ElderLawAnswers Blog

Will You Receive a Negative Inheritance?

A recent column in the Conde Nast's Portfolio.com explored what economist call "negative inheritance." People who don't prepare to care for sick and aging parents could fall victim to such "negative inheritance." The term (which was likely first used in the study of economics by Boston University Professor Laurence Kotlikoff) describes the situation when the costs to children of caring for aging relatives outstrip any gifts or bequests they might receive in return.

Those costs may be financial, physical and emotional, as children and other relatives give up jobs and homes to care for family members.  The following posting to the ElderLawAnswers.com Discussion Forum is not unusual:

My parents are in their mid-eighties and continue to live at home. We sold our large home 2 years ago and moved in temporarily with my parents while awaiting the purchase of our new home. Alas I discovered how much they needed more care than just each other during our stay. My husband and I now stay at my parents home and we do not even visit our own home. I quit my job last summer to increase the level of care necessary for them. We pay all their bills except for food as well as our own bills. I am taking CNA classes so that I may continue to take care of them at home as opposed to the option of nursing home care. We are now dipping into our personal retirement savings to continue to care for them.

While a supermajority -- 91% -- of boomers report being "generally pleased to be helping their parents," according to a survey by Putnam Investments, it doesn't relive the negative effects it may have on a caregivers own life.  Planning by purchasing long-term care insurance or making use of available public benefits can help eliminate these costs, decrease the stress on all concerned, and thus preserve and enhance the care family members can provide their parents. 

Study Suggests Medicaid-Sponsored Home Care

A recently released study of Medicaid-financed nursing home use over 18 months in 2001 and 2002 finds that in states such as Oregon that have extensive community based long-term care services, Medicaid-covered nursing home stays were shorter than the national average. The numbers suggest that where seniors have alternatives, their nursing home stays are more likely to be for acute care following a hospitalization or for a shorter period at the end of life.

The study, "Medicaid-Financed Nursing Home Services: Characteristics of People Served and Their Patters of Care, 2001-2002," conducted by Matehematica Policy Research for the Office of Disability, Aging and Long-Term Care Policy for the U.S. Department of Health and Human Services, reports that over half of Medicaid-covered nursing home residents do not become eligible for benefits until after they move to a nursing home, with 29 percent obtaining coverage within six months of moving to the nursing home, 5 percent between six and 12 months, 7 percent between one and two years, and 9 percent after more than two years.

In 2002, more than 45 percent of nursing home costs nationally were paid by Medicaid, but a larger proportion of nursing home residents were Medicaid beneficiaries since even on Medicaid, some of the cost of their care is covered by Medicare, their own contributions from income, and other sources. In terms of all Medicaid expenditures, while aged and disabled enrollees make up about 25 percent of Medicaid beneficiaries, they account for 80 percent of Medicaid expenditures.

The report confirms the continuing trend that most nursing home residents are among the older old. The average of nursing home residents who entered in 2002 was 76 years, with 32 percent each being between the ages 75 and 84 and 85 and older. Twenty percent were under age 65 and 16 percent between ages 65 and 74.

Why Do Men Shortchange Their Wives' Social Security Benefits?

According to a recent study released by the Center for Retirement Research at Boston College (http://crr.bc.edu), most men begin drawing on their Social Security retirement benefits at age 62 or 63, rather than waiting until their full retirement age or even age 70.  The early receipt of benefits means that both the husbands and their wives will receive less each month than they would if they waited.

According to the study, written by Steven A. Sass, Wei Sun and Anthony Webb, this early election has no effect on average on the men.  Though they will receive a smaller benefit check each month, this will be offset by the checks they receive between the ages of 62 and normal retirement age.  Of course, this is the average.  Men who are in ill health would do better to take early retirement and men who expect to live a long time should postpone their receipt of benefits for as long as possible.

