Articles Posted in Financial Planning

SPECIAL NEEDS LAWS HELP PROTECT THOSE WHO PROTECT US

For those of us who come from families with many military members, we know the sacrifices and hard work that service members incur for their principles and belief that there are certain obligations in life that precede all else.  Unfortunately, until recently, for a select few of those dedicated service members faced a choice between two equally important obligations, their obligations to their country and their obligations to their family.  More specifically, service members with special needs children who received benefits publicly funded programs such as Medicaid or Supplemental Security Income knew that if something happened to them and their family received monies through the Military Survivor Benefits pension, their children would lose those vital benefits.  

It should be noted that the protections contemplated by the law are even allowed for if a service member retires and collects a pension for retirement but also diverts some of that money for the benefit of their special needs child.  This was a choice that was too high for some service members and helped them decide to not reenlist.  The military spends a tremendous amount of money on training and maintaining our military.  Any lost member is a lost investment to put it in economic terms.  To help combat the lose of these soldiers, sailors and airmen Congress created the Disabled Military Child Protection Act (DMPA).  The DMPA allows a service member to choose a special needs trusts as the beneficiary of any money given through a Military Survivor Benefits pension.  This allows the service member to have peace of mind knowing that if they do pay the ultimate sacrifice, their children and loved ones will not suffer further.

SIMPLE GUIDELINES, EASY TO UNDERSTAND AND FOLLOW

The Center for Disease Control (CDC) released guidelines to help prevent and mitigate falls among senior citizens in 2012. The CDC program is called STEADI, an acronym coming from the full title Stopping Elderly Accidents, Deaths and Injuries. Research shows that falls are the leading cause of injuries, death and emergency room visits for trauma. If a senior citizen falls it can literally be a traumatic, life altering event or even a deadly one. The silver lining is that many falls are preventable. Last year the Obama Administration announced that that the White House Conference on Aging, the Administration on Aging awarded $4 million in various grants to help expand STEADI. It is estimated that the increased funding will help reach an additional 18,000 at risk senior citizens. It is further hoped that the funding will increase participation in evidence based community programs and improve the overall programs long term viability. The CDC developed these guidelines in conjunction with British and American Geriatric Societies.

The American and British Geriatric Societies already had clinical practice guidelines in place to better define the various risk factors in falls by senior citizens. The CDC guidelines contain basic information about falls, methods to begin conversations with seniors, balance assessment tests, gait assessment tests along with instructional videos for the gait and balance tests and even case studies of the the fall risks for different senior citizens. The program and recommendations are all inclusive in that the STEADI program at the CDC website has a testing protocol for professional medical care providers, to information about webinars and other instructional videos, material for senior citizens themselves, important facts about falls, referral forms, posters for professional establishments, with posters also available in Spanish and Chinese and most importantly, it has a toolkit for medical professionals.

LEGAL DISTINCTIONS THAT MATTER

When a person applies for Medicaid eligibility there are many pitfalls that an unsuspecting or unsophisticated applicant can run afoul of. To help them retain the benefit of certain monies that they would normally have access to third parties or the applicant themselves can create a special needs trust to help keep the public benefits and still benefit from the money in the trust. The various different trusts have different legal requirements that must be met to qualify as that type of trusts.

Moreover, different trusts accomplish different goals and yet other types of trusts exist that have nothing to do with Medicaid or other public entitlement program eligibility but help to reduce tax liability. Some trusts accomplish two tasks, such as a third party special needs trusts, which allow seniors to live a relatively modest and respectable life and qualify for Medicaid at the same time. While other types of trusts only satisfy just one legal goal, such as a grantor retained annuity trust, which allows a person to make a gift of an asset that will likely appreciate rather quickly, but incur no gift tax liability. Finally, there are other types of trusts that outlive their utility, such as pooled trusts.

COMMON LEGAL WAY TO PROTECT EXCESS INCOME

       
Unfortunately many means based programs, such as Medicaid, are strict in their qualifying criteria.  Depending on the specific facts you may not qualify for Medicaid and even as little as twenty dollars a month can make a difference.  There is no sliding scale of benefits based on your income.  Each state has its own financial thresholds for income qualification, given the drastic difference in cost of living throughout the country.  New York only allows for up to $845 in income, anything above that will disqualify the potential recipient.  So what of the millions of men and women throughout New York that live on modest means and yet still receive more than $845 in monthly income?  For example, a person in Manhattan or even Long Island who earns approximately $2,000 per month does not live luxuriantly, yet he/she may need certain services and does not want or even need to go into a nursing home facility for those services.

Pooled trusts allow for seniors to setup their own trusts so that they can still live a respectable and modest life and not be required to turn over all of their income to the state for Medicaid eligibility.  In the case of the senior above, he/she would $1,155 ($2,000 – $845) to a pooled trust that they joined so that he/she could still qualify for Medicaid and have money left to pay bills and perhaps enjoy their normal lifestyle with family and friends without much financial impact.

