Tuesday, December 18, 2012

How to Protect your Home from Nursing Home Costs – Part 1

The Home Protection Trust
The numbers are terrifying. If you are 65 or older you will probably need long term care at some time during your remaining life. Long term care is very costly. It can place a big financial, physical, and emotional burden on your family. Have you planned for the likelihood that you will need long term care someday?  
Alzheimer’s disease is one of the main culprits. According to the Alzheimer’s Association, one in eight people age 65 and older (13 percent) has Alzheimer’s disease, and nearly half of people age 85 and older (45 percent) have Alzheimer’s. The likelihood of developing Alzheimer’s doubles about every five years after age 65.
According to the U.S. Department of Health and Human Services two-thirds of people 65 or older will someday need long-term care assistance at home, in an assisted living type facility, or in a skilled nursing home. Over 40 percent will need care in an expensive nursing home for at least some period of time. Currently the average annual cost of a semi-private room in a nursing home in Pennsylvania is over $97,000 a year.  A private room costs more.
Many of us will be unable to afford to pay for the long term care we are likely to need as we age. Certainly few families can pay $100,000 a year to a nursing home. Fortunately, when you run out of money to pay for nursing home care, the government Medicaid program will usually pay. 
The Medicaid Estate Recovery Problem
Since nursing homes are so expensive, most of their residents do run out of money and end up on Medicaid. But, when you die, Medicaid expects to be repaid for the money it spent on your nursing home or other long term care. It will force your home to be sold to pay the government back. This is called the Medicaid Estate Recovery program.
Most people want their home to go to their children or other family, not to the government. Many wonder whether there is anything they can do to protect their home from being lost if they end up needing long term care.
Finally, I have some good news: with expert planning, and especially if you plan in advance, seniors can ensure that their homes will stay in the family after their deaths and not be lost to estate recovery. Over the next month, I plan to post several articles that discuss different planning options that people are using to protect their homes from the Medicaid Estate Recovery Program.
Today’s post will discuss an option that is available to people who have the wisdom to plan in advance. It can be used to protect both the home and other assets, including investments, for your spouse, children or other heirs after your death. Let’s call this planning option The Home Protection Trust.
Trust has Advantages over Giving your Home to your Children
Medicaid Estate Recovery forces the sale of things, like your home, that you own when you die. So one way people try to avoid the recovery program is to give things away before they die.
People sometimes try to protect their homes from nursing home costs and estate recovery by giving the home outright to their children. They plan to rely on their children to “do the right thing.”
While this strategy may ultimately protect the home from Medicaid Estate Recovery, it carries many risks. It’s not as simple as it seems. One problem is that deeding your home to your children will make you ineligible for Medicaid for a long period of time. You may have no way to pay for that care. In Pennsylvania, under our State’s filial responsibility laws, the nursing home can then sue your children who may end up being personally responsible to pay for your care. (Many other states have similar laws).
Deeding your home to your children can also have significant tax disadvantages, and can put the senior at risk of losing the home in the event their child predeceases them or runs into financial or marital problems. More than once I’ve been consulted by a client who regretted having given their home to their child and ending up with their son-in-law or daughter-in-law as their landlord.      
Usually, a better option is to deed the home so that it is owned by a trust rather than being owned by a child. [The term trust describes the holding of property by a trustee (one or more persons or a trust company or Bank) in accordance with the provisions you create in a written trust instrument.] 
Using a trust, your property can be protected from estate recovery when you die, even after a long stay in the nursing home. And since your child is not the owner of the property it is protected from any bad things that may happen in your child’s life as well.  
A trust allows you to protect your real estate (and other assets if you wish) from long term care costs while avoiding the risks and negative consequences of outright transfers to children. By transferring the home and other assets into a properly designed trust, you can still reserve some interest in and control over the transferred assets – advantages that are not available when transfers are made outright to a child.
