Mon, 27 July 2009
In discussing long term care planning with new clients, very often they will tell me that they have everything covered because years earlier they set up a living trust. Living trusts are estate planning devices designed to eliminate the need to probate an individual’s estate at his/her death. In the 1990’s they were especially popular and still are very common, especially in states such as Florida and New York, where probate is time consuming and expensive. But are they useful for long term care planning purposes? Most likely, not. Living trusts are usually revocable, meaning that when a grantor or settlor (the person establishing the trust) transfers assets to it he/she has the ability to take the assets back out at any point in time. People believe that when they make transfers to the trust, these assets are not counted as theirs for purposes of qualifying for Medicaid or VA Aid and Attendance benefits. That is just plain wrong. If the trust gives you the ability to take the asset back out of the trust, the government will say “go ahead and take it back, spend it all down and then when it is gone come back to us.” The trust has to be irrevocable, meaning assets transferred to the trust cannot be taken back out by the grantor. A second reason living trusts (or other trusts, such as testamentary credit shelter or bypass trusts, won’t work for long term care planning purposes is that they usually contain a clause providing that the trustee can use the assets for the “health support and maintenance” of the beneficiary. Again, if the beneficiary needs long term care the government will look at the trust and point to that language. “Long term care needs are health, support and maintenance,” they’ll say, “so spend it down and then come back to us when it’s gone.” So, what’s the solution? If you have read previous posts on this blog you know that first of all, the trust must be irrevocable. Now, that makes people uncomfortable. “Does that mean I am giving away my assets and losing control over them?” The answer of course, is no. What I tell people is that the purpose of this transfer is not to give away assets because you may very well need some (or all) of them, depending on what your health needs are. But you can qualify for government benefits that can help pay for care. Not knowing how long you will live, the challenge is to protect your assets so you don’t run out of money. Tapping into other sources helps accomplish that goal because you are spending down your own assets less rapidly. Additionally, the trust language allowing distribution of assets by the trustee to the beneficiary has to be tailored very carefully so as not to jeopardize eligibility for government benefits. It all adds up to a trust that avoids probate and addresses long term care planning needs.
Category:Long term care planning
-- posted at: 6:00am EDT
|
Mon, 20 July 2009
As long term care needs increase and families want to keep their loved ones at home, hiring home health aides often becomes necessary. Paying an aide, however, if not done correctly, can cause Medicaid ineligibility years later, after funds run out. Consider the following very common scenario. Jane hires a home health aide at $700 per week cash, or $3000 per month. She keeps the aide 3 years until her funds run out and now needs round the clock care. A nursing home becomes the only option. She applies for Medicaid but is told, “Sorry, you’re not eligible for 15 months. You’ll have to private pay until then.” Of course, Jane has no more money. She’ll have to come up with the funds some other way, perhaps from family members. But at $9000 per month or more that may not be possible. How did Jane get into this mess? Because Medicaid treated her payments to the aide ($108,000) as transfers subject to a penalty. Qualifying for Medicaid requires spending down assets below $2000. Transferring assets may cause Medicaid ineligibility if you do not receive something of equal value back. Medicaid calls this a “penalty”. However, and this is key, you must prove to Medicaid that assets transferred are not subject to a penalty. If you pay the aide cash (or by check) and don’t keep proper records Medicaid will assess a penalty. The penalty is calculated by dividing the transferred amount by the average cost of nursing home care. When one applies for Medicaid there is now a 5 year lookback period, meaning Medicaid will look back 5 years from the date of the application to find these transfers. They will add together all the transfers made during that time. The penalty will begin when all other assets have been spent down and the individual enters a nursing home and applies for Medicaid. Of course, that is exactly the time when you have no more money. The State presumes you gifted the money and so will tell you to get it back, use it and then, after it’s gone to come back and they will pay for your care. But, you didn’t gift the money so you can’t get it back. So,how can you avoid Jane’s problem? By keeping records to prove the payments were not gifts and not paying cash which is difficult to trace. It is also a good idea to generate detailed invoices of the services which you purchased. Another, perhaps better, solution is to hire a home health agency that will supply the aide. It will cost more than hiring an aide directly but your contract with the agency will insure that Medicaid can never challenge the payments as gifts. And, in the long run it may cost you less because you won’t be stuck with a Medicaid penalty.
Category:Medicaid
-- posted at: 6:00am EDT
|
Mon, 13 July 2009
As I often tell clients, one of the most important documents that everyone should have is a power of attorney. A power of attorney allows you to designate someone to conduct financial and other transactions on your behalf. The ease with which anyone can execute such a document is a positive but can also be a negative because of the risk of it being abused. And therein lies the problem when it comes to being accepted by a third party, such as a financial institution or bank. When we prepare a power of attorney for a client we draft it with the client’s needs in mind as well as the mindset that we may not have another opportunity to redo it later so it must be as broad as necessary to cover all possible scenarios in which it may be used by the agent. We also tell clients that when their agent presents the document to a bank or other financial institution the first reaction may be that the bank will want our client (the “principal”, that is, the person signing the power of attorney in favor of the “agent”) to execute another power of attorney on their own form. The bank’s reason is usually a concern about liability – being sued for honoring an invalid power of attorney. However, the law provides a measure of protection for both the principal and the bank. New Jersey law states that a bank must accept a power of attorney that conforms to the law unless the principal’s signature is not genuine or the bank has actual notice that the principal has died, the power of attorney has been revoked or the principal was under a disability when the document was signed, meaning he/she wasn’t competent to sign it. The problem presented to clients is that the bank employee is usually following bank policy set by their legal department that they want the principal to sign their own document, typically in front of one of their own employees. Obviously, this makes it easier for them to be sure the document is valid but it frustrates the purpose and benefit of the law, that the principal can sign one document to cover all scenarios. Persistence with the bank employee and sometimes intervention by the elder law attorney will usually overcome this resistance and convince the bank to honor a valid power of attorney. It helps to know a little bit about the law because the person you are dealing with at the bank probably doesn’t and will tell you they are simply “following bank policy”. But this policy is not at all helpful to the client, especially in situations in which physical frailties prevent him/her from physically appearing at each bank to execute a separate power of attorney. That’s not to say that there aren’t legitimate concerns about agents abusing their power. It’s just that a “one size fits all” approach is the easy way out, instead of a careful examination of the facts of each case.
Category:Long term care planning
-- posted at: 6:00am EDT
|
Mon, 6 July 2009
Category:Medicaid
-- posted at: 6:00am EDT
|