caring for and aging parent ebook

Caring For an Aging Parent

[email protected]

LifeFocus.comT. Young

March 28, 2010

Table of ContentsCaring for Your Aging Parents .......................................................................................................................... 8

What is it? ................................................................................................................................................ 8

Start planning ...........................................................................................................................................8

What kind of advice will you need? ..........................................................................................................8

What kinds of support and community services will you need? ...............................................................9

Financial and tax considerations for you ..................................................................................................11

Questions & Answers ...............................................................................................................................12

Healthcare in Retirement .................................................................................................................................. 13

What health care benefits are available in retirement? ............................................................................13

Medicare .................................................................................................................................................. 13

Medigap ................................................................................................................................................... 14

Medicaid ...................................................................................................................................................14

Military benefits ........................................................................................................................................ 16

Choosing a continuing care retirement community ..................................................................................16

Choosing a nursing home ........................................................................................................................ 16

Medicaid Planning Goals and Strategies .......................................................................................................... 17

Why is Medicaid planning important? ...................................................................................................... 17

What are the goals of Medicaid planning? ...............................................................................................17

What are the primary tools and strategies for attaining these goals? ...................................................... 18

Durable power of attorney ........................................................................................................................19

How does long-term care insurance factor in? .........................................................................................19

What are the drawbacks to Medicaid planning? ...................................................................................... 20

Look-back period ......................................................................................................................................20

Penalties .................................................................................................................................................. 20

Adverse tax consequences ......................................................................................................................21

Long-Term Care Insurance (LTCI) ....................................................................................................................22

What is long-term care insurance (LTCI)? ............................................................................................... 22

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March 28, 2010See disclaimer on final page

How is it useful as a protection planning tool? .........................................................................................22

How much does it cost? ...........................................................................................................................23

Who should purchase LTCI? ....................................................................................................................23

How much coverage is enough? ..............................................................................................................23

How do you compare policies and providers? ......................................................................................... 24

What are the tax ramifications? ................................................................................................................24

Social Security .................................................................................................................................................. 25

What is it? ................................................................................................................................................ 25

How does it work? ....................................................................................................................................25

Social Security benefits ............................................................................................................................25

How much will you receive from Social Security? ....................................................................................27

Getting the most from the Social Security system ................................................................................... 28

Housing Options for Older Individuals ...............................................................................................................30

What is it? ................................................................................................................................................ 30

Staying where you are: when there's no place like home ........................................................................ 30

Pulling up stakes: moving in with (or near) your child ..............................................................................31

Setting out for greener pastures: independent living options ...................................................................32

When you need a little more help: assisted living options ........................................................................32

When you need a lot more help: nursing homes ......................................................................................33

Will care be there when you need it? .......................................................................................................34


Incapacity ..........................................................................................................................................................35

What is incapacity? .................................................................................................................................. 35

Why should you care? ..............................................................................................................................35

How is incapacity determined? ................................................................................................................ 35

Why do you need to plan for incapacity? ................................................................................................. 36

Protect Your Property against Incapacity ..........................................................................................................37

What is incapacity? .................................................................................................................................. 37

How is incapacity determined? ................................................................................................................ 37



What happens to your property if you don't plan for incapacity? ............................................................. 37

What can you do to protect your property? ..............................................................................................38

How do you decide what you should do? .................................................................................................39

Example ................................................................................................................................................... 39

Choosing a Continuing Care Retirement Community ....................................................................................... 40

What is a continuing care retirement community (CCRC)? ..................................................................... 40

How to choose a CCRC ...........................................................................................................................40

Tax considerations ...................................................................................................................................41


Choosing a Nursing Home ................................................................................................................................42

What is a nursing home? ......................................................................................................................... 42

How to choose a nursing home ................................................................................................................42


How to Pay for Nursing Home Care ..................................................................................................................44

What is it? ................................................................................................................................................ 44

Ways to pay for nursing home care ......................................................................................................... 44



When You Need Help:In-Home Care Programs for Older Individuals .............................................................. 47

What is in-home care? ............................................................................................................................. 47

What types of in-home care are available? ..............................................................................................47

How to pay for in-home care ....................................................................................................................47

Ensuring the quality of in-home care ........................................................................................................48


When You Need Help: Community Resources and Programs for Older Individuals ........................................ 49

What is it? ................................................................................................................................................ 49

What types of community programs and resources are available? ......................................................... 49

Caring for Your Aging Parents .......................................................................................................................... 52

Mom? Dad? We need to talk ....................................................................................................................52



Preparing a personal data record .............................................................................................................52

Where will your parents live? ................................................................................................................... 53

Evaluating your parents' abilities ..............................................................................................................53

Get support and advice ............................................................................................................................53

Housing Options for Older Individuals ...............................................................................................................54

There's no place like home ...................................................................................................................... 54

Hey kids, Mom and Dad are moving in! ................................................................................................... 54

Assisted-living options ..............................................................................................................................55

Nursing homes .........................................................................................................................................55

Understanding Long-Term Care Insurance .......................................................................................................57

What is long-term care? ...........................................................................................................................57

Why you need long-term care insurance (LTCI) ...................................................................................... 57

How does LTCI work? ..............................................................................................................................57

Comparing LTCI policies ..........................................................................................................................57

What's it going to cost? ............................................................................................................................ 58

Do Your Parents Need Long-Term Care Insurance? ........................................................................................59

Long-term care: the odds against it aren't long at all ............................................................................... 59

The cost of long-term care isn't low, either .............................................................................................. 59

Help is on the way ....................................................................................................................................59

Who most likely needs the help? ............................................................................................................. 59

Understanding Social Security ..........................................................................................................................61

How does Social Security work? ..............................................................................................................61

Social Security eligibility ...........................................................................................................................61

Your retirement benefits ...........................................................................................................................61

Disability benefits ..................................................................................................................................... 62

Family benefits .........................................................................................................................................62

Survivor's benefits ....................................................................................................................................62

Applying for Social Security benefits ........................................................................................................62

Social Security Retirement Benefits ..................................................................................................................64



How do you qualify for retirement benefits? .............................................................................................64

How much will your retirement benefit be? .............................................................................................. 64

Retiring at full retirement age ...................................................................................................................64

Retiring early will reduce your benefit ...................................................................................................... 65

Delaying retirement will increase your benefit ..........................................................................................65

Working may affect your retirement benefit ............................................................................................. 65

Retirement benefits for qualified family members ....................................................................................65

How do you sign up for Social Security? ..................................................................................................66

Health Insurance in Retirement .........................................................................................................................67

Retirement--your changing health insurance needs ................................................................................ 67

More about Medicare ............................................................................................................................... 67

What is Medigap? .................................................................................................................................... 67

Thinking about the future--long-term care insurance and Medicaid .........................................................68

Insurance Needs in Retirement .........................................................................................................................69

Stay well with good health insurance .......................................................................................................69

Don't overlook long-term care insurance ................................................................................................. 69

Weigh your need for life insurance ...........................................................................................................70

Take a look at your auto and homeowners policies .................................................................................70

Facing the Possibility of Incapacity ................................................................................................................... 71

Incapacity can strike anyone at anytime .................................................................................................. 71

Planning ahead can ensure that your wishes are carried out .................................................................. 71

Managing medical decisions with a living will, durable power of attorney for health care, or Do NotResuscitate order .....................................................................................................................................71

Managing your property with a living trust, durable power of attorney, or joint ownership .......................71

Medicaid Planning Basics ................................................................................................................................. 73

Eligibility for Medicaid depends on your state's asset and income-level requirements ............................73

Medicaid planning can help you meet your state's requirements ............................................................ 73

One way to shelter countable assets is to exchange them for exempt assets .........................................73

Irrevocable trusts can help you leave something for your loved ones ..................................................... 74

If you're married, an annuity can help you provide for your healthy spouse ............................................ 74



Beware of certain Medicaid planning risks ...............................................................................................74

What is the difference between a living will and a living trust? ......................................................................... 76

What is the difference between a power of attorney and a durable power of attorney? ................................... 77

Is there such a thing as nursing home insurance? ............................................................................................78

What types of nursing care does long-term care insurance cover? ..................................................................79

My mother is 90. Is it OK for her to keep driving? .............................................................................................80

What is long-term care insurance? ................................................................................................................... 81

What is critical illness insurance? ..................................................................................................................... 82

How do I talk to my elderly parents about their finances? .................................................................................83

How can I tell if a nursing home provides high-quality care? ............................................................................84

My parents can't manage alone anymore. What should I do? .......................................................................... 85

I paid my mother's real estate taxes last year. Can I deduct this on my tax return? .........................................86

Can I take the credit for the elderly or disabled? ...............................................................................................87



Caring for Your Aging Parents

What is it?

Caring for your aging parents is something you hope you can handle when the time comes, but something you probably hope you never have to do. Caring for your aging parents means helping them plan for the future, and this can be overwhelming, both physically and emotionally. When the time comes for you to take care of your parents, you may be certain of only two things: Your parents need you, and you need help.

Start planning

Talk to your parents about the future

Start caring for your aging parents by talking with them about their needs and wishes if they are able. In some cases, however, they may not be willing to talk to you about their future, either because they are afraid to face it or because they resent your interference. If this is the case, you may need to do as much planning as you can without them, or, if their safety or health is in danger, step in as caregiver anyway.

Prepare a personal data record

The first step you should take is to ask your parents to help you prepare a personal data record (if they are unable to help you, you'll have to search for the information yourself). A personal data record is a document that lists information that you might need in case your parents become incapacitated or die. Information that should be included is financial information, legal information, medical information, insurance information, and information regarding professional advisors and the location of important records.

Example(s): When Marcia and her mother prepared a personal data record, Marcia realized that her mother did not have a durable power of attorney or health care proxy in case she became incapacitated and could not make decisions about her medical care. The next day, Marcia made an appointment with her mother's lawyer to discuss this issue.

Get advice

You can't know everything, and you probably don't have enough time to learn everything you need to know to care for your parents. That's why you should seek advice from professionals. Some advice will be free, and some you will have to pay for. If you live far from your parents or are too overwhelmed to handle all your parents' affairs, you can hire a geriatric care manager who will evaluate your parents' situation, suggest options, and coordinate professionals who can help. In addition, talk to your employer. Some employers have set up employee assistance programs that offer advice and assistance to people who are dealing with personal challenges, including caring for aging parents.

Get support

Don't try to care for your parents alone. Many local and national caregiver support groups and community services are available to help you cope with caring for your aging parents. If you don't know where to start finding help, call the Eldercare Locator, an information and referral service sponsored by the federal government that can direct you to resources available nationally or in your area. Call the Eldercare Locator at (800) 677-1116.

What kind of advice will you need?

Housing and health care advice

If your parents are like many older individuals, where they live will depend upon how healthy they are. As your parents grow older, their health may deteriorate so much that they can no longer live on their own. At this point,



you may need to find them in-home health care or health care within a retirement community or nursing home. On the other hand, you may want them to move in with you. For a detailed discussion of housing options, see Housing Options for Older Individuals. In addition, you will need information on managing the cost of health care, long-term care insurance, major medical insurance, Medicare, and Medicaid.

Contact:

• National Association for Home Care

• Visiting Nurse Associations of America

• Centers for Medicare & Medicaid Services (formerly known as the Health Care Financing Administration)

• American Association of Homes and Services for the Aging

• American Association of Retired Persons (AARP)

• Health Insurance Association of America

Financial advice

If your parents need help managing their finances, you may need to contact professionals whose advice both you and your parents can trust, including one or more of the following individuals or organizations.

Contact:

• Your financial planner

• Your banker

• Your investment counselor

• Your tax attorney

• The Social Security Administration

Legal advice

Legal advisors can help you plan for your parents' incapacity (including preparing documents such as power of attorneys, medical directives, and living wills), contact nursing home ombudsmen, set up and monitor guardianship, prepare wills, give tax advice, and provide bill payment and representative payee assistance. For information on these topics, see Planning for Incapacity. Many states provide funds for the delivery of free legal services to the elderly and many attorneys specialize in elder law, so finding legal advice shouldn't be difficult.

Contact:

• Your attorney

• National Association of State Units on Aging

• American Bar Commission on the Legal Problems of the Elderly

• Legal Counsel for the Elderly

What kinds of support and community services will you need?



Caring for your aging parents will be easier if you know what kinds of support and community services are available and where to locate them. The following is a list of the kinds of support and community services you can find locally and nationally, along with specific suggestions of who to contact for information. For other useful information and a more comprehensive list of organizations you can contact for help, see When You Need Help: Community Resources for Older Individuals.

Adult day care

If you need to work or run errands and you can't leave your parents alone, consider using adult day care. These programs are located in hospitals, churches, temples, nursing homes, or community centers. Many are private nonprofit organizations. Adult day care can be expensive but is sometimes subsidized by the government, and fees may be based on a sliding scale. In addition, Medicare, Medicaid, long-term care insurance, or your health insurance may pay part of the cost.

Contact:

• Your local senior center or community center

• National Institute on Adult Day Care

• The Alzheimer's Association

Caregiver support groups (self-help)

Many self-help groups are available to provide information and emotional support on broad topics (such as aging) or specific topics (such as heart disease). You may find these support groups helpful if you know little about caring for your aging parents. Such groups might also provide an opportunity to help others by sharing your experiences.

Contact:


• Children of Aging Parents

• National Self-Help Clearinghouse

Caregiver training/health education

You may feel better about taking care of your parents if you are armed with knowledge. You may want to complete first-aid courses or take classes in gerontology.

Contact:

• Your local college or university

• Your local hospital

• The American Red Cross

Geriatric assessment

If you are uncertain of your parent's mental or physical capabilities, ask his or her doctor to recommend somewhere you can take your parent to undergo an assessment. These assessments can be done at hospitals or clinics. Your parent will be evaluated to determine his or her capabilities. The evaluation determines whether the individual can take care of himself or herself on a day-to-day basis, including such things as bathing, dressing, eating, using the telephone, doing housework, and managing money. Based on this evaluation, you and your parent will receive advice regarding care options.



Contact:

• Your doctor

• Your lawyer

• The National Association of Professional Geriatric Care Managers

• Aging Network Services

Respite care

When you are caring for your aging parents, you may feel guilty or even resentful because you don't have limitless energy. Taking care of your parents is hard work, however, and everyone needs a break once in a while. If you are caring for your aging parents, look into respite care. Medicaid may pay for some respite-care services.

Contact:

• Your doctor

• Your local hospital


• National Association for Home Care

Financial and tax considerations for you

Caring for your aging parents is not only an emotional burden for you but may be a financial one as well, depending upon how well off your parents are and how much caring for them costs. Because many adults today are becoming first-time parents in their thirties, and others are remarrying and rearing second families, increasing numbers of adults are finding themselves in the "sandwich generation." They face having to pay expenses of growing children (including college expenses), plan for their own retirement, and support their aging parents financially. Thus, it's important to plan not only your parents finances, but your own as well.

Financial planning for your parents

Making sure that your parents won't outlive their money is a critical step in ensuring that your own finances will remain sound. In particular, you'll need to make sure that your parent is receiving all the benefits to which he or she is entitled and that his or her money is invested wisely. You'll also need to create a financial profile for your parents, a statement that includes income, expenses, and net worth. For information on how to do this, see Budgeting. If, after considering your parent's financial condition, it's clear that they won't have enough resources to pay for their own care, you'll need to find ways to supplement their income. You may need to look at Supplemental Security Income (SSI), for instance, or ask other relatives for help. You'll also have to determine how much financial support you can give your parents (see below).

Financial planning for you

Besides caring for your parents, you have a lot of other financial obligations. Before you can determine the best way to help your parents financially, you'll have to look at your own financial picture. Not only will you need to consider your current expenses, but you'll have to look down the road a few years, considering how much you'll need to save for your own retirement and, perhaps, for your child's education. For more information on this subject, see Saving for College and Retirement and Determining Your Retirement Income Needs.

Tip: Due to the complexities inherent in providing adequately for several generations in the same family, consider seeking the advice of a financial professional.



Tax benefits for children supporting aging parents

Federal income tax law provides several tax benefits to you if you are supporting your parents financially. If you have a dependent care account at work, you can put pretax dollars into the account that you can use to pay for some costs associated with caring for your dependent parents. You may be able to claim an exemption for your parents as dependents, and you may be entitled to claim a dependent care credit. In addition, you may be able to file your taxes as head of household and deduct medical expenses you paid for your parents. For more information, see Deductions and Exemptions and Child and Dependent Care Tax Credit, and consult your tax advisor.

Questions & Answers

If you are financially supporting your parent, is he or she entitled to receive Social Security benefits based on your earnings?

If you are providing at least one-half of your parent's support at the time of your death, and he or she is age 62 or over and is not entitled to a retirement benefit that is equal to or larger than the amount he or she would receive based on your earnings record, then he or she may be entitled to receive a parent's Social Security benefit equal to 82.5 percent of your primary insurance amount (PIA). For more information, see Social Security Survivor's Benefits and the Lump-Sum Death Benefit.



Healthcare in Retirement

What health care benefits are available in retirement?

Health care in retirement is available from many sources. Government programs (such as Medicaid and Medicare) offer numerous health care benefits. However, you may need to purchase supplemental health insurance or Medigap, as well. Most Americans are eligible to begin receiving Medicare benefits at age 65, but qualifying for Medicaid may require some planning on your part. In addition to these resources, you may also be entitled to military health care benefits if you are a veteran, retired servicemember, or the spouse or widow of a veteran or retired servicemember. Continuing care retirement communities and nursing homes also offer health care services for older individuals. Depending on your specific needs and circumstances, you may use any number of these resources during your retirement years.

Medicare

In general

Medicare is a federal health insurance program created in 1965. Medicare primarily assists those who are 65 or older, but if you are disabled or have kidney disease, you may be eligible for Medicare coverage no matter what your age. Medicare currently consists of Part A (hospital insurance), Part B (medical insurance), Part C (which allows private insurance companies to offer Medicare benefits), and Part D (which covers the costs of prescription drugs), with each part having its own eligibility requirements. You may qualify for one or more parts, or you may choose to accept or decline coverage if you are eligible. Many health policies limit coverage for Medicare-eligible individuals regardless of whether they have accepted Medicare coverage.

Medicare benefits for disabled individuals

Under certain conditions, the disabled are eligible to enroll in Medicare before age 65. If you have been receiving (or have been entitled to receive) Social Security disability benefits for at least 24 months (not necessarily consecutively), you may be eligible to enroll in Medicare. To enroll, you must be entitled to benefits in one of the following categories:

• A disabled individual of any age receiving worker's disability benefits

• A disabled widow or widower age 50 or older

• A disabled beneficiary who is older than age 18 and receives benefits based on a disability that occurred before age 22

In addition, Medicare may be available at any age if you are disabled as a result of chronic kidney failure requiring dialysis or a kidney transplant. For more information, see Medicare Benefits for Disabled Individuals.

Qualified Medicare Beneficiary program

If you have limited means, you may be eligible for the Qualified Medicare Beneficiary (QMB) program. Here, your state's Medicaid program may pay for your Medicare Part B premium, Part A and Part B deductibles, and coinsurance requirements. Eligibility rules may vary from state to state, but in general, you must meet the following three criteria:

• You must be entitled to Medicare Part A

• Your income must be at or below the national poverty level

• The value of your assets must be below a certain level



There are also other related programs that have somewhat less restrictive eligibility requirements. For more information, see Qualified Medicare Beneficiary Program.

Medigap

In general

Medigap is supplemental insurance specifically designed to cover some of the gaps in Medicare coverage. Although the name might lead you to believe otherwise, Medigap is provided by private health insurance companies, not the government. However, Medigap is strictly regulated by the federal government.

Every Medigap policy offers certain basic core benefits, and various additional benefits may be included as well. The basic benefits and the optional benefits can only be combined in certain ways, creating 12 standard Medigap policy types. Basic Medigap will cover most of your Medicare co-payments, while optional benefits may cover your Medicare deductibles, prescription drugs, skilled nursing facility care, preventative care, and charges that result when a provider bills more than the Medicare-approved amount for a service.

