In 1994, the Pennsylvania superior Court ruled that an indigent mother could sue her adult son to pay her overdue nursing-home bills. The case, Savoy v. Savoy, may not have been the first of its kind, but it lit a fuse. Ever since, filial-support litigation has been spreading across the nation. And financial advisors who oversee their clients’ long-term-care planning had better take notice.
“In Pennsylvania it’s become a trend,” says Katherine C. Pearson, a professor at Pennsylvania State University’s Dickinson School of Law in University Park, Pa. “But I don’t know of any state where this is not an issue.”
The issue is not always—in fact, not usually—an intra-family feud. Often it’s a nursing home or assisted-living facility or even a publicly funded long-term-care agency that goes after children, grandchildren and other family members to repay outstanding LTC bills. For financial advisors and their clients, this is a wake-up call: Clients not only have to plan for their own future needs but also make sure their parents’ LTC finances are in order.
A Web of Legal Statutes
The legal mechanisms underpinning these efforts vary. In 28 states, filial-support laws are on the books. They “essentially establish a legal precedent of financial responsibility among family members for the expenses incurred by a loved one, particularly in the case of health care or long-term care,” says Chris Orestis, CEO of Life Care Funding, an LTC specialist firm headquartered in Portland, Maine. But other states pursue similar outcomes through a spider’s web of statutory precedents.
For Medicaid and other state agencies, a primary legal source is the Omnibus Budget Reconciliation Act of 1993, a tax reform bill passed during the Clinton administration. Buried in the act, Orestis explains, are rules that “compel state agencies to collect back funds they’ve expended on Medicaid services from families if they discover the families have assets available,” he says.
Orestis gives an example. Before Medicaid benefits kick in, you’re supposed to liquidate the cash value of any life insurance policies and spend the proceeds on health- or long-term care. If Medicaid discovers you did not, it will essentially fine you to pay back any money it’s spent on your behalf. “Even after you die and your family collects a death benefit on that insurance, Medicaid can sue the family in probate court to recover what the state spent on care,” says Orestis. “It doesn’t matter if the family intentionally deceived Medicaid or it was an accident.”
The same may be true for any other asset the family holds. “State agencies will go after it,” he says. “They not only have the right but are federally required to.”
If that tack doesn’t work—or if it’s not a Medicaid case, say—litigants may employ other means to claw back funds. “New Hampshire, for example, repealed filial-support laws and substituted a theory of fiduciary obligation,” says Pearson, explaining that a loved one who has been given a power of attorney can be held personally liable for any unpaid bills. “It happens for a variety of reasons, both innocent and not so innocent,” she says.
Sometimes it’s a case of out-and-out fraud—for instance, if the parent is suspected of transferring property to an adult child just to claim poverty, or the child misappropriated the parent’s assets for personal gain. Yet Pearson tells of another case in which the parties simply assumed that they had Medicaid eligibility, but it never actually came through “for not entirely clear reasons,” she says, and the nursing home’s bill was never paid. The court permitted the nursing home to go against the innocent adult child for repayment. “There’s nothing to indicate that he did anything to make the parent ineligible,” she says.
No Clear Victims or Villains
It’s not that simple to decide who the victims and villains are. After all, an assisted-living facility that helped you care for your loved one surely deserves to be compensated. Also, is it fair to burden taxpayers for that expense if the family has the funds? “It’s not black and white,” says Orestis.
“When people game the system to get on Medicaid—when they hide or shuffle assets—we the taxpayers are the victims. When adult children use a parent’s assets for themselves and leave mom or dad unable to fund their own long-term-care needs, mom and dad are the victims. The nursing homes can be victims, too, because they can be cheated.”
These problems arise amid the greater problem of an aging population. “Every day, 10,000 baby boomers turn 65,” says Orestis. “This puts tremendous pressure on social safety nets that pay for care. And the government is pushing back.”
Medicaid doesn’t pay 100% of nursing-home costs, and Medicare pays only for the first 100 days of care. So institutions are often left with unpaid bills. “In the past, the nursing homes had margins that could forgive some delinquent accounts, but now they are squeezed so tight they have to try to get back every dollar,” says Pearson.
As widespread and multifaceted as the problem may be, there are a few solutions. If a loved one goes into a nursing home, it’s a good idea to spell out in advance who is financially responsible and make sure there’s a regular accounting. “Once there’s a backlog of unpaid bills, it can become very hard for anybody to catch up,” observes Pearson.
Equally important is planning ahead—as a family. That may mean doing something beyond securing individual LTC insurance. “If kids insured their parents, that would be one way to protect themselves [from filial-support suits],” suggests Rhonda Guilin, a Brea, Calif.-based regional sales director for LTC Financial Partners and Insurance Service, headquartered in Kirkland, Wash. “Lots of employer group/multi-life plans offer coverage with a discount for family members, including parents.”
Of course, that might not be necessary. So a family conversation is a good first step. “Many people don’t even know if their parents have LTC insurance, or who the carrier is,” says Pearson. “People don’t typically put themselves into a nursing home. Usually it’s because of a medical emergency, or they are discharged directly from a hospital into the nursing home. So the children are playing catch-up from day one.”
Such a conversation may not be easy to initiate. “My clients who grew up in the Depression/World War II era are fiercely independent and private,” says Debbie Robinson, an elder law attorney at Robinson & Miller in Alpharetta, Ga. “They don’t talk to their kids about money. When their health starts failing, the kids are frantically trying to get a handle on the finances. If dementia has set in, that makes it all the harder. As hard as it might be for a child to start the conversation with parents, it has to be done while the parent is still competent.”
Part of the discussion should include compiling a file of available resources and assets, and designating each child’s responsibilities. Does one child live closer to mom and dad, and if so, should the family designate that child to look at assisted-living communities firsthand and/or meet with geriatric care managers?
Advisors can facilitate these discussions. Referrals to elder-care attorneys and geriatric-care managers can also help educate clients about their options in the types of care and financing. “There are lawful ways, for instance, for someone who does qualify for Medicaid to preserve money for a spouse,” says Pearson.
Beyond LTC Insurance
The point is, it takes a multifaceted approach. “Advisors need to look at LTC planning as not just an opportunity to sell an insurance policy,” says Orestis. Clients who are veterans might be eligible for a veteran’s pension to help fund long-term care. If they own a life insurance policy, they may be able to convert it into a tax-free LTC benefit plan (see the accompanying Financial Advisor article, “LTC Options”http://www.fa-mag.com/news/ltc-options-18361.html). “Be sure you understand the full gamut of ways that people can pay for long-term care so they can make well-informed decisions,” says Orestis. “And document that you’ve discussed every aspect to ensure that, as an advisor, you’re giving your client the best possible advice and protecting yourself from future liability.”
After all, filial-support litigation can ensnare advisors, too. “Lawyers are looking for class-action opportunities,” cautions Orestis. “They’re reaching out to nursing homes and home-health agencies, trying to get them to act on behalf of the mother or father to file a lawsuit to go after the children to collect money.” And those children, he adds, may in turn go after their advisors for failing to protect them.