GET SMART ABOUT MONEY
Jean Chatzky, the award-winning journalist and personal finance expert, answers your caregiving questions.
BY:SUSAN STRECKER RICHARD
Question: Is there a formula to determine a good age to buy long-term care insurance? My husband and I are in our early fifties and my parents, who don't have this insurance either, are in their late seventies.
Jean Chatzky: The research has shown that you want to make the purchase sometime between the ages of 55 and 60, especially if you have a family history of health problems that might disqualify you in later years. If you buy too young, you'll pay the premiums for too many years before you actually use the coverage. If you buy much over 60, you might find that you don't qualify--plus the premiums get very expensive.
I tend to think that long-term care insurance is good for a very specific group of people. It's good for people with assets of between about $400K and $2 million. The reason for that is this: If you need long-term care and you have $400K or less in assets, you will very quickly exhaust your assets. If you have more than $2 million, you can actually invest your own money and fund your own care. In the middle range, it makes sense to have a policy in place to help you. Also, a policy makes sense for those with more than $2 million who will want to leave all their money to their kids. If they don't have LTCI and they use their money to take care of themselves, they won't be able to leave it.
And make sure your policies are as far-reaching as possible so that not only are they going to cover nursing care and at-home care but can be activated [as soon as] you are unable to perform only a couple of activities of daily living, rather than being unable to do all of them. I think the best thing to do when you're buying long-term care insurance is to buy from an agent who sells a lot of these policies. Policies have changed a great deal in the last few years and you want to make sure you're buying one from someone for whom this is an area of expertise.
RQ: My mother, 72, wants to stay in her home and is talking about a reverse mortgage to help her do this. What does she need to consider at her age? What are the pros and cons?
JC: First, she needs to consider the cost of the reverse mortgage--we've seen some reduction in the cost of these and that's a great thing-but reverse mortgages make the most sense for people who want to be in that home for a very, very long time, preferably forever. That's because you can win on this bet the longer you live and are able to use the house to live in.
The mistake many people make is taking a reverse mortgage out when what they should be doing is getting rid of the house, trading down, finding a less expensive place to live. Yet, they make this decision because they've convinced themselves that their kids really want them to hold onto the family house. You have to have the conversation--for whom am I doing this? Am I doing this for me--or am I doing this for you? But more often, they just don't want to move.
People are so convinced that they want to keep the house, not just for themselves but for the family, when really the better way to live in retirement is to live unencumbered.
And often the family house is too big, too much to take care of, is on far too much land--you know, these are difficult things to deal with for someone my age, let alone someone in their seventies or beyond.
However, if, in fact, you've got a lot of equity in the house and you do want to stay there, then it can make sense to go through the process. But you've got to look at the cost of the transaction and you have to go through a required counseling course to make sure you know what you are doing.
RQ: My sister, who lives closest to my ailing dad, has quit a full-time job to take care of him. Can the family pay her? And if so, how can we arrive at an appropriate amount?
JC: Yes, you can pay her and here are some guidelines. Talking about money--and family--is when things can get difficult. Nobody wants to feel taken advantage of and nobody wants to feel ripped off. So the fairest thing to do is to figure out what you would have to pay someone else to do this job and pay your sister that amount of money. Check rates in your area and see if those numbers make sense, at least as a starting point.
The other thing to consider from a familial point of view: your sister may be very happy, or at least quite willing, to do this, but she is giving up an awful lot. If the other brothers and sisters are in a position to replace even a greater part of her income, there would be less potential resentment on her part for actually having had to quit her job.
Editor's Note: It is best to consult an elder law attorney who can help you set up a caregiver contract and advise on the tax implications.
RQ: I've heard that hospital bills are sometimes negotiable? Is that true?
JC: They are negotiable. It's a secret that they're negotiable, but they are--and so are doctor's bills.
Many people are uncomfortable trying to negotiate for medical care. But particularly if something is not covered by insurance--or if it is not sufficiently covered by insurance--you can offer [to pay] out-of-pocket at a lower figure.
One way to do this is by offering to pay in cash for [tests, procedures and other items] that are not fully or sufficiently covered by insurance. Many hospitals have offices that deal with patients on this very thing. You can go to them and say, "This is what I can afford." They're getting these kinds of questions these days--and they will deal with you on that basis.
