 |
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 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! |
|
|
|
|
Volume 1,
Issue 2 |
| 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
Advisor examines the eye-opening statistics
surrounding disability and some of the common
disability planning options.
Most Americans 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 2.4 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.
Many Americans Will Face a Long-Term Disability
Unfortunately, for many of us 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 Americans
will require significant in-home care lasting,
on average, close to a year. For those requiring
nursing home care, that care lasts, on average,
nearly 2 1/2 years! Not surprisingly, the older
we get, the more likely we will need long-term
care - which is significant given that Americans
are living much longer.
Long-Term Care Costs Can be Staggering
Not only will many of us 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 patient
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!
Consider Long-Term Care Insurance to Cover these
Costs
As the Harvard University study demonstrates, if you
or a family member needs long-term care, the cost
could easily deplete and/or extinguish your family's
hard-earned assets. Alternatively, you (or your
family) can pay for long-term care completely or in
part through long-term care insurance.
Most long-term care insurance plans let you choose
the amount of the coverage you want, as well as how
and where you can use your benefits. A comprehensive
plan includes benefits for all levels of care,
custodial to skilled, and you can receive care in a
variety of settings, including your 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, discuss with
your financial advisor how a long-term care
insurance policy can meet your unique planning
objectives.
Planning Tip: While long-term
care insurance will cover in-home or nursing
home costs, it will not replace the income lost
due to the inability to work. Therefore, income
earners should also discuss with their financial
advisor how a disability insurance policy can
replace lost income if you become disabled.
Your Estate Planning Should Thoroughly Address
Disability
When a person becomes disabled, he or she is often
unable to make personal and/or financial decisions.
If you cannot make these decisions, someone must
have the legal authority to do so for you.
Otherwise, your family must apply to the court for
appointment of a guardian for either your person or
your property, or both. If you remember the public
guardianship proceedings for Groucho Marx, you
likely recognize the need to avoid a guardianship
proceeding if at all possible.
At a minimum, you need broad powers of attorney that
will allow agents to handle all of your property if
you become disabled, as well as the appointment of a
decision-maker for health care decisions.
Alternatively, a fully funded revocable trust can
ensure that you and your property will be cared for
as you desire, pursuant to the highest duty under
the law - that of a trustee.
Planning Tip: Your estate
planning should include properly drafted and
well thought-out estate planning documents that
address both your property and your person in
the event you become disabled. Be sure to
discuss this aspect of your planning with your
estate planning attorney.
Planning Tip: An estate plan
that utilizes a revocable trust as its
foundation not only helps ensure that you will
be cared for as you desire, but it can ensure
consistent asset management through the
continued use of your existing financial
advisors.
Consider Adding 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: Your "personal
representative" for health care decisions has
the same rights to receive information as you
do. 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 your behalf.
The
Regulations promulgated under HIPAA specifically
authorize a HIPAA Authorization for release of this
information to persons other than you or your
personal representative. Thus, you should consider
creating such an Authorization so that loved ones
and others can access this information in addition
to your personal representative.
Planning Tip: Consider
preparing a HIPAA Authorization for loved ones
and others who potentially need access to your
medical information if you become disabled. Your
estate planning attorney can create such a HIPAA
Authorization for you.
Conclusion
The above discussion outlines the minimum planning
you should consider in preparation for a possible
disability. As the Planning Tips demonstrate, it is
imperative that work with your team of professional
advisors to ensure that, in light of your unique
goals and objectives, your planning fully addresses
all aspects of a potential disability.
To comply with the U.S. Treasury regulations, we
must inform you that (i) any U.S. federal tax advice
contained in this newsletter was not intended or
written to be used, and cannot be used, by any
person for the purpose of avoiding U.S. federal tax
penalties that may be imposed on such person and
(ii) each taxpayer should seek advice from their tax
advisor based on the taxpayer's particular
circumstances. |
|
