Protecting your money | November 10, 2013
alking about the dollars and cents of growing old and dying may seem uncomfortable or even crass, but there’s a lot at stake and any amount of planning is better than doing nothing.
“Everyone needs to do some planning. I’m a strong believer that it is possible to have a successful aging and long-term care process,” said Timothy Vogel, an attorney with elder care law firm Vogel & Dubois in Portland. “It’s almost never too late to do some sort of planning. It’s human nature not to plan. But it’s important to do some planning and talk to people.”
Given the staggering expenses of nursing homes, which can cost more than $10,000 a month – a whopping $120,000 a year – in Maine, and the even greater expense of having extensive, 24-hour care at home, which could cost as much as $200,000 annually, it’s crucial to do something to brace for the costs, financial planners and elder care, lawyers said.
“Think about not necessarily what’s going to happen to you – but think about how it will affect your family. Often, in our society, a healthy spouse gets shortchanged by the cost of caring for a sick spouse,” Vogel said.
Without proper planning, a senior could use up money on care that they had wanted to save for the future care of their spouse or to pass on to their heirs.
The key to successful estate planning is to do something – anything – and do it early.
The first step to financial planning is to have a will, which outlines who inherits any of an individual’s assets and who will take care of any nonadult children if both parents die. Without a will, decisions about distribution of a deceased person’s property and assets are made by the county court through a process called probate, which may take a long time.
The other crucial documents are powers of attorney for health care and finances.
More than 120 million Americans do not have up-to-date estate plans to protect themselves and their families in the event of incapacitation or death, according to the National Association of Estate Planners and Councils.
MaineCare, known as Medicaid in other states, is a health insurance program for low-income Maine residents. The qualification standards have become more strict in recent years.
To be eligible for MaineCare, a person needs to be impoverished, essentially, under the plan’s strict guidelines. MaineCare has financial rules that scrutinize five years of financial transactions to ensure that no improper transfers of assets occurred. Previously, the look-back period was three years.
“Some people think getting MaineCare is the prize – but you have to think of the expression, ‘Be careful what you wish for,’” Vogel said.
Some of the classic mistakes people make are giving their home to their child or putting their child’s name on bank accounts, Vogel said. This can become a problem if a person is planning for MaineCare and they transfer assets within 60 months of trying to qualify.
Those transfers of assets can be considered gifts, which cause problems with MaineCare qualification.
“You have to seriously weigh anything that changes the ownership of an asset,” Vogel said. “You don’t want to take an action that will have an unanticipated harmful impact to you.”
“MaineCare has changed and it will keep changing,” said Vogel, who added that MaineCare could become so restrictive in the future that many people won’t qualify.
Without MaineCare, individuals would have to rely on whatever Social Security, pension, investments, savings or real estate equity they have to cover long-term care. There is no legal obligation for kids to support their parents.
To qualify for MaineCare, an individual needs to show five years of bank records and other financial statements to prove their income level. If any transfers of money or assets are deemed as gifts, that is considered a penalty and the individual would have to pay out-of-pocket for that amount.
For example, if a senior gave something as minor as a $100 college graduation gift to their grandchild within the five-year window before they applied for MaineCare, that small gift could be held against them as a penalty. The senior would have to pay that $100 out of pocket for their own care before MaineCare benefits would kick in.
In Maine, you can have a written caregiver agreement to pay a family member to provide care, said Barbara Schlichtman, an attorney with Maine Center for Elder Law in Kennebunk. Otherwise, those payments would be considered a gift and be taken into account during the MaineCare five-year look-back policy. A doctor’s statement is required to prove that the care is necessary for the elder to stay safely in their home.
Goold Health Systems is the state contractor that assesses whether a person qualifies medically for MaineCare.
While some seniors have a five-year window to prepare for MaineCare, others don’t have the luxury of time due to a crisis such as an accident or injury or major medical event. They may be unable ever to return home and could end up in a nursing home, which could quickly erode any savings they have.
Even in such crisis cases, elder care lawyers and financial planners said consulting an expert can help preserve some assets, Vogel said.
The state of Maine can seek reimbursement for care provided from the estate of a deceased MaineCare recipient. Federal law mandates that each state must have an estate recovery program in order to receive federal funding.
The amount recovered is limited to what MaineCare actually paid for a person’s care, which is often less than the “sticker price” or private-pay rate charged by a nursing home.
However, claims cannot be brought by the state if the MaineCare recipient has a living spouse, or a child under the age of 21, or a child who is blind or permanently and totally disabled.
