Estate Planning

Traditional Long-Term Care Insurance is Getting Ugly but Explore the Alternatives

Researchers estimate that more than half of today’s 65-year-olds will require long-term care at some point, at an average total cost of $138,000. Most will need help for less than two years. But one in seven Americans turning 65 today will face more than five years of disability, with potentially dire financial consequences. Medicare covers only short stints in a nursing facility. Medicaid can fill the gap, but only after you’ve depleted most of your assets. But to afford an assisted living facility, you’re probably on your own.

And the true impact on the quality of life for caregivers can be compromised very quickly.

77% of caregivers missed time off from work and close to 1/3 of caregivers provided more than 30 hours of care per week.

Enter long-term-care insurance, private policies that cover at least a portion of home, assisted living, or nursing home care. However, per Barron Magazine,

The long-term-care insurance industry has fallen into financial turmoil, causing misery for many of the 7 million-plus policyholders. . . The problem: “Almost every insurer in the business badly underestimated how many claims would be filed and how long people would draw payments before dying,” the Journal writes. “People are living and keeping their policies much longer than expected.” And nine years of ultralow interest rates have left insurers with far lower investment returns than they needed to pay those claims. The result is an exodus from the business and skyrocketing costs for policyholders.

As described in the Wall Street Journal:

Never in our wildest imagination did we consider that the company would double the premium,” says Sally Wylie, 67, a retired learning specialist who lives on Vinalhaven Island, Maine.

In the past two years, CNA Financial Corp. has increased the annual long-term-care insurance bill for Ms. Wylie and her husband by more than 90% to $4,831. They bought the policies in 2008, which promise future benefits of as much as $268,275 per person. The Wylies are bracing for more increases.

Listen to these two long-term care specialists discuss the WSJ article and the changing scene.

The WSJ then failed to fully advise what to do in the face of the changing market. There is still affordable long-term insurance planning to be performed.

If you are someone who has been impacted by spiraling premium increases, you are not helpless, and you do have more options than the WSJ article suggests. In fact, there are things you can do to reduce your premiums according to Bill Borton, Managing Principal of W.R. Borton Associates. Traditional long-term care insurance policies can be modified. You can reduce inflation riders or adjust other features to control premium costs. Mr. Borton still suggests that if you have a policy that experienced rate increases, you should continue to keep the policy in effect if you can afford it. Many of these existing long-term care insurance policies that were sold years ago have more generous benefits than anything that can be purchased today. . .

Today, more products exist than just traditional long-term care insurance. Hybrid-products have been developed to mitigate some of the risks associated with traditional polices, like those unwelcome and unexpected premium hikes. Hybrid policies essentially come in a few different forms, but are typically long-term care benefits attached to a life insurance or annuity product. These hybrid approaches allow for level and one-time premium payments, eliminating the possibility of premium hikes completely. Furthermore, these policies can remove the “use it or lose it” aspect of traditional policies. With a hybrid long-term care and life insurance policy, if you don’t end up needing long-term care benefits, your heirs can still receive the death benefit. This allows people to buy one product that provides two potential benefits, a tool for funding long-term care expenses if needed and life insurance coverage.

Money magazine suggests the following 7 Alternate Ways to Pay for Long-Term Care:

