As long-term care insurance premiums rise and fewer companies offer policies, alternatives to traditional long-term care insurance policies are springing up.  An increasingly popular hybrid product combines life insurance with long-term care coverage and offers buyers solutions to a number of problems that have kept people from buying traditional long-term care policies.
 
The life insurance hybrid policies are often available to individuals who would not qualify for conventional long-term care insurance due to preexisting conditions.  In addition, the long-term care benefit is not a “use it or lose it” proposition.  If the benefit is not used, or is only partially used, the unused portion is paid out to an individual’s heirs in a death benefit.  Finally, one reason people are wary of traditional long-term care insurance is fear of hefty premium increases down the road.  Extraordinary premium increases are not a big factor with the life insurance hybrid products.
 
How They Work
 
Hybrid life insurance products add a long-term care “rider” to a permanent life insurance policy (whole life or universal life products, not term life).  Policyholders typically pay a lump-sum premium up front or a guaranteed set of premiums for a prescribed period of time.  If the long-term care feature is included, it allows the insured to receive a tax-free advance on her life insurance death benefit to pay for long-term care while she is still alive.  The insurance benefit kicks in when the policyholder can't perform two of the six "activities of daily living." Once a doctor certifies that the person is eligible, the insured can start to accelerate her death benefit to pay a monthly amount that covers her long-term care costs.
 
For example, an individual with a life insurance policy with a face amount of $100,000 who wishes to accelerate the death benefit to pay for long-term care might receive either 2 percent or 4 percent of the face amount each month.  If the rider is for 4 percent a month, the policy will accelerate $4,000 a month until the benefit is exhausted, which would be 25 months.
 
Importantly, most of these policies also have an “extension-of-benefit” rider, which is an option to continue paying the monthly benefit even after the base amount has been exhausted.  These riders can continue paying for another one or two times whatever the length of time would have been without the extension.  For example, in the example above an extension-of-benefit rider might pay $4,000 a month for an additional 25 months, and some of these riders even have a two-times kicker and would pay for another 50 months.
 
All this long-term care coverage comes at a cost, of course: the accelerated death benefit adds between 3 percent and 15 percent to the original standalone life insurance premium, while extending the benefits as in the example above usually at least doubles that.
 
The long-term care benefit can be used to cover any level of care, including home care, although company policies differ and some may exclude mental conditions, which can be common among senior citizens.  In most cases, the beneficiary gets a monthly check rather than submitting bills for reimbursement.  Any premium increase in the hybrid products would not be on the whole premium but only on the portion for long-term care.
 
One very attractive benefit to policyholders is the possibility that heirs will receive the portion of the death benefit that is not consumed by long-term care costs.   For example, if the policyholder uses only $50,000 of a $300,000 long-term care benefit before death that she paid for with a $100,000 premium, her heirs would get $250,000.
 
On the other hand, if the same policyholder decides 10 years down the road that she doesn’t want the product anymore, she’d get back the $100,000 premium plus accrued interest.
 
Some Hidden Costs
 
However, it should be noted that insurers are under no obligation to pay prevailing interest rates, so when rates start rising, as they inevitably will, companies could keep returns level and pocket the difference.  Holders of these hybrid products may be avoiding the kind of hefty premium increases that have become common in the conventional long-term care insurance market, but if their insurer pays interest below the prevailing rates, the lost interest could effectively equal a premium increase.  And in today’s low interest rate environment, a 1 percent to 3 percent rate of return would likely be eroded by a policy’s cost-of-insurance charges, according to financial planner Michael Kitces writing on his blog, Nerd’s Eye View. Some policies provide no rate of return, just a death benefit and long-term care benefit, Kitces says.
 
One of the leading life insurance hybrid products is called MoneyGuard, offered by Lincoln Financial. Nationwide also sells a long-term care rider, and the American Armed Forces Mutual Aid Association reportedly offers this option in all the permanent life insurance policies it sells.
 
In determining whether to write coverage for a potential client, life insurers offering these hybrid products typically evaluate the risk in the same way they do for a conventional life insurance policy, with some additional questions to review the long-term care risk.  The evaluation is generally more basic than with traditional long-term care insurance and may not even involve a medical exam.
 