For example, the trust will normally provide that you have the right to reside in the home for the rest of your lifetime.  No one can throw you out or ask you to pay rent.  You still own the home for tax purposes, so you can still deduct the taxes, and claim any property tax rebates. You can claim the residential exclusion from income tax if the property is sold during your lifetime. And your heirs can get a step up in tax basis if the property is sold after you die, which avoids or limits any income taxes they might have to pay. 
The Trust Can Protect More than just your Home
Investments, such as stocks, bonds, bank accounts, and life insurance policies are also commonly protected through the use of this kind of trust. Because more than just your home can be protected this type of trust is given different names. You will hear lawyers sometimes refer to it as a “Family Asset Protection Trust,” or as an “Irrevocable Income only Trust (IIOT),” or as a “Medicaid Trust.”
Who Can Be Trustee?
People often name one or more of their children as trustees - this is kind of like naming someone in a power of attorney or an executor in a Will - the trustee doesn’t own the assets of the trust, they just manage them according to the terms you set up in the trust. 
While most people name one or more family members as the trustee, you can also name a professional trustee like a bank.  In any event, you can include a provision in your trust that allows you to fire the trustee and appoint a new one at any time. (I like to call this the Donald Trump “You’re Fired!” power).
This is Not your standard Revocable Living Trust
It’s important to note that a Home Protection Trust is very different than the standard revocable “living trust” that many people have already set up. A revocable living trust does not protect your assets from nursing home costs. The Home Protection Trust is an irrevocable trust specifically designed to protect its holdings from loss if you ever have to apply for Medicaid to pay for your long term care costs.  
When you transfer the things you want to protect to the trust you don’t have to sell them. You don’t have to change your investments.  What you own now is merely moved under the protective umbrella of the trust.  The trust can sell things held by it, and buy new things. If your home is held under the trust, and you decide to move, the trust can sell it and buy a new one.
I’ve created many of these trusts for my clients, including some of my own family, over the past twenty years. Most people don’t even notice the trust once it has been set up.  It changes things just enough to protect your assets from nursing home costs, from issues with your children, and from the risks involved when a surviving spouse remarries.  
Planning in Advance
Because the Home Protection Trust involves the transfer of property for Medicaid purposes, Medicaid’s five year look back period rule on gifts applies. This means that it is best if you can create and fund your trust at least five years before either you or your spouse are likely to need to apply for Medicaid.
In general, you have many more options if you plan well ahead of any illness.  Don’t wait for a crisis to happen.  With expert advice you can still plan and protect some assets even after a crisis has hit. But because of the Medicaid five year rule regarding gifts, many more options are available when you plan well in advance of any need for Medicaid.  
The Home Protection Trust is only one of several techniques elder law attorneys use to help their clients keep the home in the family. Other strategies include transfers between spouses, life estate deeds, and transfers to a caregiver child. I’ll write about these other planning options in later posts.
Don’t Try this without Expert Help from an Elder Law Attorney who knows the laws in your State
The planning that will work best for you will depend upon your particular situation and the laws of your state. If you are concerned that your family home will be lost because of the overwhelming costs associated with Alzheimer’s, other dementia, Parkinson’s, stroke or another disabling condition, see an elder law attorney in your state soon. The laws regarding Medicaid and Estate Recovery differ from state to state – you need to get expert advice from a lawyer who knows the laws of the state where you live.  
If you live in Central or Northeastern Pennsylvania, you can call my law firm, Marshall, Parker and Associates for a consultation. That’s a good way to learn about the options available to you.  
For Further Information
An article in the Wall Street Journal discusses the Home Protection Trust. The article calls it an irrevocable income only trust, because more than just the home can be protected. Here is a link to the Wall Street Journal article: Solving Medicaid Assets Math: Trusts Can Be Used To Pass On a Home; Annuities for Income (I am quoted in this article). 

