Don’t Lose Your Life Savings

Video Transcript: Don’t Lose Your Life Savings

Don’t lose your life savings!

It’s strange how selective memory can be. It was only about four years ago that I was sitting in the conference room with everyone who was here today, plus their father. The three kids were in such harmony that day. Of course, their father was the glue holding the family together. Stan was the oldest son, and he was put in charge of his father Mark’s trusts. The appropriate assets were moved so that Mark qualified for the Aid and Attendance Pension Benefit, but then Stan was left in charge of the investments.

Back then, Mark’s investments were put largely into stocks. I recommended making sure that the money was invested safely and securely, even if it meant staying out of the stock market and investing in things like annuities or even life insurance. But Mark’s broker convinced Stan to keep the money invested in stocks. “He told me that the market always does better in the long run,” Stan said.

“You get that, don’t you?” he asked his siblings.

“Oh, yes,” his brother said.

“Of course,” his sister said.

And now here we were four years later, with Mark having passed on only a month before.

“You lost more than a third of dad’s money!” Stan’s brother yelled at him.

“How could you be so reckless!” his sister shouted. “There were plenty of other safe ways to invest!”

You see, this meeting was going on in 2010, and the investments that Stan’s broker had the money invested in had not come back from the 2008 crash yet. It didn’t matter that in 2006 everyone was in agreement that Stan could keep the money invested in stocks. All they were focused on now was that ‘Stan lost a lot of Dad’s money, which means we lose out.’ Yes, memory was a very selective thing, indeed.

In putting together a plan to qualify for the V.A.’s Aid and Attendance Pension Benefit, the family is often focused on making sure that the veteran, spouse, or widow(er) is properly cared for. It often involves changes from how they were living life before. However, once the assets have been transferred into the Family Irrevocable Trust, changes that should also be made may not even be thought of.

So what are some of the investment factors and considerations we have seen over the years?

* Risk Should Be Eliminated: In most of the cases, our client’s children and family members may be OK putting their own investments at risk from market losses, but they absolutely, positively do not want to risk losing any of Mom or Dad’s money. In general, many seniors are usually becoming more and more conservative in their investing anyway. When we are doing irrevocable trust planning, though, the investments are turned over (at least legally and technically) to the trustee, so the trustee takes it even a step further to look into no-risk or extremely low-risk investments.

* Risk of losing money in the market and Medicaid’s response. If V.A. gifts have to be reversed to qualify for Medicaid down the road, Medicaid doesn’t care that the stocks were killed in the market for the past 2 years. All they care about is the value of the gift at the time it was made in a traditional or modified half-a-loaf plan, not what the value of the stocks are now. Will you be able to personally serve as your parent’s banker and make up the $150,000 in market losses?

* Return on Investments Better than Bank CDs: While there is a strong desire to go with no-risk or low-risk investments, trustees generally want something a little better than bank CD rates or money market accounts. While market returns can swing from 25% gains to 40% losses in a given year, CD rates are (at the time of this printing) around 1%, a little more or a little less. Something in between is often desired, even if the risk of earning nothing is a possibility weighed against the possibility of earning 4-8%, just so long as the investment doesn’t actually lose money.

* Liquidity of Some Investments: Even with the desire to have some earning greater than CD rates, the overall investment plan also has to take into consideration some amount of liquidity should money be needed for the veteran, spouse, or widow(er). This is also a factor in determining how to invest the irrevocable trust assets.

So what are some of the investment alternatives, and what are some of the more common compositions of assets?

Permanent Life Insurance: Because there are so many different types of insurance with so many different features, I will simply call this type of life insurance permanent life insurance. The type of insurance typically purchased is with a single lump sum premium. This will allow the life insurance to policy to be issued immediately, provide a larger payout upon death, but also provide the flexibility to borrow against the life insurance at comparatively low rates. This way, if money is needed for the care of the veteran, spouse, or widow(er), then the trustee can “borrow out” the money.

While there are typically many other “living benefits” available, the selection of these should be fairly limited because the policy would be owned by the irrevocable trust. Nonetheless, the concept of life insurance as an investment within the Irrevocable Family Trust remains a strong option for many of my clients.

