Careful Planning Can Prevent a Crisis
FIVE KEY PRINCIPLES:
- Careful planning can prevent a crisis.
- What worked for your cousin probably won't work for you.
- The longer we live, the higher the risk of catastrophic illness and expense.
- Failure to plan will result in a crisis if catastrophic illness occurs.
- Organize and consolidate your financial affairs now, to make it easier to manage later.
- It's not necessary to have a Will.
- It's not necessary to have a Power of Attorney.
- When you get sick, the family won't argue over who's in charge.
- It's a simple matter to terminate life support, and doctors will happily confer with all members of the family again and again to reach a consensus opinion about medical treatment.
- Medicaid eligibility is a simple process.
- You should give your house and accounts to your children in case you get sick and need nursing care.
- You can give away your assets and be eligible for Medicaid right away.
- The nursing home "takes your house."
- It's impossible to stay in your house if you are completely disabled and need round the clock care.
The first group of myths deals with what I call Disability Planning. It's like having insurance on your home - you wouldn't dream of not keeping up that policy, even though, in your entire lifetime, you probably won't ever put in a single claim.
WHY A WILL?
If a person dies without a Will, his or her surviving spouse (if any) doesn't necessarily inherit the entire estate. There are special rules if there are also surviving children of that marriage, or surviving children who are step-children. Someone has to apply to be appointed Administrator, and generally must post a bond. If there are no spouse or children, the estate gets distributed to the brothers and sisters and their descendants, or further-removed blood relations.
Why do you need a Will? You may want to name your Executor. Or -
- Appoint a Guardian for an adult disabled child.
- Make charitable bequests.
- Handle an estate big enough for death taxes.
- Have a spouse who's just entered a nursing home.
- Disinherit a child who you haven't heard from in many years.
- Set up a special trust or gift to a favorite niece or nephew.
- Bypass your kids and give gifts directly to grandchildren.
- Have a companion and not want the children to inherit the whole estate.
- Want one particular person to get the house.
- Have a child who's a gambler or an addict, so you want to put their share into a spendthrift trust.
- Have a disabled spouse or child who is on Medicaid and Social Security or SSI, and you want to leave funds in a supplemental needs trust that won't jeopardize their government benefits.
You may be in a second marriage.
If you don't make a Will, or if you don't revise that Will you wrote 30 years ago, there's a good chance these wishes will not be fulfilled.
DURABLE POWERS OF ATTORNEY and LEGAL GUARDIANSHIP
If you have a catastrophic injury and cannot function, no one can touch your assets unless you've given them legal authority to do so. If they are not a joint owner, your assets will be in limbo at a time when you can't take care of yourself. If anyone touches your assets, it would be theft. If you signed a Power of Attorney while you were still well, your named Agent could immediately "step into your shoes", get access to the assets, and begin managing them for your benefit.
If you never signed a power of Attorney, someone in your family would have to file in court to be appointed as your legal guardian. Doctors would have to send in reports about you. The court would have to appoint a lawyer to represent you. Another family member might challenge it and say that they should be appointed as guardian instead. The court then declares you an incapacitated person and basically takes away your rights to function independently, by appointing the guardian as your decision-maker. Only THEN your assets can be accessed and used for your benefit.
You have to be competent at the time you sign a POA. You choose your primary and your alternate Agents who you can trust to act in your best interests. You give them all the special powers they might need, such as amending or funding trusts, changing investments, and making gift transfers. You can leave the Power of Attorney with your lawyer, with instructions to deliver it if she is informed that you've become disabled. If you don't prepare these documents when you are well, and later you develop Alzheimers or other dementia, it may be too late and court proceedings may be the only option.
Would you have a house without fire insurance? Never. So you shouldn't go without a Power of Attorney, which is insurance in case of disability.
WHY LIVING WILLS?
Living Wills express your wishes on whether life supports should be utilized if you suffer a life-threatening event like a heart attack or stop breathing, while you are in a severe, vegetative or terminal condition, or have advanced brain diseases which leave you unable to interact with those around you in a meaningful way.
