Newsletter: January 2009

Newsletter 27: January 2009

A study of caregivers by a research team at Ohio State University has proven the oft-repeated adage “stress can kill you” is true. The focus of the investigation was the effect the stress of caregiving had on caregivers. The team, led by Dr. Janice Kiecolt-Glaser, reports on a six-year study of elderly people caring for spouses with Alzheimer’s Disease. The study not only found a significant deterioration in the health of caregivers when compared to a similar group of non-caregivers but also found the caregivers had a 63% higher death rate than the control group.

The demands on a caregiver result in a great deal of stress. It is often observed in aging publications that stress can induce illness and depression. The resulting poor health can further decrease the effectiveness of the caregiver and in some cases, as proven by the study mentioned above, even cause premature death.

Stress can be defined as a physiological reaction to a threat. The greater the threat — the greater the level of stress. A threat is a real or perceived action against our person. Threats may include the anticipated possibility of death or injury, but may also include challenges to our self-esteem, social standing or relationships to others. Or a threat may simply be a potential or real disruption of our established routines. What is stressful to one person may not be to another. For example, bumper-to-bumper traffic might be stressful to the woman executive who is late for an important meeting, but to the delivery man who has no deadline and is being paid by the hour, it may be a welcome respite to relax and listen to the radio.

Stress produces real physical changes. In some unknown way the fears in our mind, both conscious and unconscious, cause the hypothalamus and pituitary glands, deep in our brain, to

initiate a cascade of hormones and immune system proteins that temporarily alter our physical body. This is a normal human physiological response inherent to the human body when a threat is perceived — real or not. It is often called the “fight-or-flight response” or the “stress response”. The

purpose is to give us clearer thought and increased strength as well as to activate the immune system to deal with potential injury and to repair potential wounds. When the perceived threat is removed, assuming no damage is done, the body returns to normal.

A team of researchers at Ohio State University Medical Center has found a chemical marker in the blood that shows a significant increase under chronic stress and is linked to an impaired immune system response in aging adults. With the caregivers, the team found a four-fold increase in an immune system protein — interleukin 6 (IL-6) — as compared to an identically matched control group of non-caregivers. Only the stress of caregiving correlated to the marked increase of IL-6 in the caregiver group. All other factors, including age, were not significant to the outcome. Even the younger caregivers saw an increase in IL-6.

With the caregivers having a 63% higher death rate than the control group, about 70% of the caregivers died before the end of the study and had to be replaced by new subjects. Another surprising result was that high levels of IL-6 continued even three years after the caregiving stopped. Dr. Glaser proposes the prolonged stress may have triggered a permanent abnormality of the immune system.

IL-6 is only one cytokine–an immune system mediator protein — in a cascade of endocrine hormones and cytokines that are released when the brain signals a person is threatened with harm, injury, undue mental or physical stress or death. The hormones prepare the body to react

quickly by increasing heart rate, making muscles more reactive, stimulating thought, altering sugar metabolism and producing many more changes that result in the “rush” people experience when they think they may be harmed.

The cytokine release is mediated by IL-6, which takes the role of directing the immune system to gear up to prevent infection, promote wound healing and repair organs and muscles from any injury that may result from the imminent danger. The release of cytokines such as IL-1, IL-6, IL-8, TNF and other proteins such as CRP (C reactive protein) also promote development of inflammation, which is essential for blood cells to hone in on injury or infection. In addition, these chemicals promote development of various types of immune system blood cells in bone marrow. This response to harm — either real or perceived — is an important and beneficial life-saving activity of a normally functioning body.

The problem is if this response is initiated over and over again, frequently, and over a long period; it can have a dangerous effect on the body. This constant initiation of the stress response is common among caregivers — especially those caring for loved ones with dementia. Providing supervision or physical assistance many hours a week and over a period of years turns out to be extremely stressful. This type of stress is often unrelenting, occurring day after day and week after week. And the long-term effects of this stress are more pronounced in middle-aged and older people who are precisely the group most likely offering long-term care to loved ones.

In most younger people, when the threat lessens or disappears, the body reacts fairly quickly to shut down the stress response and return things to normal. But numerous studies have shown, as people age, the chemical cascade from stress lingers. Over a period of time, this constant

chemical stimulus impairs the immune system and results in early aging, development of debilitating disease and early death. In this altered state, the body maintains high, potentially harmful levels of IL-6. The body does not return to normal without intervention.

