The Basics of Estate Planning
One of the main reasons people avoid estate planning is simply because they do not understand it. Most people are clueless to the benefits of having an estate planning attorney, what the process actually involves, and what the costs are. As with most things in life, understanding the process helps everyone to feel at ease. This blog will be the first in a series that will explore estates from every angle. It is probably for the best that everyone understands the unwelcome events that can occur if you pass away with a valid and enforceable Will, but without even considering an estate planning package.
Estate planning is about making decisions before a death event occurs. The politics surrounding assisted living, Medicare, and Medicaid all fall under the purview of Elder Law and Estate Planning . A will is a legal document that establishes where a person’s assets go after they die. Trusts are legal documents that establish how a person’s earnings will be distributed while they are alive. When it comes to planning what to do with one’s assets after death, one size does not fit all. Therefore, each estate plan must be customized to fit the unique needs of the client.
Smart Estate planning takes into account wills, trusts, asset protection, and public benefits such as Medicaid. This planner allows clients to lay out their estate planning wishes. Formulating an estate plan takes time and involves both the client and the attorney. In the beginning a "basic" estate plan is established. The attorney and the client agree generally on the terms of the plan, and the information is retained to start working on the specific plan.
Important Aspects of Elder Law
Elder law is a broad area of practice for an elder law attorney. At its core though, it focuses on the needs of the senior client. However, fittingly, the needs of the senior client encompass planning for lifetime concerns through will, trusts, and durable powers of attorney; as well as concerns about guardianship, Medicaid planning, and long-term care planning. It also addresses elder abuse issues whether physical, emotional, or financial. The bottom line is that an elder law attorney helps with the full range of issues that affect aging adults.
The legal aspects surrounding guardianship and conservatorship help ensure that the older adult’s assets are used for his or her benefit and not by a third party for improper purposes. Again, the elder law attorney forms an important part of a legal team of professionals who will help ensure that all of the client’s legal needs are met.
Estate Planning and Elder Law: Where They Overlap
When it comes to the intersection of estate planning and elder law, there are some strategies that maximize financial security for older individuals and reduce the risk of care programs such as Medicaid being invoked. The rules around Medicaid, for example, require that all income be paid to the beneficiary who might need care, and Medicaid often requires a "spend down" of the recipient’s assets before benefits are paid.
Estate planning and elder law can help mitigate the amount and impact of that spend down. In most cases, you can fix the issue by gifting or applying assets to a Medicaid trust, either through a will or other trust vehicle. There are ways to gradually transfer wealth by using annual exclusion gifts or by starting a custodial account. Where Medicaid is in play, you want to make sure affairs are in order well in advance as "Transfer of Wealth" is also part of the program, and you want to make sure that transfers and sales of property are part of an overall professional plan.
The timing of these transfers is critical; however, if they are considered an attempt to thwart Medicaid, they will be disallowed and the person who has to use estate planning and elder law will be punished for four months for every roughly $6,300 that is transferred to someone else. Then, for every month thereafter, a penalty will occur.
Typical Pitfalls in Estate and Elder Law Planning
One of the most common mistakes people make when they start to plan for their future needs is not following through completely. There are many people who ask for the first meeting, but never come back for the second. Or people who get a quote from an attorney, but do not follow through. Both of these groups of people will end up having some sort of emergency that they did not plan for and go to the hospital, and then the hospital will call my office and ask us to help them. Sadly, we are not miracle workers and there is only so much we can do with a person who is disabled after they get the emergency surgery and is in a Nursing Home. So this is the first major failure point I see – people delay or fail to follow through with the estate planning and elder law process. Enlist the help of a family member or trusted friend to work with you to help you carry out this trust. Then schedule a follow up meeting with the attorney to ensure that if there are any issues with your estate plan, those are handled as soon as possible.
Another mistake I see regularly is people not reviewing their estate plan every few years. This is a complicated process and many times we offer recommendations or other ways to address the situation that might be overlooked in an earlier meeting. We ask about major changes in income, but many people do not put thought into a house purchase or the fact that their spouse has changed careers until several years have gone by. So it is important to review all of your assets and any potential changes with your estate attorney. This will ensure that if the estate plan does not work the way it is supposed to work, we can offer you alternatives and help you realize that your estate plan is fine. Again, ask a family member or trusted friend to go through this process with you, so that the appropriate changes can be made in a timely manner.
A widespread issue I see is parents who are helping their children financially, but not necessarily realizing the potential impact of those actions. For example, if you are on title to an account or the deed of a house, then that asset becomes part of your estate when you pass away and is subject to long term care costs and taxes. Many times well meaning parents will gift money to their children because they do not want their children to incur any tax liability for their inheritance (recently, for example, all of the children of wealthy parents were given $15,000 per year). These accounts now become part of your estate – if you had waited until the parent passed away, then it would not have been included in that parent’s estate. Make sure you do not do anything that will result in tax liability or potential loss of Medicaid eligibility for a child, without consulting your attorney first. The law has many loopholes and ways to handle this situation. If you are on the deed to a property, make sure you do not unwittingly affect your Medicaid eligibility. If your child is capable of paying their own way, then help them in a different way. Take them out to dinner, pay for an education; there are many different options for you to help your children without doing something that will affect your own long term financial security.
