Finances and estate planning

Paying for care

The majority of older adults will need help in the last few years of their life. Very few are completely independent through to the very end. The average time of assistance is four to five years. At first the tasks involve things such as cooking, driving, housekeeping, and finances. Over time, more-intimate assistance will be required, such as bathing and dressing. Perhaps even incontinence care.

Families shoulder much of this responsibility. But there are also services available to help, such as in-home caregivers, assisted living, memory care, and nursing homes. The challenge is how to pay for them.

Most of the services will have to be paid for privately (out of pocket) rather than being paid for by Medicare, the federal government’s health insurance program. Medicare is only for medically necessary services provided by medically trained professionals. Hour for hour, most of the care needs of aging adults do not require a medically certified individual, and thus must be paid for privately.

Funding for nonmedical supportive services may come from personal savings, equity on the house, or long-term care insurance. Qualifying veterans may be eligible for Aid and Attendance benefits. Sometimes local grants may be available that enable families to be paid to provide care, or for nonprofits to provide care at low or no cost.

Medicare
Medicare is a federal government program that covers doctors, labs, prescriptions, and hospital stays. It will cover home healthcare, with visits by a nurse or physical therapist to homebound patients with a short-term need, perhaps following a surgery such as a hip replacement. Home health is for people who are likely to recover or at least regain functioning. Hospice is a service for the terminally ill. It provides weekly visits from a nurse to manage pain and other symptoms, as well as someone to give the patient a bath two or three times a week.

Medicare will also cover limited stays in a skilled nursing facility, again usually after a hospitalization (a stroke, for instance, or a bypass operation).

If your loved one has original Medicare, there is usually a deductible each year and copayments, although supplemental insurance (sometimes called “Medigap”) can be purchased to cover them. Some people elect to enroll in Medicare Advantage programs that simplify billing. Instead of a supplemental insurance and a full choice of providers, they pay just one premium and agree to go only to the doctors and other medical service practitioners who are part of the plan’s network.

A nonmedical caregiver in the home, or the cost of assisted living or memory care, is not a covered benefit.

Medicaid
This is a program for low-income individuals that is funded jointly by the federal government and the state. Each state has particular rules about what is and isn’t covered. Generally, you can think of Medicaid as the supplemental insurance provided by the government. But some states let Medicaid subsidize the types of care not usually covered by Medicare. They include caregivers in the home or nonmedical care provided in a group setting, such as assisted living or memory care. Talk with a care manager to learn more about options in the state where your loved one lives.

Only people with very little cash can qualify. It might be tempting to get rid of assets to qualify for Medicaid, but it’s not that simple. The government will go back and check the past thirty to sixty months to look for large transfers, such as ownership of the house or checks written to family members. This could disqualify your relative from the Medicaid program.

A house can be kept so that a spouse does not have to become impoverished and evicted from the home. But as soon as both the patient and the spouse pass away or move to nursing homes, the government require that the house be sold to repay the taxpayers for the expenses incurred by Medicaid.

The laws are extremely complicated and vary by state. There are attorneys who specialize in what’s called a “Medicaid spend down.” If you think Medicaid is a program you will need to rely upon, start talking with an attorney immediately. This requires substantial long-term planning and a deep understanding of what the estate will ultimately owe the government.

Community programs
Some nonprofits or local government agencies offer assisted living or memory care services. More likely, however, are ones that offer small slices of eldercare support. For instance:

• Meals on Wheels. A single meal delivered each day to homebound individuals
• Congregate dining. Subsidized lunches offered at senior centers for nutrition and social support
• Transportation programs. Volunteer drivers or “paratransit” minivans that offer door-to-door rides to doctor visits or grocery shopping
• Adult day centers. Structured daytime activities are provided for people with dementia so their family caregivers can get some time off

There may be eligibility requirements for these services, or a sliding-fee scale.

Veteran benefits
If the person you care for served in the armed forces during combat years, they may be eligible for services provided by Veterans Affairs (VA). They can range from doctor visits and hospital care, to nursing homes and memory care. Qualifying veterans can receive monthly stipends to help pay for home care if they meet the requirements for the Aid and Attendance program.

