Will You Lose Your Home To Medicaid?

The largest financial risk that seniors face today is the potential of assisted living and nursing home costs to devour the nest egg that has taken a lifetime to build. Many will end up relying on Medicaid to pay these costs. If that’s the case for you, chances are that Medicaid will come after your home when you die. Before you get alarmed, make sure that you are not confusing Medicare with Medicaid. Medicare, available to seniors who have paid into the government’s Social Security system, covers roughly the first 100 days of skilled nursing home care following a hospital stay of at least 3 days. Medicare doesn’t help with custodial care. Since Medicare is, in essence, insurance you have paid for through payroll taxes, the government can’t try to reclaim that money when you die. Medicaid, on the other hand, is a welfare program that provides health care to the poor of any age. Qualifying for Medicaid requires the patient’s liquid assets to be no more than $2,000, not including their home. Traditionally, Medicaid has allowed a patient to keep their home while they’re in the nursing home. Since Medicaid doesn’t force the sale of the home at that time, many seniors assume they will be able pass it to their heirs at their death. Recent actions by states are making that less likely. Back in 1993, Congress passed a law that required the state agencies that run Medicaid to make every effort to get reimbursement for the money spent on each patient. This means the states are required by law to take any assets remaining at death, up to the amount spent by Medicaid. So if Medicaid spends $75,000 for your care, the states will seek to recover $75,000 from your estate when you die. For years, many states completely ignored this law or only casually attempted to recover Medicaid costs. But those days are over. Facing budget crunches and exploding health care costs, many states are now aggressively pursuing recovery of their expenses. There is a whole industry devoted to shielding seniors’ assets from the government so that they qualify for Medicaid. These include the use of irrevocable trusts, placing assets in the name of a child or the purchase of an annuity. But there are already rules in place that disqualify you for Medicaid when assets have been transferred to a trust or child within 3 to 5 years of your application. It will not surprise me to see states try to make it harder to move or otherwise protect assets. More common are situations like this hypothetical one. A widow named Thelma develops dementia and Ted, her son, moves his mom out of her house and into a nursing home. Thelma’s meager bank accounts are drained and she soon qualifies for Medicaid. For the next two years, Thelma’s health gradually declines and she finally passes away. Several months later, Ted is preparing to fix up the old home place as a retirement home for him and his wife. But he’s shocked when he receives a notice from Medicaid that $85,000 is owed to cover the cost of Thelma’s nursing home care. Ted will then have to sell the old family home, get a mortgage on the home or use other money he has saved for his own retirement to pay the bill. Regardless, the result is that the bulk of Thelma’s estate went to the state instead of to Ted. What if Thelma’s home wasn’t worth the $85,000 that the state was trying to recover? States are now beginning to go after other assets and personal possessions such as vehicles, family heirlooms and antiques. The state can force the auction of all of Thelma’s belongings by placing a claim against her estate. The state can legally pursue any and all of Thelma’s assets in an attempt to recover what was spent on her care. Fortunately, the state can NOT seek to recover any remaining shortfall from Ted. Investigate the procedures of the state where care is being received, because each state has different standards and procedures for Medicaid cost recovery. The trend will continue for states to increase their attempts at Medicaid recovery from estates of recipients. Be aware so you aren’t caught off guard. Have financial questions? I’ll personally answer them. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Advisor Reveals His True Colors Part 2

