The clients answer to my question was unforgettable. He had been sitting silently for 45 minutes while his son listed each of the fathers assets and the reasons why they all should be transferred to the son.

When the son finished talking, I asked if he would leave the room for a few minutes so I could talk alone with his father. “Sure,” the son said. “Have at it!” waving his arm in a gesture of complete confidence. I closed the door behind the son, sat down with Mr. Smith and asked: “Do you want to transfer all of your assets to your son?” He said simply and emphatically, “Hell, no!”

We then talked about his concerns. He did not want to offend his son by voicing his real wishes. He said he might need to rely on his son for care later on and was willing to do whatever was necessary to stay on good terms.

The problem of aging with limited assets raises these kinds of personal issues, as well as obvious financial decisions. How much money will I need to live on? Will I have to go into a nursing home? What can be done to avoid that? What is the best allocation of the limited assets I do have?

Eventually, the questions may lead to wondering whether parents should impoverish themselves to qualify for government nursing home benefits.

Two lines of thought seem to be dominant in all of this. One is to give all of your money away, so you can qualify for Medicaid nursing home benefits. The other is to purchase insurance products to avoid such a result.

Giving away assets raises ethical issues about having society pay for your long-term care, even though you have assets that could have done so. In addition, many parents seem not to realize that once the assets are given away, they lose control over them. The donees may spend the money on themselves, or the money could be lost in a bankruptcy, divorce or other unexpected event.

In other words, the uncertainties of life can affect the children as much as they have the parents. The parents gifts may simply not be there if needed to support the parents later on. So, impoverishing oneself would rarely appear to be the best route.

On the other hand, purchasing insurance products offers viable alternatives. The first choice is often LTC insurance. But what if your client is uninsurable, or if the premium is prohibitively expensive in light of the limited resources available? Then, purchase of an annuity might well be in order.

For example, consider the client who has $50,000 in a low yielding bank certificate of deposit. In several years, this asset may be spent on living expenses. In addition, due to the uncertainties of the marketplace, the client cannot be sure what his dwindling savings will earn in interest.

If, however, the client uses this money to purchase an annuity, the client may receive a guaranteed monthly payment, which the CD can not provide long term. An example would be my client who sat so quietly during the interview with his son. This man could have purchased an annuity with part of his assets to simplify his long-term planning.

In selling annuities to seniors, the agent must be extra vigilant that the sale is suitable. A complete understanding of the clients needs and desires is essential. The primary purpose of the sale should be to provide a guaranteed income stream. Another purpose may be to simplify investment decisions. In many cases, a variable annuity will not be appropriate.

Similarly, in this regard, some unscrupulous planners have reportedly devised elaborate schemes to spend down an older clients resources. These schemes are targeted at seniors who are wealthy enough to pay for their own care for the foreseeable future, but who want to qualify for government benefits while still retaining access to their money. Such schemes should be avoided.

With so many competing issues, I believe that agents should be specifically trained to sell in this market. This training will protect the customer, and it may also protect the agent and the insurer from legal claims (including federal criminal violations). The stakes are high enough all around–for the customer, as well as for the agent and insurer–to favor training.

As our population continues to age, I believe that more and more people will be faced with dwindling assets, increased living expenses, and the prospect of a longer life span than those assets may accommodate. Annuities may help to provide the solutions that customers need.

Douglas I. Friedman, a partner in the Friedman, Pennington & Downey, P.C. law firm of Birmingham, Ala., is national counsel on estate and business planning for insurers. His e-mail is doug@fpdlaw.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 28, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.