King & Wood, P.A.

Can I Protect My Elderly Parents?

“As the American population of seniors continues to expand, the need for intentional estate planning becomes more urgent, especially for the children of aging parents.”

Estate planning requires the ability to be realistic about current health and assets, while considering the inevitable changes to come. For adults with aging parents, having a well-thought out estate plan, regardless of the size of the estate, becomes more urgent as the time to use the documents draws closer. A recent article, “Accessing needs of aging parents,” from The News-Enterprise explains the steps adult children need to take to protect their parents.

There are four key factors to consider: medical needs, housing and care needs, finances and legal needs. All require candid, non-emotional assessments.

Start with medical, housing and care needs. Consider the next five years. Is it likely their medical condition may decline? How will their present home work, if they are unable to manage steps or need to sleep and toilet on the same level? If their home is not conducive for aging in place, will they consider moving to a better situation—or can they afford to make any changes?

Next, examine health and care needs. Do they have long-term care insurance or do they expect to apply for Medicaid? If one spouse will need memory care or one spouse dies, will the surviving spouse have the resources needed to remain in home and receive the care they need? An experienced estate planning attorney will be able to evaluate their financial situation with regard to becoming eligible for Medicaid, if this will be needed. There is a five-year look-back period for Medicaid, so advance action is necessary to protect assets.

Do they have any estate planning documents in place? Is there a will, and when was it prepared? Ask any estate planning attorney how many times seniors have told their children a will exists, only for the children to learn the will is forty years old, woefully out of date and declared invalid by the probate court. Deceased individuals may be listed as agents for Power of Attorney and Medical Power of Attorney. Funds left for heirs may no longer exist. Laws for power of attorney may not include required provisions as a result of changes to the law.

More complicated issues may exist. If appreciated real estate property has been deeded to loved ones to protect the property from nursing home costs, are the beneficiaries prepared to pay the resulting taxes? If deeded real estate property was intentionally left unrecorded, transferring property could become a legal quagmire.

The best solution is to have an experienced estate planning attorney meet with the parents, review any existing documents and prepare an updated set of documents to achieve the parent’s goals, protect them in case of medical emergencies and allow parents and children to gain the peace of mind of knowing they are ready for the future. This includes a will, power of attorney, health care power of attorney, HIPAA release, living will and, depending upon the situation, may also include trusts.

Reference: The Times-Enterprise (Nov. 5, 2022) “Accessing needs of aging parents”

How Do Special Needs Trusts Work?

“A special needs trust (SNT) can help you provide financial security to your child after you die without leaving them ineligible for the government benefits that they need to sustain care.”

Parents with children who have special needs know they play a pivotal role in their child’s medical, social, emotional and mental health. They also face the challenges of figuring out government assistance programs like Medicaid and how these and other programs provide much-needed help throughout a child’s life. Another important way that parents of children with special needs help is with the creation of a special needs trust, as explained in the article “Special Needs Trust (SNT): What It Is and How It Works” from Forbes.

A special needs trust is used to hold assets in an account to be used to support an individual with special needs. The funds belong to the trust and not the individual, so they are not factored into their eligibility for government benefits.

SNTs are typically set up by a parent, grandparent, or guardian. The person who sets up the account, called the “grantor,” funds the account, as may any other individuals who wish to provide for the child.

The grantor names a trustee, or a third party, who administers the trust. The trustee is a fiduciary and must act in the best interest of the beneficiary. Funds are to be distributed in accordance with the directions in the trust. The trustee will be responsible for distributing funds, following government benefit rules and requirements, and managing tax obligations, among other things.

Parents are often the trustees, although others, like siblings or close relatives, may also be trustees. Parents who are both grantor and trustee generally name a successor trustee to take over after they die, become incapacitated or resign from their role.

A person who may not be able to support themselves due to a medical condition or a disability can gain financial security from an SNT.

Someone with special needs is likely to rely on means-tested government benefits, like Supplemental Security Income (SSI) or Medicaid. These benefits are only available to people with limited income or assets. Anyone receiving SSI, for example, may not have more than $2,000 of countable resources.

A parent who wishes to provide support after they die must plan in advance, so their bequest does not result in the person losing their benefits. This could happen if money is left through anything except a special needs trust. An estate planning attorney will know how to structure the parent’s estate plan to protect the individual with special needs and their government benefits.

