Protecting Elderly Parents’ Assets, Made Easy

Fraud, scammers, high medical bills, estate recovery… There are countless illegal and legal ways your aging parents’ assets can be targeted. Since managing finances can be more difficult as we age, many adult children have to help their parents with asset protection and creating an estate plan.

Does that sound like you but you are not sure where to start? Not a problem. Keep reading to learn more about how to protect your elderly parents’ assets.

What is Elder Financial Abuse?

Elder financial abuse is a form of elder abuse where someone takes advantage of an older person or threatens them for financial gain or control. In the United States, elder financial abuse is a crime, although laws regarding these crimes vary widely based on jurisdiction.

What Counts as Financial Abuse?

Examples include, but are not limited to, the following:

Medical billing scams
Forging the senior’s signature
Stealing pension checks
Coercing the senior to sign legal documents they do not understand and to subsequently sign away assets they wanted to keep
Withholding financial assets from the senior

What are the Signs of Financial Abuse?

Signs of elder financial abuse include:

Unpaid bills
Odd changes in spending habits
Sudden changes to wills, power of attorney, or other legal documents
Missing cash, jewelry, or other valuables
Suspicious signatures on checks or other legal documents
Newly opened credit lines

Why are Seniors at Risk of Financial Abuse?

There are plenty of reasons why older people are at higher risk of financial abuse, including:

Cognitive decline – Dementia patients face varying levels of cognitive impairment and often have difficulties making sound financial decisions; older adults without dementia are still subject to normal age-related cognitive decline. This decline can make financial planning difficult.
Perceived wealth – Many people believe seniors are financially well off (i.e., they have a retirement nest egg), meaning they are more attractive targets for scammers whether or not the older adults are actually wealthy.
Physical decline – Older people experience physical decline, which means that when they are threatened, they typically are unable to defend themselves physically as well as younger people can.

8 Common Financial Scams (and How to Avoid Them)

Common financial scams that elderly people may be vulnerable to include the following:

COVID-19 Pandemic Scams – Various pandemic scams involve attempts to steal people’s sensitive personal information. Ways to avoid these scams include not posting photos of vaccination cards and not giving personal information to people who claim to be from the government or your bank (they already have that information).
Credit Card Information Theft – People don’t have to steal physical cards in order to get the information they want. That’s why it’s necessary to save important bills and receipts, never sign blank checks or bills, never give credit card numbers over the phone (unless you called the other party first and have confirmed their reliability), and not write bank account numbers or other sensitive information down on easily accessed pieces of paper, like the outside of an envelope.
Emergency Scams – Swindlers may pretend to be a charity relief organization or a family member in trouble. Never send money to someone without confirming their identity and verifying their story with others.
Identity Theft – Identity theft is costly and can take years to rectify. The best way to combat identity theft is to prevent it from occurring in the first place. Steps to prevent identity theft include not carrying a Social Security card on your person, using a VPN on public WiFi, shredding sensitive documents when you no longer need them, creating difficult-to-guess passwords, and reviewing credit reports frequently.
Phishing – Phishing involves scammers sending texts or emails to a person with a suspicious link or asking for sensitive information. They can be quite sneaky and even look like they are from reputable institutions like banks. Ways to protect yourself from phishing include installing security software on computers and cell phones, using multi-factor authentication for personal accounts, and not clicking on any suspicious links.
Romance Scams – Digital romance scams have unfortunately become more common in the world of online dating. Romance scammers will ask their victims to send them money, gifts cards, or something else of value. Never send personal information, money, or other valuables to people you have never met in person.
Social Media Scams – Fraudsters use social media to find and exploit new victims. Ways to avoid these scams include being wary of any giveaway or survey, not accepting friend requests from people you don’t know, not sharing personal information online, and not clicking suspicious links.
Telephone Scams – Malicious actors commonly use phones to steal information regarding financial accounts. Avoid these scams by never giving out personal information over the telephone, blocking suspicious numbers, and adding your number to no-call lists.

Estate Recovery

Your aging parents don’t have to be victims of financial abuse in order to have their estate and assets targeted. In fact, entities can come after your parents’ estate in all kinds of perfectly legal manners.

