The Right Plan for Senior Clients

While there are some aspects of estate planning that feature more prominently when dealing with an older client, it is important to remember that each client is unique and that their needs must be addressed on a case by case basis. There is no one size fits all package of estate planning documents that is right for every client and while there are many proactive strategies that an older client may employ, much of that planning is designed to address specific circumstances which never come to pass.

Edna and Frank were married for many years but never considered estate planning. Frank passed away in his mid-eighties and Edna discovered that many of her preconceived notions about how she and Frank owned property were mistaken. We assisted Edna through the probate process and ensured the transfer of her home and a large savings account from Frank’s name alone to her control and ownership. After consolidating that savings account with her primary bank accounts, we began assisting Edna with her own planning to ensure that her children, Brian and Gail, did not have to deal with the stress and difficulties of probate when Edna passed.

Edna’s financial situation was relatively common for a woman of her age. She owned her home free of any mortgage, she had checking and savings accounts, and she owned a number of CDs. She was receiving Social Security, a pension from her work as a teacher, and a smaller survivor’s pension from Frank’s employer. This income allowed Edna to break even with her yearly expenses, but she and Frank were good savers so when Edna needed additional funds she could dip into the savings account.

At first it made sense, due to her uncomplicated circumstances, to keep Edna’s planning simple. We prepared a basic Will to make certain that in the event any assets needed to pass through Probate the court had clear instructions. We then assisted Edna with naming Brian and Gail as the Transfer on Death Beneficiaries of her bank accounts and prepared a Quit Claim Deed with a Reserved Life Estate (commonly called a Ladybird Deed) that allowed Edna to own her home during her lifetime but automatically pass ownership of the property to Brian and Gail at her death. The goal of the plan was to avoid Probate to the extent possible, but to prepare for unexpected circumstance.

Those unexpected circumstances did arise, though not in the way we anticipated. In the years following our work with Edna, her health took a turn for the worse and she was no longer able to maintain her home or safely live alone. Rather than move into an assisted living community, Edna moved in with Brian and his family. This allowed her the ability to sell her home, which had appreciated nicely, and suddenly Edna found herself to have significantly more assets than she realized.

Not wanting to be a burden on Brian and his family, Edna insisted on paying some amount of room and board. In order to avoid any later question of propriety we prepared a simple Rent Agreement detailing what Edna would pay Brian each month. We also prepared a Care Agreement, supported by a doctor’s recommendation, detailing the care that Gail provided to her mother, in exchange for compensation. This planning is useful in avoiding later arguments and addressing issues related to Medicaid that could arise under similar circumstances.

In addition to these agreements, Edna wanted to use some of the proceeds to the sale of her home to help her grandchildren. While initially Edna considered a more complex plan involving holding assets in trust for each of her five grandchildren until they reached retirement age, through lengthy discussions of the merits of the options Edna eventually invested the funds in §529 plans to assist the grandchildren with college costs.

Edna’s situation is an example of how an estate plan does not need a Living Trust to be successful and gives some insight into how a trust could become part of a simpler plan. Had Edna decided to delay distribution of the gifts for her grandchildren until they retired, it would require the creation of trusts to administer those funds for more than forty years. While this is certainly an option that was available, if Edna wanted to make use of it, the simplicity and more immediate benefit of a §529 plan made more sense under the circumstances.

An estate plan should reflect the client’s circumstances and not take a one-size fits all approach. It should take into account what types of assets the client has, not just net worth, to make a plan that works best for the client and their family. Had Edna owned assets that were more diverse or had other major concerns, different planning would be appropriate, but under the circumstances a Will and proper beneficiary designations served to address her needs. This is the benefit of working with experienced attorneys can provide. They have the knowledge to make recommendations that meet your needs without establishing unnecessary complicated plans.

Matt and Al

An Introduction to Medicaid Planning

Based on a September 2011 poll, conducted by NPR, the Robert Wood Johnson Foundation, and the Harvard School of Public Health, less than 5% of adults considered Medicaid when asked how they would pay for long-term elder care. This stunningly low number sheds light on the fact that while people are living longer and are more aware of the potential need for long-term care as they age, they are unaware of an important method of paying for that care.

