Episode 020: Day 11 – Estate Planning and Elder Law Lawyers

Episode Description:

Host Zack Demopoulos launches his 30 day preparation plan to care for an aging adult.  In Day 11, Zack talks about how important estate planning is, and how an elder care attorney can help with that and long term planning.

Show Notes:

Day 11:  Estate Planning and Elder Law Lawyers

Do you know the difference between an estate planning lawyer and an elder care lawyer?  Do you even know why you would need either one?  An Elder Care Lawyer can really help you plan for the future, especially health care costs as you age during your retirement.  We’ll discuss this topic on Day 11 of the 30 Day Preparation Plan To Care For An Aging Parent.

Welcome to the Raising ‘Rents Podcast.  This show is sponsored by ComForCare, a national home care provider that will help you live your best life possible.  Day 11 of the 30 Day Preparation Plan is the next step in preparing a plan to become a caregiver. Keep in mind as we go throughout this process that our primary goal for family caregiving, regardless of circumstances, is to provide a loved one with a comfortable, caring environment in which to grow old.

Yale and Laurie Hauptman are elder care attorneys that serve some of the same communities I serve.  I have been fortunate to also work with them and learn quite a bit about long term care planning.  A misconception many of us hold is that if our parents have a will in place, even a living will, that is all they need when it comes to utilizing lawyers.  But estate planning, though extremely important, really only answers the question “what happens when I die”.  As Yale Hauptman clearly differentiates in a blog article he wrote, the bigger and more difficult question is “what happens if I live?” What happens if I live but am not healthy and have increased health care costs and need to rely on others for assistance, either temporarily or on a permanent basis. Mr. Hauptman makes the point that the estate plan does not address this need. An estate plan can help you answer the first question, but only a long-term care plan can help you answer the first and the second question.

Not many people are familiar with what an elder care attorney does.  You will find if you do a search in your area or your parents’ area, there are quite a few who practice elder law and many of them have good articles, blogs, and resources on their websites.

This is not a comfortable conversation to have with your parents.  There is no easy way to ask them how they have planned for what happens when they die.  And perhaps not as difficult but still uncomfortable, how have they planned to live if they face some of the challenges aging brings to them.

I referred to a website called www.ElderLawAnswers.com to get some more information about estate planning and long-term planning.  Simply stated, estate planning allows you, while you are still living, to ensure that your property will go to the people you want, in the way you want, and when you want. It permits you to save as much as possible on taxes, court costs and attorneys’ fees; and it affords the comfort that your loved ones can mourn your loss without being simultaneously burdened with unnecessary red tape and financial confusion.  If you think about this, it is a good thing that a parent would want for their children.  So that is a good way to approach it, and having a third party assist like a lawyer is advisable.

The website article continues by telling us that all estate plans should include, at minimum, two important estate planning instruments: a durable power of attorney and a will. The first is for managing your property during your life, in case you are ever unable to do so yourself. The second is for the management and distribution of your property after death. In addition, more and more, Americans also are using revocable (or “living”) trusts to avoid probate and to manage their estates both during their lives and after they’re gone.

Now I ask that you speak to the experts about these things but I will give you a very high overview.  Again, I am referencing the ElderLawAnswers website.  There are two types of trusts – testamentary and inter vivos.  A testamentary trust is one created by your will, and it kicks in when you die.  An inter vivos trust, starts during your lifetime from the point you created it and it exists during your life.  There are two kinds of inter vivos trusts: revocable and irrevocable.

  • Revocable Trusts are more commonly called “living” trusts. With a revocable trust, changes can be made, the trust can be terminated any time prior to death. You will find revocable trusts generally used for things like Asset management, Probate avoidance, and Tax planning.
  • Irrevocable Trusts cannot be changed or amended. Any property placed into the trust may only be distributed by the trustee as provided for in the trust document itself. This type of irrevocable trust is a popular tool for Medicaid planning.

So, there are five important components you need to make sure your parents and even you have with a good estate plan. 

