Street Smarts for Seniors

Clinical Law Professor Kate MewhinneyWake 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 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.

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 literacySource: 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

• 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?

• 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 Division800-688-4607 or www.sosn.com

• N.C. Attorney Generalwww.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 1-888-5-

OPTOUT 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

• 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