States Attack Community Spouse Income Planning

One of the benefits of an annuity in estate and government benefits planning is the ability to convert assets countable for the purpose of determining Medicaid eligibility, and therefore subject to long term care spend down, to income for a community spouse, that is not countable, and therefore, not subject to spend down. This strategy is particularly comforting to a community spouse, who often is confronted with the task of making limited assets and income last over a lifetime. Given that the community spouse is often a younger female with a much longer life expectancy than the institutional spouse, providing a guaranteed income that the spouse cannot outlive from assets that otherwise would be extinguished by long term care is an important goal for seniors and their families, and the planners representing them.

This technique is not common, and is not without its risks. The community spouse must make an irrevocable decision preferring income over assets the spouse could otherwise spend without limitation. As income, the spouse has comfort in meeting routine obligations, but does not have a large pool of convertible assets as a safety net. The spouse gives up flexibility and liberty to convert a lump sum of assets to whatever purpose the spouse might have. Moreover, the technique means making a decision to prefer taking care of the surviving spouse at the expense of an inheritance for the children. Under the Deficit Reduction Act of 2005 (DRA), the state must be the beneficiary of any residue upon the death of the community spouse.

Nonetheless, states have waged an aggressive battle in the courts to prevent families from converting assets to income, but have, to date, been largely unsuccessful. The Third Circuit Court of Appeals, for example, recently held that since the annuity payment is payable to the community spouse, it is income and should not be included in the eligibility calculations, regardless of whether it can be sold on the secondary market. Weatherbee v. Richman, 2009 U.S. App. LEXIS 24939 (2009). See also, Vieth v. Ohio Dep't of Job and Family Servs., 2009 Ohio 3748 (Ohio Ct. App., Franklin County, July 30, 2009) (where community spouse purchased $140,000 annuity, court granted Medicaid benefits to the institutional spouse). But see, N.M. v. DMAHS, 405 N.J. Super. 353 (2009) (annuity is countable for Medicaid purposes if it can be sold in the secondary market).

Now, apparently conceding defeat in the courts, the National Association of State Medicaid Directors (NASMD) has sent a letter to the Center for Medicaid and State Operations (CMS) requesting that the Agency revisit its treatment of community spouse annuities. NASMD seeks to foreclose a family from preferring income for the benefit of a community spouse over assets, the latter of which may be lost in a long term care spend down.The effort, if successful, would reverse years of accepted law and practice. In the 1993 Omnibus Budget Reconciliation Act (OBRA), Congress delegated the Medicaid treatment of annuities to the Secretary of Health and Human Services (HHS). 42 U.S.C. § 1396p(d)(6). CMS then exercised that authority in Transmittal 64 to the State Medicaid Manual which contained the Secretary's determination. The treatment was modified somewhat by the DRA, but recent cases have upheld the purchase of DRA compliant annuities by community spouses to protect resources in excess of the default Community Spousal Resource Allowance (CSRA). NASMD now wants CMS to change its rules so that annuities will be treated like trusts which would make them countable and available resources.  More importantly, the change removes from community spouses the opportunity to make assets

End-of-Life Care Not to Blame for Increased Costs

In this information age, there certainly seems to be a large amount of misinformation.  One of the more persistent myths, is that the high cost of end-of-life care for the elderly represents a financial threat to the health care system.  According to a recently released study by the International Longevity Center-USA, "Myths of the High Medical Cost of Old Age and Dying," it is simply not true that the aging of Americans and over aggressive care at the end of life are major causes of increasing health care costs in the United States.

According to the report, studies that have looked at the causes of increased health care spending conclude that as little a 5 percent of the increase may be attributed to the aging of the population, the other 90 to 95 percent resulting from other causes.

Many have predicted that the already high cost of caring for seniors will skyrocket in the next tewenty years as the oldest baby boomers start reaching age 85. The new report suggests that this is not necessarily true, particularly if better health care can reduce the prevalence of chronic disability as it has in the past. For example, the incidence of chronic disability among seniors decreased  by 6.5 points over the period between 1982 and 1999.  The mere fact that full recovery from stroke and heart failure is now so prevalent, suggests that mere extrapolation from the past regarding disability or related health care cost is likely to lead to wrong conclusions.

"Today Show" Tells Story of Divorce Resulting from Long Term Care

An emotional segment on a recent Today Show episode featured a wife who divorced her husband after 44 years of marriage in order to protect assets from a a long term illness. Suggesting the divorce, and also appearing on the show, was Massachusetts attorney Hyman Darling, a member of the National Association of Elder Law Attorneys (NAELA).

The husband of "Roberta" (not her real name) was diagnosed with dementia after the couple had been married more than 40 years. When she became unable to care for him at home, Roberta moved her husband to a nursing home and began paying bills of between $7,500 and $8,000 a month. After she had gone through $75,000, her husband's neurologist suggested that she find "a really good lawyer."

Roberta found Darling, an elder law attorney with the firm of Bacon & Wilson, P.C., based in Springfield, Massachusetts. Darling suggested to her that, as a last resort, she could terminate her marriage. This would preserve her remaining assets and allow her husband to quickly qualify for Medicaid coverage of his nursing home care.

Value of Annuities Behind Fed Efforts to Boost Retirement Savings

In January, the Obama administration announced an initiative to promote the availability of annuities in qualified retirement, 401(k), and similar plans. Only 22% of such plans now offer annuities among the options available to plan participants.   While the initiative is not long on details, it is gaining support among senior advisors and advocates.  Making annuities an option in qualified retirement planning would permit more workers to turn some of their nest egg into guaranteed income for life.  The opportunity to insure a lifetime of income is an attribute unique to annuities, and is an attribute uniquely suited for retirement planning.

Simultaneously, a Senate bill that would require your 401(k) to inform you of the projected monthly income you could expect at retirement based on current savings.  Causing investors to focus on the income they can expect from their retirement planning, rather than upon their account balances, is a welcome turn of events.  Investors often pay too much attention to the balances in their retirement plan portfolio, without careful attention to whether that portfolio will sustain them after retirement.  Simply, income is a more relevant basis upon which to plan for retirement.  That is the approach Social Security takes with its annual statements.

The confluence of these events suggests that the government is finally acknowledging the value of income retirement planning, and the value of annuities in securing that income.  As Americans grapple with the challenge of potentially outliving their retirement savings, lifetime income annuities are among the most cost-effective and least risky asset class for generating guaranteed retirement income for life according to numerous studies, perhaps the most prestigious being one co-sponsored by the Wharton Financial Institutions Center at the University of Pennsylvania and New York Life Insurance Company.

Planner's Corner- Beware of Ghostwritten Articles

You've probably received the solicitation, and been tempted to purchase the beautiful book or glossy magazine, with your picture and name on the cover.  The solicitation promises instant credibility, because no client would know that you had nothing to do with writing the book, or that the magazine article is purchased.  These "ghostwritten" marketing efforts promise much, are extremely high quality, and as a result, are tempting.

