COMMON ESTATE PLANNING CONCERNS OF AN ELDER LAW ATTORNEY

As an elder law attorney, it may be surprising to clients that many of our referrals come from estate planning attorneys since most have limited knowledge regarding public benefits. Many are shocked that there are over 40 Medicaid programs (each with their own rules) in Texas not to mention other public benefits programs such as planning for Veterans benefits (which also have a myriad of programs with different rules). Since people are living longer, the most common issues concern elderly persons with inadequate long-term care insurance or someone who is disabled (since public benefits often help pay for care, medications, etc.). Here are but a few of common issues that an elder law attorney should immediately review:

  1. Gifting – Since many Medicaid programs are “means-tested” (looking at the applicant’s resources that count towards eligibility), many Medicaid programs penalize uncompensated transfers with the presumption that the transfer was done on purpose to obtain benefits. Clients often confuse gift tax laws (which allows gifts of up to $14,000 per year, per donee) with the Medicaid rules which often penalize such transfer if within the applicable “look-back period” (most commonly the government presumes uncompensated transfers made within five years of application were purposefully done to obtain Medicaid eligibility to help pay for long-term care (long-term care costs usually are between $5,000 – $6,000 for a semi-private room in a skilled nursing facility in the Dallas area). The amount of uncompensated transfers determines the length of the penalty. As a result, just because a transfer was made within five years does not mean there is a five year penalty. It is anticipated there may be a “look-back period” for certain Veterans benefits in the future, but the rules would be different than Medicaid.
  2. Enhanced Life Estate (Ladybird Deeds) Deeds – Although most homes are a non-countable resource for Medicaid eligibility, the state has a right to make a claim against the home to the extent that Medicaid benefits have been advanced (subject to several statutory exceptions). One exception to a successful claim is an Enhanced Life Estate Deed (Ladybird Deed). If the life estate deed is not enhanced, then there would be a transfer penalty if within the look-back period described in the paragraph above.
  3. “I Love You Wills” – Married couples often have wills where most (if not all) of their assets pass to their surviving spouse. However, if the surviving spouse has inadequate long-term care insurance, then elder law attorneys often use “special needs trusts” since the assets held in that type of trust are note countable and not subject to spenddown by the Medicaid applicant or recipient.
  4. Revocable Living Trusts – Estate planning attorneys often use revocable living trusts for many reasons including probate avoidance in Texas and other states, continuity of management, avoidance of guardianship in the event of incapacity or incompetency, and privacy since trusts are not of public record unlike wills that are recorded and which may require an inventory of assets held in the estate and the inventory may also be of public record. However, revocable living trusts are rarely helpful in planning for public benefits and could often be harmful. If a married couple has a revocable living trust and one goes on Medicaid, then the state requires all countable assets be transferred to the well spouse within one year which is not possible if it is a joint trust. Furthermore, you cannot have a special needs trust for the benefit of the ill spouse in a trust unlike a will as described above. Additionally, if a home is deeded (unless it is a life estate deed) into a trust then it becomes a countable resource.
  5. Irrevocable Trusts – There are numerous types of irrevocable trusts permitted under various public benefits. If income is too great for programs such as long-term care Medicaid which has an income cap (presently $2,205 per month for the Medicaid applicant), irrevocable Qualified Income Trusts (formerly known as “Miller Trusts”) are used. The Qualified Income Trust does not work for certain programs such as Supplemental Security Income. If one is disabled and under 65, assets could be placed in a properly drafted special needs trust (which is irrevocable) without being subject to any look-back period. Irrevocable trusts are also often used in long-term Medicaid planning (subject to the applicable look-back period) and in planning for Veterans benefits. The terms which are acceptable to Medicaid are different than Veterans benefit rules. Tax considerations must also be discussed. Irrevocable trusts for Medicaid benefits can be tax neutral if properly drafted. Other irrevocable trusts used in Medicaid planning include “sole benefits” trusts and “pooled trusts”.
  6. Statutory Powers of Attorney – (in dealing with assets). Many have statutory (language approved by the state legislation) powers of attorney. However, the statutory power fails to address planning issues such as the right to create certain trusts and often limits the amount of transfer planning to the annual exclusion (presently $14,000 per year, per person) which is contrary to planning to reduce assets to be able to make certain transfers within applicable rules. Of course, one must always make sure the agent is trustworthy as this could be a very powerful document that could result in the impoverishment of the principal.
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