No population subset in the United States was affected by COVID-19 as dramatically as elders. Infection rates among elders were higher than in other segments of the population, and more infections resulted in death. Caregivers in facilities suffered as they struggled to provide care and comfort.
Less visible was the daily trauma of isolation. To control the spread of COVID-19, facility lockdowns became typical, seemingly unavoidable. The impact of isolation—not having family members visit—affected physical and mental health in countless ways, both documented and undocumented.
Inevitably, this has generated dramatically increased interest in aging at home, referred to as “aging in place.”
Regardless of wealth, aging at home is or should be front and center for estate planners. It serves as a reminder that “estate planning,” an ambiguously comprehensive term, must include a focus on long-term care (LTC) planning. Clients may see us about a trust, tax planning or a durable power of attorney (POA), not realizing that the plan we develop will dramatically affect where and how they live as they age.
Keep in mind: 70% of those of us over the age of 65 will need some form of LTC. Twenty percent will need such care for five years or more.1
Quality of Care, Quality of Life
The vast majority of older Americans want to stay at home, age in place and never enter a care facility. Precious few, however, take appropriate planning steps either to mandate this result or maximize the likelihood that it will be achieved.
It’s presumed that staying at home will provide a higher quality of life than placement in a facility. This is true if appropriate social, medical and care support resources are available. At the same time, we’ve long expressed concern about “isolated luxury,” when a wealthy individual is effectively secluded with a small number of caregivers. If no family members participate and monitor the quality of care, everything from physical abuse to psychological abuse to financial abuse can result.
Estate-planning litigators and the offices of Adult Protective Services around the country are aware of too many situations in which isolation at home has proven to be detrimental or even deadly.
Groucho Marx serves as an example. As he aged and suffered from significant levels of dementia, disputes among family members and others about his care, his abilities and his assets were widely reported. A court-ordered conservatorship was ultimately put in place to protect him and his estate.2
Yet care at home can and should be a wonderful thing. I’m reminded of a program in my community that matched aging homeowners with screened individuals who were in need of housing. In one situation, a middle-aged woman moved into the home of an older individual whose children lived on the east coast. Effectively isolated, the elder individual had virtually no social interactions with anyone. Within a month, the woman was hosting social get-togethers in the house, successfully inviting his friends and family. Her involvement significantly improved his mental and physical health. He went from being an invisible, reclusive member of his community to a gentleman who was routinely visited by his neighbors and whose home became something of a social center.
Nursing Home Care
What about quality of care in a nursing home? Do you “get what you pay for?” Is the quality of care in a private pay facility always better than in a facility that’s Medicaid certified? Both data and anecdotal evidence suggest that it’s not.
For over 30 years, I’ve advised clients that the only key to quality care in a facility is “cookies and thorns.” This means that family members and others must visit a nursing home resident often—and bring cookies for staff members. In this way, the gift-bearing family loses its anonymity. The staff is more aware of the resident whose family acknowledges and rewards their care.
“Thorns” means that, if visiting family members see anything that’s inappropriate, they’re a gentle thorn in side of the facility’s administrator. They point out the problem because quality of care for an individual resident is always representative of the quality of care for all residents.
COVID-19-inspired isolation virtually eliminated the “cookies and thorns” approach. Visits to care facilities became impossible. Receiving care at home, while no panacea, will avoid this problem in the next pandemic. Aging in place and at home raises other challenges, not the least of which is the cost of LTC at home.
Paying for Home-Based LTC
Self-insuring. Depending on the level of care and support needed, an individual may be able to afford the cost of home care out of their own pocket. This could be as modest as $1,000 a month for relatively simple help around the house to $15,000 or $20,000 a month for 24/7 care by qualified health care professionals.
The concept of self-insuring is extremely complicated. On paper, an individual or a couple may have ample assets, perhaps hundreds of thousands of dollars or more, in addition to their residence. A mathematical exercise might suggest that self-insuring is practical and could be achieved. Reality isn’t so simple.
First, consider that America’s elders are living longer, with countless numbers living beyond age 100. Even large estates can face evisceration after years of costly LTC.
Reasonably or unreasonably, tax considerations can interfere with paying privately. If stock or real property has to be sold, significant capital gains taxes may result. At minimum, this would cause hesitation. It may generate such an adverse reaction that elders won’t sell stock or real property to avoid having to pay capital gains tax. We’ve all seen this reaction on the part of frugal, tax-sensitive elders. The individual may be aware of the stepped-up basis, which would allow for the elimination of capital gains taxes if the property is sold after death and after the next generation inherits those assets. From a tax planning perspective, reluctance to sell appreciated assets is logical. From a personal care and quality of life perspective, it should be a secondary or tertiary concern.
