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            It seems that every year we receive more calls from our clients who have long term care insurance but are struggling with the decision about whether to keep it in the face of rising premiums.  The story I wrote about the past two weeks is an example of someone who reduced his coverage with some severe consequences.             There are, however, other alternatives.  I wrote about some of those options last year, what are called asset based long term care insurance products.  It is, in essence, self-insuring using what we call “legacy assets”.  These are assets in retirees’ portfolios that do not support their lifestyle, but are available in case of some serious emergency (rainy day money!).  These assets if (hopefully) never needed, will pass to the clients’ children or charity after they die.  The one most significant risk to those assets is the need to pay for long term care.             The ideal planning approach  would be to “invest” some of these legacy assets in such a way that the assets can be worth as much as possible whenever they may be needed to pay for care . . . in the home, assisted living facility or nursing home.  If

            Last week we were talking about Bob and his dad, Jim.  Jim had always told Bob that he had long term care insurance to cover the cost of his care.  However, now Bob was discovering that the policy isn’t what Jim represented it to be.             As I explained last week, Bob learned that Jim has $75 per day of coverage for assisted living care and $150 per day if he moves to a nursing home, which Jim does not yet need.  Bob wants to keep his dad at assisted living level care as long as he can.  That 50% limit was the bad news.  However, the good news, or so Bob thought, was the fact that Jim had an inflation rider that increases the daily rate by 5% of the original rate each year.             But when Bob called the insurance company to start the process of putting in a claim, he was informed that his dad had dropped the inflation rider several years ago.   Jim had received a letter from the insurance company about a rate increase.  Unbeknownst to Bob, and concerned about affording the premium on the policy, he exercised an option to keep the premium the same

      Bob’s dad, Jim can no longer stay in his home alone. His dementia is advancing and Bob is now ready to move Jim to an assisted living facility. Jim had always told Bob not to worry about how to pay for care if he needs it because he has a long term care insurance policy but Bob had never actually seen it.       Now that he wants to put in a claim for benefits he looked thru Jim’s papers and found the policy. Jim has a traditional long term care insurance policy. It pays up to a certain dollar amount per day for long term care, in his case $150 per day. This confirmed what his dad had told him for years. There is a lifetime cap as well. In Jim’s case the lifetime limit is $164,250. The policy will last Jim 3 years at the maximum rate of $150 per day. If he needs less than $150 a day of care then the policy could pay out over a longer period of time.       When Bob looked further, however, he saw some problems. Generally, long term care insurance policies can cover home care, assisted living care and nursing home care

            Last week I was telling you about George’s problem.  He had transferred his home to a trust to protect it but then received a letter from the bank referring to something called the due on transfer clause.             A transfer of title without permission could trigger the bank’s entitlement to be paid back the entire loan balance immediately.  Some transfers are problematic and others are not.  For example, a transfer to a revocable living trust may not trigger the clause.  A transfer to an irrevocable trust probably would.            Does that mean then, that a revocable trust is the answer.  Not if asset protection for long term care purposes is the goal because assets in a revocable trust are countable for Medicaid eligibility purposes.  They would have to be spent down first, before Medicaid eligibility is reached.             So, what should George have done?  And why would it have been OK for Jamie to transfer her mother’s home to a trust (see my post from 5/11/15), but not for George to do the same?  That’s because there was no mortgage on Jamie’s mom’s home.  When there is no mortgage or the balance is manageable, then transferring the home

            To follow up on the same topic of the past two weeks, transferring the home, recently we received a call from George regarding the transfer of his home to a trust.  He received a letter from the bank holding his mortgage, stating something about the due on transfer clause.             George still owes $100,000 on his mortgage.  The problem is that when the bank learned of the transfer of the home to a trust it informed him that he must pay off the mortgage in full.  But, didn’t I tell you last week that a transfer to a trust would have been a better solution for Jamie?             Yes, but as you’ll see here, each situation has different considerations.  In Jamie’s case, her mom did not have a mortgage so we weren’t concerned with the issue that George is now facing.  So, what exactly is the due on transfer or due on sale clause?             The clause provides that if you transfer ownership of your home without the bank’s approval, it can force you to pay back the entire mortgage balance immediately.  Federal law establishes certain limitations to the clause.  For example, banks can’t enforce the clause when one co-owner dies and

            Last week I told you about Jamie’s mistake.  Mom and Dad transferred their home to Jamie 7 years ago to protect it from Medicaid’s spend down requirements.  While the transfer was outside of Medicaid’s 5 year look back, now that Mom was planning to move in with Jamie the tax consequences of the sale of that home had become an issue.              Jamie, as owner of the home, will have a capital gains tax bill of $30,000 to pay because she can’t utilize the $250,000 exclusion of gain on the sale of a primary residence.  Jamie and her husband have their own home.  So, how could this have been avoided?             Setting up a certain type of a trust and transferring ownership of the home into that trust would have preserved the capital gains tax exclusion.  As confusing as it might sound, the home would not have been “owned” by Mom and Dad for Medicaid purposes but they could have preserved the capital gains tax exclusion on the sale of a primary residence,  under federal tax code Section 121.             There are other advantages to the trust as well.  A transfer outright to a child means the child owns the home. That