  • People are often confused about how to pay for long-term care. “Resources they think exist don’t exist,” says Laura Troyani who founded the website Most notably, many seniors expect Medicare will cover costs when, in fact, the program does not pay for ongoing long-term care. While Medicare isn’t an option, here are seven alternatives that are.
  • Short-term care insurance. These plans are similar to long-term care insurance policies, but benefits are typically capped at one year. Not only are they less expensive, but they may also be available to older seniors or those who aren’t otherwise eligible for long-term coverage.
  • Life/long-term care insurance. Rosenthal is a fan of combining long-term care coverage with life insurance. Specialty policies, often known as life-LTC hybrids, feature fixed premiums that help consumers avoid the type of rate increases currently being experienced in Pennsylvania.
  • Long-term care annuities. Troyani says long-term care annuities are a frequently overlooked option for covering home health, assisted living and nursing home care costs. These annuities require a hefty upfront payment, but if you need long-term care, your overall cost may be lower than what you’d spend on insurance premiums. However, don’t expect much in the way of interest. “If you’re looking at it from an investment standpoint, it’s not so awesome,” Troyani says.
  • Health savings accounts. For those who have an eligible high-deductible health insurance plan, a health savings account offers a way to put money aside tax-free for medical costs, such as long-term care. Boyles calls them health IRAs and notes that those who have long-term care insurance can pay their premiums with money from a HSA.
  • Home equity. Retirees without significant investments may still own a valuable asset: their house. Tapping into home equity through a line of credit, taking out a reverse mortgage or selling a house outright are some of the ways people can use their property to pay for long-term care.
  • Pensions or Social Security. Depending on the size of your monthly payments and the amount of care you need, paying for services monthly out of a pension or Social Security benefit may be option.
  • Medicaid. When all other options have been exhausted and a person’s income and assets have been depleted, the government will step in to pay for care. Medicaid won’t pay for assisted living, but it will cover nursing home care and many states also pay for home health care services for eligible people. However, states are required by the federal government to recover the cost of long-term care from estates whenever possible. That means, for example, if a parent’s home is sold after his or her death, the proceeds could go to the state instead of heirs.

Consumer Reports summarized some of these new, alternative options here. (I am not a financial or insurance advisor nor sell these services so I recommend you seek separate counsel from persons in these fields as to the best option for you.)

This problem cannot be ignored:

Rather, the debacle illustrates a troubling truth: Private insurance can’t handle this problem by itself.

By 2050, the U.S. will have almost 90 million people aged 65 and over, and more than half will need long-term care at some point. Yet only a sliver of that group can afford the premiums insurers require. As of 2015, private insurance covered less than 10 percent of U.S. spending on long-term care — and the private market has been shrinking.

Can Medicaid place a lien on the house even if you didn’t go to the nursing home? Yes!

In a seemingly hopeful article, entitled “How States Are Helping People Get Medicaid At Home,” Forbes magazine details several innovative programs which states around the nation are establishing to assist elders to stay at home instead of entering the nursing home.

“There’s a lot of innovation going on, but it can be a little dizzying in some respects,” said Cindy Mann, a partner at Manatt Health who worked on the report. “We wanted to present options that states might consider.” Currently — and this may surprise you — more Medicaid money for long-term care services and supports is spent on home- and community-based services than in nursing facilities. That’s a welcome change. In 1995, only 18% of Medicaid long-term care spending supported home- and community-based services; today, 55% does.

This sounds great, right? I mean, most every one of my clients want to stay away from the nursing home.

Survey after survey shows that people want to continue living in their homes as they age, rather than moving to a nursing home or an assisted living facility. (In a recent Nationwide Insurance survey of Americans 50 and older, 61% said they’d rather die than live in a nursing home.) But whether you or your parents will be able to receive long-term care benefits at home through Medicaid — assuming Medicaid-eligibility — is an open question.

So why am I poo-pooing this article? Because the article completely ignores the fact: many fear the nursing home because of fear Medicaid will take their home and life savings. These innovative programs still expose these elders’ estates to Medicaid reimbursement.  Under a 1993 federal statute, states must recover money spent on behalf of individuals who were age 55 or older when they received Medicaid specifically for nursing facility services, but also home- and community-based services provided under a Medicaid waiver, and related hospital and prescription drug services. Accordingly for the Medicaid programs discussed in the article, state law still requires estate recovery; Medicaid will be reimbursed.

I am not saying do not employ these programs; just act with full knowledge. Imagine the surprise of one of my clients when she received a demand for reimbursement from Medicaid; she was emphatic that she had never been in a nursing home. Upon further inquiry, we learned that she had received in-home services under a Medicaid-waiver program.

On average, per-beneficiary, per-month expenditures declined by $1,840 (23%) among older adults transitioning from nursing homes through state pilots of the Money Follows the Person Rebalancing Demonstration program. Translation: average cost savings for Medicaid and Medicare programs of $22,080 per beneficiary during the first year after the transition. By the end of 2015, states had transitioned 63,337 Medicaid beneficiaries from long-term institutional care to community-based care.

