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Estate Protection For The Elderly
As we all look back on long lives full of memories, it becomes apparent that our futures are just as important. Perhaps you have already retired and are looking at how to manage your resources, or you may be one of the many elderly employees in our workforce. (For this article, the “elderly” are those people over age 65, the current (eligibility is increasing to age 67 soon) age when a person may receive Social Security.) In any case, careful estate planning can allow you to spend your last years in comfort, with minimal financial strain on income that may perhaps already be limited. One reality facing many elderly is the possibility of residing in a nursing home, or obtaining other skilled care, and paying a substantial amount for this care. There is also the inescapable fact that we will all pass away some day, and we desire to control the distribution of our assets when that day comes.
Although many elderly face the possibility of residing in a nursing home (or utilizing some other form of the many types of skilled care), the cost can be prohibitive for a great percentage of those in need of such care. On any given day, five percent (1.5 million) of the elderly population are in the care of a licensed nursing home, and the percentages increase among the older age groups. The costs for nursing homes will vary depending on where you reside in the United States, or even the facility, but even the lowest-cost facilities will require payments of thousands of dollars per month. The cost for this care may be difficult for an individual with limited income, and even more difficult when expenses for a spouse, children, and your family home are taken into account. A question many clients ask is whether the government will pay for this care through Medicare or Medicaid, or some other governmental supplemental program.
Medicare will not provide any protection for expenses of long-term health care, whether it is a nursing home, home care, or some other form of skilled care. The only government program available that can pay for any type of long-term care is Medicaid, which is a federal and state welfare program for the poor. Because Medicaid is defined as a welfare program, you can not be eligible unless you possess assets valued below a certain statutorily set figure. A strategy frequently used to protect and save assets for the elderly is called the “impoverishment” strategy. Over a period of time, the elderly person gradually gives away all or nearly all of his or her assets for the purpose of qualifying for Medicaid. This strategy aims to (1) reduce the elderly person’s assets below the statutorily set maximum for Medicaid assistance and (2) qualify him or her for Medicaid, thus (3) preventing the assets from being used up to pay for uninsured health care expenses or nursing home costs, to (4) allow assets to be transferred to children or other family members on the elderly person’s passing away.
However, this strategy is not as easily accomplished as it first appears. (In addition, the elderly may not wish to be dependent on children or others while they are going through this.) If a spouse is going into a nursing home, he or she may not be eligible for Medicaid by simply transferring all assets to the other spouse. To determine the Medicaid eligibility of the spouse entering the nursing home, all of the non-exempt assets of both husband and wife are pooled together, and the total divided equally between both spouses. This transfer may still leave the spouse entering the nursing home with assets above those allowed to qualify for Medicaid. Likewise, a transfer of assets to children may not allow the transferor to be eligible for Medicaid. Eligibility for Medicaid benefits is denied for a period of time (36 or 60 months, depending on the type of transfer) if the person going into the nursing home transferred assets for less than fair market value. In fact, federal statutes impose criminal penalties for transferring assets to qualify for Medicaid in some circumstances. The best way to plan your asset distribution is to consult with an attorney who is qualified in the area of estate planning. It is in your best interest to qualify in a legal manner, and to avoid any undesirable effects.
Estate planning is not only how you designate your assets to be passed upon your passing away, but also the anticipation of many problems facing the elderly in their later years. Estate planning is a complicated process that should be dealt with only by an attorney competent in the field. Every law office handles estate planning differently, depending on the sophistication of the attorney you are dealing with, as well as the complexity of your estate. In order to advise you properly in planning your estate, an attorney must be knowledgeable in the following areas of law:
1. Federal Estate Tax 2. Federal Gift Tax 3. Federal Income Tax 4. Federal Medicaid Law 5. Federal Social Security Law 6. South Dakota Estate, Wills and Trust Law 7. South Dakota Estate Tax Law 8. South Dakota Gift Tax 9. South Dakota Income Tax Law 10. South Dakota Medicaid Law 11. South Dakota Property Law
An elder law attorney does not dabble in these areas of law, but concentrates his or her practice in what has become known as Elder Law, which involves advising clients with regard to all of the above areas of law, as well as other basic concerns which may affect the elderly. Although an attorney will charge you a fee for planning your estate, the entire plan will be explained and any adverse or unknown consequences should be avoided. As you near the end of your long-lived life, great comfort should be taken from the knowledge your estate will pass in the fashion you desire.
