Robert M. Slutsky Associates
Newsletter

Newsletter14: July 2007

Summer is in full swing. Enjoy the fruits of summer (in all forms) and read on . . . . .

New GAO Study Confirms What Elder Law Attorneys Have Been Saying:

A new study by the Government Accountability Office concludes that few elderly transfer assets in anticipation of nursing home care. In a recent study of 540 randomly selected Medicaid applications from Maryland, Pennsylvania and South Carolina it was determined that only 10% of the applicants had transferred assets in the time preceding the application. The transfers were typically around $15,000.00. This study as well as the studies before it bear out that the DRA was an ill-conceived law that is likely to do more harm than good.

Harmful Nursing Homes Largely Escape Penalties:

In a recent study The Government Accountability Office found that nursing homes that injure patients are rarely held accountable. The study found that despite stringent federal standards for nursing homes, investigators found that Bush Administration officials rarely used their authority to deny Medicare or Medicaid payments to facilities that harmed residents and imposed fines far less than the $10,000.00 per day authorized by law.

The study in its entirety is here: http://www.gao.gov/new.items/d07241.pdf

Homeward Bound:

Baby boomers' parents who took up travel or fled to the Sun Belt a decade or two ago are coming home. Nearly 18% of people over 60 who moved across state lines say they are returning to their hometown, according to the Census Bureau. Demographers Christopher Briem of the University of Pittsburgh and Peter A. Morrison of the Rand Corp. found that more than one?third of the elderly who moved to Pittsburgh from 1995 to 2000 had relocated from Florida.

There are a number of reasons for the reverse migration. Some retirees simply miss their favorite restaurants and familiar surroundings. But generally, most return because they've lost a spouse or are no longer mobile and need the support a family can provide. And while families welcome returning seniors, it's not always easy.

The countermigration of elderly retirees offers some important lessons for those just embarking on their youthful retirement years--roughly ages 60 through 72. Yes, we're living in a time of unprecedented longevity and health, and there is nothing wrong with planning to spend 10 to 20 years in the sun. But we all grow old, and then our values can change in a hurry. Some things to consider before picking up stakes and heading where it's warm:

Family ties. Even if you have plenty of money, eventually you are going to want the support of the people you know best. The longer you've been away, the more likely those connections are to have eroded. Don't wait until you're desperate. Leave time to rebuild relationships.

Rent: If you move away, consider renting out the house you're leaving and renting the one into which you move. That makes returning easy if, after a year or two, you realize you've made a mistake.

Future mobility. One of the main things young retirees overlook is what life will be like after they no longer drive. On average, women outlive their driving ability by 10 years, men by eight. The availability of mass transit and help from family come in handy.

Pennsylvania is emblematic of this trend. With the 3rd highest number of older adults in the country and the proliferation of living options we see a tremendous amount of reverse migration. The strains on the system are therefore worse as a result of this.

Choosing Payouts for Your Retirement Plan:

1. Don't Withdraw Money Too Soon: If you take money from your IRA before age 59½ , except in certain circumstances, you will have to pay a 10% penalty over and above the income tax (at regular income tax rates). If you leave the money in your employer's 401(k) plan, you can start taking distributions without penalty at age 55. If you roll over the money into an IRA under your control (often a better choice because of increased investment options), you lose this option.
2. 72(t) Option: You can also take your money in equal payments based on your life expectancy prior to age 59½ without penalty as long as you do it for at least 5 years or until you reach 59½ , whichever is longer. To calculate how much you need to take out goto www.72t.net.
3. Remember if you want to move the money, do a trustee to trustee rollover of the account proceeds. If you get a check from your administrator and do not deposit it into an IRA within 60 days, the entire amount will be taxable in the current year.
4. Lump Sum or a Check: Some employees (although less and less) still may have a defined benefit pension where they can take a monthly payment for the rest of their life or a lump sum rollover into an IRA. Ultimately the financial health of the company and the amount of the lump sum (combined with your comfort and skill in investing the money) will help you determine which is better. You can calculate what the lump sum will get you monthly under different scenarios at www.annuityshopper.com. Sometimes taking the lump sum and buying a life insurance policy for your spouse is the better option. Sometimes, if the company is large and financially solid, the monthly income is the better deal.

