Elder Law Attorney answers today’s question about gifting assets to avoid Medicaid Spend Down

Question:  I am a 65 year old widow who wants to give all my assets to my son to avoid Medicaid Spend Down.  Can I / should I do this?

Answer:  Taking any action, especially something as dramatic as giving all your money away, as part of a long term Medicaid plan should only be done after a comprehensive evaluation by an Elder Law Attorney who can advise you of the many choices which you have and the impact they will have on your life going forward. Your question lacks enough specific details to advise you what is the best planning strategy for you, but I can tell you it would not be to give all of your assets to your son at age 65.  There are many reasons why your idea is a poor one and not well thought out, including:

  1. If you make a gift of all your assets to your son, they become his so if he is ever sued or has creditors they can take the assets.
  2. What if your son spends the money, how will you support yourself?
  3. If your son does not segregate these assets from his other assets, in some states they would become marital property and therefore your son’s spouse could take a large portion of them if your son got divorced.
  4. What happens if your son were to die before you? Would his heirs, whether they are his wife or children use this money for you or for themselves.
  5. If among the assets you gift to your son is your home, do you realize that it will no longer qualify for any local senior citizen tax breaks, and that when it is sold, your son will have to pay capital gain tax on the proceeds since it is not his principal residence and therefore he does not qualify for the capital gains exemption on your personal residence.
  6. If there are assets that have large capital appreciation, on your death your son will have your low basis and have to pay capital gains taxes on the sale, where if the transfer had been structured properly he would receive the same assets on your death but they would have done a “step up in basis” on your death and therefore your son would not have to pay capital gains tax if sold right after your death.

There are many other reasons why your suggested plan is a poor one. However, given that you are thinking about how to preserve your money for yourself and your family at a relatively young age, if you work with a knowledgeable Elder Law Attorney it is possible to implement a plan that will preserve your money for your children, allow you to use your assets for the rest of your life, receive income from the assets for the rest of your life, still qualify for all personal residence capital gain exemption, many senior citizen tax credits, get a step up basis for capital gains purpose upon your death and still allow you to qualify for Medicaid to pay for your nursing home expenses.  These plans are complex, and a good Elder Law Attorney will do a detailed analysis of the impact of each factor based upon your assets, income and reasonable projected time until you will need long term care.  It is very important that when taking any steps to preserve assets from nursing home costs, that you speak with an Elder Law Attorney prior to taking the steps.  Frequently, such actions can have a negative impact upon you and your family. An Elder Law Attorney can usually assist you in achieving your goals while avoiding these negative impacts.  So, I strongly urge you not to gift your assets to your son, but retain an Elder Law Attorney to help you prepare and implement a plan that avoids the negative impact yet still allows you to achieve your goal of asset preservation. Good Luck.

If you need help with your Elder Care Matters, you can find Elder Law Attorneys near you on ElderCareMatters.com and on ElderLawAttorneys.us – two online Elder Care resources that are sponsored by the national ElderCare Matters Alliance.

James C. Siebert, Esq., An ElderCare Matters Partner
James C. Siebert, Esq.
Arlington Heights, Illinois
An ElderCare Matters Partner

Today’s Q&A on ElderCareMatters.com is about Veterans Benefits

Question:  What are the requirements for my elderly mother to receive Veterans Benefits, specifically VA Aid & Attendance benefits from the Veterans Administration?

Answer:   I personally know how difficult and stressful these decisions are.  Taking care of an elderly parent is time consuming, and has its emotional and financial costs, yet it can be very rewarding.  I understand the goal is to ensure your parent(s) receive the greatest quality of care in the least restrictive setting at the least cost to themselves and their family.  It is always wise to plan for the worst and hope for the best.

The laws pertaining to elder law, Medicaid planning, care contracts and Veterans benefits are complex, confusing and ever changing.  You need an elder law attorney to help navigate through these waters.  In regard to Veterans benefits planning you must seek counsel from an attorney who has been accredited by the United States Department of Veterans to prepare, assist, counsel and process claims.