For example, in many states it’s perfectly legal for Medicaid to collect money from a deceased recipient’s estate, in order to receive reimbursement for covering the deceased’s long-term care costs while they were alive. This process is known as estate recovery.

Medicaid isn’t the only entity that may attempt to reimburse costs via estate recovery. Nursing homes, for example, may also use this process.

How to Protect Your Elderly Parents’ Assets

There are plenty of legal and illegal ways your aging parents’ finances may be targeted, meaning it will take a lot of work from multiple parties to protect their assets.

Become Financially Literate

Saving money, budgeting, knowing when and how to invest, spotting scams… Financial literacy can help your parents protect themselves and their assets. For seniors who want to become more financially savvy, the following resources can help.

Invest in Life Insurance

Life insurance is a way to help pay for final expenses after passing away. Investing in life insurance is popular for those who want to leave behind fewer (or no) bills and expenses for their loved ones.

Invest in Long-term Care Coverage

Senior care costs, particularly long-term care costs not covered by programs like Medicare, drain many retirees’ savings. One way to combat this issue is to invest in long-term care insurance (LTCI). This way, seniors can rest easier knowing their medical bills will most likely be covered, all without the need to tap into their savings and estate.

Companies that offer LTCI include:

Establish Power of Attorney

No one likes to think about becoming incapacitated. Not planning for this scenario, however, can present a host of emotional, legal, and financial challenges for family members. That’s why a key part of estate planning is establishing power of attorney. Also known as a letter of attorney, power of attorney is a legal document that grants someone the ability to act in another’s stead.

General vs Durable Power of Attorney

There are different kinds of power of attorney. One of the most common types, known as general power of attorney, grants someone the legal ability to act in another’s stead until they become incapacitated. By contrast, a durable power of attorney can continue to act on another’s behalf even if that person becomes incapacitated.

What Can a Power of Attorney Do?

What a power of attorney can do varies depending on the type. That said, a letter of attorney generally grants someone the ability to make legal, financial, and medical decisions on someone else’s behalf.

Examples of this power include:

Signing and paying bills on someone else’s behalf
Making medical decisions for an incapacitated person
Managing a business or estate for someone else

Create a Final Will and Testament

A final will and testament is a legal document that dictates:

How someone wants their estate to be distributed,
Who will be distributing the estate, and
To whom it will be distributed upon death.

Having a will can protect people’s estates for their heirs after they pass away.

Not having these legal protections in place can mean that their loved ones have to fight a lengthy, costly legal battle for their inheritance. Even then, there is no guarantee that the beneficiaries will ever receive their inheritance. After all, many entities like Medicaid and nursing homes can legally try to recover costs from an estate once the owner passes. That means slashing the amount of inheritance loved ones receive.

So, if leaving behind a sizable inheritance is important to your parents, creating a final will and testament should be a cornerstone of their estate planning process.

Blue graphic listing ways to protect elderly parents' financial assets

10 Tips to Protect Your Parents’ Assets at a Glance

Ways you can help protect your parents’ assets include the following:

Communicate with your parents about their financial situation and their wishes for the future
Add their names to no-call lists and block scammers’ phone numbers for them
Set up autopay for their bills
Help them with budgeting
Establish an irrevocable trust (although this may affect their Medicaid eligibility)
Have them invest in LTCI
Establish durable power of attorney
Make sure they create a final will and testament
Have them invest in life insurance
Install a security system in their home, so you can monitor their physical safety and check if anyone is attempting to steal their valuables

FAQ

What sort of lawyer do you need?

When dealing with issues as complex and sensitive as estate planning, you want nothing less than the best. That’s why many people seek the help of elder law attorneys. These lawyers specialize in disability and elder care issues.

How do you protect parents’ assets from nursing homes and Medicaid recovery?

The cost of healthcare in the United States continues to rise, according to Genworth 2020’s “Cost of Care Survey.” Nursing homes, or skilled nursing facilities (SNFs), offer a high level of care for their residents 24/7, which understandably results in higher bills for residents and their family members.