A family’s wealth may be in a family business, which is valuable on paper but illiquid. Other investments, such as private equity funds or startups, may also have significant value on paper but be effectively illiquid.
I’m also reminded of an extremely wealthy individual—his estate exceeded $250 million—who paid over $10,000 per month for the care of his significantly disabled wife at home. It’s an understatement that he could afford to privately pay for unlimited care at home. Yet, in telling me about the monthly payments that he made, he said: “Mike, every time I write that $10,000 check, my hand shakes.”
Individuals who grew up without wealth may find it very difficult to make large payments for a service or an item. It’s perhaps irrational, but it’s a very real phenomenon.
Private payment emphasizes the need for a financial planner who understands this set of objectives. An investment portfolio can allow for appropriate and perhaps enhanced income streams, liquidation with minimal tax consequences and other approaches to achieve liquidity.
Private payment also requires the involvement of a trusted surrogate, typically as successor or alternate trustee, who’ll use trust assets to pay and otherwise plan for home care.
LTC insurance. We purchase insurance for two reasons. One is to objectively look at financial needs that may arise if there’s an accident, fire or death or to pay for the cost of LTC. The second reason is subjective—certain types of insurance let us sleep better at night, whether we need the insurance or not. LTC insurance falls into both categories.
Experienced LTC insurance professionals offer a multitude of choices. Some policies are designed to pay the full cost of care at home, in assisted living or in a skilled nursing facility. Others are more modest, used to complement other income or financial resources to pay for the cost of care. Such insurance is designed to protect and preserve all or most of a family’s financial resources.
Data illustrates that a very substantial portion of LTC insurance purchasers are in the upper middle class.3 An insurance policy can cost $1,500 to $5,000 annually, depending on the age and health circumstances of an insurance applicant.
One popular approach is the hybrid policy. This policy allows for LTC insurance coverage if it’s needed. If not, the policy provides a life insurance or death benefit for beneficiaries. The money invested in such a policy purchases less LTC insurance than a pure LTC insurance policy. The money invested in the life insurance component generates a lower death benefit than a pure life insurance policy. The hybrid is attractive to individuals who are uncomfortable with the idea of paying for insurance that will generate no benefits whatsoever if LTC assistance is never needed.
It’s also important to understand that LTC insurance benefits are only available when the level of need is very high. Typically, benefits flow only when an individual needs assistance with three or four of the activities of daily living (ADLs). ADLs include toileting, the ability to eat and feed oneself, showering and hygiene and transferring or the ability to safely get out of bed unassisted.
Reverse mortgages. Buoyed by such health care and finance experts as Tom Selleck, reverse mortgages are a booming business. They can be helpful for homeowners, or they can be catastrophic.
The allure is obvious. If an older homeowner needs to pay for home care services and has limited, disappearing liquidity, home equity can be a source of significant financial resources. Rather than obtain a traditional loan with repayment responsibilities, the reverse mortgage allows the homeowner to receive either a lump sum or monthly distributions, ideally to pay for the cost of home care or other necessities.
Repayment of a reverse mortgage is due when an elder dies, a point typically emphasized by the industry, when the homeowner permanently moves out or if maintenance and other responsibilities aren’t satisfied.
Without question, a reverse mortgage in appropriate circumstances can make a positive, critical difference. However, there are circumstances when they’re ill advised and can have unexpected, financially damaging implications.
As a simple illustration, consider a homeowner, a widow with two adult children, who owns a home valued at $500,000 and needs $2,000 per month to pay for home care. She’s determined to stay out of a nursing home. Over the years, her debt to the lender grows to exceed $100,000. Her physical condition worsens, and she faces care in a skilled nursing facility because care at home is no longer safe or viable.
If she then enters a skilled nursing facility, the loan will become due because she’s permanently moved out of her home. The home must be sold to pay off the loan. Although she has $250,000 protection from capital gains tax exposure, her gain is still well over $150,000. She pays approximately $50,000 in capital gains tax.
She then has cash in the bank to pay for the cost of nursing home care. While this perhaps seems logical, she could have qualified for Medicaid to pay the bulk of the cost of skilled nursing care if she still owned the residence, which is an exempt asset. The $11,000 monthly cost of nursing home care, all of which came out of her deteriorating savings, would instead have been paid by the Medicaid program.
On her passing, after the loan was satisfied and after $50,000 was paid in capital gains tax and over $200,000 was lost to the cost of nursing home care, less than $100,000 remains in her estate for the benefit of her two children.
Ideally, multi-generational planning would have taken place. One or both of her children, if they understood this scenario, would have been significantly motivated to either pay for their mother’s care at home or make a series of loans so that home ownership wouldn’t be jeopardized. In this simple example, the reverse mortgage resulted in losses to the estate of over $350,000. With well-considered help from her children, such losses could have been avoided.
