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Paying Family Caregiver & Life Settlements
Jan L. Warner & Jan Collins

Question: Since our mother became ill three years ago, our retired sister has moved into Mom’s home and has been taking care of her. My brother and I feel that our sister should be paid, but she won’t accept any money. She tells us that she would prefer to be remembered after Mom dies. Mom owns her home, has about $50,000 in cash, and receives $1,200 monthly from Social Security. Is there a fair way to handle this? Without our sister’s help, Mom would now be in a facility at great expense.

Answer: More than 50 million Americans like your sister take care of disabled or chronically ill family members. For the most part, this huge expenditure of services goes uncompensated. Like your sister, many caregivers rely on being compensated eventually with an inheritance. Often, however, that never comes because the resources are spent for in-facility care. And in some instances, family disputes erupt because, to be blunt, some family members have short memories.

Recognizing the value of unpaid services by adult children that keep chronically ill parents out of nursing homes, Medicaid allows for a penalty-free transfer of a parent’s home to an adult child who has 1) lived in the home with the parent for at least two years before the parent moves into a nursing facility, and 2) provided care and support for the parent that allowed the parent to remain at home and avoid a nursing home stay. To avail yourselves of this option, there must be proof of the services, generally a certification from your mother’s physician that attests to the situation.

To avoid the inevitable, we think it would be prudent for the three of you to sit down with an elder law attorney ( or click here and develop a plan that will compensate your sister for her good deeds before the resources are used up. At a minimum, your mother’s funds should be used to provide for your sister’s portion of the utilities, food, etc., but this is unlikely given the amount of your mother’s income and the cost of her needs.

Question: My wife and I are in our 70s and have been hit hard by the economy. We lost more than 40 percent of our liquid worth because of bad investment advice, and have not recovered. Because of the low interest rates today, our income has continued to plummet, and our small pensions and Social Security are not enough to meet our needs. This has caused us to dig into our principal each month, thus further reducing our income from investments.

I have a paid-up life insurance policy with a face value of $500,000 and cash value of more than $125,000. I have considered cashing in the policy, but learned that if I do, I will be taxed on the difference between my premiums and the cash balance. I have read about terminally ill individuals selling insurance policies, but, thankfully, we are not dying. Are there other options with this policy?

Answer: So-called “viatical” purchases of life insurance policies from terminally ill individuals have spawned yet another cottage industry called “life settlements”. Here, companies with pools of investment funds purchase life insurance policies from individuals over age 65 who have health issues and who own one or more policies with face values of more than $100,000, depending on the underwriting rules of the company.

Some states require these companies to be licensed, while others do not. So you must be very careful if you choose to look into this option. You won’t avoid taxation if you sell your policy. And because of potential litigation in the future by beneficiaries, life settlement companies require all potential beneficiaries to sign off on the deal, meaning your wife and children will all sign on the line.

Because we believe that any type of pre- or post-retirement planning should be done in a coordinated fashion – that is, with the advice of a qualified professional who, on a fee basis, is not trying to sell you something -- we suggest that you contact a knowledgeable financial planner, certified public accountant, or elder law attorney for advice.

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Today, more than 36 million Americans are age 65 or over. There are more than 22 million family-member caregivers. Then there are the Baby Boomers. All are grappling with the major decisions that accompany the latter stages of life. This book is for them. Written by two experts with decades of experience between them, it is a comprehensive guide that instructs readers about how to create a plan to deal with all aspects of aging, helps maximize options and ensure wishes are carried out.

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