In some cases, nursing homes and even Medicaid will come after people’s financial assets—including their estate—after they have passed in order to be reimbursed for their expenses.

Long-term Care Insurance (LTCI)

Investing in long-term care insurance (LTCI) can help protect seniors’ assets. LTCI can cover long-term care costs in ways that many government programs, like Medicare and Medicaid, do not. That means there will be less chances of unpaid bills, which means less chances of your parents’ estate becoming targeted for reimbursement after they pass.

Irrevocable Trusts

Another way your parents can protect their financial assets from recovery practices might include using an irrevocable trust. This type of trust has its terms, conditions, and parties locked in, meaning that it is impossible or nearly impossible to change it once created.

This type of trust is great for those who want to:

Avoid or minimize estate taxes,
Protect their estate from lawsuits, and
Otherwise protect their assets.

It’s important to note that, depending on the jurisdiction and type of trust, setting up an irrevocable trust within five years of applying for Medicaid could affect eligibility.

How do you avoid the Medicaid 5-year look back period?

Medicaid is a government healthcare program that offers financial assistance for low-income, disabled, and older US citizens and eligible non-citizens. Eligibility for the program varies by state, although eligibility is based primarily on income. Specifically, someone needs to be well below the poverty line in order to qualify for Medicaid.

Many people try to overcome these strict eligibility requirements by gifting away their money before applying to the Medicaid program. Knowing that this practice is popular, Medicaid has a 5-year look back period. In other words, before deciding if someone truly meets the income criteria, Medicaid will look back over the last five years of someone’s financial history.

If Medicaid determines that the individual gifted away assets in order to meet program requirements, there may be a delay in the person’s eligibility, known as the penalty period.

3 Violations of the 5-year Look Back Period

It’s important to remember that Medicaid requirements—and therefore violations—vary from state to state. As such, it’s important for individuals to check with their state’s own program to confirm rules guiding their state’s Medicaid look back period.

That said, the following are common violations across the country.

1. Otherwise Tax-exempt Gifts

Gifts that otherwise might be protected by estate and gift tax exemptions when applying for other programs might not be considered exempt under Medicaid.

2. Medicaid Qualifying Trust

This irrevocable trust is not exempt from the look back period, as Medicaid considers the trusts to be gifts.

3. Lack of Paperwork

You played by all the rules. If you can’t back it up with proper documentation, however, it might not matter, and Medicaid may deny you eligibility.

5 Exceptions to the 5-year Look Back Period

The easiest way to avoid getting penalized is to not give away assets within five years of applying for the program. That said, financial situations can change quickly, and it may be difficult to plan that far ahead.

There do exist exceptions to this rule, including:

Child Caregiver Exemption – Parents may be able to give assets to their children and still meet Medicaid requirements if the children are adults, are the parents’ primary caregivers, and have lived with their parents for at least 2 years before the parents applied to the program.
Community Spouse Resource Allowance (CSRA) – Someone (applicant spouse) can transfer up to $128,640 to their spouse if the spouse is also not applying for Medicaid (non-applicant spouse). Depending on if they live in a 50% or 100% state, the applicant spouse may need to spend down any remaining assets to meet eligibility requirements.
Paying Debts – Paying off debts in the 5-year period before applying for the program is not a violation.
Transferring Assets to Disabled Children – In some cases, applicants may transfer their assets or even establish trusts for their children and not be in violation of Medicaid’s rules and requirements. However, the children must be both disabled and under 21.
Transferring Assets to Siblings – In some cases, applicants may transfer a home to their siblings and not violate Medicaid’s rules and requirements. However, the siblings must have some sort of equity in the home and have lived in the home for at least one year before the individual moves into an SNF or other senior living community.

Remember: Medicaid rules and regulations vary on a state-by-state basis, so what is considered exempt in one state might not be exempt in another.

Final Thoughts

Protecting your elderly parents’ assets requires lots of planning, but is well worth it in the long run. Not only can it ensure that your parents have enough money to live comfortably in retirement, but it can also save you emotional, financial, and legal obstacles.

(Note: This article is not intended to act as legal, medical, or financial advice.)