Category Archives: Elder Law & Special Needs Planning

Special Needs Trusts

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Are you planning to leave assets to a disabled beneficiary upon your death?  If so, consider establishing a special needs trust (“SNT,” also known as a supplemental needs trust) for your beneficiary’s benefit.

An SNT is an irrevocable trust (i.e., the trust cannot be revoked or amended) established for the benefit of a disabled individual and managed by a trustee.  Because the trust is not owned by the beneficiary, the trust assets can be used to provide for the disabled person’s needs over and above the essential primary care provided to the disabled person through public assistance programs such as Medicaid or SSI, without compromising his or her eligibility for those benefits.  SNTs are divided into two general categories, first-party or third-party, depending on who the trust is funded by.

First-party SNTs are, as you may expect, funded with the disabled person’s own assets.  A first-party SNT is established by the disabled person or on his or her behalf by a guardian, parent or grandparent, or the court.  While a first-party SNT is a good option for a disabled person who wants to preserve assets he or she already has, upon his or her death the State can recover against the disabled person’s estate for benefits paid during his or her lifetime, including recovery against non-probate assets.

Third-party SNTs, on the other hand, are created by a third-party’s Will or Revocable Trust for the benefit of the disabled person and funded upon the third-party’s death from the proceeds of the third-party’s estate.  There is no limitation on who may create a third-party SNT for the benefit of a disabled person, and upon the beneficiary’s death there is no estate recovery by the State.

While many SNTs are privately managed, they can also be created as a pooled and community trust (PACT) which is run by a nonprofit entity.  While each PACT beneficiary has a separate account, the assets of all participating beneficiaries are pooled for investment purposes.  PACTs, like private SNTs, can be either first- or third-party.

If you have any questions on this topic, please contact Attorney Emily E. Ames at eames@llattorneys.com or (920) 393-1190.

What is Elder Law?

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Elder Law is a fast-growing practice area due to the steadily aging population of both Wisconsin and the nation as a whole.  However, many may not have a good understanding of what Elder Law is, or the services an Elder Law attorney can provide.

The practice of Elder Law encompasses the provision of legal services to older and disabled individuals and their families.  For older clients, this can include planning for incapacity and long-term care needs, coordinating available private and public benefits, and working with the client’s family, healthcare providers, other advisors, and fiduciaries to ensure that his or her objectives and needs are being met.

Planning for incapacity will often include implementing durable powers of attorney and advance healthcare directives, such as powers of attorney for health care, declarations to physicians (also known as a Living Will), and authorizations for final disposition. If the individual in question is already incapacitated and is unable to care for him or herself, an Elder Law attorney may assist that person’s family in petitioning the court to establish a guardianship.

An Elder Law attorney can also assist an older individual in planning for his or her long-term care needs.  This can include planning geared towards Medicaid eligibility or working with the individual’s financial advisor to ensure that he or she is able to pay privately for long-term care.

For disabled individuals, planning opportunities can include special needs trusts, which are used to provide for a disabled individual’s needs while maintaining his or her eligibility for governmental assistance and benefits.  Special needs trusts may be established by or on behalf of the disabled person and funded with his or her own assets, or by a third party for the disabled person’s benefit.

If you have any questions on this topic, please contact Attorney Emily E. Ames at eames@llattorneys.com or (920) 393-1190.

Passing Notes

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In 2015, the State of Wisconsin passed 2015 Wisconsin Act 55 which created a rule requiring Promissory Notes to be negotiable, assignable, enforceable and marketable in order for them to not be considered a divestment. As a result, use of Promissory Notes as a divestment tool was essentially eliminated.

In July, the Federal Government officially informed the State that effective August 1, 2017, this policy was not allowed under federal law. This is a major development in divestment planning because Notes are extremely useful in that they are: simple, inexpensive and effective.

In order for a Promissory Note to be used correctly as a divestment tool, they must comply with the following requirements:

1) The note must have a repayment term that is actuarily sound (based on SSA life expectancy tables);
2) The note must have equal payments during term of note (no deferral or balloon); and
3) The note cannot be cancelled upon death.

If a note is done correctly, it’s important to note that payments received from a promissory note are income in the month they are received. However, the value of the note itself is not counted as an available asset provided it can’t be sold.

So how does a note work in real life? Take the following two examples:

EXAMPLE 1
Jane is a single person, 90 years old, has $100,000 of available assets, and is currently in a nursing home. She has income of $700/month of Social Security. Her nursing home bill is $9,000 per month.

Jane makes a gift of $50,000, and simultaneously borrows her son Dick $50,000 in return for a promissory note. The terms of the Note: 1.29% interest, payable in 6 equal monthly installments of $8,364.72.

Jane applies for Medicaid and is denied due to the gift, and assessed a penalty period of 179 days ($278.05/day/$50,000).

Result: Jane uses note payment and SS to cover cost during penalty period, successfully saved $50,000 cash.

