The Aging Population

How LGBTs folks can prepare for living longer.
by Grace S. Yung, CFP

Today, due in large part to advances in medical technology, life expectancy has significantly increased. Back in 1900, the average person in the United States lived only about forty-seven years. Yet, just a little over a century later, many people are living well into their eighties, nineties, and beyond. While longer lives are typically considered a sign of positive progress, more years can pose several challenges to individuals—primarily in the areas of healthcare and lasting retirement income sources.

Increased longevity creates an especially difficult situation for those in the LGBT community. One reason for this is because in most cases, LGBT individuals must generally plan for retirement income as if they are “single”—even if they are involved in a long-term domestic partnership.

Even those who reside in states that support same-sex marriage are treated as single individuals, and oftentimes when one partner passes on, the other is not eligible for spousal pension or Social Security benefits.

The issue of retirement benefits can be a difficult one for most LGBT couples. This is because many company retirement plans specifically state that only surviving legal spouses (using the federal definition of marriage between one man and one woman) or children are eligible for survivor benefits.

One way to help combat this is to take advantage of Individual Retirement Accounts (IRAs) as a means to save for retirement. The proceeds from these types of plans can go to a named beneficiary, and funds can transfer to that person (or persons) outside of probate. The same may be true for some 401(k) and 403(b) retirement plans—provided that the employee names a beneficiary to receive the proceeds of the plan at the employee’s death.

Although IRAs and other qualified retirement plans do not allow domestic partners to roll proceeds directly into their own IRA like a recognized legally married couple can, an individual may designate his or her partner as the plan beneficiary.

This can accomplish several things. First, it will ensure that your assets are distributed to the person (or persons) that you intend them to go to. In addition, designating your partner as your IRA or 401(k) plan beneficiary may also protect these assets from probate.

Other key areas that can affect LGBT seniors include:

• Medicare and Medicaid benefits
• Social Security
• Long-term care
• Estate planning.

Medicare and Medicaid

People often confuse Medicare and Medicaid, as their names sound similar. However, these programs are quite different. Medicare is considered an entitlement program that is received regardless of one’s asset and income level, whereas Medicaid eligibility is based on a “means” test.

Medicare is essentially the government-sponsored health insurance program for those who are age sixty-five and over, as well as for certain disabled persons who are under sixty-five. The Medicare program doesn’t provide medical care directly, but rather it pays doctors and other medical service providers directly for their services, or reimburses patients who have paid bills themselves.

Currently, Medicare consists of four parts. These include:

• Part A – Hospitalization
• Part B – Doctors’ Services
• Part C – Medicare Advantage
• Part D – Prescription Drug Coverage.

In most cases, Medicare Part A is free for participants, provided that the individual paid Medicare taxes via wages during their working life. Medicare Part B, however, requires a monthly premium. In 2013, the Medicare Part B premium is $104.90 per month. Should an individual opt to go with Medicare Part C (in lieu of Parts A and B) and/or Part D, a premium will also be required.

Although Medicare is considered good coverage by many, the program leaves a large number of “gaps” in terms of coinsurance and deductibles that must be paid out-of-pocket by enrollees. For example, in 2013, if an individual qualifies for Medicare-covered skilled nursing home benefits, only the first twenty days will be covered in full, and days twenty-one through one-hundred will require a co-payment from the patient in the amount of $148 per day.

In order to help fill in some of the
gaps in Medicare’s coverage, many individuals purchase Medicare Supplement  insurance, or “Medigap.” This type of insurance is specifically designed to supplement Medicare’s benefits. There are several Medigap plan options to choose from, depending on one’s specific coverage needs.

Medicaid, the other government healthcare-related program, is considered by many as being welfare. This program requires that one qualify for health-related benefits based on an asset and income test.

When applying for Medicaid, federally recognized legally married couples are allowed certain income and asset protections (based on each state’s definition of the poverty level) for the “community spouse,” provided that he or she remains in the couple’s home while the other is receiving care in a skilled nursing facility. Typically, this allows the non-ill spouse to keep a percentage of the couple’s combined assets, as well as receive a small monthly “personal needs” allowance. LGBT and unmarried same-sex couples are not afforded these protections.

Because each state has leeway in determining the amount that is considered “poverty level,” the means test for Medicaid qualification can vary depending on where an individual resides. In most cases, though, Medicaid benefits should be considered the payor of last resort when all other options have been exhausted.

