granted power of attorney can maintain your financial activity (among other important matters that need to be taken care of expediently) until you are well enough to do so for yourself again. With a general durable power of attorney, all of this is possible without any involvement from the court.
Without this important document, you run the risk of facing far more difficulties than you would otherwise. If there is no general durable power of attorney and you become incompetent or incapacitated, no one will have the authority to act on your behalf. In such cases, your loved ones will have to petition the court for the establishment of a guardianship. Guardianships are not only expensive, but are time consuming and can cause a strain on your family. Furthermore, if there are assets in your estate, a guardian will be required to post a bond in order to protect himself or herself from liability. Guardians must also present an accounting every year with the court to show how and where the assets were used. But the process does not necessarily stop there. Once you have a guardian appointed to act in your stead, the guardian may need to apply for court relief again if he or she thinks that you might need to engage in Medicaid planning to plan for you’re the payment of long term care.
Additionally, in New Jersey, after a guardian is appointed, he or she becomes your fiduciary, and must comply with the Prudent Investor Rule when it comes to investing your assets. Compliance with the Prudent Investor Rule requires the guardian to show proof of the following:
(1)diversification of assets; (2) avoidance of unnecessary costs; (3) duty of impartiality to various beneficiaries; (4) delegation, where necessary; and (5) preservation of assets.
All of the above difficulties, however, can be avoided if a General Durable Power of Attorney has been established in advance, before you become incompetent. This will avoid the long, drawn out court process and provide your loved ones with a simpler, more cost-effective way of managing your assets.