Planning for “We Hope It Never Happens”
Some things are unavoidable. Death and taxes are two items that fit nicely into that category. It’s almost ironic that estate planners deal largely with precisely those two issues (was Benjamin Franklin secretly an estate planning attorney?). Unfortunately, the job of an estate planning attorney is not so cut and dried. We often have to deal with the uglier side of life and address things like disability, incapacity, and even long-term elder care in less than ideal situations.
Medicaid and Planning Your Estate
One issue that seems to be recurring is that of using Medicaid to pay for long-term care in a nursing home or assisted living facility. In many cases, people are simply advised that they must first use whatever assets they have saved to pay for care, and only after such assets are exhausted will Medicaid begin to “pick up the tab.”
The thought of exhausting the nest egg—the thought of spending a lifetime of accumulated wealth on nursing home care rather than leaving it to loved ones—is simply too much for most people to bear. It makes the decision to accept assistance as a necessity much more difficult, and it’s truly heartbreaking.
The truth is that there are smart ways to arrange your planning so that many assets can be passed on to loved ones or held in trust while still allowing for a senior to maintain Medicaid eligibility. The rules differ drastically depending on whether one or both spouses need assistance, and there are completely different rules for unmarried people.
Generally speaking, a husband and wife can have a pretty substantial asset value and still qualify one person for Medicaid. Specifically, a husband and wife can jointly have about $114,000 in “permitted assets” and still have Medicaid pay for the nursing home costs for one spouse. Besides that, some assets are excluded entirely from the calculation of permitted assets.
For example, necessities such as clothing, furniture, vehicles, burial plots, and up to a little more than $750,000 in home equity are exempt from the calculation of permitted assets. That’s great news for seniors who don’t have extensive real estate investments or many liquid assets, but it is a very real psychological burden on people who are above the permitted asset threshold or have very illiquid investments. What should you do if you fall into that category?
Giving It Away
It is possible to give assets to your loved ones prior to requiring Medicaid assistance for nursing home care, but there is five-year “look back.” That means that if you’ve gifted assets within five years of needing Medicaid assistance, you might not qualify. There are, however, ways to plan responsibly while being mindful of the resulting penalty period through the use of very specific type of trust designed just for Medicaid planning.
And giving it away comes with a host of concerns – what if you need funds or investments returned? What if the child who receives the gift gets divorced or sued? What if the child goes through bankruptcy with your assets already in his name? We see terrible situations result all too often when folks engage in planning without proper legal advice. The weekend session your friendly life insurance agent took on Medicaid does not qualify her to give you ANY kind of advice on preserving assets and what is worse, you will likely be pitched the purchase of an annuity, which could sink any planning options if purchased without benefit of legal counsel.
That’s Where We Might Be Able to Lend a Hand
Nobody wants to think about putting their loved ones into a nursing home or about possibly ending up in one personally, but it’s a possibility that can’t be ignored, especially given the cost of care.
We are here to help you make the best decisions regarding your health and your assets. We work with excellent geriatric care managers, responsible financial planner and other professionals dedicated like us to preserving dignity, independence and choice for our senior clients and their family members. We’ve seen lots of scenarios where people are convinced that they have to spend all of their hard earned assets on long-term care rather than leave or gift those assets to loved ones. The truth is that some careful planning can help achieve quality care and a generous estate. Call our office today at (585) 244-2170 to schedule your Family Wealth Planning Session™ and Long Term Care consultation.
A Basic Primer on Trusts for the Non-Attorney
Trusts are entities that exist just as individual people exist. Trusts, therefore, are capable of doing most things that people are capable of doing with respect to operating in business and life. They can enter contracts, buy real estate, make investments, open bank accounts, start businesses, and even inherent property.
Like business entities, trusts operate at the direction of people. The people who create trusts and put assets into them are called grantors. The people who operate trusts are called trustees. Trustees make the decisions, and they direct trust assets. Of course, there are constraints. For one, trust documents typically spell out the guidelines that trustees must follow. In addition, the law imposes a very high level of fiduciary responsibilities on trustees in order to ensure that they are managing assets properly and not engaging in improper conflicts of interest.
Finally, the people who receive trust income and those who are entitled to receive trust principal are called beneficiaries. In other words, trustees manage trust assets for the beneficiaries. Under certain circumstances, this structure—management of assets by the trustee for the benefit of the beneficiaries, who have no control over the assets—creates a shield between the creditors of beneficiaries and assets held in trust.
Grantor Trusts
Grantor trusts are trusts where the grantor is also the beneficiary. A revocable living trust (“RLT”) is an example of a grantor trust. In an RLT, the same person or people are the grantors, beneficiaries, and the trustees. In this type of setting, trust assets aren’t protected from creditors. The purposes of a revocable living trust are to provide a management tool during incapacity and to avoid probate after death. By putting assets into the name of a trust, you can retain control of those assets and beneficial use of those assets and, at the same time, avoid ever giving the judicial system control over the disposition of your assets when you die (and avoid being subject to unnecessary court fees and attorney fees associated with court work).
Revocable living trusts are the ultimate in “pass through” type entities. The grantor retains all the benefits of ownership (and runs the risk of exposing assets in the trust to creditors), including the ability to sell, lease or mortgage certain property, and has a built-in last will and testament-type feature.
Trusts: Not One Size Fits All
Realistically, anyone who expects to die with even a small net worth may need to have a revocable living trust and a will. The will typically leaves everything to the revocable living trust, which then controls how assets are distributed. Again, this is all designed to avoid an expensive and potentially unpredictable probate process.
But some people need trusts that are more protective in nature—trusts that truly protect against the claims of future creditors or those who might file frivolous lawsuits. Others need trusts to protect against estate taxes. Whatever your ultimate needs may be, you need to start with a discussion with a knowledgeable attorney, not just your financial advisor’s resident estate planner, although such individuals are excellent for reviewing options for trust investments and should be involved throughout the process.
Putting Your Plan Together
We can do two things for you at The Powers Law Firm. First, we can assess your situation and put together an immediate plan that suits your needs, whether a living trust is appropriate or not. Second, we can help you determine what other sorts of estate planning or asset protection tools might be appropriate to add in the future. We look forward to hearing from you and your loved ones!