EXAMPLE 2
Charles and Di are each 90-years old and married.

They borrow William $75,000. William signs a note at the applicable federal rate of of 1.93%, payable in 58 equal installments (there is a 4.85-year life expectancy for Di) of $1,355.39 per month.

Di applies for Medical Assistance. Amount remaining on note is unavailable, and no divestment is made, $1,355.39 per month is income which can be retained by Charles as part of his Spousal Income Allocation, assuming his other income doesn’t rise to the maximum level.

As you can see, notes can save a significant amount of money if used correctly, and should be a tool utilized in many situations.

A Trumpcare Update

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A few months back, I posted an article about possible changes to the health care system (specifically changes to Medicaid), and the changes to the Affordable Care Act, that had been proposed by President Trump. Many things have changed since that time, including the passage of ACHA by the House of Representatives. This week, it appears that the Senate is prepared to vote on the “Better Care Reconciliation Act of 2017”, which is the Senate’s version of health care reform. Given the fast-changing political climate, it is very possible that by the time you read this, the information will be outdated, but I think it is interesting to follow the possible course of what I believe is the program upon which most drastically effects more people in the United States than any other (Medicare is vitally important as well, and is also affected by this bill, but it is outside of the scope of this article. Medicare is also available to everyone over a certain age, where Medicaid affects almost entirely the poor, elderly and disabled).

The Senate plan would reduce federal spending on Medicaid by approximately 26% by 2026, and the overall plan would result in approximately 22 million less people being insured (about 5 million of which are on Medicaid). Medicaid covers nearly 20% of all Americans, 40% of all children and disabled and over 60% of all nursing home residents. It also pays for almost 50% of all births and long term-care (which includes things like in-home care, assisted living, etc.). The problem with Medicaid to many is that the spending by the federal government is open-ended and based on the number of enrollees in each state. Currently, Medicaid can cover as many people as are eligible, but naturally when more people are covered, it costs more. What the Senate plan will do is place a cap on the amount the federal government will spend, regardless of how many people actually need it. The spending caps would be set at the rate of inflation, which is about half of the rate of the growth of need for Medicaid, which is mostly based on the fact that the overall population is aging. Many of these changes won’t become effective for a number of years, or will be phased in, but in the next ten years the amount of spending on Medicaid will be reduced by $772 billion dollars. The end result is that states will face more pressure to provide health care for less people. The change would force states to drastically change Medicaid qualification rules, which will make planning very difficult for individuals that may or do already require long term care. It’s also likely that states will need to trade quality of care for lower costs.

It is unknown right now what the final changes to the program will be. As someone that is keenly aware of how the aging population is using the program, I know that there are some cases where great planning can put a person in a position to rely on Medicaid to provide for their long-term care, even if at some point it would’ve been possible for them to pay their own way. However, those cases are actually very rare. Most people are shielding such a small amount versus the actual cost of care that these proposed changes are extremely aggressive. There are things that could be done to change qualification rules (and are done all the time) to close “loopholes” or make qualification more selective. Those changes could be done without fundamentally altering the program that could well affect many helpless individuals.

To Gift or Not to Gift…That is the Question

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A gift is defined in the dictionary as: “something given voluntarily without payment in return, as to show favor toward someone, honor an occasion, or make a gesture of assistance; present.” That definition makes a whole lot of sense. Think of gifts that you’ve received for your birthday, Christmas, or your anniversary. A box with a bow or an envelope with money in it, are the types of gifts that everyone understands. Describing these gifts would not make for a very informative article. The gifts I’m interested in telling you about occur all the time without much thought, but are considered the same as the box with the bow as far as state and federal government authorities are concerned. If you or anyone you know may be applying for Medicaid (Medical Assistance), you should be familiar with these examples.

An extremely common example of a gift, that isn’t as clear or simple as above, is selling something, but giving a loved one a “deal” on it. For example, your house is worth $150,000 but you sell it to your son for $80,000. That’s a $70,000 gift that needs to be reported and accounted for. Or your car is worth $1,000, but you sell it to your 16-year-old grandson for $1. This is also a gift.

Another situation that is common is where parents transfer a cottage or home to family members, and the parents continue to pay the real estate taxes on the property despite having no responsibility to do so. Even though the money never goes to the family members directly, payment of someone else’s obligation is a gift.

Not charging rent to someone can be a gift. If you own a rental property, but let a family member live there rent free, that can be a gift in certain situations.

Likewise, paying a family member to assist you with personal care or other activities, without a written agreement, can also be considered a gift.

There are certainly other examples of gifts that are not as simple as handing someone a box with a bow on it. Whether something is a gift or not a gift is extremely important if Medicaid (Medical Assistance) is a possibility. Currently there is a 5 year “look back” period as it relates to gifts. Any gift made within 5 years of application must be returned in full, or a penalty is imposed on the applicant. Even if intentions were good at the time, the moral of the story is to be careful, especially when you or a loved one is considering Medicaid as an option to pay for long term care (e.g. nursing home care). If you aren’t sure if something would be considered a gift or not, seek someone with experience in the area to advise you on the correct way to do what you want to do.

