Estate Planning Articles
Some of these articles have been written by our law firm and other articles are written by the American Academy of Estate Planning Attorneys and compliments of our law firm. Any feedback or questions about the articles can be addressed by contacting our office.
If they had the funds, most people would not think twice about gifting assets to an adult child or loved one. But, that gift could jeopardize Medicaid eligibility. Moreover, you may need that eligibility to help pay for the high price of long-term care for you or a spouse.
Nursing homes have historically resisted the concept of Medicaid planning based on the assumption that patients who engaged in Medicaid planning were trying to avoid paying their bills. In recent years, many nursing homes have started to rethink that position as they realize that Medicaid planning is often in their best interest as well as the patient’s.
Do the Medicaid gifting rules and asset transfer penalties have you confused? If so, you are not alone! Unfortunately, failing to understand the rules and penalties could result in your ineligibility for benefits right when you need them the most. The answers to several common questions may help you gain a better understanding of Medicaid’s rules and penalties.
70% of people currently over age 65 will require some long term care someday. That is the estimate of the U.S. Administration on Aging, a division of the U.S. Department of Health & Human Services. Will Medicare or private health insurance pay for it? The short answer is “no”. In the decades ahead, baby boomers will reach their seventies, eighties and nineties. With aging parents of their own, some are learning how much long term care really costs. Some are still unaware.
How many of us are financially prepared for the possibility? Here are a couple of “averages” to consider from MetLife’s 2009 survey of LTC costs. The average annual cost of nursing home care is now $79,935 or $219 per day. That’s up 3.3% from 2008. The average nursing home stay is about 2.5 years, which means you would need roughly $200,000 to pay those bills.2 Can you imagine paying it out of pocket? Using Medicaid because you have nothing left? No one wants these financial circumstances. The clear answer is long term care insurance coverage.
How expensive is LTC coverage? Annually, it typically costs about as much as a cheap used car. MarketWatch cited an example from the MetLife survey: in 2009, a 52-year-old federal employee could pay $1,524 annually for an LTC policy with a $200-per-day benefit for three years and a maximum lifetime benefit of about $200,000. Does $1,500 or $1,800 or $2,100 annually (just to throw out a few numbers) sound expensive? These premiums are certainly inexpensive compared to the staggering bills you may face if the need for LTC enters your life. Yes, there is a chance that you may never need LTC coverage. However, with advances in medicine and healthcare, we may live much longer than we anticipate before we leave this world. Factor in diseases such as Alzheimer’s and Parkinson’s and other gradually disabling disorders, consider the population wave of baby boomers maturing, and you see why this coverage makes so much sense for so many.
Partnerships to make paying for it easier. Many states have created partnership programs to encourage people to buy LTC coverage. Essentially, these plans provide dollar-for-dollar asset protection when you buy an LTC policy. So for every dollar the policy pays out in benefits, you get an equal dollar amount in asset protection under a state’s Medicaid spend-down regulations. For example, let’s look at Ohio. Let’s presume a couple have a $100,000 LTC policy. If they use up the whole $100,000 to pay for LTC, they would have to spend down their assets to $2,250 to qualify for state Medicaid benefits. But … if they exhaust a $100,000 partnership policy, they can potentially qualify for Medicaid coverage and still retain $101,500 of their assets. State governments are increasingly offering to partner with LTC policyholders with inflation-adjusted policies.
A new option (and a nice tax break). There are now whole life insurance policies and annuities structured to provide either a long-term care benefit or a death benefit – and thanks to the Pension Protection Act, starting on 1/1/10 the interest deducted to pay premiums and benefits from tax-qualified LTC coverage will no longer be taxed. (This applies to combination whole life/LTC policy plans and combination annuity/LTC policy plans; premiums for traditional LTC insurance policies will still be paid with after-tax dollars. So with these new combination whole life/LTC and annuity/LTC policies, you will now have tax-free premiums and tax-free benefits.)
59% of Americans are wrong when it comes to long term care. AARP conducted a survey in 2006 and found that 59% of respondents believed Medicare would pay for extended nursing home care. Another 52% incorrectly thought that Medicare would cover assisted living costs. In 2009, AARP found that 44% of Americans were “not very prepared” or “not at all prepared” to bear sudden long term care expenses.
