When Disaster Strikes (Fidelity Outlook, November 2000)

 

On July 11th of last year, I came home from a hot date to a telephone message that was more effective than a cold shower. “Your dad’s in a bad way,” one of my father’s neighbors reported. “You’d better come immediately.”

 

I suppose I’d been dreading the call ever since my mother died six years earlier. It’s the call my entire generation dreads, the call that tells us that the time has come for us to take care of our parents.

 

For many people, the scenario involves an age-related medical emergency, such as a stroke or heart attack. Age, however, had nothing to do with my father’s collapse. He turned out to have a severe case of Lyme disease. The neurological damage affected his hands and his feet. He could barely walk and had difficulty using a knife and fork. There was nothing wrong with his mental faculties, but it rapidly became obvious that he lacked the fine motor coordination to sign a check.

 

That was a problem because in addition to worrying about my father’s physical health, I was also anxious about the financial situation. Who would pay for the day-to-day expenses affiliated with a house in New York’s outer suburbs—let alone the impending doctors’ bills? Was there a way for the money to come out of my father’s bank account—or would my sister and I have to liquidate an unspecified amount of our own portfolios to cover his costs? How long a period of time were we dealing with—and how would that affect our own financial planning?

 

If the experience of others is a guide, these questions carry serious personal and financial ramifications. According to a recent study conducted for the Metropolitan Life Insurance Company in conjunction with the National Alliance for Caregiving and the National Center for Women and Aging at Brandeis University, caregiving cost individuals upwards of $659,000 over their lifetimes in lost wages, Social Security benefits and retirement contributions. Twenty-nine percent passed on promotions, training opportunities and plum assignments; 25 percent passed on transfers or relocations. In addition, the respondents lent a financial hand averaging nearly $20,000 and were often forced to reduce their own discretionary spending as a result.

 

“If you’re not aware of your parents’ finances, all your own financial planning can get sidetracked, says Susan Richards, a financial planner and author of Protect Your Parents and Their Financial Health (Dearborn Financial Publishing, 1999), a book on the financial needs of ailing parents.

 

Necessary paperwork

My sister and I didn’t know where to begin to get a handle on things. A stereotypical packrat, my father had stashed years’ worth of paid bills, cancelled checks, bank and brokerage account statements and other financial documents in his bedroom and study, with the overflow scattered among boxes, files and even a suitcase in the guest room. Then my sister unearthed a copy of his 1998 income tax statement containing the name and telephone number of his accountant.

 

“One of the first calls should be to your parent’s accountant,” says Larry Holfelder, of Holfelder & Bryan in Brewster, NY, who, in fact, was the person we called. “The accountant has as much financial information as anyone and can give you a clue as to what assets and what type of information you should be looking for.”

 

While a will, living will and healthcare proxy are crucial if your parent is gravely ill, Holfelder explained, the document most germane to our present situation was power of attorney. Power of attorney allows the principal to give authority to another person to make financial and/or legal decisions and to make financial transactions on his behalf. A Durable Power of Attorney (DPA) differs from a general, or limited-term, power of attorney because it specifically states that it remains in effect if the principal becomes disabled or incompetent.

 

Without a DPA, things would be a mess. After a great deal of coaxing, my father had opened a joint bank account in his and my name. The idea was that I could write checks to cover his bills. The problem was that my father had deposited only $100 in the joint account. The majority of his ready cash was in another account. In cases like this, warns Holfelder, “You will have the problem of getting the money out of the initial account to fund the joint account.” He was absolutely right. Even though the bank had my signature on file, I wasn’t allowed to access it without a DPA. Meanwhile, the bills were piling up.

 

“If there’s no durable power of attorney, it might be necessary to initiate a guardianship proceeding to pay the bills,” says Emanuel Haas, an estate-planning and eldercare lawyer in Tarrytown, NY. “If the parents have the assets, the children will be paid back for their expenditure by the guardianship.” (If the parents don’t have the financial resources to cover their care, the children aren’t obliged to support them; they can apply for Medicaid after the parents have spent down their assets to a few thousand dollars.)

 

Initiating guardianship is both time-consuming and emotionally arduous. “Four to six months is not unreasonable” in New York State, explains Haas, and it can take even longer to draft the petition, explain to the court exactly what funds you need released, have the court appoint an evaluator to interview the alleged incapacitated person (AIP) and determine his needs, make a recommendation and then have a hearing, which might even take place in the person’s hospital room or nursing home.  Furthermore, court supervision requires that initial reports be filed as well as annual reports. Guardianship, says Haas, “should be avoided if at all possible.”

