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Peering Over the Horizon by Phil Runyon

3/2/2016

Peering Over the Horizon

My wife and I were just in Cuba and spent much of the trip admiring those beautiful '50's cars of our youth. However, with no seat belts in them and exhausts still belching the byproducts of leaded gasoline, it's a good thing the island has national health care.

The one thing we didn't see any evidence of was a nursing home, probably because the youngsters just take care of their elders at home - like Americans once did. Some still do, of course, but with families all out working to make ends meet and with the explosion of senior care facilities, it's often easier for everyone to choose one of those alternatives. And if you need more care than the family can provide, you may have to start paying for care anyhow - usually at alarming rates.

Consequently, people keep asking how they can arrange their affairs so they can get the care they need, but not spend up everything they've worked a lifetime to accumulate. The knee-jerk solution is often to give it all away to the kids, so the parents look like they don't have anything and can qualify for Medicaid. I've talked about the shortcomings of that course before, so I won't repeat the disadvantages here.

But let's really look at the current state of affairs. True, a pretty nice nursing home can cost in excess of $100,000 per year. Yet the odds of needing one are in our favor. Even as long as we're living today, only about 40% of us will need a nursing home at all, and the chances of needing more than 3 years of care are only 25%. If my math skills haven't failed me, that means there's only a 1 in 10 chance of needing to pay more than 3 years of expenses.

So what does this mean? For one thing, it means we'd be crazy to give everything away - or make other inconvenient arrangements - just to avoid a 10% chance that our funds would be depleted by nursing home bills. Does it mean, though, that we'd be better off hedging our bets by paying the premiums for long-term care insurance? Maybe, but that involves a further calculus. Do we have a family history of Alzheimer's or some other debilitating condition that might afflict us, as well? Can we get LTC coverage at reasonable rates we can afford? The latter will depend on our ages now, our current health, and how much coverage we want to spring for. If we don't have any lurking family skeletons, though, maybe our risk of needing a nursing home will be even lower than 1 in 10, and perhaps our best insurance will be eating right and exercising. And some of us may even have old-fashioned families who say they want us to enrich their lives with tales of mail with stamps and phones on cords.

One way we might have our cake and eat it would be to forgo the insurance, but to pretend we're paying for it by contributing what we can afford to a rainy-day investment account. If we're still young enough to make IRA or 401K contributions, then ramping those up would be the way to go. If we never need the nursing care, we've buttressed our retirement savings or our grandkids' college funds, but if we do have to pay a nursing home, at least we'll have saved something extra toward those costs.

Clearly, if we knew what was over the horizon, we'd know exactly what to do. We certainly wouldn't bother with any insurance until just before we needed it. On the other hand, I guess we wouldn't waste time and money writing all those wills and trusts either - that would only improve on things for one of us!

Posted 3/2/2016 - Asset Protection

More Medicaid . . . and More by Phil Runyon

10/21/2013

More Medicaid . . . and More

There's new legislation on Medicaid - not Medicare - in New Hampshire that you should consider carefully.

Let's get at it by way of examples. Say you received a generous gift of $50,000 from mom less than 5 years before she needed Medicaid benefits for nursing care. As you know if you read my last Medicaid entry, there's a "look-back" period of 5 years before a gift like that would escape consideration by the Medicaid folks.

What the new law says is if you're the recipient of that gift, you can be held liable to the nursing home for mom's bill there, up to the full amount mom gave you. It's a complicated calculation to determine the actual reimbursement obligation, but the takeaway is that you're running an expensive risk if you spend those funds before the 5 year look-back period expires. Instead, what you probably should do during that time is deposit the windfall in a safe investment instrument, and then wait until the 5th anniversary of the gift to break out the champagne. If you've spent the funds prematurely, you may find a Medicaid lien on your own assets when you no longer have enough to pay mom's nursing home bill.