Long-term care insurance
According to AARP, half of the people over age sixty-five will need to pay for supportive care for a period of two years or less. Some will need more.

Understanding that these services are not covered by Medicare, insurance companies have developed policies for “long-term care” (LTC). Your loved one would need to have purchased it themselves (unless it was a benefit of their employer) and to have kept up with monthly premiums. (More recently, these policies are sold as a hybrid of LTC insurance and life insurance.)

There are very strict rules about activating the policy. If you think your relative is going to need help soon, read the fine print.

• What type of care is covered? In-home caregivers? Assisted living? Memory care? Nursing homes?
• Is there a “benefit trigger”? Often you will need a letter from a doctor confirming that assistance is needed, and specifically what types of assistance: Meals, bathing, walking, using the toilet. If your loved one has Alzheimer’s and can no longer live alone safely, the doctor needs to conduct a test and use the results to describe the degree of cognitive impairment.
• Is there an “elimination period”? You may need to pay for the first few months out of pocket. This is why you want to check on the policy early. Perhaps your relative needs help only one day a week (or you need the respite!). Get started early so you are paying when the need is low and will have completed the elimination period by the time the need is greater (and more expensive).
• What is the cap on the benefit? Sometimes this is expressed in terms of how many dollars the policy will cover before it expires. Sometimes it’s expressed in the number of years of service it will cover. You want to get started early enough to get maximum benefit. At the same time, if the person you care for has a long-term disease (Parkinson’s, Alzheimer’s), you don’t want to start so early that they outlive the term of the insurance and you have no coverage during the most intensive need for support.

If your loved one has LTC insurance or a hybrid policy, check with the broker to learn more about the particular benefits, trigger, cap, and elimination period.

Reverse mortgage
In many families, the home is the greatest asset. But your loved one may not want to sell and move to finance care. There is a funding mechanism called a “reverse mortgage” that allows the person you care for to extract cash from their house yet remain living in it for the rest of their lives.

The concept is that a qualified lender will advance funds to your relative based on the value of the house. This may be a monthly check or a lump sum. Your relative will owe interest on the money drawn down. Upon leaving the house (by death or by moving to a facility), the loan must be repaid. Typically, this involves selling the house.

This is a very complicated arrangement and definitely requires careful consideration. Questions to clarify include the following:

• What are the origination fees? As with any mortgage, there is a percentage charged just to set up the loan. Compared to a regular mortgage, the fees for a reverse mortgage are quite steep. Be sure to shop around. You may be forced to borrow this extra amount (and then pay interest on it).
• How are taxes and insurance handled? Does the mortgage holder cover this or will you be forced to borrow the money and pay interest on it?
• How will maintenance on the house be handled? Who decides what gets done? Who pays?
• What about a surviving spouse? Do they have to leave once the primary borrower dies or moves out, for instance, to a nursing home?
• What about the heirs? The loan will have to be paid back when the primary borrower dies or moves out of the house. That may mean the house has to be sold. Is there a desire to keep it in the family? If so, how will the loan be repaid?

Because there are so many complex details to consider, it’s best to consult a reverse mortgage counselor who has been approved by the U.S. Department of Housing and Urban Development. Their services are free or low cost. Call 1-800-569-4287 to find out more.

A financial decision maker

During the course of an illness or hospitalization, it may become difficult to get to the bank, file taxes, go to the assessor’s office, or balance the checkbook. (This is doubly so for people who have dementia and permanently lose the ability to make coherent decisions.)

To protect their customers, most financial institutions will not discuss finances with anyone who is not listed on the account. This can become a significant problem if the customer becomes homebound or bedridden. Or if they have dementia.

Because accidents can happen at any age, it’s actually wise for everyone to consider selecting an official decision maker, sometimes called an “agent” or an “attorney-in-fact.”

Choose an agent wisely
Giving someone power of attorney means that individual has the right to make financial decisions in your place. For this reason, the agent must be chosen with care. Most people choose a trustworthy friend or relative. For people in their sixties and seventies, it makes sense to choose younger individuals, because peers or a spouse may have their own health or memory issues that make it unwise to take on this responsibility.

There are also professionals who can be paid to serve as an agent. This is helpful for people who have no children. Or when there is no one else appropriate to take on the responsibility.