Assets in an SNT can be used for a wide variety of expenses, including out-of-pocket medical or dental expenses, personal care givers, rehab services, education, vacations, and other permissible uses.

There is a lot of complexity involved with creating a special needs trust. For one, there are several different kinds of SNTs. You’ll want to select the one best suited for your family. Laws about means-tested benefits vary across states, so you’ll need to work with an estate planning attorney familiar with the laws of your state.

A well-drafted estate plan, incorporating a special needs trust, will provide your loved one with the resources to maintain as much normalcy as possible as they adjust to life without their parents.

Reference: Forbes (Sep. 22, 2022) “Special Needs Trust (SNT): What It Is and How It Works”

How Do You Provide Financial Help for a Special Needs Child and Retirement Too?,

“People with children who cannot support themselves need to think well past their own lifetime and figure out how to provide for children after they are gone.”

For parents of children with disabilities, the challenges of preparing for retirement and for their child’s future are far higher than for families with healthy, high-functioning adults. Planning for your own retirement, while needing to secure the stability and basic needs of a child who will be a dependent forever often feels impossible, according to the recent article “Planning for Your Retirement, and for a Child’s Special Needs, All at Once” from The New York Times.

Even under the best of circumstances, where there’s plenty of money available and many hands to help, caring for an adult child with special needs is emotionally and physically challenging. As parents age, they have to address their own needs plus the needs of their adult dependent. Who will care for them, provide safe and comfortable housing and care for them when their parents no longer can?

Understanding the entire picture can be difficult, even for parents with the best of intentions. First, they need to understand how their retirement planning must be different than other families. Their investments need to be multi-generational to last not just for their lifetimes, but for their child’s lifetime. They can’t be too conservative because they need long-term growth.

In addition, special needs parents need to keep a certain amount of funds liquid and easily accessible, for times when their child needs a new piece of expensive equipment immediately.

One of the parents will often leave the workforce to provide care or take a lower paying position to be more available for care. This creates a double hit; the household budget is reduced at the same time its strained by costs not covered by benefits or insurance. Paying for gas to drive to therapy appointments and day program, buying supplies not covered by insurance, like adult diapers, waterproof bedding, compression garments to promote circulation, specialized diets, etc. adds up quickly.

Even with public health assistance, finding affordable housing is not easy. One adult may need supervised care in a group home, while others may need in-home care. However, the family home may need to be modified to accommodate their physical disabilities. With wait times lasting several years, many families feel they have no choice but to keep their family member at home.

Another challenge: if the parents wanted to downsize to a smaller house or move to a state where housing costs are lower, they may not be able to do so. Most of the public benefits available to special needs people are administered through Medicaid at the state level. Moving to a state with a lower cost of housing may also mean losing access to the disabled individuals’ benefits or being placed at the end of the waiting list for services in a new state.

For disabled individuals, maintaining eligibility is a key issue. Family members who name a disabled in dividual as a beneficiary don’t understand how they are jeopardizing their ability to access public benefits. Any money intended for a disabled person must be held in a specialized financial instrument, such as a special needs trust.

The money in a special needs trust (SNT) may be used for quality-of-life enhancements like a cellphone, computer, better food, care providers, rent and utilities among other qualified expenses.

There are two main categories of SNTs: first party trusts, created with assets belonging to the individual. Any money in this trust must go to reimburse the state for the cost of their care. Another is a third-party special needs trust, established and funded by someone else for the benefit of the disabled individual. These are typically funded by parent’s life insurance proceeds and second-to-die life insurance policies. Both parents are covered under it, and the policy pays out after the second spouse dies, providing a more affordable option than insuring both parents separately.

Reference: The New York Times (Aug. 27, 2022) “Planning for Your Retirement, and for a Child’s Special Needs, All at Once”

How Much Money Can a Well Spouse Keep If Medicaid is Needed?

“The intent of the laws and regulations is to allow the community spouse to have enough income and assets, so that he or she has enough income and assets to continue to live at home, whether that be a home, an apartment, or other living place.”

