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From
E.
Frederick Petersen III
The Petersen Law Firm
One Corporate Center
10451 Mill Run Circle; Suite 400
Owings Mills, MD 21117
(443) 392-2585
I have over 20 years of experience helping my clients
and referral partners’ clients develop and enhance their
estate plans by incorporating up-to-date wealth
preservation techniques. Contact me to learn how the New
STANDALONE IRA TRUST can benefit your clients!
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Volume 2,
Issue 5 |
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Planning for
Disability
No one likes to
think about the possibility of their own disability or
the disability of a loved one. However, as we'll see
below, the statistics are clear that we should all plan
for at least a temporary disability. This issue of The
Wealth Counselor examines the eye-opening statistics
surrounding disability and some of the common disability
planning options. Disability planning is one area where
we can give each and every one of our clients great
comfort in knowing that, if the day comes for themselves
or a loved one, they will be prepared.
Most Clients Will Face At Least a Temporary
Disability
Study after study confirms that nearly everyone will
face at least a temporary disability sometime during
their lifetime. More specifically, one in three
Americans will face at least a 90-day disability before
reaching age 65 and, as the following graph depicts,
depending upon their ages, up to 44% of Americans will
face a disability of up to 4.7 years. On the whole,
Americans are up to 3.5 times more likely to become
disabled than die in any given year.
Planning Tip: Many clients fear
what will happen to them if they become disabled.
Advisors who can help allay these fears will have
more satisfied clients who move forward with their
planning recommendations.
Many Clients Will Face a Long-Term Disability
Unfortunately, for many of our clients the disability
will not be short-lived. According to the 2000 National
Home and Hospice Care Survey, conducted by the Centers
for Disease Control's National Center for Health
Statistics, over 1.3 million Americans received
long-term home health care services during 2000 (the
most recent year this information is available).
Three-fourths of these patients received skilled care,
the highest level of in-home care, and 51% percent
needed help with at least one "activity of daily living"
(such as eating, bathing, getting dressed, or the kind
of care needed for a severe cognitive impairment like
Alzheimer's disease).
The average length of service was 312 days, and 70% of
in-home patients were 65 years of age or older. Patient
age is particularly important as more Americans live
past age 65. The U.S. Department of Health and Human
Services Administration on Aging tells us that Americans
over 65 are increasing at an impressive rate:
Nursing home statistics are equally alarming. According
to the 1999 National Nursing Home Survey, the national
average length of stay for nursing home residents is 892
days, with over 50% of nursing home residents staying at
least one year. Significantly, only 18% are discharged
in less than three months.
While a relatively small number (1.56 million) and
percentage (4.5%) of the 65+ population lived in nursing
homes in 2000, the percentage increased dramatically
with age, ranging from 1.1% for persons 65-74 years to
4.7% for persons 75-84 years and 18.2% for persons 85+.
Planning Tip: Many clients will
require significant in-home care lasting, on
average, close to a year. For clients requiring
nursing home care, that care lasts, on average,
nearly 2 � years! Not surprising, the older the
client or loved one, the more likely he or she will
need long-term care � which is significant given
that Americans are living longer.
Long-Term Care Costs Can be Staggering
Not only will many of our clients face prolonged
long-term care, in-home care and nursing home costs
continue to rise. According to the 2006 Study of the
MetLife Mature Market Institute, national averages for
long-term care costs are as follows:
- Hourly rate for home health aides is $19, higher
than in 2004.
- Hourly rate for homemakers/companions is $17,
higher than in 2004.
- Daily rate for a private room in a nursing home
is $206, or $75,190 annually, a 1.5% increase over
the 2005 rate.
- Daily rate for a semi-private room in a nursing
home is $183, or $66,795 annually, a 3.9% increase
over the 2005 rate.
These costs vary significantly by region, and thus it is
critical that we know the costs where the client or his
or her loved one will receive care. For example, the
average cost for a private room in a nursing home is
much higher in the Northeast ($346 per day, or $126,290
annually, in New York City) than in the Midwest (only
$143 per day, or $52,195 annually, in Chicago) or the
West ($199 per day, or $72,635 annually, in Los
Angeles).