The first thing your attorney should do is to help you prepare a complete and detailed list of your assets, along with all your liabilities, income, and expenses. This information is very important to determine the assets you will need to maintain your current style of life, determine potential federal and state estate tax liability, and potential costs of administering your estate. This information is also needed in determining whether it is possible or desirable to transfer your assets to protect them from nursing home costs and any uncovered medical expenses, and also to advise you whether certain documents may be needed. Your attorney should also review any existing plan you may have (wills, trusts, powers of attorney, health care proxies, living wills, deeds, pension plans, life insurance, annuities, and IRA’s) and the beneficiary designations under this plan.
Estate planning should complete six important goals for you, no matter how complex your estate is. Although each estate is different, these six common sense goals can be reached with the assistance of an attorney who specializes in estate planning. Most importantly, you should be able to maintain your current life style for the rest of your life. In addition, an estate plan should protect your assets from nursing home costs and uncovered medical expenses; avoid probate; reduce or eliminate both state and federal estate and gift taxes; reduce both state and federal income taxes for you and your family; have someone manage your assets in the event you become disabled or unable to manage your assets during your life; and in addition, estate planning often deals with difficult subjects such as health care choices and the right to die. Professional legal help with the drafting of your estate plan will allow for optimum flexibility, while still being able to assist you in fulfilling these six main goals, and all others as well.
With these goals in mind, and after your comprehensive list of assets is compiled, your attorney can make recommendations about your estate. The planning of an estate can be flexible, and there are a number of important documents you should discuss with your lawyer. Although your lawyer can give you suggestions and legal explanations for various documents, you must make the final choices yourself, and unless there are legal reasons (such as mental incapacity or guardianship), no person, including your attorney, can make these choices for you. Every elderly person retains their legal autonomy, and every elderly person has the right to make their own choices, free from any pressure or influence that another may try to force on them.
Estate planning is not a simple process that will be taken care of in a few short visits, so you should expect to meet with your attorney for perhaps two to three months, with regular meetings during that period. If you have talked with an attorney and were given assurances your estate could be planned in a few short visits, it is likely something is being overlooked, and you or your estate may encounter difficulties you were not expecting. For this reason, even after your entire estate plan has been completed, I strongly suggest that you review your estate plan at least once every year. More frequent review is recommended, depending on your physical needs or any change in circumstances that are related to your health, finances, or the applicable law. Although attorneys practice in a profession emphasizing close personal contact with their clients, not every change in your circumstances will be known by your attorney. Your attorney should contact you when important changes have been made to the law affecting your estate, but you should take it upon yourself to contact your lawyer when there are any other changes he or she should know about.
There are five important documents that should be discussed as part of your estate plan. Each of these documents is important, although not every one of them will be used in the planning of each estate. In addition to that, each of these documents will allow for great flexibility, tailoring the document to fit the needs of the individual under his or her own circumstances and desires for their estate. The five documents (durable power of attorney, health care proxy, living wills, wills, and trusts) will now be discussed in turn.
A durable power of attorney names someone to act on your behalf, and is usually used when you cannot act personally because of sickness or other incapacitation. Not every power of attorney is alike, and not every law office will offer a specially drafted power of attorney with the purposes of estate planning in mind. Powers of attorney are defined by statute, and many law firms may offer (if they offer a form at all) a simple short form granting the powers defined in the statute. If this is a document you will possibly be using, you should consult with your attorney to determine what kinds of modifications can be made to this form. A properly drafted individualized power of attorney should contain both the legal and non-legal powers that can be exercised through your authority. This document should also expressly state how long, if a time limit is desired, it will have legal effect.