Caution: No new Medigap policies with drug coverage (plans H, I, and J) are currently being sold, although two new types of Medigap benefits packages are available (plans K and L).

Medicaid

In general

Medicaid provides medical assistance to aged, disabled, or blind individuals, or to needy, dependent children who could not otherwise afford the necessary medical care. Medicaid pays for a number of medical costs, including hospital bills, physician services, home health care, and long-term nursing home care. Each state administers its own Medicaid programs based on broad federal guidelines and regulations. Within these guidelines, each state performs the following: (1) determines its own eligibility requirements; (2) prescribes the amount, duration, and types of services; (3) chooses the rate of reimbursement for services; and (4) oversees its own program.

Applying for benefits

To apply for Medicaid, you must use a written application on a form prescribed by your state and signed under penalties of perjury. Give the application to your state Medicaid office. Typically, you will need to provide proof of age, marital status, residence, and citizenship, along with your Social Security number, verification of receipt of government benefits, and verification of your income and assets. A responsible individual can complete the application on behalf of an incompetent or incapacitated individual.

For more information, see Applying for Benefits.

Eligibility

To qualify for Medicaid, you must meet two basic eligibility requirements. First, you must be considered categorically needy because of blindness, disability, old age, or by virtue of being the parent of a minor child. Next, you must be financially needy, which is determined by income and asset limitation tests. States have much discretion in determining which groups their Medicaid programs will cover, but as participants in Medicaid, they must provide coverage for all residents who are considered categorically needy.

Caution: State and federal rules regarding Medicaid eligibility change frequently. For further information, see Eligibility for Medicaid.

Transfer of assets

Because Medicaid eligibility is based on your income and other resources, state Medicaid authorities are interested in knowing whether you have tried to transfer assets out of your name in order to qualify for Medicaid. When you apply for Medicaid, the state has the right to examine your finances and those of your spouse as far



back as 60 months before the date you applied for Medicaid. Only certain transfers are prohibited. Fair market transactions will typically be considered legitimate, but if you transfer assets for less than fair market value around the time you apply for Medicaid, the state will presume that the transfer was made solely to help you qualify for Medicaid.

For further information, see Transfer of Assets.

Planning goals and strategies

As mentioned earlier, the state has the right to look into your financial transactions to determine whether you have transferred assets solely to qualify for Medicaid. However, the state may count only the income and assets that are legally available to you for paying your bills. Consequently, several methods have been developed to help you shelter your assets from the state and facilitate Medicaid qualification. Proper planning can help you to qualify for Medicaid, shelter "countable" assets, preserve assets (including the family home) for loved ones, and protect the healthy spouse (if any).

For more information, see Planning Goals and Strategies.

Medicaid qualifying trusts

To qualify for Medicaid, both your income and the value of your other assets must fall below certain limits (which vary from state to state). A trust helps you to qualify for Medicaid because it can shelter your income and assets, making them unavailable to you. The state Medicaid authorities cannot consider assets that are truly inaccessible to the Medicaid applicant. Therefore, anything that stays in an irrevocable trust will lie outside of your financial picture for Medicaid eligibility purposes. If you are looking for a strategy to shelter your resources, one of the following may be appropriate: (1) an irrevocable income-only trust, (2) an irrevocable trust in which the creator of the trust is not a beneficiary, (3) a Miller trust, or (4) a special needs trust. For further information, see Medicaid Qualifying Trusts.

Protection of principal residence

In certain cases, the state may be entitled to seek reimbursement for Medicaid payments by forcing the sale of your principal residence if you are a Medicaid recipient. Medicaid planning tools have been devised to protect your home, but their effectiveness varies. Therefore, it is important to weigh the costs and benefits of each device carefully. If you are looking for a strategy to preserve your home for loved ones, one of the following four methods may be appropriate: (1) an outright transfer or gift of the home, (2) a transfer subject to life estate, (3) a transfer subject to special power of appointment, or (4) a transfer in trust.

For more information, see Protection of Principal Residence.

Medicaid and long-term care insurance

Long-term care (LTC) insurance can be useful as part of your Medicaid planning strategy. Your LTC policy can subsidize your nursing home bills during the Medicaid ineligibility period caused by your transfer of assets to third parties. Thus, it may be possible for you to give your assets away to loved ones, have the security of paid nursing home bills during the ineligibility period, and qualify for Medicaid when the LTC policy runs out.

For further information, see Medicaid and Long-Term Care Insurance.

Medicaid liens and estate recoveries

Federal law requires states to seek reimbursement from Medicaid recipients for Medicaid payments made on their behalf. Cost-recovery actions against the assets of Medicaid recipients may come in two forms: (1) real or personal property liens and (2) recovery from decedents' estates. A Medicaid lien makes it impossible for you to sell or refinance your house without the state's knowledge and ability to collect what it is owed. As for recovery from decedents' estates, states also can seek reimbursement from your probate estate after you die. States have the option to expand the definition of estate to include all nonprobate assets as well.

For more information, see Medicaid Liens and Estate Recoveries.



Divorce and Medicaid

From a purely financial perspective, divorce can be a practical move and may actually be used as a Medicaid planning tool. When a spouse enters a nursing home and applies for Medicaid, the couple's assets must be pooled together and totaled to determine what portion the healthy spouse may keep. After this Spousal Resource Allowance has been determined, the Medicaid applicant must transfer assets representing the amount of the allowance to the healthy spouse. The remaining assets must be spent on the institutionalized partner's medical care. A divorce court order can supersede the normal Spousal Resource Allowance rules prescribed under state Medicaid regulations. You should consult your legal advisor for further information.

For more information, see Divorce and Medicaid.

Military benefits

Disability benefits, health-care benefits, and long-term care benefits are available through various military programs sponsored by the Department of Defense and the Department of Veterans Affairs (VA), formerly known as the Veterans Administration. Health care for veterans is typically available at VA hospitals and health-care facilities. In general, active service members, retirees, and veterans other than those who were dishonorably discharged are eligible for military benefits. Survivors of servicemembers and veterans are also generally eligible for some of the same benefits. However, the rules surrounding these benefits can be complex and may change frequently. It is best to check with your military personnel office or local VA office if you have questions about any of these benefits.

For further information on military health care benefits and eligibility requirements, see Military Benefits.

Choosing a continuing care retirement community

Continuing care retirement communities (CCRCs) are retirement facilities that offer housing, meals, activities, and health care to their residents. These communities appeal to people who are currently in good health but who worry that they may need nursing care later on. The CCRC and the resident sign a contract guaranteeing that the CCRC will provide housing and nursing home care throughout the resident's life and that, in return, the resident pays an entrance fee and a monthly fee. In choosing a CCRC, you should consider factors such as the entrance fee and monthly fees, insurance requirements, the financial stability of the CCRC, its facilities and activities, and the quality of medical care provided to residents.

For more information, see Choosing a Continuing Care Retirement Community.

Choosing a nursing home

A nursing home is a licensed facility that provides skilled nursing care, intermediate care, and custodial care. Although you may prefer in-home care, you may have to enter a nursing home if you need round-the-clock care, especially if you can't get help from family or an in-home caregiver. When choosing a nursing home, you should consider factors such as the cost of the home, the quality of medical care provided, the appearance and the safety of the facilities, the ratio of staff to residents, and recreational opportunities.

For further information, see Choosing a Nursing Home.

Paying for nursing home care

Nursing home care can be extremely expensive, and paying for this care is a problem that weighs heavily on the minds of older Americans and their families. There are several resources you can use in planning for this expense, including self-insurance, long-term care insurance, Medicare (limited benefits), Medicaid, and military benefits.

For more information, see Paying for Nursing Home Care.



Medicaid Planning Goals and Strategies

Why is Medicaid planning important?

Aging is inevitable, and a gradual (or not so gradual) inability to function independently is a great concern for many people. While the prospect of entering a nursing home is a daunting one, equally frightening is the expense of nursing home care. Although purchasing long-term care insurance might be the most logical move, not everyone can afford the cost of its premiums. Many people feel that their only option is to spend down their life savings in order to private-pay nursing home care. Once this money has been exhausted, they'll apply for Medicaid. But this isn't the way it has to be. To qualify for Medicaid, both your income and the value of your assets must fall below certain limits, which vary from state to state. In determining your eligibility for Medicaid, a state may count only the income and assets that are legally available to you for paying your bills. Consequently, a number of tools have arisen to rearrange your finances, shelter your assets from the state, and facilitate Medicaid qualification.

What are the goals of Medicaid planning?

Medicaid planning serves to accomplish a number of goals: (1) qualifying for Medicaid, (2) sheltering "countable" assets, (3) preserving assets (including the family home) for loved ones, and (4) protecting the healthy spouse (if any).

Qualifying for Medicaid

Qualifying for Medicaid is not automatic; your income and asset levels must fall below the threshold set by your state. However, a state may consider only the income and assets that are legally available to you for paying your bills. Medicaid planning helps you to devise ways of making your assets and income inaccessible. If they're inaccessible to you, they're also inaccessible to the state, and this will help you to qualify for Medicaid.

Sheltering countable assets

The term countable assets refers to anything valuable you own that is not exempt by law or otherwise made inaccessible; the total value of your countable assets (together with your nonexempt income) will determine your eligibility for Medicaid. Under federal guidelines, each state composes a list of exempt assets. It is possible, therefore, to rearrange your finances so that countable assets are exchanged for exempt assets (or otherwise made inaccessible to the state).

Preserving assets (including the family home) for loved ones

Why are so many people averse to simply liquidating their assets to pay for nursing home care? After all, Medicaid will eventually step in (in most states), once you've exhausted your personal resources. The reason is simple: People want to financially assist their loved ones. After working long hours for many years, over the course of a lifetime, most people don't want to see their nest eggs vanish; rather, they want to be able to pass something down to their loved ones. And this can be particularly true with respect to the family home, which is often the single largest asset a nursing home resident might own.

Protecting the healthy spouse (if any)

With respect to a married couple, financial protection of the healthy or at-home spouse is always an important concern. A married couple's assets are pooled together when the state is considering the eligibility of one spouse for Medicaid. The healthy spouse is entitled to keep a spousal resource allowance, which generally amounted to one-half of the assets (not to exceed $109,560 in 2009). This really isn't much money, especially if the healthy spouse is a younger woman (who'll probably live much longer anyway because of her gender). Medicaid planning seeks to financially assist the healthy spouse.



What are the primary tools and strategies for attaining these goals?

Although there have been a number of Medicaid planning strategies devised over the years by attorneys (and others), the following tools are the most widely used:

Purchase of exempt assets

It has become standard practice for a Medicaid applicant to use countable resources to purchase exempt assets. This exchange is a perfectly lawful method of shielding your assets from the Medicaid authorities and improving the quality of life for your spouse or other loved ones. Exempt assets are those that do not affect your eligibility for Medicaid; each state composes a list of exempt assets, based on federal guidelines. Typically, this list may include such items as a family home, prepaid burial plots and contracts, one automobile, and term life insurance.

Instead of spending your money solely on nursing home bills, therefore, you can pay off the mortgage on your family home, make home improvements and repairs, pay off your debts, purchase a car for your healthy spouse, and prepay burial expenses.

Caution: For Medicaid applications filed on or after January 1, 2006 (this date may be slightly different in your state), a family home with equity above $500,000 (or $750,000 if increased by your state) makes you ineligible for Medicaid. An exception applies if your spouse, child under age 21, or child who is blind or disabled resides in the home.

Using immediate annuities to shelter countable assets

A healthy spouse may want to take jointly owned, countable assets to purchase a single premium immediate annuity for the benefit of himself or herself alone. You convert countable assets into an income stream. This is beneficial, since each spouse is entitled to keep all of his or her own income. (This stands in contrast to the treatment of assets, whereby all assets of a married couple are pooled together and totaled.) By purchasing an immediate annuity in this manner, the institutionalized spouse can qualify more easily for Medicaid, and the healthy spouse can enjoy a higher standard of living.

Caution: Generally, for annuities purchased on or after February 8, 2006 (this date may be slightly different in your state), the annuity will be counted as an asset unless the state is named as the primary beneficiary (unless the beneficiary is your spouse or minor or disabled child), in which case the state must be named as the secondary beneficiary. There is an exception for annuities held within a retirement plan. Further, any interest you have in an annuity must be disclosed at the time you apply for Medicaid.

Transfer of assets under "half-a-loaf"

Prior to the enactment of the Deficit Reduction Act of 2005 (the Act), a strategy used often to protect assets and facilitate eligibility for Medicaid is known as the "half-a-loaf" strategy. Basically, you would give approximately one-half of your assets away (to loved ones) in order to shelter those assets from the state; you used the remaining money to pay for your nursing home care during the period of ineligibility for Medicaid caused by the transfer. This strategy worked because the period of ineligibility was triggered when the transfer was made. Under the Act, the period of ineligibility now starts when you apply for benefits, effectively eliminating the half-a-loaf strategy in most cases.

However, another strategy referred to as "reverse half-a-loaf" may replace the half-a-loaf strategy. With a reverse half-a-loaf, you transfer assets in an amount that will qualify you for Medicaid in the same month that you apply for benefits. Due to this transfer, a period of ineligibility will apply. You "cure the transfer" by having a portion of the transfer returned to you, which shortens the eligibility period.

Caution: The reverse half-a-loaf strategy will not work in states that do not allow partial cures.



Trusts

An irrevocable trust can help you to qualify for Medicaid and preserve assets for your loved ones; it serves to shelter your assets (and/or income), making them unavailable to you. The state Medicaid authorities cannot consider assets that are truly inaccessible to the Medicaid applicant; therefore, anything that stays in an irrevocable trust will lie outside of your financial picture, for Medicaid eligibility purposes.

Although a number of trusts have been devised by Medicaid planning attorneys, four have received particular note and the most widespread acceptance: (1) irrevocable income-only trusts, (2) irrevocable trusts (in which the creator of the trust is not a beneficiary), (3) Miller trusts, and (4) special needs trusts.

Protection of principal residence through outright transfers, life estates, special powers of appointment, and transfers into trust

For many people, a house is generally the most valuable and important asset they own. Not only does it have sentimental value, but it is sometimes the only means of passing down some financial security to children or other loved ones. However, the skyrocketing cost of nursing home bills can jeopardize your ability to preserve your house. Additionally, a state may be entitled to seek reimbursement for Medicaid payments by, in some cases, placing a lien on your principal residence.

Therefore, Medicaid planning tools have been devised to protect your home. The following tools are usually recommended:

• Outright transfers (gift of the home)--Making a gift of your home to your children protects this asset for them; the state cannot place a lien (or force a sale) on a home that no longer belongs to you and is not part of your estate.

• Transfer subject to life estate--With this planning tool, you transfer the remainder interest in your house to your loved ones, and you keep a life estate for yourself. You have the legal right to live in the house, and when you die, your loved ones will own the home automatically.

• Transfer subject to special power of appointment--Here, you transfer your house to someone else but reserve the right to later redirect the ownership of the house to a different person. Since the house no longer belongs to you, the state cannot place a lien (or force a sale) on it. And this tool provides you with tax advantages as well.

• Transfer in trust--From a Medicaid perspective, the most effective form of trust for protecting your principal residence would be the irrevocable income-only trust. It can facilitate your Medicaid eligibility and remove the house from your probate estate, protecting it from a Medicaid-forced sale in some states.

Durable power of attorney

Your possible incapacity in the future should be a concern. If you become mentally incompetent before you enter a nursing home, it may be very difficult (if not impossible) to effect a transfer of your assets. A durable power of attorney is a written instrument you sign, authorizing someone else to act for you in the event that you become incapacitated. That way, for example, a wife can transfer the family home out of her husband's name and into her own even after her husband becomes too ill to manage his own affairs.

How does long-term care insurance factor in?

Because Medicare and other forms of health insurance do not pay for custodial care (assistance with daily activities), many nursing home residents have only three alternatives for paying their nursing home bills: cash, Medicaid, and long-term care insurance (LTCI). By purchasing LTCI while you are still healthy, you can hold onto the bulk of your assets for as long as possible--there is no need for you to divest yourself of assets through trusts and other planning tools years ahead of time. Since your insurance will subsidize your nursing home bills during



your first few years, you can transfer assets to your loved ones after you enter a nursing home. Any Medicaid ineligibility period created by your transfer of assets will be harmless; your insurance company will pay your bills during that time period.

On the downside, the insurance premiums might be too expensive for a person of modest means. You must consider not only whether you can afford the premiums now but also whether you'll be able to continue paying the premiums in the future (when your income might be substantially decreased).

Tip: All 50 states are permitted to participate in the Long-Term Care Partnership Program. The Partnership Program combines private LTC insurance with Medicaid. Those who purchase LTC insurance through the program receive certain benefits such as the ability to protect some or all of their assets from the "spend down" requirements of the eligibility process.

What are the drawbacks to Medicaid planning?

Medicaid planning can involve certain risks and drawbacks. In particular, you need to be aware of "look-back" periods and possible disqualification for Medicaid, potential criminal penalties, and adverse tax consequences. Because the Medicaid transfer rules have been tightened in recent years (and may continue to contract in the years ahead), it is wise for you to consult with an attorney experienced in the Medicaid area if you are interested in planning.

Look-back period

When you apply for Medicaid, the state has the right to review or look back at your finances (and those of your spouse) for a period of months before the date you applied for assistance. In general, for transfers made prior to February 8, 2006, there exists a 36-month look-back period for transfers of countable assets for less than fair market value and a 60-month look-back period for similar transfers into trusts. For transfers made on or after February 8, 2006, the look-back period is 60 months for all transfers.

Tip: Because the new look-back period is being phased in, practically speaking, the 36-month look-back period will still be in effect until February 8, 2009. Further, the effective date for the new look-back period is established under federal law, but may be slightly different under your state's law.

Certain transfers of countable assets for less than fair market value, made during the look-back period, will result in a waiting period or period of ineligibility before you can start to collect Medicaid benefits. The formula for determining the waiting period may be explained as the fair market value of the transferred assets divided by what Medicaid determines to be the average monthly cost of nursing homes in your locale, the quotient representing the number of months for which you will be ineligible for certain Medicaid benefits.

Example(s): Assume that Ralph used $288,000 to create an irrevocable trust, naming himself as beneficiary and his friend as trustee. Ralph entered a nursing home two years later at the rate of $6,000 per month (which is the average in his locale) and applied for Medicaid. But because Ralph transferred assets to an irrevocable trust during the look-back period (60 months), he will be ineligible to receive Medicaid benefits for 48 months ($288,000 divided by $6,000 equals 48 months).

It is possible, therefore, that engaging in Medicaid planning can actually cause you to become ineligible for Medicaid for a time.

Penalties

If you transfer assets for less than fair market value, you should apply for Medicaid only after the ineligibility period (if any) has elapsed.



Adverse tax consequences

If you give away your assets during your lifetime, the recipients (beneficiaries) will step into your shoes in a tax sense--they'll get the same tax basis in the assets that you had possessed. That can be a drawback, since your holding onto the assets until death would provide the recipients with a stepped-up basis; that is, the fair market value of the assets on your date of death would become the tax basis for your beneficiaries. Nevertheless, certain Medicaid planning tools can preserve the stepped-up basis, even when you effect lifetime transfers. It is important, therefore, to evaluate your Medicaid planning strategies from all perspectives, including a tax viewpoint. What may be the most wise decision from a Medicaid standpoint might be a poor move from a tax standpoint. (Tools that won't prevent the ultimate recipients of your assets from getting a stepped-up tax basis upon your death include the following: Transfer Subject to Life Estate, Transfer Subject to Special Power of Appointment, and Transfer in Trust.) For more information, consult a financial professional or an elder law attorney experienced with Medicaid planning.



Long-Term Care Insurance (LTCI)

What is long-term care insurance (LTCI)?

Long-term care insurance (LTCI) is a contractual arrangement that pays a selected dollar amount per day for a selected period of time for skilled, intermediate, or custodial care in nursing homes and other settings (such as home health care). Because Medicare and other forms of health insurance do not pay for custodial care, many nursing home residents have only three alternatives for paying their nursing home bills: their own assets (cash, investments), Medicaid, and LTCI. For information about Medicare and other government programs that cover only a limited amount of long-term care expenses, see Coordination with Government Benefits. For details about Medicaid, see Long-term Care Insurance (LTCI) as a Medicaid Planning Tool.