An elder care attorney can review and explain medical requirements for MaineCare eligibility and the income requirements for MaineCare coverage for nursing homes, which are complex and can vary according to whether both spouses are living.
Long-term care insurance can pay for assistance with care at home, as well as assisted living and nursing home care. Policies have a limited payout time and don’t cover care indefinitely, but can help offset some costs.
Currently, 8.1 million Americans have long-term care insurance and numbers are expected to rise as the population ages. About 322,000 Americans obtained long-term care insurance coverage last year, while 85,000 have combination plans that include both long-term care insurance and life-insurance policies.
“The most relaxed clients I have are those with long-term care insurance,” Schlichtman said. “You need to talk to an experienced agent and buy a good policy. Learning the quality of the policy and the extent of what it covers comes with being an informed consumer.”
Some consumers think of long-term care insurance as a waste of money – buying an insurance policy they may never use – and may decide to save money on their own or invest in the stock market.
Kerry Peabody, of Clark Insurance, said that a person would need a 15 percent to 20 percent guaranteed return to save the same amount of money on their own as they would collect from a long-term care insurance policy.
“You can’t build wealth fast enough,” Peabody said.
Instead, long-term care insurance gives a subscriber choice and control over their money, takes a financial burden off the family and protects assets, Peabody said. “You have to have a plan. It might be to sell the camp. It might be to live with your kids. But you have to make the plan today because you’re healthy today and you may not qualify tomorrow,” Peabody said. “Some coverage is better than no coverage.”
Vogel suggests buying long-term care insurance as young as 30- to 40-years-old, a time when many people’s finances are focused on their kids and saving for college. “Nursing homes cost more than college,” he said. “You’ve got to take care of yourself first.”
Many long-term care policies have high deductibles that require a subscriber to pay for their own care for a short time. Policies also have a set time limit on how much coverage they will provide. As a result, even people with long-term care insurance policies resort to MaineCare once their resources are exhausted.
Only one-third of long-term care insurance claims go to nursing home care, with the bulk used for home-based care and assisted-living services, Peabody said.
The costs of long-term care insurance vary in terms of quality and cost, much like buying a car or a house.
In one example, a 55-year-old couple wants to buy coverage that provides a benefit of $100 per day. Although $100 a day would not make a dent in nursing home costs, it could help cover a few hours of home-based care that would allow the person to stay in their house longer, Peabody said.
If the couple bought coverage for a two-year benefit valued at $73,000 for each of them, including a 30-day deductible where they would pay for care themselves, the coverage would cost $1,670 a year total for the couple, with a 3 percent compound inflation rider, Peabody estimated.
In Maine, the minimum policy provides two years of coverage.
Some residents purchase hybrid plans, which combine long-term care insurance with life insurance. Under those policies, if a person dies before using their long-term care coverage, the value of the insurance plan will be paid out to the family in the form of life insurance.
Subscribers to long-term care policies can deduct their long-term care premiums as medical expenses on itemized taxes. The long-term care insurance portion is capped by age and subscribers can only deduct the portion of total medical expenses that exceeds 7.5 percent of their adjusted gross income.
Maine Long-Term Care Partnership Program: Under a long-term care partnership plan, a subscriber may be able to keep assets of a greater value than normally allowed for enrollment in MaineCare and MaineCare cannot recover this higher asset value from your estate.
For a policy to be able to be exchanged it cannot be a hybrid policy.
Since these policies must include inflation protection, the amount of the benefits you receive can be higher than the amount of insurance protection you originally purchased. If you have a Partnership-qualified long term care insurance policy and receive $200,000 in benefits, you can apply for MaineCare and, if eligible, retain $200,000 worth of assets over and above the state’s MaineCare asset threshold.
For example, a subscriber purchases a Maine Partnership for Long-Term Care policy with a value of $200,000. Some years later, the subscriber receives benefits under that policy up to the policy’s lifetime maximum coverage (adjusted for inflation) equaling $250,000. The subscriber then requires more long-term care services, and applies for MaineCare.
Because the subscriber bought a partnership-qualified policy, if they need to apply for MaineCare and are deemed eligible, the subscriber can keep $252,000 in assets and the state will not recover those funds after their death. Any assets over and above the $252,000 would have to be spent in order for the subscriber to be eligible for MaineCare.
Protecting your money
Experts encourage everyone to provide financial and medical powers of attorney to someone he or she can trust.