Long-Term Care Due Diligence for Professional Financial Advisers
by
Stephen A. Moses, President
Center for Long-Term Care Financing (http://www.centerltc.org/)
for
The Constellation Group (http://www.theconstellationgroup.com/)
Never have so many professionals given such bad advice to such damaging
effect to so many people than today's financial advisers on long-term care
planning. Only a rare few
lawyers, accountants and financial planners understand this critical subject
in all its ramifications. Fewer
still advise the public wisely and objectively, disregarding personal
financial advantage. To date,
most advisers have not been held to legal or professional account for giving
bad advice about long-term care. This
safe harbor of public ignorance and judicial indifference will not continue
much longer, however. More than
ever before and even more so in the future, financial professionals must
understand the risks and costs of long-term care and the consequences of poor
counsel and inadequate planning. Here's
a primer.
Long-term care for chronic illness or frailty is the single biggest
financial risk most older Americans face.
Studies indicate that 43 percent of people over the age of 65 will
spend some time in a nursing home and that nine percent will spend five years
or more. At an average annual
cost of $55,000 per year today and much more in the future, a long-term
nursing home stay can quickly devastate a family financially.
Even the popular new option of "assisted living" averages
$25,000 per year. Most seniors'
preferred alternative--to receive care in their own homes--can easily exceed
the cost of institutional care when a patient requires more than a few hours
of assistance per day. The supply
of free care from spouses and adult children is dwindling as more and more
women--the traditional caregivers--enter the workplace.
Thus, a growing number of older Americans will become increasingly
dependent on professional long-term care services as the cost of such services
continues to skyrocket.
But this is nothing new so far. Almost
everyone knows, at least intellectually, that long-term care is a big,
expensive risk. What most people
do not realize is that America's long-term care service delivery and financing
system is a disastrous mess. Seven
major nursing facility chains have declared Chapter 11 bankruptcy.
Between 10 and 20 percent of all nursing home beds in the country are
in bankrupt facilities today. Hundreds
of home health agencies have gone under financially.
Many new assisted living facilities are filling far more slowly than
anticipated. Long-term care stock
prices are down precipitously. New
capitalization by debt or equity is almost non-existent for publicly held
long-term care companies. Caregivers
are in desperately short supply, whether they are low-wage nurses' aides in
long-term care facilities or unpaid friends and family in private homes.
Formal long-term care services are too expensive for most Americans to
afford, but Medicare and Medicaid pay too little to assure quality home- or
nursing home care. Litigation
against nursing homes and assisted living facilities for providing allegedly
poor care is on the rise and is driving liability insurance premiums through
the roof. Only seven percent of
seniors and virtually none of the baby boomers own private insurance, which
could help them pay the catastrophic cost of long-term care.
America's gigantic and rapidly aging baby-boom generation guarantees
that the challenge of long-term care will become greater and far more
expensive with time. As of now,
long-term care is well on its way to trumping Social Security and Medicare as
our country's most challenging social problem.
Given this reality, one would think most Americans should be
aggressively seeking professional advisers and financial products to protect
themselves from the huge and growing risks of long-term care.
But that is just not happening. The
country is in denial. "Won't
happen to me; never go to one of those places; shoot myself first" is the
common refrain. Yet--given the
fact that half of all people over the age of 85 already have Alzheimer's
Disease--when the time comes, most ailing seniors won't remember why they
bought the gun! What is going on?
How is it that the risk and cost of long-term care is so high while the
public's concern about this risk is so low?
The answer is simple, but rarely understood.
For the past 35 years, Americans have been able to ignore the risk of
long-term care, avoid the premiums for private insurance, and wait to see if
they ever need expensive professional long-term care.
When they do require care, they can and do routinely transfer most of
the cost to Medicaid, Medicare, and to the financially strapped long-term care
providers who rely on those fiscally-starved government programs for most of
their revenue. Precisely why and
how this happens is a subject for another article.
For now, all that matters is that most people who fail to plan for
long-term care end up in nursing homes on Medicaid (public welfare).
That is what has anesthetized the public to the financial risk of
long-term care. Today, however,
our welfare-financed, institution-based long-term care system is failing and
the public has not yet realized that this safety net of the past will no
longer be adequate in the future. They
have not awakened to the reality that preferred alternatives for long-term
care like quality home care and assisted living require the ability to pay
privately. To be able to pay
privately without potentially catastrophic expense requires the foresight to
plan early, save, invest or insure for long-term care costs.
The only alternatives are to risk severe financial exposure or rely on
publicly financed nursing home care if chronic long-term illness strikes.
Today, we are in a transitional phase between the collapse of America's
traditional long-term care system and the public's awakening to this danger.
Unfortunately, the professional financial advisers who should be alerting the
public to these new risks have largely reneged on that responsibility.
Under the current circumstances, we should expect every responsible
professional financial adviser--including attorneys, CPAs, and financial
planners--to urge anyone and everyone who will listen to prepare to pay
privately for long-term care in the future.
