Estate and Longevity Planning

Mike, age 56, was upset.  He had just gotten off the telephone with the realtor who was handling the sale of his parents’ home.  The realtor told him the title company refused to accept the power of attorney that Mike had gotten for his father, Robert.

Certain types of trust may be used by seniors who want to protect their savings and other assets from creditors and long-term care costs.  These trusts are referred to as “income-only trusts” or “Medicaid Asset Protection Trusts.  

As noted in my last post about the Michigan Medicaid Assets Declaration form, the spouse of a nursing home resident (called the community spouse) can keep all of the couple’s countable assets if they do not exceed $22,728. If the couple’s countable assets exceed $22,729, the community spouse can keep an amount equal to half of the countable assets, but no more than $113,640, without further action.

In my last post, I wrote about what you do with the home of a nursing home resident in a crisis Medicaid plan.  A crisis Medicaid plan is planning that is done when an older person’s move to a nursing home is imminent or after they have already moved to a nursing home.  While I, as an elder care attorney, can help save money in a crisis situation, since it is often better and less stressful to avoid a crisis, in this post I will discuss the options and benefits of planning ahead for long-term care.

The VA Aid and Attendance benefit is one of the best options for older wartime veterans or their widows who need elder care assistance.

Long term care is expensive, and the receipt of these veterans services can help avoid the high costs of nursing home care, assisted living, or home care in depleting an older person’s assets.  That’s important because, once an older person is out of money, their only care option is to apply for Medicaid. 

Some Common Questions

I’ve added my kids’ names to our bank account. Do they still count?

Yes. The entire amount is considered 100% available to the person applying for Medicaid unless you can prove some or all of the money was contributed by the other person who is on the account. This rule applies to cash assets such as:

• Savings and checking accounts
• Credit unit share and draft accounts
• Certificates of deposit
• U.S. Savings Bonds

Can’t I just Give My Assets Away?

Many people wonder, can’t I give my assets away? The answer is, maybe, but only if it’s done just right. The law has a severe result for people who simply give away their assets to create Medicaid eligibility (called divestment). It is not a civil or criminal penalty; the penalty is that Medicaid will not pay for your care for a period of time. For example, for every $6,816 (in 2011) given away during the five years prior to a Medicaid application creates a one month period of ineligibility.

So even though the federal Gift Tax laws allow you to give away up to $13,000 per year without gift tax consequences, a gift of that amount would result in a period of ineligibility of nearly two months for Medicaid purposes.  During the penalty period, the nursing home bill must be paid by the nursing home resident or their spouse, otherwise the nursing home can seek to evict the resident.  When the nursing home bill is not being paid due to a penalty period, the family may have to step in to pay it to avoid the eviction.

Also, these are your assets, so be careful. If you give them away, you truly lose all control and the legal protections afforded to owner's of assets, so outright gifts of assets should be avoided if you are planning ahead.  Transfers may make sense if someone is about to go to a nursing home or is already in one, but they have to be structured just so to avoid problems.

I’ve added my child as a joint owner on my mutual funds or real estate. Do they still count?

Designating someone else as a joint owner on real estate, mutual funds, or stocks can be very risky, but in some cases the now jointly owned asset may be considered unavailable for Medicaid purposes.  The asset would only be considered unavailable if 5 years or more have passed since establishing the joint ownership arrangement, if the asset can only be liquidated with all owners’ consent, and if one of the owners refuses to give their consent.  However, there can be some real problems with the use of joint ownership.

First, it is important to realize that designating someone other than your spouse as a joint owner on such assets is considered a divestment for Medicaid purposes.  So, for instance, if you have a mutual fund valued at $50,000 and you make your child a joint owner on the account, the Michigan Department of Human Services will consider you to have made a $50,000 divestment, resulting in a 7 month period of ineligibility for Medicaid.

There are other potential problems with making someone a joint owner on your assets.  One that is overlooked is once you make someone a joint owner on your asset, that person has all the rights of an owner.  What that means is, using our $50,000 mutual fund example, the new joint owner has the right to sell the mutual fund and take all the money.  Also, your asset is subject to all of the joint owner’s potential problems.  For instance, if they get divorced, sued, or have a bankruptcy, what you still consider your asset can be lost in their problem because they are a joint owner.

If you make someone a joint owner on an asset that has appreciated in value, there can be a larger income tax that is owed when the asset is eventually sold.  Finally, joint ownership trumps your estate plan.  For example, if your Last Will and Testament or Revocable Trust provides that your assets are to be divided evenly amongst your children, but you have made one of the children the joint owner on the $50,000 mutual fund, all of that mutual fund belongs to just that child and the others would receive nothing.  These same potential problems apply to making someone “joint” on your bank accounts.

