Planning for an Uncertain Future: What You Should Know About Long Term Care Planning
Below is a brief discussion of the type of planning we typically recommend for clients, depending on their needs, goals and physical health at the time we become involved.
Any planning that you do should be tailored to your needs. Our primary goal in long-term care planning is to preserve assets without jeopardizing the financial independence of our clients. Beware of the quick fix or the one-size-fits all approach to long term care planning. To assist clients, and their families, who contact us with long-term care needs or concerns, realize this goal, we ask that they complete a Long-Term Care Questionnaire before meeting with us. The questionnaire asks for income and asset information, present expenses, prior transfers that may have been made, projected financial and care-giving needs, etc. Reviewing the detailed information on the questionnaire is essential to providing a thoughtful analysis and designing a plan that meets the unique needs of the individual client.
I. IMPORTANT DOCUMENTS
If possible, we prefer to see clients while they are legally competent to sign documents. Legal competency basically means that a person is able to understand what she is signing at the time she signs it.
If the elder is competent, we recommend that she have the following basic documents:
- Durable Power of Attorney
- Health Care Proxy / Living Will
Durable Power of Attorney (DPOA)
In a DPOA, a person (the “Principal”) names an “Agent” or “Attorney in Fact” to act on her behalf in managing her financial affairs. The document specifies that the Agent’s authority will continue even if the Principal later becomes incapacitated.
The law requires that the Agent must act in the Principal’s best interest. However, the Principal should be sure to choose an Agent who can be trusted. The Agent should be reasonably well informed about financial matters and be able to take charge in an emergency. While an Agent who lives nearby is often the logical choice, it is not necessary that proximity dictate a best choice.
In today’s world, however, family members often live great distances apart. To assist our clients who find that they are without a nearby family member to assist them, we can offer resources or services that provide an elder with a local person to assist them with their day-to-day needs. These services can include assistance getting to a doctor’s appointment, bookkeeping services, housekeeping services, grocery shopping, etc.
Health Care Proxy (HCP)
A Health Care Proxy is a document that allows an individual (the “Principal”) to designate an “Agent” to make medical decisions for the Principal, including decisions concerning withdrawal of life support such as food, hydration, and respiration. The Proxy takes effect only when a physician has determined in writing that the Principal can no longer make or communicate his own health care decisions.
Once signed, a HCP remains in effect until revoked or replaced with a subsequently executed HCP. Under Massachusetts law, a HCP only conveys a broad, generalized authority to an Agent to make medical decisions on the Principal’s behalf. To be effective in making such decisions, it is essential that the Principal communicate her end of life wishes to the proxy before an emergency. We strongly recommend that our clients who have not initiated such discussions with the person(s) who will make such decisions on his behalf, begin an ongoing dialog with the designated Agent (and alternate Agent, as appropriate) in order to provide them with the information that they will need to make informed and intelligent decisions on the Principal’s behalf.
Living Will/Advance Directive
A Living Will is a written expression of the client’s end of life wishes. While not legally binding in Massachusetts, it is valuable evidence of the client’s intent and wishes regarding the proper use of extraordinary interventions at such time as the Principal can no longer make medical decisions on his own behalf. These directives are particularly useful in helping resolve disputes within the family over what types of intervention their loved one wanted, or not.
A Will takes effect only upon death and determines how probate assets will be distributed.
Here are four good reasons for having a Will:
- A Will avoids intestacy; the process which inflexibly determines to whom and in what shares the probate estate assets will be distributed after death.
- Only through a Will can the Testator name a particular person as the Personal Representative (formerly called the executor or executrix) to see that the Testator’s intentions are carried out.
- A Will can save your estate thousands of dollars (depending upon its size) by 1) relieving the Personal Representative from having to purchase a commercial surety bond, which is otherwise required by the probate court to insure that the estate’s assets are properly administered; 2) eliminating the need to obtain a court-ordered power to sell assets such as real estate; and 3) avoiding the need for appointment of a guardian ad litem (a special court appointed person to review and approve the Personal Representative’s accounts).
- Only by a Will can the Testator set restrictions on who will inherit the estate. For example, a client may wish to disinherit a child to whom he has given substantial lifetime gifts. Or he may wish to leave money in trust to a minor child, a disabled child, or a spouse in a nursing home.
Sometimes by the time a client comes to us, he is not able to sign documents because, as discussed above, he is no longer able to understand what he is signing. Sometimes the client has documents that are no longer appropriate because of changed circumstances or third parties (primarily financial institutions) fail to honor the DPOA because it determines that the DPOA is too old. This is the principal reason that as part of our estate planning we recommend that a DPOA be refreshed or re-executed every 3-5 years.