In general, long-term care refers to a broad range of medical and personal services designed to provide ongoing care for people with chronic disabilities who have lost the ability to function independently. The need for this care arises when physical or mental impairments prevent one from performing certain basic activities, such as feeding, bathing, dressing, transferring, and toileting--activities known as ADLs ("activities of daily living"). For more information about these activities, see Long-term Care Insurance (LTCI) Provisions. For details about places where you might receive long-term care, see Types of Long-term Care. For information about different kinds of LTCI policies and places where you might purchase them, see Types of Long-term Care Policies.

Long-term care may be divided into three levels:

• Skilled care--continuous "around-the-clock" care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is created, and it is usually contemplated that the patient will recover at some point.

• Intermediate care--intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under the supervision of a physician.

• Custodial care--care designed to help one perform the activities of daily living (such as bathing, eating, and dressing). It can be provided by someone without professional medical skills, but is supervised by a physician.

How is it useful as a protection planning tool?

The risk of contracting a chronic debilitating illness (and the resulting catastrophic medical bills incurred) is considered by many to be one type of risk best passed on to an insurance company through the purchase of a LTCI policy.

A number of factors can increase your risk of requiring long-term care in the future. Naturally, your health status affects your likelihood of incurring a long stay in a nursing home. Indeed, people with chronic or degenerative medical conditions (such as rheumatoid arthritis, Alzheimer's disease, or Parkinson's disease) are more likely than the average person to require long-term nursing home care. And because women usually outlive the men in their lives, women stand a greater chance of requiring long-term nursing home care. However, if you already have a primary caregiver (like a spouse or child), your likelihood of needing a long stay in a nursing home will be less, particularly if you're a man. Because the cost of long-term care can be astronomical and may exhaust your life savings, purchasing LTCI should be considered as part of your overall asset protection strategy.

Example(s): Sue is a 75-year-old widow with two children, John and Jill. Sue owns her condominium apartment and has $200,000 in liquid assets. After enjoying independence much of her life, Sue suffered a stroke and now needs help with such things as bathing, dressing, and eating. John and Jill look into home health care and discover that it will cost $1,500 per week (or $78,000 per year). The money that Sue had hoped to pass on to her children will instead be spent



on expenses that may otherwise have been covered by an LTCI policy.

How much does it cost?

Although purchasing LTCI seems to be the easy answer to the problem of escalating long-term care costs, the premiums for LTCI can be, depending on benefit levels selected, quite expensive.

Your yearly premium for an LTCI policy depends on a number of considerations, including your age when you purchase the policy, your health, the length of the coverage period (for instance, three years, five years, or lifetime benefits), the amount of the daily benefit provided, and whether you purchase inflation protection. When buying an LTCI policy, you must also consider not only whether you can afford to pay the premiums now but also whether you'll be able to continue paying premiums in the future, when your income may be substantially decreased. For more information about the cost of LTCI and examples regarding how Medicare and Medigap may help defray some of the costs, see Coordination with Government Benefits.

Who should purchase LTCI?

During the "golden years," when income typically declines, the purchase of LTCI should be carefully considered. People with significant discretionary income and substantial resources to protect for spouses, children, and other loved ones should seriously consider purchasing LTCI. Individuals with modest resources (e.g., less than $50,000 net worth) may find the premiums unaffordable, and may qualify for Medicaid by spending down their assets and/or engaging in a little Medicaid planning.

How much coverage is enough?

Insurance protects against an event that might happen in the future. Therefore, buying enough protection is important, but affordability must also be considered. In terms of cost, you need to consider the amount of the daily benefit you want to purchase and also the length of the benefit period.

• Daily benefit--Most policies will let you choose your amount of coverage, typically running anywhere from $40 to $150 or more per day. Of course, the greater the daily benefit and the longer the benefit period, the more the policy will cost. Also, note that the cost of nursing home care varies greatly from one metropolitan area to another, so you need to know where you'll be living out the remainder of your years. Certainly, it wouldn't make sense to purchase a policy with a daily benefit of $40 if the average daily cost of nursing homes in your area is $250 per day--unless, of course, you have substantial resources and plan to use some of your own income to pay for care. Consumers should generally buy enough coverage to cover 50 to 100 percent of nursing home costs. If you don't plan on using your own income to supplement, you should buy enough insurance to cover 100 percent of the nursing home costs.

• Length of benefit period--When purchasing LTCI, you'll be asked to select a benefit period. Benefit periods generally range from one to six years, with some policies offering a lifetime benefit. You'll want to choose the longest benefit period you can afford. If you can't afford a lifetime benefit, consider choosing a benefit period that coordinates with the look-back period for Medicaid (five years). For more information about ineligibility periods, see Look-Back Period for Medicaid.

Tip: The Deficit Reduction Act of 2005 gave all states the option of enacting long-term care partnership programs that combine private LTCI with Medicaid coverage. Partnership programs enable individuals to pay for long-term care and preserve some of their wealth. Although state programs vary, individuals who purchase partnership-approved LTCI policies, then exhaust policy benefits on long-term care services, will generally qualify for Medicaid without having to first spend down all or part of their assets (assuming they meet income and other eligibility requirements). Although partnership programs are currently available in just a few states, it's likely that many more states will offer them in the future.



How do you compare policies and providers?

Unfortunately, LTCI policies are not standardized. Provisions contained in policies vary greatly, and premiums charged vary as well. Therefore, you should compare policies to obtain the best amount and combination of benefits for your premium dollars.

• To compare policies, you should obtain sample policies and "Outlines of Coverage" from each carrier you are considering. The Outline of Coverage summarizes the policy's benefits and highlights the policy's important features. You need to read the policies carefully, ensuring that you understand each provision. There are a number of factors you should be concerned about, such as inflation protection, a full range of care (including home health care), exclusions for pre-existing conditions, and the amount of the daily benefit provided. For a description of the types of provisions typically contained in an LTCI contract, see Long-term Care Insurance (LTCI) Provisions.

• To compare providers, you should check out the financial strength of the companies by reviewing their A. M. Best Company's ratings along with the opinions of other rating services. You can also review the company's financial statements. For more information, see Comparing and Replacing Long-term Care Insurance (LTCI) Policies.

What are the tax ramifications?

If you purchase a "qualified" LTCI policy, part (or all) of the premiums you pay pursuant to the contract may be deductible on your federal income tax return. LTCI polices issued after January 1, 1997, must meet certain federal standards to be considered qualified. However, LTCI policies issued prior to January 1, 1997, that met the long-term care insurance requirements of the state in which the contract was issued are automatically considered qualified. For more information, see Taxation and Long-term Care Insurance (LTCI).



Social Security

What is it?

Social Security is a federal system of programs designed to protect individuals and families against economic hardship. Most Americans work in occupations covered by the Social Security system, and they will at some point in their lives receive Social Security benefits. The system is administered by the Social Security Administration and financed mainly by Social Security tax (FICA) withholding on wages and by taxes on self-employment income.

How does it work?

Social Security is a compulsory system

Social Security is a compulsory system. Employers, employees, and self-employed individuals are required to participate and pay taxes that finance Social Security benefits. As an employee, you pay a Social Security tax of 6.2 percent of your pay (matched by your employer) each pay period and you pay a Medicare tax of 1.45 percent of your pay (matched by your employer). If you are self-employed, you pay a 12.4 percent self-employment tax on your earnings to finance Social Security programs and you pay a 2.9 percent tax to finance Medicare.

Tip: The Social Security tax on your earnings applies only to earnings under the maximum earnings limit (currently $106,800). No limit applies, however, to the Medicare tax on your earnings.

Your earnings are tracked by the Social Security Administration

Your employer reports your annual Social Security earnings to the Social Security Administration. If you are self-employed, the IRS reports your earnings. They are compiled on a record known as a Social Security earnings record, which is identified by your nine-digit Social Security number. This earnings record is eventually used to calculate the amount of your Social Security benefit.

You receive benefits after meeting certain eligibility criteria

To be eligible to receive Social Security benefits, you must be insured under the system. To become insured, you have to work for a certain amount of time in an occupation covered under Social Security or be the spouse, ex-spouse, widow or widower, or parent of someone who has. You also have to meet the eligibility requirements specific to the benefit.

Social Security benefits

Retirement benefits

Providing retirement benefits was a key provision of the Social Security Act of 1935. Older Americans were especially financially vulnerable during the Great Depression, and Social Security was enacted partly to provide them with some continuing income after retirement. Today, although the scope of the program has been widened through amendments to include survivor, disability, and medical insurance benefits, Social Security remains synonymous with retirement benefits.

When planning for retirement, you should neither overlook nor overstate the value of your Social Security benefits. Despite the anxiety some baby boomers feel over the future of Social Security, funds in the trust that pays benefits will rapidly increase in the short term (10 to 15 years). Predicting the future of Social Security is difficult, however, because to keep the system solvent, some changes must be made to it. The younger and wealthier you are, the more likely that these changes will affect you. But even if you retire in the next few years, remember that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said: "The system is not intended as a substitute for private savings, pension plans, and insurance



protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built."

Normal retirement age is the age at which you can retire and receive full (unreduced) Social Security benefits. However, many people choose to receive Social Security retirement benefits early at age 62 (early retirement age). You can also retire and begin receiving benefits after normal retirement age. If so, you are considered to be electing delayed retirement benefits. Electing early retirement benefits means that you will receive a reduced benefit, while electing delayed retirement benefits means that you will receive a delayed retirement credit and thus a higher benefit.

Disability benefits

Most people don't expect to become disabled and are unprepared when they are unable to work due to illness or injury. The fact is that you are much more likely to become disabled than to die during your earning years. Because eligibility standards are strict, Social Security disability benefits may not offer the comprehensive protection you need. However, these benefits can help protect you and your family from financial devastation when you can't work for a year or more. In general, to receive Social Security disability benefits, you must be unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to last for at least 12 months or result in your death.

Benefits for family members

Some of your family members may be eligible for benefits based on your earnings record if you are receiving Social Security retirement or disability benefits. Benefits are generally paid to family members who relied upon your income for support. Benefits paid to family members are based upon your primary insurance amount (PIA) and are paid in addition to the benefit you receive. The following chart outlines who these family members might be, what benefits they may be entitled to receive, and the basic conditions they must meet to be eligible for those benefits:

Beneficiary Minimum Age Insured Status Conditions Amount of Benefit

Spouse of retired worker

62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child's benefits

Worker must be fully insured. Spouse does not have to be insured

Worker must be receiving retirement benefits before spouse is eligible

50% of the worker's PIA, subject to early retirement reduction, if applicable

Divorced spouse of worker

62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child's benefits

Marriage must have lasted at least ten years before final divorce date. Remarriage may affect benefit

Worker does not have to be receiving retirement benefits but must be 62 or older

Usually 50% of the worker's PIA, subject to early retirement reduction, if applicable

Child of retired worker

No minimum age but must be under 18 or under 19 (in school). Disabled child can be over 18 if disability began before 22

Worker must be fully insured

Worker must be receiving retirement benefits before child is eligible. Child in school must be a full-time student and unmarried

Each child receives 50% of worker's PIA. Family maximum, however, may limit this benefit

Tip: Family benefits end when the retired worker dies. However, at that time, family members may be eligible to receive Social Security survivor's benefits.



Survivor's benefits

If you die and you were currently or fully insured under Social Security, your surviving spouse, ex-spouse, children, or dependent parents may be eligible to receive Social Security benefits based on your earnings record. The following chart outlines those who may be eligible for benefits and under what conditions.

Beneficiary Age Insured Status of Worker Conditions

Spouse of worker (no dependent child)

60 or over (or if disabled, 50 or over)

Fully insured Must have been married to the worker for nine months before worker died (unless death was accidental or military-related) or be parent of worker's natural or adopted child

Spouse of worker with dependent child

Any age Fully or currently insured Must be unmarried and not already eligible for widow(er)'s benefits

Divorced spouse of worker (no dependent child)

Age 60 or over (if disabled, age 50-59)

Fully insured Must have been married to the worker for at least ten years

Divorced spouse of worker with dependent child

Any age Fully or currently insured Must be unmarried and not already eligible for widow(ER)'s benefits as a divorced spouse

Dependent child of worker Age 18 or under, or 19 if full-time elementary or secondary school student. If child is disabled, can be over 18 if disability began before age 22

Fully or currently insured Must be unmarried

Dependent parent(s) of worker

Age 62 or above Fully insured 50% or more of the parent's support must have been furnished by worker

How much will you receive from Social Security?

The amount of Social Security benefit you receive is based on your Social Security earnings record. Your earnings are averaged according to a formula and then indexed. The resulting figure is called your primary insurance amount (PIA). Once your PIA has been calculated, all your benefits (and those of your family members who are dependent upon your Social Security record) will be based on this figure. Your PIA is the maximum benefit that you could receive once you become eligible.

Your maximum benefit may be payable if:

• You retire at normal retirement age

• Your widow or widower is normal retirement age

• You are disabled



In other circumstances, the benefits that you receive will be a certain percentage of your maximum benefit. For example, if you retire early, your maximum benefit will be reduced by a certain percentage for each month of early retirement. If you or your family members are eligible for reduced benefits, the reduction will be expressed as a percentage of your PIA.

Example(s): Mr. Jones retired at his normal retirement age after working for many years. His PIA is determined to be $1,176. He will receive the maximum retirement benefit (100 percent of his PIA) so his monthly benefit check will be $1,176. His wife also plans on retiring when she reaches her normal retirement age. Since her own PIA is less, she decides to base her retirement income on her husband's PIA. She is entitled to 50 percent of his PIA, so when she retires, her monthly benefit check will be $588.

The following chart summarizes the relationship between your PIA and your eventual benefits:

Benefit Requirements Amount

Retirement Normal retirement age 100% of PIA

62 or above, but less than normal retirement age

PIA reduced by 5/9 of 1% for each month under age 65, and by 5/12 of 1% thereafter

Disability None 100% of PIA

Spouse's Benefit Caring for dependent child 50% of PIA

Normal retirement age 50% of PIA

Age 62 or above, but less than normal retirement age

50% of PIA further reduced by 25/36 of 1% for each of the first 36 months under normal retirement age

Child's Benefit Child of retired or disabled worker 50% of PIA

Child of deceased worker 75% of PIA

Mother's or Father's Benefit Child must be under 16 or disabled 75% of PIA

Widow(er)'s Benefit Normal retirement age 100% of PIA

Age 60 or above, but less than normal retirement age

Reduced; 71½% of PIA or more

Disabled Widow(er)'s Benefit Starting at age 50-60 71½% of PIA

Parent's Benefit One dependent parent; two dependent parents

82½% of PIA; 75% of PIA (each)

Getting the most from the Social Security system

You should do several things to ensure that you receive the most protection from Social Security that the system offers.

Check your Social Security earnings record

You should periodically (every couple of years) check your Social Security earnings record to make sure that your earnings have been properly credited. To do this, you can request a Social Security Statementfrom the Social Security Administration. At your request, this statement will be mailed to you. You can review it to check that all your annual earnings from employment or self-employment have been properly credited to your account. This statement will also estimate the amount of Social Security benefits you will be eligible to receive in the future (based on your actual earnings and projections of future earnings). You can request this statement through your



local Social Security Administration office or by calling (800) 772-1213. You may also request one on-line through the Social Security website ( www.ssa.gov).

Optimize your Social Security benefits

To get the most out of Social Security, you have to make some decisions. Deciding when to retire and begin receiving benefits is important because the age at which you elect to begin receiving benefits can greatly affect the amount of monthly benefit you receive and your overall lifetime benefit. You'll also need to decide whether you want to work after you begin receiving benefits, and if so, determine how your wages will affect your benefit. Finally, if you are a business owner or a self-employed individual, you need to consider how you can minimize your Social Security payroll taxes.



Housing Options for Older Individuals

What is it?

As you grow older, your housing needs may change. Maybe you'll get tired of raking leaves from the lawn of the house you bought 30 years ago because you liked its huge, shady backyard. You might want to retire in sunny Florida or live close to your grandchildren in Illinois. Perhaps you will need to live in a nursing home or an assisted-living facility. Sometimes, after considering your options, you may even decide to stay where you are. Deciding where to live is never easy, but if you evaluate your options carefully, you'll find it easier to live with your decision.

Staying where you are: when there's no place like home

Physical considerations

Are you able to take care of your home by yourself? If your answer is no, that doesn't necessarily mean it's time to move. Maybe a family member can help you, or maybe you can hire someone to clean your house, mow your lawn, or help you with personal care. Perhaps staying in your home is simply a matter of making it more accessible by installing wheelchair ramps, safety lighting, or new bathroom fixtures. To evaluate whether you can stay in your home or if it's time to move, consider the following questions:

• If you need help (or might need it in the future), how willing are you to let someone else help you?

• Can you afford to hire help, or will you need to rely on friends, relatives, or volunteers?

• How far do you live from family and/or friends?

• How close do you live to public transportation?

• How easily can you renovate your home to address your physical needs?

Emotional considerations

You may want to stay in your home because you have memories of raising your family there. However, if you are widowed or lonely, those memories may be the very reason you want to leave. Moving from a cherished house is never easy, and it might be even harder when you're moving to a new town or a smaller place. Conversely, you might find that change is just what you need to get a new perspective on life, or to be able to relax and enjoy retirement. To evaluate the emotional impact of moving, consider the following questions:

• How easily do you adjust to change?

• How easily do you make new friends?

• How does your family feel about your move? (This is important if you're moving closer to them or further away from them.)

• How does your spouse feel about moving?

Financial considerations

You might think you can't afford to live in the same home after retirement and want to generate retirement income by selling it. However, selling your home is not the only way you can get income from it. Two other options you might consider if you own your own home and need more income are home equity loans and reverse mortgages.



• Home Equity Loans or Lines of Credit--If you're thinking about selling your house because you need more retirement income but you don't really want to move, consider applying for a home equity loan or line of credit. You put your home up as collateral, and your bank (or other lender) provides you with a term installment loan that will give you a certain sum of money you need up front or a revolving line of credit that you can access when you need cash. When you apply for the loan you'll probably be asked how you intend to use the money. One way to use it is to finance home improvements that will make your home safer and more accessible, so that you can stay in it instead of moving to an assisted-living facility or nursing home. For more information on home equity loans and lines of credit, see Home Equity Loans and Lines of Credit.

• Reverse Mortgages--A reverse mortgage might enable you to obtain needed retirement income and remain in your home. There are many types of reverse mortgages, but here's how one usually works. You take out a mortgage on your home, and in return the bank or person who holds the mortgage gives you a lump sum of cash or pays you a predetermined monthly amount for a set number of years (sometimes tied to your life expectancy). At the end of that period, you will owe the bank or mortgage holder the principal and interest due on the house. In order to repay the loan at that time, you (or your estate) may have to sell the house or turn it over to the mortgage holder. For more information on reverse mortgages, see Reverse Mortgages.

Example(s): After Hal retired, he found that he couldn't live off his Social Security benefit and pension income, so he considered selling his house to raise cash. However, he didn't really want to move, so he decided instead to take out a reverse mortgage. He found a bank that was willing to pay him $650 a month, more than enough to supplement his retirement income. In addition, Hal was allowed to live in the house for the rest of his life. After he died, the bank sold the house to pay off the mortgage.

Pulling up stakes: moving in with (or near) your child

Living arrangements

Moving in with (or near) your child may mean living in your own nearby apartment, living in a room in your child's house, or living in an accessory apartment. Accessory apartments are either apartments within your child's house (also known as in-law suites) or cottages that are set up on the premises of your child's home (also known as Granny flats or Elderly Cottage Housing Opportunity).

Tip: Granny flats have become increasingly popular and can be purchased as prefabricated housing. However, since Granny flats are subject to zoning restrictions, check the local zoning laws before you decide to move into your child's backyard.

