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The Legal Tool Families Use to Keep the House Safe | Ali Katz · The Great Wealth Transfer

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  The Washington Post published something that likely landed much like a punch in the gut one
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  for many American kitchen tables and living rooms. The Washington Post analyzed the finances of
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  thousands of Americans. Real people followed from their early 50s all the way until death. And
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  here's what they found. The share of people who ended up with nothing left to pass on, nothing
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  after paying for eldercare has nearly doubled. A man in Ohio said his 96 year old mother has
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  dementia. She's been an assisted living for seven years at $15,000 a month. Her savings
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  are gone. They may have to sell part of their farm in Kentucky that's been in the family since the
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  1960s. Not one of those families was described as having done any planning in advance. This is the
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  exact tool that could have saved that Kentucky farm. I'm Ali Katz, personal family
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  lawyer and family wealth advisor here to help you grow up around money. This week, The Washington
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  Post published something that likely landed much like a punch in the gut would for many American
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  kitchen tables and living rooms. And it needs to because we all really need to wake up to it. The
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  Washington Post analyzed the finances of thousands of Americans. Real people followed from
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  their early 50s all the way until death, with their money tracked every two years. And they
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  added up what those families actually spent out of pocket on care in the last decade of life. And
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  here's what they found. The share of people who ended up with nothing left to pass on, nothing
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  after paying for eldercare has nearly doubled. 1 in 20 spent more than $100,000 out
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  of their own pocket, out of their life savings. And the researchers were clear that even those
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  numbers are too low because they don't fully capture room and board at assisted living, which
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  is oftentimes the biggest bill of all. A man in Ohio said it best his 96 year old mother has
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  dementia. She's been an assisted living for seven years. At $15,000 a month, her savings
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  are gone. His family took a loan against her life insurance. They may have to sell part of their
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  farm in Kentucky that's been in the family since the 1960s. It just eradicates any generational
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  wealth unless you're very, very well off. But the truth is, is that it's designed that way and it's
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  up to us to do something about it because we do not need our parents. And if you are a parent, you
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  do not need to be spending your entire life savings on end of life care unless you don't plan
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  for it in advance. And one researcher quoted in this piece put the whole great wealth transfer
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  story on its head. She said the idea of a massive transfer of wealth is misleading, because it's
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  going to be the folks at the very top who pass anything on, and the rest of us will spend our
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  assets on care. I read that, and I could see why many people aren't taking the great wealth
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  transfer seriously and thinking it applies to us because of the research in this article, and every
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  number in it is real. And I'm so glad that they published it. But there's something that's missing.
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  And the thing that's missing is the part that could have saved that Kentucky farm. Not one of
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  those families was described as having done any planning in advance. Every story in that article
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  is a story about what happens when a family meets the cost of care, with no structure and no
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  advanced planning in place. And that means that your savings or your parent's savings are
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  sitting in their name. The house is sitting in your name or in your parent's name, the farm
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  in their name or in your name. And when care begins, the money drains out dollar by dollar
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  until there's nothing left. And then oftentimes the adult children start spending what they have.
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  It's not required, but it is the default. But with design you could do something different. And I
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  want to be careful here, because I'm not going to tell you that there's some magic trick that makes
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  the cost of care disappear. There's not. Care is genuinely, oftentimes brutally expensive, and
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  somebody has to pay for it. But what I am telling you is that you have a lot more control over
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  which dollars are paying for it, and how much is left standing afterward for you, for your family.
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  And there are legal options, well-established options. And that's what I want you to understand
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  and know about. Because if you look at those options, talk about those options now, there's
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  something that you can actually do about it. Now here's the key. You have to act before the decline
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  starts, before there's ever a diagnosis, before any cognitive decline happens at all.
