What Is Elder Law?
Elder law is the practice of legal matters affecting an older, or disabled person, including issues related to their health care, estate planning, long-term care planning, guardianship, Medicare/Medicaid, nursing home planning, and other important matters.
Legal issues that affect people as they age are growing in number. Laws and regulations are becoming more complex and actions taken with regard to one single matter may have unintended legal effects. The Elder Law Attorneys at SSR Law Offices have a broad understanding of the laws and how certain actions will have an impact on a given situation and how to avoid unintended consequences in the future.
NURSING HOME PRE-PLANNING
Our clients have worked very hard for several years and as they age they become very concerned about the ever increasing cost of long-term care. Because of this, many of our clients wish to do pre-planning in case they ever need a nursing home in addition to their estate planning, which helps them avoid probate. When we say Nursing Home pre-planning we are referring to planning in advance to protect your assets from a nursing home in case the need arises in the future. Currently, Nursing Home Medicaid has a 5 year look-back. This means any asset transfers or gifts made within 5 years of applying for medicaid will be penalized. Therefore, pre-planning must be done at least 5 years before going into a nursing home. We plan for the worst and hope for the best. This type of planning provides our clients with peace of mind that they, and their spouse, will always be taken care of.
An Irrevocable Trust is similar to a Revocable Trust in that they are both documents that designate where you want your assets to go and who you want to be in charge of distributing those assets. However, there are a few major differences. The Irrevocable Trust is, just that, irrevocable. This means that the client cannot do a simple amendment to make a change. Also, the client cannot be the trustee of the trust like they would be under their Revocable Trust. They have to designate someone else to be in charge of the money for them, this is usually a child or trusted friend. Because of this, the 5 year look-back is triggered. After the assets have sat in the trust for the 5 year period, they are 100% protected in the event the client, or their spouse, need a nursing home.
Most people are familiar with joint revocable trusts and may even be using them as their primary plan to pass on assets to their heirs upon their passing. It is very popular planning technique that we use every day in our practice, as I’m sure most estate planning attorneys do. Being that we are both an Estate Planning Attorneys and an Elder Law Attorneys, there is another, not so popular plan, that often times, gets overlooked. The plan I am referring to is what at my office, we like to call the Sweet Heart Trusts.
Now, this plan is not for everyone. We are still recommending a joint Revocable Family trust for younger couples. This plan falls in between estate planning and elder law planning. When we start talking about nursing home planning, most people have heard of the dreaded 5-year look-back period. Essentially, this means that any gifts made within the 5 years prior to going into a nursing home will be penalized. As Elder Law Attorneys, we are always trying to determine if there is a way around this penalty. With the Sweet Heart Trusts, we do exactly that. Here is how it works:
There are two revocable trusts that are created. One for the husband and one for the wife. Both of these trusts are similar and the exact same trusts that we use for our single clients with a few minor, but important, changes in the language of the trusts.
Each of the two trusts leaves the estate to a designated set of beneficiaries, usually the children, which would have been the plan if they had created a joint revocable trust together. So, each trust mirrors the other. The additional language in each trust says that there shall be no distribution until after the death of the surviving spouse. Prior to that time, the Trustee has the authority to use the assets as he or she sees fit. This allows the children, or whomever the couple chooses, to be the beneficiaries while preserving the assets for the surviving spouse.
Once the trusts are complete, if both spouses are relatively healthy, we split the assets between the two trusts. This is the only drawback of the plan. The funding part of it is a little more in-depth and can take some more time. If the couple has a financial advisor, it is nice when we can coordinate with them to make sure everything gets into the right trust. If we have a couple where one spouse is ill and there is a possibility that they will pass away in the near future, we put all the assets into that person’s trust. The key is that we want 100% of the assets in the spouse’s trust that passes away first. This way, the surviving spouse has minimal assets in their name and if they ever needed nursing home care, they are already qualified, while the assets are protected in the trust.
So, how does this avoid the 5-year look-back for Medicaid planning?
There is no penalty period assessed if one spouse transfers assets to another spouse. Therefore, we move all assets into the trust of the spouse that passes first. Usually, when we start this plan, we don’t know who that will be. Therefore, this is a working plan that may change from time to time. If one spouse gets ill, the family will need to contact the attorney, and possibly the financial advisor, to make sure money gets moved to the appropriate trust.
