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My father has dementia and is currently in a facility that caters to this type of disability.

He has a home (currently rented)and the rent pretty much pays for the mortgage and property taxes. His social security is about $1,ooo a month. He has about
$200,ooo being managed by a financial planner. His stay at the facility costs approximately $4,000 a month.

My father's mother just passed away and has left about $350,ooo in a trust for him. His sisters will be overseeing the trust but are unsure of how to handle this cash.


1. It has been suggested that the mortgage be paid off so that the bulk of the rent will be applied directly toward his care. (about $160,000 owed on the mortgage). This would eliminate all of the interest on the mortgage he is currently paying each month. Betweeen the rent and his social security check, his monthly care is nearly covered. Is this a sound decision?

2. The(remaining) cash from the trust estate needs to be overseen. His sisters are currently considering a variety of mutual funds (!!) by some large brokerage houses. any suggestions here?

3. Some of the pricipal will be needed from time to time because of the very expensive care required by his dementia.... and we expect it to go higher if he needs skilled nursing care in the future. He just turned 67 and has been under care for the past 4 years. His dementia has been evident for 6 years. Dementia typically lasts from 7-12 years. Any kind of investments would need to be fairly liquid.
Again, any suggestions would be greatly appreciated.


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It sounds as though everybody ought to go to a fee-for-service estate planning attorney. Also, have a talk with the doctors to see what they think the prognosis is. The amount being talked about is large to my way of thinking, but nursing homes can suck it all up so very quickly. I would leave the current financial planner out of it for now, he or she has a vested interest.
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Several questions: Who has power of attorney for the money managed by the financial planner? Is he/she commission or fee compensated? Does the trust include language stating that the turstees have absolute discretion, or does the language state that the income and corpus of the trust are to be spent for the care of your father? After your father dies, who is the beneficiary of any trust residue? Who are beneficiaries under your father's will? Of what?

I agree with JABoa that the amount being talked about sounds like a lot, but nursing homes can consume it all very quickly. I would assume that your paramount concern is the care and keeping of your father. I would also assume that once this issue has been addressed, the ultimate beneficiaries of both the trust and your father's estate would want things done in the most efficient manner. That said, here are some considerations.

If the trust was constructed to provide maximum flexibility in providing for your father it would contain provisions that the trustee(s) have absolute discretion regarding disposition of both income and corpus. In that situation, once your father's assets had been exhausted, he would qualify for medicaid. In most states, once he has been admitted to a facility, even a facility that does not accept new (in the door) medicaid patients, he cannot be turned out if he becomes medicaid eligible. Once on medicaid his social security would be applied toward the total cost of his care. Medicaid would then plac a lien against his residence for the amount expended on his behalf. Upon his death, when the property is sold, they would recover their outlays to the extent of available equity. (Depending on the answers to my questions above, this may be a good reason for NOT paying off the mortgage.)

The trustees of the trust could disburse monies from the trust to assure that your father's needs are taken care of. If these disbursements are totally discretionary they would not count against your father's medicaid eligibility. These assets could then be administered in a manner which would virtually guarantee that they would remain available throughout your father's lifetime, regardless of how long that took.

Your father would be taken care of in every detail. The nursing home may consume the $200,000. Medicaid may lien the available equity in the property. The remaining corpus in the trust would be available to the ultimate beneficiaries. This money could be passed without any misgivings that it was money that should have been spent on your father.

The keys are the trust provisions. All after that is simply careful financial planning and asset management. Hope this helps.
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Another superb reply by you to a complex question. I enjoy reading your posts. Thanks for the additions.

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I would like to thank all who have written to this post. You have helped me clarify things. This is an unexpected adventure, for sure, but i very much appreciate the suggestions offered.

dharmadollars had a list of questions:
"Several questions: Who has power of attorney for the money managed by the financial planner? Is he/she commission or fee compensated?"

My sister and I share this duty. We met with with an eldercare attorney and with the Aldzheimer's Association when we were first faced with taking over his finances. This financial planner came recommended by them because of his reputation and his donations of time to help with estate planning in the field of elder care. He is not cheap. He costs us 1% of the total held estate to maanage the funds. From what we can tell, and from what our tax accountant tells us, he seems to be doing a good job. He usually only manages accounts of $2million or more, but took my dad's estate because it was a diminishing estate and was *unique* in some respects because he would become more knowledgeable about the progress of aldzheimers disease and the planning for its many stages.