There are downsides, of course.  It’s possible to zero out your funds, leaving nothing to your heirs, although some policies will pay out a small amount to your loved ones when you die.  Also, many of these hybrid plans will charge a surrender fee if the money is accessed before a certain number of years.
 
A hybrid product can work well as an estate planning tool for people in their 60s, 70s or even 80s who have some cash on hand want to avoid taxes and pass it on to their children but protect themselves in the event they need long-term care.  The person may have money parked in an investment, money market account, or certificate of deposit and not earning much return.  Shifting it to a life insurance benefit can be a smart tax play.  The funds in the life policy are growing with tax-free interest and if the client needs to tap the long-term care benefit, the accelerated payments come out tax-free.

Next Steps

As attorneys we do not sell financial or insurance products but help clients decide whether they are a good fit for their situation and can refer clients to professional advisers who are licensed to sell these products.

​Although a nursing home cannot require a child to be personally liable for their parent's nursing home bill, there are circumstances in which children can end up having to pay. This is a major reason why it is important to read any admission agreements carefully before signing.
 
Federal regulations prevent a nursing home from requiring a third party to be personally liable as a condition of admission. However, children of nursing home residents often sign the nursing home admission agreement as the "responsible party." This is a confusing term and it isn't always clear from the contract what it means.
 
Typically, the responsible party is agreeing to do everything in his or her power to make sure that the resident pays the nursing home from the resident's funds. If the resident runs out of funds, the responsible party may be required to apply for MassHealth on the resident's behalf. If the responsible party doesn't follow through on applying for MassHealth or provide the state with all the information needed to determine MassHealth eligibility, the nursing home may sue the responsible party for breach of contract. In addition, if a responsible party misuses a resident's funds instead of paying the resident's bill, the nursing home may also sue the responsible party. In both these circumstances, the responsible party may end up having to pay the nursing home out of his or her own funds.
 
In a case in New York, a son signed an admission agreement for his mother as the responsible party. After the mother died, the nursing home sued the son for breach of contract, arguing that he failed to apply for Medicaid or use his mother's money to pay the nursing home and that he fraudulently transferred her money to himself. The court ruled that the son could be liable for breach of contract even though the admission agreement did not require the son to use his own funds to pay the nursing home. (Jewish Home Lifecare v. Ast, N.Y. Sup. Ct., New York Cty., No. 161001/14, July 17, 2015).
 
Although it is against the law to require a child to sign an admission agreement as the person who guarantees payment, it is important to read the contract carefully because some nursing homes still have language in their contracts that violates the regulations. If possible, consult with an attorney before signing an admission agreement.

​John Oliver recently highlighted problems with the guardianship system on his HBO show, Last Week Tonight with John Oliver. The comedian provided a scary and funny explanation of how guardianship works, ending with a public service announcement by William Shatner, Lily Tomlin and others explaining steps you can take to avoid the guardianship.
 
The show focuses on the abuses of a professional guardian in Las Vegas, April Parks. She is clearly at the far end of guardianship exploitation and is currently facing prosecution on more than 200 charges. But Oliver does a good job of explaining how guardianship takes away rights without providing oversight of the people appointed to handle personal and financial decisions for people who can no longer make decisions for themselves.
 
He explains how courts do not have the resources necessary to provide proper oversight, reporting that only 12 states certify professional guardians. In addition, according to an investigation by the Government Accountability Office, states don't even do credit or criminal background checks on candidates for guardianship.
 
Nevertheless, the reality is that guardianship and conservatorship actually work in most cases. Family members seek the legal authority they need to make personal, financial and legal decisions for loved ones who have lost the capacity to do so for themselves. In many cases, these non-professional guardians don't follow through with the court reporting required by law, not because they have anything to hide but because they don't know that they have the obligation or don't know how to provide the reporting. More robust follow up by the probate court could seek to enforce the reporting rules, but also could result in much more red tape without much more protection for the people under guardianship or conservatorship.
 