 

Our situation could have been a lot worse. After my mother’s death, my father had updated his will and drawn up the necessary documents to give my sister and me durable power of attorney. Furthermore, he had sent us copies, so we didn’t have to go on a panicky treasure hunt. He had initialed the clauses giving us the right to act on his behalf in transactions concerning real estate, banking, stocks and bonds, retirement benefits and other records, reports and statements. He had even granted us the right to make gifts of up to $10,000 a year per individual, which could prove a useful tax-saving policy.

 

But, acting on the advice of his attorney, he had also added what my sister and I referred to as “the Goneril and Regan clause.” There was no point in arguing that we weren’t going to act like King Lear’s nasty older daughters and dump our dad out on the heath. In order to enact the DPA, we needed to get a letter from a licensed physician certifying that our father was too disabled to manage his affairs. The doctor’s secretary was so inept that it took her two weeks to type the letter.

 

It was just one of many frustrations concerning the DPA. Even with a doctor’s note, you can’t just brandish the document, say, “Open, sesame!” and start moving money around. Some financial institutions initially claimed that they needed the original DPA before releasing any information. That, I pointed out, was impossible. Barring that, they demanded a notarized statement from the county clerk certifying the copy of the DPA to be a correct transcript of the document of record. Thankfully, my father’s lawyer arranged to have the county clerk write ten certification statements. We ended up using eight.

 

A long-term solution

Paying the bills is only one part of the financial responsibility you take on when you take over. You need to know what’s in the estate so that when you start applying to long-term care facilities you can prove that your parent can pay his way. “It’s a good idea to have a financial plan and update it annually, so that you have all the information available in one place,” says Holfelder. Otherwise, “pulling it all together can be tough.”

 

My father had more of a financial jumble than a coherent plan, so Holfelder steered us to Philip Loveless, a financial planner in Tarrytown, NY. At his direction, we took an inventory of my father’s assets, liabilities and income sources, as well as the ownership issues of all of his accounts. We gathered all the necessary documents—bank records, retirement accounts, insurance policies, veteran’s benefits and proof of ownership of his house—and dealt them out on the carpet like a high-stakes game of solitaire.

 

The critical point, according to Loveless, is whether you have insurance protection or not. “If you don’t,” he says, “you’ve got some big problems.” The most immediate problems—namely, paying the hospital and doctor bills—were taken care of by Medicare and by a supplemental health insurance policy that my father had all along.  What Loveless was concerned about was insurance that would cover long-term care.

 

According to the American Association of Homes & Services for the Aging, the average cost of nursing home care these days is $40,000 per year. Depending on what part of the country you live in, it can be more. Traditional health insurance, Medicare and HMOs usually don’t pay for long-term health care. If you’re lucky, your parent has already bought a long-term care insurance policy from a private company.

 

Long-term care insurance differs from nursing home insurance in that the coverage is broader, often encompassing home health care and home- and community-based assisted living as well as nursing home care. Not only does that offer your parent the option of staying at home; it also offers a less expensive care option. In the New York City area, where my father lives, a certified nurse’s assistant charges $11 an hour, or $264 per day, while nursing home rates are about $350 per day in a skilled nursing unit. In other words, it may be possible to stretch the policy’s maximum payout by choosing home care.

 

That’s important, because after the insurance payout is exhausted, Medicaid takes over the coverage. And while nursing homes that receive money from the state cannot refuse Medicaid patients, the best of these care centers may have only a limited number of beds for them. If there’s no room, your parent may have to go to a second-choice nursing home, where the care may be of a lesser quality.

 

And there’s another less obvious benefit to long-term care insurance. Most parents would probably prefer to give their life savings to their children or grandchildren, rather than spend it on healthcare. But, Loveless explains, “you can’t just start giving money away and artificially impoverish yourself in order to apply for Medicaid.” If you begin to transfer assets because you don’t have insurance protection, you’ll create a period of ineligibility for Medicaid which, depending on a formula based on the cost of healthcare for each area of the country, can go up to 36 months. Long-term care insurance, Loveless points out, “is incredibly valuable because it buys you time to protect other assets.”

 

Furthermore, certain policies come with built-in asset protection. Under today’s rules, a person has to spend down his assets to a certain amount before Medicaid steps in; in New York State, for example, the spend-down figure is $3,550. But in an asset-protection policy, when the amount in the policy is exhausted, your parent can go directly onto Medicaid without having to spend down all of his savings.

 

Waiting too long

You’d think that long-term care insurance would be a no-brainer, yet in an admittedly unscientific sampling of people I talked to, few had heard of it and, of those who did, few had it. Ironically, the reason was its cost.

