A Follow-Up to Annuities and Elders – a Complicated Mix

Mount Hope Cemetery, Rochester, New York

Mount Hope Cemetery, Rochester, New York

Here is a timely follow-up to the blog post I wrote a few weeks ago about annuities and elders.  The Colorado Division of Insurance recently amended its regulations applicable to advertising and sales promotion of insurance and annuities, effective July 1, 2014. Regulation 4-1-1 apply to Variable Annuity Contracts and Amended Regulation 4-1-2, to Advertising and Sales Promotion of Life Insurance.  This new regulation also applies to annuity contracts.  You can read the new regulations here.

Section 6 of the new regulations is entitled Disclosure Requirement:

(B) An advertisement shall not omit material information or use words, phrases, statements, references or illustrations if the omission or use has the capacity, tendency or effect of misleading or deceiving purchasers or prospective purchasers as to the nature or extent of any policy benefit payable, loss covered, premium payable, or state or federal tax consequences. The fact that the policy offered is made available to a prospective insured for inspection prior to consummation of the sale, or an offer is made to refund the premium if the purchaser is not satisfied or that the policy or contract includes a “free look” period that satisfies or exceeds regulatory requirements, does not remedy misleading statements.

Section 6 (N) states:

No insurance producer may use terms such as “financial planner,” “investment adviser,” “financial consultant,” or “financial counseling” in such a way as to imply that he or she is generally engaged in an advisory business in which compensation is unrelated to sales unless that actually is the case.

What do these changes mean?  Section 6(N) makes an important distinction concerning annuity sales persons and financial advisors to reflect that a person who sells annuities is typically not a financial adviser who receives compensation which is unrelated to the sales of annuities.  So let’s take a look at the words that can no longer be used in Colorado to sell or advertise annuities and life insurance, due to the potential for misleading consumers?

                 Safe

                Secure

                Certificate of Deposit or CD

If you want to read more about this, check out this article in MarketWatch.

Why is this so relevant for elders?   Many elders are afraid of running out of money toward the end of their lives and do not want to be a financial burden on their family members.  The trickiest part about retirement planning is not knowing whether you will outlive your money.  Another problem with annuities is that they tie money up for a prescribed period of time, when many elders need flexibility in their financial portfolio.   One of the most infamous examples of inappropriate annuity sale for an elder is the story of Alice Bouchard, an 85 year-old who was sold a deferred annuity by an insurance agent which made her money unavailable until she was 101!  Read more about it here.

There are FINRA guidelines and regulatory notices about “suitability” of particular annuities for elders and there are state law statutes and regulations (like the ones above) governing suitability also.  Suitability includes the particular situation of the consumer, their age and needs for liquidity along with things like: what the consumer’s other investments are; the overall financial status; investment objectives and risk tolerance; the consumer’s tax situation; health status; availability of emergency funds and other factors.  These are especially important in annuity sales to elders as over the years there were have been many documented sales that were inappropriate or detrimental to the elder.  Colorado’s regulation 4-1-11 follows the suitability model regulation that was adopted by the National Association of Insurance Commissioners in 2010.

Annuities can be complicated and the contracts often contain many unfamiliar terms.  Colorado’s new regulations help clarify how annuities can be sold to consumers.  It is important to carefully consider a financial course of action, especially when someone is faced with advancing age and health crises.  It is difficult enough to make a sound decision amidst fear, even when it is a fear that another (a stranger perhaps) has brought to you – made you aware of and thus creating an emotional need to resolve that fear.  Yeats aptly observed in “Sailing to Byzantium” that this is no country for old men – this world full of youth and life, and that the agony of aging is inevitable.  But I would submit that Fear – especially of being a burden on others – is another matter.

An important last detail I will consider is the “free look” period. A “free look” period is like a grace period to cancel the contract due to buyer’s remorse. This is for a limited period of time only and after the free look period has passed the contract is fixed and any withdrawals of funds outside the time frame prescribed in the annuity contract will incur sometimes very large penalties.