You have asked a specific question in regard to Aid and Attendant Care/Improved Pension Benefit.  This benefit is a non-service connected benefit to war time veterans and the surviving spouse of war time veterans.  For purposes of your question we will assume that your mother is a widow of a war time veteran. In order for one to be a war time veteran one has to have served 90 days in the service  with one of those days during a declared war time period.

In addition to discussing Veteran benefits herein, you need to ensure your mother’s affairs in order.  Therefore, I have also discussed the critical need for your mother, provided she is  competent to establish proper health and financial durable power of attorneys.  As an elder law attorney, I specialize in estate planning but kick it up a notch.  I have a different philosophy than most true estate planners.  This does not mean they are wrong but we approach things very differently.   Specifically I address the issues of:

Who will make my medical decisions when  I am no longer able to make them?

If I unable to care for myself, how can I  achieve the greatest quality of care without bankrupting me or my family?

Who will make my end of life decisions?

What happens if I get sick and can’t stay in my home anymore?

How am I going to pay for it?

I also prefer having medical day to day decisions, specifically the durable power of attorney for health care becoming effective the moment you sign them rather than becoming effective when a person is no longer able to participate in their decisions.  It is just more workable.   Last, the financial power of attorney needs to authorize gifting and authority to apply for Governmental benefits.  However, Veterans does not recognize power of attorneys but use a different procedure.

We need to determine who owns what asset and if the financial power of attorney provides the authority to someone to gift (transfer) assets so that we can protect them and qualify your mother for Veteran’s benefits.  Further, if you mother is not competent and has power of attorneys we need to take immediate steps to implement your mother’s durable powers of attorneys for health care and financial decisions.

As for Veterans benefits they are and can be an excellent option to help pay for assisted living, home care and subsidize medical expenses.  A husband and could be eligible for a benefit of $2,054 a month or $24,000 a year tax free income.  Usually the benefit is paid to the Veteran and if the Veteran is deceased to the surviving spouse.   If the Veteran does not need care and is paying for the care of his “ill” spouse then the Veteran may be eligible for base pension which can be up to $1,360 a month tax free.  If both veterans need care then the maximum is $2.054 a month.  Assuming your father is deceased, then your mother as a widow of a war time veteran would be entitled to $1,132 a month.  Remember as long as the Veteran is alive the benefit flows through the actual veteran.

However, there are four prongs that must be satisfied to qualify for the AA Benefit. Each prong is explained in detail below..

First, There is a Service Prong:

First, in order to be eligible for the AA Benefit the Veteran must meet the service requirement. That is, the Veteran must have served in the active military, navy or air service: (1) for 90 consecutive days or more during a period of war, (2) during a period of war was discharged under conditions other than dishonorable or released from such service for a service-connected disability, (3) for a period of 90 consecutive days or more and such a period began or ended during a period of war; or (4) for an aggregate of 90 days or more in two separate periods of service during more than one period of war.

Second, There is a disability prong.  Additionally, the applicant must be “permanently and totally disabled”; however, the VA presumes “disability” for individuals over the age of 65. To qualify for additional funds, the VA requires one to need “care or assistance” on a “regular basis” from another person which protects him or her from “dangers of a daily living environment”. It is generally presumed that an applicant  who is residing in an assisted living facility satisfies this requirement. The VA has issued clear guidelines that a veteran or a widow of a veteran must need assistance with at least two activities of daily living, such as eating, bathing, dressing, transferring and toileting or being cognitively impaired.  The VA has made it clear that assistance with ones IADL’s is not enough, such as medication reminders, laundry and meal assistance/preparation.

Further, one needs to obtain the proper physician verification to satisfy the disability requirement. If possible, the physician should indicate that one is able to “oversee” his or her financial decisions, but not able to “manage” his or hers financial decisions. In the event the physician states that one is not competent to make his or her financial decisions, then the Veterans Administration will find a level of incompetence which will delay (but not preclude) the application process.

