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Legal and Financial Planning for Aging in Place

Oct 18 2019

By Mark Olshaker, Previously published by Reverse Mortgage magazine Sept/Oct 2019

Knowing the documentation your clients need​

No one is expecting a reverse mortgage loan officer to be a medical or legal expert, but here, netted out, are the general concepts needed to have a complete and constructive dialogue with a potential client facing the challenges and realities of aging in his or her home.

This information and insight come primarily from Robert M. “Bob” Freedman, an attorney specializing in elder law, trusts and estate planning in the New York office of Schiff Hardin LLP. Freedman has spoken extensively at NRMLA conferences. NRMLA President and CEO Peter Bell calls him “a pioneer in the field of elder law.” What Freedman offers is what he calls “a checklist of legal and financial issues.”

As he states, “A failure to plan is a plan to fail.”

First Questions

If the client is unable to make critical decisions for him- or herself, who will make essential medical decisions? Who will pay bills and manage assets? What will give them authority to act on the individual’s behalf? And how can such a system be put into place? The answer to each question is: through the proper legal document.

Advance Directives

Every client should have the following:

  • HIPAA Medical Privacy Release – HIPAA refers to the wide-ranging Health Insurance Portability and Accountability Act, passed into law in 1996. A national form, this release authorizes a physician to share the patient’s medical records with other healthcare providers and insurers. It is also needed for the physician to share medical information with anyone other than the patient, such as a spouse, adult child or other responsible party. This is particularly important if there are complex treatment or recovery considerations, or for another person to help with a medication regimen.
  • Health Care Proxy – This is a medical power of attorney (which it is called in some states). It legally designates another person to make medical decisions if the patient is unable to. This can be extremely important, as the Terri Schiavo case in Florida from 1990 to 2005 proved. Schiavo became incapacitated after a cardiac arrest and her husband and parents disagreed radically on what her wishes were, since she left no health care proxy. As a result, the case became a political hot potato and national referendum on the right to die, something none of the parties wanted. Proxy agents must be named one at a time, and Freedman says it is advisable to name alternate or successor agents. It is important to discuss end of life treatment with loved ones and family members, all of whom should be provided with copies of the health care proxy, as should treating physicians and caregivers.
  • Living Will – A related document, this is essentially a statement of the individual’s desires regarding end of life issues, such as how to define quality of life and whether—or to what extent—he or she wishes to have extraordinary measures employed to extend life. New York is one of two states that does not have a living will statute. Therefore, state law places authority to make end of life decisions with the health care proxy holder. The living will also provides the legally-required “clear and convincing evidence” of the patient’s wishes if no health care proxy agent is available. And a copy of the living will should be given to the health care proxy holder.
  • Power of Attorney with Statutory Gifts Rider – Unlike the HIPAA Release, this is executed on a state by state basis, and should be kept up-to-date since state requirements may change. It grants another person the power to manage legal and financial matters for the individual. If gifts to family members or friends are intended, then there must be a gifts rider attached to the document giving the administrator the power to make those gifts from the individual’s assets. Because these documents give a large amount of power to the designee, they tend to be long and complex forms, and therefore should be drafted and customized by an elder law attorney. For example, the individual may expand or restrict the standard provisions in a Modifications section, which could cover the ability to create and fund a trust, open and close bank accounts, apply for government benefits, etc.


More formal than a power of attorney, a revocable living trust can provide for the management of trust assets by a successor or co-trustee in case of the principal’s incapacity. It can be important in estate planning because it provides for the distribution of trust assets upon the death of the principal without probate or a court proceeding. For it to be valid, the trust must be funded; i.e. the intended assets must actually be transferred into the trust. However, assets not transferred to the trust during the principal’s lifetime may be funded in the trust by using a “pour-over will” or designating the trust as beneficiary of a life insurance policy.

Since the principal—or grantor—of the trust remains in full control while able and the beneficiary while alive, a reverse mortgage can be part of a revocable trust since he or she retains full title.

In an irrevocable trust, the grantor gives up certain rights, such as the title to the home if that is an asset placed in the trust. Therefore, a reverse mortgage would not be an appropriate vehicle for an irrevocable trust because the principal would no longer retain title, even if she retains the right to remain living in the home.

Freedman points out that there are certain legal remedies for dismantling an irrevocable trust, but they generally require the unanimous consent of all parties to the trust, such as beneficiaries. So, it is a good idea not to create such a trust until certain it best meets the needs of the client and financial situation.