Fixed, Indexed, or Combination Annuities: Another potential investment within the Family Irrevocable Trust are different types of “non-variable” annuities. An annuity is nothing more than a type of life insurance that requires a lump sum payment, has specific growth provisions, and can be turned into a stream of income by the policy owner. Very rarely is the income stream activated in this context because it is usually a growing asset that the trustee and eventual beneficiaries are interested in. Again, what the trustee is really looking for is something that will provide more growth or growth potential than bank CDs, but they also want to guarantee that the asset will not lose money. Because all “non-variable” annuities are kept out of the stock market and come with principal guarantees, they remain a solid investment choice. So what are the different kinds of annuities?

* Fixed: These annuities will provide a fixed rate of growth over a specified period of time. Typically the longer the length of commitment to the annuity, the higher the growth percentage.

* Indexed: While the money is not invested in the market, the annuity gains are tied to specific investment indices, often the S&P 500. When the S&P goes up during a specific period of time, the value of the annuity goes up (to a point). When the S&P goes down during a specific period of time, the investment simply remains where it was at the start of the time period. Often this leads to a much better chance of the annuity earning more money than a fixed annuity, but the chances of that growth exceeding the fixed annuity increase with the time commitment in the annuity.

* Combination: A very popular type of annuity offered by a few different companies is what we are calling a “combination” annuity. Essentially it is four different types of investments wrapped into one annuity. One part is fixed, and the second part is indexed, just like the fixed and indexed annuities. The third part is tied to real estate investment trusts, which in some cases can yield even better returns than stocks. Of course, there are some limitations on the growth of the real estate portion as the trade-off for guaranteeing there would be no losses. And the fourth part is tied to the gold market. It is typical that the value of gold rises when the stock market falls, so it the gold market investments are often considered a “hedge” against the drop in the markets. In other words, if the economy is going well, chances are the indexed and real estate as well as the fixed portions of the annuity are going up and gold tends to remain flat. However, if the economy is doing poorly, then the fixed is still going up, the indexed and real estate portions tend to be flat, but gold may rise. The other great feature of this combination annuity is that the four different investments can be apportioned in whatever percentages you want. While many balance everything at 25% each, some clients wish to have more in the fixed portion and less in the others. Still other clients may wish to leave out the gold or real estate portions entirely. It all depends on what is desired. But the important thing is that in all cases the annuity is guaranteed by the insurance company not to lose value.

Permanent Burial Life Insurance: Designed to be used inside the Irrevocable Funeral Trust, permanent burial insurance can help with the Medicaid spend down process and not “miss” that there will be final expenses. I have heard far too many cases of a person spending all of their savings on nursing home care before qualifying for Medicaid only to be broke when they pass on and have their kids foot the bill. Had the money been properly applied to handle funeral costs during the spend down process, the family wouldn’t have been paying for those costs out of pocket down the road.

It is also important to not just buy the insurance but to set it up correctly within the trust so the death benefit pays to the trust and your chosen people can use the funds to provide the right type of service. Naming a person as the beneficiary may jeopardize Medicaid qualification, and naming a particular funeral home may tie your families hands should you be moved far away from that funeral home (to be in a facility closer to a child out of state).

Composition of Assets

One of the most important investment strategies to keep in mind is that there must be some liquidity built into the plan. This is why while many of our clients like the safe investment alternatives provided by annuities, there is limited liquidity in those annuities. At least not without incurring penalties for early withdrawal. But most annuities do build in a feature that up to ten percent of the annuity can be withdrawn each year without any penalties, so that is something. But what if money is needed in that first year?

Here is how we usually apportion about $500,000 in Irrevocable Family Trust assets with the veteran and/or their spouse has about $60,000 to $70,000 on their own.

* The veteran and/or spouse would keep the $60,000 to $70,000 in assets, but those would be spent first if a few bigger ticket expenses came up.

* Within the trust, about $400,000 would be put into an annuity or life insurance policy (again, while the combination annuity tends to be popular, it can be invested however the trustee sees fit).

* And also within the trust, about $50,000 is kept liquid in a checking account or money market account.

* The remaining $50,000 is often placed in 6-month bank CDs, but in at least one case it was seen that the money market account actually was earning more than the 6-month CDs, so instead $100,000 was kept in the money market account.

This strategy keeps $110,000 to $120,000 liquid immediately, another $50,000 available with only six months’ notice, and then at least $40,000 a year available each year after that. And this is in addition to any income that may be coming in to the veteran and/or spouse or widow(er). Usually with that type of liquidity, we’ve struck the proper balance a most clients among securing against market losses, having more growth than bank CDs, but still having enough liquidity in case expenses come up.