Some give such advice, but alas, most don't.
Many financial advisers are simply no more aware of the risks of
long-term care than the people they advise, and for the same reasons.
Someone must pay for long-term care, they assume, because we don't see
thousands of Alzheimer's patients wandering unattended in America's streets.
Who pays? Who knows?
Medicaid, Medicare or Santa Claus?
Who cares? That is the
attitude and it is understandable. The
vast majority of all professional long-term care services are indeed paid for
by Medicaid or Medicare and the proportion of long-term care costs borne
"out-of-pocket" by private citizens has gone steadily down over the
years, even as government financing has steadily increased.
We might be able to excuse as reasonable the ignorance of advisers who
fail to comprehend the need for long-term care planning if it were not that
the consequences are becoming so grave.
The behavior of many other financial counselors is neither
understandable nor forgivable. These
are the "Medicaid estate planners" who advise clients not to save,
invest, insure or pay privately for long-term care, but rather to impoverish
themselves artificially for the purpose of qualifying for Medicaid nursing
home benefits. This practice is
doubly damaging. It injures the
client and the long-term care system. Medicaid
is a means-tested public assistance program.
It is welfare intended as a safety net for the genuinely needy.
The program has a dismal reputation for problems of access, quality,
reimbursement, discrimination and institutional bias.
In short, someone who retains personal wealth can purchase red-carpet
access to top-quality care in the private marketplace at the most appropriate
level--home care, assisted living or nursing home care.
Once that wealth has been shifted to heirs by a complicit attorney or
financial planner, however, the client becomes dependent on nursing home care
financed by a welfare program that pays so little (often less than the cost of
care) that it is bankrupting America's service delivery industry.
Is it possible that credentialed financial professionals are giving
advice of this kind to the public in America today?
Yes. In fact, this may be
the most common advice provided by attorneys, accountants, financial planners
and many insurance agents (who market annuities as a Medicaid planning device)
throughout the United States. For
example, one survey found that "...a majority of [financial planners]
felt that an individual with a catastrophic illness should consider
transferring assets to family members in order to qualify for Medicaid."
An attorney advised "...if the individual happens to have about
$82 million lying around, he or she could even buy a painting by Renoir to
hang on the walls of the house…[which he called] burying money in the
treasure chest of the house." (A
home and all contiguous property regardless of value is exempt for purposes of
determining Medicaid nursing home eligibility, as is a business including the
capital and cash flow of unlimited value.)
A best selling self-help book on Medicaid planning suggests:
"So is there any practical way to juggle assets to qualify for
Medicaid--before losing everything? The
answer is yes! By following the
tips on these pages, an older person or couple can save most or all of their
savings, despite our lawmakers' best efforts...Here are the best options:
Hide money in exempt assets...Transfer assets directly to children
tax-free...Pay children for their help...Juggle assets between spouses...Pass
assets to children through a spouse...Transfer a home while retaining a life
estate...Change wills and title to property...Write a durable power of
attorney...Set up a Medicaid Trust...Get a divorce.…"
Web sites and public seminars providing similar advice abound.
It seems the big bucks in long-term care are to be made by promoting a
free-ride on public assistance (with the help usually of expensive
professional advice) rather than by convincing people to take responsibility
for their own long-term care and shoulder the burden of years of personal
saving or insurance premiums.
Whether professional advisers are merely ignorant of long-term care
risks or actively culpable by providing irresponsible, self-serving advice to
clients, the consequences for the public are the same.
People who fail to save, invest or insure for long-term care end up
dependent on Medicaid nursing home care whether they spend down into
impoverishment or dodge the spend down liability with the help of a Medicaid
planner. The gerontological
literature on the access and quality deficiencies of Medicaid-financed nursing
home care is extensive. People
dependent on Medicaid often have a harder time finding a nursing home bed and
confront longer waiting lists than private payers.
Quality of care in nursing homes heavily dependent on Medicaid
financing is often questionable. Medicaid
rarely pays for home care or assisted living, which most seniors prefer and
when it does pay, it pays so little that access and quality are suspect.
Because nursing homes need full-pay private patients to balance the
low-pay Medicaid majority, they often discriminate--legally or otherwise--by
providing better rooms, food or amenities to private payers than to Medicaid
residents. Finally, every state
Medicaid program in the country is required by federal law to seek recovery of
all benefits paid after the patient dies from any remaining estate, including
a home that was exempt while the patient was alive.
Someday heirs and loved ones of ill-advised elders are going to turn
with a vengeance on professional advisers who failed to give good advice or
actively promulgated bad planning options.
That day is coming sooner rather than later.
We
already see the tip of the iceberg of potential malpractice risk regarding
long-term care due diligence. Twelve
years ago, one expert wrote:
During
the last thirty years, the number of suits alleging attorney malpractice in an
estate planning context has skyrocketed....
The malpractice revolution has begun.
The defenses of privity and the statute of limitations have been
routed. Different types of errors
in estate planning are coming under judicial scrutiny.