DHARMADOLLARS: "Does the trust include language stating that the turstees have absolute discretion, or does the language state that the income and corpus of the trust are to be spent for the care of your father? After your father dies, who is the beneficiary of any trust residue? "

In part, grandmother's trust states: Commencing with my death, the Trustees (my father's two sisters) shall pay the income from the 'Son'(my dad) Trust in convenient installments, at least quarterly, to my son during his lifetime.
The Trustees may also pay my Son such sums from principal as the Trustees deem necessary or advisable from time to time for his health, including nursing home care, maintenance in reasonable comfort, and his best interests, considering his income from all sources known to the Trustees.

DHARMADOLLARS: "After your father dies, who is the beneficiary of any trust residue? Who are beneficiaries under your father's will? Of what?"

ME: the estate will be divided among me and two siblings. At one point, he was angry with my brother and left him only 20% and my sister and I were to receive 40% each. Because of many things, the three of us will divide (any left) money equally, because it is much more important that a death bring family closer together...rather than doing damage that resentment would cause because of unfairness. My Grandmother's trust states that each of the three of us are to receive the remaining amount of the trust (if any). I must make it clear, that none of us expect for any of his money to be left...... we will be prudent with it, but the primary concern is that he is taken care of well with HIS money. But we don't want to be silly about how best to make the money generate income and security.

DHARMADOLLARS: "If the trust was constructed to provide maximum flexibility in providing for your father it would contain provisions that the trustee(s) have absolute discretion regarding disposition of both income and corpus"

ME: It seems that both have a lot of flexibility. In my opinion, there really is not a probable way that we will *spend down* his money in order for him to be medicaid eligible. One of the ideas behind keeping his pricipal residence for *when he returns to it, after getting better* is that we were under the understanding that if we were to spend down his money... he would be able to shelter his house, car and furniture if he should need medicaid. Those things are his and would remain exempt if he should have spent all his money on nursing care... there is a *look back* period of 5-7 years for full accounting of how his money was spent that would be presented to the medicaid people. With the NEW trust, now, it would seem that this will not be an issue.

The facts of aldzheimers: 7-12 is the *average* life span of a person after dianosis..but now there are medications like aracept, so who knows if this will affect the current generation who has aldzheimers and is taking the medication..... But in essence, dementia is the *ACCELERATED AGING of the brain* This process is not reversible. The huge damage this disease causes can be viewed in an obvious way to family members looking at mri scans that span as little as a year's time. Medically speaking, my father would defy odds to live more than 8 years(and this is conservative).

My father has had dementia for *about* 6 -7 years now from what we can estimate. We are beginning the 4th year in which the dementia has seriously impaired him.

Dementia can seriously dismantle a family. We have learned to communicate with each other to carry out specific plans for his care. One of the hardest things about his disease, is that little pieces of him keep getting taken away..We have all *hoped* that with enough care and with the proper medications and medical advice that we could beat this thing.... that was a long time ago, it seems... and now what we are left with is the stark knowledge that **this day, this very the VERY BEST moment in time of his life**.

I agree with the writers who are shocked at the care ammounts. We live in So. Calif, where even gas prices outpace the rest of the nation. We looked at many places, some more expensive and some less. When we chose his current digs, we were looking at the total picture of how the residents were treated and that is how we decided. The facility we chose is specifically for people with dementia..... with these beautiful corridors and garden paths all leading back to the same place: a large, beautifully done main activity center. It looks like a lovely gated community where the residents get to roam freely about in a comfortable way... never getting lost in this thoughtful design of architecture.

I had rounded his care figure(4k per month) up from the $3,500 he pays for the facility, because there are some non-covered expenses such as medicines and clothing and personal hygiene products ( yes! we DO have to supply mouthwash, toothbrush and paste, shampoo, lotion, razors, etc etc etc..every month!). He still likes to go out to eat at restaurants and pay for family members with his credit card and we indulge him in this, sometimes still.
He still enjoys being the Big Shot ;-)

Skilled nursing care can happen next. I say *can* because if he becomes immobile for some reason (dementia patients start to lose balance functions and fall as the disease progresses), a radical change in behavior (agression, self mutilation etc) may call for a change of facilities. If he remains in decline but ambulatory, he may just pass away at the current facility. but this is not what *usually* happens. Great physical impairments are more the standard and would need to be addressed by a higher level of care.

The higher the level of nursing care, the more expensive. The most expensive facilities that i know of top $7,500 a month. On average, stays at medical nursing care facilities are 0-3 years, with the final result being death in the person with dementia from the ravages of accelerated aging that attack not just the brain, but the whole body.

