Newsletter: July 2009

Newsletter 29: July 2009

Alzheimer’s Test May Be On The Horizon

A clinical test that would allow physicians to detect Alzheimer’s disease in its earliest stages could be ready by the end of 2010, according to recent reports.

Researchers at the Blanchette Rockefeller Neurosciences Institute, based at the University of West Virginia, developed the test, the Associated Press reports. According to the research team, skin cells are collected and then combined with a substance that forces the cells to produce the element phosphorous. Based on the level of phosphorous that results from the process, doctors should be able to determine if a patient has Alzheimer’s disease. The test has proven 98% accurate in as many as 300 subjects, but researchers say they would like to see the test carried out on thousands more before signing off on its wide-scale production.

To perform the test on a wide scale, the researchers teamed with Inverness Medical Innovations Inc. of Waltham, MA. Assuming further clinical trials produce positive results, the test should be available within 12 to 18 months, the AP reports.

FDIC Deposit Insurance extended to December 31, 2013

Deposits at FDIC-insured institutions are now insured up to at least $250,000 per depositor through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except for IRAs and certain other retirement accounts which will remain at $250,000 per depositor. (This supersedes the October 3, 2008 changes.)

Potential Medicaid Waiver Changes

Health care policy options released this week by the Senate Finance Committee include ideas to change the way people become eligible for and utilize the Medicaid Home and Community Based Services Waiver.

The waiver is a federal program administered by the states, which provides funding for people with disabilities to live in the community and obtain support services. There are currently long waiting lists for the waiver in many states.

The Senate Finance Committee is creating policy options as part of President Barack Obama’s efforts to reform the American health care system.

The options pertaining to the waiver include:
• Requiring states to lift their caps on the number of waiver recipients to include more people. Or, prohibiting states from using waiting lists to prevent eligible individuals from accessing services.
• Eliminating a current requirement that in order to obtain funding from the waiver individuals must need an institutional level of care.
• Giving states more latitude to determine income requirements for waiver eligibility.
• Allowing individuals to enroll in multiple Medicaid waivers at one time.
• Increasing the federal match for the waiver program by 1%.

If you have questions about how these changes might affect you, please call us at 610-940-0650.

Laws Getting Tougher on Senior Scammers

Fed up with purported financial advisers preying on unwitting older people, investigators from the Arkansas Securities Department last year staged an undercover sweep of one of the hucksters’ favorite showcases — free lunch seminars.

The Arkansas sweep triggered several investigations of financial firms that are still under way. It also uncovered enough in the way of shady practices — misleading claims, underplayed risk — to prompt legislative action. This spring, Arkansas legislators passed a law, effective July 1, that doubles the civil penalties for financial securities violations when the victim is 65 or older.

Though the state securities department can’t bring criminal complaints, it can refer such cases to the attorney general’s office.

Arkansas is one of a number of states that are passing or amending securities and criminal laws to impose “enhanced penalties” on people who commit financial crimes against seniors. Similar legislation is expected to be proposed in Congress next month by Democratic Sens. Bob Casey of Pennsylvania and Herb Kohl of Wisconsin, chairman of the Senate Special Committee on Aging. Financial scams that target seniors are on the rise and states are cracking down.

The recession has spurred more scams that play off people’s fear of stocks. Some investments pitched as low-risk could instead be quite complex. Regulators are sending sleuths to monitor free-lunch seminars and some new state laws boost penalties for scams against older people.

“If you target an older person in Michigan, we’re going to target you,” says Ken Ross, commissioner of the Office of Financial and Insurance Regulation for the state, which also has passed legislation protecting the elderly.
The events are generally pitched as educational events, with a free meal thrown in. But in Arkansas, state agents instead found that the dozens of seminars they attended all featured
hard-sell pitches for financial products, many of which weren’t appropriate for elderly investors.

Presenters at about half of the seminars made misleading claims about potential investment returns, Arkansas regulators say. And at about a quarter of the events, products being pushed were ill-suited to older people, such as investments heavily exposed to swings in stock prices.