Staying independent

You may worry that if you move in with (or near) your child, you'll lose your much-valued independence. That's a valid concern, but not necessarily an inevitable one. There are many ways you can move closer to your child without sacrificing your independence. For example, if you move in with (or near) your child, you can maintain your independence if your living area is accessible to public transportation or other facilities such as grocery stores and shopping centers. If you need it, look into hiring part-time help so that you don't feel that you're overburdening your son or daughter, or join a senior center or church group that provides activities and transportation for its members.


If you are moving in with your child, will you have adequate privacy? Will you be able to move around your child's home easily? If not, you might ask him or her to install devices that will make your life easier (such as tub or shower grab bars and easy-to-open handles on doors).

Example(s): Sue wanted to live with her son John, but after only a few days at his house, Sue was ready to move out. She just couldn't get up the stairs by herself, and she didn't like asking John for help all the time. Fortunately, she saw an advertisement on television for a motorized chair that



could be attached to John's staircase and could easily move her up and down. She bought the chair, John installed it, and Sue was able to live with John after all.


When deciding whether or not to move closer to your child, ask yourself how you expect to benefit from the move, and how your son or daughter will likely respond. If you move closer to your child, will you expect him or her to take you shopping? Will you expect to be included in any party your son throws or in every dinner he eats at a restaurant? Even if you make your own friends, will you still want to be best friends with your daughter? Will you feel in the way? Will he or she expect you to help with cooking, cleaning, and baby-sitting, or, on the other hand, expect you to do little or nothing? Discussing your concerns before you move will help you avoid conflicts later.


Money is an uncomfortable issue for many people, but one that needs to be discussed rationally. Before you move in with your child, consider the following questions: Will he or she expect you to contribute money towards household expenses? If you don't, will you feel guilty? Will you feel the need to critique his or her spending habits, or are you afraid that he or she will critique yours? Can he or she afford to remodel his or her home to fit your needs? Do you have enough money to support yourself during retirement, and if you don't, how do you feel about your child supporting you financially? Talking about money with your child before you move in will help avoid any conflicts or hurt feelings later.

Example(s): When Jane moved in with her daughter Liz, she expected to pay for her part of the grocery bill but Liz wouldn't hear of it. Consequently, Jane felt guilty about asking Liz to buy her favorite items at the store since she wasn't paying for them. She grew more and more resentful toward Liz, even though Liz had no idea what was going on. When they finally had an argument one day, Liz realized how important it was for her mother to help pay her own way, and she gladly let her mother pay part of the grocery bill.

Setting out for greener pastures: independent living options

What is independent living?

Independent living communities are often apartments or townhouses that can be rented or owned as condominiums. The common areas are maintained for a fee, and the complex provides security, transportation, activities, and dining facilities.


Not all independent living communities are alike, and each is governed by different rules. For example, some communities allow your guests to use the facilities, while others do not. Some may allow your grandchildren to spend a week with you, but some may not. Read the rental or sales contract carefully, and find out whether you object to the community's rules before you decide to lease or purchase a unit in an independent living community complex.

When you need a little more help: assisted living options

What is assisted living?

The wide number of assisted-living options available makes defining the term difficult. Generally, however, assisted-living facilities offer rental rooms or apartments, housekeeping services, meals, social activities, and transportation. Their primary focus is social, not medical, but some do provide limited medical care. Assisted-living facilities can be state-licensed or unlicensed and primarily serve senior citizens who need more help than those who live in independent living communities. Other terms used to describe assisted-living arrangements are board and care homes, rest homes, and community residences. Continuing care retirement communities (CCRCs), also called life care communities, also fit loosely into this category, although they provide what other assisted-living facilities do not: long-term nursing care and guaranteed lifetime services.



How to choose an assisted-living facility

Choosing an assisted-living facility can be difficult because you may not know what kind of help you will need in the future. However, there are certain things you can consider in order to narrow down your choices. Some of the factors you should evaluate when choosing a facility are described in the following sections.


Before entering an assisted-living facility, you should carefully read the contract and tour the facility. Some facilities are big, caring for over 1,000 people. Others are small, caring for fewer than 5 people. Consider whether the facility meets your needs. Do you have enough privacy? How much personal care is provided? What happens if you get sick? Can you be asked to leave the facility if your physical or mental health deteriorates? Is the facility licensed or unlicensed? Who is in charge of health and safety? Reading the fine print on the contract may save you a lot of time and money later if any conflict over services or care arises.

Example(s): Before she entered Mayfield Community Retirement Village, Helen researched the facility. She was pleased with the grounds and the decor, and the staff seemed friendly. However, when she read the contract she was required to sign, she was uncomfortable. She saw that if her mental health deteriorated, she would be asked to leave, but the terms were vague, so Helen decided to go over the contract with her lawyer before she signed it.


When you move into an assisted-care facility, you may feel that you have given up a measure of independence. You may think that the staff is intrusive, or that you have less choice when it comes to what you eat and who you see every day. In addition, the facility you choose may have rules that you do not like. For example, you may not be allowed to have house guests (especially children) stay overnight, or your guests may not be allowed to use facilities such as the dining rooms and the swimming pools. Because assisted-care facilities vary widely, it's very important to make sure you can live with the emotional implications before you sign a contract.


Some housing units at assisted-living facilities are more expensive than regular residential apartments, but not all are. There is a wide range of care available at a wide range of prices. CCRCs are significantly more expensive than other assisted-living options, for example, and usually require an entrance fee above $50,000, in addition to a monthly rental fee. For more information on CCRCs, see Choosing a Continuing Care Retirement Community. In addition, don't expect Medicare to cover your expenses at these facilities, unless those expenses are health care related and the facility is licensed to provide medical care. For a comprehensive discussion of Medicare benefits see Medicare.

When you need a lot more help: nursing homes

What are nursing homes?

Nursing homes are licensed facilities offering 24-hour access to medical care. They provide care at three levels: skilled nursing care, intermediate care, and custodial care. Skilled nursing care may be provided to individuals who need intensive medical care but not hospitalization. Intermediate care may be provided to individuals who need some medical care in addition to custodial care. Custodial care is provided to individuals who need some help eating, bathing, dressing, or taking medications due to physical or mental deterioration. Individuals in nursing homes generally cannot live by themselves or without a great deal of assistance.


Privacy in a nursing home may be very limited. Private rooms may be available, but rooms more commonly are shared. There is a great deal of variation in quality and atmosphere, depending upon the facility selected. A nursing home may be hospital-like or home-like. When you choose a nursing home, pay close attention to the quality of the facility. For more information on what to look for when you're considering entering a nursing home,



see Choosing a Nursing Home.


Due to the high cost of nursing home care and media reports of mistreated nursing home residents, you might fear entering a nursing home. However, the quality of life in nursing homes varies widely. To allay your fears about nursing homes, select one before you need care. Visit several facilities in your area, and talk to your family about your needs and wishes regarding nursing home care. In addition, remember that most people don't live their lives in a nursing home. If your physical or mental condition improves, you may be able to return home or move to a different type of facility.


Nursing homes are expensive. If you need nursing home care in the future, do you know how you will pay for it? Will you use private savings, or will you rely on Medicaid to pay for your care? If you have time to plan, consider purchasing long-term care (LTC) insurance to pay for your nursing home care.

Will care be there when you need it?

Nursing homes and assisted-living facilities often have long waiting lists. In addition, many nursing homes do not accept Medicaid right away from a resident; using private funds or LTC insurance may help you get into a nursing home. Many people don't plan for long-term care because they don't think they will ever need it. However, you will grow old, and as you do, your health challenges will increase. You may never need long-term care, but if you plan ahead for it, you'll be much better off physically, emotionally, and financially.

Questions & Answers

Will Medicare pay for nursing home care?

Medicare will pay, in part, for the medical care you need, but not for custodial care. If you need skilled nursing care, Medicare will pay for it (with certain limits) up to 100 days. Before you rely on Medicare coverage to pay your nursing home bills, however, research your coverage.

What if you move into a retirement community and don't like it?

The first move you make after you retire probably won't be your last. If you live 20 years past retirement, you may even make several moves. Despite the fear some people have that once they move into a retirement facility they will be lost and forgotten, this is usually not the case. Decisions to move are not permanent. However, because of waiting lists, you may, for example, find it difficult to move from one nursing home to another, or you may have difficulty getting out of a CCRC once you enter it, due to the large sum of money you paid up front. Before you move into any retirement facility, research the facility thoroughly and go over the contract with an attorney.



Incapacity

What is incapacity?

Simply stated, incapacity (sometimes referred to as incompetency) means that you are either mentally or physically unable to take care of yourself or your day-to-day affairs. More accurately, incapacity means the inability to properly care for one's property or person or to make or communicate rational decisions concerning one's person. Generally, incapacity can result from serious physical injury, mental or physical illness, mental retardation, advancing age, and alcohol or drug abuse. The following examples should help illustrate incapacity:

Example(s): Example 1: Sue, age 40, has been in a car accident. She has received serious head injuries and will probably be in a coma for the rest of her life.

Example(s): Example 2: Ken, age 58, was diagnosed with cancer a year ago. His chemotherapy and radiation treatments worked for awhile, but now his cancer is slowly spreading and he's unable to get out of his hospital bed. The pain medicine he's taking keeps him asleep most of the time, but even when he's awake, he doesn't know what day it is.

Example(s): Example 3: Jane just turned 91 years old. She's in a nursing home and can get around only in a wheelchair. She has been diagnosed with Alzheimer's, does not know any family members when they come to visit, and cannot care for herself.

Technical Note: An incapacitated or incompetent person is also called a ward, usually in the context of a court proceeding to establish guardianship or conservatorship.

Tip: Protective services exist for persons with diminished capacity (someone who needs only some help, such as an elderly person). The social services office in your state can help you locate someone whose responsibilities are tailored to the person's needs (such as home day care or chore services). Your state's social services office should be listed in your phone book.

Why should you care?

You need to be concerned about incapacity because in today's modern age of medical miracles, it is a very real possibility that incapacity may strike you or your spouse. Medical science has increased your life expectancy and consequently increased your chances of becoming physically or mentally incapable of managing your medical or financial affairs. A devastating illness or serious accident can happen suddenly at any age. Old age can bring senility, Alzheimer's disease, or other ailments that affect your ability to make sound decisions. You may not be able to make decisions about your health, pay your bills, write checks, make deposits, sell assets, or otherwise conduct your business. This can prolong your life against your wishes, devastate your family, create debt, exhaust your savings, or undermine your financial, tax, and estate planning strategies.

Unless you have authorized someone to carry on your affairs, a relative or friend will have to resort to a drastic measure--asking the court to appoint a guardian. This public procedure can be embarrassing, emotionally draining, time-consuming, and expensive. By planning in advance for incapacity, you select the person you trust to make decisions for you and keep the courts out of it.

How is incapacity determined?

Incapacity is determined in one of the following ways.



Physician certification

By including a provision in a durable power of attorney, you can designate a physician (or physicians) who will determine whether you are incapacitated or not. You may also state that your incapacity will be determined by your attending physician at the relevant time, whomever that might be.

Judicial finding

The court may be petitioned for a determination as to whether you are incapacitated. The proper court in which to file varies from state to state, but it is generally the probate court. Who has standing to petition the court also varies from state to state. Generally, any interested person may file a petition (an interested person is defined by state law and, in practice, is usually your spouse, parent, or child). After a legal proceeding, called a hearing, where medical and other testimony is heard, a judge will decide whether you are incapacitated according to standards determined by your state's laws. Check with an attorney or the clerk of courts at the court nearest you to find out how to, and who may, file such a petition.

Why do you need to plan for incapacity?

Managing medical decisions

Say that you become very ill and incapacitated and are unable to make your own medical care decisions. What will happen? Without someone authorized to make those decisions for you, your medical care providers are obligated to prolong your life, using artificial means if necessary. With today's modern technology, this means that physicians can sustain you and prolong your dying for days and weeks (if not months or even years!). Rather than experiencing a sudden death, you may die slowly over an extended period of time. If you were to fall into a coma, you could be kept alive for years.

If you want to avoid the possibility of this happening to you, you must plan in advance. You need to understand and implement one of the devices that may be available to help you if you become unable to help yourself.

Managing your property

Who will manage your property if you become incapacitated and can no longer handle these responsibilities for yourself? If you have not planned ahead, the answer is either no one or a court-appointed guardian. If no one looks after your financial affairs while you can't, your property may be wasted, abused, or lost, and your family may suffer. A court-appointed guardian may offer some help, but this procedure is very difficult on you and your family. If you want to protect your property and avoid guardianship, you need to know about and implement at least one of the options you may have to protect your property against incapacity.



Protect Your Property against Incapacity

What is incapacity?

Incapacity means that you are unable to take care of yourself or your day-to-day affairs. The legal definition of incapacity varies from state to state, but each basically says that incapacity means the inability to properly care for one's property or person, or to make or communicate rational decisions concerning one's person. An incapacitated or incompetent person is sometimes called a ward, usually in the context of a court proceeding to establish guardianship or conservatorship. Generally, incapacity can result from serious physical injury, mental or physical illness, mental retardation, advancing age, or alcohol or drug abuse. The following examples should help illustrate incapacity:

Example(s): Sue, age 40, has been in a car accident. She has received serious head injuries and will probably be in a coma for the rest of her life.

Example(s): Ken, 58, was diagnosed with cancer a year ago. His chemotherapy and radiation treatments worked for a while, but now his cancer is slowly spreading and he's unable to get out of his hospital bed. The pain medicine he's taking keeps him asleep most of the time, but even when he's awake, he doesn't know what day it is.

Example(s): Jane just turned 91 years old. She's in a nursing home and can get around only in a wheelchair. She has been diagnosed with Alzheimer's, does not know any family members when they come to visit, and cannot care for herself.

Tip: There are protective services available for persons who are incapacitated (someone who needs some help with everyday chores only, such as an elderly person). The social services office in your state can help you locate day home care or chore services. Your state's social services office should be listed in your phone book.

How is incapacity determined?

Incapacity is determined in one of the following ways.

Physician certification

You can designate a physician (or physicians) who will determine whether you are incapacitated by including such a provision in a durable power of attorney.

Judicial finding

The court may be petitioned for a determination as to whether you are incapacitated. After a legal proceeding (called a hearing, where medical and other testimony is heard), a judge will decide whether you are incapacitated under your state's laws.

Tip: Who has standing to petition the court varies from state to state. Generally, any interested person may file. In practice, it is usually a spouse, parent, or child. Also, the proper court in which to file varies from state to state. Check with an attorney or the clerk of courts at the court nearest you to find out who may and how to file a petition.

What happens to your property if you don't plan for incapacity?

Your failure to plan for incapacity can have the following devastating consequences:

• May cause a serious disruption of your business--Your assets and investments may be wasted or lost



by the lack of sound management

• May disrupt payment of normal living expenses--Your family could suffer severe hardship if they are unable to provide for their support

• May eliminate better options and leave guardianship as the only way to provide some management of your affairs

Technical Note: A guardian is a court-appointed person or organization (such as a bank), that manages some of your financial affairs. This process can begin only after you have become incapacitated. It is a time-consuming, costly, and public process that can be embarrassing and emotionally draining for you and your family.

What can you do to protect your property?

Living trust

You can transfer ownership of your property to a living trust. You name yourself as trustee and retain complete control over your affairs as long as you retain capacity. If you become incapacitated, your successor trustee (the person you named to run the trust if you can't) automatically steps in and takes over the management of your property. A living trust may survive your death and avoid court intervention, but it can be expensive to maintain and administer.

Standby trust

A standby trust is a type of living trust, except that your property does not transfer to the trust until you become incapacitated. This may be advantageous if you do not want to transfer title to the property that will be put in trust while you are still living. A standby trust survives your death and avoids court intervention, but it can be expensive to maintain and administer.

Caution: A standby trust is not permitted in some states. Check with an attorney to find out if one is allowed in your state.

Tip: A standby trust should be combined with a durable power of attorney that gives someone the authority to transfer your property to the trust.

Durable power of attorney

A durable power of attorney (DPOA) allows you to authorize someone else to act on your behalf. There are two types of DPOA: a standby DPOA, which becomes effective immediately, and a springing DPOA, which does not become effective until you have become incapacitated. A DPOA should be fairly simple and inexpensive to implement. It avoids court intervention. It also terminates at your death.

Caution: A springing DPOA is not permitted in some states. Check with an attorney to find out if a springing DPOA is allowed in your state.

Joint ownership

You can hold your property in concert with others. This arrangement may allow someone else to have immediate access to the property and to use it to meet your needs. Joint ownership is simple and inexpensive to implement and avoids court intervention. However, there are some disadvantages to the joint ownership arrangement, including: (1) your co-owner has immediate access to your property, (2) you lack the ability to direct the co-owner to spend the property for your benefit, and (3) if you die before the other joint owner(s), your property interests will pass to the other owner(s) without regard to your own intentions, which may be different.



How do you decide what you should do?

There are some differences in the options listed above. Your circumstances and goals will determine which alternative(s) may be right for you. Here are some questions you might want to consider before making your choice:

• Is it important to you that your property is preserved and distributed according to your wishes?

• Will your family need to reach your property to support itself if you should become incapacitated?

• Do you want to spare your family the burden of acquiring control of your property after you've become incapacitated?

• Is there someone you trust to competently manage your financial affairs if you can't?

• How comfortable are you with the thought of sharing control of your property?

• Do you want the person who controls your property while you're incapacitated to maintain control after you die?

• Do you want to avoid court intervention?

Example

Example(s): Hal, a 70-year-old man, has been married to Jane for 50 years. Together they raised two sons, Bob and Ken, and a daughter, Liz. They also have 10 grandchildren. During his life, Hal started and ran a very successful business. After a life of working hard, Hal sells the business so that he and Jane can finally take the vacations they never took before. Hal made a tidy profit from the sale and invested the money in real estate and mutual funds. Hal is very proud of his business success and wants to make sure that his children and grandchildren enjoy the benefit of that success.

Example(s): A few years later, Hal is worried because his health is slowly beginning to fail. Jane is a wonderful wife and mother, but she never dealt with their finances. This was a fine arrangement because Hal wanted complete control and Jane couldn't manage the money anyway. Hal wants to make sure Jane won't have to worry about anything if he should become incapacitated, but he is reluctant to put any property in her name. Bob and Ken are intelligent, but they have always been competitive and don't always get along. Liz is a dependable and reasonable person and Hal trusts her.

Example(s): Hal checks with his state and discovers that a standby trust is permitted. Hal's lawyer creates the trust, which names Hal as trustee and Liz as successor trustee. The terms of the trust state that it is to be used to support Hal and Jane until they die, and then be passed on to the three children and ten grandchildren. Hal also draws up a durable power of attorney (DPOA), giving Liz the authority to transfer his property into the trust after he becomes incapacitated. Then the property can be managed according to the terms of the trust even after Hal's death. (Note: DPOA has no effect after the death of the principal.) Hal's DPOA also gives his trusted family physician the authority to certify Hal's incapacity, if that event should ever occur.

Example(s): For the next three years, Hal and Jane travel and Hal makes some wise investments that increase his wealth. Eventually, however, Hal's health declines and he is diagnosed with Alzheimer's disease. Hal's physician certifies that Hal is incapacitated. Liz transfers Hal's property to the standby trust and uses it to care for Hal and Jane. Liz continues to manage Hal's investments and increases his wealth even more. Hal dies in his sleep several months later and Jane's heart stops very soon afterward. After Jane's death, Liz distributes Hal's estate equally among the children and grandchildren, according to the terms of the trust.



Choosing a Continuing Care Retirement Community

What is a continuing care retirement community (CCRC)?

CCRCs are retirement facilities that offer housing, meals, activities, and health care to their residents. These communities appeal to people who are currently in good health, but who worry that they may need nursing care later on. The CCRC and the resident sign a contract which guarantees that the CCRC will provide housing and nursing home care throughout the resident's life, and in return, the resident pays an entrance fee and a monthly fee. When the resident dies, the entrance fee is usually retained by the CCRC and the CCRC is free to assign the resident's apartment to someone else.

