Have Your Parents Planned?

As an adult, you’re fortunate if you still have your parents. However, as they get older, you may well have to assist them in some key areas of their life. Specifically, they may need you to get involved in some of their financial issues. And if you do, you may need to focus on three areas: leaving a legacy, providing for long term care, and managing finances during retirement.

While initiating these conversations may not be easy for you, it is important, and you may find your parents more willing to discuss these issues than you had thought. In any case, if your parents haven’t already done so, encourage them to work with an estate-planning professional to develop the necessary legal documents, which may include wills, trusts and financial durable powers of attorney. These documents and services can be invaluable in helping individuals find efficient ways to pass assets from one generation to the next. An estate-planning attorney can identify which arrangements are the most appropriate for you and your family.

In your discussions on leaving a legacy, you may also want to bring up the topic of the beneficiary designations that may appear on your parents’ life insurance contracts and qualified plans, such as 401(k)s and IRAs. If the family picture has changed in recent years, and your parents had intended to change these designations, they should take action sooner rather than later.

While your parents need to deal with the legacy issue, they still may have plenty of years of living ahead of them — and they might need help managing their money during these years. For starters, you may want to have a discussion about their savings, investments, insurance and so on, and where these assets are held. Are they kept in banks or investment companies? Do your parents have safe-deposit boxes? This knowledge could be valuable if you ever become involved in managing or distributing your parents’ resources.

Also, you might want to talk to your parents about the income sources they may be drawing from during their retirement. For example, how much are they taking out each year from their 401(k)s and IRAs? They don’t want to withdraw so much that they deplete their accounts too soon, but at the same time, they would no doubt like to maintain their standard of living in retirement. You may want to suggest to your parents that they evaluate their investment portfolio for both growth and income potential — because they will need both elements during a long retirement.

It is worth giving some thought to the idea of long term care.  If your parents to not have long term care insurance, you should talk with them about exploring the possibility.  If that avenue is not available, a qualified elder law attorney can often help a family find other ways to pay for long term care (in-home care, assisted living, or nursing home).  Much of this sort of elder law planning is done at a "crisis point" when the need for long term care is imminent or has already arrived.  If you take the time to help your parents plan for long term care before they need it, you will be able to plan more economically and more efficiently.   

If your parents aren’t already working with a financial advisor, you may want to encourage them to do so. Managing an investment portfolio during retirement is no easier than doing so during one’s working years — and there’s less time to overcome mistakes. A qualified financial advisor can help your parents choose the right mix of investments that can help meet their needs.

During your lifetime, your parents have done a lot for you. You can help pay them back by doing whatever you can to assist them in managing their financial, estate planning, and elder law needs.

Look Before You Leap: Reverse Mortgage Foreclosures on the Rise

Reverse mortgage loans have become very popular in recent years as a way for seniors to convert home equity into cash.  But the number of reverse mortgages in default has risen steeply and many of those elderly homeonwers are faced with the prospect of foreclosure and even evictions in some cases.

The percentage of reverse mortgages in default s is relatively small at 6%, but it has risen dramatically in the past two years.  With a reverse mortgage, borrowers are not required to make monthly mortgage payments, but are required to maintain payments for their property taxes and homeowners insurance.  A failure to make these payments is a default under the terms of the reverse mortgage and can lead to a foreclosure and ultimately eviction.

More than 90 percent of reverse mortgages are insured by the Federal Housing Administration's (FHA) Home Equity Conversion Mortgage (HECM) program.  The program began in 1989 and there have been approximately 660,000 loans made under the program with about half a million still outstanding.  About three quarters of the loans have been made in the last five years as the program has become popular.  In a 2006 survey by AARP of seniors who went through the required HECM counseling and then decided not to take out a reverse mortgage, the most often cited reason for not going forward with the loan was high costs associate with the loan.

Mortgage Meltdown Drives Rising Costs

Before the mortgage meltdown led to problems at Fannie Mae, the quasi government agency purchased nearly all HECM loans. During that time, Fannie Mae set the interest rates and required that all loans have adjustable rates.  When the mortgage market collapsed Fannie Mae allowed interest rates to float leading to higher interest rates.  As Fannie Mae struggled with financial problems, in 2010, it pulled completely out of the HECM market and announced that it would no longer purchase such mortgages.

