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Senior Moments

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Teetering on an eight-foot ladder and scraping leaves out of the rain gutters on his house, Curtis Smith of rural Charlotte, Michigan, did not look like a man who was more than 100 years old. Spry and neat in olive green pants and matching work shirt, he lived at home, frying eggs and bacon for his breakfast every morning, weeding his vegetable garden under the watchful eye of his Irish setter, and wielding ladders, mowers, and even a snowblower to keep his property shipshape. His mind was diamond-sharp until the day he died, and he had few rivals in the art of storytelling–he regaled guests with non-stop tales, and had been known to follow them out the door to tell them “one more thing” until their cars were literally pulling out of the driveway.

Mr. Smith lived a full and active life, and by the time he passed away at 102, he had spent almost all of it living independently and in his own home. Of the more than 5,000 weeks of his life, he spent a mere six in a nursing home.

We should be so lucky. While all of us hope for Mr. Smith’s good fortune in regard to our own health and independence (and many of us may indeed enjoy it), the possibility remains that we may not. More than 12 million Americans currently require long-term care in some form, and a study by the New England Journal of Medicine estimates that more than 40% of people who reach age 65 will spend at least some time in a nursing home during their lifetimes. Although many stints will not be lengthy, 21% of those admitted will stay for five years or more.

Care for the no-longer-young comes in many flavors: assisted living facilities, nursing homes, home health aides, adult day care centers. But no matter how you slice it, the care is often expensive–nursing home care can easily top $100 per day, according to the AARP–and the money to pay for it has to come from somewhere.

The first order of business for Clyde Farrell, an attorney and CFP who specializes in long-term care issues in Austin, Texas, is to debunk the notion in clients’ minds that the money will come from Medicare. True, Medicare covers many health services for elderly people, including hospitalizations, doctor’s visits, and “skilled” nursing care (care provided by therapists or other medical specialists). It does not, however, cover the plain-Jane, everyday, “unskilled” care (assistance with getting dressed, bathing, eating), the primary kind of care offered in a nursing home setting. That leaves three options: Clients pay for care from their own pockets, they pony up the premiums for long-term care insurance, or they get themselves qualified for Medicaid, the joint federal-state medical welfare program for low-income and/or disabled citizens.

The word “welfare” can be a jarring one for middle-income clients, most of whom have heard it only in the context of food stamps doled out to other people, certainly not themselves. But 85% of Farrell’s clients turn to Medicaid to cover at least a portion of their long-term care. Only 10% pay everything out of pocket, and 5% opt for long-term care insurance.

Surprised? Yet Farrell’s clients aren’t unusual: Nearly 70% of the people living in nursing homes nationwide depend on Medicaid to pay for their care, according to the Henry J. Kaiser Family Foundation. This is not because it is the most appealing option; it’s simply because the care is so expensive. Indeed, if clients can afford to do otherwise, Farrell strongly urges them to consider paying their own way or buying long-term insurance, and helps them map out a plan to do so. “By paying privately, people can get better care, and certainly more options for care,” he says. “Although only 6% of Texas nursing homes are non-Medicaid, those 6% are generally the best nursing homes in the state.” Relying on Medicaid means sacrificing the ability to choose one nursing home over another; the program does it for you. And despite its recent efforts to the contrary, Medicaid has a bias toward nursing homes, so it can force beneficiaries into nursing homes even when less intrusive care arrangements (say, home care) might be more appropriate.

Its drawbacks notwithstanding, Medicaid is sometimes the only option; many families simply can’t afford anything else. For those families, Farrell acts as a resource, educating them about the complex maze of Medicaid rules and helping them provide for what they hope is an old age of comfort and safety for their loved one.

Mapping Out a Plan

Farrell, 53, has seen the best and the worst of the nursing home industry, but for a while his job forced him to see only the worst. During his 10 years as an assistant attorney general for the state of Texas, much of his job involved suing nursing homes that neglected or abused their residents, putting offending homes under government supervision or, in extreme cases, shuttering them entirely. (To say that the reports he had to read for these cases were depressing would probably be the understatement of the year.) After becoming chief of the attorney general’s consumer protection division, he went on to establish a special elder law section in 1991, where, in addition to advocating for the nursing-home-bound elderly, he also represented older citizens who had been taken advantage of through shady trade practices.

