Richard W. Kozlowski, Esq.

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Generally

Elder law promises to be growing field for one simple reason:  demographics.  Currently, there are roughly 34 million Americans over the age of 65, or about 13% of the population.  In the next thirty years, as the baby boomers age, this number is expected to double to over 68 million -- fully one in five Americans will be part of the over 65 crowd.

Many of the elderly face extreme financial pressures.  Social Security, which was never designed to provide financial security to retirees, is heavily relied upon by a large number of seniors.  Eleven percent of American senior citizens live in poverty; without Social Security, it would be nearly half.   For a third of the elderly, Social Security is virtually their only income.  This financial dependence, the growing senior population, and the instability (perceived or actual) of the Social Security system, is certain to create many issues for the elderly in the next several decades.

Elder law encompasses a wide range of topics, from retirement (financial) planning to long-term healthcare.  Probably the most common issue facing seniors (and their families) is how to protect against the cost of extended long-term care.  Often, this type of planning involves the use of governmental assistance programs such as Medicare and Medicaid.  These programs are complex, and understanding these complexities can make an enormous difference in a family's finances.  A related issue is long-term healthcare insurance.  This type of insurance can help reduce the impact of an extended nursing home stay where governmental assistance is not available.

Despite the financial pressures facing seniors, there is good news.  Here are some interesting statistics:

(1)  Pension assets have increased from barely one percent of household net worth in 1945 to almost 25 percent by the end of 1998. No other category of household wealth has grown nearly as much. 

(2)  By the end of 1998, the $8.724 trillion of assets in pensions exceeded the replacement cost of all household residential structures in the United States.

(3)  Americans in the 51 to 62 age bracket have, on average, over $140,000 in pensions assets alone.

These statistics demonstrate that, for many seniors, key issues include planning for their retirement and for the transfer of accumulated wealth to younger generations.

Medicare

Governmental healthcare assistance for senior citizens is divided into two programs:  Medicare, which is the first "safety net," and Medicaid (discussed below).   Unlike Medicaid, Medicare has no income or asset eligibility standards -- if you are 65 or older, and are receiving social security, you are covered by Medicare.

Medicare is divided into two parts:  Part A Hospital Insurance, and Part B Supplemental Medical Insurance.  You are automatically enrolled in both parts of Medicare unless you opt out of Part B.  Part A is provided at without a premium payment; Part B requires a monthly premium (currently $45.50/month).  Various other restrictions apply to enrollment, and coverage may be secondary to an employer provided plan if you work past age 65.

Part A Coverage
Part A provides limited coverage for hospitalization, nursing home care, and home health care.  For hospitalization, Medicare has a "first day" deductible, which is currently $776.  Otherwise, the first 60 days of hospitalization are covered without a deductible or co-pay.  After 60 days, Medicare coverage continues for an additional 30 days, but with $194/day co-pay.

Part A also covers nursing home care.  You are limited to 100 days of coverage per benefit period (defined below).  The nursing care must be medically necessary, and it generally must follow a hospital stay of 3 or more days.  In addition, you must require skilled, daily nursing care.  The first 20 days are covered in full; the next 80 days require a co-pay of $97/day.

Home health care benefits are also provided under Part A.  The definitions are complex, but generally you can receive up to 100 home health care visits if: (1) such visits begin within 14 days of a hospital stay of 3 days or more, or (2) if you were discharged from a skilled nursing facility, were in that facility for at least 14 days following a 3+ day hospital stay, and visits begin within 14 days of discharge.  An important part of home health care services, which do not fall within the Part A definition, are covered under Part B  (see below).

Part B Coverage
As mentioned above, Part B coverage is elective, meaning that you can choose to pay the monthly premium ($45.50 in 2000) or opt-out of Part B entirely.  Individuals who participate must pay a  $100 annual deductible.  Medicare pays 80% of covered services, there is a 20% co-pay.  Part B fixes fees and charges for services and equipment -- often much less than the amount actually charged to you (limits apply).

Medicare Part B covers a number of services, including:  physical therapy; pathology; outpatient hospital services; doctors' services; limited ambulance services; x-rays; prosthesis; certain mammography screening; and certain drug treatments. 

An important aspect of Part B coverage is home health services.  Such services are limited to 28 hours of skilled nursing and 35 hours of home health aide services per week.  However, there is no limit on the duration of such services, and there is no co-pay.  Several requirements must be met: (a) you must be homebound, (b) you must require skilled nursing, or physical, occupational or speech therapy, (c) a doctor must order the services under a plan of care, and (d) the services must be provided through an Medicare-approved agency. 

