The reality for many estate planners is that with the $5 million inflation-adjusted exemption and portability, both made permanent, there aren’t enough clients for what many of us have viewed as “estate planning.” The old business model, according to the speakers, Lawrence Frolik and Bernard Krooks, “doesn’t work for most practitioners.” They’re right! The speakers referenced an Internal Revenue Service estimate that only about 4,000 estate tax returns are expected to be filed each year with a tax due. The numbers just won’t support the focus on estate tax minimization planning that many estate planners had at the core of their practice. The speakers’ contention is that elder law planning is a natural extension of estate planning for many. There’s a value for us as practitioners to add this service for clients who’ll need our services in these areas.
The numbers quoted are staggering and certainly support their proposition. Seventy percent of people will need long-term care. Fifty percent of people will need long-term care in a nursing home, which is expensive. So, the numbers are there to support elder law planning work that, for many practitioners, simply won’t be there to support continued estate-planning work with a tax planning focus.
This thought certainly resonated with those present. “I think this will become one of the most important ways we can help clients. As client are living longer, the likelihood of dementia issues increases. We can help them take better care of themselves and their loved ones,” commented Houston attorney and CPA, Leonard Weiner.
The need also seems to be great. The speakers cited an AARP survey of those turning age 65 about who will pay for long-term care. More than half of the respondents had Medicare. But, Medicare doesn’t cover long-term care. With this client knowledge gap, it’s clear that clients need professional guidance.
Later Life Legal Planning
The speakers, however, added a new dimension to the elder law discussion. It can and should be much more than just planning for nursing home costs as many perceive it. With their much broader definition, elder law (redefined) becomes more important for more clients. Krooks and Frolik suggest redefining elder law more comprehensively as “later life legal planning” for clients. The foundation of this is “quality of life planning” for clients for the last 20 to 30 years of life.
That’s an interesting perspective, especially for practitioners whose client base may have sufficient wealth, and who, whether they’re still affected by the new federal estate tax, may well view themselves as having sufficient wealth not to be in need of traditional nursing home or Medicaid-type planning. But, with the broader definition of what constitutes elder law planning, every practitioner, no matter how wealthy his client base, should expand to better serve clients with “quality of life planning.”
The speakers contrasted “later life legal planning” with more traditional “estate planning” that many of us have focused on. Estate planning more narrowly focuses on the transmission of property at death. A very narrow scope by comparison.
“I liked the phrase ‘later life planning,’ said Ira Herman, CPA partner at Cohn Reznick, LLP in Roseland, N.J. “This can be applied to a broad spectrum of clients, even very wealthy clients. While most have considered elder law planning to be Medicaid planning, related later life planning is an area most estate-planning attorneys can expand upon,” he suggests.
If a client lives to an advanced age, the potential for dementia increases. When a client can no longer handle his financial affairs, who will manage the client’s individual retirement account and other investments at that point? While the initial and obvious reaction is to use an agent under a durable power of attorney, this solution isn’t the entire picture. Dementia is a long, slow path. Neither the client nor most loved ones are aware of this, or they may all be in denial. When will the agent step in? How will the baton be passed?
Financial Needs
Addressing the financial needs of cash flow and aging is clearly a key aspect of all of this planning, and the speakers addressed a range of options that should be evaluated. But, the context was again more than just the obvious of paying expenses. The speakers commented about annuities as a mechanism to provide for investment management if (and for many not “if” but “when”) the client is disabled or starts to experience issues with capacity. Even if this was something most practitioners addressed, a more defined focus may well help tweak what was just a byproduct of estate planning to be much more. “Much of the planning we do is designed to permit removing control from the individual when incapacitated, whether revocable trusts, the many SLATs [spousal lifetime access trusts] done last year and more,” says Morris Pinkowitz, a partner Cohn Reznick, LLP in Eatontown, N.J. The annuity concept is but the one of a myriad of ways we can help clients address these issues. All this is vital for the aging client, regardless of wealth level or concern about federal estate taxes.
Bear in mind that many of these trusts are structured as directed trusts, and the client may be serving as the investment trustee or investment advisor. So, you must still address the issue. In the context of the trust succession of the investment trustee, this is certainly a factor to address. However, for many wealthy clients, incorporating into disability/elder law planning the use of an institutional trustee with the full capability to not only assist the client with investments as the client ages, but also to assist with an array of management and administrative services, will undoubtedly be the most protective approach. This is a vastly different end of the elder law planning spectrum than the more “traditional” Medicaid-type planning that’s associated by most as what elder law is about.
“Many of our clients’ have wealth concentrated in business or real estate interests.” explains Herman. “How will this type of planning apply to them? Many wealthy clients don’t want to rely on equity markets or wealth managers, but rather rely on perpetuating their family business. They live now, and hope to live in the future on cash flow from their business holdings. So succession planning for that business is the key to preserving their cash flow. Real estate developers are common examples [of these types of clients.]”
Legal Capacity
While the presentation touched on issues of dementia and capacity, there was simply not enough time to delve into this vital topic—one that will continue to grow in importance as the population ages. A few comments are offered below.
When discussing dementia, consider the important, broader context for many elderly clients: “capacity.” Capacity is very setting- or context-specific. An individual’s capacity must be related to what he’s doing. A client may have capacity to drive a car, but not if he’s intoxicated. Self-determination of capacity can also be revealing. For example, ask a client whom you suspect may be having some cognitive challenge, if he has difficulty getting dressed. He may emphatically deny it. But, if you then request him to take off his coat, he struggles. Denial is a strong factor. So, great caution is in order to ascertain the status of the client.
There are also tremendous misconceptions about dementia and capacity. Most clients with dementia shouldn’t be assumed to be an Alzheimer’s patient sitting in a nursing home, doing little. Most people with Alzheimer’s disease are living productive lives in their communities, but may need assistance managing their affairs. Diagnosis has been occurring at earlier periods; survival is measured in decades; and a 15-year survival post-diagnosis isn’t unusual. In the 1980s, the measure was six to eight years. This is because of improvements in testing and increased awareness, for example.