How to choose a CCRC

How much you get for your money will depend upon the range and quality of facilities and services the CCRC offers. Before signing a contract, carefully evaluate the CCRC, paying attention to the following factors: entrance fees, monthly fees, insurance requirements, facilities, medical care, and financial condition of the CCRC.

Entrance fees

When you enter a CCRC, you will probably pay a one-time entrance fee that may range from $25,000 to more than $300,000. Policies regarding refunds of these fees vary widely. They may be fully refundable, partially refundable on a sliding scale or not refundable at all. When you die, the CCRC probably will not return the fee to your heirs. If you decide to leave, the fee may be refundable if you have lived there only a short time, or if the facility can find someone to take your place. Make sure you carefully read the contract you are asked to sign, and review it with your attorney.

Monthly fees

In addition to an entrance fee, you may have to pay monthly maintenance or rental fees. These fees can range from $800 to more than $4,000. Be aware that monthly fees are often not fixed: Like rent, they can be adjusted periodically to cover additional operating costs.

Example(s): Maria entered a CCRC. At that time, she paid a monthly fee of $700 for her apartment. Five years later, she was paying a monthly fee of $1,000.

For some people, this may lead to a need for additional income or to financial hardship. Consider this possibility when planning a financial strategy for long-term care.

Insurance requirements

You may be required to buy extra insurance if you enter a CCRC facility. For example, the facility may require that you purchase long-term health care insurance, a supplemental Medicare policy ( Medigap) or Medicare Part B insurance to cover your short-term or long-term health care costs. This may add significantly to the cost of living in a CCRC.

Financial condition

A CCRC's financial condition can affect everything from the services it offers, to the monthly fees it charges, to the quality of health care it provides. Before you sign a contract with a CCRC, it is vital that you get information from the CCRC regarding its projected revenue and costs for a number of upcoming years, and obtain copies of audited financial statements (if available) for review by a financial professional. In addition, ask if the company running the CCRC owns others, and find out how long they have been operating the CCRC facilities. You can also ask residents how they feel about the maintenance fees they pay and how satisfied they are with the quality of service they get for their money. Also consider the occupancy level of the complex. If many apartments are



vacant, for example, the CCRC may need additional funding (now or in the future) to remain solvent.

Facilities

You should carefully inspect apartments (or other living quarters), as well as the dining room to make sure they are clean and suitable for you. Apartments should be handicapped-accessible, and may be equipped with a pull cord to use should a medical emergency arise. Also, examine the safety of the facility: Do the buildings have adequate fire prevention devices such as sprinkler systems and smoke alarms? Do you feel comfortable with the security offered? In addition, consider other common areas. Eat in the dining room and observe how the staff and residents interact. Find out what transportation and activities are available. In short, determine how much you will get for your money.

Medical care

Some CCRCs provide nursing home care at no extra cost, and some may offer residents basic health care only for no extra cost. The quality of medical care may also vary widely. Before you sign a contract with a CCRC, make sure you understand what health care you are entitled to and who pays for it. Visit the medical facility to make sure that you would be comfortable receiving care there, and if it is a nursing home facility, that you would be willing to move there, if necessary. In addition, find out who decides when you must leave your apartment and move into the nursing home. How much say do you have in the decision?

Tax considerations

Tax deductibility of fees paid to a CCRC

A percentage of your entrance fee and/or monthly fees may qualify as a deductible medical expense for income tax purposes. This depends upon whether your CCRC can document that a percentage of its overall operating expenses go towards providing you with medical care.

Example(s): Amelia entered a CCRC and paid a $50,000 entrance fee and a monthly fee of $1,000. When she filed her income taxes, she deducted as medical expenses 25 percent of her entrance fee and 25 percent of the total amount of monthly fees she had paid during the year, because the CCRC provided her with documentation showing that 25 percent of their expenses were related to medical care.

Taxation rules for refundable deposits

If you make a refundable initial payment to a qualified CCRC, it may be considered a below-market loan. If so, you may have to include the imputed interest deemed payable to you in your gross income. However, if you or your spouse is age 62 or older, the deposit is generally exempt from the below-market loan rules that normally apply.

Tip: For more information on the tax implications of CCRCs, consult your tax advisor or financial professional.

Questions & Answers

What happens if a CCRC resident has financial difficulties and can't pay the monthly maintenance fees?

That depends upon the CCRC. Read the contract; the answer to your question should be spelled out there.

Can someone who is bed-ridden or who needs extensive personal care assistance enter a CCRC?

Generally, CCRCs require that you be ambulatory when you enter the community. If you need a lot of help taking care of yourself, you might not be able to enter a CCRC unless it can provide some health services in your living quarters. However, this varies from facility to facility.



Choosing a Nursing Home

What is a nursing home?

A nursing home is a state-licensed facility that may provide skilled nursing care, intermediate care, and/or custodial care. You may need to enter a nursing home on a short-term basis (for example, after a major illness or injury), or on a long-term basis (if you become physically or mentally incapacitated and cannot care for yourself). Although you may prefer in-home care, you may need to enter a nursing home if you require round-the-clock care, especially if you don't have family to help you at home or if the services of an in-home caregiver are inadequate or unavailable.

How to choose a nursing home

Like many people, you may fear entering a nursing home because you have heard horror stories about the quality of care. However, there are good nursing homes as well as bad ones. Getting into a good nursing home takes a combination of research, forethought, and financial planning. Ideally, you should research nursing home care before an emergency arises because many homes have long waiting lists. The following sections explain what to consider when choosing a nursing home.

Quality of medical care

Since medical care is an integral part of nursing home care, you should find out what level of care the nursing home provides. For example, some homes provide mainly custodial care while others may provide skilled nursing care. Many nursing homes provide both. If you think you may need skilled nursing care in the future, don't choose a home that offers only custodial care because it might be difficult to find another good home later on. In addition, determine how often you will receive basic health care such as physicals. Can you see your own doctor or the staff physician? Will you have access to dentists, eye doctors, or other specialists? In a medical emergency, what procedure does the nursing home follow?

Cost of care

Nursing home care is generally very expensive, but you will pay less at some facilities than at others. If you are concerned about the cost of nursing home care (and you probably are), you should compare the cost of each facility you are considering with the quality of care you will receive there and the services you receive for your money. For example, some nursing homes charge extra for certain types of care (such as assistance with meals). In addition, if you plan on using Medicaid to pay for your nursing home care, make sure that the facility you select accepts Medicaid; not all nursing homes do. Many others restrict the number of Medicaid "beds" in the nursing home (some states, however, prohibit this). If you need only short-term skilled nursing care in a nursing home, your care may be covered by Medicare if the facility participates in Medicare and has a Medicare bed available. Other ways to pay for nursing home care include using private funds or benefits from a long-term care insurance policy. For more information on financing nursing home care, see How to Pay for Nursing Home Care, Medicaid, Medicare, and Long-Term Care Insurance.

Appearance of grounds and facilities

The nursing home facility should be clean and well maintained. One sign of a poor quality nursing home is a bad smell, indicating that the staff is too busy to help the residents to the bathroom or change their clothing. Although rooms and public areas are often not luxurious, they should be comfortable. Notice whether residents are allowed to decorate their rooms, and if private rooms are available. Outside, the grounds should be maintained neatly; if being outside is important to you, check the nursing home's policy regarding this. In addition, pay close attention to the dining room. You'll have to eat there; does it seem clean, and does the food seem appetizing?



Safety and security

When you visit a nursing home, ask when the facility was built, and when it was last updated. In general, the newer the building, the more fire-resistant it will be due to changes in building codes. Look for safety features. Resident rooms should have windows, and room doors should unlock from the inside and open onto wide hallways. Hallways should have handrails, and bathrooms should have grab bars and toilets that are accessible to residents in wheelchairs. In addition, ask what kind of precautions the nursing home takes to make sure that patients do not wander off, or that unauthorized individuals do not wander in.

Resident/staff ratio and interaction

Ask each nursing home you consider how many staff members are assigned to each unit per shift, and determine if the patient/staff ratio meets or exceeds state/federal requirements. In addition, ask how the nursing home is complying with other federal government regulations regarding staff training and resident care. Notice how staff members treat residents. Are they generally caring and concerned, or do they seem hurried and distracted? Are a lot of residents sitting around in common areas doing nothing, or are they involved in activities? Do residents appear well cared for?

Recreational opportunities

Consider whether the nursing home organizes trips or outside activities for its residents or provides in-house recreational activities. Do residents have the opportunity to exercise? Look around; does the environment seem stimulating or dull? Is the nursing home a place where you (no matter what your condition) will enjoy living?

Questions & Answers

Are private rooms available in nursing homes?

Private rooms are available at many nursing homes, but they cost extra. If you are paying for your own care, make sure that you find out how much more private rooms cost. If Medicaid will be paying for your nursing home care, however, you will not be entitled to a private room. When you choose a nursing home, find out whether private rooms are commonly available, and, just in case, ask about how the nursing home decides who will share a room. If you end up with a roommate and you are unhappy with him or her, will you be able to move to a different room? If the nursing home wants to transfer you to a different room or unit, what procedures will it follow?

Even seemingly good nursing homes have complaints lodged against them. Why?

Nursing homes are, for some people, difficult and lonely places to live, and complaints against even the good ones are common. So, how can you tell the difference between a complaint that is justified and one that is not? For one thing, ask the nursing home administrator to explain how the home resolves problems and resident complaints. Do many of the complaints center around one issue? If so, the nursing home may have a serious problem in this area. Trust your own instincts. Do the nursing home residents, in general, seem well cared for, or do you see signs that the home may be poorly managed or even abusive?

What's the best way to resolve a complaint with a nursing home?

You'll probably be satisfied with the nursing home you choose. However, if you do have complaints about the quality of care you receive or the environment, don't remain silent. You can talk to the nursing home administrator, or, if you prefer, to the nursing home's ombudsman, a trained volunteer who monitors nursing home care or other long-term care facilities. Each state also has at least one full-time state ombudsman, and some cities and counties have local ombudsmen. If you have a complaint about the quality of long-term care, you can contact the ombudsman through the nursing home or care facility, through the area agency on aging, (call the Eldercare Locator at (800) 677-1116 for help in locating your area agency on aging), or through your state's department of aging.



How to Pay for Nursing Home Care

What is it?

Paying for nursing home care is a burden that most Americans bear, whether directly or indirectly. Even if you never need nursing home care yourself, you are already paying for the nursing home care of others by paying income taxes that, in part, finance Medicaid and veterans' benefits. In addition, you are probably paying Social Security or self-employment taxes that help pay the cost of skilled nursing home care provided through Medicare. Although your own nursing home care may someday be financed by one of these government programs, you may find yourself struggling to pay the high cost on your own if you are not poor enough to qualify for Medicaid or if you need custodial rather than skilled nursing care. In general, there are three ways you can finance nursing home care: pay for it from your own savings (self-insure), buy long-term care (LTC) insurance, or use government benefits.

Ways to pay for nursing home care

Self-insure

You may be able to afford to pay for nursing home care by using your own savings. To determine this, consider how much monthly income you will have after you retire. You may be able to liquidate some investments or sell your house to come up with additional funds if you need to. You might also be able to borrow against your cash value life insurance policy. (Note, though, that the death benefit available to your survivors will be reduced.) If you are seriously ill, and the policy permits, you can take accelerated benefits from the policy. However, when you determine how much retirement income you will have and how much your nursing home costs will be, don't forget to account for price increases and inflation. Consider also what will happen if your money runs out. Will you be able to qualify for Medicaid, or will you have to rely on your children for help?

Tip: If you plan on self-insuring, it would be wise to consult a financial professional well in advance of retirement, due to the complexity of self-insuring and the numerous estate planning and taxation issues involved.

Buy LTC insurance

LTC insurance pays for the cost of nursing home (or sometimes in-home) custodial care. It pays a fixed dollar amount of benefits per day to cover nursing home care, so it may not pay the total cost of nursing home care. LTC insurance is expensive, but the premium you pay depends upon at what age you buy the policy. The premium is fixed as of the date of purchase and only goes up if the insurance company raises its overall rates. Your premium is also affected by the elimination period you choose. (The elimination period is the time between when care begins and when the insurance company starts paying benefits.) Some policies give lifetime coverage, while others only give coverage for a specified number of years.

Example(s): Marvin bought a LTC policy at age 66. His annual premium is $3,000. He chose a 15-day elimination period and 3-year coverage at $100 per day. This means that if Marvin enters a nursing home at age 76, his LTC policy will pay the nursing home $100 per day for three years, but his coverage won't start until he has been in the nursing home for 15 days.

Like any insurance policy, the features and price of a LTC policy may vary from one company to another, so you have to comparison shop. For more information on this topic, see Long-Term Care (LTC) Insurance.

Use government benefits

If you meet certain eligibility requirements, three types of government benefits can help you pay the cost of nursing home care: Medicare, Medicaid, and veterans' benefits.



Medicare

Medicare does not pay the cost of custodial nursing home care. However, it may pay part of the cost of skilled nursing care/rehabilitative care in a hospital or nursing home under the following conditions:

• You have been hospitalized for at least three days prior to entering the nursing home (and entered the nursing home within 30 days of being discharged from the hospital)

• A doctor certifies that you need skilled nursing care

• The nursing home or hospital is a Medicare-certified skilled nursing facility

Caution: Relying solely on Medicare to pay for nursing home care is a mistake, because Medicare defines skilled nursing care narrowly and pays limited benefits for care. For instance, if skilled care in a Medicare facility is approved, Medicare will pay for the first 20 days of care, and then will pay only part of the cost for days 21 to 100. After that, Medicare pays none of the cost. For more information on what benefits Medicare does provide, see Medicare.

Medicaid

Medicaid does pay for custodial nursing home care (and in some states, in-home care), but only for low-income individuals who have few assets. If you have income and assets higher than the Medicaid limits, you will not be eligible for Medicaid. However, if you enter a nursing home and pay for care yourself for months or years, you may qualify for Medicaid once your money runs out. In addition, you may be able to qualify for Medicaid if you spend down or transfer your assets. For detailed discussions of strategies you may use to qualify for Medicaid and the rules surrounding Medicaid, see Medicaid Planning Goals and Strategies.

Veterans' benefits

If you are a veteran age 65 or over, you may be eligible for treatment in a Veterans Administration (VA) nursing home. You don't have to have a service-connected illness or injury to get treatment, but since nursing home space is limited, veterans with service-connected conditions will be admitted first. Their treatment will be free; for others, treatment will be free only if certain eligibility rules are met. In addition, the VA runs other community retirement facilities that you may be eligible to enter. For more information, contact your local Veterans Administration office. Also see Veterans' Benefits.

Tax considerations

You may be able to deduct LTC insurance premiums

LTC insurance premiums are deductible as medical expenses within certain limits. How much you can deduct depends upon your age at the end of the tax year. For further information see the general discussion Long-Term Care (LTC) Insurance.

You may be able to exclude LTC insurance reimbursements from income

Money you receive under your LTC insurance contract may be excludable from income for tax purposes (subject to certain limitations). In addition, if your employer provides coverage for you under a LTC insurance contract, the value of coverage is generally excludable from your income, unless the coverage is provided through a cafeteria plan or if you are reimbursed under a flexible spending account.

Example(s): Grant's LTC insurance contract states that the company will pay for nursing home care beginning on the 16th day after care begins. Grant enters a nursing home that charges $125 a day. His total expenses for 60 days are $7,500. His insurance company sends him a check for $5,625 (45 x $125). The $5,625 he receives is excludable from his income for tax purposes when he files his annual income tax return.



Caution: When deducting your medical and dental expenses from your income taxes, you must reduce your total medical and dental expenses for the year by reimbursements you receive under a LTC or other insurance contract. For more information see Medical and Dental Expenses.

You may be able to deduct nursing home costs for which you are not reimbursed

You may be only partially reimbursed for nursing home costs under your health insurance or LTC insurance contract. However, any expenses you have for which you are not reimbursed may qualify as medical deductions for income tax purposes. For more information see Medical and Dental Expenses.

Questions & Answers

Can your son or daughter be asked to guarantee payment to a nursing home if you don't qualify for Medicaid?

No. In fact, under federal law it's illegal for a nursing home to ask a child to personally guarantee payment for your care. However, the nursing home may require you to prove you have the money to pay for your care by asking you to provide bank statements or by asking you to put down a deposit.



When You Need Help:In-Home Care Programs for Older Individuals

What is in-home care?

Not every older American ends up in a nursing home or a retirement community. In fact, most older individuals continue to live at home, many with the assistance of some type of in-home care. In-home care can help you remain independent, and delay the need to enter a nursing home or an assisted-living facility.

What types of in-home care are available?

In-home care is a broad term that covers in-home health care (nursing or health aide services), household help (homemaker services) and personal care (companion or caretaker services).

Health-care services

If you have a medical condition that requires nursing care, daily monitoring, or therapy, you may need to hire a nurse or an aide to help take care of you at home. You can hire health care personnel through nursing registries or home health agencies (HHAs). Nursing registries match you with a suitable nurse for your condition, but they don't necessarily supervise or train nurses. HHAs, on the other hand, match you with a nurse or nurse's aide who is supervised and trained by the agency. HHAs are usually licensed by the state and may be accredited by a national association such as the National Association for Home Care. Most have Medicare certification as well, meaning that they have met minimum federal standards and accept Medicare.

Household help

You may need to hire household help if you can live somewhat independently, but you need someone to help you with cooking, laundry, cleaning, or shopping. You can find household help through some home care organizations or through the help wanted section of your newspaper. Some state and local governments also have programs set up to assist the elderly. These programs are either free or low-cost. They may include providing personal assistance services (such as bill paying, house cleaning, repairs, and shopping), as well as companionship services (such as telephone reassurance or visits). To find out what programs are available in your area, check the yellow pages under the following titles: Department of Social Services, Department of Human Services, Health Department, or the Council (or Office) on Aging.

Personal care

You may need personal care if you have trouble bathing, dressing, walking, or feeding yourself. People that provide personal care services sometimes perform household tasks as well. Some home care agencies or HHAs can find you a suitable aide, or you can find one through the newspaper. Remember, though, that if you hire your own aide, you may have to pay Social Security taxes and withhold income tax from his or her salary.

How to pay for in-home care

Personal savings

Although in-home care usually doesn't cost as much as nursing home care, it can still be quite expensive. The cost depends primarily upon the type of services you need, and how frequently you need them. You may pay $50 a week for housecleaning, or $300 a week or more for personal or part-time nursing care. You may be able to pay for in-home care from your savings or income (many people do), but before you decide to do this, check into care programs offered by your community. You should also determine if you are entitled to any Medicare or Medicaid benefits.



Medicare and Medicaid

In-home health care is covered under Medicare Part A if the care you need is medically necessary skilled care. The care you need must be intermittent or part-time, supervised by a physician, and provided by a skilled nurse who works for a Medicare-certified HHA. If you don't have Medicare Part A insurance, Medicare Part B covers in-home health care. Medicaid may cover in-home health care if you live in certain states. Unlike Medicare, Medicaid may allow you to hire a family member to provide care (with certain restrictions). For more information on this subject, see Medicare and Medicaid.

Long-term care insurance

In the past, LTC insurance policies only covered nursing-home care, but now most of these policies cover in-home care as well. However, you may pay more for a policy that covers both types of care. When you consider buying a LTC policy, you have to decide if the extra premium you will pay for in-home care will warrant its cost, and you have to check on what conditions may not be covered at all or covered only after a waiting period. For a more detailed discussion of this subject, see Long-Term Care (LTC) Insurance.

Ensuring the quality of in-home care

You may be concerned about letting a stranger come into your home, or you might be afraid that the quality of in-home care you receive will be substandard. Because of the variety of care options, the home health industry is not tightly regulated. However, you can protect yourself by thoroughly checking the credentials of whomever you hire.

Checking the credentials of a home health agency

If a home health agency is certified for Medicare, it is supposed to comply with Medicare standards, and undergo state examinations each year. To check an agency's Medicare status, call the Medicare Hotline at (800) 633-4227. In addition, HHAs should be licensed by the state, and some may be members of the Better Business Bureau.