What is the surviving spouse needs money?
Remember, the trustee of the trust has access to the assets to use as he or she sees fit. Therefore, when selecting a trustee, the couple must make sure they trust the person they select. This way, if the surviving spouse needs money for something, the trustee can pay for those expenses for him or her.
Don, 78, and Sue, 75, have been happily married for 55 years and have 3 adult children, Mike, Kim, and John. Don was recently diagnosed with cancer and his prognosis is not good. After meeting with one of the attorneys at SSR Law Office, they have determined that his plan is what is best for them. We create the Don Revocable Trust and the Sue Revocable Trust. Because of Don’s health concerns, we leave $30,000 at the bank in Sue’s trust that she has direct access too (this amount varies depending on what the client is comfortable with). The goal is to not disrupt her day to day banking and paying her monthly bills. All the rest of the assets get transferred to the Don Revocable Trust. The couple has decided that their son, Mike, will be in charge of the trust as the trustee. Therefore, when Don passes away, all the assets, except the amount left at the bank with Sue, are in the trust and 100% protected for Sue. If Sue needs to go to the nursing home within the near future or years down the road, there is no 5 year look back. If Sue needs any money, she asks Mike and he takes it out of the Don Revocable Trust for her. The couple is able to ensure that upon the passing of both of them, the assets they worked so hard to accumulate during their lifetime, will be passed on to their children.
MEDICAID CRISIS PLANNING
Medicaid Crisis Planning refers to the situations where someone is in the nursing home now and we need Medicaid immediately. This type of planning has big differences when you have a single person versus a married couple. With a married couple, we can save 100% of the assets. With a single person, we come up with a way to save as many assets as possible. Worst case scenario, we can save 50% of the assets. This type of planning is very case specific as there are many planning techniques we can use. Here are a few examples:
SINGLE PERSON - ELIGIBILITY
In order to be qualified for Medicaid, a single person is allowed to have the following assets:
$1,500 Face Value of Life Insurance
If a single person has more assets than this, there is still planning options for them.
PLANNING OPTION – HALF LOAF
Half Loaf Planning refers to a special Medicaid planning technique for single persons only. The attorneys at SSR Law Office start by sitting down with the family and determining all assets and, usually, we will end up consolidating them. Then, the attorney will discuss with the family and spend-down items; such as, pre-paid funeral contract, home improvements, hearing aids, personal items, etc. The money can be spent down on any items for the person in the nursing home. Gifts are not allowed. The key here is to spend-down on things that you will have to eventually pay for anyways. You do not want to spend money just to spend the money. It is not necessary.
Once it is determined if there is a need to spend-down any assets, the attorney will come up with the amount of assets that will go into the half loaf plan. The half loaf plan is a very case specific, mathematical calculation that gifts away a portion of the assets, which will create a penalty period in which medicaid will not pay for the nursing home stay. The other part of the equation is to retain the correct amount of assets and loan, not gift, them away so that the loaned assets can pay the nursing home bill over the penalty period. Now, we know that was a lot to digest, how about a case study?
Mom is single and 84 years old. She was living on her own until she recently had a fall. She went into the hospital, was admitted for 3 days, and then was transferred to a nursing home to do rehab. She did rehab for 3 weeks when the family was told she had “plateaued” and she would be discharged within the next few days. The family then decided that Mom was not safe to come home and live on her own anymore, so they notified the nursing home that Mom would be staying there long-term.
Now that we know Mom will have to stay in the nursing home long-term, they come into SSR Law Office. We determine that Mom has a house and $70,000 in the bank. First, we need to talk about any spend-down items. Is there anything in the home that needs to be done in order to eventually sell? Does Mom has a pre-paid funeral contract? We factor any of these in off the top of the plan. Lets assume we did not need to do any spend-down. Here is the half loaf plan:
We gift approximately $35,000 away. By away, I mean into someone else’s name, usually a child. This gift will trigger a penalty period ($35,000/$8,469) of 4 months. The other $35,000 if loaned away, usually to a child. The child then signs a Medicaid compliant promissory note. This note says that this amount was not a gift and the child will then pay back Mom over the 4 month penalty period and Mom will then use that money to pay the nursing home. At the end of the 4 months, the loan is repaid, and the penalty period is over and Mom then goes onto Medicaid. This illustration is at its simplest form. The individuals exact monthly income and the nursing home’s actually monthly cost also has to be factored in.
