Not long ago, I stumbled upon a touching essay in the New York Times. “My gray matter might be waning. Then again, it might not be,” it began. “But I swear that I can feel memories — as I’m making them — slide off a neuron and into a tangle of plaque. I steel myself for those moments to come when I won’t remember what just went into my head.”
Later, the author pointedly asks: “Am I losing track of me?” Her fear is palpable.
You see, Nancy Bercaw‘s father died of Alzheimer’s disease in 2012, at age 73 — the same age at which his father succumbed to the same disease. Now the worry is that she, too, may be on the “path of forgetting.”
The article lingered with me long after I finished it, perhaps because I had recently sat through a sobering session on elder law, part of the Heckerling Institute on Estate Planning. I also know family members who have suffered from dementia and understand the heavy toll that it exacts on finances and relationships.
Either way, understanding dementia and its financial implications, as well as a host of other eldercare issues, extends well beyond attorneys: It is something every financial adviser with elderly clients, or clients approaching retirement, should know more about.
As Robert DiQuollo, chief executive of Brinton Eaton Wealth Advisors, noted in a recent article on dealing with clients with dementia: “Advising elderly clients with deteriorating cognitive abilities is becoming an increasingly important issue for financial advisers. . . . [They] should become informed on issues surrounding cognitive disabilities — research the related laws, read up on the related medical literature and contact local elder-care lawyers.”
Another article, “Alzheimer’s Epidemic Puts Advisers — and Their Practices — at Risk,” pointed out that the number of Americans with Alzheimer’s disease is expected to nearly triple by 2050, adding: “This impending epidemic will put even more pressure on advisers as they try to help clients prepare for the possibility of a costly health crisis.”
In their session on elder law, Lawrence Frolik of the University of Pittsburgh School of Law and Bernard Krooks of Littman Krooks LLP, noted that as people live longer, the numbers of elderly with dementia or other memory/cognition impairments rise, along with the need for assistance (i.e., long-term care).
But the cost of long-term care can be crippling for many: In 2012, the national average daily rate for a private room in a nursing home was $248 — that’s $90,250 a year. Krooks mentioned that where he lives, there are long-term care facilities that cost $15,000–$20,000 a month. (For more on the costs, see: “The Rising Cost Of Long-Term Care Services” and “Retirement: How to Pay for Long-Term Care.”)
Alzheimer’s and other dementias are among the many scourges of aging. And as I have since learned, a staggering one in eight older Americans has Alzheimer’s, the most common type of dementia (it accounts for about 60–80% of cases). The greatest risk for Alzheimer’s — you guessed it — is advancing age.
Which is a scary fact if you look at the trajectory of the US population: In 2010, there were 40 million people age 65 and older living in the United States. That figure is projected to reach 72 million by 2030 — or nearly 20% of the total US population.
“Longer lives, more dementia and increased costs of care combine to create great fear in the elderly and their adult children that accumulated wealth may be spent depleting the estate or that the older person will not be able to afford to live in a dignified and comfortable manner,” Frolik and Krooks wrote in their Heckerling materials.
One important issue that financial advisers (and their counterparts when it comes to aging clients: elder care lawyers) need to raise is the question of who pays for what when it comes to long-term care, as it seems many people don’t know all the facts.
An AARP report, “The Costs of Long-Term Care: Public Perceptions Versus Reality in 2006? (PDF), put it bluntly: “When asked whether or not Medicare, Medigap/Medicare supplemental insurance, or Medicaid/Medi-Cal covers various types of long-term care, Americans 45-plus demonstrate a low knowledge level. They often think that funding sources are available when they are not. In general, Americans 45-plus do not know what long-term care services cost and do not know about coverage.”
A common misconception is that Medicare pays for long-term care. “Truth be told, Medicare is not going to cover a lot of nursing home stays,” Krooks warned conference delegates.
Medicare’s website points out that “generally” Medicare does not pay for long-term care. It states: “Medicare pays only for medically necessary skilled nursing facility or home health care. However, you must meet certain conditions for Medicare to pay for these types of care. Most long-term care is to assist people with support services such as activities of daily living like dressing, bathing, and using the bathroom. Medicare doesn’t pay for this type of care called “custodial care.” Custodial care (non-skilled care) is care that helps you with activities of daily living. It may also include care that most people do for themselves, for example, diabetes monitoring. Some Medicare Advantage Plans (formerly Medicare + Choice) may offer limited skilled nursing facility and home care (skilled care) coverage if the care is medically necessary. You may have to pay some of the costs.”
I turned to Krooks’s lecture for more explanation: “Medicare only pays if it’s skilled nursing care: You’re on a ventilator, you have a stroke and need rehab, break your hip and need a replacement. With regard to nursing home coverage, the care has to be skilled care but some additional requirements have to be met: You have to have a three-day hospital stay. So if you don’t go into hospital for three days before nursing home, Medicare is not going to pay for any care in the nursing home, even if it is skilled care.”
