What Happens If We Dont Die – Part 2

Continued from What Happens if We Don’t Die – Part 1

Americans are living longer all the time. According to statistics, each generation lives longer than the previous generation. This could be the result of improved living conditions and advances in medicine. There is a theory of geriatrics that we are “made” to live to be around 135 years old, but that our lives are shortened with each illness and tragic event we suffer. In colonial times in the U.S., the average life expectancy was only age 45! According to USA TODAY, life expectancy in the U.S. has now surpassed 78 years. But in my elder law practice, many of our clients are much older than that. In fact, a 78 year old client seems young to me now. Many of our clients are doing well in their 90’s, and we have had several clients in their 100’s.

The sad thing is that many of our clients are outliving their assets. One of my clients, age 91, recently told me that when he retired at age 65, his financial planner told him that he would be ok financially until he was 90. My client told me that his financial planner was right, in that my client is now 90 and is running out of money. My client is worried about losing his home and the remainder of his assets through illness and nursing home costs.

What should we do? We should be Planning for our Long Term Care. As we become older, we do not want to run out of money or run out of options for our care. Nursing home care can cost $70,000 a year. In-home-care, assisted living facilities and board and care can also be very expensive. We want to be able to preserve our assets, including our home, so that our assets can last as long as possible. We also want to be able to leave something to our loved ones when we are gone.

Most People Do Not Have Long Term Care Insurance. I always ask my clients if they have Long Term Care insurance, but most people do not have it. If you are older you probably can’t get it, and if you are younger, it may be too expensive. In addition, many insurance companies no longer offer long term care insurance.

So, what is left are our own resources, including our cash accounts, Social Security, Pension incomes, and our homes. One of our goals in long-term-care planning is to be able to tap into Medi-Cal benefits, to pay for nursing home care. For veterans, we want to be able to tap into the VA Aid & Attendance Pension benefit, which can help pay for in-home care, board and care, and assisted living facilities. We also want to be able to keep the home for ourselves and later for our loved ones. But to be able to do these things requires advance planning. And, planning becomes extremely difficult if the client loses mental capacity.

We should now update our estate planning documents to include elder law, government benefits and asset protection language. Most of us have an estate plan, which includes a revocable living trust and financial durable power of attorney. However, about 99% of these plans are designed for what happens when we die. They are not designed for what happens if we don’t die. For long term care and government benefits planning, we want to update our revocable living trusts and financial durable powers of attorney to contain the correct asset protection and government planning language. If a client loses capacity, we must rely on the existing language in the estate planning documents. If the language is not sufficient, we may have to go to court to update the language, which is costly.

The updated language will provide in part that if the client loses mental capacity, that their loved one or trusted individual named in the documents, can transfer assets, including the home, pursuant to the regulations, in order to obtain qualification for Medi-Cal or VA. The language will also provide for the use of various approved asset protection devices, including the use of other trusts, to protect the client’s assets and home. For these purposes, the language in the Revocable Living Trust and Financial Durable Powers of attorney, refer to each other, and work hand-in-hand. There is “triggering language” regarding an imminent need for this type of planning. Unfortunately, most estate planning documents do not have this language, which is why they must be updated.

Looming Deficit Reduction Act – Plan Now. The Deficit Reduction Act (regarding Medi-Cal qualification), has been signed into law by Governor Schwarzenegger. This act will make planning and qualifying for Medi-Cal much more difficult. However, the good news is that that at this moment in time, we are in a limbo period, and are still able to utilize the older, more liberal Medi-Cal qualification and gifting rules. This is because of the complicated rules requirements in Sacramento, and a companion bill pending in Sacramento which has yet to pass both houses. Many of our clients are utilizing this “limbo” period to update their estate planning documents and pursue their planning for Medi-Cal.

CAVEAT: When planning for the VA Aid & Attendance Pension benefit, you should also plan for the Medi-Cal nursing home benefit at the same time. You never know when you may need one benefit over the other. The rules for the two programs are different and should be coordinated at the planning and implementation stage, through an elder law estate planning attorney who is also accredited by the Veterans Administration.