Transcript Slide 1

Street Smarts for Seniors
Clinical Law Professor Kate Mewhinney
Wake Forest University School of Law
www.law.wfu.edu/eclinic
Our Goal
Today’s topics
• Debt problems and legal protections
• Frauds and things to be cautious of
• Useful resources
Debt Problems and Legal
Protections
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.
• 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
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
Credit card debt for middle and lowincome 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.
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
Debtors May Have Protections
They Don’t Know About
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.
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.
Income Protection:
2 things to know
Your Social Security check is
completely protected by federal law
from any and all creditors (except for
the Social Security Administration
and the IRS).
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).
No wage garnishment in NC
Exceptions:
1. child support,
2. taxes,
3. bills at public hospitals (if debtor is left
with adequate income), or
4. if judgment was entered in another
state and the debtor works for an N.C.
company that has offices in that state.
Property Protections
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.
• 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.
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
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.
Frauds and ….Things to Be
Cautious About
• 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
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.
The Elder Justice Act
Senate 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
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
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.
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?
Choosing the Attorney
• 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
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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
Decisions to Be Cautious About
Annuities and Life Settlements
• 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
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
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
• 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.
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
• 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
• 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.
Medicaid and Annuities
New rules (federal Deficit Reduction Act of 2005)
set strict standards for annuities.
• 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!
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
• 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
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
• 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.
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?
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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.
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
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
Legal Recourse for Fraud
• Possible criminal charges
• Civil lawsuit, including such claims as:
– Fraud,
– Breach of fiduciary duty,
– Cancellation of transaction, or
– Unfair trade practice
• Violation of licensing rules and
professional regulations
• Mediation – private, informal, and
out of court.
• The mediator is impartial and does
not make the decision.
• Parties can agree – or not – to
resolve the case.
Mediation now an option in guardianship
and estate disputes
N.C. Dispute Resolution Commission
(919) 890-1415
Mediation of guardianships &
estate disputes: Call the number above or see
www.nccourts.org/Courts/CRS/Councils/DRC/Clerks/
Default.asp
Consumer Resources
• N.C. Sec’y of State, Securities Division
800-688-4607 or www.sosn.com
• N.C. Attorney General
www.ncdoj.com – publishes an updated list of
scams targeting seniors across the state
(877)-5-NO-SCAM.
• Senior Financial Care
(336) 896-1328 for help in this area
www.cccsforsyth.org/inhome.php4
Federal Laws
• We need to enact the Elder Justice Act.
Learn more: www.elderjusticecoalition.com/
or 202-682-4140
• Federal Trade Commission
– www.ftc.gov – click on “Consumer
Protection” for resources
• National Do Not Call Registry
– www.donotcall.gov – to remove phone #
from telemarketing lists
• Opt Out
– www.optoutprescreen.com or 1-888-5OPTOUT to reduce prescreened
insurance and credit card offers
• AARP www.aarp.org/money/
• NC Board of Legal Specialization
www.nclawspecialists.org/
919-828-4620
• Certified Financial Planners
www.cfp.net Consumer Line 888-237-6275
• Certified Professional Accountants
www.aicpa.org
The Elder Law Clinic - WFU School of Law
www.law.wfu.edu/eclinic (336) 713-8630
• Links on nursing home issues
• Materials for lawyers
• National resources on aging issues
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Materials in Spanish
Application for services
Long-term care insurance information
And more!
Finding an Elder Law Attorney
- National Academy of Elder Law
Attorneys has 5,000 members in all 50
states. www.naela.org
- National Elder Law Foundation is the
only ABA-recognized certification in elder
law and is recognized by the N.C. State
Bar. www.nelf.org
Be street smart!
Professor Kate Mewhinney