Deferred, or variable, annuities are generally considered countable assets that factor into MassHealth eligibility (see MassHealth , but immediate annuities are not. Immediate annuities are contracts with insurance companies wherein the annuitant pays a certain sum to the company in exchange for a promise that the company will pay back a fixed monthly amount. Buying an immediate annuity or converting a deferred annuity to an immediate annuity is not treated as a transfer of assets for eligibility purposes if certain requirements are met.

For example, say Harry and Wendy are a married couple in Newton, MA, with $250,000 of countable assets when Harry moves to a nursing home. Wendy could convert $150,000 to an immediate annuity guaranteeing her a lifetime income stream, at which point Harry would immediately qualify for MassHealth coverage.

A single person in a nursing home with $100,000 in countable assets could also convert it into an income stream with a guaranteed payment of, e.g., five years. The monthly payments would have to be paid towards his cost of care, but if he died before the expiration of the five-year term, the balance of payments would go to his children (or whoever else he named to receive them).

An immediate annuity can be used to shelter assets for spouses of nursing-home residents and, in some cases, for single individuals. Note, however, that the guaranteed annuity payments would first go to the state to reimburse it for costs of care paid on behalf of the annuitant. If there are any payments remaining after the state is reimbursed, they can be distributed to family members. Annuities therefore carry an unavoidable risk that the annuitant will pass away before receiving many payments, with the remaining payments going to the state.

An annuity is a financial product that grows while being funded and provides a regular stream of payouts at a later date. It is a contractual financial product, and is sold by financial institutions whereby the institution accepts and grow funds from an individual and then, upon annuitization, provides a stream of payments to the individual at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the “accumulation phase.”

Once payments start, the contract is in the “annuitization phase.” Annuity payments may be for the life of the annuitant, for a specific number of years, or a combination of the two (for life, but with the guarantee of a certain number of payments even if the annuitant dies prematurely).

Deciding whether to purchase long-term care insurance, and choosing which policy to buy, is a very personal decision. In addition to the fact that Medicare and Medicaid offer only limited assistance, there are several factors to consider, including affordability, scope of coverage, family history, and, of course, age and eligibility. One thing worth noting is that Massachusetts does not, as of this writing, try to recover MassHealth expenses from the estates of people who own a long-term care insurance policy approved by the state at the time they enter a nursing home if the policy provides coverage for at least two years of nursing home care (at $125 per day or more). Weighing these considerations is beyond the scope of this book, but I urge you to meet with a trusted advisor to assess your long-term-care insurance options.

Medicare
Medicare was established by the government to cover some expenses for a limited time during disability or old age. Medicare pays less than 25% of long-term care costs in the United States. Private insurance often pays for even less. (That’s why it’s important to carefully scrutinize a long-term care policy.)

Medicare covers many hospital (“Part A”), medical (“Part B”), and prescription drug (“Part D”) costs. (Medicare “Part C” is an option to obtain Medicare benefits through a private insurer.) While the benefits Medicare does provide are critical to many seniors in the United States, Medicare does not provide complete coverage. Indeed, it provides very limited coverage for long-term care.

If you have to enter a long-term care facility, Medicare will likely cover the first twenty days. The next eighty days will be partially covered, with a co-pay. After the 100th day, you’re on your own so far as the long-term care facility goes, and that commonly costs around $360 per day, or $11,000 per month. Unfortunately, for this reason, most people must pay out of their own pockets for long-term care – at least until they have depleted their assets enough to be eligible for Medicaid (known as MassHealth in Massachusetts).

Medicaid
Medicaid was established by the government to cover long-term care for the elderly, disabled, and children—but only if they qualify financially. Many middle-class senior citizens turn to Medicaid to pay for their nursing and health care. But there are very strict guidelines on who qualifies, and seniors can’t simply offload their assets to lower their estate value because a “five-year look-back period” applies to prevent people from doing exactly that in order to qualify for Medicaid. If a disabled person or senior citizen hasn’t planned properly—at least five years in advance—they could lose their estate to health- and nursing-care costs if they are deemed ineligible for Medicaid.

Although the federal government outlines the basic structure of Medicaid, it is administered by state governments. That means each state applies its own rules, and eligibility varies from state to state. Because there are many nuances to this important option, it is discussed in its own section at the end of this chapter.

Many events can trigger the need for long-term care. Some children are born with an ailment that requires long-term care. Accidents and many diseases can strike anyone, at any age. Such events don’t just affect one person; their whole family is affected. Even setting aside tragic events, most people will need long-term care at some point in their lives. That point is difficult to predict since some people age faster than others.

Regardless of the age at which it is needed, long-term care is the most significant financial burden older Americans face. It’s not unusual for a nursing home in the Boston area today to charge $120,000 a year. Home care can cost even more.

A colleague of mine has been helping a sick relative struggling with Alzheimer’s disease. He was surprised to learn that Medicare did not cover nursing home costs. Another colleague endured a lengthy divorce and custody battle while caring for her sick child. Needless to say, the time involved—and the stress—was considerable, partly because her husband was asserting a claim to her parent’s home in which she owned a share. Each suffered employment consequences as a result, and one ultimately declared bankruptcy. Better planning could have made it easier for each of them by protecting certain assets against the risk of high, long-term care expenses.

Trusts are a special way of turning assets into a gift. They can help manage your assets and avoid probate. Through a trust, you can even give a gift to yourself. A trust is managed by one or more trustees who manage the trust property for one or more beneficiaries.

