Mon, 26 January 2009
When I talk with people about long term care and the Medicaid program I sometimes hear very strong opinions that "it is wrong to transfer assets in order to qualify for Medicaid to pay for nursing home care". The person making the statement, however, typically hasn’t really given any thought to what that means in real life situations.
Let me give an example. Mom is 85 years old and living alone. While she clearly shows the signs of aging and should have put in place a plan in case she needs long term care, like most people, she hasn’t considered it at all. She receives a $100,000 inheritance from her brother. She has always considered her family first, ahead of her own needs, and wants to transfer this inheritance to her son, who is struggling to make ends meet and just lost his job. She believes she has everything she needs financially and her maternal instincts are to help her child. You may or may not believe she is being foolish in her thinking but it is her genuine belief.
Times are tough. Families do what they always do. They pitch in and help each other out. Except that if Mom gives this money to her son and needs nursing home care in the next 5 years she won’t qualify for Medicaid because of the transfer. So, is Mom trying to beat the system, transferring assets to qualify for Medicaid? No, I think we all would agree that this is not what is motivating her. But it’s not that simple. It never is in the real world. Mom ought to be thinking about her long term care needs but she isn’t.
Had she consulted with an elder law attorney she could have set up a plan that would allow her son to receive the inheritance (or she and her son could share the inheritance) by setting up a trust. And when I sat down with Mom and explained to her what would happen if she needs long term care, she very quickly agreed that it was not a good idea to simply transfer the inheritance to her son. She just had never had that conversation before and no one ever explained it to her in that way.
So, instead of having that conversation after she received the money, if we had it before the inheritance had been received, my advice to Mom would have been to keep the money in a trust, in case she needs it for long term care, but that it would be possible to transfer some of it to her son, should he need it. We would have to manage the trust very carefully but it is clearly doable. I wouldn’t call this beating the system. It is a case of families pulling together in times of need. Isn’t that what families are supposed to do?
Mon, 19 January 2009
Very often, when I prepare wills, powers of attorney and health care directives (living wills) for clients they react with surprise when they see the length of my documents. “Why”, they say, “is the will you are preparing 20+ pages when my previous one was only 2?” “The document is designed to cover as many scenarios as possible”, I explain, “not knowing which scenario may in fact occur”. It is not good enough to simply address the most likely ones, especially if yours turns out to be one of the uncommon ones.
Narrowly or poorly drafted wills can cause unpleasant and expensive results. Let’s take the simple task of designating an executor, the person who is appointed the official representative of the estate and is charged with gathering the assets, paying the debts and taxes, if any, and following the instructions set forth in the will and making final distributions to the heirs. It is a good idea to have one or more backup or alternate executors, in case someone can’t or won’t serve, when the time comes.
Now, most people would think in terms of the executor dying as the reason a back up is necessary, but that is just one possible scenario. Yet, I not infrequently see a will drawn up that states “if my executor dies then I appoint my alternate to serve”. Let’s say Child A is the executor and Child B is the alternate. Mom dies and A doesn’t want to serve. No problem. A will step aside in favor of B, right?. Except that A is alive and the will only provides that B can serve if A has died. So, what now?
B can serve as administrator. Same role and responsibilities but some very important differences. An executor can serve without a bond if the will so provides but an administrator cannot. And that can be an expensive difference. The bond acts similar to an insurance policy in that the company issuing the bond will pay out the inheritance if the assets are lost or misappropriated. The bigger the estate the higher the cost, sometimes tens of thousands of dollars. While a bond can be very important, many close knit families see it as unnecessary. Unfortunately, in our case there is no choice. Had the will stated that the alternate can step in if the executor dies or otherwise can’t or won’t serve, then the bond could have been avoided. A very expensive mistake and a reason you want to be sure that the attorney drafting your will is experienced in estate planning or elder law.
Category:Estate Plan -- posted at: 6:00am EDT
Wed, 14 January 2009
In the first show of Season 2 of his Elder Law Today Podcast, by listener request, Yale Hauptman has modified the format and shortened the length of his audio podcast. In a concise 10 minutes, Yale presents a common scenario that many families today are faced with. Dad has just recently been diagnosed with early stages of Alzheimer’s Disease (you can substitute any other long term care illness because the issues remain the same). What lies next for Mom and Dad? What should the family be doing and when?
Yale runs through the planning strategies that ought to be employed to insure the best care possible for Dad, preferably at home rather than in a nursing home, and also to protect Mom so that all their hard earned savings are not spent on Dad’s long term care, leaving Mom with very little to live on.