See also the follow up Wall Street Journal article Answers on Medicaid Vary State by State (I am quoted in that article as well).  

Some Other Information Links

Tuesday, December 4, 2012

Deadline to Switch to Electronic Federal Benefit Payments is Near

Over the past several years, the US Treasury Department has been phasing out paper check payments and requiring federal benefit recipients to get their money electronically. Now the March 1, 2013 final deadline is near: on that date people who still receive a paper check in the mail for their Social Security, SSI or veterans benefits are required by law to switch to an electronic payment option. 

Many younger retirees are already receiving their government benefits electronically. Effective May 1, 2011, new applicants filing for all federal payments were required to receive their payments electronically, unless they qualified for one of a very few exemptions. But beneficiaries who were already receiving a paper check on that date were given until March 1, 2013 to make the change. Now, that final switch date is fast approaching. 

Seniors can have their entitlement payments directly deposited into a bank or credit union account or loaded onto a prepaid debit card. Benefit recipients can sign up for direct deposit at www.GoDirect.org, by calling the U.S. Treasury Electronic Payment Solution Center at (800) 333-1795, or by speaking with a bank or credit union representative.  

Choose Your Payment Option. Before making the switch, decide which payment option you would like. If you are unsure, you can call the U.S. Treasury Electronic Payment Solution Center at (800) 333-1795 to speak with an agent who will help you choose the best option for you. 

The U.S. Department of the Treasury recommends two electronic payment options:
       Direct deposit. If you have a checking or savings account, sign up to get your money by direct deposit. Your federal benefit payment will go straight into your account on payment day each month.
       Direct Express® card. If you don’t have a bank account or prefer a prepaid debit card, switch to the Direct Express® card. Your money will be posted to the card account on payment day each month. There’s no need to wait for the mail or to make a special trip to cash a check. You can make purchases and get cash back with purchases at no charge anywhere Debit MasterCard® is accepted. There are no sign-up fees, overdraft fees or monthly fees. Some fees for optional services may apply. For information on card fees and features, visit www.GoDirect.org.

If you do not choose an electronic payment option by March 1, 2013, you will be issued a Direct Express® card.

Note that if you are already receiving your federal benefit payments electronically, this change will not affect you.

Waivers from electronic payment requirements. Waivers from the electronic deposit requirement will be granted in a few circumstances. People born prior to May 1, 1921 who are receiving Federal payments by check on March 1, 2013 are exempted. In addition, beneficiaries may receive a waiver based on hardship such as mental impairment. (Consult §208.4(a)(1) of the regulations linked below for additional information on these waivers.)

Benefits of Electronic Payments
·      Electronic payments provide a number of advantages over paper checks, including:

o  You'll get your benefits on time, even if you're out of town, sick or unable to get to the bank.

o  Crime protection: More than 440,000 Social Security and Supplemental Security Income checks were reported lost or stolen in 2011. Electronic payments can help protect against check theft and other financial crimes.

o  Disaster readiness: Electronic payments help protect money from delivery disruptions caused by severe weather and other unforeseen events.

Further Information:

Monday, December 3, 2012

Free Webinar on December 4 on Advance Care Planning for Dementia

The American Bar Association Commission on Law and Aging and the Administration on Aging are co-sponsoring a free webinar for legal and aging professionals on December 4 at 2:00 PM EST. The webinar is intended to talk through what is important for your clients with Alzheimer’s and related dementias.  It is called “Advance Care Planning with People with Dementia.” 

The webinar aims to develop dementia capable legal professionals. It is open to any law or aging professional.   

Participants will learn about:
• Characteristics and types of dementia
• Essentials of advance planning for health care and financial needs
• Counseling clients with dementia
• Drafting accountability into planning documents
• Risks of abuse, neglect and exploitation in drafting and reviewing documents for persons with dementia
• Best practices for attorneys

Presenters include Charlie Sabatino and David Godfrey of the ABA Commission on Law and Aging and Jane Tilly, DrPH, Office of Supportive and Caregiver Services, Administration on Aging/Administration for Community Living.

Here is a link to more information/sign up: https://www1.gotomeeting.com/register/643530305

This webinar is part two of the AoA/ABA Legal Resources and Alzheimer’s Webinar Series, covering legal issues of people with Alzheimer’s disease and their caregivers. No CLE or CEU credits are provided as part of this free webinar series.