Prolonged high levels of IL-6 and the accompanying hormones and cytokines have been linked to: cardiovascular disease, type II diabetes, frequent viral infections, intestinal, stomach and colon disorders, osteoporosis, periodontal disease, various cancers and auto immune disorders such as lupus, rheumatoid arthritis and multiple sclerosis. Alzheimer’s, dementia, nerve damage and mental problems are also linked to high IL-6. Wounds heal slower, vaccinations are less likely to take and recovery from infectious disease is impaired. People who have depression also have high levels of IL-6. Depression in caregivers is about eight times higher than the non-caregiving population.

The information above should provide a compelling reason to eliminate or reduce the stress of caregiving. Following are some strategies to deal with caregiver stress. What to do?

Ask for help. Most caregivers are reluctantly thrust into their role without preparation because the need for care usually comes with little warning. Caregivers end up operating in a “crisis” mode — arranging medical care and living arrangements, scheduling care time, providing meals and household chores and so forth. Because they are so stressed and burdened, they rarely take time to find out what resources are available to help them. Ironically, caregivers often sever ties with family, friends and support groups about this time, just when help from these people is most needed.

As a caregiver you must ask for help. The stress of going it alone is dangerous to your health. If it’s difficult to ask for yourself, use an advocate — a sibling, friend or professional care manager — to arrange a meeting and get formal, written commitments from those people who are willing to help you. The extra help will give you breathing room to find all those resources that are there to help you.

Seek care management advice. A number of organizations and private companies will give you advice and guidance — many for free. If your care recipient has a very low income, you might get free help from your local Area Agency on Aging. A lot depends on available funds. Go to the website of your local Area Agency on Aging or the blue pages of your telephone book.

You may wish to pay for a formal assessment and care plan from a professional geriatric care manager. Even though it may cost you a little money to hire a care manager, this could be the best money you will ever spend. Care managers are valuable in helping find supporting resources, providing respite, saving money for care providers, making arrangements with family or government providers and providing advice on issues that you may be struggling with.

An experienced Elder Law attorney can assist with funding sources, the type of care paid for by different funding sources, protecting assets, estate planning and Medicaid and long-term care issues.

Taking a break from caregiving is just as important as taking a break at work or taking that long-awaited vacation. A care manager may be of help in selecting the best temporary help to give you a break. Or you may make arrangements with family or friends to give you a break from caregiving.

Make plans for funding future care arrangements for you or for a healthy parent. The analysis of data from three national surveys (Mature Market Institute, National Alliance for Caregiving and LifePlans, Inc) points out that employees caring for disabled elders who have long-term care insurance (LTCI) are nearly two times more likely to be able to continue working than those caring for non-insured relatives. In addition, working caregivers of those with long-term care insurance said that they were less likely to experience some type of stress, such as having to give constant attention to the care recipient or having to provide care while not feeling well themselves. Also, the group with insurance devoted more “quality time”— more companionship and less hands-on assistance — than the group without.

See if your healthy parent can still buy insurance. If he or she can’t afford it, see if other family members might contribute to premiums. There are also useful strategies using a reverse mortgage to buy long-term care insurance and life insurance for your loved ones. You should also consider insurance for yourself so when you need care someday, it won’t be so stressful on your caregivers.

Use assistive technology. There are a number of technologies to make sure your loved-ones are safe while you’re away, such as emergency alert bracelets and pendants, GPS tracking for wandering, remote video surveillance, telehomecare, sensory augmentation and all sorts of assistive devices to help disabled people cope on their own.

Remove non-caregiving stress from your job or at home. It’s obvious if you can remove other stressors in your life, you can cope better with the stress of caregiving, which you may not want to or can’t remove. The Internet is your best resource here. Go to www.google.com, the most relevant non-commercial search engine on the Net. Type in “work stress” and you can browse three million plus URLs. For home stress, type in “home stress” and browse four million plus URLs. Everything you ever wanted to know is buried somewhere in those millions of pages.

Finding love later in life may be unexpected and exciting, but should it lead to marriage? The considerations are much different for an older couple with adult children and retirement plans than for a young couple just starting out. Before deciding whether to get married or just live together, you need to look at your estate plan, your Social Security benefits, and your potential long-term care needs, among other things. Whatever you decide to do, you may want to consult an Elder Law attorney to make sure your wishes will be carried out.