Planning Tip: Nursing home costs
will consume many Americans' assets. A recent
Harvard University study indicates that 69% of
single people and 34% of married couples would
exhaust their assets after 13 weeks (i.e., 91 days)
in a nursing home!
Clients Should Consider Long-Term Care Insurance
to Cover these Costs
As the Harvard University study demonstrates, if a
client, client's spouse, or family member needs long
term care, the cost could easily deplete and/or
extinguish the family's hard-earned assets.
Alternatively, clients (or their families) can pay for
long-term care completely or in part through long-term
care insurance.
Most long-term care insurance plans let the client
choose the amount of the coverage she wants, as well as
how and where she can use her benefits. A comprehensive
plan includes benefits for all levels of care, custodial
to skilled. Clients can receive care in a variety of
settings, including the client's home, assisted living
facilities, adult day care centers or hospice
facilities.
Planning Tip: Absent financial
insolvency, government benefits for long-term costs
are extremely limited � typically only for skilled
care and only for a short duration. Given the costs
of long-term care, clients should consider a
long-term care insurance policy that meets their
unique planning objectives.
Planning Tip: Income-earning
clients should also consider disability insurance to
cover lost income as a result of a long-term
disability. While long-term care insurance will
cover in-home or nursing home costs, it will not
replace the income lost due to the client's
inability to work.
Clients' Estate Planning Should Thoroughly
Address Disability
When a client becomes disabled, he or she is often
unable to make personal and/or financial decisions. If
the client cannot make these decisions, someone must
have the legal authority to do so. Otherwise, the family
must apply to the court for appointment of a guardian
for either the client's person or property, or both.
Clients who are old enough to remember the public
guardianship proceedings for Groucho Marx recognize the
need to avoid a guardianship proceeding if at all
possible.
At a minimum, clients need broad powers of attorney that
will allow agents to handle all of their property upon
disability, as well as the appointment of a
decision-maker for health care decisions (the name of
the legal document varies by state, but all accomplish
the same thing). Alternatively, a fully funded revocable
trust can ensure that the client's person and property
will be cared for as the client desires, pursuant to the
highest duty under the law - that of a trustee.
Planning Tip: Clients need properly
drafted and well thought-out estate planning
documents that address both their property and their
person in the event of disability.
Clients Should Also Add HIPAA Language and
Authorizations
Under the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), absent a written
authorization from the patient, a health care provider
or health care clearinghouse cannot disclose medical
information to anyone other than the patient or the
person appointed under state law to make health care
decisions for the patient. The penalty for failure to
comply with these rules is severe: civil penalties plus
a criminal fine of $50,000 and up to one year of
imprisonment per occurrence, and worse if the disclosure
involves the intent to use the information for
commercial advantage, personal gain, or malicious harm.
These HIPAA rules became effective only recently. As a
result, doctors, hospitals and other health care
providers now refuse to release any information absent a
release from the patient. For example, hospital staff
will go so far as to refuse to disclose whether one's
spouse or parent has been admitted to the hospital. The
inability to receive information about a loved one could
become very troubling when the information concerns
treatment as part of long-term care.
Planning Tip: A client's "personal
representative" for health care decisions has the
same rights to receive information as the client.
While it is arguably unnecessary, the safest
approach to ensure release of information to a
personal representative is to modify the document
appointing him or her so that it expressly
authorizes the release of HIPAA-protected
information on behalf of the client.
The Regulations promulgated under HIPAA specifically
authorize a HIPAA Authorization for release of this
information to persons other than the patient or his or
her personal representative. Thus, clients should
consider creating such Authorizations so that loved ones
and others can access this information in addition to
the personal representative.
Planning Tip: Clients should
prepare HIPAA Authorizations for loved ones and
others who potentially need access to their medical
information during a time of disability.
Conclusion
The above discussion outlines the minimum planning
clients should consider in preparation for a possible
disability. It is imperative that clients work with you
and their team of professional advisors to ensure that,
in light of their unique goals and objectives, their
planning addresses all aspects of a potential
disability.
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