After Fannie Mae's departure from the market, Ginnie Mae stepped in and became the primary means for funding HECM loans.  The majority of Ginnie Mae loans have been fixed rate loans in which the borrower is required to withdraw the full loan limit at closing. The number of fixed rate loans is now upwards of 70 percent of all HECMs.  Traditionally, HECMs were used by borrowers as a supplement to their social security or other retirement income where they would withdraw a small amount each month to supplement what they received from other sources.  The full withdrawal loans are more expensive for seniors who don't need the full withdrawal because interest rates are higher and interest runs on the full amount of the loan from the day of closing.  These loans do however typically have lower or no upfront origination fees and often no ongoing servicing fees.

The HECM "Saver", introduced in October 2010, essentially eliminates the upfront Mortgage Insurance Premium of 2% of the home value in exchange for loan limits that are 10 to 18 percent lower than standard HECM loans.  The Saver can be less expensive for those who need relatively small loans, but interest rates are .25 to .5 percent higher than standard HECM loans and origination and other fees may be higher as well.  FHA is hoping that premiums generated from these low risk loans will offset anticipated losses on other types of reverse mortgages.

Is a Reverse Mortgage a Good Idea for Me?

Unfortunately as is often the case with a complicated subject, I have to say, that depends.  Whether a reverse mortgage is a good idea for you depends on the specific circumstances of your situation.  It can be a lifeline that will enable you to maintain your independence.  The fact is that as a result of the decline in home values and the mortgage meltdown, the costs of these loans has increased and the choices have become more complex.

Before you decide to commit to a reverse mortgage, it would be a good idea to sit down with your team of advisors, your tax advisor, your financial advisor and your elder law attorney to consider what other options there are to help you maintain your independence.

Helping Veterans Pay for Long Term Care

There are currently over 25 million Veterans alive in the United States. There are over 9 million surviving spouses of Veterans currently living in the United States. Many of these Veterans and surviving spouses are receiving long term care or will need some type of long term care in the near future, and there are funds available from the Veterans Administration ("VA") to help pay for that care. Unfortunately, many of those who are eligible have no idea that any type of benefits exist for them or that an accredited attorney can help them become eligible.

Benefits Available
There are three types of benefits available that provide a monthly cash payment to Veterans who have long term health care needs. Immediately below is an overview of the three benefits.  More detail will be provided on each benefit in the following paragraphs.

Service Pension. The VA provides a monthly cash payment to wartime Veterans who meet active duty and discharge requirements, who are either 65 or older or disabled, and who have limited income and assets. Service pension is also available to a surviving spouse of a wartime Veteran. An unmarried Veteran can receive up to $1,021 per month, a married Veteran can receive up to $1,337 per month, and a surviving spouse can receive up to $684 per month (with additional payments available if dependent children are present in the home).

Pension with Housebound Allowance. A slightly higher monthly payment is available to wartime Veterans (who meet the same service requirements as Service Pension) but who are confined to their home for medical reasons. An unmarried Veteran can receive up to $1,248 per month, a married Veteran can receive up to $1,564 per month, and a surviving spouse can receive up to $837 per month (with additional payments available if dependent children are present in the home).

Pension with Aid and Attendance. The highest monthly benefit is available when a wartime Veteran or surviving spouse requires the assistance of another person to perform activities of daily living, is blind or nearly so, or is a patient in a nursing home. This benefit, often referred to simply as "Aid and Attendance" is the most widely known and talked-about benefit as it offers the highest possible monthly payment. An unmarried Veteran can receive up to $1,703 per month, a married Veteran can receive up to $2,019 per month, and a surviving spouse can receive up to $1,094 per month (with additional payments available if dependent children are present in the home).


Prerequisite Benefits

Wartime Service. As noted above, a Veteran must first meet certain service and discharge requirements before being considered for any type of pension benefit. A Veteran must have served 90 days of active duty with at least one day beginning or ending during a period of war. After September 1, 1980, the active duty requirement increases to 180 days. In addition, the Veteran must have been discharged under circumstances other than dishonorable.