How to Select the Right Attorney
When selecting an attorney to help you with your planning, it is essential to choose someone with experience in both estate planning and elder law. These are two distinct areas of the law that require separate areas of focus. However, the intersection of these two areas is the key to finding an attorney that will help you properly address some glaring issues in your planning.
Summary of the Lessons Learned in Planning for the Commonwealth Institute report – a qualified, certified elder law attorney (or CELA) can help to plan for the income tax consequences inherent in these planning strategies. By not addressing income taxation, money can be left on the table for the IRS and government. This fact alone demonstrates that you need to find an attorney either near you or one you have referred who is experienced in elder law and estate planning. Experience counts.
If you are not experienced in these areas, then how do you find someone you can trust with your time and money?
There are a couple of groups that offer a "find a qualified attorney" service. One is the National Academy of Elder Law Attorneys or (NAELA). These lawyers are elder law attorneys that have agreed to work in this specialized area of the law. They have in some cases joined a list serve to communicate and get ideas on how to handle specific elder law issues.
Another group that is really great is the American Academy of Estate Planning Counsel. This organization also represents a group of experienced lawyers who have the same standards and basic requirements. This group has a part-time employee that periodically contacts the members and checks up on them. Also this group has accountability amongst other members who also communicate and gather materials that are useful for their members. Both groups have similar training regimens that they require.
A third group which is used by many people across the country is Martindale-Hubbell Legal Network. This group has a sophisticated on-line matching service that you can access for free. You can simply list the type of services that you are looking for. You can register and then fill out a questionaire indicating your needs. It will then compare your preferences with its database and then give you a number of law firms to look at. You can sort them according to their qualifications , location, and years of experience. This is a free service and I understand the service is very good. None of us are perfect, but either of the groups above would be useful.
These groups or websites are limited to those lawyers who would be willing to participate, that is why it is important to ask about credentials.
In addition to the experience and credentials already mentioned, you want an attorney that is accessible and easy to work with. To learn more about who you’ll be dealing with, visit your prospective attorney’s website to get more information about them and their firm. Try to arrange a phone consultation before you actually visit the firm for a live consultation. You will be able to interview your lawyer and also learn about his or her professional background. Ultimately you want the attorney you choose to provide you with confidence and peace of mind.
This is a very important time for you and your family. Communication is vital to determine how much your attorney understands your issues and how much he or she will be able and willing to listen to your concerns.
Elder Law, Medicaid and Medicare
Medicaid and Medicare play a significant role in the practice of elder law. They are administered under the 1935 Social Security Act and its 1965 amendments. While Medicare is primarily a federal program, the Medicaid program is a cooperative effort between the Federal government and the 50 states and territories.
Medicaid is the most significant source of financing for long-term care. (In 2003, Medicaid finances some 40% of all nursing home care.) Medicare, a health program designed for people age 65 and older, is the second largest financing source for long-term care.
Medicaid establishes minimum eligibility standards and a variety of options that the states may employ. In reality, the criteria that define Medicaid eligibility vary dramatically from state to state. Legal aid and the national Medicaid Hotline can assist older Americans in locating local Medicaid eligibility providers.
Medicare consists of three options that relate to Medicare and long-term care: Medicare does not pay for any part of a long-term care stay in a nursing home (except when a rehabilitation service such as speech therapy is being provided). Long-term care services are generally provided in nursing homes and assisted living facilities. The primary payer for these services is Medicaid.
Medicaid generally has a five-year look-back period. For example, if you are applying for Medicaid in 2005, any transfer or gift made after 1999 may disqualify you from receiving Medicaid benefits.
Despite the look-back period, individuals usually will not be penalized for gifts or transfers to their spouses or for a home and certain other property transferred to their minor children or disabled adults who also live in the home.
Where Estate and Elder Law Will Go in the Future
Future trends in estate planning and elder law will continue to revolve around the technological landscape. While the general public may not have expected the integrated digital world we now inhabit, the legal establishment is scrambling to keep up with the pace.
We expect that technology will come to the professional rescue of the estate planner and elder law practitioners. Software to assist lawyers with business development has already become commonplace; we also see websites serving the legal community as well as the general public throughout our industry. For example Martindale-Hubbell has long been a staple. Now Avvo has expanded its reach well beyond the strictly legal to include the personal services realm.
The coming decade will house new and old legal paradigms which defy categorization. Estate planning attorneys and elder law practitioners have long and strong bedrock communities . But within the coming years, the overseers and stakeholders in this practice field may well overturn the apple cart. Will we be faced with the challenge of following law as it migrates from one state and jurisdiction to another, millions of times over?
The U.S. Treasury Department has recently called for the Estates and Trusts Tax changes, among other interesting proposals. With more artificial intelligence and software products entering the marketplace, will this lead to over or under-reliance on the attorney? Will we see more Probate and Trust litigation as the opacity increases and abuses occur? Will our courts be able to keep up with the increased demand for their service and time?
Each day tasks and practices sprout forth in and around the estate planning and elder law field. Practitioners face new pressures, stimulating competition and a constant cycle of evolution. But steady hands and steady minds will continue to steer clients through the murky waters they must traverse.