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by Catherine Fredman
"Your dad's in a bad way," one of my father's neighbors said. "You'd better come home immediately." It was the telephone message you never want to hear. |
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I'd been dreading this call ever since my mother died six years earlier. At that time I remember thinking how the death of one parent suddenly makes the surviving one seem so much more mortal. Although my father was 76 years old, age had nothing to do with his collapse. As it turns out, he had a severe case of Lyme disease that had gone undetected. By the time the neighbor called, my father could barely walk and had difficulty using a knife and fork. There was nothing wrong with his mental faculties, but it rapidly became obvious that he lacked the fine motor coordination to even sign a check. |
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My father's physical condition should have been all I had to worry about, especially at a time when difficult medical decisions had to be made that could mean life or death. But I soon found out that was a luxury I couldn't afford. My father's financial situation, a taboo subject in our family, quickly became the priority. With his incapacitation, who would pay for the day-to-day expenses to maintain his house in New York City's outer suburbs – let alone the impending doctors' bills? Was there a way to take the money out of my father's bank account without his authorization, or would my sister and I have to liquidate parts of our own portfolios to cover his costs? How long a period of time were we dealing with? And how would that affect our own financial planning? |
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If the experience of others is a guide, these questions carry serious personal and financial ramifications. Caregiving can cost individuals upwards of $659,000 over their lifetimes in lost wages, Social Security benefits and pension benefits, according to a 1999 study by Metropolitan Life Insurance in conjunction with the National Alliance for Caregiving and the National Center on Women and Aging at Brandeis University. The report, based on 55 in-depth interviews with caregivers, found that 29% passed up promotions, training opportunities and better job assignments, while 25% turned down transfers or relocations. |
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"If you're not aware of your parents' finances, all your own financial planning can get sidetracked," says Susan Richards, a financial planner and author of Protect Your Parents and Their Financial Health: Talk With Them Before It's Too Late. |
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There was one bright spot: After my mother's death, my father had updated his will and executed a durable power of attorney (DPA), naming my sister and me as his agents. This document, which differs from a general power of attorney because it remains in effect if the principal becomes disabled or incompetent, allowed us to act on his behalf in transactions concerning real estate, banking, stocks and bonds, and retirement benefits. Thankfully, my father had sent us copies of the DPA, so we didn't have to go on a panicky treasure hunt. And he had had the foresight to have the county clerk notarize the DPA, something that many financial institutions demanded before we could gain access to his accounts. |
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"If there's no [durable] power of attorney, it might be necessary to initiate a guardianship proceeding [to pay the bills]," says Emanuel Haas, an estate planning and eldercare lawyer in Tarrytown, N.Y. Under a guardianship decree, the child essentially takes over responsibility for the parent(s) and eventually is reimbursed for any upfront expenses from the parents' accounts. But guardianship proceedings themselves can last six months or even longer. It can be an arduous process that includes drafting a petition and explaining to the court exactly what funds need to be released. The court appoints an evaluator to interview the alleged incapacitated person (AIP) in order to determine needs and make recommendations. And it doesn't end there – court supervision requires that initial reports be filed as well as annual reports. "Guardianship," says Haas "should be avoided if at all possible." |
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Although we had power of attorney, we still had to figure out which of my father's accounts and portfolios were still in force, how much money was in each and which ones we should tap first. A pack rat like many in his generation, my father had stashed years of paid bills, cancelled checks, bank and brokerage account statements, and other financial documents in his bedroom and study, with the overflow scattered among boxes, files and even a suitcase in the guest room. Deciphering this storage system seemed daunting, if possible at all. Then my sister unearthed a copy of his 1998 income tax statement containing the name and telephone number of his accountant. |
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"One of the first calls should be to your parent's accountant," says Larry Holfelder, of Holfelder & Bryan in Brewster, N.Y., who, in fact, was the person we called. "The accountant has as much financial information as anyone and can give you a clue as to what assets and what type of information you should be looking for." |
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In effect, the accountant will have the conversation with you that you probably should have had with your parents in the first place – long before the health crisis occurred. |
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Handling day-to-day bills is just the beginning – especially if the illness is bad enough that it requires extended medical attention. In that case, long-term care insurance is critical, although neglected by most people, who make the assumption that the money in their estate combined with public and private medical insurance will cover whatever comes up, even a disaster. |
