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When Do I Start Elder Planning?


By Sam A. Moak

When Do I Start Elder Planning?

The information in this column is not intended as legal advice but to provide a general understanding of the law.  Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstance.

 I am often asked “At what age do most folks get a Will?”  The answer is every age.  While the birth of children cause many to prepare a Will, sometimes it is a big vacation trip or an illness that starts them thinking of a Will.  However, many more do not think of a Will until much later in life.  Unfortunately, you should begin this much earlier than your “senior” years.

 Statistics show that forty million Americans are over the age of 65.  That is 13 percent of the population.  It is projected that by 2050, this number will more than double to 88 million.  Additionally, 5.7 million Americans are over 85 and by 2050, it is projected this number will more than triple to 19 million.  The majority of those over 85 need assistance with their daily activities.  The annual cost of home care alone can range from $55,000 to $75,000 and up to $180,000 for nursing home care according to Genworth (an industry analysis company).  Unless you have been in a vacuum, then you already know our Social Security, Medicare and Medicaid programs are on the brink of failing.  The majority of middle income families can’t afford these costs.

So the question you should be asking is “How can I plan for the cost of long term care?

 Many folks believe Medicare will provide for them.  Wrong.  I have a great deal of personal experience in this area, and have learned first hand, how Medicare works.  Medicare provides coverage for acute care and skilled care, but only very limited coverage for long term chronic care.  To qualify, you must first be hospitalized for 3 days and admitted to a nursing home within 30 days of that hospitalization.  Then you only receive Medicare coverage for a maximum of 100 days, provided there is a skilled need.  Qualified individuals only receive full coverage for 20 days, day 21 through 100 requires a copay of $148 per day.  Adding to this problem, some hospital stays are not being deemed as “admitted,” because they are classified as “in oberservation status.”  Thus, they do not fulfill the 3 day hospital stay requirement.  Medicare fails individuals suffering from long-term, chronic illnesses such as dementia.

 Medicaid is another common option most consider.  However, it is the option of last resort.  While Medicaid does cover nursing home care, there is a cost.  First and foremost, you must qualify.  In order to qualify, you must have depleted your assets down to $2,500.  The problem is that you must be at this below poverty level for 60 months BEFORE you apply.  How many people plan to be broke or give away all their assets, 5 years before they “may” need care?

 Another option is taking out a reverse mortgage on your home.  If you have spent your entire life working to pay off the mortgage on your home, then you could tap into the equity of that home.  The amount you can borrow will depend on your age, the current interest rate, the value of the residence and the initial mortgage insurance premium.  In general, the more valuable the home, the older the individual and the lower the interest rate, the more you can borrow.  However, this debt will have to be paid at some point, either by the borrower or their children.

 Another option is accelerating life insurance benefits.  If you have an accelerated death benefit rider on your life insurance policy, then as a policyholder you can receive cash advances on account of the death benefit.  Generally, in order to obtain accelerated benefits, the insured must be terminally ill or suffering from a long-term, chronic illness according to the ACLI Life Insurers Fact Book 2012.  You must keep in mind that if you  accelerate the death benefits, your beneficiaries will not receive that portion of the life insurance policy benefits.

 Yet another option is a life settlement, life expectancy of 2 to 10 years, or viatical settlement, for a chronically or terminally ill individual.  Unlike an accelerated death benefit, this allows the sale of an individual’s entire life insurance policy to a third party.  The sale will result in an immediate payment of a percentage of the death benefit.  The sales price is less than the death benefit and will result in the family or named beneficiary receiving nothing, but can be a source of cash for expenses.

 Finally, what has become the most popular choice in long term care planning is a Long Term Care Insurance Policy.  This is insurance designed to cover long term care costs not covered by Medicare.  It is a relatively new concept having only been in existence for 30 years.  I personally believe this to be your best option and have not only recommended it to clients, but have personal experience with it as well.

 Premiums for LTC insurance depend on age, geographic location, the amount of coverage desired, exclusion period and whether an inflation rider and waiver of premium rider are purchased.  There are favorable tax benefits available depending on how you file your taxes.

 You may purchase LTC insurance for your parents to ensure that their wishes to remain at home can be accomplished and to provide a psychological benefit.  If you do purchase LTC insurance for your parents, there are possible income tax deductions.

If you are in your 40’s, then you should start looking into Long Term Care Insurance for yourself.  While you may still purchase coverage up to age 75, the premiums are lower the younger you are when you begin.  Additionally, one of the factors affecting your insurability and premium amounts is your health status.  Obviously, the healthier you are, the lower your premium.

 You can never be too young to begin your Elder Care Planning.  You should seek the advice of your financial planner and an attorney experienced in Medicaid planning and elder care.  Additionally, talk to an insurance provider who is experienced in Long Term Care Insurance so that they can explain your options.

Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C.  He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.