This is also basically true of single women, meaning on average they do about as well in terms of lifetime Social Security benefits no matter whether they start earlier and get more smaller checks or start later and receive fewer larger checks.

But for today's seniors, most wives' benefits are based on their husband's work record.  If husbands choose to take benefits before the full retirement age, their wives are penalized twice -- first while their husband's are alive when they get a reduced benefit, usually half of the husband's benefit, and second when the husband dies (which often happens due to women's greater life expectancy) when they receive their husband's benefit rather than their own.

So, why do men do this?  Are they cads?  The researchers conclude that they are not, that instead they simply don't understand the implications of claiming benefits early.  More education may change their behavior, although the researchers note that "financial education has not been especially effective in changing behavior." As an alternative, they suggest a number of potential policy changes, such as requiring spouses to sign off on the decision to claim Social Security before the beneficiary's full retirement age.

Interestingly, while the Social Security Administration's Web site (www.ssa.gov) has a number of excellent calculators to assist beneficiaries in deciding when to retire, none appear to calculate spousal benefits.  Based on the Boston College report, adding such calculators would be a good first step.

To read the report, go to: http://crr.bc.edu/index.php?option=com_content&task=view&id=485&Itemid=4

Take Full Advantage of 529 Plans

Congress has given you a terrific way to save for college.  Don't let it slip by.

So-called "529" plans are investment vehicles which permit money you set aside for a child or grandchild's education to grow tax free.  If the funds are in fact used for college, they are never taxed.

Many states have offered further benefits to these plans, including creditor protection in the event of bankruptcy and state income deductions for contributions up to certain limits.  More than half of states offer some sort of creditor protection and more than 30 states offer at least some income tax deduction.  Though they may provide for recapture of the deducted income if the account is moved to another state.

An odd aspect of 529 plans is that although they are authorized under federal tax law, they depend on state legislation.  So each state has its own plan or plan operated by an investment company.  While investors may take advantage of any plan offered by any state or investment company, some of the state benefits only apply to their own state plans.

Another advantage to 529 plans is that permit automatic investment.  A donor can provide that a certain amount is deposited into the plan each month, allowing the account to grow over time almost painlessly.

A final change that makes 529 plans more attractive than formally is that the internal costs of many plans have come down in recent years and some plans now provide for investment in low-cost index funds.

Guess What? The Elderly Are Not Bankrupting the Health Care System

According to a recently released study by the International Longevity Center-USA, Myths of the High Medical Cost of Old Age and Dying, it's not true that the aging of Americans and over aggressive care at the end of life are major causes of increasing health care costs in the United States.

According to the report, studies that have looked at the causes of increased health care spending conclude that only 5 to 10 percent of the increase may be attributed to the aging of the population, the other 90 to 95 percent resulting from other causes.

Many have predicted that the already high cost of caring for seniors will skyrocket in about 20 years when the oldest baby boomers start reaching age 85.  The new report says that this is not necessarily so if better health care can reduce the prevalence of chronic disability.  In fact, the percentage of chronic disability among seniors decreased by 6.5 points over the period between 1982 and 1999.

While studies do show a high percentage of Medicare costs going to care during beneficiaries' last year of life, further examination shows that this is not necessarily due to over-aggressive care being provided.  And these costs as a percentage of overall Medicare spending have remained stable over the years.

To download or purchase the entire report, go to www.ilcusa.org.

Leona Helmsley's Will: What Legacy Will You Leave?

By all accounts, Leona Helmsley was not a nice woman in life.  In death, her mean spirit survives.

Helmsley, who served 19 months in prison for tax evasion, was reported to have said, ''Only the little people pay taxes.''

With an estate estimated to total $4 billion, Helmsley totally disinherits two of her grandchildren, reportedly because they didn't name their children after her husband, Harry (a decision this writer can fully appreciate).  Two other grandchildren receive $10 million each, provided they visit their father's grave at least once a year.

