by Lori Leu
As Baby Boomers age and the need for long-term care increases, estate planning attorneys should consider adapting forms and methods of analyzing clients’ circumstances to plan for the possibility of needs-based public benefits.
Statutory Durable Power of Attorney. The gifting provision in the statutory form of the durable power of attorney limits gifting to “the amount of annual exclusions allowed from the federal gift tax for the calendar year of the gift,” which is currently $14,000. A broader authority may be required to permit necessary planning. The agent may need unlimited gifting powers, including the ability to engage in self-dealing, to take advantage of the planning that is allowed under the rules for public benefits qualification. If the principal does not trust the agent sufficiently to grant this level of authority, the principal should name someone else as agent.
Wills. Currently, one in three seniors die from a form of dementia. Sufficient planning should be done to ensure protection of the surviving spouse who has dementia or some other physical condition requiring long-term care. A married couple is often able to qualify one spouse for Medicaid benefits while keeping significant resources for the community spouse, particularly if their income is below a certain amount. However, a single individual must have less than $2,000 in countable resources to qualify for Medicaid benefits. If the spouse who is serving as the caregiver dies first, and the surviving spouse is the beneficiary under the Will, then the surviving spouse will need to have less than $2,000 in countable resources before qualifying for Medicaid benefits. However, if the Will contains a contingent supplemental needs trust, then the resources of the deceased spouse can be protected for the surviving spouse’s care without inclusion in the countable resources for Medicaid qualification. Although recent changes to the Texas Estate Code allow courts to reform the Wills, it would be better to plan ahead when possible.
Medicaid Issue Spotting. Assisting an individual with a Medicaid application constitutes the practice of law, and attorneys should be careful about providing such advice unless they stay up-to-date on the Medicaid rules. Importantly, though, estate planning attorneys should educate themselves so that they can know when to seek the advice of an elder law attorney. The average cost of long-term care in the DFW area is $3,600 - $6,500/month, depending upon the level of care needed. Only individuals who have long-term care insurance or sufficient funds to pay for years of long-term care should believe they may never need to plan for Medicaid. Every estate planning attorney should be aware of the following:
· Long-term illness. Questions about your clients’ health should be a standard part of the information-gathering for preparation of estate planning documents. If your client has been diagnosed with a long-term illness or has been experiencing memory issues, planning should include the significant possibility of public benefits.
· Medicare. Medicare is health insurance and pays for no more than a portion of 100 days in a skilled nursing facility. Medicare does not pay for long-term custodial care.
· Medicaid. In Texas, Medicaid primarily pays for long-term care in a skilled nursing facility. The benefit available for assisted living and at-home care is very limited and may require extensive waiting. Memory care is typically located in assisted living facilities.
· Transfer penalties. Medicaid has a five-year look-back period, meaning the applicant will be penalized for transferring assets within five years of applying for Medicaid. Gifting up to the annual gift exclusion for taxes is still a transfer under the Medicaid rules. Individuals who may need Medicaid within five years should not engage in any gifting.
· Irrevocable trusts. Funding an irrevocable trust constitutes a transfer and a five-year waiting period. Purposefully transferring assets to an irrevocable trust and waiting five years may not be a good option for individuals with dementia who need memory care in assisted living.
· Revocable living trusts. Revocable living trusts are not good planning mechanisms if Medicaid might be needed. Resources in the name of a revocable living trust are countable for Medicaid purposes. Further, a homestead valued up to $552,000 is exempt from countable resources for Medicaid, if the homestead is in individual names. If the homestead is in the name of a revocable living trust, it is a countable resource. Public benefits planning regularly requires the revocation of such trusts.
· Life Estate Deeds. Standard life estate deeds constitute transfers for Medicaid purposes. Homesteads can pass to heirs through use of an enhanced life estate deed, also known as a Lady Bird Deed.
· Income. Income is never too high for Medicaid qualification. If the applicant earns more than the income cap, a qualified income trust may be established for eligibility.
Appropriate elder law issue spotting can save your clients from unnecessary costs later.
Lori Leu is a Certified Elder Law Attorney with Leu & Peirce, PLLC. She can be reached at firstname.lastname@example.org.