I urge you to join the ranks of the prepared. Now is a good time to look at ways to plan for your long term care needs. Call me to learn more about your options.
There are now whole life insurance policies and annuities structured to provide either a long-term care benefit or a death benefit – and thanks to the Pension Protection Act, starting on 1/1/10 the interest deducted to pay premiums and benefits from tax-qualified LTC coverage will no longer be taxed. (This applies to combination whole life/LTC policy plans and combination annuity/LTC policy plans; premiums for traditional LTC insurance policies will still be paid with after-tax dollars. So with these new combination whole life/LTC and annuity/LTC policies, you will now have tax-free premiums and tax-free benefits.)
Many of us believe we have the “planning for the future” space covered. We’ve worked hard and saved. Our homes are paid off by the time we go into retirement and as far as we’re concerned, life now consists of living well in the way we define. Planning is key, but knowing precisely what you need to plan for is crucial.
Estate planning for an 18-year-old isn’t something most people think about, but there are certain documents you need to create in case something happens to a young adult. An estate planning lawyer can help.
Poor estate planning can lead to disagreements among heirs and your legacy being lost. Don’t make the mistake of failing to plan properly, as these famous celebrities did. Ensure you have a good estate planning attorney helping you prepare for the future.
Just because you receive an inheritance does not mean you have to accept the assets. You have the right to disclaim the inheritance, which can be beneficial in some circumstances.
Compliments of Our Law Firm,
Written By: The American Academy of Estate Planning Attorneys
Every year, about 6,000 babies with Down syndrome are born in the United States. Over their lifetimes, many of these children will contend with serious medical conditions including heart defects, gastrointestinal problems, visual or hearing impairment, dementia, and early-onset Alzheimer’s disease. As a result, the costs associated with Down syndrome can be astronomical and many of those with the condition receive public benefits, such as Medicaid or Supplemental Security Income (SSI).
All parents want their children to be happy and to enjoy long-term financial stability, and parents whose children have Down syndrome often believe the best way to accomplish this is to leave money to their children using a Will, a life insurance policy, or a retirement account. However, leaving money directly to the child can disqualify him or her from receiving much-needed benefits. For example, under SSI rules, a recipient is limited to $2,000 in assets. If a recipient has property valued more than this amount, his or her benefits are suspended until those assets are “spent down” below the $2,000 threshold.
This means that the unintended consequence of an inheritance or even a big gift from grandma could result in a loss of valuable benefits.
What is the best way to plan for long-term financial security for your child? One solution is to establish a Special Needs Trust.
Under the terms of a Special Needs Trust, a Trustee manages trust property to ensure that it will remain a long-term source of funds for the child. The Trustee has discretion to distribute trust assets to (or on behalf of) the child, as long as he or she follows strict rules that forbid the use of Special Needs Trusts for any of the services covered by government benefits. In a nutshell, Medicaid and SSI benefits continue to cover the basics, while trust assets can be used to provide a child with the “extras” that enhance quality of life.
Often, parents opt for a Special Needs Trust that goes into effect when they die, but this isn’t the only choice. You can also establish a trust that takes effect during your lifetime. There are a number of advantages to establishing such a trust. For instance:
- Substantial gifts to your child from grandparents and other family members can be paid into the trust without fear that they’ll interrupt your child’s benefits.
- Funds you have earmarked for your child’s care can be transferred to the trust. After the transfer, they’ll be treated as separate assets – not yours and not your child’s. This way, the funds will be out of reach of your creditors and safe in the event of divorce. The Trustee you’ve selected will manage them on behalf of your child, so you can rest assured the funds will be put to their best possible use.
For more information about Special Needs Trusts, talk to an experienced estate planning attorney. He or she can help you sort through all your options and establish a comprehensive plan that meets the needs of your child and your entire family.
It’s something you figure out early in your role as a parent: treating your children fairly does not always mean treating them exactly equally. The fair vs. equal dilemma extends far beyond the days of mediating sibling squabbles and enforcing bedtimes. Sometimes in estate planning, as in parenting, fair does not necessarily mean equal.