Options for Care When Home is No Longer an Option

While people almost always prefer to stay in their homes as they age, sometimes circumstances make this impractical.  All the same, a person who is unable or unwilling to live alone at home often will not need the level of care provided by a nursing home.  Fortunately, there is an array of “intermediate” living arrangements that may be appropriate for seniors with different needs and circumstances.

One popular option is the Continuing Care Retirement Community (“CCRC”).  A CCRC provides a “tiered” approach to addressing the aging process.  A person who can live independently would pay an “entrance fee” that can range from the low six figures to up to $1 million depending upon the facility, the type of apartment unit chosen, and the refund option, if any, selected.  People paying the lowest entrance fee would not receive any of the fee in return upon leaving the facility, and nothing would be paid to their heirs upon their death.  Those paying the higher buy-in fees would be entitled to a refund upon departure or death, typically ranging from 50% to 90%. In addition to the entrance fee, the resident would also pay a monthly fee typically ranging from $3,000 to $6,000 that usually includes one meal a day and unlimited use of the CCRC’s facilities, which may be quite luxurious.
 
One of the key benefits of a CCRC is that if a resident’s health declines, the facility offers varied levels of care that are included as part of the entrance fee and the monthly fee. A person may move from the independent living apartment to an assisted living unit, and finally to a nursing home unit, all within the same facility.  For married couples, this may be especially appealing since the “well” spouse can stay in the independent living apartment and still remain close to their spouse. 

New York also boasts a significant number of traditional Adult Homes, also known as Assisted Living Residences (“ALRs”). ALRs are licensed adult homes or enriched housing units that house five or more adult residents.  There are presently over 7,700 licensed ALR beds in New York State.

To pass muster, ALRs must provide twenty-four hour on-site monitoring, personal care services and/or home care services, daily meals and snacks, case management services, and an individualized service plan.  ALR costs are not covered by Medicaid or Medicare, although a resident’s medical care may be covered by one or both of those programs.  Long-term care insurance will usually (but not always) cover ALR costs, which can range from $1,500 to $6,500 a month.  There are currently approximately 550 ALR beds in Orange County.

Another level of care is the Enhanced Assisted Living Residence (“EALR”).  These facilities enable persons who require fairly significant assistance with daily needs such as walking or who may be incontinent to reside as independently as possible. With limited exceptions, EALRs are not suitable for persons requiring 24-hour skilled nursing care. 
 
New York also boasts a number of facilities covered under the Assisted Living Program (“ALP”).  An ALP is available to persons who are medically eligible for nursing home coverage but can be cared for in a less intensive setting.  Unlike ALRs, payment for residency at an ALP may be covered under the Medicaid program.  To be eligible, the resident is permitted to retain “non-exempt” resources of up to $14,400, and can retain monthly income of $1,404 per month.  Since an ALP is under the Community Medicaid program, there are no asset transfer penalties or “look back” periods imposed for Medicaid eligibility, unlike the nursing home Medicaid program that incorporates a 5-year look back period and imposes asset transfer penalties for non-exempt asset transfers made within the 5-year look back period.

While ALPs are attractive on many levels, the reality is that there are only 4,200 ALP beds throughout New York State, and only 95 eligible beds in Orange County, leaving many otherwise eligible folks searching for other options.

Aging is fraught with many emotional and possibly physical difficulties.  Having to to leave the comforts of one's home is a stressful reality for many seniors.  Given the range of choices available, it may be prudent to consult with an elder law attorney so that you can be sure that you are choosing the best option for your circumstances.

Estate Planning and the Value Proposition

About once a week I’ll receive a call that goes something like this:  “Hello Mr. Shapiro, my name is Mary Jones.  I need to update my will -- it’s really simple. I know exactly what I want to do, so can I just give you the information on the phone and then come in to sign?”

Such a request underscores a serious misconception about what constitutes an effective estate plan, as well as the appropriate role of an estate planning attorney.  Some people expect their attorney to serve merely as a “scrivener” who records the client’s dispositive wishes and transforms that information into a legally effective will.  The result of that scenario will be a “word processed” will that, while satisfying the legal requirements for creation of a valid will, in substance is no different than what the client could have done for themselves using a do-it-yourself online website.  