Notwithstanding such examples, home equity often represents the last financial resource of millions of older Americans. Reverse mortgages remain a viable planning tool.4
Medicaid and other benefits. Medicaid is the only federal program that can pay for the cost of a nursing home and, in some states, for home-based care.
It’s very important to understand and explain that Medicare doesn’t pay for skilled nursing care, except in rare circumstances and for very limited periods of time. Most older Americans continue to believe that Medicare will pay for nursing home care. Because of this misunderstanding, such individuals fail to plan. They don’t purchase LTC insurance. They have insufficient savings to pay privately. If expensive LTC needs arise, their estates erode and evaporate. They must look to Medicaid and other government programs that can provide care for those who qualify.
Individuals who don’t have LTC insurance have two choices. They must either: (1) private pay, facing the possibility of bankruptcy (and worry, anxiety and fear); or (2) plan for reliance on government programs, such as Medicaid, while preserving most of the estate for a spouse or the next generation. Attorneys familiar with Medicaid legislation, regulation and practical application are aware of myriad planning steps that can be taken to protect a family residence, most savings and other family resources. Such planning is beyond the scope of this article. Suffice it to say that such planning is abundantly possible. Traditional estate-planning attorneys who are unfamiliar with the world of Medicaid are best advised to develop this expertise or partner with an attorney who can provide appropriate advice and guidance. The best source of information in this regard is the National Academy of Elder Law Attorneys, www.naela.org.
Another program that can support aging at home is PACE (Programs for All-Inclusive Care of the Elderly). Available in most communities for individuals whose level of need is so great as to suggest the need for skilled nursing care, it’s designed to provide resources to keep such individuals at home. While each local PACE program is unique, the goal is to provide home health care services, adult day care services and a host of other supportive efforts to avoid placement in a facility.
Proactive Estate Planning
When an individual creates a revocable trust, a successor trustee is always chosen. The successor trustee becomes a fiduciary, presumptively devoted to protecting assets in the estate while using assets to address the needs of the settlor who, when LTC needs arise, is experiencing health and cognitive challenges.
The durable POA and the advance health care directive similarly identify individuals who are to have responsibility for decision making and planning if an individual becomes incapacitated.
It’s typically the presumption in such planning documents that steps are to be taken to protect the estate and achieve eligibility for such programs as Medicaid if nursing home care, in particular, becomes necessary. This may provide for in home care or for the cost of care in a skilled nursing facility. Importantly, Medicaid doesn’t pay for assisted living. It rarely and inadequately pays the full cost of home care except in a limited number of states.
Particularly when the attending physician indicates that an individual “needs to be in a facility,” the fiduciary views such advice from an asset protection perspective. With an arguably inappropriate emphasis on asset preservation for the next generation, asset transfers may take place, irrevocable trusts may be created and other steps may be taken to protect the residence and generally ensure asset preservation while achieving eligibility for Medicaid.
Special drafting is necessary. It’s because of this set of presumptions, presumptive and prolific in the elder law community, that practitioners must take extraordinary and specific drafting steps for clients who want to stay at home and be cared for there regardless of the cost. The COVID-19 experience underscores the value of this approach. It suggests that aging in place will emerge as an increasingly common and dominant force on the part of individuals as we age. I’ve written about this topic in the past.5
Communicating desires, planning for home care. While the vast majority of elders want to stay at home and not enter a care facility, they don’t make these wishes sufficiently explicit nor do they take the planning steps that are needed to achieve this result. It’s particularly important to convey these wishes to family members and fiduciaries in a direct and emphatic way so there can be no misunderstandings.
It’s complicated. Children logically worry about how safe an aging parent will be if they’re home alone, particularly if safety devices and accommodations haven’t been installed. Physicians voice similar concerns. These concerns are logical and must be addressed.
Letter of guidance. In the world of special needs planning, we strongly urge parents to write a letter to successor trustees and others who’ll someday be involved in the care and well-being of their special needs children. The rationale is simple: Parents know things about their child that no one else knows. If they pass away without conveying this information to caregivers and others, that vitally important information is lost forever. Trial and error becomes the approach to providing quality of care to special needs children.
Similarly, aging individuals who are devoted to aging in place should make their intentions crystalline. Such a letter might explicitly indicate that resources in the community that reinforce home care are to be explored and used to the greatest extent possible. Successor trustees and family members may be encouraged to use the services of geriatric care managers and others who can develop care plans to remain safely at home.
If such information is conveyed verbally and in very personal letters, the impact can be much greater than legalese in estate-planning documents.
It’s equally important to be explicit in all planning documents put into place by aging clients.