Despite the intent of the law, allowing one spouse to remain in the family home and having enough income to live on when the other spouse needs Medicaid to pay for nursing home care does not happen automatically. According to the article “What a ‘Community’ spouse can keep” from The Bristol Press, protecting the community spouse is necessary if they are to maintain their prior standard of living.

The community spouse is entitled to have a minimum monthly maintenance needs allowance (MMNA), which changes every year. If the MMNA is $2,288.00, and the healthy spouse has an income of $1,000.00, Medicaid allows a diversion of the sick spouse’s income of the difference, or $1,288.00 per month to the healthy spouse. In most situations, this is not enough to maintain a home, pay bills and enjoy a well-deserved retirement.

An elder law lawyer can help protect assets for the community spouse. The family home is exempt, if it is in the name of the healthy spouse, although most states have a limit to the allowed value. If the sick spouse is approved for Medicaid, the healthy spouse may choose to sell the home and keep the proceeds or downsize to a smaller home.

The community spouse may keep up to $137,400.00 in investment assets in 2022. That’s considered one half of the couple’s total “countable” assets. If the couple’s investment exceeds this amount, there are a number of strategies used to protect the life savings, as long as they stay within the “spend down” rules. Money may be spent on house expenses or improvements. A new car could replace an old model.

Another method is the use of a Single Premium Immediate Annuity, sometimes referred to as a Medicaid Annuity Trust. The well spouse can purchase this and protect their life savings. However, if the well spouse dies before the sick spouse, the balance of the annuity will need to be paid to Medicaid to reimburse it for expenses paid for the care of the sick spouse.

One positive note: personal property is not considered a countable asset. Things like home furnishings, decorations, jewelry, etc., and any personal property will not be counted. Embarking on a spending spree with an eye to reselling personal property to raise cash is not a good idea, since few items maintain their value after the initial purchase.

Planning should be done in advance, when both spouses are well and healthy, because Medicaid strictly enforces the five-year look back rule. Any assets transferred within five years of a Medicaid application will make the sick spouse ineligible for Medicaid coverage, and healthcare expenses will have to be paid out of pocket.

Reference: The Bristol Press (July 29, 2022) “What a ‘Community’ spouse can keep”

Is ABLE Account the Same as Special Needs Trust?

“Because of astronomical costs of care and support—often more than $100,000 per year—most individuals with disabilities will need government assistance, such as Supplemental Security Income and Medicaid.”

Many families help their disabled loved ones with whatever resources they have, if they can, but this must be done carefully to protect eligibility for government aid, reports a recent article titled “Here’s how ABLE accounts, special needs trust differ…and how they can work together” from CNBC. An ABLE account—named for the Achieving a Better Life Experience Act—can be paired with Special Needs Trusts to improve the quality of life for the disabled family member.

How do Special Needs Trusts work?

The two types of Special Needs Trusts are known as Third-Party and First Party trusts. The Third-Party Trust is funded by parents or others and are only for the disabled person’s needs. When the parents pass, the funds go to someone else. A First Party Trust is created with the disabled individual’s own funds and is used to shelter any income, earned or inherited, to maintain their eligibility for Medicaid, which has both income and asset limits. Any distributions from the First Party Trust must be approved by the trustee. After the death of the disabled individual, Medicaid will make a claim on any funds in the First Party Trust

Special Needs Trusts (SNTs) may not be used for certain expenses paid for by government programs, including groceries, medical expenses covered by Medicaid and housing expenses, which are covered by Supplemental Security Income (SSI).

Expenses not covered by government programs can be paid from ABLE Accounts. The ABLE account is a tax-advantaged saving account similar to the 529 accounts used for college savings. Funds may be used for expenses that maintain or improve the individual’s health, independence, or quality of life. Funds can be used for education, recreation, personal technology and more.

Medicaid can clawback funds from the ABLE account after the death of the recipient.

There are requirements and limitations to the ABLE account. In 2022, only $16,000 may be contributed per year. Most parents leave more than this amount for their disabled children, so a different vehicle is needed for inheritance.

Here’s where it gets interesting: A trustee for a SNT can make a distribution to the ABLE account to help cover expenses not permitted to be paid from the Trust.

An estate planning attorney can help the family plan for the present and the future to use these and other strategic planning tools for a disabled individual.