 

Typical is Jay Magaziner, a professor of epidemiology at the University of Maryland in Baltimore. About six years ago, Magaziner’s mother asked him and his brother to split the cost of a long-term care insurance policy for her. Her reasoning was that her sons should bear the financial responsibility of insuring their inheritance, since any money she spent on healthcare would be that much less for them in her estate.) Magaziner looked into policies but “it was more than we wanted to pay”—a couple of thousand dollars a year, he recalls. He and his brother put it off for a few years.

 

By then, it was too late. His mother was diagnosed with Parkinson’s disease. “As soon as she got that diagnosis, she became ineligible for long-term care insurance,” Magaziner says ruefully.  In the last six months, she broke her hip. After spending time in the hospital and a rehabilitation center, she returned home but continued to need care in her home. So far, she’s been able to cover the costs with Medicare and her own supplemental insurance, but says Magaziner, “right now we’re at a point where we need to figure out what’s next and it becomes a financial issue in terms of the kind of place she would like to live in and what it would cost.” With a daughter who will be going to college next year and a son who’s a high-school sophomore, Magaziner is worried. “It will be a stretch to contribute in a significant way,” he confesses. “I don’t know how we’ll handle it all. We could end up with humongous loans.”

 

I will never forget the immense relief I felt when my sister discovered my father’s long-term care insurance policy.  It covered nursing home care, home health care and home- and community-based assisted living with set daily dollar amounts that were adjusted monthly for inflation. Furthermore, it was an asset-protection policy. The maximum amount of the policy was $186,000; he had already funded $146,000—enough for at least 36 months of protection.

 

As I write this article, it’s been seven months since I got the telephone call. My father’s life has changed utterly. As a result of complications stemming from the Lyme disease, he has had major surgery and spent months in hospitals, rehab centers and nursing homes. At one point, he was almost a quadriplegic; for a long time, I thought he would never walk again. He’s now able to use a cane and has moved to a senior living residence in New York City, five blocks from my apartment.

 

One of the greatest comforts throughout this ordeal was the financial shield my father had, unbeknownst to us, constructed against the possibility of this very situation. We didn’t have to go through the legal and emotional shenanigans involved in initiating guardianship. And, most important of all, we never had to compromise on my father’s care or cross off certain rehab centers because of their cost.

 

It’s easy to put off the decisions and the paperwork until tomorrow. But too often, tomorrow is too late to make those decisions. For people in their forties to sixties, those decisions could protect the health and finances of two generations: their parents and themselves.

 

Take action now, urges Emanuel Haas. “You’re either well prepared or you’re not prepared at all.”

 

BOX: Long-term care insurance: Is it worth it?

Long-term care insurance is a significant investment, and the price only goes up as your parent gets older. My father took out his policy seven years ago, when he was 69. The premiums cost a little over $2,000 annually. However, his quarterly premium of $574 is peanuts compared to a daily rate of $350 at the top-notch nursing facility in the Bronx where he spent three months.

 

Still, not all long-term care insurance policies are created equal. Before you spend the money, the National Alliance for Caregiving suggests that you ask these basic questions:

 

• What kinds of long-term care services are covered by the policy? Does it cover home care and assisted living facilities as well as nursing home care?
• How does the policy typically pay a benefit? Does it provide a specific, fixed number of dollars per day, e.g., $135 per day, or does it provide a percentage of the actual cost? Is there a difference in the nursing home benefit compared to the home care benefit?
• What are the “triggers” for receiving the long-term care benefits from your policy? Will a signed statement from your parent’s doctor be sufficient or does it require certification from the insurance company’s medical staff?
• What are the deductibles, co-payments and waiting periods in the policy? Most LTC policies have a 30-day to 90-day waiting period. Like the $500 deductible in automobile collision, if you are willing to pay for the first month or two of care, the policy premiums will be lower. Check out your parent’s Medicare and supplemental insurance coverage. Between the two, the first 100 days may already be covered.
• How will the LTC integrate with Medicare and other health insurance your parent may have? Are there elements of the nursing home care or home care costs, such as medication or physical therapy, that will be paid by other insurance?
• Does the policy include or offer protection against the rising costs of nursing home care? How much does the “inflation protection rider” cost? Is the inflation protection automatically renewed each year?
• What happens if you decide not to continue the policy? Can the policy be converted to other kinds of long-term care insurance or other kinds of health insurance?

 

For more information, contact the National Alliance for Caregiving, 301-718-8444; www.caregiving.org. The non-profit United Seniors Health Cooperative has produced Long-term Care Planning: A Dollar and Sense Guide, available for $18.50 from USHC, 409 Third St., SW, 2nd Floor, Washington, DC 20024; 202-479-6973; www.ushc-online.org.

 

 

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