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The numbers prove that idea wrong, though. The average cost of nursing-home care is $46,000 per year, according to the American Association of Homes and Services for the Aging. In some parts of the country, it's a lot higher – $73,000 or more in New York, for instance. Traditional health insurance, Medicare and HMOs usually don't pay for long-term health care. If you're lucky, your parent has already bought a long-term care insurance policy from a private company. |
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Long-term care insurance differs from nursing-home insurance in that the coverage is broader, often encompassing home health care and home- and community-based assisted living as well as nursing-home care. Not only does that offer your parent the option of staying at home, it also offers a less expensive care option. In the New York City area, where my father lives, a certified nurse's assistant charges $11 an hour, or $264 per day, while nursing-home rates are about $350 per day in a skilled nursing unit. In other words, it may be possible to stretch the policy's maximum payout further by choosing home care. That's important, because after the insurance payout is exhausted, Medicaid takes over the coverage. And while nursing homes that receive money from the state cannot refuse Medicaid patients, the best of these care centers may have only a limited number of beds for them. Consequently, if there's no room, your parent may have to go to a second-choice nursing home, where the care may be of a lesser quality. |
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And there's another important benefit available through some long-term care policies: Some have an asset-protection component that ensures most of the money in the estate will not be depleted by health-care costs. Under Medicaid regulations, a person has to spend down his assets to a certain amount before Medicaid steps in; in New York State, for example, the figure is $3,550. But with an asset-protection long-term care policy, when the amount covered by the insurance is exhausted, the policyholder goes directly onto Medicaid without having to tap into his personal assets. What's left in his estate remains there until he dies, when it's passed on to his heirs. |
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You'd think that long-term care insurance would be a no-brainer, yet in an admittedly unscientific sampling of people I talked to about it, few heard of it, and of those who did, few had it. Ironically, the reason was usually cost. A typical is Jay Magaziner, a professor of epidemiology at the University of Maryland in Baltimore. About seven years ago, Magaziner's then 73-year-old mother asked him and his brother to split the cost of a long-term care insurance policy for her. Her reasoning was sound: As she figured it, her sons should bear the financial responsibility of insuring their inheritance. Magaziner looked into these policies but decided that "it was more than we wanted to pay" – a couple of thousand dollars a year. He and his brother decided to put it off for a few years. |
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By then, it was too late: His mother was hit with Parkinson's disease. "As soon as she got that diagnosis, she became ineligible for long-term care insurance," Magaziner says ruefully. So far, Medicare and supplemental insurance are covering most of her health-care costs, but with her condition getting worse, the decision has been made to move her into a retirement community. Magaziner wants to give her high-quality care, but her estate could be depleted quickly if the nursing home is an expensive one. "It becomes a financial issue in terms of the kind of place she would like to live in and what it would cost," says Magaziner. And with a daughter in her sophomore year at college next year and a son who's a high school junior, Magaziner adds, "it will be a stretch to contribute in a significant way. I don't know how we'll handle it all. We could end up with humongous loans." |
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I will never forget the immense relief I felt when my sister discovered my father's long-term care insurance policy. It covered nursing-home care, home health care and home- and community-based assisted living with set daily dollar amounts that were adjusted monthly for inflation. Furthermore, it was an asset-protection policy. The maximum amount of the policy was $186,000; he had already funded $146,000 – enough for at least 36 months of protection. |
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As I write this article, it's been more than a year since I got the telephone call. My father's life has changed utterly. As a result of complications stemming from the Lyme disease, he has had major surgery and spent months in hospitals, rehab centers and nursing homes. At one point, he was almost a quadriplegic; for a long time, I thought he would never walk again. He's now able to use a cane and is living in a senior-living residence in New York City, five blocks from my apartment. |
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One of the greatest comforts throughout this ordeal was the financial shield my father had, unbeknownst to my sister and me, constructed against the possibility of a disastrous health crisis. We didn't have to go through the legal and emotional turmoil of initiating guardianship – and he protected our own savings by his actions. Most important of all, we never had to compromise on my father's care or reject certain rehab centers because of cost. |
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It's a lesson that never stops being taught and yet few seem to learn. It's easy to put off the most important decisions until tomorrow – just about the time when making those decisions is too late. For people in their forties to sixties those decisions may often involve protecting the health and finances of two generations against disaster. In other words, they must consider how to deal with a potential health-care crisis involving their parents and one involving them. The same kind of solutions apply to both – assigning powers of attorney, putting estates and paperwork in order, having enough insurance and communicating about the family's financial condition. |
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"You're either well prepared," says estate attorney Haas "or you're not prepared at all." |
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