Co-authored by Joanna C. Feldman

This question was recently asked at an event we hosted during which we discussed strategies to leave a legacy after death.  A Medicaid Trust is an irrevocable trust used to protect assets should one need nursing home care and seek Medicaid to help cover the cost.  Because assets in a Medicaid Trust aren’t accessible by the creator of the trust, most people don’t create a Medicaid Trust until their mid-60s (and later).

Regardless of whether a Medicaid Trust is or is not appropriate at the time, everyone – at a minimum – should have three documents:  Power of Attorney with Statutory Gifts Rider, Health Care Proxy, and a Last Will and Testament (“Will”).

A Power of Attorney with Statutory Gifts Rider authorizes your appointed agent to manage your financial and property affairs.  Say, for example, you lose your capacity and someone needs to transfer your assets, create a Trust on your behalf, fund the Trust, change beneficiary designations, etc.  Without a properly drafted, comprehensive Power of Attorney with Statutory Gifts Rider, no one will have the authority to take such actions.  A guardianship proceeding will then need to be commenced in Court, which takes time, can cost thousands of dollars in legal fees, and can create ongoing legal obligations for the life of incapacitated person.

A Health Care Proxy authorizes your appointed agent to make health care decisions for you should you become mentally incapacitated and unable to make those decisions.  You can choose someone you trust to carry out your health care wishes, which is a way to control your health care when you’re unable to do so yourself.  If you don’t have a Health Care Proxy, New York State law provides a framework in certain situations.  In a nursing home or hospital setting, the law provides a specific order of priority in terms of person who are allowed to make decisions for you.  But you may not have communicated your wishes to the person with the highest priority.  Or perhaps they’re not the person you’d want to make your health care decisions.  More importantly, this statutory framework does not apply outside of a hospital or nursing home setting.

Finally, everyone should have a Will.  If one has a Will, assets owned individually (including as tenants-in-common), without beneficiary designations, and not in a Trust, for example, pass upon death to beneficiaries as specified in the Will.  If one does not have a Will, assets pass upon death pursuant to New York State laws.  The order of priority specified in those laws may not match up with your wishes.  Say, for example, you’re married with children.  Without a Will, the law provides that your estate will be distributed to your spouse and children, not just your spouse.  Or, for example, say you’re not married and you want to leave your estate to your nephew.  Without a Will, the law provides that your estate will be distributed first to your parents (if at least one is alive), or to your siblings (if your parents died before you).  A good Will also provides for contingencies should a beneficiary be below a certain age or a person with special needs, and one can appoint guardians and alternate guardians over minor children.  This list isn’t exhaustive, but it gives a good sense that without a Will, your assets upon death can pass outside of your wishes, and things can get very complicated.

Co-authored by Joanna C. Feldman

Under the usual fact pattern, a retirement account will not render someone ineligible for Medicaid.  There are initially two major issues when considering whether someone is eligible for Medicaid: resources and income.  Retirement accounts can fall in both categories.

For resources purposes, in New York, retirement accounts, such as IRAs, 401(k)s, and 403(b)s, are exempt for eligibility purposes.  The caveat is that the applicant must be taking their required minimum distribution (RMD) on a monthly basis, no more and no less.  If one is over 70 ½, the IRS provides that one must begin taking their RMD.  Often, people will take their RMD annually as a lump sum.  When contemplating Medicaid, it is important that the distribution frequency be changed to a monthly basis (on a pro-rata basis).

For income purposes, the RMD is considered the applicant’s income.  A person receiving Medicaid benefits for care at home is permitted to retain a certain amount of net income per month, which includes the monthly share of the RMD.  Any surplus monthly income will either need to be spent on their medical care or, for example, deposited into a pooled income trust.  Money deposited into the pooled trust may be used for other monthly expenses.  For a person receiving Medicaid benefits for nursing home care, the RMD will be factored in to the net monthly income the person will need to pay to the nursing home each month as a contribution toward their care.

We were told recently that someone was advised to change the ownership of their retirement account to achieve Medicaid eligibility.  Unless there are extraordinary circumstances, this is generally unsound advice.  Managing the financial and healthcare needs of your loved ones is difficult, but speaking with an elder law attorney can help shed light on these complicated issues and ensure you receive the correct advice.

Change is inevitable, and it comes in many shapes and sizes.  Death, disability, and divorce are three of the most common changes in life that can wreak havoc on an estate plan.  If your estate plan is not flexible, there could be unintended consequences.  With the increasing popularity of revocable trusts, whether drafted by attorneys or available for purchase off the internet, too many trusts are on the market that are poorly drafted and do not provide mechanisms for dealing with changed circumstances.