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  That means before the nursing home, before the crisis. Now, if you are in a situation where a
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  parent has a diagnosis or a spouse has a diagnosis, or is in a nursing home, there are still
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  things that you may do. So don't think that there's nothing you can do and not get support at
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  that time. But if you're not in that situation yet and you could be in the future, And frankly, we all
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  could be. Then the time is now to start having the conversations and to start being in the
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  consideration while the person whose money it is, or whose assets it is, or whose house it is, or
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  whose farm it is, or whose business it is, still has the legal capacity to make decisions and sign
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  documents. And that could be you or that could be your parents. And it's really the whole game. And
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  here's why. Just about every meaningful protection strategy requires a person who has
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  capacity to make decisions, to sign something. That means moving a house into a trust. That means
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  signing a power of attorney that has enough breadth to actually do planning later. If you need
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  to do planning later, that means making a gift and means restructuring the way that assets are
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  titled now. It means entering into a caregiver's agreement to start moving assets to your
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  caregiver like an adult child and out of your state. Every one of these is a legal act, and they
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  all require legal capacity, which means that you understand what you're signing and that that's
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  documented, especially if cognitive decline has already started. Now, dementia does not take
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  away your capacity all at once in the early stages, many people do have capacity to sign, but
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  it is a closing window. It's not an open door. It doesn't last forever. And as the disease
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  progresses and capacity goes well, once it's gone, the options for planning really go with it. And
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  at that point, you're not planning anymore. You're reacting, you're in a crisis situation. And that's
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  really what the Washington Post article was describing, crisis situations where it was often
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  too late. There is a second clock that's running to and it's pretty unforgiving. So I want you to
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  be aware of it. There is a governmental program that does pay for long term care. It's called
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  Medicaid. And as long as we still have it, you want to be able to use it. And enormous numbers of
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  middle class families eventually do use it. But here's the thing Medicaid doesn't cover your care
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  expenses until your state has been decimated, until all the assets have been used. But those
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  assets can be protected. Now, Medicare does not cover long term care, and only about 3%
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  of adults have long term care insurance. And if you are going to look at long term care insurance,
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  you need to look at it really in your 50s latest 60s or it becomes way too expensive. My
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  own stepmom. Her mom had long term care insurance. She lived well into her 90s. She had care at home
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  because of this insurance. So it's really critical if you want to be able to stay home and you want
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  to have care provided by other people who are not your family members, long term care insurance can
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  be your best bet. You want to start looking at that early, and you want to look at that with the
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  help of a professional, ideally, whose entire business is not based on getting paid from what
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  you buy because you want the person who's advising you on long term care to be looking at
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  it with you objectively, to make sure it's actually going to work for you when you need it,
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  and to make sure that they are going to have your back. When your family needs to advocate for the
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  long term care insurance to pay. Because at the time that you need the long term care insurance
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  to pay, you're not going to have the capacity to be the one on the phone. So you've got to involve
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  your family in this conversation, and you've got to have an advisor who's going to be there with
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  you and your family for the long haul when it's time to get the insurance to pay. Now, outside of
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  that, if you want governmental benefits to pay for your care, there is a rule called the lookback. And
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  it's a five year rule. When you apply for Medicaid, the state, the government is going to review 60
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  months of your financial history. So that's five years looking back. They're going to look at every
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  transfer you made, every gift you made, every asset that you moved for less than fair market value. It
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  all gets looked at. And so if you moved something inside of that window, you get hit with a penalty
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  period. That's a stretch of time where you are ineligible for Medicaid benefits, meaning that the
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  government is not going to pay for anything that you moved out of your state in that period of
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  time. The clock doesn't start running from when you got sick. It runs from the date that you
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  apply for benefits. And so what that means is that the strategy has to be in place five years before
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  you ever need it. During that time, you're well and good. You have capacity. You probably don't have a
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  diagnosis. You're certainly not in a nursing home. And in this moment, which might be now, by the way,
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  assets moved into the right kind of irrevocable trust more than 60 months before an application
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  will fall outside of that review entirely, but move them at 59 months or sooner, and
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  you're inside the window with a penalty, and that means your assets are going to be counted and
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  Medicaid isn't going to pay for those benefits. So if you put those two clocks together, you'll see
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  the real problem. Number one, you've got to have legal capacity to act. And number two, you need
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  five years of runway for some of the strategies to fully work. So what that means is that you very
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  likely need to start thinking about this now, either for yourself or for your parents. Because
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  the cost of care that that window for the government to pay for this cost of care for you
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  while it opens in your healthy years and it closes long before anyone thinks that there's