Disability. To qualify for any type of pension benefit, a claimant must also be 65 or older or be permanently and totally disabled. A claimant is the individual filing for benefits - either a Veteran or surviving spouse.

Permanent and total disability includes a claimant who is:

• In a nursing home;
• Determined disabled by the Social Security Administration;
• Unemployable and reasonably certain to continue so throughout life; or
• Suffering from a disability that makes it impossible for the average person to stay gainfully employed.

Asset and Income Requirements
The financial eligibility requirements of any pension benefit address a claimant's net worth and income. A married Veteran and spouse should have no more than $80,000 in countable assets (less for a single Veteran or surviving spouse), which includes retirement assets but excludes a home and vehicle. However, the $80,000 limit is a guideline only - it is not a rule set by the VA. The VA looks at a claimant's total net worth, life expectancy, income and medical expenses to determine whether the Veteran or surviving spouse is entitled to special monthly pension benefits.

Planning Note: Many times the most difficult task in this area is to reduce a claimant's assets down to the applicable level (or what one hopes will be acceptable to the VA). The assistance of legal counsel is important to ensure the right strategies are used with minimal impact on Medicaid in the future.

A Veteran or surviving spouse must have Income for VA Purposes ("IVAP") that is less than the benefit for which he or she is applying. IVAP is calculated by taking a claimant's gross income from all sources less countable medical expenses. Countable medical expenses are recurring out-of-pocket medical expenses that can be expected to continue throughout a claimant's lifetime. If a claimant's IVAP is equal to or greater than the annual benefit amount, the Veteran or surviving spouse is not eligible for benefits. Tables 2 and 3 below shows the applicable income and pension amounts for both Veterans and surviving spouses.


Is the Claimant Housebound?
If a claimant qualifies for regular pension and is housebound, the claimant's maximum allowable income increases (as does the annual benefit amount) to the special monthly pension. The VA defines housebound as being substantially confined to the home or immediate premises due to a disability that will likely remain throughout the claimant's lifetime. A Veteran with no dependents who is housebound is eligible for benefits of up to $14,457 in annual income.

Unreimbursed medical expenses will reduce a claimant's income dollar for dollar after a small co-pay (5% of the annual pension amount) is met.  Remember, though,, to be eligible for a special monthly pension for being housebound, the claimant's IVAP must be less than the annual income threshold.

To illustrate, a Veteran with exactly $14,976 in annual income would not be eligible for a special monthly pension for being housebound. However, if that Veteran was able to show annual income of $20,000 and unreimbursed medical expenses of $25,000, the Veteran would be eligible for $14,976 in special annual pension (paid on a monthly basis) because the Veteran has negative IVAP. A surviving spouse with no dependents who is housebound must have annual IVAP of less than $10,044.

Does the Claimant Require the Aid and Attendance of Another?
If a claimant can show, through medical evidence provided by a primary care physician or facility, that the claimant requires the aid and attendance of another person to perform activities of daily living, that Veteran or surviving spouse may qualify for an additional special monthly pension commonly referred to as aid and attendance pension benefits.

The VA defines the need for aid and attendance as:

• Requiring the aid of another person to perform at least two activities of daily living, such as eating, bathing, dressing or undressing;
• Being blind or nearly blind; or
• Being a patient in a nursing home.

Tables 2 and 3 below shows the applicable pension amounts for each type of VA pension.

The maximum pension for a married Veteran is $2,019 per month ($24,228 per year), while the maximum pension for a Veteran's widow is $1,094 per month ($13,128 per year). The VA pays this pension directly to the claimant regardless of where the claimant is living.

Qualification
As stated above, the VA looks at a claimant's total net worth, life expectancy, income, and expenses to determine whether the claimant should qualify for special monthly pension benefits. Unlike Medicaid, there is no look-back period and no penalty for giving assets away.  However, one must use caution when considering a gifting strategy to qualify a Veteran or surviving spouse for special monthly pension benefits as this will cause a period of ineligibility for Medicaid which could be as long as five years. Other Medicaid planning strategies may apply when trying to qualify a Veteran or surviving spouse for special pension with aid and attendance.