Beware!  The Financial Industry Regulatory Authority (FINRA) warns that sales representatives for member firms should take care when using ghostwritten books and articles in marketing their services.   A rule established by the National Association of Securities Dealers (NASD)  "prohibits false, misleading or exaggerated communications with the public and the omission of material facts or qualifications that would cause a communication to be misleading," FINRA officials write in Regulatory Notice 08-27.   Many of the ghostwritten books, pamphlets and newspaper advice articles may violate that rule and other rules established by the NASD and FINRA's other predecessor organization, the regulatory arm of the New York Stock Exchange, the notice states.

Avoiding Census Fraud

With the U.S. Census process beginning, the Better Business Bureau (BBB) advises that people be cooperative, but cautious, so as not to become victims of fraud or identity theft. The first phase of the 2010 U.S. Census is under way as workers have begun verifying the addresses of households across the country. Eventually, more than 140,000 U.S. Census workers will count every person in the United States and will gather information about every person living at each address including name, age, gender, race, and other relevant data.

The big question is - how do you tell the difference between a U.S. Census worker and a con artist? The BBB offers the following advice:

• If a U.S. Census worker knocks on your door, they will have a badge, a handheld device, a Census Bureau canvas bag, and a confidentiality notice. Ask to see their identification and their badge before answering their questions. However, you should never invite anyone you don't know into your home.

CitiMortgage Program to Aid Borrowers Avoid Foreclosure Costs

According to an article written by Les Christie, and published on CNNMoney.com, CitiMortgage, one of the nation's largest mortgage servicers, launched a pilot program Friday designed to ease the pain of some homeowners heading for foreclosure.  The program, a modification of a traditional deed in lieu of foreclosure, gives borrowers new and substantial  incentives to avoid the legal and administrative costs of foreclosure.

Instead of borrowers falling further and further behind on their mortgages, leading to an eventual foreclosure sale, they can stay in their homes for up to six months, if they agree to then hand over the deed to the lender. 

CitiMortgage will then, additionally, pay the borrowers a minimum of $1,000 to help with relocation expenses.  CitiMortgage will also provide relocation counseling, and may even cover some monthly property expenses while the borrowers remain in their homes, if Citi determines the borrowers can't afford the expenses.Citi will also forgive any difference between the value of the home at time of repossession and what the borrower owes. Once the deed goes back to the lender, the borrowers walk away free and clear.

Doctors Avoid End-of-life Counseling with Patients

According to researchers publishing a report in the journal Cancer, most doctors don't talk about end-of-life issues with their cancer patients when those patients are feeling well. Nor do they talk about them until treatments have been exhausted. Those delays might mean patients are unable able to make truly informed choices early in their treatment.

The study, published online, by Nancy L. Keating, MD, MPH, of Brigham and Women's Hospital in Boston, and colleagues, surveyed 4,188 physicians about how they would talk to a hypothetical cancer patient with four to six months to live. A majority of respondents (65%) said they would discuss prognosis, but only a minority said they would discuss do-not-resuscitate status (44%), hospice (26%) or preferred site of death (21%) at that time. Rather, they would wait until symptoms were present or until there were no more treatments to offer. An abstract and the full text of the study are available here.

Current guidelines, from the National Comprehensive Cancer Network, a not-for-profit alliance of 21 of the world's leading cancer centers, say that such conversations should be initiated whenever a patient has been given less than a year to live, if not at diagnosis.  The survey suggests that these guidelines are not being observed in practice.

The survey did not ask physicians to explain their answers, but the researchers offered several possibilities.

Alzheimer's: Type 3 Diabetes?

I don't usually include information regarding health care, but some of you might remember that the first incarnation of my website had a page devoted to health and prescription drug information.  But, this article, available online on the Canadian version of Healthzone, is so compelling, I thought I would share it.

Some experts are now calling  Alzheimer's, "Type 3 diabetes" or diabetes of the brain. Here are a few links between the two diseases:

Beware Direct Transfer Designations (TOD's/POD's)

Direct transfer designations, like POD's (payable on death designations) and TOD's (transfer on death designations), and simple beneficiary designations, are mechanisms by which an account or other asset is transferred or paid upon the death of the account holder or asset owner to a beneficiary. They are often recommended by the administrator of the account, such as a bank, broker or life insurance company. While these can be very effective and inexpensive means by which to avoid probate and transfer assets at death, they are not without their risks and challenges. A lack of careful consideration of the risks and rewards of these mechanisms can be disastrous. A carefully prepared estate plan will consider, and resolve, all of the risks and challenges of these mechanisms.

Benefits of Direct Transfer Designations

Direct transfer designations, such as POD's and TOD's have several benefits. The most important benefits are that they are cheap and easy. Most institutions will permit you to make such designations as a service, for no additional fee. They are simple to create, and there is no need for an attorney or other professional. Most of these designations are made by account owners without legal or professional advice or counsel. Particularly because of their simplicity, they are very popular.

The second benefit is that the payment or transfer is more or less immediate and direct. Where there is a need to make cash or other liquid assets immediately available to a child or grandchild for some purpose, a TOD or POD appear attractive at first glance. Beneficiary transfers, however, typically require claim forms, and documentation in support of the claim. In reality, the process may take more time and effort than succession of ownership (such as through a living trust or joint tenancy with right of survivorship). Nonetheless, it is the assumption that funds are available immediately that often causes folks to choose direct transfer designations.

New AOA Website Offers Legal Help

The Administration on Aging, in partnership with five national non-profit organizations, launched a new web site intended to empower legal and aging services advocates with the resources necessary to provide high quality legal help to older adults. The site is part of AoA’s National Legal Resource Center initiative, created in 2008.

AoA’s five national non-profit partners are: the National Senior Citizens Law Center, the National Consumer Law Center, The Center for Social Gerontology, The Center for Elder Rights Advocacy, and the American Bar Association Commission on Law and Aging.

Yes, You Can Follow Michael Jackson's Estate!

If you are interested, you can follow developments in the Estate of Michael Jackson.  It only takes a few minutes of searching to locate the public website for viewing the court dockets for estates being probated in the Los Angeles County Superior Court. So if you're interested in keeping up to date on what's going on with the probate of Michael Jackson's will and estate, then follow the links and instructions provided below.

Even if you are not interested, the fact that you can follow the developments in probate court is instructive; it speaks volumes to the level of privacy one can expect in probate cases.  It also serves to illustrate what can be accomplished with trust planning.  You will note that Michael Jackson's estate plan included a revocable trust.  Although the probate court will involve numerous issues, such as guardianship of the children, if Michael Jackson;s trust was completely funded, identification and valuation of assets, and court overseen administration of them, would be limited. 

How to View the Court Docket for Michael Jackson's Estate:

Things to Remember at Tax Time

Tax time is rapidly approaching.  You want to file all the proper forms and take all deductions you're entitled to. Following are some things to keep in mind as you prepare your tax form.

• Gifts. Did you give away any money this year? The gift tax can be very confusing. If you gave away more than $13,000 in 2009, you will have to file a Form 709, the gift tax return. This does not necessarily mean you will owe taxes on the money, however, and most folks making gifts will owe no tax. Click here for more information.
• Medical Expenses. Many types of medical expenses are tax deductible, from hospital stays to hearing aids. To claim the deduction, your medical expenses have to be more than 7.5 percent of your adjusted gross income. This includes all out-of-pocket costs for prescriptions (including deductibles and co-pays) and Medicare Part B and Part C and Part D premiums. (Medicare Part B premiums are usually deducted out of your Social Security benefits, so be sure to check your 1099 for the amount.) You can only deduct medical expenses you paid during the year, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance. Click here for more information.