While the new Colorado regulations will help identify the “no no” words and further regulate techniques and tactics that cannot be used in the sales and marketing of annuities, it is still the best for the consumer to have time to carefully consider what they are getting into before an annuity is purchased.

©Barbara Cashman  2014   www.DenverElderLaw.org

Aging, Meaning and Memory

Medicine Bow National Forest

Medicine Bow National Forest

This is another contemplative post – so please forgive me.   I am preparing for a retreat on this exquisite topic of memory. . . . !   Since I find the topic of spirituality and dementia fascinating, I have been reading “Finding Meaning in the Experience of Dementia: The Place of Spiritual Reminiscence Work,” written by Elizabeth MacKinlay and Corinne Trevitt (published in 2012).  I especially enjoyed reading chapter ten “Grief is part of Life,” that speaks to much of my estate planning work with elders and their loved ones.  It begins:

Loss of relationship either through death or through geographical separation is closely tied to the meaning of life.  Meaning does not cease to exist because a person is dying; in fact, it is in facing death that it can be possible, perhaps for the first time, to see the meaning of one’s life.

Finding Meaning in the Experience of Dementia: The Place of Spiritual Reminiscence Work at 171.

Is our memory informed by our experiences and accordingly limited to our perception alone, or do we have the ability to further construct the memory so as to make it a memory of our whole being, as opposed to some event recalled which can be verified by another?  Therein lies some of the quantity versus quality aspects of memory . . .  but I am focusing today on this topic of memory in the context of aging and meaning.

So much of our important grief work is pushed aside in our death-denying and youth-glorifying culture.  I think this is a big part of the anxiety and depression and despair that so many of us struggle with in our culture because we do not see or otherwise recognize the inherent meaning of loss of youth and dying and death.

Memory is a phenomenon that is both individual and collective.  So to whom does memory belong or to whom should it be attributed?  What part of cognitive decline implicates memory and what is it that we are talking about when we use this term “cognitive decline?”  This can of course be age-associated and within “normal” limits or it can be identified with a disease process, such as the course of dementia of different types.  How do we distinguish the aging process that occurs naturally and that leads inevitably to our death from that process associated with a disease?  This may seem like a straightforward question – but I think it is far from that!  When aging becomes inextricably linked with decline in a way that is viewed as a disease process, we are essentially denying death, killing it off as the culmination of life and viewing the whole aging process and our mortality as a disease, some kind of shortcoming in our biology. If you think I am exaggerating about his, do a search on Aubrey de Grey and his so-called longevity science. . .

Dementia can further complicate a grief process as well.  Even the term “anticipatory grief” sometimes used for grief for the loss of a loved one with dementia before they die – the loss of relationship and the outward self – implicated the complexity of the grief process and the context for the grieving of surviving loved ones.

So now I will turn to the third aspect of this post’s title – memory – to connect the aging and meaning aspects.  What is memory?  Aldous Huxley wrote that “every man’s memory is his private literature.”  In “The Life of Reason,” George Santayana stated that “memory itself is an internal rumor.”  In this respect, we could say, that the memory belongs to the person.  But what about the memory that we share – isn’t that memory too?

What is it that we see and that we call memory?  In “The Marriage of Heaven and Hell,” the poet William Blake observed “If the doors of perception were cleansed every thing would appear to man as it is, Infinite. For man has closed himself up, till he sees all things thro’ narrow chinks of his cavern.”

So does memory free us from the constriction of our lives or does it enslave us to our experience of things past?

It seems that once again, I have asked far too many questions than could be answered in a blog post (or perhaps even a lifetime?!) and with that said, I’ll conclude with Friedrich Nietzsche’s observation that “the existence of forgetting has never been proved: we only know that some things don’t come to mind when we want them.”   Yes, there will be more on this topic . . .

©Barbara Cashman  2014   www.DenverElderLaw.org

Have You Had the Conversation Yet?