Third, is the asset prong. The VA pension benefit is a needs based benefit and a surviving spouse shouldn’t have more than $40,000.00 plus a home and a car. Some persons assisting Veterans will say $80,000.  There is no hard and fast rule and therefore we recommend an asset limit of $40,000.  Currently there is no penalty (at this time) for transfers. Accordingly, we can transfer everything over $40,000 into a special trust to protect the assets should your parents need them.  **NOTE: this is where you have to be very careful because transfers of assets may affect any Medicaid eligibility in the future.  Sometimes a proper VA plan for benefits have terrible consequences for Medicaid planning.  It is very important to understand if a one’s health deteriorates and need a nursing home then any gift to qualify for Medicaid within 5 years will be very problematic.

Fourth, is the income prong. The basic rule is one’s unreimbursed medical expenses have to exceed or equal their income to qualify for the full benefit amount.   If the expenses do not exceed income then if there is a short fall the Veteran can receive a partial benefit.

This may seem simple on the surface, but can be very complicated when you begin to look at transferring assets and eligibility. Additionally, if one were to sell their home while a claim for benefits were pending or after benefits were approved, the proceeds of the home would most likely result in a suspension of benefits for a period of at least one year or longer if the laws change and impose a lookback as we discussed.

Additionally, Congress is considering implementing a 3 year lookback on any transfers.  For now the bill did not get of committee, however, it is expected to be reconsidered in the coming year.

The first two steps are to compile one parent(s) medical expenses and obtain the physicians certificate.  Once the application is filed it can take anywhere between 6 months to a year to obtain the benefit, but the payment is retroactive to the date of the application.  The VA has recently established a “fully developed” process which is much faster than the regular application process.  This is the process that one wants to make sure they use.  Of course processing times are not guaranteed.  Additionally, once the VA acknowledges the application there are ways to expedite the process from there.

As you can see it is not that simple when one says how can I qualify for VA benefits.  The bottom line is one should consult a competent elder law attorney accredited by the US Department of Veterans.

If you need assistance with this or other elder care matters, you can find Elder Care Professionals near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior Care Resources for Families.

Michigan State Coordinator - ElderCareMatters.com
Don L. Rosenberg, Attorney and Counselor
Troy, Michigan
An ElderCare Matters Partner

Today’s Q&A on ElderCareMatters.com is about Life Estates

Question:  What is a “Life Estate”?

Answer:   Think about ownership of real property to consist of a bundle of rights, called “Ownership in Fee Simple,” for example:  the right to use and enjoyment of the property during the owner’s lifetime; the right to use and enjoyment of mineral rights, oil & gas rights, water rights or similar interests; the right to divide one’s ownership rights with other or additional owners; and the right to determine title to the property after the death of the owner.  A person with Ownership in Fee Simple owns all rights and title to the property.  However, any of these individual ownership rights that make up the entire Ownership in Fee Simple can be transferred by deed to someone else without transferring the entire Ownership in Fee Simple.  When this happens the ownership of the property is severed and the result is more than one person having some ownership rights in the property at the same time.

The right to use and enjoyment of the property during an owner’s lifetime is known as a “Life Estate.”  It is created by the execution of a deed that either transfers a Life Estate to someone other than the person with Ownership in Fee Simple; or which transfers all other rights to the property to someone other than the person with Ownership in Fee Simple but retains a Life Estate in the fee simple owner.  A Life Estate can exist based upon the owner’s lifetime or upon the lifetime of another person, although the Life Estate owner’s lifetime is usually the measuring life.  The Life Estate continues only as long as the measuring lifetime.  When the person whose lifetime the Life Estate is based upon dies, the Life Estate ends, that is, it simply ceases to exist.  This means that a Life Estate does not go through probate to determine who will own the property after the Life Estate owner has died.