MARRIED COUPLE - ELIGIBILITY
For married couples, the asset limit is different. The at home spouse can keep 1/2 of the assets up to $126,420. If their assets are below $25,284, they are automatically asset qualified. These asset limits do not count the principal residence (as long as it is not owned by a trust), one vehicle, and $1,500 Face Value of Life Insurance.
If a married couple is over the asset limit there is planning they can do to become qualified. Some people have things to spend the assets down on; such as burial expenses, home improvements, or even a house or car. If they do not want to spend down assets, they can either Petition the Probate Court to increase the Spousal Resource Allowance or they can take the assets over the asset limit and put them into a Medicaid Compliant Single Premium Immediate Annuity (SPIA).
PLANNING OPTION – PROBATE COURT ORDER
The probate court in the county in which the person resides has jurisdiction to enter an order increasing the Community Spouse Resource Allowance. The probate court must find—based on clear and convincing evidence—that money is “needed” for someone “entitled to the individual’s support” and that entry of a protective order is “necessary to obtain or provide money. The court must consider not only the requesting spouse’s “needs and resources” but also the potentially financially responsible spouse’s “needs and circumstances.”
PLANNING OPTION – SOLELY FOR THE BENEFIT OF TRUST (SBO TRUST)
The community spouse of a Medicaid recipient is now able to establish a Trust Solely for their benefit and move assets into this trust to become medicaid eligible. The community spouse has to designate someone to be the trustee of the trust, which is usually a child. The trust will then make a yearly distribution back to the community spouse over a certain period of years until all the assets have been paid back. The beneficiary of the trust can be anyone that the community spouse designates. This is a great option for couples that have liquid assets and a nursing home spouse with a low income.
PLANNING OPTION – MEDICAID COMPLIANT SINGLE PREMIUM IMMEDIATE ANNUITY (SPIA)
An annuity is a contract between the client and an insurance company. When buying an annuity, the client takes a lump sum of money that is given to the insurance company, which will be converted into an income stream. In order to qualify for Medicaid, a person must be under certain asset limits as described above. A Medicaid complaint annuity is a planning option that allows the person to take part of their assets, bringing them under the Medicaid asset limit, and convert that money into an income stream.
In order for the annuity to be Medicaid Compliant, The Department of Health and Human Service’s Bridges Eligibility Manual under BEM 401 outlines that it must meet the following criteria:
– It must be commercially issued by a company licensed in the US and issued by a licensed producer; and
– Is irrevocable; and
– Is purchased by an applicant or recipient for Medicaid or their spouse and solely for the benefit of the applicant or recipient or their spouse; and
– Is actuarially sound and returns the principal and interest within the annuitant’s life expectancy, and
– Payments must be in substantially equal monthly payments (starting with the first payment) and continue for the term of the payout (no balloon or lump sum payments); and
-If the annuity was purchased or amended by, or on behalf of, the applicant or recipient on or after February 8, 2006 the State of Michigan must be named as the remainder beneficiary in the first position, or as the second remainder beneficiary after the community spouse or minor or disabled child, for an amount at least equal to the amount of the Medicaid benefits paid on behalf of the institutionalized individual. The naming of the state in the first or second position must be verified at application or redetermination. If the State of Michigan is not named as a beneficiary as required in this paragraph, the total purchase price of the annuity will be considered to be the amount transferred for less than fair market value. If an annuity is actuarially sound and provides for payment only to the community spouse during his/her lifetime then the annuity is considered to be for the sole benefit of the applicant’s spouse, and it is not a transfer for less than fair market value and does not have to name the State of Michigan as a remainder beneficiary.
