Estate Planning for Elderly Clients

I. ESTATE PLANNING

Estate planning usually involves the review of one's affairs and plans for death, disability and incapacity with an attorney. It usually involves the preparation of the legal documents listed below. It can also involve meetings with other helpful professionals, such as a certified public accountant, a financial planner, a long term care insurance broker and a geriatric care manager.

Estate planning can involve the discussion of a variety of areas, such as how a person's property will pass after death, who will handle affairs for a person who is incapacitated, what medical care the person wants near the end of his or her life, how payment will be made for long term care, whether organ donation is desired, sufficiency of income and/or principal for the rest of a person's life, insurance coverage for life, home, car, disability, long term care, etc.

A. LAST WILL AND TESTAMENT

A Last Will and Testament is legal document written in ink, signed at the end, which clearly indicates what is to be done with the decedent's property following death. It should indicate who is to be in charge of the decedent's affairs. A Will can do a variety of things such as:

  1. Set up marital and bypass trusts
  2. Name guardians for minor children
  3. Give certain items or monies to specified individuals
  4. Set up trusts to provide funds for minor children or grandchildren
  5. Set up special needs trusts for incapacitated minor or adult children
  6. Give money to charity directly or through the use of trusts
  7. Provide money for a pet

A will gives the Testator, the person for whom the document is written, the opportunity to decide what happens to his or her property after death. Without a Will, the intestacy laws of the state in which one dies determine who receives the decedent's property. This distribution plan may not be the most desirable one. For example, a widow might have five (5) children, three of whom are doing alright, one who is a "bad seed" and one who has special needs. If she died without a will, the intestacy law in Pennsylvania would split her assets equally between all five children. With a Will, the widow could have set up a special needs trust for her one child, disowned the "bad seed" and left the rest of her estate to her three other children. She could also select who would be in charge of her estate.

Certain types of assets may pass outside of the language in a Last Will and Testament. These types of assets include:

  1. Joint ownership of property - this property is viewed as owned by the surviving joint owner after the death of the first joint owner; either joint owner, though, may withdraw the funds or use them during life.
  2. Totten trust accounts - this is a bank account entitled "in trust for" someone else which only passes to the "in trust for" person after the owner's death; the owner has full use and control of the money during life.
  3. Beneficiary designation - this involves naming someone as a beneficiary entitled to receive the asset after the death of the owner, such as on a life insurance policy or an IRA account or 401k Plan

B. POWER OF ATTORNEY

A Power of Attorney is a legal document in which the Principal gives authority to an Agent to do a number of activities for the Principal. The powers given can involve financial matters - making deposits, writing checks, selling assets, etc. - and/or involve healthcare matters - making medical decisions, making placement decisions, etc.

It is important for the principal to choose someone trustworthy. For example, the widow with the five children could select the most financially intelligent child to handle her financial affairs and the child who is a nurse to make her medical decisions.

A POA is assumed to be durable, which means that it is valid even if the principal becomes incapacitated. A POA can state that it is for limited duration or purpose, such as to attend a real estate closing.

One should have a POA prepared while doing estate planning so that if one becomes incapacitated, the agent can act without the need for court intervention through a guardianship. A guardianship is costly, time consuming and hard on the family. In the example, a child that the widow would not have selected may become her guardian and entitled to make all of her financial and medical decisions.

C. ADVANCE DIRECTIVE FOR HEALTH CARE DECLARATION (LIVING WILL)

An Advance Directive for Health Care Declaration (Living Will) is a legal document which speaks when the patient cannot and indicates what medical treatment the patient wants or does not want in the event the patient is terminally ill and/or in a persistent vegetative state (permanently unconscious). It is not to be used under other circumstances.

An Advance Directive includes choices for CPR, mechanical breathing, tube feeding, tube hydration, surgery, blood transfusions, antibiotics, etc. It allows the patient to choose a surrogate decision maker to whom the medical personnel may speak.

The Allegheny County Medical Society and the Allegheny County Bar Association have prepared a form Advance Directive which is more informative than the statutory form. Sometimes, attorneys will work with a client to individualize a form to the client's needs.

Hospitals will ask for an Advance Directive on a patient's admission and sometimes provide forms if the patient does not have one. It is better to prepare this document ahead of time to avoid family conflict in an emergency situation and to select the surrogate decision maker of one's choice.