Not all advisors are sales hustlers. I also heard from someone who made a radical decision in response to his experience in the financial services industry. Let’s hope that other conscientious advisors don’t follow his example! Last week I shared some real-life confessions of a typical financial advisor. This self-proclaimed “aggressive, 34-year old [sales] hustler” sells equity-indexed annuities almost exclusively. He can’t resist the easy money and, even though he knows the investment is better for him than his clients, he is unwilling to change his ways. (Florida seniors watch out! This advisor might be the one trying to sell you that equity-indexed annuity! Seniors all across the country need to understand that advisors recommending these high-commission products are very likely cut from the same cloth.) I recently received an email from someone I’ll call John. He was impressed by the information on my website (www.guardingyourwealth.com) and had to tell me his story. “Thank you for shedding light on the true conflicts involved in the sale of equity-indexed annuities. Hopefully, this will drive change in legislation.” Interestingly, I took part in a conference call with the Securities and Exchange Commission on that topic a week later! John started his financial services career in a very unusual way--he actually got a college degree in finance! You might be shocked to know that few advisors have a formal education in finance, investments, or other money-related issues. Many don’t even have a college degree. Their firms focus on teaching them how to sell. John started out with a ‘financial planning company’, desiring and expecting to help people manage their money and achieve their financial goals. He quickly learned that the firm’s focus was quite different. John says, “I found myself around people who were just trying to figure out how to make money on a presentation.” And what well-thought-out investment strategy were his co-workers presenting? “Most were pushing variable annuities on every deal…and not just for a small portion of the client’s overall portfolio,” John says. “Needless to say, I did not feel comfortable and left the company.” John then decided to work for a CPA firm that was starting to offer financial planning services to it’s client’s. He was confident his experience would be different. But once again, that wasn’t the case. “The owner was introduced to equity-indexed annuities in San Diego from Allianz. Well, he saw the dollar signs [the potential he had to make money] and hit the senior market.” The opportunity to make a lot of money was too good to pass up and the owner decided to push these products to seniors. Seniors who came to the CPA firm because they trusted the CPA subjected to advice that was colored by what was best for the firm. John recalls, “I looked, examined, and looked again at these contracts and said something is wrong. Who gets paid a 12% commission and the investor receives a benefit?” Good question. “I was really interested in doing financial planning as a profession but just could not stomach these experiences.” Unfortunately, John left the financial services industry all together. There are many people graduating from college that have strong educational backgrounds in financial planning. All too often their experiences are similar to John’s and they leave the industry. That’s bad for all investors. There are advisors that you can trust. These advisors have chosen to be paid by fees instead of commissions. As a result, it takes years for them to earn through annual fees what commission-based advisors make in one transaction. You only pay them for the period of time you use their services. They only continue to make money by keeping you happy—what a concept! Typically, fee-based advisors don’t hold seminars or contact you by phone to pitch the latest hot product. Most of the time, you have to seek them out instead of the other way around. By the way, how often are you contacted by reputable, experienced accountants or doctors trying to sell their services? Why should it be different in the financial services industry? Do your research anytime an advisor recommends an investment, especially if that advisor sought you out. Make an informed decision, not a quick one. Have a financial question? I’ll personally answer it. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