The other shoe that the new law drops may land on someone who holds a power of attorney for the nursing home resident. So let's say that you have mom's POA to pay her bills, but now she's run out of money and doesn't have enough to pay the nursing home. If you neglect to file for Medicaid after she takes up residence there, resulting in bills that might have been paid by Medicaid, you could be held personally liable for them in this instance, too. The lesson here is that on the same day you move mom into the nursing home, you'd better leave time to get to the Medicaid office to begin what I referred to last time as her "resource assessment". Remember, that's the process of reviewing her income and assets to find out whether she qualifies for Medicaid from day one - or has to do some "spending down" of her funds beforehand.

OK, that's the sobering essence of the new Medicaid law. But permit me, if you will, to make several general observations that are prompted by this state of affairs. Many of us serve as agents under the POAs of elderly or disabled parents, siblings, even friends - and when Medicaid isn't an issue at all. We think of ourselves as generously helping out the people we care about and it makes us feel good - am I right? But we certainly don't expect to be exposing our own assets to any of their obligations, at least as long as we don't run off with the funds - right again? The rub may come, though, when we're not paying as much attention as perhaps we should. Maybe mom has stock in a firm that's well known to be on the rocks, but we don't sell the investment before it finally tanks. Maybe we leave her funds languishing in an anemic checking account while the market is soaring, or in a mutual fund where the fees are eroding the non-performing principal. Or maybe we don't ensure that her taxes or insurance premiums are being paid, and penalties or losses accrue that might have been avoided. The list is as long as the ways we could mess up our own affairs.

The question is, who's responsible when our neglect - there's that word again - causes those losses? Look at it this way: If we fell asleep at the wheel while driving mom's car and we ran it into a tree, we'd certainly have to pay up for the injuries and damages. I'm suggesting the same thing could happen if we don't pay attention while in charge of her financial vehicles. Don't get me wrong, though. I'm not suggesting we abandon all our good-guy tendencies toward our loved ones; I'm just urging that if we've taken on responsibilities under their POAs, we'd better sit up and pay attention - and drive carefully. We wouldn't want to wreck our own car, and we certainly don't want to pay for wrecking someone else's.

Posted 10/21/2013

Medicaid Untangled by Phil Runyon

10/11/2013

Medicaid Untangled

Trying to untangle the knot of myths and confusion about the Medicaid program is a daunting task, and it requires a huge disclaimer: There's no way to do this subject justice in a few cryptic paragraphs when the manual that describes all its wrinkles and exceptions is thicker than a phone book.

Medicaid is, plain and simple, a joint state/federal welfare program, like food stamps. Instead of covering the groceries, however, it's intended to pay nursing home expenses for people who need that level of care but don't have the income and assets to afford it. It's entirely different than Medicare, a largely age-based assistance program that has nothing to do with a person's resources.

Let's start with mega-myth #1 - the one that just won't die: A couple must first spend everything they've got on the nursing home, including the proceeds from selling their house, before the one who needs skilled nursing care can qualify for Medicaid assistance. Not true to any extent.

Here's the way it actually works. When a person begins to need nursing care, the couple (or at least the healthy spouse) goes into the Medicaid office (it's in Keene for our area) for what's called a "resource assessment" to determine whether they qualify, and if not immediately, what they need to do to qualify. There are 2 components to qualification: income and assets. The only income that matters is whatever Social Security or pension income the nursing home spouse receives. The spouse still at home can keep all of his or her income, no matter how much it is. If the nursing home spouse receives more income than what Medicaid would pay the nursing home per month (currently about $4,800), less any amount the stay-at-home spouse may need from that income to pay regular living expenses, then the whole process stops there and the couple just has to come up with the funds to pay the nursing home. Sometimes, though, even if Medicaid itself won't kick in, the couple may be able to negotiate an amount to pay the nursing home that's less than the regular private pay rate, but still more than Medicaid would have come up with.

