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Case Study - 81 Year Old Widow

Posted by Larry Jones on Jun 2, 2020 9:30:00 AM
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Although the person I'll reference in this study is fictional (I'll call her Mary), her circumstances are certainly not. Let's take a look at Mary's financial situation:

Mary is a widow, and her husband Bud passed away five years ago. Her financial situation is still very similar to what it was before Bud died.

She has $350,000 in a brokerage account, which is an IRA, and another $50,000 in bank CD's. She has an accountant who does her taxes, a financial advisor from her bank, and an attorney who has helped her prepare legal documents, such as her will. She has no trusts. Her sources of income are social security, a survivors pension from Bud, and a 4% drawdown each year from her IRA. 

One afternoon Mary has a stroke. She loses the ability to speak and all mobility.

Long-Term Care: the subject no one likes to talk about.

Everything has just changed for Mary. She has two of the best children in the world: a son aged 51 who lives 500 miles away, and a daughter, 46, who lives in the same city. They have always said that they'd take care of her and Bud. And they meant it!

But Mary's son is simply too far away to be much help. Her daughter Alice, takes up the strain of her care, but she has two children of her own who need to be taken to soccer matches, school events, and sleepovers, etc. Her job is also high stress, and taking too much time off isn't an option if she wants to keep it. As the weeks go by, Alice is beginning to falter. It's the biggest challenge she's ever faced. They decide they need some help.

That help is expensive, and as Mary's condition deteriorates, home health workers can't do it anymore. Soon Mary is forced into an institution. 

Alice quickly discovers that she is going through Mary's nest-egg pretty quickly. Medicare doesn't pay for any of this stuff. Her monthly expenses for Mary's care now exceed $6000! She decides to apply for Medicaid, but is shocked to discover that she'll first have to spend down all of Mary's assets until she has less than $2000, then she can get help.

She is extremely worried about what will happen to her Mom when the money runs out, which will happen in about 5 years. 

What should have been done to prevent this scenario?

With proper financial planning Mary would have been able to pass  most of her nest-egg to her children and still qualify for Medicaid, or better yet, avoid the need for Medicaid entirely.

Mary's CPA was well versed in the tax code and how to advise her in areas of taxation. Her attorney could have advised her in the use of trusts, asset protection, and Medicaid planning, but he didn't. Her financial advisor only told her how to invest, but never how to protect herself against a long-term care event.

Who was looking out for Mary?

Well, they all were in some limited way, but their level of care was sadly lacking. Mary didn't know what she didn't know, and trusted her advisors to ask those questions that she didn't know to ask. They let her down.

Until next time,


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Topics: Case Studies

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