Carryover Basis Complicates Planning / Settlement

I have been asked a lot of questions about the new carryover basis rules and what this means for someone who inherits property in 2010. Simply put, repeal of the federal estate tax that has taken effect in 2010 means that the stepped up basis that the inheritor would have received in 2009 and prior years is officially gone.

The good news is, that for most smaller estates, the practical effect of the change is non-existent. Moderate and larger estates, however, will now find additional taxes, and complications.

A stepped up basis means that the recipient of an inherited asset gets to increase the income tax basis of the asset to its date of death fair market value, which in turn is the basis used for calculating capital gains taxes when the inherited asset is sold. But not so now - instead for deaths occurring in 2010 an heir will receive the decedent's original basis in the inherited asset, which can be adjusted by the executor or personal representative using the new modified carryover basis rules. The personal representative call allocate additional basis to the property received by the beneficiary, in order to reduce the capital gain.

In 2009 and years prior, for example, if a beneficiary inherited a house that cost the decedent $500,000 but

No Estate Tax in 2010 - Good and Bad News

There is currently no tax on the estates of those dying during 2010.   Although it is possible that Congress could reinstate the tax retroactively in 2010, the possibility is uncertain, at best.  If Congress fails to act, however, although a few wealthy families will benefit, many families with smaller estates will pay capital gains on inherited assets.  Moreover, executors and successor trustees must contend with new, and what may prove to be significant, administrative burdens.

Under the provisions of a Bush-era tax-cut bill enacted in 2001, the value of estates exempt from the tax has increased over the past eight years while the tax rate on estates has been reduced, so that in 2009 only an individual estate worth $3.5 million or more is taxed, at a rate of 45 percent. For the year 2010, according to the 2001 law, the estate tax disappears entirely, only to be restored in 2011 at a rate of 55 percent on estates of $1 million or more.

For persons with larger estates, their estate plans will need to reviewed and reconciled with the lack of

Strange Suit Against Michael Jackson's Estate

After reading that a taxpayer had sued the Michael Jackson estate to recover money spent for his memorial, I suspected that there would be other cases.  Of course, a quick google search revealed an interesting case, reported by TMZ.   TMZ reported last week that "[a] woman who claims to have spent 2,000 hours analyzing the extended family of Michael Jackson -- including children, birth mother(s), sperm donor claims ... and on and on ... wants more than $2 million from Michael Jackson's estate." 


According to TMZ, "Claire McMillan says she's a 'homeschool expert' who did 'a thorough analysis' of Jackson's complete extended family, to determine ... well, it's not clear why she was doing it.  Whatever ... she concluded that Katherine Jackson is doing 'a poor job outside of the home, related to - grooming, age, and psyc (sic) appropriate activities, same-sex, academic & soc interactions w/ non-extended family children .... ' oh, what's the use? It makes no sense." 

TMZ reports that McMillan claims she also inquired as to whether Dr. Arnold Klein would be interested in obtaining guardianship of the children with McMillan and her husband.  McMillan claims that her time is worth $1,000 an hour, and she wants $2,002,000 for her efforts.  Wow!

Howard Weitzman, lawyer for the Michael Jackson estate, reportedly told TMZ that, "[t]o the best of our knowledge, Ms. McMillan never did anything for the estate and the estate owes her nothing."  TMZ goes so far as to characterize the suit as a "Crazy Creditor's Claim."  No clarification if TMZ is saying the claim is crazy, the creditor is crazy, or both.

You can read more here.

Michael Jackson's Estate Sued Over Memorial

The Michael Jackson memorial in Los Angeles last July reportedly cost the cash-strapped city millions of dollars in police overtime and sanitation expenses, and now one  resident wants  Michael Jackson's family to pay the bill. According to the Associated Press, Jose F. Vallejo is seeking $3.3 million from Jackson’s estate.  The lawsuit, typically called a taxpayer's suit, is brought under a California law which permits taxpayers to sue in order to recover money on behalf of a governmental entity to which the taxpayer pays taxes. The taxpayer has requested that the money be deposited into the treasury for the City of Los Angeles.  Although the taxpayer typically does not benefit directly from the action, there are typically attorney fees which may have to be paid either by the defendant or the City, depending upon the outcome of the case.  The taxpayer benefits, at least theoretically, indirectly by reduced need for taxation.

Ohio, too, has a statute which permits taxpayer suits in certain cases. 

While the memorial cost the city millions, it also reportedly earned $4 million for the city’s hotels, restaurants

Laddering Fixed Annuities for Cash Accumulation

The July issue of Advisor Today introduces a unique cash accumulation strategy that merits close attention: laddering fixed annuities. MassMutual has back tested the strategy against several traditional strategies, and demonstrated its strength.

The strategy is simple. In addition to a portfolio of equities and bonds, simply make an initial purchase of a life-only fixed income annuity, with additional proportional fixed annuity purchases annually. Over a twenty-seven year period, the strategy resulted in a liquid account value of more than seven times the original deposit. This compared to an account value of only five times the original deposit when invested in a traditional equities and bonds only portfolio.

While the common misconception is that the inclusion of a fixed annuity in the mix impairs the liquidity of the portfolio, the performance over the intermediate and long-terms certainly made the short term illiquidity a risk worth taking.

Consequently, a retirement plan may benefit from the use of three asset classes- equities, bonds, and fixed income annuities. Retirees can build more wealth by making incremental annuity purchases with assets transferred from mutual fund accounts, for example.

The strategy also greatly increases the safety of the portfolio. Fixed income annuities are safe. They also are, in many states better protected from creditors. One would think these benefits would only be icing on the cake, given the strategy can outperform a traditional portfolio.

But the real icing on the cake, is building for your clients the opportunity to guarantee a stream of income that your clients cannot outlive. In these years of increasing life expectancies, the real "treat" is ensuring that the client can live the reminder of his or her life without concern whether the money will run out.

In August 2007, in the articles section of the Estate Planning Information Center, I reported about a study, co-sponsored by the Wharton Financial Institutions Center at the University of Pennsylvania and New York Life Insurance Company, identifying lifetime income annuities as the most cost-effective and least risky asset class for generating guaranteed retirement income for life.

The Wharton academic study revealed that:

• 
  
  Income annuities can provide secure income for one's entire lifetime for 25-40% less money than it would cost an individual to provide a similar level of secure lifetime income through traditional means, thanks to an insurer's ability to spread risk across large numbers of people;
• 
  
  Consumers are not annuitizing enough of their portfolios even though income annuities are low-cost, available from creditworthy insurers, and provide guaranteed payments for life. Equities, fixed income and other investment products like mutual funds carry the risk of outliving one's nest egg;
• 
  
  By covering at least basic living expenses with income annuities, consumers have much greater flexibility in other areas of a retirement plan, including the ability to take more investment risk with the remaining portfolio; and
• Recent innovations in income annuities, such as annual inflation adjustments, legacy benefits and access to capital in emergencies, have helped elevate the products to a desirable asset class in retirement.