  • One is a will. Most of us are familiar with what a will is and most of our parents have wills.  Make sure they do and that it is updated per your parents’ wishes.  The most important thing to know is that if you do not have a will, the state will determine how your property is distributed. Not an ideal situation.  A will also appoints a legal representative to carry out your wishes. However, a will covers only probate property. Many types of property or forms of ownership pass outside of probate.
  • Another is a Trust. We discussed trusts briefly already.
  • A third component is a Power of Attorney. This is a person you appoint  to act in your place for financial purposes when and if you ever become incapacitated. In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. And that is also not an ideal situation.
  • There is another person you need to make sure your parents have appointed, and that is a health care proxy or a durable power of attorney. They would be someone to make health care decisions if you are unable to do it yourself.   This would be covered under the fourth component, Medical Directives.  Older wills your parents created may not have this very important component.  Medical Directives also can include a living will and medical instructions.  I have had clients confuse their living will as the one and only instrument they need but that is not true.  A living will instructs a health care provider to withdraw life support if one is terminal ill or in a vegetative state, but not if you are in a less serious state of health. 
  • Beneficiary Designations is the fifth component. The only way to control where the money goes is to name a beneficiary.

By the way, when it comes to assigning someone to represent you as in the financial and or health durable power of attorney, they can either be in effect upon execution with the understanding that their powers cannot be sued until the person they represent becomes incapacitated.  Or their powers can spring into effect when one becomes incapacitated.  Either way it is very important to establish what determines incapacity and the timing.  This is very important especially in cases where one is showing early signs of dementia.

One of the issues I see today when it comes to long term care for an aging adult and an issue I see not going away any time soon, is how to plan for the future if and when you spend all of your assets for long term care.  Medicaid planning is an important part of what an elder care attorney can provide for you.  They can explain how the rules work regarding Medicaid eligibility, and the planning options available for your parent, the process of being admitted to the facility and applying for benefits.   They can help create the best strategy and how to implement it.  There are things like the five year look back rule.  Elder care attorneys are very good at assisting with this confusing part to Medicaid eligibility.  And it is best to plan for this way in advance.  There are exceptions to the rule and only Elder Care attorneys in my opinion are the best resources to help you with this.  The five year look back rule in simple terms is a stipulation that is in place for an elderly person to be eligible for nursing home care, assisted living or in-home care from Medicaid.  As you know, anyone seeking Medicaid assistance must have limited income and assets. To prevent someone from simply giving away their money to qualify for Medicaid, the federal government implemented the “look-back period”. The look back is a set period prior to the individual’s application during which the Medicaid administering agency reviews all the financial transactions that the senior has made. If a transaction is found in violation of the look back period’s rules, the applicant will be assessed a penalty. Penalties come in the form of a period that the applicant is made ineligible for Medicaid. Meaning they will not be able to receive care services paid for by Medicaid for a certain number of months.

A Medicaid applicant is penalized if assets (money, homes, cars, artwork, etc.) were gifted, transferred, given away or sold for less than the fair market value. The reason for this penalty period is that these assets could have been used to help cover the cost of long-term care, if they had not been gifted or transferred.

The penalty for violating the Medicaid look-back is a period that one is made ineligible for Medicaid. This period of ineligibility, called the penalty period, is determined based on the dollar amount of transferred assets divided by either the average monthly rate or daily rate of nursing home care in the state in which the elderly individual lives (this is called the penalty divisor).

  • Example #1 
    The state in which you reside has an average monthly cost of $4,000 for nursing home care and you gifted $60,000 during the look-back period. This means you will be ineligible for Medicaid for 15 months. ($60,000 gifted divided by $4,000 average monthly cost = 15 months).

So, transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year look-back period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.

As a rule, never transfer assets for Medicaid planning unless you keep enough funds in your name to (1) pay for any care needs you may have during the resulting period of ineligibility for Medicaid; and (2) feel comfortable and have sufficient resources to maintain your present lifestyle.

So that’s Day 11.  Join us for Day 12 as we talk about staying active to stay healthy.

Thank you for listening to the Raising ‘Rents podcast.  This was Episode 20.  If you have any questions or feedback, please go to our website www.raisingrents.com and click on the “Contact” tab.  You can also find the show notes and references to anything we talked about.  Until we talk again, remember that our parents raised us, the least we can do is help raise them. Talk to you later.

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