Robert M. Slutsky Associates

Elder Law Estate Planning And Financial Newsletter

Newsletter20: March 2008

Spring is around the corner (we hope). Read on . . .

Older Adults Should Consider Withdrawing from Social Security and Reapplying for Higher Benefit

A recipient can ‘undo’ his decision to take Social Security retirement benefits early simply by paying back without any interest or inflation adjustment the benefits he's received. He can then re apply for Social Security and claim the bigger monthly checks paid to those who wait until an older age to claim benefits.

A seldom noticed provision in Social Security allows recipients who began taking their benefits early to pay the money back and reapply at their current age and get a much higher income for life. Many experts who have looked at the idea think it is great. It will work nicely for retirees in their late 60s or early 70s who opted, years ago, to take Social Security benefits at a relatively young age. And it is a lot less expensive than using the money to buy an annuity for the difference. This could benefit millions of people.

For example: A 70 year old retiree has $400,000 in regular assets and $200,000 in retirement savings. He claimed early retirement benefits and receives $11,556 a year. Had he waited until age 70 to file, his benefits would total $20,000 a year. To withdraw and reapply for benefits, the retiree would have to repay $79,305. But even with that payment, reapplying for Social Security would raise his standard of living by 14%.

The form needed is Form 521, “Request for Withdrawal of Application,” which is available at www.ssa.gov.

New Tax Break Helps Surviving Spouses

Widows and widowers who don't want to sell their house right away will get a tax break under a new law. The law gives surviving spouses two years to sell their house and receive the full $500,000 capital gains exclusion that married couples are entitled to.

Couples who are married and file taxes jointly can sell their main residence and exclude up to $500,000 of the gain from the sale from their gross income. Single individuals can exclude only $250,000. Under the previous law, if a spouse died, the surviving spouse could file jointly and therefore get the full $500,000 exclusion only for the year in which the spouse died. The new law allows surviving spouses to get the full $500,000 exclusion if they sell their house within two years of the date of the spouse's death and other ownership and use requirements have been met. The result is that widows or widowers who sell within two years may not have to pay any capital gains tax on the sale of the home.

Tips for Career Changes (Young and Old)

Some helpful websites for career changers: http://www.aarp.org/money/careers/choosecareer/; http://careerplanning.about.com/; http://linkedln.com/; http://salary.com/; http://www.toastmasters.org/; http://www.wetfeet.com/.

Hospice Saves Money for Medicare

A new study from Duke University (10/07 issue of Social Science and Medicine) confirmed that not only does hospice improve quality of care at the end of life, it saves money. This study showed that hospice care would have saved money in 7 of 10 cases if the patient was placed on hospice for a longer period of time.

Enjoy Life, But You May Pay

In addition to the conventional downsides of poor health from smoking, eating badly or failing to exercise, your employer may whack you with higher health insurance premiums. As part of an effort to reduce benefit costs some employers are charging employees with poor health habits surcharges on their health insurance premiums. Under a typical health insurance plan your health status does not affect your premium. This underpins the concept of group underwriting. With some companies today you may go through an annual screening and if you fail certain tests either pay a higher premium or have higher deductibles. These companies may also add positive incentives for improvements in your health and lifestyle changes.

The Real Long Term Health Care Challenge

Recently, the Congressional Budget Office (CBO) has been issuing reports challenging conventional thinking about the long term fiscal problem facing the nation, which holds that it is primarily related to the influence of demographic changes on Social Security and Medicare. The new thinking expressed in the CBO reports goes like this: most of all, the health care cost issue is about rapidly rising prices. Spending on health care, both by the government and in the private sector, has been growing faster than the economy for many years and is projected to increase to unsustainable levels in the near future. On average, health care consumers are purchasing more than in the past, and what they purchase has increased in cost.

It would be one thing if all of this spending was valuable. But a growing body of research suggests a great deal of this spending has not been worth it. Researchers at Dartmouth Medical School have found extreme variation in the price of health care by region within the U.S. Overall, the variation in spending does not correlate with health outcomes, meaning spending more does not necessarily make a person healthier

Many observers have concluded that the price of health care (in 2006, we spent over $2 trillion annually on it) does not reflect its value. A 2007 McKinsey & Company study estimated around $480 billion of total annual health care spending could be eliminated, with no adverse impact on health outcomes for individuals. About half of that inefficient spending may be subsidized by public programs, the biggest being Medicare and Medicaid.

At the root of the problem (says the CBO) is that markets are bad at providing health care. For markets to be efficient, buyers and sellers need good information about products. But in health care, that information is too often unavailable to doctors and patients. As a result, people are spending money on treatments that are not the best deal.

When a patient is buying a health care service, they rarely know if they're getting a good deal and therefore are unable to choose health care efficiently. Doctors, too, are often in the dark about what options are best. CBO Director Peter Orszag has found insufficient research on the "comparative effectiveness" of different options for treating patients. Some doctors choose options that might be more expensive than necessary or less effective than other available procedures. If competition and additional choices are not having an impact on the bottom line of health care costs, the additional overhead and administrative fees charged by companies will make long term costs significantly higher. Government health plans could use financial incentives through the fee for services system to encourage the use of treatments research has proven most effective.

Another option proposed advocates reorganizing the system on a not for profit basis, which should reduce the competition and race to the bottom mentality that contributes to inefficient health outcomes.