Many other errors are ripe for such scrutiny.
More
recently and specifically, another writer warned:
Many
of the appellate decisions in the attorney malpractice field involve cases
brought by the former clients--and non-clients--of elder law attorneys....
The most frequently litigated legal issue in cases against elder law
attorneys concerns the question: to
whom did the attorney owe a duty? [i.e. the vulnerable senior or the heir with
a conflict of interest].... A
related question is whether an attorney has an obligation to inform his or her
client of subsequent events that have an impact on the estate plan (e.g.,
amendments to Medicaid laws and regulations or changes in family circumstances
that render moot or ineffective provisions in testamentary instruments).
In
1999, an article in The Elder Law Journal admonished:
Attorneys
who represent elderly clients, or who wish to expand into this rapidly growing
area of the law, have a professional responsibility to advise their clients of
the available funding options and of the consequences of not planning for the
contingency of prolonged and expensive LTC....Attorneys who advise clients
about future financial security and concerns fulfill their professional
obligation when they provide informed counsel in the area of LTC....If
[attorneys] are not informed about the nuances of LTC insurance, they may be
held liable if a client sues them for negligence.
In our litigation-prone society, there are few professions or
occupations outside of medicine and public accounting where the practitioner
is so exposed to risk. Hence, it
is in their own self-interest that lawyers consider all options when planning
for medical, financial, and quality of life decisions for elderly clients.
Although
the foregoing quotations address the malpractice vulnerability of lawyers
specifically, the principles apply equally to any and all professional
financial advisers. Certainly,
accountants and CPAs have a similar fiduciary responsibility to their clients
with regard to long-term care risk and expense.
Even insurance agents with no other professional designation would be
well-advised to keep their Errors and Omissions coverage paid up, especially
if they recommend annuities for the purpose of Medicaid planning.
In summary, many professional financial advisers in the United States
have given, are giving and will probably continue to give very bad advice
about long-term care planning. Many
ignore altogether the emotional and financial consequences of failing to plan
for long-term care. At least,
perhaps, these careless advisers know not what they do.
Others, however, address the issue of asset protection in a manner that
leaves infirm seniors impoverished and vulnerable to inferior, publicly
financed nursing home care. These
advisers use their professional acumen to grant an early inheritance to their
clients' heirs while pulling down a big fee for themselves.
Both kinds of advisers--the ignorant and the irresponsible--bear a
professional responsibility to learn the facts and mend their ways.
The consequences for both of their clients are the same--welfare
dependency, loss of independence, and health care vulnerability.
When the prestigious New York
Times editorializes thus against
the
blatant and often unethical misuse of the [Medicaid] program by
well‑to‑do patients in nursing homes.
These patients exploit legal loopholes to transfer their wealth to
their children, thus technically impoverishing themselves and providing
themselves with inexpensive nursing home care.
What was supposed to be a program for the poor has turned into a
boondoggle for everyone else.... The
system is a scandal. (April 14,
1996)
malpractice
suits and stern judicial scrutiny cannot be far behind.
Due professional diligence in the field of long-term care requires that
all professional advisers (1) understand the consequences of failure to save,
invest or insure for long-term care; (2) advise their clients candidly of
these dangers; and (3) recommend responsible financial tools to prevent such
negative outcomes. In many or
even most instances, the best alternative for advisers who are generalists may
be to recognize that long-term care is a highly specialized field and refer
clients to trusted experts in that specialty.
The Center for Long-Term Care Financing is committed to the challenge
of educating financial professionals about long-term care and the necessity
and means to prepare for that risk. The
Center is a 501(c)(3) nonprofit charitable organization.
Our mission is to ensure quality long-term care for all Americans.
We pursue this objective by encouraging public policy that targets
scarce public resources to the genuinely needy and provides incentives to
everyone else to save, invest or insure for the risk of long-term care.
All of the arguments and facts in this article are thoroughly
documented and substantiated in
reports and articles published by the Center for Long-Term Care Financing.
Readers may consult our numerous studies, speeches, and other
publications at http://www.centerltc.org/.
We also encourage everyone to subscribe to "LTC Bullets," our
free online newsletter, by filling out the form on our web site or dropping a
note with your contact information, including email address, to info@centerltc.org.
Stephen
A. Moses is President of the Center for Long-Term Care Financing in Seattle,
Washington. He was formerly a
Medicaid state representative for the Health Care Financing Administration and
a Senior Analyst for the Office of Inspector General of the United States
Department of Health and Human Resources.
He is widely recognized as an expert and innovator in the field of
long-term care. For further
information, please consult www.centerltc.org/.
The
preceding article was commissioned by The Constellation Group, LLC, a Business
and Tax Strategy Think-Tank in Miami Beach, Florida, founded by Mr. Fraser
Allport. Constellation specializes in Income Tax Reduction and Asset
Protection. For more information, contact The Constellation Group at Fraser@theconstellationgroup.com
or consult the company's website: http://www.theconstellationgroup.com/
.