In any event, the best approach is to avoid the need for guardianship and conservatorship by putting durable powers of attorney and health care proxies in place ahead of time when you can choose who you would like to make decisions for you when necessary. Even if you're not at risk of exploitation because your children or grandchildren would step in, the need for court intervention causes otherwise unnecessary expense and delay.
 
This is what estate planners counsel their clients all the time. But William Shatner, Lily Tomlin, Rita Moreno, Fred Willard, and Cloris Leachman do it so much better. With some side discussions about hippos, they recommend executing a durable power of attorney and health care proxy naming someone you trust to make decisions for you if you can't for yourself. They all agree that the person they most trust for this role is Tom Hanks.
 
To watch the clip from the show, click here. (Warning: The clip contains occasional profanity.)

New rules have been put in place to protect seniors with brokerage accounts from financial scams that could drain the accounts before anyone notices.
 
As the population ages, elder financial abuse is a mounting problem. Vulnerable seniors can become victims of scammers who convince them to empty their investment accounts. According to the Financial Industry Regulatory Authority (FINRA), the organization that regulates firms and professionals selling securities in the United States, its Securities Helpline for Seniors has received more than 12,000 calls and recovered more than $5.3 million for seniors whose investment funds were illegally or inappropriately distributed since the helpline opened in April 2015.
 
Now, FINRA has issued two new rules designed to help investment brokers or advisors better protect seniors’ accounts from financial exploitation. The rules, which went into effect in February 2018, apply when opening a brokerage account or updating information for an existing account.
 
First, the broker or investment advisor must ask the investor for the name of a trusted contact person. This is someone the broker can contact if there are questions about the account. The trusted contact is intended to be a resource for the broker to address possible financial exploitation and to obtain the customer’s current contact information and health status or learn about any legal guardian, executor, trustee or holder of a power of attorney.
 
The second rule allows a broker to place a temporary hold on disbursements from an account if those disbursements seem suspicious. This rule applies to accounts belonging to investors age 65 and older or investors with mental or physical impairments that the broker reasonably believes make it difficult for the investor to protect his or her own financial interests. Before disbursing the funds, the brokerage firm will be able to investigate the disbursement by reaching out to the investor, the trusted contact, or law enforcement.
 
To read more about the new rules, click here.

If you or a loved one has been diagnosed with Alzheimer’s disease, it is important to start planning immediately. There are several essential documents to help you once you become incapacitated, but if you don't already have them in place, you need to act quickly after a diagnosis.
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Having dementia does not mean an individual is not mentally competent to make planning decisions. The person signing documents must have "testamentary capacity," which means he or she must understand the implications of what is being signed. Simply having a form of mental illness or disease does not mean that you automatically lack the required mental capacity. As long as you have periods of lucidity, you may still be competent to sign planning documents.

The following are some essential documents for someone diagnosed with dementia:
 
Power of Attorney. A power of attorney is the most important estate planning document for someone who has been diagnosed with Alzheimer's disease or some other form of dementia. A power of attorney allows you to appoint someone to make decisions on your behalf once you become incapacitated. Without a power of attorney, your family would be unable to pay your bills or manage your household without going to court and getting a guardianship, which can be a time-consuming and expensive process. For more information about powers of attorney, click here.

Health Care Proxy. A health care proxy, like a power of attorney, allows you to appoint someone else to act as your agent for medical decisions. It will ensure that your medical treatment instructions are carried out. In general, a health care proxy takes effect only when you require medical treatment and a physician determines that you are unable to communicate your wishes concerning treatment. For more information about health care proxies, click here.

Medical Directive or Living Will. Medical directives and living wills explain what type of care you would like if you are unable to direct your own care. A medical directive can include a health care proxy or it can be a separate document. It may contain directions to refuse or remove life support in the event you are in a coma or a vegetative state or it may provide instructions to use all efforts to keep you alive, no matter what the circumstances. For more information about medical directives, click here.