Here are some things to think about:

Estate Planning. Getting married can have a big effect on your estate plan. Even if you don’t include a new spouse in your will, in most states spouses are automatically entitled to a share of your estate (usually one-third to one-half). One way to prevent a spouse from taking his or her share is to enter into a prenuptial agreement in which both spouses agree not to take anything from the other’s estate. If you want to leave something to your spouse and ensure your heirs receive their inheritance, a trust may be the best option.

Long-Term Care. Trusts and prenuptial agreements, however, won’t keep a spouse from being responsible for your long-term care costs or vice versa. In addition, getting married can have an effect on your or your spouse’s Medicaid eligibility. If you can afford it, a long-term care insurance policy may be a good investment once you remarry (or even if you are single).

The Family Home. Whether you are getting married or just living together, before combining households you will need to think about what will happen to the house once the owner of the house dies. If the owner wants to keep the house within his or her family, putting the house in both spouse’s names is not an option. On the other hand, the owner may also not want his or her heirs to evict the surviving spouse once the owner dies. One solution is for the owner of the house to give the surviving spouse a life estate. Once the surviving spouse dies, the house will pass to the original owner’s heirs.

Social Security. Many divorced or widowed seniors receive Social Security from their former spouses, and remarriage can affect benefits. If you are a widow(er) or divorced and you remarry before age 60, you will not be able to receive Social Security retirement benefits based on your deceased or divorced spouse’s work record. You will still receive benefits, however, as long as you remarry after age 60. You may also be able to collect spousal benefits from a new spouse if those benefits are higher.

Alimony. If you are receiving alimony from a divorced spouse, it will likely end once you remarry. Depending on the laws in your state and your divorce settlement, alimony may end even if you simply live with someone else.

Survivor’s Annuities. Widows and widowers of public employees, such as police officers and firefighters, often receive survivor’s annuities. Many of these annuities end if the surviving spouse remarries. In addition widows and widowers of military personnel may lose their annuities if they remarry before age 57. Before getting married, check your annuity policy to see what the affect will be.

College Financial Aid. Single parents with children in college may want to reconsider before getting married. A new spouse’s income could affect the amount of financial aid the college student receives. Some private colleges may even count the combined income of a couple that lives together if they commingle their expenses.

Lump Sum vs. Annuity Payout:

For people who are lucky enough to have an old-fashioned defined-benefit company pension, the decision whether to take that benefit as a lump sum or as annuity payments for life can be a tough one. After all, a check-a-month for life takes a lot of uncertainty out of retirement and can give

you a nice feeling of security. Indeed, research shows that people who have such pensions tend to be happier in retirement.

But the lump sum also has its advantages. You have more leeway for how much of your money you can take at any given time. And if you and your spouse die before it runs out, you can pass it along to your heirs. Of course, both have downsides. If your company runs into problems and

can’t afford to pay the pension, you could end up with lower payments. (Yes, the Pension Benefit and Guaranty Corp. does provide backup in such cases, but you could still end up losing some of your benefits.)

Since company pension payments are typically fixed, inflation will eat into your purchasing power over time. And while you may be able to invest your lump sum in a way to provide inflation protection, there’s also the possibility that you could run through your money while you and your spouse still have lots of living to do.

Okay, you say you prefer not to take your pension benefit in annuity payments. Fine. But you may want to consider converting a portion of your pension into guaranteed lifetime payments for you and your spouse. You could do that after you retire by rolling both your 401(k) money and the lump sum from your defined benefit pension into an IRA rollover account.

You could then use some of the money in that account to buy an immediate annuity. (Make sure the annuity is held in your IRA rollover. If you withdraw cash from your IRA rollover and then buy the annuity, you’ll have to pay cash on your withdrawal, leaving you with fewer dollars for

the annuity.) By doing this you would get the advantages both of having an assured income plus the ability to manage your retirement savings on your own.

How much might you consider “annuitizing,” as they say in annuity-speak? Well, that depends on how much guaranteed income you think you need. Some people feel comfortable covering much of their basic living expenses with Social Security and other sources of guaranteed income, like a

pension or annuity payments. They can then tap other assets like mutual funds, stocks and bonds for discretionary expenses like traveling and entertainment and emergencies.