Reference: CNBC (June 30, 2022) “Here’s how ABLE accounts, special needs trust differ…and how they can work together”

Medicaid Crisis Plans for Long Term Care Costs

“In general, estate planning is a practice that requires forward thinking. However, sometimes estate planning must occur in the midst of a crisis.”

To the estate planning attorney, the situation is known as “crisis planning.” It almost always involves two things happening at once: the immediate need for additional healthcare and for a family’s assets to be protected. The end goal of crisis planning is to protect assets for both spouses, while ensuring that the sick spouse receives the care they need, as explained in the article “Crisis planning for couples focuses on asset protection” from The News-Enterprise.

What is Medicaid Crisis Planning?

Crisis planning for married couples requires a three-step process. First, does the spouse in crisis have the documents in place to allow another person to act on their behalf? This includes a financial power of attorney and a healthcare power of attorney.

Powers of Attorney need to be checked to ensure that they include specific powers needed to take action on the person’s behalf. These documents are “state specific,” meaning each state has laws determining what the POA must contain and how it must be prepared. Crisis planning requires a POA providing a broad set of powers, so agents can access and change documents like deeds, bank and investment accounts.

Once the documents and POAs are in hand, the next step is to get a detailed breakdown of the couple’s financial position and the cost of care. This becomes easier if the couple is organized and has information readily available for each income stream and asset.

What Information Will the Agent Need?

The agent must find several different types of financial documents. Proof of income for each income stream is needed. The actual proof of income will show taxes withdrawn or other deductions taken from income, such as health insurance.

The agent will also need access to several months of statements for each account, including bank statements, investment accounts, retirement accounts and deeds and titles for property. Proof of other assets, including insurance policies, burial plot deeds and other assets must also be included.

Some types of income and assets are countable, and some are non-countable. However, the non-countable income and assets may need to be considered, so the estate planning attorney will need to have all the information.

Medicaid Resource Assessment Request

Step three is to determine eligibility for programs and make the necessary applications. This will depend on the type of care needed. However, a typical crisis case is for nursing home care, which almost always means Medicaid eligibility. All income and assets are reported to Medicaid through a Resource Assessment request. The Medicaid office creates a breakdown of what will be counted against the applicant.

The remaining amount is what must be “spent down” for a person to be eligible for Medicaid coverage.

The most common way to do this is through a Medicaid Annuity. This annuity takes the spend down amount and returns the full amount as income to the spouse at home, effectively preserving the couple’s assets.

Crisis planning is stressful but does not have to be hopeless. By working with an experienced estate planning attorney and providing documentation as quickly as possible, health care needs can be met without the well spouse being impoverished.

Reference: The News-Enterprise (July 23, 2022) “Crisis planning for couples focuses on asset protection”

 

How Do Special Needs Trusts Work?

“Special needs trusts can help fund quality-of-life improvements for the beneficiary, such as a phone, a trip or a private room in a group care facility.”

Parents with disabled children worry about how their offspring will manage when parents are no longer able to care for them. Leaving money directly to a child receiving means-tested government benefits, like Social Security Supplemental Income or Medicaid, could make them ineligible for these programs, explains an article from Kiplinger titled “Estate Planning: A Special Trust for a Special Need.” In most states, beneficiaries of either program are only allowed to have a few thousand dollars in assets, with the specific amount varying by state. However, the financial support from government programs only goes so far. Many families opt to have their own family member with special needs live at home, since the benefit amount is rarely enough.

The solution is a Special Needs Trust, which provides financial support for a disabled individual. The SNT owns the assets, not the individual. Therefore, the assets are excluded from asset limit tests. The funds in the trust can be used to enhance quality of life, such as a cell phone, a vacation or a private room in a group living facility. The SNT is a means of making sure that a vulnerable family member receives the money and other relatives, such as a sibling, don’t have a financial burden.

SNTs can only be created for those who are younger than age 65 and are meant for individuals with a mental or physical disability so severe they cannot work and require ongoing support from government agencies. A disabled person who can and does work isn’t eligible to receive government support and isn’t eligible for an SNT, although an estate planning attorney will be able to create a trust for this scenario also.