Medicaid

Medicaid is administered jointly by the state and federal governments.  As long a certain federal minimums are met, each state can tailor its Medicaid program to meet particular goals.   It is a "needs based" program, which means that is it generally not available to individuals who have income or assets above prescribed limits.  These income and resource tests are discussed below.

In Vermont, Medicaid is not available to all needy persons; rather, it covers categories of needy individuals, including individuals over sixty-five or who are blind or disabled.  Assuming you meet all of the eligibility requirements, Medicaid covers all medical care including hospitalization, doctor bills, nursing home coverage, home care, and prescriptions. 

Income Test
In order to be eligible for Medicaid in Vermont, your income, and the income of your spouse, cannot exceed certain limits.  Currently, if you are institutionalized, your income cannot exceed $47.25/month.  Your spouse's income (if he or she is not institutionalized) cannot exceed $1,383/month.  Obviously, these limits demonstrate that Medicaid is available to only the most needy of Vermonters.

Vermont's Medicaid program is a "spend down" program.  If your income (or that of your spouse) exceeds the limits for eligibility, you may become eligible by "spending down" that income.  This means that if you first use income that is in excess of these limits to pay for the cost of health services, Medicaid will cover the difference.

A key aspect of Vermont's Medicaid program is the liability of one spouse for the care of another.  If you are married, and your spouse's income exceeds $1,383/month, you will not be eligible for Medicaid assistance unless and until your spouse contributes income in excess of that amount to the cost of your care (similar rules regarding assets also apply, see Resource Test below).  The income of one spouse is imputed to another -- which means that the spouse who does not need assistance can keep up to $1,383/month even if the source of that income is the other spouse.

Resource Test
In addition to the income test just discussed, in order to be eligible for Medicaid in Vermont you are limited to the amount of assets you can own.  Under Vermont rules, an individual can currently have non-exempt resources of no more than $2,000.  Resources exempt from this rule can include your home, an automobile, a limited burial fund, and other minor assets.  Your spouse can retain more - up to $84,120 of non-exempt resources.

If you or your spouse have resources in excess of these limits, you or your spouse will be required to spend down those resources before you become Medicaid eligible.

Exempt resources, such as your home, are not protected indefinitely.  In certain instances, if you receive Medicaid assistance during your life, the state will seek reimbursement from your estate after death.  Reimbursement is sought through the imposition of a lien, and is being used more and more by Vermont to recoup the cost of medical services rendered to needy Vermonters. 

Vermont recently enacted a statute which protects a "modest" home (under $125,000) from a Medicaid lien if certain conditions are met.  First, the home must pass to one or more lineal heirs or siblings of the decedent who: (1) have income below 300 percent of the federal poverty level, or (2) who have contributed significantly, monetarily or otherwise, to the decedent so as to allow the decedent to delay or avoid nursing home placement.  This statute is subject to approval by the Health Care Financing Administration (HCFA).

Transfer of Resources Rules
Given the severe Medicaid limitations on resources, you might consider the transfer of assets to your heirs as a method of meeting the resource test discussed above.  This type of Medicaid planning is often ineffective.  Under current rules, Vermont will look back at all transfers made in the last 36 months (a 60 month rule applies to transfers made to a trust).  If you make any such transfers, you will be ineligible for Medicaid for a period of time which is calculated by dividing value of the transferred resources by the average cost of a nursing facility in your area (set by the state).  For example, assume that the state assigns an average cost of $3,800/month for  nursing facilities in Chittenden County, Vermont.  If you transferred an asset worth $38,000 to your heirs, you would be ineligible for Medicaid for a period of ten months ($38,000 divided by $3,800 = 10), measured from the date of the transfer.

Certain transfers are exempt.  For example, a home is exempt if transferred to a spouse, or a blind or disabled child.  Certain other transfers of resources between spouses are also exempt.  Transfers between spouses should usually take place before one spouse applies for Medicaid. 

The transfer rules are extremely complex, and you should consult an attorney prior to engaging in any Medicaid planning of this type. 

Long-Term Healthcare (Nursing Home) Insurance

Long term healthcare insurance is often sold to relieve the fear and risk associated with the costs of nursing home care.  This type of insurance may have a proper place in your retirement planning; however, there are several traps for the unwary.

The major consideration in buying a long term healthcare insurance policy is not cost.  The key consideration is the triggering event(s) for coverage under the policy; that is, when will the policy pay you a benefit?  Payment under almost all long term healthcare insurance policies is triggered by your inability to perform one or more  "activities of daily living" or "ADL's."  These normally include bathing, dressing, walking, moving from bed to chair, toileting, maintaining continence, and eating.  If the insurance policy  requires you to be unable to perform multiple ADL's, it is unlikely you will receive benefits from the policy, regardless of how low the premiums are. 

