Street Smarts for Seniors

1. Street Smarts for Seniors Clinical Law Professor Kate Mewhinney Wake Forest University School of Law www.law.wfu.edu/eclinic

2. Our Goal

3. Today’s topics • Debt problems and legal protections • Frauds and things to be cautious of • Useful resources

4. Debt Problems and Legal Protections

5. Bankruptcy Cases - 1994 to 2002 Ages 55 and over • 87% increase in Chap. 7 • 75% increase in Chap. 13 John Golmant and Tom Ulrich, Aging and Bankruptcy: The Baby Boomers Meet Up at Bankruptcy Court, American Bankruptcy Institute Journal, May 2007.

6. 89% increase in credit card debt between ‘92 and ’01, among the 65+ • Mortgage debt increasing as seniors tap home equity to cover expenses Source: John Golmant and Tom Ulrich, supra

7. Causes Health care costs • Medical expenses on credit cards • Employer-sponsored supplemental insurance plans declined from 66% of employers in 1988 to 38% in 2003

8. Credit card debt for middle and low-income families without health insurance increased 169%, compared to a 37% increase for families with health insurance. Source: John Golmant and Tom Ulrich, Aging and Bankruptcy: The Baby Boomers Meet Up at Bankruptcy Court, American Bankruptcy Institute Journal, May 2007.

9. Avoiding and Dealing with Debts • Don’t co-sign for relatives’ loans • Use credit cards sparingly • Use phone screening – caller ID and answering machines • Learn your rights as a debtor • Take advantage of resources for seniors

10. Debtors May Have Protections They Don’t Know About

11. Sometimes, the inability to pay a bill will not result in loss of income or property for the debtor. Find out your rights – don’t worry unnecessarily.

12. Example • Aunt Bea rents an apartment and owns an older car. She had to charge some expenses and now owes VISA $8,000. • She owns no other property and gets only Social Security and a small pension. • If VISA sues on this “unsecured debt,” all her property and income are completely safe.

13. Income Protection: 2 things to know

14. Your Social Security check is completely protected by federal law from any and all creditors (except for the Social Security Administration and the IRS).

15. Tip: If you owe a bank on your credit card or loan and are having difficulty paying, consider moving your Social Security direct deposit to a different financial institution. Otherwise, they might try to seize those funds (despite legal restrictions).

16. No wage garnishment in NC Exceptions: • child support, • taxes, • bills at public hospitals (if debtor is left with adequate income), or • if judgment was entered in another state and the debtor works for an N.C. company that has offices in that state.

17. Property Protections

18. Secured versus Unsecured Debts • Unsecured debt means there’s no lien. • Secured debt (home mortgage or car loan) gives that creditor additional rights -- to foreclose or repossess the security. • Most credit card / medical debt is unsecured.

19. In most cases, unsecured creditors can only get a “money judgment” against the debtor. • The debtor’s income and property cannot be seized, unless his or her property exceeds certain limits.

20. Property protected from unsecured creditors with money judgments • Limited equity in a home ($18,500 for a single person but $37,000 if he or she is 65 or older and a widower and owned the home with the deceased spouse) • Household goods • Car equity of $3,500 or up to $8,500 • Some other essential items

21. Other Protection Under NC Law • Protection for real estate owned by husband and wife together: • Judgment against only one spouse cannot be used against this type of property, regardless of the amount of equity the couple has in the property. • However, both spouses could be sued for medical expenses of one spouse.

22. Frauds and ….Things to Be Cautious About

23. 57% of all fraud victims are over the age of 50 (2001 AARP survey) • FBI warns that seniors are more vulnerable because they are better savers, are generally more polite and are less inclined to report fraud than younger victims

24. Older Fraud Victims – Not Typical • More men than women and more married than unmarried persons • More who live with someone than alone • More with higher degrees,incomes and financial literacy Source:Investor Fraud Study Final Report, prepared for WISE Senior Services and NASD Investor Search Education Foundation by the Consumer Fraud Research Group, May 2006.

25. The Elder Justice ActSenate Bill 1070 and House Bill 1783 • No federal coordination now exists to tackle elder abuse and neglect • Neither NC Senator is supporting this bill. Should they? (336) 631-5125 Senator Burr (919) 856-4630 Senator Dole

26. Frauds that Target Seniors • Ponzi or pyramid schemes • Affinity fraud – someone in your group • Fraudulent telemarketing • Giving personal information by phone • Lottery or sweepstakes winnings • Home or car repairs

27. Other Sources of Fraud • Failing to monitor a person you appointed under a power of attorney. So: • Give someone else the power to demand an accounting • Consider requiring 2 signatures for major transactions • Not getting 2d opinion on major transactions • Not thinking twice before giving assets away.