Shadow Selfie

Shadow Selfie

Yesterday morning I attended an informative program put on by the Colorado Guardianship Alliance (of which I am a member) which featured palliative care specialist Dr. Hillary Lum, speaking on Advance Care Planning, Palliative Care and Hospice.  I recently posted a short blog which featured an interactive meeting put on by the Life Quality Institute which featured The Conversation Project.  I returned from the meeting with a helpful booklet that is loaded with end-of-life facts and which can be used to facilitate the conversation which most of us say is really important to have (about end-of-life wishes) but that the majority of us have not yet had with a loved one.  I met with new clients this afternoon and was able to give one of the booklets to them, so I will be able to hear how it may help them have the conversation and communicate wishes with their adult children.  I’ll keep you posted.

By the time you get to be “a certain age” (okay, I’m celebrating a 50-something birthday next week, so please pardon attention), you have most likely had some experience with a chronic or terminal illness of a loved one or a death of a family member that did not die a good death.  Yes, I said good death.  Death is part of life, is contained within life and so I think if we can talk about quality of life we can also talk about quality of death.

Palliative care and hospice care focus on the still much misunderstood concept of quality of life medical care.  Remember the “death panels?!”  I don’t know where people come up with this stuff, but there are folks who think they exist . . .  maybe we’ve watched too many B movies of the sci-fi genre! Here’s a great post by a palliative care doc about those nonexistent faceless federal bureaucrats.  Dr. Lum (getting back to my original topic now) spoke succinctly about the distinctions between palliative care and hospice care.  She shared a great resource called “fast facts” – you can google eperc fast facts and get the Medical College of Wisconsin’s really informative website.  Fast Facts and Concepts provides concise, practical, peer-reviewed, and evidence-based summaries on key topics important to clinicians and trainees caring for patients facing life-limiting illnesses.  It has straightforward descriptions and answers a lot of questions you may not have known to ask about palliative and hospice care and the medical issues attendant to things you might ask your doctor about.

So while I’m on the topic of resources relating to advance planning, the ABA just published its August issue of Bifocal which features as its lead article “Advance Care Planning in a Nutshell.”  Sabatino focuses on the two most basic question we need to tackle early on in the process: (1) Who do you select as a capable, competent and conscientious health care agent (a/k/a surrogate decision-maker); and (2) What kind of information and guidance can I provide to that person and perhaps other loved ones about what I want and what I don’t want in this context.  For some of us, these questions are not so difficult, we may think “my kids already know what I want” or “my spouse is a good mind reader” – but then there is the rest of us!  We may think it’s not good enough to be general and not so detailed about our wishes, that this kind of conversation or documentation requires a fine-tooth comb.  Not so!  While it’s true I recently purchased a crystal ball, I have yet to perfect my skills at predicting the manner and circumstances of a client’s death (hey, wasn’t that an X-Files episode, back a few years?).

One of the reasons that lots of details about end-of-life wishes aren’t really helpful or required – even if we have a chronic illness that limits our life, is that we cannot know all the details around how we would want another to choose in the event we were unable to choose or couldn’t communicate.  Hence, the focus on values and priorities, to let the big picture of what is important to you guide the conversation – and not let it get bogged down in details that will probably never apply.  I think you’re getting my drift now, that it’s a good idea to inform your health care agent about those three aspects of making informed health care decisions: consider the risk, the burden along with the benefit – and how they play out in the context of your values about health care.

I will close with this – while our culture and the American medical-industrial complex has a ways to travel in terms of getting more folks educated about quality of life focused care at the end of life, the Project on Death in America is helping make serious headway in getting better attunement toward compassionate care for the dying.

 ©Barbara Cashman 2014   www.DenverElderLaw.org

 

Annuities and Elders – a Complicated Mix

Monet Garden Pond at DBG

Monet Garden Pond at DBG

 

Annuities are sometimes described as an emotional investment vehicle because they guarantee lifetime income for a person.  This can help an elder feel more secure about their money, at least about their monthly income.  This security comes at a cost.  There is lots of information, probably too much information about annuities available on the internet.  This is where it is a good idea to employ one’s “crap detector” (as cyberculture expert Howard Rheingold identifies it in the 2012 book NetSmart) but it is not simple for these types of investments because they are often very complicated instruments.