Rather, because either transferring a Life Estate or transferring all other rights and retaining a Life Estate essentially severs ownership in the property, the deed creating the life estate must be clear as to who owns the remaining interest in the property, known as the “Remainder Interest.”  The owner of the Remainder Interest owns all rights to the property other than the Life Estate while the Life Estate is in existence; and owns all rights to the property altogether once the Life Estate terminates.  In other words, when the Life Estate terminates, the only rights to the property remaining to be owned are already owned by the owner of the Remainder Interest, so that this person will then have Ownership in Fee Simple.

Also, if the Life Estate owner has died, the property can be sold by the owner of the Remainder Interest without the need for anyone else’s consent; and the owner of the Remainder Interest is entitled to all of the proceeds of the sale.  However, due to the fact that ownership has been severed, the property cannot be sold during the lifetime of the Life Estate owner without the consent of the owners of both the Life Estate and the Remainder Interest.  Further, upon sale, the proceeds must be divided between the Life Estate owner and the Remainder Interest owner according to the respective values of their interests as of the date of sale.  This value is determined actuarially based upon the age of the Life Estate owner at the time of sale; and is contained in Life Estate/Remainder Tables issued by the IRS.  The value of the Life Estate is expressed in terms of a decimal fraction that decreases as the Life Estate owner’s age increases.  Since the total of all ownership interests must always equal 100%, the value of the Remainder Interest will increase as the value of the Life Estate decreases.

Because of the nature of the Life Estate, it is a very effective means for passing title to real estate upon death without having to go through the Probate process.  It can also be an effective tool in Medicaid planning to protect the family home from Medicaid Estate recovery in those states whose Medicaid estate recovery is limited to Probate assets.  However, in some states, Medicaid estate recovery rules allow the state Medicaid agency to seek Medicaid estate recovery against a Life Estate after the death of the Life Estate owner.  Anyone considering a Life Estate transfer involving someone who has applied or is planning to apply for Medicaid benefits should consult a local Elder Law attorney experienced in Medicaid first to determine whether transferring a Life Estate or a Remainder Interest is even an effective strategy in that person’s state.

If you need assistance with this or other elder care matters, you can find Elder Care Professionals near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior Care Resources for Families.

An ElderCare Matters Partner
John J. Campbell, Esq.
Denver, Colorado
An ElderCare Matters Partner

 

Today’s Q&A on ElderCareMatters.com is about the Medicaid LookBack Period

Question:  What is the Medicaid “Look Back Period”?

Answer:  The Medicaid Look Back Period is the 5-year period prior to filing a Medicaid application during which all transfers without fair consideration are totaled to assess a period of ineligibility for Medicaid Long Term Care benefits.  It is a common misconception that if any gift transfer is made, the person making the transfer must wait 5 years before applying for Medicaid.  While this is true in the case of some larger gift transfers, it is by no means true in the case of every gift transfer.

The reason for this lies in the differences between the Medicaid Look Back Period and the Period of Ineligibility imposed upon gift transfers made within the Look Back Period.  The Medicaid Look Back Period is limited to 5 years.  On the other hand, there is no limit to the length of the Period of Ineligibility resulting from gift transfers made within the Look Back Period.  The Period of Ineligibility is calculated by totaling the value of all gift transfers made within the Look Back Period and dividing that number by the average monthly cost of nursing home care for an individual in the state where the Medicaid application is filed.  The larger the gift, the longer the Period of Ineligibility will be.   However, the Period of Ineligibility from a gift transfer does not even begin to run until the Medicaid applicant actually files a Medicaid application and the individual is found to be eligible for Medicaid but for the gift transfer.  The Period of Ineligibility then begins to run retroactive to the date of the application (assuming the individual met the functional, income and resource requirements at that time), rather than beginning to run retroactive to the date of the gift transfer itself.

This last point is crucial.  For example, if we assume the average monthly cost of nursing home care in your state is $8,000 per month, then a one month Period of Ineligibility will be imposed for every $8,000 transferred as a gift during the Look Back period.  An $80,000 gift transfer during the Look Back period will result in a 10-month Period of Ineligibility.  If the individual making the gift would meet the criteria for Medicaid eligibility immediately after making the gift and the individual files a Medicaid application right away, the individual’s 10-month Period of Ineligibility would begin on the date of the Medicaid application.  After 10 months, the individual can file a new application and immediately qualify for Medicaid, assuming the individual continues to meet the eligibility criteria.