The findings are outlined in a paper entitled "Investing Your Lump Sum at Retirement," which is based on an academic study entitled "Rational Decumulation," co-authored by Professor David F. Babbel of The Wharton School and Professor Craig B. Merrill of The Marriott School of Management at Brigham Young University. The study explored financial options for retirees and compared income annuities with other asset classes in retirement.

"Living too long is fast becoming the major financial risk of the 21st century," said Professor Babbel. "Combined with the challenges facing Social Security and the decline of corporate pensions, this adds up to a 'perfect storm' for retirees who might outlive their retirement nest egg."

Only lifetime income annuities can in an efficient way protect from the risk of outliving assets. This simply cannot be duplicated by other types of investments.

Caregiving Complicated By Late-In-Life Marriages

Disputes with Step-Children Increase Risk of Guardianship and Institutionalization

Mrs. Staffler calls her step-daughters to inform them that her husband, their father, has been admitted to the hospital following a massive stroke. As they gather in the hospital, it quickly becomes clear that the eldest daughter has been selected to give Mrs. Staffler some chilling and unexpected news. "You are not making decisions for our father; as his daughters, we will decide what needs to be done for him."

Feeling betrayed and offended, Mrs. Staffler rushes home to retrieve the health care power of attorney which appoints her as attorney-in-fact to make health care decisions. Armed with what she trusts is a clear statement of her authority, she returns to the hospital to find that the step-daughter has an attorney, and a caseworker from adult protective services awaiting her. In the ensuing battle, the stepdaughter is appointed guardian for her father by the probate court, and Mrs. Staffler is forced to hire an attorney to prevent the court from appointing a guardian for her.

Although she is successful in maintaining her freedom and independence, her legal expenses exceed fifteen thousand dollars. Moreover, although Mrs. Staffler assumed that she would have access to her husband's estate to care for her in the event of her husband's death, it is now apparent that the step daughters want their to inherit from their father's estate immediatelyupon his death.

Trust Scammers Refuse to Pay Penalty; Hurl Insults at Court

James Nash reports in the Columbus Dispatch that the Ohio Supreme Court's attempts to collect more than $7 million from two companies accused of scamming senior citizens are not going well.  According to the Columbus paper, the court on Monday handed off the collection action to the office of Attorney General Richard Cordray, who employs lawyers and others to shake loose money from reluctant debtors.

Jeffrey and Stanley Norman, owners of two companies that were fined $6.4 million Oct. 14 for having non-lawyers perform legal functions as part of an alleged trust-mill scam targeting the elderly, now owe more than $7 million with penalties for non-payment.  The Normans unsuccessfully tried to get the Supreme Court to rehear the case, but "[w]hen that failed, Jeffrey Norman lashed out at the court, accusing justices of a 'disgusting abuse of power.'"

Reportedly, Norman has said he would not pay the fine, calling it unfair, and he has put his southern California home on the market for $4.9 million.  Even if the state does collect the money, the proceeds won't go directly to victims of the alleged scam. The funds, under court rules, go toward the cost of investigating allegations of unauthorized practice of law, continuing legal education and other purposes.

The Normans were principals in the American Family Prepaid Legal Corporation scheme that resulted in The Ohio Supreme Court instituting a civil penalty in excess of six million dollars.  I wrote about the Court's action last November (2009), under the blog entitled "Court Imposes $6.3 Million Civil Penalty on "Trust Mill" Companies and Owners."

BIOGRAPHY

Monty L. Donohew is an attorney concentrating his practice in estate planning, wills, trusts, succession planning, and probate, with an emphasis on strategic trust planning. His firm, Monty L. Donohew, LPA, has offices in: Green, Ohio (Akron, Canton); Beachwood, Ohio; Westlake, Ohio; Dublin, Ohio; Cincinnati, Ohio; and, Chesterfield, Missouri (St. Louis).

Monty received his Juris Doctorate from Washington University School of Law in St. Louis, Missouri, where he served on the Washington University Law Quarterly, Washington University's most prestigious law review. Monty has been admitted to practice in Ohio, Illinois and Missouri, and currently practices in Ohio and Missouri. He is a member of several local and state bar associations.

Monty graduated from Tallmadge High School in Summit County, Ohio. He received his B.A. in political science from Eastern Illinois University, where he attended on a full academic scholarship. Monty was an intercollegiate debater, and received numerous individual and team awards, including placing second at "Novice Nationals," a national tournament for freshmen debaters, and qualifying three times for the National Debate Tournament. While at Eastern Illinois, Monty was an award winner in the annual social sciences writing competition, and received a coveted appointment to the Student Legal Services Board after serving as a student legal intern.

Monty is a member of the National Academy of Elder Law Attorneys, Inc. (NAELA). He is also a member of the National Family Caregivers Association, and the National Care Planning Council.

You can learn more about Attorney Donohew, his practice, background, credentials and education at the Estate Planning Information Center, http://www.donohew.com/. You can follow his blog at http://estateplanningcenter.blogspot.com/.

Bankruptcies Hit Retirement Communities

The recession is hitting elderly people where they live, literally. Financial problems have been mounting at a number of assisted-living and continuing-care communities, forcing some facilities into bankruptcies and inflicting new worries on residents and their families who thought their life plans were comfortably set.

In recent weeks, Erickson Retirement Communities, which manages 19 continuing-care retirement communities in 11 states, declared bankruptcy. Sunrise Senior Living Inc. posted a quarterly loss of $82 million and announced plans to sell off 21 of its assisted-living communities. Nationally, smaller retirement communities are raising their prices, changing the way they operate, selling themselves off to bigger chains, or getting out of the business altogether. Many companies say they can't make a profit—or even succeed on a nonprofit basis—in an environment that combines the high cost of caring for elderly residents, restrictive Medicaid budgets, tight credit markets and fewer residents willing and able to pay top dollar for their care.

When a facility fails, it can have myriad effects on the residents. The good news is that no one gets kicked to the curb–at least not right away. "Nobody has ended up on the street, which is a primal fear when you're dealing with these places," says Jason Frank, an elder-law attorney in Baltimore. "But their fees can skyrocket, and they can become unaffordable. Then they can kick you out for nonpayment."

In some cases, residents may find that the sizeable deposits they made to get their apartments in the first place have disappeared. (Continuing-care communities like Erickson's typically charge deposits of $150,000 or more, and assure residents that they can stay on the campus for the rest of their lives regardless of how their needs change, and that the deposits will be refundable to themselves or their heirs when they leave or die. But residents typically also have to pay monthly fees for care, and those fees can continue to increase. Assisted-living facilities like Sunrise generally require no deposits but charge a monthly pay-as-you-go-plan.) That's what happened to the 170 people who lived in Covenant at South Hills in Lebanon, Pa. Their deposits went up in smoke when their facility was sold in bankruptcy to Concordia Lutheran Ministries, which did not take on that liability. Several are now suing B'nai Brith Housing, the original operator of Covenant.

Nortwestern Mutual Launches Long Term Care Calculator

With Americans living longer than ever before, having a long term perspective for individual care needs is critical.  Northwestern Mutual has launched a new Long Term Care Cost Calculator to help people better understand the financial impact of those needs.