28. Families, Friends and Charities • New friends – does money buy you love? • The devoted health care worker or aide • The long lost relative • Solicitous charities or…. • University? • Physician? • Church member? • Former sheriff?

29. Choosing the Attorney

30. Elder law ethics • Attorney preparing power of attorney or other document must represent the principal (the person who will be signing the document), under N.C. State Bar Ethics rulings. • Benefits of using an elder law attorney • National Elder Law Foundation • National Elder Law Academy • Your right to meet privately

31. Beware of who talks • Beware of who pays • Your right to confidentiality • Who’s the client? • Risks of “joint representation” • Perhaps just “disclosure” to other person is better www.abanet.org/genpractice/newsletter/lawtrends/0506/family/4cs.html

32. Decisions to Be Cautious About Annuities and Life Settlements

33. Deferred annuities and life settlements offer large commissions to the agent • Abusive sales tactics • Scare tactics, “I am all that stands between you and potential catastrophic loss.” • Driving a wedge between the investor and his or her established adviser

34. Annuities • Insurance contracts that offer buyers monthly or yearly income in exchange for 1 large lump-sum payment • Designed to appeal to those who worry they might outlive their savings

35. Immediate vs. Deferred Annuities • Immediate Annuities • Payments are made to the payee within the first year of the contract • May be a good investment for a senior adults • 73 year old purchases a $30,000 annuity and will begin immediately receiving $252 a month for life. • If she lives for 10 years, that income is greater than the original investment

36. Deferred Annuities • Savings accumulate over an extended period before payments to payee begin. • May be a good option for a wealthy seniors who need a way to transfer savings to their heirs while avoiding large tax payments. • For retirees living off savings, may not be a good choice because the buyer is likely to die before the contract begins paying.

37. Factors to Consider • Age: will the investor live long enough to reap the benefits • Capacity: does the investor understand the transaction • Net Worth: the higher the net worth of the annuitant, the more sense an annuity makes

38. Percentage of Assets: the annuity should count for a reasonable percentage of the investor’s assets • Income Tax: pros and cons of deferred taxation • Expenses: the costs of the annuity vs. other investment tools

39. Guaranteed Lifetime Income: understand how the annuity will work in the particular investor’s situation • Other Investment Options: what is the best investment option for the particular investor’s goals Source: Thomas D. Begley, Jr., “The Suitability of Annuities Sale to Seniors”, The ElderLaw Report, July/August 2002.

40. Medicaid and Annuities New rules (federal Deficit Reduction Act of 2005) set strict standards for annuities.

41. For married couples, an immediate annuity might be a help for the healthy spouse when the other spouse enters a nursing home. • The State must be named as remainder beneficiary (after the healthy spouse and minor and disabled children) to the extent of benefits paid. • Deferred annuity generally isn’t a good planning tool for Medicaid. • Work with an elder law attorney!

42. Life Settlements Selling a life insurance policy (or the right to receive death benefits) to a company other than the company that originally issued the policy • Different from viatical settlements which are meant for terminally ill persons with a life expectancy of less than two years

43. The principal receives a lump sum payment and the purchasing company either holds the policy to maturity or resells the policy to other investors • Amount received is usually greater than the policy’s surrender value and less than the net death benefit Source: Seniors Beware: What You Should Know About Life Settlements, February 8, 2007. available at: www.nasd.com

44. Factors to consider on life settlements • Do you need the insurance policy? • Can you afford to continue to pay the premiums on the policy? • If selling one policy for another, can you afford the premiums on the new policy given age or health status? • Consider the tax consequences – unlike viatical settlements, life settlements are taxable

45. Less costly alternatives – borrowing against your current policy, accelerated death benefits • Consider other financial consequences – qualification for Medicaid benefits Source: Seniors Beware: What You Should Know About Life Settlements, February 8, 2007.

46. More questions on life settlements • Is the settlement broker licensed in NC? • What will happen to your policy? • What information will you have to provide? To whom and for how long? • How can you protect your privacy? • What’s best price you can get for policy?

47. What are the transaction costs? • What are the tax consequences? • What if you change your mind? • Is the life settlement in your best interests or those of investor? Source: Seniors Beware: What You Should Know About Life Settlements, February 8, 2007.

48. The Credentials Game Be cautious about impressive sounding credentials such as: • certified elder planning specialist • registered financial gerontologist • certified retirement financial adviser, or • certified senior adviser

49. Some titles are earned in a few days from for-profit businesses and sound similar to established credentials requiring years of study, difficult tests & extensive background checks Source: Charles Duhigg, “For Elderly Investors, Instant Experts Abound,” The New York Times, July 8, 2007

50. Legal Recourse for Fraud