Medicaid is a federal program, administered by the states, that pays for nursing home care for individuals who meet the program’s medical, income, and asset requirements. The current average yearly cost of nursing home care in Michigan exceeds $85,000 for a private room. At that rate, even a period of two to three years will deplete the savings of the average person, leaving any surviving spouse with little money to use for their own care. If however, an individual is eligible for Medicaid benefits, the program covers the majority of that cost. The phrase "Medicaid Planning" has become a catchall for the methods used to allow an individual to qualify for Medicaid benefits, while preserving a greater portion of their assets for the well-being of their loved ones.

As a potential applicant contemplates whether to engage in Medicaid planning it is important to consider to consequences and benefits of qualifying for Medicaid. The largest benefit is the applicant’s assets are not consumed by years of expensive medical bills. For a married couple, this insures that the spouse who is not in need of nursing home care has the assets to provide for their own needs. For a single applicant, Medicaid Planning can result in more of the applicant’s assets being passed on to their loved ones.

The consequences of qualifying for Medicaid include the need to leave a home and reside in a nursing home. When faced with that reality, many potential applicants realize that staying in their own home is more important than passing assets to their children. A second often forgotten consequence is that while Medicaid pays for a great deal, if an applicant needs to spend assets in order to qualify for Medicaid, those assets are not available if they are needed for some reason in the future.

Applying for Medicaid benefits is not something to engage in lightly, especially for potential applicants who presently have significant assets, which they could use to pay for care. Proper Medicaid planning is more than spending, giving away, or attempting to protect assets to reach Medicaid’s eligibility requirements. The rules governing Medicaid eligibility consider more than a person’s present financial condition and impose a penalty period of Medicaid ineligibility if the applicant divests wealth to become eligible for Medicaid. The Department of Human Services (DHS) "looks back" 60 months from the date of a person’s application for benefits to determine if that person has given away assets that would impose a penalty on eligibility. There are however ways to spend down assets legally to reach the eligibility threshold.

The first and easiest method requires the client to own a home. DHS considers a single home an exempted asset when determining whether a person meets the asset threshold for Medicaid benefits. The personal property within that home is also exempt. Therefore, a person can pay off mortgages, make necessary repairs, make improvements to the home to increase its value, and purchase new furnishings. All of these techniques are especially useful if one spouse of a married couple needs to take advantage of Medicaid. In addition to the home and personal property, a single car is an exempt asset, this is true even if the applicant never drives the car. Another item that DHS classifies as an exempt asset when determining eligibility for Medicaid, as a pre-paid funeral contract. While many people find it difficult to even think about planning their own funeral, but by taking the time to make those decisions that will eventually become necessary, a Medicaid applicant can both ease the burden on their love ones after their death and remove assets to help qualified for Medicaid.

While spending down assets is a viable method of reaching the Medicaid eligibility threshold when an applicant has few assets, there are times when an applicant desires to qualify for Medicaid, frequently because they are aware that their condition is likely to be prolonged and expensive, leaving them with nothing to pass on to their loved ones, that require more advanced planning.

While it is possible to engage in planning that will assist a potential applicant in becoming Medicaid eligible, the scope of that planning varies greatly based upon the applicant’s present circumstances. Different methods are used when the applicant has a living spouse who is not in need of Medicaid benefits than would be used for a widowed applicant. Furthermore, in a situation where both spouses will potentially require substantial long-term care, still other methods can assist in preserving more assets to pass on to beneficiaries. The complexity of this advanced planning makes it unsuitable to discuss at length in this forum. In addition, potential applicants are cautioned not to attempt such advanced planning without consulting an attorney versed in Medicaid regulations.

 Medicaid planning is a complex area of law, but one with potentially large benefits. Whether a person needs additional care in the near future or simply is aware of the potential need for that care later in life, the proper preparations today, including a complete estate plan, a plan for regular annual gifts, and understanding the pros and cons of the Medicaid program, can insure that any long-term elder care does not leave their loved ones in dire financial straits.