The largest beneficiary of Helmsley's estate is her dog, an 8-year-old Maltese named Trouble, who will be the beneficiary of a $12 million trust.  Ultimately, this may cause more trouble for Trouble because it may not comport with New York law.

Other large beneficiaries of the estate may be attorneys, since the will names five executors, all of whom will need to be represented if there are any disagreements -- and how could there not be any disagreements?

Interestingly, all of this might have been kept private if it had been set up through a trust rather than a will.

At least Leona died as she lived, making her feelings clear for all to see.  Let's hope we all do the same, with less mean-spirited results.

Click here to see the will: http://multimedia.nydailynews.com/pdf/2007/08/28/leona_helmsley_will/index.html

Journal Article Highlights Need for SNTs

An article on the first page of The Wall Street Journal July 19, 2007, "Note to Medicaid Patients: The Doctor Won't See You" highlights the need for families to leave funds in trust for children and other relatives with special needs.  The article describes the plight of some Medicaid beneficiaries who cannot find necessary care because doctors have dropped out of the program due to low reimbursement rates.

Many parents of children with special needs do not provide for them in their estate plans because they see no need.  The children are well taken care of under Medicaid, Supplemental Security Income and state programs, often funded through the state's Departments of Mental Health or Retardation.

However, we cannot be certain of the future.  Will these state programs still exist?  Will doctors continue to continue to accept Medicaid? 

A bulwark against such uncertainties can be created by leaving funds in a specially-drafted trust for a child or grandchild with special needs.  While it may be difficult to leave enough funds to pay for all of the needs of the beneficiary, any amount can fill in gaps in publicly-funded programs or supplement the meager support they provide.

Make Your Durable Power of Attorney Work

An essential part of any estate plan is the durable power of attorney, through which you appoint someone else to handle your financial and legal issues in the event you are unable to do so because of illness, disability or incapacity.  The problem with these documents is that not all financial institutions accept them all the time, and it's hard to predict which will and which won't ahead of time.

Why won't your bank or investment house accept your validly executed power of attorney?  Because they are worried about liability in the event:

1. The document in fact was forged.
2. You had revoked the power of attorney before its use.
3. The person you appoint exceeds the powers you gave him in the power of attorney.

In any of these cases, the financial institution may be held liable for any losses you incur.  On the other hand, it may also be held liable for losses you incur if it unreasonably refuses to honor your power of attorney.

So, what can you and your estate planning attorney do to make it more likely that your appointment of an agent will be accepted?  This question is answered by Daniel A. Wentworth, Esq., Senior Legal Counsel with Fidelity Investments in the November/December 2003 issue of the American Bar Association's Probate & Property journal.  Attorney Wentworth recommends taking the following steps:

• Grant general powers in the document so that there is no risk the agent exceeds her authority.
• Also include specific powers clearly authorizing the actions the agent is likely going to need to take.
• Don't use "springing" powers of attorney that don't go into effect until you are incapacitated or, if you do, be very clear about what triggers their effectiveness.
• If you're appointing more than one person, clearly permit them to act separately (unless you really don't want them to).
• Sign several originals so that they are available for different financial institutions to review.
• Sign a new power of attorney every few years so that there's less likelihood that it may have been revoked and there's a long-term record of your desire to appoint your particular agent.
• If available, also sign any powers of attorney form offered by the financial institutions in which you have funds.

Taking all of these steps will make it more likely that your power of attorney will be accepted when needed.

To read the Probate & Property article, go to: http://www.abanet.org/rppt/publications/magazine/2003/nd/wentworth.html.

GAO Says Few Asset Transfers Occurring. Are They Right?

In a recently-published report, Medicaid Long-Term Care: Few Transferred Assets before Applying for Nursing Home Coverage; Impact of Deficit Reduction Act on Eligibility Is Uncertain, the Government Accounting Office finds that few seniors are transferring assets in advance of entering a nursing home and applying for Medicaid coverage.

