The Bogleheads' Guide to Retirement Planning (41 page)

One final thought about buying LTC insurance: some people will recommend that you buy LTC when you are young and in good health because the premiums are low. The problem with this approach is that you have to pay premiums for 40 or more years, with rate increases, and you may never need the benefits. Buying it when you are age 55 to 65 limits the number of years you pay premiums and limits the number of price increases you might expect. If you wait until you are older, you do run a higher risk of being rated or uninsurable. These are tough choices, and each individual must decide what’s best.

Medicare does not pay for complete LTC. Most LTC needs are custodial, and Medicare does not pay for these. It pays only for medically necessary skilled nursing in a nursing home or for skilled home care. Even here you must meet certain conditions to qualify for these limited benefits. You should be aware that some Medicare supplement plans pay a small amount for people recovering at home from illness or injury. However, it is unwise to count on these small benefits in your LTC planning.

Medicaid is a federal and state-funded program that pays for nursing home care for certain eligibility groups. It may pay for limited home care and community services. A recipient must have low income and own few assets. Qualifying for Medicaid depends on the rules of the individual states, and the qualifications vary widely among states.

Many seniors look for ways to keep more of their assets and still qualify for Medicaid benefits. They have worked a lifetime to accumulate their nest eggs, and now they face the prospect of using it up for LTC. Unfortunately, those seeking Medicaid for LTC expenses will have to spend down their assets until they meet eligibility requirements.

Recent federal law has increased Medicaid’s lookback rule to five years. That means you will not qualify for Medicaid if you transferred assets at less than full market value to family members during this period. You could gift the assets at full value, but that might result in a gift tax, and once given away, the gift is irrevocable. Putting money in a trust may work, but this is expensive, and restrictions apply. You can contact an elder law attorney to help shed assets, but that also comes with a price tag. In all cases, you should know that it is illegal to hide assets to qualify for Medicaid. Everything must be done with full disclosure and within the scope of the law.

One alternative is a partnership plan. These products are the result of an alliance between a state and insurers that allows participants to hold on to more assets before qualifying for Medicaid. A partnership plan may work like this: you want to protect $100,000 of assets so you buy an LTC policy that pays this amount in benefits. If you become eligible for Medicaid, you keep $100,000 of your assets above Medicaid’s limit. Partnership plans are being launched in a number of states. More information on partnership plans is available from your state insurance commissioner and from your Medicaid office.

For those who have access to employer-sponsored health insurance, the first place to look for more information is your human resources department. Ask for brochures. You may also ask to inspect the plan documents themselves. Federal and state employees can obtain detailed information on their agency web sites, as well as from their human resources departments. For individual plans, a wealth of information is available online and from agents. The following web sites are very helpful:

Medical and long-term care insurance can help protect people from expenses that most of us could not meet out of pocket. It ensures that we have access to needed care that improves the quality of our lives. The health insurance marketplace is dynamic, and changes occur frequently. The only things we know for sure are choices and costs as of today, and that they will change in the future.

If you have group insurance available or are enrolled in Medicare, study your options carefully before deciding what is right for you. If you need individual coverage, find a broker who specializes in this area and study the recommendations thoroughly. Review your health plans every few years, as new products and changes in the law may present new choices for you.

“In this world nothing can be said to be certain, except death and taxes.”
Benjamin Franklin (1706-1790) wrote these words in a letter to Jean-Baptiste
Leroy in 1789, and they were reprinted in
The Works of Benjamin
Franklin, 1817.
Those words are as timeless today as the day they were
first penned. No one enjoys discussing death and taxes, but taking the
proper steps now to make sure that your family and financial assets are
protected in case of tragedy brings a sense of peace. Chapter 3 discussed
taxes, and this chapter covers preparation for a crippling disability and
eventual death.

Estate planning is the process of deciding who will make your decisions when you are not able to do so because of death or disability. It includes a discussion about what you may or may not want done to preserve your life during a serious medical problem and how your worldly possessions will be distributed after you are gone.

Bogleheads believe in doing the necessary research to learn enough to hold an intelligent conversation with an estate-planning attorney. Many books have been written on estate planning. This chapter covers the basics, and the information is not meant to be sufficient to create your own estate plan. Laws differ from state to state. Consult an estate-planning attorney in the state where you reside to make sure your plan will work in that jurisdiction.

Estate planning is twofold. First, it includes the possibility of a severe disability in the future. The disability could be physical, meaning that you may not be able to take care of your own needs, or it could be mental, which impairs your ability to make your own decisions, or it could include both. Second, an estate plan directs what happens to your assets at the end of your life.