But doing such a “fill in the blanks” estate plan provides the client with a false expectation that the “estate plan” (I use that term loosely) in fact assures the client that their goals will be addressed. Almost inevitably the client’s true objectives will be frustrated, although the client will never know it since the ultimate success or failure of the plan will not be known until after their death – and sometimes not for many years after their death.

For example, married couples routinely own assets as joint tenants with rights of survivorship.  It is simple to set up, it gives each spouse comfort that they have “skin in the game,” and title automatically passes to the surviving owner upon the first death without the need to go through probate.  

But joint ownership is fraught with pitfalls.  The assets are only truly owned by the surviving joint tenant, who is free to dispose of the assets as he or she desires after the first owner’s death.  Perhaps the surviving spouse remarries and then dies before the new spouse.  Even if the deceased spouse has a will or trust leaving assets solely to the children of the first marriage, in the absence of a prenuptial agreement, the second spouse can assert spousal rights to at least one-third of the assets of the deceased spouse.  Even if there is no remarriage, the jointly owned assets may be exposed to estate taxes upon the second spouse’s death, will likely be subject to probate, will not be Medicaid protected, and will likely be exposed to the surviving spouse’s creditors.

Proper estate planning requires that an attorney well-versed in current estate planning and elder law information and techniques gather a significant amount of financial and personal information about the client, their family, and other “key people” in the client’s life. Only after the attorney has learned about the family, their assets, and their planning objectives can the attorney work with the family to craft a customized estate plan that will address all of the client’s planning goals.

A significant part of the attorney’s role is to educate the client about the myriad planning possibilities, and to challenge the client’s assumptions.  For example, most people intuitively assume that the “appropriate” way to leave an inheritance to an adult child is to simply leave it to them as an outright distribution, rather, than in a trust for the child.  People are wary of “controlling from the grave,” and they incorrectly believe that leaving a child’s inheritance in trust necessarily means that the child will not have any control of, or access to, their inheritance.  But after they have been informed that they can establish a trust for a child’s inheritance that will allow the adult child to have access to the trust assets as trustee while the same time shielding the assets from the child’s creditors, a divorcing spouse, or the dissipation of assets as a result of a catastrophic illness or injury, clients almost always choose to leave the children’s inheritance in some form of a trust.

It is important to keep in mind that hiring an estate planning attorney should not be treated in the same manner as if you are purchasing, say, an appliance.  Seeking the "cheapest" professional without focusing on the value you will (or won't) receive for your money is likely to lead to disappointment - if not for you, then certainly for your heirs when they need to settle your estate and are left with chaos and the resulting additional costs resulting from a "word processing" based estate plan that provides no correlation between the planning documents and title to the client's assets.

Proposed Bill in Congress Would Permit Disabled Individuals to Create Their Own Special Needs Trusts

Special Needs Trusts are often vitally important lifelines providing the means of financial security for persons with disabilities.  One flaw in the current system is that "self-settled" special needs trusts  that are to be funded with the disabled person's own assets and/or income can only be created by a parent, grandparent or legal guardian for the disabled person, or by a court.

This statutory restriction effectively requires mentally competent but disabled individuals to find a permitted third party to "create" the trust.  If there is no available parent or grandparent, then the disabled person must file a time consuming and often expensive court petition to have the special needs trust put into effect.

Hopefully this unnecessarily burdensome restriction will be a thing of the past.  On May 23rd, Reps. Glenn Thompson of Pennsylvania and Frank Pallone of New Jersey introduced the Special Needs Trust Fairness Act of 2013. If enacted, this bill will permit competent adult disabled beneficiaries to create their own self-settled special needs trusts.

More information about this exciting development can be found here.

