Are Your Advisors All on the Same Page?

As I am fond of saying, navigating through the long term care system usually requires a team of advisors.  While the elder law attorney is, no doubt, a pivotal person, the accountant, financial advisor and insurance specialist are equally important.  And when one piece isn’t properly in place it can be catastrophic.  Betty’s story is illustrative.  Betty and Tom decided to sell their home in which they raised their four children. They invested the majority of the proceeds in annuities and decided to rent and live off the income from their investments and Social Security.  Tom, however, had exhibited some signs of dementia. 

 After the sale of their home, Tom’s condition deteriorated rapidly.  He became restless and, at times, physical with Betty, who weighed 100 pounds less than Tom.  She could no longer keep him at home.  Betty came to us for help, thinking she could get Tom on Medicaid.  She didn’t realize that the $300,000 she invested in annuities was now a countable asset and would have to be spent down to $109,560 before Tom could get Medicaid.  Betty was distraught.  “I am only 65.  How can I live on $100,000”, she asked me.  I told her not to worry.  She could cash in the annuities, buy another home with that money and keep it, as an exempt asset.  After Tom qualifies for Medicaid she could then resell the home if she wanted, to reinvest for income again.

 Then we examined the annuities.  That’s when I discovered the surrender charges of 7% that Betty would have to pay.  While they did have a provision that waived the charges if the owner needed to cash them for long term care expenses, the problem was that Betty, and not Tom, was the owner.  Betty told me that Tom had definitely been diagnosed with dementia at the time that these decisions were made but couldn’t recall any conversations about long term care or how to provide for it.  Big mistake.

 We were able to help Betty get Tom into a quality nursing home.  She privately paid for 7 months, cashed in the annuities, paid a surrender charge, and bought a home.  We helped Betty preserve the majority of their savings, money she will need to provide for her own care down the road.  But, there are lessons to be learned here.

 The result could have been much better had Betty come to us before she sold her home and before she bought the annuities.  We might have suggested she wait until Tom entered the nursing home, to sell her home.  We also would have cautioned Betty about purchasing investments that could easily be liquidated if a large expense (ie. nursing home care) became necessary.  Buying the annuities wasn’t the problem.  It was the fact that she couldn’t sell them without paying a penalty.  No one thought to ask what would happen if Tom needed care sooner rather than later.  And that’s why having a team of advisors working together is so important.  All tax, financial and legal aspects of any decision should be analyzed carefully and that’s more than any one advisor is capable of doing.