RISING RATE OF SENIOR FILERS

        In 2011 a noted bankruptcy legal scholar at the University of Michigan Law School published a working paper where he documented the rise in the rate of bankruptcy filing rates for elderly Americans.  While the overall rate was only seven percent of the bankruptcy filing population, the rate has increased 177 percent for the 65-74 age group and a staggering 566 percent for the 75 and older age group.  In May, 2015 the New York Times noted this new reality.  There are certainly many factors at play in this dynamic, including a witch’s brew of fixed income, rising medical costs and high credit card debt for a majority of the bankruptcy filers.  No doubt the recession of 2008, with its hard impact on housing and retirement was an additional major factor.  Bankruptcy also has a favorable treatment of social security and retirement income savings.

BANKRUPTCY OVERVIEW

To be sure, tontines are illegal in America and have been since the early 1900s. There have been many articles of late, however, arguing for their return and putting the product back onto the menu of options that retirees may want to purchase. The idea of the tontine is rather simple. You get a group of people who all buy into the tontine, with their money going into the collective pool of cash. At certain intervals, you get paid money back. When people in the pool pass away, the money they invested does not go back to the investor’s family or estate. Instead it stays in the pool, allowing the payment to the remaining members to increase. The offensive part comes from the financial gain garnered by another’s death. Some people may view it as gambling on the lives of another.

REGULATORY SCHEME OUTLAWING TONTINES

In 1905 the New York based Equitable Life insurance company internal fight went public with accusations of self serving deals and political payoffs. In response New York launched a far reaching investigation that helped to shape insurance law for the next century. The Armstrong Committee started the career of future United States Chief Justice Charles Evans Hughes, who was a rabid opponent of gambling and helped to create the picture in the public that tontines are gambling. He further helped to draft the 400 plus pages of recommendations and reforms. At the time, New York had jurisdiction over 95 percent of the insurance industry in America. Moreover, within ten years most states enacted similar legislation. As such, the impact was national in scope. Among the reforms enacted was a prohibition on rebates by insurance companies and a ban on deferred dividend insurance.

GOVERNMENT ACCOUNTING OFFICE INVESTIGATION

On September 30, 2015 the Government Accounting Office (GAO) issued a report following a 15 month investigation regarding advances to pensioners, secured by monies that the pensioner would receive in their pension. The same day the Senate Committee on Aging held hearings on this exact issue to determine if indeed this practice is predatory as well as how the federal government will respond. The GAO conducted an undercover operation and received substantive offers from six different pension advance companies. The GAO report also indicated that there was a lack of disclosure on some fees, interest rates and various options, in addition to undisclosed affliations between 21 of the 38 companies that were investigated. The majority of the offers had interest rates of a stiffling 27 to 46 percent. While there is no set federal definition for usury, New York law defines usury as any loan which requires a payment of 25 percent or more; more about this below. Not surpringly the some of the companies focused their efforts on financially vulnerable pensioners with poor or bad cre dit. One of the recommendations from the GAO report was that the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) educate consumers about these practices.

WHY THE GAO INVESTIGATED

Residents throughout New York continue to experience “sticker shock” when exploring their long-term care options. Whether you are planning for possible needs in the future or working quickly to secure support for an ailing loved one, there is a good chance you may be surprised by the overall costs of this care. Naturally, there is a spectrum of care–from occasional, at-home aides to a move into a skilled nursing home. And there are wide variances in quality among specific caregivers. In most cases, however, the overall cost is quite significant, particularly in a relatively expensive state like New York.

The Cost Data – 2014

A helpful starting point to understand the financial toll of long-term care is to examine the newly released 2014 Cost of Care Survey from Genworth. This particular survey has been conducted for over a decade, allowing an understanding of year over year trends on top of providing information on current costs.

Most fears about moving into a nursing home concern abuse and neglect. After living independent lives on one’s own, it is easy to understand why seniors may wish to avoid moving into a facility where they will rely on others (strangers) for day to day aid. Unfortunately, beyond the physical, emotional, and sexual mistreatment that can occur at these facilities, there is another risk–financial theft.

Wide Scope

As the USA Today reported recently, far too many nursing home workers use their position of control to enrich themselves at the expense of the residents in their care. One of the most common crimes is stealing discreetly from nursing home controlled trust accounts. When moving into a home, many seniors have their personal savings moved into trust funds managed by the facility. Yet, without properly oversight, those funds can be raided for personal gain without anyone ever discovering the problem. Even when it is discovered, it is sometimes too late for the senior to get any money returned. According to some advocates, this is a problem that has flown under the radar too long.

It is a nightmare for many families. A senior shows signs of cognitive mental challenges–becomes forgetful and eventually is unable to live on their own. An adult child take control of the senior’s affairs in order to pay for bills and arrange for long-term care. But when the family member checks banks accounts they discover that the senior’s nest egg has been demolished. Tens of thousands of dollars have been funnelled out to strangers. The senior was the victim of financial exploitation, and now there is little money to pay for the long-term care that they need.

Believe it or not, this scenario occurs frequently. Dementia and Alzheimer’s are not rare diseases; they strike large portions of the population. Yet, because the signs build up only slowly, many family members do not realize the scope of their parent’s mental decline until far too late–after they hurt themselves in an accident or are financially decimated in a scam.

Because of the risks, elder law attorneys frequently remind residents to be proactive–checking up on loved ones frequently and putting legal documents in place to identify problems early on.

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