In these situations, the only option is to pursue a guardianship or conservatorship over the incompetent individual. Guardianship or conservatorship is the legal process by which the Probate Court declares a person (the incapacitated person) incompetent to make decisions for himself and appoints another person (a guardian) to manage the incapacitated person’s health care decisions. A conservator has control only over the incapacitated person’s financial affairs, while a guardian usually is authorized to make ordinary and usual decisions concerning the Incapacitated Person’s health care, including decisions on hospitalization or institutionalization. (Guardians are authorized to manage “small” amounts of monies or assets of the incapacitated person.)
Guardians and conservators are expected to provide the court with a detailed account of the incapacitated person’s care and finances each year and to return to the court when special authority is needed.
We strongly recommend that everyone have a current DPOA and HCP in large part to avoid guardianships and conservatorships because of the significant cost and loss of privacy involved.
III. PAYING FOR CARE
Our clients are usually very concerned about how they will pay for long term care and whether they will be able to preserve some of their assets for their children.
With the average cost per diem of nursing home care running higher than luxurious hotel rooms, the need for long-term care triggers financial as well as personal hardships. Appropriate planning, ahead of the need, must realistically assess the potential need for long-term care and the sources to pay its high cost. Currently, Medicaid is the primary source of paying for nursing home care, followed by private funds, and, less often, by long-term care insurance. Medicare and supplemental health insurance policies continue to cover the majority of your ongoing medical needs, while Medicaid pays primarily for the room and board aspect of long term care. Knowledge of which source pays what portion of long-term care costs, and under what conditions, becomes vital to many elders and their families.
Individuals entering a nursing home after at least a three day period of hospitalization, may be entitled to full Medicare coverage for their first twenty days of nursing home care, but only if that care includes skilled nursing or rehabilitation therapies specifically ordered by their physician. If an individual’s need for skilled care continues, Medicare will pay for as many as eighty additional days in any “benefit period” (see explanation below) but requires a substantial “co-payment,” which may be covered by private supplemental insurance. After one hundred days, Medicare provides no further support for nursing home care, unless a new “benefit period” is begun. A “benefit period” begins with the first day that the patient enters an institution and is entitled to Medicare coverage, and ends when the patient has been out of a hospital or skilled nursing facility for at least 60 consecutive days.
Medicare has extremely limited home care benefits.
2. Medicare Supplemental Insurance and HMOs
Medicare supplemental insurance, such as Medex, and HMOs only pay for certain long term care needs when Medicare pays. These policies can be used to cover co-payments and deductibles but do not provide any benefits to cover room and board, which are the bulk of the expenses (ranging from $7,000 to $15,000 a month in Massachusetts).
3. Long-Term Care Insurance (LTCI)
Massachusetts regulates individual policies but not group policies. While expensive and sometimes difficult to qualify for under the medical underwriting, LTCI is helpful in covering the cost of home care and daycare. It may also be used to cover a long disqualification period in situations where a person wants to make a large gift or set up an Irrevocable Trust. LTCI makes the most sense for persons who:
- have significant liquid assets to protect;
- wish to remain at home or enter an assisted living facility rather than a nursing home, and
- have the budget to pay for annual premiums.
We sometimes recommend that our client’s children contribute to the cost of LTCI if the children will benefit from the parent’s estate. There are special tax benefits available for purchasers of LTCI. Clients who have qualifying LTCI which is for at least 2 years pays a minimum benefit of $125/day can avoid estate recovery against their home.
Our office does not sell LTCI, but we can direct you toward a qualified broker.
4. MassHealth (Medicaid)
Medicaid, a joint state and federal program, is available only to persons whose assets fall below rigid guidelines and who qualify medically to be admitted to a nursing home. Typically, all of a single recipient’s income goes to the nursing home and the state pays the difference between the recipient’s income and the cost of the facility. Medicaid allows a recipient to retain only $72.80 per month from his income to pay for his personal care needs, which, for example, includes the cost of a telephone, television, a newspaper, haircuts, etc., none of which are covered by Medicaid.
A single recipient may have no more than $2,000 in countable assets. The spouse of a married recipient may retain countable assets, up to a maximum of approximately $119,220. The value of retained assets can be increased only with proper planning.
Our office can help you take advantage of special rules to preserve assets for a spouse, a disabled child, a caretaker child, and minor children. There are special rules for the home.
The application process is long and tedious. Nursing homes and companies which prepare applications for free will not analyze the applicant’s assets and do not give advice concerning preservation of assets for a spouse or dependent child.
No matter what the circumstances are of our clients when they come to our office, we can help meet their long term care planning goals.
- We can set up an appropriate estate plan to minimize taxes, preserve assets for family, and make sure your wishes are followed during your lifetime and after your death.
- If necessary, we can obtain guardianship or conservatorship over an incompetent family member and proceed with estate and long term care planning through the probate court.
- We can assist you with preserving assets for yourself and your family and determining the best way to pay for long term care at home, in an assisted living facility, or a nursing home.
- We can refer you to qualified professionals for advice concerning long term care insurance, annuities, and other financial advice.