D. LIVING TRUST

A trust is a separate legal entity set up to handle one's affairs. There are many different types of trusts and many different purposes for which trusts can be set up. The type that many people hear about these days are Revocable Living Trusts, such a trust means that the person who sets it up, the Settlor or Grantor, can revoke it at any time. The assets transferred into the name of the trust are still considered to "belong" to the Settlor and are counted as part of the taxable estate when the Settlor dies. The assets are also considered available resources to the Settlor if he or she goes into a long term care facility.Trusts can also be irrevocable, which means that the trust cannot be revoked and assets transferred to such a trust are owned by the trust and out of the control of the Settlor.A trust can name contingent beneficiaries who will receive the property after the primary beneficiary's death. Or, the trust can indicate that it remain in effect for other individuals, such as a spouse or minor children.

A living trust has certain uses, but it is not for everyone. In Pennsylvania, it will not usually save taxes. It is not usually a good way to handle real estate. One should always discuss one's situation with an attorney prior to considering a living trust and always avoid fast talking salespeople. There are many people selling revocable living trusts when such trusts are not appropriate or necessary. It is always good to consult with reputable professionals before deciding whether or not a living trust is needed.

II. LONG TERM CARE PLANNING

Long Term Care planning usually involves the review of how one could pay for long term care in the event of disability and/or incapacity. This review may involve an attorney, a certified public accountant, a financial planner and a long term care insurance broker. Long term care can be paid for in the following ways:

A. SELF PAY

One way to pay for long term care is to use money that has been saved over a lifetime. This involves liquidating assets and using the cash to pay the monthly bills for a nursing facility. Nursing home care is very expensive and can quickly use up large sums of money, leaving little for a spouse or to fulfill the plan set up through estate planning.

B. LONG TERM CARE INSURANCE

Long term care insurance is a policy bought to help deal the costs of long term care and to protect the insured from the risk of paying for LTC to the insurance company.Some of the purposes and uses of LTC insurance are to:

  1. Shift risk to the insurance carrier
  2. Protect a lifetime of savings
  3. Provide security to family
  4. Makes long term care choices easier
  5. Protect estate plans

It is important, though, when considering a LTC insurance policy to compare and review policy features for several policies. It is also important to compare the costs of different policies and check on the financial strength of the companies being considered through a rating service.

C. MEDICARE

Medicare only pays for a small percentage of individuals in long term care because of the many restrictions on coverage. One is only eligible for Medicare coverage after a 3 day hospital stay, when one goes to the nursing home within 30 days of the hospital stay for skilled care that is restorative in nature.

Medicare pays for

Day 1 - 20100%
Day 21 - 100All but coinsurance amount/day
Day 101 on0


D. MEDIGAP OR PRIVATE INSURANCE

Medigap or supplemental private insurance only pays when Medicare pays so that it usually only covers the daily coinsurance charge.

E. VETERANS BENEFITS

A veteran may be entitled to coverage for long term care through the Veterans Administration.

F. MEDICAL ASSISTANCE

Medical Assistance pays for about 1/2 of all current Nursing Home residents. Under Medical Assistance, the current average cost of nursing home care is $5,250.83 per month. Most individuals do not have sufficient income to pay this much (or more) for long term care.

Medical Assistance is considered the payor of last resort in that the Department of Human Services will not pay for care until other resources are exhausted. An individual applying for Medical Assistance must meet three eligibility tests:

  1. Medical Eligibility - medically need long term care
  2. Income Eligibility - insufficient income to pay for long term care
  3. Asset Eligibility - one is allowed very limited assets to be eligible for Medical Assistance (under $2,400 and exempt assets only)

There are three (3) types of Assets:

  1. Inaccessible - assets which have been given away or over which one has no control
  2. Exempt - assets that are not counted for Medical Assistance eligibility
    • A home to which one intends to return
    • A car
    • Cash of up to $2,400
    • Cemetery plots
    • An irrevocable burial trust account or a prepaid funeral of up to county limit
    • Household furnishings and personal effects
    • Life insurance where there face value is below $1,500 or where the cash value is below $1,000
    • IRA, 401K or Keogh plan of a community spouse
  3. Countable -- all other assets, including such things as bank accounts, certificates of deposit, stocks, bonds, other real estate besides the home, etc.

What causes problems for most people is the Transfer of Assets Rule (a/k/a look back rule or sixty (60) month rule) which involves the transfer of assets for less than fair consideration. Such a transfer results in a period of ineligibility for Medical Assistance purposes and is determined by dividing the value of the assets transferred by the average monthly cost of nursing home care. If the transfer is to a trust, the period of ineligibility can be up to 5 years. In order to avoid problems with this "rule", it is important to discuss transfers and gifts with an experienced elder law attorney.

III. OTHER ISSUES

  1. Review of insurance policies and coverage, such as:
    • Life
    • Homeowners
    • Automobile
    • Disability
    • Long term care
    • Umbrella
  2. Discuss making funeral arrangements, writing obituaries, etc.
  3. Discuss possible organ or tissue donation
  4. Discuss family situation to see if any other concerns need to be addressed