H. Clyde Farrell

H. Clyde Farrell

1411 West Avenue, Suite 100

Austin, Texas 78701


[email protected]

Practice Founded: 1993

Number of professionals/staff in office: 1 attorney, 2 legal assistants, 1 bookkeeper

Number of clients of the practice: 100

Compensation method(s): Flat fees

Average fee for a financial plan: $5,500

Fee for managing assets: NA

Client demographics: Elderly Texas residents

Education: BA in government from University of Texas, MA in political science from University of Wisconsin, JD from University of Texas School of Law

Previous incarnations: Chief of Texas Attorney General’s consumer protection division and elder law section; attorney for Texas Rural Legal Aid

Professional designation(s): CFP

Outside interests: Running, swimming, traveling

After a decade of such work, Farrell could have been forgiven for wanting a change of occupational scenery. But while he was ready for some change, he wasn’t ready to abandon doing work to benefit the elderly. He had discovered financial planning in 1985 and elder law soon afterward. By 1993 he was ready to combine them and strike out into private practice. He’s been there ever since.

While the occasional forward-looking client does consult him in advance of any infirmity, Farrell usually enters the scene only after crisis hits. “Most commonly, people come to us once a family member is in the hospital–they’ve had a stroke, or a fall, or a psychological or emotional episode, and the family is being told that the person will have to be discharged to a nursing home, or will need home care. The family needs to know, ‘How are we going to pay for this?’” he says. “That’s where we come in.” Farrell always considers the elderly individual or couple as the client, even if he only interacts directly with the adult children.

In the initial meeting, one of Farrell’s two legal assistants collects facts and figures. Then, before booting up his spreadsheets, Farrell talks with the family or spouse about the care requirements of the client. “Quite often it’s not real clear whether the person who needs care would be best served by nursing home care, assisted living, or home care,” he says. “The family just wants to know, ‘How should we handle this financially?’ But I don’t even want to do a plan until we first determine the best care setting.”

To do so, Farrell turns to members of a nascent profession called “geriatric care managers,” who help families organize the long-term care of elderly relatives. Many are social workers by training, while others have nursing backgrounds. “Some situations require medical assessments, while others require decision-making issues,” he says, “so I keep a number of cards from people with both types of training.” When Adult Child #1 wants Dad to enter an assisted living facility, and Adult Child #2 insists he should be cared for at home by a nurse, such counseling skills can prove invaluable.

Once Farrell knows the type of care required, he summarizes the client’s income and assets in an Excel spreadsheet. He then fires up MoneyTree’s Silver Financial Planner software to run several possible scenarios, depending on the client’s goals, which may range from having enough money to fund both spouses’ care to insuring for care in order to protect the family ranch. “It’s much like any other kind of financial planning; we just add this long-term care factor.” Next, Farrell generates a written plan using Microsoft Word and a program called HotDocs.

It would be convenient if there were a clear-cut formula for it all: everybody with x dollars or more should pay out of pocket, everybody with less than y dollars should go on Medicaid, and those in between should buy insurance. Unfortunately, it’s not that easy. “If you show me a couple with $20,000 in assets but each of them has $4,000 in income, they probably don’t need long-term care insurance. But another couple with $200,000 in assets but much lower income may well need it,” he says. “That’s why running these scenarios is essential.”

Surprisingly, the worst-case scenario is for a couple in which one spouse needs long-term care and the other stays at home. Emotionally speaking, having both spouses in a nursing home is undoubtedly the worst, but financially, long-term care expenses coupled with the expenses the couple has had all along takes the biggest financial bite.

For clients who opt for long-term care insurance, Farrell draws up recommendations about what to look for in a policy. “One problem with long-term care insurance is that there’s too much focus on policy terms that really don’t matter much: for example, whether you have to continue to pay premiums after benefits begin [the waiver of premium clause],” he says. “I generally recommend that people select that feature, but what’s really important is, ‘How much benefit will you be paid?’”