Texas’ pilot Money Follows the Person program resulted in 68% of participants remaining in the community, saving $24.5 million in Medicaid funds.

The overall Money Follows the Person program, the HHS report added, “provides strong evidence of success at improving the quality of life of participants.” These people experienced “the highest levels of satisfaction with their living arrangements” and nearly all liked where they lived one year after community living — a 32 percentage point increase compared to when they were in institutional care. Their care didn’t suffer, either, after leaving the nursing homes, the HHS report noted.

Accordingly, staying at home is much cheaper than entering the nursing home (approximately 1/3 cheaper), but Medicaid will still seek recovery and reimbursement of all that’s been paid.

TO SUMMARIZE: the Alabama Medicaid Agency has elected to seek estate recovery for all Medicaid costs for all Medicaid beneficiaries for services received after age 55 including the estates of individuals who never received Medicaid nursing home benefits pursuant to 42 U.S.C. § 1396p(b)(1)(B)(1)(ii).



New Law: Alabama Legislature Enables Digital Assets to Be a Part of Your Estate Plan

With little fanfare, the Alabama legislature passed the Alabama version of the Revised Uniform Fiduciary Access to Digital Assets Act. Most every Last Will and long-term Power of Attorney and Living Trust going forward will need to have express language authorizing the Executor or Attorney-in-Fact (under a Power of Attorney) or Trustee to access their Facebook, Instragram, online bank accounts, smart phones and other online accounts. This Fidelity article highlights what’s at stake:

You may have planned for your loved ones to eventually inherit your house, the Steinway grand piano, your Dad’s 88-year-old Swiss watch, or other family heirlooms, but with life increasingly being lived online, you may be overlooking an increasingly important kind of property— digital assets.

If your estate plan doesn’t account for digital assets properly, your heirs may not have access to them. Family photos and videos could be lost forever, social media accounts could stay up long after you’ve passed, and your heirs may not receive all the money that you’d like to see come their way.

Estate planning attorney James Lamm, with Gray Plant Mooty in Minneapolis, Minn., has seen such problems firsthand. He first noticed the importance of digital assets in estate planning a few years ago. “A client had passed away, and there were no paper records,” says Lamm, a nationally known expert and author of the Digital Passing blog. “All of the client’s financial information was stored on computers and protected by passwords. This really opened our eyes. We’re dealing with a new world.”

It has become the norm to store financial records in smartphones, computers, or the cloud, and to conduct financial transactions electronically. Most people also own a trove of digital assets, which can include anything from domain names to electronically stored photos and videos to email and social media accounts.

The upshot: Accounting for digital property in your estate plan has become essential. Fortunately, it’s relatively simple to do.

With the passage of this new law, Alabama has made made the process for avoiding these issues much more easy. The act somewhat requires express action on the part of those with existing (and to be drafted) Last Wills, Durable Powers of Attorney, and Trust Regardless: Its still important to keep an updated list of valuable and significant digital assets, including accounts, user names, passwords, and so on. This list can be written, stored electronically, or be a hybrid of the two. Per Kiplinger,

Your estate plan should be designed to make the administration process as easy as possible for your loved ones. This includes making it convenient to manage your assets upon your incapacity or death and saving them the hassle of sorting through your paperwork to collect assets and pay your bills. Without specific provisions in your estate plan and careful planning, access to this critical information can become difficult for your family or loved ones.

This is equally advisible for your adult children to have given you access to these digital assets; I am especially thinking of your children at college or not married. Here is Financial Advisor discussing the need for a power of attorney for digital assets:

“It’s not about money; it is about the administrative aspects of a life,” Edelman says. That includes the administration of young people’s personal items—things they are likely to have strong sentimental attachments to.

It also means administering young people’s virtual lives, he says.

“Millennials and Generation X lead their lives online.”

That means a parent or another person needs to know how to preserve the pictures that are posted on social media accounts and any writing the person may have done. For that, estate planners need to know not only passwords but the answers to security questions.

Social media accounts can be saved by arranging ahead of time, Edelman says.