Long Term Care Hybrid Policies:

People have often been reluctant to buy Long Term Care insurance policies because of the costs, other planning tools to preserve assets and the possibility of paying premiums for 30+ years and never getting any benefit. To increase participation, insurance companies are offering "hybrid" products that combine long?term care insurance with other insurance products

These are complicated policies that combine long term care coverage, life insurance and annuities. Currently, there are a limited number of types of hybrid long?term care insurance products in the marketplace. One simple type of hybrid of life insurance with long?term care insurance is an accelerated death benefit, which may be offered as an option or rider to a life insurance policy. This benefit permits the owner of the policy to "accelerate" all or part of the death benefit payout when triggered by specified events (for example, the development of a permanent disability that requires long?term care services). At the time of acceleration, the death benefit under the policy is reduced - if enough payments are disbursed under an accelerated death benefit, the death benefit may be completely eliminated.

A few companies offer another type of hybrid of life insurance and long?term care insurance, primarily designed for persons at or near retirement age who have significant assets that can be invested in a hybrid product. Typically, a person makes a single large premium payment to purchase a cash value life insurance policy. The policy specifies a guaranteed death benefit. If the policyholder does not use any long?term care benefits, then the death benefit is paid to the beneficiary when the policyholder dies. However, the policy can also pay for long?term services and supports, with a corresponding reduction in the death benefit.

Hybrids of annuities with long?term care insurance are also available in the marketplace. In some ways, they are similar to the life insurance/long?term care insurance hybrids described above.

In one example of a combined disability/long?term care coverage the policyholder can exchange the disability policy for a long?term care insurance policy without undergoing an underwriting review. The specific level of long?term care insurance premiums is based on the age of the consumer at the time of conversion.

The desire to insure against long?term care risk competes with the need to insure against the many other risks we face in life, and many people decide that purchasing long?term care insurance is not a viable option. This outcome is more likely to the degree that some people are in denial about or have misinformation about their potential long?term care needs or the degree to which government programs will pay for long?term care.

One potential appeal of hybrids may be that they allow the consumer to purchase one policy that insures against two risks, even though coverage is likely to be limited should both risks occur. Hybrid insurance products may therefore present one way to achieve a partial and second?best solution to the problem of many risks to insure against with limited funds available. By incorporating another insurance product that is perceived to have value, hybrids may also overcome some psychological barriers for those consumers who may feel that they have "lost" or "wasted" all of their premium payments if they do not make claims against their long?term care insurance until decades after the initial purchase of the policy, if at all. And some hybrid products may also have a benefit of encouraging purchase of long?term care insurance earlier in life, when one is usually less likely to be denied coverage.

Nevertheless, it is highly doubtful that insurance hybrids alone can solve the basic societal problem of how to pool long?term care risks. For one, hybrid insurance products with long?term care insurance do not offer substantial pure economic appeal. It appears that, at best, only small premium savings may be possible by combining insurance products into a hybrid.

The few long?term care insurance hybrids with disability insurance are worthy of further study. Such hybrids can allow the consumer to evaluate in a coherent process the potential needs to replace income lost due to disability as well as to pay for services that may be needed as a result of developing a disability, and then purchase a single insurance product covering at least part of the combined risk.

Hybrid insurance products will require a better educated consumer in order to make the financial decision that is best for him or her. Providing government protections to consumers in the face of increasingly complex decisions regarding long?term care insurance is a real need that must be addressed.

Interest Rates and the Housing Market

Rates have gone up noticeably since the last newsletter. The rates for a 30 year no point loan for someone with excellent credit are now around 6.75%. This is a ½ %+ increase from a few months ago. However, historically these are still pretty good rates.

The housing market continues to moderate. Prices have dropped more than any time in US history. In this area properties are staying on the market longer and sellers (especially new home builders) are making accommodations to move inventory. Most public homebuilders that were reporting record earnings a year and a half ago are reporting losses now and their stocks have been pummeled.

Remember that most Home Equity Lines of Credit have an adjustable rate. Many of the adjustable loans taken out over the last few years are adjusting now or soon. This means payments may rise dramatically. Refinancing into a fixed rate mortgage is advisable.

In addition to Elder Law, our firm practices real estate law and originates mortgages. Please call us at (610) 940-0650 with any questions or for rate quotes.

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Robert Slutsky, Esq. has been practicing Elder Law for 14 years. He helps families in Montgomery, Delaware, Philadelphia, Chester and Bucks Counties. Mr. Slutsky has represented local Area Agencies on Aging, long term care facilities and was a member and officer on the CAPS Board of Directors for over 10 years. Home visits are available. You may reach him at (610) 940-0650, robslutsky@comcast.net or the website at www.slutskyelderlaw.com.

DISCLAIMER: The content of this Newsletter is for general information only. It is not intended to be legal, tax, financial, medical or other advice. The reader should obtain legal, tax, medical or other advice from a competent professional to address his or her specific needs. We do not endorse any particular service provider. If a service provider is mentioned in an article it is simply because we may have come across them in our travels and cannot speak to their quality of service or integrity.