A diversified portfolio of stocks and bonds can also provide the long-term growth you need to keep your purchasing power ahead of inflation, and act as a reserve in the event you meet big health care expenses later in retirement.

The younger you are when you retire the longer you have to decide if you want or need an annuity and how much income you will need for basic living expenses.

Remember too that you don’t have to buy all your annuity income at once. You can buy annuities in small chunks, adding more income later on if you think you need it. In fact, annuitizing over time has a couple of advantages.

For one thing, since annuity payments go up and down with interest rates, buying at different times prevents you from locking in all your annuity income when rates are at a low. And since you’re not buying all at once, you can easily diversify by buying from a different insurer each time (although, of course, you can also split your money between two insurers if you’re buying an annuity only one time).

Diversifying gives you an extra measure of security in the event an insurer runs into financial troubles. Sticking to insurers with high ratings from firms like Standard & Poor’s and Moody’s greatly reduces the chance you’ll have any problems. But there’s nothing wrong with the belt-and-suspenders approach when you’re dealing with money that has to support you the rest of your life.

As for how to manage the money you keep in stocks, bonds and mutual funds, you want to keep some of your assets in stocks or stock mutual funds where you have a good shot at earning long-term returns that can outpace inflation. And you want some in bonds or bond funds that can provide income and some ballast during market squalls (like now).

How much you devote to stocks vs. bonds is largely a matter of how long you want your money to last and what sort of risk you’re comfortable taking. I’d caution you, though, against hunkering down too much in bonds. As many have seen in this market downturn the alleged stability of bonds has been non-existent in this downturn. All asset classes have gotten whacked and it is likely that stocks will continue to outperform over the long run.

But this is only a general guide. You can invest more conservatively if you’re the type who reaches for the Maalox every time the market sags 100 points, or you can invest more aggressively if you’ve got enough income from other sources so that short-term setbacks in your stock and bond portfolio won’t affect your lifestyle.

Our firm offers a wide variety of Long-Term Care and Life Insurance policies from top-rated insurers. If you have any questions or would like a competitive quote kindly contact us at (610) 940-0650.

As of the writing of this month’s issue, rates are hovering in the low 5% range for a 30-year loan with no points. This is as low as they have been for a long time. It would appear that the Obama administration is of the opinion that getting rates into the low fives or even lower is what will be necessary to stabilize housing prices. Therefore the Treasury is likely to do whatever is necessary to get rates that low. For people with excellent credit, 2009 is going to be a great year to buy a home. Rates will be as low as they have been in 50 years and home affordability is historically excellent.

What to do if the intended beneficiary of an IRA is disabled? Even if an intended beneficiary has a cognitive disability and is not capable of managing his own money (a child with profound mental retardation, for example), a basic discretionary trust may be adequate. A reliable trustee can be given the fiduciary responsibility of investing and distributing the trust fund for the benefit of an individual with a disability.

Because this beneficiary will be unable to speak for himself, the trustee will need to ensure that there is a reliable means of obtaining information about the beneficiary (often through a family member, guardian or social worker). Otherwise, such a trust might be of the “plain vanilla” variety, similar to a discretionary trust established for a minor. This, however, may be inappropriate if the beneficiary receives need-based public benefits.

Complications can arise because many individuals with disabilities are supported in the community through a variety of means-tested entitlement programs, such as Supplemental Security Income and Medicaid. Most entitlement programs have very specific rules governing the treatment of trust funds. Therefore, the IRA owner should not only determine the nature of the disability, he should also learn whether the future IRA beneficiary is participating in a government program in which assets and income must be limited. In most of these means-tested programs, an inherited IRA will terminate participation.

If a future IRA beneficiary is, or likely will be, participating in a means-tested program, the planner should consider whether a “special-needs trust” (also called a “supplemental-needs trust”) should be part of the client’s overall estate plan. These trusts are designed to allow the beneficiary to maintain eligibility for most means-tested programs, while still allowing the trustee to access trust funds to pay for goods and services that enhance the quality of the beneficiary’s life. Such goods and services might include recreational items such as a computer or tickets to the movies. The trust also could pay for educational items such as a private tutor for a beneficiary with a learning disability.

While the specific terms of a special-needs trust will vary from state to state, in general this type of trust will include language that limits or prohibits the use of trust funds for basic needs: food, clothing, shelter and medical care. Those basics will remain the responsibility of relevant entitlement programs.