Will and Other Estate Planning Documents. In addition to making sure you have people to act for you and your wishes are clear, you should make sure your estate plan is up to date, or if you don't have an estate plan, you should draw one up.  Your estate plan directs who will receive your property when you die. Once you are deemed incapacitated, you will no longer be able to create an estate plan. An estate plan usually consists of a will, and often a trust as well. Your will is your legally binding statement on who will receive your property when you die, while a trust is a mechanism for passing on your property outside of probate. For more information about estate planning, click here.
 
In addition to executing these documents, it is also important to create a plan for long-term care. Long-term care is expensive and draining for family members. Developing a plan now for what type of care you would like and how to pay for it will help your family later on. Contact us today to schedule an initial meeting.

If your Medicare drug plan denies coverage for a drug you need, you don't have to simply accept it. There are several steps you can take to fight the decision.
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The insurers offering Medicare drug plans choose the medicines -- both brand-name and generic -- that they will include in a plan's "formulary," the roster of drugs the plan covers and will pay for that changes year-to-year. If a drug you need is not in the plan's formulary or has been dropped from the formulary, the plan can deny coverage. Plans may also charge more for a drug than you think you should have to pay or deny you coverage for a drug in the formulary because it doesn't believe you need the drug. If any of these things happens, you can appeal the decision.
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Before you can start the formal appeals process, you need to file an exception request with your plan. The plan should provide instructions on how to request an exception. The plan must respond within 72 hours or 24 hours if your doctor explains that waiting 72 hours would be detrimental to your health. If your exception is denied, the plan should send you a written denial-of-coverage notice and a five-step appeals process can begin.

The first step in appealing a coverage determination is to go back to the insurer and ask for a redetermination, following the instructions provided by your plan. You should submit a statement from your doctor or prescriber that explains why you need the drug you are requesting, along with any medical records to support your argument. If your doctor informs the plan that you need an expedited decision due to your health, the plan must notify you within 72 hours. For a standard redetermination, the plan must notify you within seven days.

If you disagree with the drug plan's decision, you have the right to reconsideration by an independent board. To request reconsideration, follow the instructions in the written redetermination notice you receive from the insurer. You have 60 days from the redetermination notice to request reconsideration. An independent review entity (IRE) will review the case and issue a decision either within 72 hours or seven days. If you receive a negative decision, you can keep appealing.

The third level of appeal is to request a hearing with an administrative law judge (ALJ), which allows you to present your case either over the phone or in person. To request a hearing, the amount in controversy must be at least $160 (in 2018). The amount in controversy is calculated by subtracting any allowed amount under Part D, and any deductible, co-payments, and coinsurance amounts applicable to the Part D drug at issue, from the projected value of the drug benefits in dispute. Your request for a hearing must be sent in writing to the Office of Medicare Hearings and Appeals (OMHA). The ALJ is supposed to issue an expedited decision within 10 days or a standard decision within 90 days.

If the ALJ does not rule in your favor, the next step is a review by the Medicare Appeals Council. The appeal form must be filed within 60 days after the ALJ's decision. You will need a statement explaining why you disagree with the ALJ's decision. The appeals council will issue an expedited decision in 10 days or a standard decision within 90 days.

MassHealth imposes a penalty period if you transferred assets within five years of applying for long term care benefits, but what if the transfers had nothing to do with MassHealth eligibility? It is difficult to do, but if you can prove you made the transfers for a purpose other than to qualify for MassHealth, you can avoid a penalty.
You are not supposed to move into a nursing home on Monday, give all your money away on Tuesday, and qualify for MassHealth on Wednesday. So the government looks back five years for any asset transfers, and levies a penalty on people who transferred assets without receiving fair value in return. This penalty is a period of time during which the person transferring the assets will be ineligible for MassHealth. The penalty period is determined by dividing the amount transferred by what MassHealth determines to be the average private pay cost of a nursing home.
The penalty period can seem very unfair to someone who made gifts without thinking about the potential for needing MassHealth. For example, what if you made a gift to your daughter to help her through a hard time? If you unexpectedly fall ill and need MassHealth to pay for long-term care, the state will likely impose a penalty period based on the transfer to your daughter.
To avoid a penalty period, you will need to prove that you made the transfer for a reason other than qualifying for MassHealth. The burden of proof is on the MassHealth applicant and it can be difficult to prove. The following evidence can be used to prove the transfer was not for MassHealth planning purposes:

• The MassHealth applicant was in good health at the time of the transfer. It is important to show that the applicant did not anticipate needing long-term care at the time of the gift.
• The applicant has a pattern of giving. For example, the applicant has a history of helping his or her children when they are in need or giving annual gifts to family or charity.
• Demonstrate the intention of the gift.  For example, we successfully demonstrated that a $25,000 gift should not trigger a penalty by showing that the memo field of the check stated “congrats on your wedding” and the date of the check was close in time to the wedding of the applicant’s daughter.
• The applicant had plenty of other assets at the time of the gift. An applicant giving away all of his or her money would be evidence that the applicant was anticipating the need for MassHealth.
• The transfer was made for estate planning purposes or on the advice of an accountant.

Proving that a transfer was made for a purpose other than to qualify for MassHealth is difficult. If you innocently made transfers in the past and are now applying for MassHealth, it’s important to work with an attorney from the start of the MassHealth application.

When one spouse is in a nursing home and applying for MassHealth, planning has to take into account the possibility that the spouse who is not in the nursing home (called the “community spouse”) may pass away first. This is because the community spouse’s death may make the spouse in the nursing home ineligible for MassHealth.

In order to qualify for MassHealth, a nursing home resident can have only a limited number of assets. Careful planning can allow the resident’s spouse to maintain some assets. However, if that community spouse passes away first and leaves those assets to the nursing home resident, the resident suddenly would be over MassHealth’s asset limit.

While the community spouse could write a will that disinherits the MassHealth resident, most states including Massachusetts have laws that allow spouses to claim a portion of their deceased spouse’s estate regardless of what the will says. This is called the elective or statutory share. The amount the spouse can claim varies from state to state.

A spouse can disclaim his or her elective share, but if a MassHealth recipient disclaims the inheritance or fails to take their statutory share, it is considered an uncompensated transfer of assets and the recipient may receive a period of MassHealth ineligibility. To avoid this, the community spouse will most likely need a will that addresses this issue. One option is for the community spouse to create a will that leaves the nursing home spouse a limited interest in trust considered to be worth more than the elective share.
 
A will may only address a limited amount of the community spouse’s assets, thus care and attention should be paid to the beneficiary designations on life insurance, retirement accounts, and other assets.  Lastly, a community spouse might not be the only person a nursing home resident could inherit assets from.  Other family members, even adult children who do not have children of their own, should review and possibly modify their estate plans to ensure assets are not directed to the nursing home resident.
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Every situation is different and thus all options should be explored with an attorney.

No one wants to think about his or her death, but a little preparation in the form of a prepaid funeral contract can be useful. In addition to helping your family after your death, a prepaid funeral contract can be a good way to spend down assets in order to qualify for MassHealth.
 
A prepaid or pre-need funeral contract allows you to purchase funeral goods and services before you die. The contract can be entered into with a funeral home or cemetery. Prepaid funeral contracts can include payments for: embalming and restoration, room for the funeral service, casket, vault or grave liner, cremation, transportation, permits, headstones, death certificates, and obituaries, among other things.
 
One benefit of a prepaid funeral contract is that you are paying now for a service that may increase in price—possibly saving your family money. You are also saving your family from having to make arrangements after you die, which can be difficult and time-consuming. And, if you are planning on applying for MassHealth, a prepaid funeral contract can be a way to spend down your assets.
 
MassHealth applicants must spend down their available assets until they reach the qualifying level (which for a single person can be as low as $2,000). By purchasing a prepaid funeral contract, you can turn available assets into an exempt asset that won't affect your eligibility. In order for a prepaid funeral contract to be exempt from MassHealth asset rules, the contract must be irrevocable. That means you can't change it or cancel it once it is signed.
 
Before purchasing a contract, you should shop around and compare prices to make sure it is the right contract for you. Buyers need to be careful that they are buying from a reputable company and need to ask for a price list to make sure they are not overpaying.