Annuities tie up someone’s money long-term, and the terms of the annuity – both risks and benefits, and especially how the risk is monetized as a cost of the arrangement, should be looked at  carefully.  The annuity is governed by a contract and generally provide periodic payments over a specified amount of time, provide benefits to a designated beneficiary (if the annuitant, the person on whose life the annuity contract is based, dies prior to receiving payment),and can provide certain tax deferred benefits.

Sometimes people sell annuities that are touted as Medicaid friendly, but Medicaid rules, which vary from state to state, change often.  Bottom line is that some annuity sales persons want to sell an annuity that is based simply on the insurance company or other financial institution taking a larger sum of money and doling it out in small portions over a course of years.    Making an investment that may or may not be appropriate or a good idea for a particular individual is often complicated by the perceived “need” to qualify for immediate benefits.  Annuities are only part of the picture.

 

First off, what is an annuity?

The SEC’s website provides a succinct overview of the three basic types:

  • Fixed annuity. The insurance company promises you a minimum rate of interest and a fixed amount of periodic payments. Fixed annuities are regulated by state insurance commissioners. You can check the Colorado Commission on Insurance website here  about the risks and benefits of fixed annuities and to confirm that your insurance broker is registered to sell insurance in your state.
  • Variable annuity. The insurance company allows you to direct your annuity payments to different investment options, usually mutual funds. Your payout will vary depending on how much you put in, the rate of return on your investments, and expenses. The SEC regulates variable annuities.  FINRA has a succinct explanation of variable annuities here.
  • Indexed annuity. This annuity combines features of securities and insurance products. The insurance company credits you with a return that is based on a stock market index, such as the Standard & Poor’s 500 Index. Indexed annuities are regulated by state insurance commissioners.

 

Okay, I might as well go the full gamut here and mention “life settlements” while I’m on the topic of insurance and elders . . . .  Say what? I first heard about these arrangements under their much more glamorous sounding name of “viaticals” or the acronym “STOLI” (stranger originated life insurance). These settlements became popular during the AIDS epidemic, but the first instance of it being approved comes from the 1911 U.S. Supreme Court decision of Grigsby v. Russell, 222 U.S. 149 (1911), Dr. A. H. Grigsby treated a patient named Mr. Burchard, who wanted a particular surgical operation but could only pay for it with a life insurance policy.  Burchard sold Dr. Grigsby his life insurance policy in return for $100 and for agreeing to pay the remaining premiums, and so the first viatical settlement transaction was created.  After Burchard died, Dr. Grigsby attempted to collect the benefits but the executor of Burchard’s estate successfully challenged the arrangement. The case eventually reached the U.S. Supreme Court where Justice Holmes stated in relevant part that “so far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of property. To deny the right to sell except to persons having such an interest is to diminish appreciably the value of the contract in the owner’s hands.”  222 U.S. at 155-56. Okay, once again I’ve gone off-track in this post about annuities. . . .!

I am writing this because in my work people contact me and in the scope of gathering information I often encounter difficulties and misunderstanding on the part of annuitants, beneficiaries and other survivors of annuity contracts.  The remorse and misunderstanding factor on these types of investment contracts can be high – so take a calm and measured look at these before you or someone you care about signs a contract!

Wondering about where to get more information about these annuities? Here a link to the FINRA warning about these investments – FINRA is short for Financial Industry Regulatory Authority (for those of us who took a securities law class in the previous century, this agency was formerly known as NASD – the National Association of Securities Dealers). Where the Securities and Exchange Commission (SEC) is a government regulatory agency, FINRA is the largest self-regulatory organization in the American securities industry.

To recap, annuities seem to be appealing to many older folks (boomers included) because of their emotional appeal of guaranteed income for life.  This article from Business Week is nearly ten years old, but is still relevant.   Best to explore and discover the best means for what to do with your limited funds in retirement and make sure that you have considered all the options before alighting on the one that is right for you – especially if it is an investment that cannot be undone.

 ©Barbara Cashman  2014   www.DenverElderLaw.org