Each state has its own guidelines for SNTs, with some requiring a verification from a medical professional. There are challenges along the way. A child with autism may grow up to be an adult who can work and hold a job, for instance. However, estate planning attorneys recommend setting up the SNT just in case. If your family member qualifies, it will be there for their benefit. If they do not, it will operate as an ordinary trust and give the person the income according to your instructions.

SNTs require a trustee and successor trustee to be responsible for managing the trust and distributing assets. The beneficiary may not have the ability to direct distributions from the trust. The language of the trust must state explicitly the trustee has sole discretion in making distributions.

Because every state has its own system for administering disability benefits, the estate planning attorney will tailor the trust to meet the state’s requirements. The SNT also must be reported to the state. If the beneficiary moves to another state, the SNT may be subjected to two different sets of laws and the trustee will need to confirm the trust meets both state’s requirements.

SNTs operate as pass-through entities. Tax treatment favors ongoing distributions to beneficiaries. Any earned investment income goes to the beneficiary in the same year, with distributions taxed at the beneficiaries’ income tax rate. Trust assets may be used to pay for the tax bill.

As long as all annual income from the trust is distributed in a given year, the trust will not owe any tax. However, a return must be filed to report income. For any undistributed annual investment income, the trust is taxed at one of four levels of tax rates. These range from 10% and can go as high as 37%, depending on the trust income.

An SNT can be named as the beneficiary of a traditional IRA on the death of the parent. Investments grow tax deferred, as long as they remain in the retirement account and the SNT collects the required minimum distributions for the retirement account each year, with the money passing as income. However, any undistributed amount of the required distribution will be taxed at the trust’s highest tax rate.

Reference: Kiplinger (June 8, 2022) “Estate Planning: A Special Trust for a Special Need”

Does a Supplemental Needs Trust have an Impact on Government Benefits?

“For disabled persons receiving financially based government benefits, supplemental needs trusts (‘SNTs’) can safeguard benefits and serve as an effective estate planning tool.”

Supplemental Needs Trusts allow disabled individuals to retain inheritances or gifts without eliminating or reducing government benefits, like Medicaid or Supplemental Security Income (SSI). There are cases where the individual is vulnerable to exploitation or unable to manage their own finances and using an SNT allows them to receive additional funds to pay for things not covered by their benefits.

Having an experienced estate planning attorney properly create the SNT is critical to preserving the individual’s benefits, according to a recent article titled “Protecting Government Benefits using Supplemental Needs Trusts” from Mondaq.

Disabled individuals who receive SSI must be careful, since the rules about assets from SSI are far more restrictive then if the person only received Medicaid or Social Security Disability and Medicaid.

The trustee of an SNT makes distributions to third parties like personal care items, transportation (including buying a car), entertainment, technology purchases, payment of rent and medical or therapeutic equipment. Payment of rent or even ownership of a home may be paid for by the trustee.

The SNT may not make cash distributions to the beneficiary. Payment for any items or services must be made directly to the service provider, retailers, or other entity, for benefit of the individual. Not following this rule could lead to the SNT becoming invalid.

SNTs may be funded using the disabled person’s own funds or by a third party for their benefit. If the SNT is funded using the person’s own funds, it is called a “Self-Settled SNT.” This is a useful tool if the disabled person inherits money, receives a court settlement or owned assets before becoming disabled.

If someone other than the disabled person funds the SNT, it’s known as a “Third-Party SNT.” These are most commonly created as part of an estate plan to protect a family member and ensure they have supplementary funds as needed and to preserve assets for other family members when the disabled individual dies.

The most important distinction between a Self-Settled SNT and a Third-Party SNT is a Self-Settled SNT must contain a provision to direct the trust to pay back the state’s Medicaid agency for any assistance provided. This is known as a “Payback Provision.”

The Third-Party SNT is not required to contain this provision and any assets remaining in the trust at the time of the disabled person’s death may be passed on to residual beneficiaries.

Many estate planning attorneys use a “standby” SNT as part of their planning, so their loved ones may be protected, in case an unexpected event occurs and a family member becomes disabled.

References: Mondaq (May 27, 2022) “Protecting Government Benefits using Supplemental Needs Trusts”

What Is Best Way to Spend ABLE Account Money?

“ABLE accounts are a way for people with disabilities to save and spend money, while protecting their access to public benefits.”

