News : Estate Planning and Tips for Preparing for the Unexpected

Alec Modrick spoke to a local group of residents during the Kiwanis meeting this week about planning for the future and how to assist your family by preparing. Addressing ways to protect your home, savings and family from costly mistakes he gave the audience tips on how to best do that. 

As we age, there are two different areas that should be in constant review. First is estate planning. This includes everything related to our material assets. Making plans for the distribution of those assets, who will oversee that, and how that will work.

Another aspect that we tend to overlook is planning for your assets in case you are incapacitated. Making sure you have the following three documents in order:

-Financial Power of Attorney

-Healthcare Power of Attorney

-Living Will

The Financial Power of Attorney allows you to appoint someone to make just Financial decisions on your behalf, while you still have that ability. This allows you to choose WHEN the person will make those decisions. It could be when a doctor decides that it's necessary or when you determine that it is. 

While you might think that simply having your child on your account is the best thing to do, consider what happens if they get divorced, sued or they file for bankruptcy? A Financial Power of Attorney will have the power to negotiate benefits on your behalf. 

Modrick suggests that any plans you make be reviewed every 3-5 years. 

Another area of planning is the Healthcare Power of Attorney. Again, this needs to be done while you still have the ability to do so. UNLIKE the Financial POA, the Healthcare POA takes effect upon a doctor's recommendation. A copy should be provided to your physician, hospital and any other healthcare providers for their records. Modrick recommends that it includes medical release language, HIPAA, allowing the sharing of information with all who will be involved in your care. 

The Living Will addresses your physician concerning the use of Life-Sustaining Procedures. This document lists your wishes in this situation sparing your family from those tough decisions about your health if death is imminent and you can't speak for yourself.  This document should also be filed with your doctor and hospital. 

If you have none of this in place, then Guardianship and Conservatorship come into play. Without a Healthcare POA a court will need to appoint a Guardian, and without a Financial POA a court appoints a Conservator. In these two roles, the appointees must annually report their dealings to the court that appointed them. Modrick explains that this process can take 6-8 weeks to process or more. It is more costly to set up and more burdensome for those caring for you long term.

When it comes to passing along your material wealth, there are two types of planning that can be done. One is to make a Will and the other is to create a Trust. 

When making a Will, keep in mind that it typically takes 12-18 months to process, and is dependent on the court to act. The filings are made public, eliminating any privacy, and also include Executor and Attorney fees as well as court costs. 

A Trust becomes effective as soon as it's signed. There are two types of Trusts. A Revocable Living Trust allows you to change the trust while you are alive giving you the most flexibility. There is privacy for this method because there is no court supervision and no public information. There are fewer administrative steps. The only costs would be in creating the trust with an attorney but no court costs. 

Trusts are also beneficial if you own property in more than one state, have a business or farm and need a succession plan, or if there will be issues with splitting inheritances with a new family in case a spouse remarries.  

Long Term Care becomes another issue. How will that be taken care of and how can this be done to protect your assets? The cost of care alone can ruin all of the planning that you may have done in the past. At approximately $8-10,000 a month, it doesn't take long to eat away at a lifetime of saving and planning. If a spouse needs care, how does the surviving spouse survive on their income? Modrick briefly discussed Medicaid pre-planning vs. crisis planning.

Options to pay for care include Long Term Care Insurance, which is more expensive over the age of 55. Self or Private Insurance is also a possibility, but he doesn't recommend that option.

Medicaid or Title XIX is another option and Veteran Assistance. When it comes to Medicaid and Medicare planning, things are different. There is a five-year window that the state can look back at all of your assets during that time. Medicaid is only available if the Medical Need Test is met. If you are in a nursing home the Medical Need is automatically met. 

The Income Test however, has two levels. If you have income of more than $10,000 a month you are ineligible. The second level is more than $2,742 per month, where most fall. Applicants for Medicaid pay according to their income and the government picks up the rest. 

The Asset Test is usually the most difficult. Of course, people want to know how much they can keep. If you are on Medicaid, you cannot have more than $2,000 in your name. A spouse can keep half of the couple's assets or the lesser of $148,620 (adjusted annually so this number will change) whichever amount is lower. 

The key to planning he said is to reach the asset numbers that Medicaid provides using crisis planning techniques that benefit the family. The items that are exempt include: 

-the primary residence, as long as the applicant intends to return home

-one vehicle

-Life Insurance with no cash value

-Life insurance with a face value of less than $1,500

-Irrevocable burial contracts/funeral trusts

-burial plot

-personal belongings (TV, computer, clothing, furniture, medical equipment)

Medicaid looks at only your gross assets and not your net assets. Spend-down techniques include paying off all debts like a mortgage lower your assets. 

Purchase exempt items. if you have a large amount in assets that you need to spend down, some options might be to purchase prepaid funeral plans for yourself, your spouse, your children and their spouses, etc.. 

Another option is the Medicaid Compliant Annuity. This takes what is characterized as an asset and characterizes it as an income stream for the spouse, something he said that is written into the federal code to provide for spouses.

Another rule that Medicaid has is called the "Transfer Rule." No asset can be transferred, for less than the fair market value in the previous 60 months, otherwise, a penalty will apply." The exception to this rule is that if it is transferred to a spouse, disabled child, caregiver-child, or transfers to pay for exempt items, then the asset is protected. Anything beyond five years and one month are fine.

Another option is to set up an irrevocable trust or a Medicaid Asset Protection Trust. The goal is to put the assets in the trust, and after five years, they are no longer seen by Medicaid. The Irrevocable Trust puts your assets out of your control. So be sure that you understand that. You cannot be the trustee NOR the beneficiary. Choosing someone who had your best interest in mind is a must for this step.

Throughout the presentation, Modrick explained these details to the group encouraging them that if they have a large number of assets, it would be to their advantage to speak to an attorney who specializes in Elder Law.  It could save thousands of dollars in lost assets for you and your family. The best people to help protect your lifetime of saving and investing would be a trusted attorney that will work to do that for you. Don't wait until you need help but plan ahead before you are under pressure to make decisions. As with any suggestions concerning your finances, seek advice of your own.