Many people believe that joint accounts are a good way to avoid probate and transfer money to loved ones, and such accounts are sometimes referred to as "the common person's estate plan." But while joint accounts can be useful in certain circumstances, they can have dire consequences if not used properly. Adding a loved one to a bank account, savings bond, or investment account can affect Medicaid planning as well as expose your account to the loved one's creditors.

When a person applies for Medicaid long-term care coverage, the state looks at the applicant's assets to see if the applicant qualifies for assistance. While a joint account may have two names on it, most states assume the applicant owns the entire amount in the account regardless of who contributed money to the account. If your name is on a joint account and you enter a nursing home, the state will assume the assets in the account belong to you unless you can prove that you did not contribute to it. Proving that would often require obtaining old financial records, which can be impossible to locate with all the financial institutions that have merged or gone out of business in recent years.  Even if you can produce the records, you will often have to have a hearing before an administrative law judge and, in some cases, may have to pursue an appeal in the circuit court.  As a practical matter, to have any chance of success, you would need the assistance of an attorney, so there will be attorney fees.

In addition, if you are a joint owner of a bank account and you or the other owner transfers assets out of the account, this can be considered an improper transfer of assets for Medicaid purposes. This means that either one of you could be ineligible for Medicaid for a period of time, depending on the amount of money in the account. The same thing happens if a joint owner is removed from a bank account. For example, if your spouse enters a nursing home and you remove her name from the joint bank account, it may be considered an improper transfer of assets.

Another problem with joint accounts is that the account is vulnerable to all the account owners' creditors. For example, suppose you add your daughter to your bank account. If she falls behind on credit card debt and gets sued, the credit card company can use the money in the joint account to pay off your daughter's debt. Or if she gets divorced, your account could get caught up in the divorce.  If the joint owner has a bankruptcy or lawsuit, your assets in the joint account could be lost.

In addition, you cannot plan for contingences with a joint account. For instance, your Last Will and Testament may provide that your assets are to be distributed in equal shares to your two children. The Will may contain a contingency provision that if one of your children does not survive you, that their share of the inheritance passes to their children.  That can make a lot of sense, because if your grandchildren’s parent is deceased, those grandchildren may certainly need the money if they are young.  However, if your bank account is a joint account or payable on death account, your grandchildren will not receive your deceased child’s share because under joint ownership, everything passes to the surviving joint owner, which, in this case is your other child.  Joint ownership overides a Will.  In a Will or Trust you can plan for such contingencies, including protecting assets for young beneficiaries or family members who become disabled.

Finally, you need to be sure you can trust the joint account holder because he or she will have full access to the account. Either account owner can take money out of the account regardless of who contributed to the account.

There are better ways to conduct estate planning and plan for disability. A power of attorney and Trust will ensure that a person of your choice can manage and access your assets for you if you become disabled.  If you are seeking to transfer assets and avoid probate, a Trust may make better sense. To learn more, contact our office.

Andrew Byers is an Elder Law attorney in Auburn Hills, Michigan and assisting clients with estate, long-term care and asset protection planning is part of his elder law practice.

Thinking about a time when you will need help taking care of yourself is not fun. That is why most people put off discussing long-term care until it can't be ignored. But it is better to start long-term care planning early. Here are some reasons to start planning now:

People are living longer and are more likely to need long-term care. Life expectancies keep increasing, which means you are more likely to need help at some point. At least 70 percent of people over age 65 will require some long-term care services at some point in their lives, according to the U.S. Department of Health and Human Services.

Care expenses are high. Whether you receive care in a nursing home or at home, expenses are rising. According to the 2010 MetLife Market Survey of Long-Term Care Costs, in 2010 the average cost of a room in a nursing home was $83,585 a year and home care aides averaged $21 per hour. Those figures aren't going to start going down. For 2011, the State of Michigan has determined the average cost of a nursing home in Michigan is $6,816 per month or $227 per day

Family caregivers may not be available. In more and more households, both partners work. In addition, children often move far away from their parents. This means that your adult children may not be able to easily take of you when the time comes.

The earlier you plan, the better. By planning ahead, you may be able to preserve your assets instead of using them all up paying for long-term care. In addition, if you plan early, you may have more options for care and may not have to worry about qualifying for Medicaid.

To start planning for long-term care, talk to your elder law attorney. Planning steps may include executing advance directives and a comprehensive power of attorney, putting assets in a trust, purchasing long-term care insurance, or creating a caregiver contract with an adult child. An experienced elder law attorney can help you figure out the best plan for you.

Andrew Byers is an Elder Law attorney in Auburn Hills, Michigan and assisting clients with estate, long-term care and asset protection planning is part of his elder law practice.