Playing Keep Away: Exempt Assets

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Efficient planning for Medicaid qualification often feels like a game of “keep away”. What is the State going to be able to keep, and what can a person keep safe? One of the most important ways to plan for Medicaid qualification is determining which assets, if any, are exempt from inclusion in a person’s assets, or in the assets that a spouse is able to retain. Many people don’t understand what can be retained, and what doesn’t count at all when making an application for Medicaid. The most commonly exempt assets for a single person are:

-$2,000.00 cash;

-pre-paid burial and funeral arrangements and;

-personal property (clothing, electronics, household items, etc.).

For the spouse not on Medicaid, in addition to the above items:

-homestead property (house and all contiguous land);

-one vehicle, and;

-all of the community spouse’s retirement accounts.

As with any and all topics involving Medicaid, there are several quirks, nuances and exceptions to consider. There are several other potentially exempt assets (as well as “unavailable” assets which is the subject of a different article) depending on each individual situation. For example, this article does not discuss the additional assets that the spouse is allowed to retain (which I do not consider “exempt” for these purposes.)

Planning ahead, and shifting of assets from non-exempt to exempt can be a great way to retain as many of your hard-earned assets as possible. Just as in a game of keep away, timing can be vitally important. Doing something too early, or too late, can result in you or your loved one losing the game.

TRUMPCARE?

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Donald Trump is set to be inducted as the 45th President of the United States on January 20, 2017. One of the things he has pledged to do is repeal the Affordable Care Act (aka “Obamacare”). The actual plan is currently unknown, but it can be safely assumed that something will change. The Affordable Care Act is a tremendously complex set of legislation and executive orders, and trying to discuss every aspect of what might change is a fool’s errand. I want to touch on possible changes to Medicaid. Medicaid is the program whereby the state, with the assistance of the federal government, provides health care for those that cannot afford it. In Wisconsin, it takes on many forms in its subprograms (e.g. Badgercare, Family Care, Institutional Long Term Care, etc.).
President Trump may be proposing to change a portion of Medicaid to provide “block grants”. Essentially, instead of the Federal Government directly funding a portion of Medicaid on an as needed basis, it would provide a specified amount of funds to each state each year, and the state would administer the programs alone. Because the federal government currently pays more for Medicaid than the state typically does, there are fears that the funds would be mismanaged by the states, or that states will pass more stringent laws to limit Medicaid eligibility. If that happens, it would likely create a gap where people who need and can’t afford health care also can’t receive it at a free or reduced cost because they don’t qualify. Proponents say that giving states autonomy will help them to reduce overall healthcare costs. Time will tell what effect any possible changes may have.

What is Elder Law?

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As someone who practices in the area of “Elder Law” I am often asked. What is elder law? The purpose of this article is to answer that question. Elder Law generally describes the clients that an elder law attorney works with: people on various spectrums of the aging process, and their families. An Elder Law attorney uses a collaborative approach, working with other professionals to ensure that a client’s unique needs are being met. This includes working with financial advisors, CPAs, banks, trust companies, insurance agents, medical professionals, social workers and case workers.

An Elder Law attorney also practices in a wide variety of areas in order to meet the client’s needs. Some of these areas include: estate planning, long-term care planning, trust administration, probate and guardianships. These areas often overlap, and include some areas that most regular estate planning attorneys provide. The difference is that an elder law attorney has a specialized focus on the issues that pertain specifically to aging clients, and how to best serve them now and in the future.

Medicaid Planning: Don’t Let the Nursing Home Get All Your Money

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Medicaid Planning is a complex, and ever-changing exercise.  If you’re like many estate planning clients that I have met, I bet you “don’t want the nursing home to get all your money.”  There are many ways that Medicaid planning can be accomplished to make sure your heirs inherit your estate, rather than having those funds paid to a long-term care facility.

While planning ahead with a solid estate plan is perhaps the most important aspect of Medicaid planning, the application and qualification process for Medical Assistance is very confusing and complex.  Even though most social workers and health and human service employees are very helpful and knowledgeable, they will not be able to help you in transferring and retaining the correct assets in order to qualify for aid.  In addition, if you do something wrong, and you forget to mention it, the penalties for lying can be serious.

Medicaid planning is an ever-changing area of law, and new rules are created all the time.  The best advice I can give you is that if you are thinking about Medicaid planning: call someone who knows what they are doing!  Trying to navigate this by yourself, even if you are fairly sophisticated, can cause serious problems and leave you or a loved one in a financial and emotional lurch.

In closing, it is important to plan ahead, both through estate planning and when navigating through the application process.  It is not worth it to save money on attorney fees, only to make matters worse, especially when an average month in a nursing home is currently nearly $8,000.00 per month.

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.