Health Care Proxies don't express advance wishes, but appoint the designated decision-maker on health care if you cannot communicate with your doctors.
What happens if there's no advance directive or proxy?
Typically, the doctor will turn to the spouse or, if no spouse, to the one child for guidance, consent and decision-making. If there's more than one child, there is likely to be disagreement. One will see improvement where the other sees complete dysfunction. One will be willing to implement the advance wishes mom expressed in conversation, the other won't agree because he can't let go.
It is the Living Will which stands as the clearest expression of your wishes regarding resuscitation and utilization of life supports, regardless of the personal preferences of other family members. You can only sign it while you are still competent. If you don't have definite advance wishes but have multiple children, you should select one person as the spokesperson who the doctors can turn to for decisions, even if that person in turn seeks input privately from the rest of the family. If there is disagreement in the family, the hospital will likely err on the side of maintaining the person on life support.
An application for Medicaid to pay for the nursing home cannot be filed until the resources (accounts, real estate, life insurance, etc.) have been "spent down," in other words, reduced to a specified level. For an unmarried or widowed applicant, all resources are "countable" as long as they are available and can be sold or liquidated. Under a few circumstances, the house may be considered "unavailable," such as if there is a child living there. The applicant can have only $2,000 of countable resources.
If the Medicaid applicant is married, the "community spouse" will also be allowed to retain a share of the marital assets. For a married couple, a few resources are non-countable. Primarily, this means the marital residence, one car, personal effects, burial plots, and irrevocable prepaid funeral trusts. All other assets are counted regardless of which member of the couple owns them. To calculate the spouse's share, all of the countable assets are added up as of the 1st day of the month at the start of the period of continuous institutionalization, and this total is divided in half. The spouse can keep half, but there is a floor and a ceiling on this half. The ceiling or maximum for the community spouse's half is $119,220.00 in 2015. The floor or minimum is $22,844.00 in 2015. If the Medicaid application is filed before these levels are reached, it will be denied based on the couple having "excess resources," unless certain specialized exceptions are met.
Under the MLTSS waiver program, Medicaid enrollees can choose to receive Managed Long-Term Services and Supports in a Nursing Home, Assisted Living or home-based setting. There is no income cap for this program; however, Medicaid applicants whose gross income exceeds $2,199 a month will need to establish a Qualified Income Trust (QIT) to receive and distribute the income payment that puts the applicant over the "income cap."
If assets were transferred to another person as gifts during the 5 years preceding the filing of the application, the application will be denied and there will be a "penalty period" in which Medicaid will not pay for the care, starting on the date that the person has applied for benefits and was "otherwise eligible." The penalty divisor for 2015 is one day of ineligibility for every $332.59 transferred within the look back as a "gift."
SHOULD YOU GIVE YOUR ASSETS AWAY?
People panic at the prospect of having to use up their assets to pay for nursing home care. There's minimal insurance coverage, since Medicare coverage is limited for long-term care, and the cost is at least $10,000 per month. So many people transfer title to their house to their children, or put their children's names on their accounts, or give those accounts away to the children altogether, on the assumption that if the funds are needed, they will always be there.
So what's the problem?
- You can be disqualified from Medicaid for up to five years if you give away the assets, depending on how and when you did so. Legal advice and planning is a crucial part of such activity. Some transfers are exempt, but most are not.
- If you give away your house, and your child runs into financial problems, you may find yourself without a home.
- If you give away the accounts, you may find that they've been used up despite the best of intentions.
- The less funds you have, the less options you have for community-based caregiving.
- If you give away your house, you won't be able to get a reverse mortgage to help provide funds to care for you in your own home.
There are lots of strategies to help families coping with Alzheimers or other dementias to restructure the ownership of their assets in order to (1) prevent them from being used up in case of need for long-term care, (2) protect the parent's broadest options for continuing to live in the community, (3) make sure any adult disabled children are protected, (4) make sure that a surrogate decision-maker is in place in case you become disabled.
Remember, though -- The strategy that worked for your friend probably won't work for you, because each family has different objectives, money, members and medical problems.