TWO TALES OF THE ELDERLY
Sue, (not her real name) had been a caregiver for her aunt until her passing and almost immediately had to care for her very ill father. Her father passed about five years ago but she’s now the fulltime caregiver for her mother, who has Alzheimer’s disease.
Sue is in her mid 60s and has to be available for her mother 24 hours a day, 7 days a week. She listed the long list of health challenges that she herself has, mostly due, I would guess, to the stress that fulltime caregivers undergo.
Sue is a tiny person and even though her mom is smaller than she is, cleaning, dressing, feeding and generally physically moving a person requires physical strength.
She has no income or assets and spends her time watching Korean dramas. She rarely leaves the house. She came into our VITA (Volunteer Income Tax Assistance) facility for free tax preparation because it would normally cost her $150 to get her taxes prepared just so that she can receive the $85 excise tax credits from the State of Hawaii. She was grateful for the $85 she would be receiving.
Soon after Sue left, Esther (not her real name) came in to get her taxes prepared. When I went through her paperwork, I saw that she had made a reverse mortgage on her home in July of 2011. I inquired as to why she decided to annuitize her home and her story broke my heart.
http://malamakupuna.blogspot.com/2010/10/reverse-mortgages-for-kupunas.html
Her sister was sick and they were spending down her sister’s assets for her care. Eventually, her sister would have to go on Medicaid (welfare) once the assets are spent. Her sister passed away in February 2011.
Esther was convinced by her advisors that since the paperwork was in the works, she should go ahead with the reverse mortgage. Part of the plan, as I understand it, was that Esther was to take the $200,000+ she received in proceeds and buy a single premium life insurance policy on her (Esther’s) life so that in the event that Esther passed, funds would still be available for her sister.
As a volunteer for VITA, I do not and cannot offer financial advice. I am there only to prepare income tax returns. In a previous life as a financial planner/enrolled agent, I have a habit of looking at tax returns from the other side.
Here’s what’s wrong with Esther’s situation.
1. Once Esther’s sister passed on, there was no need to close on the reverse mortgage loan. The sister passed in February and the reverse mortgage was made in July.
2. The life insurance situation was reversed. You normally cover the person needing the funds (in this case, Esther’s sister although she was likely uninsurable) so that you can make Esther whole for providing the money to care for her sister. When the sister passes, the insurance proceeds pays Esther for the funds provided.
She asked for advice and I suggested that she go to the bank who issued the reverse mortgage to see if the agreement can be backed out.
Here are some of the financial issues that our Kupunas are facing:
1. Most of the elderly do not anticipate the time when they would need to be cared for. Buying long term care insurance in adequate amounts (with inflation factors) is a start. Many live their lives believing that they will not be a burden to others, but, family members frequently make substantial personal, family, career and financial sacrifices to take care of elderly family members who cannot care for themselves.
Sue is an example of a person who has sacrificed her personal life for elderly family members. But she, too, will be left to fend for herself since she doesn’t have children. All because the kupuna didn’t provide for the situation.
2. Many Kupunas absolutely want to divide their assets equally to their children, regardless of which child does the care giving. The caregiver not only sacrifices his own career/family/finances, but risks health problems due to the stresses brought on by care giving.
3. Financial advisors sometimes put forth recommendations to line their own pockets rather than to improve the Kupuna’s financial situation. In the case of Esther, the person selling life insurance had the insured/beneficiary needs reversed and made five figures in commissions on the single premium policy. The mortgage broker made between $6,000 to $12,000 in fees for the reverse mortgage.
A reverse mortgage is to be used and considered only as the last resort. Once used, it usually cannot be undone. In Esther’s case, it should’ve been considered (if at all) only after her sister’s assets had been spent. And even then, it left Esther with nothing left to take care of her own care needs.
4. Frequently, family members who are also beneficiaries are not the best people to rely on. Family members often believe that the assets of their elderly family members are their rightful inheritances and would pressure the Kupuna to transfer the assets to them now so that they can get the government to pay for the care.
Some, who aren’t even the primary caregivers, who are the ones who suffer personal financial losses in the process, go so far as to resent having to spend their inheritance for the elderly person’s care.
When contemplating making changes like a reverse mortgage, consult an independent person who charges a fee. An attorney who specializes in estate planning, a knowledgeable CPA or a fee-based financial planner. Beware of financial planners who also sell a product where they also receive a commission such as insurance, stocks, real estate or reverse mortgages.
They have a conflict of interest and will have breached an ethical code of conduct by receiving both a commission and a fee.
