Do you remember the ad in the 80s, “This is not your father’s Oldsmobile?” It was used to win over a new demographic of car-buyers. Previously, the car maker had been popular with adults over 50 and was looking to attract a much younger market. While recently teaching a two-day Medicaid boot camp to 50 lawyers, this ad resonated in my mind as I watched the transformation of these traditional estate planning attorneys as they became enlightened to the relevance of Medicaid Laws to their practice. It became clear to me, like Oldsmobile, estate planning is not like it used to be! If you are going to practice estate planning, you must obtain a working knowledge of the Medicaid qualifying and disqualifying rules and how they impact clients and the estate plans you create for them. If you are willing to commit to this, you will not only avoid malpractice, but will create added value for clients, and new opportunities and profit for your practice.
Most estate planning attorneys agree, the need for long-term care is the greatest concern among the majority of their clients. Many attorneys unfamiliar with the application of Medicaid Laws, fluff it off and say, “You have too much money to qualify for Medicaid.“ The net worth of clients rarely alleviate their fear. Often, the typical “millionaire” has a home and $500,000 in marketable securities and/or cash. This millionaire does not feel rich and often is a typical Medicaid-planning client. For those with less, it is even more important. Recent demographics indicate there are 101 million households in the United States. Thirty-two million have $100,000.00 to $500,000.00, and Martindale-Hubbell statistic indicates of the more than one million lawyers in America, roughly 8,000 classify themselves as practicing “elder law.” If you do the math, there is one elder law attorney per 3,750 households. Assuming a planning fee of one month’s nursing home cost and an average monthly nursing home cost of $5,000, the market potential per elder law attorney practice is $18,750,000.
Recent statistics also indicate more than 6,000 men and women in the United States turn 60 every day. The aging population is putting increasing demands on our health care system. In the “old days” things were simple - you lived, then you died. The typical concern of an estate planning client was estate taxes and most concerns were resolved by drafting a Will. Today, with the proliferation of nursing homes and other long-term care facilities, and the enactment of estate Tax Reform under the Bush Administration, clients’ “worry” has shifted from taxes to long-term care. Estate planning has become more focused on clients’ lives (creating the need for trust planning) rather than their deaths (traditional Will plans). Eight out of ten individuals who come into our offices indicate loss of assets if they need nursing home care, as their number one concern. While estate planning dynamics have not changed, including clients’ need to control their property and to provide a legacy for those they leave behind, the threat to these goals has become far greater by the possibility of long-term care taking all they have worked so hard for. Estate planning today must address and resolve clients concerns regarding the need for long-term care. You cannot hide from it any more!
Medicaid Laws impact virtually every aspect of estate planning. Similar to tax law, simple things lawyers do pursuant to common law or contract law, which have been done for centuries, may, unbeknownst to the attorney, create adverse consequences in the Medicaid planning context. For example, individuals often transfer their home to their children to “protect it” from the nursing home. The truth is, in most all cases the home is exempt when determining Medicaid eligibility, but that simple transfer can create unintended adverse tax and Medicaid consequences. If the house is transferred without reserving a life estate, there is a loss in a “step-up” in basis at the client’s death and a completed gift has occurred. If it is transferred with a reserved life estate, a gift of the remainder interest has occurred without the ability to utilize the annual gift tax exemption because it is not a present-interest gift. Other adverse results include the property becoming owned by unintended beneficiaries like the spouse of a deceased child, the property being listed in a bankruptcy petition of a child or being liened by a judgment creditor of a child. While it appears to be simple on its face, the mere transfer of a home has multiple legal implications. The transfer also has significant Medicaid qualifying implications; it can disqualify an individual from Medicaid for 60 months or more.
Another significant impact Medicaid has on estate planning is its impact on trust or gift planning. Many clients believe revocable living trusts protect their assets from Medicaid. A simple rule I teach clients is “whatever you can get, Medicaid can get.“ Therefore, all assets in a revocable living trust are considered an available resource when determining Medicaid eligibility. More importantly, traditional estate planning lawyers often create an irrevocable trust granting the trustee ascertainable standards to distribute income or principal for the benefit of the grantor or spouse. While this may work for typical asset protection, there is an absolute exception in the Federal Medicaid law that treats all assets in discretionary trusts created by the applicant or spouse, an available resource when determining Medicaid eligibility. Most revocable living trusts convert to a family trust at the Grantor’s death, permitting income or principal to the spouse or other beneficiaries pursuant to ascertainable standards. This is also considered an available resource in determining the spouse’s Medicaid eligibility. Gifting also has significant ramifications. A simple gift to a child, grandchild for college, or to your church to build a new hall, can lead to disqualification for Medicaid for up to five years or more. These consequences are unlikely to be the intention of your client. The question is, are you aware of them? How can an estate planning attorney guide clients on transferring assets, creating trusts or giving gifts without being familiar with its impact on Medicaid eligibility.
-to be continued...
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