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  anything urgent. Almost nobody is planning on this timeline, and that's why The Washington Post found
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  what it found. So let me tell you what's on the table. Again, it is an irrevocable trust that is
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  built for the purpose of ensuring that the government can pay for your long term care. People
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  often call this a medicaid asset protection trust. In my world, you might also use a steward's
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  trust. So these are two different kinds of trusts that you can use to protect your parents or your
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  assets from the cost of your long term care. And if you move assets, oftentimes, for example, your
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  family home into a trust you don't control anymore. You protect that asset from the cost of
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  your care. Now, this is the price of admission. And the reason sometimes people don't want to do it
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  because you are actually giving away the asset. The trust has to be irrevocable, not a revocable
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  living trust, not a family trust, but an irrevocable trust, meaning that you cannot simply
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  take the asset back if you can. The whole strategy doesn't work. And once that five year window
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  passes that you've given away the assets, you've put them into this irrevocable trust. Those assets
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  would not be counted against your eligibility for Medicaid benefits, and they become protected for
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  your family. This is the exact tool that could have saved that Kentucky farm. And if you make it
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  a stewards trust, well, you've got a trust that has double benefits. It has the protection from the
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  cost of long term care and a trust that can be used to prepare the next generation. Maybe you,
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  maybe your children, to steward the assets well and to grow them for the long term. And that's
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  really what it's all about. How do you keep more assets in your family, in your community, out of
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  the hands of the government, and from having to pay for your long term care costs that you don't
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  want your assets to have to pay for now, long term care coverage. As I've said, bought while you're
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  insurable are come in very different kinds of policies. There's traditional policies which is
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  just long term care or a hybrid kind of policy that combines life insurance with a long term
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  care benefit. And this is becoming more and more common. So you could get life insurance. You can
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  have this long term care benefit built in so that if you get sick during your lifetime, those
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  benefits can be used to pay for your care. And they just come off of your life insurance
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  benefits so that the money isn't wasted. If you never need care, your family would still get the
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  benefits when you die. And here's the part that many people miss. And you've got to hear it now.
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  And you've got to take action on it now. This is a medically underwritten policy, which means that
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  you have to be healthy enough to qualify, and a dementia diagnosis doesn't just make it expensive,
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  it likely makes it unavailable. Your ability to get insured because you're healthy. Now, that
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  itself is an asset, and that means that the younger you are when you start looking at
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  insurance, the lower the monthly payments are going to be, because you're going to be paying
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  them for a longer period of time. And these kinds of benefits are generally available and permanent
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  kinds of policies that are going to last the rest of your life. But again, you've got to get this
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  kind of policy while you're still healthy enough to get it. So let's talk for a moment about
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  spousal protections. If you are married, legally married, or in a
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  legally recognized domestic partnership. Now, federal law does not require a married couple
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  to spend down all of their assets before governmental benefits are available for the
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  spouse who is not the well spouse or the ill spouse, the one who is needing care. The spouse
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  who is well and stays at home can keep between about 32,000 and
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  $162,000 and countable assets. This is all varies based on the state plus the house
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  plus a car plus household goods. And again, most families never learn this and then spend down far
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  more than the law ever required. This is why you need support when you're going through this
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  process. And there is an exception as well for caregiver children under federal
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  law. As a parent, you could transfer your home to an adult child who lived there and provided care
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  that kept the parent you out of a facility for at least two years without triggering the usual
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  transfer penalty. Here's the key it has to be documented, meaning there has to be a caregiver
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  agreement. It has to be written. It can't just be willy nilly. You paid your child to take care of
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  you, and then they try and document it later. They could lose the house. So again, we have to do all
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  this planning. We have to document it. The paperwork is meaningful and real, and you don't
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  want to be doing this alone. You want to be going through this with a trusted advisor that's going
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  to hold your hand, that knows the rules, that is going to be able to support you in the process,
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  and you've got to get the authority in place while it can still be given. So let's talk about
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  powers of attorney for a moment. Your power of attorney has to have actual gifting and trust
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  powers, and that needs to be signed while capacity exists, because it's what lets your family do any
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  planning that's necessary after a diagnosis. A weak power of attorney that's generic, maybe one
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  printed off the internet or maybe signed decades ago. Well, oftentimes that's where families
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  discover at the worst possible moment, nobody can act. The power of attorney is out of date. It
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  didn't have the right powers in it. So it's the same thing as when you try to go to the bank
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  because your parent is in the hospital, and now you can't get access to the bank account because
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  the power of attorney isn't operative. So don't just rely on the fact that, Oh, yeah, I've got power
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  of attorney. Powers of attorney are very different depending on what that document actually says.