An ABLE Account (Achieving a Better Life Experience Account) is a tax-advantaged savings account available to individuals diagnosed with disabilities. It lets them save without putting their public benefits at risk. Contributions to the ABLE account may be made by the account owner, family members, friends, trusts or any other person, as explained in the article “What Qualifies as Eligible Expenses for an ABLE Account?” from Investopedia. The money can be maintained in the account tax-free or spent on certain expenses, which are called “eligible expenses” or “Qualified Disability Expenses” (QDEs) and cover a broad range of goods and services. In some cases, figuring out if an expense meets the criteria is easy. However, in others, it is not so clear.

Typical QDEs include education, employment training, food, shelter, transportation, assistive technology, health, prevention and wellness, financial management of the ABLE account, including oversight and monitoring, legal fees, funeral and burial expenses. In all cases, keep detailed records of how ABLE funds are spent, just in case there is a dispute about whether an expense qualifies.

The law governing ABLE accounts does not spell out every single QDE. Sometimes the IRS or Social Security Administration will issue guidance to clarify whether an item is a QDE. The law says the term should be “broadly constructed to permit the inclusion of basic living expenses and should not be limited to items for which there is a medical necessity, or which provides no benefits to others in addition to the benefit to the eligible individual.”

Note that ABLE account funds may be used for a vacation, if it helps maintain or improve the health, independence, or quality of life for the disabled individual. The food category includes more than groceries: food delivery and restaurant meals are included.

A few tips:

• If in doubt, use non-ABLE money and save the ABLE funds for eligible purchases.
• Use public funds when possible. For instance, Medicaid may pay for transportation to a health care provider or educational programs.
• Keep extensive records, especially for items you are not sure about.

It is great for the disabled individual to have this much flexibility. However, it can also be confusing. An elder law estate planning attorney will be familiar with the guidelines and help ensure that the funds are used properly.

Reference: Investopedia (Feb. 25, 2022) “What Qualifies as Eligible Expenses for an ABLE Account?”

Do I Need an Attorney for Probate?

“A competent elder law or estate attorney can discuss and use, where appropriate, such provisions as the family exemption, benefits to prepaying inheritance tax, even where the tax return is not yet complete and a listing of itemized deductions.”

Having an estate planning attorney manage the probate process can alleviate a great deal of stress for the family, says the recent article “Reasons to hire a lawyer for probate” from The Mercury.

For one thing, the attorney will know what your state requires in the way of executing the will. You may need to pay a state inheritance tax, or you may have to file certain documents specific to your state. Even if the surviving spouse is the only beneficiary and all assets are either jointly titled or are distributed through beneficiary designations, there are other details you may miss.

A surviving spouse will certainly appreciate not having to undertake a mountain of paperwork or electronic forms on their own, especially if there are no adult children living nearby to help. Which beneficiary form needs to be completed, and what will financial institutions need to change accounts to the proper ownership? It can be daunting, especially during mourning.

Depending upon the state, there may be exemptions, discounts and deductions from the estate. A layperson likely does not know if their state deducts the attorney’s fees and/or the executor fees. Even attorneys who do not practice estate law do not always know about these potential benefits.

An estate planning attorney will also know how long the probate process will take. If the surviving spouse is the executor and is unable to attend probate court, some cases accept a remote process. There are also COVID-specific procedures in some states, which a layperson may not know about.

If there are family disputes between beneficiaries regarding distribution, an estate planning attorney could be a very important resource. There may need to be a settlement agreement created that conforms to the state’s law. If it is not handled properly, the agreement could be deemed invalid if challenged in court.

What if the family home is being sold? Sometimes executors working without an attorney do not realize the requirements from title insurance companies regarding the sale of a property where one of the parties has passed. Failing to make sure that these requirements are met, could delay the settlement of the estate and put the property sale in jeopardy.

If there are health or creditor issues, or disputes over property, an estate planning attorney is invaluable in protecting the surviving spouse and/or executor. In many cases, the estate is left with substantial medical bills, Medicaid claims or related costs. Executors may not know their rights, or how to defend the estate. A knowledgeable estate planning attorney will.

Reference: The Mercury (Feb. 8, 2022) “Reasons to hire a lawyer for probate”