The calculator builds on Northwestern Mutual's Cost of Care research, released earlier this year, which surveyed nearly 7,000 home health care providers, assisted living facilities and nursing homes across the U.S. and revealed stark differences in costs for long term care services in geographic locations across the country.

"It is clear that most people simply can't afford to pay for long term care by drawing on their retirement nest eggs," says Terence Holahan, Northwestern Mutual. "Planning for long term care is about protecting both your assets and your lifestyle when you are unable to care for yourself; this new calculator helps educate consumers about the potential cost of a long term care event and how it can vary by age, location and length of time the care is needed."

Happy 18th Birthday! You'll Never Guess What I'm Getting You!

What are you planning to give the teenager in your family when he or she becomes an adult? A car, money for an apartment, a trip to Europe? Those are all fine gifts, depending on what you can afford to spend. But here’s one you may not have thought of, and the benefits could be far greater. Bring your new adult (child or grandchild) to our office, introduce us and have us prepare a basic estate planning package of documents: a simple trust or will, a durable power of attorney, a medical power of attorney, a HIPAA Release and a living will.

Actually, it’s a gift for the entire family, because once the child reaches legal age, parents will no longer be able to automatically make medical and legal decisions for him or her without the appropriate legal documents authorizing them to do so. If an adult child becomes ill or injured and cannot handle his own financial affairs, no one, not even Mom or Dad, will be able to step in and conduct business (sign checks, sell assets, etc.) unless he has a trust or a durable power of attorney and has named them as his successor or agent. If he hasn’t, they will have to go through the courts.... and that will take time, cost money, and restrict them in ways you cannot imagine.

If an adult child cannot make his own medical decisions, it will be much easier for Mom, Dad or another adult to make decisions if he has a medical power of attorney that names them as his agent. And what if he is placed on life support before they can get to the hospital? Unless he has made his wishes known through a legal document, they may not be able to have life support discontinued without court approval.
Finally, if your new adult should die without a will, the court will distribute his assets according o the laws of the state in which he lived . . . regardless of what the family or he would have wanted.

Make sure your new adult understands these documents will need to be changed as life changes-as s/he accumulates more assets, and as s/he and those s/he cares about move, marry, have children, divorce, die and so on.

Helping your children or grandchildren get started with this adult responsibility at the moment when he or she becomes an adult is just one more responsibility we as parents and grandparents have. It fits right in there with how to balance a checkbook, how to manage credit, and how to buy insurance.

Chances are, it will be a long time before any of these documents will be needed, but you’ll be sending your new adult out of the newest with a full layer of protection... just in case.

Court Imposes $6.3 Million Civil Penalty on "Trust Mill" Companies and Owners

The Supreme Court of Ohio recently imposed a civil penalty of $6,387,990 against two companies and their co-owners for engaging in the unauthorized practice of law, and issued an injunction permanently barring those companies, their principals and employees from any future marketing or sale of living trusts or other estate planning documents or services to Ohio residents.


In a 7-0  decision, the Court found that American Family Prepaid Legal Corporation and Heritage Marketing and Insurance Services Inc., their co-owners, Jeffrey and Stanley Norman, and multiple employees of those firms engaged in more than 3,800 acts of unauthorized law practice by virtue of their participation in a “trust mill” operation from March 2003 through March 2005.


The Court noted that American Family, Heritage, the Normans, and employees of the two companies had been the subject of a prior unauthorized practice of law complaint and investigation by the Columbus Bar Association (CBA) in 2002 that was resolved by the signing of a March 2003 consent agreement. In that agreement, the respondents acknowledged that providing estate planning advice and marketing and preparing trust agreements and other estate planning documents constitutes the practice of law, and promised to permanently cease and desist from such activities in Ohio.

The Court agreed with findings by its Board on the Unauthorized Practice of Law that, after signing the 2003 decree, American Family, Heritage and their owners used third-party marketing firms to send direct mail ads to lists of Ohioans 65 and older and also targeted senior citizens with magazine advertising containing exaggerated claims regarding the costs and complications of disposing of their assets through a will. Persons responding to the ads were subjected to high-pressure in-home presentations in which American Family’s non-attorney sales representatives provided them with legal advice including inflated “estimates” of the costs of probating their estates and the purported savings the customer would realize by purchasing American Family’s standardized living trust document – regardless of the size or composition of that individual’s estate or his/her existing estate planning documents.

In rejecting American Family’s claim that its actions were authorized because it had registered as the operator of a “prepaid legal services plan,” the Court wrote: “In arranging these appointments, American Family telemarketers did not refer to a prepaid legal plan and did not inform the customer that he or she would be solicited to buy a prepaid legal plan or living trust. The telemarketers did ask, however, whether the prospect already had a living trust. In sales presentations, usually occurring in a customer’s home, American Family’s agents focused on convincing a customer that he or she needed a living trust. If sold, the customer paid a $1,995 fee purportedly for an array of legal services relative to landlord/tenant law, businesses, domestic relations, bankruptcy, and other legal fields, at discounted fees, from a number of listed Ohio attorneys. Almost exclusively, however, the only legal service that the plan members received was the preparation of a living-trust document and related estate-planning instruments such as powers of attorney and a living will. For this reason, for the thousands of memberships sold, few if any members obtained legal assistance other than a living-trust portfolio.”

The Court noted that despite the fact that American Family used sales persons who had never been licensed as attorneys to “advise” customers about their estate planning needs and persuade them to purchase a trust, and that other non-attorneys in California actually prepared the trust documents, the company attempted to legitimize its unauthorized law practice by passing each transaction through a Columbus attorney, Edward P. Brueggeman. Brueggeman seldom spoke with the customers who were purported to be his “clients,” and was paid a flat fee by American Family for every trust document he approved.

In its decision, the Court wrote: “From the start of his employment until March 2005, Brueggeman had an office within American Family/Heritage offices on Citygate Drive in Columbus.  Brueggeman did not pay rent and used the supplies and services provided by American Family and Heritage employees to perform his role. Brueggeman did not hire or supervise the American Family sales agents. Brueggeman, after receiving the agreement, sent a form letter to the purchasers of the plans thanking them for choosing him to prepare their living trusts and their estate-planning documents. The letter also stated that the drafting process would take four to six weeks and invited the customer to call him with questions. … Brueggeman rarely, if ever, actually met an American Family plan member in person.” A formal complaint alleging that Brueggeman’s conduct violated state attorney discipline rules is currently pending before the Board Of Commissioners on Grievances & Discipline (Disciplinary Counsel v. Brueggeman, Case No. 08-090).

The Court noted that the “trust mill” operated by American Family, Heritage and the Normans was similar to other such operations that the Court has found to be illegally engaged in the unauthorized practice of law at the expense of vulnerable consumers, usually senior citizens. The Court wrote: “A living-trust package is often not needed and may even be harmful for persons who are without significant assets, who have simple estates, or whose estates may need court supervision. A basic living-trust package, such as those sold by some of the respondents, may likewise be insufficient or even completely inappropriate for those having more substantial assets and who may need specific legal advice or even tax advice to meet their needs. For this reason, we have repeatedly held that these enterprises, in which the laypersons associate with licensed practitioners in various minimally distinguishable ways as a means to superficially legitimize sales of living-trust packages, are engaged in the unauthorized practice of law. We have also repeatedly held that by facilitating such sales, licensed lawyers violate professional standards of competence and ethics, including the prohibition against aiding others in the unauthorized practice of law. Today, we reaffirm these holdings and admonish those tempted to profit by such schemes that these enterprises are unacceptable in any configuration.”