For example, there is a possibility that we may all fall ill and require care at home or in a nursing home.  Intending to avoid exhausting all your assets, it might be prudent to apply for Medicaid. To create Medicaid eligibility, the assets in your revocable trust may need to be transferred to another individual, such as a spouse, or to a trust.  At this point, you may have not only fallen ill, but you may have also lost your capacity.  I have reviewed many trusts where upon the creator’s incapacity, the assets of the revocable trust can no longer be distributed from the trust.  In essence, the assets are frozen, and no Medicaid planning can be implemented.  To avoid this situation, your revocable trust should include language allowing the successor trustee, upon your incapacity, to transfer the trust assets to your children, a spouse, or to a trust.  By allowing for these transfers, Medicaid eligibility can be achieved.

Another situation that cannot be reasonably foreseen at the time of drafting is the ability or willingness of a successor trustee to act.  When drafting, it is prudent to appoint multiple successor trustees.  What if the trustees you have selected years earlier, however, have no desire to serve as trustee? Your revocable trust must have proper language allowing for the resignation and appointment of successor trustees.  Often, little time is spent on crafting this type of language.  Most trusts simply name the successor trustees with nothing more.  If a trustee of a trust does not want to serve, and there is no mechanism to appoint a successor trustee, Court involvement is inevitable.

Considering that we many all fall ill and require care, it’s curious that most estate plans do not contemplate the possibility of a beneficiary becoming disabled.  I am often consulted by families of beneficiaries who stand to inherit assets from an estate while these beneficiaries are also receiving Medicaid benefits.  The receipt of an inheritance will likely render a Medicaid recipient ineligible for Medicaid.  A simple solution is to include a supplemental needs trust in your estate plan.  The assets within the supplemental needs trust are protected for Medicaid eligibility purposes.  Commonly referred to as a “trigger supplemental needs trust,” its provisions would go into effect if a beneficiary is disabled at the time they are to inherit from an estate.  Since we have no idea whether a beneficiary will become disabled, I include trigger supplemental needs trusts in all my estate planning documents, including revocable trusts.

Finally, with the divorce rate being so high, it may be prudent for your revocable trust to provide that upon your death, the trust’s assets are to be distributed to lifetime trusts for the benefit of your children.  If the assets are distributed to your children outright, and your children become divorced after your death, it is possible that the inherited assets could be considered marital assets subject to equitable distribution.  This could be avoided by using a trust.

You should review your revocable trust in light of the above considerations.

While I cannot say whether there are mistakes in your estate planning documents, the wording of your document may be confusing to you as a non-attorney.

Legal documents contain a great deal of legalese.  For purposes of this response, I am assuming that you are leaving all of your assets to your children.  First, it is important to define the assets that are passing to your children.  This is usually done by defining your residuary estate.  Keeping it simple, your residuary estate is generally all of your property, whether real or personal property.

If you were to leave your residuary estate to your children, you might see the following language, “I leave my residuary estate to my issue, per stirpes.”  The word “issue” means your children.  The words “per stirpes” means that if any of your children predecease you, their share will pass to their children.  Thus, the individual names of your children would not be listed.

The above is only one example of language that you could use in your residuary estate to effectively convey your assets to your children.  There are others.  I have had the opportunity to review many residuary clauses and unfortunately, many residuary clauses are defective in that the verbiage simply does not work.  This could be fatal to your estate plan.  If your residuary clause is ineffective, your assets may pass to unintended beneficiaries or in a manner inconsistent with your estate plan.

If your estate planning documents were not prepared by an elder law or estate planning attorney, I strongly recommend you contact us to review your documents.

Co-authored by Joanna C. Feldman

Let’s consider the cost of care versus the legal fees to implement proper planning.

So often, when I ask clients about their assets, they respond “I have nothing”, yet they own a house.  For some reason, it seems to be common that where there are little cash assets, there is a perception that one has no assets.  Your house could be your largest asset and it should not be ignored simply because it is illiquid.

If you require nursing home care one day, the costs of care could exceed $15,000.00 per month.  While you may be eligible for Medicaid depending on your other assets, Medicaid can place a lien against your house to recover any benefits paid on your behalf.  If you do no planning, you stand to lose all the equity in your house if you are in a nursing home for an extended stay.  This becomes even more profound if your spouse requires care as well.

A Medicaid Trust may be used to protect your house from a Medicaid recovery claim or lien.  The one-time legal fees for Medicaid planning typically range between $3,000.00 – $6,000.00. If you are a numbers person, that is approximately 1% of the value of your house.  Considering the potential loss under a do-nothing scenario, it absolutely makes good sense to work with an attorney to implement your planning. Don’t be penny wise and dollar foolish.

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