The second major feature to look for is breadth. Does it cover home care and assisted living? “The policy should cover the whole gamut of long-term care,” he says. “One of the major reasons to buy this insurance is to give yourself more options.”

The Medicaid Route

For clients who turn to Medicaid to finance their care, the process of qualifying can be tricky. Not only do the rules change from year to year, they differ from state to state, and botching one detail can render a client ineligible for the program for years.

Since Medicaid is a welfare program, a person must have a low income and limited assets to be eligible. Obviously the very poor qualify easily, but what about those with too many resources to immediately qualify?

Spending down one’s resources, gifting them, or otherwise manipulating them in order to “look poor enough” to qualify for Medicaid is generally known as “Medicaid planning.” Such strategies have been a source of controversy, and it’s easy to see why. The pot of money available to pay for the nation’s long-term care is hardly bottomless. If those who aren’t needy stash away or otherwise camouflage their wealth, there won’t be anything left for those who truly need help. That was the thought behind a 1996 law that made it a crime to transfer assets in order to achieve Medicaid eligibility. Repealed in 1997, the law was replaced with one making it a crime to advise someone about how to become eligible through asset transfers. The following year, however, the Attorney General stated that the law violated the right to free speech and would not be enforced.

Despite the hubbub, Farrell says he feels at ease offering Medicaid advice, and maintains that the popular perception of Medicaid planning–clients snapping up spacious homes and capacious cars while milking the Medicaid system for care–is a myth. Indeed, the Kaiser Family Foundation reported in 1999 that “there is little evidence of widespread abuse” of the Medicaid system, and because its rules are so confusing, “the primary challenge is to ensure that eligible elderly individuals enroll and receive assistance.” Says Farrell, “I have never, ever had a client buy a really expensive car for Medicaid planning purposes. People seem to think that’s what Medicaid planning is about, but it’s not.”

For Farrell, the line regarding appropriate or inappropriate Medicaid planning comes down to what the client can afford. “If it’s clear that the clients have enough money to be taken care of for the rest of their lives, why wouldn’t they pay privately and have more choice in their care?” He believes there must be a balance between his responsibility to society and his responsibility to clients, though he adds that “for a practitioner, the more immediate ethical issue is what is the right thing for the individual client.” And he believes it is his responsibility to educate clients about Medicaid. “People have a right to truthful advice about what the law is,” he says, “and that’s what we do.”

Rules, Rules, Rules

Not the least of Farrell’s advice involves simply laying out what’s allowed and what’s not under Medicaid. A single Texas resident can keep $1,590 per month in income and $2,000 in assets, plus certain exempt items, including a house, car, and personal belongings. For a Texas couple where one spouse is on Medicaid, the at-home spouse can keep half of the couple’s “countable” assets, or $87,000, whichever is less. The spouse is also allowed an income of up to $2,175.

Rather than having clients spend down their liquid assets to gain eligibility, Farrell sometimes helps clients by proving at a hearing that the assets will throw off income to which the at-home spouse is entitled. In a recent case, he says, “to pay the husband the income to which he was entitled, he would have needed $237,680,” based on the interest rate on a one-year CD at a local bank, which Medicaid uses as a benchmark. “Since the couple had only $89,000, they were allowed to keep it all.” As long as interest rates stay low, this planning opportunity will continue to present itself.

Other ways to avoid spending down assets include gifting them to children, directing them into trusts, or making purchases. Most gifts and transfers are subject to a “lookback” period; clients must make gifts or transfers up to three years before they plan to become eligible for Medicaid. Gifting assets into an irrevocable trust for, say, one’s children, comes with a lookback period of five years, however. Since the lookback periods don’t apply to fair-market purchases, an applicant can gain immediate eligibility by paying off a large mortgage or buying a house. The drawback of this strategy in most states (though not in Texas) is that Medicaid will try to recoup the money it paid for a beneficiary’s care from the proceeds of that person’s house after death.

Whether or not you support Medicaid planning, there’s something to be said for those who work to improve elderly Americans’ twilight years. “A lot of people would find this field depressing,” says Farrell. “It’s a challenge, but the only way to meet it is to focus on the good we can do, the health most of us can expect to have, and how we can make things better for ourselves and others with intelligent planning.”