In imposing a civil penalty of $6,387,990 jointly and severally against American Family, Heritage and their co-owners, the Court noted the aggravating factors that the respondents had been advised of  and acknowledged the illegality of their involvement in the marketing and sale of trusts in the 2003 CBA consent agreement, but shortly thereafter resumed the same activities and engaged in thousands of acts of unauthorized practice that resulted in potential or actual harm to many of their customers for a period of two years. The Court also imposed civil penalties of $10,000 against American Family’s state marketing director, Paul Chiles, $7,500 against office manager Harold Miller, and $2,500 against multiple American Family and Heritage agents who continued to engage in the unauthorized practice of law after signing the 2003 consent agreement.

In its injunction, the Court permanently barred American Family, Heritage, Jeffrey and Stanley Norman, other named parties and “their successors, assigns, subsidiaries and affiliates” from marketing, selling or preparing wills, living trusts, durable powers of attorney, deed transfers or other legal products in Ohio; offering legal advice to anyone concerning estate planning or the execution of legal products; offering or selling prepaid legal plans of any kind to Ohio residents; and from engaging in a wide range of other enumerated activities.

I have had the opportunity to review the estate plans generated by American Family.  With a "one-size-fits-all" mentality, all of the trusts are virtually identical, with clients running the risk that the particularly cumbersome and sophisticated estate tax planning trust, create for them and their families unnecessary burden.  Of course, this is the essence of the attorney-client relationship.  Your attorney should represent you, and should not represent other persons whose interests are in direct conflict with your interests.  Only by having an attorney that is independent from others, and by that attorney discharging aggressively his or her obligation to provide for you specific advice and counsel based upon your specific circumstances, goals, and objectives, will your estate plan fit you.

Payments for In-home Care of Elderly Escape Tax and Information Reporting

The IRS has privately ruled that payments by a state agency to help the elderly live at home as an alternative to care in a nursing home are tax-free even though they were made to the caregivers. Because they were tax-free, no information reporting of the payments was required.

In the case, the State agency making the payments was established to advise, assist, and serve the State's growing elderly population, and to create an environment that provides choices, promotes independence, health, and well-being, and enables elderly individuals to remain in their communities and avoid nursing home placement through its various programs.

The specific legislative purpose of the Program was to encourage low-income elders to be cared for in family-type living arrangements as an alternative to nursing homes or other institutional care settings. To be eligible to participate in the Program, the elderly individual must:

1. be at least 60 years old;
2. have income not exceeding Medicaid limits for institutional care;
3. be at risk for nursing home placement, which is measured by the total number of Activities of Daily Living (personal care tasks such as bathing and eating) and Instrumental Activities of Daily Living (normal, everyday tasks performed by an independent individual such as meal preparation and shopping) that the elderly individual requires help to accomplish; and
4. live with an adult caregiver who is present in the home and able to provide supervision and care for the elderly individual.

Only those elders who receive a high-risk evaluation in terms of risk of institutional placement are eligible for participation.

Currently, elders participating in the Program on average require assistance on more than 4 of the 6 Activities of Daily Living and almost all of the 8 Instrumental Activities of Daily Living. More than half of the elders participating in the Program have dementia. Commercial caregivers are not eligible to participate in the Program.

The Program provides for two types of subsidy payments, basic and special, to offset, in part, the costs of support and maintenance for elderly individuals living in the home of a capable adult caregiver, usually a spouse or other relative. The basic subsidy is a monthly payment to the caregiver to defray, in part, the basic living needs of the elderly individual, such as food, clothing, housing, medical needs, and other incidentals (not covered by Medicare, Medicaid, or other insurance). Special subsidy payments are made for additional goods and services that the case manager determines are necessary to maintain the health and well-being of the elderly person. Special subsidy payments can be made for items such as chore services, counseling, home-delivered meals, education and training for the caregiver, housing adaptations, medical therapeutic services, medical transportation, respite care, medical supplies and equipment (such as medication and wheelchairs).

The basic and special subsidies promote the health and well-being of elderly individuals by partially reimbursing the caregivers for some of the monthly living expenses of the elderly individuals, and are not a payment for caring for the elderly individuals or for any other services. Because of this subsidization of their home living costs, many elderly individuals are able to postpone nursing home care for longer periods than would otherwise be the case, or avoid institutional care altogether.

The State Department administers the Program through State's agency system for the aging, which consists of two systems. The first system (including the Taxpayer) consists of agencies that within a geographic area monitor service providers, write subsidy checks, and serve as the final appeal for client/applicant grievances. The other system consists of local agencies or community service providers that determine client eligibility and eligible subsidy amount, provide care planning and case management, annually reassess on-going eligibility, enter data to generate monthly payments, prepare reports, and maintain documentation.

Under the general welfare exclusion, payments to individuals by the government under legislatively provided social benefit programs for the promotion of the general welfare are not included in a recipient's gross income. The payments must (1) be made from a governmental fund, (2) be for the promotion of the general welfare (i.e., generally based on individual or family needs), and (3) not represent compensation for services. (See, e.g., Rev Rul 2003-12, 2003-1 CB 283 ).

Code Sec. 6041(a) provides generally that all persons engaged in a trade or business that pay another person $600 or more in any tax year of fixed or determinable income in the course of that trade or business must file an information return setting forth the amount of the payment and the recipient of the payment.

The recent ruling observes that the Taxpayer makes payments under the Program to defray a part of the costs necessary to maintain the health of frail, elderly individuals who need daily care. These payments are made from a governmental fund pursuant to a state statute, are based on economic need and health status of the elderly individuals, and are not for services rendered by the caregivers or the elderly individuals. Because the payments are intended to reimburse the caregivers' expenses of promoting the health and well-being of the elderly individuals, the interposition of the caregivers as the recipients does not bar application of the general welfare exclusion. Accordingly, the basic and special subsidy payments Taxpayer makes for the benefit of the elderly individuals under the Program are not includible in the incomes of the elderly individuals or their home caregivers. Thus, the Taxpayer is not required to file information returns for these payments for either the elderly individuals or their home caregivers.

Information is also available at the Estate Planning Information Center, from this office, or your local elder law attorney, local area agencies on aging or local county departments of job and family services.

If Your Mortgage Lender Goes Under: What To Do

On June 18th, 2008, Fremont General Corp., the Brea-based parent of the bank (and former subprime lender) Fremont Investment & Loan, filed for Chapter 11 bankruptcy. This action follows other major banks heading to the bankruptcy court, including Middletown, Conn.-based Mortgage Lenders Network USA, in February 2007, and American Home Mortgage Company in August 2007. Other mortgage lenders are also sending out distress signals. Here's what you need to know if your mortgage lender goes out of business.

