Speaker Addresses Seniors On Asset Protection

By Nancy K. Crevier

Certified financial planner Scott McDonald of New York Life packed a wealth of information into his half-hour presentation, “Four Ways To Save,” at the Newtown Senior Center Tuesday, March 27. Mr McDonald touched on changes to laws that affect asset protection, ways of withdrawing money out of an IRA, better ways to leave money to family, and how setting up a college plan for grandchildren can be financially beneficial to seniors.

First and foremost, said Mr McDonald, is to be aware of the high cost of nursing home or long-term care. In Connecticut and surrounding states, it is not unusual for care costs to run $300 per day and up. “That comes to approximately $10,000 a month,” said Mr McDonald. “Last year over $200 billion was spent on nursing home care in the United States,” he added.

Approximately 50 percent of people in retirement age will need long-term care due to longer life spans and better health care, said Mr McDonald. After less than 90 days in a nursing home Medicare no longer pays for expenses. At that point, any countable assets must be paid down until they are depleted and Medicaid kicks in. Steps must be taken to protect assets, he said, and offered some ideas on how to do so.

Many older people are not aware of the laws that govern their assets, he said. When a person ends up in a nursing home, the only assets safe from depletion are a personal residence up to $750,000 in equity, so long as the spouse living there survives; $2,000 in cash; $1,500 in life insurance; and prepaid funeral arrangements. Joint accounts, he said, are not protected, nor are pension benefits. Without proper asset protection, a person’s hard-earned wealth can quickly disappear when long-term care is required.

Transferring assets to children works only so long as it is done prior to five years before a person is in need of long-term care, and so long as people are certain of family stability. Until this year, said Mr McDonald, this “look back” period was three years. Preplanning is necessary if this road is to be taken, and by retirement age, no one can be certain when they will suddenly need long-term care. It is essential, as well, to be aware that once assets are in another person’s name that they are subject to any financial problems that person incurs. Divorce, lawsuits, and other family issues can mean that money entrusted to another becomes unavailable.

 Long-term health care insurance can be an easy solution to protect assets, said Mr McDonald, particularly if a person has a sizable estate. “Less than three percent of the population has long-term insurance, though,” Mr McDonald told the group. “No one thinks they will need it.” Long-term insurance will pay for all nursing home or long-care costs without depleting a person’s assets. How much long-term insurance costs is always a concern, he said, but by choosing a reputable company that is triple-A rated, clients can be confident they are receiving a fair rate. Ideally, this type of insurance should be purchased while a person is younger and healthier, but at a higher premium, it is available to nearly anybody.

Recently, a new, refundable long-term care insurance product has been made available, Mr McDonald said. “The advantage is that if you never use it, all of the money put into the plan will go back, tax-free, to your estate.”

Another method to protect assets is the irrevocable trust. When set up prior to the five-year “look back” period, assets can be protected from the nursing home, he said. The disadvantage to this for some people is that only the interest earned on it can be accessed until it returns to the estate at the time of death.

401K plans should be rolled over into an IRA before a person reaches the age of 70½ when a required minimum distribution must be withdrawn each year. Turning a 401K into a single premium income annuity (SPIA) is one way to provide a set amount of money each month that can usually provide a person with more than they would receive, at a better tax rate, than they would have if they are forced to withdraw from a 401K plan. Additional funds can be spent, put into 592 college savings plans for grandchildren, or deposited into life insurance or mutual funds, leaving more of the money tax-free at the time of death, Mr McDonald said, noting that for many older people it is the inheritance that they worry about.

“Know what you have and how to protect it,” he advised. By being aware of the options and planning in advance, asset loss can be minimized.