ADL's are not the same from one insurance company to another. Most insurance policies define what is meant by an inability to perform a particular ADL such as bathing or dressing.  For example, a definition that requires physical assistance in performing the ADL is more restrictive than one that merely calls for supervision. 

Some policies do not evaluate mental functions to determine the qualifications for benefits. This is important for sufferers of Alzheimer's disease.  A policyholder who has the disease can be denied benefits if he or she is physically able to perform the ADL's  specified in the policy.  Thus, an insured with Alzheimer's disease may not qualify even he or she is forgetting to take medications or turn off the stove.

The old adage, "you get what you pay for," is certainly apt.  Prior to purchasing any long-term health care insurance policy, read and understand the triggering event(s) for coverage.  Only then can you compare the cost and benefits of competing policies.

Medigap Insurance
Medigap or supplemental Medicare insurance policies are now offered under set federal guidelines.  These policies are designed to fill in the gaps where coverage fails under medicare deductibles and limits.

Retirement (Financial) Planning

For most clients, the major question as they approach their senior years is whether they have sufficient assets to retire.  The answer to this questions depends on many factors:

(1)  Investment assets and liabilities;
(2)  Post-retirement sources of income;
(3)  Reliance on social security;
(4)  Fixed (nondiscretionary) uses of funds;
(5)  Variable (discretionary) uses of funds; and
(6)  Life insurance.

Although the interaction of these factors is complex, the approach is fairly simple.  Pre-retirement can be viewed as a wealth building stage, where you are saving assets to fund retirement.  Post-retirement is the wealth consumption phase where you use income and assets to maintain your lifestyle until death.  By making certain assumptions, you can project how much wealth you will accumulate during the first phase and how long that wealth will last during the second phase.  If it will last until (at least) the end of your life expectancy, then you will have met your retirement goals.

Phase One - Wealth Building
In order to determine what assets you will have available to fuel your post-retirement lifestyle, you need to make several assumptions.  First, you need to determine how much you are saving, annually, towards retirement.  This includes regular savings and investment accounts, 401(k) and IRA accounts, and the growth in other pension plans.  To determine your rate of savings, you can look at past years to get a sense of what percentage of earnings is actually added to your overall wealth.  Alternatively, you could add up all of your expenses, including living expenses, taxes, etc., and subtract them from earnings to arrive at savings.  Either way, the idea is to capture the amount you can add to the pot of wealth available when you retire.

Second, you need to select a rate of return on your assets, and project the total growth between now and the date of retirement.  Obviously, the higher the rate of return, the more you will project to have at retirement.  The key is to be realistic - if you are investing conservatively (CD's, money markets, cash) do not choose a rate of return which is higher.  If you are investing in the stock market, choose a rate of return which reflects those investments (historically 9-10% annually).

If you make assumptions which are accurate, you should be able to put together a projection which arrives at the "pot" of wealth available to fuel your retirement.

Phase Two - Wealth Consumption
Now that you know how much wealth you can accumulate prior to retirement, you need to determine how long that wealth will last.  You first need to estimate your post-retirement personal living expenses.  These expenses should include any extraordinary goals you might have, such as travel or buying a motorhome.  Next, you need to calculate your sources of income.  These would include social security, income from investment assets, and pension income.  To the extent your expenses exceed your income, you will need to consume assets to fuel your lifestyle.  By comparing income and assets for each year following retirement, it is possible to project how long your wealth will last.  In a conservative financial plan, you will want your wealth to last at least as long as your life expectancy (and if married, the life expectancy of your spouse).

Creating a retirement plan is a complicated task, which requires consideration of many factors and often a good deal of number crunching.  You should consider consulting a professional before making financial decisions which will affect your retirement.

Estate Planning 

Estate planning for most seniors involves three major concerns:  protecting the financial well-being of the surviving spouse, ensuring the desired distribution of assets to heirs, and reducing or eliminating estate taxes.

These concerns can all be addressed through the use of a trust.  A trust can be used to protect your spouse, while maintaining flexibility.  If needed, the trustee can assist your spouse with asset management.  Upon the death of your spouse, the trust will direct the distribution of your assets to your heirs according to your wishes.  If the trust is structured properly, it can help reduce or eliminate estate taxation.  For more information regarding trusts, visit the Living (Revocable) Trusts webpage.

Another objective of many seniors is to assist their children and grandchildren with their financial goals, such as buying a home, starting a business, or funding education.  This objective can be accomplished through the use of lifetime gifts, which are fully discussed at the Lifetime Gifts  webpage.