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.
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.
Examples include, but are not limited to, the following:
Signs of elder financial abuse include:
There are plenty of reasons why older people are at higher risk of financial abuse, including:
Common financial scams that elderly people may be vulnerable to include the following:
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.
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.
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.
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.
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:
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.
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 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:
A final will and testament is a legal document that dictates:
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.
Ways you can help protect your parents’ assets include the following:
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.
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.
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.
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:
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.
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.
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.
Gifts that otherwise might be protected by estate and gift tax exemptions when applying for other programs might not be considered exempt under Medicaid.
This irrevocable trust is not exempt from the look back period, as Medicaid considers the trusts to be gifts.
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.
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:
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.
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.)