Checking the credentials of an individual

Checking the credentials of an individual is very important. Start by asking for several references, including more than one professional reference. Find out if the individual has insurance or is bonded (some individuals who run their own cleaning business, for example, may be) and consider purchasing extra insurance to protect yourself against liability claims or employee theft.

Tax considerations

In-home care may be tax deductible

You can deduct medical expenses that exceed 7.5 percent of your adjusted gross income if you itemize your deductions. For example, you may be able to deduct wages you pay for in-home nursing services, including any services connected with caring for your medical condition, such as changing dressings and bathing. The person you employ does not necessarily have to be a nurse, but the services he or she provides must be medically necessary services. You cannot deduct general household help such as shopping, cooking, and housecleaning. In addition, if you pay medical insurance premiums or need to modify your home to accommodate your medical condition, you may be able to deduct these expenses as well. For more information, see Medical and Dental Expenses.



When You Need Help: Community Resources and Programs for Older Individuals

What is it?

Many programs and resources are available from your community to help you live independently at home. Some of these programs are funded either by your state government or by the federal government. Others are privately funded or are provided by charitable organizations. Since many programs and resources are available, you may need to spend a lot of time sorting through the various programs that are out there in order to find one suitable for you.

What types of community programs and resources are available?

The following is a list of some of the programs and resources that are available either in your community or at the state or national level. Specific information for children who are caring for their parents can be found in the discussion Caring for Your Aging Parents.

Associations and referral organizations

Numerous associations and referral organizations exist to help you find the services or advice you need. You can call your local area agency on aging to find an information and referral service, or you can check your local yellow pages under the community services section. Many national organizations such as the American Association of Retired Persons (AARP), the American Red Cross, or the Eldercare Locator can also provide good referral information.

Care management

Some agencies specialize in coordinating help for senior citizens. Instead of trying to figure out the services you need and then finding them, you can use a case manager or a geriatric care manager to do this for you. Geriatric care managers are often found through private companies and licensed agencies. Case managers can also be found through licensed agencies, as well as through government and nonprofit agencies. You will find a case manager or a geriatric care manager helpful if you need a lot of services, or if your needs are complicated.

Companionship programs and support groups

From time to time, you may appreciate a visit from a friendly volunteer to help you with certain tasks (such as letter writing) or just to chat. You may also find getting involved with a support group helpful if you are a widow, a spouse, or a child of someone who has a chronic disease or mental impairment. Certain organizations provide telephone support or reassurance. Some government agencies such as the postal service or your local police station may have a program set up to check on you daily. If your community doesn't have a program like this, and you are worried about being alone in a medical or physical emergency, you can buy devices or security systems that you can use to summon help instantly if you need it.

Financial advice and/or assistance

For financial advice, talk to your banker, lawyer, financial planner, investment counselor, social worker, or accountant. If he or she can't answer your question, he or she should know someone who can. Volunteer organizations such as the AARP can also help. If you receive Social Security but are afraid that you can no longer manage your own finances, you should contact the Social Security Administration (SSA) for information on the Representative Payee Project. You should also contact the SSA for information on retirement, disability, survivor's, Medicare, and Supplemental Security Income (SSI) benefits.



Health information services

National associations (such as the Alzheimer's Association) are excellent sources of information on various health problems. Home health care agencies and associations such as the Visiting Nurse Association can help you locate in-home medical care or household help. Social Service agencies can provide you with mental health services or referrals and information on Medicaid. Hospitals can provide physician referrals, and doctors can provide referrals for geriatric assessment. Each state is required to have a health insurance counseling program, and you can receive advice about health insurance from an insurance agent or financial planner.

Legal services

Your local bar association may operate a referral service that you can use to find a lawyer if you need one. They may not recommend one particular attorney, but may provide you with a list of attorneys that specialize in elder law and help you set up a consultation with one or more of them. You can also receive information from your AARP chapter or from certain federal agencies. National organizations such as Legal Counsel for the Elderly can also answer your questions and provide referrals.

Meal delivery services

Meals-on-wheels is a well-known program that provides one hot meal and a light supper once a day, at least five days a week. Volunteers deliver the meals. If subsidized, the meals may be free, but sometimes you must pay a small charge for each meal that is delivered to you. Your community may also have a delivery service available that will pick up meals from a restaurant and deliver them to your home for a few dollars more than the actual cost of the meal. Check your local yellow pages for these services. In addition, some national companies can ship groceries or meals to you.

Ombudsman programs

An ombudsman is a trained volunteer who monitors nursing home care or other long-term care facilities. Each state also has at least one ombudsman, and many cities and counties have local ombudsmen as well. If you or someone you love has a complaint about the quality of long-term care, you can contact the ombudsman through the nursing home or care facility, through the area agency on aging, or through your state department of aging.

Recreation services

Community centers, senior centers, churches, temples, and YMCAs (or YWCAs) offer recreation (including activities and exercise) programs geared towards older individuals.

Senior advocates

You may need an advocate in certain situations, particularly when you have a legal problem or a problem involving a government agency. You can find out about advocates from the National Association of Professional Geriatric Care Managers, the AARP, and through your local social service agency or bar association.

Senior centers

Local senior centers offer activities, trips, meals, education programs, health screening, and counseling. Fees for services and activities are usually low, and the fee might be waived if you can't afford it. Some provide free transportation. To find a senior center in your area, check your yellow pages or call your local area agency on aging.

Social Service agencies

Social Service agencies sponsor in-home care, volunteer programs, family services, health or mental health programs, referral programs, adult day care, transportation, and other services. They can be nonprofit organizations or government agencies. You can call the Eldercare Locator or check your yellow pages under Social Service Organizations for information.



Transportation services

City buses and taxis are popular methods of transportation, but what if you don't live on a bus route or you can't afford a taxi? First, check with your local bus company. Some cities offer low-cost door-to-door bus transportation to seniors who live on city bus routes. Some hospitals or social service organizations also sponsor volunteer transportation services at little or no cost. You may be able to find transportation by contacting your local senior center or by looking under Transportation or Handicapped Transportation in the yellow pages. In addition, your health insurance, Medicare, or Medicaid may cover some necessary medical transportation (for example, ambulance service).



Caring for Your Aging Parents

Caring for your aging parents is something you hope you can handle when the time comes, but it's the last thing you want to think about. Whether the time is now or somewhere down the road, there are steps that you can take to make your life (and theirs) a little easier. Some people live their entire lives with little or no assistance from family and friends, but today Americans are living longer than ever before. It's always better to be prepared.

Mom? Dad? We need to talk

The first step you need to take is talking to your parents. Find out what their needs and wishes are. In some cases, however, they may be unwilling or unable to talk about their future. This can happen for a number of reasons, including:

• Incapacity

• Fear of becoming dependent

• Resentment toward you for interfering

• Reluctance to burden you with their problems

If such is the case with your parents, you may need to do as much planning as you can without them. If their safety or health is in danger, however, you may need to step in as caregiver. The bottom line is that you need to have a plan. If you're nervous about talking to your parents, make a list of topics that you need to discuss. That way, you'll be less likely to forget anything. Here are some things that you may need to talk about:

• Long-term care insurance: Do they have it? If not, should they buy it?

• Living arrangements: Can they still live alone, or is it time to explore other options?

• Medical care decisions: What are their wishes, and who will carry them out?

• Financial planning: How can you protect their assets?

• Estate planning: Do they have all of the necessary documents (e.g., wills, trusts)?

• Expectations: What do you expect from your parents, and what do they expect from you?

Preparing a personal data record

Once you've opened the lines of communication, your next step is to prepare a personal data record. This document lists information that you might need in case your parents become incapacitated or die. Here's some information that should be included:

• Financial information: Bank accounts, investment accounts, real estate holdings

• Legal information: Wills, durable power of attorneys, health-care directives

• Funeral and burial plans: Prepayment information, final wishes

• Medical information: Health-care providers, medication, medical history

• Insurance information: Policy numbers, company names



• Advisor information: Names and phone numbers of any professional service providers

• Location of other important records: Keys to safe-deposit boxes, real estate deeds

Be sure to write down the location of documents and any relevant account numbers. It's a good idea to make copies of all of the documents you've gathered and keep them in a safe place. This is especially important if you live far away, because you'll want the information readily available in the event of an emergency.

Where will your parents live?

If your parents are like many older folks, where they live will depend on how healthy they are. As your parents grow older, their health may deteriorate so much that they can no longer live on their own. At this point, you may need to find them in-home health care or health care within a retirement community or nursing home. Or, you may insist that they come to live with you. If money is an issue, moving in with you may be the best (or only) option, but you'll want to give this decision serious thought. This decision will impact your entire family, so talk about it as a family first. A lot of help is out there, including friends and extended family. Don't be afraid to ask.

Evaluating your parents' abilities

If you're concerned about your parents' mental or physical capabilities, ask their doctor(s) to recommend a facility for a geriatric assessment. These assessments can be done at hospitals or clinics. The evaluation determines your parents' capabilities for day-to-day activities (e.g., cooking, housework, personal hygiene, taking medications, making phone calls). The facility can then refer you and your parents to organizations that provide support.

If you can't be there to care for your parents, or if you just need some guidance to oversee your parents' care, a geriatric care manager (GCM) can also help. Typically, GCMs are nurses or social workers with experience in geriatric care. They can assess your parents' ability to live on their own, coordinate round-the-clock care if necessary, or recommend home health care and other agencies that can help your parents remain independent.

Get support and advice

Don't try to care for your parents alone. Many local and national caregiver support groups and community services are available to help you cope with caring for your aging parents. If you don't know where to find help, contact your state's department of eldercare services. Or, call (800) 677-1116 to reach the Eldercare Locator, an information and referral service sponsored by the federal government that can direct you to resources available nationally or in your area. Some of the services available in your community may include:

• Caregiver support groups and training

• Adult day care

• Respite care

• Guidelines on how to choose a nursing home

• Free or low-cost legal advice

Once you've gathered all of the necessary information, you may find some gaps. Perhaps your mother doesn't have a health-care directive, or her will is outdated. You may wish to consult an attorney or other financial professional whose advice both you and your parents can trust.



Housing Options for Older Individuals

As you grow older, your housing needs may change. Maybe you'll get tired of doing yardwork. You might want to retire in sunny Florida or live close to your grandchildren in Illinois. Perhaps you'll need to live in a nursing home or an assisted-living facility. Or, after considering your options, you may even decide to stay where you are. When the time comes to evaluate your housing situation, you'll have numerous options available to you.

There's no place like home

Are you able to take care of your home by yourself? If your answer is no, that doesn't necessarily mean it's time to move. Maybe a family member can help you with chores and shopping. Or perhaps you can hire someone to clean your house, mow your lawn, and help you with personal care. You may want to stay in your home because you have memories of raising your family there. On the other hand, change may be just what you need to get a new perspective on life. To evaluate whether you can continue living in your home or if it's time for you to move, consider the following questions:

• How willing are you to let someone else help you?

• Can you afford to hire help, or will you need to rely on friends, relatives, or volunteers?

• How far do you live from family and/or friends?

• How close do you live to public transportation?

• How easily can you renovate your home to address your physical needs?

• How easily do you adjust to change?

• How easily do you make friends?

• How does your family feel about you moving or about you staying in your own home?

• How does your spouse feel about moving?

Hey kids, Mom and Dad are moving in!

If you are moving in with your child, will you have adequate privacy? Will you be able to move around in your child's home easily? If not, you might ask him or her to install devices that will make your life easier, such as tub or shower grab bars and easy-to-open handles on doors.

You'll also want to consider the emotional consequences of moving in with your child. If you move closer to your child, will you expect him or her to take you shopping or to include you in every social event? Will you feel in the way? Will your child expect you to help with cooking, cleaning, and baby-sitting? Or, will he or she expect you to do little or nothing? How will other members of the family feel? Get these questions out in the open before you consider moving in.

Talk about important financial issues with your child before you agree to move in. This may help avoid conflicts or hurt feelings later. Here are some suggestions to get the conversation flowing:

• Will he or she expect you to contribute money toward household expenses?

• Will you feel guilty if you don't contribute money toward household expenses?

• Will you feel the need to critique his or her spending habits, or are you afraid that he or she will



critique yours?

• Can your child afford to remodel his or her home to fit your needs?

• Do you have enough money to support yourself during retirement?

• How do you feel about your child supporting you financially?

Assisted-living options

Assisted-living facilities typically offer rental rooms or apartments, housekeeping services, meals, social activities, and transportation. The primary focus of an assisted-living facility is social, not medical, but some facilities do provide limited medical care. Assisted-living facilities can be state-licensed or unlicensed, and they primarily serve senior citizens who need more help than those who live in independent living communities.

Before entering an assisted-living facility, you should carefully read the contract and tour the facility. Some facilities are large, caring for over a thousand people. Others are small, caring for fewer than five people. Consider whether the facility meets your needs:

• Do you have enough privacy?

• How much personal care is provided?

• What happens if you get sick?

• Can you be asked to leave the facility if your physical or mental health deteriorates?

• Is the facility licensed or unlicensed?

• Who is in charge of health and safety?

Reading the fine print on the contract may save you a lot of time and money later if any conflict over services or care arises. If you find the terms of the contract confusing, ask a family member for help or consult an attorney. Check the financial strength of the company, especially if you're making a long-term commitment.

As for the cost, a wide range of care is available at a wide range of prices. For example, continuing care retirement communities are significantly more expensive than other assisted-living options and usually require an entrance fee above $50,000, in addition to a monthly rental fee. Keep in mind that Medicare probably will not cover your expenses at these facilities, unless those expenses are health-care related and the facility is licensed to provide medical care.

Nursing homes

Nursing homes are licensed facilities that offer 24-hour access to medical care. They provide care at three levels: skilled nursing care, intermediate care, and custodial care. Individuals in nursing homes generally cannot live by themselves or without a great deal of assistance.

It is important to note that privacy in a nursing home may be very limited. Although private rooms may be available, rooms more commonly are shared. Depending on the facility selected, a nursing home may be similar to a hospital environment or may have a more residential feel. Some on-site services may include:

• Physical therapy

• Occupational therapy

• Orthopedic rehabilitation



• Speech therapy

• Dialysis treatment

• Respiratory therapy

When you choose a nursing home, pay close attention to the quality of the facility. Visit several facilities in your area, and talk to your family about your needs and wishes regarding nursing home care. In addition, remember that most people don't remain in a nursing home indefinitely. If your physical or mental condition improves, you may be able to return home or move to a different type of facility. Contact your state department of elder services for guidelines on how to evaluate nursing homes.

Nursing homes are expensive. If you need nursing home care in the future, do you know how you will pay for it? Will you use private savings, or will you rely on Medicaid to pay for your care? If you have time to plan, consider purchasing long-term care insurance to pay for your nursing home care.



Understanding Long-Term Care Insurance

It's a fact: People today are living longer. Although that's good news, the odds of requiring some sort of long-term care increase as you get older. And as the costs of home care, nursing homes, and assisted living escalate, you probably wonder how you're ever going to be able to afford long-term care. One solution that is gaining in popularity is long-term care insurance (LTCI).

What is long-term care?

Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs)--such as bathing, dressing, or eating--due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.

Why you need long-term care insurance (LTCI)

Even though you may never need long-term care, you'll want to be prepared in case you ever do, because long-term care is often very expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements--you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to find alternative ways to pay for long-term care. One option you have is to purchase an LTCI policy.

However, LTCI is not for everyone. Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing an LTCI policy if some or all of the following apply:

• You are between the ages of 40 and 84

• You have significant assets that you would like to protect

• You can afford to pay the premiums now and in the future

• You are in good health and are insurable

How does LTCI work?

Typically, an LTCI policy works like this: You pay a premium, and when benefits are triggered, the policy pays a selected dollar amount per day (for a set period of time) for the type of long-term care outlined in the policy.

Most policies provide that certain physical and/or mental impairments trigger benefits. The most common method for determining when benefits are payable is based on your inability to perform certain activities of daily living (ADLs), such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Typically, benefits are payable when you're unable to perform a certain number of ADLs (e.g., two or three).

Some policies, however, will begin paying benefits only if your doctor certifies that the care is medically necessary. Others will also offer benefits for cognitive or mental incapacity, demonstrated by your inability to pass certain tests.

Comparing LTCI policies

Before you buy LTCI, it's important to shop around and compare several policies. Read the Outline of Coverage portion of each policy carefully, and make sure you understand all of the benefits, exclusions, and provisions. Once you find a policy you like, be sure to check insurance company ratings from services such as A. M. Best,



Moody's, and Standard & Poor's to make sure that the company is financially stable.

When comparing policies, you'll want to pay close attention to these common features and provisions:

• Elimination period: The period of time before the insurance policy will begin paying benefits (typical options range from 20 to 100 days). Also known as the waiting period.

• Duration of benefits: The limitations placed on the benefits you can receive (e.g., a dollar amount such as $150,000 or a time limit such as two years).

• Daily benefit: The amount of coverage you select as your daily benefit (typical options range from $50 to $350).

• Optional inflation rider: Protection against inflation.

• Range of care: Coverage for different levels of care (skilled, intermediate, and/or custodial) in care settings specified in policy (e.g., nursing home, assisted living facility, at home).

• Pre-existing conditions: The waiting period (e.g., six months) imposed before coverage will go into effect regarding treatment for pre-existing conditions.

• Other exclusions: Whether or not certain conditions are covered (e.g., Alzheimer's or Parkinson's disease).

• Premium increases: Whether or not your premiums will increase during the policy period.

• Guaranteed renewability: The opportunity for you to renew the policy and maintain your coverage despite any changes in your health.

• Grace period for late payment: The period during which the policy will remain in effect if you are late paying the premium.

• Return of premium: Return of premium or nonforfeiture benefits if you cancel your policy after paying premiums for a number of years.

• Prior hospitalization: Whether or not a hospital stay is required before you can qualify for LTCI benefits.

When comparing LTCI policies, you may wish to seek assistance. Consult a financial professional, attorney, or accountant for more information.

What's it going to cost?

There's no doubt about it: LTCI is often expensive. Still, the cost of LTCI depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, care options, optional riders). Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your premiums will be.



Do Your Parents Need Long-Term Care Insurance?

We live in an age of medical miracles. People live longer than ever before, and life expectancies are increasing at a steady rate. This means that many of us will be fortunate enough to still have our parents with us as we ourselves reach retirement age. As our parents age, however, their health may decline, and the greater the chance becomes that they will require home care, nursing home care, or other assisted-living arrangements.

Long-term care: the odds against it aren't long at all

Maybe you think that you'll be the lucky one, that your parents won't need long-term care, but the statistics aren't all that encouraging. According to the Administration on Aging, approximately 40 percent of individuals over age 65 will require some type of long-term care services during their lifetime. (Source: The National Clearinghouse for Long-Term Care Information, 2008.) And with life expectancies increasing at a steady rate, this figure can be expected to grow in the years to come.

The cost of long-term care isn't low, either

Long-term care can also be expensive. What's more, Medicare, Medigap, managed-care programs like health maintenance organizations, and indemnity medical insurance plans don't pay for long-term nursing home care or for assisted living. Although Medicaid, a state-administered federal welfare program, will cover the costs of long-term care, your parents must be legitimately impoverished to be eligible for it.

If they're not prepared, your parents might find their lifetime savings and their assets quickly depleted by the cost of paying for long-term health care. As their child, you'll want to help them protect those assets (and your own inheritance) from being eroded by long-term care costs. One solution to this dilemma might be long-term care insurance (LTCI).

Help is on the way

Generally, LTCI helps pay for the care of an individual who can no longer independently perform the basic activities of daily living, such as bathing, dressing, eating, and toileting, due to a cognitive disorder, illness, or injury. A comprehensive policy will cover skilled, intermediate, and custodial care in a variety of settings, including nursing homes, assisted-living facilities, adult day-care centers, or the insured's own home.

The cost of LTCI policies can vary widely, depending on many factors, including the coverage selected and the age and health of your parents. The younger and healthier they are, the less expensive the insurance will be--but the longer they might pay for it before they really need it.

Who most likely needs the help?