Checklist for Financial Management

The first step in helping a client decide if he or she could benefit from a reverse mortgage is to make a detailed determination of income and expenses. A good accountant can be extremely valuable in this pursuit.

Freedman recommends a client have a full understanding of assets, including: bank accounts; treasury certificates and U.S. bonds; municipal and other government bonds; corporate bonds; and retirement accounts that are tax deferred, including IRAs, Roth IRAs, 401(k)s, 403(b)s, and any others.

Fee-for-service financial planners can assist in budgeting and offer advice regarding investments. Depending on the assets involved, this can be expensive.

Investment advisors may charge a fee based on a percentage of the assets under management or may take commissions.

The home is generally one of the most valuable assets. Clients wishing to age in place must consider at least three possibilities: a sale and use of the proceeds; a home equity loan or line of credit; or a reverse mortgage.

Supplemental Security Income (SSI) is a federal income supplement program funded by general tax revenues (not Social Security taxes). It is designed to help aged, blind and disabled people, who have little or no income by providing cash to meet basic needs for food, clothing, and shelter. Under SSI rules, a bona fide loan is not considered income. Since a reverse mortgage is classified as a bona fide loan, it can be used to provide additional resources without affecting SSI eligibility.

Long-Term Care

Over 70 percent of Americans over the age of 65 will require some form of long-term care. Over 40 percent will spend some time in a nursing home. That nursing home length of stay is distributed fairly evenly from less than three months (20 percent) up to five years or more (12 percent), with the largest cohort at one to three years (30.3 percent).

The costs of care can be daunting. Nursing homes can cost between $15,000 and $25,000 per month and assisted living can run from $3,500 to $11,000.

Home care attendants are generally paid between $15 and $27 per hour, which can add up quickly if full-time care is needed. There are also major issues with compliance with labor law rules, such as how many hours an attendant can work per week (including sleepover time) without being paid overtime. Another consideration is Social Security and tax withholdings, and unemployment and disability premiums. There is also potential criminal liability regarding immigrants who work without a green card.

Medicare, Medicare Advantage (similar to an HMO arrangement) and Medicare Medigap Insurance (a supplemental to cover what Medicare does not) offer only limited long-term care coverage.

Long-Term Care Insurance is effective and worth exploring, but as insurance companies have seen their payouts increase, it is more difficult to get a comprehensive policy, it can be very expensive, and premiums can increase year-by-year. The initial premium is based on age and health when purchased. Individuals with an existing chronic illness or ongoing medical condition, which is likely to result in the need for long-term care may not be insurable. Aside from age, factors affecting cost include gender, inflation protection and daily rate of coverage. Policies generally pay for home care, an assisted living facility or nursing home. But each policy is different, so it is imperative to review and understand the specific details.

Some new hybrid policies combine universal life insurance with a long-term care benefits rider.

If a client can obtain and afford it, and continues to live at home, long-term care insurance works well with a reverse mortgage, which can cover the other ongoing expenses and not have to pay for care.

Medicaid is the only government program that pays for long-term care in a skilled nursing facility or at home. It has become the largest payer of long-term nursing care for both the middle class and the poor. Each state has its own set of benefits and requirements, depending on the state’s arrangement with the federal government. New York has one of the most generous programs. Not surprisingly, Medicare has stringent financial eligibility requirements. It can be useful for a client to consult an expert for details, as well as an attorney to find out if personal assets can be protected while utilizing Medicaid.

Medicaid has rights of recovery against a home if there is remaining equity when the individual dies. There may be ways to protect the home against this right of recovery, including exempt transfers to a caretaker child or sibling with an existing equity interest. There can also be tax issues if the home is transferred or sold, another strong reason for seeking legal advice.

Protection for a spouse’s assets and rights varies by state, again with New York being among the most generous. In most cases, to protect a house from a Medicaid right of recovery, it must have been transferred into the spouse’s name at least five years before the client enters a nursing home or requires nursing care. An elder law attorney can advise on when transfer of assets is permitted, such as gifts to a spouse or disabled child or for the benefit of a disabled individual.

Freedman explains, “Assets held jointly with right of survivorship [JTWROS] may provide the joint owner with access to the assets. This is true for bank accounts and most, but not all, investment accounts, but is not true for real estate and some other assets. Consult an attorney before making an asset joint.”

When in Doubt

Given all of this, the best advice to give a client on any issue regarding aging in place is: When in doubt, consult an expert!