Another Major Insurer To Stop Issuing Long-Term Care Policies

Following on the heels of MetLife's announcement last November that it was going out of the Long-Term Care Insurance business, Berkshire Life -- the subsidiary of Guardian Life that writes LTC policies -- has announced that it too will stop issuing LTC policies by the end of 2011.

As noted in this article, the LTC insurers have been plagued by a common problem:  too few policyholders have dropped the policies after issuance, and too many people (at least from the insurers' standpoint) are filing claims. Essentially, the actuaries improperly evaluated these policies, leaving them under priced and underfunded.

So, what does this mean to the consumer?  LTC policies will be harder to come by, and will surely be more expensive at any age range.

This unwelcome development makes proactive Elder Law planning, guided by an experienced Elder Law attorney, all the more important. Under current law, a well-drafted and appropriately funded Medicaid Asset Protection Trust is the premier long-term care planning tool in the Elder Law attorney's tool box.  A Medicaid Asset Protection Trust will render assets funded into the Trust as "exempt" for Medicaid spend-down purposes five years after the assets are funded into the trust.  The "Trustmaker" may retain all income derived from the trust assets, while they will not have access to the principal assets.  Principal assets, however, may be distributed to the Trustmaker's children or other designated beneficiaries during the Trustmaker's lifetime and after his or her death.

A primary residence is often an ideal asset for funding into a Medicaid Asset Protection Trust.  The Trustmaker may retain (a) lifetime occupancy rights, (b) property tax exemptions under New York State law (and likely in many other jurisdictions) and (c) the capital gains tax exemption (currently $250,000 for an individual and $500,000 for a married couple) if the residence is sold during the Trustmaker's lifetime.  While our clients often elect to fund liquid assets into a Medicaid Asset Protection Trust, it is especially helpful to fund real estate and other illiquid assets into these trusts, as it is much more difficult to engage in "crisis" Medicaid planning with illiquid assets than with liquid assets.

Thinking of Doing a Life Estate Deed? Think Again!

As people enter their "golden years," they become more acutely aware that they may someday need long-term care assistance. They may hear horror stories from family and friends about other people in similar circumstances who had to go to nursing homes and had their assets wiped-out by the costs, which in the Hudson Valley exceeds, on average, $10,000 per month.

Given the prospect of the potential loss of their life's savings, people understandably look for ways to protect their assets.  One commonly used strategy over the years has been for parents to transfer title to their home to their children, with the parents retaining a "life estate" interest.  On its face, a transfer of a home with a retained life estate holds great appeal.  It is a simple strategy to implement, and the execution of the deed immediately triggers commencement of the five-year "look back" period imposed by Medicaid for asset transfers.  That is, so long as the parent does not require long-term care for at least five years after executing the life estate deed, the home will no longer be subject to a lien by the county Department of Social Services should the parent thereafter apply for long-term care Medicaid coverage.  Because the parent retains "life rights" in the home, they retain sole and exclusive occupancy rights to the home, and ll property tax exemptions, including STAR, Enhanced STAR, and Veteran's.

However, there are serious disadvantages associated with the life estate deed.  This recent news article highlights one of the greatest deficiencies of this planning tool. As described in the article, an ailing 81-year-old widow, Joan Fleming, owns a home on Long Island that is valued at $300,000.  Some years ago, Mrs. Fleming executed a deed to her two children, reserving to herself a life estate interest.

Unfortunately in Mrs. Fleming's case, "the estate planning move went horribly wrong" when her son Michael subsequently filed for bankruptcy.  Since upon execution of the life estate deed Michael owned a vested interest in the home, the bankruptcy court ordered that Michael's 50% share of the remainder interest be put up for public auction to satisfy his creditors.

As a practical matter, Mrs. Fleming's life rights cannot be disturbed by any successful bidder for Michael's share of the remainder interest in his mother's home.  But since Mrs. Fleming's motives for engaging in this planning strategy almost certainly included preserving the value of the home for her children, these developments will undermine her goals.


What could Mrs. Fleming have done differently?  She, and her children, would almost certainly have been better served had she instead transferred her home to a Medicaid Asset Protection Trust ("MAPT").  Like the deed with a retained life estate, transferring a home to a MAPT triggers commencement of the Medicaid look back" period upon execution of the deed.  Unlike the life estate deed, however, none of the children or other trust beneficiaries receives a vested interest in the home during the parent's lifetime.  Had Mrs. Fleming conveyed her house into a MAPT, Michael's creditors would have had absolutely no claim on his interest in the home during Mrs. Fleming's lifetime.  Even betters, were such a MAPT structured to provide that after Mrs. Fleming's death the trust property was to be held in separate creditor protected trusts for each of her children, Michael's creditors would even then be unable to seize Michael's interest in his mother's home, regardless of the extent of his indebtedness.