Estate Planning And Long Term Care Planning
By Carol Sikov Gross, CELA*
I. Being Prepared
It is important to be prepared and to plan ahead for life’s eventualities, whether it is disability, incapacity or death since we never know what may happen. Find out about your family’s financial situation and what types of insurance you have. Find out what legal documents you can draft to take care of your own needs and those of your family and have them prepared by an attorney. Find out what can happen if you have not taken action prior to an emergency.
II. 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 following documents:
A. Last Will And Testament
A Last Will and Testament is a writing in ink, signed at the end, which clearly indicates what is to be done with one’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:
- Name guardians for minor children;
- Set up trusts to provide funds for minor children or incapacitated adult children;
- Give money to charity; or
- Provide money for a pet.
A Will gives the Testator, the person for whom it is written, the opportunity to decide what happens after death. Without a Will, the intestacy laws of the state in which one dies determine who receives the decedent’s property. Other ways to pass property outside of a Last Will and Testament include:
- Joint ownership of property – this property is viewed as owned by the surviving joint owner after the death of the first joint owner
- Totten trust accounts – bank account entitled “in trust for” someone else which only passes to the “in trust for” person after the owner’s death
- Beneficiary designation – naming someone as a beneficiary such as on a life insurance policy or IRA account
B. Power Of Attorney
A legal document in which the Principal gives authority to an Agent to do 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. 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.
One should have a POA prepared 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.
C. Advance Directive For Health Care Declaration (Living Will)
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 used under other circumstances. It 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. Most attorneys will work with a client to individualize a form to the client’s needs. Hospitals will ask for an Advance Directive on admission and sometimes provide forms if the patient does not have one. It is better to prepare this document ahead of time.
D. Living Trust
A trust is a separate legal entity set up to handle one’s affairs. It is usually revocable (Revocable Living Trust), which means that the person who sets it up, the Settlor or Grantor, can revoke it at any time. A trust names beneficiaries who receive benefits from the trust, such as the right to receive income or principal. A trust usually names a primary beneficiary as well as contingent beneficiaries who will receive the property after the primary beneficiary’s death. A living trust can also be irrevocable, which means that it cannot be revoked or changed.
A living trust has certain uses, but it is not for everyone. Living trusts are sometimes sold to people as a way to avoid probate. Probate is the process of handling the affairs of a person after their death. In Pennsylvania, probate is relatively quick and inexpensive. A revocable living trust will not usually save taxes, whether these taxes are inheritance taxes, federal estate taxes or income taxes. It may not make the handling of a deceased person’s affairs easier. It is not usually a good way to handle real estate. It is important to always discuss a particular situation with an attorney prior to considering a revocable living trust to see if one is appropriate. It is very important to always avoid fast talking salespeople who are selling revocable living trusts door-to-door.
III. 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, an accountant, a financial planner and/or a long term care insurance person. Long term care can be paid for in the following ways:
A. Self Pay
Self pay is using savings and income to pay for long term care.
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:
- Shift risk to the insurance carrier
- Protect a lifetime of savings
- Provide security to family
- Makes long term care choices easier
- Protect estate plans
It is important 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 using a rating service.
One is only eligible after a 3 day hospital stay, when one goes to the nursing home within 30 days for skilled care that is restorative in nature.
- Medicare pays for Day 1 – 20 100%
- Day 21 – 100 All but the co-insurance amount/day
- Day 101 on 0
- Medicare covers only about 2%of NH costs;
D. Medigap Or Private Insurance
This insurance supplements Medicare coverage and usually only covers the daily coinsurance charge.
E. Veterans Benefits
It is best to contact the Veterans Administration directly to inquire about the extent of these benefits since their availability depends on a number of factors, including the veteran’s classification, extent of a service related disability, discharge status, etc.
F. Medical Assistance
Pays for about 1/2 of all current Nursing Home residents. Payor of last resort but must meet three eligibility tests
- Medical Eligibility – medically need long term care
- Income Eligibility – insufficient income to pay for long term care
- Asset Eligibility – very limited assets (under $2,400 and exempt assets only; this amount may go as high as $8,000 if the income is limited)
There are three (3) types of Assets:
- Inaccessible – assets given away or over which one has no control
- 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 for individual or Institutionalized Spouse if high income otherwise up to $8,000
• One cemetery plot per individual (2 for a married couple)
• Irrevocable burial trust account or a prepaid funeral of up to current county limit
• Household furnishings and personal effects
• Life insurance — face value below $1,500 or cash value below $1,000
• IRA, 401K or Keogh plan of a community spouse
• Community Spouse Resource Allowance – ½ of assets up to a maximum in 2023 of $148,620 and down to a minimum of $29,724
- Countable – all other assets, including 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 or a gift. 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 (now $302.42 as of July 1, 2015). If the transfer is to a trust, the look back period is 5 years. In order to avoid problems with this “rule”, it is important to discuss transfers and gifts with an experienced elder law attorney.
IV. Other Issues
A. Review of insurance policies and coverage
B. Discuss family situation to see if any other concerns need to be addressed
*Certified as an Elder Law Attorney by the National Elder Law Foundation as authorized by the Supreme Court of Pennsylvania