Pre-Paid Funerals - Buyer Beware?

Over the weekend the Wall Street Journal ran When Prepaid Funeral Plans Are Wealth Killers subtitled "Long Pitched to People of Lesser Means, the Controversial Deals Are Going Upmarket—and Now May Carry Bigger Risks".

Prepaid funerals at the heart are just what they say - you pay now for your funeral upon your death. Elder Law attorneys commonly advise clients who have a loved one in a nursing home and are spending down all their assets to consider purchasing a prepaid funeral.  The expense of a funeral will exist for the family whether their loved one has assets or not - such as in the case of a person who has needed spend down all their assets to qualify for Medicaid to pay for their long term care needs. The purchase of an irrevocable pre-paid funeral is a permissible spend-down before applying for Medicaid.  For many, it is a sensible choice to prepay the $10,000 a funeral averages than to pay another month privately to the nursing home - it is not as if a person who has qualified for Medicaid will have an estate with assets to pay the funeral costs.

A key point is that the payment must be made to in irrevocable funeral trust in New Jersey so that the amount of the prepaid funeral is not "countable" and thus must be liquidated and spent down before Medicaid can be qualified for.  Compare this to a "funeral insurance" life insurance policy, which is a countable asset for Medicaid purposes, and thus potentially must be liquidated and spent-down before a person qualifies for Medicaid.

The article takes issue with situations of potentially unscrupulous sales of pre-paid funerals, whether into trusts where the assets weren't there at the end, or the family didn't get the services they thought they paid for, or they ended up paying more in insurance premiums than the value of the policies.  It notes that " In November, New Jersey started requiring cemeteries to deposit all of the prepayments they receive for burial services into a trust fund for safekeeping."

Notwithstanding that a person always needs to be aware of the "small print" on any large purchase, prepaid funeral will remain in the Elder Law attorneys arsenal, and are a good solution for families who find themselves in a position of potentially having no estate to pay funeral expenses.

Wall Street Journal is Wrong that Seniors want to "Game" Medicaid

Over the weekend the Wall Street journal ran an article on elder law  planning entitled "Inoculating Estates From Health Costs". While I'm always happy to see an article about elder care planning in the news because it's such a critically important and mis-understood problem, in this article the Wall Street Journal missed the mark.

The article opens as follows:

Should you give away your nest egg to your heirs—and then stick Medicaid with your nursing-home tab when the time comes? Outrageous though it might seem, it is a perfectly legal estate-planning strategy.

 The author seems to think that this is what Medicaid asset protection planning is all about -- happily giving away millions in assets so you can "stick it" to the government should you get sick. This assumption couldn't be further from the truth.

The vast majority of clients I see who seek elder care advice from an attorney are not rich -- they typically have a modest home that they have owned for 40+ years which has appreciated in value primarily because of its location in Northern New Jersey. They may have $100,000 to $300,000 in savings - they may have less or none. They are generally living off of the fixed income of Social Security, a small pension, and income off their meager assets, in the most expensive state in the country. Real estate taxes for that modest home easily range between $6000 and $15,000 per year.  Given current interest rates, the income off of a $100,000 CD may be approximately $4000 a year (which might cover part of their real estate taxes).

The clients and audiences I speak to about elder care planning are retired -- they generally worked their whole lives for one company or a small business, and are falling further and further behind every year as promises made about pensions and healthcare are reneged upon, or the companies that they work for go out of business, while living expenses, and most dramatically health care expenses, spiral beyond their means. They typically have little or no debt, because it was always important to them to pay their bills. Many are veterans, because they cared enough to serve their country.  They're scared - scared that they might lose their house, scared that their spouse will not be able able to financially survive if they get sick, scared that their illness might bankrupt their children.

And let's talk about the author's assumptions about how "great" it is to be on Medicaid should you get sick.  In order to qualify for Medicaid, you must have less than $4000 of assets in your name. When was the last time you had less than $4000 of assets? Needing Medicaid means that you are stripped of all financial security whatsoever. Do you want to ask your kids for money whenever you need it? Well, neither do my clients.  Furthermore, under Medicaid, your choice of care is limited -- generally Medicaid only pays for care in an institutionalized setting (i.e. nursing home), and will not pay for you to be cared for in your home (even though that will cost less). So, not only have you been stripped of all your finances, but you are also stripped of the comfort and dignity of aging and dying at home. Gee, doesn't that sound like something you should "plan for"?

So why does it matter to plan to pay for long-term care for yourself? Well, nursing homes in New Jersey easily run at $10,000 after-tax dollars a month. That's four times as much as you might pay for tuition for a single year of a college education. Our seniors didn't plan for this -- heck, those of you reading this right now have not planned for this. It is mind-bogglingly expensive and could wipe you out financially.

So, should the result be to punish people for getting old and getting sick before they die?  Does a person "deserve" to be institutionalized because they didn't "strike it rich" during their working years?  Or, should our seniors be afforded the most dignity and security that they can in the face of a whole host of bad choices, each one worse than the one before it?

Sure, there are people out there who "game" the system -- but that's called fraud, and there are civil and criminal penalties to address that. The seniors that I talk to just don't want to be scared anymore -- they want to have a sense of security about their future, to know what it could cost them if they get sick, and to know how it is that they're going to pay for it. The Wall Street Journal article uses far too wide of a brush -- don't paint those seeking education to make informed decisions about a harsh reality as leeches on society.

Image: Maggie Smith / FreeDigitalPhotos.net