Most Importantly, keep making your payments! Regardless of what kind of trouble the mortgage company may be in, you still need to send in your payments on time. You are legally obligated by a note and mortgage to make the payments. Remember, your payments are considered an asset to the company. If a lender declares bankruptcy, those assets will just be sold to another lender. The other lender will, no doubt, hold you to your obligation.
In most cases, government-sponsored enterprises like Fannie Mae, Freddie Mac or Ginnie Mae will handle the transfer. But rest assured, there will be someone who wants to get your monthly check.

But you should review your mortgage so that you know your rights. The terms of your loan should always stay the same, no matter who holds your loan. It's important that you thoroughly review the details of your mortgage agreement. The interest rate and the type of loan you get should not change. If your lender does sell your mortgage, you should receive a letter from the company within 15 days that outlines the new mailing address and payment deadline.

You should also be given a toll-free telephone number that you can call if you have any questions. You must get a grace period of 60 days to get your payments to the right place on time. If you have any complaints or issues, write a letter to your lender. The company is required to respond within two months of getting your letter.

If you have paid off your loan in full, and you want a mortgage satisfaction documents from the company when it's no longer in business, call your attorney or go to your State Attorney General's office. There you can find out the status of the company. You should be able to find out who you can contact.

You may find negotiation with the new lender more difficult. A servicer - the company you make your monthly check out to - may not think it's worth its while to negotiate with homeowners to lower monthly payments. Some servicers have to front money to the loan holders if this happens. Plus, in many other cases, there are limits to how much interest and principle can be forgiven.

In some cases servicers can negotiate payments on only 5 percent of loans. The bottom line here is - no matter who you make your monthly check out to - get on the phone if you're having trouble making payments. The sooner you bring attention to the problem, the better off you'll be.

Of course, if you have problems or questions, please see your attorney before legal action is taken against you.

A Dramatic Loss of Wealth

Seniors Scramble for Solutions

A recent study suggests that current economic woes affecting the value of real estate will strip most people of wealth, with the hardest hit being those currently poised to retire.

The Center for Economic and Policy Research extrapolated from data from the 2004 Survey of Consumer Finance to project household wealth under three alternative scenarios. The first scenario assumes that real house prices fall no further than their level as of March 2008. The second scenario assumes that real house prices fall an additional 10 percent as a 2009 average. The third scenario assumes that real house prices fall an additional 20 percent for a 2009 average.

The projections show that the vast majority of families between the ages 49-54 will have little or no wealth by 2009 in any of these scenarios and that those persons who just be approaching retirement will have very little to support them-selves in retire-ment other than their Social Security.

The projections also show that a large number of families will have little or no equity in their homes by the end of 2008. Finally, the projections show that the renters within the same wealth categories in 2004 will have more wealth in 2009 than homeowners in all three scenarios.

Seniors and their financial planners are scrambling to develop financial solutions and strategies. You should consider two obvious strategies. First, if you have debt on your home, you should eliminate it quickly. If you need a referral to an agent that will show you how you can within a few years eliminate your mortgage debt without bankruptcy, debt consolidation, or adversely affecting your credit rating, please call the office at 877-816-8670.

If your are likely to need a reverse mortgage in the future, you might consider obtaining a reverse mortgage line of credit now, before the value of your real property is further mpaired. A line of credit does not obligate that you access the funds, but the funds wll be available for the reminder of your life, if you later need them. Moreover, you ensure access to a greater amount, or at least some amount, whereas later, after the value of your home is further reduced by the market, you may not be eligible at all, or eligible for as much.

If you need a referral to a reputable reverse mortgage specialist or financial planner, please call the office at 877-816-8670.

Tax Rules Change Treatment of Gains on Sale of Vacation or Second Home

If you have a vacation or second home, there was a change in the federal income tax law as part of the 2008 Housing Act about which you should be aware.   Most homeowners are familiar with the homesale exclusion, a provision of the tax code which excludes from taxable gain as much as $500,000 of gain if they meet certain conditions. The $500,000 exemption is the maximum exclusion for a married couple filing jointly; taxpayers filing individually get an exemption of up to $250,000. To be eligible for the full exclusion, a taxpayer must have owned the home, and lived in it as his or her principal residence-for at least two of the five years prior to the sale. Because of the "principal residence" requirement, vacation or second homes normally don't qualify for the exclusion. However, in what some saw as a loophole, the law permitted taxpayers to convert their second home to their principal residence, live in it for two years, sell it, and take the full $250,000/$500,000 exclusion available for principal residences, even though portions of their gains were attributable to periods when the property was used as a vacation or second home, not a principal residence.   The new law closes that "loophole" by requiring homeowners to pay taxes on gains made from the sale of a second home to reflect the portion of time the home was not used as a principal residence (e.g, vacation or rental property). The amount taxed will be based on the portion of the time during which the taxpayer owned the home that the house was used as a vacation home or rented out. The rest of the gain remains eligible for the up-to-$500,000 exclusion, as long as the two-out-of-five year usage and ownership tests are met. The new law in effect reduces the exclusion based on the ratio of years of use as a principal residence to the total time of ownership. For example, if a taxpayer owned a vacation home for ten years, but lived in it as a principal residence only for the final two years prior to sale, the maximum available exclusion would be reduced by four-fifths. Accordingly, a $400,000 gain on the sale that would be eligible for the full exclusion under pre-Act law would be reduced by four-fifths, to $80,000. The good news for current owners of second homes is that the new law is not retroactive. The tightening applies only to sales after 2008. Plus, any periods of personal or rental use before 2009 are ignored for purposes of the provision. The new law also does not change the rule that allows homeowners to take advantage of the homesale exclusion every two years. Taxpayers can still move from one home to the other with full tax exclusion if they only own one home at a time. Moreover, the taxpayer still qualifies for capital gain treatment on the amount of gain that cannot be excluded. The tax planning opportunity available to you between now and December 31, 2008, is that if you convert your second residence into your primary residence before January 1, 2009, you will completely avoid the rule above.  You would then have up to three years to sell your old primary residence to claim the full home sale exclusion on the old primary residence. Then two years after the sale of the old primary residence you can sell the second home/ now primary residence and again claim the full home sale exclusion. The decision to move your primary residence involves more than just savings taxes on a later sale. Your primary residence has other income, property and estate tax implications, estate planning and asset protection planning implications, and financial implications that should be fully understood prior to making such an important decision.  Consult an elderlaw  attorney and accountant or tax professional as soon as possible, though; one cannot just "flip a switch" to covert a second home to a primary residence.

Ohio Partnership for Long-Term Care Insurance Offers Asset Protection

The new Ohio Partnership for Long-Term Care Insurance is an initiative between the State and private insurance com panies to encourage Ohioans to plan for their long-term care needs. The partnership established "partnership policies" which provide coverage for long-term care needs and also allows Ohioans the ability to obtain "Medicaid Asset Protection" - a benefit not available with traditional pre-existing policies sold in Ohio.

This benefit is only available to those who purchase "qualified partnership policies." Pre-existing policies, meaning those you may have now, do not qualify. Medicaid asset protection simply allows Medicaid applicants to keep more assets and still potentially qualify for Medicaid coverage. Upon application for Medicaid, the total assets a person may keep is the combined total of the Medicaid asset limit and the total amount paid by a partnership policy. In other words, the policy payments serve to protect other assets, such as your family home, even if the insurance benefits do not prove sufficient to pay the full cost of the nursing home care.