Deciding whether to purchase LTCI will take some careful consideration. LTCI might be right for a parent if at least some of the following criteria apply:

• He or she is between the ages of 40 and 84

• There's a family history of Alzheimer's disease

• He or she has significant assets to preserve as an inheritance or to gift to charity

• He or she has an income from employment or investments in addition to Social Security

• The cost of the premiums will not exceed 5 to 7 percent of your parent's annual income (or yours, if you're paying the premiums)



• He or she is healthy enough to be insurable



Understanding Social Security

Over 55 million people today receive some form of Social Security benefits, including 90 percent of retired workers over age 65. (Source: Fast Facts & Figures About Social Security, 2009) But Social Security is more than just a retirement program. Its scope has expanded to include other benefits as well, such as disability, family, and survivor's benefits.

How does Social Security work?

The Social Security system is based on a simple premise: Throughout your career, you pay a portion of your earnings into a trust fund by paying Social Security or self-employment taxes. Your employer, if any, contributes an equal amount. In return, you receive certain benefits that can provide income to you when you need it most--at retirement or when you become disabled, for instance. Your family members can receive benefits based on your earnings record, too. The amount of benefits that you and your family members receive depends on several factors, including your average lifetime earnings, your date of birth, and the type of benefit that you're applying for.

Your earnings and the taxes you pay are reported to the Social Security Administration (SSA) by your employer, or if you are self-employed, by the Internal Revenue Service. The SSA uses your Social Security number to track your earnings and your benefits.

Finding out what earnings have been reported to the SSA and what benefits you can expect to receive is easy. Just check out your Social Security Statement, mailed by the SSA annually to anyone age 25 or older who is not already receiving Social Security benefits. You'll receive this statement each year about three months before your birthday. It summarizes your earnings record and estimates the retirement, disability, and survivor's benefits that you and your family members may be eligible to receive. You can also order a statement at the SSA website, at your local SSA office, or by calling (800) 772-1213.

Social Security eligibility

When you work and pay Social Security taxes, you earn credits that enable you to qualify for Social Security benefits. You can earn up to 4 credits per year, depending on the amount of income that you have. Most people must build up 40 credits (10 years of work) to be eligible for Social Security retirement benefits, but need fewer credits to be eligible for disability benefits or for their family members to be eligible for survivor's benefits.

Your retirement benefits

If you were born before 1938, you will be eligible for full retirement benefits at age 65. If you were born in 1938 or later, the age at which you are eligible for full retirement benefits will be different. That's because full retirement age is gradually increasing to age 67.

But you don't have to wait until full retirement age to begin receiving benefits. No matter what your full retirement age, you can begin receiving early retirement benefits at age 62. Doing so is often advantageous: Although you'll receive a reduced benefit if you retire early, you'll receive benefits for a longer period than someone who retires at full retirement age.

You can also choose to delay receiving retirement benefits past full retirement age. If you delay retirement, the Social Security benefit that you eventually receive will be as much as 6 to 8 percent higher. That's because you'll receive a delayed retirement credit for each month that you delay receiving retirement benefits, up to age 70. The amount of this credit varies, depending on your year of birth.



Disability benefits

If you become disabled, you may be eligible for Social Security disability benefits. The SSA defines disability as a physical or mental condition severe enough to prevent a person from performing substantial work of any kind for at least a year. This is a strict definition of disability, so if you're only temporarily disabled, don't expect to receive Social Security disability benefits--benefits won't begin until the sixth full month after the onset of your disability. And because processing your claim may take some time, apply for disability benefits as soon as you realize that your disability will be long term.

Family benefits

If you begin receiving retirement or disability benefits, your family members might also be eligible to receive benefits based on your earnings record. Eligible family members may include:

• Your spouse age 62 or older, if married at least 1 year

• Your former spouse age 62 or older, if you were married at least 10 years

• Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled

• Your children under age 18, if unmarried

• Your children under age 19, if full-time students (through grade 12) or disabled

• Your children older than 18, if severely disabled

Each family member may receive a benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member's benefit will be reduced proportionately. Your benefit won't be affected.

Survivor's benefits

When you die, your family members may qualify for survivor's benefits based on your earnings record. These family members include:

• Your widow(er) or ex-spouse age 60 or older (or age 50 or older if disabled)

• Your widow(er) or ex-spouse at any age, if caring for your child who is under under 16 or disabled

• Your children under 18, if unmarried



• Your parents, if they depended on you for at least half of their support

Your widow(er) or children may also receive a one-time $255 death benefit immediately after you die.

Applying for Social Security benefits

You can apply for Social Security benefits in person at your local Social Security office. You can also begin the process by calling (800) 772-1213 or by filling out an on-line application on the Social Security website. The SSA suggests that you contact its representative the year before the year you plan to retire, to determine when you



should apply and begin receiving benefits. If you're applying for disability or survivor's benefits, apply as soon as you are eligible.

Depending on the type of Social Security benefits that you are applying for, you will be asked to furnish certain records, such as a birth certificate, W-2 forms, and verification of your Social Security number and citizenship. The documents must be original or certified copies. If any of your family members are applying for benefits, they will be expected to submit similar documentation. The SSA representative will let you know which documents you need and help you get any documents you don't already have.



Social Security Retirement Benefits

Social Security was originally intended to provide older Americans with continuing income after retirement. Today, though the scope of Social Security has been widened to include survivor's, disability, and other benefits, retirement benefits are still the cornerstone of the program.

How do you qualify for retirement benefits?

When you work and pay Social Security taxes (FICA on some pay stubs), you earn Social Security credits. You can earn up to 4 credits each year. If you were born after 1928, you need 40 credits (10 years of work) to be eligible for retirement benefits.

How much will your retirement benefit be?

Your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily. Your age at the time you start receiving benefits also affects your benefit amount. Although you can retire early at age 62, the longer you wait to retire (up to age 70), the higher your retirement benefit.

You can check your earnings record and get an estimate of your future Social Security benefits by filling out a request at your local Social Security office or by visiting the Social Security Administration (SSA) website. You can also find this information on your Social Security Statement, which the SSA mails annually to every worker over age 25. You will receive this statement about three months before your birthday. Review it carefully to make sure your paid earnings were accurately reported--mistakes are common. Call the SSA at (800) 772-1213 for more information.

Retiring at full retirement age

If you retire at full retirement age, you'll receive an unreduced retirement benefit. Your full retirement age depends on the year in which you were born.

If you were born in: Your full retirement age is:

1937 or earlier 65

1938 65 and 2 months





1943-1954 66








1960 and later 67

Retiring early will reduce your benefit

You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you retire early, your Social Security benefit will be less than if you wait until your full retirement age to begin receiving benefits. Your retirement benefit will be reduced by 5/9ths of 1 percent for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. For example, if your full retirement age is 67, you'll receive about 30 percent less if you retire at age 62 than if you wait until age 67 to retire. This reduction is permanent--you won't be eligible for a benefit increase once you reach full retirement age.

Still, receiving early Social Security retirement benefits makes sense for many people. Even though you'll receive less per month than if you wait until full retirement age to begin receiving benefits, you'll receive benefits several years earlier.

Delaying retirement will increase your benefit

For each month that you delay receiving Social Security retirement benefits past your full retirement age, your benefit will increase by a certain percentage. This percentage varies depending on your year of birth. For example, if you were born in 1936, your benefit will increase 6 percent for each year that you delay receiving benefits. If you were born in 1943 or later, your benefit will increase 8 percent for each year that you delay receiving benefits. In addition, working past your full retirement age has another benefit: It allows you to add years of earnings to your Social Security record. As a result, you may receive a higher benefit when you do retire, especially if your earnings are higher than in previous years.

Working may affect your retirement benefit

You can work and still receive Social Security retirement benefits, but the income that you earn before you reach full retirement age may affect the amount of benefit that you receive. Here's how:

• If you're under full retirement age: $1 in benefits will be deducted for every $2 in earnings you have above the annual limit

• In the year you reach full retirement age: $1 in benefits will be deducted for every $3 you earn over the annual limit (a different limit applies here) until the month you reach full retirement age

Once you reach full retirement age, you can work and earn as much income as you want without reducing your Social Security retirement benefit.

Retirement benefits for qualified family members

Even if your spouse has never worked outside your home or in a job covered by Social Security, he or she may be eligible for spousal benefits based on your Social Security earnings record. Other members of your family may also be eligible. Retirement benefits are generally paid to family members who relied on your income for financial support. If you're receiving retirement benefits, the members of your family who may be eligible for family benefits include:

• Your spouse age 62 or older, if married at least one year

• Your former spouse age 62 or older, if you were married at least 10 years

• Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled



• Your children under age 18, if unmarried



Your eligible family members will receive a monthly benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member's benefit will be reduced proportionately. Your benefit won't be affected.

How do you sign up for Social Security?

You should apply for benefits at your local Social Security office or on-line two or three months before your retirement date. However, the SSA suggests that you contact your local office a year before you plan on applying for benefits to discuss how retiring at a certain age can affect your finances. Fill out an application on the SSA website, or call the SSA at (800) 772-1213 for more information on the application process.



Health Insurance in Retirement

At any age, health care is a priority. When you retire, however, you will probably focus more on health care than ever before. Staying healthy is your goal, and this can mean more visits to the doctor for preventive tests and routine checkups. There's also a chance that your health will decline as you grow older, increasing your need for costly prescription drugs or medical treatments. That's why having health insurance is extremely important.

Retirement--your changing health insurance needs

If you are 65 or older when you retire, your worries may lessen when it comes to paying for health care--you are most likely eligible for certain health benefits from Medicare, a federal health insurance program, upon your 65th birthday. But if you retire before age 65, you'll need some way to pay for your health care until Medicare kicks in. Generous employers may offer extensive health insurance coverage to their retiring employees, but this is the exception rather than the rule. If your employer doesn't extend health benefits to you, you may need to buy a private health insurance policy (which will be costly) or extend your employer-sponsored coverage through COBRA.

But remember, Medicare won't pay for long-term care if you ever need it. You'll need to pay for that out of pocket or rely on benefits from long-term care insurance (LTCI) or, if your assets and/or income are low enough to allow you to qualify, Medicaid.

More about Medicare

As mentioned, most Americans automatically become entitled to Medicare when they turn 65. In fact, if you're already receiving Social Security benefits, you won't even have to apply--you'll be automatically enrolled in Medicare. However, you will have to decide whether you need only Part A coverage (which is premium-free for most retirees) or if you want to also purchase Part B coverage. Part A, commonly referred to as the hospital insurance portion of Medicare, can help pay for your home health care, hospice care, and inpatient hospital care. Part B helps cover other medical care such as physician care, laboratory tests, and physical therapy. You may also choose to enroll in a managed care plan or private fee-for-service plan under Medicare Part C (Medicare Advantage) if you want to pay fewer out-of-pocket health-care costs. If you don't already have adequate prescription drug coverage, you should also consider joining a Medicare prescription drug plan offered in your area by a private company or insurer that has been approved by Medicare.

Unfortunately, Medicare won't cover all of your health-care expenses. For some types of care, you'll have to satisfy a deductible and make co-payments. That's why many retirees purchase a Medigap policy.

What is Medigap?

Unless you can afford to pay for the things that Medicare doesn't cover, including the annual co-payments and deductibles that apply to certain types of care, you may want to buy some type of Medigap policy when you sign up for Medicare Part B. There are 12 standard Medigap policies available. Each of these policies offers certain basic core benefits, and all but the most basic policy (Plan A) offer various combinations of additional benefits designed to cover what Medicare does not. Although not all Medigap plans are available in every state, you should be able to find a plan that best meets your needs and your budget.

When you first enroll in Medicare Part B at age 65 or older, you have a six-month Medigap open enrollment period. During that time, you have a right to buy the Medigap policy of your choice from a private insurance company, regardless of any health problems you may have. The company cannot refuse you a policy or charge you more than other open enrollment applicants.



Thinking about the future--long-term care insurance and Medicaid

The possibility of a prolonged stay in a nursing home weighs heavily on the minds of many older Americans and their families. That's hardly surprising, especially considering the high cost of long-term care.

Many people in their 50s and 60s look into purchasing LTCI. A good LTCI policy can cover the cost of care in a nursing home, an assisted-living facility, or even your own home. But if you're interested, don't wait too long to buy it--you'll need to be in good health. In addition, the older you are, the higher the premium you'll pay.

You may also be able to rely on Medicaid to pay for long-term care if your assets and/or income are low enough to allow you to qualify. But check first with a financial professional or an attorney experienced in Medicaid planning. The rules surrounding this issue are numerous and complicated and can affect you, your spouse, and your beneficiaries and/or heirs.



Insurance Needs in Retirement

Your goals and priorities will probably change as you plan to retire. Along with them, your insurance needs may change as well. Retirement is typically a good time to review the different parts of your insurance program and make any changes that might be needed.

Stay well with good health insurance

After you retire, you'll probably focus more on your health than ever before. Staying healthy is your goal, and that may require more visits to the doctor for preventive tests and routine checkups. There's also a chance that your health will decline as you grow older, increasing your need for costly prescription drugs and medical treatments. All of this can add up to substantial medical bills after you've left the workforce (and probably lost your employer's health benefits). You need health insurance that meets both your needs and your budget.

Fortunately, you'll get some help from Uncle Sam. You typically become eligible for Medicare coverage at the same time you become eligible for Social Security retirement benefits. Premium-free Medicare Part A covers inpatient hospital care, while Medicare Part B (for which you'll pay a premium) covers physician care, laboratory tests, physical therapy, and other medical expenses. But don't expect Medicare to cover everything after you retire. For instance, you'll have to pay a large deductible and make co-payments for certain types of care. Medicare prescription drug coverage is only available through a managed care plan (a Medicare Advantage plan), or through a Medicare prescription drug plan offered by a private company or insurer (premiums apply).

To supplement Medicare, you may want to purchase a Medigap policy. These policies are specifically designed to fill the holes in Medicare's coverage. Though Medigap policies are sold by private insurance companies, they're regulated by the federal government. There are 12 standard Medigap plans, but not all of them are offered in every state. All of these plans provide certain core benefits, and all but one offer combinations of additional benefits. Be sure to look at both cost and benefits when choosing a plan.

What if you're retiring early and won't be eligible for Medicare for a number of years? If you're lucky, your employer may give you a retirement package that includes health benefits at least until Medicare kicks in. If not, you may be able to continue your employer's coverage at your own expense through COBRA. But this is only a short-term solution, because COBRA coverage typically lasts only 18 months. Another option is to buy an individual policy, though you may not be insurable if you're in poor health. Even if you are insurable, the coverage may be very expensive.

Don't overlook long-term care insurance

If you're able to stay healthy and active throughout your life, you may never need to enter a nursing home or receive at-home care. But the fact is, many people aged 65 and older will require some type of long-term care during their lives. And that number is likely to go up in future years because people are increasingly living longer. On top of that, long-term care is expensive. You should be prepared in case you do need long-term care at some point.

Unfortunately, Medicare provides very limited coverage for long-term care. You may be covered for a short-term nursing home stay immediately following hospitalization, but that's about it. Other government and military-sponsored programs may help foot the bill, but generally only if you meet strict eligibility requirements. For example, Medicaid requires that you exhaust most of your assets before you can qualify for long-term care benefits. Even a good private health insurance policy will not offer much coverage for long-term care. But most long-term care insurance (LTCI) policies will.

LTCI is sold by private insurance companies and typically covers skilled, intermediate, and custodial care in a nursing home. Most policies also cover home care services and care in a community-based setting (e.g., an assisted-living facility). This type of insurance can be a cost-effective way to protect yourself against long-term care costs--the key is to buy a policy when you're still relatively young (most companies won't sell you a policy if



you're under age 40). If you wait until you're older or ill, LTCI may be unavailable or much more expensive.

Weigh your need for life insurance

If you're married, you want to make sure that your spouse will have enough money when you die. You may also have children and other heirs you want to take care of. Life insurance can be one way to accomplish these goals, but several questions arise as you near retirement. Should you keep that existing policy in place? If so, should you change the coverage amount? What if you don't have any life insurance because you lost your group coverage at work (though some employers let you keep the coverage at your own expense)? Should you go out and buy some? The answers depend largely on your particular circumstances.

Your life insurance needs may not be as great during retirement because your financial picture may have improved. When you're working and raising a family, the loss of your job income could be devastating. You often need life insurance to replace that income, meet your outstanding debts (e.g., your mortgage, car loans, credit cards), and fund your kids' college education in case something happens to you. But after you retire, there's usually no significant job income to protect. Plus, your kids may be grown and most of your debts paid off. You may even be financially secure enough to provide for your loved ones without insurance.

It may make sense to go without life insurance in these cases, especially if you have term life insurance and your premium has increased dramatically. But what if you still have financial obligations and few assets of your own? Or what if you're looking for a way to pay your estate tax bill? Then you may want to keep your coverage in force (or buy coverage, if you have none). If you need life insurance but not as much as you have now, you can always lower your coverage amount. It's best to talk to a professional before making any decisions. He or she can help you weigh your needs against the cost of coverage.

Take a look at your auto and homeowners policies

If you stay in your home after you retire, your homeowners insurance needs may not change much. But you should still review your liability coverage to make sure it's sufficient to protect your assets. If you're liable for an accident on or off your premises, claims against you for medical bills and other expenses can be substantial. For additional protection, you might consider buying an umbrella liability policy. It's also a good idea to review the coverage you have on your home itself and the property inside it. Finally, if you plan to buy a second home, find out if your insurer will cover both homes and give you a discount on your premium.

Auto insurance raises some similar issues. Review your policy to make sure your coverage limits are high enough in each area. Again, having the right amount of liability coverage is especially important--you don't want your assets to be put at risk if you cause an auto accident that injures other people or damages property. Weigh your need for any coverages that are optional in your state. Finally, look into ways to save on your premium now that you're retired (e.g., discounts for low annual mileage or senior driving courses).



Facing the Possibility of Incapacity

Incapacity means that you are either mentally or physically unable to take care of yourself or your day-to-day affairs. Incapacity can result from serious physical injury, mental or physical illness, mental retardation, advancing age, and alcohol or drug abuse.

Incapacity can strike anyone at anytime

Even with today's medical miracles, it's a real possibility that you or your spouse could become incapable of handling your own medical or financial affairs. A serious illness or accident can happen suddenly at any age. Advancing age can bring senility, Alzheimer's disease, or other ailments that affect your ability to make sound decisions about your health, or to pay your bills, write checks, make deposits, sell assets, or otherwise conduct your affairs.

Planning ahead can ensure that your wishes are carried out

Designating one or more individuals to act on your behalf can help ensure that your wishes are carried out if you become incapacitated. Otherwise, a relative or friend must ask the court to appoint a guardian for you, a public procedure that can be emotionally draining, time consuming, and expensive. An attorney can help you prepare legal documents that will give individuals you trust the authority to manage your affairs.

Managing medical decisions with a living will, durable power of attorney for health care, or Do Not Resuscitate order

If you do not authorize someone to make medical decisions for you, medical care providers must prolong your life using artificial means, if necessary. With today's modern technology, physicians can sustain you for days and weeks (if not months or even years). If you wish to avoid this, you must have an advanced medical directive. You may find that one, two, or all three types of advanced medical directives are necessary to carry out all of your wishes for medical treatment (make sure all documents are consistent).

A living will allows you to approve or decline certain types of medical care, even if you will die as a result of the choice. However, in most states, living wills take effect only under certain circumstances, such as terminal injury or illness. Generally, one can be used only to decline medical treatment that "serves only to postpone the moment of death." Even in states that do not allow living wills, you might want to have one anyway to serve as evidence of your wishes.

A durable power of attorney for health care (known as a health-care proxy in some states) allows you to appoint a representative to make medical decisions for you. You decide how much power your representative will have.

A Do Not Resuscitate order (DNR) is a doctor's order that tells all other medical personnel not to perform CPR if you go into cardiac arrest. There are two types of DNRs. One is effective only while you are hospitalized. The other is used while you are outside the hospital.

Managing your property with a living trust, durable power of attorney, or joint ownership

If no one is ready to look after your financial affairs when you can't, your property may be wasted, abused, or lost. You'll need to put in place at least one of the following options to help protect your property in the event you become incapacitated.