This, of course, runs counter to the perception of the Congressional proponents of the Deficit Reduction Act transfer restrictions that such transfers were rampant.  And, admittedly, thousands of elder law attorneys across the country are advising seniors and their families how they may protect their hard-earned savings in the face of high long-term care costs.  How do we reconcile these perceptions and the GAO conclusions?

The GAO reviewed 540 Medicaid nursing home applications in three states -- Maryland, South Carolina and Pennsylvania -- and found that 90 percent had nonhousing assets of $30,000 or less, 85 percent had annual incomes of $20,000 or less, and that only one-fourth of applicants owned homes with a median value of $52,954.  Of the approved applicants, 47 had transferred assets with a median value of $15,152 causing a period of ineligibility that had expired by the time they applied for benefits.  These are the people likely to be adversely affected by the new DRA rules.

Nationally, the study reports, 70 percent of nursing home residents had less than $70,000 in nonhousing assets when they entered the facility and 11 percent had nonhousing resources of more than $300,000. 

Of the 540 individual applications the GAO reviewed, only two were denied for having transferred assets.  Of the 465 approved applications, 47 had transferred assets during the three years prior to application, but the transfer penalty had expired by the time they applied, though the proportions varied among counties from a low of 4 percent to a high of 24 percent of approved applications.  The median penalty resulting from these transfers was two months.  The median amount transferred was $15,152 with the largest transfer being $201,516. 

So, what can we make of these numbers?  And what do they mean in terms of the DRA?

First, it seems like only about 10 percent of nursing home residents who apply for Medicaid are sufficiently affluent to transfer substantial assets.  Second, the study did not pick up applicants who had transferred assets more than three years prior to applying for Medicaid.  In other words, there may be asset transfers, both large and small, that don't appear on Medicaid applications by reason of being done as appropriate asset protection planning.  Third, the DRA is likely to adversely affect at least 10 percent of applicants, most of whom did not transfer a substantial amount of assets -- not the people who should be targeted for transferring assets. 

US Disrespects UN Convention on Rights of Persons with Disabilities

My friend and colleague, Louis Pierro, forwarded a blog posting from John A. Lancaster, the Executive Director of the National Council on Independent Living about his appearance at the initial signing of the UN Convention of Persons with Disabilities on March 30th.  Lou found it quite disturbing as did I.  Here's part of what Mr. Lancaster wrote:

As I sat in the observers' area on the floor of the UN's General Assembly Hall, delegates from 80 nations and the European Community took their turn at the official signing table to commit their country to the human and civil rights of people with disabilities.  At several points, my eyes welled with tears.  They should have been tears of joy and pride as an American, as a citizen in the country that had created this world-wide movement for the rights and empowerment of people with disabilities.  Instead, they were tears of shame and embarrassment in being an American.

...

The UN General Assembly Hall was full; the observer galleries were packed with disabled advocates from around the world; and delegations from UN member nations huddled behind their respective desks and country signs.  After initial speeches, one-by-one in alphabetical order, the delegations from the various signing nations filed to the ceremonial table to sign the treaty books.  In some cases, it was that country's ambassador to the UN.  In the case of Ecuador, Vice President Lenin Moreno Garces, a wheelchair user, signed.  Even the countries who were not signing at least had representatives from their UN Mission present and sitting at their country table out of respect for the UN processes and the historic importance of the occasion, all but the United States.

...

I was ashamed of my country and of myself for letting it happen.  Please join me in recommitting ourselves as advocates and leaders to human rights, empowerment and independent living for all peoples of the world.  Write your Senators and President Bush today urging that the US sign and ratify the Convention on the Rights of Persons with Disabilities.

This story reminds me of Hubert Humphrey's famous quote about the moral test of government policy:  It was once said that the moral test of Government is how that Government treats those who are in the dawn of life, the children; those who are in the twilight of life, the elderly; and those who are in the shadows of life, the sick, the needy and the handicapped.