Life Insurance with Long-Term Care Access: Covering all the Bases

Most people begin thinking about long-term care insurance – if they think about it at all – once they reach their 60’s or beyond.  Unfortunately by that age the cost may seem to be prohibitive to many of those interested in purchasing the product, or health conditions may render an applicant uninsurable.  And frankly, most people believe the need for long-term care will only apply “to the other guy.”  So, the reasoning goes, “if I don’t use the insurance, then all of my premium payments will be ‘wasted.’”

But the fact is that approximately 50% of all seniors will need at least some form of long-term care.  With the costs for care increasing by leaps and bounds – in the Hudson Valley, the cost for in-home care will run approximately $250 per day, and nursing home care is at least $350 per day -- very few people have sufficient resources to cover the costs for any extended period.  And, with governmental budgets shrinking, it is unlikely that Medicaid will continue to be available to cover a large chunk of long-term care costs for the ever-growing baby boomer population.

A possible solution for those reluctant to buy long-term care insurance is the availability of a growing number of “hybrid” life insurance policies that provides lifetime access to the death benefit to cover long-term health care costs.  These hybrid policies have been gaining in popularity, with sales increasing by 19% in 2012 over the previous year.

The hybrid policy generally works as follows: the policy provides a fixed death benefit and includes a chronic illness rider. Should the insured become disabled – typically defined as suffering from cognitive impairment or needing assistance with two or more “activities of daily living” such as dressing, bathing, toileting, transferring or eating -- then the death benefit can be “accelerated” with payments typically of 2% of the death benefit per month to cover long-term care costs. A hybrid policy with a $500,000 death benefit, for example, would provide up to $10,000 per month for 50 months for long-term care needs.  To the extent that long-term care is not needed, the remaining death benefit would be paid to the surviving spouse or other heirs. 

A potential downside is that ownership of a life insurance policy in your individual name would cause the death benefit to be includable in your taxable estate, which could result in estate taxes being owed on the death benefit.  For example, if an unmarried person added a $500,000 hybrid life insurance policy to an existing $1 million estate, the resulting $1.5 million taxable estate would require payment of a New York estate tax of approximately $65,000.

One strategy to minimize the likelihood that the life insurance will result in an increase in estate tax liability is to utilize a "Special Needs Irrevocable Life Insurance Trust" established by the insured's children to own the policy.  The parent would make cash gifts to the children, who would use the cash to pay the premiums for the life insurance policy owned by the trust.  Should the insured require financial assistance to pay for long-term care, the accelerated death benefit can be triggered, with the trustee (usually the children) having discretion to use the benefits to contribute towards the parent's long-term care needs.  If the parent is Medicaid-eligible, the children would not be forced to distribute money from the insurance policy to cover the parent's long-term care costs, and the death benefit can remain intact.  Adding icing to the cake, since the parent has no retained ownership interest in the policy, the death benefit would not be included as part of the parent's taxable estate.
 

Powers of Appointment – An Essential Tool For Building Flexibility Into Your Estate Plan

The ideal estate plan is one that not only satisfies all of a person’s current goals and objectives, but also provides flexibility to allow for changes both during the person’s life, as well as changing circumstances affecting the lives of their children and other loved-ones.  People typically recognize that they can modify wills and revocable trusts at any time.  But they are often surprised to learn that even an irrevocable trust – such as the Medicaid Asset Protection Trust that is commonly used as a Medicaid planning device – can be drafted to allow for changes not only in the choice of beneficiaries, but also the manner in which a beneficiary will receive an inheritance.

The magical planning tool that allows for such flexibility is known as a “power of appointment.”  A power of appointment may be either “general” or “limited” (which is also sometimes referred to as a “special” power of appointment).  A general power of appointment authorizes the power holder to direct the property over which the power is granted to any person or entity.  A limited power of appointment grants the power holder authority to direct the designated property to a more limited class of persons or entities, often limited to the descendants of the person granting the power.

Powers of appointment are typically included in wills and trusts, but can also be incorporated in other legal instruments such as deeds.  Why would someone consider incorporate a power of appointment as part of their estate plan?  Because life happens!  As but one example, one spouse will sometimes outlive the other spouse by many years, and changing circumstances may render the original planning unsatisfactory to the surviving spouse. 