Partnership policyholders who need Medicaid to help pay for long-term care can apply at any time. Ohio's Medicaid program can help pay the difference between what the policy covers and what is owed, or provide assistance once the policy is exhausted. In both cases, the benefit of Medicaid asset protection will be provided. The more the partnership policy pays, the higher the asset protection.

A Dramatic Loss of Wealth: Seniors Scramble for Solutions

A recent study suggests that current economic woes affecting the value of real estate will strip most people of wealth, with the hardest hit being those currently poised to retire.

The Center for Economic and Policy Research extrapolated from data from the 2004 Survey of Consumer Finance to project household wealth under three alternative scenarios. The first scenario assumes that real house prices fall no further than their level as of March 2008. The second scenario assumes that real house prices fall an additional 10 percent as a 2009 average. The third scenario assumes that real house prices fall an additional 20 percent for a 2009 average.

The projections show that the vast majority of families between the ages 49-54 will have little or no wealth by 2009 in any of these scenarios and that those persons who just be approaching retirement will have very little to support them-selves in retire-ment other than their Social Security.

The projections also show that a large number of families will have little or no equity in their homes by the end of 2008. Finally, the projections show that the renters within the same wealth categories in 2004 will have more wealth in 2009 than homeowners in all three scenarios.

Bankruptcy Rising Among Elderly

Bankruptcy filings among the elderly are reaching an all-time high according to a story published by Christine Dugas, in USA TODAY. Swamped by debt and rising medical bills, elderly Americans have been seeking bankruptcy-court protection at sharply faster rates than other adults, according to a study to be released. From 1991 to 2007, the rate of personal bankruptcy filings among those ages 65 or older jumped by 150%, according to AARP, which will release the new research from the Consumer Bankruptcy Project. The most startling rise occurred among those ages 75 to 84, whose rate soared 433%.

According to the article, the study does not address the specific reasons behind the trend. But experts say medical bills have played a major role in the debt that has forced many elderly Americans into bankruptcy proceedings. "Health care is a big issue for the elderly," says George Gaberlavage, director of consumer and state affairs at the AARP Public Policy Institute, “and out-of-pocket expenses have been going up,” the article reports. During the same 1991-2007 period, bankruptcy filings by younger Americans actually declined. 

GenWorth Announces Launch of Ohio Partnership Qualified Long Term Care Insurance

Genworth Financial announced its long term care division has launched the newest addition to its portfolio of long term care planning solutions in Ohio -- Partnership Qualified Long Term Care Insurance (Partnership plans). These products, designed to augment individuals' financial security options during retirement, are the result of an alliance between states and insurers to help millions of Americans better prepare for potential long term care needs. What's more, there are no added costs for residents to participate.


"Many Americans mistakenly believe that Medicare or private health insurance will pay for their long term care needs, and that's just not true," stated Beth Ludden, Genworth's senior vice president for long term care insurance product development. "Those purchasing a Partnership plan can be assured that if and when the need for long term care arises, they will have more control over their long term care decisions, and be able to help protect their assets and resources should they ever need to access Medicaid."


Partnership plans provide dollar-for-dollar asset protection for policyholders. For every benefit dollar policyholders receive under a Partnership policy, they receive an equal dollar of asset protection under the state's Medicaid spend-down requirements. As a result, participants are able to retain assets that would otherwise have to be spent down prior to qualifying for Medicaid benefits.


Long term care is an ever-increasing challenge for millions of Americans and their families. According to the U.S. Department of Health and Human Services (HHS) 70 percent of Americans who reach their 65th birthday will have to pay for some kind of long term care services. With the average cost of care for a private nursing home room topping more than $76,460 nationally and rising for the fifth consecutive year according to Genworth's 2008 Cost of Care Survey, Ohio residents are encouraged to plan ahead for long term care events.


Ludden continued, "Genworth applauds the leadership in Ohio for empowering its residents and is proud to have played a significant role in this endeavor. We continue to work closely with state and federal regulators as well as key industry trade groups to further expand Partnership programs across the nation."

Additionally, Ohio has launched an "Own Your Future" long term care awareness and planning campaign in conjunction with the U.S. Department of Health and Human Services. Its primary goal is to educate the public about the need for long term care planning as part of their overall retirement strategy, encouraging them to begin planning for future long term care needs at an early age. As part of its program, the state offers free, in-home long-term care consultation.


Consumers interested in getting additional information about long term care planning can click here.
+

Uncovering the Many Secrets of College Financial Aid

The financial aid process is a mystery to most. If you are beginning the process of learning about financial aid, you should first consider the promises and risks in paying for financial aid advice, because you will no doubt be tempted (and solicited) by offers to “cut through the red tape” and “better guarantee your child’s chances for financial aid.” Before proceeding the route of a paid financial aid processor or locator, please review the article entitled, “Promises, Promises” publishes by the Wall Street Journal, which can be found by clicking here.

So, in order to evaluate your options, you will need to have an understanding of the process. The process begins with the Free Application for Federal Student Aid, administered by an office at the U.S. Department of Education.

You must file this form to apply for federal student aid, such as grants and loans, as well as most state and college aid. Everyone, from colleges to the government, recommends that parents get a jump on this task as soon as possible. Schools typically award aid on a rolling basis -- first come, first served.

Even if you don't think your family will qualify for need-based aid, it's worth your time to fill out the form. It may enable you to get federal loans at better rates than you could find in the private market. Besides, your student may qualify for certain grants or scholarships.

Ohio Protects Seniors from Stranger-Originated Life Insurance

The Ohio legislature has given final approval to a landmark bill that will help assure the integrity of the life insurance market and protect seniors from a growing abuse called stranger-originated life insurance (STOLI).

In a STOLI transaction, investors such as hedge funds finance a program that induces senior citizens to obtain insurance for the sole purpose of transferring the death benefits to the investors. The investors hope to profit when the seniors die, and the sooner they die, the higher the profit. Seniors caught up in these schemes can face unexpected taxes, loss of insurance capacity, loss of privacy, potential legal liability and may even render themselves ineligible to participate in government entitlement programs.

The legislation, H.B. 404, targets STOLI by reducing the economic incentive for abusive transactions and giving life insurance companies better tools to detect and deter STOLI deals before they occur.

More Retirees Retain Mortgage Debt

Mortgages Carried Later In Life a Disturbing Trend

By Tim Grant, Pittsburgh Post-Gazette

Owning a home free and clear has been an enduring part of the American dream, but in recent years more people are waking to the reality that they will be retiring still owing money on their mortgages.

“It's a bad trend,” said P.J. DiNuzzo, president of DiNuzzo Investment Advisors in Beaver. “One piece of advice I can give is to pay off your house and then retire.”

Rather than cutting back on debt, people approaching retirement appear to be increasing the amount of debt backed by their primary residence, a complete shift from what retirees in past generations did. The number of families headed by people 55 or older with housing debt has increased steadily from 24 percent in 1992 to 36 percent in 2004, according to the Employee Benefit Research Institute in Washington, D.C.