The decision of who is to have your power of attorney is one that should be thoroughly discussed, because after you become disabled, you may not be able to execute another power of attorney. Although you will choose one person to act on your behalf, you will also designate an alternate to act if your primary person can not, or will not perform. This document is important because it allows binding legal choices to be made on your behalf, and great care should be taken in preparation, especially with elderly clients. Quite simply, elderly clients are more likely to become disabled, and attorneys dealing with these situations need to be competent to answer questions and draft this document with your best interests in mind.
A health care proxy is somewhat similar to a durable power of attorney, except this document designates someone to make health care decisions for you if you are not able to make them for yourself. A hospital has no legal obligation to allow your family to make health care decisions for you if you are disabled to the point of legal incompetence. Without a health care proxy, your family may be required to go to court for a guardian to be named for you, and there is no guarantee your guardian will even be a family member. As we grow older, the elderly typically require increasing health care, and it becomes more likely that medical disability may occur. I recommend that each client create some form of health care proxy to guard against the uncertainty of medical disability and the lengthy legal ordeals that may result in its absence.
Living wills are prepared in anticipation of an individual being unconscious or in an irreversible physical condition with no hope of recovery. You will have four options to choose from when you draft this document: (1) no life-sustaining treatment whatsoever be given to you, (2) treatment is to be given to you for restoration purposes only, (3) treatment will be given to you unless you are permanently unconscious, or (4) maximum treatment will be given to you, even when there is no hope of recovery. In addition, you have the option to choose whether you intend artificial nutrition and hydration to be included in the life-sustaining treatment option you have chosen. You have the right to decide what medical care you will seek; this is a Constitutionally protected right. You may choose whether you desire such care in the face of a situation where there is no recovery possible, and you may choose whichever option best suits you, and no other person can make this choice without your previous wishes being complied with.
No matter what option you choose to exercise, it is important that you make it known to both your family and health care provider. You should inform your family to ease the burden they may bear, knowing that it is a choice that you have made, and it is nothing they need to feel responsible for. You should also expressly inform your health care provider to make sure your choices are complied with. As surprising as it may sound to you, a hospital will incur no liability if they do not follow a plan they do not know about, regardless of what your choice is. To eliminate this concern, expressly stating your desires to your hospital may secure compliance with your wishes.
Certainly the choice whether to enter into a living will is a serious issue, with many moral and religious issues confronting individuals who decide this issue. There are three reasons most commonly advanced by clients to justify their desire for a living will which declines medical intervention. First, if they are to die, they want to die with dignity. Second, they do not want to run up high hospital and medical bills and wipe out their own resources and those of their family if they are permanently unconscious and have no hope of recovery. Third, they want to spare their family the emotional pain of seeing them permanently unconscious and hanging on for an indefinite duration of time, knowing there is no hope of recovery. Although there are often common justifications for these documents, certainly individuals may not wish to create these documents, or create documents stating their desire to be kept alive in these situations. This weighty issue should be discussed with your attorney, and most importantly, it should be discussed with your family as well.
The most well-known instrument for estate planning is a personal will. A will is designed to control the distribution of your assets in a manner of your own choosing upon your passing away. Without a will, your assets will pass through default intestate succession, which, for the purposes of simplicity, means that assets pass to the closest family members living. This default asset distribution can be avoided or altered through a personal will. Although personal wills are widely known, many people do not understand the flexibility in the different types of wills available. Many types of wills can be used to reduce both South Dakota and federal estate taxes as well as distributing assets to your family after your passing. The type of will that is the best for you depends on a number of factors, including the size and type of your assets, your family situation, and how you desire to pass your assets on your death. This article is by no means designed to inform you about the many complexities of a will, as that topic alone fills many books; the will that is best suited for you can only be determined after a thorough discussion of your estate planning needs with your attorney.