In addition, a special-needs trust (like most discretionary trusts) will not provide the beneficiary with a right to withdraw funds or otherwise compel distributions; if the beneficiary had such a right, the principal of the trust would be considered “available” to the beneficiary and impact

ongoing entitlement program eligibility. Instead, funds are distributed on a discretionary basis by the trustee.

Planning with special-needs trusts can be complicated. There are two types:

First-party trusts. These are funded with the beneficiary’s own assets. Upon the death of the beneficiary who has a disability, there is a repayment to the state Medicaid program, which most people would like to avoid.

Third-party trusts. These are funded with the assets of another party, such as the beneficiary’s parents. There is much more flexibility when planning with third-party money because no Medicaid repayment is required. In PLR 200620025, the IRA was left outright to four beneficiaries, including one who had a disability. The court permitted the transfer of that beneficiary’s share to a special-needs trust. However, this was a first-party trust because the beneficiary had inherited his share of the IRA outright, so the state Medicaid program will have a repayment right against trust property upon the beneficiary’s death.

Better planning would call for the IRA to be left to either a testamentary trust under a will or a “freestanding” trust drafted specifically for this purpose. Because the funds going into this trust (the trust named as IRA beneficiary) would never be owned directly by the trust beneficiary, it would be drafted as a third-party special-needs trust. Upon the trust beneficiary’s death (and presuming there were funds left in the trust), the remaining balance could be distributed to other family members rather than repaying the state.

If a client wants to name a special-needs trust as beneficiary of an IRA, the planner should be familiar with two more terms: “conduit trusts” and “accumulation trusts.”

As a rule, a special-needs trust should not be drafted as a conduit trust. That is, it should not be a single-beneficiary trust where the trustee is required to take at least the required minimum distribution (RMD) from an IRA each year and then pass that amount out to the trust beneficiary.

In general, trust assets paid out directly to the beneficiary will disqualify the beneficiary from participation in most means-tested programs. Instead, a special-needs trust usually will allow the trustee to accumulate income (including the minimum distributions taken by the trustee) within the trust, so it will be an accumulation trust.

Although using an accumulation trust will prevent the loss of entitlement program eligibility, RMDs must be taken over the life expectancy of the oldest trust beneficiary. Ideally, the beneficiary with a disability will be named as primary beneficiary and someone close to his age or younger will be the contingent or remainder beneficiary.

A sibling or a cousin might be named, for example. If such a backup beneficiary exists and can be included in a manner consistent with the client’s estate plan, RMDs can be stretched out and valuable tax deferral preserved. That ideal scenario is not always possible and may be inconsistent with the client’s overall planning objectives. For example, a beneficiary with a disability may be receiving services and support from a charitable organization that serves the disability community. In many cases, the beneficiary’s parents want to ensure that funds in the trust will be available for the lifetime of the child, with the remainder passing to the charity in recognition of its hard work and advocacy.

Because the charity is not considered a “designated beneficiary” for RMD purposes, the IRA would have to be distributed much more rapidly (fully distributed by the fifth anniversary of the IRA owner’s death, if death occurs before the IRA owner’s required beginning date). If the IRA owner dies after his required beginning date, then the payout will be over the deceased IRA owner’s remaining single life expectancy. Neither of these options are generally as good as stretching distributions over the beneficiary’s longer lifetime. This dilemma is frequently encountered in situations where the child with the disability is an only child.

One solution is to have the parent leave the IRA to a charitable remainder trust (CRT). The IRA can be fully distributed to the CRT at the parent’s death without adverse tax consequence. A separately drafted special-needs trust can be designated as the income beneficiary of the CRT. Depending on how the special-needs trust is designed, the CRT may pay income to the special-needs trust for 20 years or for the life of the beneficiary with a disability.

Payments from the CRT can be accumulated within the special-needs trust or used for the beneficiary, as described above. Upon the death of the beneficiary (and subject to some restrictions suggested by IRS Revenue Rulings and Private Letter Rulings on this subject), funds left in the CRT will pass to the charity. Any funds remaining in the special-needs trust would pass to an individual or entity selected by the parents.

While this can be a cumbersome arrangement to establish and administer, it can be a highly effective way to maximize the dual objectives of the families of individuals with disabilities. Incorporating gifts to charities into an estate plan that also includes a special-needs trust represents a particularly challenging area for planner and client alike.

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.