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  Now, here's the piece that nobody really tells you about until after the fact. It's too late and it's
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  called estate recovery. So since 1993, federal law has required states to try to recover
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  whatever Medicaid spent on the long term care costs that were paid after they die. And that's by
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  making a claim against the estate. So you may go through the entire spend down process and think
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  your house survived it. Great. We saved the house. But then the state comes for your house, and it
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  doesn't have to be that way. With planning ahead, you can protect the house, but again, you've got to
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  plan ahead for it. And these tools, they all have trade offs, right? Irrevocable means irrevocable. It
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  means you've given the house away. Gifts have tax consequences. State rules are going to vary. And a
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  few states have very different timelines. So this is not something that you really should be
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  figuring out on your own and bringing this to you here so you can have awareness of it so that you
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  can wake up to the reality of it, so you can recognize there's conversations to be had first
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  among the family members. Right. So talk to your siblings. Talk to your parents if you are the
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  parent. Talk to your adult children. And it's ultimately a conversation to have with a lawyer.
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  Who does this work specifically in your state while there's still time to act. And if you want
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  help finding a lawyer. Attend my next masterclass. Now, here's the harder truth underneath all of it.
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  Every single strategy that I talked about requires one thing that has nothing to do with
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  the law, and that is the talk. It's the talk that you've got to have with your siblings.
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  It's the talk that you've got to have with your parents. It's the talk that you've got to have
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  with your adult kids, and it's a hard conversation to have. And some of you have a situation where
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  your parent doesn't want to talk about it. And so you've got to create a relational dynamic
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  where your parents feel safe enough to talk with you about their financial reality.
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  And if you are the parent where you are raising your kids to be ready to have the conversation
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  with you. And it's not just a conversation about money, it's a conversation about care. It's a
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  conversation about how do you want to be cared for for the rest of your life in the event that
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  you do have cognitive decline? Who's making the decision about what happens?
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  And this conversation has to happen while you're healthy, while there's nothing wrong.
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  And it can't just be. I don't want to be a vegetable. I don't want to be on life support.
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  That's not the right conversation. The right conversation is if cognitive decline
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  does happen. How do you want your care to be provided. How long would you want to have care
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  provided for you? And what happens if you can't make a decision? And do you
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  want a nursing home to be spoon feeding you? I'm going to do a whole other episode on these
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  much deeper issues around end of life care. And how do we talk about it and how do we think about
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  it? And what if you don't want to live in that condition because the medical system, their
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  mandate, is to keep you alive, and they're going to do it at all cost. So the absence of this
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  conversation could be the most expensive silence in your family's life. And I would much rather you
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  have an awkward, uncomfortable Sunday dinner at 65 than a crisis at 85 when the options are already
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  gone. So you could start by just telling your parents you want to have the talk, or telling your
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  adult kids that you're ready for the talk, and let them know that you care about what they care
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  about. It's not about what you're going to inherit or when. It's not about you wanting their money.