The proliferation of insurance has also likely increased health care costs by enabling people to purchase health care, and through administrative and profit related cost excesses. But high insurance costs are mostly the result of inefficiencies in the delivery system, and changing the insurance system may have a limited effect on health care spending.

Government insurance programs that pay for health care, like Medicare, Medicaid and tax exemptions, have to a large extent financed the long term increases in health care costs that began in the 1960s. Private insurance companies are forced to take profits and spend considerably on competition with other insurers (advertising, promotions, incentives, discounts, etc.), which drives up costs for consumers.

However, there is significant disagreement over whether insurance encourages wasteful behavior by consumers, a tendency economists call "moral hazard." A landmark RAND study showed when consumers pay higher co payments, they consume less health care, with little or no adverse effects on health.

The new reports by the CBO give credence to and help to underscore the findings of a growing number of health care experts who have found the long term fiscal challenge is almost entirely due to rising health care costs due to inefficiencies in the entire health care system.

Are AARP Products A Good Deal?

AARP is a social and advocacy organization. It also endorses a significant number of products for its members and receives compensation for putting its stamp of approval on these products. Royalties from these endorsements total about $400,000,000.00 (yes that’s $400 Million) per year or 40% of AARP’s annual budget.

Recently Businessweek magazine did a study on 4 insurance products endorsed by AARP: Term Life Insurance, Permanent Life Insurance and Annuities and health insurance (principally medigap policies). It found that overall, while the health insurance policies were generally a very good value, you can do better elsewhere on the life insurance and annuity products.

Living Trust Mill Gets Zapped

alifornia Attorney General Edmund G. Brown Jr. and Insurance Commissioner Steve Poizner announced a $7.2 million settlement with American Investors Life Insurance Company, Family First Insurance Services, and Family First Advanced Estate Planning over charges that the companies wrongfully sold annuities to senior citizens. These types of organizations (and these companies themselves) have done business in PA.

The case involved two companies acting as what is referred to in the estate planning business as “trust mills.” The business model of a trust mill generally is to offer free or very low cost estate planning services to seniors, with the estate planning work often being done by people who were not licensed to practice law. In gathering the information to prepare the estate planning documents they learn about the clients’ investments. Once the documents are prepared, the trust mill sends an insurance sales person out to get the signatures on the wills and trusts. This agent then convinces the clients that their current investments are not sound and persuades them to purchase annuities, which the agent just happens to sell. Now, there is nothing wrong with annuities as an investment in the right situation. However, these annuities had very long maturity periods, as much as 15 years, during which the clients would pay large penalties for withdrawing their money, which made them not appropriate investments for elderly people. Often the particulars of the investments were not disclosed to the senior clients. Under the terms of the settlement, the companies will pay $1 million in civil penalties, distribute $5.5 million to consumers who purchased annuities and pay $700,000 to reimburse the Office of the Attorney General and Department of Insurance for their costs of investigation and prosecution. The settlement also requires Family First Insurance Services and Family First Advanced Estate Planning to permanently cease all business operations.

Remember the old saying “If something looks too good to be true it probably is.” If someone is offering to write a revocable trust and a will for you for free or for just a few hundred dollars, you have to ask yourself why. If you believe you have been victimized by Family First, another trust mill or by annuity fraud, you should report the crime to the local district attorney or the Department of Insurance. You may also file a complaint with the Attorney General.

Study critical of nursing home fine print

Nursing home admission agreements are confusing, can run 10 pages or more and are often signed in moments of distress, says a national advocacy group that also says the homes are forcing Missouri’s elderly to sign away fundamental rights.

A study released today by the not for profit National Senior Citizens Law Center evaluated 175 legal agreements signed by residents who entered Missouri nursing homes. The study found many agreements allow facilities to evict residents for almost any reason, limit their rights to be visited by family members and require family or friends to assume personal financial liability for care. All such provisions are in violation of the federal Nursing Home Reform Act of 1987.

Representatives of the law center, the Missouri Long Term Care Ombudsman Program and the Central Missouri Area Agency on Aging met today at Primaris offices in Columbia to announce the study results.

The study found that 17 percent of surveyed nursing homes reserved the right to evict someone for any reason even though federal law lists only six valid reasons for eviction. Consequently, advocates for the elderly said, patients with Alzheimer’s disease and other forms of dementia are being evicted for being "difficult."

The survey also found that 19 percent of nursing homes required a guarantee asking a family member or sponsor to take financial responsibility for the cost of care. The study argues it’s illegal to require fiscal responsibility and that Medicaid is required to cover expenses when a resident is unable to pay.

The study found 5 percent of agreements instituted visiting hours for residents, also in violation of the federal law.

The study and a consumer guide outlining the rights of residents are available online at nsclc.org. Advocates advise family members to confront nursing homes about illegal provisions and, if necessary, contact the Long Term Care Ombudsman which is posted in every long term care facility in PA

Real Estate and Mortgages

Rates are a little higher now than last month (still in the lower 6% area for a 30 year no point loan for excellent credit). Although the fed has continued to lower short term rates (and is likely to continue to do so) the market priced 10 year T-Note (which is what mortgage rates are based on) has gone up a little. Traders apparently believe that inflation is more likely over the long run and is pricing that into mortgage rates.

People with adjustable rates should still try to refinance into fixed rate products if they can as rates are still good historically.

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 15 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.