It's the same with primary care physicians. They do not get paid from Medicare and Medicaid what they charge you and me. Because Medicare is the largest insurer in the country, they get paid a discounted rate--and it's often a 40 percent discount. Knowing that can give you an idea where you can start with your negotiations.
RQ: We have a child with special needs who will most likely outlive us. What are the most important things to put in place for her future?
JC: In many cases, you need a special- needs trust, if the child is not self-sufficient. We often think, "I'm not going to have enough money for my child who will outlive me and has all these special needs." But, you want to be very careful not to put too much money into that child's hands because then they won't qualify for the benefits they're receiving for SSI, disability and anything they may be receiving on a healthcare or state level.
So, it's very important to set up a trust with a trustee who you understand will take care of your child and use the trust as it's meant to be used--to provide for the needs of that child. Also, this needs to be written by an attorney in your state because, state by state, the estate tax laws are different. And you should be sure to instruct other well-meaning people in your family--grandparents, aunts, uncles and others who might be thinking of giving your special-needs child money--that money should be given to the trust, rather than to the child.
Caring Today had some questions for Jean, too...
Caring Today: If you've suddenly become a caregiver, is there something financially you must do or put in place immediately?
JC: I think a budget is what you need. If you're thrust into a position where you're suddenly a caregiver, it's kind of like if you're put into a position where your hours at work are suddenly cut or completely eliminated. You have to look at how, at this point, your financial obligations have changed and how you're going to meet those obligations.
So, how much money do you have coming in now? How much money do you have going out now? How long is this situation going to last? How much do you have in savings that could actually help you make up the difference between what you used to be living on and what you're forced to live on now? And then, does the person you're caring for have any assets to contribute to the equation?
CT: In general, are there any big mistakes that families make when it comes to caregiving--things they don't think about or prepare for?
JC: A couple of things come to mind. I see a great lack of the concern for the right documentation--people don't have wills, they don't have living wills, they don't have durable powers of attorney for healthcare or for finances. These are fairly easy documents to prepare and it's fairly inexpensive. It's astonishing to me that so many people--and parents!--don't have them.
Secondly, people don't share their thoughts and ideas of what they want in a caregiving situation. You know, if you have very specific ideas of what you want, you should share that information sooner rather than later because later may be too late, after you're incapacitated. And if you're the adult child of an older parent, it's a matter of time before you're going to be a caregiver. It's just the way longevity is working these days. So you need to ask your parents very specific questions, even if it's uncomfortable. What do you want? What do you envision if there comes a time when I need to take care of you? What does that look like to you? Do you want to live with me? Do you want to stay in your own house? Do you want us to move in with you? Do you want to be in a facility? What does that look like? Once we figure out what it looks like, then we can perhaps pay for it. These are not hypothetical questions; they're real life questions.
People have to get themselves to the point where they can draw up a living will. These are discussions you should have with your parents--but also with yourself. And I find that one way to get older parents to the table to do these things is to talk about what you're doing in your own life to protect your own kids.
CT: And what about families in which siblings, for example, don't agree or there are still unresolved issues? Anything you notice with siblings when old baggage rears its head? Some wisdom?
JC: I am always struck by one friend who is a financial journalist. She has one sister who's a lawyer and another who's a doctor. So, for them, handling the older-parent questions and dividing up the responsibilities was incredibly easy. They knew exactly what their roles were and how they were going to do it. But for most people, it's not that clean.
I think there is often some tension about what's the right thing to do, about who is going to do what. Sometimes the emotions are just running so hot that you have to bring in an independent third party. That can be an attorney, an accountant, a therapist or even a very compassionate financial planner.
CT: Anything else to say to caregivers?
JC: The work that caregivers do is extremely important and, while doing it, we should remember that one day--it's going to be us.
Jean Chatzky, award-winning journalist and best-selling author, is the financial editor for NBC's "Today," a contributing editor for More magazine, and columnist for The New York Daily News. She is the author of six books, including her newest, Money 911: Your Most Pressing Money Questions Answered, Your Money Emergencies Solved. Check out her blog and learn more about The Debt Diet Online at www.jeanchatzky.com. Also follow Jean on Twitter and Facebook.