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Insights For Retirement and Estate Planning

After years of hard work and toil, saving and investing for the future, success in business and their chosen profession, working to sustain family needs, retirees are proud of their achievements, and rightfully so. They look forward to transferring the assets they have accumulated to the next generation.

The Employee Benefits Research Institute (EBRI) recently reported a telling finding. It raises concern regarding the feasibility of accomplishing retiree objectives. Analyzing data of nearly 1200 people who died between 2010 to 2012, one in 5, 20%, had no assets left apart from their homes. 12% had no assets at all.

Demographic Underpinning

The demographics have been well established.   By   2030,   20%   of  the population will be over age 65. 70% of Americans who reach 65 will eventually need some sort of long-term care. Nursing Home care can cost over $15,000 a month; 24 hour home care is not far behind close to $10,000.

Cases In Point

Following are some cases that relate to the EBRI report. These are genuine scenarios as experienced by professionals and family members.

•The retiree suddenly becomes frail and needs community support services. As a taxpayer he/she is entitled to them. Never requiring any assistance before, he refuses to accept them, nor does he wish to part with his nest egg to pay privately for them.

•The frail senior applied for and received government medical assistance, but through oversight does not note a particular account or the ownership of a house.

•Great family tension emerges as the children are concerned about the parent’s well-being and the parent states that home care assistance is not needed.

These instances result in major losses.

•The parent’s health may further deteriorate unnecessarily.

•The government agency may reclaim the cost of care from the unreported assets.

•A family estate may suffer loses of 10s, 100s of thousands of dollars, or may become totally depleted.

•Family relations may be marred permanently between parents and children and among siblings.

lessons to Be learned

There are a number of proven tools available to help protect families from such exposure and loss. Long-Term Care Insurance.

Depending on the plan selected long- term care insurance reimburses nursing home, assisted living, adult day care, and in-home home care. Premiums may also be tax deductible. Extremely flexible but expensive, it is not a solution for everyone, nor is everyone approved for coverage.

Money Magazine, May 2015 published a report assessing the costs and benefits of purchasing a policy, “Do You Really Need A Long-Term Care Plan?” In addition to affordability and eligibility it identifies some major determinants for selecting this option: net worth, longevity and family history, years and scope of coverage needed, inflation protection, and sharing benefits among couples. The author concludes “I’ll probably end up in a shared policy with six or eight years of care…. But I’m not quite sold on this either. If I invest at 8% the $7,500 a year I would spend on reasonably complete coverage, I could amass $343,214 in 20 years. That would be taxable and amount to less than half the benefit I’d enjoy with a long-term-care policy. But it would be mine no matter what. What I am sure of: I will be weighing the options until my wife and I are settled on a plan. I won’t leave either our care as we get older or our kids’ inheritance to fate.”

Special needs pooled trust

This instrument was established by federal statute. Recognizing that people with disabilities have many needs and expenses beyond basic medical care, food, clothing and shelter – such as insurance premiums, hobbies, telephone and electronic equipment, vacations/entertainment, supplemental nursing care, or private case management – Federal law permits a person with disabilities to retain his or her resources in a special needs trusts (“SNT”) without those resources disqualifying him or her from SSI or Medicaid benefits. The Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) is the Federal Law that allows for the creation of pooled trusts. The federal statute permitting Pooled Trusts is 42 U.S.C. 1396p (d)(4)(C).

As the name suggests, a pooled trust contains the assets of multiple individuals. The assets are pooled together for administration purposes, but segregated into a sub-account for the exclusive benefit of the special needs, disabled individual. This arrangement is similar to a bank; the bank pools all deposits together, but each customer maintains a separate account.

Strict federal and state regulatory agencies monitor the integrity of Pooled Trusts. They must be managed by a non-profit organization. As with the Long-Term- Care insurance option, there are variables to consider in selecting a Pooled Trusts, administrative fees for managing the account, processing procedures for submitting bills for payment and other details. Another critical factor for determining suitability is the availability of a trustworthy executor of the trust. This is typically a family member or guardian. Frail seniors with limitations in two of the 6 basic activities of daily living may be eligible for a Pooled Trust account and thereby receive Medicaid services. Pooled Trusts also address the excess income concerns for Medicaid eligibility. Upon depositing the funds in a trust, the beneficiary’s basic bills are paid by the trust such as utilities, rent and food. The disabled individual may then qualify for Medicaid and will not deplete hard earned savings.

Need for Experienced Professional Expertise

There are no hard-and-fast rules for suitability and eligibility. Careful assessment of personal assets, family history, risk tolerance and a host of other factors need to be considered on a case by case basis. Many make the mistake of assuming they do not qualify for these measures. It seems responsible to seek out professional expertise to advise families regarding entitlement and eligibility. Reaching out for assistance in this complex and serious matter is no different than seeking out the advice of an accountant to guide you and advise you regarding avoidance of unnecessary tax exposure. It is legal and considered responsible due diligence. It should be done sooner rather than later.

—By RGB and the Elder Law Institute

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