Every trust is created by a properly executed document (usually simply called “the trust” or “trust document,” or sometimes, the “trust agreement.”) The other requirements are a Settlor, a Trustee, and a Beneficiary. The Settlor (also known as the “Grantor”) is the gift-giver, e.g., the person(s) putting assets into the trust. The Beneficiary is the person for whose benefit the trust exists. The Grantor and the Trustee can be the same person if you are making the gift to yourself. The Trustee manages the trust to preserve the assets and make sure they are used to benefit the Beneficiary according to the Settlor’s wishes, as specified in the trust.

The Revocable or “Living” Trust
The creator of a revocable trust typically also serves as a trustee and as the principal beneficiary during their lifetime. This is often called a “Living Trust.” It provides for successor trustees in the event of incapacity and successor beneficiaries upon their death.

The appointment of a successor trustee can be an excellent way to provide for property management. Revocable trusts can be more narrowly tailored than durable powers of attorney, so the Settlor can be specific about the use of the trust property. Finally, as emphasized in Chapter 12, revocable trusts avoid probate.

Family Protection Trusts
Another type of trust is a Family Protection Trust. Parents can protect the inheritance they leave their children and grandchildren by leaving them in trust rather than outright to their children. These so-called “spendthrift” trusts are designed to protect children from themselves, e.g., from poor spending decisions. The downside is that the child cannot control distributions, so establishing clear terms and choosing a good trustee is essential.

One of the best asset protection tools available to a homeowner is the Homestead Declaration. Quite simply, if you reside in a home you own in Massachusetts, you can file a Homestead Declaration in the office of the county clerk in the county in which your home is located. That can protect up to $500,000 in equity from creditors. Disabled co-owners aged 62 or older may each file a Homestead Declaration, which can be helpful if the total home equity exceeds $500,000.
The Homestead Declaration protects home equity from lawsuits and bankruptcy. (Unfortunately, but understandably, lenders usually require that a Homestead Declaration be removed as a precondition to obtaining a mortgage, or refinancing.) It bears noting that the Homestead Declaration does not apply after the homeowner’s death so it does not protect the estate from creditors. Nor will it protect the proceeds of the sale of a home from creditors.
Nonetheless, it is easy and inexpensive to execute and file a Homestead Declaration, and every Massachusetts homeowner should do so.

Durable Powers of Attorney and Healthcare Proxies
Health and safety are paramount concerns, so step one in the planning process is choosing your designated agents and executing durable powers of attorney and healthcare proxies. If something happens that renders you unable to manage your affairs, you are considered “incapacitated.” Sometimes, as in the case of a coma, it isn’t clear whether an incapacity will be temporary or permanent.

An effective and reliable way to protect yourself and your assets is to appoint someone to act as your agent in the event of your incapacitation, and execute a durable Power of Attorney (POA).

Another tool is a healthcare proxy. Each of these delegates the power to make important decisions to people you trust and designate. A durable power of attorney can include the power to make financial, legal, and even healthcare decisions in your behalf. A healthcare proxy is limited to making healthcare decisions. Your signature on these legal documents is presumed genuine if acknowledged before a notary or another person authorized to take acknowledgements.

Of course, signing a power of attorney or healthcare proxy does not take away your right to make decisions for yourself. So long as you have the capacity to do so, you can revoke these documents, or execute new ones as you see fit. The point is not to divest yourself of any authority or responsibility, but to make sure your wishes and affairs are carried out, if something happens to you, by someone you trust.

When someone is incapacitated and they have not executed a power of attorney or healthcare proxy, their family members may have to go to court and seek the appointment of a guardian to make financial, legal, or health care decisions. That can be expensive and stressful, especially if there is disagreement within the family. It can also interfere with taking necessary steps to protect assets since many actions under Guardianship will need court approval.

Under the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), medical professionals cannot release health care information to anyone without a signed release or a court order. For this reason, HIPAA releases, also known as “medical authorizations,” are included in durable powers of attorney and healthcare proxies. In practice, what this means is that most healthcare providers will accept HIPAA releases signed by your proxy if they attach a copy of the POA or healthcare proxy.

If, however, you want to give different people different degrees of authority—e.g., give your child access to records but leave healthcare decisions only to your spouse—you may want to execute separate healthcare proxies. This can be helpful if you simply want family members to be able to communicate with medical providers, e.g., with respect to an upcoming medical procedure. These situations arise quite often, so your estate plan should include a HIPAA release as well as a durable power of attorney and healthcare proxy.

If something happens that renders you unable to manage your affairs, you are considered “incapacitated.” Sometimes, as in the case of a coma, it isn’t clear whether an incapacity will be temporary or permanent. An effective and reliable way to protect yourself and your assets is to appoint someone to act as your agent in the event of your incapacitation, and execute a durable Power of Attorney (POA).

A durable power of attorney delegates the power to make important decisions to people you trust and designate. It can include the power to make financial, legal, and healthcare decisions in your behalf

A healthcare proxy is a document that delegates the power to make medical decisions in your behalf to someone you designate. This document limit your delegate to making healthcare decisions, only. Signing a healthcare proxy does not take away your right to make decisions for yourself. So long as you have the capacity to do so, you can revoke this documents, or execute a new one. The point is not to divest yourself of any authority or responsibility, but to make sure your wishes and affairs are carried out, if something happens to you, by someone you trust.

If, however, you want to give different people different degrees of authority—e.g., give your child access to records but leave healthcare decisions only to your spouse—you may want to execute separate healthcare proxies. This can be helpful if you simply want family members to be able to communicate with medical providers, e.g., with respect to an upcoming medical procedure.