The Financial Industry Regulatory Authority, or FINRA, the securities industry’s self-regulatory body, brought 3,211 enforcement actions against financial firms and sales people for violations against seniors in the seven years through January. That compares with 1,753 actions related to people approaching retirement.

The frequency of scams is increasing in the recession, many financial experts say. Seizing on fear of stock-market turmoil, sales people and fraudsters are hawking investments that claim to be “low-risk,” or a supposedly safe way to invest in the stock market and earn back losses. In fact, the products may be complex and have significant downsides.
While loss of principal is unlikely in a fixed, deferred annuity, many companies sell annuities that have surrender charges or penalties that start as high as 22% for withdrawals from the annuity and last for up to 14 years, making access in emergency situations either impossible or extremely expensive. And the hucksters do not clearly explain the costs, adding insult to injury.

Besides Arkansas and Michigan, Idaho also passed a senior-victim law in recent months that will go into effect this year. Six other states, including Maryland, Minnesota, Missouri, New Jersey, Rhode Island and West Virginia, have similar bills pending in their current legislative session.

Michigan’s new law allows for an additional $500,000 penalty tacked onto securities violations involving seniors or people deemed unable to understand the transaction. The law was partly inspired by a 2008 investigation in which at least 12 people were charged with misappropriating funds from nursing-home residents in the state. Another 85 cases remain under investigation as part of that sweep.

Pennsylvania’s Attorney General has a special unit for investigating this type of senior fraud.

Firms that have been cited for violations range from big financial giants to single-person offices. In October 2007, a unit of Allianz SE, the German financial company, agreed in a settlement with Minnesota’s attorney general to review sales practices and to give refunds to as many as 7,000 Minnesota seniors that the state said may have been sold unsuitable annuities since 2001. Allianz also agreed to strengthen its process to determine suitability for customers over the age of 65.

Higher penalties imposed as a result of the new laws aren’t expected to cut into potential restitution. Idaho’s new law, for instance, says that if restitution for the victim is ordered by regulators, that must be paid before the enhanced penalty is paid. Some states, including Michigan, plan to use funds from their enhanced penalties for investor education aimed at seniors.

There is nothing illegal about financial advisers pitching products at seminars, but under securities and investor-protection laws, there are lines that these salespeople can’t cross. Brokers must follow “suitability” standards, meaning they can’t sell a product that doesn’t make sense given a person’s age, income, or liquidity needs. They can’t misrepresent products. Sales materials and oral presentations must show a balanced picture, with both the risks and benefits of investing in the product. Any statements to investors that an investment is “safe as cash” or that it carries no market or credit risk “would raise serious questions under FINRA’s advertising rules,”according to the regulatory group.

A number of products sold to seniors have triggered investigations in recent months, including reverse mortgages, which can help seniors tap equity into the home and be beneficial, but which can also include hidden costs. Also popular are deferred annuities, which promise future payments to the investor but which can lock up money for a decade or more.

Another popular pitch to older people in the recession, regulators say, is “adviser” services, in which a financial pro offers to meet one-on-one to review seniors’ assets to see that they are well-situated for any market downturns while also positioned for a possible upturn. While seeking help from an adviser is often a wise idea, recent scams and Ponzi schemes have shown that investors must be careful that the person isn’t misappropriating money out of their account or shifting them into high-commission investments that aren’t in their best interest.

Financial Planning and Taxes

Financial Mission Statement
Most organizations have a mission statement so why can’t households have a financial mission statement?

What Is a Financial Mission Statement?
A financial mission statement outlines your household’s mission, purpose and reason for being financially secure. A good financial mission statement will accurately explain what your household wants to achieve financially in the future and how you are going to get there. It will also incorporate your values. In other words, if you want to thrive financially without sacrificing your charity donations, you should include that in your mission statement.