While there is no end to the investment options within the Family Irrevocable Trust, there are often some very strong guiding principles that children and other family member trustees tend to follow. But, as always, seek the best professional financial advice you wish and invest accordingly.

If you do have further questions, you can email them to my office or call me directly. Call my office at 919-518-8237 and ask for Jeff, but please mention you are calling in response to my V.A. Pension Benefit Planning e-mails. Thanks again and enjoy the information. The next section will be on some aspects of Medicaid Planning that need to be considered when planning for the V.A. Pension Benefit.

Jeffrey G. Marsocci

The Care Assistance Center, LLC

8406 Six Forks Road, Suite 102

Raleigh, NC 27615


Jeffrey G. Marsocci was born in Fort Worth, Texas but was raised in Lincoln, Rhode Island and graduated from Mount Saint Charles Academy High School. He graduated from Hofstra University with an undergraduate degree in Business, and two years later earned his law degree from the same school. He also earned a Certificate Degree in Non-Profit Management from Duke University in 2004, he was the Alumni of the Month for Hofstra University in June of 2013, and his firm was honored by the City of Raleigh with the 2011 Human Relations Business Award. Mr. Marsocci also became a Certified Medicaid Planner™ in 2014, a certification granted by the CMP™ Governing Board*, and he is an attorney accredited by the Veterans Administration to practice before the V.A. and its applicable administrative and legal tribunals.

In addition to working in his estate planning, estate administration, and Care Assistance Planning practice in Raleigh, NC since 1996, Mr. Marsocci is the author of numerous books including Estate Planning Basics, The Veteran’s Long Term Care Solution and other planning books found on Mr. Marsocci frequently holds seminars for clients, financial advisors and other attorneys on topics related to the life and estate planning field as well as developing and presenting continuing legal education courses for attorneys and life insurance agents. Mr. Marsocci is a member of the North Carolina Bar Association, the Wake County Bar Association, and the National Italian American Bar Association. He and his wife Kathleen live in Raleigh, North Carolina and work with various charitable and non-profit groups including Kiwanis. Both are recipients of the President’s Call to Service Award through the Points of Light Foundation for completing more than 4,000 hours of service during their lifetimes.

*Certification is granted based upon a qualified candidate demonstrating a mastery of the skills and knowledge of the subject matter. To achieve certification, a CMP™ must meet certain education and/or experience requirements, show proficiency in Medicaid Planning through a thorough examination, and commit to adhere to the highest in professional standards.  A CMP™ also subjects himself or herself to discipline by the CMP™ Governing Board. A Certified Medicaid Planner™ is not necessarily an attorney, so this designation is not governed or regulated by any state bar association.

Professional advice on how to access Medicaid and VA Benefits without giving up the house or assets using a trusted step-by-step process that literally walks you through a complex and bureaucratic system.

Get your free information packet “How a Little Known VA Benefit Can Provide Monthly Financial Support”

David Cole of the Senior Veterans Council and I have put together a useful packet of information along with my book “The Veteran’s Long Term Care Solution: The Truth Behind Long Term Care Planning for Veterans with the Aid and Attendance Pension Benefit” which includes:

  • 20-minute DVD outlines how the benefit can provide financial assistance towards the cost of in-home care, Assisted Living, or possibly independent living facility costs.
  • VA Aid and Attendance Benefit Rate Table
  • How to access immediate funds while applying for government assistance
  • Using a NOVA Professional Advocate to Pre-Plan Your VA Claims
  • Special Industry Report: Medicaid Secrets Reveals: Learn proven strategies to save your home and protect your life savings from devastating nursing home costs
  • The Promise to America by Lyndon B. Johnson
  • National Care Planning Council
  • Book by Jeffrey G. Marsocci – The Veteran’s Long Term Care Solution: The Truth Behind Long Term Care Planning for Veterans with the Aid and Attendance Pension Benefit

Yes, I want a free information packet “How a Little Known VA Benefit Can Provide Monthly Financial Support”

Disclaimer: The information contained in this email is provided “as is” with no warranties or guarantees. This information should not be considered as actual legal, tax or investment advice and you should always contact a certified accountant, tax professional, or attorney before making any financial decisions. While every attempt has been made to provide current and accurate information, neither the author nor the publisher can be held accountable for any errors or omissions. You agree that you are solely liable for any and all reliance, use, or action on this information.