A trust is an instrument that could be considered a type of will “substitute,” although they are similar in many aspects. Like a will, a trust may be used to control the distribution of your assets upon your death, but it may also be used to control your assets during your life. One very important thing to consider is that any assets not distributed through your trust will be distributed through your will, or through intestate succession in the absence of a will. Please note that not every person needs a trust, and you should be wary of any attorney who simply tries to create a trust instead of planning your estate. You should always receive a detailed explanation of why a trust is needed in your situation. Sometimes an outright transfer of assets is preferable to a trust, because the 36-month look back rule applies to outright transfers while the 60-month look back applies to transfers to a trust. This is an important point to consider if you are attempting to make yourself eligible for Medicaid to pay for nursing home and other health care costs. Your attorney should discuss two types of trusts that are common for seniors planning their estates.
One way to protect your assets from being wiped out to pay for nursing home and health care costs, as well as avoiding probate and reducing estate taxes, is to gradually place some of your assets into an irrevocable family trust. (This is similar to the impoverishment strategy, but with more control over your assets.) An irrevocable trust is one that cannot be revoked or amended by the one creating it, which effectively removes the assets from your control, and may create Medicaid eligibility. (You must still keep in mind the look back period is longer for transfers to a trust than outright transfers.) In addition to protecting assets and possibly allowing you to qualify for Medicaid, the trust provides investment management over the assets. The person handling the assets (the “trustee”) for the beneficiaries can control the distribution of assets over a set period (as opposed to a will), which gives many elderly comfort, knowing that the use of their hard-earned assets will be more controlled. Although the principal benefit is that you can impoverish yourself for Medicaid, there are a number of other benefits such as: shifting income to beneficiaries in lower tax brackets, keeping assets out of your estate for estate tax purposes, thereby reducing these taxes, and keeping assets out of your estate for probate purposes, which helps to reduce the cost and delay common to probate distribution, as well as the protection of the beneficiaries.
A revocable family trust will not protect your assets from nursing home and health care costs the same way an irrevocable trust will, but this is still an important document for you to look into with your attorney. The primary benefit you can look for with a revocable trust is the management of some of your assets during your lifetime, as well as sheltering some assets from the estate tax, and planning an orderly distribution of assets upon your passing away. (Similar to an irrevocable trust, this trust will also allow for the uninterrupted management of assets and the elimination of probate.) This management of assets will protect you in case of physical or mental incapacity, and will not require a court appointed guardian to act on your behalf, and the trustee of the trust is a person, bank, or other entity that you have chosen yourself. Unlike an irrevocable trust that shields assets by holding them for the benefit of another, it is common to have the creator of the trust as a beneficiary, which allows the trustee to provide financial support as well as simple asset management. Although these assets will not be protected, and can count against you for Medicaid eligibility, it is common to create both types of trusts. However, this should be discussed with your attorney as part of your personalized estate plan.
After your assets, liabilities, income and expenses have been completely reviewed by you and your attorney, and after the chance for a complete discussion where all of your questions were answered, you may decide to begin to transfer some of your assets. If you have created one or more trusts, you may begin transferring some assets to be held in these trusts. If you are simply transferring assets to your children or others, you may begin to “impoverish” yourself to make yourself eligible for government Medicaid support. There are a number of factors you should consider before you decide to transfer your assets. You should definitely not make any transfers until you have been fully advised of the rules and regulations that apply to a transfer of your assets, not only for the purpose of obtaining Medicaid, but also for estate taxes, gift taxes, and income taxes. Clients who are not made aware of these effects may face unpleasant surprises for themselves or their children.
Estate planning is a flexible process, and the needs of the elderly are typically not those of every other client. The two goals the elderly should look at accomplishing are (1) making yourself eligible for government assistance for nursing home and other health costs and (2) managing your health and assets in the case of your physical or mental incapacity through the use of powers of attorney, health care proxies, wills, and trusts. In addition to these two main goals, planning for your family after death is important. Your assets should be distributed with speed and certainty, and estate, gift, and income taxes should be avoided. An attorney you meet with to discuss these issues should be trained in the elder law field, and should be able to answer any questions you have and assist you in planning your estate the way you want it to be planned. After talking with your attorney you should know both that your needs have been met and that all of your questions were answered. Remember to keep in touch with your attorney and take any questions you have to your attorney. Planning your estate may be a difficult process, and you should feel that your attorney is looking out for your best interests and giving you advice for what can often be difficult choices. |