1. What Should Be Included In a Financial Mission Statement?

Here is an example:
The financial mission on the Smith household is to remove the vicious hold that debt has on us. We will strive to not increase our debt and aggressively pay down our existing debt.

The financial mission of the Jones household is to fully fund both of our Roth IRAs each year. We will also strive to place an additional $3000 into our 401(k)s after these are funded. That statement got to the point quickly and stressed the areas that the household would like to focus on. You may even want to put additional motivational words in the statement to get you pumped up to save.

2. What are you going to do to address the needs of your finances?

Here, you will state the path you are going to take to meet the goals that you addressed in the previous section. If you said that you wanted to pay off your debt, explain how you plan on doing it.

Here is an example:
We want to aggressively pay down our debt by taking on additional part-time work and putting into place several frugal habits. We realize that many of our previous spending habits were hurting us and it is time to change those habits.

That statement focused on how you are planning on paying down the debt. It gives you things to focus on to ensure that you complete them.

3. What are the values of your household and how will they help you achieve your goals?

In this section, you should interject your values into your financial mission statement. Do you hate debt? Do you want to give 10% of your income to charities? Do you feel that all parents should pay for their kids college education? This is the section where you should include those things.

Here is an example:
While completing our drastic debt reduction, we will continue to support our local charities. Also, in our quest to retire at age 55, we still want to enjoy certain things in life such as traveling.

Combine to Get the Finished Product

Now that you have finished each section, you should combine your thoughts and goals into a complete financial missions statement. Keep in mind that the statement should be motivational. You want everyone who reads it in your household to want to remain focused on the financial tasks at hand.

Here is an example of a finished financial mission statement:
The financial mission of the Jones family is to remove the vicious hold that debt has on us. We will strive to not increase our debt and aggressively pay down our existing debt without sacrificing our gifts to local charities. After we erase this debt, we will focus intensely on increasing our savings so that we may retire at age 55. We want to do this without becoming cheapskates. We also want to teach our children the ins and outs of money at an early age as we do not want them to have the same financial problems as us.

That mission statement gets to the point and conveys what the Jones household wants to achieve. It may not include all of the small things that will most certainly come around but it at least keeps them focused on the financial task at hand. This statement should then be placed in a prominent location in the house. Sit down with your family and discuss finances. There is no better time than today to get aggressive with your finances!

Real Estate and Mortgages

Despite recent rates in the low 5% rate for a 30 year mortgage, there has been a spike to the high 5% range in early June. Good but not as good as we have seen. This is likely to come down towards year end as the recent refinancing activity slows down.

Another factor is that there are still many adjustable mortgages for prime borrowers that will adjust in the next few years. Many people with excellent credit have been unable to refinance their current adjustable mortgages into fixed mortgages for a variety of reasons. Further, while foreclosures may moderate in the near term which has firmed up pricing somewhat, most of the foreclosures have been for subprime borrowers. Now that unemployment is likely to reach 10%+ by 2010, many people with previously good credit may lose their jobs causing a wave of new foreclosures. This will put a lid on price increases on homes for a few years at least.

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.

Long-Term Care Hybrid Policies

Few people have purchased private long-term care insurance, but there is continuing interest in increasing the number of persons who have such insurance. One approach to increasing its appeal is the offering of “hybrid” products that combine long-term care insurance with other insurance products. For example, the Pension Protection Act of 2006 includes provisions that make the tax laws more hospitable to hybrid products involving long-term care insurance and annuities or life insurance.

Almost all of the individual insurance components discussed here are complicated in their own right. Therefore, the difficulty of determining the specific policy that is best for an individual may be multiplied when considering a hybrid that combines two types of insurance. These types of insurance also present potential issues from a consumer perspective. This is one reason why long-term care insurance, life insurance, disability insurance, and annuities are regulated at the federal level, the state level, or both.

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 been misinformed 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 important risks against which to insure, but limited funds available to do so. 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 thing, 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.

Our firm can help you compare long term and life insurance products. Please call us at (610) 940-0650 with any questions or for a quote.

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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.