I noticed on the letter written by my Grandmother's trust, that the Trustees will initially fund the trust in Treasury Bills and they request a break-down of my dad's current financial situation in order to get a realistic picture of his needs and how to finance. So, with my presentation of more of the facts, any other opinions or suggestions would be greatly appreciated.

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Hi Julie. This posting is a follow-up to my response of last night. Here are some additional thoughts.

Your aunts have two responsibilities under the trust, from what you have stated. They are responsible for managing the money, and they are responsible for spending the money for your father's care and keeping. Treat these as distinct functions. If they are competent and comfortable with the money management function they should do so. If they are not they should retain someone, preferably not a bank trust department, to manage the money according to their directions. By all means this should be a person or entity who will provide this service on a fee basis. I would propose the following for your consideration as directions: set aside $50,000 in a very liquid vehicle to be drawn down at the rate of $4,000 per month. I know that according to your information the shortfall is only about $3,000 per month; I'm just being conservative. This pool of money should be sufficient to carry your father for a year, including special expenditures. During this time period the remainder should be invested half for conservative growth, where some potential growth is foregone in order to achieve a higher degree of asset stability. The remaining half should be invested for more substantial growth.

During the course of the year the manager should selectively harvest sufficient money from the investments to reforest the spend-down account. The remaining assets should be rebalanced fifty/fifty.

This strategy should provide financial support for your father well past his life expectancy. The gains on the growth-invested portion should offset part but not all of the draw-down. The rate of draw-down would probably only be about 5% per year, which would mean that the funds would sustain him for well past his life expectancy.

The second function, one of spending the money, should be one of largely making "policy" decisions and then reviewing them periodically. By policy decisions I mean things like the above, plus adoption of the overall "game plan" as is being discussed here in general. Implementation of this game plan can take place from some distance; that need not be a factor. They may wish for you or someone near your father to verify his needs periodically and report to them. They could then direct expenditures as needed.

Some may say that active trading will produce short term gains, which will be taxed heavily. My opinion is that under the circumstances this is a moot point. Your father's tax return will claim as itemized deductions the mortgage interest and taxes on his home (now a rental property) plus the depreciation. In addition, all of his expenses beyond his tier two threshhold will be deductible medical expenses. These deductions will make any tax on gains and from dividends largely a non starter.

I suggest that since this trust was established primarily for his care, these funds be spent down FIRST as needed.

With regard to the $200,000 investments which he has, it is important to understand what disposition your father wished to make of these assets upon his passing. Part of honoring you father is in doing what you can to see that his wishes are implemented. Given that the trust assets should more than account for his needs, except in the most extreme circumstances, you might, along with the person holding power of attorney, begin to reposition those assets.

Let us assume that your father wanted these assets left to you, and your hyopthetical (or possibly actual) siblings. The attorney in fact could effect gifts to you from these assets on an annual basis. You and your siblings could then consider establishing a grantor trust to house these funds during your father's lifetime. These funds could be invested for fairly robust growth, since there is no apparent need for them for the foreseeable time, except possibly for maintenance expenditures on the home. The funds should be gifted to you; you should place them in the trust you establish. They should not be transferred directly from your father's account into the trust.

In the event your father would have need of these assets, which would mean that the trust assets had been exhausted (an unlikely eventuality), he would most likely qualify for medicaid. We're talking about actions at the extremities here--not a very high degree of probability. In this event you could pay for charges, special services, extras not covered by medicaid in order to maintain the level of care for your father at his pre-medicaid levels. By protecting these assets you will have them available for this purpose. Left in his estate they would be consumed, and he would then qualify for medicaid with no additional assets available to upgrade his care.

Upon his death, if medicaid came into the picture, the home would be sold and equity to the extent of medicaid expenses would be taken by the state. Assume that the house will yield nothing. But the other assets could then be distributed according to your father's wishes. This is why paying off the mortgage with this money is not a prudent move.

In summary, with careful planning I think you have more than enough assets to work with to provide for your father's care and keeping, and to see that his wishes are also carried out.

(I'm sure you have taken ample steps to acquaint yourself with the unfolding of this chapter of your father's life. If you haven't come across it yet, you might find Sherwin B. Nuland's chapter in "How We Die: Reflections on Life's Final Chapter" (Vantage Books) on Alzheimer's disease useful.)

I wish you well in your journey.

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