“If the young adult feels uncomfortable revealing information to a parent, the information can be given to the attorney who does the estate planning with the condition it be opened upon death,” he adds.


New tax bill will effectively eliminate the federal Estate Tax (What will BigLaw Estate Planning divisions do now?)

Well, this week’s earlier blog post about the 2018 Estate and Gift tax credits and exemption is already stale and probably bad law. Yesterday, Congress passed a stunning tax plan and President Trump is expected to sign the bill. (The bill has received great criticism because it increased the deficit by 1.5 trillion.) The bill makes dramatic alterations to the federal Estate and Gift Taxes.

Let’s examine a bit of history first. When I came out of law school in 1999, the federal unified credit equated to $650,000 . (52,000 estates paid the tax in 2000 when the exemption was $675,000.) Most couples would employ trusts in order to take advantage of each other’s unified credit and not waste it under the standard unlimited marital deduction.

Then the amount increased to $675,000 in 2000. Then for 2002-2003, it was $1 million. Congress had built in automatic increases for 2004-2005 to $1.5 million, $2 million for 2006, 2007, and 2008. Then $3.5 million for 2009. The forgot 2010. Then it was raised to $5 million in 2011. Then President Obama smartly added inflation indexing to the $5 million. So the actual amount began increased based off annual inflation. By 2017, because of inflation, the credit had increased to $5,490,000 per individual. However, President Obama also allowed couples to use each other’s unified credit through a process called portability. (There are some nuances to portability that are not capable of being quickly explained.)  So, as a general principle, a married couple could transfer about $11,000,000 estate tax free.

Now comes the new law. For estates of decedents dying and gifts made after December 31, 2017 and before January 1, 2026, the Act doubles the base estate and gift tax exemption amount from $5 million to $10 million.

As explained on Forbes:

The tax bill, passed by the House and Senate yesterday, temporarily doubles the annual exclusion amount (the exemption) for estate, gift and generation-skipping taxes from the $5 million base, set in 2011, to a new $10 million base, good for tax years 2018 through 2025. The exemption is indexed for inflation, so it looks like an individual can shelter $11.2 million in assets from these taxes. Another federal estate law provision called portability lets couples who do proper planning double that exemption. So, a couple could exclude $22.4 million.

There will be a lot of planning immediately whereby couples will lock in the proposed law before future Congress changes its mind. They will likely employ the lifetime gifting provisions.

The law’s sunset means that, absent further Congressional action, the exemption amount would revert to the $5 million base, indexed. . . Under current law, each person for 2018 had a $5.6 million exemption. Now each person will have an $11.2 million exemption. So, a couple has an extra $11.2 million to gift or transfer at death. “It’s better to give now while the law is certain,” she adds.

What will these gifts look like? A memo circulated yesterday by estate planner Ronald Aucutt with McGuireWoods says strategies to consider include:

  • Making gifts to existing or new irrevocable trusts, including generation-skipping trusts
  • Leveraging gifts to support the funding of life insurance or existing sales to trusts and
  • Pairing gifts with philanthropy (such as a charitable lead trust)

I think this law ultimately eliminates the need for advanced-tax estate planning for most families. Joint Committee on Taxation estimates the number of taxable estates would drop from 5,000 under current law to 1,800 under the new law in 2018 in the entire nation. I am glad I didn’t narrow my practice (as I originally planned in law school) to tax estate planning.



2018 Estate and Gift Tax Credits (Do Not Confuse the Tax Rules with Medicaid Rules)

The Unified Estate Tax Credit will increase to an amount that equates to $5,600,000 for 2018 per individual. So basically, if you are married, as a couple, you can leave $11,200,000 estate tax free.  (Speak with an attorney to know the nuances of effectively obtaining the benefits for both spouses; ask about portability.)

Relatedly, you can give away $15,000 per year per donee in 2018. For gift tax purposes, you can gift-split as well, so you and your spouse can give $30,000 per year per donee after January 1. These annual exclusions are over and above the lifetime unified credits.

Forbes has a good explainer for further detail.

UPDATE: Congress has passed a tax bill which fundamentally alters the above referenced numbers. The president is expected to sign.