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  It's about you caring about what they care about. And if there's a plan for their care, not just a
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  plan for their death. Because those are different plans. And most families, frankly, only have the
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  second one. And even if they have the second one, it's so out of date that it's not even going to
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  apply when the time comes. So you want to find out who has the authority to act if they can't. You
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  want to actually look at the documents to make sure it's all clear to you. Not just I know my
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  parents have a plan, but get a review and really understand what you're looking at. And ideally
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  with a lawyer who you can have a relationship with for life, who's going to be there holding
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  your hand when it really matters, and who can be there for you when your parents can't be. And if
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  you're the parent, show your children the plan, not just the location of the binder or the documents,
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  but the actual plan. Go over it together and make sure you all really understand it clearly, because
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  the version of this that goes badly always starts with everyone assuming it's been handled. Oh, my
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  guy's got to take care of. Oh yeah, I just did that, but not really looking at it because it felt
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  uncomfortable. But I can assure you it is far more uncomfortable to be put into a medical care
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  context that you would never have even wanted. Spending all the money that you worked your whole
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  life to create because you didn't plan in advance. You didn't talk about it in advance.
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  So the Washington Post is right. This is happening and they are right that it is getting worse. I
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  think it's an unseen, invisible epidemic in our country, maybe across the world. And the share of
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  families being left with nothing has nearly doubled over the past 15 years. And they are right
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  that the assisted living costs around $74,000 a year, nursing homes closer to
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  130,007 years of dementia care can run your family close to $1
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  million. So what I want you to take from this is not despair or loss of hope. The families in that
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  article, they weren't unlucky. They were just unprepared. And mostly because nobody ever told
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  them that there was something to prepare for, that preparing had a deadline or that they could
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  prepare. So now you know. And if your parents are healthy today, it's not a reason to wait. If you're
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  healthy today, it's not a reason to wait. It's a reason to have the conversation, to have the talk
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  now. And I'm going to be back to share with you the real details of the other conversation of
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  what do you actually want done to you, for you when you can't talk about it,
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  how to put it in writing, and how to not just end up in the default system that is here
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  to keep your body alive. Feeding tubes, artificial hydration, artificial nutrition,
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  antibiotics for every infection and they can keep us alive for a long time now. Transfers back to
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  the hospital again and again. this is what the medical system is optimized for. And it's
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  expensive. And it is frequently not what you would choose by the time it's happening. There's nothing
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  you can do about it and there's nothing your family can do about it. But there is an option
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  that most of us have never heard of, but that you can only choose while you still have full
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  capacity and it disappears the moment you don't. So in my next video, when I talk about this, I'll
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  explain what that is and what we can do about it. We'll talk about what the law actually lets you
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  refuse the Supreme Court case that determines whether your wishes get honored, and the specific
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  words that your directive must contain, and why. A generic no heroic measures or DNR form is
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  going to fail your family even in court, because these ultimately are not two separate decisions,
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  right? The default that keeps your body technically alive for years is the exact same
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  default that runs your family's savings to zero. Think back to the man in Ohio in the Washington
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  Post article Who's Losing the Kentucky farm. His mother has been in memory care for seven years.
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  $15,000 a month. $1 million and the family farm may have to
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  get sold to pay for that care. But one decision made years earlier would have kept all of that
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  from happening. So you get to decide, and only while you still can. The Washington Post just
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  told us that your inheritance is disappearing, but you can do something about it. And that's why this
• 24:31
  podcast exists. This is the great Wealth Transfer podcast. Please share it with somebody you love.
• 24:37
  Like, subscribe, follow, do all the things if you want us to notify you. When my next episode comes
• 24:42
  out on the choice that you can make today, to make sure that you don't fall into the default medical
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  industrial complex that is designed to keep you alive as long as possible, even if that's not what
• 24:53
  you want. I'll see you again next time. Bye for now.