An Advisor Reveals His True Colors

The vast majority of the financial services industry does not have your best interests at heart. It is more concerned about the money it makes, not the returns investors receive. Read on to hear what an agent himself has to say—it may shock you. When you work in the brokerage, financial planning and insurance industries, it is all about sales. The training, the incentives and the pay structure are all designed to motivate the advisor to SELL. Their success in the industry is not based on how well their clients do, but on how much commission is generated. I’m not against people making money. The workman is worthy of his wages. The problem is that it’s the individual investor who turns to the industry for help that ends up paying the price. Investors need to be skeptical and cynical when dealing with an advisor—especially one that is paid on commission. Reading actual quotes from an advisor’s email I received will give you an insider’s look into the industry. The financial industry attracts those that are good at selling and want to make a lot of money. This advisor who emailed me calls himself “very aggressive” and a “grey haired 34-year old hustler.” “I’m a natural sales whiz and have found this biz very easy to succeed in. I’ve never made less than $200,000 in commissions [per year] since entering the biz 4 years ago.” Believe it or not, he was saying these things trying to impress me! Here are his comments about Equity-Indexed Annuities (EIAs)—an investment that I have been warning investors about for over a year. “I have only been selling EIAs because I am not full of [investment] options.” In other words, it is one of the only ‘investments’ he can offer. “I am more than happy to get $50,000 [invested by a client] all day long at 10% commission.” The agent makes $5,000 a pop. What’s the client make? Who cares! He goes on, “I realize there is a better way for …my clients.” “Have I thought EIAs may not be as great as other alternatives? YES. [his emphasis] Obviously, if I get 12% commission it comes from somewhere and it’s not the carrier.” The clients of this ‘advisor’ don’t realize his true motivation. They expect him to be knowledgeable and have access to a broad range of products, but he isn’t and he doesn’t. How does this affect you? This could be the advisor that you are talking to! This could be the advisor that was such a great speaker at that free seminar you attended. This could be someone you thought was a financial genius when in reality all that he/she has done is learned a good sales pitch! Most advisors aren’t as open about their motivations as this one was. Some advisors sincerely believe that equity-indexed annuities are a great investment. Only God knows how much their opinion stems from the outlandish commissions they’ll receive. Not all advisors are like this. There are some that are willing to take a stand and do what is in the client’s best interest even when it means the advisor will make less money. They realize they can’t accomplish this working within a commission-based compensation structure. They’ve left the big brokerage firms and work for themselves. This gives them freedom and control over the recommendations they make because their job security isn’t based on meeting sales production requirements. These advisors are paid a fee for their services instead of a commission. By the way, it takes a fee-based advisor 7-10 years to make what the commission-based advisor makes off an investor in 10 minutes. The only way the fee-based advisor can do that is by keeping YOU satisfied. If you aren’t then you won’t continue to use his/her services. If commission-based brokers’ compensation was tied to their performance most of them would go hungry! In the next article I will share an email I received from another advisor. You’ll be surprised at what he did to satisfy his conscience! I’ll also provide a list of questions that you should ask any advisor you are working with that will decrease your chances of being an easy ‘mark’ for a financial salesperson. Have a financial question? I’ll personally answer it. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Federal Regulators Concerned About Equity-Indexed Annuities

I’ve been predicting for some time now that Equity-Indexed Annuities and the sales practices associated with them will be the Next Big Scandal of the financial services industry. And now my predictions are coming true. After a chorus of complaints, the National Association of Securities Dealers (NASD) and the Securities and Exchange Commission (SEC) are finally taking notice. In a recent securities conference in Chicago, NASD officials pointedly warned brokerage firms that they are opening themselves up to civil liability where equity-indexed annuities are concerned. The NASD also clearly asserted its authority to oversee the suitability of transactions involving equity-indexed annuities. “Whenever unsuitable recommendations are made, we have jurisdiction”, said Jim Shorris of the NASD. This is good news for investors and bad news for the charlatans that have been using this product to milk seniors out of thousands and thousands of dollars. Now, those investors can turn to the NASD for help. The actions of the NASD also increase the potential success of civil lawsuits brought by investors. It’s not just the NASD that is taking notice. Recently, I was invited by the Financial Planning Association to participate in a conference call with several SEC officials. The SEC had looked into equity-indexed annuities several years ago but failed to take action. Let’s hope that this time it will be different. You might not think that NASD or SEC involvement is all that revolutionary, but it is. Let me explain. Brokers who are licensed to sell investments are regulated at the Federal level. The NASD and SEC police their actions. Equity Indexed Annuities, though, are not regulated at the federal level, but by each state’s Insurance Commissioner. Even though Equity Indexed Annuities are technically an insurance product, they are being marketed as an investment. But all an agent has to do to be able to sell them is sit through a five-day course and pass a simple test on health and life insurance. It used to be that Equity-Indexed Annuities were mainly sold by independent insurance agents. Now, they are being sold by brokers who work for the larger brokerage firms. The high commissions these products pay are simply too enticing. Worse, these brokers aren’t selling them under the umbrella of their firm. They are selling them as what is termed an ‘outside business activity’. That means that even though you are talking to a person that works for a big brokerage house and that person is recommending you sell your variable annuity, pay a penalty and move the money into an equity-indexed annuity, the firm is not policing that transaction. Every other trade done by the broker must meet strict compliance and regulatory standards. The sales of equity-indexed annuities do not. If an advisor were to place 100% of a client’s investable assets into a variable annuity or a single stock or mutual fund, they would likely face fines and possible revocation of their license. At the very least, they would be opening up themselves and their firm to potential lawsuits. Yet, I often hear of advisors telling a client that they should put 100% of their money into Equity Indexed Annuities. Under federal regulation, an advisor can’t recommend a client pay a 7% penalty to get out of one annuity and move then move that money into another high commission product. That’s just like a stockbroker getting you to constantly buy and sell stocks so they can earn a commission–it’s called churning. Yet, I see advisors using the ‘bonus’ offered by some Equity Indexed Annuities to do just that. Now that the NASD has clearly stated that these advisors can no longer sell equity indexed annuities outside of their firm’s regulatory umbrella, hopefully some of these unethical sales practices will be put to a stop. But investors need to beware! The high commissions these products offer, sometimes as high as 13%, are just too tempting for many advisors to ignore. Don’t expect them to change their ways overnight. The increased scrutiny of equity-indexed annuities can only be good for the investor. Carefully research this and any other investment before you buy. Otherwise, it might be an investment you quickly regret. Additional articles on equity-indexed annuities available at www.guardingyourwealth.com. Have a financial question? I’ll personally answer it--FREE. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