However, do not confuse or conflate these estate and gift tax exemptions with Medicaid rules. Medicaid counts all gifts; there are no amount of transfers of assets for less than fair market value which are exempt. These federal estate and gift tax exclusions do not apply when calculating Medicaid eligibility.


Does an Alzheimer’s diagnosis void Glen Campbell’s Last Will and Testament?


The surviving spouse of Glen Cambell is fighting with his children from a previous marriage over his $50 million dollar fortune. Per reports:

The will was written in September 2006, more than five years before he announced his Alzheimer’s diagnosis. It stipulates that all three of his kids from his second marriage to Billie Jean Nunley, which ended in 1976, were not to benefit from his estate or any resulting trust.

(Campbell had five other children from other relationships who apparently will benefit from the Last Will and Trusts.) He only announced his Alzheimer’s condition in 2011 but could have been diagnosed with the disease at the time of the signing of the Last Will.

So how does a diagnosis of dementia or Alzheimer’s affect the execution of a Last Will in Alabama.

The law presumes that every person of legal age has sufficient mental capacity to make a valid will. A person may be feeble, weakminded or capricious and still have capacity to make a will if he is able to have a decided and communicate a desire as to the disposition of his property. However, the person signing the Last Will must have at the time of the signing memory of mind sufficient to recall and understand: his property, the persons he is leaving the property to, where he desires the property to go, and the nature and consequences of the business to be performed. “Simply stated, if the testator knows his estate and to whom he wishes to give his property and understands that he is executing a will, he has testamentary capacity. A person may execute a valid will, even if he or she is not competent to transact ordinary, everyday affairs.”Still v. BankTrust, 88 So. 3d 845, 852 (Ala. Civ. App. 2011)

Accordingly, a dementia diagnosis does not automatically invalidate a Last Will; however, the weakened condition may bolster undue influence claims. “To establish a prima facie case of undue influence, the contestant must show that a confidential relationship existed between a favored beneficiary and the testator; that the beneficiary’s influence was dominant and controlling in the relationship; and that there was undue activity on the part of the dominant party in procuring the execution of the will.” Ex Parte Helms, 873 So. 2d 1139, 1148 (Ala. June 13, 2003). That these three elements must be met in order to create a presumption of undue influence, and shift the burden to the proponents of a will to show a lack thereof, has been consistently held by Alabama courts for over a century. Wilson v. Wehunt, 631 So. 2d 991 (Ala. 1994)

In 2006, the Court addressed a case where the proponent of a will tried to argue that the contestants did not have “equal claim” to the testator’s bounty because the contestants had minimal contacts with their grandfather, the decedent, and had not been involved in his daily life, but had left him to the proponent’s care. Pirtle v. Tucker, 960 So. 2d 620 (Ala. 2006). The court, however, rejected this argument, holding that the contestants were blood relatives who would have inherited the estate under intestacy laws. Id. at 630. The decedent’s will devised the entire estate, not just one part, to the defendant, therefore the will favored the Defendant over the plaintiffs. Id. Moreover, the plaintiffs had presented testimony that the decedent wanted them to have his entire estate. Id. “Finally, although it is clear that Tucker helped Miler in the latter stages of Miller’s life, the evidence does not show that he helped Miller so much that ‘the testamentary disposition [of Miller’s entire estate to Tucker] is proper as a matter of law.” Id. citing Armstrong at 1314.

The next element to examine is that of domination by the favored beneficiary over the testator. Alabama courts have held, in fact, that domination in the relationship is key to undue influence. Furrow v. Helton, 13 So. 2d 350, 357 (Ala. 2008). In Helms, the proponents placed their names on CD’s and bank accounts held by the decedent, were her sole means of transportation, visited the home of the testator every day from the time she started taking
Lortab until the disputed will was written, and denied others access to the decedent. Helms, at 1145-1146. The Court wrote that this evidence “constitutes substantial evidence of dominance and control.” Id. at 1148.

