By Lance Cummins, Elder & Disability Law Clinic Student, Fall 2016
For many people, the concept of planning for the future just brings to mind the thought that they need to write out a will, but there’s more to it. With the average life expectancy in the United States being around 80—it was only 47 the last time the Cubs won the World Series before this year—people can often expect to live many years after retirement. However, for some people, those years will not always be healthy, and healthcare expenses can take a toll on the retirement accounts of even the best planners.
Recently I had the misfortune of seeing someone I know forced to retire early due to a diagnosis of Frontotemporal Dementia (FTD). FTD is similar to Alzheimer’s, and in its early stages is often misdiagnosed as such. FTD tends to first affect language skills like speaking, writing, and comprehension. Personality changes, resulting from changes to the brain in areas controlling conduct, judgment, and empathy, often make caring for individuals with FTD difficult. While uncommon, FTD tends to begin much earlier than Alzheimer’s, often affecting people in their 40’s and 50’s.
In this case, the person affected was an accountant who always kept a close eye on his retirement accounts and knew exactly how much he had, how much he needed to retire on, and how and when he was going to get there. Once his symptoms forced his retirement, however, all of his retirement planning quickly went out the window.
At that point, the proper thing to do would have been to immediately consult with an elder law attorney in order to ensure that he could be placed into long term care when it became impossible to care for him at home, without leaving his wife without the benefit of all their advanced financial planning. For example, Medicaid may be used to help pay medical expenses for an institutionalized spouse, while allowing the non-institutionalized spouse to retain a portion of their assets and retirement funds. However, Medicaid will only allow the non-institutionalized spouse to retain a limited amount of any retirement funds, requiring all the money over a certain amount to be used to defray medical expenses before Medicaid will kick in to help. To guard against people either spending or giving away all of their money right before applying for Medicaid, the government has a five-year lookback period. That means that when applying for Medicaid, the government will examine the applicants’ finances over the past five years to see if any assets have been shifted away, and will then impose a penalty period, which essentially means Medicaid benefits will not kick in for a period of time in an effort to recoup the missing money.
In this case, with the help of an elder law attorney early in the process, the couple could have made some financial decisions to do something with their retirement money sooner, outside of that five-year lookback period. Perhaps they could have enjoyed his retirement for a few years while he was still able to do so. They could have taken care of some long delayed repairs to the house or bought a new car to replace their twenty-year-old vehicle that constantly needed repairs. They could have set up a trust, or transferred ownership of some assets. Regardless of what they would have chosen to do with their money, with proper planning they would have had the power to choose.
Instead, they did what most of us would do. They slashed their spending and saved every penny they could for the inevitable medical expenses that were sure to come. FTD can be a slow moving disease at first, and they planned to stretch things out for as long as possible. Even as the disease progressed, they refused to take any drastic financial action, feeling that keeping that money in the bank was the wisest course.
Unfortunately, a few weeks ago he had to be rushed to the hospital. While the immediate danger is past, it is unlikely that he will be able to live at home ever again. What does this mean for them? In short, it is too late to do much of anything. The vast majority of the money they have kept sitting in the bank all this time will have to be spent on nursing home care before Medicaid will help. While some limited options still remain, once he has been institutionalized for 30 days even those options will be gone. Medicaid will look back to the first day of the month he was institutionalized, and whatever assets they had on that day will be required to be spent, minus her allowance, before they will pay anything.
The takeaway from this should be to plan before you think you need to do so. We never know when disaster will strike, and with the complexity of Medicaid rules, common sense things like saving your money may not always be the best approach. Consulting an experienced elder law attorney early, before you think you need them, and before it’s too late for them to help, can be critical to averting disaster later.