You can transfer ownership of your property to a revocable living trust. You name yourself as trustee and retain complete control over your affairs as long as you retain capacity. If you become incapacitated, your successor



trustee (the person you named to run the trust if you can't) automatically steps in and takes over the management of your property. A living trust can survive your death, but it can be expensive to maintain and administer.

A durable power of attorney (DPOA) allows you to authorize someone else to act on your behalf. There are two types of DPOAs: a standby DPOA, which is effective immediately, and a springing DPOA, which is not effective until you have become incapacitated. A DPOA should be fairly simple and inexpensive to implement. It also ends at your death. A springing DPOA is not permitted in some states, so you'll want to check with an attorney.

Another option is to hold your property in concert with others. This arrangement may allow someone else to have immediate access to the property and to use it to meet your needs. Joint ownership is simple and inexpensive to implement. However, there are some disadvantages to the joint ownership arrangement. Some examples include (1) your co-owner has immediate access to your property, (2) you lack the ability to direct the co-owner to use the property for your benefit, (3) naming someone who is not your spouse as co-owner may trigger gift tax consequences, and (4) if you die before the other joint owner(s), your property interests will pass to the other owner(s) without regard to your own intentions, which may be different.



Medicaid Planning Basics

Unfortunately, many nursing home residents end up exhausting their assets on long-term care. But it doesn't have to be that way. The best time to plan for the possibility of nursing home care is when you're still healthy. By doing so, you may be able to pay for your long-term care and protect assets for your loved ones. How? Through Medicaid planning. You worked hard all of your life to pay off your mortgage and build a retirement fund. You expected to live off your savings in the comfort of your own home, and you planned to leave something to your kids at the appropriate time. Suddenly, the unthinkable happens--you suffer a stroke at age 70 and must spend the rest of your years in a nursing home. What will happen to your life savings?

Eligibility for Medicaid depends on your state's asset and income-level requirements

Medicaid is a joint federal-state program that provides medical assistance to various low-income individuals, including those who are aged (i.e., 65 or older), disabled, or blind. It is the single largest payer of nursing home bills in America and is the last resort for people who have no other way to finance their long-term care. Although Medicaid eligibility rules vary from state to state, federal minimum standards and guidelines must be observed.

In addition to you meeting your state's medical and functional criteria for nursing home care, your assets and monthly income must each fall below certain levels if you are to qualify for Medicaid. However, several assets (which may include your family home) and a certain amount of income may be exempt or not counted.

Medicaid planning can help you meet your state's requirements

To determine whether you qualify for Medicaid, your state may count only the income and assets that are legally available to you for paying bills. Medicaid planning helps you devise ways of making your assets and income inaccessible. Over the years, attorneys have developed several strategies to rearrange finances and legally shelter assets from the state. These strategies--and the Medicaid rules themselves--can be complicated, especially since the passage of the Deficit Reduction Act of 2005, which significantly tightened restrictions on Medicaid planning. You should consult an experienced elder law attorney if you wish to take steps to protect your assets from the state.

Along with qualifying you for Medicaid benefits, Medicaid planning seeks to accomplish the following goals:

• Sheltering your countable assets

• Preserving assets for your loved ones

• Providing for your healthy spouse (if you're married)

Let's look at these in turn.

One way to shelter countable assets is to exchange them for exempt assets

Countable assets are those that are not exempt by state law or otherwise made inaccessible to the state for Medicaid purposes. The total value of your countable assets (together with your countable income) will determine your eligibility for Medicaid. Under federal guidelines, each state compiles a list of exempt assets. Usually, this list includes such items as the family home (regardless of value), prepaid burial plots and contracts, one automobile, and term life insurance.

Through Medicaid planning, you can rearrange your finances so that countable assets are exchanged for exempt assets or otherwise made inaccessible to the state. For example, instead of spending your savings solely on



nursing home bills, you can pay off the mortgage on your family home, make home improvements and repairs, pay off your debts, purchase a car for your healthy spouse, and prepay burial expenses.

There are many other ways to shelter countable assets. Consult an experienced attorney for more information.

Irrevocable trusts can help you leave something for your loved ones

Why not simply liquidate all of your assets to pay for your nursing home care? After all, Medicaid will eventually kick in (in most states) once you've exhausted your personal resources. The reason is simple: You want to assist your loved ones financially. You want to be able to leave something to them, rather than to strangers.

There are many ways to protect assets for your loved ones. One way is to use an irrevocable trust. (It's irrevocable in the sense that you can't later change its terms or decide to end it.) Property placed in an irrevocable trust will be excluded from your financial picture, for Medicaid purposes. If you name a proper beneficiary, the principal that you deposit into the trust (and possibly any income generated) will be sheltered from the state and can be preserved for your heirs. Typically, though, the trust must be in place and funded for a specific period of time for this strategy to be an effective Medicaid planning tool.

For information about Medicaid planning trusts, consult an experienced attorney.

If you're married, an annuity can help you provide for your healthy spouse

Nursing homes are expensive. If you must go to one, will your spouse have enough money to live on? With a little planning, the answer is yes. Here's how Medicaid affects a married couple. A couple's assets are pooled together when the state is considering the eligibility of one spouse for Medicaid. The healthy spouse is entitled to keep a spousal resource allowance that generally amounts to one-half of the assets. This may not amount to much money over the long term.

A healthy spouse may want to use jointly owned, countable assets to buy a single premium immediate annuity to benefit himself or herself. Converting countable assets into an income stream is a plus because each spouse is entitled to keep all of his or her own income, in contrast to the pooling of assets. By purchasing an immediate annuity in this manner, the institutionalized spouse can more easily qualify for Medicaid, and the healthy spouse can enjoy a higher standard of living.

Be aware, however, that for annuities purchased on February 8, 2006 and thereafter (the date of enactment of the Deficit Reduction Act of 2005), the state must be named as the remainder beneficiary of the annuity after your spouse or a minor or disabled child.

Beware of certain Medicaid planning risks

Medicaid planning is not without certain risks and drawbacks. In particular, you should be aware of look-back periods, possible disqualification for Medicaid, and estate recoveries.

When you apply for Medicaid, the state has the right to review, or look back, at your finances (and those of your spouse) for a period of months before the date you applied for assistance. In general, a 60-month look-back period exists for transfers of countable assets for less than fair market value (for transfers made prior to February 8, 2006, there's a look-back period of 60 months for transfers into an irrevocable trust and a look-back period of 36 months for all other transfers). Transfers of countable assets for less than fair market value made during the look-back period will usually result in a waiting period before you can start to collect Medicaid. So, for example, if you give your house to your kids the year before you enter a nursing home, you'll be ineligible for Medicaid for quite some time. (A mathematical formula is used.)

Note: Some states must amend their laws to implement the changes to Medicaid under the Deficit Reduction Act of 2005. In these states, the date the new rules will go into effect may be different than the federal enactment date of February 8, 2006. Ask an elder law attorney in your state for more information.



Also, you should know that Medicaid planning is more effective in some states than in others. In addition, federal law encourages states to seek reimbursement from Medicaid recipients for Medicaid payments made on their behalf. This means that your state may be able to place a lien on your property while you are alive, or seek reimbursement from your estate after you die.



What is the difference between a living will and a living trust?

Question:

What is the difference between a living will and a living trust?

Answer:

These two very important estate planning devices are quite different from each other but serve similar purposes. A living will lets you manage your health-care decisions in case you become incapacitated. A living trust lets you manage your property in case you become incapacitated.

A living will is not actually a will at all. It is a legal document that becomes effective if you become so ill or injured that you can't make responsible health-care decisions for yourself. It lets you approve or decline certain types of medical care in advance, even if you die as a result.

A living will is allowed only in some states. If you don't live in one of those states, you may be able to accomplish the same goal using a durable power of attorney for health care, health-care proxy, or Do Not Resuscitate order.

By comparison, a living trust is just what it says. It is a revocable trust you create while you are living. You transfer property to the trust, and the trust then "owns" it. You name yourself as trustee and someone else as a successor trustee. You manage the property in the trust unless you become incapacitated (or until you die), in which case your successor trustee automatically steps in to continue managing the property for you.



What is the difference between a power of attorney and a durable power of attorney?

Question:

What is the difference between a power of attorney and a durable power of attorney?

Answer:

A power of attorney is a legal document that authorizes someone to act for you. You name someone known as an agent or attorney-in-fact (though the person need not be an attorney) who steps into your shoes, legally speaking. You can authorize your agent to do such things as sign checks and tax returns, enter into contracts, buy or sell real estate, deposit or withdraw funds, run a business, or anything else you do for yourself.

A power of attorney can be broad or limited. Since the power-of-attorney document is tailored for its specific purpose, your agent cannot act outside the scope designated in the document. For example, you may own a home in another state that you want to sell. Instead of traveling to that state to complete all the necessary paperwork, you can authorize someone already in that state to do this for you. When the transactions to sell the home are complete, the agency relationship ends, and the agent no longer holds any power.

A regular power of attorney ends when its purpose is fulfilled or at your incapacity or death.

A durable power of attorney serves the same function as a power of attorney. However, as its name implies, the agency relationship remains effective even if you become incapacitated. This makes the durable power of attorney an important estate planning tool. If incapacity should strike you, your agent can maintain your financial affairs until you are again able to do so, without any need for court involvement. That way, your family's needs continue to be provided for, and the risk of financial loss is reduced. A durable power of attorney ends at your death.



Is there such a thing as nursing home insurance?

Question:

Is there such a thing as nursing home insurance?

Answer:

There's really no such thing as nursing home insurance. What you're probably referring to is long-term care insurance (LTCI), which typically provides coverage for several different types of long-term care, including nursing home care. For example, home health care, adult day care, and assisted-living care will also be covered under a typical LTCI policy.

Although LTCI policy types vary, they usually work something like this: You pay a premium, and when you need it, the policy pays a selected dollar amount each day (for a set period of time) for the type of care outlined in the policy. Because the probability is high that a policyholder might file a claim, LTCI can be relatively expensive. The cost depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, optional riders), your health, and your age at the time you purchase the policy.



What types of nursing care does long-term care insurance cover?

Question:

What types of nursing care does long-term care insurance cover?

Answer:

It depends on the policy. Long-term care insurance (LTCI) policies define three levels of long-term care. Because some LTCI policies pay for only certain forms of care, it's important to understand these definitions:

• Skilled care: Continuous round-the-clock care designed to treat a medical condition; it's ordered by a doctor and administered by skilled medical workers (e.g., registered nurses, professional therapists) as part of an established treatment plan

• Intermediate care: Intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under a doctor's supervision

• Custodial care: Care designed to help the patient perform activities of daily living, such as bathing, dressing, or eating; it can be provided by someone without professional medical skills, but it's supervised by a doctor

Most LTCI policies cover skilled, intermediate, and custodial care in licensed nursing homes. Some of these policies may limit or exclude additional settings for long-term care (e.g., home health care, assisted-living facilities). To find out what type of care your LTCI policy covers and what facilities are approved to provide the care, be sure to read your policy carefully.



My mother is 90. Is it OK for her to keep driving?

Question:

My mother is 90. Is it OK for her to keep driving?

Answer:

If your mother has a valid driver's license and a clean driving record, she can legally keep driving--but should she? If your mother has poor eyesight, slowed reflexes, or other age-related ailments, she could be putting herself and others at risk every time she gets behind the wheel. As a precaution, many states now require older folks to renew their licenses in person. And some states require drivers to take eyesight and driving exams in order to renew a driver's license after reaching a certain age (e.g., 70).



What is long-term care insurance?

Question:

What is long-term care insurance?

Answer:

Long-term care insurance is designed to pay for the cost of your care in a variety of settings, including a nursing home if you can no longer care for yourself independently. Long-term care policies vary widely in their coverages, limitations, and exclusions.

A good policy covers the costs of round-the-clock nursing home care, including that given at custodial, intermediate, and skilled levels. The policy may also cover any expenses associated with assisted-living residences provided that the facility is state certified. Adult day-care centers are often covered as well, as is respite care, which is the temporary professional care you'll need if your regular caregiver is on vacation. Policies will also pay for at-home care provided by registered nurses; respiratory therapists; physical, occupational, or speech therapists; registered dietitians; or licensed social workers.

Policies may also cover the cost of caregiver training for a family member or friend. Finally, the insurance may cover the cost of an independent health-care professional, such as a registered nurse, who will act as your personal care consultant. Such a benefit gives you an objective person with whom you can discuss the quality of your care.

Insurance companies will require that you meet certain conditions before they issue the benefits. For example, they usually require that you be unable to perform certain regular daily activities by yourself, such as normal bathroom functions, bathing, dressing, and eating. Companies will also issue benefits because of cognitive loss as a result of Alzheimer's disease, senility, and other forms of dementia. All of these requirements are explained in the policies. Make sure you speak with a trusted insurance professional before you purchase this coverage.



What is critical illness insurance?

Question:

What is critical illness insurance?

Answer:

Critical illness insurance will pay you a lump sum if you become ill from--and then survive--certain illnesses or injuries. Some examples of covered illnesses are heart attack, life-threatening cancer, loss of a limb, and Alzheimer's disease. Also covered are loss of your sight, a major organ transplant, and paralysis. You can use the lump sum whatever way you want, whether it's related to your illness or not. The lump sum is tax free.

Ironically, the need for critical illness insurance came about because people are living longer, even with serious diseases. But it also means people have more medical expenses that can deplete their health insurance and personal savings. Critical illness insurance helps pay for uncovered medical bills and household bills. It can even provide capital to start a new home-based business.

If you are considering this type of insurance, it's vital that you understand exactly what is covered and what is not. The insurance will pay only if you contract the illnesses listed in the policy. Even then, further limitations will be defined in the policy. For example, what does the insurance company consider to be a life-threatening cancer? If you have a family history of a certain illness, will the policy exclude that illness? Are there pre-existing condition limitations? What are the age limitations? How much does it cost? Does the premium increase as you get older? When do you receive the lump sum? Is it really offering you more than your existing health plan? Finally, be aware that if you own one of these policies and never get sick, you won't get any money back.

Before you purchase critical illness insurance, consult your insurance agent or financial advisor.



How do I talk to my elderly parents about their finances?

Question:

How do I talk to my elderly parents about their finances?

Answer:

Talking to your parents about money is always difficult, especially when the money you're talking about is theirs. They belong to a generation that was taught to keep their information private and not to share their concerns openly. Even if they need help, they may be unwilling to talk to you because it's "none of your business," or because they're afraid to give up control over their own financial affairs.

If they're reluctant to talk to you, make it clear that you respect their needs and concerns. However, don't be afraid to express your own needs and concerns as well. Their financial situation may impact you also, particularly if they become unable to support or care for themselves. At the very least, you should find out where they keep their personal records; discuss housing, health care, and budgeting issues; and find out what steps they have taken to plan their estate.

What if they still refuse to talk to you? If they're capable of managing their affairs for now, you may want to drop the matter and reapproach them later. Or you may suggest that they talk to another family member, a trusted friend, or a professional advisor, such as an attorney or financial planner.

However, if you feel that they're no longer competent to manage their own affairs, or that their financial situation is precarious, you should seek out professional advice right away. Call the Eldercare Locator, an information and referral service sponsored by the federal government, at (800) 677-1116 for a list of local and national organizations that can help.



How can I tell if a nursing home provides high-quality care?

Question:

How can I tell if a nursing home provides high-quality care?

Answer:

You may have heard horror stories about the quality of nursing home care. However, there are good nursing homes as well as bad ones. Here are some points to consider when evaluating nursing home care:

• The quality of health care: Make sure that the nursing home is certified by the state. Ask about the credentials and training of the staff, including doctors, nurses, and aides. Can residents see their own doctors, or must they see the staff physician? Do they have access to dentists, eye doctors, and other specialists? Does the facility have clear procedures that it follows in medical emergencies?

• The facility's appearance: The nursing home should be clean and well maintained. A bad smell may indicate the staff is too busy or uncaring to help residents to the bathroom or to change clothes. Rooms and public areas should be comfortable. The dining room and kitchen should be clean, and the food should be hot and appetizing.

• Safety and security: Ask when the facility was built and/or updated. In general, the newer the building, the more fire-resistant it will be due to changes in building codes. Look for safety features such as wide hallways, doors that unlock from the inside, handrails, and grab bars.

• Resident/staff ratio and interaction: Find out how the nursing home complies with state and federal government regulations such as patient/staff ratio and training. Notice how staff members treat residents. Do they generally seem caring? Distracted? Are a lot of residents sitting around in common areas doing nothing, or are there stimulating activities going on?

A checklist you can use to evaluate a nursing home can be found at the website of the American Association of Homes and Services for the Aging (www.aahsa.org).



My parents can't manage alone anymore. What should I do?

Question:

My parents can't manage alone anymore. What should I do?

Answer:

This is an increasingly common scenario. Perhaps one or both of your parents are having health problems, suffering mental lapses, or just slowing down with age. The problem may not go away or get better, but there are several ways you can deal with it. First, talk with your parents and any siblings you may have.

Sometimes the best option is to have your parents move in with (or closer to) you. That way, you avoid having to use your parents' assets (or your own) to pay for a nursing home or other facility. You won't have to worry about your parents receiving inadequate care from strangers. And your parents will probably appreciate the gesture of love and self-sacrifice on your part. However, the cost of feeding, clothing, and caring for your parents can be high, especially if you're forced to give up a job to be home with your parents. And don't underestimate the emotional and psychological impact.

What if your parents' care is more than you can handle? You may then wish to consider some type of assisted-living arrangement. The broad term assisted living encompasses a range of facilities and services designed to help seniors who can't live independently. The assistance provided may be short- or long-term and may focus on social services, medical care, or some combination of the two. Depending on your parents' conditions and needs, one or more of the following assisted-living arrangements may be worth considering:

• Nursing homes

• Assisted-living communities

• Continuing care retirement communities

• Alzheimer's/dementia care specialty facilities

• Retirement communities

• Active senior communities

• Home health care

• Hospice care

• Adult day-care services

Ask a social worker, your parents' physicians, or other professionals for information about these assisted-living arrangements. Such individuals can also offer you support and recommend solutions that best meet your parents' needs. Finally, if you have an employee assistance program at work, contact your human resources department for help and suggestions.



I paid my mother's real estate taxes last year. Can I deduct this on my tax return?

Question:

I paid my mother's real estate taxes last year. Can I deduct this on my tax return?

Answer:

Probably not. A real estate tax can be deducted only by the owner of the property upon which the tax is imposed. Therefore, if the deed to the property lies in your mother's name, you are not entitled to a deduction for the real estate taxes even if you are the one who actually paid them. Generally speaking, taxes are deductible in the year you pay them.

Sometimes real estate taxes are prepaid. If you are the property owner, you can generally deduct prepaid real estate taxes in the year of the prepayment if (1) you are a cash basis taxpayer and (2) you don't live in a jurisdiction where the taxing authority considers prepayment a "deposit." Jurisdictions vary regarding how they treat prepaid tax. Be aware that taxes placed in escrow generally aren't deductible.



Can I take the credit for the elderly or disabled?

Question:

Can I take the credit for the elderly or disabled?

Answer:

This federal income tax credit is available if you are a qualified individual and your income falls within specified limits. You are a qualified individual if you are either (1) age 65 or older at the end of the tax year or (2) are under age 65 and retired on permanent and total disability. You must also be a U.S. citizen or resident to qualify for the credit. If you are married, you and your spouse must file a joint tax return to qualify. However, if you and your spouse lived apart for the entire year, you have the option of filing either a joint return or separate returns.

Qualifying on the basis of age is straightforward. To qualify as disabled, though, you should note that the IRS considers you retired on disability as of the date you stopped working because of your disability. You are considered permanently and totally disabled if (1) you can't engage in any substantial gainful activity due to either your physical or mental condition and (2) the condition has lasted or will last for a continuous period of not less than one year (or is expected to result in death). You should obtain a physician's statement certifying your disability.

To qualify for the credit, you must also meet income requirements. Your income and nontaxable Social Security (or other nontaxable pension) must fall below specified amounts that vary with your filing status.

For more information, see Schedule R of your Form 1040.



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