Dad and Mom have been married for 60 years. Dad has many health issues and Mom is no longer able to care for him safely within the home. Dad has a fall and is taken to the hospital. After three days in the hospital, he is transferred to a nursing home to do rehab. He does rehab for approximately 3 weeks and the nursing home says he is no longer improving and will be done with rehab. The family knows that it is not safe for Dad to come home and needs to find a way for him to stay in the nursing home for long-term care. The assets in the couples name as of the date that Dad went into the hospital are $80,000 cash in the bank and their home. Medicaid says that Mom is automatically allowed to keep $40,000 in assets and the house. The other $40,000 is placed into a Medicaid Compliant Single Premium Immediate Annuity, or a SPIA. This SPIA will pay these assets back to Mom monthly over a specified period of months, usually a few years. Once paid to Mom, she just puts this income into her regular bank account. If she were to pass away, the kids are the beneficiary. This allows Dad to qualify for Medicaid immediately to help cover the cost of his nursing home bill.
FREQUENTLY ASKED QUESTIONS:
WHAT IS THE DIFFERENCE BETWEEN MEDICARE AND MEDICAID?
Just because you are entitled to Medicare benefits does not mean you are entitled to Medicaid benefits. You receive Medicare at age 65 and it covers hospital and physician costs for seniors. Medicare will also cover the first 20 days of rehab in a nursing facility, following a 3 day hospital stay. Medicare will then cover 80% of day 21 through 100, as long as the person is improving. Their supplemental insurance will most likely cover the remaining 20%. If at anytime the person plateaus and stops improving, Medicare and the supplemental insurance will end.
The Medicaid program covers long-term care costs, subject to the asset restrictions.
The Medicaid eligibility rules are complicated and early planning is very important. However, even a last-minute plan can achieve partial protection of assets. Rest assured that you will not lose all of your assets to a nursing home. With proper planning, you will receive the care you need and still be able to pass assets to your family.
WILL I HAVE TO SELL MY HOUSE IF MY SPOUSE GOES INTO THE NURSING HOME?
No. Your home is an exempt asset. The same is true for both married and single person; however, for single people, because most of your income will be going to the nursing home as your patient pay amount, they do not leave you with any money to pay for the household expenses.
IF I PASS AWAY, WILL THE STATE TAKE MY HOUSE TO PAYBACK MEDICAID?
Maybe. Under Michigan’s Estate Recovery Act, the state can file a lien on the deceased’s probate estate to recover funds paid out for the Medicaid recipient’s nursing home bill. Therefore, as long as you avoid probate, the state cannot take the home. The only way to do this is with a Ladybird Deed, which will transfer the home immediately upon the person’s death.
HOW CAN WE HELP?
The Attorneys at SSR Law Offices will:
- Evaluate whether you can qualify for Medicaid now and, if not, evaluate what can be done to get you qualified;
- Identify and implement any estate planning techniques that can be done now to get you qualified for Medicaid later, such as deeding your house to your trust or the Sweetheart Trusts;
- Help cure any previous gifts that have been made that will cause a penalty period;
- Advise if your case will require any spend-down expenses, such as prepaid funeral contracts;
- Advise on the different nursing home planning techniques available to individuals;
- Stay apprised of the ever changing, unplanned policy changes from Department of Health and Human Services affecting pending Medicaid applications;
- Ensure there your prepaid funeral contracts are Medicaid Compliant;
- Help you navigate the process of transferring your loved one into a nursing home, usually transitioning from a hospital;
- Ensure that you are moving your loved one into the correct facility where he or she can actually receive Medicaid benefits so that you do not have to move them more than once;
- Save as much money as possible to pass on to family and beneficiaries;
- Protect 100% of the estate for disabled children;
- Draft a Ladybird Deed to ensure your home bypasses probate court and is not later taken by Estate Recovery;
- Fill out and fill the Medicaid application on your behalf;
- Communicate with Medicaid (Department of Health and Human Services) Caseworkers on the Medicaid application so that you do not have to;
- Follow up and move your application along to an approval; and
- Ensure that your loved ones Medicaid application is taken care of so you can focus on spending quality time with them!
The Attorneys at SSR Law Offices have been practicing in the area of Elder Law for several years and are dedicated to helping our clients and their families take the proper steps to protect their assets from a nursing home and qualify for benefits they are entitled too. The sooner you talk to one of our Elder Law Attorneys, the more planning options that will be available to you. Do not move into a nursing home without talking to us first! Call our office today at 586-239-0871 for your strategy session.