Do you wish to have your life prolonged using all available means? Or if death is imminent and inevitable, would you prefer to be allowed to die with no extraordinary measures taken, except for receiving sufficient pain medication to keep you comfortable? These are decisions that should be made while you still have the capacity to make them, rather than having a court make them for you when you are incapable of expressing your wishes.

You may own substantial assets at the time of death, and it may be important for you to specify what will happen to those assets after your demise. Properly drafted estate planning documents can ensure that your wishes are followed.

The titling of property has a profound impact on how your assets are treated when you pass away. Proper titling can save your heirs time and money when settling your estate.

Property comes in two types: personal and real. Both types can be owned in a variety of manners. Understanding the various options and consequences of that ownership is key to making the best decision.

Personal property includes your movable assets, such as cars, household furnishings, jewelry, artwork, and other things that can be picked up and moved. Perhaps the easiest way to think of personal property is that it is all property that is not real estate.

Real property is dirt and things permanently attached to dirt, such as buildings, and the things permanently attached to buildings, such as decks and a built-in swimming pool, which are known as fixtures. Real property also includes more esoteric forms of property ownership, such as ownership of a unit in a condominium.

Property is commonly held in the name of a single individual. If you title property this way, on your death, property owned in this manner may be subject to probate unless a statute allows you to name a beneficiary.

Property can be owned as an undivided interest in the whole with one or more persons. When property is owned in such a fashion, the owners are known as tenants in common and the form of property ownership is known as a tenancy in common. Upon death, the interest of the deceased party continues and becomes the property of his or her estate. It does not automatically pass to the other person or persons.

Property can also be owned jointly with another person. On your death, jointly owned property will usually pass to the joint owner with no further action required.

Tenancy by the entireties property is a special form of joint ownership that can be created only by persons who are married. In some states, tenancy by the entireties property is not subject to the liabilities of either marital partner individually. It is subject only to joint liabilities.

There is special ownership for married couples under laws of community property. Each has equal rights to any appreciation or income derived from those assets. Not all states have community property laws. If you live in one of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), property acquired during marriage may be owned in this special kind of joint tenancy.

You may also transfer ownership of your property to a trustee, who may even be you! If you elect ownership by trustee, property is no longer considered to be owned by you as an individual but is instead owned by the trust. When you die, it is not usually subject to probate.

It is sometimes helpful to think of property rights as though they are a bundle of sticks. One of the sticks is the right to occupy the property during life (the right of the life tenant), and another is the right to the property after the life tenant dies. A person holding the second right is known as a remainderman. On the death of the life tenant, the remainderman automatically and immediately passes into ownership of the property. Life estates come in two flavors: ordinary life estates and enhanced life estates.

The ordinary life estate is pretty much as just described. Using a bill of sale for personal property or a deed for real property, the grantor (the person establishing the life estate) transfers the property to the remainderman, reserving the right to make use of the property during life.

The enhanced life estate is established in the same manner as the ordinary life estate, but the grantor reserves additional rights. Usually the grantor reserves the right to transfer the property back into his or her name, the right to sell the property and keep the proceeds, and the right to mortgage the property; in most cases, the grantor disclaims any liability for waste, which is the failure to maintain the property. The enhanced life estate is preferable in most instances because of its great flexibility.

Your heirs will settle your estate after you are gone. All real and personal property must be transferred to a new owner. How this is done varies from state to state.

Legislatures in most states have established means by which property can pass automatically to heirs with no action required by the beneficiary other than the production of a death certificate. Some of the mechanisms that have been established are discussed next.

In many states, it is possible to establish an account as a pay on death or transfer on death account. The person named as the pay on death or transfer on death party has no rights to the account during the life of the original account owner. However, on the death of the original account owner, the pay on death party automatically becomes the new owner of the account. Pay on death and transfer on death accounts apply only to personal property and cannot be used to transfer real property.

The Totten trust account is an account in which the original depositor deposits funds to be held in trust for a named beneficiary but reserves the right to withdraw the funds during his or her life. In practice, this account functions identically to a pay on death or transfer on death account. Totten trust accounts are used only to hold personal property and cannot be used to transfer real property.

Joint ownership, also known as joint tenancy with rights of survivorship, means that all of the owners have the current right to make use of any property. On the death of any owner, the remaining owners automatically receive the interest of the deceased owner. Both real property and personal property can be held in this manner.

Some states confer a special status on a person’s homestead (home and property around it) and provide for its transfer by operation of law upon the death of the owner.

The legal process of probate, discussed in more detail later, provides a court-supervised method of transferring assets at death. The probate process can be expensive, as both the person administering the estate, commonly known as an executor or personal representative, and the attorneys they employ receive a fee for acting on behalf of the estate.