He added that Medicare will pay for skilled nursing care for up to 100 days — 20 days in full, and then for days 21–100 there’s a co-payment that goes up every year (in 2013 it is $148 a day and most Medigap policies will cover it).
The average length of stay in a nursing home in the United States is about 2.5 to 3 years, Krooks said, but that number is skewed because many of the nursing homes have gotten into “the sub-acute business of short-term rehab,” so there are lots of people going to nursing homes who stay for 30 or 60 days, break their hip, have a knee replacement, and go home, and that counteracts the people who have Alzheimer’s or Parkinson’s disease or Lou Gehrig’s (ALS). “Any one these chronic diseases where you could be in a nursing home for 6–8–10–12–15 years, so while the average is 2.5 to 3 years, if you have one of these chronic diseases, it can be a long-term problem and a very expensive problem. You don’t need a calculator to do the math of what $150,000 or $200,000 a year times 10 years would cost for someone to be in a nursing home, and under federal law, you are legally responsible to pay for the health care costs of your spouse.”
So how does a client pay for long-term care? Krooks said he has thought of five ways:
- Medicare (not more than 100 days, and not viewed as a payer of long-term care)
- Veteran Affairs (VA) benefits
- Long-term care insurance
Medicaid is where this all gets interesting.
“It was never intended to be for middle class people, it was supposed to be for poor people,” said Krooks. But Medicaid “has turned out to be a safety net for the middle class: The rich can self-insure, the poor go on Medicaid because they are poor, and the middle class are faced with a Hobson’s choice, where they can spend their life savings of $200,000 or $300,000, or whatever it is, and then go on Medicaid. Or they can go to lawyers like me and figure out how to restructure their assets so that on paper they meet the rigid income and asset eligibility requirements of the state Medicaid agency, yet are still able to keep some of those funds to pass on to their spouse and loved ones.”
To qualify for Medicaid in most states, you are not allowed to have nonexempt assets exceeding $2,000. Yes, you read that correctly, $2,000. (Krooks pointed out that in New York, where he lives, the exemption is $14,400 for individuals.)
The good news, he said, is that are two sizable assets that are exempt, to some or varying degrees, in most states: a person’s home and retirement account. “Other than that, no one gets on Medicaid if they have more than the Medicaid resource amount, which is $2,000.”
So the question is: How does one get a client’s assets down to $2,000?
“There are two ways I have figured out to take somebody who has got more than $2,000 and make them have less than $2,000,” said Krooks. “Way number one: You can tell them, ‘Spend all of your money on nursing home care until you’ve got less than $2,000, and then go and apply for Medicaid. Spend it all.’ Not a very enticing possibility if you are the person writing the check. Or number two: ‘You can give away your money. Give it away.’”
The problem with giving it away is the government has imposed very strict rules on how much you can give away, when you can give it away, and to whom you can give it.
“So say you have a client with $100,000. You can’t tell the client, ‘Just give the $100,000 away today, and tomorrow go into the nursing home and say look at me, I’m poor.’ There is something called a look-back period. If you make a gift and it falls outside of the look-back period, Medicaid has no right to ask you about it, otherwise they are entitled to complete and full documentation of all your assets, resources, and income within the look-back period.” The look-back period is 60 months — five years.
All these technicalities underscore how important it is for financial advisers to stay abreast of the facts when it comes to elder law and advising clients about their retirement years. If you’d like to know more, here are some resources:
- “Aging Parents: Estate, Financial, and Related Planning” (LawEasy.com, archived webinar)
- “A Financial Professional’s Guide to Working with Older Clients” (AARP and the Financial Planning Association, PDF)
- “Is Your Firm Prepared for Alzheimer’s?” (Journal of Financial Planning)
- Center for Medicare Advocacy
- For those with access to the AICPA website: Elder Planning.
- Kabb Law Firm’s list of elder law planning websites and resources.
- Martin Shenkman, a a New Jersey–based attorney and financial planner, has done a lot of work in the area of helping clients with chronic illness:
- His book: Estate Planning for People with a Chronic Condition or Disability.
- An archive of resources for professionals: ChronicIllnessPlanning.org.
- Online courses: Lawline.com.
- An earlier blog post, quoting Shenkman: “Five Ways Financial Advisors Can Better Serve Clients with Chronic Illnesses.”
Lauren Foster is a content director at CFA Institute, where she focuses on private wealth and behavioral finance. Previously, she worked as a freelance writer for Barron’s and the Financial Times. Prior to freelance work, she was an editor and writer for the FT, where she covered wealth management. Ms. Foster received her BA in political science from the University of Cape Town, and she has a master of science degree in journalism from Columbia University.