Forms
Once the choice is made and the individual agrees to be the agent, all you have to do is fill out a durable power of attorney (DPOA) form. You can download one from the Internet. The form needs to be signed by you, and in most cases, notarized. Be sure to check what the form says is required.

Give the completed form to the agent to keep on hand. Also give copies to the bank, financial planner, and other institutions the agent may need to work with. (For instance, if your agent can make decisions regarding the sale of real estate or the paying of real estate taxes, it would be prudent to send a copy of the form to the land records office.)

Consider the counsel of an estate-planning attorney. While you can fill out a DPOA form yourself, an attorney can give feedback about the choice of an agent. Also, they can advise you regarding limitations that may be set on the individual’s ability to work with bank accounts only, or taxes, or real estate, or stocks. In addition, there are different circumstances outlined for when the agent can step in. An attorney can provide advice about all the options.

Giving someone power of attorney does not mean you lose control of your finances. You can continue to make all decisions and carry out all your transactions as usual. But if something happens and you do become incapacitated, the agent may act in your stead.

A DPOA form may be revoked at any time. Download a “notice of revocation,” complete the form, and have your signature notarized. (You may also need witnesses to attest to your mental state.) Then send the notice to each of the financial institutions you sent the earlier DPOA forms to. You also need to send the revocation to the individual originally serving as your agent.

Why the word “durable” is important. This is one of those odd legalese confusions that underscores the wisdom of working with an attorney.

There is such a thing as “power of attorney”—no “durable” in front of it—that grants an individual the right to manage your affairs, unless you become incapacitated (for example, go into a coma or get dementia). At that point, they lose their authority. Because you are choosing this person to help you when you can’t make decisions for yourself—including if you get Alzheimer’s or go into a coma—you want to select the form that is “durable.”

NOTE: The DPOA document is good only during your lifetime. Upon your death, the agent loses all authority. You need to complete a will or trust to provide for decision-making powers after your passing.

Wills and living trusts

The need to protect your partner is a key reason to get your financial papers in order. You will want to be sure that he or she is not left high and dry, especially if you are living with someone without being married. Inheritance laws do not acknowledge unmarried couples; thus, you must specifically stipulate your wishes regarding your house or other assets. This is particularly true for same-sex partners because surviving family members may not be aware of the partnership or may be unwilling to respect the union.

Everyone over age 18 should have a document that designates whom they want their assets to go to in the case of their death. Generally called a “will”, such papers also can describe who are to be the guardians of minor children in your custody. If you do not have a will, state law will divide your property according to its own formulas. It will even appoint a guardian for your children if their other parent is not able to care for them.

To be legal, a will must meet these requirements:

• You must be mentally capable at the time that you create it.
• The document must state specifically that it is your will.
• You must sign and date the will in the presence of as many as three witnesses.
• The witnesses must sign the will. They are not required to read the document. Their signatures simply affirm that they know it is you signing the will and that you were of sound mind when you created it. The people you choose to be witnesses should not be people who will be receiving assets from your estate.

It is advisable that you choose someone to be your estate’s executor—the person who will manage the distribution of your assets. Give a copy of your will to this individual and keep a copy at home and perhaps one in a safe deposit box.

After death, a person’s estate usually goes into probate, which can involve inheritance taxes and other expenses. It will also take time to distribute all the person’s assets. To spare survivors this ordeal as well as save on taxes, some people choose to make a revocable living trust. This document is similar to a will in that you can determine who receives what after you die. However, it is quite different than a will because you remove your name from your property while you are still alive and put all your assets into the trust.

The laws governing living trusts are very complicated; composing a living trust that truly meets your needs requires the skills of a lawyer. Not surprisingly, living trusts can be expensive. (Beware that there are many online living-trust scams that offer low-cost kits or paperwork. A trust really does need the personalization only an attorney can provide.) One advantage of a living trust is that you spend the money and devote the time to setting it up before you die or are incapacitated, thus sparing your survivors these expenditures. If your estate is not very large, however, a living may not be worth the expense.

To help you learn more about financial decisions and estate planning, Nolo Press, an organization dedicated to “putting the law in plain English,” also has an online encyclopedia with free articles explaining wills, trusts and estates.