But let's say the couple clears the income hurdle. Then the assessment looks at the couple's assets - and both spouses' assets are in the pot no matter whose name is on them. Also, not just what the most recent bank statements show, but whatever the past 5 years' records would reveal, i.e., helping the grandkids with tuition payments, sending the little ones out on the Big Red Boat, buying a condo for a recently-divorced daughter - or basically doing anything else during the last 5 years that caused the couple's assets to be given to or used for someone other than themselves. That's the so-called "look back" period you hear everyone whisper about, and it's the real thing - and it's not a myth. For that reason, it's wise to keep all those financial records for at least the past 5 years to avoid having to pay to have them re-created at banks and investment firms. Since you're already keeping them for 7 years for tax purposes (you are, right?), that shouldn't be a new assignment. For assets transferred more than 5 years ago, those are off the radar screen entirely and don't figure in the assessment equation at all.

So now we're getting to the real nub of the issue: What assets do get counted? Not your principal residence if there's still a spouse living there. Not your car or other personal belongings like jewelry, art work, tools, or the 48" flat screen. Not your burial plots either. Or term life insurance that doesn't have any current cash value. And most importantly, not half of your financial assets - bank accounts, IRAs, cash value of insurance or securities - up to a total of about $115,000 currently. As an example, let's say all that countable stuff adds up to $300,000. Your spouse at home can keep $115,000 of it (that's OK because it's less than 1/2 of the total) and the rest will need to be spent down to $2,500 before Medicaid starts picking up the tab. That means you've got to use up $182,500.

But the key thing to remember at this point is that the spouse at home doesn't need to spend that $182,500 of hard-earned funds on the nursing home. They can be spent on things of real value to the family. Like paying off the mortgage on the house, back real estate taxes, or finally catching up with all that deferred maintenance (new roof, new furnace, new appliances). Even buying a house or condo for the at-home spouse if there's been no personal residence. Or paying off legitimate debts like car loans, credit cards and uninsured medical bills. In short, it wouldn't take a lot of imagination to see where to spend most of those funds without paying them all to a nursing home each month.

There you have it in a very tine nutshell. By the way, besides spending up the excess assets, there are a number of planning techniques to consider depending on the circumstances - and I don't mean giving all your assets to your kids and hoping they'll help you out if you need it!

Posted 10/11/2013

Post-Nuptial Agreements Now, Too! by Phil Runyon

8/26/2013

Post-Nuptial Agreements Now, Too!

Remember when I went on and on awhile back about pre-nuptial agreements and how they absolutely positively have to be negotiated and executed well before the nuptials are spoken? Well anyhow, you can forget about all that.

That's because our resourceful Supreme Court has just pronounced that it's legal after all to enter into a post-nuptial agreement. In other words, even if you got too wrapped up in the wedding planning to ink the agreement before the big day, now you can still do it after the honeymoon.

As with the pre-wedding type, there are a few nagging requirements: The agreement needs to be fair and reasonable; it can't be the result of fraud or duress; and it has to include a full disclosure of each party's assets, so each will be clear about what's being given up in the process.

Then, if all the T's are crossed and I's are dotted, the result can include a waiver of any other rights to your property if the bonds of
matrimony don't take or if it results in your demise. That's pretty significant because up until now, if you divorced (still about 1 in 2 odds) or if you wanted to disinherit your spouse (banish that thought!), you couldn't predetermine the outcome.

That is, after the wedding vows were spoken, even if you decided what each of you would take away in the event of a breakup - maybe you the FL condo and (s)he the ski lodge - it wouldn't be binding when the split
occurred. And even if your will left your betrothed little or nothing - because (s)he had plenty of her/his own stuff - there could still be a claim to a pretty hefty share of your stuff anyhow. These new agreements will allow you to decide those issues ahead of time, and then go your separate ways, once and for all, in peace. OK, maybe peace is a bit much, but you get the idea.

Posted 08/26/2013

Too Good to be True? by Phil Runyon

5/21/2012

Too Good to be True?

First a disclaimer: I'm certainly not in favor of people evading their legal obligations!

Having said that, I'll also state that much of what lawyers do is based on helping people preserve their assets.

OK, so how do these apparently conflicting approaches get reconciled?

