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 your 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.

The elderly are vulnerable, and as a result, are often soft targets for non-physical abuse. I refer to them as “silent abuses” because they are often difficult to identify, or worse, prove. Examples include undue influence, duress, coercion, mental abuse, and financial exploitation. Generally, a common predicate for most cases begins with a close, confidential relationship with another person, who is usually a relative or friend.

Ultimately, the advice is to be proactive. Ask questions. While you may not receive the answers you seek, pay close attention to the responses you are given. If it smells rotten, its usually rotten. Look for changes in your parent’s lifestyle and behavior. It speaks volumes. I cannot identify all the ways in which you might discover signs of abuse, but if you are perceptive, you’ll find it.

If you suspect that someone is living in squalor or is being neglected physically or mentally, you might consider contacting Adult Protective Services. They take these matters very seriously and will respond accordingly. Otherwise, we can assist by commencing a guardianship proceeding in Court.

In a guardianship proceeding, you will have the opportunity to present your case to a Court, and if successful, a guardian will be appointed to handle the financial and/or personal affairs of the individual. A guardian can be another family member but if the matter is contentious, an independent party might be appointed. Once a guardian is appointed, the assets of the individual can no longer be exploited, thereby ensuring that the individual is protected financially. If the individual has been neglected, she will be protected personally as well.

Co-authored by Joanna C. Feldman

To be eligible for Medicaid benefits in a nursing home in 2018, one may have no more than $15,150.00 in available assets. A life insurance policy with no cash value is not considered an available asset. If a life insurance policy has cash value, however, the cash value of the policy is considered the policy owner’s available asset. If that cash value pushes the available assets over $15,150.00, a plan must be developed to establish Medicaid eligibility.

Managing a life insurance policy with cash value as part of that Medicaid eligibility plan depends on a variety of factors. In some circumstances, it may make sense to cash out the policy and use the money to pre-pay funerals or legal fees or engage in other types of planning. The tax consequences of cashing out the policy must be considered. In other circumstances where, for example, the cash value is much lower than the death benefit, it may be more appropriate to transfer ownership of the policy to the applicant’s spouse (if there is one) or to a trust, recognizing that a transfer to a trust may result in a penalty period during which Medicaid will not pay for the nursing home. It may be also be advisable to take out a loan against the cash value, keeping in mind generally speaking, the loan will not equal 100% of the cash value.

Life insurance having a cash value is an ideal asset to transfer to an irrevocable Medicaid trust. As we have previously written, Medicaid trusts are one of the best opportunities for people to plan in advance of requiring care.

These are some options to consider not in a bubble, but as part of an overall plan either when one needs nursing home care or – ideally – when planning for the future before care is needed. An elder law, estate planning, and special needs planning attorney can help by offering advice based on the law, the client’s specific circumstances, and the attorney’s professional experience.

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