Social Security

Currently, the Social Security Act does not recognize same-sex partnerships. Therefore, LGBT couples are only entitled to their individual Social Security benefits. This means that there are no spousal or survivor benefits given to a surviving partner when the other passes away—potentially leaving a large gap in retirement income for the survivor.

In addition, non-biological children of one partner are not entitled to receive any Social Security benefits upon the death of that partner—even if that partner was providing the primary or sole support for the child.

Long-Term Care

Living longer usually means that one’s odds of requiring long-term care services will increase. In fact, statistically, nearly half of all persons who are age sixty-five or over will require care for at least some period of time.

In 2013, the average annual cost of a semi-private room in a skilled nursing facility hovers around $80,000—and the cost of receiving care at home can be even greater, depending on the type and amount of care that is received. Because these costs are typically not covered by regular health insurance, they can take a real bite out of one’s savings. [CNN Money, April 2013, “Nursing Home Costs Top $80,000 a Year“]

Medical conditions that require the services of a doctor or registered nurse typically qualify for Medicare coverage—although this care is usually limited in length. However, custodial care—the need for assistance with daily activities such as bathing and dressing—does not qualify for Medicare coverage, leaving most individuals to pay for such care either out-of-pocket or via a long-term care insurance policy.

Today’s long-term care insurance policies usually cover care that is provided in a variety of different settings—including a skilled nursing facility, an assisted living care facility, and in the recipient’s home. Recently, many insurers have begun to offer a premium discount on policies if both domestic partners apply for and obtain coverage at the same time.

Planning Your Estate

When planning your estate, it is important to keep in mind that intestacy laws (i.e., dying without a will) do not favor LGBT couples. Most states believe that the “natural” beneficiary is a decedent’s biological family—regardless of how
distant they are.

With this in mind, the avoidance of probate is essential. One way to accomplish this is through a living trust, which can allow individuals to transfer assets into a trust. Subsequently, a trustee is then named who is allowed to control assets during the lifetime of the trustor.

Another way to avoid probate is by
having property and other assets auto-
matically transfer when the holder of such assets passes away. This can be done through a transfer on death, or TOD, process. Oftentimes, joint tenancy with right of survivorship (JTWROS) is used for this purpose as well.

In any case, purchasing a life insurance policy that names your partner as beneficiary can help to provide him or her with the funds they need for future living expenses.

When planning your long-term finances, it is essential to keep in mind that all situations call for a plan that fits in with your specific needs and goals. Given this, all planning should be conducted using qualified professionals who are well versed in the areas of both tax and finance.

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston.
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See other MoneySmart columns:

Staying on Top of the Fiscal Cliff (April 2013 OutSmart)
How to maximize your investments, even if your paycheck is smaller

Finding the Funds …to make your IRA contribution (March 2013 OutSmart)

Have You Made Your 2012 IRA Contribution Yet? (February 2013 OutSmart)
There is still time!

What’s Different for 2013? (January 2013 OutSmart)
Considerations for Texas and your future investments.

LGBT Partners… (December 2012 OutSmart)
Working around the denial of your government benefits

Future Tax Rules Can Further Penalize LGBT Investors (November 2012 OutSmart)
But there is still time to act

Protecting your Wallet and your Heart (October 2012 OutSmart)
How and when to keep assets separate—even when you’re madly in love

Domestic Partner Tax Deductions in Home Ownership (September 2012 OutSmart)
With today’s historically low interest rates, it’s certainly a great time to either purchase or refinance a home.

Protecting the Things that Matter (July 2012  OutSmart)
How those in the LGBT community can use life insurance planning strategies

When ‘I Do’ Becomes ‘I Don’t Anymore’ (June 2012 OutSmart) 
Ensuring both partners’ fair share with a Domestic Partnership Agreement

Retirement (May 2012 OutSmart)
Using annuities can provide lasting income for both domestic partners: When depending on a partner’s retirement income, annuities can offer the perfect solution

Financial and Tax Planning Issues for Domestic Partners (April 2012 OutSmart)
Is Uncle Sam getting a bigger chunk of your income and wealth?

The Real Cost of Long-term Care (February 2012 OutSmart)
How LGBT caregivers are paying the price

Gay Money Matters (part 1) (February 2010 OutSmart)
Domestic Partners: Estate and Tax Planning

Gay Money Matters (part 2) (February 2010 OutSmart)
Protecting your assets . . . even when the rules don’t