Assume, for example, that in 2007 Sam and Mary met with their attorney to work on their estate planning.  The couple agreed that upon the first spouse’s death the deceased spouse’s assets would be left in a protective trust for the surviving spouse, and after both of their deaths, their combined assets would be divided equally between their two children, Paul and Jennie.  After learning the many benefits of leaving assets in protective trusts for their children, Sam and Mary executed revocable trusts providing that after both of their deaths the couple’s assets were to pass equally into protective trust shares for their children.

Relying on their attorney’s sage advice, Sam and Mary’s revocable trusts included limited powers of appointment authorizing the surviving spouse to leave the deceased spouse’s trust assets among any of their descendants in any manner.  Each trust further provided that the power of appointment would be deemed exercised if the surviving spouse were to include a provision in their will or revocable trust specifically exercising the power.  In essence, each spouse afforded the surviving spouse – whoever that would be – with the “last look” at the family’s circumstances to determine if the equal asset distribution included in the original plan remained desirable.  

Fast forward to 2009 when Sam passed away.  Soon thereafter Paul, who had a seemingly stable life, saw his world fall apart.  He was laid off from his job as an executive at a large company, and at age 53 found himself unemployed for the first time in his adult life.  Six months later, as the tension in his home continued to build, Paul’s wife Sally moved out with their three children and filed for divorce. 

Mary, being distraught over her son’s changing circumstances, called her attorney for advice. While she was helping out Paul with periodic cash gifts to help keep him going, she wondered if she should change the children’s inheritances in light of the changing circumstances. She spoke to Jennie, who told her mother that Mary should feel free to leave a larger inheritance for Paul.   Mary’s attorney told her that not only could she leave more of her own trust assets to Paul’s trust share, but that she could also exercise the power of appointment provided to her under Sam’s trust to make a similar allocation of Sam’s trust assets to Paul’s trust after Mary’s death.  Accordingly, Mary decided to amend her revocable trust to leave 75% of her own trust assets to Paul, and exercised the limited power of appointment granted to her by Sam to leave the same percentage of Sam’s trust assets to Paul.

Another common use of a power of appointment is for a person executing an irrevocable trust to retain for himself the power to modify the beneficiaries under the trust without having to formally amend the trust.  Even if the retained power is never exercised, the mere inclusion of the power in the trust instrument will cause the trust assets to be includable in the trustmaker’s estate, thereby insuring that the trust assets will receive a “step-up” in cost basis for capital gains tax purposes.

In my experience powers of appointment are woefully underutilized, presumably because of a lack of understanding of the many benefits that this legal tool provides.  But any serious estate planning discussion must include a conversation about how powers of appointment may be incorporated into one's estate plan to ensure that the desired objectives can be realized.

Pennsylvania Court Ruling Allowing Support Action Against Adult Children For Parents' Nursing Home Costs Allowed to Stand

The Pennsylvania Supreme Court recently declined to hear a Pennsylvania man's appeal of a lower court ruling that held that the man was responsible for payment of his mother's $93,000 nursing home bill under Pennsylvania's "filial responsibility law."

In the case, Health Care & Retirement Corporation of America v. Pittas, John Pittas's mother entered a Pennsylvania nursing home car after being in an auto accident. She subsequently left the nursing home and moved to Greece, leaving an unpaid bill of approximately $93,000.  Relying on Pennsylvania's filial support law, which requires adult children to provide support for indigent parents, the nursing home sued Mr. Pitta for payment of his mother's bill.  The nursing home prevailed at trial, with the verdict upheld by an appellate court and now by the Pennsylvania Supreme Court.

Pennsylvania is one of 29 states that presently has filial support laws on the books. As shown by this map, New York is not one of them. However, while these laws have been rarely enforced to date, the result in the Pittas case may well lead to an explosion in filial support claims as cash-strapped nursing homes seek to recover for patients' unpaid bills, and states such as New York that presently do not have filial support laws on the books may consider such legislation as a means to reduce reliance on Medicaid expenditures for nursing home care.