Some people are not aware that when long-term care insurance seems too expensive, there may be ways to make it less expensive. Many policies are written to be effective immediately upon requiring long-term care, while with a longer elimination period (i.e., 100 days, for example), the policy premium will be less. Similarly, they may not need to cover the entire cost of long-term care, and instead might rely on their income to cover a part of the cost. Consequently, instead of buying a policy that pays $160 per day, they may be able to afford a policy that pays $100 per day, and instead of buying a policy that covers the entire stay, perhaps a policy that covers three years will suffice. Planning is also required, even when individuals purchase long-term care insurance, since the policy may lapse, the company may increase its premiums, thus causing the policyholder to cancel the insurance, and of course planning may be necessary to protect assets for other reasons since long-term care insurance may not cover all of the potential costs. While long-term care insurance makes a lot of sense for many people, some people simply cannot afford it, and even when people do purchase it, planning for other long-term care considerations is still recommended. Readers may wish to refer to previous editions of this newsletter, including the October 2007 issue, for a discussion of the tax implications of chronic illness and long-term care insurance.

Assessing Client Capacity. One of the most difficult determinations that I frequently have to make in my practice is forming an opinion concerning a client’s capacity. There are varying degrees of capacity, and a client may be capable of making certain decisions, such as handling simple financial matters, but may not be able to deal with major transactions. Capacity may be intermittent as well, and some people will have lucid periods, while a client with dementia may "sun-down" and be confused later in the day. In assessing capacity, it is necessary to consider the time of day and the location of the interview, as well as the client’s physical health and medications. Steps may be taken to increase the client’s capacity and it certainly helps to develop an effective rapport. Many people who experience a degree of diminished capacity may nevertheless be able to overcome those limitations if simple questions are used, a slower pace is adopted, and certain transactions are implemented over a period of time in various segments rather than undertaking a complex transaction all at once. An attorney is required to maintain as normal a relationship with the client as possible, to at least attempt communications with the client, and to keep the client informed.

Neither a will nor a trust will control the disposition of property that will pass by beneficiary designation, such as IRAs, 401(k)s and life insurance, or because of another form of designation, such as a pay-on-death ("POD") account or a transfer-on-death ("TOD") security arrangement. Unless those beneficiary and designation arrangements are structured to be consistent with the terms of your will or trust, those assets will not pass in the desired manner. Further, even if a will or trust includes ongoing trust provisions for children, grandchildren or others, frequently it is undesirable for so-called "qualified" plan benefits, such as the proceeds of an IRA or 401(k), to be distributed to or in the same manner as provided by that trust. This is because of the fact that such distributions will be fully taxable, and the trust rules of taxation are complex with compressed brackets and high rates of tax. Consequently, it is very important that all of these arrangements be coordinated.

In the majority of the cases that I see when people have set up other arrangements that I have undertaken to review, I find that even if the arrangements themselves are satisfactory, or even exceptionally well done, the beneficiary and designation arrangements have not been coordinated properly. It is not at all uncommon to meet with a client who has established a revocable trust, primarily for probate-avoidance purposes (which is a goal that is often over-emphasized), and then find that not only will probate not be avoided because the assets have not been titled properly, but that the beneficiary and designation arrangements have not been coordinated in order to achieve the desired result. It is very important as people consider their own planning to not only consider the particular dispositive scheme that they wish to achieve, but also verify that all arrangements are coordinated to achieve the desired result. Neither a will nor a trust will do as much as people think, particularly when the issue is beneficiary and designation arrangements.