Yale provides an overview of the long term care system, the benefit of setting aside assets in trust and the various government benefits, including VA and Medicaid, that may be able to play a role in Mom and Dad’s journey through the long term care system. Learn why it is so important to take these steps as soon as possible and why inaction can be so costly.
Episode 13 is a can’t miss listen for families who are unsure what to do and where to start.
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Mon, 12 January 2009
Mom is in her late 40's and divorced. She owns her own home worth approximately $250,000 but with a substantial mortgage with a balance of $150,000. Probably describes a lot of people. Except that Mom has Alzheimer’s. While the disease mostly affects the elderly, early onset Alzheimer’s is not uncommon. It is hereditary and can hit people in their 30’s.
I received a call from Jane, her daughter. Mom can’t work and has no income. The home is a mess and falling into disrepair because she can no longer take care of it. She is temporarily living with her father who is in his late 70’s. He pays the mortgage, taxes and upkeep on her home, although he is getting on in years and his health is failing. The family has no direction and is just living day by day with no idea when the nightmare will end.
Jane asked if we could help save the home. Could the home be transferred out of Mom’s name? My answer, unfortunately, was no. “How long ago was Mom diagnosed”, I asked. Jane told me it was about 3 years ago. Mom refused to consider moving and Jane and her grandfather have been supporting Mom to this point but now they have reached a point where that is no longer possible.
So now the home is on the market. But after closing costs and paying off the mortgage there isn’t much left. She was also hoping to recoup for herself and her grandfather the money they spent supporting Mom. Most importantly, there is the matter of providing care for Mom, hopefully in an assisted living facility at a cost of $4500 per month. When Mom’s condition worsens the next step is a nursing home and that costs $9000 per month.
I sympathized with her but didn’t have any magic solution. She simply waited too long before making what no doubt are tough decisions. So what should she have done?
3 years ago when the diagnosis was made is when the family needed to act. Selling the home and/or moving assets into a trust and out of Mom’s name would have made sense. Because there is a 5 year lookback for Medicaid benefits the family would need to manage Mom’s care and costs during that time period. But, managed correctly, they could have had assets left after 5 years, in trust, that could be used together with available government benefits to get the best care possible for Mom. They would have had options.
Now, they are selling a home falling into disrepair, in a down market. Not the best scenario for Mom who needs as much money as she can squeeze out of the sale to provide for her future care. A lesson for us all. If we delay making tough decisions they only get tougher.
I felt the despair in Jane’s voice. “How can our country let this happen?”, she asked. I didn’t have an answer for that one either.
Mon, 5 January 2009
A very common scenario we see is what I’ll call the case of the late in life second marriage. We all need companionship, especially after a spouse has died or after going through divorce. It’s lonely being alone. So we have Joe and Mary. They marry in their 60’s. He has 2 children from a previous marriage and she has 3 from her first marriage.
2 years later Joe’s health starts to deteriorate. It’s looking like he will need long term care. Mary comes to see me. “I love Joe but I am concerned for myself as well”, she says. “Will his long term care needs eat up our assets? We entered into a prenuptial agreement before we married. I had much more financially then he did. So please review it and tell me my assets are protected.”
I first explain to Mary that before the prenuptial agreement can protect her assets she must first get divorced. A prenuptial agreement basically is a contract that predetermines, in the event of divorce, how assets are to be split. In most cases the parties take back what was theirs and split what they acquired jointly during the marriage.
Let’s go back to our couple. Joe doesn’t have much and very quickly will run out of funds and need to apply for Medicaid. But, the only way Mary can preserve her assets is to divorce Joe and you can be sure that the State is going to look very closely at that prenuptial agreement before they approve Joe for Medicaid.
I explain all this to Mary. This isn’t much of a choice. She loves Joe and emotionally can’t reconcile divorcing him in his time of greatest need. “Is there any alternative?”, she asks.
Actually, there is. She can move her assets to a trust and after 5 years Joe can qualify for Medicaid. In this way she can spend as much of her assets for his care as she wants but not be forced to spend it all, leaving nothing for herself to live on or to provide for her own long term care needs.
When is the ideal time to do that? Really, she should have consulted an elder law attorney before or shortly after the marriage. In her case, it still isn't too late since it doesn't appear that Joe is close to needing long term care yet. However, the longer she waits the smaller that window of opportunity becomes. A little preventative medicine can go a long, long way.