As boomers age, lawyers seeing new trends in estate and health care planning

In 2010, the oldest members of the “baby boomer” generation began reaching retirement age. Born between 1946 and 1964, boomers are not like generations that came before them with regard to estate-planning needs. Many of them are living longer and will be working longer – some by choice and others because the value of their retirement accounts has plunged in recent years. As they look toward their future, the boomers’ top concerns are asset protection and paying for long-term care, although each person may have a different approach about how to accomplish those goals.

Tax laws

Sullivan attorney Jeff Hawkins, chair of the Indiana State Bar Association’s Probate, Trust & Real Property Section, said that boomers are primarily concerned with planning for disability – not death.

Huffman

“Death tax is not a concern for the majority of people, but now with long-term care costs rapidly approaching $100,000 per year, per person, suddenly that’s a much bigger issue,” he said.

Hawkins said that federal tax legislation enacted in December 2010 increased the estate and gift tax exemptions from $1 million to $5 million per decedent. He predicts that won’t change with the next Congress in 2012. But as South Bend attorney Richard B. Urda explained, estate planners are in a holding pattern until they know whether Congress will extend the tax breaks.

If the tax exemptions don’t change, a husband and wife could each pass $5 million to their children. But if in 2013 the tax rate reverts to its pre-2010 level of $1 million per person, about half of anything above and beyond $1 million will belong to the Internal Revenue Service.

“It’s kind of hard to tell a couple which way to jump at this point,” Urda said.

Long-term care

Sarah Pierce, an estate attorney for Muncie firm DeFur Voran, said long-term care is a top concern for clients.

“The number one question seems to be, ‘Am I going to lose everything if I have to go into a nursing home?’” she said.

Keith Huffman, attorney for Dale Huffman & Babcock in Bluffton, said he thinks long-term care may be the biggest threat to accumulated assets. Census population projections showed about 79,000 people were age 100 or older in 2010. By 2050, projections say about 600,000 people will be 100 or older. And that increase in life expectancy could mean longer, financially-draining stays in nursing homes.

“The first thing you always look at is genetics,” Huffman said. Someone who has many relatives that have lived well into their 90s is probably going to need long-term care at some point. Medicaid may pay for that care, but if an applicant for Medicaid has recently shifted assets to someone other than a spouse, paying for long-term care – at least initially – may be impossible.

In determining an applicant’s eligibility for Medicaid, the Family and Social Services Administration will consider a “look-back” period – the five years preceding the application date. If an applicant has, during that time, transferred money to anyone other than his or her spouse, penalties will apply.

In the case of Lola Austin v. Indiana Family and Social Services Administration, No. 64A04-1008-MI-514, the Indiana Court of Appeals affirmed the FSSA’s finding that a $35,500 payment Lola Austin made to her niece and nephew was a “transfer penalty,” making her ineligible for Medicaid benefits for the eight months following the gift.

Huffman said that a simple loan to an adult child could end up counting against a parent’s Medicaid eligibility unless a promissory note shows the loan is actuarially sound, has periodic payments with no balloon payment, and is not cancelled at the death of the lender.

“No one’s ever heard of any of these rules until they’ve seen an elder law attorney,” he said.

Huffman advises clients to invest in long-term care insurance, which he said is the best way to protect assets. But he also advises clients to work toward a solid foundation first.

“You need to own your own home and have $150,000 in the bank before you look at nursing home insurance,” he said.

Late-life divorce and marriage

Connie Bauswell, a certified elder law attorney who practices in Schererville and Valparaiso, said that late-life divorce is becoming more prevalent.

“We’re going to continue to see that more and more people that are at retirement age and older are going to be getting divorced,” she said. Many factors may be to blame for late-life divorce, she explained, including the stress that comes from a lack of adequate financial planning.

Bauswell said that the generation that lived through the Depression was much more concerned than baby boomers about saving for retirement from an early age.

“And I’m not saying that baby boomers on the whole aren’t frugal,” she said. “They just weren’t of the same mindset, because they didn’t go through the Depression.”

Bauswell said Indiana statute nullifies a will that names a spouse as a beneficiary when the couple divorces. She encourages clients to revisit their estate plans periodically, especially in the case of divorce or other developments.

While some relationships may end after age 65, new romances pose challenges for estate planners as well.

“Increasingly, we’re having people living longer and marrying late in life,” Hawkins said. “They have a lifetime of assets accumulated and a desire for their kids to have those assets.” But, Hawkins said, even if a couple sets up separate wills that disinherit their spouse, the surviving spouse can still claim a $25,000 survivor’s allowance. That’s one reason why more couples are turning to prenuptial agreements – the only way to get around the survivor’s allowance, Hawkins said.

Pierce said she’s seen an increase in prenuptial agreements for second marriages.

“What I usually see is a client has basically been burned in a divorce,” she said. “So they’re very cautious when they remarry. That’s the reason that they want to have such an agreement, to protect their kids (of) their first marriage.”

Powers of attorney

With a longer life expectancy comes the possibility that at some point down the road, older people may lose the ability to make informed decisions about their own medical care. Urda, who has been practicing law for more than three decades, has noticed a significant increase in clients requesting powers of attorney.

“When I first started, powers of attorney were something that mostly elderly clients would use,” he said. “Now the clients will consider, no matter what their age, whether they want powers of attorney that would cover financial matters, health matters, and financial and health matters.”

Huffman, who is on the board of directors for Bluffton Regional Medical Center, said that health care decision-making is extremely important for clients to consider.

Huffman said that Indiana’s living will may not be the best choice for an advanced directive, as it puts doctors in the position of stating a patient is dying. “Each facility has to act if (a patient) has an advanced directive, but there’s very little uniformity from hospital to nursing home – very often, the patient’s wishes for end-of-life care don’t get heard. There really needs to be a focus on educating people about health care decision-making.”

Bauswell said she strongly believes clients should have a health care power of attorney. She said it’s one of the most cost-effective ways to ensure that a person will have the best quality of life possible. She urges people to choose wisely, noting that simply picking the oldest child or the relative who lives closest may not always be the best fit.

“My recommendation is to look at it through a different looking glass, to pick based upon who would make decisions that are most closely aligned with the decisions you would make, if you were able to,” she added.•