The final element of undue influence is “undue activity in the procurement of the will”. In Helms, undue activity was found where the proponent suggested the lawyer who drafted the will, one of the proponents drove the decedent to the office to execute the will and the proponents lied about having any knowledge of the will was enough to establish undue activity, when coupled with the evidence for other elements. Helms, at 1148. Merely driving the decedent to the attorney’s office to execute the will was not, however, sufficient when not coupled with additional evidence. Furrow, at 358.

Look for Campbell’s disinherited heirs claim the new wife exercised undue influence over a man in a weakened condition.

21st Century Assets need Consideration in Estate Planning

A new article from The Greater Lansing Business Monthly highlights a new “asset” which needs to be considered for Estate Planning:

If you already have an estate plan in place, have you provided your beneficiaries access to your online accounts to cancel, save or change them? Without such provisions, you could achieve an unwanted Internet immortality because sites such as Facebook or Yahoo! don’t acknowledge your personal representative or trustee as having access rights to your accounts. According to Patricia Kefalas Dudek, of Dudek & Associates in Farmington Hills, and Howard H. Collens of Galloway & Collens PLLC in Huntington Woods, modern estate plans need to designate a “digital personal representative.” 2

“Decide who is in charge of those assets if you become disabled or when you die, and name that person as your digital personal representative with power to protect your assets,” Dudek explains. She and Collens suggest preparing a list of all e-mail accounts, social websites in which you participate, and online financial and commercial accounts.

However, if you do not want to share your passwords with another person while you are still alive, there are Internet applications that allow you to store not only your passwords but also your digital estate plan (for example, or Dudek and Collens also suggest giving the personal representative access to a account to find all of your personal websites without having to search all over the Internet. “Make sure you indicate whether you want your digital personal representative to archive your content, share your content with others, or delete it,” adds Collens.

Dudek and Collens recommend putting digital estate planning language in wills, trusts and powers of attorney. They specifically mentioned powers of attorney so, if you are temporarily disabled, someone is handling your online accounts, especially if you make bill payments online.

Got Kids? Get an Estate Plan

From Gene Kaine’s Estate Planning Law Blog wrote this:

For many couples with young children, the expense of actually sitting down with an attorney may be the leading factor in delaying planning their estate.  When you’re trying to pay a mortgage, an estate plan may seem like a luxury you can put off until a later time.  But consider the possibility that something does happen to you and/or your spouse.  What would happen to your children? If you don’t decide who will take care of your children and put that decision into an estate plan, a court will make the decision for you should something happen.  And that may very well not be the best choice for your kids. . .

Once you’ve examined your feelings surrounding the issues involved in estate planning, it’s time for a little dose of reality.  Be very realistic about your resources and how they’ll be used.  If you want your estate to be used for sending your children to college, you need to also think about how they will be supported until they actually reach the age to go to college.  The first thing you need to think about is supporting your children.  They need food, clothing and shelter first.  College is a secondary consideration. . .

To get the ball rolling, sit down and make a list of the property you own, how it is titled, the fair market value and how much you owe on it (if anything).  List all your life insurance and retirement plans, how much they’re worth and who the beneficiaries or owners are.  Now is the time to think ahead.  Don’t just think about your current situation but think about what your family will need in the future.

In many estate planning consultations, the hardest decision for most of my clients is not how to divide the property if something happens; my clients struggle most with naming a guardian for the kids. Who will get the kids if both mom and dad die or become incapacitated? The paternal grandparents? The maternal grandparents? Or will the maternal aunt be best? Or the paternal uncle? More often than you think, none of the above. (To make it more difficult, I usually recommend nominating at least three persons in succession, not co-guardians.)

Another aspect that is infrequently considered is who will manage the assets for your kids. For example, check your life insurance policies. You likely named your spouse as initial beneficiary and your children as contingent beneficiaries. Great, right?  First, if your children are under 18, you have built-in court proceedings because children cannot receive property or benefits outright. A conservator would need be appointed which means attorney fees, Guardian ad Litem fees, court costs, and bond expenses. Second, even if your child has reached 18, would you trust your 18 or 19 year old to wisely manage $100,000 in insurance proceeds? (When I was 19, I would not have spent it on Georgia Tech but probably bought me a new truck (or two).)

So I agree, if you have minor children, you need an estate plan regardless of the size of your bank account.