An Illustration:  Robert, age 82, is a World War II Veteran whose spouse has passed away.  Robert's total monthly income consists of Social Security income of $1500 per month.  Robert was diagnosed last year with dementia and now lives in an assisted living facility as he needs help bathing, dressing and taking his medication. The assisted living facility costs $3000 per month. Robert has liquid assets totaling $100,000.

Robert's IVAP:
Income $1500
Unreimbursed recurring medical expenses $3000
Total IVAP ($1500)

The maximum monthly benefit that Robert could qualify for is $1,703 of pension with an allowance for aid and attendance. Since Robert has a negative IVAP of $1500, he is eligible for the full pension with aid and attendance benefit. However, his assets are too high. However, because Robert has negative income of $1500, one option may be to take a portion of his liquid assets and convert them into an income stream through the use of an immediate annuity or promissory note. As long as Robert's IVAP remains a negative number or $0, he can qualify for the full pension at the aid and attendance level..

The Application Process
While the application process for special monthly pension can be agonizingly slow - some applications take over a year before the VA makes a decision - the benefit is retroactive to the month after application submission. Having the proper documentation in place at the time of application (for example, discharge papers, medical evidence, proof of medical expenses, death certificate, marriage certificate and a properly completed application) can cut the processing time in half.

Planning Note: Benefits are retroactive to the month after application submission. Therefore, it is imperative for potential claimants to seek legal help immediately to become eligible and to apply as quickly as possible.

Conclusion
Time is of the essence for Veterans or surviving spouses who may be eligible for pension benefits. It is imperative for those who work with Veterans or surviving spouses of Veterans to be aware of these benefits and to help potential claimants obtain legal help to qualify for pension benefits. If you know of someone who may be eligible, please give us a call at 912-352-3999 for more information..

Table 1:  Wartime Periods

World War I	April 6, 1917 through November 11, 1918, inclusive. If the Veteran served with the United States military forces in Russia, the ending date is April 1, 1920. Service after November 11, 1918 and before July 12, 1921 is considered World War I service if the Veteran served in the active military, naval, or air service after April 5, 1917 and before November 12, 1918.
World War II	December 7, 1941, through December 13, 1946, inclusive. If the Veteran was in service on December 31, 1946, continuous service before July 26, 1947, is considered World War II service.
Korean Conflict	June 27, 1950, through January 31, 1955, inclusive.
Vietnam Era	The period beginning on February 28, 1961, and ending on May 7, 1975, inclusive, in the case of a Veteran who served in the Republic of Vietnam during that period. The period beginning on August 5, 1964, and ending on May 7, 1975, inclusive, in all other cases.
Future Dates	The period beginning on the date of any future declaration of war by the Congress and ending on a date prescribed by the Presidential proclamation or concurrent resolution of the Congress.
Mexican Border Period	May 9, 1916, through April 5, 1917, in case of a Veteran who during such period served in Mexico, on the borders thereof, or in the waters adjacent thereto.
Persian Gulf War	August 2, 1990, through date to be prescribed by Presidential proclamation or law.

Table 2:  2012 Pension Benefit Figures - Wartime Veteran

Type of Benefit	Maximum Annual Pension Rate (Income Limit)	Maximum Monthly Pension Rate (Income Limit)
Service Pension	$11,830	$1,021
- One dependent	$16,051	$1,337
Housebound	$14,976	$1,248
- One dependent	$18,768	$1,564
Aid and Attendance	$20,436	$1,703
- One dependent	$24,228	$2,019
- Each add'l dependent child	$2,093	$174

Table 3:  2012 Pension Benefit Figures - Surviving Spouse

Type of Benefit	Maximum Annual Pension Rate (Income Limit)	Maximum Monthly Pension Rate (Income Limit)
Death Pension	$8,208	$684
- One dependent child	$10,752	$896
Housebound	$10,044	$837
- One dependent child	$12,576	$1,048
Aid and Attendance	$13,128	$1,094
- One dependent child	$15,660	$1,305
- Each add'l dependent child	$2,088	$174