One answer is by means of an "asset protection trust", a new concept now on the books in New Hampshire that allows people to protect their nest eggs from adverse claims under certain circumstances, without giving up all access to or control of the property in trust. In fact, the trust can be written very flexibly, say, to allow for income and principal distributions back to the owner; to allow the owner to veto distributions to others; to let the owner direct how the assets will be distributed at the owner's death; to permit the owner to remove and replace the trustee; and even to have the debts, taxes and expenses of the owner's estate paid by the trust.

So what's the catch? Well, the trust can't be used to avoid claims already in existence when the assets are transferred into it - that would be a fraudulent transfer, which I've already said is a no-no. It also can't be used to prevent the claims of current or former spouses to alimony or child support; and it can't be used to defraud even future creditors, if the result of the transfer to the trust is to make the owner insolvent and incapable of paying even normal obligations. And just in case your wheels are really spinning, it can't keep the trust assets from being considered on a Medicaid application - sorry about this last one!

When, then, might such a trust be useful - and legal? Let's say the owner is a single person in a risky occupation - maybe a surgeon or a daycare center operator who doesn't want to spend all their income on liability insurance to protect their critical assets. Or maybe a budding entrepreneur who is about to start up a new business and doesn't want to lose everything if it goes under. Or perhaps a young person who has inherited/earned substantial assets and wants to protect them from future claims, even those of a future spouse.

I've glossed over a lot here to keep it simple, but I think you get the picture. As long as you're not trying to escape something bad or costly you've already done, or to avoid obligations to your family members, or to make yourself incapable of paying even your cable bill, then an asset protection trust might be something to consider under the kinds of circumstances I've mentioned. New Hampshire may be stodgy in some respects (like being the last state where you don't have to wear a seat belt - live free and die!), but it's way out ahead of the curve when it comes to trust law.

(Posted on May 21, 2012)

Long Term Care Insurance by Phil Runyon

3/16/2012

Long Term Care Insurance

Attorneys who do estate planning are often asked how to structure their clients' affairs so their assets aren't all taken to pay nursing home expenses. Many of them have been told to turn over all their property to their children, so it will appear they don't have sufficient assets to pay for nursing home care and they'll qualify for Medicaid, the program that subsidizes those expenses for people in need.

The problem with that course of action is that it jeopardizes the parents' financial security much more than the threat of nursing home expenses. If children become the owners of their parents' assets, the parents no longer have any control over providing for their future needs, and their assets are exposed to all the financial challenges facing their children. If their children divorce or get sued or go bankrupt, or if their children simply need the assets to pay their own expenses, the assets the parents were trying so hard to protect will be at risk to a much greater extent than being needed for long-term nursing home care.

The more rational way to protect against devastating nursing home expenses is long-term care insurance. Permit me a personal testimonial. My parents purchased such a policy years ago, without any recommendation from me, I must confess. It covered not only care in a nursing home, but also the expense of having caregivers in their home, where they've been able to stay for years longer than if the only recourse for benefits was to move to a nursing home. Although the premiums weren't insignificant, the obligation to pay those premiums ceased once they started receiving benefits, and my parents quickly recouped all the premiums they'd paid. At this point, they've received infinitely more than they ever paid out - and they've kept control of their own assets in the meantime.

So, here's what I suggest. Rather than trying to impoverish yourselves by risky transfers of assets, or worrying that you can't afford any more expensive insurance, decide just how much you could/would pay to put your mind at ease about this issue. Then consult a long-term care insurance specialist for a no-strings-attached estimate. The companies that issue these policies - and most are huge reputable carriers whose names you know - offer a cafeteria of benefits to choose from, which an independent agent can help you navigate to build a policy that meets your basic needs without exceeding your budget. As you can imagine, the key variables will be the amount of the daily or monthly benefit (even $100 per day will help significantly), the number of years the benefits will continue (3 years is the average nursing home stay), and whether home care is covered as well as care in a nursing home (very important to include!).

If you'd like to pursue this option and need a referral to a qualified agent who won't try to twist your arms, please let me know and I will be happy to provide several names. I'm not in this business myself, but there will be plenty of satisfaction knowing that clients haven't resorted to other potentially dangerous tactics.

(Posted March 16, 2012)