You Gotta’ Know When To Hold ‘em…

Texas Hold’em poker has become a craze. Thousands of players compete in tournaments with the winner receiving a million dollars or more. Just like in the stock market, though, it’s the professional players that win the game and profit from the inexperience of the amateurs. Investors can learn much from these professional card sharks. I admit to having pre-conceived notions about poker and gambling in general. I assumed that winning was just a matter of luck and chance. It seemed to me that gamblers played the game fast and loose, making decisions by the seat of their pants. Many investors have the same pre-conceived notions about the stock market. Yet, professional poker players don’t rely on luck to win. Quite the opposite. Poker is all about probabilities and they’ve spent countless hours learning and memorizing them. Armed with that knowledge, they estimate what cards are held by another player, what cards are needed to win the hand and, based on the cards they currently have, their probability of winning. Professional investors do the same thing. A professional investor looks for opportunities where the odds are in his/her favor. Great poker players are students of the game. They know the rules inside and out, and how to use those rules to their advantage. Likewise, successful investors need to have a basic understanding of how the markets work, what causes stocks to go up and down and the various strategies that can be used to find opportunities for profit. Poker is a psychological game. The professionals have trained themselves to keep their emotions in check. They go to great lengths to keep their opponent from knowing the quality of their hand. They wear hats, jackets or sunglasses to hide these ‘tells’. At the same time, they want to put psychological pressure on their opponent in hopes of getting them to make a mistake. Investing is also a psychological game. You can’t trust your emotional reactions. You can’t make decisions based on fear or greed. Both will end up causing you to lose money and leave the game defeated. Poker players know it’s a numbers game. In each hand they play, they calculate their odds of winning and only proceed when the odds are in their favor. They don’t expect to win every hand. They train themselves to not let a loss of one hand affect how they play the next hand. They’re willing to endure short-term losses so they can win the tournament in the long run. Successful investing is a numbers game, too. Professionals don’t overreact every time the market has a few bad days and they lose money, nor do they get overconfident when they have some great days and make money. They do their research and put their money where they know the odds are in their favor. They don’t blindly chase the latest fad or hot tip. They don’t invest based on gut feelings. Successful investors manage their investments. They don’t just ‘let’em ride’. Great poker players know when to cut their losses. They don’t get suckered into throwing good money after bad. As the hand progresses and the subsequent cards aren’t in their favor, they’ll quickly fold, even if they have thousands of dollars in the pot. Successful investors do the same. Successful investors also know to lock in their profits. When they see an investment increase in value significantly, they take some money off the table. They don’t ride an investment up just to ride it all the way back down again. They take action to minimize their loss on the one hand, and then take action to lock in their profit on the other. If you don’t have the time or desire to learn the investing game then consider letting a professional manage your money. Don’t think, though, that just because someone is a broker, has a fancy office or lots of clients that they are a successful investor. Many times they’re just a successful salesperson! When you know the rules and play the odds, stock market investments can be a great way to grow your wealth. When you don’t know what you’re doing, though, it can be more like a roll of the dice. Have a financial question? I’ll personally answer it. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.