Mary Ann and Joe Turner, both 67 and retired, are finally enjoying the fruits of many years of hard work. Their kids are educated, their house is paid off, and they are traveling the world. Mary Ann checks Airbnb on a regular basis planning for their next trip, while simultaneously scheduling those precious visits with the grandkids.
Mary Ann and Joe regularly meet with their financial advisor, Tom, and all is well in their world. In fact, the money they saved during the Covid-19 pandemic years has given them the impetus to look at buying a beach house.
Then, three weeks before they’re scheduled to close on their new beach condominium, Joe has a debilitating stroke. Mary Ann has no time for “the dust to settle.” The hospital wants to move Joe to a nursing home, which Mary Ann learns will cost $12,000 a month after Medicare covers the first 100 days. Joe seems like he could be in a nursing home much longer than that.
Mary Ann calls Tom in a panic when she sees how much the nursing home expects her to pay until Joe recovers. And no one knows if he’ll recover.
Their story is based on a conglomeration of true events that can happen to any of our clients and has happened to some of mine.
Savings Mechanisms Have Changed
Mary Ann has many problems to address in this crisis, but money, and where it will come from, is at the forefront. They need to cover Joe’s care as well as Mary Ann’s ongoing living expenses. Most of their $2 million in savings is in Joe’s retirement plan.
That’s a big problem. Crises like these can actually create a destitute spouse, even among our “rich” clients.
Your clients have 401k(s), IRAs, and 403(b)s. And you know, although your clients may not, that those accounts can legally only be owned by one person … ever.
This can matter in two critical ways, especially in the long-term care planning world: It’s not marital money and your clients need to prepare for this now, especially with regard to long-term care.
The Grim Statistics
For starters, the sole owner of an IRA, 401(k) or 403(b) is often the spouse who gets sick.
Statistics show that men are more likely to get sick and die long before women. If many of your clients are baby boomers or GenXers, they are ostensibly in the category of couples who have a partner who has a large 401(k) or IRA. Often the other partner has little or nothing in their own retirement savings. The numbers still skew in those generations to male spouses having large retirement funds and female spouses having small or no retirement funds.
Moreover, those female spouses are also underfunded by smaller Social Security checks. Why does this matter if a couple has $2 million in IRA assets? Because if the spouse with the $2 million IRA suddenly becomes the sick spouse — like our example client Joe, who had a massive stroke — that spouse’s IRA is there for the sick spouse’s care. On the face of it, that IRA is not for his healthy spouse’s living expenses. At least, that’s how a nursing home is going to look at it.
Why isn’t that marital money? Remember when we said that IRAs, 401k(s), and 403(b)s are legally only titled to one person? That’s why. It’s as simple as that. There is no joint ownership of these savings mechanisms. None. Ever.
The story doesn’t end there. It can have a happy ending or a sad ending, depending on you and your clients’ willingness to enter into some real, true long-term care planning.
A Fixable Problem
The first person your clients come to for financial advice when crisis strikes is you, their financial advisor.
If you have to tell a healthy spouse that their ill spouse’s funds are completely unavailable to them because the law says that money is only owned by one person, the sick person, and it will be used to pay $12,000 per month for as long as it takes … well, imagine how that conversation will go.
Is this a fixable problem? I believe it is.
Like I said, it can have a happy or a sad ending.
The sad ending is there was no real conversations or planning around a possible long-term care event, and so everyone is in crisis panic mode when Joe has a stroke. The sad ending may also be that Mary Ann doesn’t have access to the $2 million in retirement savings for her own expenses.
The happy ending is that financial advisors, with hopefully the aid of elder lawyers and perhaps insurance professionals, have come together to help their mutual client make important decisions, take preventative actions and be educated about the financial courses that can be taken to protect funds for a healthy spouse when another spouse gets unexpectedly or even expectedly ill. This planning is just as effective for non-married clients as well.
Make a Difference
So, what can you do quickly and effectively to start the conversation?
Make sure your clients have requisite legal documents.
The one thing that would ease Mary Ann’s terror immediately would be having a proper durable financial power of attorney in place. As long as the POA complies with all the state requirements to give Mary Ann the utmost capability of “gifting” assets from Joe’s account to her, then she is capable of moving those assets. This would allow her to protect funds in a crisis to avoid destitution.
In states like mine (Pennsylvania), Mary Ann can’t take full financial authority unless her POA meets certain requirements. This is why an elder lawyer in a critical partner. Explaining to your clients that POAs are the only avenue to easier financial control in a time of crisis should open the door to planning. A POA must be set up before Joe has that stroke.
Mary Ann also needs to look at how the contract was written up for the beach condo. Can she buy it herself? Additionally, does she need Joe’s IRA to pay for the condo? Without the POA, she has no access to that IRA. Does she even want the condo now, and can she get out of the contract to purchase it if Joe is incapacitated? It’s complicated, as you can see.
Tell clients, especially if you are a fiduciary, that you must have the long-term care conversation and take it seriously.
Many financial advisors brush this conversation to the side or never even approach it, especially if they believe their clients have enough money to pay for these expenses.
Well-respected long-term care specialist, Bill Comfort, CSA, CLTC of the Comfort Assurance Group, believes that this is because the focus of the long-term care problem is erroneous. He says it’s a fallacy that affluent clients can self-insure for LTC costs. Most “wealthy” couples can’t produce enough income from their portfolio to support ongoing lifestyle needs for a healthy spouse AND pay for caregiving costs, whether the spouse is being cared for at home or a congregate care setting. LTC specialists and advisors should change the focus of their analysis from “assets” to “income,” he says.
A Big Reminder
It is so critical that our clients understand who legally owns their accounts, and who does not. Then they need to know what that means in a crisis. I assure you, most of your clients do not understand this. They believe that if they are a beneficiary of an IRA, they are protected. But I remind them, beneficiaries are for people who have died. We are discussing a person who is very much alive but ill, and in that case, the ill person still is the only one who owns that IRA.
Shedding a bright light on how money is owned, how money will be needed, and how money will be spent in a long-term care health crisis will lead to a clear conversation with our clients. We then have the opportunity to make a plan specific for their needs. especially if and when the caregiving conundrum comes to their door.
Cathy Sikorski, Esq., is an elder attorney, speaker and author who unravels the complex financial and legal problems of caregiving and aging. She has been a caregiver for eight people. Cathy uses her experience to educate, entertain and elevate the conversation around money, retirement, aging and caregiving. Her third book, “12 Conversations: How to Talk to Almost Anyone about Long-Term Care Planning,” was released in October 2021 by Corner Office Books and is available on Amazon.