If the same individual makes a gift of $480,000, the Period of Ineligibility would be 60 months, or 5 years.  In that case, the individual should wait 5 years after the gift before applying for Medicaid.   However, if that individual miscalculates the dates and files a Medicaid application after 4 years and 11 months, the individual will not only have gone without Medicaid benefits for 4 years and 11 months, but will also be assessed an additional 5 years of ineligibility due to the gift itself!

Making gifts to qualify for Medicaid is a planning strategy that should never be attempted without the assistance of an experience Elder Law attorney.  The rules are simply too complex and the penalties too severe for a “do-it-yourself” project.  Only someone having extensive experience with and knowledge of all applicable Medicaid rules and planning strategies can ensure that a “gifting” strategy will not horribly backfire and end up doing more harm than good.

If you need assistance with this or other elder care matters, you can find Elder Care Professionals near you on ElderCareMatters.comAmerica’s National Directory of Elder Care / Senior Care Resources for Families.

An ElderCare Matters Partner
John J. Campbell, Esq.
Denver, Colorado
An ElderCare Matters Partner

 

Today’s Q&A on ElderCareMatters.com is about the difference between a Power of Attorney and a Durable Power of Attorney

Question:  What is the difference between a Power of Attorney and a Durable Power of Attorney?

Answer:  Both are legal documents where the client appoints an individual to act as his agent for purposes of financial matters. Both give the agent very broad financial powers, but can be more limited if the client decides to limit the agent’s powers. In the case of a general Power of Attorney, the agent is generally authorized to act once the client signs the document, but the agent’s authority ceases when and if the client becomes incapacitated. In the case of a Durable Power of Attorney, the agent is generally authorized to act once the client signs the document and can continue to act when and if the client becomes incapacitated. Hence the term “durable” which in this case means it survives the client’s incapacity. To make a power of attorney more useful, attorneys often add provisions regarding specific situations or transactions that might occur in the future, including the authority , when appropriate, to make gifts.

If you need help with this or other Elder Care Matters, you can find thousands of Elder Law Attorneys on ElderCareMatters.com – America’s National Directory of Elder Care / Senior Care Resources for Families.

spope
Sharon L. Pope, Esq.
CzepigaDalyPope LLC
Berlin, Connecticut
An ElderCare Matters Partner

When should an elder give up driving? – Today’s Q&A on ElderCareMatters.com

Question:  When should an elder give up driving?

Most people remember learning to drive and the feeling of independence it gave them. This is much of the reason it is so hard for an older adult to give up driving. When addressing the issues of driving with a parent, it is important to understand why driving is important to them. Is it an independence issue? Is it because they need transportation to appointments and errands? Is it an issue of control over their life? If transportation is the concern, then having alternative options to assist them in getting to appointments, the grocery store and other errands will be critical. If independence or control is the issue, it may be helpful to point out that this is not about taking away their independence or control, it is about their safety and equally important, the safety of others on the road. Many times older adults are less concerned about their own safety and well being than they are of the safety and well being of others, especially children.

This issue may be better received if presented by a person in a position of respect, such as a physician or an attorney. Another option is for a comprehensive assessment by a Certified Care Manager. In addition to assessing and making recommendations about the client’s current functional level, the appropriateness of their living environment and their overall safety, the Care Manager can assess driving safety and alternatives to driving. Many times information which will not be well received by the older adult is better delivered by a neutral third party than it is from a family member, especially a child.

If you need help with this or other elder care matters, you can find thousands of qualified Elder Care Professionals of ElderCareMatters.com – America’s National Directory of Elder Care / Senior Care Resources for Families.

hfrenette
Heather Frenette, RN, MSN, CMC
Gilbert, Arizona
An ElderCare Matters Partner