Revocable trusts. A revocable trust can explicitly identify home care as a requirement or objective of the trust. It can indicate that all assets are to be used to provide adequate care at home, even if: non-liquid assets have to be liquidated; capital gains taxes may be faced; and retained ownership of the family residence is threatened. Without such language, the successor trustee, the fiduciary, may have reason to worry about challenges and even litigation from the next generation if assets are substantially exhausted when alternatives arguably exist.
Consider the following provision:
Intention to Remain at Home When Care Needs Arise
The trustee is to utilize all trust assets and to take all necessary steps to pay for any services required to enable the settlor to avoid placement in a facility and to remain in her own home. The settlor understands that her physician and family members may believe that she will be safer and better cared for in a skilled nursing or other such facility. It is nevertheless the settlor’s direction and instruction that such placements are to be avoided and that all of her assets are to be made available to achieve this objective even if trust assets are exhausted.
In addition to simply and clearly mandating that care be provided for a particular client at home, consider prohibiting inheritance by any family member who places the client in a nursing home. This was precisely the situation in Marion v. Davis,6a matter that evolved in Texas some years ago. Homer Baldwin was a devoted husband who felt strongly about his wife’s quality of care and location of care if he predeceased her. She was incapacitated, so he was particularly concerned. Because of this circumstance, he modified his estate plan to impose a restriction on his beneficiaries.
He specifically provided that any beneficiary who attempted to “place my wife in a nursing facility and defeat my plan to continue home care ... before all of the trust has been used for her care” would forfeit or lose their entire share of any inheritance.
After his passing and as time moved along, his wife’s nephew consulted with her physician and decided that she needed to be in a nursing home after a hospitalization. Importantly, her nephew was her court-appointed guardian. Notwithstanding this fact and that he acted on medical advice, the decision of the court was that the nephew was denied any inheritance. The court decided that Homer included an explicit stipulation about his wife’s ongoing home care and that he had every right to do so.
While such provisions are extremely rare, countless individuals would include such language in the estate-planning documents if they were given the option.
Durable POA. The durable POA should similarly state and reinforce the idea of aging in place as the primary, presumptive approach that’s to be reinforced in every respect. While the trustee of the revocable trust controls assets in the trust, retirement accounts are effectively managed by the attorney-in-fact under terms of the durable POA. Certain contractual relationships may be in the hands of the attorney-in-fact.
Language in the durable POA must be consistent with language in the trust, explicitly underscoring the principals to remain at home and to use all assets to achieve this end.
Advance health care directive. In the context of home care and medical support, the advance directive may be the most important document. The individual named as the surrogate health care decision maker is typically empowered to make placement decisions, as well as purely medical care decisions.
With this in mind, the advance directive can and should explicitly state that the health care decision-making agent is to take all steps necessary to ensure care at home, which will ultimately focus on hospice care at home.
While it’s impractical to strictly forbid placement in a hospital, the health care decision-making agent must be aware of the fact that placement in a hospital can quickly result in placement in a skilled nursing facility for rehabilitation care. Once in a facility, inertia and physician recommendations often result in permanent placement.
The advance directive may provide:
It is my intention to remain at home as I age:
All medical decisions are to be made with this in mind. I understand that home care services may be costly but they are to be utilized to the maximum extent necessary to allow me to remain in my own home.
My health care decision-making agent is to communicate this requirement to my medical care providers, to my family members, and to other individuals involved in my life and in my care.
While certain government programs can provide assistance in my own home, steps to protect my assets and achieve eligibility for such programs are to be taken with great care. Asset preservation is secondary while asset utilization is primary when needed to achieve my objective. Hospice care in my home is also to be obtained when appropriate.
An Expensive Proposition
Home care can be astonishingly expensive. I’ve worked with individuals who’ve paid over half a million dollars a year to obtain a level of care at home that was necessary to keep them safe. Such individuals would otherwise have to be in a skilled nursing facility.
Obtaining quality of care at home is challenging and will be increasingly expensive as the need escalates and the supply of quality care givers fails to keep pace. Oversight will be an ongoing challenge.
I’m nevertheless optimistic that, with appropriate estate planning and with the involvement of understanding and devoted health care advocates and fiduciaries, quality of care at home can be achieved.
Endnotes
1. U.S. Department of Human Health Services, Administration on Aging, https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html; Centers for Disease Control and Prevention, www.cdc.gov/nchs/data/series/sr_03/sr03_43-508.pdf.
2. Seewww.pbs.org/newshour/health/how-groucho-marx-fell-prey-to-elder-abuse.
3. Seewww.ahip.org/wp-content/uploads/2017/01/LifePlans_LTC_2016_1.5.17.pdf.
4. See the National Center for Home Equity Conversion,www.reverse.org.
5. Michael Gilfix, “Estate Planning for Clients Who Want to Stay Out of a Nursing Home,” Estate Planning (November 2005).
6. Marion v. Davis, 106 S.W.3d 860 (TEX.APP., 2003).